-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PYfdQaYfXzdWnj5AEJprRTp/ALK3K3f/fw0l4uebBE8y8rteInUutiVcLxPEAKiz mP9QoOWWqwKECdogomT7bw== 0000813775-98-000007.txt : 19980907 0000813775-98-000007.hdr.sgml : 19980907 ACCESSION NUMBER: 0000813775-98-000007 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980801 FILED AS OF DATE: 19980904 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: FAMILY BARGAIN CORP CENTRAL INDEX KEY: 0000813775 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-FAMILY CLOTHING STORES [5651] IRS NUMBER: 510299573 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-10089 FILM NUMBER: 98704194 BUSINESS ADDRESS: STREET 1: 4000 RUFFIN ROAD STREET 2: 6TH FLR CITY: SAN DIEGO STATE: CA ZIP: 92123-1866 BUSINESS PHONE: 6196271800 MAIL ADDRESS: STREET 1: 4000 RUFFIN ROAD CITY: SAN DIEG STATE: CA ZIP: 92123-1866 FORMER COMPANY: FORMER CONFORMED NAME: DRS INDUSTRIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: LONGWOOD GROUP LTD DATE OF NAME CHANGE: 19920527 10-Q 1 2ND QUARTER 10-Q 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. 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 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 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 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 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 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 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 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. 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. 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. 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. 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. 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. 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. 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. 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. 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) 10 EXHIBIT INDEX Exhibit Number Description Page 11.1 Computation of per share loss 11 27 Financial Data Schedule (for EDGAR filing only) 12 EX-11 2 EXHIBIT 11.1 COMPUTATION OF PER SHARE LOSS 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) =========== =========== =========== =========== EX-27 3 FDS --
5 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. 0000813775 Family Bargain Corporation 1,000 6-MOS JAN-30-1999 FEB-1-1998 AUG-1-1998 4,483 0 0 0 40,864 48,313 25,600 10,022 98,620 42,241 0 0 36 50 9,577 98,620 139,951 139,951 93,142 93,142 48,205 0 2,372 (3,768) 99 (3,867) 0 (2,750) 0 (6,617) (1.97) (1.97)
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