<PAGE>
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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 period ended November 2, 1996
OR
----- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. Commission File Number: 1-5967
THREE D DEPARTMENTS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-0733200
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3535 HYLAND AVENUE, SUITE 200
COSTA MESA, CALIFORNIA 92626-1439
(Address of principal executive offices)
TELEPHONE NUMBER (714) 662-0818
(Registrant's telephone number, including area code)
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
----- -----
As of November 30, 1996, there were 1,168,094 shares of Class A common stock and
1,267,867 shares of Class B common stock, par value $.25, outstanding.
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<PAGE>
THREE D DEPARTMENTS, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements:
<C> <S> <C>
Balance Sheet at November 2, 1996 and August 3, 1996....... 3
Statement of Operations for the thirteen week periods
ended November 2, 1996 and October 28, 1995................. 4
Statement of Cash Flows for the thirteen week periods ended
November 2, 1996 and October 28, 1995...................... 5
Notes to Financial Statements.............................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................. 7
PART II. OTHER INFORMATION
Item 5. Exhibits and Reports on Form 8-............................ 9
Signatures................................................. 9
</TABLE>
2
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THREE D DEPARTMENTS, INC.
-------------------------
BALANCE SHEET
-------------
<TABLE>
<CAPTION>
ASSETS NOVEMBER 2, AUGUST 3,
------ ----------- ----------
1996 1996
---- ----
(UNAUDITED)
-----------
CURRENT ASSETS:
- ---------------
<S> <C> <C>
Cash and cash equivalents $ 179,436 $ 507,033
Receivables 370,204 376,850
Inventories 16,509,761 16,431,485
Prepaid expenses 598,405 538,757
Deferred income taxes 35,635 35,635
----------------------------
Total current assets 17,693,441 17,889,760
PROPERTY FIXTURES AND IMPROVEMENTS, at cost
- ----------------------------------
Property, fixtures and equipment 10,186,558 10,225,431
Leasehold improvements 2,892,400 2,846,548
----------------------------
13,078,958 13,071,979
Less-accumulated depreciation and amortization 6,748,607 6,517,976
----------------------------
6,330,351 6,554,003
OTHER ASSETS
- ------------
Deferred costs of leases, net 1,102,159 1,134,429
Deferred income taxes 574,432 574,432
Other 1,414,173 1,354,510
----------------------------
3,090,764 3,063,371
----------------------------
$27,114,556 $27,507,134
============================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Long-term debt - current portion $ 328,659 $ 374,920
Accounts payable 5,265,294 4,882,924
Accrued liabilities 1,310,793 1,406,139
----------------------------
Total current liabilities 6,904,746 6,663,983
LONG-TERM DEBT, LESS CURRENT PORTION 9,015,545 9,143,410
----------------------------
DEFERRED COMPENSATION 200,000 200,000
----------------------------
OTHER LIABILITIES 863,421 814,813
----------------------------
STOCKHOLDERS' EQUITY
Preferred stock; $1.00 par value; authorized
300,000 shares; none issued
Common Stock; $.25 par value Class A-
authorized 6,000,000 shares; issued 1,673,569 shares
(August 3, 1996-1,666,569) 418,392 416,642
Class B- authorized 6,000,000 shares;
issued 1,567,263 shares (August 3, 1996-1,574,263) 391,816 393,566
Additional paid-in capital 1,255,525 1,255,525
Retained Earnings 9,869,844 10,423,928
----------------------------
11,935,577 12,489,661
Less- 804,871 shares of common stock in treasury, at cost 1,804,733 1,804,733
----------------------------
10,130,844 10,684,928
----------------------------
$27,114,556 $27,507,134
============================
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
THREE D DEPARTMENTS, INC.
-------------------------
STATEMENT OF OPERATIONS
-----------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
THIRTEEN WEEK PERIODS ENDED
November 2, 1996 October 28, 1995
---------------- ----------------
<S> <C> <C>
Sales $ 10,987,481 $ 12,117,969
Costs and expenses
Cost of sales, including warehousing,
transportation and buying expenses 6,231,549 7,168,909
Store operating, administrative and general expenses 4,961,879 5,218,873
------------------------------------
Operating income (loss) (205,947) (269,813)
Interest Expense 324,026 350,652
------------------------------------
Loss before income taxes and cumulative effect of accounting change (529,973) (620,465)
------------------------------------
Benefit for income taxes:
Federal (227,883)
State (34,999)
------------------------------------
Net loss before cumulative effect of accounting change (529,973) (357,583)
Cumulative effect of accounting change 310,427
------------------------------------
Net loss $ (529,973) $ (47,156)
====================================
Net loss per share before cumulative effect of accounting change $ (0.22) $ (0.15)
====================================
Net loss per share $ (0.22) $ (0.02)
====================================
Weighted average number of common shares outstanding 2,435,961 2,428,211
====================================
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
THREE D DEPARTMENTS, INC.
-------------------------
STATEMENT OF CASH FLOWS
-----------------------
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Week Periods Ended
November 2, 1996 October 28, 1995
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(529,973) $ (47,156)
Adjustments to reconcile net loss to cash provided from operating activities:
Depreciation and amortization 411,765 420,204
Increase in cash value of life insurance (85,359) (246,508)
Gain (loss) on sales of fixtures and improvements 101,168 (2,093)
Changes in assets and liabilities:
Accounts receivable 6,647 (18,088)
Inventories (78,276) 122,683
Prepaid expenses (5,441) (78,483)
Prepaid income taxes (54,208) (850)
Deferred taxes 0 (575,959)
Accounts payable and accrued liabilities 287,024 1,215,317
Other liabilities 48,608
------------------------------------
Net cash provided by (used in) operating activities 101,955 789,067
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of fixtures 2,148
Purchase of fixtures, equipment and improvements (228,374) (336,119)
Purchase of software (2,942) (6,440)
------------------------------------
Net cash used in investing activities (231,316) (340,411)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (24,111) (23,973)
Repayment of debt (174,125) (76,476)
------------------------------------
Net cash (used in) provided by financing activities (198,236) (100,449)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (327,597) 348,207
Cash and cash equivalents:
Beginning of period 507,033 319,045
------------------------------------
END OF PERIOD $ 179,436 $ 667,252
====================================
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
THREE D DEPARTMENTS, INC.
Notes to Financial Statements
1. The financial statements for the thirteen week periods ended November 2,
1996 and October 28, 1995, are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion
of management, necessary for a fair presentation of the financial position
and operating results for the interim periods. The financial statements
should be read in conjunction with the financial statements and notes
thereto, together with Management's Discussion and Analysis of Financial
Condition and Results of Operations, contained in the Company's Annual
Report to Shareholders incorporated by reference in the Company's Annual
Report on Form 10-K for the fiscal year ended August 3, 1996. The results
of operations for the thirteen week period ended November 2, 1996, are not
necessarily indicative of the results for the entire fiscal year ending
August 2, 1997.
2. The accounting policies followed by the Company for the unaudited interim
periods contained herein, are substantially the same as outlined in the
Company's Annual Report to Shareholders for the fiscal year ended August 3,
1996, which should be read in conjunction with this quarterly report.
3. In fiscal 1996 the Company changed its method of accounting for inventories
to include the costs of certain buying, warehousing, and transportation
costs. The Company believes this refinement provides a better measurement of
operations by more closely matching revenues with expenses. At the beginning
of fiscal 1996 the Company restated its inventory to include $527,040 of
such costs. This amount, less the tax effect of $216,613, is reported as a
change in accounting principle
6
<PAGE>
THREE D DEPARTMENTS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIRTEEN WEEK PERIODS ENDED NOVEMBER 2, 1996 AND OCTOBER 28, 1995
- -----------------------------------------------------------------
SALES. Sales were $10,987,481 for the thirteen week period ended November 2,
1996 compared to sales of $12,117,969 for the thirteen week period ended October
28, 1995, a decrease of $1,130,488 or 9.3%. The Company closed five stores in
prior periods which have resulted in a net decrease in sales of $789,458 for the
thirteen week period ended November 2, 1996. Additionally, the decrease was due
to a decrease in comparative sales for stores open in both periods of $341,030
or 3.0%. The company attributes this decrease to increased competition in mature
markets.
COST OF SALES. Cost of sales for the thirteen weeks ended November 2, 1996,
was 56.7% of sales compared to 59.2% for the thirteen week period ended October
28, 1995. The Company incurred substantially higher markdowns in the year
earlier period which was related to merchandise clearance sales in the month of
October.
STORE OPERATING, ADMINISTRATIVE AND GENERAL EXPENSES. Store operating,
administrative and general expenses for the thirteen week period ended November
2, 1996, reduced to $4,961,879 compared to $5,218,873 in the same period of the
prior year. The reduction in operating expenses is related to five fewer stores
in the current period, compared to the same period of the prior year.
INTEREST EXPENSE. Interest expense for the thirteen week periods ended
November 2, 1996 and October 28, 1995 was $324,026 and $350,652 respectively.
INCOME TAX EXPENSE. No income tax benefit was recognized for the quarter ended
November 2, 1996 versus a tax benefit of $262,882 which was recorded for the
quarter ended October 28, 1995. At fiscal year end August 3, 1996 the Company
established a valuation allowance against deferred tax assets which related
primarily to operating loss carry forwards generated in fiscal 1994 through
1996. Accordingly the Company continues to record a tax valuation allowance
against the tax benefit that may be realized from the operating loss generated
in the quarter ended November 2, 1996.
CUMULATIVE EFFECT OF ACCOUNTING CHANGE. In fiscal 1996 the Company changed its
method of accounting for inventories to include the costs of certain buying,
warehousing, and transportation costs. At the beginning of fiscal 1996 the
Company restated its inventory to include $527,040 of such costs. The amount,
less the tax effect of $216,613 is reported as a change in accounting principle
totaling $310,427.
QUARTERLY RESULTS. Loss before income taxes and cumulative effect of accounting
change was reduced to $529,973 versus $620,465 for the same period in the prior
year. Reduced markdowns and reduced expenses were the primary contributing
factors. Net loss for the thirteen week period ended November 2, 1996, was
$529,973 compared to a net loss of $47,156 in the same period of the prior
year. The increase in net loss is attributable to no tax benefit recorded in the
current period and the effect of the change in accounting for inventories from
the prior year. The specialty domestics segment of the retail industry has seen
increased competition with corresponding pressure on sales and margins.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES. At November 2, 1996, working capital was
- -------------------------------
$10,788,695 compared to $11,225,777 at the beginning of the fiscal year. Cash
generated by operations was $101,955, which was offset by debt reduction of
$174,125 and expenditures on capital improvements of $231,316. Management
believes that cash from operations, coupled with its credit resources and line
of credit will be sufficient to meet the Company's operational and capital needs
for the remainder of the fiscal year ending August 2, 1997.
FORWARD LOOKING STATEMENTS
- --------------------------
The preceding "Business" and Management's Discussion and Analysis contain
various "forward looking statements" within the meaning of section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, which represent the Company's expectations or beliefs
concerning future events, including the following: the ability of the Company
to obtain positive cash flow from its current portfolio of stores; the ability
of the Company to maintain its credit facilities; and sufficiency of the
Company's working capital, bank loan agreement and cash flow from operating
activities for the Company's future operating and capital requirements. 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 limitations, the following:
decline in demand for merchandise offered by the Company; the ability of the
Company to gauge the fashion tastes of its customers and provide merchandise to
satisfy customer demand; the ability of the Company to hire and train employees;
the possible unavailability of merchandise from the Company's vendors and
private label suppliers; the effect of economic conditions in the Company's
markets, the effect of severe weather or natural disaster; and the effect of
competitive pressures from other retailers. Results actually achieved thus may
differ materially from expected results in these statements.
8
<PAGE>
THREE D DEPARTMENTS, INC.
PART II. - OTHER INFORMATION
Item 5. Exhibits and Reports of Form 8-K
The Company was not required to file a report on Form 8-K for any event during
the thirteen week period ended November 2, 1996.
THREE D DEPARTMENTS, INC.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: December 13, 1996
THREE D DEPARTMENTS, INC.
-------------------------
(Registrant)
/s/ STEVEN KERKSTRA
-------------------------
Steven Kerkstra
Vice President and
Chief Financial Officer
/s/ RONALD C. DOW
--------------------------
Ronald C. Dow
Controller and Treasurer
9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Form 10-Q, November 2, 1996 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-02-1997
<PERIOD-START> AUG-04-1996
<PERIOD-END> NOV-02-1996
<CASH> 179,436
<SECURITIES> 0
<RECEIVABLES> 370,204
<ALLOWANCES> 0
<INVENTORY> 16,509,761
<CURRENT-ASSETS> 17,693,441
<PP&E> 13,078,958
<DEPRECIATION> 6,748,607
<TOTAL-ASSETS> 27,114,556
<CURRENT-LIABILITIES> 6,904,746
<BONDS> 9,015,545
0
0
<COMMON> 810,208
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 27,114,556
<SALES> 10,987,481
<TOTAL-REVENUES> 10,987,481
<CGS> 6,231,549
<TOTAL-COSTS> 4,961,879
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 324,026
<INCOME-PRETAX> (529,973)
<INCOME-TAX> 0
<INCOME-CONTINUING> (529,973)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (529,973)
<EPS-PRIMARY> (0.22)
<EPS-DILUTED> (0.22)
</TABLE>
