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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, 1999.
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
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Required Information
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Item 4
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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 years ended December 31, 1999 and
December 31, 1998.
2
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SIGNATURES
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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 26, 2000 FACTORY CARD OUTLET OF AMERICA LTD.
INCENTIVE SAVINGS PLAN
By: /s/ William A. Beyerl
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William A. Beyerl
Plan Administrator
By: /s/ Glen J. Franchi
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Glen J. Franchi
Plan Administrator
By: /s/ Carol A. Travis
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Carol A. Travis
Plan Administrator
3
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FACTORY CARD OUTLET OF AMERICA LTD.
INCENTIVE SAVINGS PLAN
Table of Contents
<TABLE>
<CAPTION>
Page
<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
Supplemental Schedule
1 Item 27a - Schedule of Assets Held for Investment Purposes 13
</TABLE>
4
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Independent Auditors' Report
The Retirement Committee
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
(the Plan) as of December 31, 1999 and 1998, 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, 1999 and 1998, 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 schedule is presented
for the purpose of additional analysis and is not a required part of the basic
financial statements but is 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 schedule
has been subjected to the auditing procedures applied in the audits of the
basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
Chicago, Illinois
June 2, 2000
5
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FACTORY CARD OUTLET OF AMERICA LTD.
INCENTIVE SAVINGS PLAN
Statements of Net Assets Available for Plan Participants
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Assets:
Factory Card Outlet Corp. Common Stock $ 11,322 36,516
Investments:
Franklin Templeton investment funds,
at fair value:
Stable value fund 781,071 611,763
U.S. government securities fund 432,046 604,564
Mutual qualified fund 290,411 112,065
Equity fund 1,491,611 1,351,220
Balance sheet investment fund 170,638 93,299
Foreign fund 84,654 36,532
Conservative target fund 59,067 24,639
Moderate target fund 117,167 44,461
Growth target fund 125,393 44,683
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Total investments 3,552,058 2,923,226
Receivables:
Participant loans 103,563 93,163
Employer contributions 6,424 15,965
Employee contributions 24,155 58,933
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Total receivables 134,142 168,061
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Net assets available for plan participants $ 3,697,522 3,127,803
============ ===========
</TABLE>
See accompanying notes to financial statements.
6
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FACTORY CARD OUTLET OF AMERICA LTD.
INCENTIVE SAVINGS PLAN
Statements of Changes in Net Assets Available for Plan Participants
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Additions to net assets attributed to:
Investment income:
Net investment income $ 174,278 352,331
Net appreciation (depreciation)
in fair value of investments 475,168 (143,904)
Interest income on participant loans 6,261 6,419
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655,707 214,846
Contributions:
Employer 196,240 207,592
Employee 722,876 750,407
Rollover 178,315 49,636
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Total additions 1,753,138 1,222,481
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Deductions from net assets attributed to:
Benefits of participants (1,132,407) (512,635)
Refund of excess employee contributions (4,385) (348)
Hardship withdrawals (46,627) (16,727)
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Total deductions (1,183,419) (529,710)
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Net increase 569,719 692,771
Net assets available for plan participants:
Beginning of year 3,127,803 2,435,032
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End of year $ 3,697,522 3,127,803
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</TABLE>
See accompanying notes to financial statements.
7
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FACTORY CARD OF OUTLET OF AMERICA LTD.
INCENTIVE SAVINGS PLAN
Notes to Financial Statements - December 31, 1999 and 1998
(1) Description of the Plan
The following brief description of the Factory Card Outlet of America Ltd.
Incentive Savings Plan (the 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. (the 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). Franklin Templeton Trust Company 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.
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 rollover 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 non-vested 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.
8
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FACTORY CARD OF OUTLET OF AMERICA LTD.
INCENTIVE SAVINGS PLAN
Notes to Financial Statements - December 31, 1999 and 1998
(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.
Investments
Investments are stated at market value. Changes in the market value of
securities held are included in net appreciation (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.
Participants may direct contributions in 5% increments to any of the
following investment options: Franklin Templeton Stable Value Fund,
Franklin Templeton U.S. Government Securities Fund, Franklin Templeton
Equity Fund, Franklin Templeton Balance Sheet Investment Fund, Franklin
Templeton Mutual Qualified Fund, Franklin Templeton Foreign Fund,
Franklin Templeton Conservative Target Fund, Franklin Templeton Moderate
Target Fund, and the Franklin Templeton Growth Target Fund. Participants
were able to direct contributions in 5% increments in Factory Card Outlet
Corp. Common Stock until March 23, 1999 when investment in the stock was
suspended due to FCO filing for bankruptcy.
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
9
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FACTORY CARD OF OUTLET OF AMERICA LTD.
INCENTIVE SAVINGS PLAN
Notes to Financial Statements - December 31, 1999 and 1998
service will receive this allocation. The Company allocated the
discretionary matching contribution to an individual participant's
account at the rate of 33% of the first six percent (6%) of a
participant's salary reduction contribution in 1999 and 1998.
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 discretionary base contribution was made in 1999 or 1998.
Rollover contributions result from participants transferring funds from
unrelated retirement plans.
Income Tax Status
The Plan obtained a favorable determination letter in April, 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.
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.
(3) Contributions Receivable
Amounts receivable from employer and employees as of December 31, 1999 and
1998 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 become 100% vested in benefits earned as of the
termination date.
10
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FACTORY CARD OF OUTLET OF AMERICA LTD.
INCENTIVE SAVINGS PLAN
Notes to Financial Statements - December 31, 1999 and 1998
(5) Investments
Investments at fair value which represent 5% or more of the Plan's net
assets at December 31, 1999 and 1998 are separately identified below.
<TABLE>
<CAPTION>
1999 1998
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<S> <C> <C>
Franklin Templeton investment funds:
Stable value fund $ 781,071 611,763
U.S. government securities fund 432,046 604,564
Mutual qualified fund 290,411 112,065
Balance sheet investment fund 170,638 93,299
Equity fund 1,491,611 1,351,220
</TABLE>
During 1999 and 1998, 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,
1999 1998
------------- -------------
<S> <C> <C>
Factory Card Outlet common stock $ (45,336) (106,409)
Franklin Templeton investment funds:
U.S. government securities fund (28,262) 2,342
Mutual qualified fund (2,291) (6,879)
Equity fund 482,366 (22,137)
Balance sheet investment fund (3,643) (4,582)
Foreign fund 18,138 (3,037)
Conservative target fund 6,856 (641)
Moderate target fund 19,323 (1,165)
Growth target fund 28,017 (1,396)
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Net appreciation (depreciation) in
fair value of investments $ 475,168 (143,904)
============= =============
</TABLE>
(6) Reorganization, Chapter 11 Filing and Subsequent Event
The Company filed voluntary petitions for relief under chapter 11 of title
11 of the United States Code (the "Bankruptcy Code") on March 23, 1999 (the
"petition date") under case numbers 99-685(JJF) and 99-686(JJF) (the
"Chapter 11 Cases"). The Company is currently operating its business as
debtors in possession under the jurisdiction of the United States
Bankruptcy Court for the District of Delaware (the "Bankruptcy Court").
The commencement of the Chapter 11 Cases and the net losses resulting in a
net deficit raise substantial doubt about the Company's ability to continue
as a going concern. The continuation of the Company's business as a going
concern is contingent upon, among other things, the ability to (1)
formulate a plan of reorganization that will be confirmed by the Bankruptcy
Court, (2) achieve satisfactory levels of future profitable operations, (3)
maintain adequate financing, and (4) generate sufficient cash from
operations to meet future obligations. In September 1999 the Company
announced that it received notification that the NASDAQ's staff had
delisted the Company's common stock from the NASDAQ National Market
effective September 1, 1999. As a result of the Chapter 11 filings,
Plan participant investments in Factory Card Outlet Corp. Common Stock fund
have been suspended.
The Bankruptcy Code provides that the Company has an exclusive period
during which only it may propose,
11
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FACTORY CARD OF OUTLET OF AMERICA LTD.
INCENTIVE SAVINGS PLAN
Notes to Financial Statements - December 31, 1999 and 1998
file and solicit acceptances of a plan of
reorganization. The Company has obtained approval from the Bankruptcy Court
of the extension of its exclusive period to file a plan and to solicit
acceptances thereof to and including July 31, 2000 and September 29, 2000,
respectively. If the Company fails to file a plan of reorganization during
the exclusive period or, after such plan has been filed, if the Company
fails to obtain acceptance of such plan from the requisite impaired classes
of creditors and equity security holders during the exclusive period, any
party in interest, including a creditor, an equity security holder, a
committee of creditors or equity security holders, or an indenture trustee,
may file their own plan of reorganization for the Company. The Company
plans to develop a plan of reorganization for submission to the Bankruptcy
Court.
In connection therewith, on June 7, 2000 the Company announced that it and
the Creditors' Committee have entered into a non-binding letter of intent
with Saunders, Karp and Megrue ("SKM") (the "Letter of Intent"), a
Connecticut based investment company, regarding a potential transaction
which would provide the Company with sufficient funding to enable it to
emerge from Chapter 11. The Letter of Intent is subject to, among other
things, the completion of due diligence, the execution of definitive
documentation and confirmation of a plan of reorganization that would have
to be voted upon by creditors. The Letter of Intent outlines the following
general terms of a transaction and plan of reorganization in which SKM
would invest $19.5 million, for which it would receive a note and
approximately 90% of the common stock of the Company upon its emergence
from Chapter 11: General unsecured creditors, whose claims are estimated to
be approximately $43 million, would receive a cash distribution that may
approximate $5 million, a note in the approximate amount of $7 million, and
approximately 10% of the common stock of the Company upon its emergence
from Chapter 11. Because the proposal would not result in creditors
recovering the full amount of their claims, it does not contemplate that
holders of the Company's outstanding common stock would receive any
distribution and, consequently, the existing stock would be cancelled.
The Letter of Intent provides for SKM to receive a break-up fee and expense
reimbursement in the event that the Company decides to pursue an
alternative transaction or course of action and restricts the Company's
ability to solicit alternative proposals. The Letter of Intent is subject
to the approval of the Bankruptcy Court. Accordingly, on June 8, 2000 the
Company filed a motion requesting Bankruptcy Court approval of the Letter
of Intent. The Company expects that the motion will be heard by the
Bankruptcy Court on June 29, 2000.
12
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FACTORY CARD OF OUTLET OF AMERICA LTD.
INCENTIVE SAVINGS PLAN
Supplemental schedule 1
Schedule 1
----------
Item 27a - Schedule of Assets Held for Investment Purposes
December 31, 1999
<TABLE>
<CAPTION>
Description Cost Market
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<S> <C> <C>
Factory Card Outlet Common Stock $ 134,543 11,322
Franklin Templeton investment funds,
at fair value:
Stable value fund 781,071 781,071
U.S. government securities fund 452,173 432,046
Mutual qualified fund 299,146 290,411
Equity fund 1,065,630 1,491,611
Balance sheet investment fund 177,043 170,638
Foreign fund 71,443 84,654
Conservative target fund 52,978 59,067
Moderate target fund 99,114 117,167
Growth target fund 99,504 125,393
Participant loans 103,563 103,563
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$ 3,336,208 3,666,943
============ ============
</TABLE>
See accompanying independent auditors' report.
13
