Notes
to Financial Statements
December
31, 2006
1.
Description
of Plan
The
following brief description of the Dollar General Corporation 401(k) Savings
and
Retirement Plan (the Plan) provides only general information. Participants
should refer to the Plan document for a more complete description of the Plan’s
provisions.
General
The
Plan
is a defined contribution plan for all employees of Dollar General Corporation
(the Employer or the Company). The Plan is subject to the provisions of the
Employee Retirement Income Security Act of 1974, as amended
(ERISA).
Contributions
The
Plan
allows the participants to make contributions of the participants’ earnings in
the form of deferred compensation to a retirement plan before income taxes
are
deducted. The contributions are invested, and income earned is not taxed to
the
participant until withdrawn from the Plan.
Participants
may elect to contribute from 1% to 25% of pre-tax annual eligible compensation
as defined in the Plan document, subject to certain limitations under applicable
federal law. Participants who have attained age 50 by the end of the Plan year
may elect to contribute additional amounts on a pre-tax basis under the catch-up
provision of the Plan subject to certain limitations under the Internal Revenue
Code (the Code). Participants may also make rollover contributions to the Plan.
The Employer shall match 100% of the combination of regular pre-tax 401(k)
deferrals and catch-up deferrals contributed by participants up to the first
5%
of eligible compensation (Employer Matching Contribution). The participant
contribution and Employer Matching Contribution are invested as directed by
the
participant.
In
addition to the Employer Matching Contribution described above, the Employer
may
contribute discretionary amounts from time to time (Profit Sharing Contribution)
as Profit Sharing Contributions. The Profit Sharing Contribution is invested
as
directed by the participant. Participants must be employed on the last day
of
the Plan year to receive a Profit Sharing Contribution. There was no Profit
Sharing Contribution for the 2006 Plan year.
1.
Description
of Plan (continued)
Participant
Accounts
Each
participant’s account is adjusted for the participant’s contributions and
withdrawals, as applicable, allocations of the Employer contributions, Plan
earnings, and an allocation of administrative expenses. Allocations are based
on
participant earnings or account balances, as defined. During 2005 and 2006,
proceeds received by the Plan from the settlement of a class action suit
involving Dollar General stock were allocated on a pro-rata basis among eligible
participants based on each participant’s number of units of Dollar General stock
held in their account at the time of filing the Proof of Claim.
The
benefit to which a participant is entitled is the benefit that can be provided
from the participant’s vested account.
Vesting
Participants
are always 100% vested in any contributions or rollovers they make to the Plan.
Participants who have been active employees and have completed one hour of
service on or after January 1, 2003, are immediately vested in their Employer
Matching Contributions, Profit Sharing Contributions, and actual earnings
thereon. Participants who do not have one hour of service on or after January
1,
2003, are subject to the prior vesting schedule under the Plan. Participants
are
100% vested without regard to credited service in the event of death,
disability, or attainment of retirement age.
Participant
Loans
Participants
in the Plan may borrow from their fund accounts a minimum of $1,000 up to a
maximum equal to the lesser of a) $50,000 reduced by the largest outstanding
loan balance within the last twelve months or b) 50% of their vested account
balance. The Plan was amended effective August 25, 2005 to allow the maximum
amount that may be borrowed in the event the loan qualifies as a Qualified
Katrina Loan, as defined in the Plan document, to be the lesser of $100,000
or
100% of their vested account balance. Only one loan may be outstanding at a
time. Loans are secured by the balance in the participant's account and bear
interest at a rate commensurate with local prevailing rates as determined by
the
Plan administrator. Loans must be repaid within 5 years from the date of the
loan unless proceeds are used to acquire the principal residence of the
participant borrower. Principal and interest are paid ratably through weekly
or
semi-monthly payroll deductions.
Payment
of Benefits
Upon
termination of service, a participant may elect to receive a lump-sum amount
equal to the value of the participant's vested interest in his or her account
or, under certain circumstances, may purchase an annuity. Participant accounts
with a balance of $1,000 or less are required to be distributed upon
termination.
1.
Description
of Plan (continued)
Forfeited
Accounts
Forfeited
balances of terminated participants’ nonvested accounts are used to reduce
future contributions of the Company or to pay reasonable Plan expenses. In
2006,
Plan expenses of $99,500 were paid from forfeited nonvested accounts. The
balance of forfeited nonvested accounts was $92,591 and $106,549 at December
31,
2006 and 2005, respectively.
Administrative
Expenses
Participants
pay for the costs charged for originating loans from their account balance.
Fees
and expenses associated with the administrative and recordkeeping services
provided by an external provider are paid by the Plan. The Employer pays all
other expenses.
Plan
Termination
Although
it has not expressed any intent to do so, the Employer has the right under
the
Plan to discontinue its contributions at any time and to terminate the Plan
subject to the provisions of ERISA. In the event of Plan termination, all
participant accounts will become fully vested and the assets will be distributed
to participants or their beneficiaries.
2.
Summary
of Significant Accounting Policies
Basis
of Accounting
The
financial statements of the Plan are prepared under the accrual method of
accounting.
New
Accounting Pronouncement
In
December 2005, the Financial Accounting Standards Board (FASB) issued FASB
Staff
Position AAG INV-1 and SOP 94-4-1, Reporting of Fully Benefit-Responsive
Investment Contracts Held by Certain Investment Companies Subject to the AICPA
Investment Company Guide and Defined-Contribution Health and Welfare and Pension
Plans (the FSP). The FSP defines the circumstances in which an investment
contract is considered fully benefit responsive and provides certain reporting
and disclosure requirements for fully benefit responsive investment contracts
in
defined contribution health and welfare and pension plans. The financial
statement presentation and disclosure provisions of the FSP are effective for
financial statements issued for annual periods ending after December 15, 2006
and are required to be applied retroactively to all prior periods presented
for
comparative purposes. The Plan has adopted the provisions of the FSP at December
31, 2006.
2.
Summary
of Significant Accounting Policies (continued)
As
required by the FSP, investments in the accompanying Statements of Net Assets
Available for Benefits include fully benefit responsive investment contracts
recognized at fair value. AICPA Statement of Position 94-4-1,
Reporting
of Investment Contracts Held by Health and Welfare Benefit Plans and Defined
Contribution Pension Plans,
as
amended
,
requires
fully benefit responsive investment contracts to be reported at fair value
in
the Plan’s Statement of Net Assets Available for Benefits with a corresponding
adjustment to reflect these investments at contract value. The requirements
of
the FSP have been applied retroactively to the Statement of Net Assets Available
for Benefits as of December 31, 2005 presented for comparative purposes.
Adoption of the FSP had no effect on the Statement of Changes in Net Assets
Available for Benefits for any period presented.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted
accounting principles requires management to make estimates that affect the
reported amounts in the financial statements and accompanying notes. Actual
results could differ from those estimates.
Investment
Valuation and Income Recognition
The
Plan’s investments are stated at fair value, which generally equals the quoted
market price on the last business day of the Plan year. The shares of registered
investment companies are valued at quoted active market prices that represent
the net asset value of shares held by the Plan at year-end. The Dollar General
Corporation common stock is valued at the last reported active market sales
price on the last business day of the Plan year. The contract value of
participation units owned in the collective trust fund and the fair value of
the
common trust fund are based on quoted redemption values, as determined by the
Trustee, on the last business day of the Plan year. The fair value of
participation units owned by the collective trust fund is determined based
on
the present value of the underlying contract’s expected cash flows, discounted
by current market interest rates for like duration and like quality investments.
The real estate limited partnership investment is recorded at the estimated
appraised value as of the last business day of the Plan year. The participant
loans receivable are valued at their outstanding balances, which approximate
fair value.
Purchases
and sales of securities are recorded on a trade date basis. Interest income
is
recorded on the accrual basis. Dividends are recorded on the ex-dividend
date.
Payment
of Benefits
Benefits
are recorded when paid.
2.
Summary
of Significant Accounting Policies (continued)
Reclassification
Certain
prior year amounts have been reclassified to conform to the current year
presentation.
3.
Income
Tax Status
The
Plan
received a determination letter from the Internal Revenue Service dated March
5,
2002, stating that the Plan is qualified under Section 401(a) of the Code and
therefore, the related trust is exempt from taxation. Subsequent to this
determination by the Internal Revenue Service, the Plan was amended and
restated. Once qualified, the Plan is required to operate in conformity with
the
Code to maintain its qualification. The Plan administrator believes the Plan
is
being operated in compliance with the applicable requirements of the Code,
that
the Plan, as amended and restated, is qualified, and that the related trust
is
tax exempt.
4.
Investments
During
2006, the Plan’s investments (including gains and losses on investments
purchased and sold, as well as held during the year) appreciated (depreciated)
in fair value as follows:
|
|
Year
Ended December 31,
2006
|
|
Fair
value as determined by quoted market price:
|
|
|
|
Registered
investment companies
|
|
$
|
4,264,292
|
|
Dollar
General Corporation common stock
Fair
value as determined by quoted redemption values:
Collective
trust fund
Fair
value as determined by appraisal:
|
|
|
(4,683,068
663,357
|
)
|
Real
estate limited partnership
|
|
|
(5,638
|
)
|
|
|
$
|
238,943
|
|
4.
Investments
(continued)
Investments
which represent 5% or more of the Plan’s net assets available for benefits are
as follows:
|
|
|
|
December
31,
|
|
Identity
of Party Involved
|
|
Description
of Assets
|
|
2006
|
|
2005
|
|
|
|
|
|
|
|
|
|
Dollar
General Corporation
|
|
|
Dollar
General Corporation common stock
|
|
$
|
21,810,444
|
|
$
|
28,863,685
|
|
Dodge
& Cox Funds
|
|
|
Dodge
& Cox Balanced Fund
|
|
|
20,858,702
|
|
|
18,795,643
|
|
INVESCO
Institutional Funds
|
|
|
Invesco
Stable Value Trust at fair value
(contract
value
is $16,234,766 and $15,386,357,
at
December 31, 2006 and 2005, respectively)
|
|
|
15,888,094
|
|
|
15,151,286
|
|
The
American Funds Group
|
|
|
Washington
Mutual Investors Fund R4
|
|
|
14,140,097
|
|
|
11,882,108
|
|
The
American Funds Group
|
|
|
The
Growth Fund of America
|
|
|
9,247,112
|
|
|
7,504,209
|
|
PIMCO
Funds
|
|
|
PIMCO
Total Return Fund
|
|
|
6,189,616
|
|
|
5,878,227
|
|
5.
Transactions
with Parties-in-Interest
Transactions
with parties-in-interest include purchases and sales of assets through State
Street Bank & Trust, the trustee, and fees paid during the year for the
trustee fees. Dollar General Corporation is the sponsor of the Plan.
Parties-in-interest transactions also include contributions by the Employer
and
the Plan’s investment in Company stock, including reinvestment of dividends paid
from the Company stock.
6.
Commitments
and Contingencies
As
previously disclosed in the Plan’s Form 11-K for the year ended December 31,
2001, filed with the Securities and Exchange Commission on July 3, 2002 (the
2001 Form 11-K), the Company restated its audited financial statements for
fiscal years 1999 and 1998, and certain unaudited financial information for
fiscal year 2000 (the Restatement) by means of its Form 10-K for the fiscal
year
ended February 2, 2001, which was filed on January 14, 2002. Also as described
more fully in the 2001 Form 11-K, the Company settled the consolidated
Restatement-related class action lawsuit filed in the United States District
Court for the Middle District of Tennessee on behalf of a class of persons
who
purchased or otherwise made an investment decision regarding the Company’s
securities and related derivative securities between March 5, 1997 and
January 14, 2002. The $162 million settlement was approved by the court on
May
24, 2002, and was paid by the Company in the first half of its fiscal year
ended
January 31, 2003.
6.
Commitments
and Contingencies (continued)
As
a
member of the plaintiff class, the Plan submitted a claim of approximately
$1.4
million. The actual proceeds of the Plan’s pro-rata share of the settlement were
received by the Plan in August 2006 and January 2005 in the amount of $25,303
and $444,584, respectively. The total amount received was less than expected
due
to a high number of class action members submitting claims in the settlement,
resulting in a pro-rata distribution of the settlement amount among the eligible
class members in proportion to their original claim amount. The proceeds have
been reflected in the applicable year’s financial statements.
7.
Risks
and
Uncertainties
The
Plan
invests in various investment securities. Investment securities are exposed
to
various risks such as interest rate, market and credit risks. Due to the level
of risk associated with certain investment securities, it is at least reasonably
possible that changes in the values of investment securities will occur in
the
near term and that such changes could materially affect participants’ account
balances and the amounts reported in the statements of net assets available
for
benefits.
8.
Reconciliation
Between Financial Statements and Form 5500
The
following is a reconciliation of net assets available for benefits per the
financial statements to the Form 5500:
|
|
December
31, 2006
|
|
|
|
|
|
Net
assets available for benefits per the financial statements
|
|
$
|
106,145,537
|
|
Adjustment
to report collective trust fund at fair value
|
|
|
(346,672
|
)
|
Net
assets available for benefits per the Form 5500
|
|
$
|
105,798,865
|
|
The
following is a reconciliation of additions per the financial statements to
total
income on the Form 5500:
|
|
Year
Ended December 31, 2006
|
|
|
|
|
|
Total
additions per the financial statements
|
|
$
|
21,561,614
|
|
Adjustment
to report collective trust fund at fair value
|
|
|
(346,672
|
)
|
Total
income per the Form 5500
|
|
$
|
21,214,942
|
|
9.
Subsequent
Events
On
March
11, 2007, the Company entered into an Agreement and Plan of Merger (the Merger
Agreement) with Buck Holdings L.P., a Delaware limited partnership (Parent)
and
Buck Acquisition Corp., a Tennessee corporation and wholly-owned subsidiary
of
Parent (Merger Sub).
Pursuant
to the Merger Agreement, Merger Sub will be merged with and into the Company
(the Merger), with the Company surviving the Merger as a wholly-owned subsidiary
of Parent. Merger Sub and Parent are affiliates of Kohlberg Kravis Roberts
&
Co., L.P. (KKR). Pursuant to the Merger Agreement, at the effective time of
the
Merger, each outstanding share of common stock of the Company, other than any
shares held by any wholly-owned subsidiary of the Company and any shares owned
by Parent or Merger Sub or held by the Company, will be cancelled and converted
into the right to receive $22.00 in cash, without interest (the Merger
Consideration). In addition, immediately prior to the effective time of the
Merger, all shares of Company restricted stock and restricted stock units will,
unless otherwise agreed by the holder and Parent, vest and be converted into
the
right to receive the Merger Consideration. All options to acquire shares of
Company common stock will vest immediately prior to the effective time of the
Merger and holders of such options will, unless otherwise agreed by the holder
and Parent, be entitled to receive an amount in cash equal to the excess, if
any, of the Merger Consideration over the exercise price per share of Company
common stock subject to the option.
The
Board
of Directors of the Company unanimously approved the Merger Agreement and
amended the Company’s Shareholder Rights Plan to exempt the Merger from that
Plan’s operation.
Consummation
of the Merger is not subject to a financing condition but is subject to
customary closing conditions, including approval of the Merger Agreement by
the
Company’s
shareholders,
regulatory approval and other customary closing conditions. The Merger Agreement
places specified restrictions on certain of the Company’s business activities,
including but not limited to: acquisitions or dispositions of assets, capital
expenditures, modifications of debt, leasing activities, compensatory changes,
dividend increases, investments and share repurchases. The
accompanying financial statements do not include any financial reporting
impacts related to potential consummation of the Merger.
Upon
the
potential consummation of the Merger, each outstanding share of Dollar General
common stock held in the Plan will be converted into the right to receive $22.00
in cash without interest. At December 31, 2006, the Plan held 1,358,060 shares
of Dollar General stock at a fair value of $16.06 per share.
9.
Subsequent
Events (continued)
Subsequent
to the announcement of the Agreement and Plan of Merger among the Company,
Buck
Holdings L.P. and Buck Acquisition Corp. (each of Buck Holdings L.P. and Buck
Acquisition Corp. is an affiliate of KKR), the Company and its directors were
named in seven putative class actions alleging claims for breach of fiduciary
duty arising out of the proposed sale of the Company to KKR. Each of the
complaints alleged, among other things, that Dollar General’s directors engaged
in “self-dealing” by agreeing to recommend the transaction to the shareholders
of Dollar General and that the consideration available to Dollar General
shareholders in the proposed transaction is unfairly low. On motion of the
plaintiffs, each of these cases was transferred to the Sixth Circuit Court
for
Davidson County, Twentieth Judicial District, at Nashville (the “Court”). By
order April 26, 2007, the seven lawsuits were consolidated in the Court under
the caption, “In re: Dollar General,” Case No. 07MD-1. On May 23, 2007, the
Court entered an order requiring the plaintiffs in the consolidated actions
to
file a consolidated complaint on or before June 22, 2007. According to the
terms
of the proposed order, the consolidated complaint would supersede all
previously-filed complaints. The plaintiffs have indicated that they intend
to
move for a preliminary injunction enjoining the transaction and have scheduled
with the Court a hearing on this potential motion for June 13, 2007. The Company
believes that the foregoing lawsuit is without merit and intends to defend
the
action vigorously.
At
this
time, management is not aware of any intentions to change the Plan as a result
of the anticipated merger other than necessary changes resulting from the
elimination of the Dollar General stock fund investment option from the
Plan.
Supplemental
Schedules
Dollar
General Corporation
|
401(k)
Savings and Retirement Plan
|
|
|
EIN:
61-0502302 Plan Number: 002
|
|
|
Schedule
H, Line 4a
-
Schedule
of Delinquent Participant Contributions
|
|
|
Year
Ended December 31, 2006
|
|
|
|
|
Participant
Contributions Transferred Late to Plan
|
Total
that Constitute Nonexempt Transactions
|
$464
for the Plan Year Ended December 31, 2006
|
$464
for the Plan Year Ended December 31, 2006
|
|
|
|
|
Earnings
on these contributions and loan repayments were
de
minimis
for inclusion in contributions reflected above.
|
|
|
|
|
Dollar
General Corporation
|
401(k)
Savings and Retirement Plan
|
|
|
|
|
EIN:
61-0502302 Plan Number: 002
|
|
|
Schedule
H, Line 4i - Schedule of Assets
|
(Held
at End of Year)
|
|
|
|
|
December
31, 2006
|
|
|
|
|
|
|
|
|
|
|
(c)
|
|
|
(b)
|
Description
of Investment Including
|
(e)
|
|
Identity
of Issue, Borrower,
|
Maturity
Date, Rate of Interest,
|
Current
|
(a)
|
Lessor,
or Similar Party
|
Collateral,
Par or Maturity Value
|
Value
|
|
|
|
|
*
|
Dollar
General Corporation
|
Dollar
General Corporation common stock
|
$
21,810,444
|
*
|
State
Street Bank & Trust
|
State
Street Short-Term Investment Fund
|
537,233
|
|
Dodge
& Cox Funds
|
Dodge
& Cox Balanced Fund
|
20,858,702
|
|
INVESCO
Institutional Funds
|
Invesco
Stable Value Trust
|
15,888,094
|
|
The
American Funds Group
|
Washington
Mutual Investors Fund R4
|
14,140,097
|
|
The
American Funds Group
|
The
Growth Fund of America
|
9,247,112
|
|
PIMCO
Funds
|
PIMCO
Total Return Fund
|
6,189,616
|
|
T.
Rowe Price
|
T.
Rowe Price Small-Cap Stock Fund
|
3,289,508
|
|
The
Vanguard Group
|
Vanguard
Strategic Equity Fund
|
3,461,944
|
|
Dimensional
Fund Advisors Inc.
|
DFA
International Value Fund
|
5,212,793
|
*
|
Participant
notes receivable
|
Interest
rate ranging from 4% to 9.5%
|
4,604,213
|
|
|
|
|
|
|
|
$
105,239,756
|
|
|
|
|
*Party-in-interest
|
|
|
Column
(d) has not been presented as this information is not
applicable.
|
|
|
|
|
|
|
|
|
|
SIGNATURES
The
Plan
.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Administrator of the Dollar General Corporation 401(k) Savings and Retirement
Plan has duly caused this Annual Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date:
|
June
20, 2007
|
DOLLAR
GENERAL CORPORATION
|
|
|
|
|
|
|
|
By:
|
/s/
Jeffrey R. Rice
|
|
|
Name:
Jeffrey R. Rice
|
|
|
Title:
Vice President, Human Resources
|
EXHIBIT
INDEX
Exhibit
No.
|
|
Description
|
|
|
|
23
|
|
Consent
of Independent Registered Public Accounting
Firm
|
16