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 2, 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. (Address of principal executive offices, zip code) |
Registrant's telephone number, including area code: (615) 783-2000
The number of shares of common stock outstanding at May 2, 1997 was
__________.
Dollar General Corporation
Form 10-Q
For the Quarter Ended May 2, 1997
Index
PartI. Financial Information Page No.
Item 1. Financial Statements (unaudited):
Consolidated Statements of Income for
the three months ended May 2, 1997
and May 3, 1996 3
Consolidated Balance Sheets as of May 2,
1997, January 31, 1997 (audited) and
May 3, 1996 4
Consolidated Statements of Cash Flow
for the three months ended May 2, 1997
and May 3, 1996 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-10
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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 STATEMENTS OF INCOME
(In Thousands except per share amounts)
(Unaudited)
Three Months Ended
May 2, May 3,
1997 1996
Net Sales $520,014 $455,856
Cost of goods sold 378,159 332,482
Gross Profit 141,855 123,374
Selling, general and
administrative expense 110,335 97,945
Operating profit 31,520 25,429
Interest expense 526 1,197
Income before taxes on indome 30,994 24,429
Provision for taxes on income 11,700 9,208
Net income 19,294 15,024
Net income per common and
common equivalent share .17 .14
Weighted average number of
common and common equivalent
shares oustanding 110,605 110,845
Cash dividends per common
share as declared $ .05 $ .05
Adjusted to give retroactive
effective to the five-for-four
common stock split distributed
on February 12, 1997 $ .05 $ .04
The accompanying notes are an integral part of these consolidated financial statements.
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DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
May 2, Jan. 31, May 3,
1997 1997 1996
(Unaudited) (Audited) (Unaudited)
ASSETS
Current Assets:
Cash and cash equivelents $ 33,388 $ 6,563 $ 19,425
Merchandise inventories 540,956 476,103 526,120
Deferred income taxes 3,747 3,689 11,468
Other current assets 18,669 18,244 13,497
Total current assets 596,760 504,599 $570,510
Property & Equipment, at cost 331,645 321,917 247,365
Less: Accumulated depretiation 121,885 113,381 90,831
Other Assets 5,478 5,012 5,130
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liavilities:
Current portion of long-term debt $ 1,940 $ 2,030 $ 1,545
Short-term borrowings 50,000 38,469 105,000
Accounts Payable 152,724 103,523 120,387
Accrued expenses 61,382 70,441 56,021
Income taxes 955 10,002 8,406
Total urrent liabilities 267,001 224,465 291,359
Long-term debt 1,807 2,582 2,305
Deferred income taxes 7,847 5,571 3,573
Shareholders' equity:
Preferred stock 858 858 858
Common stock 53,672 53,105 42,893
Additional paid-in capital 350,387 329,948 308,155
Retained earnings 314,962 302,145 284,058
719,879 686,056 635,964
Less treasury stock 200,527 200,527 200,527
Total shareholders' equity 519,352 485,529 435,437
$796,007 $718,147 $732,674
The accompanying notes are an integral part of these consolidated financial statements
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DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
May 2, May 3,
1996 1995
Operating activities:
Net income $ 19,294 $ 15,024
Adjustments to reconcile net income
to net cash used by operating activities:
Depreciation and amortization 8,577 7,318
Deferred income taxes 2,218 1,101
Change in oprating assets and liabilities:
Merchandise inventories (64,853) (37,758)
Accounts payable 49,201 17,211
Accrued expenses 9,059) (6,078)
Income taxes (9,047) (6,351)
Other (690) (576)
Net cash used by operating activities (4,359) (10,109)
Investing activities:
Purchase of property & equipment (27,822) (7,102)
Proceeds from sales of property and equipment 33,811 0
Net cash provided (used) by investing activities 5,989 (7,102)
Financing activities:
Issuance of short-term borrowings $ 47,404 $ 50,276
Repayments of short-term borrowings (35,873) (17,413)
Issuance of long-term debt 190 0
Repayments of long-term debt (1,055) (973)
Payments of cash dividend (6,477) (4,275)
Proceeds from exercise of stock options 12,715 3,307
Tax benefit of stock options exercised 8,291 1,370
Net cash provided by financing activities 25,195 32,292
Net increase in cash and cash equivalents 26,825 15,081
Cash and cash equivalents, beginning of period 6,563 4,344
Cash and cash equivalents, end of period $ 33,388 $ 19,425
The accompanying notes are an integral part of these financial statements.
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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 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 2, 1997 and May 3, 1996,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. Net Income Per Common Share and Common Equivalent 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 Ended
(In thousands)
May 2, 1997 May 3, 1996
Actual weighted average number of
shares outstanding during the period 89,743 90,290
Common Stock Equivalents:
Dilutive effect of stock options using
the "Treasury Stock Method" 4,107 3,800
1,715,742 shares Convertible
Preferred 16,755 16,755
Weighted Average Shares 110,605 110,845
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3. Changes in shareholders' equity for the three months ended May 2, 1997 and May 3, 1996 were as follows (dollars in thousands except per share amounts):
Additional
Preferred Common Paid-in Retained Treasury
Stock Stock Capital Earnings Stock Total
Balances, January 31, 1996 $858 $42,762 $303,609 $273,309 $200,527 $420,011
Net income 15,024 15,024
Cash dividend, $.05 per
common share, as declared (3,672) (3,672)
Cash dividend. $.28 per
preferred share (603) (603)
Issuance of common
stock under employee stock
incentive plans 131 3,176 3,307
Tax benefit of stock options
exercised 1,370 1,370
Balances, May 3, 1997 $858 $42,893 $308,155 $284,058 $200,527 $435,437
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 (5,723) (5,723)
Cash dividend. $.28 per
preferred share (754) (754)
Issuance of common stock
under employee stock
incentive plans 567 12,148 12,715
Tax benefit from exercise
of options 8,291 8,291
Balances, May 2, 1997 $858 $53,672 $350,387 $314,962 $200,527 $519,352
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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, 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 this 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, 1996 and 1995 which represent fiscal years ending or ended January 30, 1998, and January 31, 1997, 1996 and 1995, 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 of the minimum wage increase to operations for fiscal 1998.
THREE MONTHS ENDED MAY 2, 1997 AND MAY 3, 1996
NET SALES. Net sales for the first quarter of fiscal 1998 increased $64.2 million, or 14.1%, to $520.0 million from $455.9 million for the comparable period of fiscal 1997. The increase resulted from 393 net additional stores being in operation as of May 2, 1997 as compared with May 3, 1996 and an increase of 1.6% in same-store sales; same store sales growth was a 7.3% 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. Management believes that the same-store sales were negatively impacted during the first quarter of 1998 by dropping an advertising circular and by remerchandising 1,382 stores to a new store layout. The new store merchandising layout and related product mix reflects a 65%/35% hardlines to softlines space allocation versus the previous 50%/50% allocation. The new layout
allocates more space to the faster-moving consumable merchandise. Management is anticipating a sales rebound in the last six months of fiscal 1998 as the remerchandising of all stores to the new layout is completed.
GROSS PROFIT. Gross profit for the quarter was $141.9 million, or 27.3% of net sales, compared to $123.4 million, or 27.1% of net sales, in the same period last year. Driving the increase in gross margin as a percent to sales was lower inventory shrinkage and higher margin on beginning inventory which more than offset lower margin on current purchases and higher distribution costs. Cost of goods sold is determined in the first, second and third quarters utilizing estimates of inventory markdowns, shrinkage and inflation. Adjustments of these estimates are included in cost of goods sold in the fourth quarter.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative expenses for the quarter totaled $110.3 million, or 21.2% of net sales, compared with $97.9 million, or 21.5% of net sales last year. Driving the percentage of sales decrease were decreases in employee incentive compensation costs and advertising expense which more than offset increases in employee compensation and professional fees. Total selling, general and administrative expense increased 12.6% primarily as a result of 393 net additional stores being in operation as compared to last year.
INTEREST EXPENSE. Interest expense decreased to $0.5 million, or 0.1% of sales, compared with $1.20 million or 0.3% of sales, in the comparable period last year. This decrease was primarily a result of lower average short-term borrowings in the first quarter of 1998.
PROVISIONS FOR TAXES ON INCOME. The effective income tax rate for the quarter was 37.8% compared with 38.0% in the comparable period last year.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities - Cash flows used in operating activities totaled $4.4 million during the quarter compared with $10.1 million in the comparable period last year. This decrease in use of cash is primarily the result of a $32.0 million increase in accounts payable being only partially offset by a $27.1 million increase in inventories. Inventories increased primarily as a result of opening new stores.
Cash flows from investing activities - Cash provided by investing activities totaled $6.0 million during the quarter compared with cash used by investing activities of $7.1 million in the comparable period last year. The current period cash provided resulted primarily from $33.8 million received from the sale/leaseback of the South Boston, Virginia distribution center. Partially offsetting the cash received was $27.8 million in expenditures primarily from opening 141 new stores, remodeling 1,382 stores, expansion of the Scottsville, Kentucky distribution center and expenditures for point-of-sale scanners in the stores. Capital expenditures exceeded last year by $20.7 million primarily due to a $6.8 million increase in expenditures for stores, $6.6 million increase for point-of-sale scanners and a $3.4 million increase for distribution center expansion.
Cash flows from financing activities - The Company=s short-term borrowings during the first three months of fiscal 1998 increased from January 31, 1997 by a net of $11.5 million to $50.0 million, compared with an increase of $32.9 million to $105.0 million in the first quarter of 1997. The lower level of short-term borrowings in fiscal 1998 resulted from the cash received from the sale/leaseback of the South Boston, Virginia distribution center and from the greater cash flow from operating activities, which was partially offset by increased capital expenditures.
Because of the significant impact of seasonal buying (e.g. Spring and Christmas 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 $170.0 million revolving credit/term loan facility and short-term bank lines of credit totaling $170.0 million at May 2, 1997. The Company had short-term bank lines of credit borrowings of $50.0 million as of May 2, 1997 and $105.0 million as of May 3, 1996. Seasonal working capital expenditure requirements will continue to be met through cash flow provided by operations and supplemented by the revolving credit/term loan facility and short-term bank lines of credit.
The Company's liquidity position is set forth in the following table (dollars in thousands):
May 2, January 31, May 3,
1997 1997 1996
Current ratio 2.2x 2.2x 2.0x
Total borrowings/equity 10.3% 8.9% 25.0%
Long-term debt/equity 0.3% 0.5% 0.5%
Working Capital $329,759 $280,134 $279,151
Average daily use of debt:
(fiscal year-to-date)
Short-term $ 37,353 $ 87,952 $ 80,430
Long-term 4,020 2,930 4,264
Total $ 41,373 $ 90,882 $ 84,694
Maximum outstanding short-term
debt (fiscal year-to-date) $ 64,855 $184,725 $110,077
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ACCOUNTING PRONOUNCEMENTS
The company will adopt Statement of Financial Accounting Standards
No. 128 "Earnings Per Share" for the year ended January 30, 1998.
This accounting pronouncement requires the disclosure of basic and
diluted earnings per share. The Company believes that, upon
adoption, diluted earnings per share will approximate earnings per
share as previously reported. Because the concept of basic earnings
per share does not include the impact of common stock equivalents,
such as preferred stock and stock options, basic earnings per share
will be significantly higher than diluted earnings per share.
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) The Company filed a Current Report on Form 8-K dated May 2, 1997 to reflect (i) the dismissal of Coopers & Lybrand LLP as its certified independent auditors and (ii) the engagement of Deloitte & Touche LLP to serve as the certified independent auditors, all pursuant to Item 4 of Form 8-K.
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 By:
Phil Richards, Vice President,
Chief Financial Officer
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