10Q-95-05--06-- As Filed with the S.E.C.
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 28, 1995
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number: 0-14394
TOWN & COUNTRY CORPORATION
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(Exact name of Registrant as specified in its charter)
Massachusetts 04-2384321
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification
organization) Number)
25 Union Street, Chelsea, Massachusetts 02150
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 884-8500
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
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On June 26, 1995, the Registrant had outstanding 21,094,561 shares of Class A
Common Stock, $.01 par value and 2,664,941 shares of Class B Common Stock, $.01
par value. The Registrant also had 2,229,917 shares of Convertible Preferred
Stock, $1 par value, outstanding on June 26, 1995. These shares are immediately
convertible into 4,459,834 shares of Class A Common Stock.
TOWN & COUNTRY CORPORATION Form 10-Q
Page 2
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
May 28, February 26,
1995 1995
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 5,292,555 $ 3,336,921
Restricted cash 245,569 1,889
Accounts receivable--
Less allowances for doubtful
accounts of $2,930,000 at
5/28/95 and $7,780,000 at
2/26/95 63,872,065 57,472,122
Inventories (Note 3) 79,635,526 80,349,412
Prepaid expenses and other
current assets 921,130 573,611
Total current assets $ 149,966,845 $ 141,733,955
PROPERTY, PLANT & EQUIPMENT, at cost $ 82,748,196 $ 82,254,863
Less - Accumulated depreciation 40,458,323 39,018,645
$ 42,289,873 $ 43,236,218
INVESTMENT IN AFFILIATES $ 15,385,482 $ 15,385,482
OTHER ASSETS $ 6,191,263 $ 6,267,801
$ 213,833,463 $ 206,623,456
The accompanying notes are an integral part of these consolidated financial
statements.
TOWN & COUNTRY CORPORATION Form 10-Q
Page 3
CONSOLIDATED BALANCE SHEETS (Continued)
May 28, February 26,
1995 1995
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
CURRENT LIABILITIES:
Notes payable to banks (Note 2) $ 19,750,464 $ 11,117,827
Current portion of long-term debt 1,045,552 1,235,477
Accounts payable 14,403,644 17,809,025
Accrued expenses 14,128,544 15,458,912
Accrued taxes 1,436,542 1,352,523
Total current liabilities $ 50,764,746 $ 46,973,764
LONG-TERM DEBT, less current portion
(Note 2) $ 95,224,861 $ 91,437,975
OTHER LONG-TERM LIABILITIES $ 1,518,788 $ 1,494,524
Total liabilities $ 147,508,395 $ 139,906,263
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST $ 4,739,317 $ 4,617,018
EXCHANGEABLE PREFERRED STOCK, $1.00
par value--$14.59 preference value-
Authorized--200,000 shares
Issued and outstanding--152,217 shares
(Note 5) $ 2,295,099 $ 2,265,522
STOCKHOLDERS' EQUITY (Note 5):
Preferred stock, $1.00 par value-
Authorized and unissued--800,000 and
2,266,745 shares, respectively $ - $ -
Convertible preferred stock, $1.00 par
value, $6.50 preference value
Authorized--4,000,000 and
2,533,255, shares respectively
Issued and outstanding--2,229,917 and
2,381,038 shares, respectively 2,229,917 2,381,038
Class A Common Stock, $ .01 par value-
Authorized--40,000,000 shares
Issued and outstanding--21,094,561
and 20,784,768 shares, respectively 210,946 207,848
Class B Common Stock, $.01 par value-
Authorized--8,000,000 shares
Issued and outstanding--2,664,941 shares 26,649 26,649
Additional paid-in capital 73,507,467 73,145,286
Retained deficit (16,684,327) (15,926,168)
Total stockholders' equity $ 59,290,652 $ 59,834,653
$ 213,833,463 $ 206,623,456
The accompanying notes are an integral part of these consolidated financial
statements.
TOWN & COUNTRY CORPORATION Form 10-Q
Page 4
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
May 28, May 29,
1995 1994
NET SALES $ 68,970,983 $ 70,568,460
COST OF SALES 47,074,559 45,949,170
Gross profit $ 21,896,424 $ 24,619,290
SELLING, GENERAL &
ADMINISTRATIVE
EXPENSES 19,100,906 24,348,251
Income from
operations $ 2,795,518 $ 271,039
INTEREST EXPENSE, (2,971,881) (2,560,087)
net
INCOME FROM
AFFILIATES -- 353,000
MINORITY INTEREST (122,299) (123,380)
The accompanying notes are an integral part of these consolidated financial
statements.
TOWN & COUNTRY CORPORATION Form 10-Q
Page 5
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(Unaudited)
For the Three Months Ended
May 28, May 29,
1995 1994
LOSS BEFORE
INCOME TAXES $ (298,662)$ (2,059,428)
PROVISION FOR
INCOME TAXES 215,762 418,535
NET LOSS $ (514,424)$ (2,477,963)
ACCRETION OF DISCOUNT
AND DIVIDENDS ON
PREFERRED STOCKS 243,735 467,196
LOSS ATTRIBUTABLE
TO COMMON
STOCKHOLDERS $ (758,159)$ (2,945,159)
LOSS PER COMMON
SHARE (Note 4): $ (0.03)$ (0.13)
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING
(Note 4): 23,575,577 23,426,594
The accompanying notes are an integral part of these consolidated financial
statements.
TOWN & COUNTRY CORPORATION Form 10-Q
Page 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended
May 28, May 29,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (514,424) $ (2,477,963)
Adjustments to reconcile net loss
to net cash used in operating activities-
Depreciation and amortization 1,204,708 1,203,628
Loss (gain) on disposal of certain
assets -- 4,239
Undistributed earnings of affiliates,
net of minority interest 122,299 (229,620)
Interest paid with issuance of debt 4,200,569 3,703,470
Change in assets and liabilities--
Decrease (increase) in accounts
receivable (6,399,943) (9,686,021)
Decrease (increase) in inventory 713,886 (57,106)
Decrease (increase) in prepaid
expenses and other current assets (347,519) 2,535,455
Decrease (increase) in other assets (14,176) 3,535,948
Increase (decrease) in accounts
payable (3,405,381) 3,527,376
Increase (decrease) in accrued
expenses (1,330,368) (6,705,517)
Increase (decrease) in accrued taxes 84,019 56,584
Increase (decrease) in other
liabilities 24,264 (132,582)
Net cash used in operating
activities (5,662,066) (4,722,109)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (536,106) (673,306)
Proceeds from sale of certain assets 11,376 --
Net cash used in investing
activities (524,730) (673,306)
The accompanying notes are an integral part of these consolidated financial
statements.
TOWN & COUNTRY CORPORATION Form 10-Q
Page 7
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
For the Three Months Ended
May 28, May 29,
1995 1994
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on revolving credit facilities $ (58,650,746) $ (57,645,898)
Proceeds from borrowings under
revolving credit facilities 67,283,383 65,924,401
Payments on long-term debt (246,527) (3,754,938)
Decrease (increase) in restricted cash (243,680) (73,046)
Net cash provided by
financing activities $ 8,142,430 $ 4,450,519
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 1,955,634 $ (944,896)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 3,336,921 3,273,876
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 5,292,555 $ 2,328,980
SUPPLEMENTAL CASH FLOW DATA:
Cash paid during the period for:
Interest $ 1,016,172 $ 730,348
Income taxes 134,685 355,491
Supplemental Disclosure of Noncash Investing and Financing Activities (Note 6)
The accompanying notes are an integral part of these consolidated financial
statements.
PART I - FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 28, 1995
(1) Significant Accounting Policies
The unaudited consolidated financial statements presented herein have been
prepared by the Company and contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly and on a basis consistent
with the consolidated financial statements for the year ended February 26, 1995,
the Company's financial position as of May 28, 1995, and the results of its
operations and cash flows for the quarters ended May 28, 1995 and May 29, 1994.
The significant accounting policies followed by the Company are set forth in
Note (1) of the Company's consolidated financial statements for the year ended
February 26, 1995, which have been included in the Annual Report on Form 10-K,
Commission File Number 0-14394, for the fiscal year ended February 26, 1995. The
Company has made no change in these policies during the quarter ended May 28,
1995.
The consolidated financial statements include the accounts of subsidiary
companies more than fifty percent owned.
The results of operations for the quarter ended May 28, 1995, are not
necessarily indicative of the results to be expected for the year due to the
seasonal nature of the Company's operations.
(2) Loan Arrangements
During the first quarter of fiscal 1996, the Company used its final PIK to make
the semiannual interest payment due May 13, 1995, on the 13% Senior Subordinated
Notes, due May 31, 1998, 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.
As of May 28, 1995, approximately $19.8 million was outstanding under the
Company's revolving credit agreement with Foothill Capital Corporation
("Foothill").
As of May 28, 1995, approximately 63,000 ounces of gold valued at approximately
$24.4 million were on consignment under the Company's domestic gold consignment
facilities. As a result of ongoing discussion 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.
A subsidiary of the Company has an agreement with a gold supplier to provide
secured gold consignment availability of up to approximately 11,000 troy ounces.
There were approximately 4,200 ounces on consignment at May 28, 1995 valued at
approximately $1.6 million.
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.
(3) Inventories
Inventories consisted of the following at May 28, 1995, and February 26, 1995:
May 28, February 26,
1995 1995
Raw Materials $ 17,831,935 $ 16,932,724
Work-in-Process 6,949,265 8,266,255
Finished Goods 54,854,326 55,150,433
$ 79,635,526 $ 80,349,412
(4) Loss Per Common Share
Loss per common share is computed by adjusting the Company's net loss for the
accretion of discount and dividends on preferred stocks and dividing by the
weighted average number of common shares outstanding during each period.
(5) Convertible Preferred 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. In addition, the
Company issued to each participant one share of new Convertible Preferred Stock
with each share of Little Switzerland, Inc. Common 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. During the quarter ended May 28, 1995,
151,121 shares of Convertible Preferred Stock were converted. 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 May 28, 1995, cumulative unpaid dividends
amounted to approximately $420,000.
(6) Supplemental Disclosure of Noncash Investing and Financing Activity
On May 15, 1995 and 1994, the Company issued approximately $4.2 million and $3.7
million, respectively, in new 13% Senior Subordinated Notes due May 31, 1998, as
payment of the semiannual interest installments. Approximately $2.5 million and
$2.2 million of this amount was classified as accrued expenses in the February
26, 1995, and February 27, 1994, Consolidated Balance Sheets, respectively.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations for the Quarter Ended May 28, 1995, Compared to the
Quarter Ended May 29, 1994
Net sales for the fiscal quarter ended May 28, 1995, decreased approximately
$1.6 million or 2.3% from approximately $70.6 million in fiscal 1995 to
approximately $69.0 million in fiscal 1996. The Company has continued to refocus
its activities in direct response consumer products, including licensed
professional sports products and sales in this area declined from $4.2 million
in the first quarter of fiscal 1995 to $0.9 million in fiscal 1996. Sales of
scholastic products increased approximately $2.9 million from $21.8 million in
fiscal 1995 to $24.7 million in fiscal 1996.
Gross profit for the fiscal quarter ended May 28, 1995, was $21.9 million
compared with $24.6 million for the first quarter of fiscal 1995. Gross profit
margin decreased from 34.9% for the quarter ended May 29, 1994, to 31.7% for the
quarter ended May 28, 1995. Gross profit and margin were primarily affected by
the decrease in sales of high margin licensed sports products.
Selling, general and administrative expenses for the fiscal quarter ended May
28, 1995, decreased approximately $5.2 million or 21.6% from $24.3 million in
fiscal 1995 to $19.1 million in fiscal 1996. As a percentage of net sales,
selling, general and administrative expenses decreased from 34.4% in fiscal 1995
to 27.7% in fiscal 1996. Decreases primarily relate to lower costs associated
with the Company's consumer products business of licensed sports and other
specialty products. Management has focused the Company's distribution into this
market segment by selling to organizations which are in the business of
marketing such products rather than by selling directly to consumers.
Net interest expense for the fiscal quarter ended May 28, 1995, increased
approximately $0.4 million relative to the corresponding quarter of fiscal 1995.
The Company's average borrowings for the fiscal quarter ended May 28, 1995,
increased approximately $14 million from approximately $97 million in fiscal
1995 to approximately $111 million in fiscal 1996. The weighted average interest
rate was approximately 10.9% for the first quarter of fiscal 1995 and
approximately 11.4% for the first quarter of fiscal 1996.
Although the Company had a taxable loss for the fiscal quarter ended May 28,
1995, the Company recorded a tax provision of approximately $216,000. 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.
Liquidity and Working Capital
Cash used in operating activities during the quarter ended May 28, 1995, was
approximately $5.7 million compared with $8.1 million for the same quarter of
fiscal 1995 after an adjustment of approximately $3.4 million related to
proceeds with respect to the Zale bankruptcy claim, which, while included as an
operating cash source, is not a recurring business event. The difference in cash
used in operations from fiscal 1995 to fiscal 1996 is principally due to
improvements in operating performance. Working capital has decreased from
approximately $104 million at May 29, 1994, to approximately $99 million at May
28, 1995.
Cash used in investing activities for the quarter ended May 28, 1995, was $0.5
million compared to $0.7 million in fiscal 1995. The decrease is due to lower
capital expenditures in the current period.
Cash provided by financing activities was approximately $8.1 million for May 28,
1995, compared with cash provided by financing activities of $4.5 million for
May 29, 1994. The change in cash provided by financing activities is the direct
result of the redemption of Senior Secured Notes. The Company is required to
escrow, for the benefit of the holders of the Senior Secured Notes, cash
payments resulting from share redemptions and dividends, related to its
investment in Solomon Brothers, Limited and net proceeds with respect to the
Zale bankruptcy claim. During the quarter ended May 29, 1994, approximately $3.4
million of Senior Secured Notes were redeemed with proceeds from the Zale
bankruptcy claim.
During the first quarter of fiscal 1996, the Company used its final PIK to make
the semiannual interest payment due May 13, 1995, on the 13% Senior Subordinated
Notes, due May 31, 1998, 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's net cash position increased from approximately $3.3 million at
February 26, 1995, to approximately $5.3 million at May 28, 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Earnings Per Share Computations
27 Financial Data Schedule
(b) Reports on Form 8-K
There were no Form 8-K filings during the first quarter ended May 28, 1995.
SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOWN & COUNTRY CORPORATION
(Registrant)
Date: June 28, 1995 /s/ Francis X. Correra
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Francis X. Correra
Senior Vice President and
Chief Financial Officer