-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, DPPBgMOBajARlFvZ5rliKlTSqSywogGt75xvcAIXVHAIQAgK7E+xBBLWoQWJzt5X rjZfyuiP3nBnpCDYrg2SoA== 0000950148-94-000469.txt : 19941214 0000950148-94-000469.hdr.sgml : 19941214 ACCESSION NUMBER: 0000950148-94-000469 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19941030 FILED AS OF DATE: 19941213 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAC FRUGALS BARGAINS CLOSE OUTS INC CENTRAL INDEX KEY: 0000078384 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-VARIETY STORES [5331] IRS NUMBER: 952745285 STATE OF INCORPORATION: DE FISCAL YEAR END: 0130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11164 FILM NUMBER: 94564570 BUSINESS ADDRESS: STREET 1: 2430 E DEL AMO BLVD CITY: DOMINGUEZ STATE: CA ZIP: 90220-6306 BUSINESS PHONE: 3105379220 MAIL ADDRESS: ZIP: ***** FORMER COMPANY: FORMER CONFORMED NAME: PIC N SAVE CORP DATE OF NAME CHANGE: 19920610 10-Q 1 FORM 10-Q, QUARTER REPORT 10/30/94 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 October 30, 1994 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 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 November 27, 1994 26,055,543 2 MAC FRUGAL'S BARGAINS * CLOSE-OUTS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Amounts in thousands except par value)
October 30, January 30, ----------- ----------- 1994 1994 Assets Current Assets : Cash and cash equivalents $ 8,707 $ 1,015 Merchandise inventories 232,973 181,755 Other current assets 15,368 15,114 --------- -------- Total current assets 257,048 197,884 Property, Equipment and Improvements : Land 31,432 27,109 Buildings and improvements 77,020 71,784 Automobiles and trucks 2,778 2,778 Furniture, fixtures and equipment 86,545 75,797 Leasehold improvements 72,245 64,843 Construction in progress 3,090 1,137 --------- -------- 273,110 243,448 Less: Accumulated depreciation and amortization (100,964) (89,628) --------- -------- 172,146 153,820 Deferred Federal and State Income Tax Asset 1,352 1,252 Deferred Financing Costs and Other Assets 4,305 5,177 --------- -------- Total Assets $ 434,851 $358,133 ========= ======== Liabilities and Stockholders' Equity Current Liabilities: Loan payable to bank $ 157,600 $ 34,900 Current portion of long-term debt 61 97 Accounts payable 16,354 13,444 Accrued expenses 34,294 31,726 Income taxes payable - - Sales tax payable 6,891 9,394 --------- -------- Total current liabilities 215,200 89,561 Long-Term Debt 4,288 3,869 Deferred Federal and State Income Taxes 7,353 7,353 Stockholders' Equity Preferred stock, $1 par value; authorized, 500 shares; issued, none Common stock, $.02778 par value; authorized, 100,000 shares; issued 29,826 shares (October 30, 1994) and 29,727 shares (January 30, 1994) 828 825 Additional paid-in capital 2,535 1,319 Retained earnings 269,711 256,033 --------- -------- 273,074 258,177 Less: Treasury stock, at cost, 3,457 shares (October 30,1994) and 55 shares (January 30,1994) (65,064) (827) --------- -------- Total Stockholders' Equity 208,010 257,350 --------- -------- Total Liabilities and Stockholders' Equity $ 434,851 $358,133 ========= ========
- ------------ See Notes to Consolidated Financial Statements. 2 3 MAC FRUGAL'S BARGAINS * CLOSE-OUTS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS ( UNAUDITED ) ( Amounts in thousands except per share amounts )
For the three months ended For the nine months ended -------------------------------- ------------------------------- October 30, October 31, October 30, October 31, 1994 1993 1994 1993 ----------- ----------- ----------- ----------- NET SALES $158,491 $140,581 $434,279 $383,359 Cost of sales 83,793 74,869 230,413 204,979 -------- -------- -------- -------- GROSS PROFIT 74,698 65,712 203,866 178,380 Store expenses 48,769 44,976 132,254 116,205 Warehouse and administrative expenses 14,918 13,070 44,136 38,744 -------- -------- -------- -------- TOTAL OPERATING EXPENSES 63,687 58,046 176,390 154,949 OPERATING INCOME 11,011 7,666 27,476 23,431 Interest expense, net 2,288 1,670 4,679 4,201 -------- -------- -------- -------- EARNINGS BEFORE INCOME TAXES 8,723 5,996 22,797 19,230 INCOME TAX EXPENSE 3,489 2,398 9,119 7,692 -------- -------- -------- -------- NET EARNINGS $ 5,234 $ 3,598 $ 13,678 $ 11,538 ======== ======== ======== ======== EARNINGS PER COMMON SHARE $0.19 $0.12 $0.47 $0.39 AVERAGE SHARES OUTSTANDING 28,142 29,869 29,042 29,892 ======== ======== ======== ========
- ------------ See Notes to Consolidated Financial Statements. 3 4
MAC FRUGAL'S BARGAINS * CLOSE-OUTS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) (Amounts in thousands) Common Stock Additional Treasury Stock ------------------- Paid-in Retained --------------------- Shares Amount Capital Earnings Shares Amount Total ------- ------ ---------- -------- ------ ------ -------- Balance, January 30, 1994 29,727 $825 $1,319 $256,033 55 $ (827) $257,350 Exercise of stock options 99 3 1,159 1,162 Non-cash compensation expense 57 57 Purchase of Treasury stock, at cost 3,402 (64,237) (64,237) Net earnings for nine months 13,678 13,678 ------ ---- ------ -------- ----- -------- -------- Balance, October 30, 1994 29,826 $828 $2,535 $269,711 3,457 $(65,064) $208,010 ====== ==== ====== ======== ===== ======== ========
- ----------- See Notes to Consolidated Financial Statements. 4 5 MAC FRUGAL'S BARGAINS * CLOSE-OUTS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands)
For the nine months ended --------------------------------- October 30, October 31, 1994 1993 ------------ ---------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS Cash flows from operating activities: Cash received from customers $ 434,279 $ 383,359 Cash paid to suppliers and employees (443,171) (390,814) Income taxes paid (9,868) (21,425) Interest paid (3,868) (4,935) Interest received 51 607 --------- --------- Net cash used in operating activities (22,577) (33,208) Cash flows from investing activities: Capital expenditures (30,212) (18,244) Proceeds from sale of fixed assets 473 25,879 --------- --------- Net cash (used in) provided by investing activities (29,739) 7,635 Cash flows from financing activities: Net borrowings under line of credit agreements 122,700 83,800 Repurchase of treasury stock (64,237) - Payment of long-term debt (82) (76,738) Proceeds from sale of stock options 1,162 435 Other (net) 465 360 --------- --------- Net cash provided by financing activities 60,008 7,857 --------- --------- Increase (decrease) in cash and cash equivalents 7,692 (17,716) Cash and cash equivalents, beginning of period 1,015 21,820 --------- --------- Cash and cash equivalents, end of period $ 8,707 $ 4,104 ========= =========
- ------------ See Notes to Consolidated Financial Statements. 5 6 MAC FRUGAL'S BARGAINS * CLOSE-OUTS INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands) (continued)
For the nine months ended ------------------------------- October 30, October 31, 1994 1993 ----------- ------------ Reconciliation of Net Income to Net Cash Used In Operating Activities: Net income $ 13,678 $ 11,538 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 11,590 11,446 Gain on sale of fixed assets (177) (1,789) Non-cash compensation expense 57 57 Changes in assets and liabilities: Increase in inventory (51,218) (61,393) Decrease (increase) in other assets 618 (16,403) (Increase) decrease in deferred income tax asset (100) 12,753 Increase in accounts payable, accrued expenses and sales tax payable 2,975 23,925 Decrease in federal and state income taxes - (14,717) Increase in deferred federal and state income taxes - 1,375 -------- -------- Total adjustments (36,255) (44,746) -------- -------- Net cash used in operating activities $(22,577) $(33,208) ======== ========
- ------------ See Notes to Consolidated Financial Statements. 6 7 MAC FRUGAL'S BARGAINS * CLOSE-OUTS INC. AND SUBSIDIARIES PART I - ITEM I - FINANCIAL STATEMENTS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 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 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 adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", effective February 1, 1993 with no significant income statement impact. This statement supersedes APB Opinion No. 11. The Company's effective tax rate during the third quarter and first nine months of fiscal 1994 was 40.0%. The provision for income tax expense was $3,489,000 and $9,119,000 for the third quarter and first nine months of fiscal 1994, respectively. 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 liability of $770,000 at October 30, 1994 and $915,000 at January 30, 1994. This change in net deferred tax liability is due to a reclassification from deferred income taxes to current income taxes payable. Other current assets on the balance sheet includes $5,231,000 and $5,186,000 of current deferred assets at October 30, 1994 and January 30, 1994, respectively. Other current assets also includes $927,000 of current refundable taxes at January 30, 1994. The Company provided no valuation allowance against its deferred tax assets recorded as of October 30, 1994 and January 30, 1994. Note 4 The Company repurchased 2,121,900 and 3,402,300 shares of its common stock in the third quarter and first nine months of fiscal 1994, respectively. The repurchase resulted in a dilution of the quarterly weighted average shares outstanding and, as such, the sum of the quarterly earnings per share exceeds annual earnings per share by $0.01. 7 8 PART I - ITEM II MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND INTERIM RESULTS OF OPERATIONS SALES - ----- Total sales and comparable store sales increased 12.7% and 3.5%, respectively, for the three months ended October 30, 1994 as compared to the same period a year ago. The total sales increase was a result of opening 39 net new stores since October 31, 1993 combined with the comparable store sales increase noted above but partially offset by sales from discontinued seasonal Christmas stores in the prior year. The comparable store sales increase in turn, was due to a better assortment of seasonal merchandise combined with improving store operations. At October 30, 1994, 267 stores were in operation compared to 228 year-round stores and 166 discontinued seasonal Christmas stores at October 31, 1993. The Company opened 10 net new stores during the current quarter. Total sales and comparable store sales increased 13.3% and 2.8%, respectively, for the nine months ended October 30, 1994 as compared to the same period a year ago. These increases are due to the same factors mentioned in the previous paragraph. Total sales in the prior year include $4,346,000 from discontinued seasonal Christmas stores for both the third quarter and first nine months ended October 31, 1993. Excluding these seasonal Christmas store sales from the prior year, the total sales increase for the third quarter and first nine months ended October 30, 1994 is 16.3% and 14.6%, respectively. Sales from the 151 California stores open at October 30, 1994 were approximately 63% of total sales for both the third quarter and first nine months of the current year. In addition, California stores produced comparable store sales increases during the third quarter. GROSS PROFIT RATE - ----------------- The gross profit rate of 47.1% and 46.9% for the current year third quarter and first nine months increased 0.4 percentage points over the same periods in the prior year. Both increases are primarily due to higher initial markups on goods acquired and shipped to stores in the current year compared to a year ago but were partially offset by higher markdowns as a percent of sales in the current year. The reserve rate for inventory shrinkage was the same for both the nine month and third quarter periods of both years. OPERATING EXPENSE RATES - ----------------------- Operating expenses were 40.2% and 40.6% of sales for the current year third quarter and first nine months, respectively. Prior year third quarter and first nine months operating expenses were 41.3% and 40.4% of sales, respectively. Last year's third quarter and nine month operating expenses included expenses from the discontinued Christmas stores. These expenses as a percent of the Christmas store sales were at a higher percentage than the expense to sales ratio of the combined Mac Frugal's/Pic 'N' Save stores. 8 9 Store expenses totaled 30.8% and 30.5% of sales for the third quarter and first nine months of fiscal 1994, respectively, while for the same periods of fiscal 1993 they were 32.0% and 30.3% of sales. Excluding the discontinued seasonal Christmas stores, store expenses were slightly higher in this year's third quarter and first nine months than the prior year. The increase was mainly due to higher rent, payroll and depreciation as a percentage of sales, offset only partially by lower advertising and supply expenses as a percentage of sales. These increases are to be expected during a phase of expansion. Administrative and warehouse expenses as a percentage of sales were slightly higher for the third quarter and for the first nine months of fiscal 1994, as compared to the same periods last year. General cost containment at the warehouses offset the effect of recognizing gains on the sale of land of $229,000 and $1,786,000 in the prior year third quarter and first nine months, respectively. INTEREST EXPENSE - ---------------- Net interest expense was $2,288,000 and $4,679,000 for the third quarter and first nine months of fiscal 1994, respectively. This compares to the $1,670,000 and $4,201,000 incurred during the same periods last year. Interest amounts are higher than last year due to higher average debt levels and higher interest rates. The proceeds of these increased borrowings were used to: (1) repurchase 3,457,400 shares of stock in the open market since October 31, 1993 for a total amount of $65,064,000; and (2) fund higher inventory levels to stock new stores and for the Christmas selling season. INCOME TAX RATE - --------------- The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes", effective February 1, 1993 with no significant income statement impact. This Statement supersedes APB Opinion No. 11 under which the Company provided for its income taxes prior to the adoption of SFAS No. 109. The income tax rate for the third quarter and first nine months of fiscal 1994 was 40.0%, and for interim reporting purposes, the entire provision for income tax is classified as current. The current rate of 40.0% reflects an increase from the fiscal 1993 rate of 39.6% for projected changes in permanent items. Income taxes were provided at a rate of 40.0% in the prior year third quarter and the first nine months of fiscal 1993. The Company had a net deferred tax liability of $770,000 at October 30, 1994 and $915,000 at January 30, 1994. This change in net deferred tax liability is due to a reclassification from deferred income taxes to current income taxes payable. Other current assets on the balance sheet includes $5,231,000 and $5,186,000 of current deferred assets at October 30, 1994 and January 30, 1994, respectively. Other current assets also includes $927,000 of current refundable taxes at January 30, 1994. 9 10 LIQUIDITY AND CAPITAL RESOURCES - ------------------------------- Cash and cash equivalents increased $7,692,000 in the first nine months of fiscal 1994 compared to a decrease of $17,716,000 in the first nine months of fiscal 1993. The major factors influencing the increase of cash and cash equivalents in the first nine months of the current year were lower income tax payments and higher net borrowings, partially offset by increased capital expenditures and continued repurchases of the Company's Common Stock. During the first nine months ended October 30, 1994, the Company repurchased 3,402,300 shares of its common stock in the open market at a weighted average price of $18.88 per share. The Company's long-term debt was 2.1% of equity and its total debt was 77.9% of equity at the end of the first nine months of fiscal 1994 compared to 1.9% and 37.3%, respectively, at October 31, 1993. At January 30, 1994, long-term debt was 1.5% of equity and total debt was 15.1% of equity. These changes reflect the Company's ongoing stock repurchase program, as well as the financing of higher merchandise inventory levels and capital expenditures for new stores. In addition, the Company earns most of its annual net income during the fourth quarter of the year. During the third quarter the Company amended its credit agreement. Among other things, the Company increased the size of its committed revolver to $200 million from $150 million, extended the maturity of the agreement by approximately one year to August 10, 1997, and increased the amount of shares that it may repurchase. 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 October 30, 1994, the Company had $157,600,000 of outstanding revolving debt. Of this outstanding debt, $136,000,000 was borrowed under committed lines and $21,600,000 was borrowed under uncommitted credit lines. A portion of the $157,600,000 outstanding revolving debt, based on a formula set forth in the amended credit agreement, must be paid down for forty-five consecutive days each year. The balance matures on August 10, 1997. The weighted average interest rate on the outstanding revolving debt at October 30, 1994 was 5.92%. The Company's current ratio at the end of the first nine months was 1.19 versus 1.68 at October 31, 1993. The change is primarily due to the growth in short-term borrowings to fund share repurchases. At January 30, 1994, the current ratio was 2.21. The end of the fiscal year generally represents the lowest inventory and debt positions on an annual basis. For the nine months ended October 30, 1994, inventory turnover decreased to 1.09 compared to 1.16 for the nine months ended October 31, 1993. The decrease in inventory turnover is primarily due to the buildup of inventory in preparation for the opening of new stores. 10 11 PART II - OTHER INFORMATION 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 October 30, 1994. 11 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/ Leonard S. Williams ------------------------------ Leonard S. Williams President and Chief Executive Officer (Principal Executive Officer) /s/ Philip L. Carter ------------------------------ Philip L. Carter Executive Vice President and Chief Financial Officer (Principal Accounting Officer) DATE: December 13, 1994 ----------------- 12 EX-27 2 EX-27 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS JAN-29-1995 JAN-31-1994 OCT-30-1994 8,707 0 0 0 232,973 257,048 273,110 100,964 434,851 215,200 0 828 0 0 207,182 434,851 434,279 434,279 230,413 230,413 176,390 0 4,679 22,797 9,119 13,678 0 0 0 13,678 0.47 0
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