<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE SECURITIES AND EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934.
For the transition period from __________________ to ___________________
Commission File Number : 33-61300 and 33-61096
UNITED MERCHANDISING CORP.
(Exact name of registrant as specified in its charter)
California
(State of Incorporation)
95-1854273
(I.R.S employer identification number)
2525 EAST EL SEGUNDO BOULEVARD
EL SEGUNDO, CALIFORNIA 90245
(310) 536-0611
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
Indicate by check mark whether the registrant 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). Yes X No ___
Indicate by check mark whether the registrant has been subject to such filing
requirements for the past 90 days. Yes X No ___
Indicate the number of shares outstanding for each of the registrant's classes
of common stock, as of the latest practicable date. 1,300 shares of common
stock, zero par value, at May 14, 1996.
1
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UNITED MERCHANDISING CORP.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Title Page 1
Index 2
PART I -FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Balance Sheets - March 31, 1996 and
December 31, 1995 3
Statements of Operations -
13 weeks ended March 31, 1996 and 13 weeks ended
April 2, 1995 4
Statements of Cash Flows -
13 weeks ended March 31, 1996 and 13 weeks ended
April 2, 1995 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of
Security-Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11-13
SIGNATURES 14
</TABLE>
2
<PAGE> 3
UNITED MERCHANDISING CORP.
Balance Sheets
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
--------- ---------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 4,523 $ 3,198
Trade and other receivables, net of allowance for doubtful
accounts of $614 and $267, respectively 2,750 3,377
Merchandise inventories 138,967 137,512
Prepaid expenses 968 1,106
--------- ---------
Total current assets 147,208 145,193
--------- ---------
Property and equipment:
Land 786 3,341
Buildings and improvements 13,318 13,261
Furniture and equipment 28,448 27,937
Less accumulated depreciation and
amortization (13,331) (12,023)
--------- ---------
Net property and equipment 29,221 32,516
--------- ---------
Leasehold interest, net of amortization of $10,154 and
$10,202, respectively 18,814 21,130
Other assets, at cost, less accumulated
amortization of $363 and $652, respectively 2,766 2,365
Excess of cost over net assets acquired, less
accumulated amortization of $692 and $630, respectively 5,853 5,915
--------- ---------
$ 203,862 $ 207,119
========= =========
Liabilities and stockholder's equity
Current liabilities:
Accounts payable $ 42,360 $ 42,812
Accrued expenses 24,535 27,387
--------- ---------
Total current liabilities 66,895 70,199
Deferred rent 4,436 4,252
Long-term debt, excluding current installments 108,594 103,594
--------- ---------
Total liabilities 179,925 178,045
--------- ---------
Commitments and contingencies
Stockholder's equity:
Common stock, no par value. Authorized 2,500 shares;
issued and outstanding 1,300 shares 35,080 35,080
Accumulated deficit (11,143) (6,006)
--------- ---------
Total stockholder's equity 23,937 29,074
--------- ---------
$ 203,862 $ 207,119
========= =========
</TABLE>
See accompanying notes to financial statements
3
<PAGE> 4
UNITED MERCHANDISING CORP.
Statements of Operations
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended
---------------------------------
March 31, 1996 April 2, 1995
-------------- --------------
<S> <C> <C>
Net sales $ 91,617 $ 83,433
Cost of goods sold, buying and occupancy 63,888 57,766
-------------- --------------
Gross profit 27,729 25,667
-------------- --------------
Operating expenses:
Selling and administrative 25,342 23,813
Depreciation and amortization 2,340 2,306
-------------- --------------
Total operating expenses 27,682 26,119
-------------- --------------
Operating income (loss) 47 (452)
Interest expense, net 2,962 2,957
-------------- --------------
Loss before
income taxes and extraordinary loss (2,915) (3,409)
Income taxes -.- -.-
-------------- --------------
Net loss before extraordinary loss (2,915) (3,409)
Extraordinary loss from early extinguishment of debt (2,222) -.-
-------------- --------------
Net loss $ (5,137) $ (3,409)
============== ==============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
UNITED MERCHANDISING CORP.
Statements of Cash Flows
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended
---------------------------------
March 31, 1996 April 2, 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,137) $ (3,409)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 2,340 2,306
Non-cash charge related to refinancing 1,063 -.-
Change in assets and liabilities:
Merchandise inventories (1,455) (6,892)
Trade and others accounts receivable 627 263
Prepaid expenses 138 503
Accounts payable (452) (15,691)
Accrued expenses (3,488) (4,675)
-------------- --------------
Net cash used in operating activities (6,364) (27,595)
-------------- --------------
Cash flows from investing activities:
Purchases of property and equipment (568) (1,296)
Purchase of assets held pending sale and leaseback (8,910) -.-
Proceeds from sale and leaseback of assets 13,900 -.-
Other assets (1,733) 1,320
-------------- --------------
Net cash provided by investing activities 2,689 24
-------------- --------------
Cash flows from financing activities:
Net borrowings under revolving credit facilities 72,144 24,300
Repayment of long-term debt, net (67,144) -.-
-------------- --------------
Net cash provided by financing activities 5,000 24,300
-------------- --------------
Net increase/(decrease) in cash and cash equivalents 1,325 (3,271)
Cash and cash equivalents at beginning of period 3,198 7,668
-------------- --------------
Cash and cash equivalents at end of period $ 4,523 $ 4,397
============== ==============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
UNITED MERCHANDISING CORP.
Notes to Financial Statements
(Dollars in thousands)
FINANCIAL INFORMATION
1. In the opinion of management of United Merchandising Corp. ("the
Company"), the accompanying unaudited financial statements contain all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly and in accordance with generally accepted accounting
principles the financial position and cash flows as of and for the period
ended March 31, 1996.
2. These financial statements should be read in conjunction with the
Company's 1995 audited financial statements included in the Company's
Report on Form 10-K.
3. Effective March 8, 1996, the Company entered into a Financing Agreement,
dated as of such date (the "CIT Credit Agreement"), between the Company
and The CIT Group/Business Credit, Inc., which provides the Company with a
three-year, non-amortizing, $100 million revolving debt facility (the "CIT
Facility"). Proceeds from the initial funding under the CIT Facility were
used to repay in full all of the obligations under the Company's revolving
debt facility with General Electric Capital Corporation (the "GECC
Facility"). The CIT Facility bears interest at a rate of LIBOR plus 2.5%,
or the Chemical Bank prime lending rate plus .75%, is secured by trade
accounts receivable, merchandise inventories and general intangible assets
(as defined) of the Company, and has a borrowing limit, including
advances, outstanding letters of credit and unreimbursed drawings under
letters of credit at any time equal to the lesser of $100 million and the
Borrowing Base. The Borrowing Base is equal to 65% of the aggregate value
of Eligible Inventory (as defined) from time to time.
4. On March 5, 1996 the Company entered into a sale and leaseback agreement
(the "transaction") with regard to its warehouse facility located in
Fontana, California. Prior to this transaction, the Company owned the land
associated with the facility and leased the buildings and improvements. In
contemplation of the transaction, the Company purchased the building and
improvements at a purchase price of $8,910. The transaction was then
completed with the sale of the land, building and improvements at a sale
price of $13,900. The gain on the transaction was insignificant and will
be amortized on a straight-line basis over the related lease term. The net
cash proceeds after expenses totaled $4,728, which were used to repay a
portion of the GECC Facility. Under the leaseback agreement the Company
has committed to lease the facility for ten years under a noncancelable
operating lease.
5. The Company has adopted Statement of Financial Accounting Standards No.
121 (FAS 121), "Accounting for the Impairment of Long-Live Assets and for
Long-Lived assets to be Disposed of," issued in March 1995 and effective
for fiscal years beginning after December 15, 1996, which establishes
accounting standards for the recognition and measurement of impairment of
long-lived assets, certain identifiable intangibles and goodwill. There
has been no material impact on the Company's financial position or results
of operations related to FAS 121 for the 13 weeks ended March 31, 1996.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(Dollars in thousands)
RESULTS OF OPERATIONS
The results of the interim periods are not necessarily indicative of results for
the entire year.
13 Weeks Ended March 31, 1996 versus 13 Weeks Ended April 2, 1995
The following table sets forth for the periods indicated operating results in
thousands of dollars and expressed as a percentage of sales.
<TABLE>
<CAPTION>
Thirteen Weeks Ended
---------------------------------------------------------------
March 31, 1996 April 2, 1995
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Net sales $ 91,617 100.0% $ 83,433 100.0%
Cost of goods sold, buying and occupancy 63,888 69.7 57,766 69.2
-------- -------- -------- --------
Gross profit 27,729 30.3 25,667 30.8
-------- -------- -------- --------
Operating expenses:
Selling and administrative 25,342 27.7 23,813 28.5
Depreciation and amortization 2,340 2.5 2,306 2.8
-------- -------- -------- --------
Total operating expense 27,682 30.2 26,119 31.3
-------- -------- -------- --------
Operating income (loss) 47 0.1 (452) (0.5)
Interest expense, net 2,962 3.3 2,957 3.6
-------- -------- -------- --------
Loss before income taxes
and extraordinary loss (2,915) (3.2) (3,409) (4.1)
Income taxes -.- -.- -.- -.-
-------- -------- -------- --------
Net loss before extraordinary loss (2,915) (3.2) (3,409) (4.1)
Extraordinary loss from early
extinguishment of debt (2,222) (2.4) -.- -.-
-------- -------- -------- --------
Net loss ($ 5,137) (5.6%) ($ 3,409) (4.1%)
======== ======== ======== ========
EBITDA (a) $ 2,387 2.6% $ 1,854 2.2%
</TABLE>
(a) EBITDA represents net income before taking into consideration interest
expense, income tax expense, depreciation expense, amortization expense
and non-cash rent expense.
7
<PAGE> 8
1. Sales
Net sales for the 13 weeks ended March 31, 1996 of $91,617 increased 9.8%
(or $8,184) from $83,433 reported for the 13 weeks ended April 2, 1995.
Same store sales increased 1.5% compared with the same period last year,
reflecting improved economic and weather conditions between periods. Sales
generated from an increase in store count from 176 at April 2, 1995 to 193
at March 31, 1996 created the remaining 8.3% of the 9.8% sales increase for
the quarter.
2. Gross Profit
Gross profit increased 8.0% (or $2,062) from $25,667 for the 13 weeks ended
April 2, 1995 to $27,729 for the 13 weeks ended March 31, 1996 reflecting
the increased sales achieved by the Company during the first quarter of
1996. The Company's gross profit margin declined from 30.8% of sales in the
1995 quarter to 30.3% of sales in the 1996 period. This decrease was
primarily due to an increase in sales of lower margin ski related products
during the 13 weeks ended March 31, 1996 versus the comparable period last
year.
3. Operating Expenses
Selling and administrative expenses increased 6.4% (or $1,529) from $23,813
for the 13 weeks ended April 2, 1995 to $25,342 for the 13 weeks ended
March 31, 1996. This increase resulted primarily from the store growth
achieved by the Company during the past year. When measured as a percentage
of sales, selling and administrative expenses decreased from 28.5% of sales
for the 1995 period to 27.7% of sales in 1996 period. This decrease
reflects the Company's reduction of variable expense categories in response
to general weakness in the economy.
Depreciation and amortization increased 1.5% (or $34) from $2,306 for the
prior year period to $2,340 for the 13 weeks ended March 31, 1996.
4. Interest Expense, Net
Interest expense increased 0.2% (or $5) from $2,957 for the prior
year period to $2,962 for the 13 weeks ended March 31, 1996.
5. Extraordinary Loss from Early Extinguishment of Debt
During the 13 weeks ended March 31, 1996, the Company refinanced its
indebtedness under the GECC Facility with borrowings under the CIT
Facility. In connection with the refinancing, the Company accelerated
amortization of $1,063 of certain fees and paid $1,159 in prepayment
premium and other fees. Accordingly, a charge of $2,222 is recorded as an
extraordinary loss for the 13 weeks ended March 31, 1996. No such event
occurred during the 13 weeks ended April 2, 1995.
6. Net Loss
Net loss for the 13 weeks ended March 31, 1996 increased to $5,137 from
a net loss of $3,409 for the 13 weeks ended April 2, 1995, reflecting the
extraordinary loss described above.
8
<PAGE> 9
Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA")
EBITDA increased 28.7% (or $533) from $1,854 for the 13 weeks ended April 2,
1995 to $2,387 for the 13 weeks ended March 31, 1996. Increased sales coupled
with the Company's focus on expenses were the primary factors contributing to
this increase.
LIQUIDITY AND CAPITAL RESOURCES
Effective March 8, 1996, the Company entered into the CIT
Credit Agreement, which provides the Company with a three-year, non-amortizing,
$100 million revolving debt facility (the "CIT Facility"). Proceeds from the
initial funding under the CIT Facility were used to repay in full all of the
Company's obligations under its existing GECC Facility. The CIT Facility bears
interest at a rate of LIBOR plus 2.5%, or the Chemical Bank prime lending rate
plus .75%, is secured by trade accounts receivable, merchandise inventories and
general intangible assets (as defined) of the Company, and has a borrowing
limit, including advances, outstanding letters of credit and unreimbursed
drawings under letters of credit at any time equal to the lesser of $100
million and the Borrowing Base. The Borrowing Base is equal to 65% of the
aggregate value of Eligible Inventory (as defined) from time to time. The
Company is in compliance with all of the covenants under the CIT Credit
Agreement. As of March 31, 1996, an aggregate of $72,144 was outstanding under
the CIT Facility.
As of March 31, 1996, the Company maintained a cash and cash equivalents
balance of $4,523 versus a balance of $4,397 at April 2, 1995.
Net cash used in operating activities was $6,364 for the 13 weeks ended
March 31, 1996 versus $27,595 for the 13 weeks ended April 2, 1995. Reduced
inventory purchases and related payables decreases were the primary factors in
the improvement in cash requirements for this year's period. The Company's
inventory levels were 12.0% (or $18,976) lower than last year's comparable
period levels, totaling $138,967 at March 31, 1996 versus $157,943 at April 2,
1995. This reduction has been accomplished even as the Company has grown its
store base from 176 at April 2, 1995 to 193 at March 31, 1996. Net cash
provided by investing activities was $2,689 for the 13 weeks ended March 31,
1996 versus $24 for the 13 weeks ended April 2, 1995 reflecting $4,728 in net
proceeds from the sale/leaseback of the Company's Fontana distribution center.
The cumulative effect of net cash used in operating activities and net cash
provided by investing activities resulted in net cash required by financing
activities of $5,000 for the 13 weeks ended March 31, 1996 versus $24,300
for the 13 weeks ended April 2, 1995, and an increase in cash and cash
equivalents of $1,325 versus a decrease of $3,271 for the comparable
13 week periods in 1996 and 1995, respectively.
The Company believes that net cash provided by operating activities and
borrowings under the CIT Facility will be sufficient to fund anticipated capital
expenditures and working capital requirements.
9
<PAGE> 10
IMPACT OF INFLATION
Although the operations of the Company are influenced by general
economic conditions, the Company does not believe that inflation has had a
material effect on its results of operations during the 13 weeks ended March 31,
1996.
10
<PAGE> 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various legal actions arising in the
ordinary course of business. In the opinion of management, the
ultimate disposition of matters currently pending against the
Company will not have a material adverse effect on the Company's
financial position.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security-Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Exhibit No. Description
----------- -----------
3.1 (a)* Articles of Incorporation of the Company
filed with the California Secretary of
State on September 7, 1955.
3.1 (b) * Amendment to Articles of Incorporation of
the Company filed with the California
Secretary of State on September 21, 1992.
3.2 * By laws of the Company.
4.1 * Indenture among the Company, Big 5
Holdings and First Trust National
Association relating to the Notes dated as
of September 25, 1992.
4.2 * Form of the Notes.
4.3 * Purchase Agreement among the Company, Big
5 Holdings and the original purchasers of
the Notes dated as of September 25, 1992.
11
<PAGE> 12
Exhibit No. Description
----------- -----------
4.4 * Registration Rights Agreement among the
Company, Big 5 Holdings and the original
purchasers of the Notes dated as of
September 25, 1992.
10.1(a) *** Financing Agreement dated March 8, 1996
between The CIT Group/Business Credit, Inc.
and the Company.
10.1(b) *** Grant of Security Interest in and
Collateral Assignment of Trademarks and
Licenses dated as of March 8, 1996 by the
Company in favor of The CIT Group/Business
Credit, Inc.
10.1(c) *** Guarantee dated March 8, 1996 by Big 5
Corporation in favor of The CIT
Group/Business Credit, Inc.
10.2 * Tax Indemnity Agreement by and among PE,
TCH, Thrifty and Big 5 Holdings dated as of
September 25, 1992.
10.4 (a) ** Amended and Restated Indemnification
Implementation Agreement between UMC and
TPH dated as of April 20, 1994.
10.4 (b) ** Agreement and Release among PE, TPH, TPI,
Thrifty and UMC dated as of March 11, 1994.
10.5 (a) * Big 5 Corporation 1992 Equity Plan.
10.5 (b) * Stock Subscription Agreement between Parent
and GEI dated as of September 25, 1992.
10.6 (a) * Employment Agreement between the Company
and Robert W. Miller dated as of January 1,
1993.
10.6 (b) * Employment Agreement between the Company
and Steve G. Miller dated as of January 1,
1993.
10.6 (d) * Sublease between the Company and Thrifty
dated as of September 25, 1992 (1).
10.6 (e) * Form of Amendment of Registration Rights
Agreement among the Company, Big 5 Holdings
and Holders of the Securities (re: ongoing
registration rights).
10.6 (f) * Form of Amendment of Registration Rights
Agreement among the Company, Big 5 Holdings
and Holders of the Securities (re:
extension of Effectiveness Date)
12
<PAGE> 13
Exhibit No. Description
----------- -----------
10.7(a)*** Agreement of Purchase and Sale among the
Company and the State of Wisconsin dated as
of February 13, 1996.
10.7(b)*** Lease among the Company (Lessee) and the
State of Wisconsin Investment Board
(Lessor) dated as of March 5,1996.
21 Subsidiaries of the Company: None
--------------------------------------------
* Incorporated by reference to the Company's
Registration Statement on Form S-4 (file
no. 33-61096) effective as of June 29,
1993.
** Incorporated by reference to the Company's
report on Form 10-K for the year ended
January 1, 1995.
*** Incorporated by reference to the Company's
report on Form 10-K for the year ended
December 31, 1995.
(b) Reports on Form 8-k
None.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15 (d) OF THE ACT BY REGISTRANTS WHICH HAVE
NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT.
The Company has not provided any annual report covering its last
fiscal year nor any proxy statement to security holders.
13
<PAGE> 14
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.
UNITED MERCHANDISING CORP.,
A CALIFORNIA CORPORATION
Date: 05/14/96 By: /S/ STEVEN G. MILLER
------------------------------------------
Steven G. Miller
President and
Chief Operating Officer
Date: 05/14/96 By: /S/ CHARLES P. KIRK
------------------------------------------
Charles P. Kirk
Senior Vice President and
Chief Financial Officer
(Principal Financial and Accounting Officer)
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S STATEMENTS OF EARNINGS AND BALANCE SHEETS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 4,523
<SECURITIES> 0
<RECEIVABLES> 2,750
<ALLOWANCES> 614
<INVENTORY> 138,967
<CURRENT-ASSETS> 147,208
<PP&E> 29,221
<DEPRECIATION> 13,331
<TOTAL-ASSETS> 203,862
<CURRENT-LIABILITIES> 66,895
<BONDS> 108,594
0
0
<COMMON> 35,080
<OTHER-SE> (11,143)
<TOTAL-LIABILITY-AND-EQUITY> 203,862
<SALES> 91,617
<TOTAL-REVENUES> 91,617
<CGS> 63,888
<TOTAL-COSTS> 63,888
<OTHER-EXPENSES> 27,682
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,962
<INCOME-PRETAX> (2,915)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,915)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,222)
<CHANGES> 0
<NET-INCOME> (5,137)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
