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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended January 29, 1999
Commission file number 0-4769
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 Number)
104 WOODMONT BOULEVARD
SUITE 500
NASHVILLE, TENNESSEE 37205
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (615) 783-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of the Exchange on
Title of Class which Registered
-------------- ----------------
Common Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ( )
Aggregate market value of the voting stock held by non-affiliates of
the Registrant as of April 1, 1999 was $6,883,488,838 based upon the last
reported sale price on such date by the New York Stock Exchange.
The number of shares of common stock outstanding on April 1, 1999 was
210,832,238.
Documents Incorporated by Reference
Document Where Incorporated in Form of 10-K
- -------- ----------------------------------
Portions of the Registrant's
Proxy Statement Relating to the
Annual Meeting of Shareholders
to be held on June 7, 1999
Throughout this report, "2000" refers to the fiscal year ended January 26, 2001
"1999" refers to the fiscal year ended January 28, 2000, "1998" refers to the
fiscal year ended January 29, 1999, "1997" refers to the fiscal year ended
January 30, 1998, and "1996" refers to the fiscal year ended January 31, 1997.
PART I
ITEM 1. BUSINESS
General
Dollar General Corporation (the "Company" or "Dollar General") is a
discount retailer of quality general merchandise at everyday low prices. Through
conveniently located stores, the Company offers a focused assortment of
consumable basic merchandise including health and beauty aids, packaged food
products, cleaning supplies, housewares, stationery, seasonal goods, basic
apparel and domestics. During 1998, hardline and softline merchandise accounted
for 82% and 18% of net sales, respectively. Through convenient neighborhood
locations, Dollar General Stores serve primarily low, middle and fixed income
families. As of January 29, 1999, the Company operated 3,687 stores located in
24 states, primarily in the midwestern and southeastern United States.
The Company opened its first Dollar General Store in 1955. During the
last five years, the Company has experienced a rapid rate of expansion. Dollar
General grew from 1,800 stores with an estimated 10,724,000 selling square feet
at January 31, 1994, to 3,687 stores with an estimated 23,719,000 selling square
feet at January 29, 1999. In addition to growth from new store openings, the
Company recorded same-store sales increases in 1996, 1997 and 1998 of 8.2%, 8.4%
and 8.3%, respectively. For the years 1994 through 1998, the Company had a
compound annual growth rate in net sales, operating income and net income of
23.3%, 29.7% and 30.7%, respectively. Management believes that the Company has
the potential to significantly expand its existing store base within the 24
states in which it currently operates. In 1999, the Company plans to open
approximately 575 to 600 new stores.
Business Strategy
The Company's mission is "SERVING OTHERS! A Better Life . . . for our
Customers. A Superior Investment . . . for our Shareholders. A Partnership in
Total Development . . . with our Employees." In order to carry out its mission,
the Company has developed a business strategy which includes the following
principal elements:
Focus on Low, Middle and Fixed Income Customers. The Company seeks to
serve the consumable basic merchandise needs of low, middle and fixed income
customers. The Company's typical customer is a female living in a household of
three to four individuals with a household income of less than $25,000 per year.
According to the U.S. Bureau of the Census, 34% of U.S. household incomes for
the year 1997 were under $25,000(median income and income level by household
type.)
"Convenience Discount Store" Format. Dollar General Stores average
6,400 selling square feet and are usually located within three to five miles of
customers' homes. This appeals to the Company's target customers, many of whom
prefer the convenience of a small, neighborhood store. This "convenience
discount store" format has become even more appealing to a wider range of
consumers as many discounters have focused their efforts on building
increasingly larger stores outside of towns making their stores less accessible
and convenient for the Company's target customers.
Focused Assortment of Consumable Basic Merchandise. The Company is
committed to offering a focused assortment of quality, consumable basic
merchandise in a number of core categories. The Company offers such basic
merchandise as health and beauty aids, packaged food products, cleaning
supplies, housewares, stationery, seasonal goods, basic apparel and domestics.
In 1998, hardline merchandise represented 82% of net sales. Approximately 97% of
net sales in 1998 consisted of first-run merchandise, with the remainder
consisting of manufacturers' overruns and closeouts. In 1998, the average
customer transaction was approximately $8. By consistently offering a focused
assortment of consumable basic
merchandise, the Company encourages customers to shop Dollar General Stores for
their everyday household needs, leading to frequent customer visits.
Everyday Low Prices. The Company's distributes quality, consumable
basic merchandise at everyday low prices. The Company's low cost operating
structure and focused assortment of merchandise allow it to offer quality
merchandise with compelling value. The Company emphasizes even-dollar price
points. The majority of products are priced at $10 or less, with nearly 50% of
the products priced at $1 or less. The most expensive items are generally priced
at $35.
Low Operating Costs. The Company maintains strict overhead cost
controls and seeks to locate stores in neighborhoods where store rental and
operating costs are low. The Company continues to utilize new technology, when
cost effective, in order to improve operating efficiencies. As a result of these
initiatives, selling, general and administrative ("SG&A") expenses, as a
percentage of net sales, declined to 19.1% in 1998, from 21.7% in 1993.
Growth Strategy
Management believes that future growth will come from a combination of
merchandising initiatives, new store growth and infrastructure leverage.
Merchandising Initiatives. The Company continually evaluates its
merchandise mix. In July 1998, the Company rolled out a series of
family-oriented basic apparel programs to its stores. These programs included
items such as jeans, khakis, T-shirts and knit shirts for men, women and
children at prices of $10 or less. These programs increased the selection of
quality basic apparel without increasing the square footage allocation of
softline merchandise. Management expects these programs may shift the Company's
sales mix slightly toward more softlines in 1999.
For the years 1993 through 1996, net sales by product category shifted
from 65% hardlines/35% softlines to 75% hardlines/25% softlines. In response to
this shift in customer preference, in 1997 the Company added 700 new,
faster-turning consumable items to the product mix. The Company also converted
stores to a new prototype with a space allocation of 65% hardlines/35%
softlines, compared with a 50%/50% allocation in 1996. As a result, in 1997 the
Company's sales mix further shifted toward hardlines (82% hardlines/18%
softlines). The sales mix remained consistent at 82% hardlines/18% softlines in
1998.
The Company will continue to evaluate the performance of its products
in 1999 making changes where appropriate. Management believes these initiatives
have contributed and will continue to contribute to same-store net sales
increases.
New Store Growth. The Company believes its "convenience discount store"
format is portable to towns and neighborhoods throughout the country. The
Company currently serves more than 1,800 communities with populations of less
than 25,000. According to the U.S. Bureau of the Census, there are approximately
18,000 such communities in the United States. The Company will continue to focus
on towns and neighborhoods within its current 24-state market area, where
management believes that the Company has the potential to significantly expand
its store base. In 1999, the Company plans to open 575 to 600 new stores and
relocate an additional 200 to 250 stores. By opening new stores in its existing
24-state market area, the Company leverages brand awareness and takes advantage
of operating efficiencies. In addition, the Company expects to explore the
potential for geographic expansion as opportunities present themselves.
Currently, the Company targets an annual new store growth rate of approximately
15% for the next several years.
Leverage Infrastructure to Improve Margins. As the Company has
increased its sales and leveraged its infrastructure, SG&A expenses, as a
percentage of net sales, have declined to 19.1% in 1998, from 21.7% in 1993. The
Company continues to make significant investments in infrastructure. Management
believes that these investments will enable the Company to continue to
aggressively grow its store base while further improving its operating margins.
The Company realizes significant cost efficiencies by locating stores in close
proximity to distribution centers ("DC"). Dollar General reduces distribution
expenses as a percentage of net sales and improves in-stock positions in its
stores by having sophisticated and well-located distribution centers. During the
next 18 months, the Company plans to add two additional distribution centers,
including the Fulton, Missouri DC which is scheduled to open in the third
quarter of 1999 and the Alachua,
Florida DC which is scheduled to open in the first quarter of 2000. The Company
completed expansion of the South Boston, Virginia DC in the first quarter of
1999 and plans to complete expansion of the Ardmore, Oklahoma DC in the second
quarter of 1999.
Merchandise
Dollar General Stores offer a focused assortment of quality, consumable
basic merchandise in a number of core categories. In 1998, national brand
merchandise represented more than 35% of net sales, while manufacturers'
overruns and closeouts represented less than 3% of net sales.
The Company believes that its merchandising strategy generates frequent
repeat customer traffic. The Company is able to offer everyday low prices to its
customers in large part because its buying staff negotiates low purchase prices
from suppliers. The Company purchases its merchandise from a wide variety of
suppliers, with no supplier accounting for more than 6% of the Company's
purchases during 1998.
In order to fulfill the Company's commitment to maintain high in-stock
levels of core merchandise, the Company generally limits its stock keeping units
("SKUs") per store to approximately 3,200 items. The majority of items are
priced at $1 and in increments of $1, with the most expensive items generally
priced at $35. The Company believes even-dollar pricing more easily demonstrates
value to the customer and disciplines its merchants to continually negotiate
purchase prices that conform to a limited number of retail price points. The
Company believes the risk of inventory obsolescence is low because it offers
quality, consumable basic merchandise. The Company regularly reviews its
inventory to identify aged merchandise and sells it at reduced prices to remove
it from inventory.
Dollar General Stores receive merchandise shipments weekly from Company
distribution centers. See "Item 2. -- Properties."
The Dollar General Store
The typical Dollar General Store has approximately 6,400 square feet of
selling space and is operated by a manager, an assistant manager and two or more
sales clerks. Approximately 75% of the Dollar General Stores are in communities
with populations of less than 25,000. As of January 29, 1999, 67% of stores were
located in strip shopping centers, 18% were freestanding buildings and 15% were
in downtown store buildings. The Company generally has not encountered
difficulty locating suitable store sites in the past, and the Company does not
anticipate experiencing difficulty in finding suitable locations in the future.
The Company's recent store growth is summarized in the following table:
Stores at Net
Beginning Stores Stores Stores Stores at
Year of Year Opened Closed Opened Year End
---- ------- ------ ------ ------ --------
1996 2,416 360 42 318 2,734
1997 2,734 468 33 435 3,169
1998 3,169 551 33 518 3,687
Employees
At March 31, 1999, the Company and its subsidiaries employed
approximately 29,820 full-time and part-time employees, including regional
managers, district managers, store managers, and distribution center and
administrative personnel, compared with approximately 27,400 at March 31, 1998.
The Company believes its relationship with its employees is good.
Competition
The Company is engaged in a highly competitive business. The Company
competes with discount stores and with many other retailers including mass
merchandise, grocery, drug, convenience, variety and other specialty stores.
Some of the largest retail companies in
4
the nation have stores in some of the areas where the Company operates.
Management believes that the Company competes primarily by offering quality,
consumable basic merchandise at everyday low prices.
Executive Officers of the Company
The Company's executive officers as of April 16, 1999, are:
Executive
Officer
Name Age Position Since
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Cal Turner, Jr. 59 Chairman, President 1966
and Chief Executive Officer
Brian M. Burr 42 Executive Vice President, 1998
Chief Financial Officer
Bob Carpenter 51 Executive Vice President, 1981
Chief Administrative Officer
Mike Ennis 45 Senior Vice President, 1988
Company Growth and Development
Troy Fellers 57 Vice President, 1991
Distribution
Tom Hartshorn 48 Vice President, 1992
Merchandising Operations
Holger Jensen 52 Vice President, 1994
Information Services
Susan Milana 49 Vice President, 1997
Human Resources and
Employee Support Services
Stonie O'Briant 44 Senior Vice President, 1995
Merchandising
Randy Sanderson 44 Vice President, 1996
Controller
Jeff Sims 48 Vice President, 1999
Distribution and Logistics
Leigh Stelmach 59 Executive Vice President, 1989
Operations
Robert Warner 49 Vice President, 1998
General Merchandising Manager
Earl Weissert 53 Executive Vice President, 1999
Operations
All executive officers of the Company serve at the pleasure of the
Board of Directors. Messrs. Turner, Carpenter, Ennis, Fellers, Hartshorn, Jensen
and Stelmach have been employed by the Company as executive officers for more
than the past five years.
The following is a brief summary of the business experience of the executive
officers:
Mr. Turner joined the Company in 1965 and was elected President, Chief Executive
Officer in 1977. Mr. Turner has served as Chairman of the Board since January
1989.
Mr. Burr joined the Company as Executive Vice President in August 1998 and was
promoted to Chief Financial Officer in April 1999. Before joining the Company,
Mr. Burr served as President of Upper Deck Companies, a sports trading card and
memorabilia company. Mr. Burr joined Upper Deck in 1990 and served as Senior
Vice President of Operations before becoming President in 1994.
Mr. Carpenter currently serves as Executive Vice President, Chief Administrative
Officer. He joined the Company in 1981 as Vice President, Administration and
General Counsel. From 1987 to 1993, Mr. Carpenter served as Vice President,
Administration, Chief Counsel and Corporate Secretary. Mr. Carpenter was named
Vice President and Chief Administrative Officer in 1993 and Executive Vice
President in 1998.
Mr. Ennis was named Senior Vice President, Company Growth and Development in
1998. Mr. Ennis joined the Company as Vice President, Merchandising in 1988 and
was named Vice President, Merchandising Operations in 1993, and was named Vice
President Real Estate and Store Development in 1996.
Mr. Fellers was named Vice President, Distribution in March 1991. He joined the
Company in 1989 as Director of Distribution. Before joining the Company, he was
general manager of distribution for McCrory/TG&Y, where he had held various
distribution management positions since 1967.
Mr. Hartshorn joined the Company as Vice President, Operations in 1992 and was
named Vice President, Merchandising Operations in 1993. Before joining the
Company, he was director of store operations for McCrory/TG&Y where he held
various management positions in operations since 1968.
Mr. Jensen joined the Company in his current capacity, Vice President,
Information Services, in 1994. Before joining the Company, he served as Vice
President of Management Information Systems for OW Office Warehouse, Inc., an
office supply retailer, from 1991 until 1994.
Ms. Milana joined the Company as Vice President, Human Resources and Employee
Support Services in October 1997. Before joining the Company, Ms. Milana served
for four years with PepsiCo, Inc. in various positions including Vice President
of Staffing, Career Development and Diversity.
Mr. O'Briant was named Senior Vice President, Merchandising in 1998. Mr.
O'Briant joined the Company in 1991 as Hardlines Merchandise Manager, in 1992
was named General Merchandise Manager, and named Vice President, Merchandising
in 1995. Before joining Dollar General, Mr. O'Briant spent 17 years with Fred's,
Inc. where he served in a number of executive management positions including
Vice President, Hardlines, Vice President, Softlines and Vice President,
Household Goods.
Mr. Sanderson joined the Company in November 1996 as Vice President, Controller.
Before November 1996, he served as Vice President and Controller of Famous-Barr,
a division of the May Department Stores Company. During his 23-year career with
the May Department Stores Company, Mr. Sanderson had responsibility for a
variety of financial and accounting functions at both the corporate and
operating division level.
Mr. Sims joined the Company in March 1999 as Vice President, Distribution and
Logistics. Before joining the Company, Mr. Sims served with Hills Department
Stores, a mass merchandising company, in various management positions including
Senior Vice President, Logistics from 1997 to 1999. From 1995 to 1996, Mr. Sims
served as Vice President, Logistics for Thorn Services International, a
rent-to-own services company. From 1992 to 1994, Mr. Sims served as Vice
President, Logistics for Lesco, Inc., a manufacturer and distributor of
industrial products.
Mr. Stelmach joined the Company in 1989 as Vice President, Merchandising/
Operations and was named Executive Vice President, Operations in 1993. Before
joining the Company, Mr. Stelmach was President of Fred's Store in Memphis,
Tennessee for two years, and he was senior vice president of merchandising for
Howard Brothers Discount in Monroe, Louisiana for two years. He was also in
distribution and store operations for the Target Stores for 15 years.
Mr. Warner was named Vice President, General Merchandising Manager in November
1998. Mr. Warner joined the Company in 1989 as a hardware buyer. Mr. Warner has
held various management positions with the Company including Hardlines
Divisional Merchandise Manager, Director or Products and Processes, and General
Merchandise Manager. Mr. Weissert joined the Company as Executive Vice
President, Operations in April 1999. Before joining the Company, Mr. Weissert
served as Senior Vice President, Store Operations/Pharmacy for Zeller's Discount
Stores, a mass merchandising company.
Mr. Weissert joined Zeller's Discount Stores as Vice President, Store Operations
in 1997 and was named Senior Vice President in 1998. Mr. Weissert served
Montgomery Ward, a mass merchandising company, as Regional Vice President from
1995 to 1996 and as Executive Vice President from 1996 to 1997. Mr. Weissert
also served in various management positions with F&M Distributors, a discount
merchandising company from 1986 to 1995.
ITEM 2. PROPERTIES
As of January 29, 1999, the Company operated 3,687 retail stores located in 24 states. The following table sets forth the
number of stores located in each state:
State Number of Stores State Number of Stores
- ------------------------------------------------------------------------------------------------------------------------------------
Alabama 163 Mississippi 181
Arkansas 132 Missouri 108
Delaware 11 Nebraska 25
Florida 211 North Carolina 174
Georgia 179 Ohio 187
Illinois 185 Oklahoma 170
Indiana 184 Pennsylvania 146
Iowa 73 South Carolina 116
Kansas 85 Tennessee 239
Kentucky 183 Texas 504
Louisiana 128 Virginia 178
Maryland 40 West Virginia 85
Substantially all of the Company's stores are located in leased
premises. Individual store leases vary as to their terms, rental provisions and
expiration dates. In 1998, the Company's aggregate store rental expense was
approximately $104.0 million, or an average of $4.38 per square foot of selling
space. The Company's policy is to negotiate low-cost, short-term leases (usually
three to five years) with multiple renewal options when available.
The Company's distribution centers serve Dollar General Stores as
described in the following tables:
As of January 29,1999
Square Stores
Location Footage Served
- ----------------------------------------------------------------------------------------------------------------
Indianola, Mississippi 826,000 503
Scottsville, Kentucky 782,000 643
Ardmore, Oklahoma 760,000 909
South Boston, Virginia 718,000 945
Villa Rica, Georgia (a) 600,000 N/A
Homerville, Georgia 510,000 687
- ----------------------------------------------------------------------------------------------------------------
Total 4,196,000 3,687
- ----------------------------------------------------------------------------------------------------------------
(a) Provides the initial stocking of new stores.
Additional Construction
Planned Scheduled
Square Completion
Location Footage Date
- ----------------------------------------------------------------------------------------------------------------
Alachua, Florida 1,200,000 1st Qtr 2000
Fulton, Missouri 1,100,000 3rd Qtr 1999
South Boston, Virginia expansion 484,000 1st Qtr 1999
Ardmore, Oklahoma expansion 450,000 2nd Qtr 1999
- ----------------------------------------------------------------------------------------------------------------
Total 3,234,000
- ----------------------------------------------------------------------------------------------------------------
Total capacity after construction 7,430,000
- ----------------------------------------------------------------------------------------------------------------
The Company owns the DCs located in Scottsville, Kentucky, Ardmore,
Oklahoma and Homerville, Georgia. The Company leases the DCs at South Boston,
Virginia, Indianola, Mississippi and Fulton, Missouri pursuant to five year
leases with renewable lease options. The Company plans to complete the sale
leaseback transaction on the Ardmore, Oklahoma DC during the second quarter of
1999.
The Company's executive offices are located in approximately 60,000
square feet of leased space in Goodlettsville, Tennessee and 30,000 square feet
of leased space in Nashville, Tennessee. During October 1997, construction began
on the Company's new administrative office complex located in Goodlettsville,
Tennessee. The Company intends to consolidate administrative operations
currently located in its Scottsville, Kentucky, Goodlettsville, Tennessee and
Nashville, Tennessee offices into the new facility. The new facility will
consist of an aggregate of 300,000 square feet of which 200,000 square feet is
scheduled to be completed in the third quarter of 1999. The Goodlettsville
office complex will be approximately 20 miles from the current Nashville office
and approximately 50 miles from the current Scottsville office.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or
any of its subsidiaries is a party, or to which any of its property is subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to shareholders during the fourth quarter
ended January 29, 1999.
PART II
5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange
under the symbol "DG." The following table sets forth the range of the high and
low sale prices of the Company's common stock during each quarter in the two
most recent fiscal years as reported on the New York Stock Exchange. Prices have
been restated to reflect the five-for-four common stock splits distributed on
March 23, 1998 and September 21, 1998. All dividends and prices have been
rounded to the nearest cent.
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------------
High $32.10 $37.80 $32.95 $26.88
Low 23.36 29.40 20.00 22.00
Dividend as declared .04 .03 .03 .03
Dividend as adjusted .03 .03 .03 .03
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter
- ------------------------------------------------------------------------------------------------------------------------------------
High $18.10 $23.70 $24.60 $25.60
Low 13.40 14.80 18.40 19.60
Dividend as declared .05 .04 .04 .04
Dividend as adjusted .03 .03 .03 .03
The approximate number of record holders of the Company's common stock as
of April 12, 1999, was 5,321. The Company has paid cash dividends on its common
stock since 1975. The Board of Directors regularly reviews the Company's
dividend policy to ensure that it is consistent with the Company's earnings
performance, financial condition and need for capital and other relevant
factors.
ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except share, per share and operating data)
January January January January January
29, 1999 30, 1998 31, 1997 31, 1996 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS:
Net sales $3,220,989 $2,627,325 $2,134,398 $1,764,188 $1,448,609
Gross profit $ 905,877 $ 742,135 $ 604,795 $ 503,619 $ 420,679
Income before taxes on income $ 280,915 $ 231,779 $ 185,017 $ 141,546 $ 118,288
Net income $ 182,033 $ 144,628 $ 115,100 $ 87,818 $ 73,634
Net income as a % of sales 5.7 5.5 5.4 5.0 5.1
- ------------------------------------------------------------------------------------------------------------------------------------
PER DILUTED SHARE RESULTS:
Net income (a) $ 0.85 $ 0.67 $ 0.53 $ 0.41 $ 0.35
- ------------------------------------------------------------------------------------------------------------------------------------
Cash dividends per
share of common stock(a) $ 0.13 $ 0.10 $ 0.08 $ 0.07 $ 0.05
Weighted average diluted
shares (a) 214,719 214,363 215,266 214,109 210,599
FINANCIAL POSITION:
Assets $1,211,784 $ 914,838 $ 718,147 $ 679,996 $ 540,868
Long-term obligations $ 786 $ 1,294 $ 2,582 $ 3,278 $ 4,767
Shareholders' equity $ 725,761 $ 583,896 $ 485,529 $ 420,011 $ 323,756
Return on avg. assets % 17.1 17.7 16.5 14.4 15.7
Return on avg. equity % 27.8 27.0 25.4 23.6 26.1
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING DATA:
Retail stores at end of period 3,687 3,169 2,734 2,416 2,059
Year-end selling square feet (000) 23,719 20,112 17,480 15,302 12,726
Hardlines sales % 82 82 75 70 66
Softlines sales % 18 18 25 30 34
- ------------------------------------------------------------------------------------------------------------------------------------
(a) As adjusted to give retroactive effect to all common stock splits.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion and analysis contains historical and forward-looking
information. The forward-looking statements are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. The Company
believes the assumptions underlying these forward-looking statements are
reasonable; however, any of the assumptions could be inaccurate, and therefore,
actual results may differ materially from those projected in the forward-looking
statements due to certain risks and uncertainties, including, but not limited
to, general transportation and distribution delays or interruptions, inventory
risks due to shifts in market demand, changes in product mix, interruptions in
suppliers' business, costs and delays associated with building, opening and
operating new distribution centers ("DC's") and stores, and year 2000 compliance
issues. The Company undertakes no obligation to publicly release any revisions
to any forward-looking statements contained herein to reflect events or
circumstances occurring after the date of this report or to reflect the
occurrence of unanticipated events.
The following text contains references to years "2000", "1999", "1998",
"1997" and "1996" which represent fiscal years ending January 26, 2001, January
28, 2000, January 29, 1999, January 30, 1998 and January 31, 1997, respectively.
This discussion and analysis should be read with, and is qualified in its
entirety by, the consolidated financial statements and the notes thereto.
General
During 1998, Dollar General achieved record sales and earnings and
continued its rapid pace of new store openings. In addition, the Company lowered
its selling, general and administrative expense, as a percentage of net sales,
for the ninth consecutive year. Despite the start-up costs associated with
opening new stores and store remodeling costs associated with the Company's
addition of its new basic-apparel program, the Company increased earnings per
diluted share by more than 20% for the third consecutive year. From 1994 through
1998, the Company had a compound annual growth rate of 23.3% in net sales and
30.7% in net income.
For the eleventh consecutive year, the Company increased its total
number of store units. The Company opened 551 new stores in 1998, compared with
468 in 1997 and 360 in 1996. In 1998, the Company remodeled or relocated 351
stores, compared with 195 in 1997 and 168 in 1996. During the last three years,
the Company opened, remodeled or relocated 2,093 stores, accounting for
approximately 57% of the total stores at January 29, 1999. The three states in
which the greatest number of new stores were opened during 1998 were Texas,
North Carolina and Georgia. The Company ended the year with 3,687 stores.
The 1998 new stores and relocations, net of 33 closed stores, added an
aggregate of approximately 3,600,000 selling square feet to the Company's total
sales space, providing the Company with an aggregate of approximately 23,700,000
selling square feet at the end of the year. The average store measured
approximately 6,400 selling square feet in 1998, 1997 and 1996. In 1998, the
size of the average new store increased to approximately 6,900 selling square
feet from 6,200 in 1997 and 1996. This increase reflects the Company's focus in
1998 on opening stores with a minimum of 6,300 selling square feet.
In 1998, the Company introduced a new preferred development program to
support continued new store growth. This program enables the Company to partner
with established development firms to build stores in markets where existing,
acceptable
retail space is unavailable. In 1998, the Company opened 50 new stores through
this program. In 1999, the Company plans to expand this program and open
approximately 200 preferred development stores. The size of these stores will
average approximately 8,100 selling square feet.
Within its current 24-state market, the Company anticipates opening 550
to 575 new stores, net of closed stores, in addition to relocating approximately
200 to 250 existing stores in 1999. The Company will continue to focus on (a)
opening stores within 200 miles of a distribution center; (b) opening stores
with a minimum of 6,300 selling square feet and expanding the preferred
development program; and (c) relocating stores with less than 5,500 selling
square feet. In 1999, management expects the new store average square feet to
continue to increase slightly.
The Company's sales mix remained consistent at 82% hardlines/18%
softlines for 1998 and 1997, compared with 75% hardlines/25% softlines in 1996.
The space allocation of hardlines to softlines in the current store prototype
also remained consistent at 65%/35% in 1998 and 1997, compared with the 50%/50%
allocation in 1996. In July 1998, the Company rolled out a new basic apparel
program in a full range of sizes for the entire family. This program increased
the selection of quality basic apparel without increasing the square footage
allocation of softline merchandise. Management expects that this program may
shift the Company's sales mix slightly toward more softlines in 1999. The
Company will continue to evaluate the performance of its products in 1999 making
changes where appropriate. However, management does not anticipate the sales mix
or space allocation to change significantly as a result of any such changes.
In the second quarter of 1998, the Company opened its fifth
distribution center, an 826,000 square foot facility located in Indianola,
Mississippi. This opening was achieved with minimal disruption to the flow of
merchandise to stores. In July 1998, the Company leased and opened its sixth
distribution center, a 600,000 square foot facility located in Villa Rica,
Georgia. This facility is dedicated to serving the initial stocking needs of new
stores.
In the first quarter of 1999, the Company completed a 484,000 square
foot expansion of its South Boston, Virginia DC. In the second quarter of 1999,
the Company plans to complete a 450,000 square foot expansion of its Ardmore,
Oklahoma DC. In addition, the Company plans to open a seventh distribution
center in Fulton, Missouri in the third quarter of 1999. Continuing to support
its rapidly growing store base and improving distribution efficiencies, the
Company anticipates opening its eighth distribution center in Alachua, Florida
in the first quarter of 2000. Management believes the additional distribution
capacity will continue to reduce the need for outside warehouses during peak,
seasonal shipping periods and will accommodate planned store growth.
In 1998, the Company installed a new general ledger system and
implemented electronic data interchange purchase ordering with approximately 600
core vendors. Among other planned technology advancements for 1999, the Company
will implement a new distribution center merchandise replenishment system,
expand its electronic data interchange capabilities and install a new
transportation management system which will improve the routing efficiencies of
its transportation network.
Results of Operations
Net Sales. Net sales totaled $3.22 billion for 1998, $2.63 billion for
1997 and $2.13 billion for 1996. These totals represent annual increases of
22.6% in 1998, 23.1% in 1997 and 21.0% in 1996. These increases resulted from
518 net new stores and a same-store net sales increase of 8.3% for the 52-week
period ending January 29, 1999; 435 net new stores and a same-store net sales
increase of 8.4% in 1997; and 318 net new stores and a same-store net sales
increase of 8.2% in 1996. The Company defines same-stores as those stores which
were opened before the beginning of the prior fiscal year and which have
remained open throughout both the prior and current fiscal years.
Gross Profit. Gross profit for 1998 was $905.9 million compared with
$742.1 million in 1997 and $604.8 million in 1996. Gross profit, as a percentage
of net sales, was 28.1% for 1998 compared with 28.3% for 1997 and 1996. The 1998
result reflects an increase in inventory shrinkage, as a percentage of net
sales, offset slightly by reduced distribution expense, as a percentage of net
sales, and higher initial mark-up. In 1998, inventory shrinkage was 2.5% of net
sales compared with 2.2% in 1997 and 2.7% in 1996. Management believes that the
Company's continuing focus on delivering the lowest possible price to its
customers will result in gross profit, as a percentage of net sales, to decline
slightly in 1999.
Selling, General and Administrative Expense. For the ninth consecutive
year, the Company reduced its selling, general and administrative ("SG&A")
expense, as a percentage of net sales, to 19.1% in 1998, compared with 19.3% in
1997 and 19.4% in 1996. SG&A expense for 1998 was $616.6 million, compared with
$506.6 million in 1997 and $415.1 million in 1996. In 1998, the lower SG&A
expense, as a percentage of net sales, resulted primarily from (a) lower
advertising costs through the elimination of the December direct-mail circular
and (b) lower employee incentive compensation offset slightly by an increase in
workers' compensation expense. All other expense categories remained relatively
flat, as a percent of net sales.
Interest Expense. In 1998, interest expense was $8.3 million, compared
with $3.8 million in 1997 and $4.7 million in 1996. The increased interest
expense in 1998 resulted primarily from increased short-term borrowings used to
finance the increased inventory required to supply two new distribution centers
and 518 net new stores, and from the timing of the Company's repurchase of
common stock. Daily average total debt outstanding equaled $153.2 million during
1998, compared with $74.8 million in 1997 and $88.0 million in 1996.
Provision for Taxes on Income. The effective income tax rates for 1998,
1997 and 1996 were 35.2%, 37.6% and 37.8%, respectively. The 1998 effective tax
rate decreased as a result of effective tax planning strategies. Management
expects the effective tax rate in 1999 to increase to 36.5%.
Net Income. For the third consecutive year, the Company increased net
income by more than 20%. In 1998, net income totaled $182.0 million (25.9%
increase), compared with $144.6 million (25.6% increase) in 1997 and $115.1
million (31.1% increase) in 1996.
Return on Equity and Assets. The ratio of net income to average
shareholders' equity was 27.8% in 1998, compared with 27.0% in 1997 and 25.4% in
1996. Return on average assets was 17.1% in 1998, compared with 17.7% in 1997
and 16.5% in 1996.
Liquidity and Capital Resources
Working Capital. Working capital increased to $423.8 million in 1998,
compared with $359.0 million in 1997 and $280.1 million in 1996, or an increase
of 18.1% in 1998, 28.2% in 1997 and 6.7% in 1996. The ratio of current assets to
current liabilities (current ratio) was 1.9 in 1998, compared with 2.2 in 1997
and 1996.
Cash Flows from Operating Activities. Net cash provided by operating
activities was $218.6 million in 1998, compared with $139.1 million in 1997 and
$170.1 million in 1996. In 1998, the cash generated from net income before
depreciation and deferred taxes was offset partially by the increased inventory
levels required to stock the Indianola, Mississippi and Villa Rica, Georgia DCs,
the 518 net new stores and the new basic apparel program.
In 1997, the cash generated from net income before depreciation and
deferred taxes was offset partially by increased inventory levels required to
stock the South Boston, Virginia DC and 435 net new stores.
Cash Flows from Investing Activities. Capital expenditures in 1998
totaled $140.3 million, compared with $107.7 million in 1997 and $84.4 million
in 1996. The Company opened 551 new stores and relocated or remodeled 351 stores
at a cost of $61.6 million in 1998. Capital expenditures during 1997 and 1996
for new, relocated and remodeled stores totaled $39.4 million and $27.0 million,
respectively.
Distribution-related capital expenditures totaled $45.9 million in 1998
resulting primarily from costs associated with the 484,000 square foot expansion
of the South Boston, Virginia DC and the purchase of new trailers. In 1997, the
Company spent $26.2 million primarily on costs associated with the expansion of
the
Scottsville, Kentucky DC and the purchase of new trailers. In 1996, the Company
spent $38.6 million primarily on costs associated with the construction of the
South Boston, Virginia DC.
During 1998, the Company entered into agreements to sell and leaseback
the Ardmore, Oklahoma DC (including the expansion) and the expansion of the
South Boston, Virginia DC. The Company received cash advances on these sales
prior to year end which are included in accrued expenses as of January 29, 1999.
Upon completion of the construction of these expansions, the Company will record
the sales of these properties.
Capital expenditures during 1999 are projected to be approximately $120
million. This includes approximately $65 million for new stores, relocations and
remodels; approximately $20 million for expansion of the Ardmore DC; and
approximately $20 million for transportation equipment and logistics technology.
The Company believes that its capital expenditure requirements in 1999 will be
met through internally generated funds.
Cash Flows from Financing Activities. Total debt at January 29, 1999
(including current maturities and short-term borrowings) was $1.5 million,
compared with $24.7 million in 1997 and $43.1 million in 1996. Long-term debt at
January 29, 1999 was $0.8 million, compared with $1.3 million for 1997 and $2.6
million for 1996. The ratio of total debt (including current maturities and
short-term borrowings) to equity was 0.2% at January 29, 1999, compared with
4.2% at January 30, 1998, and 8.9% at January 31, 1997. Although the average
daily short-term debt increased to $153.2 million in 1998, compared with $74.8
million in 1997 and $88.0 million in 1996, the Company was able to pay off all
short-term borrowings at year-end with internally generated funds.
Because of the significant impact of seasonal buying (e.g., Spring and
December holiday purchases), the Company's working capital requirements vary
significantly during the year. These working capital requirements were financed
by short-term borrowings under the Company's $175 million revolving credit/term
loan agreement and seasonal bank lines of credit totaling $165 million at
January 29, 1999. The Company's maximum outstanding short-term indebtedness in
1998 was $312.6 million in October 1998, compared with $196.1 million in
November 1997. Seasonal bank lines of credit are subject to renewal on various
dates throughout 1999, and the Company currently anticipates these agreements
will be renewed. Management believes the existing revolving credit/term loan and
seasonal bank lines will be sufficient to fund its working capital requirements
and other general corporate needs in 1999.
In addition, the Company has a $225 million leveraged lease facility
which funds the construction of new stores, new DCs, and a new corporate
headquarters. As of January 29, 1999, approximately $143 million of construction
costs had been funded under this facility including: approximately $50 million
for the construction of new stores; approximately $44 million for the Indianola,
Mississippi DC; approximately $32 million for the Fulton, Missouri DC; and
approximately $20 million for the corporate headquarters.
In 1998, the Company repurchased 2,496,625 shares of common stock,
after giving effect to the five-for-four stock splits distributed on March 23,
1998, and September 21, 1998, at an average cost of $29.33 per share. Under the
current authorization from the Board of Directors, the Company can repurchase
approximately 3.7 million additional shares.
Market Risk
The Company is subject to market risk from exposure to changes in
interest rates based on its financing, investing and cash management activities.
The Company utilizes a credit facility to fund seasonal working capital
requirements which is comprised primarily of variable rate debt.
Effects of Inflation and Changing Prices
The Company believes that inflation and/or deflation had a minimal
impact on its overall operations during 1998, 1997 and 1996. In particular, the
effect of deflation on cost of goods sold has been minimal as reflected by the
small decline in LIFO reserves in 1998, 1997 and 1996.
Accounting Pronouncements
The Company will adopt Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
for the fiscal year ending January 26, 2001. The Company is in the process of
analyzing the impact of the adoption of this Statement.
The Company will adopt Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use," and
Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities," for
the year ending January 28, 2000. Management does not believe adoption of these
Statements will have a significant impact on the Company's financial reporting.
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," during the year ended January 29, 1999. See
Note 10 to the Consolidated Financial Statements appearing elsewhere in this
report.
Year 2000
The Company recognizes that without appropriate modification, some
computer programs may not operate properly when asked to recognize the year
2000. Upon reaching the year 2000, these computer programs will inaccurately
interpret the "00" used in two-digit date calculations as the year 1900. In
anticipation of the need to correct and otherwise prepare for any potential year
2000 computer problems, the Company formed a Year 2000 Task Force (the "Task
Force") which has developed a year 2000 compliance plan (the "Plan"). The plan
addresses the Company's state of readiness, the costs to address the Company's
Year 2000 issues, the risks of the company's year 2000 issues and the Company's
contingency plans.
The Company's state of readiness
Internal Systems: The Company's Plan addresses all of the Company's
hardware and software systems, as well as equipment controlled by
microprocessors used in the offices, stores, and distribution centers. As a part
of the Plan, the Task Force has completed its assessment of the Company's
systems, has identified the Company's hardware, software and equipment that will
not operate properly in the year 2000 and in most cases, has remedied the
problem with programming changes. The Plan has identified the Company's
accounting, inventory management and warehouse management systems as critical
systems. The Company expects the programming changes and software replacement
for systems that are not already year 2000 compliant will be completed during
the first and second quarters of 1999. The Company has completed testing the
year 2000 readiness of many of its systems and expects to complete the testing
process by July 1999. The Company's year 2000 compliance effort has not resulted
in any material delays to other internal information technology projects.
External Systems: The Company has requested, and is receiving, written
confirmation from vendors, suppliers and other service providers ("Third Party
Vendors") as to their year 2000 system compliance status. Although the Company
is diligently seeking and is receiving information as to its Third Party
Vendors' year 2000 compliance progress, there can be no assurance that such
Third Party Vendors will have remedied their year 2000 issues. Although the
Company currently knows of no material Third Party Vendor system that will not
be year 2000 ready, the failure of any significant Third Party Vendor to remedy
its year 2000 issues could have a material adverse effect on the Company's
operations, financial position or liquidity. The Company will continue to
aggressively monitor the progress of its Third Party Vendors in an effort to
mitigate its own year 2000 non-compliance risk.
The costs to address the Company's Year 2000 issues
Based on the Company's current estimates, the cost of addressing the
Company's year 2000 remediation efforts will be between $400,000 and $600,000.
To date, expenditures have been less than $100,000. Costs are being expensed
when incurred. This cost estimate excludes the costs of previously planned
software implementations as well as salaries of existing employees involved in
the year 2000 remediation efforts. These projected costs are based upon
management's best estimates which were derived utilizing numerous assumptions of
future events. However, there can be no guarantee that these costs estimates
will be accurate; actual results could differ materially.
The risks of the Company's Year 2000 issues
Management believes that its greatest risk to achieving timely year
2000 compliance is in its third-party relationships. For example, if a
significant vendor experiences shipping delays because either its systems or a
Third Party Vendor's systems are not year 2000 compliant, such delays could have
a material impact on the Company's business depending on the nature of the
shipment and the length of the shipping delay. However, currently available
information indicates that the Company's significant Third Party Vendors will be
year 2000 ready. Management also believes there is a moderate level of risk
associated with the unconfirmed year 2000 compliance status of small utility
companies that provide utility service to the Company's individual stores.
The Company's contingency plans
The Company will continue to closely monitor the year 2000 compliance
readiness of its Third Party Vendors and, where appropriate, will replace those
Third Party Vendors who appear to be unwilling to confirm their year 2000
readiness or who are unable to meet compliance deadlines. The Company has been
developing, and intends to complete by July 1999, a comprehensive business
continuity plan ("BCP") that is designed to respond to significant business
interruption. The BCP focuses on business recovery and continuation made
necessary by natural disaster, year 2000 system non-compliance, vendor breach of
contract or any other factor. Although it is impossible to accurately predict
and prepare for all risks associated with the year 2000 issue, the Company will
continue to evaluate and modify where appropriate its BCP to address those risks
which it believes are reasonably foreseeable.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk from exposure to changes in
interest rates based on its financing, investing and cash management activities.
The Company utilizes a credit facility to fund seasonal working capital
requirements which is comprised primarily of variable rate debt.
As of January 29, 1999, the Company was a party to interest rate swap
agreements covering $200 million of its $225 million leveraged lease facility
and expiring throughout 2008. These swap agreements exchange the Company's
floating interest rate exposure on the lease payments under its $225 million
leveraged lease facility for fixed rent payments. The Company will pay a
weighted average fixed rate of 5.50% on $200 million of the $225 million
facility rather than the one-month LIBOR rate plus 0.13%, which was 5.04% at
January 29, 1999. The fair value of the interest rate swap agreements was ($8.9)
million at January 29, 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
January 29, 1999 January 30, 1998
---------------- ----------------
ASSETS
Current assets:
Cash and cash equivalents $ 22,294 $ 7,128
Merchandise inventories 811,722 631,954
Deferred income taxes 2,523 5,743
Other current assets 42,378 21,884
- ---------------------------------------------------------------------------------------------------------------------------
Total current assets 878,917 666,709
- ---------------------------------------------------------------------------------------------------------------------------
Property and equipment, at cost:
Land 5,983 5,698
Buildings 47,687 46,061
Furniture, fixtures and equipment 474,568 340,152
- ---------------------------------------------------------------------------------------------------------------------------
528,238 391,911
Less accumulated depreciation 201,830 150,466
- ---------------------------------------------------------------------------------------------------------------------------
Net property and equipment 326,408 241,445
- ---------------------------------------------------------------------------------------------------------------------------
Other assets 6,459 6,684
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $1,211,784 $914,838
===========================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 725 $ 1,450
Short-term borrowings 0 21,933
Accounts payable 257,759 179,958
Accrued expenses 172,825 92,027
Income taxes 23,825 12,343
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 455,134 307,711
- ---------------------------------------------------------------------------------------------------------------------------
Long-term debt 786 1,294
- ---------------------------------------------------------------------------------------------------------------------------
Deferred income taxes 30,103 21,937
- ---------------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, stated value $.50 per share:
Shares authorized: 1998-10,000,000;
1997-5,000,000
Issued: 1998-1,716,000; 1997-1,716,000 858 858
Common stock, par value $.50 per share:
Shares authorized: 1998-500,000,000;
1997-200,000,000
Issued: 1998-210,242,000; 1997-167,052,000 105,121 83,526
Additional paid-in capital 418,039 379,954
Retained earnings 402,270 320,085
- ---------------------------------------------------------------------------------------------------------------------------
926,288 784,423
Less treasury stock, at cost:
Shares:1998-32,725,000; 1997-26,180,000 200,527 200,527
- ---------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 725,761 583,896
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $1,211,784 $914,838
===========================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share amounts)
For the years ended
January 29, 1999 January 30, 1998 January 31, 1997
% of % of % of
Net Net Net
Amount Sales Amount Sales Amount Sales
- ---------------------------------------------------------------------------------------------------------------------------
Net sales $3,220,989 100.0% $2,627,325 100.0% $2,134,398 100.0%
Cost of goods sold 2,315,112 71.9 1,885,190 71.8 1,529,603 71.7
- ---------------------------------------------------------------------------------------------------------------------------
Gross profit 905,877 28.1 742,135 28.3 604,795 28.3
Selling, general and
administrative 616,613 19.1 506,592 19.3 415,119 19.4
- ---------------------------------------------------------------------------------------------------------------------------
Operating profit 289,264 9.0 235,543 9.0 189,676 8.9
Interest expense 8,349 0.3 3,764 0.1 4,659 0.2
- ---------------------------------------------------------------------------------------------------------------------------
Income before taxes on
income 280,915 8.7 231,779 8.8 185,017 8.7
Provisions for taxes
on income 98,882 3.0 87,151 3.3 69,917 3.3
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 182,033 5.7% $ 144,628 5.5% $ 115,100 5.4%
===========================================================================================================================
Diluted earnings
per share $ 0.85 $ 0.67 $ 0.53
Weighted average diluted
shares (000) 214,719 214,363 215,266
Basic earnings per share $ 1.01 $ 0.80 $ 0.64
===========================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended January 29, 1999, January 30, 1998 and January 31, 1997
(Dollars in thousands, except per share amounts)
Additional
Preferred Common Paid-in Retained Treasury
Stock Stock Capital Earnings Stock
- ---------------------------------------------------------------------------------------------------------------------------
Balances, January 31, 1996 $858 $42,762 $303,609 $273,309 ($200,527)
Net income 115,100
5-for-4 stock split,
February 12, 1997 10,621 (10,621)
Cash dividends, $0.20 per
common share (14,442)
Cash dividends, $1.41 per
preferred share (2,413)
Issuance of common stock
under employee stock
incentive plans
(1,418,000 common shares) 709 17,019
Tax benefit from exercise
of options 8,809
Repurchase of common stock
(2,000,000 shares) (1,000) (58,788)
Transfer to employee stock
ownership plan (26,000
common shares) 13 511
- ---------------------------------------------------------------------------------------------------------------------------
Balances, January 31, 1997 858 53,105 329,948 302,145 (200,527)
Net income 144,628
5-for-4 stock split,
September 22, 1997 13,416 (13,416)
5-for-4 stock split,
March 23, 1998 16,705 (16,705)
Cash dividends,
$0.17 per common share (19,170)
Cash dividends, $1.90 per
preferred share (3,269)
Issuance of common stock
under employee stock
incentive plans
(2,560,000 common shares) 1,280 29,566
Tax benefit from exercise 19,855
of options
Repurchase of common
stock (1,991,000 shares) (995) (74,128)
Transfer to employee
stock ownership plan
(30,000 common shares) 15 585
- ---------------------------------------------------------------------------------------------------------------------------
Balances, January 30, 1998 858 83,526 379,954 320,085 (200,527)
Additional
Preferred Common Paid-in Retained Treasury
Stock Stock Capital Earnings Stock
- ---------------------------------------------------------------------------------------------------------------------------
Net income 182,033
5-for-4 stock split,
September 21, 1998 21,090 (21,090)
Cash dividends,
$0.14 per common share (24,114)
Cash dividends,
$2.04 per preferred share (3,497)
Issuance of common stock
under employee stock
incentive plans
(2,976,000 common shares) 1,488 27,523
Tax benefit from exercise
of options 30,913
Repurchase of common
stock (1,997,000 shares) (999) (72,237)
Transfer to 401(k) Plan
(32,000 common shares) 16 739
===========================================================================================================================
Balances, January 29, 1999 $858 $105,121 $418,039 $402,270 ($200,527)
===========================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
For the years ended
- ---------------------------------------------------------------------------------------------------------------------------------
January 29, January 30, January 31,
1999 1998 1997
Cash flows from operating activities:
Net income $182,033 $ 144,628 $ 115,100
Adjustments to reconcile net income to
net cash provided by
operating activities:
Depreciation and amortization 53,112 38,734 30,965
Deferred income taxes 11,386 14,312 10,878
Change in operating assets and liabilities:
Merchandise inventories (179,768) (155,851) 12,259
Other current assets (20,494) (3,640) (6,696)
Accounts payable 77,801 76,435 347
Accrued expenses 80,798 21,586 8,342
Income taxes 11,482 2,341 (4,755)
Other 2,260 574 3,651
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash provided by
operating activities 218,610 139,119 170,091
- ---------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (140,332) (107,700) (84,411)
Proceeds from sale of property and
equipment 222 33,811 0
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (140,110) (73,889) (84,411)
- ---------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of short-term borrowings 272,151 166,180 193,692
Repayments of short-term borrowings (294,084) (182,716) (227,369)
Issuance of long-term debt 1,240 190 1,677
Repayments of long-term debt (2,473) (2,058) (1,879)
Payment of cash dividends (27,611) (22,440) (16,856)
Proceeds from exercise of stock
options 29,011 30,847 17,729
Repurchase of common stock (73,236) (75,123) (59,788)
Tax benefit from stock option
exercises 30,913 19,855 8,809
Other 755 600 524
- ---------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (63,334) (64,665) (83,461)
- ---------------------------------------------------------------------------------------------------------------------------------
Net increase in cash and
cash equivalents 15,166 565 2,219
Cash and cash equivalents, beginning of year 7,128 6,563 4,344
- ---------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 22,294 $ 7,128 $ 6,563
=================================================================================================================================
Supplemental cash flow information Cash paid during year for:
Interest $ 9,275 $ 4,608 $ 5,761
Income taxes $ 46,439 $ 50,831 $ 55,646
=================================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Accounting Policies:
The Company sells general merchandise on a retail basis through 3,687
stores (as of January 29, 1999), located predominantly in small towns
in the midwestern and southeastern United States. The Company has
distribution centers in Scottsville, Kentucky; Homerville, Georgia;
Ardmore, Oklahoma; South Boston, Virginia; Indianola, Mississippi;
Villa Rica, Georgia; Fulton, Missouri (under development); and Alachua,
Florida (under development).
Basis of presentation
The Company's fiscal year ends on the Friday closest to January 31. The
consolidated financial statements include all subsidiaries.
Inter-company transactions have been eliminated.
Cash and cash equivalents
Cash and cash equivalents include highly liquid investments with
original maturities of three months or less.
Inventories
Inventories are stated at cost using the retail last-in, first-out
("LIFO") method which is not in excess of market. The excess of current
cost over LIFO cost was $15.0 million, $16.4 million and $18.4 million
at January 29, 1999, January 30, 1998 and January 31, 1997,
respectively. LIFO reserves decreased by $1.4 million in 1998, $2.0
million in 1997 and $2.2 million in 1996.
Pre-opening costs
Pre-opening costs for new stores are expensed as incurred.
Property and equipment
Property and equipment are recorded at cost. The Company provides for
depreciation of buildings and equipment on a straight-line basis over
the following estimated useful lives: 40 years for buildings; 3 to 10
years for furniture, fixtures and equipment. Depreciation expense was
$52.9 million, $38.5 million and $30.8 million in 1998, 1997 and 1996,
respectively.
Insurance claims provisions
In 1996, the Company established The Greater Cumberland Insurance
Company, a Vermont-based, wholly-owned subsidiary captive insurance
company. This insurance company charges Dollar General's subsidiary
companies competitive premium rates to insure workers' compensation and
non-property general liability claims risk. The insurance company
currently insures no unrelated third-party risk.
The Company retains a significant portion of the risk for its workers'
compensation, employee health insurance, general liability, property,
and automobile coverages. Accordingly, provisions are made for the
Company's actuarially determined estimates of discounted future claim
costs for such risks. To the extent that subsequent claim costs vary
from those estimates, current earnings are charged or credited.
Derivative financial instruments
All outstanding interest rate swap agreements have been designated as
hedges of the Company's commitment under its $225 million leveraged
lease facility. The Company recognizes interest differentials as
adjustments to rent expense in the period they occur. Gains and losses
on terminations of interest rate swap agreements would be deferred and
amortized to rent expense over the shorter of the original term of the
agreements or the remaining life of the associated outstanding
commitment. The counterparties to these instruments are major financial
institutions. The fair
value of the Company's interest rate swap agreements is based on dealer
quotes. These values represent the amounts the Company would receive or
pay to terminate the agreements taking into consideration current
interest rates. These counterparties expose the Company to credit risk
in the event of non-performance; however, the Company does not
anticipate non-performance by the other parties. The Company does not
hold or issue derivative financial instruments for trading purposes.
Income taxes
The Company reports income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under SFAS No. 109, the asset and
liability method is used for computing future income tax consequences
of events which have been recognized in the Company's consolidated
financial statements or income tax returns. Deferred income tax expense
or benefit is the change during the year in the Company's deferred
income tax assets and liabilities.
Management estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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 consolidated financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Accounting pronouncements
The Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," during the fiscal year ended
January 29, 1999. See Note 10.
The company adopted SFAS No. 130, "Reporting Comprehensive Income,"
during the fiscal year ended January 29, 1999. Net income equaled
comprehensive income for 1998, 1997 and 1996.
2. Cash and Short-term Borrowings:
The cash management system provides for daily investment of available
balances and the funding of outstanding checks when presented for
payment. Investments in highly-rated, short-term marketable securities
totaling $15.0 million at January 29, 1999, have been included in cash
and cash equivalents. Outstanding but unpresented checks totaling
$125.3 million and $65.5 million at January 29, 1999, and January 30,
1998, respectively, have been included in accounts payable. Upon
presentation for payment, they will be funded through available cash
balances or the Company's revolving credit/term loan agreement.
The Company had seasonal lines of credit with banks totaling $165.0
million at January 29, 1999, and $175.0 million at January 30, 1998.
The lines are subject to periodic review by the lending institutions
which may increase or decrease the amounts available. There were no
borrowings outstanding under these lines of credit at January 29, 1999,
compared with $1.9 million outstanding at January 30, 1998.
The Company also has a $175.0 million revolving credit/term loan
agreement which expires in September 2002. There were no borrowings
under the revolver at January 29, 1999, compared with $20.0 million at
January 30, 1998. Interest rates on amounts borrowed under this
agreement can float with the prime commercial lending rate or can be
fixed not to exceed the relevant adjusted LIBOR rate plus 0.225%.
The weighted average interest rates for all short-term borrowings were
5.5% and 5.7% at January 29, 1999, and January 30, 1998, respectively.
The revolving credit loan agreement contains certain restrictive
covenants. At January 29, 1999, the Company was in compliance with all
such covenants.
At January 29, 1999, and January 30, 1998, the Company had outstanding
letters of credit totaling $101.1 million and $66.5 million,
respectively.
3. Accrued Expenses:
Accrued expenses consist of the following:
(In thousands) 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
Advance on sale/leaseback transactions $67,951 $ 0
Compensation and benefits 34,766 33,536
Insurance 29,069 25,644
Taxes (other than taxes on income) 8,758 18,887
Rent 8,725 6,293
Dividends 6,615 5,346
Freight and other 16,941 2,321
- ---------------------------------------------------------------------------------------------------------------------------------
Total accrued expenses $172,825 $92,027
=================================================================================================================================
During 1998, the Company entered into agreements to sell and leaseback
the Ardmore, Oklahoma DC (including the expansion) and the expansion of
its South Boston, Virginia DC. The Company received cash advances on
these sales prior to year end which are included in accrued expenses as
of January 29, 1999. Upon completion of the construction of these
expansions, the Company will record the sales of these properties.
4. Income Taxes:
The provision for taxes consists of the following:
(In thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
Currently payable:
Federal $85,333 $68,177 $54,015
State 2,163 4,662 5,604
- ---------------------------------------------------------------------------------------------------------------------------------
Total currently payable 87,496 72,839 59,619
- ---------------------------------------------------------------------------------------------------------------------------------
Deferred:
Federal 10,631 13,503 8,710
State 755 809 1,588
- ---------------------------------------------------------------------------------------------------------------------------------
Total deferred 11,386 14,312 10,298
- ---------------------------------------------------------------------------------------------------------------------------------
Total provision $98,882 $87,151 $69,917
=================================================================================================================================
Deferred tax expense is recognized for the future tax consequences of
temporary differences between the amounts reported in the Company's
financial statements and the tax basis of its assets and liabilities.
Differences giving rise to the Company's deferred tax assets and
liabilities are as follows:
1998 1997
(In thousands) Assets Liabilities Assets Liabilities
- ---------------------------------------------------------------------------------------------------------------------------------
Inventories $ 0 $ 4,334 $3,008 $ 268
Property and equipment 0 24,847 0 20,969
Accrued insurance 1,957 0 1,967 0
Other 566 922 768 700
=================================================================================================================================
Total deferred taxes $2,523 $30,103 $5,743 $21,937
=================================================================================================================================
Reconciliation of the federal statutory rate and the effective income
tax rate follows:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of federal
income tax benefit 0.8 2.7 2.8
Tax credits (0.2) (0.1) 0.0
Other (0.4) 0.0 0.0
=================================================================================================================================
Effective income tax rate 35.2% 37.6% 37.8%
=================================================================================================================================
5. Earnings Per Share:
Amounts are in thousands except per share data and shares have been
adjusted to give retroactive effect to all common stock splits.
1998
Per-Share
Income Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $182,033
Less: preferred stock dividends 3,497
- ----------------------------------------------------------------------------------------------------------
Basic earnings per share
Income available to common shareholders 178,536 176,845 $1.01
=====
Stock options outstanding 5,149
Convertible preferred stock 3,497 32,725
- ----------------------------------------------------------------------------------------------------------
Diluted earnings per share
Income available to common shareholders
plus assumed conversions $182,033 214,719 $0.85
=====
==========================================================================================================
1997
Per-Share
Income Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $144,628
Less: preferred stock dividends 3,269
- ----------------------------------------------------------------------------------------------------------
Basic earnings per share
Income available to common shareholders 141,359 176,500 $0.80
=====
Stock options outstanding 5,138
Convertible preferred stock 3,269 32,725
- ----------------------------------------------------------------------------------------------------------
Diluted earnings per share
Income available to common shareholders
plus assumed conversions $144,628 214,363 $0.67
=====
==========================================================================================================
1996
Per-Share
Income Shares Amount
- ---------------------------------------------------------------------------------------------------------------------------------
Net income $115,100
Less: preferred stock dividends 2,413
- ----------------------------------------------------------------------------------------------------------
Basic earnings per share
Income available to common shareholders 112,687 176,119 $0.64
=====
Stock options outstanding 6,422
Convertible preferred stock 2,413 32,725
- ----------------------------------------------------------------------------------------------------------
Diluted earnings per share
Income available to common shareholders
plus assumed conversions $115,100 215,266 $0.53
=====
==========================================================================================================
Basic earnings per share was computed by dividing income available to
common shareholders by the weighted average number of shares of common
stock outstanding during the year. Diluted earnings per share was
determined based on the assumption that the convertible preferred stock
was converted upon issuance on August 22, 1994.
6. Commitments and Contingencies:
During 1997, the Company entered into a $100 million leveraged lease
facility. During 1998, the leveraged lease facility was amended to
increase the amount of the facility to $225 million. This facility is
being used to fund the construction cost of the Company's corporate
headquarters, two distribution centers and a number of store locations.
The facility expires in 2002 with renewal options through 2009. Lease
payments are calculated based on the one-month LIBOR plus 0.13%. The
lease contains an option to purchase these properties up to one year
prior to the expiration of the lease and contains a residual value
guarantee of $190 million.
As of January 29, 1999, the Company was a party to interest rate swap
agreements covering $200 million of its $225 million leveraged lease
facility and expiring throughout 2008. These swap agreements exchange
the Company's floating interest rate exposure on the lease payments
under its $225 million leveraged lease facility for fixed rent
payments. The Company will pay a weighted average fixed rate of 5.50%
on $200 million of the $225 million facility rather than the one-month
LIBOR rate plus 0.13%, which was 5.04% at January 29, 1999. The fair
value of the interest rate swap agreements was ($8.9) million at
January 29, 1999.
At January 29, 1999, the Company and certain subsidiaries were
committed for retail store, distribution center and administrative
office space in the
following fiscal years under non-cancelable operating lease agreements,
including the leveraged lease facility, requiring minimum annual rental
payments of (in millions): $104.6 in 1999; $90.5 in 2000; $68.7 in
2001; $50.2 in 2002; $36.6 in 2003 and $188.4 in later fiscal years.
Most leases included renewal options for periods ranging from two to
five years and provisions for contingent rentals based upon a
percentage of defined sales volume.
Rent expense under all operating leases was as follows:
(In thousands) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
Minimum rentals $101,235 $71,694 $57,054
Contingent rentals 13,658 12,342 10,232
- ---------------------------------------------------------------------------------------------------------------------------------
Total rentals $114,893 $84,036 $67,286
=================================================================================================================================
The Company had $285.0 million in facilities at January 29, 1999, and
$260.0 million at January 30, 1998, available for the issuance of
letters of credit.
The Company was involved in litigation, investigations of a routine
nature and various legal matters during fiscal 1998 which are being
defended and handled in the ordinary course of business. While the
ultimate results of these matters cannot be determined or predicted,
management believes that they will not have a material adverse affect
on the Company's results of operations or financial position.
7. Employee Benefits:
Through December 31, 1997, the Company had two noncontributory defined
contribution retirement plans covering substantially all full-time
employees. Expense for these plans was approximately $4.9 million and
$4.7 million in 1997 and 1996, respectively.
Effective January 1, 1998, the Company established a 401(k) savings and
retirement plan that replaced the previous defined contribution plans.
The assets of the defined contribution plans were merged into the new
401(k) plan. All employees who have completed 12 months of service and
reached age 21 are eligible to participate in the plan. Under the plan,
employees can make contributions up to 15% of their annual
compensation. Employee contributions, up to 6% of annual compensation,
are matched by the Company at the rate of $0.50 on the dollar. The
Company also contributes annually to the plan an amount equal to 2% of
each employee's annual compensation. Expense for this plan was
approximately $5.2 million in 1998.
Effective January 1, 1998, the Company also established a supplemental
retirement plan and compensation deferral plan for highly compensated
employees. The supplemental retirement plan is a noncontributory
defined contribution plan with annual Company contributions ranging
from 2% to 12% of base pay plus bonus depending upon age plus years of
service and salary level. Expense for this plan was approximately $0.4
million in 1998. Under the compensation deferral plan participants may
defer up to 50% of base pay and 100% of bonus pay, reduced by any
deferral to the 401(k) plan.
8. Capital Stock:
The authorized capital stock of the Company consists of common stock
and preferred stock. In June 1998, the Company increased the authorized
shares of common stock to 500,000,000 shares and the authorized shares
of preferred stock to 10,000,000 shares.
On August 22, 1994, the Company exchanged 1,715,742 shares of Series A
Convertible Junior Preferred Stock for the 8,578,710 shares of Dollar
General common stock owned by C.T.S, Inc., a personal holding Company
controlled by members of the Turner family, the founders of Dollar
General. The Series A Convertible Junior Preferred Stock was authorized
by the Board of Directors out of the authorized but unissued preferred
stock approved by the Company's shareholders in 1992. The exchange,
negotiated and recommended by a special committee of the Company's
Board of Directors, came in response to a request from C.T.S, Inc. to
consider a transaction to meet estate planning needs of the Turner
family. The Series A Convertible Junior Preferred Stock is (a)
convertible into common stock pursuant to the terms and conditions set
forth in the Restated Articles of Incorporation and (b) is voted with
the common stock on all matters presented to the holders of common
stock. The Series A Convertible Junior Preferred Stock is convertible
at the option of the holder. During the three years following August
22, 1996, the conversion ratio increases from 90% of the initial
exchange ratio of five shares of common stock for each share of Series
A Convertible Junior Preferred Stock converted (adjusted for all
intervening stock splits or adjustments) to 100% of the initial
exchange ratio (as adjusted). Additionally, the Series A Convertible
Junior Preferred Stock is not transferable by the holders thereof,
participates in dividends paid on common stock and is entitled to
receive preferential payment in the event of liquidation.
9. Stock Incentive Plans:
The Company has established stock incentive plans under which options
to purchase common stock may be granted to executive officers,
directors, key employees and non-employee directors.
All options granted in 1998, 1997 and 1996, under the 1995 Employee
Stock Incentive Plan, the 1993 Employee Stock Incentive Plan and the
1995 Outside Directors Stock Option Plan, were non-qualified stock
options issued at a price equal to the fair market value of the
Company's common stock on the date of grant. Non-qualified options
granted under these plans have an expiration date of no later than ten
years following the date of grant and have a vesting period of no less
than one year. Although these plans provide for the issuance of
incentive stock options, no such grants were made during the last three
fiscal years.
Under the plans, grants are made to key management employees ranging
from executive officers to store managers and assistant store managers,
as well as other employees as prescribed by the Company's Corporate
Governance and Compensation Committee of the Board of Directors. The
number of options granted and vesting schedules are directly linked to
the employee's position within the Company, achievement of individual
performance objectives and the Company's achievement of earnings per
share goals.
The plans also provide for annual grants to non-employee directors
according to a defined formula. The number of shares granted is tied to
current director compensation levels and the market price of the stock.
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations in accounting for its plans.
The exercise price of options awarded under these plans has been equal
to the fair market value of the underlying common stock on the date of
grant. Accordingly, no compensation expense has been recognized for its
stock-based compensation plans. Had compensation cost for the Company's
stock-based compensation plans been determined based on the fair value
at the grant date for awards under these plans consistent with the
methodology prescribed under SFAS No. 123, "Accounting for Stock-Based
Compensation," net income and earnings per share would have been
reduced to the pro forma amounts indicated in the following table.
(Amounts in thousands except per share data) 1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
Net income - as reported $182,033 $144,628 $115,100
Net income - pro forma $166,553 $138,262 $111,618
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings per share - as reported
Basic $ 1.01 $ .80 $ .64
Diluted $ .85 $ .67 $ .53
Earnings per share - pro forma
Basic $ .92 $ .77 $ .63
Diluted $ .78 $ .65 $ .52
- ---------------------------------------------------------------------------------------------------------------------------------
Earnings per share have been adjusted to give retroactive effect to all
common stock splits.
The pro forma effects on net income for 1998, 1997 and 1996 are not
representative of the pro forma effect on net income in future years
because they do not take into consideration pro forma compensation
expense related to grants made prior to 1996. The fair value of options
granted during 1998, 1997 and 1996 is $12.11, $7.55, and $4.39,
respectively.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions:
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
Expected dividend yield 0.7% 0.7% 0.7%
Expected stock price volatility 48.0% 40.0% 40.0%
Weighted average risk-free interest rate 5.5% 6.2% 6.0%
Expected life of options (years) 3.0 3.0 3.0
- ---------------------------------------------------------------------------------------------------------------------------------
A summary of the balances and activity for all the Company's stock
incentive plans for the last three fiscal years is presented below:
Shares Weighted Average
Under Plans Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1996 16,961,365 $6.65
Granted 6,034,906 10.95
Exercised (3,459,760) 5.64
Canceled (1,623,648) 7.29
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, January 31, 1997 17,912,863 7.04
Granted 4,011,523 18.39
Exercised (4,813,650) 6.38
Canceled (1,059,499) 10.02
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, January 30, 1998 16,051,237 10.39
Granted 3,952,535 24.62
Exercised (3,658,858) 8.27
Canceled (1,206,892) 16.59
- --------------------------------------------------------------------------------------------------------------------------------
Balance, January 29, 1999 15,138,022 $14.20
=================================================================================================================================
The following table summarizes information about stock options
outstanding at January 29, 1999:
Options Outstanding Options Exercisable
Weighted Average Average Weighted
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
- ---------------------------------------------------------------------------------------------------------------------------------
$ 0.00 - $ 7.00 2,888,110 3.9 $3.84 1,765,653 $3.60
$ 7.01 - $20.00 7,443,847 7.2 11.9 6,735,187 11.92
$20.01 - $31.00 4,806,065 9.1 23.9 987,473 21.73
=================================================================================================================================
15,138,022 7.2 $14.20 9,488,313 $11.39
=================================================================================================================================
At January 29, 1999, there were 59,229,040 shares available for
granting of stock options under the Company's stock option plans.
10. SEGMENT REPORTING
The Company manages its business on the basis of one reportable
segment. See Note 1 for a brief description of the Company's business.
As of January 29, 1999, all of the Company's operations are located
within the United States. The following data is presented in accordance
with SFAS No. 131 which the Company has retroactively adopted for all
periods presented.
(In thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
Classes of similar products:
Net Sales:
Hardlines $2,627,304 $2,149,528 $1,596,660
Softlines 593,685 477,797 537,738
- ------------------------------------------------------------------------------------------------------------------
Total net sales $3,220,989 $2,627,325 $2,134,398
- ------------------------------------------------------------------------------------------------------------------
11. QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is selected unaudited quarterly financial data for the
fiscal years ended January 29, 1999, and January 30, 1998. Amounts are
in thousands except per share data. Per share data has been adjusted
for all common stock splits.
Quarter First Second Third Fourth Year
- ---------------------------------------------------------------------------------------------------------------------------------
1998:
Net sales $ 705,260 $ 741,355 $ 781,389 $ 992,985 $3,220,989
Gross prof 190,332 205,481 224,734 285,330 905,877
Net income 30,404 33,288 40,338 78,003 182,033
Diluted earnings
per share $ 0.14 $ 0.15 $ 0.19 $ 0.36 $ 0.85
- ---------------------------------------------------------------------------------------------------------------------------------
1997:
Net sales $ 520,014 $ 596,820 $ 649,400 $ 861,091 $2,627,325
Gross prof 141,855 160,156 183,784 256,340 742,135
Net income 19,294 26,716 33,618 65,000 144,628
Diluted earnings
per shar $ 0.09 $ 0.12 $ 0.16 $ 0.30 $ 0.67
- ---------------------------------------------------------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Dollar General Corporation
Nashville, Tennessee
We have audited the accompanying consolidated balances sheets of Dollar General
Corporation and subsidiaries as of January 29, 1999 and January 30, 1998, and
the related consolidated statements of income, shareholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits. The
consolidated financial statements of the Company for the year ended January 31,
1997 were audited by other auditors whose report, dated March 5, 1997, expressed
an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such 1998 and 1997 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Dollar
General Corporation and subsidiaries as of January 29, 1999 and January 30,
1998, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Nashville, Tennessee
February 23, 1999
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
Board of Directors
Dollar General Corporation
Nashville, Tennessee
We have audited the accompanying consolidated balance sheets of Dollar General
Corporation and Subsidiaries as of January 31, 1997 and the related consolidated
statements of income, shareholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Dollar General
Corporation and Subsidiaries as of January 31, 1997 and the consolidated results
of their operations and their cash flows for each of the two fiscal years in the
period ended January 31, 1997 in conformity with generally accepted accounting
principles.
/s/ PricewaterhouseCoopers LLP
- ---------------------------------
PricewaterhouseCoopers LLP
Louisville, Kentucky
March 5, 1997
9. CHANGESIN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Company's directors is incorporated by
reference from the information contained under the captions, "Election of
Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance," in the
Company's Proxy Statement relating to the Annual Meeting of Shareholders to be
held on June 7, 1999. Information regarding the Company's executive officers is
contained in Part I of this Report as required by General Instruction G(3).
11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated by
reference from the information contained under the captions "Executive
Compensation" and "Election of Directors - Compensation of Directors" in the
Company's Proxy Statement relating to the Annual Meeting of Shareholders to be
held on June 7, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference from the information
contained under the captions "Security Ownership of Certain Beneficial Owners"
and "Security Ownership by Officers and Directors" in the Company's Proxy
Statement relating to the Annual Meeting of Shareholders to be held on June 7,
1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference from the information
contained under the caption "Transactions with Management and Others" in the
Company's Proxy Statement relating to the Annual Meeting of Shareholders to be
held on June 7, 1999.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Consolidated Financial Statements: See Item 8.
(2) All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange
Commission are not required under the related instructions,
are inapplicable or the information is included in the
Consolidated Financial Statements, and therefore, have been
omitted.
(3) Exhibits: See Index to exhibits on page 33.
(b) No report on Form 8-K was filed by the Company during the quarter ended
January 29, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
DOLLAR GENERAL CORPORATION
Date: April 23, 1999 By:/S/ Cal Turner, Jr.
-------------------
CAL TURNER, JR., CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Name Title Date
/s/ Cal Turner, Jr. Chairman, President April 23, 1999
- -------------------
CAL TURNER, JR. and Chief Executive Officer
(Principal Executive Officer)
/s/ Brian Burr Executive Vice President, April 23, 1999
- -------------- Chief Financial Officer
BRIAN BURR (Principal Financial and
Accounting Officer)
/s/ Cal Turner Director April 23, 1999
CAL TURNER
/s/ John B. Holland Director April 23, 1999
- -------------------
JOHN B. HOLLAND
/s/ William S. Wire, II Director April 23, 1999
- -----------------------
WILLIAM S. WIRE, II
/s/ James L. Clayton Director April 23, 1999
- --------------------
JAMES L. CLAYTON
/s/ David M. Wilds Director April 23, 1999
- ------------------
DAVID M. WILDS
/s/ Reginald D. Dickson Director April 23, 1999
- -----------------------
REGINALD D. DICKSON
/s/ Barbara M. Knuckles Director April 23, 1999
- -----------------------
BARBARA M. KNUCKLES
/s/ Dennis C. Bottorff Director April 23, 1999
- ----------------------
DENNIS C. BOTTORFF
INDEX TO EXHIBITS
3(a) Restated Articles of Incorporation, as amended (incorporated by
reference to the Company's Proxy Statement for the June 1, 1998 Annual
Meeting.)
3(b) Bylaws as amended (incorporated by reference to the Company's Proxy
Statement for the June 1, 1998 Annual Meeting).
4 Articles V, VII and X of the Registrant's Articles of Incorporation
(included in Exhibit 3(a)).
10(a) Credit Agreement (credit) dated September 2, 1997 by and among Dollar
General Corporation and SunTrust Bank, Nashville, N.A. (incorporated
herein by reference to the Quarterly Report on Form 10-Q for the third
quarter of 1998).
10(b) Master Agreement dated September 2, 1997 by and among Dollar
General Corporation, Certain Subsidiaries of Dollar General
Corporation, Atlantic Financial Group, Ltd., Certain Financial
Institutions Parties hereto at SunTrust Bank, Nashville, N.A.
(incorporated by reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended October 31, 1997).
10(c) Exchange Agreement dated August 22, 1994, by and among Dollar
General Corporation, Dolgencorp, Inc. and stockholders of C.T.S.,
Inc. (incorporated by reference to the Registrant's Current Report
on Form 8-K dated August 22, 1994, Exhibit 10.1).
10(d) Registration Rights Agreement dated August 22, 1994, by and among
Dollar General Corporation, Turner Children Trust dated January
21, 1980, Cal Turner, Jr., James Stephen Turner, Laura Jo Dugas
and Elizabeth Turner Campbell (incorporated by reference to the
Registrant's current Report on Form 8-K dated August 22, 1994,
Exhibit 10.2).
MANAGEMENT CONTRACT OR COMPENSATORY PLANS
10(e) Dollar General Corporation 1988 Outside Directors' Stock Option
Plan, as amended, (incorporated herein by reference to the
Registrant's definitive Proxy Statement for the Annual Meeting of
Stockholders held June 3, 1996).
10(f) Dollar General Corporation 1989 Employee Stock Incentive Plan, as
amended (incorporated herein by reference to the Registrant's
definitive Proxy Statement for the Annual meeting of Stockholders
held June 13, 1989).
10(g) 1993 Employee Stock Incentive Plan (incorporated herein by
reference to the Registrant's definitive Proxy Statement for the
Annual Meeting of Stockholders held June 7, 1993).
10(h) 1993 Outside Directors Stock Option Plan (incorporated herein by
reference to the Registrant's definitive Proxy Statement for the
Annual Meeting of Stockholders held June 7, 1993).
10(i) 1995 Employee Stock Incentive Plan (incorporated herein by
reference to the Registrant's definitive Proxy Statement for the
Annual Meeting of Stockholders held June 5, 1995).
10(j) 1995 Outside Directors Stock Option Plan (incorporated herein by
reference to the Registrant's definitive Proxy Statement for the
Annual Meeting held June 5, 1995).
10(k) 1998 Stock Incentive Plan (incorporated herein by reference to the
Registrant's definitive Proxy Statement for the Annual Meeting
held June 1, 1998).
11 Statement regarding computation of earnings per share
21 Subsidiaries of the Registrant
23(a) Consent of Deloitte & Touche, LLP
23(b) Consent of PricewaterhouseCoopers, LLP
27 Financial Data Schedule