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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 JANUARY 31, 1998
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 IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
201 CLAY STREET 94607
OAKLAND, CALIFORNIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (510) 893-7300
FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR N/A
IF CHANGED SINCE LAST REPORT.
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:
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 ____
The aggregate market value of voting stock held by non-affiliates of the
registrant on April 9, 1998 was approximately $217,199,594 based upon the last
sale price reported for such date on the Nasdaq National Market. On that date,
8,662,577 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 January 31, 1998 ("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 18, 1998 ("Proxy Statement") are incorporated by
reference into Part III.
PART I
ITEM 1. BUSINESS
THE COMPANY
Cost Plus, Inc. ("Cost Plus" or "the Company") is a leading specialty retailer
of casual home living and entertaining products. As of January 31, 1998, the
Company operated 70 stores under the name "Cost Plus World Market" in 12 states,
primarily in the Western United States, but recently has begun to expand into
other regions of the country. Cost Plus' business strategy is to differentiate
itself by offering a large and everchanging selection of unique products, many
of which are imported, at competitive prices in an exciting shopping
environment. Many of Cost Plus' 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' 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,
operated under the name "Cost Plus World Market", are located predominantly in
high traffic metropolitan and suburban locales, often near major malls. In
fiscal 1997, the Company opened a total of 12 stores, including seven in
existing markets in Chicago, Dallas, Houston, Los Angeles, Portland and San
Diego and five in new markets in Detroit, Grand Rapids and Madison (WI).
MERCHANDISING
Cost Plus' merchandising strategy is to offer customers a broad selection of
distinctive items 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 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 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 is approximately 16,000
square feet, which allows space and 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 from the store entrance. The
"power" aisle, where bulk displays highlight sharply priced items, 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
monthly.
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
through, for example, a display of chairs arranged on a wall and rugs hanging
from vertical display racks.
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,
"World Market" brand name, quality standards and specifications, and generally
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' products are made abroad in over 50
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' furniture products include ready-to-assemble
living and dining room 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.
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 also offers its customers a wide selection of gourmet foods and
beverages, including wine, microbrewed and imported beer, coffee and tea. 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
beverage, generally have lower margins than the Company's average. Coffee,
roasted at the Company's own roasting plant, is sold over-the-counter from bulk
containers. Packaged snacks, candy and pasta are displayed in open barrels and
crates. Gourmet foods include packaged products from around the world, and
seasonal items that relate to "old world" holidays and customs. All food items
typically have a shelf life that lasts 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 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 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
regularly monitors merchandise 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 the merchandise groups 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 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 and television. The Company's approach is to regionalize its advertising
and use the most efficient media mix within a geographic area. The Company uses
four to sixteen page full color tabloids and color or black and white 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, 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 January 31, 1998. A significant portion
of Cost Plus' products are made abroad in over 50 countries in Europe, North and
South
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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. 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 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.
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 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 servicing regions such as
Illinois, Michigan and Texas, the Company has a satellite distribution center
located in Peru, Indiana which the Company anticipates being operational in a
limited capacity during fiscal 1998.
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, track promotions, identify sales trends and monitor merchandise mix
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.
Year 2000 Compliance Issue. As is the case with most other companies using
computers in their operations, the Company is in the process of addressing the
Year 2000 Compliance issue. The Company is currently engaged in a comprehensive
project to assess and, if necessary, modify its hardware and computer
applications to consistently and properly recognize the Year 2000. An assessment
of the readiness of external entities with which the Company interfaces, such as
vendors, customers, payment systems and others, is ongoing. Management expects
to have substantially all of the system and application changes completed by the
end of calender year 1998 and believes that its level of preparedness is
appropriate.
Internal and external resources are being used to review this issue, effect
any required modifications and test Year 2000 Compliance. The total cost to the
Company of these Year 2000 Compliance activities is not expected to be material.
A portion of these costs will be met from existing resources, with the remainder
representing incremental costs which will be expensed as incurred.
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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 offerings compete with such
specialty retailers as Bed, Bath & Beyond, Crate & Barrel, Pottery Barn, 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.
EMPLOYEES
As of January 31, 1998, the Company had 939 full-time and 1,175 part-time
employees. Of these, 1,780 were employed in the Company's stores and 334 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 151 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", "World
Market" and "Where you can afford to be different" marks and its "Cost Plus
World Market" and "World Market" logos 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 registration of its marks and to oppose vigorously
infringement of its marks.
RISK FACTORS
This Form 10-K, including the documents incorporated by reference herein,
contains forward-looking statements 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. The
Company may also make oral forward looking statements from time to time. Actual
results may differ materially from those projected in such forward-looking
statements due to a number of factors including those set forth below and
elsewhere in this Form 10-K and in documents which are incorporated by reference
herein.
Seasonality and Quarterly Fluctuations. The Company's business is highly
seasonal, reflecting the general pattern associated with much of the retail
industry of peak sales and earnings during the Christmas selling 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. Any factors negatively
affecting the Company during the Christmas selling season in any year, including
unfavorable economic conditions, could have a material adverse effect on the
Company's financial condition and results of operations. In addition, the
Company makes decisions regarding merchandise well in advance of the season in
which it will be sold, particularly for the Christmas selling season.
Significant deviations from projected demand for products could have a material
adverse effect on the Company's financial condition and results of operations,
either by lost sales due to insufficient inventory or lost margin due to the
need to markdown excess inventory.
The Company's quarterly results of operations may fluctuate based upon such
factors as the number and timing of store openings and related preopening store
expenses, the amount of net sales contributed by new and existing stores, the
mix of products sold, the timing and level of markdowns, store closings,
refurbishments or relocations, competitive factors and general economic
conditions.
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
4
on its ability to increase sales in its existing stores. The Company opened 12
stores in fiscal 1997 and presently anticipates opening approximately 15 stores
in fiscal 1998. 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 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.
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 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.
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 and consumer confidence in future
economic conditions. A substantial majority of the Company's stores are located
in the Western United States, principally in California. Lower levels of
consumer spending in these regions 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 Importing. The Company imports a significant portion of
its merchandise from over 50 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,
disruptions or delays in shipments and changes in political or economic
conditions in countries in which the Company purchases products. The Company's
business is also subject to the risks associated with any new or revised United
States legislation and regulations relating to imported products, including
quotas, duties, taxes and other charges or restrictions on imported merchandise.
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 related to Distribution Facilities. 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. In addition, the Company intends to begin ramping up an
5
additional distribution facility in Peru, Indiana in fiscal 1998 to service its
Midwest and Texas stores. A failure to successfully transition its distribution
operations for these stores to the new facility or to coordinate the operations
of the two facilities could have a material adverse effect on the Company's
financial condition and results of operations.
Competition. The market served by the Company is 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, Crate &
Barrel, Pottery Barn, Garden Ridge, Lechters, 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. 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. The Company's success in the future will be dependent
upon its ability to attract, retain and motivate quality personnel, including
store managers. The Company's inability to attract and retain such key
employees, including store managers, in the future 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
may adversely affect the market price of the Company's Common Stock. In
addition, the market price of the shares of Common Stock is likely to be highly
volatile. 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 Common Stock.
ITEM 2. PROPERTIES
The Company currently operates 70 stores in 12 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:
Arizona................. 5 Idaho................... 1 New Mexico............... 1
California.............. Illinois................ 4 Oregon................... 2
Northern California... 17 Michigan................ 4 Texas.................... 8
Southern California... 18 Nevada.................. 2 Washington............... 4
Colorado................ 3 Wisconsin................ 1
The Company leases land and buildings for 63 stores (of which 18 are capital
leases), leases land and owns the buildings for six stores and owns the land and
buildings for one store. The Company currently leases its executive
headquarters in Oakland, California pursuant to a lease which expires in October
1998. During fiscal 1998, the Company will move its executive headquarters to a
location near its existing headquarters where it has entered into a lease
agreement expiring October 2008. The Company currently leases its distribution
facility of approximately 400,000 square feet in Stockton, California pursuant
to a lease which expires in September 2001 and has three renewal options for
five years each. The Company leases an additional distribution center in Peru,
Indiana pursuant to a lease which expires in December 2000, initially covering
100,000 square feet. The lease term can be extended to December 2009 with an
additional four options of five years each, and the facility is expandable to
450,000 square feet.
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
None.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
NAME AGE POSITION
- -------------------------- --- --------------------------------------------------------------
Murray H. Dashe ........... 55 Chairman of the Board, Chief Executive Officer and President
Dennis R. Daugherty ....... 54 Executive Vice President, Operations
Kathi P. Lentzsch ......... 42 Executive Vice President, Merchandising and Marketing
Joan S. Fujii ............. 51 Senior Vice President, Human Resources
Gary D. Weatherford ....... 41 Senior Vice President, Store Operations
Michael J. Allen .......... 43 Vice President, Store Development
Patricia T. Saucy ......... 46 Acting Chief Financial Officer, Vice President, Finance,
Chief
Accounting Officer and Secretary
Malcolm R. Carden ......... 51 Treasurer
Charmaine D. Casella ...... 35 Controller
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 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., where he served in a
variety of positions, including Vice President/Director of Stores.
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 1996 to January 1997, Ms. Lentzsch
served as a retail consultant to several specialty retailers. From May 1993 to
May 1996, Ms. Lentzsch was employed by Pottery Barn, a division of Williams
Sonoma, Inc., where she was most recently Senior Vice President, Merchandising.
From April 1991 to May 1993, Ms. Lentzsch was General Merchandising Manager and
Vice President, Merchandising and Marketing at Impostors, a retail costume
jewelry chain. Prior to that, she held a number of merchandising and marketing
executive positions with several retailers, including Vice President,
Merchandising at Pier 1 Imports, Inc.
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 the
operations and personnel departments, ultimately serving as Vice President,
Human Resources at Macy's Union Square store in San Francisco.
Mr. Weatherford was named Senior Vice President, Store Operations in February
1998. Mr. Weatherford joined the Company in January 1988 and served as Vice
President, Store Operations from June 1995 until February 1998. 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.
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Mr. Allen was named the Company's Vice President, Store Development in
February 1998. Mr. Allen joined the Company in December 1988 and served as
Director of Stores from May 1995 until February 1998. From September 1989 to
December 1988, Mr. Allen served as Regional Manager for the Company. Prior to
joining the Company, Mr. Allen was a Regional Manager and Store Manager for
Liquor Barn.
Ms. Saucy was named the Company's Acting Chief Financial Officer and Secretary
in September 1997, its Vice President, Finance in August 1997 and its Chief
Accounting Officer in August 1996. Ms. Saucy joined the Company in January 1991
and served as Vice President, Controller from May 1991 to August 1997. 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. Carden was named the Company's Treasurer in August 1996. Mr. Carden joined
the Company in October 1986 and served as Director of Finance from May 1992 to
August 1996. 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. Casella was named the Company's Controller in August 1997. Ms. Casella
served as the Company's Assistant Controller from February 1993 to August 1997.
From August 1991 until January 1993, Ms. Casella was Corporate Accounting
Manager for Nestle Food Co., a manufacturer and distributor of food products.
Prior to that date, she was a Manager with the public accounting firm of Price
Waterhouse LLP. Ms. Casella is a Certified Public Accountant.
PART II
Information called for by Part II (Items 5,6,7,8 and 9) have 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 1997 Annual Report to Shareholders (on page 18), 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 1997 Annual Report to Shareholders (on page 13), 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 1997 Annual Report to Shareholders (on pages 14-17), filed as
Exhibit 13 to this report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not yet applicable.
ITEM 8. FINANCIAL STATEMENTS
The information required by this item is incorporated herein by reference to
the Company's 1997 Annual Report to Shareholders (on pages 19-31), 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.
8
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 18, 1998 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 1998 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 1998 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 1998 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 1998 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 1997 Annual Report
to Shareholders for the year ended January 31, 1998, filed as Exhibit
13 to this report on Form 10-K:
Independent Auditors' Report
Consolidated Balance Sheets as of January 31, 1998 and
February 1, 1997
Statements of Consolidated Operations for the fiscal years
ended January 31, 1998, February 1, 1997 and
the eleven month period ended February 3, 1996
Statement of Consolidated Shareholders' Equity for the fiscal
years ended January 31, 1998,
February 1, 1997 and the eleven month period ended February
3, 1996
Statements of Consolidated Cash Flows for the fiscal years
ended January 31, 1998, February 1, 1997 and
the eleven month period ended February 3, 1996
Notes to Consolidated 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 beginning on page 11.
9
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: April 23, 1998 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
--------- ----- ----
/s/ Murray H. Dashe Chairman of the Board, Chief April 23, 1998
- ------------------------- Executive Officer and President
MURRAY H. DASHE
/s/ Patricia T. Saucy Acting Chief Financial Officer, Vice April 23, 1998
- ------------------------- President, Finance, Chief Accounting
PATRICIA T. SAUCY Officer and Secretary
/s/ Ralph D. Dillon Chairman Emeritus April 23, 1998
- -------------------------
RALPH D. DILLON
/s/ Joseph H. Coulombe Director April 23, 1998
- -------------------------
JOSEPH H. COULOMBE
/s/ Danny W. Gurr Director April 23, 1998
- -------------------------
DANNY W. GURR
/s/Mervin G. Morris Director April 23, 1998
- -------------------------
MERVIN G. MORRIS
/s/ Edward A. Mule Director April 23, 1998
- -------------------------
EDWARD A. MULE
/s/ Olivier L. Trouveroy Director April 23, 1998
- -------------------------
OLIVIER L. TROUVEROY
/s/ Thomas D. Willardson Director April 23, 1998
- -------------------------
THOMAS D. WILLARDSON
10
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.
3.2 Amended and Restated By-laws dated June 19, 1997, incorporated by reference to Exhibit 3.2 to the Form 10-Q filed for
the quarter ended August 2, 1997.
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 Registration Rights Agreement, dated March 17, 1995, between the Company and certain holders of the Company's
securities, incorporated by reference to Exhibit 10.11 to the Registration Statement on Form S-1 effective
April 3, 1996.
10.3 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.
10.4 Lease Agreement, dated August 27, 1997 between the Company and Grissom Redevelopment Authority for certain warehouse
for storage and distribution located in Peru, Indiana.
10.5.1 Business Loan Agreement, dated May 7, 1996, between the Company and Bank of America National Trust and Savings
Association, incorporated by reference to Exhibit 10.1 to the Form 10-Q filed for the quarter ended
August 3, 1996.
10.5.2 Amendment No. 1 to Business Loan Agreement dated October 11, 1996, between the Company and Bank of America National
Trust and Savings Association.
10.5.3 Amendment No. 2 to Business Loan Agreement dated May 15, 1997, between the Company and Bank of America National Trust
and Savings Association, incorporated by reference to Exhibit 10.1 to the Form 10-Q filed for the quarter ended May 3,
1997.
10.6* Third Amended and Restated 1988 Stock Option Plan and form of Stock Option Agreement thereunder, incorporated by
reference to Exhibit 10.2 to the Registration Statement on Form S-1 effective April 3, 1996.
10.7* 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.
10.8.1* 1995 Stock Option Plan, as amended, incorporated by reference to Exhibit 10.1 to the Form 10-Q filed for the quarter
ended August 2, 1997.
10.8.2* 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.
10.9.1* 1996 Director Option Plan, as amended, incorporated by reference to Exhibit 10.2 to the Form 10-Q filed for the
quarter ended August 2, 1997.
10.9.2* Form of Stock Option Agreement, 1996 Director Option Plan, incorporated by reference to Exhibit 10.14 to the
Registration Statement on Form S-1 effective April 3, 1996.
11
10.10* 1996 Employee Stock Purchase Plan, incorporated by reference to Exhibit 10.13 to the Registration Statement on Form
S-1 effective April 3, 1996.
10.11* The Cost Plus, Inc. Deferred Compensation Plan effective October 1, 1997.
10.12* Management Incentive Plan, incorporated by reference to Exhibit 10.12 to the Registration Statement on Form S-1
effective April 3, 1996.
10.13* 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.
10.14.1* 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, incorporated by reference to Exhibit 10.4 to the Form 10-K
filed for the year ended February 1, 1997.
10.14.2* Amendment to Employment Agreement dated February 12, 1998 between the Company and Ralph D. Dillon.
10.15* Employment Agreement dated June 17, 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.
10.16* Employment Agreement dated February 2, 1997 between the Company and Kathi P. Lentzsch, incorporated by reference to
Exhibit 10.5 to the Form 10-Q filed for the quarter ended August 2, 1997.
10.17* Employment Severance Agreement dated September 16, 1997 between the Company and Patricia T. Saucy, incorporated by
reference to Exhibit 10.1 to the Form 10-Q filed for the quarter ended November 1, 1997.
10.18* Employment Agreement dated November 1, 1996 between the Company and Dennis R. Daugherty.
13 Registrant's 1997 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, incorporated by reference to Exhibit 21.1 to the Registration Statement on Form S-1 effective
April 3, 1996.
23 Independent Auditors' Consent.
27.1 Financial Data Schedule for the fiscal year ended January 31, 1998 (submitted for SEC use only).
27.2 Restated Financial Data Schedule for the fiscal year ended February 1, 1997 and the nine months ended
November 2, 1996 (submitted for SEC use only).
27.3 Restated Financial Data Schedule for the six months ended August 2, 1997 and the nine months ended
November 1, 1997 (submitted for SEC use only).
- -------------
* Management compensation plan or arrangement.
12