Dollar General 2012 Annual Report Download - page 122

10-K
Cash flows
Cash flows from operating activities. Significant components of the increase in cash flows from
operating activities in 2012 compared to 2011 include increased net income due primarily to increased
sales and lower SG&A expenses, as a percentage of sales, in 2012 as described in more detail above
under ‘‘Results of Operations.’’ A portion of the changes in Prepaid and other current assets as well as
Accrued expenses and other reflect the activity associated with a legal settlement accrued in 2011 for
which payments were made in 2012. Changes in Accrued expenses and other were also affected by
higher sales tax accruals at the end of 2011 and the adjustment of accruals during 2012 due to the
favorable resolution of income tax examinations. The reclassification of the tax benefit of stock options
to cash flows from financing activities was higher in 2012 due to an increase in stock options exercised.
Changes in Accounts payable were due to increased merchandise purchases as discussed in more detail
below, the most significant category of which were domestic purchases.
On an ongoing basis, we closely monitor and manage our inventory balances, and they may
fluctuate from period to period based on new store openings, the timing of purchases, and other
factors. Merchandise inventories increased by 19% during 2012, compared to a 14% increase in 2011.
The increase in inventories in 2012 was due to several factors including new items introduced in 2012,
the receipt during 2012 of certain items related to our 2013 merchandising initiatives, and the emphasis
on improved presentation levels of select merchandise categories. Inventory levels in the consumables
category increased by $245.7 million, or 22%, in 2012 compared to an increase of $132.3 million, or
13%, in 2011. The seasonal category increased by $70.2 million, or 18%, in 2012 compared to an
increase of $27.5 million, or 7%, in 2011. The home products category increased $56.2 million, or 29%,
in 2012 compared to an increase of $24.6 million, or 14%, in 2011. The apparel category increased by
$16.0 million, or 5%, in 2012 compared to an increase of $59.4 million, or 24%, in 2011.
A significant component of our increase in cash flows from operating activities in 2011 compared
to 2010 was the increase in net income due to increases in sales and gross profit, and lower SG&A
expenses as a percentage of sales, as described in more detail above under ‘‘Results of Operations.’’
Significant components of the increase in cash flows from operating activities in 2011 compared to 2010
were related to working capital in general and Accrued expenses and other in particular. Items
affecting Accrued expenses and other include increased accruals for income tax reserves, increased
accruals for legal settlements and sales taxes, partially offset by reduced interest accruals. The timing of
interest and certain other accruals and the related payments were affected by the 53rd week in 2011.
Partially offsetting this increase in cash flows was an increase in income taxes paid in 2011 compared to
2010 due to the increase in net income.
In addition, inventory balances increased by 14% in 2011 compared to an increase of 16% in 2010.
Inventory levels in the consumables category increased by $132.3 million, or 13%, in 2011 compared to
an increase of $133.9 million, or 16%, in 2010. The seasonal category increased by $27.5 million, or
7%, in 2011 compared to an increase of $55.2 million, or 18%, in 2010. The home products category
increased $24.6 million, or 14%, in 2011 compared to an increase of $25.2 million, or 17%, in 2010.
The apparel category increased by $59.4 million, or 24%, in 2011 compared to an increase of
$32.3 million, or 15%, in 2010.
Cash flows from investing activities. Significant components of property and equipment purchases
in 2012 included the following approximate amounts: $155 million for new leased stores; $132 million
for stores purchased or built by us; $83 million for distribution centers; $80 million for remodels and
relocations of existing stores; $71 million for improvements and upgrades to existing stores; $27 million
for systems-related capital projects; and $17 million for transportation-related projects. The timing of
new, remodeled and relocated store openings along with other factors may affect the relationship
between such openings and the related property and equipment purchases in any given period. During
2012, we opened 625 new stores and remodeled or relocated 592 stores.
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