<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 July 31, 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)
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)
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 August 28, 1994 28,437,867
<PAGE> 2
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 For the six months ended
---------------------------- ------------------------------
July 31, August 1, July 31, August 1,
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $133,693 $116,081 $275,788 $242,778
Cost of sales 71,295 61,977 146,620 130,110
-------- -------- -------- --------
GROSS PROFIT 62,398 54,104 129,168 112,668
Store expenses 42,128 36,204 83,485 71,229
Warehouse and administrative
expenses 14,613 13,261 29,218 25,674
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 56,741 49,465 112,703 96,903
OPERATING INCOME 5,657 4,639 16,465 15,765
Interest expense, net 1,433 1,217 2,391 2,531
-------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES 4,224 3,422 14,074 13,234
INCOME TAX EXPENSE 1,690 1,369 5,630 5,294
-------- -------- -------- --------
NET EARNINGS $ 2,534 $ 2,053 $ 8,444 $ 7,940
======== ======== ======== ========
EARNINGS PER COMMON SHARE $0.09 $0.07 $0.29 $0.27
AVERAGE SHARES OUTSTANDING 29,245 29,932 29,485 29,919
======== ======== ======== ========
</TABLE>
_____________
See Notes to Consolidated Financial Statements.
1
<PAGE> 3
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Amounts in thousands except par value)
<TABLE>
<CAPTION>
<S> <C> <C>
July 31, January 30,
1994 1994
-------- ----------
Assets
Current Assets :
Cash and cash equivalents $ 2,888 $ 1,015
Merchandise inventories 229,448 181,755
Other current assets 16,858 15,114
-------- --------
Total current assets 249,194 197,884
Property, Equipment and Improvements:
Land 29,350 27,109
Buildings and improvements 75,252 71,784
Automobiles and trucks 2,778 2,778
Furniture, fixtures and equipment 80,640 75,797
Leasehold improvements 69,832 64,843
Construction in progress 1,434 1,137
-------- --------
259,286 243,448
Less: Accumulated depreciation
and amortization (97,085) (89,628)
162,201 153,820
Deferred Federal and State Income
Tax Asset 1,352 1,252
Deferred Financing Costs and Other
assets 4,474 5,177
Total Assets $417,221 $358,133
======== ========
July 31, January 30,
1994 1994
-------- ----------
Liabilities and Stockholders' Equity
Current Liabilities:
Loan payable to bank $110,500 $34,900
Current portion of long-term debt 59 97
Accounts payable 15,038 13,444
Accrued expenses 31,207 31,726
Income taxes payable --
Sales tax payable 4,218 9,394
--------- --------
Total current liabilities 161,022 89,561
Long-Term Debt 4,077 3,869
Deferred Federal and State Income Taxes 7,353 7,353
Stockholders' Equity
Preferred stock, $1 par value;
authorized, 500 shares; issued, none
Common stock, $.02778 par value;
authorized, 100,000 shares;
issued 29,755 shares (July 31, 1994)
and 29,727 shares (January 30, 1994 827 825
Additional paid-in capital 1,644 1,319
Retained earnings 264,477 256,033
--------- --------
266,948 258,177
Less: Treasury stock, at cost, 1,336
shares
(July 31,1994) and 55 shares
(January 30,1994) (22,179) (827)
-------- --------
Total Stockholders' Equity 244,769 257,350
Total Liabilities and Stockholders' Equity $417,221 $358,133
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE> 4
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 28 2 287 289
Non-cash compensation
expense 38 38
Purchase of Treasury stock,
at cost 1,281 (21,352) (21,352)
Net earnings for six months 8,444 8,444
------ ---- ------ -------- ----- ------- --------
Balance, July 31, 1994 29,755 $827 $1,644 $264,477 1,336 $(22,179) $244,769
====== ==== ====== ======== ===== ======= ========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 5
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
For the six months ended
---------------------------------
July 31, August 1,
1994 1993
------- ---------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Cash received from customers $ 275,788 $ 242,778
Cash paid to suppliers and employees (302,807) (251,450)
Income taxes paid (8,243) (21,182)
Interest paid (1,796) (3,173)
Interest received 37 574
--------- ---------
Net cash used in operating activities (37,021) (32,453)
Cash flows from investing activities:
Capital expenditures (16,284) (11,521)
Proceeds from sale of fixed assets 471 2,101
--------- ---------
Net cash used in investing activities (15,813) (9,420)
Cash flows from financing activities:
Net borrowings under line of credit agreements 75,600 37,000
Repurchase of treasury stock (21,352) --
Payment of long-term debt (68) (12,938)
Proceeds from sale of stock options 289 434
Other (net) 238 253
--------- ---------
Net cash provided by financing activities 54,707 24,749
--------- ---------
Increase (decrease) in cash and cash equivalents 1,873 (17,124)
Cash and cash equivalents, beginning of period 1,015 21,820
--------- ---------
Cash and cash equivalents, end of period $ 2,888 $ 4,696
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 6
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousand)
(continued)
<TABLE>
<CAPTION>
For the six months ended
------------------------
July 31, August 1,
1994 1993
-------- ---------
<S> <C> <C>
Reconciliation of Net Income to Net Cash Used
In Operating Activities:
Net income $ 8,444 $ 7,940
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 7,651 7,840
Gain on sale of fixed assets (219) (1,560)
Non-cash compensation expense 38 38
Changes in assets and liabilities:
Increase in inventory (47,693) (36,230)
Increase in other assets (1,041) (2,321)
Increase in deferred income tax asset (100) --
(Decrease) increase in accounts payable,
accrued expenses and sales tax payable (4,101) 5,182
Decrease in federal and state income taxes -- (14,717)
Increase in deferred federal and state income
taxes -- 1,375
-------- --------
Total adjustments (45,465) (40,393)
-------- --------
Net cash used in operating activities $(37,021) $(32,453)
======== ========
</TABLE>
- - -------------
See Notes to Consolidated Financial Statements.
5
<PAGE> 7
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 the second quarter and
first half of fiscal 1994 was 40.0%. The provision for income tax
expense was $1,690,000 and $5,630,000 for the second quarter and first
half of fiscal 1994, respectively. 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 $815,000 at
July 31, 1994 and $915,000 at January 30, 1994. This change in net
deferred tax liability is due to a reclassification from deferred
income taxes to current income taxes payable. Other current assets on
the balance sheet includes $5,231,000 and $5,186,000 of current
deferred assets at July 31, 1994 and January 30, 1994, respectively.
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 July 31, 1994 and January 30, 1994.
6
<PAGE> 8
PART I -- ITEM II MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND INTERIM RESULTS OF OPERATIONS
SALES
Total sales and comparable store sales increased 15.2% and 4.7%, respectively,
for the three months ended July 31, 1994 as compared to the same period a year
ago. The total sales increase was a result of the combination of opening 35
net new stores since August 1, 1993, of which 16 were opened in the second half
of fiscal 1993 and thirteen during the current quarter, and the comparable
store sales increase noted above. At July 31, 1994, 256 stores were in
operation compared to 221 stores at August 1, 1993.
Total sales and comparable store sales increased 13.6% and 2.3%, respectively,
for the six months ended July 31, 1994 as compared to the same period a year
ago. The total sales increase was a result of the combination of opening 51
net new stores since February 1, 1993, of which 18 were opened during the first
half of this year, and the comparable increase noted above.
Sales from the 144 California stores open at July 31, 1994 were approximately
63% of total sales for both the second quarter and first half of the current
year. In addition, California stores produced comparable store sales increases
during the second quarter.
GROSS PROFIT RATE
The gross profit rate of 46.7% and 46.8% for the current year second quarter
and first half increased 0.1 and 0.4 percentage points, respectively, over
similar periods in the prior year. Both increases are primarily due to higher
markups on goods acquired and shipped to stores in the current year compared to
a year ago but were partially offset by increased markdowns as a percent of
sales in the current year. In addition, the reserve rate for inventory
shrinkage was the same for the six month periods of both years but was lower in
the prior year second quarter than in the current year second quarter.
OPERATING EXPENSE RATES
Operating expenses were 42.4% and 40.9% of sales for the current year second
quarter and first half, respectively. Prior year second quarter and first half
operating expenses were 42.6% and 39.9% of sales, respectively. The reasons
for those changes are explained in the following two paragraphs.
Store expenses totaled 31.5% and 30.3% of sales for the second quarter and
first half of fiscal 1994, respectively. The percentages are higher than the
31.2% and 29.3% of sales incurred during the same periods last year. The
increase in store expenses as a percentage of sales is mainly due to higher
rent and payroll as a percentage of sales but was partially offset by lower
advertising dollars in the current year second quarter than in the prior year
second quarter and lower advertising as a percentage of sales for the first
half of fiscal 1994. The increases noted are to be expected during a
phase of expansion.
7
<PAGE> 9
Administrative and warehouse expense as a percentage of sales was slightly
lower for the second quarter, and unchanged for the first half of fiscal 1994
as compared to the same periods last year. General cost containment helped to
offset the effect of recognizing a $1,557,000 gain on the sale of land in the
prior year first half.
INTEREST EXPENSE
Net interest expense was $1,433,000 and $2,391,000 for the second quarter and
first half of fiscal 1994, respectively. This compares to the $1,217,000 and
$2,531,000 incurred during the same periods last year. Interest amounts are
higher than last year due to higher average debt levels resulting from
increased borrowings, the proceeds of which were applied to both repurchase
1,335,500 shares of stock for $22,180,000 (compared to no share repurchases
in the first half of fiscal 1993) and to fund higher inventory levels for new
stores and in anticipation of the fall and holiday seasons.
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 second quarter and first half of fiscal 1994 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 second quarter and
first half.
The Company had a net deferred tax liability of $815,000 at July 31, 1994 and
$915,000 at January 30, 1994. This change in net deferred tax liability is due
to a reclassification from deferred income taxes to current income taxes
payable. Other current assets on the balance sheet includes $5,231,000 and
$5,186,000 of current deferred assets at July 31, 1994 and January 30, 1994,
respectively. Other current assets also includes $927,000 of current
refundable taxes at January 30, 1994.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $1,873,000 in the first half of fiscal 1994
compared to a decrease of $17,124,000 in the first half of fiscal 1993. The
major factors influencing the increase of cash and cash equivalents in the
current year first half were lower income tax payments and higher net
borrowings, partially offset by increased capital expenditures and continued
repurchases of the Company's Common Stock. During the first half, the
Company repurchased 1,280,400 shares of its Common Stock in the open market at
a weighted average price of $16.68 per share.
The Company's long-term debt was 1.7% of equity and its total debt was 46.8% of
equity at the end of the first half of fiscal 1994 compared to 1.5% and 15.1%,
respectively, at fiscal year end 1993. These changes reflect the Company's
ongoing stock repurchase program, as well as the financing of higher
merchandise inventory levels for new stores.
8
<PAGE> 10
Subsequent to the end of the second quarter the Company amended its credit
agreement. Among other things, the Company increased the size of its committed
revolver to $200 million from $150 million, extended the maturity of the
agreement by approximately one year, and increased the amount of shares that it
may repurchase.
The Company believes its present lines of credit are adequate to meet any
seasonal or temporary liquidity needs that cannot be met with cash flow from
operating activities. At July 31, 1994, the Company had $110,500,000 of
outstanding revolving debt.
The Company's current ratio at the end of the first half was 1.55 versus 2.21
at fiscal year-end 1993. The change is primarily due to the growth in
short-term borrowings to fund share repurchases.
For the six months ended July 31, 1994, inventory turnover decreased to .72
compared to .79 for the six months ended August 1, 1993. The decrease in
inventory turnover is primarily due to the buildup of inventory in preparation
for the opening of new stores, most of which opened at or near the end of the
period.
9
<PAGE> 11
PART II -- OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
The Company held its 1994 Annual Meeting of Stockholders on June 22, 1994
(the "Annual Meeting"). At the Annual Meeting, shareholders elected all
eight directors nominated. The following table sets forth the number of
votes for and against each nominee. The number of votes cast against each
nominee includes votes withheld. There were no broker non-votes or
abstentions.
<TABLE>
<CAPTION>
AGAINST
OR
NOMINEE FOR WITHHELD
------- --- --------
<S> <C> <C>
Peter S. Willmott 26,944,028 99,430
Leonard S. Williams 26,944,123 99,335
David H. Batchelder 26,361,819 681,639
Bruce E. Karatz 26,345,786 697,672
Anthony Luiso 26,930,443 113,015
Ronald P. Spogli 26,929,698 113,760
Bill M. Thomas 26,943,573 99,885
James J. Zehentbauer 26,690,833 352,625
</TABLE>
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits -- Exhibit 27 -- Financial Data Schedule.
(b) Reports on Form 8-K -- No reports on Form 8-K have
been filed during the quarter ended July 31, 1994.
10
<PAGE> 12
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: September 13, 1994
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED STATEMENTS OF EARNINGS AND CONSOLIDATED BALANCE SHEETS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-29-1995
<PERIOD-START> JAN-31-1994
<PERIOD-END> JUL-31-1994
<CASH> 2,888
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 229,448
<CURRENT-ASSETS> 249,194
<PP&E> 259,286
<DEPRECIATION> 97,085
<TOTAL-ASSETS> 417,221
<CURRENT-LIABILITIES> 161,022
<BONDS> 0
<COMMON> 827
0
0
<OTHER-SE> 243,942
<TOTAL-LIABILITY-AND-EQUITY> 417,221
<SALES> 275,788
<TOTAL-REVENUES> 275,788
<CGS> 146,620
<TOTAL-COSTS> 146,620
<OTHER-EXPENSES> 112,703
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,391
<INCOME-PRETAX> 14,074
<INCOME-TAX> 5,630
<INCOME-CONTINUING> 8,444
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,444
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0
</TABLE>
