UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-QA
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 1-11735
99 CENTS ONLY STORES
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-2411605
(State or other jurisdiction (I.R.S. Employer Identification No.)
or organization)
4000 UNION PACIFIC AVENUE
CITY OF COMMERCE, CALIFORNIA 90023
(Address of Principal executive offices)
Registrant's telephone number, including area code: (213) 980-8145
NONE
Former name, address and fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Security 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 last 90 days.
YES [x] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock, No Par Value, 18,587,841 Shares as of MARCH 31, 1998
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
99 Cents Only Stores
Balance Sheets
(Amounts In Thousands)
March 31, December 31,
1998 1997
(Unaudited)
---------- ----------
Assets
Current assets:
Cash................................ $2,338 $882
Short-term investments.............. 25,579 26,191
Accounts receivable, net of
allowance for doubtful accounts of
$152 and $178 as of March 31, 1998
and December 31, 1997,
respectively...................... 2,718 1,510
Inventories......................... 43,598 43,114
Other............................... 2,155 673
-------- --------
Total current assets................ 76,388 72,370
Property and equipment, at cost:
Land................................ 8,072 8,072
Building and improvements........... 10,804 10,804
Leasehold improvements.............. 13,008 10,986
Fixtures and equipment.............. 8,712 8,473
Transportation equipment............ 711 558
Construction in progress............ 623 776
-------- --------
41,930 39,669
Less - accumulated depreciation
and amortization............. (11,195) (10,228)
-------- --------
Total property and equipment, net... 30,735 29,441
Other assets:
Deferred income taxes............... 5,947 5,947
Long term investments in marketable
Securities........................ 7,505 6,393
Investment in Universal............. 2,594 3,708
Deposits............................ 234 234
Other............................... 2,167 1,120
Receivable from affiliated entity... 780 230
-------- --------
19,227 17,632
-------- --------
Total assets........................ $126,350 $119,443
======== ========
The accompanying notes are an integral part of these balance sheets.
<TABLE>
<CAPTION>
99 Cents Only Stores
Balance Sheets
(Amounts In Thousands)
<S> <C> <C>
March 31, December 31,
1998 1997
(Unaudited)
---------- ----------
Liabilities and Shareholders' Equity
Current liabilities:
Current portion of capital
lease obligation....................... $716 $704
Accounts payable......................... 6,639 5,534
Accrued expenses:
Payroll and payroll related............ 457 1,352
Sales tax.............................. 1,131 1,467
Liability for claims................... 343 396
Other.................................. 54 824
Workers' compensation.................. 1,115 1,091
Income taxes payable................... 3,447 211
-------- --------
Total current liabilities................ 13,902 11,579
Long-term liabilities:
Deferred rent............................ 1,494 1,476
Accrued interest on capitalized lease
Obligation............................. 2,224 2,075
Capital lease obligation, net of
current portion........................ 7,821 8,005
-------- --------
11,539 11,556
Commitments and contingencies............ - -
Shareholders' equity:
Preferred stock, no par value
Authorized - 1,000,000 shares
Issued and outstanding - none.......... - -
Common Stock, no par value
Authorized - 40,000,000 shares
Issued and outstanding - 18,587,841
shares at March 31, 1998 and
18,578,759 shares at December 31, 1997. 66,267 66,207
Retained earnings...................... 34,642 30,101
-------- --------
Total shareholders' equity............... 100,909 96,308
-------- --------
Total liabilities and shareholders' equity $126,350 $119,443
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
99 Cents Only Stores
Statements of Income
(Unaudited)
(Amounts In Thousands Except Earnings Per Share Data)
Three Months Ended
March 31,
1998 1997
-------- --------
Net sales:
99 Cents Only Stores................ $51,482 $39,168
Bargain Wholesale................... 11,400 11,576
-------- --------
Net sales........................... 62,882 50,744
Cost of sales....................... 39,839 33,328
-------- --------
Gross profit........................ 23,043 17,416
Selling, general and
administrative expenses........... 14,424 11,331
-------- --------
Operating income.................... 8,619 6,085
Interest income (expense), net...... 215 151
-------- --------
Income before (loss) from minority
Interest.......................... 8,834 6,236
(Loss) from minority interest....... (742) -
-------- --------
Income before provision for
Income taxes...................... 8,092 6,236
Provision for income taxes.......... 3,551 2,560
-------- --------
Net income.......................... $4,541 $3,676
======== ========
Earnings per common share:
Basic $0.24 $0.20
Diluted $0.24 $0.20
Weighted average number of common
shares outstanding:
Basic 18,582 18,521
Diluted 18,964 18,731
The accompanying notes are an integral part of these statements.
99 Cents Only Stores
Statements of Cash Flows
(Unaudited)
(Amounts In Thousands)
Three Months Ended
March 31,
1998 1997
-------- --------
Cash flows from operating activities:
Net income ........................................ $4,541 $3,676
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 999 624
Changes in asset and liabilities
Associated with operating activities:
Accounts receivable................................ (1,208) (509)
Inventories........................................ (484) (332)
Other current assets............................... (1,482) (212)
Other assets....................................... (1,629) -
Accounts payable................................... 1,105 (888)
Accrued expenses................................... (2,054) (152)
Workers' compensation.............................. 24 (45)
Income taxes payable............................... 3,236 2,423
Deferred rent...................................... 18 10
Accrued interest................................... 149 140
-------- --------
Net cash provided by operating activities 3,215 4,735
Cash flows from investing activities:
Investment in marketable securities................ (500) (329)
Purchase of property and equipment................. (2,261) (1,817)
Investment in Universal ........................... 1,114 -
-------- --------
Net cash used in investing activities.............. (1,647) (2,146)
Cash flows from financing activities:
Payments of capital lease obligation............... (172) (160)
Net proceeds from exercise of stock options........ 60 -
-------- --------
Net cash used in financing activities.............. (112) (160)
Net increase in cash............................... 1,456 2,429
Cash, beginning of period.......................... 882 3,375
-------- --------
Cash, end of period................................ $2,338 $5,804
======== ========
The accompanying notes are an integral part of these statements.
99 CENTS ONLY STORES
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
conformity with generally accepted accounting principles. However, certain
information and footnote disclosures normally included in financial
statements prepared in conformity with generally accepted accounting
principles have been omitted or condensed pursuant to the rules and
regulations of the Securities and Exchange Commission (SEC). These statements
should be read in conjunction with the Company's December 31, 1997 audited
and pro forma financial statements and notes thereto included in the
Company's Form 10-K dated March 26, 1998, including all amendments thereto.
In the opinion of management, these interim financial statements reflect all
adjustments (consisting of normal recurring adjustments) necessary for a fair
presentation of the financial position and results of operations for each of
the periods presented. The results of operations and cash flows for such
periods are not necessarily indicative of results to be expected for the full
year.
Concentration of Operations in Southern California
All of the Company's retail stores are located in Southern California. In
addition, the Company's current retail expansion plans anticipate that all
planned new stores will be located in this geographic region. Consequently,
the Company's results of operations and financial condition are dependent
upon general economic trends and various environmental factors in Southern
California.
2. Earnings Per Common Share
Earnings per share calculations are in accordance with SFAS No. 128,
"Earnings per Share" (SFAS 128). Accordingly, "basic" earnings per share is
computed by dividing net income by the weighted average number of shares
outstanding for the year. "Diluted" earnings per share is computed by
dividing net income by the total of the weighted average number of shares
outstanding plus the dilutive effect of outstanding stock options (applying
the treasury stock method). Earnings per share amounts for 1997 have been
restated to reflect the adoption of SFAS No. 128.
A reconciliation of the basic weighted average number of shares
outstanding and the diluted weighted average number of shares outstanding for
each of the three month periods ended March 31, follows (amounts in
thousands):
1998 1997
----- -----
Weighted average number of common shares 18,582 18,521
outstanding-Basic.......................
Dilutive effect of outstanding stock 382 210
options.................................
------ ------
Weighted average number of common shares 18,964 18,731
outstanding-Diluted.....................
====== ======
3. Investment in Universal International, Inc.
In November 1997, the Company acquired approximately 48% of the
outstanding common stock of Universal International, Inc. ("Universal") for
$4 million in cash and inventory. The investment in Universal is accounted
for using the equity method of accounting. The investment is increased
(reduced) by a credit (charge) to income for 48% of the Universal income
(loss). Summary information relating to the results of operations and the
financial condition of Universal for fiscal 1997 and for the first three
months of 1998 and 1997 are as follows (amounts in thousands):
March 31 March 31 December 31,
1998 1997 1997
----- ----- -----
Sales................. $15,501 $13,579 $68,705
Net loss.............. (1,553) (2,440) (11,887)
Total assets.......... 32,812 41,427 31,388
Shareholders' equity.. 6,828 14,048 8,601
During the period from the purchase of 48% of the Universal common stock
to March 31, 1998, the Company had made $1.3 million in advances to
Universal.
In February 1998, the Company announced a proposal to acquire all of the
issued and to-be-issued shares of the common stock of Universal and
Odd's-N-End's Inc. ("Odd's-N-End's")(approximately 41% of Odd's-N-End's is
owned by Universal). If the acquisitions are consummated as proposed, the
Company will issue to the shareholders of Universal approximately 305,800
shares of the Company's common stock and will pay to the holders of
Odd's-N-End's common stock approximately $830,000 in cash. As of March 31,
1998, Universal had a note receivable due from Odd's-N-End's of approximately
$10.4 million. The transaction is expected to close by approximately July
1998. Included in the 99 Cents Only Stores results of operations for the
three months ended March 31, 1998 is a $742 thousand charge representing the
Company's 48% share of the Universal loss for the first quarter of 1998.
4. Short-Term Investments
Investments in debt and equity securities are recorded as required by
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." The Company's investments are comprised primarily of investment
grade federal and municipal bonds and commercial paper, primarily with short-
term maturities. The Company generally holds investments until maturity and
has not experienced any significant gain or loss from sales of its
investments. Any premium or discount recognized in connection with the
purchase of an investment is amortized over the term of the investment.
Certain long-term investments in marketable securities at December 31, 1997
have been reclassified to conform to the presentation at March 31, 1998. As
of March 31, 1998 and December 31, 1997, the fair value of investments
approximated the carrying values and were invested as follows (amounts in
thousands):
Maturity Maturity
-------- --------
March 31, Within 1 to 2 December 31, Within 1 to 2
1998 1 year years 1997 1 year years
--------- ------ ----- --------- ------ -----
Federal Bonds $ 1,500 $ - $ 1,500 $ 1,500 $ - $1,500
Municipal Bonds 18,784 12,779 6,005 18,583 13,690 4,893
Commercial Paper 12,800 12,800 0 12,501 12,501 0
------- ------- ------- ------- ------- -------
$33,084 $25,579 $7,505 $32,584 $26,191 $6,393
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The Company has been engaged since 1976 in the purchase and sale of
name-brand, close-out and regularly available general merchandise. Since that
time, the Company has sold its merchandise on a wholesale basis through its
Bargain Wholesale division. On August 13, 1982, the Company opened its first
99 Cents Only Stores location and as of March 31, 1998, operates a chain of
54 deep-discount 99 Cents Only Stores. The Company's growth during the last
three years has come primarily from new store openings and growth in its
Bargain Wholesale division. The Company opened ten stores in 1997. The
Company opened two stores (including one relocation) in the first three
months of 1998, one each in San Bernardino, California and North Hollywood,
California and plans to open an additional 11 stores (including one
relocation) during the remainder of the year. Of the additional stores
planned for 1998, the Company has secured sites for five additional store
locations.
Bargain Wholesale's growth has been primarily attributable to an
increased focus on large domestic and international accounts and expansion
into new geographic markets. The Company generally realizes a lower gross
profit margin on Bargain Wholesale's net sales compared to 99 Cents Only
Stores net sales. However, Bargain Wholesale complements the Company's retail
operations by allowing the Company to purchase in larger volumes at more
favorable pricing and to generate additional net sales with relatively small
incremental increases in operating expenses.
Comparable stores net sales increased 1.5% during the year in 1997 and
for the first quarter of 1998. In the past, as part of its strategy to expand
retail operations, the Company has at times opened larger new stores in close
proximity to existing stores where the Company determined that the trade area
could support a larger facility. In some of these situations, the Company
retained its existing store as long as it continued to contribute store-level
operating income. While this strategy was designed to increase revenues and
store-level operating income, it has had a negative impact on comparable
store net sales as some customers migrated from the existing store to the
larger new store. The Company believes that this strategy has impacted its
historical comparable sales growth.
During the past year, average net sales per estimated saleable square
foot was $354 per square foot. As the Company targets larger locations for
new store development it is expected that the sales per square foot will be
negatively impacted. Existing stores average approximately 15,000 gross
square feet. Since January 1, 1995, the Company has opened 24 new stores
(including two relocations in 1995 and one in 1996) that average over 19,000
gross square feet. The Company currently targets new store locations between
15,000 and 25,000 gross feet. Although it is the Company's experience that
larger stores generally have lower average net sales per square foot than
smaller stores, larger stores generally achieve higher average annual store
revenues and operating income.
99 Cents Only Stores increased its net sales, operating income and net
income in the first quarter of 1998. For the first quarter of 1998 it had net
sales of $62.9 million, operating income of $8.6 million and net income of
$4.5 million, representing a 23.9%, 41.6% and 23.5% increase over 1997,
respectively.
Recent Developments
In November 1997, the Company acquired approximately 48% of the
outstanding Common Stock of Universal. In February 1998, the Company
announced a proposal to acquire all of the issued and to-be-issued shares of
the Common Stock of Universal and Odd's-N-End's. Together, these two
companies operate 44 retail stores in Minnesota and the surrounding upper
Midwest region, eight retail stores in Texas and 22 retail stores in upper
New York State. If the acquisitions are consummated as proposed, the Company
will issue to the shareholders of Universal approximately 305,800 shares of
the Company's Common Stock and will pay to the holders of Odd's-N-End's
common stock approximately $830,000 in cash. Universal has a note receivable
due from Odd's-N-End's of approximately $10.4 million.
Currently the Company's ownership interest in Universal is accounted for
using the equity method. The impact of the inclusion of Universal in the
Company's financial statements for first quarter ended March 31, 1998 was
($742) thousand. Upon consummation of the acquisition of Universal, the
Company will consolidate the results of operations of Universal with those of
the Company, and will preliminarily record approximately $7.4 million in
goodwill on its balance sheet, which will be amortized over 30 years and will
result in increased amortization expense in future periods. Universal's
business is seasonal. Historically, all of its earnings have been generated
in the fourth quarter, and it has incurred losses during the first three
quarters of the calendar year. As a result, shareholders equity is likely to
be lower and the amount of goodwill related to the acquisition of Universal
is likely to be of a greater magnitude at the closing date compared to the
current estimate of $7.4 million. The Company expects to continue to provide
financial support to Universal through the date of closing through trade
credit and other advances. Such amounts will be provided from the Company's
ongoing cash flows from operations and its existing working capital.
On March 31, 1998, the Company announced that it had filed a
registration statement with the Securities and Exchange Commission covering a
public offering of an aggregate of 3,500,000 shares of Common Stock
(4,025,000 shares if the underwriters' over-allotment option is exercised in
full). Of the shares offered, the Company offered 750,000 newly issued shares
(862,500 shares if the underwriters' over-allotment option is exercised in
full). The offering was consummated as proposed on April 30, 1998. The net
proceeds of the offering to the Company were $27.3 million. The Company did
not receive any of the net proceeds from the sale of shares by the selling
shareholders
The Company has made in this Form 10-Q forward-looking statements within
the meaning of Section 27A of the Securities Act concerning the Company's
operations, expansion plans, economic performance, financial condition, the
pending acquisitions of Universal and Odd's-N-End's and their effect on the
Company's results of operations and the results of operations of Universal,
store openings, purchasing abilities, sales per square foot and comparable
store net sales trends and capital requirements. Such forward-looking
statements may be identified by the use of words such as "believe",
"anticipate," "intend" and "expect". Such forward-looking statements are
subject to various risks and uncertainties, certain of which are beyond the
Company's control. Actual results could differ materially from those
currently anticipated due to a number of factors, including certain risk
factors. Some of those factors include (i) the Company's ability to open new
stores on a timely basis and operate them profitably, (ii) the Company's
ability to integrate Universal and Odd's-N-End's achieve anticipated
operating synergies and to operate their stores at multiple price points and
in different geographic locations, (iii) the orderly operation of the
Company's receiving and distribution process, (iv) inflation, consumer
confidence and other general economic factors, (v) the availability of
adequate inventory and capital resources, (vi) the risk of a disruption in
sales volume in the fourth quarter and other seasonal factors
(vii) dependence on key personnel and control for the Company by existing
shareholders and (viii) increased competition from new entrants into the
deep-discount retail industry. The Company does not ordinarily make
projections of its future operating results and undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a result
of new information, future events or otherwise.
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
NET SALES: Net sales increased $12.1 million, or 23.9%, to $62.9 million in
the 1998 period from $50.7 million in the 1997 period. 99 Cents Only Stores
net sales increased approximately $12.3 million, or 31.4%, to $51.5 million
in the 1998 period from $39.2 million in the 1997 period, and Bargain
Wholesale net sales decreased $0.2 million, to $11.4 million in the 1998
period from $11.6 million in the 1997 period. The increase in 99 Cents Only
Stores net sales was attributable to the net effect of four new larger stores
opened and the closure of two smaller stores, the full quarter effect of 10
new stores opened in 1997, and a 1.5% increase in comparable same store sales
in 1998. Comparable store sales were impacted by new store openings within a
3 mile radius of existing stores. The Bargain Wholesale net sales were
affected negatively by currency exchange factors.
GROSS PROFIT: Gross profit increased approximately $5.6 million, or 32.3%, to
$23.0 million in the 1998 period from $17.4 million in the 1997 period. The
increase in gross profit was due to higher net sales and an increase in the
gross profit margin to 36.6% in the 1998 period from 34.3% in the 1997
period. The 2.3% point increase in the gross profit margin is due to a higher
proportion of retail net sales, which typically have a higher gross margin
than wholesale sales and merchandise cost factors.
SELLING, GENERAL AND ADMINISTRATIVE: SG&A increased by $3.1 million, or
27.3%, to 14.4 million in 1998 period from $11.3 million in 1997 period. This
was primarily due to increased costs associated with new store growth. As a
percentage of net sales, SG&A increased slightly to 22.9% from 22.3%. The
increase as a percentage of net sales was primarily due to increased payroll
costs primarily resulting from state and federally mandated increases in the
minimum wage. In addition, the minimum wage in California increased to $5.75
per hour in March 1998. Legislation has been introduced in California to
further increase the minimum wage from $5.75 to $6.75 per hour effective
January 1999.
OPERATING INCOME: As a result of the items discussed above, operating income
increased $2.5 million, or 41.6%, to $8.6 million in 1998 from $6.1 million
in 1997. The operating margin increased to 13.7% in 1998 from 12.0% in 1997.
INTEREST INCOME (EXPENSE): Interest income (expense) relates to interest on
the Company's capitalized warehouse lease, net of interest earned on the
Company's cash balances and short-term investments. The change in interest
expense between 1998 and 1997 was due to interest earned on short-term
marketable securities. The Company's investments are comprised primarily of
investment grade federal and municipal bonds and commercial paper, primarily
with short-term maturities. The Company generally holds investments until
maturity and has not experienced any significant gain or loss from sales of
its investments. Any premium or discount recognized in connection with the
purchase of an investment is amortized over the term of the investment.
During 1998 and 1997, the Company had no bank debt.
(LOSS FROM MINORITY INTEREST): The Company's owns a 48% interest in
Universal International, Inc. Its share of the Universal loss from operations
for the period ended March 31, 1998 was ($742) thousand. No tax benefit is
applied to this loss. Universal has tax loss carryforewards of approximately
$15 million as of March 31, 1997.
PROVISION FOR INCOME TAXES: The provision for income taxes for the three
months ended March 31, 1998, was $3.6 million in 1998 compared to $2.6
million in 1997. The effective rates of the historical provision for income
taxes was approximately 40.2% in 1998 and 41.1% in 1997. The change in the
effective rate in 1998 from 1997 results from the benefit of available tax
credits.
NET INCOME: As a result of the items discussed above, net income increased
$0.9 million, or 23.5% to $4.5 million in 1998 from $3.7 million in the 1997
period. Net income as a percentage of sales is 7.2% in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations principally from cash provided by
operations, and has not generally relied upon external sources of financing.
The Company's capital requirements result primarily from purchases of
inventory, expenditures related to store openings and the working capital
requirements for new and existing stores. The Company takes advantage of
close-out and other special situation opportunities which frequently results
in large volume purchases, and as a consequence, its cash requirements are
not constant or predictable during the year and can be affected by the timing
and size of its purchases.
The Company maintains cash and short-term investments with highly qualified
financial institutions. The Company's investments are comprised primarily of
investment grade federal and municipal bonds and commercial paper, primarily
with short-term maturities. The Company generally holds investments until
maturity and has not experienced any significant gain or loss from sales of
its investments. At various times such amounts may be in excess of insured
limits.
As of March 31, 1998 the Company had purchased the land and buildings for
three of its retail store locations. The Company may purchase other locations
in the future. Available cash not immediately needed for such purposes has
been invested in short-term investments grade securities.
During the three months period ended March 31, 1998 and 1997, net cash
provided by operations was $2.7 million and $4.4 million respectively.
Inventories increased $0.5 million in 1998 and increased $0.3 million in
1997. Receivables increased $1.2 million, in 1998 and $0.5 in 1997
respectively. Accounts payable increased $1.1 million in 1998 and decreased
$0.9 million in 1997. Current income taxes payable increased $3.2 million in
1998 and increased $2.4 million in 1997. The increase in 1998 is a result of
the increased in taxable income and the inability to give tax effect for the
Company's share of the Universal loss as mentioned above. In the first
quarter of 1998, the Company also reinvested $0.5 million of interest earned
on marketable securities. Net cash used in investing activities was $1.1
million in 1998, consisting of expenditures for property and equipment of
$2.3 million and the decrease in the Universal investment of $1.1 million. In
1997, cash flow from investing activities consisted of $1.8 million used for
capital expenditures. In 1998, net cash used in financing activities of $0.1
million included $0.2 for payments on the capitalized warehouse lease, this
was offset by $0.1 of proceeds from the exercise of stock options. In 1997,
net cash provided by financing activities was $0.2 million. These funds
represented payments on the capitalized warehouse lease.
The Company has a $7.0 million bank line of credit facility bearing interest
at the bank's prime rate. Under terms of the facility, the Company must
comply with one financial covenant, the ratio of total liabilities to
tangible net worth. As of March 31, 1998, the Company was in compliance with
this covenant and there were no amounts outstanding on the line of credit.
The credit agreement expires in June 1998, at which time the Company expects
that it will be renewed. As of March 31, 1998, there were no borrowings
outstanding under the line of credit and outstanding letters of credit were
approximately $1.6 million ($1.1 million of which related to a standby letter
of credit required by the State of California to be self-insured for worker's
compensation).
The Company leases its 880,000 square foot single level warehouse and
distribution facility under a lease accounted for as a capital lease. The
lease requires monthly payments of $70,000 and accrues interest at an annual
rate of 7.0%. At the lease expiration in December 2000, the Company has the
option to purchase the facility for $10.5 million. The Company currently
intends to exercise the option at the end of the lease. If the Company does
not exercise the purchase option, the Company will be subject to a $7.6
million penalty.
The Company plans to open new stores at a targeted annual rate of 20%. The
average investment per new store opened in 1996, including leasehold
improvements, furniture, fixtures and equipment, inventory and pre-opening
expenses, was approximately $650,000. Inventory and pre-opening expenses are
not capitalized by the Company. The Company's cash needs for new store
openings are expected to total approximately $8.5 million in each of 1998 and
1999. The Company's total planned expenditures in each of 1998 and 1999 for
additions to fixtures and leasehold improvements of existing stores are
approximately $600,000. The Company believes that its total capital
expenditure requirements (including new store openings) will increase to
approximately $11.4 million and $11.6 million in 1998 and 1999, respectively.
Capital expenditures in 1998 and 1999 are currently expected to be incurred
primarily for new store openings, improvements to existing stores and system
and general corporate infrastructure. The Company believes that cash flow
from operations, availability under its credit agreement and the net proceeds
from its planned offering will be sufficient to meet operating needs, capital
spending requirements and the retirement of Universal debt and payment of
overdue accounts payable of Universal for at least the next twelve months.
Year 2000
The Company has completed an assessment of its existing software systems and
after reviewing various factors, one of which being the year 2000 issue, has
determined that certain modifications or upgrades to or replacements of
certain software is required. The Company anticipates that the required
changes to its existing computer systems will be substantially completed no
later than mid-1999. The year 2000 project cost is not anticipated to have a
material effect on the results of operations. The costs of the project and
the date on which the Company believes it will complete the changes to its
computer systems are based on management's best estimates, which were derived
utilizing numerous assumptions of future events. However, there can be no
guarantee that these estimates will be achieved and actual results could
differ materially from those anticipated. The project is scheduled to be
completed no later than mid-1999.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBIT 27.01 Financial Data Schedule
(B) Item 5. 8-K filed on April 21, 1998
(C) Item 5. 8-K filed on May 1, 1998
SIGNATURE
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 thereto duly authorized.
99 CENTS ONLY STORES
Date: July 24, 1998 /s/ Andrew A. Farina
Andrew A. Farina
Vice President Finance
EXHIBIT 27.1
99 Cents Only Stores
Financial Data Schedule
<PERIOD TYPE> 3-mos
<FISCAL YEAR END> Dec 31 1998
<PERIOD START> Jan 01 1998
<PERIOD END> March 31 1998
[CASH] 2,338
[SECURITIES] 25,579
[RECEIVABLES] 2,718
[ALLOWANCES] (152)
[INVENTORY] 43,598
<CURRENT ASSETS> 76,388
[PP&E] 41,930
[DEPRECIATION] (11,195)
<TOTAL ASSETS> 126,350
<CURRENT LIABILITIES> 13,902
[BONDS] 0
0
[PREFERRED] 0
[COMMON] 66,267
<OTHER SE> 34,642 <FN 1>
<TOTAL LIABILITY AND EQUITY> 126,350
[SALES] 62,882
<TOTAL REVENUE> 62,882
[CGS] 39,839
<TOTAL COSTS> 14,424
<OTHER EXPENSES> 338
<LOSS PROVISION> 0
<INTEREST EXPENSE> 189
<INCOME PRE TAX> 8,092
<INCOME TAX> 3,551
<INCOME CONTINUING> 4,541
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
<NET INCOME> 4,541
<EPS PRIMARY> 0.24
<EPS DILUTED> 0.24
<FN1> Retained Earnings
