99 Cents Only Stores(R) Announces Financial Results for the Quarter Ended December 31, 2005 and Form 10-Q Filings for the Quarters Ended March 31, June 30, September 30, and December 31, 2005.CITY OF COMMERCE, Calif. -- 99 Cents Only Stores(R) (NYSE NYSE See: New York Stock Exchange :NDN NDN Indian NDN Naples Daily News (Daily news paper in Naples Florida) NDN Non Delivery Notification NDN National Data Network NDN Necdin NDN New Democratic Network NDN Next Door Neighbor NDN Nevada Donor Network ) (the "Company") today announced its financial results for the quarter ended December December: see month. 31, 2005 and the filing of its Form 10-Qs Form 10-Q See 10-Q. for the quarters ended March 31, June June: see month. 30, September September: see month. 30, and December 31, 2005. The Company reports for the quarter ended December 31, 2005 diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of of $0.09 on net income of $6.3 million compared to same quarter 2004 diluted earnings per share of $0.12 on net income of $8.7 million. For the nine months ended December 31, 2005, the Company reports diluted earnings per share of $0.18 on net income of $12.4 million, compared to the nine months ended December 31, 2004 diluted earnings per share of $0.25 on net income of $17.6 million. An analysis of the Company's financial condition and results of operations is included below. Eric ERIC Educational Research Information Clearinghouse ERIC Educational Resources Information Center ERIC ERISA Industry Committee ERIC Epidemiologic Research and Information Center (Durham, NC) Schiffer Schiffer is a German surname meaning "ship steerer". It may refer to:
Traction is the use of a pulling force to treat muscle and skeleton disorders. Purpose Traction is usually applied to the arms and legs, the neck, the backbone, or the pelvis. with the fundamental changes that we believe will position us for profitable expansion. Pressure on our operating margins Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: has continued due to the interim costs of building management infrastructure and efforts to meet Sarbanes-Oxley requirements and due to the resulting diversion A turning aside or altering of the natural course or route of a thing. The term is chiefly applied to the unauthorized change or alteration of a water course to the prejudice of a lower riparian, or to the unauthorized use of funds. of management from day-to-day day-to-day adj. 1. Occurring on a routine or daily basis: the day-to-day movements of the stock market. 2. operations. Our focus on sales has shown some initial success and we are moving forward on short and long term projects to improve costs, inventory management, and ultimately earnings per share and our return on invested capital. "We look forward to discussing the results of our operations for the quarter ended December 31, 2005, including progress and plans, during our conference call tomorrow morning." Additional Release Highlights --Previously announced conference call details for Thursday Thursday: see week. , June 1, 8:00 a.m. PDT PDT abbr. Pacific Daylight Time PDT Pacific Daylight Time PDT n abbr (US) (= Pacific Daylight Time) → hora de verano del Pacífico PDT --March 31, 2006 quarter guidance: too early to expect progress on expenses and cost structure; net income expected to be approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $0.01 per share, similar to the March 31, 2005 quarter --Management outline of key components of its turnaround Turnaround A situation where a company that has had poor performance for an extended period of time experiences a positive reversal. Notes: A speculator may profit from a turnaround if he or she accurately anticipates the improvement of a poorly performing company. plan for fiscal 2007 --Adjustments between preliminary releases and Form 10-Q filings for March 31, June 30 and September 30, 2005 quarters summarized by quarter --Delay in the filing of the fiscal year 2006 Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. past the June 14, 2006 filing deadline related to delays in the completion of the calendar 2005 Form 10-Qs; an update on timing to be provided in a 12b-25 report on or before June 15, 2006 --Texas operations' marginal (jargon) marginal - 1. Extremely small. "A marginal increase in core can decrease GC time drastically." In everyday terms, this means that it is a lot easier to clean off your desk if you have a spare place to put some of the junk while you sort through it. 2. after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. cash contribution, a non-GAAP management analysis: Texas operations neutral to slightly positive for calendar 2005 --Excerpted information from Form 10-Q for the quarter ended December 31, 2005 CONFERENCE CALL DETAILS The Company's previously announced conference call to discuss these preliminary financial results is scheduled for 8 a.m. Pacific Time tomorrow, Thursday, June 1, 2006. If you would like to participate in the Company's conference call, please phone the Link conference call operator at 1-206-315-1857 (U.S. and Canada Canada (kăn`ədə), independent nation (2001 pop. 30,007,094), 3,851,787 sq mi (9,976,128 sq km), N North America. Canada occupies all of North America N of the United States (and E of Alaska) except for Greenland and the French islands of ) about nine minutes before the call is scheduled to begin and hold for an operator to assist you. Please inform the operator that you are calling in for 99 Cents Only Stores' December 2005 Earnings Release and 10-Q Filings conference call, and be prepared to provide the operator with your name, company name, and position if requested. A recorded version of the call will be made available about four hours after completion of the call and will remain available for seven days after the call. To access the recorded version, dial 1-314-255-1301, PASSCODE: 4071. A copy of this press release and any other financial and statistical information about the period to be presented in the conference call will be available prior to the call at the section of the Company's website entitled en·ti·tle tr.v. en·ti·tled, en·ti·tling, en·ti·tles 1. To give a name or title to. 2. To furnish with a right or claim to something: "Investor Relations Investor relations The process by which the corporation communicates with its investors. " at www.99only.com. MARCH 31, 2006 QUARTER GUIDANCE The Company expects net income for the quarter ended March 31, 2006 to be approximately $0.01 per share, similar to the March 31, 2005 quarter. Eric Schiffer commented, "We have made progress with our sales and marketing initiatives and in improving our warehouse shipping fulfillment ful·fill also ful·fil tr.v. ful·filled, ful·fill·ing, ful·fills also ful·fils 1. To bring into actuality; effect: fulfilled their promises. 2. rates. However, in addition to the ongoing Sarbanes-Oxley compliance costs, the implementation of short and long term projects, which we expect will improve our overall cost structure and inventory management, have not yet had a chance to yield a positive financial impact. At the same time, these projects increase short term costs and divert di·vert v. di·vert·ed, di·vert·ing, di·verts v.tr. 1. To turn aside from a course or direction: Traffic was diverted around the scene of the accident. 2. management time and attention from operations." KEY COMPONENTS OF FISCAL 2007 TURNAROUND PLAN Eric Schiffer outlined the key components of the Company's fiscal 2007 turnaround plan. "During fiscal 2006, we had slowed our new store growth to 4.5% and focused on fundamental objectives in systems and operations. In fiscal 2007, we will continue this focus on execution of fundamentals and begin to make progress on our long term plan to achieve satisfactory levels of profitability. "Our growth plans for fiscal 2007 are to increase our store growth rate to approximately 10% by opening appropriately sized stores in our current markets, mainly in California California (kăl'ĭfôr`nyə), most populous state in the United States, located in the Far West; bordered by Oregon (N), Nevada and, across the Colorado River, Arizona (E), Mexico (S), and the Pacific Ocean (W). . We also expect to grow revenue by increasing our customers' frequency and average ticket through better execution, enhanced merchandise MERCHANDISE. By this term is understood all those things which merchants sell either wholesale or retail, as dry goods, hardware, groceries, drugs, &c. It is usually applied to personal chattels only, and to those which are not required for food or immediate support, but such as remain selection and promotional efforts. We believe that the graying of America America [for Amerigo Vespucci], the lands of the Western Hemisphere—North America, Central (or Middle) America, and South America. The world map published in 1507 by Martin Waldseemüller is the first known cartographic use of the name. and expansion of a pressured lower to middle class who live paycheck-to-paycheck appear to be strong trends for the growth of our customer base. "We will focus on improving our gross margin on a per saleable sale·a·ble adj. Variant of salable. saleable or US salable Adjective fit for selling or capable of being sold saleability or US square foot basis by continuing to refine our merchandise mix, in-store marketing and product placement, and our store ordering and allocation The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as processes. We believe we can improve gross margin by reducing our shrink shrink Vox populi noun A psychiatrist and through more direct sourcing of imports. "Our operations teams are focused on lowering both store and distribution center labor costs through increased productivity and cost reduction, including by reducing turnover, continuing to control workers' compensation workers' compensation, payment by employers for some part of the cost of injuries, or in some cases of occupational diseases, received by employees in the course of their work. costs, increasing use of performance based compensation, enhancing training, and improving productivity through better systems including the HighJump warehouse management system. "We also plan to initiate INITIATE. A right which is incomplete. By the birth of a child, the husband becomes tenant by the curtesy initiate, but his estate is not consummate until the death of the wife. 2 Bouv. Inst. n. 1725. tighter control on our corporate SG&A and are moving forward with the automation and streamlining of various corporate functions. We plan to make investments in our existing systems to improve expense analysis and budgetary control and to automate To turn a set of manual steps into an operation that goes by itself. See automation. certain SOX (1) (Schema for Object-oriented XML) An XML schema developed by Veo Systems and Muzino Communications, which was submitted to the W3C. SOX is based on DTD, but adds data typing and reuse mechanisms. compliance control processes and human resources The fancy word for "people." The human resources department within an organization, years ago known as the "personnel department," manages the administrative aspects of the employees. transactions and record keeping. At the same time, we continue to make major investments in integrated systems for the long term. "We expect to improve our earnings per share in fiscal 2007 compared to fiscal 2006. This takes into account the new expensing of stock options in 2007. Our goal is to improve our earnings per share and return on invested capital by various means including increasing inventory turns, refining refining, any of various processes for separating impurities from crude or semifinished materials. It includes the finer processes of metallurgy, the fractional distillation of petroleum into its commercial products, and the purifying of cane, beet, and maple sugar our category management and merchandising merchandising Element of marketing concerned especially with the sale of goods and services to customers. One aspect of merchandising is advertising, which aims to capture the interest of the segment of the population most likely to buy the product. strategy, and taking advantage of our strong cash position with essentially no debt." PRELIMINARY RESULTS OF PRIOR QUARTERS The Company previously released preliminary results for the quarters ended March 31, 2005, June 30, 2005, and September 30, 2005. Although the Company announced at the times these releases were made that it would not update these preliminary results, the following discussion of the unaudited results reported in our 10-Q reports versus the previously released preliminary results is provided to assist investors in understanding the nature of the variances between the prior releases and these 10-Q reports. Adjustments between preliminary releases and Form 10-Q filings for March 31, June 30 and September 30, 2005 quarters reduced reported net income for the nine month period ending September 30, 2005 from $8.3 to $7.0 million. Adjustments are reflected in the Form 10-Q reports as a result of applying hindsight hind·sight n. 1. Perception of the significance and nature of events after they have occurred. 2. The rear sight of a firearm. as required by Generally Accepted Accounting Principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting ("GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). ") and refined cut-off cut-off Anesthesiology The point at which elongation of the carbon chain of the 1-alkanol family of anesthetics results in a precipitous drop in the anesthetic potential of these agents–eg, at > 12 carbons in length, there is little anesthetic activity, and accounting procedures, and as a result of revising estimates in these prior quarters based on the knowledge of actual results and changes in strategy and events occurring through the date of these reports. Adjustments for the March 31, 2005 period resulted in a reduction of reported net income from $3.7 to $0.8 million, resulting in earnings per share of $.01 as reported in the 10-Q for that period. The reduction was partially due to a stockholder suit settlement reached in early calendar 2006 (although still subject to final documentation and court approval) that was required to be reported to be spoken of; to be mentioned, whether favorably or unfavorably. See also: Report in hindsight in the March 31, 2005 quarter because the suit was initiated prior to that period. The settlement amount was unknown at the time the preliminary results were reported and resulted in additional expense of $2.2 million. The Company recorded additional inventory reserves in this quarter of $3.3 million including excess and obsolete OBSOLETE. This term is applied to those laws which have lost their efficacy, without being repealed, 2. A positive statute, unrepealed, can never be repealed by non-user alone. 4 Yeates, Rep. 181; Id. 215; 1 Browne's Rep. Appx. 28; 13 Serg. & Rawle, 447. reserves, price valuation allowances, and a special reserve for plans made in calendar 2006 to use markdowns to promote and accelerate the sale of certain products applied with hindsight to this quarter. This net expense, including various other expenses, was partially offset by a favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. adjustment in workers' compensation reserves for the quarter based on actuarial ac·tu·ar·y n. pl. ac·tu·ar·ies A statistician who computes insurance risks and premiums. [Latin estimates as of December 31, 2005. Adjustments for the June 30, 2005 period resulted in an increase in reported net income from $3.6 to $5.0 million, resulting in earnings per share of $.07 as reported in the 10-Q for that period. The increase was primarily due to a favorable adjustment in workers' compensation reserves partially offset by various expenses. Adjustments for the September 30, 2005 period resulted in an increase in reported net income from $1.0 to $1.1 million, resulting in earnings per share of $.02 as reported in the 10-Q for that period. The increase was primarily due to a favorable adjustment in workers' compensation reserves mostly offset by additional expense incurred as a result of increasing inventory allowances and other expenses. DELAY IN 2006 FORM 10-K FILING Certain procedures required for the annual audit of the Company's new fiscal year ended March 31, 2006 have been delayed as a result of the delay in filing the Company's 2005 Form 10-Qs. The Company and its auditors AUDITORS, practice. Persons lawfully appointed to examine and digest accounts referred to them, take down the evidence in writing, which may be lawfully offered in relation to such accounts, and prepare materials on which a decree or judgment may be made; and to report the whole, together are now commencing work on audit procedures which were not feasible (algorithm) feasible - A description of an algorithm that takes polynomial time (that is, for a problem set of size N, the resources required to solve the problem can be expressed as some polynomial involving N). to complete in parallel with quarterly reviews of the 2005 Form 10-Qs. The Company is committed to completing the audit of its three month transition period ended March 31, 2005 and its fiscal year ended March 31, 2006 as quickly as possible, but it will not be possible to complete this work and file its Form 10-K on June 14, 2006, the date required for accelerated filers. The Company will provide an update on the anticipated timing of the Form 10-K report when it files a Form 12b-25 on or before June 15, 2006. TEXAS MARGINAL CONTRIBUTION ANALYSIS For the purposes of this release, management has undertaken a special marginal cash contribution analysis of its Texas operations on a geographical ge·o·graph·ic also ge·o·graph·i·cal adj. 1. Of or relating to geography. 2. Concerning the topography of a specific region. ge basis. The Texas region does not comprise To embrace, cover, or include; to confine within; to consist of. In the law governing patents—grants of an exclusive right or privilege to make, use, or sell an invention or product for a term of years—the term comprise a separate business segment in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with GAAP, but certain investors have raised the question during quarterly earnings conference calls as to whether the Texas operations impose a significant cash drain One side of a field effect transistor. When the gate is pulsed, current flows from the source to the drain, or vice versa depending on the design. See collector. (jargon) drain on the Company. Management understands that, to certain investors, this question may be important in evaluating the potential for long term Company growth. In a desire to respond to this question for the purposes of this release with more than a verbal VERBAL. Parol; by word of mouth; as verbal agreement; verbal evidence. Not in writing. explanation, management prepared a special marginal analysis of the after-tax impact of its Texas operations on corporate cash flow for the twelve months ended December 31, 2005. Readers should be aware that this special marginal analysis results in a non-GAAP measure because the geographic geographic /geo·graph·ic/ (je?o-graf´ik) in pathology, of or referring to a pattern that is well demarcated, resembling outlines on a map. geographic pertaining to geography. area does not comprise a stand-alone (jargon) stand-alone - Capable of operating without other programs, libraries, computers, hardware, networks, etc. Exactly what is absent is presumed to be obvious from context. "We only run Windows on stand-alone PCs because it's too dangerous to run it on networked ones." business segment under GAAP, and the Company does not have accounting procedures in place to provide complete financial statements for this geographic region (reference is made to the reconciliation to net income in accordance with GAAP at the end of this press release, following the December 31, 2005 financial statements). The marginal cash contribution analysis includes all direct expenses of Texas operations: distribution center, retail store, and Bargain A reciprocal understanding, contract, or agreement of any sort usually pertaining to the loan, sale, or exchange of property between two parties, one of whom wants to dispose of an item that the other wants to obtain. Wholesale operations expenses and freight expense In accounting, the concept of a freight expense account can be generalized as a payment for sending out a product to a customer. It falls under the umbrella category of Expenses and is treated like other expense accounts in relation to the accounting equation. associated with moving merchandise from California to Texas. The analysis does not include an allocation of California corporate SG&A costs or other California costs. These direct expenses of the Texas operations were offset by depreciation and certain non-cash expenses Noun 1. non-cash expense - an expense (such as depreciation) that is not paid for in cash disbursal, disbursement, expense - amounts paid for goods and services that may be currently tax deductible (as opposed to capital expenditures) incurred in Texas, to estimate marginal cash flow, and were offset against the revenues of the Texas operations and the marginal taxes that would be incurred by the Company in the absence of the net losses incurred in Texas. The conclusion of this marginal cash contribution analysis is that the Company believes that its Texas operation cash contribution was neutral to slightly positive on an after-tax basis After-tax basis The comparison basis used to analyze the net after-tax returns on a corporate taxable bond and a municipal tax-free bond. during the 2005 calendar year. Eric Schiffer commented, "Texas same-store-sales have continued to trend positive through May 2006, and we were pleased with the sales results of our recent "999 Days in Texas" promotion that occurred in late March and early April of 2006. We continue to believe that by having the right products on the shelf at the right time in appropriately sized stores, we will be able to turn Texas into a profitable growth market. We intend to open approximately three stores in Texas during fiscal 2007 and will continue to evaluate the potential of this market. "In all of our markets, we continue to be excited about our growth potential and we look forward to discussing our results of operations as well as our plans on our conference call tomorrow." 99 Cents Only Stores(R), the nation's oldest existing one-price retailer, operates 234 retail stores in California, Texas, Arizona Arizona (âr'əzō`nə), state in the southwestern United States. It is bordered by Utah (N), New Mexico (E), Mexico (S), and, across the Colorado R., Nevada and California (W). and Nevada Nevada (nəvăd`ə, –vä–), far western state of the United States. It is bordered by Utah (E), Arizona (SE), California (SW, W), and Oregon and Idaho (N). (and is opening two stores on June 1, 2006 in Sacramento Sacramento, city, United States Sacramento (săkrəmĕn`tō), city (1990 pop. 369,365), state capital and seat of Sacramento co., central Calif. and Vista, California), and also operates a wholesale division called Bargain Wholesale. 99 Cents Only Stores(R) emphasizes name-brand consumables, priced at an excellent value, in attractively merchandised stores, where nothing is ever over 99 cents. We have included statements in this release that constitute "forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. " within the meaning of Section 21E of the Securities 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 this release and include statements regarding the intent, belief or current expectations of the Company, its directors or officers with respect to, among other things, trends affecting the financial condition or results of operations of the Company, the business and growth strategies of the Company, the anticipated results for the quarter ended March 31, 2006, the timing of filing the Company's Form 10-K for 2006, anticipated future reductions in costs and improvements in results of operations, expectations for marginal cash and profit performance in its Texas operations, and expected general improvements in operations. The shareholders of the Company and other readers 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 release for the reasons, among others, discussed in the reports and other documents the Company files from time to time with the Securities and Exchange Commission, including the risk factors contained in the Section - "Management's Discussion and Analysis Management's discussion and analysis (MD&A) A report from management to shareholders that accompanies the firm's financial statements in the annual report. It explains the period's financial results and enables management to discuss topics that may not be apparent in the financial of Financial Condition and Results of Operations" of the Company's Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or that arise after the date hereof here·of adv. Of this. hereof Adverb Formal or law of or concerning this Adv. 1. hereof - of or concerning this; "the twigs hereof are physic" .
EXCERPTED INFORMATION FROM THE 10-Q FOR DECEMBER 31, 2005
99 CENTS ONLY STORES
CONSOLIDATED BALANCE SHEETS
(Amounts In Thousands, Except Share Data)
ASSETS
December March 31, December
31, 31,
2005 2005 2004
----------- ----------- ---------
CURRENT ASSETS: (Unaudited) (Unaudited)
Cash $9,169 $2,116 $884
Short-term investments 119,706 99,610 92,645
Accounts receivable, net of
allowance for doubtful accounts
of $191, $189, and $268 as of
December 31, 2005, March 31, 2005,
and December 31, 2004, respectively 2,080 4,751 3,463
Income tax receivable 780 - -
Deferred income taxes 29,579 29,579 28,845
Inventories, net 147,609 133,023 155,836
Other 9,655 5,310 5,946
----------- ----------- ---------
Total current assets 318,578 274,389 287,619
PROPERTY AND EQUIPMENT, at cost:
Land 58,766 43,154 41,240
Buildings 83,638 70,082 68,833
Building improvements 31,732 31,093 28,587
Leasehold improvements 111,665 108,360 106,482
Fixtures and equipment 78,824 73,780 71,577
Transportation equipment 4,116 3,891 3,847
Construction in progress 7,915 17,213 22,835
----------- ----------- ---------
Total properties, fixtures and
equipment 376,656 347,573 343,401
Accumulated depreciation and
amortization (125,017) (102,988) (95,482)
----------- ----------- ---------
Total net property and equipment 251,639 244,585 247,919
OTHER ASSETS:
Long-term deferred income taxes 4,837 4,777 3,574
Long-term investments in marketable
securities 41,047 50,271 50,764
Deposits and other assets 13,510 14,396 10,328
----------- ----------- ---------
Total other assets 59,394 69,444 64,666
TOTAL ASSETS $629,611 $588,418 $600,204
=========== =========== =========
The accompanying notes are an integral part of
these consolidated financial statements.
99 CENTS ONLY STORES
CONSOLIDATED BALANCE SHEETS
(Amounts In Thousands, Except Share Data)
LIABILITIES AND SHAREHOLDERS' EQUITY
December March 31, December
31, 31,
2005 2005 2004
----------- ----------- ---------
CURRENT LIABILITIES: (Unaudited) (Unaudited)
Accounts payable $38,061 $21,917 $39,094
Accrued expenses:
Payroll and payroll-related 7,533 5,862 4,959
Sales tax 5,393 4,306 5,098
Other 15,069 13,651 12,074
Workers' compensation 44,324 38,358 36,445
Income tax payable - 2,743 2,495
Current portion of capital lease
obligation 96 48 37
Construction loan 5,954 - -
----------- ----------- ---------
Total current liabilities 116,430 86,885 100,202
LONG-TERM LIABILITIES:
Deferred rent 7,425 8,465 8,097
Deferred compensation liability 3,268 2,908 2,847
Capital lease obligation, net of
current portion 713 752 774
----------- ----------- ---------
Total long-term liabilities 11,406 12,125 11,718
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 - 200,000,000 shares
Issued and outstanding 69,552,150,
69,548,761, and 69,517,185 shares
at December 31, 2005, March 31,
2005, and December 31, 2004 212,957 212,938 212,606
Retained earnings 288,915 276,477 275,678
Other comprehensive loss (97) (7) -
----------- ----------- ---------
Total shareholders' equity 501,775 489,408 488,284
----------- ----------- ---------
Total liabilities and
shareholders' equity $629,611 $588,418 $600,204
=========== =========== =========
The accompanying notes are an integral part of
these consolidated financial statements.
99 CENTS ONLY STORES
CONSOLIDATED STATEMENTS OF INCOME
DECEMBER 31, 2005 AND 2004
(Amounts In Thousands, Except Per Share Data)
(Unaudited)
Three months ended Nine months ended
December 31, December 31,
2005 2004 2005 2004
--------- --------- --------- ---------
NET SALES:
99 Cents Only Stores $269,311 $255,089 $739,662 $711,084
Bargain Wholesale 9,473 10,823 29,825 31,039
--------- --------- --------- ---------
Total sales 278,784 265,912 769,487 742,123
COST OF SALES (excluding
depreciation and amortization
expense shown below) 172,964 156,816 479,949 454,754
--------- --------- --------- ---------
Gross profit 105,820 109,096 289,538 287,369
SELLING, GENERAL, AND
ADMINISTRATIVE EXPENSES:
Operating expenses (includes
asset impairment of $0.8
million for three and nine
months ended December 31,
2005) 89,316 90,692 254,107 241,223
Depreciation and
amortization 7,851 8,164 23,488 22,226
--------- --------- --------- ---------
Total Selling, General and
Administrative Expenses 97,167 98,856 277,595 263,449
--------- --------- --------- ---------
Operating income 8,653 10,240 11,943 23,920
OTHER (INCOME) EXPENSE:
Interest income (1,143) (577) (3,396) (1,699)
Interest expense 14 (28) 44 32
Other (124) 4 (4,347) 4
--------- --------- --------- ---------
Total other (income) (1,253) (601) (7,699) (1,663)
--------- --------- --------- ---------
Income before provision for
income tax 9,906 10,841 19,642 25,583
Provision for income taxes 3,633 2,183 7,204 7,956
--------- --------- --------- ---------
NET INCOME $6,273 $8,658 $12,438 $17,627
========= ========= ========= =========
EARNINGS PER COMMON SHARE:
Basic $0.09 $0.12 $0.18 $0.25
========= ========= ========= =========
Diluted $0.09 $0.12 $0.18 $0.25
========= ========= ========= =========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING:
Basic 69,552 69,507 69,551 70,148
Diluted 69,719 69,778 69,733 71,016
The accompanying notes are an integral part of
these consolidated financial statements.
99 CENTS ONLY STORES
CONSOLIDATED STATEMENTS OF CASH FLOWS
DECEMBER 31, 2005 AND 2004
(Amounts in Thousands)
(Unaudited)
Nine months Ended
December 31,
-----------------
2005 2004
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $12,438 $17,627
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 23,488 22,226
Loss on disposal of fixed assets (includes asset
impairment of $0.8 million for nine months ended
December 31, 2005) 938 1,156
Tax benefit from exercise of non qualified
employee stock options 6 354
Deferred income taxes - (12,094)
Changes in asset and liabilities associated with
operating activities:
Sales of trading securities, net 36,041 56,137
Accounts receivable 2,671 (1,279)
Inventories (14,360) (39,647)
Other assets (1,164) (3,467)
Deposits 169 (69)
Accounts payable 16,144 24,205
Accrued expenses 4,176 2,579
Accrued workers' compensation 5,966 20,116
Income taxes (3,523) (1,760)
Deferred rent (1,040) 2,510
-------- --------
Net cash provided by operating activities 81,950 88,594
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (33,547) (50,635)
Purchases of available for sale securities (94,724) -
Sale and maturity of available for sale securities 47,661 -
-------- --------
Net cash used in investing activities (80,610) (50,635)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of capital lease obligation (254) (36)
Proceeds from exercise of stock options 13 782
Repurchases of Company stock - (38,214)
Proceeds from the consolidation of construction
loan 5,954 -
-------- --------
Net cash provided (used in) by financing
activities 5,713 (37,468)
NET INCREASE IN CASH 7,053 491
CASH, beginning of period 2,116 393
-------- --------
CASH, end of period $9,169 $884
======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
The following is a description of management's analysis of the Company's financial condition and results of operations for the three and nine months ended December 31, 2005. Three Months Ended December 31, 2005 Compared to Three Months Ended December 31, 2004 Net Sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight : Net sales increased $12.9 million, or 4.8%, to $278.8 million for the three months ended December 31, 2005 compared to $265.9 million for the three months ended December 31, 2004. Retail sales increased $14.2 million, or 5.6%, to $269.3 million for the three months ended December 31, 2005 compared to $255.1 million for the three months ended December 31, 2004. The effect of seven new stores opened during the nine months ended December 31, 2005 increased retail sales by $6.1 million and the full quarter effect of three new stores opened after the second quarter ending September 30, 2004 increased sales by $0.8 million for the three months ended December 31, 2005. In addition, same-store-sales increased by 2.5% for the three months ended December 31, 2005 compared to the three months ended December 31, 2004, due to the increases in average transaction size in both Texas and non-Texas stores. Bargain Wholesale net sales decreased $1.4 million, or 12.5%, to $9.5 million for the three months ended December 31, 2005 compared to $10.8 million for the three months ended December 31, 2004. Gross Profit: Gross profit decreased $3.3 million, or 3.0%, to $105.8 million for the three months ended December 31, 2005 compared to $109.1 million for the three months ended December 31, 2004. As a percentage of net sales, overall gross margin decreased to 38.0% for the three months ended December 31, 2005 compared to 41.0% for the three months ended December 31, 2004. As a percentage of retail sales, retail gross margin decreased to 38.6% for the three months ended December 31, 2005 compared to 41.9% for the three months ended December 31, 2004. The decrease in retail gross margin was due to an increase in spoilage/shrink from 2.9% in the quarter ended December 31, 2004 to 3.6% in the same quarter of 2005 as identified by physical inventory counts and an increase in product cost for retail from 55.1% to 56.5% for the same periods, primarily due to product cost changes and a shift in the sales mix sales mix See product mix. to more lower margin, primarily grocery items. In addition a 0.5% reserve for special markdowns was recorded in the December 31, 2005 quarter as a result of new management plans to accelerate the movement of certain products. The Bargain Wholesale margin decreased slightly to 19.9% for the three months ended December 31, 2005 compared to 20.1% for the three months ended December 31, 2004. The remaining change was made up of increases and decreases in other less significant items included in cost of sales. Operating Expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. : Operating expenses decreased by $1.4 million, or 1.5%, to $89.3 million for the three months ended December 31, 2005 compared to $90.7 million for the three months ended December 31, 2004. As a percentage of net sales, operating expenses decreased to 32.1% for the three months ended December 31, 2005 from 34.0% for the three months ended December 31, 2004. Operating expenses decreased due to lower workers' compensation expenses which decreased by $10.2 million driven by the stabilization Stabilization The action undertakes a country when it buys and sells its own currency to protect its exchange value. Actions registered competitive traders undertake by on the NYSE to meet the exchange requirement that 75% of their traded be stabilizing, meaning that sell orders of reserve requirements Reserve Requirements Requirements regarding the amount of funds that banks must hold in reserve against deposits made by their customers. This money must be in the bank's vaults or at the closest Federal Reserve Bank. and improvements in claims handling, accident reporting and an unusually large increase in the reserve in the quarter ended December 31, 2004. However, the decrease in operating expenses was partially offset by higher retail store operating expenses of $3.3 million between the three months ended December 31, 2005 and 2004, primarily as a result of an increase in retail store labor and benefit costs of $4.1 million due to the opening of seven new stores during the nine months December 31, 2005, the full quarter effect of three new stores opened after the second quarter ended September 30, 2004 and costs increases in existing stores. The decrease in operating expenses was also partially offset due to an increase in distribution and transportation costs of $2.6 million, primarily as a result of higher fuel costs and increased delivery costs due to additional new store locations. In addition, retail store operating expenses increased disproportionately dis·pro·por·tion·ate adj. Out of proportion, as in size, shape, or amount. dis  pro·por compared to retail sales increases
due to the underperformance of Texas stores. Finally, the decrease in
operating expenses was partially offset by the increase in accounting
and consulting fees of $1.8 million and an asset impairment Impairment1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. charge of $0.8 million relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc one underperforming store in Texas. The remaining change was made up of increases and decreases in other less significant items included in operating expenses. Depreciation and Amortization: Depreciation and amortization decreased $0.3 million, or 3.8%, to $7.9 million for the three months ended December 31, 2005 compared to $8.2 million for the three months ended December 31, 2004 due to the disposal of certain store fixed assets fixed assets npl → activo sg fijo fixed assets npl → immobilisations fpl fixed assets fix npl → and fully depreciated Fully depreciated An asset that has already been charged with the maximum amount of depreciation allowed by the IRS for accounting purposes. fully depreciated Of or relating to a fixed asset that has been depreciated to a book value of zero. assets that was partially offset by an increase in depreciation as a result of seven new stores opened during the nine months ended December 31, 2005, the full quarter effect of three new stores opened after the second quarter ended September 30, 2004, and additions to existing stores and distribution centers. Operating Income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. : Operating income decreased $1.6 million, to $8.7 million for the three months ended December 31, 2005 compared to $10.2 million for the three months ended December 31, 2004. Operating income as a percentage of net sales decreased from 3.9% for the three months ended December 31, 2004 to 3.1% for the three months ended December 31, 2005 primarily due to lower gross profit for the three months ended December 31, 2005 compared to the three months ended December 31, 2004. Other Income (Expense): Other income increased by $0.7 million, to $1.3 million for the three months ended December 31, 2005 compared to $0.6 million for the three months ended December 31, 2004. The increase in other income was primarily due to an increase in interest income from $0.6 million for the three months ended December 31, 2004 compared to $1.1 million for the three months ended December 31, 2005 as a result of increasing interest rates enhanced by a $17.9 million increase in cash and investments in 2005. However, the increase in interest income was partially offset by the adjustment of certain bond values due to increasing market interest rates during the three months ended December 31, 2005. Provision for Income Taxes: The provision for income taxes increased to $3.6 million for the three months ended December 31, 2005 compared to $2.2 million for the three months ended December 31, 2004 due to accumulated ac·cu·mu·late v. ac·cu·mu·lat·ed, ac·cu·mu·lat·ing, ac·cu·mu·lates v.tr. To gather or pile up; amass. See Synonyms at gather. v.intr. To mount up; increase. over-provision for taxes during the first nine months of 2004, and due to the release during this period of provisions no longer required for certain income tax contingencies Contingencies (ISSN 1048-9851) is the bimonthly magazine of the American Academy of Actuaries, providing a large and diverse readership with general interest and technical articles on a wide range of issues related to the actuarial profession. . The release of the contingency contingency n. an event that might not occur. is a discrete A component or device that is separate and distinct and treated as a singular unit. item for the quarter ended December 31, 2004 of approximately $1.0 million. Pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta income for the year ended December 31, 2004 was lower than the estimates used to record tax provisions during the first nine months of that year, and the true-up of the tax rate for the year and the release of contingencies resulted in an effective tax rate of 20.1% for the quarter ended December 31, 2004 compared to the 36.7% tax provision estimated for the three months ended December 31, 2005. The quarter ended December 31, 2005 is now the third quarter of the Company's new fiscal year ended March 31, 2006, and did not include any true-up of prior tax provisions. Net Income: As a result of the items discussed above, net income decreased by $2.4 million, or 27.6%, to $6.3 million for the three months ended December 31, 2005 compared to $8.7 million for the three months ended December 31, 2004. Net income as a percentage of net sales was 2.3% and 3.3% for the three months ended December 31, 2005 and 2004, respectively. Nine months Ended December 31, 2005 Compared to Nine months Ended December 31, 2004 Net Sales: Net sales increased $27.4 million, or 3.7%, to $769.5 million for the nine months ended December 31, 2005 compared to $742.1 million for the nine months ended December 31, 2004. Retail sales increased $28.6 million, or 4.0%, to $739.7 million for the nine months ended December 31, 2005 compared to $711.1 million for the nine months ended December 31, 2004. The effect of seven new stores opened during the nine months ended December 31, 2005 increased retail sales by $9.0 million and the full period effect of 23 new stores opened during the nine months ended December 31, 2004 increased sales by $17.6 million for the nine months ended December 31, 2005. However, same-store-sales were down 0.2% for the nine months ended December 31, 2005 compared to the nine months ended December 31, 2004 partly due to operational issues and the effects of higher gasoline gasoline or petrol, light, volatile mixture of hydrocarbons for use in the internal-combustion engine and as an organic solvent, obtained primarily by fractional distillation and "cracking" of petroleum, but also obtained from natural gas, by prices. Bargain Wholesale net sales decreased $1.2 million, or 3.9%, to $29.8 million for the nine months ended December 31, 2005 compared to $31.0 million for the nine months ended December 31, 2004. Gross Profit: Gross profit increased $2.2 million, or 0.8%, to $289.5 million for the nine months ended December 31, 2005 compared to $287.4 million for the nine months ended December 31, 2004. As a percentage of net sales, overall gross margin decreased to 37.6% for the nine months ended December 31, 2005 compared to 38.7% for the nine months ended December 31, 2004. As a percentage of retail sales, retail gross margin decreased to 38.3% for the nine months ended December 31, 2005 compared to 39.5% for the nine months ended December 31, 2004. The increase in gross profit dollars was partly due to a decrease in spoilage/shrink from 4.2% for the nine months ended December 31, 2004 to 3.6% for the nine months ended December 31, 2005 as a result of lower shrink recorded based on physical inventories. However, the increase in gross profit dollars was partially offset by a 0.2% reserve for special markdowns recorded in the nine months ended December 31, 2005 in anticipation The performance of an act or obligation before it is legally due. In patent law, the publication of the existence of an invention that has already been patented or has a patent pending, of management's plan to use price promotions to accelerate the sale of certain products. There was also an increase in product cost for retail from 55.9% for the nine months ended December 31, 2004 to 57.4% for the nine months ended December 31, 2005, primarily due to product cost changes and a shift in the sales mix to more grocery items. The Bargain Wholesale margin increased slightly to 20.0% for the nine months ended December 31, 2005 compared to 19.9% for the nine months ended December 31, 2004. The remaining change was made up of increases and decreases in other less significant items included in cost of sales. Operating Expenses: Operating expenses increased by $12.9 million, or 5.3%, to $254.1 million for the nine months ended December 31, 2005 compared to $241.2 million for the nine months ended December 31, 2004. As a percentage of net sales, operating expenses increased to 32.9% for the nine months ended December 31, 2005 from 32.5% for the nine months ended December 31, 2004. The dollar increase was primarily due to higher retail store operating expenses of $13.7 million between the nine months ended December 31, 2005 and 2004, primarily as a result of an increase in retail store labor and benefit costs of $10.6 million and an increase in utility costs of $1.8 million primarily due to the opening of seven new stores during the nine months ended December 31, 2005, the full period effect of 23 new stores opened during the nine months ended December 31, 2004 and cost increases in existing stores. In addition, retail store operating expenses increased disproportionately compared to retail sales increases due to the underperformance of Texas stores. The increase in operating expenses was also due to an increase in distribution and transportation costs of $4.7 million, primarily as a result of higher fuel costs and increased delivery costs due to additional new store locations. Operating expenses also increased due to an increase in accounting and consulting fees of $4.4 million. Finally, the Company recorded an asset impairment charge of $0.8 million relating to one underperforming store in Texas. However, the increase in operating expenses was partially offset by a decrease in workers' compensation expenses of $12.1 million due to stabilization of reserve requirements and improvements in claims handling and accident reporting, and an unusually large increase in the reserve in the quarter ended December 31, 2004. The increase in operating expenses was also partially offset by a decrease in legal costs of $2.0 million primarily due to reduced outside legal costs in the nine months ended December 31, 2005 compared to the nine months ended December 31, 2004. The remaining change was made up of increases and decreases in other less significant items included in operating expenses. Depreciation and Amortization: Depreciation and amortization increased $1.3 million, or 5.7%, to $23.5 million for the nine months ended December 31, 2005 compared to $22.2 million for the nine months ended December 31, 2004 as a result of seven new stores opened during the nine months ended December 31, 2005, the full period effect of 23 new stores opened during the nine months ended December 31, 2004, and additions to existing stores and distribution centers. The increase was partially offset due to disposal of certain store fixed assets and fully depreciated assets during the three months ended December 31, 2005. Operating Income: Operating income decreased $12.0 million, or 50.1%, to $11.9 million for the nine months ended December 31, 2005 compared to $23.9 million for the nine months ended December 31, 2004. Operating income as a percentage of net sales decreased from 3.2% for the nine months ended December 31, 2004 to 1.6% for the nine months ended December 31, 2005 primarily due to the increases in operating expenses discussed above. Other Income (Expense): Other income increased $6.0 million to $7.7 million for the nine months ended December 31, 2005 compared to $1.7 million for the nine months ended December 31, 2004. The primary reason for the increase in other income was recognition in the 2005 period of $4.2 million of compensation for a forced store closure due a local government eminent domain eminent domain, the right of a government to force the owner of private property sell it if it is needed for a public use. The right is based on the doctrine that a sovereign state has dominion over all lands and buildings within its borders, which has its origins in action. Also, interest income earned on the Company's investments increased from $1.7 million for the nine months ended December 31, 2004 to $3.4 million for the nine months ended December 31, 2005 as a result of increasing interest rates enhanced by a $17.9 million increase in cash and investments in 2005, and the net effect of market interest rate fluctuations during both periods on interest income and the valuation losses recognized on certain of its bonds in 2004. Provision for Income Taxes: The provision for income taxes decreased to $7.2 million for the nine months ended December 31, 2005 compared to $8.0 million for the nine months ended December 31, 2004. The lower tax rate in 2004 compared to 2005 is due to the release of provisions no longer required for certain income tax contingencies. The release of the contingency is a discrete item for the quarter ended December 31, 2004 of approximately $1.0 million. Pre-tax income for the year ended December 31, 2004 was lower than the estimates used to record tax provisions during the first nine months of that year, and the true-up of the tax rate for the year and the release of contingencies resulted in an effective tax rate of 31.1% for the nine months ended December 31, 2004 compared to the 36.7% tax provision estimated for the nine months ended December 31, 2005. Net Income: As a result of the items discussed above, net income decreased by $5.2 million, or 29.4%, to $12.4 million for the nine months ended December 31, 2005 compared to $17.6 million for the nine months ended December 31, 2004. Net income as a percentage of net sales was 1.6% and 2.4% for the nine months ended December 31, 2005 and 2004, respectively.
RECONCILIATION OF TEXAS MARGINAL CONTRIBUTION ANALYSIS
The following table provides a reconciliation of the special non-
GAAP marginal cash contribution analysis referenced earlier in
this press release. The closest GAAP measure is net income.
12 Months Ended Dec. 31, 2005 Reconciliation to
Form 10-Q
------------------------------------------------
Subtract: Form
10-Q
3 Months 9 Months
Texas Ended Ended
Operations All- Consolidated March December
Other 31, 31,
2005 2005
----------- ------------------------------------
Total Sales $84.9 $927.2 $1,012.1 $242.6 $769.5
Cost of Sales and
Operating Expenses (90.6) (877.5) (968.1) (234.1) (734.0)
Depreciation and
Amortization (9.8) (21.5) (31.3) (7.8) (23.5)
Operating Income (15.5) 28.2 12.7 0.8 11.9
Total Other Income - 8.0 8.0 0.3 7.7
Income Tax Benefit
(Expense) 5.4 (12.9) (7.5) (0.3) (7.2)
----------- ------------------------------------
Marginal and Total Net
Income ($10.1) $23.3 $13.2 $0.8 $12.4
=========== ====================================
Marginal Adjustments
to Net Income:
----------------------
Depreciation and
Amortization 9.8
Texas Impairment
(included in
Operating Expenses) 0.8
-----------
Marginal Cash
Contribution from
Texas $0.5
===========
Note: see text under the prior heading "Texas Marginal
Contribution Analysis" for explanation of the calculation of, and
management's reason and interpretation for, this analysis.
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