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 October 31, 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, adjusted for a 1 for 3.32 reverse stock split,
of the registrant's of common stock, as of October 31, 1998, was 1,507,892
shares.
<PAGE> 2
FAMILY BARGAIN CORPORATION
FORM 10-Q FOR THE QUARTERLY PERIOD ENDED OCTOBER 31, 1998
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Family Bargain Corporation and Subsidiary Consolidated Balance
Sheets as of October 31, 1998 (Unaudited) and January 31, 1998 ....F-1
Family Bargain Corporation and Subsidiary Consolidated Statements
of Operations (Unaudited) for the 13 weeks ended October 31, 1998
and November 1, 1997 ..............................................F-3
Family Bargain Corporation and Subsidiary Consolidated Statements
of Operations (Unaudited) for the 39 weeks ended October 31, 1998
and November 1, 1997 ..............................................F-4
Family Bargain Corporation and Subsidiary Consolidated Statements
of Cash Flows (Unaudited) for the 39 weeks ended October 31, 1998
and November 1, 1997 ..............................................F-5
Family Bargain Corporation and Subsidiary 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 ...................................................9
Item 2. Changes in Securities................................................9
Item 3. Defaults Upon Senior Securities......................................9
Item 4. Submission of Matters to a Vote of Security Holders..................9
Item 5. Other Information ...................................................9
Item 6. Exhibits and Reports on Form 8-K ....................................9
Signatures .........................................................10
Exhibit Index ......................................................11
<PAGE> F-1
PART I
Item 1. Financial Statements
FAMILY BARGAIN CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
(in thousands, except share data)
October 31, January 31,
1998 1998
(Unaudited)
Assets
Current assets:
Cash $ 5,279 $ 3,167
Merchandise inventories 41,566 29,820
Prepaid expenses and other assets 2,828 727
--------- ---------
Total current assets 49,673 33,714
Leasehold improvements and equipment, net 16,831 15,066
Other assets, net 2,591 3,326
Excess of cost over net assets acquired,
less accumulated amortization of $8,137
and $6,935 at October 31, 1998 and
January 31, 1998, respectively 31,509 32,711
--------- ---------
Total assets $ 100,604 $ 84,817
========= =========
(continued)
F-1
<PAGE> F-2
FAMILY BARGAIN CORPORATION AND SUBSIDIARY
Consolidated Balance Sheets
(in thousands, except share data)
(continued)
October 31, January 31,
1998 1998
(Unaudited)
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt
and capital lease obligations $ 1,570 $ 4,873
Accounts payable 28,184 19,003
Accrued expenses 14,492 12,587
--------- ---------
Total current liabilities 44,246 36,463
Revolving credit notes 25,920 12,657
Long-term debt, less current maturities 14,611 12,922
Capital lease and other long-term obligations 2,882 3,306
Deferred rent 1,896 2,251
--------- ---------
Total liabilities 89,555 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 October 31, 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 October 31, 1998 and January 31, 1998, respectively - -
Common stock, $.01 par value,
80,000,000 shares authorized,
1,507,892 and 1,485,292 shares issued and outstanding
at October 31, 1998 and January 31, 1998, respectively 15 15
Stock subscription notes receivable (4,087) (2,115)
Additional paid-in capital 90,432 85,461
Accumulated deficit (75,347) (66,179)
--------- ---------
Total stockholders' equity 11,049 17,218
---------- -------
Total liabilities and stockholders' equity $ 100,604 $ 84,817
========= =========
See accompanying notes to consolidated financial statements.
F-2
<PAGE> F-3
FAMILY BARGAIN CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
13 Weeks Ended
----------------------------
October 31, November 1,
1998 1997
Net sales $ 84,978 $ 77,263
Cost of sales 56,193 50,802
--------- ---------
Gross profit 28,785 26,461
Selling and administrative expenses 24,812 22,908
Amortization of intangibles 591 589
--------- ---------
Operating income 3,382 2,964
Other expense:
Interest expense (1,071) (1,358)
---------- ---------
Income before income taxes 2,311 1,606
Income taxes (60) -
---------- ---------
Income before dividends 2,251 1,606
Preferred stock dividends - Series A (865) (864)
Preferred stock dividends - Series B (779) (671)
---------- ---------
Net income available to common stockholders $ 607 $ 71
========== =========
Basic earnings per share $ 0.40 $ 0.05
Diluted earnings per share $ 0.23 $ 0.05
Weighted average common shares outstanding:
Basic 1,508 1,485
Diluted 9,962 1,485
See accompanying notes to consolidated financial statements.
F-3
<PAGE> F-4
FAMILY BARGAIN CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
39 Weeks Ended
----------------------------
October 31, November 1,
1998 1997
Net sales $ 224,929 $ 207,074
Cost of sales 149,336 140,388
--------- ---------
Gross profit 75,593 66,686
Selling and administrative expenses 70,336 63,247
Amortization of intangibles 1,770 1,649
Special charges 1,500 1,750
--------- ---------
Operating income 1,987 40
Other expense:
Interest expense (3,443) (3,964)
---------- ----------
Loss before income taxes and
extraordinary item (1,456) (3,924)
Income taxes (159) -
---------- ----------
Loss before extraordinary item (1,615) (3,924)
Extraordinary item - debt extinguishment
(less applicable income taxes of $0) (2,750) -
---------- ----------
Loss before dividends (4,365) (3,924)
Preferred stock dividends - Series A (2,593) (2,592)
Preferred stock dividends - Series B (2,210) (1,963)
---------- ----------
Net loss available to common stockholders $ (9,168) $ (8,479)
========== ==========
Basic earnings per share:
Loss before extraordinary item $ (4.28) $ (5.75)
Extraordinary item $ (1.83) $ -
Net loss available to common stockholders $ (6.11) $ (5.75)
Weighted average common shares outstanding 1,501 1,474
See accompanying notes to consolidated financial statements.
F-4
<PAGE> F-5
FAMILY BARGAIN CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
39 Weeks Ended
----------------------------
October 31, November 1,
1998 1997
----------- -----------
Cash Flows from Operating Activities:
Loss before dividends $ (4,365) $ (3,924)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 5,258 4,307
Debt discount amortization 1,161 1,596
Extraordinary loss on debt extinguishment 2,750 -
Loss on disposal of equipment 159 94
Deferred rent expense (355) 386
Gain on repurchase of subordinated notes - (75)
Changes in operating assets and liabilities:
Merchandise inventories (11,746) (14,295)
Prepaid expenses and other assets (2,101) (669)
Accounts payable and accrued expenses 11,086 5,805
Other (798) (398)
----------- -----------
Net cash used in operating activities 1,049 (7,173)
----------- -----------
Cash Flows from Investing Activities:
Purchase of leasehold improvements
and equipment (4,299) (5,282)
----------- -----------
Net cash used in investing activities (4,299) (5,282)
----------- -----------
Cash Flows from Financing Activities:
Borrowings on revolving credit notes 253,509 248,830
Payments on revolving credit notes (240,246) (239,487)
Payments on notes payable and capital
lease obligations (5,239) (3,636)
Payment of deferred debt issuance costs (70) (196)
Net proceeds from issuance of preferred
stock - 9,594
Payment of dividends on Series A preferred stock (2,592) (2,592)
----------- ----------
Net cash provided by financing activities 5,362 12,513
----------- ----------
(continued)
F-5
<PAGE> F-6
FAMILY BARGAIN CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
(in thousands)
(Continued)
39 Weeks Ended
October 31, November 1,
1998 1997
----------- -----------
Net increase in cash $ 2,112 $ 58
Cash at the beginning of the period 3,167 3,261
-------- --------
Cash at the end of the period $ 5,279 $ 3,319
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 2,112 $ 1,991
Cash paid during the period for income taxes $ 74 $ 16
Supplemental disclosure of non-cash investing activities:
Capital lease purchases $ 936 $ 793
Supplemental disclosure of non-cash financing activities:
Series B preferred stock dividends $ 2,210 $ 1,963
See accompanying notes to consolidated financial statements.
F-6
<PAGE> F-7
FAMILY BARGAIN CORPORATION AND SUBSIDIARY
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 Subsidiary's (the Company) Form 10-K/A-2 as filed with
the Securities and Exchange Commission. The unaudited consolidated
financial statements include the accounts of Family Bargain Corporation
and it's subsidiary. All significant intercompany transactions have
been eliminated in consolidation.
In the opinion of management, the unaudited consolidated financial
statements as of and for the thirteen and thirty-nine weeks ended
October 31, 1998 and November 1, 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 (the "Subsidiary Merger"). As a
result of the Subsidiary Merger, the Company and its lender have
amended certain terms and conditions of its revolving credit facility.
Under the amended terms and conditions, covenants have been 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.
The General Textiles' bankruptcy plan of reorganization requires that
certain events, such as the Subsidiary Merger, result in the
acceleration of payment of the trade subordinated notes. The
outstanding balance of trade subordinated notes of $1.7 million was
paid in October 1998.
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 October 31, 1998, General Textiles, Inc. had $25.9
million outstanding and $15.1 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 $2.8 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.
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 $5.3 million.
At October 31, 1998, General Textiles, Inc. 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 $13.9
million.
(3) Provision for Income Taxes
The Company recorded a tax provision for federal alternate minimum
taxes for the thirty-nine weeks ended October 31, 1998. No other
provision for income taxes has been reflected in the accompanying
consolidated statements of operations for the thirty-nine weeks ended
October 31, 1998 and November 1, 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 currently considered to be 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-8
(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), 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 preferred stock and other common stock equivalents were not
considered for the thirteen week period ended November 1, 1997 and the
thirty-nine week periods ended October 31, 1998, and November 1, 1997,
as converted because the calculation was anti-dilutive. At October 31,
1998 there were 8,454,058 potentially dilutive shares of preferred
stock and other common stock equivalents (options and warrants)
outstanding.
On November 23, 1998 the Company's stockholders approved a plan of
recapitalization under which all of the Company's stock was converted
into a single class of Common Stock. As part of the recapitalization, a
1.0 for 3.32 reverse stock split was effected. Earnings per share and
shares outstanding have been restated to give effect to the reverse
split in the unaudited consolidated financial statements. See Note 7.
(5) Dividends
The Series B Junior Convertible, Exchangeable Preferred Stock pays no
dividend through December 31, 2001. Beginning in 2002, the Company was
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. See Note 7 discussing the conversion of
the Series B Junior Convertible, Exchangeable Preferred Stock in
accordance with a shareholder vote at the annual meeting.
(6) New Accounting Pronouncements
On February 1, 1998 the Company adopted SFAS No. 130, "Reporting
Comprehensive Income," which requires companies to report as
comprehensive income all changes in equity during a period except those
resulting from investments by owners and distributions to owners. The
Company had no other comprehensive income as identified in SFAS No. 130
for the periods presented in the accompanying financial statements.
<PAGE> F-9
(7) Subsequent Events
On November 23, 1998 the Company's stockholders approved a plan of
recapitalization under which all of the Company's stock was converted
into a single class of Common Stock, the subsidiary General Textiles,
Inc. was merged into the parent and the Company's name was changed to
"Factory 2-U Stores, Inc."
Under the plan of recapitalization, each share of common stock was
converted into .30133 shares of post-recapitalization Common Stock,
each share of Series A Preferred Stock was converted into one share of
post-recapitalization Common Stock and each share of Series B Preferred
Stock was converted into 173.33 shares of post-recapitalization Common
Stock. Dividends are no longer payable to the Series A Preferred
Shareholders nor will dividends be imputed for the Series B Preferred
Stock. As a result of the recapitalization, the Company has 11,306,000
shares of Common Stock outstanding. Additionally, the Company has
commenced a rights offering under which an additional 800,000 shares of
Common Stock will be sold for $13.00 per share.
The following table sets forth the Company's pro forma consolidated net
income (loss) and basic income (loss) per share for the thirteen and
thirty-nine weeks ended October 31, 1998. The pro forma results give
effect to the conversion of Series A and B preferred stock into common,
elimination of dividends and adjustment of interest expense as though
the recapitalization had occurred at February 1, 1998.
Period Ended October 31, 1998
13 Weeks 39 Weeks
(in thousands, except per share amounts)
Pro forma net income (loss) $ 2,291 $ (4,305)
Pro forma basic and diluted earnings per share:
Income (loss) before extraordinary item $ 0.20 $ (0.14)
Extraordinary item - $ (0.25)
Net income (loss) $ 0.20 $ (0.39)
Pro forma weighted average shares outstanding 11,306 11,165
Factory 2-U Stores, Inc. Common Stock began trading on a
post-recapitalization basis November 25, 1998 on the Nasdaq Small Cap
under the symbol "FTUS."
(8) Reclassifications
Certain reclassifications have been made to the January 31, 1998
amounts to conform to the October 31, 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 39 weeks ended October 31, 1998 and
November 1, 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 October 31, 1998 there were 168 stores in operation
versus 168 at November 1, 1997.
13 Weeks Ended October 31, 1998 Compared to the 13 Weeks Ended November 1, 1997
Net sales were $85.0 million for the 13 weeks ended October 31, 1998 compared to
$77.3 million for the 13 weeks ended November 1, 1997, an increase of $7.7
million, or 10.0%. Comparable store sales increased 11.4%.
Gross profit was $28.8 million for the 13 weeks ended October 31, 1998 compared
to $26.5 million for the 13 weeks ended November 1, 1997, an increase of
approximately $2.3 million, or 8.7% increase. As a percentage of sales, gross
profit was 33.9% for the 13 weeks ended October 31, 1998 compared to 34.2% for
the 13 weeks ended November 1, 1997. The decrease in the gross profit margin as
a percentage of sales is primarily attributable to higher markdowns.
Selling and administrative expenses were $24.8 million for the 13 weeks ended
October 31, 1998 compared to $22.9 million for the 13 weeks ended November 1,
1997, an increase of $1.9 million, or 8.3%. As a percentage of sales, selling
and administrative expenses were 29.2% for the 13 weeks ended October 31, 1998
compared to 29.6% for the 13 weeks ended November 1, 1997. The decrease as a
percentage of sales is primarily a result of operating leverage from increased
comparable store sales in relation to fixed occupancy costs as well as lower
preopening costs partially offset by higher advertising and administrative
support expenses.
Amortization of intangibles was $0.6 million for the 13 weeks ended October 31,
1998 and for the 13 weeks ended November 1, 1997.
Interest expense was $1.1 million for the 13 weeks ended October 31, 1998 and
$1.4 million for the 13 weeks ended November 1, 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 income available to common stockholders was $0.6 million for the 13
weeks ended October 31, 1998 compared to net income available to common
stockholders of $0.1 million for the 13 weeks ended November 1, 1997. The
increase in net income for the 13 weeks ended October 31, 1998 is a result of
the operating factors cited above.
<PAGE> 4
39 Weeks Ended October 31, 1998 Compared to the 39 Weeks Ended November 1, 1997
Net sales were $224.9 million for the 39 weeks ended October 31, 1998 compared
to $207.1 million for the 39 weeks ended November 1, 1997, an increase of $17.8
million, or 8.6%. Comparable store sales increased 7.1%.
Gross profit was $75.6 million for the 39 weeks ended October 31, 1998 compared
to $66.7 million for the 39 weeks ended November 1, 1997, an increase of $8.9
million, or 13.3%. As a percentage of sales, gross profit was 33.6% for the 39
weeks ended October 31, 1998 compared to 32.2% for the 39 weeks ended November
1, 1997. The increase in the gross profit margin is primarily attributable to
lower shrinkage and higher markup partially offset by higher markdowns.
Selling and administrative expenses were $70.3 million for the 39 weeks ended
October 31, 1998 compared to $63.2 million for the 39 weeks ended November 1,
1997, an increase of approximately $7.1 million, or 11.2%. As a percentage of
sales, selling and administrative expenses were 31.3% for the 39 weeks ended
October 31, 1998 compared to 30.5% for the 39 weeks ended November 1, 1997. The
increase as a percentage of sales is primarily a result of higher store wage
rates, due in part to an increase in the minimum wage, and increased
administrative support expenses.
Amortization of intangibles was $1.8 million for the 39 weeks ended October 31,
1998 compared to $1.6 million for the 39 weeks ended November 1, 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 $3.4 million for the 39 weeks ended October 31, 1998 and
$4.0 million for the 39 weeks ended November 1, 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 $0.2 million were accrued in anticipation of an
alternate minimum tax for fiscal 1998.
An extraordinary charge of $2.8 million was incurred for the 39 weeks ended
October 31, 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 $9.2 million for the 39 weeks
ended October 31, 1998 compared to a net loss available to common stockholders
of $8.5 million for the 39 weeks ended November 1, 1997. The increase in net
loss for the 39 weeks ended October 31, 1998 is a result of the operating
factors cited above.
<PAGE> 5
Liquidity and Capital Resources
On November 23, 1998 the Company's stockholders approved a plan of
recapitalization under which all of the Company's stock was converted into a
single class of Common Stock, the subsidiary General Textiles, Inc. was merged
into the parent and the Company's name was changed to "Factory 2-U Stores, Inc."
Under the plan of recapitalization, each share of common stock was converted
into .30133 shares of post-recapitalization Common Stock, each share of Series A
Preferred Stock was converted into one share of post-recapitalization Common
Stock and each share of Series B Preferred Stock was converted into 173.33
shares of post-recapitalization Common Stock. Dividends are no longer payable to
the Series A Preferred Shareholders nor will dividends be imputed for the Series
B Preferred Stock. As a result of the recapitalization, the Company has
11,306,000 shares of Common Stock outstanding. Additionally, the Company has
commenced a rights offering under which an additional 800,000 shares of Common
Stock will be sold for $13.00 per share.
The following table sets forth the Company's pro forma consolidated net income
(loss) and basic income (loss) per share for the thirteen and thirty-nine weeks
ended October 31, 1998. The pro forma results give effect to the conversion of
Series A and B preferred stock into common, elimination of dividends and
adjustment of interest expense as though the recapitalization had occurred at
February 1, 1998.
Period Ended October 31, 1998
13 Weeks 39 Weeks
(in thousands, except per share amounts)
Pro forma net income (loss) $ 2,291 $ (4,305)
Pro forma basic and diluted earnings per share:
Income (loss) before extraordinary item $ 0.20 $ (0.14)
Extraordinary item - $ (0.25)
Net income (loss) $ 0.20 $ (0.39)
Pro forma weighted average shares outstanding 11,306 11,165
Factory 2-U Stores, Inc.Common Stock began trading on a post-recapitalization
basis November 25, 1998 on the Nasdaq Small Cap under the symbol "FTUS."
Family Bargain Corporation
As of October 31, 1998, Family Bargain Corporation (the "Parent") had no
outstanding indebtedness compared to its debt obligations at January 31, 1998 of
$0.7 million.
<PAGE> 6
General Textiles, Inc.
On July 31, 1998, the Company's two operating subsidiaries, General Textiles and
Factory 2-U, Inc., merged (the Subsidiary Merger) to form a new Delaware
corporation named General Textiles, Inc. As a result of the Subsidiary Merger,
the Company and its lender have amended certain terms and conditions of its
revolving credit facility. Under the amended terms and conditions covenants have
been 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.
The General Textiles' bankruptcy plan of reorganization requires that certain
events, such as the Subsidiary Merger, result in the acceleration of payment of
the trade subordinated notes. The outstanding balance of trade subordinated
notes of $1.7 million was paid in October 1998.
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 o
October 31, 1998, General Textiles, Inc. had $25.9 million outstanding and $15.1
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
$2.8 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.
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 $5.3 million.
At October 31, 1998, General Textiles, Inc. 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 $13.9 million.
<PAGE> 7
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 October 31, 1998
the Company has spent approximately $5.2 million on capital expenditures
(including capital leases). The Company anticipates spending approximately $1.7
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 October 31, 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.
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 $2.0 to $3.0 million and does not anticipate that conversion
issues will materially influence operations or operating results.
<PAGE> 8
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> 9
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> 10
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 7, 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> 11
EXHIBIT INDEX
Exhibit
Number Description Page
11.1 Computation of per share loss 12
27 Financial Data Schedule (for EDGAR filing only) 13
13 Weeks Ended 39 Weeks Ended
-------------- --------------
Oct 31, 1998 Nov 1, 1997 Oct 31, 1998 Nov 1, 1997
------------ ----------- ------------ -----------
The computation of net (loss)
available & adjusted shares
outstanding follows:
Net income (loss) $ 2,251 $ 1,607 $ (4,365) $ (3,923)
Less: Preferred stock dividends $ (1,644) $ (1,536) $ (4,803) $ (4,556)
--------- --------- --------- ---------
Net (loss) used for basic and
diluted computation $ 607 $ 71 $ (9,168) $ (8,479)
========= ========= ========= =========
Weighted average number of
common shares outstanding 1,507,892 1,485,292 1,500,524 1,474,102
Basic:
Net income (loss) applicable to
common stock per common & common
share equivalent $ 0.40 $ 0.05 $ (6.11) $ (5.75)
Add:
Assumed exercise of those options
that are common stock equivalents 12,305 - - -
Assumed exercise of convertible
preferred stock:
Series A Preferred 2,807,999 - - -
Series B Preferred 5,633,754 - - -
--------- --------- --------- ----------
Adjusted shares outstanding,
used for diluted computation 9,961,951 1,485,292 1,500,524 1,474,102
========= ========= ========= ==========
Diluted:
Net income (loss) applicable to
common stock per common &
common share equivalent $ 0.23 $ 0.05 $ (6.11) $ (5.75)
========= ========= ========== ==========
Weighted average number of common shares outstanding restated for reverse stock
split (factor is .30133) effective November 25, 1998.
<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 39 weeks ended
October 31, 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> 9-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> AUG-2-1998
<PERIOD-END> OCT-31-1998
<CASH> 5,279
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 41,566
<CURRENT-ASSETS> 49,673
<PP&E> 27,933
<DEPRECIATION> 11,102
<TOTAL-ASSETS> 100,604
<CURRENT-LIABILITIES> 44,246
<BONDS> 0
0
36
<COMMON> 15
<OTHER-SE> 10,998
<TOTAL-LIABILITY-AND-EQUITY> 100,604
<SALES> 224,929
<TOTAL-REVENUES> 224,929
<CGS> 149,336
<TOTAL-COSTS> 149,336
<OTHER-EXPENSES> 73,606
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,443
<INCOME-PRETAX> (1,456)
<INCOME-TAX> 159
<INCOME-CONTINUING> (1,615)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,750)
<CHANGES> 0
<NET-INCOME> (9,168)
<EPS-PRIMARY> (6.11)
<EPS-DILUTED> (6.11)
</TABLE>
