<PAGE> 1
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 30, 1998
Commission file number 0-4769
DOLLAR GENERAL CORPORATION
(Exact name of Registrant as Specified in its Charter)
KENTUCKY 61-0502302
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
104 WOODMONT BOULEVARD
SUITE 300
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:
<TABLE>
<CAPTION>
Name of the Exchange on
Title of Class which Registered
-------------- -----------------------
<S> <C>
Common Stock New York Stock Exchange
</TABLE>
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, 1998 was $5,227,295,065 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, 1998 was
167,207,224.
Documents Incorporated by Reference
<TABLE>
<CAPTION>
Document Where Incorporated in Form of 10-K
-------- ----------------------------------
<S> <C>
Portions of the Registrant's Proxy Part III
Statement Relating to the
Annual Meeting of Stockholders to
be held on June 1, 1998
</TABLE>
<PAGE> 2
PART I
ITEM 1. BUSINESS
GENERAL
Dollar General Corporation is a leading discount retailer of quality
general merchandise at everyday low prices through its conveniently located
stores. The Company's stores offer a focused assortment of consumable basic
merchandise including health and beauty aids, packaged food products, cleaning
supplies, housewares, stationery, seasonal goods, non-fashion apparel and
domestics. During fiscal 1998, hardline and softline merchandise accounted for
82% and 18% of net sales, respectively. Through convenient neighborhood
locations, Dollar General Stores primarily serve low, middle and fixed income
families. As of January 30, 1998, the Company operated 3,169 stores located in
24 states, primarily in the midwestern and southeastern United States.
The Company opened its first Dollar General Store in 1955 and during the
last five years has experienced a rapid rate of expansion. Dollar General has
grown from 1,800 stores with 10,724,000 estimated selling square feet at January
31, 1994, to 3,169 stores with 20,112,000 estimated selling square feet at
January 30, 1998. In addition to growth from new store openings, the Company
recorded same-store sales increases in 1996, 1997 and 1998 of 5.1%, 8.2% and
8.4%, respectively. From 1994 to 1998, the Company had a compound annual growth
rate in net sales, operating income and net income of 23.4%, 30.9% and 31.4%,
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 has plans to open approximately 500 to
525 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 $30,000 per year.
37% of U.S. household incomes for the year 1995 were under $25,000, according to
the U.S. Bureau of the Census (median income and income level by household
type).
"Convenience Discount Store" Format. Dollar General Stores average 6,400
selling square feet and are located in close proximity to customers' homes
(usually within three to five miles). This concept 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 and consequently, have
become 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, non-fashion apparel and
domestics. In 1998, hardline merchandise represented more than 80% of net sales.
Approximately 97% of net sales in 1998 consisted of first-run merchandise, with
the remainder consisting of manufacturer's 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 strategy is to distribute quality,
consumable basic merchandise at everyday low prices. The Company's low cost
operating structure and focused assortment allow it to offer quality merchandise
with compelling value. The Company emphasizes even-dollar price points. The
majority
2
<PAGE> 3
of products are priced at $10 or less, with nearly 50% of the products priced at
$1 or less. The most expensive items generally are 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 also continues to utilize new technology when cost
effective in order to improve operating efficiencies. SG&A expenses, as a
percentage of net sales, declined to 19.3% in 1998 from 21.7% in 1994.
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. From 1994 to 1997, 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 1998 the Company added 700 new, faster-turning
consumable items to the product mix and converted stores to a new prototype with
a space allocation of 65% hardlines/35% softlines, compared with a 50%/50%
allocation in 1997. These initiatives, which the Company began in March 1997,
were substantially complete by August 1997. As a result, in 1998 the Company's
product mix further shifted to hardlines from softlines (82% hardlines/18%
softlines). Management believes these initiatives have and will contribute to
same-store net sales increases.
In 1999, the Company will add a series of family-oriented basic apparel
programs to its stores. These programs include items such as jeans, khakis,
t-shirts and knit shirts for men, women and children at prices of $10 or less.
The Company expects to position this new merchandise in all of its stores by
August 1998.
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 under
25,000, and 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 500 to 525 new stores and
relocate an additional 150 to 200 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 and
currently targets an annual new store growth rate of approximately 15% over 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 19.3% in 1998, from 21.7% in 1994. 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
a distribution center. Having sophisticated and well-located distribution
centers allows Dollar General to reduce distribution expenses, price its
merchandise aggressively and improve in-stock positions in its stores. During
the next 18 months, the Company plans to add three distribution centers, one of
which is scheduled to open in July 1998. In addition, the Company plans to
expand two existing distribution centers. These initiatives will more than
double the Company's distribution capacity. The Company also installed point of
sale scanners in all of its stores in 1998, which the Company believes will
allow the stores to decrease shrink, reduce customer checkout time and improve
inventory management.
3
<PAGE> 4
MERCHANDISE
Dollar General Stores offer a focused assortment of quality, consumable
basic merchandise in a number of core categories. The Company buys first-run
merchandise. In 1998, national branded merchandise represented more than 35% of
net sales and manufacturers' overruns and closeouts represented less than 3% of
net sales. The merchandise sales mix of the Company has shifted incrementally by
12% to hardlines sales over the past three-year period and 7% during the past
year. The increase in sales of hardline merchandise occurred in part because of
a determined commitment to keep hardlines in stock, an increased emphasis on
private label products and food items, an expanded selection of brand-name
merchandise and a continued lowering of prices.
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.
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 limits its stock keeping units (SKUs)
per store to approximately 3,000 items. The majority of items are priced at $1
and in increments of $1, with the most expensive item 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 under 25,000. As of January 30, 1998, 67% of stores were
located in strip shopping centers, 15% were in downtown store buildings and 18%
were freestanding buildings. The Company has not had 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:
<TABLE>
<CAPTION>
BEGINNING STORES STORES NET STORES STORES AT
YEAR OF YEAR OPENED CLOSED OPENED YEARS END
- ---- --------- ------ ------ ---------- ---------
<S> <C> <C> <C> <C> <C>
1998........................................ 2,734 468 33 435 3,169
1997........................................ 2,416 360 42 318 2,734
1996........................................ 2,059 397 40 357 2,416
</TABLE>
EMPLOYEES
At March 31, 1998, the Company and its subsidiaries employed approximately
27,400 full- and part-time employees, including regional managers, district
managers, store managers, and distribution center and administrative personnel,
compared with approximately 25,400 at March 31, 1997. None of the Company's
employees is represented by a labor union.
COMPETITION
The business in which the Company is engaged is highly competitive. The Company
competes with discount stores and with many retailers including grocery,
discount drug, convenience, variety and other specialty stores. Some of the
largest retail companies in the nation have stores in some of the areas where
the Company operates. Management believes that it competes primarily by offering
quality, consumable basic merchandise at an everyday low price.
4
<PAGE> 5
EXECUTIVE OFFICERS OF THE COMPANY
The names, ages and positions of the Company's executive officers as of April
15, 1998, are as follows:
<TABLE>
<CAPTION>
EXECUTIVE
NAME AGE POSITION OFFICER SINCE
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cal Turner, Jr. 58 Chairman of the Board 1966
and Chief Executive Officer
Bob Carpenter 50 Vice President, 1981
Chief Administrative Officer
Mike Ennis 44 Vice President, 1988
Store Growth and Development
Troy Fellers 56 Vice President, 1991
Distribution
Tom Hartshorn 47 Vice President, 1992
Merchandising Operations
Holger Jensen 51 Vice President, 1994
Management Information Services
Susan Milana 48 Vice President, 1997
Human Resources and
Employee Services
Stonie O'Briant 43 Vice President,
Merchandising and MIS 1995
Phil Richards 50 Vice President, 1996
Chief Financial Officer
Randy Sanderson 43 Vice President, 1996
Controller
Leigh Stelmach 58 Executive Vice President, 1989
Operations
</TABLE>
All executive officers of the Company serve at the pleasure of the Board of
Directors. Messrs. Turner, Carpenter, Ennis, Fellers, Hartshorn 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 and Chief
Executive Officer in 1977. Mr. Turner has served as Chairman of the Board since
January 1989.
Mr. Carpenter currently serves as 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.
Mr. Ennis was named Vice President, Store Growth and Real Estate Development in
1998. Mr. Ennis joined the Company as Vice President, Merchandising in February
1988 and was named Vice President, Merchandising Operations in 1993, and Vice
President Real Estate and Store Development in 1996.
Mr. Fellers became Vice President, Distribution in March 1991. He joined the
Company in September 1989 as Director of Distribution. Prior to joining the
company, he was general manager of distribution for McCrory/TG&Y, where he had
held various distribution management positions since 1967.
5
<PAGE> 6
Mr. Hartshorn joined the Company as Vice President, Operations in January 1992
and was named Vice President, Merchandising Operations in 1993. Prior to joining
the company, he was director of store operations for McCrory/TG&Y where he had
held various management positions in operations since 1968.
Mr. Jensen joined the Company in his current capacity, Vice President,
Management Information Services, in April 1994. Prior to 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
Services in October 1997. Prior to 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 became Vice President, Merchandising and MIS 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. Richards joined the Company in June 1996 as Vice President, Chief Financial
Officer. Prior to joining the Company, he served for five years as Vice
President of MIS for Woolworth Corporation.
Mr. Sanderson joined the Company in November 1996 as Vice President, Controller.
Prior to 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. Stelmach joined the Company in June 1989 as Vice President, Merchandising/
Operations and was named Executive Vice President, Operations in 1993. Prior to
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.
ITEM 2. PROPERTIES
PROPERTIES
As of January 30, 1998, the Company operated 3,169 retail stores located in
24 states. The following table sets forth the number of stores located in each
state:
<TABLE>
<CAPTION>
NUMBER NUMBER
STATE OF STORES STATE OF STORES
- ----- --------- ----- ---------
<S> <C> <C> <C>
Alabama...................... 137 Mississippi.................. 91
Arkansas..................... 109 Missouri..................... 169
Delaware..................... 10 Nebraska..................... 15
Florida...................... 185 North Carolina............... 135
Georgia...................... 148 Ohio......................... 159
Illinois..................... 155 Oklahoma..................... 138
Indiana...................... 166 Pennsylvania................. 115
Iowa......................... 63 South Carolina............... 91
Kansas....................... 73 Tennessee.................... 214
Kentucky..................... 173 Texas........................ 432
Louisiana.................... 112 Virginia..................... 168
Maryland..................... 32 West Virginia................ 79
</TABLE>
Substantially all of the Company's stores are located in leased premises.
Individual store leases vary as to their respective terms, rental provisions and
expiration dates. In 1998, the Company's aggregate store rental expense was
approximately $81.4 million, or an average of $4.04 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.
6
<PAGE> 7
The Company's distribution centers service Dollar General Stores as
described in the following table:
<TABLE>
<CAPTION>
SQUARE STORES
LOCATION FOOTAGE SERVED
- -------- --------- ------
<S> <C> <C>
Scottsville, Kentucky....................................... 782,000 786
Homerville, Georgia(a)...................................... 510,000 719
Ardmore, Oklahoma........................................... 750,000 953
South Boston, Virginia(b)................................... 718,000 711
Indianola, Mississippi(c)................................... 800,000 n/a
</TABLE>
----------------
(a) Does not include the planned expansion of 190,000 square feet.
(b) Does not include the planned expansion of 484,000 square feet.
(c) Under construction; scheduled to begin shipping merchandise in July
1998.
The Company also plans to add two new distribution centers (of
approximately 1,000,000 square feet each) during the next 18 months. After the
completion of such facilities and the expansion noted above, the Company's
distribution center space will be 6,234,000 square feet.
The Company's executive offices are located in approximately 30,000 square
feet of leased space in Nashville, Tennessee and 10,000 square feet of leased
space in Goodlettsville, Tennessee. The Company's lease on the Nashville office
space expires in 2001. 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 and Nashville, Tennessee offices into the new
facility. The Goodlettsville office complex, which is scheduled to be complete
in July 1999, will be approximately 20 miles from the Nashville office and
approximately 50 miles from the 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 30, 1998.
7
<PAGE> 8
PART II
ITEM 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 22, 1997, and have been rounded to the nearest
one-eighth. All dividends, as adjusted, have been rounded to the nearest whole
cent.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1998 QUARTER QUARTER QUARTER QUARTER
==========================================================================================================
<S> <C> <C> <C> <C>
HIGH $22 5/8 $29 5/8 $30 3/4 $32
LOW 16 3/4 18 1/2 23 24 1/2
- ----------------------------------------------------------------------------------------------------------
DIVIDEND AS
DECLARED .05 .04 .04 .04
DIVIDEND AS
ADJUSTED .03 .03 .03 .04
- ----------------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
1997 QUARTER QUARTER QUARTER QUARTER
==========================================================================================================
HIGH $13 5/8 $15 $17 3/4 $17 1/8
LOW 9 5/8 12 5/8 14 14 1/4
- ----------------------------------------------------------------------------------------------------------
DIVIDEND AS
DECLARED .05 .05 .05 .05
DIVIDEND AS
ADJUSTED .03 .03 .03 .03
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The approximate number of stockholders of record of the Company's common stock
as of April 1, 1998, was 4,000. 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.
8
<PAGE> 9
ITEM 6. SELECTED FINANCIAL DATA
(In thousands except share per share and operating data)
<TABLE>
<CAPTION>
JANUARY JANUARY JANUARY JANUARY JANUARY
30, 1998 31, 1997 31, 1996 31, 1995 31, 1994
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Net sales $2,627,325 $2,134,398 $1,764,188 $1,448,609 $1,132,995
Gross profit $ 742,135 $ 604,795 $ 503,619 $ 420,679 $ 325,998
Income before taxes
on income $ 231,779 $ 185,017 $ 141,546 $ 118,288 $ 78,004
Net income $ 144,628 $ 115,100 $ 87,818 $ 73,634 $ 48,557
Net income as a % of sales 5.5 5.4 5.0 5.1 4.3
- -----------------------------------------------------------------------------------------------------------
PER DILUTED SHARE RESULTS:
Net income (a) $ 0.84 $ 0.67 $ 0.51 $ 0.44 $ 0.30
Cash dividends per
common share (a) $ 0.13 $ 0.10 $ 0.08 $ 0.07 $ 0.05
Weighted average shares (a) 171,490 172,213 171,288 168,479 164,260
- -----------------------------------------------------------------------------------------------------------
FINANCIAL POSITION:
Assets $ 914,838 $ 718,147 $ 679,996 $ 540,868 $ 397,237
Long-term obligations $ 1,294 $ 2,582 $ 3,278 $ 4,767 $ 5,711
Shareholders' equity $ 583,896 $ 485,529 $ 420,011 $ 323,756 $ 240,717
Inventory turn 3.1 2.8 2.5 3.0 3.1
Return on avg. assets % 17.7 16.5 14.4 15.7 13.6
Return on avg. equity % 27.0 25.4 23.6 26.1 22.6
- -----------------------------------------------------------------------------------------------------------
OPERATING DATA:
Retail stores at
end of period 3,169 2,734 2,416 2,059 1,800
Year-end selling
square feet (000) 20,112 17,480 15,302 12,726 10,724
Hardlines sales % 82 75 70 66 65
Softlines sales % 18 25 30 34 35
- -----------------------------------------------------------------------------------------------------------
</TABLE>
- ------------
(a) As adjusted to give retroactive effect to all common stock splits
including the split distributed March 23, 1998.
9
<PAGE> 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This discussion and analysis contains both 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. Although the
Company believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward-looking statements
included herein will prove to be accurate. Forward-looking statements may be
significantly impacted by 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' operations; costs and delays associated with
building, opening and operating new distribution centers; and the other risk
factors set forth in this Annual Report on Form 10-K. 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
hereof or to reflect the occurrence of unanticipated events.
The following text contains references to years 1999, 1998, 1997 and 1996
which represent fiscal years ending January 29, 1999, January 30, 1998 and
January 31, 1997 and 1996, respectively. This discussion and analysis should be
read in conjunction with, and is qualified in its entirety by, the consolidated
financial statements, including 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
continued to lower its SG&A expense, as a percentage of net sales.
For the tenth consecutive year, the Company increased its total number of
store units. By adding a net 435 units, the Company ended the year with 3,169
stores. This increase in store units represents the largest number of annual new
store openings in the Company's history. Despite the start-up costs associated
with opening these stores, the minimum wage increase and the store remodeling
costs associated with the Company's addition of 700 new consumable basic items,
the Company increased earnings per diluted share by more than 15% for the
eleventh consecutive year. From 1994 through 1998, the Company had a compound
annual growth rate in net sales and net income of 23.4% and 31.4%, respectively.
The Company opened 468 new stores in 1998, compared with 360 in 1997 and
397 in 1996. The 1998 new stores, net of 33 closed stores, added approximately
2,632,000 selling square feet to the Company's total sales space, providing the
Company with an aggregate of approximately 20,112,000 selling square feet at the
end of the year. The average store measured 6,400 selling square feet in 1998
and 1997 and 6,300 selling square feet in 1996. The four states in which the
greatest number of new stores were opened during 1998 were Texas (76), Alabama
(36), Georgia (29) and Illinois (29). In 1998, the approximate size of the
average new store was 6,200 selling square feet, the same as the 1997 average.
In 1999, the Company anticipates opening approximately 500 to 525 new stores
within its current 24-state market with a focus on store openings within 250
miles of a distribution center. In 1998, the Company remodeled or relocated 195
stores, compared with 168 in 1997 and 311 in 1996. During the last three years,
the Company opened, remodeled, or relocated 1,899 stores, accounting for
approximately 60% of the total stores at January 30, 1998.
Customer demand continues to dictate an intensified focus on everyday low
prices and consumable basic merchandise, which resulted in the Company's sales
mix further shifting to hardlines from softlines during the year (82%
hardlines/18% softlines in 1998; 75% hardlines/25% softlines in 1997; 70%
hardlines/30% softlines in 1996). In 1998, the Company increased its focus on
consumable basic merchandise by adding 700 new, faster-turning consumable items
to its merchandise mix and refurbishing more than 2,400 stores to a new
prototype. The new store prototype and related product mix reflects a 65%
hardlines/35% softlines space allocation versus the 50%/50% allocation in 1997.
Management believes that during 1999 the softlines sales mix will increase
slightly as a percentage of net sales. To support the mix change, the Company
will increase the selection of quality basic apparel without increasing the
current square footage allocation to softline merchandise. The Company will add
five new programs of basic apparel in a full range of sizes for the entire
family.
10
<PAGE> 11
In June 1997, the Company opened its fourth distribution center, a 718,000
square foot center located in South Boston, Virginia, with minimal disruption to
its flow of merchandise to the stores. In addition, the Company completed the
expansion of its Scottsville, Kentucky Distribution Center by 217,000 square
feet in September 1997. The Company plans to open a fifth distribution center
(800,000 square feet) in Indianola, Mississippi in July 1998. To better support
its rapidly growing store base and improve distribution efficiency, the Company
expects to open two new distribution centers (each measuring approximately
1,000,000 square feet) which are anticipated to be operational within 18 months.
The Company will also expand its South Boston, Virginia Distribution Center by
484,000 square feet and its Homerville, Georgia Distribution Center by 190,000
square feet. Additionally, the Company is planning to lease a separate facility
dedicated to serving the initial stocking needs of new stores. Management
believes this additional distribution capacity will eliminate the need for
outside warehouses during peak, seasonal shipping periods and accommodate
planned store growth.
In 1999, the Company will continue to work on the implementation of several
technology projects that began in 1997, including a new merchandising system and
a new general ledger system. In 1998, the Company installed point of sale (POS)
scanners in all store locations. In 1999, the Company will implement electronic
data interchange purchase ordering with approximately 1,000 core vendors. The
Company will also partner with 50 of its top vendors and work directly with the
logistics personnel of these vendors to improve the supply chain. Management
expects this program to lower costs for both parties, balance store inventories,
increase inventory turns and improve in-stock levels.
In 1998, the Company entered into a transportation agreement with Werner
Enterprises to provide dedicated trucking, logistics and trailer maintenance
services. Management expects this relationship to lower costs and improve
service during peak, seasonal shipping periods.
During 1998, inventory shrinkage continued to improve significantly,
declining to 2.2% of net sales, from 2.7% in 1997. Management attributes much of
this improvement to a reduction in employee turnover and the implementation of
cycle inventories which permitted the booking of actual inventory shrinkage
throughout the year instead of only at year-end. This process allows for the
early identification of adverse trends that can be addressed immediately.
In 1997, the federal minimum wage law was changed to increase minimum wage
from $4.75 per hour to $5.15 per hour effective September 1, 1997. The Company
believes the financial impact of the minimum wage increase to SG&A expense for
1998 was offset by increases in sales and employee productivity.
RESULTS OF OPERATIONS
Net Sales. Net sales totaled $2.63 billion for 1998, $2.13 billion for
1997 and $1.76 billion for 1996. These totals represent annual increases of
23.1% in 1998, 21.0% in 1997 and 21.8% in 1996. These increases resulted from
435 net new stores and a same-store net sales increase of 8.4% for the 52 week
period ending January 30, 1998, 318 net new stores and a same-store net sales
increase of 8.2% in 1997, and 357 net new stores and a same-store net sales
increase of 5.1% in 1996. The Company defines same-stores as those which were
opened before the beginning of the prior fiscal year and have remained open
throughout both the prior and current fiscal years.
Gross Profit. Gross profit for 1998 was $742.1 million, compared with
$604.8 million in 1997 and $503.6 million in 1996. Gross profit, as a percentage
of net sales was 28.3% for 1998 and 1997, and 28.5% for 1996. The 1998 result
reflects the further shift in sales mix to hardlines and higher freight costs
associated with the distribution of 700 new faster-turning items, which were
partially offset by significantly lower store inventory shrinkage and markdowns.
Management believes that gross margin may continue to decline slightly, as a
percentage of net sales, in 1999.
Selling, General and Administrative Expense. The Company lowered its SG&A
expense, as a percentage of net sales, to 19.3% in 1998 from 19.4% in 1997. SG&A
expense for 1998 was $506.6 million, compared with $415.1 million in 1997 and
$354.7 million in 1996. Total SG&A expense increased 22.0% in 1998, compared
with 1997, primarily from opening and operating 435 net new stores. The lower
SG&A expense, as a percentage of net sales, achieved in 1998 primarily resulted
from (i) improved labor productivity and individual store level controls, (ii)
lower advertising costs through the elimination of the "spring" direct-
11
<PAGE> 12
mail circular, and (iii) lower self-insurance expense which was primarily the
result of improved claims prevention and management. All other expense
categories remained relatively flat as a percent of net sales.
Total SG&A expense increased 17.3% in 1997, compared with 1996, primarily
from opening and operating 318 net new stores. The SG&A expense as a percentage
of net sales of 19.4% in 1997, compared with 20.1% in 1996, was the result of
improved store labor productivity, lower advertising costs and lower self-
insurance expense.
Interest Expense. In 1998, interest expense decreased 19.2% to $3.8
million, compared with $4.7 million in 1997 and $7.4 million in 1996. This
decrease was primarily the result of improved accounts payable management and
better payment terms. Daily average total debt outstanding equaled $76.8 million
during 1998, compared with $88.0 million in 1997 and $104.3 million in 1996.
Provision for Taxes on Income. The effective income tax rates for 1998,
1997 and 1996 were 37.6%, 37.8% and 38.0%, respectively. The Company anticipates
its 1999 tax rate will decrease slightly as a result of state tax planning
initiatives.
Return on Equity and Assets. The ratio of net income to average
shareholders' equity was 27.0% in 1998, compared with 25.4% in 1997 and 23.6% in
1996. Return on average assets was 17.7% in 1998, compared with 16.5% in 1997
and 14.4% in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital. Working capital increased to $359.0 million in 1998,
compared with $280.1 million in 1997 and $262.5 million in 1996, or an increase
of 28.2% in 1998, 6.7% in 1997 and 30.5% in 1996. The year-end current ratio was
2.2 in 1998 and 1997 and 2.0 in 1996.
Cash Flows from Operating Activities. Net cash provided by operating
activities was $139.1 million in 1998, compared with $170.1 million in 1997 and
compared with net cash used by operations of $17.8 million in 1996. The cash
generated from net income before depreciation and deferred taxes was offset
partially by increased inventory levels. The higher level of inventory was the
result of the additional inventory required to stock the Virginia Distribution
Center and 435 net new stores.
The favorable 1997 year-end net cash provided was driven by cash generated
from net income before depreciation and deferred taxes coupled with the lower
amount of cash used to purchase merchandise. The lower inventory level was the
result of reduced softline merchandise purchases.
Cash Flows from Investing Activities. Capital expenditures in 1998 totaled
$107.7 million, compared with $84.4 million in 1997 and $60.5 million in 1996.
The Company opened 468 new stores and relocated or remodeled 195 stores at a
cost of $39.4 million in 1998. The Company also refurbished more than 2,400
stores to support the new merchandise mix at a cost of $11.9 million and
installed POS scanners in all stores at a cost of $11.4 million. Capital
expenditures during 1997 and 1996 for new, relocated and remodeled stores
totaled $27.0 million and $33.3 million, respectively.
Cash flows from investing activities increased as a result of the cash
provided from the $33.8 million sale/ leaseback of the Virginia Distribution
Center.
Distribution-related capital expenditures totaled $26.2 million in 1998
resulting primarily from the costs associated with the expansion of the Kentucky
Distribution Center and the purchase of new trailers. In 1997, the Company spent
$38.6 million primarily for costs associated with the construction of the
Virginia Distribution Center. In 1996, the Company spent $16.8 million for
expansion of existing distribution centers and the purchase of new distribution
trailers.
Capital expenditures during 1999 are projected to be $100 to $125 million.
This includes approximately $59 million for new stores, remodels and
relocations; $28 million for upgrades of the current distribution centers; and
$11 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 year-end (including
current maturities and short-term borrowings) was $24.7 million in 1998, $43.1
million in 1997 and $77.0 million in 1996. Long-term debt
12
<PAGE> 13
at January 30, 1998, was $1.3 million, a decrease of $1.3 million from 1997 and
$2.0 million from 1996. The ratio of total debt (including current maturities
and short-term borrowings) to equity decreased to 4.2% in 1998 from 8.9% in
1997, primarily as a result of lower average borrowing levels and interest
rates. Also the average daily use of short-term debt decreased $13.2 million in
1997 to $74.8 million in 1998.
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 short-term bank lines of credit totaling $175 million at
January 30, 1998. The Company's maximum outstanding short-term indebtedness in
1998 was $196 million in November 1997. Short-term bank lines of credit will be
up for renewal at various dates throughout 1999, and the Company currently
anticipates all of these agreements will be renewed.
During 1998, the Company renegotiated its revolving credit/term loan
facility and negotiated a $100 million leveraged lease facility. The revolving
credit/term loan facility, along with short term bank lines of credit, will be
used to fund working capital needs, open market stock repurchases and general
corporate needs. The leveraged lease facility will be used to meet capital
requirements related to construction of new stores, the new Mississippi
Distribution Center and the new corporate headquarters complex in
Goodlettsville, Tennessee. In March 1998, the Company renegotiated its revolving
credit/term loan facility and negotiated an additional $125 million under its
leveraged lease facility. This provides available credit of $175 million under
the revolving credit loan facility and $225 million under the leveraged lease
facility. The increase in the leveraged lease facility provides capital for the
planned two additional distribution centers and the opening of new stores. These
two credit facilities will expire September 2, 2002, and they contain financial
covenants similar to the Company's existing credit facilities.
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. 131 "Disclosures about Segments of an Enterprise and Related Information"
for the year ended January 29, 1999. Management does not believe adoption of
this standard will have a significant impact on the Company's financial
reporting.
YEAR 2000
The Company has considered the impact of the year 2000 on its computer
systems and applications. An action plan has been developed which includes
establishing a task force to evaluate the Company's major vendors' year 2000
Compliance. The Company is in the process of installing a new, previously
planned general ledger system that will be year 2000 compliant. Previously
planned software and equipment upgrades and revisions are expected to remedy
year 2000 compliance issues. The Company believes the impact of the year 2000
and related costs of compliance will not have any material impact on its
operations or liquidity.
13
<PAGE> 14
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
JANUARY 30, January 31,
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,128 $ 6,563
Merchandise inventories 631,954 476,103
Deferred income taxes 5,743 3,689
Other current assets 21,884 18,244
- ---------------------------------------------------------------------------
Total current assets 666,709 504,599
- ---------------------------------------------------------------------------
Property and equipment, at cost:
Land 5,698 240
Buildings 46,061 39,828
Furniture, fixtures and equipment 340,152 281,849
- ---------------------------------------------------------------------------
391,911 321,917
Less accumulated depreciation 150,466 113,381
- ---------------------------------------------------------------------------
Net property and equipment 241,445 208,536
- ---------------------------------------------------------------------------
Other assets 6,684 5,012
- ---------------------------------------------------------------------------
Total assets $914,838 $718,147
===========================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,450 $ 2,030
Short-term borrowings 21,933 38,469
Accounts payable 179,958 103,523
Accrued expenses 92,027 70,441
Income taxes 12,343 10,002
- ---------------------------------------------------------------------------
Total current liabilities 307,711 224,465
- ---------------------------------------------------------------------------
Long-term debt 1,294 2,582
- ---------------------------------------------------------------------------
Deferred income taxes 21,937 5,571
- ---------------------------------------------------------------------------
Commitments and contingencies
Shareholders' equity:
Preferred stock, stated value $.50 per share:
Shares authorized: 5,000,000
Issued:1998-1,716,000; 1997-1,716,000 858 858
Common Stock, par value $.50 per share:
Shares authorized: 200,000,000
Issued:1998-167,052,000; 1997-106,210,000 83,526 53,105
Additional paid-in capital 379,954 329,948
Retained earnings 320,085 302,145
- ---------------------------------------------------------------------------
784,423 686,056
Less treasury stock, at cost:
Shares:1998-26,180,000; 1997-16,755,000 200,527 200,527
- ---------------------------------------------------------------------------
Total shareholders' equity 583,896 485,529
- ---------------------------------------------------------------------------
Total liabilities and shareholders' equity $914,838 $718,147
===========================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
14
<PAGE> 15
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
For the years ended
JANUARY 30, January 31, January 31,
1998 1997 1996
---- ---- ----
% OF NET % of Net % of Net
AMOUNT SALES Amount Sales Amount Sales
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $2,627,325 100.0% $2,134,398 100.0% $1,764,188 100.0%
Cost of goods sold 1,885,190 71.8 1,529,603 71.7 1,260,569 71.5
- --------------------------------------------------------------------------------------------------------------
Gross profit 742,135 28.3 604,795 28.3 503,619 28.5
Selling, general and
administrative 506,592 19.3 415,119 19.4 354,712 20.1
- --------------------------------------------------------------------------------------------------------------
Operating profit 235,543 9.0 189,676 8.9 148,907 8.4
Interest expense 3,764 0.1 4,659 0.2 7,361 0.4
- --------------------------------------------------------------------------------------------------------------
Income before taxes
on income 231,779 8.8 185,017 8.7 141,546 8.0
Provisions for taxes
on income 87,151 3.3 69,917 3.3 53,728 3.0
- --------------------------------------------------------------------------------------------------------------
Net income $ 144,628 5.5% $ 115,100 5.4% $ 87,818 5.0%
==============================================================================================================
Diluted earnings per share $ 0.84 $ 0.67 $ 0.51
Weighted average diluted
shares (000) 171,490 172,213 171,288
Basic earnings per share $ 1.00 $ 0.80 $ 0.61
==============================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
15
<PAGE> 16
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the years ended January 30, 1998, and January 31, 1997 and 1996
(Amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
Additional
Preferred Common Paid-in Retained Treasury
Stock Stock Capital Earnings Stock
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances, January 31, 1995 $858 $ 33,971 $283,323 $ 207,436 $ 201,832
Net Income 87,818
5-for-4 stock split, April 26, 1996 8,552 (8,552)
Cash dividends, $0.20 per common share (11,463)
Cash dividends, $1.13 per preferred share (1,930)
Issuance of common stock under employee
stock incentive plans (462,000) 231 4,435
Reissuance of treasury stock
under employee stock incentive
plans (748,000 common shares) 7,515 (1,305)
Tax benefit from exercise of options 7,932
Transfer to employee stock ownership
plan (16,000 common shares) 8 404
- -------------------------------------------------------------------------------------------------------------------
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 of options 19,855
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
===================================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
16
<PAGE> 17
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
For the years ended
JANUARY 30, January 31, January 31,
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 144,628 $ 115,100 $ 87,818
Adjustments to reconcile net income to net
cash provided by (used in)
operating activities:
Depreciation and amortization 38,734 30,965 25,245
Deferred income taxes 14,312 10,878 (593)
Change in operating assets and liabilities:
Merchandise inventories (155,851) 12,259 (132,251)
Accounts payable 76,435 347 (8,499)
Accrued expenses 21,586 8,342 1,062
Income taxes 2,341 (4,755) 9,547
Other (3,066) (3,045) (98)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 139,119 170,091 (17,769)
- ------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of property and equipment (107,700) (84,411) (60,521)
Proceeds from sale of property and equipment 33,811 0 0
- ------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (73,889) (84,411) (60,521)
- ------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of short-term borrowings 166,180 193,692 150,109
Repayments of short-term borrowings (182,716) (227,369) (107,563)
Issuance of long-term debt 190 1,677 0
Repayments of long-term debt (2,058) (1,879) (1,394)
Payment of cash dividends (22,440) (16,856) (13,393)
Proceeds from exercise of stock options 30,847 17,729 13,486
Repurchase of common stock (75,123) (59,788) 0
Tax benefit from stock option exercises 19,855 8,809 7,932
Other 600 524 412
- ------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (64,665) (83,461) 49,589
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 565 2,219 (28,701)
Cash and cash equivalents, beginning of year 6,563 4,344 33,045
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 7,128 $ 6,563 $ 4,344
============================================================================================================
Supplemental cash flow information
Cash paid during year for:
Interest $ 4,608 $ 5,761 $ 7,745
Income taxes $ 50,831 $ 55,646 $ 36,854
============================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
17
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES:
The Company sells general merchandise on a retail basis through 3,169
stores at January 30, 1998, 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; and Indianola, Mississippi (under development).
Basis of presentation
The Company's fiscal year ends on the last Friday in January. The Company's
current fiscal year end was established for the year ended January 31,
1997. The following notes contain references to years 1998, 1997 and 1996
which represent fiscal years ended January 30, 1998, and January 31, 1997
and 1996, respectively. 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 $16.4 million, $18.4 million, and $20.6 million at January
30, 1998, and January 31, 1997 and 1996, respectively. LIFO reserves
decreased by $2.0 million in 1998, $2.2 million in 1997, and $1.6 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: buildings, 40 years; furniture, fixtures
and equipment, 3 to 10 years. Depreciation expense was $38.5 million, $30.8
million, and $25.1 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 future claim costs for such risks. To
the extent that subsequent claim costs vary from those estimates, current
earnings are charged or credited.
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.
18
<PAGE> 19
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.
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.
Outstanding but unpresented checks totaling $65.5 million and $45.9 million
at January 30, 1998 and January 31, 1997, 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 $175.0 million
at January 30, 1998, and $170.0 million at January 31, 1997. The lines are
subject to periodic review by the lending institutions which may increase
or decrease the amounts available. There were borrowings outstanding under
these lines of $1.9 million at January 30, 1998 and $8.5 million at January
31, 1997.
The Company also has a $175.0 million revolving credit/term loan agreement
which expires in September 2002. Borrowings under the revolver were $20.0
million and $30.0 million at January 30, 1998, and January 31, 1997,
respectively. 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 5.7%
and 5.6% at January 30, 1998 and January 31, 1997, respectively. The
revolving credit loan agreement contains certain restrictive covenants. At
January 30, 1998, the Company was in compliance with all such covenants.
At January 30, 1998 and January 31, 1997, the Company had outstanding
letters of credit totaling $66.5 million and $59.3 million, respectively.
3. ACCRUED EXPENSES:
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
(In thousands) 1998 1997
---------------------------------------------------------
<S> <C> <C>
Compensation and benefits $33,536 $24,976
Taxes (other than taxes on income) 18,887 8,392
Insurance 25,644 25,785
Other 13,960 11,288
---------------------------------------------------------
Total accrued expenses $92,027 $70,441
</TABLE>
19
<PAGE> 20
4. INCOME TAXES:
The provision for taxes consists of the following:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
---------------------------------------------------------
<S> <C> <C> <C>
Currently payable:
Federal $68,177 $54,015 $46,758
State 4,662 5,604 7,563
---------------------------------------------------------
Total currently payable 72,839 59,619 54,321
---------------------------------------------------------
Deferred:
Federal 13,503 8,710 (500)
State 809 1,588 (93)
---------------------------------------------------------
Total deferred 14,312 10,298 (593)
---------------------------------------------------------
Total provision $87,151 $69,917 $53,728
=========================================================
</TABLE>
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:
<TABLE>
<CAPTION>
1998 1997
(In thousands) ASSETS LIABILITIES Assets Liabilities
--------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inventories $3,008 $ 268 $ 956 $ 0
Property and equipment 0 20,969 0 5,432
Accrued insurance 1,967 0 2,008 0
Other 768 700 725 139
--------------------------------------------------------------------
Total deferred taxes $5,743 $21,937 $3,689 $5,571
====================================================================
</TABLE>
Reconciliation of the federal statutory rate and the effective income tax
rate follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net of federal
income tax benefit 2.7 2.8 3.4
Tax credits (0.1) 0.0 (0.2)
Other 0.0 0.0 (0.2)
------------------------------------------------------------------
Effective income tax rate 37.6% 37.8% 38.0%
==================================================================
</TABLE>
5. EARNINGS PER SHARE:
Amounts are in thousands, except per share data and shares have been
adjusted for the March 23, 1998, and September 22, 1997, five-for-four
common stock splits.
<TABLE>
<CAPTION>
1998
PER-SHARE
INCOME SHARES AMOUNT
--------------------------------
<S> <C> <C> <C>
NET INCOME $144,628
LESS: PREFERRED STOCK DIVIDENDS 3,269
-----------------------------------------------------------------------------
BASIC EARNINGS PER SHARE
INCOME AVAILABLE TO COMMON SHAREHOLDERS $141,359 141,200 $1.00
=====
STOCK OPTIONS OUTSTANDING 4,110
CONVERTIBLE PREFERRED STOCK 3,269 26,180
-----------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE
INCOME AVAILABLE TO COMMON SHAREHOLDERS
PLUS ASSUMED CONVERSIONS $144,628 171,490 $0.84
=============================================================================
</TABLE>
20
<PAGE> 21
<TABLE>
<CAPTION>
1997
PER-SHARE
INCOME SHARES AMOUNT
--------------------------------
<S> <C> <C> <C>
Net Income $115,100
Less: preferred stock dividends 2,413
-----------------------------------------------------------------------------
BASIC EARNINGS PER SHARE
Income available to common shareholders $112,687 140,895 $0.80
=====
Stock options outstanding 5,138
Convertible preferred stock 2,413 26,180
-----------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE
Income available to common shareholders
plus assumed conversions $115,100 172,213 $0.67
=============================================================================
</TABLE>
<TABLE>
<CAPTION>
1996
PER-SHARE
INCOME SHARES AMOUNT
--------------------------------
<S> <C> <C> <C>
Net Income $87,818
Less: preferred stock dividends 1,930
-----------------------------------------------------------------------------
BASIC EARNINGS PER SHARE
Income available to common shareholders $85,888 139,695 $0.61
=====
Stock options outstanding 5,413
Convertible preferred stock 1,930 26,180
-----------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE
Income available to common shareholders
plus assumed conversions $87,818 171,288 $0.51
=============================================================================
</TABLE>
Basic earnings per share were 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 were
determined based on the assumption that the convertible preferred stock was
converted upon issuance on August 22, 1994. In 1998, the Company adopted
SFAS No. 128, "Earnings per Share." As a result the Company's reported
earnings per share for 1997 and 1996 were recalculated. However, there was
no difference in diluted earnings per share under SFAS No. 128 and
previously reported fully diluted earnings per share (EPS) for 1997 and
1996 as adjusted for the March 23, 1998, and September 22, 1997,
five-for-four common stock splits.
6. COMMITMENTS AND CONTINGENCIES:
During 1998 the Company entered into a $100.0 million leveraged lease
facility. At January 30, 1998, 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 $100.0 million leveraged lease facility,
requiring minimum annual rental payments of (in millions): 1999, $57.9;
2000, $39.6; 2001, $23.7; 2002, $16.0; 2003, $9.4 and $58.1 in later fiscal
years. The Company had $260.0 million in facilities at January 30, 1998,
and January 31, 1997, available for the issuance of letters of credit. 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:
<TABLE>
<CAPTION>
(In thousands) 1998 1997 1996
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals $71,694 $57,054 $46,166
Contingent rentals 12,342 10,232 9,891
-------------------------------------------------------------------------------------------------
Total rentals $84,036 $67,286 $56,057
=================================================================================================
</TABLE>
21
<PAGE> 22
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 effect 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, $4.7
million, and $3.0 million in 1998, 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 and
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.
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. Under the compensation deferral plan participants may defer up to
50% of base pay and 100% of bonus, 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.
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 (i) convertible into common stock pursuant to the
terms and conditions set forth in the Restated Articles of Incorporation
and (ii) 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 and 1997, under the 1995 Employee Stock
Incentive Plan, the 1993 Employee Stock Incentive Plan, and the 1993
Employee Stock Incentive Plan (the "Employee Plans") and the 1995 Outside
Directors Stock Option Plan (the
22
<PAGE> 23
"Director Plan"), were non-qualified stock options issued at a price equal
to 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 the Employee Plans and the
Director Plan provide the Company with the ability to grant Incentive Stock
Options, no such grants were made during the last three fiscal years.
Under the Employee Plans, grants are made to key management employees
ranging from executive officers to managers and assistant managers as well
as other employees as prescribed by the Company's Corporate Governance and
Compensation Committee of the Board of Directors. Generally, 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 Director Plan provides for grants to non-employee directors according
to a formula as defined in the plan. 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 table below.
<TABLE>
<CAPTION>
(Amounts in thousands except per share data) 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income - as reported $144,628 $115,100 $87,818
Net income - pro forma $138,262 $111,618 $86,281
- --------------------------------------------------------------------------------
Earnings per share - as reported
Basic $ 1.00 $ 0.80 $ 0.61
Diluted $ 0.84 $ 0.67 $ 0.51
Earnings per share - pro forma
Basic $ 0.98 $ 0.79 $ 0.62
Diluted $ 0.81 $ 0.65 $ 0.51
- --------------------------------------------------------------------------------
</TABLE>
Earnings per share have been adjusted to give retroactive effect to all
common stock splits including the split distributed on March 23, 1998.
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 $7.55, $4.39 and $3.54 per share,
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:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Expected dividend yield 0.7% 0.7% 0.7%
Expected stock price volatility 40.0% 40.0% 40.0%
Weighted average risk-free interest rate 6.2% 6.0% 6.6%
Expected life of options (years) 3.0 3.0 3.0
- -------------------------------------------------------------------------
</TABLE>
23
<PAGE> 24
The summary of the status of all of the Company's stock incentive plans
as of January 30, 1998, January 31, 1997 and 1996, and changes during
the years then ended is presented below:
<TABLE>
<CAPTION>
Shares Weighted Average
Under Plans Exercise Price
---------------------------------------------------------------
<S> <C> <C>
Balance, January 31, 1995 13,553,378 $ 6.57
Granted 3,603,295 10.80
Exercised (3,023,013) 5.73
Canceled (564,568) 7.47
---------------------------------------------------------------
Balance, January 31, 1996 13,569,092 8.31
Granted 4,827,925 13.69
Exercised (2,767,808) 7.05
Canceled (1,298,918) 9.11
---------------------------------------------------------------
BALANCE, JANUARY 31, 1997 14,330,291 8.80
GRANTED 3,209,218 22.99
Exercised (3,850,920) 7.98
CANCELED (847,599) 12.53
---------------------------------------------------------------
BALANCE, JANUARY 30, 1998 12,840,990 12.99
===============================================================
</TABLE>
The following table summarizes information about stock options
outstanding at January 30, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------- --------------------------------------------
Number Weighted Weighted
Range of Outstanding Average Average Number Number Weighted
Exercise Prices Remaining Exercise Exercisable Exercise
at 1/30/98 Contract Life Price at 1/30/98 Price
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.73 to $10.00 3,492,229 4.9 years $ 5.27 2,509,354 $ 5.19
10.01 to 16.00 6,205,468 7.5 12.28 3,314,906 11.81
16.01 to 31.70 3,143,293 8.9 22.98 625 17.92
------------------------------------------------------------------------------------------------
$ 0.73 to $31.70 12,840,990 7.1 $12.99 5,824,885 $ 8.96
================================================================================================
</TABLE>
At January 30, 1998, shares available for granting of stock options under
the Company's stock option plans were 5,506,438 shares.
10. QUARTERLY FINANCIAL DATA (UNAUDITED):
The following is selected unaudited quarterly financial data for the
fiscal years ended January 30, 1998, and January 31, 1997. Amounts are in
thousands except per share data, and per share data has been adjusted for
the March 23, 1998, and September 22, 1997, five-for-four stock splits.
<TABLE>
<CAPTION>
QUARTER FIRST SECOND THIRD FOURTH YEAR
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998:
NET SALES $520,014 $596,820 $649,400 $861,091 $2,627,325
GROSS PROFIT 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 SHARE $ 0.11 $ 0.16 $ 0.20 $ 0.38 $ 0.84
-------------------------------------------------------------------------------------------------------------
1997:
Net Sales $455,856 $494,389 $508,977 $675,176 $2,134,398
Gross Profit 123,374 133,728 148,634 199,059 604,795
Net Income 15,024 21,885 26,642 51,549 115,100
Diluted Earnings
Per Share $ 0.09 $ 0.13 $ 0.15 $ 0.30 $ 0.67
-------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 25
11. SUBSEQUENT EVENT:
On March 23, 1998, the Company distributed a five-for-four common stock
split payable to shareholders of record on March 9, 1998. The effect of the
stock split has been retroactively reflected as of January 30, 1998, in the
consolidated balance sheet and statement of changes in shareholders'
equity, but activity for fiscal 1997 and prior periods was not restated in
those statements. All references to the number of common shares and per
share amounts elsewhere in the consolidated financial statements and
related footnotes have been restated as appropriate to reflect the effect
of the split for all periods presented.
25
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
Dollar General Corporation
Nashville, Tennessee
We have audited the accompanying consolidated balance sheet of Dollar General
Corporation and subsidiaries as of January 30, 1998, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
year 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 audit. The consolidated
financial statements of the Company for the years ended January 31, 1997 and
1996, were audited by other auditors whose report, dated March 5, 1997,
expressed an unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit 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 audit
provides a reasonable basis for our opinion.
In our opinion, the 1998 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Dollar
General Corporation and subsidiaries as of January 30, 1998, and the results of
its cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s/ DELOITTE & TOUCHE LLP
Nashville, Tennessee
February 24, 1998
26
<PAGE> 27
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders 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
each of the two fiscal years in the period ended January 31, 1997. 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/ Coopers & Lybrand L.L.P.
Louisville, Kentucky
March 5, 1997
27
<PAGE> 28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding the Company's directors is incorporated herein 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 Stockholders to be
held on June 1, 1998. Information regarding the Company's executive officers is
contained herein in Part I pursuant to General Instruction G(3).
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated herein 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 Stockholders to be held on June 1,
1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated herein 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 Stockholders to be held on June 1,
1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated herein 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 Stockholders to be
held on June 1, 1998.
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 31.
(b) No report on Form 8-K was filed by the Company during the quarter
ended January 30, 1998.
28
<PAGE> 29
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 20, 1998 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.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/ Cal Turner, Jr.
- ---------------------------------- Chairman of the Board April 20, 1998
CAL TURNER, JR. and Chief Executive Officer
(Principal Executive Officer)
/s/ Philip Richards
- ---------------------------------- Vice President-Chief April 20, 1998
PHILIP RICHARDS Financial Officer
/s/ Cal Turner
- ---------------------------------- Director April 20, 1998
CAL TURNER
/s/ Wallace N. Rasmussen
- ---------------------------------- Director April 20, 1998
WALLACE N. RASMUSSEN
/s/ John B. Holland
- ---------------------------------- Director April 20, 1998
JOHN B. HOLLAND
/s/ William S. Wire, II
- ---------------------------------- Director April 20, 1998
WILLIAM S. WIRE, II
/s/ James L. Clayton
- ---------------------------------- Director April 20, 1998
JAMES L. CLAYTON
/s/ David M. Wilds
- ---------------------------------- Director April 20, 1998
DAVID M. WILDS
/s/ Reginald D. Dickson
- ---------------------------------- Director April 20, 1998
REGINALD D. DICKSON
/s/ Barbara M. Knuckles
- ---------------------------------- Director April 20, 1998
BARBARA M. KNUCKLES
</TABLE>
29
<PAGE> 30
INDEX TO EXHIBITS
3(a) Restated Articles of Incorporation, as amended (incorporated by
reference to the Registrant's Annual Report on Form 10-K for the
fiscal year ended January 31, 1993).
3(b) Bylaws as amended February 1, 1993 (incorporated by reference to
the Annual Report on Form 10-K for the fiscal year ended January
31, 1993).
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 of Stockholders held June 5, 1995).
21 Subsidiaries of the Registrant.
23(a) Consent of Deloitte & Touche,LLP
23(b) Consent of Coopers and Lybrand L.L.P.
27 Financial Data Schedule.
30
<PAGE> 1
EXHIBIT 21
DOLLAR GENERAL CORPORATION
List of Subsidiaries
<TABLE>
<CAPTION>
Name of Subsidiary State of Organization
------------------ ---------------------
<S> <C>
Dolgencorp, Inc. Kentucky
Dolgencorp, Inc. of Texas Kentucky
Dade Lease Management, Inc. Delaware
Dollar General Indiana Partners Kentucky
Greater Cumberland Insurance Company Vermont
Dollar General Intellectual Properties, LLP Vermont
</TABLE>
<PAGE> 1
EXHIBIT 23(a)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-00141 of Dollar General Corporation on Form S-8 of our report dated
February 24, 1998, appearing in the Annual Report on Form 10-K of Dollar
General Corporation for the year ended January 30, 1998.
/s/ DELOITTE & TOUCHE LLP
Nashville, Tennessee
April 17, 1998
<PAGE> 1
EXHIBIT 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Dollar General Corporation on Form S-8 (Nos. 33-23796, 33-31827, 33-51589 and
33-51591) of our report dated March 5, 1997 on our audits of the consolidated
financial statements of Dollar General Corporation and Subsidiaries as of
January 31, 1997 and for the years ended January 31, 1997 and 1996, which
report is included in the Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
Louisville, Kentucky
April 17, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-30-1998
<PERIOD-END> JAN-30-1998
<CASH> 7,128
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 631,954
<CURRENT-ASSETS> 666,709
<PP&E> 391,911
<DEPRECIATION> 150,466
<TOTAL-ASSETS> 914,838
<CURRENT-LIABILITIES> 307,711
<BONDS> 0
83,526
0
<COMMON> 858
<OTHER-SE> 499,512
<TOTAL-LIABILITY-AND-EQUITY> 914,838
<SALES> 2,627,325
<TOTAL-REVENUES> 2,627,325
<CGS> 1,885,190
<TOTAL-COSTS> 506,592
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,764
<INCOME-PRETAX> 231,779
<INCOME-TAX> 87,151
<INCOME-CONTINUING> 144,628
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 144,628
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 0.84
</TABLE>
