<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 10-Q/A
(AMENDMENT NO. 1)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 or 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 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 August 25, 1996: 25,933,505
- -------------------------------------------------------------------------------
<PAGE> 2
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 JULY 28, 1996 ("SECOND QUARTER 1996") COMPARED WITH
THIRTEEN WEEK PERIOD ENDED JULY 30, 1995 ("SECOND QUARTER 1995").
Total sales and comparable store sales increased 7.6% and 3.1%, respectively,
for the Second Quarter 1996 compared to the Second Quarter 1995. The total sales
increase was a result of opening 19 net new stores since July 30, 1995, combined
with the comparable store sales increase noted above. The comparable sales
increase was driven by increases in customer traffic, and increases in sales of
food and hardlines, partially offset by the weakness in apparel sales. At
July 28, 1996, 315 stores were in operation compared to 296 stores at
July 30, 1995.
Sales from the 165 California stores open at July 28, 1996, were approximately
59% of the Company's total sales for the Second Quarter 1996 as compared to 63%
in the Second Quarter of 1995. California stores experienced a comparable
store sales increase for the Second Quarter 1996, similar to that of the
Company-wide trend.
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 41.4% for the Second Quarter 1996, decreased from
46.7% for the Second Quarter 1995. The decrease in the gross profit margin for
the Second Quarter 1996 versus the Second Quarter 1995 is due to more
competitive pricing of merchandise and a change in merchandise mix as part of
the implementation of the Company's new strategic plan; combined with the
margin changes resulting from the business interruption and inventory
imbalances caused by the destruction of the inventory at the New Orleans
Distribution Center ("NODC") on March 21, 1996.
Operating expenses were 37.3% of sales for the Second Quarter of 1996 compared
to 40.6% for the Second Quarter 1995. The improvement in operating expenses was
the result of a decrease in administrative and store expenses, offset partially
by a slight increase in warehouse expenses as a percent of sales.
General cost containment and controls resulted in store expenses of 29.5% of
sales for the Second Quarter 1996 compared to 31.6% of sales for the Second
Quarter 1995. Reduced expenses in payroll and workers' compensation were only
partially offset by increases in occupancy cost, depreciation expense and
advertising expense. The increases in occupancy, depreciation and advertising
expenses are primarily the result of opening new stores.
Warehouse and administrative expenses were 7.9% and 9.0% of sales for the Second
Quarter 1996 and the Second Quarter 1995, respectively. Expense controls in the
administrative area resulted in lower expenses in both dollars and as a percent
of sales for the Second Quarter 1996 compared to the Second Quarter 1995.
Temporary operating expenses associated with the
<PAGE> 3
consolidation of receipts and shipments from one centralized warehouse, as a
result of the NODC fire, slightly increased warehouse expenses for the Second
Quarter 1996 as a percent of sales over the Second Quarter 1995. However, the
Company believes that its insurance proceeds will adequately cover these
increased expenses related to the NODC fire. Expense containment in the
warehouse is still in effect.
The $1,804 decrease in interest expense for the Second Quarter 1996 compared to
the Second 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
debt outstanding is the combined result of a decrease in inventories and capital
expenditures during the Second Quarter 1996 compared to the Second Quarter 1995.
The income tax rate for the Second 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 Second Quarter 1995.
The Company had a net deferred tax asset of $7,719 at July 28, 1996 and January
28, 1996.
TWENTY-SIX WEEK PERIOD ENDED JULY 28, 1996 ("YEAR-TO-DATE 1996") COMPARED WITH
TWENTY-SIX WEEK PERIOD ENDED JULY 30, 1995 ("YEAR-TO-DATE 1995").
Total sales increased 5.3% and comparable store sales decreased 0.6% for the
Year-to-Date 1996 compared to the Year-to-Date 1995. The total sales increase
was a result of opening 19 net new stores since July 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 NODC, partially offset by increases in customer traffic,
and increases in sales of food and hardlines.
Sales from the 165 California stores open at July 28, 1996, were approximately
59% of the Company's total sales for the Year-to-Date 1996 as compared to 63%
for the Year-to-Date 1995. California stores experienced a comparable store
sales decrease for the Year-to-Date 1996, similar to that of the Company-wide
trend.
The gross profit margin of 42.8% for the Year-to-Date 1996, decreased from 46.2%
for the Year-to-Date 1995. The decrease in the gross profit margin for the
Year-to-Date 1996 versus the Year-to-Date 1995 is due to more competitive
pricing of merchandise and a change in merchandise mix as part of the
implementation of the Company's new strategic plan; combined with the margin
changes resulting from the business interruption and inventory imbalances caused
by the destruction of inventory at NODC.
Operating expenses were 38.5% of sales for the Year-to-Date 1996 compared to
40.7% for the Year-to-Date 1995. The improvement in operating expenses was the
result of decreases in all areas: warehouse, administration and stores.
General cost containment resulted in store expenses of 29.7% of sales for the
Year-to-Date 1996 compared to 30.8% of sales for the Year-to-Date 1995. Reduced
expenses in payroll and workers' compensation were only partially offset by
increases in occupancy cost, depreciation expense and advertising expense.
Increases in occupancy, depreciation and advertising expenses are primarily the
result of opening new stores.
<PAGE> 4
Warehouse and administrative expenses were 8.8% and 10.0% of sales for the
Year-to-Date 1996 and the Year-to-Date 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 Year-to-Date 1996 compared to the
Year-to-Date 1995.
The $2,313 decrease in interest expense for the Year-to-Date 1996 compared to
the Year-to-Date 1995 resulted from both a decrease in the average amount of
debt outstanding and lower interest rates. The decrease in the average amount of
debt outstanding is the combined result of a decrease in inventories and capital
expenditures during the Year-to-Date 1996 compared to the Year-to-Date 1995.
The income tax rate for the Year-to-Date 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% for the Year-to-Date 1995.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents increased $3,583 in the first half of 1996 compared to
an increase of $611 in the first half of 1995. The increase of cash and cash
equivalents in the first half of 1996 compared to the same period last year
related primarily to reduced inventory purchases and associated debt; and
lower income tax payments and capital expenditures partially offset by a stock
repurchase program of $4,704 in the first half of 1996.
As of July 28, 1996, the Company's long-term debt and total debt were both 43.0%
of equity compared to 53.7% and 89.6%, respectively, at July 30, 1995. At
January 28, 1996, long-term debt and total debt were both 41.9% of equity. The
decrease in the level of debt at July 28, 1996 compared to July 30, 1995
reflects the Company's strategic direction to reduce inventory levels and the
borrowings necessary to finance them, the planned reduction in capital
expenditures, offset in part by a minor stock repurchase program in fiscal 1995
and the first six months of 1996. The slight increase in the level of debt at
July 28, 1996 compared to January 28, 1996 reflects the Company's normal trend
of increasing inventory levels in preparation for seasonal needs during this
period of the year, offset in large, by the Company's direction of reducing
inventory levels in the stores and warehouse.
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 28, 1996, the Company had $95,000 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 July
28, 1996.
The Company's current ratio as of July 28, 1996 was 2.74 versus 2.67 at fiscal
year end 1996 and 2.09 at July 30, 1995. The improvement in the Company's
current ratio compared to July 30, 1995 is due primarily to reduced inventory
levels.
For the six months ended July 28, 1996, inventory turnover improved to .93 from
.68 for the six months ended July 30, 1995. This improvement in inventory
turnover reflects the Company's commitment to reduce inventory levels and
streamline the merchandise flow process from its vendors to its stores.
<PAGE> 5
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
/s/ Neil T. Watanabe
--------------------------------------------------
Neil T. Watanabe
Senior Vice President and Chief Financial Officer
DATE: September 10, 1996
