UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 30, 1999
Commission file number 1-11421
DOLLAR GENERAL CORPORATION
(Exact name of registrant as specified in its charter)
TENNESSEE 61-0502302
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
104 Woodmont Blvd.
Suite 500
Nashville, Tennessee 37205
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (615) 783-2000
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____.
The number of shares of common stock outstanding at September 9, 1999, was
265,979,479.
<PAGE>
Dollar General Corporation
Form 10-Q
For the Quarter Ended July 30, 1999
Index
Part I. Financial Information
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets as of July 30, 1999,
January 29, 1999 (derived from the audited financial
statements) and
July 31, 1998.
Consolidated Statements of Income for the three
months ended July 30, 1999 and July 31, 1998 and the
six months ended
July 30, 1999 and July 31, 1998.
Consolidated Statements of Cash Flows
for the six months ended July 30, 1999
and July 31, 1998.
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
July 30, Jan. 29, July 31,
1999 1999 1998
(Unaudited) * (Unaudited)
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<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 25,303 $ 22,294 $ 33,158
Merchandise inventories 951,109 811,722 797,277
Deferred income taxes 2,664 2,523 6,192
Other current assets 49,767 42,378 37,553
- -----------------------------------------------------------------------------------------------------------------------------------
Total current assets 1,028,843 878,917 874,180
Property and equipment, at cost 523,601 528,238 445,362
Less: accumulated depreciation 219,978 201,830 174,886
- -----------------------------------------------------------------------------------------------------------------------------------
303,623 326,408 270,476
Other assets 9,617 6,459 6,546
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Total assets $ 1,342,083 $ 1,211,784 $ 1,151,202
===================================================================================================================================
<PAGE>
<CAPTION>
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
July 30, Jan. 29, July 31,
1999 1999 1998
(Unaudited) * (Unaudited)
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<S> <C> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,420 $ 725 $ 704
Short-term borrowings 148,494 0 160,856
Accounts payable 209,868 257,759 214,496
Accrued expenses 104,405 172,825 109,416
Income taxes 21,142 23,825 0
- -----------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 485,329 455,134 485,472
Long-term debt 1,507 786 223
Deferred income taxes 18,089 30,103 21,665
Shareholders' equity:
Preferred stock 858 858 858
Common stock 133,116 105,121 105,211
Additional paid-in capital 440,482 418,039 406,079
Retained earnings 463,229 402,270 332,221
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1,037,685 926,288 844,369
Less: treasury stock 200,527 200,527 200,527
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Total shareholders' equity 837,158 725,761 643,842
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Total liabilities and
shareholders' equity $ 1,342,083 $ 1,211,784 $ 1,151,202
===================================================================================================================================
</TABLE>
* Derived from the January 29, 1999 audited financial statements.
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
July 30, July 31, July 30, July 31,
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 915,210 $ 741,355 $ 1,759,803 $ 1,446,615
Cost of goods sold 665,628 535,874 1,284,274 1,050,802
- ----------------------------------------------------------------------------------------------------------------------------
Gross profit 249,582 205,481 475,529 395,813
Selling, general and
administrative expense 182,407 150,401 350,458 291,340
- ----------------------------------------------------------------------------------------------------------------------------
Operating profit 67,175 55,080 125,071 104,473
Interest expense 1,897 2,031 2,776 2,970
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Income before taxes on income 65,278 53,049 122,295 101,503
Provision for taxes on income 23,663 19,761 44,332 37,810
- ----------------------------------------------------------------------------------------------------------------------------
Net income $ 41,615 $ 33,288 $ 77,963 $ 63,693
============================================================================================================================
Diluted earnings per share $ 0.15 $ 0.12 $ 0.29 $ 0.24
============================================================================================================================
Weighted average diluted shares 271,069 268,291 270,011 268,511
============================================================================================================================
Basic earnings per share $ 0.18 $ 0.15 $ 0.34 $ 0.28
============================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended
July 30, July 31,
1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net income $ 77,963 $ 63,693
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 30,296 25,312
Deferred income taxes (12,155) (721)
Change in operating assets and liabilities:
Merchandise inventories (139,387) (165,323)
Other current assets (7,389) (15,669)
Accounts payable (47,891) 34,538
Accrued expenses (68,420) 17,389
Income taxes (2,683) (12,343)
Other 823 1,169
- ---------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (168,843) (51,955)
- ---------------------------------------------------------------------------------------------------------------
Investing activities:
Purchase of property and equipment (73,433) (58,210)
Proceeds from sale of property and equipment 61,941 2,836
- ---------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (11,492) (55,374)
- ---------------------------------------------------------------------------------------------------------------
Financing activities:
Issuance of short-term borrowings 222,814 184,603
Repayments of short-term borrowings (74,320) (45,680)
Issuance of long-term debt 2,086 0
Repayments of long-term debt (670) (1,817)
Payments of cash dividend (17,004) (14,873)
Proceeds from exercise of stock options 26,523 23,062
Repurchase of common stock 0 (37,183)
Tax benefit of stock options exercised 23,915 25,247
- ---------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 183,344 133,359
- ---------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 3,009 26,030
Cash and cash equivalents, beginning of period 22,294 7,128
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 25,303 $ 33,158
===============================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands except per share amounts)
(Unaudited)
1. Basis of Presentation
The accompanying consolidated financial statements are presented in accordance
with the requirements of Form 10-Q and consequently do not include all of the
disclosures normally required by generally accepted accounting principles or
those normally made in the Company's Annual Report on Form 10-K. Accordingly,
the reader of the quarterly report on Form 10-Q should refer to the Company's
Annual Report on Form 10-K for the year ended January 29, 1999, for additional
information.
The accompanying consolidated financial statements have been prepared in
accordance with the Company's customary accounting practices and have not been
audited. In management's opinion, all adjustments (which are of a normal
recurring nature) necessary for a fair presentation of the consolidated results
of operations for the three-month periods ended July 30, 1999 and July 31, 1998,
respectively, have been made.
Interim cost of goods sold is determined using estimates of inventory shrinkage,
inflation, and markdowns which are adjusted to reflect actual results at
year-end. Because of the seasonal nature of the Company's business, the results
for interim periods are not necessarily indicative of the results to be expected
for the entire year.
<PAGE>
2. Shareholders' Equity
Changes in shareholders' equity for the three months ended July 30, 1999 and
July 31, 1998 were as follows.
<TABLE>
<CAPTION>
Additional
Preferred Common Paid-In Retained Treasury
Stock Stock Capital Earnings Stock Total
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<S> <C> <C> <C> <C> <C> <C>
Balances, January 30, 1998 $ 858 $ 83,526 $ 379,954 $ 320,085 $ (200,527) $ 583,896
Net income 63,693 63,693
5-for-4 stock split,
Septebmber 21, 1998 21,042 (21,042) 0
Cash dividend, $.07 per
common share, as declared (12,779) (12,779)
Cash dividend, $1.22 per
preferred share (2,094) (2,094)
Issuance of common
stock under employee stock
incentive plans 1,142 21,920 23,062
Stock repurchased (499) (36,684) (37,183)
Tax benefit of stock options
exercised 25,247 25,247
===================================================================================================================================
Balances, July 31, 1998 $ 858 $ 105,211 $ 406,079 $ 332,221 $ (200,527) $ 643,842
===================================================================================================================================
<CAPTION>
Additional
Preferred Common Paid-In Retained Treasury
Stock Stock Capital Earnings Stock Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 29, 1999 $ 858 $ 105,121 $ 418,039 $ 402,270 $ (200,527) $ 725,761
Net income 77,963 77,963
5-for-4 stock split, May 24, 1999 26,573 (26,573) 0
Cash dividend, $.06 per
common share, as declared (14,648) (14,648)
Cash dividend, $1.37 per
preferred share (2,356) (2,356)
Issuance of common
stock under employee stock
incentive plans 1,422 25,101 26,523
Tax benefit of stock options
exercised 23,915 23,915
===================================================================================================================================
Balances, July 30, 1999 $ 858 $ 133,116 $ 440,482 $ 463,229 $ (200,527) $ 837,158
===================================================================================================================================
</TABLE>
<PAGE>
3. Earnings Per Share
Shares have been adjusted for all stock splits including the May 24, 1999
five-for-four common stock split. Six months ended July 30, 1999
<TABLE>
<CAPTION>
Per-Share
Income Shares Amount
---------------------------------------------------
<S> <C> <C> <C>
Net income $ 77,963
Less: preferred stock dividends 2,356
- ---------------------------------------------------------------------------------------------------
Basic earnings per share
Income available to common shareholders $ 75,607 223,942 $ 0.34
====================
Stock options outstanding 5,310
Convertible preferred stock 2,356 40,906
- ---------------------------------------------------------------------------------------------------
Diluted earnings per share
Income available to common shareholders
plus assumed conversions $ 77,963 270,158 $ 0.29
===================================================================================================
<CAPTION>
Six months ended July 31, 1998
Per-Share
Income Shares Amount
---------------------------------------------------
<S> <C> <C> <C>
Net income $ 63,693
Less: preferred stock dividends 2,094
- ---------------------------------------------------------------------------------------------------
Basic earnings per share
Income available to common shareholders $ 61,599 220,692 $ 0.28
===================
Stock options outstanding 6,913
Convertible preferred stock 2,094 40,906
- ---------------------------------------------------------------------------------------------------
Diluted earnings per Share
Income available to common shareholders
plus assumed conversions $ 63,693 268,511 $ 0.24
===================================================================================================
<PAGE>
<CAPTION>
Three months ended July 30, 1999
Per-Share
Income Shares Amount
---------------------------------------------------
<S> <C> <C> <C>
Net income $ 41,615
Less: preferred stock dividends 1,178
- ---------------------------------------------------------------------------------------------------
Basic earnings per share
Income available to common shareholders $ 40,437 224,929 $ 0.18
===================
Stock options outstanding 5,234
Convertible preferred stock 1,178 40,906
- ---------------------------------------------------------------------------------------------------
Diluted earnings per share
Income available to common shareholders
plus assumed conversions $ 41,615 271,069 $ 0.15
===================================================================================================
<CAPTION>
Three months ended July 31, 1998
Per-Share
Income Shares Amount
---------------------------------------------------
<S> <C> <C> <C>
Net income $ 33,288
Less: preferred stock dividends 1,047
- ---------------------------------------------------------------------------------------------------
Basic earnings per share
Income available to common shareholders $ 32,241 221,005 $ 0.15
===================
Stock options outstanding 6,380
Convertible preferred stock 1,047 40,906
- ---------------------------------------------------------------------------------------------------
Diluted earnings per share
Income available to common shareholders
plus assumed conversions $ 33,288 268,291 $ 0.12
===================================================================================================
</TABLE>
<PAGE>
4. Stock Repurchases
Under current Board authorization, which expires May 1, 2001, the Company may
repurchase up to 6.3 million shares from time to time in the open market or in
privately negotiated transactions. The Company may repurchase shares depending
upon the market price of the shares and other factors in order to offset the
impact of the Company's employee stock option program and to take advantage of
an undervalued share price as cash is available. As a part of its share
repurchase program, the Company has entered into equity collar arrangements with
independent third parties. Under these arrangements, the Company sold put
warrants to independent third parties which entitle the holders to sell shares
of the Company's common stock to the Company on certain dates at specified
prices. In addition, the Company purchased call options which entitle the
Company to purchase shares of the Company's common stock on certain dates at
specified prices. The Company has the option of a net-share settlement. At July
30, 1999, put warrants on 2.0 million shares of common stock and call options on
1.0 million shares of common stock were outstanding. The outstanding warrants
and options expire in March 2000 and have strike prices ranging from $22 to $26
per share.
5. Segment Reporting
The Company manages its business on the basis of one reportable segment. As of
July 30, 1999 and July 31, 1998, all of the Company's operations were located
within the United States. The following data is presented in accordance with
Statements of Financial Accounting Standards No. 131 "Disclosures about Segments
of an Enterprise and Related Information."
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 30, July 31, July 30, July 31,
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Classes of similar products
Net sales:
Hardlines $ 755,473 $ 607,032 $1,448,154 $1,186,690
Softlines 159,737 134,323 311,649 259,925
- ---------------------------------------------------------------------------------------------------
$ 915,210 $ 741,355 $1,759,803 $1,446,615
===================================================================================================
</TABLE>
6. Subsequent Event
On August 23, 1999 the holders of all of the Company's 1,715,742 shares of
Series A Convertible Junior Preferred Stock converted their shares to 40,906,477
shares of Dollar General Common Stock in accordance with the relevant provisions
of the Company's Charter.
<PAGE>
ITEM 2. 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
Dollar General Corporation (the "Company") believes the assumptions underlying
the forward-looking statements are reasonable, any of the assumptions could be
inaccurate, and therefore, there can be no assurance that the forward-looking
statements 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;
interruptions in suppliers' operations; inventory risks due to shifts in market
demand; changes in product mix; costs and delays associated with building,
opening and operating new distribution centers; and the other risk factors
referenced in the Annual Report on Form 10-K for the year ended January 29, 1999
and the Company's other periodic reports and filings with the Securities and
Exchange Commission. The Company undertakes no obligation to publicly release
any revisions to any forward-looking statements to reflect events or
circumstances occurring after the date of this report.
The following text contains references to years 1999, 1998, 1997 and 1996 which
represent fiscal years ending or ended January 28, 2000, January 29, 1999,
January 30, 1998 and January 31, 1997, respectively. This discussion and
analysis should be read in conjunction with, and is qualified in its entirety
by, the consolidated financial statements and their notes thereto.
RESULTS OF OPERATIONS
The nature of the Company's business is seasonal. Historically, sales in the
fourth quarter have been significantly higher than sales achieved in each of the
first three quarters of the fiscal year. Thus, expenses, and to a greater extent
operating income, vary by quarter. Results of a period shorter than a full year
may not be indicative of results expected for the entire year. Furthermore,
comparing any period to a period other than the same period of the previous year
may reflect the seasonal nature of the Company's business.
SIX MONTHS ENDED JULY 30, 1999 AND JULY 31, 1998
NET SALES. Net sales for the first six months of 1999 increased $313.2 million,
or 21.7%, to $1,759.8 million from $1,446.6 million for the comparable period in
1998. The increase resulted from 537 net additional stores being in operation as
of July 30, 1999, as compared with July 31, 1998, and an increase of 7.3% in
same-store sales. The increase in same-store sales for the six and three month
periods ended July 30, 1999 was primarily driven by continued improvements in
the Company's consumable basic merchandise mix and improved in-stock levels.
Same-store sales growth resulted in a 14.1% increase for the same period last
year driven by the addition of 700 faster-turning consumable items to the
merchandise mix and refurbishing more than 2,400 stores to a new prototype
reflecting a 65% hardlines/35% softlines space allocation versus the previous
50%/50% allocation.
The Company defines same stores as those opened before the beginning of the
previous fiscal year which have remained open throughout the current period.
GROSS PROFIT. Gross profit for the first six months of 1999 was $475.5 million,
or 27.0% of net sales, compared with $395.8 million, or 27.4% of net sales, in
the same period last year. This decrease was driven by higher distribution
expense associated with the operation of additional distribution centers
compared with the same six-month period last year.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSE. SG&A expense for the first
six months of 1999 totaled $350.5 million, or 19.9% of net sales, compared with
$291.3 million, or 20.1% of net sales during the comparable period last year.
Total SG&A expense increased 20.3% primarily as a result of 537 net additional
stores being in operation compared with the same six-month period last year.
INTEREST EXPENSE. Interest expense decreased to $2.8 million, or 0.16% of sales,
compared with $3.0 million or 0.21%, in the comparable period last year. This
decrease is primarily a result of lower average borrowings during the comparable
period.
PROVISIONS FOR TAXES ON INCOME. The effective income tax rate for the three and
six-month periods ended July 30, 1999 was 36.3% compared with 37.3% in the
comparable period last year. The 1999 effective tax rate decreased as a result
of certain tax planning strategies.
THREE MONTHS ENDED JULY 30, 1999 AND JULY 31, 1998
NET SALES. Net sales for the quarter increased $173.8 million, or 23.4%, to
$915.2 million from $741.4 million for the comparable period in 1998. The
increase resulted from 537 net additional stores being in operation as of July
30, 1999, compared with July 31, 1998, and an increase of 9.0% in same-store
sales. Same-store sales increased 9.2% for the second quarter last year.
GROSS PROFIT. Gross profit for the quarter was $249.6 million, or 27.3% of net
sales, compared with $205.5 million, or 27.7% of net sales, in the same period
last year. This decrease was driven by higher distribution expense associated
with the operation of additional distribution centers compared with the second
quarter last year.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSE. SG&A expense for the quarter
totaled $182.4 million, or 19.9% of net sales, compared with $150.4 million, or
20.3% of net sales during the comparable period last year. Total SG&A expense
increased 21.3% primarily as a result of 537 net additional stores being in
operation compared with the same three month period last year.
INTEREST EXPENSE. Interest expense decreased to $1.9 million, or 0.21% of sales,
from $2.0 million, or 0.27% of sales, in the comparable period last year.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities - Net cash used by operating activities
totaled $168.8 million during the first six months of 1999, compared with $52.0
million cash used in operating activities in the comparable period last year.
This increase in use of cash was primarily driven by decreased accounts payable
leverage as a result of receiving imported seasonal merchandise earlier than
last year and decreased accrued expenses as a result of a $61.9 million decrease
in advances received from the sale/leasebacks of the South Boston, Virginia
distribution center expansion and the Ardmore, Oklahoma distribution center.
Cash flows from investing activities - Net cash used by investing activities
totaled $11.5 million during the first six months of 1999 compared with $55.4
million in the comparable period last year. The decrease in cash used by
investing activities was primarily the result of $61.9 million of proceeds
recognized in 1999 from the sale/leasebacks of the South Boston, Virginia
distribution center expansion and the Ardmore, Oklahoma distribution center.
Current period cash used resulted from $73 million in capital expenditures
primarily from opening 324 new stores during the first six months of 1999.
Cash flows from financing activities - Total debt (including current maturities
and short-term borrowings) at July 30, 1999 was $151.4 million compared with
$161.8 million at July 31, 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 $175.0 million revolving
credit/term loan facility and short-term bank lines of credit totaling $155.0
million at July 30, 1999. The Company had short-term borrowings of $148.5
million outstanding as of July 30, 1999 and $160.9 million as of July 31, 1998.
Management believes seasonal working capital expenditure requirements will
continue to be met through cash flow provided by operations supplemented by the
revolving credit/term loan facility and short-term bank lines of credit.
On June 11, 1999, the Company entered into a five year commercial paper funded
synthetic lease facility with $200.0 million capacity. This facility will be
funded as needed for the construction of new stores and new distribution
centers. As of July 30, 1999 $5.0 million of construction costs for new stores
had been funded under this facility.
The Company had previously entered into a synthetic lease facility with $225.0
million capacity to fund the capital requirements for the construction of new
stores, new distribution centers and the new corporate headquarters complex. As
of July 30, 1999, $217.8 million of construction costs had been funded under
this facility including: $82.4 million for new stores; $53.2 million for the
Fulton, Missouri distribution center; $45.5 million for the Indianola,
Mississippi distribution center and $36.7 million for the corporate headquarters
complex.
On July 16, 1999, the Company replaced its existing interest-rate-swap
agreements with $200 million in interest rate swaps maturing in February 2001
with an option by the counter-parties to extend the swap to September 2002. The
purpose of the interest rate swap is to fix the interest rate on $200 million of
leveraged lease financing.
ACCOUNTING PRONOUNCEMENTS
The Company is in the process of analyzing the impact of the adoption of
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities" as amended by SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of
Effective Date of FASB Statement No. 133." Adoption of this Statement, as
amended, is required for the Company's fiscal year ending February 1, 2002.
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 third quarter of 1999. The
Company has completed testing the year 2000 readiness of many of its systems and
expects to complete the testing process by October 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 approximately $300,000. 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 cost 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 business
partner'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 utility companies that provide
utility service to the Company's individual stores and its distribution centers.
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 October 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.
<PAGE>
ITEM 3. 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 July 30, 1999, the Company
had outstanding short term borrowings of $148.5 million at a weighted average
interest rate of 5.33%.
On July 16,1999, the Company replaced its existing interest-rate-swap agreements
with $200 million in interest rate swaps maturing in February 2001 with an
option by the counter-parties to extend the swap agreements to September 2002.
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 5.26% on
$200 million of the $225 million facility rather than a rate based on the
one-month LIBOR, which was 5.24% at July 30, 1999. The fair value of the
interest rate swap agreements was $2.0 million at July 30, 1999.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Not applicable.
Item 2. Not applicable.
Item 3. Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
At the Annual Meeting of Shareholders of the Corporation held June 7,
1999, the shareholders voted on these proposals as follows:
Proposal No. 1: Election of Directors.
The following nominees were elected to serve as Directors of the
Corporation until the next Annual Shareholders' Meeting:
<TABLE>
<CAPTION>
Votes
Nominee Votes For Withheld/Against
--------------------------------------------------------------------------
<S> <C> <C>
Dennis C. Bottorff 173,598,687 586,550
James L. Clayton 173,636,178 549,059
Reginald D. Dickson 173,633,724 551,513
John B. Holland 173,607,000 578,237
Barbara M. Knuckles 173,638,204 547,033
Cal Turner, Jr. 173,491,249 693,988
Cal Turner, Sr. 173,616,575 568,662
David M. Wilds 173,634,595 550,642
William S. Wire, II 173,590,398 594,839
</TABLE>
Proposal No. 2: Shareholder Proposal Regarding Equal Employment
Opportunity Information.
Number of shares for 11,607,661
Number of shares against 116,636,238
Number of shares abstaining 4,058,642
Proposal No. 3: Shareholder Proposal Regarding Cumulative Voting.
Number of shares for 37,040,467
Number of shares against 92,867,804
Number of shares abstaining 2,394,268
Item 5. Not applicable.
Item 6. A. Exhibits:
27 Financial Data Schedule (for SEC use only)
B. Reports on Form 8-K
No Current Reports on Form 8-K were filed by Dollar General
Corporation during the quarter ended July 30, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DOLLAR GENERAL CORPORATION
(Registrant)
September 10, 1999 By: /s/Brian M. Burr
----------------------------------------
Brian M. Burr, Executive Vice President,
Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 6-MONS
<FISCAL-YEAR-END> JAN-28-2000 JAN-29-1999
<PERIOD-END> JULY-30-1999 JULY-31-1998
<CASH> 25,303 33,158
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 951,109 797,277
<CURRENT ASSETS> 1,028,843 874,180
<PP&E> 523,601 445,362
<DEPRECIATION> 219,978 174,886
<TOTAL ASSETS> 1,342,083 1,151,202
<CURRENT-LIABILITIES> 485,329 485,472
<BONDS> 0 0
<COMMON> 133,116 105,211
0 0
858 858
<OTHER-SE> 703,184 537,773
<TOTAL-LIABILITY-AND-EQUITY> 1,342,083 1,151,202
<SALES> 1,759,803 1,446,615
<TOTAL-REVENUES> 1,759,803 1,446,615
<CGS> 1,284,274 1,050,802
<TOTAL-COSTS> 350,458 291,340
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 2,776 2,970
<INCOME-PRETAX> 122,295 101,503
<INCOME-TAX> 44,332 37,810
<INCOME-CONTINUING> 77,963 63,693
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 77,963 63,693
<EPS-BASIC> 0.34 0.28
<EPS-DILUTED> 0.29 0.24
</TABLE>
