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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED FEBRUARY 2, 2002
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
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
200 4TH STREET
OAKLAND, CALIFORNIA 94607
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (510) 893-7300
SECURITIES REGISTERED PURSUANT TO NONE
SECTION 12(B) OF THE ACT:
SECURITIES REGISTERED PURSUANT TO COMMON STOCK, $.01 PAR VALUE
SECTION 12(G) OF THE ACT: PREFERRED SHARE PURCHASE RIGHTS
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 filers 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.
The aggregate market value of voting stock held by non-affiliates of the
registrant based upon the closing sale price of the common stock on March 28,
2002, was approximately $590.8 million as reported for such date on the Nasdaq
National Market. On that date, 21,593,139 shares of Common Stock, $.01 par
value, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the fiscal
year ended February 2, 2002 ("Annual Report") are incorporated by reference into
Part II and Part IV.
Portions of the Registrant's Proxy Statement for the Annual Meeting of
Shareholders to be held June 27, 2002 ("Proxy Statement") are incorporated by
reference into Part III.
An asterisk "*" denotes a forward-looking statement reflecting current
expectations that involve risks and uncertainties within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended, including statements
that include the words "believes", "expects" or "anticipates" or similar
expressions. Actual results may differ materially from those discussed in such
forward-looking statements due to a number of factors including those set forth
below and elsewhere in the Form 10-K and in documents which are incorporated by
reference herein. Cost Plus, Inc. ("the Company") may from time to time make
additional written and oral forward-looking statements, including statements
contained in the Company's filings with the Securities and Exchange Commission
and in its reports to shareholders. The Company does not undertake to update any
forward-looking statement that may be made from time to time by or on behalf of
the Company.
PART I
ITEM 1. BUSINESS
THE COMPANY
Cost Plus, Inc. ("Cost Plus World Market" or "the Company") is a leading
specialty retailer of casual home furnishings and entertaining products. As of
February 2, 2002, the Company operated 150 stores under the name "World Market,"
"Cost Plus World Market," "Cost Plus" or "Cost Plus Imports" in 19 states,
primarily in the western United States, but with stores as far east as Georgia,
North Carolina and Virginia. Cost Plus World Market's business strategy is to
differentiate itself by offering a large and ever-changing selection of unique
products, many of which are imported, at value prices in an exciting shopping
environment. Many of Cost Plus World Market's products are proprietary or
private label, often incorporating the Company's own designs, "World Market"
brand name, quality standards and specifications and typically are not
available at department stores and other specialty retailers.
Cost Plus World Market's 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. The
Company's stores are located predominantly in high traffic metropolitan and
suburban locales, often near major malls. In fiscal 2001, the Company opened a
total of 23 stores, including 12 in the existing markets of San Francisco,
Fresno, Los Angeles and San Diego, CA; Seattle, WA; Tucson, AZ; Austin, TX;
Chicago, IL and Cleveland, OH and 11 in new markets of Eugene, OR;
Winston/Salem, Raleigh/Durham and Charlotte, NC; Stockton, Santa Barbara and
Bakersfield, CA; Atlanta GA and Washington, DC.
MERCHANDISING
Cost Plus World Market's merchandising strategy is to offer customers a
broad selection of distinctive items related to the theme of casual home
furnishing, home entertaining and consumables.
Products. The Company believes its distinctive and unique merchandise
differentiates the Company from other retailers. Many of Cost Plus World
Market's products are proprietary or private label, often incorporating the
Company's own designs, "World Market" brand name, quality standards and
specifications and typically are not available at department stores and other
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 World
Market's products are made abroad in approximately 70 countries and many of
these goods are handcrafted by local artisans. The Company's product offerings
are designed to provide solutions to customers' casual living and home
entertaining needs. The offerings include home decorating items such as
furniture, rugs, pillows, lamps, window coverings, frames and baskets. Cost Plus
World Market's furniture products include ready-to-assemble living and dining
room pieces, unusual handcrafted case goods and occasional pieces, as well as
outdoor furniture made from a variety of materials such as rattan, hardwood and
wrought iron. The Company also sells a number of tabletop and kitchen items
including glassware, ceramics, textiles and cooking utensils. Kitchen products
offer the casual gourmet an assortment of products organized around a variety of
themes such as baking, food preparation, barbeque and international dining.
2
Cost Plus World Market offers a number of gift and decorative accessories,
including collectibles, cards, wrapping paper and Christmas and other seasonal
items. Because many of the gift and collectible items come from around the
world, they contribute to the exotic atmosphere of the stores.
Cost Plus World Market also offers its customers a wide selection of
gourmet foods and beverages, including wine, microbrewed and imported beer,
coffee, tea and mineral water. The wine assortment offers a number of moderately
priced premium wines, including a variety of well recognized labels, as well as
wines not readily available at neighborhood wine or grocery stores. Consumable
products, particularly beverages, generally have lower margins than the
Company's average. Coffee, purchased as green beans, is roasted at the Company's
own roasting plant and offered fresh in stores. Gourmet foods include packaged
products from around the world and seasonal items that relate to "old world"
holidays and customs. Packaged snacks, candy and pasta are displayed in open
barrels and crates. All food items typically have a shelf life of six months or
longer.
The Company replaces or updates many of the items in its merchandise
assortment on a regular basis in order to encourage repeat shopping and to
promote a sense of discovery. The Company regularly marks down retail prices and
eliminates items that do not meet its turnover expectations.
Format and Presentation. The Company's stores are designed to evoke the
feeling of a "world marketplace" through colorful and creative visual displays
and merchandise presentations, including goods in open barrels and crates,
groupings of related products in distinct "shops" within the store and in-store
activities such as cooking demonstrations and food and coffee tastings. The
Company believes that its "world marketplace" effect provides customers with a
fun shopping experience and encourages browsing throughout the store.
The average selling space of a Cost Plus World Market store is
approximately 16,000 square feet, which allows flexibility for merchandise
displays, product adjacencies and directed traffic patterns. Complementary
products are positioned in proximity to one another and cross merchandising
themes are used in merchandise displays to tie different product offerings
together. The unobstructed floor plan allows the customer to see virtually all
of the different product areas in a Cost Plus World Market store from the
entrance. The "power" aisle, where bulk displays highlight sharply priced items,
leads the customer through the store into the different product areas. The
Company has a seasonal shop located in the heart of the store to feature
seasonal products in themes, such as Christmas, Easter and outdoor. 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 store format is also designed to reinforce the
Company's value image through exposed ceilings, concrete floors, simple wooden
fixtures and open or bulk presentations of merchandise. The Company displays
most of its inventory on the selling floor and makes effective use of vertical
space, for example, a display of chairs arranged on a wall and rugs hanging
vertically from racks.
The Company believes that its customers usually visit a Cost Plus World
Market store as a destination with a specific purchase in mind. The Company also
believes that once in the store, its customers often spend additional time
shopping and browsing and purchasing more items than they originally intended.
Pricing. Cost Plus World Market offers quality products at competitive
prices. The Company complements its competitive everyday prices with
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 World Market effectively manages a large
number of products by utilizing centralized merchandise planning, tracking and
replenishment systems. The Company regularly monitors merchandise activity at
the item level through its management information systems to identify and
respond to product trends. The Company maintains its own central buying staff
which is responsible for establishing the assortment of inventory within its
merchandise classifications each season, including integrating trends or themes
identified by the Company into its different product categories. 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, its international buying agency
3
network and its 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 weekly promotional advertisements in major
daily newspapers and on radio. The Company's approach is to regionalize its
advertising and use the most efficient media mix within each geographic area.
The Company uses full color tabloids and color or black and white newspaper
advertisements to highlight product offerings. For new store grand openings, the
Company uses a combination of newspaper and radio.
PRODUCT SOURCING AND DISTRIBUTION
The Company purchases most of its inventory centrally, 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
approximately 2000 suppliers and no supplier represented over 5% of total
purchases in the fiscal year ended February 2, 2002. A significant portion of
Cost Plus World Market's products are made abroad in approximately 70 countries
in Europe, North and South America, Asia, Africa and Australia. 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. The Company's
buyers often work with suppliers to produce unique products exclusive to Cost
Plus World Market. The Company believes that, although there could be delays in
changing suppliers, alternate sources of merchandise for core product categories
are available at comparable prices. Cost Plus World Market typically 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. Due to state regulations, wine and beer are purchased from local
distributors, with purchasing controlled by the Corporate buying office.
The Company currently services all of its stores from its general
merchandise distribution center and separate furniture facility both located in
Stockton, California. Domestically sourced merchandise is usually delivered to
the distribution center by common carrier or by Company trucks. Any significant
interruption in the operation of these facilities would have a material adverse
effect on the Company's financial position and results of operations.* In
mid-year 2002, the Company expects to open a 500,000 square foot full-service
distribution center in Windsor, Virginia. The Company believes that its
Stockton, California distribution center will be able to handle, or can be
upgraded to handle, the Company's store expansion plans until the Virginia
distribution center becomes fully operational.*
MANAGEMENT INFORMATION SYSTEMS
Each of the Company's stores is linked to the Cost Plus World Market
headquarters in Oakland, California through a point-of-sale system and frame
relay data network that interfaces with an IBM AS/400 computer. The Company's
information systems keep records, which are updated daily, of each merchandise
item sold in each store, as well as financial, sales and inventory information.
The point-of-sale system also has scanning, "price look-up" and on-line
credit/debit card approval capabilities, all of which improve transaction
accuracy, speed checkout time and increase overall store efficiency. The Company
continually upgrades its in-store information systems to improve information
flow to store management and enhance other in-store administration capabilities.
4
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 SKU and store-specific, "model
stock" logic which enables the Company to maintain adequate stock levels on
basic goods in each location. The Company believes its centralized purchasing
system has helped it to optimize in-store inventory levels and improve in-stock
conditions.*
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, process
payroll, pay bills, control cash, maintain fixed assets and track promotions,
throughout all of the Company's stores. The Company's distribution operations
use systems to receive, locate, pick and ship inventory to stores. The Company
believes that these systems allow for higher operating efficiency and improve
profitability.*
Additional systems also enable the Company to produce the periodic
financial reports necessary for developing budgets and monitoring individual
store and consolidated Company performance. The Company believes that its
current management information system can be upgraded 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 discounters. The Company's product offerings compete with
such specialty retailers as Bed, Bath & Beyond, Linens n' Things, Crate &
Barrel, Pottery Barn, 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 World Market. Department stores
typically have higher prices than Cost Plus World Market for similar
merchandise. Discounters may have lower prices than Cost Plus World Market, 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.
EMPLOYEES
As of February 2, 2002, the Company had approximately 1,700 full-time and
approximately 2,200 part-time employees. Of these, approximately 3,300 were
employed in the Company's stores and approximately 600 were employed in the
distribution center and corporate office. The Company regularly supplements its
work force with temporary staff, especially in the fourth quarter of each year,
to service increased customer traffic during the peak Holiday selling season.
Employees in 12 stores in Northern California are covered by a collective
bargaining agreement which expires on May 31, 2003. The Company believes that it
enjoys good relationships with its employees.*
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," "Cost Plus World Market"
logos, "Electric Reindeer", "Mercado Del Mundo", "Texas Turtle", "Where you can
afford to be different" and "World Market" marks with the United States Patent
and Trademark Office on the Principal Register. The Company has applied for the
registration of its "Aaku", "Asian Passage", "Atacama", "Castello Del Lago",
"Crandall Brooks", "Credo", "Crossroads," "Donaletta" logo, "Marche Du Monde",
"Market Classics", "Maui Morning", "Praline Perk" and "Soiree" marks with the
United States Patent and Trademark Office on the Principal Register. The Company
has also secured California state registration of its "Crossroads" trademark.
The Company's policy is to pursue prompt and broad registration of its marks and
to vigorously oppose infringement of its marks.
RISK FACTORS
Seasonality and Quarterly Fluctuations. The Company's business is highly
seasonal, reflecting the general pattern associated with the retail industry of
peak sales and earnings during the Holiday selling season. Due to the importance
of the Holiday 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.* Any factors negatively affecting the Company
during the Holiday selling season in any year, including unfavorable economic
conditions, could have a material adverse effect on the Company's financial
condition and results of
5
operations. The Company generally experiences lower sales and earnings during
the first three quarters and, as is typical in the retail industry, may incur
losses in these quarters.* The results of operations for these interim periods
are not necessarily indicative of the results for a 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 Holiday 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 gross sales due to insufficient inventory or lost
gross 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 delays in the flow of merchandise, changes in the anticipated
opening of the Company's new distribution center in Virginia in mid-2002, the
number and timing of new store openings and related store preopening 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, changes in fuel and other shipping costs,
general economic conditions, increases in utility costs in California and other
states where the Company has operations, labor market fluctuations, changes in
accounting rules and regulations and unseasonable weather conditions.*
Effect of Economic Conditions and Geographic Concentration. The success of
the Company's business depends to a significant extent upon the level of
consumer spending. Among the factors that affect consumer spending are the
general state of the economy, the level of consumer debt, prevailing interest
rates and consumer confidence in future economic conditions. A substantial
number of the Company's stores are located in the western United States,
principally in California. Lower levels of consumer spending in this region
could have a material adverse effect on the Company's financial condition and
results of operations. Reduced consumer confidence and spending may result in
reduced demand for the Company's products, limitations on the Company's ability
to increase prices and may require increased levels of selling and promotional
expenses, thereby adversely affecting the Company's financial condition and
results of operations.
Risks Associated with Expansion. The Company's ability to continue to
increase its net sales and earnings will depend in part on its ability to open
new stores and to operate such stores on a profitable basis. The Company's
continued growth will also depend on its ability to increase sales in its
existing stores. The Company opened 23 stores in fiscal 2001 and presently
anticipates opening a net of 25 stores in fiscal 2002. The Company intends to
open stores in both existing and new geographic markets.* The opening of
additional stores in an existing market could result in lower net sales from
existing Company stores in that market. The success of the Company's planned
expansion will be dependent upon many factors, including the identification of
suitable markets, the availability and leasing of suitable sites on acceptable
terms, the hiring, training and retention of qualified management and other
store personnel, the availability of appropriate financing and general economic
conditions. To manage its planned expansion, the Company must ensure the
continuing adequacy of its existing systems, controls and procedures, including
product distribution facilities, store management, financial controls and
information systems. There can be no assurance that the Company will be able to
achieve its planned expansion, that new stores will be effectively integrated
into the Company's existing operations or that such stores will be profitable.*
The Company's expansion strategy includes opening stores in new geographic
markets. These new markets may present competitive and merchandising challenges
that are different from those currently faced by the Company in its existing
geographic markets. The Company may incur higher costs related to advertising
and distribution in connection with entering new markets. If the Company opens
stores in new markets that do not perform to the Company's expectations or if
store openings are delayed, the Company's financial condition and results of
operations could be materially adversely affected. In addition, in order to sell
wine and beer, the Company is required to obtain alcoholic beverage licenses for
each of its new stores and the laws regulating the issuance of alcoholic
beverage licenses differ from state to state. Any delays in receiving alcoholic
beverage licenses for new stores could have an adverse impact on such stores'
operations.
Dependence on a Single Distribution Facility. The Company's distribution
functions for all of its stores are currently handled from a single facility in
Stockton, California. Any significant interruption in the operation of this
facility would have a material adverse effect on the Company's financial
condition and results of operations. At this time the Company is opening a
500,000 square foot, full-service distribution center in Windsor, Virginia.*
Operational inefficiencies during start-up or failure to successfully coordinate
the operations of these facilities could have a material adverse effect on the
Company's financial condition and results of operations.*
6
Risks Associated with Importing. The Company imports a significant portion
of its merchandise from approximately 70 countries. The Company relies on its
long-term relationships with its suppliers but has no long-term contracts with
such suppliers. The Company's future success will depend in large measure upon
its ability to maintain its existing supplier relationships or to develop new
ones.
As an importer, the Company's business is subject to the risks generally
associated with doing business abroad, such as foreign governmental regulations,
economic disruptions, delays in shipments, freight cost increases and changes in
political or economic conditions in countries in which the Company purchases
products. The threat of a longshoreman's strike could impede the flow of goods
to its distribution centers.* The Company's business is also subject to the
risks associated with any new or revised United States legislation and
regulations related to imported products, including quotas, duties, taxes and
other charges or restrictions on imported merchandise. Additionally, since
certain of the Company's purchases are made in currencies other than the U.S.
Dollar and its financial results are reported in U.S. Dollars, fluctuations in
the rates of exchange between the U.S. Dollar and other currencies may have a
material adverse effect on the Company's financial condition and results of
operations. Historically, the Company has not hedged its currency risk and does
not currently anticipate doing so in the future. If any such factors were to
render the conduct of business in particular countries undesirable or
impractical or if additional United States quotas, duties, taxes or other
charges or restrictions were imposed upon the importation of the Company's
products in the future, the Company's financial condition and results of
operations could be materially adversely affected.
Risks Associated with Merchandising. The Company's success depends in part
upon the ability of its merchandising staff to anticipate the tastes of its
customers and to provide merchandise that appeals to their preferences. The
Company's strategy requires it to introduce in a timely manner products from
around the world that are affordable, distinctive in quality and design and that
are not widely available from other retailers. Many of the Company's products
require long lead times. In addition, a large percentage of the Company's
merchandise changes regularly. The Company's failure to anticipate, identify or
react appropriately to changes in consumer trends could lead to, among other
things, either excess inventories and higher markdowns or a shortage of products
and could have a material adverse effect on the Company's financial condition
and results of operations.
Changes in Energy Costs. The Company incurs significant costs for the
purchase of fuel in transporting goods to its distribution center and stores and
for the purchase of utility service for its store, distribution center and
corporate office locations. Significant increases in the cost of fuel and
utility services could have a material adverse effect on the Company's financial
condition and results of operations.
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 discounters. The Company's product offerings
compete with such specialty retailers as Bed, Bath & Beyond, Linens n' Things,
Crate & Barrel, Pottery Barn, Michaels Stores, Pier 1 Imports, Trader Joe's and
Williams-Sonoma. The Company competes with these and other retailers for
customers, suitable retail locations and qualified management personnel. Many of
the Company's competitors have significantly greater financial, marketing and
other resources than the Company and there can be no assurance that the Company
will be able to compete successfully in the future.
Dependence on Key Personnel. The success of the Company's business will
continue to depend upon its key personnel. The Company does not maintain any key
man life insurance policies. The loss of the services of one or more of its key
personnel could have a material adverse effect on the Company's financial
condition and results of operations.
Possible Volatility of Stock Price. The stock market has from time to time
experienced significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. These broad market fluctuations
have adversely affected the market price of the Company's common stock. Factors
such as fluctuations in the Company's operating results, a downturn in the
retail industry, changes in stock market analysts' recommendations regarding the
Company, other retail companies or the retail industry in general and general
market and economic conditions may have a significant effect on the market price
of the Company's common stock.
7
ITEM 2. PROPERTIES
As of April 2, 2002, the Company operated 153 stores in 19 states. The average
selling space of a Cost Plus World Market store is approximately 16,000 square
feet. The table below summarizes the distribution of stores by state:
Arizona.................. 9 Idaho............... 1 Nevada.................. 3 Virginia................. 5
California............... 49 Illinois............ 12 New Mexico.............. 2 Washington............... 7
(Northern California ... 21) Indiana............. 1 North Carolina.......... 7 Wisconsin................ 1
(Southern California ... 28) Michigan............ 9 Ohio.................... 13
Colorado................. 4 Missouri............ 3 Oregon.................. 5
Georgia ................. 4 Nebraska............ 1 Texas................... 17
The Company leases land and buildings for 146 stores (of which 16 are capital
leases), leases land and owns the buildings for six stores and owns the land and
building for one store. The Company currently leases its executive headquarters
in Oakland, California pursuant to a lease which expires in October 2008. The
Company currently leases its distribution facility of approximately 520,000
square feet and a coffee plant of 15,000 square feet in Stockton, California
pursuant to a lease which expires in September 2006 and has two renewal options
for five years each. In July 2001, the Company leased a furniture warehouse of
approximately 260,000 square feet in Stockton, California pursuant to a lease
which expires in June 2003 and has two renewal options for six months each. In
January 2002, the Company leased a distribution facility of approximately
500,000 square feet in Virginia pursuant to a lease which expires in January
2022 and has four renewal options for five years each.
The Company believes its distribution facilities are adequate to meet
immediate needs.* The second distribution facility located in Virginia, expected
to open in 2002, will allow for continued growth in stores.* The Company uses
additional warehouse facilities to handle seasonal requirements and expects
these facilities will be available in the future as needed.*
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant in a purported class action lawsuit alleging it
improperly classified certain California-based managers as "exempt" from
overtime rather than entitled to overtime pay as are non-exempt hourly
employees. The action, entitled Barry, et al, v. Cost Plus, Inc., was filed in
--------------------------------
the Orange County Superior Court in California on September 17, 2001. The
complaint seeks an injunction against any unlawful practices, restitution of
wages improperly withheld, unpaid overtime, penalties and costs, including
attorneys' fees. The case is in the discovery stage and a hearing has yet to be
held on the plaintiff's motion for class certification. The Company believes the
plaintiff is not entitled to class certification and intends to vigorously
oppose the motion. Furthermore, the Company believes it has strong defenses
against the charges contained in the lawsuit, which it will also vigorously
pursue. Although this lawsuit is subject to the uncertainties inherent in the
litigation process, based upon information presently available to management,
the Company does not expect the ultimate resolution of the action will have a
material effect on its financial condition.* Nonetheless, it is possible the
Company could incur a charge to earnings when the case is resolved and the
effect on a single quarter's earnings could be material if a conclusion to the
suit is reached in the first, second or third quarters of the fiscal year when
earnings are typically less than in the fourth quarter.*
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
8
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
Name Age Position
- --------------------------------------------- --- ---------------------------------------------------
Murray H. Dashe 59 Chairman of the Board, Chief Executive Officer and
President
Gary D. Weatherford 45 Executive Vice President, Operations
Michael J. Allen 47 Senior Vice President, Store Operations
Joan S. Fujii 55 Senior Vice President, Human Resources
Stephen L. Higgins 52 Senior Vice President, Merchandising
John J. Luttrell 47 Senior Vice President and Chief Financial Officer
Judith A. Soares 52 Senior Vice President, Cost Plus Management Services, Inc.
Mr. Dashe joined the Company in June 1997 and has served as Chairman of the
Board and Chief Executive Officer since February 1998 with continued
responsibilities as President. In September 1997, Mr. Dashe was appointed
President with continued responsibilities as Vice Chairman of the Board. From
June 1997 to September 1997, Mr. Dashe served as the Company's Vice Chairman of
the Board. Mr. Dashe is responsible for overseeing all day-to-day operations and
long-term strategies of the Company. From August 1992 to June 1997, he was Chief
Operating Officer of Leslie's Poolmart, Inc., a swimming pool supply retail
chain and was a director of that company from August 1989 to November 1996. From
April 1990 through June 1992, he was President and Chief Executive Officer of
RogerSound Labs, a Southern California retailer of audio/video consumer
electronics. From September 1985 through April 1990, Mr. Dashe held several
positions with SILO, a consumer electronics and appliance retailer, including
Regional President, Regional Vice President and Director of Stores. Previously,
he was employed in an executive capacity by other retailers, including Allied
Stores Corp., now Federated Department Stores, where he served in a variety of
positions, including Vice President/Director of Stores.
Mr. Weatherford was named Executive Vice President, Operations in March 2002
with responsibility for Information Services, Distribution, Store Operations and
Visual Merchandising. Mr. Weatherford joined the Company in January 1988, served
as Vice President, Store Operations from June 1995 until February 1998 when he
was promoted to Senior Vice President, Store Operations. 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 the Company.
Mr. Allen joined the Company in December 1988 as a Regional Manager and later
was promoted to Director of Store Operations and in 1998 became Vice President,
Real Estate and Store Development. In March 2002, Mr. Allen was promoted to
Senior Vice President, Store Operations with responsibility for Store
Operations, Development and Real Estate. Prior to coming to Cost Plus, he was a
District Manager for Liquor Barn, a discount beverage retailer, from 1986 to
1988. From 1981 to 1985, he was a store manager for Safeway Corporation, a food
grocery chain.
Ms. Fujii was named the Company's Senior Vice President, Human Resources in
February 1998. Ms. Fujii joined the Company in May 1991 and served as Vice
President, Human Resources from October 1994 until February 1998. From May 1991
to October 1994, Ms. Fujii served as the Company's Director of Human Resources.
From September 1975 to May 1991, she was employed by Macy's California in
various operations and human resources management positions, ultimately serving
as Vice President, Human Resources at Macy's Union Square store in San
Francisco.
Mr. Higgins joined the Company in December 1999 as Vice President,
Merchandising and was promoted to Senior Vice President in September 2000. Prior
to joining the Company and from November 1996 to November 1999, Mr. Higgins
served as President, Chief Operating Officer of Centex Life Solutions, a health
and wellness products retailer. From September 1994 to October 1996, Mr. Higgins
was President, Chief Executive Officer of Everything Organized, a storage and
organization retailer. From January 1992 to August 1994, Mr. Higgins was
President, Chief Operating Officer of Tuesday Morning the nation's largest
off-price Home/Gift retailer and from October 1988 to December 1992, he was its
Senior Vice President of Merchandising.
9
Mr. Luttrell joined Cost Plus, Inc. in May 2000 as Vice President, Controller
and was promoted to his current position in August 2001 as Senior Vice President
and Chief Financial Officer. From October 1998 to May 2000, Mr. Luttrell served
as Controller of Bugle Boy Industries, a manufacturer of clothing ("Bugle Boy").
In February 2001, Bugle Boy filed for protection under Chapter 11 of the Federal
Bankruptcy Act. From 1995 to 1998, he was a consultant for his own private
practice. Mr. Luttrell is a Certified Public Accountant.
Ms. Soares joined Cost Plus, Inc. in May 1998 as Vice President, Information
Services. In March 2002, Ms. Soares was promoted to Senior Vice President, Cost
Plus Management Services, Inc. having responsibility for Information Services,
Distribution and Logistics. Prior to joining Cost Plus, Inc., Ms. Soares served
as Vice President of Information Services for Natural Wonders, a specialty gift
retailer, from June 1996 to May 1998. From April 1993 to March 1996, Ms. Soares
served as Vice President of Information Services for Home Express, a specialty
home products retailer. From March 1990 to March 1993, Ms. Soares served as Vice
President of Development for The Gap, a specialty apparel retailer. Ms. Soares
has served in various positions within information systems for Mervyn's and
Lucky stores from 1980 to 1990.
PART II
Information called for by Part II (Items 5, 6, 7 and 8) has been filed as
Exhibit 13 to this report on Form 10-K. Such information is incorporated herein
by reference.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The information required by this item is incorporated herein by reference to
the Company's fiscal 2001 Annual Report to Shareholders (on page 26), filed as
Exhibit 13 to this report on Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this item is incorporated herein by reference to
the Company's fiscal 2001 Annual Report to Shareholders (on page 22), filed as
Exhibit 13 to this report on Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information required by this item is incorporated herein by reference to
the Company's fiscal 2001 Annual Report to Shareholders (on pages 18 - 26),
filed as Exhibit 13 to this report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is incorporated herein by reference to
the Company's 2001 fiscal Annual Report to Shareholders (on page 25), filed as
Exhibit 13 to this report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS
The information required by this item is incorporated herein by reference to
the Company's fiscal 2001 Annual Report to Shareholders (on pages 23 and
27 - 41), filed as Exhibit 13 to this report on Form 10-K.
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
10
intends to file with Securities and Exchange Commission not later than May 30,
2002 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 section entitled "Election of Directors" of the Proxy
Statement for the Company's 2002 Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to
the section entitled "Executive Compensation and Other Matters" in the Proxy
Statement for the Company's 2002 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 section entitled "Security Ownership of Certain Beneficial Owners and
Management" in the Proxy Statement for the Company's 2002 Annual Meeting of
Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is incorporated herein by reference to
the section entitled "Certain Relationships and Related Transactions" in the
Proxy Statement for the Company's 2002 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1.Financial Statements:
The following financial statements of Cost Plus, Inc. are incorporated
herein by reference to the Company's fiscal 2001 Annual Report to
Shareholders for the year ended February 2, 2002, filed as Exhibit 13
to this report on Form 10-K:
Consolidated Balance Sheets as of February 2, 2002 and February
3, 2001
Consolidated Statements of Operations for the fiscal years ended
February 2, 2002, February 3, 2001 and January 29, 2000
Consolidated Statements of Shareholders' Equity for the fiscal
years ended February 2, 2002, February 3, 2001 and January 29,
2000
Consolidated Statements of Cash Flows for the fiscal years ended
February 2, 2002, February 3, 2001 and January 29, 2000
Notes to Consolidated Financial Statements
Independent Auditors' Report
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 beginning on page 13.
11
(b) Reports on form 8-K:
None.
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.
Date: May 1, 2002 By: /s/ MURRAY H. DASHE
________________________________
MURRAY H. DASHE
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
--------- ----- ----
May 1, 2002
/s/ MURRAY H. DASHE
__________________________ Chairman of the Board, Chief
MURRAY H. DASHE Executive Officer and President
(Principal Executive Officer)
/s/ JOHN J. LUTTRELL May 1, 2002
___________________________ Senior Vice President and
JOHN J. LUTTRELL Chief Financial Officer
/s/ JOSEPH H. COULOMBE Director May 1, 2002
___________________________
JOSEPH H. COULOMBE
/s/ BARRY J. FELD Director May 1, 2002
___________________________
BARRY J. FELD
/s/ DANNY W. GURR Director May 1, 2002
___________________________
DANNY W. GURR
/s/ KIM D. ROBBINS Director May 1, 2002
___________________________
KIM D. ROBBINS
/s/ FREDRIC M. ROBERTS Director May 1, 2002
___________________________
FREDRIC M. ROBERTS
/s/ THOMAS D. WILLARDSON Director May 1, 2002
___________________________
THOMAS D. WILLARDSON
12
INDEX TO EXHIBITS
Exhibit No. Description of Exhibits
- ----------- -----------------------
3.1 Amended and Restated Articles of Incorporation as filed with the
California Secretary of State on April 1, 1996, incorporated by
reference to Exhibit 3.1 to the Form 10-K filed for the year ended
February 1, 1997.
3.1.1 Certificate of Amendment of Restated Articles of Incorporation as
filed with the California Secretary of State on February 25, 1999,
incorporated by reference to Exhibit 3.1 to the Form 10-Q filed for
the quarter ended May 1, 1999.
3.1.2 Certificate of Amendment of Restated Articles of Incorporation as
filed with the California Secretary of State on September 24, 1999,
incorporated by reference to Exhibit 3.1.2 of the Form 10-K filed
for the year ended January 29, 2000.
3.2 Certificate of Determination as filed with California Secretary of
State on July 27, 1998, incorporated by reference to Exhibit 3.2 to
the Form 10-K filed for the year ended January 30, 1999.
3.3 Amended and Restated By-laws dated February 22, 2001, incorporated
by reference to Exhibit 3.3 of the Form 10-K filed for the year
ended February 3, 2001.
4.0 Preferred Shares Rights Agreement, dated June 30, 1998, between Cost
Plus, Inc. and BankBoston, N.A., including the Certificate of
Determination, the form of Rights Certificate and the Summary of
Rights, incorporated by reference to Exhibit 1 to the Form 8-A filed
on July 27, 1998.
10.1 Form of Indemnification Agreement between the Company and each of
its directors and officers, incorporated by reference to Exhibit
10.1 to the Registration Statement on Form S-1 effective April 3,
1996.
10.2 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, incorporated by reference
to Exhibit 10.6 to the Registration Statement on Form S-1 effective
April 3, 1996.
10.3 Lease agreement between the Company and Square I, LLC for certain
Corporate office space located in Oakland, California, incorporated
by reference to Exhibit 10.1 to the Form 10-Q filed for the quarter
ended October 31, 1998.
10.4 Lease agreement between the Company and GEM 460 Associates I, LLC
for a storage and distribution warehouse located in Isle of Wight
County, Virginia, incorporated by reference to Exhibit 10.19 of the
Form 10-Q filed for the quarter ended May 5, 2001.
10.5 Business Loan Agreement, dated May 19, 2000, between the Company and
Bank of America National Trust and Savings Association, incorporated
by reference to Exhibit 10.2 to the Form 10-Q filed for the quarter
ended April 29, 2000.
13
10.5.1 Amendment Number 1 to Business Loan Agreement, dated October 2, 2000,
between the Company and Bank of America National Trust and Savings
Association, incorporated by reference to Exhibit 10.5.1 of the Form
10-K filed for the year ended February 3, 2001.
10.5.2 Amendment Number 2 to Business Loan Agreement, dated September 13,
2001, between the Company and Bank of America, N.A, incorporated by
reference to Exhibit 10.1 of the Form 10-Q filed for the quarter
ended November 3, 2001.
10.6+ 1994 Stock Option Plan and form of Stock Option Agreement thereunder,
incorporated by reference to Exhibit 10.3 to the Registration
Statement on Form S-1 effective April 3, 1996.
10.7+ 1995 Stock Option Plan, as amended, incorporated by reference to
Exhibit 10.1 of the Form 10-Q filed for the quarter ended August 4,
2001.
10.7.1+ Form of Stock Option Agreement, 1995 Stock Option Plan, incorporated
by reference to Exhibit 10.4 to the Form 10-K filed for the year
ended February 1, 1997.
10.8+ 1996 Director Option Plan, as amended, incorporated by reference
to Exhibit 10.1 to the Form 10-Q filed for the quarter ended July 29,
2000.
10.8.1+ Form of Stock Option Agreement, 1996 Director Option Plan,
incorporated by reference to Exhibit 10.4 to the Form 10-Q filed for
the quarter ended July 31, 1999.
10.9+ 1996 Employee Stock Purchase Plan, incorporated by reference to
Exhibit 10.13 to the Registration Statement on Form S-1 effective
April 3, 1996.
10.10+ The Cost Plus, Inc. Deferred Compensation Plan effective October 1,
1997, incorporated by reference to Exhibit 10.11 to the Form 10-K
filed for the year ended January 31, 1998.
10.11+ 1997 Executive Officer and Key Employee Loan Plan, dated May 7, 1997,
incorporated by reference to Appendix C of the Company's Proxy
Statement dated May 22, 1997.
10.12+ Employment Agreement, dated June 12, 1997, between the Company and
Murray H. Dashe, incorporated by reference to Exhibit 10.4 to the
Form 10-Q filed for the quarter ended August 2, 1997.
10.12.1+ Amendment to Employment Agreement, dated January 13, 1999, between
the Company and Murray H. Dashe, incorporated by reference to Exhibit
10.16.2 to the Form 10-K filed for the year ended January 30, 1999.
10.12.2+ Amendment to Employment Agreement, dated July 22, 1999, between the
Company and Murray H. Dashe, incorporated by reference to Exhibit
10.6 to the Form 10-Q filed for the quarter ended July 31, 1999.
10.12.3+ Amendment to Employment Agreement, dated March 29, 2001, between the
Company and Murray H. Dashe, incorporated by reference to Exhibit
10.12.4 of the Form 10-K filed for the year ended February 3, 2001.
10.12.4+ Amendment to Employment Agreement, dated March 1, 2002, between the
Company and Murray H. Dashe.
10.13+ Employment Severance Agreement, as amended, dated July 22, 1999,
between the Company and Gary D. Weatherford, incorporated by
reference to Exhibit 10.9 to the Form 10-Q filed for the quarter
ended July 31, 1999.
10.13.1+ Amendment to Employment Agreement, dated March 1, 2002, between the
Company and Gary D. Weatherford.
14
10.14+ Employment Severance Agreement, as amended, dated July 22, 1999,
between the Company and Joan S. Fujii, incorporated by reference to
Exhibit 10.10 to the Form 10-Q filed for the quarter ended July 31,
1999.
10.14.1+ Amendment to Employment Severance Agreement dated March 29, 2001,
between the Company and Joan S. Fujii, incorporated by reference to
Exhibit 10.16.2 of the Form 10-K filed for the year ended
February 3, 2001.
10.14.2+ Amendment to Employment Agreement, dated March 1, 2002, between the
Company and Joan S. Fujii.
10.15+ Executive Transition Agreement, dated May 7, 1999, between the
Company and Ralph D. Dillon, incorporated by reference to Exhibit
10.1 to the Form 10-Q filed for the quarter ended May 1, 1999.
10.16+ Amended and Restated Severance Agreement dated March 29, 2001,
between the Company and Stephen L. Higgins, incorporated by reference
to Exhibit 10.18 of the Form 10-K filed for the year ended February
3, 2001.
10.16.1+ Amendment to Employment Agreement, dated March 1, 2002, between the
Company and Stephen L. Higgins.
10.17+ Employment Severance Agreement, dated August 29, 2001, between the
Company and John J. Luttrell, incorporated by reference to Exhibit
10.2 of the Form 10-Q filed for the quarter ended August 4, 2001.
10.17.1+ Amendment to Employment Agreement, dated March 1, 2002, between the
Company and John J. Luttrell.
10.18+ Employment Agreement, dated March 1, 2002, between the Company and
Michael J. Allen.
10.19+ Employment Agreement, dated March 1, 2002, between the Company and
Judith A. Soares.
10.20 Promissory Note, dated April 2, 2002, between the Company and Murray
H. Dashe.
13 Registrant's 2001 Annual Report to Shareholders (only those portions
specifically incorporated by reference into this Report are deemed
"filed" with the Securities and Exchange Commission).
21 List of Subsidiaries of the Company.
23 Independent Auditors' Consent.
+ Management compensation plan or arrangement.
15