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 August 1,
1998
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 92123-1866
(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
August 1, 1998, was 5,004,122 shares.
<PAGE> 2
FAMILY BARGAIN CORPORATION
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED AUGUST 1, 1998
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Family Bargain Corporation and Subsidiaries Consolidated Balance
Sheets as of August 1, 1998 (Unaudited) and January 31, 1998........F-1
Family Bargain Corporation and Subsidiaries Consolidated Statements
of Operations (Unaudited) for the 13 weeks ended August 1, 1998 and
August 2, 1997......................................................F-3
Family Bargain Corporation and Subsidiaries Consolidated Statements
of Operations (Unaudited) for the 26 weeks ended August 1, 1998 and
August 2, 1997......................................................F-4
Family Bargain Corporation and Subsidiaries Consolidated
Statements of Cash Flows (Unaudited) for the 26 weeks ended
August 1, 1998 and August 2, 1997...................................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 1. Legal Proceedings.....................................................8
Item 2. Changes in Securities.................................................8
Item 3. Defaults Upon Senior Securities.......................................8
Item 4. Submission of Matters to a Vote of Security Holders...................8
Item 5. Other Information.....................................................8
Item 6. Exhibits and Reports on Form 8-K......................................8
Signatures............................................................9
Exhibit Index........................................................10
<PAGE> F-1
PART I
Item 1. Financial Statements
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)
August 1, January 31,
1998 1998
(Unaudited)
Assets
Current assets:
Cash $ 4,483 $ 3,167
Merchandise inventories 40,864 29,820
Prepaid expenses and other assets 2,966 727
---------- ----------
Total current assets 48,313 33,714
Leasehold improvements and equipment, net 15,578 15,066
Other assets, net 2,819 3,326
Excess of cost over net assets acquired,
less accumulated amortization of
$7,736 and $6,935 at August 1, 1998 and
January 31, 1998, respectively 31,910 32,711
---------- ----------
Total assets $ 98,620 $ 84,817
========== ==========
(continued)
F-1
<PAGE> F-2
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)
(continued)
August 1, January 31,
1998 1998
(Unaudited)
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt
and capital lease obligations $ 4,440 $ 4,873
Accounts payable 24,358 19,003
Accrued expenses 13,263 12,587
---------- ----------
Total current liabilities 42,241 36,463
Revolving credit notes 26,991 12,657
Long-term debt, less current maturities 14,648 12,922
Capital lease and other long-term obligations 2,905 3,306
Deferred rent 2,172 2,251
---------- ----------
Total liabilities 88,957 67,599
Stockholders' equity:
Series A convertible preferred stock,
$.01 par value, 4,500,000 shares authorized,
3,638,690 shares issued and outstanding
(aggregate liquidation preference of $36,387)
at August 1, 1998 and January 31, 1998 36 36
Series B junior convertible, exchangeable
preferred stock, $.01 par value,
40,000 shares authorized,
35,360 and 33,714 shares issued and outstanding
(aggregate liquidation preference of $35,360 and
$33,714) at August 1, 1998 and January 31, 1998,
respectively - -
Common stock, $.01 par value, 80,000,000
shares authorized, 5,004,122 and 4,929,122
shares issued and outstanding at August 1,
1998 and January 31, 1998, respectively 50 49
Additional paid-in capital 85,532 83,312
Accumulated deficit (75,955) (66,179)
---------- ----------
Total stockholders' equity 9,663 17,218
---------- ----------
Total liabilities and stockholders' equity $ 98,620 $ 84,817
========== ==========
See accompanying notes to consolidated financial statements.
F-2
<PAGE> F-3
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
13 Weeks Ended
-----------------------
August 1, August 2,
1998 1997
Net sales $ 73,455 $ 69,375
Cost of sales 48,492 48,155
---------- ----------
Gross profit 24,963 21,220
Selling and administrative expenses 24,332 21,781
Amortization of intangibles 590 530
Special charges - 1,750
---------- ----------
Operating income 41 (2,841)
Other income (expense):
Interest expense (1,093) (1,329)
---------- ----------
Loss before income taxes (1,052) (4,170)
Income taxes (25) -
---------- ----------
Loss before dividends (1,077) (4,170)
Preferred stock dividends - Series A (864) (864)
Preferred stock dividends - Series B (728) (635)
---------- ----------
Net loss available to common stockholders $ (2,669) $ (5,669)
========== ==========
Basic and diluted earnings per share:
Net loss per common share $ (0.53) $ (1.15)
Weighted average common shares outstanding 5,004 4,929
See accompanying notes to consolidated financial statements.
F-3
<PAGE> F-4
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
26 Weeks Ended
-------------------------
August 1, August 2,
1998 1997
Net sales $ 139,951 $ 129,811
Cost of sales 93,142 89,586
Gross profit 46,809 40,225
Selling and administrative expenses 45,526 40,339
Amortization of intangibles 1,179 1,060
Special charges 1,500 1,750
---------- ----------
Operating income (1,396) (2,924)
Other income (expense):
Interest expense (2,372) (2,606)
---------- ----------
Loss before income taxes and
extraordinary item (3,768) (5,530)
Income taxes (99) -
---------- ----------
Loss before extraordinary item (3,867) (5,530)
Extraordinary item - debt extinguishment
(less applicable income taxes of $0) (2,750) -
---------- ----------
Loss before dividends (6,617) (5,530)
Preferred stock dividends - Series A (1,728) (1,728)
Preferred stock dividends - Series B (1,431) (1,292)
---------- ----------
Net loss available to common stockholders $ (9,776) $ (8,550)
========== ==========
Basic and diluted earnings per share:
Loss before extraordinary item $ (1.42) $ (1.75)
Extraordinary item $ (0.55) $ -
Net loss per common share $ (1.97) $ (1.75)
Weighted average common shares outstanding 4,967 4,873
See accompanying notes to consolidated financial statements.
F-4
<PAGE> F-5
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
26 Weeks Ended
-----------------------
August 1, August 2,
1998 1997
Cash Flows from Operating Activities:
Loss before dividends $ (6,617) $ (5,530)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 3,494 2,479
Debt discount amortization 881 1,050
Extraordinary loss on debt extinguishment 2,750 -
Loss on disposal of equipment 148 -
Deferred rent expense (79) 235
Changes in operating assets and liabilities:
Merchandise inventories (11,044) (10,123)
Prepaid expenses (2,178) (601)
Accounts payable and accrued expenses 4,949 5,590
Other 408 954
---------- ----------
Net cash used in operating activities (7,288) (5,946)
---------- ----------
Cash Flows from Investing Activities:
Purchase of leasehold improvements
and equipment (1,979) (2,952)
---------- ----------
Net cash used in investing activities (1,979) (2,952)
---------- ----------
Cash Flows from Financing Activities:
Borrowings on revolving credit notes 163,854 161,219
Payments on revolving credit notes (149,520) (154,931)
Payments on notes payable and capital
lease obligations (1,977) (3,158)
Payment of deferred debt issuance costs (46) (113)
Net proceeds from issuance of preferred
stock - 9,596
Payment of dividends on Series A preferred stock (1,728) (1,728)
---------- ----------
Net cash provided by financing activities 10,583 10,885
---------- ----------
(continued)
F-5
<PAGE> F-6
FAMILY BARGAIN CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
(Continued)
26 Weeks Ended
-----------------------
August 1, August 2,
1998 1997
---------- ----------
Net increase in cash $ 1,316 $ 1,987
Cash at the beginning of the period 3,167 3,261
---------- ----------
Cash at the end of the period $ 4,883 $ 5,248
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 1,243 $ 1,453
Cash paid during the period for income taxes $ 74 $ -
Supplemental disclosure of non-cash investing activities:
Capital lease purchases $ 882 $ 649
Supplemental disclosure of non-cash financing activities:
Series B preferred stock dividends $ 1,431 $ 1,292
See accompanying notes to consolidated financial statements.
F-6
<PAGE> F-7
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 31, 1998 included in the Family Bargain
Corporation and Subsidiaries' (the Company) Form 10-K and 10-K/A 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 13 and 26 weeks ended August 1, 1998 and
August 2, 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) Long-term Debt and Revolving Credit Notes
On July 31, 1998 the company's two operating subsidiaries, General
Textiles and Factory 2-U, Inc., merged to form a new Delaware
corporation named General Textiles, Inc. As a result of the merger, the
Company and its lender have agreed to amend certain terms and
conditions of its revolving credit facility. Under the amended terms
and conditions, covenants will be reset to be reflective of anticipated
earnings, capital expenditures and cash flow over the remaining term of
the revolving credit facility for General Textiles, Inc.
General Textiles, Inc. finances its operations through credit provided
by suppliers, amounts borrowed under its $50.0 million revolving credit
facility and internally generated cash flow.
General Textiles, Inc. may borrow up to 65% of eligible inventory, as
defined, subject to a maximum of $50.0 million of amounts outstanding
at any time. As of August 1, 1998, General Textiles, Inc. had $27.0
million outstanding and $8.1 million available to borrow under its
revolving credit facility.
Effective April 30, 1998 the Company entered into agreements to
exchange the subordinated and junior subordinated notes for new notes.
The new notes removed an estimated excess cash flow calculation
previously used to determine the timing and amount of payments.
Further, the new notes provide a fixed schedule for debt principal
payments. In accordance with EITF 96-19, the Company recorded the
exchange of the subordinated debt agreements as an extinguishment of
debt, and in connection therewith, recorded an extraordinary loss, net
of taxes, of $2.75 million. This loss represents increases in the
present value of the principal amount of debt and fees paid to the
lenders. The fees included the issuance of 75,000 shares of common
stock and warrants to purchase 274,418 shares of common stock, both
stated at fair market value.
<PAGE> F-8
The new subordinated notes total $3.3 million and bear interest at 9.2%
per annum. Principal payments in the amount of $0.2 million are payable
on December 31, 1999 and December 31, 2000, with $0.4 million due on
December 31, 2001 and December 31, 2002 and a final payment May 28,
2003 for $2.1 million. If any principal balance remains outstanding on
April 1, 1999, the interest rate will increase on such date, and
thereafter on the first day of each successive calendar quarter by one
percent (1%) provided, however, that the interest rate shall not exceed
13.2% per annum.
The new junior subordinated notes total $17.3 million with principal
payments at December 31, 1999 and December 31, 2000 for $1.0 million,
December 31, 2001 and December 31, 2002 for $2.0 million, December 31,
2003 and December 31, 2004 for $3.0 million and a final payment May 28,
2005 for $5.335 million.
(3) 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), which the Company adopted as of January 31, 1998. This
Statement sets forth the basis for the computation of "basic" earnings
per share and "diluted" earnings per share from the previous method of
computing both "primary" and "fully diluted" earnings per share. The
statement requires retroactive adoption for all prior periods
presented.
The preferred stock and other common stock equivalents were not
considered as converted because the calculation was anti-dilutive.
(4) Provision for Income Taxes
An amount for federal alternate minimum taxes was recorded for the 26
weeks ended August 1, 1998. No other provision for income taxes has
been reflected in the accompanying consolidated statements of
operations for the 26 weeks ended August 1, 1998 and August 2, 1997
since the Company generated tax losses during these periods. Although
such losses would increase the Company's net operating loss carry
forwards (NOLs), realization of such NOLs is less than likely 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 consolidated
statements of operations.
<PAGE> F-9
(5) Dividends
The Series B Junior Convertible, Exchangeable Preferred Stock pays no
dividend through December 31, 2001. Beginning in 2002, the Company is
obligated to pay a dividend to holders of the Series B Preferred Stock
in the amount of $60 per share subject to increases of $20 per share
every year thereafter until 2005 up to a maximum of $120 per share. The
Company imputes dividends on the Series B Preferred Stock utilizing the
effective interest method to provide a level yield until the permanent
dividend of $120 per share is payable. The accreted dividends increase
the carrying value of the additional paid in capital attributable to
the Series B Preferred Stock.
(6) In June 1997, the Financial Accounting Standards Board issued SFAS No.
130 "Reporting Comprehensive Income" and SFAS No. 131 "Disclosures
about Segments of an Enterprise and Related Information." SFAS No. 130
establishes standards for reporting and display of comprehensive income
and its components in a full set of general purpose financial
statements. SFAS No. 131 requires reporting certain information about
operating segments in condensed financial statements of interim periods
issued to shareholders. Effective February 1, 1998 the Company adopted
SFAS No. 130 and SFAS No. 131. The adoption of these standards did not
have a material effect on the Company's financial position or results
of operations.
(7) Reclassifications
Certain reclassifications have been made to the January 31, 1998
amounts to conform to the August 1, 1998 presentation.
<PAGE> 3
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
General
Management's discussion of the results of operations provides analysis of the
Company's operations during the 13 and 26 weeks ended August 1, 1998 and August
2, 1997.
Results of Operations
The following discussion and analysis should be read in conjunction with the
Company's Consolidated Financial Statements and notes thereto included elsewhere
in this Form 10-Q. As of August 1, 1998 there were 162 stores in operation
versus 165 at August 2, 1997.
13 Weeks Ended August 1, 1998 Compared to the 13 Weeks Ended August 2, 1997
Net sales were $73.5 million for the 13 weeks ended August 1, 1998 compared to
$69.4 million for the 13 weeks ended August 2, 1997, an increase of $4.1
million, or 5.9%. Comparable store sales increased 5.4%.
Gross profit was $25.0 million for the 13 weeks ended August 1, 1998 compared to
$21.2 million for the 13 weeks ended August 2, 1997, an increase of
approximately $3.8 million, or 17.9% increase. As a percentage of sales, gross
profit was 34.0% for the 13 weeks ended August 1, 1998 compared to 30.6% for the
13 weeks ended August 2, 1997. The increase in the gross profit margin is
primarily attributable to a higher markup and lower shrinkage.
Selling and administrative expenses were $24.3 million for the 13 weeks ended
August 1, 1998 compared to $21.8 million for the 13 weeks ended August 2, 1997,
an increase of $2.5 million, or 11.5%. As a percentage of sales, selling and
administrative expenses were 33.1% for the 13 weeks ended August 1, 1998
compared to 31.4% for the 13 weeks ended August 2, 1997. The increase as a
percentage of sales is primarily a result of higher wage rates in stores due, in
part, to an increase in the minimum wage and increased central staffing to
complete the Company's infrastructure initiatives.
Amortization of intangibles was $0.6 million for the 13 weeks ended August 1,
1998 compared to $0.5 million for the 13 weeks ended August 2, 1997. The
increase is attributable to a non-compete agreement with the former president.
Interest expense was $1.1 million for the 13 weeks ended August 1, 1998 and $1.3
million for the 13 weeks ended August 2, 1997. The exchange of the subordinated
and junior subordinated notes for new notes, discussed in the "Liquidity and
Capital Resources" section, resulted in a lower debt discount amortization in
the current year.
Federal income taxes were accrued in anticipation of an alternate minimum tax
for fiscal 1998.
The net loss available to common stockholders was $2.7 million for the 13 weeks
ended August 1, 1998 compared to a net loss available to common stockholders of
$5.7 million for the 13 weeks ended August 2, 1997. The decrease in net loss for
the 13 weeks ended August 1, 1998 is a result of the operating factors cited
above.
<PAGE> 4
26 Weeks Ended August 1, 1998 Compared to the 26 Weeks Ended August 2, 1997
Net sales were $140.0 million for the 26 weeks ended August 1, 1998 compared to
$129.8 million for the 26 weeks ended August 2, 1997, an increase of $10.2
million, or 7.8%. Comparable store sales increased 4.5%.
Gross profit was $46.8 million for the 26 weeks ended August 1, 1998 compared to
$40.2 million for the 26 weeks ended August 2, 1997, an increase of $6.6
million, or 16.4%. As a percentage of sales, gross profit was 33.4% for the 26
weeks ended August 1, 1998 compared to 31.0% for the 26 weeks ended August 2,
1997. The increase in the gross profit margin is primarily attributable to a
higher markup and lower shrinkage.
Selling and administrative expenses were $45.5 million for the 26 weeks ended
August 1, 1998 compared to $40.3 million for the 26 weeks ended August 2, 1997,
an increase of approximately $5.2 million, or 12.9%. As a percentage of sales,
selling and administrative expenses were 32.5% for the 26 weeks ended August 1,
1998 compared to 31.1% for the 26 weeks ended August 2, 1997. The increase as a
percentage of sales is primarily a result of higher wage rates in stores due, in
part, to an increase in the minimum wage.
Amortization of intangibles was $1.2 million for the 26 weeks ended August 1,
1998 compared to $1.1 million for the 26 weeks ended August 2, 1997. The
increase is attributable to the non-compete agreement with the former president.
The special charge of $1.5 million in fiscal 1998 represents various expenses
incurred in connection with hiring the current President and CEO of General
Textiles. In fiscal 1997, a charge of $1.8 million was incurred when the former
president resigned.
Interest expense was $2.4 million for the 26 weeks ended August 1, 1998 and $2.6
million for the 26 weeks ended August 2, 1997. The exchange of the subordinated
and junior subordinated notes for new notes, discussed in the "Liquidity and
Capital Resources" section, resulted in a lower debt discount amortization in
the current year.
Federal income taxes of $0.1 million were accrued in anticipation of an
alternate minimum tax for fiscal 1998.
An extraordinary charge of $2.8 million was incurred for the 26 weeks ended
August 1, 1998 because notes payable associated with the General Textiles
bankruptcy were extinguished and new notes with terms favorable to the Company
were issued.
The net loss available to common stockholders was $9.8 million for the 26 weeks
ended August 1, 1998 compared to a net loss available to common stockholders of
$8.6 million for the 26 weeks ended August 2, 1997. The increase in net loss for
the 26 weeks ended August 1, 1998 is a result of the operating factors cited
above.
<PAGE> 5
Liquidity and Capital Resources
Family Bargain Corporation
As of August 1, 1998, Family Bargain Corporation (the "Parent") had outstanding
indebtedness in the principal amount of $0.7 million, no material change from
its debt obligations at January 31, 1998. The entire $0.7 million outstanding
principal amount is due during the next twelve months.
General Textiles, Inc.
On July 31, 1998 the company's two operating subsidiaries, General Textiles and
Factory 2-U, Inc., merged to form a new Delaware corporation named General
Textiles, Inc. As a result of the merger, the Company and its lender have agreed
to amend certain terms and conditions of its revolving credit facility. Under
the amended terms and conditions covenants will be reset to be reflective of
anticipated earnings, capital expenditures and cash flow over the remaining term
of the revolving credit facility for General Textiles, Inc.
General Textiles, Inc. finances its operations through credit provided by
suppliers, amounts borrowed under its $50.0 million revolving credit facility
and internally generated cash flow.
General Textiles, Inc. may borrow up to 65% of eligible inventory, as defined,
subject to a maximum of $50.0 million of amounts outstanding at any time. As of
August 1, 1998, General Textiles, Inc. had $27.0 million outstanding and $8.1
million available to borrow under its revolving credit facility.
Effective April 30, 1998 the Company entered into agreements to exchange the
subordinated and junior subordinated notes for new notes. The new notes removed
an estimated excess cash flow calculation previously used to determine the
timing and amount of payments. Further, the new notes provide a fixed schedule
for debt principal payments. In accordance with EITF 96-19, the Company recorded
the exchange of the subordinated debt agreements as an extinguishment of debt,
and in connection therewith, recorded an extraordinary loss, net of taxes, of
$2.75 million. This loss represents increases in the present value of the
principal amount of debt and fees paid to the lenders. The fees included the
issuance of 75,000 shares of common stock and warrants to purchase 274,418
shares of common stock, both stated at fair market value.
The new subordinated notes total $3.3 million and bear interest at 9.2% per
annum. Principal payments in the amount of $0.2 million are payable on December
31, 1999 and December 31, 2000, with $0.4 million due on December 31, 2001 and
December 31, 2002 and a final payment May 28, 2003 for $2.1 million. If any
principal balance remains outstanding on April 1, 1999, the interest rate will
increase on such date, and thereafter on the first day of each successive
calendar quarter by one percent (1%) provided, however, that the interest rate
shall not exceed 13.2% per annum.
<PAGE> 6
The new junior subordinated notes total $17.3 million with principal payments at
December 31, 1999 and December 31, 2000 for $1.0 million, December 31, 2001 and
December 31, 2002 for $2.0 million, December 31, 2003 and December 31, 2004 for
$3.0 million and a final payment May 28, 2005 for $5.335 million.
At August 1, 1998, General Textiles was obligated to non-affiliate holders of
its subordinated and junior subordinated notes in the face amount of $20.6
million with a carrying value of $13.7 million, of which management estimates
principal payments in the amount of approximately $3.3 million will be paid in
the next twelve months.
Capital Expenditures
The Company's planned future capital expenditures include costs to open new
stores, to renovate and/or relocate existing stores, to expand its central
administrative and distribution facilities and to upgrade its information
systems. Management believes that future expenditures will be financed from
internal cash flow and the revolving credit facilities. Through August 1, 1998
the Company has spent approximately $2.9 million on capital expenditures
(including capital leases). The Company anticipates spending approximately $4.0
million during the remainder of the current fiscal year.
Inflation
In general, the Company believes that it will be able to offset the effects of
inflation by increasing operating efficiency, monitoring and controlling
expenses and increasing prices to the extent permitted by competitive factors.
Seasonality and Quarterly Fluctuations
The Company historically has realized its highest level of sales and income
during the third and fourth quarters of the fiscal year (the 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
are substantially below seasonal expectations during the third and fourth
quarters, the Company's annual operating results will be adversely affected. The
Company historically has realized lower sales in its first two quarters, which
often has resulted in the Company incurring losses during those quarters.
Deferred Tax Assets
The Company has net operating loss ("NOL") carryforwards for Federal and
California income tax purposes. The utilization of these NOLs will be partially
limited due to restrictions imposed under the Federal and State laws upon a
change in ownership.
At August 1, 1998, the Company's total net deferred income tax assets, a
significant portion of which relates to NOLs discussed above, have been
subjected to a 100% valuation allowance since realization of such assets is not
likely in light of the Company's recurring losses from operations.
<PAGE> 7
Year 2000 Issue
The Company uses various computer programs that would fail to perform accurately
if not replaced before the year 2000 affects any transactions. The Company has
selected and is currently implementing a new integrated software package to
support future growth and which is capable of addressing the issues associated
with the year 2000. As part of its capital expenditure plans previously
discussed, the Company anticipates the new software installation in 1998 will
cost approximately $2 to $3 million and does not anticipate that conversion
issues will materially influence operations or operating results.
Cautionary Statement Regarding Forward-Looking Information
Statements, other than those based on historical facts, which address
activities, events or developments that the Company expects or anticipates may
occur in the future are forward-looking statements which are based upon a number
of assumptions concerning future conditions that may ultimately prove to be
inaccurate. Actual events and results may materially differ from anticipated
results described in such statements. The Company's ability to achieve such
results is subject to certain risks and uncertainties, including, but not
limited to, economic and weather conditions that affect buying patterns of the
Company's customers, changes in consumer spending and the Company's ability to
anticipate buying patterns and implement appropriate inventory strategies,
continued availability of capital and financing, competitive factors and other
factors affecting the Company's business beyond the Company's control.
Consequently, all of the forward-looking statements are qualified by these
cautionary statements and there can be no assurance that the results or
developments anticipated by the Company will be realized or that they will have
the expected effects on the Company or its business or operations.
<PAGE> 8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is at all times subject to pending and threatened legal actions,
which arise out of the normal course of business. In the opinion of management,
based in part on the advice of legal counsel, the ultimate disposition of these
matters will not have a material adverse effect on the financial position or
results of operations of the Company.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11.1 Computation of per share loss (1 page)
27 Financial Data Schedule (1 page)
(b) Reports on Form 8-K
None.
<PAGE> 9
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 3, 1998
By: /s/ Jonathan W. Spatz
Name: Jonathan W. Spatz
Title: Executive Vice President and Chief Financial Officer
(duly authorized officer and principal financial officer)
<PAGE> 10
EXHIBIT INDEX
Exhibit
Number Description Page
11.1 Computation of per share loss 11
27 Financial Data Schedule (for EDGAR filing only) 12
Family Bargain Corporation
Computation of Net Loss Per Common Share
(Dollars in Thousands, except per share data)
(Unaudited)
13 Weeks Ended 26 Weeks Ended
Aug 1, 1998 Aug 2, 1997 Aug 1, 1998 Aug 2, 1997
The computation of net
(loss) available & adjusted
shares outstanding follows:
Net loss $ (1,077) $ (4,170) $ (6,617) $ (5,530)
Less: Preferred stock dividends $ (1,592) $ (1,499) $ (3,159) $ (3,020)
Net (loss) used for basic and
diluted computation $ (2,669) $ (5,669) $ (9,776) $ (8,550)
=========== =========== =========== ===========
Weighted average number of
common shares outstanding 5,004,122 4,929,822 4,967,446 4,873,949
Add:
Assumed exercise of those
options that are common stock
equivalents
- - - -
Assumed exercise of
convertible preferred stock - - - -
Adjusted shares outstanding,
used for basic & diluted
computation 5,004,122 4,929,822 4,967,446 4,873,949
=========== =========== =========== ===========
Net loss applicable to common
stock per common & common
share equivalent $ (0.53) $ (1.15) $ (1.97) $ (1.75)
=========== =========== =========== ===========
<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 26 weeks ended August 1,
1998 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>
<CIK> 0000813775
<NAME> Family Bargain Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-1-1998
<PERIOD-END> AUG-1-1998
<CASH> 4,483
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 40,864
<CURRENT-ASSETS> 48,313
<PP&E> 25,600
<DEPRECIATION> 10,022
<TOTAL-ASSETS> 98,620
<CURRENT-LIABILITIES> 42,241
<BONDS> 0
0
36
<COMMON> 50
<OTHER-SE> 9,577
<TOTAL-LIABILITY-AND-EQUITY> 98,620
<SALES> 139,951
<TOTAL-REVENUES> 139,951
<CGS> 93,142
<TOTAL-COSTS> 93,142
<OTHER-EXPENSES> 48,205
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,372
<INCOME-PRETAX> (3,768)
<INCOME-TAX> 99
<INCOME-CONTINUING> (3,867)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,750)
<CHANGES> 0
<NET-INCOME> (6,617)
<EPS-PRIMARY> (1.97)
<EPS-DILUTED> (1.97)
</TABLE>
