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 28, 2000
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 September 5, 2000, was
329,453,942.
<PAGE>
Dollar General Corporation
Form 10-Q
For the Quarter Ended July 28, 2000
Index
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets as of July 28, 2000,
January 28, 2000 (derived from the audited financial
statements) and July 30, 1999.
Consolidated Statements of Income for the
three months ended July 28, 2000 and July 30, 1999
and the six months ended July 28, 2000 and July 30,
1999.
Consolidated Statements of Cash Flows for the six
months ended July 28, 2000 and July 30, 1999.
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
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
July 28, Jan. 28, July 30,
2000 2000 1999
(Unaudited) * (Unaudited)
-----------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 14,040 $ 58,789 $ 30,087
Merchandise inventories 1,062,175 985,715 951,109
Deferred income taxes 6,936 5,995 2,664
Other current assets 81,205 45,036 51,478
-----------------------------------------------------------------------------------------------------------
Total current assets 1,164,356 1,095,535 1,035,338
Property and equipment, at cost 736,444 597,537 523,601
Less: accumulated depreciation 286,774 251,064 219,978
-----------------------------------------------------------------------------------------------------------
449,670 346,473 303,623
Other assets 12,936 8,933 9,617
-----------------------------------------------------------------------------------------------------------
Total assets $ 1,626,962 $1,450,941 $ 1,348,578
===========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 2,334 $ 1,233 $ 1,420
Short-term borrowings 21,992 - 148,494
Accounts payable 277,815 334,554 209,868
Accrued expenses 121,420 121,375 110,900
Income taxes - 15,135 21,142
-----------------------------------------------------------------------------------------------------------
Total current liabilities 423,561 472,297 491,824
Long-term debt 205,369 1,200 1,507
Deferred income taxes 51,673 51,523 18,089
Shareholders' equity:
Preferred stock - - 858
Common stock 164,548 132,346 133,116
Additional paid-in capital 245,341 255,581 440,482
Retained earnings 536,470 537,994 463,229
-----------------------------------------------------------------------------------------------------------
946,359 925,921 1,037,685
Less: treasury stock - - 200,527
-----------------------------------------------------------------------------------------------------------
Total shareholders' equity 946,359 925,921 837,158
-----------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 1,626,962 $ 1,450,941 $ 1,348,578
===========================================================================================================
</TABLE>
* Derived from the January 28, 2000 audited financial statements.
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 28, July 30, July 28, July 30,
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $1,017,418 $ 915,210 $2,014,497 $1,759,803
Cost of goods sold 735,445 665,628 1,459,815 1,284,274
--------------------------------------------------------------------------------------------------------
Gross profit 281,973 249,582 554,682 475,529
Selling, general and
administrative expense 215,985 182,407 417,863 350,458
--------------------------------------------------------------------------------------------------------
Operating profit 65,988 67,175 136,819 125,071
Interest expense 4,326 1,897 5,604 2,776
--------------------------------------------------------------------------------------------------------
Income before taxes on income 61,662 65,278 131,215 122,295
Provision for taxes on income 22,352 23,663 47,565 44,332
--------------------------------------------------------------------------------------------------------
Net income $ 39,310 $ 41,615 $ 83,650 $ 77,963
========================================================================================================
Diluted earnings per share $ 0.12 $ 0.12 $ 0.25 $ 0.23
========================================================================================================
Weighted average diluted shares 333,038 338,836 333,885 337,514
========================================================================================================
Basic earnings per share $ 0.12 $ 0.14 $ 0.25 $ 0.27
========================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
July 28, July 30,
2000 1999
--------------------------------------------------------------------------------------------------
Operating activities:
<S> <C> <C>
Net income $ 83,650 $ 77,963
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 37,952 30,296
Deferred income taxes (791) (12,155)
Tax benefit of stock options exercised 7,489 23,915
Change in operating assets and liabilities:
Merchandise inventories (76,460) (139,387)
Other current assets (36,169) (9,100)
Accounts payable (56,739) (47,891)
Accrued expenses 45 (61,925)
Income taxes (15,135) (2,683)
Other (3,225) 823
--------------------------------------------------------------------------------------------------
Net cash used in operating activities (59,383) (140,144)
--------------------------------------------------------------------------------------------------
Investing activities:
Purchase of property and equipment (142,044) (73,433)
Proceeds from sale of property and equipment 117 61,941
--------------------------------------------------------------------------------------------------
Net cash used in investing activities (141,927) (11,492)
--------------------------------------------------------------------------------------------------
Financing activities:
Issuance of short-term borrowings 249,595 222,814
Repayments of short-term borrowings (227,603) (74,320)
Issuance of long-term debt 206,686 2,086
Repayments of long-term debt (1,416) (670)
Payment of cash dividends (21,079) (17,004)
Proceeds from exercise of stock options 15,926 26,523
Repurchase of common stock (65,548) -
--------------------------------------------------------------------------------------------------
Net cash provided by financing activities 156,561 159,429
--------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (44,749) 7,793
Cash and cash equivalents, beginning of period 58,789 22,294
--------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $14,040 $30,087
==================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<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 28, 2000, 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 28, 2000 and July 30, 1999,
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.
Certain reclassifications have been made to the 1999 financial statements to
conform to the 2000 presentation.
2. Shareholders' Equity
Changes in shareholders' equity for the six months ended July 28, 2000 and July
30, 1999, were as follows.
<TABLE>
<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) -
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>
6
<PAGE>
<TABLE>
<CAPTION>
Additional
Preferred Common Paid-In Retained
Stock Stock Capital Earnings Total
-------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balances, January 28, 2000 $ - $ 132,346 $ 255,581 $ 537,994 $ 925,921
Net income 83,650 83,650
5-for-4 stock split, May 22, 2000 32,857 (32,857) -
Cash dividend, $.06 per
common share, as declared (21,079) (21,079)
Issuance of common stock under
employee stock incentive plans 798 15,128 15,926
Stock repurchase (3,633,625 shares) (1,453) (64,095) (65,548)
Tax benefit of stock options
exercised 7,489 7,489
-------------------------------------------------------------------------------------------------------------------------
Balances, July 28, 2000 $ - $ 164,548 $ 245,341 $ 536,470 $ 946,359
=========================================================================================================================
</TABLE>
3. Earnings Per Share
Amounts are in thousands except per share data. Shares have been adjusted for
all stock splits including the five-for-four common stock split distributed on
May 22, 2000.
Six months ended July 28, 2000
Per-Share
Income Shares Amount
-----------------------------------
Net income $ 83,650
------------------------------------------------------------------------------
Basic earnings per share:
Income available to common shareholders $ 83,650 329,194 $ 0.25
=========
Stock options outstanding 4,691
Diluted earnings per share:
Income available to common shareholders
plus assumed conversions $ 83,650 333,885 $ 0.25
==============================================================================
7
<PAGE>
Six months ended July 30, 1999
Per-Share
Income Shares Amount
-----------------------------------
Net income $ 77,963
Less: preferred stock dividends 2,356
-------------------------------------------------------------------------------
Basic earnings per share:
Income available to common shareholders $ 75,607 279,744 $ 0.27
========
Stock options outstanding 6,637
Convertible preferred stock 2,356 51,133
-------------------------------------------------------------------------------
Diluted earnings per share:
Income available to common shareholders
plus assumed conversions $ 77,963 337,514 $ 0.23
===============================================================================
Three months ended July 28, 2000
Per-Share
Income Shares Amount
-----------------------------------
Net income $ 39,310
-------------------------------------------------------------------------------
Basic earnings per share:
Income available to common shareholders $ 39,310 328,578 $ 0.12
========
Stock options outstanding 4,460
-------------------------------------------------------------------------------
Diluted earnings per share:
Income available to common shareholders
plus assumed conversions $ 39,310 333,038 $ 0.12
===============================================================================
Three months ended July 30, 1999
Per-Share
Income Shares Amount
-----------------------------------
Net income $ 41,615
Less: preferred stock dividends 1,178
-------------------------------------------------------------------------------
Basic earnings per share:
Income available to common shareholders $ 40,437 281,160 $ 0.14
========
Stock options outstanding 6,543
Convertible preferred stock 1,178 51,133
-------------------------------------------------------------------------------
Diluted earnings per share:
Income available to common shareholders
plus assumed conversions $ 41,615 338,836 $ 0.12
===============================================================================
8
<PAGE>
4. Segment Reporting
The Company manages its business on the basis of one reportable segment. As of
July 28, 2000 and July 30, 1999, 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."
Three Months Ended Six Months Ended
July 28, July 30, July 28, July 30,
2000 1999 2000 1999
--------------------------------------------------------------------------------
Classes of similar products
Net sales:
Highly Consumable $ 583,004 $476,312 $1,128,637 $917,365
Seasonal 143,120 152,901 280,815 278,142
Basic Clothing 120,320 108,872 241,230 208,203
Basic Home Products 170,974 177,125 363,815 356,093
--------------------------------------------------------------------------------
$1,017,418 $915,210 $2,014,497 $1,759,803
================================================================================
5. Subsequent Event
On August 7, 2000, the Company's Board of Directors authorized the Company to
repurchase from time to time, in the open market or in privately negotiated
transactions, up to five million shares of its outstanding common stock. Under
this authorization, which expires August 7, 2002, the Company may repurchase its
common stock from time to time depending upon market price and other factors.
The Company has repurchased approximately 6.4 million shares, adjusted for stock
splits, under the Board's previously authorized stock repurchase program, which
expires May 1, 2001.
6. Long-Term Debt and Guarantor Subsidiaries
On June 21, 2000, the Company sold $200 million of 8 5/8% Notes due June 15,
2010 (the "Old Notes") in a private offering under Rule 144A of the Securities
Act of 1933. The proceeds were used to repay outstanding short-term debt and for
general corporate purposes. Subsequent to the offering, the Company and its
guarantor subsidiaries filed a registration statement on Form S-4 to enable the
Company to offer to exchange its 8 5/8% Exchange Notes due June 15, 2010 (the
"New Notes" and, together with the Old Notes, the "Notes") for all outstanding
Old Notes.
All of the Company's subsidiaries (the "Guarantors") have fully and
unconditionally guaranteed on a joint and several basis the Company's
obligations under the Notes. Each of the Guarantors is a wholly-owned subsidiary
of the Company. The Guarantors comprise all of the direct and indirect
subsidiaries of the Company. The Company has not presented separate financial
statements and other disclosures concerning each Guarantor because management
has determined that they are not material to investors.
9
<PAGE>
Summarized combined financial information (in accordance with Rule 1-02(bb) of
Regulation S-X) for the Guarantors is set forth below:
July 28, Jan 28, July 30,
2000 2000 2000
--------------------------------------------
Current assets $1,156,026 $1,085,925 $1,028,843
Current liabilities 366,430 443,496 315,362
Noncurrent assets 427,683 320,142 295,252
Noncurrent liabilities 57,385 52,619 19,463
Three Months Ended Six Months Ended
July 28, July 30, July 28, July 30,
2000 2000 2000 2000
------------------------------------------------------
Total revenues $1,017,418 $ 915,210 $2,014,497 $1,759,803
Gross profit 218,973 249,582 554,682 475,529
Net income 79,835 165,641 158,152 190,707
10
<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 other risk factors
referenced in the Annual Report on Form 10-K for the year ended January 28, 2000
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 2000, 1999, 1998, and 1997 which
represent fiscal years ending or ended February 2, 2001, January 28, 2000,
January 29, 1999, and January 30, 1998, 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 with a period other than the same period of the previous
year may reflect the seasonal nature of the Company's business.
The Company defines same stores as those opened before the beginning of the
previous fiscal year which have remained open throughout the current period.
SIX MONTHS ENDED JULY 28, 2000 AND JULY 30, 1999
NET SALES. Net sales for the first six months of 2000 increased $245.7 million,
or 14.5%, to $2,014.5 million from $1,759.8 million for the comparable period in
1999. The increase resulted primarily from 721 net additional stores being in
operation as of July 28, 2000, as compared with July 30, 1999, and a
year-to-date increase of 0.6% in same store sales.
Management believes that same - store sales in the first six months were
negatively impacted by the conversion of more than 4,600 stores to the Company's
new prototype layout. In the second quarter the Company undertook a major relay
of its stores while adding 600 new items to and deleting 800 items from the
merchandise assortment. The new prototype features wider aisles, additional
selling space for seasonal merchandise, and better customer flow through high
traffic departments. The Company also continued its installation of new
technology and ordering processes in all stores. While this aggressive
implementation was disruptive to first half results, management believes these
efforts position the stores for increased productivity in the future.
11
<PAGE>
GROSS PROFIT. Gross profit for the first six months of 2000 was $554.7 million,
or 27.5% of net sales, compared with $475.5 million, or 27.0% of net sales, in
the same period last year. This increase was driven by lower markdowns, higher
purchase markup and lower shrinkage accrual which offset higher distribution
expense associated with operating one additional distribution center 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 2000 totaled $417.9 million, or 20.7% of net sales, compared with
$350.5 million, or 19.9% of net sales during the comparable period last year.
Although expenses were below plan for the period, lower than expected same store
sales in the first half eliminated any prospect for SG&A expense leverage.
INTEREST EXPENSE. Interest expense increased to $5.6 million, or 0.28% of sales,
compared with $2.8 million, or 0.16%, in the comparable six-month period last
year. This increase is primarily a result of higher average borrowings and an
increase in weighted average interest rates compared with the same six-month
period last year. Average short-term borrowings were higher than last year due
to capital expenditures for a greater number of new stores, distribution center
projects, and the timing of share repurchases.
PROVISIONS FOR TAXES ON INCOME. The effective income tax rate was 36.25% for the
six-month periods ended July 28, 2000 and July 30, 1999.
THREE MONTHS ENDED JULY 28, 2000 AND JULY 31, 2000
NET SALES. Net sales for the quarter increased $102.2 million, or 11.2%, to
$1,017.4 million from $915.2 million for the comparable period in 1999. Same -
store sales for the second quarter decreased 2.6%. Sales in the second quarter
were driven by a 22.4% increase in highly consumable merchandise sales,
particularly in home cleaning and food items. Sales in the seasonal category
decreased 6.4% as a result of discontinued merchandise. Notable sales results in
the second quarter in the seasonal category included a 31% increase in sales of
summer toys and a 21% increase in garden supplies. Sales in basic clothing
increased 10.5% in the second quarter and included strong results in the shoe
and children's apparel departments. Sales in basic home products decreased 3.5%
in the second quarter driven by reduced sales in the domestic category as a
result of discontinued merchandise.
GROSS PROFIT. Gross profit for the quarter was $282.0 million, or 27.7% of net
sales, compared with $249.6 million, or 27.3% of net sales, in the same period
last year. This increase was primarily the result of lower markdowns, higher
purchase markups, lower transportation expense as a percentage of sales, and a
lower shrinkage accrual which offset higher distribution expense associated with
operating one additional distribution center compared with the same period last
year.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSE. SG&A expense for the quarter
totaled $216.0 million, or 21.2% of net sales, compared with $182.4 million, or
19.9% of net sales during the comparable period last year. SG&A expense as a
percentage of sales increased primarily as a result of lower than anticipated
sales growth. Total SG&A expense increased 18.4%, primarily as a result of
operating 721 net additional stores compared with the same three-month period
last year.
INTEREST EXPENSE. Interest expense increased to $4.3 million, or 0.43% of sales,
from $1.9 million, or 0.21% of sales, in the comparable period last year. This
increase was a result of higher average borrowings and an increase in weighted
average interest rates compared with the same three-month period last year.
Average short-term borrowings were higher than last year primarily due to
capital expenditures for a greater number of new stores, distribution center
projects, and the timing of share repurchases.
12
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used in operating activities - Net cash used in operating activities
----------------------------------------
totaled $59.4 million during the first six months of 2000, compared with $140.1
million cash used in operating activities in the comparable period last year.
This decrease in the use of cash was primarily driven by a decrease in cash used
to purchase merchandise inventories compared to the first six months last year
and by maximizing vendor terms.
Cash flows used in investing activities - Net cash used in investing activities
----------------------------------------
totaled $142.0 million during the first six months of 2000, compared with $11.5
million in the comparable period last year. The increase in cash used in
investing activities was primarily the result of investments in distribution
center projects and investments in 459 new store openings this year compared
with 324 new store openings in the first half of last year. In addition, cash
used in investing activities was offset in the first half of last year by $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.
Cash flows from financing activities - Total debt (including current maturities
-------------------------------------
and short-term borrowings) at July 28, 2000 was $229.7 million compared with
$151.4 million at July 30, 1999.
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 $140
million at July 28, 2000. The Company had short-term borrowings of $22.0 million
outstanding as of July 28, 2000 and $148.5 million as of July 30, 1999.
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 21, 2000, the Company placed $200 million (principal amount) of 8 5/8%
unsecured notes due June 15, 2010, through a private debt placement with
registration rights. The notes pay interest semi-annually on June 15 and
December 15 of each year. The holders of the notes may elect to have their notes
repaid on June 15, 2005 at 100% of the principal amount plus accrued and unpaid
interest. Proceeds from the notes are being used to repay outstanding short-term
debt and for general corporate purposes.
FORWARD-LOOKING EXPECTATIONS
(Please refer to the first paragraph under "ITEM 2. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" for information
concerning forward-looking statements.)
Revenues - For the third quarter, fourth quarter, and full year, management
--------
expects revenues to increase 19-22%, 22-24%, and 18-19%, respectively.
Same Store Sales - For the third and fourth quarters management expects same
----------------
store sales to increase 4-7% and 6-8%, respectively. For the year an increase of
3-4% is expected.
Gross Profit - In the third quarter, management expects gross profit as a
-------------
percentage of net sales to be lower than last year as a result of accelerating
sales of consumable basics which historically have had a lower purchase markup.
Management expects gross profit as a percentage of net sales in the fourth
quarter to be higher than last year as a result of increasing sales of higher
13
<PAGE>
markup seasonal merchandise. For the full year, management expects gross profit
as a percentage of net sales to be flat or up slightly compared with last year.
Selling, General and Administrative (SG&A) Expense - Based on sales
-----------------------------------------------------------
expectations, Management anticipates SG&A expense as a percentage of net sales
to increase up to 50 basis points for the third quarter and to decrease by 40 to
60 basis points for the fourth quarter. For the full year, management expects
SG&A expense as a percentage of net sales to increase 10 to 30 basis points
reflecting management's expectation of a 3-4% increase in same store sales.
Interest Expense - Management expects interest expense as a percentage of net
sales for the third and fourth quarters to increase by 10 to 20 basis points and
20 to 30 basis points, respectively. For the full year management expects
interest expense to increase by 15 to 25 basis points, continuing to reflect
higher interest rates than last year.
Provision for Taxes on Income - Management anticipates the tax rate to be
--------------------------------
approximately 36.25% for the remainder of the year.
14
<PAGE>
ACCOUNTING PRONOUNCEMENTS
The Company does not expect a material impact from 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" and SFAS No. 138, "Accounting for Certain Derivative
Instruments and Certain Hedging Activities - an amendment of FASB Statement No.
133." Adoption of this Statement, as amended, is required for the Company's
fiscal year ending February 1, 2002.
The Company will adopt SEC Staff Accounting Bulleting No. 101, "Revenue
Recognition in Financial Statements," during the quarter ended February 2, 2001.
Management does not expect this Bulletin to have a material impact on the
Company's financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For reasons other than trading purposes, the Company has entered into
commitments under certain instruments which expose the Company to market risk
for changes in interest rates primarily related to the Company's revolving and
seasonal lines of credit and certain lease obligations. Under these obligations,
the Company has cash flow exposure as a result of its variable interest rates.
The Company seeks to manage this interest rate risk through the use of interest
rate swaps. In 1999, the Company entered into interest rate swap agreements
totaling $200 million which are scheduled to be in place through February 2001
at which time the counterparties have the option to extend the agreements
through 2002. These swap agreements exchange the Company's floating interest
rate exposure for a fixed interest rate. The Company will pay a weighted average
fixed rate of 5.14% on the $200 million notional amount. The fair value of the
interest rate swap agreements was $2.3 million at July 28, 2000. These swap
agreements replaced four interest rate swap agreements totaling $200 million and
exchanging floating rate exposure to a fixed interest rate. At July 30, 1999,
the fair value of the interest rate swap agreements was $2.0 million.
A 1% change in interest rates would have resulted in a pre-tax expense
fluctuation of approximately $3.6 million in 1999. In 2000, the Company
anticipates this expense fluctuation to decrease as a result of lower average
short-term borrowings compared with 1999.
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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 5,
2000, 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:
Votes
Nominee Votes For Withheld/Against
-------------------------------------------------------------
Dennis C. Bottorff 212,659,116 2,615,377
James L. Clayton 213,738,909 1,535,584
Reginald D. Dickson 213,753,695 1,520,798
John B. Holland 212,670,546 2,603,947
Barbara M. Knuckles 213,734,237 1,540,256
Cal Turner, Jr. 213,728,014 1,546,479
Cal Turner, Sr. 212,563,083 2,711,410
David M. Wilds 213,754,461 1,520,032
William S. Wire, II 213,734,323 1,540,170
Proposal No. 2: Amend the Dollar General 1998 Stock Incentive Plan to
increase the number of shares available for issuance under the Plan.
Number of shares for 160,016,247
Number of shares against 53,502,327
Number of shares abstaining 1,755,919
Item 5. Not applicable.
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Item 6. A. Exhibits:
10.1 Purchase Agreement dated as of June 16, 2000, among Dollar
General Corporation, the subsidiaries therein named, and Credit
Suisse First Boston Corporation, Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Banc of America Securities LLC and Wachovia
Securities, Inc. (Incorporated by reference to the Company's
Registration Statement on Form S-4 filed August 1, 2000.)
10.2 Indenture dated as of June 21, 2000, among Dollar General
Corporation, the subsidiaries therein named and First Union
National Bank, as Trustee, as amended and supplemented by the
First Supplemental Indenture dated as of July 28, 2000, among
Dollar General Corporation, the subsidiaries therein named and
First Union National Bank, as Trustee. (Incorporated by reference
to the Company's Registration Statement on Form S-4 filed August
1, 2000.)
10.3 Registration Rights Agreement dated as of June 21, 2000, among
Dollar General Corporation, the subsidiaries therein named, and
Credit Suisse First Boston Corporation, Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Banc of America Securities LLC and
Wachovia Securities, Inc. (Incorporated by reference to the
Company's Registration Statement on Form S-4 filed August 1,
2000.)
10.4 Amendment to Master Agreement dated as of July 31, 2000, among
Dollar General Corporation, Atlantic Financial Group, Ltd., Three
Pillars Funding Corporation, Suntrust Bank, and Suntrust
Equitable Securities Corporation
10.5 Third Amendment to Credit Agreement dated as of July 31, 2000
among Dollar General Corporation, Suntrust Bank, and other named
banks and lending institutions.
10.6 Fourth Amendment to Credit Agreement dated as of July 31, 2000
among Dollar General Corporation, Suntrust Bank, and other named
banks and lending institutions.
27 Financial Data Schedule (for SEC use only)
B. Reports on Form 8-K:
On June 8, 2000, the Company filed a Current Report on Form 8-K
(Item 5 Only) to report a press release issued on June 7, 2000,
announcing the Company's plans to raise approximately $200
million through a Rule 144A debt transaction with registration
rights.
On June 22, 2000, the Company filed a Current Report on Form 8-K
(Item 5 Only) to report a press release issued on June 20, 2000,
announcing the private placement of $200 million 8 5/8% Notes due
2010.
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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 8, 2000 By: /s/ Brian M. Burr
---------------------------------
Brian M. Burr
Executive Vice President and
Chief Financial Officer
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