Dollar General 2004 Annual Report Download - page 51

Dollar General Corporation 49
Rent expense under all operating leases was as follows:
(In thousands) 2004 2003 2002
Minimum rentals $253,364 $217,704 $187,568
Contingent rentals 15,417 14,302 15,500
$268,781 $232,006 $203,068
Legal proceedings
Restatement-related฀proceedings. As previously
disclosed in the Company’s periodic reports filed with
the SEC, the Company restated its audited financial
statements for fiscal years 1999 and 1998, and certain
unaudited financial information for fiscal year 2000, by
means of its Form 10-K for the fiscal year ended
February 2, 2001, which was filed on January 14,
2002 (the “2001 Restatement”).
The SEC conducted an investigation into the circum-
stances giving rise to the 2001 Restatement and, on
January 8, 2004, the Company received notice that the
SEC staff was considering recommending that the SEC
bring a civil injunctive action against the Company for
alleged violations of the federal securities laws in connec-
tion with circumstances relating to the restatement. The
Company subsequently reached an agreement in princi-
ple with the SEC staff to settle the matter. Under the
terms of the agreement in principle, the Company, with-
out admitting or denying the allegations in a complaint to
be filed by the SEC, will consent to the entry of a perma-
nent civil injunction against future violations of the anti-
fraud, books and records, reporting and internal control
provisions of the federal securities laws and related SEC
rules and will pay a $10 million non-deductible civil pen-
alty. The Company is not entitled to seek reimbursement
from its insurers with regard to this settlement.
The Company has been informed that the SEC approved
the agreement and intends to file its Complaint and the
proposed Final Judgment and Consent and Undertakings
of Dollar General Corporation with the United States
District Court for the Middle District of Tennessee. The
agreement and order are subject to final approval by the
Court. The Company accrued $10 million with respect to
the penalty in its financial statements for the year ended
January 30, 2004, and this accrual remains outstanding
as of January 28, 2005. The Company can give no assur-
ances that the Court will approve this agreement and
order. If the agreement and order are not approved, the
Company could be subject to different or additional pen-
alties, both monetary and non-monetary, which could
materially and adversely affect the Company’s financial
statements as a whole.
In addition, as previously discussed in the Company’s
periodic reports filed with the SEC, the Company settled
in the second quarter of 2002 the lead shareholder deriva-
tive action relating to the 2001 Restatement that had been
filed in Tennessee State Court. All other pending state and
federal derivative cases were subsequently dismissed
during the third quarter of fiscal 2002. The settlement of
the shareholder derivative lawsuits resulted in a net pay-
ment to the Company, after attorney’s fees payable to the
plaintiffs’ counsel, of approximately $25.2 million, which
was recorded as income during the third quarter of 2002.
The Company also settled the federal consolidated 2001
Restatement-related class action lawsuit in the second
quarter of fiscal 2002. The $162 million settlement, which
was expensed in the fourth quarter of 2000, was paid in
the first half of fiscal 2002. The Company received from
its insurers $4.5 million in respect of such settlement in
July 2002, which was recorded as income during the
second quarter of 2002.
Plaintiffs representing fewer than 1% of the shares
traded during the class period chose to opt out of the
federal class action settlement. One such plaintiff chose
to pursue recovery against the Company individually.
In 2002, the Company settled and paid that claim and
recognized an expense of $0.2 million in respect of
that agreement.
Other฀litigation. On March 14, 2002, a complaint was
filed in the United States District Court for the Northern
District of Alabama (Edith Brown, on behalf of herself
and others similarly situated v. Dolgencorp. Inc., and
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 the Fair Labor Standards
Act (“FLSA”). Plaintiffs seek to recover overtime pay,
liquidated damages, declaratory relief and attorneys’ fees.
On January 12, 2004, the court certified an opt-in class
of plaintiffs consisting of all persons employed by the
Company as store managers at any time since March 14,
1999, who regularly worked more than 50 hours per
week and either: (1) customarily supervised less than
two employees at one time; (2) lacked authority to hire or
discharge employees without supervisor approval; or (3)
sometimes worked in non-managerial positions at stores
other than the one he or she managed. The Company’s
attempt to appeal this decision on a discretionary basis
to the 11th Circuit Court of Appeals was denied.