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 October 29, 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.)
100 Mission Ridge
Goodlettsville, Tennessee 37072
(Address of principal executive offices, zip code)
Registrant's telephone number, including area code: (615) 855-4000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No____.
The number of shares of common stock outstanding at December 3, 1999, was
264,317,067.
<PAGE>
Dollar General Corporation
Form 10-Q
For the Quarter Ended October 29, 1999
Index
Part I. Financial Information
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets as of October 29, 1999,
January 29, 1999 (derived from the audited financial
statements) and
October 30, 1998
Consolidated Statements of Income for the three
months ended October 29, 1999 and October 30, 1998
and the nine months ended
October 29, 1999 and October 30, 1998
Consolidated Statements of Cash Flows
for the nine months ended October 29, 1999
and October 30, 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 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)
Oct. 29 Jan. 29, Oct. 30
1999 1999 1998
(Unaudited) * (Unaudited)
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<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 35,690 $ 22,294 $ 18,254
Merchandise inventories 1,105,503 811,722 944,266
Deferred income taxes 5,373 2,523 6,233
Other current assets 67,162 42,378 34,692
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Total current assets 1,213,728 878,917 1,003,445
Property and equipment, at cost 560,219 528,238 477,281
Less: accumulated depreciation 235,360 201,830 188,241
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324,859 326,408 289,040
Other assets 10,538 6,459 6,498
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Total assets $1,549,125 $1,211,784 $1,298,983
====================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,243 $ 725 $ 649
Short-term borrowings 180,099 0 259,679
Accounts payable 347,563 257,759 280,776
Accrued expenses 115,263 172,825 85,398
Income taxes 29,290 23,825 8,026
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Total current liabilities 673,458 455,134 634,528
Long-term debt 1,526 786 189
Deferred income taxes 12,079 30,103 12,277
Shareholders' equity:
Preferred stock 0 858 858
Common stock 132,653 105,121 105,010
Additional paid-in capital 250,321 418,039 415,762
Retained earnings 479,088 402,270 330,886
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862,062 926,288 852,516
Less: treasury stock 0 200,527 200,527
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Total shareholders' equity 862,062 725,761 651,989
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Total liabilities and
shareholders' equity $1,549,125 $1,211,784 $1,298,983
====================================================================================================================================
</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 Nine Months Ended
Oct. 29 Oct. 30 Oct. 29 Oct. 30
1999 1998 1999 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 950,419 $ 781,389 $ 2,710,222 $ 2,228,004
Cost of goods sold 672,562 556,655 1,956,836 1,607,457
- -------------------------------------------------------------------------------------------------------------------------
Gross profit 277,857 224,734 753,386 620,547
Selling, general and
administrative expense 195,753 158,445 546,211 449,786
- -------------------------------------------------------------------------------------------------------------------------
Operating profit 82,104 66,289 207,175 170,761
Interest expense 2,326 3,315 5,102 6,285
- -------------------------------------------------------------------------------------------------------------------------
Income before taxes on income 79,778 62,974 202,073 164,476
Provision for taxes on income 28,919 22,636 73,251 60,445
- -------------------------------------------------------------------------------------------------------------------------
Net income $ 50,859 $ 40,338 $ 128,822 $ 104,031
=========================================================================================================================
Diluted earnings per share $ 0.19 $ 0.15 $ 0.48 $ 0.39
=========================================================================================================================
Weighted average diluted shares 270,391 268,341 269,712 268,454
=========================================================================================================================
Basic earnings per share $ 0.19 $ 0.18 $ 0.54 $ 0.46
=========================================================================================================================
</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
Oct. 29 Oct. 30
1999 1998
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<S> <C> <C>
Operating activities:
Net income $ 128,822 $ 104,031
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 46,759 38,825
Deferred income taxes (20,874) (10,150)
Change in operating assets and liabilities:
Merchandise inventories (293,781) (312,312)
Other current assets (24,784) (12,808)
Accounts payable 89,804 100,818
Accrued expenses (57,562) (6,629)
Income taxes 5,465 (4,317)
Other (30) 1,751
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Net cash used in operating activities (126,181) (100,791)
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Investing activities:
Purchase of property and equipment (112,441) (104,090)
Proceeds from sale of property and equipment 63,182 16,105
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Net cash used in investing activities (49,259) (87,985)
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Financing activities:
Issuance of short-term borrowings 237,914 358,078
Repayments of short-term borrowings (57,815) (120,332)
Issuance of long-term debt 3,104 0
Repayments of long-term debt (1,846) (1,906)
Payments of cash dividend (25,619) (20,960)
Proceeds from exercise of stock options 32,235 27,247
Repurchase of common stock (26,999) (73,236)
Tax benefit of stock options exercised 27,862 30,256
Other 0 755
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Net cash provided by financing activities 188,836 199,902
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Net increase in cash and cash equivalents 13,396 11,126
Cash and cash equivalents, beginning of period 22,294 7,128
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Cash and cash equivalents, end of period $ 35,690 $ 18,254
====================================================================================================================================
</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 and nine-month periods ended October 29, 1999
and October 30, 1998, have been made. Certain reclassifications have been made
to the 1998 financial statements to agree to the 1999 presentation.
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.
2. Shareholders' Equity
Changes in shareholders' equity for the nine months ended October 29, 1999 and
October 30, 1998 were as follows.
<PAGE>
<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 104,031 104,031
5-for-4 stock split,
September 21, 1998 21,090 (21,090) 0
Cash dividend, $.10 per
common share, as declared (18,438) (18,438)
Cash dividend, $1.65 per
preferred share (2,555) (2,555)
Issuance of common
stock under employee stock
incentive plans 1,377 25,903 27,280
Stock repurchase (999) (72,237) (73,236)
Tax benefit of stock options
exercised 30,256 30,256
Transfer to 401(k) savings
and retirement plan 16 739 755
- -----------------------------------------------------------------------------------------------------------------------------------
Balances, October 30, 1998 $ 858 $105,010 $415,762 $330,886 $ (200,527) $651,989
===================================================================================================================================
<PAGE>
<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 128,822 128,822
Cash dividend, $.10 per
common share, as declared (24,441) (24,441)
Cash dividend, $1.37 per
preferred share (1,178) (1,178)
5-for-4 stock split,
May 24, 1999 26,573 (26,573) -
Issuance of common
stock under employee stock
incentive plans 1,573 30,662 32,235
Conversion of preferred stock
to common stock (858) (199,669) 200,527 -
Stock repurchase (614) (26,385) (26,999)
Tax benefit of stock options
exercised 27,862 27,862
===================================================================================================================================
Balances, October 30, 1999 $ - $132,653 $250,321 $479,088 $ - $862,062
===================================================================================================================================
</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.
<TABLE>
<CAPTION>
Nine months ended October 29, 1999
Per-Share
Income Shares Amount
------------------------------------------------------
<S> <C> <C> <C>
Net income $ 128,822
Less: preferred stock dividends 1,178
- --------------------------------------------------------------------------------------------------------------------------
Basic earnings per share:
Income available to common shareholders $ 127,644 237,260 $ 0.54
=============
Stock options outstanding 5,182
Convertible preferred stock 1,178 27,270
- --------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share:
Income available to common shareholders
plus assumed conversions $ 128,822 269,712 $ 0.48
==========================================================================================================================
<CAPTION>
Nine months ended October 29, 1998
Per-Share
Income Shares Amount
------------------------------------------------------
<S> <C> <C> <C>
Net income $ 104,031
Less: preferred stock dividends 2,555
- --------------------------------------------------------------------------------------------------------------------------
Basic earnings per share:
Income available to common shareholders $ 101,476 220,954 $ 0.46
==========
Stock options outstanding 6,594
Convertible preferred stock 2,555 40,906
- --------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share:
Income available to common shareholders
plus assumed conversions $ 104,031 268,454 $ 0.39
==========================================================================================================================
<PAGE>
<CAPTION>
Three months ended October 29, 1999
Per-Share
Income Shares Amount
------------------------------------------------------
<S> <C> <C> <C>
Basic earnings per share:
Net income $ 50,859 265,466 $ 0.19
===========
Stock options outstanding 4,925
- -------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share:
Income available to common shareholders
plus assumed conversions $ 50,859 270,391 $ 0.19
=========================================================================================================================
<CAPTION>
Three months ended October 30, 1998
Per-Share
Income Shares Amount
------------------------------------------------------
<S> <C> <C> <C>
Net income $ 40,338
Less: preferred stock dividends 942
- -------------------------------------------------------------------------------------------------------------------------
Basic earnings per share:
Income available to common shareholders $ 39,396 221,477 $ 0.18
==========
Stock options outstanding 5,958
Convertible preferred stock 942 40,906
- -------------------------------------------------------------------------------------------------------------------------
Diluted earnings per share:
Income available to common shareholders
plus assumed conversions $ 40,338 268,341 $ 0.15
=========================================================================================================================
</TABLE>
<PAGE>
4. Preferred Stock Conversion
On August 23, 1999, the holders of all of the Company's 1.7 million shares of
Series A Convertible Junior Preferred Stock converted their shares to 40.9
million shares of Dollar General Common Stock in accordance with the relevant
provisions of the Company's charter. Consequently, preferred stock and treasury
stock balances were reduced to zero.
5. Common Stock Repurchases
The Board has authorized a share repurchase program wherein the Company may
purchase up to 6.25 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 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
entitled 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.
In the third quarter, the Company exercised its option to purchase shares under
the call options.
For the nine months ended October 29, 1999 the Company repurchased 1.2 million
shares of common stock, including 0.7 million shares under the call option
described above. The Company may purchase an additional 5.0 million shares under
the current authorization which expires May 1, 2001. At October 29, 1999, put
warrants on 2.0 million shares of common stock were outstanding. The outstanding
warrants expire in March 2000 and have strike prices ranging from $23 to $26 per
share.
6. Segment Reporting
The Company manages its business on the basis of one reportable segment. As of
October 29, 1999 and October 30, 1998, all of the Company's operations were
located within the United States. The following data is presented in accordance
with Statement of Financial Accounting Standards No. 131 "Disclosures about
Segments of an Enterprise and Related Information."
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Oct. 29, Oct. 30, Oct. 29, Oct. 30,
1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Classes of similar products
Net sales:
Hardlines $781,141 $634,587 $2,229,294 $1,821,277
Softlines 169,278 146,802 480,928 406,727
- ----------------------------------------------------------------------------------------------------------------------------
$950,419 $781,389 $2,710,222 $2,228,004
============================================================================================================================
</TABLE>
<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; inventory risks due to the
Company's failure to timely flow merchandise from the vendors to stores; 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.
NINE MONTHS ENDED OCTOBER 29, 1999 AND OCTOBER 30, 1998
NET SALES. Net sales for the first nine months of 1999 increased $482.2 million,
or 21.6%, to $2,710.2 million from $2,228.0 million for the comparable period in
1998. The increase resulted from 570 net additional stores being in operation as
of October 29, 1999, as compared with October 30, 1998, and an increase of 7.4%
in same-store sales. The increase in same-store sales for the nine-month period
ended October 29, 1999 was primarily driven by continued improvements in the
Company's consumable basic merchandise mix and improved in-stock levels.
Same-store sales increased 11.4% 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 sales mix for the nine months ended October 29, 1999 was 82% hardlines/18%
softlines versus 82% and 18%, respectively, for the same period last year.
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 nine months of 1999 was $753.4 million,
or 27.8% of net sales, compared with $620.5 million, or 27.9% of net sales, in
the same period last year. The percent of sales decrease was driven by higher
distribution expense associated with the operation of one additional
distribution center.
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSE. SG&A expense for the first
nine months of 1999 totaled $546.2 million, or 20.2% of net sales, compared with
$449.8 million, or 20.2% of net sales during the comparable period last year.
Total SG&A expense increased 21.4% primarily as a result of 570 net additional
stores being in operation compared with the same nine-month period last year.
INTEREST EXPENSE. Interest expense for the first nine months of 1999 decreased
to $5.1 million, or 0.19% of sales, compared with $6.3 million or 0.28%, in the
comparable period last year. This decrease is primarily a result of lower
average borrowings during the comparable period, due to cash proceeds from
sale/leaseback transactions.
PROVISIONS FOR TAXES ON INCOME. The effective income tax rate for the nine-month
and three-month periods ended October 29, 1999 was 36.3%, compared with 36.8%
and 35.9% in the comparable periods last year. The nine-month effective tax rate
for 1999 decreased as a result of certain tax planning strategies. The effects
of these strategies were first recognized in the third quarter last year.
THREE MONTHS ENDED OCTOBER 29, 1999 AND OCTOBER 30, 1998
NET SALES. Net sales for the quarter increased $169.0 million, or 21.6%, to
$950.4 million from $781.4 million for the comparable period in 1998. The
increase resulted from 570 net additional stores being in operation as of
October 29, 1999, compared with October 30, 1998, and an increase of 7.4% in
same-store sales. Same-store sales increased 6.5% for the third quarter last
year. The increase in same-store sales for the three month period ended October
29, 1999 was primarily driven by continued improvements in the Company's
consumable basic merchandise mix and improved in-stock levels. The sales mix for
the quarter ended October 29, 1999 was 82% hardlines/18% softlines versus 81%
and 19%, respectively, for the same quarter last year.
GROSS PROFIT. Gross profit for the quarter was $277.9 million, or 29.2% of net
sales, compared with $224.7 million, or 28.8% of net sales, in the same period
last year. The percent of sales increase was driven primarily by lower
transportation expense.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSE. SG&A expense for the quarter
totaled $195.8 million, or 20.6% of net sales, compared with $158.4 million, or
20.3% of net sales during the comparable period last year. Total SG&A expense
increased 23.6% primarily as a result of 570 net additional stores being in
operation compared with the same three month period last year.
INTEREST EXPENSE. Interest expense for the quarter decreased to $2.3 million, or
0.24% of sales, from $3.3 million, or 0.42% of sales, in the comparable period
last year. This decrease is primarily a result of lower average borrowings
during the comparable period, due to cash proceeds from sale/leaseback
transactions.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities - Net cash used by operating activities
totaled $126.2 million during the first nine months of 1999, compared with
$100.8 million in the comparable period last year. This increase in use of cash
was primarily driven by decreased accrued expenses resulting from decreases in
advances received from the sale/leasebacks of the South Boston, Virginia
distribution center expansion and the Ardmore, Oklahoma distribution center.
<PAGE>
Cash flows from investing activities - Net cash used by investing activities
totaled $49.3 million during the first nine months of 1999 compared with $88.0
million in the comparable period last year. The decrease in cash used by
investing activities was primarily the result 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 $112.4 million in capital expenditures primarily from opening
501 new stores during the first nine months of 1999.
Cash flows from financing activities - Total debt (including current maturities
and short-term borrowings) at October 29, 1999 was $182.8 million compared with
$260.5 million at October 30, 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 $130.0
million at October 29, 1999. The Company had short-term borrowings of $180.1
million outstanding as of October 29, 1999 and $259.7 million as of October 30,
1998. Management believes seasonal working capital expenditure requirements will
continue to be met through cash flow provided by operations supplemented by the
revolving credit 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.
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.
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.
<PAGE>
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 has remedied all foreseeable problems. The Plan has identified the
Company's accounting, inventory management and warehouse management systems as
critical systems. Programming changes and software replacement for systems that
were not already year 2000 compliant have been completed. The Company has
completed testing the year 2000 readiness of its systems. 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 has received, written
confirmation from vendors, suppliers and other service providers ("Third Party
Vendors") as to their year 2000 system compliance status. 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 continues 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 approximately $510,000. To date,
expenditures have been approximately $360,000. 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.
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.
<PAGE>
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 developed a
comprehensive business continuity plan ("BCP") that is designed to respond to
significant business interruption. The BCP focuses on business recovery and
continuation made necessary by natural disaster, year 2000 system
non-compliance, vendor breach of contract or any other factor. Although it is
impossible to accurately predict and prepare for all risks associated with the
year 2000 issue, the Company will continue to evaluate and modify where
appropriate its BCP to address those risks which it believes are reasonably
foreseeable.
ITEM 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 October 29, 1999, the
Company had outstanding short term borrowings of $180.1 million at a weighted
average interest rate of 5.57%.
On July 16,1999, the Company had $200 million in interest rate swap agreements
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 so that 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 5.46% at October 29, 1999. The fair
value of the interest rate swap agreements was $2.0 million at October 29, 1999.
<PAGE>
PART II - OTHER INFORMATION
Item 1. Not applicable.
Item 2. Not applicable.
Item 3. Not applicable.
Item 4. Not applicable.
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
October 29, 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)
December 10, 1999 By:/s/ Brian M. Burr
Brian M. Burr, Executive Vice President,
Chief Financial Officer
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