<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 April 28, 1996
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 - 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
incorporation or organization) number)
Mailing and
Street Address: 2430 East Del Amo Boulevard, Dominguez, California 90220-6306
(Address of principal executive offices)
Registrant's telephone number, including area code: (310) 537-9220
________________________________________________________________________________
Former name, 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.
[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 26, 1996 25,785,153
<PAGE> 2
MAC FRUGAL'S BARGAINS CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(Amounts in thousands except par value)
<TABLE>
<CAPTION>
April 28, January 28,
1996 1996
--------- -----------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 13,286 $ 7,285
Merchandise inventories 171,517 200,616
Current deferred income tax asset 13,003 13,003
Insurance receivable 30,125 --
Other current assets 9,137 9,965
--------- ---------
Total current assets 237,068 230,869
Property, Equipment and Improvements:
Land 35,201 35,195
Buildings and improvements 84,320 84,054
Automobiles and trucks 3,019 3,040
Furniture, fixtures and equipment 97,554 99,966
Leasehold improvements 85,227 84,127
Construction in progress 510 635
--------- ---------
305,831 307,017
Less: Accumulated depreciation
and amortization (125,136) (121,106)
--------- ---------
180,695 185,911
--------- ---------
Deferred Income Tax Asset 604 604
Deferred Financing Costs and Other Assets 1,549 1,688
--------- ---------
Total Assets $ 419,916 $ 419,072
========= =========
</TABLE>
<TABLE>
<CAPTION>
April 28, January 28,
1996 1996
--------- -----------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current Liabilities:
Checks outstanding $ 13,268 $ 16,704
Current portion of long-term debt 71 69
Accounts payable 25,100 14,781
Accrued expenses 40,482 40,605
Income taxes payable 3,168 4,664
Sales tax payable 6,073 9,527
--------- ---------
Total current liabilities 88,162 86,350
--------- ---------
Long-Term Debt 95,880 96,435
Deferred Income Taxes 5,888 5,888
Stockholders' Equity:
Preferred stock, $1 par value;
authorized, 500 shares; issued, none
Common stock, $.02778 par value;
authorized, 100,000 shares;
issued 25,600 shares (April 28, 1996)
and 25,582 shares (January 28, 1996) 711 711
Additional paid-in capital 765 512
Retained earnings 234,261 230,749
--------- ---------
235,737 231,972
Less: Treasury stock, at cost, 430 shares
(April 28,1996) and 119 shares ( January
28,1996) (5,751) (1,573)
--------- ---------
Total Stockholders' Equity 229,986 230,399
--------- ---------
Total Liabilities and Stockholders' Equity $ 419,916 $ 419,072
========= =========
</TABLE>
- --------------
See Notes to Consolidated Financial Statements.
<PAGE> 3
MAC FRUGAL'S BARGAINS CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(Amounts in thousands except per share amounts)
<TABLE>
<CAPTION>
For the three months ended
--------------------------
April 28, April 30,
1996 1995
---------- ---------
<S> <C> <C>
NET SALES $159,132 $154,250
COST OF SALES 88,726 83,535
-------- --------
GROSS PROFIT 70,406 70,715
-------- --------
Store expenses 47,691 46,218
Warehouse and administrative
expenses 15,329 16,787
-------- --------
TOTAL OPERATING EXPENSES 63,020 63,005
OPERATING INCOME 7,386 7,710
INTEREST EXPENSE, NET 1,722 2,231
-------- --------
EARNINGS BEFORE INCOME TAXES 5,664 5,479
INCOME TAX EXPENSE 2,152 2,164
-------- --------
NET EARNINGS $ 3,512 $ 3,315
======== ========
EARNINGS PER COMMON SHARE $ 0.14 $ 0.13
======== ========
AVERAGE SHARES OUTSTANDING $ 25,694 $ 25,747
======== ========
</TABLE>
- -------------
See Notes to Consolidated Financial Statements.
<PAGE> 4
MAC FRUGAL'S BARGAINS 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> <C>
Balance, January 28, 1996 25,582 $711 $512 $230,749 119 ($1,573) $230,399
Exercise of stock options 18 230 230
Non-cash compensation
expense 23 23
Purchase of Treasury stock, at cost 311 (4,178) (4,178)
Net income for three months 3,512 3,512
------ ---- ---- -------- --- ------- --------
Balance, April 28, 1996 25,600 $711 $765 $234,261 430 ($5,751) $229,986
====== ==== ==== ======== === ======= ========
</TABLE>
- ------------
See Notes to Consolidated Financial Statements.
<PAGE> 5
MAC FRUGAL'S BARGAINS CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in thousands)
<TABLE>
<CAPTION>
For the three months ended
---------------------------
April 28, April 30,
1996 1995
--------- ---------
<S> <C> <C>
INCREASE IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Cash received from customers $ 159,132 $ 154,250
Cash paid to suppliers and employees (143,546) (188,637)
Income taxes paid (3,648) (13,073)
Interest paid (net of amount capitalized) (2,017) (1,880)
Interest received 38 66
--------- ---------
Net cash provided by (used in) operating activities 9,959 (49,274)
Cash flows from investing activities:
Capital expenditures (1,916) (5,290)
Insurance receivable related to property, equipment and improvements 2,456 --
Proceeds from sale of fixed assets 3 --
--------- ---------
Net cash provided by (used in) investing activities 543 (5,290)
Cash flows from financing activities:
Net repayments of long-term debt (800) (15)
Net borrowings under line of credit agreements -- 55,600
Repurchase of treasury stock (4,178) --
Proceeds from sale of stock options 230 --
Other (net) 247 276
--------- ---------
Net cash (used in) provided by financing activities (4,501) 55,861
--------- ---------
Increase in cash and cash equivalents 6,001 1,297
Cash and cash equivalents, beginning of period 7,285 6,674
--------- ---------
Cash and cash equivalents, end of period $ 13,286 $ 7,971
========= =========
</TABLE>
- ----------
See Notes to Consolidated Financial Statements.
<PAGE> 6
MAC FRUGAL'S BARGAINS CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Amounts in thousands)
(continued)
<TABLE>
<CAPTION>
For the three months ended
--------------------------
April 28, April 30,
1996 1995
--------- ---------
<S> <C> <C>
Reconciliation of Net Income to Net Cash Provided
By (Used in) Operating Activities:
Net income $ 3,512 $ 3,315
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 4,673 4,431
Loss on sale of fixed assets -- 16
Non-cash compensation expense 23 19
Decrease in net deferred income taxes -- (2)
Changes in assets and liabilities:
Decrease (increase) in inventory 29,099 (63,054)
Increase in insurance receivable (30,125) --
Decrease in other assets 967 702
Increase in checks outstanding, accounts payable, accrued
expenses and sales tax payable 3,306 16,205
Decrease in federal and state income taxes (1,496) (10,906)
Total adjustments 6,447 (52,589)
-------- --------
Net cash provided by (used in) operating activities $ 9,959 ($49,274)
======== ========
</TABLE>
- ----------
See Notes to Consolidated Financial Statements.
<PAGE> 7
MAC FRUGAL'S BARGAINS - CLOSE-OUTS INC. AND SUBSIDIARIES
PART I - ITEM I - FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
Note 1 The condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles, by
MacFrugal's Bargains - Close-outs Inc., without audit. Pursuant to the
rules and regulations of the Securities and Exchange Commission,
certain information and footnote disclosures normally included in
consolidated financial statements prepared in accordance with generally
accepted accounting principles have been omitted or condensed. It is
management's belief that the disclosures made are adequate to make the
information presented not misleading and reflect all adjustments
(consisting only of normal recurring adjustments) necessary for a fair
presentation of financial position and results of operations for the
periods presented. The results of operations of the periods presented
should not be considered as necessarily indicative of operations for
the full year. It is recommended that these condensed consolidated
financial statements be read in conjunction with the consolidated
financial statements for the year ended January 28, 1996 and the notes
thereto included in the Company's 10-K.
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's effective tax rate for fiscal 1995 and the quarter
ended April 28, 1996 was 38.0%. 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 $7,719 at April
28, 1996 and January 28, 1996.
The Company provided no valuation allowance against its deferred tax
assets recorded as of April 28, 1996 and January 28, 1996 because
management believes it is more likely than not that the deferred income
tax asset will be realized.
Note 4 At April 28, 1996, 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, 1997.
Note 5 The Financial Accounting Standards Board has issued a new statement
on accounting for the impairment of long-lived assets and for
long-lived assets to be disposed of (SFAS 121). This statement is
effective for the Company beginning January 29, 1996.
Among other provisions, the statement standardizes the accounting
practices for the recognition and measurement of impairment losses on
certain long-lived
<PAGE> 8
assets. Adoption of the statement did not have a material impact on
the Company's financial statements.
Note 6 The Company currently accounts for its stock-based compensation plans
using the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25). In 1995, the
Financial Accounting Standards Board issued a new statement on
accounting for stock-based compensation (SFAS 123). This statement is
effective for the Company beginning January 29, 1996. Among other
provisions, the statement allows companies to elect to account for
stock-based compensation plans using a fair-value-based method or
continue measuring compensation expense for those plans using the
intrinsic value method prescribed in APB 25. SFAS 123 requires that
companies electing to continue using the intrinsic value method must
make pro forma disclosures of net income and earnings per share as if
the fair-value-based method of accounting had been applied. The
adoption of SFAS 123 will be reflected in the Company's 1996 fiscal
year-end consolidated financial statements. As the Company will
continue to account for stock-based compensation using the intrinsic
value method, SFAS 123 will not have an impact on the Company's results
of operations or financial position.
Note 7 On March 21, 1996 the New Orleans Distribution Center and its contents
were destroyed by fire. The Company's lease with an unrelated third
party obligates the Company to rebuild the distribution center. All of
the Company's stores are currently being serviced by the Company's
remaining distribution center in Southern California.
The insurance receivable at April 28, 1996 represents the expected
insurance proceeds related to the destruction of inventory and
property, plant and equipment in the fire. This receivable is subject
to adjustment since the final insurance claim has not been concluded.
The Company believes that its insurance proceeds will adequately cover
all losses and that the temporary loss of inventory and equipment will
not have a material adverse impact on the Company's operations.
However, the Company is unable to predict with certainty what the
ultimate outcome will be.
Note 8 Certain reclassifications have been made to prior year amounts to
conform to the current year presentation.
<PAGE> 9
PART I - ITEM II - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND INTERIM RESULTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS)
RESULTS OF OPERATIONS
- ---------------------
THIRTEEN WEEK PERIOD ENDED APRIL 28, 1996 ("FIRST QUARTER 1996") COMPARED WITH
THIRTEEN WEEK PERIOD ENDED APRIL 30, 1995 ("FIRST QUARTER 1995").
Total sales increased 3.2% and comparable store sales decreased 4.2% for the
First Quarter 1996 compared to the First Quarter 1995. The total sales increase
was a result of opening 28 net new stores since April 30, 1995, partially offset
by the comparable store sales decrease noted above. The comparable sales
decrease was due to the weakness in apparel sales and business interruption
caused by the fire at the New Orleans Distribution Center ("NODC"). At April 28,
1996, 313 stores were in operation compared to 285 stores at April 30, 1995.
Sales from the 165 California stores open at April 28, 1996, were approximately
59% of the Company's total sales for the First Quarter 1996. California stores
experienced a comparable store sales decrease for the First Quarter 1996,
similar to that of the Company wide experience.
The Company is continuing to execute the components of its new strategic
direction which was announced in November 1995. It is anticipated that this plan
will continue to be implemented throughout fiscal 1996.
The gross profit margin of 44.2% for the First Quarter 1996, decreased from
45.8% for the First Quarter 1995. The decrease in the gross profit margin for
the First Quarter 1996 versus the First Quarter 1995 is due to more competitive
pricing of merchandise and a change in merchandise mix done in conjunction with
the implementation of the Company's new strategic plan.
Operating expenses were 39.6% of sales for the First Quarter 1996 compared to
40.8% for the First Quarter 1995. The improvement in operating expenses was the
result of a decrease in both warehouse and administrative expenses while store
expenses remained substantially the same as the First Quarter 1995.
General cost containment kept store expenses constant at 30.0% of sales for the
First Quarter 1996 and the First Quarter 1995. Increases in occupancy cost,
depreciation expense and advertising expense were offset by efficiencies and
expense controls in payroll and workers' compensation. Increases in occupancy,
depreciation and advertising expenses resulted from the opening of new stores.
Warehouse and administrative expenses were 9.6% and 10.9% of sales for the First
Quarter 1996 and the First Quarter 1995, respectively. Expense controls in the
warehouse and administrative areas resulted in lower expenses in both dollars
and as a percent of sales for the First Quarter 1996 compared to the First
Quarter 1995.
The $509 decrease in interest expense for the First Quarter 1996 compared to the
First Quarter 1995 resulted from both a decrease in the average amount of debt
outstanding and lower interest rates. The decrease in the average amount of
<PAGE> 10
debt outstanding is the combined result of a decrease in inventories and capital
expenditures during the First Quarter 1996 compared to the First Quarter
1995.
The income tax rate for the First Quarter 1996 was 38.0%, and for interim
purposes, the entire provision for income taxes is classified as current. The
current rate of 38.0% is consistent with the fiscal 1995 rate. Income taxes were
provided at a rate of 39.5% in the First Quarter 1995.
The Company had a net deferred tax asset of $7,719 at April 28, 1996 and January
28, 1996.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
Cash and cash equivalents increased $6,001 in the First Quarter 1996 compared to
an increase of $1,297 in the First Quarter 1995. The increase of cash and cash
equivalents in the First Quarter 1996 compared to the same period last year
related primarily to a large influx of inventory, partially offset by an
associated increase in debt and accounts payable in the First Quarter 1995; and
lower income tax payments and capital expenditures partially offset by a minor
stock repurchase program in the First Quarter of 1996.
As of April 28, 1996, the Company's long-term debt and total debt were both
41.7% of equity compared to 2.2% and 64.0%, respectively, at April 30, 1995. At
January 28, 1996, long-term debt and total debt were both 41.9% of equity. This
decrease in the level of debt reflects the Company's strategic direction to
reduce inventory levels and the borrowings necessary to finance it, offset in
part by a minor stock repurchase program in fiscal 1995 and the First Quarter
1996. In addition, the increase in the level of long-term debt compared to April
30, 1995 reflects the classification of the Company's total debt (which is below
the clean-down requirement), as long-term debt versus being classified as a
current liability.
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 April 28, 1996, the Company had $90,000 of outstanding
revolving debt borrowed under the Company's $200,000 committed credit line.
There were no borrowings under the Company's uncommitted credit lines at April
28, 1996.
The Company's current ratio as of April 28, 1996 was 2.69 versus 2.67 at fiscal
year end 1996 and 1.21 at April 30, 1995. The improvement in the Company's
current ratio compared to April 30, 1995 is due primarily to reduced inventory
levels and the reclassification of the Company's revolving debt as long-term.
For the three months ended April 28, 1996, inventory turnover improved to .48
from .39 for the three months ended April 30, 1995. This improvement in
inventory turnover reflects the reclassification of inventory related to the
NODC fire as an insurance receivable, and the Company's commitment to reduce
inventory levels and improve inventory turnover.
<PAGE> 11
PART II - OTHER INFORMATION
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibit 27 -- Financial Data Schedule.
(b) Reports on Form 8-K - No reports on Form 8-K have
been filed during the quarter ended April 28, 1996.
<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 - CLOSE-OUTS INC.
/s/ Philip L. Carter
-------------------------------------------------------
Philip L. Carter
Director, President and Chief Executive Officer
(Principal Executive, Financial and Accounting Officer)
DATE: June 10, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-02-1997
<PERIOD-START> JAN-29-1996
<PERIOD-END> APR-28-1996
<CASH> 13,286
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 171,517
<CURRENT-ASSETS> 237,068
<PP&E> 305,831
<DEPRECIATION> 125,136
<TOTAL-ASSETS> 419,916
<CURRENT-LIABILITIES> 88,162
<BONDS> 0
0
0
<COMMON> 711
<OTHER-SE> 229,275
<TOTAL-LIABILITY-AND-EQUITY> 419,916
<SALES> 159,132
<TOTAL-REVENUES> 159,132
<CGS> 88,726
<TOTAL-COSTS> 88,726
<OTHER-EXPENSES> 63,020
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,722
<INCOME-PRETAX> 5,664
<INCOME-TAX> 2,152
<INCOME-CONTINUING> 3,512
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,512
<EPS-PRIMARY> .14
<EPS-DILUTED> 0
</TABLE>
