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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JANUARY 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
COMMISSION FILE NUMBER 0-6672
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 95-2745285
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
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
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock ($.02778 Par Value) New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NOT APPLICABLE
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of shares of the voting stock held by
non-affiliates of the Company, based on the closing sale price of such stock on
the New York Stock Exchange on April 22, 1994, was approximately $433,308,654.
The number of shares of Common Stock outstanding as of April 22, 1994 was
29,367,775.
Documents Incorporated by Reference
Portions of the Company's definitive proxy statement relating to the 1994
Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission are incorporated by reference into Part III hereof.
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TABLE OF CONTENTS
ITEM NO. IN
FORM 10-K PAGE
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PART I
1. BUSINESS...................................................................................... 1
General....................................................................................... 1
Merchandise and Suppliers..................................................................... 1
Warehousing and Distribution.................................................................. 2
Retail Stores................................................................................. 2
Employees..................................................................................... 3
Competition................................................................................... 3
Trademarks.................................................................................... 3
Restrictions on Imports....................................................................... 3
2. PROPERTIES.................................................................................... 4
Retail Stores................................................................................. 4
Corporate Offices and Warehouse Facilities.................................................... 5
3. LEGAL PROCEEDINGS............................................................................. 6
4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS............................................. 6
PART II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS........................................................................... 6
6. SELECTED FINANCIAL DATA....................................................................... 7
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS......................................................................... 7
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................................... 10
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.......... 11
PART III
10.-13. THE INFORMATION REQUIRED BY ITEMS 10-13 OF FORM 10-K IS INCORPORATED BY REFERENCE FROM THE
COMPANY'S DEFINITIVE PROXY MATERIALS FOR ITS ANNUAL MEETING OF STOCKHOLDERS TO BE HELD IN
1994.......................................................................................... 11
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K............................... 11
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PART I
ITEM 1. BUSINESS
GENERAL
Mac Frugal's Bargains o Close-outs Inc. (collectively with its
subsidiaries, the "Company") was incorporated under the laws of the state of
Delaware in 1971 as successor to a number of entities, the first of which was
founded in 1950. The Company's principal executive offices are located at 2430
E. Del Amo Boulevard in Dominguez, California, a suburb of Los Angeles. The
Company maintains centralized buying, personnel, systems, pricing, advertising,
merchandising, real estate and accounting functions at its principal executive
offices. See ITEM 2. "Properties -- Corporate Offices and Warehouse Facilities".
The Company currently operates a chain of 237 retail stores that
specialize in the sale of new "close-out" merchandise which is purchased from
manufacturers and wholesalers at prices less than initial wholesale prices and
is sold at prices below normal retail prices. The Company's stores are operated
under the names "Pic 'N' Save" and "Mac Frugal's Bargains o Close-outs" and
collectively offer, on a self-service basis, a wide selection of close-out
merchandise, including apparel and accessories, notions, novelties, toys, games,
stationery, greeting cards, books, candles, luggage, artificial flowers, beauty
aids, candy, snacks, beverages, housewares, domestics, Christmas theme items and
giftwares. The Company targets value oriented consumers, and merchandise is
currently sold on a cash-and-carry basis, with certain credit cards accepted.
During the fall of 1993 and 1992, the Company developed a seasonal
store concept that operated under the names Christmas Close-outs and Christmas
Enchantments. The Company operated 168 and 25 of these seasonal stores in 1993
and 1992, respectively. These seasonal stores offered new Christmas theme
merchandise purchased from manufacturers at prices less than initial wholesale
prices and were sold at prices below normal retail prices. Categories of
merchandise available in these stores was similar to the Christmas seasonal
merchandise offered in the year-round stores. The Christmas Close-outs and
Christmas Enchantments stores were generally operated for the three months from
October through Christmas. The Company has put further development of this
concept on hold for the reasons discussed later in this section under "Retail
Stores".
At January 30, 1994, 141 of the Company's year-round retail stores
operated under the name "Mac Frugal's Bargains o Close-outs". The remaining 96
year-round stores, located in Southern California, operated under the name "Pic
'N' Save".
For the year ended January 30, 1994 (fiscal 1993), approximately 56%
of the Company's year-round stores were located in California and generated
approximately 64% of the sales from year-round stores. The Company believes
California entered the current recession some time in 1991. In addition to
facing some of the same factors that influence the national and global
economies, California has been challenged by reductions in aerospace and federal
defense spending which have adversely affected California unemployment rates
relative to national unemployment rates. The economic hardship felt by
unemployed individuals has led to a general reduction of retail spending in
California as measured by reduced sales tax receipts by the State of California.
This reduction has adversely impacted the Company's California sales during
fiscal 1993 and 1992.
There has also been a general decline in California commercial real
estate values and an increase in commercial vacancies since approximately 1990.
The Company has benefitted from this decline as a result of its position as
lessee or buyer of sites for additional California stores.
Seasonal fluctuations in the Company's sales have followed the
traditional trend in the retail industry, with a substantial portion of its
annual sales volume and annual earnings occurring during the fourth quarter of
its fiscal year. The Company expects this pattern to continue in the future but
with less of the extreme experienced in fiscal 1993 as a result of putting the
Christmas season store concept on hold.
MERCHANDISE AND SUPPLIERS
Close-out merchandise is new merchandise that is available to the
Company at prices less than initial wholesale prices for a variety of reasons,
including the inability of a manufacturer or wholesaler to dispose of a larger
supply of merchandise through normal channels, the discontinuance of merchandise
due to a change in style, color, shape or packaging, the insufficiency of sales
to justify continued production of an item, or the termination of business by a
manufacturer or wholesaler.
The Company purchases merchandise at prices less than initial
wholesale prices, allowing the Company to sell its merchandise to customers at
what the Company believes are below normal retail prices. Therefore, although
general categories of merchandise are usually available, specific lines, items
and manufacturers frequently change, depending upon the availability of
close-out merchandise at suitable prices. In order to ensure supply and
attractive pricing, the Company will often purchase close-out merchandise in
large quantities and some seasonal merchandise out of season.
The Company buys merchandise, including numerous national brands, from
more than 2,000 suppliers. Due to its long-term association in the close-out
industry, the Company has developed good relationships with numerous
manufacturers and wholesalers that offer some or all of their close-out
merchandise to the Company prior to attempting to dispose of it through other
channels. By selling close-out merchandise only through its own retail stores,
the Company is able to assure suppliers that close-out merchandise will not be
sold through the same channels of distribution as the supplier's current
merchandise.
The Company also special-orders and reorders merchandise from offshore
manufacturers primarily in Asia and the South Pacific at purchase prices
consistent with its general merchandising philosophy of offering merchandise to
customers at prices below normal retail prices. Purchases are made either
through a trading company or direct from the manufacturer, often early in the
purchasing season. The continuation of the Company's purchasing of such
merchandise is dependent upon the continuation of
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the Company's ability to obtain such advantageous pricing. Offshore purchases
did not account for more than 21% of the Company's total purchases in any year
during the three years ended January 30, 1994.
WAREHOUSING AND DISTRIBUTION
Merchandise purchased for sale through the Company's retail stores is
centrally received at either the Company's warehouse and distribution center
located in Rancho Cucamonga, California, or its warehouse and distribution
center located in New Orleans, Louisiana. The Rancho Cucamonga facility opened
in August 1984 and was expanded in 1988 from 806,000 square feet to 1,431,000
square feet. The New Orleans facility, which contains 1,100,000 square feet, was
opened in September 1991. See ITEM 2. "Properties -- Corporate Offices and
Warehouse Facilities". Merchandise is distributed to retail outlets either by
Company-operated tractors and trailers, or to locations more distant from the
warehouse, by contract carriers. Inventory control functions are conducted at
both distribution centers.
RETAIL STORES
Permanent Stores -- The Company's retail stores are principally
located in the Western, Southwestern, Southern and Southeastern United States,
with 96 stores located in Southern California at January 30, 1994. The Company
has four additional Southern California stores which are undergoing either
reconstruction and repair or relocation due to an earthquake that occurred on
January 17, 1994. Stores open for the entire year in Southern California are
currently operated under the name "Pic 'N' Save" and all other year-round stores
are operated under the name "Mac Frugal's Bargains o Close-outs". The table
below provides a state by state breakdown of the Company's year-round retail
store locations at the end of the five most recent fiscal years.
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC.
TOTAL NUMBER OF YEAR-ROUND STORES AT FISCAL YEAR END
1989-1993
FISCAL
YEAR
END CA AZ TX NV NM UT CO ID LA NY NJ GA FL AL TOTAL
- - ------ ---- ---- ---- --- --- --- --- --- --- --- --- --- ---- --- -----
1993 133 16 36 7 5 6 7 1 9 0 0 5 11 1 237
1992 109 11 36 5 5 6 7 1 9 0 0 5 10 1 205
1991 98 11 35 5 5 6 7 1 9 0 0 5 10 1 193
1990 98 11 35 4 5 6 7 1 9 0 0 5 9 1 191
1989 97 11 33 4 5 6 7 1 7 6 8 5 0 0 190
During fiscal 1993, the Company opened thirty-six year-round stores,
net of stores relocated, and involuntarily closed four due to damage from an
earthquake. Additionally, three stores were relocated to better nearby
locations. Nineteen of the new stores are located in Southern California, nine
in Northern California, one in Florida, five in Arizona and two in Nevada. Two
of the relocated stores are located in Northern California and one in Southern
California.
In fiscal 1993, the Company continued to focus its expansion in the
California market. California is the Company's largest market for sales and
earnings. The Company believes that concentrating on this market at a time when
quality real estate is readily available at lower prices than in the past will
provide good growth as the California economy strengthens over time.
During the five-year period from January 1, 1989 through January 30,
1994, the Company opened or acquired the operations of 109 new stores,
permanently closed 26 stores and temporarily closed 4 stores, increasing its
chain of retail stores from 158 to 237. Fifteen of the 26 stores permanently
closed were Job Lot Pushcart stores in New York and New Jersey, which the
Company acquired in 1988 and conveyed back to the former owner in accordance
with a put provision in the original acquisition agreement. Six of the other
closed stores were replaced by upgraded facilities located in the same
geographic area; four were closed due to inability to renew the leases; and one
owned store was closed, put up for sale and subsequently reopened.
No store accounts for more than 2% of the Company's revenues.
Christmas Season Stores -- In addition to the "Pic 'N' Save" and "Mac
Frugal's Bargains o Close-outs" stores which are open year-round, the Company
opened temporary retail locations during the Christmas season for the first time
in fiscal 1992 and again in fiscal 1993. The Christmas season stores were
designed to allow the Company to generate additional revenues and profits
through sales during the peak Christmas selling season while avoiding related
costs associated with maintaining such locations on a year-round basis to a
minimum.
The table below provides a state by state breakdown of the Company's
Christmas season store locations in operation at the conclusion of the Christmas
selling season for the two most recent fiscal years.
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC.
TOTAL NUMBER CHRISTMAS SEASON STORES AT DECEMBER 24,
1992-1993
DECEMBER 24, CA AZ TX NV UT CO LA GA FL TOTAL
- - ------------- --- --- --- --- --- --- --- --- --- -----
1993 105 13 12 4 11 4 5 5 9 168
1992 25 0 0 0 0 0 0 0 0 25
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The Company has put future development of this concept on hold. After
assessing the performance of the Christmas season stores at the completion of
the season, the Company determined that it would be difficult to earn the same
or better pre-tax profit contributions as a percentage of sales from these
stores than it can earn from its year-round stores. This difficulty is due
partially to disappointing average store sales and the inability to get higher
gross margins for these stores than for the year-round stores. Additionally,
this business carries a higher risk profile than the year-round stores because
certain fixed costs are higher as a percentage of sales than for the year-round
stores, and inventory must be purchased before store sites are under contract.
EMPLOYEES
At January 30, 1994 the Company had approximately 6,868 employees. In
addition, 1,500 people were employed by the Christmas season stores at their
peak. Temporary store personnel are also employed during the Christmas holiday
season in the Company's year-round retail stores. Management believes its
employee relations are generally good.
COMPETITION
The Company faces competition for patronage of customers in varying
degrees from national, regional and local areas in which the Company's stores
are located. Many of these retail establishments offer merchandise similar to
that available from the Company, including close-out merchandise at discount
prices, and may have resources greater than those available to the Company.
However, unlike the Company's stores, most retail outlets, including discount
stores, primarily offer continuing lines of merchandise. The Company competes
with other retail establishments, including discount stores, by offering new
close-out merchandise at significant reductions from original retail prices.
During the past few years, there have been a number of off-price
retailers entering the retail consumer market. These retailers generally carry
fashion-oriented soft goods sold at higher price points than the soft goods sold
by the Company's stores and do not generally carry lines of close-out hard
goods. Recently, stores that sell all or substantially all of their merchandise
at a single price have entered the market selling close-out goods.
Competition for close-out merchandise has increased over the years.
The Company, however, has not experienced, and does not anticipate experiencing,
any difficulty in obtaining close-out merchandise in adequate volume and at
suitable prices in the future. The Company competes for quality close-out
merchandise primarily with wholesalers and other close-out retailers, some of
which are larger than the Company. Unlike most of these wholesalers, however,
the Company disposes of the merchandise through its own retail stores, which
specialize in close-out merchandise. The Company is thus able to assure a
supplier that its close-out merchandise will not compete in the supplier's
normal channels of distribution.
In addition to competing for customers and merchandise, the Company
also competes with a wide range of other entities to obtain suitable locations
for new year-round stores.
TRADEMARKS
The Company employs the servicemarks "Pic 'N' Save" and "Mac Frugal's
Bargains o Close-outs" in connection with its stores. The Company has registered
its servicemark "Mac Frugal's Bargains o Close-outs" with the U.S. Patent and
Trademark Office and the Company has common law rights in the Southern
California area to the servicemark "Pic 'N' Save". The Company does not believe
that loss of any of the Company's servicemarks would have a material adverse
impact upon the Company.
RESTRICTIONS ON IMPORTS
The Company's operations are subject to the customary risks of doing
business abroad, including fluctuation in the value of currencies, customs
duties and related fees, import controls and trade barriers (including quotas),
restrictions on the transfer of funds, work stoppages and, in certain parts of
the world, political instability. The Company believes that it has reduced these
risks by diversifying its offshore purchases among various countries and
factories. These factors have not had a material adverse impact upon the
Company's operations to date. Imports into the United States are also affected
by the cost of transportation, the imposition of import duties and increased
competition from greater production demands abroad. The countries from which the
Company's products are imported may, from time to time, impose new quotas,
duties, tariffs or other restrictions, or adjust presently prevailing quotas,
duty or tariff levels, which could affect the Company's operations and its
ability to import products at current or increased levels. The Company cannot
predict the likelihood or frequency of any such events occurring.
The Company's imported products are subject to United States customs
duties and, in the ordinary course of its business, the Company may, from time
to time, be subject to claims for duties and other charges. United States
customs duties currently are between 3.4% and 30.0% of the customs value on the
vast majority of products imported by the Company, as classified pursuant to the
Harmonized Tariff Schedule of the United States. All goods imported by the
Company are finished products.
The United States Trade Representative ("USTR") is required by the
Trade Act of 1974, as amended by the Trade and Tariff Act of 1984 and the
Omnibus Trade and Competitiveness Act of 1988 (the "Trade Act"), to submit an
annual National Trade Estimates Report on Foreign Trade Barriers (the "NTE
Report") identifying significant restrictions or barriers on United States
access to foreign markets. On March 3, 1994, the President reinstated, by
Executive Order, the "Super 301" provisions of the Trade Act. Relying on the NTE
Report, the USTR is required to report to Congress those trade barriers and
trade distorting practices and particular countries identified as priorities for
trade liberalization. The USTR is then required to initiate an investigation of
the "priority practices" of the "priority countries" thus identified. If
negotiations initiated under "Super 301" do
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not result in a satisfactory conclusion, the USTR is required to retaliate,
unless a waiver is granted under the Trade Act. In addition, the "Special 301"
provisions of the Trade Act require the USTR to identify countries that fail to
provide adequate protection of intellectual property rights. Relying on the same
NTE Report, the USTR identifies priority foreign countries to be targeted for
investigation under the "Special 301" provisions. Other countries may be
included on a "priority watch list" which requires close scrutiny but not
investigation. For those "priority countries" targeted for investigation, the
USTR is required to follow the same process of investigation, negotiation and
retaliation as used under the "Super 301" provisions. The Company is unable to
predict whether China will be designated a "priority country" for the purpose of
"Super 301."
In 1993, Hong Kong was not identified by the USTR as a priority
foreign country under Special 301, and was not placed on the priority watch
list. Although the People's Republic of China was not listed as a priority
country under Special 301, it was listed on the 1993 USTR priority watch list.
In addition, the President has conditioned renewal of the People's Republic of
China's most-favored-nation ("MFN") status on certain progress in the area of
human rights. The decision whether to extend China's MFN status for another year
must be taken on June 3, 1994. The Company is unable to predict whether the
United States will revoke the People's Republic of China's MFN status, but any
such revocation of MFN status would result in significantly higher tariffs on
Chinese imports. In addition, the Company is unable to predict whether the
People's Republic of China or any other country from which the Company imports
goods will be investigated under Super 301 or Special 301 provisions, whether
the United States will retaliate against the People's Republic of China or any
such other country, or whether any such retaliation would include products
imported by the Company or otherwise result in increases in the cost or
restrictions in the supply of products imported by the Company.
ITEM 2. PROPERTIES
RETAIL STORES
Permanent Stores -- The Company leases most of the buildings and land
that comprise its retail stores. At the end of fiscal 1993, the Company owned
the buildings (but not the underlying land) occupied by two stores, and owned
the buildings and land occupied by 47 other stores, one of which is a commercial
condominium, one of which is located at the Company's corporate office facility
in Dominguez, California, one of which is located at the Company's warehousing
facility in Rancho Cucamonga, California and one of which is temporarily closed
while undergoing either earthquake repair and reconstruction or relocation. The
balance of the buildings and land which comprised the Company's 237 operating
store locations at fiscal year end were leased.
The leases for the store premises vary as to their terms, rental
provisions, expiration dates, and the existence of renewal options. The number
of years remaining on leases for the Company's stores (excluding unexercised
options) range from less than one year to 23 years. The termination of any or
all of the leases due to expire within the next two years (without renewal
options) would not have a material adverse effect on the operations of the
Company. Most of the leases are fixed minimum rentals, and some provide for
additional rental based upon a percentage of total store sales in excess of
certain amounts. Most leases also require the Company to pay all or a portion of
the real estate taxes, insurance charges and maintenance expenses relating to
the leased premises. The Company generally does not maintain earthquake
insurance for its retail stores.
The Company acquires sites for new stores by a variety of methods,
including lease, purchase, assignment or sublease of existing facilities,
build-to-suit leases, or purchase and development of sites which may be owned by
the Company or sold by the Company under leaseback arrangements. In many cases,
the Company is able to lease or sublease existing buildings that have been
previously used for other purposes, such as for supermarkets, drug stores or
home improvement centers, which are suitable for the Company's needs at a rental
within the Company's guidelines and without the need for substantial
expenditures to convert the facilities to the Company's needs. In connection
with the opening of new stores, the Company generally makes capital investments
and incurs expenses (not including land and building or purchase of a leasehold
interest) of less than $850,000 per store. These costs consist of inventory,
fixtures and equipment, signs and pre-opening costs.
The Company's retail stores are located in concrete or masonry
buildings and are mostly furnished with inexpensive store fixtures. During
fiscal 1992, the Company installed point-of-sale and scanning equipment in all
of its stores pursuant to an equipment lease entered into in 1991. The equipment
lease is for 54 months with an option to extend the term and an option to buy
the equipment. Except for this leased equipment, the Company owns all of its
store fixtures and equipment.
The majority of the Company's stores are located in or adjacent to
shopping centers of various sizes and have adjacent parking facilities. The
stores generally offer air-conditioned shopping from 9:00 a.m. to 9:00 p.m.,
Monday through Saturday, and 10:00 a.m. to 7:00 p.m. on Sunday. Particular
location schedules may vary slightly.
Selling space in the Company's stores generally is between 17,000 and
23,000 square feet, depending on the particular location. Currently, the
smallest selling area in any one store location is approximately 4,427 square
feet; the largest selling area in any one store location is approximately 30,390
square feet. For the five-year period from January 1, 1989 through January 30,
1994, gross selling space increased from 3,412,367 square feet to 4,486,953
square feet. As of the end of fiscal 1993, aggregate
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retail selling space at the Company's 237 operating store locations and four
temporarily closed locations was categorized according to the following real
property arrangements:
RETAIL
NUMBER OF SELLING SPACE
LOCATIONS (IN SQ. FT.)
---------- -------------
Operating Stores
----------------
Owned................................................................ 46 846,220
Leased............................................................... 189 3,522,381
Owned, Subject to Ground Lease....................................... 2 40,450
--- -------------
Total Operating...................................................... 237 4,409,051
--- -------------
Temporarily Closed Stores
-------------------------
Owned................................................................ 1 19,720
Leased............................................................... 3 58,182
--- -------------
Total Temporarily Closed............................................. 4 77,902
--- -------------
TOTAL................................................................ 241 4,486,953
--- -------------
--- -------------
Christmas Season Stores -- The Company located its Christmas season
stores in both malls and strip centers. The size of these stores varied
depending on space available during the Christmas season but generally ranged
from 3,000 to 5,000 square feet. Because these stores were temporary, the
Company minimized its fixtures and leasehold improvement investment. Merchandise
remaining unsold at these locations after the Christmas season was transferred
to the Company's year-round stores for subsequent sale, or transferred to either
of the Company's distribution centers for subsequent distribution, depending on
the type of merchandise.
CORPORATE OFFICES AND WAREHOUSE FACILITIES
The Company owns its corporate offices, located at 2430 East Del Amo
Boulevard, Dominguez, California 90220-6306. Construction of the facility was
completed in November 1973, and comprises approximately 250,000 square feet of
ground floor space and 18,000 square feet of second floor office space.
Approximately 202,000 square feet of warehouse/distribution space (formerly used
by the Company) at this facility has been leased to an unaffiliated third party
and the remainder houses the Company's corporate offices of 38,000 square feet,
a Pic 'N' Save retail store and corporate warehousing space.
The Company also leases a 3,082 square foot office in New York City to
facilitate buying operations at that supply source. The Company expects to move
this New York office to another location in the City and is presently
negotiating for new space arrangements.
The Company owns a 90 acre parcel of land in Rancho Cucamonga,
California and operates a 1,431,000 square foot central warehousing and
distribution center on this location as well as a store containing 19,000 square
feet of retail selling space.
In 1988, the Company executed a Lease Agreement with the Industrial
Development Board of the City of New Orleans, Louisiana for the construction of
a warehouse and distribution facility. The lease provides for an initial term of
10 years, eight 10-year options to extend the term of the lease and an option to
buy the land. Rent is nominal. During fiscal 1991, the Company completed
construction of this 1,100,000 square feet facility which utilizes advanced
technology to conserve space and maximize efficiency. It was completed at a net
cost of $58,617,000 of which $32,233,000 was classified as building and
improvements and $26,384,000 was classified as fixtures and equipment. In
addition, $7,406,000 of interest expense was capitalized over the
three-year construction period.
The New Orleans distribution center was completed in 1991 with a
capacity to service approximately 200 year-round stores. The Company is
currently servicing 75 stores in the South and Southeastern United States from
the New Orleans distribution center. In the third quarter of fiscal 1992, the
Company wrote-down the net book value of the New Orleans distribution center
(warehouse and equipment) by $36,646,000 to reflect a permanent impairment in
its value to the Company. Ongoing under-utilization of the warehouse capacity
because of the Company's decision to initially concentrate future expansion
plans mainly in western markets as well as management's intention to investigate
a sale/leaseback of the facility necessitated a write-down to the Company's
recoverable cost. The recoverable cost was determined by fair market value
appraisals conducted by independent nationally recognized appraisers.
In October 1993, the Company sold all its interest in the New Orleans
distribution center (both real and personal) to TriNet Corporate Realty Trust,
Inc. (TriNet) for $23,463,000, the net book value of the interest sold. TriNet
is a NYSE listed real estate investment trust. Concurrently with the sale to
TriNet, the Company leased the fully equipped distribution center from TriNet.
The initial term expires October 31, 2009. The lease contains two options to
renew, a two year option followed by a ten year option.
The Company leased approximately 75,000 square feet of the New Orleans
distribution center to an unaffiliated third party during fiscal 1991. The lease
expired in January 1994. The Company leased an additional 33,340 square feet to
an unaffiliated third party during fiscal 1992, and this was expanded to 40,940
square feet in fiscal 1993. That lease expires in 1997.
The Company maintains earthquake insurance for its corporate office
and warehouse facilities that it believes is adequate.
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ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted for a vote of security holders during
the fourth quarter of the fiscal year ended January 30, 1994.
EXECUTIVE OFFICERS OF THE REGISTRANT
Leonard S. Williams 56 President and Chief Executive Officer since November 1990; Consultant 1989-1990;
Chief Executive Officer 1987-1989, Lion-Nathan Ltd. (retail).
Philip L. Carter 45 Executive Vice President, Chief Financial Officer since August 1993, Senior Vice
President, Chief Financial Officer since October 1991; Vice President Finance and
Distribution since 1991, Chief Executive Officer San Remo (Australia) 1987-1990.
Mark J. Miller 42 Executive Vice President, General Merchandise Manager since September 1992; Vice
President of Merchandising/General Merchandise Manager 1991-1992, The Disney
Store, Inc.; Vice President, Merchandise Manager, Hardlines 1988-1991, Pic 'N'
Save Corporation.
Richard N. Lodwick 56 Senior Vice President, Stores since February 1991; Regional Vice President,
Stores 1983-1991, Mervyn's Department Store (retail).
Patricia J. Wehner 43 Senior Vice President, Real Estate and Construction since August 1993, Vice
President, Real Estate and Construction since June 1991; Senior Vice President,
1988-1991, MAS Marketing (retail consulting).
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company commenced trading of its Common Stock on the New York
Stock Exchange effective June 11, 1992, under the symbol MFI. The Company's
Common Stock was traded in the over-the-counter market under the symbol PICN and
was reported on the NASDAQ National Market System until June 10, 1992. The
following table shows the high and low sales prices as reported on the New York
Stock Exchange, and the high and low bids on the NASDAQ National Market System,
as appropriate, for the Company's Common Stock.
FISCAL YEAR QUARTER HIGH LOW
- - ----------- --------------- ------ ------
1992 First Quarter $22.75 $16.00
Second Quarter 18.00 9.38
Third Quarter 13.38 9.63
Fourth Quarter 16.88 11.75
1993 First Quarter 18.75 13.88
Second Quarter 20.13 13.13
Third Quarter 16.75 13.25
Fourth Quarter 20.00 13.13
At April 22, 1994, there were 1,106 stockholders of record.
The closing sale price of the Company's Common Stock on April 22, 1994
was $15.50 per share.
DIVIDENDS
The Company has never declared or paid cash dividends on its capital
stock. The Company currently intends to retain any earnings for use in its
business and does not anticipate paying any cash dividends in the foreseeable
future. Payment of dividends is within the discretion of the Company's Board of
Directors and will depend upon, among other factors, the Company's earnings,
financial condition and capital requirements.
6
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ITEM 6. SELECTED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT FOR STORE AND PER SHARE DATA)
YEAR ENDED
------------------------------------------------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 2, FEBRUARY 3, DECEMBER 31,
1994 1993 1992 1991 1989
----------- ----------- ------------ ------------ ------------
Net Sales....................................... $627,063 $540,295 $542,578 $529,115 $475,210
Operating Income................................ $ 57,667 $ 24,268 $ 63,163 $ 37,056 $ 55,395
Earnings Before Income Taxes.................... $ 52,875 $ 17,408 $ 54,877 $ 27,682 $ 50,872
Net Earnings.................................... $ 31,937 $ 11,348 $ 34,215 $ 17,245 $ 30,876
Net Earnings per Common Share................... $ 1.07 $ 0.37 $ 1.12 $ 0.52 $ 0.87
Net Earnings as a Percent of Sales.............. 5.1% 2.1% 6.3% 3.3% 6.5%
Average Shares Outstanding...................... 29,931 30,295(1) 30,649(1) 33,480(1) 35,571(1)
Cash Dividends per Common Stock................. None None None None None
At Year End:
Total Assets.................................... $358,133 $371,757 $396,845 $344,380 $305,696
Long-Term Debt.................................. $ 3,869 $ 54,475 $ 81,567 $ 68,164 $ 14,141
Stockholders' Equity............................ $257,350 $224,447 $226,038 $190,405 $220,774
Working Capital................................. $108,323 $105,834 $104,422 $ 54,439 $ 63,239
Current Ratio................................... 2.2 2.3 2.3 1.7 2.0
Number of Stores (End of Year).................. 237 205 193 191 190
Number of Stores Opened......................... 39 12 3 20 35
Number of Stores Closed......................... 7 0 1 19 3
Sales Square Footage............................ 4,409(2) 3,869(2) 3,607 3,568 3,412
Net Sales Per Avg. Sq. Footage.................. 144(3) $ 143(3) $ 151 $ 152 $ 152
- - ---------------
(1) Adjusted for the effect of shares issued pursuant to two stock purchase
agreements in 1988 assumed outstanding under the Treasury stock method.
(2) Excludes sales square footage of four stores temporarily closed on January
17, 1994 due to the Southern California earthquake for the year ended
January 30, 1994 and excludes sales square footage related to seasonal
Christmas stores.
(3) Excludes space and results related to seasonal Christmas stores but includes
sales and sales square footage of the four stores temporarily closed on
January 17, 1994 for the year ended January 30, 1994.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL YEAR ENDED JANUARY 30, 1994 ("FISCAL 1993") COMPARED TO FISCAL YEAR ENDED
JANUARY 31, 1993 ("FISCAL 1992")
Net sales for fiscal 1993 increased $86,768,000 or 16.1% from fiscal
1992. This increase was the combined result of the opening of 36 net new stores
during the year and the full year operation of the twelve new stores opened in
the prior year, the operation of 168 seasonal Christmas stores during the third
and fourth quarters compared to 25 seasonal Christmas stores operating during
the same period of the prior year and a 0.3% increase in comparable store sales.
The seasonal Christmas stores accounted for 4.8 percentage points of the 16.1%
net sales increase. The 0.3% comparable store sales growth achieved during the
year was adversely impacted by the 2.5% decline in comparable California store
sales since 64.1% of the Company's sales from year-round stores occurred within
California. This decrease resulted from a combination of the continuing poor
economic climate in California as well as a sales transfer effect experienced in
some of those stores as a result of the Company's expansion strategy of filling
in selected Southern California markets.
Gross profit as a percentage of sales was 46.4% in fiscal 1993
compared to 47.9% in fiscal 1992. The decrease was mostly the result of a lower
initial markup on beginning store inventory in the current year as a result of
higher prices paid to purchase more brandname items in the prior year and was
partially offset by lower markdowns taken during the year. The remainder of the
decrease resulted from damaged inventory as a result of the January 1994
earthquake. Inventory shrinkage (shrinkage being the difference between the
physical inventory on hand at year end and the calculated value of inventory at
year end as determined by the retail inventory method) was 3.1% of sales in
fiscal 1993 compared to 3.2% of sales in fiscal 1992. The gross profit
percentage earned by the seasonal Christmas stores was about the same in fiscal
1993 and higher in fiscal 1992 than that earned by year-round stores during the
period of time both types of stores were open. However, the gross profit
percentage in the seasonal Christmas stores did not significantly affect the
overall gross margin of the Company due to the small percentage of overall sales
contributed by these stores in both years.
Operating expenses consist of store, warehouse and administrative
expenses. In fiscal 1993 the store expenses component of operating expenses
includes $1,179,000 of earthquake expenses from the January 17, 1994 earthquake
in Southern California. Fiscal 1992 operating expenses include a separate
$36,646,000 warehouse write-down expense which is discussed below. Operating
7
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expenses were 37.2% of sales in fiscal 1993 compared to 43.4% of sales in fiscal
1992. Operating expenses excluding the earthquake expenses and warehouse
write-down expense rose to 37.0% in fiscal 1993 from 36.6% in 1992. Store
expenses increased due to an addition to the Company's insurance reserves for
certain prior year workers' compensation and general liability claims as a
result of increasing costs to settle these claims; a full year of lease payments
for point-of-sale equipment this year compared to a partial year's payments last
year; and grew as a percentage of sales because fixed occupancy costs and
payroll expenses associated with the seasonal Christmas stores were higher as a
percentage of sales than the same expenses for the year-round stores. Partially
offsetting these increases were lower advertising expenses in the current year.
Warehouse expenses fell as a percentage of sales primarily as a result of lower
depreciation expense from the New Orleans distribution center resulting from its
write-down to fair market value last year and the subsequent sale of the
facility this year. Except for a slight increase in administrative expenses to
support the temporary Christmas stores, administrative expenses as a percentage
of sales remained about constant.
Net interest expense decreased $2,068,000 or 30.1% from fiscal 1992 to
fiscal 1993. Gross interest expense decreased due to a combination of lower debt
levels, lower interest rates and slower amortization of the remaining fees
associated with obtaining the 1991 Credit Agreement due to the extended debt
maturity of such Credit Agreement as it was amended and restated in 1993.
Interest income decreased because fiscal 1992 contained recognition of income
upon collection of a stock purchase receivable.
The Company's effective tax rate rose from 34.8% in fiscal 1992 to
39.6% in fiscal 1993. The higher rate in fiscal 1993 was due partially to a 1%
increase in the enacted federal income tax rate as well as a smaller favorable
impact on the effective tax rate from the targeted jobs tax credit which
resulted from both a lower tax credit and higher pre-tax income in fiscal 1993
than in fiscal 1992. Additionally, the fiscal 1992 effective rate was benefitted
from a favorable state income tax audit determination.
The Company adopted the Financial Accounting Standards Board Statement
No. 109 "Accounting for Income Taxes" (SFAS 109) on the first day of fiscal 1993
with no significant income statement impact. This statement supersedes APB
opinion No. 11. SFAS 109 requires a change from the income to the liability
method of computing deferred income taxes whereby deferred income taxes result
from temporary differences between the tax bases of assets and liabilities and
their reported amounts in the financial statements.
The Company believes that a meaningful assessment of its net earnings
performance requires making adjustments for certain unusual items contained in
the fiscal 1993 and 1992 results. Net earnings for fiscal 1993 excluding
earthquake related expenses would have been $33,776,000 or $1.13 per share as
compared to net earnings for fiscal 1992 excluding the warehouse write-down
expense of $35,241,000 or $1.16 per share.
FISCAL YEAR ENDED JANUARY 31, 1993 COMPARED TO FISCAL YEAR ENDED FEBRUARY 2,
1992 ("FISCAL 1991")
Net sales for fiscal 1992 decreased $2,283,000 or 0.4% from fiscal
1991. The decline resulted from a decrease in comparable store sales of 3.9%
that was partially offset by the addition of twelve new year-round stores and 25
seasonal Christmas stores which were opened, operated and closed during the
fourth quarter. Without these seasonal stores, total sales would have declined
by 1.2% from fiscal 1991. The decrease in comparable store sales of 3.9% was
largely due to a 3.3% decline in comparable sales from California stores since
63.1% of fiscal 1992 sales from year-round stores were generated within
California. This decrease was caused for similar reasons as explained for fiscal
1993 compared to fiscal 1992.
Gross profit, as a percentage of sales was 47.9% in fiscal 1992
compared to 48.8% in fiscal 1991. Reductions in inventory shrinkage from 4.8% of
sales in fiscal 1991 to 3.2% of sales in fiscal 1992 at the Company's retail
stores did not fully offset higher markdowns taken in the second half of fiscal
1992 to attract additional customer traffic and to sell off aged inventory.
Further, initial markups were reduced during portions of the year to purchase
more brandname items. Higher gross margin percentages in seasonal stores than in
year-round stores did not affect the Company's total gross margin percentage.
Operating expenses were 43.4% of sales in fiscal 1992 compared to
37.1% in fiscal 1991. Operating expenses, excluding the warehouse write-down
expense, declined to 36.6% in fiscal 1992. Store and warehouse expenses rose as
a percent of sales primarily as a result of increased advertising expense and
additional fixed costs associated with operating the New Orleans distribution
center for a full year in fiscal 1992, compared to four months in fiscal 1991.
Administrative expenses were lower as a percent of sales due largely to
reductions in general insurance expenses, professional fees and bonus expense.
The $36,646,000 warehouse write-down expense reduced the net book
value of the New Orleans distribution center (warehouse and equipment). It
reflected the permanent impairment in its value to the Company. Construction
commenced on this facility in 1988 when prior management contemplated a major
store expansion program in the eastern United States at that time. Ongoing
under-utilization of the warehouse capacity was expected because of the
Company's decision to initially concentrate future expansion plans mainly in
western markets as well as management's intention in the fall of 1992 to
investigate a sale/leaseback of the facility. A sale/leaseback was completed in
October 1993 and is discussed in the section on Liquidity and Capital Resources.
Net interest expense decreased $1,426,000 or 17.2% from fiscal 1991 to
fiscal 1992. Gross interest expense decreased in the current fiscal year due to
both lower debt levels and lower interest rates. Additionally, fiscal 1992 did
not have the benefit from capitalized interest present in fiscal 1991 as
construction on the New Orleans distribution center was completed in 1991.
Interest income rose as a result of the Company's recognizing income upon
collection of a stock purchase receivable.
The Company's effective tax rate was 34.8% and 37.7% in fiscal 1992
and 1991, respectively. The lower rate in fiscal 1992 resulted from a
combination of a favorable state income tax audit determination and greater
impact of the federal targeted jobs tax credit on the effective tax rate due to
the lower earnings before income taxes that resulted from the warehouse
write-down expense. Income taxes were provided for using the income method in
both fiscal 1992 and 1991.
8
13
RETURN ON ASSETS AND STOCKHOLDERS' EQUITY
Net return on average assets and net return on average stockholders'
equity for the past three years are as follows:
NET RETURN
ON AVERAGE
NET RETURN ON STOCKHOLDERS'
YEAR AVERAGE ASSETS EQUITY
---- --------------- --------------
Fiscal 1993..................................................... 8.8% 13.3%
Fiscal 1992..................................................... 3.0% 5.0%
Fiscal 1991..................................................... 9.2% 16.4%
As shown above, net return on average assets and net return on average
stockholders' equity were 8.8% and 13.3%, respectively, for fiscal 1993.
Excluding the earthquake expenses, net return on average assets would have been
9.2% and net return on average stockholders' equity would have been 14.0% for
fiscal 1993.
Net return on average assets increased in fiscal 1993 compared to
fiscal 1992 due to both an increase in net income over the prior year and a
decrease in average assets. The decrease in average assets was primarily the
result of selling the New Orleans distribution center and using the proceeds to
reduce debt.
Net return on average assets and net return on average stockholders'
equity were 3.0% and 5.0%, respectively, for fiscal 1992. Excluding the
warehouse write-down expense, net return on average assets would have been 8.8%
and net return on average stockholders' equity would have been 14.9% for fiscal
1992.
Net return on average assets decreased in fiscal 1992 compared to
fiscal 1991 due to a relatively small increase in net income over the prior year
(excluding the warehouse write-down expense) coupled with an 8.6% increase in
average asset base (excluding the warehouse write-down expense). The small
increase in net income for fiscal 1992 over fiscal 1991 is explained in the
previous section on Results of Operations. The increase in average assets in
fiscal 1992 versus the previous year was due primarily to increased merchandise
inventories necessary to support the opening of twelve new stores in fiscal
1992.
Net return on average stockholders' equity increased in fiscal 1993
over fiscal 1992 due to the increase in net earnings as explained in the
previous section on Results of Operations.
Net return on average stockholders' equity decreased in fiscal 1992
compared to fiscal 1991 due to the warehouse write-down expense incurred in
fiscal 1992.
LIQUIDITY AND CAPITAL RESOURCES
The Company's business generated substantial cash flows from
operations which have been sufficient to provide for all of its fiscal 1993 and
1992 capital expenditures, as well as meet all of its current liabilities in
both years. During fiscal 1993, the Company sold excess property from two of its
stores and applied the proceeds to open two new stores. Additionally, the
Company sold and leased back its New Orleans distribution center as discussed in
more detail later in this section. The Company's demand for borrowed funds is
determined, in part, by the seasonality of its inventory investment relative to
the seasonality of its sales, as well as the magnitude and timing of its capital
expenditure programs.
Working Capital was $108,323,000 at January 30, 1994 compared to
$105,834,000 at January 31, 1993. Inventory levels increased to service the
Company's store growth and cash was used to repay the term loan outstanding at
the beginning of the year. The Company's usual year end income tax payable was
eliminated as a result of selling the New Orleans distribution center in October
1993 and recognizing as an ordinary loss for income tax purposes the impairment
in value provided for in the financial statements in fiscal 1992. The sales tax
payable increased as a result of waiting until after year end to make the
payment of California sales tax collected during December.
Net cash flows from operating activities were $23,816,000 in fiscal
1993 and $25,225,000 in fiscal 1992. Part of these funds were used to acquire
ownership or leasehold interests for selected stores, to construct leasehold
improvements and acquire fixtures and equipment for the Company's new year-round
stores, 39 in fiscal 1993 and 12 in fiscal 1992, and to renovate some of the
Company's existing retail locations. The total cost to acquire, improve and
fixturize the Company's 39 fiscal 1993 new and relocation sites was
approximately $24,000,000. Of this amount, $2,607,000 was funded from the sale
of excess land at two stores. The average cost to improve and fixturize each of
these 39 sites was approximately $435,000. The cost to acquire, improve and
fixturize the twelve new sites opened in fiscal 1992 was $4,884,000 with the
average improvement and fixturization costs for each of those twelve stores
being approximately $357,000.
During fiscal 1993, the Company sold all its interest in the New
Orleans distribution center (both real and personal) for $23,463,000, the net
book value of the interests sold. The net proceeds, after transaction costs,
were used to repay term debt. The Company immediately leased back the fully
equipped distribution center. This transaction significantly reduced bank debt
and will improve the liquidity of the Company in fiscal 1994 since elimination
of the federal and state income tax payments usually made by the Company on the
original due dates of its income tax returns as explained previously in this
section will exceed the annual lease payments. Beyond fiscal 1994, the lease
creates a demand on the liquidity of the Company by the amount of the annual
lease payments which is expected to be met from operating income.
In fiscal 1993 and 1992, the Company repurchased 55,100 and 831,500
shares of its Common Stock, respectively, in open market transactions at an
average cost of $15.02 and $10.38 per share, respectively. The fiscal 1993
repurchases were part of a
9
14
1,500,000 share repurchase program authorized during the fourth quarter of
fiscal 1993 by the Board of Directors. Repurchases under the 1,500,000 share
program will continue during fiscal 1994 if and when market prices warrant such
repurchases in the Board of Directors' opinion. Finally, in fiscal 1992 the
Company repurchased 250,000 shares of its Common Stock in a private transaction
at $21.50 per share, which was less than the fair market value on the date the
agreement was reached and cancelled certain option rights.
In fiscal 1994, the Company plans to open approximately 40 new stores
and expects to continue at this level of expansion in the future. The cost to
improve and fixturize these stores is expected to be similar to the $435,000 per
store spent during fiscal 1993. While the Company prefers to lease new store
locations, it is prepared to acquire ownership or leasehold interests when
necessary to acquire desirable locations. The Company cannot predict all of the
fiscal 1994 store locations that might require purchase of ownership or
leasehold interests. The cost of acquiring leasehold interests generally range
between $200,000 and $1,000,000 depending upon the terms of the underlying
lease, but the cost of acquiring an ownership interest is unique to the property
acquired. The fiscal 1994 capital expenditure program is expected to be financed
with internally generated funds and a portion of the inventories for these
stores will be financed with the Company's existing revolving lines of credit.
The Company opened 168 seasonal Christmas stores in fiscal 1993 and 25
in fiscal 1992. Capital expenditures for these stores approximated $114,000 in
fiscal 1993 and nothing in fiscal 1992. Future development of this concept has
been placed on hold because the Company believes it would be difficult to earn
greater pre-tax profit contributions as a percentage of sales from these stores
than it can from the year-round stores. There are no future liquidity needs as
the leases have all expired and staffing requirements were met with seasonal
employees.
The Company believes its present committed revolving line of credit is
adequate to meet any seasonal or temporary liquidity needs that cannot be met
with cash flows from operating activities. At January 30, 1994, $109,891,000 was
available to be borrowed under the committed revolving line of credit. The
Company uses uncommitted lines of credit, when available, to reduce its costs of
borrowing. There was $34,900,000 of outstanding revolving debt at January 30,
1994 of which $22,000,000 and $12,900,000 was outstanding under the committed
and uncommitted lines of credit, respectively, and no revolving debt was
outstanding at January 31, 1993. The $76,667,000 of term debt outstanding at
January 31, 1993 was paid off during fiscal 1993. See Note 2 to Consolidated
Financial Statements.
The Company's current ratio was 2.21 and 2.30 at January 30, 1994 and
January 31, 1993, respectively. The total debt to equity ratio was reduced by
20.9 percentage points from 36.0% at the end of fiscal 1992 to 15.1% at the end
of fiscal 1993.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Except for the following Selected Quarterly Data, the financial
statements and related financial information required to be filed hereunder are
indexed on Page F-1 of this report and are incorporated herein by reference.
SELECTED QUARTERLY DATA (UNAUDITED)
NET EARNINGS
NET (LOSS)
NET GROSS EARNINGS PER COMMON
SALES PROFIT (LOSS) SHARE
-------- -------- -------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
1993
Quarter Ended May 2.......................................... $126,697 $ 58,564 $ 5,887 $ 0.20
August 1................................................... 116,081 54,104 2,053 0.07
October 31................................................. 140,581 65,712 3,598 0.12
January 30, 1994........................................... 243,704 112,755 20,399 0.68(1)
-------- -------- -------- ---------
$627,063 $291,135 $ 31,937 $ 1.07
-------- -------- -------- ---------
-------- -------- -------- ---------
1992
Quarter Ended May 3.......................................... $114,098 $ 55,970 $ 5,413 $ 0.18
August 2................................................... 108,783 51,922 2,711 0.09
November 1................................................. 119,976 56,857 (19,927) (0.66)(2)
January 31, 1993........................................... 197,438 94,042 23,151 0.78
-------- -------- -------- ---------
$540,295 $258,791 $ 11,348 $ 0.37(3)
-------- -------- -------- ---------
-------- -------- -------- ---------
- - ---------------
(1) A pre-tax charge of $3,046 for operating expenses and inventory write-off
related to the January 17, 1994 Southern California earthquake is included
in the quarter ended January 30, 1994. The effect of this charge was to
reduce the quarterly net earnings per share by $0.06.
(2) The loss for the quarter ended November 1, 1992 includes warehouse
write-down expense of $36,646 which represents the difference between the
net book value and the estimated net realizable value of the New Orleans
distribution center due to the Company's continued and planned
under-utilization of the facility. Net earnings, excluding this warehouse
write-down expense, would have been $2,977 or $0.10 per share.
(3) The Company repurchased 831,500 shares of its common stock in the third
quarter of fiscal 1992. This 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 $0.02.
10
15
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3) to Form 10-K, the information
required by Items 10-13 of Part III of Form 10-K is incorporated herein by
reference from the Company's definitive proxy materials to be filed with the
Securities and Exchange Commission within 120 days after the close of the
Company's most recent fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS. Reference is made to the Index to Financial
Statements and Schedules of the Company on page F-1 of this Annual
Report on Form 10-K.
(a)(2) FINANCIAL STATEMENT SCHEDULES. Reference is made to the Index to
Financial Statements and Schedules of the Company on page F-1 of this
Annual Report on Form 10-K.
(a)(3) EXHIBITS. The following documents are exhibits to this Annual Report on
Form 10-K.
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------------------------
3.1 Certificate of Incorporation of the Company, as amended, filed as Exhibit 6.1 to the
Company's Registration Statement on Form 8-A dated May 22, 1992 and incorporated herein by
this reference.
3.2 By-Laws of the Company, as amended, filed as Exhibit 6.2 to the Company's Registration
Statement on Form 8-A dated May 22, 1992 and incorporated herein by this reference.
10.1 Incentive Stock Option Plan filed as Exhibit A to the Company's definitive Proxy Statement
for 1982 and incorporated herein by this reference.
10.2 Amendment to Incentive Stock Option Plan filed as Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 2, 1992 and incorporated herein by
this reference.
10.3 Common Stock Incentive Plan filed as Appendix C to the Company's definitive Proxy Statement
for 1979 and incorporated herein by this reference.
10.4 Amendment to the Common Stock Incentive Plan filed as Exhibit 10.3(3) to the Company's
Annual Report on Form 10-K for fiscal year ended December 31, 1982 and incorporated herein
by this reference.
10.5 Amendment to the Common Stock Incentive Plan filed as Exhibit 10.5 to the Company's Annual
Report on Form 10-K for the fiscal year ended February 2, 1992 and incorporated herein by
this reference.
10.6 Non-Qualified Stock Option Agreement dated December 26, 1985 filed as Exhibit 10.3(3) to the
Company's Annual Report on Form 10-K for fiscal year ended December 31, 1985 and
incorporated herein by this reference.
10.7 Form of Amended Stock Option Agreement used in connection with the Incentive Stock Option
Plan filed as Exhibit 10.6(1) to the Company's Annual Report on Form 10-K for fiscal year
ended December 31, 1989 and transition period ended January 28, 1990 and incorporated herein
by this reference.
10.8 Form of Restricted Stock Agreement used in connection with the Incentive Stock Option Plan
filed as Exhibit 10.6(2) to the Company's Annual Report on Form 10-K for fiscal year ended
December 31, 1989 and transition period ended January 28, 1990 and incorporated herein by
this reference.
10.9 1990 Employee Stock Incentive Plan filed as Annex B to the Company's definitive Proxy
Statement for the 1990 Annual Meeting of Stockholders and incorporated herein by this
reference.
10.10 Amendments No. 1 and No. 2 to 1990 Employee Stock Incentive Plan filed as Exhibit 10.10 to
the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 1992 and
incorporated herein by this reference.
10.11 Form of Stock Option Agreement used in connection with the 1990 Employee Stock Incentive
Plan for options subject to staggered vesting filed as Exhibit 10.8 to the Company's Annual
Report on Form 10-K for fiscal year ended February 3, 1991 and incorporated herein by this
reference.
11
16
NUMBER DESCRIPTION
------ --------------------------------------------------------------------------------------------
10.12 Form of Stock Option Agreement used in connection with the 1990 Employee Stock Incentive
Plan for immediately exercisable options filed as Exhibit 10.9 to the Company's Annual
Report on Form 10-K for fiscal year ended February 3, 1991 and incorporated herein by this
reference.
10.13 Form of Restricted Stock Agreement used in connection with the 1990 Employee Stock Incentive
Plan filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for fiscal year
ended February 3, 1991 and incorporated herein by this reference.
10.14 Stock Option Agreement dated December 6, 1990 between the Company and Peter S. Willmott
filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K for fiscal year ended
February 3, 1991 and incorporated herein by this reference.
10.15 Stock Option Plan for Non-Employee Directors filed as Annex B to the Company's definitive
Proxy Statement for the Annual Meeting of Stockholders held in 1992 and incorporated herein
by this reference.
10.16 Employment Agreement dated November 12, 1990 between the Company and Leonard S. Williams
filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for fiscal year ended
February 3, 1991 and incorporated herein by this reference.
10.17 Amendment No. 1 to Employment Agreement dated November 12, 1990 between the Company and
Leonard S. Williams dated as of February 3, 1992 filed as Exhibit 10.18 to the Company's
Annual Report on Form 10-K for the fiscal year ended February 2, 1992 and incorporated
herein by this reference.
10.18 Amendment No. 2 to Employment Agreement between the Company and Leonard S. Williams dated as
of January 31, 1994.
10.19 Employment Agreement between the Company and Richard N. Lodwick dated as of January 31,
1994
10.20 Employment Agreement dated as of September 25, 1992 between the Company and Mark J. Miller
filed as Exhibit 10.20 to the Company's Annual Report on Form 10-K for fiscal year ended
January 31, 1993 and incorporated herein by this reference.
10.21 Amendment No. 1 to the Employment Agreement between the Company and Mark J. Miller dated as
of January 31, 1994.
10.22 Promissory Note of Mark J. Miller dated September 25, 1992 in favor of the Company in the
principal amount of $30,000 filed as Exhibit 10.22 to the Company's Annual Report on Form
10-K for fiscal year ended January 31, 1993 and incorporated herein by this reference.
10.23 Employment Agreement dated as of January 31, 1994 between the Company and Philip L. Carter.
10.24 Employment Agreement dated as of August 4, 1993 between the Company and Patricia J. Wehner.
10.25 Lease dated August 1, 1988 between the Company, the City of New Orleans, State of Louisiana
Inc., and the City of New Orleans, Louisiana Industrial Development Board re New Orleans
Distribution Center filed as Exhibit 10.5(1) to the Company's Annual Report on Form 10-K for
fiscal year ended January 1, 1989 and incorporated herein by this reference.
10.26 Amended and Restated Credit Agreement dated as of October 5, 1993 among the Company, West
Coast Liquidators, Inc., PNS Stores, Inc., the lenders listed therein and Bank of America
National Trust and Savings Association, as Administrative Agent, and Continental Bank, as
Co-Agent.
10.27 Lease dated as of September 25, 1993 between TriNet Essential Facilities X, Inc. and West
Coast Liquidators, Inc.
10.28 Settlement Agreement dated August 9, 1990 among the Company, Batchelder Co., DHB Partners,
L.P., David H. Batchelder, Batchelder & Partners, Inc. and Girard Partners, L.P. filed as
Exhibit 10.25 to the Company's Annual Report on Form 10-K for the fiscal year ended February
3, 1991 and incorporated herein by this reference.
10.29 Master Lease dated December 27, 1991 between the Company and Comdisco, Inc. filed as Exhibit
10.32 to the Company's Annual Report on Form 10-K for the fiscal year ended February 2, 1992
and incorporated herein by this reference.
22.1 Subsidiaries of Company.
24.1 Consent of Independent Auditors.
(b) The Company did not file any reports on Form 8-K with the Securities and
Exchange Commission during the quarter ended January 30, 1994.
(c) Copies of Exhibits 10.18, 10.19, 10.21, 10.23, 10.24, 10.26, 10.27, 22.1
and 24.1 are attached hereto. Reference is made to the Exhibit Index for an
indication of the availability of other exhibits identified at Item
14(a)(3) above.
(d) Not applicable.
12
17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: April 29, 1994
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC.
By: /s/ LEONARD S. WILLIAMS
----------------------------------------
Leonard S. Williams
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of this
registrant and in the capacities and on the date indicated.
April 29, 1994 /s/ LEONARD S. WILLIAMS
----------------------------------------
Leonard S. Williams
President, Chief Executive Officer and Director
(Principal Executive Officer)
April 29, 1994 /s/ PHILIP L. CARTER
----------------------------------------
Philip L. Carter
Executive Vice President and Chief Financial Officer
(Principal Financial Officer and Principal Accounting
Officer)
April 29, 1994 /s/ PETER S. WILLMOTT
----------------------------------------
Peter S. Willmott
Chairman of the Board
April 29, 1994 /s/ DAVID H. BATCHELDER
----------------------------------------
David H. Batchelder
Director
April 29, 1994 /s/ BRUCE E. KARATZ
----------------------------------------
Bruce E. Karatz
Director
April 29, 1994 /s/ ANTHONY LUISO
----------------------------------------
Anthony Luiso
Director
April 29, 1994 /s/ RONALD P. SPOGLI
----------------------------------------
Ronald P. Spogli
Director
April 29, 1994 /s/ BILL M. THOMAS
----------------------------------------
Bill M. Thomas
Director
April 29, 1994 /s/ JAMES J. ZEHENTBAUER
----------------------------------------
James J. Zehentbauer
Director
18
(THIS PAGE INTENTIONALLY LEFT BLANK)
19
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES*
PAGE
----
Independent Auditors' Report........................................................................... F-2
Consolidated balance sheets -- January 30, 1994, and January 31, 1993.................................. F-3
Consolidated statements of earnings -- years ended January 30, 1994, January 31, 1993, and February 2,
1992................................................................................................. F-4
Consolidated statements of stockholders' equity -- years ended January 30, 1994, January 31, 1993, and
February 2, 1992..................................................................................... F-5
Consolidated statements of cash flows -- years ended January 30, 1994, January 31, 1993, and February
2, 1992.............................................................................................. F-6
Notes to consolidated financial statements............................................................. F-7
Schedule II -- Amounts Receivable From Employees Other than Related Parties............................ F-13
Schedule V -- Property, Equipment and Improvements..................................................... F-14
Schedule VI -- Accumulated Depreciation and Amortization of Property, Equipment and Improvements....... F-15
Schedule IX -- Short-Term Borrowings................................................................... F-16
Schedule X -- Supplementary Income Statement Information............................................... F-17
- - ---------------
* Schedules other than those listed above have been omitted because they are not
applicable or because the required information is shown in the consolidated
financial statements or notes to consolidated financial statements.
F-1
20
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders of
Mac Frugal's Bargains o Close-outs Inc.
Dominguez, California
We have audited the accompanying consolidated balance sheets of Mac
Frugal's Bargains o Close-outs Inc. and subsidiaries as of January 30, 1994 and
January 31, 1993 and the related consolidated statements of earnings,
stockholders' equity and cash flows for the years ended January 30, 1994,
January 31, 1993 and February 2, 1992. Our audits also included the financial
statement schedules listed in the Index at Item 14(a)(2). These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of Mac
Frugal's Bargains o Close-outs Inc. and subsidiaries at January 30, 1994 and
January 31, 1993 and the results of their operations and their cash flows for
the years ended January 30, 1994, January 31, 1993 and February 2, 1992, in
conformity with generally accepted accounting principles. Also, in our opinion,
the financial statement schedules referred to above, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
As discussed in Note 1 to the financial statements, the Company
changed its method of accounting for income taxes in 1993.
DELOITTE & TOUCHE
Los Angeles, California
March 15, 1994
F-2
21
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT PAR VALUE)
ASSETS
JANUARY 30, 1994 JANUARY 31, 1993
---------------- ----------------
Current Assets:
Cash and cash equivalents.................................................. $ 1,015 $ 21,820
Merchandise inventories.................................................... 181,755 147,575
Other currents assets...................................................... 15,114 18,111
---------------- ----------------
Total current assets.................................................... 197,884 187,506
Property, Equipment and Improvements (Notes 5, 10 and 12):
Land....................................................................... 27,109 25,452
Building and improvements.................................................. 71,784 86,214
Automobiles and trucks..................................................... 2,778 2,821
Furniture, fixtures and equipment.......................................... 75,797 77,762
Leasehold improvements..................................................... 64,843 54,157
Construction in progress................................................... 1,137 167
---------------- ----------------
243,448 246,573
Less: Accumulated depreciation and amortization............................ (89,628) (81,780)
---------------- ----------------
153,820 164,793
Deferred Income Tax Asset (Note 4)......................................... 1,252 12,753
Deferred Financing Costs and Other Assets (Note 2)......................... 5,177 6,705
---------------- ----------------
Total Assets....................................................... $358,133 $371,757
---------------- ----------------
---------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Loan payable to bank (Note 2)................................................ $ 34,900 $ --
Current portion of long-term debt (Notes 2 and 5)............................ 97 26,420
Accounts payable............................................................. 13,444 10,572
Accrued expenses (Note 3).................................................... 31,726 27,772
Income taxes payable (Note 4)................................................ -- 14,717
Sales tax payable............................................................ 9,394 2,191
---------------- ----------------
Total current liabilities............................................... 89,561 81,672
Long-Term Debt (Notes 2 and 5)............................................... 3,869 54,475
Deferred Income Taxes (Note 4)............................................... 7,353 11,163
Commitments (Notes 2, 9 and 11)
Stockholders' Equity (Notes 2, 6 and 7):
Preferred stock, $1 par value; authorized, 500 shares; issued, none
Common stock, $.02778 par value; authorized, 100,000 shares; issued 29,727
shares (1993) and 30,423 shares (1992)..................................... 825 845
Additional paid-in capital................................................... 1,319 62
Retained earnings............................................................ 256,033 232,170
---------------- ----------------
258,177 233,077
Less: Treasury stock, at cost, 55 shares (1993) and 832 shares (1992)........ (827) (8,630)
---------------- ----------------
Total Stockholders' Equity.............................................. 257,350 224,447
---------------- ----------------
Total Liabilities and Stockholders' Equity......................... $358,133 $371,757
---------------- ----------------
---------------- ----------------
See Notes to Consolidated Financial Statements.
F-3
22
MAC FRUGALS' BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
YEAR ENDED
-------------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 2,
1994 1993 1992
----------- ----------- -----------
Net Sales.................................................................. $ 627,063 $ 540,295 $ 542,578
Cost of Sales.............................................................. 335,928 281,504 277,879
----------- ----------- -----------
Gross Profit............................................................... 291,135 258,791 264,699
----------- ----------- -----------
Expenses:
Store expenses........................................................... 180,008 150,304 145,328
Warehouse and administrative expenses.................................... 53,460 47,573 56,208
Warehouse write-down expense (Note 10)................................... -- 36,646 --
----------- ----------- -----------
Total Expenses................................................... 233,468 234,523 201,536
----------- ----------- -----------
Operating Income........................................................... 57,667 24,268 63,163
Interest expense, net (Note 2)............................................. 4,792 6,860 8,286
----------- ----------- -----------
Earnings Before Income Taxes............................................... 52,875 17,408 54,877
Income Taxes (Note 4)...................................................... 20,938 6,060 20,662
----------- ----------- -----------
Net Earnings............................................................... $ 31,937 $ 11,348 $ 34,215
----------- ----------- -----------
----------- ----------- -----------
Average Shares Outstanding................................................. 29,931 30,295 30,649
----------- ----------- -----------
----------- ----------- -----------
Net Earnings Per Common Share.............................................. $ 1.07 $ 0.37 $ 1.12
----------- ----------- -----------
----------- ----------- -----------
Dividends Per Common Share................................................. None None None
See Notes to Consolidated Financial Statements.
F-4
23
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
COMMON STOCK ADDITIONAL TREASURY STOCK RECEIVABLE UNDER
--------------- PAID-IN RETAINED ------------------- STOCK PURCHASE
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT AGREEMENT TOTAL
------ ------ ---------- --------- ------- --------- ---------------- --------
BALANCE, February 3, 1991....... 39,896 $1,109 $ 13,283 $ 287,113 9,382 $(107,315) $ (3,785) $190,405
Exercise of stock options..... 126 3 1,272 1,275
Increase in purchase price
under stock purchase
agreement.................. 357 (357)
Restricted stock amortization
and lapse of
restrictions............... 143 143
Restricted stock cancelled.... (6)
Net earnings for the year..... 34,215 34,215
------ ------ ---------- --------- ------- --------- ---------------- --------
BALANCE, February 2, 1992....... 40,016 1,112 15,055 321,328 9,382 (107,315) (4,142) 226,038
Exercise of stock options..... 42 1 539 540
Increase in purchase price
under stock purchase
agreement.................. 12 (12)
Redemption of stock issued
under September 15, 1988
stock purchase agreement... (250) (7) (5,368) 4,154 (1,221)
Cancellation of option
rights..................... (3,279) (3,279)
Recognition of interest income
upon collection of
September 15, 1988 stock
purchase receivable........ (481) (481)
Non-cash compensation
expense.................... 132 132
Restricted stock cancelled.... (3)
Treasury stock retired........ (9,382) (261) (6,548) (100,506) (9,382) 107,315
Purchase of Treasury stock, at
cost....................... 832 (8,630) (8,630)
Net earnings for the year..... 11,348 11,348
------ ------ ---------- --------- ------- --------- ---------------- --------
BALANCE, January 31, 1993....... 30,423 845 62 232,170 832 (8,630) -- 224,447
Exercise of stock options..... 136 3 1,715 1,718
Non-cash compensation
expense.................... 75 75
Treasury stock retired........ (832) (23) (533) (8,074) (832) 8,630
Purchase of Treasury stock, at
cost....................... 55 (827) (827)
Net earnings for the year..... 31,937 31,937
------ ------ ---------- --------- ------- --------- ---------------- --------
BALANCE, January 30, 1994....... 29,727 $ 825 $ 1,319 $ 256,033 55 $ (827) $ -- $257,350
------ ------ ---------- --------- ------- --------- ---------------- --------
------ ------ ---------- --------- ------- --------- ---------------- --------
See Notes to Consolidated Financial Statements.
F-5
24
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
YEAR ENDED
----------------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 2,
1994 1993 1992
------------ ------------ ------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Cash received from customers........................................... $ 627,063 $ 540,295 $ 542,578
Cash paid to suppliers and employees................................... (577,081) (482,883) (487,941)
Income taxes paid...................................................... (21,091) (24,411) (7,274)
Interest paid (net of amount capitalized).............................. (5,774) (8,494) (8,814)
Interest received...................................................... 699 718 708
------------ ------------ ------------
Net cash provided by operating activities........................... 23,816 25,225 39,257
Cash flows from investing activities:
Capital expenditures................................................... (29,365) (15,264) (9,118)
Proceeds from sale of fixed assets..................................... 25,883 2,432 141
------------ ------------ ------------
Net cash used in investing activities............................... (3,482) (12,832) (8,977)
Cash flows from financing activities:
Payment of long-term debt.............................................. (76,814) (19,776) (82,863)
Repurchase of Treasury stock........................................... (827) (8,630) --
Redemption of stock subject to stock purchase agreement and
cancellation of certain option rights............................... -- (4,500) --
Proceeds from sale of stock options.................................... 1,718 540 1,275
Net borrowings (repayments) under line of credit agreement............. 34,900 -- (40,000)
Proceeds from issuance of long-term debt............................... -- 115,000
Other (net)............................................................ (116) 310 (459)
------------ ------------ ------------
Net cash used in financing activities............................... (41,139) (32,056) (7,047)
------------ ------------ ------------
(Decrease) increase in cash and cash equivalents.................... (20,805) (19,663) 23,233
Cash and cash equivalents, beginning of period........................... 21,820 41,483 18,250
------------ ------------ ------------
Cash and cash equivalents, end of period................................. $ 1,015 $ 21,820 $ 41,483
------------ ------------ ------------
------------ ------------ ------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net income............................................................... $ 31,937 $ 11,348 $ 34,215
Adjustments to reconcile net income to net cash provided by operating
activities:
Warehouse write-down expense........................................... -- 36,646 --
Depreciation and amortization.......................................... 15,380 17,293 15,208
Recognition of interest income upon collection of September 15, 1988
stock purchase receivable........................................... -- (481) --
(Gain) loss on sale of fixed assets.................................... (924) (658) 61
Non-cash compensation expense.......................................... 75 132 143
Changes in assets and liabilities:
Increase in inventory............................................... (34,180) (17,018) (28,972)
Decrease (increase) in other assets................................. 4,525 (5,253) (6,552)
Decrease (increase) in deferred income tax asset.................... 11,501 (12,753) --
Increase (decrease) in accounts payable, accrued expenses and sales
tax payable........................................................ 14,029 (4,438) 9,783
(Decrease) increase in income taxes payable......................... (14,717) 191 14,526
(Decrease) increase in deferred income taxes........................ (3,810) 216 845
------------ ------------ ------------
(8,121) 13,877 5,042
------------ ------------ ------------
$ 23,816 $ 25,225 $ 39,257
------------ ------------ ------------
------------ ------------ ------------
See Notes to Consolidated Financial Statements.
F-6
25
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 30, 1994, JANUARY 31, 1993 AND FEBRUARY 2, 1992
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Consolidation
Mac Frugal's Bargains o Close-outs Inc. (formerly Pic 'N' Save
Corporation) and its wholly-owned subsidiaries (the Company) operate a chain of
237 retail stores which offer a broad range of new close-out merchandise on a
self-service, cash-and-carry basis.
The consolidated financial statements include the accounts of Mac
Frugal's Bargains o Close-outs Inc. and its wholly-owned subsidiaries. All
material intercompany transactions and balances have been eliminated.
Cash and Cash Equivalents
All highly liquid investments purchased with a maturity of three
months or less are considered to be cash equivalents.
Merchandise Inventories
Merchandise inventories are valued at the lower of cost or market.
Cost is determined on the first-in, first-out method for individual items of
warehouse stock and by the retail inventory method for retail stores.
Property, Equipment and Improvements
Property, equipment and improvements are recorded at cost unless the
Company determines there has been a permanent impairment in value (Note 10).
Depreciation and amortization are provided by the straight-line method over the
estimated useful lives of the property.
Deferred Expenses
The Company capitalizes costs associated with opening new store and
warehouse facilities and amortizes these over six and twenty-four months,
respectively.
Income Taxes
The Company changed its method of accounting for income taxes,
effective February 1, 1993, to conform with Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes". The change had no
significant income statement impact. The Company provides for deferred income
taxes under the asset and liability method, whereby deferred income taxes result
from temporary differences between the tax bases of assets and liabilities and
their reported amounts in the financial statements. For prior years, amounts
provided for income taxes were based on income reported for financial statement
purposes. Deferred income taxes were provided for timing differences as certain
income and expense items were reported for financial statement purposes in
periods different from the periods in which such items were recognized for tax
purposes.
Capitalization of Interest
The Company has capitalized interest costs associated with the
construction of a new distribution center (Note 10) during the period of
construction in accordance with Statement of Financial Accounting Standards No.
34. Interest was capitalized using the Company's weighted average interest rate.
Capitalization of interest ceased when construction was completed in September
1991.
Fiscal Year
The Company's fiscal year ends on the Sunday nearest January 31 and
contains 52 weeks.
Earnings per Common Share
Earnings per Common Share is based on the weighted average number of
Common shares and Common Stock equivalents (stock options) outstanding, adjusted
for the effect of the shares sold under a purchase agreement (Note 7) of 58,258
shares (1992) utilizing the Treasury stock method.
Reclassifications
Certain reclassifications have been made to prior year amounts to
conform to current year presentation.
F-7
26
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 30, 1994, JANUARY 31, 1993 AND FEBRUARY 2, 1992
NOTE 2 -- BANK BORROWINGS AND INTEREST:
In October 1993, the Company repaid its then outstanding term loan and
amended its credit agreement (the Current Agreement) with its syndicate of
banks. The Current Agreement includes an annually renewable unsecured three-year
$150,000,000 revolving loan for seasonal working capital needs, with a
$50,000,000 sublimit for commercial and standby letters of credit. The Current
Agreement contains certain restrictive covenants requiring the Company to
maintain certain financial ratios and limits the payment of dividends based on a
formula. At January 30, 1994, $21,171,000 of retained earnings were unrestricted
as to the declaration of cash dividends and the acquisition of Common Stock by
the Company. Interest rates are prime, LIBOR plus 5/8%, or negotiated at the
Company's option. At January 30, 1994, the Company had outstanding borrowings of
$22,000,000 under the Current Agreement.
The Company's credit agreement, before the current amendment, (the
Secured Agreement) provided for a secured five-year $115,000,000 term loan and a
secured five-year $60,000,000 revolving loan for seasonal working capital needs
and commercial and standby letters of credit. Related to the Secured Agreement,
the Company paid approximately $8,386,000 in financing fees which the Company is
amortizing over five years. At January 31, 1993, the Company had outstanding
borrowings of $76,667,000 under the term loan of the Secured Agreement (Note 5)
and had no outstanding borrowings under the revolving loan of the Secured
Agreement.
The Company also has $40,000,000 of unsecured, uncommitted short-term
line of credit facilities with three individual banks. Under the terms of the
Current Agreement, only $30,000,000 may be outstanding under these facilities at
one time. Interest rates are negotiated. At January 30, 1994 and January 31,
1993, $12,900,000 and $0 were outstanding under these facilities, respectively.
Interest rates ranged between 3.25% and 3.50% on outstanding borrowings at
January 30, 1994.
Commitments under outstanding letters of credit amounted to
$18,109,000 and $13,418,000 at January 30, 1994 and January 31, 1993,
respectively.
Net interest is summarized as follows (in thousands):
YEAR ENDED
-----------------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 2,
1994 1993 1992
----------- ----------- -----------
Expense................................................ $ 5,436 $ 8,059 $ 8,994
Income................................................. (644) (1,199) (708)
----------- ----------- -----------
Net Interest........................................... $ 4,792 $ 6,860 $ 8,286
----------- ----------- -----------
----------- ----------- -----------
NOTE 3 -- ACCRUED EXPENSES:
Accrued expenses are comprised of the following (in thousands):
JANUARY 30, JANUARY 31,
1994 1993
----------- -----------
Insurance............................................................ $16,898 $15,213
Profit sharing (Note 8).............................................. 961 1,376
Percentage rent...................................................... 864 1,588
Salaries............................................................. 2,748 2,118
Other expenses....................................................... 10,255 7,477
----------- -----------
$31,726 $27,772
----------- -----------
----------- -----------
F-8
27
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 30, 1994, JANUARY 31, 1993 AND FEBRUARY 2, 1992
NOTE 4 -- INCOME TAXES:
The provision for income taxes includes the following (in thousands):
YEAR ENDED
-----------------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 2,
1994 1993 1992
----------- ----------- -----------
Current:
Federal.............................................. $ 5,048 $ 18,107 $18,209
State................................................ 1,571 5,077 4,864
----------- ----------- -----------
6,619 23,184 23,073
Deferred:
Federal.............................................. 11,649 (13,247) (1,756)
State................................................ 2,670 (3,877) (655)
----------- ----------- -----------
14,319 (17,124) (2,411)
----------- ----------- -----------
$20,938 $ 6,060 $20,662
----------- ----------- -----------
----------- ----------- -----------
The Company's effective tax rate differs from the statutory federal
income tax rate as follows:
YEAR ENDED
-------------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 2,
1994 1993 1992
----------- ----------- -----------
Statutory federal tax rate................................ 35.0% 34.0% 34.0%
State income tax net of federal benefit................... 5.4 4.0 5.1
Rate benefit from federal targeted jobs tax credit........ (.4) (1.9) (1.0)
Other, net................................................ (.4) (1.3) (0.4)
----------- ----------- -----------
39.6% 34.8% 37.7%
----------- ----------- -----------
----------- ----------- -----------
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.
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.
On August 10, 1993 legislation was enacted that retroactively
increased the maximum corporate income tax rate to 35%. The increased income tax
rate was retroactive to January 1, 1993. The effect of the rate increase on the
Company's accumulated deferred income taxes are deemed immaterial.
Significant components of the Company's net deferred tax liability as
of January 30, 1994 are as follows (in thousands):
Deferred Tax Assets:
Inventories.............................................................. $ 5,238
State Franchise Taxes.................................................... (1,477)
Insurance Reserves....................................................... 1,020
Deferred Expenses........................................................ 965
Other.................................................................... 692
--------
6,438
--------
Deferred Tax Liability:
Excess of Tax Over Book Depreciation..................................... (15,976)
Insurance Reserves....................................................... 6,469
Other.................................................................... 2,154
--------
(7,353)
--------
Net Deferred Tax Liability................................................. $ (915)
--------
--------
The Company provided no valuation allowance against the deferred tax
assets recorded as of January 30, 1994.
F-9
28
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 30, 1994, JANUARY 31, 1993 AND FEBRUARY 2, 1992
Other current assets on the balance sheet at January 30, 1994 includes
current deferred tax assets of $5,186,000 and current refundable taxes of
$927,000.
NOTE 5 -- LONG-TERM DEBT:
Long-term debt consists of the following (in thousands):
JANUARY 30, JANUARY 31,
1994 1993
----------- -----------
Term loan 4.19% to 6.00%, principal and interest due in quarterly
installments beginning August 2, 1991 through May 15, 1996.......... $ -- $ 76,667
Industrial Development Revenue Bonds with interest payable quarterly
based on the current prime rate, next redeemable August 1998, due
August 2028......................................................... 2,000 2,000
Non interest-bearing construction loan, due in quarterly installments
beginning May 1, 1991 through May 1, 2006 net of discount based on
imputed interest rate of 10% ($996 in fiscal 1993, $1,144 in fiscal
1992)............................................................... 1,404 1,456
Equipment contracts, 8.375% to 12.032%, maturing through 1998,
collateralized by equipment......................................... 40 136
Other................................................................. 522 636
----------- -----------
3,966 80,895
Less current maturities............................................... (97) (26,420)
----------- -----------
Long-term debt........................................................ $ 3,869 $ 54,475
----------- -----------
----------- -----------
The aggregate maturities of long-term debt for the years subsequent to
January 30, 1994 are as follows (in thousands):
1994......................................................... $ 97
1995......................................................... 62
1996......................................................... 69
1997......................................................... 2,076
1998......................................................... 84
Thereafter................................................... 1,578
------
$3,966
------
------
NOTE 6 -- STOCK INCENTIVE PLANS:
In 1990, the Company adopted a new stock incentive plan (the 1990
Employee Stock Incentive Plan) to enable key employees to acquire shares of the
Company's Common Stock. The new plan replaced the Company's Stock Incentive Plan
and Incentive Stock Option Plan adopted previously. Under the new plan, as
amended in fiscal 1993, which provides for the grant of incentive stock options,
nonqualified stock options, stock appreciation rights and restricted stock, up
to 3,200,000 shares of Common Stock may be issued. Prior to the 1993 amendment,
up to 1,750,000 shares of Common Stock could be issued. Although stock options
and restricted stock granted under the Stock Incentive Plan and Incentive Stock
Option Plan remain outstanding, no new options or restricted shares will be
granted under such plans. Under the terms of the new plan, incentive stock
options may be granted at not less than 100% of fair market value at the date of
grant (110% in the case of 10% stockholders) and nonqualified stock options may
be granted at not less than par value (or, in the case of officers of the
Company, not less than the greater of par value or 50% of fair market value on
the date of grant). A portion of the fiscal 1992 grants under the plan were
subject to reduction based upon the level of pre-tax earnings for fiscal 1992
compared to a target level established at the date of grant.
In 1992, the Company adopted its Stock Option Plan for Non-Employee
Directors to enable non-employee directors to acquire shares of the Company's
Common Stock. Each non-employee director receives a nonqualified stock option
grant of 2,500 shares upon election or re-election to the board of directors. In
addition, each non-employee director may elect, on the date of each annual
meeting at which he or she is elected or re-elected, to receive a certain
portion of their annual retainer in the form of a nonqualified stock option
grant based on a formula. Expense is recognized ratably over the director's
term.
The Company awarded 35,830 and 41,830 shares of restricted stock under
the old plans in March 1989 and April 1990, respectively. Such shares vested
over three-year periods. No stock appreciation rights have been granted under
any of the plans to date. The Company has granted options to purchase 25,000
shares outside of these plans.
F-10
29
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 30, 1994, JANUARY 31, 1993 AND FEBRUARY 2, 1992
Changes for all options are summarized as follows:
STOCK OPTIONS
-----------------------------
PER SHARE
SHARES PRICE RANGE
--------- -------------
Outstanding, February 3, 1991.................................... 1,462,452 $ 5.54-$22.13
Granted........................................................ 453,000 $ 8.38-$23.00
Exercised...................................................... (125,558) $ 5.54-$22.13
Cancelled...................................................... (212,148) $11.63-$22.13
--------- -------------
Outstanding, February 2, 1992.................................... 1,577,746 $ 6.63-$23.00
Granted........................................................ 151,460 $10.60-$13.63
Granted subject to reduction................................... 498,000 $19.75-$19.75
Exercised...................................................... (41,918) $10.50-$16.63
Cancelled...................................................... (517,725) $10.50-$22.13
--------- -------------
Outstanding, January 31, 1993.................................... 1,667,563 $ 6.63-$23.00
Granted........................................................ 646,570 $14.25-$18.50
Exercised...................................................... (135,745) $ 9.00-$17.08
Cancelled...................................................... (772,863) $10.50-$22.13
--------- -------------
Outstanding, January 30, 1994.................................... 1,405,525 $ 6.63-$23.00
At January 30, 1994, there were 1,876,590 and 110,770 shares of the
Company's Common Stock available for grant under the 1990 Employee Stock
Incentive Plan and Non-Employee Directors Plan, respectively. Options were
exercisable for 682,248 shares under all of the Company's four stock option
plans and stock option agreements, collectively, at January 30, 1994.
On March 16, 1993, options to purchase 424,250 shares of the 498,000
shares granted subject to reduction were cancelled (options to purchase 30,000
shares having already been cancelled) upon determination of the Company's fiscal
1992 pre-tax earnings.
Although most of the stock options granted under the plans are
intended to be incentive stock options, the Company will be entitled to a tax
deduction for the excess (if any) of the aggregate market price over the
aggregate exercise price at such time as nonqualified options are exercised.
In March 1992, the Company cancelled all option rights (563,700
shares) held by the Company's former president and a potential cash bonus
related to certain options was cancelled in exchange for a cash payment of
$3,729,000 (Note 7).
NOTE 7 -- STOCKHOLDERS' EQUITY:
In September 1988, the Board approved the sale of 250,000 shares of
Common Stock, at the quoted market value on the date of sale ($12 3/8 per
share), to the Company's former president under a purchase agreement in exchange
for a promissory note in which the face amount increased at 9.08% annually. The
$3,087,000 promissory note was originally due five years after issuance.
The shares were voting, collateralized the note until paid, and
dividends or other distributions, if any, were to be offset against the note.
Upon termination of the former president's employment in fiscal 1990, the
Company extended the maturity date of the promissory note to December 31, 1995.
In March 1992, the Company purchased the 250,000 shares related to the
promissory note from the former president at $21.50 per share. Of the proceeds,
$4,154,000 was applied against the outstanding balance of the promissory note.
The remaining proceeds of $1,221,000 were paid in cash to the former president
(Note 6).
NOTE 8 -- PROFIT SHARING PLAN:
The Company has a profit sharing plan covering substantially all
employees with more than one year of service. Under this plan, the Company
contributes a portion of earnings based on a formula. Profit sharing expenses
for the years ended January 30, 1994, January 31, 1993 and February 2, 1992 were
$1,038,000, $766,000 and $542,000, respectively.
F-11
30
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 30, 1994, JANUARY 31, 1993 AND FEBRUARY 2, 1992
NOTE 9 -- LEASE COMMITMENTS:
The Company has leases outstanding for retail store locations, the New
Orleans distribution center and equipment with varying initial expiration dates
through 2018; most leases include options to renew. The Company may also be
required to pay insurance, taxes and/or additional rents based on a percentage
of sales, and, in the case of the New Orleans distribution center, certain
executory payments to the ground lessor of the property. Total rental expense
was as follows (in thousands):
YEAR ENDED
-----------------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 2,
1994 1993 1992
----------- ----------- -----------
Base rental expense.................................. $28,707 $21,969 $19,410
Contingent rental expense............................ 102 917 921
----------- ----------- -----------
$28,809 $22,886 $20,331
----------- ----------- -----------
----------- ----------- -----------
Aggregate minimum rental commitments under all leases and aggregate
minimum rental income from sublease tenants of leased buildings under all
noncancellable leases in effect as of January 30, 1994 were as follows (in
thousands):
FISCAL YEAR EXPENSE INCOME NET
----------- -------- ------- --------
1994..................................................... $ 26,239 $ 2,147 $ 24,092
1995..................................................... 25,653 2,034 23,619
1996..................................................... 24,904 1,878 23,026
1997..................................................... 22,741 1,080 21,661
1998..................................................... 21,838 813 21,025
Thereafter............................................... 184,575 6,240 178,335
-------- ------- --------
$305,950 $14,192 $291,758
-------- ------- --------
-------- ------- --------
NOTE 10 -- WAREHOUSE WRITE-DOWN EXPENSE:
The Company completed construction of its New Orleans warehouse and
distribution center effective September 1991. The facility was completed at a
net cost of $58,617,000, of which $32,233,000 was classified as building and
building improvements and $26,384,000 was classified as furniture, fixtures and
equipment. Furthermore, $7,406,000 of interest expense was capitalized over the
three-year construction period.
During fiscal 1992, the Company determined that the value of the
facility was permanently impaired based on an assessment of the Company's
continued and planned future under-utilization of the facility. Additionally,
the Company had decided to pursue a sale and leaseback of the facility.
Accordingly, during fiscal 1992 a charge to operating income was
recorded for approximately $36,646,000 which represented the difference between
the net book value and the estimated net realizable value at the date of
impairment. The estimated net realizable value of the facility was based upon
appraisals received by independent nationally recognized appraisal firms.
In October 1993, the Company completed a sale and leaseback of this
facility. The sales price of $23,643,000 approximated the recorded net book
value.
NOTE 11 -- OTHER COMMITMENTS:
The Company is a defendant in certain legal actions. While management
and legal counsel are presently unable to predict the outcome or to estimate the
amount of any liability the Company may have with respect to these lawsuits, it
is not expected that these matters will have a material adverse effect on the
Company.
NOTE 12 -- NORTHRIDGE, CALIFORNIA EARTHQUAKE:
On January 17, 1994, a 6.7 magnitude earthquake occurred in the San
Fernando Valley of Southern California. Twenty-five stores experienced
relatively minor merchandise and physical damage requiring closures that varied
from a few hours to one week. Four stores experienced substantial merchandise
and physical damage and will remain closed during their reconstruction periods.
These four stores are expected to reopen during the second and third quarters of
fiscal 1994.
The Company incurred significant costs in connection with the
earthquake including approximately $1,867,000 of damaged merchandise, $744,000
of destroyed property, $258,000 of expenses to repair property and $177,000 of
other expenses, primarily labor costs associated with removing damaged
merchandise and reopening the affected stores.
F-12
31
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
SCHEDULE II -- AMOUNTS RECEIVABLE FROM EMPLOYEES
OTHER THAN RELATED PARTIES
(AMOUNTS IN THOUSANDS)
DEDUCTIONS BALANCE AT
----------------------- END OF PERIOD
BALANCE AT AMOUNTS AMOUNTS ---------------------
NAME OF DEBTOR BEGINNING OF PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT NOT CURRENT
- - -------------- ------------------- --------- --------- ----------- ------- -----------
Mark J. Miller(1)............................. $ 130 $ 0 $70 $ 0 $45 $15
- - ---------------
(1) Mr. Miller, Executive Vice President, General Merchandise Manager of the
Company, executed two promissory notes in favor of the Company in the
amounts of $100 and $30, respectively. Each of the notes bear interest at
the rate of 7% per annum. The principal amount of the $100 note was
originally due and payable in three equal annual installments on April 1,
1993, April 1, 1994 and April 1, 1995. It was amended in May 1993 to
require a payment of $70 on May 1, 1993 and the remaining $30 on April 1,
1994. The principal amount of the $30 note is due and payable in two equal
installments on April 1, 1994 and April 1, 1995.
F-13
32
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
SCHEDULE V -- PROPERTY, EQUIPMENT AND IMPROVEMENTS(1)
(AMOUNTS IN THOUSANDS)
BEGINNING ADDITIONS TRANSFERS AND ENDING
DESCRIPTION BALANCE AT COST DISPOSALS(3) OTHER ACTIVITY(2) BALANCE
----------- --------- --------- ------------ ----------------- --------
Year Ended January 30, 1994
Land.............................................. $ 25,452 $ 1,531 $ (651) $ 777 $ 27,109
Building and Improvements......................... 86,214 2,043 (18,370) 1,897 71,784
Automotive Equipment.............................. 2,821 3 (47) 1 2,778
Furniture, Fixtures and Equipment................. 77,762 10,286 (12,476) 225 75,797
Leasehold Improvements............................ 54,157 2,843 (946) 8,789 64,843
Construction in Progress.......................... 167 12,659 (11,689) 1,137
--------- --------- ------------ ----------------- --------
Total..................................... $ 246,573 $29,365 $(32,490) $ 0 $243,448
--------- --------- ------------ ----------------- --------
--------- --------- ------------ ----------------- --------
Year Ended January 31, 1993
Land.............................................. $ 25,086 $ 366 $ $ $ 25,452
Building and Improvements......................... 102,820 1,523 (1,510) (16,619) 86,214
Automotive Equipment.............................. 5,204 21 (2,404) 2,821
Furniture, Fixtures and Equipment................. 89,091 6,753 (229) (17,853) 77,762
Leasehold Improvements............................ 49,747 2,492 (47) 1,965 54,157
Construction in Progress.......................... 197 4,109 (4,139) 167
--------- --------- ------------ ----------------- --------
Total..................................... $ 272,145 $15,264 $ (4,190) $ (36,646) $246,573
--------- --------- ------------ ----------------- --------
--------- --------- ------------ ----------------- --------
Year Ended February 2, 1992:
Land.............................................. $ 25,086 $ $ $ $ 25,086
Building and Improvements......................... 65,928 762 (200) 36,330 102,820
Automotive Equipment.............................. 5,324 (120) 5,204
Furniture, Fixtures and Equipment................. 56,806 2,840 (146) 29,591 89,091
Leasehold Improvements............................ 46,657 2,391 (76) 775 49,747
Construction in Progress.......................... 64,328 3,125 (67,256) 197
--------- --------- ------------ ----------------- --------
Total..................................... $ 264,129 $ 9,118 $ (542) $ (560) $272,145
--------- --------- ------------ ----------------- --------
--------- --------- ------------ ----------------- --------
- - ---------------
(1) The average estimated useful lives used for depreciation purposes for
Buildings and Improvements, Automotive Equipment and Furniture, Fixtures and
Equipment are 33, 5 and 10 years, respectively. Leasehold Improvements are
depreciated over 12 years or the life of the lease, if shorter.
(2) Activity for the year ended January 31, 1993 represents a write-down of New
Orleans distribution center assets to appraised values which reflect a
permanent impairment in their values based on an assessment of the Company's
continued and planned future under-utilization of the facility.
Activity for the year ended February 2, 1992 represents net
reclassifications of certain deferred expenses related to opening the New
Orleans distribution center originally classified as Property, Equipment and
Improvements.
(3) $29,954 of the disposals made during the year ended January 30, 1994, and
which are related to the sale of the New Orleans distribution center, are
valued at appraised values which are lower than cost. See Note (2) above.
F-14
33
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
SCHEDULE VI -- ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY, EQUIPMENT AND IMPROVEMENTS
(AMOUNTS IN THOUSANDS)
BEGINNING ENDING
DESCRIPTION BALANCE ADDITIONS DISPOSALS TRANSFERS BALANCE
----------- ----------- ----------- ----------- ----------- ---------
Year Ended January 30, 1994
Building and Improvements......................... $19,492 $ 3,127 $(2,011) $(494) $ 20,114
Automotive Equipment.............................. 2,393 230 (47) 2,576
Furniture, Fixtures and Equipment................. 37,320 7,065 (4,961) 39,424
Leasehold Improvements............................ 22,575 4,958 (513) 494 27,514
----------- ----------- ----------- ----------- ---------
Total.......................................... $81,780 $15,380 $(7,532) $ 0 $ 89,628
----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ---------
Year Ended January 31, 1993
Building and Improvements......................... $15,949 $ 3,735 $ (192) $ $ 19,492
Automotive Equipment.............................. 4,250 311 (2,168) 2,393
Furniture, Fixtures and Equipment................. 28,702 8,666 (48) 37,320
Leasehold Improvements............................ 18,002 4,581 (8) 22,575
----------- ----------- ----------- ----------- ---------
Total.......................................... $66,903 $17,293 $(2,416) $ 0 $ 81,780
----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ---------
Year Ended February 2, 1992
Building and Improvements......................... $12,944 $ 3,021 $ (16) $ $ 15,949
Automotive Equipment.............................. 3,859 504 (113) 4,250
Furniture, Fixtures and Equipment................. 21,616 7,150 (88) 24 28,702
Leasehold Improvements............................ 13,529 4,533 (60) 18,002
----------- ----------- ----------- ----------- ---------
Total.......................................... $51,948 $15,208 $ (277) $ 24 $ 66,903
----------- ----------- ----------- ----------- ---------
----------- ----------- ----------- ----------- ---------
F-15
34
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
SCHEDULE IX -- SHORT-TERM BORROWINGS
(AMOUNTS IN THOUSANDS)
AVERAGE
MAXIMUM AMOUNT AVERAGE
WEIGHTED AMOUNT OUTSTANDING INTEREST
BALANCE AVERAGE OUTSTANDING DURING THE RATE DURING
CATEGORY OF AGGREGATE AT END OF INTEREST DURING THE PERIOD THE PERIOD
SHORT-TERM BORROWINGS PERIOD RATE PERIOD (1) (2)
--------------------- --------- -------- ----------- ----------- -----------
January 30, 1994
Borrowings under bank line of credit................ $ 34,900 3.43% $88,382 $29,775 3.96%
January 31, 1993
Borrowings under bank line of credit................ -- 4.18% $32,000 $ 9,403 5.67%
February 2, 1992
Borrowings under bank line of credit................ -- 7.71% $25,000 $ 4,705 7.87%
- - ---------------
(1) Average amount outstanding during the period is computed by dividing the
total of daily outstanding principal balances by 364.
(2) Weighted average interest rate during the period is computed by dividing the
actual short-term interest expense by the average short-term debt
outstanding.
F-16
35
MAC FRUGAL'S BARGAINS o CLOSE-OUTS INC. AND SUBSIDIARIES
SCHEDULE X -- SUPPLEMENTARY INCOME STATEMENT INFORMATION
(AMOUNTS IN THOUSANDS)
YEAR ENDED
-------------------------------------------------------
JANUARY 30, JANUARY 31, FEBRUARY 2,
ITEM 1994 1993 1992
- - ---- --------------- --------------- ---------------
Advertising Costs(1)............................................ $12,023 $12,487 $ 8,770
Repairs & Maintenance(1)........................................ $ -- $ 5,552 $ 5,824
- - ---------------
(1) All other costs are less than 1% of net sales.
F-17
36
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37
INDEX TO EXHIBITS
FILED WITH THE ANNUAL REPORT ON
FORM 10-K FOR THE FISCAL YEAR ENDED
JANUARY 30, 1994
PAGE
NUMBER NUMBER
------ ------
3.1 Certificate of Incorporation of the Company, as amended, filed as Exhibit 6.1 to the
Company's Registration Statement on Form 8-A dated May 22, 1992........................ *
3.2 By-Laws of the Company, as amended, filed as Exhibit 6.2 to the Company's Registration
Statement on Form 8-A dated May 22, 1992............................................... *
10.1 Incentive Stock Option Plan filed as Exhibit A to the Company's definitive Proxy
Statement for 1982..................................................................... *
10.2 Amendment to Incentive Stock Option Plan filed as Exhibit 10.2 to the Company's Annual
Report on Form 10-K for the year ended February 2, 1992................................ *
10.3 Common Stock Incentive Plan filed as Appendix C to the Company's definitive Proxy
Statement for 1979..................................................................... *
10.4 Amendment to the Common Stock Incentive Plan filed as Exhibit 10.3(3) to the Company's
Annual Report on Form 10-K for fiscal year ended December 31, 1982..................... *
10.5 Amendment to the Common Stock Incentive Plan filed as Exhibit 10.5 to the Company's
Annual Report on Form 10-K for the fiscal year ended February 2, 1992.................. *
10.6 Non-Qualified Stock Option Agreement dated December 26, 1985 filed as Exhibit 10.3(3)
to the Company's Annual Report on Form 10-K for fiscal year ended December 31, 1985.... *
10.7 Form of Amended Stock Option Agreement used in connection with the Incentive Stock
Option Plan filed as Exhibit 10.6(1) to the Company's Annual Report on Form 10-K for
fiscal year ended December 31, 1989 and transition period ended January 28, 1990....... *
10.8 Form of Restricted Stock Agreement used in connection with the Incentive Stock Option
Plan filed as Exhibit 10.6(2) to the Company's Annual Report on Form 10-K for fiscal
year ended December 31, 1989 and transition period ended January 28, 1990.............. *
10.9 1990 Employee Stock Incentive Plan filed as Annex B to the Company's definitive Proxy
Statement for the 1990 Annual Meeting of Stockholders.................................. *
10.10 Amendments No. 1 and No. 2 to 1990 Employee Stock Incentive Plan filed as Exhibit 10.10
to the Company's Annual Report on Form 10-K for the fiscal year ended February 2,
1992................................................................................... *
10.11 Form of Stock Option Agreement used in connection with the 1990 Employee Stock
Incentive Plan for options subject to staggered vesting filed as Exhibit 10.8 to the
Company's Annual Report on Form 10-K for fiscal year ended February 3, 1991............ *
10.12 Form of Stock Option Agreement used in connection with the 1990 Employee Stock
Incentive Plan for immediately exercisable options filed as Exhibit 10.9 to the
Company's Annual Report on Form 10-K for fiscal year ended February 3, 1991............ *
10.13 Form of Restricted Stock Agreement used in connection with the 1990 Employee Stock
Incentive Plan filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for
fiscal year ended February 3, 1991..................................................... *
10.14 Stock Option Agreement dated December 6, 1990 between the Company and Peter S. Willmott
filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K for fiscal year
ended February 3, 1991................................................................. *
10.15 Stock Option Plan for Non-Employee Directors filed as Annex B to the Company's
definitive Proxy Statement for the Annual Meeting of Stockholders held in 1992......... *
10.16 Employment Agreement dated November 12, 1990 between the Company and Leonard S.
Williams filed as Exhibit 10.17 to the Company's Annual Report on Form 10-K for fiscal
year ended February 3, 1991............................................................ *
10.17 Amendment No. 1 to Employment Agreement between the Company and Leonard S. Williams
dated as of February 3, 1992 filed as Exhibit 10.18 to the Company's Annual Report on
Form 10-K for the fiscal year ended February 2, 1992................................... *
10.18 Amendment No. 2 to Employment Agreement between the Company and Leonard S. Williams
dated as of January 31, 1994...........................................................
- - ---------------
* By this reference incorporated herein and made a part hereof.
I-1
38
PAGE
NUMBER NUMBER
------ ------
10.19 Employment Agreement dated as of January 31, 1994 between the Company and Richard N.
Lodwick.................................................................................
10.20 Employment Agreement dated as of September 25, 1992 between the Company and Mark J.
Miller filed as Exhibit 10.20 to the Company's Annual Report on Form 10-K for fiscal
year ended January 31, 1993............................................................ *
10.21 Amendment No. 1 to Employment Agreement between the Company and Mark J. Miller dated as
of January 31, 1994....................................................................
10.22 Promissory Note of Mark J. Miller dated September 25, 1992 in favor of the Company in
the principal amount of $30,000 filed as Exhibit 10.22 to the Company's Annual Report
on Form 10-K for the fiscal year ended January 31, 1993................................ *
10.23 Employment Agreement dated as of January 31, 1994 between the Company and Philip L.
Carter.................................................................................
10.24 Employment Agreement dated as of August 4, 1993 between the Company and Patricia J.
Wehner.................................................................................
10.25 Lease dated August 1, 1988 between the Company, the City of New Orleans, State of
Louisiana Inc., and the City of New Orleans, Louisiana Industrial Development Board re
New Orleans Distribution Center filed as Exhibit 10.5(1) to the Company's Annual Report
on Form 10-K for fiscal year ended January 1, 1989..................................... *
10.26 Amended and Restated Credit Agreement dated as of October 5, 1993 among the Company,
West Coast Liquidators, Inc., PNS Stores, Inc., the lenders listed therein and Bank of
America National Trust and Savings Association, as Administrative Agent, and
Continental Bank, as Co-Agent..........................................................
10.27 Lease dated as of September 25, 1993 between TriNet Essential Facilities X, Inc. and
West Coast Liquidators, Inc. ..........................................................
10.28 Settlement Agreement dated August 9, 1990 among the Company, Batchelder Co., DHB
Partners, L.P., David H. Batchelder, Batchelder & Partners, Inc. and Girard Partners,
L.P. filed as Exhibit 10.25 to the Company's Annual Report on Form 10-K for fiscal year
ended February 3, 1991................................................................. *
10.29 Master Lease dated December 27, 1991 between the Company and Comdisco, Inc. filed as
Exhibit 10.32 to the Company's Annual Report on Form 10-K for the fiscal year ended
February 2, 1992....................................................................... *
22.1 Subsidiaries of Company................................................................
24.1 Consent of Independent Auditors........................................................
- - ---------------
* By this reference incorporated herein and made a part hereof.
I-2
39
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