Dollar General is a US department store chain headquartered in Goodlettsville, Tennessee. The company employed around 143,000 people in 16,278 stores in early 2020. The company was founded in 1939 by Cal Turner in Scottsville, Kentucky.
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): <TABLE> <CAPTION> Additional Preferred Common Paid-In Retained Treasury Stock Stock Capital Earnings Stock Total <S> <C> <C> <C> <C> <C> <C> 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 </TABLE> 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