UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES 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 Identification No.)
incorporation or organization)
200 4th Street 94607
Oakland, California (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (510) 893-7300
Securities registered pursuant to None
Section 12(b) of the Act:
Securities registered pursuant to Common Stock, $.01 par value
Section 12(g) of the Act: Preferred Share Purchase Rights
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
--- ---
Indicate by check mark if disclosure of delinquent filer pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K ____
The aggregate market value of voting stock held by non-affiliates of the
registrant on March 31, 1999 was approximately $389,345,239 based upon the
last sale price reported for such date on the Nasdaq National Market. On that
date, 13,346,660 shares of Common Stock, $.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal year
ended January 30, 1999 ("Annual Report") are incorporated by reference into Part
II and Part IV.
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held June 15, 1999 ("Proxy Statement") are incorporated by
reference into Part III.
PART I
ITEM 1. BUSINESS
The Company
Cost Plus, Inc. ("Cost Plus World Market" or "the Company") is a leading
specialty retailer of casual home living and entertaining products. As of
January 30, 1999, the Company operated 85 stores under the name "Cost Plus World
Market" in 16 states, primarily in the Western United States, but has begun to
expand into other regions of the country. Cost Plus World Market's business
strategy is to differentiate itself by offering a large and everchanging
selection of unique products, many of which are imported, at competitive prices
in an exciting shopping environment. Many of Cost Plus World Market's products
are proprietary or private label, often incorporating the Company's own designs,
"World Market" brand name, quality standards and specifications, and typically
are not available at department stores and other specialty retailers.
Cost Plus World Market's expansion strategy is to open stores primarily in
metropolitan and suburban markets that can support multiple stores and enable
the Company to achieve advertising, distribution and operating efficiencies. The
Company may also selectively enter mid-size markets which can support one or two
stores that the Company believes can meet its profitability criteria. The
Company's stores, operated under the name "Cost Plus World Market", are located
predominantly in high traffic metropolitan and suburban locales, often near
major malls. In fiscal 1998, the Company opened a total of 15 stores, including
eight in existing markets in Austin, Chicago, Dallas, Detroit, Houston,
Sacramento and San Francisco and seven in new markets in Cincinnati,
Indianapolis, Omaha and St. Louis.
Merchandising
Cost Plus World Market's merchandising strategy is to offer customers a broad
selection of distinctive items related to the theme of casual living and home
entertaining.
Format and Presentation. The Company's stores are designed to evoke the
feeling of a "marketplace" through colorful and creative visual displays and
merchandise presentations, including goods in open barrels and crates, groupings
of related products in distinct "shops" within the store, and in-store
activities such as cooking demonstrations and food and coffee tastings. The
Company believes that its marketplace effect provides customers with a fun
shopping experience and encourages browsing throughout the store.
The average selling space of a Cost Plus World Market store is approximately
15,900 square feet, which allows space and flexibility for merchandise displays,
product adjacencies and directed traffic patterns. Complementary products are
positioned in proximity to one another, and cross merchandising themes are used
in merchandise displays to tie different product offerings together. The
unobstructed floor plan allows the customer to see virtually all of the
different product areas in a Cost Plus World Market store from the entrance. The
"power" aisle, where bulk displays highlight sharply priced items, leads the
customer through the store into the different product areas. The Company uses a
"swing" area near the front of the store to group seasonal products in themes,
such as Christmas and Easter. Store signage, including permanent as well as
promotional signs, is developed by the Company's in-house graphic design
department. End caps, bulk stacks and free standing displays are changed
monthly.
The Cost Plus World Market store format is also designed to reinforce the
Company's value image through exposed ceilings, concrete floors, simple wooden
fixtures and open or bulk displays of merchandise. The Company displays most of
its inventory on the selling floor and makes effective use of vertical space,
for example, a display of chairs arranged on a wall and rugs hanging vertically
from display racks.
The Company believes that its customers usually visit a Cost Plus World
Market store as a destination with a specific purchase in mind. The Company also
believes that once in the store, its customers often spend additional time
shopping and browsing, usually purchasing more items than they originally
intended.
Products. The Company believes its distinctive and unique merchandise
differentiates the Company from other retailers. Many of Cost Plus World
Market's products are proprietary or private label, often incorporating the
Company's own designs, "World Market" brand name, quality standards and
specifications, and typically are not available at department stores and other
specialty retailers. In addition to strengthening the stores' product offering,
proprietary and private label goods typically offer higher gross margin
opportunities than branded goods. A significant portion of Cost Plus World
Market's products are made abroad in approximately 50 countries, and many of
these goods are handcrafted by local artisans.
The Company's product offerings are designed to provide solutions to
customers' casual living and home entertaining needs. The offerings include
home decorating items such as furniture, rugs, pillows, lamps, window coverings,
frames and baskets. Cost Plus World Market's furniture products include ready-
to-assemble living and dining room pieces, unusual handcrafted case goods and
occasional pieces, as well as outdoor furniture made from a variety of materials
such as rattan, hardwood and wrought iron. The Company also sells a number of
tabletop and kitchen items including glassware, ceramics, textiles and cooking
utensils. Kitchen products offer the casual gourmet an assortment of products
organized around a variety of themes such as baking, food preparation, barbeque
and international dining.
Cost Plus World Market offers a number of gift and decorative accessories,
including collectibles, cards, wrapping paper and Christmas and other seasonal
items. Because many of the gift and collectible items come from around the
world, they contribute to the exotic atmosphere of the stores.
Cost Plus World Market also offers its customers a wide selection of
gourmet foods and beverages, including wine, microbrewed and imported beer,
coffee, tea and mineral water. The wine assortment offers a number of
moderately priced premium wines, including a variety of well recognized labels,
as well as wines not readily available at neighborhood wine or grocery stores.
Consumable products, particularly beverage, generally have lower margins than
the Company's average. Coffee, roasted at the Company's own roasting plant, is
sold over-the-counter from bulk containers. Gourmet foods include packaged
products from around the world and seasonal items that relate to "old world"
holidays and customs. Packaged snacks, candy and pasta are displayed in open
barrels and crates. All food items typically have a shelf life that lasts six
months or longer.
The Company replaces or updates many of the items in its merchandise
assortment on a regular basis in order to encourage repeat shopping and to
promote a sense of discovery. The Company regularly marks down and eliminates
items that do not meet its turnover expectations.
Pricing. Cost Plus World Market offers quality products at competitive
prices. The Company complements its competitive everyday prices with
opportunistic buys, enabling the Company to pass on additional savings to the
customer. The Company routinely shops a variety of retailers to ensure that its
products are competitively priced.
Planning and Buying. Cost Plus World Market effectively manages a large
number of products by utilizing a centralized merchandise planning system. The
Company regularly monitors merchandise through its management information
systems to identify and respond to product trends. The Company maintains its own
central buying staff which is responsible for establishing the assortment of
inventory within the merchandise groups each season, including integrating
trends or themes identified by the Company into its different product
categories. The Company attempts to moderate the risk associated with
merchandise purchasing by testing selected new products in a limited number of
stores. The Company's long standing relationships with overseas suppliers, its
extensive international buying agency network and its extensive knowledge of
the import process facilitate the planning and buying process. The buyers work
closely with suppliers to develop unique products that will meet customers'
expectations for quality and value. The Company's buyers communicate with
district and store managers and use the management information systems to tailor
the merchandise mix of individual stores to regional conditions and to better
ensure that in-stock availability will be maintained in accordance with the
specific requirements of each store.
Advertising
The Company advertises through promotional ads in major daily newspapers
and on radio and television. The Company's approach is to regionalize its
advertising and use the most efficient media mix within a geographic area. The
Company uses eight to sixteen page full color tabloids and color or black and
white newspaper advertisements in selected markets to highlight product
offerings and selected promotions. Radio and television media is often used for
seasonal advertising, such as Christmas. For store grand openings, the Company
uses a combination of newspaper, radio and television.
Product Sourcing and Distribution
The Company purchases most of its inventory through its central purchasing
system, which allows the Company to take advantage of volume purchase discounts
and improve controls over inventory and product mix. The Company purchases its
merchandise from over 1,500 suppliers, and no supplier represented over 4.0% of
total purchases in the fiscal year ended January 30, 1999. A significant portion
of Cost Plus World Market's products are made abroad in approximately 50
countries in Europe,
2
North and South America, Asia, Africa and Australia. The Company has established
a well developed overseas sourcing network and enjoys long standing
relationships with many of its vendors. As is customary in the industry, the
Company does not have long-term contracts with any suppliers. The Company's
buyers often work with suppliers to produce unique products exclusive to Cost
Plus World Market. The Company believes that, although there could be delays in
changing suppliers, alternate sources of merchandise for all product categories
are available at comparable prices. Cost Plus World Market typically purchases
overseas products on a free-on-board shipping point basis, and the Company's
insurance on such goods commences at the time it takes ownership. The Company
also purchases a number of domestic products, especially in the gourmet food and
beverage area. Due to state regulations, wine and beer are purchased from local
distributors in each state with purchasing controlled by the Corporate buying
office.
The Company currently services most of its stores from its primary
distribution center in Stockton, California. Domestically sourced merchandise is
usually delivered to the distribution center by common carrier or by Company
trucks. The Company believes that its distribution center will be able to
handle, or can be upgraded to handle, the Company's store expansion plans for
the Western United States over the next three years. Any significant
interruption in the operation of this facility would have a material adverse
effect on the Company's financial position and results of operations. To
facilitate servicing regions such as Illinois, Indiana, Michigan, Missouri, Ohio
and Wisconsin, the Company has a satellite distribution center located in Peru,
Indiana which became operational in a limited capacity during fiscal 1998. This
facility is expandable to meet the Company's needs over the next three years.
Management Information Systems
Each of the Company's stores is linked to the Cost Plus World Market
headquarters in Oakland, California through a point-of-sale system that
interfaces with an IBM AS/400 computer. The Company's information systems keep a
record, which is updated daily, of each merchandise item sold. The point-of-sale
system also has scanning, "price-look-up" and on-line credit card approval
capabilities, all of which improve transaction accuracy, speed checkout time and
increase overall store efficiency. The Company is in the process of upgrading
its in-store information system to improve information flow to store management
and enhance other in-store capabilities.
Purchasing operations are facilitated by the use of computerized merchandise
information systems which allow the Company to analyze product sell-through and
assist the buyers in making merchandise decisions. The Company's central
replenishment system includes a store-specific, individualized inventory "model
stock" which enables the Company to maintain adequate stock levels in each
location. The Company believes its centralized purchasing system has helped it
to reduce in-store inventory levels and control out-of-stock situations.
The Company uses several other customized management information and control
systems to direct the Company's operations and finances. These computerized
systems are designed to ensure the integrity of the Company's inventory, allow
the merchandising staff to reprice merchandise, replenish depleted store
inventories, track promotions, identify sales trends and monitor merchandise mix
throughout all of the Company's stores. The Company's distribution operations
use these systems to control, locate, pick and ship inventory to stores. The
Company believes that these systems allow for lower average store inventories,
higher operating efficiency, better in-stock availability and fewer markdowns.
These systems also enable the Company to produce the periodic financial
reports necessary for developing budgets and monitoring individual store and
consolidated Company performance. The Company believes that its current
management information system is readily upgradable to support the Company's
planned expansion for the foreseeable future.
Competition
The markets served by the Company are highly competitive. The Company competes
against a diverse group of retailers ranging from specialty stores to department
stores and wholesale clubs. The Company's product offerings compete with such
specialty retailers as Bed, Bath & Beyond, Crate & Barrel, Pottery Barn, Garden
Ridge, Lechters, Michaels Stores, Pier 1 Imports, Trader Joe's and Williams-
Sonoma. Specialty retailers tend to have higher prices and a more narrow
assortment of products than Cost Plus World Market. Department stores
typically have higher prices than Cost Plus World Market for similar
merchandise. Wholesale clubs may have lower prices than Cost Plus World Market,
but the product assortment is generally more limited. The Company competes with
these and other retailers for customers, suitable retail locations and qualified
management personnel.
3
Employees
As of January 30, 1999, the Company had 1,019 full-time and 1,235 part-time
employees. Of these, 1,927 were employed in the Company's stores and 327 were
employed in the distribution center and corporate office. The Company regularly
supplements its work force with temporary workers, especially in the fourth
quarter of each year, to service increased customer traffic during the peak
Christmas season. Approximately 124 employees located in 13 stores in Northern
California are covered by a collective bargaining agreement which expires on May
31, 2003. The Company believes that it enjoys good relationships with its
employees.
Trademarks
The Company regards its trademarks and service marks as having significant
value and as being important to its marketing efforts. The Company has
registered its "Cost Plus," "Cost Plus World Market," "Crossroads," "World
Market" and "Where you can afford to be different" marks and its "Cost Plus
World Market" and "World Market" logos with the United States Patent and
Trademark Office on the Principal Register. The Company has also secured
California state registration of its "Crossroads" trademark. The Company's
policy is to pursue prompt and broad registration of its marks and to vigorously
oppose infringement of its marks.
Risk Factors
This Form 10-K, including the documents incorporated by reference herein,
contains forward-looking statements within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended, including statements that include
the words "believes," "expects" or "anticipates," or similar expressions. The
Company may also make additional written and oral forward looking statements
from time to time. Actual results may differ materially from those discussed
in such forward-looking statements due to a number of factors including those
set forth below and elsewhere in this Form 10-K and in documents which are
incorporated by reference herein. The Company does not undertake to update any
forward-looking statement that may be made from time to time by or on behalf of
the Company.
Seasonality and Quarterly Fluctuations. The Company's business is highly
seasonal, reflecting the general pattern associated with the retail industry of
peak sales and earnings during the Christmas season. 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 most of
its net income for the entire fiscal year. 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. The Company generally
experiences lower sales and earnings during the first three quarters and, as is
typical in the retail industry, has incurred and may continue to incur losses in
these quarters. The results of operations for interim periods are not
necessarily indicative of the results for a full fiscal year. 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 markdown excess inventory.
The Company's quarterly results of operations may also fluctuate based upon
such factors as the number and timing of store openings and related store
preopening expenses, the amount of net sales contributed by new and existing
stores, the mix of products sold, the timing and level of markdowns, store
closings, refurbishments or relocations, competitive factors and general
economic conditions.
Risks Associated with Expansion. The Company's ability to continue to
increase its net sales and earnings will depend in part on its ability to open
new stores and to operate such stores on a profitable basis. The Company's
continued growth will also depend on its ability to increase sales in its
existing stores. The Company opened 15 stores in fiscal 1998 and presently
anticipates opening approximately 17 stores in fiscal 1999. The Company intends
to open stores in both existing and new geographic markets. The opening of
additional stores in an existing market could result in lower net sales from
existing Company stores in that market. The success of the Company's planned
expansion will be dependent upon many factors, including the identification of
suitable markets, the availability and leasing of suitable sites on acceptable
terms, the hiring, training and retention of qualified management and other
store personnel, the availability of appropriate financing and general economic
conditions. To manage its planned expansion, the Company must ensure the
continuing adequacy of its existing systems and procedures, including product
distribution facilities, store management, financial controls and information
systems. There can be no assurance that the Company will be able to achieve its
planned expansion, that new stores will be effectively integrated into the
Company's existing operations or that such stores will be profitable.
4
The Company's expansion strategy includes opening stores in new geographic
markets. These new markets may present competitive and merchandising challenges
that are different from those currently faced by the Company in its existing
geographic markets. The Company may incur higher costs related to advertising
and distribution in connection with entering new markets. If the Company opens
stores in new markets that do not perform to the Company's expectations, or if
store openings are delayed, the Company's financial condition and results of
operations could be materially adversely affected. In addition, in order to sell
wine and beer, the Company is required to obtain alcoholic beverage licenses for
each of its new stores, and the laws regulating the issuance of alcoholic
beverage licenses differ from state to state. Any delays in receiving alcoholic
beverage licenses for new stores could have an adverse impact on such stores'
operations.
Risks Associated with Merchandising. The Company's success depends in part
upon the ability of its merchandising staff to anticipate the tastes of its
customers and to provide merchandise that appeals to their preferences. The
Company's strategy requires it to introduce in a timely manner products from
around the world that are affordable, distinctive in quality and design, and not
widely available from other retailers. Many of the Company's products require
long lead times. In addition, a large percentage of the Company's merchandise
changes regularly. The Company's failure to anticipate, identify or react
appropriately to changes in consumer trends could lead to, among other things,
either excess inventories and higher markdowns or a shortage of products and
could have a material adverse effect on the Company's financial condition and
results of operations.
Effect of Economic Conditions and Geographic Concentration. The success of the
Company's business depends to a significant extent upon the level of consumer
spending. Among the factors that affect consumer spending are the general state
of the economy, the level of consumer debt and consumer confidence in future
economic conditions. A substantial majority of the Company's stores are located
in the Western United States, principally in California. Lower levels of
consumer spending in these regions could have a material adverse effect on the
Company's financial condition and results of operations. Reduced consumer
confidence and spending may result in reduced demand for the Company's products,
limitations on the Company's ability to increase prices and may require
increased levels of selling and promotional expenses, thereby adversely
affecting the Company's financial condition and results of operations.
Risks Associated with Importing. The Company imports a significant portion of
its merchandise from approximately 50 countries. The Company relies on its long-
term relationships with its suppliers but has no long-term contracts with such
suppliers. The Company's future success will depend in large measure upon its
ability to maintain its existing supplier relationships or to develop new ones.
As an importer, the Company's business is subject to the risks generally
associated with doing business abroad, such as foreign governmental regulations,
disruptions, delays in shipments or price increases and changes in political or
economic conditions in countries in which the Company purchases products. The
Company's business is also subject to the risks associated with any new or
revised United States legislation and regulations relating to imported products,
including quotas, duties, taxes and other charges or restrictions on imported
merchandise. Since certain of the Company's purchases are made in currencies
other than the U.S. dollar and its financial results are reported in U.S.
dollars, fluctuations in the rates of exchange between the U.S. dollar and other
currencies may have a material adverse effect on the Company's financial
condition and results of operations. Historically, the Company has not hedged
its currency risk and does not currently anticipate doing so in the future. If
any such factors were to render the conduct of business in particular countries
undesirable or impractical, or if additional United States quotas, duties, taxes
or other charges or restrictions were imposed upon the importation of the
Company's products in the future, the Company's financial condition and results
of operations could be materially adversely affected.
Risks Related to Distribution Facilities. The Company's distribution functions
for most of its stores are currently handled from its facility in Stockton,
California. Any significant interruption in the operation of this facility would
have a material adverse effect on the Company's financial condition and results
of operations. The Company began ramping up an additional distribution facility
in Peru, Indiana in fiscal 1998 to service its Midwest and Texas stores. A
failure to successfully transition its distribution operations for these stores
to the new facility or to coordinate the operations of the two facilities could
have a material adverse effect on the Company's financial condition and results
of operations.
Competition. The market served by the Company is highly competitive. The
Company competes against a diverse group of retailers ranging from specialty
stores to department stores and wholesale clubs. The Company's product
categories compete with such specialty retailers as Bed, Bath & Beyond, Crate &
Barrel, Pottery Barn, Garden Ridge, Lechters, Michaels Stores, Pier 1 Imports,
Trader Joe's and Williams-Sonoma. The Company competes with these and other
retailers for customers, suitable retail locations and qualified management
personnel. Many of the Company's competitors have significantly greater
financial, marketing
5
and other resources than the Company, and there can be no assurance that the
Company will be able to compete successfully in the future.
Dependence on Key Personnel. The success of the Company's business will
continue to depend upon its key personnel. The Company does not maintain any key
man life insurance. The loss of the services of one or more of its key personnel
could have a material adverse effect on the Company's financial condition and
results of operations. The Company's success in the future will be dependent
upon its ability to attract, retain and motivate quality personnel, including
store managers. The Company's inability to attract and retain such key
employees, including store managers, in the future could have a material adverse
effect on the Company's financial condition and results of operations.
Possible Volatility of Stock Price. The stock market has from time to time
experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. These broad market fluctuations
may adversely affect the market price of the Company's common stock. In
addition, the market price of the shares of common stock is likely to be highly
volatile. Factors such as fluctuations in the Company's operating results, a
downturn in the retail industry, changes in stock market analysts'
recommendations regarding the Company, other retail companies or the retail
industry in general and general market and economic conditions may have a
significant effect on the market price of the Company's common stock.
Risks associated with the Year 2000. The Company's success depends in part
upon its ability to mitigate potential significant disruption of its operations
due to Year 2000 problems. The Company has a structured approach for modifying
existing software and converting to new software to address the Year 2000
issues. The Company has also identified areas of potential third party risk,
which include communications systems, utilities and elements of the merchandise
supply chain, including procurement, transportation and import activities. The
disruption of communications systems and utilities could impact the Company's
ability to operate its stores. The inability of principal suppliers to be Year
2000 compliant could result in delays in product deliveries from such suppliers
and disruption of the Company's distribution channel. The Company is developing
contingency plans for critical business processes in the event of compliance
failure on the part of the Company or its business partners. There can be no
assurance that other entities will achieve Year 2000 compliance or that the
Company can timely compensate for its risk should such entities fail to do so.
If the Company's internal systems are not adequately remediated, if necessary
modifications and conversions by other companies on whose systems some of the
Company's business processes depend are not completed on time, or if the
Company's contingency plans are not adequate, the Year 2000 issue could have a
material adverse effect on the Company's operations.
The Company's plans for expenditures to achieve Year 2000 compliance and the
dates by which Year 2000 compliance will be achieved are based on management's
best estimates. These estimates include certain assumptions about future
events, including the continued availability of certain resources. However,
there can be no assurance that these estimates will be achieved, and because of
the complex interdependencies involved with Year 2000 issues, actual results
could differ materially from these estimates. Because of the range of possible
issues and the large number of variables involved, it is impossible to quantify
the potential financial impact of problems if the Company's remediation efforts
or the efforts of those with whom it does business are not successful.
ITEM 2. PROPERTIES
The Company currently operates 90 stores in 16 states. The average selling
space of a Cost Plus World Market store is approximately 15,900 square feet. The
table below summarizes the distribution of stores by state:
Arizona................. 5 Illinois............ 6 New Mexico....... 1
California.............. Indiana............. 1 Ohio............. 4
Northern California... 19 Michigan............ 8 Oregon........... 2
Southern California... 18 Missouri............ 2 Texas............ 11
Colorado................ 3 Nebraska............ 1 Washington....... 4
Idaho................... 1 Nevada.............. 3 Wisconsin........ 1
The Company leases land and buildings for 83 stores (of which 18 are capital
leases), leases land and owns the buildings for six stores and owns the land and
building for one store. The Company currently leases its executive headquarters
in Oakland, California pursuant to a lease which expires in October 2008. The
Company currently leases its distribution facility of approximately 540,000
square feet in Stockton, California pursuant to a lease which expires in
September 2001 and has three renewal options for five years each. The Company
leases an additional distribution center in Peru, Indiana pursuant to a lease
6
which expires in December 2000, initially covering 100,000 square feet. The
lease term can be extended to December 2009 with an additional four options of
five years each, and the facility is expandable to 450,000 square feet.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings other than
ordinary routine litigation incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
7
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
Name Age Position
- ------------------------- --- ------------------------------------------------------------
Murray H. Dashe.......... 56 Chairman of the Board, Chief Executive Officer and President
John F. Hoffner.......... 51 Executive Vice President of Administration, Chief Financial
Officer, and Secretary
Kathi P. Lentzsch........ 43 Executive Vice President, Merchandising and Marketing
Joan S. Fujii............ 52 Senior Vice President, Human Resources
Gary D. Weatherford...... 42 Senior Vice President, Store Operations
Michael J. Allen......... 44 Vice President, Store Development
Charmaine D. Casella..... 36 Vice President, Controller and Chief Accounting Officer
Ron P. Perkuchin......... 51 Vice President, Distribution and Logistics
Judy A. Soares........... 49 Vice President, Information Systems
Malcolm R. Carden........ 52 Treasurer
Mr. Dashe joined the Company in June 1997 and has served as Chairman of the
Board and Chief Executive Officer since February 1998 with continued
responsibilities as President. In September 1997, Mr. Dashe was appointed
President with continued responsibilities as Vice Chairman of the Board. From
June 1997 to September 1997, Mr. Dashe served as the Company's Vice Chairman of
the Board. Mr. Dashe is responsible for overseeing all day-to-day operations of
the Company. From August 1992 to June 1997, he was Chief Operating Officer of
Leslie's Poolmart, Inc., a swimming pool supply retail chain, and was a director
of that company from August 1989 to November 1996. From April 1990 through June
1992, he was President and Chief Executive Officer of RogerSound Labs, a
Southern California retailer of audio/video consumer electronics. From
September 1985 through April 1990, Mr. Dashe held several positions with SILO, a
consumer electronics and appliance retailer, including Regional President,
Regional Vice President and Director of Stores. Previously, he was employed in
an executive capacity by other retailers, including Allied Stores Corp., where
he served in a variety of positions, including Vice President/Director of
Stores.
Mr. Hoffner joined the Company in June 1998 as Executive Vice President of
Administration, Chief Financial Officer and Secretary. Prior to joining the
Company, Mr. Hoffner served as Executive Vice President and Chief Financial
Officer of Sweet Factory, Inc. from April 1993 to June 1998. From January 1991
to April 1993, Mr. Hoffner was employed by Wherehouse Entertainment, Inc. where
he served as Senior Vice President, Finance and Administration. Prior to that,
he held executive positions in finance and administration with retailers such as
Dayton Hudson and Federated Department Stores.
Ms. Lentzsch joined the Company in February 1997 as Executive Vice President
of Merchandising and Marketing. From May 1996 to January 1997, Ms. Lentzsch
served as a retail consultant to several specialty retailers. From May 1993 to
May 1996, Ms. Lentzsch was employed by Pottery Barn, a division of Williams-
Sonoma, Inc., where she was most recently Senior Vice President, Merchandising.
From April 1991 to May 1993, Ms. Lentzsch was General Merchandising Manager and
Vice President, Merchandising and Marketing at Impostors, a retail costume
jewelry chain. Prior to that, she held a number of merchandising and marketing
executive positions with several retailers, including Vice President,
Merchandising at Pier 1 Imports, Inc.
Ms. Fujii was named the Company's Senior Vice President, Human Resources in
February 1998. Ms. Fujii joined the Company in May 1991 and served as Vice
President, Human Resources from October 1994 until February 1998. From May 1991
to October 1994, Ms. Fujii served as the Company's Director of Human Resources.
From September 1975 to May 1991, she was employed by Macy's California in the
operations and personnel departments, ultimately serving as Vice President,
Human Resources at Macy's Union Square store in San Francisco.
Mr. Weatherford was named Senior Vice President, Store Operations in February
1998. Mr. Weatherford joined the Company in January 1988 and served as Vice
President, Store Operations from June 1995 until February 1998. From April 1991
to June 1995, Mr. Weatherford served as a Regional Manager for the Company, and
from January 1990 to April 1991 he was a Senior Store Manager for the Company.
From January 1988 to January 1990, Mr. Weatherford served as a Buyer and Store
Design Director for the Company.
8
Mr. Allen was named the Company's Vice President, Store Development in
February 1998. Mr. Allen joined the Company in December 1988 and served as
Director of Stores from May 1995 until February 1998. From December 1988 to May
1995, Mr. Allen served as Regional Manager for the Company. Prior to joining
the Company, Mr. Allen was a Regional Manager and Store Manager for Liquor Barn.
Ms. Casella was named Vice President and Chief Accounting Officer with
continued responsibilities as the Company's Controller in February 1999. From
August 1997 to February 1999, Ms. Casella served as the Company's Controller.
Ms. Casella served as the Company's Assistant Controller from February 1993 to
August 1997. From August 1991 until January 1993, Ms. Casella was Corporate
Accounting Manager for Nestle Food Co., a manufacturer and distributor of food
products. Prior to that date, she was a Manager with the public accounting firm
of Price Waterhouse LLP. Ms. Casella is a Certified Public Accountant.
Mr. Perkuchin joined the Company as Vice President, Distribution and Logistics
in May 1998. Prior to joining the Company, Mr. Perkuchin was employed at Ross
Stores, an off-price apparel retailer, where he served as Staffing and
Production Manager. From December 1995 to April 1997, Mr. Perkuchin served as
Vice President of Distribution and Logistics at Home Express, a retailer which
specialized in home accessories. From September 1990 to December 1995, Mr.
Perkuchin was employed by Mervyn's California, a department store chain part of
the Dayton Hudson Corporation, where he most recently served as Northern
California Distribution Director.
Ms. Soares joined the Company as Vice President Information Systems in May
1998. Prior to joining the Company, Ms. Soares served as Vice President,
Management Information Systems of Natural Wonders, a specialty retailer of gift
items relating to science and nature, from June 1996 to May 1998. From March
1993 to March 1996, Ms. Soares was employed with Home Express, a retailer which
specialized in home accessories, where she served as Vice President, Management
Information Systems. Prior to that, Ms. Soares held Senior level information
systems positions with various retail companies such as The Gap and Mervyns's.
Mr. Carden was named the Company's Treasurer in August 1996. Mr. Carden joined
the Company in October 1986 and served as Director of Finance from May 1992 to
August 1996. From October 1986 to May 1992, Mr. Carden served as Manager of
Financial Planning. Prior to joining the Company, Mr. Carden was Manager of
Strategic Planning for Genstar Corporation.
PART II
Information called for by Part II (Items 5,6,7, and 8) have been filed as
Exhibit 13 to this report on Form 10-K. Such information is incorporated herein
by reference.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The information required by this item is incorporated herein by reference to
the Company's 1998 Annual Report to Shareholders (on page 19), filed as Exhibit
13 to this report on Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated herein by reference to
the Company's 1998 Annual Report to Shareholders (on page 13), filed as Exhibit
13 to this report on Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by this item is incorporated herein by reference to
the Company's 1998 Annual Report to Shareholders (on pages 14 - 19), filed as
Exhibit 13 to this report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated herein by reference to
the Company's 1998 Annual Report to Shareholders (on page 19), filed as Exhibit
13 to this report on Form 10-K.
9
ITEM 8. FINANCIAL STATEMENTS
The information required by this item is incorporated herein by reference to
the Company's 1998 Annual Report to Shareholders (on pages 20-32), filed as
Exhibit 13 to this report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
Information called for by Part III (Items 10, 11, 12 and 13) of this report on
Form 10-K has been omitted as the Company intends to file with Securities and
Exchange Commission not later than May 18, 1999 a definitive Proxy Statement
pursuant to Regulation 14A promulgated under the Securities Exchange Act of
1934. Such information will be set forth in such Proxy Statement and is
incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by reference to
the section entitled "Executive Officers of the Registrant" at the end of Part I
of this report and the Proxy Statement for the Company's 1999 Annual Meeting of
Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to
the Proxy Statement for the Company's 1999 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to
the Proxy Statement for the Company's 1999 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference to
the Proxy Statement for the Company's 1999 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1. Financial Statements:
The following financial statements of Cost Plus, Inc. are incorporated
herein by reference to the Company's 1998 Annual Report to Shareholders
for the year ended January 30, 1999, filed as Exhibit 13 to this report
on Form 10-K:
Independent Auditors' Report
Consolidated Balance Sheets as of January 30, 1999
and January 31, 1998
Consolidated Statements of Operations for the
fiscal years ended January 30, 1999, January 31,
1998 and February 1, 1997
Consolidated Statement of Shareholders' Equity for
the fiscal years ended January 30, 1999,
January 31, 1998 and February 1, 1997
Consolidated Statements of Cash Flows for the
fiscal years ended January 30, 1999, January 31,
1998 and February 1, 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedules:
10
Financial statement schedules of Cost Plus, Inc. have been omitted from
Item 14(d) because they are not applicable or the information is
included in the financial statements or notes thereto.
3. List of Exhibits:
See Exhibit Index beginning on page 13.
(b) Reports on form 8-K:
None
11
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: April 23, 1999 By: /s/ Murray H. Dashe
----------------------------------------
Murray H. Dashe
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/Murray H. Dashe Chairman of the Board, Chief April 23, 1999
------------------ Executive Officer and President
Murray H. Dashe (Principal Executive Officer)
/s/John F. Hoffner Executive Vice President of Administration, April 23, 1999
------------------ Chief Financial Officer and Secretary
John F. Hoffner (Principal Financial and Accounting Officer)
/s/Ralph D. Dillon Chairman Emeritus April 23, 1999
------------------
Ralph D. Dillon
/s/Joseph H. Coulombe Director April 23, 1999
---------------------
Joseph H. Coulombe
/s/Danny W. Gurr Director April 23, 1999
----------------
Danny W. Gurr
/s/Nancy J. Pedot Director April 23, 1999
-----------------
Nancy J. Pedot
/s/Olivier L. Trouveroy Director April 23, 1999
-----------------------
Olivier L. Trouveroy
/s/Thomas D. Willardson Director April 23, 1999
-----------------------
Thomas D. Willardson
12
INDEX TO EXHIBITS
Exhibit No. Description of Exhibits
- ----------- -----------------------
3.1 Amended and Restated Articles of Incorporation as filed with the California Secretary of State on April 1, 1996
incorporated by reference to Exhibit 3.1 to the Form 10-K filed for the year ended February 1, 1997.
3.2 Certificate of Determination as filed with California Secretary of State on July 27, 1998.
3.3 Amended and Restated By-laws dated June 18, 1998.
10.1 Form of Indemnification Agreement between the Company and each of its directors and officers, incorporated by
reference to Exhibit 10.1 to the Registration Statement on Form S-1 effective April 3, 1996.
10.2 Registration Rights Agreement, dated March 17, 1995, between the Company and certain holders of the
Company's securities, incorporated by reference to Exhibit 10.11 to the Registration Statement on Form S-1
effective April 3, 1996.
10.3 Lease Agreement, dated August 27, 1991, as amended, between the Company and The Stockton Port District for
certain warehouses for storage and distribution located in Stockton, California and extension thereto dated
February 21, 1996, incorporated by reference to Exhibit 10.6 to the Registration Statement on Form S-1 effective
April 3, 1996.
10.4 Lease Agreement, dated August 27, 1997, between the Company and Grissom Redevelopment Authority for certain
warehouse for storage and distribution located in Peru, Indiana, incorporated by reference to Exhibit 10.4 to the
Form 10-K filed for the year ended January 31, 1998.
10.5 Lease agreement between the Company and Square I, LLC for certain Corporate office space located in Oakland,
California, incorporated by reference to the Form 10-Q filed for the quarter ended October 31, 1998.
10.6 Business Loan Agreement, dated October 12, 1998, between the Company and Bank of America National Trust
and Savings Association, incorporated by reference to Exhibit 10.2 to the Form 10-Q filed for the quarter ended
October 31, 1998.
10.7* Third Amended and Restated 1988 Stock Option Plan and form of Stock Option Agreement thereunder,
incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-1 effective April 3, 1996.
10.8* 1994 Stock Option Plan and form of Stock Option Agreement thereunder, incorporated by reference to Exhibit 10.3
to the Registration Statement on Form S-1 effective April 3, 1996.
10.9.1* 1995 Stock Option Plan, as amended, incorporated by reference to Exhibit 10.1 to the Form 10-Q filed for the
quarter ended August 1, 1998.
10.9.2* Form of Stock Option Agreement, 1995 Stock Option Plan, incorporated by reference to Exhibit 10.4 to the Form
10-K filed for the year ended February 1, 1997.
10.10.1* 1996 Director Option Plan, as amended, incorporated by reference to Exhibit 10.2 to the Form 10-Q filed for the
quarter ended August 2, 1997.
10.10.2* Form of Stock Option Agreement, 1996 Director Option Plan, incorporated by reference to Exhibit 10.14 to the
Registration Statement on Form S-1 effective April 3, 1996.
10.11* 1996 Employee Stock Purchase Plan, incorporated by reference to Exhibit 10.13 to the Registration Statement on
Form S-1 effective April 3, 1996.
10.12* The Cost Plus, Inc. Deferred Compensation Plan effective October 1, 1997 incorporated by reference to Exhibit 10.11 to
the Form 10-K filed for the year ended January 31, 1998.
13
10.13* Management Incentive Plan, incorporated by reference to Exhibit 10.12 to the Registration Statement on Form S-1
effective April 3, 1996.
10.14* 1997 Executive Officer and Key Employee Loan Plan, dated May 7, 1997, incorporated by reference to Appendix
C of the Company's Proxy Statement dated May 22, 1997.
10.15.1* Employment Agreement, dated September 6, 1990, between the Company and Ralph D. Dillon as amended by the
First Amendment to Employment Agreement dated December 1, 1996, incorporated by reference to Exhibit 10.4
to the Form 10-K filed for the year ended February 1, 1997.
10.15.2* Amendment to Employment Agreement, dated February 12, 1998, between the Company and Ralph D. Dillon incorporated by
reference to Exhibit 10.14.2 to the Form 10-K filed for the year ended January 31, 1998.
10.16.1* Employment Agreement, dated June 17, 1997, between the Company and Murray H. Dashe, incorporated by
reference to Exhibit 10.4 to the Form 10-Q filed for the quarter ended August 2, 1997.
10.16.2* Amendment to Employment Agreement, dated January 13, 1999, between the Company and Murray H. Dashe.
10.17.1* Employment Agreement, dated February 2, 1997, between the Company and Kathi P. Lentzsch, incorporated by
reference to Exhibit 10.5 to the Form 10-Q filed for the quarter ended August 2, 1997.
10.17.2* Employment Severance Agreement, dated January 13, 1999, between the Company and Kathi P. Lentzsch.
10.18.1* Employment Agreement, dated May 6, 1998, between the Company and John F. Hoffner, incorporated by reference
to Exhibit 10.4 to the Form 10-Q filed for the quarter ended August 1, 1998.
10.18.2* Amendment to Employment Agreement, dated January 13, 1999, between the Company and John F. Hoffner.
10.19* Employment Severance Agreement, dated January 13, 1999 between the Company and Gary D. Weatherford.
10.20* Employment Severance Agreement, dated January 13, 1999, between the Company and Joan S. Fujii.
10.21 Preferred Shares Rights Agreement, dated June 30, 1998 between Cost Plus, Inc. and BankBoston, N.A., including
the Certificate of Determination, the form of Rights Certificate and the Summary of Rights, incorporated by
reference to Exhibit 1 to the Form 8-A filed on July 27, 1998.
13 Registrant's 1998 Annual Report to Shareholders (only those portions specifically incorporated by reference into
this Report are deemed "filed" with the Securities and Exchange Commission).
21 List of Subsidiaries, incorporated by reference to Exhibit 21.1 to the Registration Statement on Form S-1 effective
April 3, 1996.
23 Independent Auditors' Consent.
27 Financial Data Schedule for the fiscal year ended January 30, 1999 (submitted for SEC use only).
* Management compensation plan or arrangement.
14