SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, C.D. 20549
FORM 10-K/A
AMENDMENT NO. 1 TO ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 28, 1995,
Commission File #1-7090
PHARMHOUSE CORP.
(Exact name of registrant as specified in its charter)
New York 13-2634868
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
860 Broadway, New York, New York 10003
(Address of principal executive offices) (Zip Code)
(212) 477-9400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None N/A
Securities registered pursuant to Section 12(g) of the Act:
Common Shares,
par value $.01 per share
(Title of Class)
<PAGE>
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) or (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. (X)
The aggregate market value of the Registrant's Common Shares
held by persons, other than officers and directors and their
affiliates of the Registrant on May 9, 1995 was approximately
$5,661,000.
Indicate by check mark whether the Registrant has filed all
documents and reports required to be filed by Section 12, 13,
or 15(d) of the Securities Exchange Act of 1934 subsequent to
the distribution of securities under a plan confirmed by a
court.
YES X NO
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock as of May 9, 1995.
Number of Shares Class
Common Shares 2,281,891
par value $.01 per share
Page 2
Item 8. Financial Statements and Supplementary Data
The following documents are filed on pages listed below as a
part of this Amendment to the Form 10-K.
1. Consolidated Financial Statements
Report of Independent Accountants...................*
Consolidated Balance Sheets at
January 28, 1995 and January 29, 1994..............*
Consolidated Statements of Operations
for each of the three years in the
period ended January 28, 1995......................*
Consolidated Statements of Shareholders'
Equity for each of the three years
in the period ended January 28, 1995...............*
Consolidated Statements of Cash Flows
for each of the three years in the
period ended January 28, 1995......................*
Notes to Consolidated Financial Statements..........*
2. Financial Statement Schedule
Report of independent accountants on consolidated
financial statement schedule for each of the
three years in the period ending January 28, 1995...*
3. Financial Statements of Business Acquired
and Pro Forma Financial Information
THE FOLLOWING FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL
INFORMATION CONCERNING THE 24 "THE RX PLACE" STORES
(HEREINAFTER REFERRED TO AS THE "ACQUIRED BUSINESS" ACQUIRED
BY THE REGISTRANT FROM F.W. WOOLWORTH CO., A WHOLLY OWNED
SUBSIDIARY OF WOOLWORTH CORPORATION, COLLECTIVELY
("WOOLWORTH") ON APRIL 28, 1995 IS PROVIDED IN THIS AMENDMENT
TO THE REGISTRANT'S ANNUAL REPORT ON FORM 10-K IN RESPONSE TO
AND IN SATISFACTION OF THE REQUIREMENTS OF ITEM 7 OF FORM 8-K.
Page 3
* Previously filed<PAGE>
Report of KPMG Peat Marwick LLP, Independent
Accountants of Woolworth...........................F-1
Statement of Sales and Direct Store
Operating Expenses of the Acquired Business
for each of the three years in the period ended
January 28, 1995 and for the unaudited period
from January 29, 1995 through April 27, 1995.......F-2
Statement of Net Assets of the
Acquired Business at April 27, 1995................F-3
Statements of Cash Flows of the Acquired
Business for each of the three years in the
period ended January 28, 1995 and for the
unaudited period from January 29, 1995
through April 27,1995..............................F-4
Notes to Acquired Business Financial Statements.....F-5
Pharmhouse Corp. and Subsidiaries
Pro Forma Financial Information (Unaudited)........F-10
Unaudited Pro Forma Condensed Statement of
Operations for the year ended January 28, 1995.....F-12
Unaudited Pro Forma Condensed Statement of
Operations for the three months ended
April 29, 1995.....................................F-13
Notes to Pro Forma Condensed Statement
of Operations.....................................F-14
VIII. Valuation and Qualifying Accounts...................*
All other schedules have been omitted because either they
are not applicable or the required information is shown in the
financial statements or notes thereto.
Page 4
* Previously filed<PAGE>
Item 14. Financial Statements and Supplementary Data
(a) The following documents are filed on pages listed below as
a part of this Report.
1. Consolidated Financial Statements
Report of Independent Accountants...................*
Consolidated Balance Sheets at
January 28, 1995 and January 29, 1994..............*
Consolidated Statements of Operations
for each of the three years in the
period ended January 28, 1995......................*
Consolidated Statements of Shareholders'
Equity for each of the three years
in the period ended January 28, 1995...............*
Consolidated Statements of Cash Flows
for each of the three years in the
period ended January 28, 1995......................*
Notes to Consolidated Financial Statements..........*
2. Financial Statement Schedule
Report of independent accountants on consolidated
financial statement schedule for each of the
three years in the period ending January 28, 1995...*
3. Financial Statements of Business Acquired
and Pro Forma Financial Information
THE FOLLOWING FINANCIAL STATEMENTS AND PRO FORMA FINANCIAL
INFORMATION CONCERNING THE 24 "THE RX PLACE" STORES
(HEREINAFTER REFERRED TO AS THE "ACQUIRED BUSINESS" ACQUIRED
BY THE REGISTRANT FROM F.W. WOOLWORTH CO., A WHOLLY OWNED
SUBSIDIARY OF WOOLWORTH CORPORATION, COLLECTIVELY
("WOOLWORTH") ON APRIL 28, 1995 IS PROVIDED IN THIS AMENDMENT
TO THE REGISTRANT'S ANNUAL REPORT ON FORM 10-K IN RESPONSE TO
AND IN SATISFACTION OF THE REQUIREMENTS OF ITEM 7 OF FORM 8-K.
Page 5
* Previously filed
<PAGE>
Report of KPMG Peat Marwick LLP, Independent
Accountants of Woolworth...........................F-1
Statement of Sales and Direct Store
Operating Expenses of the Acquired Business
for each of the three years in the period ended
January 28, 1995 and for the unaudited period
from January 29, 1995 through April 27, 1995.......F-2
Statement of Net Assets of the
Acquired Business at April 27, 1995................F-3
Statements of Cash Flows of the Acquired
Business for each of the three years in the
period ended January 28, 1995 and for the
unaudited period from January 29, 1995
through April 27,1995..............................F-4
Notes to Acquired Business Financial Statements.....F-5
Pharmhouse Corp. and Subsidiaries
Pro Forma Financial Information (Unaudited)........F-10
Unaudited Pro Forma Condensed Statement of
Operations for the year ended January 28, 1995.....F-12
Unaudited Pro Forma Condensed Statement of
Operations for the three months ended
April 29, 1995.....................................F-13
Notes to Pro Forma Condensed Statement
of Operations.....................................F-14
VIII. Valuation and Qualifying Accounts...................*
All other schedules have been omitted because either they
are not applicable or the required information is shown in the
financial statements or notes thereto.
Page 6
* Previously filed<PAGE>
SIGNATURE
The Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PHARMHOUSE CORP.
Dated: July 10, 1995 By:/s/ Marcie B. Davis
Marcie B. Davis
Senior Vice President-
Finance and Chief
Financial Officer
Page 7
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Woolworth Corporation:
We have audited the accompanying statement of net assets
divested of The Rx Place Division as of April 27, 1995, and
the statement of sales and related direct store operating
expenses, and condensed statement of cash flows (as discussed
in Basis of Presentation) for each of the fiscal years in the
three-year period ended January 28, 1995. These financial
statements are the responsibility of the Company'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 net assets
divested of The Rx Place Division as of April 27, 1995, and
the results of its direct store operations and its cash flows
(ad discussed in Basis of Presentation) for each of the fiscal
years in the three year period ended January 28, 1995, in
conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
New York, New York
June 30, 1995
- F-1 -
THE RX PLACE DIVISION
STATEMENT OF SALES AND DIRECT STORE OPERATING EXPENSES
(in thousands)
Period from
January 29, 1995
through April 27, 1995 1994 1993 1992
(Unaudited)
Sales $ 44,199 $190,304 $174,142 $162,902
Related direct store operating
expenses:
Cost of merchandise 47,502 158,252 143,185 131,114
Compensation, including pension
and medical benefits 4,402 18,138 16,182 15,480
Occupancy 2,222 8,644 8,057 7,470
Depreciation and amortization 303 1,250 1,298 1,236
Other 1,035 3,377 3,149 3,243
55,464 189,661 171,871 158,543
Store (Loss) Profit $(11,265) $ 643 $ 2,271 $ 4,359
See Notes to Financial Statements on pages F-5, F-6 and F-7, as well as
the unaudited notes on page F-8 and F-9.
- F-2 -
THE RX PLACE DIVISION
STATEMENT OF NET ASSETS DIVESTED
AS OF APRIL 27, 1995
(in thousands)
April 28,
1995
ASSETS
Current Assets:
Store cash $ 120
Merchandise inventories 39,902
Other current assets 1,810
41,832
Property and Equipment, net 6,295
48,127
LIABILITIES
Accrued vacation pay 85
NET ASSETS DIVESTED $ 48,042
See Notes to Financial Statements on pages F-5, F-6 and F-7, as well as
the unaudited notes on page F-8 and F-9.
- F-3 -
THE RX PLACE DIVISION
CONDENSED STATEMENT OF CASH FLOWS
(in thousands)
Period from
January 29, 1995
through April 27, 1995 1994 1993 1992
(Unaudited)
From Operating Activities
Store (Loss) Profit $ (11,265) $ 643 $ 2,271 $ 4,359
Adjustment to reconcile store
(loss) profit to net cash
provided by store operating
activities:
Depreciation and amortization 303 1,250 1,298 1,236
Decrease (Increase) in
merchandise inventories 10,958 (257) (11,678) (4,436)
Net cash (used in) provided
by store operating activities (4) 1,636 (8,109) 1,159
From Investing Activities
Capital Expenditures (40) (1,441) (521) (1,212)
Net cash used in investing
activities (40) (1,441) (521) (1,212)
From Financing Activities
Change in investment by and
advances from parent 44 (190) 8,635 58
Net cash provided by (used in)
financing activities 44 (190) 8,635 58
Net Change in Store Cash 0 5 5 5
Store Cash at Beginning of
Period 120 115 110 105
Store Cash at End of Period $ 120 $ 120 $ 115 $ 110
See Notes to Financial Statements on pages F-5, F-6 and F-7, as well as
the unaudited notes on page F-8 and F-9.
- F-4 -
THE RX PLACE DIVISION
NOTES TO FINANCIAL STATEMENTS
REPORTING ENTITY
The Statement of Sales and Related Direct Store Operating
Expenses, Condensed Statement of Cash Flows and Statement of
Net Assets Divested include the accounts of The Rx Place
Division (the "Division"), as defined in the asset purchase
agreement between Pharmhouse Corp., F.W. Woolworth Co., a
wholly owned subsidiary of Woolworth Corporation, and
Woolworth Corporation dated April 13, 1995 (the "Agreement").
BASIS OF PRESENTATION
The Statement of Sales and Related Direct Store Operating
Expenses, Condensed Statement of Cash Flows and Statement of
Net Assets Divested have been prepared for inclusion in the
filing on Form 10-K/A by Pharmhouse Corp. with the Securities
and Exchange Commission in connection with the purchase of the
Division. The sales and related direct store operating
expenses associated with the assets purchased and operations
assumed by Pharmhouse Corp. have been reflected herein. The
Statement of Sales and Related Direct Store Operating
Expenses, Condensed Statement of Cash Flows and Statement of
Net Assets Divested do not include allocations for corporate
or divisional expenses including, but not limited to, expenses
for income taxes, interest, workers' compensation and general
liability insurance, and accounting and administration.
Included in compensation expense are allocated costs for
medical and pension benefits which have been allocated at
rates of 5.1% and 1.6% of direct compensation costs,
respectively. See the unaudited note on pages F-9 and F-10
for further discussion of allocations.
Assets and liabilities reflected in the Statement of Net
Assets Divested have been presented at their historical
carrying values. In addition, the Statement of Net Assets
Divested includes only assets sold under the Agreement and
excludes, among other things, inventory at distribution
centers, assets related to pharmacy receivables and accounts
payable.
REPORTING YEAR AND UNAUDITED INTERIM PERIOD
The reporting period for the Division is a 52/53-week
reporting period ending on the last Saturday in January. The
1994 and 1993 reporting years represent the 52 weeks ended
January 28, 1995, and January 29, 1994, respectively. The
1992 reporting year represents the 53 weeks ended January 30,
1993. The unaudited interim period covers the period from
January 29, 1995 through April 27, 1995, the effective date of
closing of the sale transaction. The Division operated 24
stores during the interim period and as of January 28, 1995,
23 stores as of January 29, 1994, and 22 stores as of January
30, 1993.
- F-5 -<PAGE>
STORE CASH
Store cash reflects estimated cash in registers at each store
location of $5,000 per store. The balance at April 27, 1995
is the amount of cash included in the Agreement.
MERCHANDISE INVENTORIES
Inventories were valued at the lower of cost or market using
the retail method. Inventory balances at January 28, 1995 and
January 29, 1994 were approximately $50,860,000 and
$50,603,000, respectively.
The Statement of Sales and Related Direct Store Operating
Expenses for the unaudited interim period reflects markdowns
to reduce inventory levels prior to the closing date.
LEASEHOLD IMPROVEMENTS AND FURNITURE, FIXTURES AND EQUIPMENT
Significant additions to furniture, fixtures and equipment and
leasehold improvements were capitalized. Maintenance and
repairs were charged to current operations as incurred.
DEPRECIATION AND AMORTIZATION
Furniture, fixtures and equipment were depreciated on a
straight-line basis over the estimated useful lives of the
assets ranging from 3-to-10 years. Leasehold improvements
were amortized on a straight-line basis over the lesser of 10
years or the remaining term of the lease.
LEASEHOLD IMPROVEMENTS AND FURNITURE, FIXTURES AND EQUIPMENT
(in thousands)
April 27, 1995
Furniture, fixtures and equipment $ 9,948
Less accumulated depreciation (6,012)
3,936
Leasehold improvements (net of
accumulated amortization) 2,359
$ 6,295
OTHER CURRENT ASSETS
April 27, 1995
Video cassettes for rental $ 1,620
Supplies 190
$ 1,810
- F-6 -<PAGE>
LEASES
The Division is obligated under operating leases for all of
its store properties. Some of the store leases contain
renewal options with varying terms and conditions. Certain
leases provide for additional rent payments based on a
percentage of store sales. Rent expense consisted of the
following:
Period from
January 29, 1995
through April 27, 1995
(Unaudited) 1994 1993 1992
Minimum rent $1,321 $5,253 $5,115 $4,916
Contingent rent
based on sales 61 277 5 0
Total rent expense $1,382 $5,530 $5,120 $4,916
Number of stores at
period end 24 24 23 22
Future minimum rents under noncancelable operating leases at
January 28, 1995 (in thousands) were:
1995 $5,435
1996 5,678
1997 5,470
1998 4,876
1997 4,664
Thereafter 7,651
Total operating lease commitments $33,774
Present value of operating lease
commitments $17,360
- F-7 -<PAGE>
ALLOCATIONS
(Unaudited)
The Statement of Sales and Related Direct Store Operating
Expenses, as presented in the audited portion of these
financial statements, does not reflect costs for certain
expenses which were allocated.
Administrative allocations were intended to cover costs for
information systems, payroll processing, accounting
processing, and certain corporate overhead costs. Such costs
were historically allocated at a rate equal to 1.5% of sales.
Allowances for receivable write-offs and certain advertising
expenses were allocated as a percentage of the Division's
sales to the total sales for the Woolworth Corporation
operating entity of which the Division was a part prior to the
divestiture. Other advertising expenses were allocated to
each store based on perceived benefits.
The amount of such allocations excluded from the Statement of
Sales and Related Direct Store Operating Expenses were as
follows:
Period from
January 29, 1995
through April 27, 1995 1994 1993 1992
$ 663 $2,855 $2,612 $2,443
Advertising expenses 286 649 686 916
Allowances for receivable
write-offs 433 1,603 1,782 -
Other allocations 177 (2,295) (788) (2,709)
Total allocations $1,599 $2,812 $4,292 $ 650
The amount of such allocations may not be reflective of, and
it is not practicable to estimate, the amount of such expenses
which would have been incurred if the Division were operated
on a stand-alone basis.
- F-8 -<PAGE>
ACCOUNTS RECEIVABLE
(Unaudited)
Accounts receivable were not purchased under the Agreement and
are therefore not presented in the Statement of Net Assets
Divested. The approximate accounts receivable amounts related
to the Division at April 27, 1995, January 28, 1995 and
January 29, 1994 were (in thousands) as follows:
April 27, Jan. 28, Jan. 29,
1995 1995 1994
(Unaudited)
Insurance reimbursement $1,917 $2,323 $1,520
Vendor related 4,419 7,142 7,215
Other 232 232 258
Total $6,568 $9,697 $8,993
- F-9 -
PHARMHOUSE CORP. AND SUBSIDIARIES
PRO FORMA FINANCIAL INFORMATION
(Unaudited)
On April 28, 1995, Pharmhouse Corp. ("Pharmhouse") acquired
(the "Acquisition") the assets and business of 24 "The Rx
Place" deep discount drug stores (the "Rx Place Stores") from
a subsidiary of Woolworth Corporation (collectively,
"Woolworth"). The Acquisition, together with the repayment of
all outstanding indebtedness then owing by Pharmhouse to its
senior and subordinated secured lenders, was financed by a
senior secured revolving credit facility, a secured
subordinated term loan and seller promissory notes (the
"Financing"). The Acquisition and the Financing are further
described in Pharmhouse's Annual Report on Form 10-K (the
"Form 10-K") for the fiscal year ended January 28, 1995
("Fiscal 1995") and in Pharmhouse's Quarterly Report on Form
10-Q (the "Form 10-Q") for the quarterly period ended April
29, 1995 (the "Quarter"), both having been previously filed
with the Securities and Exchange Commission.
The following unaudited pro forma statements of operations for
the Quarter and Fiscal 1995 have been prepared giving effect
to the Acquisition and the Financing as if the Acquisition and
the Financing had occurred on the first day of each respective
period. The pro forma results, however, are not necessarily
indicative of the actual results that may have been obtained
had the Acquisition and the Financing actually occurred on
such respective dates.
The historical information presented for Pharmhouse reflects
the information contained, (i) for the Quarter, in
Pharmhouse's unaudited consolidated financial statements
included in the Form 10-Q and, (ii) for Fiscal 1995, in
Pharmhouse's audited consolidated financial statements
included in the Form 10-K. The historical financial
information presented for the Rx Place Stores, which does not
purport to represent a complete historical statement of
operations of the Rx Place Stores but only reflects direct
store level results of operations and not related overhead
costs of Woolworth (as described in the notes to the financial
statements of The Rx Place Division included elsewhere in this
Form 10-K/A), reflects the information contained in the
statements of sales and direct store operating expenses of the
acquired business for the fiscal year ended January 28, 1995
(audited) and for the period from January 29, 1995 through
April 27, 1995 (unaudited), each of which has been prepared by
Woolworth and is included elsewhere in this Form 10-K/A.
- F-10 -
A pro forma balance sheet as of January 28, 1995 has not been
presented because Pharmhouse's consolidated balance sheet as
of April 29, 1995, which was included in the Form 10-Q, gives
effect to the Acquisition.
The unaudited pro forma statements of operations should be
read in conjunction with the notes thereto and (i) with
respect to Pharmhouse, with the audited and unaudited
consolidated financial statements and notes thereto included
in the Form 10-Q and Form 10-K, respectively, and (ii) with
respect to the Rx Place Stores, with the audited and unaudited
statements of net assets of the acquired business, of sales
and direct store operating expenses of the acquired business
and of cash flows of the acquired business and notes thereto,
included elsewhere in this Form 10-K/A.
- F-11 -
PHARMHOUSE CORP. AND SUBSIDIARIES
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 28, 1995
(Unaudited)
(in thousands)
Pharmhouse The Rx Pro Forma Pro Forma
Corp. Place Adjust. Condensed
Revenues:
Net store sales $ 86,838 $190,304 $277,142
Video rental, service
and other income 2,764 2,764
89,602 190,304 279,906
Costs and expenses:
Cost of merchandise
sold 68,377 157,779 226,156
Selling, general and
administrative 22,262 31,409 $ 1,818 55,489
Interest expense 960 3,283 4,243
91,599 189,188 5,101 285,888
Net (Loss) Income $ (1,997) $ 1,116* $ (5,101) $ (5,982)
Loss per Common Share:
Average shares
outstanding 2,225,767 2,225,767
Net (loss) income
Common Share ($0.90) ($2.69)
* Represents income from sales and related direct store operating
expenses.
See accompanying notes to pro forma condensed financial statements
- F-12 -
PHARMHOUSE CORP. AND SUBSIDIARIES
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED APRIL 29, 1995
(Unaudited)
(in thousands)
Pharmhouse The Rx Pro Forma Pro Forma
Corp. Place Adjust. Condensed
Revenues:
Net store sales $ 20,947 $ 44,199 $ 65,146
Video rental, service
and other income 645 645
21,592 44,199 65,791
Costs and expenses:
Cost of merchandise
sold 16,546 47,975 64,521
Selling, general and
administrative 5,568 7,962 $ 419 13,949
Interest expense 302 770 1,072
22,416 55,937 1,189 79,542
Net (Loss) Income $ ( 824) $(11,738)* $ (1,189) $(13,751)
Loss per Common Share:
Average shares
outstanding 2,235,627 2,235,627
Net (loss) income per
Common Share ($0.90) ($6.15)
* Represents loss from sales and related direct store operating
expenses.
See accompanying notes to pro forma condensed financial statements
- F-13 -
PHARMHOUSE CORP. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED APRIL 29, 1995
AND THE YEAR ENDED JANUARY 28, 1995
(Unaudited)
NOTE 1 - PRINCIPLES OF PREPARATION OF PRO FORMA CONDENSED
STATEMENTS OF OPERATIONS:
The accompanying Pro Forma Condensed Statement of Operations
("Pro Forma") for the three months ended April 29, 1995 and
the year ended January 28, 1995 were prepared giving effect to
the Acquisition and the Financing as if the Acquisition and
the Financing had occurred on the first day of each respective
period. The Pro Forma results, however, are not necessarily
indicative of the actual results that may have been obtained
had the Acquisition and the Financing actually occurred on
such respective dates.
NOTE 2 - ACQUISITION:
On April 28, 1995, Pharmhouse acquired the assets and business
of 24 Rx Place Stores from Woolworth for approximately $37
million, of which approximately $21.9 million was paid in cash
at closing, $1.7 million was paid in late June and early July,
approximately $0.7 million will be paid shortly based upon
delivery of merchandise to the Company's warehouse from one of
the Woolworth warehouses and the balance is represented by
promissory notes (the "Purchase Money Notes") with maturity
dates ranging from January 1996 to April 1998. Approximately
$3.5 million in cash (paying off approximately $4.1 million of
the $6.5 million note, representing a 15% discount of
approximately $0.5 million) was prepaid on June 28, 1995. The
assets acquired consist of merchandise inventories, furniture,
fixtures and equipment, store supplies and related items, all
subject to post-closing review and potential adjustments. In
addition, the Company assumed Woolworth's obligations under
the leases of the Rx Place Stores as well as certain other
obligations of Woolworth specified in the Acquisition
Agreement.
NOTE 3 - BORROWINGS:
On April 28, 1995, Pharmhouse also consummated the Financing,
the proceeds of which were used as described in Note 3 to the
financial statements included in the Form 10-Q.
- F-14 -<PAGE>
NOTE 4 - INTEREST:
Interest expense in the first quarter of Fiscal 1996 and
Fiscal 1995 was $302,000 and $960,000, respectively. The Pro
Forma Condensed Statement of Operations for the first quarter
of Fiscal 1996 and Fiscal 1995 assume that the Senior Secured
Credit Facility and the Subordinated Loan were in effect for
the periods and therefore reflect interest in the amount of
$1,072,000 and $4,243,000, calculated at the rates of Prime
plus 1.5% and Prime plus 3%, respectively. The amount of
interest actually accrued in each fiscal period has been
deducted from the pro forma financial statements and $770,000
and $3,283,000 for the first quarter of Fiscal 1996 and Fiscal
1995, respectively, are reflected in the Pro Forma. The
amounts of interest reflected in the Pro Formas were
calculated based on estimated average borrowings and the
actual interest rates in accordance with the new Financing.
NOTE 5 - SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
The Statement of Sales and Related Direct Store Operating
Expenses as presented in the audited and unaudited portions of
The Rx Place financial statements do not reflect costs for
certain expenses of Woolworth (as described in the notes to
the financial statements of The Rx Place Division included
elsewhere in this Form 10-K/A). The Pro Forma Condensed
Statement of Operations for Pharmhouse Corp. include pro forma
adjustments representing the following adjustments to general
and administrative expenses:
(1) Advertising expenses, net of vendor receivables, for the
24 acquired stores are reflected in the Pro Forma Financial
Statements in the amount of $334,000 and $1,334,000 for the
first quarter of Fiscal 1996 and Fiscal 1995, respectively.
These amounts have been calculated based upon the Pharmhouse
historical store advertising expenses.
(2) Employment expenses, including fringe benefits and
workers' compensation insurance (calculated based upon the
Pharmhouse historical expenses), of the 24 acquired stores are
reflected in the Pro Forma financial statements in the amount
of $891,000 and $3,673,000, for the first quarter of fiscal
1996 and Fiscal 1995, respectively. The amount of employment
expenses reported by Woolworth in the Rx Place Store
Financials for the first quarter of Fiscal 1996 and Fiscal
1995 have been eliminated from the Pro Forma financial
statements to properly reflect the net employment expenses as
if the acquisition occurred at the beginning of the respective
periods. These additional expenses are for the cost of
additional supervisory and managerial employees required as a
result of the Acquisition.
- F-15 -
(3) Depreciation expense has been eliminated as there was no
allocation of the purchase price to property, fixtures and
equipment, in accordance with APB 16 purchase accounting
guidelines.
(4) Insurance expenses were not included in the Rx Place
Store Financials. The Pro Forma financial statements include
estimated insurance expenses of $139,000 and $554,000 for the
first quarter of Fiscal 1996 and Fiscal 1995, respectively,
which have been calculated based on actual increases in
insurance premiums.
(5) Administrative expenses of $100,000 and $398,000 for the
first quarter of Fiscal 1996 and Fiscal 1995, respectively,
have been included in the Pro Forma financial statements to
reflect additional expenses for payroll processing,
information systems, accounting processing, store level
inventory services and other corporate overhead expenses that
were not included in the Rx Place Store Financials.
- F-16 -