Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
OR
|_| 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
of Incorporation or Organization) Identification 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
Former name, address and fiscal year, if change since last report: 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 Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the last 90 days. |X|
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Common Stock, No Par Value, 70,141,440 Shares as of July 1, 2002
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
99 CENTS ONLY STORES
BALANCE SHEETS
(Amounts In Thousands, Except Share Data)
ASSETS
JUNE 30, DECEMBER 31,
2002 2001
----------- -------------
(Unaudited) (Audited)
CURRENT ASSETS:
Cash................................................................. $ 178 $ 232
Short-term investments............................................... 117,012 147,566
Accounts receivable, net of allowance for doubtful accounts
of $165 as of June 30, 2002 and December 31, 2001, respectively.... 2,977 3,523
Income tax receivable................................................. 4,599 1,384
Inventories.......................................................... 78,744 66,528
Other................................................................ 3,504 3,886
---------- ----------
Total current assets............................................... 207,014 223,119
PROPERTY AND EQUIPMENT, at cost:
Land................................................................. 24,064 20,715
Building and improvements............................................ 26,186 24,007
Leasehold improvements............................................... 76,203 50,602
Fixtures and equipment............................................... 21,463 28,421
Transportation equipment............................................. 2,998 2,836
Construction in progress............................................. 12,152 17,856
---------- ----------
163,066 144,437
Less-Accumulated depreciation and amortization....................... (48,979) (40,798)
---------- ----------
114,087 103,639
OTHER ASSETS:
Deferred income taxes................................................ 15,688 15,688
Long term investments in marketable securities....................... 35,045 533
Deposits............................................................. 296 296
Long term investments in partnerships................................ 4,692 4,702
Other................................................................ 5,928 4,181
---------- ----------
61,649 25,400
---------- ----------
$ 382,750 $ 352,158
========== ==========
The accompanying notes are an integral part of these interim
financial statements.
Page 2
99 CENTS ONLY STORES
BALANCE SHEETS
(Amounts In Thousands, Except Share Data)
LIABILITIES AND SHAREHOLDERS' EQUITY
JUNE 30, DECEMBER 31,
2002 2001
----------- -------------
(Unaudited) (Audited)
CURRENT LIABILITIES:
Current portion of capital lease obligation........................ $ 41 $ 40
Accounts payable................................................... 7,520 15,244
Accrued expenses:
Payroll and payroll-related..................................... 4,858 2,771
Sales tax....................................................... 1,495 3,011
Other........................................................... 1,190 562
Workers compensation.............................................. 6,052 5,534
Due to shareholders............................................... - 1,655
---------- ----------
Total current liabilities 21,156 28,817
LONG-TERM LIABILITIES:
Deferred compensation.............................................. 950 -
Deferred rent..................................................... 2,120 2,061
Capitalized lease obligation...................................... 1,627 1,637
---------- ----------
Total Long-term liabilities 4,697 3,698
---------- ----------
COMMITMENTS AND CONTINGENCIES: - -
SHAREHOLDERS' EQUITY:
Preferred stock, no par value
Authorized-100,000,000 shares
Issued and outstanding-none....................................... - -
Common stock, no par value
Authorized-100,000,000 shares
Issued and outstanding 70,141,440 shares at June 30, 2002
and 69,506,103 shares at December 31, 2001.................... 167,418 156,154
Retained earnings................................................. 189,479 163,489
---------- ----------
356,897 319,643
---------- ----------
$ 382,750 $ 352,158
========== ==========
The accompanying notes are an integral part of these interim
financial statements.
Page 3
99 CENTS ONLY STORES
STATEMENTS OF INCOME
THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Amounts In Thousands, Except Per Share Data)
(Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2002 2001 2002 2001
---------- ---------- ---------- ----------
NET SALES:
99 Cents Only Stores..................................... $155,436 $122,522 $305,083 $232,734
Bargain Wholesale (includes sales to an
affiliate of $1,217 for the three months
ended June 30, 2001 and $3,020 for the six
months ended June 30, 2001)............................ 12,425 13,852 25,882 28,609
---------- ---------- ---------- ----------
167,861 136,374 330,965 261,343
COST OF SALES.............................................. 100,298 83,195 199,159 160,094
---------- ---------- ---------- ----------
Gross profit............................................ 67,563 53,179 131,806 101,249
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Operating expenses...................................... 42,280 33,817 83,263 64,656
Depreciation and amortization........................... 4,259 2,897 8,199 5,524
---------- ---------- ---------- ----------
46,539 36,714 91,462 70,180
---------- ---------- ---------- ----------
Operating income........................................ 21,024 16,465 40,344 31,069
OTHER INCOME:
Interest income......................................... (851) (1,091) (1,576) (2,426)
Other................................................... (360) (360) (720) (720)
---------- ---------- ---------- ----------
(1,211) (1,451) (2,296) (3,146)
---------- ---------- ---------- ----------
Income before provision for income taxes................. 22,235 17,916 42,640 34,215
PROVISION FOR INCOME TAXES................................. 8,717 6,987 16,652 13,323
---------- ---------- ---------- ----------
NET INCOME................................................. $13,518 $10,929 $25,988 $20,892
========== ========== ========== ==========
NET EARNINGS PER COMMON SHARE:
Basic................................................... $0.19 $0.16 $0.37 $0.31
Diluted................................................. $0.19 $0.16 $0.37 $0.30
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic................................................... 69,888 68,506 69,726 68,455
Diluted................................................. 71,275 69,499 71,100 69,341
The accompanying notes are an integral part of these interim
financial statements.
Page 4
99 CENTS ONLY STORES
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(Amounts in Thousands)
(Unaudited)
JUNE 30,
2002 2001
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $ 25,988 $ 20,892
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................. 8,199 5,524
Tax benefit from exercise of non-qualified
Employee stock options......................................... 3,122 872
Other.......................................................... (15) (190)
Changes in assets and liabilities associated with
operating activities:
Accounts receivable............................................ 546 (59)
Inventories.................................................... (12,216) (4,913)
Other assets................................................... 382 (4,758)
Accounts payable............................................... (7,724) (901)
Accrued expenses............................................... 1,199 (2,624)
Workers compensation........................................... 518 497
Income taxes................................................... (3,215) 4,143
Deferred rent.................................................. 60 60
Due to shareholders............................................ (1,655) -
---------- ----------
Net cash provided by operating activities........................... 15,189 18,543
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.............................. (18,629) (17,810)
Reduction in short-term investments.............................. 30,554 (9,436)
Purchases of long-term investments............................... (34,512) (1,825)
Net purchases of short-term and long-term investments............ (787) -
---------- ----------
Net cash used in investing activities.......................... (23,374) (29,071)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of capital lease obligation............................. (11) -
Proceeds from exercise of stock options.......................... 8,142 1,705
---------- ----------
Net cash provided by financing activities.................... 8,131 1,705
---------- ----------
NET DECREASE IN CASH................................................ (54) (8,823)
CASH, beginning of period........................................... 232 9,034
---------- ----------
CASH, end of period................................................. $ 178 $ 211
========== ==========
The accompanying notes are an integral part of these interim
financial statements.
Page 5
99 CENTS ONLY STORES
NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America. However, certain information and footnote disclosures normally included
in financial statements prepared in conformity with accounting principles
generally accepted in the United States have been omitted or condensed pursuant
to the rules and regulations of the Securities and Exchange Commission (SEC).
These statements should be read in conjunction with the Company's December 31,
2001 audited financial statements and notes thereto included in the Company's
Form 10-K filed April 1, 2002. In the opinion of management, these interim
financial statements reflect all adjustments (consisting of normal recurring
adjustments) necessary for a fair statement of the results for the periods
presented. The results of operations and cash flows for such periods are not
necessarily indicative of results to be expected for the full year.
CONCENTRATION OF OPERATIONS
The Company's 99 Cents Only Stores are located in California, Nevada and
Arizona. The Company's current retail expansion plans for the 99 Cents Only
Stores include planned new stores in these geographic regions. Consequently, the
Company's results of operations and financial condition are substantially
dependent upon general economic trends and various environmental factors in
those regions.
2. EARNINGS PER COMMON SHARE
Earnings per share calculations are in accordance with SFAS No. 128,
"Earnings per Share" (SFAS 128). Accordingly "basic" earnings per share is
computed by dividing net income by the weighted average number of shares
outstanding for the period. "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).
The table below is a reconciliation of the basic weighted average number
of shares outstanding and the diluted weighted average number of shares
outstanding for the three and six months ended June 30, 2002 and 2001 (amounts
in thousands):
3 MONTHS ENDED 6 MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2002 2001 2002 2001
------- ------- ------- -------
Weighted average number of common shares
outstanding-Basic............................. 69,888 68,506 69,726 68,455
Dilutive effect of outstanding stock options..... 1,387 993 1,374 886
------- ------- ------- -------
Weighted average number of common shares
outstanding-Diluted........................... 71,275 69,499 71,100 69,341
======= ======= ======= =======
Page 6
3. SHORT-TERM INVESTMENTS
Investments 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, primarily with
short-term maturities. The Company generally holds investments until maturity
and has not experienced any significant gain or loss from the sales of its
investments. Any premium or discount recognized in connection with the purchase
of an investment is amortized over the term of the investment. As of June 30,
2002 and December 31, 2001, the fair value of investments approximated the
carrying values and were invested as follows (amounts in thousands):
(UNAUDITED)
MATURITY MATURITY
---------- --------
JUNE 30, WITHIN 1 1 YEAR OR DEC. 31, WITHIN 1 1 YEAR OR
--------- --------- ---------- --------- --------- ---------
2002 YEAR MORE 2001 YEAR MORE
---- ---- ---- ---- ---- ----
Municipal Bonds...... $123,571 $88,526 $35,045 $113,075 $112,542 $533
Corporate Securities. 1,184 1,184 0 981 981 -
Commercial Paper..... 27,302 27,302 0 34,043 34,043 -
$152,057 $117,012 $35,045 $148,099 $147,566 $533
4. NEW AUTHORITATIVE PRONOUNCEMENTS
In June 2001, the FASB approved two final statements: SFAS No. 141,
"Business Combinations," which provides guidance on the accounting for business
combinations and was effective July 1, 2001 and SFAS No. 142, "Goodwill and
Other Intangible Assets," which defines when and how goodwill and other
intangible assets are amortized and was effective as of January 1, 2002. These
statements did not have an impact on the Company's financial position or results
of operations.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" (SFAS 143). This statement addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement cost. SFAS 143 is
effective for financial statements issued for fiscal years beginning after June
15, 2002. Management does not expect that the adoption of SFAS 143 will have an
impact on the Company's financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 was effective
for the financial statements issued for fiscal years beginning after December
15, 2001 and interim periods within those fiscal years. The adoption of SFAS 144
did not have an impact on the Company's financial position or results of
operations.
5. RELATED-PARTY TRANSACTIONS
The Company leases certain retail facilities from its principal
shareholders. Rental expense for these facilities was approximately $1.9 million
for each of the fiscal years 1999, 2000 and 2001.
Effective September 30, 2000, the Company sold its discontinued operation,
Universal International, Inc. ("Universal")to a Company owned 100% by Dave and
Sherry Gold, both significant shareholders of 99 Cents Only Stores. Mr. Gold is
also the Chief Executive Officer and a director. Subsequent to December 31,
2001, Universal ceased operations and closed its business. It is expected that
Universal will terminate its Service Agreement and Lease Agreement with 99 Cents
Only Stores some time during 2002. From January 1, 2002 to June 30, 2002, the
Company recorded $0.8 million and $0.7 million of revenue under a Services
Agreement and Lease Agreement, respectively, and purchased $0.4 million of close
Page 7
out inventory from Universal related to this transaction. From January 1, 2001
to June 30, 2001, the Company recorded $1.6 million and $0.7 million under a
Services Agreement and Lease Agreement, respectively, related to this
transaction.
6. OPERATING SEGMENTS
The Company has two business segments, retail operations and wholesale
distribution. The retail segment includes 99 Cents Only Stores retail stores.
The majority of the product offerings include recognized brand-name consumable
merchandise, regularly available for reorder. Bargain Wholesale 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 described in the summary of
significant accounting policies noted in the Company's Annual Report on Form
10-K for the year ended December 31, 2001. The Company evaluates segment
performance based on the 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.
At June 30, 2002, the Company had no customers representing more than 4.5%
of Bargain Wholesale's net sales. Substantially all of the Company's net sales
were to customers located in the United States.
Reportable segment information for the three month and the six month
periods ended June 30, 2002 and June 30, 2001 follows (amounts in thousands):
THREE MONTHS ENDED JUNE 30 RETAIL WHOLESALE TOTAL
-------- --------- --------
2002
Net sales............. $155,436 $12,425 $167,861
Gross margin.......... 64,988 2,575 67,563
2001
Net sales............. $122,522 $13,852 $136,374
Gross margin.......... 50,472 2,707 53,179
SIX MONTHS ENDED JUNE 30 RETAIL WHOLESALE TOTAL
-------- --------- --------
2002
Net sales............. $305,083 $25,882 $330,965
Gross margin.......... 126,637 5,169 131,806
2001
Net sales............. $232,734 $28,609 $261,343
Gross margin.......... 95,718 5,531 101,249
Page 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following management's discussion and analysis should be read in connection
with "Item 1. 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 June 30, 2002, operated a chain of 139
deep-discount 99 Cents Only Stores. The Company's growth during the last three
fiscal years has come primarily from new store openings, and growth in its
Bargain Wholesale division. The Company opened eighteen, twenty and twenty-six
stores in 1999, 2000 and 2001, respectively (fourteen, twenty and twenty-five,
respectively, net of relocated stores). The Company opened sixteen stores
through June 30, 2002 (three stores in Southern California, four in Central
California, two in Northern California, two in Las Vegas, Nevada and five in
Phoenix, Arizona). The Company plans to open an additional 15 net new stores
during the remainder of the year, including stores in Las Vegas, Nevada and
Phoenix, Arizona. Of the 15 intended new locations, as of June 30, 2002, the
Company has secured sites for seven of these additional store locations. Bargain
Wholesale sales are primarily focused on large domestic and international
accounts and local and regional independent retailers. 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.
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.
The Company currently targets larger locations for new store development which
are between 15,000 and 20,000 gross square feet. Although it is the Company's
experience that the 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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The preparation of financial statements requires management to make estimates
and assumptions that affect reported earnings. The estimates and assumptions are
evaluated on an on-going basis and are based on historical experience and on
other factors that management believes are reasonable. Estimates and assumptions
include, but are not limited to, the areas of customer receivables, inventories,
income taxes, self-insurance reserves, and commitments and contingencies.
The Company believes that the following represent the areas where more critical
estimates and assumptions are used in the preparation of the financial
statements:
Page 9
INVESTMENTS: The Company records its investments, which are comprised primarily
of investment grade federal and municipal bonds and commercial paper, at fair
value. 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.
LONG-LIVED ASSET IMPAIRMENTS: The Company records impairments when the carrying
amounts of long-lived assets are determined not to be recoverable. Impairment is
assessed and measured by an estimate of future cash flows expected to result
from the use of the asset and its eventual disposition. Changes in market
conditions can impact estimated future cash flows from use of these assets and
additional impairments may be required should such changes occur.
SELF-INSURANCE RESERVES: The Company is self-insured in relation to workers'
compensation claims. The Company carries excess workers' compensation insurance,
which covers individual claims up to the policy deductible amount. The Company
provides for losses of estimated known and incurred but not reported insurance
claims. These estimates are based on reported claims and actuarial valuations.
Should a greater amount of claims occur compared to what was estimated, reserves
recorded may not be sufficient and additional expense could be incurred.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
This Form 10-Q contains statements that constitute "forward-looking statements"
within the meaning of Section 21E of the Exchange Act and Section 27A of the
Securities Act. The words "expect," "estimate," "anticipate", "predict,"
"believe" and similar expressions and variations thereof are intended to
identify forward-looking statements. Such statements appear in a number of
places in this filing and include statements regarding the intent, belief or
current expectations of 99 Cents Only Stores, its directors or officers with
respect to, among other things, (a) trends affecting the financial condition or
results of operations of the Company and (b) the business and growth strategies
of the Company. The shareholders of the Company are cautioned not to put undue
reliance on such forward-looking statements. Such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties, and
actual results may differ materially from those projected in this Report, for
the reasons, among others, discussed in the Sections - "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Risk
Factors." The Company undertakes no obligation to publicly revise these
forward-looking statements to reflect events or circumstances that arise after
the date hereof. Readers should carefully review the risk factors described in
other documents the Company files from time to time with the Securities and
Exchange Commission, including the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 2001 and in this Form 10-Q.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2002 COMPARED TO THREE MONTHS ENDED JUNE 30, 2001
NET SALES: Net sales increased $31.5 million, or 23.1%, to $167.9 million in the
2002 period from $136.4 million in the 2001 period. Retail sales increased $32.9
million to $155.4 million in the 2002 period from $122.5 million in the 2001
period. The retail net sales increase primarily was attributable to the net
effect of sixteen new stores opened in 2002, the full quarter effect of 25 net
new stores opened in 2001 and the 2.1% increase in same store sales. Bargain
Wholesale net sales were $12.4 million in the 2002 period and were $13.9 million
in the 2001 period. The 2001 period included $1.2 million in net sales to
Universal as compared to none for the 2002 period.
GROSS PROFIT: Gross profit increased approximately $14.4 million, or 27.1%, to
$67.6 million in the 2002 period from $53.2 million in the 2001 period. The
increase in gross
Page 10
profit was due to higher net retail sales and favorable purchase cost variances
for close-out merchandise. Overall gross profit margin for the 2002 period was
40.3% versus 39.0% for the 2001 period.
SELLING, GENERAL AND ADMINISTRATIVE: SG&A increased by $9.8 million, or 26.8%,
to $46.5 million in the 2002 period from $36.7 million in the 2001 period. As a
percentage of net sales, total SG&A increased to 27.7% for the 2002 period from
26.9% for the 2001 period. This increase primarily is related to the California
minimum wage increase in January 2002 and depreciation cost increases.
OPERATING INCOME: As a result of the items discussed above, operating income
increased $4.6 million, or 27.7%, to $21.0 million for the 2002 period from
$16.4 million for the 2001 period. Operating margin was 12.5% for the 2002
period versus 12.1% for the 2001 period.
OTHER INCOME (EXPENSE): Other income (expense) includes interest income on the
Company's marketable securities and interest income from a lease agreement with
Universal. Interest income was $.9 million for the 2002 period and $1.1
million for the 2001 period. The decrease in interest income is a result of
lower interest rates during the 2002 period than were in effect for the 2001
period. During 2002 and 2001, the Company had no bank debt. At June 30, 2002,
the Company held $117.0 million in short-term investments and $35.0 million in
long-term investments. The Company's short-term and long-term investments are
comprised primarily of investment grade federal bonds, municipal bonds and
commercial paper. The Company generally holds investments until maturity. In
each of the 2002 and 2001 periods, the Company recorded $0.4 million of rent
income under a lease agreement with Universal.
PROVISION FOR INCOME TAXES: The provision for income taxes was $8.7 million in
the 2002 period compared to $7.0 million for the 2001 period. The effective rate
of the provision for income taxes was approximately 39.2% for the 2002 period
and 39.0% for the 2001 period. This variance results from available tax credits
and tax-free interest income earned.
NET INCOME: As a result of the items discussed above, net income increased $2.6
million, or 23.9%, to $13.5 million for the 2002 period from $10.9 million for
the 2001 period. Net income as a percentage of sales was 8.1% for the 2002
period and 8.0% for the 2001 period.
SIX MONTHS ENDED JUNE 30, 2002 COMPARED TO SIX MONTHS ENDED JUNE 30, 2001
NET SALES: Net sales increased $69.6 million, or 26.6%, to $331.0 million in the
2002 period from $261.3 million in the 2001 period. Retail sales increased $72.3
million to $305.1 million in the 2002 period from $232.7 million in the 2001
period. The retail net sales increase primarily was attributable to the net
effect of sixteen net new stores opened in the first six months of 2002, the
full six months effect of 25 net new stores opened in 2001, and a 5.0% increase
in comparable same store sales for the six-month period. Bargain Wholesale net
sales were $25.9 million for the 2002 period and $28.6 million for the 2001
period. Included in Bargain Wholesale net sales for the 2001 period were $3.1
million of shipments to Universal at a 10% gross margin. No shipments to
Universal were made in the first six months of 2002 as a result of the closing
of Universal.
GROSS PROFIT: Gross profit increased approximately $30.6 million, or 30.2%, to
$131.8 million in the 2002 period from $101.2 million in the 2001 period. The
increase in gross profit primarily was due to higher net sales volume and margin
improvement resulting from favorable product cost factors. The gross profit
margin as a percentage of net sales was 39.8% in the 2002 period versus 38.7% in
the 2001 period. The year to date retail gross margin was 41.5% for the 2002
period versus 41.1% for the 2001 period. The change in the
Page 11
retail gross profit margin is due to product cost factors and category sales
mix. The wholesale gross profit margin was 20.0% for the 2002 period and 19.3%
for 2001 period.
SELLING, GENERAL AND ADMINISTRATIVE: SG&A increased by $21.3 million, or 30.3%,
to $91.5 million in the 2002 period from $70.2 million in the 2001 period. As a
percentage of net sales, total SG&A increased to 27.6% for the 2002 period from
26.9% for the 2001 period. This increase was a result of the California minimum
wage increase in January 2002, which was partially offset by $0.8 million in
management fees earned for administrative services provided to Universal.
Additional cost increases included depreciation.
OPERATING INCOME: As a result of the items discussed above, operating income
increased $9.3 million, or 29.9%, to $40.3 million for the 2002 period from
$31.1 million for the 2001 period. Operating margin was 12.2% for the 2002
period versus 11.9% for the 2001 period.
OTHER INCOME (EXPENSE): Other income (expense) includes interest income on the
Company's marketable securities and interest income under a lease agreement with
Universal. Interest income decreased $0.8 million, or 35.0%, to $1.6 million for
the 2002 period from $2.4 million for the 2001 period. The decrease in net
interest income between 2002 and 2001 was primarily due to lower interest earned
on short-term and long-term marketable securities because of interest rate
declines over the past year. At June 30, 2002, the Company held $117.0 million
in short-term investments and $35.0 million in long-term investments. The
Company's short-term and long-term investments are comprised primarily of
investment grade federal bonds, municipal bonds and commercial paper. The
Company generally holds investments until maturity. In each of the 2002 and 2001
periods, the Company recorded $0.7 million of rent income under a lease
agreement with Universal.
PROVISION FOR INCOME TAXES: The provision for income taxes was $16.7 million for
the 2002 period compared to $13.3 million for the 2001 period. The effective
rate of the provision for income taxes was approximately 39.1% for the 2002
period and 38.9% for the 2001 period. This variance results from available tax
credits and tax-free interest income earned.
NET INCOME: As a result of the items discussed above, net income increased $5.1
million, or 24.4%, to $26.0 million, or $0.37 per diluted share for the 2002
period, from $20.9 million, or $0.30 per diluted share, for the 2001 period. Net
income as a percentage of sales was 7.9% for the 2002 period and 8.0% for the
2001 period.
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 requirements result primarily from purchases of
inventory, expenditures related to 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.
Net cash provided by operations during the six months ended June 30, 2002 was
$13.5 million, primarily consisting of $26.0 million of net income adjusted for
non-cash items. Net cash provided by operations during the six months ended June
30, 2001 was $17.7 million, primarily consisting of $20.9 million of net income
adjusted for non-cash items. In the six months ended June 30, 2002, the Company
used $8.5 million for working capital. Net cash used for working capital and
other activities primarily reflects an increase in inventory of $12.2 million,
payment on accounts payable of $7.7 million and payment of $1.7 million due to
shareholders as a result of the tax benefit of the sale of Universal
Page 12
and other related transactions with Universal.
Net cash used in investing activities during the six months ended June 30, 2002
and 2001 was $22.6 million and $29.1 million, respectively. Net cash used in
investing activities for the 2002 period reflects $19.0 million used for capital
expenditures, including $14.6 million used to open new stores. Net cash used in
investing activities for the 2001 period reflects $17.8 million used for capital
expenditures, including $11.1 million used to open new stores. The increase in
net cash used in investing activities primarily is due to the purchase of
marketable securities, which increased to $15.5 million for the 2002 period from
$11.3 million for the 2001 period.
Net cash provided by financing activities during the six months ended June 30,
2002 and 2001 was $9.0 million and $2.6 million, respectively, each of which
represents the proceeds from the exercise of non-qualified stock options. The
Company does not maintain any credit facilities with any bank. However, the
Company has pledged a $5.1 million FNMA bond with the State of California
Department of Industrial Relations as security for self-insured workers
compensation.
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 2002, including leasehold
improvements, furniture, fixtures and equipment, inventory and pre-opening
expenses, is approximately $660,000. The Company does not capitalize pre-opening
expenses. The Company's cash requirements for new store openings are expected to
total approximately $35.0 million in 2002, which includes the acquisition of
properties. The Company's total planned expenditure in 2002 for additions to
fixtures and leasehold improvements of existing stores, as well as for
distribution, systems, expansion and replacement equipment is approximately
$10.0 million. The Company believes that its total capital expenditure
requirements for 2002 (including new store openings) will be approximately $45.0
million. The Company intends to fund its liquidity requirements for 2002 out of
net cash provided by operations, short-term investments and cash on hand.
RISK FACTORS
TERRORISM AND THE UNCERTAINTY OF WAR MAY HAVE AN ADVERSE EFFECT ON OUR OPERATING
RESULTS
Terrorism attacks, such as the attacks that occurred in New York and Washington
D.C. on September 11, 2001, the response by the United States initiated on
October 7, 2001 and other acts of violence or war may affect the market on which
our common stock will trade, the markets in which we operate and our
profitability. Further terrorist attacks on the United States or United States
businesses may occur. The potential near-term and long-term effects these
attacks may have for our customers, the market for our common stock, the market
for our products and the United States economy are uncertain. The consequence of
any terrorist attack, or any armed conflicts which may result, are
unpredictable, and we may not be able to foresee events that could have an
adverse effect on our markets or our business.
INFLATION MAY AFFECT OUR ABILITY TO SELL MERCHANDISE AT THE 99 CENTS PRICE POINT
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
Page 13
also "We are vulnerable to uncertain economic factors and changes in the 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 1999, 2000
and 2001, we opened eighteen, twenty and twenty-six 99 Cents Only Stores,
respectively (fourteen, twenty and twenty-five stores, respectively, net of
relocated stores). As of June 30, 2002, we opened sixteen stores and expect to
open at least 15 additional stores in the remainder of 2002. 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 we will improve our results of operations when we
open new stores. 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 CONCENTRATED IN SOUTHERN CALIFORNIA
All but 17 of our 99 Cents Only Stores are currently located in California. The
Company operates seven stores in Las Vegas, Nevada and ten stores in Arizona.
Accordingly, our results of operations and financial condition largely 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. If retail spending declines again due to another economic slow-down or
recession in Southern California, we cannot assure you that our operations will
not be negatively impacted.
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.
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
Page 14
merchandise consists of closeouts 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, 1999,
2000 and 2001, we recorded net inventory of $53.9 million, $63.7 million and
$66.5 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 profit, 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;
Page 15
- - increases in operating costs;
- - increases in employee health care costs;
- - increases in prevailing wage levels; and
- - decreases in consumer confidence levels.
In January 2001, California enacted a minimum wage increase of $0.50 per hour
with an additional $0.50 increase required in January 2002. In 2001, annual
payroll expenses increased less than 1.0% for the first year the minimum wage
increase was in effect. We expect a similar increase for the year 2002. Because
we provide consumers with merchandise at a 99 cents fixed price point, we
typically cannot pass on cost increases to our customers. However the Company
believes that the increased minimum wage will result in incremental customer
spending in our stores.
WE FACE RISKS ASSOCIATED WITH INTERNATIONAL SALES AND PURCHASES
Although international sales historically have not been important to our net
sales, they have contributed to historical 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; and
- - 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 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 $1.9 million in
each of 1999, 2000 and 2001. Through June 30, 2002, the Company recorded $1.1
million in rental expense associated with these properties. 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 the Company 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 and Eric Schiffer, our Chief
Executive Officer and President, respectively. 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.
Page 16
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 2000 and 2001, we generated approximately 29.6% and 29.9%, respectively,
of our net sales and approximately 32.7% and 35.3%, respectively, of our
operating income during the fourth quarter. If for any reason the Company's net
sales were to fall below norms during the fourth quarter it could have an
adverse impact on our profitability and impair our results of operations for the
entire year. Adverse weather conditions or other disruptions during the peak
holiday season could also affect our net sales and profitability for the 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. These factors include:
- - the number of new stores and timing of new store openings;
- - 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. As of June 30, 2002,
we lease all but 17 of our stores. In December 2000, the Company exercised its
option to purchase its main warehouse and distribution facility (where our
executive offices are located) for $10.5 million. 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. Moreover David Gold, our Chairman and Chief Executive
Officer, and members of his immediate family and certain of their affiliates
beneficially own 22,735,622, or 32.4% of shares outstanding. As a result, they
have the ability to influence 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 potentially 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.
Page 17
THE MARKET PRICE OF OUR STOCK COULD BE VOLATILE.
The market price of our common stock has been subject to volatility and, in the
future, the market price of our common stock may fluctuate substantially due to
a variety of factors, including:
o quarterly fluctuations in our operating income and earnings per
share results;
o economic conditions;
o changes in earnings estimates by market research analysts;
o conditions or trends in our industry;
o sales of common stock by existing holders;
o loss of key personnel; and
o securities class actions or other litigation.
The market price for our common stock may also be affected by our ability to
meet analysts' expectations. Any failure to meet such expectations, even
slightly, could have an adverse effect on the market price of our common stock.
In addition, the stock market is subject to extreme price and volume
fluctuations. This volatility has had a significant effect on the market prices
of securities issued by many companies for reasons unrelated to the operating
performance of these companies. In the past, following periods of volatility in
the market price of a company's securities, securities class action litigation
has often been instituted against that company. If similar litigation were
instituted against us, it could result in substantial costs and a diversion of
our management's attention and resources, which could have an adverse effect on
our business, results of operations and financial condition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate risk for its investments in
marketable securities. At June 30, 2002, the Company had $152.1 million in
marketable securities maturing at various dates through February 2004. The
Company's investments are comprised primarily of investment grade federal and
municipal bonds and commercial paper. The Company generally holds investments
until maturity, and therefore should not bear any interest risk due to early
disposition. We do not enter into any derivative or interest rate hedging
transactions. Any premium or discount recognized upon the purchase of an
investment is amortized over the term of the investment. At June 30, 2002, the
fair value of investments approximated the carrying value.
Page 18
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
The Company held its 2002 Annual Meeting of Stockholders on June 5, 2002. A
quorum of shareholders were present either in person or by proxy. There were
four matters submitted to a vote of the shareholders.
The first matter was the election of nine directors to hold office for a
one-year term. All directors who were nominated were elected. The results of the
election are set forth in the following table:
DIRECTOR VOTES FOR VOTES AGAINST
- -------- --------- -------------
William Christy 57,622,723 759,561
Lawrence Glascott 57,568,561 813,723
David Gold 52,225,632 6,126,625
Howard Gold 52,225,632 6,126,625
Jeff Gold 52,225,632 6,126,625
Marvin Holen 57,568,561 813,723
Eric Schiffer 51,859,833 6,522,451
Ben Schwartz 57,622,723 759,561
John Shields 57,622,723 759,561
The second proposal was to increase the number of authorized shares of common
stock from 100 million shares to 200 million shares. This proposal was approved.
VOTES FOR VOTES AGAINST ABSTENTIONS
--------- ------------- -----------
54,280,870 4,100,368 1,046
The third proposal was to amend the 1996 Stock Option Plan to increase the
number of shares of common stock available for issuance under the plan from
12,334,367 shares to 17,000,000 shares. This proposal was approved.
VOTES FOR VOTES AGAINST ABSTENTIONS
--------- ------------- -----------
42,772,748 15,597,082 12,453
The fourth matter was to consider and act upon a shareholder proposal that
requested the Board of Directors to establish certain vendor standards to be
inserted in the Company's purchase contracts with its vendors. This proposal was
not approved.
VOTES FOR VOTES AGAINST ABSTENTIONS
--------- ------------- -----------
4,835,027 45,931,250 8,156,006
Page 19
ITEM 5. OTHER INFORMATION None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
99.1 Certification of Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 dated
August 14, 2002.
99.2 Certification of Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 dated
August 14, 2002.
b. Reports on Form 8-K
(i) Current report on Form 8-K filed on July 25, 2002; Item 5 was
reported.
(ii) Current Report on Form 8-K filed on June 14, 2002; Item 4 was
reported.
(iii) Current Report on Form 8-K filed on April 18, 2002; Item 5 was
reported.
Page 20
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereto duly authorized.
99 CENTS ONLY STORES
Date: August 14, 2002 /s/ Andrew A. Farina
-----------------------------
Andrew A. Farina
Chief Financial Officer
(Duly Authorized Officer)
Page 21
EXHIBIT INDEX
99.1 Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes- Oxley Act of 2002 dated August 14, 2002.
99.2 Certification of Chief Financial Officer pursuant to Section 906 of the
Sarbanes- Oxley Act of 2002 dated August 14, 2002.
Page 22