10Q-94-05--10--AS ELECTRONICALLY 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 29, 1994
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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
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TOWN & COUNTRY CORPORATION
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(Exact name of Registrant as specified in its charter)
Massachusetts 04-2384321
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(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 15, 1994, the Registrant had outstanding 20,756,096 shares of Class A
Common Stock, $.01 par value and 2,670,498 shares of Class B Common Stock, $.01
par value.
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
May 29, February 27,
1994 1994
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,328,980 $ 3,273,876
Restricted cash 111,017 37,971
Accounts receivable--
Less allowances for doubtful
accounts of $6,096,000 at
05/29/94 and $5,510,000 at
2/27/94 65,309,439 55,623,418
Inventories (Note 4) 75,086,503 75,029,397
Prepaid expenses & other current
assets 1,456,428 3,991,883
Total current assets $ 144,292,367 $ 137,956,545
PROPERTY, PLANT & EQUIPMENT, at cost $ 80,007,685 $ 79,340,723
Less - Accumulated depreciation 35,072,034 33,636,099
$ 44,935,651 $ 45,704,624
INVESTMENT IN AFFILIATES (Note 6) $ 27,391,089 $ 27,038,089
OTHER ASSETS (Note 2) $ 9,588,463 $ 13,221,467
$ 226,207,570 $ 223,920,725
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED BALANCE SHEETS (Continued)
May 29, February 27,
1994 1994
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable (Note 3) $ 8,278,503 $ -
Current portion of long-term debt 1,655,992 1,479,590
Accounts payable 16,254,733 12,727,357
Accrued expenses 13,250,815 19,956,332
Accrued and currently deferred
income taxes 930,837 874,253
Total current liabilities $ 40,370,880 $ 35,037,532
LONG-TERM DEBT, less current portion
(Note 3) $ 91,267,901 $ 91,827,239
OTHER LONG-TERM LIABILITIES $ 1,961,173 $ 2,093,755
Total liabilities $ 133,599,954 $ 128,958,526
COMMITMENTS AND CONTINGENCIES (Note 2)
MINORITY INTEREST $ 3,966,497 $ 3,843,117
EXCHANGEABLE PREFERRED STOCK, $1.00
par value-
Authorized--2,700,000 shares
Issued and outstanding--2,533,255
shares (Note 3) $ 36,252,595 $ 35,785,399
STOCKHOLDERS' EQUITY (Note 3):
Preferred stock, $1.00 par value-
Authorized and unissued--2,300,000
shares $ - $ -
Class A Common Stock, $.01 par value-
Authorized--40,000,000 shares
Issued and outstanding--20,755,901
shares 207,559 207,559
Class B Common Stock, $.01 par value-
Authorized--8,000,000 shares
Issued and outstanding--2,670,693
shares 26,707 26,707
Additional paid-in capital 69,909,485 69,909,485
Retained deficit (17,755,227) (14,810,068)
Total stockholders' equity $ 52,388,524 $ 55,333,683
$ 226,207,570 $ 223,920,725
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
May 29, May 30,
1994 1993
NET SALES $ 70,568,460 $ 64,125,732
COST OF SALES 45,949,170 39,474,967
Gross profit $ 24,619,290 $ 24,650,765
SELLING, GENERAL &
ADMINISTRATIVE
EXPENSES 24,348,251 20,479,180
Income from
operations $ 271,039 $ 4,171,585
INTEREST EXPENSE,
net (2,560,087) (4,742,098)
INCOME FROM
AFFILIATES 353,000 454,581
MINORITY INTEREST (123,380) (331,022)
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(Unaudited)
For the Three Months Ended
May 29, May 30,
1994 1993
LOSS BEFORE
INCOME TAXES $ (2,059,428) $ (446,954)
PROVISION FOR
INCOME TAXES 418,535 52,000
NET LOSS $ (2,477,963) $ (498,954)
ACCRETION OF
DISCOUNT ON
EXCHANGEABLE
PREFERRED STOCK 467,196 76,004
LOSS ATTRIBUTABLE
TO COMMON
STOCKHOLDERS $ (2,945,159) $ (574,958)
LOSS PER COMMON
SHARE (Note 5): $ (0.13) $ (0.04)
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING
(Note 5): 23,426,594 14,559,819
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended
May 29, May 30,
1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,477,963) $ (498,954)
Adjustments to reconcile net income to
net cash used in operating activities-
Depreciation and amortization 1,203,628 2,021,680
Loss (gain) on disposal of certain
assets 4,239 1,068
Undistributed earnings of affiliates,
net of minority interest (229,620) (53,338)
Interest paid with issuance of debt 1,543,116 -
Change in assets and liabilities--
Decrease (increase) in accounts
receivable (9,686,021) (1,048,250)
Decrease (increase) in inventory (57,106) (1,860,627)
Decrease (increase) in prepaid
expenses and other current assets 2,535,455 641,404
Decrease (increase) in other assets 3,535,948 176,790
Increase (decrease) in accounts
payable 3,527,376 (357,913)
Increase (decrease) in accrued
expenses (4,545,163) (1,194,129)
Increase (decrease) in accrued and
current deferred taxes 56,584 (97,250)
Increase (decrease) in other
liabilities (132,582) 8,040
Net cash used in operating
activities $ (4,722,109) $ (2,261,479)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures $ (673,306) $ (477,781)
Net cash used in investing
activities $ (673,306) $ (477,781)
The accompanying notes are an integral part of these
consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
For the Three Months Ended
May 29, May 30,
1994 1993
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on revolving credit facilities $ (57,645,898) $(13,460,369)
Proceeds from borrowings under
revolving credit facilities 65,924,401 18,700,000
Payments on long-term debt (3,754,938) (1,433,541)
Decrease (increase) in restricted cash (73,046) --
Payments to retire credit facility -- (37,250,000)
Proceeds from senior secured notes -- 30,000,000
Payments for recapitalization expenses -- (4,669,964)
Net cash provided by (used in)
financing activities $ 4,450,519 $ (8,113,874)
NET DECREASE IN CASH AND CASH
EQUIVALENTS $ (944,896) $(10,853,134)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 3,273,876 15,353,259
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 2,328,980 $ 4,500,125
SUPPLEMENTAL CASH FLOW DATA:
Cash paid during the period for:
Interest $ 730,348 $ 1,098,228
Income taxes 355,491 141,698
Supplemental Disclosure of Non-Cash Investing & Financing Activities:
On May 14, 1993, the Company completed its recapitalization as described
in Note 3. As a result of this transaction, long-term debt with a carrying value
of $122,673,945, including accrued interest and 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.
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.
As of May 29, 1994 and May 30, 1993, accretion of discount on
exchangeable preferred shares has amounted to $467,196 and $76,004,
respectively.
On May 15, 1994, the Company issued approximately $3.7 million in new 13%
Senior Subordinated Notes due May 31, 1998, as payment of the semiannual
interest installment. Approximately $2.2 million of this amount was classified
as accrued expenses in the February 27, 1994, Consolidated Balance Sheet.
The accompanying notes are an integral part of these
consolidated financial statements.
PART I - FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 29, 1994
(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 27,
1994, the Company's financial position as of May 29, 1994, and the results of
its operations and cash flows for the quarters ended May 29, 1994 and
May 30, 1993.
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 27, 1994, which have been included in the Annual Report
on Form 10-K, Commission File Number 0-14394, for the fiscal year
ended February 27, 1994. The Company has made no change in these
policies during the quarter ended May 29, 1994.
The consolidated financial statements include the accounts of
subsidiary companies more than fifty percent owned.
The results of operations for the quarter ended May 29, 1994, are not
necessarily indicative of the results to be expected for the year due to
the seasonal nature of the Company's operations.
(2) Commitments and Contingencies
Zale Bankruptcy
The Company's largest customer for a number of years has been the Zale
Corporation and its affiliated companies, including Gordon Jewelry Corporation.
On July 30, 1993, this group of companies completed a reorganization under
Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy
Court and emerged from bankruptcy as Zale Delaware, Inc. (Zale).
The Company has reached agreement on most issues with the new Zale concerning
the Company's claim of approximately $40 million, filed with the Bankruptcy
Court, representing the net outstanding balance of trade accounts receivable and
the wholesale value of the consignment inventory as of the date of Zale's
bankruptcy petition.
The Company's Consolidated Financial Statements at February 28, 1992, originally
reflected a net valuation 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 $11.6 million.
The Consolidated Financial Statements at May 29, 1994, reflect a net valuation
of approximately $2.4 million, representing management's estimate of the value
of the remaining claim related assets.
The Company continues to conduct business with Zale.
(3) Loan Arrangements
In order to significantly reduce the amount of the Company's cash interest and
principal requirements and to satisfy the Company's near-term and long-term
liquidity needs, the Company completed a major recapitalization on May 14, 1993.
This recapitalization revised the Company's consolidated capitalization,
including debt structure, to be consistent with the Company's current and
expected operating performance levels. The amount of debt outstanding was
reduced and a significant portion of the old subordinated debt was exchanged for
new debt, shares of Class A Common Stock and Exchangeable Preferred Stock.
The new debt structure consisted of a new revolving credit agreement which was
obtained from Foothill Capital Corporation to provide secured financing in an
aggregate amount of up to $30 million, new gold consignment agreements which
were obtained from the Company's gold suppliers to provide an aggregate gold
consignment availability of up to approximately 100,000 troy ounces, $30 million
principal amount of 11 1/2% Senior Secured Notes due September 15, 1997, which
were purchased by various investors, and approximately $53 million principal
amount of 13% Senior Subordinated Notes due May 31, 1998, issued as a component
of the exchange. As of May 29, 1994, approximately $8.3 million was outstanding
under the revolving credit agreement.
The results of the exchange offer were:
(a) holders of approximately 93% of the Company's existing 13% Senior
Subordinated Notes due December 15, 1998, exchanged each $1,000
principal amount of those notes for $478.96 principal amount of the
Company's 13% Senior Subordinated Notes due May 31, 1998, $331.00 of
the Company's Exchangeable Preferred Stock, par value $1.00 per share,
and 89.49 shares of the Company's Class A Common Stock, par value
$0.01 per share, and
(b) holders of approximately 98% of the Company's existing 10 1/4%
Subordinated Notes due July 1, 1995, exchanged each $1,000 principal
amount of those notes for $408.11 principal amount of the Company's
13% Senior Subordinated Notes due May 31, 1998, $282.04 of the
Company's Exchangeable Preferred Stock, par value $1.00 per share, and
76.25 shares of the Company's Class A Common Stock, par value $0.01
per share.
The Company reached an agreement with Chemical Bank to change the terms of
the IRB financing for the Company's facility located in New York, New
York. This agreement includes, 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.
(4) Inventories
Inventories consisted of the following at May 29, 1994 and February 27,
1994:
May 29, February 27,
1994 1994
Raw Materials $16,770,674 $16,753,865
Work-in-Process 6,715,394 7,154,300
Finished Goods 51,600,435 51,121,232
$75,086,503 $75,029,397
(5) Earnings Per Common Share
Loss per common share is computed by adjusting the Company's net loss for the
accretion of discount on exchangeable preferred stock and dividing by the
weighted average number of common shares outstanding during each period.
(6) Investment in Little Switzerland, Inc.
Presented below is summarized financial information (in thousands) for Little
Switzerland, Inc. as of and for the fiscal quarters ended February 28, 1994 and
1993:
1994 1993
Current Assets $36,228 $40,179
Noncurrent Assets 14,761 13,893
Current Liabilities 7,884 14,858
Noncurrent Liabilities 794 847
Total Equity 42,311 38,367
Sales $22,938 $22,249
Gross Profit 10,193 10,002
Net Income 2,856 2,711
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations for the Quarter Ended May 29, 1994, Compared to the
Quarter Ended May 30, 1993
Net sales for the fiscal quarter ended May 29, 1994, increased approximately $6
million or 10% from approximately $64 million in fiscal 1994 to approximately
$70 million in fiscal 1995. Sales of fine jewelry increased approximately $5
million from $36 million in fiscal 1994 to $41 million in fiscal 1995. The
Company believes that the increase in sales of fine jewelry is indicative of
improved customer confidence in its ability to meet customer needs.
Gross profit for the fiscal quarter ended May 29, 1994, was approximately the
same as for the first quarter of fiscal 1994, or $24 million. Gross profit
margin decreased from 38% for the quarter ended May 30, 1993, to 35% for the
quarter ended May 29, 1994. The Company's sales increase has been primarily in
the lower margin fine jewelry product categories. In its effort to manage
inventory levels, the Company has also sold or made provisions to sell
inventory, which it believes may be in excess of current requirements, at less
than normal margins. Also, the Company is now pursuing the direct response
distribution business for its licensed sports and other specialty products
which requires the expenditure of product development costs at a more
substantial rate than in prior periods.
Selling, general and administrative expenses for the fiscal quarter ended May
29, 1994, increased approximately $4 million or 20% from $20 million in fiscal
1994 to $24 million in fiscal 1995. As a percentage of net sales, selling,
general and administrative expenses were approximately 3% more than for the
comparable quarter in fiscal 1994. Increases primarily relate to higher costs
associated with the Company's direct response distribution business of licensed
sports and other specialty products which was in the start-up phase during the
first quarter of fiscal 1994.
Net interest expense for the fiscal quarter ended May 29, 1994, decreased
approximately $2 million relative to the corresponding quarter of fiscal 1994.
This decrease is the result of the recapitalization which occurred on May 14,
1993. Approximately $115 million of the Company's long-term debt was exchanged
for approximately $53 million of new debt, approximately $37 million of
exchangeable preferred stock and approximately 10 million shares of the
Company's Class A common stock.
During the quarter ended May 29, 1994, the Company had equity income from its
ownership of Little Switzerland, Inc. stock and Solomon Brothers, Limited stock
of approximately $0.4 million. This compares to approximately $0.5 million for
the first quarter in fiscal 1994.
Although the Company had a taxable loss for the fiscal quarter ended May 29,
1994, the Company recorded a tax provision of approximately $419,000. 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 29, 1994, was
approximately $5 million compared with $2 million for the same quarter of fiscal
1994. This change is primarily due to a greater net loss in the current period,
as well as, increases in accounts receivable from higher sales and the direct
marketing of licensed sports products in fiscal 1995. The Company has benefited
from the issuance of approximately $3.7 million in new 13% Senior Subordinated
Notes due May 31, 1998, as payment of the semiannual interest installment due in
May 1994. Approximately $2.2 million of this amount was classified as accrued
expenses in the February 27, 1994, Consolidated Balance Sheet.
Cash used in investing activities for the quarter ended May 29, 1994, was $0.7
million compared to $0.5 million in fiscal 1994. The increase is due to higher
capital expenditures in the current period.
Cash provided by financing activities was approximately $4 million for May 29,
1994, compared with cash used in financing activities of $8 million for May 30,
1993. The change in cash used in financing activities is the direct result of
costs associated with the recapitalization which was completed in the first
quarter of fiscal 1994. Outstanding borrowings under the revolving credit
agreement were approximately $8.3 million at May 29, 1994, compared with
approximately $5.2 million at May 30, 1993.
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 such
proceeds. The Company's net cash position decreased from approximately $3
million at February 27, 1994, to approximately $2 million at May 29, 1994.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Earnings Per Share Computations
(b) Reports on Form 8-K
There were no Form 8-K filings during the first quarter ended May 29,
1994.
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: July 13, 1994 /s/ Francis X. Correra
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Francis X. Correra
Senior Vice President and
Chief Financial Officer
EXHIBIT 11
Earnings Per Share Computations
(Unaudited)
For the Three Months Ended
May 29, May 30,
1994 1993
PRIMARY EPS:
Net loss $(2,477,963) $ (498,954)
Accretion of discount on
Exchangeable Preferred
Stock 467,196 76,004
Net loss for EPS
calculation $(2,945,159) $ (574,958)
Weighted average common
shares outstanding 23,426,594 14,559,819
Weighted shares issued from
exercise and assumed
exercise of:
warrants - -
options - -
Shares for EPS calculation 23,426,594 14,559,819
REPORTED EPS:
Loss before accretion of
discount on Exchangeable
Preferred Stock $ (0.11) $ (0.03)
Accretion of discount on
Exchangeable Preferred
Stock (0.02) (0.01)
Net loss per share: $ (0.13) $ (0.04)
FULLY DILUTED EPS:
Net loss $(2,477,963) $ (498,954)
Accretion of discount on
Exchangeable Preferred
Stock 467,196 76,004
Net loss for EPS
calculation $(2,945,159) $ (574,958)
Weighted average common
shares outstanding 23,426,594 14,559,819
Weighted shares issued from
exercise and assumed
exercise of:
warrants - -
options - -
Shares for EPS calculation 23,426,594 14,559,819
REPORTED EPS:
Loss before accretion of
discount on Exchangeable
Preferred Stock $ (0.11) $ (0.03)
Accretion of discount on
Exchangeable Preferred
Stock (0.02) (0.01)
Net loss per share: $ (0.13) $ (0.04)
This exhibit should be reviewed in conjunction with Note 5 of Notes
to Consolidated Financial Statements