<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-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 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 September 6, 1996, was 4,693,337 shares.
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FAMILY BARGAIN CORPORATION
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JULY 27, 1996
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 27, 1996 and July 27, 1996
(Unaudited) F-1
Family Bargain Corporation and Subsidiaries Consolidated
Statements of Operations (Unaudited) for the three months
ended July 29, 1995 and July 27, 1996 F-3
Family Bargain Corporation and Subsidiaries Consolidated
Statements of Operations (Unaudited) for the six months
ended July 29, 1995 and July 27, 1996 F-4
Family Bargain Corporation and Subsidiaries Consolidated
Statements of Cash Flows (Unaudited) for the six months
ended July 29, 1995 and July 27, 1996 F-5
Family Bargain Corporation and Subsidiaries Notes to
Consolidated Financial Statements (Unaudited) F-7
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>
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PART I
ITEM 1
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 27, 1996 AND JULY 27, 1996
<TABLE>
<CAPTION>
January 27, July 27,
1996 1996
(Unaudited)
<S> <C> <C>
Assets
- - ------
Current assets:
Cash and cash equivalents $ 1,958,000 1,146,000
Accounts receivable - non-trade 887,000 747,000
Layaway receivables 695,000 1,210,000
Merchandise inventories 25,874,000 40,816,000
Prepaid expenses 776,000 1,774,000
---------- ----------
Total current assets 30,190,000 45,693,000
Real property held for sale 4,500,000 --
Leasehold improvements and equipment, net 9,001,000 10,607,000
Other assets 708,000 527,000
Excess of cost over net assets acquired
(goodwill), less accumulated amortization
of $3,366,000 and $4,305,000 at
January 27, 1996 and July 27, 1996,
respectively 42,753,000 42,414,000
---------- ----------
Total assets $ 87,152,000 99,241,000
========== ==========
</TABLE>
(continued)
F-1
<PAGE> 4
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JANUARY 27, 1996 AND JULY 27, 1996
(Continued)
<TABLE>
<CAPTION>
January 27, July 27,
1996 1996
(Unaudited)
<S> <C> <C>
Liabilities and Stockholders' Equity
- - ------------------------------------
Current liabilities:
Accrued salaries, wages and bonuses $ 1,758,000 966,000
Current maturities of long-term debt
and capital leases 5,238,000 3,426,000
Accounts payable 17,866,000 20,175,000
Other accrued expenses 5,514,000 4,923,000
---------- ----------
Total current liabilities 30,376,000 29,490,000
Revolving credit notes 15,159,000 26,747,000
Long-term debt, less current maturities 9,864,000 12,874,000
Deferred rent 1,646,000 1,467,000
Capital lease and other long-term obligations 2,390,000 399,000
---------- ----------
Total liabilities 59,435,000 70,977,000
---------- ----------
Stockholders' equity:
Series A convertible preferred stock;
$.01 par value; 4,500,000 shares
authorized; 3,200,000 and 3,727,415
shares issued and outstanding, aggregate
liquidation preference of $32,000,000 and
$37,270,000 at January 27, 1996 and
July 27, 1996, respectively 26,981,000 28,238,000
Common stock, $.01 par value, 80,000,000
shares authorized, 3,985,393 and 4,693,337
shares issued and outstanding at
January 27, 1996 and July 27, 1996,
respectively 7,000 14,000
Additional paid-in capital 19,763,000 21,714,000
Accumulated deficit (19,034,000) (21,702,000)
---------- ----------
Total stockholders' equity 27,717,000 28,264,000
Commitments and contingencies
Total liabilities and stockholders' equity $ 87,152,000 99,241,000
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
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FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 29, 1995 AND JULY 27, 1996
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Three Months Ended
July 29, 1995 July 27, 1996
<S> <C> <C>
Net sales $ 37,312,000 57,509,000
Cost of sales 24,284,000 36,258,000
---------- ----------
Gross profit 13,028,000 21,251,000
General and administrative expenses 12,163,000 18,874,000
Amortization of goodwill 315,000 477,000
---------- ----------
Operating income 550,000 1,900,000
Interest expense and financing fees 786,000 1,271,000
---------- ----------
Net income (loss) (236,000) 629,000
Preferred stock dividends 760,000 885,000
---------- ----------
Net loss applicable
to common stock $ (996,000) (256,000)
========== ==========
Net loss per common share and
common stock equivalents:
Primary $ (0.25) (0.06)
Assuming full dilution (0.25) (0.06)
Weighted average shares outstanding:
Primary 4,008,311 4,588,345
Fully diluted 4,008,311 4,588,345
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
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FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 29, 1995 AND JULY 27, 1996
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Six Months Ended Six Months Ended
July 29, 1995 July 27, 1996
<S> <C> <C>
Net sales $ 68,350,000 107,334,000
Cost of sales 45,785,000 68,600,000
---------- ----------
Gross profit 22,565,000 38,734,000
General and administrative expenses 24,276,000 36,414,000
Amortization of goodwill 629,000 939,000
---------- ----------
Operating income (loss) (2,340,000) 1,381,000
Interest expense and financing fees 1,450,000 2,310,000
---------- ----------
Net loss (3,790,000) (929,000)
Preferred stock dividends 1,520,000 1,739,000
---------- ----------
Net loss applicable
to common stock $ (5,310,000) (2,668,000)
========== ==========
Net loss per common share and
common stock equivalents:
Primary $ (1.32) (0.62)
Assuming full dilution (1.32) (0.62)
Weighted average shares outstanding:
Primary 4,008,311 4,314,189
Fully diluted 4,008,311 4,314,189
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
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FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 29, 1995 AND JULY 27, 1996
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Six Months Ended Six Months Ended
July 29, 1995 July 27, 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (3,790,000) (929,000)
Adjustments to reconcile loss to
net cash used in operating
activities:
Depreciation and amortization 1,425,000 2,127,000
Amortization of debt discount 502,000 518,000
Excess (deficiency) of straight-line
rent over cash payments 83,000 (179,000)
Increase in merchandise inventories (6,492,000) (14,942,000)
Increase in accounts receivable
non-trade, prepaid expenses
and other assets (975,000) (479,000)
Increase in layaway receivables (565,000) (515,000)
Increase in accounts payable 4,332,000 2,309,000
Decrease in accrued salaries,
wages and bonuses (893,000) (792,000)
Increase (decrease) in other accrued
expenses and other long-term
obligations 425,000 (2,534,000)
----------- -----------
Net cash used in operations (5,948,000) (15,416,000)
----------- -----------
Cash flows used in investing activities:
Purchase of leasehold improvements
and equipment (2,688,000) (2,601,000)
Sale of real property -- 4,500,000
----------- -----------
Net cash provided by (used in)
investing activities (2,688,000) 1,899,000
----------- -----------
Cash flows from financing activities:
Borrowings on revolving credit note 82,566,000 150,061,000
Payments on revolving credit note (75,629,000) (138,473,000)
Payments on notes payable and capital
lease obligations (607,000) (3,100,000)
Proceeds from issuance of notes payable 1,500,000 3,100,000
Net proceeds from issuance of preferred
stock -- 2,856,000
Payment of dividends on preferred stock (1,520,000) (1,739,000)
----------- -----------
Net cash provided by
financing activities 6,310,000 12,705,000
----------- -----------
</TABLE>
(continued)
F-5
<PAGE> 8
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JULY 29, 1995 AND JULY 27, 1996
(Continued)
<TABLE>
<S> <C> <C>
Net decrease in cash (2,326,000) (812,000)
Cash at the beginning of the period 2,522,000 1,958,000
----------- -----------
Cash at the end of the period $ 196,000 1,146,000
=========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest $ 710,000 1,952,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 9
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 and six months ended July 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 periods
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.
In February 1996, the Company issued 153,846 shares of Preferred Stock
(the Escrowed Shares) to be held in escrow to secure a $1.0 million
obligation (the Obligation) arising from the settlement of the
Mandel-Kahn lawsuit. The Company is permitted to sell these shares
under the settlement agreement provided that the proceeds of the sale
are applied to reduce the Obligation. The Escrowed Shares have not been
reflected as outstanding in the accompanying balance sheet but are
treated as treasury shares. Dividends paid on the Escrowed Shares during
the six months ended July 27, 1996 are not reflected as dividends on the
accompanying statements of operations for the three and six months
ended July 27, 1996 but are reflected as a reduction in the outstanding
principal balance of the Obligation on the accompanying balance sheet
at July 27, 1996. In June 1996, the Company entered into an agreement
to sell the Escrowed Shares for $808,000, before deduction of any
applicable sales expenses, by no later than September 30, 1996.
During the six months ended July 27, 1996, the Company borrowed
$1.1 million under an installment note payable to finance the
acquisition of electronic point-of-sale equipment with interest, accruing
at a prime rate of interest plus 2% (10.25% at July 27, 1996), payable
monthly in arrears and principal payable in monthly installments of
$30,556 over 36 months.
F-7
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In July, 1996 the Company borrowed $2.0 million for working capital
purposes under an installment note payable. The $2.0 million note bears
interest, payable monthly in arrears, at a prime rate plus 3% (11.25%
at July 27, 1996) and is subject to monthly principal payments of
$33,333 over 60 months.
In July 1996, the Company extinguished a mortgage note in the amount
of approximately $2.3 million with the proceeds of the sale of certain
real property (Note 3).
(3) Sale of Land and Building
In July 1996, the Company sold certain real property (the Nogales
Property) obtained in its acquisition of Factory 2-U, Inc.
(Factory 2-U).
In connection with the Company's agreement to purchase Factory 2-U,
the Company was contingently obligated to the former shareholders of
Factory 2-U under a promissory note with a stated principal amount of
$600,000 (the Contingent Note). The principal amount of the note
was contingent upon the timing and net proceeds of the sale of the
Nogales Property. The carrying value of the Contingent Note was
adjusted in April 1996 to $600,000, with a corresponding charge to
goodwill, to reflect the resolution of the contingency following the
sale of the Nogales Property. Principal and interest, to accrue at an
annual rate of 8.75%, on the Contingent Note are due October 30, 1998.
(4) Provision for Income Taxes
No provision for income taxes has been reflected in the consolidated
statements of operations for the three and six months ended July 27,
1996 since the Company generated tax losses during these periods. While
losses would increase the Company's net operating loss carry forwards
(NOLs), realization of such losses is not assured due to limitations on
utilization of NOLs and the Company's 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 statements of operations for the three
and six months ended July 27, 1996.
F-8
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(5) Proposed Convertible Subordinated Debenture Offering
In August 1996, the Company filed a registration statement on Form
S-2 with the Securities and Exchange Commission related to the proposed
offering (the Proposed Offering) of $40.0 million principal amount
($46.0 million if a $6.0 million over allotment option is exercised by
the underwriters of the proposed offering) of convertible subordinated
debentures due 2006. The Company concurrently filed a registration
statement on Form S-2 on behalf of the purchasers of the Escrowed
Shares (Note 2).
F-9
<PAGE> 12
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 six months ended July 29,
1995 and July 27, 1996.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JULY 27, 1996 COMPARED TO THE THREE MONTHS
ENDED JULY 29, 1995
Net sales (gross sales less sales tax and sales returns) were $57.5 million
for the three months ended July 27, 1996 compared to $37.3 million for the
three months ended July 29, 1995, an increase of $20.2 million. Of the total
increase, $12.8 million was attributable to sales of Factory 2-U, which was
acquired in November of 1995, $3.8 million was attributable to a 10.7% increase
in comparable store sales (sales at stores open throughout both periods) and
the remaining $3.6 million increase in sales was attributable to the opening
of new and, therefore, non-comparable stores. As of July 27, 1996, there were
140 stores in operation compared to 102 stores as of July 29, 1995.
Gross profit was $21.3 million for the three months ended July 27, 1996
compared to $13.0 million for the three months ended July 29, 1995, an
increase of $8.3 million. As a percentage of sales, gross profit was 37.0%
for the three months ended July 27, 1996 compared to 34.9% for the three
months ended July 29, 1995. The increase in gross profit as a percentage of
sales resulted primarily from purchases of inventory at generally lower
wholesale prices as compared to the prior comparable period and low markdown
activity related to Factory 2-U inventory purchased since November 1995.
General and administrative expenses were $18.9 million for the three months
ended July 27, 1996 compared to $12.2 million for the three months ended
July 29, 1995, an increase of $6.7 million. Of the total increase,
$4.7 million was attributable to increased overhead to support the
additional stores arising from the acquisition of Factory 2-U and $2.0
million was due to increased overhead related to new stores opened and the
upgrading of equipment in existing stores. As a percentage of sales,
general and administrative expenses were 32.8% for the three months
ended July 27, 1996 compared to 32.6% for the three months ended
July 29, 1995.
Amortization of goodwill was $477,000 for the three months ended July 27,
1996 compared to $315,000 for the three months ended July 29, 1995.
The increase of $162,000 was attributable to increased goodwill arising from
the acquisition of Factory 2-U.
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<PAGE> 13
Interest expense and financing fees were $1.3 million for the three months
ended July 27, 1996 compared to $786,000 for the three months ended
July 29, 1995. The increase of $485,000 was primarily attributable to the
increased interest arising from the additional working capital needs related
to the expansion of the Company and debt assumed in the acquisition of
Factory 2-U.
Net income for the three months ended July 27, 1996 was $629,000
compared to a net loss of $236,000 for the three months ended July 29, 1995.
Net loss applicable to common stock (net income less dividends
on the Preferred Stock) was $256,000 for the three months ended
July 27, 1996 compared to net loss applicable to common stock of
$1.0 million for the three months ended July 29, 1995.
SIX MONTHS ENDED JULY 27, 1996 COMPARED TO THE SIX MONTHS ENDED JULY
29, 1995
Net sales (gross sales less sales tax and sales returns) were $107.3 million
for the six months ended July 27, 1996 compared to $68.4 million for the
six months ended July 29, 1995, an increase of $38.9 million. Of the total
increase, $25.4 million was attributable to sales of Factory 2-U, which was
acquired in November of 1995, $6.7 million was attributable to a 10.3%
increase in comparable store sales (sales at stores open throughout both
periods) and the remaining $6.8 million increase in sales was attributable to
the opening of new and, therefore, non-comparable stores. As of July 27,
1996 there were 140 stores in operation compared to 102 stores as of July
29, 1995.
Inventory levels increased by 55.3% during the six months ended July 27, 1996
compared to an increase of 33.2% during the six months ended July 29 ,1995.
The higher rate of increase in the current period is primarily attributable
to particularly low stock levels at Factory 2-U stores at the beginning of the
current fiscal year and increased stock levels at General Textiles' stores
in response to higher comparable store levels.
Gross profit was $38.7 million for the six months ended July 27, 1996
compared to $22.6 million for the six months ended July 29, 1995, an
increase of $16.1 million. As a percentage of sales, gross profit was 36.1%
for the six months ended July 27, 1996 compared to 33.0% for the six
months ended July 29, 1995. The increase in gross profit as a percentage
of sales resulted from reduced markdown activity at General Textiles,
purchases of inventory at generally lower wholesale prices as compared to
the prior comparable period and low markdown activity related to Factory 2-U
inventory purchased since November 1995.
General and administrative expenses were $36.4 million for the six months
ended July 27, 1996 compared to $24.3 million for the six months ended
July 29, 1995, an increase of $12.1 million. Of the total increase,
$8.9 million was attributable to increased overhead to support the
additional stores arising from the acquisition of Factory 2-U and $3.2
million was attributable to increased overhead related to new stores opened
and the upgrading of equipment in existing stores since July 29, 1995. As a
percentage of sales, general and administrative expenses were 33.9%
for the six months ended July 27, 1996 compared to 35.5% for the six
months ended July 29, 1995.
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<PAGE> 14
Amortization of goodwill was $939,000 for the six months ended July 27,
1996 compared to $629,000 for the six months ended July 29, 1995. The
increase of $310,000 was attributable to increased goodwill arising from the
acquisition of Factory 2-U.
Interest expense and financing fees were $ 2.3 million for the six months
ended July 27, 1996 compared to $1.5 million for the six months ended
July 29, 1995. The increase of $860,000 was primarily 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.
Net loss for the six months ended July 27, 1996 was $929,000 compared to
a net loss of $3.8 million for the six months ended July 29, 1995.
Net loss applicable to common stock (net income less dividends on the
Preferred Stock) was $2.7 million for the six months ended July 27, 1996
compared to $5.3 million for the six months ended July 29, 1995.
LIQUIDITY AND CAPITAL RESOURCES
THE PARENT COMPANY
OBLIGATIONS OF THE PARENT COMPANY. As of July 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 $2.0 million, comprised of $1.0 million owed to the former
shareholders of Factory 2-U and $966,000 owed in settlement of a lawsuit
arising from a previously discontinued distribution business. In April 1996,
the Parent repaid the final installment of $250,000 on a note payable to
Texas Commerce Bank. In April 1996, the Contingent Note payable to the
former shareholders of Factory 2-U was adjusted from zero to $600,000 to
reflect the expected final principal amount of the Contingent Note based
upon the execution of an agreement to sell the Nogales Property which was
ultimately consummated in July 1996. The Company issued 153,846 shares of
its Preferred Stock to an escrow account to secure the $1.0 million settlement
obligation. The Company is permitted to sell these shares of Preferred Stock
under the settlement agreement provided that the proceeds of the sale are
applied to reduce the Obligation. The Company is required under the settlement
agreement to use its best effort to register the Escrowed Shares for resale
to the public. In June 1996, the Company entered into an agreement to sell the
Escrowed Shares for $808,000, before deduction of any applicable sales
expenses, by no later than September 30, 1996. The Company filed a registration
statement with respect to the Escrowed Shares with the Securities and Exchange
Commission (the Commission) on August 27, 1996.
The Parent has annual dividend obligations of $3.5 million on its
Preferred Stock based on the number of preferred shares outstanding at
July 27, 1996 and an annual dividend rate of $0.95 per preferred share.
Dividends are payable quarterly if, as and when, declared by the
Board of Directors. For the six months ended July 27, 1996, the Parent
paid $1.7 million in dividends on the Preferred Stock. The Company
issued 786,000 shares of Preferred Stock, including 726,000 preferred
shares issued in an exempt offering to non-U.S. purchasers and 60,000
preferred shares issued in return for consulting services. Preferred
shareholders converted 258,585 shares of Preferred Stock into 710,644
shares of common stock during the six months ended July 27, 1996.
- 5 -
<PAGE> 15
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 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, 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 become 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 $25.0 million revolving credit
facility, $2.0 million in equipment facilities, a $2.0 million term loan and
internally generated cash flow. Credit terms provided by suppliers are
usually net 30 days.
REVOLVING CREDIT FACILITY. As of July 27, 1996, General Textiles
had $19.0 million outstanding and $1.4 million available to borrow under
its revolving credit facility. As of September 3, 1996, General Textiles had
$19.7 million outstanding and $2.6 million available to borrow under its
revolving credit facility.
EQUIPMENT FACILITIES. As of July 27, 1996, General Textiles had
$2.0 million outstanding under its 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).
TERM NOTE. As of July 27, 1996, General Textiles had $2.0 million
outstanding under an installment note payable with monthly principal
payments of $33,333 due in July 2001.
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.
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<PAGE> 16
REVOLVING CREDIT FACILITY. As of July 27, 1996, Factory 2-U had $ 7.7
million outstanding and $74,000 available to borrow under its revolving
credit facility. As of September 3, 1996, Factory 2-U had $8.3 million
outstanding and $111,000 available to borrow under its revolving credit
facility.
NOGALES MORTGAGE. In July 1996, Factory 2-U extinguished a mortgage note
in the amount of $2.3 million with the proceeds from the sale of the
Nogales Property.
PROPOSED CONVERTIBLE DEBENTURE OFFERING
In August 1996, the Company filed a registration statement on Form
S-2 with the Commission related to the Proposed Offering of $40.0 million
principal amount ($46.0 million if a $6.0 million over allotment option is
exercised by the underwriters of the proposed offering) of convertible
subordinated debentures due 2006. If the Proposed Offering is successful,
the Company plans to use the net proceeds as follows: (i) a portion will be
loaned to the Operating Subsidiaries to repay the outstanding indebtedness
under their revolving credit facilities (the Facilities), (ii) up to $4.0
million will be used to purchase new fixtures for existing stores, and
(iii) the balance will be used for general working capital purposes.
The Operating Subsidiaries may reborrow funds under the Facilities. Uses
of additional working capital may include the purchase of existing
indebtedness of the Operating Subsidiaries or shares of outstanding
Preferred Stock in the open market from time to time. In addition, the
Company may use at least part of the additional working capital and
additional borrowing availability under the Facilities to accelerate its store
opening schedule, obtain lower prices from certain suppliers, obtain credit
from a greater number of suppliers, and obtain overseas merchandise at
lower prices by using letters of credit to purchase directly from overseas
vendors.
CAPITAL EXPENDITURES
The Company's planned future capital expenditures include costs to open
new Family Bargain Center and Factory 2-U stores and to renovate and/or
relocate existing stores. Management believes that future capital
expenditures will be financed from internal cash flow, working capital
(possibly including a portion of the proceeds of the Proposed Offering),
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.
- 7 -
<PAGE> 17
RECENT CHANGES IN FEDERAL LAW
Effective October 1996, federal law requires employers to increase the
minimum wage paid to employees from $4.25 to $4.75 and, effective
September 1997, from $4.75 to $5.15. While the Company may be able
raise its retail prices to offset any increases in the minimum wage, there is
no assurance that it will be able to do so. Nonetheless, any increases in
payroll may be offset in whole or in part by a resulting increase in
purchasing power available to certain customers of the Company.
In addition, in August 1996, federal legislation was passed that
restricts the availability of welfare and certain other benefits
to illegal immigrants. While states may choose to continue to provide such
benefits, California appears unlikely to do so. A portion of the Company's
customers reside in California and are believed to receive welfare
benefits. A portion of these customers are expected to be affected by
this change in legislation. Although the Company currently cannot assess
the impact, if any, of this change, management does not currently believe
it will have a material effect on the Company's results of operations.
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 quarters ending
in October and January) as a result of the "Back to School" (August and
September) and Christmas (November and December) seasons. Although the
Company reported net income for the three months ended July 27, 1996, it
incurred a net loss for the six months ended July 27, 1996.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company filed no reports of Form 8-K during the six months ended
July 27, 1996.
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 9, 1996 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 SIX MONTHS
ENDED JULY 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> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> JUL-27-1996
<CASH> 1146
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 40816
<CURRENT-ASSETS> 45693
<PP&E> 10607
<DEPRECIATION> 3637
<TOTAL-ASSETS> 99241
<CURRENT-LIABILITIES> 29490
<BONDS> 0
<COMMON> 14
0
28238
<OTHER-SE> 12
<TOTAL-LIABILITY-AND-EQUITY> 99241
<SALES> 107334
<TOTAL-REVENUES> 107334
<CGS> 68600
<TOTAL-COSTS> 68600
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2310
<INCOME-PRETAX> (929)
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