8-KOther Events

DOLLAR GENERAL CORP 8-K Report (Sep 21, 2001)

Filed September 21, 2001For Securities:DG

Summary

Dollar General Corporation (DG) has filed an 8-K report detailing a significant change in its independent accounting firm. On September 14, 2001, the company dismissed Deloitte & Touche LLP and subsequently engaged PricewaterhouseCoopers LLP. However, PricewaterhouseCoopers resigned on September 20, 2001, due to an "irreconcilable conflict of interest" that was previously unknown. The company is now in the process of engaging Ernst & Young LLP, pending approval from its Audit Committee and Board of Directors, with a meeting scheduled for the week of September 24, 2001. This rapid succession of accounting firms is occurring as Dollar General is preparing to restate its financial statements for fiscal years 1998 and 1999, and revise previously released unaudited information for fiscal year 2000. The restatements are primarily related to the accounting treatment of "synthetic leases" for approximately 400 stores, two distribution centers, and the corporate headquarters. The company has determined, after consultation with outside accountants from KPMG LLP and considering initial views from PricewaterhouseCoopers, that these leases, previously treated as operating leases, should have been classified as capital leases. Additionally, the company is reviewing certain accounting issues that have prompted Deloitte to notify the company under Section 10A of the Securities Exchange Act of 1934 that such issues "may have included 'illegal acts'". The Audit Committee is continuing its investigation with the assistance of outside counsel and Arthur Andersen LLP.

Key Highlights

  • 1Dollar General Corporation has dismissed its independent auditor, Deloitte & Touche LLP, as of September 14, 2001.
  • 2PricewaterhouseCoopers LLP was engaged as the new independent auditor but resigned within days (September 20, 2001) due to an unknown irreconcilable conflict of interest.
  • 3The company is now in the process of engaging Ernst & Young LLP as its new independent auditor, subject to Board approval.
  • 4Dollar General will be restating its financial statements for fiscal years 1998 and 1999, and revising fiscal year 2000 unaudited information.
  • 5The primary reason for the restatement is the incorrect accounting treatment of "synthetic leases" which will be reclassified from operating leases to capital leases.
  • 6Deloitte & Touche has indicated that certain accounting issues under review may have included "illegal acts" as defined by the Securities Exchange Act of 1934.
  • 7An ongoing investigation into these accounting issues is being conducted by the Audit Committee with assistance from outside counsel and Arthur Andersen LLP.

Frequently Asked Questions

Dollar General has experienced a rapid turnover in its auditing firms. The company dismissed Deloitte & Touche and hired PricewaterhouseCoopers, which then resigned due to a conflict. They are now in the process of engaging Ernst & Young. This situation is occurring concurrently with significant accounting reviews and potential restatements, which may have influenced the auditors' decisions and the company's selection process.

Synthetic leases are complex financial instruments used to finance property, often for retail or distribution facilities. Dollar General previously accounted for these leases as operating leases. However, after further review and consultation, the company has determined that they should have been classified as capital leases. This change in classification will impact the company's balance sheet and financial ratios.

Deloitte has informed Dollar General that certain accounting issues under review may have included 'illegal acts.' This is a serious disclosure that has triggered an investigation by the company's Audit Committee. While the exact nature of these potential illegal acts is not detailed, it indicates a significant compliance or regulatory concern that investors should monitor closely.

The company intends to restate its financial statements for fiscal years 1998 and 1999, and revise its unaudited financial information for fiscal year 2000. This means that previously reported financial results will be corrected to reflect the accurate accounting treatment of the synthetic leases and potentially other issues identified. Investors should pay close attention to the revised financial statements when they become available to understand the true financial position and performance of the company.