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 May 1, 1998
Commission file number 0-4769
DOLLAR GENERAL CORPORATION
(Exact name of registrant as specified in its charter)
TENNESSEE 61-0502302
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification 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 June 8, 1998 was
167,162,069.
Dollar General Corporation
Form 10-Q
For the Quarter Ended May 1, 1998
Index
Part I. Financial Information Page No.
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets as of May 1,
1998, January 30, 1998 (audited) and May 2, 1997. 3
Consolidated Statements of Income for
the three months ended May 1, 1998
and May 2, 1997. 4
Consolidated Statements of Cash Flows
for the three months ended May 1, 1998
and May 2, 1997. 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. 8-10
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
May 1, Jan. 30, May 2,
1998 1998 1997
(Unaudited) (Audited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 37,241 $ 7,128 $ 33,388
Merchandise inventories 692,658 631,954 540,956
Deferred income taxes 6,283 5,743 3,747
Other current assets 20,449 21,884 18,669
Total current assets 756,631 666,709 596,760
Property and equipment, at cost 415,974 391,911 315,645
Less: accumulated depreciation 162,692 150,466 121,885
253,282 241,445 193,760
Other assets 6,591 6,684 5,487
Total assets $1,016,504 $ 914,838 $ 796,007
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 715 $ 1,450 $ 1,940
Short-term borrowings 119,650 21,933 50,000
Accounts payable 179,120 179,958 152,724
Accrued expenses 87,065 92,027 61,382
Income taxes 11,227 12,343 955
Total current liabilities 397,777 307,711 267,001
Long-term debt 406 1,294 1,807
Deferred income taxes 21,669 21,937 7,847
Shareholders' equity:
Preferred stock 858 858 858
Common stock 83,719 83,526 53,672
Additional paid-in capital 395,938 379,954 350,387
Retained earnings 316,664 320,085 314,962
797,179 784,423 719,879
Less treasury stock 200,527 200,527 200,527
Total shareholders' equity 596,652 583,896 519,352
Total liabilities and shareholders'
equity $1,016,504 $ 914,838 $ 796,007
The accompanying notes are an integral part of these consolidated
financial statements.
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands except per share amounts)
(Unaudited)
Three Months Ended
May 1, May 2,
1998 1997
Net Sales $705,260 $520,014
Cost of goods sold 514,928 378,159
Gross profit 190,332 141,855
Selling, general and
administrative expense 140,940 110,335
Operating profit 49,392 31,520
Interest expense 939 526
Income before taxes on income 48,453 30,994
Provision for taxes on income 18,049 11,700
Net income $ 30,404 $ 19,294
Diluted earnings per share $ 0.18 $ 0.11
Weighted average diluted shares 171,988 170,340
Basic earnings per share $ 0.21 $ 0.13
The accompanying notes are an integral part of these consolidated
financial statements.
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
May 1, May 2,
1998 1997
Operating activities:
Net income $ 30,404 $ 19,294
Adjustments to reconcile net income
to net cash used by operating activities:
Depreciation and amortization 12,364 8,577
Deferred income taxes (808) 2,218
Change in operating assets and liabilities:
Merchandise inventories (60,704) (64,853)
Accounts payable (838) 49,201
Accrued expenses (4,962) (9,059)
Income taxes (1,116) (9,047)
Other 1,720 (953)
Net cash used by operating activities (23,940) (4,622)
Investing activities:
Purchase of property and equipment (24,393) (27,822)
Proceeds from sale of property and equipment 0 34,074
Net cash provided (used) by investing activities (24,393) 6,252
Financing activities:
Issuance of short-term borrowings 128,535 147,404
Repayments of short-term borrowings (30,818) (135,873)
Issuance of long-term debt 0 190
Repayments of long-term debt (1,623) (1,055)
Payments of cash dividend (8,076) (6,477)
Proceeds from exercise of stock options 11,926 12,715
Repurchase of common stock (26,066) 0
Tax benefit of stock option exercises 4,568 8,291
Net cash provided by financing activities 78,446 25,195
Net increase in cash and cash equivalents 30,113 26,825
Cash and cash equivalents, beginning of period 7,128 6,563
Cash and cash equivalents, end of period $ 37,241 $ 33,388
The accompanying notes are an integral part of these consolidated
financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 30, 1998 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 May 1, 1998 and May 2, 1997, 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.
2. Changes in shareholders' equity for the three months ended May 1,
1998 and May 2, 1997 were as follows (dollars in thousands except per
share amounts):
Additional
Preferred Common Paid-In Retained Treasury
Stock Stock Capital Earnings Stock Total
Balances, January 31, 1997 $ 858 $53,105 $329,948 $302,145 $200,527 $485,529
Net income 19,294 19,294
Cash dividend, $.05 per
common share, as declared (5,723) (5,723)
Cash dividend, $.44 per
preferred share (754) (754)
Issuance of common
stock under employee stock
incentive plans 567 12,148 12,715
Tax benefit of stock options
exercised 8,291 8,291
Balances, May 2, 1997 $ 858 $53,672 $350,387 $314,962 $200,527 $519,352
Balances, January 30, 1998 $ 858 $83,526 $379,954 $320,085 $200,527 $583,896
Net Income 30,404 30,404
Cash dividend, $.04 per
common share, as declared (7,062) (7,062)
Cash dividend, $.61 per
preferred share (1,047) (1,047)
Issuance of common stock
under employee stock
incentive plans 543 11,416 11,959
Stock repurchase (350) (25,716) (26,066)
Tax benefit of stock options
exercised 4,568 4,568
Balances, May 1, 1998 $ 858 $83,719 $395,938 $316,664 $200,527 $596,652
3. Earnings Per Share
Amounts are in thousands except per share data and shares have been
adjusted for the March 23, 1998, and September 22, 1997, five-for-
four common stock splits.
May 1, 1998
Per-Share
Income Shares Amount
Net Income $30,404
Less: preferred stock dividends 1,047
Basic Earnings per Share
Income available to common shareholders $29,357 141,043 $0.21
Stock options outstanding 4,765
Convertible preferred stock 1,047 26,180
Diluted Earnings per Share
Income available to common stockholders
plus assumed conversions $30,404 171,988 $0.18
May 2,1997
Per-Share
Income Shares Amount
Net Income $19,294
Less: preferred stock dividends 754
Basic Earnings per Share
Income available to common shareholders $18,540 140,226 $0.13
Stock options outstanding 3,934
Convertible preferred stock 754 26,180
Diluted Earnings per Share
Income available to common stockholders
plus assumed conversions $19,294 170,340 $0.11
4. Subsequent Event
On June 1, 1998 stockholders of Dollar General Corporation
approved a change in the state of incorporation of Dollar General
Corporation from Kentucky to Tennessee by approving the Agreement
and Plan of Merger by and between Dollar General Corporation, a
Kentucky corporation ("Dollar General-KY"), and Dollar General
Corporation-TN, a Tennessee corporation and wholly-owned subsidiary
of Dollar General-KY.
The Articles of Merger were filed with the respective office
of the Secretary of State for the State of Tennessee and the
Commonwealth of Kentucky and effective on June 2, 1998. Pursuant to
the Agreement and Plan of Merger, Dollar General-TN is the surviving
corporation and is the successor registrant under Rule 12g-3
promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Upon effectiveness of the merger, Dollar
General-TN's name was changed to "Dollar General Corporation" as set
forth in the Agreement and Plan of Merger.
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 the Company believes the
assumptions underlying the forward-looking statements contained
herein are reasonable, any of the assumptions could be inaccurate,
and therefore, there can be no assurance that the forward-looking
statements included herein will prove to be accurate. Forward-
looking statements may be significantly impacted by certain risks
and uncertainties, including, but not limited to: general
transportation and distribution delays or interruptions; inventory
risks due to shifts in market demand; changes in product mix; costs
and delays associated with building, opening and operating new
distribution centers; and the risk factors listed in the Annual
Report on Form 10-K for the year ended January 30, 1998. The
Company undertakes no obligation to publicly release any revisions
to any forward-looking statements contained herein to reflect events
or circumstances occurring after the date hereof or to reflect the
occurrence of interruptions in suppliers' operations or
unanticipated events.
The following text contains references to years 1999, 1998, 1997 and
1996 which represent fiscal years ending or ended January 29, 1999,
January 30, 1998, and January 31, 1997 and 1996, respectively. This
discussion and analysis should be read in conjunction with, and is
qualified in its entirety by, the consolidated financial statements,
including the notes thereto.
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 will reflect the seasonal nature of the
Company's business.
THREE MONTHS ENDED MAY 1, 1998 AND MAY 2, 1997
NET SALES. Net sales for the first quarter of fiscal 1999 increased
$185.3 million, or 35.6%, to $705.3 million from $520.0 million for
the comparable period of fiscal 1998. The increase resulted from
460 net additional stores being in operation as of May 1, 1998 as
compared with May 2, 1997 and an increase of 19.4% in same-store
sales. Same store sales growth was a 1.6% increase for the same
period last year.
The Company regards same stores as those opened prior to the
beginning of the previous fiscal year which have remained open
throughout the previous fiscal year and the period reported. Sales
were negatively affected during the first and second quarters of
fiscal 1998 as the Company refurbished more than 2,400 stores to the
latest prototype.
GROSS PROFIT. Gross profit for the quarter was $190.3 million, or
27.0% of net sales, compared to $141.9 million, or 27.3% of net
sales, in the same period last year. This decrease was primarily
driven by greater markdowns and higher freight costs which more than
offset lower inventory shrinkage. The increase in freight costs was
driven by better in-stock levels of the 700 new faster-turning
items. For the second quarter of fiscal 1999, management expects
gross margin, as a percent of sales, to increase slightly as we
anniversary the initial stocking and related freight costs of the
700 items.
SELLING, GENERAL AND ADMINISTRATIVE (SG&A) EXPENSE. SG&A expenses
for the quarter totaled $140.9 million, or 20.0% of net sales,
compared with $110.3 million, or 21.2% of net sales last year.
Higher same-store sales for the quarter enabled the Company to
leverage payroll costs significantly. Total SG&A expense increased
27.7% primarily as a result of 460 net additional stores being in
operation as compared to last year. For the second quarter,
management expects SG&A, as a percentage of sales, to decrease
slightly as a result of the continued leverage provided by the
expected double digit same store sales increases.
INTEREST EXPENSE. Interest expense increased to $0.9 million, or
0.13% of sales, compared with $0.5 million or 0.10% of sales, in the
comparable period last year. This increase was primarily a result
of higher average borrowings. During the first quarter, the Company
repurchased 701,000 shares of common stock at an average cost of
$37.18 per share. For the second quarter, management expects
interest expense, as percent of sales, to increase slightly as a
result of higher inventory levels related to the introduction of a
new apparel program.
PROVISIONS FOR TAXES ON INCOME. The effective income tax rate for
the quarter was 37.3% compared with 37.8% in the comparable period
last year.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities - Cash flows used in operating
activities totaled $23.9 million during the quarter compared with
$4.6 million in the comparable period last year. This increase in
use of cash was primarily the result of decreased accounts payable
as a result of overall shorter payment terms related to the new
product mix.
Cash flows from investing activities - Cash used by investing
activities totaled $24.4 million during the quarter compared with
cash provided by investing activities of $6.3 million in the
comparable period last year. The increase in cash used by investing
activities was primarily the result of the $33.8 million received in
1997 from the sale/leaseback of the South Boston, Virginia
distribution center. Current period cash used resulted primarily
from $24.4 million in expenditures primarily from opening 166 new
stores.
Cash flows from financing activities - The Company's repayment of
short-term borrowings during the first three months of fiscal 1999
totaled $30.8 million compared with $135.9 million in the comparable
period last year.
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 May 1,
1998. The Company had short-term bank lines of credit borrowings of
$119.7 million outstanding as of May 1, 1998 and $50.0 million as of
May 2, 1997. 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.
Capital requirements for the construction of new stores, new
distribution centers and the new corporate headquarters complex will
continue to be funded under the Company's $225.0 million leveraged
lease facility. The company began funding construction costs under
this facility in the third quarter of fiscal 1998. As of May 1, 1998
$38.8 million of construction costs had been funded under this
facility. During the first quarter of fiscal 1999 the Company
entered into a five year interest rate swap agreement to fix the
interest rate on $50.0 million of this leveraged lease facility.
The Company's liquidity position is set forth in the following table
(dollars in thousands):
May 1, January 30, May 2,
1998 1998 1997
Current ratio 1.9x 2.2x 2.2x
Total borrowings/equity 20.2% 4.2% 10.3%
Working Capital $358,854 $358,998 $329,759
Average daily use of debt
(fiscal year-to-date) $ 81,122 $ 90,882 $ 41,373
Maximum outstanding short-term
debt (fiscal year-to-date) $122,131 $184,725 $ 64,855
ACCOUNTING PRONOUNCEMENTS
The Company will adopt Statement of Financial Accounting Standards
(SFAS) No. 131 "Disclosures about Segments of an Enterprise and
Related Information" for the year ended January 29, 1999. The
Company will adopt Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use,"
for the year ending January 28, 2000. Management does not believe
adoption of these pronouncements will have a significant impact on
the Company's financial reporting or have a material impact on its
operating results or financial position.
YEAR 2000
The Company has considered the impact of the year 2000 on its
computer systems and applications. An action plan has been
developed which includes establishing a task force to evaluate the
Company's major vendors' year 2000 compliance. The Company is in
the process of installing a new, previously planned general ledger
system that will be year 2000 compliant. Previously planned
software and equipment upgrades and revisions are expected to remedy
year 2000 compliance issues. The Company believes the impact of the
year 2000 and related costs of compliance will not have any material
impact on its operations or liquidity.
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
10(a) ISDA Master Agreement dated March 11, 1998 by and among
Dollar General Corporation and SunTrust Bank, Atlanta
10(b) Amendment to Master Agreement dated March 31, 1998 by and
among Dollar General Corporation, Atlantic Financial Group,
LTD., Certain Financial Institutions parties hereto as lenders,
and SunTrust Bank, Nashville, N.A. as agent for the Lenders
27 Financial Data Schedule (for SEC use only)
B. Reports on Form 8-K
None
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)
June 13, 1997
/s/Phil Richards
Phil Richards, Vice President
Chief Financial Officer