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
For the quarterly period ended August 3, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission file number 0-14970
COST PLUS, INC.
(Exact name of registrant as specified in its charter)
California 94-1067973
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
201 Clay Street, Oakland, California 94607
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (510) 893-7300
Former name, former address and former fiscal year, N/A
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
----- -----
The number of shares of Common Stock, with $0.01 par value, outstanding on
September 6, 1996 was 8,072,753.
COST PLUS, INC.
FORM 10-Q
FOR THE QUARTER ENDED AUGUST 3, 1996
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Balance Sheets as of August 3, 1996 (unaudited),
February 3, 1996 and July 22, 1995 (unaudited) 3
Statements of Operations (unaudited)
for the thirteen and twenty-six weeks ended
August 3, 1996 and July 22, 1995 4
Statements of Cash Flows (unaudited)
for the twenty-six weeks ended August 3, 1996
and July 22, 1995 5
Notes to Condensed Consolidated Financial Statements 6-7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-9
PART II. OTHER INFORMATION
ITEM 5. Other Information 10
ITEM 6. Exhibits and Reports on Form 8-K 10
SIGNATURE PAGE 11
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COST PLUS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
AUGUST 3, FEBRUARY 3, JULY 22,
1996 1996 1995
(UNAUDITED) (SEE NOTE 1) (UNAUDITED)
----------- ------------ -----------
ASSETS
Current assets:
Cash and cash equivalents $ 1,314 $ 2,181 $ 2,040
Merchandise inventories 41,231 35,213 32,805
Other current assets 2,060 1,960 2,001
-------- -------- --------
Total current assets 44,605 39,354 36,846
Property and equipment, net 58,026 58,300 56,033
Other assets 8,222 8,332 8,322
-------- -------- --------
Total assets $110,853 $105,986 $101,201
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 9,583 $ 9,422 $ 9,158
Income taxes payable 677 3,359 --
Accrued compensation 5,047 5,373 3,426
Revolving line of credit 2,909 3,165 10,503
Other current liabilities 6,718 6,933 5,683
-------- -------- --------
Total current liabilities 24,934 28,252 28,770
Capital lease obligations 14,424 14,633 14,801
Note payable to related parties -- 19,895 19,895
Deferred income taxes 4,455 4,455 4,646
Other long-term obligations 2,228 2,392 2,149
Shareholders' equity:
Preferred stock, $.01 par value: 5,000,000 shares
authorized at August 3, 1996; none issued and outstanding -- -- --
Common stock, $.01 par value: 30,000,000, 6,819,931
and 6,819,931 authorized; issued and outstanding
8,071,449, 5,906,264 and 5,821,928 81 59 58
Additional paid-in capital 90,788 61,765 61,722
Deficit (26,057) (25,465) (30,840)
-------- -------- --------
Total shareholders' equity 64,812 36,359 30,940
-------- -------- --------
Total liabilities and shareholders' equity $110,853 $105,986 $101,201
======== ======== ========
See notes to condensed consolidated financial statements.
3
COST PLUS, INC.
STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNT, UNAUDITED)
Thirteen Weeks Ended Twenty-Six Weeks Ended
-------------------- ----------------------
August 3, July 22, August 3, July 22,
1996 1995 1996 1995
--------- -------- --------- --------
Net sales $39,986 $33,083 $79,113 $64,957
Cost of sales and occupancy 25,774 21,457 51,326 42,581
------- ------- ------- -------
Gross profit 14,212 11,626 27,787 22,376
Selling, general and administrative
expenses 13,511 11,442 26,566 22,175
Preopening store expenses 556 527 840 610
------- ------- ------- -------
Income (loss) from operations 145 (343) 381 (409)
Interest expense 479 1,217 1,384 2,233
------- ------- ------- -------
Loss before income taxes (334) (1,560) (1,003) (2,642)
Benefit from income taxes (137) (640) (411) (1,084)
------- ------- ------- -------
Net loss $ (197) $ (920) $ (592) $(1,558)
======= ======= ======= =======
Net loss per common and common
equivalent share $ (.02) $ (.15) $ (.08) $ (.25)
======= ======= ======= =======
Weighted average common and common
equivalent shares outstanding 8,511 6,153 7,733 6,153
======= ======= ======= =======
See notes to condensed consolidated financial statements.
4
COST PLUS, INC.
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
(IN THOUSANDS, UNAUDITED)
Twenty-Six Weeks Ended
----------------------
August 3, July 22,
1996 1995
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (592) $(1,558)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,285 2,671
Deferred income taxes -- (1,031)
Change in assets and liabilities:
Merchandise inventories (6,018) (3,679)
Other assets (242) 142
Accounts payable 512 (1,558)
Income taxes payable (2,682) (1,841)
Other liabilities (746) (1,374)
------- -------
Net cash used in operating activities (6,483) (8,228)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (3,110) (3,011)
------- -------
Net cash used in investing activities (3,110) (3,011)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings under revolving line of credit (256) 10,503
Payment of note payable to related parties (19,895) --
Principal payments on capital lease obligations (168) (130)
Proceeds from issuance of stock, net of related costs 29,045 (409)
------- -------
Net cash provided by financing activities 8,726 9,964
------- -------
Net decrease in cash and cash equivalents (867) (1,275)
Cash and cash equivalents:
Beginning of period 2,181 3,315
------- -------
End of period $ 1,314 $ 2,040
======= =======
See notes to condensed consolidated financial statements.
5
COST PLUS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN AND TWENTY-SIX WEEKS ENDED AUGUST 3, 1996 AND JULY 22, 1995
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared from the records of the Company without audit and, in the opinion of
management, include all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position at August 3, 1996
and July 22, 1995; the interim results of operations for the thirteen and
twenty-six weeks ended August 3, 1996 and July 22, 1995; and changes in cash
flows for the twenty-six weeks then ended. The balance sheet at February 3,
1996, presented herein, has been derived from the audited financial statements
of the Company for the fiscal year then ended.
Effective in fiscal 1995, the Company changed its fiscal year-end from the
Saturday closest to the end of February to the Saturday closest to the end of
January to conform to the National Retail Federation (NRF) calendar. As a
result, the fiscal period-end dates for the prior year may not be comparable to
the current year's fiscal period-end dates.
Accounting policies followed by the Company are described in Note 1 to the
audited consolidated financial statements for the fiscal year ended February 3,
1996. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted for purposes of the condensed
consolidated interim financial statements. The condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements, including notes thereto, for the year ended February 3, 1996.
The results of operations for the thirteen and twenty-six week periods herein
presented are not necessarily indicative of the results to be expected for the
full year.
2. STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURES
Total cash paid for interest and income taxes was as follows:
Twenty-Six Weeks Ended
----------------------
August 3, July 22,
1996 1995
--------- --------
($000, unaudited)
Interest $1,763 $2,276
Income Taxes $2,322 $1,607
3. INITIAL PUBLIC OFFERING OF COMMON STOCK
The Company sold 2,136,614 shares of its common stock in the Company's initial
public offering of shares of common stock registered on Form S-1 with the
Securities and Exchange Commission. These shares were sold at a price of $15.00
per share yielding net proceeds of approximately $29.1 million after deducting
underwriting discounts of $2.9 million and offering expenses of $0.7 million. As
described in the Company's prospectus dated April 4, 1996, the proceeds were
used primarily to retire the Company's note payable and to pay down outstanding
borrowings under its line of credit. All remaining unused proceeds were invested
in short-term, interest bearing instruments or used for working capital or
general corporate purposes.
6
4. REVOLVING LINE OF CREDIT AGREEMENT
On May 7, 1996 the Company entered into a revolving line of credit agreement
with Bank of America which expires May 31, 1998. The Company's existing
revolving line of credit agreement was terminated. The new agreement allows for
cash borrowings and letters of credit of up to $20.0 million from January 1
through June 30 and $35.0 million from July 1 through December 31 of each year.
The Company is required to have not more than $5.0 million outstanding,
excluding letters of credit, for a period of 45 days between December 1 and
March 31 of the next year. Interest is paid monthly at the bank's reference rate
(8.25% at August 3, 1996) or LIBOR+2%, depending on the nature of the
borrowings. A commitment fee on the unused portion is payable quarterly, in
arrears, at .125% per year. The agreement is secured by the Company's inventory
and receivables. The Company is required to maintain certain financial loan
covenants including minimum tangible net worth, earnings coverage ratio and
inventory turn. Borrowings and letters of credit outstanding under the line were
$2.9 million and $1.8 million, respectively, at August 3, 1996 leaving
availability of $30.3 million.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The thirteen weeks (second quarter) and twenty-six weeks (year-to-date) ended
August 3, 1996 as compared to the thirteen weeks (second quarter) and twenty-six
weeks (year-to-date) ended July 22, 1995.
NET SALES. Net sales increased $6.9 million, or 20.9%, to $40.0 million in the
second quarter of 1996 from $33.1 million in the second quarter of 1995. Year-
to-date net sales were $79.1 million in 1996, an increase of $14.1 million or
21.7% from 1995 net sales of $65.0 million. The second quarter and year-to-date
increases in net sales were attributable to new stores and increases in
comparable and non-comparable store sales. At August 3, 1996, the Company
operated 52 stores compared to 45 stores at July 22, 1995. These seven new
stores contributed $4.2 million of the increase in second quarter net sales and
$7.5 million of the increase in year-to-date net sales. Comparable store sales,
calculated on a comparable, day-to-day basis, increased 4.9% for the second
quarter and 4.8% on a year-to-date basis.
GROSS PROFIT. As a percentage of net sales, second quarter gross profit
increased to 35.5% in 1996 from 35.1% in 1995. Year-to-date gross profit was
35.1% in 1996 and 34.4% in 1995. This increase resulted from leveraging
occupancy costs.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES. As a percentage of net
sales, SG&A expenses decreased to 33.8% in the second quarter from 34.6% in the
second quarter of the prior year. Year-to-date, SG&A expenses, as a percentage
of net sales, decreased to 33.6% from 34.1% in the prior year. These decreases
resulted mainly from leveraging store and corporate payroll expenses which
offset higher depreciation and amortization.
PREOPENING STORE EXPENSES. Preopening expenses, which include grand opening
advertising and preopening merchandising expenses, were $0.6 million and $0.5
million for the second quarter of 1996 and 1995, respectively. Year-to-date,
preopening expenses were $0.8 million in 1996 and $0.6 million in 1995. The
Company opened two stores in the second quarter of both 1996 and 1995. Year-to-
date, the Company opened three stores in 1996 and two stores in 1995.
INTEREST EXPENSE. Interest expense for the second quarter and year-to-date was
lower than the comparable periods of the prior year due to the repayment of
borrowings in April 1996 with the proceeds from the Company's initial public
offering of its common stock.
PROVISION FOR INCOME TAXES. The Company's effective tax rate for all periods
presented was 41%.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company has identified certain forward-looking statements in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations by a footnote #1. The Company may also make oral forward-looking
statements from time to time. Actual results may differ materially from those
projected in any such forward-looking statements due to a number of factors
including those set forth below.
Due to the importance of the Christmas selling season, the fourth quarter of
each fiscal year has historically contributed, and the Company expects it will
continue to contribute, a disproportionate percentage of the Company's net sales
and all of its net income for the entire fiscal year/1/. Any factors negatively
affecting the Company during the Christmas selling season in any year, including
unfavorable economic conditions, could have a material adverse effect on the
Company's financial condition and results of operations. In addition, the
Company makes decisions regarding merchandise well in advance of the season in
which it will be sold, particularly for the Christmas selling season.
Significant deviations from projected demand for products could have a material
adverse effect on the Company's financial condition and results of operations,
either by lost sales due to insufficient inventory or lost margin due to the
need to mark down excess inventory.
The Company's quarterly results of operations may fluctuate based upon such
factors as the number and timing of store openings and related preopening store
expenses, the amount of net sales contributed by new and existing stores, the
mix of
- ---------------------------
/1/ forward-looking statement
8
products sold, the timing and level of markdowns, store closings, refurbishments
or relocations, competitive factors and general economic conditions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses for cash, other than to fund operating expenses, are
to support inventory requirements and for store expansion. Historically, the
Company has financed its operations primarily with borrowings under the
Company's credit facilities and internally generated funds. The Company believes
that the available borrowings under its revolving line of credit and internally
generated funds will be sufficient to finance its working capital and capital
expenditure requirements for the next 12 months/1/.
Net cash used in operating activities in the twenty-six weeks ended August 3,
1996 totaled $6.5 million, a reduction of $1.7 million over the prior year. This
reduction was primarily the result of sales growth and leveraging expenses over
a higher sales base.
Net cash used in investing activities, primarily for new stores, totaled $3.1
million in the twenty-six weeks ended August 3, 1996 and $3.0 million for the
prior year. The Company estimates that 1996 capital expenditures will not exceed
$8.4 million/1/.
Net cash provided by financing activities in the twenty-six weeks ended August
3, 1996 included approximately $29.1 million received in April 1996 as a result
of the Company's initial public offering. The proceeds were used to retire the
$19.9 million long-term note payable and pay down the $3.2 million balance then
outstanding on the revolving credit line. Remaining unused proceeds were
invested in short-term interest bearing instruments or used for working capital
or general corporate purposes.
On May 7, 1996 the Company entered into a revolving line of credit agreement
with Bank of America which expires May 31, 1998. The Company's existing
revolving line of credit agreement was terminated. The new agreement allows for
cash borrowings and letters of credit of up to $20.0 million from January 1
through June 30 and $35.0 million from July 1 through December 31 of each year.
The Company is required to have not more than $5.0 million outstanding,
excluding letters of credit, for a period of 45 days between December 1 and
March 31 of the next year. Interest is paid monthly at the bank's reference rate
(8.25% at August 3, 1996) or LIBOR+2%, depending on the nature of the
borrowings. A commitment fee on the unused portion is payable quarterly, in
arrears, at .125% per year. The agreement is secured by the Company's inventory
and receivables. The Company is required to maintain certain financial loan
covenants including minimum tangible net worth, earnings coverage ratio and
inventory turn. Borrowings and letters of credit outstanding under the line were
$2.9 million and $1.8 million, respectively, at August 3, 1996 leaving
availability of $30.3 million.
- ----------------------
/1/ forward-looking statement
9
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On August 29, 1996 the Company announced two senior management changes,
associated with the recent development of a medical condition concerning Ralph
D. Dillon, the Company's Chairman of the Board and Chief Executive Officer.
Alan E. Zimtbaum was promoted to President and Chief Operating Officer, and will
continue his duties as Chief Financial Officer. He previously served as
Executive Vice President and Chief Financial Officer. Dennis R. Daugherty was
promoted to the newly created position of Executive Vice President of
Operations, where he will oversee the distribution and management information
systems areas of the Company. Mr. Dillon remains Chairman of the Board and
Chief Executive Officer.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits
3.1 Form of Amended and Restated By-laws
10.1 Business Loan Agreement, dated May 7, 1996, between
Cost Plus, Inc. and Bank of America National Trust
and Savings Association
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule (submitted for SEC use only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
period covered by this report.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COST PLUS, INC.
-------------------------------
Registrant
Date: September 16, 1996 By: /s/ Alan E. Zimtbaum
---------------------------
Alan E. Zimtbaum
President and
Chief Financial Officer
11