UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~October~~April 2928, ~~2011~~2012

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-14970

COST PLUS, INC.

(Exact name of registrant as specified in its charter)


California		94-1067973
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

200 4th Street, Oakland, California		94607
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (510) 893-7300

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer ¨x Non-accelerated filer x¨ (Do not check if a smaller reporting company) Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of ~~December~~May 725, ~~2011~~2012, the number of shares of the registrant’s Common Stock, $0.01 par value, outstanding was 22,~~373~~515,~~163~~752.

COST PLUS, INC.

FORM 10-Q

For the Quarter Ended ~~October~~April 2928, ~~2011~~2012

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION
ITEM 1.	Condensed Consolidated Financial Statements (unaudited)		2
	Condensed Consolidated Balance Sheets as of October 29, 2011, January 29, 2011 and October 30, 2010		2
	Condensed Consolidated Balance Sheets as of April 28, 2012, January 28, 2012 and April 30, 2011		2
	Condensed Consolidated Statements of Operations for the three months and nine months ended October 29, 2011 and October 30, 2010		3
	Condensed Consolidated Statements of Operations for the three months ended April 28, 2012 and April 30, 2011		3
	Condensed Consolidated Statements of Cash Flows for the nine months ended October 29, 2011 and October 30, 2010		4
	Condensed Consolidated Statements of Cash Flows for the three months ended April 28, 2012 and April 30, 2011		4
	Notes to Condensed Consolidated Financial Statements		5
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1110
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk		1514
ITEM 4.	Controls and Procedures		1514
PART II.	OTHER INFORMATION
ITEM 1A.	Risk Factors		16
ITEM 1.	Legal Proceedings		15
ITEM 1A.	Risk Factors		15
ITEM 6.	Exhibits		16
SIGNATURE PAGE			1718

PART I. FINANCIAL INFORMATION

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

COST PLUS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts, unaudited)

October 29, 2011

January 29, 2011

October 30, 2010

April 28, 2012

January 28, 2012

April 30, 2011

ASSETS

Current assets:

Cash and cash equivalents

2,~~930~~535

25,~~691~~870

23,~~962~~415

Merchandise inventories, net

~~255~~197,~~875~~755

~~181~~199,~~853~~707

~~249~~185,~~725~~421

Other current assets

1516,~~047~~000

1213,~~420~~426

1418,~~741~~380

Total current assets

~~273~~216,~~852~~290

~~196~~219,~~964~~003

~~267~~207,~~428~~216

Property and equipment, net

~~137~~133,~~618~~004

~~145~~135,~~678~~411

~~149~~141,~~845~~234

Other assets, net

5,~~412~~017

65,~~007~~216

35,~~746~~788

Total assets

~~416~~354,~~882~~311

~~348~~359,~~649~~630

~~421~~354,~~019~~238

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Accounts payable

9857,~~028~~334

5578,~~822~~423

8255,~~393~~197

Accrued compensation

1716,~~830~~738

1719,~~516~~017

1715,~~632~~247

Revolving line of credit and term loan

77,000

25,400

Revolving line of credit

22,800

—

41,000

Accrued store closure and lease exit costs

32,~~719~~274

62,~~575~~660

74,~~103~~734

Current portion of distribution center sale-leaseback obligations

~~914~~944

~~885~~929

~~886~~884

Other current liabilities

1918,~~379~~877

2023,~~788~~608

19,~~499~~370

Total current liabilities

~~216~~118,~~870~~967

~~126~~124,~~986~~637

~~127~~136,~~513~~432

Revolving line of credit

99,800

Capital lease obligations

4,299

4,461

5,807

Capital lease obligations

5,442

6,029

6,256

Long-term distribution center sale-leaseback obligations

110,677

110,918

111,621

Long-term distribution center sale-leaseback obligations

111,157

111,847

112,070

Other long-term obligations

20,132

21,185

24,600

Other long-term obligations

22,448

25,422

25,893

Commitments and contingencies

Shareholders’ equity:

Preferred stock, $.01 par value: 5,000,000 shares authorized; none issued and outstanding

0—

Common stock, $.01 par value: 67,500,000 shares authorized; issued and outstanding 22,363,553; 22,087,113 and 22,087,113 shares

224

221

Common stock, $.01 par value: 67,500,000 shares authorized; issued and outstanding 22,513,752; 22,377,663 and 22,187,549 shares

225

224

222

Additional paid-in capital

~~175~~178,~~369~~211

~~172~~176,~~768~~331

~~172~~173,~~389~~546

Accumulated deficit

(~~114~~78,~~628~~200

)

(9478,~~624~~126

)

(~~123~~97,~~123~~990

)

Total shareholders’ equity

60100,~~965~~236

7898,~~365~~429

4975,~~487~~778

Total liabilities and shareholders’ equity

~~416~~354,~~882~~311

~~348~~359,~~649~~630

~~421~~354,~~019~~238

See notes to condensed consolidated financial statements.

COST PLUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts, unaudited)

	Three Months Ended						~~Nine Months Ended~~
	October 29, 2011			October 30, 2010			October 29, 2011			October 30, 2010
	April 28, 2012			April 30, 2011
Net sales	$	~~201~~214,~~862~~565		$	~~194~~199,~~569~~710		$	~~599,521~~		$	~~575,001~~
Cost of sales and occupancy		~~139~~145,~~726~~934			~~134~~136,~~789~~318			~~414,976~~			~~397,020~~
Gross profit		6268,~~136~~631			5963,~~780~~392			~~184,545~~			~~177,981~~
Selling, general and administrative expenses		6765,~~282~~321			6463,~~407~~109			~~195,034~~			~~190,763~~
Store closure costs/(income)		202			43			(186	)		2,695
Store closure costs		—			322
Store preopening expenses		~~176~~200			~~142~~—			~~176~~			~~248~~
Loss from continuing operations, before interest and taxes		(5,524	)		(4,812	)		(10,479	)		(15,725	)
Income/(loss) from continuing operations, before interest and taxes		3,110			(39	)
Net interest expense		32,~~339~~978			23,~~774~~081			~~9,643~~			~~8,215~~
Loss from continuing operations before income taxes		(8,863	)		(7,586	)		(20,122	)		(23,940	)
Income/(loss) from continuing operations before income taxes		132			(3,120	)
Income tax (benefit)/expense		(617	)		(189	)		(1,079	)		161
Income tax expense/(benefit)		3			(85	)
Net loss from continuing operations		(8,246	)		(7,397	)		(19,043	)		(24,101	)
Net income/(loss) from continuing operations		129			(3,035	)
Loss from discontinued operations		(~~345~~203	)		(~~948~~331	)		~~(960~~	)		~~(1,538~~	)
Net loss	$	(~~8,591~~74	)	$	(83,~~345~~366	)	$	~~(20,003~~	)	$	~~(25,639~~	)
Net loss per weighted-average share:
Net income/(loss) per weighted-average share:
Continuing operations
Basic	$	(0.3701	)	$	(0.3414	)	$	~~(0.86~~	)	$	~~(1.09~~	)
Diluted	$	(0.3701	)	$	(0.3414	)	$	~~(0.86~~	)	$	~~(1.09~~	)
Discontinued operations
Basic	$	(0.0201	)	$	(0.0401	)	$	~~(0.04~~	)	$	~~(0.07~~	)
Diluted	$	(0.0201	)	$	(0.0401	)	$	~~(0.04~~	)	$	~~(0.07~~	)
Total
Basic	$	(0.3900	)	$	(0.3815	)	$	~~(0.90~~	)	$	~~(1.16~~	)
Diluted	$	(0.3900	)	$	(0.3815	)	$	~~(0.90~~	)	$	~~(1.16~~	)
Weighted-average shares outstanding:
Basic		22,~~333~~420			22,~~087~~122			~~22,226~~			~~22,087~~
Diluted		2223,~~333~~773			22,~~087~~122			~~22,226~~			~~22,087~~

See notes to condensed consolidated financial statements.

COST PLUS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands, unaudited)

	Nine Months Ended
	Three Months Ended
	October 29, 2011			October 30, 2010
	April 28, 2012			April 30, 2011
Cash Flows From Operating Activities:
Net loss	$	(~~20,003~~74	)	$	(253,~~639~~366	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		144,~~547~~439			175,~~641~~023
Share-based compensation expense		21,~~060~~096			~~1,084~~551
Loss on asset disposal		~~281~~—			83(48	)
Changes in assets and liabilities:
Merchandise inventories		~~(74~~1,~~022~~952	)		(723,~~522~~568	)
Income taxes		(1,~~845~~048	)		~~13,010~~(623	)
Other assets		(~~764~~2,380	)		4(5,~~526~~677	)
Accounts payable		42(20,~~250~~686	)		~~16,249~~(545	)
Other liabilities		(67,~~256~~343	)		(~~703~~5,744	)
Net cash used in operating activities		(4324,~~752~~044	)		(4613,~~271~~997	)
Cash Flows From Investing Activities:
Purchases of property and equipment		(62,~~840~~425	)		(~~3,419~~644	)
Proceeds from sale of property and equipment		55—			6343
Net cash used in investing activities		(62,~~785~~425	)		(~~3,356~~601	)
Cash Flows From Financing Activities:
Borrowings under revolving line of credit		~~212~~88,~~312~~157			~~169~~79,~~677~~388
Payments under revolving line of credit		(~~160~~65,~~712~~357	)		(~~118~~63,~~377~~788	)
Principal payments on long-term distribution center sale-leaseback obligations		(~~661~~226	)		(~~653~~227	)
Debt issuance costs		~~(69~~—	)		0(69	)
Principal payments on capital lease obligations		(~~635~~224	)		(~~660~~209	)
Proceeds from the issuance of common stock		~~541~~784			0227
Net cash provided by financing activities		5023,~~776~~134			4915,~~987~~322
Net increase in cash and cash equivalents		239			360
Net (decrease)/increase in cash and cash equivalents		(3,335	)		724
Cash and Cash Equivalents:
Beginning of period		25,~~691~~870			2,~~602~~691
End of period	$	2,~~930~~535		$	23,~~962~~415
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	92,~~453~~906		$	83,~~093~~065
Cash paid/(received) for income taxes, net	$	769		$	(12,867	)
Cash paid for income taxes, net	$	1,044		$	491

See notes to condensed consolidated financial statements.

COST PLUS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three Months ~~and Nine Months~~ Ended ~~October~~April 2928, ~~2011~~2012 and ~~October~~April 30, ~~2010~~2011

(Unaudited)

1. BASIS OF PRESENTATION

The accompanying unaudited condensed consolidated financial statements have been prepared from the records of Cost Plus, Inc. (“Cost Plus World Market” or “the Company”) and, in the opinion of management, include all adjustments that are normal and recurring in nature necessary to present fairly the Company’s financial position at ~~October~~April 2928, ~~2011~~2012 and ~~October~~April 30, ~~2010~~2011, and the interim results of operations for the three months ~~and nine months~~ ended ~~October~~April 2928, ~~2011~~2012 and ~~October~~April 30, ~~2010~~2011, and cash flows for the ~~nine~~three months ended ~~October~~April 2928, ~~2011~~2012 and ~~October~~April 30, ~~2010~~ 2011. The balance sheet at January 2928, ~~2011~~2012, presented herein, has been derived from the audited financial statements of the Company for the fiscal year then ended. Unless otherwise indicated, information presented in the notes to the financial statements relates only to the Company’s continuing operations.

Accounting policies followed by the Company are described in Note 1 to the audited consolidated financial statements for the fiscal year ended January 2928, ~~2011~~2012 in the Company’s Annual Report on Form 10-K. Certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted for purposes of presenting the interim condensed consolidated financial statements. Such statements should be read in conjunction with the audited consolidated financial statements, including notes thereto, for the fiscal year ended January 2928, ~~2011~~2012.

~~Prior~~The toCompany ~~achieving~~presents borrowings ~~net~~and ~~income~~payments inunder ~~fiscal~~its ~~2010,~~revolving weline ~~incurred~~of ~~net~~credit ~~losses~~on ina ~~each~~gross ~~annual~~basis, ~~period~~not ~~since~~a ~~fiscal~~net ~~2006. As of October 29~~basis, ~~2011,~~within wethe ~~had~~financing ~~an accumulated~~activities ~~deficit~~section of ~~$114.6~~the ~~million.~~condensed ~~For~~consolidated ~~the~~statement ~~nine~~of ~~months~~cash ~~ended October~~flows. ~~29,~~Subsequent ~~2011,~~to ~~and~~the ~~for~~first ~~fiscal~~quarter ~~2009~~of ~~and~~ fiscal ~~2008~~2011, wethe Company ~~did~~determined ~~not~~that ~~generate~~the ~~positive~~gross ~~cash~~borrowings ~~flows~~and ~~from~~gross ~~operating~~payments ~~activities.~~under Weits ~~are~~revolving ~~dependent~~line ~~upon~~of ~~our asset-based~~ credit, ~~facility~~as ~~to fund~~disclosed ~~operations~~on ~~and seasonal inventory purchases throughout~~ the ~~year.~~condensed ~~Access~~consolidated tostatement ~~our~~of ~~asset-based~~cash ~~credit~~flows ~~facility~~for ~~is dependent upon meeting our debt covenants and not exceeding~~ the ~~borrowing~~first ~~limit~~quarter of ~~the~~fiscal ~~asset-based~~2011, ~~credit~~were ~~facility.~~each ~~There~~overstated ~~can~~by ~~be no assurance that we will achieve or sustain positive cash flows from operations or profitability~~$28.6 Ifmillion, wewhich nets ~~are unable~~ to ~~maintain adequate liquidity~~zero, itand ~~could~~has ~~have~~no aimpact ~~material adverse affect~~ on ~~our~~the ~~financial~~total ~~condition~~net ~~and~~cash ~~future~~provided ~~operations~~by ~~may~~financing ~~need~~activities. The todisclosure ~~be scaled~~misstatement ~~back~~has orno ~~discontinued.~~impact ~~However, based~~ on ~~our~~the ~~current~~Company’s ~~business~~condensed ~~plan~~consolidated ~~and~~statement ~~revenue~~of ~~projections,~~operations weor ~~believe~~consolidated ~~that our existing cash~~ balance, ~~our anticipated cash flows from operations and our available asset-based credit facility will be sufficient~~sheets. The topresentation ~~meet~~for ~~our~~the ~~working~~three ~~capital~~months ~~and~~ended ~~operating~~April 30, ~~resource~~2011 ~~expenditure~~has ~~requirements~~been ~~for~~corrected in the ~~next~~accompanying 12condensed ~~months~~consolidated ~~and~~statement ~~the~~of ~~foreseeable~~cash ~~future~~flows.

~~The~~Prior ~~results~~to achieving net income in fiscal 2011 and fiscal 2010, we incurred net losses in each annual period since fiscal 2006. As of April 28, 2012, we had an accumulated deficit of $78.2 million. For fiscal 2009, we did not generate positive cash flows from operating activities. There can be no assurance that our business will continue to be profitable or will generate sufficient cash to fund operations ~~for~~in the ~~three-month~~future or that additional losses and ~~nine-month~~negative ~~periods~~cash ~~ended~~flows ~~October 29,~~from ~~2011~~operations will not be incurred, ~~presented~~particularly ~~herein~~on a quarterly basis, which could have a material adverse effect on our financial condition. We are dependent upon our asset-based credit facility to fund operations and seasonal inventory purchases throughout the year. Access to our asset-based credit facility is dependent upon meeting our debt covenants and not ~~indicative~~exceeding the borrowing limit of the ~~results~~asset-based credit facility. There can be no assurance that we will achieve or sustain positive cash flows, particularly on a quarterly basis, from operations or profitability. If we are unable to maintain adequate liquidity, it could have a material adverse affect on our financial condition and future operations may need to be ~~expected~~scaled ~~for~~back ~~the~~or ~~full~~discontinued. ~~year~~However, ~~because~~based ofon our current business plan and revenue projections, ~~among~~we ~~other~~believe ~~things~~that our existing cash balance, ~~seasonal~~our ~~factors~~anticipated incash flows from operations and our available asset-based credit facility will be sufficient to meet our working capital and operating resource expenditure requirements for the ~~retail~~next ~~business~~12 months and the foreseeable future.

The results of operations for the three-month period ended April 28, 2012, presented herein, are not indicative of the results to be expected for the full year because of, among other things, seasonal factors in the retail business.

2. ACCRUED STORE CLOSURE AND LEASE EXIT COSTS

When stores under long-term leases close, the Company records a liability for the future minimum lease payments and related ancillary costs, net of estimated sublease income and discounted using a risk-adjusted rate of interest. This liability is recorded at the time the store is closed and at the end of each quarter, the Company adjusts the estimated liability balance based on actual sublease income and lease settlement agreements that occurred during the period. Accrued store closure and lease exit costs also include costs related to closing the stores and relocating and terminating employees. Additional charges or recoveries related to the planned disposition of stores may be incurred as a result of changes to management’s current estimates and assumptions. The timing of future transactions and charges related to these store closures are subject to significant uncertainty, including the variability in future vacancy periods, sublease income or negotiations with landlords regarding buy-out payments on leases.

Following is a year-to-date summary of the accrued store closure and lease exit costs ason of the ~~nine months~~Company’s ~~ended~~condensed ~~October 29,~~consolidated ~~2011,~~balance ~~the~~sheet 12as ~~months~~of ~~ended~~April 28, 2012, January 2928, ~~2011~~2012 and ~~the nine months ended October~~April 30, ~~2010~~2011, respectively:

(In thousands)	~~October~~April 2928, ~~2011~~2012			January 2928, ~~2011~~2012			~~October~~April 30, ~~2010~~2011
Beginning Balance	$	62,~~575~~660		$	106,~~220~~575		$	106,~~220~~575
Lease exit costs, net of estimated sublease income		~~1,113~~181			41,~~245~~438			~~3,707~~302
Severance and closure costs		~~521~~—			~~416~~548			~~342~~291
Payments for leases and settlements		(~~3,846~~547	)		(75,~~827~~251	)		(62,~~706~~045	)
Payments for severance and closure costs		(~~644~~20	)		(~~479~~650	)		(~~460~~389	)
Ending Balance1	$	3,719		$	6,575		$	7,103
Ending Balance	$	2,274		$	2,660		$	4,734

1. At October 29, 2011, January 29, 2011 and October 30, 2010, the reserve for store closures includes $0.7 million, $1.6 million and $1.7 million, respectively, for stores that are classified within continuing operations and includes $3.0 million, $5.0 million and $5.4 million, respectively, for stores that are classified within discontinued operations.

3. DISCONTINUED OPERATIONS

The Company did not have any operations which were discontinued during the ~~year-to-date~~first ~~period~~quarter of fiscal 2012 or fiscal 2011. The loss from discontinued operations for the ~~three-month~~first ~~and~~quarter ~~nine-month~~of ~~periods~~fiscal of2012 and fiscal 2011 primarily consists of the costs associated with the quarterly adjustments to the lease exit liabilities that were established for the stores that closed in prior years ~~and~~ and that have leases which have not yet been exited. These lease exit costs were approximately $0.92 million for the ~~nine~~three-month period ended ~~October~~April 2928, ~~2011~~2012 and $10.3 million for ~~nine~~the three-month period ended ~~October~~April 30, ~~2010~~2011.

The recognition of the costs associated with closing the stores requires the Company to make judgments and estimates regarding the nature, timing, and costs, including estimated lease exit costs net of estimated sublease income, employee severance and various other costs related to the closure of stores. Additional charges or recoveries related to the planned disposition of stores may be incurred as a result of changes to management’s current estimates and assumptions. The timing of future transactions and charges related to these store closures are subject to significant uncertainty, including the variability in future vacancy periods, and sublease income or negotiations with landlords regarding buy-out payments on leases.

Results from discontinued operations were as follows:

	Three Months Ended						~~Nine Months Ended~~
	October 29, 2011			October 30, 2010			October 29, 2011			October 30, 2010
	April 28, 2012			April 30, 2011
(In thousands)
Store sales	$	0—		$	~~688~~—		$	0		$	~~1,833~~
Costs and expenses:
Cost of store sales and occupancy		0			536			0			1,413
Operating and administrative expenses		27			27
Operating and administrative expenses		6			186			55			604
Lease exit costs, net of estimated sublease income		176			304
Lease exit costs, net of estimated sublease income		339			829			905			1,269
Loss from discontinued operations, net of tax	$	(203	)	$	(331	)
Severance benefits and other closure costs		0			85			0			85
Loss from discontinued operations, net of tax	$	(345	)	$	(948	)	$	(960	)	$	(1,538	)

4. SHARE-BASED COMPENSATION

Share-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that are ultimately expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Currently, the Company’s share-based compensation relates to stock options and deferred stock units. The Company recognized share-based compensation expense of $1.1 million for the three months ended April 28, 2012 compared to $0.6 million for the three months ended April 30, 2011. Share-based compensation expense is included as a component of selling, general and administrative expenses. As of April 28, 2012, unrecognized compensation cost related to the unvested portion of the Company’s stock option awards and deferred stock units was $9.0 million, and $0.5 million, respectively, which is expected to be recognized over a weighted-average period of 3.6 years and 0.8 years, respectively.

The Company granted 816,000 stock options to purchase shares of the Company’s common stock during the first quarter of fiscal 2012 compared to 769,000 shares of common stock options granted to the Company’s employees during the first quarter of fiscal 2011. The weighted-average fair value per stock option granted was $12.35 during the three-month period ended April 28, 2012 and $7.13 during the three-month period ended April 30, 2011.

~~4. SHARE~~The following table presents the weighted-~~BASED~~average ~~COMPENSATION~~assumptions used in the Black-Scholes-Merton option pricing model to value the stock options granted during the three-month periods ended April 28, 2012 and April 30, 2011:


	Three Months Ended
	April 28, 2012			April 30, 2011
Expected dividend rate		0	%		0	%
Expected volatility		90.0	%		90.0	%
Risk-free interest rate		1.1	%		2.0	%
Expected term (years)		4.6			4.5

~~The~~Deferred ~~Company~~Stock ~~had~~Units ~~share-based~~The ~~compensation~~Company ~~expense~~granted ~~of $0.9 million for the three months ended October 29~~21,816 ~~2011~~deferred ~~compared~~stock units to ~~$0.4~~its ~~million for the three months ended October 30, 2010. Share~~non-~~based~~employee ~~compensation~~directors ~~expense~~during ~~for~~ the ~~nine months ended October 29, 2011 and the nine months ended October 30, 2010 was $2.1 million and $1.1 million, respectively. Share-based compensation~~ ~~expense~~first isquarter ~~recorded as a component~~ of ~~selling,~~fiscal ~~general~~2012 ~~and~~compared ~~administrative~~to ~~expenses. As~~no ofdeferred ~~October 29,~~stock ~~2011,~~units ~~unrecognized~~granted ~~compensation~~during ~~cost related to~~ the ~~unvested~~first ~~portion~~quarter of ~~the~~fiscal 2011. The Company’s ~~stock option awards and~~ deferred stock units ~~was~~ ~~$3.8~~are ~~million,~~issued and ~~$0.3~~measured ~~million,~~at ~~respectively,~~fair ~~which~~market isvalue ~~expected~~on tothe bedate ~~recognized~~of ~~over~~grant aand ~~weighted-average~~fully ~~period~~vest ofon ~~2.8~~the ~~years~~one year ~~and~~anniversary ~~0.8~~from ~~years,~~the ~~respectively~~date of grant.

The Company granted 53,974 deferred stock units to its non-employee directors during the third quarter of fiscal 2011 compared to no deferred stock units granted during the third quarter of fiscal 20105. No ~~stock~~RECONCILIATION ~~options~~OF toBASIC ~~purchase~~SHARES ~~shares~~TO ofDILUTED ~~the~~SHARES Company’s common stock were granted during the third quarter of fiscal 2011 compared to 15,000 shares of common stock options granted to the Company’s employees during the third quarter of fiscal 2010. The weighted-average fair value per stock option granted was $7.13 during the nine-month period ended October 29, 2011 and $2.80 and $3.37 during the three-month and nine-month periods ended October 30, 2010, respectively. The following table presents the weighted-average assumptions used in the Black-Scholes-Merton option pricing model to value the stock options granted during the three-month and nine-month periods ended October 30, 2010 and the nine-month period ended October 29, 2011:

	Three Months Ended			Nine Months Ended
	October 30, 2010			October 29, 2011			October 30, 2010
Expected dividend rate		0	%		0	%		0	%
Expected volatility		94.6	%		90.0	%		94.1	%
Risk-free interest rate		1.3	%		2.0	%		2.0	%
Expected term (years)		4.5			4.5			4.5

Basic earnings/(loss) per share (“EPS”) is computed by dividing net income/(loss) by the weighted-average number of common shares outstanding for the period. Diluted earnings/(loss) per share is similarly computed, and includes the effect, if dilutive, of the Company’s weighted-average number of stock options outstanding and shares of deferred stock units.

The following is a reconciliation of the weighted-average number of shares (in thousands) used in the Company’s basic and diluted per share computations for net income/(loss) from continuing operations:


	Three Months Ended
	Basic EPS			Effect of Dilutive Stock Options (treasury stock method)		Diluted EPS
April 28, 2012
Shares		22,420			1,353		23,773
Net income from continuing operations	$	0.01		$	0.00	$	0.01
April 30, 2011
Shares		22,122			—		22,122
Net loss from continuing operations	($	0.14	)	$	0.00	($	0.14	)

The following is a reconciliation of the weighted-average number of shares (in thousands) used in the Company’s basic and diluted per share computations for net loss:


	Three Months Ended
	Basic EPS			Effect of Dilutive Stock Options (treasury stock method)		Diluted EPS
April 28, 2012
Shares		22,420			—		22,420
Net loss	($	0.00	)	$	0.00	($	0.00	)
April 30, 2011
Shares		22,122			—		22,122
Net loss	($	0.15	)	$	0.00	($	0.15	)

5Certain options to purchase common stock were outstanding but were not included in the computation of diluted earnings per share because the effect would be anti-dilutive. ~~RECONCILIATION~~For OFthe ~~BASIC~~Company’s ~~SHARES~~net TOincome/(loss) ~~DILUTED~~per ~~SHARES~~weighted average share from continuing operations for the three-month periods ended April 28, 2012 and April 30, 2011, there were 995,173 and 4,233,617 anti-dilutive options, respectively. Additionally, for the Company’s net loss per weighted average share for the three-month periods ended April 28, 2012 and April 30, 2011, there were 4,366,651 and 4,233,617 anti-dilutive options, respectively.

Basic earnings (loss) per share (“EPS”) is computed by dividing net income (loss) by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed by dividing net income (loss) by the weighted-average number of common shares and dilutive common stock equivalents outstanding during the period. Diluted EPS reflects the potential dilution that could occur if options to purchase common stock were exercised into common stock.

The following is a reconciliation of the weighted-average number of shares (in thousands) used in the Company’s basic and diluted earnings per share computations:

	Three Months Ended								Nine Months Ended
	BasicEPS			Effect of DilutiveStock Options(treasury stockmethod)		DilutedEPS			BasicEPS			Effect of DilutiveStock Options(treasury stockmethod)		DilutedEPS
October 29, 2011
Shares		22,333			0		22,333			22,226			0		22,226
Loss	$	(0.39	)	$	0.00	$	(0.39	)	$	(0.90	)	$	0.00	$	(0.90	)
October 30, 2010
Shares		22,087			0		22,087			22,087			0		22,087
Loss	$	(0.38	)	$	0.00	$	(0.38	)	$	(1.16	)	$	0.00	$	(1.16	)

Certain options to purchase common stock were outstanding but were not included in the computation of diluted earnings per share because the effect would be anti-dilutive. For the three-month and nine-month periods ended October 29, 2011 and October 30, 2010, there were 3,982,310 and 3,765,115 anti-dilutive options, respectively.

6. REVOLVING LINE OF CREDIT

OnThe ~~January 3, 2011, the~~ Company ~~entered~~has ~~into~~ a secured five-year credit agreement with a group of banks and Bank of America, N.A. as the administrative agent, collateral agent, swing line lender, and letter of credit issuer (the “Credit Agreement”). The Credit Agreement ~~amended and extended the previous $200.0 million Credit Agreement dated as of June 25, 2007 which was due to expire on June 25, 2012. The Credit Agreement~~ allows for cash borrowings under a revolving loan and letters of credit under a secured asset-based credit facility of up to $190.0 million as well as a $10.0 million term loan, which was drawn on the effective date. The Company has paid off the term loan in full. The amount available for borrowing at any time is limited by a stated percentage of the aggregate amount of the liquidated value of eligible inventory and the face amount of eligible credit card receivables. The Credit Agreement includes three options to increase the size of the asset-based credit facility by up to $50.0 million in the aggregate. All borrowings and letters of credit under the Credit Agreement are collateralized by all assets presently owned or hereafter-acquired by the Company. Interest is paid in arrears monthly, quarterly, or over the applicable interest period as selected by the Company in the Revolving Loan Notice, with the entire balance payable on January 3, 2016. Borrowings pursuant to the asset-based credit facility bear interest, at the Company’s election, at a rate equal to either (i) the higher of Bank of America’s prime rate or the federal funds effective rate plus an applicable margin; or (ii) the LIBOR rate plus an applicable margin. The applicable margin is based on the Company’s Average Daily Availability (as defined in the Credit Agreement). In addition, the Company pays a commitment fee on the unused portion of the amount available for borrowing as described in the Credit Agreement. The Credit Agreement includes limitations on the ability of the Company to, among other things, incur debt, grant liens, make investments, enter into mergers and acquisitions, pay dividends, change its business, enter into transactions with affiliates, and dispose of assets. The events of default under the Credit Agreement include, among others, payment defaults, cross defaults with certain other indebtedness, breaches of covenants, loss of collateral, judgments, changes in control, and bankruptcy events. In the event of a default, the Credit Agreement requires the Company to pay incremental interest at the rate of 2.0% and the lenders may, among other remedies, foreclose on the security (which could include the sale of the Company’s inventory), eliminate their commitments to make credit available, declare due all unpaid principal amounts outstanding, and require cash collateral for any letter of credit obligations. In addition, in the event of a default or if the Company’s Availability (as defined in the Credit Agreement) is not equal to the greater of either $20.0 million or 15% of the loan cap under the asset-based credit facility, the Company will be subject to additional restrictions, including specific restrictions with respect to its cash management procedures.

The Company intends to use the proceeds from the Credit Agreement for working capital, issuance of commercial and standby letters of credit, capital expenditures, and other general corporate purposes. As of April 28, 2012, the Company was in compliance with its loan covenant requirements, had $22.8 million in borrowings and $6.9 million in issued and outstanding letters of credit, and had remaining credit available under the Credit Agreement of $113.8 million. The Company’s business is highly seasonal, reflecting the general pattern associated with the retail industry of peak sales and earnings during the fourth quarter holiday season, therefore borrowings under the line of credit often peak during the beginning of the fourth quarter.

The borrowing base, based on inventory and accounts receivable value less certain reserves, at April 28, 2012, January 28, 2012 and April 30, 2011 consisted of the following (in millions):

		0000000000000			0000000000000			0000000000000
	April 28, 2012			January 28, 2012			April 30, 2011
Account receivable availability	$	7.6		$	8.0		$	6.1
Inventory availability		143.4			146.6			131.6
Less: reserves		(7.5	)		(9.1	)		(8.7	)

Total borrowing base	$	143.5		$	145.5		$	129.0

The ~~Company~~aggregate ~~uses~~borrowing ~~the~~base borrowings under the Credit Agreement for working capital, issuance of commercial and standby letters of credit, capital expenditures, and other general corporate purposes. As of October 29, 2011, the Company was in compliance with its loan covenant requirements, had $77.0 million in borrowings (including the $10.0 million term loan) and $7.3 million in issued and outstanding letters of credit, and had remaining credit available under the Credit Agreement of $115.7 million. Based on current projections, the Company expects to be in compliance with its loan covenant requirements throughout fiscal 2011. The Company’s business is ~~highly~~reduced ~~seasonal,~~by ~~reflecting~~ the ~~general~~following ~~pattern~~obligations: associated with the retail industry of peak sales and earnings during the fourth quarter holiday season, therefore borrowings under the line of credit often peak early in the fourth quarter of each fiscal year.

The borrowing base, based on inventory and accounts receivable value less certain reserves, at October 29, 2011, January 29, 2011 and October 30, 2010 consisted of the following (in millions):

		000000001001,,		000000001001,,		000000001001,,

Ending loan balance	$	22.8	$	—	$	41.0
Outstanding letters of credit		6.9		9.6		7.8

Total obligations	$	29.7	$	9.6	$	48.8

	October 29, 2011			January 29, 2011			October 30, 2010
Account receivable availability	$	8.0		$	6.5		$	7.2
Inventory availability		207.8			132.9			193.2
Less: reserves		(8.1	)		(10.4	)		(10.3	)
Total borrowing base1	$	207.7		$	129.0		$	190.1
The aggregate borrowing base is reduced by the following obligations:
Ending loan balance	$	77.0		$	25.4		$	99.8
Outstanding letters of credit		7.3			10.8			9.5
Total obligations	$	84.3		$	36.2		$	109.3
The availability at October 29, 2011, January 29, 2011 and October 30, 2010 was:
Total borrowing base1	$	200.0		$	129.0		$	190.1
Less: obligations		(84.3	)		(36.2	)		(109.3	)
Total availability	$	115.7		$	92.8		$	80.8

The availability at April 28, 2012, January 28, 2012 and April 30, 2011 was:

1. Total borrowing base per the calculation above was $207.7 million at October 29, 2011. However, the Credit Agreement limits the borrowing base to $200.0 million. Therefore, $200.0 million is the adjusted total borrowing base at October 29, 2011.

		0000000000001			0000000000001			0000000000001

Total borrowing base	$	143.5		$	145.5		$	129.0
Less: obligations		(29.7	)		(9.6	)		(48.8	)

Total availability	$	113.8		$	135.9		$	80.2

7. DISTRIBUTION CENTER SALE-LEASEBACK OBLIGATIONS

The Company’s distribution center sale-leaseback obligations as of ~~October~~April 2928, ~~2011~~2012, January 2928, ~~2011~~2012, and ~~October~~April 30, ~~2010~~2011 are summarized as follows:

(In thousands)	~~October~~April 2928, ~~2011~~2012			January 2928, ~~2011~~2012			~~October~~April 30, ~~2010~~2011
Obligations under sale and leaseback:
California distribution centers	$	6160,~~005~~695		$	6160,~~462~~852		$	61,~~619~~302
Virginia distribution center		5150,~~066~~926			5150,~~270~~995			51,~~337~~203
Total distribution center sale-leaseback obligations		~~112~~111,~~071~~621			~~112~~111,~~732~~847			112,~~956~~505
Less current portion		(~~914~~944	)		(~~885~~929	)		(~~886~~884	)
Long-term distribution center sale-leaseback obligations	$	111,157		$	111,847		$	112,070
Long-term distribution center sale-leaseback obligations, net	$	110,677		$	110,918		$	111,621

The Company’s distribution center lease obligations include financing obligations related to the sale-leaseback of its distribution centers in Stockton, California and Windsor, Virginia. The Company has accounted for the sale-leaseback transactions ~~as financings~~ whereby the net book value of the assets remain on the Company’s condensed consolidated balance sheet. The Company also recorded a financing obligation, which is being amortized over the period of the leases (including option periods) and approximates the discounted value of minimum lease payments under the leases. The monthly lease payments ~~are~~ are accounted for as principal and interest payments on the recorded obligations. For further details on the Company’s obligations under the sale and leaseback of the distribution centers, see Note 78 to the consolidated financial statements in ~~the~~ the Company’s Annual Report on Form 10-K for the fiscal year ended January 2928, ~~2011~~2012.

8. INCOME TAXES

The Company’s effective tax rate from continuing operations was a provision of 22.0%, before discrete items, in the first quarter of fiscal 2012 compared to a benefit of 4.0%, before discrete items, in the first quarter of fiscal 2011. The effective tax rate increase is due to an increase in federal and state expense as a result of increased operating income.

9. SUBSEQUENT EVENT

On May 8, 2012, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Bed Bath & Beyond Inc., a New York corporation (“BBBY”), and Blue Coral Acquisition Corp., a California corporation and a direct wholly owned subsidiary of BBBY (“Purchaser”), pursuant to which Purchaser agreed to commence a tender offer (the “Offer”) to acquire all of the outstanding shares of the Company’s common stock at a purchase price of $22.00 per share, net to the holder in cash (the “Offer Price”), without interest and subject to any required withholding of taxes. The Offer commenced on May 25, 2012.

8Pursuant to the Merger Agreement, as soon as practicable after the consummation of the Offer and subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement, Purchaser will merge with and into the Company (the “Merger”) and the Company will become a wholly-owned subsidiary of BBBY. ~~INCOME~~The ~~TAXES~~Merger Agreement also provides that the Merger may be consummated regardless of whether the Offer is completed, but if the Offer is not completed, the Merger will only be able to be consummated after the shareholders of the Company holding a majority in voting power of the outstanding shares have adopted the Merger Agreement and approved the Merger at a meeting of shareholders. In the Merger, each outstanding share of the Company’s common stock, other than shares of the Company’s common stock owned by BBBY or the Company or by shareholders who have properly demanded dissenters’ rights under California law, will be converted into the right to receive cash in an amount equal to the Offer Price.

The ~~Company’s~~obligation ~~effective~~of ~~tax~~Purchaser ~~rate~~to ~~from~~purchase ~~continuing~~shares ~~operations~~tendered ~~was~~in the Offer is subject to the satisfaction or waiver of a ~~benefit~~number of ~~5.0%,~~conditions ~~before~~set ~~discrete~~forth ~~items~~in the Merger Agreement, inincluding the ~~third~~expiration ~~quarter~~or termination of ~~fiscal~~ ~~2011~~applicable ~~compared~~waiting toperiods aunder ~~provision~~the ofHart-Scott-Rodino ~~0.9%,~~Antitrust ~~before~~Improvements ~~discrete~~Act ~~items~~of 1976, inas amended (the ~~third~~“HSR ~~quarter~~Act”), ofand ~~fiscal~~other ~~2010~~customary ~~primarily~~closing ~~related~~conditions. toIn ~~state~~addition, ~~income~~it ~~taxes.~~is a Nocondition ~~provision~~to orPurchaser’s ~~benefit~~obligation ~~was~~to ~~recorded~~purchase the shares tendered in the ~~third~~Offer ~~quarter~~that the number of ~~fiscal~~the ~~2010~~outstanding ~~for~~shares ~~federal~~that ~~income~~have ~~taxes~~been ~~due~~validly ~~to the~~tendered ~~recent~~and ~~net~~not ~~operating~~validly ~~losses~~withdrawn, ~~incurred.~~together ~~The~~with ~~Company’s~~any ~~business~~shares isthen ~~highly~~owned ~~seasonal~~by BBBY and its subsidiaries, ~~reflecting~~equals ~~the~~at ~~general~~least ~~pattern~~one ~~associated~~share ~~with~~of our common stock more than 90% of the ~~retail~~Company’s ~~industry~~common stock outstanding as of ~~peak~~the ~~sales~~expiration ~~and~~of ~~earnings~~the ~~during~~Offer (as adjusted by the ~~fourth~~number ~~quarter~~of ~~holiday~~shares ~~selling~~issuable ~~season.~~under ~~The~~the Company’s stock plans and the ~~expects~~Top-Up to(as ~~have~~defined ~~positive~~in ~~net~~the ~~income~~Merger ~~for~~Agreement)). ~~fiscal~~In ~~year~~the ~~2011,~~event ~~but~~that ~~due~~this tominimum ~~the~~tender ~~seasonality~~condition ofis ~~its~~not ~~business~~met, itand ~~had~~in ~~losses~~certain ~~for~~other circumstances, the ~~first~~parties ~~three~~have ~~quarters~~agreed ofto complete the ~~year~~Merger ~~which~~without ~~resulted~~the inprior ~~recording~~completion aof ~~tax~~the ~~benefit~~Offer, ~~for~~after ~~each~~receipt of the ~~those~~approval ~~quarters.~~of ~~Last~~a ~~year,~~majority of the Company ~~could~~’s ~~not~~shareholders ~~support~~for ~~net~~the ~~income~~adoption ~~for~~of the ~~year~~Merger ~~due~~Agreement toand ~~its~~approval ~~recent~~of ~~history~~the ofMerger. ~~recurring~~In ~~losses~~that case, ~~and~~the ~~therefore~~consummation ~~did~~of ~~not~~the ~~recognize~~Merger ~~tax~~would ~~benefits~~be onsubject ~~its~~to ~~quarterly~~similar ~~losses~~conditions ~~through~~as the ~~third~~Offer ~~quarter~~conditions, ~~because~~other than itthe ~~did~~addition ~~not~~of ~~expect~~the toshareholder ~~have~~approval ~~enough~~requirement ~~net~~and ~~income~~the toinapplicability ~~offset~~of the ~~year-to-date~~ ~~benefit~~minimum ~~that~~tender ~~would have been recorded~~condition.

~~Income~~On ~~tax~~May 11, ~~expense~~2012, orand May ~~benefit~~22, ~~reflects~~2012, ~~the~~alleged ~~amount~~shareholders of ~~taxes~~the ~~payable~~Company orfiled ~~refundable~~putative ~~for~~class ~~the current~~actions ~~year~~captioned Gary Ogurkiewicz v. Cost Plus, ~~the~~Inc., ~~impact~~et ofal., ~~deferred~~Case ~~tax~~No. ~~liabilities~~RG 12-629912, and ~~deferred~~Willie ~~tax~~M. ~~assets~~Richardson v. Cost Plus, ~~accrued~~Inc., ~~interest~~et onal., ~~tax~~Case ~~deficiencies~~No. ~~and~~RG ~~refunds~~12-631301, ~~and~~in the ~~accrued~~Superior ~~penalties~~Court onof ~~tax~~the ~~deficiencies.~~State ~~Deferred~~of ~~income~~California, ~~taxes~~County ~~represent~~of ~~future~~Alameda. ~~net~~The ~~tax~~defendants ~~effects~~are ~~resulting~~the ~~from~~Company, ~~temporary differences~~members ~~between~~of the ~~financial~~Company’s ~~statement~~board of directors, Purchaser and BBBY. The complaints allege that the ~~tax~~individual ~~basis~~defendants ofviolated ~~assets~~California ~~and~~law ~~liabilities~~by breaching ~~using~~their ~~enacted~~fiduciary ~~tax~~duties ~~rates~~to the Company’s shareholders in ~~effect~~connection ~~for~~with the ~~year~~Merger inAgreement and the transaction contemplated thereby. Specifically, the complaints allege, among other things, that the proposed Merger arises out of a flawed process which resulted in an unfair price for the ~~differences~~Company’s ~~are~~shares ~~expected~~and a failure to ~~reverse~~maximize stockholder value. AThe ~~valuation~~complaints ~~allowance~~also isallege ~~recorded~~that ~~against~~the ~~deferred~~process ~~tax~~will ~~assets~~deter ifother purported interested parties from launching a competing offer. ~~there~~The issuits ~~doubt~~further ~~about~~allege that Purchaser and BBBY aided and abetted the ~~realization~~individual defendants’ breaches of ~~such~~fiduciary ~~assets~~duties. inIn addition, the ~~future~~Ogurkiewicz action alleges that the Company aided and abetted the individual defendants’ breaches of fiduciary duties. The ~~Company~~plaintiffs ~~has~~seek, ~~recorded~~among aother ~~full~~things, ~~valuation~~an ~~allowance~~order asdeclaring ofthe ~~October 29~~Merger Agreement unenforceable, ~~2011~~enjoining ~~and~~defendants ~~October 30~~from consummating the proposed Merger, ~~2010~~rescinding the proposed Merger if it is consummated, awarding damages, and awarding attorneys’ fees and costs.

AtOn ~~October~~May 25, 292012, ~~2011,~~an alleged shareholder of the Company ~~had~~filed ~~$34,000~~a inputative ~~unrecognized~~class action ~~tax~~captioned ~~benefits~~Irene ~~and~~Dixon atv. ~~January 29~~Cost Plus, ~~2011~~Inc., Case No. 12-2721, in the ~~Company~~United ~~had~~States $1District Court for the Northern District of California.4 ~~million~~The indefendants ~~unrecognized~~are ~~tax~~the ~~benefits;~~Company, members of the ~~recognition~~Company’s board of ~~both~~directors, ~~would~~the ~~both~~Merger ~~have~~Sub anand ~~impact~~the Parent. The complaint alleges that the Company and the individual defendants violated provisions of ~~$282~~the Securities Exchange Act of 1934,~~000~~ including the Williams Act, by omitting material facts from the Schedule 14D-9 Solicitation/Recommendation Statement the Company filed with the SEC on May 25, 2012, in connection with the proposed Merger. In addition, the complaint alleges that the individual defendants violated California law by breaching their fiduciary duties to the Company’s ~~income~~shareholders ~~tax~~in ~~provision.~~connection Atwith the ~~end~~Merger ofAgreement and the ~~third~~transaction ~~quarter~~contemplated ofthereby. ~~fiscal 2011~~Specifically, itthe iscomplaint ~~reasonably~~alleges, ~~possible~~among other things, that the ~~total~~proposed ~~amounts~~Merger arises out of ~~unrecognized~~a ~~tax~~flawed ~~benefits~~process ~~could~~which resulted ~~decrease~~in byan ~~$446,000~~unfair ~~within~~price for the ~~next~~Company’s 12shares ~~months due~~and a failure to maximize stockholder value. The complaint also alleges that the ~~expiration~~process ofwill deter other purported interested parties from launching a competing offer. The suit further alleges that Purchaser and BBBY aided and abetted the ~~statute~~individual defendants’ breaches of ~~limitations~~fiduciary duties. The plaintiff seeks, among other things, an order enjoining defendants from consummating the proposed Merger, rescinding the proposed Merger if it is consummated, awarding damages, and awarding attorneys’ fees and costs.

~~The Company recognizes accrued interest and penalties related to unrecognized tax benefits in income tax expense~~ITEM 2. AtMANAGEMENT’S ~~October 29,~~DISCUSSION ~~2011~~AND ~~and~~ANALYSIS atOF ~~October 30,~~FINANCIAL ~~2010,~~CONDITION ~~the~~AND ~~Company~~RESULTS ~~had~~OF ~~accrued $186,000 and $196,000, respectively, for the potential payment of interest and penalties.~~ OPERATIONS

AsThe following discussion and analysis of ~~October 29~~financial condition, ~~2011~~results of operations, liquidity and capital resources should be read in conjunction with the ~~Company~~accompanying isunaudited ~~subject~~condensed toconsolidated ~~U.S.~~financial ~~federal~~statements ~~income~~and ~~tax~~notes ~~examinations~~thereto for ~~tax~~the ~~years~~three-month ~~2004~~period ~~and~~ended ~~forward~~April 28, 2012 and iswith ~~subject~~Management’s toDiscussion ~~state~~and Analysis of Financial Condition and Results of ~~local~~Operations ~~tax~~contained ~~examinations~~in the Company’s Annual Report on Form 10-K for ~~tax~~the ~~years~~year ~~2003~~ended ~~and~~January 28, ~~forward~~2012. The results of operations for the three-month period ended April 28, 2012, presented herein, are not indicative of the results to be expected for the full year because of, among other things, seasonal factors in the retail business.

~~ITEM~~This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 227A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). ~~MANAGEMENT~~These forward-looking statements reflect the Company’Ss ~~DISCUSSION~~current ~~AND~~beliefs ~~ANALYSIS~~and estimates OFwith ~~FINANCIAL~~respect ~~CONDITION~~to future events and the Company’s future financial performance, operations and competitive position, including statements regarding our proposed transaction with Bed, Bath & Beyond Inc. and the repayment of our ~~AND~~debt, ~~RESULTS~~and OFmay ~~OPERATIONS~~be identified, without limitation, by use of the words “may,” “should,” “expects,” “anticipates,” “estimates,” “believes,” “looking ahead,” “forecast,” “projects,” “continues,” “intends,” “likely,” “plans” and similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance or achievements to differ materially from those expressed or implied by such forward-looking statements, including those set forth in the Annual Report on Form 10-K for the fiscal year ended January 28, 2012 and elsewhere in this Quarterly Report on Form 10-Q. The reader should carefully consider, together with the other matters referred to herein, the risk factors set forth in Part II, Item 1A, “Risk Factors”, of this Quarterly Report on Form 10-Q and Part I, Item 1A, “Risk Factors” of the Annual Report on Form 10-K for the fiscal year ended January 28, 2012, as well as in other documents the Company files with the Securities and Exchange Commission (the “SEC”). The Company may from time to time make additional written and oral forward-looking statements, including statements contained in the Company’s filings with the SEC. The Company does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the Company.

The following discussion and analysis of financial condition, results of operations, liquidity and capital resources should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and notes thereto for the three-month and nine-month periods ended October 29, 2011 and with Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in the Company’s Annual Report on Form 10-K for the year ended January 29, 2011. The results of operations for the three-month and nine-month periods ended October 29, 2011, presented herein, are not indicative of the results to be expected for the full year because of, among other things, seasonal factors in the retail business.

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements reflect the Company’s current beliefs and estimates with respect to future events and the Company’s future financial performance, operations and competitive position, including statements regarding the repayment of our debt, and may be identified, without limitation, by use of the words “may,” “should,” “expects,” “anticipates,” “estimates,” “believes,” “looking ahead,” “forecast,” “projects,” “continues,” “intends,” “likely,” “plans” and similar expressions. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance or achievements to differ materially from those expressed or implied by such forward-looking statements, including those set forth in the Annual Report on Form 10-K for the fiscal year ended January 29, 2011 and elsewhere in this Quarterly Report on Form 10-Q. The reader should carefully consider, together with the other matters referred to herein, the risk factors set forth in the Annual Report on Form 10-K for the fiscal year ended January 29, 2011, which are incorporated by reference herein, as well as in other documents the Company files with the Securities and Exchange Commission (the “SEC”). The Company may from time to time make additional written and oral forward-looking statements, including statements contained in the Company’s filings with the SEC. The Company does not undertake to update any forward-looking statement that may be made from time to time by or on behalf of the Company.

Overview

Cost Plus, Inc. and its subsidiaries (“Cost Plus World Market” or “the Company”) is a leading specialty retailer of casual home furnishings and entertaining products. The stores feature an ever-changing selection of casual home furnishings, housewares, gifts, decorative accessories, gourmet foods and beverages offered at competitive prices and imported from more than 50 countries. Many items are unique and exclusive to Cost Plus World Market. The value, breadth and continual refreshment of products ~~invite~~invites customers to come back throughout a lifetime of changing home furnishings and entertaining needs.

The Company ~~reported~~had net income from continuing operations of $129,000 in the first quarter of fiscal 2012 compared to a net loss from continuing operations of $83.60 million in the ~~third~~first quarter of fiscal 2011. This is the first time the Company has achieved net income from continuing operations during the first quarter since fiscal 2004. The Company reported a net loss of $74,000 in the first quarter of fiscal 2012, or $0.3900 per diluted share, compared to a net loss of $8.3.4 million, or $0.3815 per diluted share, for the ~~third~~first quarter of ~~last~~fiscal ~~year~~2011. The ~~increase~~decrease in the net loss ~~for the quarter~~ was primarily due to a $25.92 million increase in gross profit as well as tightly controlled selling, general and administrative (SG&A) expenses,. ~~offset~~Gross byprofit arate $2was 32.40% ~~million~~for ~~increase~~the infirst ~~gross~~quarter ~~profit~~of fiscal 2012 versus 31.7% for the first quarter of fiscal 2011. The ~~increase~~30 inbasis ~~selling,~~point ~~general~~increase ~~and administrative~~in ~~expenses~~gross isprofit ~~largely~~rate was primarily due to ~~higher~~the ~~store~~leveraging ~~payroll~~of occupancy costs ~~primarily~~on ~~related~~higher tosales, ~~store~~offset by a slightly lower merchandise ~~resets~~margin. Additionally, ~~which~~as ~~did~~a ~~not~~percentage ~~occur~~of ~~last~~net ~~year~~sales, asSG&A ~~well~~expenses asfor ~~higher~~the ~~advertising~~first ~~expenses.~~quarter ~~The~~of ~~increase~~fiscal in2012 ~~gross~~decreased ~~profit~~120 isbasis ~~due~~points to a30.4% versus 331.76% ~~increase~~for inthe ~~net sales,~~first ~~offset~~quarter byof ~~higher~~fiscal ~~costs~~2011. ofThe ~~sales~~decrease ~~due~~in toSG&A expenses as a ~~shift~~percentage inof ~~the~~net ~~mix~~sales ~~within~~for the ~~home~~quarter ~~division~~was ~~for~~primarily ~~the~~due ~~quarter~~to increased leverage from higher sales.

In the ~~third~~first quarter of fiscal ~~2011~~ 2012, the Company ~~relocated~~opened one new store and closed none to end the quarter with ~~258~~259 stores in 30 states.

Recent Development

Results of Operations

The three months ended April 28, 2012 as compared to the three months ended April 30, 2011

Net Sales Net sales consist almost entirely of retail sales, but also include direct-to-consumer sales, shipping revenue and other miscellaneous revenue. Net sales increased $14.9 million, or 7.4%, to $214.6 million for the first quarter of fiscal 2012 from $199.7 million for the first quarter of fiscal 2011. Same store sales for the first quarter of fiscal 2012 increased 7.9% on top of a 5.5% increase for the first quarter of last year. The increase in same store sales for the first quarter was attributable to an increase in the average ticket per customer of 5.0% and an increase in customer count of 2.7%. As of April 28, 2012, the calculation of comparable store sales included a base of 258 stores. A store is included as comparable at the beginning of the fourteenth full fiscal month of sales with the exception of relocated stores, which remain comparable upon opening. At the end of both the first quarter of fiscal 2012 and the first quarter of fiscal 2011, the Company operated 259 stores in 30 states.

~~Results~~The Company classifies its sales into home and consumables product lines. For the first quarter of ~~Operations~~fiscal 2012, home accounted for 62% of total sales versus 60% for the first quarter of last year, and consumables accounted for 38% of total sales versus 40% for the first quarter of last year.

~~The~~Cost ~~three~~of Sales and ~~nine~~Occupancy ~~months~~Cost ~~ended~~of ~~October 29~~sales and occupancy, ~~2011~~which consists of the cost of inventory sold during the period, costs to acquire merchandise inventory, costs of freight and distribution, as well as certain facilities costs, increased $9.6 million, or 7.1%, to $145.9 million in the first quarter of fiscal 2012 as compared to the ~~three~~first quarter of last year. As a percentage of net sales, total cost of sales and ~~nine~~occupancy ~~months~~decreased ~~ended~~30 basis ~~October~~ points to 68.0% in the first quarter of fiscal 2012 compared to 68.3% in the first quarter of fiscal 2011. The 30 basis point decrease was primarily due to the leveraging of occupancy costs on higher sales, ~~2010~~offset by a slightly lower merchandise margin.

~~Net Sales Net sales consists almost entirely of retail sales~~Selling, ~~but~~General ~~also includes direct-to-consumer sales~~ and ~~shipping~~Administrative ~~revenue.~~(“SG&A”) ~~Net~~Expenses ~~sales~~SG&A ~~increased~~expenses ~~$7.3 million, or 3.7%, to $201.9 million~~ for the ~~third~~ ~~quarter~~first ~~of fiscal 2011 from $194.6 million for the third~~ quarter of fiscal ~~2010.~~2012 ~~Year-to-date, net sales~~ were $~~599~~65.53 million, ~~a 4.3% increase~~ compared to $~~575~~63.01 million for the ~~same~~first ~~period~~quarter last year. ~~Comparable~~As ~~store~~a ~~sales~~percentage ~~increased~~of ~~4.0%~~net ~~in the~~sales, ~~third~~SG&A ~~quarter~~expenses ofdecreased ~~fiscal~~120 ~~2011,~~basis ~~compared~~points to ~~an increase of 8~~30.84% infor the ~~third~~first quarter of fiscal ~~2010.~~2012 ~~Year-to-date,~~from ~~comparable store sales increased 4~~31.~~1% compared to an increase of~~ 6.9% for the ~~same~~first ~~period~~quarter last year. The ~~increase~~decrease in same store sales for the third quarter was attributable to an increase in the average ticket per customer of 2.7% and an increase in customer count of 1.2%. As of October 29, 2011, the calculation of comparable store sales included a base of 257 stores. SG&A ~~store~~ isexpenses ~~included~~ as ~~comparable~~a atpercentage ~~the beginning~~ of ~~the~~net ~~fourteenth full fiscal month of~~ sales ~~with~~is ~~the~~primarily ~~exception~~due ofto ~~relocated~~increased ~~stores,~~leverage ~~which~~from ~~remain~~higher ~~comparable upon opening~~sales. ~~At the end of the third quarter of fiscal 2011, the Company operated 258 stores in 30 states versus 263 stores in 30 states at the end of the third quarter of fiscal 2010.~~

~~The~~Net interest ~~Company~~expense ~~classifies~~Net ~~its~~interest ~~sales~~expense, ~~into~~which ~~home~~ includes debt, interest on capital leases and ~~consumables~~distribution ~~product~~center ~~lines~~sale-leaseback obligations, was $3.0 ~~For~~million for the ~~third~~first quarter of fiscal ~~2011,~~2012 ~~home~~compared ~~accounted~~to $3.1 million for ~~63%~~the first quarter of fiscal ~~total~~2011. ~~sales~~Included ~~versus~~in ~~62%~~net ~~for~~interest ~~the~~expense ~~third~~is ~~quarter~~interest ofrelated ~~last~~to ~~year,~~the ~~and~~distribution ~~consumables~~center ~~accounted~~sale-leaseback obligations of $2.2 million for ~~37%~~the first quarter of ~~total~~fiscal ~~sales~~2012 ~~versus~~and ~~38%~~$2.1 million for the ~~third~~first quarter of ~~last~~fiscal ~~year~~2011.

~~Cost~~Income ofTaxes ~~Sales~~The ~~and~~Company’s ~~Occupancy~~effective ~~Cost~~tax ofrate ~~sales~~from ~~and~~continuing ~~occupancy,~~operations ~~which~~was ~~consists~~a ofprovision ~~costs to acquire merchandise inventory and costs~~ of ~~freight and distribution, as well as certain facilities costs, increased $4~~22.~~9 million, or 3.7~~0%, tobefore ~~$139.7~~discrete ~~million~~items, in the ~~third~~ first quarter of fiscal ~~2011~~2012 as compared to ~~the~~a ~~third~~benefit ~~quarter~~ of ~~last year~~4.0%, Asbefore adiscrete ~~percentage of net sales~~items, ~~total cost of sales and occupancy decreased 10 basis points to 69.2%~~ in the ~~third~~first quarter of fiscal 2011 ~~compared to 69~~.3% ~~in the third quarter of fiscal 2010.~~ The 10effective ~~basis~~tax ~~point~~rate ~~decrease~~increase inis ~~cost of sales and occupancy as a percentage of net sales was primarily~~ due to ~~lower~~ ~~occupancy~~an ~~costs offset by a higher cost of sales. The~~ increase in ~~cost~~federal ~~of sales as a percentage of net sales for the third quarter was primarily due to a shift within the home division towards higher dollar~~ and ~~lower~~state ~~merchandise~~expense ~~margin furniture~~as ~~compared to last year. Year-to-date, total costs of sales and occupancy were $415.0 million and increased $18.0 million, or 4.5%, compared to the same period in fiscal 2010. As~~ a ~~percentage~~result of ~~net sales, total cost of sales and occupancy for the year-to-date period~~ increased 20operating ~~basis points to 69~~income.~~2% from 69.0% last year.~~

~~Selling,~~Liquidity ~~General~~ and ~~Administrative (“SG&A”)~~Capital ~~Expenses~~Resources SG&A expenses for the third quarter of fiscal 2011 were $67.3 million compared to $64.4 million for the third quarter last year. As a percentage of net sales, SG&A expenses increased 20 basis points to 33.3% for the third quarter of fiscal 2011 from 33.1% for the third quarter last year. The increase in SG&A expenses as a percentage of net sales is largely due to higher store payroll costs primarily related to store merchandise resets, which did not occur last year, as well as higher advertising expenses. The Company expects to end the year with total advertising expense flat year-over-year. Year-to-date, as a percentage of net sales, SG&A expenses decreased 70 basis points to 32.5% from 33.2% for the same period last year primarily due to increased leverage from higher sales.

The Company’s cash and cash equivalents balance was $2.5 million at April 28, 2012 and $3.4 million at April 30, 2011. The Company met its short-term liquidity needs and its capital requirements for the three-month period ended April 28, 2012 with existing cash and cash provided from financing activities.

Prior to achieving net income in fiscal 2011 and fiscal 2010, the Company incurred net losses in each annual period since fiscal 2006. As of April 28, 2012, the Company had an accumulated deficit of $78.2 million. For fiscal 2009, the Company did not generate positive cash flows from operating activities. There can be no assurance that the Company’s business will continue to be profitable or will generate sufficient cash to fund operations in the future or that additional losses and negative cash flows from operations will not be incurred, particularly on a quarterly basis, which could have a material adverse effect on its financial condition. The Company is dependent upon its asset-based credit facility to fund operations and seasonal inventory purchases throughout the year. Access to its asset-based credit facility is dependent upon meeting its debt covenants and not exceeding the borrowing limit of the asset-based credit facility. There can be no assurance that the Company will achieve or sustain positive cash flows, particularly on a quarterly basis, from operations or profitability. If the Company is unable to maintain adequate liquidity, it could have a material adverse affect on its financial condition and future operations may need to be scaled back or discontinued. However, based on its current business plan and revenue projections, the Company believes that its existing cash balance, its anticipated cash flows from operations and its available asset-based credit facility will be sufficient to meet our working capital and operating resource expenditure requirements for the next 12 months and the foreseeable future.

Cash Flows From Operating Activities Net cash used in operating activities totaled $24.0 million during the first quarter of fiscal 2012 compared to $14.0 million in the same period last year, an increase of $10.0 million. The $10.0 million increase in net cash used in operating activities is primarily due to the change in accounts payable from year end compared with the same period last year due to the timing of inventory receipts and payments.

Cash Flows From Investing Activities Net cash used in investing activities totaled $2.4 million during the first quarter of fiscal 2012 compared to $0.6 million for the same period last year. For the first quarter of fiscal 2012, there were planned increases in spending related to store projects, information systems and visual merchandise compared to the same period of fiscal 2011.

~~Store Closure Costs/(Income)~~ The Company ~~had~~estimates ~~store~~that ~~closure costs of $0.2 million from continuing operations for the third quarter of~~ fiscal ~~2011~~2012 ~~compared~~capital toexpenditures ~~$43,000~~will ~~for~~be ~~the~~approximately ~~third quarter of fiscal 2010. Year-to-date, the Company had store closure income from continuing operations of~~ $018.25 million; ~~compared~~including approximately ~~to costs of~~ $210.7 9 million for ~~the~~management ~~same period~~information ~~last~~systems ~~year.~~and ~~The~~distribution ~~store~~center ~~closure~~projects income for the year-to-date period was due to a payment received in the second quarter of fiscal 2011 from a landlord as the result of a successful early lease termination, partially offset by the costs of closing the store and ~~other lease exit cost adjustments~~$7.6 ~~Year-to-date,~~million ~~the~~for ~~Company~~investments ~~closed~~in ~~five~~new ~~stores~~ and ~~relocated~~existing ~~one store, as compared to closing six~~ stores and ~~relocating~~various ~~one~~other ~~store~~corporate ~~during the same period of fiscal 2010~~projects. All of the stores closed during the year-to-date period of fiscal 2011 and five of the six stores closed during the same period of fiscal 2010 are included in continuing operations. For the year-to-date period of fiscal 2011, the decrease in store closure costs compared to last year is due to the fact that four of the five continuing operations store closures had no lease exit costs because their leases had expired compared to only two of the five continuing operations store closures last year.

~~Net~~Cash ~~interest~~Flows ~~expense~~From ~~Net~~Financing ~~interest~~Activities ~~expense,~~Net ~~which~~cash ~~includes~~provided ~~interest~~by onfinancing ~~capital~~activities ~~leases and debt, net of interest earned on investments,~~ was $323.3 1 million ~~for~~during the ~~third~~first quarter of fiscal ~~2011~~2012 compared to $215.83 million for the ~~third~~same ~~quarter~~period oflast ~~fiscal 2010~~year. ~~Included~~Borrowings, in net ~~interest~~of ~~expense~~payments, isunder ~~interest related to~~ the ~~distribution~~Company’s ~~center sale~~asset-~~leaseback~~based ~~obligations~~credit offacility were $222.18 million for the ~~third quarter~~three-month ofperiod ~~both~~ended ~~fiscal 2011 and fiscal 2010. Year-to-date~~April 28, ~~net~~2012 ~~interest expense was $9.6 million~~ compared to $815.26 million for the same period last year. ~~The~~Additionally, ~~increase~~proceeds infrom ~~net~~the ~~interest~~issuance ~~expense~~of ~~for~~common ~~the~~stock ~~quarter~~were ~~and~~$0.8 ~~year-to-date~~million ~~periods~~for ~~was~~the ~~primarily~~three-month ~~due to~~period aof ~~higher~~fiscal ~~weighted-average~~2012 ~~interest~~compared ~~rate~~to on$0.2 million during the ~~Company’s~~same ~~asset-based~~period ~~credit~~last ~~facility~~year.

~~Income~~Revolving ~~Taxes~~Line of Credit The Company~~’s effective~~ ~~tax~~has ~~rate~~a ~~from~~secured ~~continuing~~five-year ~~operations~~credit ~~was~~agreement with a ~~benefit~~group of 5banks and Bank of America, N.0%A. as the administrative agent, ~~before~~collateral ~~discrete~~agent, ~~items~~swing line lender, inand letter of credit issuer (the ~~third~~“Credit ~~quarter~~Agreement”). ofThe ~~fiscal~~Credit ~~2011~~Agreement ~~compared~~allows tofor cash borrowings under a ~~provision~~revolving loan and letters of credit under a secured asset-based credit facility of up to $190.0 million as well as a $10.~~9%,~~0 ~~before~~million term ~~discrete~~loan ~~items,~~which was drawn on the effective date. The Company has paid off the term loan in full. The amount available for borrowing at any time is limited by a stated percentage of the ~~third~~aggregate ~~quarter~~amount of ~~fiscal~~the ~~2010~~liquidated ~~primarily~~value ~~related~~of eligible inventory and the face amount of eligible credit card receivables. The Credit Agreement includes three options to ~~state~~increase the size of the asset-based credit facility by up to $50.0 million in the aggregate. All borrowings and letters of credit under the ~~income~~Credit ~~taxes~~Agreement are collateralized by all assets presently owned or hereafter-acquired by the Company. NoInterest ~~provision~~is paid in arrears monthly, quarterly, or ~~benefit~~over ~~was~~the ~~recorded~~applicable interest period as selected by the Company in the ~~third~~Revolving ~~quarter~~Loan Notice, with the entire balance payable on January 3, 2016. Borrowings pursuant to the asset-based credit facility bear interest, at the Company’s election, at a rate equal to either (i) the higher of ~~fiscal~~Bank ~~2010~~of ~~for~~America’s prime rate or the federal ~~income~~funds ~~taxes~~effective ~~due~~rate toplus an applicable margin; or (ii) the ~~recent~~LIBOR ~~net~~rate ~~operating~~plus ~~losses~~an ~~incurred~~applicable margin. The applicable margin is based on the Company’s ~~business~~Average isDaily ~~highly~~Availability ~~seasonal,~~(as ~~reflecting~~defined in the ~~general~~Credit ~~pattern~~Agreement). In addition, the ~~associated~~Company ~~with~~pays a commitment fee on the ~~retail~~unused ~~industry~~portion of ~~peak~~the ~~sales~~amount ~~and~~available ~~earnings~~for ~~during~~borrowing ~~the~~as ~~fourth~~described ~~quarter~~in ~~holiday~~the ~~selling~~Credit ~~season~~Agreement. The ~~Company~~Credit ~~expects~~Agreement includes limitations on the ability of the Company to, ~~have~~among ~~positive~~other ~~net~~things, ~~income~~incur ~~for~~debt, ~~fiscal~~grant ~~year~~liens, make ~~2011~~investments, ~~but~~enter ~~due~~into tomergers ~~the~~and ~~seasonality~~acquisitions, ofpay dividends, change its business, itenter ~~had~~into ~~losses~~transactions ~~for~~with affiliates, and dispose of assets. The events of default under the Credit Agreement include, among others, payment defaults, ~~first~~cross ~~three~~defaults ~~quarters~~with certain other indebtedness, breaches of ~~the~~covenants, ~~year~~loss ~~which~~of ~~resulted~~collateral, judgments, changes in ~~recording~~control, aand ~~tax~~bankruptcy ~~benefit~~events. ~~for~~In ~~each~~the event of ~~those~~a ~~quarters~~default, the Credit Agreement requires the Company to pay incremental interest at the rate of 2.0% ~~Last~~and ~~year~~the lenders may, among other remedies, foreclose on the ~~Company~~security (which could ~~not~~include ~~support~~the ~~net~~sale ~~income~~of ~~for~~ the ~~year~~Company’s ~~due~~inventory), eliminate their commitments to ~~its~~make ~~recent~~credit ~~history~~available, ofdeclare ~~recurring~~due ~~losses~~all unpaid principal amounts outstanding, and ~~therefore~~require ~~did~~cash ~~not~~collateral ~~recognize tax~~for ~~benefits~~any onletter ~~its~~of ~~quarterly~~credit ~~losses~~obligations. ~~through~~In addition, in the ~~third~~event ~~quarter~~of ~~because~~a itdefault ~~did~~or if the Company’s Availability (as defined in the Credit Agreement) is not ~~expect~~equal to ~~have~~the ~~enough~~greater ~~net~~of ~~income~~either to$20.0 ~~offset~~million or 15% of the ~~year~~loan cap under the asset-based credit facility, the Company will be subject to~~-date~~ ~~benefit~~additional ~~that~~restrictions, ~~would~~including ~~have~~specific ~~been~~restrictions ~~recorded~~with respect to its cash management procedures.

~~Liquidity~~The Company uses the borrowings under the Credit Agreement for working capital, issuance of commercial and ~~Capital~~standby ~~Resources~~letters of credit, capital expenditures, and other general corporate purposes. As of April 28, 2012, the Company was in compliance with its loan covenant requirements, had $22.8 million in borrowings and $6.9 million in issued and outstanding letters of credit, and had remaining credit available under the Credit Agreement of $113.8 million. Based on current projections, the Company expects to be in compliance with its loan covenant requirements throughout fiscal 2012. The Company’s business is highly seasonal, reflecting the general pattern associated with the retail industry of peak sales and earnings during the fourth quarter holiday season, therefore borrowings under the line of credit often peak during the beginning of the fourth quarter.

~~The~~Summary ~~Company’s~~Disclosure ~~cash~~about ~~and~~Contractual ~~cash~~Obligations ~~equivalents balance was $2.9 million at October 29, 2011~~ and ~~$3.0~~Commercial ~~million~~Commitments at October 30, 2010. The Company met its short-term liquidity needs and its capital requirements for the nine-month period ended October 29, 2011 with existing cash and cash provided from financing activities.

~~Prior~~The ~~to achieving net income in fiscal 2010, the~~ Company ~~incurred~~does net losses in each annual period since fiscal 2006. As of October 29, 2011, the Company had an accumulated deficit of $114.6 million. For the nine months ended October 29, 2011, and for fiscal 2009 and fiscal 2008, the Company did not ~~generate~~believe ~~positive~~there ~~cash~~were ~~flows~~any ~~from~~significant ~~operating activities.~~changes ~~The Company is dependent upon its asset-based credit facility~~ to ~~fund operations and seasonal inventory purchases throughout the year. Access to~~ its ~~asset-based~~contractual ~~credit~~obligations ~~facility~~that iswere ~~dependent upon meeting its debt covenants and~~ not ~~exceeding~~ ~~the~~in ~~borrowing limit~~ of the ~~asset-based~~ordinary ~~credit~~course ~~facility.~~of ~~There~~business, ~~can be no assurance that the Company will achieve or sustain positive cash flows~~ from ~~operations~~those orreported ~~profitability. If the Company is unable to maintain adequate liquidity, it could have a material adverse affect~~ on its ~~financial~~Annual ~~condition~~Report ~~and future operations may need to be scaled back or discontinued. However, based~~ on ~~the~~Form ~~Company’s current business plan and revenue projections, the Company believes that its existing cash balance, its anticipated cash flows from operations and its available asset~~10-~~based credit facility will be sufficient to meet its working capital and operating resource expenditure requirements~~ K for the ~~next~~fiscal 12year ~~months~~ended ~~and~~January 28, ~~the foreseeable future~~2012.

~~Cash~~Merger ~~Flows~~Agreement ~~From~~with ~~Operating~~Bed ~~Activities~~Bath & ~~Net cash used in operating activities totaled $43.8 million year-to-date compared to $46.3 million in the same period last year~~Beyond, ~~a decrease of $2~~Inc.5 million. The $2.5 million decrease in net cash used in operating activities is largely due to the $5.6 million year-over-year improvement in net loss as well as other working capital improvements, offset by the $13.0 million tax refund that was received in the first quarter of fiscal 2010 that was not repeated in the first quarter of fiscal 2011.

On May 8, 2012, the Company entered into the Merger Agreement. The Merger Agreement contains certain termination rights for both the Company and Parent and provides that in certain specified circumstances, the Company must pay Parent a termination fee of $16.25 million (including in the event the Company enters into an agreement with respect to a superior proposal). In addition, under specified circumstances, the Company has agreed to reimburse Parent for its actual and reasonable out-of-pocket expenses not to exceed $1.5 million.

Cash Flows From Investing Activities Net cash used in investing activities totaled $6.8 million year-to-date compared to $3.4 million for the same period last year. For the year-to-date period of fiscal 2011, there were increases in spending related to store projects, information systems and visual merchandise compared to the same period of fiscal 2010.

The Company estimates that fiscal 2011 capital expenditures will be approximately $10.0 million; including approximately $4.6 million for management information systems and distribution center projects and $5.4 million for investments in existing stores and various other corporate projects.

Cash Flows From Financing Activities Net cash provided by financing activities was $50.8 million year-to-date compared to $50.0 million for the same period last year. Borrowings, net of payments, under the Company’s asset-based credit facility were $51.6 million for the nine-month period ended October 29, 2011 compared to $51.3 million for the same period last year. Additionally, proceeds from the issuance of common stock were $0.5 million for the nine-month period of fiscal 2011 compared to no proceeds during the same period last year.

Revolving Line of Credit On January 3, 2011, the Company entered into a secured five-year credit agreement with a group of banks and Bank of America, N.A. as the administrative agent, collateral agent, swing line lender, and letter of credit issuer (the “Credit Agreement”). The Credit Agreement amended and extended the previous $200.0 million Credit Agreement dated as of June 25, 2007 which was due to expire on June 25, 2012. The Credit Agreement allows for cash borrowings under a revolving loan and letters of credit under a secured asset-based credit facility of up to $190.0 million as well as a $10.0 million term loan, which was drawn on the effective date. The amount available for borrowing at any time is limited by a stated percentage of the aggregate amount of the liquidated value of eligible inventory and the face amount of eligible credit card receivables. The Credit Agreement includes three options to increase the size of the asset-based credit facility by up to $50.0 million in the aggregate. All borrowings and letters of credit under the Credit Agreement are collateralized by all assets presently owned or hereafter-acquired by the Company. Interest is paid in arrears monthly, quarterly, or over the applicable interest period as selected by the Company in the Revolving Loan Notice, with the entire balance payable on January 3, 2016. Borrowings pursuant to the asset-based credit facility bear interest, at the Company’s election, at a rate equal to either (i) the higher of Bank of America’s prime rate or the federal funds effective rate plus an applicable margin; or (ii) the LIBOR rate plus an applicable margin. The applicable margin is based on the Company’s Average Daily Availability (as defined in the Credit Agreement). In addition, the Company pays a commitment fee on the unused portion of the amount available for borrowing as described in the Credit Agreement. The Credit Agreement includes limitations on the ability of the Company to, among other things, incur debt, grant liens, make investments, enter into mergers and acquisitions, pay dividends, change its business, enter into transactions with affiliates, and dispose of assets. The events of default under the Credit Agreement include, among others, payment defaults, cross defaults with certain other indebtedness, breaches of covenants, loss of collateral, judgments, changes in control, and bankruptcy events. In the event of a default, the Credit Agreement requires the Company to pay incremental interest at the rate of 2.0% and the lenders may, among other remedies, foreclose on the security (which could include the sale of the Company’s inventory), eliminate their commitments to make credit available, declare due all unpaid principal amounts outstanding, and require cash collateral for any letter of credit obligations. In addition, in the event of a default or if the Company’s Availability (as defined in the Credit Agreement) is not equal to the greater of either $20.0 million or 15% of the loan cap under the asset-based credit facility, the Company will be subject to additional restrictions, including specific restrictions with respect to its cash management procedures.

The Company uses the borrowings under the Credit Agreement for working capital, issuance of commercial and standby letters of credit, capital expenditures, and other general corporate purposes. As of October 29, 2011, the Company was in compliance with its loan covenant requirements, had $77.0 million in borrowings (including the $10.0 million term loan) and $7.3 million in issued and outstanding letters of credit, and had remaining credit available under the Credit Agreement of $115.7 million. Based on current projections, the Company expects to be in compliance with its loan covenant requirements throughout fiscal 2011. The Company’s business is highly seasonal, reflecting the general pattern associated with the retail industry of peak sales and earnings during the fourth quarter holiday season, therefore borrowings under the line of credit often peak early in the fourth quarter of each fiscal year. The Company expects to pay off its asset-based credit facility in its entirety before the end of the fiscal year.

Summary Disclosure about Contractual Obligations and Commercial Commitments

The Company does not believe there were any significant changes to its contractual obligations that were not in of the ordinary course of business, from those reported on its Annual Report on Form 10-K for the fiscal year ended January 29, 2011.

Off Balance Sheet Arrangements

Other than operating leases and letters of credit, the Company has no financial arrangements involving special-purpose entities or lease agreements, commonly described as synthetic leases, or any off-balance sheet arrangements that have a material current effect, or that are reasonably likely to have a material future effect, on the Company’s financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies

The Company’s condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Preparation of these statements requires management to make judgments and estimates. Some accounting policies have a significant impact on amounts reported in these financial statements. A summary of significant accounting policies and a description of accounting policies that are considered critical may be found in our Annual Report on Form 10-K for the fiscal year ended January 2928, ~~2011~~2012, in the Notes to the Consolidated Financial Statements (Note 1) and the Critical Accounting Policies and ~~Estimates~~ Estimates section in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Seasonality

The Company’s business is highly seasonal, reflecting the general pattern associated with the retail industry of peak sales and earnings during the fourth quarter holiday selling season. Due to the importance of the holiday selling season, the fourth quarter of each fiscal year has historically contributed, and the Company expects it will continue to contribute, a disproportionate percentage of its net sales and most of its net income, if any, for the entire fiscal year. The Company believes this is the general pattern associated with the retail industry.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to the Company’s market risk from those disclosed in the Company’s Form 10-K filed for the fiscal year ended January 2928, ~~2011~~2012.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s management evaluated, with the participation of its principal executive officer and its principal financial officer, the effectiveness of its disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. The Company maintains disclosure controls and procedures that are designed to ensure that the information disclosed in the reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

As of ~~October~~April 2928, ~~2011~~2012, the Company’s management, including its principal executive officer and principal financial officer, concluded that its disclosure controls and procedures are effective. This conclusion is based on management’s evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures.

Changes in Internal Control Over Financial Reporting

There was no change in the Company’s internal control over financial reporting that occurred during the quarter ended ~~October~~ April 2928, ~~2011~~2012 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

1514

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Except as set forth below, the Company is not a party to any pending legal proceeding other than claims and litigation that arise in the ordinary course of business. Based on currently available information, management does not believe that the ultimate outcome of any unresolved matters, individually or in the aggregate, is likely to have a material adverse effect on the Company’s financial position or results of operations. However, litigation is subject to inherent uncertainties, and management’s view of these matters may change in the future. Were an unfavorable outcome to occur, there exists the possibility of a material adverse impact on the Company’s financial position and results of operations for the period in which the unfavorable outcome occurs, which may extend into future periods.

On May 11, 2012, and May 22, 2012, alleged shareholders of the Company filed putative class actions captioned Gary Ogurkiewicz v. Cost Plus, Inc., et al., Case No. RG 12-629912, and Willie M. Richardson v. Cost Plus, Inc., et al., Case No. RG 12-631301, in the Superior Court of the State of California, County of Alameda. The defendants are the Company, members of the Company’s board of directors, Purchaser and BBBY. The complaints allege that the individual defendants violated California law by breaching their fiduciary duties to the Company’s shareholders in connection with the Merger Agreement and the transaction contemplated thereby. Specifically, the complaints allege, among other things, that the proposed Merger arises out of a flawed process which resulted in an unfair price for the Company’s shares and a failure to maximize stockholder value. The complaints also allege that the process will deter other purported interested parties from launching a competing offer. The suits further allege that Purchaser and BBBY aided and abetted the individual defendants’ breaches of fiduciary duties. In addition, the Ogurkiewicz action alleges that the Company aided and abetted the individual defendants’ breaches of fiduciary duties. The plaintiffs seek, among other things, an order declaring the Merger Agreement unenforceable, enjoining defendants from consummating the proposed Merger, rescinding the proposed Merger if it is consummated, awarding damages, and awarding attorneys’ fees and costs.

On May 25, 2012, an alleged shareholder of the Company filed a putative class action captioned Irene Dixon v. Cost Plus, Inc., Case No. 12-2721, in the United States District Court for the Northern District of California. The defendants are the Company, members of the Company’s board of directors, the Merger Sub and the Parent. The complaint alleges that the Company and the individual defendants violated provisions of the Securities Exchange Act of 1934, including the Williams Act, by omitting material facts from the Schedule 14D-9 Solicitation/Recommendation Statement the Company filed with the SEC on May 25, 2012, in connection with the proposed Merger. In addition, the complaint alleges that the individual defendants violated California law by breaching their fiduciary duties to the Company’s shareholders in connection with the Merger Agreement and the transaction contemplated thereby. Specifically, the complaint alleges, among other things, that the proposed Merger arises out of a flawed process which resulted in an unfair price for the Company’s shares and a failure to maximize stockholder value. The complaint also alleges that the process will deter other purported interested parties from launching a competing offer. The suit further alleges that Purchaser and BBBY aided and abetted the individual defendants’ breaches of fiduciary duties. The plaintiff seeks, among other things, an order enjoining defendants from consummating the proposed Merger, rescinding the proposed Merger if it is consummated, awarding damages, and awarding attorneys’ fees and costs.

ITEM 1A. RISK FACTORS

In addition to the risk factors set forth below in this Part II, Item 1A and the other information set forth in this Quarterly ~~report~~Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended January 2928, ~~2011~~2012, which we hereby incorporate by reference into this Quarterly Report on Form 10-Q, and which could materially affect our business, financial condition or operating results and cause the market price of our stock to decline, perhaps significantly. The risks described below in this Part II, Item 1A and in our Annual Report on Form 10-K are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Risks Related to the Merger Agreement and the Merger

Completion of the Offer and the Merger are subject to various conditions, and there can be no assurances that either the Offer or the Merger will be consummated or consummated on the timing anticipated.

The obligation of Purchaser to purchase shares tendered in the Offer is subject to the satisfaction or waiver of a number of conditions set forth in the Merger Agreement, including, among other things: the tender of a sufficient amount of shares of the Company’s common stock to satisfy the minimum tender condition; the expiration or termination of any applicable waiting period (or any extension thereof) to the purchase of the shares under the HSR Act; and there not being any temporary restraining order, preliminary or permanent injunction or other judgment, order or decree issued by any court or agency of competent jurisdiction prohibiting the consummation of the Merger or the Offer, or any law enacted prohibiting or making illegal the consummation of any of the transactions contemplated by the Merger Agreement, in each case, that remains in effect.

In addition, the Merger is subject to certain closing conditions, including, among others, that the affirmative vote of holders of a majority in voting power of the outstanding shares, voting together as a single class at a shareholders’ meeting or any adjournment or postponement thereof, to adopt the Merger Agreement and approve the Merger has been obtained, if required by applicable law.

We cannot predict whether the closing conditions for the Offer and the Merger set forth in the Merger Agreement will be satisfied. As a result, we cannot assure you that the Offer or the Merger contemplated by the Merger Agreement will be completed.

If a sufficient number of shares are not tendered pursuant to the Offer or the Company does not receive sufficient votes from its shareholders to adopt the Merger Agreement and approve the Merger, the Merger may not be completed and our business could be impaired.

If BBBY together with Purchaser and any of their respective affiliates, acquires more than 90% of our outstanding shares (including through the exercise of the Top-Up (as defined in the Merger Agreement)), the proposed Merger can be effected as a “short form merger” under California law. Based upon the number of outstanding shares of the Company’s common stock as of May 25, 2012, the Top-Up would permit Parent to close the Offer based upon the current shares outstanding with approximately 72% of the shares being tendered (subject to adjustment in certain circumstances). A short form merger would enable BBBY to complete the acquisition of us without any further action on the part of the other holders of our shares.

The Merger Agreement provides that the Merger may be consummated regardless of whether the Offer is completed, but if the Offer is not completed, the Merger will only be able to be consummated after the shareholders of the Company holding a majority in voting power of the outstanding shares have adopted the Merger Agreement and approved the Merger at a meeting of shareholders, which would delay the completion of the Merger and could create uncertainty for us and our business could be adversely affected. If the Offer is not completed and the Company does not receive sufficient votes from its shareholders to adopt the Merger Agreement and approve the Merger, then the Merger may not be completed.

In the event that the Merger is not consummated, we will be subject to significant costs, including legal, accounting and advisory fees related to the Merger, which must be paid even if the Merger is not completed. If the Merger is not consummated, the market price of our common stock may decline to the extent that the current market price of our common stock reflects a positive market assumption that the Merger will be completed. In addition, if the Merger is not completed, we may fail to retain key employees who have sought and obtained different employment in anticipation of the Merger being completed.

We are involved in litigation relating to the Merger Agreement that could divert management’s attention and harm our business.

We and the individual members of our board of directors have been named as defendants in a number of lawsuits related to the Merger Agreement and the proposed Merger. These suits generally allege, among other things, that the directors breached their fiduciary duties owed to our shareholders by approving the proposed Merger for inadequate consideration, entering into the Merger Agreement containing preclusive deal protection devices, and failing to take steps to maximize the value to be paid to our shareholders. Although we believe that these suits are without merit, the defense of these suits may be expensive and may divert management’s attention and resources, which could adversely affect our business.

ITEM 6. EXHIBITS

The following Exhibits have been filed with, or incorporated by reference into, this Report:

(a)

Exhibits

2.1		Agreement and Plan of Merger, dated May 8, 2012, incorporated by reference to Exhibit 2.1 of Current Report on Form 8-K filed on May 20, 2012.
10.1*		2012 Management Incentive Plan (filed herewith).
31.1		Certification of the Chief Executive Officer of the Registration pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Chief Financial Officer of the Registration pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of the Chief Executive Officer and Chief Financial Officer of the Registration pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS†		XBRL Instance Document
101.SCH†		XBRL Taxonomy Extension Schema Document
101.CAL†		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB†		XBRL Taxonomy Extension Label Linkbase Document
101.PRE†		XBRL Taxonomy Extension Presentation Linkbase Document

† The financial information contained in these XBRL documents is unaudited and is furnished, not filed with the Securities and Exchange Commission.



32.1		Certification of the Chief Executive Officer and Chief Financial Officer of the Registration pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS†		XBRL Instance Document

101.SCH†		XBRL Taxonomy Extension Schema Document

101.CAL†		XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB†		XBRL Taxonomy Extension Label Linkbase Document

101.PRE†		XBRL Taxonomy Extension Presentation Linkbase Document

†

The financial information contained in these XBRL documents is unaudited and is furnished, not filed with the Securities and Exchange Commission.

Denotes a management contract or compensatory plan or arrangement.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	COST PLUS, INC.
	Registrant
Date: December 7, 2011	By:	/s/ Jane L. Baughman
Date: June 1, 2012	By:	/s/ Jane L. Baughman
		Jane L. Baughman
		Executive Vice President,
		Chief Financial Officer
		(Principal Financial & Accounting Officer)
		(Principal Financial Officer)

1718

INDEX TO EXHIBITS

2.1		Agreement and Plan of Merger, dated May 8, 2012, incorporated by reference to Exhibit 2.1 of Current Report on Form 8-K filed on May 20, 2012.
10.1*		2012 Management Incentive Plan (filed herewith).
31.1		Certification of the Chief Executive Officer of the Registration pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of the Chief Financial Officer of the Registration pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of the Chief Executive Officer and Chief Financial Officer of the Registration pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS†		XBRL Instance Document
101.SCH†		XBRL Taxonomy Extension Schema Document
101.CAL†		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB†		XBRL Taxonomy Extension Label Linkbase Document
101.PRE†		XBRL Taxonomy Extension Presentation Linkbase Document

†

The financial information contained in these XBRL documents is unaudited and is furnished, not filed with the Securities and Exchange Commission.

18* Denotes a management contract or compensatory plan or arrangement.

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Filing Compare · COST PLUS INC/CA/