-----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, Wr2kSvQgpkKRp+gvgvLPSwL5PtqJ2mJkBpMtW9O3v/wktksHuV4ypJXhh5S4xGxM T358xdDm9GSHwMZ/gQcOvQ== 0000929624-98-001138.txt : 19980616 0000929624-98-001138.hdr.sgml : 19980616 ACCESSION NUMBER: 0000929624-98-001138 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980502 FILED AS OF DATE: 19980615 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: COST PLUS INC/CA/ CENTRAL INDEX KEY: 0000798955 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-VARIETY STORES [5331] IRS NUMBER: 941067973 STATE OF INCORPORATION: CA FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-14970 FILM NUMBER: 98648088 BUSINESS ADDRESS: STREET 1: 201 CLAY ST STREET 2: P O BOX 23350 CITY: OAKLAND STATE: CA ZIP: 94607 BUSINESS PHONE: 4158937300 MAIL ADDRESS: STREET 1: P O BOX 23350 STREET 2: P O BOX 23350 CITY: OAKLAND STATE: CA ZIP: 94623 10-Q 1 FORM 10-Q 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 May 2, 1998 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 incorporation or (I.R.S. Employer Identification No.) organization) 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 June 5, 1998 was 8,733,868. COST PLUS, INC. FORM 10-Q FOR THE QUARTER ENDED MAY 2, 1998 INDEX
PART I. FINANCIAL INFORMATION PAGE ITEM 1. Condensed Consolidated Financial Statements Balance Sheets (unaudited) as of May 2, 1998, January 31, 1998 and May 3, 1997 3 Statements of Operations (unaudited) for the three months ended May 2, 1998 and May 3, 1997 4 Statements of Cash Flows (unaudited) for the three months ended May 2, 1998 and May 3, 1997 5 Notes to Condensed Consolidated Financial Statements 6 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-8 PART II. OTHER INFORMATION ITEM 5. Other Information 9 ITEM 6. Exhibits and Reports on Form 8-K 9 SIGNATURE PAGE 10
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS COST PLUS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS, UNAUDITED)
MAY 2, JANUARY 31, MAY 3, 1998 1998 1997 --------- ------------ ----------- ASSETS Current assets: Cash and cash equivalents $ 19,106 $ 27,434 $ 5,291 Merchandise inventories 53,949 56,606 40,611 Other current assets 3,212 3,137 2,406 --------- ------------ ----------- Total current assets 76,267 87,177 48,308 Property and equipment, net 52,821 53,539 59,594 Other assets 11,198 11,284 8,542 --------- ------------ ----------- Total assets $ 140,286 $ 152,000 $ 116,444 ========= ============ =========== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 10,143 $ 13,707 $ 9,373 Income taxes payable -- 6,282 -- Accrued compensation 6,917 7,132 5,847 Other current liabilities 7,805 7,426 7,397 --------- ------------ ----------- Total current liabilities 24,865 34,547 22,617 Capital lease obligations 15,547 15,692 14,097 Deferred income taxes 1,969 1,969 3,548 Other long-term obligations 4,337 4,183 2,756 Shareholders' equity: Preferred stock, $.01 par value: 5,000,000 shares authorized; none issued and outstanding -- -- -- Common stock, $.01 par value: 30,000,000 shares authorized; issued and outstanding 8,730,568, 8,688,488 and 8,111,307 87 87 81 Additional paid-in capital 101,220 103,553 91,276 Deficit (7,739) (8,031) (17,931) --------- ------------ ----------- Total shareholders' equity 93,568 95,609 73,426 --------- ------------ ----------- Total liabilities and shareholders' equity $ 140,286 $ 152,000 $ 116,444 ========= ============ ===========
See notes to condensed consolidated financial statements. 3 COST PLUS, INC. STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS (IN THOUSANDS EXCEPT PER SHARE AMOUNTS, UNAUDITED)
THREE MONTHS ENDED ------------------------- MAY 2, MAY 3, 1998 1997 ----------- ----------- NET SALES $ 56,839 $ 48,532 COST OF SALES AND OCCUPANCY 37,772 31,806 ----------- ----------- GROSS PROFIT 19,067 16,726 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 18,330 15,786 PREOPENING STORE EXPENSES 80 440 ----------- ----------- INCOME FROM OPERATIONS 657 500 NET INTEREST EXPENSE 178 321 ----------- ----------- INCOME BEFORE INCOME TAXES 479 179 INCOME TAX PROVISION 187 72 ----------- ----------- NET INCOME $ 292 $ 107 =========== =========== NET INCOME PER SHARE BASIC $ 0.03 $ 0.01 DILUTED $ 0.03 $ 0.01 WEIGHTED AVERAGE SHARES OUTSTANDING BASIC 8,679 8,106 DILUTED 9,026 8,419
SEE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 4 COST PLUS, INC. STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS (IN THOUSANDS, UNAUDITED)
THREE MONTHS ENDED ------------------------- MAY 2, MAY 3, 1998 1997 ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 292 $ 107 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 2,136 1,896 Loss on disposal of property and equipment 12 10 Change in assets and liabilities: Merchandise inventories 2,657 1,994 Other assets (163) (103) Accounts payable (2,947) (4,717) Income taxes payable (6,282) (6,095) Other liabilities 296 (439) ----------- ----------- Net cash used in operating activities (3,999) (7,347) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (1,873) (1,766) ----------- ----------- Net cash used in investing activities (1,873) (1,766) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on capital lease obligations (123) (104) Cash used for stock repurchase (3,750) -- Net proceeds from issuance of stock 1,417 110 ----------- ----------- Net cash provided by (used in) financing activities (2,456) 6 ----------- ----------- Net decrease in cash and cash equivalents (8,328) (9,107) Cash and cash equivalents: Beginning of period 27,434 14,398 ----------- ----------- End of period $ 19,106 $ 5,291 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for interest $ 191 $ 329 =========== =========== Cash paid during the year for taxes $ 6,503 $ 6,238 =========== ===========
See notes to condensed consolidated financial statements. 5 COST PLUS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE MONTHS ENDED MAY 2, 1998 AND MAY 3, 1997 (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 May 2, 1998 and May 3, 1997; the interim results of operations for the three months ended May 2, 1998 and May 3, 1997; and changes in cash flows for the three months then ended. The balance sheet at January 31, 1998, presented herein, has been derived from the audited financial statements of the Company for the fiscal year then ended. Accounting policies followed by the Company are described in Note 1 to the audited consolidated financial statements for the fiscal year ended January 31, 1998. 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 fiscal year ended January 31, 1998. The results of operations for the three month period herein presented are not necessarily indicative of the results to be expected for the full year. Impact of New Accounting Standards -- Effective February 1, 1998, Cost Plus, Inc. adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement requires that all items recognized under accounting standards as components of comprehensive income be reported in an annual financial statement that is displayed with the same prominence as other annual financial statements. This Statement also requires that an entity classify items of other comprehensive income by their nature in an annual financial statement. For example, other comprehensive income may include foreign currency translation adjustments, minimum pension liability adjustments, and unrealized gains and losses on marketable securities classified as available-for-sale. Comprehensive income does not differ from net income for Cost Plus, Inc. for the first quarter of fiscal 1998 and fiscal 1997. 2. REVOLVING LINE OF CREDIT AGREEMENT On May 7, 1996, the Company entered into a revolving line of credit agreement with Bank of America which was amended on May 15, 1997 and expires June 1, 1999. The amended agreement allows for cash borrowing and letters of credit up to $20.0 million from January 1 through June 30 and up to $35.0 million from July 1 through December 31 of each year. Interest is paid monthly at the bank's reference rate (8.50% at May 2, 1998) or LIBOR plus 1.75%, depending on the nature of the borrowings. The agreement is secured by the Company's inventory and receivables. The Company is subject to certain financial covenants including minimum tangible net worth and earnings coverage ratio. At May 2, 1998, the Company had no outstanding borrowings under the line of credit and $2.3 million outstanding under letters of credit. 3. RECONCILIATION OF BASIC SHARES TO DILUTED SHARES The following is a reconciliation of the weighted average number of shares (in thousands) used in the Company's Basic and Diluted per share computations.
THREE MONTHS ENDED -------------------------- MAY 2, 1998 MAY 3, 1998 ------------ ------------ Basic shares 8,679 8,106 Effect of diluted stock options 347 313 ----- ----- Diluted shares 9,026 8,419 ===== =====
6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THE THREE MONTHS (FIRST QUARTER) ENDED MAY 2, 1998 AS COMPARED TO THE THREE MONTHS (FIRST QUARTER) ENDED MAY 3, 1997. NET SALES. Net sales increased $8.3 million, or 17.1%, to $56.8 million in the first quarter of fiscal 1998 from $48.5 million in the first quarter of fiscal 1997. This increase in net sales was attributable to new stores and an increase in comparable store sales. At May 2, 1998, the Company operated 71 stores as compared to 60 stores at May 3, 1997. These additional 11 stores contributed $5.9 million of the sales increase. Comparable store sales increased 6.1% in fiscal 1998 primarily as a result of a larger average transaction size. GROSS PROFIT. As a percentage of net sales, first quarter gross profit was 33.5% in fiscal 1998 compared to 34.5% in fiscal 1997. The decline in gross profit resulted from higher occupancy costs in new stores. New stores generally have higher occupancy costs, as a percentage of net sales, until they reach maturity. SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES. As a percentage of net sales, SG&A expenses declined to 32.1% in the first quarter of fiscal 1998 compared to 32.5% in the first quarter of the prior fiscal year. Lower store and corporate payroll expenses were partially offset by higher advertising expenses. PREOPENING STORE EXPENSES. Preopening store expenses, which include grand opening advertising and preopening merchandising expenses, were lower in the first quarter of fiscal 1998 as a result of incurring preopening merchandising expenses for one store compared to incurring both grand opening advertising and preopening merchandising expenses for two stores in the prior year. NET INTEREST EXPENSE. Net interest expense for the first quarter, which includes capital lease interest and interest expense net of interest income, was $178,000 for fiscal 1998 and $321,000 for fiscal 1997. This decline was due to higher interest income. Interest income increased due to cash generated from the sale of the Company's San Francisco property and the leaseback of its store facility in September 1997 and a secondary offering of common stock in October 1997. PROVISION FOR INCOME TAXES. The Company's effective tax rate was reduced in the first quarter of fiscal 1998 to 39% from 40% in fiscal 1997, primarily as a result of the Company's expansion into states with lower tax rates. FACTORS THAT MAY AFFECT FUTURE RESULTS 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 these interim periods are not necessarily indicative of the results for the 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 mark down 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 preopening store 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. This Form 10-Q contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. 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 above. 7 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 borrowing under the Company's credit facilities and internally generated funds. The Company believes that its cash and cash equivalents, 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. Net cash used in operating activities in the first quarter ended May 2, 1998, totaled $4.0 million, a decrease of $3.3 million over the prior year. This decrease resulted primarily from the timing of payments for merchandise inventory. Net cash used in investing activities, primarily for new stores, totaled $1.9 million in the first quarter of 1998 compared to $1.8 million in the prior year. The Company estimates that capital expenditures will approximate $13.7 million in the 1998 fiscal year. Net cash used in financing activities was $2.5 million in the first quarter of fiscal 1998 primarily as a result of the repurchase of 150,001 shares of common stock for $3.8 million from the Company's retiring Chief Executive Officer, which was partially offset by stock issued under the Company's stock option and stock purchase plans. In the first quarter of fiscal 1997, net cash provided by financing activities was minimal. On May 7, 1996, the Company entered into a revolving line of credit agreement with Bank of America which was amended on May 15, 1997 and expires June 1, 1999. The amended agreement allows for cash borrowings and letters of credit up to $20.0 million from January 1 through June 30 and up to $35.0 million from July 1 through December 31 of each year. Interest is paid monthly at the bank's reference rate (8.50% at May 2, 1998) or LIBOR plus 1.75%, depending on the nature of the borrowings. The agreement is secured by the Company's inventory and receivables. The Company is subject to certain financial covenants including minimum tangible net worth and earnings coverage ratio. At May 2, 1998, the Company had no outstanding borrowings under the line of credit and $2.3 million outstanding under letters of credit. IMPACT OF NEW ACCOUNTING STANDARD Effective February 1, 1998, Cost Plus, Inc. adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This Statement requires that all items recognized under accounting standards as components of comprehensive income be reported in an annual financial statement that is displayed with the same prominence as other annual financial statements. This Statement also requires that an entity classify items of other comprehensive income by their nature in an annual financial statement. For example, other comprehensive income may include foreign currency translation adjustments, minimum pension liability adjustments, and unrealized gains and losses on marketable securities classified as available-for-sale. Comprehensive income does not differ from net income for Cost Plus, Inc. for the first quarter of fiscal 1998 and fiscal 1997. 8 PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION Ron Perkuchin joined the Company as Vice President, Distribution effective May 19, 1998. Previously, Mr. Perkuchin was employed with Ross Stores and has over twenty years of experience in retail distribution and logistics. Additionally, Judy Soares joined the Company effective May 19, 1998 as Vice President, Information Systems. Ms. Soares joined the Company from Natural Wonders with more than twenty years of experience in information systems at specialty retailers. On June 15, 1998, John Hoffner joined the Company as Executive Vice President of Administration, Chief Financial Officer and Secretary. Mr. Hoffner joins the Company from Sweet Factory, Inc. with nearly twenty-five years of retail experience. The Company's press releases dated May 19, 1998 and June 8, 1998 announcing these changes in management structure are attached as Exhibit 10.1 and Exhibit 10.2, respectively, which are incorporated herein by reference. ITEM 6. EXHIBITS AND REPORTS ON FORM 8K (a) Exhibits 10.1 Press release of May 19, 1998 announcing changes in management structure. 10.2 Press release of June 8, 1998 naming John Hoffner Executive Vice President of Administration, Chief Financial Officer. 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 three month period ended May 2, 1998. 9 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 /s/ Murray Dashe Date: June 15, 1998 --------------------------------- By: Murray Dashe Chairman, Chief Executive Officer and President
10 EX-10.1 2 PRESS RELEASE EXHIBIT 10.1 [COST PLUS LETTERHEAD APPEARS HERE] FOR IMMEDIATE RELEASE - --------------------- COST PLUS, INC. ANNOUNCES CHANGES IN MANAGEMENT STRUCTURE Oakland, CA - May 19, 1998 - Cost Plus, Inc. (NASDAQ:CPWM) announced today a number of changes in the management of its support operations, to better position the Company for future growth. Ron Perkuchin joins the Company as Vice President Distribution, and Judy Soares joins the Company as Vice President Information Systems. Mr. Perkuchin was most recently with Ross Stores, and has over twenty years of experience in retail distribution and logistics. Ms. Soares joins Cost Plus from Natural Wonders with more than twenty years of experience in information systems at specialty retailers. The creation of the new position of Executive Vice President, Administration and Chief Financial Officer was also announced. This position will oversee finance, accounting, information systems, and inventory management. The Company expects to announce the executive filling this role late in June. The Company also announced the pending retirement of Dennis Daugherty, Executive Vice President, Operations in the coming months, and the resignation of Patricia Saucy, Vice President Finance, and Acting Chief Financial Officer, who will be leaving to join another company. Chairman and Chief Executive Officer Murray Dashe said, "The Company appreciates the significant contributions of both Pat Saucy and Dennis Daugherty during the initial phases of its growth and development." Cost Plus, Inc. is a leading specialty retailer of casual home living and entertaining products. The Company operates 71 stores in 13 states under the name, "Cost Plus World Market." Contact: Murray Dashe (510)893-7300 ext. 3002 EX-10.2 3 PRESS RELEASE EXHIBIT 10.2 [COST PLUS LETTERHEAD APPEARS HERE] FOR IMMEDIATE RELEASE COST PLUS, INC. NAMES JOHN HOFFNER EXECUTIVE VICE PRESIDENT OF ADMINISTRATION/CHIEF FINANCIAL OFFICER. Oakland, CA - June 8, 1998 - Cost Plus, Inc. (Nasdaq:CPWM) announced today that John F. Hoffner will join the Company on June 15, 1998 as Executive Vice President of Administration, Chief Financial Officer, and Secretary. In addition to his financial duties, Mr. Hoffner will oversee information systems, inventory management, and other administrative support areas. He will report to Murray H. Dashe, Chairman, Chief Executive Officer, and President. Dashe stated, "We are quite pleased to have John Hoffner join us. His extensive financial and administrative experience with rapid-growth retailers fits well with our expansion plans." "It is a real pleasure to be returning to the San Francisco Bay Area to join this exceptional retailing company," said Hoffner. Hoffner has nearly 25 years of retail experience. He joins Cost Plus from Sweet Factory, Inc. where he served as Executive Vice President and Chief Financial Officer. That company has grown from 45 to 240 locations in just seven years and is the leading specialty candy retailer in the United States. He has also served as Senior Vice President, Finance and Administration for Wherehouse Entertainment, Inc. and Vice President/Chief Financial Officer for Pic N Save Stores (MacFrugal's). Earlier in his career, he was Controller and Director of Financial Services for the Mervyn's Division of Dayton-Hudson, and was an Assistant Controller with Federated Department Stores. He began his career with Procter & Gamble. Mr. Hoffner received his bachelor of science degree in Industrial Management from Purdue University and his MBA from Xavier University. He currently serves as a director on the Board of the Krannert Management School of Purdue University. Cost Plus, Inc. is a leading specialty retailer of casual home living and entertaining products. The company operates 72 stores under the name "Cost Plus World Market" in 13 states. Contact: Murray Dashe Chairman, CEO, and President (510) 893-7300 ext. 3002 EX-27 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF COST PLUS, INC FOR THE THREE MONTHS ENDED MAY 2, 1998. 1,000 3-MOS JAN-30-1999 FEB-01-1998 MAY-02-1998 19,106 0 0 0 53,949 76,267 91,746 38,925 140,286 24,865 0 0 0 87 93,481 140,286 56,839 56,839 37,772 56,182 0 0 178 479 187 292 0 0 0 292 .03 .03
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