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, 1995
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)
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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 November 22, 1995 was 57,626,392.
Dollar General Corporation
Form 10-Q
For the Quarter Ended October 31, 1995
Index
Part I. Financial Information Page No.
Item 1. Financial Statements (unaudited):
Consolidated Statements of
Income for the three months and nine
Months ended October 31, 1995 and 1994. . . . . . 3
Consolidated Balance Sheets as of
October 31, 1995, January 31, 1995 and
October 31, 1994. . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows for
the nine months ended October 31, 1995 and
1994. . . . . . . . . . . . . . . . . . . . . . . 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
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . . . . . 11
Signatures . . . . . 12
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PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
For the three months and nine months ended October 31, 1995 and
1994
in thousands except per share amounts)
Three Months Nine Months
1995 1994 1995 1994
Net Sales $437,218 $359,430 $1,188,814 $963,839
Cost of goods sold 308,853 253,851 850,223 690,572
Gross Profit 128,365 105,579 338,591 273,267
Selling, general and
administrative expense 93,270 76,620 253,010 205,560
Operating profit 35,095 28,959 85,581 67,707
Interest expense 2,561 1,177 5,459 2,216
Income before taxes
on income 32,534 27,782 80,122 65,491
Provision for taxes on income 12,526 10,488 30,847 24,723
Net income 20,008 17,294 49,275 40,768
Net income per common share $ .28 $ .25 $ .70 $ .59
Weighted average number of
common shares outstanding 70,401 69,193 70,206 68,826
Cash dividends per common
share as declared $ .05 $ .05 $ .15 $ .15
Adjusted to give
retroactive effect to
the five-for-four stock
split distributed on
March 6, 1995. $ .05 $ .04 $ .15 $ .12
The accompanying notes are an integral part of this statement.
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DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of October 31, 1995, January 31, 1995 and October 31, 1994
(in thousands)
(unaudited)
ASSETS October 31, January 31, October 31,
1995 1995 1994
Current assets:
Cash and cash equivalents $ 4,146 $ 33,045 $ 25,582
Merchandise inventories 580,928 356,111 392,605
Deferred income taxes 12,232 11,785 11,221
Other current assets 12,205 9,212 12,913
Total current assets 609,511 410,153 442,321
Property & equipment, at cost 231,500 187,360 165,263
Less: Accumulated depreciation 77,548 62,108 57,477
153,952 125,252 107,786
Other Assets 5,566 5,463 4,818
$769,029 $540,868 $554,925
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,308 $ 1,441 $ 1,305
Short-term borrowings 200,304 29,600 112,712
Accounts payable 111,919 111,675 88,836
Accrued expenses 58,755 61,037 53,572
Income taxes 6,876 5,210 5,007
Total current liabilities 379,162 208,963 261,432
Long-term debt 3,422 4,767 4,538
Deferred income taxes 3,382 3,382 2,563
Shareholders' equity:
Preferred stock 858 858 858
Common stock 34,149 33,971 27,248
Additional paid-in capital 302,014 283,323 276,975
Retained earnings 246,569 207,436 183,981
583,590 525,588 489,062
Less treasury stock 200,527 201,832 202,670
383,063 323,756 286,392
$769,029 $540,868 $554,925
The accompanying notes are an integral part of this statement.
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DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the nine months ended October 31, 1995 and 1994
(amounts in thousands)
(unaudited)
October 31, October 31,
1995 1994
Cash flows from operating activities:
Net income $ 49,275 $ 40,768
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 17,938 12,217
Deferred income taxes ( 447) ( 1,557)
Change in operating assets and liabilities:
Merchandise inventories (224,817) (132,563)
Accounts payable 244 7,800
Accrued expenses ( 2,282) 5,666
Income taxes 1,666 6,570
Other ( 1,160) ( 4,216)
Net cash used by operating activities (159,583) ( 65,315)
Cash flows used in investing activities:
Purchase of property & equipment ( 48,574) ( 42,916)
Cash flows provided by financing activities:
Issuance of short-term borrowings 184,653 96,212
Repayments of short-term borrowings ( 13,949) ( 1,501)
Repayments of long-term debt ( 1,478) ( 1,170)
Payments of cash dividends ( 10,142) ( 7,952)
Proceeds from exercise of stock options 12,848 6,584
Tax benefits from exercise of stock options 6,997 5,585
Other 329 690
Net cash provided by financing activities 179,258 98,448
Net increase (decrease) in cash and equivalents ( 28,899) ( 9,783)
Cash and cash equivalents at beginning of year 33,045 35,365
Cash and cash equivalents at end of period $ 4,146 $ 25,582
The accompanying notes are an integral part of this statement.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying 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, 1995 for additional information.
The accompanying financial statements 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, 1995 and 1994, 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 year.
2. Net Income Per Common Share
Net income per common share is based upon the actual weighted average number of common shares outstanding during each period plus the assumed exercise of dilutive stock options as follows:
Three Months Nine Months
Ended October 31, Ended October 31,
(in thousands)
1995 1994 1995 1994
Actual weighted average number
of common shares outstanding
during the period 57,557 64,788 57,081 64,515
Common Stock Equivalents:
Dilutive effect of stock
options using the "Treasury
Stock Method" 2,121 2,736 2,402 2,642
1,715,742 shares of Convertible
Preferred Stock issued
August 22, 1994 10,723 1,669 10,723 1,669
Weighted Average Number of
Common Shares 70,401 69,193 70,206 68,826
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3. Changes in shareholder's equity for the nine months ended October 31, 1995 and 1994 were as follows (in thousands except per share amounts):
Additional
Preferred Common Paid-In Retained Treasury
Stock Stock Capital Earnings Stock
Balances, January 31, 1994 $ 0 $ 27,248 $ 65,857 $151,165 $ 3,553
Net income 40,768
Cash dividend, $.15 per
common share,
as declared ( 7,952)
Reissuance of treasury
stock under employee
stock incentive plans 5,217 ( 1,367)
Tax benefit from exercise
of options 5,585
Transfer to employee
pension plan
(25,134 shares) 647 ( 43)
Issuance of preferred
stock in exchange for
company common stock 858 199,669 200,527
Balances, October 31, 1994 $ 858 $ 27,248 $276,975 $183,981 $202,670
Balances, January 31, 1995 $ 858 $ 33,971 $283,323 $207,436 $201,832
Net income 49,275
Cash dividend, $.15 per
common share ( 8,696)
Cash dividend, $.84 per
preferred share ( 1,446)
Issuance of common stock
under employee stock
incentive plans 172 3,822
Reissuance of treasury
stock under employee
stock incentive plans 7,549 ( 1,305)
Transfer to employee
pension plan
(12,783 shares) 6 323
Tax benefit from exercise
of options 6,997
Balances, October 31, 1995 $ 858 $ 34,149 $302,014 $246,569 $200,527
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 which ends January 31. 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. Due to the seasonal nature of the business,
current-year periods are most accurately evaluated by comparison to
the same periods in prior years.
Nine months ended October 31, 1995 and 1994.
NET SALES. Net sales for the first nine months of fiscal 1996 increased $225.0 million, or 23.34% to $1,188.8 million from $963.8 million for the comparable period of fiscal 1995. The increase resulted primarily from 393 net additional stores being in operation as of October 31, 1995 as compared with the same prior-year period and an increase of 6.6% in same-store sales. In the first nine months of fiscal 1996, the Company opened 353 stores, closed 22 stores and ended the period with a total of 2,390 stores.
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 increase this year through the first nine months (6.6% increase as compared to 14.7% in the comparable period last year) has been hurt by distribution constraints in shipping merchandise to stores related to the Ardmore distribution center start up and by industry-wide soft apparel sales. The Company's sales mix continued to show the shift in favor of hardlines, which accounted for 69% of the sales, compared to softlines' 31% of sales versus 65% and 35%, respectively, in the first nine months of fiscal 1995.
GROSS PROFIT. Gross profit for the first nine months of fiscal 1996 was $338.6 million, or 28.48% of net sales, compared to $273.3 million, or 28.35% of net sales, for the comparable period in the prior fiscal year. The increase resulted from higher beginning inventory margins and lower markdowns which more than offset lower margins on current purchases and higher distribution costs related to the Ardmore distribution center start-up. Shrinkage allowances and LIFO charges were essentially unchanged from the same period last year. Cost of goods sold is determined in the first, second and third quarters utilizing estimates of inventory markdowns, shrinkage and inflation. Adjustment of these estimates based upon actual results are included in cost of goods sold in the fourth quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Operating expenses for the period equaled $253.0 million, or 21.28% of sales, compared with $205.6 million, or 21.33% of sales, in the same period last year. This 23% increase is principally the result of opening and operating 393 net additional stores. Operating expenses as a percentage of sales decreased principally as a result of lower self-insurance reserves, employee benefit and supply costs, and bonus accruals, which more than offset higher depreciation, rent and professional fees.
INTEREST EXPENSE. Interest expense increased 146.3% to $5.5 million for the first nine months of fiscal 1996 from $2.2 million for the comparable prior year period. The increase resulted primarily from greater average short-term borrowings related to increases in inventories. Average short-term borrowings were $97.6 million and $52.2 million for the respective nine month periods of fiscal 1996 and 1995.
Three months ended October 31, 1995 and 1994.
NET SALES. Net sales in the third quarter of fiscal 1996 increased
$77.8 million or 21.6%, to $437.2 million from $359.4 million for
the same period in fiscal 1995. The increase resulted from a
same-store sales increase of 4.6% (as compared to 17.2% in the third
quarter of 1994) and the operation of 393 additional stores at
October 31, 1995 as compared to October 31, 1994. Continued soft
apparel sales and some inventory imbalances in the first month of
the quarter hurt the same-store performance relative to last year.
GROSS PROFIT. Gross profit as a percentage of sales was 29.36% in the third quarter of fiscal 1996 as compared to 29.37% for the comparable period in fiscal 1995. This performance resulted from higher beginning inventory margins and lower distribution costs which offset higher damage markdown reserves and lower margins on current purchases. Although distribution costs were up year-to-date, for the quarter they were down reflecting more efficient operation of the company's distribution centers.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative expense increased $16.7 million or 21.7% in the third quarter of fiscal 1996 as compared to fiscal 1995, primarily as a result of more stores in operation. As a percentage of sales, selling, general and administrative expense was constant at 21.33% for the third quarter of fiscal 1996 compared to 21.32% for the same period in the previous year. Expenses increasing as a percent of sales for the quarter were depreciation, rent and professional and bank fees; these were offset by decreases in supplies and employee benefit costs.
INTEREST EXPENSE. Interest expense for the third quarter of fiscal 1996 increased 117.6%, to $2.6 million from $1.2 million, from the comparable period in fiscal 1995 as a result of greater average borrowings related to increases in inventories. Average short-term borrowings were $145.8 million and $62.0 million for the respective three-month periods of fiscal 1996 and 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities. Cash used in operating
activities totaled $159.6 million during the first nine months of
fiscal 1996 compared to $65.3 million in the same period last year.
This increased use of cash is primarily the result of a $224.8
million increase in inventories since fiscal year end 1995, $92.2
million more than in the same period last year. The increase in
merchandise inventories is the result of operating 393 more stores,
stocking the new Ardmore distribution center, and inventory build
up in existing stores for the Christmas season.
Cash flows from investing activities. Cash used for capital
expenditures during the first nine months of fiscal 1996 increased
$5.7 million to $48.6 million as compared to $42.9 million in the
comparable period in 1995. The current year expenditures result
principally from opening 353 new stores this year versus 226 last
year, remodeling and relocating 267 stores this year versus 264
last year, and purchasing additional distribution trailers versus
constructing the Ardmore distribution center last year.
Cash flows from financing activities. The Company's short-term borrowings during the first nine months of fiscal 1996 increased $170.7 million to $200.3 million compared with an increase of $94.7 million to $112.7 million during the same period of the prior fiscal year. The increase in short-term borrowings was required to fund the cash used in operating activities and for the capital expenditures discussed above.
Because the Company emphasizes seasonal events, such as Christmas and back-to-school, its working capital requirements vary significantly during the year. Bank credit facilities equaled $305.0 million at October 31, 1995 ($170.0 million revolving credit/term loan facility plus $135 million seasonal lines of credit). In June 1995, the Company renegotiated an increase in its revolving credit/term loan facility to $170.0 million from $65.0 million. The Company had seasonal lines of credit borrowings of $35.1 million and 50.7 million as of October 31, 1995 and 1994, respectively. Seasonal working capital and capital expenditure requirements will continue to be met through cash flow provided by operating activities supplemented by the revolving credit/term loan facility and seasonal credit lines.
The Company's liquidity position is set forth in the following table (amounts in thousands):
October 31, January 31, October 31,
1995 1995 1994
Current ratio 1.6x 2.0x 1.7x
Total borrowings/equity 53.5% 11.1% 41.4%
Long-term debt/equity 0.9% 1.5% 1.6%
Working capital (000) $230,349 $201,190 $180,889
Average daily use of debt:
(fiscal year to date)
Short-term(000) $ 97,604 $ 51,528 $ 52,240
Long-term (000) 4,812 6,035 6,128
Total (000) 102,416 57,563 58,368
Maximum outstanding
Short-term debt
(fiscal year-to-date) $211,227 $116,712 $112,712
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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) No reports on Form 8-K were filed during the quarter ended October 31, 1995.
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)
Date: December 14, 1995 By: SS/: Bob Carpenter
Bob Carpenter, Chief
Administrative Officer, Vice
President and Corporate Secretary
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| ARTICLE 5 |
| The accompanying notes are an integral part of this statement. |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | 9 MOS |
| FISCAL YEAR END | JAN 31 1996 |
| PERIOD END | OCT 31 1995 |
| CASH | 4,146 |
| SECURITIES | 0 |
| RECEIVABLES | 0 |
| ALLOWANCES | 0 |
| INVENTORY | 580,928 |
| CURRENT ASSETS | 609,511 |
| PP&E | 231,500 |
| DEPRECIATION | 77,548 |
| TOTAL ASSETS | 769,029 |
| CURRENT LIABILITIES | 379,162 |
| BONDS | 0 |
| COMMON | 34,149 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 858 |
| OTHER SE | 348,056 |
| TOTAL LIABILITY AND EQUITY | 769,029 |
| SALES | 1,188,814 |
| TOTAL REVENUES | 1,188,814 |
| CGS | 850223 |
| TOTAL COSTS | 253010 |
| OTHER EXPENSES | 0 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 5,459 |
| INCOME PRETAX | 80,122 |
| INCOME TAX | 30,847 |
| INCOME CONTINUING | 49,275 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 49,275 |
| EPS PRIMARY | .70 |
| EPS DILUTED | .70 |