-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EmX8Adgg+lZ23HeaRL2W5tT866utTG0173bgR6vCJe4qMrnfzIuDnU6eKHKmYmfw 8AYZCosN9O8SBgvVEu7isg== /in/edgar/work/20000908/0001019687-00-001269/0001019687-00-001269.txt : 20000922 0001019687-00-001269.hdr.sgml : 20000922 ACCESSION NUMBER: 0001019687-00-001269 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000729 FILED AS OF DATE: 20000908 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOT TOPIC INC /CA/ CENTRAL INDEX KEY: 0001017712 STANDARD INDUSTRIAL CLASSIFICATION: [5990 ] IRS NUMBER: 770198182 STATE OF INCORPORATION: CA FISCAL YEAR END: 0130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-28784 FILM NUMBER: 718614 BUSINESS ADDRESS: STREET 1: 18305 EAST SAN JOSE AVENUE CITY: CITY OF INDUSTRY STATE: CA ZIP: 91748 BUSINESS PHONE: 6268394681 MAIL ADDRESS: STREET 1: 18305 EAST SAN JOSE AVENUE CITY: CITY OF INDUSTRY STATE: CA ZIP: 91768 10-Q 1 0001.txt HOT TOPIC, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE X SECURITIES EXCHANGE ACT OF 1934 - For the quarterly period ended July 29, 2000 ------------- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR l5(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------- ------------ COMMISSION FILE NUMBER: 0-28784 HOT TOPIC, INC. --------------- (Exact name of Registrant as Specified in Its Charter) CALIFORNIA 77-0198182 - ---------- ---------- (State of Incorporation) (IRS Employer Identification No.) 18305 EAST SAN JOSE AVE., CITY OF INDUSTRY, CA 91748 - ---------------------------------------------- ----- (Address of Principal Executive Offices) (Zip Code) (Telephone Number of Registrant) (626) 839-4681 -------------- 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 [ ] APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of the issuer's common stock as of the latest practicable date: August 30, 2000 - - 9,897,933 shares, no par value. HOT TOPIC, INC. INDEX TO FORM 10-Q Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited): Consolidated Balance Sheets - July 29, 2000 and January 29, 2000 3 Consolidated Statements of Income for the: 13 and 26 weeks ended July 29, 2000 and July 31, 1999 4 Consolidated Statements of Cash Flows for the 26 weeks ended July 29, 2000 and July 31, 1999 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Quantitative and qualitative disclosure about market risk 10 PART II. OTHER INFORMATION 10 Item 4. Submission of Matters to a Vote of Security Holders 10 Item 6. Exhibits and Reports on form 8-K 10 SIGNATURE PAGE 11 2 HOT TOPIC, INC. and SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) July 29,2000 Jan 29,2000(a) ------------- ------------- ASSETS Current Assets: Cash and cash equivalents $ 28,647,000 $ 39,550,000 Inventory 24,930,000 15,367,000 Prepaid expenses and other 7,732,000 1,580,000 Deferred tax asset 721,000 721,000 ------------- ------------- Total current assets 62,030,000 57,218,000 Leaseholds, fixtures and equipment: Furniture, fixtures and equipment 29,624,000 25,396,000 Leasehold improvements 25,691,000 21,419,000 ------------- ------------- 55,315,000 46,815,000 Less accumulated depreciation 18,607,000 15,094,000 ------------- ------------- Net leaseholds, fixtures and equipment 36,708,000 31,721,000 Deposits and other assets 95,000 83,000 ------------- ------------- Total Assets $ 98,833,000 $ 89,022,000 ============ ============= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $ 11,365,000 $ 6,215,000 Accrued payroll and related expenses 7,532,000 8,452,000 Accrued sales and other taxes payable 1,003,000 638,000 Income taxes payable 1,744,000 4,289,000 Current portion of capital lease obligations 75,000 60,000 ------------- ------------- Total current liabilities 21,719,000 19,654,000 Deferred rent 1,252,000 1,104,000 Capital lease obligations, less current portion 138,000 171,000 Deferred tax liability 816,000 816,000 Shareholders' equity Common shares, no par value; 50,000,000 shares authorized; 9,894,709 and 9,660,844 issued and outstanding at July 29, 2000 and January 29, 2000, respectively 42,728,000 40,668,000 Deferred compensation - (7,000) Retained earnings 32,180,000 26,616,000 ------------- ------------- Total shareholders' equity 74,908,000 67,277,000 ------------- ------------- Total liabilities and shareholders' equity $ 98,833,000 $ 89,022,000 ============= ============= (a) - The balance sheet at Jan. 29, 2000 is derived from the audited financial statements at that date. See accompanying notes. 3 HOT TOPIC, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) Second Quarter (13 weeks ended) --------------------------- July 29, 2000 July 31, 1999 Net sales $51,718,000 $32,779,000 Cost of goods sold, including buying, distribution and occupancy costs 32,431,000 21,366,000 ------------ ------------ Gross margin 19,287,000 11,413,000 Selling, general and administrative expenses 14,709,000 9,775,000 ------------ ------------ Operating income 4,578,000 1,638,000 Interest income-net 376,000 177,000 ------------ ------------ Income before income taxes 4,954,000 1,815,000 Provision for income taxes 1,833,000 663,000 ------------ ------------ Net income $ 3,121,000 $ 1,152,000 ============ ============ Net income per share Basic $ 0.32 $ 0.13 Diluted $ 0.29 $ 0.12 Weighted average shares outstanding Basic 9,866,000 9,239,000 Diluted 10,647,000 9,632,000 See accompanying notes Six Months (26 weeks ended) --------------------------- July 29, 2000 July 31, 1999 Net sales $96,556,000 $61,065,000 Cost of goods sold, including buying, distribution and occupancy costs 60,501,000 39,906,000 Gross margin 36,055,000 21,159,000 Selling, general and administrative expenses 28,021,000 18,740,000 ------------ ------------ Operating income 8,034,000 2,419,000 Interest income-net 798,000 396,000 ------------ ------------ Income before income taxes 8,832,000 2,815,000 Provision for income taxes 3,268,000 1,028,000 ------------ ------------ Net income $ 5,564,000 $ 1,787,000 ============ ============ Net income per share Basic $ 0.57 $ 0.19 Diluted $ 0.53 $ 0.19 Weighted average shares outstanding Basic 9,793,000 9,240,000 Diluted 10,577,000 9,528,000 See accompanying notes 4 HOT TOPIC, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - (Unaudited) Year-to-date (26 weeks) ended ------------------------------ July 29, 2000 July 31, 1999 Net income $ 5,564,000 $ 1,787,000 Adjustments to reconcile net income to net cash flows provided by (used in) operating activities: Depreciation and amortization 3,667,000 2,594,000 Deferred rent 147,000 209,000 Deferred compensation 7,000 18,000 Loss on disposal of fixed assets 70,000 192,000 Changes in operating assets and liabilities: Inventory (9,563,000) (6,837,000) Prepaid expenses and other (6,152,000) (1,098,000) Deposits and other assets (13,000) (4,000) Accounts payable 5,150,000 6,498,000 Accrued payroll and related expenses (921,000) 580,000 Accrued sales and other taxes payable 366,000 280,000 Income taxes payable (2,545,000) (991,000) ------------- ------------- Net cash flows provided by (used in) operating activities (4,223,000) 3,228,000 Investing Activities: Purchases of property and equipment (8,723,000) (9,559,000) ------------- ------------- Net cash flows used in investing activities (8,723,000) (9,559,000) Financing Activities: Payments on capital lease obligations (17,000) (16,000) Repurchase common shares - (1,065,000) Proceeds from exercise of stock options 2,060,000 427,000 ------------- ------------- Net cash flows (used in) provided by financing activities 2,043,000 (654,000) ------------- ------------- Decrease in cash and cash equivalents (10,903,000) (6,985,000) Cash and cash equivalents at the beginning of period 39,550,000 24,574,000 ------------- ------------- Cash and cash equivalents at the end of period $ 28,647,000 $ 17,589,000 ============= ============= Supplemental Information: Cash paid during the period for interest $ 17,000 $ 12,000 Cash paid during the period for income taxes $ 9,772,000 $ 2,145,000 Capital lease obligations entered into for equipment - $ 112,000 See accompanying notes. 5 HOT TOPIC, INC. and SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1. Organization and Basis of Presentation: --------------------------------------- Hot Topic, Inc. (the "Company") is a mall-based specialty retailer of music-licensed and music-influenced apparel, accessories and gift items for young men and women principally between the ages of 12 and 22. At the end of the quarter (July 29, 2000), the Company operated 247 stores in 44 states throughout the United States. The information set forth in these financial statements is unaudited except for the January 29, 2000 balance sheet. These statements have been prepared in accordance with generally accepted accounting principles for interim financial information, the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation have been included. The results of operations for the 13 and 26 weeks ended July 29, 2000 are not necessarily indicative of the results that may be expected for the year ending February 3, 2001. For further information, refer to the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended January 29, 2000. NOTE 2. Net Income Per Share: --------------------- The Company computes net income per share pursuant to Statement of Financial Accounting Standards Board No. 128 "Earnings Per Share" (Statement No. 128). Basic net income per share is computed based on the weighted average number of shares outstanding for the period. Diluted net income per share is computed based on the weighted average number of common and potentially dilutive common stock equivalents outstanding for the period. 6 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis should be read in conjunction with the Company's Consolidated Financial Statements and the Notes related thereto. RESULTS OF OPERATIONS 13 Weeks Ended July 29, 2000 (Second Quarter of Fiscal 2000) Compared to 13 Weeks Ended July 31, 1999 (Second Quarter of Fiscal 1999) - -------------------------------------------------------------------------------- Net sales increased $18,939,000 or 57.8%, to $51,718,000 during the second quarter of fiscal 2000 from $32,779,000 during the second quarter of fiscal 1999. The increased sales in the second quarter of fiscal 2000 were attributable to an increase in the number of stores and to a 21.8% increase in comparable store sales as compared to the second quarter of fiscal 1999. Net sales for the 83 stores not yet qualifying as comparable stores contributed approximately $12,450,000 of the increase in net sales. The comparable store sales increase of 21.8% contributed approximately $6,500,000 of the increase in net sales. In the second quarter of fiscal 1999, comparable store sales increased by 16.9% as compared to the second quarter of fiscal 1998. Sales of apparel category merchandise, as a percentage of total net sales, were 49% in the second quarter of 2000 compared to 47% in the second quarter of 1999. Average sales per store increased by approximately 19% to $220,000 in the current quarter from $185,000 in last year's second quarter. Gross margin increased approximately $7,874,000 to $19,287,000 during the second quarter of fiscal 2000 from $11,413,000 during the second quarter of fiscal 1999. As a percentage of net sales, gross margin increased to 37.3% during the second quarter of fiscal 2000 from 34.8% in the second quarter of fiscal 1999. The increase in gross margin as a percentage of net sales reflects primarily an increase in merchandise margins and the leveraging of occupancy expenses by the higher average net sales per store. The Company's merchandise margins, as a percentage of sales, were approximately 0.9% higher in the second quarter of 2000 compared to the second quarter of 1999, principally from an average higher initial mark up and lower shrinkage. Distribution and buying expenses were also slightly lower as a percentage of sales in the current quarter compared to the last year's second quarter, reflecting increased efficiencies. Selling, general and administrative expenses increased approximately $4,934,000 to $14,709,000 during the second quarter of fiscal 2000 from $9,775,000 during the second quarter of fiscal 1999, but decreased as a percentage of net sales to 28.4% in the second quarter of fiscal 2000 from 29.8% in the second quarter of fiscal 1999. The decrease as a percentage of net sales was primarily attributable to a reduction of general and administrative expense as a percentage of net sales due to the operating leverage achieved through the higher average sales per store. Operating income increased approximately $2,940,000 to $4,578,000 during the second quarter of fiscal 2000 from $1,638,000 during the second quarter of fiscal 1999. As a percentage of net sales, the operating income was 8.9% in the second quarter of fiscal 2000 compared to 5.0% in the second quarter of fiscal 1999. Interest income, net, increased approximately $199,000 to $376,000 in the second quarter of fiscal 2000 from $177,000 in the second quarter of fiscal 1999, principally due to higher average cash balances. 7 26 Weeks Ended July 29, 2000 (First Six Months of Fiscal 2000) Compared to 26 Weeks Ended July 31, 1999 (First Six Months of Fiscal 1999) - -------------------------------------------------------------------------------- Net sales increased $35,491,000, or 58.1%, to $96,556,000 during the first six months of fiscal 2000 from $61,065,000 during the first six months of fiscal 1999. Net sales for the 83 stores not yet qualifying as comparable stores contributed approximately $22,550,000 of the increase in net sales. Comparable store sales increased 22.9% and contributed approximately $12,900,000 of the increase in net sales for the first six months of fiscal 2000. The increased sales in the first six months of fiscal 2000 were attributable to increases in the sales of apparel category merchandise as a percentage of total net sales and improvements in the allocation and distribution of merchandise to the stores. Gross margin increased approximately $14,896,000 to $36,055,000 during the first six months of fiscal 2000 from $21,159,000 during the first six months of fiscal 1999. As a percentage of net sales, gross margin increased to 37.3% during the first six months of fiscal 2000 from 34.7% in the first six months of fiscal 1999. The increase in gross margin as a percentage of net sales reflects primarily an increase in merchandise margins and the leveraging of occupancy expenses by the higher average net sales per store. The Company's merchandise margins, as a percentage of sales, were approximately 1.0% higher in the first six months of fiscal 2000 compared to the first six months of fiscal 1999, principally from an average higher initial mark up and lower shrinkage. Selling, general and administrative expenses increased approximately $9,281,000 to $28,021,000 during the first six months of fiscal 2000 from $18,740,000 during the first six months of fiscal 1999, but decreased as a percentage of net sales to 29.0% in the first six months of fiscal 2000 from 30.7% in the first six months of fiscal 1999. The decrease as a percentage of net sales was primarily attributable to a reduction of general and administrative expense as a percentage of net sales due to the operating leverage achieved through the higher average sales per store. Operating income increased to $8,034,000 during the first six months of fiscal 2000 from $2,419,000 during the first six months of fiscal 1999. As a percentage of net sales, operating income was 8.3% for the first six months of fiscal 2000 compared to 4.0% for the first six months of fiscal 1999. Interest income, net, increased approximately $402,000 to $798,000 in the first six months of fiscal 2000 from $396,000 in the first six months of fiscal 1999, principally due to higher average cash balances. LIQUIDITY AND CAPITAL RESOURCES Historically, as well as during the second quarter and first half of fiscal 2000, the Company's primary uses of cash have been to finance store openings and to purchase merchandise inventories. The Company has historically satisfied its cash requirements principally from cash flows from operations, and in earlier years also from proceeds from the sale of equity securities. Working capital at July 29, 2000 was $40,311,000 compared to $37,564,000 at January 29, 2000. Cash flows (used in) provided by operating activities were ($4,223,000) and $3,228,000 in the first six months of fiscal 2000 and 1999, respectively. The increase in cash flows used in operating activities in the first six months of fiscal 2000 was primarily due to the increase in inventories, increase in prepaid and other expenses, payments of bonuses earned in fiscal 1999 and payment of income taxes, all net of an increase in net income. Cash flows used in investing activities were $8,723,000 and $9,559,000 in the first six months of fiscal 2000 and 1999, respectively. Cash flows used in investing activities relate primarily to store openings, computer hardware and software and, in 1999, to the construction, equipment, fixtures and furniture for the Company's new headquarters and merchandise distribution facility. The Company opened 35 and 26 stores in the first six months of fiscal 2000 and 1999, respectively. 8 Cash flows provided by (used in) financing activities were $2,043,000 and ($654,000) in the first six months of fiscal 2000 and 1999, respectively. In the first six months of 2000, $2,060,000 was received on the exercise of stock options compared to $427,000 in the first six months of fiscal 1999. The increase in cash flows used in financing activities is primarily due to the Company's use of $1,065,000 to repurchase 138,000 shares of its Common Stock in the first six months of fiscal 1999. The Company believes that its current cash balances and cash generated from operations will be sufficient to fund its operations and planned expansion through fiscal 2000. SEASONALITY The Company's business is subject to seasonal influences, with heavier concentrations of sales during the Christmas holiday, back-to-school season, the Halloween holiday and other periods when schools are not in session. The Christmas holiday season remains the Company's single most important selling season. As is the case with many retailers of apparel, accessories and related merchandise, the Company typically experiences lower net sales during the first fiscal quarter. The Company does not believe that inflation has had a material adverse effect on its net sales or results of operations. The Company has generally been able to pass on increased costs related to inflation through increases in selling prices. STATEMENT REGARDING FORWARD LOOKING DISCLOSURE Certain sections of this Quarterly Report on Form 10-Q, including the preceding "Management's Discussion and Analysis of Financial Condition and Results of Operations," contain various forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Exchange Act, which represent the Company's expectations or beliefs concerning future events. These forward looking statements involve risks and uncertainties, and the Company cautions that these statements are further qualified by important factors that could cause actual results to differ materially from those in the forward looking statements, including, without limitation, the sufficiency of the Company's working capital and cash flows from operating activities, the implementation and management of the Company's growth strategy, the demand for the merchandise offered by the Company, the ability of the Company to obtain adequate merchandise supply, the ability of the Company to gauge the fashion tastes of its customers and provide merchandise that satisfies customer demand, the effect of economic conditions, the effect of severe weather or natural disasters, and the effect of competitive pressures from other retailers as well as other risks detailed from time to time in the Company's SEC reports, including the Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2000. 9 ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Not applicable. PART II. - OTHER INFORMATION Items 1-3 and 5 are not applicable. Item 4. Submission of Matters to a vote of Security Holders The annual meeting of shareholders of the Company (the "Annual Meeting") was held on June 28, 2000 in the City of Industry, California. The Company had 9,834,791 shares of Common Stock outstanding as of May 4, 2000, the record date for the Annual Meeting. Proposal 1 - Election of Directors Each of the candidates listed below were duly elected to the Board of directors at the Annual Meeting by the tally indicated. Candidate Votes in Favor Votes Withheld --------- -------------- -------------- Robert M. Jaffe 8,411,315 575,831 Orval D. Madden 6,834,573 2,152,573 Elizabeth M. McLaughlin 8,939,475 47,671 Edgar F. Berner 8,937,657 49,489 Bruce A. Quinnell 8,938,907 48,239 Corrado Federico 8,937,557 49,589 Andrew Schuon 8,938,707 49,439 Proposal 2 - Amendment to the 1996 Equity Incentive Stock Option Plan Votes in favor Votes Against Votes Abstained -------------- ------------- --------------- 3,475,336 3,269,513 12,234 Proposal 3 - Amendment to the 1996 Non-Employee Director Stock Option Plan Votes in favor Votes Against Votes Abstained -------------- ------------- --------------- 7,503,481 1,452,700 3,965 Proposal 4 - Ratification of Selection of Ernst & Young, LLP as Independent Auditors Votes in favor Votes Against Votes Abstained -------------- ------------- --------------- 8,979,993 5,315 1,838 Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits 27.1 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the period. 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. Hot Topic, Inc. (Registrant) Date: 9/5/2000 /s/ Elizabeth M. McLaughlin -------- --------------------------- Elizabeth M. McLaughlin President and Chief Executive Officer (principal executive officer) Date: 9/5/2000 /s/ Jay A. Johnson -------- --------------------------- Jay A. Johnson Chief Financial Officer (principal financial and accounting officer) 11 EX-27.1 2 0002.txt FINANCIAL DATA SCHEDULE
5 1,000 3-MOS 6-MOS FEB-03-2001 FEB-03-2001 APR-30-2000 JAN-30-2000 JUL-29-2000 JUL-29-2000 28,647 28,647 0 0 0 0 0 0 24,930 24,930 62,030 62,030 55,315 55,315 18,607 18,607 98,833 98,833 21,719 21,719 0 0 0 0 0 0 42,728 42,728 32,180 32,180 98,833 98,833 51,718 96,556 51,718 96,556 32,431 60,501 32,431 60,501 14,709 28,021 0 0 0 0 4,954 8,832 1,833 3,268 3,121 5,564 0 0 0 0 0 0 3,121 5,564 0.32 0.57 0.29 0.53
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