<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
[X]
FOR THE FISCAL YEAR ENDED FEBRUARY 1, 1997
OR
[_]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
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
(I.R.S. EMPLOYER IDENTIFICATION NO.)
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
94607
201 CLAY STREET
OAKLAND, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, (510) 893-7300
INCLUDING AREA CODE
FORMER NAME, FORMER ADDRESS AND FORMER
FISCAL YEAR IF CHANGED SINCE LAST
REPORT.
N/A
SECURITIES REGISTERED PURSUANT TO
SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO
SECTION 12(G) OF THE ACT: COMMON STOCK, $.01 PAR VALUE
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
Indicate by check mark if disclosure of delinquent filer pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K X
The aggregate market value of voting stock held by non-affiliates of the
registrant on April 18, 1997 was approximately $58,134,843 based upon the last
sale price reported for such date on the Nasdaq National Market. On that date,
8,109,540 shares of Common Stock, $.01 par value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held June 19, 1997 ("Proxy Statement") are incorporated by
reference into Part III.
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PART I
BUSINESS
THE COMPANY
Cost Plus, Inc. ("Cost Plus" or "the Company") is a leading specialty
retailer of casual living and home entertaining products. The Company's
business strategy is to differentiate itself by offering a large and ever-
changing selection of unique products, many of which are imported, at
competitive prices in an exciting shopping environment. Cost Plus opened its
first store in 1958 in San Francisco. After a long period of growth, the
Company was sold in a leveraged buyout in 1987 and profitability subsequently
deteriorated. The Company's current management team, hired beginning in 1990,
instituted a number of key changes in the areas of merchandising,
distribution, systems and controls. As a result, the Company has experienced a
significant improvement in sales and profitability.
Cost Plus' expansion strategy is to open stores primarily in metropolitan
and suburban markets that can support multiple stores and enable the Company
to achieve advertising, distribution and operating efficiencies. The Company
may also selectively enter mid-size markets which can support one or two
stores that the Company believes can meet its profitability criteria. Cost
Plus stores are located predominantly in high traffic metropolitan and
suburban locales, often near major malls. In fiscal 1996, the Company opened a
total of nine stores, including two in existing markets in Las Vegas and Los
Angeles and seven in new markets in Chicago, Houston, San Antonio and Austin.
MERCHANDISING
Cost Plus' merchandising strategy is to offer customers a large selection of
distinctive items, both nonconsumable and consumable, which are related to the
theme of casual living and home entertaining.
Format and Presentation. The Company's stores are designed to evoke the
feeling of a "marketplace" through colorful and creative visual displays and
merchandise presentations, including goods in open barrels and baskets,
groupings of related products in distinct "shops" within the store, and in-
store activities such as food and coffee tastings. The Company believes that
its marketplace format provides customers with a fun shopping experience and
encourages browsing throughout the store.
The Company's merchandise is organized into major product categories.
Complementary categories are positioned in proximity to one another and cross
merchandising themes are used in merchandise displays to tie different
products and categories together. The unobstructed floor plan allows the
customer to see virtually all of the different product areas in a Cost Plus
World Market from the store entrance. The "power" aisle, in which "Real Deals"
are displayed, leads the customer through the store into the different product
areas. The Company uses a "swing" area near the front of the store to group
seasonal products in themes, such as Christmas and Easter. Store signage,
including permanent as well as promotional signs, is developed by the
Company's in-house graphic design department. End caps, bulk stacks and free
standing displays are changed frequently.
The Cost Plus World Market format is also designed to reinforce the store's
value image through exposed ceilings, concrete floors, simple wooden fixtures
and open or bulk displays of merchandise. The Company displays most of its
inventory on the selling floor and makes effective use of vertical space with
ten foot high perimeter fixturing and three major focus walls, displaying
chairs, rugs and a coffee/tea marketplace.
The Company believes that its customers usually visit a Cost Plus store as a
destination store with a specific purchase in mind. The Company also believes
that once in the store, its customers often spend additional time shopping and
browsing, usually purchasing more items than they originally intended.
Products. The Company believes its distinctive and unique merchandise
differentiates Cost Plus from other retailers. Many of Cost Plus' products are
proprietary or private label, often incorporating the Company's own designs,
quality standards and specifications, and typically are not available at
department stores and other
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specialty retailers. In addition to strengthening the stores' product
offering, proprietary and private label goods typically offer higher gross
margin opportunities than branded goods. A significant portion of Cost Plus'
products are made abroad in approximately 50 countries, and many of these
goods are handcrafted by local artisans. The Company also carries branded
goods, primarily in the gourmet food and beverage category such as wine, beer
and gourmet food items.
The Company's products are divided into four major categories. Home decor,
which represented approximately 25% of total fiscal 1996 sales, includes
furniture, rugs, blinds, pillows, frames, garden items and baskets. Tabletop
items, which represented approximately 17% of total fiscal 1996 sales, include
ceramics, glassware, textiles and kitchen utensils from around the world.
Gifts and decorative accessories, which represented approximately 21% of total
fiscal 1996 sales, include collectibles, handcrafted items, posters, cards,
jewelry, bath accessories, wrapping paper, candles and holiday and other
seasonal items. Gourmet food and beverage, which represented approximately 37%
of total fiscal 1996 sales, consist of branded and nonbranded goods including
wine, micro-brewed and imported beer, gourmet foods, coffees, teas and candy.
The Company replaces or updates many of the items in its merchandise
assortment on a regular basis in order to promote a sense of discovery and to
encourage repeat shopping. The Company regularly marks down and eliminates
items that do not meet its turnover expectations.
Pricing. Cost Plus offers quality products at competitive prices. The
Company complements its competitive everyday prices with "Real Deals,"
opportunistic buys, enabling the Company to pass on additional savings to the
customer. The Company routinely shops a variety of retailers to ensure that
its products are competitively priced.
Planning and Buying. Cost Plus effectively manages a large number of
products by utilizing a centralized merchandise planning system. The Company
maintains its own central buying staff which is responsible for establishing
the assortment of inventory within the merchandise groups each season,
including integrating trends or themes identified by the Company into its
different product categories. The Company regularly monitors merchandise
through its management information systems to identify and respond to product
trends. The Company attempts to moderate the risk associated with merchandise
purchasing by testing selected new products in a limited number of stores. The
Company's long standing relationships with overseas suppliers and its
extensive knowledge of the import process facilitate the planning and buying
process. The buyers work closely with suppliers to develop unique products
that will meet customers' expectations for quality and value. The Company's
buyers communicate with district and store managers and use the management
information systems to tailor the merchandise mix of individual stores to
regional conditions and to better ensure that in-stock availability will be
maintained in accordance with the specific requirements of each store.
ADVERTISING
The Company advertises through promotional ads in major daily newspapers,
radio, television and direct mail. The Company's approach is to regionalize
its advertising and to use the most efficient media mix within a geographic
area. The Company uses four to ten page full color newspaper tabloids and
color newspaper advertisements in selected markets to highlight product
offerings and selected promotions. Radio and television advertising is often
used for seasonal advertising, such as Christmas. For store grand openings,
the Company uses a combination of newspaper, direct mail, radio and
television.
PRODUCT SOURCING AND DISTRIBUTION
The Company purchases all of its inventory through its central purchasing
system, which allows the Company to take advantage of volume purchase
discounts and improve controls over inventory and product mix. The Company
purchases its merchandise from over 1,500 suppliers, and no supplier
represented over 6.0% of total purchases in the fiscal year ended February 1,
1997. A significant portion of Cost Plus' products are made abroad in
approximately 50 countries in Europe, North and South America, Asia and
Africa. The Company has established a well developed overseas sourcing network
and enjoys long standing relationships with many of its vendors. As is
customary in the industry, the Company does not have long-term contracts with
any suppliers.
2
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The Company's buyers often work with suppliers to produce unique products
exclusive to Cost Plus. The Company believes that, although there could be
delays in changing suppliers, alternate sources of merchandise for all product
categories are available at comparable prices. Cost Plus purchases overseas
products on a free-on-board shipping point basis, and the Company's insurance
on such goods commences at the time it takes ownership. The Company also
purchases a number of domestic products, especially in the gourmet food and
beverage area.
All purchasing decisions are made by the Company's buyers who have primary
responsibility for product selection, assortment and pricing. Purchasing
operations are facilitated by the use of computerized merchandise information
systems which allow the Company to analyze product sell-through and assist the
buyers in making merchandise decisions. The Company's central replenishment
system includes a store-specific, individualized inventory "model stock" which
enables the Company to maintain adequate stock levels in each location. The
Company believes its centralized purchasing system has helped it to reduce
inventory levels and control out-of-stock situations.
The Company currently services all of its stores from its single
distribution center in Stockton, California. Domestically sourced merchandise
is usually delivered to the distribution center by common carrier or by
Company trucks. The Company believes that its distribution center will be able
to handle, or can be upgraded to handle, the Company's store expansion plans
for the Western United States over the next three years. Any significant
interruption in the operation of this facility would have a material adverse
effect on the Company's financial position and results of operations. To
facilitate expanding to new regions such as Illinois and Texas, the Company
anticipates the addition of a second smaller facility in the future.
MANAGEMENT INFORMATION SYSTEMS
Each of the Company's stores is linked to the Cost Plus headquarters in
Oakland, California through a point-of-sale system that interfaces with an IBM
AS/400 computer. The Company's information systems keep a record, which is
updated daily, of each merchandise item sold. The point-of-sale system also
has scanning, "price-look-up" and on-line credit card approval capabilities,
all of which improve transaction accuracy, speed checkout time and increase
overall store efficiency. The Company is in the process of upgrading its in-
store information system to improve information flow to store management and
enhance other in-store capabilities.
The Company uses several other customized management information and control
systems to direct the Company's operations and finances. These computerized
systems are designed to ensure the integrity of the Company's inventory, allow
the merchandising staff to reprice merchandise, replenish depleted store
inventories, identify sales trends and monitor merchandise mix at individual
stores and throughout all of the Company's stores. The Company believes that
these systems allow for lower average store inventories, higher operating
efficiency, better in-stock availability and fewer markdowns. These systems
also enable the Company to produce the periodic financial reports necessary
for monitoring and developing budgets for the Company's expanding business.
The Company believes that its current management information system is readily
upgradeable to support the Company's planned expansion for the foreseeable
future.
COMPETITION
The markets served by the Company are highly competitive. The Company
competes against a diverse group of retailers ranging from specialty stores to
department stores and wholesale clubs. The Company's product categories
compete with such specialty retailers as Bed, Bath & Beyond, The Bombay
Company, Crate & Barrel, Garden Ridge, Lechters, Michaels Stores, Pier 1
Imports, Trader Joe's and Williams-Sonoma. Specialty retailers tend to have
higher prices and a more narrow assortment of products than Cost Plus.
Department stores typically have higher prices than Cost Plus for similar
merchandise. Wholesale clubs may have lower prices than Cost Plus, but the
product assortment is generally more limited. The Company competes with these
and other retailers for customers, suitable retail locations and qualified
management personnel.
3
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EMPLOYEES
As of February 1, 1997, the Company had 763 full-time and 884 part-time
employees. Of these, 1,389 were employed in the Company's stores and 258 were
employed in the distribution center and corporate office. The Company
regularly supplements its work force with temporary workers especially in the
fourth quarter of each year to service increased customer traffic during the
peak Christmas season. Approximately 164 employees located in the 13 stores in
Northern California are covered by a collective bargaining agreement which
expires on December 31, 1998. The Company believes that its relationships with
its employees are good.
TRADEMARKS
The Company regards its trademarks and service marks as having significant
value and as being important to its marketing efforts. The Company has
registered its "Cost Plus," "Cost Plus World Market," "Crossroads" and "Where
you can afford to be different" marks with the United States Patent and
Trademark Office on the Principal Register and has applications pending for
its "Cost Plus World Market" and "World Market" logos. The Company has also
secured California state registration of its "Crossroads" trademark. The
Company's policy is to pursue registration of its trademarks and to oppose
strenuously infringement of its trademarks.
ITEM 2. PROPERTIES
The Company currently operates 60 stores in eleven states. The average
selling space of a Cost Plus World Market is 16,000 square feet. The table
below summarizes the distribution of stores by state:
<TABLE>
<S> <C>
Arizona................................................................ 5
California
Northern California................................................... 17
Southern California................................................... 16
Colorado............................................................... 3
Idaho.................................................................. 1
Illinois............................................................... 3
Nevada................................................................. 2
New Mexico............................................................. 1
Oregon................................................................. 1
Texas.................................................................. 6
Washington............................................................. 4
Wisconsin.............................................................. 1
</TABLE>
The Company leases land and buildings for 52 stores (of which 17 are capital
leases), leases land and owns the buildings for six stores and owns the land
and buildings for two stores. The Company currently leases its executive
headquarters in Oakland, California pursuant to a lease which expires in
October 1998 and its distribution center of approximately 400,000 square feet
in Stockton, California pursuant to a lease which expires in September 2001.
The Company has three renewal options for five years each on its distribution
center lease. See Note 4 of Notes to Consolidated Financial Statements.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings other than
ordinary routine litigation incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Effective as of November 29, 1996, the shareholders of the Company approved
by written consent the following proposal:
An increase of 250,000 shares in the number of shares reserved for issuance
under the Company's 1995 Stock Option Plan and certain other amendments to
the 1995 Stock Option Plan.
The proposal was approved with 6,424,128 votes "FOR", 1,072,003 votes
"AGAINST" and 8 votes abstaining. There were 8,090,893 shares of Common Stock
outstanding as of October 25, 1996, the record date for the proposal. No
shares were subject to broker non-votes.
4
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Ralph D. Dillon............... 56 Chairman and Chief Executive Officer
Alan E. Zimtbaum.............. 53 President, Chief Operating Officer, Chief
Financial Officer and Secretary
Dennis R. Daugherty........... 53 Executive Vice President, Operations
Executive Vice President, Merchandising and
Kathi P. Lentzsch............. 41 Marketing
Michael S. Adams.............. 54 Vice President, Marketing and Advertising
Patricia A. Belardi........... 54 Vice President, General Merchandising Manager
Malcolm R. Carden............. 50 Director of Finance and Treasurer
Joan S. Fujii................. 50 Vice President, Human Resources
Chief Accounting Officer and Vice President,
Patricia T. Saucy............. 45 Controller
Gary D. Weatherford........... 40 Vice President, Store Operations
</TABLE>
Mr. Dillon has served as Chairman and Chief Executive Officer since August
1996. Prior to August 1996, Mr. Dillon served as President, Chairman and Chief
Executive Officer since joining the Company in September 1990. From August
1987 to August 1990, Mr. Dillon served as President, Chief Operating Officer
and a member of the Board of Directors of Family Dollar Stores, Inc., a
discount retail chain. From 1985 to 1987, he was President and Chief Operating
Officer of Coast America Corporation, a hardware store chain. From 1982 to
1984, he served as President and Chief Executive Officer of Bowater Home
Center, Inc. a chain of home improvement stores.
Mr. Zimtbaum was named President and Chief Operating Officer in August 1996
with continued responsibilities as Chief Financial Officer and Secretary.
Prior to this, Mr. Zimtbaum served as Executive Vice President, Finance, Chief
Financial Officer and Secretary since joining the Company in October 1990.
From February 1990 through June 1990, Mr. Zimtbaum served as Senior Vice
President of Finance at Ames Department Store. From January 1989 through
January 1990, he served as Vice President and Chief Financial Officer at Allez
Stores, a specialty apparel retailer. From 1981 to 1988, he served in various
financial positions including Chief Financial Officer at The Gap.
Mr. Daugherty was appointed to Executive Vice President of Operations in
August 1996. Prior to August 1996, Mr. Daugherty served as Vice President,
Distribution/Logistics since joining the Company in December 1990. From
January 1988 to December 1990, Mr. Daugherty was employed by Coast to Coast
Stores, Inc. (formerly Coast America Corp.) where he served most recently as
Vice President of Distribution. Prior to that, Mr. Daugherty held various
positions with the United States Armed Forces relating to transportation and
distribution operations.
Ms. Lentzsch joined the Company in February 1997 as Executive Vice President
of Merchandising and Marketing. From May 1993 to May 1996, Ms. Lentzsch served
as Senior Vice President, Merchandising at Pottery Barn. From April 1991 to
May 1993, Ms. Lentzsch was Vice President, Merchandising and Marketing at
Imposters. Prior to April 1991, she was Vice President, Merchandising at Pier
1 Imports.
Mr. Adams joined the Company in February 1995 as Vice President, Marketing
and Advertising. From August 1992 to February 1995, Mr. Adams managed his own
retail consulting organization, The Sales Promotion Group. From December 1991
to August 1992, Mr. Adams was Vice President, Advertising at Jordan Marsh, a
department store chain. From January 1990 to December 1991, Mr. Adams managed
The Sales Promotion Group. From May 1970 to January 1990, he held various
positions at Macy's Department Stores, including Vice President of
Advertising/Print Media.
Ms. Belardi joined the Company in May 1993 and has served as Vice President,
Merchandising since January 1995. From May 1993 to January 1995, Ms. Belardi
was the Company's Divisional Merchandise Manager, Import Departments. From
August 1988 to May 1993, she was Vice President, Divisional Merchandise
Manager Lingerie and Accessories at Macy's/Bullocks Department Stores. From
1979 to 1988, Ms. Belardi held various merchandise management positions at
Mervyn's Stores.
5
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Mr. Carden was named the Company's Treasurer in August 1996 with continued
responsibilities as Director of Finance. Mr. Carden joined the Company in
October 1986 and has served as Director of Finance since May 1992. From
October 1986 to May 1992 Mr. Carden served as Manager of Financial Planning.
Prior to joining the Company, Mr. Carden was Manager of Strategic Planning for
Genstar Corporation.
Ms. Fujii joined the Company in May 1991 and has served as Vice President,
Human Resources since October 1994. From May 1991 to October 1994, Ms. Fujii
served as the Company's Director of Human Resources. From 1975 to May 1991,
she was employed by Macy's California in the operations and personnel
departments, ultimately serving as Vice President, Human Resources at Macy's
Union Square store in San Francisco.
Ms. Saucy was named the Company's Chief Accounting Officer in August 1996
with continued responsibilities as Vice President, Controller. Ms. Saucy
joined the Company in January 1991 and served as Vice President, Controller
from May 1991 to August 1996. From January 1991 to May 1991, Ms. Saucy served
as the Company's Controller. From August 1990 to January 1991, she was Vice
President and Controller at Crescent Jewelers, a jewelry retailer. From
January 1986 to April 1990, Ms. Saucy served as Assistant Controller at Ross
Stores, an off-price apparel retailer.
Mr. Weatherford joined the Company in January 1988 and has served as Vice
President, Store Operations since June 1995. From April 1991 to June 1995, Mr.
Weatherford served as a Regional Manager for the Company, and from January
1990 to April 1991 he was a Senior Store Manager for the Company. From January
1988 to January 1990, Mr. Weatherford served as a Buyer and Store Design
Director for Cost Plus.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
MARKET INFORMATION
The Company's Common Stock is currently traded in the over-the-counter
market and is quoted on the Nasdaq National Market under the symbol "CPWM",
where it has traded since the Company's initial public offering on April 4,
1996. The following table sets forth the high and low closing sales prices,
for the periods indicated, as reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
PRICE RANGE
-------------
HIGH LOW
------ ------
<S> <C> <C>
Fiscal Year Ended February 1, 1997
First Quarter (from April 4, 1996)........................... $24.38 $18.25
Second Quarter............................................... 30.50 19.88
Third Quarter................................................ 27.75 16.25
Fourth Quarter............................................... 21.50 16.00
</TABLE>
On April 18, 1997, the last sale price of the Common Stock as reported on
the Nasdaq National Market was $17.50 per share.
SHAREHOLDERS
The number of shareholders of record as of April 18, 1997 was approximately
37. This number excludes shareholders whose stock is held in nominee or street
name by brokers.
DIVIDEND POLICY
The Company intends to retain any future earnings for funding growth and,
therefore, does not anticipate paying any cash dividends in the foreseeable
future.
6
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ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
PRO FORMA
TWELVE MONTH
PERIOD ENDED FISCAL YEAR
FISCAL YEAR FEBRUARY 3, ----------------------------
1996 1996 (1) 1994 1993 1992
----------- ------------ -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $214,814 $182,845 $151,196 $133,864 $121,785
Cost of sales and
occupancy.............. 135,072 115,516 95,608 85,338 78,344
-------- -------- -------- -------- --------
Gross profit.......... 79,742 67,329 55,588 48,526 43,441
Selling, general and
administrative
expenses............... 62,649 54,110 46,561 41,371 38,100
Preopening store
expenses............... 2,053 1,620 1,137 614 --
-------- -------- -------- -------- --------
Income from operations.. 15,040 11,599 7,890 6,541 5,341
Interest expense........ 2,451 5,131 4,862 4,851 4,917
-------- -------- -------- -------- --------
Income before income
taxes.................. 12,589 6,468 3,028 1,690 424
Provision for income
taxes.................. 5,162 2,652 1,211 725 273
-------- -------- -------- -------- --------
Net income.............. $ 7,427 $ 3,816 $ 1,817 $ 965 $ 151
======== ======== ======== ======== ========
Net income per common
and common equivalent
share.................. $ 0.92 $ 0.62 -- -- --
======== ========
Weighted average common
and common equivalent
shares outstanding..... 8,105(2) 6,153 -- -- --
======== ========
OPERATING DATA:
Percent of sales:
Gross profit.......... 37.1% 36.8% 36.8% 36.2% 35.7%
Selling, general and
administrative
expenses............. 29.2% 29.6% 30.8% 30.9% 31.3%
Income from
operations........... 7.0% 6.3% 5.2% 4.9% 4.4%
Number of stores:
Opened during period.. 9 6 5 3 --
Closed during period.. -- -- 3 -- 1
Open at end of
period............... 58 49 43 41 38
Average sales per
selling square
foot(3)................ $ 252 $ 238 $ 224 $ 213 $ 199
Comparable store sales
increase(4)............ 6.1% 6.1% 7.7% 6.7% 7.4%
BALANCE SHEET DATA (AT
PERIOD END):
Working capital......... $ 24,807 $ 11,102 $ 8,918 $ 8,180 $ 7,044
Total assets............ 128,198 105,986 99,245 91,860 86,937
Note payable and capital
lease obligations, less
current portion........ 14,215 34,528 34,839 35,070 35,311
Total shareholders'
equity................. 73,209 36,359 32,542 30,723 29,758
</TABLE>
- --------
(1) 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. The Company's 1995 fiscal year was approximately 11 months (49
weeks) and ended on February 3, 1996. For comparison purposes, the 1995
results have been restated on a twelve month (54 week) pro forma basis.
All other fiscal years presented consisted of 52 weeks.
(2) Reflects the 2,136,614 shares issued in the Company's initial public
offering in April 1996.
(3) Calculated using net sales for stores open during the entire period
divided by the selling square feet of such stores.
(4) A store is included in comparable comparisons at the beginning of the
store's fourteenth full month of operation.
7
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Effective for the fiscal year ended February 3, 1996, 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. The Company's 1995 fiscal year was 11
months (49 weeks) and ended on February 3, 1996. The fiscal years ended
February 25, 1995 (fiscal 1994) and February 1, 1997 (fiscal 1996) each
consist of 12 months (52 weeks). For purposes of the following discussion, the
period ended February 3, 1996 has been restated on a 12 month (54 week) pro
forma basis.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
statement of operations data, such data expressed as a percentage of net sales
and the number of stores open at the end of each such period:
<TABLE>
<CAPTION>
PRO FORMA
FISCAL YEAR TWELVE MONTH FISCAL YEAR
ENDED PERIOD ENDED ENDED
FEBRUARY 1, FEBRUARY 3, FEBRUARY 25,
1997 1996(1) 1995
-------------- -------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales................... $214,814 100.0% $182,845 100.0% $151,196 100.0%
Cost of sales and occupan-
cy......................... 135,072 62.9 115,516 63.2 95,608 63.2
-------- ----- -------- ----- -------- -----
Gross profit.............. 79,742 37.1 67,329 36.8 55,588 36.8
Selling, general and
administrative expenses.... 62,649 29.2 54,110 29.6 46,561 30.8
Preopening store expenses... 2,053 0.9 1,620 0.9 1,137 0.8
-------- ----- -------- ----- -------- -----
Income from operations...... 15,040 7.0 11,599 6.3 7,890 5.2
Interest expense............ 2,451 1.1 5,131 2.8 4,862 3.2
-------- ----- -------- ----- -------- -----
Income before income taxes.. 12,589 5.9 6,468 3.5 3,028 2.0
Provision for income taxes.. 5,162 2.4 2,652 1.4 1,211 0.8
-------- ----- -------- ----- -------- -----
Net income.................. $ 7,427 3.5% $ 3,816 2.1% $ 1,817 1.2%
======== ===== ======== ===== ======== =====
Number of stores open at end
of period.................. 58 49 43
</TABLE>
- --------
(1) Results of operations for the unaudited pro forma 12 month period includes
54 weeks.
FISCAL 1996 COMPARED TO THE PRO FORMA TWELVE MONTH PERIOD ENDED FEBRUARY 3,
1996
Net Sales. Net sales increased $32.0 million, or 17.5%, to $214.8 million in
fiscal 1996 from $182.8 million in the twelve month period ended February 3,
1996. This increase in net sales was attributable to new stores and an
increase in comparable store sales. At February 1, 1997, the Company operated
58 stores as compared to 49 stores at February 3, 1996. These additional nine
new stores contributed $17.6 million of the sales increase. Comparable store
sales, calculated on a comparable, day-to-day basis, increased 6.1% in fiscal
1996.
Gross Profit. As a percentage of net sales, gross profit increased to 37.1%
in fiscal 1996 from 36.8% in the twelve month period ended February 3, 1996.
This improvement resulted from lower inventory shrink and freight costs,
partially offset by higher occupancy costs in new stores. 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 declined to 29.2% in fiscal 1996 compared to 29.6% in
the twelve month period ended February 3, 1996. Lower store and corporate
payroll expenses partially offset by higher advertising expenses contributed
to the reduction in SG&A expenses as a percentage of net sales.
8
<PAGE>
Preopening Store Expenses. Preopening store expenses, which include grand
opening advertising and preopening merchandising expenses, were $2.1 million
for fiscal 1996 and $1.6 million for the twelve month period ended February 3,
1996. The increase in preopening expenses was the result of opening nine
stores in fiscal 1996 versus opening six stores in fiscal 1995. On average,
preopening expenses decreased to $228,000 per store in fiscal 1996 from
$270,000 per store in fiscal 1995.
Interest Expense. Interest expense in fiscal 1996 declined compared to the
twelve month period ended February 3, 1996 as a result of the repayment of
borrowing 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 fiscal 1996
and the twelve months ended February 3, 1996 was 41%.
PRO FORMA TWELVE MONTH PERIOD ENDED FEBRUARY 3, 1996 COMPARED TO FISCAL 1994
Net Sales. Net sales for the twelve month period ended February 3, 1996 were
$182.8 million, a 20.9% increase from fiscal 1994 net sales of $151.2 million.
Six stores opened during the twelve month period ended February 3, 1996
contributed $14.9 million of the growth in net sales. Comparable store sales,
calculated on a comparable, day-to-day basis, for the proforma period ended
February 3, 1996 increased 6.1% over the prior year.
Gross Profit. As a percentage of net sales, gross profit was 36.8% in both
periods.
Selling, General and Administrative ("SG&A") Expenses. As a percentage of
net sales, SG&A expenses decreased to 29.6% in the twelve month period ended
February 3, 1996 compared with 30.8% in fiscal 1994. This decline primarily
resulted from lower store and corporate payroll expenses as a percentage of
net sales.
Preopening Store Expenses. Preopening store expenses increased to $1.6
million in the twelve month period ended February 3, 1996 from $1.1 million in
fiscal 1994. The increase in preopening store expenses was attributable to the
opening of six stores in 1995 as compared with five in 1994 and to an increase
in the average preopening costs per store to $270,000 from $223,000. The
increase in the average preopening costs per store resulted primarily from
higher grand opening advertising expenses.
Interest Expense. Interest expense was $5.1 million in the pro forma period
ended February 3, 1996 compared to $4.9 million in fiscal 1994.
Provision for Income Taxes. The Company's effective tax rate for the twelve
month period ended February 3, 1996 was 41% compared with 40% in fiscal 1994.
All available net operating loss carryforwards were fully utilized by the
Company in prior periods.
INFLATION
The Company does not believe that inflation has had a material effect on its
financial condition and results of operations during the past three fiscal
years. However, there can be no assurance that the Company's business will not
be affected by inflation in the future.
9
<PAGE>
QUARTERLY RESULTS AND SEASONALITY
The following table sets forth the Company's unaudited quarterly operating
results for its eight most recent quarterly periods. The quarterly results
ended April 22, 1995, July 22, 1995, October 21, 1995 and February 3, 1996
have been restated to reflect the change in the Company's fiscal year end to
the Saturday closest to the end of January.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------
MAY 4, AUG. 3, NOV. 2, FEB. 1,
1996 1996 1996 1997
-------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE
DATA AND NUMBER OF STORES)
<S> <C> <C> <C> <C>
Net sales................................... $39,127 $39,986 $45,041 $90,660
Gross profit................................ 13,575 14,212 16,011 35,944
Net income (loss)........................... (395) (197) (863) 8,882
Net income (loss) per common and common
equivalent share........................... $ (0.06) $ (0.02) $ (0.10) $ 1.05
Number of stores open at end of period...... 50 52 57 58
<CAPTION>
THREE MONTHS ENDED
-------------------------------------
APR. 22, JUL. 22, OCT. 21, FEB. 3,
1995 1995 1995 1996(1)
-------- -------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE
DATA AND NUMBER OF STORES)
<S> <C> <C> <C> <C>
Net sales................................... $31,874 $33,083 $36,412 $81,476
Gross profit................................ 10,750 11,626 12,966 31,987
Net income (loss)........................... (638) (920) (1,548) 6,922
Net income (loss) per common and common
equivalent share........................... $ (0.10) $ (0.15) $ (0.25) $ 1.12
Number of stores open at end of period...... 43 45 48 49
</TABLE>
- -------
(1) The three month period ended February 3, 1996 was a fifteen-week period as
compared to the three month period ended February 1, 1997 which was a
thirteen-week period.
The Company's business is highly seasonal, reflecting the general pattern
associated with the retail industry of peak sales and earnings during the
Christmas season. 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 most 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. The Company generally experiences lower sales and
earnings during the first three quarters and, as is typical in the retail
industry, has incurred and may continue to incur losses in these quarters. The
results of operations for these interim periods are not necessarily indicative
of the results for the full fiscal year. 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.
The Company's quarterly results of operations may also 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.
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 above.
- -------
/1/ Forward looking statement
10
<PAGE>
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 provided by operating activities in the fiscal year ended February
1, 1997 totaled $14.2 million, an increase of $8.2 million over the eleven
months ended February 3, 1996. Lower interest expense resulting from the
paydown of outstanding debt, operating profit on higher sales and a higher
level of payables due to an earlier Easter contributed to the increase.
Net cash used in investing activities, primarily for new stores, totaled
$8.0 million in the fiscal year ended February 1, 1997 and $5.6 million for
the eleven months ended February 3, 1996. The Company estimates that 1997
capital expenditures will not exceed $10.9 million /1/.
Net cash provided by financing activities in the fiscal year ended February
1, 1997 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 terminated its existing line of credit and
concurrently entered into a new revolving line of credit agreement with Bank
of America which expires May 31, 1998. 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 though 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 at least 45 consecutive days between
December 1 and March 31 of the next year. Interest is paid monthly at the
bank's reference rate (8.25% at February 1, 1997) 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 inventories and receivables. The Company is required to maintain
certain financial loan covenants including minimum tangible net worth,
earnings coverage ratio and inventory turn. At February 1, 1997, the Company
had no outstanding borrowings under the line of credit. Letters of credit
totaling $2.2 million were outstanding leaving current availability of $17.8
million.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS 128"), Earnings per Share
("EPS"). SFAS 128 requires dual presentation of basic EPS and diluted EPS on
the face of all income statements issued after December 15, 1997 for all
entities with complex capital structures. Basic EPS is computed as net income
divided by the weighted average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur from
common shares issuable through stock options, warrants and other convertible
securities.
- --------
/1/ Forward looking statement
11
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
COST PLUS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................................ F-2
Consolidated Balance Sheets................................................. F-3
Statements of Consolidated Operations....................................... F-4
Statements of Consolidated Shareholders' Equity............................. F-5
Statements of Consolidated Cash Flows....................................... F-6
Notes to Consolidated Financial Statements.................................. F-7
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Cost Plus, Inc.
Oakland, California
We have audited the accompanying consolidated balance sheets of Cost Plus,
Inc. as of February 1, 1997 and February 3, 1996, and the related statements
of consolidated operations, consolidated shareholders' equity and consolidated
cash flows for the fiscal year ended February 1, 1997, the eleven month period
ended February 3, 1996 and the fiscal year ended February 25, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Cost Plus, Inc. as of
February 1, 1997 and February 3, 1996, and the results of their operations and
their cash flows for the fiscal year ended February 1, 1997, the eleven month
period ended February 3, 1996 and the fiscal year ended February 25, 1995 in
conformity with generally accepted accounting principles.
Deloitte & Touche LLP
San Francisco, California
March 14, 1997
F-2
<PAGE>
COST PLUS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 14,398 $ 2,181
Merchandise inventories.............................. 42,605 35,213
Other current assets................................. 2,413 1,960
-------- --------
Total current assets............................... 59,416 39,354
Property and equipment, net.......................... 60,205 58,300
Other assets......................................... 8,577 8,332
-------- --------
Total assets....................................... $128,198 $105,986
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 14,706 $ 9,422
Income taxes payable................................. 6,095 3,359
Accrued compensation................................. 6,607 5,373
Revolving line of credit with related parties........ -- 3,165
Other current liabilities............................ 7,201 6,933
-------- --------
Total current liabilities.......................... 34,609 28,252
Capital lease obligations.............................. 14,215 14,633
Note payable to related parties........................ -- 19,895
Deferred income taxes.................................. 3,548 4,455
Other long-term obligations............................ 2,617 2,392
Shareholders' equity:
Preferred stock, $.01 par value: 5,000,000 and 0
shares authorized; none issued and outstanding...... -- --
Common stock, $.01 par value: 30,000,000 and
6,819,931 shares authorized; issued and outstanding
8,099,840 and 5,906,264 shares...................... 81 59
Additional paid-in capital........................... 91,166 61,765
Deficit.............................................. (18,038) (25,465)
-------- --------
Total shareholders' equity......................... 73,209 36,359
-------- --------
Total liabilities and shareholders' equity............. $128,198 $105,986
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
COST PLUS, INC.
STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ELEVEN MONTH FISCAL YEAR
ENDED PERIOD ENDED ENDED
FEBRUARY 1, FEBRUARY 3, FEBRUARY 25,
1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
Net sales................................ $214,814 $171,548 $151,196
Cost of sales and occupancy.............. 135,072 107,800 95,608
-------- -------- --------
Gross profit........................... 79,742 63,748 55,588
Selling, general and administrative
expenses................................ 62,649 50,194 46,561
Preopening store expenses................ 2,053 1,620 1,137
-------- -------- --------
Income from operations................... 15,040 11,934 7,890
Interest expense......................... 2,451 4,843 4,862
-------- -------- --------
Income before income taxes............... 12,589 7,091 3,028
Provision for income taxes............... 5,162 2,909 1,211
-------- -------- --------
Net income............................... $ 7,427 $ 4,182 $ 1,817
======== ======== ========
Net income per common and common
equivalent share........................ $ 0.92 $ 0.68
======== ========
Weighted average common and common
equivalent shares outstanding........... 8,105 6,153
======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
COST PLUS, INC.
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
(IN THOUSANDS EXCEPT SHARES)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
------------------ ---------------- PAID-IN SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
---------- ------ --------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
February 26, 1994...... 7,045,707 $ 70 514,400 $ 5 $62,114 $(31,464) $30,725
Net income.............. 1,817 1,817
---------- ---- --------- --- ------- -------- -------
Balance at
February 25, 1995...... 7,045,707 70 514,400 5 62,114 (29,647) 32,542
Stock conversion, net of
related costs.......... (7,045,707) (70) 5,307,528 53 (392) (409)
Exercise of stock
options................ 84,336 1 43 44
Net income.............. 4,182 4,182
---------- ---- --------- --- ------- -------- -------
Balance at
February 3, 1996....... -- -- 5,906,264 59 61,765 (25,465) 36,359
Initial public offering,
net of related costs... 2,136,614 21 28,876 28,897
Stock issued under
Employee stock
purchase plan.......... 12,700 -- 251 251
Exercise of stock
options................ 44,262 1 178 179
Tax effect of
disqualifying stock
dispositions........... 96 96
Net income.............. 7,427 7,427
---------- ---- --------- --- ------- -------- -------
Balance at
February 1, 1997....... -- $ -- 8,099,840 $81 $91,166 $(18,038) $73,209
========== ==== ========= === ======= ======== =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
COST PLUS, INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ELEVEN MONTH FISCAL YEAR
ENDED PERIOD ENDED ENDED
FEBRUARY 1, FEBRUARY 3, FEBRUARY 25,
1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $ 7,427 $ 4,182 $ 1,817
Adjustments to reconcile net income to
net cash
provided by operating activities:
Depreciation and amortization.......... 6,810 5,158 4,884
Loss on disposal of property and
equipment............................. 81 153 492
Deferred income taxes.................. (962) (76) (483)
Change in assets and liabilities:
Merchandise inventories.............. (7,392) (4,153) (4,643)
Other assets......................... (1,514) (918) 40
Accounts payable..................... 5,024 (2,692) 5,845
Other liabilities.................... 4,717 4,352 4,080
------- ------- -------
Net cash provided by operating
activities........................ 14,191 6,006 12,032
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.... (8,001) (5,599) (6,535)
------- ------- -------
Net cash used in investing
activities........................ (8,001) (5,599) (6,535)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings under
revolving line of credit.............. (3,165) 616 (3,679)
Principal payments on capital lease
obligations........................... (336) (243) (191)
Issuance of stock...................... 29,423 (365) --
Payments on other long term debt....... (19,895) -- --
------- ------- -------
Net cash provided by (used in)
financing activities.............. 6,027 8 (3,870)
------- ------- -------
Net increase in cash and cash
equivalents............................. 12,217 415 1,627
Cash and cash equivalents:
Beginning of period.................... 2,181 1,766 139
------- ------- -------
End of period.......................... $14,398 $ 2,181 $ 1,766
======= ======= =======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for
interest.............................. $ 2,850 $ 4,943 $ 4,922
======= ======= =======
Cash paid during the year for taxes.... $ 3,358 $ 1,135 $ 109
======= ======= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
COST PLUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Business--Cost Plus, Inc. and subsidiaries (the "Company") is a specialty
retailer of casual home living and entertaining products. At February 1, 1997,
the Company operated 58 stores under the name "Cost Plus World Market" in ten
states primarily in the western United States. The Company's four product
categories are (i) home decor including furniture, rugs and baskets, (ii)
tabletop items including glassware, ceramics and kitchen utensils, (iii) gifts
and decorative accessories such as handcrafted products, cards, jewelry, and
seasonal goods and (iv) gourmet food and beverage such as wine, gourmet foods,
coffees and teas.
Fiscal Year--Effective in fiscal 1995, the Company has changed its fiscal
year end from the Saturday closest to the last day of February to the Saturday
closest to the last day of January. The fiscal years ended February 1, 1997
(fiscal 1996) and February 25, 1995 (fiscal 1994) contain 52 weeks. The eleven
month period ended February 3, 1996 (fiscal 1995) contains 49 weeks.
Principles of Consolidation--The consolidated financial statements include
the accounts of Cost Plus, Inc. and its subsidiaries. Intercompany balances
and transactions are eliminated in consolidation.
Accounting Estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
Cash Equivalents--The Company considers all highly liquid investments with
original maturities of three months or less as cash equivalents.
Merchandise Inventories--Inventories are stated at the lower of cost or
market as determined under the retail inventory method. Cost includes certain
buying and distribution costs related to the procurement and processing of
merchandise.
Preopening Store Expenses--Preopening store expenses include grand opening
advertising, labor and hiring expenses and are expensed as incurred.
Property and Equipment--Furniture, fixtures and equipment are stated at cost
and depreciated using the straight-line method over their estimated useful
lives which is generally five years. Leasehold improvements are amortized on a
straight-line basis over the lesser of the related lease terms or useful
lives.
Capitalized Leases--Noncancelable leases which meet the criteria of capital
leases are capitalized as assets and amortized over the lease term, using the
straight-line method.
Other Assets--Goodwill is amortized on a straight-line basis over 40 years.
Lease rights and interests are amortized on a straight-line basis over the
lease term.
Long Lived Assets--The Company's policy is to review the recoverability of
all long-lived assets on an annual basis and whenever events or changes
indicate that the carrying amount of an asset may not be recoverable. Based
upon the Company's review as of February 1, 1997 and February 3, 1996, no
material adjustment was made to the carrying value of such assets.
Deferred Rent--Certain of the Company's operating leases contain
predetermined fixed escalations of the minimum rentals during the initial
term. For these leases, the Company recognizes the related rental expense on a
straight-line basis over the life of the lease and records the difference
between the amount charged to operations and amounts paid as deferred rent. As
part of its lease agreements, the Company receives certain lease incentives,
F-7
<PAGE>
COST PLUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
primarily construction allowances. These allowances have been deferred and are
amortized on a straight-line basis over the life of the lease as a reduction
of rent expense.
Advertising Expense--Advertising costs are expensed as incurred. For the
fiscal year ended February 1, 1997, the eleven month period ended February 3,
1996, and the fiscal year ended February 25, 1995, advertising costs were
$11,519,000, $8,725,000 and $7,763,000 respectively.
Concentration of Credit Risk--Financial instruments, which potentially
subject the Company to concentration of credit risk, consist principally of
cash and cash equivalents. The Company places its cash with high quality
financial institutions. At times, such amounts may be in excess of the FDIC
insurance limits.
Taxes on Income--Income taxes are accounted for using an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized
in the Company's consolidated financial statements or tax returns. In
estimating future tax consequences, all expected future events are considered
other than changes in the tax law or rates.
Earnings per Share--Earnings per share are computed by dividing net income
by the weighted average number of common and common equivalent shares
outstanding during the period. Common stock options issued within one year of
the Company's initial public offering were considered as outstanding for the
entire period ended February 3, 1996.
Stock Based Compensation--The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations.
Impact of New Accounting Standards--In February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 128 ("SFAS 128"), Earnings per Share ("EPS"). SFAS 128 requires dual
presentation of basic EPS and diluted EPS on the face of all income statements
issued after December 15, 1997 for all entities with complex capital
structures. Basic EPS is computed as net income divided by the weighted
average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution that could occur from common shares issuable
through stock options, warrants and other convertible securities. The pro
forma effect assuming adoption of SFAS 128 at the beginning of each period is
presented below:
<TABLE>
<CAPTION>
FISCAL FISCAL
1996 1995
------ ------
<S> <C> <C>
Pro forma EPS:
Basic........................................................ $0.96 $0.72
Diluted...................................................... $0.92 $0.68
</TABLE>
F-8
<PAGE>
COST PLUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Land and land improvements........................... $ 7,030 $ 7,075
Building and leasehold improvements.................. 33,400 30,510
Furniture, fixtures and equipment.................... 23,683 19,164
Facilities under capital leases...................... 26,700 26,700
-------- --------
Total............................................ 90,813 83,449
Less accumulated depreciation........................ (30,608) (25,149)
-------- --------
Property and equipment, net.......................... $ 60,205 $ 58,300
======== ========
</TABLE>
3. OTHER ASSETS
Other assets consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Goodwill............................................. $ 3,972 $ 3,972
Lease rights and interests........................... 3,146 3,146
Other................................................ 5,805 5,099
------- -------
Total............................................ 12,923 12,217
Less accumulated amortization........................ (4,346) (3,885)
------- -------
Other assets......................................... $ 8,577 $ 8,332
======= =======
</TABLE>
F-9
<PAGE>
COST PLUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. LEASES
The Company leases certain property consisting of retail stores, warehouses,
the corporate office and equipment. Store leases typically contain provisions
for two to three renewal options for five to ten years each with renewal
periods from 1997 to 2040 at the then current market rates. The retail store,
warehouse and corporate office leases generally provide for the Company to
assume the maintenance and all or a portion of the property tax obligations on
the leased property.
The minimum rental payments required under capital leases (with interest
rates generally 12.75%) and noncancelable operating leases with an initial
lease term in excess of one year at February 1, 1997, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES TOTAL
------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Year ending: 1998............................... $ 2,245 $ 12,966 $ 15,211
1999.................................. 2,245 12,337 14,582
2000.................................. 2,270 10,919 13,189
2001.................................. 2,305 10,993 13,298
2002.................................. 1,928 10,623 12,551
Thereafter through the year 2040................ 32,006 76,798 108,804
------- -------- --------
Minimum lease commitments....................... 42,999 $134,636 $177,635
======== ========
Less amount representing interest............... (28,367)
-------
Present value of capital lease obligations...... 14,632
Less current portion............................ (417)
-------
Long-term portion............................... $14,215
=======
</TABLE>
Accumulated depreciation related to capital leases amounted to $9,580,000
and $8,482,000 at February 1, 1997 and February 3, 1996, respectively.
Depreciation expense related to capitalized leases is classified as occupancy.
For the fiscal year ended February 1, 1997, the eleven-month period ended
February 3, 1996 and the fiscal year ended February 25, 1995, such
depreciation expense was $1,098,000, $991,000 and $1,097,000, respectively.
Minimum and contingent rental expense, which are based upon certain factors
such as sales volume and property taxes, under operating and capital leases,
as well as sublease rental income, are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ELEVEN MONTH FISCAL YEAR
ENDED PERIOD ENDED ENDED
FEBRUARY 1, FEBRUARY 3, FEBRUARY 25,
1997 1996 1995
----------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating leases:
Minimum rental expense.............. $ 9,924 $ 7,127 $ 6,447
Contingent rental expense........... 554 506 488
Less sublease rental income......... (1,884) (1,477) (1,423)
------- ------- -------
Total............................. $ 8,594 $ 6,156 $ 5,512
======= ======= =======
Capital leases--contingent rental
expense.............................. $ 813 $ 685 $ 712
======= ======= =======
</TABLE>
Total minimum rental income to be received from noncancelable sublease
agreements through 2011 is approximately $13,651,000 as of February 1, 1997.
F-10
<PAGE>
COST PLUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. REVOLVING LINE OF CREDIT AND NOTE PAYABLE TO RELATED PARTIES
Revolving line of credit and note payable to related parties (See Note 10)
consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Revolving line of credit............................. $-- $ 3,165
==== =======
Note payable......................................... $-- $19,895
Less current portion................................. -- --
---- -------
Total............................................ $-- $19,895
==== =======
</TABLE>
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 $20,000,000 from January 1
through June 30 and $35,000,000 from July 1 through December 31 of each year.
The Company is required to have not more than $5,000,000 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 February 1, 1997) 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. At February 1, 1997, the Company had no
outstanding borrowings under the line of credit. Letters of credit totaling
$2,160,590 were outstanding leaving current availability of $17,839,410.
6. FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
Value of Financial Instruments, requires entities to disclose the fair value
of their financial instruments. The carrying value of current assets and
liabilities approximates their fair market value.
7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ELEVEN MONTH FISCAL YEAR
ENDED PERIOD ENDED ENDED
FEBRUARY 1, FEBRUARY 3, FEBRUARY 25,
1997 1996 1995
----------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Payable:
Federal.............................. $5,240 $2,399 $1,293
State................................ 1,045 586 401
------ ------ ------
Total payable...................... 6,285 2,985 1,694
------ ------ ------
Deferred:
Federal.............................. (989) (11) (330)
State................................ (134) (65) (153)
------ ------ ------
Total deferred..................... (1,123) (76) (483)
------ ------ ------
Provision for income taxes............. $5,162 $2,909 $1,211
====== ====== ======
</TABLE>
F-11
<PAGE>
COST PLUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In the year ended February 26, 1994 and prior years, the Company's
California taxable income or loss was included in a California unitary
combined franchise tax return with a shareholder who will absorb any
California tax liability or benefit resulting therefrom. In subsequent
periods, the Company is not included in the combined franchise tax return with
this shareholder and has provided for its own California state taxes payable.
The differences between the U.S. federal statutory tax rate and the
Company's effective rate are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ELEVEN MONTH FISCAL YEAR
ENDED PERIOD ENDED ENDED
FEBRUARY 1, FEBRUARY 3, FEBRUARY 25,
1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
U.S. federal statutory tax rate....... 35.0% 34.0% 34.0%
State income taxes (net of U.S.
federal income tax benefit).......... 4.7 5.3 5.7
Goodwill amortization................. 0.6 0.6 1.6
Other................................. 0.7 1.1 (1.3)
---- ---- ----
Effective income tax rate............. 41.0% 41.0% 40.0%
==== ==== ====
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ELEVEN MONTH FISCAL YEAR
ENDED PERIOD ENDED ENDED
FEBRUARY 1, FEBRUARY 3, FEBRUARY 25,
1997 1996 1995
----------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current deferred tax asset:
Deductible reserves................ $ 276 $ 221 $ 336
------- ------- -------
Long-term deferred tax asset
(liability):
Deferred rent...................... 838 560 703
Capitalized leases................. (919) (1,225) (1,578)
Lease rights....................... (810) (861) (925)
Depreciation....................... (2,016) (2,564) (2,877)
Other.............................. (641) (365) 32
------- ------- -------
Total............................ (3,548) (4,455) (4,645)
------- ------- -------
Net deferred tax liabilities......... $(3,272) $(4,234) $(4,309)
======= ======= =======
</TABLE>
8. EQUITY AND STOCK COMPENSATION PLANS
STOCK
During the year ended February 25, 1995, the Company amended and restated
its Articles of Incorporation to increase the number of authorized shares of
common stock from 1,461,034 to 6,819,931.
On March 17, 1995, the Company consummated a series of agreements
("Agreements") with its shareholders to change its existing capital structure
and amend its credit facilities. The Company and its shareholders agreed to
exchange existing 7,045,707 shares of preferred stock, 514,400 shares of
common stock and 49,315 of unexercised preferred stock options for 5,307,528
shares of newly issued shares of common stock based on the exchange ratios as
specified in the Agreements. The Company amended and restated its Articles of
Incorporation to state that no shares of preferred stock are authorized.
F-12
<PAGE>
COST PLUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On February 15, 1996, the Board of Directors authorized the amendment and
restatement of its Articles of Incorporation to increase the number of
authorized shares of common stock from 6,819,931 to 30,000,000 and authorize
5,000,000 shares of preferred stock for issuance.
OPTIONS
The Company currently has options outstanding under three employee stock
option plans: the 1988 Stock Option Plan ("1988 Plan"), the 1994 Stock Option
Plan ("1994 Plan") and the 1995 Stock Option Plan ("1995 Plan"). The 1988 Plan
permitted the granting of options to employees to purchase up to 219,155
shares of common stock at prices ranging from 85% to 100% of fair market value
as of the date of grant. Options are exercisable over ten years and generally
vest over four years. Upon approval of the 1994 Plan in March 1995, the 1988
Plan was terminated except for options then outstanding. The 1994 Plan
permitted the granting of options to employees to purchase up to 862,656
shares of common stock at fair market value as of the date of grant. Options
are exercisable over ten years and became fully vested upon the Company's
initial public offering in April 1996. Upon approval of the 1995 Plan in
November 1995, the 1994 Plan was terminated except for options then
outstanding.
The 1995 Plan permits the granting of options to employees and directors to
purchase, at fair market value as of the date of grant, up to 774,669 shares
of common stock, less the aggregate number of shares outstanding under the
1994 Plan grants or issued upon exercise of options granted under the 1994
Plan (364,927 at February 1, 1997). Options are exercisable over ten years and
vest as determined by the Board of Directors, generally over three or four
years. A 250,000 increase in the number of shares of common stock reserved for
issuance under the 1995 Plan, along with certain other amendments to the 1995
Plan, was approved by the Board of Directors in October 1996 and the
shareholders in November 1996.
On March 13, 1996, the Board of Directors approved the 1996 Director Stock
Option Plan ("Director Option Plan") which permits the granting of options to
non-employee directors to purchase up to 28,300 shares of common stock at fair
market value as of the date of grant. Each non-employee director elected after
March 13, 1996 will automatically be granted, upon election, a nonstatutory
option to purchase 7,075 shares of common stock. Options are exercisable over
ten years and vest over a four year period.
A summary of activity under the above option Plans is set forth below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
------- --------
<S> <C> <C>
Outstanding at February 26, 1994.......................... 136,326 $0.17
Canceled................................................ (23,056) 0.17
-------
Outstanding at February 25, 1995 (92,599 exercisable at a
weighted average price of $0.18)......................... 113,270 0.17
Granted................................................. 753,334 8.27
Exercised............................................... (84,336) 0.52
Canceled................................................ (61,311) 5.77
-------
Outstanding at February 3, 1996 (95,349 exercisable at a
weighted average price of $3.00)......................... 720,957 8.26
Granted................................................. 188,725 17.78
Exercised............................................... (44,262) 4.01
Canceled................................................ (11,607) 8.47
-------
Outstanding at February 1, 1997........................... 853,813 10.57
=======
Exercisable at February 1, 1997........................... 331,083
=======
</TABLE>
F-13
<PAGE>
COST PLUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Additional information regarding options outstanding as of February 1, 1997
is as follows:
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
WEIGHTED AVG. -------------------------
RANGE OF REMAINING WEIGHTED AVG. WEIGHTED AVG.
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YRS.) PRICE EXERCISABLE PRICE
-------- ----------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$ 0.06 -
0.06 2,310 5.1 $ 0.06 1,757 $0.06
5.77 -
5.94 329,326 8.1 5.77 329,326 5.77
11.31 -
15.00 347,602 8.8 11.46 -- --
18.00 -
18.25 174,575 9.8 18.01 -- --
------- --- ------ ------- -----
853,813 8.7 $10.57 331,083 $5.74
======= === ====== ======= =====
</TABLE>
At February 1, 1997, 144,601 and 21,225 shares were available for future
grants under the 1995 Plan and Director Option Plan, respectively.
EMPLOYEE STOCK PURCHASE PLAN
On March 13, 1996, the Board of Directors approved the 1996 Employee Stock
Purchase Plan ("Purchase Plan"). A total of 300,000 shares have been
authorized for issuance under the Purchase Plan. Employees who work at least
20 hours per week and more than five calendar months per calendar year and
have been so employed for at least one year are eligible to have a specified
percentage (not to exceed 10%) of each salary payment withheld to purchase
common stock at 90% of the fair market value of the common stock as of the
last day of the purchase period.
ADDITIONAL STOCK PLAN INFORMATION
As discussed in Note 1, the Company continues to account for its stock-based
awards using the intrinsic value method in accordance with Accounting
Principles Board No. 25, Accounting for Stock Issued to Employees, and its
related interpretations. Accordingly, no compensation expense has been
recognized in the financial statements for employee stock arrangements.
Statement of Financial Accounting Standards No. 123 ("SFAS 123"), Accounting
for Stock-Based Compensation, requires the disclosure of pro forma net income
and earnings per share had the Company adopted the fair value method as of the
beginning of fiscal 1995. Under SFAS 123, the fair value of stock-based awards
to employees is calculated through the use of option pricing models, even
though such models were developed to estimate the fair value of freely
tradable, fully transferable options without vesting restrictions, which
significantly differ from the Company's stock options awards. These models
also require subjective assumptions including future stock price volatility
and expected time to exercise, which greatly affect the calculated values. The
Company's calculations were made using the Black-Scholes option pricing model
with the following weighted average assumptions: expected life, 1.8 years
following vesting; stock volatility, 55.3% in both fiscal 1996 and in fiscal
1995; risk free interest rates, 5.9% in fiscal 1996 and 6.2% in fiscal 1995;
and no dividends during the expected term. The Company's calculations are
based on a multiple option valuation approach, and forfeitures are recognized
as they occur. If the computed fair values of the fiscal 1996 and fiscal 1995
awards had been amortized to expense over the vesting period of the awards,
pro forma net income would have been $7,251,000 ($0.90 per share) in fiscal
1996 and $3,621,000 ($0.60 per share) in fiscal 1995. However, the impact of
outstanding non-vested stock options granted prior to fiscal 1995 has been
excluded from the pro forma calculation; accordingly, the fiscal 1996 and
fiscal 1995 pro forma adjustments are not indicative of future period pro
forma adjustments, when the calculation will apply to all applicable stock
options.
F-14
<PAGE>
COST PLUS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. EMPLOYEE BENEFIT PLANS
The Company has a 401(k) plan for employees who meet certain service and age
requirements. Participants may contribute up to 15% of their salaries to a
maximum of $9,500 and qualify for favorable tax treatment under Section 401(k)
of the Internal Revenue Code.
10. RELATED PARTY TRANSACTIONS
At February 3, 1996, the Company had outstanding $23,060,000 on a note
payable and line of credit agreement and $401,000 in interest payable to two
shareholders (see Note 5). Proceeds from the Company's initial public offering
in April 1996 were used to repay the note payable and the then outstanding
balance under the line of credit agreement. In the fiscal year ended February
1, 1997, the eleven month period ended February 3, 1996 and the fiscal year
ended February 25, 1995, related interest expense amounted to $409,405,
$3,073,000 and $2,976,000, respectively.
F-15
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
Information called for by Part III (Items 10, 11, 12 and 13) of this report
on Form 10-K has been omitted as the Company intends to file with Securities
and Exchange Commission not later than May 26, 1997 a definitive Proxy
Statement pursuant to Regulation 14A promulgated under the Securities Exchange
Act of 1934. Such information will be set forth in such Proxy Statement and is
incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by reference to
the section entitled "Executive Officers of the Registrant" at the end of Part
I of this report and the Proxy Statement for the Company's 1997 Annual Meeting
of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to
the Proxy Statement for the Company's 1997 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by reference to
the Proxy Statement for the Company's 1997 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference to
the Proxy Statement for the Company's 1997 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<C> <S>
(a)1. Financial Statements:
See Item 8 for a list of financial statements.
2. Financial Statement Schedules:
Financial statement schedules of Cost Plus, Inc. have been omitted from
Item 14(d) because they are not applicable or the information is
included in the financial statements or notes thereto.
3. List of Exhibits:
See Exhibit Index on page 14.
</TABLE>
12
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) 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.
By: /s/ Ralph D. Dillon
----------------------------------
Date: April 25, 1997 RALPH D. DILLON CHAIRMAN AND CHIEF
EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Ralph D. Dillon Chairman and Chief April 25, 1997
- ------------------------------------- Executive Officer
RALPH D. DILLON
/s/ Alan E. Zimtbaum President, Chief April 25, 1997
- ------------------------------------- Operating Officer,
ALAN E. ZIMTBAUM Chief Financial
Officer and
Secretary
/s/ Patricia T. Saucy Chief Accounting April 25, 1997
- ------------------------------------- Officer, Vice
PATRICIA T. SAUCY President and
Controller
/s/ Joseph H. Coulombe Director April 25, 1997
- -------------------------------------
JOSEPH H. COULOMBE
/s/ Danny W. Gurr Director April 25, 1997
- -------------------------------------
DANNY W. GURR
/s/ Mervin G. Morris Director April 25, 1997
- -------------------------------------
MERVIN G. MORRIS
/s/ Edward A. Mule Director April 25, 1997
- -------------------------------------
EDWARD A. MULE
/s/ Olivier L. Trouveroy Director April 25, 1997
- -------------------------------------
OLIVIER L. TROUVEROY
/s/ Thomas D. Willardson Director April 25, 1997
- -------------------------------------
THOMAS D. WILLARDSON
13
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
----------- -----------------------
<C> <S>
3.1 Amended and Restated Articles of Incorporation as filed with the
California Secretary of State on April 1, 1996.
3.2/1/ Amended and Restated By-laws dated July 30, 1996.
10.1/2/ Form of Indemnification Agreement between the Company and each of
its directors and officers.
10.2/2/ Third Amended and Restated 1988 Stock Option Plan and form of
Stock Option Agreement thereunder/3/.
10.3/2/ 1994 Stock Option Plan and form of Stock Option Agreement
thereunder/3/.
10.4 1995 Stock Option Plan, as amended, and form of Stock Option
Agreement thereunder/3/.
10.5 Employment Agreement, dated September 6, 1990 between the Company
and Ralph D. Dillon as amended by the First Amendment to
Employment Agreement dated December 1, 1996/3/.
10.6/2/ Lease Agreement, dated August 27, 1991, as amended, between the
Company and The Stockton Port District for certain warehouses for
storage and distribution located in Stockton, California and
extension thereto dated February 21, 1996.
10.7/2/ Registration Rights Agreement, dated March 16, 1995, between the
Company and certain holders of the Company's securities.
10.8/1/ Business Loan Agreement, dated May 7, 1996, between the Company
and Bank of America National Trust and Savings Association.
10.9/2/ Management Incentive Plan/3/.
10.10/2/ 1996 Employee Stock Purchase Plan/3/.
10.11/2/ 1996 Director Option Plan and form of Stock Option Agreement
thereunder/3/.
10.12 Forms of Employment Severance Agreement/3/.
11 Statement re: Computation of Per Share Earnings.
21/2/ List of Subsidiaries.
23 Independent Auditors' Consent.
27 Financial Data Schedule (submitted for SEC use only).
</TABLE>
- --------
/1/Exhibits 3.2 and 10.8 are incorporated by reference to Exhibits 3.1 and
10.1, respectively, to the Form 10-Q filed for the quarter ended August 3,
1996.
/2/Exhibits 10.1, 10.2, 10.3, 10.6, 10.7, 10.9, 10.10, 10.11 and 21 are
incorporated by reference to Exhibits 10.1, 10.2, 10.3, 10.6, 10.11, 10.12,
10.13, 10.14 and 21.1, respectively, to the Registration Statement on Form S-1
effective April 3, 1996.
/3/Management compensation plan or arrangement.
14
<PAGE>
(EXHIBIT 11)
COST PLUS, INC.
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS, UNAUDITED)
<TABLE>
<CAPTION>
FIFTY-TWO FORTY-NINE
WEEKS ENDED WEEKS ENDED
FEBRUARY 1, FEBRUARY 3,
1997 1996
----------- -----------
<S> <C> <C>
NET INCOME............................................. $7,427 $4,182
====== ======
Weighted average shares outstanding during the period:
Common Stock......................................... 7,721 5,849
Add incremental shares from assumed exercise of stock
options............................................. 384 304
------ ------
Weighted average common and common equivalent shares
outstanding......................................... 8,105 6,153
====== ======
PRIMARY NET INCOME PER SHARE........................... $ 0.92 $ 0.68
====== ======
Weighted average shares outstanding during the period:
Common Stock......................................... 7,721 5,849
Add incremental shares from assumed exercise of stock
options............................................. 383 304
------ ------
Weighted average common and common equivalent shares
outstanding......................................... 8,104 6,153
====== ======
FULLY DILUTED NET INCOME PER SHARE..................... $ 0.92 $ 0.68
====== ======
</TABLE>
<PAGE>
(EXHIBIT 23)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in registration Statement No.
333-3456 of Cost Plus, Inc. on Form S-8 of our report dated March 14, 1997,
appearing in this Annual Report on Form 10-K of Cost Plus, Inc. for the year
ended February 1, 1997.
Deloitte & Touche LLP
San Francisco, California
April 30, 1997
