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

** 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.

** 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.

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

** 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
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​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​

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

** 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
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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.

** 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.

** 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'

** 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.

** 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
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		$	467,122		$	413,760
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Included in other accrued expenses are liabilities such as interest expense, freight expense, and utilities.

** 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
​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​

** 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

** 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.

** 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.

** 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

** 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.

** 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.

** 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.

** 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

** 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
​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​
​	​	​	​	​	​	​	​	​	​	​

** 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

** 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.

** 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.

** 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

** DOLLAR GENERAL CORPORATION AND SUBSIDIARIES**

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

** DOLLAR GENERAL CORPORATION AND SUBSIDIARIES**

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

** 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

** 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

** 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.

** 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.

** 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
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** 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
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Balance, January 29, 2016			2,429,965		$	61.19			8.1		$	33,701
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Exercisable at January 29, 2016			517,375		$	47.31			6.7		$	14,355
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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	)
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Balance, January 29, 2016			144,097		$	10,816
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** 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	)
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Balance, January 29, 2016			640,910		$	48,107
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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.

** 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
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Net sales		$	20,368,562		$	18,909,588		$	17,504,167
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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

** 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

** 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.