<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 1O-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 29, 1995
---------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________to________________
Commission File Number: 0-16309
FAMILY BARGAIN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 51-0299573
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
315 East 62nd Street, New York NY 10021
(Address of principal executive offices) (Zip Code)
(212) 980-9670
(Registrant's telephone number, including area code)
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
The number of shares outstanding of the registrant's of common stock, as of
September 9, 1995 was 4,008,311 shares.
<PAGE> 2
FAMILY BARGAIN CORPORATION
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JULY 29, 1995
INDEX
<TABLE>
<S> <C>
PART I. FINANCIAL INFORMATION
------- ---------------------
ITEM 1. FINANCIAL STATEMENTS.
Family Bargain Corporation and Subsidiaries
Consolidated Balance Sheets as of January 28,
1995 and July 29, 1995 (Unaudited).............. F-1
Family Bargain Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited) for the three months ended July
30, 1994 and July 29, 1995...................... F-3
Family Bargain Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited) for the six months ended July 30,
1994 and July 29, 1995.......................... F-4
Family Bargain Corporation and Subsidiaries
Consolidated Statement of Stockholders' Equity
(Unaudited) for the six months ended July 29,
1995............................................ F-5
Family Bargain Corporation and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
for the six months ended July 30, 1994 and
July 29, 1995................................... F-6
Family Bargain Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)..................................... F-8
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS................................. 3
PART II. OTHER INFORMATION
-------- -----------------
Item 6. Exhibits and Reports on Form 8-K........... 8
</TABLE>
<PAGE> 3
PART I
ITEM 1
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 28, July 29,
1995 1995
----------- --------
(Unaudited)
<S> <C> <C>
Assets
------
Current Assets:
Cash $ 2,522,000 196,000
Accounts receivable - non-trade 742,000 1,424,000
Layaway receivables 411,000 976,000
Merchandise inventories 19,541,000 26,033,000
Prepaid expenses 1,124,000 1,097,000
----------- ----------
Total current assets 24,340,000 29,726,000
Leasehold improvements and equipment,
less accumulated depreciation and
amortization of $1,084,000 and
$1,738,000, respectively 4,922,000 7,047,000
Deferred debt issuance costs, less
accumulated amortization of $291,000
and $433,000, at January 28, 1995 and
July 29, 1995, respectively 450,000 497,000
Other assets 728,000 859,000
Excess of cost over net assets acquired
(goodwill), less accumulated
amortization of $1,984,000 and
$2,613,000, at January 28, 1995 and
July 29, 1995, respectively 29,465,000 28,836,000
----------- ----------
$59,905,000 66,965,000
=========== ==========
</TABLE>
F-1
<PAGE> 4
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, CONTINUED
<TABLE>
<CAPTION>
January 28, July 29,
1995 1995
----------- --------
(Unaudited)
<S> <C> <C>
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current maturities of long-term
debt and revolving credit note $ 3,112,000 1,065,000
Accounts payable 5,544,000 9,876,000
Accrued salaries, wages and
bonuses 2,169,000 1,276,000
Other accrued expenses 3,417,000 3,874,000
------------ -----------
Total current liabilities 14,242,000 16,091,000
Revolving credit note,
less current maturities 5,943,000 14,880,000
Long-term debt, less current maturities 8,212,000 9,686,000
Other liabilities 1,696,000 1,806,000
------------ -----------
Total liabilities 30,093,000 42,463,000
------------ -----------
Stockholders' equity:
Series A convertible preferred stock,
$.01 par value, 4,500,000 shares
authorized, 3,200,000 shares issued
and outstanding at January 28, 1995
and July 29, 1995 26,981,000 26,981,000
Common stock, $.01 par value,
80,000,000 shares authorized,
4,506,981 and 4,008,311 shares
issued and outstanding at
January 28, 1995 and July 29, 1995,
respectively 7,000 7,000
Additional paid-in capital 19,796,000 19,796,000
Accumulated deficit (16,972,000) (22,282,000)
------------ -----------
Total stockholders' equity 29,812,000 24,502,000
------------ -----------
Commitments and contingencies
Total liabilities and
stockholders' equity $ 59,905,000 66,965,000
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-2
<PAGE> 5
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the For the
three months ended three months ended
July 30, 1994 July 29, 1995
------------- --------------
<S> <C> <C>
Net sales $31,295,000 37,312,000
Cost of sales 20,841,000 24,284,000
----------- ----------
Gross profit 10,454,000 13,028,000
Selling and
administrative expenses 10,271,000 12,163,000
Amortization of goodwill 297,000 315,000
----------- ----------
Operating income (loss) (114,000) 550,000
Interest expense and
financing fees (871,000) (786,000)
----------- -----------
Loss from continuing
operations before
discontinued operations
and extraordinary gain (985,000) (236,000)
----------- -----------
Loss from discontinued operations (215,000) -
----------- -----------
Extraordinary gain on retirement
of indebtedness (Note 2) 5,744,000 -
----------- -----------
Net income (loss) 4,544,000 (236,000)
Preferred stock dividends (250,000) (760,000)
----------- -----------
Net income (loss) available
to common stock $ 4,294,000 (996,000)
=========== ===========
Loss per common share and
common stock equivalents (Note 2):
Loss from continuing operations $ (0.30) (0.25)
Loss from discontinued operations (0.05) -
Extraordinary gain on retirement
of indebtedness 1.40 -
----- -----
Net income (loss) $ 1.05 (0.25)
==== =====
Loss per common share
assuming full dilution (Note 2):
Loss from continuing operations $ (0.30) (0.25)
Loss from discontinued operations (0.05) -
Extraordinary gain on retirement
of indebtedness 1.40 -
----- -----
Net income (loss) $ 1.05 (0.25)
===== =====
Weighted average shares outstanding:
Primary 4,085,046 4,008,311
Fully diluted 4,085,046 4,008,311
</TABLE>
See accompanying notes to consolidated financial statements
F-3
<PAGE> 6
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the For the
six months ended six months ended
July 30, 1994 July 29, 1995
--------------- --------------
<S> <C> <C>
Net sales $ 60,022,000 $68,350,000
Cost of sales 39,682,000 45,785,000
----------- -----------
Gross profit 20,340,000 22,565,000
Selling and
administrative expenses 20,011,000 24,276,000
Amortization of goodwill 594,000 629,000
----------- -----------
Operating loss (265,000) (2,340,000)
Interest expense and
financing fees (1,634,000) (1,450,000)
----------- -----------
Loss from continuing
operations before
discontinued operations and
extraordinary gain (1,899,000) (3,790,000)
----------- -----------
Loss from discontinued operations (257,000) -
----------- -----------
Extraordinary gain on retirement
of indebtedness (Note 2) 5,744,000 -
----------- -----------
Net income (loss) 3,588,000 (3,790,000)
Preferred stock dividends (413,000) (1,520,000)
----------- -----------
Net income (loss) available
To common stock $ 3,175,000 (5,310,000)
=========== ===========
Income (loss) per common share and
common stock equivalents:
Loss from continuing operations $ (0.57) (1.32)
Loss from discontinued operations (0.06) -
Extraordinary gain on retirement
of indebtedness 1.41 -
----- -----
Net income (loss) 0.78 (1.32)
===== =====
Income (loss) per common share
assuming full dilution:
Loss from continuing operations $ (0.57) (1.32)
Loss from discontinued operations (0.06) -
Extraordinary gain on retirement
of indebtedness 1.41 -
----- -----
Net income (loss) $ 0.78 (1.32)
===== =====
Weighed average shares outstanding:
Primary 4,057,574 4,008,311
Fully diluted 4,057,574 4,008,311
</TABLE>
See accompanying notes to consolidated financial statements
F-4
<PAGE> 7
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (UNAUDITED)
For the six months ended July 29, 1995
<TABLE>
<CAPTION>
Series A
Preferred Stock Common Stock
-------------------- ------------------ Paid - in Accumulated
Shares Amount Shares Amount capital deficit Total
------ ------ ------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 28, 1995 3,200,000 $26,981,000 4,506,981 $7,000 $19,796,000 $(16,972,000) $29,812,000
Payment of preferred stock
dividends - - - - - (1,520,000) (1,520,000)
Cancellation of incentive
shares - - (498,670) - - - -
Net loss for the six months
ended
July 29, 1995 - - - - - (3,790,000) (3,790,000)
--------- ----------- --------- ------ ----------- ------------- -----------
Balance at
July 29, 1995 3,200,000 $26,981,000 4,008,311 $7,000 $19,796,000 $(22,282,000) $24,502,000
========= =========== ========= ====== =========== ============ ===========
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE> 8
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended July 30,1994 and July 29, 1995
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Loss from continuing operations $(1,899,000) (3,790,000)
Adjustments to reconcile loss to net cash
provided by (used in) continuing
operations:
Depreciation and amortization 1,043,000 1,425,000
Amortization of debt discount 860,000 502,000
Recognition of carrying value adjustment (195,000) -
Excess of straight-line
rent over cash payments 211,000 83,000
Increase in merchandise inventory (5,739,000) (6,492,000)
Increase in accounts receivable
non-trade, prepaid expenses and other assets (672,000) (786,000)
Increase in layaway receivables (2,082,000) (565,000)
Increase in deferred debt issuance costs - (189,000)
Increase in accounts payable 3,869,000 4,332,000
Decrease in accrued salaries, wages and bonuses (798,000) (893,000)
Increase (decrease) in other accrued expenses (341,000) 425,000
----------- -----------
Net cash used in
continuing operations (5,743,000) (5,948,000)
----------- -----------
Net cash used in discontinued operations -
loss from discontinued operations (257,000) -
----------- -----------
Cash flows used in investing activities:
Purchase of leasehold improvements and equipment (962,000) (2,688,000)
Purchase of senior and subordinated notes (9,000,000) -
----------- -----------
Net cash used in
investing activities (9,962,000) (2,688,000)
----------- -----------
Cash flows from financing activities:
Borrowings of revolving credit note 72,830,000 82,566,000
Payments on revolving credit note (68,589,000) (75,629,000)
Payments on notes payable (682,000) (607,000)
Payments of subordinated notes (619,000) -
Proceeds from issuance of common and preferred stock 29,120,000 -
Proceeds from issuance of long term debt - 1,500,000
Redemption of preferred stock (8,906,000) -
Payment of preferred stock issuance costs (1,974,000) -
Payment of dividends on preferred stock (702,000) (1,520,000)
----------- -----------
Net cash provided by financing
activities 20,478,000 6,310,000
----------- -----------
</TABLE>
F-6
<PAGE> 9
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
(Unaudited)
For the six months ended July 30, 1994 and July 29, 1995
<TABLE>
<CAPTION>
1994 1995
----------- ----------
<S> <C> <C>
Net increase (decrease) in cash 4,516,000 (2,326,000)
Cash at the beginning of the period 834,000 2,522,000
----------- ----------
Cash at the end of the period $ 5,350,000 196,000
=========== ==========
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest $ 715,000 710,000
=========== ==========
Supplemental disclosure of non-cash investing
and financing activities:
Extraordinary gain on retirement of indebtedness $(5,744,000) -
=========== ===========
Exercise of option to purchase senior and
subordinated notes $ 800,000 -
=========== ===========
Capital lease obligations entered into during the
period for new leasehold improvements and
equipment $ - $ 91,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 10
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(1) Unaudited Interim Financial Statements
The accompanying unaudited consolidated financial statements do not
include all of the information and footnotes required by generally
accepted accounting principles for annual financial statements and
should be read in conjunction with the financial statements
for the fiscal year ended January 28, 1995 included in the Family
Bargain Corporation and Subsidiaries' (the Company) Form 10-K as filed
with the Securities and Exchange Commission. The unaudited
consolidated financial statements include the accounts of Family
Bargain Corporation and its subsidiaries. All significant
intercompany transactions have been eliminated in consolidation.
In the opinion of management, the unaudited consolidated financial
statements as of and for the three and six months financial position,
results of operations and cash flows for the periods presented. Due
to the seasonal nature of the Company's business, the results of
operations for the interim period may not necessarily be indicative of
the results for a full year.
(2) Preferred Stock Offering
On July 21, 1994, the Company completed a public offering of 3,200,000
shares of Series A 9 and 1/2% Cumulative Convertible Preferred Stock.
The Company used a portion of the proceeds to repurchase debt of
General Textiles, which resulted in an extraordinary gain.
(3) Revolving Credit Facility
On July 27, 1995, General Textiles completed an amendment to its
revolving credit note. Under the revised agreement General Textiles
increased its total line of credit from $15.6 million, including a
$1.6 million equipment facility, to $21.6 million. $20.0 million of
the total revolving line of credit is comprised of advances against
eligible inventory, including a special purchase line of up to $1
million. Should aggregate borrowings based on eligible inventory be
less than $20.0 million, General Textiles may borrow up to
F-8
<PAGE> 11
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONSOLIDATED
(Unaudited)
(3) Revolving Credit Facility, continued
$1.0 million to finance special purchases of inventory. However, at
no time may the aggregate borrowings based on inventory exceed $20.0
million nor can the aggregate borrowings against the special purchase
line exceed $1.0 million. The interest on advances against
eligible inventory and the special purchase line are floating rates
based on a prime rate of interest plus 2% and 3%, respectively.
(4) Acquisition
On August 17, 1995, the Company signed a letter of intent to acquire
100% of the stock of Capin Mercantile Corporation (Capins) for $1.85
million consisting of a combination of cash and a three year note (the
Capins Acquisition). The Company executed a stock purchase agreement
with Capins on August 31, 1995. Capins operates 31 Factory 2-U
off-price retail stores in Arizona, New Mexico and Texas. The Company
intends to acquire and operate Capins as a separate subsidiary,
maintaining separate vendor and credit relationships from General
Textiles.
(5) Proposed Merger and Rights Offering
In April, 1995, the Company announced plans to merge the Company and
DRS Apparel Inc., a wholly-owned subsidiary of the Company, with and
into General Textiles (the Merger). In addition the Company intended
to complete a rights offering (the Rights Offering). In August, 1995,
the Company postponed the Merger and Rights Offering in order to focus
efforts on the completion and financing of the Capins Acquisition.
(6) Weinstein Litigation
In connection with the General Textiles Chapter 11 Reorganization, the
Company agreed to pursue litigation (the Weinstein Litigation) against
the former shareholders of General Textiles who sold their stock in
connection with the 1989 Leveraged Buyout. The Weinstein Litigation
alleged that the 1989 Leveraged Buyout rendered General Textiles
insolvent and that certain payments to the former shareholders
constituted fraudulent transfers and sought to recover such payments.
On July 7, 1995, the parties agreed to enter into
F-9
<PAGE> 12
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONSOLIDATED
(Unaudited)
(6) Weinstein Litigation, continued
a settlement agreement (the Settlement Agreement) pursuant to which
none of the parties admitted any wrong doing. Based on the Settlement
Agreement, the Company will receive $1.3 million of which $0.4 million
is to be deducted for expenses of the Weinstein Litigation incurred to
date. Under the Chapter 11 Reorganization plan, the Company is
obligated to distribute 82.6% of the $0.9 million net proceeds, or
$0.7 million, to certain subordinated noteholders of General Textiles.
The remaining $0.2 million will be retained by the Company. The
recovery of expenses and settlement proceeds retained by the Company
have been recorded as other income during the three months ended July
29, 1995.
(7) Income Taxes
No provision for income taxes has been reflected in the consolidated
financial statements of operations for the three and six months ended
July 30, 1994 and July 29, 1995 since the Company generated tax losses
in these periods. While losses would increase the Company's net
operating loss (NOL) carryforwards, realization of such losses is not
assured due to limitations on utilization of NOLs and the Company'
history of losses. As a result, a full valuation allowance has been
recognized for the NOLs.
F-10
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FCONDITION AND RESULTS OF
OPERATIONS
GENERAL
Management's discussion of the results of operations provides analyses of the
Company's operations during the three and six months ended July 30, 1994 and
July 29, 1995.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 29, 1995 COMPARED
TO THE THREE MONTHS ENDED JULY 30, 1994
Net sales (gross sales less sales tax and sales returns) were $37.3 million for
the three months ended July 29, 1995 compared to $31.3 million for the three
months ended July 30, 1994, an increase of $6.0 million. Of the total
increase, $0.5 million was due to a 2.1% increase in comparable store sales
(sales at stores open throughout both periods). The remaining $5.4 million
increase in sales is due to the opening of new and, therefore, non-comparable
stores. As of July 29, 1995 there were 102 stores in operation compared to 89
stores as of July 30, 1994.
Gross profit was $13.0 million for the three months ended July 29, 1995
compared to $10.5 million for the three months ended July 30, 1994. As a
percentage of sales, the gross profit was 34.9% for the three months ended July
29, 1995 compared to 33.4% for the three months ended July 30, 1994. The
increase in gross profit as a percentage of sales resulted primarily from
advantageous merchandise purchasing opportunities realized during the three
months ended July 29, 1995.
Selling and administrative expenses were $12.2 million for the three months
ended July 29, 1995 compared to $10.3 million for the three months ended July
30, 1994. The increase in selling and administrative expenses was due
primarily to increased overhead expenses incurred in connection with the
expanded number of stores in operation. Selling and administrative expenses
for the three months ended July 29, 1995 reflect the settlement proceeds from
the Weinstein Litigation (see Note 6 above). However, as a percentage of
sales, selling and administrative expenses decreased to 32.6% for the three
months ended July 29, 1995 compared to 32.8% for the three months ended July
30, 1994.
Amortization of goodwill was $0.3 million for the three months ended July 29,
1995 and July 30, 1994. Interest expense was $0.8 million for the three months
ended July 29, 1995 and $.9 million for the three months ended July 30, 1994.
3
<PAGE> 14
THREE MONTHS ENDED JULY 29, 1995 COMPARED
TO THE THREE MONTHS ENDED JULY 30, 1994, CONTINUED
During the three months ended July 30, 1994 the Company recognized an
extraordinary gain of $5.7 million on the purchase of senior and subordinated
notes that General Textiles issued to a non-related party in conjunction with
the Plan of Reorganization pursuant to General Textiles emergence from Chapter
11 Reorganization.
SIX MONTHS ENDED JULY 29, 1995 COMPARED
TO THE SIX MONTHS ENDED JULY 30, 1994
Net sales (gross sales less sales tax and sales returns) were $68.4 million for
the six months ended July 29, 1995 compared to $60.0 million for the six months
ended July 30, 1994, an increase of $8.4 million. Comparable store sales
(sales at stores open throughout both periods) decreased by $1.2 million, or
2.3%, which was offset by an increase in sales from new and non-comparable
stores of $9.6 million. Unusual weather during February and March and the
continued impact of the December 1994 devaluation of the Mexican currency were
the primary causes for the decrease in comparable store sales. The weakness in
February and March sales was offset in part through increased comparable store
sales throughout the second quarter. As of July 29, 1995 there were 102 stores
in operation compared to 89 stores as of July 30, 1994.
Gross profit was $22.6 million for the six months ended July 29, 1995 compared
to $20.3 million for the six months ended July 30, 1994. As a percentage of
sales, the gross profit was 33.0% for the six months ended July 29, 1995
compared to 33.9% for the six months ended July 30, 1994. The decrease in
gross profit as a percentage of sales resulted primarily from management's
decision to re-price inventory during the first quarter. This decrease in
gross profit as a percentage of sales was offset in part during the second
quarter in part by improved margins realized as a result of advantageous
merchandise purchasing opportunities.
Selling and administrative expenses were $24.3 million for the six months ended
July 29, 1995 compared to $20.0 million for the six months ended July 30, 1994.
As a percentage of sales, selling and administrative expenses were 35.5% for
the six months ended July 29, 1995 compared to 33.3% for the six months ended
July 30, 1994. The increase in selling and administrative expenses as a
percentage of sales was due primarily to increased levels of advertising and
in-store labor required to handle large volume increases in inventory units at
lower prices.
Amortization of goodwill was $0.6 million for the six months ended July 29,
1995 and July 30, 1994. Interest expense was $1.5 million
4
<PAGE> 15
SIX MONTHS ENDED JULY 29, 1995 COMPARED
TO THE SIX MONTHS ENDED JULY 30, 1994, CONTINUED
for the six months ended July 29, 1995 and $1.6 million for the six months
ended July 30, 1994.
During the six months ended July 30, 1994 the Company recognized an
extraordinary gain of $5.7 million on the purchase of senior and subordinated
notes that General Textiles issued to a non-related party in conjunction with
the Plan of Reorganization pursuant to General Textiles emergence from Chapter
11 Reorganization.
LIQUIDITY AND CAPITAL RESOURCES
This discussion of liquidity and capital resources does not assume the
completion on the Capins Acquisition and does not discuss the expected effect
that completion of such transaction would have on the liquidity and capital
resources of the Company. There is no assurance that the Acquisition will be
completed. See "Liquidity and Capital Resources - Proposed Acquisition."
THE COMPANY
As of July 29, 1995, the Company had outstanding indebtedness, excluding
indebtedness of General Textiles, in the principal amount of $250,000 and
annual dividend obligations of $3.0 million. The $250,000 in indebtedness is
owed to Texas Commerce Bank pursuant to an unsecured promissory note which
bears interest at 8 1/2% per year payable quarterly (the TCB Note). The
balance of the TCB Note of $250,000 is payable on April 30, 1996. Dividend
payments on the Company's Preferred Stock (the Preferred Stock) total $3.0
million per year based on the annual dividend rate of $0.95 per share and are
payable quarterly if, as and when, declared by the Board of Directors. As of
July 29, 1995 the Company has paid $1.5 million in dividends. On July 31, 1995
the Company declared an additional $60,000 in dividends.
The Company's sole operating subsidiary is General Textiles and the Company
does not, itself, operate any business. Accordingly, the Company will rely on
its cash reserves and payments from General Textiles to finance its ongoing
operating expenses and pay its outstanding indebtedness. Such payments from
General Textiles include payments to the Company pursuant to a tax sharing
agreement, certain subordinated debt and the secured term note of General
Textiles (which the Company owns) and a management agreement.
Management believes that the Company's sources of cash, including the funds
received under the tax sharing agreement, the
5
<PAGE> 16
THE COMPANY, CONTINUED
subordinated notes, the secured term note, the management agreement and
available cash reserves will be adequate to finance its operations and meet the
obligations under its existing indebtedness as they become due for at least the
next twelve months. The ability of the Company to make dividend payments on
the Preferred Stock as they come due will be dependent on the results of
operations of the Company, including General Textiles.
GENERAL TEXTILES
General Textiles finances its operations through credit provided by suppliers,
borrowings under its $21.6 million working capital and equipment facility (the
Revolving Credit Facility) and internally generated cash flow. Credit terms
provided by suppliers are usually net 30 days. Borrowings under the Revolving
Credit Facility are described below. Under the terms of the subordinated notes
and the reorganization securities, General Textiles is required to use a
substantial percentage of excess cash flow, as defined, to repay indebtedness
payable under the subordinated note and senior term note agreements.
Management believes that General Textiles will have sufficient working capital
to meet its needs during the next twelve months from credit terms supplied by
its suppliers, its Revolving Credit Facility and internally generated cash
flow. General Textiles expects to open up to fourteen new stores during the
fiscal year ending January 27, 1996, of which six have opened as of July 29,
1995. However, should the Company decide to expand more rapidly than is
currently anticipated, it may require additional financing. There can be no
assurance that such financing will be available.
REVOLVING CREDIT FACILITY. Under the Revolving Credit Facility, General
Textiles may borrow up to 60% of eligible inventory, as defined, subject to a
maximum of $20.0 million of borrowings for inventory, including a maximum
special purchase line of $1.0 million, and $1.6 million of borrowings for
equipment at any time. As of July 29, 1995, there was $14.9 million
outstanding, $1.1 million available for additional inventory borrowings
(including the special purchase line) under the Revolving Credit Facility, and
$0.1 million available for borrowings for equipment under the Revolving Credit
Facility. Borrowings under the Revolving Credit Facility bear interest at an
annual rate equal to prime plus 2%, except for borrowings against the special
purchase line which bear interest at prime plus 3%, are payable monthly and are
secured by a lien on all of the assets of General Textiles.
PROPOSED MERGER AND RIGHTS OFFERING
On May 11, 1995, the Company filed a Proxy/Registration Statement
6
<PAGE> 17
PROPOSED MERGER AND RIGHTS OFFERING, CONTINUED
on Form S-4 (the Registration Statement) for the purpose of consummating the
proposed Merger and Rights Offering. In August, 1995 the Company withdrew the
Registration Statement in order to focus efforts on completing and financing
the Capins Acquisition.
PROPOSED ACQUISITION
In August 1995 the Company signed a letter of intent and a stock purchase
agreement to acquire 100% of the stock of Capins for $1.85 million consisting
of a combination of cash and a three year note. Capins operates 31 Factory 2-U
off-price retail stores in Arizona, New Mexico and Texas selling heavily
discounted apparel and footwear for men, women and children, and household
goods.
The Company will acquire and operate Capins as a separate subsidiary,
maintaining separate vendor and credit relationships from General Textiles.
The Company plans to raise up to $12.0 million to provide working capital for
the Capins subsidiary and for general corporate purposes. In addition, the
Company plans to refinance Capins' credit facility with a new $10.0 million
revolver line.
CAPITAL EXPENDITURES
The Company's planned future capital expenditures include costs to open new
Family Bargain Center stores, to renovate and/or relocate existing stores, and
to purchase electronic point-of-sale computer systems for its stores.
Management believes that future expenditures will be financed from internal
cash flow, the Revolving Credit Facility and proceeds from the Rights Offering.
As of July 29, 1995, the Company had remaining commitments for capital
expenditures totalling $0.1 million related to the acquisition of new
point-of-sale systems. The Company's lender under the Revolving Credit
Facility has provided a three year term equipment facility in the amount of
$1.6 million for the point-of- sale systems acquisition. The Company expects
to incur additional capital expenditures related to the opening of new Family
Bargain Center stores and the Capins stores during the current fiscal year.
The Company has incurred $1.2 million of capital expenditures for the opening
of Family Bargain Center stores as of July 29, 1995.
INFLATION
In general, the Company believes that it will be able to offset the effects of
inflation by increasing operating efficiencies, by monitoring and controlling
expenses and by increasing prices to the extent permitted by competitive
factors.
7
<PAGE> 18
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company historically has realized its highest level of sales and income
during the third and fourth quarters of the fiscal year (the quarter ending in
October and January) as a result of the "Back to School" (August and September)
and Christmas (November and December) seasons. If the Company's sales were
substantially below seasonal expectations during the third and fourth quarters,
the Company's annual results would be adversely affected.
The Company historically has realized lower sales in its first two quarters
(February through July), which often has resulted in General Textiles'
incurring losses during those quarters. General Textiles incurred a net loss
in the first and second quarters ending July 29, 1995.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company filed no reports on Form 8-K during the six months ended July 29,
1995.
8
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FAMILY BARGAIN CORPORATION
Date: September 11, 1995 By: WILLIAM W. MOWBRAY
---------------------------
Name: William W. Mowbray
Title: Chief Financial Officer
(duly authorized
officer and principal
financial officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-27-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> JUL-27-1995
<CASH> 196,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 26,033,000
<PP&E> 7,047,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 66,965,000
<CURRENT-LIABILITIES> 16,091,000
<BONDS> 0
<COMMON> 7,000
0
26,981,000
<OTHER-SE> (2,486,000)
<TOTAL-LIABILITY-AND-EQUITY> 66,965,000
<SALES> 68,350,000
<TOTAL-REVENUES> 68,350,000
<CGS> 45,785,000
<TOTAL-COSTS> 45,785,000
<OTHER-EXPENSES> 24,905,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 502,000
<INCOME-PRETAX> (3,790,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,790,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,790,000)
<EPS-PRIMARY> (1.32)
<EPS-DILUTED> (1.32)
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