Store Opening
Expense. Store opening expenses were $0.3 million in fiscal 2005, as compared to $0.2 million in fiscal 2004. The increase in store opening
expenses in fiscal 2005 primarily related to costs associated with the relocation of our St. Croix store, which opened on May 26, 2005. Expenses for
both years include costs associated with the evaluation of potential new store locations.
Store Closing
Expenses: Store closing expenses of $0.1 million in fiscal 2005 are due to the costs incurred with closing our former St. Croix location
after we relocated our store on May 26, 2005.
Net Interest
Expense. Interest expense, net, remained flat at $0.4 million for both fiscal 2005 and fiscal 2004, as increased interest costs associated
with rising interest rates in fiscal 2005 were offset by the capitalization of approximately $104,000 in interest related to the construction of our
St. Croix store, as compared to $12,000 capitalized in the prior year.
Other income
(expense): Other income (expense) declined to $42,000 for fiscal 2005, as compared to $80,000 for the same period in the prior year. The
decrease in fiscal 2005 as compared to the prior year, was primarily due to losses exceeding gains on foreign currency transactions and translation of
intercompany balances for transactions that exceed the permanent investments in foreign countries in fiscal 2005, partially offset by the receipt of a
$100,000 non-recurring insurance reimbursement. The income and losses on foreign currency in both fiscal years was primarily attributable to
appreciation/depreciation in the Fijian dollar as compared to the U.S. dollar.
Income Tax
Provision. We recorded a tax provision in fiscal 2005 of $1.7 million, or 35.4% of pre-tax income. The tax provision primarily represents
taxes associated with income generated in the U.S. and U.S. Territories. Additionally, during fiscal 2005, due to certain tax planning strategies, we
were able to offset a portion of our foreign subsidiary losses against foreign subsidiary income, which resulted in a decrease in our effective tax
rate as compared to prior years.
As of January 1, 2006, we have
foreign net operating loss carryforwards (NOLs) of approximately $7.5 million, some of which, if not utilized, will begin expiring in the year 2006.
The NOLs include approximately $3.9 million related to Curacao and St. Maarten which are not subject to expiration time limits. Our ability to utilize
the NOLs is dependent upon generating taxable income in these foreign jurisdictions. As a result, we have recorded a valuation allowance of $2.4
million attributable to the $2.6 million of tax benefits recorded for net operating loss carryforwards.
Net Income. Our net
income was $3.0 million, or $0.72 per fully diluted share, in fiscal 2005, compared to net income of $2.7 million, or $0.69 per fully diluted share, in
fiscal 2004.
Fiscal 2004 Compared to Fiscal
2003
Net Sales. Net sales
in fiscal 2004 of $209.4 million increased 18.3%, as compared to net sales of $177.1 million for the comparable period in the prior year. Approximately
50% of the increase was due to the reopening of our store in Dededo, Guam in October 2003. The balance of the increase was due to comparable-store
sales increases offset by a decline in business-to-business sales as compared to fiscal 2003.
Comparable-store sales (stores
open for a full 13 months) increased 13.6% during fiscal 2004 as compared to fiscal 2003. Comparable-store sales are calculated on stores excluding the
Guam market as our Dededo, Guam store was closed during the corresponding periods in the prior year and during those periods our Tamuning, Guam store
benefited from the temporary closure of our Dededo store. All of our other stores experienced increased sales as compared to the prior year, primarily
due to improvements in our assortment of food and general merchandise, operating improvements including better in-stock inventory levels and improved
economic conditions in some of our markets.
Gross Margin. Gross
margin improved to $38.5 million, or 18.4% of sales, in fiscal 2004 from $31.5 million, or 17.8% of sales, in fiscal 2003. The increase in gross profit
as a percent of sales resulted primarily from better sourcing, pricing and merchandising of goods in our stores and a stronger mix of retail store
sales, with typically higher margins, as compared to business-to-business sales, which generally provide a lower gross margin but are executed at
minimal direct expense.
Store Expenses.
Store expenses increased to $26.4 million for fiscal 2004 as compared to $22.3 million for fiscal 2003, but remained flat as a percent of sales at
12.6% of sales for both fiscal 2004 and fiscal 2003. Approximately 50% of the dollar increase in store expenses was attributable to increased expenses
associated with
22
operating eleven stores
during all of fiscal 2004 as compared to ten stores for ten of the twelve months in fiscal 2003. The remainder of the dollar increase was primarily
attributable to a 43% increase in commercial insurance expense, a 13% increase in energy (utility) expense and a 3% increase in rent expense,
accelerated depreciation related to the planned 2005 relocation of our St. Croix store, and higher volume-related expenses such as payroll and bankcard
fees. As a percent of store sales, payroll and related costs declined in 2004 to 5.2% as compared to 5.5% of store sales in 2003.
General and Administrative
Expense. General and administrative expenses increased to $7.1 million in fiscal 2004, as compared to $6.9 million in fiscal 2003. The
increase was primarily due to a 34% increase in compensation costs largely resulting from increased performance based awards pursuant to our incentive
bonus program. Additionally, we had a 36% increase in commercial insurance costs, partially offset by non-recurring costs incurred in 2003 in
connection with a $0.5 million write-down of idle fixed assets from previously closed stores and the acceleration of depreciation of leasehold
improvements related to our corporate office move, as well as fiscal 2003 transaction costs incurred in connection with our discussions with ASSI, Inc.
regarding a potential strategic business combination that did not occur. General and administrative expenses as a percent of sales decreased to 3.4% in
fiscal 2004, as compared to 3.9% in the corresponding period in the prior year, primarily due to the leveraging of corporate expenses over increased
store sales.
Store Opening
Expense. Store opening expenses were $188,000 in fiscal 2004, as compared to $287,000 in fiscal 2003. Store opening expense in fiscal 2004
related to costs associated with the evaluation of potential new store locations and current store relocations. Store opening expenses in fiscal 2003
primarily related to the reopening of our Dededo, Guam store.
Net Interest
Expense. Interest expense, net, decreased to $0.4 million in fiscal 2004 as compared to $0.5 million in fiscal 2003, as borrowings on our
line of credit decreased compared to the prior year.
Other income
(expense): Other income of $0.1 million in fiscal 2004 was primarily attributable to gains on foreign currency transactions and translation
of intercompany balances for transactions that exceeded the permanent investments in those countries. Other income of $0.7 million in fiscal 2003
included a gain of $0.4 million related to the receipt of insurance reimbursements for damage to inventory and equipment sustained from the
supertyphoon in Guam and gains of $0.3 million on foreign currency transactions and translation of intercompany balances for transactions that exceeded
the permanent investments in those countries. The income on foreign currency in both fiscal years was primarily attributable to appreciation in the
Fijian dollar as compared to the U.S. dollar.
Income Tax
Provision. We recorded a tax provision in fiscal 2004 of $1.8 million, or 39.8% of pre-tax income. The tax provision represents taxes
associated with income generated in the U.S. and U.S. Territories. No taxes or tax benefits were provided on foreign pre-tax losses in fiscal 2004, as
we cannot predict whether we will be able to generate an adequate amount of taxable income in the future to utilize such benefits.
As of December 26, 2004, we had
foreign NOLs of approximately $8.2 million, some of which, if not utilized, begin expiring in the year 2006. The NOLs include approximately $4.5
million related to Curacao and St. Maarten which are not subject to expiration time limits. Our ability to utilize the NOLs is dependent upon
generating taxable income in the foreign jurisdictions. As a result, we recorded a valuation allowance of $2.4 million attributable to the $2.8 million
of tax benefits recorded for net operating loss carryforwards.
Net Income. Our net
income was $2.7 million, or $0.69 per fully diluted share, in fiscal 2004, compared to net income of $1.4 million, or $0.38 per fully diluted share, in
fiscal 2003.
Liquidity and Capital Resources
We currently finance our
operations with proceeds from various credit facilities and internally generated funds. Although we utilized existing working capital to finance the
$5.6 million used to purchase the land and construct our new St. Croix store, we hope to re-finance our St. Croix store, and any future relocations and
new stores, either through an operating lease, a sale-leaseback arrangement or long-term funding from a financial institution. We intend to continue
leasing as many of our store locations as feasible. In those instances where a lease is not available on acceptable terms, we intend to finance our
stores utilizing long-term funding from a financial institution (as we currently do for our St. Thomas and St. Maarten buildings).
We generated $4.1 million, $5.7
million and $3.9 million of net cash from operations during fiscal 2005, fiscal 2004 and fiscal 2003, respectively. The $1.6 million decrease in net
cash provided by operations in 2005 as compared
23
to 2004, was primarily due to
a decrease in accounts payable and other accrued expenses of $5.2 million, partially offset by a decrease in cash used for inventory purchases of $3.7
million. The increase in net cash provided by operations in 2004 as compared to 2003, was primarily due to an increase in net income of $1.3 million
and an increase in accounts payable of $3.3 million, partially offset by an increase in cash used for inventory of $2.7 million.
Net cash used in investing
activities was $6.2 million, $2.5 million and $1.9 million, for fiscal years 2005, 2004 and 2003, respectively. The cash used in investing activities
during fiscal 2005, was primarily due to costs associated with the construction of the new building in St. Croix where we relocated our St. Croix store
on May 26, 2005. The cash used in investing activities in fiscal 2004 was primarily due to the purchase of land in St. Croix for approximately $0.9
million and costs associated with the construction of the building on this parcel of land. The relocated store is closer to the main trade area in the
center of the island than the existing store and has now been increased in size by about 45% to 38,000 square feet. The cash used in investing
activities in 2003 primarily related to the reopening of our Dededo, Guam store. The proceeds from insurance settlements received in fiscal 2004 and
2003 relate to insurance reimbursements received on fixed assets lost in the Supertyphoon in Guam.
Although we currently have no
plans to open stores in new markets during fiscal 2006, in July 2005 the Cayman Islands Trade and Business Licensing Board granted approval for us to
operate a retail and wholesale business in the Cayman Islands through a controlled subsidiary. This is the first in a series of steps that we must take
before we can open a store operating under the Cost-U-Less name in the Cayman Islands. We do not have an approximate timing as to when a new store
would open in the Cayman Islands, if at all, but expect that it will take at least twelve to eighteen months once the permitting, governmental approval
and lease process is complete. In the meantime, we are actively working with local architects and engineers to more precisely define the type of
building we could construct as a prelude to applying for construction permits. In addition, we are currently in the process of renovating and expanding
the size of our store in St. Thomas by approximately 6,400 square feet (an increase of approximately 18%). We anticipate that the cost associated with
building construction and updating equipment will be approximately $1.4 to $2.0 million. Additionally, we anticipate spending approximately $0.2
million to remodel our Kauai store in order to add retail enhancements such as fresh produce by the pound. During fiscal 2006, we also plan to replace
our current point of sale system with a new and improved version, which we anticipate will cost approximately $0.7 to $1.0 million, most of which will
be financed with a capital lease. In addition to these projects, we continue to explore expansion opportunities in selected markets and additional
relocation opportunities for stores in existing markets.
Net cash provided by financing
activities of $1.3 million in fiscal 2005 was primarily due to $1.0 million received on equipment purchased for our St. Croix store and $0.4 million
received from the exercise of common stock options. Net cash used by financing activities of $1.1 million in fiscal 2004 was primarily due to a $1.0
million reduction in the balance on our line of credit and a $0.8 million decrease in bank checks outstanding, partially offset by $0.8 million of
funds received on the sale-leaseback of equipment in Guam. In fiscal 2003, $1.4 million was used to reduce the balance on our line of credit, which was
offset by an increase of $1.5 million in bank checks outstanding.
Foreign currency translation
resulted in a gain of $15,000 in fiscal 2004 and losses of $24,000 and $235,000 in fiscal years 2005 and 2003, respectively. The foreign currency
translation gains and losses are a result of the translation of our subsidiaries operating results and balance sheets from local currencies to U.
S. dollars.
We have had a line of credit with
Wells Fargo Business Credit since April 9, 2003. On May 26, 2005, we amended the line of credit to extend the maturity date of the facility from April
9, 2006, to May 18, 2007. Additionally, the amendment
|
|
reduced the interest rate to an annual interest rate equal to
the prime rate; |
|
|
reduced the minimum interest charge to not less than $25,000 per
calendar year; |
|
|
increased the unused line fee to a rate of three-eighths of one
percent (0.375%) per annum on the average daily unused line; and |
|
|
eliminated the one day interest charge on all payments received
on the line of credit. |
Borrowings continue to be limited
to the lesser of $6.0 million or the amount calculated under the borrowing base. The borrowing base is equal to the lesser of (a) $6.0 million or (b)
the sum of 70% of eligible inventory in the United States of America, plus 60% of eligible inventory in the U.S. Virgin Islands and Guam, less
specified reserves.
24
The line of credit consists of a
$6.0 million committed, secured revolving credit line with a sublimit for letters of credit and bankers acceptances in an amount up to $0.7 million. At
January 1, 2006, there was $0.1 million outstanding on the line of credit and $0.1 million in letters of credit outstanding. Borrowings under the
amended line of credit were charged interest at Wells Fargos prime rate plus 0.5% from the beginning of the most recent fiscal year through May
17, 2005, and at the prime rate from May 18, 2005, through January 1, 2006. At January 1, 2006, the rate charged by Wells Fargo was 7.25%. The line of
credit contains various covenants, including a requirement that we maintain minimum pre-tax income and tangible net worth, as well as limitations on
acquisitions, additional debt, changes in control and capital expenditures. We believe that we are currently in compliance with all such
covenants.
A significant portion of our cash
flow is generated by our operations. If our operating results deteriorate as a result of a decrease in customer demand, declining economic conditions
in the markets in which we have stores, or pricing pressures from our customers or our competitors, our ability to generate positive cash flow from
operations may be jeopardized. We believe that amounts available under our various credit facilities, existing cash available for working capital
purposes, and cash flow from operations will most likely be sufficient to fund our operations through the next twelve months. However, if such sources
of liquidity are unavailable or insufficient to satisfy our liquidity requirements, we may need to issue equity or debt securities, obtain additional
credit facilities or consider alternative financing arrangements. There can be no assurance that we will be able to obtain additional financing when
needed, or that any available financing will be on terms acceptable to us.
Contractual Obligations
As of January 1, 2006, our
commitments to make future payments under contractual obligations were as follows (in thousands):
|
|
|
|
Payments Due by Period
|
|
Contractual Obligations
|
|
|
|
Total
|
|
Less than 1 year
|
|
1 to 3 years
|
|
4 to 5 years
|
|
After 5 years
|
Long-term
debt |
|
|
|
$ |
2,278 |
|
|
$ |
267 |
|
|
$ |
534 |
|
|
$ |
534 |
|
|
$ |
943 |
|
Operating
leases |
|
|
|
|
29,987 |
|
|
|
4,893 |
|
|
|
8,799 |
|
|
|
5,136 |
|
|
|
11,159 |
|
Capital
leases |
|
|
|
|
1,885 |
|
|
|
321 |
|
|
|
642 |
|
|
|
642 |
|
|
|
280 |
|
Total |
|
|
|
$ |
34,150 |
|
|
$ |
5,481 |
|
|
$ |
9,975 |
|
|
$ |
6,312 |
|
|
$ |
12,382 |
|
Critical Accounting Policies
We have chosen accounting
policies that we believe are appropriate to report accurately and fairly our operating results and financial position, and we apply those accounting
policies in a consistent manner. The significant accounting policies are summarized in Note 1 to the consolidated financial statements included in this
annual report on Form 10-K.
The preparation of financial
statements in accordance with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience and other factors believed to be
reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results could differ from those estimates.
We believe that the following
accounting policies are the most critical in the preparation of our financial statements because they involve the most difficult, subjective or complex
judgments about the effect of matters that are inherently uncertain.
Inventories
Inventories are carried at the
lower of average cost or market. We provide for estimated inventory losses between physical inventory counts on the basis of a percentage of sales. The
provision is adjusted periodically to reflect the trend of actual physical inventory count results.
25
Long Lived Assets
When facts and circumstances
indicate that the carrying values of long-lived assets, including intangibles, may be impaired, we perform an evaluation of the recoverability by
comparing the carrying value of the assets to projected future cash flows. Upon indication that the carrying value of such assets may not be
recoverable, we recognize an impairment loss by a charge against current operations.
Foreign Currency Translation
The U.S. dollar is the functional
currency for all our locations, except for Fiji and Netherlands Antilles, where the local currency is the functional currency. Assets and liabilities
denominated in foreign currencies are translated at the applicable exchange rate on the balance sheet date. Net sales costs and expenses are translated
at the average rates of exchange prevailing during the period. Adjustments resulting from this process are reported, net of taxes, as Accumulated Other
Comprehensive Income (Loss), a component of Shareholders Equity. Realized and unrealized gains on foreign currency transactions are included in
Other Income (Expense). The cumulative translation adjustment resulting from a net investment in a country is recognized as income or expense in the
period we substantially liquidate operations in that country.
Income Taxes
Income tax expense includes U.S.
and foreign income taxes. We account for income taxes under the liability method. Under the liability method, deferred tax assets and liabilities are
determined based on differences between financial reporting and tax basis of assets and liabilities, and are measured using the enacted tax rates and
laws that will be in effect when the differences are expected to reverse. We apply judgment in determining whether it is more likely than not that the
deferred tax assets will be realized, and valuation allowances are established when necessary. Our effective tax rate is currently higher than the
expected federal statutory rate because valuation allowances have been established against the tax benefits of foreign losses, as we have no assurance
that we will be able to generate an adequate amount of taxable income in the future to utilize such benefits. We are developing and implementing
certain tax planning strategies, which may affect our ability to recognize some of the deferred tax assets that are currently allowed for and may
ultimately change our estimate of the valuation allowance in future periods.
Accounting Pronouncements
In December 2004, the Financial
Accounting Standards Board (the FASB) issued Statement 123 (revised 2004), Share-Based Payment (FAS 123(R)). FAS 123(R) requires that the
compensation cost relating to share-based payment transactions be recognized in financial statements. The cost will be measured based on the fair value
of the instruments issued. FAS 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans,
performance-based awards, share appreciation rights and employee share purchase plans. FAS 123(R) replaces FAS 123 and supersedes APB 25. As originally
issued in 1995, FAS 123 established as preferable the fair-value-based method of accounting for share-based payment transactions with employees.
However, that statement permitted entities the option of continuing to apply the guidance in APB 25, as long as the footnotes to the financial
statements disclosed what net income would have been had the preferable fair-value-based method been used. We are required to apply FAS 123(R) as of
the beginning of fiscal 2006. We expect to use the modified-prospective method effective with our first quarter of fiscal 2006. We believe that the
adoption of this new accounting standard will not have a significant impact on our results of operations or financial position, as we have a limited
amount of unvested options and options available for issuance in the future.
On November 24, 2004, the FASB
issued Statement No. 151 (FAS 151), Inventory Costs, an amendment of ARB No. 43, Chapter 4 which clarifies the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted material. FAS 151 requires that abnormal items be recognized as current-period
charges, as well as unallocated overheads recognized in the period in which they are incurred. The provisions of this statement are effective for
inventory costs incurred during fiscal periods beginning after June 15, 2005. Our adoption of FAS 151 in our first quarter of fiscal 2006 is not
expected to have a significant impact on our results of operations or financial position.
26
Item 7A. |
|
Quantitative and Qualitative Disclosures About Market
Risk |
We operate stores in foreign
countries and have market risks associated with foreign currencies. However, sales are primarily made in U.S. dollars or foreign currencies with
minimal trade credit extended and no borrowings exist in foreign currencies. Cash deposited from sales are remitted back to the U.S. bank account
routinely.
We record gains and losses on
foreign currency transactions, and translation of intercompany balances for transactions that exceed the permanent investments in those countries in
Other Income (Expense). Gains and losses are primarily attributable to appreciation and (depreciation) in the Fijian dollar as compared to the U.S.
dollar.
We operate in three foreign
countries that function under currencies other than the US dollar. Two of the these foreign countries operate under the Netherlands Antilles Guilder
that has historically had an exchange rate fixed to the U.S. dollar but there can be no assurance that this will continue. If the Netherlands Antilles
Guilder is allowed to float this would lead to an increase in foreign exchange volatility and risk which could have a materially adverse effect on our
business, financial condition and operating results. There is also the possibility these three foreign countries that function under currencies other
than the U.S. dollar could devalue their currency against the U.S. dollar at any time and if this was to occur there could be a materially adverse
effect on our business, financial condition and operating results.
We have also assessed our
vulnerability to interest rate risk associated with our financial instruments, including, cash and cash equivalents, lines of credit and long term
debt. Due to the nature of these financial instruments, we believe that the risk associated with interest rate fluctuations does not pose a material
risk. Our line of credit and long-term debt can be expected to vary in the future as a result of future business requirements, market conditions and
other factors.
We did not have any derivative
financial instruments as of January 1, 2006.
27
Item 8. Financial Statements and Supplementary
Data
The following consolidated
financial statements and supplementary data are included beginning on page 29 of this Report:
|
|
|
|
Page
|
Report of
Independent Registered Public Accounting Firm |
|
|
|
|
29 |
|
Consolidated
Financial Statements:
|
|
|
|
|
|
|
Consolidated
Statements of Operations |
|
|
|
|
30 |
|
Consolidated
Balance Sheets |
|
|
|
|
31 |
|
Consolidated
Statements of Shareholders Equity |
|
|
|
|
32 |
|
Consolidated
Statements of Cash Flows |
|
|
|
|
33 |
|
Notes to
Consolidated Financial Statements |
|
|
|
|
34 |
|
28
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To the Board of Directors and Shareholders
Cost-U-Less, Inc.
We have audited the accompanying
consolidated balance sheets of Cost-U-Less, Inc. and subsidiaries as of January 1, 2006 and December 26, 2004, and the related consolidated statements
of operations, shareholders equity, and cash flows for each of the three fiscal years in the period ended January 1, 2006. These financial
statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on
our audits.
We have conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor
were we engaged to perform an audit of its internal control over financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated
financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cost-U-Less, Inc. and
subsidiaries as of January 1, 2006 and December 26, 2004 and the results of their operations and their consolidated cash flows for each of the three
fiscal years in the period ended January 1, 2006 in conformity with accounting principles generally accepted in the United States of
America.
Our audits were conducted for the
purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The consolidated financial statement schedule listed in
Item 15 for three fiscal years in period ended January 1, 2006 is presented for purposes of additional analysis and is not a required part of the basic
consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial
statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a
whole.
Seattle, Washington
March 6, 2006
29
COST-U-LESS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands,
except share data)
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
January 1, 2006
|
|
December 26, 2004
|
|
December 28, 2003
|
Net
sales |
|
|
|
$ |
219,414 |
|
|
$ |
209,390 |
|
|
$ |
177,066 |
|
Merchandise
costs |
|
|
|
|
178,613 |
|
|
|
170,866 |
|
|
|
145,563 |
|
Gross
profit |
|
|
|
|
40,801 |
|
|
|
38,524 |
|
|
|
31,503 |
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store |
|
|
|
|
28,567 |
|
|
|
26,408 |
|
|
|
22,304 |
|
General and
administrative |
|
|
|
|
6,828 |
|
|
|
7,103 |
|
|
|
6,853 |
|
Store
openings |
|
|
|
|
335 |
|
|
|
188 |
|
|
|
287 |
|
Store
closings |
|
|
|
|
81 |
|
|
|
|
|
|
|
|
|
Total
operating expenses |
|
|
|
|
35,811 |
|
|
|
33,699 |
|
|
|
29,444 |
|
|
Operating
income |
|
|
|
|
4,990 |
|
|
|
4,825 |
|
|
|
2,059 |
|
Other income
(expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense, net |
|
|
|
|
(367 |
) |
|
|
(437 |
) |
|
|
(458 |
) |
Other |
|
|
|
|
42 |
|
|
|
80 |
|
|
|
710 |
|
Income before
income taxes |
|
|
|
|
4,665 |
|
|
|
4,468 |
|
|
|
2,311 |
|
Income tax
provision |
|
|
|
|
1,650 |
|
|
|
1,780 |
|
|
|
930 |
|
Net
income |
|
|
|
$ |
3,015 |
|
|
$ |
2,688 |
|
|
$ |
1,381 |
|
|
Earnings per
common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
$ |
0.77 |
|
|
$ |
0.72 |
|
|
$ |
0.38 |
|
Diluted |
|
|
|
$ |
0.72 |
|
|
$ |
0.69 |
|
|
$ |
0.38 |
|
|
Weighted
average common shares outstanding, basic |
|
|
|
|
3,939,190 |
|
|
|
3,731,754 |
|
|
|
3,613,988 |
|
Weighted
average common shares outstanding, diluted |
|
|
|
|
4,168,611 |
|
|
|
3,915,808 |
|
|
|
3,670,908 |
|
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
30
COST-U-LESS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except
share data)
|
|
|
|
January 1, 2006
|
|
December 26, 2004
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents |
|
|
|
$ |
5,304 |
|
|
$ |
6,081 |
|
Accounts
receivable (net of allowance of $80 and $205 in 2005 and 2004, respectively) |
|
|
|
|
843 |
|
|
|
805 |
|
Inventories |
|
|
|
|
23,027 |
|
|
|
23,140 |
|
Prepaid
expenses |
|
|
|
|
260 |
|
|
|
365 |
|
Deferred
taxes, net |
|
|
|
|
876 |
|
|
|
688 |
|
Total current
assets |
|
|
|
|
30,310 |
|
|
|
31,079 |
|
Buildings and
equipment, net |
|
|
|
|
18,550 |
|
|
|
14,345 |
|
Deposits and
other assets |
|
|
|
|
772 |
|
|
|
778 |
|
Total
assets |
|
|
|
$ |
49,632 |
|
|
$ |
46,202 |
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable |
|
|
|
$ |
15,062 |
|
|
$ |
16,132 |
|
Accrued
expenses |
|
|
|
|
5,402 |
|
|
|
5,937 |
|
Income taxes
payable |
|
|
|
|
20 |
|
|
|
27 |
|
Line of
credit |
|
|
|
|
80 |
|
|
|
|
|
Current
portion of long-term debt |
|
|
|
|
267 |
|
|
|
267 |
|
Current
portion capital leases |
|
|
|
|
226 |
|
|
|
102 |
|
Total current
liabilities |
|
|
|
|
21,057 |
|
|
|
22,465 |
|
Deferred
rent |
|
|
|
|
527 |
|
|
|
527 |
|
Deferred
taxes, net |
|
|
|
|
665 |
|
|
|
393 |
|
Long-term
debt, less current portion |
|
|
|
|
2,011 |
|
|
|
2,277 |
|
Capital
lease, less current portion |
|
|
|
|
1,329 |
|
|
|
607 |
|
Total
liabilities |
|
|
|
|
25,589 |
|
|
|
26,269 |
|
|
Commitments
and Contingencies |
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
Preferred
stock$0.001 par value; Authorized shares2,000,000; Issued and outstanding sharesnone |
|
|
|
|
|
|
|
|
|
|
Common
stock$0.001 par value; Authorized shares25,000,000; Issued and outstanding shares, 3,990,171 and 3,751,306 in 2005 and 2004,
respectively |
|
|
|
|
13,931 |
|
|
|
12,795 |
|
Retained
earnings |
|
|
|
|
10,926 |
|
|
|
7,911 |
|
Accumulated
other comprehensive loss |
|
|
|
|
(814 |
) |
|
|
(773 |
) |
Total
shareholders equity |
|
|
|
|
24,043 |
|
|
|
19,933 |
|
Total
liabilities and shareholders equity |
|
|
|
$ |
49,632 |
|
|
$ |
46,202 |
|
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
31
COST-U-LESS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(in thousands, except share data)
|
|
|
|
Common Stock Shares
|
|
Common Stock Amount
|
|
Retained Earnings
|
|
Accumulated Other Comprehensive Loss
|
|
Total
|
Balance at
December 29, 2002 |
|
|
|
|
3,606,376 |
|
|
$ |
12,446 |
|
|
$ |
3,842 |
|
|
$ |
(693 |
) |
|
$ |
15,595 |
|
Net
income |
|
|
|
|
|
|
|
|
|
|
|
|
1,381 |
|
|
|
|
|
|
|
1,381 |
|
Foreign
currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(127 |
) |
|
|
(127 |
) |
Comprehensive
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,254 |
|
Exercise of
common stock options including income tax benefit |
|
|
|
|
82,000 |
|
|
|
151 |
|
|
|
|
|
|
|
|
|
|
|
151 |
|
Balance at
December 28, 2003 |
|
|
|
|
3,688,376 |
|
|
|
12,597 |
|
|
|
5,223 |
|
|
|
(820 |
) |
|
|
17,000 |
|
Net
income |
|
|
|
|
|
|
|
|
|
|
|
|
2,688 |
|
|
|
|
|
|
|
2,688 |
|
Foreign
currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47 |
|
|
|
47 |
|
Comprehensive
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,735 |
|
Stock based
compensation |
|
|
|
|
|
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
9 |
|
Exercise of
common stock options including income tax benefit |
|
|
|
|
62,930 |
|
|
|
189 |
|
|
|
|
|
|
|
|
|
|
|
189 |
|
Balance at
December 26, 2004 |
|
|
|
|
3,751,306 |
|
|
|
12,795 |
|
|
|
7,911 |
|
|
|
(773 |
) |
|
|
19,933 |
|
Net
income |
|
|
|
|
|
|
|
|
|
|
|
|
3,015 |
|
|
|
|
|
|
|
3,015 |
|
Foreign
currency translation adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41 |
) |
|
|
(41 |
) |
Comprehensive
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,974 |
|
Stock based
compensation |
|
|
|
|
|
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
24 |
|
Exercise of
common stock options including income tax benefit |
|
|
|
|
238,865 |
|
|
|
1,112 |
|
|
|
|
|
|
|
|
|
|
|
1,112 |
|
Balance at
January 1, 2006 |
|
|
|
|
3,990,171 |
|
|
$ |
13,931 |
|
|
$ |
10,926 |
|
|
$ |
(814 |
) |
|
$ |
24,043 |
|
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
32
COST-U-LESS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
thousands)
|
|
|
|
January 1, 2006
|
|
December 26, 2004
|
|
December 28, 2003
|
OPERATING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
|
$ |
3,015 |
|
|
$ |
2,688 |
|
|
$ |
1,381 |
|
Adjustments
to reconcile net income to net cash provided by (used for) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization |
|
|
|
|
1,934 |
|
|
|
1,849 |
|
|
|
1,816 |
|
Gain on
property damaged by Supertyphoon Ponsonga |
|
|
|
|
|
|
|
|
|
|
|
|
(411 |
) |
(Gain) loss
on buildings and equipment |
|
|
|
|
66 |
|
|
|
(31 |
) |
|
|
436 |
|
Deferred tax
(benefit) provision |
|
|
|
|
84 |
|
|
|
264 |
|
|
|
(5 |
) |
Tax benefit
from exercise of stock options |
|
|
|
|
684 |
|
|
|
98 |
|
|
|
62 |
|
Allowance for
doubtful accounts |
|
|
|
|
(125 |
) |
|
|
(3 |
) |
|
|
(16 |
) |
Stock option
expense |
|
|
|
|
24 |
|
|
|
9 |
|
|
|
|
|
Cash provided
by changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance
receivable |
|
|
|
|
|
|
|
|
410 |
|
|
|
607 |
|
Accounts
receivable |
|
|
|
|
87 |
|
|
|
36 |
|
|
|
891 |
|
Income tax
receivable |
|
|
|
|
(7 |
) |
|
|
555 |
|
|
|
276 |
|
Inventories |
|
|
|
|
113 |
|
|
|
(3,600 |
) |
|
|
(914 |
) |
Prepaid
expenses |
|
|
|
|
105 |
|
|
|
35 |
|
|
|
(108 |
) |
Deposits and
other assets |
|
|
|
|
6 |
|
|
|
26 |
|
|
|
(16 |
) |
Accounts
payable |
|
|
|
|
(1,310 |
) |
|
|
1,708 |
|
|
|
(1,624 |
) |
Accrued
expenses |
|
|
|
|
(535 |
) |
|
|
1,676 |
|
|
|
1,637 |
|
Deferred
rent |
|
|
|
|
|
|
|
|
29 |
|
|
|
(31 |
) |
Net cash
provided by operating activities |
|
|
|
|
4,141 |
|
|
|
5,749 |
|
|
|
3,981 |
|
|
INVESTING
ACTIVITY:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash used to
purchase buildings and equipment |
|
|
|
|
(6,293 |
) |
|
|
(3,258 |
) |
|
|
(1,987 |
) |
Proceeds from
sale of buildings and equipment |
|
|
|
|
71 |
|
|
|
|
|
|
|
|
|
Proceeds from
insurance settlement |
|
|
|
|
|
|
|
|
725 |
|
|
|
121 |
|
Net cash used
by investing activities |
|
|
|
|
(6,222 |
) |
|
|
(2,533 |
) |
|
|
(1,866 |
) |
|
FINANCING
ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from
exercise of common stock options |
|
|
|
|
428 |
|
|
|
91 |
|
|
|
89 |
|
Proceeds
(payments) from (on) line of credit, net |
|
|
|
|
80 |
|
|
|
(960 |
) |
|
|
(1,407 |
) |
Increase
(decrease) in bank checks outstanding |
|
|
|
|
240 |
|
|
|
(816 |
) |
|
|
1,415 |
|
Proceeds from
capital lease obligations |
|
|
|
|
1,000 |
|
|
|
805 |
|
|
|
|
|
Payments on
capital lease obligations |
|
|
|
|
(154 |
) |
|
|
(96 |
) |
|
|
|
|
Payments on
long-term debt |
|
|
|
|
(266 |
) |
|
|
(267 |
) |
|
|
(267 |
) |
Net cash
provided (used) by financing activities |
|
|
|
|
1,328 |
|
|
|
(1,243 |
) |
|
|
(170 |
) |
Foreign
currency translation adjustments |
|
|
|
|
(24 |
) |
|
|
15 |
|
|
|
(235 |
) |
Net increase
(decrease) in cash and cash equivalents |
|
|
|
|
(777 |
) |
|
|
1,988 |
|
|
|
1,710 |
|
Cash and cash
equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning of
period |
|
|
|
|
6,081 |
|
|
|
4,093 |
|
|
|
2,383 |
|
End of
period |
|
|
|
$ |
5,304 |
|
|
$ |
6,081 |
|
|
$ |
4,093 |
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid
during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
|
|
|
$ |
454 |
|
|
$ |
486 |
|
|
$ |
458 |
|
Income
taxes |
|
|
|
|
888 |
|
|
|
857 |
|
|
|
597 |
|
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
33
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS
1. |
|
Nature of Business and Summary of Significant Accounting
Policies |
Nature of
Business
Cost-U-Less, Inc. (the
Company) operates mid-sized warehouse club-style stores in the United States Territories (U.S. Territories), foreign island
countries in the Pacific and the Caribbean, the Hawaiian Islands and Sonora, California. At January 1, 2006, the Company operated eleven retail stores
as follows: two stores in each of Hawaii and Guam, and one store in each of St. Thomas, St. Croix, American Samoa, Fiji, Curacao, St. Maarten and
Sonora, California. On December 8, 2002, the Companys two stores on the island of Guam suffered damage from Supertyphoon Pongsona, resulting in
the immediate closure of both stores. The Companys Tamuning store lost its generator in the storm, but reopened shortly thereafter on December
12, 2002. The Companys Dededo store, however, suffered more significant damage and had to be closed for reconstruction. The store was rebuilt and
it reopened for business on October 3, 2003.
Fiscal
Year
The Company reports on a
52/53-week fiscal year, consisting of four thirteen-week periods and ending on the Sunday nearest to the end of December. The years ended December 26,
2004 and December 28, 2003 were 52-week fiscal years. Fiscal 2005, ending on January 1, 2006, was a 53-week fiscal year with the extra week included in
the fourth quarter.
Principles of
Consolidation
The consolidated financial
statements include the accounts of the Company and its wholly owned subsidiaries in the U.S. Virgin Islands, Netherlands Antilles, Guam, American
Samoa, Nevada, Fiji and New Zealand. All inter-company accounts and transactions have been eliminated in consolidation.
Foreign Currency Translations
and Comprehensive Income
The U.S. dollar is the functional
currency for all locations, except for Fiji and Netherlands Antilles, where the local currency is the functional currency. Assets and liabilities
denominated in foreign currencies are translated at the applicable exchange rate on the balance sheet date. Net sales, costs and expenses are
translated at the average rates of exchange prevailing during the period. Adjustments resulting from this process are reported, net of taxes, as
Accumulated Other Comprehensive Income (Loss), a component of Shareholders Equity. Realized and unrealized gains on foreign currency transactions
are included in Other Income (Expense). The cumulative translation adjustment resulting from a net investment in a country is recognized as income or
expense in the period the Company has substantially liquidated operations in that country.
Use of
Estimates
The preparation of financial
statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during the reporting period. Estimates are used for, but not limited to:
allowance for doubtful accounts; depreciable lives of assets; reserves for store closure expenses; and tax valuation allowances. Future events and
their effects cannot be determined with certainty. Accordingly, the accounting estimates require the exercise of judgment. The accounting estimates
used in the preparation of the consolidated financial statements may change as new events occur, as more experience is acquired, as additional
information is obtained and as the Companys operating environment changes. Actual results could differ from those estimates.
34
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(continued)
Cash
Equivalents
The Company considers all highly
liquid investments with an initial maturity three months or less to be cash equivalents.
Financial
Instruments
The carrying value of financial
instruments, including cash, cash equivalents, receivables, payables, and long-term debt, approximates market value at January 1, 2006 and December 26,
2004. The carrying value of cash, cash equivalents, receivables and payables approximates their fair value based on the liquidity of these financial
instruments or based on their short-term nature. The carrying value of long-term debt approximates fair value based on the variable interest rates
charged on the debt.
Inventories
Inventory consists of retail
merchandise inventory and is carried at the lower of average cost or market.
Accounts Receivable,
net
Accounts receivable consist
primarily of receivables from local businesses and government agencies, vendor rebates and promotional allowances and other miscellaneous amounts due
to the Company. Management determines the allowance for doubtful accounts based on known troubled accounts and historical experience applied to an
aging of accounts.
Buildings and
Equipment
Buildings and equipment are
stated at cost, less accumulated depreciation and amortization. Depreciation and amortization are computed using the straight-line method for financial
reporting purposes. Buildings are generally depreciated over thirty-five years; equipment and fixtures are depreciated over three to ten years; and
leasehold improvements are amortized over the lesser of the initial term of the lease or the assets estimated useful life. Equipment acquired
under capitalized leases is depreciated over the shorter of the assets estimated useful life or the life of the related lease.
Long Lived
Assets
When facts and circumstances
indicate that the carrying values of long-lived assets may be impaired, an evaluation of the recoverability is performed by comparing the carrying
value of the assets to projected future cash flows. Upon indication that the carrying value of such assets may not be recoverable, the Company
recognizes an impairment loss by a charge against current operations.
Accounts
Payable
The Companys major bank
accounts are replenished as checks are presented. Accordingly, included in accounts payable at January 1, 2006 and December 26, 2004 are $3.8 million
and $3.5 million, respectively, representing the excess of outstanding checks over cash on deposit in the accounts on which the checks were
drawn.
35
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(continued)
Insurance/Self Insurance
Liabilities
The Company uses a combination of
insurance and self-insurance mechanisms to provide for the potential liabilities for workers compensation, general liability, property insurance,
director and officers liability, vehicle liability and employee health care benefits. Liabilities associated with the risks that are retained by
the Company are not discounted and are estimated, in part, by considering historical claims experience and outside expertise, demographic factors,
severity factors and other actuarial assumptions. The estimated accruals for these liabilities could be significantly affected if future occurrences
and claims differ from these assumptions and historical trends.
Revenue
Recognition
The Company recognizes revenue
from product sales when the customer purchases the products, generally at the point of sale.
Merchandise
Costs
Merchandise costs consist of the
purchase price of inventory sold, inbound shipping charges and all costs related to our depot operations, including freight from depots to selling
warehouses. Merchandise costs also include salaries and other related expenses incurred in certain fresh food departments.
Vendor
Allowances
Periodic payments from vendors in
the form of volume rebates or other allowances that are evidenced by signed agreements are reflected in the carrying value of the inventory when earned
or as the Company progresses towards earning the rebate and as a component of cost of sales as the merchandise is sold. Other consideration received
from vendors is generally recorded as a reduction of merchandise costs upon completion of the terms of the related agreement, or by other systematic
and rational approach. Vendor allowances received for advertising programs reduce the Companys expense for the related advertising
program.
Advertising
Costs
The cost of advertising is
expensed as incurred. Advertising expenses incurred during fiscal years 2005, 2004 and 2003 were not considered material to the Companys
operating results.
Store Opening
Costs
Pre-opening costs incurred in
connection with the startup and promotion of new stores are expensed as incurred.
Stock-Based
Compensation
The Company has elected to apply
the disclosure-only provisions of Financial Accounting Standards Board Statement No. 123 (FAS 123), Accounting for Stock-Based
Compensation. Accordingly, the Company accounts for stock-based compensation using the intrinsic value method prescribed by Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations under APB No. 25 (APB 25), whereby compensation
cost for stock options is measured as the excess, if any, of the fair value of the Companys common stock at the date of grant over the stock
option exercise price. The Company usually grants stock options at exercise prices equal to fair market value on the date of grant; as a result,
compensation cost is generally not recognized.
36
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(continued)
Had stock option compensation
expense for the Companys stock option plans been recognized based on the estimated fair value on the grant date under the fair value methodology
allowed by FAS 123, as amended by FAS 148, the Companys net income and earnings per share amounts would have been as follows:
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
(Net income in thousands) |
Net income,
as reported |
|
|
|
$ |
3,015 |
|
|
$ |
2,688 |
|
|
$ |
1,381 |
|
Add:
Stock-based compensation, as reported |
|
|
|
|
24 |
|
|
|
9 |
|
|
|
|
|
Less: Total
stock-based employee compensation expense determined under fair value method for all awards, net of tax |
|
|
|
|
(51 |
) |
|
|
(223 |
) |
|
|
(132 |
) |
Net income
pro forma |
|
|
|
$ |
2,988 |
|
|
$ |
2,474 |
|
|
$ |
1,249 |
|
Earnings per
common share, basic as reported |
|
|
|
$ |
0.77 |
|
|
$ |
0.72 |
|
|
$ |
0.38 |
|
Earnings per
common share, basic pro forma |
|
|
|
$ |
0.76 |
|
|
$ |
0.66 |
|
|
$ |
0.35 |
|
Earnings per
common share, diluted as reported |
|
|
|
$ |
0.72 |
|
|
$ |
0.69 |
|
|
$ |
0.38 |
|
Earnings per
common share, diluted pro forma |
|
|
|
$ |
0.72 |
|
|
$ |
0.63 |
|
|
$ |
0.34 |
|
|
The fair value of each option is
estimated on the date of grant under the Black-Scholes option-pricing model using the following assumptions: |
|
|
|
|
2005
|
|
2004
|
|
2003
|
Risk-free
interest rate |
|
|
|
|
3.65 |
% |
|
|
3.13 |
% |
|
|
3.90 |
% |
Expected
life |
|
|
|
|
5 |
years |
|
|
5 |
years |
|
|
5 |
years |
Expected
dividend yield |
|
|
|
|
0 |
% |
|
|
0 |
% |
|
|
0 |
% |
Volatility |
|
|
|
|
74 |
% |
|
|
74 |
% |
|
|
74 |
% |
The weighted average fair values
of options granted in 2005, 2004, and 2003 were $3.21, $1.61 and $0.78, respectively.
Income
Taxes
Income tax expense includes U.S.
and foreign income taxes. The Company accounts for income taxes under the liability method. Under the liability method, deferred tax assets and
liabilities are determined based on differences between financial reporting and tax basis of assets and liabilities, and are measured using the enacted
tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce
deferred tax assets to the amounts that more likely than not will be realized.
Segment
Reporting
The Company operates mid-sized
warehouse club-style stores in the United States (U.S.), U.S. Territories, and foreign island countries throughout the Pacific and the Caribbean. The
Companys retail operations are its only reportable segment. The financial information used by the Companys chief operating decision maker
in allocating resources and assessing performance is only provided for one reportable segment.
37
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(continued)
New Accounting
Pronouncements
In December 2004, the Financial
Accounting Standards Board (the FASB) issued Statement 123 (revised 2004), Share-Based Payment (FAS 123(R)). FAS 123(R) requires that the
compensation cost relating to share-based payment transactions be recognized in financial statements. The cost will be measured based on the fair value
of the instruments issued. FAS 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans,
performance-based awards, share appreciation rights and employee share purchase plans. FAS 123(R) replaces FAS 123 and supersedes APB 25. As originally
issued in 1995, FAS 123 established as preferable the fair-value-based method of accounting for share-based payment transactions with employees.
However, that statement permitted entities the option of continuing to apply the guidance in APB 25, as long as the footnotes to the financial
statements disclosed what net income would have been had the preferable fair-value-based method been used. The Company will be required to apply FAS
123(R) as of the beginning of fiscal 2006. The Company expects to use the modified-prospective method effective with its first quarter of fiscal 2006.
The Company believes that the adoption of this new accounting standard will not have a significant impact on the Companys results of operations
or financial position, as the Company has a limited amount of unvested options and options available for issuance in the
future.
On November 24, 2004, the FASB
issued Statement No. 151 (FAS 151), Inventory Costs, an amendment of ARB No. 43, Chapter 4 which clarifies the accounting for abnormal
amounts of idle facility expense, freight, handling costs, and wasted material. FAS 151 requires that abnormal items be recognized as current-period
charges, as well as unallocated overheads recognized in the period in which they are incurred. The provisions of this statement are effective for
inventory costs incurred during fiscal periods beginning after June 15, 2005. The Companys adoption of FAS 151 in its first quarter of fiscal
2006 is not expected to have a significant impact on the Companys results of operations or financial position.
Reclassifications
Certain reclassifications of
prior years balances have been made for consistent presentation with the current year.
3. |
|
Buildings and Equipment |
Buildings and equipment consist
of the following (in thousands) at:
|
|
|
|
January 1, 2006
|
|
December 26, 2004
|
Buildings |
|
|
|
$ |
10,783 |
|
|
$ |
7,175 |
|
Equipment |
|
|
|
|
16,375 |
|
|
|
15,528 |
|
Leasehold
improvements |
|
|
|
|
1,095 |
|
|
|
1,234 |
|
Land
improvements |
|
|
|
|
839 |
|
|
|
|
|
Land |
|
|
|
|
906 |
|
|
|
|
|
Equipment
under capital lease |
|
|
|
|
1,805 |
|
|
|
805 |
|
Buildings,
equipment, land and improvements |
|
|
|
|
31,803 |
|
|
|
24,742 |
|
Less
accumulated depreciation and amortization |
|
|
|
|
13,409 |
|
|
|
12,681 |
|
Net book
value of depreciable assets |
|
|
|
|
18,394 |
|
|
|
12,061 |
|
Construction
in progress |
|
|
|
|
72 |
|
|
|
2,253 |
|
Computer
system and software development in progress |
|
|
|
|
84 |
|
|
|
31 |
|
Total
Buildings and Equipment |
|
|
|
$ |
18,550 |
|
|
$ |
14,345 |
|
38
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(continued)
The Company has had a line of
credit with Wells Fargo Business Credit since April 9, 2003. On May 26, 2005, the Company entered into the Fourth Amendment to the Credit and Security
Agreement (the Fourth Amendment) as it relates to its current line of credit. The Fourth Amendment provides for an extension of the maturity date of
the Companys line of credit from April 9, 2006, to May 18, 2007. Additionally, the Fourth Amendment (1) reduces the interest rate to an annual
interest rate equal to the prime rate as defined by Wells Fargo Bank National Association, (2) reduces the minimum interest charge to not
less than $25,000 per calendar year, (3) increases the unused line fee to a rate of three-eighths of one percent (0.375%) per annum on the average
daily unused line and (4) eliminates the one day interest charge on all payments received on the line of credit. Borrowings continue to be limited to
the lesser of $6.0 million or the amount calculated under the borrowing base. The borrowing base is equal to the lesser of (a) $6.0 million or (b) the
sum of 70% of eligible inventory in the United States of America, plus 60% of eligible inventory in the U.S. Virgin Islands and Guam, less specified
reserves.
The line of credit consists of a
$6.0 million committed, secured revolving credit line with a sublimit for letters of credit and bankers acceptances in an amount up to $0.7 million. At
January 1, 2006, there was $0.1 million outstanding on the line of credit and $0.1 million in letters of credit outstanding. Borrowings under the
amended line of credit were charged interest at the financial institutions prime rate plus 0.5% from the beginning of the fiscal year through May
17, 2005, and at the prime rate from May 18, 2005, through January 1, 2006. At January 1, 2006, the rate charged by the financial institution was
7.25%.
The line of credit contains
various covenants, including a requirement that the Company maintain minimum pre-tax income and tangible net worth and limitations on acquisitions,
additional debt, changes in control and capital expenditures. The Company believes that it was in compliance with all such covenants as of January 1,
2006.
In conjunction with the
construction of the relocated St. Thomas store in 1998, the Company entered into a $2.0 million note payable to a bank which matures in June 2013.
Interest on the note at January 1, 2006 is at the prime rate plus 1% (8.25%). As of January 1, 2006, there was a balance owed of $1.0 million, which is
secured by a first leasehold priority mortgage on the St. Thomas building. The Company makes principal payments of approximately $11,000 per month,
plus interest.
In November 1999, the Company
entered into a $2.0 million credit facility with a financial institution to fund the construction of the St. Maarten store. The note payable matures in
June 2015. As of January 1, 2006, there was a balance owed of $1.3 million against this credit facility. Interest on the note at January 1, 2006 is at
the prime rate plus 1% (8.25%). The credit facility is secured by a first leasehold security interest on the St. Maarten property. The Company makes
principal payments of approximately $11,000 per month, plus interest.
Maturities of long-term debt are
as follows (in thousands):
2006 |
|
|
|
$ |
267 |
|
|
|
|
|
2007 |
|
|
|
|
267 |
|
|
|
|
|
2008 |
|
|
|
|
267 |
|
|
|
|
|
2009 |
|
|
|
|
267 |
|
|
|
|
|
2010 |
|
|
|
|
267 |
|
|
|
|
|
Thereafter |
|
|
|
|
943 |
|
|
|
|
|
Total |
|
|
|
$ |
2,278 |
|
|
|
|
|
39
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(continued)
The Company is involved from time
to time in claims, proceedings and litigation arising from its business and property ownership. The Company does not believe that any such claim,
proceeding or litigation, either alone or in the aggregate, will have a material adverse effect on the Companys business, financial condition or
results of operations.
The components of interest
expense, net are as follows (in thousands):
|
|
|
|
2005
|
|
2004
|
|
2003
|
Interest
incurred |
|
|
|
$ |
497 |
|
|
$ |
450 |
|
|
$ |
459 |
|
Capitalized
interest |
|
|
|
|
(104 |
) |
|
|
(12 |
) |
|
|
|
|
Interest
income |
|
|
|
|
(26 |
) |
|
|
(1 |
) |
|
|
(1 |
) |
Interest
expense, net |
|
|
|
$ |
367 |
|
|
$ |
437 |
|
|
$ |
458 |
|
Income before income taxes by
jurisdiction is as follows (in thousands):
|
|
|
|
2005
|
|
2004
|
|
2003
|
United
States |
|
|
|
$ |
1,426 |
|
|
$ |
1,655 |
|
|
$ |
1,049 |
|
U.S.
Territories |
|
|
|
|
2,491 |
|
|
|
2,444 |
|
|
|
1,134 |
|
Foreign |
|
|
|
|
748 |
|
|
|
369 |
|
|
|
128 |
|
Income before
income taxes |
|
|
|
$ |
4,665 |
|
|
$ |
4,468 |
|
|
$ |
2,311 |
|
The provision for income taxes is
as follows (in thousands):
|
|
|
|
2005
|
|
2004
|
|
2003
|
Current
income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States |
|
|
|
$ |
712 |
|
|
$ |
506 |
|
|
$ |
470 |
|
U.S.
Territories |
|
|
|
|
854 |
|
|
|
1,010 |
|
|
|
465 |
|
Foreign |
|
|
|
|
0 |
|
|
|
0 |
|
|
|
0 |
|
Current
income taxes |
|
|
|
|
1,566 |
|
|
|
1,516 |
|
|
|
935 |
|
Deferred
income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States |
|
|
|
|
(223 |
) |
|
|
134 |
|
|
|
(121 |
) |
U.S.
Territories |
|
|
|
|
44 |
|
|
|
18 |
|
|
|
(45 |
) |
Foreign |
|
|
|
|
263 |
|
|
|
112 |
|
|
|
161 |
|
Deferred
income taxes |
|
|
|
|
84 |
|
|
|
264 |
|
|
|
(5 |
) |
Provision for
income taxes |
|
|
|
$ |
1,650 |
|
|
$ |
1,780 |
|
|
$ |
930 |
|
A reconciliation of the
Companys effective tax rate with the federal statutory rate of 34% for the years ended January 1, 2006, December 26, 2004, and December 28, 2003,
is as follows (dollars in thousands):
|
|
|
|
2005
|
|
|
|
2004
|
|
|
|
2003
|
|
|
Tax at U.S.
Statutory Rate |
|
|
|
$ |
1,586 |
|
|
|
34.0 |
% |
|
$ |
1,519 |
|
|
|
34.0 |
% |
|
$ |
786 |
|
|
|
34.0 |
% |
Non-Deductible Permanent Differences |
|
|
|
|
25 |
|
|
|
0.5 |
% |
|
|
3 |
|
|
|
0.1 |
% |
|
|
3 |
|
|
|
0.1 |
% |
Foreign Tax
Losses not Benefited |
|
|
|
|
|
|
|
|
|
|
|
|
290 |
|
|
|
6.5 |
% |
|
|
165 |
|
|
|
7.1 |
% |
Foreign Tax
Credit Taken (not utilized) |
|
|
|
|
10 |
|
|
|
0.2 |
% |
|
|
(17 |
) |
|
|
(0.4 |
)% |
|
|
(68 |
) |
|
|
(2.9 |
)% |
Statutory
Rate Difference as Compared to U.S. Statutory Rate |
|
|
|
|
21 |
|
|
|
0.5 |
% |
|
|
56 |
|
|
|
1.2 |
% |
|
|
38 |
|
|
|
1.6 |
% |
Other |
|
|
|
|
8 |
|
|
|
0.2 |
% |
|
|
(71 |
) |
|
|
(1.6 |
)% |
|
|
6 |
|
|
|
0.3 |
% |
Effective
Income Tax Rate |
|
|
|
$ |
1,650 |
|
|
|
35.4 |
% |
|
$ |
1,780 |
|
|
|
39.8 |
% |
|
$ |
930 |
|
|
|
40.2 |
% |
40
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(continued)
Significant components of the Companys deferred tax assets and liabilities are as follows (in thousands):
|
|
|
|
|
January 1, 2006
|
|
December 26, 2004
|
Deferred tax
assets
|
|
|
|
|
|
|
|
|
|
|
Inventory
adjustments |
|
|
|
$ |
208 |
|
|
$ |
207 |
|
Vacation
accrual |
|
|
|
|
403 |
|
|
|
310 |
|
Deferred
rent |
|
|
|
|
178 |
|
|
|
178 |
|
Accrued
expenses |
|
|
|
|
276 |
|
|
|
105 |
|
Net operating
loss carryforwardforeign |
|
|
|
|
2,592 |
|
|
|
2,836 |
|
Foreign tax
credits |
|
|
|
|
104 |
|
|
|
114 |
|
Total
deferred tax assets |
|
|
|
|
3,761 |
|
|
|
3,750 |
|
Valuation
allowance |
|
|
|
|
(2,409 |
) |
|
|
(2,418 |
) |
|
|
|
|
|
1,352 |
|
|
|
1,332 |
|
Deferred tax
liabilities
|
|
|
|
|
|
|
|
|
|
|
Cash
discounts |
|
|
|
|
(24 |
) |
|
|
(20 |
) |
Fixed asset
basis difference |
|
|
|
|
(1,009 |
) |
|
|
(988 |
) |
Other |
|
|
|
|
(108 |
) |
|
|
(29 |
) |
Total
deferred tax liabilities |
|
|
|
|
(1,141 |
) |
|
|
(1,037 |
) |
Net deferred
tax assets |
|
|
|
$ |
211 |
|
|
$ |
295 |
|
|
Net deferred tax assets are
classified on the balance sheet as follows (in thousands): |
|
|
|
|
January 1, 2006
|
|
December 26, 2004
|
Current
assets |
|
|
|
$ |
876 |
|
|
$ |
688 |
|
Long-term
liabilities, net |
|
|
|
|
(665 |
) |
|
|
(393 |
) |
Net deferred
tax assets |
|
|
|
$ |
211 |
|
|
$ |
295 |
|
As of January 1, 2006, we have
foreign net operating loss carryforwards (NOLs) of approximately $7.5 million, some of which, if not utilized, will begin expiring in the
year 2006. The NOLs include approximately $3.9 million related to Curacao and St. Maarten which are not subject to expiration time limits. Our ability
to utilize these NOLs is dependent upon generating taxable income in the foreign jurisdictions. As a result, we have recorded a valuation allowance of
$2.4 million attributable to the $2.6 million of tax benefits recorded for net operating loss carryforwards.
The Company had tax credit
carryforwards of $0.1 million as of January 1, 2006, expiring between 2014 and 2015. During 2005, the Company was able to utilize a portion of the tax
credit carryforward. The Company expects to be able to fully utilize the remaining tax credit carryforward of $0.1 million and therefore no valuation
allowance is provided.
Stock
Options
In 1998, the Company adopted, and
shareholders approved, issuance of the 1998 Stock Incentive Compensation Plan (the 1998 Plan). The 1998 Plan, as amended, provides for the
granting of various stock awards, including stock options and issuance of restricted stock, with a maximum of 1,000,000 shares of common stock
available for issuance. Options issued under the 1998 Plan vest at various terms ranging from immediately to five years and generally expire ten years
from the date of grant. The options are usually granted at prices equal to the fair value on the date of grant. There were 2,882 options available for
future grant under the 1998 Plan at January 1, 2006.
41
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(continued)
A summary of the status of stock
option plans as of January 1, 2006, December 26, 2004 and December 28, 2003, and changes during the years then ended are presented
below:
|
|
|
|
2005
|
|
2004
|
|
2003
|
|
|
|
|
|
Options
|
|
Weighted Average Exercise Price
|
|
Options
|
|
Weighted Average Exercise Price
|
|
Options
|
|
Weighted Average Exercise Price
|
Outstanding,
beginning of year |
|
|
|
|
838,189 |
|
|
$ |
2.88 |
|
|
|
839,243 |
|
|
$ |
2.92 |
|
|
|
921,352 |
|
|
$ |
2.86 |
|
Granted at
fair value |
|
|
|
|
14,000 |
|
|
|
6.67 |
|
|
|
156,167 |
|
|
|
4.43 |
|
|
|
93,192 |
|
|
|
2.58 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
(94,291 |
) |
|
|
6.72 |
|
|
|
(93,301 |
) |
|
|
3.60 |
|
Exercised |
|
|
|
|
(238,865 |
) |
|
|
1.79 |
|
|
|
(62,930 |
) |
|
|
1.44 |
|
|
|
(82,000 |
) |
|
|
1.08 |
|
Outstanding,
end of year |
|
|
|
|
613,324 |
|
|
|
3.39 |
|
|
|
838,189 |
|
|
|
2.88 |
|
|
|
839,243 |
|
|
|
2.92 |
|
|
Exercisable,
end of year |
|
|
|
|
611,234 |
|
|
|
3.40 |
|
|
|
826,463 |
|
|
|
2.89 |
|
|
|
809,008 |
|
|
|
2.92 |
|
The following summarizes
information related to options outstanding and exercisable at January 1, 2006:
|
|
|
|
Outstanding
|
|
Exercisable
|
|
Range of Exercise Prices
|
|
|
|
Options
|
|
Weighted Average Exercise Price
|
|
Weighted Average Contractual Life
|
|
Options
|
|
Weighted Average Exercise Price
|
$1.181.88 |
|
|
|
|
219,886 |
|
|
$ |
1.64 |
|
|
|
5.87 |
years |
|
|
217,796 |
|
|
$ |
1.64 |
|
2.003.08 |
|
|
|
|
180,667 |
|
|
|
2.71 |
|
|
|
7.52 |
years |
|
|
180,667 |
|
|
|
2.71 |
|
4.386.10 |
|
|
|
|
159,342 |
|
|
|
5.34 |
|
|
|
7.11 |
years |
|
|
159,342 |
|
|
|
5.34 |
|
7.008.11 |
|
|
|
|
53,429 |
|
|
|
7.08 |
|
|
|
2.92 |
years |
|
|
53,429 |
|
|
|
7.08 |
|
|
|
|
|
|
613,324 |
|
|
|
3.39 |
|
|
|
|
|
|
|
611,234 |
|
|
|
3.40 |
|
Preferred Share Purchase
Rights
On February 23, 1999, the
Companys Board of Directors declared a dividend distribution of preferred share purchase rights (the Rights) pursuant to a
Shareholder Rights Plan. The Rights initially trade with shares of the Companys common stock and have no impact upon the way in which
shareholders can trade the Companys common stock. However, ten days after a person or group acquires 15% or more of the Companys common
stock, or such date, if any, as the Board of Directors may designate after a person or group commences or publicly announces its intention to commence
a tender or exchange offer which could result in that person or group owning 15% or more of the Companys common stock (even if no purchases
actually occur), the Rights will become exercisable and separate certificates representing the Rights will be distributed. The Rights would then begin
to trade independently from the Companys shares. As of January 1, 2006, no rights have become exercisable.
42
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(continued)
Basic earnings per share is
computed using the weighted average number of common shares outstanding during the period and excludes any dilutive effects of stock options. Diluted
earnings per share are computed using the weighted average number of common shares and potentially dilutive shares outstanding during the period.
Potentially dilutive shares are excluded from the computation if their effect is anti-dilutive.
The following table sets forth
the computation of basic and diluted earnings per common share (dollars in thousands):
|
|
|
|
Fiscal Year Ended
|
|
|
|
|
|
January 1, 2006
|
|
December 26, 2004
|
|
December 28, 2003
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income |
|
|
|
$ |
3,015 |
|
|
$ |
2,688 |
|
|
$ |
1,381 |
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
for basic earnings per shareweighted average shares |
|
|
|
|
3,939,190 |
|
|
|
3,731,754 |
|
|
|
3,613,988 |
|
Effect of
potentially dilutive shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
options |
|
|
|
|
229,421 |
|
|
|
184,054 |
|
|
|
56,920 |
|
Denominator
for diluted earnings per shareadjusted weighted average shares and assumed conversion of stock options |
|
|
|
|
4,168,611 |
|
|
|
3,915,808 |
|
|
|
3,670,908 |
|
Basic
earnings per common share |
|
|
|
$ |
0.77 |
|
|
$ |
0.72 |
|
|
$ |
0.38 |
|
Diluted
earnings per common share |
|
|
|
$ |
0.72 |
|
|
$ |
0.69 |
|
|
$ |
0.38 |
|
The diluted share calculation for
the fiscal years ended January 1, 2006, December 26, 2004 and December 28, 2003, excludes 4,000, 164,947 and 320,875 stock options outstanding,
respectively. These options are excluded due to their anti-dilutive effect.
11. |
|
Geographic Information |
Geographic information pertaining
to the Companys one reporting segment is as follows (in thousands):
|
|
|
|
Sales
|
|
Long-lived Assets
|
2005
|
|
|
|
|
|
|
|
|
|
|
United
States |
|
|
|
$ |
42,222 |
|
|
$ |
1,470 |
|
U.S.
Territories and foreign countries |
|
|
|
|
177,192 |
|
|
|
17,852 |
|
|
|
|
|
$ |
219,414 |
|
|
$ |
19,322 |
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
United
States |
|
|
|
$ |
43,280 |
|
|
$ |
1,548 |
|
U.S.
Territories and foreign countries |
|
|
|
|
166,110 |
|
|
|
13,575 |
|
|
|
|
|
$ |
209,390 |
|
|
$ |
15,123 |
|
|
2003
|
|
|
|
|
|
|
|
|
|
|
United
States |
|
|
|
$ |
42,519 |
|
|
$ |
1,745 |
|
U.S.
Territories and foreign countries |
|
|
|
|
134,547 |
|
|
|
11,916 |
|
|
|
|
|
$ |
177,066 |
|
|
$ |
13,661 |
|
43
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(continued)
The Company has entered into
operating leases for its administrative office and certain of its retail locations. The leases range from 3 to 15 years and include renewal options.
The Company is required to pay a base rent, plus insurance, taxes, and maintenance.
In January 2004, the Company sold
and leased back $0.8 million of equipment residing in its reconstructed store in Dededo, Guam. The lease is for seven years with annual rental payments
of approximately $0.1 million. In 2005, the Company entered into a capital lease for $1.0 million of equipment at its new St. Croix store. The lease is
also for seven years with annual rental payments of approximately $0.2 million.
A summary of the Companys
future minimum lease obligations at January 1, 2006, under noncancellable leases is as follows (in thousands):
Fiscal Year
|
|
|
|
Operating Leases
|
|
Capital Lease
|
2006 |
|
|
|
$ |
4,893 |
|
|
$ |
321 |
|
2007 |
|
|
|
|
4,525 |
|
|
|
321 |
|
2008 |
|
|
|
|
4,274 |
|
|
|
321 |
|
2009 |
|
|
|
|
3,195 |
|
|
|
321 |
|
2010 |
|
|
|
|
1,941 |
|
|
|
321 |
|
Thereafter |
|
|
|
|
11,159 |
|
|
|
280 |
|
Total |
|
|
|
$ |
29,987 |
|
|
|
1,885 |
|
Less imputed
interest |
|
|
|
|
|
|
|
|
(330 |
) |
Present value
of minimum rental payments |
|
|
|
|
|
|
|
|
1,555 |
|
Less current
portion |
|
|
|
|
|
|
|
|
(226 |
) |
Capital lease
obligation |
|
|
|
|
|
|
|
$ |
1,329 |
|
Rent expense under operating
leases for the fiscal years ended January 1, 2006, December 26, 2004 and December 28, 2003, totaled $5.4 million, $5.4 million and $4.7 million,
respectively.
13. |
|
Employee Benefit Plans |
The Company maintains a 40l(k)
profit-sharing plan covering all eligible employees over the age of 18 with at least six months of service. Participating employees may elect to defer
and contribute up to 100% of their annual compensation to the plan, subject to annual limitations under the Internal Revenue Code. The Company matches
employee contributions at a rate of 25%, up to 15% of their annual compensation. The Companys matching contributions to the plan approximated
$0.1 million in each of fiscal years 2005, 2004 and 2003.
The Company has a Manager Bonus
Program, which provides for annual bonuses for managers based on store and company performance. All amounts payable under the program are accrued in
the year earned. Accordingly, bonuses accrued under this program totaled $0.7 million, $1.4 million and $0.5 million for fiscal 2005, 2004 and 2003,
respectively.
The Company also has a sales
incentive bonus program for all store employees based on sales targets and inventory shrink goals. These bonuses are paid monthly and were
approximately $0.1 million, $0.2 million and $0.1 million in fiscal 2005, 2004 and 2003, respectively.
44
COST-U-LESS, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS(continued)
14. |
|
Quarterly Financial Data (Unaudited) |
The following is a summary of the
Companys unaudited quarterly results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
Earnings Per Common Share
|
|
|
|
|
|
Total Store Weeks in Period
|
|
Net Sales
|
|
Gross Profit
|
|
Net Income
|
|
Basic
|
|
Diluted
|
|
|
|
|
(in thousands, except store weeks and per-share
data) |
|
Fiscal
2005 (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
quarter |
|
|
|
|
143 |
|
|
$ |
53,239 |
|
|
$ |
9,574 |
|
|
$ |
734 |
|
|
$ |
0.19 |
|
|
$ |
0.18 |
|
Second
quarter |
|
|
|
|
143 |
|
|
|
52,295 |
|
|
|
9,698 |
|
|
|
512 |
|
|
|
0.13 |
|
|
|
0.12 |
|
Third
quarter |
|
|
|
|
143 |
|
|
|
53,011 |
|
|
|
10,020 |
|
|
|
639 |
|
|
|
0.16 |
|
|
|
0.15 |
|
Fourth
quarter |
|
|
|
|
154 |
|
|
|
60,869 |
|
|
|
11,509 |
|
|
|
1,130 |
|
|
|
0.28 |
|
|
|
0.27 |
|
|
Fiscal
2004 (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
quarter |
|
|
|
|
143 |
|
|
$ |
50,078 |
|
|
$ |
9,066 |
|
|
$ |
537 |
|
|
$ |
0.14 |
|
|
$ |
0.14 |
|
Second
quarter |
|
|
|
|
143 |
|
|
|
50,813 |
|
|
|
9,353 |
|
|
|
637 |
|
|
|
0.17 |
|
|
|
0.16 |
|
Third
quarter |
|
|
|
|
143 |
|
|
|
51,088 |
|
|
|
9,459 |
|
|
|
554 |
|
|
|
0.15 |
|
|
|
0.14 |
|
Fourth
quarter |
|
|
|
|
143 |
|
|
|
57,411 |
|
|
|
10,646 |
|
|
|
960 |
|
|
|
0.26 |
|
|
|
0.24 |
|
(1) |
|
The Companys fiscal quarters are 13 weeks except fourth
quarter 2005, which was a 14 week quarter. |
45
Item 9. |
|
Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure |
None.
Item 9A. |
|
Controls and Procedures |
Under the supervision and with
the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our
disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended.
Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were
effective as of the end of the period covered by this annual report.
Item 9B. |
|
Other Information |
None.
46
PART III
Item 10. |
|
Executive Officers and Directors of the
Registrant |
Information called for by Part
III, Item 10, is incorporated by reference to the information in our proxy statement relating to our 2006 annual meeting of
shareholders.
Item 11. |
|
Executive Compensation |
Information called for by Part
III, Item 11, is incorporated by reference to the information in our proxy statement relating to our 2006 annual meeting of
shareholders.
Item 12. |
|
Security Ownership of Certain Beneficial Owners and
Management |
Information called for by Part
III, Item 12, is incorporated by reference to the information in our proxy statement relating to our 2006 annual meeting of
shareholders.
Item 13. |
|
Certain Relationships and Related Transactions |
Information called for by Part
III, Item 13, is incorporated by reference to the information in our proxy statement relating to our 2006 annual meeting of
shareholders.
Item 14. |
|
Principal Accountant Fees and Services |
Information called for by Part
III, Item 14, is incorporated by reference to the information in our proxy statement relating to our 2006 annual meeting of
shareholders.
47
PART IV
Item 15. |
|
Exhibits and Financial Statement Schedules |
Documents filed as part of this
Report:
(1) |
|
Financial Statementsall consolidated financial statements
of the Company as set forth under Item 8, beginning on p. 28 of this Report. |
(2) |
|
Financial Statement SchedulesSchedule II Valuation and
Qualifying Accounts. |
The independent auditors
report with respect to the financial statement schedules appears on page 29 of this annual report. All other financial statements and schedules not
listed are omitted because either they are not applicable or not required, or the required information is included in the consolidated financial
statements.
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
Exhibit No.
|
|
|
|
Description
|
|
Filed Herewith
|
|
Form
|
|
Exhibit No.
|
|
File No.
|
|
Filing Date
|
3.1 |
|
|
|
Restated Articles of Incorporation of Cost-U-Less, Inc. |
|
|
|
S-1/A |
|
|
3.1 |
|
|
|
333-52459 |
|
|
|
06/05/1998 |
|
3.2 |
|
|
|
Amended and Restated Bylaws of Cost-U-Less, Inc. |
|
|
|
10-Q |
|
|
3.1 |
|
|
|
000-24543 |
|
|
|
08/11/2003 |
|
4.1 |
|
|
|
Rights Agreement between Cost-U-Less, Inc. and ChaseMellon Shareholder Services, L.L.C. as rights agent, dated March 15,
1999 |
|
|
|
8-A |
|
|
2.1 |
|
|
|
000-24543 |
|
|
|
03/15/1999 |
|
4.2 |
|
|
|
Form
of Common Stock Certificate of Cost-U-Less, Inc. |
|
|
|
S-1/A |
|
|
4.1 |
|
|
|
333-52459 |
|
|
|
07/10/1998 |
|
10.1 |
|
|
|
Amended and Restated 1998 Stock Incentive Compensation Plan* |
|
|
|
10-K |
|
|
10.1 |
|
|
|
000-24543 |
|
|
|
04/01/2002 |
|
10.2 |
|
|
|
Form
of Stock Option Agreement |
|
|
|
10-K |
|
|
10.2 |
|
|
|
000-24543 |
|
|
|
04/01/2002 |
|
10.3 |
|
|
|
Amended and Restated 1989 Stock Option Plan* |
|
|
|
S-1 |
|
|
10.2 |
|
|
|
333-52459 |
|
|
|
05/12/1998 |
|
10.4 |
|
|
|
Form
of Director Stock Option Agreement (Vesting)* |
|
|
|
S-1 |
|
|
10.3 |
|
|
|
333-52459 |
|
|
|
05/12/1998 |
|
10.5 |
|
|
|
Form
of Director Stock Option Agreement (Nonvesting)* |
|
|
|
S-1 |
|
|
10.4 |
|
|
|
333-52459 |
|
|
|
05/12/1998 |
|
10.6 |
|
|
|
Form
of Indemnification Agreement* |
|
|
|
10-Q |
|
|
10.1 |
|
|
|
000-24543 |
|
|
|
08/11/2003 |
|
10.7 |
|
|
|
Credit and Security Agreement, dated April 9, 2003, by and between Cost-U-Less, Inc., CULGUAM, Inc., CULNEV, Inc., CULUSVI, Inc., and Wells
Fargo Business Credit, Inc. |
|
|
|
8-K |
|
|
10.1 |
|
|
|
000-24543 |
|
|
|
04/11/2003 |
|
10.8 |
|
|
|
First Amendment dated as of October 17, 2003 to the Credit and Security Agreement dated April 9, 2003, by and between Cost-U-Less, Inc.,
CULGUAM, Inc., CULNEV, Inc., CULUSVI, Inc., and Wells Fargo Business Credit, Inc. |
|
|
|
10-K |
|
|
10.8 |
|
|
|
000-24543 |
|
|
|
03/26/2004 |
|
10.9 |
|
|
|
Second Amendment dated as of March 2, 2004 to the Credit and Security Agreement dated April 9, 2003, by and between Cost-U-Less, Inc.,
CULGUAM, Inc., CULNEV, Inc., CULUSVI, Inc., and Wells Fargo Business Credit, Inc. |
|
|
|
10-K |
|
|
10.9 |
|
|
|
000-24543 |
|
|
|
03/26/2004 |
|
10.10 |
|
|
|
Third Amendment dated as of November 11, 2004 to the Credit and Security Agreement dated April 9, 2003, by and between Cost-U-Less, Inc.,
CULGUAM, Inc., CULNEV, Inc., CULUSVI, Inc., and Wells Fargo Business Credit, Inc. |
|
|
|
10-K |
|
|
10.10 |
|
|
|
000-24543 |
|
|
|
03/23/2005 |
|
48
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
Exhibit No.
|
|
|
|
Description
|
|
Filed Herewith
|
|
Form
|
|
Exhibit No.
|
|
File No.
|
|
Filing Date
|
10.11 |
|
|
|
Fourth Amendment dated as of May 18, 2005 to the Credit and Security Agreement dated April 9, 2003, by and between Cost-U-Less, Inc., CULGUAM,
Inc., CULNEV, Inc., CULUSVI, Inc., and Wells Fargo Business Credit, Inc. (Incorporated by reference to Exhibit 10.1 to the Companys Form 8-K
filed on June 1, 2005) |
|
|
|
8-K |
|
|
10.1 |
|
|
|
000-24543 |
|
|
|
06/01/2005 |
|
10.12 |
|
|
|
Construction/Permanent Loan Agreement by and among CULUSVI, Inc., Cost-U-Less, Inc. and Banco Popular de Puerto Rico, dated November 6,
1997 |
|
|
|
S-1 |
|
|
10.8 |
|
|
|
333-52459 |
|
|
|
05/12/1998 |
|
10.13 |
|
|
|
Employment Agreement between Cost-U-Less, Inc. and J. Jeffrey Meder, dated October 20, 2004* |
|
|
|
8-K |
|
|
10.1 |
|
|
|
000-24543 |
|
|
|
10/26/2004 |
|
10.14 |
|
|
|
Lease Agreement between Westmall Limited and CUL (Fiji) Limited, effective March 1, 1998 |
|
|
|
S-1/A |
|
|
10.10 |
|
|
|
333-52459 |
|
|
|
06/05/1998 |
|
10.15 |
|
|
|
Lease Agreement between Fiji Public Service Association and CUL (Fiji) Limited, dated June 4, 1998 |
|
|
|
10-K |
|
|
10.13 |
|
|
|
000-24543 |
|
|
|
03/26/2004 |
|
10.16 |
|
|
|
Lease Agreement between Baroud Real Estate Development N.V. and C.U.L. (Curacao) N.V., dated April 3, 1998 |
|
|
|
S-1 |
|
|
10.12 |
|
|
|
333-52459 |
|
|
|
05/12/1998 |
|
10.17 |
|
|
|
Ground Lease between Market Square East, Inc. and CULUSVI, Inc., dated October 20, 1997 |
|
|
|
S-1 |
|
|
10.13 |
|
|
|
333-52459 |
|
|
|
05/12/1998 |
|
10.18 |
|
|
|
First Amendment to Ground Lease between Market Square East, Inc. and CULUSVI, Inc., dated November 29, 2005 |
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10.19 |
|
|
|
Sublease Agreement between Tamuning Capital Investment, Inc. and Cost-U-Less, Inc., dated July 15, 1994 |
|
|
|
S-1 |
|
|
10.15 |
|
|
|
333-52459 |
|
|
|
05/12/1998 |
|
10.20 |
|
|
|
Lease Agreement between Haleck Enterprises Incorporated and Cost-U-Less, Inc., dated February 3, 2005 |
|
|
|
8-K |
|
|
99.1 |
|
|
|
000-24543 |
|
|
|
02/09/2005 |
|
10.21 |
|
|
|
Lease Agreement between Inmostrat Corporation and Cost-U-Less, Inc., dated August 1993 |
|
|
|
S-1 |
|
|
10.17 |
|
|
|
333-52459 |
|
|
|
05/12/1998 |
|
10.22 |
|
|
|
Lease Agreement between Hassan Rahman and Cost-U-Less, Inc., dated July 30, 1993 |
|
|
|
S-1 |
|
|
10.18 |
|
|
|
333-52459 |
|
|
|
05/12/1998 |
|
10.23 |
|
|
|
Addendum to Lease Agreement between Hassan Rahman and Cost-U-Less, Inc., dated March 21, 2005 |
|
|
|
10-Q |
|
|
10.2 |
|
|
|
000-24543 |
|
|
|
05/10/2005 |
|
10.24 |
|
|
|
Industrial Real Estate Lease between Hilo Partners and Cost-U-Less, Inc., dated September 1, 1991 |
|
|
|
S-1 |
|
|
10.19 |
|
|
|
333-52459 |
|
|
|
05/12/1998 |
|
10.25 |
|
|
|
Indenture of Lease between H.C.L. Investments, Inc. and Cost-U-Less, Inc., dated August 21, 1992 |
|
|
|
10-K |
|
|
10.21 |
|
|
|
000-24543 |
|
|
|
04/01/2002 |
|
10.26 |
|
|
|
Amendment to Lease between H.C.L. Investments, Inc. and Cost-U-Less, Inc., dated April 27, 2000 |
|
|
|
10-K |
|
|
10.22 |
|
|
|
000-24543 |
|
|
|
04/01/2002 |
|
10.27 |
|
|
|
Lease Agreement between Caribe Lumber & Trading N.V. (St. Maarten) and CUL Sint Maarten N.V., dated February 19, 1999 |
|
|
|
10-K |
|
|
10.24 |
|
|
|
000-24543 |
|
|
|
03/23/2005 |
|
10.28 |
|
|
|
Sublease Agreement between New Breed Distribution Corp of California, Inc. and Cost-U-Less, Inc., dated November 1, 1999 |
|
|
|
10-K/A |
|
|
10.27 |
|
|
|
000-24543 |
|
|
|
04/05/2000 |
|
10.29 |
|
|
|
Lease Agreement between AMB Property, L.P. and Cost-U-Less, Inc., dated November 12, 1999 |
|
|
|
10-K/A |
|
|
10.28 |
|
|
|
000-24543 |
|
|
|
04/05/2000 |
|
49
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
Exhibit No.
|
|
|
|
Description
|
|
Filed Herewith
|
|
Form
|
|
Exhibit No.
|
|
File No.
|
|
Filing Date
|
10.30 |
|
|
|
First Amendment to Lease Agreement between AMB Property, L.P. and Cost-U-Less, Inc., dated November 21, 2001 |
|
|
|
10-K |
|
|
10.28 |
|
|
|
000-24543 |
|
|
|
04/01/2002 |
|
10.31 |
|
|
|
Lease Agreement between BDC One Preston Properties Limited Partnership and Cost-U-Less, Inc., dated April 27, 2000 |
|
|
|
10-K |
|
|
10.26 |
|
|
|
000-24543 |
|
|
|
04/02/2001 |
|
10.32 |
|
|
|
Lease Agreement between Tonko Reyes, Inc., a Guam corporation and Cost-U-Less, Inc., dated October 22, 2001 |
|
|
|
10-K |
|
|
10.30 |
|
|
|
000-24543 |
|
|
|
04/01/2002 |
|
10.33 |
|
|
|
Amendment to Lease Agreement between Tonko Reyes, Inc., a Guam corporation and Cost-U-Less, Inc., dated October 22, 2001 |
|
|
|
10-K |
|
|
10.29 |
|
|
|
000-24543 |
|
|
|
03/26/2004 |
|
10.34 |
|
|
|
Lease Agreement between Sun Life Assurance Company of Canada and Cost-U-Less, Inc., dated November 18, 2003 |
|
|
|
10-K |
|
|
10.30 |
|
|
|
000-24543 |
|
|
|
03/26/2004 |
|
10.35 |
|
|
|
Executive Severance Plan* |
|
|
|
10-K |
|
|
10.31 |
|
|
|
000-24543 |
|
|
|
03/26/2004 |
|
10.36 |
|
|
|
Real
Estate Purchase and Sale Agreement dated April 30, 2004, between Mint Capital, Casco Inc., and Cost-U-Less, Inc. |
|
|
|
10-Q |
|
|
10.1 |
|
|
|
000-24543 |
|
|
|
08/10/2004 |
|
10.37 |
|
|
|
Summary of Cost-U-Less, Inc. 2005 Incentive Bonus Program* |
|
|
|
8-K |
|
|
99.1 |
|
|
|
000-24543 |
|
|
|
12/21/2004 |
|
10.38 |
|
|
|
Summary of Cost-U-Less, Inc. Non-Employee Director Compensation* |
|
|
|
8-K |
|
|
99.1 |
|
|
|
000-24543 |
|
|
|
08/02/2005 |
|
10.39 |
|
|
|
Shareholders Agreement dated July 11, 2005 between Cost-U-Less Cayman Holdings, an exempted company incorporated under the laws of the Cayman
Islands; Cayman Drug Limited, a company incorporated in the Cayman Islands; Cayman Cost-U-Less Limited, a company incorporated under the laws of the
Cayman Islands; Naul Bodden of c/o NCB Consulting Ltd in the Cayman Islands; and Robert Bodden of c/o NCB Consulting Ltd in the Cayman Islands.
** |
|
|
|
10-Q |
|
|
10.1 |
|
|
|
000-24543 |
|
|
|
11/08/2005 |
|
16.1 |
|
|
|
Letter re: change in certifying accountant |
|
|
|
8-K |
|
|
16.1 |
|
|
|
000-24543 |
|
|
|
06/24/2003 |
|
21.1 |
|
|
|
Subsidiaries of Cost-U-Less, Inc. |
|
|
|
10-K |
|
|
21.1 |
|
|
|
000-24543 |
|
|
|
04/01/2002 |
|
23.1 |
|
|
|
Consent of Independent Registered Public Accounting Firm |
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24.10 |
|
|
|
Power of Attorney (See page 51) |
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.1 |
|
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2 |
|
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1 |
|
|
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.2 |
|
|
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|
X |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Management contract or compensatory plan or
arrangement |
** |
|
This exhibit (or portions thereof) has been filed separately
with the Commission pursuant to an application for confidential treatment. The confidential portions of this Exhibit have been omitted and are marked
by an asterisk. |
50
SIGNATURES
Pursuant to the requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
|
|
|
COST-U-LESS, INC. |
Date: March 29,
2006 |
|
|
|
By: /s/ J. Jeffrey Meder J. Jeffrey Meder President and Chief Executive
Officer
|
Each person whose individual
signature appears below hereby authorizes and appoints J. Jeffrey Meder and Martin P. Moore, and each of them, with full power of substitution and
resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and
stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file, any and all amendments to
this Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying
and confirming all that said attorneys-in-fact and agents or any of them or their or his or her substitute or substitutes may lawfully do or cause to
be done by virtue thereof.
Pursuant to the requirements of
the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Company and in the capacities
indicated below on the 29th day of March 2006.
Signature
|
|
|
|
Title
|
|
/s/
GEORGE C. TEXTOR George C. Textor |
|
|
|
Chairman of the Board |
|
/s/
J. JEFFREY MEDER J. Jeffrey Meder |
|
|
|
President, Chief Executive Officer and Director (Principal Executive Officer) |
|
/s/
MARTIN P. MOORE Martin P. Moore |
|
|
|
Vice President, Chief Financial Officer, Secretary and Treasurer (Principal Financial and Accounting Officer) |
|
/s/
ROBERT C. DONEGAN Robert C. Donegan |
|
|
|
Director |
|
/s/
DAVID A. ENGER David A. Enger |
|
|
|
Director |
|
/s/
GARY W. NETTLES Gary W. Nettles |
|
|
|
Director |
51
SCHEDULE II
COST-U-LESS, INC.
VALUATION AND QUALIFYING
ACCOUNTS
Description
|
|
|
|
Balance at Beginning of Year
|
|
Additions (Reductions)
|
|
(1) Deductions
|
|
Balance at End of Year
|
Year Ended
January 1, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves and
allowances deducted from asset accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for
doubtful accounts |
|
|
|
$ |
205,000 |
|
|
|
($15,000 |
) |
|
$ |
110,000 |
|
|
$ |
80,000 |
|
|
Year Ended
December 26, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves and
allowances deducted from asset accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for
doubtful accounts |
|
|
|
$ |
208,000 |
|
|
$ |
93,000 |
|
|
$ |
96,000 |
|
|
$ |
205,000 |
|
|
Year Ended
December 28, 2003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserves and
allowances deducted from asset accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for
doubtful accounts |
|
|
|
$ |
224,000 |
|
|
$ |
160,000 |
|
|
$ |
176,000 |
|
|
$ |
208,000 |
|
(1) |
|
Uncollectible accounts written off, net of
recoveries. |
EX-10.18
2
d18908_ex-1018.htm
FIRST AMENDMENT TO LEASE
This First Amendment to Lease is
dated November 29, 2005, and is entered by and between CULUSVI, INC., a US Virgin Islands corporation d/b/a Cost U Less with mailing address of 3633
136th Place S.E., Suite 110, Bellevue, Washington 98006 (hereinafter referred to as the
Lessee) and MARKET SQUARE EAST, INC., a US Virgin Islands corporation whose mailing address is P.O. Box 7020, St. Thomas, U.S. Virgin
Islands 00801 (hereinafter referred to as Lessor) for the purpose of amending that Ground Lease dated October 20, 1997 by and between
Lessor and Lessee (the Lease).
WHEREAS, the Lessor and the
Lessee are parties to the Lease;
WHEREAS, the Lessee and Lessor
wish to modify the terms of the Lease;
NOW, THEREFORE, in consideration
of the mutual covenants and agreements hereinafter set forth, the parties hereby agree as follows:
1. Except
where otherwise specifically defined herein, all capitalized terms used herein shall have the same meaning as originally defined in the
Lease.
2. From
and after January 1, 2006, the Demised Premises shall be revised to include: an additional Six Thousand Four Hundred Forty Six (6,446) square feet for
the Building Area, for a total building area of Forty Two Thousand Four Hundred Forty Six (42,446) square feet, more or less; and an additional Four
Thousand Four Hundred (4,400) square feet for the Dock Area for a total dock area of Fourteen Thousand Nine Hundred Thirty Eight (14,938) square feet.
The revised Demised Premises (the Revised Demised Premises) shall total of Fifty Seven Thousand Three Hundred Eight Four (57,384) square
feet, more or less. The Revised Demised Premises is shown and described on the survey plan drawing and metes and bounds description attached hereto as
Exhibit A and made a part hereof.
3. From
and after January 1, 2006, the Basic Rent (inclusive of all prior CPI adjustments) for the 42,446 square feet of Building Area shall be Four and
707/1000 Dollars ($4.707) per square foot per annum (i.e. $199,793.32 per annum which is $16,649.45 per month). From and after January 1, 2006, the
Basic Rent (inclusive of all prior CPI adjustments) for the 14,938 square foot Dock Area shall be Two and 714/1000 Dollars ($2.714) per square foot per
annum (i.e. $40,541.73 per annum which is $3,378.48 per month). From and after January 1, 2006. Additional Rent shall be adjusted based on the
increased size of the Floor Space of the improvements located on the Revised Demised Premises.
First Addendum to Lease
CULUSVI, INC.
Page
2
The total monthly Basic Rent for the Revised Demised
Premises of Twenty Thousand Twenty Seven and 93/100 ($20,027.93) shall be due and payable on or before the first day of each month commencing January
1, 2006. The Basic Rent shall remain subject to annual CPI increases pursuant to Section Three (c) of the Lease, the first increase of which shall be
effective October 1, 2006
4. Pursuant to Section l3 of the Lease, Lessor hereby consents to the proposed alterations to the Building Area
and Dock Area described on Exhibit B attached hereto. The alterations consist of additional floor space for the Building Area of Six Thousand
Four Hundred Forty Six (6,446) square feet, additional Dock Area of Four Thousand Four Hundred (4,400) square feet, and appurtenant site work
improvements (Site Work Improvements), all as described on Exhibit C attached hereto. Lessor and Lessee have agreed that the cost of
the Site Work Improvements shall be verified by copies of actual invoices. The cost of the Site Work Improvements shall be paid by Lessee and up to
$80,000 of verified costs may be taken as rent credits toward the Basic Rent in the amount of $3,520.87 per month for up to twenty-three (23) months
commencing January 1, 2006 and ending not later than November 30, 2007. When the entire amount of the rent credits are exhausted, but not later than
December 1, 2007, Lessee shall pay to Lessor Basic Rent amounts for the Revised Demised Premises (without Site Improvement Work costs credits and as
adjusted for CPI increases) without further notice from Lessor to Lessee, except that Lessor shall notify Lessee in writing as to the then current
Basic Rent per month.
5. Notwithstanding anything in this First Amendment to Lease to the contrary, if, despite its diligent efforts, Lessee
does not commence the proposed alterations to the Building Area (6,446 square feet) by April 1, 2006, and gives Landlord notice of Lessees
intention not to construct the Building Area alterations, the provisions of this Amendment relating to an increase in the size of the Building Area
(including the Revised Demised Premises size, Basic Rent increase and Additional Rent increases attributable to the additional Building Area) shall be
voidable by Lessee giving written notice to Lessor (the Voiding Notice). In such event, future Basic Rent and Additional Rent amounts for
the Revised Demised Premises shall be reduced to reflect the reductions in the Building Area and Lessee shall be entitled to a rent credit for any
Basic Rent and Additional Rent overcharges by Lessee for the period from January 1, 2006, through the month in which Lessee delivers the Voiding Notice
to Lessor. In addition, the Site Work Improvements costs rent credit shall be reduced to reflect verified Dock Area expenses only, in a total credit
amount not to exceed Twenty Two Thousand Five Hundred Ninety Three and 60/100 Dollars ($22,593.60), which amount is calculated as 28.242% of the
estimated Site Work Improvements costs and the corresponding percentage of the Basic Rent increase for the Dock Area according to this
Amendment.
First Addendum to Lease
CULUSVI, INC.
Page
3
All terms, covenants and
conditions made by the Lessee in connection with the Lease are herein restated and reaffirmed on the date of this First Amendment and apply to the
entire Demised Premises.
Except as hereby modified, all
other terms and provisions of the Lease are hereby ratified and confirmed and incorporated herein by this reference and apply to the entire Demised
Premises.
Notwithstanding the execution of
this First Amendment, the Lessor specifically reserves its right to declare the Lessee in default under the Lease should any state of fact exist at the
date hereof, known or unknown to the Lessor, which constitutes a default under the Lease as modified by this First Amendment.
IN WITNESS WHEREOF, the parties
have executed this agreement as of the date set forth above.
WITNESSES: |
|
|
|
LESSOR: MARKET SQUARE EAST, INC. |
|
|
|
|
By: Etienne Bertrand, President
|
|
|
|
|
[SEAL]
|
|
|
|
|
|
Attest: Debbie Brathwaite, Asst. Secretary
|
|
|
|
|
|
LESSEE: CULUSVI, INC. |
|
|
|
|
By: J. Jeffrey Meder, President
|
|
|
|
|
[SEAL]
|
|
|
|
|
|
Attest: Roy Sorensen, Vice President
|
EXHIBIT A
SURVEY PLAN DRAWING
EXHIBIT B
PROPOSED ALTERATIONS TO
BUILDING AREA AND DOCK
AREA
EXHIBIT C
SITE WORK IMPROVEMENTS
Clearing, Excavation, Compaction
Asphalt
Erosion Control/Environmental Fencing
Safety Barricades
Wheel Stops
Curbing
Striping
Architectural Costs
Supervision/General Conditions
EX-23.1
3
d18908_ex-231.htm
EXHIBIT 23.1
CONSENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
We have issued our report dated March 6, 2006, accompanying
the consolidated financial statements and consolidated financial statement schedule included in the Annual Report of Cost-U-Less, Inc. on Form 10-K for
the fiscal year ended January 1, 2006. We hereby consent to the incorporation by reference of said report in the Registration Statements of
Cost-U-Less, Inc. on Forms S-8 (File No. 333-61864, effective May 30, 2001 and File No. 333-75201, effective March 29, 1999).
Seattle, Washington
March 6, 2006
EX-31.1
4
d18908_ex-311.htm
Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, J. Jeffrey Meder, certify that:
1. |
|
I have reviewed this annual report on Form 10-K of Cost-U-Less,
Inc.; |
2. |
|
Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this annual report; |
3. |
|
Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this annual report; |
4. |
|
The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and we have: |
a) |
|
designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared; |
b) |
|
evaluated the effectiveness of the registrants disclosure
controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end
of the period covered by this report; and |
c) |
|
disclosed in this report any change in the registrants
internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal
control over financial reporting; |
5. |
|
The registrants other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent functions): |
a) |
|
all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to
record, process, summarize and report financial information; and |
b) |
|
any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ J. Jeffrey Meder
J. Jeffrey Meder
President and
Chief Executive Officer
EX-31.2
5
d18908_ex-312.htm
Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Martin P. Moore, certify that:
1. |
|
I have reviewed this annual report on Form 10-K of Cost-U-Less,
Inc.; |
2. |
|
Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this annual report; |
3. |
|
Based on my knowledge, the financial statements, and other
financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this annual report; |
4. |
|
The registrants other certifying officers and I are
responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
registrant and we have: |
a) |
|
designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being prepared; |
b) |
|
evaluated the effectiveness of the registrants disclosure
controls and procedures, and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end
of the period covered by this report; and |
c) |
|
disclosed in this report any change in the registrants
internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal
quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal
control over financial reporting; |
5. |
|
The registrants other certifying officer and I have
disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee
of registrants board of directors (or persons performing the equivalent functions): |
a) |
|
all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to
record, process, summarize and report financial information; and |
b) |
|
any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal control over financial reporting. |
/s/ Martin P. Moore
Martin P. Moore
Chief
Financial Officer
EX-32.1
6
d18908_ex-321.htm
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual
Report of Cost-U-Less, Inc. (the Company) on Form 10-K for the period ended January 1, 2006, as filed with the Securities and Exchange
Commission on the date hereof (the Report), I, J. Jeffrey Meder, President and Chief Executive Officer of the Company, certify, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d));
and
(2) The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
/s/ J. Jeffrey Meder
J. Jeffrey Meder
President and Chief Executive Officer
EX-32.2
7
d18908_ex-322.htm
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual
Report of Cost-U-Less, Inc. (the Company) on Form 10-K for the period ended January 1, 2006, as filed with the Securities and Exchange
Commission on the date hereof (the Report), I, Martin P. Moore, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The
Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d));
and
(2) The
information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
/s/ Martin P. Moore
Martin P. Moore
Chief Financial Officer
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