<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 11-K
ANNUAL REPORT
PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One):
X ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED). For the fiscal year ended
December 31, 1997.
TRANSACTION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED). For the transaction period
from to .
Commission file number: 21859.
A. Full title of the plan and the address of the plan, if different
from that of the issuer named below:
Factory Card Outlet of America Ltd. Incentive Savings Plan
B. Name of issuer of the securities held pursuant to the plan and
the address of its principal executive office:
Factory Card Outlet Corp.
2727 Diehl Road
Naperville, Illinois 60563
1
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Required Information
--------------------
Item 4
In lieu of the financial statements required by Item 1-3, the Plan is
submitting financial statements prepared in accordance with the financial
reporting requirements of ERISA for the fiscal years ended December 31, 1997 and
December 31, 1996
2
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Plan administrators have duly caused this annual report to be signed on behalf
of the Plan by the undersigned, thereunto duly authorized.
Date: June 29, 1998 FACTORY CARD OUTLET OF AMERICA LTD.
INCENTIVE SAVINGS PLAN
By: /s/ Matthew Ellis
-----------------
Matthew Ellis
Plan Administrator
By: /s/ Glen J. Franchi
-------------------
Glen J. Franchi
Plan Administrator
By: /s/ Jeffrey Kelly
-----------------
Jeffrey Kelly
Plan Administrator
By: /s/ Carol A. Travis
-------------------
Carol A. Travis
Plan Administrator
3
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FACTORY CARD OUTLET OF AMERICA LTD.
INCENTIVE SAVINGS PLAN
<TABLE>
<CAPTION>
TABLE OF CONTENTS
========================================================================================
Page(s)
-------
<S> <C>
Independent Auditors' Report......................................... 5
Statements of Net Assets Available for Plan Participants............. 6
Statements of Changes in Net Assets Available for Plan Participants.. 7
Notes to Financial Statements........................................ 8-12
Schedule
--------
Item 27a -- Schedule of Assets Held for Investment Purposes............ 1 13
Item 27d -- Schedule of Reportable Transactions........................ 2 14
</TABLE>
4
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Independent Auditors' Report
The Plan Administrators
Factory Card Outlet of America Ltd.
Incentive Savings Plan:
We have audited the accompanying statements of net assets available for plan
participants of Factory Card Outlet of America Ltd. Incentive Savings Plan
(Plan) as of December 31, 1997 and 1996, and the related statements of changes
in net assets available for plan participants for the years then ended. These
financial statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based upon
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 net assets available for plan participants of the
Plan as of December 31, 1997 and 1996, and the changes in net assets available
for plan participants for the years then ended in conformity with generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules are presented
for the purpose of additional analysis and are not a required part of the basic
financial statements but are supplementary information required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. The supplemental schedules
have been subjected to the auditing procedures applied in the audits of the
basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
The schedule of assets held for investment purposes that accompanies the Plan's
financial statements does not disclose the historical cost of certain Plan
assets held by the Plan trustee. Disclosure of this information is required by
the Department of Labor's Rules and Regulations for Reporting and Disclosure
under the Employee Retirement Income Security Act of 1974.
Chicago, Illinois
June 22, 1998 /s/ KPMG Peat Marwick LLP
5
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FACTORY CARD OUTLET OF AMERICA LTD.
INCENTIVE SAVINGS PLAN
Statements of Net Assets Available for Plan Participants
December 31, 1997 and 1996
<TABLE>
<CAPTION>
================================================================================
1997 1996
- --------------------------------------------------------------------------------
Assets:
<S> <C> <C>
Cash and cash equivalents $ 169,387 78,571
Investments:
Bank One, Chicago NA pooled investment
funds, at fair value:
Income fund 528,428 330,989
Equity fund 997,370 620,829
Guaranteed principal fund 517,188 415,794
Factory Card Outlet Corp. common
stock fund 55,587 -
Participant loans 110,664 111,968
Receivables:
Employer contributions 11,918 7,897
Employee contributions 42,662 28,613
Accrued income 3,854 2,797
- --------------------------------------------------------------------------------
Total assets 2,437,058 1,597,458
Liabilities refund of excess employee contributions (2,026) (10,398)
- --------------------------------------------------------------------------------
Net assets available for plan participants $2,435,032 1,587,060
================================================================================
</TABLE>
See accompanying notes to financial statements.
6
<PAGE>
FACTORY CARD OUTLET OF AMERICA LTD.
INCENTIVE SAVINGS PLAN
Statements of Changes in New Assets Available for Plan Participants
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Additions to net assets attributed to:
Investment income:
Net investment income $ 45,437 35,139
Net appreciation in market
value of investments 215,859 87,738
Interest income on participant loans 6,753 3,872
- --------------------------------------------------------------------------------
268,049 126,749
Contributions:
Employer 138,191 102,029
Employee 499,120 373,245
Rollover 62,460 51,769
- --------------------------------------------------------------------------------
Total additions 967,820 653,792
- --------------------------------------------------------------------------------
Deductions from net assets attributed to:
Vested benefits of terminated participants (116,219) (143,520)
Refund of excess employee contributions (2,026) (10,398)
Hardship withdrawals (1,603) (1,150)
- --------------------------------------------------------------------------------
Total deductions (119,848) (155,068)
- --------------------------------------------------------------------------------
Net increase 847,972 498,724
Net assets available for plan participants:
Beginning of year 1,587,060 1,088,336
- --------------------------------------------------------------------------------
End of year $2,435,032 1,587,060
================================================================================
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
FACTORY CARD OUTLET OF AMERICA LTD.
INCENTIVE SAVINGS PLAN
Notes to Financial Statements
December 31, 1997 and 1996
================================================================================
(1) Description of the Plan
The following brief description of the Factory Card Outlet of America Ltd.
Incentive Savings Plan (Plan) is provided for general information purposes
only. Participants should refer to the Plan agreement for more complete
information.
The Plan is a defined contribution plan sponsored by Factory Card Outlet of
America Ltd. (Company) for all eligible employees, as defined in the Plan
agreement. The Plan as adopted by the Company is a profit sharing plan with
a cash or deferred savings feature. The Plan is administered by the Company
and is subject to the provisions of the Employee Retirement Income Security
Act of 1974 (ERISA). Bank One, Chicago NA serves as the Plan's trustee and
investment manager.
Each participant is 100% vested in his or her salary reduction
contribution, the Company's discretionary matching contributions, and
actual earnings thereon at all times. Vesting in the Company's
discretionary base contribution is based on years of continuous service. A
participant is 100% vested after five years of credited service or upon
death, disability, or the attainment of normal retirement age. Payments are
generally made on a lump-sum basis upon termination.
Upon satisfaction of certain conditions and approval of the Plan
Administrator, participants may request and receive loans of up to 50% of
their vested contribution account balance. Such loans bear interest at the
prime rate in effect at the time of issuance plus one percent and are
repaid through payroll deductions.
A participant's retirement account is credited with the Company's
discretionary matching and base contributions, the salary reduction
contribution, and allocations of forfeitures and plan earnings. Allocations
are based upon participant earnings and account balances as defined.
Participants are also able to roll over balances from other qualified
plans. The benefit to which a participant is entitled is the benefit that
can be provided from the participant's account.
Forfeitures become available for allocation when a terminated participant
incurs five consecutive one-year breaks in service, as defined in the Plan,
or receives a distribution of the vested portion of the discretionary base
contribution account. The nonvested portion of amounts which are forfeited
are allocated among the remaining participants in the Plan. As of the last
day of each plan year, forfeitures are allocated among active participants
in the ratio of each participant's compensation during the year to the
total plan compensation during the year.
(2) Summary of Significant Accounting Policies
A summary of the Plan's significant accounting policies, which have been
consistently applied in the preparation of the accompanying financial
statements on the accrual basis of accounting, is as follows:
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the Company to make estimates and
assumptions that affect the reported amounts of net assets available for
plan participants and disclosure of commitments at the date of the
financial statements, and the changes in net assets available for plan
participants during the reporting periods. Actual results could differ from
those estimates.
(Continued)
8
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FACTORY CARD OUTLET OF AMERICA LTD.
INCENTIVE SAVINGS PLAN
Notes to Financial Statements
================================================================================
Investments
Investments are stated at market value. Changes in the market value of
securities held are reported as unrealized appreciation or depreciation in
market value of investments in the accompanying statements of changes in
net assets available for plan participants. Purchases and sales of
investments are recorded on a trade-date basis.
Participant loans are valued at the outstanding principal balance.
The Plan offers four alternative investment options the income fund, the
equity fund, the guaranteed principal fund, and the Factory Card Outlet
Corp. common stock fund. Participants may direct that their salary
reduction contributions and their appropriate share of Company
contributions be invested in one or all of these funds in increments of one
percent (1%).
The guaranteed principal fund maintains liquidity amounts for Plan
operations. The Plan has access to these amounts for loans, transfers, and
withdrawals.
Contributions
The Plan provides for employee contributions from eligible participants
electing to enter into a Salary Reduction Agreement with the Company. Under
this feature of the Plan, a participant may elect to contribute a
percentage of compensation ranging between one percent (1%) and thirteen
percent (13%) in increments of one percent (1%).
The Company makes a discretionary matching contribution to the Plan and the
Retirement Committee allocates this contribution to the separate
participant accounts. Only those participants who have made salary
reduction contributions and have completed 1,000 hours of service will
receive this allocation in 1997 and 1996. The Company allocated the
discretionary matching contribution to an individual participant's account
at the rate of 33% of a participant's salary reduction contribution up to
six percent (6%).
A discretionary base contribution may be made by the Company only if it has
current or accumulated net profits. The Company determines the amount, if
any, and the Retirement Committee allocates this contribution to the
accounts of participants who were employed by the Company on the last day
of the Plan year. The base contribution is allocated in proportion to each
participant's compensation for the Plan year in relation to the total
compensation of all participants for the Plan year. No base contribution
was made in 1997 or 1996.
Rollover contributions result from participants transferring funds from
unrelated retirement plans.
Income Tax Status
The Plan obtained a favorable determination letter on April 6, 1994, in
which the Internal Revenue Service stated that the Plan, as then designed,
was in compliance with the applicable requirements of the Internal Revenue
Code. The Plan has been amended since receiving the determination letter.
However, the Plan Administrator believes that the Plan is currently
designed and being operated in compliance with the applicable requirements
of the Internal Revenue Code. Therefore, no provision for income taxes has
been included in the Plan's financial statements.
The Plan Administrator is not aware of any activity or transactions that
may adversely affect the qualified status of the Plan.
(Continued)
9
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FACTORY CARD OUTLET OF AMERICA LTD.
INCENTIVE SAVINGS PLAN
Notes to Financial Statements
================================================================================
Administrative Expenses
All expenses pertaining to the operation of the Plan are paid by the
Company and are not charged against the assets or income of the Plan. In
addition, various administrative, legal, and accounting services are
performed by Company personnel on behalf of the Plan. No charges are made
to the Plan for these services. Investment expenses are charged against the
Plan's income.
Cash and Cash Equivalents
Cash equivalents consist principally of highly liquid government securities
with original maturities of three months or less.
(3) Contributions Receivable
Amounts receivable from employer and employees as of December 31, 1997 and
1996 represent contributions related to December payroll. These
contributions were received by the Plan in January of the following year.
(4) Plan Termination
While the Company has not expressed any intent to terminate the Plan or to
discontinue contributions, it is free to do so at any time, subject to the
provisions set forth in ERISA. Should the Plan be terminated at some future
time, all participants would become 100% vested in benefits earned as of
the termination date.
(5) Investments
Investments at fair value which represent 5% or more of the Plan's net
assets at December 31, 1997 and 1996 are separately identified below.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Income fund $ 528,428 330,989
Equity fund 997,370 620,829
Guaranteed principal fund 517,188 415,794
Factory Card Outlet Corp. common stock fund 55,587 --
Participant loans 110,664 111,968
- ---------------------------------------------------------------------------
Total $2,209,237 1,479,580
- ---------------------------------------------------------------------------
</TABLE>
(Continued)
10
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FACTORY CARD OUTLET OF AMERICA LTD.
INCENTIVE SAVINGS PLAN
Notes to Financial Statements
- --------------------------------------------------------------------------------
During 1997 and 1996, the Plan's investments (including investments bought,
sold, and held during the year) appreciated (depreciated) as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Income fund $ 3,781 (6,994)
Equity fund 200,397 74,347
Guaranteed principal fund 26,830 20,385
Factory Card Outlet common stock fund (15,149) --
- --------------------------------------------------------------------------------
Net unrealized appreciation
in market value of investments $215,859 87,738
- --------------------------------------------------------------------------------
</TABLE>
(6) Summary of Net Assets and Changes
in Net Assets by Fund
<TABLE>
<CAPTION>
A summary of changes in net assets by fund type for the year ended December 31, 1997 is as follows:
- ------------------------------------------------------------------------------------------------------------------------------------
Factory Card
Guaranteed Outlet Corp.
Income Equity principal Participant common
fund fund fund loans stock fund Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Net investment income $ 30,783 14,205 449 -- -- 45,437
Net appreciation (depreciation) in
market value of investments 3,781 200,397 26,830 -- (15,149) 215,859
Interest income on participant loans 739 536 5,478 -- -- 6,753
Contributions:
Employer 29,119 60,480 42,750 -- 5,842 138,191
Employee 104,586 219,623 153,627 -- 21,284 499,120
Rollover 20,234 30,727 6,775 -- 4,724 62,460
- ------------------------------------------------------------------------------------------------------------------------------------
Total additions 189,242 525,968 235,909 -- 16,701 967,820
- ------------------------------------------------------------------------------------------------------------------------------------
Deductions from net assets attributed to:
Vested benefits of
terminated participants (28,022) (53,336) (34,451) -- (410) (116,219)
Refund of excess
employee contributions (168) (1,587) (271) -- -- (2,026)
Hardship withdrawals (181) (187) (1,042) -- (193) (1,603)
- ------------------------------------------------------------------------------------------------------------------------------------
Total deductions (28,371) (55,110) (35,764) -- (603) (119,848)
- ------------------------------------------------------------------------------------------------------------------------------------
Fund transfers 16,139 (22,411) (26,309) (17) 32,598 --
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase 177,010 448,447 173,836 (17) 48,696 847,972
Net assets available for plan participants:
Beginning of year 376,843 680,152 404,387 111,968 13,710 1,587,060
- ------------------------------------------------------------------------------------------------------------------------------------
End of year $553,853 1,128,599 578,223 111,951 62,406 2,435,032
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
FACTORY CARD OUTLET OF AMERICA LTD.
INCENTIVE SAVINGS PLAN
Notes to Financial Statements
<TABLE>
<CAPTION>
================================================================================================================================
A summary of changes in net assets by fund type for the year ended December 31, 1996 is as follows:
================================================================================================================================
Factory Card
Guaranteed Outlet Corp.
Income Equity principal Participant common
fund fund fund loans stock fund Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Net investment income $ 21,330 13,506 303 -- -- 35,139
Net appreciation (depreciation) in
market value of investments (6,994) 74,347 20,385 -- -- 87,738
Interest income on participant loans 543 1,173 2,156 -- -- 3,872
Contributions:
Employer 22,180 45,462 34,338 -- 49 102,029
Employee 80,347 165,163 127,500 -- 235 373,245
Rollover 19,337 29,963 2,469 -- -- 51,769
- --------------------------------------------------------------------------------------------------------------------------------
Total additions 136,743 329,614 187,151 -- 284 653,792
================================================================================================================================
Deductions from net assets attributed to:
Vested benefits of
terminated participants (31,056) (71,491) (40,973) -- -- (143,520)
Refund of excess
employee contributions (6,370) (2,387) (1,641) -- -- (10,398)
Hardship withdrawals -- (575) (575) -- -- (1,150)
================================================================================================================================
Total deductions (37,426) (74,453) (43,189) -- -- (155,068)
- --------------------------------------------------------------------------------------------------------------------------------
Fund transfers (19,825) 26,853 (79,487) 59,033 13,426 --
================================================================================================================================
Net increase 79,492 282,014 64,475 59,033 13,710 498,724
Net assets available for plan participants:
Beginning of year 297,351 398,138 339,912 52,935 -- 1,088,336
- --------------------------------------------------------------------------------------------------------------------------------
End of year $376,843 680,152 404,387 111,968 13,710 1,587,060
================================================================================================================================
</TABLE>
(7) Reconciliation to Form 5500
The financial information provided in line 31g of the Plan's Form 5500
includes an accrual for benefits payable to participants. This accrual was
$73,503 and $9,451 at December 31, 1997 and 1996, respectively, and is
included in net assets available for plan participants.
(8) Subsequent Event
Effective April 1, 1998, the Company amended and restated the Plan
agreement. The amendments included changing the investment options and
eliminating the employee minimum hours of service requirement related to
participation in the Plan. In addition, the Company appointed Franklin
Templeton Trust Company as trustee and investment manager of the Plan.
12
<PAGE>
Schedule 1
FACTORY CARD OUTLET OF AMERICA LTD.
INCENTIVE SAVINGS PLAN
Item 27a - Schedule of Assets Hold for Investment Purposes
December 31, 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------
Description Cost* Market
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 169,387
Bank One, Chicago NA pooled investment funds:
Income fund 528,428
Equity fund 997,370
Guaranteed principal fund 517,188
Factory Card Outlet Corp. common stock fund 55,578
Participant loans (varying rates of interest from 8% to 8.5%) 110,664
- -----------------------------------------------------------------------------------------
$ 2,378,624
- -----------------------------------------------------------------------------------------
</TABLE>
*Historical cost information is not available.
See accompanying independent auditors' report.
13
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FACTORY CARD OUTLET OF AMERICA LTD. Schedule 2
INCENTIVE SAVINGS PLAN ----------
Item 27d - Schedule of Reportable Transactions
December 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Current value
Purchase Selling Cost of (as of date Net
price price investment of transaction) gain
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Bank One, Chicago NA Income Fund:
Series of purchases $376,226 376,226
Series of sales 178,074 * 178,074 *
Bank One, Chicago NA Equity Fund:
Series of purchases 808,557 808,557
Series of sales 534,452 * 534,452 *
Bank One, Chicago NA Guaranteed
Principal Fund:
Series of purchases 359,618 359,618
Series of sales 211,017 * 211,017 *
Bank One, Chicago NA Factory Card Outlet Corp.
Common Stock Fund:
Series of purchases 71,336 71,336
Series of sales 600 * 600 *
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Historical cost information is not available.
See accompanying independent auditors' report.
14
<PAGE>
EXHIBIT 23
----------
Consent of KPMG Peat Marwick LLP
--------------------------------
The Board of Directors
Factory Card Outlet Corp.:
We consent to incorporation by reference in Registration Statement #333-30437 on
Form S-8 of Factory Card Outlet Corp. of our report dated June 22, 1998,
relating to the statements of net assets available for plan participants of the
Factory Card Outlet of America Ltd. Incentive Savings Plan as of December 31,
1997 and 1996 and the related statement of changes in net assets available for
plan participants for the years then ended, which report appears in the Form
11-K of the Factory Card Outlet of America Ltd. Incentive Savings Plan for the
year ended December 31, 1997.
/s/ KPMG Peat Marwick LLP
June 29, 1998
Chicago, Illinois
15
