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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 May 2, 1998.
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
(Registrants 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 2, 1998, there were 1,676,969 shares of Class A common stock and
1,563,863 shares of Class B common stock, par value $.25, outstanding.
1
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THREE D DEPARTMENTS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Balance Sheet at May 2, 1998 and August 2, 1997.......................3
Statement of Operations for the thirteen and thirty-nine week
periods ended May 2, 1998 and May 3, 1997.........................4
Statement of Cash Flows for the thirty-nine week periods ended
May 2, 1998 and May 3, 1997.......................................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. Other information....................................................10
Item 6. Exhibits and Reports on Form 8-K.....................................10
Signatures...........................................................10
2
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<TABLE>
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THREE D DEPARTMENTS, INC.
-------------------------
BALANCE SHEET
-------------
<CAPTION>
May 2, 1998 August 2, 1997
ASSETS -------------- --------------
------
<S> <C> <C>
CURRENT ASSETS
- --------------
Cash $ 199,929 $ 297,790
Receivables 474,322 397,460
Inventories 11,328,341 15,585,221
Prepaid expenses 387,316 251,900
Deferred income taxes 35,635 35,635
-------------- --------------
Total current assets 12,425,543 16,568,006
PROPERTY, FIXTURES AND IMPROVEMENTS, at cost
- --------------------------------------------
Buildings 1,193,834 1,193,834
Fixtures and equipment 9,358,936 8,943,029
Leasehold improvements 2,975,757 3,014,051
-------------- --------------
13,595,624 13,150,914
Less - accumulated depreciation 8,117,840 7,269,480
-------------- --------------
5,410,687 5,881,434
OTHER ASSETS
- ------------
Deferred cost of leases, net 1,128,838 1,247,924
Deferred income taxes 574,432 574,432
Other 1,260,661 1,068,528
-------------- --------------
2,963,931 2,890,884
-------------- --------------
$ 20,800,161 $ 25,340,324
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Accounts payable $ 4,170,667 $ 5,442,886
Long-term debt - current portion 90,061 263,580
Accrued liabilities 1,766,435 1,208,940
-------------- --------------
Total current liabilities 6,027,163 6,915,406
LONG-TERM DEBT, LESS CURRENT PORTION 6,622,054 8,497,177
- ------------------------------------
DEFERRED COMPENSATION 200,000 200,000
- ---------------------
OTHER LIABILITIES 841,130 791,941
- -----------------
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 6,848,825 8,674,811
-------------- --------------
8,954,197 10,740,544
Less - 804,883 shares of common stock in treasury, at cost 1,804,744 1,804,744
-------------- --------------
7,109,814 8,935,800
$ 20,800,161 $ 25,340,324
============== ==============
</TABLE>
See accompanying notes to financial statements.
3
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<TABLE>
THREE D DEPARTMENTS, INC.
-------------------------
STATEMENT OF OPERATIONS
-----------------------
(Unaudited)
-----------
<CAPTION>
For the thirteen weeks ended For the thirty-nine weeks ended
May 2, 1998 May 3, 1997 May 2, 1998 May 3, 1997
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales $ 8,657,360 $ 9,807,148 $ 31,182,542 $ 34,007,680
Cost of sales, including warehousing,
transportation and buying expenses 5,277,931 5,396,829 18,140,611 19,209,858
Store operating, administrative and general
expenses 4,621,300 4,689,277 13,946,174 14,728,974
-------------- -------------- -------------- --------------
Operating income (loss) (1,241,871) (278,958) (904,243) 68,849
Interest expense 287,084 302,677 921,743 943,265
-------------- -------------- -------------- --------------
(Loss) before income taxes (1,528,9536) (581,635) (1,825,986) (874,416)
Income taxes 0 0 0 0
-------------- -------------- -------------- --------------
Net (loss) $ (1,528,953) $ (581,635) $ (1,825,986) $ (874,416)
============== ============== ============== ==============
Net income (loss) per share $ (0.63) $ (0.24) $ (0.75) $ (0.36)
============== ============== ============== ==============
Weighted average number of common
shares outstanding 2,435,949 2,435,961 2,435,949 2,435,961
============== ============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
4
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<TABLE>
THREE D DEPARTMENTS, INC.
-------------------------
STATEMENT OF CASH FLOWS
-----------------------
(Unaudited)
-----------
<CAPTION>
Thirty-nine Week Periods Ended
May 2, 1998 May 3, 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,825,986) $ (874,416)
Adjustments to reconcile net loss to cash provided from operating activities:
Depreciation and amortization 1,122,187 1,244,013
Increase in cash value of life insurance (255,797) (256,078)
Gain (loss) on sales of fixtures and improvements 4,500 119,575
Changes in assets and liabilities:
Accounts receivable (76,862) 22,842
Inventories 4,256,880 (175,335)
Prepaid expenses (135,416) (73,289)
Prepaid income taxes 0 (55,105)
Accounts payable and accrued liabilities (714,724) 917,761
Other liabilities 49,189 (80,471)
-------------- --------------
Net cash provided by operating activities 2,423,971 789,497
Cash flows from investing activities:
Purchase of fixtures, equipment and improvements (464,372) (632,895)
Purchase of leases (250,000)
Purchase of software (8,818) (34,249)
-------------- --------------
Net cash (used in) investing activities (473,190) (917,144)
Cash flows from financing activities:
Dividends paid 0 (72,368)
Repayment of debt (2,048,642) (810,010)
Proceeds from loan against cash value of insurance 0 596,000
Purchase of treasury stock 0 (11)
-------------- --------------
Net cash (used in) financing activities (2,048,642) (286,389)
-------------- --------------
Net (decrease) in cash and cash equivalents (97,861) (414,036)
Cash and cash equivalents:
Beginning of period 297,790 507,033
-------------- --------------
End of period $ 199,929 $ 92,997
============== ==============
</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 and thirty-nine week
periods ended May 2, 1998 and May 3, 1997, 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 and thirty-nine week periods ended May 2, 1998, 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 MAY 2, 1998 AND MAY 3, 1997
- -------------------------------------------------------
SALES. Sales were $8,657,360 for the thirteen week period ended May 2, 1998
compared to $9,807,148 for the thirteen week period ended May 3, 1997, a
decrease of 11.7%. Sales for stores open in both periods were $8,277,740 for the
thirteen-week period ended May 2, 1998 and $9,765,492 for the thirteen-week
period ended May 3, 1997. The Company closed one store in prior periods, which
have resulted in a net decrease in sales of $100,733 for the thirteen-week
period, ended May 2, 1998. Beginning in February 1998 the Company began to
experience a tightening of trade credit. Reduced shipments of new product to the
Company have resulted in a deterioration of comparable store sales.
COST OF SALES. Cost of sales for the thirteen-week period ended May 2, 1998,
were 61.0% of sales compared to 55.0% for the thirteen-week period ended May 3,
1997. The Company takes physical inventory twice each year and records an
adjustment to the carrying value of inventory based upon the physical count. In
both 1998 and 1997 the Company recorded increases in inventory because the
provision(s) for inventory shrinkage were less than the amount than had been
recorded. In fiscal 1998 inventory results were recorded during the second
quarter. In fiscal 1997 the positive inventory results were recorded in the
third quarter, which was predicated on the timing of when the physical inventory
was taken.
STORE OPERATING, ADMINISTRATIVE AND GENERAL EXPENSES. Store operating,
administrative and general expenses for the thirteen week period ended May 2,
1998 were $4,621,300 compared to $4,689,277 in the same period of the prior
year.
INTEREST EXPENSE. Interest expense for the thirteen-week periods ended May 2,
1998 and May 3, 1997 was $287,082 and $302,677, respectively.
INCOME TAX EXPENSE. No income tax expense (benefit) was recognized for the
quarter ended May 2, 1998 or for the quarter ended May 3, 1997. At fiscal year
end August 2, 1997 the Company established a valuation allowance against
deferred tax assets which related primarily to operating loss carry forwards
generated in fiscal 1994 through 1997. 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 thirty-nine weeks ended May 2, 1998.
QUARTERLY RESULTS. Loss before income taxes was $1,528,953 versus $581,635 for
the same period in the prior year. Net loss for the thirteen-week period ended
May 2, 1998, was $1,528,953 compared to a net loss of $581,635 in the same
period of the prior year. The increase in net loss is attributable to the
reduction in sales in the current period resulting from the aforementioned
reduction in shipments of new product to the Company.
7
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THIRTY-NINE WEEK PERIODS ENDED MAY 2, 1998 AND MAY 3, 1997
- ----------------------------------------------------------
SALES. Sales were $31,182,542 for the thirty-nine week period ended May 2, 1998
compared to $34,007,680 for the thirty-nine week period ended May 3, 1997, a
decrease 8.3%. Sales for stores open in both periods were $29,822,621 for the
thirty-nine week period ended May 2, 1998 and $33,669,187 for the thirty-nine
week period ended May 3, 1997. The Company closed one store in prior periods,
which have resulted in a net decrease in sales of $337,345 for the thirty-nine
week period, ended May 2, 1998. Beginning in March 1998 the Company began to
experience a tightening of trade credit. Reduced shipments of new product to the
Company have resulted in a deterioration of comparable store sales.
COST OF SALES. Cost of sales for the thirty-nine week period ended May 2, 1998,
was 58.2% of sales compared to 56.3% for the thirty-nine week period ended May
3, 1997. Markdowns and other costs of sales have remained static and, as such,
account for a greater percentage of cost due to a decrease in the amount of
sales.
STORE OPERATING, ADMINISTRATIVE AND GENERAL EXPENSES. Store operating,
administrative and general expenses for the thirty-nine week period ended May 2,
1998, were $13,946,174 compared to $14,728,974 in the same period of the prior
year. Advertising was decreased by $551,314 versus the prior year.
INTEREST EXPENSE. Interest expense for the thirty-nine week periods ended May 2,
1998 and May 3, 1997 was $921,743 and $943,265, respectively.
INCOME TAX EXPENSE. No income tax benefit was recognized for the thirty-nine
weeks ended May 2, 1998 or for the thirty-nine weeks ended May 3, 1997. At
fiscal year end August 2, 1997, the Company established a valuation allowance
against deferred tax assets which related primarily to operating loss carry
forwards generated in fiscal 1994 through 1997. 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 thirty-nine weeks ended May
2, 1998.
THIRTY-NINE WEEK RESULTS. Loss before income taxes was $1,825,986 versus a loss
of $874,416 for the same period in the prior year. Net loss for the thirty-nine
week period ended May 2, 1998, was $1,825,986 compared to a net loss of $874,416
in the same period of the prior year. The increase in net loss is attributable
to the reduction in sales in the current period resulting from aforementioned
reduction in shipments of new product to the Company.
8
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LIQUIDITY AND CAPITAL RESOURCES.
- --------------------------------
At May 2, 1998, working capital was $6,398,380 compared to $9,652,600 at the
beginning of the fiscal year. Cash generated by operations was $2,423,971, which
was offset by debt reduction of $2,048,642 and expenditures on capital
improvements of $473,190. Beginning in February 1998 merchandise shipments to
the Company constricted due to a tightening of bank and trade credit. From the
beginning of February 1998 to the end on March 1998 merchandise inventory
declined 8.7%. On April 15, 1998 the Company met with its trade creditors to
discuss a forecast of a downturn in business the Company was projecting for the
months of May, June, and July, 1998. The Company asked its trade creditors to
temporarily place all demands for collection on trade credit on hold dated April
15, 1998 and prior, while the Company sought alternative financing and strategic
proposals. On April 15, 1998 the trade creditors formed an Unofficial Creditors
Committee to consult with the Company. The Company asked the trade creditors to
continue the moratorium until July 15, 1998. The Company is currently in
discussions regarding financing and strategic alternatives.
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.
9
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THREE D DEPARTMENTS, INC.
PART II. - OTHER INFORMATION
Item 5. Other Information
As of May 2, 1998, the Company owned and operated 22 stores in Connecticut,
California, and Arizona, operating under the trade names of Three D Bed & Bath
and Linens Plus. These are comprised of 17 superstores averaging approximately
24,000 square feet and five bed and bath specialty stores averaging
approximately 12,000 square feet.
Item 6. Exhibits and Reports on Form 8-K
The Company filed a Report on Form 8-K dated June 6, 1998 reporting on the
development of the Unofficial Creditors Committee and on the appointment of a
new Chief Executive Officer.
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: June 22, 1998
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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q,
May 2, 1998 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> AUG-02-1997 AUG-01-1998
<PERIOD-START> FEB-01-1998 AUG-03-1997
<PERIOD-END> MAY-02-1998 MAY-02-1998
<CASH> 199,929 199,929
<SECURITIES> 0 0
<RECEIVABLES> 474,322 474,322
<ALLOWANCES> 0 0
<INVENTORY> 11,328,341 11,328,341
<CURRENT-ASSETS> 12,425,543 12,425,543
<PP&E> 13,528,527 13,528,527
<DEPRECIATION> 8,117,840 8,117,840
<TOTAL-ASSETS> 20,800,161 20,800,161
<CURRENT-LIABILITIES> 6,027,163 6,027,163
<BONDS> 6,622,054 6,622,054
0 0
0 0
<COMMON> 810,208 810,208
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 20,800,161 20,800,161
<SALES> 8,657,360 31,182,542
<TOTAL-REVENUES> 8,657,360 31,182,542
<CGS> 5,277,931 18,140,611
<TOTAL-COSTS> 4,621,300 13,946,174
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 287,082 921,743
<INCOME-PRETAX> (1,528,953) (1,825,986)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (1,528,953) (1,825,986)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,528,953) (1,825,986)
<EPS-PRIMARY> (0.63) (0.75)
<EPS-DILUTED> (0.63) (0.75)
</TABLE>
