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 1, 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 August 29, 1997 was 107,329,537.
Dollar General Corporation
Form 10-Q
For the Quarter Ended August 1, 1997
Index
Part I. Financial Information Page No.
Item 1. Financial Statements (unaudited):
Consolidated Balance Sheets as of August 1,
1997, January 31, 1997 (audited) and
August 2, 1996. 3
Consolidated Statements of Income
for the three months and six months
ended August 1, 1997 and August 2, 1996. 4
Consolidated Statements of Cash Flows
for the six months ended August 1, 1997
and August 2, 1996. 5
Notes to Consolidated Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations. 8-11
Part II. Other Information
Item 4. Submission of Matters to a Vote of
Security Holders 12
Signatures 13
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DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands)
Aug. 1, Jan. 31, Aug. 2,
1997 1997 1996
(Unaudited) (Audited) (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 24,923 $ 6,563 $ 12,950
Merchandise inventories 589,660 476,103 513,665
Deferred income taxes 3,762 3,689 11,959
Other current assets 20,028 18,244 13,630
Total current assets 638,373 504,599 552,204
Property & equipment, at cost 351,773 321,917 260,716
Less: Accumulated depreciation 130,913 113,381 98,124
Net property and equipment 220,860 208,536 162,592
Other assets 5,385 5,012 5,094
Total assets $864,618 $718,147 $719,890
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,749 $ 2,030 $ 1,553
Short-term borrowings 57,850 38,469 74,954
Accounts payable 163,074 103,523 121,212
Accrued expenses 72,060 70,441 63,885
Income Taxes 3,480 10,002 2,991
Total current liabilities 298,213 224,465 264,595
Long-term debt 1,580 2,582 2,108
Deferred income taxes 5,326 5,571 3,573
Shareholders' equity:
Preferred stock 858 858 858
Common stock 67,679 53,105 42,918
Additional paid-in capital 368,929 329,948 317,446
Retained earnings 322,560 302,145 288,919
760,026 686,056 650,141
Less: treasury stock 200,527 200,527 200,527
Total shareholders' equity 559,499 485,529 449,614
Total liabilities and
shareholders'equity $864,618 $718,147 $719,890
The accompanying notes are an integral part of these consolidated financial statements.
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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 Six Months Ended
Aug. 1 Aug. 2 Aug. 1 Aug. 2
1997 1996 1997 1996
Net sales $596,820 $494,389 $1,116,834 $950,245
Cost of goods sold 436,664 360,661 814,823 693,143
Gross profit 160,156 133,728 302,011 257,102
Selling, general and
administrative expense 116,699 97,321 227,034 195,266
Operating profit 43,457 36,407 74,977 61,836
Interest expense 540 1,109 1,066 2,306
Income before taxes on income 42,917 35,298 73,911 59,530
Provision for taxes on income 16,201 13,413 27,901 22,621
Net income 26,716 21,885 46,010 36,909
Net income per common and
common equivalent share $ .24 $ .20 $ .42 $ .33
Weighted average number of
common shares outstanding 110,781 111,368 109,919 111,108
Cash dividends per common share $ .05 $ .05 $ .10 $ .10
As adjusted to give retroactive
effect to the five-for-four stock
splits distributed on February 12,
1997 and September 22, 1997:
Net income per common and common
equivalent share $ .19 $ .16 $ .33 $ .27
Weighted average number of
common shares outstanding 138,476 139,210 137,399 138,885
Cash dividends per common share $ .04 $ .03 $ .09 $ .06
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)
Six Months Ended
Aug. 1, Aug. 2,
1997 1996
Operating activities:
Net income $ 46,010 $ 36,909
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 17,752 14,929
Deferred income taxes (318) 610
Change in operating assets and liabilities:
Merchandise inventories (113,557) (25,303)
Accounts payable trade 59,551 18,036
Accrued expenses 1,619 1,786
Income taxes (6,522) (11,766)
Other (1,261) (649)
Net cash provided by
operating activities 3,274 34,552
Investing activities
Purchase of property and equipment (64,784) (20,296)
Proceeds from sale of property and equipment 33,811 0
Net cash used by investing activities (30,973) (20,296)
Financing activities:
Issuance of short-term borrowings 83,558 43,178
Repayments of short-term borrowings (64,177) (40,370)
Issuance of long-term debt 190 0
Repayments of long-term debt (1,473) (1,153)
Payment of cash dividends (12,059) (9,207)
Proceeds from exercise of stock options 23,900 9,957
Repurchase of common stock 0 (12,330)
Tax effect of stock options 16,120 4,275
Net cash provided (used) by financing activities 46,059 ( 5,650)
Net increase in cash and cash equivalents 18,360 8,606
Cash and cash equivalents at beginning of period 6,563 4,344
Cash and cash equivalents at end of period $ 24,923 $12,950
The accompanying notes are an integral part of these consolidated 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 as of Ausust 1, 1997 and August 2, 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 six-month periods ended August 1, 1997 and August 2, 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:
Three Months Ended Six Months Ended
(In thousands)
Aug 1, Aug 2, Aug 1, Aug. 2,
1997 1996 1997 1996
Actual weighted average number of
common shares outstanding during
the period 91,081 90,895 90,413 90,594
Common Stock Equivalents:
Dilutive effect of stock options
using the "Treasury Stock Method" 2,945 3,718 2,751 3,759
1,715,742 shares of Series A
Convertible Preferred Stock
Issued August 22, 1994 16,755 16,755 16,755 16,755
Weighted Average Shares 110,781 111,368 109,919 111,108
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3. Changes in shareholders' equity for the six months ended August 1, 1997 and August 2, 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 36,909 36,909
Cash dividend, $.10 per
common share, as declared ( 8,001) (8,001)
Cash dividend, $.56 per
preferred share ( 1,206) (1,206)
Issuance of common
stock under employee stock
incentive plans 395 9,562 9,957
Tax benefit from exercise
of options 4,275 4,275
Repurchase of common stock (239) (12,092) (12,331)
Balances, August 2, 1996 $ 858 $ 42,918 $317,446 $288,919 $200,527 $449,614
Balances, January 31, 1997 $ 858 $ 53,105 $329,948 $302,145 $200,527 $485,529
Net Income 46,010 46,010
5-for-4 stock split,
September 22, 1997 13,536 ( 13,536)
Cash dividend, $.10 per
common share, as declared ( 10,467) (10,467)
Cash dividend, $.56 per
preferred share ( 1,592) ( 1,592)
Issuance of common stock
under employee stock
incentive plans 1,038 22,862 23,900
Tax benefit from exercise
of options 16,119 16,119
Balances, August 1, 1997 $ 858 $ 67,679 $368,929 $322,560 $200,527 $559,499
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4. Subsequent Event:
The Company's Board of Directors authorized on August 25, 1997, a five-for-four common stock split for shareholders of record on September 8, 1997, which will be distributed on September 22, 1997.
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 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 ocurring 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 of the minimum wage increase to operations for fiscal 1998.
SIX MONTHS ENDED AUGUST 1, 1997 AND AUGUST 2, 1996
NET SALES. Net sales for the first six months of fiscal 1998 increased 17.5%, to $1,116.8 million from $950.2 million for the comparable period of fiscal 1997. The increase resulted from 418 net additional stores being in operation as of August 1, 1997 as compared with August 2, 1996 and an increase of 4.1% in same-store sales. Same store sales growth was an 8.6% 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 by the elimination of an advertising circular and by the conversion of more than 2,400 stores to the Company's new
prototype. The new store 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 last six months of fiscal 1998, management expects continued improvement in net sales and same store sales increases.
GROSS PROFIT. Gross profit for the first six months was $302.0 million, or 27.0% of net sales, compared to $257.1 million, or 27.1% of net sales, in the same period last year. Driving the decrease in gross profit as a percent to sales was higher freight costs associated with adding 700 new items to the merchandise mix and increased use of two outside distribution centers. These higher costs were partially offset by lower shrinkage reserves and higher margin on beginning inventory. Management currently anticipates a slight decline in gross profit as a percent of net sales, for the last six months of fiscal 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative expense for the six months, ending August 1, 1997, totaled $227.0 million, or 20.3% of net sales, compared with $195.3 million, or 20.5% of net sales in the comparable period last year. As a percentage of sales, increases in employee compensation were offset by decreases in (i) employee incentive compensation costs and (ii) advertising expense. Total operating expense increased 16.3% primarily due to 418 net additional stores being in operation compared to the comparable period last year. Management currently anticipates a slight decline in selling general and administrative expense as a percent of net sales for the last six months of fiscal 1998.
INTEREST EXPENSE. For the first six months of fiscal 1998 interest expense decreased 53.8% to $1.1 million (0.1% of sales) compared with $2.3 million (0.2% 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 leverage. Management currently anticipates interest expense to be flat, as a percentage of sales, in the third quarter to support the normal seasonal inventory increase. For fiscal 1998, management expects interest expense to be lower than last year.
PROVISION FOR TAXES ON INCOME. The effective income tax rate was 37.8% for both the three and six month periods compared with 38.0% in the comparable periods last year, respectively.
THREE MONTHS ENDED AUGUST 1, 1997 AND AUGUST 2, 1996
NET SALES. Net sales for the quarter increased 20.7%, to $596.8 million from $494.4 million for the comparable period of fiscal 1997. The increase resulted from an increase of 6.4% in same-store sales as compared with a 9.8% increase in the same period last year and the operation of 418 additional stores as of August 1, 1997.
GROSS PROFIT. Gross profit for the quarter was $160.2 million, or 26.8% of net sales, compared with $133.7 million, or 27.0% of net sales, in the same period last year. Driving the decrease in gross profit as a percent of sales was higher freight costs which were partially offset by lower shrinkage reserves and higher margin on current purchases.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative expense for the quarter totaled $116.7 million, or 19.6% of net sales, compared with $97.3 million, or 19.7% of net sales in the comparable period last year. As a percentage of sales, higher
payroll and store maintenance expense associated with the store conversions were offset by lower advertising due to the elimination of the Spring circular. Total operating expense increased 19.9% primarily due to 418 net additional stores being in operationcompared to last year.
INTEREST EXPENSE. Interest expense decreased 51.3% to $540,000 (0.1% of sales) compared with $1.1 million (0.2% of sales) in the comparable period last year. This decrease was primarily a result of the same factors listed above for the six-month period.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows from operating activities - Net cash provided by operating activities decreased to $3.3 million during the first six months of fiscal 1998 compared with $34.6 million in the comparable period last year. This decrease is primarily the result of increased inventories being only partially offset by increased accounts payable. Inventories increased primarily as a result of opening an additional distribution center and opening new stores.
Cash flows from investing activities - Net cash used by investing activities increased to $31.0 million during the first six months compared with $20.3 million in the comparable period last year. Driving this increase was increased capital expenditures primarily related to the Scottsville, Kentucky distribution center expansion, 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 six months of fiscal 1998 increased by $19.4 million compared with an increase of $2.8 million in fiscal 1997. The increase in short-term borrowings was the result of increased inventories and capital expenditures and was partially offset by increased accounts payable to inventory ratio 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 requirements vary significantly during the year. These working capital requirements were financed by short-term borrowings under the Company's $170 million revolving credit/term loan facility and short-term bank lines of credit totaling $170 million at August 1, 1997. The Company had short-term bank lines of credit borrowings of $57.9 million as of August 1, 1997 and $75.0 million as of August 2, 1996.
As of September 4, 1997, the Company increased its revolving credit/term loan facility to $175 million from $170 million and also negotiated an additional $100 million leveraged lease facility. The revolving credit/term loan facility will be used to fund working capital needs, open market stock repurchases and general corporate needs. The leveraged lease 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. These two credit facilities will expire August 29, 2002 and they contain financial covenants similar to existing credit facilities.
The Company's liquidity position is set forth in the following table (dollars in thousands):
August 1, January 31, August 2,
1997 1997 1996
Current ratio 2.1x 2.2x 2.1x
Total borrowings/equity 10.9% 8.9% 17.5%
Long-term debt/equity 0.3% 0.5% 0.5%
Working Capital $340,160 $280,134 $287,609
Average daily use of debt:
(fiscal year-to-date)
Short-term $ 47,185 $ 87,952 $ 81,332
Long-term 3,686 2,930 3,998
Total $ 50,871 $ 90,882 $ 85,330
Maximum outstanding short-term
debt (fiscal year-to-date) $ 60,883 $184,725 $104,733
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PART II - OTHER INFORMATION
Item 1. Not applicable.
Item 2. Not applicable.
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 2, 1997, the Stockholders voted upon one proposal. The result of the Stockholders' vote is 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 89,008,248 56,085 Cal Turner, Jr. 89,007,255 57,078 James L. Clayton 89,008,236 56,097 Reginald D. Dickson 89,010,834 53,499 John B. Holland 89,002,269 62,064 Barbara M. Knuckles 89,009,907 54,426 Wallace N. Rasmussen 89,005,093 59,240 David M. Wilds 89,006,212 58,121 William S. Wire, II 89,008,570 55,763 |
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 1, 1997.
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 11, 1997 By: SS/ Phil Richards
Phil Richards, Vice President
and Chief Financial Officer
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WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
| ARTICLE 5 |
| The accompanying notes are an integral part of this statement. |
| PERIOD TYPE | 6 MOS | |
| FISCAL YEAR END | JAN 31 1998 | 19,425 |
| PERIOD END | AUG 01 1997 | |
| CASH | 24,923 | |
| SECURITIES | 0 | |
| RECEIVABLES | 0 | |
| ALLOWANCES | 0 | |
| INVENTORY | 589,660 | |
| CURRENT ASSETS | 638,373 | |
| PP&E | 351,773 | |
| DEPRECIATION | 130,913 | |
| TOTAL ASSETS | 864,618 | |
| CURRENT LIABILITIES | 298,213 | |
| BONDS | 0 | |
| COMMON | 67,679 | |
| PREFERRED MANDATORY | 0 | |
| PREFERRED | 858 | |
| OTHER SE | 490,962 | |
| TOTAL LIABILITY AND EQUITY | 864,618 | |
| SALES | 1,116,834 | |
| TOTAL REVENUES | 1,116,834 | |
| CGS | 814,823 | |
| TOTAL COSTS | 227,034 | |
| OTHER EXPENSES | 0 | |
| LOSS PROVISION | 0 | |
| INTEREST EXPENSE | 1,066 | |
| INCOME PRETAX | 73,911 | |
| INCOME TAX | 27,901 | |
| INCOME CONTINUING | 46,010 | |
| DISCONTINUED | 0 | |
| EXTRAORDINARY | 0 | |
| CHANGES | 0 | |
| NET INCOME | 46,010 | |
| EPS PRIMARY | .33 | |
| EPS DILUTED | .33 |