<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 October 28, 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)
<TABLE>
<S> <C>
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)
</TABLE>
(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
December 12, 1995 was 4,008,311 shares.
<PAGE> 2
FAMILY BARGAIN CORPORATION
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED OCTOBER 28, 1995
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
- ------ --------------------- PAGE
NO.
----
<S> <C> <C>
Item 1. Financial Statements
Family Bargain Corporation and Subsidiaries Consolidated
Balance Sheets as of January 28, 1995 and October 28, 1995
(Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Family Bargain Corporation and Subsidiaries Consolidated
Statements of Operations (Unaudited) for the three months
ended October 29, 1994 and October 28, 1995 . . . . . . . . . . . . . . . . . . . . . . F-3
Family Bargain Corporation and Subsidiaries Consolidated
Statements of Operations (Unaudited) for the nine months
ended October 29, 1994 and October 28, 1995 . . . . . . . . . . . . . . . . . . . . . . F-4
Family Bargain Corporation and Subsidiaries Consolidated
Statement of Stockholders' Equity (Unaudited) for the nine
months ended October 28, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Family Bargain Corporation and Subsidiaries consolidated
Statements of Cash Flows (Unaudited) for the nine months
ended October 29, 1994 and October 28, 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>
-2-
<PAGE> 3
PART I
ITEM 1
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
January 28, October 28,
1995 1995
----------- -----------
<S> <C> <C>
Assets (Unaudited)
- ------
Current Assets:
Cash and cash equivalents $ 2,522,000 142,000
Accounts receivable - non-trade 742,000 6,331,000
Layaway receivables 411,000 1,550,000
Merchandise inventories 19,541,000 27,623,000
Prepaid expenses 1,124,000 1,072,000
----------- ----------
Total current assets 24,340,000 36,718,000
Leasehold improvements and equipment, net 4,922,000 7,259,000
Deferred debt issuance costs, net 450,000 749,000
Other assets 728,000 779,000
Excess of cost over net assets acquired
(goodwill), less accumulated
amortization of $1,984,000 and
$2,928,000 at January 28, 1995 and
October 28, 1995, respectively 29,465,000 28,521,000
----------- ----------
$59,905,000 74,026,000
=========== ==========
</TABLE>
(continued)
F-1
<PAGE> 4
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
<TABLE>
<CAPTION>
January 28, October 28,
1995 1995
----------- -----------
<S> <C> <C>
Liabilities and Stockholders' Equity (Unaudited)
Current liabilities:
Current maturities of long-term debt
and revolving credit note $ 3,112,000 1,065,000
Accounts payable 5,544,000 10,592,000
Accrued salaries, wages and bonuses 2,169,000 1,714,000
Other accrued expenses 3,417,000 3,668,000
------------ -----------
Total current liabilities 14,242,000 17,039,000
Revolving credit note, less current maturities 5,943,000 19,932,000
Long-term debt, less current maturities 8,212,000 9,840,000
Other liabilities 1,696,000 1,734,000
------------ -----------
Total liabilities 30,093,000 48,545,000
------------ -----------
Stockholders' equity:
Series A convertible preferred stock,
$.01 par value, 4,500,000 shares
authorized, 3,200,000 shares issued
and outstanding, aggregate liquidation
preference of $32,000,000 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 October 28,
1995, respectively 7,000 7,000
Additional paid-in capital 19,796,000 19,796,000
Accumulated deficit (16,972,000) (21,303,000)
------------ -----------
Total stockholders' equity 29,812,000 25,481,000
------------ -----------
Commitments and contingencies
Total liabilities and stockholders' equity $ 59,905,000 74,026,000
============ ===========
</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
October 29, 1994 October 28, 1995
------------------- ------------------
<S> <C> <C>
Net sales $39,370,000 47,322,000
Cost of sales 25,915,000 30,393,000
----------- ----------
Gross profit 13,455,000 16,929,000
Selling and administrative expenses 11,446,000 14,024,000
Amortization of goodwill 297,000 314,000
----------- ----------
Operating income 1,712,000 2,591,000
Interest expense and financing fees 553,000 852,000
----------- ----------
Income from continuing operations 1,159,000 1,739,000
Loss from discontinued operations (151,000) -
----------- ----------
Net income 1,008,000 1,739,000
Preferred stock dividends (760 ,000) (760,000)
----------- ----------
Net income available to common stock $ 248,000 979,000
=========== ==========
Income per common share and
common stock equivalents (Note 2):
Income from continuing operations $ 0.10 0.24
Loss from discontinued operations (0.04) -
----------- ----------
Net income $ 0.06 0.24
=========== ==========
Income per common share
assuming full dilution (Note 2):
Income from continuing operations $ 0.10 0.14
Loss from discontinued operations (0.04) -
----------- ----------
Net income $ 0.06 0.14
=========== ==========
Weighted average shares outstanding:
Primary 4,008,311 4,008,311
Fully diluted 4,008,311 12,008,311
</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
Nine Months Ended Nine Months Ended
October 29, 1994 October 28, 1995
----------------- -----------------
<S> <C> <C>
Net sales $99,392,000 115,672,000
Cost of sales 65,597,000 76,178,000
----------- -----------
Gross profit 33,795,000 39,494,000
Selling and administrative expenses 31,457,000 38,300,000
Amortization of goodwill 891,000 943,000
----------- -----------
Operating income 1,447,000 251,000
Interest expense and financing fees 2,187,000 2,302,000
----------- -----------
Loss from continuing operations before
discontinued operations and extraordinary
gain (740,000) (2,051,000)
Loss from discontinued operations (408,000) -
----------- -----------
Loss before extraordinary gain (1,148,000) (2,051,000)
Extraordinary gain on retirement of indebtedness 5,744,000 -
----------- -----------
Net income (loss) 4,596,000 (2,051,000)
Preferred stock dividends (1,173,000) (2,280,000)
----------- -----------
Net income (loss) available to common stock $ 3,423,000 (4,331,000)
=========== ===========
Income (loss) per common share and common
stock equivalents:
Loss from continuing operations $ (0.48) (1.08)
Loss from discontinued operations (0.10) -
Extraordinary gain on retirement
of indebtedness 1.43 -
----------- -----------
Net income (loss) $ 0.85 (1.08)
=========== ===========
Income (loss) per common share assuming
full dilution:
Loss from continuing operations $ (0.11) (1.08)
Loss from discontinued operations (0.06) -
Extraordinary gain on retirement of
indebtedness 0.86 -
----------- -----------
Net income (loss) $ 0.69 (1.08)
=========== ===========
Weighed average shares outstanding
Primary 4,008,311 4,008,311
Fully Diluted 6,674,978 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 NINE MONTHS ENDED OCTOBER 28, 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 - - - - - (2,280,000) (2,280,000)
Cancellation of
incentive shares - - (498,670) - - - -
Net loss for the
nine months ended
October 28, 1995 - - - - - (2,051,000) (2,051,000)
--------- ----------- --------- ------ ----------- ------------ -----------
Balance at
October 28, 1995 3,200,000 $26,981,000 4,008,311 $7,000 $19,796,000 $(21,303,000) $25,481,000
========= =========== ========= ====== =========== ============ ===========
</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 nine months ended October 29, 1994 and October 28, 1995
<TABLE>
<CAPTION>
1994 1995
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Loss from continuing operations $ (740,000) (2,051,000)
Adjustments to reconcile loss to net cash
provided by (used in) continuing
operations:
Depreciation and amortization 1,615,000 2,246,000
Amortization of debt discount 1,095,000 770,000
Recognition of carrying value adjustment (181,000) -
Difference in straight-line
rent over cash payments 222,000 (21,000)
Increase in merchandise inventories (11,472,000) (8,082,000)
Increase in accounts receivable
non-trade, prepaid expenses and other assets (1,616,000) (5,588,000)
Increase in layaway receivables (925,000) (1,139,000)
Increase in accounts payable 3,547,000 5,048,000
Decrease in accrued salaries, wages and bonuses (148,000) (455,000)
Increase (decrease) in other accrued expenses (914,000) 251,000
------------- ------------
Net cash used in continuing operations (9,517,000) (9,021,000)
------------- ------------
Net cash used in discontinued operations (408,000) -
------------- ------------
Cash flows used in investing activities:
Purchase of leasehold improvements and equipment (1,224,000) (3,297,000)
Purchase of senior and subordinated notes (9,000,000) -
------------- ------------
Net cash used in investing activities (10,224,000) (3,297,000)
------------- ------------
Cash flows from financing activities:
Borrowings of revolving credit note 118,097,000 136,764,000
Payments on revolving credit note (110,241,000) (124,775,000)
Payments on notes payable (807,000) (753,000)
Payments of subordinated notes (624,000) -
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 (2,094,000) -
Payment of dividends on preferred stock (1,462,000) (2,280,000)
Repurchase of common stock warrants (53,000) -
Payment of deferred debt issuance costs (94,000) (518,000)
------------- ------------
Net cash provided by financing activities 22,936,000 9,938,000
------------- ------------
</TABLE>
(continued)
F-6
<PAGE> 9
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, (CONTINUED)
(UNAUDITED)
For the nine months ended October 29, 1994 and October 28, 1995
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Net increase (decrease) in cash $2,787,000 (2,380,000)
Cash at the beginning of the period 834,000 2,522,000
---------- ----------
Cash at the end of the period $3,621,000 142,000
========== ==========
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest $1,043,000 1,183,000
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 272,000 123,000
</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 nine months ended October 28,
1995 reflect all adjustments (which include normal recurring
adjustments) necessary to present fairly the 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) Income (Loss) per Common Share
Earnings per share for the three and nine months ended October 29,
1995 have been restated to give effect to the cancellation of shares
(Incentive Shares) that were issuable until April 30, 1995. The
Incentive Shares were surrendered for cancellation when the stipulated
earnings levels required for issuance of such shares was not achieved.
Earnings per share on a fully diluted basis is computed using the
if-converted method. Thereunder, conversion of the convertible
preferred stock to common is assumed only if it renders a more
dilutive effect on fully diluted earnings per share than if the
convertible preferred stock were not converted.
(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 $14.0 million to $20.0 million
which 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
F-8
<PAGE> 11
less than $20.0 million, General Textiles may borrow up to $1.0
million to finance special purchases of inventory. However, at no
time may the aggregate borrowings exceed $20.0 million nor can the
aggregate borrowings against the special purchase line exceed $1.0
million. The interest rates 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.
In addition to amending the revolving credit note, over the period
from May 1995 to July 1995, the lender advanced $1.5 million to
General Textiles under a term note agreement allowing for the purchase
of equipment. Principal payments of $37,750 are made monthly and
interest is based on a prime rate of interest plus 2%. As of October
28, 1995, the balance of this term note was $1.3 million.
(4) Acquisition
On November 13, 1995, the Company acquired Capin Mercantile
Corporation. A detailed description of the acquisition is included in
the Form 8-K filed by the Company with the Securities and Exchange
Commission on November 28, 1995. Immediately following completion of
the acquisition, the name of Capin Mercantile Corporation was changed
to Factory 2-U, Inc. (Factory 2-U).
(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 withdrew the Merger and Rights Offering in order to focus
efforts on the completion and financing of the Factory 2-U
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 a settlement
agreement (the Settlement Agreement) pursuant to which none of the
parties admitted any wrong doing. Based on the Settlement Agreement,
in November 1995, the Company received $1.3 million of which $0.3
million was reimbursement 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 $1.0 million net
proceeds, or $0.8 million, to certain subordinated note holders 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 were recorded as other income in July 1995.
F-9
<PAGE> 12
(7) Income Taxes
No provision for income taxes has been reflected in the consolidated
financial statements of operations for the three and nine months ended
October 28, 1995 since the Company generated tax losses in these
periods. While losses would increase the Company's net operating loss
(NOL) carry forwards, 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 FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Management's discussion of the results of operations provides analyses of the
Company's operations during the three and nine months ended October 29, 1994
and October 28, 1995.
RESULTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 28, 1995 COMPARED TO THE
THREE MONTHS ENDED OCTOBER 29, 1994
Net sales (gross sales less sales tax and sales returns) were $47.3 million for
the three months ended October 28, 1995 compared to $39.4 million for the three
months ended October 29, 1994, an increase of $7.9 million. Of the total
increase, $2.7 million was due to a 7.5% increase in comparable store sales
(sales at stores open throughout both periods). The remaining $5.2 million
increase in sales is due to the opening of new and, therefore, non-comparable
stores. As of October 28, 1995 there were 102 stores in operation compared to
99 stores as of October 29, 1994.
Gross profit was $16.9 million for the three months ended October 28, 1995
compared to $13.5 million for the three months ended October 29, 1994. As a
percentage of sales, gross profit was 35.8% for the three months ended October
28, 1995 compared to 34.2% for the three months ended October 29, 1994. The
increase in gross profit as a percentage of sales resulted primarily from
advantageous merchandise purchasing opportunities realized during the three
months ended October 28, 1995.
Selling and administrative expenses were $14.0 million for the three months
ended October 28, 1995 compared to $11.4 million for the three months ended
October 29, 1994. As a percentage of sales, selling and administrative
expenses increased to 29.6% for the three months ended October 28, 1995
compared to 29.1% for the three months ended October 29, 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.
Amortization of goodwill was $0.3 million for the three months ended October
28, 1995 and October 29, 1994. Interest expense was $0.9 million for the three
months ended October 28, 1995 and $0.6 million for the three months ended
October 29, 1994.
Net income available to common stock was $1.0 million for the three months
ended October 28, 1995 as compared to $0.25 million for the three months ended
October 29, 1994.
- 3 -
<PAGE> 14
NINE MONTHS ENDED OCTOBER 28, 1995 COMPARED TO THE
NINE MONTHS ENDED OCTOBER 29, 1994
Net sales (gross sales less sales tax and sales returns) were $115.7 million
for the nine months ended October 28, 1995 compared to $99.4 million for the
nine months ended October 29, 1994, an increase of $16.3 million. Comparable
store sales (sales at stores open throughout both periods) increased by $1.5
million, or 1.7%, while sales from new and non-comparable stores increased by
$14.8 million. As of October 28, 1995 there were 102 stores in operation
compared to 99 stores as of October 29, 1994.
Gross profit was $39.5 million for the nine months ended October 28, 1995
compared to $33.8 million for the nine months ended October 29, 1994. As a
percentage of sales, gross profit was 34.1% for the nine months ended October
28, 1995 compared to 34.0% for the nine months ended October 29, 1994.
Selling and administrative expenses were $38.3 million for the nine months
ended October 28, 1995 compared to $31.4 million for the nine months ended
October 29, 1994. As a percentage of sales, selling and administrative
expenses were 33.1% for the nine months ended October 28, 1995 compared to
31.7% for the nine months ended October 29, 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.
Amortization of goodwill was $0.9 million for the nine months ended October 28,
1995 and October 29, 1994. Interest expense was $2.3 million for the nine
months ended October 28, 1995 and $2.2 million for the nine months ended
October 29, 1994.
During the nine months ended October 29, 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.
Net loss available to common stock was $4.3 million for the nine months ended
October 28, 1995 as compared to net income of $3.4 million available to common
stock for the nine months ended October 29, 1995.
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY
As of October 28, 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
- 4 -
<PAGE> 15
THE COMPANY (CONTINUED)
dividend rate of $0.95 per share and are payable quarterly if, as and when,
declared by the Board of Directors. For the nine months ended October 28,
1995, the Company has paid $2.3 million in dividends. The Company's sole
operating subsidiary during the nine months ended October 28, 1995 was General
Textiles. The Company does not, itself, operate any business. Accordingly,
the Company will rely on its cash reserves, payments from General Textiles, and
cash flows from its newly acquired subsidiary, Factory 2-U, Inc. (Factory 2-U,
see Acquisition of Capin Mercantile Corporation below) 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 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 and Factory 2-U.
GENERAL TEXTILES
General Textiles finances its operations through credit provided by suppliers,
borrowings under its $20.0 million working capital facility (the Revolving
Credit Facility), $1.5 million under the Equipment 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 the subordinated and senior term notes. 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 October 28, 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, including a maximum special purchase line of $1.0
million, at any time. As of October 28, 1995, there was $19.9 million
outstanding and $0.1 million available for additional borrowings (including the
special purchase line) under the Revolving Credit Facility. The magnitude of
the borrowing at October 28, 1995 represents the peak of working capital
requirements occurring just prior to the fourth quarter. As of December 11,
1995, General Textiles had in excess of $ 3.5 million available under the
Revolving Credit Facility.
- 5 -
<PAGE> 16
Borrowings under the Revolving Credit Facility bear interest at an annual rate
equal to a prime rate of interest plus 2%, except for borrowings against the
special purchase line which bear interest at a prime rate of interest plus 3%
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 on Form S-4
(the Registration Statement) for the purpose of consummating a proposed
Merger of the Company and General Textiles and a Rights Offering. In August,
1995, the Company withdrew the Registration Statement in order to focus efforts
on completing and financing its acquisition of Capin Mercantile Corporation.
ACQUISITION OF CAPIN MERCANTILE CORPORATION (FACTORY 2-U)
On November 13, 1995, the Company completed its acquisition of Capin Mercantile
Corporation. Immediately following the acquisition, the name of Capin
Mercantile Corporation was changed to Factory 2-U, Inc. (Factory 2-U). The
acquisition is described in detail in the Company's Current Report on Form 8-K
filed with the Commission on November 28, 1995.
The operations of Factory 2-U will be financed primarily with a revolving
credit facility (the Factory 2-U Revolver). Under the Factory 2-U Revolver,
Factory 2-U may borrow up to 50% of eligible inventory, as defined, subject to
a maximum of $10.0 million. Borrowings under the Factory 2-U Revolver bear
interest at an annual rate equal to a prime rate of interest plus 2%, payable
monthly, and are secured by a lien on all of the assets of Factory 2-U. The
Factory 2-U Revolver was established on the date the acquisition became
effective.
In connection with the acquisition, non-affiliate creditors of Factory 2-U,
representing over 80% of the trade accounts payable with invoice dates prior to
September 1, 1995, agreed to reschedule the payment of their receivables from
Factory 2-U. This rescheduling provides for the payment of approximately $5.6
million in 24 equal monthly installments ending October 15, 1997. Factory 2-U
will continue its efforts to enter into similar debt reschedulings with the
holders of the remaining pre-acquisition trade accounts payable.
Factory 2-U intends to sell certain real property, consisting of a facility
that, prior to the acquisition, housed the Factory 2-U corporate offices and
distribution center, and adjacent undeveloped land (the Factory 2-U Real
Property). Any excess of the proceeds of the sale of the Factory 2-U Real
Property over the related debt secured by such property may be made available
for working capital as required. Factory 2-U is obligated for, and the Company
has guaranteed, as of the date of acquisition, a mortgage note in the amount of
$2.4 million (the Mortgage Note) secured by the Factory 2-U Real Property. The
Mortgage Note requires monthly principal payments of $11,250, bears interest at
a prime rate of interest plus 1.5%, with the unpaid principal due in full in
February 1996.
The Company plans to raise up to $12 million in additional financing (the
Additional Financing). The amount of the Additional Financing may be reduced
by a portion of the proceeds from the sale of the
- 6 -
<PAGE> 17
Factory 2-U Real Property. A portion of the proceeds of the additional
financing will be lent to Factory 2-U for additional working capital. There
can be no assurance that the Additional Financing will be available on terms
acceptable to the Company or at all.
In connection with the acquisition, Factory 2-U is obligated to certain former
shareholders for three promissory notes in the amount of $125,000 (the
"Downpayment Note"), $600,000 (the "Contingent Note") and $500,000 (the
"Absolute Note"). Principal and interest on the Downpayment Note are due in
full on December 31, 1995. The principal amount payable under the Contingent
Note is subject to adjustment, as described in the stock purchase agreement
entered into by the Company and the former shareholders of Factory 2-U, based
upon the net proceeds from the sale, or appraised value at a future date, of
the Factory 2-U Real Property. Principal and interest under the Contingent
Note are due and payable on or before October 30, 1998. Principal and interest
under the Absolute Note are payable in eleven quarterly installments commencing
May 15, 1996 and ending on October 30, 1998. All of the above notes bear
interest at a rate of 8.75% per year, subject to penalties and adjustment in
the event of failure to pay amounts when due.
Management believes that Factory 2-U will have sufficient working capital for
the next twelve months from the credit terms provided by suppliers, the
restructuring of Factory 2-U's trade payables, the Factory 2-U Revolver the
Additional Financing and internally generated cash flow.
CAPITAL EXPENDITURES
The Company's planned future capital expenditures include costs to open new
Family Bargain Center and Factory 2-U 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, Revolving Credit Facility and proceeds from the
Rights Offering. The Company's lender under the Revolving Credit Facility has
provided a three year term Equipment Facility in the amount of $1.5 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 and Factory 2-U stores during the current fiscal year. The
Company has incurred $1.8 million of capital expenditures for the opening of
Family Bargain Center stores as of October 28, 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.
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
- 7 -
<PAGE> 18
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 quarter and the second quarter of the current fiscal year.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
On November 13, 1995 the Registrant filed a Current Report on Form 8-K
describing its acquisition of Capin Mercantile Corporation. That report
included the audited financial statements of Capin Mercantile Corporation for
the three years ended December 31, 1994.
On December 4, 1995, the Registrant filed a Current Report on Form 8-K
describing its adoption of a shareholders' rights plan.
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: December 12, 1995 By: /s/ William W. Mowbray
---------------------------------
Name: William W. Mowbray
Title: Chief Financial Officer
(duly authorized
officer and principal
financial officer)
- 8 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF OPERATIONS AS OF AND FOR THE NINE MONTHS ENDED OCTOBER
28, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT
ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-27-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> OCT-28-1995
<CASH> 142
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 27,623
<CURRENT-ASSETS> 36,718
<PP&E> 7,259
<DEPRECIATION> 0
<TOTAL-ASSETS> 74,026
<CURRENT-LIABILITIES> 17,039
<BONDS> 0
<COMMON> 7
0
26,981
<OTHER-SE> (1,507)
<TOTAL-LIABILITY-AND-EQUITY> 74,026
<SALES> 115,672
<TOTAL-REVENUES> 115,672
<CGS> 76,178
<TOTAL-COSTS> 76,178
<OTHER-EXPENSES> 39,243
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,302
<INCOME-PRETAX> (2,051)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,051)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,051)
<EPS-PRIMARY> (1.08)
<EPS-DILUTED> (1.08)
</TABLE>
