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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
OCTOBER 3, 1997
Date of Report (Date of earliest event reported)
COMMISSION FILE NUMBER: 0-21499
SPECIALTY CATALOG CORP.
(Exact name of registrant as specified in its charter)
DELAWARE 04-3253301
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
21 BRISTOL DRIVE
SOUTH EASTON, MASSACHUSETTS 02375
(Address of principal executive offices)
TELEPHONE NUMBER (508) 238-0199
(Registrant's telephone number, including area code)
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This report on Form 8-K/A amends and supplements a report on Form 8-K filed
by Specialty Catalog Corp. (the "Company") on October 17, 1997 in connection
with the Acquisition of the Daxbourne Group. The disclosure required by Item 2
is included in that report.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of Business Acquired:
The consolidated financial statements of Daxbourne Limited for the two
most recent fiscal years, the accountant's report covering such
financial statements and the interim financial statements required by
this item are filed herewith as Exhibits 99.1, 99.2 and 99.3.
(b) Pro Forma Financial Information:
Unaudited Pro Forma Condensed Consolidated Balance Sheet As of
September 27, 1997
Unaudited Pro Forma Condensed Consolidated Statement of Operations For
The Nine Months Ended September 27, 1997
Unaudited Pro Forma Condensed Consolidated Statement of Operations For
The Year Ended December 28, 1996
Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements
See pages F-1 through F-7.
(c) Exhibits
Exhibit No. Description
----------- -----------
2.1 Terms of Offer made by Daxbourne Limited, Postinstant
Limited and MC Hairways Limited to Daxbourne
International Limited, incorporated herein by reference
to Exhibit 2.1 to Form 8-K of Specialty Catalog Corp.
dated October 3, 1997 (Commission File No. 0-21499).
2.2 The Offer Letter from Daxbourne Limited, Postinstant
Limited and MC Hairways Limited addressed to Daxbourne
International Limited, incorporated herein by reference
to Exhibit 2.2 to Form 8-K of Specialty Catalog Corp.
dated October 3, 1997 (Commission File No. 0-21499).
2
Exhibit No. Description
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10.1 Credit Agreement dated as of October 3, 1997 between
BankBoston, N.A. (acting through its London Branch) and
Daxbourne International Limited, a subsidiary of the
Registrant, incorporated herein by reference to Exhibit
10.5 to Form 10-Q of Specialty Catalog Corp. for the
quarter ended September 27, 1997 (Commission File No.
0-21499).
23 Consent of Independent Accountant
99.1 Historical audited financial statements and related
notes of Daxbourne Limited as of April 30, 1997 and for
the year then ended.
99.2 Historical audited financial statements and related
notes of Daxbourne Limited as of April 30, 1996 and for
the year then ended.
99.3 Historical unaudited financial statements and related
notes of Daxbourne Limited as of September 27, 1997 and
December 31, 1996 and for the nine months ended
September 27, 1997 and September 30, 1996.
3
SPECIALTY CATALOG CORP.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
INTRODUCTION:
This unaudited pro forma financial information is presented to give effect to
the Company's acquisition of certain assets and liabilities (the "Acquisition")
of Daxbourne Limited and its wholly owned susidiaries (the "Daxbourne Group" or
"Daxbourne"). The Unaudited Pro Forma Condensed Consolidated Statements of
Operations reflect adjustments as if the Acquisition had occurred on December
31, 1995. The Unaudited Pro Forma Condensed Consolidated Balance Sheet reflects
adjustments as if the Acquisition had occurred on September 27, 1997.
The Acquisition has been accounted for using the purchase method of accounting.
Accordingly, assets acquired and liabilities assumed have been recorded at their
estimated fair values. Management does not expect that the final allocation of
the purchase price for the Acquisition will differ materially from the
allocations set forth in the unaudited pro forma financial information presented
herein.
The pro forma adjustments are based upon available information and assumptions
that management believes are reasonable. The Unaudited Pro Forma Condensed
Consolidated Financial Statements do not purport to present the financial
position or results of operations of the Company had the acquisition of
Daxbourne occurred on the dates specified, nor are they necessarily indicative
of the results of operations that may be achieved in the future. The Unaudited
Pro Forma Condensed Consolidated Statements of Operations do not reflect any
adjustments for synergies that management expects to realize commencing upon
consummation of the acquisition. There are no assurances as to the amount of
cost savings or revenue enhancements, if any, that actually will be realized.
The unaudited pro forma financial information is based on certain assumptions
and adjustments described in the Notes to Unaudited Pro Forma Condensed
Consolidated Financial Statements and should be read in conjunction therewith
and with the consolidated financial statements and related notes of the Company
included in its Annual Report on Form 10-K for the fiscal year ended December
28, 1996 and the consolidated financial statements and related notes of
Daxbourne included herein under exhibits 99.1 and 99.2.
F-1
SPECIALTY CATALOG CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 27, 1997
Historical Pro Forma
Specialty Historical Pro Forma F/N Specialty
Catalog Corp. Daxbourne Adjustments Ref. Catalog Corp.
------------- --------- ----------- ---- ------------
Current assets:
Cash and cash equivalents $ 3,725 $ 2,202 $ --- $ 5,927
Accounts receivable, net 1,153,744 295,035 --- 1,448,779
Inventories 5,456,495 508,874 --- 5,965,369
Prepaid expenses 2,613,256 --- (119,952) A 2,493,304
----------- ---------- ----------- ------------
Total current assets 9,227,220 806,111 (119,952) 9,913,379
----------- ---------- ----------- ------------
Property and equipment, net 1,200,298 469,441 --- 1,669,739
----------- ---------- ----------- ------------
Deferred income taxes 5,698,570 --- --- 5,698,570
----------- ---------- ----------- ------------
Intangible assets, net --- --- 3,918,119 B 3,918,119
----------- ---------- ----------- ------------
Other assets 300,367 --- 67,753 C 368,120
----------- ---------- ----------- ------------
Total assets $16,426,455 $1,275,552 $ 3,865,920 $21,567,927
=========== ========== =========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
expenses 1,794,532 249,544 778,778 E 2,822,854
Line of credit 2,027,760 --- 1,831,479 D 3,859,239
Liabilities to customers 882,667 --- --- 882,667
Income taxes 111,640 --- --- 111,640
Current portion of long-term debt 500,000 --- 500,000
Deferred consideration --- --- 483,900 F 483,900
----------- ---------- ----------- ------------
Total current liabilities 5,316,599 249,544 3,094,157 8,660,300
----------- ---------- ----------- ------------
Long-term debt 4,500,000 --- 1,797,771 D 6,297,771
Stockholders' equity:
Common stock 49,670 807 (807) G 49,670
Additional paid-in capital 15,696,393 --- --- 15,696,393
Deferred compensation (70,238) --- --- (70,238)
Accumulated deficit (9,065,969) 1,025,201 (1,025,201) G (9,065,969)
----------- ---------- ----------- ------------
Total stockholders' equity 6,609,856 1,026,008 (1,026,008) 6,609,856
----------- ---------- ----------- ------------
Total liabilities and stockholders'
Equity $16,426,455 $1,275,552 $ 3,865,920 $21,567,927
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See notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
F-2
SPECIALTY CATALOG CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1997
Historical Pro Forma
Specialty Historical Pro Forma F/N Specialty
Catalog Corp. Daxbourne Adjustments Ref. Catalog Corp.
------------- --------- ----------- ---- -------------
Net sales $31,531,937 $3,604,753 $ --- $35,136,690
Cost of sales (including buying,
occupancy and order fulfillment costs) 10,701,088 1,109,263 --- 11,810,351
----------- ---------- ---------- -----------
Gross profit 20,830,849 2,495,490 --- 23,326,339
Selling, general & administrative
expenses 17,863,094 1,890,759 --- 19,753,853
Amortization of intangibles --- --- 230,015 H 230,015
----------- ---------- ---------- -----------
Income from operations 2,967,755 604,731 (230,015) 3,342,471
Interest income (expense), net (598,240) 26,818 (257,677) I (829,099)
----------- ---------- ---------- -----------
Income before income taxes and
extraordinary items 2,369,515 631,549 (487,692) 2,513,372
Income tax provision (benefit) 995,196 170,409 (113,597) J 1,052,008
----------- ---------- ---------- -----------
Income before extraordinary items $ 1,374,319 $ 461,140 ($374,095) $ 1,461,364
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Per common share:
Income before extraordinary items $0.25 $0.26
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Weighted average shares outstanding 5,523,587 5,523,587
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See notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
F-3
SPECIALTY CATALOG CORP.
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 28, 1996
Historical Pro Forma
Specialty Historical Pro Forma F/N Specialty
Catalog Corp. Daxbourne Adjustments Ref. Catalog Corp.
------------- ---------- ----------- ---- -------------
Net sales $36,271,663 $5,138,492 $ $41,410,155
---
Cost of sales (including buying,
occupancy and order fulfillment costs) 12,810,921 1,679,809 --- 14,490,730
----------- ---------- ------------ -----------
Gross profit 23,460,742 3,458,683 --- 26,919,425
Selling, general & administrative
expenses 20,185,965 2,797,205 --- 22,983,170
Amortization of intangibles --- --- 306,687 H 306,687
----------- ---------- ------------ -----------
Income from operations 3,274,777 661,478 (306,687) 3,629,568
Interest income (expense), net (1,657,471) 15,193 (343,570) I (1,985,848)
----------- ---------- ------------ -----------
Income before income taxes 1,617,306 676,671 (650,257) 1,643,720
Income tax provision (benefit) 644,047 260,846 (205,837) J 699,056
----------- ---------- ------------ -----------
Net income $ 973,259 $ 415,825 ($444,420) $ 944,664
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Per common share:
Net income per share $0.25 $0.24
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Weighted average shares outstanding 3,946,211 3,946,211
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See notes to Unaudited Pro Forma Condensed Consolidated Financial Statements.
F-4
SPECIALTY CATALOG CORP.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The acquisition of certain assets and liabilities of the Daxbourne Group
has been accounted for using the purchase method of accounting. Accordingly,
assets acquired and liabilities assumed have been recorded at their estimated
fair values. Management does not expect that the final allocation of the
purchase price for the acquisition of the Daxbourne Group will differ materially
from the allocations set forth in the unaudited pro forma financial information
presented herein.
The Unaudited Pro Forma Condensed Consolidated Statements of Operations
reflect adjustments as if the acquisition of the Daxbourne Group had occurred on
December 31, 1995. The Unaudited Pro Forma Condensed Consolidated Balance Sheet
reflects adjustments as if the acquisition of the Daxbourne Group had occurred
on September 27, 1997.
The Historical Daxbourne Balance Sheet as of September 27, 1997 has been
adjusted to reflect only the assets and liabilities acquired by the Company.
The translation of the Historical Daxbourne Financial Statements from pound
sterling to United States dollars has been performed using the foreign currency
exchange rate as of October 3, 1997 of $1.613 to (Pounds)1.00.
2. THE DAXBOURNE ACQUISITION
On October 3, 1997, Daxbourne International Limited, a wholly owned
subsidiary of SC Corporation, which in turn is the principal operating
subsidiary of Specialty Catalog Corp., accepted an offer to acquire the assets
of the Daxbourne Group.
The Daxbourne Group is a leading retailer of women's wigs, hairpieces and
related products in the U.K. The Daxbourne Group distributes wigs and
hairpieces under its Jacqueline Collection, Pretty Woman and Natural Image
brands, and has established a strong presence in the U.K. through catalog,
retail and wholesale distribution channels.
As part of this transaction, the Company has acquired substantially all of
the inventory, real property, physical plant and equipment, intangible assets
and other assets used in connection with Daxbournes' business.
The Company financed this acquisition through its senior facility with
BankBoston N.A., which was increased from an $11 million U.S. facility to a $15
million combined U.S. and U.K. facility.
F-5
SPECIALTY CATALOG CORP.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3. DESCRIPTION OF CONSIDERATION
The aggregate consideration for the acquisition of certain assets and
liabilities of the Daxbourne Group was $4,874,776, with $3,629,250 paid at
closing and $483,900 payable without interest one year from closing, plus
acquisition costs of $761,626. The following is a summary of the allocation of
the purchase price to net assets acquired as a result of the Daxbourne
acquisition:
Cash $ 2,202
Accounts receivable, net 295,035
Inventory 508,874
Property and equipment 469,441
Deferred debt costs 67,753
Current liabilities (386,648)
Customer list 250,000
Covenant not to compete 806,500
Trade Names 1,100,000
Goodwill 1,761,619
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$4,874,776
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The purchase price was allocated to the assets and liabilities acquired
based on their estimated respective fair values.
4. PRO FORMA ADJUSTMENTS RELATED TO THE DAXBOURNE ACQUISITION
A. To eliminate acquisition costs paid by Specialty Catalog Corp. prior
to closing which are included in the aggregate purchase price.
B. To record the adjustments for the estimated fair values of the
customer list, covenant not to compete, tradenames, and goodwill
acquired.
C. To record the deferred debt costs associated with obtaining the
borrowings under the UK Line of Credit and the UK Term Loan. These
cost are to be amortized over four years.
D. To record the $1,831,479 borrowing under the UK Line of Credit and the
$1,797,771 borrowing under the UK Term Loan.
F-6
SPECIALTY CATALOG CORP.
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
E. To record accrued acquisition costs of $778,778, including certain
integration costs of Daxbourne.
F. To record the deferred purchase price consideration which is payable
one year from the closing.
G. To eliminate Daxbourne's common stock of $807 and retained earnings of
$1,025,201.
H. To record amortization expense based on amortization of the customer
list and the covenant not to compete over 5 years, and amortization of
the tradenames and goodwill over 30 years, resulting in an adjustment
of $230,015 for the nine months ended September 27, 1997 and $306,687
for the year ended December 28, 1996.
I. To record interest expense on the borrowings under the UK Line of
Credit and UK Term Loan to finance the acquisition at an interest rate
of 9% per annum and the amortization of the deferred debt costs.
J. To record income tax provision (benefit).
F-7
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.
SPECIALTY CATALOG CORP.
Dated: December 10, 1997
/s/ Steven L. Bock
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Steven L. Bock
Chairman and Chief Executive Officer
Dated: December 10, 1997 /s/ J. William Heise
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J. William Heise
Senior Vice President, Chief Financial Officer
(Principal Accounting and Financial Officer)