Dollar General 2010 Annual Report Download - page 168

10-K
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. Related party transactions (Continued)
The Company entered into a sponsor advisory agreement, dated July 6, 2007, with KKR and
Goldman, Sachs & Co. pursuant to which those entities provided management and advisory services to
the Company. Under the terms of the sponsor advisory agreement, among other things, the Company
was obliged to pay to those entities an aggregate, initial management fee of $5.0 million annually.
Upon the completion of the Company’s initial public offering discussed in Note 2, pursuant to the
advisory agreement, the Company paid a fee of $63.6 million from cash generated from operations to
KKR and Goldman, Sachs & Co., which amount included a transaction fee equal to 1%, or
$4.8 million, of the gross primary proceeds from the offering accounted for as a cost of raising equity
and a corresponding reduction to Additional paid-in capital; and approximately $58.8 million in
connection with its termination, which is included in SG&A expenses for 2009. Including the
transaction and termination fees discussed above, the total management fees and other expenses
incurred for the years ended January 28, 2011, January 29, 2010 and January 30, 2009 totaled
$0.2 million, $68.0 million and $6.6 million, respectively. In addition, on July 6, 2007, the Company
entered into a separate indemnification agreement with the parties to the sponsor advisory agreement,
pursuant to which the Company agreed to provide customary indemnification to such parties and their
affiliates.
From time to time, the Company uses Capstone Consulting, LLC, a team of executives who work
exclusively with KKR portfolio companies providing certain consulting services. The Chief Executive
Officer of Capstone served on the Company’s Board of Directors until March 2009. Although neither
KKR nor any entity affiliated with KKR owns any of the equity of Capstone, prior to January 1, 2007
KKR had provided financing to Capstone. The aggregate fees incurred for Capstone services for the
periods ended January 28, 2011, January 29, 2010 and January 30, 2009 totaled zero, $0.2 million and
$3.0 million, respectively.
The Company entered into an underwriting agreement with KKR Capital Markets (an affiliate of
KKR), Goldman, Sachs & Co., Citigroup Global Markets Inc., and several other entities to serve as
underwriters in connection with its initial public offering. The Company provided underwriting
discounts of approximately $27.4 million pursuant to the underwriting agreement, approximately
$6.0 million of which was provided to each of (a) KKR Capital Markets; (b) Goldman, Sachs & Co.;
and (c) Citigroup Global Markets Inc. The Company paid approximately $3.3 million in expenses
related to the initial public offering (excluding underwriting discounts and commissions), including the
offering-related expenses of the selling shareholder which the Company was required to pay under the
terms of an existing registration rights agreement.
Affiliates of KKR and of Goldman, Sachs & Co. served as underwriters in connection with the
secondary offerings of the Company’s common stock held by certain existing shareholders that were
completed in April 2010 and December 2010. The Company did not sell shares of common stock,
receive proceeds from the secondary sales, or pay any underwriting fees in connection with either
secondary offering. Certain members of our management, including certain of our executive officers,
exercised registration rights in connection with such offerings.
13. Segment reporting
The Company manages its business on the basis of one reportable segment. See Note 1 for a brief
description of the Company’s business. As of January 28, 2011, all of the Company’s operations were
located within the United States with the exception of a Hong Kong subsidiary, and a liaison office in
90