<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 October 26, 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 December 6, 1996, was 4,693,337 shares.
<PAGE> 2
FAMILY BARGAIN CORPORATION
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED OCTOBER 26, 1996
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
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Page
No.
----
<S> <C> <C>
Item 1. Financial Statements
Family Bargain Corporation and Subsidiaries Consolidated
Balance Sheets as of January 27, 1996 and
October 26, 1996 (Unaudited) F-1
Family Bargain Corporation and Subsidiaries Consolidated
Statements of Operations (Unaudited) for the three months
ended October 28, 1995 and October 26, 1996 F-3
Family Bargain Corporation and Subsidiaries Consolidated
Statements of Operations (Unaudited) for the nine months
ended October 28, 1995 and October 26, 1996 F-4
Family Bargain Corporation and Subsidiaries Consolidated
Statements of Cash Flows (Unaudited) for the nine months
ended October 28, 1995 and October 26, 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
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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
AS OF JANUARY 27, 1996 AND OCTOBER 26, 1996
<TABLE>
<CAPTION>
January 27, October 26,
1996 1996
(Unaudited)
<S> <C> <C>
Assets
- ------
Current assets:
Cash $ 1,958,000 1,373,000
Accounts receivable - non-trade 887,000 953,000
Layaway receivables 695,000 1,704,000
Merchandise inventories 25,874,000 43,557,000
Prepaid expenses 776,000 1,845,000
----------- -----------
Total current assets 30,190,000 49,432,000
Real property held for sale 4,500,000 --
Leasehold improvements and equipment, net 9,001,000 10,958,000
Other assets 708,000 545,000
Excess of cost over net assets acquired
(goodwill), less accumulated amortization
of $3,366,000 and $4,772,000 at
January 27, 1996 and October 26, 1996,
respectively 42,753,000 41,947,000
----------- -----------
Total assets $ 87,152,000 102,882,000
=========== ===========
</TABLE>
(Continued)
F-1
<PAGE> 4
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 27, 1996 AND OCTOBER 26, 1996
(Continued)
<TABLE>
<CAPTION>
January 27, October 26,
1996 1996
(Unaudited)
<S> <C> <C>
Liabilities and Stockholders' Equity
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Current liabilities:
Current maturities of long-term debt
and capital leases $ 5,238,000 3,344,000
Accounts payable 17,866,000 24,925,000
Accrued salaries, wages and bonuses 1,758,000 413,000
Other accrued expenses 5,514,000 3,620,000
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Total current liabilities 30,376,000 32,302,000
Revolving credit notes 15,159,000 28,912,000
Long-term debt, less current maturities 9,864,000 12,741,000
Deferred rent 1,646,000 1,467,000
Capital lease and other long-term obligations 2,390,000 161,000
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Total liabilities 59,435,000 75,583,000
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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
$37,274,000 at January 27, 1996 and
October 26, 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 October 26, 1996,
respectively 7,000 14,000
Additional paid-in capital 19,763,000 21,714,000
Accumulated deficit (19,034,000) (22,667,000)
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Total stockholders' equity 27,717,000 27,299,000
Commitments and contingencies -- --
Total liabilities and stockholders' equity $ 87,152,000 102,882,000
=========== ===========
</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 OCTOBER 28, 1995 AND OCTOBER 26, 1996
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Three Months Ended
October 28, 1995 October 26, 1996
<S> <C> <C>
Net sales $ 47,322,000 65,557,000
Cost of sales 30,393,000 42,264,000
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Gross profit 16,929,000 23,293,000
General and administrative expenses 14,024,000 21,609,000
Amortization of goodwill 314,000 467,000
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Operating income 2,591,000 1,217,000
Interest expense and financing fees 852,000 1,297,000
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Net income (loss) 1,739,000 (80,000)
Preferred stock dividends 760,000 885,000
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Net income (loss)
applicable to common stock $ 979,000 (965,000)
========== ==========
Net loss per common share and
common stock equivalents:
Primary $ 0.24 (0.21)
Assuming full dilution 0.14 (0.21)
Weighted average shares outstanding:
Primary 4,008,311 4,693,337
Fully diluted 12,008,311 4,693,337
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 6
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 28, 1995 AND OCTOBER 26, 1996
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Nine Months Ended Nine Months Ended
October 28, 1995 October 26,1996
<S> <C> <C>
Net sales $ 115,672,000 172,891,000
Cost of sales 76,178,000 110,864,000
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Gross profit 39,494,000 62,027,000
General and administrative expenses 38,300,000 58,023,000
Amortization of goodwill 943,000 1,406,000
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Operating income 251,000 2,598,000
Interest expense and financing fees 2,302,000 3,607,000
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Net loss (2,051,000) (1,009,000)
Preferred stock dividends 2,280,000 2,624,000
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Net loss applicable
to common stock $ (4,331,000) (3,633,000)
=========== ===========
Net loss per common share and
common stock equivalents:
Primary $ (1.08) (0.82)
Assuming full dilution (1.08) (0.82)
Weighted average shares outstanding:
Primary 4,008,311 4,440,572
Fully diluted 4,008,311 4,440,572
</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 NINE MONTHS ENDED OCTOBER 28, 1995 AND OCTOBER 26, 1996
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Nine Months Ended Nine Months Ending
October 28, 1995 October 26, 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,051,000) (1,009,000)
Adjustments to reconcile loss to
net cash used in operating
activities:
Depreciation and amortization 2,246,000 3,221,000
Amortization of debt discount 770,000 785,000
Deficiency of straight-line
rent over cash payments (21,000) (179,000)
Increase in merchandise inventories (8,082,000) (17,683,000)
Increase in accounts receivable
non trade, prepaid expenses
other assets (5,588,000) (777,000)
Increase in layaway receivables (1,139,000) (1,009,000)
Increase in accounts payable 5,048,000 4,894,000
Decrease in accrued salaries
wages and bonuses (455,000) (1,345,000)
Increase (decrease) in other accrued
expenses and other current
liabilities 251,000 (1,895,000)
----------- -----------
Net cash used in operations (9,021,000) (14,997,000)
----------- -----------
Cash flows used in investing activities:
Purchase of leasehold improvements
and equipment (3,297,000) (3,496,000)
Sale of land and building -- 4,500,000
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(3,297,000) 1,004,000
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Cash flows from financing activities:
Borrowings on revolving credit note 136,764,000 221,868,000
Payments on revolving credit note (124,775,000) (208,115,000)
Payments on notes payable and capital
lease obligations (753,000) (3,647,000)
Proceeds from issuance of note payable 1,500,000 3,100,000
Net proceeds from issuance of preferred
stock -- 2,856,000
Payment of dividends on preferred stock (2,280,000) (2,624,000)
Payment of deferred debt issuance costs (518,000) (30,000)
------------ -----------
Net cash provided by
financing activities 9,938,000 13,408,000
------------ -----------
</TABLE>
(continued)
F-5
<PAGE> 8
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED OCTOBER 28, 1995 AND OCTOBER 26, 1996
(Continued)
<TABLE>
<S> <C> <C>
Net decrease in cash (2,380,000) (585,000)
Cash at the beginning of the period 2,522,000 1,958,000
----------- -----------
Cash at the end of the period $ 142,000 1,373,000
=========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest $ 1,183,000 2,183,000
</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 nine months ended October 26, 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
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 nine months ended
October 26, 1996 are not reflected as dividends on the accompanying
statements of operations for the three and nine months ended October 26,
1996 but are reflected as a reduction in the outstanding principal
balance of the Obligation on the accompanying balance sheet at
October 26, 1996.
During the nine months ended October 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 October 26, 1996), payable monthly
in arrears and principal payable in monthly installments of $30,556
over 36 months.
F-7
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In April 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 October 26, 1996) and is subject to monthly principal payments of
$33,333 over 60 months.
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 arising from 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) Issuance of Stock Options
In July 1996, the Company granted options to purchase 1,764,668 shares
of common stock to employees and directors. These options vest between
May 1997 and May 2001 and have an exercise price of $3.64 per share.
(5) Provision for Income Taxes
No provision for income taxes has been reflected in the consolidated
statement of operations for the three and nine months ended October 26,
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 has been
reflected in the accompanying statements of operations for the three
and nine months ended October 26, 1996.
(6) Proposed Convertible Subordinated Debenture Offering
In November 1996, the Company delayed its proposed offering of
convertible subordinated debentures (the Proposed Offering). The
Company's decision whether to proceed with a financing will depend
on available terms, conditions and amounts, as well as other factors
including, but not limited to, the market price of its common stock.
F-8
<PAGE> 11
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 28,
1995 and October 26, 1996.
RESULTS OF OPERATIONS
THREE MONTHS ENDED OCTOBER 26, 1996 COMPARED TO THE THREE MONTHS
ENDED OCTOBER 28, 1995
Net sales (gross sales less sales tax and sales returns) were $65.6 million
for the three months ended October 26, 1996 compared to $47.3 million for the
three months ended October 28, 1995, an increase of $18.2 million or 38.5%.
$13.7 million of the increase was attributable to Factory 2-U, which was
acquired in November 1995. Comparable store sales (sales at stores open
throughout both periods) for the three months ended October 26, 1996
increased 3%. As of October 26, 1996, there were 147 stores in operation
compared to 102 stores as of October 28, 1995.
Gross profit was $23.3 million for the three months ended October 26, 1996
compared to $16.9 million for the three months ended October 28, 1995, an
increase of $6.4 million. As a percentage of sales, gross profit was 35.5%
for the three months ended October 26, 1996 compared to 35.8% for the three
months ended October 28, 1995.
General and administrative expenses were $21.6 million for the three months
ended October 26, 1996 compared to $14.0 million for the three months ended
October 28, 1995, an increase of $7.6 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 $2.9
million was due to increased overhead related to new stores opened since
October 28, 1995. As a percentage of sales, general and administrative
expenses were 33.0% for the three months ended October 26, 1996 compared
to 29.6% for the three months ended October 28, 1995. The increase in general
and administrative expenses as a percentage of sales was due to a higher
overhead rate for the Factory 2-U stores acquired in November 1995 and an
incremental increase in administrative expenses related to planned growth
of the Company.
Amortization of goodwill was $467,000 for the three months ended October 26,
1996 compared to $314,000 for the three months ended October 28, 1995. The
increase of $153,000 was attributable to increased goodwill arising from the
acquisition of Factory 2-U.
Interest expense was $1.3 million for the three months ended October 26, 1996
compared to $852,000 for the three months ended October 28, 1995. The
increase of $445,000 was attributable to the increased interest related
to the additional working capital needs arising from the expansion of the
Company and debt assumed in the acquisition of Factory 2-U.
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<PAGE> 12
The net loss applicable to common stock was $1.0 million for the three months
ended October 26, 1996 compared to net income applicable to common stock of
$1.0 million for the three months ended October 28, 1995.
NINE MONTHS ENDED OCTOBER 26, 1996 COMPARED TO THE NINE MONTHS
ENDED OCTOBER 28, 1995
Net sales (gross sales less sales tax and sales returns) were $172.9 million
for the nine months ended October 26, 1996 compared to $115.7 million for the
nine months ended October 28, 1995, an increase of $57.2 million or 49.5%.
Of the total increase, $39.1 million was attributable to sales of Factory 2-U,
which was acquired in November of 1995. Comparable store sales (sales at
stores open throughout both periods) for the nine months ended October 26,
1996 increased 7.0%. As of October 26, 1996 there were 147 stores in operation
compared to 102 stores as of October 28, 1995.
Gross profit was $62.0 million for the nine months ended October 26, 1996
compared to $39.5 million for the nine months ended October 28, 1995, an
increase of $22.5 million. As a percentage of sales, gross profit was 35.9%
for the nine months ended October 26, 1996 compared to 34.1% for the nine
months ended October 28, 1995. The increase in gross profit as a percentage
of sales resulted primarily from advantageous buying opportunities that
benefitted the current period as compared to the prior period.
General and administrative expenses were $58.0 million for the nine months
ended October 26, 1996 compared to $38.3 million for the nine months ended
October 28, 1995, an increase of $19.7 million. Of the total increase,
$13.6 million was attributable to increased overhead to support the
additional stores arising from the acquisition of Factory 2-U and $6.1
million was due to increased overhead related to new stores opened since
October 28, 1995. As a percentage of sales, general and administrative
expenses were 33.6% for the nine months ended October 26, 1996 compared to
33.1% for the nine months ended October 28, 1995.
Amortization of goodwill was $1.4 million for the nine months ended
October 26, 1996 compared to $943,000 for the nine months ended
October 28, 1995. The increase of $463,000 is attributable to increased
goodwill arising from the acquisition of Factory 2-U.
Interest expense was $3.6 million for the nine months ended October 26, 1996
compared to $2.3 million for the nine months ended October 28, 1995. The
increase of $1.3 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 $3.6 million for the nine months
ended October 26, 1996 compared to $4.3 million for the nine months ended
October 28, 1995.
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<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
THE PARENT COMPANY
OBLIGATIONS OF THE PARENT COMPANY. As of October 26, 1996, the
Company, exclusive of General Textiles and Factory 2-U (the Operating
Subsidiaries), (the Parent) had outstanding indebtedness in the principal
amount of $1.9 million, comprised of $1.0 million owed to the former
shareholders of Factory 2-U and $875,000 owed in settlement of a lawsuit
arising from a previously discontinued distribution business (the Settlement
Obligation).
In April 1996, the Parent repaid the final installment of
$250,000 on the 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 Parent has annual dividend obligations of $3.5 million on its
Preferred Stock based on the number of preferred shares outstanding at
October 26, 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 nine months ended October 26, 1996, the Parent paid $2.6 million in
dividends on the Preferred Stock. The Company issued 786,000 shares
of Preferred Stock including 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
258,585 shares of Preferred Stock to common stock during the nine months
ended October 26, 1996.
The Parent does not, itself, operate any business. Accordingly, the Parent
relies on 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.
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<PAGE> 14
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 their 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,
installment notes, and internally generated cash flow. Credit terms provided
by suppliers are usually net 30 days.
REVOLVING CREDIT FACILITY. As of October 26, 1996, General Textiles had $21.0
million outstanding and $2.8 million available to borrow under its revolving
credit facility. As of December 6, 1996, General Textiles had $19.1 million
outstanding and $5.9 million available to borrow under its revolving credit
facility.
EQUIPMENT FACILITIES. As of October 26, 1996, General Textiles had $1.8
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 1996 with final
payment due no later than May 1999).
TERM NOTE. As of October 26, 1996, General Textiles had $1.9 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.
REVOLVING CREDIT FACILITY. As of October 26, 1996, Factory 2-U had $7.9
million outstanding and $430,000 available to borrow under its
revolving credit facility. As of December 6, 1996, Factory 2-U had $8.3
million outstanding and $482,000 million available to borrow under its
revolving credit facility.
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<PAGE> 15
NOGALES MORTGAGE. In July 1996, Factory 2-U extinguished the
Mortgage Note in the amount of $2.3 million with the proceeds from the
sale of the Nogales Property.
PROPOSED CONVERTIBLE DEBENTURE OFFERING
In November 1996, the Company delayed its proposed offering of
convertible subordinated debentures (the Proposed Offering). The Company's
decision whether to proceed with a financing will depend on the available
terms, conditions and amounts, as well as other factors including, but not
limited to, the market price of its common stock.
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 capital expenditures will
be financed from internal cash flow, the Proposed Offering or an alternative
financing, 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.
RECENT CHANGES IN FEDERAL AND STATE LAWS
Effective October 1996, federal law required employers to increase the
minimum hourly wage paid to employees from $4.25 to $4.75 and, effective
September 1997, from $4.75 to $5.15. In addition, California law requires
that employers pay a minimum hourly wage of $5.00 effective March 1997,
increasing to a minimum of $5.75 in March 1998. While the Company may be
able to 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 costs may be offset in whole or in part by a resulting
increase in the purchasing power available to certain customers of the
Company.
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company historically has realized its highest level of sales and income
during the first 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. The Company
incurred a net loss for the quarter and nine months ended October 26, 1996.
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<PAGE> 16
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
The Company filed no reports of Form 8-K during the nine months ended
October 26, 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: December 10, 1996 By: /s/ Jeffrey C. Gerstel
----------------------------
Name: Jeffrey C. Gerstel
Title: Executive Vice President,
Finance
(duly authorized
officer and principal
financial officer)
- 8 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the unaudited balance sheet and statements of operations as of and
for the nine months ended October 26, 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>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> OCT-26-1996
<CASH> 1,373,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 43,557,000
<CURRENT-ASSETS> 49,432,000
<PP&E> 10,958,000
<DEPRECIATION> 4,224,000
<TOTAL-ASSETS> 102,882,000
<CURRENT-LIABILITIES> 32,302,000
<BONDS> 0
0
28,238,000
<COMMON> 14
<OTHER-SE> (953,000)
<TOTAL-LIABILITY-AND-EQUITY> 102,882,000
<SALES> 172,891,000
<TOTAL-REVENUES> 172,891,000
<CGS> 110,864,000
<TOTAL-COSTS> 110,864,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,604,000
<INCOME-PRETAX> (1,009,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,009,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,009,000)
<EPS-PRIMARY> (0.82)
<EPS-DILUTED> (0.82)
</TABLE>
