What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-19 compared with 2020-03-19 · 141 added, 167 removed, 573 unchanged (35% of the section changed)

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Dollar General Corporation and subsidiaries (the Company) as of January 31, 2020 and February 1, 2019, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended January 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 31, 2020 and February 1, 2019, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2020, in conformity with U.S.

We have audited the accompanying consolidated balance sheets of Dollar General Corporation and subsidiaries (the Company) as of January 29, 2021 and January 31, 2020, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended January 29, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 29, 2021 and January 31, 2020, and the results of its operations and its cash flows for each of the three years in the period ended January 29, 2021, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 29, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 19, 2021, expressed an unqualified opinion thereon.

Adoption of New Accounting Standard

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for lease contracts on February 2, 2019, due to the adoption of ASU 2016-02 Leases (ASC 842).

See below for discussion of our related critical audit matter.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our

opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical

audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosure to which it relates.

Estimate of Workers’ Compensation and General Liability Reserves

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We also compared the significant assumptions used by management to industry accepted actuarial assumptions, reassessed the accuracy of management’s historical estimates utilized in prior period evaluations, and utilized an actuarial valuation specialist to assist in assessing the valuation methodologies and significant assumptions used in the valuation analysis, as well as to compare the Company’s recorded reserve to an independently developed range of actuarial reserves.

Adoption of New Lease Accounting Standard

Description of the Matter

As described above and in Note 1 to the consolidated financial statements, the Company adopted ASU 2016-02, Leases (ASC 842), on February 2, 2019.

The adoption of ASC 842 resulted in the recognition of right-of-use operating lease assets and lease liabilities of approximately $8.0 billion as of February 2, 2019.

The cumulative effect of adopting the standard resulted in an adjustment to retained earnings of $28.8 million at the same date.

Among the elements of management estimation in connection with the adoption was the determination of incremental borrowing rates (“IBR”) which were used to calculate its operating right-of-use assets and lease liabilities.

Management estimates certain adjustments to observed borrowing rates in order to derive the IBRs that are representative of the rate the lessee would have to borrow on a collateralized basis over a similar term as the subject lease.

Auditing the Company’s adoption of ASC 842 was complex and involved subjective auditor judgement because the Company is party to a significant number of lease contracts, and certain aspects of adopting ASC 842 required management to exercise significant judgment in applying ASC 842 to its portfolio of lease contracts.

In particular, auditing management’s estimate of the IBRs used to determine the operating right-of-use assets and lease liabilities was especially challenging and required the evaluation of the significant assumptions utilized by management including the selection of appropriate yield curves and adjustments for collateralization.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s accounting for the adoption of ASC 842.

For example, we tested controls over management’s review of the application of accounting policy elections to its portfolio of leases and over management’s review of the estimation of the IBRs.

To test the Company’s adoption of ASC 842, we performed audit procedures that included, among others, evaluating the completeness of the population of contracts that meet the definition of a lease under ASC 842, testing the accuracy of lease terms by agreement of such terms to the original lease contract, and testing the accuracy of the Company’s calculations of initial right-of-use assets and lease liabilities.

We involved our specialist to assist in our evaluation of the Company’s methodology, model and significant assumptions utilized in developing the IBRs.

We also compared the Company’s IBRs to ranges developed by our specialists based on independently observed data.

/s/ Ernst & Young LLP

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Current liabilities:

Current portion of long-term obligations

Current portion of operating lease liabilities

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Common stock;

$ 0.875 par value, 1,000,000 shares authorized, 251,936 and 259,511 shares issued and outstanding at January 31, 2020 and February 1, 2019, respectively

$ 0.875 par value, 1,000,000 shares authorized, 240,785 and 251,936 shares issued and outstanding at January 29, 2021 and January 31, 2020, respectively

Additional paid-in capital

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Repurchases of common stock

( 1,007,494 )

Transition adjustment upon adoption of accounting standard (see Note 1)

Other equity and related transactions

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( 1,193,155 )

( 1,200,376 )

Transition adjustment upon adoption of accounting standard (see Note 1)

Other equity and related transactions

Balances, February 1, 2019

Balances, January 31, 2020

Dividends paid, $ 1.44 per common share

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( 2,466,434 )

Transition adjustment upon adoption of accounting standard (see Note 1)

Other equity and related transactions

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Deferred income taxes

Loss on debt retirement

Noncash share-based compensation

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Purchases of property and equipment

( 1,027,963 )

Proceeds from sales of property and equipment

Net cash provided by (used in) investing activities

( 1,024,910 )

Cash flows from financing activities:

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Net increase (decrease) in commercial paper outstanding

Costs associated with issuance and retirement of debt

Borrowings under revolving credit facilities

Repayments of borrowings under revolving credit facilities

Costs associated with issuance of debt

Repurchases of common stock

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( 1,200,376 )

( 1,007,494 )

Payments of cash dividends

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Basis of presentation

These notes contain references to the years 2019, 2018, and 2017, which represent fiscal years ended January 31, 2020, February 1, 2019, and February 2, 2018, respectively.

These notes contain references to the years 2020, 2019, and 2018, which represent fiscal years ended January 29, 2021, January 31, 2020, and February 1, 2019, respectively.

The Company’s 2020, 2019 and 2018 accounting periods were each comprised of 52 weeks.

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The Company sells general merchandise on a retail basis through 17,177 stores (as of January 29, 2021) in 46 states with the greatest concentration of stores in the southern, southwestern, midwestern and eastern United States.

The Company owns 13 and leases four distribution centers for non-refrigerated merchandise.

At January 31, 2020, the Company also operated one owned and four leased cold storage and distribution facilities.

As of January 29, 2021, the Company operated 16 distribution centers for non-refrigerated products, nine cold storage distribution centers, and one combination distribution center which has both refrigerated and non-refrigerated products.

The Company leases 12 of these facilities and the remainder are owned.

Cash and cash equivalents

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The carrying amounts of these items are a reasonable estimate of their fair value due to the short maturity of these investments.

Payments due from processors for electronic tender transactions classified as cash and cash equivalents totaled approximately $ 101.9 million and $ 99.5 million at January 31, 2020 and February 1, 2019, respectively.

Payments due from processors for electronic tender transactions classified as cash and cash equivalents totaled approximately $ 125.3 million and $ 101.9 million at January 29, 2021 and January 31, 2020, respectively.

Investments in debt and equity securities

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Costs directly associated with warehousing and distribution are capitalized into inventory.

The excess of current cost over LIFO cost was approximately $ 110.7 million and $ 103.7 million at January 31, 2020 and February 1, 2019, respectively.

The excess of current cost over LIFO cost was approximately $ 115.9 million and $ 110.7 million at January 29, 2021 and January 31, 2020, respectively.

Current cost is determined using the RIM on a first-in, first-out basis.

Under the LIFO inventory method, the impacts of rising or falling market price changes increase or decrease cost of sales (the LIFO provision or benefit).

The Company recorded a LIFO provision (benefit) of $ 7.0

million in 2019, $ 25.2 million in 2018, and $( 2.2 ) million in 2017, which is included in cost of goods sold in the consolidated statements of income.

The Company recorded a LIFO provision (benefit) of $ 5.1 million in 2020, $ 7.0 million in 2019, and $ 25.2 million in 2018, which is included in cost of goods sold in the consolidated statements of income.

The Company purchases its merchandise from a wide variety of suppliers.

The Company’s two largest suppliers each accounted for approximately 8 % of the Company’s purchases in 2019.

The Company’s three largest suppliers accounted for approximately 9 %, 8 %, and 8 %, respectively, of the Company’s purchases in 2020.

Vendor rebates

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Property and equipment

In 2007, the Company’s property and equipment was recorded at estimated fair values as the result of a merger transaction.

Property and equipment acquired subsequent to the merger has been recorded at cost.

Property and equipment acquired is recorded at cost.

The Company records depreciation and amortization on a straight-line basis over the assets’ estimated useful lives.

The Company’s property and equipment balances and depreciable lives are summarized as follows:

Amounts included in the Company’s property and equipment balances and their estimated lives are summarized as follows:

(In thousands)

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Construction in progress

Right of use assets - finance leases

Less accumulated depreciation and amortization

Net property and equipment

(a) Amortized over the lesser of the life of the applicable lease term or the estimated useful life of the asset.

Depreciation expense related to property and equipment was approximately $ 500.4 million, $ 454.1 million and $ 403.3 million for 2019, 2018 and 2017, respectively.

Depreciated over the lesser of the life of the applicable lease term or the estimated useful life of the asset.

Depreciation and amortization expense related to property and equipment was approximately $ 569.3 million, $ 500.4 million and $ 454.1 million for 2020, 2019 and 2018, respectively.

Interest on borrowed funds during the construction of property and equipment is capitalized where applicable.

Interest costs of $ 2.7 million, $ 3.7 million, and $ 2.0 million were capitalized in 2019, 2018 and 2017, respectively.

Interest costs of less than $ 0.1 million, $ 2.7 million, and $ 3.7 million were capitalized in 2020, 2019 and 2018, respectively.

Impairment of long-lived assets

When indicators of impairment are present, the Company evaluates the carrying value of long-lived assets, excluding goodwill and other indefinite-lived intangible assets, in relation to the operating performance and future cash flows or the appraised values of the underlying assets.

Generally, the Company’s policy is to review

for impairment stores open more than three years for which current cash flows from operations are negative.

Generally, the Company’s policy is to review for impairment stores open more than three years for which current cash flows from operations are negative.

Impairment results when the carrying value of the assets exceeds the undiscounted future cash flows expected to be generated by the assets.

The Company’s estimate of undiscounted future cash flows is based upon historical operations of the stores and estimates of future store profitability which encompasses many factors that are subject to variability and difficult to predict.

to variability and difficult to predict.

If a long-lived asset is found to be impaired, the amount recognized for impairment is equal to the difference between the carrying value and the asset’s estimated fair value.

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If after such assessment an entity concludes that the asset is not impaired, then the entity is not required to take further action.

However, if an entity concludes otherwise, then it is required to determine the fair value of the asset using a quantitative impairment test, and if impaired, the associated assets must be written down to fair value as described in further detail below.

The quantitative goodwill impairment test is a two-step process that would require management to make judgments in determining what assumptions to use in the calculation.

The first step of the process consists of estimating the fair value of an entity’s reporting units based on valuation techniques (including a discounted cash flow model using revenue and profit forecasts) and comparing that estimated fair value with the recorded carrying value, which includes goodwill.

If the estimated fair value is less than the carrying value, a second step is performed to compute the amount of the impairment by determining an “implied fair value” of goodwill.

The determination of the implied fair value of goodwill would require the entity to allocate the estimated fair value of its reporting unit to its assets and liabilities.

Any unallocated fair value would represent the implied fair value of goodwill, which would be compared to its corresponding carrying value.

However, if an entity concludes otherwise, then it is required to determine the fair value of the asset using a quantitative impairment test.

If the results of such test indicate impairment, the associated assets must be written down to fair value as described in further detail below.

The quantitative goodwill impairment test requires management to make judgments in determining what assumptions to use in the calculation.

The process consists of comparing the fair value of the reporting unit to its carrying amount, including goodwill.

If the fair value of the reporting unit is less than its carrying amount, management would then determine if the difference between the carrying amount and fair value is greater than the carrying amount of goodwill allocated to the reporting unit.

If it is, the impairment recognized would be equal to the total carrying amount of goodwill allocated to the reporting unit, and if not, impairment would be recognized equal to the difference between the carrying amount of the reporting unit and its fair value.

The quantitative impairment test for intangible assets compares the fair value of the intangible asset with its carrying amount.

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The Company’s goodwill balance has an indefinite life and is not expected to be deductible for tax purposes.

Substantially all of the Company’s other intangible assets are trade names and trademarks which have an indefinite life.

Substantially all of the Company’s other intangible assets are its trade names and trademarks which have an indefinite life.

Noncurrent Other assets consist primarily of qualifying prepaid expenses for maintenance, beer and wine licenses, and utility, security and other deposits.

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Taxes (other than taxes on income)

Included in other accrued expenses are liabilities for freight expense, interest, utilities, and maintenance.

Included in other accrued expenses are liabilities for freight expense, interest, utilities, maintenance and legal settlements.

Insurance liabilities

The Company retains a significant portion of risk for its workers’ compensation, employee health, general liability, property, automobile, and third-party landlord liability claim exposures.

The Company retains a significant portion of risk for its workers’ compensation, employee health, general liability, property, automobile, and certain third-party landlord general liability claim exposures.

Accordingly, provisions are made for the Company’s estimates of such risks which are recorded as self-insurance reserves pursuant to Company policy.

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The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

For periods prior to 2019, rent expense was recognized over the term of the lease.

The Company recorded minimum rental expense on a straight-line basis over the base, non-cancelable lease term commencing

on the date that the Company took physical possession of the property from the landlord.

When a lease contained a predetermined fixed escalation of the minimum rent, the Company recognized the related rent expense on a straight-line basis and recorded the difference between the recognized rental expense and the amounts payable under the lease as deferred rent.

For years prior to 2019, rent expense was recognized over the term of the lease.

The Company recorded minimum rental expense on a straight-line basis over the base, non-cancelable lease term commencing on the date that the Company took physical possession of the property from the landlord.

lease as deferred rent.

Tenant allowances, to the extent received, were recorded as deferred incentive rent and were amortized as a reduction to rent expense over the term of the lease.

The difference between the calculated expense and the amounts paid result in a liability which was classified in other long-term liabilities in the consolidated balance sheet, totaling approximately $ 70.1 million at February 1, 2019.

The Company recognizes contingent rental expense when the achievement of specified sales targets is considered probable.

The amount expensed but not paid as of January 31, 2020 and February 1, 2019 was approximately $ 2.3 million and $ 2.4 million, respectively, and is included in Accrued expenses and other in the consolidated balance sheets.

The difference between the calculated expense and the amounts paid result in a liability which was classified in other long-term liabilities in the consolidated balance sheet.

Other liabilities

Noncurrent Other liabilities consist of the following:

(In thousands)

Self-insurance reserves

Deferred rent

Deferred gain on sale leaseback

The deferred rent balance was reclassified and the deferred gain on sale leaseback balance was eliminated on February 2, 2019 as a result of the adoption of a new lease accounting standard discussed in greater detail in Note 1 and Note 4 below.

Payroll tax liabilities

Fair value accounting

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The liability for gift cards is established for the cash value at the time of purchase of the gift card.

The liability for outstanding gift cards was approximately $ 6.0 million and $ 5.2 million at January 31, 2020 and February 1, 2019, respectively, and is recorded in Accrued expenses and other liabilities.

The liability for outstanding gift cards was approximately $ 8.2 million and $ 6.0 million at January 29, 2021 and January 31, 2020, respectively, and is recorded in Accrued expenses and other liabilities.

Estimated breakage revenue, a percentage of gift cards that will never be redeemed based on historical redemption rates, is recognized over time in proportion to actual gift card redemptions.

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The Company has estimated the fair value of all stock option awards as of the grant date by applying the Black-Scholes-Merton option pricing valuation model.

The application of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense.

The application of this valuation model involves assumptions that are judgmental and highly sensitive to variation in the determination of compensation expense.

The Company calculates compensation expense for restricted stock, share units and similar awards as the difference between the market price of the underlying stock or similar award on the grant date and the purchase price, if any.

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Accounting standards

The Company adopted new accounting guidance related to leases as of February 2, 2019, using the modified retrospective approach.

Under this approach, existing leases were recorded at the adoption date, and comparative periods were not restated and are presented under previously existing guidance.

In addition, the Company elected the package of practical expedients permitted under the transition guidance in the standard, which among other things, allowed the carry forward of historical conclusions for lease identification, lease classification, and initial direct costs.

The Company is accounting for leases with a term of less than one year under the short-term policy election.

The Company also elected the practical expedient to not separate lease components from the nonlease components (typically fixed common-area maintenance costs at its retail store locations) for all classes of leased assets.

The Company chose not to elect the hindsight practical expedient .

Factors incorporated into the calculation of lease discount rates include the valuations and yields of the Company’s senior notes, their credit spread over comparable U.S.

Treasury rates, and an index of the credit spreads for all North American investment grade companies by rating.

To determine an indicative secured rate, the Company uses the estimated credit spread improvement that would result from an upgrade of one ratings classification by tenor.

Adoption of the leasing standard resulted in right of use operating lease assets and operating lease liabilities of approximately $ 8.0 billion each as of February 2, 2019.

The cumulative effect of applying the standard resulted in an adjustment to retained earnings of $ 28.8 million at February 2, 2019, primarily for the

elimination of deferred gain on a 2013 sale-leaseback transaction.

In August 2018, the Financial Accounting Standards Board (“FASB”) issued guidance related to the accounting for implementation costs incurred in a cloud computing arrangement that is a service contract.

These amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software, as well as hosting arrangements that include an internal use software license.

This guidance is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2019, and early adoption is permitted.

The Company adopted this guidance on a prospective basis and such adoption had an immaterial effect on the Company’s consolidated financial position and results of operations.

Also in August 2018, the FASB issued guidance related to the disclosure requirements for fair value measurement.

This guidance added, modified, and removed certain disclosure requirements related to assets and liabilities recorded at fair value.

The majority of this guidance pertains to assets and liabilities classified in Level 3 of the fair value hierarchy, and the Company has no such assets or liabilities.

This guidance is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2019, and early adoption is permitted.

The adoption of this guidance did not affect the Company’s consolidated results of operations, financial position or cash flows.

In January 2017, the FASB issued amendments to existing guidance related to the subsequent measurement of goodwill.

Subsequent to adoption, the Company will perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.

This guidance is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2019, and early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

The amendments are being applied on a prospective basis.

The adoption of this guidance did not affect the Company’s consolidated results of operations, financial position or cash flows.

In June 2016, the FASB issued guidance related to measurement requirements for credit losses on financial instruments.

These amendments require a financial asset or a group of financial assets measured at amortized cost basis to be presented at the net amount expected to be collected.

The guidance requires measurement of expected credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts.

This guidance is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2019, and early adoption is permitted.

The adoption of this guidance did not affect the Company’s consolidated results of operations, financial position or cash flows.

The Company adopted new accounting guidance related to leases as of February 2, 2019.

The cumulative effect of applying the standard resulted in an adjustment to retained earnings of $ 28.8 million at February 2, 2019, primarily for the elimination of deferred gain on a prior sale-leaseback transaction.

Because the standard was adopted under the modified retrospective approach, it did not impact the Company’s historical consolidated net income or cash flows.

In February 2018, the FASB issued new accounting guidance for the reclassification of certain tax effects from accumulated other comprehensive income which gives entities the option to reclassify to retained earnings tax effects related to items that have been stranded in accumulated other comprehensive income as a result of the Tax Cuts and Jobs Act (“TCJA”).

An entity that elects to reclassify these amounts must reclassify stranded tax effects related to the TCJA’s change in US federal tax rate for all items accounted for in other comprehensive income.

These entities can also elect to reclassify other stranded effects that relate to the TCJA but do not directly relate to the change in the federal tax rate.

The Company adopted this standard in the first quarter of 2019 and recorded a transition adjustment of $ 0.9 million, which is reflected as a reclassification from accumulated other comprehensive loss to retained earnings in the accompanying consolidated financial statements.

In October 2016, the FASB issued amendments to existing guidance related to accounting for intra-entity transfers of assets other than inventory, which affected the Company’s historical accounting for intra-entity transfers of certain intangible assets.

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The Company adopted this guidance effective February 3, 2018 which resulted in an increase in deferred income tax liabilities and a decrease in retained earnings of $ 41.3 million.

In January 2017, the FASB issued amendments to existing guidance related to the subsequent measurement of goodwill.

These amendments modify the concept of impairment from the condition that exists when the carrying amount of goodwill exceeds its implied fair value to the condition that exists when the carrying amount of a reporting unit exceeds its fair value.

Subsequent to adoption, an entity will perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.

The amendments should be applied on a prospective basis.

An entity is required to disclose the nature of and reason for the change in accounting principle upon transition.

The Company does not anticipate a material effect on its consolidated results of operations, financial position or cash flows to result from the adoption of this guidance.

Reclassifications

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federal statutory rate on earnings before income taxes

Impact of federal tax rate changes

State income taxes, net of federal income tax benefit

Jobs credits, net of federal income taxes

Increase (decrease) in valuation allowances, net of federal taxes

Stock-based compensation programs

Increase (decrease) in income tax reserves

The effective income tax rate for 2019 was 22.2 % compared to a rate of 21.1 % for 2018 which represents a net increase of 1.1 percentage points.

The effective income tax rate was higher in 2019 primarily due to an increase in income taxes resulting from changes in state income tax laws and a federal income tax benefit arising from the Tax Cuts and Jobs Act (the “TCJA”) in 2018 that did not reoccur in 2019.

The effective income tax rate for 2020 was 22.0 % compared to a rate of 22.2 % for 2019 which represents a net decrease of 0.2 percentage points.

The effective income tax rate was lower in 2020 primarily due to increased tax benefits associated with share-based compensation and a larger income tax rate benefit from state taxes offset by a lower income tax rate benefit from federal income tax credits due primarily to higher pre-tax earnings in 2020 compared to 2019.

The effective income tax rate for 2019 was 22.2 % compared to a rate of 21.1 % for 2018 which represents a net increase of 1.1 percentage points.

The effective income tax rate was higher in 2018 primarily due to the one-time remeasurement of the deferred tax assets and liabilities at 21 % in 2017, which was offset by the reduction in the current federal tax rate from 33.7 % in 2017 to 21 % in 2018.

On December 22, 2017, the TCJA was signed into law.

Among other changes, the TCJA reduced the federal corporate tax rate to 21 % from 35 % effective January 1, 2018, including a reduction in the Company’s federal corporate tax rate for 2017 to 33.7 % as a result of the Company’s 2017 fiscal year ending approximately one month after the effective date of the TCJA.

The Company’s 2017 provision for income taxes reflected an estimate due to the changes in the federal income tax law arising from the TCJA.

The provisional tax benefit consisted of $ 310.8 million related to the one-time remeasurement of the federal portion of our deferred tax assets and liabilities at the 21 % rate and $ 24.2 million related to the reduced statutory tax rate of 33.7 %, compared to 35 % in prior years.

Subsequent to the signing of the TCJA, the Securities and Exchange Commission staff issued Staff Accounting Bulletin No.

118 (“SAB 118”), which allowed companies to record provisional amounts during a measurement period not to extend beyond one year after the enactment date while the accounting impact is still under analysis.

In 2018, the Company concluded its analysis of the accounting impact of the TCJA pursuant to SAB 118 and recorded immaterial adjustments related to its 2017 provision for income taxes.

The effective income tax rate was higher in 2019 primarily due to an increase in income taxes resulting from changes in state income tax laws and federal and state income tax benefits arising from the Tax Cuts and Jobs Act in 2018 that did not reoccur in 2019.

Deferred taxes reflect the effects of temporary differences between carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

4 unchanged sentences

Accrued expenses

Operating lease liabilities

Lease liabilities

Accrued insurance

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Tax benefit of income tax and interest reserves related to uncertain tax positions

Deferred gain on sale-leaseback

State tax net operating loss carry forwards, net of federal tax

4 unchanged sentences

Property and equipment

Operating lease assets

( 2,433,195 )

( 2,143,996 )

Prepaid insurance

1 unchanged sentence

( 3,315,747 )

( 2,915,643 )

Net deferred tax liabilities

In the year ended January 31, 2020, the Company recorded a deferred tax asset related to its operating lease liabilities and a deferred tax liability related to its operating lease assets pursuant to the adoption of a new lease accounting standard as described in Note 1 above.

The Company has state tax credit carryforwards of approximately $ 6.6 million (net of federal benefit) that will expire beginning in 2022 through 2028 and the Company has approximately $ 20.9 million of state apportioned net operating loss carryforwards, which will begin to expire in 2032 and will continue through 2039 .

The Company established a valuation allowance for the state tax credit carryforwards, in the amount of $ 4.4 million (net of federal benefit) increasing income tax expense in 2017.

In 2019, the Company updated its projections, releasing $ 0.4 million of valuation allowance (net of federal benefit), but management continues to believe that results from operations will not generate sufficient taxable income to realize the remaining state tax credits before they expire.

In 2019, the Company updated its projections, releasing $ 0.4 million of valuation allowance (net of federal benefit).

Management continues to believe that results from operations will not generate sufficient taxable income to realize the remaining state tax credits before they expire, and therefore made no adjustment to the valuation allowance in 2020.

Management believes that it is more likely than not that the Company’s results of operations and its existing deferred tax liabilities will generate sufficient taxable income to realize the remaining deferred tax assets.

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As of January 29, 2021, accruals for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $ 7.5 million, $ 0.5 million and $ 0.0 million, respectively, for a total of $ 8.0 million.

As of February 1, 2019, accruals for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $ 5.0 million, $ 0.8 million and $ 0.9 million, respectively, for a total of $ 6.7 million.

As of January 31, 2020, accruals for uncertain tax benefits, interest expense related to income taxes and

potential income tax penalties were $ 5.1 million, $ 0.4 million and $ 0.0 million, respectively, for a total of $ 5.5 million.

These totals are reflected in noncurrent Other liabilities in the consolidated balance sheets.

The Company’s reserve for uncertain tax positions is not expected to be reduced in the coming twelve months as a result of expiring statutes of limitations.

As of January 31, 2020 and February 1, 2019, approximately $ 5.1 million and $ 5.0 million, respectively, of the uncertain tax positions would impact the Company’s effective income tax rate if the Company were to recognize the tax benefit for these positions.

The Company’s reserve for uncertain tax positions is expected to be reduced by $ 3.4 million in the coming twelve months as a result of expiring statutes of limitations.

As of January 29, 2021 and January 31, 2020, approximately $ 7.5 million and $ 5.1 million, respectively, of the uncertain tax positions would impact the Company’s effective income tax rate if the Company were to recognize the tax benefit for these positions.

The amounts associated with uncertain tax positions included in income tax expense consists of the following:

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The depreciable life of leasehold improvements is limited by the expected lease term.

All of the Company’s leases are classified as operating leases and the associated assets and liabilities are presented as separate captions in the consolidated balance sheet.

At January 31, 2020, the weighted-average remaining lease term for the Company’s leases is 10.1 years, and the weighted average discount rate is 4.2 %.

For 2019, operating lease cost of $ 1.27 billion and variable lease cost of $ 0.23 billion were reflected as selling, general and administrative expenses in the consolidated statement of income.

Cash paid for amounts included in the measurement of operating lease liabilities of $ 1.28 billion was reflected in cash flows from operating activities in the consolidated statement of cash flows for 2019.

Substantially all of the Company’s leases are classified as operating leases and the associated assets and liabilities are presented as separate captions in the consolidated balance sheet.

Finance lease assets are included in net property and equipment, and finance lease liabilities are included in long-term obligations, in the consolidated balance sheet.

At January 29, 2021, the weighted-average remaining lease term for the Company’s leases was 9.9 years, and the weighted average discount rate was 3.9 %.

For 2020 and 2019, operating lease cost of $ 1.38 billion and $ 1.27 billion, respectively, were reflected as selling, general and administrative expenses in the consolidated statements of income.

Cash paid for amounts included in the measurement of operating lease liabilities of $ 1.39 billion and $ 1.28 billion, respectively, were reflected in cash flows from operating activities in the consolidated statement of cash flows for 2020 and 2019.

The scheduled maturity of the Company’s operating lease liabilities is as follows:

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a) Excludes approximately $ 0.7 billion of legally binding minimum lease payments for leases signed which have not yet commenced.

Rent expense under all operating leases prior to the adoption of new lease accounting guidance in 2019 is as follows:

(In thousands)

Minimum rentals

Contingent rentals

Rent expense under all operating leases in 2018, prior to the adoption of current lease accounting guidance, included minimum rentals of $ 1.15 billion and contingent rentals of $ 4.7 million.

Current and long-term obligations

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4.125 % Senior Notes due May 1, 2028 (net of discount of $ 383 and $ 428 )

3.500 % Senior Notes due April 3, 2030 (net of discount of $ 623 )

4.125 % Senior Notes due April 3, 2050 (net of discount of $ 4,945 )

Unsecured commercial paper notes

Debt issuance costs, net

current portion

Long-term portion

At January 29, 2021, the Company maintained a $ 1.25 billion senior unsecured revolving credit facility (the “Revolving Facility”) that provides for the issuance of letters of credit up to $ 175.0 million and is scheduled to mature on September 10, 2024.

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and incur additional subsidiary indebtedness.

The Revolving Facility also contains financial covenants which require the maintenance of a minimum fixed charge coverage ratio and a maximum leverage ratio.

The Revolving Facility also contains financial

covenants which require the maintenance of a minimum fixed charge coverage ratio and a maximum leverage ratio.

As of January 29, 2021, the Company was in compliance with all such covenants.

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On June 11, 2018, the Company voluntarily prepaid the entire $ 175.0 million outstanding balance of its senior unsecured term loan facility and recognized an associated loss of $ 1.0 million which is reflected in Other (income) expense in the consolidated statement of income for the year ended February 1, 2019.

As of January 31, 2020, the Company had no outstanding borrowings, outstanding letters of credit of $ 5.4 million, and borrowing availability of $ 1.24 billion under the Revolving Facility that, due to its intention to maintain borrowing availability related to the commercial paper program described below, could contribute incremental liquidity of $ 638.4 million.

As of January 29, 2021, the Company had no outstanding borrowings, outstanding letters of credit of $ 3.5 million, and borrowing availability of $ 1.25 billion under the Revolving Facility that, due to its intention to maintain borrowing availability related to the commercial paper program described below, could contribute incremental liquidity of $ 1.07 billion.

In addition, the Company had outstanding letters of credit of $ 77.7 million which were issued pursuant to separate agreements.

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The Company intends to maintain available commitments under the Revolving Facility in an amount at least equal to the amount of CP Notes outstanding at any time.

As of January 31, 2020, the Company’s consolidated balance sheet reflected outstanding CP notes of $ 425.2 million, which were classified as long-term obligations due to the Company’s intent and ability to refinance these obligations as long-term debt.

An additional $ 181.0 million of outstanding CP Notes were held by a wholly-owned subsidiary of the Company and are therefore not reflected on the consolidated balance sheet.

As of January 31, 2020, the outstanding CP Notes had a weighted average borrowing rate of 1.7 %.

As of January 29, 2021, the Company’s consolidated balance sheet reflected no outstanding CP Notes.

CP Notes totaling $ 181.0 million were held by a wholly-owned subsidiary of the Company and are therefore not reflected on the consolidated balance sheet.

On April 3, 2020, the Company issued $ 1.0 billion aggregate principal amount of 3.5 % senior notes due 2030 (the “2030 Senior Notes”), net of discount of $ 0.7 million, and $ 500.0 million aggregate principal amount of 4.125 % senior notes due 2050 (the “2050 Senior Notes”), net of discount of $ 5.0 million.

The 2030 Senior Notes are scheduled to mature on April 3, 2030 and the 2050 Senior Notes are scheduled to mature on April 3, 2050.

Interest on the 2030 Senior Notes and the 2050 Senior Notes is payable in cash on April 3 and October 3 of each year.

The Company incurred $ 13.6 million of debt issuance costs associated with the issuance of the 2030 Senior Notes and the 2050 Senior Notes.

On April 10, 2018, the Company issued $ 500.0 million aggregate principal amount of 4.125 % senior notes due 2028 (the “2028 Senior Notes”), net of discount of $ 0.5 million, which are scheduled to mature on May 1, 2028.

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The Company funded the redemption price for the 2018 Senior Notes with proceeds from the issuance of the 2028 Senior Notes.

On April 11, 2017, the Company issued $ 600.0 million aggregate principal amount of 3.875 % senior notes due 2027 (the “2027 Senior Notes”), at a discount of $ 0.4 million, which are scheduled to mature on April 15, 2027.

Interest on the 2027 Senior Notes is payable in cash on April 15 and October 15 of each year.

The Company incurred $ 5.2 million of debt issuance costs associated with the issuance of the 2027 Senior Notes.

On April 27, 2017, the Company redeemed $ 500.0 million aggregate principal amount of outstanding 4.125 % senior notes due 2017 (the “2017 Senior Notes”), resulting in a pretax loss of $ 3.4 million which is reflected in Other (income) expense in the consolidated statement of income for the year ended February 2, 2018.

Collectively, the 2028 Senior Notes, the 2027 Senior Notes and the Company’s other Senior Notes due 2023 and 2025 as reflected in the table above comprise the “Senior Notes”, each of which were issued pursuant to an indenture as supplemented and amended by supplemental indentures relating to each series of Senior Notes (as so supplemented and amended, the “Senior Indenture”).

Collectively, the Company’s Senior Notes due 2023, 2025, 2027, 2028, 2030 and 2050 comprise the “Senior Notes”, each of which were issued pursuant to an indenture as supplemented and amended by supplemental indentures relating to each series of Senior Notes (as so supplemented and amended, the “Senior Indenture”).

The Company may redeem some or all of its Senior Notes at any time at redemption prices set forth in the Senior Indenture.

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Deferred compensation (b)

(a) Included in the consolidated balance sheet at book value as Current portion of long-term obligations of $ 555 and Long-term obligations of $ 2,911,438 .

(a) Included in the consolidated balance sheet at book value as Long-term obligations of $ 4,130,975 .

(b) Reflected at fair value in the consolidated balance sheet as a component of Accrued expenses and other current liabilities of $ 2,654 and a component of noncurrent Other liabilities of $ 32,146 .

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For some matters, a liability is not probable or the amount cannot be reasonably estimated and therefore an accrual has not been made.

In 2019, the Company recorded an accrual of $ 31.0 million for losses the Company believes are both probable and reasonably estimable relating to certified class actions and associated matters, including certain wage and hour litigation as well as the matters discussed below under Consumer/Product Litigation.

In 2019, the Company recorded an accrual of $ 31.0 million for losses the Company believes are both probable and reasonably estimable relating to certified class actions and associated matters, including the matters discussed below under Consumer/Product Litigation.

Except as described below and based on information currently available, the Company believes that its pending legal matters, both individually and in the aggregate, will be resolved without a material adverse effect on the Company’s consolidated financial statements as a whole.

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In December 2015 the Company was first notified of several lawsuits in which plaintiffs allege violation of state law, including state consumer protection laws, relating to the labeling, marketing and sale of certain Dollar General private-label motor oil.

Each of these lawsuits, as well as additional, similar lawsuits filed after December 2015, was filed in, or removed to, various federal district courts of the United States (collectively “Motor Oil Lawsuits”).

Each of these lawsuits, as well as additional, similar lawsuits filed after December

2015, was filed in, or removed to, various federal district courts of the United States (collectively “Motor Oil Lawsuits”).

On June 2, 2016, the Motor Oil Lawsuits were centralized in a matter styled In re Dollar General Corp.

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compensatory damages, injunctive relief, statutory damages, punitive damages and attorneys’ fees.

The Company’s motion to dismiss the allegations raised in the consolidated amended complaint was granted in part and denied in part on August 3, 2017.

To the extent additional consumer lawsuits alleging violation of laws relating to the labeling, marketing and sale of Dollar General private-label motor oil have been or will be filed, the Company expects that such lawsuits will be transferred to the Motor Oil MDL.

On August 20, 2018, plaintiffs in the Motor Oil MDL moved to certify two nationwide classes relating to their claims of alleged unjust enrichment and breach of implied warranties.

In addition, plaintiffs moved to certify a multi-state class relating to their claims of breach of implied warranties and multiple statewide classes relating to alleged unfair trade practices/consumer fraud, unjust enrichment and breach of implied warranty claims.

The Company opposed the plaintiffs’ certification motion.

On March 21, 2019, the court granted the plaintiffs’ certification motion as to 16 statewide classes regarding claims of unjust enrichment and 16 statewide classes regarding state consumer protection laws.

Subsequently, the court certified an additional class, bringing the total to 17 statewide classes.

The court denied plaintiffs’ certification motion in all other respects.

On June 25, 2019, the United States Court of Appeals for the Eighth Circuit granted the Company’s Petition to Appeal the lower court’s certification rulings.

The Company’s appeal remains pending.

The parties have reached an agreement, which was submitted to the court for preliminary approval on February 5, 2021, to resolve the Motor Oil MDL for an amount that is immaterial to the Company’s consolidated financial statements as a whole.

The final fairness hearing is scheduled for June 22, 2021.

At this time, although probable, it is not certain that the court will grant final approval to the settlement.

In May 2017, the Company received a Notice of Proposed Action from the Office of the New Mexico Attorney General (the “New Mexico AG”) which alleges that the Company’s labeling, marketing and sale of certain Dollar General private-label motor oil violated New Mexico law (the “New Mexico Motor Oil Matter”).

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D-101-cv-2017-01562).

The Company’s motion to dismiss the action is pending.

On September 1, 2017, the Mississippi Attorney General (the “Mississippi AG”), who also is represented by the counsel for plaintiffs in the Motor Oil MDL, filed an action in the Chancery Court of the First Judicial District of Hinds County, Mississippi alleging that the Company’s labeling, marketing and sale of certain Dollar

General private-label motor oil violated Mississippi law.

The parties have reached an agreement in principle to resolve the New Mexico Motor Oil Matter for an amount that is immaterial to the Company’s consolidated financial statements as a whole.

( Jim Hood v.

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and Dolgencorp, LLC , Case No.

On February 7, 2020, the Company reached an agreement with the Louisiana AG to resolve this matter for an amount that is immaterial to the Company’s consolidated financial statements as a whole.

On August 20, 2018, plaintiffs moved to certify two nationwide classes relating to their claims of alleged unjust enrichment and breach of implied warranties.

The Company opposed the plaintiffs’ certification motion.

Subsequently, the court certified an additional class, bringing the total to 17 statewide classes.

The court denied plaintiffs’ certification motion in all other respects.

On June 25, 2019, the United States Court of Appeals for the Eighth Circuit granted the Company’s Petition to Appeal the lower court’s certification rulings.

The Company’s appeal is pending.

On February 7, 2020, the Company reached an agreement with the Louisiana

AG to resolve this matter for an amount that is immaterial to the Company’s consolidated financial statements as a whole.

The Company is vigorously defending these matters and believes that the labeling, marketing and sale of its private-label motor oil comply with applicable federal and state requirements and are not misleading.

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Likewise, except as to the Louisiana Motor Oil Matter, no assurances can be given that the Company will be successful in its defense of these matters on the merits or otherwise.

Based on its belief that a loss in these matters is both probable and reasonably estimable, during 2019, the Company recorded an accrual for an amount that is immaterial to the Company’s consolidated financial statements as a whole.

Based on its belief that a loss in these matters is both probable and reasonably estimable, as noted above, during 2019, the Company recorded an accrual for an amount that is immaterial to the Company’s consolidated financial statements as a whole.

Benefit plans

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The Company also has a compensation deferral plan (“CDP”) and a nonqualified supplemental retirement plan (“SERP”), known as the Dollar General Corporation CDP/SERP Plan, for a select group of management and other key employees.

The Company incurred compensation expense for these plans of approximately $ 0.8 million in 2019, and $ 0.7 million in each of 2018 and 2017, respectively.

The Company incurred compensation expense for these plans of approximately $ 0.9 million in 2020, $ 0.8 million in 2019 and $ 0.7 million in 2018.

The deferred compensation liability associated with the CDP/SERP Plan is reflected in the consolidated balance sheets as further disclosed in Note 6.

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Forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period.

On July 6, 2007, the Company’s Board of Directors adopted the 2007 Stock Incentive Plan, which plan was subsequently amended and restated on several occasions (as so amended and restated, the “Plan”).

On July 6, 2007, the Company’s Board of Directors adopted the 2007 Stock Incentive Plan, which was subsequently amended and restated on several occasions (as so amended and restated, the “Plan”).

The Plan allows the granting of stock options, stock appreciation rights, and other stock-based awards or dividend equivalent rights to key employees, directors, consultants or other persons having a service relationship with the Company, its subsidiaries and certain of its affiliates.

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With limited exceptions, the performance share unit and restricted stock unit awards are payable in shares of common stock on the vesting date.

The weighted average for key assumptions used in determining the fair value of all stock options granted in the years ended January 31, 2020, February 1, 2019, and February 2, 2018, and a summary of the methodology applied to develop each assumption, are as follows:

The weighted average for key assumptions used in determining the fair value of all stock options granted in the years ended January 29, 2021, January 31, 2020, and February 1, 2019, and a summary of the methodology applied to develop each assumption, are as follows:

Expected dividend yield

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Term in Years

Balance, February 1, 2019

Balance, January 31, 2020

Balance, January 29, 2021

Exercisable at January 29, 2021

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(Intrinsic value amounts reflected in thousands)

Balance, February 1, 2019

Balance, January 31, 2020

Converted to common stock

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(Intrinsic value amounts reflected in thousands)

Balance, February 1, 2019

Balance, January 31, 2020

Converted to common stock

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Year ended January 29, 2021

Year ended February 1, 2019

Year ended January 31, 2020

Year ended February 1, 2019

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See Note 1 for a brief description of the Company’s business.

As of January 31, 2020, all of the Company’s operations were located within the United States with the exception of certain subsidiaries in Hong Kong and China, which collectively are not material with regard to assets, results of operations or otherwise, to the consolidated financial statements.

As of January 29, 2021, all of the Company’s operations were located within the United States with the exception of certain product sourcing operations, which collectively are not material with regard to assets, results of operations or otherwise to the consolidated financial statements.

The following net sales data is presented in accordance with accounting standards related to disclosures about segments of an enterprise.

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On August 29, 2012, the Company’s Board of Directors authorized a common stock repurchase program, which the Board has since increased on several occasions.

On December 3, 2019, the Company’s Board of Directors authorized a $ 1.0 billion increase to the existing common stock repurchase program and a cumulative total of $ 8.0 billion has been authorized under the program since its inception.

The repurchase authorization has no expiration date and allows repurchases from time to time in the open market or in privately negotiated transactions.

The timing and number of shares purchased depends on a variety of factors, such as price, market conditions, compliance with the covenants and restrictions under the Company’s debt agreements and other factors.

On March 17, 2021, the Company’s Board of Directors authorized a $ 2.0 billion increase to the existing common stock repurchase program, bringing the cumulative total authorized under the program since its inception to $ 12.0 billion.

The repurchase authorization has no expiration date and allows repurchases from time to time in open market transactions, including pursuant to trading plans adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, or in privately

negotiated transactions.

The timing, manner and number of shares repurchased will depend on a variety of factors, including price, market conditions, compliance with the covenants and restrictions under the Company’s debt agreements and other factors.

Repurchases under the program may be funded from available cash or borrowings including under the Company’s Revolving Facility and issuance of CP Notes discussed in further detail in Note 5.

During the years ended January 31, 2020, February 1, 2019, and February 2, 2018, the Company repurchased approximately 8.3 million shares of its common stock at a total cost of $ 1.2 billion, approximately 9.9 million shares of its common stock at a total cost of $ 1.0 billion, and approximately 7.1 million shares of its common stock at a total cost of $ 0.6 billion, respectively, pursuant to its common stock repurchase program.

During the years ended January 29, 2021, January 31, 2020, and February 1, 2019, the Company repurchased approximately 12.3 million shares of its common stock at a total cost of $ 2.5 billion, approximately 8.3 million shares of its common stock at a total cost of $ 1.2 billion, and approximately 9.9 million shares of its common stock at a total cost of $ 1.0 billion, respectively, pursuant to its common stock repurchase program.

The Company paid quarterly cash dividends of $ 0.36 per share in 2020.

On March 16, 2021, the Company’s Board of Directors declared a quarterly cash dividend of $ 0.42 per share, which is payable on or before April 20, 2021 to shareholders of record on April 6, 2021.

The amount and declaration of future cash dividends is subject to the sole discretion of the Company’s Board of Directors and will depend upon, among

other things, the Company’s results of operations, cash requirements, financial condition, contractual restrictions and other factors that the Board may deem relevant in its sole discretion.

The amount and declaration of future cash dividends is subject to the sole discretion of the Company’s Board of Directors and will depend upon, among other things, the Company’s results of operations, cash requirements, financial condition, contractual restrictions and other factors that the Board may deem relevant in its sole discretion.

Quarterly financial data (unaudited)

The following is selected unaudited quarterly financial data for the fiscal years ended January 31, 2020 and February 1, 2019.

The following is selected unaudited quarterly financial data for the fiscal years ended January 29, 2021 and January 31, 2020.

Each quarterly period listed below was a 13 -week accounting period.

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Diluted earnings per share

Approximately midway into the first quarter of 2020, the Company began seeing heightened demand from customers, particularly for consumable products, which continued in varying degrees throughout the balance of the year.

As the first quarter of 2020 progressed, the Company experienced a significant increase in demand in many non-consumable products.

This increased overall customer demand significantly benefited the Company’s results of operations, and in particular, net sales, gross profit, operating income and net income for each quarter of fiscal 2020.

Although the Company incurred additional payroll related expenses, increased distribution and transportation costs, as well as other costs throughout fiscal 2020 to meet the significant customer demand and to protect the health and safety of employees and customers, these costs were more than offset by the incremental sales.

In the second quarter of 2019, the Company incurred expenses for losses the Company believes are both probable and reasonably estimable relating to certified class actions and associated legal matters totaling $ 31.0 million ($ 24.1 million net of tax, or $ 0.09 per diluted share), which was recognized in Selling, general and administrative expense in the second quarter of 2019.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data