<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K/A
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 9, 1996
----------------
Commission file number: 33-69532
Brylane, L.P.
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 35-1895382
------------------ --------------
(State or other (I.R.S. Employer
jurisdiction Identification No.)
of incorporation)
Brylane Capital Corp.
-------------------------------------------------------------
(Exact name of co-registrant as specified in its charter)
Delaware 95-4439747
------------------ --------------
(State or other (I.R.S. Employer
jurisdiction Identification No.)
of incorporation)
463 Seventh Avenue, 21st Floor, New York, New York 10018
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 613-9500
-------------
Not Applicable
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
Page 1 of 27 Pages
Exhibit Index begins on page 8.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
Chadwick's, Inc. and subsidiaries Audited Financial Statements for the
periods indicated below.
(i) Report of Independent Accountants, Coopers & Lybrand
L.L.P., dated May 14, 1996.
(ii) Audited Combined Statements of Income and Net Assets of
Chadwick's, Inc. for the years ended January 29, 1994,
January 28, 1995 and January 27, 1996.
(iii) Audited Combined Balance Sheets of Chadwick's, Inc. as
of January 28, 1995 and January 27, 1996.
(iv) Audited Combined Statements of Cash Flows of Chadwick's,
Inc. for the years ended January 29, 1994, January 28, 1995
and January 27, 1996.
(v) Notes to Combined Financial Statements.
(b) PRO FORMA FINANCIAL INFORMATION.
Brylane, L.P. Unaudited Pro Forma Financial Statements for the Year
Ended February 3, 1996 and for the Thirty-Nine Weeks Ended November 2, 1996.
(i) Unaudited Pro Forma Financial Statements -- Introduction.
(ii) Unaudited Pro Forma Statement of Operations for the
year ended February 3, 1996.
(iii) Unaudited Pro Forma Statement of Operations for the
thirty-nine weeks ended November 2, 1996.
(iv) Unaudited Pro Forma Balance Sheet as of November 2, 1996.
(v) Notes to the Unaudited Pro Forma Financial Statements.
2
<PAGE>
(c) EXHIBITS.
2.1 Asset Purchase Agreement dated October 18, 1996 by and among TJX,
Chadwick's and Brylane.*
2.2 Amendment Number One dated as of December 9, 1996 by and among
TJX, Chadwick's and Brylane to the Asset Purchase Agreement dated
October 18, 1996.*
2.3 Asset Purchase Agreement dated October 18, 1996 by and between
CDM and Brylane.*
3.1 Amendment No. 7 dated October 14, 1996 to the Agreement of
Limited Partnership dated August 30, 1993, as amended (the
"Partnership Agreement"), by and among Brylane, VGP Corporation,
a Delaware corporation ("VGP"), VLP Corporation, a Delaware
corporation ("VLP"), WearGuard Corporation, a Delaware
corporation ("WearGuard"), and Lane Bryant Direct Holding, Inc.,
a Delaware corporation (as successor in interest to Lane Bryant
Direct, Inc., a Delaware corporation, Lerner Direct, Inc., a
Delaware corporation, and Roaman's, Inc., a Delaware corporation)
("Lane Bryant Direct").*
3.2 Amendment No. 8 dated December 5, 1996 to the Partnership
Agreement by and among Brylane, VGP, VLP, Lane Bryant Direct,
WearGuard, Chadwick's, Leeway & Co., a Massachusetts partnership,
as nominee for the Long-Term Investment Trust, a trust governed
by the laws of the State of New York ("Leeway & Co."), and NYNEX
Master Trust, a trust governed by the laws of the State of New
York ("NYNEX").*
3.3 Certificate of Amendment of Certificate of Incorporation of VP
Holding Corporation, a Delaware corporation ("VP Holding"), as
filed with the Office of the Secretary of State of Delaware on
December 5, 1996.*
3.4 Certificate of Designation of the Series A Convertible Redeemable
Preferred Stock of VP Holding as filed with the Office of the
Secretary of State of the State of Delaware on December 6, 1996.*
3
<PAGE>
4.1 Fourth Supplemental Indenture, dated as of December 9, 1996, by
and among Brylane, Brylane Capital Corp., a Delaware corporation
("Finance Corp."), C.O.B. Management, Tradename Sub, and United
States Trust Company of New York, as trustee (the "Trustee"),
under the Indenture dated as of August 30, 1993, as amended, by
and among Brylane, Finance Corp., the Guarantors named on the
signature pages thereto, and the Trustee.*
10.1 Services Agreement dated as of December 9, 1996 by and between
Brylane and TJX.*
10.2 Amendment No. 1 to Trademark License Agreement dated as of
December 9, 1996 by and among Lanco, Inc., a Delaware corporation
("Lanco"), Lernco, Inc., a Delaware corporation ("Lernco"),
Limited Stores, Inc., a Delaware corporation ("Limited Stores"),
Lane Bryant, Inc., a Delaware corporation ("Lane Bryant"), Lane
Bryant Direct (as successor corporation to Lane Bryant Direct,
Inc. and Lerner Direct, Inc.) and Brylane.*
10.3 Inventory Purchase Agreement dated as of December 9, 1996 by and
between Brylane and TJX.*
10.4 VP Holding Stock Subscription Agreement for Preferred Stock dated
as of December 9, 1996 by and between VP Holding Corporation and
Dhananjaya K. Rao.*
10.5 VP Holding Stock Subscription Agreement for Preferred Stock dated
as of December 9, 1996 by and between VP Holding Corporation and
Carol Meyrowitz.*
10.6 Employment Agreement dated as of December 9, 1996 between Brylane
and Dhananjaya K. Rao.*
10.7 Employment Agreement dated as of December 9, 1996 between Brylane
and Carol Meyrowitz.*
10.8 Credit Agreement dated as of December 9, 1996 by and among
Brylane, the lenders listed therein, Morgan Guaranty Trust
Company of New York ("Morgan Guaranty"), as administrative agent,
and Merrill Lynch Capital Corporation, as documentation agent
(the "Credit Agreement").*
4
<PAGE>
10.9 Form of Tranche A Term Note to be executed by Brylane in favor of
each of the various Lenders (as defined in the Credit
Agreement).*
10.10 Form of Tranche B Term Note to be executed by Brylane in favor
of each of the various Lenders (as defined in the Credit
Agreement).*
10.11 Guarantee Agreement dated as of December 9, 1996 by and among
B.L. Catalog Distribution, Inc., a Delaware corporation ("B.L.
Catalog"), B.L. Management Services, Inc., a Delaware corporation
("B.L. Management"), B.N.Y. Service Corp., a Delaware corporation
("Service Corp."), Finance Corp., K.S. Management Services, Inc.,
a Delaware corporation ("K.S. Management"), C.O.B. Management,
Tradename Sub, B.L. Catalog Distribution Partnership, an Indiana
general partnership ("Catalog Partnership"), and B.L. Management
Services Partnership, a New York general partnership ("Management
Partnership"), as guarantors, and Morgan Guaranty, as
administrative agent for the lenders and the Issuing Banks (as
defined in the Credit Agreement).*
10.12 Pledge Agreement dated as of December 9, 1996 by and among
Brylane, B.L. Catalog, B.L. Management, Service Corp., Finance
Corp., K.S. Management, C.O.B. Management and Tradename Sub, as
pledgors, and Morgan Guaranty, as security agent.*
10.13 Security Agreement dated as of December 9, 1996 by and among
Brylane, B.L. Catalog, B.L. Management, Service Corp., Finance
Corp., K.S. Management, C.O.B. Management, Tradename Sub, Catalog
Partnership and Management Partnership, as grantors, and Morgan
Guaranty, as security agent.*
10.14 Trademark Collateral Agreement dated as of December 9, 1996 by
and among Lanco, Lernco, Limited Stores, Lerner Stores, Inc.,
Lane Bryant, and Morgan Guaranty, as security agent for the
lenders party to the Credit Agreement.*
10.15 Accounts Receivable Purchase Agreement dated as of December 9,
1996 between Brylane and ADS.*
10.16 Unit Subscription Agreement dated as of December 5, 1996 by and
among Brylane, VP Holding, FS Equity Partners II, L.P., a
California limited partnership ("FSEP II"), FS Equity Partners
III, L.P., a Delaware limited partnership ("FSEP III"), FS Equity
Partners
5
<PAGE>
International, L.P., a Delaware limited partnership ("FSEP
International"), VGP, VLP, WearGuard, Leeway & Co. and NYNEX.*
10.17 First Amended and Restated Incorporation and Exchange Agreement
dated as of December 9, 1996 by and among FSEP II, FSEP III, FSEP
International, Lane Bryant Direct, The Limited, Inc., a Delaware
corporation, WearGuard, Leeway & Co., NYNEX, Chadwick's and
Brylane (with exhibits attached thereto, including forms of
Registration Rights Agreement, Stockholders Agreement and Amended
and Restated Agreement of Limited Partnership).*
10.18 Brylane, L.P. Convertible Subordinated Note dated as of
December 9, 1996 issued to Chadwick's in the principal amount of
$20,000,000 (with form of Brylane Inc. and Brylane, L.P. Note
attached as an exhibit thereto).*
23.1 Consent of Independent Accountants.**
__________________
* Filed as an exhibit to Amendment No. 2 to Brylane Inc.'s Registration
Statement on Form S-1 (Registration No. 33-86154) on December 23, 1996 and
incorporated by reference herein.
** Filed herewith.
6
<PAGE>
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.
BRYLANE, L.P.
BRYLANE CAPITAL CORP.
Dated: February 21, 1997 By: /s/ Robert A. Pulciani
----------------------
Robert A. Pulciani
Authorized Representative of Brylane, L.P. and
Executive Vice President, Chief Financial Officer,
Secretary and Treasurer of Brylane, L.P. and
Brylane Capital Corp.
(On behalf of the Registrants and as the principal
financial and accounting officer of each of the
Registrants)
7
<PAGE>
EXHIBIT INDEX
Exhibit Description of
Exhibit
- ------- -----------------------------------------------------
23.1 Consent of Independent Accountants
8
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of Chadwick's, Inc.:
We have audited the accompanying combined balance sheets of Chadwick's, Inc.
and subsidiaries as of January 28, 1995 and January 27, 1996 and the related
combined statements of income and net assets, and cash flows for each of the
three fiscal years in the period ended January 27, 1996. 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 combined financial position of Chadwick's, Inc.
and subsidiaries as of January 28, 1995 and January 27, 1996 and the combined
results of their operations and their cash flows for each of the three fiscal
years in the period ended January 27, 1996 in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
May 14, 1996
<PAGE>
CHADWICK'S, INC.
COMBINED STATEMENTS OF INCOME AND NET ASSETS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTY-NINE WEEKS ENDED
----------------------------------- -----------------------
JANUARY 29, JANUARY 28, JANUARY 27, OCTOBER 28, OCTOBER 26,
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales............... $424,276 $432,660 $465,598 $355,671 $370,319
-------- -------- -------- -------- --------
Cost of sales, including
buying and order
fulfillment costs...... 269,233 271,874 278,868 211,486 206,179
-------- -------- -------- -------- --------
Gross profit.......... 155,043 160,786 186,730 144,185 164,140
Selling, general and
administrative
expenses, including
catalog and order
processing costs....... 131,439 155,329 160,282 126,615 129,731
-------- -------- -------- -------- --------
Income from
operations........... 23,604 5,457 26,448 17,570 34,409
Interest expense, net... 3,378 3,940 6,920 5,211 4,492
-------- -------- -------- -------- --------
Income before income
taxes, extraordinary
items and cumulative
effect of accounting
changes................ 20,226 1,517 19,528 12,359 29,917
Provision for income
taxes.................. 7,941 255 7,854 4,968 12,355
-------- -------- -------- -------- --------
Income before
extraordinary items and
cumulative effect of
accounting changes..... 12,285 1,262 11,674 7,391 17,562
Extraordinary charge,
net of income taxes.... -- (192) (3,338) -- --
Cumulative effect of
accounting changes, net
of income taxes........ 380 -- -- -- --
-------- -------- -------- -------- --------
Net income.............. 12,665 1,070 8,336 7,391 17,562
Net assets at beginning
of period.............. 34,604 47,269 48,339 48,339 56,675
-------- -------- -------- -------- --------
Net assets at end of
period................. $ 47,269 $ 48,339 $ 56,675 $ 55,730 $ 74,237
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
CHADWICK'S, INC.
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 27, OCTOBER 26,
1995 1996 1996
----------- ----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
ASSETS
------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................ $ 1,420 $ 1,406 $ 464
Accounts receivable, net of allowance for
doubtful accounts of $479, $2,582 and
$2,062, respectively.................... 10,056 41,444 99,873
Current deferred taxes and income taxes
recoverable............................. 9,534 2,624 1,844
Merchandise inventories.................. 93,993 82,612 106,469
Prepaid expenses, including catalog
costs................................... 9,499 18,829 15,636
-------- -------- --------
Total current assets................... 124,502 146,915 224,286
Property at cost:
Land and buildings....................... 29,586 30,563 30,881
Leasehold improvements................... 4,232 5,873 6,092
Furniture, fixtures and equipment........ 38,193 41,458 42,199
-------- -------- --------
72,011 77,894 79,172
Less accumulated depreciation and
amortization............................ 18,888 25,594 30,544
-------- -------- --------
53,123 52,300 48,628
-------- -------- --------
Total assets........................... $177,625 $199,215 $272,914
======== ======== ========
LIABILITIES AND NET ASSETS
--------------------------
Current liabilities:
Accounts payable......................... $ 41,961 $ 36,889 $ 46,817
Accrued expenses and other current
liabilities............................. 38,132 32,183 60,388
Current deferred taxes and income taxes
payable................................. -- -- 463
-------- -------- --------
Total current liabilities.............. 80,093 69,072 107,668
Long-term debt............................. 45,000 -- --
Loans and advances from TJX................ 2,391 70,769 88,587
Deferred income taxes...................... 1,802 2,699 2,422
Commitments (see Note B)
Net assets............................. 48,339 56,675 74,237
-------- -------- --------
Total liabilities and net assets....... $177,625 $199,215 $272,914
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
CHADWICK'S, INC.
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THIRTY-NINE WEEKS ENDED
----------------------------------- -----------------------
JANUARY 29, JANUARY 28, JANUARY 27, OCTOBER 28, OCTOBER 26,
1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operat-
ing activities:
Net income............. $ 12,665 $ 1,070 $ 8,336 $ 7,391 $ 17,562
Adjustments to recon-
cile net income to net
cash provided from
(used in) operating
activities:
Extraordinary charge. -- 192 3,338 -- --
Depreciation and am-
ortization.......... 4,505 5,699 6,712 5,055 5,018
Other................ (380) -- 297 (2) (68)
Changes in assets and
liabilities:
(Increase) in ac-
counts receivable... (2) (4,645) (31,388) (76,663) (58,429)
(Increase) decrease
in federal and state
income taxes
recoverable and
current deferred
income taxes........ (3,206) (3,310) 9,258 9,534 780
(Increase) decrease
in merchandise
inventories......... (14,995) (7,187) 11,381 5,842 (23,857)
(Increase) decrease
in prepaid expenses. (4,020) (1,159) (9,330) (6,136) 3,193
(Increase) in other
assets.............. -- -- -- (453) --
Increase (decrease)
in accounts payable. (10,407) 13,503 (5,072) (9,884) 9,928
Increase (decrease)
in accrued expenses
and other current
liabilities......... 1,973 11,134 (5,949) 10,304 28,205
Increase in federal
and state income
taxes payable and
current deferred in-
come
taxes............... -- -- -- 5,458 463
Increase (decrease)
in deferred income
taxes............... 1,133 621 897 306 (277)
-------- -------- -------- -------- --------
Net cash provided by
(used in) operating ac-
tivities............... (12,734) 15,918 (11,520) (49,248) (17,482)
-------- -------- -------- -------- --------
Cash flows from invest-
ing activities:
Property additions..... (16,203) (10,586) (6,338) (3,818) (1,278)
-------- -------- -------- -------- --------
Net cash (used in) in-
vesting activities..... (16,203) (10,586) (6,338) (3,818) (1,278)
-------- -------- -------- -------- --------
Cash flows from financ-
ing activities:
Proceeds from
borrowings of long-
term debt............. -- 45,000 -- -- --
Principal payments on
long-term debt........ (19) (32) -- -- --
Prepayment of long-term
debt.................. -- (5,774) (50,534) -- --
Increase (decrease) in
borrowings from TJX,
net................... 30,036 (44,317) 68,378 52,013 17,818
-------- -------- -------- -------- --------
Net cash provided by
(used in) financing ac-
tivities............... 30,017 (5,123) 17,844 52,013 17,818
-------- -------- -------- -------- --------
Net increase (decrease)
in cash and cash
equivalents............ 1,080 209 (14) (1,053) (942)
-------- -------- -------- -------- --------
Cash and cash equiva-
lents at beginning of
year................... 131 1,211 1,420 1,420 1,406
-------- -------- -------- -------- --------
Cash and cash equiva-
lents at end of period. $ 1,211 $ 1,420 $ 1,406 $ 367 $ 464
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
CHADWICK'S, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION: Chadwick's, Inc. (the "Company"), which holds the
assets of the Chadwick's of Boston catalog, is a wholly-owned subsidiary of
The TJX Companies, Inc. ("TJX"). These combined financial statements include
the operating results of the Chadwick's of Boston catalog and its related
trademark subsidiary.
The preparation of the 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 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.
DESCRIPTION OF BUSINESS: The Company is an off-price catalog operator which
sells primarily women's career, casual and social apparel through its
Chadwick's of Boston catalog.
FISCAL YEAR: The Company's fiscal year ends on the last Saturday in January.
The fiscal years ended January 29, 1994, January 28, 1995 and January 27, 1996
each included 52 weeks.
REVENUE RECOGNITION: The Company recognizes sales and the related cost of
sales at the time the merchandise is shipped to customers. The Company allows
for merchandise returns at the customer's discretion, and provides an
allowance for returns based on projected merchandise returns. The Company
offers a deferred billing program under which the Company does not charge the
credit card of a customer who requests the program and purchases merchandise
on credit until approximately 90 to 120 days after the mailing of the catalog
from which the merchandise is purchased. An allowance for doubtful accounts is
established as deferred billing sales are recorded based upon projected future
credit losses.
MERCHANDISE LIQUIDATIONS: The Company writes down the value of merchandise
identified for liquidation to its net realizable value and reflects the
transaction net in cost of sales. The Company received $29.7 million, $21.9
million and $20.2 million, for the fiscal years ended January 1994, 1995 and
1996, respectively, with respect to liquidated merchandise.
CASH AND CASH EQUIVALENTS: The Company generally considers highly liquid
investments with a maturity of three months or less at time of purchase to be
cash equivalents. The Company's investments are primarily time deposits with
major banks. Fair value of cash equivalents approximates carrying value.
MERCHANDISE INVENTORIES: Inventories are stated at the lower of cost or
market. The Company primarily uses the retail method for valuing inventories
on the first-in first-out basis.
PREPAID CATALOG EXPENSES: Catalog costs are capitalized as incurred and
amortized over the period the catalog generates revenue which generally does
not exceed four months. Prepaid catalog expenses were $7.9 million and $16.7
million as of January 28, 1995 and January 27, 1996, respectively.
DEPRECIATION AND AMORTIZATION: For financial reporting purposes, the Company
provides for depreciation and amortization of property principally by the use
of the straight-line method over the estimated useful lives of the assets.
Leasehold costs and improvements are generally amortized over the lease term
or their estimated useful life, whichever is shorter. Maintenance and repairs
are charged to expense as incurred. Upon retirement or sale, the cost of
disposed assets and the related depreciation are eliminated and any gain or
loss is included in net income.
<PAGE>
CHADWICK'S, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
NEW ACCOUNTING STANDARDS: During 1995, the Financial Accounting Standards
Board (FASB) issued FASB Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Assets to be Disposed of" and FASB Statement No.
123, "Accounting for Stock Based Compensation." The Company will implement the
new standards in its fiscal year ending January 25, 1997 and it expects that
the impact of implementation will be immaterial. The Company plans to adopt
the disclosure only provisions of FASB Statement No. 123.
ACCOUNTING CHANGES: Effective January 31, 1993, TJX adopted Statement of
Financial Accounting Standards (SFAS) No. 106 "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The Company recorded its share
of a one-time implementation charge of $79,000, net of taxes of $51,000, as a
cumulative effect of accounting change.
In addition, effective January 31, 1993, TJX also implemented Statement of
Financial Accounting Standards (SFAS) No. 109 "Accounting for Income Taxes."
The amount applicable to the Company resulted in an after-tax gain of $459,000
which was also recorded as a cumulative effect of accounting change.
INTERIM FINANCIAL INFORMATION: The combined financial statements for the
thirty-nine weeks ended October 28, 1995 and October 26, 1996 are unaudited
but include all adjustments (consisting only of normal recurring adjustments)
which are, in the opinion of management, necessary for a fair presentation of
the results for the interim period.
A. RELATED PARTY TRANSACTIONS
TJX loans funds to the Company on an as needed basis. The Company pays
interest to TJX on its intercompany balance, net of its cash balance, on a
monthly basis. At the beginning of a fiscal year, the intercompany balance is
determined to be long-term and interest is charged on that balance at a rate
determined annually by TJX. The long-term intercompany balance was $16.7
million for the fiscal year ended January 29, 1994, $46.7 million for the
fiscal year ended January 28, 1995 and $2.4 million for the fiscal year ended
January 27, 1996. The long-term interest rate was 9.0%, 8.0% and 8.5%, in the
fiscal years ended January of 1994, 1995 and 1996, respectively.
In addition to the above, interest is charged or credited to the Company
each month on the difference between its long-term intercompany balance and
the intercompany balance, net of cash at the end of the month. Interest income
on this portion of the intercompany balance which represents funds invested
with TJX is credited at a rate which approximates TJX's short-term investment
rate. Interest expense on this portion of the intercompany balance which
represents borrowings from TJX is charged at a rate which approximates TJX's
short-term borrowing rate. During the past three years, the maximum amounts
the Company has borrowed from TJX on a short-term basis (based on month end
borrowing levels) were $66.2 million in the fiscal year ended January 29,
1994, $18.6 million in the fiscal year ended January 28, 1995 and $116.0
million in the fiscal year ended January 27, 1996. The average short-term
interest rate on its borrowings was approximately 4%, 5% and 7% in the fiscal
years ended January of 1994, 1995 and 1996, respectively.
TJX provides certain services to the Company, primarily data processing and
payroll processing. The Company pays a charge which it believes approximates
the costs incurred by TJX. The Company paid $2.6 million, $3.3 million and
$4.4 million in the fiscal years ended January of 1994, 1995 and 1996,
respectively, for these services. The Company also participates in numerous
benefit plans and insurance plans of TJX and is charged its share of the costs
incurred in connection with the plans.
Additionally, the Company pays a charge to TJX for administrative support,
including financial, treasury, general legal, tax, audit and human resources.
The Company pays an annual fee equal to 0.1% of its budgeted sales for these
services. The Company paid $409,000, $504,000 and $461,000 for the fiscal
years ended January of 1994, 1995 and 1996, respectively.
<PAGE>
CHADWICK'S, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
Management believes that the Company's historical financial statements
reflect its historical costs of doing business.
The Company also enters into several transactions with other operating
divisions of TJX. In the fiscal years ended January of 1994, 1995 and 1996,
TJX purchased liquidated merchandise from the Company of $24.2 million, $14.4
million, and $10.6 million, respectively. Accounts receivable as of January
28, 1995 and January 27, 1996 includes $2.5 million and $1.2 million,
respectively due from TJX with respect to liquidated merchandise. Also, the
Company leased certain buying, warehouse and distribution space and two outlet
locations from TJX for which the Company paid $206,000, $251,000 and $289,000
in the fiscal years ended January of 1994, 1995 and 1996, respectively.
B. COMMITMENTS AND CONTINGENCIES
The Company is committed for a limited number of leases, primarily for the
rental of real estate. The real estate leases range up to five years and have
variable renewal options. In addition, the Company is generally required to
pay insurance, real estate taxes and other operating expenses. The following
is a schedule of future minimum lease payments for the Company as of January
27, 1996:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED JANUARY, OPERATING LEASES
--------------------------- ----------------
<S> <C>
1997........................................................ $ 497,000
1998........................................................ 523,000
1999........................................................ 135,000
2000........................................................ 66,000
2001........................................................ 66,000
Later years................................................. 44,000
----------
Total minimum lease payments................................ $1,331,000
==========
</TABLE>
Rental expense under operating leases amounted to $1,174,000, $996,000 and
$1,147,000 for the fiscal years ended January of 1994, 1995 and 1996,
respectively.
The Company had outstanding letters of credit in the amount of $19.1 million
as of January 27, 1996. The letters of credit are issued for the purchase of
inventory.
C. INCOME TAXES
The Company is included in the consolidated federal income tax return of TJX
and, where applicable, is consolidated for state reporting purposes. The
current income tax provision charged to the Company by TJX is based on the
cost or benefits the Company provides in the consolidated tax returns. The
deferred tax provision is computed based upon the differences between the tax
basis of the Company's assets and liabilities and the reported amounts in the
financial statements. The Company believes the income tax provision is
representative of the Company's tax provision as if it was a stand-alone
company.
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY,
------------------------------
1994 1995 1996
--------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.................................... $ 5,947 $ 336 $ 1,793
State...................................... 1,959 (162) 542
Deferred:
Federal.................................... 41 62 4,212
State...................................... (6) 19 1,307
--------- -------- ---------
Provision for income taxes................... $ 7,941 $ 255 $ 7,854
========= ======== =========
</TABLE>
<PAGE>
CHADWICK'S, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
The Company has a net deferred tax (asset) liability as follows:
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 28, JANUARY 27,
1994 1995 1996
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Inventory.............................. $ 3,712 $ 5,825 $ 3,371
Reserve for customer returns........... 3,622 3,419 3,632
All other.............................. 4,072 2,825 3,000
------- ------- -------
Total deferred tax assets................ 11,406 12,069 10,003
------- ------- -------
Deferred tax liabilities:
Property and equipment................. 2,419 3,071 3,074
Capitalized catalog costs.............. 3,434 3,091 6,924
Other.................................. 770 1,204 821
------- ------- -------
Total deferred tax liabilities........... 6,623 7,366 10,819
------- ------- -------
Net deferred tax (asset) liability....... $(4,783) $(4,703) $ 816
======= ======= =======
</TABLE>
The following is a reconciliation of the federal statutory income tax rate
to the effective income tax rate:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED JANUARY,
----------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate............................ 35% 35% 35%
Permanent differences, primarily charitable contributions
of inventory.............................................. (2) (12) (1)
State income taxes, net of federal benefit................. 6 (6) 6
--- --- ---
Effective income tax rate.................................... 39% 17% 40%
=== === ===
</TABLE>
D. PENSION PLANS AND OTHER RETIREMENT BENEFITS
The Company participates in TJX's non-contributory defined benefit
retirement plan. The TJX plan covers the majority of full-time employees who
have attained 21 years of age and have completed one year of service. Benefits
are based on compensation earned in each year of service. TJX also has an
unfunded supplemental retirement plan which covers certain key employees of
the Company and provides additional retirement benefits based on average
compensation. Pension expenses paid by the Company to TJX amounted to
$101,000, $195,000 and $256,000 in the fiscal years ended January of 1994,
1995 and 1996, respectively.
TJX does not segregate plan assets or liabilities by participating
subsidiary company, and as a result, the following tables reflect the periodic
pension cost and funded status of the TJX plan.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY
----------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost............ $ 3,375 $ 4,554 $ 3,920
Interest cost on pro-
jected benefit obliga-
tion................... 5,995 6,526 6,915
Actual return on assets. (12,188) 4,545 (15,215)
Net amortization and de-
ferrals................ 5,760 (11,600) 9,384
-------- -------- --------
Net periodic pension
cost................... $ 2,942 $ 4,025 $ 5,004
======== ======== ========
</TABLE>
<PAGE>
CHADWICK'S, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 27,
1995 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Accumulated benefit obligation, including vested bene-
fits of $71,592 and $81,296........................... $77,256 $91,606
------- -------
Projected benefit obligation........................... 82,297 97,891
Plan assets at fair market value....................... 66,454 71,792
------- -------
Projected benefit obligation in excess of plan assets.. 15,843 26,099
Unrecognized net gain (loss) from past experience dif-
ferent from that assumed and effects of changes in as-
sumptions............................................. (1,897) (7,563)
Prior service cost not yet recognized in net periodic
pension cost.......................................... (1,127) (1,035)
Unrecognized net asset (obligation) as of initial date
of application of SFAS No. 87......................... (568) (745)
------- -------
Accrued pension cost................................... $12,251 $16,756
======= =======
Weighted average discount rate......................... 8.25% 7.00%
Rate of increase on future compensation levels......... 4.50% 4.00%
Expected long-term rate of return on assets............ 9.50% 9.00%
</TABLE>
The Company also participates in TJX's 401(k) plans which match a portion of
employee contributions. The Company's match for employee contributions was
$158,000, $191,000 and $186,000 in the fiscal years ended January of 1994,
1995 and 1996, respectively.
The TJX postretirement benefit plan is unfunded and provides limited
postretirement medical and life insurance benefits to associates who
participate in TJX's retirement plan and who retire at age 55 or older with 10
years or more of service. The postretirement expense paid by the Company was
$28,000, $75,000 and $81,000 in the fiscal years ended January of 1994, 1995
and 1996, respectively.
TJX does not segregate plan liabilities by participating subsidiary company,
and as a result, the following tables reflect the periodic postretirement
benefit cost and funded status of the TJX plan.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY
--------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost......................................... $ 476 $ 952 $ 757
Interest cost on accumulated benefit obligation...... 820 963 1,046
Net amortization..................................... -- 88 --
-------- -------- --------
Net periodic postretirement benefit cost............. $ 1,296 $ 2,003 $ 1,803
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 27,
1995 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement obligation:
Retired associates................................... $ 6,394 $ 6,731
Fully eligible active associates..................... 712 1,146
Other active associates.............................. 5,168 7,861
------- -------
Accumulated postretirement obligations................. 12,274 15,738
Unrecognized net gain (loss) due to change in assump-
tions................................................. (149) (2,676)
------- -------
Accrued postretirement benefits........................ $12,125 $13,062
======= =======
Discount rate.......................................... 8.25% 7.00%
Medical inflation rate................................. 5.00% 5.00%
</TABLE>
<PAGE>
CHADWICK'S, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS--(CONTINUED)
E. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
The major components of accrued expenses and other current liabilities are
as follows:
<TABLE>
<CAPTION>
JANUARY 28, JANUARY 27,
1995 1996
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Employee compensation and benefits................... $ 2,314 $ 3,727
Reserve for customer returns......................... 8,266 8,780
Customer prepayments................................. 13,495 8,372
All other............................................ 14,057 11,304
------- -------
Accrued expenses and other current liabilities....... $38,132 $32,183
======= =======
</TABLE>
F. SUPPLEMENTAL CASH FLOW INFORMATION
The Company's cash payments for interest expense and income taxes are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY,
---------------------------
1994 1995 1996
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid for:
Interest expense............................... $ 3,378 $ 3,657 $ 7,247
Income taxes................................... 11,196 3,204 3,078
</TABLE>
G. DEBT
During the fiscal year ended January 28, 1995, the Company secured a 10-year
$45 million real estate mortgage on its fulfillment center (guaranteed by
TJX), at 8.73% annual interest. The proceeds were used to prepay the $5.4
million outstanding mortgage on the facility, with the balance of the proceeds
used to repay advances from TJX. The early retirement of the $5.4 million
mortgage resulted in an after-tax extraordinary charge of $192,000 ($325,000
pre-tax) in the fiscal year ended January 28, 1995. In the fiscal year ended
January 27, 1996, the Company prepaid its $45 million real estate mortgage on
the fulfillment center in connection with TJX's purchase of Marshalls and
incurred an extraordinary after-tax charge of $3.3 million ($5.6 million pre-
tax) on the early retirement of this debt.
Information relating to the Company's borrowings from TJX is described in
Note A.
<PAGE>
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
BRYLANE, L.P.
The following unaudited pro forma financial statements for the fiscal year ended
February 3, 1996, and for the thirty-nine weeks ended and as of November 2,
1996, give effect to the acquisition (Chadwick's Acquisition) of certain assets
and liabilities of the Chadwick's of Boston catalog division of The TJX
Companies, Inc. (Chadwick's) by Brylane, L.P. (Brylane), under the purchase
method of accounting and the financing thereof by Brylane as described in the
notes to these financial statements. The unaudited pro forma financial
statements have been prepared by combining the historical consolidated financial
statements of Brylane for the fiscal year ended February 3, 1996 and for the
thirty-nine weeks ended and as of November 2, 1996 with the combined financial
statements of Chadwick's for the year ended January 27, 1996 and for the thirty-
nine weeks ended and as of October 26, 1996, respectively. Additionally, the
unaudited pro forma statement of operations for the year ended February 3, 1996
gives effect to the KingSize Acquisition (as defined) which occurred in October
1995, and financing thereof by Brylane as described in the notes to these
financial statements. All transactions are reflected as if they occurred on
January 29, 1995 (the first day of the latest full fiscal period presented) for
the statements of operations and on November 2, 1996 for the balance sheet.
The unaudited pro forma financial statements have been prepared based on the
assumptions described in the notes thereto and include assumptions relating to
the allocation of the consideration paid for the assets and liabilities of
Chadwick's based on preliminary estimates of fair value. The actual allocation
may differ from that reflected in the unaudited pro forma financial statements
after Chadwick's closing balance sheet as of December 7, 1996 has been finalized
and after valuations to be performed have been completed. The estimated values
of the assets and liabilities at the time of the Chadwick's Acquisition also
could vary from the amounts as of October 26, 1996. Also, the interest rate on,
and the borrowings under the new credit agreement dated December 9, 1996 (Bank
Credit Facility) and the fees and expenses with respect to the Chadwick's
Acquisition are assumed solely for the purpose of presenting the unaudited pro
forma financial statements as set forth below.
The unaudited pro forma statements of operations and unaudited pro forma balance
sheet are not necessarily indicative of what the consolidated statements of
operations and the consolidated balance sheet actually would have been had the
transaction occurred at January 29, 1995 or November 2, 1996, respectively, nor
do they purport to indicate the results of future operations of Brylane. The
unaudited pro forma financial statements should be read in conjunction with the
audited financial statements and notes of Brylane included in Brylane's Annual
Report on Form 10-K for the year ended February 3, 1996, and the Chadwick's
audited combined financial statements and notes contained elsewhere herein.
<PAGE>
<TABLE>
<CAPTION>
BRYLANE, L.P.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED FEBRUARY 3, 1996
Brylane, L.P. Chadwick's
Historical Historical Pro Forma
Fifty-Three KingSize Fifty-Two Chadwick's Fiscal Year
Weeks Ended Acquisition Weeks Ended Acquisition Ended
Feb. 3, 1996 Adjustments (a) Jan. 27, 1996 (e) Adjustments Feb. 3, 1996
------------- --------------- ---------------- ----------- ------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Net sales............................. $601,055 $23,627 $462,667 $1,087,349
Cost of goods sold.................... 298,983 11,204 257,184 $ (423) (f) 566,948
-------- -------- -------- -------- ----------
Gross profit.......................... 302,072 12,423 205,483 (423) 520,401
Operating expenses:
Catalog and advertising expense..... 174,446 5,250 94,607 274,303
Fulfillment expense................. 37,333 1,934 56,472 95,739
Support services expense............ 37,024 1,217 (b) 28,069 2,668 (g) 68,978
Intangibles and organization cost
amortization...................... 4,707 935 (c) - 5,114 (h) 10,756
-------- -------- -------- -------- ----------
Total operating expenses.............. 253,510 9,336 179,148 7,782 449,776
-------- -------- -------- -------- ----------
Operating income...................... 48,562 3,087 26,335 (7,359) 70,625
Interest expense, net................. 20,624 1,823 (d) 6,807 16,757 (i) 39,643
(893) (j)
(6,807) (k)
1,332 (l)
-------- -------- -------- -------- ----------
Income before income taxes............ 27,938 1,264 19,528 (17,748) 30,982
Provision for income taxes............ 88 - 7,854 (7,854) (m) 88
-------- -------- -------- -------- ----------
Net income before extraordinary items. $ 27,850 $ 1,264 $ 11,674 $ (9,894) $ 30,894
======== ======== ======== ======== ==========
</TABLE>
<PAGE>
BRYLANE, L.P.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE THIRTY-NINE WEEKS ENDED NOVEMBER 2, 1996
<TABLE>
<CAPTION>
Brylane, L.P. Chadwick's
Historical Historical Pro Forma
Thirty-Nine Thirty-Nine Chadwick's Thirty-Nine
Weeks Ended Weeks Ended Acquisition Weeks Ended
Nov. 2, 1996 Oct. 26, 1996(e) Adjustments Nov. 2, 1996
------------ --------------- ----------- ------------
(In thousands)
<S> <C> <C> <C> <C>
Net sales............................. $467,009 $368,243 $835,252
Cost of goods sold.................... 225,708 196,993 $ 1,837 (f) 424,538
-------- -------- -------- --------
Gross profit.......................... 241,301 171,250 (1,837) 410,714
Operating expenses:
Catalog and advertising expense..... 135,390 77,070 212,460
Fulfillment expense................. 29,057 36,917 65,974
Support services expense............ 32,995 22,872 2,704 (g) 58,571
Intangibles and organization cost
amortization...................... 4,229 - 3,836 (h) 8,065
-------- -------- -------- --------
Total operating expenses.............. 201,671 136,859 6,540 345,070
-------- -------- -------- --------
Operating income...................... 39,630 34,391 (8,377) 65,644
Interest expense, net................. 16,200 4,474 11,855 (i) 28,383
(671)(j)
(4,474)(k)
999 (l)
-------- -------- -------- --------
Income before income taxes............ 23,430 29,917 (16,086) 37,261
Provision for income taxes............ 125 12,355 (12,355)(m) 125
-------- -------- -------- --------
Net income............................ $ 23,305 $ 17,562 $ (3,731) $ 37,136
======== ======== ======== ========
</TABLE>
<PAGE>
BRYLANE, L.P.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF NOVEMBER 2, 1996
<TABLE>
<CAPTION>
Brylane, L.P. Chadwick's
Historical Historical Chadwick's
Nov. 2, Oct. 26, Acquisition Pro Forma
1996 1996 Adjustments Nov. 2, 1996
------------- ---------- ----------- ------------
(In thousands)
<S> <C> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents........................ $ 10,659 $ 6,756 $ 12,982 (n) $ 23,641
(6,756)(o)
Accounts receivable.............................. 8,122 93,105 (88,732)(o) 12,495
Inventories...................................... 93,286 106,469 9,564 (p) 209,319
Paper inventory.................................. 10,729 6,944 17,673
Catalog costs.................................... 22,328 8,144 (450)(p) 30,022
Other............................................ 5,370 548 5,918
-------- -------- -------- --------
Total current assets.......................... 150,494 221,966 (73,392) 299,068
Property & equipment, net........................... 28,303 48,627 76,930
Organization and deferred financing costs........... 7,082 -- 7,005 (l) 11,631
(2,456)(j)
Intangibles and other assets........................ 162,463 -- 168,187 (p) 335,650
5,000 (p)
Deferred income taxes............................... -- 1,061 (1,061)(o) 909
909 (j)
-------- -------- -------- --------
Total assets.................................. $348,342 $271,654 $104,192 $724,188
======== ======== ======== ========
LIABILITIES & PARTNERSHIP EQUITY
--------------------------------
Current liabilities:
Accounts payable................................. $ 62,467 46,817 $109,284
Accrued interest................................. 2,478 -- ($533)(q) 1,945
Accrued expenses................................. 11,871 49,956 6,855 (q) 68,682
Reserve for returns.............................. 5,071 9,955 15,026
Federal and state taxes.......................... -- (320) 320 (o) --
Current portion long-term debt................... 14,395 -- 11,605 (r) 26,000
-------- -------- -------- --------
Total current liabilities...................... 96,282 106,408 18,247 220,937
-------- -------- -------- --------
Long-term debt...................................... 202,297 -- 199,040 (r) 401,337
Deferred income taxes............................... -- 2,422 (2,422)(o) --
Other long-term liabilities......................... 5,556 88,587 (88,587)(o) 5,556
-------- -------- -------- --------
Total liabilities.............................. 304,135 197,417 126,278 627,830
-------- -------- -------- --------
Series A Convertible Redeemable Preferred Stock..... -- -- 1,500 (n) 1,500
-------- -------- -------- --------
Partnership equity
Partners' capital 12,905 (historical) and
15,471 (pro forma) units....................... 130,882 -- 51,328 (n) 182,210
Reduction for predecessor cost-carryover basis... (152,067) -- -- (152,067)
Additional paid in capital, net of loans to
management investors........................... (2,490) -- 870 (p) (1,620)
Retained earnings................................ 67,882 74,237 (68,377)(p) 66,335
(5,860)(o)
(1,547)(l)
-------- -------- -------- --------
Total partnership equity...................... 44,207 74,237 (23,586) 94,858
-------- -------- -------- --------
Total liabilities & partnership equity........ $348,342 $271,654 $104,192 $724,188
======== ======== ======== ========
</TABLE>
<PAGE>
BRYLANE, L.P.
NOTES TO THE UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. GENERAL:
In December 1996, Brylane completed the acquisition (the Chadwick's
Acquisition) of certain assets of the Chadwick's of Boston catalog division
(Chadwick's), a wholly-owned subsidiary of The TJX Companies, Inc. (TJX).
The Chadwick's Acquisition closed on December 9, 1996.
The Unaudited Pro Forma Financial Statements for the year ended February 3,
1996, and the thirty-nine weeks ended November 2, 1996 do not purport to be
indicative of the results that actually would have been obtained if the
operations were combined at the beginning of the fiscal year ended February
3, 1996, and this presentation is not intended to be a projection of future
results or trends.
As of the date of the Chadwick's Acquisition, inventory was valued at fair
value which was in excess of Chadwick's historical cost. This increased
value will be expensed as cost of sales as the inventory is sold. This
expense (in thousands), estimated to be $9,564 for the year ended February
3, 1996, is not included in the Pro Forma Statements of Operations
(unaudited) because it is a nonrecurring item.
A final allocation of the purchase price is expected to be determined during
the fiscal year ending January 31, 1998, when the fair value analysis is
completed.
2. PRO FORMA ADJUSTMENTS:
The pro forma adjustments are as follows (in thousands):
a. Brylane acquired the assets of the KingSize catalog division of
WearGuard (which includes the KingSize catalog and the license for the
Sears Big & Tall catalog) on October 16, 1995. For accounting purposes,
the transaction was accounted for on the effective date of October 1,
1995. Since Brylane's historical statements of operations for the year
ended February 3, 1996 include the results of operations for the
KingSize and Big & Tall catalogs for the period from October 1, 1995
through February 3, 1996, the pro forma adjustments reflect the results
of operations of KingSize and Big & Tall prior to the KingSize
Acquisition for the eight months ended September 30, 1995.
b. Excludes $1,077 in administrative overhead allocated to the KingSize
catalog division by WearGuard.
c. Eliminates goodwill amortization recorded by KingSize as a division of
WearGuard and includes amortization on the straight-line basis of the
acquired customer file of $520 over eight years, the noncompete covenant
of $300 over its five year term and goodwill of $50,762 over 40 years.
d. Includes interest expense on the $35,000 of indebtedness incurred to
finance the KingSize Acquisition at 7.81%.
e. Brylane acquired the assets of Chadwick's (excluding substantially all
accounts receivable) on December 9, 1996. The pro forma adjustments
reflect the results of operations of Chadwick's prior to the Chadwick's
Acquisition for the nine months ended October 26, 1996. Certain
reclassifications among line items have been made to the historical
statements of operations and balance sheet to conform with Brylane's
financial statement presentation. Such reclassifications had no effect
on previously reported net income.
f. Reflects the removal of the change in the capitalized buying and
fulfillment center costs in order to conform Chadwick's accounting
policies with those of Brylane's.
<PAGE>
g. Includes the recognition of the costs related to the sale of the
deferred billing receivables to Alliance Data Systems Corporation.
Calculated using the average outstanding deferred billing receivables
balance at the end of the month for the corresponding period.
h. Includes goodwill amortization on a straight-line basis of $168,187 over
40 years and amortization on a straight-line basis of the acquired
customer file of $5,000 over approximately six years.
i. Includes interest expense on the net increase in indebtedness of
$210,645 incurred to finance the Chadwick's Acquisition at 7.96% for the
year ended February 3, 1996 and 7.50% for the nine months ended November
2, 1996. A change of 1/4% in the interest rate payable on the
outstanding balance under the Bank Credit Facility would change annual
interest expense by approximately $527 before the effect of income
taxes. (See Note R)
j. In connection with the repayment of the old bank credit facility, a pro
rata portion of the deferred financing fees associated with the
obligations to be repaid will be written off as a charge to operations.
This expense is estimated to be $2,456 ($1,547 net of tax) with a
related future tax benefit of $909. This non-recurring charge has not
been included in the Pro Forma Statements of Operations. The annual
reduction of amortization expense attributable to the write-off is
approximately $893.
k. Reflects the elimination of interest expense related to the advances
from TJX.
l. Represents amortization of deferred financing fees related to the new
Bank Credit Facility of $7,005 over the term of the debt.
m. Reflects adjustments for federal and state income taxes as if Chadwick's
had been taxed as a partnership during the period.
n. Includes the excess cash received by Brylane as a result of the
borrowings under the Bank Credit Facility, the equity contributions from
the partners (net of the payment of the financing fees) and repayment of
the old bank credit facility including accrued interest as follows:
<TABLE>
<S> <C>
Proceeds from borrowings under the new Bank Credit Facility........ $ 283,000
Receipt of equity contribution from partners....................... 51,328
Receipt of equity contributions for Series A Preferred Stock....... 1,500
Repayment of old bank credit facility (including accrued interest). (92,888)
Payment of financing fees.......................................... (7,158)
Cash paid to TJX................................................... (222,800)
---------
$ 12,982
</TABLE>
o. Reflects the elimination of assets not acquired and liabilities not
assumed pursuant to the Chadwick's Purchase Agreement as follows:
<TABLE>
<S> <C>
Cash and cash equivalents.................................. $ (6,756)
Deferred billing accounts receivable....................... (88,732)
Deferred income taxes...................................... 1,361
Intercompany note payable to TJX........................... 88,587
Federal and State prepaid taxes............................ (320)
--------
Equity of TJX in the assets of Chadwick's not acquired..... $ 5,860
</TABLE>
<PAGE>
p. Reflects pro forma adjustments to allocate the purchase price to the
assets acquired at estimated fair value and to conform the accounting
practices of Chadwick's to those of Brylane as follows:
<TABLE>
<S> <C>
Increase in inventory to reflect estimated
fair value.............................................. $18,021
Decrease in inventory resulting from elimination of
capitalized buying and fulfillment center costs
to conform to Brylane's accounting policies............. (8,457)
-------
Net increase in inventory................................. 9,564
Increase in intangibles and other assets for customer
list.................................................... 5,000
Decrease in prepaid catalog costs to conform to Brylane's
method of amortization.................................. (450)
-------
Adjustments to net assets................................. $14,114
</TABLE>
The Chadwick's Acquisition will be accounted for as a purchase
pursuant to Accounting Principles Board Opinion No. 16, "Business
Combinations." The pro forma allocations of the purchase cost for the
Chadwick's Acquisition were determined based on the book value as of
October 26, 1996 of the net assets acquired. The actual purchase price
may differ from this amount based on the assets and liabilities of
Chadwick's as of December 9, 1996. The purchase cost will be allocated
to the acquired assets and liabilities of Chadwick's based on their
estimated fair values. Such allocations are subject to final
determination based on valuations and other studies to be performed
after receipt of the closing balance sheet. The final values may differ
from those set forth below :
<TABLE>
<S> <C>
Purchase Cost:
Cash................................................... $222,800
Convertible Note....................................... 20,000
Estimated Chadwick's acquisition fees and expenses..... 7,008
Exchange of TJX options for options in Brylane, L.P.... 870
--------
$250,678
Estimated Book Value:
TJX equity in Chadwick's.............................. $74,237
Net assets not acquired (see above).................... (5,860)
-------
68,377
Purchase cost above carrying value at October 26, 1996.... 182,301
Adjustments to net assets (see above)..................... (14,114)
--------
Goodwill and other intangibles............................ $168,187
</TABLE>
q. Reflects adjustments to current liabilities for accrual of the
acquisition related expenses of $6,855 not paid at the time of closing
and reduction of accrued interest of $533 for the prepayment of interest
on the old bank credit facility.
r. Reflects the incurrence of indebtedness to finance the Chadwick's
Acquisition, and repayment of the old bank credit facility with the
proceeds from the new Bank Credit Facility:
<TABLE>
<S> <C>
Proceeds from borrowing under the new Bank Credit Facility.. $283,000
Issuance of Convertible Note................................ 20,000
Repayment of old bank credit facility....................... (92,355)
--------
$210,645
</TABLE>
<PAGE>
EXHIBIT 23.1
[LETTERHEAD OF COOPERS & LYBRAND]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Form 8-K/A of our report
dated May 14, 1996, on our audit of the combined financial statements of
Chadwick's Inc., as of January 28, 1995 and January 27, 1996, and for each of
the three fiscal years in the period ended January 27, 1996, appearing in the
registration statement on Form S-1 (File No. 33-86154) of Brylane Inc., filed
with the Securities and Exchange Commission pursuant to the Securities Act of
1933.
/s/ Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 20, 1997
