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Previous: PETRO STOPPING CENTERS L P, S-4/A, 1997-06-12 |
Next: HORIZON FINANCIAL SERVICES CORP, SC 13G, 1997-06-12 |
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDMENT TO
CURRENT REPORT PURSUANT
TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report: June 13, 1997
VIDEO UPDATE, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware
- --------------------------------------------------------------------------------
(State or Other Jurisdiction of Incorporation)
0-24346 41-1461110
(Commission File Number) (I.R.S. Employer Identification No.)
3100 World Trade Center, 30 East Seventh Street, St. Paul, Minnesota 55101
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(612) 222-0006
- --------------------------------------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Not Applicable
- --------------------------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
AMENDMENT NO. 1
The undersigned registrant (the "Company") hereby amends the following
items, financial statements, exhibits or other portions of its Form 8-K filed on
April 7, 1997 as set forth in the pages attached hereto.
(List all such items, financial statements, exhibits or other portions
amended)
1. Item 7, page 1 - Amended to include the Financial Statements of
Hill and Cassidy Retail Corp. and the Company's pro forma financial
information.
TABLE OF CONTENTS
FORM 8-K/A
June 13, 1997
Item Page
- ---- ----
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS 1
SIGNATURE 2
EXHIBITS None
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
a. Financial statements of businesses acquired.
Attached are the audited financial statements for Hill and
Cassidy Retail Corp. for the year ended November 30, 1996.
b. Pro forma financial information.
Attached is the pro forma financial information for the
Company for the year ended April 30, 1996 and for the nine
months ended January 31, 1997.
c. Exhibits
The following exhibits were previously filed with the Form 8-K
filed on April 7, 1997.
Exhibit
No. Title
--- -----
2 Purchase Agreement by and among Video Update
Canada Inc., Hill and Cassidy Retail Corp.,
Byron Hill, Patricia Hill and Mel Cassidy,
dated as of April 1, 1997.
99 Press Release.
Matters discussed in this report and the attachments hereto contain
forward-looking statements that involve risks and uncertainties. The Company's
results may differ significantly from the results indicated by such
forward-looking statements. Although the Company endeavors to integrate and
assimilate the operations of acquired stores in an effective and timely manner,
no assurance can be given that the Company will be successful in such
integration attempts or that the Company will be able to hire, train, retrain
and assimilate selected individuals employed at acquired stores. Further, no
assurance can be given that the Company will successfully integrate the
acquisition referred to herein or any other future acquired businesses into the
Company's purchasing, marketing and management information systems. These and
similar acquisition related risks are detailed from time to time in the
Company's SEC reports, including Form 10-KSB, Form S-3 and Form 10-QSB for the
quarter ended January 31, 1997.
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.
VIDEO UPDATE, INC.
By:/s/ Daniel A. Potter
-----------------------
Daniel A. Potter
Chief Executive Officer
Date: June 13, 1997
HILL AND CASSIDY RETAIL CORP.
-----------------------------
FINANCIAL STATEMENTS
--------------------
November 30, 1996
-----------------
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Auditors' Report
Exhibit A Balance Sheet
Exhibit B Statement of Retained Earnings
Exhibit C Statement of Income
Exhibit D Statement of Changes in Financial Position
Notes to Financial Statements
AUDITORS' REPORT
To the Shareholders of Hill And Cassidy Retail Corp.:
We have audited the balance sheet of Hill And Cassidy Retail Corp. as at
November 30, 1996 and the statements of income, retained earnings and changes in
financial position for the year then ended. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance 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.
In our opinion, these financial statements present fairly in all material
respects, the financial position of the company as at November 30, 1996 and the
results of its operations and the changes in its financial position for the year
then ended in accordance with generally accepted accounting principles. As
required by the Company Act for British Columbia, we report that, in our
opinion, these principles have been applied on a basis consistent with that of
the preceding year.
/S/ TENISCI PIVA
Kamloops, B.C. --------------------
February 28, 1997 TENISCI PIVA
Exhibit A
HILL AND CASSIDY RETAIL CORP.
-----------------------------
BALANCE SHEET
-------------
November 30, 1996
-----------------
ASSETS
------
1996 1995
---------- ----------
CURRENT
Cash $ 281,119 $ 298,225
Accounts receivable 42,785 187,241
Prepaid expenses and deposits 29,939 25,053
Inventory (Note 1) 995,527 633,524
Rental Inventory (Note 2) 892,926 651,179
---------- ----------
2,242,296 1,795,222
---------- ----------
DUE FROM AFFILIATED COMPANIES (Note 3) 519,894 266,500
---------- ----------
LONG-TERM INVESTMENTS (Note 4) 79,574 644
---------- ----------
LONG-TERM RENTAL INVENTORY (Note 2) 2,349,265 1,584,677
---------- ----------
CAPITAL (Note 5) 1,431,007 954,736
---------- ----------
GOODWILL (Note 6) 842,261 889,481
---------- ----------
$7,464,297 $5,491,260
========== ==========
LIABILITIES
-----------
CURRENT
Bank indebtedness (Note 7) $ 140,000 $ -
Accounts payable and accrued liabilities 2,238,340 1,361,629
Deferred revenue 59,351 46,504
Management salaries payable - 888,703
Income taxes payable 9,568 8,711
---------- ----------
2,447,259 2,305,547
DUE TO AFFILIATED COMPANY (Note 8) 17,626 22,376
DUE TO SHAREHOLDERS (Note 9) 404,091 232,810
DEFERRED INCOME TAXES 583,913 210,990
---------- ----------
3,452,889 2,771,723
---------- ----------
SHAREHOLDERS' EQUITY
--------------------
SHARE CAPITAL (Note 10) 200 200
RETAINED EARNINGS - Exhibit B 4,011,208 2,719,337
---------- ----------
4,011,408 2,719,537
---------- ----------
$7,464,297 $5,491,260
========== ==========
COMMITMENTS (Note 11)
CONTINGENT LIABILITIES (Note 12)
Exhibit B
HILL AND CASSIDY RETAIL CORP.
-----------------------------
STATEMENT OF RETAINED EARNINGS
------------------------------
For the year ended November 30, 1996
------------------------------------
1996 1995
---------- ----------
Balance, beginning of year $2,719,337 $2,476,495
Net income for the year 1,291,871 242,842
---------- ----------
Balance, end of year $4,011,208 $2,719,337
========== ==========
Exhibit C
HILL AND CASSIDY RETAIL CORP.
----------------------------
STATEMENT OF INCOME
-------------------
For the year ended November 30, 1996
------------------------------------
1996 1995
---------- ----------
REVENUE
Rental $10,373,557 $8,399,348
Sales 2,121,338 1,924,810
Other 181,144 207,060
Gain on sale of rental inventory 141,336 195,418
---------- ----------
12,817,375 10,726,636
COST OF SALES 1,552,097 1,466,173
---------- ----------
GROSS PROFIT 11,265,278 9,260,463
---------- ----------
EXPENSES
Occupancy 1,542,204 1,197,467
Wages and benefits 2,308,877 1,899,728
General operating 629,441 546,020
Depreciation - capital assets 325,449 230,121
Amortization - rental inventory 3,357,130 2,450,058
---------- ----------
8,163,101 6,323,394
---------- ----------
DIRECT STORE INCOME 3,102,177 2,937,069
---------- ----------
OTHER OPERATING EXPENSES
Administration 838,784 838,549
New store development and start up 559,466 400,731
---------- ----------
1,398,250 1,239,280
---------- ----------
OPERATING INCOME 1,703,927 1,697,789
---------- ----------
OTHER LOSS - (Schedule 1) (16,760) (1,247,368)
---------- ----------
INCOME BEFORE INCOME TAXES AND OTHER ITEM 1,687,167 450,421
---------- ----------
INCOME TAXES
Current 44,424 41,836
Deferred 372,923 116,387
---------- ----------
417,347 158,223
---------- ----------
NET INCOME BEFORE OTHER ITEM 1,269,820 292,198
OTHER ITEM
Share in net income (loss) of equity affiliate 22,051 (49,356)
---------- ----------
NET INCOME FOR THE YEAR $1,291,871 $ 242,842
========== ==========
Exhibit D
HILL AND CASSIDY RETAIL CORP.
----------------------------
STATEMENT OF CHANGES IN FINANCIAL POSITION
------------------------------------------
For the year ended November 30, 1996
------------------------------------
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
CASH PROVIDED (USED) BY:
OPERATING ACTIVITIES
Net income for the year $1,291,871 $ 242,842
Add (deduct) non-cash items
Depreciation and amortization 3,742,770 2,727,399
Deferred income taxes 372,923 116,387
Loss on sale of capital assets 696 91,360
Gain on sale of rental inventory (141,336) (195,418)
Gain on sale of long-term investment - (24,974)
Write-down of capital assets - 17,188
Write-down of franchise fees - 30,337
Write-down of amounts due to affiliated companies 81,500 189,466
Share in net loss (income) of equity affiliate (22,051) 49,356
---------- ----------
5,326,373 3,243,943
Changes in non-cash working capital items (220,721) 320,381
---------- ----------
5,105,652 3,564,324
---------- ----------
FINANCING ACTIVITIES
Increase in amounts due to shareholders 171,281 90,827
Decrease in amounts due to affiliated companies (4,750) (72,889)
---------- ----------
166,531 17,938
---------- ----------
INVESTING ACTIVITIES
Proceeds on sale of long-term investment - 52,422
Decrease (increase) in long-term investment (56,879) 49,980
Purchase of rental inventory (4,760,580) (3,388,672)
Purchase of capital assets (823,346) (673,899)
Proceeds on sale of capital assets 7,959 145,620
Proceeds on sale of rental inventory 538,451 639,316
Increase in amounts due from affiliated companies (334,894) (503,936)
---------- ----------
(5,429,289) (3,679,169)
---------- ----------
NET DECREASE IN CASH (157,106) (96,907)
CASH, beginning of year 298,225 395,132
---------- ----------
CASH, end of year $ 141,119 $ 298,225
========== ==========
Represented by:
Cash $ 281,119 $ 298,225
Bank indebtedness (140,000) -
---------- ----------
$ 141,119 $ 298,225
========== ==========
</TABLE>
HILL AND CASSIDY RETAIL CORP.
----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
November 30, 1996
-----------------
General
- -------
The company was incorporated under the laws of British Columbia and commenced
operations on October 28, 1974. The company's principal business activity is
video rentals and sales.
Accounting Policies
- -------------------
(a) Inventories
-----------
Inventories are valued at the lower of cost and net realizable
value.
(b) Rental Inventory
----------------
Rental movies and games are amortized on a straight line basis
over six months, net of residual value. The residual value for
rental movies is $8 per unit and the residual value for rental
games is $15 per unit. The residual value is classified as a
long-term asset.
(c) Long-Term Investments
---------------------
Investments in shares are recorded at cost, except when the
decline in the value of the investments is deemed to be other
than a temporary decline. In this case the investments are
accounted for at market value.
Investments in companies subject to significant influence are
accounted for using the equity method.
(d) Capital Assets, Depreciation and Amortization
----------------------------------------------
Capital assets are recorded at cost and are depreciated over
their estimated useful lives. Depreciation is calculated on the
straight-line basis at the following annual rates:
Furniture, fixtures and equipment - 20%
Leasehold improvements - 20%
Computer hardware and software - 33%
In the year of acquisition, depreciation is calculated at one
half the above rates.
(e) Goodwill
--------
Goodwill is amortized on a straight line basis over 20 years.
(f) Income Taxes
------------
Income tax expense includes full provision for all taxes
currently payable as well as for those which have been deferred
to future years as a result of timing differences in the
measurement of income for accounting and income tax purposes. The
balance sheet provision for deferred income taxes reflects the
cumulative effect of all such deferments.
HILL AND CASSIDY RETAIL CORP.
----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
November 30, 1996
-----------------
<TABLE>
<CAPTION>
1. Inventory
<S> <C> <C> <C> <C>
1996 1995
---------- ----------
Video games and movies $ 786,144 $ 414,371
Merchandise 66,441 102,961
Confectionary 67,750 36,471
Supplies 75,192 79,721
---------- ----------
$ 995,527 $ 633,524
========== ==========
2. Rental Inventory
1996 1995
----------------------------------------------- ----------
Accumulated Net Net
Cost Amortization Book Value Book Value
Movies and videos $6,744,609 $4,040,043 $2,704,566 $1,787,389
Games 1,212,957 675,332 537,625 448,467
---------- ---------- ---------- ----------
$7,957,566 $4,715,375 3,242,191 2,235,856
========== ==========
Less residual value 2,349,265 1,584,677
---------- ----------
$ 892,926 $ 651,179
========== ==========
3. Due From Affiliated Companies
Amounts owing from affiliated companies are non-interest bearing and
unsecured with no specific terms of repayment. The company has indicated
that they will not request repayment within the next fiscal year.
1996 1995
---------- ----------
Elk Valley Properties Ltd. $ 383,977 $ 218,879
469821 B.C. Ltd. 79,158 47,621
Castle Properties (A Partnership) 56,759 -
469823 B.C. Ltd. (cost - $109,191) - -
Purple Food Winemaker Ltd. (cost - $161,775) - -
---------- ----------
$ 519,894 $ 266,500
========== ==========
Amounts due from 469823 B.C. Ltd. and Purple Foot Winemaker Ltd. have been written down to net realizable
value.
4. Long-Term Investments
1996 1995
---------- ----------
TSC Shannock Corporation, at cost (market - $64,125) $ 63,379 $ -
661127 Alberta Ltd., 50% interest, at equity 16,195 664
---------- ----------
$ 79,574 $ 664
========== ==========
</TABLE>
HILL AND CASSIDY RETAIL CORP.
----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
November 30, 1996
-----------------
<TABLE>
<CAPTION>
5. Capital Assets
1996 1995
--------------------------------------------------- ----------
<S> <C> <C> <C> <C>
Accumulated
Depreciation
and Net Net
Cost Amortization Book Value Book Value
Equipment and fixtures $ 954,624 $ 275,717 $ 678,907 $ 503,526
Leasehold improvements 771,690 178,915 592,775 351,525
Computer equipment 308,053 148,728 159,325 99,685
---------- ---------- ---------- ----------
$2,034,367 $ 603,360 $1,431,007 $ 954,736
========== ========== ========== ==========
6. Goodwill
1996 1995
---------- ----------
Cost $ 944,572 $ 944,572
Accumulated amortization 102,311 55,091
---------- ----------
Net $ 842,261 $ 889,481
========== ==========
7. Bank Indebtedness
Toronto Dominion Bank approved operating line of credit. Interest is
charged on the outstanding balance at the bank's prime lending rate plus
1% per annum. The operating line of credit is secured by a charge over all
assets of the company.
8. Due To Affiliated Company
Amounts owing to an affiliated company are non-interest bearing and
unsecured with no specific terms of repayment. The affiliated company has
indicated that it will not request repayment within the next fiscal year.
1996 1995
---------- ----------
High Noon Holdings Ltd. $ 17,626 $ 22,376
========== ==========
9. Due to Shareholders
Amounts owing to shareholders are non-interest bearing and unsecured. The
shareholders have indicated that they will not request repayment of these
amounts within the next fiscal year, hence the amounts have been
classified as a non-current liability in the accompanying financial
statements.
</TABLE>
HILL AND CASSIDY RETAIL CORP.
----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
November 30, 1996
-----------------
<TABLE>
<CAPTION>
10. Share Capital
1996 1995
---------- ----------
<S> <C> <C>
Authorized
10,000 Class A shares, voting, $1 par value 100 Class B shares,
non-voting, redeemable, $1 par value
1,000 Class C shares, voting, redeemable $0.01 par value
Issued
100 Class A shares $ 100 $ 100
100 Class B shares 100 100
---------- ----------
$ 200 $ 200
========== ==========
</TABLE>
11. Commitments
The company rents various buildings from an affiliated company on a
monthly basis. Monthly rental costs excluding tenant operating costs are
$132,190.
The company leases buildings from affiliated entities under three
long-term leases, expiring at various dates in 2000. The combined annual
rent excluding tenant operating costs over the next four years is as
follows:
1997 $ 201,523
1998 201,523
1999 201,523
2000 139,673
The company leases equipment expiring on various dates within the next
four years. Future minimum payments under operating leases relating to
equipment are as follows:
1997 $ 8,234
1998 4,912
1999 4,237
2000 4,237
12. Contingent Liabilities
The company has guaranteed loans made to affiliated entities. As at
November 30, 1996 these loans amounted to $946,238 (1995 - $629,141).
13. Related Party Transactions
The company sold to affiliated companies $26,522 (1995 - $42,479) in
supplies and inventory and charged $150,171 (1995 - $7,701) in management
fees.
Building lease payments and operating costs paid to affiliated companies
during the year totalled $1,298,697 (1995 - $936,939).
Schedule 1
HILL AND CASSIDY RETAIL CORP.
----------------------------
SCHEDULE OF OTHER INCOME (LOSS)
-------------------------------
For the year ended November 30, 1996
------------------------------------
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
OTHER INCOME (LOSS)
Gain on sale of long-term investments $ - $ 24,974
Write-down of amounts due from affiliated companies (81,500) (189,466)
Loss on sale of capital assets (696) (91,360)
Write-down of franchise fees - (30,337)
Write-down of capital assets - (17,188)
Amortization of goodwill (47,220) (47,220)
Capital taxes (2,134) (8,068)
Management bonus - (888,703)
Management fees 114,790 -
---------- ---------
OTHER LOSS $ (16,760) $(1,247,368)
========== ===========
</TABLE>
PRO FORMA FINANCIAL INFORMATION
PRO FORMA COMBINED FINANCIAL STATEMENTS
(UNAUDITED)
YEAR ENDED APRIL 30, 1996 AND
NINE MONTHS ENDED JANUARY 31, 1997
INTRODUCTION
In April 1997, the Company acquired certain assets of Hill and Cassidy Retail
Corp. d.b.a. Superior Video, a twenty-seven store video retail chain in Canada
for approximately $9,000,000 in cash and the issuance of 50,000 shares of Class
A Common Stock. The purchase method of accounting has been used to account for
the acquisition.
The unaudited pro forma financial statements reflect the following: (i) the
combination of the financial statements of the acquisitions; (ii) an adjustment
to allocate the purchase price based upon the estimated fair value of the assets
acquired and the obligations assumed; (iii) a provision for income taxes as if
the combined operations had been taxed as a C corporation for all the periods
presented (statement of income only).
The unaudited combined pro forma balance sheet shows the effect of Hill and
Cassidy Retail Corp. acquisition as of January 31, 1997 and were prepared as if
the transaction had occurred as of such period end.
The unaudited pro forma combined statements of income for the year ended April
30, 1996 and the nine months ended January 31, 1997 give effect to (i) the
acquisition of Hill and Cassidy Retail Corp. and (ii) video stores acquired from
unrelated sellers during the year ended April 30, 1996 and the nine months ended
January 31, 1997 (see Registrant's Registration No. 333-7929 on Form S-3 dated
September 27, 1996 and Form 8-K/A dated March 6, 1997), treated as purchases for
accounting purposes and were prepared as if the transactions had occurred as of
the beginning of the respective periods.
The historical statements of income for acquisitions are presented for the year
ended April 30, 1996 and the nine months ended January 31, 1997.
In the opinion of the Company's management, all adjustments necessary to present
fairly such pro forma financial statements have been made based on the terms and
structure of the transaction. The Company anticipates, however, that changes in
the composition of the assets acquired as of January 31, 1997 will not be
materially different as of the date of the transaction. Therefore, the Company
believes any related change in adjustments will not be material to the pro forma
financial statements.
The unaudited pro forma financial statements are not necessarily indicative of
the actual results had the acquisitions occurred at the beginning of the fiscal
year ended April 30, 1996 and at the beginning of the nine months ended January
31, 1997 nor do they purport to indicate the results of future operations of the
Company.
The unaudited pro forma financial statements should be read in connection with
the audited historical financial statements and notes thereto of Video Update,
Inc. and Hill and Cassidy Retail Corp. for the year ended April 30, 1996 and
November 30, 1996, respectively.
PRO FORMA COMBINED BALANCE SHEET (Unaudited)(a)
(in thousands)
<TABLE>
<CAPTION>
Historical
------------------------------------
Video Update, Hill and Cassidy
Inc. Retail Corp.
---------------- -----------------
January 31, January 31, Pro Forma
ASSETS 1997 1997 Adjustments Pro Forma
---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Cash $ 4,508 $ 144 $ (134)(b) $ 4,517
Accounts receivable - net 1,842 40 (40)(b) 1,842
Notes receivable 1,326 - - 1,326
Inventory 3,799 518 (194)(b) 4,123
Videocassette rental inventory - net 40,760 2,334 3 (c) 43,097
Property and equipment - net 27,386 1,077 (83)(c) 28,380
Prepaid expenses 1,004 13 (13)(b) 1,004
Excess of estimated costs of acquisition over the -
estimated fair values of assets to be acquired 29,941 606 (5,189)(c) 35,736
Other assets 1,014 440 (440)(b) 1,014
---------------- ----------------- ---------------- ----------------
Total Assets $ 111,580 $ 5,172 $ 4,288 $ 121,040
================ ================= ================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Note payable $ 618 $ 204 $ 8,795 (b)(d) $ 9,618
Accounts payable 11,324 1,153 (1,153)(b) 11,324
Deferred income taxes 1,505 420 (420)(b) 1,505
Accrued expenses 1,958 18 193 (c) 2,169
Accrued compensation 2,527 - - 2,527
Income taxes payable 1,297 - - 1,297
Accrued rent expense 264 - - 264
Other liabilities 1,586 40 (40)(b) 1,586
Stockholders' Equity
Preferred Stock - - - -
Common Stock 201 - 0 (c)(e) 201
Additional paid-in capital 86,364 - 250 (c)(e) 86,614
Retained earnings 5,498 3,337 (3,337)(b)(c) 5,498
Foreign currency translation 118 - - 118
---------------- ----------------- ---------------- ----------------
Total stockholders' equity 92,181 3,337 (3,088) 92,313
Notes receivable from officers for
the exercise of options (1,680) (1,680)
---------------- ----------------- ---------------- ----------------
Total Liabilities and Stockholders' Equity $ 111,580 $ 5,172 $ 4,288 $ 121,040
================ ================= ================ ================
The accompanying notes are an integral part of the pro forma combined balance sheet (unaudited).
</TABLE>
NOTES TO PRO FORMA COMBINED BALANCE SHEET (Unaudited)
(a) See the introductory paragraphs under "Pro Forma Combined Financial
Statements."
(b) To adjust for assets not acquired and liabilities not assumed of the
seller.
(c) To allocate the estimated purchase price based on the estimated fair
value of the assets acquired accrue acquisition costs and the elimination
of the sellers stockholders equity.
(d) To record additional debt related to the acquisition of certain assets of
Hill and Cassidy Retail Corp.
(e) The adjustment to common stock and additional paid-in capital for 50,000
Class A Common Stock issued in connection with the acquisition of certain
assets of Hill and Cassidy Retail Corp.
PRO FORMA COMBINED STATEMENT OF INCOME (Unaudited)(a)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Historical
------------------------------------
Video Update, Combined
Inc. Acquisitions(b)
Fiscal Year Ended
------------------------------------
April 30, April 30, Pro Forma
1996 1996 Adjustments Pro Forma
---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Rental revenue $ 46,592 $ 23,837 $ (283)(c) $ 70,146
Service fees 491 69 - 560
Product sales 3,421 5,076 (276)(d) 8,221
---------------- ----------------- ---------------- ----------------
50,504 28,982 (559) 78,927
Costs and expenses:
Store operating expenses 39,685 17,861 375 (e) 57,921
Selling, general and administrative 5,362 4,018 (3,419)(f) 5,961
Cost of Sales 1,880 3,449 (115)(g) 5,214
Amortization of intangible 1,072 56 881 (h) 2,009
---------------- ----------------- ---------------- ----------------
47,999 25,384 (2,278) 71,105
---------------- ----------------- ---------------- ----------------
Operating income 2,505 3,598 1,719 7,822
Interest (expense) (232) (183) (26)(i) (1,041)
Other income 548 (196) 259 (j) 611
---------------- ----------------- ---------------- ----------------
316 (379) (367) (430)
---------------- ----------------- ---------------- ----------------
Income before income taxes 2,821 3,219 1,352 7,392
Income tax expense 1,193 432 480 (k) 3,105
---------------- ----------------- ----------------- ----------------
Net income $ 1,628 $ 2,787 $ (128) $ 4,287
================ ================= ================ ================
Net income per share
Primary $ 0.15 $ 0.31
================ ================
Fully diluted $ 0.14 $ 0.30
================ ================
Weighted average number of common and
equivalent shares outstanding
Primary 10,663 3,178 (l) 13,841
================ ================ ================
Fully diluted 11,229 3,178 (l) 14,407
================ ================ ================
The accompanying notes are an integral part of the pro forma combined statement of income (unaudited).
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA COMBINED STATEMENT OF INCOME (Unaudited)(a)
(In thousands, except per share amounts)
Historical
------------------------------------
Video Update, Combined
Inc. Acquisitions (b)
Nine Months Ended
------------------------------------
January 31, January 31, Pro Forma
1997 1997 Adjustments Pro Forma
---------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues:
Rental revenue $ 59,669 $ 11,381 $ - (c) $ 71,050
Service fees 419 75 - 494
Product sales 4,742 2,747 (56)(d) 7,433
---------------- ----------------- ---------------- ----------------
64,830 14,203 (56) 78,977
Costs and expenses:
Store operating expenses 49,329 9,036 371 (e) 58,736
Selling, general and administrative 6,080 1,501 (1,401)(f) 6,180
Cost of Sales 2,842 1,977 1 (g) 4,820
Amortization of intangible 1,139 25 439 (h) 1,603
---------------- ----------------- ---------------- ----------------
59,390 12,539 (590) 71,339
---------------- ----------------- ---------------- ----------------
Operating income 5,440 1,664 534 7,638
Interest (expense) (349) (67) 507 (i) (923)
Other income 567 (108) 108 (j) 567
---------------- ----------------- ---------------- ----------------
218 (175) (399) (356)
---------------- ----------------- ---------------- ----------------
Income from continuing operations
before income taxes 5,658 1,489 135 7,282
Income tax expense 2,346 394 324 (k) 3,064
---------------- ----------------- ---------------- ----------------
Net income from continuing operations $ 3,312 $ 1,095 $ (189) 4,218
================ ================= ================ ================
Net income per share
Primary $ 0.22 $ 0.25
================ ================
Fully diluted $ 0.22 $ 0.25
================ ================
Weighted average number of common and
equivalent shares outstanding
Primary 15,278 1,835 (l) 17,113
================ ================ ================
Fully diluted 15,290 1,835 (l) 17,125
================ ================ ================
The accompanying notes are an integral part of the pro forma combined statement of income (unaudited).
</TABLE>
NOTES TO PRO FORMA COMBINED STATEMENT OF INCOME (Unaudited)
(in thousands)
(a) See the introductory paragraphs under "Pro Forma Combined Financial
Statements."
(b) The combined acquisitions include the operations of (i) Hill and Cassidy
Retail Corp. of Canada (representing 27 video stores) which closed on
April 1, 1997 and (ii) 169 video stores acquired from unrelated sellers
during the year ended April 30, 1996 and the nine months ended January
31, 1997 (See Registrant's Registration No. 333-7929 on Form S-3 dated
September 27, 1996 and Form 8-K/A dated March 6, 1997 ), treated as
purchases for accounting purposes and assuming all such transactions
consummated on May 1, 1995.
<TABLE>
<CAPTION>
Nine
1996 Months
Fiscal Year Ended
Pro Forma Pro Forma
---------------- ----------------
<S> <C> <C>
(c) Adjustment to rental revenue is for the following:
To record a decrease in rental revenue for the planned store closings of Wilderness $ (225) $ -
To record a decrease in revenue related to the sale o videos to brokers
after its initial rental period. (58) -
---------------- ----------------
$ (283) $ -
================ ================
(d) Adjustment to product sales is for the following:
To record decrease in product revenue for the Wilderness store closings $ (32) $ -
To eliminate Music sales (115) (56)
To record decrease in sales of new release to customers (50) -
To decrease product sales related to the sale of videos to brokers after the initial
rental period. (79) -
---------------- ----------------
$ (276) $ (56)
================ ================
(e) Adjustments to store operating expenses consist of the following:
To record decrease in depreciation expense related to the allocation of
the purchase price of the assets to the fair market values of leasehold
improvements, furniture and computer equipment acquired $ 4 $ -
To record decrease in amortization expense related to the allocation of
the purchase price to the fair market value of videocassette rental inventory acquired (313) -
To record increase in amortization expense for the write up of rental inventory
to fair market value 91 -
To record decrease in operating expenses for the Wilderness store closings (254) -
To record decrease in advertising expense due to incremental savings from Acquired
stores located in the Company's existing market, and co-op funding (194) (78)
To reclassify cost of sales recorded as store operating expenses (see Note (g) below) (150) (48)
To adjust amortization expense to comply with the Company's amortization policy 490 18
To account for expenses related to regional management 130 -
To record rent expense related to locations owned by seller but not purchased by Video Update
Video Update entered into lease agreements for the locations with sellers 97 45
To reclassify selling, general, and administrative expenses recorded as store
operating expenses (see note (f) below). 474 434
---------------- ----------------
$ 375 $ 371
================ ================
</TABLE>
<TABLE>
<CAPTION>
NOTES TO PRO FORMA COMBINED STATEMENT OF INCOME (Unaudited)
(in thousands)
<S> <C> <C>
Nine
Fiscal Year Months
1996 Ended
Pro Forma Pro Forma
---------------- ----------------
(f) Adjustments to selling, general and administrative expenses:
To reduce corporate overhead as a result of consolidating operations $ (2,945) $ (967)
To reclassify selling, general, and administrative expenses recorded as store
operating expenses (see note (e) above). (474) (434)
---------------- ----------------
$ (3,419) $ (1,401)
================ ================
(g) Adjustments to cost of sales consist of the following:
To record decrease in cost of product sales for Wilderness store closings $ (25) $ -
To eliminate Cost of sales related to music sales (103) (47)
To reclassify cost of sales recorded as store operating expenses (see note e above) 150 48
To eliminate cost of sales related to reducing sales of new releases to brokers
and customers. (137) -
---------------- ----------------
$ (115) $ 1
================ ================
(h) Adjustments to amortization of intangible assets:
To record amortization related to a two year and four year non-compete $ 5 $ -
To record goodwill amortization resulting from the allocation of the
purchase price and the related acquisition costs based on the estimated
fair values of assets acquired (i.e., goodwill) over 20 years on a straight line basis. 876 439
---------------- ----------------
$ 881 $ 439
================ ================
(i) Adjustments to interest expense consist of the following:
To record additional interest expense related to acquisition debt $ (764) $ (574)
To record interest expense on 60 day note at 8% related to Video Powerstores (4) -
To record change in interest expense on acquisition debt at 9.5% related to Wilderness 25 -
To eliminate interest expense for decrease in debt. 117 67
---------------- ----------------
$ (626) $ (507)
================ ================
(j) Adjustments to other income (expense) consist of the following:
To eliminate other income (expense) that Video Update will not realize. $ 259 $ 108
---------------- ----------------
$ 259 $ 108
================ ================
</TABLE>
NOTES TO PRO FORMA COMBINED STATEMENT OF INCOME (Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine
Fiscal Year Months
1996 Ended
Pro Forma Pro Forma
---------------- ----------------
<S> <C> <C>
(k) Adjustments to provision for income taxes consist of the following:
To record estimated provisions for income taxes related to operations as
if the Company had been taxed as a C Corporation $ 915$ 270
To record the income tax effect of the pro forma adjustments
in (c) through (j) above . 565 54
---------------- ----------------
$ 1,480 $ 324
================ ================
(l) Adjustments to the weighted average number of common and equivalent shares
outstanding consist of the following:
To record the shares offered in connection with the Acquisitions 487 75
To show the number of shares of Class A Common Stock issued upon exercise
of the Class A Warrants called for redemption in September 1995, related
to the cash portion of the Acquisition. 532 -
To show the number of shares of Class A Common Stock from issued in the
Stock Offering in September 1996, related to the cash portion of the Acquisition. 2,159 1,760
---------------- ----------------
3,178 1,835
================ ================
</TABLE>
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