1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
FORM 8-K/A NO. 1
TO FORM 8-K DATED OCTOBER 2, 1994
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
----------------------------------------------------------------------
FABRI-CENTERS OF AMERICA, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Date of Report December 12, 1994
- - -------------------------------------------------------------------------------
Ohio 1-6695 34-0720629
- - -------------------------------------------------------------------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
5555 Darrow Road, Hudson, Ohio 44236
- - -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (216) 656-2600
--------------
(Former name or former address, if changed since last report) Not applicable
--------------
The undersigned registrant hereby amends the following items,
financial statements, exhibits or other portions of its Current Report on
Form 8-K dated October 2, 1994 as set forth in the pages attached hereto:
(List all such items, financial statements, exhibits or other portions amended)
Item 7
Exhibit 10(a)
The Exhibit Index is located on sequential page 4.
Sequential Page 1 of 126
2
Pursuant to Item 7(a)(4) and Item 7(b)(2) of Form 8-K as promulgated by
the Securities and Exchange Commission, the registrant is hereby providing
the financial statements and pro forma financial information required by
Item 7 of Form 8-K by this amendment to the registrant's Current Report
on Form 8-K dated October 2, 1994.
Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial statements of acquired business
Condensed Balance Sheet (unaudited) as of July 30, 1994 . . . . . . . . F-1
Condensed Statements of Income and Net Investment in Division
(unaudited) for the fiscal six month periods ended July 30, 1994
and July 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Condensed Statements of Cash Flow (unaudited) for the fiscal
six month periods ended July 30, 1994 and July 31, 1993 . . . . . . . F-3
Notes to Condensed Financial Statements (unaudited) . . . . . . . . . . F-4
Report of Independent Auditors (Ernst & Young LLP) . . . . . . . . . . . F-5
Balance Sheets as of January 29, 1994 and January 30, 1993 . . . . . . . F-6
Statements of Income and Net Investment in Division for the
fiscal years ended January 29, 1994 and January 30, 1993 . . . . . . . F-7
Statements of Cash Flow for the fiscal years ended January 29, 1994
and January 30, 1993 . . . . . . . . . . . . . . . . . . . . . . . . F-8
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . F-9
(b) Pro forma financial information
Introduction to Pro Forma Combined Financial Statements (unaudited) . . P-1
Pro Forma Combined Balance Sheet (unaudited) as of July 30, 1994 . . . P-2
Pro Forma Combined Statements of Income (unaudited)
for the twenty-six weeks ended July 30, 1994 . . . . . . . . . . . . . P-3
Pro Forma Combined Statements of Income (unaudited) for
the fiscal year ended January 29, 1994 . . . . . . . . . . . . . . . . P-4
Notes to Pro Forma Combined Financial Statements (unaudited) . . . . . . P-5
(c) Exhibits
See the Exhibit Index at sequential page 4 of this report.
PAGE 2 OF 126
3
SIGNATURE
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 hereunto duly authorized.
FABRI-CENTERS OF AMERICA, INC.
DATE: December 12, 1994 /s/ Alan Rosskamm
_________________________________
BY: Alan Rosskamm
Chairman, President and Chief
Executive Officer
/s/ Robert Norton
_________________________________
BY: Robert Norton
Vice Chairman and Chief Financial
Officer
PAGE 3 OF 126
4
FABRI-CENTERS OF AMERICA, INC.
FORM 8-K/A No. 1 AMENDMENT TO APPLICATION OR REPORT
EXHIBIT INDEX
Exhibit No. Description Page No.
----------- ------------- --------
10(a) Credit Agreement dated as of September 30, 25
1994 among Fabri-Centers of America, Inc.
as borrower, the Banks which are Signatories
thereto and Society National Bank, as Agent.
10(b) Form of Employment Agreement between the *
Registrant and each of the following Executive
Official Officers: Alan Rosskamm, Robert
Norton, Donald Richey and Jane Aggers
23 Consent of Independent Auditors (Ernst & 126
Young LLP)
<FN>
* Incorporated by reference to an Exhibit in the Registrant's Form 8-K
filed with the Commission on December 1, 1993
PAGE 4 OF 126
5
CLOTH WORLD DIVISION OF BROWN GROUP, INC.
CONDENSED BALANCE SHEET
(Unaudited)
Thousands
July 30, 1994
--------------
ASSETS
CURRENT ASSETS
Merchandise inventories, net of adjustment to last-in, first-out cost
of $9,562 $ 82,265
Prepaid expenses and other current assets 2,943
--------
TOTAL CURRENT ASSETS 85,208
DUE FROM AFFILIATES 60,945
OTHER ASSETS 43
FIXED ASSETS 10,221
--------
TOTAL ASSETS $156,417
========
LIABILITIES AND NET INVESTMENT IN DIVISION
CURRENT LIABILITIES
Trade accounts payable $ 21,061
Employee compensation and benefits 2,888
Accrued sales, personal property and real estate taxes 3,422
Income taxes (24)
Deferred income taxes 1,426
Other accrued expenses 3,343
--------
TOTAL CURRENT LIABILITIES 32,116
OTHER LIABILITIES 1,175
DEFERRED INCOME TAXES (35)
NET INVESTMENT IN DIVISION 123,161
--------
TOTAL LIABILITIES AND NET INVESTMENT IN DIVISION $156,417
========
See notes to financial statements.
F-1
PAGE 5 OF 126
6
CLOTH WORLD DIVISION OF BROWN GROUP, INC.
CONDENSED STATEMENTS OF INCOME AND NET INVESTMENT IN DIVISION
(Unaudited)
Thousands
Six Months Ended
------------------------------
July 30, 1994 July 31, 1993
------------- -------------
NET SALES $ 103,525 $ 108,358
Cost of goods sold 55,644 56,594
------------- -------------
Gross profit 47,881 51,764
------------- -------------
Selling and administrative expenses 47,536 49,560
Interest expense 152 154
Other expense (income) -- net (188) 22
------------- -------------
47,500 49,736
------------- -------------
EARNINGS BEFORE INCOME TAXES 381 2,028
Income taxes (42) 727
------------- -------------
NET EARNINGS $ 423 $ 1,301
============= =============
BEGINNING NET INVESTMENT IN DIVISION $ 122,738 $ 119,555
------------- -------------
ENDING NET INVESTMENT IN DIVISION $ 123,161 $ 120,856
============= =============
See notes to financial statements.
F-2
PAGE 6 OF 126
7
CLOTH WORLD DIVISION OF BROWN GROUP, INC.
CONDENSED STATEMENTS OF CASH FLOW
(Unaudited)
Thousands
Six Months Ended
---------------------------------
July 30, 1994 July 31, 1993
------------- -------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $ 4,506 $(6,839)
INVESTING ACTIVITIES:
Capital expenditures (1,041) (1,329)
------- -------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES (1,041) (1,329)
------- -------
FINANCING ACTIVITIES:
Net change in due from affiliates (3,465) 8,168
------- -------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (3,465) 8,168
------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 0 0
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 0 0
------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 0 $ 0
======= ========
See notes to financial statements.
F-3
PAGE 7 OF 126
8
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE A - BASIS OF PRESENTATION
The accompanying condensed financial statements have been prepared in
accordance with generally accepted accounting principles and reflect all
adjustments which management believes necessary (which include only normal
recurring accruals and the effect on LIFO inventory valuation of estimated
annual inflationary cost increases and year-end inventory levels) to present
fairly the results of operations. These statements, however, do not include
all information and footnotes necessary for a complete presentation of
financial position, results of operations and cash flow in conformity with
generally accepted accounting principles.
The Division's business is subject to seasonal influences, and interim results
may not necessarily be indicative of the results which may be expected for any
other interim period or for the year as a whole.
For further information refer to the financial statements and footnotes
for the Cloth World Division of Brown Group, Inc. for the period ended
January 29, 1994 included herein.
NOTE B - INVENTORIES
All inventories are valued at the lower of cost or market using the last-in,
first-out (LIFO) method. If the first-in, first-out (FIFO) cost method had
been used, inventories would have been $9,562,000 higher at July 30, 1994.
NOTE C - SALE OF CLOTH WORLD
On August 25, 1994, Brown Group, Inc., announced an agreement to sell
substantially all of the assets, net of certain liabilities to be assumed, of
its Cloth World Division to Fabri-Centers of America, Inc. The transaction
was completed on October 2, 1994.
F-4
PAGE 8 OF 126
9
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Brown Group, Inc.
We have audited the accompanying balance sheets of the Cloth World Division of
Brown Group, Inc. as of January 29, 1994 and January 30, 1993, and the related
statements of income and net investment in division, and cash flows for the
years then ended. These financial statements are the responsibility of the
Division's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Cloth World Division of
Brown Group, Inc. at January 29, 1994 and January 30, 1993, and the results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
St. Louis, Missouri ERNST & YOUNG LLP
November 21, 1994
F-5
PAGE 9 OF 126
10
CLOTH WORLD DIVISION OF BROWN GROUP, INC.
BALANCE SHEETS
Thousands
January 29, 1994 January 30, 1993
---------------- ----------------
ASSETS
CURRENT ASSETS
Cash $ (1,639) $ (3,912)
Merchandise inventories, net of adjustment to last-in, first-out cost
of $9,184 in 1993 and $10,135 in 1992 85,827 76,326
Prepaid expenses and other current assets 3,492 3,655
------------- -------------
TOTAL CURRENT ASSETS 87,680 76,069
DUE FROM AFFILIATES 57,480 64,485
OTHER ASSETS 42 39
FIXED ASSETS 11,029 11,416
------------- -------------
TOTAL ASSETS $ 156,231 $ 152,009
============= =============
LIABILITIES AND NET INVESTMENT IN DIVISION
CURRENT LIABILITIES
Trade accounts payable $ 20,711 $ 17,856
Employee compensation and benefits 3,248 3,416
Accrued sales, personal property, and real estate taxes 3,080 3,180
Deferred income taxes 1,426 1,272
Facilities closing reserves 1,035 1,994
Income taxes 178 455
Other accrued expenses 2,695 3,077
------------- -------------
TOTAL CURRENT LIABILITIES 32,373 31,250
OTHER LIABILITIES 1,155 1,111
DEFERRED INCOME TAXES (35) 93
NET INVESTMENT IN DIVISION 122,738 119,555
------------- -------------
TOTAL LIABILITIES AND NET INVESTMENT IN DIVISION $ 156,231 $ 152,009
------------- -------------
See notes to financial statements.
F-6
PAGE 10 OF 126
11
CLOTH WORLD DIVISION OF BROWN GROUP, INC.
STATEMENTS OF INCOME AND NET INVESTMENT IN DIVISION
Thousands
1993 1992
--------- ---------
NET SALES $ 224,066 $ 223,907
Cost of goods sold 118,756 117,546
--------- ---------
Gross profit 105,310 106,361
--------- ---------
Selling and administrative expenses 100,775 98,254
Interest expense 257 561
Other expense (income) -- net 24 (394)
--------- ---------
101,056 98,421
--------- ---------
EARNINGS BEFORE INCOME TAXES 4,254 7,940
Income taxes 1,071 2,351
--------- ---------
NET EARNINGS $ 3,183 $ 5,589
========= =========
BEGINNING NET INVESTMENT IN DIVISION $ 119,555 $ 113,966
---------- ---------
ENDING NET INVESTMENT IN DIVISION $ 122,738 $ 119,555
========== =========
See notes to financial statements.
F-7
PAGE 11 OF 126
12
CLOTH WORLD DIVISION OF BROWN GROUP, INC.
STATEMENTS OF CASH FLOW
Thousands
1993 1992
--------- ---------
OPERATING ACTIVITIES
Net earnings $ 3,183 $ 5,589
Adjustments to reconcile net earnings to net cash provided
(used) by operating activities:
Depreciation and amortization 2,947 2,793
Loss on disposition of fixed assets 368 132
Changes in operating assets and liabilities:
Inventories (9,501) (1,915)
Prepaid expenses and other current assets 163 (907)
Trade accounts payable and accrued expenses 1,246 3,092
Income taxes (277) 828
Other, net 200 (191)
--------- ---------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES (1,671) 9,421
INVESTING ACTIVITIES
Capital expenditures (3,061) (4,664)
--------- ---------
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES (3,061) (4,664)
--------- ---------
FINANCING ACTIVITIES
Net change in due from affiliates 7,005 (5,271)
--------- ---------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 7,005 (5,271)
--------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2,273 (514)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR (3,912) (3,398)
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ (1,639) $ (3,912)
========= =========
See notes to financial statements.
F-8
PAGE 12 OF 126
13
NOTES TO FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements include the accounts of the Cloth World Division (the
Division) of Brown Group, Inc. The Division is a 342-store chain of retail
stores featuring quality apparel fabrics, home decorating, soft crafts, and
sewing supplies at competitive prices.
On August 25, 1994, Brown Group, Inc., announced an agreement to sell
substantially all of the assets, net of certain liabilities to be assumed, of
its Cloth World Division to Fabri-Centers of America, Inc. The transaction was
completed on October 2, 1994.
ACCOUNTING PERIOD
The Division's fiscal year is the 52 or 53 week period ending the Saturday
nearest to January 31. Fiscal years 1993 and 1992 ended on January 29, 1994
and January 30, 1993, respectively. Fiscal years 1993 and 1992 each included
52 weeks.
INVENTORIES
All inventories are valued at the lower of cost or market using the last-in,
first-out (LIFO) method. If the first-in, first-out (FIFO) cost method had
been used, inventories would have been $9,184,000 and $10,135,000 higher at
January 29, 1994 and January 30, 1993, respectively.
FIXED ASSETS
Fixed assets are stated at cost and consist primarily of leasehold improvements
and fixtures. Depreciation and amortization of fixed assets are provided over
the estimated useful lives of the assets, or the remaining term of leases where
applicable, using the straight-line method.
INCOME TAXES
Provision is made for the tax effects of timing differences between financial
and tax reporting. These differences relate principally to depreciation and
inventory.
PREOPENING AND CLOSING EXPENSES
Preopening expenses of new facilities are charged to operations when incurred.
Costs of closing facilities, including capital asset disposition losses, and
lease termination costs, are accrued when management makes the decision to
close such facilities.
F-9
PAGE 13 OF 126
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NOTE 2: TRANSACTIONS WITH AFFILIATES
Due from affiliates consists of a noninterest-bearing receivable from Brown
Group, Inc., and represents the net accumulated balance resulting from various
transactions between the Division and Brown Group, Inc. The balance is
primarily the result of the Division's participation in a central cash
management program, under which all cash receipts are remitted to Brown Group,
Inc., and all cash disbursements are funded by Brown Group, Inc. In addition,
it reflects certain costs charged to the Division for which no cash is
transferred. These costs include income tax payments, employee benefits,
insurance, and administrative services.
Brown Group, Inc., charges the Division for various insurance and employee
benefit programs sponsored by Brown Group, Inc. in which the Division and its
employees participate. These charges totaled $6,845,153 and $5,845,313 in 1993
and 1992, respectively. The benefit plans include health and life insurance,
pension, savings, and postretirement and postemployment; see Note 3 for a
description of some of these plans. Insurance programs include casualty,
workers' compensation, property, and umbrella coverage.
Additionally, Brown Group, Inc., provides the Division with various
administrative services, for which the Division is charged associated costs
based upon approximate usage of these services. The administrative services
provided include payroll and tax accounting, risk management, distribution,
employee benefit management, administrative offices facility management, and
certain computer services. Charges for these services totaled $1,944,725 and
$2,084,460 in 1993 and 1992, respectively. Such charges may not be
representative of administrative expenses that would be incurred if the
Division operated as a stand-alone company.
Included in fixed assets is an allocated portion of Brown Group, Inc.'s office
building, in which the Division's administrative offices are located. The net
amount allocated to the Division is based upon square footage occupied and was
$1,116,000 in 1993 and $1,173,000 in 1992, the related expenses for which are
included in the administrative services charge above.
NOTE 3: RETIREMENT AND OTHER BENEFIT PLANS
PENSIONS
Substantially all full-time employees of the Division are covered under several
noncontributory pension plans sponsored by Brown Group, Inc. Plans covering
salaried and management employees provide pension benefits that are based on
the employee's highest consecutive five years of compensation during the ten
years before retirement. Plans covering hourly employees generally provide
benefits of stated amounts for each year of service. Brown Group, Inc.'s
funding policy for all plans is to make the minimum annual contributions
required by applicable regulations.
F-10
PAGE 14 OF 126
15
The following table sets forth Brown Group, Inc.'s plans' funded status at the
December 31, 1993 and 1992 measurement dates, and amounts recognized in Brown
Group, Inc.'s Balance Sheet at January 29, 1994 and January 30, 1993, as this
information is not practical to accumulate for the Division alone (in
thousands):
1993 1992
-------- --------
Actuarial present value of benefit obligations:
Vested benefit obligations $118,243 $114,982
======== ========
Accumulated benefit obligations $123,289 $118,025
======== ========
Projected benefit obligations $138,930 $133,422
Plan assets at fair value 188,338 175,662
-------- --------
Excess of plan assets over
projected benefit obligation 49,408 42,240
Unrecognized net gain (20,420) (10,617)
Unrecognized prior service costs 7,123 4,695
Unrecognized net transition assets (7,015) (10,067)
-------- --------
Net pension asset recognized in the balance sheet $29,096 $ 26,251
======== ========
Actuarial assumptions used were as follows:
Discount rate 7.25% 7.5%
Expected return on plan assets 9.5% 9.5%
Compensation increase 5.0% 5.0%
Pension plan assets are invested primarily in listed stocks and bonds. The
plan assets are valued using the current market value for bonds and a five-year
moving average for equities.
Prior service costs are amortized over the average remaining service period of
employees expected to receive benefits under the plan.
The Division realized pension income of $48,000 in 1993 and $90,000 in 1992.
No pension asset has been recognized in the balance sheet of the Division.
SAVINGS PLAN
All management and full-time office employees of the Division are eligible to
participate in a defined contribution 401(k) plan sponsored by Brown Group,
Inc. The plan covers salaried, management, and certain hourly employees who
have one year of service and who
F-11
PAGE 15 OF 126
16
are 21 years of age. Division contributions represent a partial matching of
employee contributions generally up to a maximum of 3.5% of the employee's
salary. The Division's expense for this plan was $264,000 in 1993 and $257,000
in 1992.
NOTE 4: INCOME TAXES
- - --------------------
INCOME TAXES
The Division is included in Brown Group, Inc.'s consolidated federal income tax
return for all periods presented. Income taxes are accounted for under the
provisions of Statement of Financial Accounting Standards (SFAS) No. 109,
"Accounting for Income Taxes," which Brown Group, Inc., adopted in fiscal 1991.
SFAS No. 109 requires the adjustment of previously deferred taxes for changes
in tax rates under the liability method. The accompanying financial statements
reflect income tax expense based on a tax sharing arrangement between the
companies. Under the arrangement, the income tax provision reflects the
financial consequences of all income, deductions, and credits which can be
utilized on a separate return basis or in consolidation with Brown Group, Inc.,
and which are assured of realization.
The components of income tax expense (benefit) are as follows (in thousands):
1993 1992
--------- ---------
FEDERAL
Current payable $ 1,684 $ 2,778
Deferred 75 (15)
--------- ---------
1,759 2,763
STATE (688) (412)
--------- ---------
TOTAL INCOME TAX EXPENSE $ 1,071 $ 2,351
========= =========
Cash payments of income taxes, made on behalf of the Division by Brown Group,
Inc., for fiscal 1993 and 1992 were $1,387,834 and $2,393,001, respectively.
The differences between the income tax expense (benefit) reflected in the
financial statements and the amounts calculated at the federal statutory income
tax rate of 35% in 1993 and 34% in 1992 are as follows (in thousands):
F-12
PAGE 16 OF 126
17
1993 1992
--------- ---------
Income taxes at statutory rate $ 1,489 $ 2,700
State income taxes, net of federal tax benefit (447) (272)
Effect of revaluation of net deferred tax liabilities
due to 1993 increase in federal tax rate from
34% to 35% 43 --
Other (14) (77)
-------- ---------
$ 1,071 $ 2,351
======== =========
Significant components of the Division's deferred income tax assets and
liabilities are as follows (in thousands):
1993 1992
--------- ---------
DEFERRED TAX ASSETS
Employee benefits, compensation, and insurance $ 412 $ 319
Inventory capitalization and inventory reserves 689 392
Store closing reserves 380 661
Other 61 6
-------- ---------
TOTAL DEFERRED TAX ASSETS 1,542 1,378
DEFERRED TAX LIABILITIES
Excess depreciation (288) (344)
LIFO inventory valuation (2,502) (2,334)
Other (143) (65)
-------- ---------
TOTAL DEFERRED TAX LIABILITIES (2,933) (2,743)
-------- ---------
NET DEFERRED TAX LIABILITY $ (1,391) $ (1,365)
======== =========
No valuation reserve has been provided for these deferred tax assets at January
29, 1994 as full realization of these assets is expected.
F-13
PAGE 17 OF 126
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NOTE 5: FIXED ASSETS
- - ---------------------
Fixed assets consist of the following (in thousands):
January 29, January 30,
1994 1993
----------- -----------
Land $ 20 $ 20
Buildings and leasehold improvements 11,854 10,968
Machinery and equipment 22,875 22,473
--------- ---------
34,749 33,461
Allowances for depreciation and amortization (23,720) (22,045)
--------- ---------
$ 11,029 $ 11,416
========= =========
NOTE 6: LEASES
- - --------------
The Division leases substantially all of its retail locations and certain other
equipment and facilities. Approximately two-thirds of the retail store leases
are subject to renewal options for varying periods.
In addition to minimum rental payments, certain of the retail store leases
require contingent payments based on sales levels.
Rent expense from operations for operating leases amounted to (in thousands):
1993 1992
--------- ---------
Minimum payments $ 18,184 $ 17,614
Contingent payments 113 112
--------- ---------
$ 18,297 $ 17,726
========= =========
Rent expense has been reduced by rental income from subleases of $99,000 in
1993 and $152,000 in 1992.
F-14
PAGE 18 OF 126
19
Future minimum payments under noncancelable operating leases with an initial
term of one year or more were as follows at January 29, 1994 (in thousands):
Operating
Leases
---------
1994 $ 17,518
1995
16,378
1996
14,712
1997
12,604
1998
10,275
Thereafter 29,905
--------
Total minimum lease payments $101,392
========
F-15
PAGE 19 OF 126
20
INTRODUCTION TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(Unaudited)
On October 2, 1994, the Company acquired substantially all of
the assets of Cloth World, a division of Brown Group Inc. ("Cloth World") for
approximately $100 million in cash and the assumption of certain liabilities.
The final purchase price is subject to post-closing adjustments. The funds
used to acquire Cloth World were provided by internally generated funds and
borrowings under the credit facility. The acquisition has been recorded using
the purchase method, and accordingly, the results of operations of Cloth World
have been included in the Company's consolidated financial statements since the
date of acquisition. The purchase price allocation has been based on
preliminary estimates which may be revised at a later date; however, the effect
of any revisions on the results of operations would not be material.
The unaudited Pro Forma Combined Balance Sheet as of July 30,
1994 gives effect to material events that are directly attributable to the
acquisition as if it had occurred on July 30, 1994. The unaudited Pro Forma
Combined Statements of Income for the twenty-six weeks ended July 30, 1994 and
the fiscal year ended January 29, 1994 give effect to material events that are
directly attributable to the acquisition as if it had occurred on January 31,
1993.
The unaudited pro forma financial information is presented for
informational purposes only and is not necessarily indicative of the operating
results that would have occurred had the Cloth World acquisition been
consummated at the beginning of the periods presented. In addition, they are
not intended to be a projection of future results and do not reflect synergies
that might be achieved from combined operations.
P-1
PAGE 20 OF 126
21
FABRI-CENTERS OF AMERICA, INC.
PRO FORMA COMBINED BALANCE SHEET (UNAUDITED)
AS OF JULY 30, 1994
(THOUSANDS OF DOLLARS)
FABRI-CENTERS
OF AMERICA CLOTH WORLD PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------- ----------- ----------- ---------
ASSETS
Current assets:
Cash $ 6,082 $ -- $ 171 (A) $ 6,253
Merchandise inventories 239,406 82,265 10,300 (B) 331,971
Prepaid expenses and other current assets 9,045 2,943 (31)(A) 11,957
Deferred income taxes 7,936 -- 705 (E) 8,641
----------- ---------- ---------- ----------
Total current assets 262,469 85,208 11,145 358,822
Property and equipment, net 74,647 10,221 (671)(A) 84,197
Due from Affiliates -- 60,945 (60,945)(A) --
Mortgage receivable 7,802 -- -- 7,802
Other assets 8,620 43 -- 8,663
----------- ---------- ---------- ----------
Total assets $ 353,538 $ 156,417 $ (50,471) $ 459,484
=========== ========== ========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 77,384 21,061 (2,177)(A) 96,268
Accrued expenses 9,525 9,629 (3,037)(A) 25,317
9,200 (C)
Deferred income taxes -- 1,426 (1,426)(A) --
----------- ---------- ---------- ----------
Total current liabilities 86,909 32,116 2,560 121,585
Long-term debt 57,900 -- 69,390 (D) 127,290
Convertible subordinated debentures 56,983 -- -- 56,983
Deferred income taxes 8,499 (35) 35 (A) 9,204
705 (E)
Other long-term liabilities 97 1,175 -- 1,272
Investment in Division 123,161 (123,161)(A) --
Shareholders' equity 143,150 -- -- 143,150
----------- ---------- ---------- ----------
Total liabilities and shareholders' equity $ 353,538 $ 156,417 $ (50,471) $ 459,484
=========== ========== ========== ==========
See Notes to Pro Forma Combined Financial Statements
P-2
PAGE 21 OF 126
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FABRI-CENTERS OF AMERICA, INC.
Pro Forma Combined Statements of Income (Unaudited)
For the Twenty-Six Weeks Ended July 30, 1994
(Thousands of dollars, except share and per share data)
Fabri-Centers
of America Cloth World Pro Forma Pro Forma
Historical Historical Adjustments Combined
------------ ------------ ------------ ------------
Net sales $ 245,527 $ 103,525 $ $ 349,052
Costs and expenses:
Cost of goods sold 140,392 55,644 196,036
Selling, general and administrative expenses 112,390 47,348 159,738
Interest expense, net 3,241 152 1,761 (F) 5,154
------------ ------------ ----------- ------------
256,023 103,144 1,761 360,928
------------ ------------ ----------- ------------
Earnings (loss) from continuing operations before income
taxes and cumulative effect of accounting change (10,496) 381 (1,761) (11,876)
Income tax benefit (4,041) (42) (489)(G) (4,572)
------------ ------------ ----------- ------------
Earnings (loss) from continuing operations before
cumulative effect of accounting change $ (6,455) $ 423 (1,272) (7,304)
============ ============ =========== ============
Earnings (loss) per common share from continuing
operations before cumulative effect of
accounting change $ (0.69) $ (0.78)
============ ============
Average shares and equivalents outstanding 9,316,779 9,316,779
See Notes to Pro Forma Combined Financial Statements
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FABRI-CENTERS OF AMERICA, INC.
PRO FORMA COMBINED STATEMENTS OF INCOME (UNAUDITED)
FOR THE YEAR ENDED JANUARY 29, 1994
(THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
FABRI-CENTERS
OF AMERICA CLOTH WORLD PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS COMBINED
------------- ---------- ---------- ----------
Net sales $ 582,071 $ 224,066 $ $ 806,137
Costs and expenses:
Cost of goods sold 329,950 118,756 448,706
Selling, general and administrative expenses 235,439 100,799 336,238
Interest expense, net 5,547 257 3,060 (F) 8,864
------------- ---------- ---------- ----------
570,936 219,812 3,060 793,808
------------- ---------- ---------- ----------
Earnings from continuing operations before income
taxes and cumulative effect of accounting change 11,135 4,254 (3,060) 12,329
Income tax provision 4,176 1,071 (624)(G) 4,623
------------- ---------- ---------- ----------
Earnings from continuing operations before
cumulative effect of accounting change $ 6,959 $ 3,183 (2,436) 7,706
============= ========== ========== ==========
Earnings per common share from continuing
operations before cumulative effect
of accounting change $ 0.75 $ 0.83
============= ==========
Average shares and equivalents outstanding 9,284,521 9,284,521
See Notes to Pro Forma Combined Financial Statements
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NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
(Unaudited)
(A) Represents adjustments to record the assets acquired and
liabilities assumed by the Company.
(B) Represents an adjustment to write-up Cloth World's merchandise
inventories from the historical LIFO book value to preliminary
estimates of fair market value.
(C) Represents adjustments to provide primarily for the
liquidation and closing of selected Cloth World stores, as
well as, estimated costs of discontinuing the use of the Brown
Group, Inc. distribution facility.
(D) Represents the estimated cash portion of the purchase price
plus related acquisition costs.
(E) Represents adjustments to deferred income taxes to account for
the difference between the estimated book and tax basis of net
assets.
(F) Represents an adjustment to interest expense related to
estimated incremental borrowings, as a result of the
acquisition.
(G) Represents an adjustment to income taxes on combined pro forma
earnings.
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