<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 April 27, 1996
OR
X 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 May 24, 1996, there were 1,154,994 shares of Class A common stock and
1,280,967 shares of Class B common stock, par value $.25, outstanding.
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THREE D DEPARTMENTS, INC.
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements:
Balance Sheet at April 27, 1996 and July 29, 1995.......................3
Statement of Operations and Retained Earnings for the
thirteen and thirty nine week periods ended April 27, 1996
and April 29, 1995......................................................4
Statement of Cash Flows for the thirty nine week periods ended
April 27, 1996 and April 29, 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-K........................................10
Signatures..............................................................11
</TABLE>
2
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THREE D DEPARTMENTS, INC.
BALANCE SHEET
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
Current Assets: April 27, 1996 July 29, 1995
-------------- -------------
<S> <C> <C>
Cash $ 355,045 $ 319,045
Receivables 482,615 296,291
Inventories 16,467,234 16,260,487
Prepaid expenses 390,567 475,435
Prepaid income taxes 172,808 98,363
Deferred income taxes 70,067 325,936
----------- -----------
Total current assets 17,938,336 17,775,557
----------- -----------
Property, Fixtures and Improvements, at cost:
Property, fixtures and equipment 10,576,767 10,988,714
Leasehold improvements 2,950,848 2,821,530
----------- -----------
13,527,615 13,810,244
Less accumulated depreciation and amortization 6,737,521 6,550,443
----------- -----------
6,790,094 7,259,801
----------- -----------
Other Assets:
Deferred cost of leases - net 1,166,699 1,263,509
Deferred income tax 1,073,650 615,415
Other 1,297,543 1,163,003
----------- -----------
3,537,892 3,041,927
----------- -----------
$28,266,322 $28,077,285
=========== ===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Current Liabilities:
<S> <C> <C>
Long term debt - current portion $ 380,064 $ 312,929
Accounts payable 5,261,289 3,406,867
Accrued liabilities 1,291,841 2,177,819
----------- -----------
Total current liabilities 6,933,194 5,897,615
----------- -----------
Long Term Debt 9,236,251 9,784,325
----------- -----------
Deferred Compensation 200,000 200,000
----------- -----------
Other Liabilities 525,000 450,000
----------- -----------
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 1,660,469 shares (July 29, 1995 - 1,656,969) 415,117 414,242
Class B - authorized 6,000,000 shares;
issued 1,580,363 shares (July 29, 1995 - 1,576,113) 395,091 394,028
Additional paid-in-capital 1,255,525 1,246,557
Retained earnings 11,110,877 11,495,251
----------- -----------
13,176,610 13,550,078
Less - 804,871 shares of common stock in treasury, at cost 1,804,733 1,804,733
----------- -----------
11,371,877 11,745,345
----------- -----------
$28,266,322 $28,077,285
=========== ===========
See accompanying notes to financial statements.
</TABLE>
3
<PAGE>
THREE D DEPARTMENTS, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Week Periods Ended Thirty Nine Week Periods Ended
April 27, 1996 April 29, 1995 April 27, 1996 April 29, 1995
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Revenues $10,419,704 $11,522,075 $36,460,244 $38,020,624
Costs and Expenses:
Cost of sales, including
warehousing and buying expenses 5,616,715 6,200,348 20,971,925 21,299,572
Store operating, administrative
and general expenses 4,730,930 5,176,698 15,046,807 15,755,606
----------- ----------- ----------- -----------
Income / (loss) from operations 72,059 145,029 441,512 965,446
Interest expense 309,547 298,937 980,233 717,393
----------- ----------- ----------- -----------
Income / (loss) before income taxes (237,488) (153,908) (538,721) 248,053
Provision for income taxes (89,199) (49,764) (202,365) 140,500
----------- ----------- ----------- -----------
Net income / (loss) (148,289) (104,144) (336,356) 107,553
Retained earnings at beginning of period 11,259,166 12,282,534 11,495,251 12,123,208
Cash dividends 0.00 (23,957) (48,018) (76,328)
----------- ----------- ----------- -----------
Retained earnings at end of period $11,110,877 $12,154,433 $11,110,877 $12,154,433
=========== =========== =========== ===========
Average number of shares outstanding 2,435,961 2,428,211 2,432,502 2,561,278
=========== =========== =========== ===========
Net income / (loss) per share $ (.06) $ (.04) $ (.14) $ .04
=========== =========== =========== ===========
Cash dividends per share:
Class A Common $ .00 $ .0125 $ .0250 $ .0375
=========== =========== =========== ===========
Class B Common $ .00 $ .0075 $ .0150 $ .0225
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
THREE D DEPARTMENTS, INC.
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Thirty Nine Week Periods Ended
Cash flows from operating activities: April 27, 1996 April 29, 1995
--------------- ---------------
<S> <C> <C>
Net income / (loss) $ (336,356) $ 107,553
Adjustments to reconcile net income / (loss)
to net cash provided by operating activities:
Depreciation and amortization 1,271,256 1,143,745
Provision for deferred taxes (202,366) 136,051
Increase in cash value of life insurance (235,502) (243,922)
Loss on sales/abandonments of fixed assets 45,650 16,974
Change in assets and liabilities:
(Increase) decrease in receivables (186,324) 380,499
(Increase) in inventories (206,747) (3,864,337)
(Increase) decrease in prepaid expenses 84,868 (131,653)
(Increase) decrease in prepaid income taxes (74,445) 33,244
Decrease in other assets 21,746 55,195
(Increase) in deferred income taxes 0 (30,600)
Increase in accounts payable 1,854,422 80,943
Increase (decrease) in accrued liabilities (885,978) 214,227
Increase in other liabilities 75,000 450,000
---------- -----------
Net cash provided (used) by operating activities 1,225,224 (1,652,081)
---------- -----------
Cash flows from investing activities:
Purchase of building 0 (1,193,834)
Purchase of property, fixtures and improvements (664,733) (2,376,846)
Purchase of software (6,440) (58,877)
Purchase of lease 0 (880,000)
Sales of fixtures 0 5,966
---------- -----------
Net cash (used) in investing activities (671,173) (4,503,591)
---------- -----------
Cash flows from financing activities:
Repayment of debt (480,939) (3,074,526)
Dividends paid (48,018) (76,328)
Purchase of common stock 0 (548,867)
Proceeds from exercise of stock options 10,906
Proceeds from borrowings 0 7,150,000
---------- -----------
Net cash provided (used) by financing activities (518,051) 3,450,279
---------- -----------
Net increase (decrease) in cash 36,000 (2,705,393)
Cash at beginning of period 319,045 3,311,144
---------- -----------
Cash at end of period $ 355,045 $ 605,751
========== ===========
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
THREE D DEPARTMENTS, INC.
NOTES TO FINANCIAL STATEMENTS
1. The financial statements for the thirteen and thirty nine week periods
ended April 27, 1996 and April 29, 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 July 29,
1995. The results of operations for the thirteen and thirty nine week
periods ended April 27, 1996, are not necessarily indicative of the results
for the entire fiscal year ending August 3, 1996.
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 July 29,
1995, which should be read in conjunction with this quarterly report.
6
<PAGE>
THREE D DEPARTMENTS, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Three D Departments, Inc. operates twenty four stores carrying home textiles,
decorative housewares and decorative accessories in California, Connecticut, and
Arizona. The Company operates both regular stores (under 20,000 square feet)
and superstores (over 20,00 square feet). During the period ended April 27,
1996 the Company has converted two stores to the superstore format and has
closed four regular stores in markets where conversions to superstores were not
feasible. The table below illustrates changes to the store portfolio covering
the period from July 31, 1995 through April 29, 1996.
<TABLE>
<CAPTION>
Regular Stores Superstores Total
--------------- ------------ -----
<S> <C> <C> <C>
Stores open July 31, 1995 15 13 28
Conversion of existing regular
stores to superstores (2) 2 0
Store closures (4) (4)
--- --- ---
Stores open at April 27, 1996 9 15 24
=== === ===
</TABLE>
Below is a table summarizing the Company's results of operations for the
thirteen and thirty nine week periods ended April 27, 1996 and April 29, 1995:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty Nine Weeks Ended
April 27, April 29, April 27, April 29,
1996 1995 1996 1995
---------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 54.0% 53.8% 57.5% 56.0%
Operating expenses 45.4% 44.9% 41.3% 41.5%
---------- ------------ ------------ ----------
Income/(loss) from operations .6% 1.3% 1.2% 2.5%
Interest expense 3.0% 2.6% 2.7% 1.9%
---------- ------------ ------------ ----------
Income/(loss) before income taxes (2.4%) (1.3%) (1.5%) 1.8%
Provision for income taxes (.9%) ( .4%) (0.6%) 0.4%
---------- ------------ ------------ ----------
Net income/(loss) (1.5%) (.9%) (.9%) 0.3%
========== ============ ============ ==========
</TABLE>
Thirteen Week Periods Ended April 27, 1996 and April 29, 1995
- -------------------------------------------------------------
SALES. Sales were $10,419,704 for the thirteen week period ended April 27,
1996 compared to sales of $11,522,075 for the thirteen week period ended April
29, 1995, a decrease of $1,102,371 or 9.6% of total sales. The Company closed
six stores in prior periods which have resulted in a net decrease in sales of
$225,168 for the thirteen week period ended April 27, 1996. Additionally, the
decrease was due to a decrease in comparative sales for stores open in both
periods of $878,099 or 8.1%. The company attributes this decrease to increased
competition in mature markets and continued sluggish conditions in the national
economy.
7
<PAGE>
COST OF SALES. Cost of sales for the thirteen weeks ended April 27, 1996, was
54.0% of sales as compared to 53.8% for the thirteen week period ended April
29, 1995.
STORE OPERATING, ADMINISTRATIVE AND GENERAL EXPENSES. Store operating,
administrative and general expenses for the thirteen week period ended April 27,
1996, reduced to $4,730,930 compared to $5,176,698 in the same period of the
prior year. The reduction in operating expenses is related to six fewer stores
open in the current period, compared to the same period of the prior year.
INTEREST EXPENSE. Interest expense for the thirteen week periods ended April
27, 1996 and April 29, 1995 was $309,547 and $298,937 respectively.
QUARTERLY RESULTS. Net loss for the thirteen week period ended April 27, 1996,
was $148,289 compared to a net loss of $104,144 in the same period of the prior
year. The specialty domestics segment of the retail industry has seen increased
competition with corresponding pressure on sales and margins. The Company has
undertaken both a frequent shopper program and a cost reduction program to
mitigate the effects of increased competition.
Thirty Nine Week Periods Ended April 27, 1996 and April 29, 1995
- ----------------------------------------------------------------
SALES. The company had sales of $36,460,244 for the thirty nine week period
ended April 27, 1996 compared to sales of $38,020,624 for the thirty nine week
period ended April 29, 1995, a decrease of $1,560,380 or 4.1% of total sales.
The Company closed six stores in prior periods which have resulted in a decrease
of $1,744,161, however this decrease has been offset by sales from new stores in
the amount of $3,157,387. Sales of stores open in both periods declined by
$2,974,502 or 8.5%. The Company attributes the decrease in comparative sales to
increased competition in mature markets and continued sluggish conditions in the
national economy.
COST OF SALES. Cost of sales for the thirty nine weeks ended April 27, 1996,
was 57.5% of sales compared to 56.0% for the thirty nine week period ended April
29, 1995.
STORE OPERATING, ADMINISTRATIVE AND GENERAL EXPENSES. Store operating,
administrative and general expenses for the thirty nine week period ended April
27, 1996, were $15,046,807 or 41.3% of sales compared to $15,755,606 or 41.5% of
sales in the same period of the prior year.
INTEREST EXPENSE. Interest expense for the thirty nine week periods ended
April 27, 1996 and April 29, 1995 was $980,233 and $717,393, respectively. The
increase resulted from an increase in average outstanding borrowings of
approximately $2,800,000 over the prior year period.
THIRTY NINE WEEK RESULTS. Net loss for the thirty nine week period ended April
27, 1996, was $336,356 compared to net income of $107,553 in the same period of
the prior year. The specialty domestics segment of the retail industry has seen
increased competition with corresponding pressure on sales and margins. The
Company has undertaken both a frequent shopper program and a cost reduction
program to mitigate the effects of increased competition.
8
<PAGE>
Liquidity And Capital Resources. At April 27, 1996, working capital was
- -------------------------------
$11,005,142 compared to $11,877,942 at the beginning of the fiscal year. The
slight decrease was caused by capital expenditures for expanded stores and debt
repayment. No significant capital expenditures are anticipated for the
remainder of the fiscal year. Management believes that cash from operations,
coupled with its line of credit will be sufficient to meet the Company's
operational and capital needs for the remainder of the fiscal year.
9
<PAGE>
THREE D DEPARTMENTS, INC.
PART II. - OTHER INFORMATION
Item 5. Exhibits and Reports on Form 8-K
The Company was not required to file a report on Form 8-K for any event during
the thirty nine week period ended April 27, 1996.
10
<PAGE>
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: May 31, 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
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q,
April 27, 1996 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-mos 9-mos
<FISCAL-YEAR-END> Jul-29-1995 Jul-29-1995
<PERIOD-START> Jan-28-1996 Jul-30-1995
<PERIOD-END> Apr-27-1996 Apr-27-1996
<CASH> 355,045 355,045
<SECURITIES> 0 0
<RECEIVABLES> 482,615 482,615
<ALLOWANCES> 0 0
<INVENTORY> 16,467,234 16,467,234
<CURRENT-ASSETS> 17,938,336 17,938,336
<PP&E> 13,527,615 13,527,615
<DEPRECIATION> 6,737,521 6,737,521
<TOTAL-ASSETS> 28,266,322 28,266,322
<CURRENT-LIABILITIES> 6,933,194 6,933,194
<BONDS> 9,236,251 9,236,251
<COMMON> 810,208 810,208
0 0
0 0
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 28,266,322 28,266,322
<SALES> 10,419,704 36,460,244
<TOTAL-REVENUES> 10,419,704 36,460,244
<CGS> 5,616,715 20,971,925
<TOTAL-COSTS> 4,730,930 15,046,807
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 309,547 980,233
<INCOME-PRETAX> (237,488) (538,721)
<INCOME-TAX> (89,199) (202,365)
<INCOME-CONTINUING> (148,289) (336,356)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (148,289) (336,356)
<EPS-PRIMARY> (0.06) (0.14)
<EPS-DILUTED> (0.06) (0.14)
</TABLE>
