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.
1 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 31, 1997 Commission file number 0-4769 DOLLAR GENERAL CORPORATION (Exact name of registrant as specified in its charter) KENTUCKY 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 December 8, 1997 was 133,490,764. 1
2 Dollar General Corporation Form 10-Q For the Quarter Ended October 31, 1997 Index <TABLE> <CAPTION> Part I. Financial Information Page No. <S> <C> <C> Item 1. Financial Statements (unaudited): Consolidated Balance Sheets as of October 31, 1997, January 31, 1997 (audited) and November 1, 1996. 3 Consolidated Statements of Income for the three months and nine months ended October 31, 1997 and November 1, 1996. 4 Consolidated Statements of Cash Flows for the nine months ended October 31, 1997 and November 1, 1996. 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 8 Part II. Other Information 12 Signatures 13 </TABLE> 2
3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS DOLLAR GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands) <TABLE> <CAPTION> Oct. 31, Jan. 31, Nov. 1, 1997 1997 1996 (Unaudited) (Audited) (Unaudited) ---------- --------- -------- <S> <C> <C> <C> ASSETS Current assets: Cash and cash equivalents $ 13,168 $ 6,563 $ 8,769 Merchandise inventories 737,263 476,103 623,354 Deferred income taxes 3,776 3,689 11,954 Other current assets 21,694 18,244 16,447 ---------- -------- -------- Total current assets 775,901 504,599 660,524 Property & equipment, at cost 378,506 321,917 285,084 Less: Accumulated depreciation 140,404 113,381 105,715 ---------- -------- -------- Net property and equipment 238,102 208,536 179,369 Other assets 5,595 5,012 5,065 ---------- -------- -------- Total assets $1,019,598 $718,147 $844,958 ========== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 1,597 $ 2,030 $ 2,060 Short-term borrowings 193,583 38,469 184,725 Accounts payable 210,845 103,523 144,684 Accrued expenses 75,547 70,441 67,937 Income taxes 14,363 10,002 4,913 ---------- -------- -------- Total current liabilities 495,935 224,465 404,319 Long-term debt 1,411 2,582 2,748 Deferred income taxes 5,360 5,571 3,573 Shareholders' equity: Preferred stock 858 858 858 Common stock 66,660 53,105 42,389 Additional paid-in capital 373,234 329,948 326,199 Retained earnings 276,667 302,145 265,399 ---------- -------- -------- 717,419 686,056 634,845 Less: treasury stock 200,527 200,527 200,527 ---------- -------- -------- Total shareholders' equity 516,892 485,529 434,318 ---------- -------- -------- Total liabilities and shareholders' equity $1,019,598 $718,147 $844,958 ========== ======== ======== </TABLE> The accompanying notes are an integral part of these consolidated financial statements. 3
4 DOLLAR GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands except per share amounts) (Unaudited) <TABLE> <CAPTION> Three Months Ended Nine Months Ended --------------------- ------------------------- Oct. 31 Nov. 1 Oct. 31 Nov. 1 1997 1996 1997 1996 -------- -------- ---------- ---------- <S> <C> <C> <C> <C> Net sales $649,400 $508,977 $1,766,234 $1,459,222 Cost of goods sold 465,616 360,343 1,280,439 1,053,486 -------- -------- ---------- ---------- Gross profit 183,784 148,634 485,795 405,736 Selling, general and administrative expense 128,220 104,178 355,254 299,444 -------- -------- ---------- ---------- Operating profit 55,564 44,456 130,541 106,292 Interest expense 1,559 1,485 2,625 3,791 -------- -------- ---------- ---------- Income before provision for taxes on income 54,005 42,971 127,916 102,501 Provision for taxes on income 20,387 16,329 48,288 38,950 -------- -------- ---------- ---------- Net income $ 33,618 $ 26,642 $ 79,628 $ 63,551 ======== ======== ========== ========== Net income per common and common equivalent share $ 0.24 $ 0.19 $ 0.58 $ 0.46 ======== ======== ========== ========== Weighted average number of common shares outstanding 137,813 138,089 137,537 138,619 ======== ======== ========== ========== Cash dividends per common share as declared $ .04 $ .05 $ .13 $ .15 ======== ======== ========== ========== As adjusted to give retroactive effect to the five-for-four stock splits distributed on February 12, 1997 and September 22, 1997: $ .04 $ .03 $ .12 $ .10 ======== ======== ========== ========== </TABLE> The accompanying notes are an integral part of these consolidated financial statements. 4
5 DOLLAR GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) <TABLE> <CAPTION> Nine Months Ended Oct. 31, Nov. 1, 1997 1996 --------- --------- <S> <C> <C> Operating activities: Net income $ 79,628 $ 63,551 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 27,750 23,027 Deferred income taxes (298) 615 Change in operating assets and liabilities: Merchandise inventories (261,160) (134,992) Accounts payable trade 107,322 41,508 Accrued expenses 5,106 5,838 Income taxes 4,361 (9,844) Other (2,848) (1,712) --------- --------- Net cash used in operating activities (40,139) (12,009) --------- --------- Investing activities Purchase of property and equipment (92,313) (46,897) Proceeds from sale of property and equipment 33,811 0 --------- --------- Net cash used in investing activities (58,502) (46,897) --------- --------- Financing activities: Issuance of short-term borrowings 170,892 149,390 Repayments of short-term borrowings (15,777) (36,811) Issuance of long-term debt 190 1,487 Repayments of long-term debt (1,794) (1,493) Payment of cash dividends (17,562) (12,672) Proceeds from exercise of stock options 26,072 15,257 Repurchase of common stock (75,123) (59,788) Tax effect of stock options 17,748 7,437 Other 600 524 --------- --------- Net cash provided by financing activities 105,246 63,331 --------- --------- Net increase in cash and cash equivalents 6,605 4,425 Cash and cash equivalents at beginning of period 6,563 4,344 --------- --------- Cash and cash equivalents at end of period $ 13,168 $ 8,769 ========= ========= </TABLE> The accompanying notes are an integral part of these consolidated financial statements. 5
6 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 31, 1997 for additional information. The accompanying consolidated financial statements as of October 31, 1997 and November 1, 1996, have been prepared in accordance with the Company's customary accounting practices and have not been audited. All subsidiaries are included. In management's opinion, all adjustments (which are of a normal recurring nature) necessary for a fair presentation of the results of operations for the three-month and nine-month periods ended October 31, 1997 and November 1, 1996, have been made. Interim cost of goods sold is determined using estimates of inventory shrinkage, inflation, and markdowns which are adjusted during interim periods to reflect actual results. 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. Net Income Per Common Share Net income per common and common equivalent share is based upon the actual weighted average number of common shares outstanding during each period (including the presumed conversion of the Series A Convertible Preferred Stock) plus the assumed exercise of dilutive stock options as follows: As adjusted to give retroactive effect to the five-for-four stock splits distributed on February 12, 1997 and September 22, 1997: <TABLE> <CAPTION> Three Months Ended Nine Months Ended --------------------- --------------------- (In thousands) -------------- Oct. 31, Nov. 1, Oct. 31, Nov. 1, 1997 1996 1997 1996 ------- ------- ------- ------- <S> <C> <C> <C> <C> Actual weighted average number of common shares outstanding during the period 113,266 112,731 113,558 113,227 Common Stock Equivalents: Dilutive effect of stock options using the "Treasury Stock Method" 3,603 4,414 3,035 4,448 1,715,742 shares of Series A Convertible Preferred Stock Issued August 22, 1994 20,944 20,944 20,944 20,944 ------- ------- ------- ------- Weighted Average Shares 137,813 138,089 137,537 138,619 ======= ======= ======= ======= </TABLE> 6
7 3. Changes in shareholders' equity for the nine months ended October 31, 1997 and November 1, 1996 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, 1996 $ 858 $ 42,762 $ 303,609 $ 273,309 $ 200,527 $ 420,011 Net income 63,551 63,551 Cash dividend, $.15 per common share, as declared (10,863) (10,863) Cash dividend, $.75 per preferred share (1,810) (1,810) Issuance of common stock under employee stock incentive plans 614 14,643 15,257 Tax benefit from exercise of options 7,436 7,436 Repurchase of common stock (1,000) (58,788) (59,788) Transfer to ESOP 13 511 524 --------- -------- --------- --------- --------- --------- Balances, November 1, 1996 $ 858 $ 42,389 $ 326,199 $ 265,399 $ 200,527 $ 434,318 ========= ======== ========= ========= ========= ========= Balances, January 31, 1997 $ 858 $ 53,105 $ 329,948 $ 302,145 $ 200,527 $ 485,529 Net income 79,628 79,628 Cash dividend, $.13 per common share as declared (15,132) (15,132) Cash dividend, $.65 per preferred share (2,430) (2,430) Stock split adjusted September 22, 1997 13,416 (13,416) Issuance of common stock under employee stock incentive plans 1,119 24,953 26,072 Tax benefit from exercise of options 17,748 17,748 Repurchase of common stock (995) (74,128) (75,123) Transfer to ESOP 15 585 600 --------- -------- --------- --------- --------- --------- Balances, October 31, 1997 $ 858 $ 66,660 $ 373,234 $ 276,667 $ 200,527 $ 516,892 ========= ======== ========= ========= ========= ========= </TABLE> 7
8 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, actual results may differ materially from those projected in the forward-looking statements. 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 a new distribution center and the risk factors listed in the Company Annual Report on Form 10-K for the year ended January 31, 1997. 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 unanticipated events. The following text contains references to years 1998, 1997, and 1996, which represent fiscal years ending or ended 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 other than the same period of the previous year will not reflect the seasonal nature of the Company's business. In August 1996, the federal minimum wage law was changed to increase minimum wage from $4.25 per hour to $4.75 per hour effective October 1, 1996 and from $4.75 per hour to $5.15 per hour effective September 1, 1997. The Company estimates that this change will result in an increase in wage expense during fiscal 1998 of approximately $8.0 million and resulted in an increase during fiscal 1997 of approximately $2.1 to $2.3 million above otherwise expected levels. The Company believes that increased sales and employee productivity will partially offset the financial impact to operations of the minimum wage increase for fiscal 1998. NINE MONTHS ENDED OCTOBER 31, 1997 AND NOVEMBER 1, 1996 NET SALES. Net sales for the first nine months of fiscal 1998 increased 21.0%, to $1.77 billion from $1.46 billion for the comparable period of fiscal 1997. The increase resulted from 455 net additional stores being in operation as of October 31, 1997 as compared with November 1, 1996 and an increase of 6.6% in same-store sales. Same store sales growth in the first nine months of fiscal 1997 was 7.9%. 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. Management believes that the same-store sales were negatively impacted during the first six months by dropping an advertising circular and by store interruptions caused by converting more than 2,400 stores to the Company's new prototype during fiscal 1998. The new prototype and related product mix reflects a 65%/35% hardlines to softlines space allocation versus the previous 50%/50% allocation. The new prototype allocates more space to faster-turning consumable merchandise. For the fourth quarter of fiscal 1998, management expects continued improvement in net sales and same store sales increases. 8
9 GROSS PROFIT. Gross profit for the first nine months was $485.8 million, or 27.5% of net sales, compared to $405.7 million, or 27.8% of net sales, in the same period last year. The decrease in gross profit as a percent to sales was primarily impacted by higher freight costs associated with adding 700 new items to the merchandise mix and lower margin on current purchases. These higher costs were partially offset by lower estimated shrinkage and higher margin on beginning inventory. Management currently anticipates a slight decline in gross profit as a percent of net sales for fiscal 1998. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative expense for the nine months, ending October 31, 1997, totaled $355.3 million, or 20.1% of net sales, compared with $299.4 million, or 20.5% of net sales in the comparable period last year. As a percentage of sales, increases in professional fees and inventory services were offset by decreases in (i) employee incentive compensation expense, (ii) self-insurance expense, and (iii) property and use taxes. Total operating expense increased 18.6% primarily as a result of 455 net additional stores being in operation as compared with the comparable period last year. Management currently anticipates a continued slight decline in selling general and administrative expense as a percent of net sales for fiscal 1998. INTEREST EXPENSE. For the first nine months of fiscal 1998 interest expense decreased 30.8% to $2.6 million (0.2% of sales) compared with $3.8 million (0.3% of sales) in the comparable period last year primarily as a result of lower average short-term borrowings due to faster-moving consumable merchandise and improved accounts payable management. For fiscal 1998, management expects interest expense in total dollars to be less than last year. PROVISION FOR TAXES ON INCOME. The effective income tax rate was 37.8% for both the three and nine month periods of 1998 compared with 38.0% in the comparable periods last year, respectively. THREE MONTHS ENDED OCTOBER 31, 1997 AND NOVEMBER 1, 1996 NET SALES. Net sales for the quarter increased 27.6%, to $649.4 million from $509.0 million for the comparable period of fiscal 1997. The increase resulted from an increase of 11.6% in same-store sales as compared with a 6.5% increase in the same period last year and the operation of 455 additional stores as of October 31, 1997. GROSS PROFIT. Gross profit for the quarter was $183.8 million, or 28.3% of net sales, compared to $148.6 million, or 29.2% of net sales, in the same period last year. The decrease in gross profit as a percent of sales was primarily the result of higher freight costs and lower margin on current purchases which were partially offset by lower estimated shrinkage. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative expense for the quarter totaled $128.2 million, or 19.7% of net sales compared with $104.2 million, or 20.5% of net sales, in the comparable period last year. As a percentage of sales, higher purchased services, professional fees and advertising expense were offset by decreases in (i) self-insurance expense, (ii) employee compensation, (iii) employee incentive compensation expense and (iv) property and use taxes. Total operating expense increased 23.1% primarily the result of 455 net additional stores being in operation compared to last year. INTEREST EXPENSE. Interest expense increased 5.0% to $1.6 million (0.2% of sales) compared with $1.5 million (0.3% of sales) in the comparable period last year. This increase was primarily a result of higher average short-term borrowings due to increases in inventories, capital expenditures, and common stock repurchases. Inventories increased primarily as a result of opening an additional distribution center and opening new stores. LIQUIDITY AND CAPITAL RESOURCES Cash flows from operating activities - Net cash used by operating activities increased to $40.1 million during the first nine months of fiscal 1998 compared with $12.0 million in the comparable period last year. This increase is primarily the result of increased inventories being only partially offset by increased accounts payable. 9
10 Cash flows from investing activities - Net cash used by investing activities increased to $58.5 million during the first nine months of 1998 compared with $46.9 million in the comparable period last year. This increase was primarily the result of increased capital expenditures primarily related to the expansion of the Scottsville, Kentucky distribution center, the implementation of point-of sale technology in stores and the conversion of stores to the Company's new prototype. Partially offsetting the capital expenditures was $33.8 million received from the sale (and subsequent leaseback) of the South Boston, Virginia distribution center. Cash flows from financing activities - The Company's short-term borrowings during the first nine months of fiscal 1998 increased by $155.1 million compared with an increase of $112.6 million in fiscal 1997. The increase in short-term borrowings was the result of increased inventories and capital expenditures and was partially offset by improved accounts payable management and the proceeds from the sale/leaseback of the South Boston, Virginia distribution center. Because of the significant impact of seasonal buying (e.g., Spring and Holiday purchases), the Company's working capital needs vary significantly during the year. Working capital needs, open market stock repurchase and general corporate needs were financed by short-term borrowings under the Company's $175 million revolving credit/term loan facility and short-term bank lines of credit totaling $155 million at October 31, 1997. The Company had revolving credit/term loan facility borrowings and short-term bank lines of credit borrowings of $175.0 million and $18.6 million as of October 31, 1997 and 160.0 million and 24.7 million as of November 1, 1996, respectively. The Company also has available an additional $100 million leveraged lease facility. The leveraged leased facility will be used to meet capital requirements related to construction of new stores, a new distribution center in Indianola, Mississippi and a new corporate headquarters complex in Goodlettsville, Tennessee. The leveraged lease facility and the revolving credit/term loan facility will expire August 29, 2002 and they contain financial covenants similar to prior credit facilities. 10
11 The Company's liquidity position is set forth in the following table (dollars in thousands): <TABLE> <CAPTION> Oct. 31 Jan. 31, Nov.1, 1997 1997 1996 -------- -------- -------- <S> <C> <C> <C> Current ratio 1.6x 2.2x 1.6x Total borrowings/equity 38.0% 8.9% 43.6% Long-term debt/equity 0.3% 0.5% 0.6% Working capital $279,966 $281,134 $256,205 Average daily use of debt: (fiscal year-to-date) Short-term $ 66,911 $ 87,952 $ 90,548 Long-term 3,723 2,930 3,843 -------- -------- -------- Total $ 70,634 $ 90,882 $ 94,391 ======== ======== ======== Maximum outstanding short-term debt (fiscal year-to-date) $193,583 $184,725 $184,725 </TABLE> 11
12 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. Exhibits and reports on Form 8-K (a) Exhibits 10.1 Credit Agreement dated September 2, 1997 by and among Dollar General Corporation and Sun Trust Bank, Nashville, N.A. 10.2 Master Agreement dated September 2, 1997 among Dollar General Corporation, Certain Subsidiaries of Dollar General Corporation, Atlantic Financial Group, Ltd., Certain Financial Institutions Parties hereto at SunTrust Bank, Nashville, N.A. 27 Financial Data Schedule (for SEC use only) (b) No reports on Form 8-K were filed during the quarter ended October 31, 1997. 12
13 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 12, 1997 By: /s/ Phil Richards -------------------------------------- Phil Richards, Vice President and Chief Financial Officer 13