Do you believe that Dollar General was able to pay its short-term or current obligations in 2010 and 2011? Explain

10:10 LTE O Not Secure mim.ac.mw CASE 27 Dollar General Corporation: 2011 Growth Expansion Plans (Mini Case) Kathryn E. Wheelen Expansion Plan On January 6, 2011, the management of Dollar General announced its 2011 expansion plan for the company. Dollar General had plans to open 625 stores, add 6,000 employ- ees, and open stores in three additional states-Connecticut, Nevada, and New Hamp- shire. Recently, the company announced plans to open stores in Colorado. In addition, the company intended to remodel or relocate 550 of its 9,200 stores in 35 states. Each store averaged 6 to 10 employees, a combination of full-time and part-time employees. Employees had the option of flex-time. Wages were competitive to the local market wages. The company had 79.800 employees. Industry The dollar discount store industry's primary competitors were Dollar General, the largest company, with revenues of $12.73 billion; Family Dollar Stores, with revenues of $8.04 billion; Dollar Tree in third place with revenues of $5.71 billion. The industry's total revenue was $36.98 billion. See Exhibit 1 for information on each of the three major players in this indus- try segment. This case was prepared by Kathryn E. Wheelen. Copyright 2010 by Kathryn E. Wheelen. The copyright holder is solely responsible for the case content. This case was edited for Strategic Management and Business Policy, 13th edition Reprinted by permission only for the 13th edition of Strategic Management and Business Policy (including international and electronic versions of the book). Any other publication of this case (translation, any form of electronic or media) sale (any form of partnership) to another publisher will be in violation of copyright law unless Kathryn E. Wheelen has granted additional written reprint permission 27-1 27-2 SECTION D Industry Six-Specialty Retailing EXHIBIT 1 Direct Competitors of Dollar General (Data is trading 12 months) Dollar Tree S5,716 13.04 10.3 7.15 A. Dollar Discount Stores' Competitive Information Dollar General Family Dollar Net Sales (millions) $12.735 $8,041 YOY Chg 8.00 7.65 3-Year CAGR 10.39 5.15 Comparable sales Chg 5.85 5.98 Gross margin 32.05 35.75 Operating margin 9.05 7.35 Profit margin 3.95 4.55 Operating income (millions) $1,145 $588 YoY Chg (in bps) 27.65 23.85 Net income (millions) $493 $365 YoY Chg 47.45 21.8 3-YR GAGR N/A 14.96 Diluted EPS $1.43 $2.72 YoY Chg 27.15 3-YR CAGR N/A 18.65 Store count 9.273 6,852 Retail selling Sq. Ft 48,721.000 Employees 79.800 50,000 B. Average Sales Dollar General Family Dollar Avg. sales/selling sq.ft $198 $167 Avg. sales/stores (1.000s) $1.40 $1,189 Avg. sales/employee S155.758 $162.116 35.35 10.35 6.55 S590 7.15 5370 27.25 21.95 $2.84 36.25 33.15 27.6% 4,009 34,400,000 54.480 66.270,000 Dollar Tree S172 $1,464 S172,671 SOURCE: http://seekingalple.com/article/245097.discount-retail-crowdown-a-closer look at dollar stores? sourceyahoo. Used by permission of the author, Josh Ramer of RetailSails.com The discount variety store industry's prime player was Wal-Mart with revenues of $419.24 billion, 2,100,000 employees, and income of $15.11 billion. Wal-Mart operated "803 discount stores, 2,747 supercenters, 158 neighborhood markets, and 596 Sam's Clubs in the United States; 43 units in Argentina, 434 in Brazil, 317 in Canada, 252 in Chile, 170 in Costa Rica, 77 in El Salvador, 164 in Guatemala, 53 in Honduras, 1 in India, 371 in Japan, 1,469 in Mexico, 55 in Nicaragua, 56 in Puerto Rico, and 371 in the United Kingdom, as well as 279 stores in the Peoples Republic of China." Target was in second place with revenues of $66.91 billion, 351,000 employees, and net income of $2.82 billion. It operated 1,746 stores in 49 states. Other large discount store companies were Costco Wholesale Corporation and Kmart Corporation. Corporate Ownership KKR (Koldberg Kravis Roberts & Co. L.P) owned 79.17% (7.898,796,886 shares) of the company stock on September 30, 2010. On March 12, 2007, KKR acquired Dollar General for $732 billion. KKR, a private equity company, paid a 31% premium for the stock at $16.78. Goldman Sachs Group Inc. owned 17.17% (1,712,829,454 shares) of the company's stock. Combined, these two companies owned 96,37% of Dollar General's stock. Goldman Sachs was KKR's advisor on this deal, while Lazard and Lehman Brothers were Dollar General's advisor on this deal. CASE 27 Dollar General Corporation: 2011 Growth Expansion Plans (Mini Case) 27-3 10:11 . LTE O Not Secure mim.ac.mw CASE 27 Dollar General Corporation: 2011 Growth Expansion Plans (Mini Case) 27.5 EXHIBIT 2 Dollar General 823 of 913 orporation and January 28, 2011 January 29, 2010 Consolidated Balance Sheets in thousands, except per share amounts) $ 497,446 1,765,433 104,946 2.367,825 $ 222,076 1,519,578 7,543 96,252 1,845,449 1.328,386 4,338,589 1.284.283 66,812 $ 8,863,519 1.524575 4.338,589 1.256,922 58,311 $ 9,546,222 $ 1.157 953,641 Assets Current assets: Cash and cash equivalents Merchandise inventories Income taxes receivable Prepaid expenses and other current assets Total current assets Net property and equipment Goodwill Intangible assets, net Other assets, net Total assets Liabilities and Shareholders' Equity Current liabilities: Current portion of long-term obligations Accounts payable Accrued expenses and other Income taxes payable Deferred income taxes payable Total current liabilities Long-term obligations Deferred income taxes payable Other liabilities Commitments and contingencies Redeemable common stock Shareholders' equity Preferred stock, 1,000 shares authorized Common stock; $0.875 par value, 1,000,000 shares authorized, 341,507 and 340,586 shares issued and outstanding at January 28, 2011 and January 29, 2010, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total shareholders' equity Total liabilities and shareholders' equity 347,741 25,980 36,854 $3,671 830,953 342.290 4.525 25.061 1.206,500 3.399,715 546,172 302 348 1,365,373 3.287,070 598,565 231,582 9,153 18,486 298,819 298,013 2.945,024 830,932 (20,296) 2.293,377 203.075 (34.167) 3.390.298 $8,863,519 4,054,479 $9.546,222 SOURCE: Dollar General Corporation, 2010 Form 10-K, p. 64. 27-6 SECTION D Industry Six-Specialty Retailing EXHIBIT 3 Dollar General Corporation and Subsidiaries Consolidated Statements of Income in thousands, except per share amounts) For the Year Ended January 28, January 29, January 30, 2011 2010 2009 $ 13,035.000 S 11.796,380 $ 10,457,668 8.858.444 8,106,509 7,396,571 4.176,556 3.689,871 3,061,097 2.902.491 2.736,613 2.448.611 32.000 1.274,065 953,258 580.486 (220) (144) (3.061) 274.212 345,744 391,932 15.101 55.542 984,972 552.116 194,403 357,115 212,674 86.221 627,857 339,442 108,182 Net sales Cost of goods sold Gross profit Selling, general and administrative expenses Litigation settlement and related costs, net Operating profit Interest income Interest expense Other (income) expense Income before income taxes Income tax expense Net income Earnings per share: Basic Diluted Weighted average shares: Basic Diluted (2.788) $ 1.84 s 1.82 s 1.03 1.04 s $ 0.44 0.34 341.047 344,800 322,778 324,836 317,024 317,503 SOURCE: Dollar General Corporation, 2010 Form 10-K, p. 65. Operating profit; Inventory turnover; Cash flow: Net income; Earnings per share; Earnings before interest, income taxes, depreciation, and amortization; and Return on invested capital. Management's position on the impact of debt on the company was stated below: Increasing the difficulty of our ability to make payments on our outstanding debt; Increasing our vulnerability to general economic and industry conditions because our debt payment obligations may limit our ability to use our cash to respond to our cash flow to fund our operations, capital expenditures, and future business opportunities or pay dividends: Limiting our ability to obtain additional financing for working capital expenditures, debt service requirements, acquisitions, and general corporate or other purposes: Placing us at a disadvantage compared to our competitors who are less highly leveraged and may be use their flow to fund competitive response to changing industry, market, or economic conditions. 14 etter 10:10 LTE O Not Secure mim.ac.mw CASE 27 Dollar General Corporation: 2011 Growth Expansion Plans (Mini Case) Kathryn E. Wheelen Expansion Plan On January 6, 2011, the management of Dollar General announced its 2011 expansion plan for the company. Dollar General had plans to open 625 stores, add 6,000 employ- ees, and open stores in three additional states-Connecticut, Nevada, and New Hamp- shire. Recently, the company announced plans to open stores in Colorado. In addition, the company intended to remodel or relocate 550 of its 9,200 stores in 35 states. Each store averaged 6 to 10 employees, a combination of full-time and part-time employees. Employees had the option of flex-time. Wages were competitive to the local market wages. The company had 79.800 employees. Industry The dollar discount store industry's primary competitors were Dollar General, the largest company, with revenues of $12.73 billion; Family Dollar Stores, with revenues of $8.04 billion; Dollar Tree in third place with revenues of $5.71 billion. The industry's total revenue was $36.98 billion. See Exhibit 1 for information on each of the three major players in this indus- try segment. This case was prepared by Kathryn E. Wheelen. Copyright 2010 by Kathryn E. Wheelen. The copyright holder is solely responsible for the case content. This case was edited for Strategic Management and Business Policy, 13th edition Reprinted by permission only for the 13th edition of Strategic Management and Business Policy (including international and electronic versions of the book). Any other publication of this case (translation, any form of electronic or media) sale (any form of partnership) to another publisher will be in violation of copyright law unless Kathryn E. Wheelen has granted additional written reprint permission 27-1 27-2 SECTION D Industry Six-Specialty Retailing EXHIBIT 1 Direct Competitors of Dollar General (Data is trading 12 months) Dollar Tree S5,716 13.04 10.3 7.15 A. Dollar Discount Stores' Competitive Information Dollar General Family Dollar Net Sales (millions) $12.735 $8,041 YOY Chg 8.00 7.65 3-Year CAGR 10.39 5.15 Comparable sales Chg 5.85 5.98 Gross margin 32.05 35.75 Operating margin 9.05 7.35 Profit margin 3.95 4.55 Operating income (millions) $1,145 $588 YoY Chg (in bps) 27.65 23.85 Net income (millions) $493 $365 YoY Chg 47.45 21.8 3-YR GAGR N/A 14.96 Diluted EPS $1.43 $2.72 YoY Chg 27.15 3-YR CAGR N/A 18.65 Store count 9.273 6,852 Retail selling Sq. Ft 48,721.000 Employees 79.800 50,000 B. Average Sales Dollar General Family Dollar Avg. sales/selling sq.ft $198 $167 Avg. sales/stores (1.000s) $1.40 $1,189 Avg. sales/employee S155.758 $162.116 35.35 10.35 6.55 S590 7.15 5370 27.25 21.95 $2.84 36.25 33.15 27.6% 4,009 34,400,000 54.480 66.270,000 Dollar Tree S172 $1,464 S172,671 SOURCE: http://seekingalple.com/article/245097.discount-retail-crowdown-a-closer look at dollar stores? sourceyahoo. Used by permission of the author, Josh Ramer of RetailSails.com The discount variety store industry's prime player was Wal-Mart with revenues of $419.24 billion, 2,100,000 employees, and income of $15.11 billion. Wal-Mart operated "803 discount stores, 2,747 supercenters, 158 neighborhood markets, and 596 Sam's Clubs in the United States; 43 units in Argentina, 434 in Brazil, 317 in Canada, 252 in Chile, 170 in Costa Rica, 77 in El Salvador, 164 in Guatemala, 53 in Honduras, 1 in India, 371 in Japan, 1,469 in Mexico, 55 in Nicaragua, 56 in Puerto Rico, and 371 in the United Kingdom, as well as 279 stores in the Peoples Republic of China." Target was in second place with revenues of $66.91 billion, 351,000 employees, and net income of $2.82 billion. It operated 1,746 stores in 49 states. Other large discount store companies were Costco Wholesale Corporation and Kmart Corporation. Corporate Ownership KKR (Koldberg Kravis Roberts & Co. L.P) owned 79.17% (7.898,796,886 shares) of the company stock on September 30, 2010. On March 12, 2007, KKR acquired Dollar General for $732 billion. KKR, a private equity company, paid a 31% premium for the stock at $16.78. Goldman Sachs Group Inc. owned 17.17% (1,712,829,454 shares) of the company's stock. Combined, these two companies owned 96,37% of Dollar General's stock. Goldman Sachs was KKR's advisor on this deal, while Lazard and Lehman Brothers were Dollar General's advisor on this deal. CASE 27 Dollar General Corporation: 2011 Growth Expansion Plans (Mini Case) 27-3 10:11 . LTE O Not Secure mim.ac.mw CASE 27 Dollar General Corporation: 2011 Growth Expansion Plans (Mini Case) 27.5 EXHIBIT 2 Dollar General 823 of 913 orporation and January 28, 2011 January 29, 2010 Consolidated Balance Sheets in thousands, except per share amounts) $ 497,446 1,765,433 104,946 2.367,825 $ 222,076 1,519,578 7,543 96,252 1,845,449 1.328,386 4,338,589 1.284.283 66,812 $ 8,863,519 1.524575 4.338,589 1.256,922 58,311 $ 9,546,222 $ 1.157 953,641 Assets Current assets: Cash and cash equivalents Merchandise inventories Income taxes receivable Prepaid expenses and other current assets Total current assets Net property and equipment Goodwill Intangible assets, net Other assets, net Total assets Liabilities and Shareholders' Equity Current liabilities: Current portion of long-term obligations Accounts payable Accrued expenses and other Income taxes payable Deferred income taxes payable Total current liabilities Long-term obligations Deferred income taxes payable Other liabilities Commitments and contingencies Redeemable common stock Shareholders' equity Preferred stock, 1,000 shares authorized Common stock; $0.875 par value, 1,000,000 shares authorized, 341,507 and 340,586 shares issued and outstanding at January 28, 2011 and January 29, 2010, respectively Additional paid-in capital Retained earnings Accumulated other comprehensive loss Total shareholders' equity Total liabilities and shareholders' equity 347,741 25,980 36,854 $3,671 830,953 342.290 4.525 25.061 1.206,500 3.399,715 546,172 302 348 1,365,373 3.287,070 598,565 231,582 9,153 18,486 298,819 298,013 2.945,024 830,932 (20,296) 2.293,377 203.075 (34.167) 3.390.298 $8,863,519 4,054,479 $9.546,222 SOURCE: Dollar General Corporation, 2010 Form 10-K, p. 64. 27-6 SECTION D Industry Six-Specialty Retailing EXHIBIT 3 Dollar General Corporation and Subsidiaries Consolidated Statements of Income in thousands, except per share amounts) For the Year Ended January 28, January 29, January 30, 2011 2010 2009 $ 13,035.000 S 11.796,380 $ 10,457,668 8.858.444 8,106,509 7,396,571 4.176,556 3.689,871 3,061,097 2.902.491 2.736,613 2.448.611 32.000 1.274,065 953,258 580.486 (220) (144) (3.061) 274.212 345,744 391,932 15.101 55.542 984,972 552.116 194,403 357,115 212,674 86.221 627,857 339,442 108,182 Net sales Cost of goods sold Gross profit Selling, general and administrative expenses Litigation settlement and related costs, net Operating profit Interest income Interest expense Other (income) expense Income before income taxes Income tax expense Net income Earnings per share: Basic Diluted Weighted average shares: Basic Diluted (2.788) $ 1.84 s 1.82 s 1.03 1.04 s $ 0.44 0.34 341.047 344,800 322,778 324,836 317,024 317,503 SOURCE: Dollar General Corporation, 2010 Form 10-K, p. 65. Operating profit; Inventory turnover; Cash flow: Net income; Earnings per share; Earnings before interest, income taxes, depreciation, and amortization; and Return on invested capital. Management's position on the impact of debt on the company was stated below: Increasing the difficulty of our ability to make payments on our outstanding debt; Increasing our vulnerability to general economic and industry conditions because our debt payment obligations may limit our ability to use our cash to respond to our cash flow to fund our operations, capital expenditures, and future business opportunities or pay dividends: Limiting our ability to obtain additional financing for working capital expenditures, debt service requirements, acquisitions, and general corporate or other purposes: Placing us at a disadvantage compared to our competitors who are less highly leveraged and may be use their flow to fund competitive response to changing industry, market, or economic conditions. 14 etter