<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended May 1, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-6672
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 95-2745285
- - ---------------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2430 East Del Amo Boulevard
Dominguez, California 90220-6306
- - ---------------------------------------- ------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (310) 537-9220
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.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Shares Outstanding at May 29, 1994 29,098,675
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MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Amounts in thousands except par value)
<TABLE>
<CAPTION>
May 1, January 30, May 1, January 30,
1994 1994 1994 1994
-------- ----------- -------- ------------
<S> <C> <C> <C> <C>
Assets Liabilities and Stockholders' Equity
Current Assets: Current Liabilities:
Cash and cash equivalents $ 3,670 $ 1,015 Loan payable to bank $ 55,000 $ 34,900
Merchandise inventories 200,991 181,755 Current portion of long-term debt 72 97
Other current assets 14,756 15,114 Accounts payable 19,116 13,444
-------- -------- Accrued expenses 27,055 31,726
Total current assets 219,417 197,884 Income taxes payable 2,962 -
Sales tax payable 5,537 9,394
-------- --------
Total current liabilities 109,742 89,561
Property, Equipment and Improvements: Long-Term Debt 3,964 3,669
Land 26,890 27,109 Deferred Federal and State Income Taxes 7,353 7,353
Buildings and improvements 71,922 71,784
Automobiles and trucks 2,777 2,778 Stockholders' Equity
Furniture, fixtures and equipment 77,376 75,797 Preferred stock, $1 par value;
Leasehold improvements 66,797 64,843 authorized, 500 shares; issued, none
Construction in progress 422 1,137 Common stock, $.02778 par value;
-------- -------- authorized, 100,000 shares;
246,184 243,448 issued 29,748 shares (May 1, 1994)
Less: Accumulated depreciation and 29,727 shares (January 30, 1994) 826 825
and amortization (93,244) (89,628) Additional paid-in capital 1,548 1,319
-------- -------- Retained earnings 261,943 256,033
152,940 153,820 -------- --------
264,317 258,177
Deferred Federal and State Income Less: Treasury stock, at cost,
Tax Asset 1,252 1,252 444 shares (May 1, 1994) and
Deferred Financing Costs 55 shares (January 30, 1994) (6,919) (827)
and Other Assets 4,848 5,177 -------- --------
Total Stockholders' Equity 257,398 257,350
Total Liabilities and
Total Assets $378,457 $358,133 Stockholders' Equity $378,457 $358,133
======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
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MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(Amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
For the three months ended
--------------------------
May 1, 1994 May 2, 1993
----------- -----------
<S> <C> <C>
NET SALES $142,095 $126,697
Cost of sales 75,325 68,133
-------- --------
GROSS PROFIT 66,770 58,564
Store expenses 41,357 35,025
Warehouse and administrative
expenses 14,605 12,413
-------- --------
TOTAL OPERATING EXPENSES 55,962 47,438
OPERATING INCOME 10,808 11,126
Interest expense, net 958 1,314
-------- --------
EARNINGS BEFORE INCOME TAXES 9,850 9,812
INCOME TAX EXPENSE 3,940 3,925
-------- --------
NET EARNINGS $ 5,910 $ 5,887
======== ========
EARNINGS PER COMMON SHARE $0.20 $0.20
AVERAGE SHARES OUTSTANDING 29,726 29,903
======== ========
</TABLE>
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See Notes to Consolidated Financial Statements.
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MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
(Amounts in thousands)
<TABLE>
<CAPTION>
Common Stock Treasury Stock
------------------ Additional -----------------
Paid-in Retained
Shares Amount Capital Earnings Shares Amount Total
------- ------ --------- -------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 30, 1994 29,727 $825 $1,319 $256,033 55 $ (827) $257,350
Exercise of stock options 21 1 210 211
Non-cash compensation
expense 19 19
Purchase of Treasury stock,
at cost 389 (6,092) (6,092)
Net earnings for three months 5,910 5,910
------ ---- ------ -------- --- ------- --------
Balance, May 1, 1994 29,748 $826 $1,548 $261,943 444 $(6,919) $257,398
====== ==== ====== ======== === ======= ========
</TABLE>
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See Notes to Consolidated Financial Statements.
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MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
For the three months ended
--------------------------
May 1, May 2,
1994 1993
------------ ----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
- - ------------------------------------------------
Cash flows from operating activities:
Cash received from customers $ 142,095 $ 126,697
Cash paid to suppliers and employees (150,193) (122,191)
Income taxes paid (51) (14,406)
Interest paid (805) (1,574)
Interest received 26 183
-------- --------
Net cash used in operating activities (8,928) (11,291)
Cash flows from investing activities:
Capital expenditures (3,177) (4,647)
Proceeds from sale of fixed assets 471 2,098
-------- --------
Net cash used in investing activities (2,706) (2,549)
Cash flows from financing activities:
Net borrowings under line of credit agreements 20,100 -
Repurchase of treasury stock (6,092) -
Payment of long-term debt (39) (7,224)
Proceeds from sale of stock options 211 83
Other (net) 109 206
-------- --------
Net cash provided by (used in) financing activities 14,289 (6,935)
-------- --------
Increase (decrease) in cash and cash equivalents 2,655 (20,775)
Cash and cash equivalents, beginning of period 1,015 21,820
-------- --------
Cash and cash equivalents, end of period $ 3,670 $ 1,045
======== ========
</TABLE>
- - ---------------
See Notes to Consolidated Financial Statements.
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MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(continued)
<TABLE>
<CAPTION>
For the three months ended
--------------------------
May 1, May 2,
1994 1993
<S> <C> <C>
Reconciliation of Net Income to Net Cash Used
In Operating Activities:
- - ---------------------------------------------
Net income $ 5,910 $ 5,887
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 3,805 4,076
Gain on sale of fixed assets (219) (1,557)
Non-cash compensation expense 19 19
Changes in assets and liabilities:
Increase in inventory (19,236) (16,231)
Decrease (increase) in other assets 687 (2,708)
(Decrease) increase in accounts payable, accrued
expenses and sales tax payable (2,856) 8,329
Increase (decrease) in federal and state income taxes 2,962 (10,481)
Increase in deferred federal and state income taxes - 1,375
-------- --------
Total adjustments (14,838) (17,178)
-------- --------
Net cash used in operating activities $ (8,928) $(11,291)
======== ========
</TABLE>
- - -----------------
See Notes to Consolidated Financial Statements.
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MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
PART I - ITEM I - FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 The information furnished was prepared internally by the Company and
has not been independently verified. However, it reflects all
adjustments which are, in the opinion of Management, necessary to
present a fair statement of results for the interim period. All
adjustments are of a normal, recurring nature.
Note 2 Earnings per Common Share is based on the weighted average number of
Common shares outstanding, adjusted for dilutive effects of stock
options, if applicable.
Note 3 The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 109, "Accounting for Income Taxes", effective February 1, 1993
with no significant income statement impact. This statement
supersedes APB Opinion No. 11.
The Company's effective tax rate during fiscal 1993 and the
three months ended May 1, 1994 was 39.6% and 40.0%,
respectively. The provision for income tax expense for the
three months ended May 1, 1994 was $3,940,000. For interim
reporting purposes the entire provision for income tax expense
was classified as current.
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. The Company had a net deferred
tax liability of $915,000 at May 1, 1994 and January 30, 1994.
Other current assets on the balance sheet includes $5,186,000
of current deferred assets at May 1, 1994 and January 30, 1994.
Other current assets also includes $927,000 of current refundable
taxes at January 30, 1994.
The Company provided no valuation allowance against its
deferred tax assets recorded as of May 1, 1994 and January 30,
1994.
<PAGE> 8
PART I - ITEM II MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND INTERIM RESULTS OF OPERATIONS
SALES
Sales increased 12.1%, and comparable store sales increased 0.4%, in the first
quarter ended May 1, 1994 as compared to the first quarter ended May 2, 1993.
Five new stores were opened during the quarter bringing the total number of Pic
'N' Save and Mac Frugal's Bargains o Close-outs stores to 242 at May 1, 1994
compared to 211 at May 2, 1993.
California continues to produce negative comparable store sales due to the
ongoing recession. Most other parts of the country generated positive
comparable store sales. Approximately 63% of the current year first quarter
sales for the Company were generated by stores within California.
GROSS PROFIT RATE
The gross profit rate of 47.0% for the first quarter this year increased from
46.2% for the first quarter last year. The increase is due primarily to a
higher markup on goods acquired and shipped to stores in the current quarter as
compared to the same quarter a year ago and a lower reserve for inventory
shortage (shrinkage) this year based on the Company's year-end results. These
increases were partially offset by increased markdowns as a percent of sales
and a lower initial markup on beginning store inventory in the current year.
OPERATING EXPENSE RATES
Operating expenses were 39.4% of sales for the current year first quarter.
Prior year first quarter operating expenses were 37.4% of sales. Operating
expenses as a percentage of sales increased in both store expenses and
warehouse and administrative expenses.
The increase in store expenses as a percentage of sales to 29.1% from 27.6%
resulted from increased payroll and occupancy costs for new stores; increased
advertising expense; and higher amortization of store pre-opening expenses
since 21 stores opened in the six months ended May 1, 1994 as compared to 8
stores opened in the six months ended May 2, 1993.
Warehouse and administrative expenses increased as a percentage of sales to
10.3% in the current year first quarter from 9.8% in the prior year first
quarter. During the comparable quarter of the last fiscal year, a profit of
$1,557,000 was recognized from the sale of surplus land which reduced expenses,
and this year warehouse rent is being charged due to the sale and leaseback of
the New Orleans distribution center near the end of last year's third quarter.
The new rent expense was partially offset by elimination of the depreciation
expense associated with the New Orleans distribution center.
INTEREST EXPENSE
Net interest expense of $1,314,000 in the first quarter of fiscal 1993
decreased to $958,000 for the same period in 1994. Factors contributing to the
decrease were reduced debt levels and lower amortization of bank loan fees in
the current year.
<PAGE> 9
INCOME TAX RATE
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes", effective February 1, 1993 with no significant
income statement impact. This Statement supersedes APB Opinion No. 11 under
which the Company provided for its income taxes prior to the adoption of SFAS
No. 109.
The income tax rate for the current year first quarter was 40.0%, and for
interim reporting purposes, the entire provision for income tax is classified
as current. The current rate of 40.0% reflects an increase from the fiscal
1993 rate of 39.6% for projected changes in permanent items. Income taxes were
provided at a rate of 40.0% in the prior year first quarter.
The Company had a net deferred tax liability of $915,000 at May 1, 1994 and
January 30, 1994. Other current assets on the balance sheet includes
$5,186,000 of current deferred assets at May 1, 1994 and January 30, 1994.
Other current assets also includes $927,000 of current refundable taxes at
January 30, 1994.
The Company provided no valuation allowance against the deferred tax assets
recorded as of May 1, 1994 and January 30, 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $2,655,000 in the first three months of
fiscal 1994 compared to a decrease of $20,775,000 in the first three months of
fiscal 1993. The major factor influencing the increase of cash and cash
equivalents for the first three months of the current year was the increase in
net borrowings to fund higher inventory levels and continued repurchases of
treasury stock. During the quarter, the Company repurchased 389,100 shares of
its Common Stock in the open market at a weighted average price of $15.65 per
share.
The Company's long-term debt was 1.5% of equity and its total debt was 22.9% of
equity at the end of the first three months of fiscal 1994 compared to 1.5% and
15.1%, respectively, at fiscal year-end 1993. The increase in the total debt
to equity percentage resulted from both increased borrowings to meet the
Company's seasonal inventory requirements and no increase in stockholders'
equity. Stockholders' equity did not increase because repurchases of treasury
stock approximated net earnings for the quarter.
The Company believes its present lines of credit are adequate to meet any
seasonal or temporary liquidity needs that cannot be met with cash flows from
operating activities. At May 1, 1994 the Company had $55,000,000 of
outstanding revolving debt.
The Company's current ratio at the end of the first three months this year was
2.00 versus 2.21 at fiscal year-end 1993. The decrease in the current ratio
reflects the growth in short-term borrowings and accounts payable exceeding the
growth in inventory.
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC.
/s/ Leonard S. Williams
---------------------------------------
Leonard S. Williams
President and
Chief Executive Officer
(Principal Executive Officer)
/s/ Philip L. Carter
---------------------------------------
Philip L. Carter
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
DATE: June 9, 1994
