02-95-09 -- AS FILED WITH THE S.E.C.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For Fiscal Year Ended February 26, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition Period from to
Commission File Number: 0-14394
TOWN & COUNTRY CORPORATION
(Exact name of Registrant as specified in its charter)
Massachusetts 04-2384321
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) I.D. Number)
25 Union Street, Chelsea, Massachusetts 02150
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 884-8500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Class A Common Stock, $.01 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock, based on the actual price at
which the Class A common stock sold, held by non-affiliates of the
Registrant was $16,302,093 as of May 15, 1995. On May 15, 1995, the
Registrant had outstanding 21,324,495 shares of Class A Common Stock, $.01
par value and 2,664,941 shares of Class B Common Stock, $.01 par value.
PART I PAGE
Item 1. Business 1
General Business Developments 1
Narrative Description of Business 3
Financial Information about Foreign and
and Domestic Operations and Export Sales 9
Item 2. Properties 9
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of
Security-Holders 11
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 14
Item 8. Financial Statements and Supplementary
Data 21
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure 21
PART III
Item 10. Directors and Executive Officers of
the Registrant 22
Item 11. Executive Compensation 22
Item 12. Security Ownership of Certain Beneficial
Owners and Management 22
Item 13. Certain Relationships and Related
Transactions 22
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 23
PART I
Item 1. Business
General Business Developments
General
Town & Country Corporation, a Massachusetts corporation incorporated in
1965, (collectively with its consolidated subsidiaries unless the context
otherwise requires, the "Company") designs, manufactures, and markets an
extensive collection of fine jewelry, scholastic and sports specialty products
in the United States and internationally. Prior to May 14, 1993, the Company
consisted of seven operating entities: the parent company, Town & Country
Corporation ("Town & Country"), headquartered in Chelsea, Massachusetts; its
wholly owned subsidiaries, Anju Jewelry Limited, a Hong Kong company and its
subsidiaries ("Anju"); Gold Lance, Inc. ("Gold Lance"), located in Houston,
Texas; Verilyte Gold, Inc. ("Verilyte"), located in Chelsea, Massachusetts and
Dallas, Texas; L.G. Balfour Company, Inc. ("Balfour"), headquartered in North
Attleboro, Massachusetts; and Feature Enterprises, Inc. ("Feature"), located in
New York City, New York; and its majority-owned subsidiary Essex International
Public Company Limited and its affiliates ("Essex"), a Thailand company. As of
May 14, 1993, Verilyte and Feature were merged into a new operating entity, Town
& Country Fine Jewelry Group, Inc. ("Fine Jewelry Group").
Capitalization
The Company completed a recapitalization on May 14, 1993. The
recapitalization revised the Company's consolidated capitalization, including
debt structure. The amount of debt outstanding was reduced and a significant
portion of old subordinated debt was exchanged for new debt and shares of Class
A Common Stock and Exchangeable Preferred Stock.
The Company obtained a revolving credit agreement from Foothill Capital
Corporation to provide secured financing in an aggregate amount of up to $30
million, which currently has a seasonal increase up to $35 million, and new gold
consignment agreements from the Company's existing gold suppliers which
currently provide an aggregate gold consignment availability of up to
approximately 73,000 troy ounces. As a result of ongoing discussions with its
gold suppliers, the Company has agreed in principle to reduce its domestic gold
facilities by 6,000 troy ounces, from 73,000 troy ounces to 67,000 troy ounces.
The Company sold $30 million of its 11 1/2% Senior Secured Notes due
September 15, 1997. At February 26, 1995, approximately $14 million was
outstanding.
Agreements were reached with Chemical Bank, to change the terms of the IRB
financing for the Company's facility located in New York, New York. The new
terms include, among other things, an accelerated payment schedule relative to
that which had previously been in place and the release of certain collateral by
Chemical Bank. At February 26, 1995, approximately $500,000 principal balance
remains outstanding.
The Company issued approximately $61.5 million, including unamortized
premium of approximately $8 million, of 13% Senior Subordinated Notes, due May
31, 1998, approximately $34.3 million of Exchangeable Preferred Stock, par value
$1.00, and approximately 10 million shares of Class A Common stock valued at
approximately $26.9 million. These securities were issued in exchange for
approximately 93% of the Company's 13% Senior Subordinated Notes due December
15, 1998, and approximately 98% of the Company's 10 1/4% Subordinated Noes due
July 1, 1995. The total carrying value retired, including deferred financing
costs, was approximately $122.7 million.
The 13% Senior Subordinated Notes, due May 31, 1998, were issued with terms
providing for the Company's right to issue additional notes in lieu of the first
four semiannual interest payments ("PIK"). As of February 26, 1995, the Company
had exercised this right and had paid by the issuance of new notes approximately
$3.5 million, $3.7 million, and $3.9 million related to the first three required
semiannual interest payments. Therefore, the carrying value of the notes,
including unamortized premium of approximately $5.6 million, is approximately
$70.2 million. Subsequent to year-end, the Company used its final PIK to make
the fourth semiannual interest payment due May 13, 1995, with approximately $4.2
million of additional notes. The Company will be required to make the $4.5
million interest payment due November 13, 1995, in cash.
On November 23, 1994, holders of approximately 94% of the Company's
Exchangeable Preferred Stock exchanged their shares for shares of Little
Switzerland, Inc. Common Stock on a share-for-share basis. Such an exchange was
provided for by the terms of the Exchangeable Preferred Stock. In addition, the
Company issued to each participant one share of new Convertible Preferred Stock
with each share of Little Switzerland, Inc. Common Stock. The Company retains an
investment in Little Switzerland, Inc. equal to approximately 4% of the
outstanding shares.
Since the carrying value of the Company's investment in Little Switzerland,
Inc. was substantially less than the recorded value of the Exchangeable
Preferred Stock, the transaction resulted in a nonrecurring, noncash gain of
approximately $17 million, net of the estimated fair value of the Convertible
Preferred Stock issued.
Each share of Convertible Preferred Stock is initially convertible, at the
option of the holder, into two shares of Class A Common Stock, subject to
adjustment in certain circumstances. The Convertible Preferred Stock has a
liquidation value of $6.50 per share and accrues cumulative dividends at the
rate of 6% of the liquidation value per annum. The Company may pay such
dividends in cash or in additional shares of Convertible Preferred Stock, as
defined by the agreement.
(See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Financial Condition" and Note 2 of Notes to Consolidated
Financial Statements).
Narrative Description of Business
General
The Company designs and manufactures an extensive line of fine jewelry
which it markets on a wholesale basis throughout the U.S., and to a lesser
extent, in the international jewelry market. Its products include 10, 14, and
18-karat gold rings, earrings, pendants, and bracelets, many of which are set
with precious and semi-precious stones. The Company also manufactures scholastic
and sports specialty products.
Town & Country Corporation (Headquartered in Chelsea, Massachusetts)
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Town & Country Gold Lance, L.G. Balfour Anju Jewelry Essex
Fine Jewelry Inc. Company, Inc. Limited International
Group, Inc. (Houston, TX) (North Attleboro, (Hong Kong) Public Company
(Chelsea, MA) MA) Limited
(Bangkok,
Thailand)
The Company has manufacturing facilities located in Massachusetts, New
York, Texas, Kentucky, and in Thailand. These facilities are located close to
available labor forces and suppliers of necessary raw materials.
Production Methods
The Company utilizes a variety of production methods to produce jewelry.
Principal among these is the "lost wax" method of investment casting. This
manufacturing operation originates with a hand designed original which is then
taken through a reverse molding procedure to create a mold. The mold is infused
with wax, and a series of such wax pieces are then surrounded with plaster of
Paris. The plaster of Paris is placed in a furnace where the wax is eliminated
by subjecting the plaster to high temperatures. Molten gold is then poured into
the areas from which the wax has been eliminated and a rough gold piece is
removed after cooling. The piece produced through the investment casting method
may then be ground, polished, and set with stones.
One of the other production methods used is die striking. This process
begins by tooling a master hub (male impression) from an original design. The
hub is used to create dies (female impression) for machine stamping. Additional
tools are created to trim and shape the final product. Gold or base metal is
struck in hydraulic presses or with pneumatic drop hammers in multiple steps
with alternating annealing steps. The product is then trimmed and rounded.
Stamping dies are custom produced by computer-aided tool cutting machines or are
hand crafted. The rough, stamped pieces are polished and finished. Precious,
semi-precious, or synthetic stones may be set in the individual pieces.
In addition, the Company utilizes the carbide, or swiss-cutting,
manufacturing operation. This method uses ring blanks of various widths and
dimensions which have been cut from tubes of karat gold in a lathing process.
The blanks are then placed on a cutting machine which is set up to cut designs
into the ring using diamond tipped or carbide tipped tools.
Photo-etching technology is used to manufacture precious metal charms and
earrings. The process consists of several stages. First, a graphic image of a
charm or earring is transferred to a photographic tool and is replicated by
computer control in an optimum layout. The tool is then placed on a thin metal
plate and passed through an exposure unit which photographically transfers the
images from the tool onto that plate. Next, the metal plate passes by conveyer
through an etching solution where a chemical milling of the exposed surfaces
takes place. Finally, the etched pieces from the plate are cleaned, shaped, and
polished.
The Company uses foil stamping and embossing, offset printing, die stamp
and engraving presses, and laser technology in the manufacture of graduation
announcements, diplomas, certificates, and other printed products.
Marketing
There are numerous channels of distribution for fine jewelry, including
jewelry stores (ranging from the independent store with one location to the
large national chains), department stores, catalogue showrooms, warehouse clubs,
and home shopping networks. The Company distributes its products through all of
these channels.
As part of its marketing program, the Company provides a variety of
customer support services designed to meet the varying needs of customers. For
some customers, the Company designs product lines and develops total
merchandising programs including displays and advertising to market these lines.
The Company's sales staff provides quick reaction to customer pricing and design
requirements. The Company utilizes computerized data bases and electronic data
interfaces which assist these customers by providing information that may be
used in marketing, merchandising, and inventory management. For the independent
retail jewelers, the Company has designed promotional flyer programs through
which marketing and merchandising support pertaining to a select group of
products at specific price ranges is provided.
An increasing portion of retail sales in the fine jewelry industry is being
made through discount department stores, warehouse clubs and television shopping
networks. These customers are particularly interested in unique designs, volume
production, price and credit terms.
The Fine Jewelry Group has a single product development organization built
around product category specialists. Each product category is analyzed so that
each category is limited to items providing the maximum return to the Company
and its customers. Utilizing this structure, the Company believes it is able to
be more responsive to trends in the marketplace.
Gold Lance and Balfour are engaged in the production and distribution of
high school and college class rings on a made-to-order basis. Gold Lance
distributes through retail jewelry stores, while Balfour markets directly to
students on campus and at campus book stores. Each customer may choose from a
wide variety of options. These selling methods enable Gold Lance and Balfour to
maintain low levels of inventory in these product lines. Gold Lance and Balfour
have libraries of reusable tools and dies, allowing them to offer a large
selection of styles, including fashion-oriented class rings with intricate
designs.
In conjunction with its school ring sales, Balfour also offers a variety of
graphics products, including graduation announcements, diplomas, and memory
books, and novelty items, such as T-shirts, key chains, and pendants.
Balfour markets licensed products, particularly rings and jewelry licensed
by the major professional sports organizations. Customized rings, insignia pins,
and novelty items are also marketed to associations and organizations.
The Company also markets directly from its Bangkok facility where wholesale
buyers are able to select and direct order jewelry from the Company. The
Company's products are also sold internationally by the Company's marketing
groups and are exhibited at the major international jewelry trade fairs.
As of April 8, 1995, the Company had approximately $30 million of orders
believed to be firm, as compared to approximately $26 million at a corresponding
date last year. The Company believes that all of these orders will be filled
during fiscal 1996. The Company believes that comparative open order information
is not necessarily indicative of comparative results due to the high level of
timing sensitivity in the fine jewelry business which depends significantly on
orders from large retailers.
Competition
The Company competes with both domestic and foreign jewelry suppliers,
ranging in size from small regional suppliers to those which have national
distribution capabilities. The principal competitive factors are price, quality,
design, and customer service. Management believes that the Company has a
reputation for providing extensive customer services and delivering a quality
product line with broad customer appeal. The Company tries to achieve relative
cost savings as a result of the large volume of its purchases of diamonds and
stones.
The Company historically has competed in all of the channels of
distribution across its price range and is therefore competing directly with the
specialists in each distribution category. It has been most successful with
retail jewelry stores and the department and discount store chains which are
also buying the numerous marketing and credit related support services of the
Company.
The Company also competes in the class ring industry which is dominated by
a small number of companies. The industry is made up of two components, the
"in-school" component in which ring orders are taken at the school by the
suppliers, and the "retail" component in which local jewelry stores display
samples and take orders. Historically, the "in-school" component of this
industry has been heavily influenced by the school representative/sales person
relationship. Factors which affect the strength of this relationship include
delivery time, price, quality, design, and customer service. Class ring sales
are affected by student demographics and economic conditions. Management
believes that the Company currently is competitive with other distributors with
regard to the factors listed above. Management believes that Jostens and CJC
Holdings, Inc. combined currently represent a majority market share of this
industry.
Management believes that Balfour's name recognition and association with
the class ring business and championship team rings gives it a competitive
advantage in the direct marketing of graphics products, such as diplomas,
graduation announcements, and accessories, and also, general sports insignia
products including those with professional team logos.
Seasonality
The Company is impacted by the seasonal demands of its customers. A
significant portion of sales in the fine jewelry industry is concentrated in the
fall in anticipation of the holiday season. Balfour is also impacted by
fluctuations in connection with the scholastic year. Accordingly, the Company's
operating results, and working capital requirements fluctuate considerably
during the year.
The following chart sets forth unaudited quarterly data for fiscal 1995 and
fiscal 1994.
First Second Third Fourth
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
Fiscal 1995 May 29, August 28, November 27, February 26,
Net sales $ 70,568,460 $ 54,799,928 $ 96,719,682 $ 66,026,538
Gross profit 24,619,290 14,736,513 28,831,858 19,393,057
Net income (loss) (2,477,963) (7,169,427) 16,424,043 (6,204,735)
Income (loss)
attributable to
common stock-
holders (2,945,159) (7,648,979) 15,944,492 (6,466,455)
Net income (loss)
per common share $ (0.13) $ (0.33) $ 0.68 $ (0.28)
First Second Third Fourth
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
Fiscal 1994 May 30, August 29, November 28, February 27,
Net sales $ 64,125,732 $ 51,063,035 $ 94,346,432 $ 68,214,963
Gross profit 24,650,765 16,370,841 31,632,391 24,739,873
Net income (loss) (498,954) (3,090,822) 5,906,260 821,072
Income (loss)
attributable to
common stock-
holders (574,958) (3,545,972) 5,451,106 353,869
Net income (loss)
per common share $ (0.04) $ (0.15) $ 0.23 $ 0.02
Significant Customer
The Company's largest customer for a number of years has been the Zale
Corporation and its affiliated companies. Sales to Zale were approximately $29
million or 10% of consolidated sales in fiscal 1995 compared to $33 million or
12% of consolidated sales in fiscal 1994 and $38 million or 14% of consolidated
sales in fiscal 1993. The loss of Zale as a customer of the Company or a
substantial reduction in the amount of sales to Zale would have a material
adverse effect on the Company.
Raw Materials
The principal raw materials purchased by the Company are gold and precious
and semi-precious stones. The Company currently takes delivery of most of its
gold through consignment programs. As the gold selling price for orders is
confirmed, the Company purchases the gold requirements at the then current
market prices. This technique enables the Company to match the price it pays for
gold with the price it charges its customers. The Company's gold agreements
require that the Company own gold under certain circumstances and it is possible
for this required ownership to exceed the Company's hedging requirements and
expose the Company to gold fluctuations. The Company pays a fee, which is
subject to periodic change, for the value of the gold held by it as a consignee
during the period prior to sale. The Company has consignment arrangements in
place with a group of suppliers of gold which provide for carrying on
consignment up to approximately 73,000 troy ounces.
Colored precious and semi-precious stones are purchased by the Company
mainly in Asia and Europe. Diamonds are purchased principally at major diamond
markets throughout the world, including Bombay, Tel Aviv, Antwerp, and New York.
The Company is not dependent on one supplier or a small number of suppliers for
the purchases of these raw materials. Availability and cost of these materials
are affected by market conditions and, when there is a period of volatility in
the market, operating results may be affected.
Employees
The Company employs, on average, 2,400 persons, with approximately 24% of
these persons located in the Far East. The number of employees from quarter to
quarter may vary significantly because of the seasonality of the Company's
business. See "Narrative Description of Business--Seasonality." Of these 2,400
employees, approximately 700 are involved with selling and administrative
functions of the Company, and the remainder are involved in the manufacturing
functions of the Company.
The Feature division has had collective bargaining contracts covering its
manufacturing employees, who are represented by the Service Employees
International Union, Jewelry Workers Division. As a result of the restructuring
of the Fine Jewelry Group, most manufacturing functions of Feature were moved to
the Company's headquarters in Massachusetts. As a consequence of this
restructuring, the number of Feature employees has been reduced to approximately
39, of which 21 are covered by collective bargaining contracts. As a result of
the merger, the union contracts were assumed by Fine Jewelry Group.
The Company considers relations with its employees to be satisfactory.
Management does not believe the Company would experience any significant
difficulties in hiring or training additional employees at any of its
facilities.
Industry Practices
In the jewelry industry, traditionally the wholesaler has provided
considerable working capital in the form of credit terms, inventory stocking,
consignment transactions, and transactions with a right of return. The Company
has historically provided this working capital, but in today's retail and
banking environment, has become more selective in its commitment of resources.
The Company is scrutinizing customer credit- worthiness more closely and, as a
result, is restricting customer credit and requires security before providing
consignment inventory. The Company also is restricting the availability of
consigned merchandise to items that are actively promoted by the customer.
Trademarks and Copyrights
While the Company maintains certain trademarks and copyrights on product
styles and business names and enforces its rights relative to those trademarks
and copyrights, these are not economically material to the Company and while the
Company has licensing agreements with certain major professional sports
organizations, the Company believes that it has no franchises or licenses which
are of a material nature to the Company.
Financial Information about Foreign and Domestic Operations and Export Sales
For information on foreign and domestic operations, see Note 16,
"Consolidating Financial Information and Segment Information," in Notes to
Consolidated Financial Statements.
Item 2. Properties
The Company occupies facilities in the United States and the Far East as
described below. (1)
Square
Location Use Footage Ownership
Chelsea, Massachusetts Executive and administrative
offices, manufacturing, marketing,
and distribution facility. 94,000 Leased/Owned
Dallas, Texas Administrative offices, marketing,
and distribution facility. 23,000 Leased
New York, New York (2) Administrative offices, product
development, marketing, and
distribution facility. 91,000 Owned
Attleboro, Massachusetts Manufacturing and distribution
facility. 56,350 Owned
North Attleboro, Massachusetts Administrative offices, manufacturing,
marketing, and distribution facility. 105,000 Leased
Louisville, Kentucky Manufacturing and distribution facility. 42,000 Owned
Dallas, Texas Manufacturing and distribution facility. 55,000 Leased/Owned
Houston, Texas Administrative offices, manufacturing,
marketing, and distribution facility. 31,000 Owned
Hong Kong Administrative offices, product
development, purchasing, and quality
control facility. 9,000 Leased
Bangkok, Thailand Administrative offices, manufacturing,
marketing, and distribution facility. 36,000 Leased/Owned
Chiang Mai, Thailand Manufacturing facility. 7,000 Leased
(1) The Company's interests in these properties are security for loans made
by the Company's lenders. See Note 2 of Notes to Consolidated Financial
Statements.
(2) The New York City Industrial Development agency has the first security
position in this property. See Note 2 of Notes to Consolidated Financial
Statements.
The fine jewelry manufacturing and distribution business is seasonal.
Historically, the Company's facilities operate in excess of full capacity during
the peak demand part of the season and are underutilized during the slower
portions of the season (See "Narrative Description of Business--Seasonality").
Additional capacity requirements are satisfied utilizing outside contractors and
seasonal staffing is adjusted accordingly. The school ring business is also
seasonal and its factories are impacted similarly, but the total and peak
demands on the school ring business are not sufficient to stress the capacity
constraints at any time. The Company has recently consolidated manufacturing
facilities to achieve higher average utilization rates and will increase the
amount of its outsourcing as necessary.
During fiscal 1995, the Company leased a portion of its Chelsea,
Massachusetts facility (approximately 44,000 square feet of combined
manufacturing and administrative space) from Carey Realty Trust, a Massachusetts
business trust, which is wholly owned by C. William Carey, the Chairman,
President, and a major stockholder of the Company. The lease expires on August
31, 1998, and the Company has four five-year options to renew. The current lease
provides for an annual rental payment (subject to a Consumer Price Index
adjustment) on a net lease basis of $475,000. The Company obtained comparison
information from a third party when negotiating the current lease and believes
that these lease arrangements are on terms no less favorable to the Company than
could be obtained from unaffiliated third parties.
Management believes that all its facilities are well maintained, in good
condition and adequate for its present business.
Item 3. Legal Proceedings
The Company is not party to any pending legal proceedings, other than
ordinary routine litigation incidental to the business. In the opinion of
management, adverse decisions on those legal proceedings, in the aggregate,
would not have a materially adverse impact on the Company's business or
financial condition.
It is the Company's current understanding that companies which may be
considered predecessors to Balfour have been designated potentially responsible
parties by the Environmental Protection Agency ("EPA") under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 with respect to
cleanup of hazardous waste in four cases. One of the parties that may be
considered such a predecessor (the "1983 Owner") has, to date, assumed
responsibility for all of these cases in accordance with understandings the 1983
Owner has reached with the party who bought the assets of the predecessor
Balfour Company in 1983 (the "1988 Owner"). In the first of these cases, it is
the Company's understanding that the predecessor 1983 Owner is participating in
the cleanup and has provided financial assurance that it will pay its expected
share of the cleanup expenses (which are currently estimated to be under
$200,000). In the other three cases, it is the Company's understanding that the
1983 Owner has settled its liability as a de minimis waste contributor in each
case and has been given comprehensive releases from further liability for
cleanup costs. The Company acquired the stock of Balfour from the 1988 Owner and
believes that it did not assume responsibility for these cases as a result of
this acquisition. Since its acquisition of Balfour in 1988, the Company has
never paid any amounts with respect to any of these matters and there are no
outstanding claims against the Company or Balfour with respect to any of these
matters. While it is possible that a person or agency could claim that Balfour
as a successor to the 1983 Owner is jointly and severally liable for the cost of
the entire cleanup in these cases, the Company believes that such a claim would
have no merit and would vigorously defend and contest any such claim. Because of
the assumption of responsibility for these cases by the 1983 Owner and the small
waste shares attributed to the 1983 Owner, Management believes that it is
unlikely that the Company will suffer material liability in connection with
these cases.
Item 4. Submission of Matters to a Vote of Security-Holders
There were no matters submitted to a vote of security-holders during the
fourth quarter of fiscal 1995.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Class A Common Stock is traded on the American Stock Exchange
(the "AMEX") under the symbol TNC. Set forth below are the high and low sales
prices for the shares of Class A Common Stock as reported by the AMEX.
Class A Common
Stock Price Range
Fiscal Year Ended High Low
February 27, 1994:
First Quarter 3 7/8 2 3/16
Second Quarter 3 3/8 2 1/2
Third Quarter 3 1/8 2 1/2
Fourth Quarter 3 9/16 2 1/2
February 26, 1995:
First Quarter 3 3/8 2 3/8
Second Quarter 2 7/8 2
Third Quarter 2 7/16 7/8
Fourth Quarter 1 9/16
There is no established public trading market in effect at this time for
the Class B Common Stock. Shares of Class B Common Stock, however, are
convertible on a share for share basis into shares of Class A Common Stock.
On May 15, 1995, there were 1,006 holders of record of Class A Common Stock
and 29 holders of record of the Class B Common Stock. The Company's present
policy is to reinvest its earnings in the business. No cash dividends have been
paid during the last two fiscal years, and the Company has no intention to pay
cash dividends in the foreseeable future.
The Company's ability to pay cash dividends is limited by its financing
agreements and other outstanding indebtedness. As a result of these
restrictions, the Company currently may not pay cash dividends.
Item 6. Selected Financial Data
The following table presents certain selected consolidated financial data
of the Company. The information for each of the five years in the period ended
February 26, 1995, has been derived from consolidated financial statements
audited by Arthur Andersen LLP, independent public accountants.
Statement of Operations Data:
Fiscal Year Ended
(In thousands, except per share data)
Feb. 26, Feb. 27, Feb. 28, Feb. 29, Feb. 28,
1995 1994 1993 (1) 1992 (2) 1991
Net sales $ 288,115 $ 277,750 $ 270,364 $ 272,194 $ 410,402
Net income (loss) 572 3,138 (47,296) (19,018) 1,249
Earnings (loss)
per common
share: (0.05) 0.08 (3.80) (1.58) 0.10
Balance Sheet Data:
Fiscal Year Ended
(In thousands)
Feb. 26, Feb. 27, Feb. 28, Feb. 29, Feb. 28,
1995 1994 1993 1992 1991
Total assets $ 206,623 $ 223,921 $ 246,858 $ 262,288 $ 397,804
Senior debt 15,128 22,022 35,688 6,424 87,676
Subordinated debt 77,545 71,285 120,285 119,496 121,277
Exchangeable
preferred stock 2,266 35,785 - - -
Stockholders' equity 59,835 55,334 24,744 70,709 89,456
(1) In fiscal 1993, the Company recorded a restructuring charge related to
its New York facility of $5 million, a charge related to the disposal of certain
Balfour assets of approximately $14.5 million, and expenses associated with
recapitalizing the Company of approximately $14.4 million. See Notes 2 and 7 of
Notes to Consolidated Financial Statements.
(2) In fiscal 1992, the Company recorded restructuring and Zale bankruptcy
charges of $44 million and net gains from nonrecurring items of $51 million. See
Note 8 of Notes to Consolidated Financial Statements.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Fiscal 1995 Compared to Fiscal 1994
On November 23, 1994, holders of approximately 94% of the Company's
Exchangeable Preferred Stock exchanged on a share-for-share basis their shares
for shares of Little Switzerland, Inc. Common Stock held by the Company. Such an
exchange was provided for by the terms of the Exchangeable Preferred Stock. In
addition, the Company issued to each participant one share of new Convertible
Preferred Stock with each share of Little Switzerland, Inc. Common Stock.
Since the carrying value of the Company's investment in Little Switzerland,
Inc. was substantially less than the recorded value of the Exchangeable
Preferred Stock, the transaction resulted in a nonrecurring, noncash gain of
approximately $17 million, net of the estimated fair value of the Convertible
Preferred Stock issued.
Net sales for the fiscal year ended February 26, 1995, increased
approximately $10 million, or 4%, from approximately $278 million in fiscal 1994
to approximately $288 million in fiscal 1995. Sales of fine jewelry increased
approximately $19 million, or 11%, from approximately $177 million in fiscal
1994 to approximately $196 million in fiscal 1995. This increase was achieved
despite a decline in sales to Zale of approximately $4 million, or 12%, from $33
million in fiscal 1994 to $29 million in fiscal 1995. The sales increase is
generally attributable to increased volume rather than increased prices. Sales
for the Company's direct response distribution business of licensed sports and
other specialty products have decreased approximately $10 million, or 37%, from
$27 million in fiscal 1994 to $17 million in fiscal 1995. The Company expects to
further scale back its direct response distribution business in fiscal 1996.
Gross profit for the fiscal year ended February 26, 1995, decreased
approximately $10 million, or 10%, from $97 million in fiscal 1994 to $87
million in fiscal 1995. Gross profit margin declined from 35% for the fiscal
year ended February 27, 1994, to 30% for the fiscal year ended February 26,
1995. The Company's sales increase has been primarily in the lower margin fine
jewelry product categories. In order to better manage and control inventory, the
Company has also sold, or made provisions to sell, inventory in excess of
current requirements, at less than normal margins. This product mix change and
these sales and provisions negatively impacted margin by approximately 3%.
Production requirements for direct response and other specialty products were
lower this year than last year, resulting in under absorbed fixed overhead which
impacted margin by approximately 2%.
Selling, general and administrative expenses ("SG&A") for fiscal 1995
increased approximately $10 million, or 13%, from $80 million in fiscal 1994 to
$90 million in fiscal 1995. As a percentage of net sales, SG&A expenses
increased from 29% in fiscal 1994 to 31% in fiscal 1995. This increase relates,
primarily, to higher costs, particularly for advertising, associated with the
Company's marketing, through direct response, of merchandise manufactured under
licenses from professional sports organizations. This accelerated advertising
effort did not generate sales of these products at the rate anticipated.
Provision for higher than anticipated uncollectible accounts also contributed to
the increase in SG&A as a percentage of sales. The Company anticipates that SG&A
expenses associated with its direct response business of licensed sports and
other specialty products will decline in fiscal 1996 due to the Company's
intentions to scale back its direct response distribution business.
Interest expense for the fiscal year ended February 26, 1995, declined
approximately $2 million from $14 million in fiscal 1994 to $12 million in
fiscal 1995. The weighted average interest rate on overall borrowings was
approximately 11.08% for fiscal 1995 versus 11.24% for fiscal 1994. Average
borrowings for the fiscal year ended February 26, 1995, declined approximately
$15 million from approximately $125 million in fiscal 1994 to approximately $110
million in fiscal 1995. See Note 2 of Notes to Consolidated Financial
Statements.
The Company has recorded a tax provision for fiscal 1995 of approximately
$1.7 million compared with a provision of $1.5 million in fiscal 1994. These tax
provisions are primarily due to state and foreign income taxes.
Fiscal 1994 Compared to Fiscal 1993
Net sales for the fiscal year ended February 27, 1994, increased
approximately $8 million or 3% from approximately $270 million in fiscal 1993 to
approximately $278 million in fiscal 1994. Sales of fine jewelry increased
approximately $8 million or 5%, from approximately $169 million in fiscal 1993
to approximately $177 million in fiscal 1994. This increase was achieved despite
a decline in sales to Zale of approximately $5 million or 13% from $38 million
in fiscal 1993 to $33 million in fiscal 1994. The sales increase is attributable
to increased volume rather than increased prices. Product costs have remained
relatively stable while competitive pressure on margin has continued to
intensify.
Gross profit for the fiscal year ended February 27, 1994, increased
approximately $6 million, or 7%, from $91 million in fiscal 1993 to $97 million
in fiscal 1994. Gross profit margin improved from 33% for the fiscal year ended
February 28, 1993, to 35% for the fiscal year ended February 27, 1994. Benefits
from elimination of low-margin recognition products and entry into higher-margin
sports specialty marketing were offset to some extent by continuing margin
pressure in the fine jewelry business. Gross profit also benefited from the $1.3
million liquidation of the Company's remaining LIFO based inventory.
Selling, general and administrative expenses for fiscal 1994 declined
approximately $5 million, or 6%, from $85 million in fiscal 1993 to $80 million
in fiscal 1994. As a percentage of net sales, selling, general and
administrative expenses declined from 32% in fiscal 1993 to 29% in fiscal 1994.
This decline results from consolidations related to the restructuring of the
fine jewelry business.
Interest expense for the fiscal year ended February 27, 1994, declined
approximately $6 million from $20 million in fiscal 1993 to $14 million in
fiscal 1994. The weighted average interest rate was approximately 11.24% for
fiscal 1994 versus 12.3% for fiscal 1993. Average borrowings for the fiscal year
ended February 27, 1994, declined approximately $38 million from approximately
$163 million in fiscal 1993 to approximately $125 million in fiscal 1994 due to
the recapitalization completed on May 14, 1993. See Note 2 of Notes to
Consolidated Financial Statements.
During the fiscal year ended February 27, 1994, the Company had equity
income of approximately $1.1 million from its ownership of Little Switzerland,
Inc. stock and approximately $156,000 from its ownership of Solomon Brothers,
Limited stock. This compares to approximately $1.9 million and approximately
$800,000, respectively, for the same period in fiscal 1993. Both companies are
dependent, to different extents, on tourist travel and spending patterns. The
general level of tourist activity has not met expectations, and the commitments
for inventory and overhead have negatively impacted Little Switzerland, Inc.'s
and Solomon Brothers, Limited's results of operations.
The Company has recorded a tax provision for fiscal 1994 of approximately
$1 million. The tax provision was primarily due to state and foreign income
taxes.
Fiscal 1993 Compared to Fiscal 1992
Net sales for the fiscal year ended February 28, 1993, declined
approximately $2 million or .7% from approximately $272 million in fiscal 1992
to approximately $270 million in fiscal 1993. Sales of fine jewelry increased
approximately $6 million, or 4%, from approximately $163 million in fiscal 1992
to approximately $169 million in fiscal 1993. This increase was achieved despite
a decline in sales to Zale of approximately $6 million, or 14%, from $44 million
in fiscal 1992 to $38 million in fiscal 1993. The increase in sales in fine
jewelry reflects the results of the reorganization that merged the sales and
marketing areas of Town & Country, Feature, and Verilyte and provided the
framework for more focused and creative product development and aggressive sales
activity. Sales of education and recognition products were down approximately $8
million, or 7%, from $109 million in fiscal 1992 to $101
million in fiscal 1993. As a result of the economic climate, many of the
Company's corporate customers were forced to reduce work forces through cutbacks
and attrition, thereby lowering the number of employee award recipients.
Gross profit for the fiscal year ended February 28, 1993, increased
approximately $4 million or 5% from $87 million in fiscal 1992 to $91 million in
fiscal 1993. Gross profit margin improved from 32% for the fiscal year ended
February 29, 1992 to 33% for the fiscal year ended February 28, 1993. This
improvement was primarily the result of efficiencies and cost reductions in the
fine jewelry business produced by the operational restructuring.
Selling, general and administrative expenses for fiscal 1993 declined
approximately $7 million or 8% from $92 million in fiscal 1992 to $85 million in
fiscal 1993. As a percentage of net sales, selling, general and administrative
expenses declined from 34% in fiscal 1992 to 32% in fiscal 1993. This decline
was primarily a result of reductions relating to the restructuring of the fine
jewelry business.
Interest expense for the fiscal year ended February 28, 1993, declined
approximately $5 million from $25 million in fiscal 1992 to $20 million in
fiscal 1993. The weighted average interest rate was approximately 12.3% for the
fiscal year ended February 28, 1993, as compared to approximately 11.7% for the
same period in fiscal 1992. Average borrowings for the fiscal year ended
February 28, 1993, declined approximately $52 million from approximately $215
million in fiscal 1992 to approximately $163 million in fiscal 1993.
Interest income for the fiscal year ended February 28, 1993, declined from
approximately $3.3 million in fiscal 1992 to approximately $680,000 in fiscal
1993 as a result of lower amounts of funds being held in interest bearing
accounts.
During the fiscal year ended February 28, 1993, the Company had equity
income of approximately $1.9 million from its ownership of Little Switzerland,
Inc. stock and approximately $800,000 from its ownership of Solomon Brothers,
Limited stock. This compares to approximately $3.4 million and approximately
$1.0 million, respectively, for the same period in fiscal 1992. The reduction in
equity income from Little Switzerland, Inc. was the result of the Company owning
100% of Little Switzerland, Inc. for the first five months of fiscal 1992
compared with approximately 32% for all of fiscal 1993.
During fiscal 1993, the Company recorded approximately $34 million of
nonrecurring charges related to recapitalizing and restructuring the business.
Approximately $5 million of this charge related to the Company's New York
facility, approximately $14.5 million related to the disposal of certain assets
at Balfour, and $14.4 million related to expenses associated with the Company's
recapitalization. (See Notes 2 and 7 of Notes to Consolidated Financial
Statements.)
Although the Company had a pretax loss of approximately $46 million for the
fiscal year ended February 28, 1993, the Company recorded a tax provision of
approximately $1 million. The tax provision was primarily due to the Company's
inability to fully recognize the tax benefits of operating losses in certain
jurisdictions as well as state and foreign income taxes.
Zale Bankruptcy
The Company's largest customer for a number of years has been the Zale
Corporation and its affiliated companies.
The Company's Consolidated Financial Statements at February 28, 1992,
originally reflected a net valuation, related to Zale Corporation's bankruptcy
filing under Chapter 11 of the United States Bankruptcy Code, of approximately
$13 million, which was classified as Other Assets in the Consolidated Balance
Sheets, due to the uncertainty of the timing of a final settlement. The Company
has subsequently received proceeds from Zale and from liquidation of claim
assets of approximately $13 million and will recognize the benefit of any
additional liquidation of assets as that benefit is realized.
The Company continues to conduct business with Zale.
Liquidity
Cash used in operations during fiscal 1995 was approximately $1 million
compared with cash provided of approximately $18 million in fiscal 1994. This
change is essentially equivalent to the change in operating performance from
year to year. This use also reflects an $8 million interest benefit as a result
of making interest payments with the issuance of additional debt.
Cash flow from operations included proceeds from the Zale bankruptcy claim
of approximately $6 million. The Company is required to escrow net proceeds from
the Zale bankruptcy claim and Solomon investment for repayment of Senior Secured
Notes. During fiscal 1995, approximately $6 million of Senior Secured Notes were
redeemed with such proceeds.
Cash used for fixed asset acquisitions resulted in a use of investing cash
of approximately $3 million.
The Company's operations are primarily funded through its revolving credit
facility which was a net source of cash of approximately $11 million in fiscal
1995. These funds were used to make required debt payments of $2 million as well
as to meet the Company's operating and investing cash requirements.
On March 29, 1994, and March 20, 1995, as required by the covenants of its
Senior Secured Notes, the Company gave written notice to Solomon Brothers,
Limited of the Company's intention to redeem 70,000 and 55,000 of its shares of
nonvoting redeemable cumulative participating preferred Class B stock,
respectively. Solomon Brothers, Limited informed the Company that it would not
be able to redeem the 70,000 share request when due as a result of constraints
imposed by its banking facilities. It is doubtful that Solomon Brothers, Limited
will be able to make the 55,000 share redemption payment in a timely manner. The
Company currently believes that Solomon Brothers, Limited will be able to meet
its obligation and that the Company's investment is realizable, but it is unable
to estimate the
timing of future redemption payments. The Company is monitoring Solomon
Brothers, Limited's operations and financial position and if it determines in
the future that carrying value is no longer reflective of fair value,
appropriate adjustments will be made.
Financial Condition
The Company completed a recapitalization on May 14, 1993. The
recapitalization revised the Company's consolidated capitalization, including
debt structure. The amount of debt outstanding was reduced and a significant
portion of old subordinated debt was exchanged for new debt and shares of Class
A Common Stock and Exchangeable Preferred Stock.
The Company obtained a revolving credit agreement from Foothill Capital
Corporation to provide secured financing in an aggregate amount of up to $30
million, which currently has a seasonal increase up to $35 million,
(approximately $11 million outstanding at February 26, 1995), and gold
consignment agreements from the Company's existing gold suppliers which
currently provide an aggregate gold consignment availability of up to
approximately 73,000 troy ounces (approximately 67,000 troy ounces outstanding
at February 26, 1995). As a result of ongoing discussions with its gold
suppliers, the Company has agreed in principle to reduce its domestic gold
facilities by 6,000 troy ounces, from 73,000 troy ounces to 67,000 troy ounces.
It is currently anticipated that these reductions will be made in several steps
throughout fiscal 1996 and will be primarily as a result of reduced operational
requirements. In connection with these anticipated reductions, the Company also
expects some modifications to be made to the financial covenants in the gold
consignment agreements with its gold suppliers. The Company believes that it can
meet its working capital needs over the next year through cash flow from
operations and the use of these facilities. (See Note 2 of Notes to Consolidated
Financial Statements.)
The Company sold $30 million of its 11 1/2% Senior Secured Notes due
September 15, 1997. At February 26, 1995, approximately $14 million was
outstanding.
Agreements were reached with Chemical Bank, to change the terms of the IRB
financing for the Company's facility located in New York, New York. The new
terms include, among other things, an accelerated payment schedule relative to
that which had previously been in place and the release of certain collateral by
Chemical Bank. At February 26, 1995, approximately $500,000 principal balance
remains outstanding. On April 3, 1995, approximately $181,000 of this obligation
was repaid and the remainder was purchased by Foothill Capital Corporation and
will be repaid over the next five years.
The Company issued approximately $61.5 million, including unamortized
premium of approximately $8 million, of 13% Senior Subordinated Notes, due May
31, 1998, approximately $34.3 million of Exchangeable Preferred Stock, par value
$1.00, and approximately 10 million shares of Class A Common stock valued at
approximately $26.9 million. These securities were issued in exchange for
approximately 93% of the Company's 13% Senior Subordinated Notes due December
15, 1998, and approximately 98% of the Company's 10 1/4% Subordinated Noes due
July 1, 1995. The total carrying value retired, including deferred financing
costs, was approximately $122.7 million.
The 13% Senior Subordinated Notes, due May 31, 1998, were issued with terms
providing for the Company's right to issue additional notes in lieu of the first
four semiannual interest payments. As of February 26, 1995, the Company had
exercised this right and had paid by the issuance of new notes approximately
$3.5 million, $3.7 million, and $3.9 million related to the first three required
semiannual interest payments. Therefore, the carrying value of the notes,
including unamortized premium of approximately $5.6 million, is approximately
$70.2 million. Subsequent to year-end, the Company used its final PIK to make
the fourth semiannual interest payment due May 13, 1995, with approximately $4.2
million of additional notes. The Company will be required to make the $4.5
million interest payment due November 13, 1995, in cash. The Company believes
that it will have availability under its working capital facilities to make this
payment when it becomes due.
On November 23, 1994, holders of approximately 94% of the Company's
Exchangeable Preferred Stock exchanged their shares for shares of Little
Switzerland, Inc. Common Stock held by the Company on a share-for-share basis.
Such an exchange was provided for by the terms of the Exchangeable Preferred
Stock. In addition, the Company issued to each participant one share of new
Convertible Preferred Stock with each share of Little Switzerland, Inc. Common
Stock. The Company retains an investment in Little Switzerland, Inc. equal to
approximately 4% of the outstanding shares.
Since the carrying value of the Company's investment in Little Switzerland,
Inc. (approximately $12.2 million) was substantially less than the recorded
value of the Exchangeable Preferred Stock (approximately $35.0 million), the
transaction resulted in a nonrecurring, noncash gain of approximately $17.3
million, net of the estimated fair value of the Convertible Preferred Stock
issued (approximately $5.5 million).
Each share of Convertible Preferred Stock is initially convertible, at the
option of the holder, into two shares of Class A Common Stock, subject to
adjustment in certain circumstances. The Convertible Preferred Stock has a
liquidation value of $6.50 per share and accrues cumulative dividends at the
rate of 6% of the liquidation value per annum. The Company may pay such
dividends in cash or in additional shares of Convertible Preferred Stock, as
defined by the agreement.
(See Note 2 of Notes to Consolidated Financial Statements).
Inflation
The Company's operating expenses are directly affected by inflation,
resulting in an increased cost of doing business. Because the cost of sales
depends on the price of raw materials bought in markets located throughout the
world, the Company is influenced by inflation on an international basis. In
addition, gold prices are affected by political factors, by changing perceptions
of the value of gold relative to currencies and by inflationary pressures.
The Company believes that inflation does not currently have a material
effect on the Company's operating expenses, although current rates of inflation
are not necessarily indicative of future effects of inflation on the Company,
and thus, inflation could have a material effect on the Company's operating
expenses in the future.
Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements of Town & Country
Corporation and subsidiaries are included as part of this Form 10-K:
Report of Independent Public Accountants F-3
Consolidated Balance Sheets - February 26, 1995
and February 27, 1994 F-4
Consolidated Statements of Operations - Years
Ended February 26, 1995, February 27, 1994,
and February 28, 1993 F-6
Consolidated Statements of Stockholders' Equity -
Years Ended February 26, 1995, February 27, 1994,
and February 28, 1993 F-7
Consolidated Statements of Cash Flows - Years
Ended February 26, 1995, February 27, 1994,
and February 28, 1993 F-9
Notes to Consolidated Financial Statements F-11
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
Information concerning the age and principal occupation of each director
and executive officer is set forth under the captions "Election of Directors,"
"Executive Officers," and "Executive Compensation" in the Proxy Statement and is
incorporated herein by reference.
Item 11. Executive Compensation
Information concerning compensation of directors and executive officers of
the Registrant is set forth under the captions "Board Meetings, Committees,
Attendance and Fees," "Executive Officers," and "Executive Compensation" in the
Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security ownership of executive officers and directors is set forth under
the caption "Election of Directors" and "Security Ownership of Principal
Stockholders and Management" in the Proxy Statement and is incorporated herein
by reference.
Solely for the purpose of calculating the aggregate market value of the
voting stock held by non-affiliates of the Registrant as set forth on the cover
of this report, it has been assumed that directors and executive officers of the
Registrant are affiliates.
Item 13. Certain Relationships and Related Transactions
The information related to certain transactions with directors of the
Registrant is set forth under the caption "Certain Transactions and Business
Relationships" in the Proxy Statement and is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(A) DOCUMENT LIST
1. Financial Statements
The following consolidated financial statements of Town & Country
Corporation and Subsidiaries are included in Item 8:
Page
Report of Independent Public Accountants F-3
Consolidated Balance Sheets - February 26, 1995 F-4
and February 27, 1994
Consolidated Statements of Operations - Years F-6
Ended February 26, 1995, February 27, 1994, and
February 28, 1993
Consolidated Statements of Stockholders' Equity - F-7
Years Ended February 26, 1995, February 27, 1994,
and February 28, 1993
Consolidated Statements of Cash Flows - Years F-9
Ended February 26, 1995, February 27, 1994, and
February 28, 1993
Notes to Consolidated Financial Statements F-11
2. Financial Statement Schedules
Report of Independent Public Accountants F-47
Schedules:
II Valuation Accounts F-48
Schedules other than those listed above are omitted because of the absence
of the condition under which they are required or because the required
information is reflected in the financial statements or notes thereto.
3. Exhibits
Page
3.1 Restated Articles of Organization, as amended. *6*(3.1)
3.2 By-Laws, as amended. *2*(3.2)
4.1 Amended and Restated Indenture governing 10 1/4% *6*(4.1)
Subordinated Notes due 1995 (the "Old 10 1/4%
Notes"), dated as of 5/14/93, from Town & Country
Corporation to The Bank of New York, as Trustee.
4.2 Amended and Restated Indenture governing 13% *6*(4.2)
Senior Subordinated Notes due 12/15/98, (the "Old
13% Notes), dated as of 5/14/93, from Town &
Country Corporation to State Street Bank and
Trust Company, as Trustee.
4.3 Supplemental Indenture relating to the Old 10 1/4% *6*(4.3)
Notes, dated as of 5/14/93, from Town & Country
Corporation to The Bank of New York, as Trustee.
4.4 Supplemental Indenture relating to the Old 13% *6*(4.4)
Notes, dated as of 5/14/93, from Town & Country
Corporation to State Street Bank and Trust
Company, as Trustee.
4.5 Indenture governing 11 1/2% Senior Secured Notes *6*(4.5)
due 9/15/97, dated as of 5/14/93, from Town &
Country Corporation to Shawmut Bank, N.A., as
Trustee.
4.6 Indenture governing 13% Senior Subordinated Notes *6*(4.6)
due 5/31/98, dated as of 5/14/93, from Town &
Country Corporation to Bankers Trust Company,
as Trustee.
4.7 Certificate of Vote of Directors Establishing the *6*(4.7)
Exchangeable Preferred Stock, par value $1.00
per share, dated as of 5/14/93.
4.8 Certificate of Vote of Directors Establishing the Filed Herewith
Convertible Preferred Stock, par value $1.00 per
share, dated as of November 23, 1994.
Material Contracts:
10.1 1989 Employee Stock Purchase Plan of the #1#(10.21)
Registrant.
10.3 1985 Amended and Restated Stock Option Plan of *2*(10.1)
the Registrant.
10.4 Amendment dated 7/27/89, to the Lease Agreement *4*(10.8)
between Carey Realty Trust and Town & Country
Corporation.
10.5 Amendment dated 7/1/87, to the Lease Agreement *3*(10.3)
between the Registrant and Carey Realty Trust
dated 9/1/84.
10.6 Lease Agreement between the Registrant and Carey *1*(10.2)
Realty Trust dated 9/1/84.
10.7 Lease dated 9/1/85, between the New York City #2#(10.30)
Industrial Development Agency and Feature
Enterprises, Inc.
10.8 First Amendment to Lease Agreement dated as of *6*(10.8)
5/1/93, between the New York City Industrial
Development Agency and Town & Country Fine
Jewelry Group, Inc.
10.9 Lease Agreement between L.G. Balfour Company, Filed Herewith
Inc. and C.L.C. North Attleboro Trust dated
March 14, 1994.
10.10 Letter-Agreement dated April 4, 1994, to Lease Filed Herewith
between L. G. Balfour Company, Inc. and C.L.C.
North Attleboro Trust dated March 14, 1994.
10.11 Amended and Restated Consignment Agreement by *6*(10.9)
and between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Fleet Precious Metals, Inc. dated as of
5/14/93.
10.12 First Amendment to Amended and Restated Filed Herewith
Consignment Agreement dated 10/20/93 by
and between Town & Country Corporation,
L.G. Balfour Company, Inc., Gold Lance, Inc.,
and Town & Country Fine Jewelry Group, Inc.
and Fleet Precious Metals, Inc. dated as of
5/14/93.
10.13 Second Amendment to Amended and Restated Filed Herewith
Consignment Agreement dated 12/1/93 by and
between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Fleet Precious Metals, Inc. dated as of
5/14/93.
10.14 Third Amendment to Amended and Restated Filed Herewith
Consignment Agreement dated July 1994 by
and between Town & Country Corporation,
L.G. Balfour Company, Inc., Gold Lance, Inc.,
and Town & Country Fine Jewelry Group, Inc.
and Fleet Precious Metals, Inc. dated as of
5/14/93.
10.15 Fourth Amendment to Amended and Restated Filed Herewith
Consignment Agreement dated 8/31/94 by and
between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Fleet Precious Metals, Inc. dated as of
5/14/93.
10.16 Fifth Amendment to Amended and Restated Filed Herewith
Consignment Agreement dated 11/17/94 by and
between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Fleet Precious Metals, Inc. dated as of
5/14/93.
10.17 Amended and Restated Consignment Agreement by *6*(10.10)
and between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Rhode Island Hospital Trust National Bank
dated as of 5/14/93.
10.18 First Amendment to Amended and Restated Filed Herewith
Consignment Agreement dated 12/1/93 by and
between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Rhode Island Hospital Trust National Bank
dated as of 5/14/93.
10.19 Second Amendment to Amended and Restated Filed Herewith
Consignment Agreement dated 7/13/94 by and
between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Rhode Island Hospital Trust National Bank
dated as of 5/14/93.
10.20 Third Amendment to Amended and Restated Filed Herewith
Consignment Agreement dated 11/15/94 by
and between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Rhode Island Hospital Trust National Bank
dated as of 5/14/93.
10.21 Amended and Restated Consignment Agreement by *6*(10.11)
and between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
ABN Amro Bank, N.V. dated as of 5/14/93.
10.22 First Amendment to Amended and Restated Filed Herewith
Consignment Agreement dated 12/1/93 by and
between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
ABN Amro Bank, N.V. dated as of 5/14/93.
10.23 Second Amendment to Amended and Restated Filed Herewith
Consignment Agreement dated August 1994 by
and between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
ABN Amro Bank, N.V. dated as of 5/14/93.
10.24 Amended and Restated Consignment Agreement by *6*(10.12)
and between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Republic National Bank of New York dated as
of 5/14/93.
10.25 First Amendment to Amended and Restated Filed Herewith
Consignment Agreement dated 12/1/93 by and
between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Republic National Bank of New York dated as
of 5/14/93.
10.26 Second Amendment to Amended and Restated Filed Herewith
Consignment Agreement dated July 1994 by and
between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Republic National Bank of New York dated as
of 5/14/93.
10.27 Letter Agreement to Amended and Restated Collateral Filed Herewith
Sharing Agreement dated November 1994 by
and among Fleet Precious Metals Inc. and various
consignors and the Consignment Agreements as of
May 14, 1993.
10.28 Registration Rights Agreement between Little *5*(10.13)
Switzerland, Inc. and Switzerland Holding, Inc.
dated as of 7/17/91.
10.29 Letter Agreement dated as of 4/6/93, between *6*(10.14)
Little Switzerland, Inc. and Town & Country
Corporation relating to the Switzerland
Holding, Inc. Registration Rights Agreement.
10.30 Loan Agreement dated as of 5/14/93, by and among *6*(10.15)
Town & Country Corporation, L.G. Balfour Company,
Inc., Gold Lance, Inc., and Town & Country Fine
Jewelry Group, Inc. and Foothill Capital
Corporation.
10.31 First Amendment to Loan Agreement dated 9/28/93 Filed Herewith
by and among Town & Country Corporation,
L.G. Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Foothill Capital Corporation dated as of 5/14/93.
10.32 Amendment Number Two to Loan Agreement dated Filed Herewith
6/24/94 by and among Town & Country Corporation,
L.G. Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Foothill Capital Corporation dated as of 5/14/93.
10.33 Amendment Number Three to Loan Agreement dated Filed Herewith
7/11/94 by and among Town & Country Corporation,
L.G. Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Foothill Capital Corporation dated as of 5/14/93.
10.34 Amendment Number Four to Loan Agreement dated Filed Herewith
7/25/94 by and among Town & Country Corporation,
L.G. Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Foothill Capital Corporation dated as of 5/14/93.
10.35 Collateral Agency and Intercreditor Agreement *6*(10.16)
dated as of 5/14/93, by and among Town & Country
Corporation, L.G. Balfour Company, Inc.,
Gold Lance, Inc., and Town & Country Fine
Jewelry Group, Inc. and Foothill Capital
Corporation, Fleet Precious Metals, Inc.,
Rhode Island Hospital Trust National Bank,
Republic National Bank, ABN Amro Bank N.V.,
Bankers Trust Company, Shawmut Bank, N.A.,
and Chemical Bank.
10.36 Form of 1993 Management Stock Option. #3#(10.23)
10.37 Form of Executive Employment Agreement between #4#(10.20)
Town & Country Corporation and C. William Carey
effective as of February 28, 1994.
10.38 Form of Executive Employment Agreement between #4#(10.21)
Town & Country Corporation and Francis X. Correra
effective as of February 28, 1994.
10.39 Trust Agreement dated as of 5/14/93, between *6*(10.22)
Town & Country Corporation and Baybank, as
Trustee.
10.40 Registration Effectiveness Agreement dated *6*(10.23)
as of 5/14/93, between Town & Country Corporation
and Certain Funds managed by Fidelity Management &
Research Company.
10.41 Form of letter dated as of November 4, 1994, to #5#(10.21)
Certain Holders of Town & Country Exchangeable
Preferred Stock from Town & Country relating
to the offer by Town & Country to issue shares
of Convertible Preferred Stock.
10.42 Form of Registration Rights Agreement dated #5#(10.22)
as of November 23, 1994, between Town &
Country Corporation and the holders of
Town & Country Convertible Preferred
Stock signatory thereto.
10.43 Letter Agreement dated as of November 15, #5#(10.23)
1994, by and among Town & Country
Corporation, L.G. Balfour Company, Inc.
Gold Lance, Inc., and Town & Country
Fine Jewelry Group, Inc. and Fleet Precious
Metals, Inc., Rhode Island Hospital Trust
National Bank, ABN-AMRO Bank, N.V., and
Republic National Bank of New York.
10.44 1994 Non-Employee Directors' Nonqualified Filed Herewith
Stock Option Plan
11 Earnings per Share Computations Filed Herewith
22 Subsidiaries of the Registrant Filed Herewith
24.1 Consent of Arthur Andersen LLP Filed Herewith
27 Financial Data Schedule Filed Herewith
*1* Incorporated by reference to the designated exhibit of the Registration
Statement on Form S-1 No. 2-97557 filed June 21, 1985.
*2* Incorporated by reference to the designated exhibit in the Annual Report on
Form 10-K, Commission File number 0-14394 filed May 26, 1987.
*3* Incorporated by reference to the designated exhibit in the Annual Report on
Form 10-K, Commission File number 0-14394 filed May 18, 1988.
*4* Incorporated by reference to the designated exhibit in the Annual Report on
Form 10-K, Commission File number 0-14394 filed May 25, 1990.
*5* Incorporated by reference to the designated exhibit in the Annual Report on
Form 10-K, Commission File number 0-14394 filed July 6, 1992.
*6* Incorporated by reference to the designated exhibit in the Annual Report on
Form 10-K, Commission File number 0-14394 filed May 27, 1993.
#1# Incorporated by reference to the designated exhibit of the Registration
Statement on Form S-2 No. 33-25092 filed October 20, 1988.
#2# Incorporated by reference to the designated exhibit of Amendment No. 2
to the Registration Statement on Form S-2 No. 33-25437 filed December 12, 1988.
#3# Incorporated by reference to the designated exhibit of Amendment No. 6
to the Registration Statement on Form S-4 No. 33-49028 filed March 12, 1993.
#4# Incorporated by reference to the designated exhibit of Post-Effective
Amendment No. 2 to the Registration Statement on Form S-2 No. 33-49028 filed
July 26, 1994.
#5# Incorporated by reference to the designated exhibit of the Registration
Statement on Form S-2 No. 33-57407 filed January 23, 1995.
(B) REPORTS ON FORM 8-K
No Form 8-K was issued by the Registrant during the quarter ended
February 26, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
TOWN & COUNTRY CORPORATION
(Registrant)
Date: May 24, 1995 By: /s/ C. William Carey
C. William Carey, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been duly signed below by the following persons on behalf of the
Registrant and in the capacities and on the date set forth above.
Signature Title
Principal Executive Officer:
/s/ C. William Carey President, Treasurer, and
C. William Carey Director
Principal Financial and Accounting Officer:
/s/ Francis X. Correra Senior Vice President and
Francis X. Correra Chief Financial Officer
/s/ Richard E. Floor Director
Richard E. Floor
/s/ William Schawbel Director
William Schawbel
/s/ Charles Hill Director
Charles Hill
[This Page Intentionally Left Blank]
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
TOGETHER WITH AUDITORS' REPORT
Report of Independent Public Accountants
To Town & Country Corporation:
We have audited the accompanying consolidated balance sheets of TOWN &
COUNTRY CORPORATION (a Massachusetts corporation) and subsidiaries as of
February 26, 1995, and February 27, 1994, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended February 26, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Town & Country Corporation
and subsidiaries as of February 26, 1995, and February 27, 1994, and the results
of their operations and their cash flows for each of the three years in the
period ended February 26, 1995, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
April 27, 1995
TOWN & COUNTRY CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 26, February 27,
1995 1994
ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $ 3,336,921 $ 3,273,876
Restricted cash (Note 1) 1,889 37,971
Accounts receivable, less allowances for
doubtful accounts of $7,780,000 and
$5,510,000 at February 26, 1995 and
February 27, 1994, respectively 57,472,122 55,623,418
Inventories (Note 1) 80,349,412 75,029,397
Prepaid expenses and other current assets 573,611 3,991,883
Total current assets 141,733,955 137,956,545
PROPERTY, PLANT & EQUIPMENT, at cost
(Note 1) 82,254,863 79,340,723
Less-Accumulated depreciation 39,018,645 33,636,099
43,236,218 45,704,624
INVESTMENT IN LITTLE SWITZERLAND, INC.
(Note 4) 1,651,482 13,304,089
INVESTMENT IN SOLOMON BROTHERS,
LIMITED (Note 5) 13,734,000 13,734,000
OTHER ASSETS (Notes 1 and 8) 6,267,801 13,221,467
$ 206,623,456 $ 223,920,725
The accompanying notes are an integral part of these consolidated financial
statements.
TOWN & COUNTRY CORPORATION & SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
February 26, February 27,
1995 1994
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks (Note 2) $ 11,117,827 $ -
Current portion of long-term debt
(Note 2) 1,235,477 1,479,590
Accounts payable 17,809,025 12,727,357
Accrued expenses (Note 1) 15,458,912 19,956,332
Accrued taxes (Notes 1 and 6) 1,352,523 874,253
Total current liabilities 46,973,764 35,037,532
LONG-TERM DEBT, less current portion
(Note 2) 91,437,975 91,827,239
OTHER LONG-TERM LIABILITIES 1,494,524 2,093,755
COMMITMENTS AND CONTINGENCIES (Note 12)
MINORITY INTEREST 4,617,018 3,843,117
EXCHANGEABLE PREFERRED STOCK,
$1.00 par value, $14.59 preference value-
Authorized--200,000 and 2,700,000 shares,
respectively
Issued and outstanding--152,217
and 2,533,255 shares,
respectively (Notes 2 and 3) 2,265,522 35,785,399
STOCKHOLDERS' EQUITY (Notes 2, 3, 11, 13, and 14):
Preferred stock, $1.00 par value-
Authorized and unissued--2,266,745 and
2,300,000 shares, respectively - -
Convertible Preferred Stock, $1.00 par value,
$6.50 preference value-
Authorized--2,533,255
Issued and outstanding--2,381,038 2,381,038 -
Class A Common Stock, $ .01 par value-
Authorized--40,000,000 shares
Issued and outstanding--20,784,768 and
20,755,901 shares, respectively 207,848 207,559
Class B Common Stock, $.01 par value-
Authorized--8,000,000 shares
Issued and outstanding--2,664,941 and
2,670,693 shares, respectively 26,649 26,707
Additional paid-in capital 73,145,286 69,909,485
Retained deficit (15,926,168) (14,810,068)
Total stockholders' equity 59,834,653 55,333,683
$ 206,623,456 $ 223,920,725
The accompanying notes are an integral part of these consolidated financial
statements.
TOWN & COUNTRY CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended
February 26, February 27, February 28,
1995 1994 1993
NET SALES $ 288,114,608 $ 277,750,162 $ 270,364,051
COST OF SALES 200,533,890 180,356,292 179,833,372
Gross profit $ 87,580,718 $ 97,393,870 $ 90,530,679
SELLING, GENERAL, ADMINISTRATIVE
EXPENSES 90,407,855 80,221,216 85,250,214
RESTRUCTURING CHARGE - - 5,000,000
Income (loss) from operations $ (2,827,137)$ 17,172,654 $ 280,465
INTEREST EXPENSE (12,169,615) (14,044,933) (20,092,759)
INTEREST AND OTHER INCOME, net 234,933 698,829 680,540
NET LOSS ON NONRECURRING
ITEMS (Note 7) - - (14,500,000)
RECAPITALIZATION EXPENSES (Note 2) - - (14,440,000)
GAIN ON LITTLE SWITZERLAND, INC.
EXCHANGE (Note 3) 17,277,988 - -
INCOME FROM AFFILIATES (Notes 4 and 5) 587,814 1,262,347 2,721,630
MINORITY INTEREST (Note 1) (773,901) (941,341) (989,336)
Income (loss) before provision for
income taxes $ 2,330,082 $ 4,147,556 $ (46,339,460)
PROVISION FOR INCOME TAXES
(Notes 1 and 6) 1,758,164 1,010,000 956,132
Net income (loss) $ 571,918 $ 3,137,556 $ (47,295,592)
ACCRETION OF DISCOUNT AND DIVIDENDS
ON PREFERRED STOCKS (Notes 2 and 3) 1,688,019 1,453,511 -
Income (loss) attributable to common
stockholders $ (1,116,101)$ 1,684,045 $ (47,295,592)
INCOME (LOSS) PER COMMON SHARE
(Note 1) $ (0.05)$ 0.08 $ (3.80)
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING (Note 1) 23,433,173 21,205,949 12,450,290
The accompanying notes are an integral part of these consolidated financial
statements.
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 26, 1995, FEBRUARY 27, 1994, AND FEBRUARY 28, 1993
Class A
Convertible Preferred Stock Common Stock
--------------------------- ------------------------
Number of Number of Par Value
Shares Par Value $1 Shares $.01
BALANCE, February 29, 1992 - $ - 9,374,022 $ 93,740
Share issuance related to Forbearance
Agreements - - 602,224 6,022
Net proceeds from the exercise of
options to purchase common stock
(Notes 13 and 14) - - 24,292 243
Conversion of Class B Common Stock
into Class A Common Stock - - (229) (2)
Net loss - - - -
BALANCE, February 28, 1993 - $ - 10,000,309 $ 100,003
Share issuance related to
exchange offer - - 9,992,648 99,927
Share issuance related to purchase
commitment on senior secured notes - - 750,000 7,500
Accretion of discount on
exchangeable preferred stock
(Note 2) - - - -
Net proceeds from the exercise of
options to purchase common stock
(Notes 13 and 14) - - 12,944 129
Net income - - - -
BALANCE, February 27, 1994 - $ - 20,755,901 $ 207,559
Share issuance related to Little
Switzerland, Inc. exchange 2,381,038 2,381,038 - -
Conversion of Class B Common Stock
into Class A Common Stock - - 5,752 58
Net proceeds from the exercise of
options to purchase common stock
(Notes 13 and 14) - - 23,115 231
Accretion of discount and dividends on
preferred stocks (Notes 2 and 3) - - - -
Net income - - - -
BALANCE, February 26, 1995 2,381,038 $ 2,381,038 20,784,768 $ 207,848
(Continued on Next Page)
Class B
Common Stock
Additional Retained Total
Number of Par Value Paid-in Earnings Stockholders'
Shares $.01 Capital (Deficit) Equity
2,670,464 $ 26,705 $ 39,786,684 $ 30,801,479 $ 70,708,608
- - 1,273,704 - 1,279,726
- - 50,871 - 51,114
229 2 - - -
- - - (47,295,592) (47,295,592)
2,670,693 $ 26,707 $ 41,111,259 $ (16,494,113)$ 24,743,856
- - 26,755,361 - 26,855,288
- - 2,008,125 - 2,015,625
- - - (1,453,511) (1,453,511)
- - 34,740 - 34,869
- - - 3,137,556 3,137,556
2,670,693 $ 26,707 $ 69,909,485 $ (14,810,068)$ 55,333,683
- - 2,976,297 - 5,357,335
(5,752) (58) - - -
- - 27,352 - 27,583
- - 232,152 (1,688,018) (1,455,866)
- - - 571,918 571,918
2,664,941 $ 26,649 $ 73,145,286 $ (15,926,168)$ 59,834,653
The accompanying notes are an integral part of these consolidated financial
statements.
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended
-------------------------------------------------
February 26, February 27, February 28,
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 571,918 $ 3,137,556 $ (47,295,592)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities--
Depreciation and amortization 4,846,300 5,628,451 8,667,787
Loss (gain) on disposal of fixed
assets 73,773 (113,162) (2,583,573)
Restructuring charge - - 5,000,000
Gain on Little Switzerland, Inc.
exchange (17,277,988) - -
Loss on assets held for sale or
disposal (Note 7) - - 14,500,000
Bank fees paid by issuance of stock - - 1,273,704
Undistributed earnings of affiliates,
net of minority interest 186,087 (227,894) (1,453,506)
Interest paid with issuance of debt
(Note 2) 7,647,666 3,495,571 -
Ordinary dividends received from
affiliate - 2,045,532 -
Change in assets and liabilities--
(Increase) decrease in accounts
receivable (1,848,704) (4,004,014) (9,166,453)
(Increase) decrease in inventories (5,320,015) (1,595,015) (1,623,039)
(Increase) decrease in prepaid
expenses and other current assets 3,418,272 2,467,636 2,657,448
(Increase) decrease in other assets 6,542,404 3,722,423 3,163,549
Increase (decrease) in accounts
payable 5,081,668 1,904,443 950,586
Increase (decrease) in accrued
expenses (4,597,420) 2,190,050 11,042,155
Increase (decrease) in accrued and
deferred taxes 478,270 488,181 (1,022,665)
Increase (decrease) in other
liabilities (599,231) (1,162,891) (307,250)
Net cash provided by (used in)
operating activities $ (797,000)$ 17,976,867 $ (16,196,849)
The accompanying notes are an integral part of these consolidated financial
statements.
TOWN & COUNTRY CORPORATION & SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Year Ended
--------------------------------------------
February 26, February 27, February 28,
1995 1994 1993
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets $ 45,331 $ 222,746 $ 3,889,387
Capital expenditures (2,759,204) (4,056,307) (3,519,205)
Proceeds from sale of investments - 3,486,000 -
Net cash provided by (used in)
investing activities $ (2,713,873)$ (347,561)$ 370,182
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on revolving credit
facilities $ (279,990,373)$ (206,869,004)$ -
Proceeds from borrowings under
revolving credit facilities 291,108,200 206,869,004 -
Decrease (increase) in restricted cash 36,082 (37,971) -
Payments to retire credit facility - (37,250,000) -
Proceeds from senior secured notes - 30,000,000 -
Payments on other debt (7,607,575) (13,666,180) (11,486,285)
Payment of dividend by Essex to minority
interests - (534,617) (1,419,431)
Proceeds from the issuance of debt - - 31,000,000
Proceeds from the issuance of common
stock 27,584 34,869 57,136
Payments for recapitalization expenses - (8,254,790) -
Net cash provided by (used in)
financing activities $ 3,573,918 $ (29,708,689)$ 18,151,420
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ 63,045 $ (12,079,383)$ 2,324,753
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 3,273,876 15,353,259 13,028,506
CASH AND CASH EQUIVALENTS AT END
OF YEAR $ 3,336,921 $ 3,273,876 $ 15,353,259
SUPPLEMENTAL CASH FLOW DATA:
CASH PAID DURING THE YEAR FOR:
Interest $ 4,908,642 $ 6,104,397 $ 10,693,175
Income taxes $ 1,119,864 $ 589,730 $ 712,606
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES (Note 1)
The accompanying notes are an integral part of these consolidated financial
statements.
TOWN & COUNTRY CORPORATION & SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 26, 1995
(1) Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its controlled domestic and foreign subsidiaries. All
significant intercompany transactions have been eliminated.
Reclassifications
Certain reclassifications have been made to the prior years' financial
statements to conform with the presentation of the fiscal 1995 financial
statements.
Cash and Cash Equivalents
Cash equivalents include highly liquid investments with original maturities
of three months or less.
Investments
On March 1, 1994, the Company adopted the Financial Accounting Standard
Board's Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting
for Certain Investments in Debt and Equity Securities." SFAS No. 115 addresses
the accounting and reporting for investments in equity securities that have
readily determinable fair market values and for all investments in debt
securities. The Company's financial condition and results of operations were not
materially impacted in fiscal 1995 as a result of adopting SFAS No. 115.
Restricted Cash
Restricted cash includes cash payments from the Company's investment in
Solomon Brothers, Limited and cash proceeds with respect to the Zale bankruptcy
claim. These funds are escrowed for the benefit of the holders of the Senior
Secured Notes. During fiscal 1995 and fiscal 1994, approximately $6 million and
$10 million, respectively, of Senior Secured Notes were redeemed with such
proceeds.
Foreign Currency
The Company is subject to fluctuating foreign currency exchange rates which
are reflected currently in the consolidated statements of operations.
Transaction and exchange gains and losses have not been material to the
consolidated financial position or operations for the three years ended February
26, 1995.
Inventories
Inventories, which include materials, labor and manufacturing overhead, are
stated at the lower of cost or market using the first-in, first-out (FIFO)
method.
Inventories consisted of the following at February 26, 1995, and February
27, 1994:
1995 1994
Raw materials $ 16,932,724 $ 16,753,865
Work-in-process 8,266,255 7,154,300
Finished goods 55,150,433 51,121,232
$ 80,349,412 $ 75,029,397
In prior years, certain of the material content, primarily diamond, had
been valued using the last-in, first-out (LIFO) method. During fiscal 1994, the
Company liquidated its remaining inventory valued on the LIFO method, resulting
in a decrease in cost of sales of approximately $1.3 million in the accompanying
consolidated statement of operations for the year ended February 27, 1994. The
Company now uses the FIFO method exclusively.
The effects of gold price fluctuations are mitigated by the use of a
consignment program with bullion dealers. As the gold selling price for orders
is confirmed, the Company purchases the gold requirements at the then current
market prices; any additional requirements for gold are held as consignee. This
technique enables the Company to match the price it pays for gold with the price
it charges its customers. The Company pays a fee, which is subject to periodic
change, for the value of the gold it holds on consignment during the period
prior to sale. For the years ended February 26, 1995, February 27, 1994, and
February 28, 1993, these fees totaled approximately $1.4 million, approximately
$1.5 million, and approximately $1.4 million, respectively.
The Company does not include the value of consigned gold in inventory or
the corresponding liability in borrowings for financial statement purposes. As
of February 26, 1995, and February 27, 1994, the Company held approximately
67,000 ounces, valued at $25.4 million, and 64,000 ounces, valued at $24.4
million, respectively, of gold on consignment
under its domestic gold agreements. A foreign subsidiary of the Company
held an additional 5,000 ounces, valued at $1.8 million, and 5,200 ounces,
valued at $2.0 million, outstanding at February 26, 1995, and February 27, 1994,
respectively, under a separate consignment agreement (Note 2).
Advertising
The Company expenses the costs of advertising as incurred, except for
certain direct-response advertising costs, which are capitalized and amortized
over their expected period of future benefits.
At February 26, 1995, February 27, 1994, and February 28, 1993, advertising
expense was $14,200,625, $11,023,850, and $9,292,461, respectively. At February
26, 1995, and February 27, 1994, $0 and $2,680,852, respectively, of advertising
was capitalized and included in other current assets.
Property, Plant and Equipment
The Company provides for depreciation, principally on the straight-line
method, at rates adequate to depreciate the applicable assets over their
estimated useful lives which range from 3 to 30 years. Certain equipment is
depreciated using the declining balance method.
Property and equipment consisted of the following at February 26, 1995, and
February 27, 1994:
Useful Life
Ranges 1995 1994
Real estate 10 - 30 Years $ 29,746,327 $ 29,694,070
Furniture and fixtures 3 - 7 Years 2,850,978 2,989,365
Equipment 3 - 20 Years 45,072,052 42,584,500
Leasehold improvements 4 - 20 Years 4,450,876 3,681,385
Construction-in-progress 134,630 391,403
$ 82,254,863 $ 79,340,723
Accrued Expenses
The principal components of accrued expenses at February 26, 1995, and
February 27, 1994, are as follows:
1995 1994
Compensation and related costs $ 5,458,037 $ 8,877,284
Customer deposits 4,130,663 4,242,529
Interest 2,940,499 2,621,644
Commissions 545,659 1,271,281
Other 2,384,054 2,943,594
$15,458,912 $19,956,332
Income Taxes
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. 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.
Income (Loss) Per Common Share
Earnings (loss) per common share is computed based on the weighted average
number of common and common equivalent shares, where dilutive, outstanding
during each period. Common equivalent shares result from the assumed exercise of
stock options and warrants.
Long-term Intangible Assets
The excess ($7,172,000) of purchase price over the values assigned to net
assets acquired is being amortized using the straight-line method over periods
ranging from 30 to 40 years. The Company continually evaluates whether events
and circumstances have occurred that indicate that the remaining estimated
useful life of goodwill may warrant revision or that the remaining balance of
goodwill may not be recoverable. When factors indicate that goodwill should be
evaluated for possible impairment, the Company uses an estimate of the related
business segments' undiscounted operating income over the remaining life of the
goodwill in measuring whether the goodwill is recoverable. In fiscal 1993, the
Company recorded a write-down of approximately $1.6 million of goodwill
associated with changes made to part of its business and the disposal of
certain related assets (See Note 7). Accumulated amortization was approximately
$3,103,000 and $2,920,000 at February 26, 1995, and February 27, 1994,
respectively.
Minority Interest
Minority interest is determined based on the percent ownership of the
equity by other investors of the related consolidated subsidiary.
Subsidiary Sale of Stock
At the time a subsidiary sells its stock to unrelated parties at a price in
excess of its book value, the Company's net investment in that subsidiary
increases. The Company records the increase as a gain in the consolidated
statement of operations.
Supplemental Disclosures of noncash Investing and Financing Activities
In fiscal 1994, as payment for the commitment to purchase up to 100% of the
Company's senior secured notes, an investor received 750,000 shares of the
Company's Class A common stock with a value of $2,015,625 at the time of
issuance.
The Company completed a recapitalization on May 14, 1993 (See Note 2).
During fiscal 1995, the Company had fixed asset additions of approximately
$.7 million funded by increases in capital lease obligations.
On November 23, 1994, holders of approximately 94% of the Company's
Exchangeable Preferred Stock exchanged their shares for shares of Little
Switzerland, Inc. common stock held by the Company and shares of the Company's
Convertible Preferred Stock (See Note 3).
Financial Instruments
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short maturity
of the instruments.
Restricted Cash
The Company's restricted cash is invested in short-term, highly-liquid
investments. The carrying amount approximates fair value because of the
short-term maturity of these investments.
Investment in Solomon Brothers, Limited
The fair value of the Company's investment in Solomon Brothers, Limited is
considered to be equal to its carrying value as of February 26, 1995, based on
the valuation method agreed upon for the redemption of shares as discussed in
Note 5 and the estimated fair value of the underlying net assets.
Long-Term Subordinated Debt and exchangeable preferred stock
The Company believes that the fair value of the Company's long-term
subordinated debt and Exchangeable Preferred Stock approximates its carrying
value as of February 26, 1995, based on the valuation methodology required for
the recapitalization.
Long-Term Secured Debt
The fair value of the Company's various long-term secured debt, which are
secured by various assets, are considered to approximate their carrying value as
of February 26, 1995. This conclusion is based on the relationship of carrying
value to the value of the related security and the relatively short maturities
of the related debt.
(2) Long-term Debt and Credit Arrangements
Long-term debt at February 26, 1995, and February 27, 1994, consists of the
following:
Town & Country Corporation 1995 1994
Senior Subordinated Notes due 1998 with
interest payable semiannually at 13%,
including unamortized premium of $5.6
million and $7.0 million in 1995 and 1994,
respectively. The first four interest
payments are expected to be made with
issuance of additional notes up to $15.3
million. The first three such required
payments due November 1993, May 1994,
and November 1994 were paid by the
issuance of approximately $3.5 million,
$3.7 million, and $3.9 million, respectively,
of new notes. $ 70,185,718 $ 63,947,814
Senior Secured Notes due 1997 with interest
payable monthly at 11.5%. Payments
required prior to maturity for proceeds
received by the Company related to the
Company's investment in Solomon Brothers,
Limited and/or settlement of the Zale
bankruptcy claim and certain other
limited conditions. 13,947,000 19,980,300
Senior Subordinated Notes due 1998 with
interest payable semiannually at 13%,
net of unamortized discount of $47,868 and
$57,210 in 1995 and 1994, respectively. $ 6,912,132 $ 6,902,790
Subordinated Notes due 1995 with interest
payable semiannually at 10 1/4%, net
of unamortized original issue discount of $3,519
and $16,698 in 1995 and 1994, respectively. 447,481 434,302
Subsidiaries
Obligation under New York City Industrial
Development Agency industrial revenue bond.
The note calls for a final payment of $383,358
due April 1, 1995. Quarterly interest is
determined at 75% of Chemical Bank's "reference"
rate (9% at February 26, 1995), with a minimum of 6%. 383,358 450,022
Obligation under New York City Industrial
Development Agency industrial revenue bond.
The note calls for a final payment of $164,682
due April 1, 1995. Quarterly interest is determined
at 1.25% above Chemical Bank's "reference" rate
(9% at February 26, 1995). 164,682 1,566,018
Lease obligation for office furniture and
equipment payable in monthly installments with
interest at 9.67% 621,524 -
Other notes 11,557 25,583
$ 92,673,452 $ 93,306,829
Less-Current portion 1,235,477 1,479,590
$ 91,437,975 $ 91,827,239
On May 14, 1993, the Company completed a recapitalization. The
recapitalization was accounted for as a "troubled debt restructuring" under
Statement of Financial Accounting Standards No. 15, "Accounting by Debtors and
Creditors for Troubled Debt Restructurings," whereby the net carrying value of
the old debt was allocated to the new securities, issued in the
recapitalization, based on their estimated, relative, fair market values, and no
gain or loss was recognized. Recapitalization costs were expensed as incurred.
As a result of this transaction, long-term debt with a carrying value of
$122,673,945, including deferred financing costs, was retired. New debt with a
carrying value of $61,486,762, exchangeable preferred stock valued at
$34,331,895, and common stock valued at $26,855,288 were issued in exchange for
these redemptions.
On May 14, 1993, the Company entered into a revolving credit facility with
Foothill Capital Corporation ("Foothill") providing senior secured financing in
an aggregate amount of up to $30 million. The line of credit will mature on May
14, 1996, and will automatically renew for two year periods unless terminated.
The loans will bear interest at a rate per annum equal to the greater of (a) two
percent above the reference rate (the highest "prime rate" or "reference rate"
announced by an identified group of major banks) selected by Foothill or (b) 8%.
The agreement contains the standard covenants for facilities of this type
including, without limitation, financial covenants relating to interest
coverage, minimum net worth, minimum working capital, debt to net worth and
current ratios, and limitations on dividends and distributions, dispositions of
assets and capital expenditures. Advances under the credit facility will be
based on eligible receivables and inventory. Foothill has a first priority
security interest in receivables, certain inventory, primarily stones and
diamonds, and substantially all real estate and fixed assets owned by the
Company and its domestic subsidiaries. The Company had $11 million outstanding
under the new credit agreement, at an effective interest rate of 12.6% at
February 26, 1995. The Company had $17.9 million of additional borrowings
available under its revolving credit agreement as of February 26, 1995.
On May 14, 1993, the Company entered into gold agreements with its gold
suppliers providing secured gold consignment availability of up to approximately
100,000 troy ounces. The agreements are terminable upon thirty days' written
notice and contain the standard covenants for facilities of this type including,
without limitation, financial covenants relating to interest coverage, minimum
net worth, minimum working capital, debt to net worth and current ratios, and
limitations on dividends and distributions and first priority security interest
in the precious metal content of inventory. During fiscal 1995, the Company
agreed to reduce its gold consignment facilities to approximately 73,000 ounces.
The Company had approximately 67,000 troy ounces on consignment at February 26,
1995. As a result of ongoing discussions with its gold suppliers, the Company
has agreed in principle to reduce its domestic gold facilities by 6,000 troy
ounces, from 73,000 troy ounces to 67,000 troy ounces. It is currently
anticipated that these reductions will be made in several steps throughout
fiscal 1996 and will be primarily as a result of reduced operational
requirements. In connection with these anticipated reductions, the Company also
expects some modifications to be made to the financial covenants in the gold
consignment agreements with its gold suppliers.
During the second quarter of fiscal 1995, modifications to the consolidated
tangible net worth covenant were made in the revolving credit and gold
agreements. The covenant previously provided that the Company was required to
maintain consolidated tangible net worth of $38,000,000 through February 27,
1994, and $43,000,000 thereafter. As amended, the covenant provides that the
Company maintain consolidated tangible net worth of $40,000,000 from July 1,
1994, through November 26, 1994, and $43,000,000 thereafter.
On May 14, 1993, the Company issued $30 million of Senior Secured Notes due
September 15, 1997. Following receipt, by the Company, of cash payments from the
Company's investment in Solomon Brothers, Limited and/or cash or other payments
from the Zale Companies with respect to the Zale bankruptcy claim, the Company
is required to redeem an amount of the notes equal to the amount of such cash
payments at a redemption price equal to 100% of the principal amount thereof
plus accrued interest, if any. During fiscal 1995 and fiscal 1994, the Company
redeemed $6 million and $10 million, respectively, of Senior Secured notes with
such proceeds. In the event that the Company's consolidated net worth declines
below a defined minimum (75% of net worth at May 31, 1993, plus 37.5% of net
income for each fiscal year thereafter) for two consecutive quarters, the
Company is required to make an offer to redeem 7.5% of the outstanding notes
semiannually and to continue to do so as long as the condition persists.
On May 14, 1993, the Company issued approximately 2,533,000 shares of
Exchangeable Preferred Stock, the outstanding shares of which will be redeemed
by the Company on December 31, 2000, for $14.59 per share plus accrued and
unpaid dividends payable in cash or shares of Little Switzerland, Inc. common
stock. No dividends will be paid until after the second anniversary of the date
of issuance of the stock. Thereafter, holders will be entitled to receive
cumulative cash dividends at a rate of 6% per annum based on $14.59 per share.
Dividends will be payable semiannually on each six-month and twelve-month
anniversary of the issuance date. At any time after March 1, 1994, each share of
Exchangeable Preferred Stock may be exchanged by the holder for a share of
Little Switzerland, Inc. common stock held by the Company or redeemed by the
Company, for cash, at a declining premium through 1998. For the years ending
February 26, 1995, and February 27, 1994, accretion of discount on Exchangeable
Preferred Stock amounted to $1,455,866 and $1,453,511, respectively (Note 3).
A subsidiary of the Company has available credit line facilities with two
banks in Thailand to provide aggregate commercial financing of up to
approximately $13.3 million. The subsidiary had no outstanding balance under
these lines at February 26, 1995, or February 27, 1994. This subsidiary also has
an agreement with a gold supplier to provide secured gold consignment
availability of up to approximately 11,000 troy ounces. This agreement runs
through December 10, 1995, and is secured by a standby letter of credit for $3.4
million under one of the subsidiary's credit facilities. There were
approximately 5,000 ounces on consignment under this gold agreement at
February 26, 1995.
On April 3, 1995, the Company repaid approximately $181,000 of its
obligation under the New York City Industrial Revenue Development Agency
industrial revenue bonds ("IRB"). On April 3, 1995, the remaining obligation,
approximately $367,000, was purchased by Foothill. As a result of this
transaction, the Company is required to make quarterly payments on the IRB to
Foothill over the next five years in accordance with the repayment schedule that
was in effect prior to the recapitalization on May 14, 1993. Additionally, the
interest rate for the outstanding bonds has been modified to be the same as that
on the Company's revolving line of credit. The debt is secured by the Company's
New York real estate and fixtures attached thereto. The loan agreement places
restrictions upon the subsidiary, including certain assumptions of term debt,
liens, or encumbrances.
Aggregate maturities of long-term debt for each of the next five years are
approximately $1,235,000, $245,000, $14,101,000, $71,584,000, and $0,
respectively.
(3) EXCHANGE OF STOCK
On November 23, 1994, holders of approximately 94% of the Company's
Exchangeable Preferred Stock exchanged their shares for shares of Little
Switzerland, Inc. Common Stock held by the Company on a share-for-share basis.
Such an exchange was provided for by the terms of the Exchangeable Preferred
Stock. In addition, the Company issued to each participant one share of new
Convertible Preferred Stock with each share of Little Switzerland, Inc. Common
Stock.
Since the carrying value of the Company's investment in Little Switzerland,
Inc. was substantially less than the recorded value of the Exchangeable
Preferred Stock, the transaction resulted in a nonrecurring, noncash gain of
approximately $17 million, net of the estimated fair value of the Convertible
Preferred Stock issued.
Convertible Preferred Stock
Each share of Convertible Preferred Stock is initially convertible, at the
option of the holder, into two shares of Class A Common Stock, subject to
adjustment in certain circumstances. In the event the market price of a share of
Class A Common Stock equals or exceeds $3.25 for 30 consecutive trading days,
the Company may require the holders of Convertible Preferred Stock to convert
such stock into shares of Class A Common Stock at the then-applicable conversion
rate. Beginning on November 23, 1995, the Company may redeem, in whole or in
part, shares of Convertible Preferred Stock at a price equal to 104% of the
liquidation value and thereafter at prices declining annually to 100% of the
liquidation value on or after November 23, 1997. The Convertible Preferred Stock
has a liquidation value of $6.50 per share and accrues cumulative dividends at
the rate of 6% of the liquidation value per annum. Dividends are payable in cash
or in additional shares of Convertible Preferred Stock as defined by the
agreement. At February 26, 1995, cumulative unpaid dividends amounted to
$232,152.
The Convertible Preferred Stock is subordinate on liquidation and with
respect to dividend payments to the outstanding shares of Exchangeable Preferred
Stock but senior to the Class A Common Stock and the Class B Common Stock.
Holders of shares of Convertible Preferred Stock are entitled to vote on all
matters on which the holders of Class A Common Stock are entitled to vote. Each
share of Convertible Preferred Stock entitles the holder to the number of votes
per share equal to the number of shares of Class A Common Stock into which each
share of Convertible Preferred Stock is then convertible.
The Company has agreed with the holders of the Convertible Preferred Stock
to register such stock (and the Class A Common Stock into which it is
convertible) under the Securities Act and to keep such registration effective
until the earlier of (i) the date on which such holders no longer own any of
such securities or (ii) the date on which each of the holders
has notified the Company that such holder may dispose of all of its
securities pursuant to Rule 144(k) under the Securities Act. A registration
statement covering these shares was declared effective by the Securities and
Exchange Commission on April 12, 1995.
(4) Investment in Little Switzerland, Inc.
The sale of approximately 68% of Little Switzerland, Inc.'s common stock by
a subsidiary of the Company resulted in the deconsolidation of Little
Switzerland, Inc. in the fiscal 1992 consolidated financial statements of the
Company. The continuing investment in Little Switzerland, Inc. is now classified
as a long-term asset in the accompanying consolidated balance sheets. Income was
recognized using the equity method of accounting through November 23, 1994.
Presented below is summarized financial information for Little Switzerland,
Inc. as of and for the nine months ended November 30, 1994, and as of and for
the year ended February 27, 1994, and for the year ended February 28, 1993:
1995 1994 1993
Current assets $42,010,000 $36,228,000 $
Noncurrent assets 18,113,000 14,761,000
Current liabilities 16,009,000 7,884,000
Noncurrent liabilities 356,000 794,000
Total equity 43,758,000 42,311,000
Sales $43,364,000 $63,727,000 $62,550,000
Gross profit 19,326,000 28,282,000 29,232,000
Net income 1,434,000 3,900,000 5,980,000
As a result of the exchange discussed in Note 3, the Company's investment
in Little Switzerland, Inc., as of November 23, 1994, was reduced to 318,962
shares or approximately 4%. Due to the decrease in ownership, the Company has
changed its method of accounting for this investment from the equity method to
the cost method.
(5) Investment in Solomon Brothers, Limited
On May 27, 1988, the Company purchased 410,000 shares of nonvoting,
redeemable, cumulative, Participating Preferred Class B Stock of Solomon
Brothers, Limited ("Solomon Brothers"), a Bahamian company, for a total purchase
price of $17,220,020.
The Company is entitled, as holder, to a fixed, cumulative, preferred
dividend equal to 1% of the purchase price annually. The Company is also
entitled to a cumulative, ordinary dividend equal to the change in net book
value per ordinary share of Solomon Brothers, calculated as if the Company was a
holder of ordinary shares, less the preferred dividend and to a fee determined
as a percent of cumulative, accrued, unpaid ordinary dividends. The combined
dividend rate for the periods ended February 26, 1995, February 27, 1994, and
February 28, 1993, was approximately 0%, 1.1%, and 4.7%, respectively. The
Company received distributions of $2,045,532 of previously accrued but unpaid
ordinary dividends during fiscal 1994. On May 31, 1993, the Company redeemed
83,000 of the Company's shares for approximately $3.5 million. On March 29,
1994, and March 20, 1995, as required by the covenants of its Senior Secured
Notes, the Company gave written notice to Solomon Brothers of the Company's
intention to redeem 70,000 and 55,000 additional shares, respectively. Solomon
Brothers informed the Company that it would not be able to redeem the 70,000
share request when due, as a result of constraints imposed by its banking
facilities. It is doubtful that Solomon Brothers will be able to make the 55,000
share redemption payment when it becomes due. The Company believes its
investment is realizable, but it is unable to estimate the timing of future
redemption payments. The Company is monitoring Solomon Brothers' operations and
financial position and if it determines in the future that carrying value is no
longer reflective of fair value, appropriate adjustments will be made.
Presented below is summarized financial information for Solomon Brothers as
of and for the years ended October 28, 1994, October 29, 1993, and October 30,
1992, prepared on a basis substantially in accordance with generally accepted
accounting principles (GAAP) (Bahamian Dollars, $000s):
1994 1993 1992
Working capital $ 15,094 $ 13,175
Total assets 72,013 70,820
Total shareholders' equity 27,828 27,770
Sales $ 84,815 $ 87,709 $ 87,144
Net income (loss) 54 (15,539) 3,747
(6) Income Taxes
The domestic and foreign components of income (loss) before provision for
income taxes for the years ended February 26, 1995, February 27, 1994, and
February 28, 1993, are as follows:
1995 1994 1993
Domestic $ (1,014,997) $ 221,748 $(50,196,999)
Foreign 3,345,079 3,925,808 3,857,539
$ 2,330,082 $ 4,147,556 $(46,339,460)
The components of the provision for income taxes for the years ended
February 26, 1995, February 27, 1994, and February 28, 1993, are as follows:
1995 1994 1993
Current--
Federal $ -- $ -- $ --
State 700,000 636,449 875,399
Foreign 1,058,164 373,551 80,733
Total provision $1,758,164 $1,010,000 $ 956,132
The Company's effective tax rate differs from the federal statutory rate of
35% in fiscal 1995 and 1994 and 34% in fiscal 1993 due to the following:
1995 1994 1993
Computed tax provision
(benefit) at statutory rate $ 815,529 $ 1,451,645 $(15,755,416)
Increases (reductions)
resulting from--
Difference between U.S.
and foreign tax rates 1,061,886 378,940 80,733
Repatriation of foreign earnings -- -- 3,310,405
State taxes 700,000 636,449 654,871
Tax basis differences related to
Little Switzerland, Inc.
common stock exchange (2,110,946) -- --
Loss on assets held for sale
or disposal not deductible
for income tax purposes -- -- 1,734,000
Items not deductible for
income tax purposes 92,488 65,378 1,092,476
(Utilization) deferral of net
operating losses 1,199,207 (1,522,412) 9,618,535
Other -- -- 220,528
$ 1,758,164 $ 1,010,000 $ 956,132
DEFERRED TAX ASSETS (in 000's) February 26, February 27,
1995 1994
Restructuring and recapitalization cost accruals $ 4,227 $ 6,108
Accounts receivable reserves 4,120 4,861
Accrual for loss on assets held for sale or disposal 742 1,873
Inventories 1,265 1,413
Other 1,640 1,899
Net operating loss carryforwards 14,810 10,944
Total gross deferred tax assets 26,804 27,098
Less--valuation allowance (14,782) (8,742)
Net deferred tax assets $ 12,022 $ 18,356
DEFERRED TAX LIABILITIES (in 000's) February 26, February 27,
1995 1994
Property, plant and equipment, principally due to
differences in depreciation $ 6,121 $ 6,888
Investments in affiliated companies, principally
due to undistributed income 5,479 9,815
Other 422 1,653
Total deferred tax liabilities 12,022 18,356
Net deferred tax asset (liability) $ -- $ --
The valuation allowance relates to uncertainty surrounding the
realizability of the deferred tax assets in excess of the deferred tax
liabilities, principally the net operating loss carryforwards.
For tax reporting purposes, the Company has a U.S. net operating loss
carryforward of approximately $34 million, subject to Internal Revenue Service
review and approval. In addition, net operating loss carryforwards of
approximately $2,500,000 were generated by a U.S. subsidiary prior to its
acquisition by the Company. Utilization of the subsidiary's net operating loss
carryforward is contingent on the subsidiary's ability to generate income in
future years. The net operating loss carryforwards will expire from 2009 to 2010
if not utilized.
(7) LOSS ON Assets Held for Sale or Disposal
In fiscal 1993, the Company's management decided to make changes with
respect to certain of the operations of its Balfour subsidiary. As a result of
this decision, the Company recognized a pretax charge of $14.5 million in the
fourth quarter of fiscal 1993 to reserve for the losses associated with the
disposal of certain inventory and fixed assets, including property, plant, and
equipment of approximately $12.9 million and intangible assets of approximately
$1.6 million, no longer considered necessary to its modified business. At
February 26, 1995, the disposals have been substantially completed and the
remaining reserve, of approximately $1.8 million, is intended to cover the
expected losses associated with the disposition of the plant, which is currently
for sale.
(8) Zale Corporation and Affiliates
The Company's largest customer for a number of years has been the Zale
Corporation and its affiliated companies. Sales to the Zale Companies were
approximately $29 million or 10% of consolidated sales in fiscal 1995 compared
to $33 million or 12% of consolidated sales in fiscal 1994 and $38 million or
14% of consolidated sales in fiscal 1993.
The Company's Consolidated Financial Statements at February 28, 1992,
originally reflected a net valuation, related to Zale Corporation's bankruptcy
filing under Chapter 11 of the United States Bankruptcy Code, of approximately
$13 million, which was classified as Other Assets in the Consolidated Balance
Sheets, due to the uncertainty of the timing of a final settlement. The Company
has subsequently received proceeds from Zale and from liquidation of claim
assets of approximately $13 million, approximately $6 million and $4 million of
which were received in fiscal 1995 and 1994, respectively, and will recognize
the benefit of any additional liquidation of assets as that benefit is realized.
The Company continues to conduct business with Zale.
(9) Concentration of Credit Risk
A significant portion of the Company's business activity is with large
jewelry retailers and department store chains, many of which are not only
subject to the risks associated with economic impacts on retailers of
discretionary, consumer goods but also are companies with high debt-to-equity
ratios.
(10) Nonrecurring Events
Based on the success of its operational restructuring during fiscal 1993,
the Company concluded that the Feature facility in New York will not be required
as a long-term manufacturing site. The Company expects to maintain a continuing
presence in New York in the form of sales and marketing functions, product
development, and manufacturing support services, including a repair function and
subcontractor control operations. These functions will remain in the Feature
facility until the Company is able to sell the facility at a price which it
considers acceptable. As a result of its decision to dispose of the facility,
the Company adjusted the carrying value of the Feature facility by approximately
$5 million, which was recorded as a restructuring charge during the fourth
quarter of fiscal 1993. As of February 26, 1995, the Company has not sold this
facility (See Note 2).
(11) Capitalization
Each share of Class B Common Stock entitles the holder to ten votes, each
share of Class A Common Stock entitles the holder to one vote, and each share of
Convertible Preferred Stock entitles the holder to the number of votes per share
equal to the number of shares of Class A Common Stock into which each share of
Convertible Preferred Stock is then convertible, on matters submitted to
stockholders. The Class B Common Stock is convertible at any time, at the option
of the holder, into Class A Common Stock on a share-for-share basis. The
Convertible Preferred Stock is initially convertible, at the option of the
holder, into two shares of Class A Common Stock, subject to adjustment in
certain circumstances. As part of the recapitalization, the Company issued to
its financial advisors warrants to purchase 125,000 shares of Class A Common
Stock, with an exercise price of $2.685 per share and a final maturity of five
years from the date of issuance of the warrants.
The Company's ability to pay cash dividends is limited by its financing and
other outstanding indebtedness. As a result of these restrictions, the Company
currently may not pay cash dividends.
(12) Commitments and Contingencies
The Company leases a portion of its Chelsea, Massachusetts, facility
comprised of approximately 44,000 square feet of combined manufacturing and
administrative space from Carey Realty Trust, a Massachusetts business trust
(the "Trust"), which is wholly owned by C. William Carey, the President and a
major stockholder of the Company. The lease expires on August 31, 1998, and the
Company has four five-year options to renew. The current lease provides for an
annual rental (subject to a Consumer Price Index adjustment) on a net lease
basis of $475,000. The Company obtained comparison information from a third
party when negotiating the current lease and believes that these lease
arrangements are on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.
Certain other Company facilities and equipment are leased under agreements
expiring at various dates through 2009. The Company's commitments under the
noncancelable portion of all operating leases for the next five years and in
total thereafter at February 26, 1995, are approximately as follows:
Year Total Commitment
1996 $ 1,344,000
1997 1,204,000
1998 1,152,000
1999 871,000
2000 642,000
Thereafter 6,326,000
Lease and rental expense included in the accompanying consolidated
statements of operations amounted to approximately $1,414,000, $1,090,000, and
$1,290,000 for the years ended February 26, 1995, February 27, 1994, and
February 28, 1993, respectively.
A subsidiary of the Company is a party to certain contracts with some of
its sales representatives whereby the representative has purchased the right to
sell the subsidiary's products, in a territory, from his predecessor. The
contracts generally provide that the value of these rights is primarily
determined by the amount of business achieved by a successor sales
representative and is therefore not determinable in advance of performance by
the successor sales representative.
The Company is not party to any pending legal proceedings, other than
ordinary routine litigation incidental to the business. In management's opinion,
adverse decisions on those legal proceedings, in the aggregate, would not have a
materially adverse impact on the Company's consolidated results of operations or
financial position.
(13) Stock Option Plan
An aggregate of 1,500,000 shares of Class A Common Stock were registered
for issuance under the Company's 1985 Amended and Restated Stock Option Plan
(the Plan). The Plan is administered by a committee of the Board of Directors.
Both incentive stock options and nonstatutory stock options may be granted under
the Plan. All options outstanding were issued at the fair market value at the
date of grant.
The following table summarizes the stock option transactions for the three
years ended February 26, 1995:
Number of Options Price Range Per Share
Options outstanding at
February 29, 1992 803,300 $ 2.38 - $ 8.00
Options granted -
Options canceled (44,800) 3.00 - 6.75
Options exercised -
Options outstanding at
February 28, 1993 758,500 $ 2.38 - $ 8.00
Options granted 50,000 2.63
Options canceled (70,100) 3.00 - 5.63
Options exercised -
Options outstanding at
February 27, 1994 738,400 $ 2.38 - $ 8.00
Options granted 598,500 2.31 - 2.38
Options canceled (482,750) 2.38 - 8.00
Options exercised -
Options outstanding at
February 26, 1995 854,150 $ 2.31 - $ 6.88
Options exercisable at
February 26, 1995 242,800
At February 26, 1995, there were 511,400 shares reserved for future grants
under the Plan.
The Company has granted stock options not under the Plan to consultants and
various individuals to purchase up to 1,580,000 shares of Class A Common Stock
at prices ranging from $1.75 to $6.75 per share (fair market value at the date
of grant). The Company has also created a stock option plan for non-employee
directors and the Board of Directors has approved the reservation of 200,000
shares of authorized Class A Common Stock for issuance under this plan. On
October 1, 1994, options for 60,000 shares were granted, contingent on an
affirmative stockholder vote approving the plan, at a price of $1.875 per share,
the fair market value at the date of grant.
(14) Employee Stock Purchase Plan
On January 25, 1988, the Board of Directors adopted the 1988 Employee Stock
Purchase Plan (the "Stock Purchase Plan") for 500,000 shares of the Class A
Common Stock. Under the Stock Purchase Plan, each eligible participating
employee is deemed to have been granted an option to purchase shares of the
Company's Class A Common Stock on a semiannual basis at a price equal to 90% of
the market value on the last day of the period. During the year ended February
26, 1995, 5,855 shares were issued at $2.50 per share and 17,260 shares were
issued at $0.75 per share. During the year ended February 27, 1994, 7,926 shares
were issued at $2.50 per share and 5,018 shares were issued at $3.00 per share.
During the year ended February 28, 1993, 14,171 shares were issued at $2.00 per
share and 10,121 shares were issued at $2.25 per share. At February 26, 1995,
there were 306,537 shares reserved for issuance under the Stock Purchase Plan.
(15) Employee Benefit Plans
(a) Postemployment Medical Benefits
In December 1990, the Financial Accounting Standards Board issued SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions,"
which requires that the accrual method of accounting for certain postretirement
benefits be adopted. Adoption is required for fiscal years beginning after
December 1992. A subsidiary of the Company provides certain health care and life
insurance benefits for employees who retired prior to December 31, 1990. The
Company adopted this statement in fiscal 1994 and is recognizing the actuarial
present value of the accumulated postretirement benefit obligation (APBO) of
approximately $6.1 million on the delayed recognition method over a period of 20
years. Prior to adopting SFAS No. 106, the cost of providing these benefits was
expensed as incurred and amounted to approximately $508,000 for the year ended
February 28, 1993.
The following table sets forth the plan status as of February 26, 1995, and
February 27, 1994.
February 26, February 27,
1995 1994
Accumulated postretirement benefit
obligation (in 000's)
Retired employees $(6,088) $(6,477)
Active employees -- --
Total (6,088) (6,477)
Plan assets at fair value -- --
Unfunded accumulated benefit
obligation in excess of plan assets (6,088) (6,477)
Unrecognized net gain (73) --
Unrecognized prior service cost -- --
Unrecognized transition obligation 5,810 6,162
Accrued postretirement medical
benefit cost $ (351) $ (315)
The net periodic postretirement benefit costs for fiscal 1995 and fiscal
1994 included the following components:
1995 1994
Service cost -- benefits attributed to
service during the period (in 000's) $ -- $ --
Interest cost 474 494
Actual return on assets -- --
Amortization of unrecognized transition
obligation 323 324
Net periodic postretirement benefit cost $797 $818
For measurement purposes, a 14% annual rate of increase in the per-capita
cost of covered health care benefits is assumed for fiscal 1995 (10% for
Medicare eligible retirees); the rate was assumed to decrease gradually down to
6% for fiscal 2000 and remain at that level thereafter. The health care cost
trend rate assumption has a significant effect on the amounts reported. To
illustrate, increasing the assumed health care cost trend rate one percentage
point in each year would increase the accumulated postretirement benefit
obligation as of February 26, 1995, by $426,000 or by 7%, and the aggregate of
the service and interest cost components of the net periodic postretirement
benefit cost for fiscal 1995 by $28,000 or by 6%.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 8.0% in fiscal 1995 and 1994.
(b) Pension Plans
Certain subsidiaries of the Company participate in multiemployer pension
plans. The plans provide for defined benefits for substantially all unionized
employees. The amounts charged for pension contributions were approximately
$20,000, $62,000, and $96,000 for the years ended February 26, 1995, February
27, 1994, and February 28, 1993, respectively.
(c) Deferred Compensation
A subsidiary of the Company has deferred compensation agreements with
certain sales representatives and executives which provide for payments upon
retirement or death based on the value of life insurance policies or mutual fund
shares at the retirement date. The cost of the subsidiary's liability under
these compensation agreements has been charged to selling, general and
administrative expense. The deferred compensation expense for the years ended
February 26, 1995, February 27, 1994, and February 28, 1993, was approximately
$156,000, $156,000, and $220,000, respectively.
(16) Consolidating Financial Information and Segment Information
The securities issued by the Company in connection with the Company's
recapitalization, discussed in Note 2, are guaranteed by its domestic
subsidiaries. These guarantees are full, unconditional, and joint and several.
As a result, the Company has included condensed consolidating financial
statements on a domestic and foreign basis for the Company, the domestic
subsidiaries, and the foreign subsidiaries for the years ended February 26,
1995, February 27, 1994, and February 28, 1993 (in 000's). Foreign gross profit
includes gross profit attributable to sales from foreign subsidiaries to
domestic subsidiaries, which is not included in the eliminations column as the
impact is included in cost of sales of the domestic subsidiaries.
February 26, 1995 (000's)
ASSETS Parent Domestic Foreign
Company Subsidiaries Subsidiaries Eliminations Consolidated
CURRENT ASSETS:
Cash and cash equivalents $ 41 $ - $ 4,758 $ (1,462)$ 3,337
Restricted cash 2 - - - 2
Accounts receivable, net 74 55,453 4,031 (2,086) 57,472
Inventories (2,109) 78,076 4,382 - 80,349
Prepaid expenses and other
current assets (361) 532 403 - 574
Total current assets (2,353) 134,061 13,574 (3,548) 141,734
PROPERTY, PLANT AND
EQUIPMENT, at cost 296 74,210 7,749 - 82,255
Less--Accumulated
depreciation 255 35,444 3,320 - 39,019
41 38,766 4,429 - 43,236
INTERCOMPANY LOANS 13,728 2,008 3,463 (19,199) -
INVESTMENT IN SUBSIDIARIES 148,501 - - (148,501) -
INVESTMENT IN LITTLE
SWITZERLAND, INC. 1,651 - - - 1,651
INVESTMENT IN SOLOMON
BROTHERS, LIMITED 13,734 - - - 13,734
OTHER ASSETS 211 5,687 370 - 6,268
$ 175,513 $ 180,522 $ 21,836 $ (171,248)$ 206,623
February 26, 1995 (000's)
LIABILITIES AND STOCKHOLDERS' Parent Domestic Foreign
EQUITY Company Subsidiaries Subsidiaries Eliminations Consolidated
CURRENT LIABILITIES:
Notes payable $ 15,201 $ (4,083)$ - $ - $ 11,118
Current portion of long-
term debt 447 788 - - 1,235
Accounts payable 1,581 16,670 1,644 (2,086) 17,809
Accrued expenses 994 14,186 279 - 15,459
Accrued and currently
deferred income taxes 824 - 529 - 1,353
Total current liabilities 19,047 27,561 2,452 (2,086) 46,974
LONG-TERM DEBT, less
current portion 91,045 21,054 - (20,661) 91,438
LONG-TERM DEFERRED
INCOME TAXES AND
OTHER LIABILITIES - 1,494 1 - 1,495
MINORITY INTEREST - - - 4,617 4,617
EXCHANGEABLE PREFERRED
STOCK 2,266 - - - 2,266
STOCKHOLDERS' EQUITY:
Convertible preferred stock 2,381 - - - 2,381
Common stock 234 5 2,109 (2,114) 234
Additional paid-in capital 73,145 232,774 8,515 (241,289) 73,145
Retained earnings (deficit) (12,605) (102,366) 8,759 90,285 (15,927)
Total stockholders' equity 63,155 130,413 19,383 (153,118) 59,833
$ 175,513 $ 180,522 $ 21,836 $ (171,248)$ 206,623
February 26, 1995 (000's)
CONSOLIDATING STATEMENT Parent Domestic Foreign
OF OPERATIONS Company Subsidiaries Subsidiaries Eliminations Consolidated
NET SALES $ - $ 271,294 $ 37,822 $ (21,001)$ 288,115
COST OF SALES (1,050) 192,766 30,178 (21,360) 200,534
Gross profit $ 1,050 $ 78,528 $ 7,644 $ 359 $ 87,581
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 1,058 85,391 3,959 - 90,408
Income (loss) from operations $ (8)$ (6,863)$ 3,685 $ 359 $ (2,827)
INTEREST EXPENSE, net (1,288) (10,730) 83 - (11,935)
INCOME FROM AFFILIATES 588 - - - 588
GAIN ON LITTLE SWITZERLAND,
INC. EXCHANGE 17,278 - - - 17,278
MINORITY INTEREST - - - (774) (774)
Income (loss) before income
taxes $ 16,570 $ (17,593)$ 3,768 $ (415)$ 2,330
PROVISION FOR INCOME TAXES 195 435 1,058 70 1,758
Net income (loss) $ 16,375 $ (18,028)$ 2,710 $ (485)$ 572
ACCRETION OF DISCOUNT AND
DIVIDENDS ON PREFERRED 1,688 - - - 1,688
STOCKS
Income (loss) attributable
to common stockholders $ 14,687 $ (18,028)$ 2,710 $ (485)$ (1,116)
February 26, 1995 (000's)
CONSOLIDATING STATEMENT Parent Domestic Foreign
OF CASH FLOWS Company Subsidiaries Subsidiaries Eliminations Consolidated
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 16,375 $ (18,028)$ 2,710 $ (485)$ 572
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities--
Depreciation and amortization (1,302) 5,513 635 - 4,846
Loss on disposal of fixed asset - 70 4 - 74
Gain on Little Switzerland, Inc.
exchange (17,278) - - - (17,278)
Interest paid by debt issuance 7,648 - - - 7,648
Undistributed earnings of
affiliates net of minority
interest (588) - - 774 186
Change in assets and liabilities--
(Increase) decrease in accounts
receivable 1,522 (339) (1,449) (1,583) (1,849)
(Increase) decrease in
inventories 210 (5,003) (168) (359) (5,320)
(Increase) decrease in prepaid
expenses and other current
assets 594 2,798 (55) 81 3,418
(Increase) decrease in other
assets 56 6,340 146 - 6,542
Increase (decrease) in accounts
payable (248) 3,157 590 1,583 5,082
Increase (decrease) in accrued
expenses (3,830) (191) (576) - (4,597)
Increase (decrease) in accrued
and deferred taxes 498 (275) 266 (11) 478
Increase (decrease) in other
liabilities - (599) - - (599)
Net cash provided by
(used in) operating
activities $ 3,657 $ (6,557)$ 2,103 $ - $ (797)
CONSOLIDATING STATEMENT OF February 26, 1995 (000's)
CASH FLOWS (Continued) Parent Domestic Foreign
Company Subsidiaries Subsidiaries Eliminations Consolidated
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of fixed
assets $ - $ 43 $ 2 $ - $ 45
Capital expenditures (7) (2,210) (542) - (2,759)
Net cash used in
investing activities $ (7)$ (2,167)$ (540)$ - $ (2,714)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on revolving credit
facility $ (277,887)$ (2,103)$ - $ - $ (279,990)
Proceeds from borrowings under
revolving credit facility 291,108 - - - 291,108
(Increase) decrease in
restricted cash 36 - - - 36
Change in intercompany notes
payable (11,005) 12,343 (1,930) 592 -
Payments on debt (6,034) (1,574) - - (7,608)
Proceeds from the issuance of
common stock 28 - - - 28
Net cash provided by
(used in) financing
activities $ (3,754)$ 8,666 $ (1,930)$ 592 $ 3,574
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ (104)$ (58)$ (367)$ 592 $ 63
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 145 58 5,125 (2,054) 3,274
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 41 $ - $ 4,758 $ (1,462)$ 3,337
February 27, 1994 (000's)
ASSETS Parent Domestic Foreign
Company Subsidiaries Subsidiaries Eliminations Consolidated
CURRENT ASSETS:
Cash and cash equivalents $ 145 $ 58 $ 5,125 $ (2,054)$ 3,274
Restricted cash 38 - - - 38
Accounts receivable, net 1,596 54,678 2,684 (3,334) 55,624
Inventories (1,899) 73,073 4,214 (359) 75,029
Prepaid expenses and other
current assets 233 3,329 349 81 3,992
Total current assets 113 131,138 12,372 (5,666) 137,957
PROPERTY, PLANT AND
EQUIPMENT, at cost 290 71,832 7,219 - 79,341
Less--Accumulated
depreciation 208 30,666 2,762 - 33,636
82 41,166 4,457 - 45,705
INTERCOMPANY LOANS 1,098 957 1,534 (3,589) -
INVESTMENT IN SUBSIDIARIES 163,819 - - (163,819) -
INVESTMENT IN LITTLE
SWITZERLAND, INC. 13,304 - - - 13,304
INVESTMENT IN SOLOMON
BROTHERS, LIMITED 13,734 - - - 13,734
OTHER ASSETS 303 12,331 587 - 13,221
$ 192,453 $ 185,592 $ 18,950 $ (173,074)$ 223,921
February 27, 1994 (000's)
LIABILITIES AND STOCKHOLDERS' Parent Domestic Foreign
EQUITY Company Subsidiaries Subsidiaries Eliminations Consolidated
CURRENT LIABILITIES:
Notes payable $ 1,980 $ (1,980)$ - $ - $ -
Current portion of long-
term debt - 1,480 - - 1,480
Accounts payable 205 14,702 1,155 (3,334) 12,728
Accrued expenses 4,725 14,377 854 - 19,956
Accrued and currently
deferred income taxes 324 275 264 11 874
Total current liabilities 7,234 28,854 2,273 (3,323) 35,038
LONG-TERM DEBT, less
current portion 91,265 6,205 - (5,643) 91,827
LONG-TERM DEFERRED
INCOME TAXES AND
OTHER LIABILITIES - 2,093 1 - 2,094
MINORITY INTEREST - - - 3,843 3,843
EXCHANGEABLE PREFERRED
STOCK 35,785 - - - 35,785
STOCKHOLDERS' EQUITY:
Common stock 234 37,175 2,109 (39,284) 234
Additional paid-in capital 69,909 200,599 8,515 (209,114) 69,909
Retained earnings (deficit) (11,974) (89,334) 6,052 80,447 (14,809)
Total stockholders' equity 58,169 148,440 16,676 (167,951) 55,334
$ 192,453 $ 185,592 $ 18,950 $ (173,074)$ 223,921
February 27, 1994 (000's)
CONSOLIDATING STATEMENT Parent Domestic Foreign
OF OPERATIONS Company Subsidiaries Subsidiaries Eliminations Consolidated
NET SALES $ 200 $ 258,898 $ 38,406 $ (19,754)$ 277,750
COST OF SALES (925) 170,785 30,250 (19,754) 180,356
Gross profit $ 1,125 $ 88,113 $ 8,156 $ - $ 97,394
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 960 75,824 3,437 - 80,221
Income from operations $ 165 $ 12,289 $ 4,719 $ - $ 17,173
INTEREST EXPENSE, net (3,589) (9,918) 161 - (13,346)
INCOME FROM AFFILIATES 1,262 - - - 1,262
MINORITY INTEREST - - - (941) (941)
Income (loss) before income
taxes $ (2,162)$ 2,371 $ 4,880 $ (941)$ 4,148
PROVISION FOR INCOME TAXES (1,218) 1,946 282 - 1,010
Net income (loss) $ (944)$ 425 $ 4,598 $ (941)$ 3,138
ACCRETION OF DISCOUNT ON
EXCHANGEABLE PREFERRED 1,454 - - - 1,454
STOCK
Income (loss) attributable
to common stockholders $ (2,398)$ 425 $ 4,598 $ (941)$ 1,684
February 27, 1994 (000's)
CONSOLIDATING STATEMENT Parent Domestic Foreign
OF CASH FLOWS Company Subsidiaries Subsidiaries Eliminations Consolidated
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (944)$ 425 $ 4,598 $ (941)$ 3,138
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities--
Depreciation and amortization (613) 5,646 595 - 5,628
Loss (gain) on disposal of
fixed assets - 25 (138) - (113)
Ordinary dividends received
from affiliate 3,274 - - (1,228) 2,046
Interest paid by debt issuance 3,496 - - - 3,496
Undistributed earnings of
affiliates net of minority
interest (1,169) - - 941 (228)
Change in assets and liabilities--
(Increase) decrease in accounts
receivable (1,380) (3,766) 887 255 (4,004)
(Increase) decrease in
inventories (925) (3,137) 2,467 - (1,595)
(Increase) decrease in prepaid
expenses and other current
assets 225 1,446 (86) 883 2,468
(Increase) decrease in other
assets (79) 3,557 244 - 3,722
Increase (decrease) in accounts
payable (1,471) 4,402 (772) (255) 1,904
Increase (decrease) in accrued
expenses 6,375 (3,557) (628) - 2,190
Increase (decrease) in accrued
and deferred taxes (776) 1,947 201 (883) 489
Increase (decrease) in other
liabilities - (1,086) (77) - (1,163)
Net cash provided by
(used in) operating
activities $ 6,013 $ 5,902 $ 7,291 $ (1,228)$ 17,978
CONSOLIDATING STATEMENT OF February 27, 1994 (000's)
CASH FLOWS (Continued) Parent Domestic Foreign
Company Subsidiaries Subsidiaries Eliminations Consolidated
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of fixed
assets $ - $ 13 $ 210 $ - $ 223
Proceeds from sale of investments 3,486 - - - 3,486
Capital expenditures (207) (1,721) (2,129) - (4,057)
Net cash provided by
(used in) investing
activities $ 3,279 $ (1,708)$ (1,919)$ - $ (348)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on revolving credit
facility $ (204,889)$ (1,980)$ - $ - $ (206,869)
Proceeds from borrowings under
revolving credit facility 206,869 - - - 206,869
(Increase) decrease in restricted
cash (38) - - - (38)
Payments to retire credit facility (37,250) - - - (37,250)
Proceeds from senior secured notes 30,000 - - - 30,000
Change in intercompany notes
payable (701) 4,686 (1,931) (2,054) -
Payments for recapitalization
expenses (8,255) - - - (8,255)
Payments on debt (10,020) (3,646) - - (13,666)
Payment of dividends 6,800 - (8,563) 1,228 (535)
Proceeds from the issuance of
common stock 35 - - - 35
Net cash used in
financing activities $ (17,449)$ (940)$ (10,494)$ (826)$ (29,709)
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ (8,157)$ 3,254 $ (5,122)$ (2,054)$ (12,079)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 8,302 (3,196) 10,247 - 15,353
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 145 $ 58 $ 5,125 $ (2,054)$ 3,274
February 28, 1993 (000's)
ASSETS Parent Domestic Foreign
Company Subsidiaries Subsidiaries Eliminations Consolidated
CURRENT ASSETS:
Cash and cash equivalents $ 8,302 $ (3,196)$ 10,247 $ - $ 15,353
Accounts receivable, net 216 51,254 3,411 (3,262) 51,619
Inventories (2,825) 70,833 6,681 (359) 74,330
Prepaid expenses and other
current assets 458 5,739 263 - 6,460
Total current assets 6,151 124,630 20,602 (3,621) 147,762
PROPERTY, PLANT AND
EQUIPMENT, at cost 1,181 70,391 5,398 - 76,970
Less--Accumulated
depreciation 347 27,563 2,452 - 30,362
834 42,828 2,946 - 46,608
INTERCOMPANY LOANS 397 - - (397) -
INVESTMENT IN SUBSIDIARIES 166,825 - - (166,825) -
INVESTMENT IN LITTLE
SWITZERLAND, INC. 12,198 - - - 12,198
INVESTMENT IN SOLOMON
BROTHERS, LIMITED 19,202 - - - 19,202
OTHER ASSETS 3,801 16,405 882 - 21,088
$ 209,408 $ 183,863 $ 24,430 $ (170,843)$ 246,858
February 28, 1993 (000's)
LIABILITIES AND STOCKHOLDERS' Parent Domestic Foreign
EQUITY Company Subsidiaries Subsidiaries Eliminations Consolidated
CURRENT LIABILITIES:
Notes payable $ 7,250 $ - $ - $ - $ 7,250
Current portion of long-
term debt - 3,668 - - 3,668
Accounts payable 1,675 10,643 1,767 (3,262) 10,823
Accrued expenses 21,573 17,932 1,484 - 40,989
Accrued and currently
deferred income taxes 817 (307) (54) (70) 386
Total current liabilities 31,315 31,936 3,197 (3,332) 63,116
LONG-TERM DEBT, less
current portion 151,173 1,133 397 (397) 152,306
LONG-TERM DEFERRED
INCOME TAXES AND
OTHER LIABILITIES 283 2,778 195 - 3,256
MINORITY INTEREST - - - 3,436 3,436
STOCKHOLDERS' EQUITY:
Common stock 127 33,284 2,109 (35,393) 127
Additional paid-in capital 41,111 199,495 8,515 (208,010) 41,111
Retained earnings (deficit) (14,601) (84,763) 10,017 72,853 (16,494)
Total stockholders' equity 26,637 148,016 20,641 (170,550) 24,744
$ 209,408 $ 183,863 $ 24,430 $ (170,843)$ 246,858
February 28, 1993 (000's)
CONSOLIDATING STATEMENT Parent Domestic Foreign
OF OPERATIONS Company Subsidiaries Subsidiaries Eliminations Consolidated
NET SALES $ - $ 255,243 $ 38,149 $ (23,028)$ 270,364
COST OF SALES - 173,275 29,587 (23,028) 179,834
Gross profit $ - $ 81,968 $ 8,562 $ - $ 90,530
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES &
RESTRUCTURING CHARGE 4,396 81,181 4,673 - 90,250
Income (loss) from operations $ (4,396)$ 787 $ 3,889 $ - $ 280
INTEREST EXPENSE, net 5,818 (26,185) 955 - (19,412)
NET LOSS ON NONRECURRING
ITEMS - (14,500) - - (14,500)
RECAPITALIZATION EXPENSES (14,440) - - - (14,440)
INCOME FROM AFFILIATES 2,722 - - - 2,722
MINORITY INTEREST - - - (989) (989)
Income (loss) before income
taxes $ (10,296)$ (39,898)$ 4,844 $ (989)$ (46,339)
PROVISION FOR INCOME TAXES 317 558 81 - 956
Net income (loss) $ (10,613)$ (40,456)$ 4,763 $ (989)$ (47,295)
February 28, 1993 (000's)
CONSOLIDATING STATEMENT Parent Domestic Foreign
OF CASH FLOWS Company Subsidiaries Subsidiaries Eliminations Consolidated
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ (10,613)$ (40,456)$ 4,763 $ (989)$ (47,295)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities--
Depreciation and amortization 1,527 6,468 673 - 8,668
Loss (gain) on disposal of
fixed assets (28) 3 (2,559) - (2,584)
Restructuring provision - 5,000 - - 5,000
Loss on assets held for sale or
disposal - 14,500 - - 14,500
Bank fees paid by issuance of
common stock 1,274 - - - 1,274
Undistributed earnings of
affiliates net of minority
interest (2,443) - - 989 (1,454)
Change in assets and liabilities--
(Increase) decrease in accounts
receivable 91 (10,568) 1,292 19 (9,166)
(Increase) decrease in
inventories 2,824 (8,621) 4,174 - (1,623)
(Increase) decrease in prepaid
expenses and other current
assets (26) 2,065 618 - 2,657
(Increase) decrease in other
assets - 2,632 532 - 3,164
Increase (decrease) in accounts
payable (2,970) 3,308 632 (19) 951
Increase (decrease) in accrued
expenses 5,921 4,738 383 - 11,042
Increase (decrease) in accrued
and deferred taxes 428 (1,400) (51) - (1,023)
Increase (decrease) in other
liabilities - (301) (6) - (307)
Net cash provided by
(used in) operating
activities $ (4,015)$ (22,632)$ 10,451 $ - $ (16,196)
CONSOLIDATING STATEMENT OF February 28, 1993 (000's)
CASH FLOWS (Continued) Parent Domestic Foreign
Company Subsidiaries Subsidiaries Eliminations Consolidated
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of fixed
assets $ 61 $ (80)$ 3,908 $ - $ 3,889
Capital expenditures (690) (1,794) (1,035) - (3,519)
Net cash provided by
(used in) investing
activities $ (629)$ (1,874)$ 2,873 $ - $ 370
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of debt $ 31,000 $ - $ - $ - $ 31,000
Change in intercompany notes
payable (16,392) 21,727 (5,335) - -
Payments on debt (10,750) (736) - - (11,486)
Payment of dividends 3,275 - (4,694) - (1,419)
Proceeds from the issuance of
common stock 136 - (80) - 56
Net cash provided by
(used in) financing
activities $ 7,269 $ 20,991 $ (10,109)$ - $ 18,151
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ 2,625 $ (3,515)$ 3,215 $ - $ 2,325
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 5,677 319 7,032 - 13,028
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 8,302 $ (3,196)$ 10,247 $ - $ 15,353
Report of Independent Public Accountants
On Schedules
To Town & Country Corporation:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Town & Country Corporation and
subsidiaries included in this Form 10-K and have issued our report thereon dated
April 27, 1995. Our audit was made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The schedules listed
in Item 14 (a) (2) are the responsibility of the Company's management and are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic consolidated financial
statements. These schedules have been subjected to the auditing procedures
applied in the audit of the basic consolidated financial statements and, in our
opinion, fairly state, in all material respects, the financial data required to
be set forth therein, in relation to the basic consolidated financial statements
taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
April 27, 1995
SCHEDULE II
Valuation Accounts
Balance Write-offs, Balance
Beginning Net of End of
Description of year Provision Recoveries Year
Allowance for Doubtful
Accounts:
For the Year Ended:
February 26, 1995 $ 5,510,000 $ 5,473,000 $ (3,203,000)$ 7,780,000
February 27, 1994 4,910,000 2,550,000 (1,950,000) 5,510,000
February 28, 1993 6,392,000 1,746,000 (3,228,000) 4,910,000
EXHIBITS
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
Exhibits, other than Exhibits 11, 22, 24.1, and 27, have been omitted.
The Company will supply, upon written request, copies of any exhibit from the
Document list.