Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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Report of Independent Registered Public Accounting Fir****m

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To the Shareholders and the Board of Directors of

Dollar General Corporation

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Opinion on the Financial Statements

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We have audited the accompanying consolidated balance sheets of Dollar General Corporation and subsidiaries (the Company) as of January 28, 2022 and January 29, 2021, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended January 28, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 28, 2022 and January 29, 2021, and the results of its operations and its cash flows for each of the three years in the period ended January 28, 2022, in conformity with U.S. generally accepted accounting principles.

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We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 28, 2022, 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 18, 2022, expressed an unqualified opinion thereon.

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Basis for Opinion

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These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

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Critical Audit Matter

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The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical

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

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​	Estimate of Workers’ Compensation and General Liability Reserves
​	​
Description of the Matter	The Company records expenses and reserves for workers’ compensation matters related to alleged work-related employee accidents and injuries, as well as general liability matters related to alleged non-employee incidents and injuries. At January 28, 2022, the Company’s reserves for self-insurance risks were $257.4 million, which includes workers’ compensation and general liability reserves. As discussed in Note 1 of the consolidated financial statements, the Company retains a significant portion of risk related to its workers’ compensation and general liability exposures. Accordingly, provisions are recorded for the Company’s estimates of such losses. The undiscounted future claim costs for the workers’ compensation and general liability exposures are estimated using actuarial methods. ​ Auditing management’s assessment of the recorded workers’ compensation and general liability self-insurance exposure reserves was complex and judgmental due to the significant assumptions required in projecting the exposure on incurred claims (including those which have not been reported to the Company). In particular, the estimate was sensitive to significant assumptions such as loss development factors, trend factors, pure loss rates, and projected claim counts.
​	​
How We Addressed the Matter in Our Audit	We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls over the Company’s accounting for these self-insurance exposures. For example, we tested controls over the appropriateness of the assumptions management used in the calculation and the completeness and accuracy of the data underlying the reserves. ​ To test the Company’s determination of the estimated required workers’ compensation and general liability self-insurance reserves, we performed audit procedures that included, among others, assessing the actuarial valuation methodologies utilized by management, testing the significant assumptions discussed above, testing the completeness and accuracy of the underlying data used by the Company in its evaluation, and testing the mathematical accuracy of the calculations. We also compared the significant assumptions used by management to industry accepted actuarial assumptions, reassessed the accuracy of management’s historical estimates utilized in prior period evaluations, and utilized an actuarial valuation specialist to assist in assessing the valuation methodologies and significant assumptions used in the valuation analysis, as well as to compare the Company’s recorded reserve to an independently developed range of actuarial reserves.

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​	/s/ Ernst & Young LLP

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We have served as the Company’s auditor since 2001.

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Nashville, Tennessee

March 18, 2022

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DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

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CONSOLIDATED BALANCE SHEETS

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(In thousands, except per share amounts)

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​	​	​	​	​	​	​	​
​		January 28,			January 29,
​	​	2022		​	2021
ASSETS	​	​		​	​		​
Current assets:	​	​	​	​	​	​	​
Cash and cash equivalents	​	$	344,829	​	$	1,376,577	​
Merchandise inventories	​		5,614,325	​		5,247,477	​
Income taxes receivable	​	​	97,394	​	​	90,760	​
Prepaid expenses and other current assets	​		247,295	​		199,405	​
Total current assets	​		6,303,843	​		6,914,219	​
Net property and equipment	​		4,346,127	​		3,899,997	​
Operating lease assets	​	​	10,092,930	​	​	9,473,330	​
Goodwill	​		4,338,589	​		4,338,589	​
Other intangible assets, net	​		1,199,750	​		1,199,870	​
Other assets, net	​		46,132	​		36,619	​
Total assets	​	$	26,327,371	​	$	25,862,624	​
​	​	​	​	​	​	​	​
LIABILITIES AND SHAREHOLDERS’ EQUITY	​	​	​	​	​	​	​
Current liabilities:	​	​	​	​	​	​	​
Current portion of operating lease liabilities	​	$	1,183,559	​	$	1,074,079	​
Accounts payable	​		3,738,604	​		3,614,089	​
Accrued expenses and other	​		1,049,139	​		1,006,552	​
Income taxes payable	​		8,055	​		16,063	​
Total current liabilities	​		5,979,357	​		5,710,783	​
Long-term obligations	​		4,172,068	​		4,130,975	​
Long-term operating lease liabilities	​	​	8,890,709	​	​	8,385,388	​
Deferred income taxes	​		825,254	​		710,549	​
Other liabilities	​		197,997	​		263,691	​
Commitments and contingencies	​	​	​	​	​	​	​
Shareholders’ equity:	​	​	​	​	​	​	​
Preferred stock	​		—	​	​	—	​
Common stock; $0.875 par value, 1,000,000 shares authorized, 230,016 and 240,785 shares issued and outstanding at January 28, 2022 and January 29, 2021, respectively	​		201,265	​		210,687	​
Additional paid-in capital	​		3,587,914	​		3,446,612	​
Retained earnings	​		2,473,999	​		3,006,102	​
Accumulated other comprehensive loss	​		(1,192)	​		(2,163)	​
Total shareholders’ equity	​		6,261,986	​		6,661,238	​
Total liabilities and shareholders' equity	​	$	26,327,371	​	$	25,862,624	​

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

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DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

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CONSOLIDATED STATEMENTS OF INCOME

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(In thousands, except per share amounts)

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​	​	​	​	​	​	​	​	​	​	​
​	​	For the Year Ended
​		January 28,			January 29,			January 31,
​	​	2022		​	2021		​	2020
Net sales	​	$	34,220,449	​	$	33,746,839	​	$	27,753,973	​
Cost of goods sold	​		23,407,443	​		23,027,977	​		19,264,912	​
Gross profit	​		10,813,006	​		10,718,862	​		8,489,061	​
Selling, general and administrative expenses	​		7,592,331	​		7,164,097	​		6,186,757	​
Operating profit	​		3,220,675	​		3,554,765	​		2,302,304	​
Interest expense	​		157,526	​		150,385	​		100,574	​
Income before income taxes	​		3,063,149	​		3,404,380	​		2,201,730	​
Income tax expense	​		663,917	​		749,330	​		489,175	​
Net income	​	$	2,399,232	​	$	2,655,050	​	$	1,712,555	​
Earnings per share:	​	​	​	​	​	​	​	​	​	​
Basic	​	$	10.24	​	$	10.70	​	$	6.68	​
Diluted	​	$	10.17	​	$	10.62	​	$	6.64	​
Weighted average shares outstanding:	​	​	​	​	​	​	​	​	​	​
Basic	​		234,261	​		248,171	​		256,553	​
Diluted	​	​	235,812	​		250,076	​		258,053	​
​	​	​	​	​	​	​	​	​	​	​
Dividends per share	​	$	1.68	​	$	1.44	​	$	1.28	​

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

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DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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(In thousands)

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​	​	​	​	​	​	​	​	​	​	​
​	​	For the Year Ended
​	​	January 28,			January 29,			January 31,
​	​	2022		​	2021		​	2020
Net income	​	$	2,399,232	​	$	2,655,050	​	$	1,712,555	​
Unrealized net gain (loss) on hedged transactions, net of related income tax expense (benefit) of $346, $346, and $345, respectively	​		971	​		972	​		973	​
Comprehensive income	​	$	2,400,203	​	$	2,656,022	​	$	1,713,528	​

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

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DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

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(In thousands except per share amounts)

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​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​	​
​		​		​	​		​	​		​	​		Accumulated			​	​
​	​	Common	​	​	​	​	Additional		​	​	​	​	Other		​	​	​
​	​	Stock	​	Common		​	Paid-in		​	Retained		​	Comprehensive		​	​	​
​	​	Shares	​	Stock		​	Capital		​	Earnings		​	Loss		​	Total
Balances, February 1, 2019		259,511	​	$	227,072	​	$	3,252,421	​	$	2,941,107	​	$	(3,207)	​	$	6,417,393	​
Net income		—	​		—	​		—	​		1,712,555	​		—	​		1,712,555	​
Dividends paid, $1.28 per common share	​	—	​	​	—	​	​	—	​	​	(327,578)	​	​	—	​	​	(327,578)	​
Unrealized net gain (loss) on hedged transactions		—	​		—	​		—	​		—	​		973	​		973	​
Share-based compensation expense		—	​		—	​		48,589	​		—	​		—	​		48,589	​
Repurchases of common stock		(8,252)	​		(7,221)	​		—	​		(1,193,155)	​		—	​		(1,200,376)	​
Transition adjustment upon adoption of accounting standard (see Note 1)	​	—	​		—	​		—	​		28,830	​		—	​		28,830	​
Other equity and related transactions		677	​		593	​		21,521	​		901	​		(901)	​		22,114	​
Balances, January 31, 2020		251,936	​	$	220,444	​	$	3,322,531	​	$	3,162,660	​	$	(3,135)	​	$	6,702,500	​
Net income		—	​		—	​		—	​		2,655,050	​		—	​		2,655,050	​
Dividends paid, $1.44 per common share	​	—	​	​	—	​	​	—	​	​	(355,934)	​	​	—	​	​	(355,934)	​
Unrealized net gain (loss) on hedged transactions		—	​		—	​		—	​		—	​		972	​		972	​
Share-based compensation expense		—	​		—	​		68,609	​		—	​		—	​		68,609	​
Repurchases of common stock		(12,297)	​		(10,760)	​		—	​		(2,455,674)	​		—	​		(2,466,434)	​
Other equity and related transactions		1,146	​		1,003	​		55,472	​		—	​		—	​		56,475	​
Balances, January 29, 2021		240,785	​	$	210,687	​	$	3,446,612	​	$	3,006,102	​	$	(2,163)	​	$	6,661,238	​
Net income		—	​		—	​		—	​		2,399,232	​		—	​		2,399,232	​
Dividends paid, $1.68 per common share	​	—	​	​	—	​	​	—	​	​	(392,217)	​	​	—	​	​	(392,217)	​
Unrealized net gain (loss) on hedged transactions		—	​		—	​		—	​		—	​		971	​		971	​
Share-based compensation expense		—	​		—	​		78,178	​		—	​		—	​		78,178	​
Repurchases of common stock		(12,058)	​		(10,551)	​		—	​		(2,539,118)	​		—	​		(2,549,669)	​
Other equity and related transactions		1,289	​		1,129	​		63,124	​		—	​		—	​		64,253	​
Balances, January 28, 2022		230,016	​	$	201,265	​	$	3,587,914	​	$	2,473,999	​	$	(1,192)	​	$	6,261,986	​

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

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DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

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CONSOLIDATED STATEMENTS OF CASH FLOWS

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(In thousands)

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​	​	​	​	​	​	​	​	​	​
​	For the Year Ended
​	January 28,			January 29,			January 31,
​	2022		​	2021		​	2020
Cash flows from operating activities:	​	​	​	​	​	​	​	​	​
Net income	$	2,399,232	​	$	2,655,050	​	$	1,712,555	​
Adjustments to reconcile net income to net cash from operating activities:	​	​	​	​	​	​	​	​	​
Depreciation and amortization		641,316	​		574,237	​		504,804	​
Deferred income taxes		114,359	​		34,976	​		55,407	​
Noncash share-based compensation		78,178	​		68,609	​		48,589	​
Other noncash (gains) and losses		191,040	​		11,570	​		8,293	​
Change in operating assets and liabilities:	​	​	​	​	​	​	​	​	​
Merchandise inventories		(550,114)	​		(575,827)	​		(578,783)	​
Prepaid expenses and other current assets		(47,471)	​		(16,516)	​		(14,453)	​
Accounts payable		98,735	​		745,596	​		428,627	​
Accrued expenses and other liabilities		(37,328)	​		388,597	​		100,322	​
Income taxes		(14,642)	​		(6,522)	​		(20,404)	​
Other		(7,494)	​		(3,611)	​		(6,959)	​
Net cash provided by (used in) operating activities		2,865,811	​		3,876,159	​		2,237,998	​
Cash flows from investing activities:	​	​	​	​	​	​	​	​	​
Purchases of property and equipment		(1,070,460)	​		(1,027,963)	​		(784,843)	​
Proceeds from sales of property and equipment		4,903	​		3,053	​		2,358	​
Net cash provided by (used in) investing activities		(1,065,557)	​		(1,024,910)	​		(782,485)	​
Cash flows from financing activities:	​	​	​	​	​	​	​	​	​
Issuance of long-term obligations		—	​		1,494,315	​		—	​
Repayments of long-term obligations		(6,402)	​		(4,640)	​		(1,465)	​
Net increase (decrease) in commercial paper outstanding	​	54,300	​	​	(425,200)	​	​	58,300	​
Borrowings under revolving credit facilities		—	​		300,000	​		—	​
Repayments of borrowings under revolving credit facilities		—	​		(300,000)	​		—	​
Costs associated with issuance of debt		(2,268)	​		(13,574)	​		(1,675)	​
Repurchases of common stock		(2,549,669)	​		(2,466,434)	​		(1,200,376)	​
Payments of cash dividends	​	(392,188)	​	​	(355,926)	​	​	(327,568)	​
Other equity and related transactions		64,225	​		56,467	​		22,104	​
Net cash provided by (used in) financing activities		(2,832,002)	​		(1,714,992)	​		(1,450,680)	​
Net increase (decrease) in cash and cash equivalents		(1,031,748)	​		1,136,257	​		4,833	​
Cash and cash equivalents, beginning of period		1,376,577	​		240,320	​		235,487	​
Cash and cash equivalents, end of period	$	344,829	​	$	1,376,577	​	$	240,320	​
Supplemental cash flow information:	​	​	​	​	​	​	​	​	​
Cash paid for:	​	​	​	​	​	​	​	​	​
Interest	$	159,803	​	$	128,211	​	$	100,033	​
Income taxes	$	568,267	​	$	721,570	​	$	457,119	​
Supplemental noncash investing and financing activities:	​	​	​	​	​	​	​	​	​
Right of use assets obtained in exchange for new operating lease liabilities	$	1,778,564	​	$	1,721,530	​	$	1,705,988	​
Purchases of property and equipment awaiting processing for payment, included in Accounts payable	$	143,589	​	$	118,059	​	$	110,248	​

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

DOLLAR GENERAL CORPORATION AND SUBSIDIARIES

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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**1.**Basis of presentation and accounting policies

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Basis of presentation

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These notes contain references to the years 2021, 2020, and 2019, which represent fiscal years ended January 28, 2022, January 29, 2021, and January 31, 2020, respectively. The Company’s 2021, 2020 and 2019 accounting periods were each comprised of 52 weeks. 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.

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The Company sells general merchandise on a retail basis through 18,130 stores (as of January 28, 2022) in 46 states with the greatest concentration of stores in the southern, southwestern, midwestern and eastern United States. As of January 28, 2022, the Company operated 16 distribution centers for non-refrigerated products, ten cold storage distribution centers, and two combination distribution centers which have both refrigerated and non-refrigerated products. The Company leases 12 of these facilities and the remainder are owned.

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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.

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Payments due from processors for electronic tender transactions classified as cash and cash equivalents totaled approximately $133.9 million and $125.3 million at January 28, 2022 and January 29, 2021, respectively.

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Investments in debt and equity securities

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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.

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Merchandise inventories

​

Inventories are stated at the lower of cost or market (“LCM”) 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 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.

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The excess of current cost over LIFO cost was approximately $296.3 million and $115.9 million at January 28, 2022 and January 29, 2021, 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 of $180.4 million in 2021, $5.1 million in 2020, and $7.0 million in 2019, which is included in cost of goods sold in the consolidated statements of income.

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The Company purchases its merchandise from a wide variety of suppliers. The Company’s two largest suppliers accounted for approximately 9% and 8%, respectively, of the Company’s purchases in 2021.

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Vendor rebates

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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.

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Prepaid expenses and other current assets

​

Prepaid expenses and other current assets include prepaid amounts for 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

​

Property and equipment acquired is recorded at cost. The Company records depreciation and amortization on a straight-line basis over the assets’ estimated useful lives. Amounts included in the Company’s property and equipment balances and their estimated lives are summarized as follows:

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​	​	​	​	​	​	​	​	​	​	​	​
​		​				January 28,			January 29,
(In thousands)	​	Life			​	2022		​	2021
Land		Indefinite			​	$	227,085	​	$	224,628	​
Land improvements		​	20	​	​		96,402	​		93,169	​
Buildings		39	-	40	​		1,446,126	​		1,329,309	​
Leasehold improvements		​	(a)	​	​		889,782	​		782,858	​
Furniture, fixtures and equipment		3	-	10	​		4,984,534	​		4,487,665	​
Construction in progress	​	​	​	​	​		131,073	​		183,593	​
Right of use assets - finance leases	​	Various			​	​	162,772	​	​	163,108	​
​	​	​	​	​	​		7,937,774	​		7,264,330	​
Less accumulated depreciation and amortization	​	​	​	​	​		(3,591,647)	​		(3,364,333)	​
Net property and equipment	​	​	​	​	​	$	4,346,127	​	$	3,899,997	​

​

​

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

​

Depreciation and amortization expense related to property and equipment was approximately $635.9 million, $569.3 million and $500.4 million for 2021, 2020 and 2019, respectively. Interest on borrowed funds during the construction of property and equipment is capitalized where applicable. Interest costs of $1.2 million, less than $0.1 million, and $2.7 million were capitalized in 2021, 2020 and 2019, respectively.

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Impairment of long-lived assets

​

When indicators of impairment are present, the Company evaluates the carrying value of long-lived assets, excluding goodwill and other indefinite-lived intangible assets, in relation to the operating performance and future cash flows or the appraised values of the underlying assets. Generally, the Company’s policy is to review for impairment stores open more than three years for which current cash flows from operations are negative. 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 $2.6 million in 2021, $2.7 million in 2020 and $3.6 million in 2019, 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.

​

Goodwill and other intangible assets

​

If not deemed indefinite, the Company amortizes intangible assets over their estimated useful lives. Goodwill and intangible assets with indefinite lives are tested for impairment annually or more frequently if indicators of impairment are present. Definite lived 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. If the results of such test indicate impairment, the associated assets must be written down to fair value as described in further detail below.

​

The quantitative goodwill impairment test requires management to make judgments in determining what assumptions to use in the calculation. The process consists of comparing the fair value of the reporting unit to its carrying amount, including goodwill. If the fair value of the reporting unit is less than its carrying amount, management would then determine if the difference between the carrying amount and fair value is greater than the carrying amount of goodwill allocated to the reporting unit. If it is, the impairment recognized would be equal to the total carrying amount of goodwill allocated to the reporting unit, and if not, impairment would be recognized equal to the difference between the carrying amount of the reporting unit and its fair value.

​

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

​

The Company’s goodwill balance has an indefinite life and is not expected to be deductible for income tax purposes. Substantially all of the Company’s other intangible assets are its trade names and trademarks which have an indefinite life.

​

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:

​

​	​	​	​	​	​	​	​
​		January 28,			January 29,
(In thousands)	​	2022		​	2021
Compensation and benefits	​	$	215,355	​	$	269,032	​
Self-insurance reserves	​		127,719	​		110,321	​
Taxes (other than taxes on income)	​		324,438	​		318,552	​
Other	​		381,627	​		308,647	​
​	​	$	1,049,139	​	$	1,006,552	​

​

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

​

Insurance liabilities

​

The Company retains a significant portion of risk for its workers’ compensation, employee health, general liability, property, automobile, and certain third-party landlord general liability claim exposures. Accordingly, provisions are made for the Company’s estimates of such risks which are recorded as self-insurance reserves pursuant to Company policy. The undiscounted future claim costs for the workers’ compensation, general liability, landlord liability, and health claim risks are derived using actuarial methods which are sensitive to significant assumptions such as loss development factors, trend factors, pure loss rates, and projected claim counts. To the extent that subsequent claim costs vary from the Company’s estimates, future results of operations will be affected as the reserves are adjusted.

​

Ashley River Insurance Company (“ARIC”), a Tennessee-based wholly owned captive insurance subsidiary of the Company, charges the operating subsidiary companies premiums to insure the retained workers’ compensation, medical stop-loss, and non-property general liability exposures. Pursuant to Tennessee insurance regulations, ARIC maintains certain levels of cash and cash equivalents related to its self-insured exposures.

​

Leases

​

The Company records operating lease right of use assets and liabilities on its balance sheet. Lease liabilities are recorded at a discount based upon the Company’s estimated collateralized incremental borrowing rate. Factors incorporated into the calculation of lease discount rates include the valuations and yields of the Company’s senior notes, their credit spread over comparable U.S. Treasury rates, and an index of the credit spreads for all North American investment grade companies by rating. To determine an indicative secured rate, the Company uses the estimated credit spread improvement that would result from an upgrade of one ratings classification by tenor.

​

The Company records single lease cost 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 may include a period prior to the opening of a store or other facility to make any necessary leasehold improvements and install fixtures. Any tenant allowances received are recorded as a reduction of the right of use asset. Leases with an initial term of 12 months or less are not recorded on the balance sheet and lease expense for such leases is recognized on a straight-line basis over the lease term. The Company combines lease and nonlease components. Many leases include one or more options to renew, and the exercise of lease renewal options is at the Company’s sole discretion. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

​

Other liabilities

​

​	​	​	​	​	​	​	​
​		January 28,			January 29,
(In thousands)	​	2022		​	2021
Self-insurance reserves	​	$	129,692	​	$	134,765	​
Payroll tax liabilities	​	​	-	​	​	81,488	​
Other	​		68,305	​		47,438	​
​	​	$	197,997	​	$	263,691	​

​

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.

​

Other comprehensive income

​

The Company previously recorded a loss on the settlement of derivatives associated with the issuance of long-term debt in 2013 which was deferred to other comprehensive income and is being amortized as an increase to interest expense over the 10-year period of the debt’s maturity.

​

Revenue 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 are presented net of taxes assessed by governmental authorities that are imposed concurrent with those sales.

​

The Company recognizes gift card sales revenue at the time of redemption. The liability for gift cards is established for the cash value at the time of purchase of the gift card. The liability for outstanding gift cards was approximately $9.7 million and $8.2 million at January 28, 2022 and January 29, 2021, 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 $1.7 million, $1.3 million and $1.0 million in 2021, 2020 and 2019, 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 $117.2 million, $107.4 million and $91.0 million in 2021, 2020 and 2019, respectively. These costs primarily include promotional circulars, targeted circulars supporting new stores, television and radio advertising, and in-store signage. Vendor funding for cooperative advertising offset reported expenses by $34.3 million, $33.4 million and $34.7 million in 2021, 2020 and 2019, respectively.

​

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 to variation in the determination of compensation expense.

​

The Company calculates compensation expense for restricted stock, share units and similar awards as the difference between the market price of the underlying stock or similar award on the grant date and the purchase price, if any. Such expense is recognized on a straight-line basis for time-based awards and on an accelerated or straight-line basis for performance awards depending on the period over 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.

​

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 March 2020 and January 2021, the Financial Accounting Standards Board (“FASB”) issued accounting standards updates pertaining to reference rate reform. This collective guidance is in response to accounting concerns regarding contract modifications and hedge accounting because of impending rate reform associated with structural risks of interbank offered rates (IBORs), and, particularly, the risk of cessation of LIBOR, related to regulators in several jurisdictions around the world having undertaken reference rate reform initiatives to identify alternative reference rates. The guidance provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The adoption of this guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company does not expect the adoption of this guidance to have a material impact on its consolidated results of operations, financial position or cash flows.

​

​

**2.**Earnings per share

​

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

​

​	​	​	​	​	​	​	​	​	​
​	​	2021							​
​		​	​		Weighted		​	​
​	​	Net		​	Average	​	Per Share		​
​	​	Income		​	Shares	​	Amount		​
Basic earnings per share	​	$	2,399,232		234,261	​	$	10.24	​
Effect of dilutive share-based awards	​	​	​		1,551	​	​	​	​
Diluted earnings per share	​	$	2,399,232		235,812	​	$	10.17	​

​

​ ​	​	​	​	​	​	​	​	​	​
​	​	2020							​
​		​	​		Weighted		​	​
​	​	Net		​	Average	​	Per Share		​
​	​	Income		​	Shares	​	Amount		​
Basic earnings per share	​	$	2,655,050		248,171	​	$	10.70	​
Effect of dilutive share-based awards	​	​	​		1,905	​	​	​	​
Diluted earnings per share	​	$	2,655,050		250,076	​	$	10.62	​

​

​	​	​	​	​	​	​	​	​	​
​	​	2019							​
​		​	​		Weighted		​	​
​	​	Net		​	Average	​	Per Share		​
​	​	Income		​	Shares	​	Amount		​
Basic earnings per share	​	$	1,712,555		256,553	​	$	6.68	​
Effect of dilutive share-based awards	​	​	​		1,500	​	​	​	​
Diluted earnings per share	​	$	1,712,555		258,053	​	$	6.64	​

​

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

​

Share-based awards 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 less than 0.1 million, 0.2 million and 0.3 million in 2021, 2020 and 2019, respectively.

​

**3.**Income taxes

​

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

​

​	​	​	​	​	​	​	​	​	​	​
(In thousands)		2021			2020			2019
Current:	​	​	​	​	​	​	​	​	​	​
Federal	​	$	472,913	​	$	614,207	​	$	368,451	​
Foreign	​		384	​		127	​		102	​
State	​		76,261	​		100,002	​		65,215	​
​	​		549,558	​		714,336	​		433,768	​
Deferred:	​	​	​	​	​	​	​	​	​	​
Federal	​		93,114	​		32,433	​		45,966	​
Foreign	​	​	(38)	​	​	(104)	​	​	(15)	​
State	​		21,283	​		2,665	​		9,456	​
​	​		114,359	​		34,994	​		55,407	​
​	​	$	663,917	​	$	749,330	​	$	489,175	​

​

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)	​	2021				​	2020				​	2019
U.S. federal statutory rate on earnings before income taxes		$	643,262		21.0	%	$	714,920		21.0	%	$	462,364		21.0	%
State income taxes, net of federal income tax benefit	​		77,086		2.5	​		81,117		2.4	​		60,936		2.8	​
Jobs credits, net of federal income taxes	​		(39,936)		(1.3)	​		(27,479)		(0.8)	​		(27,768)		(1.3)	​
Other, net	​		(16,495)		(0.5)	​		(19,228)		(0.6)	​		(6,357)		(0.3)	​
​	​	$	663,917		21.7	%	$	749,330		22.0	%	$	489,175		22.2	%

​

The effective income tax rate for 2021 was 21.7% compared to a rate of 22.0% for 2020 which represents a net decrease of 0.3 percentage points. The effective income tax rate was lower in 2021 primarily due to increased income tax benefits associated with federal tax credits partially offset by a higher state effective tax rate compared to 2020.

​

The effective income tax rate for 2020 was 22.0% compared to a rate of 22.2% for 2019 which represents a net decrease of 0.2 percentage points. The effective income tax rate was lower in 2020 primarily due to increased tax benefits associated with share-based compensation and a larger income tax rate benefit from state taxes offset by a lower income tax rate benefit from federal income tax credits due primarily to higher pre-tax earnings in 2020 compared to 2019.

​

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:

​

​	​	​	​	​	​	​	​
​		January 28,			January 29,
(In thousands)	​	2022		​	2021
Deferred tax assets:	​	​	​	​	​	​	​
Deferred compensation expense	​	$	11,563	​	$	9,161	​
Accrued expenses	​		26,984	​		52,195	​
Accrued rent	​		552	​		650	​
Lease liabilities	​	​	2,617,954	​	​	2,459,976	​
Accrued insurance	​		6,971	​		6,550	​
Accrued incentive compensation	​		30,716	​		46,083	​
Share based compensation	​	​	16,605	​	​	19,495	​
Interest rate hedges	​		383	​		730	​
Tax benefit of income tax and interest reserves related to uncertain tax positions	​		79	​		189	​
State and foreign tax net operating loss carry forwards, net of federal tax	​		903	​		804	​
State tax credit carry forwards, net of federal tax	​		6,973	​		6,619	​
Other	​		16,715	​		6,823	​
​	​		2,736,398	​		2,609,275	​
Less valuation allowances, net of federal income taxes	​		(5,235)	​		(4,077)	​
Total deferred tax assets	​		2,731,163	​		2,605,198	​
Deferred tax liabilities:	​	​	​	​	​	​	​
Property and equipment	​		(572,286)	​		(481,279)	​
Lease assets	​	​	(2,588,709)	​	​	(2,433,195)	​
Inventories	​		(68,780)	​		(74,985)	​
Trademarks	​		(310,011)	​		(312,258)	​
Prepaid insurance	​	​	(15,278)	​	​	(13,532)	​
Other	​		(1,353)	​		(498)	​
Total deferred tax liabilities	​		(3,556,417)	​		(3,315,747)	​
Net deferred tax liabilities	​	$	(825,254)	​	$	(710,549)	​

​

The Company has state tax credit carryforwards of approximately $7.0 million (net of federal benefit) that will expire beginning in 2022 through 2026 and the Company has approximately $18.1 million of state apportioned net operating loss carryforwards, which will begin to expire in 2032 and will continue through 2041.

​

The Company has a valuation allowance for certain state tax credit carryforwards and foreign net operating loss carryforwards, in the amount of $5.2 million and $4.1 million (net of federal benefit) which increased income tax expense by $1.1 million and $0.0 million in 2021 and 2020, respectively. Management believes that the results from operations will not generate sufficient taxable income to realize these deferred tax assets in the near future.

​

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

​

The Company’s 2017 and earlier tax years are not open for further examination by the Internal Revenue Service (“IRS”). The IRS, at its discretion, may choose to examine the Company’s 2018 through 2020 fiscal year income tax filings. The Company has various state income tax examinations that are currently in progress. Generally, with few exceptions, the Company’s 2018 and later tax years remain open for examination by the various state taxing authorities.

​

As of January 28, 2022, accruals for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $6.2 million, $0.2 million and $0.0 million, respectively, for a total of $6.4 million. As of January 29, 2021, accruals for uncertain tax benefits, interest expense related to income taxes and potential income tax penalties were $7.5 million, $0.5 million and $0.0 million, respectively, for a total of $8.0 million. These totals are reflected in noncurrent Other liabilities in the consolidated balance sheets.

​

The Company’s reserve for uncertain tax positions is expected to be reduced by $1.7 million in the coming twelve months as a result of expiring statutes of limitations. As of January 28, 2022 and January 29, 2021, approximately $6.2 million and $7.5 million, respectively, of the uncertain tax positions would impact the Company’s effective income tax rate if the Company were to recognize the tax benefit for these positions.

​

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

​

​	​	​	​	​	​	​	​	​	​	​
(In thousands)		2021			2020			2019
Income tax expense (benefit)	​	$	(1,311)	​	$	2,411	​	$	130	​
Income tax related interest expense (benefit)	​		(281)	​		104	​		(406)	​
Income tax related penalty expense (benefit)	​		—	​		—	​		(882)	​

​

A reconciliation of the uncertain income tax positions from February 2, 2019 through January 28, 2022 is as follows:

​

​	​	​	​	​	​	​	​	​	​	​
(In thousands)		2021			2020			2019
Beginning balance	​	$	7,502	​	$	5,090	​	$	4,960	​
Increases—tax positions taken in the current year	​		—	​		—	​		—	​
Increases—tax positions taken in prior years	​		2,803	​		3,857	​		1,239	​
Decreases—tax positions taken in prior years	​		—	​		(1,445)	​		(1,109)	​
Statute expirations	​		(1,456)	​		—	​		—	​
Settlements	​		(2,658)	​		—	​		—	​
Ending balance	​	$	6,191	​	$	7,502	​	$	5,090	​

​

​

**4.**Leases

​

As of January 28, 2022, the Company’s primary leasing activities were real estate leases for most of its retail store locations and certain of its distribution facilities. Many of the Company’s store locations are subject to build-to-suit arrangements with landlords which typically carry a primary lease term of up to 15 years. The Company does not control build-to-suit properties during the construction period. Store locations not subject to build-to-suit arrangements are typically shorter-term leases. Certain of the Company’s leased store locations have variable payments based upon actual costs of common area maintenance, real estate taxes and property and liability insurance. In addition, some of the Company’s leased store locations have provisions for variable payments based upon a specified percentage of defined sales volume. The Company’s lease agreements generally do not contain material restrictive covenants.

​

Most of the Company’s leases include one or more options to renew and extend the lease term. The exercise of lease renewal options is at the Company’s sole discretion. Generally, a renewal option is not deemed to be reasonably certain to be exercised until such option is legally executed. The Company’s leases do not include purchase options or residual value guarantees on the leased property. The depreciable life of leasehold improvements is limited by the expected lease term.

​

Substantially all of the Company’s leases are classified as operating leases and the associated assets and liabilities are presented as separate captions in the consolidated balance sheets. Finance lease assets are included in net property and equipment, and finance lease liabilities are included in long-term obligations, in the consolidated balance sheets. At January 28, 2022, the weighted-average remaining lease term for the Company’s leases was 9.7 years, and the weighted average discount rate was 3.7%. For 2021, 2020 and 2019, operating lease cost of $1.49 billion, $1.38 billion and $1.27 billion, respectively, and variable lease cost of $0.28 billion, $0.26 billion and $0.23 billion, respectively, were reflected as selling, general and administrative expenses in the consolidated statements of income. Cash paid for amounts included in the measurement of operating lease liabilities of $1.50 billion, $1.39 billion and $1.28 billion, respectively, were reflected in cash flows from operating activities in the consolidated statements of cash flows for 2021, 2020 and 2019.

​

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

​

​	​	​	​	​
(In thousands)		​	​
2022	​	$	1,529,978	​
2023	​		1,477,694	​
2024	​		1,407,824	​
2025	​		1,295,775	​
2026	​		1,166,717	​
Thereafter	​		5,063,197	​
Total lease payments (a)	​	​	11,941,185	​
Less imputed interest	​	​	(1,866,917)	​
Present value of lease liabilities	​	$	10,074,268	​

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

​

​

**5.**Current and long-term obligations

​

Consolidated current and long-term obligations consist of the following:

​

​	​	​	​	​	​	​	​
​		January 28,			January 29,
(In thousands)	​	2022		​	2021
Revolving Facility	​	$	—	​	$	—	​
3.250% Senior Notes due April 15, 2023 (net of discount of $319 and $583)	​		899,681	​		899,417	​
4.150% Senior Notes due November 1, 2025 (net of discount of $332 and $412)	​	​	499,668	​	​	499,588	​
3.875% Senior Notes due April 15, 2027 (net of discount of $251 and $294)	​	​	599,749	​	​	599,706	​
4.125% Senior Notes due May 1, 2028 (net of discount of $336 and $383)	​	​	499,664	​	​	499,617	​
3.500% Senior Notes due April 3, 2030 (net of discount of $564 and $623)	​	​	988,990	​	​	999,377	​
4.125% Senior Notes due April 3, 2050 (net of discount of $4,857 and $4,945)	​	​	495,143	​	​	495,055	​
Unsecured commercial paper notes	​	​	54,300	​	​	—	​
Other	​	​	159,525	​	​	164,365	​
Debt issuance costs, net	​		(24,652)	​		(26,150)	​
​	​	$	4,172,068	​	$	4,130,975	​

​

The Company amended and extended its existing senior unsecured revolving credit facility (the “Revolving Facility”) on December 2, 2021. At January 28, 2022, the Revolving Facility had a commitment of $2.0 billion that provides for the issuance of letters of credit up to $100.0 million and is scheduled to mature on December 2, 2026.

​

Borrowings under the Revolving Facility 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 Revolving Facility includes customary LIBOR replacement provisions. The applicable interest rate margin for borrowings as of January 28, 2022 was 1.015% for LIBOR borrowings and 0.015% for base-rate borrowings. The Company is also required to pay a facility fee, payable on any used and unused commitment amounts of the Revolving Facility, and customary fees on letters of credit issued under the Revolving Facility. As of January 28, 2022, the facility fee rate was 0.11%. The applicable interest rate margins for borrowings, the facility fees and the letter of credit fees under the Revolving Facility are subject to adjustment from time to time based on the Company’s long-term senior unsecured debt ratings.

​

The Revolving Facility contains a number of customary affirmative and negative covenants that, among other things, restrict, subject to certain exceptions, the Company’s 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 Revolving Facility also contains financial covenants which require the maintenance of a minimum fixed charge coverage ratio and a maximum leverage ratio. As of January 28, 2022, the Company was in compliance with all such covenants. The Revolving Facility also contains customary events of default.

​

As of January 28, 2022, the Company had no outstanding borrowings, outstanding letters of credit of $1.9 million, and borrowing availability of $2.0 billion under the Revolving Facility that, due to its intention to maintain borrowing availability related to the commercial paper program described below, could contribute incremental liquidity of $1.76 billion. In addition, the Company had outstanding letters of credit of $48.6 million which were issued pursuant to separate agreements.

​

As of January 28, 2022, the Company had a commercial paper program under which the Company may issue unsecured commercial paper notes (the “CP Notes”) from time to time in an aggregate amount not to exceed $2.0 billion outstanding at any time. The CP Notes may have maturities of up to 364 days from the date of issue and rank equal in right of payment with all of the Company’s other unsecured and unsubordinated indebtedness. The Company intends to maintain available commitments under the Revolving Facility in an amount at least equal to the amount of CP Notes outstanding at any time. As of January 28, 2022, the Company’s consolidated balance sheet reflected outstanding CP Notes of $54.3 million. CP Notes totaling $181.0 million were held by a wholly-owned subsidiary of the Company and are therefore not reflected on the consolidated balance sheets.

​

On April 3, 2020, the Company issued $1.0 billion aggregate principal amount of 3.5% senior notes due 2030 (the “2030 Senior Notes”), net of discount of $0.7 million, and $500.0 million aggregate principal amount of 4.125% senior notes due 2050 (the “2050 Senior Notes”), net of discount of $5.0 million. The 2030 Senior Notes are scheduled to mature on April 3, 2030 and the 2050 Senior Notes are scheduled to mature on April 3, 2050. Interest on the 2030 Senior Notes and the 2050 Senior Notes is payable in cash on April 3 and October 3 of each year. The Company incurred $13.6 million of debt issuance costs associated with the issuance of the 2030 Senior Notes and the 2050 Senior Notes.

​

Collectively, the Company’s Senior Notes due 2023, 2025, 2027, 2028, 2030 and 2050 comprise the “Senior Notes”, each of which were issued pursuant to an indenture as supplemented and amended by supplemental indentures relating to each series of Senior Notes (as so supplemented and amended, the “Senior Indenture”). The Company may redeem some or all of its Senior Notes at any time at redemption prices set forth in the Senior Indenture. 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.

​

During the second quarter of 2021, the Company entered into interest rate swaps on a portion of the 2030 Senior Notes. These interest rate swaps are being accounted for as fair value hedges, with the derivative asset or liability offset by a corresponding adjustment to the carrying value of the 2030 Senior Notes. Such arrangements are not material to the Company’s consolidated financial statements.

​

Scheduled debt maturities at January 28, 2022 for the Company’s fiscal years listed below are as follows (in thousands): 2022 - $61,774; 2023 - $906,564; 2024 - $6,714; 2025 - $506,263; 2026 - $6,437; thereafter - $2,726,074.

​

**6.**Assets and liabilities measured at fair value

​

The following table presents the Company’s assets and liabilities required to be measured at fair value as of January 28, 2022, aggregated by the level in the fair value hierarchy within which those measurements are classified.

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​
​		Quoted Prices			​	​		​	​		​	​
​	​	in Active		​	​	​	​	​	​	​	​	​	​
​	​	Markets		​	Significant		​	​	​	​	​	​	​
​	​	for Identical		​	Other		​	Significant		​	Total Fair		​
​	​	Assets and		​	Observable		​	Unobservable		​	Value at		​
​	​	Liabilities		​	Inputs		​	Inputs		​	January 28,		​
(In thousands)	​	(Level 1)		​	(Level 2)		​	(Level 3)		​	2022		​
Liabilities:	​	​	​	​	​	​	​	​	​	​	​	​	​
Long-term obligations (a)	​	$	4,229,161	​	$	213,825	​	$	—	​	$	4,442,986	​
Deferred compensation (b)	​		44,009	​		—	​		—	​		44,009	​

(a)	Included in the consolidated balance sheet at book value as Long-term obligations of $4,172,068.

(b)	Reflected at fair value in the consolidated balance sheet as a component of Accrued expenses and other current liabilities of $2,435 and a component of noncurrent Other liabilities of $41,574.

​

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 28, 2022.

​

​

**7.**Commitments and contingencies

​

Legal proceedings

​

From time to time, the Company is a party to various legal matters in the ordinary course of its business, including actions by employees, consumers, suppliers, government agencies, or others. The Company has recorded accruals with respect to these matters, where appropriate, which are reflected in the Company’s consolidated financial statements. For some matters, a liability is not probable or the amount cannot be reasonably estimated and therefore an accrual has not been made. In 2019, the Company recorded an accrual of $31.0 million, an amount that is immaterial to the Company’s consolidated financial statements, for probable and reasonably estimable losses relating to certain significant legal matters, including certified class action and associated matters. The majority of the legal matters related to the 2019 accrual have been resolved, and the Company does not believe that any remaining related matters will result in liability that is material to the Company’s annual consolidated financial statements.

Based on information currently available, the Company believes that its pending legal matters, both individually and in the aggregate, will be resolved without a material adverse effect on the Company’s consolidated financial statements as a whole. However, litigation and other legal matters involve an element of uncertainty. Adverse decisions and settlements, including any required changes to the Company’s business, or other developments in such matters could affect the consolidated operating results in future periods or result in liability or other amounts material to the Company’s annual consolidated financial statements.

​

**8.**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 2021, 2020 and 2019, the Company expensed approximately $34.0 million, $30.1 million and $25.0 million, respectively, for matching contributions.

​

The Company also has a compensation deferral plan (“CDP”) and a nonqualified supplemental retirement plan (“SERP”), known as the Dollar General Corporation CDP/SERP Plan, for a select group of management and other key employees. The Company incurred compensation expense for these plans of approximately $1.3 million in 2021, $0.9 million in 2020 and $0.8 million in 2019.

​

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

​

**9.**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. The application of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense. The fair value of the Company’s other share-based awards discussed below are estimated using the Company’s closing stock price on the grant date. Forfeitures are estimated at the time of valuation and reduce expense ratably over the vesting period.

​

On May 26, 2021, the Company’s shareholders approved the Dollar General Corporation 2021 Stock Incentive Plan (“2021 Plan”), which replaced the Company’s 2007 Stock Incentive Plan (“2007 Plan”). The Plans allow 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. Upon the effective date of the 2021 Plan, no new awards may be granted under the 2007 Plan. Awards previously granted under the 2007 Plan remain outstanding in accordance with their terms. The number of shares of Company common stock authorized for grant under the 2021 Plan is 11,838,143.

​

Generally, share-based awards issued by the Company are in the form of stock options, restricted stock units and performance share units, and unless noted otherwise, the disclosures that follow refer to such awards. 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 over a one-year period. The number of performance share units earned are based on performance criteria measured over a period of one to three years, and such awards generally vest over a three-year period. With limited exceptions, the performance share unit and restricted stock unit awards are payable in shares of common stock on the vesting date.

​

The weighted average for key assumptions used in determining the fair value of all stock options granted in the years ended January 28, 2022, January 29, 2021, and January 31, 2020, and a summary of the methodology applied to develop each assumption, are as follows:

​

​	​	​	​	​	​	​	​
​		January 28,		January 29,		January 31,
​	​	2022	​	2021	​	2020
Expected dividend yield		0.9	%	0.9	%	1.1	%
Expected stock price volatility		26.5	%	26.4	%	25.3	%
Weighted average risk-free interest rate		0.8	%	0.7	%	2.3	%
Expected term of options (years)		4.9	​	5.2	​	6.2	​

​

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, calculated based upon historical volatility. 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. An increase in the expected term will increase compensation expense.

​

A summary of the Company’s stock option activity during the year ended January 28, 2022 is as follows:

​

​	​	​	​	​	​	​	​	​	​	​	​
​		​		Average			Remaining		​	​
​	​	Options	​	Exercise		​	Contractual	​	Intrinsic
(Intrinsic value amounts reflected in thousands)	​	Issued	​	Price		​	Term in Years	​	Value
Balance, January 29, 2021		2,911,540	​	$	104.69	​	​	​	​	​	​
Granted		607,213	​		195.34	​	​	​	​	​	​
Exercised		(1,042,403)	​		86.81	​	​	​	​	​	​
Canceled or expired		(128,840)	​		149.42	​	​	​	​	​	​
Balance, January 28, 2022		2,347,510	​	$	133.62		7.1	​	$	166,856	​
Exercisable at January 28, 2022		942,531	​	$	95.10		5.4	​	$	102,992	​

​

The weighted average grant date fair value per share of options granted was $42.89, $34.60 and $30.67 during 2021, 2020 and 2019, respectively. The intrinsic value of options exercised during 2021, 2020 and 2019, was $132.3 million, $116.1 million and $26.6 million, respectively.

​

The number of performance share unit awards earned is based upon the Company’s financial performance as specified in the award agreement. A summary of performance share unit award activity during the year ended January 28, 2022 is as follows:

​

​	​	​	​	​	​	​
​		Units		Intrinsic
(Intrinsic value amounts reflected in thousands)	​	Issued	​	Value
Balance, January 29, 2021		367,053	​	​	​	​
Granted		183,355	​	​	​	​
Converted to common stock		(199,309)	​	​	​	​
Canceled		(13,856)	​	​	​	​
Balance, January 28, 2022		337,243	​	$	68,909	​

​

All performance share unit awards at January 28, 2022 are unvested, and the number of such awards which will ultimately vest will be based in part on the Company’s financial performance in future years. The weighted average grant date fair value per share of performance share units granted was $193.55, $154.53 and $117.13 during 2021, 2020 and 2019, respectively.

​

A summary of restricted stock unit award activity during the year ended January 28, 2022 is as follows:

​

​	​	​	​	​	​	​
​		Units		Intrinsic
(Intrinsic value amounts reflected in thousands)	​	Issued	​	Value
Balance, January 29, 2021		369,871	​	​	​	​
Granted		165,701	​	​	​	​
Converted to common stock		(177,277)	​	​	​	​
Canceled		(51,177)	​	​	​	​
Balance, January 28, 2022		307,118	​	$	62,753	​

​

The weighted average grant date fair value per share of restricted stock units granted was $193.76, $155.73 and $117.20 during 2021, 2020 and 2019, respectively.

​

At January 28, 2022, the total unrecognized compensation cost related to unvested stock-based awards was $87.4 million with an expected weighted average expense recognition period of 1.8 years.

​

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 income before and net of income taxes as follows:

​

​	​	​	​	​	​	​	​	​	​	​	​	​	​
​	​	Stock		​	Performance		​	Restricted		​	​	​
(In thousands)		Options			Share Units			Stock Units			Total
Year ended January 28, 2022	​	​	​	​	​	​	​	​	​	​	​	​	​
Pre-tax	​	$	21,452	​	$	33,234	​	$	23,492	​	$	78,178	​
Net of tax	​	$	15,853	​	$	24,560	​	$	17,361	​	$	57,774	​
Year ended January 29, 2021	​	​	​	​	​	​	​	​	​	​	​	​	​
Pre-tax	​	$	19,933	​	$	27,388	​	$	21,288	​	$	68,609	​
Net of tax	​	$	14,730	​	$	20,240	​	$	15,732	​	$	50,702	​
Year ended January 31, 2020	​	​	​	​	​	​	​	​	​	​	​	​	​
Pre-tax	​	$	16,128	​	$	13,343	​	$	19,118	​	$	48,589	​
Net of tax	​	$	12,080	​	$	9,994	​	$	14,319	​	$	36,393	​

​

​

**10.**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 28, 2022, all of the Company’s retail store operations were located within the United States. Certain product sourcing and other operations are located outside the United States, 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)	​	2021			2020			2019
Classes of similar products:	​	​	​	​	​	​	​	​	​	​
Consumables	​	$	26,258,605	​	$	25,906,685	​	$	21,635,890	​
Seasonal	​		4,182,165	​		4,083,650	​		3,258,874	​
Home products	​		2,322,367	​		2,209,950	​		1,611,899	​
Apparel	​		1,457,312	​		1,546,554	​		1,247,310	​
Net sales	​	$	34,220,449	​	$	33,746,839	​	$	27,753,973	​

​

​

**11.**Common stock transactions

​

On August 29, 2012, the Company’s Board of Directors authorized a common stock repurchase program, which the Board has since increased on several occasions. On December 1, 2021, the Company’s Board of Directors authorized a $2.0 billion increase to the existing common stock repurchase program, bringing the cumulative total authorized under the program since its inception to $14.0 billion. The repurchase authorization has no expiration date and allows repurchases from time to time in open market transactions, including pursuant to trading plans adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934, as amended, or in privately negotiated transactions. The timing, manner and number of shares repurchased will depend on a variety of factors, including price, market conditions, compliance with the covenants and restrictions under the Company’s debt agreements and other factors. Repurchases under the program may be funded from available cash or borrowings including under the Company’s Revolving Facility and issuance of CP Notes discussed in further detail in Note 5.

​

During the years ended January 28, 2022, January 29, 2021, and January 31, 2020, the Company repurchased approximately 12.1 million shares of its common stock at a total cost of $2.5 billion, approximately 12.3 million shares of its common stock at a total cost of $2.5 billion, and approximately 8.3 million shares of its common stock at a total cost of $1.2 billion, respectively, pursuant to its common stock repurchase program.

​

The Company paid quarterly cash dividends of $0.42 per share in 2021. On March 16, 2022, the Company’s Board of Directors declared a quarterly cash dividend of $0.55 per share, which is payable on or before April 19, 2022 to shareholders of record on April 5, 2022. The amount and declaration of future cash dividends is subject to the sole discretion of the Company’s Board of Directors and will depend upon, among other things, the Company’s results of operations, cash requirements, financial condition, contractual restrictions and other factors that the Board may deem relevant in its sole discretion.

​