<PAGE>
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 quarterly period ended November 2, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
- ----- EXCHANGE ACT OF 1934
For the transition period from to
------ ------
Commission file number 0-14970
COST PLUS, INC.
(Exact name of registrant as specified in its charter)
California 94-1067973
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
201 Clay Street, Oakland, California 94607
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including (510) 893-7300
area code
Former name, former address and former N/A
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 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
----- -----
The number of shares of Common Stock, with $0.01 par value, outstanding on
December 6, 1996 was 8,092,596.
<PAGE>
COST PLUS, INC.
FORM 10-Q
FOR THE QUARTER ENDED NOVEMBER 2, 1996
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
Balance Sheets as of November 2, 1996 (unaudited),
February 3, 1996 and October 21, 1995 (unaudited) 3
Statements of Operations (unaudited)
for the thirteen and thirty-nine weeks ended
November 2, 1996 and October 21, 1995 4
Statements of Cash Flows (unaudited)
for the thirty-nine weeks ended November 2, 1996
and October 21, 1995 5
Notes to Condensed Consolidated Financial Statements 6-7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-9
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 10
SIGNATURE PAGE 11
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COST PLUS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NOVEMBER 2, FEBRUARY 3, OCTOBER 21,
1996 1996 1995
(UNAUDITED) (SEE NOTE 1) (UNAUDITED)
------------- ------------ -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,093 $ 2,181 $ 2,638
Merchandise inventories 56,228 35,213 45,856
Other current assets 3,481 1,960 3,301
------------- ------------- -----------
Total current assets 60,802 39,354 51,795
Property and equipment, net 58,994 58,300 57,329
Other assets 8,490 8,332 8,209
------------- ------------- -----------
Total assets $ 128,286 $ 105,986 $ 117,333
============= ============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 15,329 $ 9,422 $ 16,476
Income taxes payable -- 3,359 --
Accrued compensation 6,069 5,373 3,295
Revolving line of credit 14,239 3,165 20,474
Other current liabilities 7,304 6,933 6,150
------------- ------------- -----------
Total current liabilities 42,941 28,252 46,395
Capital lease obligations 14,320 14,633 14,715
Note payable to related parties -- 19,895 19,895
Deferred income taxes 4,455 4,455 4,646
Other long-term obligations 2,439 2,392 2,261
Shareholders' equity:
Preferred stock, $.01 par value:
5,000,000 shares authorized at
November 2, 1996; none issued and outstanding -- -- --
Common stock, $.01 par value:
30,000,000, 6,819,931 and 6,819,931
authorized; issued and outstanding
8,090,993, 5,906,264 and 5,821,928 81 59 58
Additional paid-in capital 90,970 61,765 61,753
Deficit (26,920) (25,465) (32,390)
------------- ------------- -----------
Total shareholders' equity 64,131 36,359 29,421
------------- ------------- -----------
Total liabilities and shareholders' equity $ 128,286 $ 105,986 $ 117,333
============= ============= ===========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE>
COST PLUS, INC.
STATEMENTS OF CONDENSED CONSOLIDATED OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNT, UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
------------------------- --------------------------
November 2, October 21, November 2, October 21,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 45,041 $ 36,412 $ 124,154 $ 101,369
Cost of sales and occupancy 29,030 23,446 80,356 66,027
-------- -------- --------- ---------
Gross profit 16,011 12,966 43,798 35,342
Selling, general and administrative
expenses 15,718 13,327 42,284 35,502
Preopening store expenses 1,145 813 1,985 1,423
-------- -------- --------- ---------
Income (loss) from operations (852) (1,174) (471) (1,583)
Interest expense 611 1,449 1,995 3,682
-------- -------- --------- ---------
Loss before income taxes (1,463) (2,623) (2,466) (5,265)
Benefit from income taxes (600) (1,075) (1,011) (2,159)
-------- -------- --------- ---------
Net loss $ (863) $ (1,548) $ (1,455) $ (3,106)
======== ======== ========= =========
Net loss per common and
common equivalent share $ (.10) $ (.25) $ (.18) $ (.50)
======== ======== ========= =========
Weighted average common
and common equivalent
shares outstanding 8,488 6,153 7,985 6,153
======== ======== ========= =========
See notes to condensed consolidated financial statements.
</TABLE>
4
<PAGE>
COST PLUS, INC.
STATEMENTS OF CONDENSED CONSOLIDATED CASH FLOWS
(IN THOUSANDS, UNAUDITED)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
------------------------------
NOVEMBER 2, OCTOBER 21,
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,455) $ (3,106)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,957 4,065
Change in assets and liabilities:
Merchandise inventories (21,015) (16,730)
Other assets (2,051) (2,074)
Accounts payable 6,264 6,041
Income taxes payable (3,359) (1,841)
Other liabilities 1,052 (946)
---------- ----------
Net cash used in operating activities (15,607) (14,591)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (5,636) (5,986)
---------- ----------
Net cash used in investing activities (5,636) (5,986)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings under revolving line of credit 11,074 20,474
Payment of note payable to related parties (19,895) --
Principal payments on capital lease obligations (251) (196)
Proceeds from issuance of stock, net of related costs 29,227 (378)
---------- ----------
Net cash provided by financing activities 20,155 19,900
---------- ----------
Net decrease in cash and cash equivalents (1,088) (677)
Cash and cash equivalents:
Beginning of period 2,181 3,315
---------- ----------
End of period $ 1,093 $ 2,638
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
COST PLUS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THIRTEEN AND THIRTY-NINE WEEKS ENDED NOVEMBER 2, 1996 AND OCTOBER 21, 1995
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared from the records of the Company without audit and, in the opinion of
management, include all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the financial position at November 2, 1996
and October 21, 1995; the interim results of operations for the thirteen and
thirty-nine weeks ended November 2, 1996 and October 21, 1995; and changes in
cash flows for the thirty-nine weeks then ended. The balance sheet at February
3, 1996, presented herein, has been derived from the audited financial
statements of the Company for the fiscal year then ended.
Effective in fiscal 1995, the Company changed its fiscal year-end from the
Saturday closest to the end of February to the Saturday closest to the end of
January to conform to the National Retail Federation (NRF) calendar. As a
result, the fiscal period-end dates for the prior year may not be comparable to
the current year's fiscal period-end dates.
Accounting policies followed by the Company are described in Note 1 to the
audited consolidated financial statements for the fiscal year ended February 3,
1996. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted for purposes of the condensed
consolidated interim financial statements. The condensed consolidated financial
statements should be read in conjunction with the audited consolidated financial
statements, including notes thereto, for the year ended February 3, 1996.
The results of operations for the thirteen and thirty-nine week periods herein
presented are not necessarily indicative of the results to be expected for the
full year.
2. STATEMENTS OF CASH FLOWS SUPPLEMENTAL DISCLOSURES
Total cash paid for interest and income taxes was as follows:
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
-------------------------
November 2, October 21,
1996 1995
----------- -----------
($000, unaudited)
<S> <C> <C>
Interest $ 2,298 $ 3,652
Income Taxes $ 3,339 $ 1,607
</TABLE>
3. INITIAL PUBLIC OFFERING OF COMMON STOCK
The Company sold 2,136,614 shares of its common stock in the Company's initial
public offering of shares of common stock registered on Form S-1 with the
Securities and Exchange Commission. These shares were sold at a price of $15.00
per share yielding net proceeds of approximately $29.1 million after deducting
underwriting discounts of $2.9 million and offering expenses of $0.7 million. As
described in the Company's prospectus dated April 4, 1996, the proceeds were
used primarily to retire the Company's note payable and to pay down outstanding
borrowings under its line of credit. All remaining unused proceeds were invested
in short-term, interest bearing instruments or used for working capital or
general corporate purposes.
6
<PAGE>
4. REVOLVING LINE OF CREDIT AGREEMENT
On May 7, 1996 the Company entered into a revolving line of credit agreement
with Bank of America which expires May 31, 1998. The Company's existing
revolving line of credit agreement was terminated. The new agreement allows for
cash borrowings and letters of credit of up to $20.0 million from January 1
through June 30 and $35.0 million from July 1 through December 31 of each year.
The Company is required to have not more than $5.0 million outstanding,
excluding letters of credit, for a period of 45 days between December 1 and
March 31 of the next year. Interest is paid monthly at the bank's reference rate
(8.25% at November 2, 1996) or LIBOR+2%, depending on the nature of the
borrowings. A commitment fee on the unused portion is payable quarterly, in
arrears, at .125% per year. The agreement is secured by the Company's inventory
and receivables. The Company is required to maintain certain financial loan
covenants including minimum tangible net worth, earnings coverage ratio and
inventory turn. Borrowings and letters of credit outstanding under the line were
$14.2 million and $1.4 million, respectively, at November 2, 1996 leaving
availability of $19.4 million.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THE THIRTEEN WEEKS (THIRD QUARTER) AND THIRTY-NINE WEEKS (YEAR-TO-DATE) ENDED
NOVEMBER 2, 1996 AS COMPARED TO THE THIRTEEN WEEKS (THIRD QUARTER) AND THIRTY-
NINE WEEKS (YEAR-TO-DATE) ENDED OCTOBER 21, 1995.
NET SALES. Net sales increased $8.6 million, or 23.6%, to $45.0 million in the
third quarter of 1996 from $36.4 million in the third quarter of 1995. Year-to-
date net sales were $124.2 million in 1996, an increase of $22.8 million or
22.5% from 1995 net sales of $101.4 million. The third quarter and year-to-date
increases in net sales were attributable to new stores and increases in
comparable and non-comparable store sales. As of November 2, 1996, the Company
operated 57 stores compared to 48 stores at November 4, 1995. These nine new
stores contributed $5.2 million of the increase in third quarter net sales and
$9.0 million of the increase in year-to-date net sales. Comparable store sales,
calculated on a comparable, day-to-day basis, increased 6.0% for the third
quarter and 5.2% on a year-to-date basis.
GROSS PROFIT. As a percentage of net sales, third quarter gross profit decreased
slightly to 35.5% in 1996 from 35.6% in 1995 as a result of higher occupancy
costs in stores which opened in the third quarter. Year-to-date gross profit
increased to 35.3% in 1996 from 34.9% in 1995 as a result of leveraging
occupancy costs. Occupancy costs as a percentage of net sales may fluctuate
slightly from quarter to quarter depending on the number and timing of stores
opened during the quarter relative to the existing store base. New stores
generally have higher occupancy costs as a percentage of net sales until they
reach maturity.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES. As a percentage of net
sales, SG&A expenses decreased to 34.9% in the third quarter from 36.6% in the
third quarter of the prior year. Year-to-date, SG&A expenses, as a percentage of
net sales, decreased to 34.1% from 35.0% in the prior year. The third quarter of
1996 realized a benefit from advertising dollars being allocated more heavily to
the fourth quarter of 1996. In addition, both the third quarter and year-to-date
periods continued leveraging store and corporate payroll expenses which offset
higher depreciation and amortization.
PREOPENING STORE EXPENSES. Preopening expenses, which include grand opening
advertising and preopening merchandising expenses, were $1.1 million and $0.8
million for the third quarter of 1996 and 1995, respectively. Year-to-date,
preopening expenses were $2.0 million in 1996 and $1.4 million in 1995. The
Company opened five stores in the third quarter of 1996 and three in 1995. Year-
to-date, the Company opened eight stores in 1996 and five stores in 1995.
INTEREST EXPENSE. Interest expense for the third quarter and year-to-date was
lower than the comparable periods of the prior year due to the repayment of
borrowings in April 1996 with the proceeds from the Company's initial public
offering of its common stock.
PROVISION FOR INCOME TAXES. The Company's effective tax rate for all periods
presented was 41%.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company has identified certain forward-looking statements in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations by a footnote #1. The Company may also make oral forward-looking
statements from time to time. Actual results may differ materially from those
projected in any such forward-looking statements due to a number of factors
including those set forth below.
Due to the importance of the Christmas selling season, the fourth quarter of
each fiscal year has historically contributed, and the Company expects it will
continue to contribute, a disproportionate percentage of the Company's net sales
and all of its net income for the entire fiscal year/1/. Any factors negatively
affecting the Company during the Christmas selling season in any year, including
unfavorable economic conditions, could have a material adverse effect on the
Company's financial condition and results of operations. In addition, the
Company makes decisions regarding merchandise well in advance of the season in
which it will be sold, particularly for the Christmas selling season.
Significant deviations from projected demand for products could have a material
adverse effect on the Company's financial condition and results of operations,
either by lost sales due to insufficient inventory or lost margin due to the
need to mark down excess inventory.
- -----------------------------
/1/ forward-looking statement
8
<PAGE>
The Company's quarterly results of operations may fluctuate based upon such
factors as the number and timing of store openings and related preopening store
expenses, the amount of net sales contributed by new and existing stores, the
mix of products sold, the timing and level of markdowns, store closings,
refurbishments or relocations, competitive factors and general economic
conditions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses for cash, other than to fund operating expenses, are
to support inventory requirements and for store expansion. Historically, the
Company has financed its operations primarily with borrowings under the
Company's credit facilities and internally generated funds. The Company believes
that the available borrowings under its revolving line of credit and internally
generated funds will be sufficient to finance its working capital and capital
expenditure requirements for the next 12 months/1/.
Net cash used in operating activities in the thirty-nine weeks ended November 2,
1996 totaled $15.6 million, an increase of $1.0 million over the prior year. The
fiscal quarter ended two weeks later than in the prior year and therefore
reflects higher seasonal inventories. This increase was partially offset by
sales growth and the leveraging of expenses over a higher sales base.
Net cash used in investing activities, primarily for new stores, totaled $5.6
million in the thirty-nine weeks ended Novermber 2, 1996 and $6.0 million for
the prior year. The Company estimates that 1996 capital expenditures will not
exceed $8.4 million/1/.
Net cash provided by financing activities in the thirty-nine weeks ended
November 2, 1996 included approximately $29.1 million received in April 1996 as
a result of the Company's initial public offering. The proceeds were used to
retire the $19.9 million long-term note payable and pay down the $3.2 million
balance then outstanding on the revolving credit line. Remaining unused proceeds
were invested in short-term interest bearing instruments or used for working
capital or general corporate purposes.
On May 7, 1996 the Company entered into a revolving line of credit agreement
with Bank of America which expires May 31, 1998. The Company's existing
revolving line of credit agreement was terminated. The new agreement allows for
cash borrowings and letters of credit of up to $20.0 million from January 1
through June 30 and $35.0 million from July 1 through December 31 of each year.
The Company is required to have not more than $5.0 million outstanding,
excluding letters of credit, for a period of 45 days between December 1 and
March 31 of the next year. Interest is paid monthly at the bank's reference rate
(8.25% at November 2, 1996) or LIBOR+2%, depending on the nature of the
borrowings. A commitment fee on the unused portion is payable quarterly, in
arrears, at .125% per year. The agreement is secured by the Company's inventory
and receivables. The Company is required to maintain certain financial loan
covenants including minimum tangible net worth, earnings coverage ratio and
inventory turn. Borrowings and letters of credit outstanding under the line were
$14.2 million and $1.4 million, respectively, at November 2, 1996 leaving
availability of $19.4 million.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENT
In October, 1995, Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," was issued and is effective for the
Company in fiscal 1996. As permitted by SFAS No. 123, the Company will continue
to apply APB Opinion No. 25, which recognizes compensation cost based on the
intrinsic value of the equity instrument awarded to its stock based compensation
awards to employees and will disclose the required proforma effect on net income
and earnings per share.
- -----------------------------
/1/ forward-looking statement
9
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8K
(a) Exhibits
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule (submitted for SEC use only)
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the period
covered by this report.
10
<PAGE>
SIGNATURES
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 thereunto duly authorized.
COST PLUS, INC.
-------------------------------
Registrant
Date: December 13, 1996 By: /s/ Alan E. Zimtbaum
----------------------------
Alan E. Zimtbaum
President and
Chief Financial Officer
11
<PAGE>
(Exhibit 11)
COST PLUS, INC.
COMPUTATION OF NET LOSS PER SHARE
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS, UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
------------------------- --------------------------
November 2, October 21, November 2, October 21,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NET LOSS $ (863) $ (1,548) $ (1,455) $ (3,106)
========= ========= ========= =========
Weighted average shares outstanding
during the period:
Common Stock 8,077 5,849 7,595 5,849
Add incremental shares from assumed
exercise of stock options 411 304 390 304
--------- --------- --------- ---------
Weighted average common and common
equivalent shares outstanding 8,488 6,153 7,985 6,153
========= ========= ========= =========
PRIMARY NET LOSS PER SHARE $ (.10) $ (.25) $ (.18) $ (.50)
========= ========= ========= =========
Weighted average shares outstanding
during the period:
Common Stock 8,077 5,849 7,595 5,849
Add incremental shares from assumed
exercise of stock options 410 304 390 304
--------- --------- --------- ---------
Weighted average common and common
equivalent shares outstanding 8,487 6,153 7,985 6,153
========= ========= ========= =========
FULLY DILUTED NET LOSS PER SHARE $ (.10) $ (.25) $ (.18) $ (.50)
========= ========= ========= =========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF COST PLUS, INC. FOR THE NINE MONTHS ENDED NOVEMBER 2,
1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> NOV-02-1996
<CASH> 1,093
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 56,228
<CURRENT-ASSETS> 60,802
<PP&E> 88,636
<DEPRECIATION> 29,642
<TOTAL-ASSETS> 128,286
<CURRENT-LIABILITIES> 42,941
<BONDS> 0
0
0
<COMMON> 81
<OTHER-SE> 64,050
<TOTAL-LIABILITY-AND-EQUITY> 128,286
<SALES> 124,154
<TOTAL-REVENUES> 124,154
<CGS> 80,356
<TOTAL-COSTS> 80,356
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,955
<INCOME-PRETAX> (2,466)
<INCOME-TAX> (1,011)
<INCOME-CONTINUING> (1,455)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,455)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
