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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended January 29, 2016

Commission file number: 001-11421

DOLLAR GENERAL CORPORATION
(Exact name of registrant as specified in its charter)

TENNESSEE
(State or other jurisdiction of
incorporation or organization)

  61-0502302
(I.R.S. Employer
Identification No.)

100 MISSION RIDGE
GOODLETTSVILLE, TN 37072

(Address of principal executive offices, zip code)

Registrant's telephone number, including area code: (615) 855-4000

         Securities registered pursuant to Section 12(b) of the Act:

Title of each class   Name of the exchange on which registered
Common Stock, par value $0.875 per share   New York Stock Exchange

         Securities registered pursuant to Section 12(g) of the Act: None

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  ý     No  o

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes  o     No  ý

         Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ý     No  o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ý     No  o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ý   Accelerated filer  o   Non-accelerated filer  o   Smaller reporting company  o

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o     No  ý

         The aggregate fair market value of the registrant's common stock outstanding and held by non-affiliates as of July 31, 2015 was $23.66 billion calculated using the closing market price of our common stock as reported on the NYSE on such date ($80.37). For this purpose, directors, executive officers and greater than 10% record shareholders are considered the affiliates of the registrant.

         The registrant had 286,468,872 shares of common stock outstanding as of March 15, 2016.

DOCUMENTS INCORPORATED BY REFERENCE

         Certain of the information required in Part III of this Form 10-K is incorporated by reference to the Registrant's definitive proxy statement to be filed for the Annual Meeting of Shareholders to be held on May 25, 2016.

   



INTRODUCTION

General

        This report contains references to years 2016, 2015, 2014, 2013, 2012, and 2011, which represent fiscal years ending or ended February 3, 2017, January 29, 2016, January 30, 2015, January 31, 2014, February 1, 2013, and February 3, 2012, respectively. Our fiscal year ends on the Friday closest to January 31. 2016 will consist and 2011 consisted of 53 weeks, while each of the remaining years listed were 52-week years. All of the discussion and analysis in this report should be read with, and is qualified in its entirety by, the Consolidated Financial Statements and related notes.

        Solely for convenience, our trademarks and tradenames may appear in this report without the ® or ™ symbol which is not intended to indicate that we will not assert, to the fullest extent under applicable law, our rights or the right to these trademarks and tradenames.

Cautionary Disclosure Regarding Forward-Looking Statements

        We include "forward-looking statements" within the meaning of the federal securities laws throughout this report, particularly under the headings "Business," "Management's Discussion and Analysis of Financial Condition and Results of Operations," and "Note 8—Commitments and Contingencies," among others. You can identify these statements because they are not limited to historical fact or they use words such as "may," "will," "should," "could," "would," "believe," "anticipate," "project," "plan," "expect," "estimate," "forecast," "goal," "potential," "opportunity," "intend," "predict," "committed," "will likely result," or "will continue" and similar expressions that concern our strategy, plans, intentions or beliefs about future occurrences or results. For example, all statements relating to our estimated and projected expenditures, cash flows, results of operations, financial condition and liquidity; our plans, objectives and expectations for future operations, growth or initiatives; or the expected outcome or effect of legislative or regulatory changes or initiatives, pending or threatened litigation or audits are forward-looking statements.

        All forward-looking statements are subject to risks and uncertainties that may change at any time, so our actual results may differ materially from those that we expected. We derive many of these statements from our operating budgets and forecasts, which are based on many detailed assumptions that we believe are reasonable. However, it is very difficult to predict the effect of known factors, and we cannot anticipate all factors that could affect our actual results.

        Important factors that could cause actual results to differ materially from the expectations expressed in our forward-looking statements are disclosed under "Risk Factors" in Part I, Item 1A and elsewhere in this document (including, without limitation, in conjunction with the forward-looking statements themselves and under the heading "Critical Accounting Policies and Estimates"). All forward-looking statements are qualified in their entirety by these and other cautionary statements that we make from time to time in our other SEC filings and public communications. You should evaluate such statements in the context of these risks and uncertainties. These factors may not contain all of the factors that are important to you. We cannot assure you that we will realize the results or developments we anticipate or, even if substantially realized, that they will result in the consequences or affect us in the way we expect. Forward-looking statements are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

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PART I

ITEM 1.    BUSINESS

General

        We are among the largest discount retailers in the United States by number of stores, with 12,575 stores located in 43 states as of February 26, 2016, with the greatest concentration of stores in the southern, southwestern, midwestern and eastern United States. We offer a broad selection of merchandise, including consumables, seasonal, home products and apparel. Our merchandise includes high quality national brands from leading manufacturers, as well as comparable quality private brand selections with prices at substantial discounts to national brands. We offer our merchandise at everyday low prices through our convenient small-box locations.

Our History

        J.L. Turner founded our Company in 1939 as J.L. Turner and Son, Wholesale. We were incorporated as a Kentucky corporation under the name J.L. Turner & Son, Inc. in 1955, when we opened our first Dollar General store. We changed our name to Dollar General Corporation in 1968 and reincorporated in 1998 as a Tennessee corporation. Our common stock was publicly traded from 1968 until July 2007, when we merged with an entity controlled by investment funds affiliated with Kohlberg Kravis Roberts & Co. L.P., or KKR. In November 2009 our common stock again became publicly traded, and in December 2013 the entity controlled by investment funds affiliated with KKR sold its remaining shares of our common stock.

Our Business Model

        Our long history of profitable growth is founded on a commitment to a relatively simple business model: providing a broad base of customers with their basic everyday and household needs, supplemented with a variety of general merchandise items, at everyday low prices in conveniently located, small-box stores. We continually evaluate the needs and demands of our customers and modify our merchandise selections and pricing accordingly, while remaining focused on increasing profitability and returns for our shareholders.

        Our operating priorities are summarized as follows: 1) driving profitable sales growth, 2) capturing growth opportunities, 3) enhancing our position as a low-cost operator, and 4) investing in our people as a competitive advantage. For more information on these operating priorities, see Management's Discussion and Analysis of Financial Condition and Results of Operations, under the heading "Executive Overview", included in Part II, Item 7 of this report.

        In fiscal year 2015, we achieved our 26 th  consecutive year of same-store sales growth. This growth, which has taken place in a variety of economic conditions, suggests that we have a less cyclical business model than most retailers and, we believe, is a result of our compelling value and convenience proposition.

        Compelling Value and Convenience Proposition.     Our ability to deliver highly competitive prices in convenient locations and our easy "in and out" shopping format create a compelling shopping experience that distinguishes us from other discount retailers as well as convenience, drug and grocery retailers. Our slogan "Save time. Save money. Every day!" summarizes our appeal to customers. We believe our ability to effectively deliver both value and convenience allows us to succeed in small markets with limited shopping alternatives, as well as to profitably coexist alongside larger retailers in

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more competitive markets. Our value and convenience proposition is evidenced by the following attributes of our business model:

    Convenient Locations.   Our stores are conveniently located in a variety of rural, suburban and urban communities. We seek to locate our stores in close proximity to our customers, which drives customer loyalty and trip frequency and makes us an attractive alternative to large discount and other large-box retail and grocery stores.

    Time-Saving Shopping Experience.   We also provide customers with a highly convenient, easy to navigate shopping experience. Our small box stores are easy to get in and out of quickly. Our product offering includes most necessities, such as basic packaged and refrigerated food and dairy products, cleaning supplies, paper products, health and beauty care items, greeting cards, basic apparel, housewares, hardware and automotive supplies, among others. Our convenient hours and broad merchandise offering allow our customers to fulfill their routine shopping requirements and minimize their need to shop elsewhere.

    Everyday Low Prices on Quality Merchandise.   Our research indicates that we offer a price advantage over most food and drug retailers and that our prices are highly competitive with even the largest discount retailers. Our ability to offer everyday low prices on quality merchandise is supported by our low-cost operating structure and our strategy to maintain a limited number of items per merchandise category, which we believe helps us maintain strong purchasing power. We offer quality nationally advertised brands at these everyday low prices in addition to offering our own comparable quality private brands at value prices.

        Substantial Growth Opportunities.     We believe we have substantial long-term growth potential in the U.S. We have identified significant opportunities to add new stores in both existing and new markets. In addition, we have opportunities to relocate or remodel locations within our existing store base to better serve our customers. Our attractive store economics, including a relatively low initial investment and simple, low-cost operating model have allowed us to grow our store base to current levels and provide us significant opportunities to continue our profitable store growth strategy.

Our Merchandise

        We offer a focused assortment of everyday necessities, which drive frequent customer visits, and key items in a broad range of general merchandise categories. Our product assortment provides the opportunity for our customers to address most of their basic shopping needs with one trip. We sell high-quality nationally advertised brands from leading manufacturers. Additionally, our private brand consumables offer even greater value with options to purchase value items and national brand equivalent products at substantial discounts to the national brand.

        Consumables is our largest merchandise category and has become a larger percentage of our total sales in recent years as indicated in the table below. Consumables include paper and cleaning products (such as paper towels, bath tissue, paper dinnerware, trash and storage bags, laundry and other home cleaning supplies); packaged food (such as cereals, canned soups and vegetables, condiments, spices, sugar and flour); perishables (such as milk, eggs, bread, frozen meals, beer and wine); snacks (such as candy, cookies, crackers, salty snacks and carbonated beverages); health and beauty (such as over-the-counter medicines and personal care products, such as soap, body wash, shampoo, dental hygiene and foot care products); pet (such as pet supplies and pet food); and tobacco products.

        Seasonal products include decorations, toys, batteries, small electronics, greeting cards, stationery, prepaid phones and accessories, gardening supplies, hardware, automotive and home office supplies.

        Home products include kitchen supplies, cookware, small appliances, light bulbs, storage containers, frames, candles, craft supplies and kitchen, bed and bath soft goods.

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        Apparel includes casual everyday apparel for infants, toddlers, girls, boys, women and men, as well as socks, underwear, disposable diapers, shoes and accessories.

        The percentage of net sales of each of our four categories of merchandise for the fiscal years indicated below was as follows:

 
  2015   2014   2013  

Consumables

    75.9 %   75.7 %   75.2 %

Seasonal

    12.4 %   12.4 %   12.9 %

Home products

    6.3 %   6.4 %   6.4 %

Apparel

    5.4 %   5.5 %   5.5 %

        Our seasonal and home products categories typically account for the highest gross profit margins, and the consumables category typically accounts for the lowest gross profit margin.

The Dollar General Store

        The typical Dollar General store is operated by a store manager, one or more assistant store managers, and three or more sales associates. Our stores generally feature a low-cost, no frills building with limited maintenance capital, low operating costs, and a focused merchandise offering within a broad range of categories, allowing us to deliver low retail prices while generating strong cash flows and investment returns. Our stores average approximately 7,400 square feet of selling space and approximately 70% of our stores are located in towns of 20,000 or fewer people. We generally have had good success in locating suitable store sites in the past, and we believe that there is ample opportunity for new store growth in existing and new markets. In addition, we believe we have significant opportunities available for our relocation and remodel programs.

        Our store growth over the past three years is summarized in the following table:

Year
  Stores at
Beginning
of Year
  Stores
Opened
  Stores
Closed
  Net
Store
Increase
  Stores at
End of Year
 
2013     10,506     650     24     626     11,132  
2014     11,132     700     43     657     11,789  
2015     11,789     730     36     694     12,483  

Our Customers

        Our customers seek value and convenience. Depending on their financial situation and geographic proximity, customers' reliance on Dollar General varies from fill-in shopping, to making periodic trips to stock up on household items, to making weekly or more frequent trips to meet most essential needs. We generally locate our stores and plan our merchandise selections to best serve the needs of our core customers, the low and fixed income households often underserved by other retailers, and we are focused on helping them make the most of their spending dollars. At the same time, however, loyal Dollar General shoppers from a wide range of income brackets and life stages appreciate our quality merchandise as well as our attractive value and convenience proposition.

Our Suppliers

        We purchase merchandise from a wide variety of suppliers and maintain direct buying relationships with many producers of national brand merchandise. Despite our broad offering, we maintain only a limited number of items per category, giving us a pricing advantage in dealing with our suppliers. Our largest and second largest suppliers each accounted for approximately 7% of our purchases in 2015.

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Our private brands come from a diversified supplier base. We directly imported approximately 6% of our purchases at cost in 2015.

        We have consistently managed to obtain sufficient quantities of core merchandise and believe that, if one or more of our current sources of supply became unavailable, we would generally be able to obtain alternative sources without experiencing a substantial disruption of our business. However, such alternative sources could increase our merchandise costs or reduce the quality of our merchandise, and an inability to obtain alternative sources could adversely affect our sales.

Distribution and Transportation

        Our stores are currently supported by thirteen distribution centers located strategically throughout our geographic footprint. We recently broke ground on our fourteenth distribution center in Wisconsin. We lease additional temporary warehouse space as necessary to support our distribution needs. We continually analyze and rebalance the network to ensure that it remains efficient and provides the service our stores require. See "—Properties" for additional information pertaining to our distribution centers.

        Most of our merchandise flows through our distribution centers and is delivered to our stores by third-party trucking firms, utilizing our trailers. In addition, vendors or third-party distributors ship certain food items and other merchandise directly to our stores.

Seasonality

        Our business is seasonal to a certain extent. Generally, our highest sales volume occurs in the fourth quarter, which includes the Christmas selling season, and the lowest occurs in the first quarter. In addition, our quarterly results can be affected by the timing of certain holidays, the timing of new store openings and store closings, and the amount of sales contributed by new and existing stores. We typically purchase substantial amounts of inventory in the third quarter and incur higher shipping and payroll costs in anticipation of increased sales activity during the fourth quarter. See Note 14 to the consolidated financial statements for additional information.

Our Competition

        We operate in the basic discount consumer goods market, which is highly competitive with respect to price, store location, merchandise quality, assortment and presentation, in-stock consistency, and customer service. We compete with discount stores and with many other retailers, including mass merchandise, warehouse club, grocery, drug, convenience, variety and other specialty stores. These other retail companies operate stores in many of the areas where we operate, and many of them engage in extensive advertising and marketing efforts. Our direct competitors include Family Dollar, Dollar Tree, Fred's, 99 Cents Only and various local, independent operators, as well as Walmart, Target, Kroger, Aldi, Walgreens, CVS, and Rite Aid, among others. Certain of our competitors have greater financial, distribution, marketing and other resources than we do.

        We differentiate ourselves from other forms of retailing by offering consistently low prices in a convenient, small-store format. We believe that our prices are competitive due in part to our low-cost operating structure and the relatively limited assortment of products offered. Purchasing large volumes of merchandise within our focused assortment in each merchandise category allows us to keep our average costs low, contributing to our ability to offer competitive everyday low prices to our customers. See "—Our Business Model" above for further discussion of our competitive situation.

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Our Employees

        As of February 26, 2016, we employed approximately 113,400 full-time and part-time employees, including divisional and regional managers, district managers, store managers, other store personnel and distribution center and administrative personnel. We have increasingly focused on recruiting, training, motivating and retaining employees, and we believe that the quality, performance and morale of our employees have increased as a result. We currently are not a party to any collective bargaining agreements.

Our Trademarks

        We own marks that are registered with the United States Patent and Trademark Office and are protected under applicable intellectual property laws, including without limitation the trademarks Dollar General®, Dollar General Market®, Clover Valley®, DG®, DG Deals®, Forever Pals®, I*Magine®, OT Sport®, Smart & Simple®, trueliving®, Sweet Smiles®, Open Trails®, Bobbie Brooks®, Comfort Bay®, Holiday Style®, Swiggles®, More Deals For Your Dollar. Every Day!®, The Fast Way To Save®, Save Time. Save Money. Every Day!®, and Ever Pet TM along with variations and formatives of these trademarks as well as certain other trademarks. We attempt to obtain registration of our trademarks whenever practicable and to pursue vigorously any infringement of those marks. Our trademark registrations have various expiration dates; however, assuming that the trademark registrations are properly renewed, they have a perpetual duration.

        We also hold an exclusive license to the Rexall brand through March 5, 2020.

Available Information

        Our Internet website address is www.dollargeneral.com. We file with or furnish to the Securities and Exchange Commission (the "SEC") annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, proxy statements and annual reports to shareholders, and, from time to time, registration statements and other documents. These documents are available free of charge to investors on or through the Investor Information section of our website as soon as reasonably practicable after we electronically file them with or furnish them to the SEC. In addition, the public may read and copy any of the materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE, Washington DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers, such as Dollar General, that file electronically with the SEC. The address of that website is http://www.sec.gov.

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ITEM 1A.    RISK FACTORS

        You should carefully consider the risks described below and the other information contained in this report and other filings that we make from time to time with the SEC, including our consolidated financial statements and accompanying notes. Any of the following risks could materially and adversely affect our business, financial condition, results of operations or liquidity. These risks are not the only risks we face. Our business, financial condition, results of operations or liquidity could also be adversely affected by additional factors that apply to all companies generally or by risks not currently known to us or that we currently view to be immaterial. We can provide no assurance and make no representation that our risk mitigation efforts, although we believe they are reasonable, will be successful.

         Economic conditions and other economic factors may adversely affect our financial performance and other aspects of our business by negatively impacting our customers' disposable income or discretionary spending, increasing our costs of goods sold and selling, general and administrative expenses, and adversely affecting our sales or profitability.

        We believe many of our customers have fixed or low incomes and generally have limited discretionary spending dollars. Any factor that could adversely affect that disposable income would decrease our customers' spending and could cause our customers to shift their spending to products other than those sold by us or to our less profitable product choices, all of which could result in lower net sales, decreases in inventory turnover, greater markdowns on inventory, a change in the mix of products we sell, and a reduction in profitability due to lower margins. Factors that could reduce our customers' disposable income and over which we exercise no influence include but are not limited to adverse economic conditions such as increased or sustained high unemployment or underemployment levels, inflation, increases in fuel or other energy costs and interest rates, lack of available credit, consumer debt levels, higher tax rates and other changes in tax laws, concerns over government mandated participation in health insurance programs and increasing healthcare costs, and decreases in government subsidies such as unemployment and food assistance programs.

        Many of the factors identified above that affect disposable income, as well as commodity rates, transportation costs (including the costs of diesel fuel), costs of labor, insurance and healthcare, foreign exchange rate fluctuations, lease costs, measures that create barriers to or increase the costs associated with international trade, changes in other laws and regulations and other economic factors, also affect our cost of goods sold and our selling, general and administrative expenses, and may have other adverse consequences which we are unable to fully anticipate or control, all of which may adversely affect our sales or profitability. We have limited or no ability to control many of these factors.

         Our plans depend significantly on strategies and initiatives designed to increase sales and improve the efficiencies, costs and effectiveness of our operations, and failure to achieve or sustain these plans could affect our performance adversely.

        We have strategies and initiatives (such as those relating to merchandising, sourcing, shrink, private brand, distribution and transportation, store operations, store formats, budgeting and expense reduction, and real estate) in various stages of testing, evaluation, and implementation, upon which we expect to rely to continue to improve our results of operations and financial condition and to achieve our financial plans. These initiatives are inherently risky and uncertain, even when tested successfully, in their application to our business in general. It is possible that successful testing can result partially from resources and attention that cannot be duplicated in broader implementation, particularly in light of the diverse geographic locations of our stores and the decentralized nature of our field management. General implementation also may be negatively affected by other risk factors described herein. Successful systemwide implementation relies on consistency of training, stability of workforce, ease of execution, and the absence of offsetting factors that can influence results adversely. Failure to achieve

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successful implementation of our initiatives or the cost of these initiatives exceeding management's estimates could adversely affect our business, results of operations and financial condition.

        The success of our merchandising initiatives, particularly those with respect to non-consumable merchandise and store-specific products and allocations, depends in part upon our ability to predict consistently and successfully the products that our customers will demand and to identify and timely respond to evolving trends in demographics and consumer preferences, expectations and needs. If we are unable to select products that are attractive to customers, to timely obtain such products at costs that allow us to sell them at an acceptable profit, or to effectively market such products, our sales, market share and profitability could be adversely affected. If our merchandising efforts in the non-consumables area or the higher margin areas within consumables are unsuccessful, we could be further adversely affected by our inability to offset the lower margins associated with our consumables business. Further, our merchandising efforts in the consumables area, including tobacco products, may not generate the net sales growth and increase customer traffic to the levels needed to offset the lower margins generated by sales of consumables and maintain our targeted gross profit margins.

         If we cannot open, relocate or remodel stores profitably and on schedule, our planned future growth will be impeded, which would adversely affect sales.

        Our ability to open, relocate and remodel profitable stores is a key component of our planned future growth. Our ability to timely open stores and to expand into additional market areas depends in part on the following factors: the availability of attractive store locations; the absence of entitlement process or occupancy delays; the ability to negotiate acceptable lease and development terms; the ability to hire and train new personnel, especially store managers, in a cost effective manner; the ability to identify customer demand in different geographic areas; general economic conditions; and the availability of capital funding for expansion. Many of these factors also affect our ability to successfully relocate stores, and many of them are beyond our control.

        Delays or failures in opening new stores or completing relocations or remodels, or achieving lower than expected sales in these projects, could materially adversely affect our growth and/or profitability. We also may not anticipate all of the challenges imposed by the expansion of our operations and, as a result, may not meet our targets for opening new stores, remodeling or relocating stores or expanding profitably.

        Some new stores and future new store opportunities may be located in areas, including but not limited to new states or metro urban areas, where we have limited or no meaningful experience or brand recognition. Those areas may have different competitive and market conditions, consumer tastes and discretionary spending patterns than our existing markets, as well as higher cost of entry. These factors may cause our new stores to be initially less successful than stores in our existing markets, which could slow future growth in these areas.

        Many new stores will be located in areas where we have existing stores. Although we have experience in these areas, increasing the number of locations in these markets may result in inadvertent oversaturation and temporarily or permanently divert customers and sales from our existing stores, thereby adversely affecting our overall financial performance.

         Our profitability may be negatively affected by inventory shrinkage.

        We are subject to the risk of inventory loss and theft. We experience significant inventory shrinkage and cannot be sure that incidences of inventory loss and theft will decrease in the future or that the measures we are taking will effectively reduce the problem of inventory shrinkage. Although some level of inventory shrinkage is an unavoidable cost of doing business, if we were to experience higher rates of inventory shrinkage or incur increased security or other costs to combat inventory theft, our results of operations and financial condition could be affected adversely.

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         We face intense competition that could limit our growth opportunities and adversely impact our financial performance.

        The retail business is highly competitive with respect to price, store location, merchandise quality, assortment and presentation, in-stock consistency, customer service, aggressive promotional activity, customers, and employees. We compete with discount stores and with many other retailers, including mass merchandise, warehouse club, grocery, drug, convenience, variety and other specialty stores. This competitive environment subjects us to the risk of adverse impact to our financial performance because of the lower prices, and thus the lower margins, that may be required to maintain our competitive position. Also, companies like ours, due to customer demographics and other factors, may have limited ability to increase prices in response to increased costs without losing competitive position. This limitation may adversely affect our margins and financial performance. Certain of our competitors have greater financial, distribution, marketing and other resources than we do and may be able to secure better arrangements with suppliers than we can. If we fail to respond effectively to competitive pressures and changes in the retail markets, it could adversely affect our financial performance.

        Competition for customers has intensified as competitors have moved into, or increased their presence in, our geographic markets and from the use of mobile and web-based technology that facilitates online shopping and real-time product and price comparisons. We expect this competition to continue to increase. We remain vulnerable to the marketing power and high level of consumer recognition of larger competitors and to the risk that these competitors or others could venture into our industry in a significant way, including through the introduction of new store formats. Further, consolidation within the discount retail industry could significantly alter the competitive dynamics of the retail marketplace. This consolidation may result in competitors with greatly improved financial resources, improved access to merchandise, greater market penetration and other improvements in their competitive positions, as well as result in the provision of a wider variety of products and services at competitive prices by these consolidated companies, which could adversely affect our financial performance.

         Our private brands may not maintain broad market acceptance and may increase the risks we face.

        The sale of private brand items is an important component of our sales growth and gross profit rate enhancement plans. We have invested in our development and procurement resources and marketing efforts relating to these private brand offerings. We believe that our success in maintaining broad market acceptance of our private brands depends on many factors, including pricing, our costs, quality and customer perception. We may not achieve or maintain our expected sales for our private brands. The sale and expansion of our private brand offerings also subjects us to certain risks, such as: potential product liability risks and mandatory or voluntary product recalls; our ability to successfully protect our proprietary rights and successfully navigate and avoid claims related to the proprietary rights of third parties; our ability to successfully administer and comply with applicable contractual obligations and legal and regulatory requirements; and other risks generally encountered by entities that source, sell and market exclusive branded offerings for retail. An increase in sales of our private brands may also adversely affect sales of our vendors' products, which, in turn, could adversely affect our relationship with certain of our vendors. Any failure to appropriately address some or all of these risks could have a significant adverse effect on our business, results of operations and financial condition.

         A significant disruption to our distribution network, to the capacity of our distribution centers or to the timely receipt of inventory could adversely impact sales or increase our transportation costs, which would decrease our profits.

        We rely on our distribution and transportation network to provide goods to our stores in a timely and cost-effective manner. Using various modes of transportation, including ocean, rail, and truck, we and our vendors move goods from vendor locations to our distribution centers. Deliveries to our stores occur from our distribution centers or directly from our vendors. Any disruption, unanticipated or

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unusual expense or operational failure related to this process could affect store operations negatively. For example, delivery delays or increases in transportation costs (including through increased fuel costs, increased carrier rates or driver wages as a result of driver shortages, a decrease in transportation capacity for overseas shipments, or work stoppages or slowdowns) could significantly decrease our ability to make sales and earn profits. Labor shortages or work stoppages in the transportation industry or long-term disruptions to the national and international transportation infrastructure that lead to delays or interruptions of deliveries or which would necessitate our securing alternative labor or shipping suppliers could also increase our costs or otherwise negatively affect our business.

        We maintain a network of distribution facilities and are moving forward with plans to build new facilities to support our growth objectives. Delays in opening distribution centers could adversely affect our future financial performance by slowing store growth, which may in turn reduce revenue growth, or by increasing transportation costs. In addition, distribution-related construction or expansion projects entail risks that could cause delays and cost overruns, such as: shortages of materials or skilled labor; work stoppages; unforeseen construction, scheduling, engineering, environmental or geological problems; weather interference; fires or other casualty losses; and unanticipated cost increases. The completion date and ultimate cost of these projects could differ significantly from initial expectations due to construction-related or other reasons. We cannot guarantee that any project will be completed on time or within established budgets.

         Risks associated with or faced by our suppliers could adversely affect our financial performance.

        The products we sell are sourced from a wide variety of domestic and international suppliers, and we are dependent on our vendors to supply merchandise in a timely and efficient manner. In 2015, our largest and second largest suppliers each accounted for 7% of our purchases. We have not experienced any difficulty in obtaining sufficient quantities of core merchandise and believe that, if one or more of our current sources of supply became unavailable, we would generally be able to obtain alternative sources without experiencing a substantial disruption of our business. However, such alternative sources could increase our merchandise costs, result in a temporary reduction in store inventory levels, and reduce the quality of our merchandise, and an inability to obtain alternative sources could adversely affect our sales. Additionally, if a supplier fails to deliver on its commitments, whether due to financial difficulties or other reasons, we could experience merchandise out-of-stocks that could lead to lost sales and damage to our reputation.

        We directly imported approximately 6% of our purchases (measured at cost) in 2015, but many of our domestic vendors directly import their products or components of their products. Changes to the prices and flow of these goods for any reason, such as political unrest or acts of war, currency fluctuations, disruptions in maritime lanes, port labor disputes, and economic conditions and instability in the countries in which foreign suppliers are located, the financial instability of suppliers, suppliers' failure to meet our standards, issues with labor practices of our suppliers or labor problems they may experience (such as strikes, stoppages or slowdowns, which could also increase labor costs during and following the disruption), the availability and cost of raw materials to suppliers, increased import duties, merchandise quality or safety issues, transport availability and cost, increases in wage rates and taxes, transport security, inflation, and other factors relating to the suppliers and the countries in which they are located or from which they import, are beyond our control and could adversely affect our operations and profitability. While we are working to reduce our dependency on goods produced in China, a substantial amount of our imported merchandise still comes from China, and thus, a change in the Chinese leadership, economic and market conditions, internal economic stimulus actions, or currency or other policies, as well as increases in costs of labor and wage taxes, could negatively impact our merchandise costs. In addition, the United States' foreign trade policies, tariffs and other impositions on imported goods, trade sanctions imposed on certain countries, the limitation on the importation of certain types of goods or of goods containing certain materials from other countries and

10


other factors relating to foreign trade and port labor agreements are beyond our control. These and other factors affecting our suppliers and our access to products could adversely affect our business and financial performance. As we increase our imports of merchandise from foreign vendors, the risks associated with these imports also will increase, and we may be exposed to additional or different risks as we increase imports of goods produced in countries other than China.

         Product liability and food safety claims could adversely affect our business, reputation and financial performance.

        Despite our best efforts to ensure the quality, safety and freshness of the products that we sell in all of our stores, we may be subject to product liability claims from customers or actions required or penalties assessed by government agencies relating to products, including but not limited to food products that are recalled, defective or otherwise alleged to be harmful. Such claims may result from tampering by unauthorized third parties, product contamination or spoilage, including the presence of foreign objects, substances, chemicals, other agents, or residues introduced during the growing, storage, handling and transportation phases.

        All of our vendors and their products must comply with applicable product and food safety laws, and we are dependent on them to ensure that the products we buy comply with all applicable safety standards. We seek but may not be successful in obtaining contractual indemnification and insurance coverage from our suppliers. If we do not have adequate contractual indemnification or insurance available, such claims could have a material adverse effect on our business, financial condition and results of operations. Our ability to obtain indemnification from foreign suppliers may be hindered by the manufacturers' lack of understanding of U.S. product liability or other laws, which may result in our having to respond to claims or complaints from customers as if we were the manufacturer. Even with adequate insurance and indemnification, such claims could significantly damage our reputation and consumer confidence in our products. Our litigation expenses could increase as well, which also could have a materially negative impact on our results of operations even if a product liability claim is unsuccessful or is not fully pursued.

         We are subject to governmental regulations, procedures and requirements. A significant change in, or noncompliance with, these regulations could have a material adverse effect on our financial performance.

        Our business is subject to numerous and increasing federal, state and local laws and regulations. We routinely incur significant costs in complying with these regulations. The complexity of the regulatory environment in which we operate and the related cost of compliance are increasing due to expanding and additional legal and regulatory requirements and increased enforcement efforts. New laws or regulations, particularly those dealing with environmental compliance, product safety, food safety, information security and privacy, and labor and employment, among others, or changes in existing laws and regulations, particularly those governing the sale of products or employee wages, may result in significant added expenses or may require extensive system and operating changes that may be difficult to implement and/or could materially increase our cost of doing business. Untimely compliance or noncompliance with applicable regulations or untimely or incomplete execution of a required product recall, can result in the imposition of penalties, including loss of licenses or significant fines or monetary penalties, class action litigation or other litigation, in addition to reputational damage. Additionally, changes in tax laws, the interpretation of existing laws, or our failure to sustain our reporting positions on examination could adversely affect our effective tax rate.

         Litigation may adversely affect our business, results of operations and financial condition.

        Our business is subject to the risk of litigation by employees, consumers, suppliers, competitors, shareholders, government agencies and others through private actions, class actions, administrative proceedings, regulatory actions or other litigation. Nationally, the number of employment-related class

11


actions filed each year has continued to increase, and recent changes and proposed changes in federal and state laws, regulations and agency guidance may cause claims to rise even more. The outcome of litigation, particularly class action lawsuits, regulatory actions and intellectual property claims, is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of very large or indeterminate amounts, and the magnitude of the potential loss relating to these lawsuits may remain unknown for substantial periods of time. In addition, certain of these lawsuits, if decided adversely to us or settled by us, may result in liability material to our financial statements as a whole or may negatively affect our operating results if changes to our business operations are required. The cost to defend future litigation may be significant. There also may be adverse publicity associated with litigation that could negatively affect customer perception of our business, regardless of whether the allegations are valid or whether we are ultimately found liable. As a result, litigation may adversely affect our business, results of operations and financial condition. See Note 8 to the consolidated financial statements for further details regarding certain of these pending matters.

         Natural disasters (whether or not caused by climate change), unusual weather conditions, pandemic outbreaks, terrorist acts, and global political events could disrupt business and result in lower sales and otherwise adversely affect our financial performance.

        The occurrence of one or more natural disasters, such as hurricanes, fires, floods, tornadoes and earthquakes, unusual weather conditions, pandemic outbreaks, terrorist acts or disruptive global political events, such as civil unrest in countries in which our suppliers are located, or similar disruptions could adversely affect our business and financial performance. Uncharacteristic or significant weather conditions can affect consumer shopping patterns, which could lead to lost sales or greater than expected markdowns and adversely affect our short-term results of operations. To the extent these events result in the closure of one or more of our distribution centers, a significant number of stores, or our corporate headquarters or impact one or more of our key suppliers, our operations and financial performance could be materially adversely affected through an inability to make deliveries or provide other support functions to our stores and through lost sales. In addition, these events could result in increases in fuel (or other energy) prices or a fuel shortage, delays in opening new stores, the temporary lack of an adequate work force in a market, the temporary or long-term disruption in the supply of products from some domestic and overseas suppliers, the temporary disruption in the transport of goods from overseas, delay in the delivery of goods to our distribution centers or stores, the inability of customers to reach or have transportation to our stores directly affected by such events, the temporary reduction in the availability of products in our stores and disruption of our utility services or to our information systems. These events also can have indirect consequences such as increases in the costs of insurance if they result in significant loss of property or other insurable damage.

         Material damage or interruptions to our information systems as a result of external factors, staffing shortages or challenges or difficulties in maintaining or updating our existing technology or developing or implementing new technology could have a material adverse effect on our business or results of operations.

        We depend on a variety of information technology systems for the efficient functioning of our business and are continually improving our information processes and computer systems to better run our business. These technology initiatives may not deliver desired results or may do so on a delayed schedule. Additionally, such systems are subject to damage or interruption from power outages, computer and telecommunications failures, computer viruses, cybersecurity breaches, natural disasters and human error. Damage or interruption to these systems may require a significant investment to fix or replace them, and we may suffer interruptions in our operations in the interim, may experience loss or corruption of critical data and may receive negative publicity, all of which could have a material adverse effect on our business or results of operations.

12


        We also rely heavily on our information technology staff. Failure to meet these staffing needs may negatively affect our ability to fulfill our technology initiatives while continuing to provide maintenance on existing systems. We rely on certain vendors to maintain and periodically upgrade many of these systems so that they can continue to support our business. The software programs supporting many of our systems were licensed to us by independent software developers. The inability of these developers or us to continue to maintain and upgrade these information systems and software programs would disrupt or reduce the efficiency of our operations if we were unable to convert to alternate systems in an efficient and timely manner. In addition, costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems could also disrupt or reduce the efficiency of our operations.

         Failure to attract, train and retain qualified employees while controlling labor costs, as well as other labor issues, could adversely affect our financial performance.

        Our future growth and performance and positive customer experience depends on our ability to attract, train, retain and motivate qualified employees, many of whom are in positions with historically high rates of turnover. Our ability to meet our labor needs, while controlling our labor costs, is subject to many external factors, including competition for and availability of qualified personnel in a given market, unemployment levels within those markets, prevailing wage rates, minimum wage laws, health and other insurance costs, changes in employment and labor laws (including changes in the process for our employees to join a union) or other workplace regulations (including changes in "entitlement" programs such as health insurance and paid leave programs), and our reputation and relevance within the labor market. If we are unable to attract and retain adequate numbers of qualified employees, our operations, customer service levels and support functions could suffer. To the extent a significant portion of our employee base unionizes, or attempts to unionize, our labor costs could increase. In addition, anticipated regulatory changes relating to the overtime exemptions under the Fair Labor Standards Act could result in increased labor costs to our business and negatively affect our operating results if changes to our business operation are required. Our ability to pass along labor costs to our customers is constrained by our everyday low price model, and we may not be able to offset the costs elsewhere in our business.

         Our success depends on our executive officers and other key personnel. If we lose key personnel or are unable to hire additional qualified personnel, our business may be harmed.

        Our future success depends to a significant degree on the skills, experience and efforts of our executive officers and other key personnel. The unexpected loss of the services of any of our executive officers could have an adverse effect on our operations. There can be no assurance that our executive succession planning, retention or hiring efforts will be successful. Competition for skilled and experienced management personnel is intense, and our future success will also depend on our ability to attract and retain qualified personnel, and a failure to attract and retain new qualified personnel could have an adverse effect on our operations. We do not currently maintain key person life insurance policies with respect to our executive officers or key personnel.

         Our cash flows from operations may be negatively affected if we are not successful in managing our inventory balances.

        Our inventory balance represented approximately 54% of our total assets exclusive of goodwill and other intangible assets as of January 29, 2016. Efficient inventory management is a key component of our business success and profitability. To be successful, we must maintain sufficient inventory levels and an appropriate product mix to meet our customers' demands without allowing those levels to increase to such an extent that the costs to store and hold the goods unduly impacts our financial results or that subjects us to the risk of increased inventory shrinkage. If our buying decisions do not accurately

13


predict customer trends, we inappropriately price products or our expectations about customer spending levels are inaccurate, we may have to take unanticipated markdowns to dispose of the excess inventory, which also can adversely impact our financial results. We continue to focus on ways to reduce these risks, but we cannot make assurances that we will be successful in our inventory management. If we are not successful in managing our inventory balances, our cash flows from operations may be negatively affected.

         Because our business is seasonal to a certain extent, with the highest volume of net sales during the fourth quarter, adverse events during the fourth quarter could materially affect our financial statements as a whole.

        We generally recognize our highest volume of net sales during the Christmas selling season, which occurs in the fourth quarter of our fiscal year. In anticipation of this holiday, we purchase substantial amounts of seasonal inventory. Adverse events, such as deteriorating economic conditions, high unemployment, high gas prices, public transportation disruptions, or unusual or unanticipated adverse weather could result in lower-than-planned sales during the holiday season. An excess of seasonal merchandise inventory could result if our net sales during the Christmas selling season fall below seasonal norms or expectations. If our fourth quarter sales results were substantially below expectations, our financial performance and operating results could be adversely affected by unanticipated markdowns, especially in seasonal merchandise.

         Our current insurance program may expose us to unexpected costs and negatively affect our financial performance.

        Our insurance coverage reflects deductibles, self-insured retentions, limits of liability and similar provisions that we believe are prudent based on the dispersion of our operations. However, there are types of losses we may incur but against which we cannot be insured or which we believe are not economically reasonable to insure, such as losses due to acts of war, employee and certain other crime, certain wage and hour and other employment-related claims, including class actions, and some natural disasters. If we incur these losses and they are material, our business could suffer. Certain material events may result in sizable losses for the insurance industry and adversely impact the availability of adequate insurance coverage or result in excessive premium increases. To offset negative insurance market trends, we may elect to self-insure, accept higher deductibles or reduce the amount of coverage in response to these market changes. In addition, we self-insure a significant portion of expected losses under our workers' compensation, automobile liability, general liability and group health insurance programs. Unanticipated changes in any applicable actuarial assumptions and management estimates underlying our recorded liabilities for these losses, including expected increases in medical and indemnity costs, could result in materially different expenses than expected under these programs, which could have a material adverse effect on our results of operations and financial condition. Although we continue to maintain property insurance for catastrophic events at our store support center and distribution centers, we are effectively self-insured for other property losses. If we experience a greater number of these losses than we anticipate, our financial performance could be adversely affected.

         Any failure to maintain the security of information we hold relating to our customers, employees and vendors, whether as a result of cybersecurity attacks or otherwise, could expose us to litigation, government enforcement actions and costly response measures, and could materially disrupt our operations and harm our reputation and sales.

        In connection with sales, we transmit confidential credit and debit card information. We also have access to, collect or maintain certain private or confidential information regarding our customers, employees and vendors, as well as our business. Additionally, under certain circumstances, we may

14


share information with vendors that assist us in conducting our business (for example, third-party vendors assist us in the transmittal of credit and debit card information in connection with sales), as required by law, or with the permission of the individual. While we have implemented procedures and technology intended to protect and safeguard our information and require appropriate controls of our vendors, it is possible that computer hackers and others might compromise our security measures or those of our technology and other vendors in the future and obtain the personal information of our customers, employees and vendors that we hold or our business information, as cyberattacks are rapidly evolving and becoming increasingly sophisticated. Moreover, employee error or malfeasance or other irregularities may result in a defeat of our or our third-party vendors' security measures and breach our or our third-party vendors' information systems.

        Because we accept debit and credit cards for payment, we are subject to the Payment Card Industry Data Security Standards ("PCI DSS"), issued by the Payment Card Industry Security Standards Council. PCI DSS contains compliance guidelines and standards with regard to our security surrounding the physical and electronic storage, processing, and transmission of cardholder data. Additionally, we have implemented technology in all of our stores to allow for the acceptance of Europay, Mastercard and Visa (EMV) credit transactions. Complying with PCI DSS standards and implementing related procedures, technology and information security measures require significant resources and ongoing attention. However, even as we comply with PCI DSS standards and offer EMV technology in our stores, we may be vulnerable to, and unable to detect and appropriately respond to, data security breaches and data loss, including cybersecurity attacks or other breach of cardholder data.

        A security breach of any kind (whether experienced by us or one of our vendors), which could be undetected for a period of time, or any failure by us to comply with the applicable privacy and information security laws, regulations and standards could expose us to risks of data loss, litigation, government enforcement actions, fines or penalties, and costly response measures (including, for example, providing notification to, and credit monitoring services for, affected customers, as well as further upgrades to our security measures) which may not be covered by or may exceed the coverage limits of our insurance policies, and could materially disrupt our operations. Any resulting negative media attention and publicity could significantly harm our reputation which could cause us to lose market share as a result of customers discontinuing the use of debit or credit cards in our stores or not shopping in our stores altogether and could have a material adverse effect on our business and financial performance.

         Deterioration in market conditions or changes in our credit profile could adversely affect our business operations and financial condition.

        We rely on the positive cash flow we generate from our operating activities and our access to the credit and capital markets to fund our operations, growth strategy, and return of cash to our shareholders through share repurchases and dividends. Changes in the credit and capital markets, including market disruptions, limited liquidity and interest rate fluctuations, may increase the cost of financing or restrict our access to these potential sources of future liquidity. Our continued access to these liquidity sources on favorable terms depends on multiple factors, including our operating performance and our credit ratings. Our debt securities currently have an investment grade rating, and a downgrade of this rating likely would negatively impact our access to the debt capital markets and increase our cost of borrowing. As a result, any disruptions or turmoil in the debt markets or any downgrade of our credit ratings could adversely affect our business operations and financial condition and our ability to return cash to our shareholders. There can be no assurances that our ability to obtain additional financing through the debt markets will not be adversely impacted by economic conditions or that we will be able to maintain or improve our current credit ratings.

15


         New accounting guidance or changes in the interpretation or application of existing accounting guidance could adversely affect our financial performance.

        The implementation of new accounting standards will require extensive systems, internal process and other changes that could increase our operating costs, and also will result in changes to our financial statements. In particular, the implementation of accounting standards related to leases, as recently issued by the Financial Accounting Standards Board are expected to require us to make significant changes to our lease management, fixed asset, and other accounting systems, and will result in significant changes to our financial statements.

        U.S. generally accepted accounting principles and related accounting pronouncements, implementation guidelines and interpretations with regard to a wide range of matters that are relevant to our business involve many subjective assumptions, estimates and judgments by our management. Changes in these rules or their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change our reported or expected financial performance. The outcome of such changes could include litigation or regulatory actions which could have an adverse effect on our financial condition and results of operations.

ITEM 1B.    UNRESOLVED STAFF COMMENTS

        None.

ITEM 2.    PROPERTIES

        As of February 26, 2016, we operated 12,575 retail stores located in 43 states as follows:

State
  Number of Stores  
State
  Number of Stores  

Alabama

    658  

Nebraska

    99  

Arizona

    89  

Nevada

    24  

Arkansas

    365  

New Hampshire

    17  

California

    170  

New Jersey

    87  

Colorado

    30  

New Mexico

    84  

Connecticut

    29  

New York

    337  

Delaware

    42  

North Carolina

    674  

Florida

    738  

Ohio

    659  

Georgia

    711  

Oklahoma

    391  

Illinois

    454  

Oregon

    7  

Indiana

    434  

Pennsylvania

    556  

Iowa

    189  

Rhode Island

    4  

Kansas

    210  

South Carolina

    457  

Kentucky

    458  

South Dakota

    26  

Louisiana

    494  

Tennessee

    655  

Maine

    14  

Texas

    1,301  

Maryland

    113  

Utah

    7  

Massachusetts

    22  

Vermont

    30  

Michigan

    356  

Virginia

    336  

Minnesota

    73  

West Virginia

    199  

Mississippi

    414  

Wisconsin

    126  

Missouri

    436            

        Most of our stores are located in leased premises. Individual store leases vary as to their terms, rental provisions and expiration dates. Many stores are subject to build-to-suit arrangements with landlords, which typically carry a primary lease term of up to 15 years with multiple renewal options.

16


We also have stores subject to shorter-term leases and many of these leases have renewal options. A significant portion of our new stores are subject to build-to-suit arrangements.

        As of February 26, 2016, we operated thirteen distribution centers, as described in the following table:

Location
  Year
Opened
  Approximate Square
Footage
  Number of
Stores Served
 

Scottsville, KY

    1959     720,000     786  

Ardmore, OK

    1994     1,310,000     1,442  

South Boston, VA

    1997     1,250,000     922  

Indianola, MS

    1998     820,000     934  

Fulton, MO

    1999     1,150,000     1,256  

Alachua, FL

    2000     980,000     1,012  

Zanesville, OH

    2001     1,170,000     1,161  

Jonesville, SC

    2005     1,120,000     1,141  

Marion, IN

    2006     1,110,000     1,267  

Bessemer, AL

    2012     940,000     1,160  

Lebec, CA

    2012     600,000     321  

Bethel, PA

    2014     1,000,000     872  

San Antonio, TX

    2016     920,000     301  

        We lease the distribution centers located in California, Oklahoma, Mississippi and Missouri and own the remaining distribution centers in the table above. Approximately 7.25 acres of the land on which our Kentucky distribution center is located is subject to a ground lease. As of January 29, 2016, we leased approximately 745,000 square feet of additional temporary warehouse space to support our distribution needs.

        Our executive offices are located in approximately 302,000 square feet of owned buildings and approximately 56,000 square feet of leased office space in Goodlettsville, Tennessee.

ITEM 3.    LEGAL PROCEEDINGS

        The information contained in Note 8 to the consolidated financial statements under the heading "Legal proceedings" contained in Part II, Item 8 of this report is incorporated herein by this reference.

ITEM 4.    MINE SAFETY DISCLOSURES

        None.

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EXECUTIVE OFFICERS OF THE REGISTRANT

        Information regarding our current executive officers as of March 15, 2016 is set forth below. Each of our executive officers serves at the discretion of our Board of Directors and is elected annually by the Board to serve until a successor is duly elected. There are no familial relationships between any of our directors or executive officers.

Name
  Age   Position

Todd J. Vasos

    54   Chief Executive Officer and Director

John W. Garratt

    47   Executive Vice President and Chief Financial Officer

John W. Flanigan

    64   Executive Vice President, Global Supply Chain

Jeffery C. Owen

    46   Executive Vice President, Store Operations

Robert D. Ravener

    57   Executive Vice President and Chief People Officer

Rhonda M. Taylor

    48   Executive Vice President and General Counsel

James W. Thorpe

    57   Executive Vice President, Chief Merchandising Officer

Anita C. Elliott

    51   Senior Vice President and Chief Accounting Officer

         Mr. Vasos has served as Chief Executive Officer and a member of our Board since June 3, 2015. He joined Dollar General in December 2008 as Executive Vice President, Division President and Chief Merchandising Officer. He was promoted to Chief Operating Officer in November 2013. Prior to joining Dollar General, Mr. Vasos served in executive positions with Longs Drug Stores Corporation for 7 years, including Executive Vice President and Chief Operating Officer (February 2008 through November 2008) and Senior Vice President and Chief Merchandising Officer (2001 - 2008), where he was responsible for all pharmacy and front-end marketing, merchandising, procurement, supply chain, advertising, store development, store layout and space allocation, and the operation of three distribution centers. He also previously served in leadership positions at Phar-Mor Food and Drug Inc. and Eckerd Corporation.

         Mr. Garratt has served as Executive Vice President and Chief Financial Officer since December 2, 2015. He joined Dollar General in October 2014 as Senior Vice President, Finance & Strategy and subsequently served as Interim Chief Financial Officer from July 2015 to December 2015. Prior to joining Dollar General, Mr. Garratt held various positions of increasing responsibility with Yum! Brands, Inc., one of the world's largest restaurant companies, between May 2004 and October 2014, holding leadership positions in corporate strategy and financial planning. He served as Vice President, Finance and Division Controller for the KFC division and earlier for the Pizza Hut division and for Yum Restaurants International between October 2013 and October 2014. He also served as the Senior Director, Yum Corporate Strategy, from March 2010 to October 2013, reporting directly to the corporate Chief Financial Officer and leading corporate strategy as well as driving key cross-divisional initiatives. Mr. Garratt served in various other financial positions at Yum from May 2004 to March 2010. He served as Plant Controller for Alcoa Inc. between April 2002 and May 2004, and held various financial management positions at General Electric from March 1999 to April 2002. He began his career in May 1990 at Alcoa, where he served for approximately nine years.

         Mr. Flanigan joined Dollar General as Senior Vice President, Global Supply Chain in May 2008. He was promoted to Executive Vice President in March 2010. Mr. Flanigan plans to retire from Dollar General effective April 29, 2016. He has almost 30 years of management experience in retail logistics. Prior to joining Dollar General, he was Group Vice President of Logistics and Distribution for Longs Drug Stores Corporation, an operator of a chain of retail drug stores on the West Coast and Hawaii, from October 2005 to April 2008. In this role, he was responsible for overseeing warehousing, inbound and outbound transportation and facility maintenance to service over 500 retail outlets. From September 2001 to October 2005, he served as the Vice President of Logistics for Safeway Inc., a food and drug retailer, where he oversaw distribution of food products from Safeway distribution centers to all retail outlets, inbound traffic and transportation. He also has held distribution and logistics

18


leadership positions at Vons—a Safeway company, Specialized Distribution Management Inc., and Crum & Crum Logistics.

         Mr. Owen returned to Dollar General in June 2015 as Executive Vice President of Store Operations, with over 21 years of previous employment experience with the Company. Prior to his departure from Dollar General in July 2014, he was Senior Vice President, Store Operations. Prior to August 2011, Mr. Owen served as Vice President, Division Manager. From November 2006 to March 2007, he served as Retail Division Manager. Prior to November 2006, he was Senior Director, Operations Process Improvement. Mr. Owen served the Company in various operations roles of increasing importance and responsibility from December 1992 to September 2004. Mr. Owen has served as a director of Kirkland's Inc. since March 30, 2015.

         Mr. Ravener joined Dollar General as Senior Vice President and Chief People Officer in August 2008. He was promoted to Executive Vice President in March 2010. Prior to joining Dollar General, he served in human resources executive roles with Starbucks Corporation, a roaster, marketer and retailer of specialty coffee, from September 2005 until August 2008 as the Senior Vice President of U.S. Partner Resources and, prior to that, as the Vice President, Partner Resources—Eastern Division. As the Senior Vice President of U.S. Partner Resources at Starbucks, Mr. Ravener oversaw all aspects of human resources activity for more than 10,000 stores. Prior to serving at Starbucks, Mr. Ravener held Vice President of Human Resources roles for The Home Depot Inc., a home improvement retailer, at its Store Support Center and a domestic field division from April 2003 to September 2005. Mr. Ravener also served in executive roles in both human resources and operations at Footstar, Inc. and roles of increasing leadership at PepsiCo, Inc.

         Ms. Taylor has served as Executive Vice President and General Counsel since March 17, 2015. She joined Dollar General as an Employment Attorney in March 2000 and was subsequently promoted to Senior Employment Attorney in 2001, Deputy General Counsel in 2004, Vice President and Assistant General Counsel in March 2010, and Senior Vice President and General Counsel in June 2013. Prior to joining Dollar General, she practiced law with Ogletree, Deakins, Nash, Smoak & Stewart, P.C., where she specialized in labor law and employment litigation. She has also held attorney positions with Ford & Harrison LLP and Stokes & Bartholomew.

         Mr. Thorpe returned to Dollar General in August 2015 as Executive Vice President and Chief Merchandising Officer, with over six years of previous employment experience with the Company. He previously served as Senior Vice President, General Merchandise Manager, from May 2006 when he joined the Company until his departure in July 2012. Following his departure from Dollar General, Mr. Thorpe provided on a limited ad-hoc basis certain retail industry consulting services as President of JW Thorpe & Associates, Inc. Prior to Dollar General, he served in various positions of increasing importance and responsibility with Sears Holdings Corporation, a leading integrated retailer, from March 1991 to May 2006 where his last position was Vice President and General Merchandise Manager—Hard Home of Sears Home Group. Prior to Sears, he worked as a Marketing Program Manager for Zenith Data Systems, a personal computer development and sales company, from July 1990 to February 1991. He began his career at The MAXIMA Corporation, an information technology services company, where he held various project administration and analyst positions.

         Ms. Elliott has served as Senior Vice President and Chief Accounting Officer since December 2, 2015. She joined Dollar General as Senior Vice President and Controller in August 2005. Prior to joining Dollar General, she served as Vice President and Controller of Big Lots, Inc., a closeout retailer, from May 2001 to August 2005, where she was responsible for accounting operations, financial reporting and internal audit. Prior to serving at Big Lots, she served as Vice President and Controller for Jitney-Jungle Stores of America, Inc., a grocery retailer, from April 1998 to March 2001. At Jitney-Jungle, Ms. Elliott was responsible for the accounting operations and the internal and external financial reporting functions. Prior to serving at Jitney-Jungle, she practiced public accounting for 12 years, 6 of which were with Ernst & Young LLP.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

        Our common stock is traded on the New York Stock Exchange under the symbol "DG." The high and low sales prices during each quarter in fiscal 2015 and 2014 were as follows:

2015
  First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter
 

High

  $ 76.99   $ 81.42   $ 81.15   $ 75.14  

Low

  $ 65.86   $ 71.44   $ 64.66   $ 59.75  

 

2014
  First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter
 

High

  $ 61.18   $ 65.99   $ 65.10   $ 71.78  

Low

  $ 54.43   $ 53.00   $ 55.48   $ 62.50  

        On March 15, 2016, our stock price at the close of the market was $85.04 and there were approximately 1,874 shareholders of record of our common stock.

Dividends

        On March 8, 2016, our Board of Directors declared a quarterly cash dividend of $0.25 per share, to be paid on April 12, 2016 to shareholders of record of our common stock on March 29, 2016. We paid quarterly cash dividends of $0.22 per share in 2015. Prior to March 2015, we had not declared or paid recurring dividends since March 2007. While the Board intends to continue regular quarterly cash dividends, the declaration and payment of future cash dividends are subject to the Board's discretion based on an evaluation of our earnings performance, financial condition, capital needs and other relevant factors.

Issuer Purchases of Equity Securities

        The following table contains information regarding purchases of our common stock made during the quarter ended January 29, 2016 by or on behalf of Dollar General or any "affiliated purchaser," as defined by Rule 10b-18(a)(3) of the Securities Exchange Act of 1934:

Period
  Total Number of
Shares
Purchased
  Average
Price Paid
per Share
  Total Number
of Shares
Purchased
as Part of Publicly
Announced Plans or
Programs(a)
  Approximate
Dollar Value
of Shares that May
Yet Be Purchased
Under the Plans
or Programs(a)
 

10/31/15 - 11/30/15

      $       $ 214,007,000  

12/01/15 - 12/31/15

    4,128,913   $ 70.29     4,128,913   $ 923,803,000  

01/01/16 - 01/29/16

      $       $ 923,803,000  

Total

    4,128,913   $ 70.29     4,128,913   $ 923,803,000  

(a)
A $500 million share repurchase program was publicly announced on September 5, 2012, and increases in the authorization under such program were announced on March 25, 2013 ($500 million increase), December 5, 2013 ($1.0 billion increase), March 12, 2015 ($1.0 billion increase) and December 3, 2015 ($1.0 billion increase). Under the authorization, purchases may be made in the open market or in privately negotiated transactions from time to time subject to market and other conditions. This repurchase authorization has no expiration date.

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ITEM 6.    SELECTED FINANCIAL DATA

        The following table sets forth selected consolidated financial information of Dollar General Corporation as of the dates and for the periods indicated. The selected historical statement of operations data and statement of cash flows data for the fiscal years ended January 29, 2016, January 30, 2015, and January 31, 2014 and balance sheet data as of January 29, 2016 and January 30, 2015, have been derived from our historical audited consolidated financial statements included elsewhere in this report. The selected historical statement of operations data and statement of cash flows data for the fiscal years ended February 1, 2013 and February 3, 2012 and balance sheet data as of January 31, 2014, February 1, 2013, and February 3, 2012 presented in this table have been derived from audited consolidated financial statements not included in this report.

        The information set forth below should be read in conjunction with, and is qualified by reference to, the Consolidated Financial Statements and related notes included in Part II, Item 8 of this report and the Management's Discussion and Analysis of Financial Condition and Results of Operations

21


included in Part II, Item 7 of this report. Certain financial disclosures relating to prior periods have been reclassified to conform to the current year presentation.

 
  Year Ended  
(Amounts in millions, excluding per share data,
number of stores, selling square feet, and net sales
per square foot)

  January 29,
2016
  January 30,
2015
  January 31,
2014
  February 1,
2013
  February 3,
2012(1)
 

Statement of Income Data:

                               

Net sales

  $ 20,368.6   $ 18,909.6   $ 17,504.2   $ 16,022.1   $ 14,807.2  

Cost of goods sold

    14,062.5     13,107.1     12,068.4     10,936.7     10,109.3  

Gross profit

    6,306.1     5,802.5     5,435.7     5,085.4     4,697.9  

Selling, general and administrative expenses

    4,365.8     4,033.4     3,699.6     3,430.1     3,207.1  

Operating profit

    1,940.3     1,769.1     1,736.2     1,655.3     1,490.8  

Interest expense

    86.9     88.2     89.0     127.9     204.9  

Other (income) expense

    0.3         18.9     30.0     60.6  

Income before income taxes

    1,853.0     1,680.9     1,628.3     1,497.4     1,225.3  

Income tax expense

    687.9     615.5     603.2     544.7     458.6  

Net income

  $ 1,165.1   $ 1,065.3   $ 1,025.1   $ 952.7   $ 766.7  

Earnings per share—basic

  $ 3.96   $ 3.50   $ 3.17   $ 2.87   $ 2.25  

Earnings per share—diluted

    3.95     3.49     3.17     2.85     2.22  

Dividends per share

    0.88                  

Statement of Cash Flows Data:

                               

Net cash provided by (used in):

                               

Operating activities

  $ 1,378.0   $ 1,314.7   $ 1,213.1   $ 1,131.4   $ 1,050.5  

Investing activities

    (503.4 )   (371.7 )   (250.0 )   (569.8 )   (513.8 )

Financing activities

    (1,296.5 )   (868.8 )   (598.3 )   (546.8 )   (908.0 )

Total capital expenditures

    (504.8 )   (374.0 )   (538.4 )   (571.6 )   (514.9 )

Other Financial and Operating Data:

                               

Same store sales growth(2)

    2.8 %   2.8 %   3.3 %   4.7 %   6.0 %

Same store sales(2)

  $ 19,254.3   $ 17,818.7   $ 16,365.5   $ 14,992.7   $ 13,626.7  

Number of stores included in same store sales calculation

    11,706     11,052     10,387     9,783     9,254  

Number of stores (at period end)

    12,483     11,789     11,132     10,506     9,937  

Selling square feet (in thousands at period end)

    92,477     87,205     82,012     76,909     71,774  

Net sales per square foot(3)

  $ 226   $ 223   $ 220   $ 216   $ 213  

Consumables sales

    75.9 %   75.7 %   75.2 %   73.9 %   73.2 %

Seasonal sales

    12.4 %   12.4 %   12.9 %   13.6 %   13.8 %

Home products sales

    6.3 %   6.4 %   6.4 %   6.6 %   6.8 %

Apparel sales

    5.4 %   5.5 %   5.5 %   5.9 %   6.2 %

Rent expense

  $ 856.9   $ 785.2   $ 686.9   $ 614.3   $ 542.3  

Balance Sheet Data (at period end):

                               

Cash and cash equivalents and short-term investments

  $ 157.9   $ 579.8   $ 505.6   $ 140.8   $ 126.1  

Total assets

    11,251.0     11,208.6     10,848.2     10,340.8     9,663.6  

Long-term debt(4)

    2,970.6     2,725.1     2,799.5     2,745.3     2,593.6  

Total shareholders' equity

    5,377.9     5,710.0     5,402.2     4,985.3     4,674.6  

(1)
The fiscal year ended February 3, 2012 was comprised of 53 weeks.

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(2)
Same-store sales are calculated based upon stores that were open at least 13 full fiscal months and remain open at the end of the reporting period. We include stores that have been remodeled, expanded or relocated in our same-store sales calculation. When applicable, we exclude the sales in the non-comparable week of a 53-week year from the same-store sales calculation.

(3)
Net sales per square foot was calculated based on total sales for the preceding 12 months as of the ending date of the reporting period divided by the average selling square footage during the period, including the end of the fiscal year, the beginning of the fiscal year, and the end of each of our three interim fiscal quarters.

(4)
Debt issuance costs are reflected as a deduction from the corresponding debt liability for all periods presented.

 
  Year Ended  
 
  January 29,
2016
  January 30,
2015
  January 31,
2014
  February 1,
2013
  February 3,
2012
 

Ratio of earnings to fixed charges(1):

    4.5x     4.4x     4.7x     4.7x     3.8x  

(1)
For purposes of computing the ratio of earnings to fixed charges, (a) earnings consist of income (loss) before income taxes, plus fixed charges less capitalized expenses related to indebtedness (amortization expense for capitalized interest is not significant) and (b) fixed charges consist of interest expense (whether expensed or capitalized), the amortization of debt issuance costs and discounts related to indebtedness, and the interest portion of rent expense.

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ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

         This discussion and analysis should be read with, and is qualified in its entirety by, the Consolidated Financial Statements and the notes thereto. It also should be read in conjunction with the Cautionary Disclosure Regarding Forward-Looking Statements and the Risk Factors disclosures set forth in the Introduction and in Item 1A of this report, respectively.

Executive Overview

        We are among the largest discount retailers in the United States by number of stores, with 12,575 stores located in 43 states as of February 26, 2016, with the greatest concentration of stores in the southern, southwestern, midwestern and eastern United States. We offer a broad selection of merchandise, including consumable products such as food, paper and cleaning products, health and beauty products and pet supplies, and non-consumable products such as seasonal merchandise, home decor and domestics, and basic apparel. Our merchandise includes high-quality national brands from leading manufacturers, as well as comparable quality and value private brand selections with prices at substantial discounts to national brands. We offer our customers these national brand and private brand products at everyday low prices (typically $10 or less) in our convenient small-box locations, with selling space averaging approximately 7,400 square feet per store.

        Because the customers we serve are value-conscious, many with low or fixed incomes, we have always been intensely focused on helping them make the most of their spending dollars. We believe our convenient store format and broad selection of high-quality products at compelling values have driven our substantial growth and financial success over the years. Like other retailers, we have been operating for several years in an environment with ongoing macroeconomic challenges and uncertainties. Our core customers are often the first to be affected by negative or uncertain economic conditions such as unemployment and fluctuating food, energy and medical costs, and the last to feel the effects of improving economic conditions. Our customer has experienced both positive and negative general economic factors during 2015, such as lower gasoline prices and unemployment rates coupled with rising rents and medical costs. The overall financial impact of these factors to our customers has been inconsistent and their duration is unknown.

        Our operating priorities continue to evolve as we consistently strive to improve our performance while retaining our customer-centric focus. We are keenly focused on executing the following priorities: 1) driving profitable sales growth, 2) capturing growth opportunities, 3) enhancing our position as a low-cost operator, and 4) investing in our people as a competitive advantage.

        We seek to drive profitable sales growth through initiatives such as improvement in our in-stock position, as well as an ongoing focus on enhancing our margins while maintaining both everyday low price and affordability.

    Our in-stock improvement initiative is designed to ensure the right products are available on the shelf when our customers shop in our stores. To support this initiative and improve overall customer satisfaction, we are selectively investing incremental labor hours in those stores where we believe such increases will generate positive financial returns. As of the end of 2015, this retail labor hour investment had been implemented across over 3,100 stores. We have a disciplined approach to this labor investment and are able to quickly evaluate whether it delivers on our profitability expectations, reallocating resources as necessary.

    We demonstrate our commitment to the affordability needs of our core customer by pricing more than 75% of our stock-keeping units at $5 or less as of the end of 2015. However, as we work to provide everyday low prices and meet our customers' affordability needs, we also remain focused on enhancing our margins through effective category management, inventory shrink reduction initiatives, private brands penetration, efforts to improve distribution and

24


      transportation efficiencies, global sourcing, and pricing and markdown optimization. With respect to category management, the mix of sales affects profitability because the gross margin associated with sales within our consumables category generally is lower than that associated with sales within our non-consumables categories. Even within each category, however, there are varying levels of gross margin associated with the specific items. With respect to inventory shrink reduction, the progress in 2015 was broad-based with shrink declining across all four product categories. For a discussion of the sales mix, as well as the results of certain other margin-related initiatives in 2015, see "Results of Operations" below.

        The degree of success of these initiatives is often reflected in our same-store sales results and in the level of improvement in shopper frequency and number of items sold and average transaction amount. For the 2015 fourth quarter, we believe these ongoing initiatives helped to drive the same-store sales growth in three out of our four product categories, reflecting increases in both customer traffic and average transaction amount for the 32 nd  consecutive quarter when compared to the prior year quarter.

        To support our other operating priorities we also are focused on capturing growth opportunities and innovating within our channel. We continued to expand our store count, opening 730 stores during 2015. We also have continued our store remodeling efforts and remodeled or relocated a total of 881 stores during 2015. In fiscal 2016, we have plans to open 900 stores and to relocate or remodel 875 stores, and we plan to maintain our accelerated square footage growth of approximately six to eight percent during 2017. We continue to innovate within our channel, and during 2016 we will implement the DG16 store format. This store format will include additional cooler doors, a redesigned queueing area, and other enhancements that are focused on meeting the evolving demands of our core customer while also delivering on our operating priorities. In addition, we are testing a smaller format store (less than 6,000 square feet) which we believe could allow us to capture growth opportunities in metropolitan areas.

        We have established a position as a low-cost operator, continuously seeking ways to control costs that do not affect our customer's shopping experience. We have enhanced this position during the latter part of 2015 and into 2016 through our zero-based budgeting initiative, streamlining our business while also reducing expenses. Our goal is to lower the same-store sales growth required to leverage selling, general and administrative ("SG&A") expenses. As part of this initiative we reduced approximately 255 positions within our corporate support function in the third quarter of 2015 and expect to reinvest a portion of these savings in the business as we deem appropriate. In addition, at the store level, we remain committed to simplifying or eliminating various tasks so that those time savings can be reinvested by our store managers in other areas such as ensuring customer service, improved in-stock levels, and improved store standards. We will continue to seek additional opportunities to enhance our low-cost position.

        Our employees are a competitive advantage, and we are always searching for ways to continue investing in them. Our training programs are continually evolving, as we work to ensure that our employees have the tools necessary to be successful in their positions. We invest in our employees in an effort to create an environment that attracts and retains talented personnel, as we believe that, particularly at the store level, employees who are promoted from within generally have longer tenures and are greater contributors to improvements in our financial performance. Furthermore, we believe that reducing our store manager turnover likely results in improved store financial performance in areas such as shrink and sales. We have also implemented training programs for high-potential employees, and believe that these and other efforts will produce a more stable, engaged workforce.

        Our continued focus on these four operating priorities, coupled with strong cash flow management and share repurchases resulted in solid overall operating and financial performance in 2015 as compared to 2014 as follows. Basis points, as referred to below, are equal to 0.01 percent of net sales.

    Net sales in 2015 increased 7.7% over 2014. Sales in same-stores increased 2.8%, with increases in both customer traffic and average transaction amount. Consumables represented 76% of sales

25


      in 2015. Departments with the most significant increases in net sales were candy and snacks, perishables, tobacco, and food. Average sales per square foot in 2015 were $226, up from $223 in 2014.

    Operating profit increased 9.7% to $1.94 billion, or 9.5% of sales, compared to $1.77 billion, or 9.4% of sales in 2014. The increase in our operating profit rate was attributable to a 27 basis-point increase in our gross profit rate, which was partially offset by a 10 basis-point increase in SG&A.

    Our gross profit rate increased by 27 basis points due primarily to lower transportation costs and a lower rate of inventory shrinkage.

    The increase in SG&A, as a percentage of sales, was due primarily to increases in incentive compensation expense, repairs and maintenance expense and occupancy costs. For other factors, see the detailed discussion that follows.

    Interest expense decreased by $1.3 million in 2015 to $86.9 million. Total long-term obligations as of January 29, 2016 were $2.97 billion.

    We reported net income of $1.17 billion, or $3.95 per diluted share, for 2015, compared to net income of $1.07 billion, or $3.49 per diluted share, for 2014. Stock repurchase activity during 2014 and 2015 contributed to the increase in diluted earnings per share.

    We generated approximately $1.38 billion of cash flows from operating activities in 2015, an increase of 4.8% compared to 2014. We primarily utilized our cash flows from operating activities to invest in the growth of our business, repurchase our common stock, and pay quarterly cash dividends.

    Inventory turnover was 4.7 times on a rolling four-quarter basis. Inventories increased 4.3% on a per store basis over 2014.

    During 2015 we opened 730 new stores, remodeled or relocated 881 stores, and closed 36 stores.

        Also in 2015, we repurchased approximately 17.6 million shares of our outstanding common stock for $1.3 billion.

        In 2016, we plan to continue to focus on our four key operating priorities. We expect our sales growth in 2016 to again be driven primarily by consumables, although we expect non-consumables sales to continue to contribute to our profitable sales growth. Same-store sales growth is key to achieving our objectives, and we have implemented targeted actions to drive same-store sales in 2016, such as updating our customer segmentation to gain deeper insights into the spending habits for each of our core customer segments. This helps drive our category management process, as we optimize our assortment and expand into those categories that are most likely to drive traffic to our stores. Our continued focus on on-shelf availability and affordability also should assist in growing transactions and number of items sold. Our new store format will offer a total of 22 cooler doors, an increase of six cooler doors as compared to our previous new store format and will be utilized for all new stores, relocations and remodels.

        Other key 2016 initiatives include our zero-based budgeting initiative, which we expect to take costs out of the business that do not affect the customer experience, ongoing supply chain improvements, and investing in our people. In addition, we plan to continue to repurchase shares of our common stock and pay quarterly cash dividends, subject to Board discretion, to further enhance shareholder return. However, we are facing potential regulatory changes relating to overtime exemptions under the Fair Labor Standards Act, which, if implemented, are expected to increase our labor costs and negatively affect our operating results.

        Readers should refer to the detailed discussion of our operating results below for additional comments on financial performance in the current year periods as compared with the prior year periods.

26


Results of Operations

        Accounting Periods.     The following text contains references to years 2015, 2014, and 2013, which represent fiscal years ended January 29, 2016, January 30, 2015, and January 31, 2014, respectively. Our fiscal year ends on the Friday closest to January 31. All referenced fiscal years were 52-week accounting periods.

        Seasonality.     The nature of our business is seasonal to a certain extent. Primarily because of sales of holiday-related merchandise, sales in our fourth quarter (November, December and January) have historically been higher than sales achieved in each of the first three quarters of the fiscal year. Expenses, and to a greater extent operating profit, vary by quarter. Results of a period shorter than a full year may not be indicative of results expected for the entire year. Furthermore, the seasonal nature of our business may affect comparisons between periods. For more information about the seasonality of our business, see "Seasonality" included in Part 1, Item 1 of this report.

        The following table contains results of operations data for fiscal years 2015, 2014 and 2013, and the dollar and percentage variances among those years.

 
   
   
   
  2015 vs. 2014   2014 vs. 2013  
(amounts in millions, except per share
amounts)

  2015   2014   2013   Amount
Change
  %
Change
  Amount
Change
  %
Change
 

Net sales by category:

                                           

Consumables

  $ 15,457.6   $ 14,321.1   $ 13,161.8   $ 1,136.5     7.9 % $ 1,159.3     8.8 %

% of net sales

    75.89 %   75.73 %   75.19 %                        

Seasonal

    2,522.7     2,345.0     2,259.5     177.7     7.6     85.5     3.8  

% of net sales

    12.39 %   12.40 %   12.91 %                        

Home products

    1,289.4     1,205.4     1,115.6     84.1     7.0     89.7     8.0  

% of net sales

    6.33 %   6.37 %   6.37 %                        

Apparel

    1,098.8     1,038.1     967.2     60.7     5.8     71.0     7.3  

% of net sales

    5.39 %   5.49 %   5.53 %                        

Net sales

  $ 20,368.6   $ 18,909.6   $ 17,504.2   $ 1,459.0     7.7 % $ 1,405.4     8.0 %

Cost of goods sold

    14,062.5     13,107.1     12,068.4     955.4     7.3     1,038.7     8.6  

% of net sales

    69.04 %   69.31 %   68.95 %                        

Gross profit

    6,306.1     5,802.5     5,435.7     503.6     8.7     366.8     6.7  

% of net sales

    30.96 %   30.69 %   31.05 %                        

Selling, general and administrative expenses

    4,365.8     4,033.4     3,699.6     332.4     8.2     333.9     9.0  

% of net sales

    21.43 %   21.33 %   21.14 %                        

Operating profit

    1,940.3     1,769.1     1,736.2     171.2     9.7     32.9     1.9  

% of net sales

    9.53 %   9.36 %   9.92 %                        

Interest expense

    86.9     88.2     89.0     (1.3 )   (1.5 )   (0.8 )   (0.8 )

% of net sales

    0.43 %   0.47 %   0.51 %                        

Other (income) expense

    0.3         18.9     0.3         (18.9 )   (100.0 )

% of net sales

    0.00 %   0.00 %   0.11 %                        

Income before income taxes

    1,853.0     1,680.9     1,628.3     172.2     10.2     52.5     3.2  

% of net sales

    9.10 %   8.89 %   9.30 %                        

Income taxes

    687.9     615.5     603.2     72.4     11.8     12.3     2.0  

% of net sales

    3.38 %   3.26 %   3.45 %                        

Net income

  $ 1,165.1   $ 1,065.3   $ 1,025.1   $ 99.7     9.4 % $ 40.2     3.9 %

% of net sales

    5.72 %   5.63 %   5.86 %                        

Diluted earnings per share

  $ 3.95   $ 3.49   $ 3.17   $ 0.46     13.2 % $ 0.32     10.1 %

        Net Sales.     The net sales increase in 2015 reflects a same-store sales increase of 2.8% compared to 2014. For 2015, there were 11,706 same-stores which accounted for sales of $19.25 billion. Same-stores include stores that have been open for at least 13 months and remain open at the end of the reporting period. Changes in same-store sales are calculated based on the comparable calendar weeks in the

27


prior year, and include stores that have been remodeled, expanded or relocated. The remainder of the increase in sales in 2015 was attributable to new stores, partially offset by sales from closed stores. The increase in sales reflects increased customer traffic and average transaction amounts. Increases in sales of consumables slightly outpaced our non-consumables, with sales of candy and snacks, perishables, tobacco products, and food contributing the majority of the increase in sales of consumables.

        The net sales increase in 2014 reflects a same-store sales increase of 2.8% compared to 2013. For 2014, there were 11,052 same-stores which accounted for sales of $17.82 billion. The remainder of the increase in sales in 2014 was attributable to new stores, partially offset by sales from closed stores. The increase in sales reflects increased customer traffic and average transaction amounts resulting from the refinement of the Company's merchandise offerings, including a full year's sales of tobacco products, the expansion of perishables, and enhanced utilization of store square footage. Increases in sales of consumables outpaced our non-consumables, with sales of tobacco products, perishables, and candy and snacks contributing the majority of the increase in sales of consumables.

        Of our four major merchandise categories, the consumables category, which generally has a lower gross profit rate than the other three categories, has grown most significantly over the past several years. Because of the impact of sales mix on gross profit, we continually review our merchandise mix and strive to adjust it when appropriate.

        Gross Profit.     The gross profit rate as a percentage of sales was 31.0% in 2015 compared to 30.7% in 2014. Gross profit increased by 8.7% in 2015, and as a percentage of sales, increased by 27 basis points. The gross profit rate increase in 2015 as compared to 2014 primarily reflects lower transportation costs and an improved rate of inventory shrinkage, partially offset by increased markdowns. We recorded a LIFO benefit of $2.3 million in 2015 compared to a LIFO provision of $4.2 million in 2014.

        The gross profit rate as a percentage of sales was 30.7% in 2014 compared to 31.1% in 2013. Gross profit increased by 6.7% in 2014, and as a percentage of sales, decreased by 36 basis points. The most significant factor affecting the gross profit rate was an increase in markdowns, primarily due to increased promotions driven by competitive pressures. In addition, we experienced a continued trend of consumables comprising a larger portion of our net sales, primarily as the result of increased sales of lower margin consumables including tobacco products and expanded perishables offerings. These factors were partially offset by higher initial inventory markups. We recorded a LIFO provision of $4.2 million in 2014 compared to a LIFO benefit of $11.0 million in 2013.

        SG&A.     SG&A was 21.4% as a percentage of sales in 2015 compared to 21.3% in 2014, an increase of 10 basis points. The 2015 results reflect increases in incentive compensation expenses, repairs and maintenance expenses, occupancy costs, and fees associated with an increase in debit card transactions. Partially offsetting these items was a higher volume of cash back transactions resulting in increased convenience fees collected from customers. The 2014 results reflect expenses of $14.3 million, or 8 basis points as a percentage of sales, related to an acquisition that was not completed.

        SG&A expense was 21.3% as a percentage of sales in 2014 compared to 21.1% in 2013, an increase of 19 basis points. The 2014 results reflect a significant increase in incentive compensation expense, as our 2013 financial performance did not satisfy certain performance requirements under our cash incentive compensation program. The 2014 results also reflect increases in rent and utilities. Partially offsetting these increased costs were retail labor expense, which increased at a rate lower than our increase in sales, the introduction of convenience fees charged to customers for cash back on debit card transactions, and a reduction in workers' compensation and general liability expenses. The 2014 period included expenses of $14.3 million relating to an acquisition that was not completed, while the 2013 results include expenses of $8.5 million for a legal settlement of a previously decertified collective action.

28


        Interest Expense.     Interest expense decreased $1.3 million to $86.9 million in 2015 compared to 2014. See the detailed discussion under "Liquidity and Capital Resources" regarding the financing of various long-term obligations.

        Interest expense remained relatively constant in 2014 compared to 2013.

        We had outstanding variable-rate debt of $686.6 million and $62.0 million as of January 29, 2016 and January 30, 2015, respectively, after taking into consideration the impact of interest rate swaps in effect at January 30, 2015. The remainder of our outstanding indebtedness at January 29, 2016 and January 30, 2015 was fixed rate debt.

        Other (Income) Expense.     In 2015, we recorded pretax losses of $0.3 million related to the refinancing of long-term debt. In 2013, we recorded pretax losses of $18.9 million resulting from the termination of our senior secured credit facilities.

        Income Taxes.     The effective income tax rates for 2015, 2014 and 2013 were expenses of 37.1%, 36.6% and 37.0%, respectively.

        The effective income tax rate for 2015 was 37.1% compared to a rate of 36.6% for 2014 which represents a net increase of 0.5 percentage points. The effective income tax rate was lower in 2014 due principally to federal and state reserve releases in 2014 that did not reoccur, to the same extent, in 2015. As in prior years, we receive a significant income tax benefit related to wages paid to certain newly hired employees that qualify for federal jobs credits (principally the Work Opportunity Tax Credit or "WOTC"). In December 2015, Congress retroactively extended the federal law authorizing the WOTC for the period from January 1, 2015 through December 31, 2019. Accordingly, based on current law, the WOTC should be available for our 2016 through 2019 fiscal years.

        The effective income tax rate for 2014 was 36.6% compared to a rate of 37.0% for 2013 which represents a net decrease of 0.4 percentage points. The effective income tax rate decreased from 2013 due principally to the favorable resolution of state income tax examinations and other state income tax reserves, which increased by a lesser amount in 2014 compared to 2013.

Off Balance Sheet Arrangements

        The entities involved in the ownership structure underlying the leases for three of our distribution centers meet the accounting definition of a Variable Interest Entity ("VIE"). One of these distribution centers has been recorded as a financing obligation whereby its property and equipment are reflected in our consolidated balance sheets. The land and buildings of the other two distribution centers have been recorded as operating leases. We are not the primary beneficiary of these VIEs and, accordingly, have not included these entities in our consolidated financial statements. Other than the foregoing, we are not party to any material off balance sheet arrangements.

Effects of Inflation

        We experienced little or no overall product cost inflation in 2015, 2014 and 2013.

Liquidity and Capital Resources

Current Financial Condition and Recent Developments

        During the past three years, we have generated an aggregate of approximately $3.91 billion in cash flows from operating activities and incurred approximately $1.42 billion in capital expenditures. During that period, we expanded the number of stores we operate by 1,977, representing growth of approximately 19%, and we remodeled or relocated 2,378 stores, or approximately 19% of the stores we operated as of January 29, 2016. We intend to continue our current strategy of pursuing store growth, remodels and relocations in 2016.

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        We have a five-year $1.425 billion unsecured credit agreement (the "Facilities"), and we have outstanding $2.3 billion aggregate principal amount of senior notes. At January 29, 2016, we had total outstanding debt (including the current portion of long-term obligations) of $2.97 billion, which includes balances under the Facilities, and senior notes, all of which are described in greater detail below. We had $722.0 million available for borrowing under the Facilities at January 29, 2016. The information contained in Note 5 to the consolidated financial statements under the heading "Borrowing Facilities and 2015 Refinancing" contained in Part II, Item 8 of this report is incorporated herein by reference. Cash and cash equivalents decreased by $421.9 million in 2015, primarily due to the suspension of share repurchases during the portion of 2014 that coincided with our attempted acquisition, resulting in higher than normal cash and cash equivalents balances at the end of 2014.

        We believe our cash flow from operations and existing cash balances, combined with availability under the Facilities as discussed in greater detail below and access to the debt markets will provide sufficient liquidity to fund our current obligations, projected working capital requirements, capital spending and anticipated dividend payments for a period that includes the next twelve months as well as the next several years. However, our ability to maintain sufficient liquidity may be affected by numerous factors, many of which are outside of our control. Depending on our liquidity levels, conditions in the capital markets and other factors, we may from time to time consider the issuance of debt, equity or other securities, the proceeds of which could provide additional liquidity for our operations.

Facilities

        On October 20, 2015, we consummated a refinancing pursuant to which we amended and restated our senior unsecured credit facilities. The Facilities consist of a $425.0 million senior unsecured term loan facility (the "Term Facility") and a $1.0 billion senior unsecured revolving credit facility (the "Revolving Facility") which provides for the issuance of letters of credit up to $175.0 million. The Facilities are scheduled to mature on October 20, 2020.

        Borrowings under the Facilities bear interest at a rate equal to an applicable interest rate margin plus, at our option, either (a) LIBOR or (b) a base rate (which is usually equal to the prime rate). The applicable interest rate margin for borrowings as of January 29, 2016 was 1.10% for LIBOR borrowings and 0.10% for base-rate borrowings. We must also pay a facility fee, payable on any used and unused commitment amounts of the Facilities, and customary fees on letters of credit issued under the Revolving Facility. The applicable interest rate margins for borrowings, the facility fees and the letter of credit fees under the Facilities are subject to adjustment from time to time based on our long-term senior unsecured debt ratings. The weighted average all-in interest rate for borrowings under the Facilities was 1.65% as of January 29, 2016.

        The Facilities can be voluntarily prepaid in whole or in part at any time without penalty. There is no required amortization under the Facilities. The Facilities contain a number of customary affirmative and negative covenants that, among other things, restrict, subject to certain exceptions, the Company's and its subsidiaries ability to: incur additional liens; sell all or substantially all of our assets; consummate certain fundamental changes or change in the Company's lines of business; and incur additional subsidiary indebtedness. The Facilities also contain financial covenants that require the maintenance of a minimum fixed charge coverage ratio and a maximum leverage ratio. As of January 29, 2016, we were in compliance with all such covenants. The Facilities also contain customary events of default.

        As of January 29, 2016, under the Revolving Facility, the Company had outstanding borrowings of $251.0 million, standby letters of credit of $27.0 million, and borrowing availability of $722.0 million. In addition, we had outstanding commercial letters of credit of $11.7 million.

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        For the remainder of fiscal 2016, we anticipate potential borrowings under the Revolving Facility up to a maximum of approximately $500 million outstanding at any one time, including any anticipated borrowings to fund repurchases of common stock.

Senior Notes

        On October 20, 2015, we issued $500.0 million aggregate principal amount of 4.150% senior notes due 2025 (the "2025 Senior Notes"), net of discount of $0.8 million, which are scheduled to mature on November 1, 2025. In addition, we have $500.0 million aggregate principal amount of 4.125% senior notes due 2017 (the "2017 Senior Notes") which are scheduled to mature on July 15, 2017, $400.0 million aggregate principal amount of 1.875% senior notes due 2018 (the "2018 Senior Notes"), net of discount of $0.2 million, which are scheduled to mature on April 15, 2018; and $900.0 million aggregate principal amount of 3.25% senior notes due 2023 (the "2023 Senior Notes"), net of discount of $1.8 million, which are scheduled to mature on April 15, 2023. Collectively, the 2017 Senior Notes, the 2018 Senior Notes, the 2023 Senior Notes and the 2025 Senior Notes 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"). Interest on the 2017 Senior Notes is payable in cash on January 15 and July 15 of each year. Interest on the 2018 Senior Notes and the 2023 Senior Notes is payable in cash on April 15 and October 15 of each year. Interest on the 2025 Senior Notes is payable in cash on May 1 and November 1 of each year, commencing on May 1, 2016. The net proceeds from the sale of the 2025 Senior Notes were used, together with borrowings under the Facilities, to repay all outstanding borrowings under the then-existing credit agreement and for general corporate purposes.

        We may redeem some or all of the Senior Notes at any time at redemption prices set forth in the Senior Indenture. Upon the occurrence of a change of control triggering event, which is defined in the Senior Indenture, each holder of our Senior Notes has the right to require us to repurchase some or all of such holder's Senior Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.

        The Senior Indenture contains covenants limiting, among other things, our ability (subject to certain exceptions) to consolidate, merge, or sell or otherwise dispose of all or substantially all of our assets; and our ability and the ability of our subsidiaries to incur or guarantee indebtedness secured by liens on any shares of voting stock of significant subsidiaries.

        The Senior Indenture also provides for events of default which, if any of them occurs, would permit or require the principal of and accrued interest on our Senior Notes to become or to be declared due and payable, as applicable.

Sale Leaseback Transaction

        In January 2014 we consummated a transaction pursuant to which we sold and subsequently leased back the land, buildings and related improvements for 233 of our stores. This transaction resulted in cash proceeds of approximately $281.6 million.

Rating Agencies

        In October 2015, Standard & Poor's raised our senior unsecured debt rating and our corporate debt rating to BBB, both with a stable outlook, and Moody's reaffirmed our senior unsecured debt rating of Baa3 and changed our outlook to positive. Our current credit ratings, as well as future rating agency actions, could (i) impact our ability to finance our operations on satisfactory terms; (ii) affect our financing costs; and (iii) affect our insurance premiums and collateral requirements necessary for our self-insured programs. There can be no assurance that we will be able to maintain or improve our current credit ratings.

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Interest Rate Swaps

        From time to time, we use interest rate swaps to minimize the risk of adverse changes in interest rates. These swaps are intended to reduce risk by hedging an underlying economic exposure. Because of high correlation between the derivative financial instrument and the underlying exposure being hedged, fluctuations in the value of the financial instruments are generally offset by reciprocal changes in the value of the underlying economic exposure. Our principal interest rate exposure relates to outstanding amounts under our Facilities. On May 31, 2015, interest rate swaps with a total notional amount of $875.0 million expired, and at January 29, 2016, we had no outstanding interest rate swaps. For more information see Item 7A, "Quantitative and Qualitative Disclosures about Market Risk" below.

Contractual Obligations

        The following table summarizes our significant contractual obligations and commercial commitments as of January 29, 2016 (in thousands):

 
  Payments Due by Period  
Contractual obligations
  Total   > 1 year   1 - 3 years   3 - 5 years   5+ years  

Long-term debt obligations

  $ 2,986,590   $ 215   $ 900,770   $ 677,080   $ 1,408,525  

Capital lease obligations

    4,806     1,164     1,412     920     1,310  

Interest(a)

    513,562     89,626     141,340     119,576     163,020  

Self-insurance liabilities(b)

    221,796     83,293     89,438     30,388     18,677  

Operating lease obligations(c)

    7,229,243     866,444     1,614,931     1,353,567     3,394,301  

Subtotal

  $ 10,955,997   $ 1,040,742   $ 2,747,891   $ 2,181,531   $ 4,985,833  

 

 
  Commitments Expiring by Period  
Commercial commitments(d)
  Total   >1 year   1 - 3 years   3 - 5 years   5+ years  

Letters of credit

  $ 11,680   $ 11,680   $   $   $  

Purchase obligations(e)

    722,630     722,630              

Subtotal

  $ 734,310   $ 734,310   $   $   $  

Total contractual obligations and commercial commitments (f)

  $ 11,690,307   $ 1,775,052   $ 2,747,891   $ 2,181,531   $ 4,985,833  

(a)
Represents obligations for interest payments on long-term debt and capital lease obligations, and includes projected interest on variable rate long-term debt, using 2015 year end rates and balances. Variable rate long-term debt includes the balance of the senior revolving credit facility (which had a balance of $251 million as of January 29, 2016), the balance of our tax increment financing of $10.6 million, and the balance of the senior term loan facility of $425 million.

(b)
We retain a significant portion of the risk for our workers' compensation, employee health insurance, general liability, property loss and automobile insurance. As these obligations do not have scheduled maturities, these amounts represent undiscounted estimates based upon actuarial assumptions. Reserves for workers' compensation and general liability which existed as of the date of a merger transaction in 2007 were discounted in order to arrive at estimated fair value. All other amounts are reflected on an undiscounted basis in our consolidated balance sheets.

(c)
Operating lease obligations are inclusive of amounts included in deferred rent in our consolidated balance sheets.

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(d)
Commercial commitments include information technology license and support agreements, supplies, fixtures, letters of credit for import merchandise, and other inventory purchase obligations.

(e)
Purchase obligations include legally binding agreements for software licenses and support, supplies, fixtures, and merchandise purchases (excluding such purchases subject to letters of credit).

(f)
We have potential payment obligations associated with uncertain tax positions that are not reflected in these totals. We are currently unable to make reasonably reliable estimates of the period of cash settlement with the taxing authorities for the $8.7 million of reserves for uncertain tax positions.

Share Repurchase Program

        On December 2, 2015, the Company's Board of Directors authorized a $1.0 billion increase to our existing common stock repurchase program. Our common stock repurchase program had a total remaining authorization of approximately $924 million at January 29, 2016. Under the authorization, purchases may be made in the open market or in privately negotiated transactions from time to time subject to market and other conditions, and the authorization has no expiration date. For more detail about our share repurchase program, see Note 12 to the consolidated financial statements.

Other Considerations

        On March 8, 2016, the Board of Directors approved a quarterly cash dividend to shareholders of $0.25 per share which will be paid on April 12, 2016 to shareholders of record on March 29, 2016, an increase of $0.03 per share over quarterly dividends paid in 2015. Although the Board currently intends to continue regular quarterly cash dividends, the payment of future cash dividends are subject to the Board's discretion and will depend upon, among other things, our results of operations, cash requirements, financial condition, contractual restrictions and other factors that our Board may deem relevant.

        Our inventory balance represented approximately 54% of our total assets exclusive of goodwill and other intangible assets as of January 29, 2016. Our ability to effectively manage our inventory balances can have a significant impact on our cash flows from operations during a given fiscal year. Inventory purchases are often somewhat seasonal in nature, such as the purchase of warm-weather or Christmas-related merchandise. Efficient management of our inventory has been and continues to be an area of focus for us.

        As described in Note 8 to the consolidated financial statements, we are involved in a number of legal actions and claims, some of which could potentially result in material cash payments. Adverse developments in those actions could materially and adversely affect our liquidity. We also have certain income tax-related contingencies as disclosed in Note 4 to the consolidated financial statements. Future negative developments could have a material adverse effect on our liquidity.

Cash Flows

        Cash flows from operating activities.     Cash flows from operating activities were $1.38 billion in 2015, an increase of $63.2 million compared to 2014. Significant components of the increase in cash flows from operating activities in 2015 compared to 2014 include increased net income due primarily to increased sales and operating profit in 2015 as described in more detail above under "Results of Operations." Changes in merchandise inventories resulted in a net use of working capital, increasing by a greater amount in 2015 compared to 2014 as described in greater detail below. Accounts payable increased by $105.6 million in 2015 compared to a $97.2 million increase in 2014, due primarily to the timing of merchandise receipts and related payments.

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        Cash flows from operating activities were $1.31 billion in 2014, an increase of $101.7 million compared to 2013. Significant components of the increase in cash flows from operating activities in 2014 compared to 2013 include increased net income due primarily to increased sales and operating profit in 2014 as described in more detail above under "Results of Operations." Merchandise inventories increased by a greater amount in 2014 compared to 2013 as described in greater detail below, which was partially offset by accounts payable, which increased by $97.2 million in 2014 compared to a $36.9 million increase in 2013. The increase in accounts payable during 2014 was due primarily to the volume and timing of domestic merchandise receipts.

        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. Inventory balances at January 29, 2016 were impacted by a new DC in Texas, the timing of the Easter holiday in 2016, and our in-stock improvement initiative. Merchandise inventories increased by 10% in 2015, by 9% in 2014, and by 7% in 2013. Inventory levels in the consumables category increased by $218.4 million, or 13% in 2015, by $178.4 million, or 12%, in 2014, and by $168.0 million, or 12%, in 2013. The seasonal category increased by $63.2 million, or 13%, in 2015, by $13.8 million, or 3%, in 2014, and decreased by $4.7 million, or 1%, in 2013. The home products category increased by $12.8 million, or 5%, in 2015, was essentially unchanged in 2014, and increased by $22.0 million, or 9%, in 2013. The apparel category decreased by $2.7 million, or 1%, in 2015, increased by $37.1 million, or 13%, in 2014, and decreased by $29.5 million, or 9%, in 2013.

        Cash flows from investing activities.     Significant components of property and equipment purchases in 2015 included the following approximate amounts: $168 million for improvements, upgrades, remodels and relocations of existing stores; $144 million for distribution and transportation-related projects; $99 million for new leased stores; $53 million for stores built by us; and $34 million for information systems upgrades and technology-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 2015, we opened 730 new stores and remodeled or relocated 881 stores.

        Significant components of property and equipment purchases in 2014 included the following approximate amounts: $127 million for improvements, upgrades, remodels and relocations of existing stores; $102 million for new leased stores; $64 million for distribution and transportation-related projects; $38 million for stores built by us; and $35 million for information systems upgrades and technology-related projects. During 2014, we opened 700 new stores and remodeled or relocated 915 stores. Cash flows from investing activities decreased from 2013 to 2014, due primarily to a sale-leaseback transaction in 2013 (more fully described below).

        Significant components of property and equipment purchases in 2013 included the following approximate amounts: $187 million for improvements, upgrades, remodels and relocations of existing stores; $124 million for new leased stores; $112 million for distribution centers, which included a significant portion of the construction cost of a distribution center in Pennsylvania; $76 million for stores purchased or built by us; and $28 million for information systems upgrades and technology-related projects. During 2013, we opened 650 new stores and remodeled or relocated 582 stores. Our sale-leaseback transaction which we consummated in January 2014 for 233 of our stores resulted in proceeds from the sale of these properties of approximately $281.6 million.

        Capital expenditures during 2016 are projected to be in the range of $550-$600 million. We anticipate funding 2016 capital requirements with existing cash balances, cash flows from operations, and we also expect to have significant availability under our Revolving Facility if necessary. We plan to continue to invest in store growth and development of approximately 900 new stores and approximately 875 stores to be remodeled or relocated. Capital expenditures in 2016 are anticipated to support our store growth as well as our remodel and relocation initiatives, including capital outlays for leasehold

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improvements, fixtures and equipment; the construction of new stores; costs to support and enhance our supply chain initiatives including new and existing distribution center facilities; technology initiatives; as well as routine and ongoing capital requirements.

        Cash flows from financing activities.     In 2015, we repurchased 17.6 million outstanding shares of our common stock at a total cost of $1.3 billion. We made repayments of $500.0 million on the balance of the Term Facility, and had proceeds of $499.2 million from the issuance of senior notes. Net borrowings under the Revolving Facility during 2015 were $251.0 million.

        In 2014, we repurchased 14.1 million outstanding shares of our common stock at a total cost of $800.1 million. We made repayments of $75.0 million on the balance of the Term Facility. Borrowings and repayments under the Revolving Facility during the 2014 period were the same amount, resulting in no net increase to amounts outstanding under the Revolving Facility during 2014.

        The 2013 cash flows from financing activities reflect a refinancing in April 2013, including the issuance of long-term obligations which includes the $1.0 billion unsecured Term Facility and the issuance of Senior Notes totaling approximately $1.3 billion. Proceeds from these transactions were used to repay our previous secured term loan and revolving credit facilities which had balances of $1.96 billion and $155.6 million when refinanced. Net repayments under the Revolving Facility were $130.9 million during 2013. We paid debt issuance costs and hedging fees totaling $29.2 million in 2013 related to the refinancing. Also in 2013, we repurchased 11.0 million outstanding shares of our common stock at a total cost of $620.1 million.

Accounting Standards

        In February 2016, the FASB issued new guidance related to lease accounting. This guidance requires a dual approach for lessee accounting under which a lessee will account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use asset and a corresponding lease liability on its balance sheet, with differing methodology for income statement recognition. This guidance is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. A modified retrospective approach is required for all leases existing or entered into after the beginning of the earliest comparative period in the consolidated financial statements. We are currently assessing the impact that adoption of this guidance will have on our consolidated financial statements, and we are anticipating a material impact because of our significant volume of lease contracts.

Critical Accounting Policies and Estimates

        The preparation of financial statements in accordance with generally accepted accounting principles in the United States ("U.S. GAAP") requires management to make estimates and assumptions that affect reported amounts and related disclosures. In addition to the estimates presented below, there are other items within our financial statements that require estimation, but are not deemed critical as defined below. We believe these estimates are reasonable and appropriate. However, if actual experience differs from the assumptions and other considerations used, the resulting changes could have a material effect on the financial statements taken as a whole.

        Management believes the following policies and estimates are critical because they involve significant judgments, assumptions, and estimates. Management has discussed the development and selection of the critical accounting estimates with the Audit Committee of our Board of Directors, and the Audit Committee has reviewed the disclosures presented below relating to those policies and estimates. See Note 1 to the consolidated financial statements for a detailed discussion of our principal accounting policies.

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        Merchandise Inventories.     Merchandise inventories are stated at the lower of cost or market ("LCM") with cost determined using the retail last in, first out ("LIFO") method. We use the retail inventory method ("RIM") to calculate gross profit and the resulting valuation of inventories at cost, which are computed utilizing a calculated cost-to-retail inventory ratio at an inventory department level. We apply the RIM to these departments, which are groups of products that are fairly uniform in terms of cost, selling price relationship and turnover. The RIM will result in valuing inventories at LCM if permanent markdowns are currently taken as a reduction of the retail value of inventories. Inherent in the retail inventory method calculation are certain management judgments and estimates that may impact the ending inventory valuation at cost, as well as the gross profit recognized. These judgments include ensuring departments consist of uniform products, recording estimated shrinkage between physical inventories, and timely recording of markdowns needed to sell inventory.

        We perform an annual LIFO analysis whereby all merchandise units are considered for inclusion in the index formulation. An actual valuation of inventory under the LIFO method is made at the end of each year based on the inventory levels and costs at that time. In contrast, interim LIFO calculations are based on management's annual estimates of sales and the rate of inflation or deflation, as well as year-end inventory levels. We also perform analyses for determining obsolete inventory, adjusting inventory on a quarterly basis to an LCM value based on various management assumptions including estimated below cost markdowns not yet recorded, but required to liquidate such inventory in future periods.

        Factors considered in the determination of markdowns include current and anticipated demand based on changes in competitors' practices, consumer preferences, consumer spending and unseasonable weather patterns. Certain of these factors are outside of our control and may result in greater than estimated markdowns to entice consumer purchases of excess inventory. The amount and timing of markdowns may vary significantly from year to year.

        We perform physical inventories in virtually all of our stores on an annual basis. We calculate our shrink provision based on actual physical inventory results during the fiscal period and an accrual for estimated shrink occurring subsequent to a physical inventory through the end of the fiscal reporting period. This accrual is calculated as a percentage of sales at each retail store, at a department level, based on the store's most recent historical shrink rate. To the extent that subsequent physical inventories yield different results than the estimated accrual, our effective shrink rate for a given reporting period will include the impact of adjusting to the actual results.

        We believe our estimates and assumptions related to the application of the RIM results in a merchandise inventory valuation that reasonably approximates cost on a consistent basis.

        Goodwill and Other Intangible Assets.     The qualitative and quantitative assessments related to the valuation and any potential impairment of goodwill and other intangible assets are each subject to judgments and/or assumptions. The analysis of qualitative factors may include determining the appropriate factors to consider and the relative importance of those factors along with other assumptions. If required, judgments in the quantitative testing process may include projecting future cash flows, determining appropriate discount rates, correctly applying valuation techniques, correctly computing the implied fair value of goodwill if necessary, and other assumptions. Future cash flow projections are based on management's projections and represent best estimates taking into account recent financial performance, market trends, strategic plans and other available information, which in recent years have been materially accurate. Changes in these estimates and assumptions could materially affect the determination of fair value or impairment, however, such a conclusion is not indicated by recent analyses. Future indicators of impairment could result in an asset impairment charge. If these judgments or assumptions are incorrect or flawed, the analysis could be negatively impacted.

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        Our most recent testing of our goodwill and indefinite lived trade name intangible assets was completed during the third quarter of 2015. No indicators of impairment were evident and no assessment of or adjustment to these assets was required. We are not currently projecting a decline in cash flows that could be expected to have an adverse effect such as a violation of debt covenants or future impairment charges.

        Property and Equipment.     Property and equipment are recorded at cost. We group our assets into relatively homogeneous classes and generally provide for depreciation on a straight-line basis over the estimated average useful life of each asset class, except for leasehold improvements, which are amortized over the lesser of the applicable lease term or the estimated useful life of the asset. Certain store and warehouse fixtures, when fully depreciated, are removed from the cost and related accumulated depreciation and amortization accounts. The valuation and classification of these assets and the assignment of depreciable lives involves judgments and the use of estimates, which we believe have been materially accurate in recent years.

        Impairment of Long-lived Assets.     Impairment of long-lived assets results when the carrying value of the assets exceeds the estimated undiscounted future cash flows generated by the assets. Our estimate of undiscounted future store cash flows is based upon historical operations of the stores and estimates of future profitability which encompasses many factors that are subject to variability and are difficult to predict. If our estimates of future cash flows are not materially accurate, our impairment analysis could be impacted accordingly. 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. The fair value is estimated based primarily upon projected future cash flows (discounted at our credit adjusted risk-free rate) or other reasonable estimates of fair market value. Although not currently anticipated, changes in these estimates, assumptions or projections could materially affect the determination of fair value or impairment.

        Insurance Liabilities.     We retain a significant portion of the risk for our workers' compensation, employee health, property loss, automobile and general liability. These represent significant costs primarily due to our large employee base and number of stores. Provisions are made for these liabilities on an undiscounted basis. Certain of these liabilities are based on actual claim data and estimates of incurred but not reported claims developed using actuarial methodologies based on historical claim trends, which have been and are anticipated to continue to be materially accurate. If future claim trends deviate from recent historical patterns, or other unanticipated events affect the number and significance of future claims, we may be required to record additional expenses or expense reductions, which could be material to our future financial results.

        Contingent Liabilities—Income Taxes.     Income tax reserves are determined using the methodology established by accounting standards relating to uncertainty in income taxes. These standards require companies to assess each income tax position taken using a two-step process. A determination is first made as to whether it is more likely than not that the position will be sustained, based upon the technical merits, upon examination by the taxing authorities. If the tax position is expected to meet the more likely than not criteria, the benefit recorded for the tax position equals the largest amount that is greater than 50% likely to be realized upon ultimate settlement of the respective tax position. Uncertain tax positions require determinations and liabilities to be estimated based on provisions of the tax law which may be subject to change or varying interpretation. If our determinations and estimates prove to be inaccurate, the resulting adjustments could be material to our future financial results.

        Contingent Liabilities—Legal Matters.     We are subject to legal, regulatory and other proceedings and claims. We establish liabilities as appropriate for these claims and proceedings based upon the probability and estimability of losses and to fairly present, in conjunction with the disclosures of these matters in our financial statements and SEC filings, management's view of our exposure. We review outstanding claims and proceedings with external counsel to assess probability and estimates of loss,

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which includes an analysis of whether such loss estimates are probable, reasonably possible, or remote. We re-evaluate these assessments on a quarterly basis or as new and significant information becomes available to determine whether a liability should be established or if any existing liability should be adjusted. The actual cost of resolving a claim or proceeding ultimately may be substantially different than the amount of the recorded liability. In addition, because it is not permissible under U.S. GAAP to establish a litigation liability until the loss is both probable and estimable, in some cases there may be insufficient time to establish a liability prior to the actual incurrence of the loss (upon verdict and judgment at trial, for example, or in the case of a quickly negotiated settlement).

        Lease Accounting and Excess Facilities.     Many of our stores are subject to build-to-suit arrangements with landlords, which typically carry a primary lease term of up to 15 years with multiple renewal options. We also have stores subject to shorter-term leases and many of these leases have renewal options. Certain of our stores have provisions for contingent rentals based upon a percentage of defined sales volume. We recognize contingent rental expense when the achievement of specified sales targets is considered probable. We record minimum rental expense on a straight-line basis over the base, non-cancelable lease term commencing on the date that we take physical possession of the property from the landlord, which normally includes a period prior to store opening to make necessary leasehold improvements and install store fixtures. When a lease contains a predetermined fixed escalation of the minimum rent, we recognize the related rent expense on a straight-line basis and record the difference between the recognized rental expense and the amounts payable under the lease as deferred rent. Tenant allowances, to the extent received, are recorded as deferred incentive rent and amortized as a reduction to rent expense over the term of the lease. We reflect as a liability any difference between the calculated expense and the amounts actually paid. Improvements of leased properties are amortized over the shorter of the life of the applicable lease term or the estimated useful life of the asset.

        Share-Based Payments.     Our stock option awards are valued on an individual grant basis using the Black-Scholes-Merton closed form option pricing model. We believe that this model fairly estimates the value of our stock option awards. The application of this valuation model involves assumptions that are judgmental in the valuation of stock options, which affects compensation expense related to these options. These assumptions include the term that the options are expected to be outstanding, the historical volatility of our stock price, applicable interest rates and the dividend yield of our stock. Other factors involving judgments that affect the expensing of share-based payments include estimated forfeiture rates of share-based awards. Historically, these estimates have been materially accurate; however, if our estimates differ materially from actual experience, we may be required to record additional expense or reductions of expense, which could be material to our future financial results.

        Fair Value Measurements.     Accounting standards for the measurement of fair value of assets and liabilities establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity's own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). Therefore, Level 3 inputs are typically based on an entity's own assumptions, as there is little, if any, related market activity, and thus require the use of significant judgment and estimates. Currently, we have no assets or liabilities that are valued based solely on Level 3 inputs.

        Our fair value measurements are primarily associated with our outstanding debt instruments. We use various valuation models in determining the values of these liabilities. We believe that in recent years these methodologies have produced materially accurate valuations.

38


ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Financial Risk Management

        We are exposed to market risk primarily from adverse changes in interest rates, and to a lesser degree commodity prices. To minimize this risk, we may periodically use financial instruments, including derivatives. All derivative financial instrument transactions must be authorized and executed pursuant to approval by the Board of Directors. As a matter of policy, we do not buy or sell financial instruments for speculative or trading purposes, and any such derivative financial instruments are intended to be used to reduce risk by hedging an underlying economic exposure. Our objective is to correlate derivative financial instruments and the underlying exposure being hedged, so that fluctuations in the value of the financial instruments are generally offset by reciprocal changes in the value of the underlying economic exposure.

Interest Rate Risk

        We manage our interest rate risk through the strategic use of fixed and variable interest rate debt and, from time to time, derivative financial instruments. Our principal interest rate exposure relates to outstanding amounts under our unsecured debt Facilities. As of January 29, 2016, we had variable rate borrowings of $425 million under our Term Facility and borrowings of $251 million outstanding under our Revolving Facility. In order to mitigate a portion of the variable rate interest exposure under the Facilities, in prior years we have entered into various interest rate swaps. As of January 29, 2016, no such interest rate swaps were outstanding and, as a result, we are exposed to fluctuations in variable interest rates under the Facilities. For a detailed discussion of our Facilities, see Note 5 to the consolidated financial statements.

        A change in interest rates on variable rate debt impacts our pre-tax earnings and cash flows; whereas a change in interest rates on fixed rate debt impacts the economic fair value of debt but not our pre-tax earnings and cash flows. Based on our variable rate borrowing levels and interest rate swaps outstanding as of January 29, 2016 and January 30, 2015, the annualized effect of a one percentage point increase in variable interest rates would have resulted in a pretax reduction of our earnings and cash flows of approximately $6.9 million in 2015 and $0.6 million in 2014.

39


ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of
Dollar General Corporation

        We have audited the accompanying consolidated balance sheets of Dollar General Corporation and subsidiaries as of January 29, 2016 and January 30, 2015, and 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, 2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Dollar General Corporation and subsidiaries at January 29, 2016 and January 30, 2015, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 29, 2016, 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), Dollar General Corporation and subsidiaries' internal control over financial reporting as of January 29, 2016, 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 22, 2016 expressed an unqualified opinion thereon.

  /s/ Ernst & Young LLP

Nashville, Tennessee
March 22, 2016

40



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

 
  January 29,
2016
  January 30,
2015
 
 
   
  (see Note 1)
 

ASSETS

             

Current assets:

             

Cash and cash equivalents

  $ 157,947   $ 579,823  

Merchandise inventories

    3,074,153     2,782,521  

Income tax receivable

    6,843      

Prepaid expenses and other current assets

    193,467     170,265  

Total current assets

    3,432,410     3,532,609  

Net property and equipment

    2,264,062     2,116,075  

Goodwill

    4,338,589     4,338,589  

Other intangible assets, net

    1,200,994     1,201,870  

Other assets, net

    21,830     19,499  

Total assets

  $ 11,257,885   $ 11,208,642  

LIABILITIES AND SHAREHOLDERS' EQUITY

             

Current liabilities:

             

Current portion of long-term obligations

  $ 1,379   $ 101,158  

Accounts payable

    1,494,225     1,388,154  

Accrued expenses and other

    467,122     413,760  

Income taxes payable

    32,870     59,400  

Total current liabilities

    1,995,596     1,962,472  

Long-term obligations

    2,969,175     2,623,965  

Deferred income taxes

    639,955     626,858  

Other liabilities

    275,283     285,309  

Commitments and contingencies

             

Shareholders' equity:

   
 
   
 
 

Preferred stock, 1,000 shares authorized

         

Common stock; $0.875 par value, 1,000,000 shares authorized, 286,694 and 303,447 shares issued and outstanding at January 29, 2016 and January 30, 2015, respectively

    250,855     265,514  

Additional paid-in capital

    3,107,283     3,048,806  

Retained earnings

    2,025,545     2,403,045  

Accumulated other comprehensive loss

    (5,807 )   (7,327 )

Total shareholders' equity

    5,377,876     5,710,038  

Total liabilities and shareholders' equity

  $ 11,257,885   $ 11,208,642  

   

The accompanying notes are an integral part of the consolidated financial statements.

41



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except per share amounts)

 
  For the Year Ended  
 
  January 29,
2016
  January 30,
2015
  January 31,
2014
 

Net sales

  $ 20,368,562   $ 18,909,588   $ 17,504,167  

Cost of goods sold

    14,062,471     13,107,081     12,068,425  

Gross profit

    6,306,091     5,802,507     5,435,742  

Selling, general and administrative expenses

    4,365,797     4,033,414     3,699,557  

Operating profit

    1,940,294     1,769,093     1,736,185  

Interest expense

    86,944     88,232     88,984  

Other (income) expense

    326         18,871  

Income before income taxes

    1,853,024     1,680,861     1,628,330  

Income tax expense

    687,944     615,516     603,214  

Net income

  $ 1,165,080   $ 1,065,345   $ 1,025,116  

Earnings per share:

                   

Basic

  $ 3.96   $ 3.50   $ 3.17  

Diluted

  $ 3.95   $ 3.49   $ 3.17  

Weighted average shares outstanding:

   
 
   
 
   
 
 

Basic

    294,330     304,633     322,886  

Diluted

    295,211     305,681     323,854  

Dividends per share

 
$

0.88
 
$

 
$

 

   

The accompanying notes are an integral part of the consolidated financial statements.

42



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

 
  For the Year Ended  
 
  January 29,
2016
  January 30,
2015
  January 31,
2014
 

Net income

  $ 1,165,080   $ 1,065,345   $ 1,025,116  

Unrealized net gain (loss) on hedged transactions, net of related income tax expense (benefit) of $971, $1,671 and $(4,461), respectively

    1,520     2,583     (6,972 )

Comprehensive income

  $ 1,166,600   $ 1,067,928   $ 1,018,144  

   

The accompanying notes are an integral part of the consolidated financial statements.

43



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(In thousands except per share amounts)

 
  Common
Stock
Shares
  Common
Stock
  Additional
Paid-in
Capital
  Retained
Earnings
  Accumulated
Other
Comprehensive
Loss
  Total  

Balances, February 1, 2013

    327,069   $ 286,185   $ 2,991,351   $ 1,710,732   $ (2,938 ) $ 4,985,330  

Net income

                1,025,116         1,025,116  

Unrealized net gain (loss) on hedged transactions

                    (6,972 )   (6,972 )

Share-based compensation expense

            20,961             20,961  

Repurchases of common stock

    (11,037 )   (9,657 )       (610,395 )       (620,052 )

Tax benefit from stock option exercises

            24,151             24,151  

Other equity and related transactions

    1,026     896     (27,237 )           (26,341 )

Balances, January 31, 2014

    317,058   $ 277,424   $ 3,009,226   $ 2,125,453   $ (9,910 ) $ 5,402,193  

Net income

                1,065,345         1,065,345  

Unrealized net gain (loss) on hedged transactions

                    2,583     2,583  

Share-based compensation expense

            37,338             37,338  

Repurchases of common stock

    (14,106 )   (12,342 )       (787,753 )       (800,095 )

Tax benefit from stock option exercises

            5,047             5,047  

Other equity and related transactions

    495     432     (2,805 )           (2,373 )

Balances, January 30, 2015

    303,447   $ 265,514   $ 3,048,806   $ 2,403,045   $ (7,327 ) $ 5,710,038  

Net income

                1,165,080         1,165,080  

Cash dividends, $0.88 per common share

                (258,328 )       (258,328 )

Unrealized net gain (loss) on hedged transactions

                    1,520     1,520  

Share-based compensation expense

            38,547             38,547  

Repurchases of common stock

    (17,556 )   (15,361 )       (1,284,252 )       (1,299,613 )

Tax benefit from stock option exercises

            13,698             13,698  

Other equity and related transactions

    803     702     6,232             6,934  

Balances, January 29, 2016

    286,694   $ 250,855   $ 3,107,283   $ 2,025,545   $ (5,807 ) $ 5,377,876  

   

The accompanying notes are an integral part of the consolidated financial statements.

44



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 
  For the Year Ended  
 
  January 29,
2016
  January 30,
2015
  January 31,
2014
 

Cash flows from operating activities:

                   

Net income

  $ 1,165,080   $ 1,065,345   $ 1,025,116  

Adjustments to reconcile net income to net cash from operating activities:

                   

Depreciation and amortization

    352,431     342,353     332,837  

Deferred income taxes

    12,126     (17,734 )   (36,851 )

Tax benefit of share-based awards

    (13,698 )   (12,147 )   (30,990 )

Loss on debt retirement, net

    326         18,871  

Noncash share-based compensation

    38,547     37,338     20,961  

Other noncash (gains) and losses

    7,797     8,551     (12,747 )

Change in operating assets and liabilities:

                   

Merchandise inventories

    (290,001 )   (233,559 )   (144,943 )

Prepaid expenses and other current assets

    (24,626 )   (25,048 )   (4,947 )

Accounts payable

    105,637     97,166     36,942  

Accrued expenses and other liabilities

    44,949     41,635     16,265  

Income taxes

    (19,675 )   12,399     (5,249 )

Other

    (905 )   (1,555 )   (2,200 )

Net cash provided by (used in) operating activities

    1,377,988     1,314,744     1,213,065  

Cash flows from investing activities:

                   

Purchases of property and equipment

    (504,806 )   (373,967 )   (538,444 )

Proceeds from sales of property and equipment

    1,423     2,268     288,466  

Net cash provided by (used in) investing activities

    (503,383 )   (371,699 )   (249,978 )

Cash flows from financing activities:

                   

Issuance of long-term obligations

    499,220         2,297,177  

Repayments of long-term obligations

    (502,401 )   (78,467 )   (2,119,991 )

Borrowings under revolving credit facilities

    2,034,100     1,023,000     1,172,900  

Repayments of borrowings under revolving credit facilities

    (1,783,100 )   (1,023,000 )   (1,303,800 )

Debt issuance costs

    (6,991 )       (15,996 )

Payments for cash flow hedge related to debt issuance

            (13,217 )

Repurchases of common stock

    (1,299,613 )   (800,095 )   (620,052 )

Payments of cash dividends

    (258,328 )        

Other equity and related transactions

    6,934     (2,373 )   (26,341 )

Tax benefit of share-based awards

    13,698     12,147     30,990  

Net cash provided by (used in) financing activities

    (1,296,481 )   (868,788 )   (598,330 )

Net increase (decrease) in cash and cash equivalents

    (421,876 )   74,257     364,757  

Cash and cash equivalents, beginning of year

    579,823     505,566     140,809  

Cash and cash equivalents, end of year

  $ 157,947   $ 579,823   $ 505,566  

Supplemental cash flow information:

                   

Cash paid for:

                   

Interest

  $ 76,354   $ 82,447   $ 73,464  

Income taxes

  $ 697,357   $ 631,483   $ 646,811  

Supplemental schedule of noncash investing and financing activities:

   
 
   
 
   
 
 

Purchases of property and equipment awaiting processing for payment, included in Accounts payable

  $ 32,020   $ 31,586   $ 27,082  

   

The accompanying notes are an integral part of the consolidated financial statements.

45



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of presentation and accounting policies

Basis of presentation

        These notes contain references to the years 2015, 2014, and 2013, which represent fiscal years ended January 29, 2016, January 30, 2015, and January 31, 2014, respectively, each of which were 52-week accounting periods. The Company's fiscal year ends on the Friday closest to January 31. The consolidated financial statements include all subsidiaries of the Company, except for its not-for-profit subsidiary which the Company does not control. Intercompany transactions have been eliminated.

        The Company sells general merchandise on a retail basis through 12,483 stores (as of January 29, 2016) in 43 states covering most of the southern, southwestern, midwestern and eastern United States. The Company has owned distribution centers ("DCs") in Scottsville, Kentucky; South Boston, Virginia; Alachua, Florida; Zanesville, Ohio; Jonesville, South Carolina; Marion, Indiana; Bessemer, Alabama; Bethel, Pennsylvania; and San Antonio, Texas, and leased DCs in Ardmore, Oklahoma; Fulton, Missouri; Indianola, Mississippi; and Lebec, California.

Cash and cash equivalents

        Cash and cash equivalents include highly liquid investments with insignificant interest rate risk and original maturities of three months or less when purchased. Such investments primarily consist of money market funds, bank deposits, certificates of deposit, and commercial paper. 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 $59.5 million and $58.5 million at January 29, 2016 and January 30, 2015, respectively.

        At January 29, 2016, the Company maintained cash balances to meet a $20 million minimum threshold set by insurance regulators, as further described below under "Insurance liabilities."

Investments in debt and equity securities

        The Company accounts for investments in debt and marketable equity securities as held-to-maturity, available-for-sale, or trading, depending on their classification. Debt securities categorized as held-to-maturity are stated at amortized cost. Debt and equity securities categorized as available-for-sale are stated at fair value, with any unrealized gains and losses, net of deferred income taxes, reported as a component of Accumulated other comprehensive loss. Trading securities are stated at fair value, with changes in fair value recorded as a component of Selling, general and administrative ("SG&A") expense. The cost of securities sold is based upon the specific identification method.

Merchandise inventories

        Inventories are stated at the lower of cost or market with cost determined using the retail last-in, first-out ("LIFO") method as this method results in a better matching of costs and revenues. Under the Company's retail inventory method ("RIM"), the calculation of gross profit and the resulting valuation of inventories at cost are computed by applying a calculated cost-to-retail inventory ratio to the retail value of sales at a department level. The use of the RIM will result in valuing inventories at the lower of cost or market ("LCM") if markdowns are currently taken as a reduction of the retail value of inventories. Costs directly associated with warehousing and distribution are capitalized into inventory.

46



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Basis of presentation and accounting policies (Continued)

        The excess of current cost over LIFO cost was approximately $92.9 million and $95.1 million at January 29, 2016 and January 30, 2015, 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 $(2.3) million in 2015, $4.2 million in 2014, and $(11.0) million in 2013, 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 largest and second largest suppliers each accounted for approximately 7% of the Company's purchases in 2015.

Vendor rebates

        The Company accounts for all cash consideration received from vendors in accordance with applicable accounting standards pertaining to such arrangements. Cash consideration received from a vendor is generally presumed to be a rebate or an allowance and is accounted for as a reduction of merchandise purchase costs as earned. However, certain specific, incremental and otherwise qualifying SG&A expenses related to the promotion or sale of vendor products may be offset by cash consideration received from vendors, in accordance with arrangements such as cooperative advertising, when earned for dollar amounts up to but not exceeding actual incremental costs.

Prepaid expenses and other current assets

        Prepaid expenses and other current assets include prepaid amounts for rent, maintenance, business licenses, advertising, and insurance, and amounts receivable for certain vendor rebates (primarily those expected to be collected in cash) and coupons.

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. The Company records depreciation and amortization on a straight-line basis over the assets'

47



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Basis of presentation and accounting policies (Continued)

estimated useful lives. The Company's property and equipment balances and depreciable lives are summarized as follows:

(In thousands)
  Depreciable
Life
  January 29,
2016
  January 30,
2015
 

Land

  Indefinite   $ 188,532   $ 172,329  

Land improvements

  20     66,955     55,375  

Buildings

  39 - 40     834,884     800,346  

Leasehold improvements

  (a)     402,997     361,557  

Furniture, fixtures and equipment

  3 - 10     2,526,843     2,295,590  

Construction in progress

        150,275     68,360  

        4,170,486     3,753,557  

Less accumulated depreciation and amortization

        1,906,424     1,637,482  

Net property and equipment

      $ 2,264,062   $ 2,116,075  

(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 $350.6 million, $335.9 million and $315.3 million for 2015, 2014 and 2013. Amortization of capital lease assets is included in depreciation expense. Interest on borrowed funds during the construction of property and equipment is capitalized where applicable. Interest costs of $1.4 million, $0.2 million and $1.2 million were capitalized in 2015, 2014 and 2013.

Impairment of long-lived assets

        When indicators of impairment are present, the Company evaluates the carrying value of long-lived assets, other than 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. 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. 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. The fair value is estimated based primarily upon estimated future cash flows over the asset's remaining useful life (discounted at the Company's credit adjusted risk-free rate) or other reasonable estimates of fair market value. Assets to be disposed of are adjusted to the fair value less the cost to sell if less than the book value.

        The Company recorded impairment charges included in SG&A expense of approximately $5.9 million in 2015, $1.9 million in 2014 and $0.5 million in 2013, to reduce the carrying value of certain of its stores' assets. Such action was deemed necessary based on the Company's evaluation that such amounts would not be recoverable primarily due to insufficient sales or excessive costs resulting in the carrying value of the assets exceeding the estimated undiscounted future cash flows generated by the assets at these locations.

48



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Basis of presentation and accounting policies (Continued)

Goodwill and other intangible assets

        The Company amortizes intangible assets over their estimated useful lives unless such lives are deemed indefinite. Goodwill and intangible assets with indefinite lives are tested for impairment annually or more frequently if indicators of impairment are present. Other intangible assets are tested for impairment if indicators of impairment are present. Impaired assets are written down to fair value as required. No impairment of intangible assets has been identified during any of the periods presented.

        In accordance with accounting standards for goodwill and indefinite-lived intangible assets, an entity has the option first to assess qualitative factors to determine whether events and circumstances indicate that it is more likely than not that goodwill or an indefinite-lived intangible asset is impaired. 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.

        The quantitative impairment test for intangible assets compares the fair value of the intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.

Other assets

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

Accrued expenses and other liabilities

        Accrued expenses and other consist of the following:

(In thousands)
  January 29,
2016
  January 30,
2015
 

Compensation and benefits

  $ 111,191   $ 78,645  

Insurance

    82,182     81,944  

Taxes (other than taxes on income)

    136,762     124,893  

Other

    136,987     128,278  

  $ 467,122   $ 413,760  

        Included in other accrued expenses are liabilities such as interest expense, freight expense, and utilities.

49



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Basis of presentation and accounting policies (Continued)

Insurance liabilities

        The Company retains a significant portion of risk for its workers' compensation, employee health, general liability, property and automobile claim exposures. Accordingly, provisions are made for the Company's estimates of such risks. The undiscounted future claim costs for the workers' compensation, general liability, and health claim risks are derived using actuarial methods and are recorded as self-insurance reserves pursuant to Company policy. To the extent that subsequent claim costs vary from those estimates, future results of operations will be affected as the reserves are adjusted.

        Ashley River Insurance Company ("ARIC"), a South Carolina-based wholly owned captive insurance subsidiary of the Company, charges the operating subsidiary companies premiums to insure the retained workers' compensation and non-property general liability exposures. Pursuant to South Carolina insurance regulations, ARIC maintains certain levels of cash and cash equivalents related to its self-insured exposures. ARIC currently insures no unrelated third-party risk.

Operating leases and related liabilities

        Rent expense is recognized over the term of the lease. The Company records minimum rental expense on a straight-line basis over the base, non-cancelable lease term commencing on the date that the Company takes physical possession of the property from the landlord, which normally includes a period prior to the store opening to make necessary leasehold improvements and install store fixtures. When a lease contains a predetermined fixed escalation of the minimum rent, the Company recognizes the related rent expense on a straight-line basis and records the difference between the recognized rental expense and the amounts payable under the lease as deferred rent. Tenant allowances, to the extent received, are recorded as deferred incentive rent and are 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, with the current portion in Accrued expenses and other and the long-term portion in Other liabilities in the consolidated balance sheets, and totaled approximately $57.9 million and $54.6 million at January 29, 2016 and January 30, 2015, respectively.

        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 29, 2016 and January 30, 2015 was approximately $4.0 million and $4.8 million, respectively, and is included in Accrued expenses and other in the consolidated balance sheets.

Other liabilities

        Noncurrent Other liabilities consist of the following:

(In thousands)
  January 29,
2016
  January 30,
2015
 

Insurance

  $ 137,798   $ 140,916  

Deferred rent

    57,017     53,975  

Deferred gain on sale leaseback

    53,737     58,215  

Other

    26,731     32,203  

  $ 275,283   $ 285,309  

50



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Basis of presentation and accounting policies (Continued)

Fair value accounting

        The Company utilizes accounting standards for fair value, which include the definition of fair value, the framework for measuring fair value, and disclosures about fair value measurements. Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement should be determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, fair value accounting standards establish a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity's own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy).

        Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Level 2 inputs are inputs other than quoted prices included in Level 1 that are directly or indirectly observable for the asset or liability. Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates, foreign exchange rates, and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability, which are based on an entity's own assumptions, as there is little, if any, observable market activity. In instances where the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

        The valuation of derivative financial instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis takes into account the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash payments (or receipts) and the discounted expected variable cash receipts (or payments). The variable cash receipts (or payments) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves.

        The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements. The Company considers the impact of netting and any applicable credit enhancements, such as collateral postings, thresholds, mutual puts, and guarantees, to adjust the fair value of outstanding derivative contracts for the effect of nonperformance risk. In connection with accounting standards for fair value measurement, the Company has made an accounting policy election to measure the credit risk of outstanding derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

Derivative financial instruments

        The Company accounts for derivative financial instruments in accordance with applicable accounting standards for such instruments and hedging activities, which require that all derivatives are

51



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Basis of presentation and accounting policies (Continued)

recorded on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.

        Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge a certain portion of its risk, even though hedge accounting does not apply or the Company elects not to apply the hedge accounting standards.

Revenue and gain recognition

        The Company recognizes retail sales in its stores at the time the customer takes possession of merchandise. All sales are net of discounts and estimated returns and are presented net of taxes assessed by governmental authorities that are imposed concurrent with those sales. The liability for retail merchandise returns is based on the Company's prior experience. The Company records gain contingencies when realized.

        The Company recognizes gift card sales revenue at the time of redemption. The liability for the gift cards is established for the cash value at the time of purchase. The liability for outstanding gift cards was approximately $2.8 million and $2.5 million at January 29, 2016 and January 30, 2015, 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. The Company recorded breakage revenue of $0.6 million and $2.4 million in 2015 and 2014, respectively.

Advertising costs

        Advertising costs are expensed upon performance, "first showing" or distribution, and are reflected in SG&A expenses net of earned cooperative advertising amounts provided by vendors which are specific, incremental and otherwise qualifying expenses related to the promotion or sale of vendor products for dollar amounts up to but not exceeding actual incremental costs. Advertising costs were $89.3 million, $77.3 million and $70.5 million in 2015, 2014 and 2013, respectively. These costs primarily include promotional circulars, targeted circulars supporting new stores, television and radio advertising, in-store signage, and costs associated with the sponsorships of certain automobile racing activities. Vendor funding for cooperative advertising offset reported expenses by $36.7 million, $35.0 million and $31.9 million in 2015, 2014 and 2013, respectively.

52



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Basis of presentation and accounting policies (Continued)

Share-based payments

        The Company recognizes compensation expense for share-based compensation based on the fair value of the awards on the grant date. Forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. This estimate may be adjusted periodically based on the extent to which actual forfeitures differ, or are expected to differ, from the prior estimate. The forfeiture rate is the estimated percentage of share-based awards granted that are expected to be forfeited or canceled before becoming fully vested. The Company bases this estimate on historical experience or estimates of future trends, as applicable. An increase in the forfeiture rate will decrease compensation expense.

        The fair value of each option grant is separately estimated and amortized into compensation expense on a straight-line basis between the applicable grant date and each vesting date. 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 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. Such expense is recognized on a straight-line basis for graded awards or an accelerated basis for performance awards over the period in which the recipient earns the awards.

Store pre-opening costs

        Pre-opening costs related to new store openings and the related construction periods are expensed as incurred.

Income taxes

        Under the accounting standards for income taxes, the asset and liability method is used for computing the future income tax consequences of events that have been recognized in the Company's consolidated financial statements or income tax returns. Deferred income tax expense or benefit is the net change during the year in the Company's deferred income tax assets and liabilities.

        The Company includes income tax related interest and penalties as a component of the provision for income tax expense.

        Income tax reserves are determined using a methodology which requires companies to assess each income tax position taken using a two-step process. A determination is first made as to whether it is more likely than not that the position will be sustained, based upon the technical merits, upon examination by the taxing authorities. If the tax position is expected to meet the more likely than not criteria, the benefit recorded for the tax position equals the largest amount that is greater than 50% likely to be realized upon ultimate settlement of the respective tax position. Uncertain tax positions require determinations and estimated liabilities to be made based on provisions of the tax law which may be subject to change or varying interpretation. If the Company's determinations and estimates prove to be inaccurate, the resulting adjustments could be material to the Company's future financial results.

53



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Basis of presentation and accounting policies (Continued)

Management estimates

        The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Accounting standards

        In May 2014, the Financial Accounting Standards Board ("FASB") issued comprehensive new accounting standards related to the recognition of revenue, which specified an effective date for annual reporting periods beginning after December 15, 2016, with early adoption not permitted. In August 2015, the FASB deferred the effective date to annual reporting periods beginning after December 15, 2017, with earlier adoption permitted only for annual reporting periods beginning after December 15, 2016. The new guidance allows for companies to use either a full retrospective or a modified retrospective approach in the adoption of this guidance. The Company is currently evaluating these transition approaches, as well as the potential timing of adoption and the effect of adoption on its consolidated financial statements.

        In April 2015, the FASB issued new accounting guidance related to the presentation of debt issuance costs and requires such costs to be presented as a deduction from the corresponding debt liability, consistent with the presentation of debt discounts and/or premiums. This guidance is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years, with early adoption permitted. The guidance must be applied retrospectively to all periods presented within the financial statements. The Company adopted this guidance in the third quarter of 2015. As a result, the presentation of $15.5 million of debt issuance costs (net of accumulated amortization) previously classified as Other assets, net are reflected in Long-term obligations on the consolidated balance sheet as of January 30, 2015.

        In November 2015, the FASB issued new accounting guidance which will require companies to classify all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating them into current and noncurrent amounts. This guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, with early adoption permitted. This guidance may be adopted on a prospective or retrospective basis. The Company adopted this guidance retrospectively in the fourth quarter of 2015. As a result, the presentation of $25.3 million of deferred income taxes previously classified as a current liability are reflected in noncurrent deferred income taxes on the consolidated balance sheet as of January 30, 2015.

        In February 2016, the FASB issued new guidance related to lease accounting. This guidance requires a dual approach for lessee accounting under which a lessee will account for leases as finance leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use asset and a corresponding lease liability on its balance sheet, with differing methodology for income statement recognition. This guidance is effective for public business entities for fiscal years, and interim periods within those years, beginning after December 15, 2018, and early adoption is permitted. A modified retrospective approach is required for all leases existing or entered into after the beginning of the earliest comparative period in the consolidated financial statements. The Company is currently assessing the impact that adoption of this guidance will have on its consolidated financial

54



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Basis of presentation and accounting policies (Continued)

statements and is anticipating a material impact because the Company is party to a significant number of lease contracts.

Reclassifications

        Certain financial disclosures relating to prior periods have been reclassified to conform to the current year presentation where applicable.

2. Goodwill and other intangible assets

        As of January 29, 2016 and January 30, 2015, the balances of the Company's intangible assets were as follows:

 
   
  As of January 29, 2016  
(In thousands)
  Remaining
Life
  Amount   Accumulated
Amortization
  Net  

Goodwill

  Indefinite   $ 4,338,589   $   $ 4,338,589  

Other intangible assets:

                       

Leasehold interests

  1 to 7 years   $ 4,379   $ 3,085   $ 1,294  

Trade names and trademarks

  Indefinite     1,199,700         1,199,700  

      $ 1,204,079   $ 3,085   $ 1,200,994  

 

 
   
  As of January 30, 2015  
(In thousands)
  Remaining
Life
  Amount   Accumulated
Amortization
  Net  

Goodwill

  Indefinite   $ 4,338,589   $   $ 4,338,589  

Other intangible assets:

                       

Leasehold interests

  1 to 8 years   $ 18,218   $ 16,048   $ 2,170  

Trade names and trademarks

  Indefinite     1,199,700         1,199,700  

      $ 1,217,918   $ 16,048   $ 1,201,870  

        The Company recorded amortization expense related to amortizable intangible assets for 2015, 2014 and 2013 of $0.9 million, $5.8 million and $11.9 million, respectively, all of which is included in rent expense. Expected future cash flows associated with the Company's intangible assets are not expected to be materially affected by the Company's intent or ability to renew or extend the arrangements. The Company's goodwill balance is not expected to be deductible for tax purposes.

        For intangible assets subject to amortization, the estimated aggregate amortization expense for each of the five succeeding fiscal years is as follows: 2016—$0.3 million, 2017—$0.2 million, 2018—$0.2 million and 2019—$0.2 million and 2020—$0.1 million.

55



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Earnings per share

        Earnings per share is computed as follows (in thousands except per share data):

 
  2015  
 
  Net
Income
  Weighted
Average
Shares
  Per Share
Amount
 

Basic earnings per share

  $ 1,165,080     294,330   $ 3.96  

Effect of dilutive share-based awards

          881        

Diluted earnings per share

  $ 1,165,080     295,211   $ 3.95  

 

 
  2014  
 
  Net
Income
  Weighted
Average
Shares
  Per Share
Amount
 

Basic earnings per share

  $ 1,065,345     304,633   $ 3.50  

Effect of dilutive share-based awards

          1,048        

Diluted earnings per share

  $ 1,065,345     305,681   $ 3.49  

 

 
  2013  
 
  Net
Income
  Weighted
Average
Shares
  Per Share
Amount
 

Basic earnings per share

  $ 1,025,116     322,886   $ 3.17  

Effect of dilutive share-based awards

          968        

Diluted earnings per share

  $ 1,025,116     323,854   $ 3.17  

        Basic earnings per share was computed by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per share was determined based on the dilutive effect of share-based awards using the treasury stock method.

        Options to purchase shares of common stock that were outstanding at the end of the respective periods, but were not included in the computation of diluted earnings per share because the effect of exercising such options would be antidilutive, were 1.3 million, 1.2 million, and 1.2 million in 2015, 2014 and 2013, respectively.

56



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Income taxes

        The provision (benefit) for income taxes consists of the following:

(In thousands)
  2015   2014   2013  

Current:

                   

Federal

  $ 590,120   $ 543,089   $ 530,728  

Foreign

    1,678     1,245     1,324  

State

    84,021     81,816     101,174  

    675,819     626,150     633,226  

Deferred:

                   

Federal

    6,410     (7,697 )   (16,132 )

State

    5,715     (2,937 )   (13,880 )

    12,125     (10,634 )   (30,012 )

  $ 687,944   $ 615,516   $ 603,214  

        A reconciliation between actual income taxes and amounts computed by applying the federal statutory rate to income before income taxes is summarized as follows:

(Dollars in thousands)
  2015   2014   2013  

U.S. federal statutory rate on earnings before income taxes

  $ 648,558     35.0 % $ 588,303     35.0 % $ 569,916     35.0 %

State income taxes, net of federal income tax benefit

    59,700     3.2     49,819     3.0     56,822     3.5  

Jobs credits, net of federal income taxes

    (21,366 )   (1.2 )   (18,961 )   (1.1 )   (19,348 )   (1.2 )

Increase (decrease) in valuation allowances

    (1,371 )   (0.1 )   1,453     0.1     (437 )    

Decrease in income tax reserves

    (2,037 )   (0.1 )   (6,449 )   (0.4 )   (6,391 )   (0.4 )

Other, net

    4,460     0.3     1,351         2,652     0.1  

  $ 687,944     37.1 % $ 615,516     36.6 % $ 603,214     37.0 %

        The 2015 effective tax rate was an expense of 37.1%. This expense was greater than the federal statutory tax rate of 35% due primarily to the inclusion of state income taxes in the total effective tax rate. The 2015 effective income tax rate increased from 2014 due principally to federal and state reserve releases in 2014 that did not reoccur, to the same extent, in 2015.

        The 2014 effective tax rate was an expense of 36.6%. This expense was greater than the federal statutory tax rate of 35% due primarily to the inclusion of state income taxes in the total effective tax rate. The 2014 effective income tax rate decreased from 2013 due principally to the favorable resolution of state income tax examinations and a reduction in other state income tax reserve increases.

        The 2013 effective tax rate was an expense of 37.0%. This expense was greater than the federal statutory tax rate of 35% due primarily to the inclusion of state income taxes in the total effective tax rate.

57



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Income taxes (Continued)

        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. Significant components of the Company's deferred tax assets and liabilities are as follows:

(In thousands)
  January 29,
2016
  January 30,
2015
 

Deferred tax assets:

             

Deferred compensation expense

  $ 8,200   $ 8,842  

Accrued expenses

    8,139     5,146  

Accrued rent

    20,793     19,360  

Accrued insurance

    72,676     76,197  

Accrued incentive compensation

    19,902     14,866  

Share based compensation

    17,988     17,623  

Interest rate hedges

    3,702     4,318  

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

    1,371     1,502  

Deferred gain on sale-leaseback

    22,637     24,385  

Other

    9,440     3,550  

State tax credit carry forwards, net of federal tax

    10,711     11,039  

    195,559     186,828  

Less valuation allowances

    (1,474 )   (2,845 )

Total deferred tax assets

    194,085     183,983  

Deferred tax liabilities:

             

Property and equipment

    (320,619 )   (302,531 )

Inventories

    (72,456 )   (73,188 )

Trademarks

    (433,548 )   (433,328 )

Other

    (7,417 )   (1,794 )

Total deferred tax liabilities

    (834,040 )   (810,841 )

Net deferred tax liabilities

  $ (639,955 ) $ (626,858 )

        Deferred tax assets (liabilities) at January 30, 2015 include the reclassification of current deferred tax assets and liabilities to noncurrent. See Note 1 for additional information.

        The Company has state tax credit carry forwards of approximately $16.5 million that will expire beginning in 2021 through 2024.

        A valuation allowance has been provided for state tax credit carry forwards. The 2015 decrease of $1.4 million was recorded as a reduction in income tax expense. The 2014 increase of $1.5 million and 2013 decrease of $0.4 million were recorded as an increase and a reduction in income tax expense, respectively. Based upon expected future income, management believes that it is more likely than not that the results of operations will generate sufficient taxable income to realize the deferred tax assets after giving consideration to the valuation allowance.

        The Company's 2010 and earlier tax years are not open for further examination by the Internal Revenue Service ("IRS"). Due to the filing of an amended federal income tax return for the 2011 tax

58



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Income taxes (Continued)

year, the IRS may, to a limited extent, examine the Company's 2011 income tax filings. The IRS, at its discretion, may also choose to examine the Company's 2012 through 2014 fiscal year income tax filings. The Company has various state income tax examinations that are currently in progress. Generally, the Company's 2011 and later tax years remain open for examination by the various state taxing authorities.

        As of January 29, 2016, accruals for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $7.0 million, $0.9 million and $0.8 million, respectively, for a total of $8.7 million. This total amount is reflected in noncurrent Other liabilities in the consolidated balance sheet.

        As of January 30, 2015, accruals for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $9.3 million, $1.0 million and $0.4 million, respectively, for a total of $10.7 million. This total amount is reflected in noncurrent Other liabilities in the consolidated balance sheet.

        The Company believes that it is reasonably possible that the reserve for uncertain tax positions may be reduced by approximately $2.6 million in the coming twelve months principally as a result of the effective settlement of outstanding issues. Also, as of January 29, 2016, approximately $7.0 million 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:

(In thousands)
  2015   2014   2013  

Income tax expense (benefit)

  $ (2,379 ) $ (9,497 ) $ (3,915 )

Income tax related interest expense (benefit)

    (23 )   (1,445 )   590  

Income tax related penalty expense (benefit)

    373     51     30  

        A reconciliation of the uncertain income tax positions from February 1, 2013 through January 29, 2016 is as follows:

(In thousands)
  2015   2014   2013  

Beginning balance

  $ 9,343   $ 19,583   $ 22,237  

Increases—tax positions taken in the current year

    214     198     3,484  

Increases—tax positions taken in prior years

    17     62     3,000  

Decreases—tax positions taken in prior years

    (106 )   (8,636 )   (608 )

Statute expirations

    (2,504 )   (1,121 )   (7,622 )

Settlements

        (743 )   (908 )

Ending balance

  $ 6,964   $ 9,343   $ 19,583  

59



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Current and long-term obligations

        Current and long-term obligations consist of the following:

(In thousands)
  January 29,
2016
  January 30,
2015
 

Senior unsecured credit facilities

             

Term Facility

  $ 425,000   $ 925,000  

Revolving Facility

    251,000      

4.125% Senior Notes due July 15, 2017

    500,000     500,000  

1.875% Senior Notes due April 15, 2018 (net of discount of $203 and $294)

    399,797     399,706  

3.250% Senior Notes due April 15, 2023 (net of discount of $1,775 and $1,991)

    898,225     898,009  

4.150% Senior Notes due November 1, 2025 (net of discount of $764)

    499,236      

Capital lease obligations

    4,806     5,875  

Tax increment financing due February 1, 2035

    10,590     11,995  

Debt issuance costs, net

    (18,100 )   (15,462 )

    2,970,554     2,725,123  

Less: current portion

    (1,379 )   (101,158 )

Long-term portion

  $ 2,969,175   $ 2,623,965  

Borrowing Facilities and 2015 Refinancing

        On October 20, 2015, the Company consummated a refinancing, pursuant to which the Company amended and restated its senior unsecured credit facilities (and refinanced all borrowings thereunder) and issued senior notes in an aggregate principal amount of $500.0 million, net of discount totaling $0.8 million. The amended and restated senior unsecured credit facilities (the "Facilities") consist of a $425.0 million senior unsecured term loan facility (the "Term Facility") and a $1.0 billion senior unsecured revolving credit facility (the "Revolving Facility") which provides for the issuance of letters of credit up to $175.0 million. The Facilities are scheduled to mature on October 20, 2020. The Company incurred $2.6 million of new debt issuance costs associated with the refinancing of the Facilities.

        Borrowings under the Facilities bear interest at a rate equal to an applicable interest rate margin plus, at the Company's option, either (a) LIBOR or (b) a base rate (which is usually equal to the prime rate). The applicable interest rate margin for borrowings as of January 29, 2016 was 1.10% for LIBOR borrowings and 0.10% for base-rate borrowings. The Company must also pay a facility fee, payable on any used and unused commitment amounts of the Facilities, and customary fees on letters of credit issued under the Revolving Facility. As of January 29, 2016, the commitment fee rate was 0.15%. The applicable interest rate margins for borrowings, the facility fees and the letter of credit fees under the Facilities are subject to adjustment from time to time based on the Company's long-term senior unsecured debt ratings. The weighted average all-in interest rate for borrowings under the Facilities was 1.65% as of January 29, 2016.

        The Facilities can be voluntarily prepaid in whole or in part at any time without penalty. There is no required principal amortization under the Facilities. The Facilities contain a number of customary

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DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Current and long-term obligations (Continued)

affirmative and negative covenants that, among other things, restrict, subject to certain exceptions, the Company's and its subsidiaries' ability to: incur additional liens; sell all or substantially all of the Company's assets; consummate certain fundamental changes or change in the Company's lines of business; and incur additional subsidiary indebtedness. The Facilities also contain financial covenants which require the maintenance of a minimum fixed charge coverage ratio and a maximum leverage ratio. As of January 29, 2016, the Company was in compliance with all such covenants. The Facilities also contain customary events of default.

        As of January 29, 2016, under the Revolving Facility, the Company had borrowing availability of $722.0 million. In addition, the Company had outstanding letters of credit totaling $38.7 million, $27.0 million of which were issued under the Revolving Facility.

        The Company incurred a pretax loss of $0.3 million for the write off of debt issuance costs associated with the refinancing of its credit facilities, which is reflected in Other (income) expense in the consolidated statement of income for the year ended January 29, 2016.

        On October 20, 2015, the Company issued $500.0 million aggregate principal amount of 4.150% senior notes due 2025 (the "2025 Senior Notes"), net of discount of $0.8 million, which are scheduled to mature on November 1, 2025. Interest on the 2025 Senior Notes is payable in cash on May 1 and November 1 of each year, commencing on May 1, 2016. The Company incurred $4.4 million of debt issuance costs associated with the issuance of the 2025 Senior Notes. The net proceeds from the sale of the 2025 Senior Notes were used, together with borrowings under the Facilities, to repay all of the outstanding borrowings under the then-existing credit agreement and for general corporate purposes. Collectively, the 2025 Senior Notes and the Company's other Senior Notes due 2017, 2018 and 2023 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").

        The Company may redeem some or all of its Senior Notes at any time at redemption prices set forth in the Senior Indenture. Upon the occurrence of a change of control triggering event, which is defined in the Senior Indenture, each holder of the Senior Notes has the right to require the Company to repurchase some or all of such holder's Senior Notes at a purchase price in cash equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the repurchase date.

        The Senior Indenture contains covenants limiting, among other things, the ability of the Company and its subsidiaries to (subject to certain exceptions): consolidate, merge, sell or otherwise dispose of all or substantially all of the Company's assets; and to incur or guarantee indebtedness secured by liens on any shares of voting stock of significant subsidiaries.

        The Senior Indenture also provides for events of default which, if any of them occurs, would permit or require the principal of and accrued interest on the Senior Notes to become or to be declared due and payable, as applicable.

        Scheduled debt maturities, including capital lease obligations, for the Company's fiscal years listed below are as follows (in thousands): 2016—$1,379; 2017—$501,290; 2018—$400,892; 2019—$1,020; 2020—$676,980; thereafter—$1,409,835.

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DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Assets and liabilities measured at fair value

        The following table presents the Company's assets and liabilities measured at fair value on a recurring basis as of January 29, 2016, aggregated by the level in the fair value hierarchy within which those measurements are classified.

(In thousands)
  Quoted Prices
in Active
Markets
for Identical
Assets and
Liabilities
(Level 1)
  Significant
Other
Observable
Inputs
(Level 2)
  Significant
Unobservable
Inputs
(Level 3)
  Balance at
January 29,
2016
 

Liabilities:

                         

Long-term obligations(a)

  $ 2,305,470   $ 675,459   $   $ 2,980,929  

Deferred compensation(b)

    21,064             21,064  

(a)
Reflected at book value in the consolidated balance sheet as Current portion of long-term obligations of $1,379 and Long-term obligations of $2,969,175.

(b)
Reflected at fair value in the consolidated balance sheet as a component of Accrued expenses and other current liabilities of $8,307 and a component of noncurrent Other liabilities of $12,757.

        The carrying amounts reflected in the consolidated balance sheets for cash, cash equivalents, short-term investments, receivables and payables approximate their respective fair values. The Company does not have any recurring fair value measurements using significant unobservable inputs (Level 3) as of January 29, 2016.

7. Derivatives and hedging activities

        From time to time, the Company enters into certain financial instrument positions, all of which are intended to reduce risk by hedging an underlying economic exposure.

Risk management objective of using derivatives

        The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its debt funding and, from time to time, through the use of derivative financial instruments. Specifically, the Company may enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined primarily by interest rates.

        In addition, the Company is exposed to certain risks arising from uncertainties of future market values caused by the fluctuation in the prices of commodities. From time to time the Company may enter into derivative financial instruments to protect against future price changes related to these commodity prices.

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DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Derivatives and hedging activities (Continued)

Cash flow hedges of interest rate risk

        The Company's objectives when using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate changes. To accomplish these objectives, the Company has from time to time used interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company also previously entered into treasury locks that were designated as cash flow hedges of interest rate risk prior to the issuance of long-term debt in April 2013.

        The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges is recorded in Accumulated other comprehensive income (loss) (also referred to as "OCI") and is subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings. The ineffective portion of the change in fair value of the interest rate swaps, if any, is recognized directly in earnings.

        The Company had interest rate swaps with a combined notional value of $875.0 million designated as cash flow hedges of interest rate risk that expired on May 31, 2015. Such interest rate swaps were used to hedge the variable cash flows associated with existing variable-rate debt prior to their maturity. Amounts reported in Accumulated other comprehensive income (loss) related to derivatives were reclassified to interest expense as interest payments were made on the Company's variable-rate debt.

        In April 2013, the Company recorded a loss on the settlement of treasury locks associated with the issuance of long-term debt which was deferred to OCI and is being amortized as an increase to interest expense over the period of the debt's maturity in 2023. During the 52-week period following January 29, 2016, the Company estimates that approximately $1.3 million will be reclassified as an increase to interest expense related to the amortization of the loss associated with the treasury locks. All of the amounts reflected in Accumulated other comprehensive income (loss) in the consolidated balance sheets for the periods presented are related to cash flow hedges.

Non-designated hedges of commodity risk

        Derivatives not designated as hedges are not speculative and are used to manage the Company's exposure to commodity price risk but do not meet strict hedge accounting requirements. Changes in the fair value of derivatives not designated in hedging relationships are recorded directly in earnings. As of January 29, 2016, the Company had no such non-designated hedges.

        The table below presents the fair value of the Company's derivative financial instruments as well as their classification on the consolidated balance sheets as of January 29, 2016 and January 30, 2015:

(in thousands)
  January 29,
2016
  January 30,
2015
 

Derivatives Designated as Hedging Instruments

             

Interest rate swaps classified as Accrued expenses and other current liabilities

  $   $ 1,173  

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

7. Derivatives and hedging activities (Continued)

        The table below presents the pre-tax effect of the Company's derivative financial instruments as reflected in the consolidated statements of comprehensive income and shareholders' equity, as applicable:

(in thousands)
  2015   2014   2013  

Derivatives in Cash Flow Hedging Relationships

                   

Loss related to effective portion of derivative recognized in OCI

  $ 3   $ 876   $ 16,036  

Loss related to effective portion of derivative reclassified from Accumulated OCI to Interest expense

  $ 2,494   $ 5,130   $ 4,604  

8. Commitments and contingencies

Leases

        As of January 29, 2016, the Company was committed under operating lease agreements for most of its retail stores. Many of the Company's stores are subject to build-to-suit arrangements with landlords which typically carry a primary lease term of up to 15 years with multiple renewal options. The Company also has stores subject to shorter-term leases and many of these leases have renewal options. Certain of the Company's leased stores have provisions for contingent rentals based upon a specified percentage of defined sales volume.

        The land and buildings of the Company's DCs in Fulton, Missouri and Indianola, Mississippi are subject to operating lease agreements and the leased Ardmore, Oklahoma DC is subject to a financing arrangement. The entities involved in the ownership structure underlying these leases meet the accounting definition of a Variable Interest Entity ("VIE"). The Company is not the primary beneficiary of these VIEs and, accordingly, has not included these entities in its consolidated financial statements. Certain leases contain restrictive covenants, and as of January 29, 2016, the Company is not aware of any material violations of such covenants.

        In January 2014, the Company sold 233 store locations for cash and concurrent with the sale transaction, the Company leased the properties back for a period of 15 years. The transaction resulted in cash proceeds of approximately $281.6 million and a deferred gain of $67.2 million which is being recognized as a reduction of rent expense over the 15-year initial lease term of the properties.

        In January 1999, the Company sold its DC located in Ardmore, Oklahoma for cash and concurrent with the sale transaction, the Company leased the property back for a period of 23 years. The transaction is being accounted for as a financing obligation rather than a sale as a result of, among other things, the lessor's ability to put the property back to the Company under certain circumstances. The property and equipment, along with the related lease obligation associated with this transaction are recorded in the consolidated balance sheets. In August 2007, the Company purchased a secured promissory note (the "Ardmore Note") from an unrelated third party with a face value of $34.3 million at the date of purchase which approximated the remaining financing obligation. The Ardmore Note represents debt issued by the third party entity from which the Company leases the Ardmore DC and therefore the Company holds the debt instrument pertaining to its lease financing obligation. Because a

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Commitments and contingencies (Continued)

legal right of offset exists, the Company is accounting for the Ardmore Note as a reduction of its outstanding financing obligation in its consolidated balance sheets.

        Future minimum payments as of January 29, 2016 for operating leases are as follows:

(In thousands)
   
 

2016

  $ 866,444  

2017

    831,367  

2018

    783,564  

2019

    720,569  

2020

    632,998  

Thereafter

    3,394,301  

Total minimum payments

  $ 7,229,243  

        Total minimum payments for capital leases were $5.9 million, with a present value of $4.8 million, as of January 29, 2016. The gross amount of property and equipment recorded under capital leases and financing obligations at both January 29, 2016 and January 31, 2015, was $29.8 million. Accumulated depreciation on property and equipment under capital leases and financing obligations at January 29, 2016 and January 30, 2015, was $12.4 million and $10.6 million, respectively.

        Rent expense under all operating leases is as follows:

(In thousands)
  2015   2014   2013  

Minimum rentals(a)

  $ 849,115   $ 776,103   $ 674,849  

Contingent rentals

    7,793     9,099     12,058  

  $ 856,908   $ 785,202   $ 686,907  

(a)
Excludes amortization of leasehold interests of $0.9 million, $5.8 million and $11.9 million included in rent expense for the years ended January 29, 2016, January 30, 2015, and January 31, 2014, respectively.

Legal proceedings

        In September 2011, the Chicago Regional Office of the United States Equal Employment Opportunity Commission ("EEOC" or "Commission") notified the Company of a cause finding related to the Company's criminal background check policy. The cause finding alleges that the Company's criminal background check policy, which excludes from employment individuals with certain criminal convictions for specified periods, has a disparate impact on African-American candidates and employees in violation of Title VII of the Civil Rights Act of 1964, as amended ("Title VII").

        The Company and the EEOC engaged in the statutorily required conciliation process, and despite the Company's good faith efforts to resolve the matter, the Commission notified the Company on July 26, 2012 of its view that conciliation had failed.

        On June 11, 2013, the EEOC filed a lawsuit in the United States District Court for the Northern District of Illinois entitled Equal Opportunity Commission v. Dolgencorp, LLC d/b/a Dollar General in

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DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Commitments and contingencies (Continued)

which the Commission alleges that the Company's criminal background check policy has a disparate impact on "Black Applicants" in violation of Title VII and seeks to recover monetary damages and injunctive relief on behalf of a class of "Black Applicants." The Company filed its answer to the complaint on August 9, 2013.

        The Court has bifurcated the issues of liability and damages for purposes of discovery and trial. Fact discovery related to liability is to be completed on or before November 16, 2016. In response to various discovery motions, the court has entered orders requiring the Company's production of documents, information and electronic data for the period 2004 to present.

        Currently pending is the EEOC's Motion for Partial Summary Judgment relating to two of the Company's defenses challenging the sufficiency of the Commission's conciliation efforts and the scope of its investigation. The Company has opposed this motion as prematurely-filed in light of the status of various discovery issues.

        The Company believes that its criminal background check process is both lawful and necessary to a safe environment for its employees and customers and the protection of its assets and shareholders' investments. The Company also does not believe that this matter is amenable to class or similar treatment. However, at this time, it is not possible to predict whether the action will ultimately be permitted to proceed as a class or in a similar fashion or the size of any putative class. Likewise, at this time, it is not possible to estimate the value of the claims asserted, and no assurances can be given that the Company will be successful in its defense of this action on the merits or otherwise. For these reasons, the Company cannot estimate the potential exposure or range of potential loss. If the matter were to proceed successfully as a class or similar action or the Company is unsuccessful in its defense efforts as to the merits of the action, the resolution of this matter could have a material adverse effect on the Company's consolidated financial statements as a whole.

        On May 23, 2013, a lawsuit entitled Juan Varela v. Dolgen California and Does 1 through 50 ("Varela") was filed in the Superior Court of the State of California for the County of Riverside. In the original complaint, the Varela plaintiff alleges that he and other "key carriers" were not provided with meal and rest periods in violation of California law and seeks to recover alleged unpaid wages, injunctive relief, consequential damages, pre-judgment interest, statutory penalties and attorneys' fees and costs and seeks to represent a putative class of California "key carriers" as to these claims. The Varela plaintiff also asserts a claim for unfair business practices and seeks to proceed under California's Private Attorney General Act (the "PAGA"). The Company filed its answer to the complaint on July 1, 2013.

        On November 4, 2014, the Varela plaintiff filed an amended complaint to add Victoria Lee Dinger Main as a named plaintiff and to add putative class claims on behalf of "key carriers" for alleged inaccurate wage statements and failure to provide appropriate pay upon termination in violation of California law. The Company filed its answer to the amended complaint on December 23, 2014. The parties have been ordered to engage in informal discovery. A mediation was held in November 2015, which was unsuccessful.

        On January 15, 2015, a lawsuit entitled Kendra Pleasant v. Dollar General Corporation, Dolgen California, LLC, and Does 1 through 50 ("Pleasant") was filed in the Superior Court of the State of California for the County of San Bernardino in which the plaintiff seeks to proceed under the PAGA for various alleged violations of California's Labor Code. Specifically, the plaintiff alleges that she and

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DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Commitments and contingencies (Continued)

other similarly situated non-exempt California store-level employees were not paid for all time worked, provided meal and rest breaks, reimbursed for necessary work related expenses, and provided with accurate wage statements and seeks to recover unpaid wages, civil and statutory penalties, interest, attorneys' fees and costs. On March 12, 2015, the Company filed a demurrer asking the court to stay all proceedings in the Pleasant matter pending an issuance of a final judgment in the Varela matter. The court granted the Company's demurrer and stayed proceedings until resolution of the Varela matter. Subsequently, the Pleasant plaintiff moved to transfer this matter to the Superior Court of the State of California for the County of Riverside where the Varela matter is pending, which the Company opposed. The court denied the Pleasant plaintiff's motion to transfer.

        On February 20, 2015, a lawsuit entitled Julie Sullivan v. Dolgen California and Does 1 through 100 ("Sullivan") was filed in the Superior Court of the State of California for the County of Alameda in which the plaintiff alleges that she and other similarly situated Dollar General Market store managers in the State of California were improperly classified as exempt employees and were not provided with meal and rest breaks and accurate wage statements in violation of California law. The Sullivan plaintiff also alleges that she and other California store employees were not provided with printed wage statements, purportedly in violation of California law. The plaintiff seeks to recover unpaid wages, including overtime pay, civil and statutory penalties, interest, injunctive relief, restitution, and attorneys' fees and costs.

        On April 8, 2015, the Company removed this matter to the United States District Court for the Northern District of California and filed its answer on the same date. On April 29, 2015, the Sullivan plaintiff amended her complaint to add a claim under the PAGA. The Company's response to the amended complaint was filed on May 14, 2015. The plaintiff's motion for class certification was filed on March 12, 2016. The matter has been set for trial on October 31, 2016. A mediation conducted in early March 2016 was unsuccessful.

        The Company believes that its policies and practices comply with California law and that the Varela, Pleasant , and Sullivan actions are not appropriate for class or similar treatment. The Company intends to vigorously defend these actions; however, at this time, it is not possible to predict whether the Varela, Pleasant , or Sullivan action ultimately will be permitted to proceed as a class, and no assurances can be given that the Company will be successful in its defense of these actions on the merits or otherwise. Similarly, at this time the Company cannot estimate either the size of any potential class or the value of the claims asserted in the Varela , Pleasant , or Sullivan action. For these reasons, the Company is unable to estimate any potential loss or range of loss in these matters; however, if the Company is not successful in its defense efforts, the resolution of any of these actions could have a material adverse effect on the Company's consolidated financial statements as a whole.

        In December 2015, the Company was notified of seven lawsuits in which the plaintiffs allege violation of state consumer protection laws relating to the labeling, marketing and sale of Dollar General private-label motor oil. Six of these lawsuits were filed in various federal district courts of the United States: Bradford Barfoot and Leonard Karpeichik v. Dolgencorp, LLC (filed in the Southern District of Florida on December 18, 2015) ("Barfoot"); Milton M. Cooke, Jr. v. Dollar General Corporation (filed in the Southern District of Texas on December 21, 2015) ("Cooke"); William Flinn v. Dolgencorp, LLC (filed in the District Court for New Jersey on December 17, 2015) ("Flinn"); John J. McCormick, III v. Dolgencorp, LLC (filed in the District Court of Maryland on December 23, 2015) ("McCormick"); David Sanchez v. Dolgencorp, LLC (filed in the Central District of California on

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DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Commitments and contingencies (Continued)

December 17, 2015) ("Sanchez"); and Will Sisemore v. Dolgencorp, LLC (filed in the Northern District of Oklahoma on December 21, 2015) ("Sisemore").

        The seventh matter, Chuck Hill v. Dolgencorp, LLC ("Hill"), was filed in Orleans County Superior Court in Vermont on December 22, 2015, and subsequently removed to the United States District Court for the District of Vermont on February 8, 2016.

        In February and March 2016, the Company was notified of thirteen additional lawsuits alleging similar claims concerning Dollar General private-label motor oil. All of these lawsuits were filed in various federal district courts of the United States: Allen Brown v. Dollar General Corporation and DG Retail, LLC (filed in the District of Colorado on February 10, 2016) ("Brown"); Miriam Fruhling v. Dollar General Corporation and Dolgencorp, LLC (filed in the Southern District of Ohio on February 10, 2016) ("Fruhling"); John Foppe v. Dollar General Corporation and Dolgencorp, LLC (filed in the Eastern District of Kentucky on February 10, 2016) ("Foppe"); Kevin Gadson v. Dolgencorp, LLC (filed in the Southern District of New York on February 8, 2016) ("Gadson"); Bruce Gooel v. Dolgencorp, LLC (filed in the Eastern District of Michigan on February 8, 2016) ("Gooel"); Janine Harvey v. Dollar General Corporation and Dolgencorp, LLC (filed in the District Court for Nebraska on February 10, 2016) ("Harvey"); Nicholas Meyer v. Dollar General Corporation and DG Retail, LLC (filed in the District of Kansas on February 9, 2016) ("Meyer"); Robert Oren v. Dollar General Corporation and Dolgencorp, LLC (filed in the Western District of Missouri on February 8, 2016) ("Oren"); Scott Sheehy v. Dollar General Corporation and DG Retail, LLC (filed in the District Court for Minnesota on February 9, 2016) ("Sheehy"); Gerardo Solis v. Dollar General Corporation and DG Retail, LLC (filed in the Northern District of Illinois on February 12, 2016) ("Solis"); Roberto Vega v. Dolgencorp, LLC (filed in the Central District of California on February 8, 2016) ("Vega"); Matthew Wait v. Dollar General Corporation and Dolgencorp, LLC (filed in the Western District of Arkansas on February 16, 2016) ("Wait"); and James Taschner v. Dollar General Corporation and Dolgencorp, LLC (filed in the Eastern District of Missouri on March 15, 2016) ("Taschner").

        The plaintiffs in the Taschner, Vega and Sanchez matters seek to proceed on a nationwide and statewide class basis, while the plaintiffs in the other matters seek to proceed only on a statewide class basis. Each plaintiff seeks, for himself or herself and the putative class he or she seeks to represent, some or all of the following relief: compensatory damages, injunctive relief prohibiting the sale of the products at issue and requiring the dissemination of corrective advertising, certain statutory damages (including treble damages), punitive damages and attorneys' fees.

        On February 1, 2016, the Sanchez plaintiff voluntarily dismissed his complaint without prejudice.

        The Company filed a motion to dismiss the plaintiffs' claims and a motion to strike the class allegations in the Barfoot matter on February 4, 2016; in the Hill matter on February 8, 2016; in the Cooke matter on February 24, 2016; in the Sisemore matter on March 4, 2016; and in the Flinn matter on March 10, 2016.

        On March 7, 2016, the Company filed a motion with the United States Judicial Panel on Multidistrict Litigation requesting that all cases be transferred to the United States District Court for the Eastern District of Michigan, or, in the alternative to the Western District of Missouri or the Southern District of Florida, for consolidated pretrial proceedings ("Motion to Transfer"). After receiving notice of the Company's Motion to Transfer, the court stayed and administratively closed the Barfoot matter pending a transfer decision by the Judicial Panel on Multidistrict Litigation.

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DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Commitments and contingencies (Continued)

        The Company's responsive pleadings are due in the McCormick matter on March 21, 2016; in the Fruhling matter on April 4, 2016; in the Meyer matter on April 6, 2016; in the Sheehy matter on April 7, 2016; in the Solis matter on April 8, 2016; in the Foppe matter and Gooel matter on April 15, 2016; and in the Harvey , Oren and Vega matters on April 22, 2016.

        The Company believes that the labeling, marketing and sale of its private-label motor oil complies with applicable federal and state requirements and is not misleading. The Company further believes that these matters are not appropriate for class or similar treatment. The Company intends to vigorously defend these actions; however, at this time, it is not possible to predict whether any of these cases will be permitted to proceed as a class or the size of any putative class. Likewise, at this time, it is not possible to estimate the value of the claims asserted, and no assurances can be given that the Company will be successful in its defense of these actions on the merits or otherwise. For these reasons, the Company is unable to estimate the potential loss or range of loss in these matters; however if the Company is not successful in its defense efforts, the resolution of any of these actions could have a material adverse effect on the Company's consolidated financial statements as a whole.

        From time to time, the Company is a party to various other legal actions involving claims incidental to the conduct of its business, including actions by employees, consumers, suppliers, government agencies, or others through private actions, class actions, administrative proceedings, regulatory actions or other litigation, including without limitation under federal and state employment laws and wage and hour laws. The Company believes, based upon information currently available, that such other litigation and claims, both individually and in the aggregate, will be resolved without a material adverse effect on the Company's consolidated financial statements as a whole. However, litigation involves an element of uncertainty. Future developments could cause these actions or claims to have a material adverse effect on the Company's results of operations, cash flows, or financial position. In addition, certain of these lawsuits, if decided adversely to the Company or settled by the Company, may result in liability material to the Company's financial position or may negatively affect operating results if changes to the Company's business operation are required.

9. Benefit plans

        The Dollar General Corporation 401(k) Savings and Retirement Plan, which became effective on January 1, 1998, is a safe harbor defined contribution plan and is subject to the Employee Retirement and Income Security Act ("ERISA").

        A participant's right to claim a distribution of his or her account balance is dependent on the plan, ERISA guidelines and Internal Revenue Service regulations. All active participants are fully vested in all contributions to the 401(k) plan. During 2015, 2014 and 2013, the Company expensed approximately $15.0 million, $13.7 million and $13.0 million, respectively, for matching contributions.

        The Company also has a nonqualified supplemental retirement plan ("SERP") and compensation deferral plan ("CDP"), 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 $1.1 million, $0.8 million and $1.2 million in 2015, 2014 and 2013, respectively.

        The CDP/SERP Plan assets are invested in accounts selected by the Company's Compensation Committee or its delegate, and the associated deferred compensation liability is reflected in the consolidated balance sheets as further discussed in Note 6.

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DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Share-based payments

        The Company accounts for share-based payments in accordance with applicable accounting standards, under which the fair value of each award is separately estimated and amortized into compensation expense over the service period. The fair value of the Company's stock option grants are estimated on the grant date using the Black-Scholes-Merton valuation model. Forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period. The application of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense.

        On July 6, 2007, the Company's Board of Directors adopted the 2007 Stock Incentive Plan for Key Employees, which plan was subsequently amended (as so amended, 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. The number of shares of Company common stock authorized for grant under the Plan is 31,142,858. As of January 29, 2016, 18,556,241 of such shares are available for future grants.

        Since May 2011, most of the share-based awards issued by the Company have been in the form of stock options, restricted stock, restricted stock units and performance share units. With limited exceptions, stock options and restricted stock units granted to employees generally vest ratably on an annual basis over four-year and three-year periods, respectively. Awards granted to board members generally vest ratably over a one or three-year period. Performance share units generally vest ratably over a three-year period, provided that certain minimum performance criteria are met in the year of grant. With limited exceptions, the performance share unit and restricted stock unit awards are payable in shares of common stock on the vesting date.

        From July 2007 through May 2011, a significant majority of the Company's share-based awards were a combination of stock options that vest solely upon the continued employment of the recipient ("MSA Time Options") and options that vest upon the achievement of predetermined annual or cumulative financial-based targets ("MSA Performance Options") (collectively, the "MSA Options"). MSA Options generally vest ratably on an annual basis over a period of approximately five years, with limited exceptions. The MSA Options are subject to various provisions set forth in a management stockholder's agreement ("MSA") entered into with each option holder. The MSA Options have a contractual term of 10 years and an exercise price equal to the fair value of the underlying common stock on the date of grant.

        The weighted average for key assumptions used in determining the fair value of all stock options granted in the years ended January 29, 2016, January 30, 2015, and January 31, 2014, and a summary of the methodology applied to develop each assumption, are as follows:

 
  January 29,
2016
  January 30,
2015
  January 31,
2014
 

Expected dividend yield

    1.2 %   0 %   0 %

Expected stock price volatility

    25.3 %   25.6 %   26.2 %

Weighted average risk-free interest rate

    1.8 %   1.9 %   1.2 %

Expected term of options (years)

    6.4     6.3     6.3  

70



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Share-based payments (Continued)

        Expected dividend yield—This is an estimate of the expected dividend yield on the Company's stock. An increase in the dividend yield will decrease compensation expense.

        Expected stock price volatility—This is a measure of the amount by which the price of the Company's common stock has fluctuated or is expected to fluctuate. Since November 2011, the expected volatilities for awards have been based on the historical volatility of the Company's publicly traded common stock. An increase in the expected volatility will increase compensation expense.

        Weighted average risk-free interest rate—This is the U.S. Treasury rate for the week of the grant having a term approximating the expected life of the option. An increase in the risk-free interest rate will increase compensation expense.

        Expected term of options—This is the period of time over which the options granted are expected to remain outstanding. The Company has estimated the expected term as the mid-point between the vesting date and the contractual term of the option. An increase in the expected term will increase compensation expense.

        A summary of the Company's stock option activity, exclusive of options subject to an MSA, during the year ended January 29, 2016 is as follows:

(Intrinsic value amounts reflected in thousands)
  Options
Issued
  Average
Exercise
Price
  Remaining
Contractual
Term in Years
  Intrinsic
Value
 

Balance, January 30, 2015

    2,399,124   $ 49.69              

Granted

    1,247,557     74.73              

Exercised

    (703,956 )   45.66              

Canceled

    (512,760 )   61.67              

Balance, January 29, 2016

    2,429,965   $ 61.19     8.1   $ 33,701  

Exercisable at January 29, 2016

    517,375   $ 47.31     6.7   $ 14,355  

        The weighted average grant date fair value per share of non-MSA options granted was $18.48, $17.26 and $13.86 during 2015, 2014 and 2013, respectively. The intrinsic value of non-MSA options exercised during 2015, 2014, and 2013 was $20.8 million, $2.5 million and $0.8 million, respectively.

        The number of performance share unit awards earned is based upon the Company's annual financial performance in the year of grant as specified in the award agreement. A summary of performance share unit award activity during the year ended January 29, 2016 is as follows:

(Intrinsic value amounts reflected in thousands)
  Units
Issued
  Intrinsic
Value
 

Balance, January 30, 2015

    212,583        

Granted

    103,666        

Converted to common stock

    (120,417 )      

Canceled

    (51,735 )      

Balance, January 29, 2016

    144,097   $ 10,816  

71



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Share-based payments (Continued)

        The weighted average grant date fair value per share of performance share units granted was $74.72, $57.91 and $48.11 during 2015, 2014, and 2013, respectively.

        A summary of restricted stock unit award activity during the year ended January 29, 2016 is as follows:

(Intrinsic value amounts reflected in thousands)
  Units
Issued
  Intrinsic
Value
 

Balance, January 30, 2015

    714,858        

Granted

    383,134        

Converted to common stock

    (326,383 )      

Canceled

    (130,699 )      

Balance, January 29, 2016

    640,910   $ 48,107  

        The weighted average grant date fair value per share of restricted stock units granted was $74.67, $57.87 and $48.20 during 2015, 2014 and 2013, respectively.

        At January 29, 2016, 173,091 MSA Time Options were outstanding, all of which were exercisable, with an average exercise price of $20.36, an average remaining contractual term of 3.8 years, and an aggregate intrinsic value of $9.5 million. The intrinsic value of MSA Time Options exercised during 2015, 2014 and 2013 was $6.6 million, $6.8 million and $39.4 million, respectively.

        At January 29, 2016, 151,097 MSA Performance Options were outstanding, all of which were exercisable, with an average exercise price of $21.23, an average remaining contractual term of 3.9 years, and an aggregate intrinsic value of $8.1 million. The intrinsic value of MSA Performance Options exercised during 2015, 2014 and 2013 was $4.9 million, $4.9 million and $39.1 million, respectively.

        In March 2012, the Company issued a performance-based award of 326,037 shares of restricted stock to its former Chairman and Chief Executive Officer. The restricted stock award had a fair value on the grant date of $45.25 per share, with the award scheduled to vest in one-half increments contingent upon, among other things, meeting certain specified earnings per share targets for 2014 and 2015. The target for 2014 was met and the applicable shares vested. Certain conditions relating to the 2015 tranche of the award were not satisfied and therefore the applicable shares did not vest.

        At January 29, 2016, the total unrecognized compensation cost related to nonvested stock-based awards was $48.2 million with an expected weighted average expense recognition period of 1.7 years.

72



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Share-based payments (Continued)

        The fair value method of accounting for share-based awards resulted in share-based compensation expense (a component of SG&A expenses) and a corresponding reduction in net income before income taxes as follows:

(In thousands)
  Stock
Options
  Performance
Share Units
  Restricted
Stock Units
  Restricted
Stock
  Total  

Year ended January 29, 2016

                               

Pre-tax

  $ 11,113   $ 4,856   $ 22,578   $   $ 38,547  

Net of tax

  $ 6,779   $ 2,962   $ 13,772   $   $ 23,513  

Year ended January 30, 2015

   
 
   
 
   
 
   
 
   
 
 

Pre-tax

  $ 8,533   $ 5,461   $ 15,968   $ 7,376   $ 37,338  

Net of tax

  $ 5,206   $ 3,332   $ 9,742   $ 4,500   $ 22,780  

Year ended January 31, 2014

   
 
   
 
   
 
   
 
   
 
 

Pre-tax

  $ 7,634   $ 3,448   $ 9,879   $   $ 20,961  

Net of tax

  $ 4,649   $ 2,100   $ 6,016   $   $ 12,765  

11. Segment reporting

        The Company manages its business on the basis of one reportable operating segment. See Note 1 for a brief description of the Company's business. As of January 29, 2016, all of the Company's operations were located within the United States with the exception of certain subsidiaries in Hong Kong and China and a liaison office in India, 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.

(In thousands)
  2015   2014   2013  

Classes of similar products:

                   

Consumables

  $ 15,457,611   $ 14,321,080   $ 13,161,825  

Seasonal

    2,522,701     2,344,993     2,259,516  

Home products

    1,289,423     1,205,373     1,115,648  

Apparel

    1,098,827     1,038,142     967,178  

Net sales

  $ 20,368,562   $ 18,909,588   $ 17,504,167  

12. Common stock transactions

        On August 29, 2012, the Company's Board of Directors authorized a common stock repurchase program, which the Board has increased on several occasions. Most recently, on December 2, 2015, the Company's Board of Directors authorized a $1.0 billion increase to the existing common stock repurchase program. As of January 29, 2016, a cumulative total of $4.0 billion had been authorized under the program since its inception and $923.8 million remained available for repurchase. 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

73



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

12. Common stock transactions (Continued)

under the Company's debt agreements and other factors. Repurchases under the program may be funded from available cash or borrowings under the Facilities discussed in further detail in Note 5.

        During the years ended January 29, 2016, January 30, 2015, and January 31, 2014, the Company repurchased approximately 17.6 million shares of its common stock at a total cost of $1.3 billion, approximately 14.1 million shares at a total cost of $0.8 billion and approximately 11.0 million shares of its common stock at a total cost of $0.6 billion, respectively, pursuant to its common stock repurchase programs.

        The Company paid quarterly cash dividends of $0.22 per share during each of the four quarters of 2015. On March 8, 2016, the Company's Board of Directors approved a quarterly cash dividend of $0.25 per share, which is payable on April 12, 2016 to shareholders of record as of March 29, 2016. The declaration of future cash dividends is subject to the 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.

13. Corporate restructuring

        On October 13, 2015, the Company implemented a restructuring of its corporate support functions, including the elimination of approximately 255 positions, substantially all of which were at the Company's corporate headquarters and effective immediately. The restructuring is part of a broader initiative aimed at improving efficiencies and reducing expenses.

        The Company incurred pretax expense of $6.1 million associated with this restructuring for severance-related benefits. This expense is reflected in Selling, general, and administrative expenses on the Company's consolidated statements of income for the year ended January 29, 2016. As of January 29, 2016, the remaining liability related to these charges is $3.5 million.

14. Quarterly financial data (unaudited)

        The following is selected unaudited quarterly financial data for the fiscal years ended January 29, 2016 and January 30, 2015. Each quarterly period listed below was a 13-week accounting period. The sum of the four quarters for any given year may not equal annual totals due to rounding.

(In thousands)
  First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter
 

2015:

                         

Net sales

  $ 4,918,672   $ 5,095,904   $ 5,067,048   $ 5,286,938  

Gross profit

    1,498,705     1,588,155     1,536,962     1,682,269  

Operating profit

    428,194     475,812     423,859     612,429  

Net income

    253,235     282,349     253,321     376,175  

Basic earnings per share

    0.84     0.95     0.87     1.30  

Diluted earnings per share

    0.84     0.95     0.86     1.30  

74



DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Quarterly financial data (unaudited) (Continued)

 

(In thousands)
  First
Quarter
  Second
Quarter
  Third
Quarter
  Fourth
Quarter
 

2014:

                         

Net sales

  $ 4,522,081   $ 4,724,039   $ 4,724,409   $ 4,939,059  

Gross profit

    1,357,746     1,455,574     1,423,748     1,565,439  

Operating profit

    379,708     428,526     394,143     566,716  

Net income

    222,398     251,260     236,316     355,371  

Basic earnings per share

    0.72     0.83     0.78     1.17  

Diluted earnings per share

    0.72     0.83     0.78     1.17  

        As discussed in Note 13, in the third quarter of 2015, the Company implemented a restructuring of its corporate support functions. As a result, the Company incurred expenses, primarily related to severance-related benefits, of $6.1 million ($3.7 million net of tax, or $0.01 per diluted share), which was recognized as Selling, general, and administrative expense.

        In the third and fourth quarters of 2014, the Company incurred expenses related to an attempted acquisition of $8.2 million ($7.4 million net of tax, or $0.02 per diluted share) and $6.1 million ($1.3 million net of tax, or $0.00 per diluted share), respectively, which were recognized as Selling, general and administrative expenses.

75


ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        Not applicable.

ITEM 9A.    CONTROLS AND PROCEDURES

         (a)    Disclosure Controls and Procedures.     Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) or 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

         (b)    Management's Annual Report on Internal Control Over Financial Reporting.     Our management prepared and is responsible for the consolidated financial statements and all related financial information contained in this report. This responsibility includes establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) or 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with United States generally accepted accounting principles.

        To comply with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, management designed and implemented a structured and comprehensive assessment process to evaluate the effectiveness of its internal control over financial reporting. Such assessment was based on criteria established in Internal Control—Integrated Framework (2013 Framework) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Because of its inherent limitations, a system of internal control over financial reporting can provide only reasonable assurance and may not prevent or detect misstatements. Management regularly monitors our internal control over financial reporting, and actions are taken to correct any deficiencies as they are identified. Based on its assessment, management has concluded that our internal control over financial reporting is effective as of January 29, 2016.

        Ernst & Young LLP, the independent registered public accounting firm that audited our consolidated financial statements, has issued an attestation report on management's assessment of our internal control over financial reporting. Such attestation report is contained below.

76


         (c)    Attestation Report of Independent Registered Public Accounting Firm.     


Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of
Dollar General Corporation

        We have audited Dollar General Corporation and subsidiaries' internal control over financial reporting as of January 29, 2016, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Dollar General Corporation and subsidiaries' management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

        A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

        In our opinion, Dollar General Corporation and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of January 29, 2016, based on the COSO criteria.

        We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Dollar General Corporation and subsidiaries as of January 29, 2016 and January 30, 2015, and 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, 2016 of Dollar General Corporation and subsidiaries and our report dated March 22, 2016 expressed an unqualified opinion thereon.

    /s/ Ernst & Young LLP

Nashville, Tennessee
March 22, 2016

77


         (d)    Changes in Internal Control Over Financial Reporting.     There have been no changes during the quarter ended January 29, 2016 in our internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B.    OTHER INFORMATION

        On March 7, 2016, Mr. John W. Flanigan, Executive Vice President, Global Supply Chain, advised the Company of his intent to retire effective April 29, 2016.

        On March 16, 2016, the Company's Compensation Committee (the "Committee") awarded 119,599 non-qualified stock options ("Options") and 27,367 performance share units ("PSUs") to Mr. Vasos and 32,890 Options and 7,526 PSUs to each of Messrs. Garratt, Flanigan and Ravener and Ms. Taylor on the terms and subject to the conditions set forth in the form of Option award agreement and form of PSU award agreement attached hereto as Exhibit 10.5 and Exhibit 10.10, respectively (collectively, the "Form Award Agreements"), and subject to the terms and conditions of the previously filed Amended and Restated 2007 Stock Incentive Plan for Key Employees of Dollar General Corporation (the "Plan").

        The Options have a term of ten years and, subject to earlier forfeiture or accelerated vesting under certain circumstances described in the form of Option award agreement, generally will vest in four equal annual installments beginning on April 1, 2017.

        The PSUs represent a target number of units that can be earned if certain performance measures are achieved during the performance period (which is the Company's fiscal year 2016) (the "Performance Period") and if certain additional vesting requirements are met. The performance measures are goals related to adjusted EBITDA (weighted 50%) and ROIC (weighted 50%) as established by the Committee on the grant date. The number of PSUs earned will vary between 0% and 300% of the target amount based on actual performance compared to target performance on a graduated scale, with performance at the target level resulting in 100% of the target number of PSUs being earned. At the conclusion of the Performance Period, the Committee will determine the level of achievement of each performance goal measure and the corresponding number of PSUs earned by each grantee. Subject to certain pro-rata vesting conditions, one-third of the PSUs earned by each grantee will vest on the last day of the Performance Period and be paid on April 1, 2017. The remaining two-thirds of the PSUs earned by each grantee will vest in equal installments on April 1, 2018 and April 1, 2019, in each case subject to the grantee's continued employment with the Company and certain accelerated vesting provisions described in the form of PSU award agreement.

        The Form Award Agreements also provide that in the event of a Change in Control (as defined in the Form Award Agreements) of the Company, a grantee will only receive an accelerated payout of his or her equity award if a Qualifying Termination (as defined in the Form Award Agreements) occurs within two years following the Change in Control.

        Also, on March 16, 2016, in addition to the award of Options and PSUs as outlined above, the Committee awarded Mr. Vasos 85,759 Options according to the terms of the form of Option award agreement attached hereto as Exhibit 10.38 and subject to the terms and conditions of the Plan. Subject to certain forfeiture and limited vesting acceleration events (including the same Change in Control provisions as described above), such Option award is scheduled to vest ratably in installments of 33 1/3% on each of the third, fourth and fifth anniversaries of the grant date, subject to holding requirements through the fifth anniversary of the grant date, and will terminate no later than ten years from the grant date.

        The foregoing descriptions of all Options and PSU awards and the forms of award agreements are summaries only, do not purport to be complete, and are qualified in their entirety by reference to the filed forms of award agreement attached hereto as Exhibits 10.5, 10.10 and 10.38.

78



PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

         (a)    Information Regarding Directors and Executive Officers.     The information required by this Item 10 regarding our directors and director nominees is contained under the captions "Who are the nominees this year," "What are the backgrounds of this year's nominees," "Are there any familial relationships between any of the nominees," "How are directors identified and nominated," and "What particular experience, qualifications, attributes or skills led the Board of Directors to conclude that each nominee should serve as a director of Dollar General," all under the heading "Proposal 1: Election of Directors" in our definitive Proxy Statement to be filed for our Annual Meeting of Shareholders to be held on May 25, 2016 (the "2016 Proxy Statement"), which information under such captions is incorporated herein by reference. Information required by this Item 10 regarding our executive officers is contained in Part I of this Form 10-K under the caption "Executive Officers of the Registrant," which information under such caption is incorporated herein by reference.

         (b)    Compliance with Section 16(a) of the Exchange Act.    Information required by this Item 10 regarding compliance with Section 16(a) of the Exchange Act is contained under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the 2016 Proxy Statement, which information under such caption is incorporated herein by reference.

         (c)    Code of Business Conduct and Ethics.     We have adopted a Code of Business Conduct and Ethics that applies to all of our employees, officers and Board members. This Code is posted on the Investor Information section of our Internet website at www.dollargeneral.com. If we choose to no longer post such Code, we will provide a free copy to any person upon written request to Dollar General Corporation, c/o Investor Relations Department, 100 Mission Ridge, Goodlettsville, TN 37072. We intend to provide any required disclosure of an amendment to or waiver from such Code that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, on our Internet website located at www.dollargeneral.com promptly following the amendment or waiver. We may elect to disclose any such amendment or waiver in a report on Form 8-K filed with the SEC either in addition to or in lieu of the website disclosure. The information contained on or connected to our Internet website is not incorporated by reference into this Form 10-K and should not be considered part of this or any other report that we file with or furnish to the SEC.

         (d)    Procedures for Shareholders to Nominate Directors.     There have been no material changes to the procedures by which security holders may recommend nominees to the registrant's Board of Directors.

         (e)    Audit Committee Information.     Information required by this Item 10 regarding our audit committee and our audit committee financial experts is contained under the captions "Corporate Governance—Does the Board of Directors have standing Audit, Compensation and Nominating Committees" and "—Does Dollar General have an audit committee financial expert serving on its Audit Committee" in the 2016 Proxy Statement, which information under such captions is incorporated herein by reference.

ITEM 11.    EXECUTIVE COMPENSATION

        The information required by this Item 11 regarding director and executive officer compensation, the Compensation Committee Report, the risks arising from our compensation policies and practices for employees, and compensation committee interlocks and insider participation is contained under the captions "Director Compensation" and "Executive Compensation" in the 2016 Proxy Statement, which information under such captions is incorporated herein by reference.

79


ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

         (a)    Equity Compensation Plan Information.     The following table sets forth information about securities authorized for issuance under our compensation plans (including individual compensation arrangements) as of January 29, 2016:

Plan category
  Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
(a)
  Weighted-average
exercise price of
outstanding options,
warrants and rights
(b)
  Number of
securities remaining
available for future
issuance under
equity compensation
plans (excluding
securities reflected
in column (a))
(c)
 

Equity compensation plans approved by security holders(1)

    3,539,160   $ 56.43     18,556,241  

Equity compensation plans not approved by security holders

             

Total(1)

    3,539,160   $ 56.43     18,556,241  

(1)
Column (a) consists of shares of common stock issuable upon exercise of outstanding options and upon vesting and payment of share units and deferred shares, including dividend equivalents accrued thereon, under the Amended and Restated 2007 Stock Incentive Plan. Share units, deferred shares and dividend equivalents are settled for shares of common stock on a one-for-one basis and have no exercise price. Accordingly, they have been excluded for purposes of computing the weighted-average exercise price in column (b). Column (c) consists of shares reserved for issuance pursuant to the Amended and Restated 2007 Stock Incentive Plan, whether in the form of stock, restricted stock, share units, or other share-based awards or upon the exercise of an option or right.

         (b)    Other Information.     The information required by this Item 12 regarding security ownership of certain beneficial owners and our management is contained under the caption "Security Ownership" in the 2016 Proxy Statement, which information under such caption is incorporated herein by reference.

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

        The information required by this Item 13 regarding certain relationships and related transactions is contained under the caption "Transactions with Management and Others" in the 2016 Proxy Statement, which information under such caption is incorporated herein by reference.

        The information required by this Item 13 regarding director independence is contained under the caption "Director Independence" in the 2016 Proxy Statement, which information under such caption is incorporated herein by reference.

ITEM 14.    PRINCIPAL ACCOUNTING FEES AND SERVICES

        The information required by this Item 14 regarding fees we paid to our principal accountant and the pre-approval policies and procedures established by the Audit Committee of our Board of Directors is contained under the caption "Fees Paid to Auditors" in the 2016 Proxy Statement, which information under such caption is incorporated herein by reference.

80



PART IV

ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)   Report of Independent Registered Public Accounting Firm        
    Consolidated Balance Sheets        
    Consolidated Statements of Income        
    Consolidated Statements of Comprehensive Income        
    Consolidated Statements of Shareholders' Equity        
    Consolidated Statements of Cash Flows        
    Notes to Consolidated Financial Statements        

(b)

 

All schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related instructions, are inapplicable or the information is included in the Consolidated Financial Statements and, therefore, have been omitted.

 

(c)

 

Exhibits:    See Exhibit Index immediately following the signature pages hereto, which Exhibit Index is incorporated by reference as if fully set forth herein.

 

81



SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  DOLLAR GENERAL CORPORATION

Date: March 22, 2016

 

By:

 

/s/ TODD J. VASOS


Todd J. Vasos,
Chief Executive Officer

        We, the undersigned directors and officers of the registrant, hereby severally constitute Todd J. Vasos, John W. Garratt II and Anita C. Elliott, and each of them singly, our true and lawful attorneys with full power to them and each of them to sign for us, and in our names in the capacities indicated below, any and all amendments to this Annual Report on Form 10-K filed with the Securities and Exchange Commission.

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name
 
Title
 
Date

 

 

 

 

 
/s/ TODD J. VASOS

TODD J. VASOS
  Chief Executive Officer & Director (Principal Executive Officer)   March 22, 2016

/s/ JOHN W. GARRATT

JOHN W. GARRATT

 

Executive Vice President & Chief Financial Officer (Principal Financial Officer)

 

March 22, 2016

/s/ ANITA C. ELLIOTT

ANITA C. ELLIOTT

 

Senior Vice President & Chief Accounting Officer (Principal Accounting Officer)

 

March 22, 2016

/s/ WARREN F. BRYANT

WARREN F. BRYANT

 

Director

 

March 22, 2016

/s/ MICHAEL M. CALBERT

MICHAEL M. CALBERT

 

Director

 

March 22, 2016

/s/ SANDRA B. COCHRAN

SANDRA B. COCHRAN

 

Director

 

March 22, 2016

82


Name
 
Title
 
Date

 

 

 

 

 
/s/ PATRICIA D. FILI-KRUSHEL

PATRICIA D. FILI-KRUSHEL
  Director   March 22, 2016

/s/ PAULA A. PRICE

PAULA A. PRICE

 

Director

 

March 22, 2016

/s/ WILLIAM C. RHODES, III

WILLIAM C. RHODES, III

 

Director

 

March 22, 2016

/s/ DAVID B. RICKARD

DAVID B. RICKARD

 

Director

 

March 22, 2016

83



EXHIBIT INDEX

  3.1   Amended and Restated Charter of Dollar General Corporation (complete copy as amended for SEC filing purposes only) (incorporated by reference to Exhibit 3.1 to Dollar General Corporation's Quarterly Report on Form 10-Q for the quarter ended May 3, 2013, filed with the SEC on June 4, 2013 (file no. 001-11421))
        
  3.2   Amended and Restated Bylaws of Dollar General Corporation (incorporated by reference to Exhibit 3.2 to Dollar General Corporation's Current Report on Form 8-K dated November 18, 2009, filed with the SEC on November 18, 2009 (file no. 001-11421))
        
  4.1   Form of Stock Certificate for Common Stock (incorporated by reference to Exhibit 4.1 to Dollar General Corporation's Registration Statement on Form S-1 (file no. 333-161464))
        
  4.2   Form of 4.125% Senior Notes due 2017 (included in Exhibit 4.7)
        
  4.3   Form of 1.875% Senior Notes due 2018 (included in Exhibit 4.8)
        
  4.4   Form of 3.250% Senior Notes due 2023 (included in Exhibit 4.9)
        
  4.5   Form of 4.150% Senior Notes due 2025 (included in Exhibit 4.10)
        
  4.6   Indenture, dated as of July 12, 2012, between Dollar General Corporation, as issuer, and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Dollar General Corporation's Current Report on Form 8-K dated July 12, 2012, filed with the SEC on July 17, 2012 (file no. 001-11421))
        
  4.7   First Supplemental Indenture, dated as of July 12, 2012, among Dollar General Corporation, as issuer, the subsidiary guarantors named therein, and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Dollar General Corporation's Current Report on Form 8-K dated July 12, 2012, filed with the SEC on July 17, 2012 (file no. 001-11421))
        
  4.8   Third Supplemental Indenture, dated as of April 11, 2013, between Dollar General Corporation, as issuer, and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Dollar General Corporation's Current Report on Form 8-K dated April 8, 2013 and filed with the SEC on April 11, 2013 (file no. 001-11421))
        
  4.9   Fourth Supplemental Indenture, dated as of April 11, 2013, between Dollar General Corporation, as issuer, and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.2 to Dollar General Corporation's Current Report on Form 8-K dated April 8, 2013 and filed with the SEC on April 11, 2013 (file no. 001-11421))
        
  4.10   Fifth Supplemental Indenture, dated as of October 20, 2015, between Dollar General Corporation, as issuer, and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 4.1 to Dollar General Corporation's Current Report on Form 8-K dated October 15, 2015, filed with the SEC on October 20, 2015 (file no. 001-11421))
        
  4.11   Amended and Restated Credit Agreement, dated as of October 20, 2015, among Dollar General Corporation, as borrower, Citibank, N.A., as administrative agent, and the other credit parties and lenders party thereto (incorporated by reference to Exhibit 4.3 to Dollar General Corporation's Current Report on Form 8-K dated October 15, 2015 and filed with the SEC on October 20, 2015 (file no. 001-11421))
 
   

84


  10.1   Amended and Restated 2007 Stock Incentive Plan for Key Employees of Dollar General Corporation and its Affiliates (effective June 1, 2012) (incorporated by reference to Appendix A to Dollar General Corporation's Definitive Proxy Statement filed with the SEC on April 5, 2012 (file no. 001-11421))*
        
  10.2   Form of Stock Option Award Agreement (approved May 24, 2011) for awards made prior to December 2014 to certain newly hired and promoted employees of Dollar General Corporation pursuant to the Amended and Restated 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to Dollar General Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended April 29, 2011, filed with the SEC on June 1, 2011 (file no. 001-11421))*
        
  10.3   Form of Stock Option Award Agreement (approved March 20, 2012) for annual awards beginning March 20, 2012 and prior to March 2015 to certain employees of Dollar General Corporation pursuant to the Amended and Restated 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to Dollar General Corporation's Current Report on Form 8-K dated March 20, 2012, filed with the SEC on March 26, 2012 (file no. 001-11421)) *
        
  10.4   Form of Stock Option Award Agreement (approved August 26, 2014) for annual awards beginning March 2015 and prior to March 2016 to certain employees of Dollar General Corporation pursuant to the Amended and Restated 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to Dollar General Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2014, filed with the SEC on December 4, 2014 (file no. 001-11421))*
        
  10.5   Form of Stock Option Award Agreement (approved March 16, 2016) for awards beginning March 2016 to certain employees of Dollar General Corporation pursuant to the Amended and Restated 2007 Stock Incentive Plan*
        
  10.6   Form of Stock Option Award Agreement (approved August 26, 2014) for awards beginning December 2014 and prior to May 2016 to certain newly hired and promoted employees of Dollar General Corporation pursuant to the Amended and Restated 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to Dollar General Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2014, filed with the SEC on December 4, 2014 (file no. 001-11421))*
        
  10.7   Form of Performance Share Unit Award Agreement (approved March 20, 2012) for annual awards prior to March 2014 to certain employees of Dollar General Corporation pursuant to the Amended and Restated 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to Dollar General Corporation's Current Report on Form 8-K dated March 20, 2012, filed with the SEC on March 26, 2012 (file no. 001-11421))*
        
  10.8   Form of Performance Share Unit Award Agreement (approved March 18, 2014) for annual awards beginning March 2014 and prior to March 2015 to certain employees of Dollar General Corporation pursuant to the Amended and Restated 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to Dollar General Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended May 2, 2014, filed with the SEC on June 3, 2014 (file no. 001-11421))*
 
   

85


  10.9   Form of Performance Share Unit Award Agreement (approved August 26, 2014) for annual awards beginning March 2015 and prior to March 2016 to certain employees of Dollar General Corporation pursuant to the Amended and Restated 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to Dollar General Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2014, filed with the SEC on December 4, 2014 (file no. 001-11421))*
        
  10.10   Form of Performance Share Unit Award Agreement (approved March 16, 2016) for awards beginning March 2016 to certain employees of Dollar General Corporation pursuant to the Amended and Restated 2007 Stock Incentive Plan*
        
  10.11   Form of Restricted Stock Unit Award Agreement (approved March 20, 2012) for annual awards made prior to March 2015 to certain employees of Dollar General Corporation pursuant to the Amended and Restated 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to Dollar General Corporation's Current Report on Form 8-K dated March 20, 2012, filed with the SEC on March 26, 2012 (file no. 001-11421))*
        
  10.12   Form of Restricted Stock Unit Award Agreement (approved March 17, 2015) for awards beginning March 2015 and prior to March 2016 to certain employees of Dollar General Corporation pursuant to the Amended and Restated 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.2 to Dollar General Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended May 1, 2015, filed with the SEC on June 2, 2015 (file no. 001-11421))*
        
  10.13   Form of Restricted Stock Unit Award Agreement (approved March 16, 2016) for awards beginning March 2016 to certain employees of Dollar General Corporation pursuant to the Amended and Restated 2007 Stock Incentive Plan*
        
  10.14   Waiver of Certain Limitations Set Forth in Option Agreements Pertaining to Options Previously Granted under the Amended and Restated 2007 Stock Incentive Plan, effective August 26, 2010 (incorporated by reference to Exhibit 10.3 to Dollar General Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended July 30, 2010, filed with the SEC on August 31, 2010 (file no. 001-11421))*
        
  10.15   Waiver of Transfer Restrictions dated February 1, 2013 (incorporated by reference to Exhibit 99 to Dollar General Corporation's Current Report on Form 8-K dated February 1, 2013, filed with the SEC on February 5, 2013 (file no. 001-11421))*
        
  10.16   Form of Restricted Stock Unit Award Agreement for awards prior to May 24, 2011 to non-employee directors of Dollar General Corporation pursuant to the Amended and Restated 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.15 to Dollar General Corporation's Registration Statement on Form S-1 (file no. 333-161464))
        
  10.17   Form of Restricted Stock Unit Award Agreement (approved May 24, 2011) for awards prior to May 29, 2014 to non-employee directors of Dollar General Corporation pursuant to the Amended and Restated 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.3 to Dollar General Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended April 29, 2011, filed with the SEC on June 1, 2011 (file no. 001-11421))
        
  10.18   Form of Restricted Stock Unit Award Agreement (approved May 28, 2014) for awards beginning May 29, 2014 and prior to February 2015 to non-employee directors of Dollar General Corporation pursuant to the Amended and Restated 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.4 to Dollar General Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended May 2, 2014, filed with the SEC on June 3, 2014 (file no. 001-11421))
 
   

86


  10.19   Form of Restricted Stock Unit Award Agreement (approved December 3, 2014) for awards beginning February 2015 to non-employee directors of Dollar General Corporation pursuant to the Amended and Restated 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.7 to Dollar General Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2014, filed with the SEC on December 4, 2014 (file no. 001-11421))
        
  10.20   Form of Restricted Stock Unit Award Agreement (approved January 26, 2016) for awards beginning February 1, 2016 to non-executive Chairmen of the Board of Directors of Dollar General Corporation pursuant to the Amended and Restated 2007 Stock Incentive Plan
        
  10.21   Form of Stock Option Award Agreement for awards to non-employee directors of Dollar General Corporation pursuant to the Amended and Restated 2007 Stock Incentive Plan (incorporated by reference to Exhibit 10.16 to Dollar General Corporation's Registration Statement on Form S-1 (file no. 333-161464))
        
  10.22   Dollar General Corporation CDP/SERP Plan (as amended and restated effective December 31, 2007) (incorporated by reference to Exhibit 10.10 to Dollar General Corporation's Registration Statement on Form S-4 (file no. 333-148320))*
        
  10.23   First Amendment to the Dollar General Corporation CDP/SERP Plan (as amended and restated effective December 31, 2007) (incorporated by reference to Exhibit 10.11 to Dollar General Corporation's Registration Statement on Form S-4 (file no. 333-148320))*
        
  10.24   Second Amendment to the Dollar General Corporation CDP/SERP Plan (as amended and restated effective December 31, 2007), dated as of June 3, 2008 (incorporated by reference to Exhibit 10.6 to Dollar General Corporation's Quarterly Report on Form 10-Q for the quarter ended August 1, 2008, filed with the SEC on September 3, 2008 (file no. 001-11421))*
        
  10.25   Dollar General Corporation Non-Employee Director Deferred Compensation Plan (approved December 3, 2014) (incorporated by reference to Exhibit 10.6 to Dollar General Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2014, filed with the SEC on December 4, 2014 (file no. 001-11421))
        
  10.26   Amended and Restated Dollar General Corporation Annual Incentive Plan (effective June 1, 2012) (incorporated by reference to Appendix B to the Dollar General Corporation's Definitive Proxy Statement filed with the SEC on April 5, 2012 (file no. 001-11421))*
        
  10.27   Dollar General Corporation 2015 Teamshare Bonus Program for Named Executive Officers (incorporated by reference to Exhibit 10.1 to Dollar General Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended May 1, 2015, filed with the SEC on June 2, 2015 (file no. 001-11421))*
        
  10.28   Summary of Dollar General Corporation Life Insurance Program as Applicable to Executive Officers (incorporated by reference to Exhibit 10.19 to Dollar General Corporation's Annual Report on Form 10-K for the fiscal year ended February 2, 2007, filed with the SEC on March 29, 2007) (file no. 001-11421))*
        
  10.29   Dollar General Corporation Executive Relocation Policy, as amended (effective July 16, 2014) (incorporated by reference to Exhibit 10.1 to Dollar General Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended August 1, 2014, filed with the SEC on August 28, 2014 (file no. 001-11421))*
 
   

87


  10.30   Dollar General Corporation Executive Relocation Policy, as amended (effective September 22, 2015) (incorporated by reference to Exhibit 10.2 to Dollar General Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended October 30, 2015, filed with the SEC on December 3, 2015 (file no. 001-11421))*
        
  10.31   Summary of Non-Employee Director Compensation effective January 30, 2016
        
  10.32   Employment Transition Agreement, effective March 10, 2015, between Dollar General Corporation and Richard W. Dreiling (incorporated by reference to Exhibit 99 to Dollar General Corporation's Current Report on Form 8-K dated March 10, 2015, filed with the SEC on March 13, 2015 (file no. 001-11421))*
        
  10.33   Restricted Stock Unit Award Agreement, dated March 17, 2015, between Dollar General Corporation and Richard W. Dreiling (incorporated by reference to Exhibit 99 to Dollar General Corporation's Current Report on Form 8-K dated March 17, 2015, filed with the SEC on March 19, 2015 (file no. 001-11421))*
        
  10.34   Employment Agreement, effective April 1, 2012, between Dollar General Corporation and David M. Tehle (incorporated by reference to Exhibit 99.1 to Dollar General Corporation's Current Report on Form 8-K dated April 16, 2012, filed with the SEC on April 19, 2012 (file no. 001-11421))*
        
  10.35   Amendment to Employment Agreement, effective March 18, 2014, between Dollar General Corporation and David M. Tehle (incorporated by reference to Exhibit 10.32 to Dollar General Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 2014, filed with the SEC on March 20, 2014 (file no. 001-11421))*
        
  10.36   Employment Agreement, effective June 3, 2015, between Dollar General Corporation and Todd J. Vasos (incorporated by reference to Exhibit 99.3 to Dollar General Corporation's Current Report on Form 8-K dated May 27, 2015, filed with the SEC on May 28, 2015 (file no. 001-11421))*
        
  10.37   Form of Stock Option Award Agreement between Dollar General Corporation and Todd J. Vasos for June 3, 2015 award (incorporated by reference to Exhibit 99.2 to Dollar General Corporation's Current Report on Form 8-K dated May 27, 2015, filed with the SEC on May 28, 2015 (file no. 001-11421))*
        
  10.38   Form of Stock Option Award Agreement between Dollar General Corporation and Todd J. Vasos (approved March 16, 2016)*
        
  10.39   Employment Agreement, effective April 1, 2015, between Dollar General Corporation and John W. Garratt (incorporated by reference to Exhibit 10.3 to Dollar General Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended May 1, 2015, filed with the SEC on June 2, 2015 (file no. 001-11421))*
        
  10.40   Employment Agreement, effective December 2, 2015, between Dollar General Corporation and John W. Garratt (incorporated by reference to Exhibit 99.2 to Dollar General Corporation's Current Report on Form 8-K dated December 2, 2015, filed with the SEC on December 3, 2015 (file no. 001-11421))*
        
  10.41   Employment Agreement, effective November 1, 2013, between Dollar General Corporation and David W. D'Arezzo (incorporated by reference to Exhibit 10.37 to Dollar General Corporation's Annual Report on Form 10-K for the fiscal year ended January 31, 2014, filed with the SEC on March 20, 2014 (file no. 001-11421))*
 
   

88


  10.42   Employment Agreement, effective August 10, 2015, between Dollar General Corporation and John W. Flanigan (incorporated by reference to Exhibit 10.6 to Dollar General Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2015, filed with the SEC on August 27, 2015 (file no. 001-11421))*
        
  10.43   Employment Agreement, effective August 10, 2015, between Dollar General Corporation and Robert D. Ravener (incorporated by reference to Exhibit 10.5 to Dollar General Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2015, filed with the SEC on August 27, 2015 (file no. 001-11421))*
        
  10.44   Stock Option Agreement, dated as of August 28, 2008, between Dollar General Corporation and Robert D. Ravener (incorporated by reference to Exhibit 10.40 to Dollar General Corporation's Annual Report on Form 10-K for the fiscal year ended January 28, 2011, filed with the SEC on March 22, 2011 (file no. 001-11421))*
        
  10.45   Stock Option Agreement, dated as of December 19, 2008, between Dollar General Corporation and Robert D. Ravener (incorporated by reference to Exhibit 10.41 to Dollar General Corporation's Annual Report on Form 10-K for the fiscal year ended January 28, 2011, filed with the SEC on March 22, 2011 (file no. 001-11421))*
        
  10.46   Stock Option Agreement, dated as of March 24, 2010, between Dollar General Corporation and Robert D. Ravener (incorporated by reference to Exhibit 10.42 to Dollar General Corporation's Annual Report on Form 10-K for the fiscal year ended January 28, 2011, filed with the SEC on March 22, 2011 (file no. 001-11421))*
        
  10.47   Employment Agreement, effective August 10, 2015, between Dollar General Corporation and Rhonda M. Taylor (incorporated by reference to Exhibit 10.4 to Dollar General Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2015, filed with the SEC on August 27, 2015 (file no. 001-11421))*
        
  10.48   Stock Option Agreement, dated March 24, 2010, between Dollar General Corporation and Rhonda M. Taylor*
        
  10.49   Employment Agreement, effective June 15, 2015, between Dollar General Corporation and Jeffery C. Owen (incorporated by reference to Exhibit 10.7 to Dollar General Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended October 30, 2015, filed with the SEC on December 3, 2015 (file no. 001-11421))*
        
  10.50   Employment Agreement, effective August 7, 2015, between Dollar General Corporation and James W. Thorpe (incorporated by reference to Exhibit 10.6 to Dollar General Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended October 30, 2015, filed with the SEC on December 3, 2015 (file no. 001-11421))*
        
  10.51   Employment Agreement, effective December 2, 2015, between Dollar General Corporation and Anita C. Elliott (incorporated by reference to Exhibit 99.3 to Dollar General Corporation's Current Report on Form 8-K dated December 2, 2015, filed with the SEC on December 3, 2015 (file no. 001-11421))*
        
  10.52   Omnibus Limited Waiver by Dollar General Corporation to the Employment Agreement and Employment Transition Agreement with certain employees of Dollar General Corporation, effective January 28, 2016*
        
  10.53   Employment Agreement, effective March 19, 2012, between Dollar General Corporation and Gregory A. Sparks (incorporated by reference to Exhibit 10.4 to Dollar General Corporation's Quarterly Report on Form 10-Q for the fiscal quarter ended May 4, 2012, filed with the SEC on June 4, 2012 (file no. 001-11421))*
 
   

89


  12   Calculation of Fixed Charge Ratio
        
  21   List of Subsidiaries of Dollar General Corporation
        
  23   Consent of Independent Registered Public Accounting Firm
        
  24   Powers of Attorney (included as part of the signature pages hereto)
        
  31   Certifications of CEO and CFO under Exchange Act Rule 13a-14(a)
        
  32   Certifications of CEO and CFO under 18 U.S.C. 1350
        
  101.INS   XBRL Instance Document
        
  101.SCH   XBRL Taxonomy Extension Schema Document
        
  101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
        
  101.LAB   XBRL Taxonomy Extension Labels Linkbase Document
        
  101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document
        
  101.DEF   XBRL Taxonomy Extension Definition Linkbase Document

*
Management Contract or Compensatory Plan

90




QuickLinks

INTRODUCTION
PART I
PART II
Report of Independent Registered Public Accounting Firm
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except per share amounts)
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts)
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands)
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands except per share amounts)
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
DOLLAR GENERAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
PART III
PART IV
SIGNATURES
EXHIBIT INDEX

Exhibit 10.5

 

DOLLAR GENERAL CORPORATION

STOCK OPTION AWARD AGREEMENT

 

THIS AGREEMENT (the “ Agreement ”), dated as of the date indicated on Schedule A hereto (the “ Grant Date ”), is made by and between Dollar General Corporation, a Tennessee corporation (hereinafter referred to as the “ Company ”), and the individual whose name is set forth on the signature page hereof, who is an employee of the Company or a Subsidiary or Affiliate of the Company (hereinafter referred to as the “ Optionee ”).  Any capitalized terms herein not otherwise defined in this Agreement shall have the meaning set forth in the Amended and Restated 2007 Stock Incentive Plan for Key Employees of Dollar General Corporation and its Affiliates, as such Plan may be amended from time to time (the “ Plan ”).

 

WHEREAS, the Company wishes to carry out the Plan, the terms of which are hereby incorporated by reference and made a part of this Agreement; and

 

WHEREAS, the Compensation Committee (or a duly authorized subcommittee thereof) of the Board of the Company appointed to administer the Plan (the “ Committee ”) has determined that it would be to the advantage and best interest of the Company and its shareholders to grant the Option provided for herein to the Optionee, and has advised the Company thereof and instructed the undersigned officer to issue said Option.

 

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows:

 

ARTICLE I

DEFINITIONS

 

Whenever the following terms are used in this Agreement, they shall have the meaning specified below unless the context clearly indicates to the contrary.

 

Section 1.1.   Cause

 

“Cause” shall mean (A) “Cause” as such term may be defined in any employment agreement between the Optionee and the Company or any of its Subsidiaries or Affiliates that is in effect at the time of termination of employment; or (B) if there is no such employment agreement in effect, “Cause” as such term may be defined in any change-in-control agreement between the Optionee and the Company or any of its Subsidiaries or Affiliates that is in effect at the time of termination of employment; or (C) if there is no such employment or change-in-control agreement, with respect to an Optionee: (i) any act of the Optionee involving fraud or dishonesty, or any willful failure to perform reasonable duties assigned to the Optionee which failure is not cured within 10 business days after receipt from the Company of written notice of such failure; (ii) any material breach by the Optionee of any securities or other law or regulation or any Company policy governing trading or dealing with stock, securities, investments or the like, or any inappropriate disclosure or “tipping” relating to any stock, securities, investments or the like; (iii) other than as required by law, the carrying out by the Optionee of any activity, or the Optionee making any public statement, which prejudices or ridicules the good name and standing of the Company or its Affiliates or would bring such persons into public contempt or ridicule; (iv) attendance by the Optionee at work in a state of

 

1



 

intoxication or the Optionee otherwise being found in possession at the Optionee’s place of work of any prohibited drug or substance, possession of which would amount to a criminal offense; (v) any assault or other act of violence by the Optionee; or (vi) the Optionee being indicted for any crime constituting (x) any felony whatsoever or (y) any misdemeanor that would preclude employment under the Company’s hiring policy.

 

Section 1.2.   Disability

 

“Disability” shall mean (A) “Disability” as such term may be defined in any employment agreement between the Optionee and the Company or any of its Subsidiaries or Affiliates that is in effect at the time of termination of employment; or (B) if there is no such employment agreement in effect, “Disability” as such term may be defined in any change-in-control agreement between the Optionee and the Company or any of its Subsidiaries or Affiliates that is in effect at the time of termination of employment; or (C) if there is no such employment or change-in-control agreement, “Disability” as defined in the Company’s long-term disability plan.

 

Section 1.3.  Good Reason

 

“Good Reason” shall mean (A) a material diminution in the Optionee’s base salary unless such action is in connection with across-the-board base salary reductions affecting 100 percent of employees at the same grade level; or (B) a material diminution in the Optionee’s authority, duties or responsibilities.  To qualify as a termination due to Good Reason under this Agreement, the Optionee must have provided written notice to the Company of the existence of the circumstances providing grounds for termination for Good Reason within thirty (30) days of the initial existence of such grounds and must have given the Company at least thirty (30) days from receipt of such notice to cure the condition constituting Good Reason. Such termination of employment must have become effective no later than one year after the initial existence of the condition constituting Good Reason.

 

Section 1.4.   Option

 

“Option” shall mean the right and option to purchase, on the terms and conditions set forth herein, all or any part of an aggregate of the number of Shares of Common Stock set forth on Schedule A hereto.

 

Section 1.5.  Qualifying Termination

 

“Qualifying Termination” shall mean the Optionee’s employment with the Company and all Service Recipients is involuntarily terminated by the Company other than with Cause or terminated by the Optionee for Good Reason other than when Cause to terminate exists, in each case within two years following a Change in Control. In no event shall a Qualifying Termination include the Retirement, death, Disability or any other termination of the Optionee not specifically covered by the preceding sentence.

 

Section 1.6.  Retirement

 

“Retirement” shall mean the voluntary termination of the Optionee’s employment with the Company or any of its Subsidiaries or Affiliates on or after (A) reaching the minimum age of sixty-two (62) and (B) achieving five (5) consecutive years of service; provided, however, that the sum of the Optionee’s age plus years of service (counting whole years only) must equal at least seventy (70)

 

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and provided further that there is no basis for the Company to terminate the Optionee with Cause at the time of Optionee’s voluntary termination.

 

Section 1.7.   Secretary

 

“Secretary” shall mean the Secretary of the Company.

 

ARTICLE II

GRANT OF OPTION

 

Section 2.1.    Grant of Option

 

For good and valuable consideration, on and as of the Grant Date the Company irrevocably grants to the Optionee the Option on the terms and conditions set forth in this Agreement.

 

Section 2.2.    Exercise Price

 

Subject to Section 2.4, the exercise price of the Shares of Common Stock covered by the Option (the “ Exercise Price ”) shall be as set forth on Schedule A hereto, which shall be the Fair Market Value on the Grant Date.

 

Section 2.3.   No Guarantee of Employment

 

Nothing in this Agreement or in the Plan shall confer upon the Optionee any right to continue in the employ of the Company or any Subsidiary or Affiliate or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries or Affiliates, which are hereby expressly reserved, to terminate the employment of the Optionee at any time for any reason whatsoever, with or without cause, subject to the applicable provisions of, if any, the Optionee’s employment agreement with the Company or offer letter provided by the Company to the Optionee.

 

Section 2.4.    Adjustments to Option

 

The Option shall be subject to the adjustment provisions of Sections 8 and 9 of the Plan, provided , however , that in the event of the payment of an extraordinary dividend by the Company to its shareholders: the Exercise Price of the Option shall be reduced by the amount of the dividend paid, but only to the extent the Committee determines it to be permitted under applicable tax laws and to not have adverse tax consequences to the Optionee under Section 409A of the Code; and, if such reduction cannot be fully effected due to such tax laws and it will not have adverse tax consequences to the Optionee, then the Company shall pay to the Optionee a cash payment, on a per Share basis, equal to the balance of the amount of the dividend not permitted to be applied to reduce the Exercise Price of the applicable Option as follows: (a) for each Share subject to a vested Option, immediately upon the date of such dividend payment; and (b) for each Share subject to an unvested Option, on the date on which such Option becomes vested and exercisable with respect to such Share.

 

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ARTICLE III

PERIOD OF EXERCISABILITY

 

Section 3.1.   Commencement of Exercisability

 

(a)                                  Except as otherwise provided in Section 3.1(b), (c) or (d) below, so long as the Optionee continues to be employed by the Company or any other Service Recipient, the Option shall become vested and exercisable with respect to 25% of the Shares subject to such Option on each April 1 of the four (4) fiscal years following the fiscal year in which the Grant Date occurs, as set forth on Schedule A hereto (each such date, a “Vesting Date”).  To the extent this vesting schedule results in the vesting of fractional shares, the fractional shares shall be combined and be exercisable on the earliest Vesting Date.

 

(b)                                  Notwithstanding Section 3.1(a) above, upon the earliest occurrence of (i) the Optionee’s death, or (ii) a termination of the Optionee’s employment by reason of the Optionee’s Disability, the Option shall become immediately vested and exercisable with respect to 100% of the Shares subject to such unvested Option immediately prior to such event (but only to the extent such Option has not otherwise terminated, been forfeited or become exercisable).

 

(c)                                   Notwithstanding Section 3.1(a) above, in the event the Optionee experiences a Qualifying Termination, the Option shall become immediately vested and exercisable on the date of such Qualifying Termination with respect to 100% of the Shares subject to such unvested Option (but only to the extent such Option has not otherwise terminated, been forfeited or become exercisable).

 

(d)                                  Notwithstanding Section 3.1(a) above, in the event of the Optionee’s Retirement, that portion of the Option that would have become vested and exercisable within the one (1) year period following the Optionee’s Retirement date if the Optionee had remained employed with the Company or the applicable Service Recipient shall remain outstanding for a period of one (1) year following the Optionee’s Retirement date and shall become vested and exercisable on the anniversary of the Grant Date that falls within the one (1) year period following the Optionee’s Retirement date (but only to the extent such portion of the Option has not otherwise terminated, been forfeited or become exercisable); provided, however, that if during such one (1) year period the Optionee dies or incurs a Disability, such portion of the Option shall instead become immediately vested and exercisable (but only to the extent such portion of the Option has not otherwise terminated or been forfeited) upon such death or Disability.

 

(e)                                   No Option shall become vested or exercisable as to any additional Shares following the Optionee’s termination of employment for any reason, and any Option which is unexercisable as of the Optionee’s termination of employment shall immediately terminate and be forfeited without payment therefor, in each case except as otherwise provided in Section 3.1(b), (c) or (d) above.

 

Section 3.2.   Expiration of Option

 

The Optionee may not exercise the Option to any extent after the first to occur of the following events:

 

(a)                                  The tenth anniversary of the Grant Date;

 

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(b)                                  The fifth anniversary of the date of the Optionee’s termination of employment with the Company and all Service Recipients by reason of Retirement;

 

(c)                                   The first anniversary of the date of the Optionee’s termination of employment with the Company and all Service Recipients by reason of death or Disability;

 

(d)                                  The third anniversary of the date of the Optionee’s Qualifying Termination;

 

(e)                                   Ninety (90) days after the date of the Optionee’s involuntary termination of employment by the Company and all Service Recipients without Cause that is not a Qualifying Termination;

 

(f)                                    Ninety (90) days after the date of the Optionee’s voluntary termination of employment with the Company and all Service Recipients by the Optionee that is not a Qualifying Termination or Disability or Retirement;

 

(g)                                   Immediately upon the date of the Optionee’s termination of employment by the Company and all Service Recipients with Cause;

 

(h)                                  At the discretion of the Company, if the Committee so determines pursuant to Section 9 of the Plan.

 

ARTICLE IV

EXERCISE OF OPTION

 

Section 4.1.   Person Eligible to Exercise

 

During the lifetime of the Optionee, only the Optionee (or his or her duly authorized legal representative) may exercise the Option or any portion thereof.  After the death of the Optionee, any exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.2, be exercised by the Optionee’s personal representative or by any person empowered to do so under the Optionee’s will or under the then applicable laws of descent and distribution.

 

Section 4.2.   Partial Exercise

 

Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 3.2; provided , however , that any partial exercise shall be for whole Shares of Common Stock only.

 

Section 4.3.   Manner of Exercise

 

The Option, or any exercisable portion thereof, may be exercised solely by delivering to the Secretary or his or her designee all of the following prior to the time when the Option or such portion becomes unexercisable under Section 3.2:

 

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(a)                                  Notice in writing signed by the Optionee or the other person then entitled to exercise the Option or portion thereof, stating that the Option or portion thereof is thereby exercised, such notice complying with all applicable rules established by the Committee;

 

(b)                                  (i) Full payment (in cash or by check or by a combination thereof) for the Shares with respect to which such Option or portion thereof is exercised (provided, however, that full payment is deemed made if the Company receives cash in respect of the exercise price no later than the date on which the Company or its agent delivers or releases Shares to the Optionee or his or her agent, which date shall not be later than three (3) business days following the date on which the Option is exercised, in the event of a cashless exercise via a third party in a manner that is compliant with applicable law) or (ii) notice in writing that the Optionee elects to have the number of Shares that would otherwise be issued to the Optionee reduced by a number of Shares having an equivalent Fair Market Value to the payment that would otherwise be made by the Optionee to the Company pursuant to clause (i) of this subsection (b);

 

(c)                                   (i) Full payment (in cash or by check or by a combination thereof) to satisfy the minimum withholding tax obligation with respect to which such Option or portion thereof is exercised (provided, however, that full payment is deemed made if the Company receives such payment no later than the date on which the Company must remit such withholding to the Internal Revenue Service in the event of a cashless exercise via a third party in a manner that is compliant with applicable law); or (ii) notice in writing that the Optionee elects to have the number of Shares that would otherwise be issued to the Optionee reduced by a number of Shares having an equivalent Fair Market Value to the payment that would otherwise be made by the Optionee to the Company pursuant to clause (i) of this subsection (c);

 

(d)                                  A bona fide written representation and agreement, in a form satisfactory to the Committee, signed by the Optionee or other person then entitled to exercise such Option or portion thereof, stating that the Shares of Common Stock are being acquired for his or her own account, for investment and without any present intention of distributing or reselling said Shares or any of them except as may be permitted under the Securities Act of 1933, as amended (the “ Act ”), and then applicable rules and regulations thereunder, and that the Optionee or other person then entitled to exercise such Option or portion thereof will indemnify the Company against and hold it free and harmless from any loss, damage, expense or liability resulting to the Company if any sale or distribution of the Shares by such person is contrary to the representation and agreement referred to above; provided , however , that the Committee may, in its reasonable discretion, take whatever additional actions it deems reasonably necessary to ensure the observance and performance of such representation and agreement and to effect compliance with the Act and any other federal or state securities laws or regulations; and

 

(e)                                   In the event the Option or portion thereof shall be exercised pursuant to Section 4.1 by any person or persons other than the Optionee, appropriate proof of the right of such person or persons to exercise the Option.

 

Without limiting the generality of the foregoing, the Committee may require an opinion of counsel acceptable to it to the effect that any subsequent transfer of Shares acquired on exercise of the Option does not violate the Act, and may issue stop-transfer orders covering such Shares.  Share certificates evidencing stock issued on exercise of the Option may bear an appropriate legend referring to the provisions of subsection (d) above and the agreements herein. The written representation and agreement referred to in subsection (d) above shall, however, not be required if the Shares to be

 

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issued pursuant to such exercise have been registered under the Act, and such registration is then effective in respect of such Shares.

 

Section 4.4.   Conditions to Issuance of Stock Certificates

 

The Shares deliverable upon the exercise of the Option, or any portion thereof, may be either previously authorized but unissued Shares or issued Shares, which have then been reacquired by the Company.  Such Shares shall be fully paid and nonassessable.  The Company shall not be required to issue or deliver any certificate or certificates for Shares purchased (if certificated, or if not certificated, register the issuance of such Shares on its books and records) upon the exercise of the Option or portion thereof prior to fulfillment of all of the following conditions:

 

(a)                                  The obtaining of approval or other clearance from any state or federal governmental agency which the Committee shall, in its reasonable and good faith discretion, determine to be necessary or advisable; and

 

(b)                                  The lapse of such reasonable period of time following the exercise of the Option as the Committee may from time to time establish for reasons of administrative convenience or as may otherwise be required by applicable law.

 

Section 4.5.   Rights as Shareholder

 

Except as otherwise provided in Section 2.4 of this Agreement, the holder of an Option shall not be, nor have any of the rights or privileges of, a shareholder of the Company in respect of any Shares purchasable upon the exercise of the Option or any portion thereof unless and until certificates representing such Shares shall have been issued by the Company to such holder or the Shares have otherwise been recorded in the records of the Company as owned by such holder.

 

ARTICLE V

MISCELLANEOUS

 

Section 5.1.   Administration

 

The Committee shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules.  All actions taken and all interpretations and determinations made by the Committee shall be final and binding upon the Optionee, the Company and all other interested persons.  No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Option.  In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan and this Agreement.

 

Section 5.2.   Option Not Transferable

 

Neither the Option nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Optionee or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any

 

7



 

attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 5.2 shall not prevent transfers by will or by the applicable laws of descent and distribution or other transfers authorized in limited circumstances by the Committee (or its designee).

 

Section 5.3.   Notices

 

Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary or his or her designee, and any notice to be given to the Optionee shall be addressed to him or her at the address given beneath his or her signature hereto.  By a notice given pursuant to this Section 5.3, either party may hereafter designate a different address for notices to be given to him or her.  Any notice, which is required to be given to the Optionee, shall, if the Optionee is then deceased, be given to the Optionee’s personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 5.3. Any notice shall have been deemed duly given when (i) delivered in person; or, except for notice under Section 4.3 which must be received to be duly given, (ii) enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service, or (iii) enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with fees prepaid) in an office regularly maintained by FedEx, UPS, or comparable non-public mail carrier.

 

Section 5.4.   Titles; Pronouns

 

Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.  The masculine pronoun shall include the feminine and neuter, and the singular the plural, where the context so indicates.

 

Section 5.5.   [ Applicability of Plan and Management Stockholder’s Agreement

 

The Option and the Shares of Common Stock issued to the Optionee upon exercise of the Option shall be subject to all of the terms and provisions of the Plan to the extent applicable to an Option and Shares.  In the event of any conflict between this Agreement and the Plan, the terms of the Plan shall control.  The Option and the Shares of Common Stock issued to the Optionee upon exercise of the Option shall not be subject to, and hereby are expressly exempted from, all of the terms and provisions of any Management Stockholder’s Agreement between the Optionee and the Company in existence on the Grant Date.]

 

Section 5.6.   Amendment

 

This Agreement may only be amended pursuant to Section 10 of the Plan.

 

Section 5.7.   Governing Law

 

The laws of the State of Delaware shall govern the interpretation, validity and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.

 

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Section 5.8.   Arbitration

 

In the event of any controversy among the parties hereto arising out of, or relating to, this Agreement which cannot be settled amicably by the parties, such controversy shall be finally, exclusively and conclusively settled by mandatory arbitration conducted expeditiously in accordance with the American Arbitration Association rules, by a single independent arbitrator.  Such arbitration process shall take place within the Nashville, Tennessee metropolitan area.  The decision of the arbitrator shall be final and binding upon all parties hereto and shall be rendered pursuant to a written decision, which contains a detailed recital of the arbitrator’s reasoning.  Judgment upon the award rendered may be entered in any court having jurisdiction thereof.  Each party shall bear its own legal fees and expenses, unless otherwise determined by the arbitrator.

 

Section 5.9.   Clawback

 

As a condition of receiving the Option, the Optionee acknowledges and agrees that the Optionee’s rights, payments, and benefits with respect to the Option shall be subject to any reduction, cancellation, forfeiture or recoupment, in whole or in part, upon the occurrence of certain specified events, as may be required by any rule or regulation of the Securities and Exchange Commission or by any applicable national exchange, or by any other applicable law, rule or regulation.

 

Section 5.10  Signature in Counterparts

 

This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

 

[ Signatures on next pages ]

 

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IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto.

 

 

DOLLAR GENERAL CORPORATION

 

 

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

 

 

 

 

ADDRESS:

 

 

 

Dollar General Corporation

 

100 Mission Ridge

 

Goodlettsville, TN 37072

 

[Signature Page of Stock Option Award Agreement]

 

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OPTIONEE:

 

 

 

 

 

Signature:

 

 

Print Name:

 

 

Employee ID:

 

 

 

 

HOME ADDRESS:

 

 

 

 

 

[Signature Page of Stock Option Award Agreement]

 

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Schedule A to Stock Option Award Agreement

 

Grant Date : [    ]

 

 

 

Exercise Price (per Share) :

$[    ]

 

 

Option Grant :

 

Aggregate number of Shares of Common Stock for which the Option granted hereunder is exercisable:

[    ]

 

Vesting Dates:

 

Percentage

 

Date

 

 

25

%

April 1, [year]

 

 

25

%

April 1, [year]

 

 

25

%

April 1, [year]

 

 

25

%

April 1, [year]

 

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Exhibit 10.10

 

DOLLAR GENERAL CORPORATION
PERFORMANCE SHARE UNIT AWARD AGREEMENT

 

THIS AGREEMENT (the “ Agreement ”), dated as of the date indicated on Schedule A hereto (the “ Grant Date ”), is made between Dollar General Corporation, a Tennessee corporation (hereinafter, together with all Service Recipients unless the context indicates otherwise, called the “ Company ”), and the individual whose name is set forth on the signature page hereof, who is an employee of the Company (hereinafter referred to as the “ Grantee ”).  Capitalized terms not otherwise defined herein shall have the same meanings as in the Amended and Restated 2007 Stock Incentive Plan for Key Employees of Dollar General Corporation and its Affiliates, as amended from time to time (the “ Plan ”), the terms of which are hereby incorporated by reference and made a part of this Agreement.

 

WHEREAS, the Company desires to grant the Grantee a performance share unit award as provided for hereunder, ultimately payable in shares of Common Stock of the Company, par value $0.875 per Share (the “ Performance Share Unit Award ”), pursuant to the terms and conditions of this Agreement and the Plan; and

 

WHEREAS, the Compensation Committee (or a duly authorized subcommittee thereof) of the Company’s Board appointed to administer the Plan (the “ Committee ”) has determined that it would be to the advantage and in the best interest of the Company and its shareholders to grant the Performance Share Unit Award provided for herein to the Grantee, and has advised the Company thereof and instructed the undersigned officer to issue said Performance Share Unit Award;

 

NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto do hereby agree as follows:

 

1.                                       Grant of Performance Share Unit Award .  Subject to the terms and conditions of the Plan and the additional terms and conditions set forth in this Agreement, the Company hereby grants to the Grantee a certain number of performance units (referred to as “ Performance Share Units ”) which the Grantee will have an opportunity to earn over a Performance Period of one year if certain performance goal measures are met in accordance with Section 4 and to receive if additional time-based vesting conditions are met in accordance with Section 5.  A Performance Share Unit represents the right to receive one Share of Common Stock upon satisfaction of the performance, vesting and other conditions set forth in Agreement.

 

2.                                       Target Number of Performance Share Units .  The target number of Performance Share Units awarded is set forth on Schedule A hereto.  At the end of the Performance Period, and subject to additional time-based vesting, the Grantee can earn up to [300%] of the target number of Performance Share Units or as little as no Performance Share Units, depending upon actual performance compared to the performance goal measures established by the Committee.

 

3.                                       Performance Period .  The period during which the performance goal measures apply (the “ Performance Period ”) begins and ends as set forth on Schedule A hereto.

 

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4.                                       Performance Goal Measures .

 

(a)    The performance goal measures and the levels of performance for each of the performance goal measures that is required to earn Performance Share Units were established by the Committee on the Grant Date.  Performance goals are based on Adjusted EBITDA (weighted [50%]) and ROIC (weighted [50%]), each as defined below and as established by the Committee, for the Performance Period, with the method for determining the number of Performance Share Units that can be earned (including the threshold, target and maximum number of Performance Share Units) set forth on Schedule A hereto, subject to the additional time-based vesting requirements that extend beyond the end of the Performance Period as provided in Section 5.  If the performance level for a performance goal measure is below the established threshold, no Performance Share Units shall be earned.  If the performance level for a performance goal measure is above the established maximum, no additional Performance Share Units shall be earned above the associated maximum payout level.  Within sixty (60) days following the end of the Performance Period, the Committee will determine the extent to which the performance goal measures have been met and the number of Performance Share Units earned (subject to the additional time-based vesting requirements that extend beyond the end of the Performance Period as provided in Section 5) and will interpolate on a straight-line basis all stated levels between the performance results and Performance Share Units to be earned and will round to the nearest whole Performance Share Unit.  The Performance Share Units are intended to be Performance-Based Awards under the Plan, and the provision of Section 6(c)(ii) of the Plan shall apply.  The Committee must certify the performance results for each of the performance goal measures following the end of the Performance Period.  The Committee may exercise its discretion to reduce the number of Performance Share Units earned in its assessment of performance in relation to the performance goal measures or in light of other considerations that the Committee deems relevant.  Except as provided in Section 5(h) in the event of a Change in Control during the Performance Period, any Performance Share Units that are not, based on the Committee’s determination, earned by performance during the Performance Period, including Performance Share Units that had been potentially earnable by performance in excess of the actual performance levels achieved, shall be cancelled and forfeited as of the last day of the Performance Period.  The number of Performance Share Units earned as determined by the Committee (but subject to the additional pro-ration provisions and vesting provisions set forth in Section 5) shall be divided into three equal and separate installments as provided in Section 5.  To the extent allocation of the Performance Share Units to the three installments results in fractional shares, the vesting of the fractional shares shall be combined and be a part of the first installment.

 

(b)    The following terms have the following meaning for purposes hereof:

 

(i)                                      Adjusted EBITDA ” shall be computed as income (loss) from continuing operations before cumulative effect of change in accounting principles plus interest and other financing costs, net, provision for income taxes, and depreciation and amortization, but (1) shall exclude the impact of (a) any costs, fees and expenses directly related to the consideration, negotiation, preparation, or consummation of any asset sale, merger or other transaction that results in a Change in Control (within the meaning of the Plan) of the Company or any offering of Company common stock or other security; (b) share-based compensation charges; (c) any gain or loss recognized as a result of derivative instrument transactions or other hedging activities; (d) any gains or losses associated with the early retirement of debt obligations; (e) charges resulting from significant natural disasters; and (f) any significant gains or losses associated with the Company’s LIFO computation; and (2) unless the Committee disallows any such item, shall also exclude (a) non-cash asset impairments; (b) any significant loss as a result of an individual litigation, judgment or

 

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lawsuit settlement (including a collective or class action lawsuit and security holder lawsuit, among others); (c) charges for business restructurings; (d) losses due to new or modified tax or other legislation or accounting changes enacted after the beginning of the Performance Period; (e) significant tax settlements; and (f) any significant unplanned items of a non-recurring nature.

 

(ii)                                   ROIC ” shall mean (a) the result of (x) the sum of (i) the Company’s operating income, plus (ii) depreciation and amortization, plus (iii) minimum rentals, minus (y) taxes, divided by (b) the result of (x) the sum of the averages of: (i) total assets, plus (ii) accumulated depreciation and amortization, minus (y) (i) cash, minus (ii) goodwill, minus (iii) accounts payable, minus (iv) other payables, minus (v) accrued liabilities, plus (vi) 8x minimum rentals (with all of the foregoing terms as determined per the Company’s financial statements), but (1) shall exclude the impact of (a) any costs, fees and expenses directly related to the consideration, negotiation, preparation, or consummation of any asset sale, merger or other transaction that results in a Change in Control (within the meaning of the Plan) of the Company or any offering of Company common stock or other security; (b) any gain or loss recognized as a result of derivative instrument transactions or other hedging activities; (c) any gains or losses associated with the early retirement of debt obligations; (d) charges resulting from significant natural disasters; and (e) any significant gains or losses associated with the Company’s LIFO computation; and (2) unless the Committee disallows any such item, shall also exclude (a) non-cash asset impairments; (b) any significant loss as a result of an individual litigation, judgment or lawsuit settlement (including a collective or class action lawsuit and security holder lawsuit, among others); (c) charges for business restructurings; (d) losses due to new or modified tax or other legislation or accounting changes enacted after the beginning of the Performance Period; (e) significant tax settlements; and (f) any significant unplanned items of a non-recurring nature.

 

5.                                       Vesting and Payment .

 

(a)    Vesting and Payment of One-Third of Earned Performance Share Units .  One-third of the Performance Share Units earned based on the Committee’s determination of the level of achievement for each of the performance goal measures in accordance with Section 4 (such one-third installment being the “ Initial Earned Performance Share Units ”) shall become vested and nonforfeitable as of the last day of the Performance Period but only if the Grantee has remained continuously employed through such date and the Grantee is not terminated with Cause prior to the date of payment unless prohibited by law.  If the Grantee does not remain continuously employed through the last day of the Performance Period because of Grantee’s Retirement, death or Disability during the Performance Period, then a Pro-Rata Portion of the Initial Earned Performance Share Units (rounded to the nearest whole share) shall become vested and nonforfeitable as of the last day of the Performance Period and all remaining Initial Earned Performance Share Units shall be automatically forfeited to the Company and cancelled.  For purposes of this Section 5(a) only, a “Pro Rata Portion” is determined by a fraction (not to exceed one), the numerator of which is the number of months in the Performance Period during which the Grantee was continuously in the employment of the Company and the denominator of which is the number of months in the Performance Period.  Grantee will be deemed to be employed for a month if the Grantee’s Retirement, death or Disability occurs after the fifteenth (15 th ) day of a month.  If the Grantee does not remain continuously employed through the last day of the Performance Period for any other reason other than as provided in Section 5(h), then all Initial Earned Performance Share Units shall be automatically forfeited to the Company and cancelled on the date the Grantee’s employment terminates.  The Initial Earned Performance Share Units that become vested under this Section 5(a) shall be paid on April 1, [Grant Date year + 1 year].  Notwithstanding the above and except to the extent required by law, no Initial

 

3



 

Earned Performance Share Units shall be paid if the Grantee is terminated with Cause prior to the date of payment.

 

(b)    Vesting and Payment of Additional One-Third of Earned Performance Share Units .  An additional one-third of the Performance Share Units earned based on the Committee’s determination of the level of achievement for each of the performance goal measures in accordance with Section 4 (such one-third installment being the “ Additional Earned Performance Share Units ”) shall become vested and nonforfeitable and shall be paid on April 1, [Grant Date year + 2 years] but only if the Grantee has remained continuously employed through such date.  If the Grantee does not remain continuously employed through April 1, [Grant Date year + 2 years] because of Grantee’s earlier Retirement, but only if Grantee remained continuously employed through April 2, [Grant Date year + 1 year], then the Additional Earned Performance Share Units shall become vested and nonforfeitable and shall be paid on the date of Grantee’s Retirement.  If the Grantee does not remain continuously employed through April 1, [Grant Date year + 2 years] because of Grantee’s death or Disability, but only if the Grantee does not die or become Disabled prior to April 2, [Grant Date year + 1 year], then the Additional Earned Performance Share Units shall become vested and nonforfeitable as of the date of Grantee’s death or Disability.  The Additional Earned Performance Share Units that become vested and nonforfeitable on the date of Grantee’s death or Disability as provided above shall be paid within thirty (30) days following such death or Disability but in all events no later than the Latest Payment Date, as defined in Section 5(k).  If the Grantee does not remain continuously employed through April 1, [Grant Date year + 2 years] under any other circumstances other than as provided in Section 5(h), then all Additional Earned Performance Share Units that are not vested as of the date of the Grantee’s termination of employment shall be automatically forfeited to the Company and cancelled on the date of the Grantee’s termination of employment.

 

(c)    Vesting and Payment of Remaining Earned Performance Share Units .  The remaining one-third Performance Share Units earned based on the Committee’s determination of the level of achievement for each of the performance goal measures in accordance with Section 4 (such one-third installment being the “ Remaining Earned Performance Share Units ”) shall become vested and nonforfeitable and shall be paid on April 1, [Grant Date year + 3 years] but only if the Grantee has remained continuously employed through such date.  If the Grantee does not remain continuously employed through April 1, [Grant Date year + 3 years] because of Grantee’s earlier Retirement, but the Grantee has remained continuously employed through April 2, [Grant Date year + 2 years], then the Remaining Earned Performance Share Units shall become vested and nonforfeitable and shall be paid on the date of Grantee’s Retirement.  If the Grantee does not remain continuously employed through April 1, [Grant Date year + 3 years] because of Grantee’s death or Disability, but only if the Grantee does not die or become Disabled prior to April 2, [Grant Date year + 1 year], then the Remaining Earned Performance Share Units shall become vested and nonforfeitable as of the date of Grantee’s death or Disability.  All Remaining Earned Performance Share Units that become vested and nonforfeitable on the date of Grantee’s death or Disability shall be paid within thirty (30) days following such death or Disability but in no event later than the Latest Payment Date, as defined in Section 5(k).  If the Grantee does not remain continuously employed through April 1, [Grant Date year + 3 years] under any other circumstances other than as provided in Section 5(h), then all Remaining Performance Share Units that are not vested as of the date of the Grantee’s termination of employment shall be automatically forfeited to the Company and cancelled on the date of the Grantee’s termination of employment.

 

4



 

(d)    Transfers and Reemployment .  For purposes of this Agreement, transfer of employment among the Company and another Service Recipient shall not be considered a termination or interruption of employment.  Upon reemployment following a termination of employment for any reason, the Grantee shall have no rights to any Performance Share Units previously forfeited and cancelled under this Agreement.

 

(e)    Retirement .  For purposes of this Agreement, Retirement shall mean the voluntary termination of Grantee’s employment with the Company on or after (i) reaching the minimum age of sixty-two (62) and (ii) achieving five (5) consecutive years of service; provided, however, that the sum of the Grantee’s age plus years of service (counting whole years only) must equal at least seventy (70) and provided further that there is no basis for the Company to terminate the Grantee with Cause at the time of Grantee’s voluntary termination.

 

(f)    Disability .  For the purposes of this Agreement, Disability shall mean the Grantee’s termination of employment by the Company due to Grantee’s “Disability” (i) as defined in any employment agreement between the Grantee and the Company that is in effect at the time of termination of employment; or (ii) if there is no such employment agreement in effect or no definition therein, as defined in any change-in-control agreement between the Grantee and the Company that is in effect at the time of termination of employment; or (iii)  if there is no such employment or change-in-control agreement or definitions therein, as defined in the Company’s long-term disability plan.

 

(g)    Cause .  For the purposes of this Agreement, Cause shall mean (i) “Cause” as such term may be defined in any employment agreement between the Grantee and the Company that is in effect at the time of termination of employment; or (ii) if there is no such employment agreement in effect, “Cause” as such term may be defined in any change-in-control agreement between the Grantee and the Company that is in effect at the time of termination of employment; or (iii) if there is no such employment or change-in-control agreement, with respect to a Grantee: (A) any act of the Grantee involving fraud or dishonesty, or any willful failure to perform reasonable duties assigned to the Grantee which failure is not cured within 10 business days after receipt from the Company of written notice of such failure; (B) any material breach by the Grantee of any securities or other law or regulation or any Company policy governing trading or dealing with stock, securities, investments or the like, or any inappropriate disclosure or “tipping” relating to any stock, securities, investments or the like; (C) other than as required by law, the carrying out by the Grantee of any activity, or the Grantee making any public statement, which prejudices or ridicules the good name and standing of the Company or its Affiliates or would bring such persons into public contempt or ridicule; (D) attendance by the Grantee at work in a state of intoxication or the Grantee otherwise being found in possession at the Grantee’s place of work of any prohibited drug or substance, possession of which would amount to a criminal offense; (E) any assault or other act of violence by the Grantee; or (F) the Grantee being indicted for any crime constituting (I) any felony whatsoever or (II) any misdemeanor that would preclude employment under the Company’s hiring policy.

 

(h)    Change in Control .  Notwithstanding any other provision of this Section 5 (other than Section 5(k)), in the event of a Change in Control, vesting and payment of the Performance Share Units that have not previously become vested and nonforfeitable and paid, or have not previously been forfeited, under Section 4, 5(a), 5(b), or 5(c) shall be determined under this Section 5(h) as follows:

 

5



 

(i)                                      In the event a Change in Control occurs on or before the end of the Performance Period and provided the Grantee is continuously employed until the Change in Control, the target number of the Performance Share Units shall be deemed earned but otherwise continue to be subject to the vesting and payment provisions, including applicable proration and service requirements, that apply under Section 5(a), 5(b) and 5(c) unless the Grantee experiences a Qualifying Termination.  If the Grantee experiences a Qualifying Termination, all of the Performance Share Units not previously vested and paid or previously forfeited, shall become immediately vested and nonforfeitable and shall be paid on the date of such Qualifying Termination.

 

(ii)                                   In the event a Change in Control occurs following the end of the Performance Period and provided the Grantee is continuously employed until the Change in Control, all of the Performance Share Units previously earned based on the Committee’s determination of performance in accordance with Section 4 shall continue to be subject to the vesting and payment provisions, including applicable service requirements, that apply under Section 5(a), 5(b) and  5(c) unless the Grantee experiences a Qualifying Termination.  If the Grantee experiences a Qualifying Termination, all of the Performance Share Units previously earned based on the Committee’s determination of performance in accordance with Section 4 not previously vested and paid or previously forfeited, shall become immediately vested and nonforfeitable and shall be paid on the date of such Qualifying Termination.

 

(i)    Good Reason .  For purposes of this Agreement, Good Reason shall mean (A) a material diminution in the Grantee’s base salary unless such action is in connection with across-the-board base salary reductions affecting 100 percent of employees at the same grade level; or (B) a material diminution in the Grantee’s authority, duties or responsibilities.  To qualify as a termination due to Good Reason under this Agreement, the Grantee must have provided written notice to the Company of the existence of the circumstances providing grounds for termination for Good Reason within thirty (30) days of the initial existence of such grounds and must have given the Company at least thirty (30) days from receipt of such notice to cure the condition constituting Good Reason.  Such termination of employment must have become effective no later than one year after the initial existence of the condition constituting Good Reason.

 

(j)    Qualifying Termination .  For purposes of this Agreement, Qualifying Termination shall mean the Grantee’s employment with the Company is involuntarily terminated by the Company other than with Cause or terminated by the Grantee for Good Reason other than when Cause to terminate exists, in each case within two years following a Change in Control.  In no event shall a Qualifying Termination include the Retirement, death, Disability or any other termination of the Grantee not specifically covered by the preceding sentence.

 

(k)    Delivery of Shares .  Shares of Common Stock corresponding to the number of Performance Share Units that have been earned and become vested and nonforfeitable (“ Performance Shares ”) shall be paid to the Grantee, or, if deceased, to the Grantee’s estate, in settlement of the Performance Share Units at the times provided in Sections 5(a), 5(b), 5(c), and 5(h), although no interest shall be payable in the event there is a delay in the time of payment for any reason.  However, notwithstanding any other payment timing provision, in all events, payment and delivery of the Performance Shares shall be made no later than the later of the 15 th  day of the third month following the end of the Grantee’s first taxable year (usually the calendar year) in which the right to the payment is no longer subject to a substantial risk of forfeiture (upon the fixed payment date, death, Disability,  or a Qualifying Termination  or when the Grantee who is eligible for Retirement has met all service requirements for vesting, as applicable) or the 15 th  day of the third month

 

6



 

following the end of the Company’s first taxable year (usually the fiscal year) in which the right to the payment is no longer subject to such substantial risk of forfeiture (the latest such date, the “ Latest Payment Date ”).  Such payment shall be accomplished either by delivering a share certificate or by providing evidence of electronic delivery, and the Performance Shares shall be registered in the name of the Grantee or, if deceased, Grantee’s estate. The Performance Shares may be either previously authorized but unissued Shares or issued Shares, which have then been reacquired by the Company. Such Shares shall be fully paid and nonassessable.  In determining the number of Performance Shares to be withheld for taxes as provided in Section 10, the value of the Performance Shares shall be based upon the Fair Market Value of the Shares on the date of payment.  If a designated date of payment falls on a weekend, holiday or other non-trading day, the value of any Performance Shares payable on such designated date of payment shall be determined based on the Fair Market Value of the Shares on the most recent prior trading date.

 

6.                                       No Dividend Equivalents .  The Grantee shall have no right to dividend equivalents or dividends on the Performance Share Units.

 

7.                                       Transferability .  Neither the Performance Shares prior to delivery pursuant to Section 5 nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Grantee or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 7 shall not prevent transfers by will or by the applicable laws of descent and distribution.

 

8.                                       No Guarantee of Employment .  Nothing in this Agreement or in the Plan shall confer upon the Grantee any right to continue in the employ of the Company or shall interfere with or restrict in any way the rights of the Company, which are hereby expressly reserved, to terminate the employment of the Grantee at any time for any reason whatsoever, with or without cause, subject to the applicable provisions of, if any, the Grantee’s employment agreement with the Company or offer letter provided by the Company to the Grantee.

 

9.                                       Change in Capitalization; Change in Control .  If any event described in Section 8 or 9 of the Plan occurs, this Agreement and the Performance Shares shall be adjusted to the extent required or permitted, as applicable, pursuant to Sections 8 and 9 of the Plan.

 

10.                                Taxes .  The Grantee shall have full responsibility, and the Company shall have no responsibility (except as to applicable tax withholdings), for satisfying any liability for any federal, state or local income or other taxes required by law to be paid with respect to the Performance Shares. The Grantee is hereby advised to seek his or her own tax counsel regarding the taxation of the Performance Shares hereunder.  Unless otherwise determined by the Committee, at the time of vesting the Company shall withhold from any Performance Shares deliverable in payment of the Performance Share Units the number of shares of Performance Shares having a value equal to the minimum amount of income and employment taxes required to be withheld under applicable laws and regulations, and pay the amount of such withholding taxes in cash to the appropriate taxing authorities.  Any fractional shares resulting from the payment of the withholding amounts shall be liquidated and paid in cash to the U.S. Treasury as additional federal income tax withholding for the Grantee.  Grantee shall be responsible for any withholding taxes not satisfied by means of such

 

7



 

mandatory withholding and for all taxes in excess of such withholding taxes that may be due upon vesting of the Performance Share Units.

 

11.                                Limitation on Obligations .  This Performance Share Unit Award shall not be secured by any specific assets of the Company, nor shall any assets of the Company be designated as attributable or allocated to the satisfaction of the Company’s obligations under this Agreement.  In addition, the Company shall not be liable to the Grantee for damages relating to any delays in issuing the share certificates or electronic delivery thereof to him (or his designated entities), any loss of the certificates, or any mistakes or errors in the issuance or registration of the certificates or in the certificates themselves.

 

12.                                Securities Laws .  The Company may require the Grantee to make or enter into such written representations, warranties and agreements as the Committee may reasonably request in order to comply with applicable securities laws.  The Performance Share Units and Performance Shares shall be subject to all applicable laws, rules and regulations and to such approvals of any governmental agencies as may be required.

 

13.                                Notices .  Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary or his or her designee, and any notice to be given to the Grantee shall be addressed to him at the address given beneath his signature hereto.  By a notice given pursuant to this Section 13, either party may hereafter designate a different address for notices to be given to him.  Any notice that is required to be given to the Grantee shall, if the Grantee is then deceased, be given to the Grantee’s personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 13.  Any notice shall have been deemed duly given when delivered by hand or courier or when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service.

 

14.                                Governing Law .  The laws of the State of Delaware shall govern the interpretation, validity and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.

 

15.                                Section 409A of the Code .  This Agreement is intended to be exempt from Section 409A of the Code as a short-term deferral.  Each installment payment under this Agreement will be treated as a separate payment.  Notwithstanding the foregoing, the Company shall not be liable to the Grantee in the event this Agreement fails to be exempt from, or comply with, Section 409A of the Code.

 

16.                                Arbitration .  In the event of any controversy among the parties hereto arising out of, or relating to, this Agreement which cannot be settled amicably by the parties, such controversy shall be finally, exclusively and conclusively settled by mandatory arbitration conducted expeditiously in accordance with the American Arbitration Association rules, by a single independent arbitrator.  Such arbitration process shall take place within the Nashville, Tennessee metropolitan area.  The decision of the arbitrator shall be final and binding upon all parties hereto and shall be rendered pursuant to a written decision, which contains a detailed recital of the arbitrator’s reasoning.  Judgment upon the award rendered may be entered in any court having jurisdiction thereof.  Each party shall bear its own legal fees and expenses, unless otherwise determined by the arbitrator.

 

8



 

17.                                Clawback .  As a condition of receiving the Performance Share Units, the Grantee acknowledges and agrees that the Grantee’s rights, payments, and benefits with respect to the Performance Share Units shall be subject to any reduction, cancellation, forfeiture or recoupment, in whole or in part, upon the occurrence of certain specified events, as may be required by any rule or regulation of the Securities and Exchange Commission or by any applicable national exchange, or by any other applicable law, rule or regulation.

 

18.                                [Applicability of Plan and Management Stockholder’s Agreement .  The Performance Share Units and the Performance Shares issued to the Grantee upon payment of the Performance Share Units shall be subject to all terms and provisions of the Plan to the extent applicable to performance share units and Shares. In the event of any conflict between this Agreement and the Plan, the terms of the Plan shall control.  The Performance Share Units and the Performance Shares issued to the Grantee shall not be subject to, and hereby are expressly exempted from, all of the terms and provisions of any Management Stockholder’s Agreement between the Grantee and the Company in existence on the Grant Date.]

 

19.                                Amendment and Termination .  This Agreement may be modified in any manner consistent with Section 10 of the Plan.

 

20.                                Administration . The Committee shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules.  All actions taken and all interpretations and determinations made by the Committee shall be final and binding upon the Grantee, the Company and all other interested persons.  No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Performance Share Unit Award.  In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan and this Agreement.

 

21.                                Rights as Shareholder .  The holder of a Performance Share Unit Award shall not be, nor have any of the rights or privileges of, a shareholder of the Company in respect of any Performance Shares issuable upon the payment of a vested Performance Share Unit unless and until a certificate or certificates representing such Performance Shares shall have been issued by the Company to such holder or, if the Common Stock is listed on a national securities exchange, a book entry representing such Performance Shares has been made by the registrar of the Company.

 

22.                                Signature in Counterparts .  This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

 

9


 

IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto.

 

 

DOLLAR GENERAL CORPORATION

 

 

 

 

 

By:

 

 

 

 

Name:

 

 

 

 

Title:

 

 

 

 

GRANTEE

 

 

 

 

 

 

 

[name]

 

 

 

ADDRESS:

 

 

 

 

 

10



 

Schedule A to Performance Share Unit Award Agreement

 

Grant Date :

[         ]

 

 

 

 

 

 

Target Number of Performance Share Units Awarded :

[         ]

 

 

 

 

Performance Period :

Begins on [1 st  day of applicable fiscal year] and ends on [last day of applicable fiscal year]

 

 

Threshold, Target and Maximum Calculation Chart:

See attached Exhibit 1

 

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Exhibit 1 to Schedule A to Performance Share Unit Award Agreement

 

[      ] Performance Share Unit Matrix

 

 

 

EBITDA Based Shares Earned ([50%] Weighting)

 

ROIC Based Shares Earned ([50%] Weighting)

 

Performance
Level

 

EBITDA
Result
($000)

 

EBITDA
Result
vs.
Target

 

EBITDA
Based
Shares

 

EBITDA
Weight

 

Shares
Earned

 

ROIC
Result

 

ROIC
Result
vs.
Target

 

ROIC
Based
Shares

 

ROIC
Weight

 

Shares
Earned

 

Total
Shares
Earned

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Threshold

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Target

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Maximum

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note: Interpolate between all EBITDA & ROIC results and award levels

 

12




Exhibit 10.13

 

DOLLAR GENERAL CORPORATION
RESTRICTED STOCK UNIT AWARD AGREEMENT

 

THIS AGREEMENT (the “ Agreement ”), dated as of the date indicated on Schedule A hereto (the “ Grant Date ”), is made between Dollar General Corporation, a Tennessee corporation (hereinafter, together with all Service Recipients unless the context indicates otherwise, called the “ Company ”), and the individual whose name is set forth on the signature page hereof, who is an employee of the Company (hereinafter referred to as the “ Grantee ”).  Capitalized terms not otherwise defined herein shall have the same meanings as in the Amended and Restated 2007 Stock Incentive Plan for Key Employees of Dollar General Corporation and its Affiliates, as amended from time to time (the “ Plan ”), the terms of which are hereby incorporated by reference and made a part of this Agreement.

 

WHEREAS, the Company desires to grant the Grantee a restricted stock unit award as provided for hereunder, ultimately payable in shares of Common Stock of the Company, par value $0.875 per Share (the “ Restricted Stock Unit Award ”), pursuant to the terms and conditions of this Agreement and the Plan; and

 

WHEREAS, the Compensation Committee (or a duly authorized subcommittee thereof) of the Company’s Board appointed to administer the Plan (the “ Committee ”) has determined that it would be to the advantage and in the best interest of the Company and its shareholders to grant the Restricted Stock Unit Award provided for herein to the Grantee, and has advised the Company thereof and instructed the undersigned officer to issue said Award;

 

NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto do hereby agree as follows:

 

1.                                       Grant of the Restricted Stock Unit .   Subject to the terms and conditions of the Plan and the additional terms and conditions set forth in this Agreement, the Company hereby grants to the Grantee the number of Restricted Stock Units set forth on Schedule A hereto. A “ Restricted Stock Unit ” represents the right to receive one Share of Common Stock upon satisfaction of the vesting and other conditions set forth in this Agreement.  The Restricted Stock Units shall vest and become nonforfeitable in accordance with Section 2 hereof.

 

2.                                       Vesting .

 

(a)    Vesting Date and Forfeiture .  The Restricted Stock Units shall become vested and nonforfeitable in three equal installments on April 1 of the three (3) fiscal years following the fiscal year in which the Grant Date occurs, as set forth on Schedule A hereto (each such date, a “ Vesting Date ”), so long as the Grantee continues to be an employee of the Company through each such Vesting Date.  To the extent the application of this vesting schedule results in the vesting of fractional shares, the fractional shares shall be combined and vest on the earliest Vesting Date. If the Grantee’s employment with the Company terminates prior to a Vesting Date and Section 2(b) does not apply or has not applied, or to the extent Section 2(b) cannot apply, then any unvested Restricted Stock Units at the date of such termination of employment shall be automatically forfeited to the Company.

 

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(b)    Accelerated Vesting Events .  Notwithstanding the foregoing, to the extent such Restricted Stock Units have not previously terminated, been forfeited or become vested and nonforfeitable, (i) if the Grantee terminates his employment with the Company due to the Grantee’s Retirement (as defined below), then that one-third of the Restricted Stock Units that would have become vested and nonforfeitable on the next immediately following Vesting Date if the Grantee had remained employed through such date shall become vested and nonforfeitable upon such Retirement, provided, however , that, if the Grantee retires on a Vesting Date, no accelerated vesting shall occur but rather Grantee shall be entitled only to the portion of the Restricted Stock Units that were scheduled to vest on such Vesting Date; and (ii) in the event of the Grantee’s death or Disability (as defined below) while employed with the Company, one hundred percent (100%) of the Restricted Stock Units shall become vested and nonforfeitable upon such death or Disability; and (iii) in the event of the Grantee’s Qualifying Termination, one hundred percent (100%) of the Restricted Stock Units shall become vested and nonforfeitable on the date of the Qualifying Termination.

 

(c)    Transfer and Reemployment .  For purposes of this Agreement, transfer of employment among the Company and another Service Recipient shall not be considered a termination or interruption of employment.  Upon reemployment following a termination of employment for any reason, the Grantee shall have no rights to any Restricted Stock Units previously forfeited and cancelled under this Agreement.

 

(d)    Retirement .  For purposes of this Agreement, Retirement shall mean the voluntary termination of Grantee’s employment with the Company on or after (i) reaching the minimum age of sixty-two (62) and (ii) achieving five (5) consecutive years of service; provided, however , that (i) the sum of the Grantee’s age plus years of service (counting whole years only) must equal at least seventy (70); (ii) there is no basis for the Company to terminate the Grantee with  Cause at the time of Grantee’s voluntary termination; and (iii) the termination also constitutes a “separation from service” within the meaning of Section 409A of the Code.

 

(e)    Disability .  For the purposes of this Agreement, Disability shall have the meaning set forth in Treas. Reg. Section 1.409A-3(i)(4).  A Grantee will be deemed disabled if the Grantee is determined to be disabled under the Company’s long term disability plan, provided that the definition of “disability” applied under such plan complies with the requirements of Treas. Reg. Section 1.409A-3(i)(4).

 

(f)    Cause .  For the purposes of this Agreement, Cause shall mean (i) “Cause” as such term may be defined in any employment agreement between the Grantee and the Company that is in effect at the time of termination of employment; or (ii) if there is no such employment agreement in effect, “Cause” as such term may be defined in any change-in-control agreement between the Grantee and the Company that is in effect at the time of termination of employment; or (iii) if there is no such employment or change-in-control agreement, with respect to a Grantee: (A) any act of the Grantee involving fraud or dishonesty, or any willful failure to perform reasonable duties assigned to the Grantee which failure is not cured within 10 business days after receipt from the Company of written notice of such failure; (B) any material breach by the Grantee of any securities or other law or regulation or any Company policy governing trading or dealing with stock, securities, investments or the like, or any inappropriate disclosure or “tipping” relating to any stock, securities, investments or the like; (C) other than as required by law, the carrying out by the Grantee of any activity, or the Grantee making any public statement, which prejudices or ridicules the good name and standing of the Company or its Affiliates or would bring such persons into public contempt or ridicule; (D) attendance by the Grantee at work in a state of intoxication or the Grantee otherwise

 

2



 

being found in possession at the Grantee’s place of work of any prohibited drug or substance, possession of which would amount to a criminal offense; (E) any assault or other act of violence by the Grantee; or (F) the Grantee being indicted for any crime constituting (I) any felony whatsoever or (II) any misdemeanor that would preclude employment under the Company’s hiring policy.

 

(g)    Change in Control .  For purposes of this Agreement, a Change in Control (as defined in the Plan) will be deemed to have occurred with respect to the Grantee only if an event relating to the Change in Control constitutes a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company within the meaning of Treas. Reg. Section 1.409A-3(i)(5).

 

(h)    Good Reason .  For purposes of this Agreement, Good Reason shall mean (i) a material diminution in the Grantee’s base salary unless such action is in connection with across-the-board base salary reductions affecting 100 percent of employees at the same grade level; or (ii) a material diminution in the Grantee’s authority, duties or responsibilities.  To qualify as a termination due to Good Reason under this Agreement, the Grantee must have provided written notice to the Company of the existence of the circumstances providing grounds for termination for Good Reason within thirty (30) days of the initial existence of such grounds and must have given the Company at least thirty (30) days from receipt of such notice to cure the condition constituting Good Reason.  Such termination of employment must have become effective no later than one year after the initial existence of the condition constituting Good Reason.

 

(i)     Qualifying Termination .  For purposes of this Agreement, Qualifying Termination shall mean the Grantee’s employment with the Company is involuntarily terminated by the Company other than with Cause or terminated by the Grantee for Good Reason other than when Cause to terminate exists, in each case provided (A) the termination of employment occurs within two years following a Change in Control and (B) the termination of employment also constitutes a “separation from service” within the meaning of Section 409A of the Code.  In no event shall a Qualifying Termination include the Retirement, death, Disability or any other termination not specifically covered by the preceding sentence.

 

3.                                       Payment of Common Stock .

 

(a)    Payment and Delivery .  Shares of Common Stock corresponding to the number of Restricted Stock Units that become vested and nonforfeitable in accordance with Section 2 (“ RSU Shares ”) shall be paid to the Grantee, or, if deceased, the Grantee’s estate, either through delivery of a share certificate or by providing evidence of electronic delivery, and such RSU Shares shall be registered in the name of the Grantee or, if deceased, the Grantee’s estate.  The RSU Shares shall be paid on the Vesting Date unless vesting is accelerated under Section 2(b) prior to such Vesting Date.  In the event vesting is accelerated under Section 2(b), the RSU Shares shall be paid as follows (based on the first to occur of Retirement, Qualifying Termination, death or Disability but only if such accelerated payment timing results in payment before the applicable Vesting Date):  (i) six (6) months and one (1) day following the date of termination of employment due to Retirement or Qualifying Termination; or (ii) within ninety (90) days following the date of the Grantee’s death or Disability.  If the Grantee dies prior to payment under Section 3(a)(i), payment of the RSU Shares shall occur upon the earlier of (A) ninety (90) days following the date of the Grantee’s death, or (B) the payment time under Section 3(a)(i).

 

3



 

(b)    Authorized Shares .  The RSU Shares may be either previously authorized but unissued Shares or issued Shares, which have then been reacquired by the Company. Such Shares shall be fully paid and nonassessable.

 

4.                                       No Dividend Equivalents The Grantee shall have no right to dividend equivalents or dividends on the Restricted Stock Units.

 

5.                                       Transferability .   Neither the Restricted Stock Units prior to becoming vested pursuant to Section 2 nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Grantee or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however , that this Section 5 shall not prevent transfers by will or by the applicable laws of descent and distribution.

 

6.                                       No Guarantee of Employment .   Nothing in this Agreement or in the Plan shall confer upon the Grantee any right to continue in the employ of the Company or shall interfere with or restrict in any way the rights of the Company, which are hereby expressly reserved, to terminate the employment of the Grantee at any time for any reason whatsoever, with or without cause, subject to the applicable provisions of, if any, the Grantee’s employment agreement with the Company or offer letter provided by the Company to the Grantee.

 

7.                                       Change in Capitalization; Change in Control . If any event described in Section 8 or 9 of the Plan occurs, this Agreement and the Restricted Stock Units shall be adjusted to the extent required or permitted, as applicable, pursuant to Sections 8 and 9 of the Plan.

 

8.                                       Mandatory Tax Withholding .   Unless otherwise determined by the Committee, at the time of payment of the RSU Shares, the Company shall withhold from any RSU Shares deliverable in payment of the Restricted Stock Units the number of RSU Shares having a value equal to the minimum amount of income and employment taxes required to be withheld under applicable laws and regulations, and pay the amount of such withholding taxes in cash to the appropriate taxing authorities.  Unless otherwise determined by the Committee, if vesting occurs prior to payment and applicable law requires the payment of employment taxes at such time, then the Company shall withhold from the Restricted Stock Units, the number of RSU Shares having a value equal to the minimum amount of income and employment taxes required to be withheld under applicable law and regulations, in a manner that complies with Section 409A of the Code, and pay the amount of such withholding taxes in cash to the appropriate taxing authorities.  With regard to withholding at the time of payment (but not vesting), any fractional shares resulting from the payment of the withholding amounts shall be liquidated and paid in cash to the U.S. Treasury as additional federal income tax withholding for the Grantee.  With regard to withholding at the time of vesting, only full shares (determined by rounding down to the next full share) shall be liquidated and paid in cash to the U.S. Treasury and any additional amounts due for tax withholding shall be paid by the Grantee.  Grantee shall be responsible for any withholding taxes not satisfied by means of such mandatory withholding and for all taxes in excess of such withholding taxes that may be due upon vesting of the Restricted Stock Units.

 

9.                                       Limitation on Obligations .   This Restricted Stock Unit Award shall not be secured by any specific assets of the Company, nor shall any assets of the Company be designated as

 

4



 

attributable or allocated to the satisfaction of the Company’s obligations under this Agreement.  In addition, the Company shall not be liable to the Grantee for damages relating to any delays in issuing the share certificates or electronic delivery thereof to him (or his designated entities), any loss of the certificates, or any mistakes or errors in the issuance or registration of the certificates or in the certificates themselves.

 

10.                                Securities Laws .   The Company may require the Grantee to make or enter into such written representations, warranties and agreements as the Committee may reasonably request in order to comply with applicable securities laws.  The Restricted Stock Units and RSU Shares shall be subject to all applicable laws, rules and regulations and to such approvals of any governmental agencies as may be required.

 

11.                                Notices .   Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary or his or her designee, and any notice to be given to the Grantee shall be addressed to him at the address given beneath his signature hereto.  By a notice given pursuant to this Section 11, either party may hereafter designate a different address for notices to be given to him.  Any notice that is required to be given to the Grantee shall, if the Grantee is then deceased, be given to the Grantee’s personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 11.  Any notice shall have been deemed duly given when delivered by hand or courier or when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service.

 

12.                                Governing Law .   The laws of the State of Delaware shall govern the interpretation, validity and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.

 

13.                                Section 409A of the Code .   The provisions of Section 10(c) of the Plan are hereby incorporated by reference.  Notwithstanding the foregoing, the Company shall not be liable to the Grantee in the event this Agreement fails to be exempt from, or comply with, Section 409A of the Code.

 

14.                                Arbitration .   In the event of any controversy among the parties hereto arising out of, or relating to, this Agreement which cannot be settled amicably by the parties, such controversy shall be finally, exclusively and conclusively settled by mandatory arbitration conducted expeditiously in accordance with the American Arbitration Association rules, by a single independent arbitrator.  Such arbitration process shall take place within the Nashville, Tennessee metropolitan area.  The decision of the arbitrator shall be final and binding upon all parties hereto and shall be rendered pursuant to a written decision, which contains a detailed recital of the arbitrator’s reasoning.  Judgment upon the award rendered may be entered in any court having jurisdiction thereof.  Each party shall bear its own legal fees and expenses, unless otherwise determined by the arbitrator.

 

15.                                Clawback .   As a condition of receiving the Restricted Stock Units, the Grantee acknowledges and agrees that the Grantee’s rights, payments, and benefits with respect to the Restricted Stock Units shall be subject to any reduction, cancellation, forfeiture or recoupment, in whole or in part, upon the occurrence of certain specified events, as may be required by any rule or regulation of the Securities and Exchange Commission or by any applicable national exchange, or by any other applicable law, rule or regulation.

 

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16.                                Applicability of Plan . The Restricted Stock Units and the RSU Shares issued to the Grantee upon payment of the Restricted Stock Units shall be subject to all terms and provisions of the Plan to the extent applicable to restricted stock units and Shares.  In the event of any conflict between this Agreement and the Plan, the terms of the Plan shall control.

 

17.                                Amendment and Termination . This Agreement may be modified in any manner consistent with Section 10 of the Plan.

 

18.                                Administration . The Committee shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules.  All actions taken and all interpretations and determinations made by the Committee shall be final and binding upon the Grantee, the Company and all other interested persons.  No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Restricted Stock Unit Award.  In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan and this Agreement.

 

19.                                Rights as Shareholder .   The holder of a Restricted Stock Unit Award shall not be, nor have any of the rights or privileges of, a shareholder of the Company in respect of any RSU Shares issuable upon the payment of a vested Restricted Stock Unit unless and until a certificate or certificates representing such RSU Shares shall have been issued by the Company to such holder or, if the Common Stock is listed on a national securities exchange, a book entry representing such RSU Shares has been made by the registrar of the Company.

 

20.                                Signature in Counterparts . This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

 

[ Signatures on next page.]

 

6



 

IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto.

 

 

DOLLAR GENERAL CORPORATION

 

 

 

By:

 

 

Name:

 

 

Title:

 

 

 

 

GRANTEE

 

 

 

Signature:

 

 

Print Name:

 

 

Employee ID:

 

 

 

 

HOME ADDRESS:

 

 

 

 

 

7



 

Schedule A to Restricted Stock Unit Award Agreement

 

Grant Date : [       ]

 

 

 

 

 

Number of Restricted Stock Units Awarded :

[       ]

 

Vesting Dates:

 

Percentage

 

Date

 

 

33 1/3

 

April 1, [insert year]

 

 

33 1/3

 

April 1, [insert year]

 

 

33 1/3

 

April 1, [insert year]

 

8




Exhibit 10.20

 

DOLLAR GENERAL CORPORATION
RESTRICTED STOCK UNIT AWARD AGREEMENT

 

THIS AGREEMENT (the “ Agreement ”) is made effective as of [Date] (the “ Grant Date ”), between Dollar General Corporation, a Tennessee corporation (hereinafter called the “ Company ”), and [ Name ] (hereinafter referred to as the “ Grantee ”).  Capitalized terms not otherwise defined herein shall have the same meanings as in the Amended and Restated 2007 Stock Incentive Plan for Key Employees of Dollar General Corporation and its Affiliates, as amended from time to time (the “ Plan ”), the terms of which are hereby incorporated by reference and made a part of this Agreement.

 

WHEREAS, the Company desires to grant the Grantee a restricted stock unit award as provided for hereunder, ultimately payable in shares of Common Stock of the Company, par value $0.875 per Share (the “ Restricted Stock Unit Award ”), pursuant to the terms and conditions of this Agreement and the Plan; and

 

WHEREAS, the committee of the Company’s Board appointed to administer the Plan (the “ Committee ”) has determined that it would be to the advantage and in the best interest of the Company and its shareholders to grant the Restricted Stock Unit Award provided for herein to the Grantee;

 

NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto do hereby agree as follows:

 

1.              Grant of the Restricted Stock Unit .  Subject to the terms and conditions of the Plan and the additional terms and conditions set forth in this Agreement, the Company hereby grants to the Grantee [xxxx] Restricted Stock Units. A “ Restricted Stock Unit ” represents the right to receive one share of Common Stock upon satisfaction of the vesting and other conditions set forth in this Agreement.  The Restricted Stock Units shall vest and become nonforfeitable in accordance with Section 2 hereof.

 

2.              Vesting .

 

(a) The Restricted Stock Units shall become vested and nonforfeitable on the first anniversary of the Grant Date (the “ Vesting Date ”), so long as the Grantee continues to serve as the Chairman of the Company’s Board of Directors through the Vesting Date.

 

(b) Notwithstanding the foregoing, to the extent the Restricted Stock Units have not previously terminated or become vested and nonforfeitable (i) if the Grantee ceases to serve as the Chairman of the Board due to the Grantee’s death or Disability (as defined below), then 100% of the Restricted Stock Units that would have become vested and nonforfeitable on the Vesting Date if the Grantee had remained Chairman of the Board through such date will become vested and nonforfeitable upon such death or Disability; (ii) if the Grantee ceases to serve as the Chairman of the Board due to his removal from such Chairman position by the Board of Directors for any reason or for no reason or due to his failure to be re-elected to the Board by the shareholders of the Company (in each case, a “Termination Event”), then a Pro-Rata Portion (as defined below) of the Restricted Stock Units (rounded to the nearest whole share) that would have become vested and nonforfeitable on the Vesting Date if the Grantee had remained Chairman of the Board shall become vested and

 

1



 

nonforfeitable as of the last day of service in such Chairman position and all remaining Restricted Stock Units shall be automatically forfeited to the Company and cancelled.  For purposes of this Section 2(b) only, a “Pro-Rata Portion” is determined by a fraction (not to exceed one), the numerator of which is the number of months in the 12-month fiscal year of the Company for which the Restricted Stock Unit Award was made during which the Grantee continuously served as Chairman of the Board and the denominator of which is 12.  Grantee will be deemed to serve as Chairman of the Board for a month if the Termination Event occurs after the fifteenth (15 th ) day of a month;  and (iii) the Restricted Stock Units shall become immediately vested and nonforfeitable as to 100% of the shares of Common Stock subject to such Restricted Stock Units immediately prior to a Change in Control so long as the Grantee serves as Chairman of the Board through the date of the Change in Control. If the Grantee’s service on the Board or as Chairman of the Board terminates prior to the Vesting Date and none of the vesting provisions in this Section 2(b) apply or has not applied, then all unvested Restricted Stock Units at the date of such termination of Board service shall be automatically forfeited to the Company and cancelled.

 

(c)          For the purposes of this Agreement, Disability shall have the meaning as provided under Section 409A(a)(2)(C)(i) of the Code.

 

(d)         For purposes of this Agreement, a Change in Control (as defined in the Plan) will be deemed to have occurred with respect to the Grantee only if an event relating to the Change in Control constitutes a change in ownership or effective control of the Company or a change in the ownership of a substantial portion of the assets of the Company within the meaning of Treas. Reg. Section 1.409A-3(i)(5).

 

3.              Entitlement to Receive Common Stock .

 

(a)         Shares corresponding to the number of Restricted Stock Units granted herein (“ RSU Shares ”) are to be paid to the Grantee on the Vesting Date or, if earlier, upon the Grantee’s death or Disability, upon a Change in Control, or upon a Termination Event (but only to the extent the RSU Shares are vested at the time of termination pursuant to Section 2).  [Only applicable to future awards for fiscal year service following fiscal 2016: However , if the Grantee has made a timely and valid irrevocable election to defer receipt of all or any portion of the vested RSU Shares in accordance with the provisions of the RSU Award Deferral Election Form provided to the Grantee and returned it to the Company prior to December 31 of the calendar year preceding the Grant Date (such shares, the “ Deferred Shares ”), any such Deferred Shares shall instead be paid on the date so elected by the Grantee pursuant to such RSU Award Deferral Election Form, or, if earlier, upon the Grantee’s death or Disability or upon a Change in Control.]

 

(b)         On any date on which any RSU Shares are to be paid to the Grantee in accordance with Section 3(a) above, the Company shall deliver to the Grantee or the Grantee’s legal representative or, if the Grantee is deceased, the Grantee’s designated beneficiary, or, if none, his personal representative, a share certificate or evidence of electronic delivery of such RSU Shares in the amount of the RSU Shares so delivered to the Grantee, and such RSU Shares shall be registered in the name of the Grantee.

 

(c)          The shares of Common Stock deliverable upon the payment of a vested Restricted Stock Unit may be either previously authorized but unissued Shares or issued Shares, which have then been reacquired by the Company. Such Shares shall be fully paid and nonassessable.

 

2



 

(d)         Only whole shares of Common Stock shall be delivered in payment of a vested Restricted Stock Unit.  To the extent a vested Restricted Stock Unit (including any additional Restricted Stock Units [applicable only to future awards made for service for fiscal years after fiscal 2016: or Deferred Shares] credited from dividends pursuant to Section 4 below), includes a fractional share, on the date the RSU Shares [applicable only to future awards made for service for fiscal years after fiscal 2016: or Deferred Shares] are to be paid to the Grantee, such fractional share shall be paid to the Grantee or the Grantee’s legal representative or, if the Grantee is deceased, the Grantee’s designated beneficiary, or, if none, his personal representative, in cash, in an amount that equals the Fair Market Value of such fractional share on such payment date.

 

4.              Dividend Equivalents .  In the event that the Company pays any ordinary dividend (whether in cash, shares of Common Stock or other property) on its Shares, on the date such dividend is paid to shareholders the Grantee shall be credited, based on the number of unvested Restricted Stock Units held by the Grantee [applicable only to future awards made for service for fiscal years after fiscal 2016: and the number of Deferred Shares (if any) that the Grantee is entitled to receive, in each case] as of the record date of such dividend, with additional Restricted Stock Units [applicable only to future awards made for service for fiscal years after fiscal 2016: or Deferred Shares, as applicable,] that reflect the amount of such dividend (or if such dividend is paid in shares of Common Stock or other property, the fair value of the dividend, as determined in good faith by the Board).  Any such additional Restricted Stock Units [applicable only to future awards made for service for fiscal years after fiscal 2016: and Deferred Shares, as applicable,] shall be subject to all terms and conditions of this Agreement.

 

5.              Transferability .  Neither the Restricted Stock Units prior to becoming vested pursuant to Section 2 nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Grantee or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 5 shall not prevent transfers by will or by the applicable laws of descent and distribution.

 

6.              Grantee’s Continued Service on the Board and Continued Service as its Chairman . Nothing contained in this Agreement or in any other agreement entered into by the Company and the Grantee guarantees that the Grantee will continue to serve as a member of the Board or as the Chairman of the Board for any specified period of time.

 

7.              Change in Capitalization . If any event described in Section 9 of the Plan occurs, this Agreement and the Restricted Stock Units [applicable only to future awards made for service for fiscal years after fiscal 2016: (and any Deferred Shares due to be delivered hereunder)] shall be adjusted to the extent required or permitted, as applicable, pursuant to Section 9 of the Plan.

 

8.              Taxes . The Grantee shall have full responsibility, and the Company shall have no responsibility, for satisfying any liability for any federal, state or local income or other taxes required by law to be paid with respect to such Restricted Stock Units, including upon the vesting of the Restricted Stock Units and the delivery of any RSU Shares. The Grantee is hereby advised to seek his or her own tax counsel regarding the taxation of the grant and vesting of the Restricted Stock Units hereunder [applicable only to future awards made for service for fiscal years after fiscal 2016:

 

3



 

(and the tax consequences of any deferral election made in respect of the delivery of any RSU Shares)].

 

9.              Limitation on Obligations .  This Restricted Stock Unit Award shall not be secured by any specific assets of the Company or any of its Subsidiaries, nor shall any assets of the Company or any of its Subsidiaries be designated as attributable or allocated to the satisfaction of the Company’s obligations under this Agreement.  In addition, the Company shall not be liable to the Grantee for damages relating to any delays in issuing the share certificates or electronic delivery thereof to him (or his designated entities), any loss of the certificates, or any mistakes or errors in the issuance or registration of the certificates or in the certificates themselves.

 

10.       Securities Laws .  The Company may require the Grantee to make or enter into such written representations, warranties and agreements as the Committee may reasonably request in order to comply with applicable securities laws.  The granting of the Restricted Stock Units hereunder shall be subject to all applicable laws, rules and regulations and to such approvals of any governmental agencies as may be required.

 

11.       Notices .  Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary or his or her designee, and any notice to be given to the Grantee shall be addressed to him at the address given beneath his signature hereto.  By a notice given pursuant to this Section 11, either party may hereafter designate a different address for notices to be given to him.  Any notice that is required to be given to the Grantee shall, if the Grantee is then deceased, be given to the Grantee’s personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 11.  Any notice shall have been deemed duly given when delivered by hand or courier or when enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service.

 

12.       Governing Law .  The laws of the State of Delaware shall govern the interpretation, validity and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.

 

13.       Section 409A of the Code .  The provisions of Section 10(c) of the Plan are hereby incorporated by reference.

 

14.       Restricted Stock Units Subject to Plan . The Restricted Stock Unit Award and the Shares issued to the Grantee upon payment of the Restricted Stock Units shall be subject to all terms and provisions of the Plan, to the extent applicable to the Restricted Stock Units and such Shares. In the event of any conflict between this Agreement and the Plan, the terms of the Plan shall control.

 

15.       Amendment and Termination . This Agreement may be modified in any manner consistent with Section 10 of the Plan.

 

16.       Administration . The Committee shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules.  All actions taken and all

 

4



 

interpretations and determinations made by the Committee shall be final and binding upon the Grantee, the Company and all other interested persons.  No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Restricted Stock Unit Award.  In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan and this Agreement.

 

17.       Rights as Shareholder . Except as may be otherwise provided in Section 7 of this Agreement, the holder of a Restricted Stock Unit Award shall not be, nor have any of the rights or privileges of, a shareholder of the Company in respect of any Shares issuable upon the payment of a vested Restricted Stock Unit unless and until a certificate or certificates representing such Shares shall have been issued by the Company to such holder or, if the Common Stock is listed on a national securities exchange, a book entry representing such Shares has been made by the registrar of the Company.

 

18.       Signature in Counterparts . This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

 

[ Signatures on next page. ]

 

5



 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written.

 

 

DOLLAR GENERAL CORPORATION

 

 

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

 

 

 

GRANTEE

 

 

 

 

 

[Name]

 

[Address]

 

6




Exhibit 10.31

 

Summary of Non-Employee Director Compensation

(effective January 30, 2016)

 

We do not compensate for Board service any director who also serves as our employee. We will reimburse directors for certain fees and expenses incurred in connection with continuing education seminars and for travel and related expenses related to Dollar General business.

 

Each non-employee director will receive payment (prorated as applicable) for a fiscal year, in quarterly installments, of the following cash compensation, as applicable:

 

·                         $85,000 annual retainer for service as a Board member;

·                         $22,500 annual retainer for service as chairman of the Audit Committee;

·                         $20,000 annual retainer for service as chairman of the Compensation Committee;

·                         $15,000 annual retainer for service as chairman of the Nominating & Governance Committee; and

·                         $1,500 for each Board or committee meeting in excess of an aggregate of 16 that a director attends, as a member, during each fiscal year.

 

The Chairman of the Board will receive an annual Chairman retainer delivered on the first trading day of the fiscal year in the form of restricted stock units payable in shares of our common stock (“RSUs”) under our Amended and Restated 2007 Stock Incentive Plan, which are scheduled to vest as to 100% of the award on the first anniversary of the grant date, subject to certain accelerated vesting conditions, and have an estimated value of $200,000.

 

In addition, we grant annually to those non-employee directors who are elected or re-elected at each applicable shareholders’ meeting an equity award under our Amended and Restated 2007 Stock Incentive Plan with an estimated value of $135,000 on the grant date. This entire value consists of RSUs. The RSUs will vest as to 100% of the award on the first anniversary of the grant date, subject to certain accelerated vesting conditions. Directors may elect to defer receipt of shares underlying the RSUs. They may also elect to defer up to 100% of cash fees earned for Board service under the Non-Employee Director Deferred Compensation Plan filed as Exhibit 10.6 to the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 31, 2014. Any new director appointed after the annual shareholders’ meeting but before February 1 of a given year, will receive a full equity award no later than the first regularly scheduled Compensation Committee meeting following the date on which he or she is appointed. Any new director appointed on or after February 1 of a given year but before the next annual shareholders’ meeting shall be eligible to receive the next regularly scheduled annual award.

 




Exhibit 10.38

 

DOLLAR GENERAL CORPORATION

STOCK OPTION AWARD AGREEMENT

 

THIS AGREEMENT (the “ Agreement ”), dated as of the date indicated on Schedule A hereto (the “ Grant Date ”), is made by and between Dollar General Corporation, a Tennessee corporation (hereinafter referred to as the “ Company ”), and the individual whose name is set forth on the signature page hereof, who is an employee of the Company or a Subsidiary or Affiliate of the Company (hereinafter referred to as the “ Optionee ”).  Any capitalized terms herein not otherwise defined in this Agreement shall have the meaning set forth in the Amended and Restated 2007 Stock Incentive Plan for Key Employees of Dollar General Corporation and its Affiliates, as such Plan may be amended from time to time (the “ Plan ”).

 

WHEREAS, the Company wishes to carry out the Plan, the terms of which are hereby incorporated by reference and made a part of this Agreement; and

 

WHEREAS, the Compensation Committee (or a duly authorized subcommittee thereof) of the Board of the Company appointed to administer the Plan (the “ Committee ”) has determined that it would be to the advantage and best interest of the Company and its shareholders to grant the Option provided for herein to the Optionee, and has advised the Company thereof and instructed the undersigned officer to issue said Option.

 

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, receipt and sufficiency of which are hereby acknowledged, the parties hereto do hereby agree as follows:

 

ARTICLE I

DEFINITIONS

 

Whenever the following terms are used in this Agreement, they shall have the meaning specified below unless the context clearly indicates to the contrary.

 

Section 1.1.   Cause

 

“Cause” shall mean “Cause” as such term is defined in the Optionee’s Employment Agreement.

 

Section 1.2.   Disability

 

“Disability” shall mean “Disability” as such term is defined in the Optionee’s Employment Agreement.

 

Section 1.3.   Employment Agreement

 

“Employment Agreement” shall mean that certain employment agreement between the Optionee and the Company effective [June 3, 2015], as amended from time to time with the consent of the Optionee and the Company.

 



 

Section 1.4.  Good Reason

 

“Good Reason” shall mean (A) a material diminution in the Optionee’s base salary; or (B) a material diminution in the Optionee’s authority, duties or responsibilities.  To qualify as a termination due to Good Reason under this Agreement, the Optionee must have provided written notice to the Company of the existence of the circumstances providing grounds for termination for Good Reason within thirty (30) days of the initial existence of such grounds and must have given the Company at least thirty (30) days from receipt of such notice to cure the condition constituting Good Reason.  Such termination of employment must have become effective no later than one year after the initial existence of the condition constituting Good Reason.

 

Section 1.5.   Option

 

“Option” shall mean the right and option to purchase, on the terms and conditions set forth herein, all or any part of an aggregate of the number of Shares of Common Stock set forth on Schedule A hereto.

 

Section 1.6.  Qualifying Termination

 

“Qualifying Termination” shall mean the Optionee’s employment with the Company and all Service Recipients is involuntarily terminated by the Company other than with Cause or terminated by the Optionee for Good Reason other than when Cause to terminate exists, in each case within two years following a Change in Control. In no event shall a Qualifying Termination include the Retirement, death, Disability or any other termination of the Optionee not specifically covered by the preceding sentence.

 

Section 1.7.  Retirement

 

“Retirement” shall mean the voluntary termination of the Optionee’s employment with the Company or any of its Subsidiaries or Affiliates on or after (A) reaching the minimum age of sixty-two (62) and (B) achieving five (5) consecutive years of service; provided, however, that the sum of the Optionee’s age plus years of service (counting whole years only) must equal at least seventy (70) and provided further that there is no basis for the Company to terminate the Optionee with Cause at the time of Optionee’s voluntary termination.

 

Section 1.8.   Secretary

 

“Secretary” shall mean the Secretary of the Company.

 

ARTICLE II

GRANT OF OPTION

 

Section 2.1.    Grant of Option

 

For good and valuable consideration, on and as of the Grant Date the Company irrevocably grants to the Optionee the Option on the terms and conditions set forth in this Agreement.

 

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Section 2.2.    Exercise Price

 

Subject to Section 2.4, the exercise price of the Shares of Common Stock covered by the Option (the “ Exercise Price ”) shall be as set forth on Schedule A hereto, which shall be the Fair Market Value on the Grant Date.

 

Section 2.3.   No Guarantee of Employment

 

Nothing in this Agreement or in the Plan shall confer upon the Optionee any right to continue in the employ of the Company or any Subsidiary or Affiliate or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries or Affiliates, which are hereby expressly reserved, to terminate the employment of the Optionee at any time for any reason whatsoever, with or without cause, subject to the applicable provisions, if any, of the Optionee’s Employment Agreement.

 

Section 2.4.    Adjustments to Option

 

The Option shall be subject to the adjustment provisions of Sections 8 and 9 of the Plan, provided, however, that in the event of the payment of an extraordinary dividend by the Company to its shareholders: the Exercise Price of the Option shall be reduced by the amount of the dividend paid, but only to the extent the Committee determines it to be permitted under applicable tax laws and to not have adverse tax consequences to the Optionee under Section 409A of the Code; and, if such reduction cannot be fully effected due to such tax laws and it will not have adverse tax consequences to the Optionee, then the Company shall pay to the Optionee a cash payment, on a per Share basis, equal to the balance of the amount of the dividend not permitted to be applied to reduce the Exercise Price of the applicable Option as follows: (a) for each Share subject to a vested Option, immediately upon the date of such dividend payment; and (b) for each Share subject to an unvested Option, on the date on which such Option becomes vested and exercisable with respect to such Share.

 

ARTICLE III

PERIOD OF EXERCISABILITY

 

Section 3.1.   Commencement of Exercisability

 

(a)                                  Except as otherwise provided in Section 3.1(b), (c) or (d) below, so long as the Optionee continues to be employed by the Company or any other Service Recipient, the Option shall become vested and exercisable with respect to 33 1/3% of the Shares subject to such Option on each of the third, fourth and fifth anniversaries of the Grant Date (each such date, a “Vesting Date”). To the extent this vesting schedule results in the vesting of fractional shares, the fractional shares shall be combined and be exercisable on the third anniversary of the Grant Date.

 

(b)                                  Notwithstanding Section 3.1(a) above, upon the earliest occurrence of (i) the Optionee’s death or (ii) a termination of the Optionee’s employment by reason of the Optionee’s Disability, the Option shall become immediately vested and exercisable with respect to 100% of the Shares subject to such unvested Option immediately prior to such event (but only to the extent such Option has not otherwise terminated, been forfeited or become exercisable).

 

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(c)                                   Notwithstanding Section 3.1(a) above, in the event the Optionee experiences a Qualifying Termination, the Option shall become immediately vested and exercisable on the date of such Qualifying Termination with respect to 100% of the Shares subject to such unvested Option (but only to the extent such Option has not otherwise terminated, been forfeited or become exercisable).

 

(d)                                  Notwithstanding Section 3.1(a) above, in the event of the Optionee’s Retirement, that portion of the Option, if any, that would have become vested and exercisable within the one (1) year period following the Optionee’s Retirement date if the Optionee had remained employed with the Company or the applicable Service Recipient shall remain outstanding for a period of one (1) year following the Optionee’s Retirement date and shall become vested and exercisable on the anniversary of the Grant Date that falls within the one (1) year period following the Optionee’s Retirement date (but only to the extent such portion of the Option has not otherwise terminated, been forfeited or become exercisable); provided, however, that if during such one (1) year period the Optionee dies or incurs a Disability, such portion of the Option shall instead become immediately vested and exercisable (but only to the extent such portion of the Option has not otherwise terminated or been forfeited) upon such death or Disability.

 

(e)                                   No Option shall become vested or exercisable as to any additional Shares following the Optionee’s termination of employment for any reason, and any portion of the Option which is unvested or unexercisable as of the Optionee’s termination of employment shall immediately terminate and be forfeited without payment therefor, in each case except as otherwise provided in Section 3.1(b), (c) or (d) above.

 

Section 3.2.   Expiration of Option

 

The Optionee may not exercise the Option to any extent after the first to occur of the following events:

 

(a)                                  The tenth anniversary of the Grant Date;

 

(b)                                  The fifth anniversary of the date of the Optionee’s termination of employment with the Company and all Service Recipients by reason of Retirement;

 

(c)                                   The first anniversary of the date of the Optionee’s termination of employment with the Company and all Service Recipients by reason of death or Disability;

 

(d)                                  The third anniversary of the date of the Optionee’s Qualifying Termination;

 

(e)                                   Ninety (90) days after the date of the Optionee’s involuntary termination of employment by the Company and all Service Recipients without Cause that is not a Qualifying Termination;

 

(f)                                    Ninety (90) days after the date of the Optionee’s voluntary termination of employment with the Company and all Service Recipients by the Optionee that is not a Qualifying Termination or Disability or Retirement;

 

(g)                                   Immediately upon the date of the Optionee’s termination of employment by the Company and all Service Recipients with Cause;

 

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(h)                                  At the discretion of the Company, if the Committee so determines pursuant to Section 9 of the Plan.

 

ARTICLE IV

EXERCISE OF OPTION

 

Section 4.1.   Person Eligible to Exercise

 

During the lifetime of the Optionee, only the Optionee (or his duly authorized legal representative) may exercise the Option or any portion thereof.  After the death of the Optionee, the exercisable portion of the Option may, prior to the time when the Option becomes unexercisable under Section 3.2, be exercised by the Optionee’s personal representative or by any person empowered to do so under the Optionee’s will or under the then applicable laws of descent and distribution.

 

Section 4.2.   Partial Exercise

 

Any exercisable portion of the Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 3.2; provided, however, that any partial exercise shall be for whole Shares of Common Stock only.

 

Section 4.3.   Manner of Exercise

 

The Option, or any exercisable portion thereof, may be exercised solely by delivering to the Secretary or his or her designee all of the following prior to the time when the Option or such portion thereof becomes unexercisable under Section 3.2:

 

(a)                                  Notice in writing signed by the Optionee or the other person then entitled to exercise the Option or portion thereof, stating that the Option or portion thereof is thereby exercised, such notice complying with all applicable rules established by the Committee;

 

(b)                                  (i) Full payment (in cash or by check or by a combination thereof) for the Shares with respect to which such Option or portion thereof is exercised (provided, however, that full payment is deemed made if the Company receives cash in respect of the exercise price no later than the date on which the Company or its agent delivers or releases Shares to the Optionee or his agent, which date shall not be later than three (3) business days following the date on which the Option is exercised, in the event of a cashless exercise via a third party in a manner that is compliant with applicable law) or (ii) notice in writing that the Optionee elects to have the number of Shares that would otherwise be issued to the Optionee reduced by a number of Shares having an equivalent Fair Market Value to the payment that would otherwise be made by the Optionee to the Company pursuant to clause (i) of this subsection (b);

 

(c)                                   (i) Full payment (in cash or by check or by a combination thereof) to satisfy the minimum withholding tax obligation with respect to which such Option or portion thereof is exercised (provided, however, that full payment is deemed made if the Company receives such payment no later than the date on which the Company must remit such withholding to the Internal Revenue Service in the event of a cashless exercise via a third party in a manner that is compliant with applicable law); or (ii) notice in writing that the Optionee elects to have the number of Shares

 

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that would otherwise be issued to the Optionee reduced by a number of Shares having an equivalent Fair Market Value to the payment that would otherwise be made by the Optionee to the Company pursuant to clause (i) of this subsection (c);

 

(d)                                  A bona fide written representation and agreement, in a form satisfactory to the Committee, signed by the Optionee or other person then entitled to exercise such Option or portion thereof, stating that the Shares of Common Stock are being acquired for his or her own account, for investment and without any present intention of distributing or reselling said Shares or any of them except as may be permitted under the Securities Act of 1933, as amended (the “ Act ”), and then applicable rules and regulations thereunder, and that the Optionee or other person then entitled to exercise such Option or portion thereof will indemnify the Company against and hold it free and harmless from any loss, damage, expense or liability resulting to the Company if any sale or distribution of the Shares by such person is contrary to the representation and agreement referred to above; provided, however, that the Committee may, in its reasonable discretion, take whatever additional actions it deems reasonably necessary to ensure the observance and performance of such representation and agreement and to effect compliance with the Act and any other federal or state securities laws or regulations; and

 

(e)           In the event the Option or portion thereof shall be exercised pursuant to Section 4.1 by any person or persons other than the Optionee, appropriate proof of the right of such person or persons to exercise the Option.

 

Without limiting the generality of the foregoing, the Committee may require an opinion of counsel acceptable to it to the effect that any subsequent transfer of Shares acquired on exercise of the Option does not violate the Act, and may issue stop-transfer orders covering such Shares.  Share certificates evidencing stock issued on exercise of the Option may bear an appropriate legend referring to the provisions of subsection (d) above and the agreements herein. The written representation and agreement referred to in subsection (d) above shall, however, not be required if the Shares to be issued pursuant to such exercise have been registered under the Act, and such registration is then effective in respect of such Shares.

 

Section 4.4.   Conditions to Issuance of Stock Certificates

 

The Shares deliverable upon the exercise of the Option, or any portion thereof, may be either previously authorized but unissued Shares or issued Shares, which have then been reacquired by the Company.  Such Shares shall be fully paid and nonassessable.  The Company shall not be required to issue or deliver any certificate or certificates for Shares purchased (if certificated, or if not certificated, register the issuance of such Shares on its books and records) upon the exercise of the Option or portion thereof prior to fulfillment of all of the following conditions:

 

(a)                                  The obtaining of approval or other clearance from any state or federal governmental agency which the Committee shall, in its reasonable and good faith discretion, determine to be necessary or advisable; and

 

(b)                                  The lapse of such reasonable period of time following the exercise of the Option as the Committee may from time to time establish for reasons of administrative convenience or as may otherwise be required by applicable law.

 

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Section 4.5.   Rights as Shareholder

 

Except as otherwise provided in Section 2.4 of this Agreement, the holder of the Option shall not be, nor have any of the rights or privileges of, a shareholder of the Company in respect of any Shares purchasable upon the exercise of the Option or any portion thereof unless and until certificates representing such Shares shall have been issued by the Company to such holder or the Shares have otherwise been recorded in the records of the Company as owned by such holder.

 

Section 4.6.   Holding Period

 

Optionee agrees to hold and not sell or otherwise transfer any Shares acquired upon exercise of the Option until the fifth anniversary of the Grant Date, provided, however, this holding requirement (1) shall not apply to Shares used to pay the Exercise Price or to satisfy tax withholding requirements as set forth in Section 4.3(b) or (c) and (2) shall no longer apply upon the occurrence of any accelerated vesting event as set forth in Section 3.1(b), (c) or (d).  The Company may cause a restrictive legend to be placed on any certificates (or records of the Company) representing Shares acquired upon exercise of the Option while such holding requirement applies.

 

ARTICLE V

MISCELLANEOUS

 

Section 5.1.   Administration

 

The Committee shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules.  All actions taken and all interpretations and determinations made by the Committee shall be final and binding upon the Optionee, the Company and all other interested persons.  No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Option.  In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan and this Agreement.

 

Section 5.2.   Option Not Transferable

 

Neither the Option nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Optionee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 5.2 shall not prevent transfers by will or by the applicable laws of descent and distribution or other transfers authorized in limited circumstances by the Committee (or its designee).

 

Section 5.3.   Notices

 

Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary or his or her designee, and any notice to be given to the Optionee shall be addressed to him at the address given beneath his signature hereto.  By a notice

 

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given pursuant to this Section 5.3, either party may hereafter designate a different address for notices to be given to him or her.  Any notice, which is required to be given to the Optionee, shall, if the Optionee is then deceased, be given to the Optionee’s personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 5.3. Any notice shall have been deemed duly given when (i) delivered in person; or, except for notice under Section 4.3 which must be received to be duly given, (ii) enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service, or (iii) enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with fees prepaid) in an office regularly maintained by FedEx, UPS, or comparable non-public mail carrier.

 

Section 5.4.   Titles; Pronouns

 

Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement.  The masculine pronoun shall include the feminine and neuter, and the singular the plural, where the context so indicates.

 

Section 5.5.   [ Applicability of Plan and Management Stockholder’s Agreement

 

The Option and the Shares of Common Stock issued to the Optionee upon exercise of the Option shall be subject to all of the terms and provisions of the Plan to the extent applicable to an Option and Shares.   In the event of any conflict between this Agreement and the Plan, the terms of the Plan shall control.  The Option and the Shares of Common Stock issued to the Optionee upon exercise of the Option shall not be subject to, and hereby are expressly exempted from, all of the terms and provisions of any Management Stockholder’s Agreement between the Optionee and the Company in existence on the Grant Date.]

 

Section 5.6.   Amendment

 

This Agreement may only be amended pursuant to Section 10 of the Plan.

 

Section 5.7.   Governing Law

 

The laws of the State of Delaware shall govern the interpretation, validity and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.

 

Section 5.8.   Arbitration

 

In the event of any controversy among the parties hereto arising out of, or relating to, this Agreement which cannot be settled amicably by the parties, such controversy shall be finally, exclusively and conclusively settled by mandatory arbitration conducted expeditiously in accordance with the American Arbitration Association rules, by a single independent arbitrator.  Such arbitration process shall take place within the Nashville, Tennessee metropolitan area.  The decision of the arbitrator shall be final and binding upon all parties hereto and shall be rendered pursuant to a written decision, which contains a detailed recital of the arbitrator’s reasoning.  Judgment upon the award rendered may be entered in any court having jurisdiction thereof.  Each party shall bear its own legal fees and expenses, unless otherwise determined by the arbitrator.

 

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Section 5.9.   Clawback

 

As a condition of receiving the Option, the Optionee acknowledges and agrees that the Optionee’s rights, payments, and benefits with respect to the Option shall be subject to any reduction, cancellation, forfeiture or recoupment, in whole or in part, upon the occurrence of certain specified events, as may be required by any rule or regulation of the Securities and Exchange Commission or by any applicable national exchange, or by any other applicable law, rule or regulation.

 

Section 5.10.  Signature in Counterparts

 

This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.

 

[ Signatures on next pages ]

 

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IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto.

 

 

DOLLAR GENERAL CORPORATION

 

 

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

 

 

ADDRESS:

 

 

 

Dollar General Corporation

 

100 Mission Ridge

 

Goodlettsville, TN 37072

 

[Signature Page of Stock Option Award Agreement]

 

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OPTIONEE:

 

 

 

 

 

Signature:

 

 

Print Name:

Todd J.Vasos

 

 

 

 

 

ADDRESS:

 

 

 

 

 

[Signature Page of Stock Option Award Agreement]

 

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Schedule A to Stock Option Award Agreement

 

Grant Date :

 

[March 16, 2016]

 

 

 

Exercise Price (per Share) :

 

[$84.67]

 

 

 

Option Grant :

 

 

Aggregate number of Shares of Common Stock for which the Option granted hereunder is exercisable:

 

[85,759]

 

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Exhibit 10.48

 

STOCK OPTION AGREEMENT

 

THIS AGREEMENT, dated as of the date indicated on Schedule B hereto (the “ Grant Date ”), is made by and between Dollar General Corporation, a Tennessee corporation (hereinafter referred to as the “ Company ”), and the individual whose name is set forth on the signature page hereof, who is an employee of the Company or a Subsidiary or Affiliate of the Company, hereinafter referred to as the “ Optionee ”. Any capitalized terms herein not otherwise defined in Article I shall have the meaning set forth in the Amended and Restated 2007 Stock Incentive Plan for Key Employees of Dollar General Corporation and its Affiliates, as such Plan may be amended from time to time (the “ Plan ”).

 

WHEREAS, the Company wishes to carry out the Plan, the terms of which are hereby incorporated by reference and made a part of this Agreement; and

 

WHEREAS, the Compensation Committee of the Board of the Company (or, if no such committee is appointed, the Board) (the “ Committee ”) has determined that it would be to the advantage and best interest of the Company and its shareholders to grant the Option provided for herein to the Optionee as an incentive for increased efforts during his term of office with the Company or its Subsidiaries or Affiliates, and has advised the Company thereof and instructed the undersigned officers to issue said Option;

 

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto do hereby agree as follows:

 

ARTICLE I

 

DEFINITIONS

 

Whenever the following terms are used in this Agreement, they shall have the meaning specified below unless the context clearly indicates to the contrary.

 

Section 1.1.   Base Price

 

“Base Price” shall mean $8.75.

 

Section 1.2.   Cause

 

“Cause” shall mean “Cause” as such term may be defined in any employment agreement or change-in-control agreement in effect at the time of termination of employment between the Optionee and the Company or any of its Subsidiaries or Affiliates, or, if there is no such employment or change-in- control agreement, “Cause” shall mean, with respect to an Optionee: (i) any act of the Optionee involving fraud or dishonesty, or any willful failure to perform reasonable duties assigned to the Optionee which failure is not cured within 10 business days after receipt from the Company of written notice of such failure; (ii) any material breach by the Optionee of any securities or other law or regulation or any Company policy governing trading or dealing with stock, securities, investments or the like, inappropriate disclosure or “tipping” relating to any stock, securities or investments or the like, (iii) other than as required by law, the carrying out by the Optionee of any activity, or the Optionee making any public statement, which prejudices or ridicules the good name and standing of the Company or its affiliates (including any limited partner of Parent) or would bring such persons into public contempt or ridicule; (iv) attendance by the Optionee at work in a state of intoxication or the Optionee otherwise being found in

 

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possession at the Management Stockholder’s place of work of any prohibited drug or substance, possession of which would amount to a criminal office; (v) any assault or other act of violence by the Management Stockholder; or (vi) the Optionee being indicted for any crime constituting (x) any felony whatsoever or (y) any misdemeanor that would preclude employment under the Company’s hiring policy.

 

Section 1.3.  Closing Date

 

“Closing Date” shall mean July 6, 2007.

 

Section 1.4.  Disability

 

“Disability” shall mean “Disability” as such term is defined in any employment agreement between Optionee and the Company or any of its Subsidiaries, or, if there is no such employment agreement, “Disability” as defined in the long-term disability plan of the Company.

 

Section 1.5.  Fiscal Year

 

“Fiscal Year” shall mean each of the fiscal years of the Company set forth on Schedule A attached hereto.

 

Section 1.6.  Good Reason

 

“Good Reason” shall mean “Good Reason” as such term may be defined in any employment agreement or change-in-control agreement in effect at the time of termination of employment between the Optionee and the Company or any of its Subsidiaries or Affiliates, or, if there is no such employment or change-in-control agreement, “Good Reason” shall mean (i) a reduction in the Optionee’s base salary or target bonus level; or (ii) the relocation by the Company of the Optionee’s principal place of employment to a site outside a fifty mile radius from the current site of the Optionee’s principal place of employment. In each case other than any isolated, insubstantial and inadvertent failure by the Company that is not in bad faith and is cured within ten (10) business days after the Participant gives the Company notice of such event.

 

Section 1.7.  Management Stockholder’s Agreement

 

“Management Stockholder’s Agreement” shall mean that certain Management Stockholder’s Agreement between the Optionee and the Company.

 

Section 1.8.  Option

 

“Option” shall mean the aggregate of the Time Option and the Performance Option granted under Section 2.1 of this Agreement.

 

Section 1.9.  Performance Option

 

“Performance Option” shall mean the right and option to purchase, on the terms and conditions set forth herein, all or any part of an aggregate of the number of shares of Common Stock set forth on Schedule B hereof opposite the term Performance Option.

 

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Section 1.10.  Pro Rata Fraction

 

“Pro Rata Fraction” shall mean a fraction, the numerator of which equals the number of calendar months in the first Fiscal Year that the Optionee is employed with (in the case of a new employee), or is employed in the promoted position giving rise to the Option grant by (in the event of a promoted employee), the Company or any Service Recipient and the denominator of which is equal to 12; provided, that an Optionee shall only be deemed to have been employed in any given calendar month if the Optionee commences initial employment (in the event of a new employee) or commences employment into the promoted position (in the event of a promoted employee) with the Company or any Service Recipient on or before the fifteenth (15 th ) day of any calendar month occurring in the first Fiscal Year.  In the event an Optionee commences employment (whether initial or promoted) with the Company or any Service Recipient after the fifteenth day of any given calendar month, then the numerator of the foregoing fraction shall only include those calendar months immediately following the calendar month in which the Optionee commences such employment (whether initial or promoted).

 

Section 1.11.  Secretary

 

“Secretary” shall mean the Secretary of the Company.

 

Section 1.12.  Sponsor IRR

 

“Sponsor IRR” shall mean, on any given date, a pretax compounded annual internal rate of return of at least 25% realized by the Sponsors or any of their affiliates after the Closing Date on any Shares held by the Sponsors or any of their affiliates, on a per Share, fully diluted basis, based on the amount invested by the Sponsors in the equity securities of the Company. For the avoidance of doubt, (a) any calculation of Sponsor IRR will for purposes of Section 3.1(c)(ii) be calculated solely with respect to Sponsor Shares (as defined herein) actually sold or otherwise disposed of in the applicable transaction, and (b) Sponsor IRR will not be calculated taking into account the receipt by the Sponsor or any of its affiliates of any management, monitoring, transaction or other fees payable to such parties in connection with their separate letter agreement with the Company, and shall only take into account actual distributions paid on the shares of Common Stock indirectly held by such parties.

 

Section 1.13.  Sponsor Return

 

“Sponsor Return” shall mean, on any given date, all cash proceeds actually received by the Sponsors or any of their affiliates after the Closing Date, including the receipt of any cash dividends or other cash distributions thereon, on a per Share, fully diluted basis, in an amount that equals or exceeds the product of 2.5 and the Base Price. For the avoidance of doubt, (a) any calculation of Sponsor Return will for purposes of Section 3.1(c)(ii) be calculated solely with respect to Sponsor Shares actually sold or otherwise disposed of in the applicable transaction, and (b) Sponsor Return will not be calculated taking into account the receipt by the Sponsor or any of its affiliates of any management, monitoring, transaction or other fees payable to such parties in connection with their separate letter agreement with the Company, and shall only take into account actual distributions paid on the shares of Common Stock indirectly held by such parties.

 

Section 1.14.  Time Option

 

“Time Option” shall mean the right and option to purchase, on the terms and conditions set forth herein, all or any part of an aggregate of the number of shares of Common Stock set forth on  Schedule B hereof opposite the term Time Option.

 

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ARTICLE II

 

GRANT OF OPTIONS

 

Section 2.1.  Grant of Options

 

For good and valuable consideration, on and as of the Grant Date the Company irrevocably grants to the Optionee the following Stock Options: (a) the Time Option and (b) the Performance Option, in each case on the terms and conditions set forth in this Agreement.

 

Section 2.2.  Exercise Price

 

Subject to Section 2.4, the exercise price of the shares of Common Stock covered by the Option (the “Exercise Price”) shall be as set forth on Schedule B hereof, which shall be the Fair Market Value on the Grant Date.

 

Section 2.3.  No Guarantee of Employment

 

Nothing in this Agreement or in the Plan shall confer upon the Optionee any right to continue in the employ of the Company or any Subsidiary or Affiliate or shall interfere with or restrict in any way the rights of the Company and its Subsidiaries or Affiliates, which are hereby expressly reserved, to terminate the employment of the Optionee at any time for any reason whatsoever, with or without cause, subject to the applicable provisions of, if any, the Optionee’s employment agreement with the Company or offer letter provided by the Company to the Optionee.

 

Section 2.4.  Adjustments to Option

 

The Option shall be subject to the adjustment provisions of Sections 8 and 9 of the Plan, provided , however , that in the event of the payment of an extraordinary dividend by the Company to its stockholders, then: the Exercise Prices of the Option shall be reduced by the amount of the dividend paid, but only to the extent the Committee determines it to be permitted under applicable tax laws and not have adverse tax consequences to the Optionee under Section 409A of the Code; and, if such reduction cannot be fully effected due to such tax laws and it will not have adverse tax consequences to the Optionee, then the Company shall pay to the Optionee a cash payment, on a per Share basis, equal to the balance of the amount of the dividend not permitted to be applied to reduce the Exercise Price of the applicable Option as follows: (a) for each Share subject to a vested Option, immediately upon the date of such dividend payment; and (b), for each Share subject to an unvested Option, on the date on which such Option becomes vested and exercisable with respect to such Share.

 

ARTICLE III

 

PERIOD OF EXERCISABILITY

 

Section 3.1.  Commencement of Exercisability

 

(a)                                  So long as the Optionee continues to be employed by the Company or any other Service Recipients, the Option shall become exercisable pursuant to the following schedules:

 

(i)                                                              Time Option . The Time Option shall become vested and exercisable with respect to 25% of the Shares subject to such Option on each of the first four anniversaries of the Grant Date.

 

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(ii)                                                           Performance Option .  If the Company, on a consolidated basis, achieves its annual EBITDA targets as set forth in Schedule A attached hereto (each an “ EBITDA Target ” or “Annual Performance Target”) for the applicable given Fiscal Year, then the Performance Option shall be eligible to become vested and exercisable as to a percentage of the Shares subject to such Option at the end of each of the five Fiscal Years as follows:

 

(A)                                    in respect of the first Fiscal Year, a Pro Rata Fraction of 25% of the Shares subject to the Option (the “Initial Tranche”);

 

(B)                                    in respect of each of the second through fourth Fiscal Years, 25% of the Shares subject to the Option; and

 

(C)                                    in respect of the fifth Fiscal Year, the portion of the Initial Tranche in excess of the Pro Rata Fraction of the Initial Tranche that did not become vested in respect of the first Fiscal Year.

 

Notwithstanding the foregoing, in the event that an EBITDA Target is not achieved in a particular Fiscal Year, then that portion of the Performance Option that was eligible to vest but failed to vest due to the Company’s failure to achieve its EBITDA Target shall nevertheless vest and become exercisable at the end of any subsequent Fiscal Years if the cumulative EBITDA Target set forth on Schedule A attached hereto (each a “ Cumulative EBITDA Target ”) is achieved on a cumulative basis at the end of such Fiscal Year with respect to all then completed Fiscal Years. For the avoidance of doubt, except as otherwise provided in Section 3.1(b) below, no portion of the Performance Option shall become vested and exercisable at any time unless the Optionee remains employed with the Company or the applicable Service Recipient through the date on which it is determined that the applicable EBITDA Target or Cumulative EBITDA Target of the immediately preceding Fiscal Year has been achieved.

 

(b)                                  Notwithstanding any of the foregoing, upon a termination of the Optionee’s employment at any time by reason of death or Disability:

 

(i)                                      that 25% portion of the Time Option that would have become exercisable on the next anniversary date of the Grant Date if the Optionee had remained employed with the Company or the applicable Service Recipient through such date will become vested and exercisable; and

 

(ii)                                   that portion of the Performance Option, if any, that would have become exercisable in respect of the Fiscal Year in which the Optionee’s employment terminates if the Optionee had remained employed with the Company or the applicable Service Recipient through such date, shall remain outstanding through the date the Company determines whether the Annual Performance Target or Cumulative EBITDA Target is met for such Fiscal Year, and shall become exercisable on such date if and only if , and only to the extent that, the Annual Performance Target or Cumulative EBITDA Target is met for such Fiscal Year in accordance with Section 3.1(a)(ii) above; provided, however , that if such Annual Performance Target or Cumulative EBITDA Target is not met for such Fiscal Year, that portion of the Performance Option shall remain unvested and shall be forfeited upon such date.

 

(c)                                   Notwithstanding any of Section 3.1(a) or (b) above, upon the earlier occurrence of a Change in Control:

 

(i)                                                              the Time Option shall become immediately exercisable as to 100% of the shares of Common Stock subject to such Option immediately prior to a Change in Control (but only to the extent such Option has not otherwise terminated or become exercisable); and

 

5



 

(ii)                                                           the Performance Option shall become immediately exercisable as to 100% of the shares of Common Stock subject to such Option immediately prior to a Change in Control (but only to the extent such Option has not otherwise terminated or become exercisable) if as a result of  the Change in Control, (x) the Sponsor achieves the Sponsor IRR on 100% of the Sponsors’ aggregate investment, directly or indirectly, in the equity securities of the Company (the “Sponsor Shares”) and (y) the Sponsor earns a Sponsor Return on 100% of the Sponsor Shares; provided, however, that in the event that there occurs a Change in Control wherein more than 50% but less than 100% of the Common Stock or other voting securities of the Company or Buck Holdings, L.P. is sold or otherwise disposed of, then, the Performance Option will become vested (to the extent not already previously vested pursuant to Section 3.1(a)) up to the same percentage of Sponsor Shares on which such Sponsor Return and Sponsor IRR has been so achieved.

 

(d)                                  Notwithstanding the foregoing but except as provided in Section 3.1(b), no Option shall become exercisable as to any additional shares of Common Stock following the termination of employment of the Optionee for any reason and any Option, which is unexercisable as of the Optionee’s termination of employment, shall immediately expire without payment therefor.

 

(e)                                   Notwithstanding any other provision of this Section 3.1 or of this Agreement, in the event that the Optionee does not contribute to the Company, in exchange for shares of Common Stock, the Minimum Investment, as set forth on Schedule B hereof, no portion of the Time Option or the Performance Option shall become vested and exercisable, and the Option will expire, without payment therefor, on the earlier to occur of a Change in Control or the tenth anniversary of the Grant Date.

 

Section 3.2.  Expiration of Option

 

Except as otherwise provided in Section 5 or 6 of the Management Stockholder’s Agreement, the Optionee may not exercise the Option to any extent after the first to occur of the following events:

 

(a)                                  The tenth anniversary of the Grant Date so long as the Optionee remains employed with the Company or any Service Recipient through such date;

 

(b)                                  The first anniversary of the date of the Optionee’s termination of employment with the Company and all Service Recipients, if the Optionee’s employment is terminated by reason of death or Disability (unless earlier terminated as provided in Section 3.2(h) below);

 

(c)                                   Immediately upon the date of the Optionee’s termination of employment by the Company and all Service Recipients for Cause;

 

(d)                                  Immediately upon the date of the Optionee’s termination of employment by the Company and all Service Recipients by the Optionee without Good Reason (except due to death or Disability);

 

(e)                                   Ninety (90) days after the date of an Optionee’s termination of employment by the Company and all Service Recipients without Cause (for any reason other than as set forth in Section 3.2(b));

 

(f)                                    Ninety (90) days after the date of an Optionee’s termination of employment with the Company and all Service Recipients by the Optionee for Good Reason;

 

6



 

(g)                                   The date the Option is terminated pursuant to Section 6 or 7 of the Management Stockholder’s Agreement; or

 

(h)                                  At the discretion of the Company, if the Committee so determines pursuant to Section 9 of the Plan.

 

ARTICLE IV

 

EXERCISE OF OPTION

 

Section 4.1.  Person Eligible to Exercise

 

During the lifetime of the Optionee, only the Optionee (or his or her duly authorized legal representative) may exercise an Option or any portion thereof. After the death of the Optionee, any exercisable portion of an Option may, prior to the time when an Option becomes unexercisable under Section 3.2, be exercised by his personal representative or by any person empowered to do so under the Optionee’s will or under the then applicable laws of descent and distribution.

 

Section 4.2.  Partial Exercise

 

Any exercisable portion of an Option or the entire Option, if then wholly exercisable, may be exercised in whole or in part at any time prior to the time when the Option or portion thereof becomes unexercisable under Section 3.2; provided , however , that any partial exercise shall be for whole shares of Common Stock only.

 

Section 4.3.  Manner of Exercise

 

An Option, or any exercisable portion thereof, may be exercised solely by delivering to the Secretary or his or her office or designee all of the following prior to the time when the Option or such portion becomes unexercisable under Section 3.2:

 

(a)                                  Notice in writing signed by the Optionee or the other person then entitled to exercise the Option or portion thereof, stating that the Option or portion thereof is thereby exercised, such notice complying with all applicable rules established by the Committee;

 

(b)                                  (i) Full payment (in cash or by check or by a combination thereof) for the shares with respect to which such Option or portion thereof is exercised or (ii) indication that the Optionee elects to have the number of Shares that would otherwise be issued to the Optionee reduced by a number of Shares having an equivalent Fair Market Value to the payment that would otherwise be made by Optionee to the Company pursuant to clause (i) of this subsection (b);

 

(c)                                   (i) Full payment (in cash or by check or by a combination thereof) to satisfy the minimum withholding tax obligation with respect to which such Option or portion thereof is exercised; or (ii) solely in the event that the Optionee’s employment terminates under circumstances identified in Section 3.2(b), (e) or (f) above, notice in writing that the Optionee elects to have the number of Shares that would otherwise be issued to the Optionee reduced by a number of Shares having an equivalent Fair Market Value to the payment that would otherwise be made by Optionee to the Company pursuant to clause (i) of this subsection (c);

 

(d)                                  A bona fide written representation and agreement, in a form satisfactory to the Committee, signed by the Optionee or other person then entitled to exercise such Option or portion

 

7


 

thereof, stating that the shares of Common Stock are being acquired for his own account, for investment and without any present intention of distributing or reselling said shares or any of them except as may be permitted under the Securities Act of 1933, as amended (the “ Act ”), and then applicable rules and regulations thereunder, and that the Optionee or other person then entitled to exercise such Option or portion thereof will indemnify the Company against and hold it free and harmless from any loss, damage, expense or liability resulting to the Company if any sale or distribution of the shares by such person is contrary to the representation and agreement referred to above; provided , however , that the Committee may, in its reasonable discretion, take whatever additional actions it deems reasonably necessary to ensure the observance and performance of such representation and agreement and to effect compliance with the Act and any other federal or state securities laws or regulations; and

 

(e)                                    In the event the Option or portion thereof shall be exercised pursuant to Section 4.1 by any person or persons other than the Optionee, appropriate proof of the right of such person or persons to exercise the option.

 

Without limiting the generality of the foregoing, the Committee may require an opinion of counsel acceptable to it to the effect that any subsequent transfer of shares acquired on exercise of an Option does not violate the Act, and may issue stop-transfer orders covering such shares. Share certificates evidencing stock issued on exercise of this Option shall bear an appropriate legend referring to the provisions of subsection (d) above and the agreements herein. The written representation and agreement referred to in subsection (d) above shall, however, not be required if the shares to be issued pursuant to such exercise have been registered under the Act, and such registration is then effective in respect of such shares.

 

Section 4.4.   Conditions to Issuance of Stock Certificates

 

The shares of stock deliverable upon the exercise of an Option, or any portion thereof, may be either previously authorized but unissued shares or issued shares, which have then been reacquired by the Company.  Such shares shall be fully paid and nonassessable. The Company shall not be required to issue or deliver any certificate or certificates for shares of stock purchased (if certificated, or if not certificated, register the issuance of such shares on its books and records) upon the exercise of an Option or portion thereof prior to fulfillment of all of the following conditions:

 

(a)                                   The obtaining of approval or other clearance from any state or federal governmental agency which the Committee shall, in its reasonable and good faith discretion, determine to be necessary or advisable;

 

(b)                                   The execution by the Optionee of the Management Stockholder’s Agreement;

 

and

 

(c)                                   The lapse of such reasonable period of time following the exercise of the Option as the Committee may from time to time establish for reasons of administrative convenience or as may otherwise be required by applicable law.

 

Section 4.5.  Rights as Stockholder

 

Except as otherwise provided in Section 2.4 of this Agreement, the holder of an Option shall not be, nor have any of the rights or privileges of, a stockholder of the Company in respect of any shares purchasable upon the exercise of the Option or any portion thereof unless and until certificates representing such shares shall have been issued by the Company to such holder or the Shares have otherwise been recorded in the records of the Company as owned by such holder.

 

8



 

ARTICLE V

 

MISCELLANEOUS

 

Section 5.1.  Administration

 

The Committee shall have the power to interpret the Plan and this Agreement and to adopt such rules for the administration, interpretation and application of the Plan as are consistent therewith and to interpret or revoke any such rules. All actions taken and all interpretations and determinations made by the Committee shall be final and binding upon the Optionee, the Company and all other interested persons. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan or the Option.  In its absolute discretion, the Board may at any time and from time to time exercise any and all rights and duties of the Committee under the Plan and this Agreement.

 

Section 5.2.  Option Not Transferable

 

Neither the Option nor any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of the Optionee or his successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 5.2 shall not prevent transfers by will or by the applicable laws of descent and distribution.

 

Section 5.3.  Notices

 

Any notice to be given under the terms of this Agreement to the Company shall be addressed to the Company in care of its Secretary, and any notice to be given to the Optionee shall be addressed to him at the address given beneath his signature hereto. By a notice given pursuant to this Section 5.3, either party may hereafter designate a different address for notices to be given to him. Any notice, which is required to be given to the Optionee, shall, if the Optionee is then deceased, be given to the Optionee’s personal representative if such representative has previously informed the Company of his status and address by written notice under this Section 5.3.  Any notice shall have been deemed duly given when (i) delivered in person, (ii) enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with postage prepaid) in a post office or branch post office regularly maintained by the United States Postal Service, or (iii) enclosed in a properly sealed envelope or wrapper addressed as aforesaid, deposited (with fees prepaid) in an office regularly maintained by FedEx, UPS, or comparable non-public mail carrier.

 

Section 5.4.  Titles; Pronouns

 

Titles are provided herein for convenience only and are not to serve as a basis for interpretation or construction of this Agreement. The masculine pronoun shall include the feminine and neuter, and the singular the plural, where the context so indicates.

 

Section 5.5.  Applicability of Plan and Management Stockholder’s Agreement

 

The Option and the shares of Common Stock issued to the Optionee upon exercise of the Option shall be subject to all of the terms and provisions of the Plan and the Management Stockholder’s Agreement, to the extent applicable to the Option and such Shares.

 

9



 

Section 5.6.  Amendment

 

Subject to Section 10 of the Plan, this Agreement may be amended only by a writing executed by the parties hereto, which specifically states that it is amending this Agreement.

 

Section 5.7.  Governing Law

 

The laws of the State of Delaware shall govern the interpretation, validity and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.

 

Section 5.8.  Arbitration

 

In the event of any controversy among the parties hereto arising out of, or relating to, this Agreement which cannot be settled amicably by the parties, such controversy shall be finally, exclusively and conclusively settled by mandatory arbitration conducted expeditiously in accordance with the American Arbitration Association rules, by a single independent arbitrator. Such arbitration process shall take place within the Nashville, Tennessee metropolitan area. The decision of the arbitrator shall be final and binding upon all parties hereto and shall be rendered pursuant to a written decision, which contains a detailed recital of the arbitrator’s reasoning. Judgment upon the award rendered may be entered in any court having jurisdiction thereof.  Each party shall bear its own legal fees and expenses, unless otherwise determined by the arbitrator.

 

[ Signatures on next pages .]

 

10



 

IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto.

 

 

DOLLAR GENERAL CORPORATION

 

 

 

By:

/s/ S. Lanigan

 

 

 

 

Name:

Susan Lanigan

 

 

 

 

Title:

Executive Vice President &

 

 

General Counsel

 

 

 

 

 

ADDRESS:

 

 

 

Dollar General Corporation
100 Mission Ridge
Goodlettsville, TN 37072

 

[Signature Page of Stock Option Agreement]

 

11



 

 

OPTIONEE:

 

 

 

/s/ Rhonda M. Taylor

 

Rhonda M. Taylor

 

 

 

ADDRESS:

 

 

 

6329 Bresslyn Road

 

Nashville, TN 37205

 

 

 

April 21, 2010

 

 

[Signature Page of Stock Option Agreement]

 

12



 

Schedule A to Stock Option Agreement

Annual EBITDA Targets and Cumulative EBITDA Targets

 

 

 

 

 

 

 

 

Fiscal Year

 

 

Annual Performance Target

 

 

Cumulative EBITDA Target

 

 

 

 

 

 

 

2010

 

 

$1,400,000,000

 

 

N/A

2011

 

 

$1,584,000,000

 

 

$2,984,000,000

2012

 

 

$1,754,000,000

 

 

$4,738,000,000

2013

 

 

$1,930,000,000

 

 

$6,668,000,000

2014

 

 

$2,122,000,000

 

 

$8,790,000,000

2015

 

 

N/A

 

 

11,074,000,000

 

“EBITDA” shall mean earnings before interest, taxes, depreciation and amortization plus transaction, management and/or similar fees paid to the Sponsor and/or its Affiliates. The Board shall, fairly and appropriately, adjust the calculation of EBITDA to reflect, to the extent not contemplated in the management plan, the following: acquisitions, divestitures, any change required by GAAP relating to share-based compensation or for other changes in GAAP promulgated by accounting standard setters that, in each case, the Board in good faith determines require adjustment of EBITDA. The Board’s determination of such adjustment shall be based on the Company’s accounting as set forth in its books and records and on the financial plan of the Company pursuant to which the Annual Performance Targets  were originally established.

 

If the Company makes an acquisition in any year, the Annual Performance Target for such year and Cumulative EBITDA Target for such year and subsequent years will be adjusted, fairly and appropriately, by the amount of EBITDA in the plan for the target presented to the Board at the time the acquisition is approved by the Board. Annual Performance Targets and Cumulative EBITDA Targets will also be fairly and appropriately adjusted by the Board, in consultation with management, to the extent not contemplated in the plan for the following: any divestitures, major capital investment programs, any change required by GAAP relating to share-based compensation or other changes in GAAP promulgated by accounting standard setters. In the event that any of the foregoing action is taken, such adjustment shall be only the amount deemed reasonably necessary by the Board, in the exercise of its good faith  judgment, after consultation of the Company’s accountants, to accurately reflect the direct and  measurable effect such event has on such Annual Performance Targets and Cumulative EBITDA Targets. The intent of such adjustments is to keep the probability of achieving the Annual Performance Targets and Cumulative EBITDA Targets the same as if the event triggering such adjustment had not occurred. The Board’s determination of such necessary adjustment shall be made within 60 days following the completion or closing of such event, and shall be based on the Company’s accounting as set forth in its books and records and on the Company’s financial plan pursuant to which the Annual Performance Targets and Cumulative EBITDA Targets were originally established.

 

A- 1



 

Schedule B to Stock Option Agreement

 

Grant Date :           March 24, 2010

 

 

 

 

 

Exercise Price of Options :       $25.25

 

 

 

 

 

Option Grants :

 

 

 

 

 

Aggregate number of shares of Common Stock for which the Time Option granted hereunder is exercisable:

 

5,142

 

 

 

Aggregate number of shares of Common Stock for which the Performance Option granted hereunder is exercisable:

 

5,142

 

 

 

Minimum Investment :           $11,250.00

 

 

 

B- 1




Exhibit 10.52

 

OMNIBUS LIMITED WAIVER

 

WHEREAS , Dollar General Corporation, a Tennessee corporation (the “Company”), previously entered into an employment agreement (the “Employment Agreement”) with each of the current or former employees of the Company listed on Exhibit A attached hereto (collectively, the “Employees”); and

 

WHEREAS , the Company previously entered into an employment transition agreement with Mr. Richard W. Dreiling (the “Employment Transition Agreement” and, together with the Employment Agreement, the “Agreements”); and

 

WHEREAS , Section 19 or Section 20, as applicable of each Employment Agreement and Section 15 of the Employment Transition Agreement provide that each of the Employees agrees not to accept, obtain or work in a Competitive Position (as defined in the Agreements) for a company or entity that operates anywhere within the Territory (as defined in the Agreements) for a specified period of time following the termination of Employee’s employment (the “Non-Compete Provision”); and

 

WHEREAS , the Company no longer considers BJ’s Wholesale Club, currently included in the definition of “Competitive Position” set forth in Section 15(b)(i) or Section 16(b)(i), as applicable, of each Employment Agreement and Section 11(b)(i) of the Employment Transition Agreement, to be a competitor solely for purposes of the Non-Compete Provision.

 

NOW, THEREFORE:

 

1.                                       The Company hereby waives its right to enforce, either now or in the future, under each of the Agreements, the Non-Compete Provision with respect to BJ’s Wholesale Club.

 

2.                                       Except as specifically provided in Section 1 above, the Company does not waive the right to otherwise enforce the Non-Compete Provision or any other provision of the Agreements, and all terms and provisions of the Agreements shall remain in full force and effect, unchanged and unmodified.

 

3.                                       The Company retains the right to include BJ’s Wholesale Club as a competitor in any future employment agreement or other agreement that it may enter into from time to time with any of the Employees.

 

Date:

1/28/2016

 

DOLLAR GENERAL CORPORATION

 

 

 

By:

/s/ Bob Ravener

 

 

Printed Name: Bob Ravener

 

 

Title: EVP

 



 

Exhibit A to

Omnibus Limited Waiver

 

Bart E. Bohlen

Ryan G. Boone

David W. D’Arezzo

Steven R. Deckard

Richard W. Dreiling

Anita C. Elliott

John W. Flanigan

John W. Garratt

Lawrence J. Gatta

Stephen P. Jacobson

Michael J. Kindy

James E. Kopp

Cynthia A. Long

Daniel J. Nieser

Jeffery C. Owen

Robert D. Ravener

Gregory A. Sparks

Steven G. Sunderland

Emily C. Taylor

Rhonda M. Taylor

David M. Tehle

James W. Thorpe

Todd J. Vasos

 




Exhibit 12

 

Dollar General Corporation

Ratio of Earnings to Fixed Charges, Combined Fixed Charges and Preferred Stock Dividends(1)

 

 

 

Fiscal Year Ended

 

 

 

January 29,
2016

 

January 30,
2015

 

January 31,
2014

 

February 1,
2013

 

February 3,
2012(2)

 

Earnings(3):

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

$

1,853.0

 

$

1,680.9

 

$

1,628.3

 

$

1,497.4

 

$

1,225.3

 

Fixed Charges, exclusive of capitalized interest

 

527.9

 

489.3

 

436.8

 

409.1

 

437.7

 

 

 

$

2,380.9

 

$

2,170.2

 

$

2,065.1

 

$

1,906.5

 

$

1,663.0

 

Fixed Charges(3):

 

 

 

 

 

 

 

 

 

 

 

Interest charged to expense

 

$

87.0

 

$

88.3

 

$

89.0

 

$

127.9

 

$

205.0

 

Interest factor on rental expense(4)

 

440.9

 

401.0

 

347.8

 

281.2

 

232.7

 

 

 

527.9

 

489.3

 

436.8

 

409.1

 

437.7

 

Interest capitalized

 

1.4

 

0.2

 

1.2

 

0.6

 

1.5

 

 

 

$

529.3

 

$

489.5

 

$

438.0

 

$

409.7

 

$

439.2

 

Ratio of earnings to fixed charges

 

4.5

x

4.4

x

4.7

x

4.7

x

3.8

x

 


(1)          During the periods indicated, we had no outstanding shares of preferred stock. Accordingly, our historical ratio of earnings to fixed charges, combined fixed charges and preferred stock dividends is the same as our ratio of earnings to fixed charges in all periods.

(2)          The fiscal year ended February 3, 2012 was comprised of 53 weeks.

(3)          For purposes of computing the ratio of earnings to fixed charges, (a) earnings consist of income (loss) before income taxes, plus fixed charges less capitalized expenses related to indebtedness (amortization expense for capitalized interest is not significant) and (b) fixed charges consist of interest expense (whether expensed or capitalized), the amortization of debt issuance costs and discounts related to indebtedness, and the interest portion of rent expense.

(4)          The portion of rent expense representative of interest is based on the present value of the future lease payments discounted at 10%.

 




Exhibit 21

 

SUBSIDIARIES OF THE REGISTRANT
(as of March 22, 2016)

 

Name of Entity

 

Jurisdiction of
Incorporation/Organization

DC Financial, LLC

 

Tennessee

Dolgencorp, LLC (f/k/a Dolgencorp, Inc.)

 

Kentucky

DG Louisiana, LLC(1)

 

Tennessee

Dolgencorp of New York, Inc.

 

Kentucky

Dolgen I, Inc.

 

Tennessee

Dolgen II, Inc.

 

Tennessee

Dollar General I (HK) Limited(2)

 

Hong Kong

Dollar General II (HK) Limited(3)

 

Hong Kong

Dolgen V(4)

 

Hong Kong

Dollar General Global Sourcing Holdings Limited(5)

 

Hong Kong

Dollar General Global Sourcing (Shenzhen) Co. Ltd.(6)

 

China

Dolgen III, Inc.

 

Tennessee

Dolgen California, LLC (f/k/a DG Strategic IV, LLC)

 

Tennessee

DG eCommerce, LLC (f/k/a Strategic V, LLC)

 

Tennessee

DG Strategic I, LLC

 

Tennessee

Dolgencorp of Texas, Inc.(7)

 

Kentucky

Dolgen Midwest, LLC (f/k/a DG Strategic III, LLC)(8)

 

Tennessee

DG Strategic II, LLC

 

Tennessee

DG Strategic VI, LLC

 

Tennessee

Dollar General Partners(9)

 

Kentucky

DG Promotions, Inc. (f/k/a Nations Title Company, Inc.)

 

Tennessee

DG Retail, LLC(10)

 

Tennessee

DG Strategic VII, LLC

 

Tennessee

DG Distribution of Texas, LLC (f/k/a DG Strategic VIII, LLC)

 

Tennessee

DG Transportation, Inc.

 

Tennessee

DG Logistics, LLC(11)

 

Tennessee

South Boston Holdings, Inc.

 

Delaware

Sun-Dollar, L.P.(12)

 

California

South Boston FF&E, LLC(13)

 

Delaware

Ashley River Insurance Company, Inc.

 

South Carolina

DGC Holdings, LLC

 

Delaware

Dollar General Global Sourcing Limited(14)

 

Hong Kong

Dollar General Literacy Foundation(15)

 

Tennessee

Retail Property Investments, LLC

 

Delaware

Retail Risk Solutions, LLC

 

Tennessee

Dolgen Rhode Island, LLC

 

Tennessee

DG Distribution Midwest, LLC

 

Tennessee

 


(1)          A limited liability company in which Dolgencorp, LLC is the sole member.

(2)          A corporation (settlor and beneficiary of Dolgen V) in which the sole shareholder is Dolgen II, Inc.

(3)          A corporation (settlor and beneficiary Dolgen V) in which the sole shareholder is Dolgen II, Inc.

(4)          A China business trust in which Dollar General I (HK) Limited is settlor and beneficiary, Dollar General II (HK) Limited is also a settlor and beneficiary, and Dollar General Global Sourcing Holdings Limited is the trustee.

(5)          A corporation (trustee for Dolgen V) in which the sole shareholder is Dolgen II, Inc.

(6)          A limited liability company in which Dollar General Global Sourcing Holdings Limited is the sole member.

(7)          A corporation in which the sole shareholder is DG Strategic I, LLC.

(8)          A limited liability company in which DG Strategic I, LLC is the sole member.

(9)          A general partnership in which the general partners are DG Strategic VI, LLC and DG Promotions, Inc.

(10)   A limited liability company in which DG Promotions, Inc. is the sole member.

(11)   A limited liability company in which DG Transportation, Inc. is the sole member.

(12)   A limited partnership in which the general partner is South Boston Holdings, Inc. and the limited partner is Dollar General Corporation.

(13)   A limited liability company in which Sun-Dollar, L.P. is the sole member.

(14)   A corporation in which the sole shareholder is Dollar General Corporation.

(15)   A nonprofit, public benefit membership corporation in which Dollar General Corporation is the sole member.

 




Exhibit 23

 

Consent of Independent Registered Public Accounting Firm

 

We consent to the incorporation by reference in the following Registration Statements:

 

(1)          Registration Statement (Form S-3 No. 333-187493) pertaining to the Shelf Registration Statement of Dollar General Corporation and its Affiliates,

 

(2)          Registration Statement (Form S-8 No. 333-163200) pertaining to the Amended and Restated 2007 Stock Incentive Plan for Key Employees of Dollar General Corporation and its Affiliates,

 

(3)          Registration Statement (Form S-8 No. 333-151655) pertaining to the 2007 Stock Incentive Plan for Key Employees of Dollar General Corporation and its Affiliates,

 

(4)          Registration Statement (Form S-8 No. 333-151049) pertaining to the Dollar General Corporation CDP/SERP Plan, and

 

(5)          Registration Statement (Form S-8 No. 333-151047) pertaining to the 2007 Stock Incentive Plan for Key Employees of Dollar General Corporation and its Affiliates

 

of our reports dated March 22, 2016, with respect to the consolidated financial statements of Dollar General Corporation and subsidiaries and the effectiveness of internal control over financial reporting of Dollar General Corporation and subsidiaries included in this Annual Report (Form 10-K) of Dollar General Corporation for the year ended January 29, 2016.

 

/s/ Ernst & Young LLP

 

Nashville, Tennessee

March 22, 2016

 




Exhibit 31

 

CERTIFICATIONS

 

I, Todd J. Vasos, certify that:

 

1.               I have reviewed this annual report on Form 10-K of Dollar General Corporation;

 

2.               Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.               Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.               The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)           Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)          Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.               The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of  the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)          Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: March 22, 2016

/s/ Todd J. Vasos

 

Todd J. Vasos

 

Chief Executive Officer

 



 

I, John W. Garratt, certify that:

 

1.               I have reviewed this annual report on Form 10-K of Dollar General Corporation;

 

2.               Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.               Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.               The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

(a)          Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

(b)          Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

(c)           Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

(d)          Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.               The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

(a)          All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

(b)          Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: March 22, 2016

/s/ John W. Garratt

 

John W. Garratt

 

Chief Financial Officer

 




Exhibit 32

 

CERTIFICATIONS

Pursuant to 18 U.S.C. Section 1350

 

Each of the undersigned hereby certifies that to his knowledge the Annual Report on Form 10-K for the fiscal year ended January 29, 2016 of Dollar General Corporation (the “Company”) filed with the Securities and Exchange Commission on the date hereof fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

 

/s/ Todd J. Vasos

 

Name:

Todd J. Vasos

 

Title:

Chief Executive Officer

 

Date:

March 22, 2016

 

 

 

/s/ John W. Garratt

 

Name:

John W. Garratt

 

Title:

Chief Financial Officer

 

Date:

March 22, 2016