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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
Or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-11735
99 CENTS ONLY STORES
(Exact name of registrant as specified in its charter)
California 95-2411605
(State or other Jurisdiction (I.R.S. Employer Identification
of Incorporation or Organization) No.)
4000 Union Pacific Avenue, 90023
City of Commerce, California (zip code)
(Address of Principal Executive
Offices)
Registrant's telephone number, including area code: (323) 980-8145
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, no par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Security
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 last 90 days. Yes x No o
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 or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. x
The aggregate market value of Common Stock held by non-affiliates of
the Registrant on March 28, 2000 was $1,212,268,405 based on a $36.22
average of the high and low sales prices for the Common Stock on such date.
For purposes of this computation, all executive officers and directors have
been deemed to be affiliates. Such determination should not be deemed to be
an admission that such executive officers and directors are, in fact,
affiliates of the Registrant.
Indicate the number of shares outstanding of each of the issuer's
classes of stock as of the latest practicable date.
Common Stock, No Par Value, 33,469,586 Shares as of March 28, 2000
Portions of Part III of this report have been incorporated by
reference from the Company's Proxy Statement for the 2000 Annual
Shareholders meeting.
99 CENTS ONLY STORES
Table of Contents
Pag
e
Part I
Item 1. Business 2
Item 2. Properties 13
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Part II
Item 5. Market for Registrant's Common Stock and Related Stockholder 14
Matters
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial Condition 18
and Results of Operations
Item 7A.Quantitative and Qualitative Disclosures About Market Risk 30
Item 8. Financial Statements and Supplementary Data 31
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 47
Part III
Item 10.Directors and Executive Officers of the Registrant 47
Item 11.Executive Compensation 47
Item 12.Security Ownership of Certain Beneficial Owners and 47
Management
Item 13.Certain Relationships and Related Transactions 47
Part IV
Item 14.Exhibits, Financial Statement Schedules and Reports on Form 47
8-K
PART I
Item 1. Business
99 Cents Only Stores (the "Company") is a leading deep-discount
retailer of name-brand, consumable general merchandise. The Company's
stores offer a wide assortment of regularly available consumer goods as
well as a broad variety of first-quality, close-out merchandise. In 1999, a
majority of the Company's product offerings were comprised of recognizable
name-brand merchandise. The Company provides customers significant value on
their everyday household needs and an exciting shopping experience in
customer-service-oriented stores which are attractively merchandised,
brightly lit and well-maintained. The Company believes that its name-brand
focus, along with a product mix emphasizing value-priced food and other
everyday household items, increases the frequency of consumer visits and
impulse purchases and reduces the Company's exposure to seasonality and
economic cycles. The Company believes its format appeals to value-conscious
customers in all socio-economic groups and results in a high volume of
sales. The Company's 85 existing 99 Cents Only Stores at March 28, 2000 are
all located in Southern California except for one store located in Las
Vegas Nevada, have an average size of approximately 17,900 square feet. The
Company's 99 Cents Only Stores generated average net sales per estimated
saleable square foot of $332, which the Company believes is among the
highest in the deep-discount store industry, and average net sales per
store of $4.4 million for stores open the full year in 1999.
The Company opened its first 99 Cents Only Store in 1982 and believes
that it operates the nation's oldest existing single price point general
merchandise chain. The Company competes in the deep-discount industry,
which is one of the fastest growing retail sectors in the United States.
The Company significantly increased its rate of store expansion following
its initial public offering in May 1996, expanding its 99 Cents Only Stores
from 36 stores and 332,100 estimated saleable square feet at December 31,
1995 to 78 stores and 1,102,369 estimated saleable square feet at
December 31, 1999, representing a compound annual growth rate ("CAGR") of
22% and 35%, respectively. The Company believes that its attractive
store-level economics facilitates its expansion. Historically, all of the
Company's 99 Cents Only Stores have been profitable within their first year
of operation. Including the scheduled opening of the second store in Las
Vegas Nevada on March 30, 2000, the Company will have opened eight stores
in the first three months of 2000 and plans to open at least an additional
12 net new stores during the remainder of the year. The Company intends to
continue its planned store expansion over the next several years at a
targeted growth rate of approximately 25% per year. The Company estimates
that the Southern California market has the potential for about 200, 99
Cents Only Stores.
The Company also sells merchandise through its Bargain Wholesale
division at prices generally below normal wholesale levels to local,
regional, and national discount, drug and grocery store chains and
independent retailers, distributors and exporters. Bargain Wholesale
complements the Company's retail operations by allowing the Company to
purchase in larger volumes at more favorable pricing, to be exposed to a
broader selection of opportunistic buys and to generate additional sales
with relatively small incremental increases in operating expenses,
contributing to strong overall operating margins for the Company. Bargain
Wholesale represented 13.2% of the Company's net sales in 1999.
Industry
The Company participates primarily in the deep-discount retail
industry, with its 99 Cents Only Stores. Deep discount retail is
distinguished from other retail formats by the purchase of close-out and
other special-situation merchandise at prices substantially below original
wholesale cost, and the subsequent sale of this merchandise at prices
significantly below regular retail. This results in a continually changing
selection of specific brands of products. The deep-discount retail industry
is one of the fastest growing retail sectors in the United States.
The sale of close-out or special-situation merchandise develops in
response to the need of manufacturers, wholesalers and others to distribute
merchandise outside their normal channels. Close-out or special-situation
merchandise becomes available for a variety of reasons, including a
manufacturer's over-production, discontinuance due to a change in style,
color, size, formulation or packaging, the inability to move merchandise
effectively through regular channels, reduction of excess seasonal
inventory, discontinuation of test-marketed items and the financial needs
of the manufacturer.
Many deep-discount retailers also sell merchandise that can be
purchased from a manufacturer or wholesaler on a regular basis. Although
this merchandise can usually be purchased at less than original wholesale
and sold below normal retail, the discount, if any, is generally less than
with close-out merchandise. Deep-discount retailers sell regularly
available merchandise to ensure a degree of consistency in their product
offerings and to establish themselves as a reliable source of basic goods.
Business Strategy
The Company's goal is to continue to provide significant value to its
customers on a wide variety of consumable merchandise in an exciting store
environment. The Company's strategies to achieve this goal include the
following:
Focus on "Name-Brand" Consumables. The Company strives to exceed its
customers' expectations of the range and quality of name-brand consumable
merchandise that can be purchased for 99 Cents. During 1999, the Company
purchased merchandise from more than 999 suppliers, including
Colgate-Palmolive Company, Cheseborough Ponds, The Dial Corp., Eveready
Battery Company Inc., General Electric Company, Gerber Products Company,
The Gillette Company, Hershey Foods Corp., Johnson & Johnson, Kraft General
Foods, Inc., Lever Brothers Company, Mattel Inc., The Mead Corporation,
Nestle, The Pillsbury Company, The Procter & Gamble Company, Revlon Inc.
and SmithKline Beecham Corporation.
Broad Selection of Regularly Available Merchandise. The Company's retail
stores offer consumer items in each of the following staple product
categories: food and beverages, health and beauty aids, household products
(cleaning supplies, paper goods, etc.), housewares (glassware, kitchen
items, etc.), hardware, stationary and party goods, seasonal goods, baby
products and toys, giftware, pet products and clothing. The Company added a
deli and frozen food section in its 99 Cents Only Stores in 1997. The
Company ensures that its merchandise offering is complete by supplementing
its name-brand merchandise with private-label items. By consistently
offering a wide selection of basic household consumable items, the Company
encourages customers to shop the stores for their everyday household needs,
leading to a high frequency of customer visits.
Attractively Merchandised and Well-Maintained Stores. The Company strives
to provide its customers an exciting shopping experience in
customer-service-oriented stores which are attractively merchandised,
brightly lit and well-maintained. The Company's stores are merchandised and
laid out in a "supermarket" format with items in the same category grouped
together. In addition, the shelves are restocked as needed during the day.
By offering merchandise in an attractive, convenient and familiar
environment, the Company believes its stores appeal to a wide demographic
of customers.
Strong Long-Term Supplier Relationships. The Company believes that it has
developed a reputation as a leading purchaser of name-brand, re-orderable
and close-out merchandise at discount prices through its ability to make
immediate buying decisions, experienced buying staff, willingness to take
on large volume purchases and take possession of merchandise immediately,
ability to pay cash or accept abbreviated credit terms, reputation for
prompt payment, commitment to honor all issued purchase orders and
willingness to purchase goods close to a target season or out of season.
The Company's relationship with its suppliers is further enhanced by its
ability to minimize channel conflict for the manufacturer by quickly
selling name-brand merchandise without, if requested by the supplier,
advertising or wholesaling the item. Additionally, the Company believes its
well-maintained, attractively merchandised stores have contributed to a
reputation among suppliers for protecting their brand image.
Complementary Bargain Wholesale Operations. Bargain Wholesale complements
the Company's retail operations by allowing the Company to purchase in
larger volumes at more favorable pricing to be exposed to a broader
selection of opportunistic buys and to generate additional sales with
relatively small incremental increases in operating expenses, contributing
to strong overall operating margins for the Company. Net sales in the
Company's wholesale division grew from $30.3 million in 1995 to $47.7
million in 1999, primarily due to an increased focus on large domestic
accounts and expansion into new geographic markets. The Company opened
showrooms in New York City in February 1997 and Chicago in February 1998 to
support its Bargain Wholesale operation.
Adherence to Disciplined Cost Controls and Savvy Purchasing. The Company
is able to provide its customers with significant value while maintaining
strong operating margins through an adherence to a disciplined cost control
program. The Company purchases merchandise at substantially discounted
prices as a result of its buyers' knowledge, experience and negotiating
ability and its established reputation among its suppliers. The Company
applies this same approach to its relationships with other vendors and
strives to maintain a lean operating environment focused on increasing net
income.
Focus on Larger Stores in Convenient Locations. The Company's 99 Cents
Only stores are conveniently located in freestanding buildings,
neighborhood shopping centers (anchored by 99 Cents Only Stores or
co-anchored with a supermarket and/or a drug store) or downtown central
business districts where consumers are more likely to do their regular
household shopping. The Company's 85 existing 99 Cents Only Stores average
approximately 17,900 gross square feet. Since January 1, 1996, the Company
has opened 49 new stores that average over 20,000 gross square feet and
currently targets new store locations between 15,000 and 30,000 gross
square feet. The Company's larger 99 Cents Only Stores allow it to more
effectively display a wider assortment of merchandise, carry deeper stock
positions and provide customers with a more inviting and convenient
environment that encourages customers to shop longer and buy more. The
Company's decision to target larger stores reflects higher average annual
net sales per store and operating income typically achieved by these
stores.
Experienced Management Team and Depth of Employee Option Grants. 99 Cents
Only Stores' management team has many years of retail experience and has
demonstrated its skills through a proven track record of financial
performance. The Company's management strongly believes that employee
ownership of the Company's stock helps build employee pride in the stores
that significantly contributes to the success of the Company and its
operations. Accordingly, all members of management of the Company (other
than David Gold, the Company's Chief Executive Officer, Howard Gold, Senior
Vice President of Distribution, Jeff Gold, Senior Vice President of Real
Estate and Information Systems, Eric Schiffer, President and Karen Schiffer
Senior Buyer) and all full-time with tenure of more than six months with
the Company receive an annual grant of stock options. As of December 31,
1999, the Company's employees (other than executive officers) held options
to purchase an aggregate of 3,075,066 shares, or over 9.0% of the fully
diluted shares of Common Stock outstanding.
Growth Strategy
Management believes that future growth will primarily result from new
store openings facilitated by the following:
Southern California has Significant Potential for Growth. By continuing to
focus 99 Cents Only Store openings in Southern California for the immediate
future, the Company can leverage its brand awareness in the region and take
advantage of its existing warehouse and distribution facility, regional
advertising and other management and operating efficiencies. The Company's
growth strategy in Southern California will focus on opening locations in
existing markets as well as expanding into markets adjacent to those
currently served. The Company now operates eight 99 Cents Only Stores in
San Diego County and one in Las Vegas Nevada. The Company has plans to open
at least 20 net new 99 Cents Only Stores in 2000 (a net increase of 25%),
all in the Southern California and Las Vegas, Nevada area. Including the
scheduled opening of the second store in Las Vegas Nevada on March 30,
2000, the Company will have opened eight stores in the first three months
of 2000. The company plans to open at east an additional 12 new stores
during the remainder of the year. As of March 28, 2000, the Company has
secured sites for eight additional store locations and has signed 12
letters of intent to lease prospective store sites. Generally, the Company
expects that at least 50% of the letters of intent will materialize. The
Company intends to continue its planned store expansion over the next
several years at a targeted rate of approximately 25% per year. The Company
estimates that the Southern California market has the potential for about
200, 99 Cents Only Stores.
Portable Format Facilitates Geographic Expansion. The Company believes
that its concept of consistently offering a broad selection of name-brand
consumables, at value pricing, in a convenient store format is portable to
most other densely populated areas of the country. In November 1999 the
Company opened its first 99 Cents Only Stores outside the state of
California in Las Vegas Nevada. Subsequently, the store has performed above
Company expectations and has been one of the Company's top performing
stores.
Acquisitions. The Company considers acquisition opportunities as they are
presented to the Company and may make acquisitions of a chain, or chains,
of clustered retail sites in densely populated regions.
Recent Developments
Universal International. The Company has determined it would be in its best
interest, and that of its shareholders, to focus its efforts on increasing
the growth rate of 99 Cents Only Stores, which over the past five years has
yielded operating margins averaging 13.4%. In conjunction with this revised
growth strategy, the Company also has decided to sell its Universal
subsidiary. Universal operates a multi-price point variety chain, with 65
stores located in the Midwest, Texas and Upstate New York, under the trade
names Only Deals and Odd's-N-End's. There were several other factors which
were considered in making this decision. The Company had a successful
opening of its first 99 Cents Only Stores outside the state of California
in Las Vegas, Nevada. The Company believes the success of the Las Vegas
store helps to prove that the 99 Cents Only Stores concept is portable to
areas outside the State of California. As a result, the Company will focus
greater management resources to expand more rapidly in Nevada and into
Arizona.
Universal incurred an operating loss of $2.7 million in the fourth
quarter of 1999 versus a marginal profit of $0.2 million in 1998 and its
results were below the Company's expectations. Universal's business is
seasonal and historically the fourth quarter was relied upon to achieve all
of its income goals. In the fourth quarter Universal was unable to achieve
historical gross margin goals and sustained inventory markdowns in efforts
to generate sales volume. In addition, Universal incurred additional
advertising and distribution costs compared to plan, for the stores located
in Texas, New York and areas outside the local distribution point of
Minneapolis, Minnesota.
The Company has adopted a definitive plan to sell Universal. The
Company plans to engage an investment-banking firm to evaluate and identify
potential buyers for the Universal business. The Company expects to sell
Universal to a strategic buyer within one year. The Company has $26.9
million of net assets of discontinued business at December 31, 1999. The
value of Universal's net assets at December 31, 1999 includes $30.0 million
in inventory, net fixed assets of $8.0 million and $2.1 million of other
assets offset by $4.2 million of accounts payable and accrued liabilities.
The Company's estimated net loss on the disposition of Universal of
$9.0 million, includes the estimated net realizable value of the business,
net of estimated disposal costs and the estimated loss of $1.2 million from
the results of operation for Universal to the disposal date reduced by a
tax benefit of $2.6 million. This $9.0 million estimated net loss on the
disposition of Universal has also been offset against the net assets of the
discontinued business.
Retail Operations
The Company's retail stores offer customers a wide assortment of
regularly available consumer goods, as well as a broad variety of
first-quality, close-out merchandise, generally at a significant discount
from normal retail. All merchandise sold in the Company's 99 Cents Only
Stores retail stores sells for 99 cents per item or two or more items for
99 cents. The Company strives to exceed its customers' expectations of the
range and quality of name-brand consumables that can be purchased for 99
cents.
The following table sets forth relevant information with respect to the
growth of the Company's existing 99 Cents Only Stores operations (dollar
amounts in thousands, except sales per square foot):
Year Ended December 31,
1995 1996 1997 1998 1999
99 Cents Only Stores
net retail sales $121,9 $143,1 $186,0 $238,8 $312,30
98 63 24 68 6
99 Cents Only Stores
annual net sales
growth rate 10.2% 17.3% 29.9% 28.4% 30.7%
99 Cents Only Stores
store count at
beginning of year 34 36 43 53 64
New stores 4 8 10 13 18
Stores closed 2(a) 1(a) - 2(a) 4(a)
Total store count at
year end 36 43 53 64 78
Average 99 Cents Only
Stores net sales per
store open the full
year(b) $3,467 $3,667 $3,750 $4,147 $4,433
Estimated saleable
square footage at
year end for 99 Cents 332,10 455,20 631,50 822,90 1,102,3
Only Stores 0 0 0 0 69
Average net sales per
estimated saleable
square foot(b) $397 $389 $354 $335 $332
Change in comparable 99
Cents Only Stores net
sales(c) (0.2)% 2.8% 1.5% 4.3% 6.1%
(a) Stores closed due to relocation to a larger nearby site.
(b) For stores open for the entire fiscal year for 99 Cents Only Stores.
(c) 99 Cents Only Stores for the years 1995 and 1996 change in comparable
stores net sales, compares net sales for stores open for the entire
two years. Commencing in 1997, change in comparable stores net sales
compares net sales for all stores open at least 15 months.
Merchandising. All of the Company's stores offer a broad variety of
first-quality, name-brand and other close-out merchandise as well as a wide
assortment of regularly available consumer goods. The Company also carries
a line of private label consumer products made exclusively for the Company.
The Company believes that the success of its 99 Cents Only Stores concept
arises from the value inherent in selling primarily name-brand consumables,
most of which retail elsewhere from $1.20 to $10.00, for only 99 cents per
item or group of items. Each store typically carries over five thousand
different stock keeping units (SKU). The merchandise sold in the Company's
stores primarily consists of a wide variety of basic consumer items
including beverages and food, health and beauty aids and household products
(cleaning supplies, paper goods, etc.). The stores also carry housewares
(glassware, kitchen items, etc.), hardware, stationary and party goods,
seasonal, baby products and toys, giftware, pet products and clothing. In
1997, the Company added a deli and frozen foods section to substantially
all 99 Cents Only Stores.
While each of the Company's stores regularly carry a variety of basic
household consumer items, the stores differ from typical discount retail
stores in that they do not continuously stock complete lines of
merchandise. Although a majority of the merchandise purchased by the
Company is available for reorder, the mix of specific brands of merchandise
frequently changes, depending upon the availability of close-out and other
special-situation merchandise at suitable prices. Since commencing its
close-out purchasing strategy in 1976, the Company has not experienced
difficulty in obtaining name-brand close-outs as well as re-orderable
merchandise at attractive prices. Management believes that continuously
changing specific name-brands found in its stores from one week to the next
encourages impulse and larger volume purchases, results in customers
shopping more frequently and helps to create a sense of urgency, awareness
and excitement. Unlike many discount retailers, the Company rarely imposes
limitations on the quantity of specific items that may be purchased by a
single consumer.
The Company targets value-conscious consumers from a wide range of
socio-economic backgrounds with diverse demographic characteristics.
Purchases are by cash, credit or debit card. The Company's stores do not
accept checks or manufacturers' coupons. The Company's stores are open
every day (except Christmas Day) with opening hours designated to meet the
needs of family consumers. The Company advertises that its stores are open
"9:00 a.m. to 9:00 p.m., 9 days a week!."
Store Size, Layout and Locations. As of March 28, 2000 the Company's 85
existing 99 Cents Only Stores are all located in Southern California except
for one store located in Las Vegas, Nevada, and average over 17,900 gross
square feet. Since January 1, 1996, the Company has opened 49 new stores
(including one in 1996, two in 1998 and four in 1999) that average over
20,000 gross square feet and currently targets new store locations between
15,000 and 30,000 gross square feet. The Company's larger 99 Cents Only
Stores allow it to more effectively display a wider assortment of
merchandise, carry deeper stock positions and provide customers with a more
inviting and convenient environment that encourages customers to shop
longer and buy more. The Company's decision to target larger stores
reflects higher average annual store revenues typically achieved by these
stores.
The Company's stores are conveniently located in freestanding
buildings, neighborhood shopping centers (anchored by 99 Cents Only Stores,
a supermarket and/or a drug store) or downtown central business districts
where consumers are more likely to do their regular household shopping. The
stores are located primarily in more densely populated, demographically
diverse neighborhoods. The Company's 85 existing 99 Cents Only Stores are
located in California and Nevada: 84 in six counties in Southern California
and one in Las Vegas, Nevada.
The Company's stores are attractively merchandised, brightly lit,
well-maintained, "destination" locations. The layout of each of the
Company's stores is customized to the actual size and configuration of the
individual location. The interior of each store is, however, designed to
reflect a uniform format, featuring attractively displayed products in
windows, consistent merchandise display techniques, bright lighting, lower
shelving height that allows unobstructed visibility throughout the store,
distinctive color scheme, interior and exterior signage and customized
check-out counters, floors, price tags, shopping carts and shopping bags.
The Company emphasizes a strong visual presentation in all key traffic
areas of the store. Merchandising displays are maintained throughout the
day, change frequently and often incorporate seasonal themes. The Company
believes that due to the continuously changing brand-names, the lower
shelving height and the absence of aisle description signs, the typical
customer tends to shop the whole store.
The Company leases 77 of its 85 99 Cents Only Stores retail locations.
The Company typically seeks leases with an initial five to ten year term
with one or more five year options. See "Item 2. Properties." The Company
identifies potential sites through a network of contacts within the
brokerage and real estate communities, information provided by vendors,
customers and employees and through the efforts of the Company's real
estate department. Most leases have renewal options ranging from three to
ten years.
As part of its strategy to expand retail operations, the Company has,
at times, opened new stores in close proximity to existing stores where the
Company determined that the trade area could support a larger facility. In
some of these situations, the Company retained its existing store so long
as it continued to contribute store-level operating income. While this
strategy was designed to increase revenues and store-level operating
income, it has had a negative effect on comparable stores net sales as some
customers migrated from the existing store to the close-by larger new
store. Except for nine relocations to a larger stores, the Company has
never closed one of its 99 Cents Only Stores.
Store Management. Substantially all merchandise decisions with respect to
pricing and advertising are made at the Company's headquarters. The Company
employs 16 district managers responsible for store operations. Each
district manager is responsible for up to seven stores. Reporting to each
district manager is one merchandising supervisor responsible for store
merchandising in that district. The store managers also report to the
district manager. These district managers are supervised by the Company's
Vice President of Retail Operations. District managers visit each store in
their district at least twice a week and focus on the implementation of the
Company's policies, operations and merchandising philosophy. District
managers also help train store management and assist store management with
scheduling. The Vice President of Retail Operations also supervises a
cashiers' training school and store management training classes located at
the Company's corporate offices. Each merchandising supervisor and his crew
(usually six to ten experienced stock people) visit each of the stores at
least once a week and help the store managers to maintain and improve the
appearance of the sales floor, move merchandise sections, organize the
stockroom and train store personnel. Typically the Company's stores are
staffed with a manager and two or three assistant managers. Store managers
are responsible for assessing their respective store's stocking needs and
ordering accordingly.
Advertising. Advertising expenditures were $2.0 million, $2.4 million and
$2.4 million for 1997, 1998 and 1999, respectively, or 0.9%, 0.8% and 0.7%
of net sales, respectively. The Company manages its advertising without the
assistance of an outside agency. The Company allocates the majority of its
advertising budget to newspaper and radio advertising. The Company's
advertising strategy emphasizes the offering of nationally recognized,
name-brand merchandise at significant savings. The Company minimizes its
advertising expenditures by an efficient implementation of its advertising
program combined with word-of-mouth publicity, locations with good
visibility and efficient signage. Because of the Company's distinctive
grand opening promotional campaign, which includes the sale of nine
televisions for 99 cents each and nine microwave ovens for 99 cents each,
grand openings often attract long lines of customers and receive media
coverage. The Company believes that one of its biggest challenges is
attracting affluent customers to shop its stores. The Company also uses a
direct mail campaign for new customers who are homeowners in more upscale
neighborhoods. The Company believes the direct mail campaign has been
successful in attracting new customers.
Bargain Wholesale
In 1999, Bargain Wholesale sold merchandise to over 999 customers,
including other wholesalers, small local retailers, large regional and
national retailers and exporters. During 1999, no single customer accounted
for more than 4% of Bargain Wholesale's net sales. The Company advertises
its wholesale operations primarily through direct mail. The Company plans
to continue to expand its wholesale operations by continuing its focus on
the needs of large domestic and international accounts, expansion into new
geographic markets, increasing its marketing and promotional programs,
increasing the number of trade shows at which it exhibits, focusing on its
showrooms in Chicago and New York City, enhancing customer service and
aggressively contacting its customers on a more frequent basis through
telephone, facsimile and mail.
The Company's wholesale product line is substantially similar to its
retail product line, although the Company has seen strong growth in re-
orderable and private label merchandise within its wholesale operations.
Bargain Wholesale has had success with a program to provide merchandise for
the "dollar" promotional aisles of certain supermarkets and drugstores. The
Company offers 15-day payment terms to its Bargain Wholesale customers who
meet the Company's credit standards. Customers located abroad, certain
smaller customers or others who do not meet the Company's credit standards
must pay cash upon pickup or before shipment of merchandise.
Bargain Wholesale complements the Company's retail operations by
allowing the Company to purchase in larger volumes at more favorable
pricing, to be exposed to a broader selection of opportunistic buys and to
generate additional net sales with relatively small incremental increases
in operating expenses contributing to strong overall margins for the
Company. Bargain Wholesale also allows the Company to purchase goods which
it would not otherwise purchase for distribution through its 99 Cents Only
Stores and provides the Company with a channel by which it may distribute
merchandise at prices other than 99 Cents.
Bargain Wholesale conducts its wholesale operations through its 15,000
square foot product showroom located at the Company's warehouse and
distribution facility. The Company's showrooms in New York and Chicago also
continue to support Bargain Wholesale's operations.
Purchasing
The Company's purchasing department staff consists of twelve buyers
managed by the Company's Vice President of Purchasing. The Company's Chief
Executive Officer also participates in the Company's purchasing activities.
The Company's buyers purchase for 99 Cents Only Stores and Bargain
Wholesale. The Company believes a primary factor contributing to its
success is its ability to identify and take advantage of opportunities to
purchase merchandise with high customer interest at lower than regular
wholesale prices. The Company purchases most of its merchandise directly
from the manufacturer. The Company's other sources of merchandise include
wholesalers, manufacturers' representatives, importers, barter companies,
auctions, professional finders and other retailers. The Company develops
new sources of merchandise primarily by attending industry trade shows,
advertising, marketing brochures and referrals.
The Company has no continuing contracts for the purchase of
merchandise and must continuously seek out buying opportunities from both
its existing suppliers and new sources. No single supplier accounted for
more than 2% of the Company's total purchases in 1999. During 1999, the
Company purchased merchandise from more than 999 suppliers, including
Colgate-Palmolive Company, Cheseborough Ponds, The Dial Corp., Eveready
Battery Company Inc., General Electric Company, Gerber Products Company,
The Gillette Company, Hershey Foods Corp., Johnson & Johnson, Kraft General
Foods Inc., Lever Brothers Company, Mattel Inc., The Mead Corporation,
Nestle, The Pillsbury Company, The Procter & Gamble Company, Revlon Inc.
and SmithKline Beecham Corporation. Many of these companies have been
supplying products for the Company in excess of ten years.
A significant portion of the merchandise purchased by the Company in
1999 was close-out or special-situation merchandise. The Company has
developed strong relationships with many manufacturers and distributors
that recognize that their special-situation merchandise can be moved
quickly through the Company's retail and wholesale distribution channels.
The sale of close-out or special-situation merchandise develops in response
to the need of manufacturers, wholesalers and others to distribute
merchandise outside their normal channels. The Company's buyers search
continuously for close-out opportunities. The Company's experience and
expertise in buying merchandise has enabled it to develop relationships
with many manufacturers that often offer some or all of their close-out
merchandise to the Company prior to attempting to sell it through other
channels. The key elements to these supplier relationships include the
Company's (i) ability to make immediate buy decisions, (ii) experienced
buying staff, (iii) willingness to take on large volume purchases and take
possession of merchandise immediately, (iv) ability to pay cash or accept
abbreviated credit terms, (v) reputation for prompt payment,
(vi) commitment to honor all issued purchase orders and (vii) willingness
to purchase goods close to a target season or out of season. The Company's
relationship with its suppliers is further enhanced by its ability to
minimize channel conflict for the manufacturer by quickly selling
name-brand merchandise without, if requested by the supplier, advertising
or wholesaling the item. The Company believes this reputation, along with
its well-maintained, attractively merchandised stores have contributed to a
reputation among suppliers for protecting their brand image.
In 1999, re-orderable merchandise accounted for a majority of the
Company's purchases. The Company's strong relationships with many
manufacturers and distributors, along with its ability to purchase in large
volumes, also enable the Company to purchase re-orderable name-brand goods
at discounted wholesale prices. The Company focuses its purchases of re-
orderable merchandise on a limited number of SKUs, which allows the Company
to make purchases in large volumes.
The Company is continuously developing new private label consumer
products to broaden the assortment of merchandise that is consistently
available. The Company also has an in-house import operation which
primarily purchases re-orderable merchandise. The Company imports products
mainly from Southeast Asia. Merchandise directly imported by the Company
accounted for approximately 6% of total merchandise purchased in 1999. The
Company primarily imports merchandise in product categories which are not
brand sensitive to consumers such as kitchen items, housewares, toys,
seasonal products, petcare and hardware.
Warehousing and Distribution
The Company maintains an 880,000 square foot, single level warehouse
and distribution facility located on approximately 23 acres in the City of
Commerce, California. The Company's headquarters are also located in this
facility. The site is located near downtown Los Angeles and has close
access to the Southern California freeway and rail systems and the ports of
Los Angeles and Long Beach. Most of the Company's merchandise is shipped by
truck directly from manufacturers and other suppliers to the Company's
warehouse and distribution facility. As part of its distribution network,
the Company owns a fleet of 36 tractors and 55 trailers, which are
primarily used to deliver merchandise to its stores. Full truck deliveries
are made from its distribution center to each store typically four times a
week. Product is delivered to a store the day after the store places a
scheduled order. Most of the merchandise is requested by the store (i.e.,
ordered by the store manager) as opposed to being determined by the
distribution center (i.e., sent by order of the Company's distribution
personnel). The Company attempts to optimally utilize its fleet by a
combination of filling outbound trucks to capacity and instituting a
backhaul program whereby products are picked up from suppliers in
conjunction with deliveries to stores in the same general area. Backhauls
accounted for approximately half of all merchandise picked up by the
Company's trucks. The Company also uses its own vehicles to pick up certain
shipments at local ports and rail yards. The Company is currently seeking a
satellite warehouse for storage of excess one-time close-out purchases and
seasonal or holiday items. However, the Company believes that its current
warehouse and distribution facility will be able to support distribution to
approximately 200 additional stores in Southern California. There can be no
assurance that the Company's existing warehouse will provide adequate
storage space for the Company's long-term storage needs.
Information Systems
The Company's business is currently supported by a standard accounting
and financial reporting system utilizing a PC-based local area network
(LAN) and a separate customized inventory control system. The Company's
inventory management system is being upgraded to incorporate radio
frequency (RF) technology to track all inventory received at the Company's
distribution center. This will enable management to improve receiving and
picking efficiency as well as improving replenishment of re-orderable
items. The receiving module of this RF system will be installed in the
second quarter of 2000. A new store ordering system was installed in 1999
that utilizes a hand held scanning device. This system is a customized
system and has improved the overall order processing turn around time as
well as reducing out of stock at the stores. This system is processed from
the back office PC system at the individual retail stores. The Company will
also install a Wide Area Network (WAN) during the second quarter of 2000 to
improve voice and data communications among the stores, the warehouse and
the administrative functions. Among other things, the WAN will help improve
response time for credit card authorization, store level inventory review
and shipping notification. Other upcoming initiatives include a pilot test
of point-of-sale technology to determine the feasibility of Company-wide
roll out. This one store test will take place sometime during the latter
half of 2000.
The Company's Information Systems staff is comprised of 12 employees.
The Company believes that its management information systems and inventory
control systems along with the initiatives indicated above will be adequate
to support the Company's current needs. The Company intends to continue to
enhance its systems to support its future planned store growth and to take
advantage of new proven technology.
Competition
The Company faces competition in both the acquisition of inventory and
sale of merchandise from other wholesalers, discount stores, single price
point merchandisers, mass merchandisers, food markets, drug chains, club
stores and other retailers. Industry competitors also include a large
number of privately held companies and individuals. In some instances these
competitors are also customers of the Company's Bargain Wholesale division.
There is increasing competition with other wholesalers and retailers,
including other deep-discount retailers, for the purchase of quality
close-out and other special-situation merchandise. Some of these
competitors have substantially greater financial resources and buying power
than the Company. The Company's ability to compete will depend on many
factors including the success of its purchase and resale of such
merchandise at lower prices than the competition. The Company may face
intense competition in the future from new entrants in the deep-discount
retail industry, among others, that could have an adverse effect on the
Company's business and results of operations.
Employees
At December 31, 1999, the Company had 3,222 employees: 2,805 in its
retail operation, 272 in its warehouse and distribution facility, 129 in
its corporate offices and 16 in its wholesale division. None of the
Company's employees is party to a collective bargaining agreement. The
Company considers relations with its employees to be good. The Company
offers certain benefits, including health insurance, 401(k) benefits to its
full time employees and an executive deferred compensation plan. All
members of management of the Company (other than David Gold, the Company's
Chief Executive Officer, Howard Gold, Senior Vice President of
Distribution, Jeff Gold, Senior Vice President of Real Estate and
Information Systems, Eric Schiffer, President and Karen Schiffer, Senior
Buyer) and all full-time employees, with tenure of more than six months
with the Company receive an annual grant of stock options.
Trademarks and Service Marks
"99 Cents Only Stores", and "99 Cents" are registered service marks of
the Company and are listed on the United States Patent and Trademark Office
Principal Register. "Bargain Wholesale" is a service mark used by the
Company. Management believes that the Company's trademarks, service marks
and trade names are an important but not critical element of the Company's
merchandising strategy.
Environmental Matters
Under various federal, state and local environmental laws and
regulations, a current or previous owner or occupant of real property may
become liable for the costs of removal or remediation of hazardous
substances at such real property. Such laws and regulations often impose
liability without regard to fault. As of March 28, 2000, the Company leased
77 of its 85 existing 99 Cents Only Stores, as well as its warehouse and
distribution facilities (where its executive offices are located). The
Company currently intends to exercise an option to purchase the warehouse
and distribution facility in Commerce, California, in December 2000, the
end of the lease term. In connection with such properties, the Company
could be held liable for the costs of remedial actions with respect to
hazardous substances. In addition, the Company operates one underground
diesel storage tank and one above-ground propane tank at its warehouse and
distribution facility. Although the Company has not been notified of, and
is not otherwise aware of, any specific current environmental liability,
claim or non-compliance, there can be no assurance that the Company will
not be required to incur redemption or other costs in the future in
connection with its leased properties or its storage tanks or otherwise. In
the ordinary course of its business, the Company from time to time handles
or disposes of ordinary household products that are classified as hazardous
materials under various federal, state and local environmental laws and
regulations. The Company has adopted policies regarding the handling and
disposal of these products, and has implemented a training program for
employees on hazardous material handling and disposal. There can be no
assurance, however, that such policies or training will be successful in
assisting the Company in avoiding violations of environmental laws and
regulations relating to the handling and disposal of such products in the
future.
Item 2. Properties
As of March 28, 2000, the Company leased 77 of its 85 store locations.
The Company currently leases 12 store locations and a parking lot
associated with one of these stores from David Gold, the Company's Chief
Executive Officer and certain members of his Family.
Management believes that the Company's stable operating history,
excellent credit history and ability to generate substantial customer
traffic give the Company significant leverage when negotiating lease terms.
Most of the Company's leases provide for fixed rents, subject to periodic
adjustments. Certain of the Company's store leases contain provisions that
grant the Company a right of first refusal to acquire the subject site.
The following table sets forth, as of the date of this filing,
information relating to the expiration dates of the Company's current
retail stores leases assuming the exercise of all options to extend:
Expiri Expirin Expirin Expiring
ng g g 2006
2000 2001-20 2003-20 and Beyond
02 05
1(a) - 4 72
(a) An older smaller store leased on a month to month basis.
The Company has purchased eight locations, one opened in 1996, two in
1997, one in 1998, three in 1999 and one already existing store (Pico #13).
The Company may also purchase other locations in the future.
The Company leases its warehouse and distribution facilities. The
Company's executive offices are also located in the City of Commerce,
California facility. In December 1993, the Company entered into a seven
year, triple net lease agreement with a purchase option, which is accounted
for on the Company's financial statements as a capitalized lease
obligation. The lease included the Company's initial payment of $2.75
million and eighty-four monthly payments of $70,000. As part of the lease
agreement, the Company received $500,000 in 1993 and $1.0 million in 1994
to apply to renovation costs. The facility's fire prevention and lighting
systems were completely upgraded. A state-of-the-art sprinkler system,
hundreds of new smoke-vents (skylights) and energy efficient lighting with
motion detectors were installed. The Company has the option to purchase the
property for $10.5 million at the end of the lease and the Company
currently intends to exercise the option in the fourth quarter of 2000. If
the Company does not exercise the purchase option, the Company will be
subject to a $7.6 million penalty.
Item 3. Legal Proceedings
The Company is periodically subject to legal actions, which arise in
the ordinary course of its business. The Company does not believe that any
pending action is materially adverse to its results of operations or
financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The Common Stock is traded on the New York Stock Exchange under the
symbol "NDN." The following table sets forth, for the calendar periods
indicated, the high and low closing prices per share of the Common Stock as
reported by the New York Stock Exchange. The Common Stock was not publicly
traded prior to the Company's initial public offering on May 23, 1996. All
stock prices have been restated to reflect a four-for-three stock split
effected in the form of stock dividend paid on February 9, 2000.
Price Range
High Low
1998:
First Quarter $23.7 $16.2
1 0
Second Quarter 26.00 20.37
Third Quarter 28.09 21.08
Fourth Quarter 36.86 22.06
1999:
First Quarter $36.8 $29.8
8 1
Second Quarter 37.63 30.75
Third Quarter 38.19 25.81
Fourth Quarter 28.69 18.88
2000:
First Quarter through March 28, 2000 37.00 23.25
The closing price as reported on March 28, 2000 on the New York Stock
Exchange is set forth on the cover page of this Form 10K. As of March 28,
2000, the Company had approximately 10,924 holders of the Common Stock
including 489 shareholders of record.
The Company has not paid any cash dividends with respect to the Common
Stock. The Company presently intends to retain future earnings to finance
its development and expansion and therefore does not anticipate the payment
of any cash dividends in the foreseeable future. Payment of future
dividends, if any, will depend upon future earnings and capital
requirements of the Company and other factors, which the Board of Directors
considers appropriate.
Item 6. Selected Financial Data
The following table sets forth selected financial and operating data
of the Company for the periods indicated. The following selected statement
of operations data for each of the three years ended December 31, 1997,
1998, and 1999, and the balance sheet data as of December 31, 1998 and 1999
are derived from the financial statements and the notes thereto included
elsewhere herein audited by Arthur Andersen LLP, independent public
accountants, as set forth in their report also included elsewhere herein.
The selected statements of operations data for the year ended December 31,
1995 and 1996, and the balance sheet data as of December 31, 1995, 1996 and
1997 are derived from financial statements audited by Arthur Andersen LLP
not included herein. The following information should be read in
conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Financial Statements of the
Company and notes thereto included elsewhere in this report.
Year Ended December 31,
1995 1996 1997 1998 1999
(Amounts in thousands, except per share and
operating data)
Statement of Operations Data:
Net sales:
99 Cents Only Stores $121,998 $143,163 $186,024 $238,868 $312,306
Other retail sales(a) 492 - - - -
Bargain Wholesale(h) 30,337 40,480 44,831 53,202 47,652
Total 152,827 183,643 230,855 292,070 359,958
Cost of sales 102,160 120,922 146,797 183,044 218,496
Gross profit 50,667 62,721 84,058 109,026 141,462
Selling, general and
administrative expenses:
Operating expenses 32,169 37,683 49,850 62,424 80,089
Depreciation and 1,640 2,009 2,989 4,506 5,927
amortization
Total operating expenses 33,809 39,692 52,839 66,930 86,016
Operating income 16,858 23,029 31,219 42,096 55,446
Interest (income) expense, 755 (126) (855) (1,428) (1,059)
net
Income from continuing
operations before provision
for income taxes 16,103 23,155 32,074 43,524 56,505
Provision for income
taxes(b):
Pro forma 6,509 9,453 - - -
Historical 156 2,418 13,124 17,032 22,367
Income from continuing
Operations(b):
Pro forma 9,594 13,702 - - -
Historical 15,947 20,737 18,950 26,492 34,138
(Continued from previous page)
Year Ended December 31,
1995 1996 1997 1998 1999
(Amounts in thousands, except per share and
operating data)
Income(loss) from
discontinued operation net
of income tax provision of
$910 and income tax benefit - - - 201 (3,167)
of $2,111.........
Loss from disposal of
discontinued operation
including a provision of
$1,200 for operating losses
during the phase-out
period, net of income tax - - - - (9,000)
benefit of $2,613.........
Net income $15,947 $20,737 $18,950 $26,693 $21,971
Earnings per common share
from continuing
operations (b)(g):
Pro forma-Basic $0.46 $0.51 - - -
Pro forma-Diluted $0.46 $0.47 - - -
Historical-Basic $0.77 $0.77 $0.61 $0.82 $1.03
Historical-Diluted $0.77 $0.71 $0.61 $0.81 $1.00
Earnings (loss) per common
share from discontinued
operations(b)(g):
Historical-Basic - - - $0.01 ($0.10)
Historical-Diluted - - - $0.01 ($0.09)
Earnings (loss) per common
share from disposal of
discontinued
operations(b)(g):
Historical-Basic - - - - ($0.27)
Historical-Diluted - - - - ($0.26)
Earnings per common share
(b)(g):
Pro forma-Basic $0.46 $0.51 - - -
Pro forma-Diluted $0.46 $0.47 - - -
Historical-Basic $0.77 $0.77 $0.61 $0.83 $0.66
Historical-Diluted $0.77 $0.71 $0.61 $0.82 $0.65
Weighted average number of
common shares outstanding:
Pro forma-Basic 20,685 26,839 - - -
Pro forma-Diluted (c) 20,685 29,332 - - -
Historical-Basic 20,685 26,839 30,904 32,045 33,252
Historical-Diluted 20,685 29,332 31,260 32,751 33,985
Company Operating Data:
Sales Growth
99 Cents Only Stores 10.2% 17.3% 29.9% 28.4% 30.7%
Bargain Wholesale(h) 60.4 33.4 10.8 18.7 (10.0)
Total Company sales 16.0 20.2 25.7 26.5 23.2
Gross margin 33.2 34.2 36.4 37.3 39.3
Operating margin 11.0 12.6 13.5 14.4 15.4
Income from continuing
operations:
Pro forma 6.3 7.5 - - -
Historical 10.4 11.3 8.2 9.1 9.5
(Continued from previous page)
As of December 31,
1995 1996 1997 1998 1999
Retail Operating Data(d):
99 Cents Only Stores at end
of period 36 43 53 64 78
Change in comparable stores
net sales 99 Cents Only (0.2)% 2.8% 1.5% 4.3% 6.1%
Stores(e)
Average net sales per store
open the full year - 99
Cents Only Stores $3,467 $3,667 $3,750 $4,147 $4,433
Average net sales per
estimated saleable square
foot - 99 Cents Only Stores $397 $389 $354 $335 $332
(f)
Estimated saleable square
footage at year end - 99
Cents Only Stores 332,100 455,200 631,500 822,900 1,102,36
9
Balance Sheet Data:
Working capital $28,690 $58,822 $60,791 $81,439 $105,637
Total assets 57,598 98,997 119,443 194,167 224,015
Long-term debt - - - - -
Capital lease obligation,
including current portion 9,977 9,366 8,709 8,005 7,251
Total shareholders' equity $35,558 $76,505 $96,308 $164,365 $195,540
(a) The Company operated other stores during the periods presented under
different trade names pending conversion to 99 Cents Only Stores
format or their eventual closing. Only one such store was operated by
the Company in 1995 and that store was closed in May 1995.
(b) Prior to May 1, 1996 the Company was treated as an S corporation for
federal and state income tax purposes. The presentation for 1995-1996
reflects a pro forma provision for income taxes as if the Company had
always been a C corporation, at an assumed effective tax rate of
41.0%, plus the effect of deferred taxes and tax credits.
(c) Diluted weighted average common equivalent shares in 1996 include
1,362,000 shares to fund certain notes issued and dividends payable
declared to then existing shareholders, in connection with the
termination of the Company's status as an S corporation.
(d) Includes retail operating data solely for the Company's 99 Cents Only
Stores.
(e) For the years 1995-1996, change in comparable stores net sales
compares net sales for stores open the entire two periods compared.
Commencing in 1997, change in comparable stores net sales compares net
sales for all stores open at least 15 months.
(f) Computed based upon estimated total saleable square footage of stores
open for the entire period.
(g) All earnings per share amounts have been restated to reflect the
adoption of SFAS No. 128, "Earnings per Share," effective December 15,
1997.
(h) In 1998, Bargain Wholesale sales includes $12.0 million of inter-
company sales to Universal billed at cost.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in connection
with "Item 6. Selected Financial Data," and "Item 8. Financial Statements."
General
The Company has been engaged since 1976 in the purchase and sale of
name-brand, close-out and regularly available general merchandise. Since
that time, the Company has sold its merchandise on a wholesale basis
through its Bargain Wholesale division. On August 13, 1982, the Company
opened its first 99 Cents Only Stores location and as of March 28, 2000,
operates a chain of 85 deep-discount 99 Cents Only Stores. The Company's
growth during the last three years has come primarily from new store
openings. The Company opened ten, thirteen and eighteen stores in 1997,
1998 and 1999, respectively (ten, eleven and fourteen respectively, net of
relocated stores). Including the scheduled opening of the Company's second
store in Las Vegas, Nevada on March 30, 2000, the Company will have opened
eight stores in the first three months of the year 2000, seven in Southern
California and one in Las Vegas, Nevada. The Company plans to open at least
12 additional net new stores during the remainder of the year. The Company
has secured sites for eight additional store locations.
Bargain Wholesale's growth over the three years ended December 31,
1999 was primarily attributable to an increased focus on large domestic
accounts and expansion into new geographic markets. The Company generally
realizes a lower gross profit margin on Bargain Wholesale's net sales
compared to its retail net sales. However, Bargain Wholesale complements
the Company's retail operations by allowing the Company to purchase in
larger volumes at more favorable pricing and to generate additional net
sales with relatively small incremental increases in operating expenses.
Comparable stores net sales have improved since the Company's initial
public offering in May 1996. The Company believes that this trend has
resulted in part from its expansion strategies. In the past, as part of its
strategy to expand retail operations, the Company has at times opened
larger new stores in close proximity to existing stores where the Company
determined that the trade area could support a larger store. In some of
these situations, the Company retained its existing store so long as it
continued to contribute store-level operating income. While this strategy
was designed to increase revenues and store-level operating income, it has
had a negative impact on comparable store net sales as some customers
migrated from the existing store to the larger new store. The Company
believes that this strategy has impacted its historical comparable sales
growth.
During the three years in the period from January 1, 1997 to
December 31, 1999, average net sales per estimated saleable square foot
(computed on 99 Cents Only Stores open for a full year) declined from $397
per square foot to $332 per square foot. This trend reflects the Company's
determination to target larger locations for new store development.
Existing stores average approximately 17,900 gross square feet. Since
January 1, 1996, the Company has opened 49 new stores (including one
relocation in 1996, two in 1998 and four in 1999) that average over 20,000
gross square feet. The Company currently targets new store locations
between 15,000 and 30,000 gross feet. Although it is the Company's
experience that larger stores generally have lower average net sales per
square foot than smaller stores, larger stores generally achieve higher
average annual store revenues and operating income.
99 Cents Only Stores has increased its net sales, operating income and
net income in each of the last five years. In 1999 it had net sales of
$360.0 million, operating income of $55.4 million and income from
continuing operations of $34.1 million before a charge of $12.2 million
from the discontinued operation, representing a 23.2%, 31.7% and 28.9%
increase over 1998, respectively. From 1995 through 1999, the Company had a
compounded annual growth rate in net sales, operating income and net income
of 23.9%, 34.7% and 21.0%, respectively.
Recent Developments
Universal International. The Company has determined it would be in its best
interest, and that of its shareholders, to focus its efforts on increasing
the growth rate of 99 Cents Only Stores, which over the past five years has
yielded operating margins averaging 13.4%. In conjunction with this revised
growth strategy, the Company has decided to sell its Universal subsidiary.
Universal operates a multi-price point variety chain, with 65 stores
located in the Midwest, Texas and Upstate New York, under the trade names
Only Deals and Odd's-N-End's. Among other factors which were considered in
making this decision was the Company's successful opening of its first 99
Cents Only Stores outside the state of California in Las Vegas Nevada. The
success of the Las Vegas, Nevada store helps to prove that the 99 Cents
Only Stores concept is portable to areas outside the State of California.
As a result, the Company will focus greater management resources to expand
more rapidly in Nevada and into Arizona.
Universal incurred an operating loss of $2.7 million the fourth
quarter of 1999 versus a marginal profit of $0.2 million in 1998.
Universal's business is seasonal and historically the fourth quarter was
relied upon to achieve all of its income goals. In the fourth quarter
Universal was unable to achieve historical gross margin goals and sustained
inventory markdowns in efforts to generate sales volume. Universal also
incurred additional advertising and distribution costs as compared to the
Company's plan for the stores located in Texas, New York and areas outside
the local distribution point of Minneapolis, Minnesota.
The Company has adopted a definitive plan to sell Universal. It plans
to engage an investment-banking firm to evaluate and identify potential
buyers for the Universal business. The Company expects to sell Universal to
a strategic buyer within one year. The Company has $26.9 million of net
assets of discontinued business at December 31, 1999. The value of
Universal's net assets at December 31, 1999 includes $30.0 million in
inventory, net fixed assets of $8.0 million, $2.1 million of other assets
offset by $4.2 million of accounts payable and accrued liabilities.
The Company's estimated net loss on the disposal of Universal of $9.0
million, includes the estimated net realizable value of the business, a
$1.2 million loss from operations to the disposal date, and the estimated
selling costs offset by a $2.6 million tax benefit.
Results of Operations
The following table sets forth, for the periods indicated, certain
selected income statement data, including such data as a percentage of net
sales:
Years Ended December 31,
1997 1998 1999
(Amounts in thousands)
Net sales:
99 Cents Only Stores $186,0 80.6 $238,8 81.8 $312,3 86.8
24 % 68 % 06 %
Bargain Wholesale 44,831 19.4 53,202 18.2 47,652 13.2
Total 230,85 100. 292,07 100. 359,95 100.
5 0 0 0 8 0
Cost of sales 146,79 63.6 183,04 62.7 218,49 60.7
7 4 6
Gross profit 84,058 36.4 109,02 37.3 141,46 39.3
6 2
Selling, general and administrative
expenses:
Operating expenses 49,850 21.6 62,424 21.4 80,089 22.3
Depreciation and amortization 2,989 1.3 4,506 1.5 5,927 1.6
Total 52,839 22.9 66,930 22.9 86,016 23.9
Operating income 31,219 13.5 42,096 14.4 55,446 15.4
Interest (income) expense, net (855) (0.4 (1,428 (0.5 (1,059 (0.3
) ) ) ) )
Income from continuing operations 32,074 13.9
before provision for income taxes 43,524 14.9 56,505 15.7
Provision for income taxes 13,124 5.7 17,032 5.8 22,367 6.2
Income from continuing operations 18,950 8.2 26,492 9.1 34,138 9.5
Income (loss) from discontinued -
operation net of income tax
provision of $910 and income tax - 201 0.0 (3,167 (0.9
benefit of $2,111........... ) )
Loss from disposal of discontinued -
operation including a provision of
$1,200 for operating losses during
the phase-out period, net of
income tax benefit of - - (9,000 (2.5
$2,613.................. ) )
Net Income $18,95 8.2% $26,69 9.1% $21,97 6.1%
0 3 1
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net Sales. Total net sales increased $67.9 million, or 23.2%, from $292.1
million in 1998 to $360.0 million in 1999. 99 Cents Only Stores net sales
increased approximately $73.4 million, or 30.7%, from $238.9 million in
1998 to $312.3 million in 1999. Bargain Wholesale net sales increased
approximately $6.5 million, or 15.7%, from $41.2 million in 1998 (excluding
the $12.0 million sales to Universal billed at cost in 1998) to $47.7
million in 1999. There were no other retail operations in 1999. The
increase in 99 Cents Only Stores net sales was attributed to the net effect
of 14 net new stores opened in 1999 and the full year effect of 11 stores
opened in 1998. Comparable stores net sales increased 6.1% from 1998 to
1999. Excluding the $12.0 million shipment to Universal billed at cost, the
increase in Bargain Wholesale net sales was primarily attributed to an
increased focus on large domestic accounts and expansion into new
geographic markets.
Gross profit. Gross profit, which consists of total net sales, less cost
of sales, increased approximately $32.5 million, or 29.8%, from $109.0
million in 1998 to $141.5 million in 1999. The increase in gross profit
dollars was primarily due to higher sales volume. As a percentage of net
sales, gross profit improved from 37.3% in 1998 to 39.3% in 1999 reflecting
the effect of a 7 to 1 ratio in 1999 of retail sales versus wholesale
sales. The ratio in 1998 was 6 to 1, retail versus wholesale, excluding the
$12.0 million sales to Universal billed at cost.
Selling, general and administrative. Selling, general and administrative
expenses ("SG&A"), which include operating expenses and depreciation and
amortization, increased $19.1 million, or 28.5%, from $66.9 million in 1998
to $86.0 million in 1999. The increase over 1998 is associated with 1999
new store growth and the full year effect of 1998 new stores. SG&A
increased as a percentage of net sales from 22.9% in 1998 to 23.9% in 1999.
The increase in SG&A expenses is directly attributed to 14 net new store
openings.
Operating income. Operating income increased $13.4 million, or 31.7%, from
$42.1 million in 1998 to $55.4 million in 1999. Operating income increased
as a percentage of net sales from 14.4% in 1998 to 15.4% in 1999 primarily
due to the increase in gross margin as discussed above.
Interest (income) expense. Interest (income) expense relates to the
interest income on the Company's marketable securities, net of interest
expense on the Company's capitalized warehouse lease. The Company had no
bank debt during 1999. Interest income earned on the Company's marketable
securities was $1.8 million in 1999. At December 31, 1999, the Company held
$51.0 million in short-term investments and $8.6 million in long-term
investments. The Company's short-term investments are comprised primarily
of investment grade federal and municipal bonds and commercial paper, all
with short-term maturities. The Company generally holds investments until
maturity.
Provision for income taxes. The provision for income taxes in 1999 was
$22.4 million, or 6.2% of net sales, compared to $17.0 million, or 5.8% of
net sales, in 1998. The effective combined federal and state rates of the
provision for income taxes were 39.6% and 39.1% in 1999 and 1998,
respectively. The effective combined federal and state rates are less than
the statutory rates in each period due to the benefit of certain tax-exempt
interest and other credits. See Note 4 of "Notes to Financial Statements."
Income from continuing operations. As a result of the items discussed
above, net income increased $7.6 million, or 28.9%, from $26.5 million in
1998 to $34.1 million in 1999 before a charge of $12.2 million from the
discontinued operations. Net income from continuing operations as a
percentage of net sales was 9.5% in 1999 and 9.1% in 1998.
Discontinued operations. On March 4, 2000 the Board of Directors approved
the disposition of the entire operations of Universal, which comprises the
Odd's-N-End's and Only Deals retail stores. The net losses of these
operations for all periods are included in the consolidated statements of
income under "discontinued operations". Revenues from such operations were
$31.1 million in 1998 and $83.3 million in 1999. The carrying value of the
assets at December 31, 1999 was $26.9 million, which is net of
approximately $9.0 million in provision for loss on discontinued
operations. The provision for loss on discontinued operations reflected in
the consolidated statements of income includes the write-down of the assets
of Universal to estimated net realizable values and the estimated costs of
disposing of these operations along with the estimated loss from operations
of $1.2 million through the estimated date of disposal, less expected tax
benefits of approximately $2.6 million applicable thereto.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Net Sales. Total net sales increased $61.2 million, or 26.5%, from $230.9
million in 1997 to $292.1 million in 1998. 99 Cents Only Stores net sales
increased approximately $52.8 million, or 28.4%, from $186.0 million in
1997 to $238.9 million in 1998. Bargain Wholesale net sales increased
approximately $8.4 million, or 18.7%, from $44.8 million in 1997 to $53.2
million in 1998, including $12.0 million sales to Universal billed at cost.
There were no other retail operations in 1998. The increase in 99 Cents
Only Stores net sales was attributed to the net effect of 11 stores opened
in 1998 and the full effect of 10 stores opened in 1997. Comparable stores
net sales increased 4.3%, or $7.1 million, from 1997 to 1998.
Gross profit. Gross profit, which consists of total net sales, less cost
of sales, increased approximately $25.0 million, or 29.7%, from $84.1
million in 1997 to $109.0 million in 1998. The increase in gross profit
dollars was primarily due to higher net sales. As a percentage of net
sales, gross profit improved from 36.4% in 1997 to 37.3% in 1998 reflecting
the effect of a 6 to 1 ratio in 1998 of retail sales versus wholesales
sales excluding the $12.0 million sales to Universal billed at cost. The
ratio in 1997 was 4 to 1, retail versus wholesale.
Selling, general and administrative. Selling, general and administrative
expenses ("SG&A"), which include operating expenses and depreciation and
amortization, increased $14.1 million, or 26.7%, from $52.8 million in 1997
to $67.0 million in 1998. The increase over 1997 is associated with 1998
new store growth and the full year effect of 1997 new stores. SG&A as a
percentage of net sales was 22.9% in 1997 and 1998.
Operating income. Operating income increased $10.9 million, or 34.9%, from
$31.2 million in 1997 to $42.1 million in 1998. Operating income increased
as a percentage of net sales from 13.5% in 1997 to 14.4% in 1998 primarily
due to the increase in gross margin as discussed above.
Interest (income) expense. Interest (income) expense relates to the
interest income on the Company's marketable securities, net of interest
expense on the Company's capitalized warehouse lease. The Company had no
bank debt during 1998. Interest income earned on the Company's marketable
securities was $2.2 million in 1998. At December 31, 1998, the Company held
$43.9 million in short-term investments and $2.7 million in long-term
investments. The Company's short-term investments are comprised primarily
of investment grade federal and municipal bonds and commercial paper, all
with short-term maturities. The Company generally holds investments until
maturity.
Provision for income taxes. The provision for income taxes in 1998 was
$17.0 million, or 5.8% of net sales, compared to $13.1 million, or 5.7% of
net sales, in 1997. The effective combined federal and state rates of the
provision for income taxes were 39.1% and 40.9% in 1998 and 1997,
respectively. The effective combined federal and state rates are less than
the statutory rates in each period due to the benefit of certain tax-exempt
interest and other credits. See Note 4 of "Notes to Financial Statements."
Income from continuing operations. As a result of the items discussed
above, net income increased $7.7 million, or 40.5%, from $19.0 million in
1997 to $26.5 million in 1998. Net income as a percentage of net sales was
9.1% in 1998 and 8.2% in 1997.
Liquidity and Capital Resources
Since inception, the Company has funded its operations principally
from cash provided by operations, and has not generally relied upon
external sources of financing. The Company's capital requirement results
primarily from purchases of inventory, expenditures related to new store
openings and working capital requirements for new and existing stores. The
Company takes advantage of close-out and other special-situation
opportunities, which frequently result in large volume purchases, and as a
consequence, its cash requirements are not constant or predictable during
the year and can be affected by the timing and size of its purchases.
During 1997, 1998 and 1999, net cash provided by operations was $13.7
million, $31.0 million and $26.0 million, respectively. Net cash provided
by operations reflects increases in inventories in the amount of $6.2
million, $6.5 million and $4.3 million during 1997, 1998 and 1999,
respectively. During 1997, 1998 and 1999, net cash used in investing
activities for purchases of property and equipment was $9.4 million,
$12.5 million and $18.0 million, respectively. Cash used in investing
activities for the purchase of short-term investments was $5.0 million,
$14.0 million and $13.0 million in 1997, 1998 and 1999, respectively. In
1997, net cash used in financing activities was $0.2 million; these funds
represented payments of capital lease obligations and proceeds from the
exercise of employee stock options. In 1998, net cash provided by financing
activities was $29.0 million; these funds represented payment for capital
lease obligations, in addition, the Company received proceeds of $27.2
million from the Company's secondary public offering and from the exercise
of employee stock options of $2.5 million. In 1999, net cash provided by
financing activities was $4.2 million; these funds represented payment for
capital lease obligations and proceeds from exercise of stock options.
The Company does not maintain any credit facilities with any bank.
However, the Company maintains a surety bond of approximately $1.2 million
for self-insured workers compensation.
The Company leases its 880,000 square foot single level warehouse and
distribution facility under a lease accounted for as a capital lease. The
lease requires monthly payments of $70,000 and accrues interest at an
annual rate of 7.0%. At the lease expiration in December 2000, the Company
has the option to purchase the facility for $10.5 million. The Company
currently intends to exercise the option at the end of the lease. If the
Company does not exercise the purchase option, the Company will be subject
to a $7.6 million penalty.
The Company plans to open new 99 Cents Only Stores at a targeted
annual rate of 25%. The average investment per new store opened in 1999,
including leasehold improvements, furniture, fixtures and equipment,
inventory and pre-opening expenses, was approximately $660,000. Pre-opening
expenses are not capitalized by the Company. The Company's cash needs for
new store openings are expected to total approximately $12 million in 2000.
The Company's total planned expenditures for 2000 for additions to fixtures
and leasehold improvements of existing stores as well as for distribution
expansion and replacement will be approximately $5 million. The Company
believes that its total capital expenditure requirements (including new
store openings) will increase to $17 million in 2000. Capital expenditures
in 2000 are currently expected to be incurred primarily for new store
openings, improvements to existing stores and system and general corporate
infrastructure. The Company believes that cash flow from operations will be
sufficient to meet operating needs and capital spending requirements for at
least the next twelve months.
On January 25, 2000 the Company acquired all of the remaining
outstanding minority shares of Universal for $1.4 million. This $1.4
million minority interest acquisition cost for Universal has been
considered in the estimated net realizable value of the net assets of the
discontinued business as of December 31, 1999. In addition, the Company
acquired a distribution facility for Universal for $7.0 million on March
28, 2000. The lease on Universal's current distribution facility will
expire in July 2000. The Company believes the acquisition of the
distribution facility was a very favorable purchase price relative to
current market values. It is currently planned that this facility will be
either leased to the prospective buyer of Universal or will be able to be
resold for a gain.
Seasonality and Quarterly Fluctuations
The Company has historically experienced and expects to continue to
experience some seasonal fluctuation in its net sales, operating income and
net income. The highest sales periods for the Company are the Christmas and
Halloween seasons. A greater amount of the Company's net sales and
operating and net income is generally realized during the fourth quarter.
The Company's quarterly results of operations may also fluctuate
significantly as a result of a variety of other factors, including the
timing of certain holidays (e.g., Easter) and the timing of new store
openings and the merchandise mix. Further, the operations of Universal are
even more dependent upon results in the fourth quarter.
The following table sets forth certain unaudited results of operations
for each quarter during 1998 and 1999 and such information as a percentage
of net sales. The unaudited information has been prepared on the same basis
as the audited financial statements appearing elsewhere in this report and
includes all adjustments, which management considers necessary for a fair
presentation of the financial data shown. The operating results for any
quarter are not necessarily indicative of the results to be attained for
any future period.
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quart Quart Quart Quart Quart Quart Quart
er er er er er er er Quarte
r
Year Ended December 31, Year Ended December 31,
1998 1999
(Amounts in thousands)
Net sales:
99 Cents Only $51,4 $56,6 $59,1 $71,5 $64,6 $69,8 $76,5 $101,3
Stores 82 95 46 45 33 27 17 29
Bargain Wholesale 11,40 15,06 16,35 10,38 11,09 11,02 12,20 13,332
0 2 7 3 4 5 1
Total 62,88 71,75 75,50 81,92 75,72 80,85 88,71 114,66
2 7 3 8 7 2 8 1
Gross profit 23,04 25,32 26,95 33,70 29,60 31,24 35,34 45,270
3 1 3 9 7 1 4
Operating income 8,619 9,405 10,20 13,86 10,71 11,44 13,19 20,099
5 7 0 4 3
Incomefrom
continuing 5,283 5,880 6,810 8,519 6,671 7,018 8,107 12,342
operation.........
..
Income (loss) from
discontinued
operation......... (742) (495) (98) 1,536 (373) (170) 53 (2,677
. )
(Loss) on disposal
of discontinued
operation......... - - - - - - - (9,000
. )
Net $4,54 $5,38 $6,71 $10,0 $6,29 $6,84 $8,16 $665
income........... 1 5 2 55 8 8 0
Earnings per common
share from
continuing
operations:
Basic $0.17 $0.19 $0.21 $0.26 $0.20 $0.21 $0.24 $0.37
Diluted $0.17 $0.18 $0.20 $0.25 $0.20 $0.20 $0.24 $0.37
Earnings (loss)per
common share from
discontinued
operations:
Basic ($0.0 ($0.0 - $0.05 ($0.0 ($0.0 - ($0.08
2) 2) 1) 1) )
Diluted ($0.0 ($0.0 - $0.05 ($0.0 ($0.0 - ($0.08
2) 1) 1) 1) )
(Continued from previous page)
1st 2nd 3rd 4th 1st 2nd 3rd 4th
Quart Quart Quart Quart Quart Quart Quart Quart
er er er er er er er er
Year Ended December 31, Year Ended December 31,
1998 1999
(Amounts in thousands)
(Loss)per common
share on disposal
of discontinued
operations:
Basic - - - - - - - ($0.2
7)
Diluted - - - - - - - ($0.2
7)
Net earnings per
share:
Basic $0.15 $0.17 $0.21 $0.30 $0.19 $0.21 $0.24 $0.02
Diluted $0.14 $0.17 $0.20 $0.30 $0.19 $0.20 $0.24 $0.02
Shares outstanding:
Basic 30,96 31,66 32,57 32,97 33,00 33,16 33,39 33,37
9 5 3 4 1 3 6 0
Diluted 31,60 32,38 33,25 33,79 33,94 34,04 34,00 33,77
7 5 3 5 9 4 5 4
Percent of Net
sales
Net sales:
99 Cents Only 81.9% 79.0% 78.3% 87.3% 85.4% 86.4% 86.2% 88.4%
Stores
Bargain Wholesale 18.1 21.0 21.7 12.7 14.6 13.6 13.8 11.6
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Gross profit 36.6 35.3 35.7 41.1 39.1 38.6 39.8 39.5
Operating income 13.7 13.1 13.5 16.9 14.1 14.2 14.9 17.5
Income from
continuing
operations 8.4% 8.2% 9.0% 10.4% 8.8% 8.7% 9.1% 10.8%
New Authoritative Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities", which
establishes accounting and reporting standards for derivative instruments
and hedging activities. SFAS 133 requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. This statement was
amended by SFAS No. 137 which defers the effective date to all fiscal
quarters of fiscal years beginning after June 15, 2000. SFAS No. 133 is
effective for the Company's first quarter in the year 2001 and is not
expected to have a material effect on the Company's financial position.
Risk Factors
Inflation
The Company's ability to provide quality merchandise at the 99 cents
price point is subject to certain economic factors, which are beyond the
Company's control, including inflation. Inflation could have a material
adverse effect on the Company's business and results of operations,
especially given the constraints on the Company to pass on any incremental
costs due to price increases or other factors. The Company believes that it
will be able to respond to ordinary price increases resulting from
inflationary pressures by adjusting the number of items sold at the single
price point (e.g., two items for 99 cents instead of three items for 99
cents) and by changing its selection of merchandise. Nevertheless, a
sustained trend of significantly increased inflationary pressure could
require the Company to abandon its single price point of 99 cents per item,
which could have a material adverse effect on the Company's business and
results of operations. See also "We are vulnerable to uncertain economic
factor and Changes in Minimum Wage" for a discussion of additional risks
attendant to inflationary conditions.
We Depend on New Store Openings for Future Growth
Our operating results depend largely on our ability to open and
operate new stores successfully and to manage a larger business profitably.
In 1997, 1998 and 1999, we opened ten, thirteen and eighteen of our 99
Cents Only Stores, respectively (ten, eleven and fourteen stores,
respectively, net of relocated stores). From January 1, 2000 through March
28, 2000, we opened seven 99 Cents Only Stores and we expect to open at
least thirteen 99 Cents Only Stores in Southern California and Nevada
during the remainder of the year. We plan to open new stores over the next
several years at a rate of approximately 25% per year. Our strategy
depends on many factors, including our ability to identify suitable markets
and sites for our new stores, negotiate leases with acceptable terms,
refurbish stores, appropriately upgrade our financial and management
information systems and controls and manage our operating expenses. In
addition, we must be able to continue to hire, train, motivate and retain
competent managers and store personnel. Many of these factors are beyond
our control. As a result, we cannot assure you that we will be able to
achieve our expansion goals. Any failure by us to achieve our expansion
goals on a timely basis, obtain acceptance in markets in which we currently
have limited or no presence, attract and retain management and other
qualified personnel, appropriately upgrade our financial and management
information systems and control or manage operating expenses could
adversely affect our future operating results and our ability to execute
our business strategy.
We also cannot assure you that when we open new stores, we will
improve our results of operations. A variety of factors, including store
location, store size, rental terms, the level of store sales and the level
of initial advertising influence if and when a store becomes profitable.
Assuming that our planned expansion occurs as anticipated, our store base
will include a relatively high proportion of stores with relatively short
operating histories. We cannot assure you that our new stores will achieve
the sales per saleable square foot and store-level operating margins
currently achieved at our existing stores. If our new stores on average
fail to achieve these results, our planned expansion could produce a
decrease in our overall sales per saleable square foot and store-level
operating margins. Increases in the level of advertising and pre-opening
expenses associated with the opening of new stores could also contribute to
a decrease in our operating margins. Finally, the opening of new stores in
existing markets has in the past and may in the future reduce retail sales
of existing stores in those markets, negatively affecting comparable store
sales.
Our operations are mainly concentrated in Southern California
All but one of our 99 Cents Only Stores are currently located in
Southern California. The Company currently has one store in Las Vegas,
Nevada and plans to open an additional store in Las Vegas on March 30,
2000. In addition, our year 2000 retail expansion plans includes new stores
in these regions and thereafter also in Arizona. As a result, our results
of operations and financial condition depend upon trends in the Southern
California economy. For example, this region experienced an economic
recession in the early 1990s. Although this recession had no material
effect on our business, between 1989 and 1993 most California counties,
particularly Los Angeles, recorded a significant decline in retail
spending. Recovery in these retail markets has continued from 1995
through 1999. However, this trend may not continue and retail spending
could decline in the future. In addition, Southern California historically
has been vulnerable to certain natural disasters and other risks, such as
earthquakes, fires, floods and civil disturbance. At times, these events
have disrupted the local economy. These events could also pose physical
risks to our properties. Although we maintain standard property and
business interruption insurance, we do not have earthquake insurance on our
properties.
We could experience disruptions in receiving and distribution
Our success depends upon whether our receiving and shipment schedules
are organized and well managed. As we continue to grow, we may face
unexpected demands on our warehouse operations that could cause delays in
delivery of merchandise to or from our warehouses to our stores. A fire,
earthquake or other disaster at our warehouses could hurt our business,
financial condition and results of operations, particularly because much of
our merchandise consists of close-outs and other irreplaceable products.
Although we maintain standard property and business interruption insurance,
we do not have earthquake insurance on our properties.
Although we try to limit our risk of exposure to potential product
liability claims, we do not know if the limitations in our agreements are
enforceable. We maintain insurance covering damage from use of our
products. If any product liability claim is successful and large enough,
our business could suffer.
We depend upon our relationships with our suppliers and the availability of
close-out and special-situation merchandise
Our success depends in large part on our ability to locate and
purchase quality close-out and special-situation merchandise at attractive
prices. This helps us maintain a mix of name-brand and other merchandise
at the 99 Cents price point. We cannot be certain that such merchandise
will continue to be available in the future. Further, we may not be able to
find and purchase merchandise in quantities necessary to accommodate our
growth. Additionally, our suppliers sometimes restrict the advertising,
promotion and method of distribution of their merchandise. These
restrictions in turn may make it more difficult for us to quickly sell
these items from our inventory.
Although we believe our relationships with our suppliers are good, we
do not have long term agreements with any supplier. As a result, we must
continuously seek out buying opportunities from our existing suppliers and
from new sources. We compete for these opportunities with other
wholesalers and retailers, discount and deep-discount chains, mass
merchandisers, food markets, drug chains, club stores and various
privately-held companies and individuals. Although we do not depend on any
single supplier or group of suppliers and believe we can successfully
compete in seeking out new suppliers, a disruption in the availability of
merchandise at attractive prices could impair our business.
We purchase in large volumes and our inventory is highly concentrated
To obtain inventory at attractive prices, we take advantage of large
volume purchases, close-outs and other special situations. As a result, our
inventory levels are generally higher than other discount retailers. At
December 31, 1997, 1998 and 1999, we recorded net inventory of $43.1
million, $49.6 million and $53.9 million, respectively.
We periodically review the net realizable value of our inventory and
make adjustments to its carrying value when appropriate. The current
carrying value of our inventory reflects our belief that we will realize
the net values recorded on our balance sheet. However, we may not be able
to do so. If we sell large portions of our inventory at amounts less than
their carrying value or if we write down a significant part of our
inventory, our cost of sales, gross profits, operating income and net
income could suffer greatly during the period in which such event or events
occur.
We face strong competition
We compete in both the acquisition of inventory and sale of
merchandise with other wholesalers, discount and deep-discount stores,
single price point merchandisers, mass merchandisers, food markets, drug
chains, club stores and other retailers. Our industry competitors also
include many privately held companies and individuals. At times, these
competitors are also customers of our Bargain Wholesale division. In the
future, new companies may also enter the deep-discount retail industry.
Additionally, we currently face increasing competition for the purchase of
quality close-out and other special-situation merchandise. Some of our
competitors have substantially greater financial resources and buying power
than us. Our capability to compete will depend on many factors including
our ability to successfully purchase and resell merchandise at lower prices
than our competitors. We cannot assure you that we will be able to compete
successfully against our current and future competitors.
We are vulnerable to uncertain economic factors and changes in the minimum
wage
Our ability to provide quality merchandise at our 99 Cents price point
could be hindered by certain economic factors beyond our control, including
but not limited to:
- increases in inflation;
- increases in operating costs;
- increases in employee health care costs;
- increases in prevailing wage levels; and
- decreases in consumer confidence levels.
As a result, increases in federal and state minimum wage requirements
significantly affect our business. In California, the minimum wage
increased [in March 1997 from $4.75 to $5.00 per hour], in September 1997
from $5.00 to $5.15 per hour, in March 1998 to $5.75 per hour. The federal
minimum wage increased in September 1997 to $5.15 per hour. Congress has
proposed a bill to increase the minimum wage to $6.15 per hour beginning
September 1, 1999, and $6.66 per hour beginning September 1, 2000, with
later adjustments to reflect increases in the Consumer Price Index. Since
we provide consumers with merchandise at a 99 Cents price point, we
typically cannot pass on to them any incremental costs. As a result,
significant increases in the minimum wage requirements could impair our
business.
We face risks associated with international sales and purchases
Although international sales historically have not been important to
our consolidated net sales, they have contributed to growth in Bargain
Wholesale's net sales. In addition, some of the inventory we purchase is
manufactured outside the United States. There are many risks associated
with doing business internationally. Our international transactions may be
subject to risks such as:
- political instability;
- currency fluctuations;
- exchange rate controls;
- changes in import and export regulations;
- changes in tariff and freight rates.
The United States and other countries have also proposed various forms
of protectionist trade legislation. Any resulting changes in current tariff
structures or other trade policies could lead to fewer purchases of our
products and could adversely affect our international operations.
We could encounter risks related to transactions with our affiliates
We currently lease 12 of our 85, 99 Cents Only Stores and a parking
lot for one of these stores from certain members of the Gold family and
their affiliates. Our annual rental expense for these facilities totaled
approximately $2.0 million, $2.2 million and $1.9 million in 1997, 1998 and
1999, respectively. We believe that our lease terms are just as favorable
to us as they would be for an unrelated party. Under our current policy, we
enter into real estate transactions with our affiliates only for the
renewal or modification of existing leases and on occasions where we
determine that such transactions are in our best interests. Moreover, the
independent members of our Board of Directors must unanimously approve all
real estate transactions between us and our affiliates. They must also
determine that such transactions are equivalent to a negotiated
arm's-length transaction with a third party. We cannot guarantee that we
will reach agreements with the Gold Family on renewal terms for the
properties we currently lease from them. Also, even if we agree to such
terms, we cannot be certain that our independent directors will approve
them. If we fail to renew one of these leases, we could be forced to
relocate or close the leased store. Any relocations or closures we
experience will be costly and could adversely affect our business.
We rely heavily on our management team
Our success depends substantially on David Gold, our Chief Executive
Officer. We also rely on the continued service of our executive officers
and other key management, particularly Helen Pipkin, our Senior Vice
President of Wholesale Operations. We have not entered into employment
agreements with any of our executive officers and we do not maintain key
person life insurance on them. As we continue to grow, our success will
depend on our ability to identify, attract, hire, train, retain and
motivate other highly skilled management personnel. Competition for such
personnel is intense, and we may not be able to successfully attract,
assimilate or retain sufficiently qualified candidates.
Our operating results may fluctuate and may be affected by seasonal buying
patterns
Historically, our highest net sales and operating income have occurred
during the fourth quarter, which includes the Christmas and Halloween
selling seasons. During 1998 and 1999, we generated approximately 28.1% and
31.8%, respectively, of our net sales and approximately 32.9% and 36.2%,
respectively, of our operating income during the fourth quarter.
Accordingly, any decrease in net sales during the fourth quarter could
reduce our profitability and impair our results of operations for the
entire year.
In addition to seasonality, many other factors may cause our results
of operations to vary significantly from quarter to quarter. Some of these
factors are beyond our control. The factors include:
- the number and timing of sales contributed to new stores;
- the level of advertising and pre-opening expenses associated with new
stores;
- the integration of new stores into our operations;
- general economic health of the deep-discount retail industry;
- changes in the mix of products sold;
- unexpected increases in shipping costs;
- ability to successfully manage our inventory levels;
- changes in our personnel;
- fluctuations in the amount of consumer spending; and
- the amount and timing of operating costs and capital expenditures
relating to the growth of our business.
We are subject to environmental regulations
Under various federal, state and local environmental laws and
regulations, current or previous owners or occupants of property may become
liable for the costs of removing any hazardous substances found on the
property. These laws and regulations often impose liability without regard
to fault. We currently lease all but eight of our stores, as well as our
warehouse and distribution facility (where our executive offices are
located). We have the option to purchase our warehouse and distribution
facility in December 2000, which we plan to do. However, in the future we
may be required to incur substantial costs for preventive or remedial
measures associated with the presence of hazardous materials. In addition,
we operate one underground diesel storage tank and one above-ground propane
storage tank at our warehouse. Although we have not been notified of, and
are not aware of, any current environmental liability, claim or
non-compliance, we could incur costs in the future related to our leased
properties and our storage tanks.
In the ordinary course of our business, we sometimes handle or dispose
of commonplace household products that are classified as hazardous
materials under various environmental laws and regulations. We have adopted
policies regarding the handling and disposal of these products, and we
train our employees on how to handle and dispose of them. We cannot assure
you that our policies and training will successfully help us avoid
potential violations of these environmental laws and regulations in the
future.
Anti-takeover Effect; We are controlled by our existing shareholders
In addition to some governing provisions in our Articles of
Incorporation and Bylaws, we are also subject to certain California laws
and regulations which could delay, discourage or prevent others from
initiating a potential merger, takeover or other change in our control,
even if such actions would benefit our shareholders and us. In addition,
David Gold, our Chairman and Chief Executive Officer, and members of his
immediate family and certain of their affiliates beneficially own
15,126,538 shares of our voting stock. As a result, they have the ability
to control all matters requiring the vote of our shareholders, including
the election of our directors and most of our corporate actions. They can
also control our policies and prevent a change in our control. This could
adversely affect the voting and other rights of our other shareholders and
could depress the market price of our common stock.
Our stock price could fluctuate widely
The market price of our common stock has risen substantially since our
initial public offering on May 23, 1996. Trading prices for our common
stock could fluctuate significantly due to many factors, including:
- the depth of the market for our common stock;
- changes in expectations of our future financial performance,
including financial estimates by securities analysts and
investors;
- variations in our operating results;
- conditions or trends in our industry or in the industries of any of
our significant clients;
- additions or departures of key personnel; and
- future sales of our common stock.
Year 2000
The Company had no interruption of its business process as a result of
Year 2000 computer issues or Y2K related equipment malfunctions. The
Company successfully implemented its Y2K systems plan and spent
approximately $0.1 million to upgrade certain equipment and cash registers
at the Universal retail stores to replace non compliant Y2K equipment.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to interest rate risk for its investments in
marketable securities. At December 31, 1999, the Company had $59,571,000 in
marketable securities maturing at various dates through October 2001. The
Company's investments are comprised primarily of investment grade federal
and municipal bonds and commercial paper. The Company generally holds
investments until maturity. Any premium or discount recognized with the
purchase of an investment is amortized over the term of the investment.
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pag
e
99 Cents Only Stores
Report of Independent Public Accountants 32
Consolidated Balance Sheets as of December 31, 1998 and 1999 33
Consolidated Statements of Income for the years ended December 31,
1997, 1998 and 1999 35
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 1997, 1998 and 1999 36
Consolidated Statements of Cash Flows for the years ended December 31,
1997, 1998 and 1999 37
Notes to the Consolidated Financial Statements 38
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 99 Cents Only Stores:
We have audited the accompanying consolidated balance sheets of 99 Cents
Only Stores (a California Corporation) and it's subsidiaries as of
December 31, 1999 and 1998 and the related consolidated statements of
income, shareholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of 99 Cents Only Stores
and it's subsidiaries as of December 31, 1999 and 1998, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1999 in conformity with generally accepted accounting
principles in the United States.
ARTHUR ANDERSEN LLP
Los Angeles, California
March 7, 2000
99 CENTS ONLY STORES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
(Amounts In Thousands, Except Share Data)
ASSETS
1998 1999
CURRENT ASSETS:
Cash $2,699 $7,984
Short-term investments 43,850 50,971
Accounts receivable, net of allowance for doubtful accounts
of $169 and $140 as of December 31, 1998 and 1999, 2,455 3,356
respectively
Income tax receivable 27 4,674
Inventories 49,634 53,932
Other 885 1,451
Total current assets 99,550 122,36
8
PROPERTY AND EQUIPMENT, at cost:
Land 9,590 11,060
Building and improvement 11,896 12,876
Leasehold improvements 15,963 23,786
Fixtures and equipment 11,584 14,718
Transportation equipment 1,014 1,635
Construction in progress 1,680 5,466
51,727 69,541
Less-Accumulated depreciation and amortization (14,331 (20,11
) 9)
37,396 49,422
OTHER ASSETS:
Deferred income taxes 6,342 11,318
Long term investments in marketable securities 2,710 8,600
Deposits 183 214
Net assets of discontinued operation. 45,143 26,928
Other 2,843 5,165
57,221 52,225
$194,16 $224,0
7 15
The accompanying notes are an integral part of these consolidated balance
sheets.
99 CENTS ONLY STORES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
(Amounts In Thousands, Except Share Data)
LIABILITIES AND SHAREHOLDERS' EQUITY
1998 1999
CURRENT LIABILITIES:
Current portion of capital lease obligation $754 $809
Accounts payable 12,326 9,010
Accrued expenses:
Payroll and payroll-related 1,575 1,967
Sales tax 1,766 2,429
Other 318 421
Workers compensation 1,372 2,095
Total current liabilities 18,111 16,731
LONG-TERM LIABILITIES:
Deferred rent 1,750 1,952
Accrued interest 2,690 3,350
Capital lease obligation, net of current portion 7,251 6,442
11,691 11,744
COMMITMENTS AND CONTINGENCIES:
SHAREHOLDERS' EQUITY:
Preferred stock, no par value
Authorized-1,000,000 shares
Issued and outstanding-none - -
Common stock, no par value
Authorized-40,000,000 shares
Issued and outstanding 32,987,769 at December 31, 1998 and
33,425,232 at December 31, 1999 107,571 116,775
Retained earnings 56,794 78,765
164,365 195,540
$194,16 $224,01
7 5
The accompanying notes are an integral part of these consolidated balance
sheets.
99 CENTS ONLY STORES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(Amounts In Thousands, Except Per Share Data)
1997 1998 1999
NET SALES:
99 Cents Only Stores $186,02 $238,86 $312,30
4 8 6
Bargain Wholesale 44,831 53,202 47,652
230,855 292,070 359,958
COST OF SALES 146,797 183,044 218,496
Gross profit 84,058 109,026 141,462
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Operating expenses 49,850 62,424 80,089
Depreciation and amortization 2,989 4,506 5,927
52,839 66,930 86,016
Operating income 31,219 42,096 55,446
OTHER (INCOME) EXPENSE:
Interest income (1,613) (2,180) (1,805)
Interest expense 758 752 746
(855) (1,428) (1,059)
Income from continuing operations before
provisions for income taxes 32,074 43,524 56,505
PROVISION FOR INCOME TAXES 13,124 17,032 22,367
Income from continuing operations 18,950 26,492 34,138
Income(loss) from discontinued operation net of
income tax provision of $910 and income tax
benefit of - 201 (3,167)
$2,111.....................................
Loss from disposal of discontinued operation
including a provision of $1,200 for operating
losses during the phase-out period, net of
income tax benefit of - - (9,000)
$2,613.....................................
NET INCOME $18,950 $26,693 $21,971
EARNINGS PER COMMON SHARE FROM CONTINUING
OPERATIONS:
Basic $0.61 $0.82 $1.03
Diluted $0.61 $0.81 $1.00
EARNINGS (LOSS) PER COMMON SHARE FROM
DISCONTINUED OPERATION:
Basic - $0.01 ($0.10)
Diluted - $0.01 ($0.09)
(LOSS) PER COMMON SHARE FROM DISPOSAL OF
DISCONTINUED OPERATION:
Basic - - ($0.27)
Diluted - - - ($0.26)
NET EARNINGS PER COMMON SHARE:
Basic $0.61 $0.83 $0.66
Diluted $0.61 $0.82 $0.65
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING:
Basic 30,904 32,045 33,252
Diluted 31,260 32,751 33,985
The accompanying notes are an integral part of these consolidated financial
statements.
99 CENTS ONLY STORES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(Amounts In Thousands)
Common Stock Retain
ed
Share Amount Earnin
s gs
BALANCE, December 31, 1996 30,86 $65,354 $11,15
8 1
Net income - - 18,950
Tax benefit from exercise of stock options - 350 -
Proceeds from exercise of stock options 96 503 -
BALANCE, December 31, 1997 30,96 66,207 30,101
4
Net income - - 26,693
Tax benefit from exercise of stock options - 2,195 -
Proceeds from exercise of stock options 324 2,477 -
Net proceeds from secondary public offering 1,251 27,188 -
Shares issued in connection with acquisition of 449 9,504 -
Universal
BALANCE, December 31, 1998 32,98 107,571 56,794
8
Net income - - 21,971
Tax benefit from exercise of stock options - 4,229 -
Proceeds from exercise of stock options 437 4,975 -
BALANCE, December 31, 1999 33,42 $116,77 $78,76
5 5 5
The accompanying notes are an integral part of these consolidated financial
statements.
99 CENTS ONLY STORES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(Amounts in Thousands)
1997 1998 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $18,950 $26,693 $21,971
Adjustment to reconcile net income to net cash
provided by operating activities:
(Income)loss from discontinued operation - (201) 3,167
Provision for loss on disposal of discontinued
operation - - 9,000
Provision for doubtful accounts 20 - -
Depreciation and amortization 2,989 4,506 5,927
Benefit for deferred income taxes (245) (395) (4,976)
Changes in assets and liabilities associated
with operating activities:
Accounts receivable 31 (945) (901)
Inventories (6,181) (6,520) (4,298)
Other assets (1,470) (1,935) (2,888)
Deposits 12 51 (31)
Receivable from affiliated entity (66) 230 -
Accounts payable (1,043) 6,792 (3,316)
Accrued expenses (842) (380) 1,158
Worker's compensation 320 281 723
Income taxes 458 1,957 (418)
Deferred rent 182 274 202
Accrued interest 575 615 660
Net cash provided by operating activities 13,690 31,023 25,980
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (9,356) (12,461 (17,953
) )
Purchases of short-term investments (4,966) (13,976 (13,011
) )
Net asset of discontinued operations. (1,708) (31,730 6,048
)
Net cash used in investing activities (16,030 (58,167 (24,916
) ) )
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of capital lease obligation (656) (704) (754)
Net proceeds from secondary public offering - 27,188 -
Proceeds from exercise of stock options 503 2,477 4,975
Net cash provided (used in) financing (153) 28,961 4,221
activities
NET INCREASE (DECREASE) IN CASH (2,493) 1,817 5,285
CASH, beginning of period 3,375 882 2,699
CASH, end of period $882 $2,699 $7,984
The accompanying notes are an integral part of these consolidated financial
statements.
99 CENTS ONLY STORES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1999
1. Line of Business
The Company, 99 Cents Only Stores and its subsidiaries (the Company,
including the operations of its 99 Cents Only Stores and Bargain Wholesale)
primarily market and sell various consumable products and operated 64 and
78 retail stores at December 31, 1998 and 1999, respectively. The Company
is also a wholesale distributor of various consumable products.
2. Concentration of Operations in Southern California
All but one of the Company's retail store are located in Southern
California. In addition, the Company's current retail expansion plans
anticipate that most new stores will be located in that same geographic
region. Consequently, the Company's results of operations and financial
condition are dependent upon general economic trends and various
environmental factors in Southern California.
3. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of 99 Cents
Only Stores and its subsidiaries. All inter-company transactions have been
eliminated and all of its wholly owned subsidiaries.
Use of Estimates
The preparation of consolidated financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Inventories
Inventories are priced at the lower of cost (first in, first out) or
market.
Depreciation and Amortization
Property and equipment are amortized and depreciated on the
straight-line basis over the following useful lives of the assets:
Building and improvements 30 - 27.5 years
Leasehold improvements Lesser of 5 years or
Remaining lease term
Fixtures and equipment 5 years
Transportation equipment 3 years
The Company follows the policy of capitalizing expenditures that
materially increase asset lives and charging ordinary repairs and
maintenance to operations as incurred.
Stock Split
All common shares and per share amounts have been adjusted to give
retroactive effect to a four-for-three stock split distributed on
February 9, 2000 to holders of record on January 31, 2000.
Earnings per share
"Basic" earnings per share is computed by dividing net income by the
weighted average number of shares outstanding for the year. "Diluted"
earnings per share is computed by dividing net income by the total of the
weighted average number of shares outstanding plus the dilutive effect of
outstanding stock options (applying the treasury stock method).
A reconciliation of the basic weighted average number of shares
outstanding and the diluted weighted average number of shares outstanding
for each of the three years in the period ended December 31, 1999 follows:
1997 1998 1999
(Amounts in
thousands)
Weighted average number of common shares
outstanding-Basic 30,90 32,04 33,25
4 5 2
Dilutive effect of outstanding stock 356 706 733
options
Weighted average number of common shares
outstanding-Diluted 31,26 32,75 33,98
0 1 5
In 1999, approximately 1,054 options were excluded from the calculation
of fully diluted shares outstanding because the option price was above the
average market price during the year.
Concentration of Risk
The Company maintains cash and short-term investments with highly
qualified financial institutions. At various times such amounts may be in
excess of insured limits.
Deferred Rent
Certain of the Company's operating leases for its retail locations
include scheduled increasing monthly payments. In accordance with generally
accepted accounting principles, the Company has accounted for the leases to
provide straight-line charges to operations over the lives of the leases.
Revenue Recognition
Revenue is recognized at the point of sale for retail sales and at the
time of shipment for wholesale sales.
Pre-Opening Costs
The Company expenses, as incurred, all pre-opening costs related to
the opening of new retail stores.
Statements of Cash Flows
The Company prepares its statements of cash flows using the indirect
method as prescribed by the Statement of Financial Accounting Standards No.
95. The Company considers all investments with original maturities of three
months or less to be cash equivalents.
Cash payments for income taxes were $12,911,000, $16,727,000 and
$21,756,000 in 1997, 1998 and 1999, respectively. Interest payments totaled
approximately $184,000, $136,000 and $86,000 for the years December 31,
1997, 1998 and 1999, respectively.
New Authoritative Pronouncements
In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). SFAS 133 is effective in
2001 and management does not expect adoption of this standard to have a
material impact on the Company's financial reporting or results of
operations.
Reclassifications
Certain amounts in the prior years have been reclassified to conform
to the current year's presentation.
4. Income Tax Provision
The provisions for income taxes from continuing operations for the years
ended December 31, 1997, 1998 and 1999 are as follows:
Years Ended December 31,
(Amounts in thousands)
1997 1998 1999
Current:
Federal $10,678 $15,249 $20,192
State 2,691 2,178 2,885
13,369 17,427 23,077
Deferred (245) (395) (710)
Provisions for income taxes $13,124 $17,032 $22,367
Differences between the provisions for income taxes and income taxes
at the statutory federal income tax rate for the years ended December 31,
1997, 1998 and 1999 are as follows:
Year Ended December 31,
(Amounts in thousands)
1997 1998 1999
Amoun Perce Amoun Perce Amoun Perce
t nt t nt t nt
Income tax at statutory federal $11,2 35.0% $15,2 35.0% $19,7 35.0%
rate 26 33 77
State income taxes, net of
federal income tax effect 1,924 6.0 2,405 5.5 3,012 5.3%
Effect of permanent differences (204) (0.6) (255) (0.6) (64) (0.1)
LARZ and targeted job credits (280) (0.9) (393) (0.9) (380) (0.6)
Other 458 1.4 42 0.1 22 -
$13,1 40.9% $17,0 39.1% $22,3 39.6%
24 32 67
A detail of the Company's deferred tax asset as of December 31, 1998
and 1999 is as follows:
Years Ended
December 31,
(Amounts in
thousands)
1998 1999
Inventory $1,061 $606
Uniform inventory capitalization 1,298 971
Depreciation 2,356 2,326
Liability for claims 125 112
Workers' compensation 562 845
Deferred rent 635 787
State taxes 727 1,216
Other, net 66 117
Net operating loss carry-forward 10,330 9,140
17,160 16,120
Net deferred tax liabilities (488) (262)
16,672 15,858
Valuation allowance (10,330 (4,540)
)
$6,342 $11,318
In connection with the acquisition of Universal and Odd's-N-End's, the
Company has federal net operating loss carry-forwards of approximately
$27.1 million which it can use to offset income. Future use of this loss
carry-forward may be limited and may expire at various dates through 2013.
Due to the uncertainty of the future use of such loss carry-forwards, the
Company has recorded a valuation allowance equal to the tax effect of the
loss carry-forward that is not expected to be realizable. In accordance
with SFAS 109, any benefits realized from future use of these loss carry-
forwards will be recorded as a reduction of the goodwill generated from the
acquisition. During 1999 the Company reduced goodwill by $5,790 related to
the expected future tax benefits for the net operating losses.
5. Short-Term Investments
Investment in debt and equity securities are recorded as required by
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." The Company's investments are comprised primarily of
investment grade federal and municipal bonds and commercial paper. The
Company generally holds investments until maturity. Any premium or discount
recognized in connection with the purchase of an investment is amortized
over the term of the investment. As of December 31, 1998 and 1999, the fair
value of investments approximated the carrying values and were invested as
follows:
(Amounts in thousands) 1998 Maturity 1999 Maturity
Withi 1 Withi 1
n 1 year n 1 year
year or year or
more more
Federal bonds $1,50 - $1,50 $1,50 $1,50 -
0 0 0 0
Municipal bonds 15,84 $14,6 1,210 16,42 9,981 $6,44
6 36 1 0
Corporate Securities - - - 1,560 - 1,560
Commercial paper 29,21 29,21 - 40,09 39,49 600
4 4 0 0
$46,5 $43,8 $2,71 $59,5 $50,9 $8,60
60 50 0 71 71 0
6. Capital Lease Obligations
The Company leases its warehouse, distribution and corporate facility
(approximately 880,000 square feet) under a lease accounted for as a
capital lease. Included in property and equipment is approximately $13.7
million of land and building, at cost, related to this lease.
The lease requires fixed payments of $70,000 per month and bears
interest at 7.0 percent per annum. On or before lease expiration in
December 2000, the Company has the option to purchase the facility for
$10.5 million. The Company plans to exercise the option during the fourth
quarter of 2000. In the event the option is not exercised, there is a $7.6
million penalty.
Total minimum payments under the lease are as follows:
(Amounts
in
thousands
)
Year ending December 31:
2000 $11,340
Less: Amount representing interest (4,089)
Present value (principal only) of minimum lease 7,251
payment
Less: Current portion (809)
$6,442
7. Related-Party Transactions
The Company leases certain retail facilities from its principal
shareholders. Rental expense for these facilities was approximately $2.0
million, $2.2 million and $1.9 million in 1997, 1998 and 1999,
respectively.
During 1997, 1998 and 1999 the Company incurred legal fees of $61,000,
$60,000 and $0, respectively, to the law firm in which a director of the
Company is a partner.
8. Commitments and Contingencies
Credit Facility
The Company does not maintain any credit facilities with any bank.
However, the Company maintains a surety bond of approximately $1.2 million
for self-insured workers' compensation.
Lease Commitments
The Company leases various facilities under operating leases, which
expire at various dates through 2010. Some of the lease agreements contain
renewal options and/or provide for scheduled increases or increases based
on the Consumer Price Index. Total minimum lease payments under each of
these lease agreements, including scheduled increases, are charged to
operations on a straight line basis over the life of each respective lease.
Certain leases require the payment of property taxes, maintenance and
insurance. Rental expense charged to operations in 1997, 1998 and 1999 was
approximately $7.3 million, $10.6 million and $11.0 million, respectively.
As of December 31, 1999, the minimum annual rentals payable under all
non-cancelable operating leases (includes operating stores only) were as
follows:
(Amounts
in
thousands
)
Year ending December 31:
2000 $11,608
2001 10,186
2002 9,462
2003 9,239
2004 8,188
Thereafter 17,365
$66,048
In addition, the Company also leases certain retail facilities on a
month-to-month basis. The aggregate monthly rental payment for
month-to-month leases at December 31, 1999 was approximately $13 thousand
dollars.
Workers' Compensation
Effective August 11, 1993, the Company became self-insured as to
workers' compensation claims. The Company carries excess workers'
compensation insurance, which covers any individual claim in excess of
$250,000 with a $2.0 million ceiling. The Company provides for losses of
estimated known and incurred but not reported insurance claims. Known
claims are estimated and accrued when reported. At December 31, 1999, the
Company had accrued approximately $2.1 million for estimated workers'
compensation claims.
In connection with the self-insurance of workers' compensation, the
Company is required by the State of California to maintain a $1.2 million
surety bond.
The Company is named as a defendant in various legal matters arising
in the normal course of business. In management's opinion, none of these
matters will have a material effect on the Company's financial position or
its results of operations.
Advertising
Advertising expenses were $2.0 million, $2.4 million and $2.4 million
for 1997, 1998 and 1999, respectively.
9. Stock Option Plan
The Company's 1996 Stock Option Plan provides for the granting of
non-qualified and incentive options to purchase up to 6,167,000 shares of
common stock. Options may be granted to officers, employees, directors and
consultants. Grants may be at fair market value at the date of grant or at
a price determined by the compensation committee (the "Committee"). Options
vest over a three year period, one third on the first anniversary date of
grant and one third per year thereafter. Options expire ten years from the
date of grant.
The following table summarizes stock options available for grant.
Year Year Year
ended ended ended
December December December
31, 31, 31,
1997 1998 1999
Beginning Balance 1,148,231 22,000 1,059,220
Authorized - 2,083,333 2,000,000
Granted (1,180,94 (1,223,04 (973,016)
0) 5)
Cancelled 54,709 176,932 148,136
Available for future grant 22,000 1,059,220 2,234,340
A summary of the status of the Plan for the years ended December 31,
1997, 1998 and 1999 follows:
December 31, December 31, December 31,
1997 1998 1999
Weight Weight Weight
ed ed ed
Averag Averag Averag
Shares e Shares e Shares e
Exerci Exerci Exerci
se se se
Price Price Price
Outstanding at the beginning
of the year 935,102 $5.31 1,965,3 $8.38 2,687,5 $10.48
92 66
Granted 1,180,9 10.59 1,223,0 23.47 973,016 35.21
40 45
Exercised (95,941 5.25 (323,93 6.56 (437,38 15.18
) 9) 0)
Cancelled (54,709 8.15 (176,93 10.19 (148,13 27.29
) 2) 6)
Outstanding at the end of the 1,965,3 8.38 2,687,5 10.48 3,075,0 21.34
year 92 66 66
Exercisable at the end of the 222,525 $5.33 621,469 $8.69 1,141,3 $11.83
year 70
Weighted average fair value of
options granted $8.66 $23.47 $22.66
The following table summarizes information about stock options
outstanding at December 31, 1999.
Weighted Weight Weight
Range of Average ed ed
Exercise Options Remaining Averag Options Averag
Prices Outstandi Contractual e Exercisab e
ng life Exerci le Exerci
se se
Price Price
$5.28-$6.69 446,758 6.4 $5.35 446,758 $5.35
$8.73- 720,824 7.3 10.57 397,580 10.56
$13.05
$15.90- 856,216 8.3 22.53 243,208 22.34
$22.80
$24.00- 1,051,268 9.3 34.54 53,824 27.57
$35.25
3,075,066 8.1 21.34 1,141,370 11.83
The Company has elected to continue to measure compensation costs
associated with its stock option plan under APB 25, "Accounting for Stock
Issued to Employees" and accordingly, under SFAS No. 123, the expected
impact on the Company's financial statements is included in this expanded
footnote disclosure.
Had the Company applied the fair value based method of accounting,
which is not required, to all grants of stock options, under SFAS 123, the
Company would have recorded additional compensation expense and computed
pro forma net income and earnings per share amounts as follows for the
years ended December 31, 1997, 1998 and 1999 (amounts in thousands, except
for per share data):
December 31,
1997 1998 1999
Additional compensation expense $3,11 $8,36 $16,0
2 0 71
Pro forma net income 17,08 21,67 12,32
3 7 8
Pro forma earnings per share:
Basic $0.56 $0.57 $0.37
Diluted $0.55 $0.56 $0.36
These pro forma amounts were determined by estimating the fair value
of each option on its grant date using the Black-Scholes option-pricing
model with the following assumptions:
December 31,
1997 1998 1999
Risk free interest rate 5.4% 4.9% 5.5%
Expected life 10 8.8 10
years years Years
Expected stock price volatility 77% 67% 44%
Expected dividend yield None None None
10. Operating Segments
The Company has two business segments, retail operations and wholesale
distribution. The majority of the product offerings include recognized
brand-name consumable merchandise, regularly available for reorder. The
Company's Bargain Wholesale division sells the same merchandise at prices
generally below normal wholesale levels to local, regional and national
distributors and exporters.
The accounting policies of the segments are the same as those
described above in the summary of significant accounting policies. The
Company evaluates segment performance based on net sales and gross profit
of each segment. Management does not track segment data or evaluate segment
performance on additional financial information. As such, there are no
separately identifiable segment assets nor is there any separately
identifiable statements of income data (below gross profit) to be
disclosed.
The Company accounts for inter-segment transfer at cost through its
inventory accounts.
The Company had no customers representing more than 10 percent of net
sales. Substantially all of the Company's net sales were to customers
located in the United States.
Reportable segment information for the years ended December 31, 1997,
1998 and 1999 follows (in 000's).
Retail Wholesale Total
1997
Net sales $186,024 $44,831 $230,855
Gross Margin 75,211 8,847 84,058
1998
Net sales $238,868 $53,202 $292,070
Gross Margin 99,021 10,005 109,026
1999
Net sales $312,306 $47,652 $359,958
Gross Margin 130,317 11,145 141,462
11. 401(k) Plan
In 1998 the Company adopted a 401(k) Plan (the Plan). All full time
employees are eligible to participate in the Plan after 3 months of
service. The Company has the option to match employee contributions. The
Company may elect to make a discretionary contribution to the Plan. For the
year ended December 31, 1999, no matching discretionary contributions were
made.
12. Discontinued Operations
On March 4, 2000, the Board of Directors approved the disposition of
the entire operations of Universal International, Inc., which comprises the
retail operations of Odds-n-Ends, Inc. and Only Deals, Inc.
The net losses of these operations for all periods are included in the
consolidated statements of income under "discontinued operations". Revenues
from such operations were $31,107 in 1998 and $83,264 in 1999. The carrying
value of the assets at December 31, 1999 was $26,928, which is net of a
$9,000 provision for loss on disposal.
The provision for loss on discontinued operations reflected in the
consolidated statement of income, includes the write-down of the assets of
Universal operations to estimate net realizable values and the estimated
cost of disposing these operations along with the estimated loss of $1,200
million through the estimated date of disposal, less the expected tax
benefits of approximately $2,613 applicable thereto.
13. Subsequent Events
In January 2000, the Company paid $1.4 million to acquire the
remaining minority interest of Universal. This additional cost for
Universal has been considered in the Company's estimate of the net
realizable value of the net assets of the discontinued operations as of
December 31, 1999.
In January 2000, the Company entered into a commitment to purchase an
existing distribution facility for $7.0 million.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
Information regarding directors of the registrant required by Item 401
of Regulation S-K and information regarding Directors and Executive
Officers of the registrant required by Item 405 of Regulation S-K is
presented under the captions "Election of Directors," "Management" and
"Section 16(a) Beneficial Ownership Reporting Compliance" in the definitive
Proxy Statement for the Company's 2000 Annual Meeting of Shareholders, and
is incorporated herein by reference.
Item 11. Executive Compensation
The information required by Item 402 of Regulation S-K is presented
under the caption "Executive Compensation" in the definitive Proxy
Statement for the Company's 2000 Annual Meeting of Shareholders, and is
incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by Item 403 of Regulation S-K is presented
under the caption "Principal Shareholders" in the definitive Proxy
Statement for the Company's 2000 Annual Meeting of Shareholders, and is
incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information required by Item 404 of Regulation S-K is presented
under the caption "Certain Relationships" in the definitive Proxy Statement
for the Company's 2000 Annual Meeting of Shareholders, and is incorporated
herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
1. Financial Statements. Reference is made to the Index to the
Consolidated Financial Statements set forth on page 32 of this Form
10-K.
2. Financial Statement Schedules. All Schedules for which provision is
made in the applicable accounting regulations of the Securities and
Exchange Commission are included herein.
3. Exhibits. The Exhibits listed on the accompanying Index to Exhibits
are filed as part of, or incorporated by reference into, this report.
4. 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 annual report
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized.
99 CENTS ONLY STORES
By
:
/s/ Andy Farina
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934
this Annual Report on Form 10K 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
Chairman of the Board and March 28,
/S/ David Gold Chief Executive Officer 2000
Senior Vice President of March 28,
/S/ Howard Gold Distribution and Director 2000
Senior Vice President of Real March 28,
/S/ Jeff Gold Estate and Information Systems 2000
and Director
March 28,
/S/ Eric Schiffer President and Director 2000
March 28,
/S/ William Christy Director 2000
March 28,
/S/ Lawrence Glascott Director 2000
March 28,
/S/ Marvin L. Holen Director 2000
March 28,
/S/ Ben Schwartz Director 2000
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To 99 Cents Only Stores:
We have audited in accordance with generally accepted auditing standards in
the United States, the consolidated financial statements of 99 Cents Only
Stores in this Form 10-K and have issued our report thereon dated March 7,
2000. Our audits were made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The schedule
listed in item 14 and included on page 50 is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to
the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Los Angeles, California
March 7, 2000
99 ONLY STORES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For Each of the Three Years in the Period Ended December 31, 1999
Beginni End
ng Additio Reducti Other of
of Year n on Year
(Amounts in Thousands)
For the year ended December 31,
1999:
Allowance for doubtful accounts $169 $29 $140
Inventory reserves 2,589 1,086 1,503
For the year ended December 31,
1998:
Allowance for doubtful accounts 178 - 9 - 169
Inventory reserves 3,762 - 1,173 - 2,589
For the year ended December 31,
1997:
Allowance for doubtful accounts 211 - 33 - 178
Inventory reserves $4,052 - $290 - $3,76
2
Exhibit Index
Exhib Exhibit Description
it
Numbe
r
3.1 Amended and Restated Articles of Incorporation of the
Registrant.(1)
3.2 Amended and Restated Bylaws of the Registrant.(1)
4.1 Specimen certificate evidencing Common Stock of the Registrant.(1)
10.1 Form of Indemnification Agreement and Schedule of Indemnified
Parties.(1)
10.2 [Reserved]
10.3 Form of Tax Indemnification Agreement, between and among the
Registrant and the Existing Shareholders.(1)
10.4 1996 Stock Option Plan.(1)
10.6 Lease for 13023 Hawthorne Boulevard, Hawthorne, California, dated
April 1 1994, by and between the Registrant as Tenant and HKJ Gold,
Inc. as Landlord, as amended.(1)
10.7 Lease for 6161 Atlantic Boulevard, Maywood, California, dated
November 11, 1985, by and between the Registrant as Lessee and
David and Sherry Gold, among others, as Lessors.(1)
10.8 Lease for 14139 Paramount Boulevard, Paramount, California, dated
as of March 1 1996, by and between the Registrant as Tenant and
14139 Paramount Properties as Landlord, as amended.(1)
10.9 Release Agreement, dated March 25, 1996, regarding 11382 Beach
Boulevard, Stanton, California, by and between the Registrant and
11382 Beach Partnership.(1)
10.10 Lease for 6124 Pacific Boulevard, Huntington Park, California,
dated January 31, 1991, by and between the Registrant as Tenant and
David and Sherry Gold as the Landlord, as amended.(1)
10.11 Lease for 14901 Hawthorne Boulevard, Lawndale, California, dated
November 1, 1991, by and between Howard Gold, Karen Schiffer and
Jeff Gold, dba 14901 Hawthorne Boulevard Partnership as Landlord
and the Registrant as Tenant, as amended.(1)
10.12 Lease for 5599 Atlantic Avenue, North Long Beach, California, dated
August 13, 1992, by and between the Registrant as Tenant and HKJ
Gold, Inc. as Landlord, as amended.(1)
10.13 Lease for 1514 North Main Street, Santa Ana, California, dated as
of November 12, 1993, by and between the Registrant as Tenant and
Howard Gold, Jeff Gold, Eric J. Schiffer and Karen R. Schiffer as
Landlord, as amended.(1)
10.14 Lease for 6121 Wilshire Boulevard, Los Angeles, California, dated
as of July 1, 1993, by and between the Registrant as Tenant and HKJ
Gold, Inc. as Landlord, as amended; and lease for 6101 Wilshire
Boulevard, Los Angeles, California, dated as of December 1, 1995,
by and between the Registrant as Tenant and David and Sherry Gold
as Landlord, as amended.(1)
10.15 Lease for 8625 Woodman Avenue, Arleta, California, dated as of July
8, 1993, by and between the Registrant as Tenant and David and
Sherry Gold as Landlord, as amended.(1)
10.16 Lease for 2566 East Florence Avenue, Walnut Park, California, dated
as of April 18, 1994, by and between HKJ Gold, Inc. as Landlord and
the Registrant as Tenant, as amended.(1)
10.17 Lease for 3420 West Lincoln Avenue, Anaheim, California, dated as
of March 1, 1996, by and between the Registrant as Tenant and HKJ
Gold, Inc. as Landlord, as amended.(1)
10.18 Master Lease for 4000 East Union Pacific Avenue, City of Commerce,
. California ("Warehouse and Distribution Facility Lease"), dated as
of December 20, 1993, by and between the Registrant as Lessee and
TBC Realty II Corporation ("TBC") as Lessor, together with Lease
Guaranty ("Lease Guaranty"), dated December 20, 1993, by and
between Sherry and David Gold and TBC with respect thereto and
Letter Agreement, dated December 15, 1993, among Registrant, The
Mead Corporation, TBC and Citicorp Leasing, Inc. with respect to
the Lease Guaranty.(1)
10.10 Hawaiian Gardens Indemnity Agreement, dated as of March 25, 1996,
by and between the Registrant and HKJ Gold, Inc.(1)
10.20 North Broadway Indemnity Agreement, dated as of May 1, 1996, by and
between HKJ Gold, Inc. and the Registrant.(1)
10.21 Lease for 2606 North Broadway, Los Angeles, California, dated as of
May 1, 1996, by and between HKJ Gold, Inc. as Landlord and the
Registrant as Tenant.(1)
10.22 Grant Deed concerning 8625 Woodman Avenue, Arleta, California,
dated May 2, 1996, made by David Gold and Sherry Gold in favor of
Au Zone Investments #2, L.P., a California limited partnership.(1)
10.23 Grant Deed concerning 6101 Wilshire Boulevard, Los Angeles,
California, dated May 2, 1996, made by David Gold and Sherry Gold
in favor of Au Zone Investments #2, L.P., a California limited
partnership.(1)
10.24 Grant Deed concerning 6124 Pacific Boulevard, Huntington Park,
California, dated May 2, 1996, made by David Gold and Sherry Gold
in favor of Au Zone Investments #2, L.P., a California limited
partnership.(1)
10.25 Grant Deed concerning 14901 Hawthorne Boulevard, Lawndale,
California, dated May 2, 1996, made by Howard Gold, Karen Schiffer
and Jeff Gold in favor of Au Zone Investments #2, L.P., a
California limited partnership.(1)
11.1 Statements Regarding Computation of Per Share Earnings*
21.1 Subsidiaries of the Registrant. Universal International Inc., Only
Deals, Inc., Odd's-N-End's Inc.
23.1 Consent of Arthur Andersen LLP.*
27.1 Financial Data Schedule*
* Filed herewith
(1) Incorporated by reference from the Company's Registration Statement on
Form S-1
as filed with the Securities and Exchange Commission on May 21, 1996.
(2) Incorporated by reference from the Company's Registration Statement on
Form S-3 as filed with the Securities and Exchange Commission on
March 31, 1998.
Exhibit 11.1
99 CENTS ONLY STORES
STATEMENTS REGARDING COMPUTATION OF
PER SHARE EARNINGS
(Amounts in Thousands, Except Per Share Data)
December 31,
1997 1998 1999
Income from continuing operations $18,95 $26,49 $34,13
0 2 8
Income (loss) from discontinued operations, net - 201 (3,167
)
Loss from disposal of discontinued operation, net - - (9,000
)
Net Income $18,95 $26,69 $21,97
0 3 1
Common Stock:
Shares outstanding from beginning of period 30,868 30,964 32,988
Pro-rata shares-stock issuance 36 1,081 264
Basic weighted average number of common shares 30,904 32,045 33,252
outstanding
Common stock equivalents 356 706 733
Diluted weighted average number of common shares 31,260 32,751 33,985
outstanding
Income from continuing operations:
Basic $0.61 $0.82 $1.03
Diluted $0.61 $0.81 $1.00
Income (loss) from discontinued operation:
Basic - $0.01 ($0.10
)
Diluted - $0.01 ($0.09
)
Loss from disposal of discontinued operation:
Basic - - ($0.27
)
Diluted - - ($0.26
)
Net Income
Basic $0.61 $0.83 $0.66
Diluted $0.61 $0.82 $0.65
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our reports included in this Form 10-K, into the Company's previously
filed Registration Statement File Nos. 333-26575, 333-80185 and 333-66729.
ARTHUR ANDERSEN LLP
Los Angeles, California
March 28, 2000
EXHIBIT 27.1
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1999
[PERIOD-START] JAN-01-1999
[PERIOD-END] DEC-31-1999
[CASH] 7,984
[SECURITIES] 59,571
[RECEIVABLES] 3,356
[ALLOWANCES] (140)
[INVENTORY] 53,932
[CURRENT-ASSETS] 122,368
[PP&E] 69,541
[DEPRECIATION] (20,119)
[TOTAL-ASSETS] 224,015
[CURRENT-LIABILITIES] 16,731
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 116,775
[OTHER-SE] 78,765
[TOTAL-LIABILITY-AND-EQUITY] 224,015
[SALES] 359,958
359,958
[CGS] 218,496
[TOTAL-COSTS] 80,089
[OTHER-EXPENSES] 0
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] (746)
[INCOME-PRETAX] 56,505
[INCOME-TAX] 22,367
[INCOME-CONTINUING] 34,138
[DISCONTINUED] (3,167)
[EXTRAORDINARY] (9,000)
[CHANGES] 0
[NET-INCOME] 21,971
[EPS-BASIC] 0.66
[EPS-DILUTED] 0.65
[FN]
Retained Earnings