<PAGE> 1
FORM 8-K/A
AMENDMENT NO. 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
MAY 27, 1999 (MARCH 12, 1999)
- --------------------------------------------------------------------------------
Date of Report (Date of earliest event reported)
PAUL HARRIS STORES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
INDIANA 0-07264 35-0907402
- --------------------------------------------------------------------------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
6003 GUION ROAD
INDIANAPOLIS, INDIANA 46268
- --------------------------------------------------------------------------------
(Address of principal
executive offices)
Registrant's telephone number, including area code: (317) 293-3900
---------------
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE> 2
This Amendment is being filed to provide historical financial
information required by Item 7(a) and the pro forma financial information
required by Item 7(b) of Form 8-K which was not available when the Registrant's
Current Report on Form 8-K, dated March 29, 1999, was filed.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired.
The historical financial information required by this Current Report
on Form 8-K is incorporated herein by reference from pages 3
through 20 hereto.
(b) Pro forma financial information.
The pro forma financial information required by this Current Report
on Form 8-K is incorporated herein by reference from pages 21
through 24 hereto.
(c) Exhibits.
The exhibits set forth on the Index to Exhibits on page 26 is
incorporated herein by reference.
<PAGE> 3
ITEM 7a
THE J. PETERMAN COMPANY
Financial Statements
December 31, 1997
With Independent Auditors' Report Thereon
<PAGE> 4
THE J. PETERMAN COMPANY
Table of Contents
Page(s)
-------
Independent Auditors' Report 1
Balance Sheet 2
Statement of Operations 3
Statement of Stockholders' Equity 4
Statement of Cash Flows 5
Notes to Financial Statements 6 - 13
<PAGE> 5
Independent Auditors' Report
----------------------------
The Board of Directors
The J. Peterman Company:
We have audited the accompanying balance sheet of The J. Peterman Company as of
December 31, 1997, and the related statements of operations, stockholders'
deficit and cash flows 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 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.
As discussed in note 6 to the financial statements, the Company was
recapitalized during 1997.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The J. Peterman Company as of
December 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
KPMG LLP
February 20, 1998
1
<PAGE> 6
THE J. PETERMAN COMPANY
Balance Sheet
December 31, 1997
<TABLE>
<CAPTION>
Assets (note 3) 1997
------ ----
<S> <C>
Current assets:
Cash $ 476,378
Certificate of deposit 547,056
Trade accounts receivable 3,249,371
Inventories (note 2) 12,306,365
Prepaid expenses 1,823,227
Other current assets (notes 5 and 10) 908,983
--------------
Total current assets 19,311,380
--------------
Equipment and leasehold improvements - at cost:
Equipment (note 4) 1,143,786
Leasehold improvements 932,310
--------------
2,076,096
Less accumulated depreciation and amortization 1,185,961
--------------
Net equipment and leasehold improvements 890,135
Other assets 532,256
--------------
Total assets $ 20,733,771
==============
Liabilities and Stockholders' Equity (Deficit)
----------------------------------------------
Current liabilities:
Notes payable (note 3) $ 4,117,184
Current maturities of long-term obligations (note 4) 136,609
Trade accounts payable 3,319,640
Accrued liabilities 2,877,879
--------------
Total current liabilities 10,451,312
Long-term obligations, excluding current maturities (note 4) 186,241
Subordinated debentures, net of $152,602 discount (note 6) 7,136,664
--------------
Total liabilities 17,774,217
--------------
Redeemable preferred stock (note 6):
Series C convertible preferred stock, $1,000 par value.
Authorized, issued and outstanding 4,300 shares. 3,191,925
Series D convertible preferred stock, $1.00 par value.
Authorized 2,000,000 shares; issued and outstanding 141,997 shares. 141,997
Stockholders' equity (deficit) (notes 6 and 7):
Common stock, $.0005 par value. Authorized 10,000,000
shares; issued and outstanding 5,556,927 shares. 2,774
Additional paid-in capital 335,445
Accumulated deficit (712,587)
--------------
Total stockholders' deficit (374,368)
Commitments (note 8)
--------------
$ 20,733,771
==============
</TABLE>
See accompanying notes to financial statements.
2
<PAGE> 7
THE J. PETERMAN COMPANY
Statement of Operations
Year ended December 31, 1997
<TABLE>
<CAPTION>
1997
----
<S> <C>
Net sales $ 43,380,407
Operating costs:
Cost of sales, advertising and selling expenses (note 9) 35,777,204
General and administrative 6,648,327
--------------
42,425,531
--------------
Operating income 954,876
Other income (expense):
Interest expense (1,076,654)
Interest income 26,043
Other, net 22,079
--------------
(1,028,532)
--------------
Loss before income taxes (73,656)
Income tax benefit (note 5) 91,000
--------------
Net income $ 17,344
==============
</TABLE>
See accompanying notes to financial statements.
3
<PAGE> 8
THE J. PETERMAN COMPANY
Statement of Stockholders' Deficit
Year ended December 31, 1997
<TABLE>
<CAPTION>
Retained
Additional earnings Total
Common paid-in (accumulated stockholders'
Stock capital deficit) equity
----- ------- -------- ------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $ 1,171 251,435 (457,601) (204,995)
Dividends declared:
Series A preferred stock, 8% of
original purchase price - - (39,826) (39,826)
Series B preferred stock, 8% of
original purchase price - - (90,507) (90,507)
Series C preferred stock, 8% of
original purchase price; issued as
Series D convertible preferred stock - - (141,997) (141,997)
Redemption of Series A and Series B
convertible preferred stock - (137,506) - (137,506)
Issuance of common stock 1,603 221,516 - 223,119
Net income - - 17,344 17,344
------- -------- -------- --------
Balance at December 31, 1997 $ 2,774 335,445 (712,587) (374,368)
======= ======== ======== ========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 9
THE J. PETERMAN COMPANY
Statement of Cash Flows
Year ended December 31, 1997
<TABLE>
<CAPTION>
1997
----
<S> <C>
Cash flows from operating activities:
Net income $ 17,344
Adjustments to reconcile net income to net cash
used in operating activities:
Deferred income taxes (1,000)
Depreciation and amortization 247,283
Compensation expense from issuance of common stock 70,517
Increase in trade accounts receivable (2,574,714)
Increase in inventories (434,290)
Increase in prepaid expenses (875,786)
Increase in other assets (212,560)
Increase in trade accounts payable 155,052
Increase in accrued liabilities 350,494
--------------
Net cash used in operating activities (3,257,660)
--------------
Cash flows from investing activities:
Net increase in certificate of deposit (22,007)
Proceeds from sale of fixed assets 2,929
Purchases of equipment and leasehold improvements (208,564)
--------------
Net cash used in investing activities (227,642)
--------------
Cash flows from financing activities:
Repayment of notes payable, net (2,154,981)
Redemption of Series A and B convertible preferred stock (3,561,983)
Issuance of Series C convertible preferred stock 3,191,925
Proceeds from issuance of subordinated debentures 7,289,266
Principal payments on long-term obligations (126,358)
Dividends paid (755,617)
--------------
Net cash provided by financing activities 3,882,252
--------------
Net increase in cash 396,950
Cash at beginning of year 79,428
--------------
Cash at end of year $ 476,378
==============
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 1,074,607
==============
Cash dividends declared $ 130,333
==============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 10
THE J. PETERMAN COMPANY
Notes to Financial Statements
(1) Summary of Significant Accounting Policies
(a) Organization
The J. Peterman Company (the Company) was incorporated on October 9,
1987. The Company's primary business activity is direct mail order
and catalog sales throughout the United States and Japan. The
Company also operates a retail store in Kentucky and three outlet
stores located in Tennessee, Vermont, and California.
As discussed in note 6 to the financial statements, the Company was
recapitalized during 1997.
(b) Trade Accounts Receivable
The Company considers trade accounts receivable to be fully
collectible due to the credit card and prepayment nature of all
sales. Accordingly, no allowance for doubtful accounts has been
provided. If amounts become uncollectible, they will be charged to
operations when that determination is made.
(c) Inventories
Inventories consist of merchandise sold through catalog, retail and
outlet stores and direct mail orders, and are stated at the lower of
cost or market. Cost is determined by the first-in, first-out
method.
(d) Prepaid Expenses
Included in prepaid expenses are prepaid catalog costs which consist
of costs incurred to produce and distribute catalogs. These costs
are amortized over a three-month period.
(e) Equipment and Leasehold Improvements
Depreciation on equipment is calculated on the straight-line method
over the estimated useful lives of the assets. Leasehold
improvements are amortized on the straight-line method over the
shorter of the lease term or estimated useful life of the asset.
(f) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
6 (Continued)
<PAGE> 11
THE J. PETERMAN COMPANY
Notes to Financial Statements
(1) Summary of Significant Accounting Policies - Continued
(g) 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 reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
(2) Inventories
Inventories as of December 31, 1997 consist of the following:
1997
----
Finished goods $ 12,197,504
Work in progress 9,309
Raw materials and supplies 99,552
------------
$ 12,306,365
============
(3) Notes Payable
Notes payable at December 31, 1997 consist of the following:
1997
----
Line of credit facility up to $15,000,000; secured by
substantially all of the assets of the Company. The
line accrues interest monthly at the prime rate or
LIBOR plus 2.5% (8.5% and 8.25%, respectively, at
December 31, 1997); agreement expires July 25, 2002. $ 3,617,184
Revolving bank loan, secured by a certificate of deposit.
The loan accrues interest at the certificate of deposit
rate plus 1.5% (5.67% at December 31, 1997) and is due
on demand. 500,000
------------
Total notes payable $ 4,117,184
============
The line of credit facility agreement contains certain affirmative,
negative, and financial covenants with which management believes the
Company to be in compliance or has obtained waivers from the lender.
7 (Continued)
<PAGE> 12
THE J. PETERMAN COMPANY
Notes to Financial Statements
(4) Long-Term Obligations
Long-term obligations at December 31, 1997 consist of the following:
1997
----
Unsecured note obligation, due in monthly
installments of $13,234, including interest at 10.82%,
due March 2000 $ 315,893
Installment note obligation for vehicle, due in monthly
installments of $482, including interest at 5.95%, due
April 1999 6,957
---------
Total long-term obligations 322,850
Less current maturities 136,609
---------
Long-term obligations, excluding current maturities $ 186,241
=========
The aggregate maturities of long-term obligations are as follows:
Year ending
December 31,
------------
1998 $ 136,609
1999 147,265
2000 38,976
---------
$ 322,850
=========
(5) Income Taxes
The components of income tax benefit for the year ended December 31, 1997
are as follows:
1997
----
Current:
Federal $ (76,000)
State (14,000)
---------
(90,000)
---------
Deferred:
Federal (1,000)
State -
---------
(1,000)
---------
$ (91,000)
=========
8 (Continued)
<PAGE> 13
THE J. PETERMAN COMPANY
Notes to Financial Statements
(5) Income Taxes - Continued
Total income tax benefit in 1997 differed from amounts computed by applying
the Federal income tax rate of 35% to loss before income taxes as a
result of the following:
1997
----
Computed "expected" tax benefit $ (26,000)
State income tax benefit, net of Federal income taxes 17,000
Change in the beginning-of-the-year balance of the
valuation allowance for deferred tax assets allocated
to income tax expense (145,000)
Other 63,000
----------
$ (91,000)
==========
The significant components of deferred income tax expense (benefit) for the
year ended December 31, 1997 are as follows:
1997
----
Deferred tax benefit (exclusive of
other components below) $ 146,000
Decrease in beginning-of-the-year balance of the
valuation allowance for deferred tax assets (145,000)
----------
$ (1,000)
==========
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31, 1997 are presented below:
1997
----
Deferred tax assets:
Allowance for customer returns $ 459,000
Allowance for inventory obsolescence 120,000
Plant and equipment 177,000
Charitable contributions 79,000
Other 36,000
----------
Total gross deferred tax assets 871,000
Less valuation allowance -
----------
871,000
----------
Deferred tax liabilities:
Prepaid catalog costs capitalized for
financial statement purposes 567,000
Pre-operating costs 60,000
Other 54,000
----------
Total gross deferred tax liabilities 681,000
----------
Net deferred tax asset $ 190,000
==========
9 (Continued)
<PAGE> 14
THE J. PETERMAN COMPANY
Notes to Financial Statements
(5) Income Taxes - Continued
The valuation allowance for deferred tax assets as of January 1, 1997 was
$145,000. The net change in the total valuation allowance for the year
ended December 31, 1997 was a decrease of $145,000. In assessing the
realizability of deferred tax assets, management considers whether it is
more likely than not that some portion or all of the deferred tax assets
will not be realized. The ultimate realization of the deferred tax asset
is dependent on the generation of future taxable income during the
periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income, and tax planning strategies in making
this assessment. Based upon the level of historical taxable income and
projections for future taxable income over the periods which the deferred
tax assets are deductible, management believes it is more likely than not
the Company will realize the benefits of these deductible differences.
(6) Recapitalization of the Company
During 1997, the Company was recapitalized by the following transactions:
- On July 16, 1997, the Company authorized 4,300 shares of Series C
convertible preferred stock with a par value of $1,000 per share and
2,000,000 shares of Series D convertible preferred stock with a par
value of $1.00 per share.
- On July 23, 1997, the Company issued 3,729 shares of Series C
preferred stock (2,778 shares issued to BMO Nesbitt Burns Equity
Investments (U.S.), Inc., (Equity Investments) and 951 shares
issued to Brand Equity Ventures I-A, L.P. (BEV)). The Company also
issued to Equity Investments and BEV, respectively, $4,522,000 and
$1,549,000 of 10% unsecured subordinated debentures. The Company
also issued to Equity Investments and BEV, respectively, 1,095,342
and 375,207 shares of common stock. The common stock issued to
Equity Investments and BEV was accounted for by the Company as a
discount to the debentures. The discount will be amortized over
the life of the debentures. The Company also issued 1,511,228
shares of common stock to stockholders and directors of the
Company.
- On July 23, 1997, the Company redeemed all outstanding shares of
the Series A preferred stock having a par value of $1.30 per share
(844,000 shares) and all outstanding shares of the Series B
preferred stock having a par value of $4.34 per share (576,000
shares). Shares of Series A preferred stock were redeemed at a price
of $1.56 per share from the following shareholders: Hambro
International Venture Fund II, 624,000 shares, and Hambro
International Fund Offshore II, 220,000 shares. Shares of Series B
preferred stock were redeemed at a price of $5.21 per share from the
following shareholders: Hambro International Venture Fund II,
127,280 shares; Hambro International Fund Offshore II, 44,720
shares; New Enterprise Associates V, Limited Partnership, 388,000
shares; and The Silverado Fund I, Limited Partnership, 16,000
shares. Accrued Series A and B dividends of $755,617 were paid.
10 (Continued)
<PAGE> 15
THE J. PETERMAN COMPANY
Notes to Financial Statements
(6) Recapitalization of the Company - Continued
- On October 8, 1997, the Company issued 571 shares of Series C
preferred stock (190 shares issued to BEV and 381 shares issued to
Genesis Peterman Direct LLC (Genesis)). The Company also issued to BEV
and Genesis, respectively, $310,000 and $619,000 of 10% unsecured
subordinated debentures. The Company also issued to BEV and Genesis,
respectively, 149,937 and 75,090 shares of common stock. The common
stock issued to BEV and Genesis was accounted for by the Company as a
discount to the debentures. This discount will be amortized over the
life of the debentures.
Each share of Series C preferred stock (preferred stock) is convertible
into 330.233 shares of the Company's common stock at any time commencing
on the date of issuance of the Series C preferred stock through the fifth
year from that date. Dividends accrue at the rate of 8% of the par value
per annum. The dividends shall be due and payable quarterly commencing on
September 30, 1997. During 1997, Series C dividends were declared and
issued as Series D preferred stock. The Series D preferred stock has no
conversion rights.
The preferred stock is subject to mandatory redemption upon the occurrence
of any of the following events: (1) the 5th anniversary of the first date
on which the first Series C Preferred Shares are issued; (2) sale, lease,
conveyance, exchange, transfer or other disposition of all or
substantially all of the assets of the Corporation; (3) the merger,
consolidation, reorganization or other business combination involving the
Corporation; (4) the closing of a Qualified Public Offering; or (5) an
event of default under the purchase agreement. Due to the mandatory
redemption features of the preferred stock, the Series C and Series D
Preferred Shares are not classified within stockholders' equity (deficit)
in the balance sheet as of December 31, 1997.
The unsecured subordinated debentures are due July 23, 2002. Interest
accrues at 10% and is due quarterly beginning September 30,1997. The
Company may elect to pay interest by delivering to the holders of the
debentures additional debentures having a principal amount equal to the
amount of interest due. For the quarters ended September 30, 1997 and
December 31, 1997, the Company did elect to issue additional debentures.
The debenture and preferred stock purchase agreements contain certain
affirmative, negative, and financial covenants with which management
believes the Company to be in compliance or has obtained waivers from the
debenture and stockholders.
(7) Stock Options
Effective July 1, 1993, the Company adopted a stock option plan for key
employees. The stock option plan provides for granting of stock options
to purchase shares of common stock at an exercise price equal to the fair
value of the stock on the day the option is granted. Options may be
exercised, based upon individual vesting schedules, from the date granted
through April 1, 2001.
11 (Continued)
<PAGE> 16
THE J. PETERMAN COMPANY
Notes to Financial Statements
(7) Stock Options - Continued
At December 31, 1997, there were 537,000 additional shares available for
grant under the Plan. The stock options granted during 1997 had no value
on the date of grant using the Black Scholes option-pricing model
(excluding a volatility assumption) with the following weighted-average
assumptions: expected dividend yield 0%, risk-free interest rate of 8%,
and an expected life of 5.5 years.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock
options in the financial statements.
Stock option activity during the periods indicated is as follows:
Number of Weighted-Average
Shares Exercise Price
------ --------------
Balance at December 31, 1996 595,766 1.11
Granted 3,000 1.10
Retired (397,656) 1.10
---------
Balance at December 31, 1997 201,110 1.12
=========
At December 31, 1997, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $1.21 - $1.08 and
5.5 years, respectively.
At December 31, 1997, the number of options exercisable was 201,110 and the
weighted-average exercise price of those options was $1.12.
Also, see note 11.
(8) Leases
The Company has various noncancelable operating leases that expire over the
next five years. Rental expense for operating leases was approximately
$1,283,000 for 1997.
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) as of December
31, 1997 are:
Operating
Year ending December 31: leases
------
1998 $ 1,122,893
1999 950,312
2000 811,946
2001 769,303
2002 680,758
Thereafter 1,640,320
-----------
Total minimum lease payments $ 5,975,532
===========
12 (Continued)
<PAGE> 17
THE J. PETERMAN COMPANY
Notes to Financial Statements
(9) Pension Plan
During 1996, the Company implemented a defined contribution plan for the
benefit of all qualifying employees. The plan allows for contributions by
employees up to 15% of gross wages or $9,500 per employee. The Company
contributes 25% up to the first 6% of the employee's contributions. The
Company contributed $27,878 to the plan for the year ended December 31,
1997.
(10) Related Party Transactions
During 1997, the Company paid $1,185,430 in advertising agency fees to a
company owned by a stockholder and director of the Company. As of July
23, 1997 the stockholder is no longer a director. During 1997, consulting
fees of $48,590 were paid to the son of a stockholder and director of the
Company.
At December 31, 1997, other assets include $303,125 of receivables due from
the stockholders and directors of the Company.
(11) Subsequent Events - Unaudited
The Company had been operating as a debtor-in-possession since filing a
voluntary petition under Chapter 11 of the Federal Bankruptcy Code on
January 25, 1999. On February 25, 1999, the Company filed with the United
States Bankruptcy Court for the Eastern District of Kentucky, Lexington
Division, its Emergency Motion to Employ Agent with Authority to Sell
Assets Subject to Higher or Better Offers and other relief. On March 5,
1999, the auction authorized by the order granting relief requested by
the Company was accepted subject to negotiation and execution of a
definitive agreement. On March 12, 1999, substantially all the assets of
the Company were acquired by Paul Harris Stores, Inc., a specialty
retailer of moderately priced casual attire for women, from the Company
at auction, pursuant to the court order, for $10,000,000, free and clear
of all liens, claims, interest and encumbrances.
Due to the Company's bankruptcy and subsequent sale of substantially all of
its assets, certain disclosures required by SFAS No. 123, "Accounting for
Stock-Based Compensation", have been omitted.
13
<PAGE> 18
THE J. PETERMAN COMPANY
Balance Sheets
September 30, 1998 and 1997
Unaudited
(Dollars in thousands except par values)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Assets
Current assets:
Cash $ 474 $ 118
Certificate of deposit 564 541
Trade accounts receivable 1,807 1,440
Inventory 17,070 14,395
Prepaid expenses 3,188 937
Other current assets 6,188 1,313
--------- ---------
Total current assets 29,291 18,744
Equipment and Leasehold Improvements - at cost:
Equipment 2,237 1,105
Leasehold improvements 3,697 912
--------- ---------
5,934 2,017
Less accumulated depreciation and amortization (1,424) (1,188)
--------- ---------
Net equipment and leasehold improvements 4,510 829
Other assets 792 (29)
--------- ---------
Total Assets $ 34,593 $ 19,544
========= =========
Liabilities and Stockholders' Equity
Current Liabilities:
Notes payable $ 6,587 $ 8,527
Trade accounts payable 5,764 2,220
Other current liabilities 84 675
--------- ---------
Total current liabilities 12,435 11,422
Long-term obligations 222 355
Subordinated debentures 15,729 6,184
--------- ---------
Total liabilities 28,386 17,961
Redeemable preferred stock
Series C convertible preferred stock, $1,000 par value
Authorized 4,300,000: issued and outstanding 4,300,000 3,158 2,623
and 3,729,000 at 1998 and 1997, respectively
Series D convertible preferred stock, $1 par value
Authorized 2,000,000 shares, issued and outstanding
560,000 and 56,000 at 1998 and 1997, respectively 560 56
Series E convertible preferred stock, $10 par value
Authorized, issued and outstanding 826,200 shares 7,710
Stockholders' equity (deficit):
Common Stock, $.0005 par value, Authorized 10,000,000
shares: issued and outstanding 5,556,927 and
2,350,123 shares in 1998 and 1997, respectively 3 1
Additional paid-in capital 345 76
Accumulated deficit (5,569) (1,173)
--------- ---------
Total stockholders' deficit (5,221) (1,096)
--------- ---------
Commitments
--------- ---------
$ 34,593 $ 19,544
========= =========
</TABLE>
See accompanying notes to financial statements
<PAGE> 19
THE J. PETERMAN COMPANY
Statements of Operations
For the Nine Months Ended September 30, 1998 and 1997
Unaudited
(Dollars in thousands)
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Net sales $ 31,629 $ 26,787
Operating costs:
Cost of sales, advertising and selling expenses 28,378 22,508
General and administrative expenses 9,506 4,496
-------- --------
37,884 27,004
-------- --------
Operating loss (6,255) (217)
Other income (expense):
Interest expense (1,119) (770)
Other, net 49 57
-------- --------
(1,070) (713)
-------- --------
Loss before income taxes (7,325) (930)
Income tax benefit 2,886 364
-------- --------
Net loss $ (4,439) $ (566)
======== ========
</TABLE>
See accompanying notes to financial statements
<PAGE> 20
THE J. PETERMAN COMPANY
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying unaudited financial statements include the accounts of The
J. Peterman Company (the "Company"). The Company's primary business
activity is direct mail order and catalog sales throughout the United
States and Japan. The Company also operates retail and outlet stores, of
which eight were opened during 1998.
The accompanying unaudited financial statements of the Company have been
prepared in accordance with instructions to Article 10 of Regulation S-X
and accordingly certain information and footnote disclosures have been
condensed or omitted. These condensed financial statements should be read
in conjunction with the audited financial statements as of and for the year
ended December 31, 1997 and notes thereto included in this Form 8-K/A.
In the opinion of management, all adjustments, which include only normal
recurring adjustments, necessary to present fairly the financial position
at September 30, 1998 and results of operations for the nine months then
ended, and for all other periods presented, have been made. The results of
operations for the nine months ended September 30, 1998 are not necessarily
indicative of the results expected for all of 1998.
2. The Company authorized and issued 400,000, 226,200 and 200,000 shares of
Series E preferred stock with a par value of $10 per share to various
investment companies in June, July and September 1998, respectively.
Dividends accrue at the rate of 8% of the par value per annum. Proceeds
from this issue were used to pay-down short-term borrowings and for general
corporate purposes (primarily store equipment and leasehold improvements
and the build-up of inventory for eight new stores in 1998).
3. In September 1998, the Company issued $8,000,000 of unsecured subordinated
debentures to General Electric Capital Corporation. Interest accrues at 10%
and is payable quarterly. The debentures are due September 2003. Proceeds
from this issue were used to pay-down short-term borrowings and for general
corporate purposes (primarily store equipment and leasehold improvements
and the build-up of inventory for eight new stores in 1998).
<PAGE> 21
ITEM 7b
Item 7(b) Pro Forma Financial Information
The following unaudited pro forma condensed combined financial information gives
effect to the purchase of substantially all the assets of The J. Peterman
Company ("J. Peterman") by the registrant in a transaction accounted for as a
purchase. It is based on and should be read in conjunction with the audited
financial statements and notes thereto appearing in the registrant's annual
report on Form 10-K for the year ended January 31, 1998 and the financial
statements of J. Peterman included elsewhere in the Form 8-K/A. The unaudited
condensed combined pro forma balance sheet as of October 31, 1998 gives effect
to the purchase of substantially all the assets of J. Peterman as if it occurred
on October 31, 1998. The unaudited pro forma combined statements of income for
the year ended January 31, 1998 and for the nine month period ended October 31,
1998 give effect to the purchase of substantially all the assets of J. Peterman
as if the purchase had occurred on February 2, 1997.
The J. Peterman Company significantly expanded its operations during 1998
through the opening of new retail and outlet store locations. At February 2,
1997, January 31, 1998 and October 31, 1998, J. Peterman had 2, 4, and 10
stores, respectively. At March 12, 1999, the date of purchase by the registrant,
J. Peterman's business included 13 stores, of which 3 stores were subsequently
closed by the registrant as contemplated in the Asset Purchase Agreement. The
closure of these locations was reflected in the determination of the purchase
price.
The unaudited pro forma adjustments are based upon available information,
preliminary estimates of fair value, and certain assumptions that management
believes are reasonable in the circumstances. The allocation of the purchase
price, which was based on preliminary estimates of the fair value of the assets
acquired, may vary once the actual fair value of the assets are determined. The
unaudited pro forma combined financial information does not purport to represent
what the registrant's financial position or results of operations would actually
have been if the purchase of substantially all the assets of J. Peterman had
occurred at the dates indicated, nor to project the registrant's financial
position or results of operations for any future date or period.
<PAGE> 22
PAUL HARRIS STORES, INC. AND SUBSIDIARIES
Pro Forma Combined Balance Sheet (Unaudited)
As of October 31, 1998
(Dollars in thousands)
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Paul Harris J. Peterman (1) Adjustments Combined
--------------- --------------- -------------- ----------------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Merchandise inventories $ 45,951 $ 17,070 $ (11,875) b $ 51,146
Other current assets 10,125 12,221 (12,221) a 10,125
--------------- --------------- ------------- ---------------
Total current assets 56,076 29,291 (24,096) 61,271
--------------- --------------- ------------- ---------------
Property, fixtures and equipment 68,886 5,934 (3,342) b 71,478
Less: accumulated depreciation and amortization (20,509) (1,424) 1,424 b (20,509)
--------------- --------------- ------------- ---------------
Property, fixtures and equipment, net 48,377 4,510 (1,918) b 50,969
Other assets 752 792 3,251 c 4,795
--------------- --------------- ------------- ---------------
Total assets $ 105,205 $ 34,593 $ (22,763) $ 117,035
=============== =============== ============= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 19,735 $ 5,764 $ (3,934) a,f $ 21,565
Other current liabilities 15,504 6,670 (6,670) a 15,504
--------------- --------------- ------------- ---------------
Total current liabilities 35,239 12,434 (10,604) 37,069
--------------- --------------- ------------- ---------------
Long-term debt 15,951 (5,951) a,d 10,000
Other non-current liabilities 4,460 0 0 4,460
Redeemable preferred stock 11,429 (11,429) e -
Shareholders' equity
Common stock 17,410 3 (3) e 17,410
Additional paid-in capital 13,939 345 (345) e 13,939
Retained earnings 38,573 (5,569) 5,560 e 38,573
--------------- --------------- ------------- ---------------
69,922 (5,221) 5,221 69,922
Less: common stock in treasury, at cost
500,000 shares at October 31, 1998 4,416 - - 4,416
--------------- --------------- ------------- ---------------
Total shareholders' equity 65,506 (5,221) 5,221 65,506
--------------- --------------- ------------- ---------------
Total liabilities and shareholders' equity $ 105,205 $ 34,593 $ (22,763) $ 117,035
=============== =============== ============= ===============
</TABLE>
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(1) As of September 30, 1998
a) These adjustments eliminate the assets and liabilities from the J.
Peterman historical financial statement balances that were not purchased
by Paul Harris as provided in the Asset Purchase Agreement.
b) The J. Peterman acquisition will be accounted for using the purchase
method of accounting. These amounts reflect the preliminary estimates of
adjustments necessary to record the J. Peterman assets acquired at their
estimated respective fair values. The total purchase price was determined
and allocated as follows (in millions):
Borrowings under Credit Facility $ 10.0
Acquisition costs (i) 1.8
---------------
Total purchase price $ 11.8
===============
Purchase price allocated to:
Merchandise inventories $ 5.2
Property, fixtures and equipment 2.6
Other assets 4.0
---------------
Total purchase price allocated $ 11.8
===============
(i) Represents fees and costs directly associated with the J. Peterman
acquisition consisting primarily of legal and other professional fees, and
other estimated costs to exit certain J. Peterman facilities pursuant to
EITF 95-3.
c) Other assets were adjusted to reflect the allocation of $4.0 million of
the purchase price to primarily a Grand Central Station store lease and
trade names that will be amortized over an estimated life of 15 years and
30 years, respectively.
d) Long-term debt was adjusted to reflect borrowings of $10.0 million
under the Credit Facility.
e) The adjustment reflects the elimination of the shareholders' equity
accounts of J. Peterman.
f) The adjustment reflects acquisition costs of $1.8 million as discussed
in (b) above.
<PAGE> 23
PAUL HARRIS STORES, INC. AND SUBSIDIARIES
Pro Forma Combined Statements of Income (Loss) (Unaudited)
For the Fifty-two Weeks Ended January 31, 1998
(Dollars in thousands, except for per share data)
<TABLE>
<CAPTION>
Unaudited
-----------------------------
Pro Forma Pro Forma
Paul Harris J. Peterman (1) Adjustments Combined
------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 209,236 $ 43,380 $ - $ 252,616
Cost of sales, including certain occupancy expenses
exclusive of depreciation and certain advertising
and selling expenses 130,589 35,777 - 166,366
------------- -------------- --------- ----------
Gross income 78,647 7,603 - 86,250
Selling, general and administrative expenses 59,733 6,379 - 66,112
Depreciation and amortization 4,148 247 219 a,d 4,614
------------- -------------- --------- ----------
Operating income 14,766 977 (219) 15,524
Interest income (expense), net 941 (1,051) 302 b 192
------------- -------------- --------- ----------
Income (loss) before income taxes 15,707 (74) 83 15,716
Provision (benefit) for income taxes 5,979 (91) 31 c 5,919
------------- -------------- --------- ----------
Net income (loss) $ 9,728 $ 17 $ 52 $ 9,797
============= ============== ========= ==========
Basic earnings per share (e) $ 0.89 $ 0.90
============= ==========
Weighted average number of shares outstanding (e) 10,880 10,880
============= ==========
Diluted earnings per share (e) $ 0.86 $ 0.87
============= ==========
Weighted average number of shares and share equivalents
outstanding (e) 11,292 11,292
============= ==========
</TABLE>
Nine-Month Period Ended October 31, 1998
(Dollars in thousands, except for per share data)
<TABLE>
<CAPTION>
Unaudited
--------------------------------------------------------------------
Pro Forma Pro Forma
Paul Harris J. Peterman (2) Adjustments Combined
------------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 161,585 $ 31,629 $ - $ 193,214
Cost of sales, including certain occupancy expenses
exclusive of depreciation and certain advertising
and selling expenses 99,473 28,378 - 127,851
------------- -------------- --------- ----------
Gross income 62,112 3,251 - 65,363
Selling, general and administrative expenses 51,407 9,265 - 60,672
Depreciation and amortization 4,549 241 97 a,d 4,887
------------- -------------- --------- ----------
Operating income 6,156 (6,255) (97) (196)
Interest income (expense), net 156 (1,070) 538 b (376)
------------- -------------- --------- ----------
Income (loss) before income taxes 6,312 (7,325) 441 (572)
Provision (benefit) for income taxes 2,485 (2,886) 165 c (236)
------------- -------------- --------- ----------
Net income (loss) $ 3,827 $ (4,439) $ 275 $ (337)
============= ============== ========= ==========
Basic earnings per share (e) $ 0.34 $ (0.03)
============= ==========
Weighted average number of shares outstanding (e) 11,174 11,174
============= ==========
Diluted earnings per share (e) $ 0.33 $ (0.03)
============= ==========
Weighted average number of shares and share equivalents
outstanding (e) 11,469 11,469
============= ==========
</TABLE>
<PAGE> 24
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME (LOSS)
(1) Twelve-month period ended December 31, 1997
(2) Nine-month period ended September 30, 1998
a Additional annual depreciation resulting from the increased basis of
property, fixtures and equipment acquired based on estimated useful
life periods from 1 to 15 years.
b Interest charges on $10.0 million of long-term debt borrowed in
connection with the acquisition. Borrowing was made under the Credit
Facility which carries a floating rate. A 1/8 of 1 percent change in
the interest rate on that debt would result in a change of interest
expense of approximately $13,000 and $9,000 for the twelve month period
and nine month period, respectively.
c Reduction in federal income taxes relating to the foregoing adjustments
based on an effective tax rate of 37.5%, which is the expected
effective tax rate of Paul Harris Stores, Inc.
d Amortization of other assets on a straight-line basis over the
estimated lives relating to balance sheet adjustment (c).
e Basic and diluted earnings per share was calculated in accordance with
Statement of Financial Accounting Standard No. 128 by dividing Paul
Harris historical or pro forma net earnings available to common
shareholders,as adjusted if applicable, by the weighted average common
shares outstanding, as adjusted if applicable.
f Eliminates interest expense of $1,077,000 and $1,119,000 on debt not
purchased by Paul Harris Stores, Inc. for the twelve and nine month
periods respectively.
g Adjusts depreciation expense of 265,000 and 185,000 on J. Peterman on
fixed assets not purchased by Paul Harris Stores, Inc. for the twelve
and nine month periods respectively.
<PAGE> 25
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 thereunto duly authorized.
PAUL HARRIS STORES, INC.
Dated: May 27, 1999 By: /s/ Thomas McCain
-------------------------------
Thomas McCain
Senior Vice President and
Chief Financial Officer
<PAGE> 26
ITEM 7c
INDEX TO EXHIBITS
Page No.
Exhibit in this
No. Description Filing
- ------- ----------- -------
2 *Asset Purchase Agreement, as amended, dated as of March 12,
1999, among the Registrant, The J. Peterman Company and
Peterman Acquisition Corp.......................................
23 Consent of Independent Auditors................................. 27
* Previously filed with Form 8-K, dated March 29, 1999.
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
The J. Peterman Company:
We consent to the incorporation by reference in the registration statement
(No. 333-30079) on Form S-8 of Paul Harris Stores, Inc. of our report dated
February 20, 1998, with respect to the balance sheet of The J. Peterman Company
as of December 31, 1997, and the related statements of operations, stockholders'
deficit, and cash flows for the year then ended, which report appears in
Form 8-K/A No. 1 of Paul Harris Stores, Inc., dated May 27, 1999.
KPMG LLP
Cleveland, Ohio
May 26, 1999
