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 August 2, 1996
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 August 30, 1996 was 73,163,378.
Dollar General Corporation
Form 10-Q
For the Quarter Ended August 2, 1996
Index
Part I. Financial Information Page No. Item 1. Financial Statements (unaudited): Consolidated Statements of Income for the three months and six months ended August 2, 1996 and August 4, 1995 restated from July 31, 1995. See Note 1 to the consolidated financial statements. 3 Consolidated Balance Sheets as of August 2, 1996, January 31, 1996 and August 4, 1995 restated from July 31, 1995. See Note 1 to the consolidated financial statements 4 Consolidated Statements of Cash Flows for the six months ended August 2, 1996 and August 4, 1995 restated from July 31, 1995. See Note 1 to the consolidated financial statements. 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 2 Changes in Securities 11 Item 4. Submission of Matters to a Vote of Security Holders 11 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 STATEMENTS OF INCOME
For the three months and six months ended August 2, 1996 and August 4, 1995*
(in thousands except per share amounts)
(unaudited)
Three Months Six Months
1996 1995* 1996 1995*
Net Sales $494,389 $403,719 $950,245 $778,239
Cost of Goods sold 360,661 290,645 693,143 560,407
Gross Profit 133,728 113,074 257,102 217,832
Selling, general and
administrative expense 97,321 82,918 195,266 166,408
Operating profit 36,407 30,156 61,836 51,424
Interest expense 1,109 1,662 2,306 2,907
Income before taxes on income 35,298 28,494 59,530 48,517
Provision for taxes on income 13,413 10,970 22,621 18,679
Net income 21,885 17,524 36,909 29,838
Net income per common and
common equivalent share $ .25 $ .20 $ .42 $ .34
Weighted average number of
common shares outstanding 89,094 87,890 88,886 87,636
Cash dividends per common
share as declared $ .05 $ .05 $ .10 $ .10
Adjusted to give retroactive
effect to the five-for-four
stock split distributed on
April 26, 1996 $ .05 $ .04 $ .10 $ .08
*Restated as explained in Note 1.
The accompanying notes are an integral part of this statement.
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DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of August 2, 1996, January 31, 1996 and August 4, 1995*
(in thousands)
(unaudited)
Aug. 2, 1996 January 31, 1996 Aug. 4, 1995*
ASSETS
Current Assets:
Cash and cash equivalents $ 12,950 $ 4,344 $ 11,781
Merchandise inventories 513,665 488,362 474,954
Deferred income taxes 11,959 11,989 10,065
Other current assets 13,630 11,548 12,366
Total current assets 552,204 516,243 509,166
Property & Equipment, at cost 260,716 242,628 214,585
Less: Accumulated depreciation 98,124 84,041 73,109
162,592 158,587 141,476
Other Assets 5,094 5,166 5,557
$719,890 $679,996 $656,199
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,553 $ 1,536 $ 1,483
Short-term borrowings 74,954 72,146 120,000
Accounts payable 121,212 103,176 103,906
Accrued expenses 63,885 62,099 55,945
Income Taxes 2,991 14,757 3,201
Total current liabilities 264,595 253,714 284,535
Long-term debt 2,108 3,278 3,585
Deferred income taxes 3,573 2,993 3,382
Shareholders' equity:
Preferred stock 858 858 858
Common stock 42,918 42,762 33,971
Additional paid-in capital 317,446 303,609 299,561
Retained earnings 288,919 273,309 230,441
650,141 620,538 564,831
Less treasury stock 200,527 200,527 200,134
449,614 420,011 364,697
$719,890 $679,996 $656,199*Restated as explained in Note 1.
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 six months ended August 2, 1996 and August 4, 1995*
(in thousands)
(unaudited)
Aug. 2, Aug. 4
1996 1995*
Cash flows from operating activities:
Net income $ 36,909 $ 29,838
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 14,929 11,885
Deferred income taxes 610 1,720
Change in operating assets and liabilities:
Merchandise inventories ( 25,303) (118,843)
Accounts payable 18,036 ( 7,769)
Accrued expenses 1,786 ( 5,092)
Income taxes ( 11,766) ( 2,009)
Other ( 649) ( 2,249)
Net cash provided by (used in)
operating activities 34,552 ( 92,519)
Cash flows used in investing activities:
Purchase of property & equipment ( 20,296) ( 29,108)
Cash flows provided by financing activities:
Issuance of short-term borrowings 43,178 124,501
Repayments of short-term borrowings ( 40,370) ( 34,101)
Repayments of long-term debt ( 1,153) ( 1,140)
Payments of cash dividends ( 9,207) ( 6,833)
Proceeds from exercise of stock options 9,957 11,595
Repurchase of common stock ( 12,330) 0
Tax benefits from exercise of stock options 4,275 6,341
Net cash (used in) provided by financing
activities ( 5,650) 100,363
Net increase (decrease) in cash and
cash equivalents 8,606 ( 21,264)
Cash and cash equivalents at beginning of year 4,344 33,045
Cash and cash equivalents at end of period $ 12,950 $ 11,781
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*Restated as explained in Note 1.
The accompanying notes are an integral part of this statement.
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, 1996 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 ofa normal recurring nature) necessary for a fair presentation of the results of operations for the three-month and six-month periods ended August 2, 1996 and August 4, 1995, 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.
The comparative financial statements presented for the period ended August 4, 1995, have been restated from the 10-Q report for the period ended July 31, 1995 to reflect the adoption of a retail 52/53 week reporting calendar effective February 1, 1996. For the six-month and three-month periods ended July 31, 1995, the Company reported net income of $29,267,000 and $17,691,000, respectively, or $0.33 and $0.20, respectively per common and common equivalent share, as restated for the April 26, 1996 stock split.
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:
Three Months Six Months
Ended August 2, Ended August 4,
Shares (in thousands)
1996 1995 1996 1995
Actual weighted average number of
common shares outstanding during
the period 72,716 71,417 72,475 71,053
Common Stock Equivalents:
Dilutive effect of stock options
using the "Treasury Stock Method" 2,974 3,069 3,007 3,179
1,715,742 shares of Series A
Convertible Preferred Stock
Issued August 22, 1994 13,404 13,404 13,404 13,404
Weighted Average Shares 89,094 87,890 88,886 87,636
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3. Changes in shareholder's equity for the six months ended August 2, 1996 and August 4, 1995 were as follows (dollars in thousands except per share amounts):
Additional
Preferred Common Paid-In Retained Treasury
Stock Stock Capital Earnings Stock
Balances, January 31, 1995 $ 858 $ 33,971 $283,323 $207,436 $201,832
Net income 29,838
Cash dividend, $.10 per
common share, as declared ( 5,869)
Cash dividend, $.56 per
preferred share ( 964)
Reissuance of treasury
stock under employee stock
incentive plans 9,897 ( 1,698)
Tax benefit from exercise
of options 6,341
Balances, August 4, 1995 $ 858 $ 33,971 $299,561 $230,441 $200,134
Balances, January 31, 1996 $ 858 $ 42,762 $303,609 $273,309 $200,527
Net Income 36,909
Cash dividend, $.10 per
common share, as declared ( 8,001)
Cash dividend, $.56 per
preferred share ( 1,206)
Issuance of Common Stock
under employee stock
incentive plans 395 9,562
Tax benefit from exercise
of options 4,275
Repurchase of common stock ( 239) ( 12,092)
Balances, August 2, 1996 $ 858 $ 42,918 $317,446 $288,919 $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. 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 $4.75per 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 1997 from approximately $2.1 to $2.3 million above otherwise expected levels. The Company believes the financial impact of the minimum wage increase to operations for fiscal 1997 will be partially offset by increased sales and employee productivity.
SIX MONTHS ENDED AUGUST 2, 1996 AND AUGUST 4, 1995
NET SALES. Net sales for the first six months of fiscal 1997 increased $172.0 million, or 22.1%, to $950.2 million from $778.2 million for the comparable period of fiscal 1996. The increase resulted from 326 net additional stores being in operation as of August 2, 1996 as compared with August 4, 1995, and an increase of 8.6% in same-store sales as compared with the 6.4% increase in 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. Management believes that the same-store sales gains are a reflection of better in-stock positions compared to the prior year and improved focus on its strategy as a distributor of consumable basics. The Company's sales mix shifted in favor of hardlines which accounted for 73% of sales and softlines' equal to 27% of sales in the first six months of fiscal 1997 as compared with 69% and 31%, respectively in the comparable 1996 period. In the second quarter of fiscal 1997, the Company opened 123 stores, closed 4 stores and ended the quarter with a total of 2,586 stores.
GROSS PROFIT. Gross profit for the first six months of fiscal 1997 was $257.1 million, or 27.06% of net sales, compared to $217.8 million, or 27.99% of net sales, for the comparable period in the prior fiscal year. This decrease was driven by lower margin on sales of current purchases, as a result of the shift of sales towards hardlines, lower beginning inventory margins and higher shrinkage reserves at 3.2% up from 3.0% a year ago. These effects were partially offset by the LIFO charge of zero in the current year as compared with 0.16% last year (based on current price trend indications). Cost of goods sold is determined in the first, second and third quarters utilizing estimates of inventory, shrinkage, markdowns and inflation. Adjustments of these estimates based upon actual results are included in cost of goods sold in the fourth quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative expense for the period equaled $195.3 million, or 20.6% of sales, compared with $166.4 million, or 21.4% of sales in the same period last year. This decrease (as a percentage of sales) was the result of better labor control, both retail and administrative, and lower advertising costs resulting from the elimination of the August circular. Increased incentive compensation accruals partially offset these gains.
9 INTEREST EXPENSE. Interest expense decreased 20.7% to $2.3 million for the first six months of fiscal 1997 from $2.9 million for the comparable prior-year period. The decrease resulted from both lower average short-term borrowings as well as lower average interest rates. Average short-term borrowings were $81.3 million and $85.9 million for the respective six-month periods of fiscal 1997 and 1996.
THREE MONTHS ENDED AUGUST 2, 1996 AND AUGUST 4, 1995
NET SALES. Net sales in the second quarter of fiscal 1997 increased $90.7 million or 22.5%, to $494.4 million from $403.7 million for the same period in fiscal 1996. The increase resulted from an increase of 9.8% in same store sales and the operation of 326 additional stores at the end of the quarter.
GROSS PROFIT. Gross profit as a percentage of sales was 27.05% in the second quarter of fiscal 1997, as compared with 28.01% for the comparable period in fiscal 1996. This decrease was the result of the same factors affecting gross profit for the six-month period.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative expense increased $14.4, million or 17.4%, in the second quarter of fiscal 1997 as compared with fiscal 1996. As a percentage of sales, selling, general and administrative expense decreased to 19.7% for the second quarter of fiscal 1997 from 20.5% for the same period in the previous year. Operating expense as a percentage of sales decreased primarily as a result of better labor control, both retail and administrative, and lower advertising due to the elimination of the August circular. These improvements offset increases in insurance reserves and incentive compensation accruals.
INTEREST EXPENSE. Interest expense for the second quarter of fiscal 1997 decreased 33.3% to $1.1 million from $1.7 million from the comparable period in fiscal 1996 due to lower average interest rates and average borrowings.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities - Cash flows provided by operating activities totaled $34.5 million during the first six months of fiscal 1997 compared with cash flow used by operating activities of $92.5 last year. This significant change in cash flow is primarily the result of a much smaller increase in inventories during the 1997 period as compared to 1996 plus an increase in accounts payable ($18.0 million this year versus a use of cash of $7.8 million in accounts payable reduction last year). Inventories increased as a result of opening new stores and maintaining better in-stock levels, but much of this occurred before the beginning of fiscal year 1997.
Cash flows from investing activities - Cash used for capital expenditures during the first six months decreased $8.8 million to $20.3 million as compared with $29.1 million in the comparable period in 1996. The current period expenditures resulted principally from opening 326 new stores, remodeling and relocating 87 stores, and investment in warehouse equipment. The decrease is driven by reduced investment in stores, a reduction of $3.5 million, and lower trailer purchases, down $2.1 million. On July 18, 1996 the Company's Board of Directors authorized a buy-back of up to 2 million shares of the Company's outstanding common stock. As of August 2, 1996 the Company had repurchased 475,100 shares at an aggregate cost of $12,330,492. As of August 30, 1996, the Company had repurchased a total of 1,000,000 shares at an aggregate cost of $26,972,486.
Cash flows from financing activities - The Company's short-term borrowings
during the first six months of fiscal 1997 increased by a net of $2.8 million to
$43.2 million compared with an increase of $90.4 million to $124.5 million in
1996.
The decreased short-term borrowings resulted from the greater cash flow from
operating activities and lower capital expenditures discussed above.
10 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 $325.0 million at August 2, 1996 ($170.0 million revolving credit/term loan facility plus $155.0 million seasonal lines of credit). The Company successfully negotiated an increase in its revolving credit/term loan facility from $65.0 million to $170.0 million during June 1995. The Company had seasonal lines of credit borrowings of $9.9 million as of August 2, 1996 and $0 as of August 4, 1995. 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 (dollars in thousands):
Aug. 2, January 31, Aug. 4,
1996 1996 1995
Current ratio 2.1x 2.0x 1.8x
Total borrowings/equity 17.5% 18.3% 34.3%
Long-term debt/equity 0.5% 0.8% 1.0%
Working Capital (000) $287,609 $262,529 $224,631
Average daily use of debt:
(fiscal year-to-date)
Short-term (000) $ 81,332 $ 99,564 $ 84,898
Long-term (000) 3,998 4,718 4,932
Total (000) $ 85,330 $104,282 $ 89,830
Maximum outstanding short-term
debt (fiscal year-to-date) $104,733 $227,397 $124,501
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PART II - OTHER INFORMATION
Item 1. Not applicable.
Item 2. Changes In Securities
Rider 11
Item 3. Not applicable.
Item 4. Submission of Matters to a vote of Security Holders
At the Annual Meeting of Stockholders of the Corporation held June 3, 1996, the Stockholders voted upon three proposals. The results of the Stockholders' vote on each of the proposals are as follows:
Proposal No. 1: Election of Directors The following nominees were elected to serve as Directors of the Corporation until the next Annual Stockholders' Meeting:
Nominee Votes For Votes Withheld/Against Cal Turner 54,700,980 47,885 Cal Turner, Jr. 54,700,703 48,162 James L. Clayton 54,701,739 47,126 Reginald D. Dickson 54,704,456 44,409 John B. Holland 54,624,054 124,811 Barbara M. Knuckles 54,696,185 52,680 Wallace N. Rasmussen 54,623,850 125,015 David M. Wilds 54,624,288 124,577 William S. Wire, II 54,624,291 124,574 |
Proposal No. 2: Approval of Amendment to the Corporation's restated Articles of Incorporation increasing the number of authorized shares of Common Stock to 200,000,000 Shares.
Votes For Votes Against Abstentions/Broker Non-Votes
51,825,617 2,792,693 130,555
Proposal No. 3: Ratification of Coopers & Lybrand L.L.P. as the
Corporation's Independent Accountants
Votes For Votes Against Abstentions/Broker Non-Votes 54,608,037 10,047 130,781 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 August 2, 1996.
Rider 11
Effective July 18, 1996, the Corporation's restated Articles of Incorporation was amended to increase the authorized shares of Common Stock from 100,000,000 to 200,000,000. The additional authorized shares of Common Stock may be issued by the Board of Directors, at their discretion and without stockholder approval, except as may be required by law or the rules of the New York Stock Exchange.
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)
September 13, 1996 By:/S/ Phil Richards
Phil Richards, Vice President,
Chief Financial Officer,
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| ARTICLE 5 |
| The accompanying notes are an integral part of this statement. |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | 6 MOS |
| FISCAL YEAR END | JAN 31 1997 |
| PERIOD END | AUG 2 1996 |
| CASH | 12,950 |
| SECURITIES | 0 |
| RECEIVABLES | 0 |
| ALLOWANCES | 0 |
| INVENTORY | 513,665 |
| CURRENT ASSETS | 552,204 |
| PP&E | 165,263 |
| DEPRECIATION | 98,124 |
| TOTAL ASSETS | 719,890 |
| CURRENT LIABILITIES | 264,595 |
| BONDS | 0 |
| COMMON | 42,918 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 858 |
| OTHER SE | 405,838 |
| TOTAL LIABILITY AND EQUITY | 719,890 |
| SALES | 950,245 |
| TOTAL REVENUES | 950,245 |
| CGS | 693,143 |
| TOTAL COSTS | 195,266 |
| OTHER EXPENSES | 0 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 2,306 |
| INCOME PRETAX | 59,530 |
| INCOME TAX | 22,621 |
| INCOME CONTINUING | 36,909 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 36,909 |
| EPS PRIMARY | .42 |
| EPS DILUTED | .42 |