Dollar General 2004 Annual Report Download

Download and view the complete annual report

Please find the complete 2004 Dollar General annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 66

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66

Annual Report for the Year Ended
January 28, 2005
S e r v i n g O t h e r s

Table of contents

  • Page 1
    Annual Report for the Year Ended January 28, 2005 Serving Others

  • Page 2
    ... Consumable Basics Our Customers Our Employees Dollar General issued its initial public stock offering in 1968, and today, its shares trade National Brands on Serving Others Our Customers Our Employees Consumable Basics the New York Stock Exchange under the symbol DG. The Company was added to...

  • Page 3
    ... accordance with GAAP. Management believes that this information indicates more clearly the Company's comparative year-to-year operating results. This information should not be considered a substitute for EPS derived in accordance with GAAP. (Dollars in thousands except per share data) January 28...

  • Page 4
    ... of its customers. To support store operations and growth, Dollar General currently operates seven merchandise distribution centers and expects to open an eighth by mid-year 2005. Also in 2005, the Company plans to select the location for its ninth distribution center expected to open sometime in...

  • Page 5
    Dollar General Store Growth 1,080 stores as of December 31, 1984 2,059 stores as of January 31, 1995 2005 stores as of January 28, 2005 7,320

  • Page 6
    ... opened 722 new stores, including 13 new Dollar General Markets. By fiscal year-end, we operated 7,320 stores in 30 states, including 15 Dollar General Markets. • To support this store growth, we increased our total distribution center shipping capacity by 15%. In addition, we started construction...

  • Page 7
    ... an intensive training program at one of our 35 regional training centers. Partly as a result of these efforts, store manager turnover declined in 2004. Last year, we also demonstrated our commitment to promoting from within the Company. Approximately 52% of our 200 new district managers in 2004...

  • Page 8
    ... the expanding needs of our customers, as well as the Fiscal years growing number of new customers, we must grow as well. We plan to open approximately 730 new stores, including (Dollars in millions) 8000 30 Dollar General Markets, a larger format store concept with an expanded food section. We now...

  • Page 9
    ..., we are driven by our long-range strategic plan to achieve consistent financial growth year after year. That strategic plan was developed by your management team, in conjunction with your board of directors, in 2003 and updated in 2004. Even though Dollar General is the oldest and largest player in...

  • Page 10
    ... typical Dollar General customer budgets every dollar to make ends meet. In 2004, high gasoline prices and heating fuel costs added to our customers' financial pressures. It is in these times that our customers need us the most, but it is also the time when higher income, value-conscious customers...

  • Page 11
    ... in 2004. In stores with coolers, customers are able to use their EBT cards, or food stamps, to pay for their food purchases. Dollar General Market In 2003, Dollar General began testing a new concept, the Dollar General Market. With everything a traditional Dollar General store carries, as well...

  • Page 12
    ... by both increased customer count and increased average ticket. We strive to serve the needs of a diverse customer base. In 2004, Dollar General expanded the selection of food, cleaning and health and beauty items for our Hispanic customers and increased the number of stores offering these items...

  • Page 13
    ... to Dollar General's success. The merchandise that fills the stores' refrigerated coolers is delivered to the stores by third parties. The Company works closely with these vendors to ensure that the coolers are well stocked with the perishable food items such as milk and eggs that our customers need...

  • Page 14
    ... organizations serving more than 60,000 individuals and families across our 30-state market area. • Our customers and employees contributed more than $2.5 million to the advancement of literacy through our in-store Literacy Foundation cash cube program. For more information about Dollar General...

  • Page 15
    ...' compensation costs; The progress of the wage and hour collective action litigation in the state of Alabama, discussed more fully in Note 8 to the Consolidated Financial Statements; The Company's rating agency debt ratings. â- â- â- â- â- â- â- â- Dollar General Corporation 13

  • Page 16
    ... (current year total net sales minus prior year total net sales divided by prior year total net sales equals percentage change), which indicates, among other things, the success of the Company's selection of new store locations and merchandising strategies; Operating margin rate (operating profit...

  • Page 17
    ... 0.52% 46.9 0.77% Income before income taxes %฀of฀net฀sales 534.8 6.98% 476.5 6.93% 410.3 6.73% Income taxes %฀of฀net฀sales ฀ 190.6 2.49% ฀ 177.5 2.58% 148.0 2.43% Net income %฀of฀net฀sales $ 344.2 4.49% $ 299.0 4.35% $ 262.4 4.30% Dollar General Corporation 15

  • Page 18
    ... sales and gross profit. These ongoing reviews may result in a shift in the Company's merchandising strategy which could increase permanent markdowns in the future. The Company's sales increase in 2003 compared to 2002 resulted primarily from opening additional stores, including 587 net new stores...

  • Page 19
    ... in sales: store occupancy costs (increased 17.4%) primarily due to rising average monthly rentals associated with the Company's leased store locations; an increase in purchased services (increased 54.6%) due primarily to fees associated with the increased customer usage of debit cards; professional...

  • Page 20
    ... in sales: store labor (increased 14.6%) primarily due to increases in store training-related costs; the cost of workers' compensation and other insurance programs (increased 29.8%) primarily due to an increase in medical inflation costs experienced by the Company compared to previous years; store...

  • Page 21
    ...stock in the open market or in privately negotiated transactions from time to time subject to market conditions. The objective of the share repurchase program is to enhance shareholder value by purchasing shares at a price that produces a return on investment that is greater than the Company's cost...

  • Page 22
    ...net income of $45.2 million driven by improved operating results (as more fully discussed above under "Results of Operations"). Cash flows from operations increased by $91.4 million for 2003 compared to 2002. In 2002, the Company paid $162.0 million in settlement of the class action lawsuit relating...

  • Page 23
    ... and $3 million related to debit/credit/EBT technology. Distribution and transportation expenditures in 2003 included approximately $19 million at the Ardmore, Oklahoma and South Boston, Virginia DCs primarily related to the ongoing expansion of those facilities. Net purchases of short-term...

  • Page 24
    ... is not fairly uniform in terms of its cost and selling price relationship and turnover; applying the RIM to transactions over a period of time that include different rates of gross profit, such as those relating to seasonal merchandise; inaccurate estimates of inventory shrinkage between the date...

  • Page 25
    ...' compensation, employee health insurance, general liability, property loss and automobile coverage. These costs are significant primarily due to the large employee base and number of stores. Provisions are made to this insurance liability on an undiscounted basis based on actual claim data and...

  • Page 26
    ...฀Company's฀financial฀statements฀as฀a฀ whole. The Company realizes a significant portion of its net sales and net income during the holiday selling season. In anticipation of the holidays, the Company purchases substantial amounts of seasonal inventory and hires many temporary employees...

  • Page 27
    ... interest rates based on its financing, investing and cash management activities. The Company may utilize its Credit Facility to fund working capital requirements, which is comprised of variable rate debt. See "Quantitative and Qualitative Disclosures About Market Risk." Dollar General Corporation...

  • Page 28
    ... lease terms; the ability to hire and train new personnel, especially store managers; the ability to identify customer demand in different geographic areas; general economic conditions; and the availability of sufficient funds for expansion. Many of these factors are beyond the Company's control...

  • Page 29
    ... records, reporting and internal control provisions of the federal securities laws and related SEC rules and will pay a $10 million non-deductible civil penalty. The agreement with the SEC staff is subject to final approval by the court in which the SEC's complaint is filed. The Company accrued $10...

  • Page 30
    ... About Market Risk Financial Risk Management The Company is exposed to market risk primarily from adverse changes in interest rates. To minimize such risk, the Company may periodically use financial instruments, including derivatives. As a matter of policy, the Company does not buy or sell...

  • Page 31
    ...& Young LLP, the independent registered public accounting firm who also audited the Company's consolidated financial statements. Ernst & Young's attestation report on management's assessment of the Company's internal control over financial reporting is contained below. Dollar General Corporation 29

  • Page 32
    ... Registered Public Accounting Firm on Internal Control Over Financial Reporting To the Board of Directors and Shareholders of Dollar General Corporation Goodlettsville, Tennessee We have audited management's assessment, included in the accompanying Management's Annual Report on Internal Control Over...

  • Page 33
    ... of the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Nashville, Tennessee April 5, 2005 Report of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Dollar General Corporation Goodlettsville, Tennessee We have...

  • Page 34
    ...Sheets (Dollars฀in฀thousands,฀except฀per฀share฀amounts) January 28, 2005 Assets January 30, 2004 (Restated) Current assets: Cash and cash equivalents Short-term investments Merchandise inventories Deferred income taxes Prepaid expenses and other current assets Total current assets Net...

  • Page 35
    ... Statements of Income (Dollars฀in฀thousands,฀except฀per฀share฀amounts) For the Years Ended January 28, 2005 January 30, 2004 (Restated) January 31, 2003 (Restated) Net sales Cost of goods sold Gross profit Selling, general and administrative Penalty expense and litigation settlement...

  • Page 36
    ... Net change in fair value of derivatives Reclassification of net loss on derivatives Comprehensive income Cash dividends, $0.13 per common share, net of accruals Issuance of common stock under stock incentive plans (710,000 shares) Tax benefit from stock option exercises Purchase of common stock...

  • Page 37
    ... cash flow information: Cash paid during year for: Interest Income taxes Supplemental schedule of non-cash investing and financing activities: Purchases of property and equipment awaiting processing for payment, included in Accounts payable Purchases of property and equipment under capital lease...

  • Page 38
    ... States. The Company has DCs in Scottsville, Kentucky; Ardmore, Oklahoma; South Boston, Virginia; Indianola, Mississippi; Fulton, Missouri; Alachua, Florida; and Zanesville, Ohio. The Company also has a DC under construction near Jonesville, South Carolina. The Company purchases its merchandise from...

  • Page 39
    In general, the Company invests excess cash in shorterdated, highly liquid investments such as money market funds, certificates of deposit, and commercial paper. Depending on the type of securities purchased (debt versus equity) as well as the Company's intentions with respect to the potential sale ...

  • Page 40
    ...Consolidated Financial Statements (continued) Gross Unrealized January 30, 2004 Held-to-maturity securities Bank and corporate debt Other debt securities Cost $261,604 49,132 310,736 Available-for-sale securities Equity securities Other debt securities 16,000 67,225 83,225 Trading securities Equity...

  • Page 41
    ...the related obligations, utility and security deposits, life insurance policies and goodwill. Vendor rebates The Company records vendor rebates, primarily consisting of new store allowances and volume purchase rebates, when realized. The rebates are recorded as a reduction to inventory purchases, at...

  • Page 42
    ... subsidiary companies premiums to insure the retained workers' compensation and non-property general liability exposures. GCIC currently insures no unrelated third-party risk. Fair value of financial instruments The carrying amounts reflected in the consolidated balance sheets for cash, cash...

  • Page 43
    ... units and other equity-based awards may be granted to officers, directors and key employees. Stock options currently are granted under this plan at the market price on the grant date and generally vest ratably over a four-year period, with certain exceptions as further described in Note 10. All...

  • Page 44
    ... income tax returns. Deferred income tax expense or benefit is the net change during the year in the Company's deferred income tax assets and liabilities. Management estimates The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted...

  • Page 45
    ... of eight years or the applicable non-cancelable lease term. In addition, the Company previously recognized straight-line rent expense for leases beginning on the earlier of the store opening date or the rent payment commencement date, which had the effect of excluding the period used for preparing...

  • Page 46
    ...(1,998) - Restated $1,500,103 508,026 476,523 177,521 299,002 0.89 For the Year Ended January 31, 2003 As Previously Reported Selling, general and administrative Operating profit Income before income taxes Income taxes Net income Diluted earnings per share $1,296,542 457,265 414,626 149,680 264,946...

  • Page 47
    ... by applying the federal statutory rate to income before income taxes is summarized as follows: 2004 U.S. federal statutory rate on earnings before income taxes State income taxes, net of federal income tax benefit Jobs credits, net of federal income taxes Increase (decrease) in valuation allowance...

  • Page 48
    ... tax assets Deferred tax liabilities: Property and equipment Inventories Other Total deferred tax liabilities Net deferred tax liabilities The Company estimates its contingent income tax liabilities based on its assessment of probable income tax-related exposures and the anticipated settlement...

  • Page 49
    ... multiple renewal options. Approximately half of the stores have provisions for contingent rentals based upon a percentage of defined sales volume. Certain leases contain restrictive covenants. As of January 28, 2005, the Company was in compliance with such covenants. Dollar General Corporation 47

  • Page 50
    ... 1999 and April 1997, the Company sold its DCs located in Ardmore, Oklahoma and South Boston, Virginia, respectively, for 100% cash consideration. Concurrent with the sale transactions, the Company leased the properties back for periods of 23 and 25 years, respectively. The transactions have been...

  • Page 51
    ... Dollar General Corporation, CV02-C-0673-W ("Brown")) to commence a collective action against the Company on behalf of current and former salaried store managers. The complaint alleges that these individuals were entitled to overtime pay and should not have been classified as exempt employees under...

  • Page 52
    ... deferral plan for a select group of management and highly compensated employees. The supplemental retirement plan is a non-contributory defined contribution plan with annual Company contributions ranging from 2% to 12% of base pay plus bonus depending upon age plus years of service and job grade...

  • Page 53
    ... monthly installments over a 5, 10 or 15-year period, or a combination of both, at the time designated by the plan upon a director's resignation or termination from the Board. However, a director may request to receive an "unforeseeable emergency hardship" in-service lump Dollar General Corporation...

  • Page 54
    ... at a price equal to the fair market value of the Company's common stock on the date of grant. Non-qualified options granted under these plans have expiration dates no later than 10 years following the date of grant. Under the plan, stock option grants are made to key management employees including...

  • Page 55
    .... The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: 2004 Expected dividend yield Expected stock price volatility Weighted average risk-free interest rate Expected life of options (years) 0.9% 35...

  • Page 56
    ... in the open market or in privately negotiated transactions from time to time subject to market conditions. The objective of the share repurchase program was to enhance shareholder value by purchasing shares at a price that produces a return on investment that is greater than the Company's cost of...

  • Page 57
    ... above. The third quarter 2003 net income and related per share amounts above include a favorable, non-recurring pre-tax inventory adjustment of approximately $7.8 million based upon the utilization of information provided by the Company's new item level perpetual inventory system. 15. Guarantor...

  • Page 58
    ... present condensed financial information on a combined basis. Dollar amounts are in thousands. As of January 28, 2005 Dollar General Corporation Balance Sheet: Assets Current assets: Cash and cash equivalents Short-term investments Merchandise inventories Deferred income taxes Prepaid expenses and...

  • Page 59
    ...2004 (Restated) Dollar General Corporation Balance Sheet: Assets Current assets: Cash and cash equivalents Short-term investments Merchandise inventories Deferred income taxes Prepaid expenses and other current assets Total current assets Property and equipment, at cost Less accumulated depreciation...

  • Page 60
    ... the Year Ended January 31, 2003 (Restated) Dollar General Corporation Statements of Income: Net sales Cost of goods sold Gross profit Selling, general and administrative Litigation settlement proceeds Operating profit Interest income Interest expense Income before income taxes Income taxes Equity...

  • Page 61
    ... Payment of cash dividends Proceeds from exercise of stock options Repurchases of common stock Changes in intercompany note balances, net Other financing activities Net cash used in financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents, beginning of year...

  • Page 62
    ... Payment of cash dividends Proceeds from exercise of stock options Repurchases of common stock Issuance of common stock, net Changes in intercompany note balances, net Other financing activities Net cash provided by (used in) financing activities Net increase in cash and cash equivalents Cash...

  • Page 63
    ... Tax benefit from stock option exercises Litigation settlement Equity in subsidiaries' earnings, net Change in operating assets and liabilities: Merchandise inventories Prepaid expenses and other current assets Accounts payable Accrued expenses and other Income taxes Other Net cash provided by (used...

  • Page 64
    ... stock of Dollar General Corporation is traded on the New York Stock Exchange under the trading symbol "DG." The approximate number of shareholders of record of the Company's common stock as of April 4, 2005, was 12,639. Store Support Center The Company has paid cash dividends on its common stock...

  • Page 65
    ... and General Counsel Barbara M. Knuckles (1) Director of Development and Corporate Relations North Central College David A. Perdue Chairman and CEO Dollar General Corporation J. Bruce Ash Senior Vice President and Chief Information Officer Lloyd W. Davis Senior Vice President, Supply Chain...

  • Page 66
    100 Mission Ridge, Goodlettsville, TN 37072 www.dollargeneral.com