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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 1, 1997
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 (IRS 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, 1997, there were 1,174,494 shares of Class A common stock and
1,264,455 shares of Class B common stock, par value $.25, outstanding.
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THREE D DEPARTMENTS, INC.
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
Item 1. Financial Statements:
Balance Sheet at November 1, 1997 and August 2, 1997.......... 3
Statement of Operations for the thirteen week periods ended
November 1, 1997 and November 2, 1996........................ 4
Statement of Cash Flows for the thirteen-week periods ended
November 1, 1997 and November 2, 1996........................ 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................................... 9
Signatures.................................................... 9
</TABLE>
2
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PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
THREE D DEPARTMENTS, INC.
-------------------------
BALANCE SHEET
-------------
<TABLE>
<CAPTION>
November 1, August 2,
1997 1997
----------- -----------
(unaudited)
-----------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
- --------------
Cash $ 309,232 $ 297,790
Receivables 413,163 397,460
Inventories 15,450,333 15,585,221
Prepaid expenses 517,008 251,900
Deferred income taxes 35,635 35,635
----------- -----------
Total current assets 16,725,371 16,568,006
PROPERTY, FIXTURES AND IMPROVEMENTS, at cost
- -----------------------------------
Buildings 1,193,834 1,193,834
Fixtures and equipment 9,262,185 8,943,029
Leasehold improvements 3,022,826 3,014,051
----------- -----------
13,478,845 13,150,914
Less - accumulated depreciation 7,580,619 7,269,480
----------- -----------
5,898,226 5,881,434
OTHER ASSETS
- ------------
Deferred cost of leases, net 1,208,230 1,247,924
Deferred income taxes 574,432 574,432
Other 931,384 1,068,528
----------- -----------
2,714,046 2,890,884
----------- -----------
$25,337,643 $25,340,324
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Long-term debt - current portion $ 205,686 $ 263,580
Accounts payable 5,944,913 5,442,886
Accrued liabilities 736,928 1,208,940
----------- -----------
Total current liabilities 6,887,527 6,915,406
LONG-TERM DEBT, LESS CURRENT PORTION 8,911,682 8,497,177
- ------------------------------------
DEFERRED COMPENSATION 200,000 200,000
- ---------------------
OTHER LIABILITIES 863,217 791,941
- -----------------
STOCKHOLDER'S EQUITY
- --------------------
Preferred stock; $.25 par value; authorized
300,000 shares; none issued
Common stock; $.25 par value
Class A - authorized 6,000,000; issued 1,676,969 419,242 419,242
Class B - authorized 6,000,000; issued 1,563,863 390,966 390,966
Additional paid-in capital 1,255,525 1,255,525
Retained earnings 8,214,228 8,674,811
----------- -----------
10,279,961 10,740,544
Less - 804,883 shares of common stock in
treasury, at cost 1,804,744 1,804,744
----------- -----------
8,475,217 8,935,800
COMMITMENTS
- ----------- ----------- -----------
$25,337,643 $25,340,324
=========== ===========
</TABLE>
See accompanying notes to financial statements.
3
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THREE D DEPARTMENTS, INC.
-------------------------
STATEMENT OF OPERATIONS
-----------------------
(Unaudited)
-----------
<TABLE>
<CAPTION>
For the thirteen weeks ended
----------------------------
November 1, 1997 November 2, 1996
---------------- ----------------
<S> <C> <C>
Sales $10,395,796 $10,987,481
Costs and expenses
Cost of sales, including warehousing,
transportation and buying expenses 5,934,552 6,351,955
Store operating, administrative and
general expenses 4,599,428 4,841,473
----------- -----------
Operating loss (138,184) (205,947)
Interest expense 322,400 324,026
----------- -----------
Loss before income taxes (460,584) (529,973)
Benefit for income taxes
----------- -----------
Net loss $ (460,584) $ (529,973)
=========== ===========
Net loss per share $ (0.19) $ (0.22)
=========== ===========
Weighted average number of common shares
outstanding 2,425,549 2,435,961
=========== ===========
</TABLE>
See accompanying notes to financial statements.
4
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THREE D DEPARTMENTS, INC.
-------------------------
STATEMENT OF CASH FLOWS
-----------------------
(Unaudited)
<TABLE>
<CAPTION>
For the thirteen weeks ended
November 1, 1997 November 2, 1996
<S> <C> <C>
Cash flows from operating
activities:
Net loss $ (460,584) $ (529,973)
Adjustments to reconcile net loss to
cash provided from operating
activities:
Depreciation and amortization 374,959 411,765
Increase in cash value of life
insurance (85,359) (85,359)
Gain (loss) on sales of fixtures
and improvements 101,168
Changes in assets and liabilities:
Accounts receivable (15,703) 6,647
Inventories 134,888 (78,276)
Prepaid expenses (265,108) (5,441)
Prepaid income taxes (54,208)
Accounts payable and accrued
liabilities 30,015 287,024
Other liabilities 272,551 48,608
-----------------------------------------
Net cash (used in) provided by
operating activities (14,341) 101,955
Cash flows from investing
activities:
Proceeds from sales of fixtures
Purchase of fixtures, equipment
and improvements (327,931) (228,374)
Purchase of software (2,897) (2,942)
-----------------------------------------
Net cash used in investing
activities (330,828) (231,316)
Cash flows from financing
activities:
Dividends paid (24,111)
Proceeds from borrowings 356,611
Repayment of debt (174,125)
-----------------------------------------
Net cash (used in) provided by
financing activities 356,611 (198,236)
Net increase (decrease) in cash
and cash equivalents 11,442 (327,597)
Cash and cash equivalents:
Beginning of period 297,790 507,033
-----------------------------------------
End of period $ 309,232 $ 179,436
=========================================
</TABLE>
See accompanying notes to financial statements.
5
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THREE D DEPARTMENTS, INC.
Notes to Financial Statements
1. The financial statements for the thirteen week periods ended November 1,
1997 and November 2, 1996, 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 2,1997. The results of
operations for the thirteen-week period ended November 1, 1997, are not
necessarily indicative of the results for the entire fiscal year ending
August 1, 1998.
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 2,
1997, which should be read in conjunction with this quarterly report.
6
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THREE D DEPARTMENTS, INC.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
THIRTEEN WEEK PERIODS ENDED NOVEMBER 1, 1997 AND NOVEMBER 2, 1996
- -----------------------------------------------------------------
Sales
Sales were $10,395,796 for the thirteen week period ended November 1, 1997
compared to sales of $10,987,481 for the thirteen week period ended November 2,
1996, a decrease of $591,685 or 5.4%. In August 1997, the Company opened a new
25,000 square foot superstore in Orange, Connecticut. A decrease of 8.1% in
comparable store sales was primarily due to the elimination of a promotional
event during the month of October 1997, and secondarily to additional
competition in some of the markets in which the Company operates. The sales from
the new store helped to offset in part, the decline in sales from comparable
stores.
Cost of sales.
Cost of sales for the thirteen weeks ended November 1, 1997, was 57.1% of sales
compared to 57.8% for the thirteen-week period ended November 2, 1996. The
slight improvement in cost of sales was related to fewer markdowns and
promotional selling events in the current period.
Store operating, administrative and general expenses.
Store operating, administrative and general expenses for the thirteen week
period ended November 1, 1997, reduced to $4,599,428 compared to $4,841,473 in
the same period of the prior year. The reduction in operating expenses was
primarily related to a reduction of advertising expenditures and to a lesser
extent a reduction of payroll expense.
Interest expense.
Interest expense for the thirteen-week periods ended November 1, 1997 and
November 2, 1996 was $322,400 and $324,026 respectively.
Quarterly results.
Loss before income taxes was reduced to $460,584 versus $529,973 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 1, 1997, was $460,584 compared to a net loss of $529,973 in the same
period of the prior year. The Company did not record a benefit for income taxes
attributable to the loss generated for the quarter ended November 1, 1997 or for
the quarter ended November 2, 1996. The specialty domestics segment of the
retail industry has seen increased competition with corresponding pressure on
sales and margins.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At November 1, 1997, working capital was $9,837,844 compared to $9,652,600 at
the beginning of the fiscal year. Cash used in operating activities was $14,341
and additionally the Company used cash in the purchase of $330,828 of fixtures
and equipment, most of which was incurred through the construction of a new
25,000 square foot superstore in Orange, Connecticut. The Company increased its
borrowings during the quarter ended November 1, 1997 by $356,611.
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
7
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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
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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 1, 1997.
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, 1997 THREE D DEPARTMENTS, INC.
-------------------------
(Registrant)
________________________________
Steven Kerkstra
Vice President and
Chief Financial Officer
________________________________
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 1, 1997 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-03-1997
<PERIOD-END> NOV-01-1997
<CASH> 309,232
<SECURITIES> 0
<RECEIVABLES> 413,163
<ALLOWANCES> 0
<INVENTORY> 15,450,333
<CURRENT-ASSETS> 16,725,371
<PP&E> 13,478,845
<DEPRECIATION> 7,580,619
<TOTAL-ASSETS> 25,337,643
<CURRENT-LIABILITIES> 6,887,527
<BONDS> 8,911,682
0
0
<COMMON> 863,217
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 25,337,643
<SALES> 10,395,796
<TOTAL-REVENUES> 10,395,796
<CGS> 5,934,552
<TOTAL-COSTS> 4,599,428
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 322,400
<INCOME-PRETAX> (460,584)
<INCOME-TAX> 0
<INCOME-CONTINUING> (460,584)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (460,584)
<EPS-PRIMARY> (0.19)
<EPS-DILUTED> (0.19)
</TABLE>
