1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT FILED PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 28, 1995 Commission file number 1-8897
CONSOLIDATED STORES CORPORATION
A Delaware Corporation
IRS No. 06-1119097
1105 North Market Street, Suite 1300
P. O. Box 8985
Wilmington, Delaware 19899
(302) 478-4896
Indicate 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, and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
The number of shares of Common Stock $.01 par value per share, outstanding as
of
2
November 28, 1995, was 47,724,118 and there were no shares of Non-voting Common
Stock, $.01 par value per share outstanding at that date.
3
CONSOLIDATED STORES CORPORATION
QUARTERLY REPORT ON FORM 10-Q
INDEX
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Page
Part I - Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of Income 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Part II - Other Information
Items 1 - 6 9
Signature 10
4
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
OCTOBER 28, JANUARY 28,
1995 1995*
----------------------------------------------------------------------------- -------------
ASSETS
Current Assets:
Cash and cash equivalents $ 14,704 $ 40,356
Accounts receivable 8,519 5,524
Inventories 493,221 302,132
Prepaid expenses and deferred income taxes 42,365 33,261
----------------------------------------------------------------------------- -------------
Total current assets 558,809 381,273
----------------------------------------------------------------------------- -------------
Property and equipment - net 169,590 161,500
Other assets 6,026 8,847
----------------------------------------------------------------------------- -------------
$734,425 $551,620
============================================================================= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $139,143 $103,401
Accrued liabilities 35,448 38,289
Income taxes 9,683 18,982
Notes payable and current maturities of
long-term obligations 37,100 10,000
----------------------------------------------------------------------------- -------------
Total current liabilities 221,374 170,672
----------------------------------------------------------------------------- -------------
Long-term obligations 140,000 40,000
Deferred income taxes and other noncurrent liabilities 25,653 25,714
Stockholders' equity:
Preferred stock - authorized 2,000,000 shares,
$.01 par value; none issued -- --
Common stock - authorized 90,000,000 shares, $.01
par value; issued 47,618,290 and 46,866,303,
shares respectively 476 469
Common stock - authorized 8,000,000 shares, $.01
par value; none issued -- --
Additional paid-in-capital 103,078 93,872
Retained earnings 242,592 220,699
Other adjustments 1,252 194
----------------------------------------------------------------------------- -------------
Total stockholders' equity 347,398 315,234
----------------------------------------------------------------------------- -------------
$734,425 $551,620
============================================================================= =============
* Condensed from audited financial statements
The accompanying notes are an integral part of these condensed financial statements.
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CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
October 28, October 29, October 28, October 29,
1995 1994 1995 1994
----------------------------------------------------------------- ----------- ----------- -----------
Net sales $357,538 $310,108 $974,449 $825,200
Cost and expenses:
Cost of sales 204,100 174,484 560,053 470,239
Selling and administrative expenses 134,161 119,188 373,456 321,297
Interest expense 2,844 2,600 6,063 5,382
Other - net 72 149 (434) (817)
----------------------------------------------------------------- ----------- ----------- -----------
341,177 296,421 939,138 796,101
----------------------------------------------------------------- ----------- ----------- -----------
Income before income taxes 16,361 13,687 35,311 29,099
Income taxes 6,217 5,612 13,418 11,931
----------------------------------------------------------------- ----------- ----------- -----------
Net income $ 10,144 $ 8,075 $ 21,893 $ 17,168
================================================================= ============ =========== ===========
Income per common and common
equivalent share $ .21 $ .17 $ .45 $ .36
================================================================= ============ =========== ===========
Weighted average common and common
equivalent shares outstanding 49,111 48,076 48,805 48,037
================================================================= ============ =========== ===========
The accompanying notes are an integral part of these condensed financial statements.
6
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
THIRTY-NINE WEEKS ENDED
October 28, October 29,
1995 1994
------------------------------------------------------------------------------- ------------
Cash provided by (used for) operations:
Net income $ 21,893 $ 17,168
Items not effecting cash:
Depreciation and amortization 21,893 18,793
Deferred income taxes (4,006) (3,442)
Other 2,063 591
Change in assets and liabilities (173,104) (115,283)
----------------------------------------------------------------------------- -----------
Net cash used for operations (131,261) (82,173)
----------------------------------------------------------------------------- -----------
Cash provided by (used for) investment activities:
Capital expenditures (31,011) (34,860)
Other 3,638 (15)
----------------------------------------------------------------------------- -----------
Net cash used for investment activities (27,373) (34,875)
----------------------------------------------------------------------------- -----------
Cash provided by (used for) financing activities:
Proceeds from credit agreements 137,100 104,600
Proceeds from exercise of stock options 4,392 726
Increase in deferred credits 1,490 3,107
Payment of long-term obligations (10,000) --
----------------------------------------------------------------------------- -----------
Net cash provided by financing activities 132,982 108,433
----------------------------------------------------------------------------- -----------
Decrease in cash $ (25,652) $ (8,615)
============================================================================= ===========
Supplemental Data
-----------------
Income taxes paid $ 23,524 $ 24,752
Interest paid $ 7,668 $ 7,595
The accompanying notes are an integral part of these condensed financial statements.
7
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
- ------------------------------
The condensed consolidated balance sheet at October 28, 1995, and the condensed
consolidated statements of income and statements of cash flows for the thirteen
and thirty-nine week periods ended October 28, 1995, have been prepared by the
Company without audit. In the opinion of management, all adjustments necessary
to present fairly the financial position, results of operations, and cash flows
at October 28, 1995, and for the thirteen and thirty-nine week periods
presented have been made. Such adjustments consisted only of normal recurring
items.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principals
have been omitted or condensed. It is suggested that the condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report for the
year ended January 28, 1995. The results of operations for the period ended
October 28, 1995, may not necessarily be indicative of the operating results
for the full year.
NOTE 2 - EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
- ---------------------------------------------------------
Earnings per common and common equivalent share are based on the weighted
average number of shares outstanding during each period which includes the
additional number of shares which would have been issued upon exercise of stock
options assuming that the Company used the proceeds received to purchase
additional shares at market value.
NOTE 3 - NEW ACCOUNTING STANDARD
- --------------------------------
In October 1995 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," which requires adoption no later than fiscal years beginning
after December 15, 1995. The new standard defines a fair value method of
accounting for stock options and similar equity instruments. Under the fair
value method, compensation cost is measured at the grant date based on the fair
value of the award and is recognized over the service period, which is usually
the vesting period.
Pursuant to the new standard, companies are encouraged, but not required, to
adopt the fair value method of accounting for employee stock-based
transactions. Companies are also permitted to continue to account for such
transactions under Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," but would be required to disclose in a note to the
financial statements pro forma net income and, if presented, earnings per share
as if the company had applied the new method of accounting.
The accounting requirements of the new method are effective for all employee
awards granted after the beginning of the fiscal year of adoption. The Company
has not yet determined if it will elect to change to the
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fair value method, nor has it determined the effect the new standard will have
on net income and earnings per share should it elect to make such a change.
Adoption of the new standard will have no effect on the Company's cash flows.
9
CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
TRENDS. At October 28, 1995, the Company operated a total of 845 retail stores
comprised of 531 ODD LOTS/BIG LOTS and 51 ITZADEAL! specialty retail stores
selling close-out merchandise at substantial discounts, 160 ALL FOR ONE
(AFO)/IT'S REALLY $1.00 single price point retail stores, and 103 TOY
LIQUIDATORS/TOYS UNLIMITED/THE AMAZING TOY STORE (TOY) close-out toy stores. In
comparison, there were 745 stores in operation at the end of the third quarter
of fiscal 1994. Composition was 483 ODD LOTS/BIG LOTS, 22 ITZADEAL!, 158 AFO,
and 82 TOY stores. The Company acquired certain assets of the TOY operations in
May of 1994 and the ITZADEAL! retail concept was introduced in the second
quarter of 1994. The Company estimates there will be approximately 867 stores
in operation at the end of fiscal 1995. Wholesale operations are conducted
under the names CONSOLIDATED INTERNATIONAL and WISCONSIN TOY.
The Company's retail business is somewhat seasonal. Due to the holiday season,
the fourth quarter generally reflects higher net sales and net income than the
other quarters. The first quarter is usually the least profitable reflecting
the traditional slow retail sales period following the holiday season.
Quarterly fluctuations in inventory balances are normal reflecting the
opportunistic purchases available at any given time and the expansion of the
Company's store base. Historically, on a per store basis, inventory levels are
lower at the end of the Company's fiscal year and build through the remaining
three quarters of the year to a peak level in the third quarter. Accounts
payable generally follow a trend similar to inventories.
SALES. Net sales for the thirteen weeks ended October 28, 1995, increased
15.3% to $357.6 million compared to third quarter 1994 net sales of $310.1
million. Retail sales increased 14.6% in the 1995 quarter to $345.8 million
reflecting the greater number of stores in operation during the period and a
4.7% increase in comparable store sales for stores open two full years at the
beginning of fiscal 1995. Comparable store sales in the 1994 third quarter
increased 2.0%.
Net sales for the first nine months of fiscal 1995 were $974.4 million a 18.1%
advance compared to net sales of $825.2 million in the same period of 1994.
Retail sales for the thirty-nine week period increased 17.2% to $945.0 million
in contrast to retail sales of $806.0 million in the same preceding year
period. Comparable store sales increased 5.6% during this period compared to
flat comparable store sales in the 1994 period.
GROSS PROFIT. Gross profit as a percent of net sales was 42.9% for the third
quarter of fiscal 1995 compared to 43.7% in the prior year quarter. Retail
gross profit was 43.7% and 44.2% in the respective quarters. For the first nine
months of fiscal 1995 gross profit was 42.5% compared to 43.0% in the same 1994
period. Retail gross profit was 43.1% compared to 43.4% for 1994. The decline
in gross profit percentage is principally related to merchandise mix in the ODD
LOTS/BIG LOTS division and a leveling of benefits from inventory control
programs initiated in prior years.
SELLING AND ADMINISTRATIVE EXPENSES. As a percent to net sales selling and
administrative expenses were 37.5% and 38.4% in the third quarter of fiscal
1995 and 1994, respectively and 38.3% and 38.9% for the year
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to date periods. This improvement reflects the effect of fixed store operating
expenses on a increased sales volume and recognition of benefits from cost
control programs.
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CONSOLIDATED STORES CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - continued
- ---------------------------------
INTEREST EXPENSE. Interest expense was $6.1 million compared to $5.4 million
(net of $.8 million in capitalized interest) for the thirty-nine weeks ended
October 28, 1995, and October 29, 1994, respectively. Gross interest expense
reflects a reduction in the weighted average outstanding balance of all debt
instruments during 1995 offset by higher effective interest rates on credit
facilities.
OTHER. Reflected under the caption of other-net in the condensed consolidated
statements of income for the thirty-nine weeks ended October 29, 1994, is a
nonrecurring $.5 million gain on the sale of corporate transportation
equipment.
INCOME TAXES. The Company's effective tax rate has decreased from 41% in 1994
to 38% in 1995. This decrease reflects the expiration of the Targeted Jobs Tax
Credits in the fourth quarter of 1994 offset by tax benefits of the Company's
investment in corporate owned life insurance.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Financing for future store growth, capital expenditure programs and seasonal
operating requirements are financed by internally generated funds and available
credits facilities. At October 28, 1995, the Company had a $110 million
revolving credit facility through June 1, 1997, a $75 million letter of credit
facility through June 1, 1996, and $65 million of uncommitted credit
facilities. The revolving credit facility is seasonally adjusted to $90 million
from December through July and the letter of credit facility is seasonally
adjusted to $50 million from August through April. Funds available for future
use at October 28, 1995, under all credit facilities totaled $45.4 million.
Management believes adequate amounts of capital resources are available, or
readily obtainable, to achieve both short-term plans and long-term goals.
PROSPECTIVE INFORMATION
- -----------------------
It is anticipated the Company will open approximately 160 stores (net of
closings) in fiscal 1996. A majority of the new stores will be located in
cities where the Company does not operate existing stores of the same division.
Management is not aware of any current trends, events, demands, commitments, or
uncertainties which reasonably can be expected to have a material impact on the
liquidity, capital resources, financial position or results of operations of
the Company.
NEW ACCOUNTING STANDARD
- -----------------------
As more fully described in Note 3 of the Notes to Condensed Consolidated
Financial Statements in October 1995 the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," which requires adoption no later than fiscal years
beginning after December 15, 1995. The new standard defines a fair value method
of accounting for stock
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options and similar equity instruments. Adoption of the new standard will have
no effect on the Company's cash flows and the effect, if any, on net income and
earnings per share has not been determined.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings. Not applicable.
Item 2. Changes in Securities. Not applicable.
Item 3. Defaults Upon Senior Securities. Not applicable.
Item 4. Submission of Matters to Vote of Security Holders.
No matter was submitted during the third quarter of
the fiscal year covered by this report to a vote
of security holders.
Item 5. Other Information. Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits. None
Exhibit No. Document
------------ ------------------------------
27 Financial Data Schedule
(b) Reports on Form 8-K. None.
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SIGNATURES
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 thereunto duly authorized.
CONSOLIDATED STORES CORPORATION
-------------------------------------------
(Registrant)
Dated: December 1, 1995 By: /s/Michael J. Potter
---------------- --------------------------------------
Michael J. Potter, Sr. Vice President,
Chief Financial Officer, and Principal
Accounting Officer
5
1
U.S. DOLLARS
3-MOS
FEB-03-1996
JAN-29-1995
OCT-28-1995
1
14,704
0
8,519
0
493,221
558,809
307,933
138,343
734,425
221,374
140,000
476
0
0
346,922
734,425
974,449
974,449
560,053
933,509
(434)
0
6,063
35,311
13,418
21,893
0
0
0
21,893
.45
.45
