UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

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

For the quarterly period ended ~~December~~June 29, ~~2012~~2013

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

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

Commission file number 1-11735

99¢ ONLY STORES

(Exact Name of Registrant as Specified in Its Charter)

California

95-2411605

(State or Other Jurisdiction

of Incorporation or Organization)

~~95-2411605~~

(I.R.S. Employer Identification No.)

4000 Union Pacific Avenue,

City of Commerce, California

~~(Address of Principal Executive Offices)~~

90023

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s Telephone Number, Including Area Code: (323) 980-8145

Former name, address and fiscal year, if changed since last report

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

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

Large accelerated filer o		Accelerated filer o

Non-accelerated filer x		Smaller reporting company o

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock as of the latest practicable date.

As of ~~February 4,~~August 5, 2013, there were 100 shares of the registrant’s Class A Common Stock, par value $0.01 per share, outstanding and 100 shares of registrant’s Class B Common Stock, par value $0.01 per share, outstanding, none of which are publicly traded.

Table of Contents

99¢ ONLY STORES

Form 10-Q

Table of Contents

		Page
	Part I - Financial Information	4
Item 1.	Financial Statements	4
	Consolidated Balance Sheets as of ~~December~~June 29, ~~2012~~2013 (unaudited) and March ~~31, 2012~~30, 2013	4
	Consolidated Statements of Comprehensive Income (Loss) for the ~~third~~first quarter ~~and three quarters~~ ended ~~December~~June 29, ~~2012 (Successor)~~2013 (unaudited) and ~~December 31, 2011(Predecessor)~~June 30, 2012 (unaudited)	5
	Consolidated Statements of Cash Flows for the ~~three quarters~~first quarter ended ~~December~~June 29, ~~2012 (Successor)~~2013 (unaudited) and ~~December 31, 2011 (Predecessor)~~June 30, 2012 (unaudited)	6
	Notes to Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3427
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4336
Item 4.	Controls and Procedures	4437
	Part II — Other Information	39
Item 1.	Legal Proceedings	4539
Item 1A.	Risk Factors	4539
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4539
Item 3.	Defaults Upon Senior Securities	4539
Item 4.	Mine Safety Disclosures	4539
Item 5.	Other Information	4539
Item 6.	Exhibits	4539
	Signatures	4840

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FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q (this “Report”) contains statements that constitute “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. The words “expect,” “estimate,” “anticipate,” “predict,” “will,” “project,” “plan,” “believe” and other similar expressions and variations thereof are intended to identify forward-looking statements. Such statements appear in a number of places in this filing and include statements regarding the intent, belief or current expectations of 99¢ Only Stores (the “Company”) and its directors or officers with respect to, among other things, (a) trends affecting the financial condition or results of operations of the Company, and (b) the business and growth strategies of the Company (including the Company’s store opening growth rate)., that are not historical in nature. Readers are cautioned not to put undue reliance on such forward-looking statements. Such forward-looking statements are and will be based on the Company’s then-current expectations, estimates and assumptions regarding future events and are applicable only as of the date of such statements. The Company may not realize its expectations and its estimates and assumptions may not prove correct. In addition, such forward looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those projected in this Report, for the reasons, among others, discussed in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after the date hereof. Readers should carefully review the risk factors described in other documents the Company files from time to time with the Securities and Exchange Commission (the “SEC”) or posts on the Company’s website, including the Company’s ~~Registration Statement~~Annual Report on Form ~~S-4 (File No. 333-182582) declared effective on October 9, 2012~~10-K containing the Company’s most recent audited financial statements for the fiscal year ended March ~~31, 2012.~~30, 2013.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

99¢ ONLY STORES

CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

	December 29, 2012			March 31, 2012			June 29, 2013			March 30, 2013
	(Unaudited)						(Unaudited)
ASSETS
Current Assets:
Cash	$	35,677		$	27,766		$	71,326		$	45,476
Short-term investments	476			3,631
Accounts receivable, net of allowance for doubtful accounts of $343 and $280 at December 29, 2012 and March 31, 2012, respectively	1,306			2,999
Accounts receivable, net of allowance for doubtful accounts of $200 and $84 at June 29, 2013 and March 30, 2013, respectively							1,883			1,851
Income taxes receivable	17,680			6,868			2,438			3,969
Deferred income taxes	24,091			25,843			33,139			33,139
Inventories, net	239,243			214,318			210,716			201,601
Assets held for sale	2,621			6,849			2,106			2,106
Other	13,002			11,297			15,094			16,370

Total current assets	334,096			299,571			336,702			304,512
Property and equipment, net	475,992			476,525			478,387			476,051
Deferred financing costs, net	21,730			30,400			20,296			21,016
Intangible assets, net	472,878			477,434			469,841			471,359
Goodwill	471,750			471,513			479,745			479,745
Deposits and other assets	14,380			12,598			4,808			4,554

Total assets	$	1,790,826		$	1,768,041		$	1,789,779		$	1,757,237


LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	57,752		$	41,407		$	85,011		$	50,011
Payroll and payroll-related	19,268			15,580			23,448			17,096
Sales tax	7,929			6,128			4,443			7,200
Other accrued expenses	22,699			30,569			24,402			29,695
Workers’ compensation	37,533			39,024			38,365			39,498
Current portion of long-term debt	5,237			5,250			8,567			8,567
Current portion of capital lease obligation	81			77			84			83

Total current liabilities	150,499			138,035			184,320			152,150
Long-term debt, net of current portion	754,020			758,351			748,830			749,758
Unfavorable lease commitments, net	15,865			18,959			13,898			14,833
Deferred rent	4,253			798			6,670			4,823
Deferred compensation liability	5,212			5,136			1,146			1,153
Capital lease obligation, net of current portion	292			354			249			271
Long-term deferred income taxes	216,828			214,874			187,163			186,851
Other liabilities	3,780			767			6,471			8,428

Total liabilities	1,150,749			1,137,274			1,148,747			1,118,267

Commitments and contingencies (Note 13)
Commitments and contingencies (Note 10)
Shareholders’ Equity:
Preferred stock, no par value — authorized, 1,000 shares; no shares issued or outstanding	—			—			—			—
Common stock $0.01 par value — Class A authorized, 1,000 shares; issued and outstanding, 100 shares and Class B authorized, 1,000 shares; issued and outstanding, 100 shares at December 29, 2012 and March 31, 2012, respectively	—			—
Common stock $0.01 par value — Class A authorized, 1,000 shares; issued and outstanding, 100 shares and Class B authorized, 1,000 shares; issued and outstanding, 100 shares at June 29, 2013 and March 30, 2013, respectively							—			—
Additional paid-in capital	638,465			636,037			652,853			654,424
Retained earnings (deficit)	2,718			(5,293		)
Other comprehensive (loss) income	(1,106		)	23
Accumulated deficit							(11,038		)	(14,202		)
Other comprehensive loss							(783		)	(1,252		)

Total shareholders’ equity	640,077			630,767			641,032			638,970

Total liabilities and shareholders’ equity	$	1,790,826		$	1,768,041		$	1,789,779		$	1,757,237

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

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99¢ ONLY STORES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

	For the Third Quarter Ended						For the Three Quarters Ended						For the First Quarter Ended
	December 29, 2012			December 31, 2011			December 29, 2012			December 31, 2011			June 29, 2013			June 30, 2012
	(Successor)			(Predecessor)			(Successor)			(Predecessor)
Net Sales:
99¢ Only Stores	$	427,102		$	393,263		$	1,198,131		$	1,103,027		$	420,936		$	388,956
Bargain Wholesale	12,388			10,657			35,672			32,271			12,930			11,994

Total sales	439,490			403,920			1,233,803			1,135,298			433,866			400,950
Cost of sales (excluding depreciation and amortization expense shown separately below)	264,231			238,705			750,832			675,489			266,679			243,902
Gross profit	175,259			165,215			482,971			459,809			167,187			157,048
Selling, general and administrative expenses:
Operating expenses	126,012			120,605			365,145			348,538			131,832			118,771
Depreciation	14,290			7,064			41,973			20,758			15,326			13,752
Amortization of intangible assets	442			4			1,325			13			442			441

Total selling, general and administrative expenses	140,744			127,673			408,443			369,309			147,600			132,964

Operating income	34,515			37,542			74,528			90,500			19,587			24,084

Other (income) expense:
Interest income	(29		)	(79		)	(288		)	(281		)	(15		)	(224		)
Interest expense	14,747			40			45,861			375			14,688			15,577
Other-than-temporary investment impairment due to credit losses	—			314			—			345
Loss on extinguishment of debt	—			—			16,346			—			—			16,346
Other	252			(11		)	319			(73		)	—			64
Total other expense, net													14,673			31,763
Income (loss) before provision for income taxes													4,914			(7,679		)
Provision (benefit) for income taxes													1,750			(2,788		)

Total other expense, net	14,970			264			62,238			366
Net income (loss)													$	3,164		$	(4,891	)

Income before provision for income taxes	19,545			37,278			12,290			90,134
Provision for income taxes	6,853			15,103			4,279			35,162

Net income	$	12,692		$	22,175		$	8,011		$	54,972

Other comprehensive (loss) income, net of tax:
Unrealized holding gains on securities arising during period	—			167			4			29
Unrealized losses on interest rate cash flow hedge	(92		)	—			(1,109		)	—
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on interest rate cash flow hedge													469			(544		)
Less: reclassification adjustment included in net income	(19		)	182			(24		)	164			—			(5		)

Other comprehensive (loss) income, net of tax	(111		)	349			(1,129		)	193
Other comprehensive income (loss), net of tax													469			(549		)

Comprehensive income	$	12,581		$	22,524		$	6,882		$	55,165
Comprehensive income (loss)													$	3,633		$	(5,440	)

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

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99¢ ONLY STORES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	For the Three Quarters Ended						For the First Quarter Ended
	December 29, 2012			December 31, 2011			June 29, 2013			June 30, 2012
	(Successor)			(Predecessor)
Cash flows from operating activities:
Net income	$	8,011		$	54,972
Adjustments to reconcile net income to net cash provided by operating activities:
Net income (loss)							$	3,164		$	(4,891	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation	41,973			20,758			15,326			13,752
Amortization of deferred financing costs and accretion of OID	3,138			—			1,102			1,001
Amortization of intangible assets	1,325			13			442			441
Amortization of favorable/unfavorable leases, net	137			—			141			47
Loss on extinguishment of debt	16,346			—			—			16,346
Loss on disposal of fixed assets	681			8			52			259
Loss on interest rate hedge	719			—
Investments impairment	—			345
Excess tax benefit from share-based payment arrangements	—			(1,383		)
Deferred income taxes	781			(7,838		)
Stock-based compensation expense	2,428			1,777
(Gain) loss on interest rate hedge							(322		)	296
Stock-based compensation							(1,571		)	792

Changes in assets and liabilities associated with operating activities:
Accounts receivable	1,700			(1,128		)	(32		)	1,348
Inventories	(24,940		)	(46,785		)	(9,115		)	4,139
Deposits and other assets	(3,167		)	(6		)	1,015			(2,517		)
Accounts payable	11,439			2,037			33,860			6,946
Accrued expenses	(2,395		)	9,105			(1,698		)	(6,753		)
Accrued workers’ compensation	(1,491		)	(2,884		)	(1,133		)	(679		)
Income taxes	(7,372		)	13,888			1,531			(3,086		)
Deferred rent	3,455			1,179			1,847			1,927
Other long-term liabilities	(104		)	—			(845		)	(50		)

Net cash provided by operating activities	52,664			44,058			43,764			29,318

Cash flows from investing activities:
Purchases of property and equipment	(44,428		)	(33,248		)	(16,594		)	(9,025		)
Proceeds from sale of property and fixed assets	12,044			95			11			11,505
Purchases of investments	(1,525		)	(50,927		)	—			(384		)
Proceeds from sale of investments	4,372			49,969			—			1,416

Net cash used in investing activities	(29,537		)	(34,111		)
Net cash (used in) provided by investing activities							(16,583		)	3,512

Cash flows from financing activities:
Payment of debt	(3,928		)	—			(1,310		)	(1,309		)
Payments of capital lease obligation							(21		)	(21		)
Payment of debt issuance costs	(11,230		)	—			—			(11,230		)
Payments of capital lease obligation	(58		)	(54		)
Repurchases of common stock related to issuance of Performance Stock Units	—			(1,744		)
Proceeds from exercise of stock options	—			3,338
Excess tax benefit from share-based payment arrangements	—			1,383

Net cash (used in) provided by financing activities	(15,216		)	2,923
Net cash used in financing activities							(1,331		)	(12,560		)

Net increase in cash	7,911			12,870			25,850			20,270
Cash - beginning of period	27,766			16,723			45,476			27,766

Cash - end of period	$	35,677		$	29,593		$	71,326		$	48,036

Supplemental cash flow information:
Income taxes paid	$	10,872		$	22,059		$	219		$	297
Interest paid	$	47,019		$	286		$	20,929		$	19,462
Non-cash investing activities for purchases of property and equipment	$	(4,906	)	$	1,295		$	(1,140	)	$	(237	)

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

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99¢ ONLY STORES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and Summary of Significant Accounting Policies

Nature of Business

~~On January 13, 2012, pursuant to the Agreement and Plan of Merger (the “Merger”), dated as of October 11, 2011, by and among~~ 99¢ Only Stores (the “Company”), is incorporated in the State of California. The Company is an extreme value retailer of primarily consumable and general merchandise with an emphasis on name-brand products. As of June 29, 2013, the Company operated 322 retail stores with 235 in California, 41 in Texas, 29 in Arizona, and 17 in Nevada. The Company is also a wholesale distributor of various products.

Merger

On January 13, 2012, the Company was acquired through a merger (the “Merger”) with a subsidiary of Number Holdings, Inc., a Delaware corporation (“Parent”)~~, and Number Merger Sub, Inc. (“Merger Sub”) a subsidiary of Parent,~~ with the ~~Merger was consummated. Merger Sub merged~~Company surviving. In connection with ~~and into 99¢ Only Stores, with 99¢ Only Stores being the surviving corporation. As a result of~~ the Merger, the Company became a subsidiary of ~~Parent.~~ Parent, which is controlled by affiliates of Ares Management LLC and Canada Pension Plan Investment Board, ~~(together,~~and certain former members of the ~~“Sponsors”) and~~Company’s management, Eric Schiffer, ~~the Company’s former Chief Executive Officer,~~ Jeff Gold, ~~the Company’s former President and Chief Administrative Officer,~~ Howard Gold, ~~the Company’s former Executive Vice President,~~ Karen Schiffer and The Gold Revocable Trust dated October 26, 2005 (collectively, the “Rollover Investors”). As a result of the Merger, the Company’s common stock was delisted from the New York Stock Exchange and the Company ceased to be operating as a ~~publicly held or traded corporation. See Note 2 for more information regarding the Merger.~~public company.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States ~~of America~~ (“GAAP”). However, certain information and footnote disclosures normally included in financial statements prepared in conformity with GAAP have been omitted or condensed pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). These statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s ~~Registration Statement~~Annual Report on Form ~~S-4 (File No. 333-182582) declared effective on October 9, 2012 (the “Registration Statement”).~~10-K for the fiscal year ended March 30, 2013. In the opinion of the Company’s management, these interim consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) necessary for a fair statement of the consolidated financial position and results of operations for each of the periods presented. The results of operations and cash flows for such periods are not necessarily indicative of results to be expected for the full fiscal year ending March ~~30, 2013~~29, 2014 (“fiscal ~~2013”~~2014”).

The Company is incorporated in the State of California. The Company is an extreme value retailer of primarily consumable and general merchandise with an emphasis on name-brand products. As of December 29, 2012, the Company operated 309 retail stores with 225 in California, 39 in Texas, 29 in Arizona, and 16 in Nevada. The Company is also a wholesale distributor of various products.

Fiscal Periods

The Company follows a fiscal calendar consisting of four quarters with 91 days, each ending on the Saturday closest to the calendar quarter-end, and a 52-week fiscal year with 364 days, with a 53-week year every five to six years. Unless otherwise stated, references to years in this Quarterly Report on Form 10-Q relate to fiscal years rather than calendar years. On January 13, 2012, the Company completed the Merger. The accompanying consolidated financial statements are presented for the “Predecessor” and “Successor” relating to the periods preceding and succeeding the Merger, respectively. Fiscal ~~2013~~2014 began on ~~April 1, 2012~~March 31, 2013 and will end on March ~~30, 2013~~29, 2014 and will consist of 52 weeks. The Company’s fiscal year ended March ~~31, 2012~~30, 2013 (“fiscal ~~2012”~~2013”) ~~consisted of the Successor period from January 15, 2012 to March 31,~~began on April 1, 2012 and ~~the Predecessor period from April 3, 2011 to January 14, 2012, for a total~~ended on March 30, 2013 and consisted of 52 weeks. The ~~third~~first quarter ended ~~December~~June 29, ~~2012~~2013 (the ~~“third~~“first quarter of fiscal ~~2013”~~2014”) and ~~third~~first quarter ended ~~December 31, 2011~~June 30, 2012 (the ~~“third~~“first quarter of fiscal ~~2012”~~2013”) were each comprised of 91 days. The period ended December 29, 2012 (the “first three quarters of fiscal 2013”) and the period ended December 31, 2011 (the “first three quarters of fiscal 2012”) were each comprised of 273 days.

Use of Estimates

The preparation of the unaudited consolidated financial statements, in conformity with GAAP, requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

~~Reclassifications~~

~~Certain prior year amounts have been reclassified to conform to the current year presentation.~~

~~Table of Contents~~

Cash

For purposes of reporting cash flows, cash includes cash on hand, ~~and~~cash at the stores and cash in financial institutions. The majority of payments due from financial institutions for the settlement of debit card and credit card transactions ~~process~~are processed within three business days and therefore are classified as cash. Cash balances held at financial institutions, ~~at times, may exceed~~are generally in excess of federally insured limits. These accounts are only insured by the Federal Deposit Insurance Corporation up to $250,000. The Company has not experienced any losses in such accounts. All non-interest bearing cash balances were fully insured at December 29, 2012 due to a temporary federal program in effect from December 31, 2010 through December 31, 2012. Under the program, there is no limit to the amount of insurance for eligible accounts. Beginning in calendar 2013, insurance coverage will revert to $250,000 per depositor at each financial institution, and non-interest bearing cash balances may again exceed federally insured limits. The Company’s interest-bearing amounts on deposit are not insured by the Federal Deposit Insurance Corporation. The Company places its temporary cash investments with what it believes to be high credit, quality financial institutions. Under the Company’s cash management system, checks issued but not presented to the bank may result in book cash overdraft balances for accounting purposes. The Company reclassifies book overdrafts to accounts payable, which are reflected as an operating activity in its unaudited consolidated statements of cash flows. Book overdrafts included in accounts payable were $21.0 million as of June 29, 2013.

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Allowance for Doubtful Accounts

In connection with its wholesale business, the Company evaluates the collectability of accounts receivable based on a combination of factors. In cases where the Company is aware of circumstances that may impair a specific customer’s ability to meet its financial obligations subsequent to the original sale, the Company will record an allowance against amounts due and thereby reduce the net recognized receivable to the amount the Company reasonably believes will be collected. For all other customers and tenants, the Company recognizes allowances for doubtful accounts based on the length of time the receivables are past due, industry and geographic concentrations, the current business environment and the Company’s historical experiences.

~~Investments~~

~~The Company’s investments in debt and equity securities are classified as available-for-sale and are comprised primarily of money market funds and auction rate securities.~~

Investment securities are recorded as required by Accounting Standard Codification (“ASC”) 320, “Investments-Debt and Equity Securities.” These investments are carried at fair value, based on quoted market prices or other readily available market information. Investments are adjusted for the amortization of premiums or discounts to maturity and such amortization is included in interest income. Unrealized gains and losses, net of taxes, are included in accumulated other comprehensive income, which is a separate component of shareholders’ equity in the Company’s Consolidated Balance Sheets. Gains and losses are recognized when realized in the Company’s Consolidated Statements of Comprehensive Income. When it is determined that an other-than-temporary decline in fair value has occurred, the amount of the decline that is related to a credit loss is recognized in earnings.

Inventories

Inventories are valued at the lower of cost ~~(first~~or market. Inventory cost is established using a methodology that approximates first in, first ~~out) or market.~~out, which for store inventories is based on a retail inventory method. Valuation allowances for shrinkage as well as excess and obsolete inventory are also recorded. Shrinkage is estimated as a percentage of sales for the period from the last physical inventory date to the end of the applicable period. Such estimates are based on experience and the most recent physical inventory results. Physical inventories are taken at each of the Company’s retail stores at least once a ~~year.~~year by an outside inventory service company. Additional store-level physical inventories are taken by the service companies from time to time based on a particular store’s performance and/or book inventory balance. The Company performs inventory cycle counts at its warehouses throughout the year. The Company also performs inventory reviews and analysis on a quarterly basis for both warehouse and store inventory to determine inventory valuation allowances for excess and obsolete inventory. The Company’s policy is to analyze all items held in inventory that ~~would~~are at least twelve months old and that are not expected to be sold through at the current sales rates over ~~a 24 month period~~the next twelve months in order to determine what merchandise should be reserved for as excess ~~and~~or obsolete. The valuation allowances for excess and obsolete inventory in many locations (including various warehouses, store backrooms, and sales floors of its stores), require management judgment and estimates that may impact the ending inventory valuation and valuation allowances that may affect the reported gross margin for the period.

In order to obtain inventory at attractive prices, the Company takes advantage of large volume purchases, closeouts and other similar purchase ~~opportunities.~~opportunities but within the above stipulated policy. As such, the Company’s inventory fluctuates from period to period and the inventory balances vary based on the timing and availability of such opportunities.

At times, the Company also makes large block purchases of inventory that it plans to sell over a period of longer than twelve months. At each of December 29, 2012 and March 31, 2012, the Company held inventory of specific products identified as expected to sell over a period that exceeds twelve months in the amounts of approximately $6.4 million, which is included in deposits and other assets in the consolidated financial statements.

~~Table of Contents~~

Property and Equipment

Property and equipment are carried at cost and are depreciated or amortized on a straight-line basis over the following useful lives:

Owned buildings and improvements		Lesser of 30 years or the estimated useful life of the improvement

Leasehold improvements		Lesser of the estimated useful life of the improvement or remaining lease term

Fixtures and equipment		5 years

Transportation equipment		3-5 years

Information technology systems		For major corporate systems, estimated useful life up to 7 years; for functional stand alone systems, estimated useful life up to 5 years

The Company’s policy is to capitalize expenditures that materially increase asset lives and expense ordinary repairs and maintenance as incurred.

Long-Lived Assets

~~In accordance with ASC 360, “Property, Plant and Equipment,” the~~The Company assesses the impairment of long-lived assets quarterly or when events or changes in circumstances indicate that the carrying value may not be recoverable. Recoverability is measured by comparing the carrying amount of an asset to expected future net cash flows generated by the asset. If the carrying amount of an asset exceeds its estimated undiscounted future cash flows, the carrying amount is compared to its fair value and an impairment charge is recognized to the extent of the difference. Factors that the Company considers important that could individually or in combination trigger an impairment review include the following: (1) significant underperformance relative to expected historical or projected future operating results; (2) significant changes in the manner of the Company’s use of the acquired assets or the strategy for the Company’s overall business; and (3) significant changes in the Company’s business strategies and/or negative industry or economic trends. On a quarterly basis, the Company assesses whether events or changes in circumstances occur that potentially indicate that the carrying value of long-lived assets may not be ~~recoverable (Level 3 measurement, see Note 9).~~recoverable. Considerable management judgment is necessary to estimate projected future operating cash flows. Accordingly, if actual results fall short of such estimates, significant future impairments could result. During the first ~~three quarters~~quarter of fiscal ~~2013~~2014 and fiscal ~~2012,~~2013, the Company did not record any asset impairment charges.

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Goodwill and Other Intangible Assets

In connection with the Merger purchase price allocation, the fair values of long-lived and intangible assets ~~have been~~were determined based upon assumptions related to the future cash flows, discount rates and asset lives utilizing ~~currently~~then available information, and in some cases were obtained from independent professional valuation experts. ~~Under ASC 350, “Intangibles — Goodwill and Other” the~~The Company amortizes intangible assets over their estimated useful lives unless such lives are deemed indefinite.

Goodwill and indefinite-lived intangible assets are not amortized but instead tested annually for impairment or more frequently when events or changes in circumstances indicate that the assets might be impaired. Goodwill is tested for impairment by comparing the carrying amount of the reporting unit to the fair value of the reporting unit to which the goodwill is assigned. Under Accounting Standards Update (“ASU”) 2011-8 (effective December 15, 2011), which amends the guidance in ASC 350-20 on testing goodwill for impairment, entities testing goodwill for impairment haveThe Company has the option of performing a qualitative assessment before calculating the fair value of the reporting unit (i.e., step one of the goodwill impairment test). If ~~entities determine,~~the Company does not perform a qualitative assessment, or determines, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not less than the carrying amount, the two-step impairment test would be required. This amendment does not change how goodwill is calculated or assigned to reporting units, nor does it revise the requirement to test goodwill annually for impairment. In addition, there is no amendment to the requirement to test goodwill for impairment between annual tests if events or circumstances warrant; however, it does revise the examples of events and circumstances that an entity should consider.

The Company will perform an assessment for impairment during the fourth quarter of fiscal 2013, and annually thereafter. In the event that the Company does not perform a qualitative assessment or a qualitative assessment indicates that goodwill has been impaired, then the two-step test is used to identify the potential impairment and to measure the amount of impairment, if any. The first step is to compare the fair value of the reporting unit with its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill is considered not impaired; otherwise, goodwill is impaired and the loss is measured by performing step two. Under step two, the impairment loss is measured by comparing the implied fair value of the reporting unit’s goodwill with the carrying amount of goodwill. Management has determined that the ~~Company’s~~Company has two reporting units, the wholesale reporting unit and the retail reporting unit.

~~Table~~The Company performs the annual test for impairment in the fourth quarter of ~~Contents~~the fiscal year and determines fair value based on a combination of the income approach and the market approach. The income approach is based on discounted cash flows to determine fair value. The market approach uses a selection of comparable companies and transactions in determining fair value. The fair value of the trade name is also tested for impairment in the fourth quarter by comparing the carrying value to the fair value. Fair value of a trade name is determined using a relief from royalty method under the income approach, which uses projected revenue allocable to the trade name and an assumed royalty rate.

Amortizable intangible assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable based on undiscounted cash flows, and, if impaired, written down to fair value based on either discounted cash flows or appraised values. Significant judgment is required in determining whether a potential indicator of impairment of long-lived assets exists and in estimating future cash flows used in the impairment tests.

During the first quarter of fiscal 2014 and fiscal 2013, the Company did not record any impairment charges related to goodwill or other intangible assets.

Derivatives

The Company accounts for derivative financial instruments in accordance with ~~accounting ASC 815, “Derivatives~~authoritative guidance for derivative instrument and ~~Hedging.”~~hedging activities. All financial instrument positions taken by the Company are intended to be used to manage risks associated with interest rate exposures.

The Company’s derivative financial instruments are recorded on the balance sheet at fair value, and are recorded in either current or noncurrent assets or liabilities based on their maturity. Changes in the fair values of derivatives are recorded in net earnings or other comprehensive income (“OCI”), based on whether the instrument is designated and effective as a hedge transaction and, if so, the type of hedge transaction. Gains or losses on derivative instruments reported in accumulated other comprehensive income (“AOCI”) are reclassified to earnings in the period the hedged item affects earnings. Any ineffectiveness is recognized in earnings in the period incurred.

Purchase Accounting

~~Under ASC 805, “Business Combinations” the~~The Company’s assets and liabilities have been ~~accounted for~~recorded at their estimated fair values as of the date of the Merger. The aggregate purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed, based upon an assessment of their relative fair value as of the Merger date. These estimates of fair values, the allocation of the purchase price and other factors related to the accounting for the Merger are subject to significant judgments and the use of estimates.

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Income Taxes

The Company ~~uses~~utilizes the liability method of accounting for income ~~taxes as set forth in ASC 740, “Income Taxes” (“ASC 740”).~~taxes. Under the liability method, deferred tax assets and liabilities are recognized using enacted tax rates for the effect of temporary differences between the book and tax bases of recorded assets and liabilities. ~~ASC 740 also requires that deferred~~Deferred tax assets beare reduced by a valuation allowance if it is more likely than not that some portion or all of the net deferred tax assets will not be realized. The Company’s ability to realize deferred tax assets is assessed throughout the year and a valuation allowance is established accordingly. ~~ASC 740 requires the~~The Company ~~to recognize~~recognizes the impact of a tax position only if it is more likely than not to be sustained upon examination based on the technical merits of the position. The Company recognizes potential interest and penalties related to uncertain tax positions in income tax expense.

Stock-Based Compensation

The Company accounts for stock-based compensation expense under the fair value recognition provisions of ASC 718, “Compensation-Stock Compensation” (“ASC 718”). ASC 718 requires companies to estimate the fair value of share-based payment awards based on ~~the date of grant using an option-pricing model.~~their fair value. The value of the portion of the award that is ultimately expected to vest is recognized as an expense ratably over the requisite service periods. ~~The~~For awards classified as equity, the Company estimates the fair value for each option award as of the date of grant using the Black-Scholes option pricing ~~model.~~model or other appropriate valuation models. The Black-Scholes model considers, among other factors, the expected life of the award and the expected volatility of the stock price. Stock options are generally granted to employees at exercise prices equal to the fair market value of the stock at the dates of grant. Former executive put rights are classified as equity awards and revalued using a binomial model at each reporting period with changes in the fair value recognized as stock-based compensation expense.

Revenue Recognition

The Company recognizes retail sales in its retail stores at the time the customer takes possession of merchandise. All sales are net of discounts and returns and exclude sales tax. Wholesale sales are recognized in accordance with the shipping terms agreed upon on the purchase order. Wholesale sales are typically recognized free on board origin, where title and risk of loss pass to the buyer when the merchandise leaves the Company’s distribution facility.

The Company has a gift card program. The Company does not charge administrative fees on gift cards and the Company’s gift cards do not have expiration dates. The Company records the sale of gift cards as a current liability and recognizes a sale when a customer redeems a gift card. The liability for outstanding gift cards is recorded in accrued expenses. The Company has not recorded any breakage income related to its gift card program.

~~Table of Contents~~

Cost of Sales

Cost of sales includes the cost of inventory, freight in, inter-state warehouse transportation costs, obsolescence, spoilage, scrap and inventory shrinkage, and is net of discounts and allowances. Cash discounts for satisfying early payment terms are recognized when payment is made, and allowances and rebates based upon milestone achievements such as reaching a certain volume of purchases of a vendor’s products are included as a reduction of cost of sales when such contractual milestones are ~~reached in accordance with ASC 605-50-25, “Revenue Recognition-Customer Payments and Incentives-Recognition.”~~reached. In addition, the Company analyzes its inventory levels and the related cash discounts received to arrive at a value for cash discounts to be included in the inventory balance. The Company does not include purchasing, receiving, ~~and~~ distribution, warehouse, and occupancy costs in its cost of sales. Due to this classification, the Company’s gross profit rates may not be comparable to those of other retailers that include costs related to their distribution network and occupancy in cost of sales.

Operating Expenses

Selling, general and administrative expenses include purchasing, receiving, inspection and warehouse costs, the costs of selling merchandise in stores (payroll and associated costs, occupancy and other store-level costs), distribution costs (payroll and associated costs, occupancy, transportation to and from stores and other distribution-related costs) and corporate costs (payroll and associated costs, occupancy, advertising, professional fees and other corporate administrative costs).

Leases

The Company follows the policy of capitalizing allowable expenditures that relate to the acquisition and signing of its retail store leases. These costs are amortized on a straight-line basis over the applicable lease term.

The Company recognizes rent expense for operating leases on a straight-line basis (including the effect of reduced or free rent and rent escalations) over the applicable lease term. The difference between the cash paid to the landlord and the amount recognized as rent expense on a straight-line basis is included in deferred rent. Cash reimbursements received from landlords for leasehold improvements and other cash payments received from landlords as lease incentives are recorded as deferred rent. Deferred rent related to landlord incentives is amortized as an offset to rent expense using the straight-line method over the applicable lease term.

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For store closures where a lease obligation still exists, the Company records the estimated future liability associated with the rental obligation on the cease use date (when the store is closed) ~~in accordance with ASC 420, “Exit or Disposal Cost Obligations” (“ASC 420”)~~. Liabilities are established at the cease use date for the present value of any remaining operating lease obligations, net of estimated sublease income, and at the communication date for severance and other exit ~~costs, as prescribed by ASC 420.~~costs. Key assumptions in calculating the liability include the timeframe expected to terminate lease agreements, estimates related to the sublease potential of closed locations, and estimates of other related exit costs. If actual timing and potential termination costs or realization of sublease income differ from the Company’s estimates, the resulting liabilities could vary from recorded amounts. These liabilities are reviewed periodically and adjusted when necessary.

As of March 30, 2013, the Company’s estimated lease termination costs accrual was $0.7 million relating to a Texas store. During the first ~~three quarters~~quarter of fiscal 2014, the Company reversed the lease termination costs accrual, and as of June 29, 2013, the Company sold and leased back three stores and the resulting leases qualify and are accounted for as operating leases. The net proceeds from the sale-leaseback transactions amounted to $5.3 million. Gains of $0.4 million were deferred and are being amortized over the lease terms (12-15 years).did not have any remaining Texas store closure obligations.

Self-Insured Workers’ Compensation Liability

The Company self-insures for workers’ compensation claims in California and Texas. The Company establishes a liability for losses of both estimated known and incurred but not reported insurance claims based on reported claims and actuarial valuations of estimated future costs of known and incurred but not yet reported claims. Should an amount of claims greater than anticipated occur, the liability recorded may not be sufficient and additional workers’ compensation costs, which may be significant, could be incurred. The Company has not discounted the projected future cash outlays for the time value of money for claims and claim-related costs when establishing its workers’ compensation liability in its financial reports for ~~December~~June 29, ~~2012~~2013 and March ~~31, 2012.~~30, 2013.

Self-Insured Health Insurance Liability

During the second quarter of fiscal 2012 ended October 1, 2011 (the “second quarter of fiscal 2012”), the Company began self-insuring for a portion of its employee medical benefit claims. The liability for the self-funded portion of the Company health insurance program is determined actuarially, based on claims filed and an estimate of claims incurred but not yet reported. The Company maintains stop loss insurance coverage to limit its exposure for the self-funded portion of its health insurance program.

~~Table of Contents~~

Pre-Opening Costs

The Company expenses, as incurred, all pre-opening costs related to the opening of new retail stores.

Advertising

The Company uses a variety of marketing approaches with a primary focus on print and radio advertising. The Company expenses advertising costs as ~~incurred except the costs associated with television advertising, which are expensed the first time the advertising takes place.~~incurred. Advertising expenses were $1.4 ~~million in the third quarter of each of fiscal 2013~~ and ~~2012. Advertising expenses were $4.0 million and $4.1~~$1.3 million for the first ~~three quarters~~quarter of fiscal ~~2013~~2014 and ~~2012,~~2013, respectively.

Fair Value of Financial Instruments

The Company’s financial instruments consist principally of cash, ~~short-term marketable securities,~~ accounts receivable, interest rate derivatives, accounts payable, accruals, debt, and other liabilities. Cash ~~short-term marketable securities~~ and interest rate derivatives are measured and recorded at fair value. Accounts receivable and other receivables are financial assets with carrying values that approximate fair value. Accounts payable and other accrued expenses are financial liabilities with carrying values that approximate fair value. See Note 97 for further discussion of the fair value of debt.

The Company ~~complies with~~utilizes the ~~provisions of ASC 820, “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 defines~~authoritative guidance for fair value, ~~establishes a~~which includes the definition of fair value, the framework for measuring fair value, and ~~expands~~ disclosures about fair value ~~measurements required under other accounting pronouncements. ASC 820-10-35, “Subsequent Measurement” (“ASC 820-10-35”), clarifies that fair~~measurements. Fair value is an exit price, representing the amount that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants. ~~ASC 820-10-35 also requires that a fair~~Fair value ~~measurement~~measurements reflect the assumptions market participants would use in pricing an asset or liability based on the best information available. Assumptions include the risks inherent in a particular valuation technique (such as a pricing model) and/or the risks inherent in the inputs to the model. ~~The Company also follows ASC 825, “Financial Instruments,” to expand required disclosures.~~

Comprehensive Income

ASC 220, “Comprehensive Income” establishes standards for reporting and displaying comprehensive income and its components in the consolidated financial statements. Accumulated other comprehensive incomeOCI includes unrealized gains or losses on investments and interest rate derivatives designated as cash flow hedges.

2.~~The Merger~~

~~As discussed in Note 1, the Merger was completed on January 13, 2012 and was financed by:~~

·Borrowings consisting of (i) a $175 million, 5-year asset-based revolving credit facility (as amended, the “ABL Facility”), of which $10 million was drawn at closing of the Merger and was fully repaid in February 2012 and (ii) a $525 million, 7-year term loan credit facility (as amended, the “First Lien Term Loan Facility” and, together with the ABL Facility, the “Credit Facilities”);

·~~Issuance of $250 million principal amount of 11% senior notes due 2019 (the “Senior Notes”); and~~

·~~Equity contributions of $635.9 million from the Sponsors and the Rollover Investors.~~

1211

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The Merger was accounted for as a business combination whereby the purchase price paid to effect the Merger was allocated to recognize the acquired assets and liabilities at fair value. The Merger and the allocation of the purchase price of $1.6 billion have been recorded as of January 14, 2012. The sources and uses of funds in connection with the Merger are summarized in the following table (in thousands):

Sources:

Proceeds from First Lien Term Loan Facility

$
525,000

Proceeds from Senior Notes

250,000

Proceeds from ABL Facility

10,000

Proceeds from equity contributions

535,900

Rollover equity from the Rollover Investors

100,000

Cash on hand

212,575

Total sources

$
1,633,475

Uses:

Equity purchase price

$
1,577,563

OID and other debt issuance costs

41,911

Cash to balance sheet

14,001

Total uses

$
1,633,475

~~Acquisition Accounting~~

In connection with the purchase price allocation, estimates of the fair values of long-lived and intangible assets were determined based upon assumptions related to the future cash flows, discount rates and asset lives using information available at the acquisition date, and in some cases, valuation results from independent valuation specialists. Purchase accounting adjustments were recorded to: (i) increase the carrying value of property and equipment, (ii) establish intangible assets for trade names, vendor relations and favorable lease commitments, and (iii) revalue lease-related liabilities.

~~The allocation of purchase price was as follows (in thousands):~~

Purchase price

$
1,577,563

Less: net assets acquired

741,017

Excess of purchase price over book value of net assets acquired

$
836,546

Write up (down) of tangible assets:

Property and equipment

$
87,863

Land and buildings

63,549

Assets held for sale

(933
)
Deferred rent

(425
)
Leasing commission

(5,224
)

Acquisition-related intangible assets:

Trade name (indefinite life)

$
410,000

Trademarks (20 year life)

1,822

Bargain Wholesale customer relationships

20,000

Fair market value of favorable leases

46,723

Acquisition-related intangibles

478,545

Write down/(up) of liabilities:

Deferred rent and lease incentive revaluation

10,742

Fair market value of unfavorable leases

(19,836
)

Deferred income taxes:

Deferred income taxes

$
(249,485
)

Residual goodwill (1)

$
471,750

Total allocated excess purchase price

$
836,546

~~(1)~~The Company does not expect any of the residual goodwill to be tax deductible. Goodwill is considered to have an indefinite life and is not amortized, but rather reviewed annually for impairment or more frequently if indicators of impairment exist.

~~Table of Contents~~

As a result of the Merger, the Company recognized one-time legal, financial advisory, accounting, and other merger related costs of $10.6 million for the period January 15, 2012 to March 31, 2012 and $15.2 million for the period April 3, 2011 to January 14, 2012.

3.2. Goodwill and Other Intangibles

As a result of the Merger, the Company recognized goodwill, and other intangible assets and liabilities. The following table sets forth the value of the goodwill and other intangible assets and liabilities as of ~~December~~June 29, ~~2012~~2013 and March ~~31, 2012~~30, 2013 (in thousands):

As of December 29, 2012

As of March 31, 2012

Amortization
Period
(Years)

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Amortization
Period
(Years)

Gross
Carrying
Amount

Accumulated
Amortization

Net
Carrying
Amount

Indefinite lived intangible assets:

Goodwill

$
471,750

$
—

$
471,750

$
471,513

$
—

$
471,513

Trade name

410,000

—

410,000

410,000

—

410,000

Total indefinite lived intangible assets

$
881,750

$
—

$
881,750

$
881,513

$
—

$
881,513

Finite lived intangible assets:

Trademarks

20

$
2,000

$
(96
)
$
1,904

20

$
2,000

$
(21
)
$
1,979

Bargain Wholesale customer relationships

12

20,000

(1,603
)
18,397

12

20,000

(353
)
19,647

Favorable leases

2 to 17

46,723

(4,146
)
42,577

2 to 17

46,723

(915
)
45,808

Total finite lived intangible assets

68,723

(5,845
)
62,878

68,723

(1,289
)
67,434

Total goodwill and other intangible assets

$
950,473

$
(5,845
)
$
944,628

$
950,236

$
(1,289
)
$
948,947

	As of June 29, 2013								As of March 30, 2013
	Remaining Amortization Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Remaining Amortization Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Indefinite lived intangible assets:
Goodwill		$	479,745	$	—		$	479,745		$	479,745	$	—		$	479,745
Trade name		410,000		—			410,000			410,000		—			410,000
Total indefinite lived intangible assets		$	889,745	$	—		$	889,745		$	889,745	$	—		$	889,745
Finite lived intangible assets:
Trademarks	19	$	2,000	$	(146	)	$	1,854	19	$	2,000	$	(121	)	$	1,879
Bargain Wholesale customer relationships	11	20,000		(2,436		)	17,564		11	20,000		(2,019		)	17,981
Favorable leases	1 to 16	46,723		(6,300		)	40,423		1 to 16	46,723		(5,224		)	41,499
Total finite lived intangible assets		68,723		(8,882		)	59,841			68,723		(7,364		)	61,359
Total goodwill and other intangible assets		$	958,468	$	(8,882	)	$	949,586		$	958,468	$	(7,364	)	$	951,104

~~The change to goodwill from March 31, 2012 to December 29, 2012 was due to the adjustment of the purchase price fair values assigned.~~

	As of June 29, 2013								As of March 30, 2013
	Remaining Amortization Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Remaining Amortization Life (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount

Unfavorable leases	1 to 17	$	19,835	$	(5,937	)	$	13,898	1 to 17	$	19,835	$	(5,002	)	$	14,833

4.3. Property and Equipment, net

The following table provides details of property and equipment (in thousands):

December 29, 2012

March 31, 2012

Land

$
160,446

$
156,137

Buildings

90,320

89,110

Buildings improvements

64,500

59,375

Leasehold improvements

104,126

92,909

Fixtures and equipment

69,361

54,659

Transportation equipment

7,251

6,489

Construction in progress

32,720

29,271

Total property and equipment

528,724

487,950

Less: accumulated depreciation and amortization

(52,732
)
(11,425
)

Property and equipment, net

$
475,992

$
476,525

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	June 29, 2013			March 30, 2013
Land	$	160,446		$	160,446
Buildings	90,466			90,466
Buildings improvements	64,567			64,429
Leasehold improvements	117,013			112,779
Fixtures and equipment	80,718			76,831
Transportation equipment	9,942			7,497
Construction in progress	37,848			30,949

Total property and equipment	561,000			543,397
Less: accumulated depreciation and amortization	(82,613		)	(67,346		)

Property and equipment, net	$	478,387		$	476,051

5.~~Investments~~

~~The following tables summarize the investments in marketable securities (in thousands):~~

December 29, 2012

Cost or
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value

Available for sale:

Auction rate securities

$
471

$
5

$
—

$
476

Total

$
471

$
5

$
—

$
476

Reported as:

Short-term investments

$
476

Long-term investments in marketable securities

—

Total

$
476

March 31, 2012

Cost or
Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value

Available for sale:

Money market funds

$
1,627

$
—

$
—

$
1,627

Auction rate securities

1,965

39

—

2,004

Total

$
3,592

$
39

$
—

$
3,631

Reported as:

Short-term investments

$
3,631

Long-term investments in marketable securities

—

Total

$
3,631

Currently, the Company intends to liquidate its remaining auction rate securities within one year. Accordingly, the Company has included $0.5 million and $2.0 million of its auction rate securities in short-term investment on the Company’s balance sheets as of December 29, 2012 and March 31, 2012, respectively.

There were $0.2 million of realized losses from the sale of marketable securities for the third quarter of fiscal 2013 and there were $0.3 million realized losses from the sale of marketable securities for the first three quarters of fiscal 2013. Realized gains from the sale of marketable securities for the third quarter and the first three quarters of fiscal 2012 were less than $0.1 million. There were no impairment charges related to other-than-temporary impairments recorded in the third quarter and the first three quarters of fiscal 2013. The Company recorded an impairment charge related to credit losses on its auction rate securities of $0.3 million during the third quarter and the first three quarters of fiscal 2012.

Proceeds from the sales of marketable securities were $2.0 million and $4.4 million for the third quarter and the first three quarters of fiscal 2013, respectively. Proceeds from the sales of marketable securities were $1.8 million and $50.0 million for the third quarter and the first three quarters of fiscal 2012, respectively.

~~The Company did not have any available-for-sale securities with unrealized losses as of December 29, 2012 and March 31, 2012.~~

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6.4. Comprehensive Income

The following table sets forth the calculation of comprehensive income (loss), net of tax effects for the periods indicated (in thousands):

For the Third Quarter Ended

For the First Three Quarters Ended

December 29,
2012

December 31,
2011

December 29,
2012

December 31,
2011

(Successor)

(Predecessor)

(Successor)

(Predecessor)

Net income

$
12,692

$
22,175

$
8,011

$
54,972

Unrealized holding gains on marketable securities, net of tax effects of $0, $111, $3 and $19 for the third quarter and the first three quarters of fiscal 2013 and 2012, respectively

—

167

4

29

Unrealized losses on interest rate cash flow hedge, net of tax effects of $(61), $0, $(739) and $0 for the third quarter and the first three quarters of fiscal 2013 and 2012, respectively

(92
)

—

(1,109
)

—

Reclassification adjustment, net of tax effects of $(13), $121, $(16) and $109 for the third quarter and the first three quarters of fiscal 2013 and 2012, respectively

(19
)

182

(24
)

164

Total unrealized (losses) gains, net

(111
)

349

(1,129
)

193

Total comprehensive income

$
12,581

$
22,524

$
6,882

$
55,165

	First Quarter Ended
	June 29, 2013		June 30, 2012

Net income (loss)	$	3,164	$	(4,891	)
Unrealized gains (losses) on interest rate cash flow hedge, net of tax effects of $313 and $(363) for the first quarter of fiscal 2014 and 2013, respectively	469		(544		)
Reclassification adjustment, net of tax effects of $0 and $(3) for the first quarter of fiscal 2014 and 2013, respectively	—		(5		)

Total unrealized gains (losses), net	469		(549		)

Total comprehensive income (loss)	$	3,633	$	(5,440	)

Amounts in accumulated other comprehensive loss as June 29, 2013 and March 30, 2013 consisted of unrealized losses on interest rate cash flow hedge. There were no reclassifications out of AOCI in the first quarter of fiscal 2014.

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7.5. �� Debt

Short and long-term debt consists of the following (in thousands):

	December 29, 2012		March 31, 2012		June 29, 2013		March 30, 2013

ABL Facility agreement, maturing January 13, 2017, with available borrowing up to $175,000, interest due quarterly, with unpaid principal and accrued interest due January 13, 2017	$	—	$	—	$	—	$	—
First Lien Term Loan Facility agreement, maturing on January 13, 2019, payable in quarterly installments of $1,309, plus interest, commencing March 31, 2012 through December 31, 2019, with unpaid principal and accrued interest due January 13, 2019, net of unamortized OID of $10,503 and $10,086 as of December 29, 2012 and March 31, 2012, respectively	509,257		513,601
First Lien Term Loan Facility agreement, maturing on January 13, 2019, payable in quarterly installments of $1,309, plus interest, commencing March 31, 2012 through December 31, 2019, with unpaid principal and accrued interest due January 13, 2019, net of unamortized OID of $9,744 and $10,126 as of June 29, 2013 and March 30, 2013, respectively					507,397		508,325
Senior Notes (unsecured) maturing December 15, 2019, unpaid principal and accrued interest due on December 15, 2019	250,000		250,000		250,000		250,000

Total long-term debt	759,257		763,601		757,397		758,325
Less: current portion of long-term debt	5,237		5,250		8,567		8,567

Long-term debt, net of current portion	$	754,020	$	758,351	$	748,830	$	749,758

As of ~~December~~June 29, ~~2012~~2013 and March ~~31, 2012,~~30, 2013, the deferred financing costs are as follows (in thousands):

	December 29, 2012							March 31, 2012							June 29, 2013							March 30, 2013
Deferred financing costs	Gross Carrying Amount		Accumulated Amortization			Net Amount		Gross Carrying Amount		Accumulated Amortization			Net Amount		Gross Carrying Amount		Accumulated Amortization			Net Amount		Gross Carrying Amount		Accumulated Amortization			Net Amount

ABL Facility	$	3,078	$	(592	)	$	2,486	$	3,078	$	(130	)	$	2,948	$	3,078	$	(900	)	$	2,178	$	3,078	$	(746	)	$	2,332
First Lien Term Loan Facility	9,308		(876		)	8,432		16,572		(653		)	15,919		9,308		(1,485		)	7,823		9,308		(1,179		)	8,129
Senior Notes	11,761		(949		)	10,812		11,761		(228		)	11,533		11,761		(1,466		)	10,295		11,761		(1,206		)	10,555

Total deferred financing costs	$	24,147	$	(2,417	)	$	21,730	$	31,411	$	(1,011	)	$	30,400	$	24,147	$	(3,851	)	$	20,296	$	24,147	$	(3,131	)	$	21,016

On January 13, 2012, in connection with the Merger, the Company obtained Credit Facilities (as defined below) provided by a syndicate of lenders arranged by Royal Bank of Canada as administrative agent, as well as other agents and lenders that are parties to these Credit Facilities. The Credit Facilities include (a) $175 million in commitments under the ~~ABL Facility,~~first lien based revolving credit facility (as amended, “ABL Facility”), and (b) an$525 million in aggregate principal amount under the ~~First~~first lien term loan facility (as amended, “First Lien Term Loan Facility” and together with the ABL Facility, ~~of $525 million.~~the “Credit Facilities”).

First Lien Term Loan Facility

The First Lien Term Loan Facility provides for $525 million of borrowings (which may be increased by up to $150.0 million in certain circumstances). ~~All~~As of June 29, 2013, all obligations under the First Lien Term Loan Facility are guaranteed by Parent and the Company’s direct

wholly owned subsidiary, ~~(together,~~99 Cents Only Stores Texas, Inc. (“99 Cents Texas” and together with Parent, the “Credit Facilities Guarantors”). In addition, the First Lien Term Loan Facility is secured by pledges of certain of the Company’s equity interests and the equity interests of the Credit Facilities Guarantors.

~~Table of Contents~~

The Company is required to make scheduled quarterly payments each equal to 0.25% of the original principal amount of the term loan (approximately $1.3 million), with the balance due on the maturity date, January 13, 2019. Borrowings under the First Lien Term Loan Facility bear interest at an annual rate equal to an applicable margin plus, at the Company’s option, (A) a Base Rate determined by reference to the highest of (a) the interest rate in effect determined by the administrative agent as “Prime Rate” (3.25% as of ~~December~~June 29, ~~2012)~~2013), (b) the federal funds effective rate plus 0.50% and (c) an adjusted Eurocurrency rate for one month (determined by reference to the greater of the Eurocurrency rate for the interest period multiplied by the Statutory Reserve Rate or 1.50% per annum) plus 1.00%, or (B) an Adjusted Eurocurrency Rate. ~~The applicable margin used is 5.50% for Eurocurrency loans and 4.50% for base rate loans.~~

On April 4, 2012, the Company amended the terms of the existing seven-year $525 million First Lien Term Loan Facility, and incurred refinancing costs of $11.2 million. The amendment, among other things, decreased the applicable margin from the London Interbank Offered Rate (“LIBOR”) plus 5.50% (or base rate plus 4.50%) to LIBOR plus 4.00% (or base rate plus 3.00%) and decreased the LIBOR floor from 1.50% to 1.25%. The maximum capital expenditures covenant in the First Lien Term Loan Facility was also amended to permit an additional $5 million in capital expenditures each year throughout the term of the First Lien Term Loan Facility.

~~The Company evaluated the proper accounting treatment for the amendment. Specifically, the Company evaluated the position~~13

Table of ~~each lender under both the original First Lien Term Loan Facility and the amended First Lien Term Loan Facility.~~ Contents

The Company determined that a portion of the refinancing transaction should be accounted for as debt extinguishment, representing the outstanding principal amount of loans held by lenders under the original First Lien Term Loan Facility that were not lenders under the amended First Lien Term Loan Facility.extinguishment. In accordance with applicable guidance for debt modification and extinguishment, the Company recognized a $16.3 million loss on debt extinguishment related to a portion of the unamortized debt issuance costs, unamortized original issue discount (“OID”) and refinancing costs incurred in connection with the amendment for the portion of the First Lien Term Loan Facility that was extinguished. The Company recorded $0.3 million as deferred debt issuance costs and $5.9 million as OID in connection with the amendment.

As of ~~December~~June 29, ~~2012,~~2013, $5 million of the amount outstanding under the First Lien Term facility bore an interest charge of 6.25% (3.25% Prime Rate, plus the margin of 3.00%), while the interest rate charged on the remainder of First Lien Term Loan Facility was 5.25% (1.25% Eurocurrency rate, plus the Eurocurrency loan margin of 4.00%). As of ~~December~~June 29, ~~2012,~~2013, amount outstanding under the First Lien Term Loan Facility was ~~$509.3~~$507.4 million.

Following the end of each fiscal year, the Company is required to prepay the First Lien Term Loan Facility in an amount equal to 50% of Excess Cash Flow (as defined in the First Lien Term Loan Facility agreement and with stepdowns to 25% and 0% based on achievement of specified total leverage ratios), minus the amount of certain voluntary prepayments of the First Lien Term Loan Facility and/or the ABL Facility during such fiscal year. The Excess Cash Flow required payment for fiscal 2013 was $3.3 million and was made in July 2013.

The First Lien Term Loan Facility includes restrictions on the Company’s ability and the ability of Parent and certain of the Company’s subsidiaries to, incur or guarantee additional indebtedness, pay dividends on, or redeem or repurchase, the Company’s capital stock, make certain acquisitions or investments, materially change the Company’s business, incur or permit to exist certain liens, enter into transactions with affiliates or sell ~~our~~its assets to and make capital expenditures or merge or consolidate with or into, another company. As of ~~December 29, 2012,~~March 30, 2013, the Company was in compliance with the terms of the First Lien Term Loan Facility. In June 2013, the Company failed to comply with the covenant that required delivery of audited financial statements for the fiscal year ended March 30, 2013 within 90 days of the completion of fiscal 2013 as required under the First Lien Term Loan Facility. Prior to the expiration of the applicable 30-day grace period under the First Lien Term Loan Facility, the Company delivered the required financial statements. Accordingly, the Company is in compliance with the applicable reporting obligations and other terms of the First Lien Term Loan Facility.

During the first quarter ~~ended June 30, 2012 (the “first quarter~~ of fiscal ~~2013”),~~2013, the Company entered into an interest rate cap agreement. The interest rate cap agreement limits the Company’s interest exposure on a notional value of $261.8 million to 3.00% plus an applicable margin of 4.00%. The term of the interest rate cap is from May 29, 2012 to November 29, 2013. The Company paid fees of $0.05 million to enter into the interest rate cap agreement.

In addition, during the first quarter of fiscal 2013, the Company entered into an interest rate swap agreement to limit the variability of cash flows associated with interest payments on the First Lien Term Loan Facility that result from fluctuations in the LIBOR rate. The swap limits the Company’s interest exposure on a notional value of $261.8 million to 1.36% plus an applicable margin of 4.00%. The term of the swap is from November 29, 2013 through May 31, 2016. The fair value of the swap on the trade date was zero as the Company neither paid nor received any value to enter into the swap, which was entered into at market rates. The fair value of the swap at ~~December~~June 29, ~~2012~~2013 was a liability of ~~$2.5~~$1.5 million. See Note 86 for more information on the Company’s interest rate cap and interest rate swap agreements.

ABL Facility

The ABL Facility provides for up to $175.0 million of borrowings (which may be increased by up to $50.0 million in certain circumstances), subject to certain borrowing base limitations. All obligations under the ABL Facility are guaranteed by the Company, ~~its immediate~~ Parent and ~~the Company’s direct wholly owned subsidiary (together,~~99 Cents Texas (collectively, the “ABL Guarantors”). The ABL Facility is secured by substantially all of the Company’s assets and the assets of the ABL Guarantors.

~~Table of Contents~~

Borrowings under the ABL Facility bear interest for an initial period until June 30, 2012 at an applicable margin plus, at the Company’s option, a fluctuating rate equal to (A) the highest of (a) ~~the~~ Federal Funds Rate plus 0.50%, (b) ~~the~~rate of interest ~~rate~~ in effect determined by the administrative agent as “Prime Rate” (3.25% at the date of the Merger), and (c) Adjusted Eurocurrency Rate (determined to be the LIBOR rate multiplied by the Statutory Reserve Rate) for an Interest Period of one (1) month plus 1.00% or (B) the Adjusted Eurocurrency Rate. The interest rate charged on borrowings under the ABL Facility from the date of the Merger until June 30, 2012 was 4.25% (the base rate (prime rate at 3.25%) plus the applicable margin of 1.00%). Thereafter, borrowings under the ABL Facility will have variable pricing and will be based, at the Company’s option, on (a) LIBOR plus an applicable margin to be determined (1.75% as of ~~December~~June 29, ~~2012)~~2013) or (b) the determined base rate (prime rate) plus an applicable margin to be determined (0.75% at ~~December~~June 29, ~~2012)~~2013), in each case based on a pricing grid depending on average daily excess availability for the most recently ended quarter.

Table of Contents

In addition to paying interest on outstanding principal under the Credit Facilities, the Company was required to pay a commitment fee to the lenders under the ABL Facility on ~~unutilized~~unused commitments at a rate of 0.375% for the period from the date of the Merger until June 30, 2012. Thereafter, the commitment fee will be adjusted at the beginning of each quarter based upon the average historical excess availability of the prior quarter (0.50% for the quarter ended ~~December~~June 29, ~~2012)~~2013). The Company must also pay customary letter of credit fees and agency fees.

As of ~~December~~June 29, ~~2012~~2013 and March ~~31, 2012,~~30, 2013, the Company had no outstanding borrowings under the ABL Facility, outstanding letters of credit were $1.0 million, and availability under the ABL Facility subject to the borrowing base, was ~~$167.4~~$141.2 million ~~at December~~as of June 29, ~~2012.~~2013.

The ABL Facility includes restrictions on the Company’s ability, and the ability of the Parent and certain of the Company’s subsidiaries to, incur or guarantee additional indebtedness, pay dividends on, or redeem or repurchase, ~~our~~its capital stock, make certain acquisitions or investments, materially change our business, incur or permit to exist certain liens, enter into transactions with affiliates or sell our assets to, make capital expenditures or merge or consolidate with or into, another company. The ABL Facility was amended on April 4, 2012 to permit an additional $5 million in capital expenditures for each year during the term of the ABL Facility. As of ~~December 29, 2012,~~March 30, 2013, the Company was in compliance with the terms of the ABL Facility. In June 2013, the Company failed to comply with the covenant that required delivery of audited financial statements for the fiscal year ended March 30, 2013 within 90 days of the completion of fiscal 2013 as required under the in the ABL Facility. Prior to the expiration of the applicable 30-day grace period under the ABL Facility, the Company delivered the required financial statements. Accordingly, the Company is in compliance with the applicable reporting obligations and other terms of the ABL Facility.

Senior Notes

On December 29, 2011, the Company issued $250 million aggregate principal amount of ~~Senior Notes. As of March 31, 2012, the~~11% Senior Notes were guaranteed by each of the Company’s direct wholly owned subsidiaries, 99 Cents Only Stores Texas, Inc., a Delaware corporation, and 99 Cents Only Stores, a Nevada corporation (“99 Cents Only Stores (Nevada)”that mature on December 15, 2019 (the “Senior Notes”). ~~In September 2012, 99 Cents Only Stores (Nevada), an inactive wholly owned subsidiary of the Company, was dissolved. As of December 29, 2012, the~~The Senior Notes are guaranteed by 99 Cents ~~Only Stores~~ Texas ~~Inc.~~ (the “Senior Notes Guarantor”).

In connection with the issuance of the Senior Notes, the Company entered into a registration rights agreement that required the Company to file an exchange offer registration statement, enabling holders to exchange the Senior Notes for registered notes with terms identical in all material respects to the terms of the Senior Notes, except the registered notes would be freely tradable. The exchange offer was closed on November 7, 2012.

Pursuant to the terms of the indenture governing the Senior Notes (the “Indenture”), the Company may redeem all or a part of the Senior Notes at certain redemption prices applicable based on the date of redemption.

The Senior Notes are (i) equal in right of payment with all of the Company’s and the Senior Notes Guarantor’s existing and future senior indebtedness; (ii) effectively junior to the Company’s and the Senior Notes Guarantor’s existing and future secured indebtedness, to the extent of the value of the interest of the holders of that secured indebtedness in the assets securing such indebtedness; (iii) unconditionally guaranteed on a senior unsecured unsubordinated basis by the Senior Notes Guarantor; and (iv) junior to the indebtedness or other liabilities of the Company’s subsidiaries that are not guarantors. The Company is not required to make any mandatory redemptions or sinking fund payments, and may at any time or from time to time purchase notes in the open market.

The Indenture contains covenants that, among other things, limit the Company’s ability and the ability of certain of its subsidiaries to incur or guarantee additional indebtedness, create or incur certain liens, pay dividends or make other restricted payments, incur restrictions on the payment of dividends or other distributions from its restricted subsidiaries, make certain investments, transfer or sell assets, engage in transactions with affiliates, or merge or consolidate with other companies or transfer all or substantially all of its assets.

As of ~~December~~June 29, ~~2012,~~2013, the Company was in compliance with the terms of the Indenture.

~~Table of Contents~~

The significant components of interest expense are as follows (in thousands):

	For the Third Quarter Ended				For the First Three Quarters Ended				For the First Quarter Ended
	December 29, 2012		December 31, 2011		December 29, 2012		December 31, 2011		June 29, 2013		June 30, 2012
	(Successor)		(Predecessor)		(Successor)		(Predecessor)
First Lien Term Loan Facility	$	6,915	$	—	$	21,026	$	—
ABL Facility	221		—		604		—
Senior Notes	6,493		—		20,396		—
First lien term loan facility									$	6,557	$	7,455
ABL facility									224		162
Senior notes									6,799		6,952
Amortization of deferred financing costs and OID	1,078		—		3,138		—		1,102		1,001
Other interest expense	40		40		697		375		6		7
Interest expense	$	14,747	$	40	$	45,861	$	375	$	14,688	$	15,577

~~Interest paid for the third quarter~~15

Table of ~~fiscal 2013 and 2012, was $20.9 million and $0.3 million, respectively. Interest paid for the first three quarters of fiscal 2013 and 2012, was $47.0 million and $0.3 million, respectively.~~Contents

8.6. Derivative Financial Instruments

The Company entered into derivative instruments for risk management purposes and uses these derivatives to manage exposure to fluctuation in interest rates.

Interest Rate Cap

In May 2012, the Company entered into an interest rate cap agreement for an aggregate notional amount of $261.8 million in order to hedge the variability of cash flows related to a portion of the Company’s floating rate indebtedness. The cap agreement, effective in May 2012, hedges a portion of contractual floating rate interest commitments through the expiration of the agreement in November 2013. Pursuant to the agreement, the Company has capped LIBOR at 3.00% plus an applicable margin of 4.00% with respect to the aggregate notional amount of $261.8 million. In the event LIBOR exceeds 3.00% the Company will pay interest at the capped rate. In the event LIBOR is less than 3.00%, the Company will pay interest at the prevailing LIBOR rate. In the first ~~three quarters~~quarter of each of fiscal 2014 and 2013, the Company paid interest at the prevailing LIBOR rate.

The interest rate cap agreement has not been designated as a hedge for financial reporting purposes. Gains and losses on derivative instruments not designated as hedges are recorded directly in earnings.

Interest Rate Swap

In May 2012, the Company entered into a floating-to-fixed interest rate swap agreement for an initial aggregate notional amount of $261.8 million to limit exposure to interest rate increases related to a portion of the Company’s floating rate indebtedness once the Company’s interest rate cap agreement expires. The swap agreement, effective November 2013, will hedge a portion of contractual floating rate interest commitments through the expiration of the agreements in May 2016. As a result of the agreement, the Company’s effective fixed interest rate on the notional amount of floating rate indebtedness will be 1.36% plus an applicable margin of 4.00%.

The Company designated the interest rate swap agreement as a cash flow hedge. The interest rate swap agreement is highly correlated to the changes in interest rates to which the Company is exposed. Unrealized gains and losses on the interest rate swap are designated as effective or ineffective. The effective portion of such gains or losses is recorded as a component of ~~accumulated other comprehensive income~~AOCI or loss, while the ineffective portion of such gains or losses is recorded as a component of interest expense. Future realized gains and losses in connection with each required interest payment will be reclassified from ~~accumulated other comprehensive income~~AOCI or loss to interest expense.

~~Table of Contents~~

Fair Value

The fair values of the interest rate cap and swap agreements are estimated using industry standard valuation models using market-based observable inputs, including interest rate curves ~~(level 2)~~(Level 2, as defined in Note 7).

A summary of the recorded amounts included in the unaudited consolidated balance ~~sheet~~sheets is as follows (in thousands):

	December 29, 2012		March 31, 2012		June 29, 2013		March 30, 2013

Derivatives designated as cash flow hedging instruments
Interest rate swap (included in other current liabilities)					$	771	$	381
Interest rate swap (included in other liabilities)	$	2,522	$	—	$	754	$	2,249
Accumulated other comprehensive loss, net of tax (included in shareholders’ equity)	$	1,109	$	—	$	783	$	1,252
Derivatives not designated as hedging instruments
Interest rate cap (included in other current assets)	$	4	$	—

A summary of recorded amounts included in the unaudited consolidated statements of comprehensive income (loss) is as follows (in thousands):

	For the Third Quarter Ended				For the First Three Quarters Ended
	December 29, 2012		December 31, 2011		December 29, 2012		December 31, 2011		June 29, 2013			June 30, 2012
	(Successor)		(Predecessor)		(Successor)		(Predecessor)
Derivatives designated as cash flow hedging instruments:
Loss related to effective portion of derivative recognized in OCI	$	92	$	—	$	1,109	$	—
Loss related to ineffective portion of derivative recognized in interest expense	$	31	$	—	$	673	$	—
(Gain) loss related to effective portion of derivative recognized in OCI									$	(469	)	$	544
(Gain) loss related to ineffective portion of derivative recognized in interest expense									$	(322	)	$	276
Derivatives not designated as hedging instruments:
Loss recognized in other expense	$	23	$	—	$	46	$	—	$	—		$	20

Table of Contents

9.7. Fair Value of Financial Instruments

The Company complies with ~~ASC 820-10-35, “Fair Value Measurement~~authoritative guidance for fair value measurement and ~~Disclosures,”~~disclosures which ~~establishes~~establish a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy ~~under ASC 820-10-35~~ are described below:

Level 1: Defined as observable inputs such as quoted prices in active markets for identical assets or liabilities.

Level 2: Defined as observable inputs other than Level 1 prices. These include quoted prices for similar assets or liabilities in an active market, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The Company utilizes the best available information in measuring fair value. The following table summarizes, by level within the fair value hierarchy, the financial assets and liabilities recorded at fair value on a recurring basis as of ~~December~~June 29, ~~2012~~2013 (in thousands):

December 29, 2012

Total

Level 1

Level 2

Level 3

ASSETS

Auction rate securities

$
476

$
—

$
—

$
476

Total available-for-sale securities

$
476

$
—

$
—

$
476

Other current assets — interest rate cap

$
4

$
—

$
4

$
—

Other assets — assets that fund deferred compensation

$
5,212

$
5,212

$
—

$
—

LIABILITES

Other long-term liabilities — interest rate swap

$
2,522

$
—

$
2,522

$
—

Other long-term liabilities — deferred compensation

$
5,212

$
5,212

$
—

$
—

~~Table of Contents~~

	June 29, 2013
	Total		Level 1		Level 2		Level 3
ASSETS
Other assets — assets that fund deferred compensation	$	1,146	$	1,146	$	—	$	—
LIABILITES
Other current liabilities — interest rate swap	$	771	$	—	$	771	$	—
Other long-term liabilities — interest rate swap	$	754	$	—	$	754	$	—
Other long-term liabilities — deferred compensation	$	1,146	$	1,146	$	—	$	—

Level 1 measurements include ~~$5.2~~$1.1 million of deferred compensation assets that fund the liabilities related to the Company’s deferred compensation, including investments in trust funds. The fair values of these funds are based on quoted market prices in an active market.

Level 2 measurements include interest rate ~~cap and~~ swap agreements ~~that are~~ estimated using industry standard valuation models using market-based observable inputs, including interest rate curves.

There were no Level 3 ~~investments include auction rate securities~~assets or liabilities as of ~~$0.5 million. The valuation of the auction rate securities is based on Level 3 unobservable inputs.~~June 29, 2013.

The Company did not have any transfers of investments in and out of Levels 1 and 2 during the ~~third~~first quarter ~~and the first three quarters~~ of fiscal ~~2013.~~2014.

The following table summarizes, by level within the fair value hierarchy, the financial assets and liabilities recorded at fair value on a recurring basis as of March ~~31, 2012~~30, 2013 (in thousands):

	March 31, 2012								March 30, 2013
	Total		Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3
ASSETS
Money market funds	$	1,627	$	1,627	$	—	$	—
Auction rate securities	2,004		—		—		2,004

Total available-for-sale securities	$	3,631	$	1,627	$	—	$	2,004
Other assets — assets that fund deferred compensation	$	5,136	$	5,136	$	—	$	—	$	1,153	$	1,153	$	—	$	—
LIABILITES
Other current liabilities — interest rate swap									$	381	$	—	$	381	$	—
Other long-term liabilities — interest rate swap									$	2,249	$	—	$	2,249	$	—
Other long-term liabilities — deferred compensation	$	5,136	$	5,136	$	—	$	—	$	1,153	$	1,153	$	—	$	—

Level 1 ~~investments~~measurements include money market funds of $1.6 million. The fair value of money market funds is based on quoted market prices in an active market and there are no restrictions on the redemption of money market funds. Level 1 also includes $5.1$1.2 million of deferred compensation assets that fund the liabilities related to the Company’s deferred compensation, including investments in trust funds. The fair values of these funds are based on quoted market prices in an active market.

~~There were no Level 2 investments as of March 31, 2012.~~

Level 3 investments include auction rate securities of $2.0 million. The valuation of the auction rate securities is based on Level 3 unobservable inputs which consist of recommended fair values provided by Houlihan Capital Advisors, LLC, an independent securities valuation firm.

~~The following table summarizes the activity for the period of changes in fair value of the Company’s Level 3 investments (in thousands):~~

Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)

For the Third Quarter Ended

For the First Three Quarters Ended

Auction Rate Securities

December 29, 2012

December 31, 2011

December 29, 2012

December 31, 2011

(Successor)

(Predecessor)

(Successor)

(Predecessor)

Description

Beginning balance

$
1,603

$
7,685

$
2,004

$
8,409

Transfers into Level 3

—

—

—

—

Total realized/unrealized gains (loss):

Included in earnings

(229
)

(303
)
(273
)

(300
)
Included in other comprehensive (income) loss

(32
)

477

(33
)

501

Purchases, redemptions and settlements:

Purchases

—

—

—

—

Redemptions

(866
)

(173
)
(1,222
)

(924
)
Ending balance

$
476

$
7,686

$
476

$
7,686

Total amount of unrealized gains for the period included in other comprehensive loss attributable to the change in fair market value relating to assets still held at the reporting date

$
—

$
477

$
7

$
501

2117

Table of Contents

Level 2 measurements include interest rate swap agreement estimated using industry standard valuation models using market-based observable inputs, including interest rate curves.

There were no Level 3 assets or liabilities as of March 30, 2013.

In connection with the Merger, the Company entered into the Credit Facilities, including the ABL Facility of $175 million and the First Lien Term Loan Facility of $525 million, and also issued $250 million of the Senior Notes with a coupon rate of 11% in a private placement. The outstanding debt under the Credit Facilities and the Senior Notes is recorded in the financial statements at historical cost, net of applicable unamortized discounts.

The Credit Facilities are tied directly to market rates and fluctuate as market rates change; as a result, the carrying value of the Credit Facilities approximates fair value as of ~~December~~June 29, ~~2012.~~2013.

The fair value of the Senior Notes was estimated at ~~$287.5~~$283.1 million, or ~~$37.5~~$33.1 million greater than the carrying value, as of ~~December~~June 29, ~~2012,~~2013, based on quoted market prices of the debt (Level 1 inputs). The fair value of the Senior Notes was estimated at ~~$259.3~~$288.1 million, or ~~$9.3~~$38.1 million greater than the carrying value, as of March ~~31, 2012, using a discounted cash flow analysis~~30, 2013, based on quoted market prices of the debt (Level 31 inputs).

See Note 75 for more information on the Company’s debt.

~~10.~~8. Stock-Based Compensation

~~Successor stock-based compensation~~

Number Holdings, Inc. 2012 Equity Incentive Plan

On February 27, 2012, the board of directors of Parent adopted the Number Holdings, Inc. 2012 Stock Incentive Plan (the “2012 Plan”), which authorizes equity awards to be granted for up to 74,603 shares of Class A common stock, par value $0.001 per share, of Parent (the “Class A Common Stock”) and 74,603 shares of Class B common stock, par value $0.001 per share, of Parent (the “Class B Common Stock”), of which, as of ~~December~~June 29, ~~2012,~~2013, options for ~~55,185~~57,324 shares of each Class were issued to certain members of management with an aggregate exercise price of $1,000 for one share of Class A Common Stock and for one share of Class B Common Stock, together. Options become exercisable over the five year service period and have terms of ten years from date of the grant. Options upon vesting may be exercised only for units consisting of an equal number of Class A Common Stock and Class B Common Stock. Class B Common Stock has de minimis economic rights and the right to vote solely for election of directors.

~~Accounting for stock-based compensation~~Share repurchase rights

Under the 2012 Plan’s standard form of option award agreement, Parent has a right to repurchase from the participant all or a portion of (i) Class A and Class B Common Stock of Parent issued upon the exercise of the options awarded to a participant and (ii) fully vested but unexercised options. The repurchase price for the shares of Class A and Class B Common Stock of Parent is the fair market value of such shares as of the date of such termination, and, for the fully vested but unexercised options, the repurchase price is the difference between the fair market value of the Class A and Class B Common Stock of Parent as of the date of termination of employment and the exercise price of the option. However, upon (i) a termination of employment for cause, (ii) a voluntary resignation without good reason, or (iii) upon discovery that the participant engaged in detrimental activity, the repurchase price is the lesser of the exercise price paid by the participant to exercise the option or the fair market value of the Class A and Class B Common Stock of Parent. If Parent elects to exercise its repurchase right for any shares acquired pursuant to the exercise of an option, it must do so no later than 180 days after the date of participant’s termination of employment, or (ii) for any unexercised option no later than 90 days from the latest date that an option can be exercised. All of the options that the Company has granted to its executive officers and employees (with the exception of options granted to Rollover Investors that contain no repurchase rights and certain directors that contain less restrictive repurchase rights) contain such repurchase rights. There were 23,235 options outstanding as of June 29, 2013 subject to such repurchase rights. In accordance with accounting guidance, the Company has not recorded any stock-based compensation expense for these grants. For all other options, fair value of the option awards is recognized as compensation expense on a straight line basis over the requisite service period of the award, and is included in operating ~~expense.~~ expenses.

Former Executive Put Rights

Pursuant to the employment agreements between the Company and Messrs. Eric Schiffer, Jeff Gold and Howard Gold, in connection with their separation from the Company, for a period of one year following such separation, each executive has a right to require Parent to repurchase the shares of Class A and Class B Common Stock owned by such executive (a “put right”) at the greater of (i) $1,000 per combined share of Class A and Class B Common Stock less any distributions made with respect to such shares and (ii) the fair market value of such shares as of the date the executive exercises the put right. The put right applies to the lesser of (i) 20,000 shares of each of Class A and Class B Common Stock and (ii) $12.5 million in value (unless Parent agrees to purchase a higher

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value). If exercising the put right is prohibited (e.g., under the First Lien Term Loan Credit Facility, the ABL Facility and the Indenture), then the put right is extended up to three additional years until Parent is no longer prohibited from repurchasing the shares. If, during the four years following termination, Parent is at no time able to make the required payments, the put right expires and is deemed unexercised. For payout after the first year, the put right is only at the fair market value as of the date the exercising the put right.

On January 23, 2013, Eric Schiffer, Jeff Gold and Howard Gold separated from their positions as Chief Executive Officer, Chief Administrative Officer and Executive Vice President of Special Projects, respectively, of the Company and Parent, and as directors of the Company and Parent. As such, for a period of one year from January 23, 2013, each executive may exercise the put right as described above. The fair value of these put rights was estimated using a binomial model to be $4.9 million and $6.5 million as of June 29, 2013 and March 30, 2013, respectively. Changes in the fair value for these put rights have been included in operating expenses.

Accounting for stock-based compensation

Determining the fair value of options at the grant date requires judgment, including estimating the expected term that stock options will be outstanding prior to exercise and the associated volatility. At the grant date, the Company estimates an amount of forfeitures that will occur prior to vesting. During the ~~third~~first quarter ~~and the first three quarters~~ of fiscal ~~2013,~~2014, as a result of a decrease in the fair value of former executive put rights, the Company ~~incurred~~recorded negative stock-based compensation expense of $(1.6) million, compared to an expense of $0.8 million ~~and $2.4 million, respectively.~~in the first quarter of fiscal 2013.

The fair value of stock options was estimated at the date of grant using the Black-Scholes pricing model with the following assumptions:

	For the First Three Quarters Ended December 29, 2012			First Quarter Ended
				June 29, 2013			June 30, 2012
Weighted-average fair value of options granted	$	369.59		$	352.32		$	381.78
Risk free interest rate	0.71		%	1.26		%	0.77		%
Expected life (in years)	6.32			6.50			6.32
Expected stock price volatility	37.9		%	33.89		%	37.90		%
Expected dividend yield	None			None			None

The risk-free interest rate is based on the U.S. treasury yield curve in effect at the time of grant with an equivalent remaining term. Expected life represents the estimated period of time until exercise and is calculated by using “simplified method.” Expected stock price volatility is based on average historical volatility of stock prices of companies in a peer group analysis. The Company currently does not anticipate the payment of any cash dividends. Compensation expense is recognized only for those options expected to vest, with forfeitures estimated based on the Company’s historical experience and future expectations.

As of ~~December~~June 29, ~~2012,~~2013, there ~~was $14.8~~were $6.8 million of total unrecognized compensation ~~cost~~costs related to non-vested options ~~that is expected~~and options subject to ~~be recognized over the remaining weighted-average vesting period of 4.1 years. No options were vested or exercised during the Successor period.~~

~~Table of Contents~~repurchase rights for which no compensation has been recorded.

The following summarizes stock option activity in the first ~~three quarters~~quarter of fiscal ~~2013:~~2014:

	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)
Options outstanding at the beginning of the period	50,905		$	1,000		55,279		$	1,000
Granted	5,695		$	1,000		2,390		$	1,000
Exercised	—		$	—		—		$	—
Cancelled	(1,415	)	$	1,000		(345	)	$	1,000

Outstanding at the end of the period	55,185		$	1,000	8.70	57,324		$	1,000	4.50

Exercisable at the end of the period						38,502		$	1,000	2.60

Exercisable and expected to vest at the end of the period						54,435		$	1,000	4.40

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The following table summarizes the stock awards available for grant under the 2012 Plan:

	Number of Shares
Available for grant as of March ~~31, 2012~~30, 2013	~~23,698~~19,324
Authorized	—
Granted	(~~5,695~~2,390	)
Cancelled	~~1,415~~345
Available for grant at ~~December~~June 29, ~~2012~~2013	~~19,418~~17,279

~~Predecessor Stock-Based Compensation~~

Prior to the Merger, the Company maintained the 99¢ Only Stores 2010 Equity Incentive Plan and the 1996 Equity Incentive Plan, as amended, which provided for the grant of options, performance stock units (“PSUs”) and other stock-based awards. All outstanding stock-based awards outstanding prior to the Merger became fully vested in connection with the Merger. For the third quarter and the first three quarters of fiscal 2012, the Company incurred non-cash stock-based compensation expense related to Predecessor stock options, PSUs and restricted stock units of $0.5 million and $1.8 million, respectively.

~~11.~~~~Related~~-~~Party Transactions~~

On January 13, 2012, the Company entered into new lease agreements (the “Leases”) with the Rollover Investors for 13 stores and one store parking lot, which replaced the existing month-to-month leases. The Leases had approximate initial terms of either five or ten years and the base rents could be adjusted to market value in an aggregate amount not to exceed $1.0 million per annum. In December 2012, as previously contemplated, the Company reached a final agreement with the Rollover Investors on the market value of the Leases for each of the 13 stores that will result in aggregate base rent increasing by approximately $0.7 million aggregate per annum. Rental expense for these Leases was $0.6 million and $0.5 million during the third quarters of fiscal 2013 and 2012, respectively. Rental expense for these Leases was $2.2 million and $1.6 million during the first three quarters of fiscal 2013 and 2012, respectively.

~~12.~~9. Income Taxes

The effective income tax rate for the first ~~three quarters~~quarter of ~~2013~~2014 was ~~34.8%~~35.6% compared to a rate of ~~39.0%~~36.3% for the first ~~three quarters~~quarter of fiscal ~~2012.~~2013. The decrease in the effective tax rate is primarily due to ~~lower pretax income.~~an increase in pre-tax income and in federal hiring credit deductions.

The Company files income tax returns in the U.S. federal jurisdiction and in various states. The Company is subject to examinations by the major tax jurisdictions in which it files for the tax years ~~2007 through 2011.~~2008 forward. The federal tax return for the period ended March 27, 2010 was ~~chosen for examination~~examined by ~~Internal Revenue Service. The~~the Internal Revenue Service ~~has completed its examination and has made~~resulting in no changes to the reported tax.

During the first quarter of fiscal 2014, the California legislature enacted Assembly Bill 93 and Senate Bill 90, which effectively eliminates the Enterprise Zone hiring credits after December 31, 2013. The effect on the passage of these bills restricts the generation of the enterprise zone credits for fiscal 2014 to nine months for the Company as compared to a full year in prior fiscal years, and the carry-forward period to ten years from a previous indefinite life.

~~13.~~10. Commitments and Contingencies

Credit Facilities

The ~~Company’s credit facilities~~Credit Facilities and commitments are discussed in detail in Note 7.

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As of March 31, 2012, the Company also had a standby letter of credit for $0.4 million related to one of its leased properties, where the lessor was a named beneficiary in the event of a default by the Company, and potentially was entitled to draw on the letter of credit in the event of a specified default. The letter of credit expired in October 2012. The Company is in compliance with its lease terms and scheduled payments.5.

Workers’ Compensation

The Company self-insures its workers’ compensation claims in California and Texas and provides for losses of estimated known and incurred but not reported insurance claims. The Company does not discount the projected future cash outlays for the time value of money for claims and claim related costs when establishing its workers’ compensation liability.

As of ~~December~~June 29, ~~2012~~2013 and March ~~31, 2012,~~30, 2013, the Company had recorded a liability ~~$37.5~~$38.3 million and ~~$39.0~~$39.4 million, respectively, for estimated workers’ compensation claims in California. The Company has limited self-insurance exposure in Texas and had recorded a liability of less than $0.1 million as of ~~December~~June 29, ~~2012~~2013 and March ~~31, 2012~~30, 2013 for workers’ compensation claims in Texas. The Company purchases workers’ compensation insurance coverage in Arizona and Nevada.

Self-Insured Health Insurance Liability

During the second quarter of fiscal 2012, the Company began self-insuring for a portion of its employee medical benefit claims. As of ~~December~~June 29, ~~2012~~2013 and March ~~31, 2012,~~30, 2013, the Company had recorded a liability of ~~$0.8~~$0.6 million and ~~$0.9~~$0.5 million, respectively, for estimated health insurance claims. The Company maintains stop loss insurance coverage to limit its exposure for the self-funded portion of its health insurance program.

Legal Matters

Wage and Hour Matters

~~Luis Palencia v. 99¢ Only Stores, Superior Court of the State of California, County of Sacramento~~. Plaintiff, a former assistant manager, who the Company employed from June 12, 2009 through September 9, 2009, filed this action in June 2010, asserting claims on behalf of himself and all others allegedly similarly situated under the California Labor Code for alleged unpaid overtime due to “off the clock” work, failure to pay minimum wage, failure to provide meal and rest periods, failure to provide proper wage statements, failure to pay wages timely during employment and upon termination and failure to reimburse business expenses. Mr. Palencia also asserted a derivative claim for unfair competition under the California Business and Professions Code. Mr. Palencia sought to represent three sub-classes: (i) an “unpaid wages subclass” of all non-exempt or hourly paid employees who worked for the Company in California within four years prior to the filing of the complaint until the date of certification, (ii) a “non-compliant wage statement subclass” of all non-exempt or hourly paid employees of the Company who worked in California and received a wage statement within one year prior to the filing of the complaint until the date of certification, and (iii) an “unreimbursed business expenses subclass” of all employees of the Company who paid for business-related expenses, including expenses for travel, mileage or cell phones in California within four years prior to the filing of the complaint until the date of certification. Plaintiff sought to recover alleged unpaid wages, interest, attorney’s fees and costs, declaratory relief, restitution, statutory penalties and liquidated damages. He also sought to recover civil penalties as an “aggrieved employee” under the Private Attorneys General Act of 2004. Following a mediation of this matter, the parties entered into a settlement agreement on November 2, 2011. The settlement agreement was granted final approval by the Court on September 14, 2012, and judgment was entered on October 11, 2012. The Company accrued $2.2 million in the period from April 3, 2011 to January 14, 2012 for expected payments in connection with the settlement. The payments required under the settlement have been made.

~~Sheridan Reed v. 99¢ Only Stores, Superior Court of the State of California, County of Los Angeles~~~~. Plaintiff, a former store manager for the Company, filed this action in April 2010.~~ He originally asserted claims on behalf of himself and all others allegedly similarly situated under the California Labor Code for alleged failure to pay overtime at the proper rate, failure to pay vested vacation wages, failure to pay wages timely upon termination of employment and failure to provide accurate wage statements. Mr. Reed also asserted a derivative claim for unfair competition under the California Business and Professions Code. In September 2010, Mr. Reed amended his complaint to seek civil penalties under the Private Attorneys General Act of 2004. Mr. Reed sought to represent four sub-classes: (i) all non-exempt or hourly current or former employees who worked for the Company in California within four years prior to the filing of the complaint until the date of certification who were paid bonuses, commissions or incentive wages, who worked overtime, and for whom the bonuses, commissions or incentive wages were not included as part of the regular rate of pay for overtime purposes, (ii) all non-exempt or hourly current or former employees who worked for the Company in California within four years prior to the filing of the complaint until the date of certification who earned vacation wages and were not paid their vested vacation wages at the time of termination; (iii) all non-exempt or hourly current or former employees who worked for the Company in California within four years prior to the filing of the complaint until the date of certification who were not furnished a proper itemized wage statement; and (iv) all non-exempt or hourly current or former employees who worked for the Company in California within

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four years prior to the filing of the complaint until the date of certification who were not paid all wages due upon termination. Plaintiff sought to recover alleged unpaid wages, statutory penalties, interest, attorney’s fees and costs, declaratory relief, injunctive relief and restitution. He also sought to recover civil penalties as an “aggrieved employee” under the Private Attorneys General Act of 2004. The parties executed a formal settlement agreement on April 5, 2012, and such settlement agreement was granted final approval by the Court on October 25, 2012, and judgment was entered on November 7, 2012. This settlement agreement resolves the remainder of the lawsuit by settling the class-wide claims for failure to pay overtime at the proper rate, failure to pay wages timely upon termination of employment and failure to provide accurate wage statements. In addition, the settlement resolves Plaintiff’s individual claim for failure to pay vested vacation wages and includes a general release by Plaintiff in the Company’s favor. The Company accrued approximately $0.6 million for expected payments in connection with this settlement. The payments required under the settlement have been made.

Thomas Allen v. 99¢ Only Stores, Superior Court of the State of California, County of Los Angeles. Plaintiff, a former store manager for the Company, filed this action on March 18, 2011. He asserted claims on behalf of himself and all others allegedly similarly situated under the California Labor Code for alleged failure to pay overtime, failure to provide meal and rest periods, failure to pay wages timely upon termination, and failure to provide accurate wage statements. Mr. Allen also asserted a derivative claim for unfair competition under the California Business and Professions Code. Mr. Allen seeks to represent a class of all employees who were employed by the Company as salaried managers in 99¢ Only retail stores from March 18, 2007 through the date of trial or

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settlement. Plaintiff seeks to recover alleged unpaid wages, statutory penalties, interest, attorney’s fees and costs, declaratory relief, injunctive relief and restitution. On October 17, 2011, the Court heard the Company’s motion to compel Plaintiff Allen to arbitrate his claims on an individual basis, and following the hearing, the Court ordered the parties to submit further briefing and argument. Following this supplemental briefing and while the motion was under advisement, Mr. Allen sought leave to amend his complaint to add a cause of action pursuant to the Private Attorneys General Act of 2004 (“PAGA”). The Company did not oppose this motion and on January 5, 2012, the Court granted Mr. Allen’s motion and his First Amended Complaint was filed. On February 27, 2012, the Court denied the Company’s motion to compel arbitration. The Company filed a notice of its intention to appeal that ruling on April 12, 2012. Following a mediation of this matter on August 30, 2012, the parties entered into a “term sheet” settlement agreement for ~~a minimal~~an immaterial amount, which is subject to court approval. As of April 11, 2013, all parties had executed a Stipulation Re: Settlement of Class Action. On April 17, 2013, Mr. Allen filed his motion for preliminary approval of the settlement. The Company filed a notice of non-opposition to this motion on April 25, 2013. On May 9, 2013, the Court granted preliminary approval of the settlement. A hearing regarding final approval of the settlement was set for August 23, 2013. If the settlement agreement is not approved by the court, the Company cannot predict the outcome of this lawsuit.

Shelley Pickett v. 99¢ Only Stores, Superior Court of the State of California, County of Los Angeles. Plaintiff Shelley Pickett filed a representative action complaint against the Company on November 4, 2011, alleging a PAGA claim virtually identical that of another matter which was dismissed with prejudice in December 2011, Bright v. 99¢ Only ~~Stores.~~Stores. Like the plaintiff in the Bright case, Plaintiff Pickett asserts that the Company violated section 14 of Wage Order 7-2001 by failing to provide seats for its cashiers behind checkout counters. She seeks civil penalties of $100 to $200 per violation, per each pay period for each affected employee, and attorney’s fees. On November 8, 2011, Plaintiff Pickett filed a Notice of Related Case, stating that her case and the Bright case assert “identical claims.” After hearing arguments from the parties on December 1, 2011, the Court determined that the cases were related and assigned Pickett’s case to Judge William Fahey, the judge who presided over the Bright case. Plaintiff Pickett then attempted to exercise a 170.6 challenge to Judge Fahey, which the Company opposed. The Court struck Plaintiff Pickett’s 170.6 challenge on December 16, 2011. Plaintiff Pickett appealed this ruling, filing a petition for writ of mandate on December 30, 2011. The Company filed an opposition to Plaintiff Pickett’s petition and oral argument took place on February 1, 2012. On February 22, 2012, the Court of Appeal ruled in Plaintiff Pickett’s favor and issued the writ of mandate. On April 2, 2012, the Company filed a petition for review of that ruling with the California Supreme Court, which Pickett answered on April 23, 2012. The California Supreme Court denied the Company’s petition for review on May 9, 2012 and the Court of Appeals has remanded the case to Los Angeles Superior Court. On October 2, 2012, the Company filed a motion to compel arbitration of Pickett’s individual claims or, in the alternative, to strike the representative action allegations in the Complaint. The Court denied that motion on November 15, 2012, and on January 11, 2013, the Company filed a Notice of Appeal. The Court of Appeal has given this matter priority as provided by Civil Procedure Code section 1291.2, resulting in an expedited briefing schedule. The Company filed its Opening Brief on July 3, 2013. The Respondent’s Brief is due on August 2, 2013, and per the Court of Appeal’s scheduling order, if the brief is not timely filed, the 15-day notice under rule 8.220(a)(2) of the California Rules of Court will be deemed issued the next calendar day. The Company’s Reply Brief will be due within ten days of the filing date of Respondent’s Brief. On June 27, 2013, Plaintiff Pickett entered into a settlement agreement and release with the Company in another matter. Payment has been made to Plaintiff Pickett under that agreement and the other action has been dismissed. The Company’s position is that that release she executed in that matter waives the claims she asserts in this action, waives her right to proceed on a class or representative basis or as a private attorney general, and requires her to dismiss this action with prejudice as to her individual claims, thus mooting the pending appeal. The Company has notified Plaintiff Pickett of its position by letter dated July 30, 2013, but there has not yet been any response. The Company cannot predict the outcome of this lawsuit or the amount of potential loss, if any, that it could face as a result of such lawsuit.

Regulatory Matters

The Company recently received Notices to Comply with hazardous waste and/or hazardous materials storage requirements for certain of its stores and its distribution centers in Southern California. The agencies that have delivered such notices to the Company include the Los Angeles County Fire Department, Health Hazardous Materials Division, the Ventura County Environmental Health Division, the Santa Barbara County Fire Department and the City of Oxnard. The Notices concern alleged non-compliance with a variety of hazardous waste and hazardous material regulatory requirements imposed under California law identified during recent compliance inspections and require corrective actions to be taken by certain dates set forth in the Notices. The Company is working to implement the required corrective actions. Although the agencies can also seek civil penalties for the alleged instances of past non-compliance, even after corrective action is taken, no penalties have been demanded for any of the alleged non-compliance. Given the passage of time, it now appears that there will be no further action by the government agencies regarding these matters. If penalties are demanded by these agencies in the future, the Company cannot predict the amount of penalties that may be sought.

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Other Matters.

The Company is also subject to other private lawsuits, administrative proceedings and claims that arise in its ordinary course of business. A number of these lawsuits, proceedings and claims may exist at any given time. While the resolution of such a lawsuit, proceeding or claim may have an impact on the Company’s financial results for the period in which it is resolved, and litigation is inherently unpredictable, in management’s opinion, none of these matters arising in the ordinary course of business is expected to have a material adverse effect on the Company’s financial position, results of operations or overall liquidity.

~~14.~~~~Texas Market~~

As a result of the Company’s decision in September 2008 to close its Texas operations, which was later suspended and, in August 2009, reversed, the Company closed 16 of its Texas stores starting from the fourth quarter of fiscal 2009 through the second quarter of fiscal 2010. As described in prior Company filings with the SEC, the Company had recorded impairment charges as well as lease termination costs related to closing some of these stores. As of March 31, 2012, the Company had an estimated lease termination costs accrual of approximately $1.1 million. During the first three quarters of fiscal 2013, the Company increased the estimated lease termination costs accrual by approximately $0.1 million and paid approximately $0.5 million related to these costs. As of December 29, 2012, the remaining balance of the Company’s estimated lease termination costs accrual was $0.7 million. As of December 29, 2012, the Company operates 39 stores in Texas.

~~The following table summarizes the Texas store closures remaining obligations as of December 29, 2012 (in thousands):~~

Lease Termination
Cost

Remaining obligations as of March 31, 2012

$
1,079

Accretion expenses

130

Cash payments

(517
)
Remaining obligations as of December 29, 2012

$
692

~~15.~~11. Assets Held for Sale

Assets held for sale during the quarter ended ~~December~~June 29, ~~2012~~2013 consisted of the vacant land in La Quinta, California and the vacant land in Rancho Mirage, California. The carrying value as of ~~December~~June 29, ~~2012~~2013 for the La Quinta land was $0.4 million and for the Rancho Mirage land was ~~$2.2~~$1.7 million.

In June 2012, the Company completed the sale of its Eagan, Minnesota warehouse that had been classified as held for sale. The warehouse had a carrying value of $6.4 million and the Company recorded a loss on sale of $0.2 million in the first quarter of fiscal 2013.

~~16.~~12. Other Accrued Expenses

Other accrued expenses as of ~~December~~June 29, ~~2012~~2013 and March ~~31, 2012~~30, 2013 are as follows (in thousands):

	December 29, 2012		March 31, 2012		June 29, 2013		March 30, 2013
Accrued legal reserves and fees	$	3,037	$	4,866	$	3,541	$	3,367
Accrued property taxes	2,886		2,974
Accrued utilities	2,802		2,709		2,936		2,682
Accrued professional fees					2,684		1,164
Accrued interest	2,643		7,898		2,216		9,243
Accrued rent and related expenses	2,369		2,830		2,009		2,436
Accrued property taxes					1,860		2,396
Accrued outside services	1,607		945		1,671		1,546
Accrued professional fees	552		1,220
Accrued advertising	467		577		545		561
Other	6,336		6,550		6,940		6,300

Total other accrued expenses	$	22,699	$	30,569	$	24,402	$	29,695

~~17.~~13. New Authoritative Standards

In June 2011, FASB issued ASU 2011-05, “Presentation of Comprehensive Income” (“ASU 2011-05”). ASU 2011-05 allows an entity to present components of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income, or in two separate, but consecutive statements. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. While ASU 2011-05 changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income under current accounting guidance. The new guidance is effective for fiscal year and interim periods beginning after December 15, 2011. The adoption of ASU 2011-05 did not have any impact on the Company’s consolidated financial position or results of operations, other than presentation.

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On December 23, 2011, the FASB issued ASU 2011-12, which indefinitely defers the provision of ASU 2011-5 related to the requirement that entities present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. The adoption of ASU 2011-12 did not have any impact on the Company’s consolidated financial position or results of operations, other than presentation.

On July 27, 2012, the FASB issued ASU 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment,” (“ASU 2012-02”). The ASU 2012-02 provides entities with an option to first assess qualitative factors to determine whether events or circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired. If an entity concludes that it is more than 50% likely that an indefinite-lived intangible asset is not impaired, no further analysis is required. However, if an entity concludes otherwise, it would be required to determine the fair value of the indefinite-lived intangible asset to measure the amount of actual impairment, if any, as currently required under GAAP. The new guidance is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted. ~~The adoption~~This new guidance became effective for the Company in the first quarter of ~~ASU 2012-02 is~~fiscal 2014 and did not ~~expected to~~ have a material impact on the ~~Company’s~~Company or its consolidated financial ~~position~~statements.

In February 2013, the FASB issued ASU 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” (“ASU 2013-02”), which is effective for reporting periods beginning after December 15, 2012. ASU 2013-02 was issued to improve the reporting of reclassifications out of AOCI. ASU 2013-02 requires companies to provide information about the amounts reclassified out of AOCI either in a single note or ~~results~~on the face of ~~operation.~~the financial statements. Significant amounts reclassified out of AOCI should be presented by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified in its entirety to net income in the same reporting period. For amounts not required to be reclassified in their entirety to net income, a cross-reference to other disclosures provided for in accordance with GAAP is required. This new guidance became effective for the Company in the first quarter of fiscal 2014 and did not have a material impact the on the Company or its consolidated financial statements.

~~18.~~14. Financial Guarantees

On December 29, 2011, the Company (the “Issuer”) issued $250 million principal amount of the Senior Notes. The Senior Notes are irrevocably and unconditionally guaranteed, jointly and severally, by each of the Issuer’s existing and future restricted subsidiaries that are guarantors under the Issuer’s credit facilities and certain other indebtedness.

At March 31, 2012, the Senior Notes were guaranteed by each of the Company’s direct wholly owned subsidiaries, 99 Cents Only Stores Texas, Inc. and 99 Cents Only Stores (Nevada) (together, the “Subsidiary Guarantors”). In September 2012, 99 Cents Only Stores (Nevada) was dissolved. As of ~~December~~June 29, ~~2012,~~2013 and March 30, 2013, the Senior Notes are guaranteed by 99 Cents Only Stores Texas, Inc. (the “Subsidiary Guarantor”).

The tables in the following pages present the condensed consolidating financial information for the Issuer and the Subsidiary Guarantors together with consolidating entries, as of and for the periods indicated. The condensed consolidating financial information may not necessarily be indicative of the financial position, results of operations or cash flows had the Issuer, and the Subsidiary Guarantors operated as independent entities.

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CONDENSED CONSOLIDATING BALANCE SHEETS

As of ~~December~~June 29, ~~2012~~

~~(Successor)~~2013

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantor			Consolidating Adjustments			Consolidated			Issuer			Subsidiary Guarantor			Consolidating Adjustments			Consolidated
ASSETS
Current Assets:
Cash	$	37,024		$	115		$	(1,462	)	$	35,677		$	69,899		$	1,427		$	—		$	71,326
Short-term investments	476			—			—			476
Accounts receivable, net	1,181			125			—			1,306			1,757			126			—			1,883
Income taxes receivable	17,680			—			—			17,680			2,438			—			—			2,438
Deferred income taxes	24,091			—			—			24,091			33,139			—			—			33,139
Inventories, net	209,946			29,297			—			239,243			183,132			27,584			—			210,716
Assets held for sale	2,621			—			—			2,621			2,106			—			—			2,106
Other	11,965			1,037			—			13,002			13,627			1,467			—			15,094

Total current assets	304,984			30,574			(1,462		)	334,096			306,098			30,604			—			336,702
Property and equipment, net	412,165			63,827			—			475,992			415,866			62,521			—			478,387
Deferred financing costs, net	21,730			—			—			21,730			20,296			—			—			20,296
Equity investments and advances to subsidiaries	109,669			22,510			(132,179		)	—			139,151			57,125			(196,276		)	—
Intangible assets, net	470,044			2,834			—			472,878			467,143			2,698			—			469,841
Goodwill	471,750			—			—			471,750			479,745			—			—			479,745
Deposits and other assets	11,089			3,291			—			14,380			4,417			391			—			4,808

Total assets	$	1,801,431		$	123,036		$	(133,641	)	$	1,790,826		$	1,832,716		$	153,339		$	(196,276	)	$	1,789,779

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	53,515		$	5,699		$	(1,462	)	$	57,752		$	77,872		$	7,139		$	—		$	85,011
Intercompany payable	22,510			14,152			(36,662		)	—			57,125			47,211			(104,336		)	—
Payroll and payroll-related	17,489			1,779			—			19,268			21,642			1,806			—			23,448
Sales tax	7,252			677			—			7,929			3,950			493			—			4,443
Other accrued expenses	18,855			3,844			—			22,699			21,258			3,144			—			24,402
Workers’ compensation	37,458			75			—			37,533			38,290			75			—			38,365
Current portion of long-term debt	5,237			—			—		��	5,237			8,567			—			—			8,567
Current portion of capital lease obligation	81			—			—			81			84			—			—			84

Total current liabilities	162,397			26,226			(38,124		)	150,499			228,788			59,868			(104,336		)	184,320
Long-term debt	754,020			—			—			754,020
Long-term debt, net of current portion													748,830			—			—			748,830
Unfavorable lease commitments, net	15,142			723			—			15,865			13,327			571			—			13,898
Deferred rent	3,683			570			—			4,253			5,710			960			—			6,670
Deferred compensation liability	5,212			—			—			5,212			1,146			—			—			1,146
Capital lease obligation, net of current portion	292			—			—			292			249			—			—			249
Long-term deferred income taxes	216,828			—			—			216,828			187,163			—			—			187,163
Other liabilities	3,780			—			—			3,780			6,471			—			—			6,471

Total liabilities	1,161,354			27,519			(38,124		)	1,150,749			1,191,684			61,399			(104,336		)	1,148,747

Shareholders’ Equity:
Preferred stock	—			—			—			—			—			—			—			—

Common stock	—			—			—			—			—			—			—			—
Additional paid-in capital	638,465			99,942			(99,942		)	638,465			652,853			99,943			(99,943		)	652,853
Retained earnings (deficit)	2,718			(4,425		)	4,425			2,718
Accumulated deficit													(11,038		)	(8,003		)	8,003			(11,038		)
Other comprehensive loss	(1,106		)	—			—			(1,106		)	(783		)	—			—			(783		)

Total shareholders’ equity	640,077			95,517			(95,517		)	640,077			641,032			91,940			(91,940		)	641,032

Total liabilities and shareholders’ equity	$	1,801,431		$	123,036		$	(133,641	)	$	1,790,826		$	1,832,716		$	153,339		$	(196,276	)	$	1,789,779

2823

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CONDENSED CONSOLIDATING BALANCE SHEETS

As of March ~~31, 2012~~

~~(Successor)~~30, 2013

(In thousands)

~~(Unaudited)~~

	Issuer			Subsidiary Guarantors			Consolidating Adjustments			Consolidated			Issuer			Subsidiary Guarantor			Consolidating Adjustments			Consolidated
ASSETS
Current Assets:
Cash	$	23,793		$	3,973		$	—		$	27,766		$	45,841		$	113		$	(478	)	$	45,476
Short-term investments	3,631			—			—			3,631
Accounts receivable, net	2,592			407			—			2,999			1,672			179			—			1,851
Income taxes receivable	6,634			234			—			6,868			3,969			—			—			3,969
Deferred income taxes	25,843			—			—			25,843			33,139			—			—			33,139
Inventories, net	187,234			27,084			—			214,318			172,068			29,533			—			201,601
Assets held for sale	6,849			—			—			6,849			2,106			—			—			2,106
Other	10,515			782			—			11,297			15,300			1,070			—			16,370

Total current assets	267,091			32,480			—			299,571			274,095			30,895			(478		)	304,512
Property and equipment, net	408,456			68,069			—			476,525			413,543			62,508			—			476,051
Deferred financing costs, net	30,400			—			—			30,400			21,016			—			—			21,016
Equity investments and advances to subsidiaries	472,360			373,224			(845,584		)	—			119,642			34,631			(154,273		)	—
Intangible assets, net	477,492			(58		)	—			477,434			468,593			2,766			—			471,359
Goodwill	471,513			—			—			471,513			479,745			—			—			479,745
Deposits and other assets	9,689			2,909			—			12,598			4,191			363			—			4,554

Total assets	$	2,137,001		$	476,624		$	(845,584	)	$	1,768,041		$	1,780,825		$	131,163		$	(154,751	)	$	1,757,237

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities:
Accounts payable	$	38,271		$	3,136		$	—		$	41,407		$	46,595		$	3,894		$	(478	)	$	50,011
Intercompany payable	377,766			453,952			(831,718		)	—			32,991			28,075			(61,066		)	—
Payroll and payroll-related	13,986			1,594			—			15,580			15,798			1,298			—			17,096
Sales tax	5,630			498			—			6,128			6,628			572			—			7,200
Other accrued expenses	27,207			3,362			—			30,569			26,892			2,803			—			29,695
Workers’ compensation	38,949			75			—			39,024			39,423			75			—			39,498
Current portion of long-term debt	5,250			—			—			5,250			8,567			—			—			8,567
Current portion of capital lease obligation	77			—			—			77			83			—			—			83

Total current liabilities	507,136			462,617			(831,718		)	138,035			176,977			36,717			(61,544		)	152,150
Long-term debt	758,351			—			—			758,351
Long-term debt, net of current portion													749,758			—			—			749,758
Unfavorable lease commitments, net	19,035			(76		)	—			18,959			14,200			633			—			14,833
Deferred rent	581			217			—			798			4,217			606			—			4,823
Deferred compensation liability	5,136			—			—			5,136			1,153			—			—			1,153
Capital lease obligation, net of current portion	354			—			—			354			271			—			—			271
Long-term deferred income taxes	214,874			—			—			214,874			186,851			—			—			186,851
Other liabilities	767			—			—			767			8,428			—			—			8,428

Total liabilities	1,506,234			462,758			(831,718		)	1,137,274			1,141,855			37,956			(61,544		)	1,118,267

Shareholders’ Equity:
Preferred stock	—			—			—			—			—			—			—			—
Common stock	—			1			(1		)	—			—			—			—			—
Additional paid-in capital	636,037			15,000			(15,000		)	636,037			654,424			99,943			(99,943		)	654,424
Accumulated deficit	(5,293		)	(1,135		)	1,135			(5,293		)	(14,202		)	(6,736		)	6,736			(14,202		)
Other comprehensive income	23			—			—			23			(1,252		)	—			—			(1,252		)

Total shareholders’ equity	630,767			13,866			(13,866		)	630,767			638,970			93,207			(93,207		)	638,970

Total liabilities and shareholders’ equity	$	2,137,001		$	476,624		$	(845,584	)	$	1,768,041		$	1,780,825		$	131,163		$	(154,751	)	$	1,757,237

2924

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99¢ Only Stores

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the ~~Third~~First Quarter Ended ~~December~~June 29, ~~2012~~

~~(Successor)~~2013

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantors			Consolidating Adjustments			Consolidated			Issuer			Subsidiary Guarantor			Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	400,790		$	38,700		$	—		$	439,490		$	396,525		$	37,341		$	—		$	433,866
Cost of sales (excluding depreciation and amortization expense shown separately below)	239,453			24,778			—			264,231			242,676			24,003			—			266,679

Gross profit	161,337			13,922			—			175,259			153,849			13,338			—			167,187
Selling, general and administrative expenses:
Operating expenses	113,952			12,060			—			126,012			119,761			12,071			—			131,832
Depreciation and amortization	12,310			2,422			—			14,732			13,234			2,534			—			15,768

Total selling, general and administrative expenses	126,262			14,482			—			140,744			132,995			14,605			—			147,600
Operating income (loss)	35,075			(560		)	—			34,515			20,854			(1,267		)	—			19,587
Other (income) expense:
Interest income	(29		)	—			—			(29		)	(15		)	—			—			(15		)
Interest expense	14,747			—			—			14,747			14,688			—			—			14,688
Equity in (earnings) loss of subsidiaries	560			—			(560		)	—			1,267			—			(1,267		)	—
Other	252			—			—			252			—			—			—			—

Total other expense, net	15,530			—			(560		)	14,970			15,940			—			(1,267		)	14,673

Income (loss) before provision for income taxes	19,545			(560		)	560			19,545			4,914			(1,267		)	1,267			4,914
Provision for income taxes	6,853			—			—			6,853			1,750			—			—			1,750

Net income (loss)	$	12,692		$	(560	)	$	560		$	12,692		$	3,164		$	(1,267	)	$	1,267		$	3,164

Comprehensive income	$	12,581		$	—		$	—		$	12,581		$	3,633		$	—		$	—		$	3,633

99¢ Only Stores

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
For the First ~~Three Quarters Ended December 29, 2012~~

~~(Successor)~~

~~(In thousands)~~

~~(Unaudited)~~

Issuer

Subsidiary
Guarantors

Consolidating
Adjustments

Consolidated

Net Sales:

Total sales

$
1,125,417

$
108,386

$
—

$
1,233,803

Cost of sales (excluding depreciation and amortization expense shown separately below)

682,032

68,800

—

750,832

Gross profit

443,385

39,586

—

482,971

Selling, general and administrative expenses:

Operating expenses

329,676

35,469

—

365,145

Depreciation and amortization

35,847

7,451

—

43,298

Total selling, general and administrative expenses

365,523

42,920

—

408,443

Operating income (loss)

77,862

(3,334
)
—

74,528

Other (income) expense:

Interest income

(244
)
(44
)
—

(288
)
Interest expense

45,861

—

—

45,861

Equity in (earnings) loss of subsidiaries

3,290

—

(3,290
)
—

Loss on extinguishment of debt

16,346

—

—

16,346

Other

319

—

—

319

Total other expense (income), net

65,572

(44
)
(3,290
)
62,238

Income (loss) before provision for income taxes

12,290

(3,290
)
3,290

12,290

Provision for income taxes

4,279

—

—

4,279

Net income (loss)

$
8,011

$
(3,290
)
$
3,290

$
8,011

Comprehensive income

$
6,882

$
—

$
—

$
6,882

~~Table of Contents~~

~~99¢ Only Stores~~

~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~
~~For the Third~~ Quarter Ended ~~December 31, 2011~~

~~(Predecessor)~~June 30, 2012

(In thousands)

(Unaudited)

Issuer

Subsidiary
Guarantors

Consolidating
Adjustments

Consolidated

Net Sales:

Total sales

$
367,878

$
36,042

$
—

$
403,920

Cost of sales (excluding depreciation and amortization expense shown separately below)

216,538

22,167

—

238,705

Gross profit

151,340

13,875

—

165,215

Selling, general and administrative expenses:

Operating expenses

109,071

11,534

—

120,605

Depreciation and amortization

6,263

805

—

7,068

Total selling, general and administrative expenses

115,334

12,339

—

127,673

Operating income

36,006

1,536

—

37,542

Other (income) expense:

Interest income

(79
)
—

—

(79
)
Interest expense

34

6

—

40

Equity in (earnings) loss of subsidiaries

(1,530
)
—

1,530

—

Other-than-temporary investment impairment due to credit losses

314

—

—

314

Other

(11
)
—

—

(11
)

Total other (income) expense, net

(1,272
)
6

1,530

264

Income before provision for income taxes

37,278

1,530

(1,530
)
37,278

Provision for income taxes

15,103

—

—

15,103

Net income

$
22,175

$
1,530

$
(1,530
)
$
22,175

Comprehensive income

$
22,524

$
—

$
—

$
22,524

~~99¢ Only Stores~~

~~CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME~~
~~For the First Three Quarters Ended December 31, 2011~~

~~(Predecessor)~~

~~(In thousands)~~

~~(Unaudited)~~

	Issuer			Subsidiary Guarantors		Consolidating Adjustments			Consolidated			Issuer			Subsidiary Guarantor			Consolidating Adjustments			Consolidated
Net Sales:
Total sales	$	1,035,259		$	100,039	$	—		$	1,135,298		$	365,275		$	35,675		$	—		$	400,950
Cost of sales (excluding depreciation and amortization expense shown separately below)	613,789			61,700		—			675,489			221,583			22,319			—			243,902

Gross profit	421,470			38,339		—			459,809			143,692			13,356			—			157,048
Selling, general and administrative expenses:
Operating expenses	314,904			33,634		—			348,538			107,030			11,741			—			118,771
Depreciation and amortization	18,413			2,358		—			20,771			11,536			2,657			—			14,193

Total selling, general and administrative expenses	333,317			35,992		—			369,309			118,566			14,398			—			132,964
Operating income	88,153			2,347		—			90,500
Operating income (loss)												25,126			(1,042		)	—			24,084
Other (income) expense:
Interest income	(281		)	—		—			(281		)	(180		)	(44		)	—			(224		)
Interest expense	363			12		—			375			15,577			—			—			15,577
Equity in (earnings) loss of subsidiaries	(2,335		)	—		2,335			—			998			—			(998		)	—
Other-than-temporary investment impairment due to credit losses	345			—		—			345
Loss on extinguishment of debt												16,346			—			—			16,346
Other	(73		)	—		—			(73		)	64			—			—			64

Total other (income) expense, net	(1,981		)	12		2,335			366
Total other expense (income), net												32,805			(44		)	(998		)	31,763

Income before provision for income taxes	90,134			2,335		(2,335		)	90,134
Provision for income taxes	35,162			—		—			35,162
Loss before provision for income taxes												(7,679		)	(998		)	998			(7,679		)
Benefit for income taxes												(2,788		)	—			—			(2,788		)

Net income	$	54,972		$	2,335	$	(2,335	)	$	54,972
Net loss												$	(4,891	)	$	(998	)	$	998		$	(4,891	)

Comprehensive income	$	55,165		$	—	$	—		$	55,165
Comprehensive loss												$	(5,440	)	$	—		$	—		$	(5,440	)

3125

Table of Contents

99¢ Only Stores

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the First ~~Three Quarters~~Quarter Ended ~~December~~June 29, ~~2012~~

~~(Successor)~~2013

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantors			Consolidating Adjustments			Consolidated			Issuer			Subsidiary Guarantor			Consolidating Adjustments			Consolidated
Cash flows from operating activities:
Net cash provided by operating activities	$	59,617		$	(5,491	)	$	(1,462	)	$	52,664		$	40,758		$	2,528		$	478		$	43,764

Cash flows from investing activities:
Purchases of property and equipment	(41,848		)	(2,580		)	—			(44,428		)	(15,379		)	(1,215		)	—			(16,594		)
Proceeds from sales of fixed assets	12,044			—			—			12,044			10			1			—			11
Purchases of investments	(1,525		)	—			—			(1,525		)
Proceeds from sale of investments	4,372			—			—			4,372
Investment in subsidiaries	(4,213		)	—			4,213			—

Net cash used in investing activities	(31,170		)	(2,580		)	4,213			(29,537		)	(15,369		)	(1,214		)	—			(16,583		)

Cash flows from financing activities:
Payment of debt	(3,928		)	—			—			(3,928		)	(1,310		)	—			—			(1,310		)
Payment of debt issuance costs	(11,230		)	—			—			(11,230		)
Payments of capital lease obligation	(58		)	—			—			(58		)	(21		)	—			—			(21		)
Capital contributions	—			4,213			(4,213		)	—

Net cash (used in) provided by financing activities	(15,216		)	4,213			(4,213		)	(15,216		)
Net cash used in financing activities													(1,331		)	—			—			(1,331		)

Net increase (decrease) in cash	13,231			(3,858		)	(1,462		)	7,911
Net increase in cash													24,058			1,314			478			25,850
Cash — beginning of period	23,793			3,973			—			27,766			45,841			113			(478		)	45,476

Cash — end of period	$	37,024		$	115		$	(1,462	)	$	35,677		$	69,899		$	1,427		$	—		$	71,326

99¢ Only Stores

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the First ~~Three Quarters~~Quarter Ended ~~December 31, 2011~~

~~(Predecessor)~~June 30, 2012

(In thousands)

(Unaudited)

	Issuer			Subsidiary Guarantors			Consolidating Adjustments		Consolidated			Issuer			Subsidiary Guarantors			Consolidating Adjustments		Consolidated
Cash flows from operating activities:
Net cash provided by operating activities	$	36,804		$	7,254		$	—	$	44,058		$	28,192		$	1,126		$	—	$	29,318

Cash flows from investing activities:
Purchases of property and equipment	(31,374		)	(1,874		)	—		(33,248		)	(8,419		)	(606		)	—		(9,025		)
Proceeds from sale of fixed assets	4			91			—		95			11,505			—			—		11,505
Purchases of investments	(50,927		)	—			—		(50,927		)	(384		)	—			—		(384		)
Proceeds from sale of investments	49,969			—			—		49,969			1,416			—			—		1,416

Net cash used in investing activities	(32,328		)	(1,783		)	—		(34,111		)
Net cash provided by (used in) investing activities												4,118			(606		)	—		3,512

Cash flows from financing activities:
Payment of debt												(1,309		)	—			—		(1,309		)
Payments of capital lease obligation	(54		)	—			—		(54		)	(21		)	—			—		(21		)
Repurchases of common stock related to issuance of Performance Stock Units	(1,744		)	—			—		(1,744		)
Proceeds from exercise of stock options	3,338			—			—		3,338
Excess tax benefit from share-based payment arrangements	1,383			—			—		1,383
Payment of debt issuance costs												(11,230		)	—			—		(11,230		)

Net cash provided by financing activities	2,923			—			—		2,923
Net cash used in financing activities												(12,560		)	—			—		(12,560		)

Net increase in cash	7,399			5,471			—		12,870			19,750			520			—		20,270
Cash — beginning of period	15,505			1,218			—		16,723			23,793			3,973			—		27,766

Cash — end of period	$	22,904		$	6,689		$	—	$	29,593		$	43,543		$	4,493		$	—	$	48,036

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~~19.~~~~Subsequent Events~~

On January 23, 2013, Eric Schiffer, Jeff Gold and Howard Gold separated from their positions as Chief Executive Officer, Chief Administrative Officer and Executive Vice President of Special Projects, respectively, of the Company and the Parent (and together with the Company, the “Corporation”), and as directors of the Company and Parent. Conditional upon each of Messrs. Schiffer, Jeff Gold and Howard Gold executing and not revoking a release of claims against the Corporation and certain of its affiliates, each of Messrs. Schiffer, Jeff Gold and Howard Gold will receive benefits commensurable with the benefits payable to him upon a termination without cause under his Employment Agreement, effective January 13, 2012, with the Company and Parent.

Effective January 23, 2013, the Board of Directors of the Company and Parent elected Richard Anicetti and Michael Fung to serve as Interim President and Chief Executive Officer and Interim Executive Vice President and Chief Administrative Officer of the Corporation, respectively. Mr. Anicetti is currently a member of the Board of Directors of the Company and Parent.

~~Table of Contents~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

As used in this quarterly report on Form 10-Q (this “Report”), unless the context suggests otherwise, the terms “Company,” “we,” “us,” and “our” refer to 99¢ Only Stores and its consolidated subsidiaries.

General

We are an extreme value retailer of primarily consumable and general merchandise with an emphasis on name-brand products. Our stores offer a wide assortment of regularly available consumer goods as well as a broad variety of first-quality closeout merchandise. In addition, we carry many fresh produce, deli, dairy and frozen food products found in traditional grocery stores.

On January 13, 2012, ~~pursuant to the Agreement and Plan of Merger~~we were acquired through a merger (the “Merger”)~~, dated as~~ with a subsidiary of ~~October 11, 2011, by and among 99¢ Only Stores,~~ Number Holdings, Inc., a Delaware corporation (“Parent”)~~, and Number Merger Sub, Inc. (“Merger Sub”) a subsidiary of Parent, the Merger was consummated. Merger Sub merged~~ with ~~and into 99¢ Only Stores,~~us surviving. In connection with ~~99¢ Only Stores being the surviving corporation. As a result of~~ the Merger, we became a subsidiary of ~~Parent.~~ Parent, which is controlled by affiliates of Ares Management LLC and Canada Pension Plan Investment Board, ~~(together, the “Sponsors”)~~ and certain former members of our management, Eric Schiffer, ~~the Company’s former Chief Executive Officer,~~ Jeff Gold, ~~the Company’s former President and Chief Administrative Officer,~~ Howard Gold, ~~the Company’s former Executive Vice President,~~ Karen Schiffer and The Gold Revocable Trust dated October 26, 2005 (collectively, the “Rollover Investors”).

The Merger was accounted for as a business combination, ~~in accordance with Accounting Standard Codification (“ASC”) 805, “Business Combinations,”~~ whereby the purchase price paid to effect the Merger was allocated to recognize the acquired assets and liabilities at fair value. In connection with the Merger, we incurred significant indebtedness. Subsequent to the Merger, interest expense and non-cash depreciation and amortization charges have significantly increased. ~~The accompanying discussion~~Our fiscal year 2014 (“fiscal 2014”) began on March 31, 2013 and ~~analysis~~will end on March 29, 2014 and will consist of ~~results of operations and cash flows are presented for the “Predecessor” and “Successor” periods preceding and succeeding the Merger, respectively. The Company’s~~52 weeks. Our fiscal year 2013 (“fiscal 2013”) began on April 1, 2012 and ~~will end~~ended on March 30, 2013 and ~~will consist~~consisted of 52 weeks. The Company’s fiscal year 2012 (“fiscal 2012”) consisted of the Successor period from January 15, 2012 to March 31, 2012 and the Predecessor period from April 3, 2011 to January 14, 2012, for a total of 52 weeks. The thirdfirst quarter ended ~~December~~June 29, ~~2012~~2013 (the ~~“third~~“first quarter of fiscal ~~2013”~~2014”) and the ~~third~~first quarter ended ~~December 31, 2011~~June 30, 2012 (the ~~“third~~“first quarter of fiscal ~~2012”~~2013”) were each comprised of 91 days. The first three quarters ended December 29, 2012 (the “first three quarters of fiscal 2013”) and the first three quarters ended December 31, 2011 (the “first three quarters of fiscal 2012”) were each comprised of 273 days.

For the ~~third~~first quarter of fiscal ~~2013,~~2014, we had net sales of ~~$439.5~~$433.9 million, operating income of ~~$34.5~~$19.6 million and net income of ~~$12.7~~$3.2 million. Sales increased during the ~~third~~first quarter of fiscal ~~2013~~2014 primarily due to a ~~4.3%~~3.1% increase in same-store sales, the full quarter effect of 1319 new stores opened in fiscal ~~2012,~~2013, and the effect of 12six new stores opened in fiscal 2013. For the first three quarters of fiscal 2013, we had net sales of $1,233.8 million, operating income of $74.5 million and net income of $8.0 million. Sales increased during the first three quarters of fiscal 2013 primarily due to a 4.3% increase in same-store sales, the full year effect of 13 new stores opened in fiscal 2012, and the effect of 12 new stores opened in fiscal 2013.2014.

During the ~~third~~first quarter of fiscal ~~2013,~~2014, we opened ~~four~~three stores in Southern California, one in Nevada and two in ~~Texas and closed one~~Texas. In fiscal 2014, we currently intend to increase our store ~~in California upon the expiration~~count by approximately 10%, all of ~~a lease. The Company plans to open approximately six additional stores during the fourth quarter of fiscal 2013 with the majority of new stores~~which are expected to be opened in ~~California.~~our existing markets. We believe that our near term growth infor the remainder of fiscal ~~2013~~2014 will primarily result from new store openings in our existing territories and increases in same-store sales.

Critical Accounting Policies and Estimates

Our critical accounting policies reflecting management’s estimates and judgments are described in Management’s Discussion and Analysis of Financial Condition and Results of Operations of our ~~Registration Statement~~Annual Report on Form ~~S-4 (File No. 333-182582) declared effective on October 9, 2012 (the “Registration Statement”).~~10-K for the fiscal year ended March 30, 2013.

Results of Operations

The following discussion defines the components of the statement of income.

Net Sales: Revenue is recognized at the point of sale in our 99¢ Only Stores (“retail sales”). Bargain Wholesale sales revenue is recognized in accordance with the shipping terms agreed upon on the purchase order. Bargain Wholesale sales are typically recognized free on board origin, where title and risk of loss pass to the buyer when the merchandise leaves ~~the Company’s~~our distribution facility.

~~Table of Contents~~

Cost of Sales: Cost of sales includes the cost of inventory, freight in, inter-state warehouse transportation costs and inventory shrinkage (obsolescence, spoilage, and shrink), and is net of discounts and allowances. Cash discounts for satisfying early payment terms are recognized when payment is made, and allowances and rebates based upon milestone achievements such as reaching a certain volume of purchases of a vendor’s products are included as a reduction of cost of sales when such contractual milestones are ~~reached in accordance with ASC 605-50-25, “Revenue Recognition-Customer Payments and Incentives-Recognition.”~~reached. In addition, we analyze our inventory levels and related cash discounts received to arrive at a value for cash discounts to be included in the inventory balance. We do not include purchasing, receiving, distribution, warehouse costs and transportation to and from stores in our cost of sales, which totaled ~~$19.7~~$21.2 million and ~~$18.6 million for the third quarter of fiscal 2013 and the third quarter of fiscal 2012, respectively, and totaled $56.7 million and $53.2~~$18.1 million for the first ~~three quarters~~quarter of fiscal ~~2013~~2014 and ~~2012,~~the first quarter of fiscal 2013, respectively. Due to this classification, our gross profit rates may not be comparable to those of other retailers that include costs related to their distribution network in cost of sales.

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Selling, General and Administrative Expenses: Selling, general, and administrative expenses include purchasing, receiving, inspection and warehouse costs, the costs of selling merchandise in stores (payroll and associated costs, occupancy and other store-level costs), distribution costs (payroll and associated costs, occupancy, transportation to and from stores, and other distribution-related costs), and corporate costs (payroll and associated costs, occupancy, advertising, professional fees, stock-based compensation expense and other corporate administrative costs). Selling, general, and administrative expenses also include depreciation and amortization expense.

Other Expense (Income): Other expense (income) relates primarily to loss on extinguishment of debt, interest expense on our debt, capitalized leases, ~~and the impairment charges related to our marketable securities,~~ net of interest income on our marketable securities.

The following table sets forth selected income statement data, including such data as percentage of net sales for the periods indicated (percentages may not add up due to rounding):

	For the Third Quarter Ended										For the First Three Quarters Ended
	December 29, 2012			% of Net Sales		December 31, 2011			% of Net Sales		December 29, 2012			% of Net Sales		December 31, 2011			% of Net Sales
	(Successor)					(Predecessor)					(Successor)					(Predecessor)					First Quarter Ended
	(In thousands, except percentages)																				June 29, 2013			% of Net Sales		June 30, 2012			% of Net Sales
Net Sales:
99¢ Only Stores	$	427,102		97.2	%	$	393,263		97.4	%	$	1,198,131		97.1	%	$	1,103,027		97.2	%	$	420,936		97.0	%	$	388,956		97.0	%
Bargain Wholesale	12,388			2.8		10,657			2.6		35,672			2.9		32,271			2.8		12,930			3.0		11,994			3.0

Total sales	439,490			100.0		403,920			100.0		1,233,803			100.0		1,135,298			100.0		433,866			100.0		400,950			100.0
Cost of sales (excluding depreciation and amortization expense shown separately below)	264,231			60.1		238,705			59.1		750,832			60.9		675,489			59.5		266,679			61.5		243,902			60.8

Gross profit	175,259			39.9		165,215			40.9		482,971			39.1		459,809			40.5		167,187			38.5		157,048			39.2
Selling, general and administrative expenses:
Operating expenses	126,012			28.7		120,605			29.9		365,145			29.6		348,538			30.7		131,832			30.4		118,771			29.6
Depreciation	14,290			3.3		7,064			1.7		41,973			3.4		20,758			1.8		15,326			3.5		13,752			3.4
Amortization of intangible assets	442			0.1		4			0.0		1,325			0.1		13			0.0		442			0.1		441			0.1

Total selling, general and administrative expenses	140,744			32.0		127,673			31.6		408,443			33.1		369,309			32.5		147,600			34.0		132,964			33.2

Operating income	34,515			7.9		37,542			9.3		74,528			6.0		90,500			8.0		19,587			4.5		24,084			6.0

Other (income) expense:
Interest income	(29		)	0.0		(79		)	0.0		(288		)	0.0		(281		)	0.0		(15		)	0.0		(224		)	(0.1	)
Interest expense	14,747			3.4		40			0.0		45,861			3.7		375			0.0		14,688			3.4		15,577			3.9
Other-than-temporary investment impairment due to credit losses	—			0.0		314			0.1		—			0.0		345			0.0
Loss on extinguishment of debt	—			0.0		—			0.0		16,346			1.3		—			0.0		—			0.0		16,346			4.1
Other	252			0.1		(11		)	0.0		319			0.0		(73		)	0.0		—			0.0		64			0.0

Total other expense, net	14,970			3.4		264			0.1		62,238			5.0		366			0.0		14,673			3.4		31,763			7.9
Income before provision for income taxes	19,545			4.4		37,278			9.2		12,290			1.0		90,134			7.9
Provision for income taxes	6,853			1.6		15,103			3.7		4,279			0.3		35,162			3.1
Net income	$	12,692		2.9	%	$	22,175		5.5	%	$	8,011		0.6	%	$	54,972		4.8	%

Income (loss) before provision for income taxes																					4,914			1.1		(7,679		)	(1.9	)
Provision (benefit) for income taxes																					1,750			0.4		(2,788		)	(0.7	)

Net income (loss)																					$	3,164		0.7	%	$	(4,891	)	(1.2	)%

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~~Third~~First Quarter Ended ~~December~~June 29, ~~2012 (Successor)~~2013 Compared to ~~Third~~First Quarter Ended ~~December 31, 2011 (Predecessor)~~June 30, 2012

Net sales. Total net sales increased ~~$35.6~~$32.9 million, or ~~8.8%~~8.2%, to ~~$439.5~~$433.9 million in the ~~third~~first quarter of fiscal ~~2013,~~2014, from ~~$403.9~~$401.0 million in the ~~third~~first quarter of fiscal ~~2012.~~2013. Net retail sales increased ~~$33.8~~$31.9 million, or ~~8.6%~~8.2%, to ~~$427.1~~$420.9 million in the ~~third~~first quarter of fiscal ~~2013,~~2014, from ~~$393.3~~$389.0 million in the ~~third~~first quarter of fiscal ~~2012.~~2013. Bargain Wholesale net sales increased by approximately ~~$1.7~~$0.9 million, or ~~16.2%~~7.8%, to ~~$12.4~~$12.9 million in the ~~third~~first quarter of fiscal ~~2013,~~2014, from ~~$10.7~~$12.0 million in the ~~third~~first quarter of fiscal ~~2012.~~2013. Of the ~~$33.8~~$31.9 million increase in net retail sales, ~~$16.8~~$11.8 million was due to a ~~4.3%~~3.1% increase in same-store ~~sales.~~sales, which were negatively impacted by a shift in the Easter holiday compared to the same period in the prior year. Easter, a holiday that drives our busiest selling week, occurred in calendar year 2012 on April 8 and in calendar year 2013 on March 31. As a result, we did not benefit from the Easter selling season in the first quarter of 2014, which we estimate negatively impacted same-store sales by approximately 180 basis points. The same-store sales increase was attributable to an approximately 1.7% increase in transaction counts and increase in an average ticket size by approximately ~~2.5%~~1.4%. The full quarter effect of stores opened in fiscal ~~2012~~2013 increased net retail sales by ~~$8.5~~$20.4 million and the effect of new stores opened during fiscal ~~2013~~2014 increased net retail sales by ~~$10.0~~$1.7 million. The increase in sales was partially offset by a decrease in sales of approximately ~~$1.5~~$1.9 million due to the effect of ~~closing one store in California upon expiration of its lease during fiscal 2013.~~closed stores.

Gross profit. Gross profit increased ~~$10.1~~$10.2 million, or ~~6.1%~~6.5%, to ~~$175.3~~$167.2 million in the ~~third~~first quarter of fiscal ~~2013,~~2014, from ~~$165.2~~$157.0 million in the ~~third~~first fiscal quarter of ~~2012.~~2013. As a percentage of net sales, overall gross margin decreased to ~~39.9%~~38.5% in the ~~third~~first quarter of fiscal ~~2013,~~2014, from ~~40.9%~~39.2% in the ~~third~~first quarter of fiscal ~~2012.~~2013. Among the gross profit components, cost of products sold increased by 8060 basis points compared to third quarter of fiscal 2012, primarily due to a shift in product mix. Inventory shrinkage increased by 50 basis points compared to third quarter of fiscal 2012, primarily due to higher inventory shrinkage based on the store physical inventories taken during the thirdfirst quarter of fiscal 2013, ~~and~~primarily attributable to the ~~resulting increase~~shift in ~~our inventory~~the product mix away from higher margin seasonal Easter items due to the timing of the Easter holiday. Inventory shrinkage ~~reserves.~~was flat as compared to the first quarter of fiscal 2013. The remaining change was made up of ~~decreases~~increases in ~~freight costs of 20 basis points and~~ other less significant items included in cost of sales.

Operating expenses. Operating expenses increased by ~~$5.4~~$13.0 million, or ~~4.5%~~11.0%, to ~~$126.0~~$131.8 million in the ~~third~~first quarter of fiscal ~~2013,~~2014, from ~~$120.6~~$118.8 million in the ~~third~~first quarter of fiscal ~~2012.~~2013. As a percentage of net sales, operating expenses ~~decreased~~increased to ~~28.7%~~30.4% for the ~~third~~first quarter of fiscal ~~2013,~~2014, from ~~29.9%~~29.6% for the ~~third~~first quarter of fiscal ~~2012.~~2013. Of the ~~120~~80 basis point ~~decrease~~increase in operating expenses as a percentage of net sales, retail operating expenses ~~decreased~~increased by 2040 basis points, distribution and transportation costs ~~decreased~~increased by 1040 basis points, corporate expenses ~~decreased~~increased by 1060 basis points, and other items decreased by 8060 basis points.

Retail operating expenses for the ~~third~~first quarter of fiscal ~~2013 decreased~~2014 increased as a percentage of net sales by 2040 basis points to ~~20.6%~~21.7% of net sales, compared to ~~20.8%~~21.3% of net sales for ~~third~~the first quarter of fiscal ~~2012. Utility and~~2013. The majority of the increase was due to higher payroll-related expenses ~~were slightly lower~~ as a percentage of net sales, ~~partially offset~~as the prior quarter benefited from labor productivity achieved through the Easter shift, as well as a higher number of store physical inventory counts performed in the first quarter of fiscal 2014. Retail operating expenses were also negatively impacted by ~~small increases in rent and~~higher outside services as a percentage of net sales.

Distribution and transportation expenses for the ~~third~~first quarter of fiscal 2014 increased as a percentage of net sales by 40 basis points to 4.9% of net sales, compared to 4.5% of net sales for the first quarter of fiscal 2013. The increase in distribution and transportation expenses compared to the first quarter of fiscal 2013, was primarily due to increased labor costs to operate warehouses including labor to service increased inventory levels and higher transportation expenses, reflecting the use of outside carriers and higher fuel costs.

Corporate operating expenses for the first quarter of fiscal 2014 increased as a percentage of net sales by 60 basis points to 4.0% of net sales as compared to 3.4% of net sales for the first quarter of fiscal 2013. The increase as a percentage of sales was primarily due to higher legal and outside service professional fees.

The remaining operating expenses for the first quarter of fiscal 2014 decreased as a percentage of net sales by 1060 basis points to ~~4.5% of net sales,~~(0.2)% compared to ~~4.6%~~0.4% of net sales for the ~~third~~first quarter of fiscal ~~2012.~~

~~Corporate operating expenses for the third~~2013. In first quarter of fiscal ~~2013 decreased~~2014, as a ~~percentage~~result of ~~net sales by 10 basis points to 3.1%~~a decrease in the fair value of ~~net sales~~former executive put rights, we recorded a negative stock-based compensation expense of $(1.6) million, compared to ~~3.2%~~an expense of ~~net sales for third~~$0.8 million in the first quarter of fiscal ~~2012.~~

The remaining operating expenses for the third quarter of fiscal 2013 decreased as a percentage of net sales by 80 basis points to 0.4% compared to 1.2% of net sales for third quarter of fiscal 2012. The decrease in other operating expenses compared to third quarter of fiscal 2012, was primarily due to legal and professional fees of approximately $4.1 million relating to the Merger incurred in the third quarter of fiscal 2012.2013.

Depreciation and amortization. Depreciation increased ~~$7.2~~$1.5 million to ~~$14.3~~$15.3 million in the ~~third~~first quarter of fiscal ~~2013~~2014 from ~~$7.1~~$13.8 million in ~~third~~the first quarter of fiscal ~~2012.~~2013. Depreciation as a percentage of net sales was ~~3.3%~~3.5% for the ~~third~~first quarter of fiscal ~~2013~~2014 and ~~1.7%~~3.4% for the ~~third~~first quarter of fiscal ~~2012.~~2013. The increase was primarily a result of adding new depreciable assets from new store openings, the full quarter depreciation impact of stores opened in fiscal 2013 and adding new depreciable assets for completed information technology projects. Amortization of intangibles was $0.4 million in each of the ~~third~~first quarter of fiscal ~~2013. Depreciation~~2014 and amortization expense in the third quarter of fiscal 2013 were higher than in the third quarter of fiscal 2012, primarily due to the step-up in basis to fair value of our property and equipment and revaluation of intangible assets as a result of the Merger.2013.

Operating income. Operating income was ~~$34.5~~$19.6 million for the ~~third~~first quarter of fiscal ~~2013~~2014 compared to operating income of ~~$37.5~~$24.1 million for the ~~third~~first quarter of fiscal ~~2012.~~2013. Operating income as a percentage of net sales was ~~7.9%~~4.5% in the ~~third~~first quarter of fiscal ~~2013~~2014 compared to ~~9.3%~~6.0% in the ~~third~~first quarter of fiscal 2012. The decrease in operating income as a percentage of net sales was primarily related to the changes in gross margin and depreciation and amortization as discussed above, partially offset by changes in operating expenses as described above.

~~Other income/expense, net.~~ Other expense, net was $15.0 million for the third quarter of fiscal 2013 compared to $0.3 million for the third quarter of fiscal 2012. Other expense, net in the third quarter of fiscal 2013 primarily included $14.7 million of interest expense, reflecting debt service on borrowings used to finance the Merger. Other expense, net in the third quarter of fiscal 2012 primarily included $0.3 million in investment impairment charges related to credit losses on the Company’s auction rate securities. Interest income was less than $0.1 million for the third quarter of fiscal 2013 and fiscal 2012.

~~Provision for income taxes.~~ The provision for income taxes was $6.9 million for the third quarter of fiscal 2013 compared to $15.1 million for the third quarter of fiscal 2012, due to the decrease in pre-tax income. The effective tax rate of the provision for income taxes was approximately 35.1% for the third quarter of fiscal 2013 and 40.5% for the third quarter of fiscal 2012. There was no material change in the net amount of unrecognized tax benefits in the third quarter of fiscal 2013.

~~Table of Contents~~

~~Net income.~~ As a result of the items discussed above, net income for the third quarter of fiscal 2013 was $12.7 million compared to net income of $22.2 million for the third quarter of fiscal 2012. Net income as a percentage of net sales was 2.9% for the third quarter of fiscal 2013 compared to net income of 5.5% for the third quarter of fiscal 2012.

~~For the First Three Quarters Ended December 29, 2012 Compared to the First Three Quarters Ended December 31, 2011~~

~~Net sales.~~ Total net sales increased $98.5 million, or 8.7%, to $1,233.8 million for the first three quarters of fiscal 2013, from $1,135.3 million for the first three quarters of fiscal 2012. Net retail sales increased $95.1 million, or 8.6%, to $1,198.1 million for the first three quarters of fiscal 2013, from $1,103.0 million for the first three quarters of fiscal 2012. Bargain Wholesale net sales increased approximately by $3.4 million, or 10.5%, to $35.7 million for the first three quarters of fiscal 2013, from $32.3 million for the first three quarters of fiscal 2012. Of the $95.1 million increase in net retail sales, $46.4 million was due to a 4.3% increase in same-store sales. The same-store sales increase was attributable to an approximately 2.0% increase in transaction counts and increase in an average ticket size by approximately 2.3%. The full year effect of stores opened in fiscal 2012 increased net retail sales by $34.5 million and the effect of new stores opened during fiscal 2013 increased net retail sales by $15.5 million. The increase in sales was partially offset by a decrease in sales of approximately $1.3 million due to the effect of closing one store in California upon expiration of its lease during fiscal 2013.

~~Gross profit.~~ Gross profit increased $23.2 million, or 5.0%, to $483.0 million for the first three quarters of fiscal 2013, from $459.8 million for the first three quarters of fiscal 2012. As a percentage of net sales, overall gross margin decreased to 39.1% for the first three quarters of fiscal 2013, from 40.5% for the first three quarters of fiscal 2012. Among the gross profit components, cost of products sold increased by 80 basis points compared to the first three quarters of fiscal 2012, primarily due to a shift in product mix and, to a lesser extent, merchandise price increases. Inventory shrinkage increased 60 basis points compared to the first three quarters of fiscal 2012, primarily due to higher inventory shrinkage based on the store physical inventories taken during the first three quarters of fiscal 2013 and the resulting increase in our inventory shrinkage reserves.

~~Operating expenses.~~ Operating expenses increased by $16.6 million, or 4.8%, to $365.1 million for the first three quarters of fiscal 2013 compared to $348.5 million for the first three quarters of fiscal 2012. As a percentage of net sales, operating expenses decreased to 29.6% for the first three quarters of fiscal 2013, from 30.7% for the first three quarters of fiscal 2012. Of the 110 basis points decrease in operating expenses as a percentage of net sales, retail operating expenses decreased by 50 basis points, distribution and transportation expenses were flat, corporate expenses decreased by 10 basis points and other items decreased by 50 basis points.

Retail operating expenses for the first three quarters of fiscal 2013 decreased as a percentage of net sales by 50 basis points to 21.2% of net sales, compared to 21.7% of net sales for the first three quarters of fiscal 2012. The majority of the decrease as a percentage of net sales was due to both lower utilities expenses, as well as lower payroll-related expenses (primarily due to improved store labor productivity and leveraging positive same-store sales).

~~Distribution and transportation expenses were flat at 4.6% as a percentage of net sales for the first three quarters of fiscal 2013 and the first three quarters of fiscal 2012.~~

Corporate operating expenses for the first three quarters of fiscal 2013 decreased as a percentage of net sales by 10 basis points to 3.3%, compared to 3.4% of net sales for the first three quarters of fiscal 2012.

The remaining operating expenses for the first three quarters of fiscal 2013 decreased as a percentage of net sales by 50 basis points to 0.4% compared to 0.9% of net sales for the first three quarters of fiscal 2012. The decrease in other operating expenses compared to the first three quarters of fiscal 2012 was primarily related to legal and professional fees of approximately $6.6 million relating to the Merger incurred in the first three quarters of fiscal 2012.

~~Depreciation and amortization.~~ Depreciation increased $21.2 million to $42.0 million for the first three quarters of fiscal 2013 from $20.8 million for the first three quarters of fiscal 2012. Depreciation as a percentage of net sales was 3.4% for the first three quarters of fiscal 2013 and 1.8% for the first three quarters of fiscal 2012. Amortization of intangibles was $1.3 million for the first three quarters of fiscal 2013. Depreciation and amortization expense for the first three quarters of fiscal 2013 were higher than for the first three quarters of fiscal 2012, primarily due the step-up in basis to fair value of our property and equipment and revaluation of intangible assets as a result of the Merger.

~~Operating income.~~ Operating income was $74.5 million for the first three quarters of fiscal 2013 compared to operating income of $90.5 million for the first three quarters of fiscal 2012. Operating income as a percentage of net sales was 6.0% for the first three quarters of fiscal 2013 compared to 8.0% for the first three quarters of fiscal 2012. The decrease in operating income as a percentage of net sales was primarily due to changes in gross margin, ~~and~~ depreciation and ~~amortization as discussed above, partially offset by changes in~~ operating expenses, as ~~described~~discussed above.

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~~Other income/~~Interest expense ~~net.~~and loss on extinguishment of debt. ~~Other~~Interest expense ~~net~~ was ~~$62.2~~$14.7 million for the first ~~three quarters~~quarter of ~~fiscal 2013~~2014 compared to ~~$0.4~~interest expense of $15.6 million for the first ~~three quarters of fiscal 2012. Other expense, net for the first three quarters~~quarter of fiscal 2013, primarily ~~included $45.9 million of interest expense,~~ reflecting debt service on borrowings used to finance the ~~Merger and a $16.3 million~~Merger. Interest expense decreased primarily due to an unrealized interest hedge gain in the first quarter of fiscal 2014 compared to unrealized interest hedge loss in the first quarter of fiscal 2013. Loss on extinguishment of debt was $16.3 million relating to amendment of the First Lien Term Loan Facility (as defined below) in April 2012.

Interest income and other expenses. Interest income in the first quarter of fiscal 2014 was not significant due to liquidation of our previously-held investment portfolio. Interest income was ~~$0.3~~$0.2 million for ~~each of~~ the first ~~three quarters~~quarter of fiscal 2013. Other expense in the first quarter of fiscal 2013 ~~and fiscal 2012.~~was less than $0.1 million.

Provision (benefit) for income taxes. The provision for income taxes was ~~$4.3~~$1.8 million for the first ~~three quarters~~quarter of fiscal ~~2013~~2014 compared to ~~$35.2~~a tax benefit of $2.8 million for the first ~~three quarters~~quarter of fiscal ~~2012,~~2013, due to ~~the decrease~~an increase in pre-tax income. The effective tax rate of the provision for income taxes was approximately ~~34.8%~~35.6% for the first ~~three quarters~~quarter of fiscal ~~2013~~2014 and ~~39.0%~~36.3% for the first ~~three quarters~~quarter of fiscal ~~2012. There was no material change~~2013. The decrease in the ~~net amount of unrecognized~~effective tax ~~benefits~~rate is primarily due to an increase in ~~the first three quarters of fiscal 2013.~~pre-tax income and in federal hiring credit deductions.

Net ~~Income.~~income/loss. As a result of the items discussed above, net income for the first ~~three quarters~~quarter of fiscal ~~2013~~2014 was ~~$8.0~~$3.2 million compared to net ~~income~~loss of ~~$55.0~~$4.9 million for the first ~~three quarters~~quarter of fiscal ~~2012.~~2013. Net income as a percentage of net sales was ~~0.6%~~0.7% for the first ~~three quarters~~quarter of fiscal ~~2013~~2014 compared to net ~~income~~loss of ~~4.8%~~(1.2%) for the first ~~three quarters~~quarter of fiscal ~~2012.~~2013.

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Liquidity and Capital Resources

We historically funded our operations principally from cash provided by operations, short-term investments and cash on hand, and until the Merger, did not generally rely upon external sources of financing. After the Merger, ourOur capital requirements consist primarily of purchases of inventory, expenditures related to new store openings, working capital requirements for new and existing stores, including lease obligations, and debt service requirements. Our primary sources of liquidity are the net cash flow from operations, which we believe will be sufficient to fund our regular operating needs and principal and interest payments on our indebtedness, together with availability under our ABL Facility (as defined below) for at least the next 12 months. We currently do not intend to use the availability under our ABL Facility to fund our capital needs in fiscal ~~2013;~~2014; however, depending on the exact timing of budgeted capital expenditures, we may borrow under our ABL Facility for short-term capital requirements ~~in future periods. We do not expect~~from time to ~~fund basic working capital needs with our ABL Facility; as such,~~time. Our availability under our ABL Facility is not expected to affect our ability to make immediate buying decisions, willingness to take on large volume purchases or ability to pay cash or accept abbreviated credit terms.

As of the end of the ~~third~~first quarter of fiscal ~~2013,~~2014, we held ~~$36.2~~$71.3 million in cash, and ~~short-term investments, and had debt of $759.3~~our total indebtedness was $757.4 million consisting of borrowings under our First Lien Term Loan Facility of ~~$509.3~~$507.4 million and $250 million of our Senior Notes (as defined below). We have up to an additional $175 million of available borrowings under our ABL Facility and, subject to certain limitations and the satisfaction of certain conditions, we are also permitted to incur up to an aggregate of $200 million of additional borrowings under incremental facilities in our ABL Facility and First Lien Term Loan Facility. As of ~~December~~June 29, ~~2012,~~2013, availability under the ABL Facility subject to the borrowing base was ~~$167.4~~$141.2 million. We also have, and will continue to have, significant lease obligations. As of ~~December~~June 29, ~~2012,~~2013, our minimum annual rental obligations under long-term operating leases for the remainder of fiscal ~~2013~~2014 are ~~$12.3~~$40.0 million. These obligations are significant and could affect our ability to pursue significant growth initiatives, such as strategic acquisitions, in the future. However, we expect to be able to service these obligations from our net cash flow from operations, and we do not expect these obligations to negatively affect our expansion plans for the foreseeable future, including our plans to increase our store count, planned upgrades to our information technology systems and other planned capital expenditures.

Credit Facilities and Senior Notes

On January 13, 2012, in connection with the Merger, we obtained Credit Facilities provided by a syndicate of lenders arranged by Royal Bank of Canada as administrative agent, as well as other agents and lenders that are parties to these Credit Facilities. The Credit Facilities include (a) $175 million in commitments under the first lien based revolving credit facility (as amended, “ABL Facility”), and (b) $525 million in aggregate principal amount under the first lien term loan facility (as amended, “First Lien Term Loan Facility” and together with the ABL Facility, the “Credit Facilities”).

First Lien Term Loan Facility

The First Lien Term Loan Facility provides for $525 million of borrowings (which may be increased by up to $150.0 million in certain circumstances). All obligations under the First Lien Term Loan Facility are guaranteed by Parent and our direct wholly owned subsidiary, ~~(together,~~99 Cents Only Stores Texas, Inc. (“99 Cents Texas” and together (with Parent, the “Credit Facilities Guarantors”). In addition, the First Lien Term Loan Facility is secured by pledges of certain of our equity interests and equity interests of the Credit Facilities Guarantors.

We are required to make scheduled quarterly payments each equal to 0.25% of the original principal amount of the term loan (approximately $1.3 million), with the balance due on the maturity date, January 13, 2019. Borrowings under the First Lien Term Loan Facility bear interest at an annual rate equal to an applicable margin plus, at our option, (A) a Base Rate determined by reference to the highest of (a) the interest rate in effect determined by the administrative agent as “Prime Rate” (3.25% as of ~~December~~June 29, ~~2012)~~2013), (b) the federal funds effective rate plus 0.50% and (c) an adjusted Eurocurrency rate for one month (determined by reference to the greater of the Eurocurrency rate for the interest period multiplied by the Statutory Reserve Rate or ~~1.50~~1.50% per annum) plus 1.00%, or (B) an Adjusted Eurocurrency Rate. ~~The applicable margin used is 5.50% for Eurocurrency loans and 4.50% for base rate loans.~~

On April 4, 2012, we amended the terms of our existing seven-year $525 million First Lien Term Loan Facility, and incurred refinancing costs of $11.2 million. The amendment, among other things, decreased the applicable margin from London Interbank Offered Rate (“LIBOR”) plus 5.50% (or base rate plus 4.50%) to LIBOR plus 4.00% (or base rate plus 3.00%) and decreased the LIBOR floor from 1.50% to 1.25%. The maximum capital expenditures covenant in the First Lien Term Loan Facility was also amended to permit an additional $5 million in capital expenditures each year throughout the term of the First Lien Term Loan Facility.

The Company evaluated the proper accounting treatment for the amendment. Specifically, the Company evaluated the position of each lender under both the original First Lien Term Loan Facility and the amended First Lien Term Loan Facility. The CompanyWe determined that a portion of the refinancing transaction was to be accounted for as debt extinguishment, representing the outstanding principal amount of loans held by lenders under the original First Lien Term Loan Facility that were not lenders under the amended First Lien Term Loan Facility. In accordance with applicable guidance for debt modification and extinguishment, ~~the Company~~we recognized a $16.3 million loss on debt extinguishment in the first quarter of fiscal 2013 related to a portion of the unamortized debt issuance costs, unamortized original issue discount (“OID”) and refinancing costs incurred in connection with the amendment for the portion of the First Lien Term Loan Facility that was extinguished.

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As of ~~December~~June 29, ~~2012,~~2013, $5 million of the amount outstanding under the First Lien Term facility bore an interest charge of 6.25%, while the interest rate charged on the ~~First Lien Term Loan Facility~~remainder was 5.25% (1.25% Eurocurrency rate, plus the Eurocurrency loan margin of 4.00%). As of ~~December~~June 29, ~~2012,~~2013, amount outstanding under the First Lien Term Loan Facility was ~~$509.3~~$507.4 million.

Following the end of each fiscal year, we are required to prepay the First Lien Term Loan Facility in an amount equal to 50% of Excess Cash Flow (as defined in the First Lien Term Loan Facility agreement and with stepdowns to 25% and 0% based on achievement of specified total leverage ratios), minus the amount of certain voluntary prepayments of the First Lien Term Loan Facility and/or the ABL Facility during such fiscal year. The required Excess Cash Flow payment for fiscal 2013 was $3.3 million and was made in July 2013.

The First Lien Term Loan Facility includes restrictions on our ability and the ability of the Parent and certain of our subsidiaries to, incur or guarantee additional indebtedness, pay dividends on, or redeem or repurchase, our capital stock, make certain acquisitions or investments, materially change our business, incur or permit to exist certain liens, enter into transactions with affiliates or sell our assets to, ~~and~~ make capital expenditures or merge or consolidate with or into, another company. As of ~~December 29, 2012,~~March 30, 2013, we were in compliance with the terms of the First Lien Term Loan Facility. In June 2013, we failed to comply with the covenant that required delivery of audited financial statements for the fiscal year ended March 30, 2013 within 90 days of the completion of fiscal 2013 as required under the First Lien Term Loan Facility. On the date hereof and prior to the expiration of the applicable 30-day grace period under the First Lien Term Loan Facility, we delivered the required financial statements. As of the date hereof, we are in compliance with the applicable reporting obligations and other terms of the First Lien Term Loan Facility.

During the first quarter ~~ended June 30, 2012 (the first quarter~~ of fiscal ~~2013),~~2013, we entered into an interest rate cap agreement. The interest rate cap agreement limits our interest exposure on a notional value of $261.8 million to 3.00% plus an applicable margin of 4.00%. The term of the interest rate cap is from May 29, 2012 to November 29, 2013. We paid fees of $0.05 million to enter into the interest rate cap agreement.

During the first quarter of fiscal 2013, we entered into an interest rate swap agreement to limit the variability of cash flows associated with interest payments on our First Lien Term Loan Facility that result from fluctuations in the LIBOR rate. The swap limits our interest exposure on a notional value of $261.8 million to 1.36% plus an applicable margin of 4.00%. The term of the swap is from November 29, 2013 through May 31, 2016. The fair value of the swap on the trade date was zero as we neither paid nor received any value to enter into the swap, which was entered into at market rates. The fair value of the swap at ~~December~~June 29, ~~2012~~2013 was a liability of ~~$2.5~~$1.5 million.

ABL Facility

The ABL Facility provides for up to $175.0 million of borrowings (which may be increased by up to $50.0 million in certain circumstances), subject to certain borrowing base limitations. All obligations under the ABL Facility are guaranteed by ~~the Company, our immediate~~us, Parent and ~~our direct wholly owned subsidiary (together,~~99 Cents Texas (collectively, the “ABL Guarantors”). The ABL Facility is secured by substantially all of our assets and the assets of the ABL Guarantors.

Borrowings under the ABL Facility bear interest for an initial period until June 30, 2012 at an applicable margin plus, at our option, a fluctuating rate equal to (A) the highest of (a) the Federal Funds Rate plus 0.50%, (b) the interest rate in effect determined by the administrative agent as “Prime Rate” (3.25% at the date of the Merger), and (c) Adjusted Eurocurrency Rate (determined to be the LIBOR rate multiplied by the Statutory Reserve Rate) for an Interest Period of one (1) month plus 1.00% or (B) the Adjusted Eurocurrency Rate. The interest rate charged on borrowings under the ABL Facility from the date of the Merger until June 30, 2012 was 4.25% (the base rate (prime rate at 3.25%) plus the applicable margin of 1.00%). Thereafter, borrowings under the ABL Facility will have variable pricing and will be based, at our option, on (a) LIBOR plus an applicable margin to be determined (1.75% as of ~~December~~June 29, ~~2012)~~2013) or (b) the determined base rate (prime rate) plus an applicable margin to be determined (0.75% at ~~December~~June 29, ~~2012)~~2013) in each case based on a pricing grid depending on average daily excess availability for the most recently ended quarter.

In addition to paying interest on outstanding principal under the Credit Facilities, we were required to pay a commitment fee to the lenders under the ABL Facility on ~~unutilized~~unused commitments at a rate of 0.375% for the period from the date of the Merger until June 30, 2012. Thereafter, the commitment fee will be adjusted at the beginning of each quarter based upon the average historical excess availability of the prior quarter (0.50% for the quarter ended ~~December~~June 29, ~~2012)~~2013). We must also pay customary letter of credit fees and agency fees.

As of ~~December~~June 29, ~~2012~~2013 and March ~~31, 2012,~~30, 2013, we had no outstanding borrowings under the ABL Facility, outstanding letters of credit were $1.0 million and availability under the ABL Facility, subject to the borrowing base was ~~$167.4~~$141.2 million as of ~~December~~June 29, ~~2012.~~2013.

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The ABL Facility includes restrictions on our ability, and the ability of the Parent and certain of our subsidiaries to, incur or guarantee additional indebtedness, pay dividends on, or redeem or repurchase, our capital stock, make certain acquisitions or investments, materially change our business, incur or permit to exist certain liens, enter into transactions with affiliates or sell our assets to, make capital expenditures or merge or consolidate with or into, another company. The ABL Facility was amended on April 4, 2012 to permit an additional $5 million in capital expenditures for each year during the term of the ABL Facility. As of ~~December 29, 2012,~~March 30, 2013, we were in compliance with the terms of the ABL Facility.

~~Table~~ In June 2013, we failed to comply with the covenant that required delivery of ~~Contents~~audited financial statements for the fiscal year ended March 30, 2013 within 90 days of the completion of fiscal 2013 as required under the ABL Facility. On the date hereof and prior to the expiration of the applicable 30-day grace period under the ABL Facility, we delivered the required financial statements. As of the date hereof, we are in compliance with the applicable reporting obligations and other terms of the ABL Facility.

Senior Notes

On December 29, 2011, we issued $250 million aggregate principal amount of 11% Senior Notes that mature on December 15, 2019 (the “Senior Notes”). At March 31, 2012, the Senior Notes were guaranteed by each of our subsidiaries, 99 Cents Only Stores Texas, Inc., a Delaware corporation, and 99 Cents Only Stores, a Nevada corporation (“99 Cents Only Stores (Nevada)”). In September 2012, 99 Cents Only Stores (Nevada), our inactive wholly owned subsidiary, was dissolved. As of December 29, 2012, theThe Senior Notes are guaranteed by 99 Cents ~~Only Stores~~ Texas ~~Inc.~~ (the “Senior Notes Guarantor”).

In connection with the issuance of the Senior Notes, we entered into a registration rights agreement that required us to ~~conduct~~file an exchange offer registration statement, enabling holders to exchange the Senior Notes for registered notes with terms identical in all material respects to the terms of the Senior Notes, except the registered notes would be freely tradable. The exchange offer was closed on November 7, 2012.

Pursuant to the terms of the indenture governing the Senior Notes (the “Indenture”), we may redeem all or a part of the Senior Notes at certain redemption prices applicable based on the date of redemption.

The Senior Notes are (i) equal in right of payment with all of our and the Senior Notes Guarantor’s existing and future senior indebtedness; (ii) effectively junior to our and the Senior Notes Guarantor’s existing and future secured indebtedness, to the extent of the value of the interest of the holders of that secured indebtedness in the assets securing such indebtedness; (iii) unconditionally guaranteed on a senior unsecured unsubordinated basis by the Senior Notes Guarantor; and (iv) junior to the indebtedness or other liabilities of our subsidiaries that are not guarantors. We are not required to make any mandatory redemptions or sinking fund payments, and may at any time or from time to time purchase notes in the open market.

The Indenture contains covenants that, among other things, limit our ability and the ability of certain of our subsidiaries to incur or guarantee additional indebtedness, create or incur certain liens, pay dividends or make other restricted payments, incur restrictions on the payment of dividends or other distributions from our restricted subsidiaries, make certain investments, transfer or sell assets, engage in transactions with affiliates, or merge or consolidate with other companies or transfer all or substantially all of our assets.

As of ~~December~~June 29, ~~2012,~~2013, we were in compliance with the terms of the Indenture.

~~Cash Flows~~Former Executive Put Rights

~~Net cash provided by operations during~~Pursuant to the ~~first three quarters of fiscal 2013~~employment agreements between us and ~~2012 was $52.7 million~~Messrs. Eric Schiffer, Jeff Gold and $44.1 million, respectively, consisting primarily of $75.5 million and $68.7 million, respectively, of net income adjusted for non-cash items. During the first three quarters of fiscal 2013, we used cash of $23.7 million from working capital and provided cash of $0.8 million for other activities. During the first three quarters of fiscal 2012, we used cash of $25.4 million for working capital and provided cash of $0.7 million of other activities. Net cash used by working capital activities for the first three quarters of fiscal 2013 primarily reflects an increaseHoward Gold, in inventories and income taxes receivable and decreases in accrued expenses and workers’ compensation liability, partially offset by an increase in accounts payable and a decrease in accounts receivable. Net cash used by working capital activities for the first three quarters of fiscal 2012 primarily reflects an increase in inventories and decrease in workers’ compensation liability.

Net cash used by investing activities during the first three quarters of fiscal 2013 was $29.5 million. Net cash used in investing activities during the first three quarters of fiscal 2012 was $34.1 million. In the first three quarters of fiscal 2013 and fiscal 2012, we used $44.4 million and $33.2 million, respectively, for the purchase of property and equipment. Property purchases in the third quarter of fiscal 2013 included the acquisition for $13.5 million of a 1.6 acre siteconnection with two adjacent buildings and parking lots. The site is in a high visibility commercial area of west Los Angeles, California that we plan to develop into one of our stores. We purchased $1.5 million of investments and received proceeds of $4.4 milliontheir separation from the ~~sales~~Company, for a period of one year following such separation, each executive has a right to require Parent to repurchase the shares of Class A and ~~maturities~~Class B Common Stock owned by such executive (a “put right”) at the greater of ~~investments during~~(i) $1,000 per combined share of Class A and Class B Common Stock less any distributions made with respect to such shares and (ii) the ~~first three quarters~~fair market value of ~~fiscal 2013. We received proceeds~~such shares as of ~~$12.0 million from~~ the ~~disposal~~date the executive exercises the put right. The put right applies to the lesser of (i) 20,000 shares of each of Class A and ~~sale of fixed assets during the first three quarters of fiscal 2013. We purchased $50.9 million of investments~~Class B Common Stock and received proceeds of $50.0 million from the sales and maturities of investments during the first three quarters of fiscal 2012. We received proceeds of less than $0.1 million from the disposal and sale of fixed assets during the first three quarters of fiscal 2012.

Net cash used by financing activities during the first three quarters of fiscal 2013 was $15.2 million, which is comprised primarily of payment of debt issuance costs of $11.2 million and repayments of debt of $3.9 million. Net cash provided by financing activities during the first three quarters of fiscal 2012 was $2.9 million, which is comprised primarily of $3.3(ii) $12.5 million in ~~proceeds received from~~value (unless Parent agrees to purchase a higher value). If exercising the ~~exercise of stock options, partially offset by payments of $1.7 million used to satisfy~~put right is prohibited (e.g., under the ~~employee tax obligations related to the issuance of performance stock units as part of the our equity incentive plan.~~

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We estimate that total capital expenditures in fiscal year 2013 will be approximately $68.5 million representing approximately $42 million for leasehold improvements, fixtures and equipment for new and existing stores, approximately $13.5 million for the acquisition of the west Los Angeles property, approximately $9 million for information technology projects and approximately $4 million for other capital projects. We intend to fund our liquidity requirements in fiscal 2013 from net cash provided by operations, short-term investments and cash on hand, andFirst Lien Term Loan Credit Facility, the ABL Facility ~~if necessary.~~

~~Senior Management Changes~~and the Indenture), then the put right is extended up to three additional years until Parent is no longer prohibited from repurchasing the shares. If, during the four years following termination, Parent is at no time able to make the required payments, the put right expires and is deemed unexercised. For payout after the first year, the put right is only at the fair market value as of the date the exercising the put right.

On January 23, 2013, Eric Schiffer, Jeff Gold and Howard Gold separated from their positions as Chief Executive Officer, Chief Administrative Officer and Executive Vice President of Special Projects, respectively, of the Company and ~~the~~ Parent, ~~(and together with the Company, the “Corporation”),~~ and as directors of the Company and Parent. ~~Conditional upon each~~As such, for a period of Messrs. Schiffer, Jeff Gold and Howard Gold executing and not revoking a release of claims against the Corporation and certain of its affiliates, each of Messrs. Schiffer, Jeff Gold and Howard Gold will receive benefits commensurable with the benefits payable to him upon a termination without cause under his Employment Agreement, effective January 13, 2012, with the Company and Parent.

~~Effective~~one year from January 23, 2013, each executive may exercise the ~~Board~~put right as described above. The fair value of ~~Directors~~these put rights was estimated using a binomial model to be $4.9 million as of June 29, 2013 and $6.5 million as of March 30, 2013.

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Cash Flows

Operating Activities

	For the First Quarter Ended
	June 29, 2013			June 30, 2012
	(amounts in thousands)
Cash flows from operating activities:
Net (loss) income	$	3,164		$	(4,891	)
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation	15,326			13,752
Amortization of deferred financing costs and accretion of OID	1,102			1,001
Amortization of intangible assets	442			441
Amortization of favorable/unfavorable leases, net	141			47
Loss on extinguishment of debt	—			16,346
Loss on disposal of fixed assets	52			259
(Gain) loss on interest rate hedge	(322		)	296
Stock-based compensation	(1,571		)	792

Changes in assets and liabilities associated with operating activities:
Accounts receivable	(32		)	1,348
Inventories	(9,115		)	4,139
Deposits and other assets	1,015			(2,517		)
Accounts payable	33,860			6,946
Accrued expenses	(1,698		)	(6,753		)
Accrued workers’ compensation	(1,133		)	(679		)
Income taxes	1,531			(3,086		)
Deferred rent	1,847			1,927
Other long-term liabilities	(845		)	(50		)

Net cash provided by operating activities	$	43,764		$	29,318

Cash provided by operating activities during the ~~Company~~first quarter of fiscal 2014 was $43.8 million and ~~Parent elected Richard Anicetti~~consisted of (i) net income of $3.2 million; (ii) net income adjustments for depreciation and ~~Michael Fung~~other non-cash items of $15.2 million; (iii) an increase in working capital activities of $24.7 million; and (iv) an increase in other activities of $0.7 million, primarily due to ~~serve as Interim President~~an increase in deferred rent partially offset by a decrease other long-term liabilities, and ~~Chief Executive Officer~~an increase in other long-term assets. The increase in working capital activities was primarily due to an increase in accounts payable (mainly due to an increase in book overdraft balance of $21.0 million), which was partially offset by an increase in inventories and ~~Interim Executive Vice President~~decrease in other accrued expenses.

Cash provided by operating activities during the first quarter of fiscal 2013 was $29.3 million and ~~Chief Administrative Officer~~consisted of (i) net loss of $4.9 million; (ii) net loss adjustments for depreciation and other non-cash items of $32.9 million; (iii) a decrease in working capital activities of $0.2 million; and (iv) an increase in other activities of $1.5 million, primarily due to increase in deferred rent. The decrease in working capital activities was primarily due to a decrease in accrued expenses and increase in income taxes receivable partially offset by an increase in accounts payable and decreases in inventories and accounts receivable.

Investing Activities

	For the First Quarter Ended
	June 29, 2013			June 30, 2012
	(amounts in thousands)
Cash flows from investing activities:
Purchases of property and equipment	$	(16,594	)	$	(9,025	)
Proceeds from sale of fixed assets	11			11,505
Purchases of investments	—			(384		)
Proceeds from sale of investments	—			1,416

Net cash (used in) provided by investing activities	$	(16,583	)	$	3,512

Capital expenditures in the ~~Corporation, respectively. Mr. Anicetti is currently~~first quarter of fiscal 2014 consisted of leasehold improvements, fixtures and equipment for new store openings, information technology projects and other capital projects of $16.6 million.

Capital expenditures in the first quarter of fiscal 2013 consisted of leasehold improvements, fixtures and equipment for new store openings, information technology projects and other capital projects of $9.0 million. Proceeds from sale of fixed assets primarily relate to sale-leaseback transactions and sale of held for sale warehouse. During the first quarter of fiscal 2013, we sold a ~~member~~portion of our investments.

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We estimate that total capital expenditures in fiscal year 2014 will be approximately $69 million and relate primarily to approximately $44 million for leasehold improvements, fixtures and equipment for new and existing stores, approximately $14 million for information technology projects and approximately $11 million for other capital projects. We intend to fund our liquidity requirements in fiscal 2014 from net cash provided by operations, cash on hand, and the ~~Board~~ABL Facility, if necessary.

Financing Activities

	For the First Quarter Ended
	June 29, 2013			June 30, 2012
	(amounts in thousands)
Cash flows from financing activities:
Payments of debt	$	(1,310	)	$	(1,309	)
Payments of capital lease obligation	(21		)	(21		)
Payment of debt issuance costs	—			(11,230		)

Net cash used in financing activities	$	(1,331	)	$	(12,560	)

Net cash used in financing activities in the first quarter of ~~Directors~~fiscal 2014 was comprised primarily of repayments of debt.

Net cash used in financing activities in the ~~Company~~first quarter of fiscal 2013 was comprised primarily of payment of debt issuance costs and ~~Parent.~~repayments of debt.

Off-Balance Sheet Arrangements

As of ~~December~~June 29, ~~2012,~~2013, we had no off-balance sheet arrangements.

Contractual Obligations

A summary of our contractual obligations as of March ~~31, 2012~~30, 2013 is provided in our Annual Report on Form 10-K for the ~~Registration Statement.~~fiscal year ended March 30, 2013. During the first ~~three quarters~~quarter of fiscal ~~2013,~~2014, except as discussed below, there ~~was~~were no material ~~change~~changes in our contractual obligations previously disclosed.

In April 2013, we entered into a 15-year lease for a cold warehouse facility located in Los Angeles, California. The lease expires in December 2028 and total minimum lease payments under this lease agreement will be approximately $29 million.

Lease Commitments

We lease various facilities under operating leases (except for one location that is classified as a capital lease), which will expire at various dates through fiscal year 2031. Most of the lease agreements contain renewal options and/or provide for fixed rent escalations or increases based on the Consumer Price Index. Total minimum lease payments under each of these lease agreements, including scheduled increases, are charged to operations on a straight-line basis over the term of each respective lease. Most leases require us to pay property taxes, maintenance and insurance. Rental expense charged to operations for the ~~third~~first quarter of fiscal 2014 and 2013 ~~and 2012~~ was ~~$15.7~~$16.3 million and ~~$14.0 million, respectively. Rental expense charged to operations for the first three quarters of fiscal 2013 and 2012 was $46.0 million and $41.8~~$15.2 million, respectively. We typically seek leases with a five-year to ten-year term and with multiple five-year renewal options. A large majority of our store leases were entered into with multiple renewal periods, which are typically five years and occasionally longer.

Seasonality and Quarterly Fluctuations

We have historically experienced and expect to continue to experience some seasonal fluctuations in our net sales, operating income, and net income. The highest sales periods for us are the Christmas, Halloween and Easter seasons. A proportionately greater amount of our net sales and operating and net income is generally realized during the quarter ended on or near December 31. Our quarterly results of operations may also fluctuate significantly as a result of a variety of other factors, including the timing of certain holidays such as Easter, the timing of new store openings and the merchandise mix.

During fiscal 2013 there were two Easter selling seasons that occurred early in the first quarter of fiscal 2013 and late in the fourth quarter of 2013. There is no Easter selling season in either the first quarter of fiscal 2014 or in fiscal 2014.

New Authoritative Pronouncements

Information regarding new authoritative pronouncements is contained in Note 1713 to our Unaudited Consolidated Financial Statements for the quarter ended ~~December~~June 29, ~~2012,~~2013, which is incorporated herein by this reference.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to interest rate risk for our debt ~~borrowings and short-term investments.~~borrowings.

Our primary interest rate exposure relates to outstanding principal amounts under the Credit Facilities. As of ~~December~~June 29, ~~2012,~~2013, we had variable rate borrowings of ~~$509.3~~$507.4 million under the First Lien Term Loan Facility and no borrowings under the ABL Facility. The maximum commitment under the ABL Facility was $175 million on ~~December~~June 29, ~~2012.~~2013. The Credit Facilities provide interest rate options based on certain indices as described in Note 75 to our Unaudited Consolidated Financial Statements for the quarter ended ~~December~~June 29, ~~2012,~~2013, which is incorporated herein by this reference.

During the first quarter of fiscal 2013, we entered into an interest rate swap agreement to limit the variability of cash flows associated with interest payments on the First Lien Term Loan Facility that result from fluctuations in the LIBOR rate. The swap limits our interest exposure on a notional value of $261.8 million to 1.36% plus an applicable margin of 4.00%. The term of the swap is from November 29, 2013 through May 31, 2016. The fair value of the swap on the trade date was zero as we neither paid nor received any value to enter into the swap, which was entered into at market rates. As of ~~December~~June 29, ~~2012,~~2013, the fair value of the interest rate swap was ~~recorded as~~ a ~~non-current~~ liability of ~~$2.5~~$1.5 million.

In addition, during the first quarter of fiscal 2013, we entered into an interest rate cap agreement. The interest rate cap agreement limits our interest exposure on a notional value of $261.8 million to 3.00% plus an applicable margin of 4.00%. The term of the interest rate cap is from May 29, 2012 to November 29, 2013. We paid $0.05 million to enter into the interest rate cap agreement.

A change in interest rates on our variable rate debt impacts our pre-tax earnings and cash flows. Based on our variable rate borrowing levels and interest rate derivatives outstanding, the annualized effect of a 1% increase in applicable interest rates would have resulted in a reduction of our pre-tax earnings and cash flows of less than $0.1 million for the three months ended ~~December~~June 29, ~~2012.~~

At December 29, 2012, we had $0.5 million in securities maturing at various dates through April 2042. We intend to liquidate all available for sale securities within one year. At December 29, 2012, our investment portfolio contains auction rate securities, and therefore, should not bear any interest risk due to early disposition. At December 29, 2012, the fair value of our investments approximated the carrying value.2013.

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Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

~~The Company~~Our management, with the participation of our Interim Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of ~~its~~our disclosure controls and procedures, as such term is defined under Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this ~~Report,~~Report. Disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed in the reports that we file or submit under the ~~supervision~~Securities Exchange Act of 1934, as amended, has been appropriately recorded, processed, summarized and ~~with the participation of the Company’s~~reported on a timely basis and are effective in ensuring that such information is accumulated and communicated to our management, including our Interim Chief Executive Officer and Chief Financial Officer. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives and management isOfficer, as appropriate to allow timely decisions regarding required ~~to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.~~disclosure. Based on ~~this~~such evaluation, ~~the Company’s~~our Interim Chief Executive Officer and Chief Financial Officer ~~each~~have concluded that as of ~~December~~June 29, ~~2012, the Company’s~~2013, our controls and procedures were not effective due to the material ~~weakness~~weaknesses related to the accounting for ~~debt extinguishment.~~inventory valuation and stock-based compensation.

~~Remediation of a~~ Material ~~Weakness~~Weaknesses in Internal Control Over Financial Reporting In Process of Being Remediated

Stock-based Compensation

As ~~more fully~~previously described in ~~Note 19~~our Annual Report on Form 10-K for the fiscal year ended March 30, 2013, during the fourth quarter of fiscal 2013, we identified a material weakness in our internal controls over financial reporting related to accounting for stock-based compensation. We did not correctly evaluate the accounting treatment for certain share repurchase rights for Parent options granted to our ~~Consolidated Financial Statements on Form 10-Q/A~~executive officers and employees that resulted in no stock-based compensation expense for these grants. In addition, we did not correctly evaluate the accounting treatment for former executive put rights that became exercisable by the former executives in the fourth quarter ~~ended September 29, 2012 (as filed with the SEC on February 12, 2013),~~of fiscal 2013. We believe that the material weakness ~~resulted in an underreporting of a $16.3 million loss on debt extinguishment related~~was due to the ~~portion~~complex and non-routine nature of the unamortized debt issuance costs, unamortized OID and refinancing costs incurred with the repricing for the portion of the original First Lien Term Loan Facility that was extinguished, in the Company’s interim unaudited financial statements for the periods ended June 30, 2012 and September 29, 2012.these equity arrangements.

In an effort to remediate the identified material weakness, ~~the Company~~we initiated and implemented the following series of measures:

· education and training of personnel on the accounting treatment for ~~debt modification and extinguishment;~~stock-based complex financial instruments;

· ~~detailed review~~redesign of procedures to enhance identification, capture and recording of contractual terms included in complex equity arrangements, including consideration for the need of consultation with third party subject matter and valuation experts.

Based on the implementation of the ~~debt modification~~above measures, management believes that the above mentioned material weakness will be remediated during the second quarter of fiscal 2014.

Retail Store Level Inventory Valuation

As previously reported in our Annual Report on Form 10-K for the fiscal year ended March 30, 2013, during the fourth quarter of fiscal 2013, we identified a material weakness in our internal controls over financial reporting related to our inventory valuation methodology. As more fully described in Note 1 to our Consolidated Financial Statements included in Form 10-K for the year ended March 30, 2013, we determined that the inventory valuation methodology used in prior periods resulted in an accounting error that was immaterial to prior periods. In connection with correcting this prior period error, we identified an overstatement in total inventory of $13.3 million at the Merger date, which amount has accumulated over prior periods and ~~extinguishment;~~we determined that our related controls were not adequately designed to yield the correct cost complement for valuing inventory. We have determined that this overstatement constituted a material weakness in our internal controls over financial reporting.

In an effort to remediate the identified material weakness, we initiated and implemented the following series of measures:

·documentation of the new retail store level physical inventory preparation and counting procedures, including individual product bar code scanning

· ~~review~~education and training of ~~debt modification~~appropriate Company and ~~extinguishment transactions~~third party personnel on retail store level physical inventory by ~~a qualified person;~~SKU including:

·preparation and counting procedures

· improvement of our communication with the administrative agent under the First Lien Term Loan Facility, including notification of the composition of the lenders party to the First Lien Term Loan Facility.valuation and accounting procedures

~~The Company is~~·development, review and approval of calculations specific to costing inventory by applying estimated cost compliment by merchandise category.

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Moreover, in addition to the foregoing remediation measures, the process of taking physical inventories by SKU for our retail stores during the second half of fiscal 2013 enabled us to more precisely value specific products during physical inventory counts and estimate cost complement by merchandise category, which in turn enabled a more accurate estimate of cost of store physical inventories.

Based on the foregoing processes and remediation measures, management believes that the above mentioned material weakness will be remediated during the third quarter of fiscal 2014.

We are committed to a strong internal control environment and will continue to review the effectiveness of ~~its~~our internal controls over financial reporting and other disclosure controls and procedures.

~~Based on the implementation of the above measures, the above mentioned material weakness has been remediated as of the date of filing of this Form 10-Q.~~

Changes in Internal Control ~~over~~Over Financial Reporting

Except as described above, ~~the Company~~we did not make any changes that materially affected or are reasonably likely to materially affect ~~its~~our internal control over financial reporting.

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PART II OTHER INFORMATION

Item 1. Legal Proceedings

Information regarding legal proceedings is contained in Note 1310 to our Unaudited Consolidated Financial Statements for the quarter ended ~~December~~June 29, ~~2012~~2013 under the heading “Legal Matters”, which is incorporated herein by reference.

Item 1A. Risk Factors

Reference is made to Item 1A. Risk Factors, in the ~~Registration Statement~~Annual Report on Form 10-K for the fiscal year ended March 30, 2013 for information regarding the most significant factors affecting ~~the Company’s~~our operations. ~~Except as set forth below, as~~As of ~~December~~June 29, ~~2012,~~2013, there have been no material changes to the Risk Factors disclosed in our Annual Report on Form 10-K for the ~~Registration Statement.~~fiscal year ended March 30, 2013.

~~The following replaces the header and corresponding risk factor included in the Registration Statement:~~

~~We rely heavily on our executive management team and changes in our management team could adversely affect our business strategy, performance and results of operations.~~

We have historically relied heavily on the continued service of our executive management team. Effective January 23, 2013, Eric Schiffer, Jeff Gold and Howard Gold separated from their positions as Chief Executive Officer, Chief Administrative Officer and Executive Vice President of Special Projects, respectively. Richard Anicetti and Michael Fung have been appointed Interim President and Chief Executive Officer and Interim Executive Vice President and Chief Administrative Officer, respectively; however, we have not yet identified permanent replacements for our former executives. Competition for skilled and experienced management personnel is intense, and we may be unable to identify, hire and effectively integrate new members of management into senior positions on our anticipated timeframe or at all, which could disrupt our business. Moreover, these and any other changes in management could result in changes to, or affect the execution of, our business strategy, which could adversely affect our performance and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information

None

Item 6. Exhibits

Exhibit No.		Description

3.1		Amended and Restated Articles of Incorporation of 99¢ Only Stores. (1)

3.2		Amended and Restated Bylaws of 99¢ Only Stores. (1)

~~10.40~~10.1		Amendment, dated as of ~~December 21, 2012,~~June 12, 2013, to the Lease for ~~13023 Hawthorne Boulevard, Hawthorne,~~6101 Wilshire Blvd, Los Angeles, California dated January 13, 2012, by and between the Registrant as Tenant and HKJ Gold, Inc. as Landlord.*

~~10.41~~		Amendment, dated as of December 21, 2012, to the Lease for 6161 Atlantic Boulevard, Maywood, California, dated January 13, 2012, by and between the Registrant as Tenant and 6135-6161 Atlantic Boulevard Partnership as Landlord.*

~~10.42~~		Amendment, dated as of December 21, 2012, to the Lease for 14139 Paramount Boulevard, Paramount, California, dated January 13, 2012, by and between the Registrant as Tenant and David Gold and Sherry Gold, Trustees of the Gold Revocable Trust Dated 10/26/2005 as Landlord.*

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~~10.43~~		~~Amendment, dated as of December 21, 2012, to the Lease for 6122-6130 Pacific Boulevard, Huntington Park, California, dated January 13, 2012,~~ by and between the Registrant as Tenant and Au Zone Investment #2 ~~L.P.~~ as Landlord.*

~~10.44~~		Amendment, dated as of December 21, 2012, to the Lease for 14901 Hawthorne Boulevard, Lawndale, California, dated January 13, 2012, by and between Au Zone Investment #2, L.P. as Landlord and the Registrant as Tenant.*

~~10.45~~		Amendment, dated as of December 21, 2012, to the Lease for 5599 Atlantic Avenue, North Long Beach, California, dated January 13, 2012, by and between the Registrant as Tenant and HKJ Gold, Inc. as Landlord.*

~~10.46~~		Amendment, dated as of December 21, 2012, to the Lease for 1514 North Main Street, Santa Ana, California, dated as of January 13, 2012, by and between the Registrant as Tenant and Howard Gold, Jeff Gold, Eric J. Schiffer and Karen R. Schiffer as Landlord.*

~~10.47~~		Amendment, dated as of December 21, 2012, to the Lease for 6121 Wilshire Boulevard, Los Angeles, California, dated as of January 13, 2012, by and between the Registrant as Tenant and HKJ Gold, Inc. as Landlord.*

~~10.48~~		Amendment, dated as of December 21, 2012, to the Lease for 8625 Woodman Avenue, Arleta, California, dated as of January 13, 2012, by and between the Registrant as Tenant and Au Zone Investment #2, L.P. as Landlord.*

~~10.49~~		Amendment, dated as of December 21, 2012, to the Lease for 2566 East Florence Avenue, Walnut Park, California, dated as of January 13, 2012, by and between HKJ Gold, Inc. as Landlord and the Registrant as Tenant.*

~~10.50~~		Amendment, dated as of December 21, 2012, to the Lease for 3420 West Lincoln Avenue, Anaheim, California, dated as of January 13, 2012, by and between the Registrant as Tenant and HKJ Gold, Inc. as Landlord.*

~~10.51~~		Amendment, dated as of December 21, 2012, to the Lease for 12123-12125 Carson Street, Hawaiian Gardens, California, dated as of January 13, 2012, by and between the Registrant as Tenant and Au Zone Investment #2, L.P., as Landlord.*

~~10.52~~		Amendment, dated as of December 21, 2012, to the Lease for 2606 North Broadway, Los Angeles, California, dated as of January 13, 2012, by and between HKJ Gold, Inc. as Landlord and the Registrant as Tenant.*

31.1		Certification of Chief Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.*

31.2		Certification of Chief Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.*

32.1		Certification of Chief Executive Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended.**

32.2		Certification of Chief Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended.**

101.INS		XBRL Instance Document***

101.SCH		XBRL Taxonomy Extension Schema***

101.CAL		XBRL Taxonomy Extension Calculation Linkbase***

101.DEF		XBRL Taxonomy Extension Definition Linkbase***

101.LAB		XBRL Taxonomy Extension Label Linkbase***

~~Table of Contents~~


101.PRE		XBRL Taxonomy Extension Presentation Linkbase***

*	~~Filed herewith.~~
**	~~Furnished herewith.~~
~~***~~	Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under those sections.

~~(1)~~	* Filed herewith. Furnished herewith. * Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under those sections. (1) Incorporated by reference from the registrant’s Current Report on Form 8-K as filed with Securities and Exchange Commission on January 13, 2012.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this ~~report~~Report to be signed on its behalf by the undersigned thereunto duly authorized.

	99¢ ONLY STORES
Date: ~~February 12,~~August 9, 2013	By:	/s/ Frank Schools
	Frank Schools
	Senior Vice President, Chief Financial Officer and Treasurer

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EXHIBIT INDEX

Exhibit No.		Description
3.1		Amended and Restated Articles of Incorporation of 99¢ Only Stores. (1)

3.2		Amended and Restated Bylaws of 99¢ Only Stores. (1)

10.1		Amendment, dated as of June 12, 2013, to the Lease for 6101 Wilshire Blvd, Los Angeles, California by and between the Registrant as Tenant and Au Zone Investment #2 as Landlord.*

31.1		Certification of Chief Executive Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.*

31.2		Certification of Chief Financial Officer as required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.*

32.1		Certification of Chief Executive Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended.**

32.2		Certification of Chief Financial Officer as required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended.**

101.INS		XBRL Instance Document***

101.SCH		XBRL Taxonomy Extension Schema***

101.CAL		XBRL Taxonomy Extension Calculation Linkbase***

101.DEF		XBRL Taxonomy Extension Definition Linkbase***

101.LAB		XBRL Taxonomy Extension Label Linkbase***

101.PRE		XBRL Taxonomy Extension Presentation Linkbase***

* Filed herewith.

** Furnished herewith.

*** Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under those sections.

(1) Incorporated by reference from the registrant’s Current Report on Form 8-K as filed with Securities and Exchange Commission on January 13, 2012.

Sources:
Proceeds from First Lien Term Loan Facility	$	525,000
Proceeds from Senior Notes	250,000
Proceeds from ABL Facility	10,000
Proceeds from equity contributions	535,900
Rollover equity from the Rollover Investors	100,000
Cash on hand	212,575

Total sources	$	1,633,475

Uses:
Equity purchase price	$	1,577,563
OID and other debt issuance costs	41,911
Cash to balance sheet	14,001

Total uses	$	1,633,475

Purchase price	$	1,577,563
Less: net assets acquired	741,017
Excess of purchase price over book value of net assets acquired	$	836,546

Write up (down) of tangible assets:
Property and equipment	$	87,863
Land and buildings	63,549
Assets held for sale	(933		)
Deferred rent	(425		)
Leasing commission	(5,224		)

Acquisition-related intangible assets:
Trade name (indefinite life)	$	410,000
Trademarks (20 year life)	1,822
Bargain Wholesale customer relationships	20,000
Fair market value of favorable leases	46,723
Acquisition-related intangibles	478,545

Write down/(up) of liabilities:
Deferred rent and lease incentive revaluation	10,742
Fair market value of unfavorable leases	(19,836		)

Deferred income taxes:
Deferred income taxes	$	(249,485	)

Residual goodwill (1)	$	471,750

Total allocated excess purchase price	$	836,546

	As of December 29, 2012								As of March 31, 2012
	Amortization Period (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Amortization Period (Years)	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Indefinite lived intangible assets:
Goodwill		$	471,750	$	—		$	471,750		$	471,513	$	—		$	471,513
Trade name		410,000		—			410,000			410,000		—			410,000

Total indefinite lived intangible assets		$	881,750	$	—		$	881,750		$	881,513	$	—		$	881,513

Finite lived intangible assets:
Trademarks	20	$	2,000	$	(96	)	$	1,904	20	$	2,000	$	(21	)	$	1,979
Bargain Wholesale customer relationships	12	20,000		(1,603		)	18,397		12	20,000		(353		)	19,647
Favorable leases	2 to 17	46,723		(4,146		)	42,577		2 to 17	46,723		(915		)	45,808

Total finite lived intangible assets		68,723		(5,845		)	62,878			68,723		(1,289		)	67,434

Total goodwill and other intangible assets		$	950,473	$	(5,845	)	$	944,628		$	950,236	$	(1,289	)	$	948,947

	December 29, 2012
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for sale:
Auction rate securities	$	471	$	5	$	—	$	476
Total	$	471	$	5	$	—	$	476

Reported as:
Short-term investments							$	476
Long-term investments in marketable securities							—
Total							$	476

	March 31, 2012
	Cost or Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Available for sale:
Money market funds	$	1,627	$	—	$	—	$	1,627
Auction rate securities	1,965		39		—		2,004
Total	$	3,592	$	39	$	—	$	3,631

Reported as:
Short-term investments							$	3,631
Long-term investments in marketable securities							—
Total							$	3,631

	Lease Termination Cost
Remaining obligations as of March 31, 2012	$	1,079
Accretion expenses	130
Cash payments	(517		)
Remaining obligations as of December 29, 2012	$	692