<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 25, 1998
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A #1
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): September 14, 1998
GENESIS DIRECT, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE
(State or Other Jurisdiction of Incorporation)
0-24173 22-3449666
(Commission File Number) (I.R.S. Employer Identification No.)
100 PLAZA DRIVE, SECAUCUS, NJ 07094
(Address of Principal Executive Offices) (Zip Code)
(201) 867-2800
(Registrant's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On September 29, 1998, the Registrant filed a current report on Form 8-K
reporting under Item 2 the acquisition of assets of Carol Wright Gifts, Inc.
This Form 8-K/A #1 amends that report by providing financial information called
for by Item 7.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Business Acquired.
-----------------------------------------
See Exhibit 99.1
(b) Pro Forma Financial Information.
-------------------------------
See Exhibit 99.1
(c) Exhibits.
---------
The following exhibits are filed herewith:
Exhibit
-------
No. Description
--- -----------
23.1 Consent of Deloitte & Touche LLP
99.1 Financial Statements
<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.
GENESIS DIRECT, INC.
By: /s/ Ronald Benanto
---------------------------------
Ronald Benanto
Vice President and Chief Financial
Officer
Date: November 25, 1998
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference into Registration Statement
(File No. 333-55681) on Form S-8 of Genesis Direct, Inc., of our report dated
April 24, 1998, except for Note 11 as to which the date is August 5, 1998,
relating to the financial statements of Carol Wright Gifts, Inc. (a wholly owned
subsidiary of Cox Target Media, Inc.) as of and for the fiscal year ended
December 26, 1997.
/s/ DELOITTE & TOUCHE LLP
Tampa, Florida
November 24, 1998
<PAGE>
Exhibit 99.1
Index to Financial Statements
-----------------------------
Page
----
Carol Wright Gifts, Inc. (Audited)
- ----------------------------------
Report of Independent Certified Public Accountants F-1
Audited Balance Sheet - December 26, 1997 F-2
Audited Statement of Operations - Year ended December 26, 1997 F-3
Audited Statement of Stockholder's Equity - Year ended
December 26, 1997 F-4
Audited Statement of Cash Flows - Year ended December 26, 1997 F-5
Notes to Audited Financial Statements F-6
Carol Wright Gifts, Inc. (Unaudited)
- ------------------------------------
Unaudited Balance Sheet - June 26, 1998 F-13
Unaudited Statements of Operations --
Six months ended June 26, 1998 and June 27, 1997 F-14
Unaudited Statements of Cash Flows --
Six months ended June 26, 1998 and June 28, 1997 F-15
Notes to Unaudited Financial Statements F-16
Genesis Direct, Inc. and Carol Wright Gifts, Inc. (Unaudited)
- ------------------------------------------------------------
Unaudited Pro Forma Condensed Combined Financial Statements F-17
Unaudited Pro Forma Condensed Combined Balance Sheet -
June 27, 1998 F-18
Unaudited Pro Forma Condensed Combined Statements of Operations --
Year ended March 28, 1998 F-19
Unaudited Pro Forma Condensed Combined Statements of Operations --
Three months ended June 27, 1998 F-20
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements F-21
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholder
Carol Wright Gifts, Inc.
We have audited the accompanying balance sheet of Carol Wright Gifts, Inc. (the
"Company"), a wholly owned subsidiary of Cox Target Media, Inc. (the "Parent"),
as of December 26, 1997, and the related statements of operations, stockholder's
equity and cash flows for the year then ended. The 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 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 audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 26, 1997 and the
results of its operations and its cash flows for the fiscal year then ended in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared from the separate
records maintained by the Company and may not necessarily be indicative of the
conditions that would have existed or the results of operations if the Company
had been operated as an unaffiliated company. Portions of certain income and
expenses represent allocations made from the Parent for items applicable to the
Parent and its subsidiaries as a whole.
The Company has entered into an agreement (see Note 11) whereby substantially
all the assets and liabilities of the Company will be sold to an independent
third party.
Deloitte & Touche LLP
Tampa, Florida
April 24, 1998, except for Note 11
as to which the date is August 5, 1998
F-1
<PAGE>
CAROL WRIGHT GIFTS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COX TARGET MEDIA, INC.)
BALANCE SHEET
AS OF DECEMBER 26,1997 (IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalent $ 473
Accounts receivable-net of $226 allowance
for doubtful accounts 3,667
Deferred promotion costs 4,932
Prepaid expenses 622
Inventory-net 11,363
--------
Total current assets 21,057
Investment in joint venture 117
Property, plant, and equipment-net 12,955
Intangible assets-net 16,932
--------
TOTAL ASSETS $ 51,061
========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,446
Accrued payroll 386
Deferred revenue 2,050
Other accrued expenses 2,268
--------
Total current liabilities 13,150
DUE TO COX ENTERPRISES,INC. - noninterest bearing 15,735
--------
Total liabilities 28,885
--------
STOCKHOLDER'S EQUITY:
Common stock-1000 shares authorized and outstanding at
December 26, 1997; $1 par value per share 1
Additional paid-in capital 46,199
Deficit (24,024)
-------
Total stockholder's equity 22,176
--------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 51,061
========
</TABLE>
See notes to financial statements.
F-2-
<PAGE>
CAROL WRIGHT GIFTS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COX TARGET MEDIA, INC.)
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 26, 1997 (IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
REVENUE $ 117,307
COST OF SALES 41,418
---------
Gross profit 75,889
OPERATING EXPENSES 60,643
DEPRECIATION AND AMORTIZATION 2,795
GENERAL AND ADMINISTRATIVE EXPENSES 13,505
LOSS DUE TO IMPAIRMENT OF LONG-LIVED ASSETS 24,662
OTHER INCOME (177)
---------
NET LOSS BEFORE INCOME TAX BENEFIT (25,539)
INCOME TAX BENEFIT 1,111
---------
NET LOSS $ (24,428)
=========
</TABLE>
See notes to financial statements.
F-3-
<PAGE>
CAROL WRIGHT GIFTS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COX TARGET MEDIA, INC.)
STATEMENT OF STOCKHOLDER'S EQUITY
YEAR ENDED DECEMBER 26, 1997 (In Thousands of Dollars, Except Share Data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ADDITIONAL RETAINED TOTAL
COMMON PAID-IN EARNINGS STOCKHOLDER'S
STOCK CAPITAL (DEFICIT) EQUITY
<S> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1996 $ 1 $ 69,225 $ 590 $ 69,816
Net loss - - (24,428) (24,428)
Liquidating dividends to
Cox Enterprises, Inc. - (13,798) - (13,798)
Other dividends paid to
Cox Enterprises, Inc. - - (186) (186)
Purchase price adjustment - (9,228) - (9,228)
----- --------- -------- ---------
BALANCE DECEMBER 26, 1997 $ 1 $ 46,199 $(24,024) $ 22,176
===== ========= ======== =========
</TABLE>
See notes to financial statements.
F-4-
<PAGE>
CAROL WRIGHT GIFTS, INC.
(A WHOLLY OWNED SUBSIDIARY OF COX TARGET MEDIA, INC.)
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 26, 1997 (IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(24,428)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Loss due to impairment of long-lived assets 24,662
Depreciation and amortization 2,795
Provision for bad debts 251
Deferred income tax expense (262)
Obsolescence for inventory 309
Equity in income of joint venture (54)
Changes in assets and liabilities:
Decrease in accounts receivable 510
Decrease in prepaid expenses 252
Decrease in deferred promotion costs 1,286
Increase in other accrued expenses 122
Decrease in accrued payroll (570)
Decrease in accounts payable (1,172)
Increase in deferred revenue 580
Increase in inventory (2,970)
--------
Net cash provided by operating activities 1,311
--------
CASH FLOWS FROM INVESTING ACTIVITIES:
Other (25)
Capital expenditures (493)
Purchase price adjustment (9,228)
Reduction of goodwill due to purchase price adjustment 7,610
--------
Net cash used in investing activities (2,136)
--------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend paid to Cox Enterprises, Inc. (186)
Increase in Due to Cox Enterprises, Inc. 849
--------
Net cash provided by financing activities 663
--------
DECREASE IN CASH AND CASH EQUIVALENTS (162)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 635
--------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 473
========
SUPPLEMENTAL DISCLOSURES OF NONCASH FLOW INFORMATION:
Liquidating dividends in the amount of $13,798 were declared and credited to Due to Cox Enterprises, Inc.
</TABLE>
See notes to financial statements.
F-5-
<PAGE>
CAROL WRIGHT GIFTS, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 26, 1997 (IN THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------
1. COMPANY OPERATIONS
Carol Wright Gifts, Inc. (the "Company") is a leading direct mail marketer of
popularly-priced merchandise to consumers. The Company sells a wide range of
products including housewares, gifts, apparel, small furniture, health and
beauty aids, and toys. Founded in 1972, the Company has customers throughout
the United States and in some foreign countries.
Effective February 29, 1996, Cox Target Media (the "Parent") acquired
substantially all of the assets of Carol Wright Sales, Inc. ("Carol Wright
Gifts") and Donnelley Marketing Consumer Promotions, Inc. ("Carol Wright
Promotions" or "Cox Direct"), a general merchandise retail catalog company and
a cooperative direct mail company. The Parent is a wholly owned subsidiary of
Cox Investment Company, Inc. which is a wholly owned subsidiary of Cox
Enterprises, Inc. ("Cox"). Carol Wright Gifts has a catalog circulation of
approximately 81 million. In addition, Carol Wright Gifts distributes
approximately 2.1 billion other promotional pieces through mediums such as
newspapers, magazines, credit card statements and affiliated companies direct
mail envelopes. Carol Wright Gifts fulfills close to 5 million sales
transactions yearly.
Cox Target Media's purchase was structured as an asset purchase. Cox
allocated the total purchase price to Carol Wright Gifts and to Carol Wright
Promotions based on independent appraisals with $69,225 being allocated to
Carol Wright Gifts. The Company allocated $28,988 to identifiable tangible
and intangible assets with the balance of $40,237 to goodwill. During 1997,
the purchase price was reduced subject to a contractually agreed-upon final
working capital adjustment of $9,228. The Company reflected this adjustment
as a reduction of the cost of the assets acquired, including goodwill, and the
amounts of capital contributed to the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS - The Company considers all securities purchased
with an original maturity of three months or less to be cash equivalents.
INVENTORIES - Merchandise inventories are valued at the lower of cost or
market. The standard cost of merchandise includes purchased material, freight
and handling, and duty and commissions determined on the first-in, first-out
method of inventory valuation. As of December 26, 1997, the balance of the
allowance for obsolescence account was $1,087, which reduces the inventory to
its net realizable value.
DEFERRED PROMOTION COSTS - Deferred promotion costs are incurred to produce
catalogs for mailing and include paper, printing, postage, etc. The costs are
deferred and expensed over the circulation period of the catalog which may
range from one to twelve months.
F-6-
<PAGE>
INVESTMENT IN JOINT VENTURE - This investment represents a 50%-owned joint
venture that is accounted for using the equity method.
PROPERTY, PLANT, AND EQUIPMENT - Property, plant, and equipment are recorded
at cost. Depreciation is recorded on a straight line basis using the
following estimated useful lives:
Building 39 years
Leasehold improvements 5 years
Machinery and equipment 5 to 7 years
Furniture and fixtures 7 years
Computer equipment and software 3 years
INTANGIBLE ASSETS - Intangible assets include goodwill, which represents the
unamortized excess of the cost of the acquired assets of the business over the
fair market value of the identifiable net assets at the date of acquisition.
Goodwill is being amortized using the straight-line method over a period of
forty years. Intangible assets also include mailing list assets and
acquisition fees which are carried at cost less accumulated amortization,
which is calculated using the straight-line method over an estimated useful
life of five years.
REVENUE RECOGNITION - Revenue from the sale of merchandise is recognized when
the merchandise is shipped. An allowance has been recorded for estimated
sales returns and allowances.
DEFERRED REVENUE - Deferred income is recognized when a customer order is
received for which the inventory item has not as yet been shipped to the
customer.
INCOME TAXES - The Company is included in the consolidated federal and state
income tax return of Cox. All income taxes are allocated to the Company on a
stand-alone basis. The Company uses the asset and liability method to account
for income taxes. Under the asset and liability method, deferred income
taxes, net of appropriate valuation allowances, are provided for the temporary
differences between the financial reporting and tax basis of assets and
liabilities at the current enacted rates.
FISCAL YEAR END - The Company utilizes a 52 or 53 week fiscal year. The fiscal
year ended December 26, 1997 contained 52 weeks.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimated.
IMPAIRMENT OF LONG-LIVED ASSETS - The Company periodically evaluates the
recoverability of the net carrying value of its property, plant and equipment
and intangible assets. Long-lived assets are written down to fair value when
they are considered impaired. If the total of future undiscounted cash flows
were less than the carrying amount of the property, plant, and equipment or
intangible assets, such carrying amount would then be written down to the fair
value, and a loss on impairment recognized by a charge to earnings. The
Company concluded that goodwill and certain identifiable assets were impaired
upon consideration of the carrying value of such assets as a result of the
proposed sale discussed at Note 11. As a result, the Company evaluated the
carrying value of their long-lived assets and property, plant and
F-7-
<PAGE>
equipment and recorded an approximate $25 million noncash charge to earnings
of which approximately $19 million was related to a write-down of goodwill,
for which there was a tax benefit of $566, and the remaining approximate $5
million charge primarily related to a write-down of the Company's property,
plant and equipment.
3. INVESTMENT IN JOINT VENTURE
The Company's investment represents a 50% interest in a joint venture with the
Trent Mail Order Company ("Trent") which is located in England. The Company
formed the joint venture to introduce the Company's product line in the United
Kingdom ("UK") by licensing Trent to use the Company's name and logo for sale
of merchandise by Trent in the UK.
The Company's investment in the joint venture was $117 at December 26, 1997.
During 1997, the Company recognized income from the joint venture of $54. At
December 26, 1997, the Company had a receivable of $1,253 due from the joint
venture. This balance is included in trade receivables.
4. PROPERTY, PLANT, AND EQUIPMENT - NET
Property, plant, and equipment at December 26, 1997, consisted of the
following:
<TABLE>
<S> <C>
Land $ 702
Building - net of impairment write-down 7,298
Machinery and equipment 6,244
Furniture and fixtures 1,031
Leasehold improvements 4
Construction in process 272
-------
15,551
Less accumulated depreciation (2,596)
-------
Net property, plant, and equipment $12,955
=======
</TABLE>
Depreciation expense during the year ended December 26, 1997, was $1,473. In
addition, the Company recorded $4,783 as an impairment in the carrying value
of property, plant, and equipment.
5. INTANGIBLE ASSETS
Intangible assets at December 26, 1997, consisted of the following:
<TABLE>
<S> <C>
Goodwill - net of impairment write-down $17,416
Mailing lists 2,515
-------
19,931
Less accumulated amortization (2,999)
-------
Intangible assets - net $16,932
=======
</TABLE>
Amortization expense for the year ended December 26, 1997, was $1,322.
Additionally, the Company recorded $19,151 as an impairment in the carrying
value of the goodwill (see Note 2).
F-8-
<PAGE>
6. PENSION AND POST RETIREMENT BENEFITS
Beginning in fiscal year 1997, the Company's employees began participating in
the qualified pension plan of Cox that covers substantially all of the
Company's employees. The qualified plan calls for benefits to be paid to
eligible employees at retirement based primarily upon the compensation rates
paid to employees during their employment with the Company.
The Company's pension expense was $351 for the fiscal year ended December 26,
1997. The Cox qualified pension plan was fully funded at December 27, 1997.
The estimated fair value of plan assets exceeded the projected benefit
obligation for the supplemental pension plan as of December 26, 1997.
Actuarial assumptions used to measure the projected benefit obligation of the
pension plan at December 26, 1997, are as follows:
Discount rate of obligations 7.25%
Expected long-term rate of investment return 9.00%
Rate of increase in compensation levels 5.00%
In addition to pension benefits, employees of the Company became eligible for
certain postretirement health care and life insurance benefits under a plan
administered by Cox beginning in fiscal 1997. The Company's postretirement
benefit expense was $148 for the fiscal year ended December 26, 1997. The Cox
postretirement welfare plan was fully funded at December 26, 1997. The
estimated fair value of plan assets plus the accrued postretirement benefit
cost exceeded the accumulated postretirement benefit obligation for the
postretirement welfare plan as of December 26, 1997.
Actuarial assumptions used to determine the accumulated postretirement benefit
obligation at December 26, 1997, were as follows:
Discount rate 7.25%
Expected long-term rate of investment return 9.00%
Rate of increase in compensation levels 5.00%
Assumed current year health care cost trend rate
Retirees under 65 10.50%
Assumed ultimate trend rate 5.00%
Year ultimate health care cost rate will be achieved 2008
Effect of 1% increase in health care cost trend rates
Accumulated postretirement benefit obligation 5.60%
Annual aggregate service and interest costs 3.90%
7. PROFIT SHARING PLANS
Prior to January 1, 1997, the Company maintained a defined contribution money
purchase pension plan and a defined contribution 401(k) profit sharing plan
(the "Plans") that covered substantially all employees. Under the Plans,
employer contributions vested based on number of years of service. To
participate in the Plan, employees must have had completed twelve months of
service.
F-9-
<PAGE>
During the year ended December 26, 1997, the Company merged the Plans into the
Cox Enterprises, Inc. Savings Plus Plan. The Company enrolled all eligible
employees and transferred all assets of the plans to the Cox Enterprises, Inc.
Savings Plus Plan (the "Savings Plus Plan"). For the fiscal year ended
December 26, 1997, the Company's matching contribution to the Savings Plus
Plan was $196.
Certain key employees of the Company also participate in a nonqualified
deferred compensation plan. This plan is an unfunded plan. The Company
records its total annual expense based on an allocation of the Company's share
of the plan costs. Any liability of the Company is included within Due to Cox
Enterprises, Inc. account.
8. RELATED PARTY TRANSACTIONS
The financial statements have been prepared from the separate records
maintained by the Company and may not necessarily be indicative of the
conditions that would have existed or the results of operations if the Company
had been operated as an unaffiliated company. Portions of certain income and
expenses represent allocations made from the Parent for items applicable to
the Parent and its subsidiaries as a whole.
The Company's corporate headquarters is located in Stamford, Connecticut in
space leased by the Parent for which leasing costs are allocated to the
Company. During 1997, allocated rent was $294.
The Parent provides accounting services to the Company. The Company paid $415
to the Parent for these services during the fiscal year ended December 26,
1997.
Certain expenses incurred by the Company are paid for by Cox. Such costs are
then allocated to the Company as overhead. During 1997, those allocations
include the following: $927 for general management, cash and financial
management, and other administrative services; $695 for pension and
postretirement benefits; $241 for workers compensation benefits; and $117 for
general, auto, and other insurance benefits. These allocations were made by
Cox based on the Company's proportionate size as indicated by net sales, total
assets, and employee head count.
Included in the $15,735 balance "Due to Cox Enterprise, Inc." is $13,798 of
liquidating dividends declared and payable to Cox. These liquidating
dividends represent a return of capital to Cox and are recorded as a deduction
to additional paid-in capital for the Company.
Cox Direct, Inc., an affiliated company, pays for and is reimbursed by the
Company for various operating expenses incurred by the Company. For the
fiscal year ended December 26, 1997 the amount paid for these expenses totaled
$16,324.
The Company utilizes Val-Pak Direct Marketing Systems, Inc., an affiliated
company, for product promotional services. For the fiscal year ended December
26, 1997 the amount paid for these services totaled $1,157.
F-10-
<PAGE>
9. INCOME TAXES
At December 26, 1997, the benefit for income taxes consisted of the following:
<TABLE>
<S> <C>
State:
Current $ (154)
Deferred (87)
-------
(241)
-------
Federal:
Current (695)
Deferred (175)
-------
(870)
-------
Total income tax benefit $(1,111)
=======
</TABLE>
For the fiscal year ended December 26, 1997 the difference between the federal
statutory rate of 35% and the total effective tax rate of 4% is primarily due
to a valuation allowance, which has been provided to reduce the deferred tax
assets to the amount that is more likely than not to be realized.
The significant temporary differences relate to fixed and intangible assets
for which book and tax deductions vary and reserves/deferrals that are
recorded for book purposes before/after being deducted for income tax
purposes.
No federal or state income taxes were paid to Cox during the fiscal year ended
December 26, 1997.
10. COMMITMENTS AND CONTINGENCIES
The Company has immaterial obligations under operating leases. None of these
operating leases are noncancelable or exceed one year. Rental expense paid
during 1997 was $345.
The Company has letters of credit that the Company uses for inventory
purchases.
The Company is involved in various legal actions and claims arising from the
normal course of business. In the opinion of management, the ultimate outcome
of these matters will not have a material impact on the Company's financial
condition or results of operations. The Company is also involved in various
legal actions and claims arising from events occurring before the Company was
purchased by the Parent. The Company has been indemnified for these claims by
the former parent pursuant to the purchase agreement.
11. SUBSEQUENT EVENT
The Company, the Parent and an unrelated third party (the "Buyer") entered
into an asset purchase agreement (the "Agreement"), whereby the Buyer will
purchase certain defined assets and assume certain defined liabilities of the
Company. The acquisition involves substantially all of the Company's assets
and liabilities other than land and building, certain receivables, and the
amount Due to Cox Enterprises, Inc. The purchase price will be paid in a
combination of cash, an interest-bearing nonsubordinated convertible
promissory note of the Buyer, assumption of certain of the Seller's
liabilities and with stock of the Buyer, with 25% of the stock escrowed for
F-11-
<PAGE>
satisfaction of adjustments, if any, that may arise as a result from certain
purchase price adjustment clauses in the purchase agreement. As discussed in
Note 2, the Company recorded an impairment loss based on this proposed sale.
If the final sales price is different than that originally estimated in the
determination of the impairment loss or if adjustments to the sales price are
ultimately determined to be necessary, the effect will be recorded as a charge
to earnings in the period when such amounts are reasonably estimable.
******
F-12-
<PAGE>
CAROL WRIGHT GIFTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF COX TARGET MEDIA, INC.)
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
JUNE 26, 1998
------------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................ $ -
Accounts receivable.............................................................. 3,143
Deferred promotion costs......................................................... 4,870
Prepaid expenses................................................................. 982
Inventory, net................................................................... 12,189
-----------
Total current assets........................................................ 21,184
Investment in joint venture........................................................... 93
Property, plant and equipment, net.................................................... 12,263
Intangible assets, net................................................................ 16,188
-----------
Total Assets.......................................................................... $ 49,728
===========
LIABILITIES AND COMMON STOCKHOLDER'S EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable................................................................. $ 8,918
Accrued payroll.................................................................. 81
Deferred revenue................................................................. 1,351
Other accrued expenses........................................................... 5,190
-----------
Total current liabilities................................................... 15,540
Long-Term Liabilities:
Deferred income tax liability.................................................... 729
Due to Cox Enterprises, Inc. - noninterest bearing............................... 13,618
-----------
Total liabilities........................................................... 29,887
-----------
Stockholder's Equity:
Common stock - 1,000 shares authorized and outstanding at
June 26, 1998; $1 par value per share....................................... 1
Additional paid-in capital....................................................... 46,199
Deficit.......................................................................... (26,359)
-----------
Total stockholder's equity.................................................. 19,841
-----------
Total liabilities and stockholder's equity.................................. $ 49,728
===========
</TABLE>
F-13-
<PAGE>
CAROL WRIGHT GIFTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF COX TARGET MEDIA, INC.)
STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------
JUNE 26,1998 JUNE 27, 1997
------------ -------------
<S> <C> <C>
Revenue....................................... $59,099 $50,621
Cost of sales................................. 19,245 16,558
------- -------
Gross profit.................................. 39,854 34,063
Operating expenses............................ 34,280 27,627
Depreciation and amortization................. 1,522 1,859
General and administrative expenses........... 6,423 6,297
Other income.................................. 37 96
------- -------
Net loss...................................... $(2,334) $(1,624)
======= =======
</TABLE>
F-14-
<PAGE>
CAROL WRIGHT GIFTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF COX TARGET MEDIA, INC.)
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------------
JUNE 26, 1998 JUNE 27, 1997
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss................................................................. $ (2,334) $ (1,624)
Adjustments to reconcile net loss to net cash:
Depreciation and amortization............................................ 1,522 1,859
Provision for bad debts.................................................. (44) 23
Obsolescence for inventory............................................... (495) (365)
Equity in income of joint venture........................................ 24 (34)
Changes in assets and liabilities:
Decrease in accounts receivable.......................................... 568 401
(Increase) Decrease in prepaid expenses.................................. (360) 333
Decrease in deferred promotion costs..................................... 62 2,009
Increase (Decrease) in other accrued expenses............................ 2,923 (678)
Decrease in accrued payroll.............................................. (306) (304)
Increase (Decrease) in accounts payable.................................. (4,415) 5,029
Increase (Decrease) in deferred revenue.................................. 30 (247)
Increase in inventory.................................................... (332) (532)
-------- --------
Net cash provided (used) in operating activities......................... (3,157) 5,870
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures..................................................... (86) (504)
Other.................................................................... - (24)
-------- --------
Net cash used in investing activities.................................... (86) (528)
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in Due to Cox Enterprises, Inc....................... 2,770 (5,359)
-------- --------
Net cash provided (used) by financing activities......................... 2,770 (5,359)
-------- --------
Decrease in cash and cash equivalents.................................... (473) (17)
Cash and cash equivalents at beginning of period......................... 473 982
-------- --------
Cash and cash equivalents at end of period............................... $ - $ 965
======== ========
</TABLE>
F-15-
<PAGE>
CAROL WRIGHT GIFTS, INC.
(A WHOLLY-OWNED SUBSIDIARY OF COX TARGET MEDIA, INC.)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the six months ended June 26, 1998 are not necessarily
indicative of the results that may be expected for the year ended March 27,
1999. In September 1998, Genesis Direct, Inc. acquired certain of the assets and
liabilities of Carol Wright Gifts, Inc. In connection with the sale, Carol
Wright Gifts, Inc. will record an additional loss currently estimated at $7.5
million which is not reflected in these unaudited interim financial statements.
F-16-
<PAGE>
GENESIS DIRECT, INC.
CAROL WRIGHT GIFTS, INC.
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On September 14, 1998, a subsidiary of Genesis Direct, Inc. acquired certain of
the assets and assumed certain of the liabilities of Carol Wright Gifts, Inc.
The following unaudited pro forma condensed combined balance sheet as of June
26, 1998 has been prepared to present the financial position of the combined
companies as though the acquisition had been consummated on June 27, 1998. The
following pro forma condensed combined statements of operations for the year
ended March 28, 1998 and the three months ended June 26, 1998 have been prepared
to present the operations of the combined companies assuming the acquisition had
been completed on March 30, 1997.
The unaudited pro forma condensed combined financial statements, including the
notes thereto, are qualified in their entirety by reference to, and should be
read in conjunction with, the historical consolidated financial statements of
Genesis Direct, Inc. included in its Annual Report on Form 10-K for the year
ended March 28, 1998 and Quarterly Report on Form 10-Q for the fiscal quarter
ended June 27, 1998. The unaudited pro forma condensed combined balance sheet
and statements of operations have been included herein for comparative purposes
only and do not purport to be indicative of the results of operations which
actually would have been obtained had the acquisition been completed at the
beginning of the respective combined periods. In addition, future results may
vary significantly from the results reflected in these pro forma financial
statements.
F-17-
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
JUNE 27, 1998
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
GENESIS CAROL WRIGHT PRO FORMA
------- ------------ ---------
DIRECT, INC. GIFTS, INC. ADJUSTMENTS COMBINED
------------ ----------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................... $ 61,230 $ - $ - $ 61,230
Accounts receivable, net............................ 8,072 3,143 (99) (a) 9,831
(1,285) (a)
Merchandise inventory, net.......................... 30,145 12,189 (279) (a) 42,055
Deferred advertising costs.......................... 12,036 4,870 (388) (a) 16,518
Other current assets................................ 1,929 982 (777) (a) 2,134
Note receivable, current portion.................... 479 - - 479
-------- ---------- -------- --------
Total current assets............................. 113,891 21,184 (2,828) 132,247
Intangibles, net........................................... 9,342 - 1,400 (a) 10,742
Goodwill, net.............................................. 59,700 16,188 15,317 (a) 75,017
(16,188) (a)
Property, equipment and leasehold improvements, net........ 31,305 12,263 (7,341) (a) 36,227
Note receivable, less current portion...................... 1,190 - - 1,190
Other assets............................................... 354 93 (93) (a) 354
-------- ---------- -------- --------
$215,782 $ 49,728 $ (9,733) $255,777
======== ========== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable.................................... $ 9,178 $ 8,918 $ - $ 18,096
Accrued expenses.................................... 15,907 6,622 3,968 (a) 26,497
Current portion of notes payable and long-term debt. 18,628 - - 18,628
Current portion of obligations under capital leases. 1,817 - - 1,817
Other current liabilities........................... 3,012 - 1,587 (a) 4,599
-------- ---------- -------- --------
Total current liabilities........................ 48,542 15,540 5,555 69,637
Notes payable and long-term debt, less current portion..... 5,101 - 12,750 (a) 17,851
Due to Cox Enterprises..................................... - 13,618 (13,618) (a) -
Obligations under capital leases, net of current portion... 4,296 - - 4,296
Other liabilities.......................................... 3,116 729 (729) (a) 3,116
Series A Preferred Stock................................... - - -
Total common stockholders' equity.......................... 154,727 19,841 (19,841) (a) 160,877
6,150 (a)
-------- ---------- -------- --------
Total liabilities and common stockholders' equity.......... $215,782 $ 49,728 $ (9,733) $255,777
======== ========== ======== ========
</TABLE>
F-18-
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 28, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
GENESIS CAROL WRIGHT PRO FORMA
------- ------------ ---------
DIRECT, INC. GIFTS, INC. ADJUSTMENTS COMBINED
------------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Net sales....................................... $ 107,210 $ 105,594 $ - $ 212,804
Cost of goods sold.............................. 81,606 61,341 - 142,947
---------- ---------- ----------- -----------
Gross profit.................................... 25,604 44,253 - 69,857
Selling, general and administrative
expenses..................................... 97,840 45,130 (1,322) (a) 142,512
864 (b)
---------- ---------- ----------- -----------
Loss from operations............................ (72,236) (877) 458 (72,655)
Loss due to impairment of long-lived assets..... - 24,662 (24,662) (e) -
Interest expense................................ 4,488 - 1,148 (c) 5,636
Interest income................................. 513 - - 513
---------- ---------- ----------- -----------
Net loss before income tax benefit.............. (76,211) (25,539) 23,972 (77,778)
Income tax benefit.............................. - 1,111 (1,111) (f) -
Dividends accruing on Series A Preferred
Stock........................................ (2,439) - - (2,439)
---------- ---------- ----------- -----------
Net loss attributable to common
stockholders.................................. $ (78,650) $ (24,428) $ 22,861 $ (80,217)
========== ========== =========== ===========
Basic net loss per share........................ $ (8.89) $ (7.14)
========== ===========
Weighted average common shares
outstanding.................................. 8,842,200 11,242,200
========== ===========
</TABLE>
F-19-
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 27, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
GENESIS CAROL WRIGHT PRO FORMA
------- ------------ ---------
DIRECT, INC. GIFTS, INC. ADJUSTMENTS COMBINED
------------ ----------- ----------- --------
<S> <C> <C> <C> <C>
Net sales............................................... $ 33,884 $ 23,300 - $ 57,184
Cost of goods sold...................................... 23,205 13,252 - 36,457
----------- ---------- --------- ----------
Gross profit............................................ 10,679 10,048 - 20,727
Selling, general and administrative expenses............ 28,403 11,508 (387) (a) 39,846
217 (b)
105 (d)
----------- ---------- --------- ----------
Loss from operations.................................... (17,724) (1,460) 65 (19,119)
Interest expense........................................ 1,523 - 383 (c) 1,906
Interest income......................................... 507 - - 507
----------- ---------- --------- ----------
Net loss before extraordinary item...................... (18,740) (1,460) (318) (20,518)
Extraordinary item - loss on extinguishment
of debt................................................ (5,235) - - (5,235)
----------- ---------- --------- ----------
Net loss................................................ $ (23,975) $ (1,460) (318) $ (25,753)
=========== ========== ========= ==========
Basic net loss per share:
Loss before extraordinary item..................... $ (0.92) $ (0.90)
Extraordinary item................................. (0.26) (0.23)
Net loss........................................... $ (1.18) $ (1.13)
=========== ==========
Weighted average shares - basic......................... 20,380,100 22,780,100
=========== ==========
</TABLE>
F-20-
<PAGE>
GENESIS DIRECT, INC.
CAROL WRIGHT GIFTS, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
1. ACQUISITIONS
In September 1998, Genesis Direct, Inc. (the "Company") acquired Carol Wright
Gifts, Inc., a company engaged in the direct marketing of general merchandise to
consumers. Payment of the aggregate purchase price of $18,900,000 consisted of
(i) 2,400,000 shares of the Company's Common Stock valued at $2.5625 per share
(the closing price of the Common Stock on the closing date), and (ii) a
convertible promissory note in the principal amount of $12,750,000, bearing
interest at an annual rate equal to the prime interest rate publicly announced
by Citibank, N.A., New York, New York plus 0.5%. The convertible note is payable
in its full amount on March 14, 2001; provided, that, in lieu of such payment,
the holder of the convertible note may at any time after the Conversion Date (as
defined below) convert the principal amount of the convertible note at a
conversion price of $12.75 per share into 1,000,000 shares of Common Stock,
subject to certain adjustments. The Conversion Date is the date immediately
following the tenth consecutive trading day at which the closing price of the
Common Stock on the Nasdaq Stock Market on each such day as reported in the Wall
Street Journal was equal to or exceeded $12.75. Pursuant to the terms of the
note, upon the occurrence and continuation of an event of default, the note is
convertible into shares of the Common Stock at a significantly lower conversion
price. In addition to the purchase price, the Company paid $100,000 in
consideration of non-compete obligations. The cost of the acquisition exceeded
the fair value of the acquired net assets by approximately $15,317,000 which has
been recorded as goodwill and is being amortized over 40 years.
F-21-
<PAGE>
2. PRO FORMA ADJUSTMENTS
Balance Sheet
(a) Purchase accounting adjustments to reflect Carol Wright Gifts
assets and liabilities at estimated fair value:
<TABLE>
<S> <C>
Accounts receivable.................................................................... $ (99)
Inventory.............................................................................. (279)
Deferred advertising costs............................................................. (388)
Goodwill............................................................................... 15,317
Intangibles............................................................................ 1,400
Accrued expenses....................................................................... 3,968
Other current liabilities.............................................................. 1,587
Assets not acquired:
Accounts receivable................................................................ (1,285)
Other current assets............................................................... (777)
Goodwill........................................................................... (16,188)
Land and Building.................................................................. (7,341)
Investment in joint venture........................................................ (93)
Liabilities not assumed:
Notes.............................................................................. (13,618)
Other liabilities.................................................................. (729)
Stockholders equity.................................................................... (19,841)
Record financing used to complete acquisition:
Notes issued to sellers-non-current................................................ 12,750
Common stock issued to sellers..................................................... 6,150
</TABLE>
F-22-
<PAGE>
Statement of Operations
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
MARCH 28, 1998 JUNE 27, 1998
-------------- -------------
<S> <C> <C> <C>
(a) Eliminate amortization of historic basis goodwill and other
intangibles recorded by acquired
company..................................................................... $ (1,322) $ (387)
(b) Record additional amortization of goodwill and other
intangibles resulting from the acquisition, including $15.3
million of goodwill which is being amortized over forty
years, $1.3 million of customer lists which is being
amortized over three years and $0.1 million of non-compete
agreements which is being amortized over two years.......................... 864 217
(c) Record incremental interest expense as of the beginning of
the period presented attributable to additional
indebtedness resulting from the portion of acquisition
consideration funded through issuance of a note to sellers
in the principal amount of $12.75 million payable with
interest at prime plus 1/2% per annum...................................... 1,148 383
(d) Record corporate accounting services incurred by parent not
charged to subsidiary....................................................... - 105
(e) Eliminate loss due to impairment of long-lived
assets...................................................................... 24,662 -
(f) Eliminate income tax benefit not acquired by
company..................................................................... (1,111) -
</TABLE>
3. PRO FORMA LOSS PER SHARE
Pro forma loss per share is based on 11,242,200 and 22,780,100
weighted average number of shares of Common Stock outstanding for the year ended
March 28, 1998 and for the three months ended June 27, 1998, respectively, each
increased by an aggregate of 2,400,000 shares representing the total shares of
Common Stock issued in connection with the acquisitions of Carol Wright Gifts as
if such shares were outstanding from the beginning of the respective periods.
F-23-
