<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 April 27, 1996
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 office) (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 June 7, 1996, was 4,717,500 shares.
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FAMILY BARGAIN CORPORATION
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED APRIL 27, 1996
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
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Page
No.
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Item 1. Financial Statements
Family Bargain Corporation and Subsidiaries Consolidated
Balance Sheets as of January 27, 1996 and April 27, 1996
(Unaudited) F-1
Family Bargain Corporation and Subsidiaries Consolidated
Statements of Operations (Unaudited) for the three months
ended April 29, 1995 and April 27, 1996 F-3
Family Bargain Corporation and Subsidiaries Consolidated
Statements of Cash Flows (Unaudited) for the three months
ended April 29, 1995 and April 27, 1996 F-4
Family Bargain Corporation and Subsidiaries Notes to
Consolidated Financial Statements (Unaudited) F-6
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 6
</TABLE>
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PART I
ITEM 1
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 27, 1996 AND APRIL 27, 1996
<TABLE>
<CAPTION>
January 27, April 27,
1996 1996
(Unaudited)
<S> <C> <C>
Assets
- ------
Current assets:
Cash and cash equivalents $ 1,958,000 240,000
Accounts receivable - non-trade 887,000 691,000
Layaway receivables 695,000 1,208,000
Merchandise inventories 25,874,000 34,567,000
Prepaid expenses 776,000 1,067,000
---------- ----------
Total current assets 30,190,000 37,773,000
Real property held for sale 4,500,000 4,500,000
Leasehold improvements and equipment, net 9,001,000 10,019,000
Other assets 708,000 637,000
Excess of cost over net assets acquired
(goodwill), less accumulated amortization
of $3,366,000 and $3,827,000 at
January 27, 1996 and April 27, 1996,
respectively 42,753,000 42,292,000
---------- ----------
Total assets $ 87,152,000 95,221,000
========== ==========
</TABLE>
(continued)
F-1
<PAGE> 4
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 27, 1996 AND APRIL 27, 1996
(Continued)
<TABLE>
<CAPTION>
January 27, April 27,
1996 1996
(Unaudited)
<S> <C> <C>
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Current maturities of long-term debt
and capital leases $ 5,238,000 5,304,000
Accounts payable 17,866,000 19,147,000
Accrued salaries, wages and bonuses 1,758,000 2,261,000
Other accrued expenses 5,514,000 3,130,000
---------- ----------
Total current liabilities 30,376,000 29,842,000
Revolving credit notes 15,159,000 23,753,000
Long-term debt, less current maturities 9,864,000 10,400,000
Deferred rent 1,646,000 1,650,000
Capital lease and other long-term obligations 2,390,000 1,056,000
---------- ----------
Total liabilities 59,435,000 66,701,000
---------- ----------
Stockholders' equity:
Series A convertible preferred stock;
$.01 par value; 4,500,000 shares
authorized; 3,200,000 and 4,092,896
shares issued and outstanding, aggregate
liquidation preference of $32,000,000 and
$40,923,000 at January 27, 1996 and
April 27, 1996, respectively 26,981,000 29,841,000
Common stock, $.01 par value, 80,000,000
shares authorized, 3,985,393 and 4,114,389
shares issued and outstanding at
January 27, 1996 and April 27, 1996,
respectively 7,000 7,000
Additional paid-in capital 19,763,000 20,118,000
Accumulated deficit (19,034,000) (21,446,000)
---------- ----------
Total stockholders' equity 27,717,000 28,520,000
Commitments and contingencies
Total liabilities and stockholders' equity $ 87,152,000 95,221,000
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 5
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 29, 1995 AND APRIL 27, 1996
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Three Months Ended
April 29, 1995 April 27, 1996
<S> <C> <C>
Net sales $ 31,038,000 49,825,000
Cost of sales 21,501,000 32,342,000
---------- ----------
Gross profit 9,537,000 17,483,000
Selling and administrative expenses 12,112,000 17,540,000
Amortization of goodwill 315,000 462,000
---------- ----------
Operating income (2,890,000) (519,000)
Interest expense and financing fees (664,000) (1,039,000)
---------- ----------
Net loss (3,554,000) (1,558,000)
Preferred stock dividends (760,000) (854,000)
---------- ----------
Net loss applicable
to common stock $ (4,314,000) (2,412,000)
========== ==========
Net loss per common share and
common stock equivalents:
Primary $ (1.08) (0.60)
Assuming full dilution (1.08) (0.60)
Weighted average shares outstanding:
Primary 4,008,311 4,040,034
Fully diluted 4,008,311 4,040,034
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 6
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED APRIL 29, 1995 AND APRIL 27, 1996
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Three Months Ending
April 29, 1995 April 27, 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,554,000) (1,558,000)
Adjustments to reconcile loss to
net cash used in operating
activities:
Depreciation and amortization 670,000 1,009,000
Amortization of debt discount 248,000 263,000
Excess (deficiency) of straight-line
rent over cash payments (122,000) 4,000
Increase in merchandise inventories (5,382,000) (8,693,000)
Decrease (increase) in accounts
receivable-non trade, prepaid
expenses and other assets (199,000) 255,000
Increase in layaway receivables (536,000) (513,000)
Increase in accounts payable 3,223,000 1,281,000
Increase in accrued salaries, wages
and bonuses 47,000 503,000
Increase (decrease) in other accrued
expenses and other current
liabilities 372,000 (3,713,000)
----------- -----------
Net cash used in operations (5,233,000) (11,162,000)
----------- -----------
Cash flows used in investing activities-
Purchase of leasehold improvements
and equipment (1,239,000) (1,485,000)
----------- -----------
Cash flows from financing activities:
Borrowings on revolving credit note 40,380,000 73,912,000
Payments on revolving credit note (34,658,000) (65,318,000)
Payments on notes payable and capital
lease obligations (50,000) (482,000)
Proceeds from issuance of note payable - 815,000
Net proceeds from issuance of preferred
stock - 2,856,000
Payment of dividends on preferred stock (760,000) (854,000)
----------- -----------
Net cash provided by
financing activities 4,912,000 10,929,000
----------- -----------
</TABLE>
(continued)
F-4
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FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED APRIL 29, 1995 AND APRIL 27, 1996
(Continued)
<TABLE>
<S> <C> <C>
Net decrease in cash (1,560,000) (1,718,000)
Cash at the beginning of the period 2,522,000 1,958,000
----------- -----------
Cash at the end of the period $ 962,000 240,000
=========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest $ 345,000 601,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 8
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 27, 1996 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 months ended April 27, 1996
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 of operations for a
full year.
(2) Financing Transactions
In March 1996, the Company issued 726,000 shares of its Series A
Convertible Preferred Stock (Preferred Stock) for net proceeds of
$2,856,000 and, in connection therewith, 181,500 five-year warrants
to purchase common stock of the Company at $1.875 per share.
During the three months ended April 27, 1996, the Company borrowed
$815,000 under an installment note payable to finance the acquisition of
electronic point-of-sale equipment. The note bears interest at a prime
rate of interest plus 2% (10.25% at April 27, 1996), allows for total
borrowing of up to $1,100,000 and is payable in installments of $30,556
over 36 months.
In connection with the execution of a contract for the sale of certain
real property (Note 3), the holder of a $2.3 million mortgage note
(the Mortgage Note) has agreed in principle to the extension of the
due date of the Mortgage Note from May 31, 1996 to July 15, 1996 plus
an additional extension period to August 15, 1996 in the event the closing
of the sale of the real property securing the Mortgage Note has not
occurred by July 15, 1996. The Mortgage Note is included in current
maturities of long-term debt on the accompanying balance sheets.
F-6
<PAGE> 9
(3) Land and Building Held for Sale
In May 1996, the Company entered into a contract for the sale of certain
real property acquired in its acquisition of Factory 2-U, Inc.
(Factory 2-U). The property is carried as a noncurrent asset on the
accompanying balance sheets in the amount of $4.5 million, representing
its estimated fair value, net of estimated costs of disposition.
(4) Provision for Income Taxes
No provision for income taxes has been reflected in the consolidated
statement of operations for the three months ended April 27, 1996 since
the Company generated tax losses during this period. 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 against the deferred tax
assets arising from the NOLs and no benefit for income taxes is reflected
in the accompanying statement of operations for the three months ended
April 27, 1996.
F-7
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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 months ended April 29, 1995 and
April 27, 1996.
RESULTS OF OPERATIONS
THREE MONTHS ENDED APRIL 27, 1996 COMPARED TO THE THREE MONTHS
ENDED
APRIL 29, 1995
Net sales (gross sales less sales tax and sales returns) were $49.8 million
for the three months ended April 27, 1996 compared to $31.0 million for the
three months ended April 29, 1995, an increase of $18.8 million. Of the total
increase, $12.6 million was attributable to sales of Factory 2-U which was
acquired in November of 1995, $2.9 million was attributable to a 9.7% increase
in comparable store sales (sales at stores open throughout both periods) and
the remaining $3.3 million increase in sales was attributable to the opening
of new and, therefore, non-comparable stores. As of April 27, 1996 there were
135 stores in operation compared to 98 stores as of April 29, 1995.
Gross profit was $17.5 million for the three months ended April 27, 1996
compared to $9.5 million for the three months ended April 29, 1995, an
increase of $8.0 million. As a percentage of sales, gross profit was 35.1%
for the three months ended April 27, 1996 compared to 30.7% for the three
months ended April 29, 1995. The increase in gross profit as a percentage of
sales resulted from reduced markdown activity during the three months ended
April 27, 1996 as compared to markdown activity during the three months
ended April 29, 1995 arising from management's decision, during that period, to
take markdowns in response to reduced pricing available in the general
wholesale market.
Selling and administrative expenses were $17.5 million for the three months
ended April 27, 1996 compared to $12.1 million for the three months ended
April 29, 1995, an increase of $5.4 million. Of the total increase,
$4.2 million was attributable to increased overhead to support the
additional stores arising from the acquisition of Factory 2-U and $1.2
million was due to increased overhead related to new stores opened and the
upgrading of equipment in existing stores since April 29, 1995. As a
percentage of sales, selling and administrative expenses decreased to 35.2%
for the three months ended April 27, 1996 from 39.0% for the three months
ended April 29, 1995. The decrease in selling and administrative expenses as a
percentage of sales is attributable to the improved economies of scale
achieved following the acquisition of Factory 2-U and the increased sales
arising from improved comparable store sales and new store openings.
- 3 -
<PAGE> 11
Amortization of goodwill was $0.5 million for the three months ended
April 27, 1996 compared to $0.3 million for the three months ended
April 29, 1995. The increase of $0.2 million is attributable to increased
goodwill arising from the acquisition of Factory 2-U.
Interest expense was $ 1.0 million for the three months ended April 27, 1996
compared to $0.7 million for the three months ended April 29, 1995. The
increase of $0.3 million was attributable to the increased interest related
to the additional working capital needs related to the expansion of the
Company and debt assumed in the acquisition of Factory 2-U.
The net loss applicable to common stock was $2.4 million for the three months
ended April 27, 1996 compared to $4.3 million for the three months ended
April 29, 1995.
LIQUIDITY AND CAPITAL RESOURCES
THE PARENT COMPANY
OBLIGATIONS OF THE PARENT COMPANY. As of April 27, 1996, the Company, exclusive
of General Textiles and Factory 2-U (the Operating Subsidiaries), (the Parent)
had outstanding indebtedness, in the principal amount of $1.5 million,
comprised of $ 0.5 million owed to the former shareholders of Factory 2-U and
$1.0 million owed in settlement of a lawsuit arising from a previously
discontinued distribution business. Prior to April 27, 1996, the Parent repaid
the final installment of $250,000 on the note payable to Texas Commerce Bank.
The Parent has annual dividend obligations of $3.9 million on its Series A
Convertible Preferred Stock (Preferred Stock) based on the number of preferred
shares outstanding at April 27, 1996 and an annual dividend rate of $0.95 per
preferred share, payable quarterly if, as and when, declared by the Board of
Directors. For the three months ended April 27, 1996, the Parent paid
$854,000 in dividends on the Preferred Stock. The number of shares of
Preferred Stock outstanding increased due to the issuance of 726,000 preferred
shares in an exempt offering to non-U.S. purchasers and the issuance of
60,000 preferred shares in return for consulting services. Preferred
shareholders converted 46,950 shares of Preferred Stock to common stock during
the three months ended April 27, 1996.
The Parent does not, itself, operate any business. Accordingly, the Parent
relies on its cash reserves and payments from the Operating Subsidiaries to
finance its ongoing operating expenses and pay its outstanding indebtedness
and dividends on the Preferred Stock. Such payments from General Textiles
include payments pursuant to a tax sharing agreement, certain subordinated
debt and the secured term note of General Textiles (which the Parent owns)
and a management agreement. General Textiles is prohibited, under a plan of
reorganization, from making dividend payments or other distributions to the
Parent. Payments by Factory 2-U to the Parent are limited, under an agreement
with the lender of its revolving credit facility, to payments pursuant to a
management agreement and a guarantee fee agreement.
Management believes that the Parent's sources of cash 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
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<PAGE> 12
Operating Subsidiaries to make scheduled payments to the Parent is dependent
upon the Operating Subsidiaries' results of operations and cash flows. Should
the Operating Subsidiaries not meet sales projections or fail to complete the
sale of the Nogales Property (as defined below), the Operating Subsidiaries
may require additional financing or may need to reduce the planned rate of
expansion or otherwise reduce cash outflows by controlling costs in order to
conserve capital and continue making scheduled payments to the Parent. There
can be no assurance that additional financing will not be required and, if
required, that such financing will be available and, if available, on terms
acceptable to the Company. The ability of the Parent to make dividend payments
on the Preferred Stock as they come due will be dependent on the results of
operations of the Parent and the Operating Subsidiaries.
GENERAL TEXTILES
GENERAL. General Textiles finances its operations through credit provided by
suppliers, borrowings under its $20.0 million revolving credit facility, $2.2
million in equipment facilities and internally generated cash flow. Credit
terms provided by suppliers are usually net 30 days.
REVOLVING CREDIT FACILITY. As of April 27, 1996, General Textiles had $17.9
million outstanding and $2.1 million available to borrow under its revolving
credit facility. As of June 5, 1996, General Textiles had $18.0 million
outstanding and $1.0 million available to borrow under its revolving credit
facility.
EQUIPMENT FACILITIES. As of April 27, 1996, General Textiles had $1.9 million
outstanding and $ 0.3 million available under its two equipment facilities
(the Equipment Facilities), with monthly principal payments of $37,750 (final
balloon payment of $216,500 due April 1998) and $30,556 (commencing in June
with final payment due no later than May 1999).
FACTORY 2-U
GENERAL. Factory 2-U finances its operations through credit provided by
suppliers, borrowings under its $10.0 million revolving credit facility and
internally generated cash flow. Credit terms provided by suppliers are
usually net 30 days.
REVOLVING CREDIT FACILITY. As of April 27, 1996, Factory 2-U had $5.9
million outstanding and $0.7 million available to borrow under its
revolving credit facility. As of June 5, 1996, Factory 2-U had $6.2
million outstanding and $0.6 million available to borrow under its
revolving credit facility.
NOGALES MORTGAGE. In May 1996, Factory 2-U entered into an agreement to sell
its land and building located in Nogales, Arizona (the Nogales Property)
which secures the Mortgage Note, in the amount of $2.3 million, due May 31,
1996. Factory 2-U has agreed in principle with the holder of the Mortgage
Note to extend the due date on the Mortgage Note to July 15, 1996 plus an
additional extension period to August 15, 1996 in the event that the closing
of the sale the Nogales Property has not occurred by July 15, 1996.
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CAPITAL EXPENDITURES
The Company's planned future capital expenditures include costs to open
new General Textiles and Factory 2-U stores and to renovate and/or relocate
existing stores. Management believes that future expenditures will be financed
from internal cash flow, the net proceeds anticipated from the sale of the
Nogales Property, the Equipment Facilities and the General Textiles and
Factory 2-U revolving credit facilities.
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 lower sales in its first two quarters
(February through July), which often has resulted in losses being incurred
during those quarters. The Company incurred a net loss in the quarter ended
April 27, 1996, and management believes the Company may incur a net loss in
the second quarter of the twelve months ending January 25, 1997 based on the
Company's historical results for the seasonal period corresponding to the
second quarter.
The Company historically has realized its highest level of sales and income
during the third and fourth quarters of the fiscal year (the quarters 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 operating results would be adversely affected.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company filed no reports of Form 8-K during the three months ended
April 27, 1996.
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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: June 7, 1996 By: /s/ William W. Mowbray
----------------------------
Name: William W. Mowbray
Title: Chief Financial Officer
(duly authorized
officer and principal
financial officer)
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<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 THREE
MONTHS ENDED APRIL 27, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO
SUCH FINANCIAL STATEMENTS AS INCLUDED IN THE COMPANY'S QUARTERLY
REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-25-1997
<PERIOD-END> APR-27-1996
<CASH> 240
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 34,567
<CURRENT-ASSETS> 37,773
<PP&E> 14,519
<DEPRECIATION> 3,089
<TOTAL-ASSETS> 95,221
<CURRENT-LIABILITIES> 29,842
<BONDS> 0
<COMMON> 7
0
29,841
<OTHER-SE> (1,328)
<TOTAL-LIABILITY-AND-EQUITY> 95,221
<SALES> 49,825
<TOTAL-REVENUES> 49,825
<CGS> 32,342
<TOTAL-COSTS> 50,344
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,039
<INCOME-PRETAX> 1,558
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,558
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,558
<EPS-PRIMARY> (0.60)
<EPS-DILUTED> (0.60)
</TABLE>
