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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
------------------------
(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 28, 1996
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 * 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
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
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 19, 1996, was approximately $309,290,576.
The number of shares of Common Stock outstanding as of April 19, 1996
was 25,259,347.
Documents Incorporated by Reference
Portions of the Company's definitive proxy statement relating to the
1996 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
- ----------- ----
PART I
1. BUSINESS...................................................................................... 1
General....................................................................................... 1
Merchandise and Suppliers..................................................................... 1
Warehousing and Distribution.................................................................. 2
Retail Stores................................................................................. 2
Marketing..................................................................................... 2
Employees..................................................................................... 2
Competition................................................................................... 3
Trademarks.................................................................................... 3
Restrictions on Imports....................................................................... 3
2. PROPERTIES.................................................................................... 4
Retail Stores................................................................................. 4
Corporate Offices and Warehouse Facilities.................................................... 4
3. LEGAL PROCEEDINGS............................................................................. 5
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS........................................... 5
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..................................................................... 8
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................................................... 11
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
1996.......................................................................................... 12
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K............................... 12
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PART I
ITEM 1. BUSINESS
GENERAL
Mac Frugal's Bargains * 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."
At January 28, 1996, the Company operated a chain of 311 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 * 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, seasonal 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 1993, the Company developed a seasonal store concept that
operated under the names "Christmas Close-outs" and "Christmas Enchantments."
The Company operated 168 of these seasonal stores in 1993. These seasonal stores
offered new Christmas theme merchandise purchased from manufacturers at prices
less than initial wholesale prices and sold at prices below normal retail
prices. Categories of merchandise available in these stores were 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 28, 1996, 190 of the Company's retail stores operated under
the name "Mac Frugal's Bargains * Close-outs." The remaining 121 stores, located
in Southern California, operated under the name "Pic 'N' Save."
For the year ended January 28, 1996 (fiscal 1995), approximately 53% of
the Company's stores were located in California and generated approximately 61%
of the sales. The cutbacks in federal defense spending and aerospace as well as
a number of companies relocating caused a regional recession and has adversely
affected California's unemployment rates relative to national unemployment
rates. The economic hardship resulting from the high unemployment has led to a
general reduction of retail sales in California, which has impacted the
Company's California sales during fiscal 1995, 1994 and 1993.
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 2,500 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 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 the Company's ability to obtain such advantageous pricing.
Offshore purchases did not account for more than 24% of the Company's total
purchases in any year during the three years ended January 28, 1996.
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WAREHOUSING AND DISTRIBUTION
Merchandise purchased for sale through the Company's retail stores is
centrally received at the Company's warehouse and distribution center located in
Rancho Cucamonga, California. The Rancho Cucamonga facility opened in August
1984 and consists of 1,431,000 square feet. The Company leased a warehouse and
distribution center located in New Orleans, Louisiana. The New Orleans facility,
which contained 1,100,000 square feet and was opened in September 1991, was
destroyed by fire on March 21, 1996. 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 the Rancho Cucamonga facility.
RETAIL STORES
Permanent Stores -- The Company's retail stores are principally located
in the Western, Southwestern, Midwestern, Southern and Southeastern United
States, with 121 stores located in Southern California at January 28, 1996.
Stores in Southern California are currently operated under the name "Pic 'N'
Save," and all other stores are operated under the name "Mac Frugal's Bargains
* 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 * CLOSE-OUTS INC.
TOTAL NUMBER OF YEAR-ROUND STORES AT FISCAL YEAR END
1991-1995
FISCAL
YEAR CA AZ TX NV NM UT CO ID LA GA FL AL IL TN KY IN OK TOTAL
- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- --- -----
1995 165 21 39 9 6 9 12 2 9 5 16 1 9 2 1 4 1 311
1994 157 20 37 8 6 7 11 1 9 5 16 1 0 0 0 0 0 278
1993 133 16 36 7 5 6 7 1 9 5 11 1 0 0 0 0 0 237
1992 109 11 36 5 5 6 7 1 9 5 10 1 0 0 0 0 0 205
1991 98 11 35 5 5 6 7 1 9 5 10 1 0 0 0 0 0 193
During fiscal 1995, the Company opened 34 stores, relocated one store
and closed one store due to its lease expiring with no options and no relocation
opportunities. Of the 33 net new stores, nine are located in Illinois, seven in
Southern California, four in Indiana, two each in Texas, Utah and Tennessee, and
one each in Northern California, Arizona, Nevada, Colorado, Idaho, Kentucky and
Oklahoma.
In fiscal 1995, the Company continued to expand 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 growth
opportunities as the California economy strengthens over time.
During the five-year period from February 3, 1991 through January 28,
1996, the Company (excluding five relocations) opened 124 new stores,
permanently closed four stores and temporarily closed then reopened three
stores, increasing its chain of retail stores from 191 to 311. Five of the
stores (relocations) were replaced by upgraded facilities located in the same
geographic area. The relocations were due to either the inability to renew the
lease or to position the store in a more desirable location.
No store accounts for more than 2% of the Company's revenues.
Seasonal Stores -- In addition to the "Pic 'N' Save" and "Mac Frugal's
Bargains * 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.
During fiscal 1992 the Company had 25 Christmas season stores and in
fiscal 1993 the Company had 168 Christmas season stores. At the end of the 1993
Christmas shopping season, the Company reassessed the performance of its
Christmas season stores and determined that the stores did not meet the
Company's investment criteria. Subsequent to this evaluation, the concept was
put on hold, and no Christmas season stores were opened in subsequent years.
MARKETING
The Company's primary marketing strategy is to distribute color
circulars within a radius surrounding substantially all of its stores. These
circulars communicate selected product offerings to targeted customers within
each store's primary trade area. To a lesser extent, the Company employs
electronic media or newspaper advertising, usually to supplement circular
advertising. The Company also utilizes various special promotions and celebrity
appearances in conjunction with the grand openings of its stores.
EMPLOYEES
At January 28, 1996, the Company had approximately 7,325 employees.
Temporary personnel are employed in the stores during the Christmas holiday
season. Management believes its employee relations are generally good.
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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. 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. Some of the Company's competitors have greater financial
resources than those available to the Company.
During the past several 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 point 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. 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 stores.
TRADEMARKS
The Company principally employs the service marks "Pic 'N' Save" and
"Mac Frugal's Bargains * Close-outs" in connection with its stores. The Company
has registered its service mark "Mac Frugal's Bargains * Close-outs" with the
U.S. Patent and Trademark Office and the Company has common law rights in the
Southern California area to the service mark "Pic 'N' Save." The Company does
not believe that loss of any of the Company's service marks 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 U.S. 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. U.S. 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.
On March 3, 1994, the President reinstated, by Executive Order, the
"Special 301" provisions of the Omnibus Trade and Competitiveness Act of 1988.
On April 30, 1994, the United States Trade Representative ("USTR") designated
China as a priority foreign country for purposes of "Special 301" because it
concluded that China was failing to provide adequate and effective protection of
intellectual property rights and denying fair and equitable market access to
persons that rely on intellectual property protection. As required by law, an
investigation was initiated and consultations were undertaken between the
governments of the United States and China. On February 5, 1995, the USTR
determined that China's enforcement of intellectual property rights and
provisions for market access to persons that rely on intellectual property
protection were unreasonable and constituted a burden or restriction on U.S.
commerce. As such, the USTR determined to increase duties on certain products to
100% ad valorem.
Pursuant to an agreement reached between China and the United States,
effective February 26, 1995, the USTR terminated its "Special 301"
investigation, rescinded China's designation as a priority country and rescinded
the increased tariffs. The USTR will continue to monitor the implementation of
this agreement to determine whether further action is required under "Special
301." The Company is unable to predict whether China will comply with the terms
of the agreement or whether USTR will propose additional sanctions against China
in the future.
On June 2, 1995, the President renewed the People's Republic of China's
most-favored nation ("MFN") status for another year. In 1994, the President
indicated that China's MFN status would no longer be conditioned upon progress
in the area of human rights. Other conditions, such as freedom of emigration
goals, continue to be in force. The decision to extend China's MFN status for
another year must be taken by June 3, 1996.
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The Company is unable to predict whether the United States will revoke
the People's Republic of China 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
"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
The Company leases most of the buildings and land for its retail stores.
At the end of fiscal 1995, the Company owned the buildings and land occupied by
56 stores, one of which is a commercial condominium, one of which is located at
the Company's corporate office facility in Dominguez, California, and one of
which is located at the Company's warehousing facility in Rancho Cucamonga,
California. The balance of the buildings and land which comprised the Company's
311 operating store locations at fiscal year end was 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) ranges from less than 1 year to 25 years. Lease expirations within the
next two years (without renewal options) are not expected to 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 that 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 lease
rate that is 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 (excluding expenditures to purchase land,
buildings or leasehold interest) of less than $800,000 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 expires
with respect to various equipment on October 31, 1999 and contains options to
extend the terms and options 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 28,060
square feet. For the period from February 3, 1991 through January 28, 1996,
gross selling space increased from 3,568,000 square feet to 5,511,377 square
feet. As of the end of fiscal 1995, aggregate retail selling space at the
Company's 311 operating store locations was categorized according to the
following real property arrangements:
RETAIL
SELLING
NUMBER OF SPACE
OPERATING STORES LOCATIONS (IN SQ. FT.)
---------------- --------- ------------
Owned 56 1,024,989
Leased 255 4,486,388
--- ---------
Total Operating 311 5,511,377
=== =========
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
pursuant to a lease expiring December 31, 1996, 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 1,350 square foot
buying office in New York city.
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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 a 1,100,000 square feet facility that utilized 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 stores. At the end of fiscal 1995, the
Company was servicing 82 stores in the South, Southeastern and Midwestern 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 concentrate 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 subleased
approximately 48,840 square feet of the New Orleans distribution center to an
unaffiliated third party pursuant to a lease that expires in 1997.
On March 21, 1996, the New Orleans distribution center and its contents
were destroyed by fire. The Company's lease with TriNet obligates the Company to
rebuild the distribution center. All of the Company's stores are currently being
serviced by the Rancho Cucamonga distribution center. The Company believes that
its insurance proceeds will adequately cover all losses and that the loss of
inventory and equipment from the fire is not expected to have a material adverse
impact on the Company's operations. However, the Company is unable to predict
with certainty what the ultimate outcome will be.
The Company maintains earthquake insurance for its corporate office and
warehouse facilities that it believes is adequate.
ITEM 3. LEGAL PROCEEDINGS
From time to time, the Company is involved in legal proceedings
incidental to its business operations. None of the proceedings to which it is
currently a party are expected to have a material impact on the Company's
financial condition or results of operations.
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 28, 1996.
EXECUTIVE OFFICERS OF THE REGISTRANT
Philip L. Carter 47 Director, President and Chief Executive Officer since March 1995; 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.
Mark J. Miller 44 Director and Executive Vice President, Merchandising and Stores since March 1995;
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.
Earl C. Bonnecaze 46 Senior Vice President, Stores since July 1995; Regional Manager 1994 - 1995, Dollar
General Corporation; Vice President Regional Manager 1989-1993, Mac Frugal's
Bargains * Close-outs Inc.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock trades on the New York Stock Exchange under
the symbol MFI. The following table shows the high and low sales prices as
reported on the New York Stock Exchange for the Company's Common Stock for
fiscal 1995 and fiscal 1994:
FISCAL YEAR QUARTER HIGH LOW
- ----------- --------------- ------- -------
1995 First Quarter $ 17.38 $ 12.94
Second Quarter 18.38 14.38
Third Quarter 18.50 11.63
Fourth Quarter 15.00 11.50
1994 First Quarter $ 18.50 $ 14.50
Second Quarter 18.75 15.63
Third Quarter 21.13 17.25
Fourth Quarter 21.25 16.38
At April 19, 1996, there were 876 stockholders of record.
The closing sale price of the Company's Common Stock on April 19, 1996
was $12.88 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.
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ITEM 6. SELECTED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT FOR CURRENT RATIO, STORES AND PER SHARE DATA)
YEAR ENDED
------------------------------------------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 30, JANUARY 31, FEBRUARY 2,
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
Net Sales................................... $ 704,934 $ 682,083 $ 627,063 $ 540,295 $ 542,578
Operating Income............................ $ 35,867 $ 70,645 $ 57,667 $ 24,268 $ 63,163
Earnings Before Income Taxes................ $ 23,482 $ 64,272 $ 52,875 $ 17,408 $ 54,877
Net Earnings................................ $ 14,559 $ 38,884 $ 31,937 $ 11,348 $ 34,215
Net Earnings Per Common Share............... $ 0.56 $ 1.37 $ 1.07 $ 0.37 $ 1.12
Net Earnings as a Percent of Sales.......... 2.1% 5.7% 5.1% 2.1% 6.3%
Average Shares Outstanding.................. 25,782 28,353 29,931 30,295(1) 30,649(1)
Cash Dividends Per Common Stock............. None None None None None
At Year End:
Total Assets................................ $ 419,072 $ 386,376 $ 369,563(2) $ 382,621(2) $ 410,425(2)
Long-Term Debt.............................. $ 96,435 $ 4,491 $ 3,869 $ 54,475 $ 81,567
Stockholders' Equity........................ $ 230,399 $ 216,881 $ 257,350 $ 224,447 $ 226,038
Working Capital............................. $ 144,519 $ 44,012 $ 108,323 $ 105,834 $ 104,422
Current Ratio............................... 2.7 1.3 2.1 2.3 2.3
Number of Stores (End of Year).............. 311 278 237 205 193
Number of Stores Opened(6).................. 35(5) 43(5) 39 12 3
Number of Stores Closed(6).................. 2 2 7(5) 0 1
Sales Square Footage........................ 5,511 5,008 4,409(3) 3,869(3) 3,607
Net Sales Per Avg. Sq. Footage.............. $ 134 $ 145 $ 144(4) $ 143(4) $ 151
- ---------------
(1) Adjusted for the effect of shares issued pursuant to two stock purchase
agreements in 1988 assumed outstanding under the Treasury stock method.
(2) Total assets reflect certain balance sheet reclassifications to conform to
the January 29, 1995 balance sheet presentation.
(3) Excludes sales square footage of four stores closed on January 17, 1994 due
to the Southern California earthquake for the year ended January 30, 1994 (3
of the 4 stores were subsequently reopened in the year ended January 29,
1995).
(4) Excludes space and results related to seasonal Christmas stores but includes
sales and sales square footage of the four stores closed on January 17, 1994
for the year ended January 30, 1994 (3 of the 4 stores were subsequently
reopened in the year ended January 29, 1995).
(5) Includes one permanently and three temporarily closed stores on January 17,
1994. The permanently closed store was reopened at a new location in the
year ended January 28, 1996 and the three temporarily closed stores were
reopened at the same sites in the year ended January 29, 1995.
(6) Includes relocation stores.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents for the periods indicated certain items in
the consolidated statements of earnings as a percentage of net sales (except as
otherwise provided).
FOR THE FISCAL YEAR ENDED
-------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 30,
1996 1995 1994
----------- ----------- -----------
Permanent Store Sales...................................... 100.0% 100.0% 95.8%
Seasonal Store Sales....................................... -- -- 4.2
----- ----- -----
Net Sales.................................................. 100.0 100.0 100.0
----- ----- -----
Costs of Permanent Store Sales(1).......................... 58.8 52.5 53.6
Costs of Seasonal Store Sales(2)........................... -- -- 52.8
----- ----- -----
Total Costs of Sales....................................... 58.8 52.5 53.6
----- ----- -----
Gross Profit from Permanent Store Sales(1)................. 41.2 47.5 46.4
Gross Profit from Seasonal Store Sales(2).................. -- -- 47.2
----- ----- -----
Total Gross Profit......................................... 41.2 47.5 46.4
----- ----- -----
Store Expenses............................................. 28.0 28.1 28.7
Warehouse and Administrative Expenses...................... 8.1 9.0 8.5
----- ----- -----
Total Expenses............................................. 36.1 37.1 37.2
----- ----- -----
Operating Income........................................... 5.1 10.4 9.2
Interest Expense, Net...................................... 1.8 0.9 0.8
----- ----- -----
Earnings Before Income Taxes............................... 3.3 9.4 8.4
Income Taxes............................................... 1.2 3.7 3.3
----- ----- -----
Net Earnings............................................... 2.1% 5.7% 5.1%
===== ===== =====
- ---------------
(1) As a percentage of Permanent Store Sales.
(2) As a percentage of Seasonal Store Sales.
FISCAL YEAR ENDED JANUARY 28, 1996 ("FISCAL 1995") COMPARED TO FISCAL YEAR ENDED
JANUARY 29, 1995 ("FISCAL 1994")
Net sales for fiscal 1995 increased $22,851,000 or 3.4% from fiscal
1994. This increase was the combined result of 33 net new stores opened during
the year plus the full year operation of the 41 net new stores opened in the
prior year partially offset by a 6.8% decline in comparable store sales. Sales
from California stores accounted for 61.1% of net sales in fiscal 1995 compared
to 62.8% of net sales in fiscal 1994.
In the third quarter of fiscal 1995 the Company adopted a new strategic
direction in response to a difficult retail climate and to improve comparable
store sales. This new strategic direction involves offering more competitive
pricing; increasing assortment in some areas; reducing inventory levels;
increasing inventory turnover; enhancing store layouts for shopping convenience;
implementing an extensive customer service program; utilizing more television
advertising while maintaining advertising expenses at approximately 2% of sales;
and limiting store expansion to not more than ten stores in fiscal 1996 in order
for the Company's management to focus on its new strategic initiatives. However,
the success of the Company's strategic initiative will also be somewhat
dependent upon a number of external factors including competition, economic
conditions, any changes in customer shopping behavior and the availability of
appropriate merchandise at reasonable prices.
Gross profit as a percentage of sales was 41.2% in fiscal 1995 compared
to 47.5% for the total Company in fiscal 1994. The decrease was primarily due to
the Company recording a $35 million non-cash charge in connection with its new
strategic direction to reduce retail prices in order to hasten the liquidation
of aged inventory. The charge was necessary to clear various categories of
merchandise and provide space for fresh and more competitive merchandise. This
charge decreased the gross profit margin for fiscal 1995 by 5.0%. The remaining
decrease in the gross profit margin for the year is due to more competitive
pricing of its merchandise and is part of the Company's new strategic direction.
Operating expenses consist of store, warehouse and administrative
expenses. Operating expenses were 36.1% of sales in fiscal 1995 compared to
37.1% of sales in fiscal 1994. The decrease in operating expenses was due to
decreases in the components of operating expenses as described below.
Store expenses were 28.0% of sales for fiscal 1995 compared to 28.1% of
sales for fiscal 1994. The decrease in store expense as a percent of sales for
fiscal 1995 versus 1994 was largely due to lower payroll expense, lower
equipment rentals and lower workers' compensation expense partially offset by
higher occupancy, advertising and depreciation expenses.
Warehouse and administrative expenses totaled 8.1% and 9.0% of sales for
fiscal 1995 and 1994, respectively. Expense controls in the warehouse and
administrative areas resulted in a decrease in these expenses as a percent of
sales.
8
11
Interest expense was 1.8% of sales in fiscal 1995 compared to 0.9% of
sales in fiscal 1994. The increase in interest expense resulted from both an
increase in the average balance of debt outstanding during the year and higher
interest rates. The increase in the average amount of debt outstanding is the
combined result of higher average inventory levels during fiscal 1995 compared
to fiscal 1994 and the repurchase of stock in the fourth quarter of 1994.
The Company's effective tax rate was 38.0% in fiscal 1995 compared to
39.5% in fiscal 1994. The decrease in the effective tax rate in fiscal 1995 is
due to increased benefits from the federal Targeted Job Tax Credit and certain
state incentive programs.
FISCAL YEAR ENDED JANUARY 29, 1995 ("FISCAL 1994") COMPARED TO FISCAL YEAR ENDED
JANUARY 30, 1994 ("FISCAL 1993")
Net sales for fiscal 1994 increased $55,020,000 or 8.8% from fiscal
1993. This increase was the combined result of 41 net new stores during the year
and the full year operation of the 36 net new stores opened in the prior year
partially offset by the discontinuance of the seasonal Christmas stores, 168 of
which were operated during the third and fourth quarters of the prior year.
Excluding the loss of sales from discontinuing the seasonal Christmas store
concept, net sales increased $81,139,000 or 13.5% from fiscal 1993. Sales from
California stores accounted for 62.8% of net sales in fiscal 1994 compared to
64.1% of net sales in fiscal 1993 (excluding seasonal Christmas stores in
California).
At the beginning of fiscal 1994, the Company changed its method for
reporting comparable store sales. Under the new method, a comparable store is
one that has been open fifteen full months (65 full weeks) and which doesn't
have a store within four miles of it that has been open less than twelve full
months (52 full weeks). The prior method treated a store as a comparable store
when it was open a full fiscal year. The new method is intended to eliminate the
effect (the "sales transfer effect") on an existing store's sales that can occur
when a new store is opened within four miles of a store that has been open more
than 15 full months. Fifteen full months was selected as the period when a new
store should be tracked as a comparable store because it is the earliest uniform
time a store has sales in both the current and prior year, and the prior year
sales is not distorted because of the grand opening promotions which occur
during the first one to three months the store is open. Based on historical
experience, and subject to certain exceptions, the Company believes that a sales
transfer effect typically occurs within a radius of approximately four miles.
Based on the new method, comparable store sales increased 1.8% in fiscal
1994. Under the old method, comparable store sales increased 0.8% in fiscal
1994. California comparable store sales decreased 1.8% (old method) and 1.4%
(new method) reflecting continuing poor economic conditions in California.
Gross profit (total) as a percentage of sales was 47.5% in fiscal 1994
compared to 46.4% in fiscal 1993. The increase was primarily due to a higher
initial markup on beginning store inventory in the current year. The gross
profit percent also rose, to a lesser extent, because of the expense recorded in
the last fiscal year for damaged inventory as a result of the January 1994
Southern California earthquake. Partially offsetting these increases were small
increases in markdowns to clear certain old merchandise, primarily softgoods,
and an increase in the rate of inventory shrinkage (inventory 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 and cost
inventory methods, as appropriate) to 3.3% in fiscal 1994 from 3.1% in fiscal
1993.
Operating expenses consist of store and 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. Operating expenses were 37.1% of sales in fiscal 1994
compared to 37.2% of sales in fiscal 1993 including the earthquake expenses and
37.0% excluding the earthquake expenses. Store expenses decreased in both
dollars and as a percentage of sales because of the fiscal 1993 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;
and reduced advertising expense in fiscal 1994 compared to fiscal 1993 because
television advertising was not used in fiscal 1994 while it was in fiscal 1993.
Occupancy costs rose as a percentage of sales which is to be expected during a
phase of expansion. As a percentage of sales, administrative expenses increased
because of gains on the sale of two excess properties in the prior fiscal year
(which partially offset administrative expenses in such years), and warehouse
expenses decreased reflecting efficiencies as the Company grows.
Net interest expense increased as a result of both higher interest rates
and higher debt levels incurred to finance a portion of the Company's stock
repurchase programs and temporary working capital requirements.
The Company's effective tax rate remained relatively constant at 39.5%
in fiscal 1994 compared to 39.6% in fiscal 1993.
The Company believes that a meaningful assessment of its net earnings
performance requires making adjustments for earthquake related expenses incurred
in fiscal 1993. Net earnings in fiscal 1993 would have been $33,776,000 or 5.4%
of net sales and $1.13 per share excluding such expenses.
9
12
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 ENDED AVERAGE ASSETS EQUITY
---------- -------------- -------------
Fiscal 1995 3.6% 6.5%
Fiscal 1994 10.3% 16.4%
Fiscal 1993 8.5%(1) 13.3%
- ---------------
(1) Net Return on Average Assets has been restated to conform fiscal 1993 total
assets to the fiscal 1994 presentation.
Net return on average assets for fiscal 1995 decreased from fiscal 1994
due to (1) the $35,000,000 charge to reduce inventories which decreased net
income by $21,700,000 and (2) an increase in average assets from fiscal 1994 to
fiscal 1995. Net return on average stockholders' equity for fiscal 1995
decreased from fiscal 1994 due to the $35,000,000 charge which was partially
offset by the repurchase of Company stock during fiscal 1995 and 1994 that
reduced stockholders' equity.
Net return on average assets increased from fiscal 1993 to fiscal 1994
because net income grew at a faster rate than average assets, and net return on
average stockholders' equity grew as the combined result of the net income
growth and repurchase of Company stock.
Net return on average assets and net return on average stockholders'
equity would have been 9.0% and 12.7% in fiscal 1993, respectively, excluding
the earthquake expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements flow principally from the need to
purchase inventory in advance of the selling season, particularly for the fourth
quarter, and to acquire, construct, equip and purchase inventory for new stores.
Repurchase of the Company's stock represents a secondary use for cash.
Accordingly, the Company's demand for borrowed funds is determined largely from
the timing of its inventory investment relative to the seasonality of its sales,
the magnitude and timing of its capital expenditure programs and size of stock
repurchase programs.
The following table indicates the Company's primary cash requirements
for the past three years:
FISCAL FISCAL FISCAL
(AMOUNTS IN THOUSANDS) 1995 1994 1993 TOTAL
- ---------------------- ------- ------- ------- --------
Cash Requirements:
Capital Expenditures................................. $26,117 $40,814 $29,365 $ 96,296
Increase in inventory (net of checks outstanding and
accounts payable)................................. 7,486 4,764 30,742 42,992
------- ------- ------- --------
Total........................................ $33,603 $45,578 $60,107 $139,288
======= ======= ======= ========
Cash provided by operating activities (excluding net
inventory additions)................................. $23,698 $72,887 $55,124 $151,709
======= ======= ======= ========
The Company opened, including relocations, 35 stores in fiscal 1995, 43
stores (includes three temporarily closed stores) in fiscal 1994 and 39 stores
in fiscal 1993. In fiscal 1995, with decreased levels of capital expenditures
combined with a minor stock repurchase program, the Company increased its debt
by $11,450,000. In fiscal 1994, with increased levels of capital expenditures
due to the accelerating store expansion program combined with two stock
repurchase programs, the Company increased its debt by $46,188,000. In fiscal
1993, with significant cash flows from operating activities, proceeds from the
sale and leaseback of the New Orleans distribution center and a reduction of its
cash balances, the Company reduced its debt by $42,029,000. During fiscal 1995
as part of its change in strategic direction, the Company reduced the average
level of inventories compared to prior years at its stores. During fiscal 1994
and 1993, store inventories remained relatively stable between years. Warehouse
inventories for the recent fiscal years have increased or decreased depending
upon the availability of close-out merchandise during the last several months of
the fiscal year as well as changing internal buying patterns.
The Company presently plans to open not more than 10 stores in fiscal
1996, primarily in existing markets. Management estimates that the cost to open
these stores plus capital expenditures in its existing stores, warehouse and
corporate office during fiscal 1996 would be approximately $13,000,000.
Additionally, the Company has authorization to repurchase an additional
$8,427,300 of its stock during fiscal 1996 if and when the Board of Directors
believe market prices warrant such repurchases. Funds required to finance the
store expansion program and repurchase stock are expected to come from operating
activities with the remainder, if necessary, provided by unused bank lines of
credit.
In fiscal 1995, 1994 and 1993, the Company repurchased 118,800,
4,258,100 and 55,100 shares of its Common Stock, respectively, in open market
transactions at an average cost of $13.24, $19.08 and $15.02 per share,
respectively. All of the shares repurchased in fiscal 1993 and 1,280,400 of the
shares repurchased in fiscal 1994 were part of a 1,500,000 share repurchase
program authorized by the Board of Directors in the last quarter of fiscal 1993.
The remaining 2,977,700 shares repurchased in
10
13
fiscal 1994 were made under a 3,000,000 share repurchase program authorized by
the Board of Directors in fiscal 1994. The shares repurchased in 1995 were made
under a $10,000,000 repurchase program authorized by the Board of Directors in
fiscal 1994.
The Company currently has in place a $200,000,000 unsecured revolving
credit facility with a group of banks (the "Revolver") with a maturity date of
August 1998. The Revolver also includes a $50,000,000 sublimit for commercial
and standby letters of credit. At January 28, 1996, the Company had $75,000,000
outstanding under the Revolver and $106,694,000 was available to be borrowed
with $31,694,000 available for letters of credit. Amounts outstanding under the
Revolver bear interest at the agent bank's prime rate, which at January 28, 1996
was 8.50%, LIBOR plus 5/8% or such other negotiated rate, at the Company's
option. In addition, the Company has in place $55,000,000 of other unsecured
revolving credit facilities with four individual banks (collectively the "Other
Credit Facilities"). The banks providing the Other Credit Facilities are not
obligated to advance funds when requested by the Company. Two of these banks
providing $25,000,000 of such facilities were not permitting further borrowings
to be drawn at this time. At January 28, 1996, the Company had $15,800,000
outstanding under the Other Credit Facilities, and pursuant to the terms of the
Revolver Agreement, up to $40,000,000 may be outstanding under these credit
facilities. The weighted average interest rate for borrowings during fiscal 1995
under the Revolver and Other Credit Facilities was 6.7%. The Company believes
the Revolver is adequate to meet any seasonal or temporary liquidity needs that
cannot be met with cash flows from operating activities.
Working capital was $144,519,000 and $44,012,000 at January 28, 1996 and
January 29, 1995, respectively. The Company's current ratio was 2.7 and 1.3 at
January 28, 1996 and January 29, 1995, respectively. The total debt to equity
ratio increased from 39.2% at January 29, 1995 to 41.9% at January 28, 1996. The
increase in the working capital and current ratio in fiscal 1995 was primarily
the result of classifying the Revolver and Other Credit Facilities debt, which
is below the Revolver's clean-down requirement as long-term debt versus being
classified as a current liability in 1994.
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.
SELECTED QUARTERLY DATA (UNAUDITED)
NET EARNINGS
NET GROSS NET PER COMMON
SALES PROFIT EARNINGS SHARE
-------- -------- -------- ------------
(AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
1995
Quarter Ended
April 30......................................... $154,250 $ 70,715 $ 3,315 $ 0.13
July 30.......................................... 146,754 68,473 3,290 0.13
October 29....................................... 152,353 37,612 (16,003) (0.62)
January 28, 1996................................. 251,577 113,494 23,957 0.93(1)
-------- -------- -------- -----
$704,934 $290,294 $ 14,559 $ 0.56
======== ======== ======== =====
1994
Quarter Ended
May 1............................................ $142,095.. $ 66,770 $ 5,910 $ 0.20
July 31.......................................... 133,693 62,398 2,534 0.09
October 30....................................... 158,491 74,698 5,234 0.19
January 29, 1995................................. 247,804 119,879 25,206 0.96(2)
-------- -------- -------- -----
$682,083 $323,745 $ 38,884 $ 1.37
======== ======== ======== =====
- ---------------
(1) The Company repurchased 118,800 shares of its Common Stock in the fourth
quarter of fiscal 1995. These repurchases resulted in a dilution of the
quarterly weighted average shares outstanding and, as such, the sum of the
quarterly earnings per share exceeds annual earnings per share by $0.01.
(2) The Company repurchased 2,121,900 and 855,800 shares of its Common Stock in
the third and fourth quarters, respectively, of fiscal 1994. These
repurchases 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 $0.07.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
11
14
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 Form of 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.
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.
12
15
NUMBER DESCRIPTION
------- ---------------------------------------------------------------------------------------
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 filed as Exhibit 10.18 to the Company's Annual Report on
Form 10-K for the fiscal year ended January 30, 1994 and incorporated herein by this
reference.
10.19 Employment Agreement dated as of March 15, 1995 between the Company and Mark J. Miller.
10.20 Employment Agreement dated as of July 17, 1995 between the Company and Earl C.
Bonnecaze.
10.21 Employment Agreement dated as of March 15, 1995 by and between the Company and Philip
L. Carter.
10.22 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.
10.23 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 filed as Exhibit 10.26 to the Company's Annual Report on
Form 10-K for the fiscal year ended January 30, 1994 and incorporated herein by this
reference.
10.24 First Amendment to Amended and Restated Credit Agreement dated as of August 10, 1994
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, filed as Exhibit 10.25 to the Company's
Annual Report on Form 10-K for the fiscal year ended January 29, 1995 and incorporated
herein by this reference.
10.25 Second Amendment to Amended and Restated Credit Agreement dated as of February 21, 1995
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 Bank of America Illinois (formerly named Continental Bank, N.A.), as
Co-Agent filed as Exhibit 10.26 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 29, 1995 and incorporated herein by this reference.
10.26 Lease dated as of September 25, 1993 between TriNet Essential Facilities X, Inc. and
West Coast Liquidators, Inc. filed as Exhibit 10.27 to the Company's Annual Report on
Form 10-K for the fiscal year ended January 30, 1994 and incorporated herein by this
reference.
10.27 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.
10.28 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.
10.29 Mac Frugal's Bargains - Close-outs Inc. Savings and Retirement Plan dated as of January
1, 1995 filed as Exhibit 10.30 to the Company's Annual Report on Form 10-K for the
fiscal year ended January 29, 1995 and incorporated herein by this reference.
10.30 Stock Option Agreement dated May 2, 1995 between the Company and Peter S. Willmott.
10.31 Separation Agreement and Release of Claims dated September 6, 1995 between the Company
and Leonard S. Williams filed as Exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended October 29, 1995 and incorporated herein by this
reference.
10.32 Amendment No. 1 to Stock Option Plan for Non-Employee Directors.
13
16
NUMBER DESCRIPTION
------- ---------------------------------------------------------------------------------------
10.33 Letter dated August 4, 1995 executed by Bank of America, NT&SA, as Administrative
Agent, and the other banks signatory thereto, amending that certain Amended and
Restated Credit Agreement dated as of October 5, 1993, among the Company, certain of
its subsidiaries, Bank of America, NT&SA, as Administrative Agent, and such banks,
filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended October 29, 1995 and incorporated herein by this reference.
10.34 Amendment No. 3 to 1990 Employee Stock Incentive Plan.
22.1 Subsidiaries of Company.
24.1 Consent of Independent Auditors.
27 Financial Data Schedule.
(b) The Company did not file any reports on Form 8-K with the Securities and
Exchange Commission during the quarter ended January 28, 1996.
(c) Copies of Exhibits 10.19, 10.20, 10.21, 10.30, 10.32, 10.34, 22.1, 24.1 and
27 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.
14
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 26, 1996
MAC FRUGAL'S BARGAINS * CLOSE-OUTS INC.
By: /s/ PHILIP L. CARTER
-------------------------------------------
Philip L. Carter
Director, 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 26, 1996 /s/ PHILIP L. CARTER
---------------------------------------------------------
Philip L. Carter
Director, President and Chief Executive Officer
(Principal Executive, Financial and Accounting Officer)
April 26, 1996 /s/ PETER S. WILLMOTT
---------------------------------------------------------
Peter S. Willmott
Chairman of the Board
April 26, 1996 /s/ DAVID H. BATCHELDER
---------------------------------------------------------
David H. Batchelder
Director
April 26, 1996 /s/ BRUCE E. KARATZ
---------------------------------------------------------
Bruce E. Karatz
Director
April 26, 1996 /s/ ANTHONY LUISO
---------------------------------------------------------
Anthony Luiso
Director
April 26, 1996 /s/ MARK J. MILLER
---------------------------------------------------------
Mark J. Miller
Director
April 26, 1996 /s/ RONALD P. SPOGLI
---------------------------------------------------------
Ronald P. Spogli
Director
April 26, 1996 /s/ BILL M. THOMAS
---------------------------------------------------------
Bill M. Thomas
Director
April 26, 1996 /s/ JAMES J. ZEHENTBAUER
---------------------------------------------------------
James J. Zehentbauer
Director
15
18
MAC FRUGAL'S BARGAINS * CLOSE-OUTS INC.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES*
PAGE
----
Independent Auditors' Report........................................................................... F-2
Consolidated balance sheets -- January 28, 1996 and January 29, 1995................................... F-3
Consolidated statements of earnings -- years ended January 28, 1996, January 29, 1995 and January 30,
1994................................................................................................. F-4
Consolidated statements of stockholders' equity -- years ended January 28, 1996, January 29, 1995 and
January 30, 1994..................................................................................... F-5
Consolidated statements of cash flows -- years ended January 28, 1996, January 29, 1995 and January 30,
1994................................................................................................. F-6
Notes to consolidated financial statements............................................................. F-7
- ---------------
* Schedules 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
19
INDEPENDENT AUDITORS' REPORT
To The Board of Directors and Stockholders of
Mac Frugal's Bargains * Close-outs Inc.
Dominguez, California
We have audited the accompanying consolidated balance sheets of Mac
Frugal's Bargains * Close-outs Inc. and subsidiaries as of January 28, 1996 and
January 29, 1995 and the related consolidated statements of earnings,
stockholders' equity and cash flows for the years ended January 28, 1996,
January 29, 1995 and January 30, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements 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 * Close-outs Inc. and subsidiaries at January 28, 1996 and January 29,
1995 and the results of their operations and their cash flows for the years
ended January 28, 1996, January 29, 1995 and January 30, 1994, in conformity
with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Los Angeles, California
March 12, 1996
(Except for Note 10, as to which
the date is March 21, 1996)
F-2
20
MAC FRUGAL'S BARGAINS * CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS EXCEPT PAR VALUE)
ASSETS
JANUARY 28, 1996 JANUARY 29, 1995
---------------- ----------------
Current Assets:
Cash and cash equivalents................................................ $ 7,285 $ 6,674
Merchandise inventories (Notes 3, 9 and 10).............................. 200,616 182,102
Deferred income taxes (Note 5)........................................... 13,003 5,377
Other current assets..................................................... 9,965 9,506
-------- --------
Total current assets.................................................. 230,869 203,659
Property, Equipment and Improvements (Notes 9 and 10):
Land..................................................................... 35,195 33,876
Building and improvements................................................ 84,054 80,762
Automobiles and trucks................................................... 3,040 2,778
Furniture, fixtures and equipment........................................ 99,966 89,225
Leasehold improvements................................................... 84,127 73,931
Construction in progress................................................. 635 2,987
-------- --------
307,017 283,559
Less: Accumulated depreciation and amortization.......................... (121,106) (105,339)
-------- --------
185,911 178,220
Deferred Income Taxes (Note 5)............................................. 604 780
Deferred Financing Costs and Other Assets.................................. 1,688 3,717
-------- --------
Total Assets..................................................... $419,072 $386,376
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Checks outstanding....................................................... $ 16,704 $ 11,098
Loan payable to bank (Note 2)............................................ -- 80,500
Current portion of long-term debt (Note 2)............................... 69 63
Accounts payable......................................................... 14,781 9,359
Accrued expenses (Note 4)................................................ 40,605 37,096
Income taxes payable (Note 5)............................................ 4,664 12,154
Sales tax payable........................................................ 9,527 9,377
-------- --------
Total current liabilities........................................ 86,350 159,647
Long-Term Debt (Note 2).................................................... 96,435 4,491
Deferred Income Taxes (Note 5)............................................. 5,888 5,357
Commitments (Notes 2, 7 and 8)
Stockholders' Equity (Notes 2 and 6):
Preferred stock, $1 par value; authorized, 500 shares;
issued, none
Common stock, $.02778 par value; authorized, 100,000 shares; issued
25,582 shares (1996) and 29,854 shares (1995)......................... 711 829
Additional paid-in capital............................................... 512 3,216
Retained earnings........................................................ 230,749 294,917
-------- --------
231,972 298,962
Less: Treasury stock, at cost, 119 shares (1996) and 4,313 shares
(1995)................................................................ (1,573) (82,081)
-------- --------
Total Stockholders' Equity............................................ 230,399 216,881
-------- --------
Total Liabilities and Stockholders' Equity....................... $419,072 $386,376
======== ========
See Notes to Consolidated Financial Statements.
F-3
21
MAC FRUGAL'S BARGAINS * CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
YEAR ENDED
------------------------------------------------------------------
JANUARY 28, 1996 JANUARY 29, 1995 JANUARY 30, 1994
---------------- ---------------- ----------------
Net Sales.............................................. $704,934 $682,083 $627,063
Cost of Sales (Note 3)................................. 414,640 358,338 335,928
-------- -------- --------
Gross Profit........................................... 290,294 323,745 291,135
-------- -------- --------
Expenses:
Store expenses....................................... 197,270 191,496 180,008
Warehouse and administrative expenses................ 57,157 61,604 53,460
-------- -------- --------
Total Expenses............................... 254,427 253,100 233,468
-------- -------- --------
Operating Income....................................... 35,867 70,645 57,667
Interest Expense, Net (Note 2)......................... 12,385 6,373 4,792
-------- -------- --------
Earnings Before Income Taxes........................... 23,482 64,272 52,875
Income Taxes (Note 5).................................. 8,923 25,388 20,938
-------- -------- --------
Net Earnings........................................... $ 14,559 $ 38,884 $ 31,937
======== ======== ========
Average Shares Outstanding............................. 25,782 28,353 29,931
======== ======== ========
Net Earnings Per Common Share.......................... $ 0.56 $ 1.37 $ 1.07
======== ======== ========
Dividends Per Common Share............................. None None None
See Notes to Consolidated Financial Statements.
F-4
22
MAC FRUGAL'S BARGAINS * CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
COMMON STOCK ADDITIONAL TREASURY STOCK
----------------- PAID-IN RETAINED --------------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT TOTAL
------ ------ ---------- -------- ------- -------- --------
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
Exercise of stock options................... 127 4 1,510 -- -- -- 1,514
Non-cash compensation expense............... -- -- 75 -- -- -- 75
Purchase of Treasury stock, at cost......... -- -- -- -- 4,258 (81,254) (81,254)
Tax benefit from disqualifying dispositions
of stock options.......................... -- -- 312 -- -- -- 312
Net earnings for the year................... -- -- -- 38,884 -- -- 38,884
------ ----- ------ -------- ------ ------ -------
BALANCE, January 29, 1995................... 29,854 829 3,216 294,917 4,313 (82,081) 216,881
Exercise of stock options................... 41 1 431 -- -- -- 432
Non-cash compensation expense............... -- -- 86 -- -- -- 86
Treasury stock retired...................... (4,313) (119 ) (3,235) (78,727) (4,313) 82,081 --
Purchase of Treasury stock, at cost......... -- -- -- -- 119 (1,573) (1,573)
Tax benefit from disqualifying dispositions
of stock options.......................... -- -- 14 -- -- -- 14
Net earnings for the year................... -- -- -- 14,559 -- -- 14,559
------ ----- ------ -------- ------ ------ -------
BALANCE, January 28, 1996................... 25,582 $ 711 $ 512 $230,749 119 $ (1,573) $230,399
====== ===== ====== ======== ====== ====== =======
See Notes to Consolidated Financial Statements.
F-5
23
MAC FRUGAL'S BARGAINS * CLOSE-OUTS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
YEAR ENDED
---------------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 30,
1996 1995 1994
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
Cash flows from operating activities:
Cash received from customers................................... $ 704,934 $ 682,083 $ 627,063
Cash paid to suppliers and employees........................... (653,184) (594,293) (576,515)
Income taxes paid.............................................. (23,318) (13,709) (21,091)
Interest paid (net of amount capitalized)...................... (12,369) (6,579) (5,774)
Interest received.............................................. 149 621 699
--------- --------- ---------
Net cash provided by operating activities................... 16,212 68,123 24,382
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures........................................... (26,117) (40,814) (29,365)
Proceeds from sale of fixed assets............................. 207 473 25,883
--------- --------- ---------
Net cash used in investing activities....................... (25,910) (40,341) (3,482)
--------- --------- ---------
Cash flows from financing activities:
Net (repayments) borrowings under line of credit agreements.... (80,500) 45,600 34,900
Repurchase of Treasury stock................................... (1,573) (81,254) (827)
Net borrowings (repayments) of long-term debt.................. 90,737 (96) (76,814)
Proceeds from exercise of stock options........................ 432 1,514 1,718
Other, net..................................................... 1,213 683 (116)
--------- --------- ---------
Net cash provided by (used in) financing activities......... 10,309 (33,553) (41,139)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents............ 611 (5,771) (20,239)
Cash and cash equivalents, beginning of period................... 6,674 12,445 32,684
--------- --------- ---------
Cash and cash equivalents, end of period......................... $ 7,285 $ 6,674 $ 12,445
========= ========= =========
YEAR ENDED
---------------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 30,
1996 1995 1994
----------- ----------- -----------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING
ACTIVITIES:
Net income....................................................... $ 14,559 $ 38,884 $ 31,937
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................. 18,215 16,000 15,380
(Increase) decrease in net deferred income taxes............... (6,919) (1,715) 14,320
Tax benefit from disqualifying dispositions of stock options... 14 312 --
Loss (gain) on sale of fixed assets............................ 4 (58) (924)
Non-cash compensation expense.................................. 86 75 75
Changes in assets and liabilities:
Increase in merchandise inventories......................... (18,514) (347) (34,180)
Decrease (increase) in other assets......................... 1,570 1,882 (2,104)
Increase in checks outstanding, accounts payable, accrued
expenses and sales tax payable............................ 14,687 936 14,595
(Decrease) increase in income taxes payable................. (7,490) 12,154 (14,717)
--------- --------- ---------
1,653 29,239 (7,555)
--------- --------- ---------
$ 16,212 $ 68,123 $ 24,382
========= ========= =========
See Notes to Consolidated Financial Statements.
F-6
24
MAC FRUGAL'S BARGAINS * CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 28, 1996, JANUARY 29, 1995 AND JANUARY 30, 1994
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation
Mac Frugal's Bargains * Close-outs Inc. (formerly Pic 'N' Save
Corporation) and its wholly owned subsidiaries (the "Company") operate a chain
of 311 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 * Close-outs Inc. and its wholly owned subsidiaries. All
material intercompany transactions and balances have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expense during the reporting
period. Actual results could differ from those estimates.
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. Depreciation
and amortization are provided by the straight-line method over the estimated
useful lives of the property.
Capitalization of Interest
The Company capitalizes interest in connection with the construction of
certain facilities and other assets. Interest was capitalized using the
Company's weighted average interest rate (Note 2).
Deferred Financing Costs
Deferred financing costs are amortized using the straight-line method
over the terms of the related debt agreements.
Deferred Expenses
The Company capitalizes costs associated with opening new store and
warehouse facilities and amortizes these costs over six and twenty-four months,
respectively.
Interest Rate Swap
Amounts receivable or payable under the interest rate swap used to
manage interest rate risks arising from the Company's debt are recognized as
interest income or expense over the life of the agreement.
Fair Market Value of Financial Instruments
The carrying value of financial assets and liabilities approximates fair
value due to the short maturity for financial assets and the short-term
repricing of the underlying tranches for financial liabilities.
Discounts and Allowances
The Company has entered into certain purchase contracts in the ordinary
course of business. Associated with these contracts, the Company receives
certain allowances and discounts (primarily related to retail shelf space and
purchase discounts). These allowances are recognized when earned and, in some
cases, the retail shelf space allowances are recognized upon receipt if the
contracts do not include any future purchase commitments for the Company.
F-7
25
MAC FRUGAL'S BARGAINS * CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 28, 1996, JANUARY 29, 1995 AND JANUARY 30, 1994
Income Taxes
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.
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.
Reclassifications
Certain reclassifications have been made to prior year amounts to
conform to the current year presentation.
Prospective Accounting Changes
The Financial Accounting Standards Board has issued a new statement on
accounting for the impairment of long-lived assets and for long-lived assets to
be disposed of (SFAS 121). This statement is effective for fiscal years
beginning after December 15, 1995; however, earlier application is permitted.
Among other provisions, the statement standardizes the accounting practices for
the recognition and measurement of impairment losses on certain long-lived
assets. The Company has decided not to elect early adoption of the statement;
however, the Company anticipates that adoption of the change in the accounting
will not have a material impact on its financial statements.
The Company currently accounts for its stock-based compensation plans
using the provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" (APB 25). In 1995, the Financial Accounting
Standards Board issued a new statement on accounting for stock-based
compensation (SFAS 123). This statement is effective for fiscal years beginning
after December 15, 1995; however, earlier application is permitted. Among other
provisions the statement allows companies to elect to account for stock-based
compensation plans using a fair-value-based method or continue measuring
compensation expense for those plans using the intrinsic value method prescribed
in APB 25. SFAS 123 requires that companies electing to continue using the
intrinsic value method must make pro forma disclosures of net income and
earnings per share as if the fair-value-based method of accounting had been
applied. The adoption of SFAS 123 will be reflected in the Company's 1996
consolidated financial statements. As the Company anticipates continuing to
account for stock-based compensation using the intrinsic value method, SFAS 123
will not have an impact on the Company's results of operations or financial
position.
NOTE 2 -- LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
JANUARY 28, 1996 JANUARY 29, 1995
---------------- ----------------
Revolving note payable, under a line of credit agreement
bearing interest at the bank's prime rate or LIBOR plus
5/8%, or other negotiated rates, all at the Company's
option. Final maturity is August 10, 1998................ $ 75,000 $ --
Other revolving notes payable, under various lines of
credit agreements at negotiated rates. Maturities in
February 1996 have been refinanced under the revolving
note payable with a final maturity of August 10, 1998.... 15,800 --
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%
($715 in fiscal 1995, $852 in fiscal 1994)............... 1,285 1,348
Other...................................................... 2,419 1,206
------- ------
96,504 4,554
Less current maturities.................................... (69) (63)
------- ------
Long-term debt............................................. $ 96,435 $4,491
======= ======
F-8
26
MAC FRUGAL'S BARGAINS * CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 28, 1996, JANUARY 29, 1995 AND JANUARY 30, 1994
The aggregate maturities of long-term debt for the years subsequent to
January 28, 1996 are as follows (in thousands):
1996................................................ $ 69
1997................................................ 76
1998................................................ 92,884
1999................................................ 93
2000................................................ 97
Thereafter.......................................... 3,285
-------
$96,504
=======
As of January 28, 1996, the Company had available from a syndicate of
banks, an annually renewable unsecured three-year $200,000,000 revolving line of
credit (the "Revolver") for seasonal working capital needs, with a $50,000,000,
sublimit for commercial and standby letters of credit. At the end of fiscal
1996, $106,694,000 was available for working capital requirements, including
$31,694,000 for letters of credit. The Revolver bears interest at the agent
bank's prime rate, which at January 28, 1996 was 8.5% or LIBOR plus 5/8% (which
at January 28, 1996, was 6.16%) or other negotiated rates, all at the Company's
option. The Revolver contains restrictive covenants requiring the Company to
maintain certain financial ratios and limiting the payment of dividends to an
amount based upon a formula. The Company had outstanding borrowings of
$75,000,000 and $56,000,000 at January 28, 1996 and January 29, 1995,
respectively, under the Revolver. At January 28, 1996, $8,525,000 of retained
earnings were unrestricted as to the declaration of cash dividends and the
acquisition of Common Stock by the Company.
At the end of fiscal 1995, the Company had in place $55,000,000 of
unsecured revolving credit facilities with four individual banks (the "Other
Credit Facilities"). Two of these banks providing $25,000,000 of such facilities
were not permitting further borrowings to be drawn at this time. Under the terms
of the Revolver, only $40,000,000 may be outstanding under the Other Credit
Facilities at any one time. The banks providing the Other Credit Facilities are
not obligated to advance funds when requested by the Company. At January 28,
1996 and January 29, 1995, $15,800,000 and $24,500,000, respectively, were
outstanding under these credit facilities. Interest rates for borrowings
outstanding at January 28, 1996, under these credit facilities ranged between
5.89% and 6.28%.
The weighted average interest rate for both the Revolver and the Other
Credit Facilities during fiscal 1995 was 6.66%. In fiscal 1995, the Company
began classifying all debt, including Other Credit Facilities debt, which is
below the Revolver's clean-down requirements, as long-term. The Company had the
intent and the ability, supported by the terms of its existing Revolver, to
maintain all such principal amounts outstanding through August 10, 1998.
Commitments under outstanding letters of credit amounted to $18,306,000
and $18,397,000 at January 28, 1996 and January 29, 1995, respectively.
To hedge against fluctuations in interest rates on the Revolver, the
Company entered into an interest rate swap agreement with a major United States
bank for a notional amount of $40,000,000. According to the swap agreement,
which expires in July 1998, the Company pays interest based upon fixed interest
payments of 5.915% and receives interest based upon a variable three-month LIBOR
rate. The Company monitors its position with the financial institution which is
the counter-party to this financial instrument and does not anticipate
nonperformance by this counter-party.
The impact of interest rate risk management activities on income in
fiscal 1995 and 1994 and the amount of deferred gains and losses from interest
rate risk management transactions at January 28, 1996 were not material.
Net interest on bank borrowings and long-term debt is summarized as
follows (in thousands):
YEAR ENDED
-------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 30,
1996 1995 1994
----------- ----------- -----------
Expense.................................................... $12,568 $ 6,997 $ 5,436
Income..................................................... (149) (389) (644)
Capitalized Interest....................................... (34) (235) --
------- ------ ------
Net Interest............................................... $12,385 $ 6,373 $ 4,792
======= ====== ======
NOTE 3 -- MARKDOWN RESERVE
In November of 1995, the Company announced a change in the strategic
direction of the Company. As part of the new strategy, the Company recognized a
$35,000,000 pre-tax charge to reduce retail prices on merchandise in order to
liquidate aged inventory. As of January 28, 1996, approximately $19,600,000 of
the markdown reserve remains in merchandise inventories.
F-9
27
MAC FRUGAL'S BARGAINS * CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 28, 1996, JANUARY 29, 1995 AND JANUARY 30, 1994
NOTE 4 -- ACCRUED EXPENSES
Accrued expenses are comprised of the following (in thousands):
JANUARY 28, JANUARY 29,
1996 1995
----------- -----------
Insurance.............................................................. $18,893 $20,369
Salaries............................................................... 3,184 3,956
Profit sharing and 401(k).............................................. 622 1,047
Percentage rent........................................................ 651 589
Other expenses......................................................... 17,255 11,135
------- -------
$40,605 $37,096
======= =======
NOTE 5 -- INCOME TAXES
The provision for income taxes includes the following (in thousands):
YEAR ENDED
-------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 30,
1996 1995 1994
----------- ----------- -----------
Current:
Federal.................................................. $13,215 $22,673 $ 5,048
State.................................................... 2,627 4,430 1,571
------- ------- -------
15,842 27,103 6,619
Deferred:
Federal.................................................. (5,812) (1,996) 11,649
State.................................................... (1,107) 281 2,670
------- ------- -------
(6,919) (1,715) 14,319
------- ------- -------
$ 8,923 $25,388 $20,938
======= ======= =======
The Company's effective tax rate differs from the statutory federal
income tax rate as follows:
YEAR ENDED
-------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 30,
1996 1995 1994
----------- ----------- -----------
Statutory federal tax rate................................. 35.0% 35.0% 35.0%
State income tax, net of federal benefit................... 3.4 4.7 5.4
Rate benefit from federal Targeted Jobs Tax Credit......... (1.6) (0.8) (0.4)
Other, net................................................. 1.2 0.6 (0.4)
---- ---- ----
38.0% 39.5% 39.6%
==== ==== ====
Significant components of the Company's net deferred income taxes are as
follows (in thousands):
JANUARY 28, JANUARY 29,
1996 1995
----------- -----------
Deferred Income Tax Assets:
Inventories.......................................................... $12,151 $ 3,541
State Franchise Taxes................................................ (134) 991
Insurance Reserves................................................... 1,094 1,558
Deferred Expenses.................................................... 870 804
Excess of Tax Over Book Depreciation................................. -- (672)
Other................................................................ (374) (65)
------- -------
13,607 6,157
------- -------
Deferred Income Tax Liabilities:
Excess of Tax Over Book Depreciation................................. (14,069) (13,786)
Insurance Reserves................................................... 7,018 7,025
Other................................................................ 1,163 1,404
------- -------
(5,888) (5,357)
------- -------
Net Deferred Income Tax Asset.......................................... $ 7,719 $ 800
======= =======
The Company provided no valuation allowance against the deferred income
tax assets recorded as of January 28, 1996 and January 29, 1995 because
management believes it is more likely than not that the deferred income tax
assets will be realized.
F-10
28
MAC FRUGAL'S BARGAINS * CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 28, 1996, JANUARY 29, 1995 AND JANUARY 30, 1994
NOTE 6 -- STOCK INCENTIVE PLANS
In 1990, the Company adopted a new stock incentive plan ("the Plan") to
enable key employees to acquire shares of the Company's common stock. The Plan,
as amended in fiscal 1993, replaced two previous plans ("the Old Plans") and
provides for the grant of incentive stock options, non-qualified stock options,
stock appreciation rights and restricted stock. Up to 3,200,000 shares may be
issued under the Plan. Although stock options and restricted stock granted under
the Old Plans remain outstanding, no new options or restricted shares will be
granted under such plans.
Under the terms of the 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 non-qualified 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). The
Company has granted options to purchase 25,000 shares outside of these plans.
The Company also has a stock option plan for non-employee directors
("the Non-Employee Plan") to enable non-employee directors to acquire shares of
the Company's Common Stock. Each non-employee director receives a non-qualified
stock option grant of 2,250 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 his
or her annual retainer in the form of a non-qualified stock option grant based
on a formula. The expense associated with these grants are recognized ratably
over the director's term.
Changes for all options are summarized as follows:
STOCK OPTIONS
----------------------------------
PER SHARE
SHARES PRICE RANGE
-------------- ---------------
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
Granted........................................................ 39,856 $16.10 - $16.88
Exercised...................................................... (126,318) $ 9.00 - $16.00
Cancelled...................................................... (103,142) $10.50 - $22.13
---------
Outstanding, January 29, 1995.................................. 1,215,921 $ 6.63 - $23.00
Granted........................................................ 1,054,130 $11.10 - $17.50
Exercised...................................................... (41,404) $ 6.63 - $16.00
Cancelled...................................................... (139,511) $10.50 - $22.13
---------
Outstanding, January 28, 1996.................................. 2,089,136 $ 6.63 - $23.00
=========
Options exercisable for shares at January 28, 1996............. 991,633
=========
At January 28, 1996, there were 1,120,467 and 222,734 shares of the
Company's Common Stock available for grant under the Plan and the Non-Employee
Plan, respectively.
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 non-qualified options are exercised.
NOTE 7 -- DEFINED CONTRIBUTION PLANS
The Company had a profit sharing plan covering substantially all
employees with more than one year of service. Under this plan, the Company
contributed a portion of earnings based on a formula. Effective January 1, 1995,
the Company amended and restated its profit sharing plan to include a 401(k)
employee deferral and Company matching feature. The Company's match is
determined each year by the Board of Directors. Profit Sharing and 401(k)
expenses for the plan for the years ended January 28, 1996, January 29, 1995 and
January 30, 1994 were $515,000, $1,050,000 and $1,038,000, respectively.
F-11
29
MAC FRUGAL'S BARGAINS * CLOSE-OUTS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED JANUARY 28, 1996, JANUARY 29, 1995 AND JANUARY 30, 1994
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
The Company has leases outstanding for retail store locations, the New
Orleans distribution center and equipment with varying initial expiration dates
through 2020; 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. Total rental expense was as follows (in thousands):
YEAR ENDED
---------------------------------------------------
JANUARY 28, JANUARY 29, JANUARY 30,
1996 1995 1994
----------- ----------- -----------
Base rental expense................................ $39,735 $34,858 $28,707
Contingent rental expense.......................... 627 416 102
------- ------- -------
$40,362 $35,274 $28,809
======= ======= =======
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 28, 1996 were as follows (in
thousands):
FISCAL YEAR EXPENSE INCOME NET
----------- -------- -------- --------
1996................................................ $ 35,240 $ 2,572 $ 32,668
1997................................................ 35,164 1,657 33,507
1998................................................ 34,689 1,348 33,341
1999................................................ 33,623 1,160 32,463
2000................................................ 31,926 785 31,141
Thereafter.......................................... 205,993 4,950 201,043
-------- ------- --------
$376,635 $ 12,472 $364,163
======== ======= ========
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 9 -- 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. Three stores reopened during fiscal 1994. The fourth store
has been permanently closed and was relocated during fiscal 1995.
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. All of these costs were recorded in fiscal 1993.
NOTE 10 -- SUBSEQUENT EVENT
On March 21, 1996, the New Orleans distribution center and its contents
were destroyed by fire. The Company's lease with an unrelated third party
obligates the Company to rebuild the distribution center. All of the Company's
stores are currently being serviced by the Company's remaining distribution
center. The Company believes that its insurance proceeds will adequately cover
all losses and that the loss of inventory and equipment from the fire is not
expected to have a material adverse impact on the Company's operations. However,
the Company is unable to predict with certainty what the ultimate outcome will
be.
F-12
30
INDEX TO EXHIBITS
FILED WITH THE ANNUAL REPORT ON FORM 10-K FOR PAGE
NUMBER THE FISCAL YEAR ENDED JANUARY 28, 1996 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 August 31, 1993 filed as Exhibit 10.18 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 30, 1994................................................. *
10.19 Employment Agreement dated as of March 15, 1996 between the Company and Mark J. Miller.....
10.20 Employment Agreement dated as of July 17, 1995 between the Company and Earl C. Bonnecaze...
10.21 Employment Agreement dated as of March 15, 1995 between the Company and Philip L. Carter...
10.22 Lease dated August 1, 1988 among 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...................................................... *
31
FILED WITH THE ANNUAL REPORT ON FORM 10-K FOR PAGE
NUMBER THE FISCAL YEAR ENDED JANUARY 28, 1996 NUMBER
- ------ ------------------------------------------------------------------------------------------- ------
10.23 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, filed as Exhibit 10.26 to the Company's Annual Report on Form 10-K for the fiscal
year ended January 30, 1994................................................................ *
10.24 First Amendment to Amended and Restated Credit Agreement dated as of August 10, 1994 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, filed as Exhibit 10.25 to the Company's Annual Report on
Form 10-K for the fiscal year ended January 29, 1995....................................... *
10.25 Second Amendment to Amended and Restated Credit Agreement dated as of February 21, 1995
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 Bank of America Illinois (formerly named Continental Bank, N.A.), as Co-Agent,
filed as Exhibit 10.26 to the Company's Annual Report on Form 10-K for the fiscal year
ended January 29, 1995..................................................................... *
10.26 Lease dated as of September 25, 1993 between TriNet Essential Facilities X, Inc. and West
Coast Liquidators, Inc. filed as Exhibit 10.27 to the Company's Annual Report on Form 10-K
for the fiscal year ended January 30, 1994................................................. *
10.27 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....................................................................................... *
10.28 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........................................................................... *
10.29 MacFrugal's Bargains - Close-outs Inc. Savings and Retirement Plan dated as of January 1,
1995, filed as Exhibit 10.30 to the Company's Annual Report on Form 10-K for the fiscal
year ended January 29, 1995................................................................ *
10.30 Stock Option Agreement dated May 2, 1995 between the Company and Peter S. Willmott.........
10.31 Separation Agreement and Release of Claims dated September 6, 1995 between the Company and
Leonard S. Williams filed as Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the fiscal quarter ended October 29, 1995.............................................. *
10.32 Amendment No. 1 to Stock Option Plan for Non-Employee Directors............................
10.33 Letter dated August 4, 1995 executed by Bank of America, NT&SA, as Administrative Agent,
and the other banks signatory thereto, amending that certain Amended and Restated Credit
Agreement dated as of October 5, 1993, among the Company, certain of its subsidiaries, Bank
of America, NT&SA, as Administrative Agent, and such banks, filed as Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter ended October 29, 1995...... *
10.34 Amendment No. 3 to 1990 Employee Stock Incentive Plan......................................
22.1 Subsidiaries of Company....................................................................
24.1 Consent of Independent Auditors............................................................
27 Financial Data Schedule....................................................................
- ---------------
* By this reference incorporated herein and made a part hereof.