10Q-95-08--5-- AS FILED WITH THE SEC
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 August 27, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 (I.R.S. Employer
of incorporation or Identification
organization) Number)
25 Union Street, Chelsea, Massachusetts 02150
(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
On September 19, 1995, the Registrant had outstanding 21,118,707 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 2,266,349 shares of Convertible
Preferred Stock, $1 par value, outstanding on September 19, 1995. These shares
are immediately convertible into 4,532,698 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
August 27, February 26,
1995 1995
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 4,402,301 $ 3,336,921
Restricted cash 545 1,889
Accounts receivable--
Less allowances for doubtful
accounts of $3,772,000 at
8/27/95 and $7,780,000 at
2/26/95 52,090,036 57,472,122
Inventories (Note 3) 84,688,452 80,349,412
Prepaid expenses and other
current assets 1,176,386 573,611
Total current assets $ 142,357,720 $ 141,733,955
PROPERTY, PLANT & EQUIPMENT, at cost $ 83,402,430 $ 82,254,863
Less - Accumulated depreciation 41,921,276 39,018,645
$ 41,481,154 $ 43,236,218
INVESTMENT IN AFFILIATES $ 15,385,482 $ 15,385,482
OTHER ASSETS $ 6,447,478 $ 6,267,801
$ 205,671,834 $ 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)
August 27, February 26,
1995 1995
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
CURRENT LIABILITIES:
Notes payable to banks (Note 2) $ 17,057,094 $ 11,117,827
Current portion of long-term debt 583,507 1,235,477
Accounts payable 16,826,766 17,809,025
Accrued expenses 12,466,523 15,458,912
Accrued taxes 990,055 1,352,523
Total current liabilities $ 47,923,945 $ 46,973,764
LONG-TERM DEBT, less current portion
(Note 2) $ 94,083,126 $ 91,437,975
OTHER LONG-TERM LIABILITIES $ 1,358,016 $ 1,494,524
Total liabilities $ 143,365,087 $ 139,906,263
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST $ 4,889,935 $ 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) $ 2,325,433 $ 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--2,266,349 and
2,381,038 shares, respectively 2,266,349 2,381,038
Class A Common Stock, $ .01 par value-
Authorized--40,000,000 shares
Issued and outstanding--21,118,707
and 20,784,768 shares, respectively 211,187 207,848
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 73,739,837 73,145,286
Retained deficit (21,152,643) (15,926,168)
Total stockholders' equity $ 55,091,379 $ 59,834,653
$ 205,671,834 $ 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 For the Six Months Ended
August 27, August 28, August 27, August 28,
1995 1994 1995 1994
NET SALES $ 48,194,042 $ 54,799,928 $ 117,165,025 $ 125,368,388
COST OF SALES 33,549,046 40,063,415 80,623,605 86,012,585
Gross profit $ 14,644,996 $ 14,736,513 $ 36,541,420 $ 39,355,803
SELLING, GENERAL &
ADMINISTRATIVE
EXPENSES 15,448,826 18,527,260 34,549,732 42,875,511
Income (loss) from
operations $ (803,830)$ (3,790,747) $ 1,991,688 $ (3,519,708)
INTEREST EXPENSE, (3,077,090) (2,782,404) (6,048,971) (5,342,491)
net
INCOME FROM
AFFILIATES -- 30,000 -- 383,000
MINORITY INTEREST (212,352) (200,634) (334,651) (324,014)
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 For the Six Months Ended
August 27, August 28, August 27, August 28,
1995 1994 1995 1994
LOSS BEFORE
INCOME TAXES $ (4,093,272) $ (6,743,785) $ (4,391,934) $ (8,803,213)
PROVISION FOR
INCOME TAXES 87,740 425,642 303,502 844,177
NET LOSS $ (4,181,012) $ (7,169,427) $ (4,695,436) $ (9,647,390)
ACCRETION OF DISCOUNT
AND DIVIDENDS ON
PREFERRED STOCKS 287,304 479,552 531,039 946,748
LOSS ATTRIBUTABLE
TO COMMON
STOCKHOLDERS $ (4,468,316) $ (7,648,979) $ (5,226,475) $ (10,594,138)
LOSS PER COMMON
SHARE (Note 4): $ (0.19) $ (0.33) $ (0.22) $ (0.45)
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING
(Note 4): 23,774,892 23,430,390 23,675,234 23,428,492
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 Six Months Ended
August 27, August 28,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (4,695,436) $ (9,647,390)
Adjustments to reconcile net loss
to net cash used in operating activities-
Depreciation and amortization 2,355,676 2,378,893
Loss (gain) on disposal of certain
assets 1,138 3,815
Undistributed earnings of affiliates,
net of minority interest 334,652 (58,986)
Interest paid with issuance of debt 4,200,569 3,703,470
Change in assets and liabilities--
Decrease (increase) in accounts
receivable 5,382,086 (3,111,791)
Decrease (increase) in inventory (4,339,040) (8,474,912)
Decrease (increase) in prepaid
expenses and other current assets (602,775) (518,199)
Decrease (increase) in other assets (346,102) 4,494,814
Increase (decrease) in accounts
payable (982,259) 8,549,223
Increase (decrease) in accrued
expenses (2,992,385) (7,915,846)
Increase (decrease) in accrued taxes (362,468) 201,243
Increase (decrease) in other
liabilities (136,508) (220,925)
Net cash used in operating
activities (2,182,852) (10,616,591)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,191,035) (1,921,818)
Proceeds from sale of certain assets 10,370 1,473
Net cash used in investing
activities (1,180,665) (1,920,345)
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 Six Months Ended
August 27, August 28,
1995 1994
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on revolving credit facilities $ (117,253,432) $ (116,477,032)
Proceeds from borrowings under
revolving credit facilities 123,192,699 131,902,849
Payments on long-term debt (1,462,053) (4,133,177)
Proceeds from the issuance of common stock 12,073 14,637
Decrease (increase) in restricted cash 1,344 (198,375)
Payment of dividend by Essex (61,734) -
Net cash provided by
financing activities $ 4,428,897 $ 11,108,902
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ 1,065,380 $ (1,428,034)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 3,336,921 3,273,876
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 4,402,301 $ 1,845,842
SUPPLEMENTAL CASH FLOW DATA:
Cash paid during the period for:
Interest $ 2,448,318 $ 1,957,961
Income taxes 696,146 603,739
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
AUGUST 27, 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 August 27, 1995, and the results of its
operations for the three- and six-month periods ended August 27, 1995, and
August 28, 1994, and cash flows for the six-month periods ended August 27, 1995
and August 28, 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 six months ended August
27, 1995.
The consolidated financial statements include the accounts of subsidiary
companies more than fifty percent owned.
The results of operations for the six months ended August 27, 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 15, 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 15, 1995, in cash.
As of August 27, 1995, approximately $17.1 million was outstanding under the
Company's revolving credit agreement with Foothill Capital Corporation
("Foothill").
As of August 27, 1995, approximately 70,000 ounces of gold valued at
approximately $26.9 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 foreign 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 5,000 ounces on consignment at August 27, 1995,
valued at approximately $1.9 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. At August 27, 1995, the
Company's obligation on these notes was approximately $350,000.
(3) Inventories
Inventories consisted of the following at August 27, 1995, and February 26,
1995:
August 27, February 26,
1995 1995
Raw Materials $ 17,621,794 $ 16,932,724
Work-in-Process 8,801,116 8,266,255
Finished Goods 58,265,542 55,150,433
$ 84,688,452 $ 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 fiscal 1996, 151,121 shares of
Convertible Preferred Stock have been 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. During the quarter ended August 27, 1995, dividends of approximately
$237,000 were paid with the issuance of 36,432 new shares of Convertible
Preferred Stock. At August 27, 1995, cumulative unpaid dividends amounted to
approximately $442,000.
(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 these amounts were 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 Six Months Ended August 27, 1995 Compared to the
Six Months Ended August 28, 1994
Net sales for the six months ended August 27, 1995, decreased $8.2 million or
6.5% from $125.4 million in fiscal 1995 to $117.2 million in fiscal 1996.
Current year sales of fine jewelry have decreased approximately $7.7 million or
9.3% over the corresponding period in fiscal 1995. The majority of the decrease
in fine jewelry sales year-to-year occurred in the second quarter. While sales
decreased, open orders at the end of the period were significantly ahead of last
year, indicating that customers delayed the timing of placing their seasonal
orders. Also contributing to the decrease in fine jewelry sales has been the
continuing efforts of management to eliminate low margin contributors from the
sales mix.
Gross profit for the six months ended August 27, 1995, decreased approximately
$2.9 million from $39.4 million in fiscal 1995 to $36.5 million in fiscal 1996.
Gross profit margin decreased 0.2% from 31.4% in fiscal 1995 to 31.2% in fiscal
1996. Decreases in gross profit and margin resulting from decreases in sales of
high margin licensed sports products have been substantially offset by
improvements in gross profit and margin on sales of fine jewelry.
Selling, general, and administrative expenses for the current period decreased
approximately $8.3 million or 19.4% from $42.9 million in fiscal 1995 to $34.6
in fiscal 1996. As a percentage of net sales, selling, general, and
administrative expenses were approximately 4.7% less in the current year than
for the six months ended August 28, 1994. Decreases primarily relate to lower
costs associated with the Company's consumer products business of licensed
sports and other specialty products. Management has refocused 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 the
retail consumer.
Net interest expense for the six months ended August 27, 1995, increased
approximately $700,000 relative to the corresponding period in fiscal 1995. This
increase is the result of an increase in average borrowings from $100.0 million
in fiscal 1995 to $112.8 million in fiscal 1996. The weighted average interest
rate was approximately 11.27% for the six months ended August 27, 1995 versus
10.95% for the corresponding period in fiscal 1995.
Although the Company had a taxable loss for the six months ended August 27,
1995, a tax provision of approximately $304,000 was recorded. 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 for the six months ended August 27, 1995, was
approximately $2.2 million, compared with a use of $10.6 million for the
corresponding period of fiscal 1995. Included in fiscal 1995 operating cash
activity were approximately $4.7 million related to proceeds with respect to the
Zale bankruptcy claim. In addition to the $4.9 million decrease in the use of
operating cash that resulted from improvements in operating performance, the
Company's fiscal 1996 operating cash flow has benefited from a decrease in
accounts receivable and a reduction in the buildup of inventory.
Cash used in investing activities for the six months ended August 27, 1995, was
$1.2 million versus $1.9 million for the corresponding period in fiscal 1995.
The improvement is due to lower capital expenditures in the current fiscal year.
Cash provided by financing activities was approximately $4.4 million for the
period ended August 27, 1995, compared with $11.1 million for the period ended
August 28, 1994. Financing cash was primarily used to fund operations during
both periods. Improvements in operating performance during fiscal 1996 have
resulted in lower requirements than during the corresponding period in fiscal
1995.
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 current fiscal year, the
Company has redeemed approximately $700,000 of Senior Secured Notes, versus
approximately $3.4 million in fiscal 1995, 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 15, 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 15, 1995, in cash.
The Company's net cash position increased from approximately $3.3 million at
February 26, 1995, to approximately $4.4 million at August 27, 1995.
As of August 27, 1995, the Company had approximately 73,000 ounces of gold
available under its existing consignment agreements. 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.
At August 27, 1995, the Company had approximately 70,000 ounces, valued at $26.9
million on consignment under these agreements.
Based on the accounts receivable and inventory balances at August 27, 1995, the
Company had total availability of $28 million under its revolving credit
facility. The outstanding loan balance on this facility at August 27, 1995, was
$17 million.
The Company believes that it can meet its future working capital needs through
cash flow from operations and availability from its secured borrowing facility
and gold consignment facilities.
Item 4. Submission of Matters to a Vote of Security-Holders
On July 20, 1995, the Company held its Annual Meeting of Stockholders. At this
meeting, three matters were submitted for a vote of the stockholders: (a)
election of three directors (b) approval of 1994 Non-Employee Directors'
Non-Qualified Stock Option Plan and (c) approval of 1995 Stock Option and
Incentive Plan. The following votes were cast on the foregoing matters:
FOR WITHHELD BROKER NON-VOTE
Election of C. William Carey 42,830,381 343,460 274,025
Election of Richard E. Floor 42,830,381 343,460 274,025
Election of Marcia C. Morris 16,202,461 343,460 274,025
FOR AGAINST ABSTENTIONS BROKER NON-VOTE
Approval of 1994 Non-Employee
Directors' Non-Qualified Stock
Option Plan 34,156,894 1,515,145 112,051 7,663,776
Approval of 1995 Stock Option
and Incentive Plan 32,547,765 2,345,554 143,886 7,663,776
Directors Charles Hill and William Schawbel continue their terms of office.
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 quarter ended August 27, 1995.
SIGNATURES
-----------------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOWN & COUNTRY CORPORATION
(Registrant)
Date: September 22, 1995 /s/ Francis X. Correra
---------------------------------
Francis X. Correra
Senior Vice President and
Chief Financial Officer