<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 May 3, 1997
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: 1-10089
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.)
4000 Ruffin Road, San Diego, CA 92123
(Address of principal executive office) (Zip Code)
(619) 627-1800
(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 10, 1997, was 4,929,822 shares.
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FAMILY BARGAIN CORPORATION
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED MAY 3, 1997
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
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Page
No.
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<S> <C> <C>
Item 1. Financial Statements
Family Bargain Corporation and Subsidiaries Consolidated
Balance Sheets as of February 1, 1997 and May 3, 1997
(Unaudited) F-1
Family Bargain Corporation and Subsidiaries Consolidated
Statements of Operations (Unaudited) for the three months
ended April 27, 1996 and May 3, 1997 F-3
Family Bargain Corporation and Subsidiaries Consolidated
Statements of Cash Flows (Unaudited) for the three months
ended April 27, 1996 and May 3, 1997 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 7
</TABLE>
- 2-
<PAGE> 3
PART I
ITEM 1
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF FEBRUARY 1, 1997 AND MAY 3, 1997
<TABLE>
<CAPTION>
February 1, May 3,
1997 1997
(Unaudited)
<S> <C> <C>
Assets
- ------
Current assets:
Cash $ 3,261,000 4,716,000
Accounts receivable - non-trade 77,000 684,000
Merchandise inventories 29,118,000 38,513,000
Prepaid expenses 862,000 2,746,000
---------- ----------
Total current assets 33,318,000 46,659,000
Leasehold improvements and equipment, net 10,714,000 11,944,000
Other assets 2,323,000 2,088,000
Excess of cost over net assets acquired
(goodwill), less accumulated amortization
of $5,332,000 and $5,734,000 at
February 1, 1997 and May 3, 1997,
respectively 34,314,000 33,912,000
---------- ----------
Total assets $ 80,669,000 94,603,000
========== ==========
</TABLE>
(continued)
F-1
<PAGE> 4
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF FEBRUARY 1, 1997 AND MAY 3, 1997
(Continued)
<TABLE>
<CAPTION>
February 1, May 3,
1997 1997
(Unaudited)
<S> <C> <C>
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Current maturities of long-term debt
and capital leases $ 5,748,000 4,840,000
Accounts payable 17,491,000 22,721,000
Accrued salaries, wages and bonuses 2,924,000 1,899,000
Other accrued expenses 6,907,000 4,949,000
---------- ----------
Total current liabilities 33,070,000 34,409,000
Revolving credit notes 17,887,000 23,715,000
Long-term debt, less current maturities 14,422,000 13,329,000
Deferred rent 2,098,000 2,230,000
Capital lease and other long-term obligations 1,984,000 2,335,000
---------- ----------
Total liabilities 69,461,000 76,018,000
---------- ----------
Commitments and contingencies
Stockholders' equity:
Series A convertible preferred stock; $.01
par value; 4,500,000 shares authorized;
3,727,415 and 3,638,690 shares issued and
outstanding (aggregate liquidation preference
of $37,274,000 and $36,387,000) at February 1,
1997 and May 3, 1997, respectively 37,000 37,000
Series B junior convertible, exchangeable
preferred stock, $.01 par value, 40,000
shares authorized, 22,000 and 33,465 shares
issued and outstanding (aggregate
liquidation preference of $22,000,000 and
$33,465,000) at February 1, 1997 and
May 3, 1997, respectively - -
Common stock, $.01 par value, 80,000,000
shares authorized, 4,693,337 and 4,929,822
shares issued and outstanding at February
1, 1997 and May 3, 1997, respectively 14,000 17,000
Additional paid-in capital 71,090,000 82,553,000
Stock subscription notes receivable - (1,865,000)
Accumulated deficit (59,933,000) (62,157,000)
---------- ----------
Total stockholders' equity 11,208,000 18,585,000
---------- ----------
Total liabilities and stockholders' equity $ 80,669,000 94,603,000
========== ==========
</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 APRIL 27, 1996 AND MAY 3, 1997
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Three Months Ended
April 27, 1996 May 3, 1997
<S> <C> <C>
Net sales $ 49,825,000 60,436,000
Cost of sales 32,342,000 39,313,000
---------- ----------
Gross profit 17,483,000 21,123,000
Selling, general and
administrative expenses 17,540,000 20,805,000
Amortization of goodwill 462,000 401,000
---------- ----------
Operating loss (519,000) (83,000)
Interest expense and financing fees (1,039,000) (1,277,000)
---------- ----------
Net loss (1,558,000) (1,360,000)
Preferred stock dividends (854,000) (864,000)
---------- ----------
Net loss applicable
to common stock $ (2,412,000) (2,224,000)
========== ==========
Net loss applicable to common stock
per common and common share
equivalent $ (0.60) (0.46)
Weighted average shares outstanding 4,040,034 4,818,076
</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 27, 1996 AND MAY 3, 1997
(Unaudited)
<TABLE>
<CAPTION>
For the For the
Three Months Ended Three Months Ended
April 27, 1996 May 3, 1997
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,558,000) (1,360,000)
Adjustments to reconcile loss to
net cash used in operating
activities:
Depreciation and amortization 1,009,000 1,207,000
Amortization of debt discount 263,000 459,000
Excess of straight-line
rent over cash payments 4,000 132,000
Increase in merchandise inventories (8,693,000) (9,395,000)
Decrease (increase) in accounts
receivable-non trade, prepaid
expenses and other assets 255,000 (2,277,000)
Increase in layaway receivables (513,000) -
Increase in accounts payable 1,281,000 5,230,000
Increase (decrease)in accrued
salaries, wages and bonuses 503,000 (1,025,000)
Decrease in other accrued expenses
and other current liabilities (3,713,000) (2,031,000)
----------- -----------
Net cash used in operations (11,162,000) (9,060,000)
----------- -----------
Cash flows used in investing activities-
Purchase of leasehold improvements
and equipment (1,485,000) (1,370,000)
----------- -----------
Cash flows from financing activities:
Borrowings on revolving credit note 73,912,000 80,893,000
Payments on revolving credit note (65,318,000) (75,065,000)
Proceed from the issuance of notes payable 815,000 -
Payments on notes payable and capital
lease obligations (482,000) (2,622,000)
Payment of deferred debt issuance costs - (57,000)
Net proceeds from issuance of preferred
stock 2,856,000 9,600,000
Payment of dividends on preferred stock (854,000) (864,000)
----------- -----------
Net cash provided by
financing activities 10,929,000 11,885,000
----------- -----------
</TABLE>
(continued)
F-4
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FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED APRIL 27, 1996 AND MAY 3, 1997
(Continued)
<TABLE>
<S> <C> <C>
Net increase (decrease) in cash (1,718,000) 1,455,000
Cash at the beginning of the period 1,958,000 3,261,000
----------- -----------
Cash at the end of the period $ 240,000 4,716,000
=========== ===========
Supplemental disclosure of cash flow
information:
Cash paid during the period for interest $ 601,000 835,000
</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 February 1, 1997 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 May 3, 1997 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 February and March 1997, the Company placed 9,600 shares of Series B
Junior Convertible, Exchangeable Preferred Stock (Series B Preferred
Stock) with private investors for net cash proceeds of $9,600,000.
In addition, in March 1997, the Company issued 1,865 shares of Series
B Preferred Stock to certain key employees and executives of the
Company for $1,865,000 in full recourse notes which are reflected as
an offset to stockholders' equity under the caption "Stock Subscription
Notes Receivable" in the accompanying consolidated balance sheet as of
May 3, 1997.
(3) Long-term Debt and Revolving Credit Notes
At May 3, 1997 the Company's estimation of cash flows which determine the
timing and amounts of payments of certain subordinated debt of General
Textiles were the same as estimated for February 1, 1997. Consequently,
there were no adjustments to the carrying value of such debt during the
three months ended May 3, 1997 except for recurring amortization of debt
discount.
In June 1997, the Company amended its agreement with its working capital
lender to increase its revolving credit facilities to $50.0 million, with
advances limited to 65% of eligible inventory (as defined), an interest
rate of prime plus 3/4% per annum and an expiration date (subject to
annual one year extensions) of November 1999.
F-6
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(4) Earnings per Share
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 128, Earnings per
Share (SFAS No. 128). SFAS No. 128 becomes effective for interim and
annual periods ending after December 15, 1997 and will change the way the
Company computes earnings per share. However, had the Company applied
SFAS No. 128, there would have been no difference between the loss per
share reported under SFAS No. 128 and the loss per share reported on the
accompanying consolidated statement of operations for the three months
ended May 3, 1997.
(5) Provision for Income Taxes
No provision for income taxes has been reflected in the accompanying
consolidated statements of operations for the three months ended
April 27, 1996 and May 3, 1997 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 net deferred tax assets arising from the increased
NOLs and no benefit for income taxes is reflected in the accompanying
statements of operations.
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 27, 1996 and
May 3, 1997.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MAY 3, 1997 COMPARED TO THE THREE MONTHS
ENDED APRIL 27, 1996
Net sales (gross sales less sales tax and sales returns) were $60.4 million
for the three months ended May 3, 1997 compared to $49.8 million for the
three months ended April 27, 1996, an increase of $10.6 million. Of the total
increase,$700,000 was attributable to a 1.3% increase in comparable store
sales (sales at stores open throughout both periods) and the remaining $9.9
million increase in sales was attributable to the opening of new and,
therefore, non-comparable stores. As of May 3, 1997 there were 158 stores
in operation compared to 135 stores as of April 27, 1996.
Gross profit was $21.1 million for the three months ended May 3, 1997
compared to $17.5 million for the three months ended April 27, 1996, an
increase of $3.6 million. As a percentage of sales, gross profit was 35.0%
for the three months ended May 3, 1997 compared to 35.1% for the three
months ended April 27, 1996.
Selling, general and administrative expenses were $20.8 million for the
three months ended May 3, 1997 compared to $17.5 million for the three months
ended April 27, 1996, an increase of $3.3 million. As a percentage of sales,
selling, general and administrative expenses decreased to 34.4% for the three
months ended May 3, 1997 from 35.2% for the three months ended April 27, 1996.
The decrease in selling, general and administrative expenses as a percentage
of sales was attributable to reduced compensation and other expenses related
to the closed New York office, partially offset by increases in store wages
(due to to increases in the minimum wage) and increased store opening expenses.
Amortization of goodwill was $401,000 for the three months ended May 3, 1997
compared to $462,000 for the three months ended April 27, 1996. The decrease
arose from the reduction in goodwill arising from the write-off goodwill
disclosed in the consolidated financial statements for the fiscal year
ended February 1, 1997.
Interest expense and financing fees were $1.3 million for the three months
ended May 3, 1997 compared to $1.0 million for the three months ended
April 27, 1996. The increase of $300,000 was attributable primarily to
increased debt discount amortization arising from changes in the projected
timing and payment of the reorganization securities of General Textiles.
- 3 -
<PAGE> 11
The net loss applicable to common stock was $2.2 million for the three months
ended May 3, 1997 compared to $2.4 million for the three months ended
April 27, 1996.
LIQUIDITY AND CAPITAL RESOURCES
THE COMPANY
OBLIGATIONS OF THE COMPANY. As of May 3, 1997, the Company, exclusive of
General Textiles and Factory 2-U, Inc. ("Factory 2-U" and, with General
Textiles, the "Operating Subsidiaries"), had outstanding indebtedness in the
principal amount of $2.7 million, no material change from its debt obligations
at February 1, 1997. Of that $2.7 million outstanding principal, $1.9 million
is due during the next twelve months.
Distributions of cash from the Operating Subsidiaries to the parent company
to pay parent company debt service obligations, Series A 9 1/2% Convertible
Preferred Stock (the "Series A Preferred Stock") dividends (if declared) and
certain administrative expenses are limited under a plan of reorganization
and certain debt agreements of the Operating Subsidiaries. Permitted cash
payments from General Textiles include payments pursuant to a tax sharing
agreement, certain subordinated debt of General Textiles (which the Parent
holds), and a management agreement. Permitted cash payments by Factory 2-U
to the Parent are limited to payments pursuant to a management agreement
and a guaranty fee agreement.
In February and March 1997, the Company placed 9,600 shares of Series B
Junior Convertible, Exchangeable Preferred Stock (Series B Preferred
Stock) with private investors for cash net proceeds of $9.6 million.
The net proceeds of the private placement were provided to the Operating
Subsidiaries for working capital purposes.
Management believes that permitted cash flows to the parent company will be
adequate to finance its administrative expenses 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 its
Series A Preferred Stock as they become due will be dependent on the results
of operations of the Company.
GENERAL TEXTILES
GENERAL. General Textiles finances its operations through credit provided by
suppliers, amounts borrowed under its $25.0 million revolving credit facility,
$3.0 million in installment notes and internally generated cash flow.
At May 3, 1997, General Textiles was obligated to non-affiliate holders of
its subordinated notes and reorganization securities in the face amount of
$23.1 million and a carrying value of $11.6 million, of which management
estimates principal payments in the amount of approximately $1.3 million
will be paid the next twelve months.
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REVOLVING CREDIT FACILITY. As of May 3, 1997, General Textiles had $16.5
million outstanding and $4.6 million available to borrow under its revolving
credit facility. As of June 10, 1997, General Textiles had $16.4 million
outstanding and $4.9 million available to borrow under its revolving credit
facility.
Effective June 2, 1997, General Textiles amended its agreement with its
working capital lender to increase its revolving credit facility to $35.0
million, with advances limited to 65% of eligible inventory (as defined),
an interest rate of prime plus 3/4% per annum and an expiration date (subject
to annual one year extensions) of November 1999.
FACTORY 2-U
GENERAL. Factory 2-U finances its operations through credit provided by
suppliers, amounts borrowed under its $10.0 million revolving credit facility
and internally generated cash flow.
REVOLVING CREDIT FACILITY. As of May 3, 1997, Factory 2-U had $7.2 million
outstanding and $1.0 million available to borrow under its revolving credit
facility. As of June 10, 1997, Factory 2-U had $6.6 million outstanding and
$1.7 million available to borrow under its revolving credit facility.
Effective June 2, 1997, Factory 2-U, amended its agreement with its working
capital lender to increase its revolving credit facility to $15.0 million,
with advances limited to 65% of eligible inventory (as defined), an interest
rate of prime plus 3/4% per annum and an expiration date (subject to annual
one year extensions) of November 1999.
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 expand it central administrative and distribution
facilities. Management believes that future expenditures will be financed
from internal cash flow, a $5.0 million installment note commitment from its
working capital lender (unused as of June 10, 1997) 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 efficiency, by monitoring and controlling
expenses and by increasing prices to the extent permitted by competitive
factors.
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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
fiscal 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.
The Company historically has realized lower sales in its first two quarters
(the quarters ending in fiscal April and July), which often has resulted
in the Company incurring losses during those quarters. The Company incurred
a net loss in the quarter ended May 3, 1997.
- 6 -
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PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None.
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 11, 1997 By: /s/ James. M. Baker
----------------------------
Name: James M. Baker
Title: Treasurer
(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 MAY 3, 1997 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-31-1998
<PERIOD-END> MAY-03-1997
<CASH> 4,716
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 38,513
<CURRENT-ASSETS> 46,659
<PP&E> 11,944
<DEPRECIATION> 5,481
<TOTAL-ASSETS> 94,603
<CURRENT-LIABILITIES> 34,409
<BONDS> 0
<COMMON> 17
0
37
<OTHER-SE> 18,531
<TOTAL-LIABILITY-AND-EQUITY> 94,603
<SALES> 60,436
<TOTAL-REVENUES> 60,436
<CGS> 39,313
<TOTAL-COSTS> 39,313
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,277
<INCOME-PRETAX> (1,360)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,360)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,360)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
