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 26, 1996
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 organization) Identification 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 June 21, 1996, the Registrant had outstanding 23,288,187 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 1,297,963 shares of Convertible Preferred
Stock, $1 par value, outstanding on June 21, 1996. These shares are immediately
convertible into 2,595,926 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 26, February 25,
1996 1996
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 4,502,093 $ 5,151,929
Restricted cash 102,613 102,012
Accounts receivable--
Less allowances for doubtful
accounts of $2,231,000 at
5/26/96 and $2,120,000 at
2/25/96 55,985,594 51,294,879
Inventories (Note 3) 83,719,033 90,138,403
Prepaid expenses and other
current assets 2,716,103 1,956,537
Total current assets 147,025,436 148,643,760
PROPERTY, PLANT & EQUIPMENT, at cost 84,684,583 84,073,513
Less - Accumulated depreciation 44,847,311 43,814,604
39,837,272 40,258,909
INVESTMENT IN AFFILIATES 15,385,482 15,385,482
OTHER ASSETS 6,752,701 6,841,345
$ 209,000,891 $ 211,129,496
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 26, February 25,
1996 1996
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
CURRENT LIABILITIES:
Notes payable to banks (Note 2) $ 24,412,507 $ 15,193,176
Current portion of long-term debt (Note 2) 250,896 244,928
Accounts payable 17,168,788 20,237,262
Accrued expenses 9,247,706 15,078,569
Accrued taxes 565,850 659,744
Total current liabilities 51,645,747 51,413,679
LONG-TERM DEBT, less current portion
(Note 2) 92,708,986 93,174,432
OTHER LONG-TERM LIABILITIES 1,146,376 1,122,625
Total liabilities 145,501,109 145,710,736
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 5,199,328 5,228,363
EXCHANGEABLE PREFERRED STOCK, $1.00
par value--$14.59 preference value-
Authorized--200,000 shares
Issued and outstanding--152,217 shares 2,283,132 2,319,476
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value-
Authorized and unissued--800,000 shares -- --
Convertible preferred stock, $1.00 par
value, $6.50 preference value
Authorized--4,000,000 shares
Issued and outstanding--1,977,905 and
2,288,567 shares, respectively 1,977,905 2,288,567
Class A Common Stock, $ .01 par value-
Authorized--40,000,000 shares
Issued and outstanding--21,928,103
and 21,235,246 shares, respectively 219,281 212,352
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 74,703,142 74,175,437
Retained deficit (20,909,655) (18,832,084)
Total stockholders' equity 56,017,322 57,870,921
$ 209,000,891 $ 211,129,496
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 26, May 28,
1996 1995
NET SALES $ 58,264,124 $ 68,970,983
COST OF SALES 38,065,900 47,074,559
Gross profit $ 20,198,224 $ 21,896,424
SELLING, GENERAL &
ADMINISTRATIVE
EXPENSES 18,975,526 19,100,906
Income from
operations $ 1,222,698 $ 2,795,518
INTEREST EXPENSE, (3,026,151) (2,971,881)
net
MINORITY INTEREST 29,035 (122,299)
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 26, May 28,
1996 1995
LOSS BEFORE
INCOME TAXES $ (1,774,418)$ (298,662)
PROVISION FOR
INCOME TAXES 80,025 215,762
NET LOSS $ (1,854,443)$ (514,424)
ACCRETION OF DISCOUNT
AND DIVIDENDS ON
PREFERRED STOCKS 223,128 243,735
LOSS ATTRIBUTABLE
TO COMMON
STOCKHOLDERS $ (2,077,571)$ (758,159)
LOSS PER COMMON
SHARE (Note 4): $ (0.09)$ (0.03)
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING
(Note 4): 24,317,210 23,575,577
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 26, May 28,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,854,443) $ (514,424)
Adjustments to reconcile net loss
to net cash used in operating activities-
Depreciation and amortization 708,983 1,204,708
Undistributed earnings of affiliates,
net of minority interest (29,035) 122,299
Interest paid with issuance of debt -- 4,200,569
Change in assets and liabilities--
Decrease (increase) in accounts
receivable (4,690,715) (6,399,943)
Decrease (increase) in inventory 6,419,370 713,886
Decrease (increase) in prepaid
expenses and other current assets (759,566) (347,519)
Decrease (increase) in other assets 11,929 (14,176)
Increase (decrease) in accounts
payable (3,068,474) (3,405,381)
Increase (decrease) in accrued
expenses (5,830,863) (1,330,368)
Increase (decrease) in accrued taxes (93,894) 84,019
Increase (decrease) in other
liabilities 23,751 24,264
Net cash used in operating
activities (9,162,957) (5,662,066)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (630,070) (536,106)
Proceeds from sale of certain assets 19,000 11,376
Net cash used in investing
activities (611,070) (524,730)
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 26, May 28,
1996 1995
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on revolving credit facilities $ (50,435,747) $ (58,650,746)
Proceeds from borrowings under
revolving credit facilities 59,655,078 67,283,383
Payments on long-term debt (59,038) (246,527)
Proceeds from issuance of common stock 31,125 --
Payment of dividends (66,626) --
Decrease (increase) in restricted cash (601) (243,680)
Net cash provided by
financing activities $ 9,124,191 $ 8,142,430
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ (649,836) $ 1,955,634
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 5,151,929 3,336,921
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 4,502,093 $ 5,292,555
SUPPLEMENTAL CASH FLOW DATA:
Cash paid during the period for:
Interest $ 5,382,974 $ 1,016,172
Income taxes 205,006 134,685
Supplemental Disclosure of Noncash Investing and Financing Activities (Note 5)
The accompanying notes are an integral part of these consolidated financial
statements.
PART I - FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 26, 1996
(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 25, 1996,
the Company's financial position as of May 26, 1996, and the results of its
operations and cash flows for the quarters ended May 26, 1996 and May 28, 1995.
The results of operations for the quarter ended May 26, 1996, are not
necessarily indicative of the results to be expected for the year due to the
seasonal nature of the Company's operations.
The significant accounting policies followed by the Company are set forth in
Note (2) of the Company's consolidated financial statements for the year ended
February 25, 1996, which have been included in the Annual Report on Form 10-K,
Commission File Number 0-14394, for the fiscal year ended February 25, 1996.
Except as disclosed below, the Company has made no change in these policies
during the quarter ended May 26, 1996.
Long-Lived Assets
On February 26, 1996, the Company adopted Financial Accounting Standard Board's
Statement of Financial Accounting Standards (SFAS) No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of".
SFAS No. 121 addresses accounting and reporting requirements for long-term
assets based on their fair market values. The Company's financial condition and
results of operations were not materially impacted as a result of adopting SFAS
No. 121.
Stock Options
On February 26, 1996, the Company adopted SFAS No. 123 "Accounting for
Stock-Based Compensation". The Company intends to continue accounting for its
stock based compensation plans for employees in accordance with Accounting
Principles Board Opinion (APB) No. 25. Under SFAS 123, companies choosing to
continue to use APB No. 25 to account for stock based compensation plans for
employees, must make footnote disclosure of the effects that use of the
valuation methods described in SFAS 123 would have on their earnings per share.
The Company will disclose this information in the notes to its financial
statements for the fiscal year ended February 23, 1997. The company accounts for
non-employee stock based compensation under SFAS 123.
(2) Loan Arrangements
On July 3, 1996, the Company entered into a new credit agreement with Foothill
Capital Corporation ("Foothill"). The agreement provides senior secured
financing consisting of a $40 million revolving credit facility and a $30
million letter of credit in support of a Gold Consignment Facility provided by
Fleet Precious Metals ("Fleet"); however, the aggregate amount of the combined
facilities which may be outstanding at any date is $65 million. The agreement is
for a period of two years and provides Foothill with an option to renew for
three additional years. The loans bear interest at a rate per annum equal to the
greater of (a) 2% above the reference rate announced by an identified group of
major banks selected by Foothill or (b) 8%. The agreement contains standard
covenants for facilities of this type including financial covenants relating to
interest coverage, minimum net worth, minimum working capital, debt to net worth
and current ratios and limitations on dividends, distributions and capital
expenditures. Advances under the credit line are based on eligible accounts
receivables and inventory. Foothill has first security priority interest in
receivables, inventory and substantially all real estate and fixed assets owned
by the Company and its domestic subsidiaries subject to Fleet's first position
as gold consignor, supported by the letter of credit.
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 makes semiannual cash interest payments of approximately $4.5
million including a payment on May 15, 1996.
As of May 26, 1996, approximately $24.4 million was outstanding under the
Company's revolving credit agreement with Foothill.
During the first quarter of fiscal 1997, the Company agreed to reduce its
domestic gold facilities from 67,000 troy ounces to 63,000 troy ounces. A
subsidiary of the Company has an agreement with a gold supplier to provide
secured gold consignment availability of approximately 4,800 troy ounces. As of
May 26, 1996, approximately 67,700 ounces of gold valued at approximately $26.4
million were on consignment under the Company's gold consignment facilities.
(3) Inventories
Inventories consisted of the following at May 26, 1996, and February 25, 1996:
May 26, February 25,
1996 1996
Raw Materials $12,130,929 $14,820,768
Work-in-Process 8,884,225 9,947,057
Finished Goods 62,703,879 65,370,578
$83,719,033 $90,138,403
(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) Supplemental Disclosure of Noncash Investing and Financing Activity
On May 15, 1995, the Company issued approximately $4.2 million in new 13% Senior
Subordinated Notes due May 31, 1998, as payment of the semiannual interest
installment. Approximately $2.5 million of this amount was classified as accrued
expenses in the February 26, 1995, Consolidated Balance Sheet.
(6) Subsequent Event
On May 20, 1996, the Company entered into an agreement to sell assets and
liabilities of its Balfour and Gold Lance subsidiaries constituting
substantially all of the operations of Balfour and Gold Lance to Class Rings,
Inc. (CRI), a new company formed by Castle Harlan Partners II, L.P. and the
Company. Separately, CRI entered into an agreement with CJC Holdings, Inc. (CJC)
to acquire its school ring business.
The Company's agreement with CRI is subject to a number of significant
contingencies including approval by the Federal Trade Commission and CRI's
ability to raise sufficient capital to consummate the acquisition of Balfour and
Gold Lance and the acquisition of CJC's school ring business.
Under the Company's agreement with CRI, the Company will receive cash of $55
million, adjustable for the fluctuation in working capital as of the date of
closing, 8% of the common stock of CRI and the cash equivalent to the value of
gold on hand as of the date of closing. In addition, the Company may receive
additional shares of common stock of CRI based on CRI's exceeding certain
defined levels of profitability. Under this contingent earnout arrangement, the
Company can earn up to an additional 10% interest in the common stock of CRI. If
the Company is able to consummate the transaction as contemplated, it is not
expected that the transaction would have an unfavorable impact on the Company's
financial position and operating results.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations for the Quarter Ended May 26, 1996, Compared to the
Quarter Ended May 28, 1995
Net sales for the fiscal quarter ended May 26, 1996, decreased approximately
$10.7 million or 15.5% from approximately $69.0 million in fiscal 1996 to
approximately $58.3 million in fiscal 1997. This decrease has been primarily in
sales of fine jewelry which the Company believes have been affected by a general
softening of demand for colored-stone products. The Company believes that in the
highly competitive colored-stone and diamond product categories, it needs to
improve its ability to meet customer expectations.
Gross profit for the fiscal quarter ended May 26, 1996, was $20.2 million
compared with $21.9 million for the first quarter of fiscal 1996. Lower sales of
lower margin fine jewelry products coupled with level sales of higher margin
scholastic products have resulted in a change in product mix. This change
combined with modest margin improvements at the Company's Balfour subsidiary
have resulted in an improvement in gross profit margin from 31.7% for the
quarter ended May 28, 1995, to 34.6% for the quarter ended May 26, 1996.
Selling, general and administrative (SG&A) expenses for the fiscal quarter ended
May 26, 1996, were approximately the same as during the corresponding period in
fiscal 1996. As a percentage of net sales, SG&A expenses increased from 27.7% in
fiscal 1996 to 32.6% in fiscal 1997. This percentage increase primarily relates
to SG&A expenses for the Company's fine jewelry businesses remaining level with
the first quarter of fiscal 1996 while net sales in these businesses have
decreased.
Net interest expense for the fiscal quarter ended May 26, 1996, was
approximately the same as during the corresponding quarter of fiscal 1996. The
Company's average borrowings for the fiscal quarter ended May 26, 1996,
increased approximately $2 million from approximately $111 million in fiscal
1996 to approximately $113 million in fiscal 1997. The weighted average interest
rate was approximately 11.4% for the first quarter of fiscal 1996 and
approximately 11.2% for the first quarter of fiscal 1997.
Although the Company had a taxable loss for the fiscal quarter ended May 26,
1996, the Company recorded a tax provision of approximately $80,000. 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 26, 1996, was
approximately $9.1 million compared with $5.7 million for the same quarter of
fiscal 1996. The difference in cash used in operations from fiscal 1997 to
fiscal 1996 is principally due to the $4.5 million interest payment made in
fiscal 1997 which was made with the issuance of additional notes in fiscal 1996.
Cash used in investing activities for the quarter ended May 26, 1996, was $0.6
million compared to $0.5 million in fiscal 1996. The increase is due to higher
capital expenditures in the current period.
Cash provided by financing activities was approximately $9.1 million for the
quarter ended May 26, 1996, compared with $8.1 million for the quarter ended May
28, 1995. The change in cash provided by financing activities is the result of
higher net borrowings on the Company's revolving credit facility.
The Company's net cash position increased from approximately $5.2 million at
February 25, 1996, to approximately $4.5 million at May 26, 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10 Material Contracts
10.1 Loan Agreement among Town & Country Corporation, Town & Country
Fine Jewelry Group, Inc., Gold Lance, Inc., L.G. Balfour Company
Inc. and Foothill Capital Corporation dated July 3, 1996.
10.2 Second Amended and Restated Consignment Agreement by and between
Fleet Precious Metals Inc. and Town & Country Corporation, Town &
Country Fine Jewelry Group, Inc., L.G. Balfour Company and Gold
Lance, Inc. dated July 3, 1996.
10.3 Creditor Agreement by and between Foothill Capital Corporation and
Fleet Precious Metals, Inc. dated July 3, 1996.
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 26,
1996.
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: July 9, 1996 /s/ Francis X. Correra
---------------------------------
Francis X. Correra
Senior Vice President and
Chief Financial Officer
TOWN & COUNTRY CORPORATION EXHIBIT 11
Earnings Per Share Computations
(Unaudited)
For the Three Months Ended
May 26, May 28,
1996 1995
PRIMARY EPS:
Net loss $ (1,854,443)$ (514,424)
Accretion of discount and dividends
on preferred stocks 223,128 243,735
Loss attributable to common
stockholders $ (2,077,571)$ (758,159)
Weighted average common
shares outstanding 24,317,210 23,575,577
Weighted shares issued from
exercise and assumed execise of:
warrants -- --
options -- --
Shares for EPS
calculation 24,317,210 23,575,577
REPORTED EPS:
Net loss $ (0.08)$ (0.02)
Accretion of discount and dividends
on preferred stocks (0.01) (0.01)
Loss per common share $ (0.09)$ (0.03)
FULLY DILUTED EPS:
For the periods presented in this exhibit, there is no dilution from Primary
EPS.
This exhibit should be reviewed in conjunction with Note 4 of Notes to
Consolidated Financial Statements.