<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 30, 1995
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 27, 1995 25,547,510
<PAGE> 2
<TABLE>
<CAPTION>
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Amounts in thousands except par value)
July 30, January 29,
1995 1995
---------- -----------
<S> <C> <C>
Assets
Current Assets :
Cash and cash equivalents $ 7,285 $ 6,674
Merchandise inventories 286,732 182,102
Other current assets 14,841 14,883
--------- ---------
Total current assets 308,858 203,659
--------- ---------
Property, Equipment and Improvements :
Land 34,011 33,876
Buildings and improvements 82,196 80,762
Automobiles and trucks 2,874 2,778
Furniture, fixtures and equipment 94,776 89,225
Leasehold improvements 79,615 73,931
Construction in progress 2,718 2,987
--------- ---------
296,190 283,559
Less: Accumulated depreciation
and amortization (113,546) (105,339)
--------- ---------
182,644 178,220
--------- ---------
Deferred Income Tax Asset 782 780
Deferred Financing Costs and Other Assets 4,168 3,717
--------- ---------
Total Assets $ 496,452 $ 386,376
========= =========
<CAPTION>
July 30, January 29,
1995 1995
--------- -----------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities :
Checks outstanding $ 12,037 $ 11,098
Loan payable to bank 80,300 80,500
Current portion of long-term debt 66 63
Accounts payable 15,850 9,359
Accrued expenses 34,248 37,096
Income taxes payable 391 12,154
Sales tax payable 4,621 9,377
-------- --------
Total current liabilities 147,513 159,647
-------- --------
Long-Term Debt 119,972 4,491
Deferred Income Taxes 5,357 5,357
Stockholders' Equity :
Preferred stock, $1 par value;
authorized, 500 shares; issued, none
Common stock, $.02778 par value;
authorized, 100,000 shares;
issued 25,546 shares (July 30, 1995)
and 29,854 shares (January 29, 1995) 711 829
Additional paid-in capital 104 3,216
Retained earnings 222,795 294,917
-------- --------
223,610 298,962
Less: Treasury stock, at cost, 4,313 shares
(January 29,1995) -- (82,081)
-------- --------
Total Stockholders' Equity 223,610 216,881
-------- --------
Total Liabilities and Stockholders' Equity $496,452 $386,376
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE> 3
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 30, July 31, July 30, July 31,
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $146,754 $133,693 $301,004 $275,788
Cost of sales 78,281 71,295 161,816 146,620
-------- -------- -------- --------
GROSS PROFIT 68,473 62,398 139,188 129,168
-------- -------- -------- --------
Store expenses 46,410 42,128 92,628 83,485
Warehouse and administrative
expenses 13,238 14,613 30,025 29,218
-------- -------- -------- --------
TOTAL OPERATING EXPENSES 59,648 56,741 122,653 112,703
OPERATING INCOME 8,825 5,657 16,535 16,465
Interest expense, net 3,387 1,433 5,618 2,391
-------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES 5,438 4,224 10,917 14,074
INCOME TAX EXPENSE 2,148 1,690 4,312 5,630
-------- -------- -------- --------
NET EARNINGS $ 3,290 $ 2,534 $ 6,605 $ 8,444
======== ======== ======== ========
EARNINGS PER COMMON SHARE $ 0.13 $ 0.09 $ 0.26 $ 0.29
AVERAGE SHARES OUTSTANDING 25,833 29,245 25,778 29,485
======== ======== ======== ========
</TABLE>
_____________
See Notes to Consolidated Financial Statements.
<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 Additional Treasury Stock
----------------- Paid-in Retained ---------------------
Shares Amount Capital Earnings Shares Amount Total
------ ------ ---------- -------- ------ --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 29, 1995 29,854 $ 829 $ 3,216 $294,917 4,313 ($82,081) $216,881
Exercise of stock options 5 1 82 83
Non-cash compensation
expense 41 41
Treasury stock retired (4,313) (119) (3,235) (78,727) (4,313) 82,081 0
Net earnings for six months 6,605 6,605
------ ------ ------- -------- ------ ------- --------
Balance, July 30, 1995 25,546 $ 711 $ 104 $222,795 0 $ 0 $223,610
====== ====== ======= ======== ====== ======= ========
</TABLE>
____________
See Notes to Consolidated Financial Statements.
<PAGE> 5
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(Amounts in thousands)
<TABLE>
<CAPTION>
For the six months ended
----------------------------------
July 30, July 31,
1995 1994
--------- ---------
<S> <C> <C>
INCREASE IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Cash received from customers $ 301,004 $ 275,788
Cash paid to suppliers and employees (381,825) (303,433)
Income taxes paid (16,078) (8,243)
Interest paid (net of amount capitalized) (4,559) (1,796)
Interest received 75 37
--------- ---------
Net cash used in operating activities (101,383) (37,647)
Cash flows from investing activities:
Capital expenditures (13,379) (16,284)
Proceeds from sale of fixed assets 6 471
--------- ---------
Net cash used in investing activities (13,373) (15,813)
Cash flows from financing activities:
Net borrowings (repayments) of long-term debt 114,870 (68)
Net (repayments) borrowings under line of credit agreements (200) 75,600
Proceeds from sale of stock options 83 289
Repurchase of treasury stock - (21,352)
Other (net) 614 238
--------- ---------
Net cash provided by financing activities 115,367 54,707
--------- ---------
Increase in cash and cash equivalents 611 1,247
Cash and cash equivalents, beginning of period 6,674 12,445
--------- ---------
Cash and cash equivalents, end of period $ 7,285 $ 13,692
========= =========
</TABLE>
__________________________
See Notes to Consolidated Financial Statements.
<PAGE> 6
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
(Amounts in thousands)
(continued)
<TABLE>
<CAPTION>
For the six months ended
---------------------------
July 30, July 31,
1995 1994
-------- --------
<S> <C> <C>
Reconciliation of Net Income to Net Cash Used
In Operating Activities:
---------------------------------------------
Net income $ 6,605 $8,444
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 8,939 7,651
Loss (gain) on sale of fixed assets 10 (219)
Non-cash compensation expense 41 38
Changes in assets and liabilities:
Increase in inventory (104,630) (47,693)
Increase in other assets (409) (1,041)
Increase in deferred income tax asset (2) (100)
Decrease in checks outstanding, accounts payable, accrued
expenses and sales tax payable (174) (4,727)
Decrease in federal and state income taxes (11,763) -
--------- --------
Total adjustments (107,988) (46,091)
--------- --------
Net cash used in operating activities ($101,383) ($37,647)
========= ========
</TABLE>
__________________________
See Notes to Consolidated Financial Statements.
<PAGE> 7
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
PART I - ITEM I - FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
Note 1 For further information, refer to the financial statements and
footnotes thereto included in the Registrant Company's Annual Report on
Form 10-K for the year ended January 29, 1995.
Note 2 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 3 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 4 The Company's effective tax rate for fiscal 1994 and the first half of
fiscal 1995 was 39.5%. 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 asset of $803 at July 30,
1995 and $800 at January 29, 1995. Other current assets on the balance
sheet includes $5,378 and $5,377 of current deferred assets at July 30,
1995 and January 29, 1995, respectively.
The Company provided no valuation allowance against its deferred tax
assets recorded as of July 30, 1995 and January 29, 1995.
Note 5 At July 30, 1995, the Company classified that portion of its revolving
debt as long-term debt that is not required to be repaid at its next
annual clean-down date of September 30, 1996.
Note 6 Certain reclassifications have been made to prior year amounts to
conform to the current year presentation.
<PAGE> 8
PART I - ITEM II MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND INTERIM RESULTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS)
SALES
Total sales increased 9.8% and comparable store sales decreased 3.9% for the
three months ended July 30, 1995 as compared to the same period a year ago. The
total sales increase was a result of opening 40 net new stores since July 31,
1994, partially offset by the comparable store sales decrease noted above. The
comparable store sales decrease was primarily due to weakness in apparel sales.
At July 30, 1995, 296 stores were in operation compared to 256 stores at July
31, 1994. The Company opened 11 new stores and relocated one store during the
current quarter.
Total sales increased 9.1% and comparable store sales decreased 4.0% for the six
months ended July 30, 1995 as compared to the same period a year ago. The total
sales increase was the result of opening 59 net new stores since January 31,
1994, partially offset by the comparable store sales decrease for the period.
The comparable sales decrease for the first half this year resulted from a
combination of low inventory position in the warehouses at year end which
impaired fresh merchandise from flowing to the stores early in the first quarter
of the current year and weakness in apparel sales as previously noted.
In response to the weakness in apparel sales, beginning in September 1995, all
stores will have their space dedicated to apparel merchandise reduced to
introduce greeting cards into the Mac Frugal's merchandise assortment.
Sales from the 163 California stores open at July 30, 1995 were approximately
63% of the Company's total sales for both the second quarter and first half of
the current year. California stores experienced comparable store sales
decreases during the second quarter and first half of the year which were
consistent with the company-wide experience noted above.
The Company opened six stores in Illinois during the first half of the current
year marking its entry into the midwestern markets.
GROSS PROFIT RATE
The gross profit rate of 46.7% and 46.2% for the current year second quarter and
first half, respectively, compared to 46.7% and 46.8% for similar periods in the
prior year. The decrease in the gross margin for the first half is due
primarily to higher markdowns as a percent of sales which were taken to attract
customers into the stores and clear selected merchandise as well as an increase
in the reserve rate for inventory shrinkage based on the Company's fiscal 1994
year-end results. However, these items were partially offset by a higher
initial markup on beginning store inventory in the current year versus the prior
year.
OPERATING EXPENSE RATES
Operating expenses were 40.6% and 40.7% of sales for the current year second
quarter and first half, respectively. Prior year second quarter and first half
operating expenses were 42.4% and 40.9% of sales, respectively. The
improvements were the result of a decrease in
<PAGE> 9
warehouse and administrative expenses, partially offset by an increase in store
expenses as explained below.
Store expenses totaled 31.6% and 30.8% of sales for the second quarter and
first half of fiscal 1995, respectively, compared to 31.5% and 30.3% of sales
for the same periods in the prior year.
General cost containment kept total store expenses relatively constant as a
percentage of total sales for the current year second quarter versus the prior
year second quarter. Higher rent, depreciation and advertising expenses were
largely offset by efficiencies and expense controls in payroll and workers'
compensation insurance.
The increases noted above are driven by new stores and are expected during a
phase of expansion. Furthermore, the increased percentages were adversely
impacted by the decrease in comparable store sales for the current year second
quarter.
The increase in store expenses as a percentage of sales for the first half of
the current year was largely the result of the same factors described above
under the quarter-to-quarter comparison. However, higher rent, depreciation
and advertising expenses were only partially offset by efficiencies in
workers' compensation. Expense controls in the payroll area were initiated
towards the end of the first quarter in the current year. Consequently, the
Company first began experiencing meaningful benefits from these controls in the
second fiscal quarter of 1995.
Warehouse and administrative expenses totaled 9.0% and 10.0% of sales for the
second quarter and first half of fiscal 1995, respectively. As a percentage
of sales, warehouse and administrative expenses were lower compared to the
10.9% and 10.6% of sales for the same periods in the prior years.
Expense controls in the warehouses and administrative areas resulted in a
reduction in most expenses as a percentage of sales for both the current year
second quarter and the current year first half compared to similar periods in
the prior year.
INTEREST EXPENSE
Net interest expense was $3,387 and $5,618 for the second quarter and first
half of fiscal 1995, respectively. This compares to $1,433 and $2,391 incurred
during the same periods last year. Factors contributing to the increase were
higher average debt levels coupled with higher interest rates. The increase
in average debt levels are the combined result of larger inventory growth in
the first half of 1995 compared to the same period in 1994 and the treasury
shares repurchased last year.
INCOME TAX RATE
The income tax rate for the current year second quarter and first half was
39.5%, and for interim purposes, the entire provision for income taxes is
classified as current. The current rate of 39.5% is consistent with the fiscal
1994 rate. 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 asset of $803 at July 30, 1995 and $800 at
January 29, 1995. This change in the net deferred tax asset resulted from a
reclassification from deferred income taxes to current
<PAGE> 10
income taxes payable. Other current assets on the balance sheet includes
$5,378 and $5,377 of current deferred assets at July 30, 1995 and January 29,
1995, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $611 in the first half of fiscal 1995
compared to an increase of $1,247 in the first half of fiscal 1994. The major
factors influencing the increase of cash and cash equivalents in the first half
of the current year were higher net borrowings partially offset by an increase
in inventory and capital expenditures which were required for store expansion.
The Company's long-term debt was 53.7% of equity and its total debt was 89.6%
of equity at the end of the first half of fiscal 1995 compared to 1.7% and
46.8%, respectively, at July 31, 1994. At January 29, 1995, long-term debt was
2.1% of equity and total debt was 39.2% of equity. These changes reflect the
Company's financing of higher merchandise inventory levels and the partial bank
financing of repurchases of treasury stock during fiscal 1994. Furthermore,
the Company has classified the portion of its revolving debt as long-term debt
that is not required to be paid at its next clean-down date of September 30,
1996.
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 30, 1995, the Company had $195,200 of
outstanding revolving debt. Of this outstanding debt, $155,200 was borrowed
under committed credit lines and $40,000 was borrowed under uncommitted credit
lines. Subsequent to July 30, 1995, the maturity date of the Company's
committed line of credit was extended by one year to August 10, 1998.
The Company's current ratio at the end of the first half was 2.09 versus 1.28
at fiscal year end 1994 and 1.51 at July 31, 1994. The increase is due
primarily to the classification of a portion of revolving debt as long-term
debt, as previously explained, offset in part by the use of short-term
borrowings to finance a portion of the repurchases of treasury stock during
fiscal 1994.
For the six months ended July 30, 1995, inventory turnover remained relatively
constant at .68 compared to .72 for the six months ended July 31, 1994.
<PAGE> 11
PART II - OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders
The Company held its 1995 Annual Meeting of Stockholders on
June 14, 1995 (the "Annual Meeting"). At the Annual Meeting,
shareholders elected all nine directors nominated. The
following table sets forth the number of votes cast for and
against each nominee. The number of votes cast against each
nominee includes votes withheld and abstentions. There were
no broker non-votes for any nominee.
Nominee For Against
------------------- ---------- -------
Peter S. Willmott 22,257,916 61,053
Philip L. Carter 22,258,956 60,013
Mark J. Miller 22,256,168 62,801
David H. Batchelder 22,256,206 62,763
Bruce E. Karatz 22,256,506 62,463
Anthony Luiso 22,256,906 62,063
Ronald P. Spogli 22,256,206 62,763
Bill M. Thomas 22,270,586 48,383
James J. Zehentbauer 22,229,611 89,358
In addition to electing the directors nominated, stockholders
approved an amendment to the Company's 1992 Stock Option Plan
for Non-Employee Directors to increase the number of shares
reserved for issuance thereunder by 200,000 shares to an
aggregate of 400,000 shares. There were 18,685,101 affirmative
votes cast, 3,510,752 negative votes cast, 123,116 abstentions,
and no broker non-votes in respect of such a proposal.
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 30,
1995.
<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/ Philip L. Carter
-------------------------------------
Philip L. Carter
President and Chief Executive Officer
(Principal Executive Officer and
Principal Accounting Officer)
September 11, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-28-1996
<PERIOD-START> JAN-30-1995
<PERIOD-END> JUL-30-1995
<CASH> 7,285
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 286,732
<CURRENT-ASSETS> 308,858
<PP&E> 296,190
<DEPRECIATION> 113,546
<TOTAL-ASSETS> 496,452
<CURRENT-LIABILITIES> 147,513
<BONDS> 0
<COMMON> 711
0
0
<OTHER-SE> 222,899
<TOTAL-LIABILITY-AND-EQUITY> 496,452
<SALES> 301,004
<TOTAL-REVENUES> 301,004
<CGS> 161,816
<TOTAL-COSTS> 161,816
<OTHER-EXPENSES> 122,653
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,618
<INCOME-PRETAX> 10,917
<INCOME-TAX> 4,312
<INCOME-CONTINUING> 6,605
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,605
<EPS-PRIMARY> .26
<EPS-DILUTED> 0
</TABLE>
