Dollar General 2008 Annual Report Download - page 35

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SG&A decreased to 23.4% in 2008 compared to 24.3% in pro forma 2007. The more
significant items resulting in the decrease from the 2007 pro forma results include: $54.0 million
of costs in pro forma 2007 SG&A relating to the closing of stores and the elimination of our
packaway inventory strategy; a $12.0 million loss in the 2007 pro forma period compared to a
$5.0 million gain in 2008 relating to possible losses on distribution center leases; and decreases
in workers compensation and other insurance-related costs in 2008 of $10.4 million compared to
the 2007 pro forma period. These decreases were partially offset by an increase in incentive
compensation and related payroll taxes of $42.0 million in 2008 compared to pro forma 2007 due
to improved overall financial performance and an increase in professional fees in 2008 of $10.4
million compared to pro forma 2007 primarily reflecting legal expenses related to shareholder
litigation.
SG&A expense increased as a percentage of sales to 23.8% in the 2007 Successor period
and 24.5% in the 2007 Predecessor period from 23.1% in 2006. SG&A in the 2007 periods
includes: $23.4 million in the 2007 Successor period related to amortization of leasehold
intangibles capitalized in connection with the revaluation of assets at the date of the Merger;
$19.3 million and $7.6 million of administrative employee incentive compensation expense in
the 2007 Successor and Predecessor periods, respectively, resulting from meeting certain
financial targets (compared to $9.6 million of discretionary bonuses in 2006); approximately
$9.0 million and $45.0 million of expenses in the 2007 Successor and Predecessor periods,
respectively, relating to the closing of stores and the elimination of our packaway inventory
strategy (compared to approximately $33 million in 2006) and an accrued loss of approximately
$12.0 million in the 2007 Successor period relating to probable losses for certain distribution
center leases. In addition, SG&A in the 2007 Successor period includes approximately $4.8
million of KKR-related consulting and monitoring fees. SG&A expense in 2006 was partially
offset by insurance proceeds of $13.0 million received during the year related to losses incurred
due to Hurricane Katrina.
On a pro forma basis, SG&A expense increased as a percentage of sales to 24.3% in 2007
compared to 23.8% in 2006. Pro forma SG&A includes: $26.9 million of administrative
employee incentive compensation expense in 2007 resulting from meeting certain financial
targets, compared to $9.6 million of discretionary bonuses in 2006; approximately $54 million of
expenses in 2007 relating to the closing of stores and the elimination of our packaway inventory
strategy, compared to approximately $33 million in 2006; and an accrued loss of approximately
$12.0 million in 2007 relating to probable losses for certain distribution center leases. SG&A
expense in 2006 was partially offset by insurance proceeds of $13.0 million received during the
year related to losses incurred due to Hurricane Katrina.
Litigation Settlement and Related Costs, Net. The $32.0 million in 2008 represents the
settlement of a class action lawsuit filed in response to the Merger, and includes a $40.0 million
settlement and estimated expenses of $2.0 million, net of $10.0 million of insurance proceeds
received in the fourth quarter of 2008.
Transaction and Related Costs. The $1.2 million and $101.4 million of expenses
recorded in the 2007 Successor and Predecessor periods reflect $1.2 million and $62.0 million,
respectively, of expenses related to the Merger, such as investment banking and legal fees as