<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 30, 1997
[ ] 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 13, 1997.
<PAGE> 2
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 30, 1997 and
December 29, 1996 3
Statements of Operations -
13 weeks ended March 30, 1997 and 13 weeks ended
March 31, 1996 4
Statements of Cash Flows -
13 weeks ended March 30, 1997 and 13 weeks ended
March 31, 1996 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 30, December 29,
1997 1996
--------- ------------
<S> <C> <C>
Assets (Unaudited)
Current assets:
Cash and cash equivalents $ 2,649 $ 4,797
Trade and other receivables, net of allowance for doubtful
accounts of $545 and $464, respectively 2,128 4,054
Merchandise inventories 143,712 134,886
Prepaid expenses 553 1,031
--------- ---------
Total current assets 149,042 144,768
--------- ---------
Property and equipment:
Land 186 186
Buildings and improvements 13,978 13,776
Furniture and equipment 30,877 30,647
Less accumulated depreciation and amortization (18,050) (17,079)
--------- ---------
Net property and equipment 26,991 27,530
--------- ---------
Deferred imcome taxes, net 1,700 1,700
Leasehold interest, net of accumulated amortization of
$12,558 and $12,117, respectively 15,934 16,375
Other assets, at cost, less accumulated
amortization of $879 and $713, respectively 1,849 1,829
Goodwill, less accumulated amortization of $893
and $878, respectively 5,606 5,667
--------- ---------
$ 201,122 $ 197,869
========= =========
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable $ 45,602 $ 44,239
Accrued expenses 22,470 28,368
Income taxes payable 37 1,733
--------- ---------
Total current liabilities 68,109 74,340
Deferred rent 5,419 5,224
Long-term debt 96,450 86,450
--------- ---------
Total liabilities 169,978 166,014
--------- ---------
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 (3,936) (3,225)
--------- ---------
Total stockholder's equity 31,144 31,855
--------- ---------
$ 201,122 $ 197,869
========= =========
</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 30, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Net sales $ 96,790 $ 91,617
Cost of goods sold, buying and occupancy 66,583 63,888
-------- --------
Gross profit 30,207 27,729
-------- --------
Operating expenses:
Selling and administrative 26,239 25,342
Depreciation and amortization 1,967 2,340
-------- --------
Total operating expenses 28,206 27,682
-------- --------
Operating income 2,001 47
Interest expense, net 2,711 2,962
-------- --------
Loss before
income taxes and extraordinary loss (710) (2,915)
Income taxes -.- -.-
-------- --------
Net loss before extraordinary loss (710) (2,915)
Extraordinary loss from early extinguishment of debt -.- (2,222)
-------- --------
Net loss $ (710) $ (5,137)
======== ========
</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 30, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (710) $ (5,137)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 1,967 2,340
Amortization of deferred finance charge 166 124
Extraordinary loss from early extinguishment of debt -.- 2,222
Change in assets and liabilities:
Merchandise inventories (8,826) (1,455)
Trade accounts receivable, net 1,926 627
Prepaid expenses and other assets 286 (284)
Income taxes (1,696) -.-
Accounts payable 1,363 (452)
Accrued expenses (5,898) (3,488)
-------- --------
Net cash used in operating activities (11,422) (5,503)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment (726) (568)
Purchase of assets held pending sale and leaseback -.- (8,910)
Proceeds from sale of property and equipment -.- 13,900
-------- --------
Net cash provided by (used in) investing activities (726) 4,422
-------- --------
Cash flows from financing activities:
Net borrowings under revolving credit facilities 10,000 5,000
Debt issuance costs -.- (1,434)
Debt prepayment premiums -.- (1,160)
-------- --------
Net cash provided by financing activities 10,000 2,406
-------- --------
Net increase/(decrease) in cash and cash equivalents (2,148) 1,325
Cash and cash equivalents at beginning of period 4,797 3,198
-------- --------
Cash and cash equivalents at end of period $ 2,649 $ 4,523
======== ========
</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 30, 1997.
2. These financial statements should be read in conjunction with the
Company's 1996 audited financial statements included in the Company's
Report on Form 10-K.
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 30, 1997 versus 13 Weeks Ended March 31, 1996
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 30, 1997 March 31, 1996
-------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 96,790 100.0% $ 91,617 100.0%
Cost of goods sold, buying and occupancy 66,583 68.8 63,888 69.7
-------- ----- -------- -----
Gross profit 30,207 31.2 27,729 30.3
-------- ----- -------- -----
Operating expenses:
Selling and administrative 26,239 27.1 25,342 27.7
Depreciation and amortization 1,967 2.0 2,340 2.5
-------- ----- -------- -----
Total operating expense 28,206 29.1 27,682 30.2
-------- ----- -------- -----
Operating income 2,001 2.1 47 0.1
Interest expense, net 2,711 2.8 2,962 3.3
-------- ----- -------- -----
Loss before income taxes
and extraordinary loss (710) (0.7) (2,915) (3.2)
Income taxes -.- -.- -.- -.-
-------- ----- -------- -----
Net loss before extraordinary loss (710) (0.7) (2,915) (3.2)
Extraordinary loss from early
extinguishment of debt -.- -.- (2,222) (2.4)
-------- ----- -------- -----
Net loss ($ 710) (0.7%) ($ 5,137) (5.6%)
======== ===== ======== =====
EBITDA (a) $ 3,968 4.1% $ 2,387 2.6%
</TABLE>
(a) EBITDA represents net income before taking into consideration interest
expense, income tax expense, depreciation expense, amortization expense,
non-cash rent expense, and extraordinary loss from early extinguishment of
debt.
7
<PAGE> 8
1. Net Sales
Net sales increased 5.6% (or $5,173) from $91,617 reported for the 13 weeks
ended March 31, 1996 to $96,790 for the 13 weeks ended March 30, 1997. Same
store sales increased 4.6% compared with the same period last year,
reflecting improved economic conditions in the regions in which the Company
operates, together with strong advertising and merchandising programs.
Sales generated from an increase in store count from 193 at March 31, 1996
to 196 at March 30, 1997 contributed the remainder of the 5.6% sales
increase for the quarter. Same store sales would have increased 6.0% and
total sales would have increased 7.0% for the 13 weeks ended March 30,
1997, except for the timing of the Easter holiday which was in March this
year and in April last year resulting in one less day of sales in this
year's quarter. The Company will receive the benefit of the timing related
extra day in its second quarter results.
2. Gross Profit
Gross profit increased 8.9% (or $2,478) from $27,729 for the 13 weeks ended
March 31, 1996 to $30,207 for the 13 weeks ended March 30, 1997 reflecting
increased sales discussed above and improved gross profit margin. Gross
profit margin increased from 30.3% of sales in the 1996 quarter to 31.2% of
sales this year. The improvement in gross profit margin for the 13 weeks
ended March 30, 1997 reflected positive comparisons in the majority of the
Company's product categories.
3. Operating Expenses
Selling and administrative expenses increased 3.5% (or $897) from $25,342
for the 13 weeks ended March 31, 1996 to $26,239 for the 13 weeks ended
March 30, 1997. This increase resulted primarily from wage inflation and an
increase in the Company's store base from 193 stores last year to 196 at
the end of March 1997. When measured as a percentage of sales, selling and
administrative expenses decreased from 27.7% of sales for the 1996 period
to 27.1% of sales in the 1997 period, reflecting management's continued
focus on controlling expenses and its leveraging of fixed costs due to
increased sales.
Depreciation and amortization decreased 15.9% (or $373) from $2,340 for the
prior year period to $1,967 for the 13 weeks ended March 30, 1997. This
decrease reflected reduced capital spending as the Company temporarily
reduced its store growth program in 1996. During 1997, the Company has
resumed its historical store growth program with plans to open 14 to 16 new
stores during the year.
4. Interest Expense, Net
Interest expense, net decreased 8.5% (or $251) from $2,962 for the prior
year period to $2,711 for the 13 weeks ended March 30, 1997. This decrease
reflected lower average borrowing levels on the Company's revolving credit
facility during the current year period resulting from improved earnings, a
continued focus on inventory reduction, and the Company's reduced level of
store growth in 1996 compared to prior years. The Company's revolving debt
balance was $60,000 at March 30, 1997 versus a balance of $72,144 at 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 a prior credit facility with borrowings under a new
facility with the CIT Group/Business Credit, Inc.. In connection with the
refinancing, the Company accelerated amortization of $1,062 of certain fees
and paid $1,160 in prepayment premium and other fees. Accordingly, a charge
of $2,222 was recorded
8
<PAGE> 9
as an extraordinary loss for the 13 weeks ended March 31, 1996. No such
event occurred during the 13 weeks ended March 30, 1997.
6. Net Loss
Net loss for the 13 weeks ended March 30, 1997 decreased to $710 from a
net loss of $5,137 for the 13 weeks ended March 31, 1996. This improvement
reflects the positive sales and gross profit results achieved during the 13
weeks ended March 30, 1997. In addition, first quarter 1996 results were
impacted by the extraordinary loss described above.
Earnings Before Interest, Taxes, Depreciation, and Amortization ("EBITDA")
EBITDA increased 66.2% (or $1,581) from $2,387 for the 13 weeks ended March 31,
1996 to $3,968 for the 13 weeks ended March 30, 1997. Increased same store
sales, gross margin and operating efficiencies were the primary factors
contributing to the improvement.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a credit agreement with The CIT Group/Business Credit, Inc.
(the "CIT Credit Agreement"), which provides the Company with a three-year,
non-amortizing, $100,000 revolving debt facility (the "CIT 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 $100,000 and the Borrowing Base. The Borrowing Base is equal to
65% of the aggregate value of Eligible Inventory (as defined) from time to time.
As of March 30, 1997, the Company maintained eligible inventory of $134,723 with
an aggregate balance of $60,000 outstanding under the CIT facility. This balance
compares to an aggregate balance of $72,144 outstanding on March 31, 1996. The
Company is in compliance with all of the covenants under the CIT Credit
Agreement.
As of March 30, 1997, the Company maintained a cash and cash equivalents
balance of $2,649 versus a balance of $4,523 at March 31, 1996.
Net cash used in operating activities was $11,422 for the 13 weeks ended
March 30, 1997 versus $5,503 for the 13 weeks ended March 31, 1996. The primary
factor in the increase in cash requirements for this year's period was increased
inventory purchases as the Company normalized its inventory purchasing after a
planned program which resulted in reduced inventory purchases in prior year
periods. Net cash used in investing activities of $726 during the 1997 quarter
compared to net cash provided by investing activities of $4,422 for the 13 weeks
ended March 31, 1996. Last year's cash flow benefitted from the positive impact
of $4,990 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 $10,000 for the 13 weeks ended March 30,
1997 versus $2,406 for the 13 weeks ended March 31, 1996, and a decrease in cash
9
<PAGE> 10
and cash equivalents of $2,148 versus an increase of $1,325 for the comparable
13 week periods in 1997 and 1996, 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 for the foreseeable future.
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 30, 1997.
FORWARD-LOOKING STATEMENTS
Certain information contained herein includes "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995 and
is subject to the safe harbor created by that Act. Forward-looking statements
can be identified by the use of forward-looking terminology, such as "may,"
"will," "should," "expect," "anticipate," "estimate," "continue," "plan,"
"intend" or other similar terminology. Such forward-looking statements, which
relate to, among other things, the financial condition, results of operations
and business of the Company, are subject to certain risks and uncertainties that
could cause actual results to differ materially from those set forth in such
statements. These include, without limitation, the Company's ability to open new
stores on a timely and profitable basis, the impact of competition on revenues
and margins, the effect of weather conditions and general economic conditions in
the western United States (which is the Company's area of operation), the
seasonal nature of the Company's business, and other risks and uncertainties as
may be detailed from time to time in the Company's public announcements and
filings with the Securities and Exchange Commission.
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
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
2.1* Purchase and Sale Agreement among Big 5 Holdings,
Thrifty and PE dated as of May 22, 1992.
3.1(a)* Certificate 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* Bylaws of the Company.
4.1* Indenture among the Company, Big 5 Holdings and
First Trust National Association relating to the
Senior Notes dated as of September 25, 1992.
4.2* Form of the Senior Notes.
4.3* Purchase Agreement among the Company, Big 5
Holdings and the original purchasers of the
Senior Notes dated as of September 25, 1992.
4.4* Registration Rights Agreement among the Company,
Big 5 Holdings and the original purchasers of the
Senior Notes dated as of September 25, 1992.
</TABLE>
11
<PAGE> 12
<TABLE>
<S> <C>
4.5* Form of Amendment of Registration Rights
Agreement among the Company, Big 5 Holdings and
Holders of the Senior Notes (re: ongoing
registration rights).
4.6* Form of Amendment of Registration Rights
Agreement among the Company, Big 5 Holdings and
Holders of the Senior Notes (re: extension of
Effectiveness Date).
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, TPH,
Thrifty and Big 5 Holdings dated as of September
25, 1992.
10.3(a)** Amended and Restated Indemnification
Implementation Agreement between UMC and TPH
dated as of April 20, 1994.
10.3(b)** Agreement and Release among PE, TPH, TPI, Thrifty
and UMC dated as of March 11, 1994.
10.4(a)* Big 5 Corporation 1992 Equity Plan.
10.4(b)* Stock Subscription Agreement between Parent and
GEI dated as of September 25, 1992.
10.5(a)* Employment Agreement between the Company and
Robert W. Miller dated as of January 1, 1993.
10.5(b)* Employment Agreement between the Company and
Steve G. Miller dated as of January 1, 1993.
10.5(d)* Sublease between the Company and Thrifty dated as
of September 25, 1992 (1).
10.6(a)*** Agreement on Purchase and Sale among the Company
and the State of Wisconsin dated as of February
13, 1996.
10.6(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
27 Financial Data Schedule.
</TABLE>
--------------------------------------------
12
<PAGE> 13
* 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: 05/14/97 By: /S/ STEVEN G. MILLER
--------------------------------------------
Steven G. Miller
President and
Chief Operating Officer
Date: 05/14/97 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-28-1997
<PERIOD-END> MAR-30-1997
<CASH> 2,649
<SECURITIES> 0
<RECEIVABLES> 2,128
<ALLOWANCES> 545
<INVENTORY> 143,712
<CURRENT-ASSETS> 149,042
<PP&E> 26,991
<DEPRECIATION> 18,050
<TOTAL-ASSETS> 201,122
<CURRENT-LIABILITIES> 68,109
<BONDS> 96,450
0
0
<COMMON> 35,080
<OTHER-SE> (3,936)
<TOTAL-LIABILITY-AND-EQUITY> 201,122
<SALES> 96,790
<TOTAL-REVENUES> 96,790
<CGS> 66,583
<TOTAL-COSTS> 66,583
<OTHER-EXPENSES> 28,206
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,711
<INCOME-PRETAX> (710)
<INCOME-TAX> 0
<INCOME-CONTINUING> (710)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (710)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
