<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-KA
Amendment No. 1
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 8, 1998 Closing Date
VALUE CITY DEPARTMENT STORES, INC.
(Exact name of registrant as specified in its charter)
OHIO
(State or other jurisdiction of incorporation)
1-10767 NO. 31-1322832
(Commission File Number) (IRS Employer Identification No.)
3241 WESTERVILLE ROAD, COLUMBUS, OHIO 43224
(Address of principal executive offices) (Zip Code)
(614) 471-4722
(Registrant's telephone number, including area code)
<PAGE> 2
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements.
The following financial statements for the acquired business are filed
herewith:
Shonac Corporation and Subsidiary: Report on Audits of
Consolidated Financial Statements for the fiscal years Ended
January 3, 1998 and January 4, 1997.
Shonac Corporation and Subsidiary: Consolidated Financial
Statements for the three months ended April 4, 1998 and April
5, 1997 (unaudited).
(b) Pro Forma Financial Information.
The following unaudited proforma condensed consolidated financial
statements are filed with this report:
Pro Forma Condensed Consolidated Balance Sheet as of May 2,
1998
Pro Forma Condensed Consolidated Statements of Income;
Nine Months Ended May 2, 1998
Fiscal Year Ended August 2, 1997
(c) Exhibits.
2.1* Stock Purchase Agreement entered into as of May 1, 1998
between the Company and Schottenstein Stores Corporation
("SSC") and Nacht
Management Inc.
2.2* Asset Purchase Agreement entered into as of May 1, 1998
between the Company and Valley Fair Corporation, an
affiliate of SSC.
23 Consent of PricewaterhouseCoopers LLP
* Included with, and incorporated herein by reference to, the
Registrant's Current Report on Form 8-K dated May 8, 1998.
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
VALUE CITY DEPARTMENT STORES, INC.
(Registrant)
By /s/ Robert M. Wysinski
-------------------------------------------
Robert M. Wysinski, Senior Vice President,
Chief Financial Officer, Treasurer
And Secretary *
Date: July 21, 1998
- --------------------------------------------------------------------------------
* Mr. Wysinski is the principal financial officer and has been duly authorized
to sign on behalf of the registrant.
<PAGE> 4
SHONAC CORPORATION AND SUBSIDIARY
REPORT ON AUDITS OF CONSOLIDATED FINANCIAL STATEMENTS
for the fiscal years ended January 3, 1998 and January 4, 1997
<PAGE> 5
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and
the Board of Directors of
Shonac Corporation
We have audited the accompanying consolidated balance sheets of Shonac
Corporation and Subsidiary as of January 3, 1998 and January 4, 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the years ended January 3, 1998 and January 4, 1997. These consolidated
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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Shonac
Corporation and Subsidiary as of January 3, 1998 and January 4, 1997 and the
results of their operations and their cash flows for the years ended January 3,
1998 and January 4, 1997 in conformity with generally accepted accounting
principles.
/s/COOPERS & LYBRAND L.L.P.
Columbus, Ohio
March 13, 1998
1
<PAGE> 6
SHONAC CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, as of January 3, 1998 and January 4, 1997
--------
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
Current assets: 1997 1996
------------ ------------
Accounts and notes receivable:
Affiliates (Note 6) $ 1,078,403 $ 27,381
Other 885,866 1,298,635
Inventories (Note 1) 79,664,615 65,986,945
Prepaid expenses and advances 580,818 214,102
Deferred taxes 6,012,615 4,993,951
------------ ------------
Total current assets 88,222,317 72,521,014
------------ ------------
Notes receivable:
Affiliates (Note 6) 1,195,707 956,262
------------ ------------
Property and equipment, at cost (Note 1):
Fixtures and equipment 12,734,272 13,273,373
Leasehold improvements 13,753,077 10,581,981
Building and improvements 681,185 694,422
------------ ------------
27,168,534 24,549,776
Less accumulated depreciation
and amortization 11,822,466 11,561,053
------------ ------------
15,346,068 12,988,723
Fixtures in progress 178,728 115,908
Land 125,041 125,041
------------ ------------
15,649,837 13,229,672
------------ ------------
Deferred taxes 977,966 743,900
Other assets (Note 6) 3,433,575 3,196,038
------------ ------------
$109,479,402 $ 90,646,886
============ ============
</TABLE>
Continued
2
<PAGE> 7
CONSOLIDATED BALANCE SHEETS, Continued
--------
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Current liabilities:
Notes payable, bank $ 5,800,000 $ 5,100,000
Notes payable, affiliate 261,746
Accounts payable, trade 37,321,698 27,052,722
Federal income taxes payable 1,098,778 1,420,508
Payable to affiliate (Note 6) 4,934,031 4,491,589
Accrued expenses 4,702,355 6,123,425
------------ ------------
Total current liabilities 53,856,862 44,449,990
------------ ------------
Other liabilities 341,158 227,158
------------ ------------
Stockholders' equity:
Common stock, no-par value, $1.00
stated value; 500 shares authorized,
410.5048 shares issued and
outstanding 411 411
Capital contributed in excess of
stated value 674,690 674,690
Retained earnings 54,606,281 45,294,637
------------ ------------
Total stockholders' equity 55,281,382 45,969,738
------------ ------------
$109,479,402 $ 90,646,886
============ ============
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
3
<PAGE> 8
CONSOLIDATED STATEMENTS OF INCOME
for the years ended January 3, 1998 and January 4, 1997
--------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Net sales $ 299,397,124 $ 248,181,393
Cost of sales 180,125,587 146,991,973
------------- -------------
119,271,537 101,189,420
Selling and administrative expenses 103,889,406 88,849,936
------------- -------------
15,382,131 12,339,484
------------- -------------
Interest expense, net 867,226 696,979
------------- -------------
Income before income taxes 14,514,905 11,642,505
------------- -------------
Income taxes (Notes 1 and 4):
Federal:
Current 5,475,000 3,711,034
Deferred (1,049,920) 466,783
------------- -------------
4,425,080 4,177,817
------------- -------------
State and local:
Current 980,991 746,402
Deferred (202,810) 42,067
------------- -------------
778,181 788,469
------------- -------------
5,203,261 4,966,286
------------- -------------
Net income $ 9,311,644 $ 6,676,219
============= =============
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
4
<PAGE> 9
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the years ended January 3, 1998 and January 4, 1997
--------
<TABLE>
<CAPTION>
Capital
Contributed
in Excess
Common of Stated Retained
Stock Value Earnings Total
----- --------- ------------- ------------
<S> <C> <C> <C> <C>
Balance, December 31,
1996 $411 $674,690 $38,618,418 $39,293,519
Net income 6,676,219 6,676,219
----- -------- ------------- ------------
Balance, January 4,
1997 411 674,690 45,294,637 45,969,738
Net income 9,311,644 9,311,644
----- -------- ------------ -----------
Balance, January 3,
1998 $411 $674,690 $54,606,281 $55,281,382
==== ======= =========== ===========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
5
<PAGE> 10
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended January 3, 1998 and January 4, 1997
---------
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash provided from operating activities:
Net income $ 9,311,644 $ 6,676,219
Adjustments to reconcile net income
to net cash (used in) provided by operating
activities:
Depreciation and amortization 3,030,851 2,526,971
Deferred income taxes (1,252,730) 508,850
Loss on disposal of property and
equipment 363,934 165,930
Change in assets and liabilities:
Accounts and notes receivable (638,253) (572,190)
Inventories (13,677,670) (17,524,645)
Prepaid expenses and advances (366,716) (125,445)
Accounts payable, trade 11,917,976 5,197,810
Federal income taxes payable (321,730) 380,156
Payable to affiliate 442,442 2,074,151
Accrued expenses (1,421,070) (171,699)
Other liabilities 114,000 127,158
------------ ------------
Net cash provided by (used in) operating
activities 7,502,678 (736,734)
------------ ------------
Cash flows from financing activities:
Cash overdraft (1,649,000) 2,395,000
(Decrease) increase in note payable - affiliate (261,746) 261,746
Increase in note payable - bank 700,000 5,100,000
------------ ------------
Net cash (used) provided by financing
activities (1,210,746) 7,756,746
------------ ------------
</TABLE>
Continued
6
<PAGE> 11
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
----------
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from investing activities:
Additions to property and equipment $(6,121,900) $(8,161,433)
Increase in other assets (237,537) (356,014)
Proceeds from sale of property and
equipment 306,950 183,176
Increase in notes receivable (239,445) (315,729)
----------- -----------
Net cash used for investing
activities (6,291,932) (8,650,000)
----------- -----------
Change in cash and cash equivalents - 0 - (1,629,988)
Cash and cash equivalents, beginning
of year - 0 - 1,629,988
----------- -----------
Cash and cash equivalents,
end of year -0 - $ -0-
=========== ===========
Supplemental disclosures of cash
flow information:
Cash paid for interest $ 994,767 $ 557,578
=========== ===========
Income taxes paid $ 6,848,677 $ 3,956,901
=========== ===========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
7
<PAGE> 12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
---------
1. SUMMARY OF ACCOUNTING POLICIES:
The following is a summary of certain significant accounting policies
followed in the preparation of the consolidated financial statements.
The policies conform to generally accepted accounting principles and
have been consistently applied. Other significant accounting policies
are disclosed in other notes to the consolidated financial statements.
FISCAL YEAR:
The fiscal year 1996 is the 53-week reporting period ended
January 4, 1997. The fiscal year 1997 is the 52-week reporting
period ended January 3, 1998. To conform with the retail
industry practice, the Company is using the National Retail
Federation's (NRF) monthly periods.
ORGANIZATION:
Shonac Corporation and Subsidiary (The Company) operates
retail shoe stores and licensed departments. The Company is
affiliated with Schottenstein Stores Corporation, which owns
50% of the Company's common stock.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of
Shonac Corporation and its subsidiary. All significant
intercompany transactions are eliminated.
CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased
with an original maturity of three months or less to be cash
equivalents. At January 3, 1998, and January 4, 1997, there
were no significant concentrations of cash deposited with any
single commercial bank.
INVENTORIES:
Merchandise inventories are valued at the lower of cost or
market, using the retail method.
Continued
8
<PAGE> 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
PROPERTY AND EQUIPMENT:
Depreciation and amortization are recognized using the
straight-line method in amounts adequate to amortize costs
over the estimated useful lives of the respective assets.
Fixtures and equipment are generally depreciated over 5-10
years. Leasehold improvements are amortized over the shorter
of the lease term, including renewal options, or the estimated
life of the improvement, not to exceed 10 years. The building
is depreciated over 31-1/2 years.
Expenditures for maintenance, repairs and minor renewals are
charged to operating expenses as incurred; major renewals and
betterments are capitalized. Items of property and equipment
disposed of are removed from the asset and accumulated
depreciation or amortization accounts, and any profit or loss
from disposition is included in operations.
INCOME TAXES:
The Company uses Statement of Financial Accounting Standards
(SFAS) No. 109, Accounting for Income Taxes, which requires
recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been
recognized in the financial statements or tax returns. Under
this method, deferred tax assets and liabilities are
determined based on the difference between the financial
statement and tax bases of the assets and liabilities using
enacted tax rates.
ADVERTISING:
The Company expenses advertising costs as incurred.
Advertising expense was $13,891,747 in 1997 and $11,145,000 in
1996.
COMPENSATED ABSENCES:
The Company accounts for the cost of vacation and sick pay
over the period the related employee services are performed.
Continued
9
<PAGE> 14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
PRE-OPENING AND CLOSING EXPENSES:
Expenses incurred in connection with the opening of new stores
are charged to expense as incurred. Costs associated with the
closing of operating units are provided when management
determines to close such units. Direct costs associated with
the closing of retail units charged against income were $- 0 -
in 1997 and $730,000 in 1996 and are included in selling and
administrative expenses. As of January 3, 1998 and January 4,
1997, the aggregate reserves for closing costs were $965,000
and $1,985,000, respectively, and are included in accrued
expenses.
During 1997 and 1996, three and four retail units,
respectively, were closed with aggregate sales of
approximately $2,306,000 in 1997 and $2,909,000 in 1996. An
additional three retail units, with aggregate 1997 sales of
$3,579,583, are scheduled to be closed during 1998.
ESTIMATES:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
ADOPTION OF NEW ACCOUNTING STANDARD:
During March 1995, the Financial Accounting Standards Board
issued SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of. The
statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that full
recoverability is questionable. Management evaluates the
recoverability of long-lived assets and several factors are
used in the valuation including, but not limited to,
management's plans for future operations, recent operating
results and projected cash flows. The Company adopted SFAS No.
121 in 1996, the adoption of which did not have a material
effect on the results of operations or financial condition.
Continued
10
<PAGE> 15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
RECLASSIFICATIONS:
Certain prior-year amounts have been reclassified to conform to the
current-year financial statement presentation.
2. NOTES PAYABLE, BANK:
At January 3, 1998 and January 4, 1997, the Company had a $30,000,000
and $20,000,000, respectively, unsecured line of credit, due on demand
bearing interest either at prime (8.50% at January 3, 1998 and 8.25% at
January 4, 1997) or LIBOR plus 2%. The outstanding balance on the line
was $5,800,000 at January 3, 1998 and $5,100,000 at January 4, 1997.
3. LEASES:
The Company's policy for financial accounting and reporting for lease
agreements is consistent with the standards established by the
Financial Accounting Standards Board. The Company has leases covering
real property and equipment, some of which contain renewal options.
The leases generally provide that the Company shall pay for insurance,
taxes and maintenance. Some of the leases provide for contingent
rentals determined on the basis of percentage of sales and some leases
have escalation clauses. Management expects that, in the normal course
of business, leases that expire will be renewed.
In addition, the Company has license agreements for licensed
departments based on a percentage of sales with various adjustments for
such costs as payroll and advertising.
The future minimum rental payments required under operating leases that
have initial or remaining noncancelable lease terms longer than one
year as of January 3, 1998 are as follows:
<TABLE>
<CAPTION>
Fiscal Operating Sublease Net
Year Leases Rentals Obligation
------ --------- -------- ----------
<S> <C> <C> <C>
1998 $ 14,000,096 $ 72,000 $ 13,928,096
1999 15,309,963 72,000 15,237,963
2000 14,335,548 60,000 14,275,548
2001 13,380,899 13,380,899
2002 11,865,137 11,865,137
Later years 85,693,374 85,693,374
------------- ------------- ---------------
Total minimum lease
payments $ 154,585,017 $ 204,000 $ 154,381,017
============= ============== ===============
</TABLE>
Continued
11
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
--------
Composition of rental expense for the years ended January 3, 1998 and
January 4, 1997 is as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Minimum and monthly rentals $10,062,988 $ 6,253,593
Contingent rentals 465,446 175,578
Licensed department license fees 16,923,176 14,817,645
Sublease rentals (72,000) (94,167)
----------- -----------
$27,379,610 $ 21,152,649
=========== ===========
</TABLE>
4. INCOME TAXES:
At January 3, 1998 and January 4, 1997, the Company had net deferred
tax assets of $6,990,000 and $5,737,851, respectively.
Deferred assets reflect the tax benefit of temporary differences
arising from basis differences in property and equipment, inventory,
store closing reserves and state and local tax accruals.
Effective tax rates differ from the anticipated statutory federal
income tax rate of 34%. Reconciliation between the statutory federal
tax rate and the effective tax rates based upon pretax income is as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Statutory rate 34.0% 34.0%
Increase (decrease) in taxes resulting from:
State and local taxes, net (2.0) (1.8)
Non-deductible meals expense .3 1.0
Officers' life insurance premiums (.1) .3
Other .2 .3
------ ------
Subtotal 32.4 33.8
Deferred tax account estimate adjustments (2.0) 2.1
------ ------
Effective tax rate - federal 30.4 35.9
Effective tax rate - state 5.4 6.8
----- -----
35.8% 42.7%
==== ====
</TABLE>
Continued
12
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
-------
5. RETIREMENT PLAN:
The Company participates in a 401(k) savings plan (the Plan) sponsored
by Schottenstein Stores Corporation, a related party (see Note 6).
Full-time employees who have attained twenty and one-half years of age
and have completed one year of service can contribute up to 15 percent
of their salaries to the Plan on a pretax basis, subject to the IRS
limitations. The Company will match up to three percent of the
participant's eligible compensation. Additionally, the Company
contributes a discretionary profit sharing amount to the Plan each
year. Expenses incurred under the Plan were $191,000 in 1997 and
$144,000 in 1996.
6. RELATED PARTY TRANSACTIONS:
Schottenstein Stores Corporation (SSC), an affiliate, and various
corporations and partnerships owned and controlled by the Schottenstein
family are parties to numerous licenses and lease transactions with the
Company.
Nacht Management Company Limited Partnership (NM), an affiliate,
provides management and/or consulting services for the Company. The
Company pays NM 3.5% of their wholesales sales, 3% of their retail
sales, and 30% of income before taxes for the services provided.
Effective August 1, 1997, the fees charged to the Company were changed
to 2.25% of wholesale sales, 2.25% of retail sales and 30% of income
before taxes for the services provided. In addition, certain
administrative services are provided to the Company by SSC.
Continued
13
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------
Significant related party transactions for the years ended January 3,
1998 and January 4, 1997 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Leased department license
fees to SSC $16,923,176 $14,817,645
Management fees to NM 14,290,049 13,129,648
Administrative fees charged
by SSC 2,120,264 2,008,682
Insurance costs charged
by SSC 760,356 662,591
Interest expense to related
parties 62,314 8,779
Interest income from related
parties 853 1,366
Rental income from NM 727,198 723,851
Balances due to and from related parties at January 3, 1998 and January
4,1997 are as follows:
1997 1996
----------- -----------
Net payable to SSC $ 468,566
Net receivable from SSC $ 1,064,537
Receivable from officers,
employees and
shareholders 13,866 983,643
Security deposit with NM,
included in other assets 500,000 500,000
Net payable to NM 4,836,501 3,972,170
Note payable, affiliate 261,746
Payable to employees 97,497 50,853
</TABLE>
Continued
14
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------
The Company paid life insurance premiums on behalf of certain of its
shareholders during 1997 and 1996. Such premiums are to be reimbursed
to the Company from the proceeds of the related insurance policies upon
the death of an officer/shareholder. The Company had recorded these
payments as noninterest-bearing notes receivable from shareholders as
follows:
<TABLE>
<CAPTION>
January 3, January 4,
1998 1997
-------- ---------
<S> <C> <C>
Noninterest bearing notes $2,789,000 $ 2,326,000
Less unamortized discount
based on imputed interest
rate of 8.50% 1,593,000 1,370,000
----------- ----------
Notes receivable less
unamortized discount $ 1,196,000 $ 956,000
=========== ===========
</TABLE>
7. LITIGATION:
The Company is involved in several claims in the ordinary course of
business. Management, after discussion with counsel, is of the opinion
that the claims will be resolved without significant impact to the
financial condition or operations of the Company.
8. LETTERS OF CREDIT:
Letters of credit are conditional commitments issued on behalf of
customers to pay third parties in accordance with specified terms and
conditions. At January 3, 1998 and January 4, 1997, the Company had
outstanding letters of credit of $5,129,000 and $4,872,000,
respectively, not reflected in the accompanying consolidated financial
statements.
Continued
15
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
------
9. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following method and assumptions were used to estimate the fair
value of each class of financial instruments for which it is
practicable to estimate that value:
Current assets and current liabilities
The carrying value of accounts receivable, accounts payable, accrued
expenses, and notes payable approximates fair value because of their
short maturity.
10. SUBSEQUENT EVENT:
On March 12, 1998, the Company announced that a letter of intent has
been signed by its shareholders that provides that all of the
outstanding common shares of the Company's stock will be purchased by
Value City Department Stores, Inc., an affiliate of SSC.
The purchase price related to this transaction is $100 million. The
acquisition is subject to the execution of definitive agreements and
approval by the Buyer's independent directors.
16
<PAGE> 21
SHONAC CORPORATION AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
for the quarters ended April 4, 1998 and April 5, 1997
<PAGE> 22
SHONAC CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, as of April 4, 1998 and April 5, 1997
(unaudited)
--------
<TABLE>
<CAPTION>
1998 1997
---- ----
ASSETS
<S> <C> <C>
Current assets:
Accounts and notes receivable:
Affiliates $ 3,636,466 $ 2,780,592
Other 1,713,454 619,107
Inventories 97,444,884 68,781,768
Prepaid expenses and advances 865,205 222,978
Deferred taxes 6,082,823 4,985,650
------------ ------------
Total current assets 109,742,832 77,390,095
Property and equipment, net 15,882,891 14,908,587
Deferred taxes 1,158,634 949,649
Notes receivable, affiliate 1,232,719 1,082,435
Other assets 3,533,346 3,280,735
------------ ------------
Total assets $131,550,422 $ 97,611,501
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, bank $ 22,500,000 $ 16,451,056
Accounts payable, trade 45,404,756 24,713,295
Federal income taxes payable 941,363 814,111
Payable to affiliate 753,531 941,649
Accrued expenses 5,523,080 7,695,323
------------ ------------
Total current liabilities 75,122,730 50,615,434
------------ ------------
Other liabilities 389,253 277,158
------------ ------------
Stockholders' equity:
Common stock, no-par value, $1.00
stated value; 500 shares authorized,
410.5048 shares issued and
outstanding 411 411
Capital contributed in excess of
stated value 674,690 674,690
Retained earnings 55,363,338 46,043,808
------------ ------------
Total stockholders' equity 56,038,439 46,718,909
------------ ------------
Total liabilities and
stockholders' equity $131,550,422 $ 97,611,501
============ ============
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
1
<PAGE> 23
CONSOLIDATED STATEMENTS OF INCOME
for the three months ended April 4, 1998 and April 5, 1997
(unaudited)
--------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Net sales $72,344,357 $61,459,340
Cost of sales 45,735,749 38,069,947
----------- -----------
26,608,608 23,389,393
Selling and administrative expenses 25,165,808 21,933,427
----------- -----------
1,442,800 1,455,966
Interest expense, net 179,623 195,043
----------- -----------
Income before income taxes 1,263,177 1,260,923
Income taxes 506,120 511,752
----------- -----------
Net income $ 757,057 $ 749,171
=========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
2
<PAGE> 24
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
for the three months ended April 4, 1998 and April 5, 1997
(unaudited)
--------
<TABLE>
<CAPTION>
Capital
Contributed
in Excess
Common of Stated Retained
Stock Value Earnings Total
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, January 4,
1997 $ 411 $ 674,690 $45,294,637 $45,969,738
Net income 749,171 749,171
----------- ----------- ----------- -----------
Balance, April 5, 1997 $ 411 $ 674,690 $46,043,808 $46,718,909
=========== =========== =========== ===========
Balance, January 3,
1998 $ 411 $ 674,690 $54,606,281 $55,281,382
Net income 757,057 757,057
----------- ----------- ----------- -----------
Balance, April 4,
1998 $ 411 $ 674,690 $55,363,338 $56,038,439
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
3
<PAGE> 25
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the three months ended April 4, 1998 and April 5, 1997
(unaudited)
---------
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Cash provided from operating activities:
Net income $757,057 $749,171
Adjustments to reconcile net income
to net cash (used in) provided by operating
activities:
Depreciation and amortization 815,459 403,824
Deferred income taxes (250,876) (197,448)
Change in assets and liabilities:
Accounts and notes receivable (3,385,651) (2,073,683)
Inventories (17,780,269) (2,794,823)
Prepaid expenses and advances (284,386) (8,876)
Accounts payable, trade 6,035,900 (2,667,334)
Federal income taxes payable (157,415) (606,397)
Payable to affiliate (4,180,500) (3,499,087)
Accrued expenses 820,725 1,521,045
Other liabilities 48,095 50,000
------------- -------------
Net cash used in operating
activities (17,561,861) (9,123,608)
----------- -----------
Cash flows from financing activities:
Cash overdraft 2,047,158 66,160
Increase in note payable - bank and affiliate 16,700,000 11,351,056
---------- ----------
Net cash provided by financing activities 18,747,158 11,417,216
---------- ----------
Cash flows from investing activities:
Additions to property and equipment (1,048,514) (2,082,739)
Increase in other assets (99,771) (84,697)
Increase in notes receivable (37,012) (126,172)
------------- -----------
Net cash used for investing
activities (1,185,297) (2,293,608)
----------- ----------
Change in cash and cash equivalents - 0 - - 0 -
Cash and cash equivalents, beginning
of year - 0 - - 0 -
----------------- ------------
Cash and cash equivalents,
end of period $ - 0 - $ - 0 -
================ ==========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
4
<PAGE> 26
SHONAC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED APRIL 4, 1998 AND APRIL 5, 1997
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of Shonac Corporation (Shonac) and its wholly owned
subsidiary. These entities are herein referred to collectively as the
"Company." The Company operates the shoe departments in a full-line
off-price department store chain and also operates free standing
shoe stores under the name of "DSW Shoe Warehouse" and "Crown Shoes."
The interim consolidated financial statements are unaudited and
accordingly, should be read in conjunction with the financial
statement disclosures contained in the audited Consolidated Financial
Statements for the fiscal years ended January 3, 1998 and January 4,
1997. In the opinion of management, the accompanying consolidated
financial statements reflect all adjustments necessary (which are of a
normal recurring nature) to present fairly the financial position and
results of operations and cash flows for the interim periods
presented, but are not necessarily indicative of the results of
operations for a full fiscal year.
2. INCOME TAXES
The effective tax rate for the three months ended April 4, 1998 was
40.0%. The effective tax rate for the three months ended April 5, 1997
was 40.6%. The 0.6% reduction is due to the utilization of tax
credit carry forwards.
3. YEAR 2000 COMPLIANCE
The Company's merchandise, warehouse management and general ledger
systems are not yet year 2000 compliant. The Company intends to
replace its merchandise system with purchased software which is year
2000 compliant. The total cost of the new systems will be
approximately $1.2 million and implementation is scheduled for 1999.
Program modifications to make the warehouse management system year
2000 compliant are scheduled for fall of 1998 and will cost
approximately $0.1 million. The general ledger package will become
year 2000 compliant after a standard upgrade is completed in fall of
1998 at minimal cost.
The failure of the Company, Value City Department Stores, Inc., or any
of their significant suppliers or business partners to successfully
address the year 2000 compliance issue could potentially have a
material adverse affect on the business and financial performance of
the Company or Value City Department Stores, Inc.
5
<PAGE> 27
SHONAC CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED APRIL 4, 1998 AND APRIL 5, 1997
This report contains a "forward-looking statement," made pursuant to
the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995, relating to the Company's expectations concerning the
implementation of year 2000 compliant computer systems. Investors are
cautioned that such expectations involve risks and uncertainties that
could cause actual results to differ materially from the anticipated
results, including, without limitations, the possible inability to
completely or successfully instal such systems on a timely basis,
and other risks detailed in other filings with the Securities and
Exchange Commission by Value City Department Stores, Inc.
4. SUBSEQUENT EVENT
At a closing on May 8, 1998, 99.9% of the common stock of the Company
was acquired by Value City Department Stores, Inc. ("VCDS"). The
purchase price for the acquisition was $99.9 million. The Company has
been the shoe licensee in all VCDS stores since the Company's inception
in 1969.
The acquisition is being accounted for as a purchase and is effective
as of May 3, 1998. The Company's $30.0 million credit facility was
replaced with participation in VCDS's new $185.0 million unsecured
revolving credit facility. The facility has a three-year term and
generally bears interest at a floating rate of LIBOR plus 1.5%. The
interest rate on $40.0 million has been locked in at a fixed rate of
7.395% for a three-year period under a SWAP agreement. The terms of
the credit facility require VCDS to comply with certain restrictive
covenants and financial ratio tests; maintain minimum consolidated
tangible net worth and consolidated total debt to consolidated
adjusted earnings before interest, taxes, depreciation and
amortization ratios; and, limits the amount of annual capital
expenditures.
6
<PAGE> 28
VALUE CITY DEPARTMENT STORES, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On May 8, 1998, Value City Department Stores, Inc.(the "Company") purchased
99.9% of the common stock of Shonac Corporation ("Shonac") from Nacht
Management, Inc. and Schottenstein Stores Corporation ("SSC"), pursuant to that
certain Stock Purchase Agreement, dated as of May 1, 1998. SSC owns
approximately 62% of the Company's outstanding common stock. The Company also
acquired the store operations of Valley Fair Corporation ("Valley Fair") from
SSC. Shonac has operated, as Licensee, the shoe departments in the Company's
department stores since Shonac's inception in 1969. Shonac also operates a chain
of free-standing retail shoe outlets located throughout the United States,
principally under the name DSW Shoe Warehouse. Valley Fair operates two
department stores located in Irvington and Little Ferry, New Jersey. The Company
has been a licensee of certain departments in these two stores for 18 years. The
negotiated purchase price for Shonac and Valley Fair was $108.4 million. The
acquisitions, effective as of May 3, 1998, were funded by cash provided by
operations and approximately $87.9 million from the Company's new long-term
revolving bank credit facility. The aggregate amount available under the bank
facility is $185.0 million.
The pro forma condensed consolidated balance sheet as of May 2, 1998 assumes the
acquisitions took place on that date and is based on the Company's unaudited
historical balance sheet, as reported on Form 10-Q for the respective period,
and Shonac's and Valley Fair's unaudited historical balance sheets as of May 2,
1998. The pro forma adjustments eliminate the Shonac and Valley Fair assets and
liabilities not acquired, record the pro forma purchase price of $108.4 million
and allocate the pro forma purchase price to the assets acquired and the
liabilities assumed based on their estimated fair market values on date of
acquisition. The pro forma adjustments relating to the acquisition represent the
Company's preliminary determinations of purchase accounting adjustments based on
available information and certain assumptions that the Company considers
reasonable under the circumstances. The acquisition has been accounted for under
the purchase method of accounting.
The pro forma condensed consolidated statement of income for the nine months
ended May 2, 1998 includes the Company's unaudited historical statement of
income, as reported on Form 10-Q for the respective period, and Shonac's and
Valley Fair's unaudited historical statements of income for the nine months
ended May 2, 1998. Shonac's statement of income was derived from its historical
statement of income for the year ended January 3, 1998 and its unaudited
historical statement of income for the three months ended April 4, 1998 (copies
included with this filing) adjusted for the appropriate number of months needed
to present a comparable period with that of the Company. The pro forma condensed
consolidated statement of income for the year ended August 2, 1997 includes the
Company's audited historical results, as reported on Form 10-K405 for the
respective period, and Shonac's and Valley Fair's unaudited historical
statements of income for the twelve months ended August 2, 1997. Shonac's
statement of income was derived from its historical
<PAGE> 29
VALUE CITY DEPARTMENT STORES, INC.
PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
statements of income for the years ended January 3, 1998 and January 4, 1997
(copies included with this filing) adjusted for the appropriate number of months
needed to present a comparable period with that of the Company. The pro forma
adjustments to both income statements reflect the impact of the transaction as
if it had occurred on August 4, 1996.
These pro forma condensed consolidated financial statements have been prepared
for information purposes only and are not necessarily indicative of the future
financial position or future results of the Company's operations or of the
financial position or results of operations of the Company that would have
actually occurred had the transaction been in effect as of the date or for the
periods presented. The accompanying pro forma condensed consolidated financial
statements should be read in conjunction with the historical financial
statements of the Company and the historical financial statements of Shonac
included with this filing.
<PAGE> 30
VALUE CITY DEPARTMENT STORES, INC.
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MAY 2, 1998
(unaudited)
(In thousands)
<TABLE>
<CAPTION>
Historical
----------------------------------
Value City
Department Valley Shonac Pro Forma Pro Forma
Stores, Inc. Fair Corporation Adjustments Consolidated
--------- --------- --------- ----------- ------------
(Note 1)
ASSETS
<S> <C> <C> <C> <C>
Current assets:
Cash and equivalents $ 43,359 $ 12,019 $ (35,272) $ 20,106
Accounts receivable, net 4,269 741 $ 2,737 (2,180) 5,567
Inventories 254,821 8 97,160 -- 351,989
Other current assets 16,545 220 7,223 (101) 23,887
--------- --------- --------- --------- ---------
Total current assets 318,994 12,988 107,120 (37,553) 401,549
Property and equipment, net 147,185 3,124 $ 15,935 (2,199) 164,045
Other assets 17,857 1,675 2,501 10,718 32,751
Goodwill and tradenames -- -- -- 42,810 42,810
--------- --------- --------- --------- ---------
Total assets $ 484,036 $17,787 $ 125,556 $ 13,776 $ 641,155
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 86,946 $ 178 $ 43,404 $ (155) $ 130,373
Accounts payable to affiliates 15,356 -- 108 (1,439) 14,025
Notes payable, bank -- -- 20,200 (20,200) --
Accrued expenses 43,184 1,477 6,260 (1,330) 49,591
Current maturities of
long-term obligations 2,199 -- -- -- 2,199
-------- --------- --------- --------- ---------
Total current liabilities 147,685 1,655 69,972 (23,124) 196,188
Long-term obligations, net of
current maturities 55,700 -- -- 108,100 163,800
Deferred income taxes and
other noncurrent liabilities 4,027 29 487 -- 4,543
Shareholders' equity
Common shares 111,971 102 -- (102) 111,971
Contributed capital 11,428 6 675 (681) 11,428
Retained earnings 156,887 15,995 54,422 (70,417) 156,887
Deferred compensation
expense, net (833) -- -- -- (833)
Treasury shares, at cost (2,829) -- -- -- (2,829)
--------- --------- --------- --------- ---------
Total shareholders' equity 276,624 16,103 55,097 (71,200) 276,624
--------- --------- --------- --------- ---------
Total liabilities and
shareholders' equity $ 484,036 $17,787 $ 125,556 $ 13,776 $ 641,155
========= ========= ========= ========= =========
</TABLE>
See notes to the pro forma condensed financial statements.
<PAGE> 31
VALUE CITY DEPARTMENT STORES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED MAY 2, 1998
(unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical
--------------------------------------------
Value City
Department Valley Shonac Pro Forma Pro Forma
Stores, Inc. Fair Corporation Adjustments Consolidated
----------- ----------- ----------- ----------- -----------
(Note 2)
<S> <C> <C> <C> <C> <C>
Net owned sales $ 822,401 $ 247,421 $ 1,069,822
Cost of sales (521,916) (150,669) $ 675 (671,910)
Selling, general and
administrative expenses (292,024) $ (3,640) (88,268) 16,958 (366,974)
License fees from affiliates
and other operating income (expense) 21,589 4,338 1,109 (15,232) 11,804
----------- ----------- ----------- ----------- -----------
Operating profit 30,050 698 9,593 2,401 42,742
Interest expense, net (1,996) 202 (736) (7,013) (9,543)
Gain (loss) on disposal of assets, net 1,605 3,924 (53) (3,924) 1,552
Equity in loss of joint venture (918) -- -- -- (918)
----------- ----------- ----------- ----------- -----------
Income before provision
for income taxes 28,741 4,824 8,804 (8,536) 33,833
Provision for income taxes (11,309) (1,978) (3,068) 2,047 (14,308)
----------- ----------- ----------- ----------- -----------
Net income $ 17,432 $ 2,846 $ 5,736 $ (6,489) $ 19,525
=========== =========== =========== =========== ===========
Weighted average shares outstanding 31,931 31,931
Weighted average shares outstanding
including common stock equivalents 32,155 32,155
Basic earnings per share $ 0.55 $ 0.61
Diluted earnings per share $ 0.54 $ 0.61
</TABLE>
See notes to the pro forma condensed financial statements.
<PAGE> 32
VALUE CITY DEPARTMENT STORES, INC.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE FISCAL YEAR ENDED AUGUST 2, 1997
(unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical
------------------------------------------
Value City
Department Valley Shonac Pro Forma Pro Forma
Stores, Inc. Fair Corporation Adjustments Consolidated
----------- ----------- ----------- ------------ -------------
(Note 2)
<S> <C> <C> <C> <C> <C>
Net owned sales $ 1,073,399 $ 272,587 $ 1,345,986
Cost of sales (697,822) (161,393) $ 900 (858,315)
Selling, general and
administrative expenses (385,511) $ (4,473) (96,767) 18,757 (467,994)
License fees from affiliates
and other operating income (expense) 20,447 5,484 (308) (18,570) 7,053
----------- ----------- ----------- ----------- -----------
Operating profit 10,513 1,011 14,119 1,087 26,730
Interest expense, net (5,126) 346 (836) (9,306) (14,922)
Amortization of excess net
assets over cost 927 -- -- -- 927
Gain (loss) on disposal of assets, net 161 -- (135) -- 26
----------- ----------- ----------- ----------- -----------
Income before provision
for income taxes 6,475 1,357 13,148 (8,219) 12,761
Provision for income taxes (2,524) (556) (5,543) 3,227 (5,396)
----------- ----------- ----------- ----------- -----------
Net income $ 3,951 $ 801 $ 7,605 $ (4,992) $ 7,365
=========== =========== =========== =========== ===========
Weighted average shares outstanding 31,740 31,740
Weighted average shares outstanding
including common stock equivalents 32,017 32,017
Basic earnings per share $ 0.12 $ 0.23
Diluted earnings per share $ 0.12 $ 0.23
</TABLE>
See notes to the pro forma condensed financial statements.
<PAGE> 33
VALUE CITY DEPARTMENT STORES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 1
The pro forma adjustments to the condensed consolidated balance sheet reflect
the purchase of Shonac and Valley Fair, the elimination of assets and
liabilities not acquired, the allocation of the pro forma purchase price to the
assets acquired and liabilities assumed based on the fair market value at date
of acquisition, and the elimination of intercompany balances.
<TABLE>
<CAPTION>
Pro Forma
Balances Not Purchase Price Intercompany
Acquired Allocation Balances Total
------------ ------------- ------------ ----------
ASSETS
<S> <C> <C> <C> <C>
Cash and equivalents $(11,887) $(23,385) (a) $(35,272)
Accounts receivable, net (741) $(1,439) (c) (2,180)
Inventories (101) (101)
Property and equipment (2,199) (2,199)
Other assets (1,590) 12,308 (b) 10,718
Goodwill and tradenames 42,810 (b) 42,810
--------- -------- ------- --------
(16,518) 31,733 (1,439) 13,776
--------- -------- ------- --------
LIABILITIES & EQUITY
Accounts payable (155) $ (155)
Accounts payable to affiliates (1,439) (c) (1,439)
Notes payable (20,200) (a) (20,200)
Accrued expenses (1,330) (1,330)
Long-term obligations 108,100 (a) 108,100
Common stock (102) (102)
Additional paid in capital (681) (681)
Retained earnings (70,417) (70,417)
--------- -------- ------- --------
(72,685) 87,900 (1,439) 13,776
--------- -------- ------- --------
Total $(56,167) $56,167 $ 0 $ 0
======== ======== ======= ========
</TABLE>
(a) The pro forma purchase price of $108.4 million was funded by $20.5
million in cash provided by operations and $87.9 million from the
Company's new $185.0 million three-year unsecured revolving bank credit
facility. In conjunction with the acquisition, the Company replaced its
$100 million credit facility (with no direct borrowings outstanding)
and Shonac's $30.0 million facility (with $20.2 million direct
borrowings outstanding) with the new $185.0 million credit facility.
The facility has a three year term and generally bears interest at a
floating rate of LIBOR plus 1.5%. The interest rate on $40.0 million
has been locked in at a fixed annual rate of 7.395% for a three-year
period under
<PAGE> 34
VALUE CITY DEPARTMENT STORES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
a SWAP agreement. The terms of the credit facility require the Company to
comply with certain restrictive covenants and financial ratio tests;
maintain minimum consolidated tangible net worth and consolidated total
debt to consolidated adjusted earnings before interest, taxes, depreciation
and amortization ratios; and, limits the amount of annual capital
expenditures. The Company also paid $2.9 million of costs directly
associated with acquiring the new credit facility. These costs were
capitalized as other assets in relation to this transaction.
(b) Adjustment to reflect the fair market value of intangible assets acquired
including $4.4 million for termination and non-compete agreements between
the Company and SSC and Nacht Management, Inc.; $5.0 million for a
favorable lease right; $13.9 million for tradenames; and $28.9 million for
goodwill. Other assets also includes $2.9 million in capitalized costs
relating to acquiring the new credit facility.
(c) To eliminate receivables and payables between the Company and Shonac and
Valley Fair resulting from Shonac operating as licensee in all of the
Company's shoe departments and the Company operating as licensee in the
Valley Fair stores.
<PAGE> 35
VALUE CITY DEPARTMENT STORES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
NOTE 2
The pro forma condensed consolidated statements of income reflect the following
adjustments:
<TABLE>
<CAPTION>
Other
SSC and Intercompany Pro-forma
Nacht Expenses Balances Adjustments Total
-------- --------- ---------- ---------
<S> <C> <C> <C> <C>
NINE MONTHS ENDED MAY 2, 1998:
Cost of Sales $ 675 (a) $ 675
Selling, general and
administrative expenses 5,518 (a) $ 15,103 (b) (3,663) (d) 16,958
License fees from affiliates
and other operating income
(expense) (129) (a) (15,103) (b) (15,232)
Interest expense, net (198) (a) (6,815) (c) (7,013)
Gain on disposal of assets, net (3,924) (a) (3,924)
Provision for income taxes (22) (a) 2,069 (e) 2,047
-------- ------- ---------- --------
Total $ 1,920 $ 0 $ (8,409) $ (6,489)
======== ======== ========= ========
FISCAL YEAR ENDED AUGUST 2, 1997:
Cost of Sales $ 900 (a) $ 900
Selling, general and
administrative expenses 5,075 (a) $ 18,436 (b) $ (4,754) (d) 18,757
License fees from affiliates
and other operating income
(expense) (134) (a) (18,436) (b) (18,570)
Interest expense, net (219) (a) (9,087) (c) (9,306)
Provision for income taxes (49) (a) 3,276 (e) 3,227
-------- ------- ---------- --------
Total $ 5,573 $0 $ (10,565) $ (4,992)
======== ======== ========= ========
</TABLE>
(a) To eliminate certain payroll paid to members of the Nacht family and the
cost of management and consulting services paid to Nacht Management, Inc.
by Shonac as well as certain administrative services provided by SSC to
both Shonac and Valley Fair that would not have been incurred had Shonac
and Valley Fair been owned and operated by the Company. Also eliminates
income and expenses related to portions of Valley Fair's operations that
were not included as part of the acquisition.
(b) To eliminate amounts paid by Shonac in the form of license fee income to
the Company resulting from Shonac operating as licensee in all of the
Company's shoe departments and to eliminate amounts paid by the Company to
Valley Fair resulting from the Company operating as licensee in the two
Valley Fair stores.
<PAGE> 36
VALUE CITY DEPARTMENT STORES, INC.
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands)
(c) To record additional interest costs related to the new bank agreement
entered into as a result of the purchase of Shonac. In conjunction with
the acquisition, the Company replaced its $100.0 million credit
facility and Shonac's $30.0 million facility with a new $185.0 million
unsecured revolving credit facility. The facility has a three year term
and generally bears interest at a floating rate of LIBOR plus 1.5%. The
interest rate on $40.0 million has been locked in at a fixed annual
rate of 7.395% for a three year period under a SWAP agreement. Also
included in interest expense is a $75,000 annual fee for the credit
facility and $0.9 million per year amortization in relation to the $2.9
million of direct costs capitalized in association with acquiring the
new credit facility.
(d) To record amortization of termination and non-compete agreements
between the Company and SSC and Nacht Management, Inc. over the 4 year
contract term, amortization of the favorable lease over its estimated
life of 28.5 years and amortization of goodwill and tradenames over
their estimated lives of 15 years. Also records building rental expense
on one Valley Fair store. The building was owned by Valley Fair but was
not acquired by the Company in the acquisition; instead, the Company
entered into a lease for use of the building.
(e) To record the income tax provision associated with the pro forma
adjustments at the marginal tax rate of 42.3%.
<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Value City Department Stores, Inc. on Form S-8 (File Nos. 33-44207, 33-50198,
33-55348, 33-55350 33-78586, 33-80588, 33-92966, 333-15957 and 333-15961) of our
report dated March 13, 1998, on our audits of the consolidated financial
statements of Shonac Corporation and Subsidiary as of January 3, 1998 and
January 4, 1997 and for the years then ended which report is included in this
Form 8-KA.
/s/ PricewaterhouseCoopers LLP
Columbus, Ohio
July 21, 1998
