EXHIBIT 99.1
LITTLE SWITZERLAND, INC., AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
TOGETHER WITH AUDITORS REPORT
LITTLE SWITZERLAND, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Public Accountants ..................... 2
Consolidated Balance Sheets .................................. 3
Consolidated Statements of Income ............................ 4
Consolidated Statements of Stockholders' Equity .............. 5
Consolidated Statements of Cash Flows ........................ 6
Notes to Consolidated Financial Statements ................... 7 - 19
Report of Independent Public Accountants...................... 20
Schedule II - Amounts Receivable from Related Parties
and Underwriters, Promoters and Employees
other than Related Parties.................... 21
Schedule V - Property, Plant and Equipment.................... 22
Schedule VI - Accumulated Depreciation, Depletion and
Amortization of Property Plant and Equipment.. 23
Schedule VIII - Valuation and Qualifying Accounts............. 24
Schedule IX - Short-Term Borrowings........................... 25
Schedule X - Supplementary Income Statement Information....... 26
Report of Independent Public Accountants
To Little Switzerland, Inc.:
We have audited the accompanying consolidated balance sheets of Little
Switzerland, Inc. ( a Delaware corporation) and subsidiaries as of May 31, 1994
and 1993 and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended May 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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 principals 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 consolidated financial statements referred to above
present fairly in all material respects, the consolidated financial position of
Little Switzerland, Inc. and subsidiaries as of May 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years in
the period ended May 31, 1994, in conformity with generally accepted accounting
principles.
Boston, Massachusetts
July 15, 1994
LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
May 31, May 31,
ASSETS ................................................... 1994 1993
-------- --------
Current assets:
Cash and cash equivalents (Note 2) ....................... $ 4,632 $ 1,907
Accounts receivable ...................................... 1,576 1,444
Inventory (Note 2) ....................................... 29,077 35,559
Prepaid expenses and other current assets ................ 1,296 1,515
-------- --------
Total current assets ..................................... 36,581 40,425
Property, plant and equipment,
at cost, (Note 2) ................................. 28,405 24,450
Less--Accumulated depreciation ........................... 14,638 13,043
-------- --------
13,767 11,407
Other assets (Note 2) .................................... 2,521 2,328
-------- --------
Total assets ...................................... $ 52,869 $ 54,160
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Unsecured notes payable (Note 4) ........................ -- $ 4,875
Accounts payable ......................................... 5,134 5,582
Accrued and currently deferred
income taxes (Notes 2 and 5) .................... 1,861 1,214
Other accrued expenses (Note 2) .......................... 2,060 2,378
-------- --------
Total current liabilities ........................... 9,055 14,049
Deferred income taxes (Notes 2 and 5) .................... 356 794
Commitments and contingencies (Note 6)
Stockholders' equity (Notes 1, 3 and 10):
Preferred stock, $.01 par value--
Authorized--5,000 shares
Issued and outstanding--none ........................ -- --
Common stock, $.01 par value--
Authorized--20,000 shares
Issued and outstanding--8,449 shares
in 1994 and 8,442 in 1993 .......................... 84 84
Capital in excess of par .............................. 14,758 14,715
Retained earnings ..................................... 28,616 24,518
-------- --------
Total stockholders' equity ........................ 43,458 39,317
-------- --------
Total liabilities and
stockholders' equity ......................... $ 52,869 $ 54,160
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)
For the Years Ended
May 31,
1994 1993 1992
------- ------- ------
Net sales ................ $64,312 $63,396 $57,140
Cost of sales ............ 35,968 34,110 30,277
------- ------- -------
Gross profit .......... 28,344 29,286 26,863
Selling, general and
administrative expenses
(Note 2)............... 23,123 22,730 18,499
------- ------- -------
Operating income ....... 5,221 6,556 8,364
Interest expense ......... 245 286 251
Interest income .......... (20) (66) (102)
------- ------- -------
Income before income
taxes ............... 4,996 6,336 8,215
Provision for income taxes
(Notes 2 and 5) ........ 898 1,145 1,501
------- ------- -------
Net income ............... $ 4,098 $ 5,191 $ 6,714
======= ====== =======
Net income per share
(Note 2) ................ $ 0.49 $ 0.62 $ 0.80
======= ====== =======
Weighted average shares
outstanding (Notes 1
and 2) ............... 8,446 8,419 8,400
======= ====== =======
The accompanying notes are an integral part of these consolidated
financial statements.
LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
Capital in
Common Stock Excess of Retained
Shares Amount Par Earnings Total
Balance, May 31, 1991 ............. 8,400 $84 $14,296 $12,613 $26,993
Net income ..................... -- -- -- 6,714 6,714
----- --- ------- ------- -------
Balance, May 31, 1992 ............. 8,400 84 14,296 19,327 33,707
Net income ..................... -- -- -- 5,191 5,191
Exercise of stock options
(Notes 2 and 10) ............. 38 -- 380 -- 380
Shares issued under stock
purchase plan (Note 10) ........ 4 -- 39 -- 39
----- --- ------- ------- -------
Balance, May 31, 1993 ............. 8,442 84 14,715 24,518 39,317
Net income ...................... -- -- -- 4,098 4,098
Shares issued under stock
purchase plan (Note 10) ......... 7 -- 43 -- 43
----- --- ------- ------- -------
Balance, May 31, 1994 ............. 8,449 $84 $14,758 $28,616 $43,458
===== === ======= ======= =======
The accompanying notes are an integral part of these consolidated
financial statements.
LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended
May 31,
1994 1993 1992
-------- -------- --------
Cash flows from operating activities:
Net income ........................................................................ $ 4,098 $ 5,191 $ 6,714
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ................................................... 1,833 1,757 1,357
Changes in assets and liabilities:
(Increase) decrease in accounts receivable ..................................... (132) 141 (310)
(Increase) decrease in inventory ............................................... 6,812 (4,159) (9,504)
(Increase) decrease in prepaid expenses
and other current assets ................................................... 219 224 (769)
Increase (decrease) in accounts payable ........................................ (448) (1,406) 3,753
Increase (decrease) in other accrued expenses .................................. (318) 423 (182)
Increase (decrease) in accrued and
currently deferred income taxes ........................................ 647 (158) 135
Increase (decrease) in payable to affiliates ................................... -- -- (209)
Increase (decrease) in deferred income taxes ................................... (438) (53) 433
-------- -------- --------
Net cash provided by operating activities ................................ 12,273 1,960 1,418
-------- -------- --------
Cash flows from investing activities:
Decrease in long-term receivable
from Town & Country (Note 3) .................................................. -- -- 1,832
Capital expenditures ............................................................ (3,738) (1,382) (1,986)
(Increase) decrease in other assets ............................................. 269 (129) (192)
Acquisition of inventory and fixed assets
(Note 2) .................................................................. (1,247) (590) (1,750)
-------- -------- --------
Net cash used in investing activities ................................... (4,716) (2,101) (2,096)
-------- -------- --------
Cash flows from financing activities:
Borrowings under unsecured notes payable ........................................ 7,100 8,240 3,945
Repayment of unsecured notes payable ............................................ (11,975) (6,800) (4,440)
Issuance of common stock ........................................................ 43 419 --
------- ------ ------
Net cash
provided by (used in)
financing activities ..................................................... (4,832) 1,859 (495)
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents: ................................................. 2,725 1,718 (1,173)
Cash and cash equivalents, beginning of period ..................................... 1,907 189 1,362
-------- -------- --------
Cash and cash equivalents, end of period ........................................... $ 4,632 $ 1,907 $ 189
======== ======== ========
Cash paid during the period for:
Income Taxes ........................................................ $ 620 $ 1,146 $ 910
======== ======== ========
Interest ............................................................ $ 289 $ 231 $ 215
======== ======== ========
The accompanying notes are an integral part of
these consolidated financial statements.
LITTLE SWITZERLAND, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANICAL STATEMENTS
MAY 31, 1994
(1) Organization
Little Switzerland, Inc. (the "Company") was incorporated in May 1991. A
wholly owned subsidiary of Town & Country Corporation ("Town & Country")
contributed to the Company all of the outstanding shares of L.S. Holding, Inc.
and L.S. Wholesale, Inc. in exchange for 10,000,000 shares of the Company's
common stock. On June 3, 1991, the Company declared an 84 for 100 stock split
resulting in outstanding shares of common stock of 8,400,000, which has been
retroactively reflected in the accompanying consolidated financial statements.
L.S. Holding, Inc. was incorporated in July 1980 and has nine
subsidiaries: Montres et Bijoux, S.A.R.L.; World Gifts Imports N.V.; L.S.
Holding (Aruba) N.V.; L.S. Holding (Curacao) N.V.; Little Switzerland (St. Kitts
& Nevis) Limited; Little Switzerland (Antigua) Limited and Little Switzerland
(St. Lucia) Limited (Note 2) which operate retail stores in the Virgin Islands,
Aruba, St. Kitts, Antigua, St. Lucia, the French and Netherlands Antilles.
Little Switzerland (BVI) Limited, incorporated in the British Virgin Islands and
L.S. Holding (USA), Inc., incorporated in Alaska, were not yet in operation at
May 31, 1994.
L.S. Wholesale, Inc. was incorporated in October 1987 and purchases
inventory for distribution to L.S. Holding, Inc.'s retail stores.
In July 1991, the Company completed an initial public offering (the
"Offering") whereby Switzerland Holding Inc., a wholly-owned subsidiary of Town
& Country, sold 5,700,000 shares of the Company's common stock at $12 per share.
Switzerland Holding, Inc. received all of the proceeds and paid substantially
all of the costs of the offering.
Subsequent to the offering, Switzerland Holding owned 2,700,000 shares
of the Company's Common Stock (approximately 32% of the issued and outstanding
Common Stock as of May 31, 1994) which were not registered in the Offering. In
connection with the consummation of the recapitalization of Town & Country
("T&C") in May 1993 (the "Recapitalization"), Switzerland Holding was dissolved
and 2,533,279 shares of such stock were transferred to a trust (the "Trust")
established for the benefit of T&C and the holders of T&C's Exchangeable
Preferred Stock (the "T&C Exchangeable Preferred Stock"). Except under certain
limited circumstances, each holder of a share of T&C Exchangeable Preferred
Stock may exchange such share for one share of the Company's Common Stock held
in the Trust. Pursuant to a trust agreement between BayBank, N.A. ("BayBank"),
as trustee (the "Trustee"), and T&C, T&C has the right, except under the
circumstances described below, to vote the shares of the Company's Common Stock
held in the Trust on all matters submitted for vote to holders of such stock.
(1) Organization--(Continued)
If and whenever two semi-annual dividend payments on the T&C
Exchangeable Preferred Stock are in arrears, then during the period commencing
with such time and ending when all arrearages in dividends on the T&C
Exchangeable Preferred Stock shall have been paid, the Trustee shall vote the
shares of the Company's Common Stock held in the Trust in the manner directed by
the holders of the T&C Exchangeable Preferred Stock.
On July 17, 1991, the Company and T&C entered into a Registration
Rights Agreement, pursuant to which T&C has the right to include its shares of
Common Stock in registered offerings by the Company and to require the Company
to register such shares on not more than two occasions, subject to certain
conditions and limitations. Under the Registration Rights Agreement, the Company
may be required to pay for some of the expenses of these offerings and the
Company and T&C have agreed to indemnify each other against certain liabilities.
On April 6, 1993, T&C exercised its rights under the Registration Rights
Agreement and requested that the Company file with the SEC a registration
statement covering the shares of the Company's Common Stock currently held in
trust by BayBank. In accordance with the terms of the Registration Rights
Agreement, the Company caused such shares to be registered with the SEC.
(2) Summary of Significant Accounting Policies
Presentation
The accompanying consolidated financial statements include the
operations of the Company and its wholly owned subsidiaries L.S. Holding, Inc.
and L.S. Wholesale, Inc. Effective May 31, 1992, the Company changed its fiscal
year end from the last day of February to May 31. Certain reclassifications have
been made to prior years' consolidated financial statements to conform to the
May 31, 1994 presentation. All significant intercompany balances have been
eliminated in consolidation.
Foreign Operations
Net sales and operating income from foreign operations (non-U.S.
possessions) amounted to 52%, 49% and 49%, and 34%, 50% and 26% of total net
sales and operating income, respectively, in fiscal 1994, 1993 and 1992,
respectively. Inter-segment sales were not material for all periods presented.
Identifiable assets of foreign operations amounted to 51%, 49% and 45% of total
assets as of May 31, 1994, 1993 and 1992, respectively.
(2) Summary of Significant Accounting Policies--(Continued)
Acquisitions
In January 1992, the Company purchased certain inventory and fixed
assets of the china division of a St. Thomas retailer for approximately
$1,800,000. The transaction was accounted for using the purchase method of
accounting. On an unaudited pro forma basis, net sales would have increased by
3.1% for fiscal 1992, assuming the transaction had occurred on June 1, 1990. The
pro forma impact on net income and net income per share would not have been
material to the results of the period presented.
On June 4, 1992, the Company purchased certain assets from a St. Lucia
retailer for $590,000. The transaction was accounted for using the purchase
method of accounting. The pro forma impact of the transaction is not material to
the results of the periods presented.
On April 25, 1994, the Company purchased certain inventory, fixed
assets and leasehold interest of "La Parfumerie", a fragrance boutique located
in Antigua, for $1,247,000. The transaction was accounted for using the purchase
method of accounting. The pro forma impact of the transaction is not material to
the results of the periods presented.
Inventory
Inventory is valued at the lower of cost (first-in, first-out) or
market value and consists almost entirely of finished merchandise purchased for
resale.
(2) Summary of Significant Accounting Policies--(Continued)
Property, Plant and Equipment
Fixed assets are depreciated over their estimated useful lives,
principally using the straight-line method. Property, plant and equipment
consist of the following:
Estimated
Useful Life May 31 May 31
Range 1994 1993
------ ------ -----
Real estate 20-40 Years $ 8,450,000 $ 7,420,000
Furniture and fixtures 3-10 Years 9,956,000 9,108,000
Equipment 3-20 Years 3,708,000 3,332,000
Leasehold Life of the lease
improvements or useful life,
whichever is shorter 6,291,000 4,590,000
----------- -----------
$28,405,000 $24,450,000
=========== ===========
Income Taxes
Effective June 1, 1993, the Company adopted SFAS No. 109 "Accounting
for Income Taxes" which requires the use of the liability method in accounting
for income taxes. This standard determines deferred income taxes based on the
estimated future tax effects of any differences between the financial statement
and tax basis of assets and liabilities, given the provisions of enacted tax
laws. The effect of adopting this change in accounting principle had no
cumulative impact on reported net income per share or financial position and did
not have a material impact on the current fiscal year's income tax expense.
Prior to the implementation of this statement, the Company accounted for income
taxes under Accounting Principals Board Opinion No. 11. Each of the consolidated
companies files a separate tax return.
Other Assets
Other assets consist primarily of amounts related to non-competition
agreements, rental premiums, rental deposits and the excess of cost over the
fair market value of the net assets of the business acquired (goodwill). Amounts
related to non-competition agreements are amortized over the lives of the
respective agreements and amounts related to rental premiums are amortized over
the lives of the related leases. Amounts related to goodwill are being amortized
over periods of up to 10 years. The Company continually evaluates whether later
events
(2) Summary of Significant Accounting Policies--(Continued)
and circumstances have occurred that indicate 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 segment's future cash flow over the remaining life of the goodwill in
measuring whether the goodwill is recoverable. Accumulated amortization for all
periods presented was not material.
Foreign Exchange Contracts
The Company enters into foreign exchange contracts to hedge against
foreign currency fluctuations for purchase commitments and accounts payable
denominated in foreign currencies. Gains and losses on contracts to hedge
purchase commitments are included in the cost basis of the related purchases.
Deferred gains and losses of approximately $60,000 and $260,000, respectively,
are included in the inventory balances at May 31, 1994 and 1993, respectively.
Gains and losses on accounts payable are recognized as selling, general and
administrative expenses and were not material for all periods presented.
At May 31, 1994, the Company had Swiss Franc contracts maturing during
the period from June through August, 1994 at contractually predetermined rates
totaling approximately $4,400,000.
The Company's functional currency, under Statement of Financial
Accounting Standards No. 52, for all foreign locations is the U.S. dollar.
Accordingly, all transaction and translation gains and losses are included in
the accompanying consolidated income statements. Gains and losses for all
periods presented were not material.
Other Accrued Expenses
Other accrued expenses are comprised of the following:
May 31, May 31,
1994 1993
Customer deposits............... $ 585,000 $ 628,000
Compensation and related items.. 1,034,000 1,238,000
Other........................... 441,000 512,000
---------- ---------
$2,060,000 $2,378,000
========== ==========
(2) Summary of Significant Accounting Policies--(Continued)
Net Income per Share
Net income per share is computed based on the weighted average number
of common and common equivalent shares outstanding, where dilutive, during each
period. Common equivalent shares result from the assumed exercise of stock
options (Note 10).
Cash Flows
For purposes of the Consolidated Statements of Cash Flows, the Company
considers all highly liquid instruments with a purchased maturity of three
months or less to be cash equivalents. The carrying amount of cash and cash
equivalents approximates fair value due to the short maturities.
(3) Transactions with Affiliates
The Company enters into a number of transactions with Town & Country, a
stockholder. The Company purchases a portion of its merchandise from Town &
Country and its affiliated companies at prices that approximate arm's-length
transactions. Such purchases totaled approximately $1,388,000, $1,800,000 and
$1,800,000 in fiscal 1994, 1993 and 1992, respectively.
(4) Credit Arrangements
The Company has available a total of $15,500,000 in unsecured credit
facilities, of which $3,000,000 is available for borrowings with maturities not
to exceed three years. Any unfunded portion of the facilities can be withdrawn
at the bank's discretion. As of May 31, 1994, there were no outstanding
borrowings against these credit facilities.
In connection with the acquisition of certain inventory and fixed
assets (Note 2), the Company had a note payable to the seller which amounted to
$225,000 at May 31, 1993. The second and final installment was paid in fiscal
1994.
(5) Income Taxes
The domestic (United States Virgin Islands, "USVI") and foreign
components of income before income taxes are as follows:
For the Fiscal Years Ended:
May 31,
1994 1993 1992
----------- ----------- -----------
Domestic.......................... $ 3,296,000 $ 4,372,000 $ 6,999,000
Foreign ........................ 1,700,000 1,964,000 1,216,000
----------- ----------- -----------
$ 4,996,000 $ 6,336,000 $ 8,215,000
=========== =========== ===========
The components of the provision (benefit) for income taxes are as follows:
For the Fiscal Years Ended:
May 31,
1994 1993 1992
------------ ------------ ------------
Current:
Domestic ............. $ 647,000 $ 549,000 $ 572,000
Foreign .............. 689,000 649,000 496,000
------------ ------------ ------------
1,336,000 1,198,000 1,068,000
------------ ------------ ------------
Deferred:
Domestic ............. (438,000) (53,000) 433,000
Foreign .............. -- -- --
------------ ------------ ------------
(438,000) (53,000) 433,000
------------ ------------ ------------
$ 898,000 $ 1,145,000 $ 1,501,000
============ ============ ============
The deferred tax provision (benefit) results from timing differences in
the recognition of revenue and expense for tax and financial reporting purposes.
The principal difference arises from the use of different depreciation methods
for financial reporting and tax purposes.
(5) Income Taxes--(Continued)
The Company's effective tax rate is less than the USVI statutory rate
of 37.4% due to the following:
For the Fiscal Years Ended:
May 31,
1994 1993 1992
--------- ---------- -------
Computed tax provision
at statutory rate $1,869,000 $2,370,000 $3,072,000
Increases (reductions)
resulting from--
Differences between
foreign provisions
recorded and provisions
at USVI rate....... 53,000 (86,000) (15,000)
Effect of earnings of
subsidiary in USVI subject
to lower tax rate..... (1,033,000) (1,139,000) (1,636,000)
Other................. 9,000 -- 80,000
---------- ---------- ----------
$ 898,000 $1,145,000 $1,501,000
========== ========== ==========
The lower tax rate in effect on certain of the income of a subsidiary
in the USVI expires, subject to renewal, in 1998 and had the effect of
increasing earnings per share by $0.12, $0.14 and $0.19 in fiscal 1994, 1993 and
1992, respectively.
The net effective tax rate for all income and income taxes was
approximately 18% for each of the fiscal years 1994, 1993 and 1992.
The deferred tax liability of $356,000 at May 31, 1994 is exclusively
the result of the use of accelerated depreciation methods for tax purposes. The
Company has no deferred tax assets and therefore, no valuation reserve is
required.
(6) Commitments and Contingencies
Certain of the Company's facilities and retail stores are occupied
under operating leases expiring at various dates. The Company's rental
commitments under the noncancelable portion of these leases for each of the next
five years and, in total, thereafter at May 31, 1994 are as follows:
Total Lease
Year Commitment
---- ----------
1995................................. $ 2,619,000
1996................................. 2,518,000
1997................................. 2,264,000
1998................................. 1,952,000
1999................................. 1,241,000
Thereafter........................... 2,076,000
-----------
$12,670,000
===========
Rental expense included in the accompanying consolidated statements of
income amounted to approximately $2,487,000, $2,349,000 and $1,918,000 in fiscal
1994, 1993 and 1992, respectively.
The Company owns the building which houses its headquarters and
warehouse on St. Thomas and leases the underlying real property from the Virgin
Islands Port Authority under a 10-year ground lease. The ground lease is subject
to two five-year renewal terms and may be terminated by the lessor prior to the
expiration of its term subject to payment to the Company of the fair market
value of the Company's improvements.
Prior to the Company's initial public offering, Town & Country and
several of its wholly-owned subsidiaries had supplied the Company with jewelry.
Pursuant to written agreements entered into between Town & Country and each of
their subsidiaries and the Company, the subsidiaries have continued to supply
jewelry to the Company at the Company's option on the same terms and conditions
as were in effect prior to the initial public offering (Note 1). These
agreements are automatically renewed each year unless either party terminates
upon 60 days notice prior to the end of a year.
The Company is not a party to any material pending legal proceedings,
other than ordinary litigation incidental to the business. The Company believes
that none of these proceedings, if adversely determined, would have a material
adverse effect on the Company's financial condition.
As a result of escalating costs of wind insurance within the Caribbean,
management believes that premiums are no longer justifiable in light of the
related risk. For fiscal 1995, the Company is only insured for damage caused by
wind for amounts in excess of $5,000,000, subject to certain deductibles.
(7) Franchise Agreement
In fiscal 1987, the Company entered into a 10-year franchise agreement
with Solomon Brothers Limited ("Solomon"), a Bahamian company engaged in the
wholesale and retail distribution of jewelry, gift items and consumables in the
Bahamas. Solomon is responsible for developing each store, in accordance with
the Company's specifications, once a new location has been agreed upon. The
Company provides ongoing assistance in retail and merchandising methods. Solomon
is responsible for the operation of each store, but the general operating
methods are dictated by the Company. Currently, Solomon operates nine locations
in the Bahama Islands under the name of "Little Switzerland."
In return for the use of the Little Switzerland name and the services
provided by Little Switzerland, the Company receives an annual franchise fee
which enables the Company to participate in the revenue of both Little
Switzerland stores operated by Solomon and other Solomon retail stores which are
not operated under the Little Switzerland name. Franchise fees are accrued by
the Company as earned based upon Solomon's revenues, as defined, and for fiscal
1994, 1993 and 1992 were approximately $76,000, $122,000 and $141,000,
respectively. The decline in fees for fiscal 1994 was mostly due to the closing
during the year of two Solomon stores not operated under the "Little
Switzerland" name but subject to the franchise fee.
(8) Employee Benefit Plans
The Company provides a tax-qualified discretionary contribution
retirement plan for eligible USVI employees to which the Company, at its
discretion, contributes. Each employee becomes a participant following
completion of one year's employment, or, if later, the attainment of age 21. All
participants become fully vested after seven years of service. The amounts
accrued and charged to expense for fiscal 1993 and 1992 in connection with this
plan were approximately $135,000 and $153,000, respectively. The Company will
not contribute to this plan for fiscal 1994.
(9) Quarterly Data (Unaudited)
The following presents the unaudited quarterly results of
operations for fiscal 1994 and 1993 (in thousands except per share data):
First Second Third Fourth
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
August 31 November 30 February 28 May 31
--------- -------- -------- --------
Fiscal 1994
Net sales $ 11,489 $ 13,581 $ 22,938 $ 16,305
Gross profit 4,921 5,884 10,193 7,348
Net income(loss) (210) 304 2,856 1,148
Net income(loss) per share $ (0.02) $ 0.03 $ 0.34 $ 0.14
Fiscal 1993
Net sales $ 12,813 $ 12,615 $ 22,249 $ 15,719
Gross profit 5,913 6,086 10,002 7,285
Net income 729 801 2,711 951
Net income per share $ 0.09 $ 0.10 $ 0.32 $ 0.11
(10) Stockholders' Equity
Stock Options
In June 1991, certain officers and employees of the Company were
granted incentive stock options to purchase 223,250 shares of the Company's
common stock at a price per share of $10.00. During fiscal 1992, additional
stock options were issued for 1,500 shares having an exercise price of $15.62
per share. All options vest ratably over a three-year period. As of May 31,
1994, 74,594 options were exercisable. In addition, 37,956 options have been
exercised and 10,700 shares having an exercise price of $10.00 per share were
canceled.
In June 1991, non-employee directors of the Company were granted stock
options to be effective upon the closing of the initial public offering to
purchase an aggregate total of 50,000 shares of the Company's common stock at
the initial public offering price of $12.00 per share. These options vested one
year from the date of issuance. As of May 31, 1994, no options have been
exercised or canceled.
On October 13, 1992, non-employee directors of the Company were granted
non-qualified stock options to purchase an aggregate of 25,000 shares of the
Company's common stock at a price per share of $12.75, the fair market value on
the date of grant. All options vested immediately upon grant. As of May 31,
1994, no options have been exercised or canceled.
(10) Stockholders' Equity--(Continued)
In November 1992, certain officers and employees of the Company were
granted incentive stock options to purchase an aggregate 132,500 shares of the
Company's common stock at a price per share of $12.75, the fair market value on
the date of grant. All options vest ratably over a three-year period. As of May
31, 1994, 26,167 options were exercisable. In addition, no shares have been
exercised and 54,000 shares have been canceled.
On May 31, 1993, non-employee directors of the Company were granted
non-qualified stock options to purchase an aggregate 12,000 shares of the
Company's common stock at a price per share of $10.00, the fair market value on
the date of grant. All options vested immediately upon grant. As of May 31,
1994, no options have been exercised or canceled.
In September 1993, certain officers and employees of the Company were
granted incentive stock options to purchase an aggregate 25,000 shares of the
Company's common stock at a price per share of $6.00, the fair market value on
the date of grant. All options vest ratably over a three-year period. In
December 1993, additional stock options were issued for 50,000 shares having an
exercise price of $9.00 per share. These options vest ratably over a five-year
period. As of May 31, 1994, no options have been exercised or canceled.
On May 31, 1994, non-employee directors of the Company were granted
non-qualified stock options to purchase an aggregate 9,000 shares of the
Company's common stock at a price per share of $6.50, the fair market value on
the date of grant. All options vest immediately upon grant.
Employee Stock Purchase Plan
The Company has reserved 100,000 shares of common stock for issuance to
employees under the terms of the 1992 Employee Stock Purchase Plan. Under this
plan, 10,569 shares have been issued as of May 31, 1994.
Shareholder Rights Agreement
On July 24, 1991, the Board of Directors adopted a Shareholder Rights
Plan and declared a dividend distribution of one preferred stock purchase right
for each outstanding share of common stock to stockholders of record as of the
close of business on July 25, 1991. Such rights only become exercisable, and
transferable apart from the common stock upon the earliest to occur of (i) ten
business days after the first public announcement that a person or group of
affiliated or associated persons has acquired beneficial ownership of 15% or
more of the outstanding shares of common stock (an "Acquiring Person")(the date
of the public announcement is hereinafter referred to as the "Stock Acquisition
(10) Stockholders' Equity--(Continued)
Shareholder Rights Agreement--(Continued)
Date"); (ii) ten business days following the commencement of tender or exchange
offer that would result in a person or group becoming an Acquiring Person, or
(iii) the declaration by the Board of Directors that any person is an Adverse
Person. A "Grandfathered Person" (as defined below) shall not become an
Acquiring Person unless such Person shall become the beneficial owner of more
than the Grandfathered Percentage (as defined below) of the outstanding shares
of common stock. In the event that a person becomes an Acquiring Person or the
Board of Directors determines that a person is an Adverse Person, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive upon exercise that number of Units of Series A Preferred Stock
having a market value of two times the exercise price of the Right. In the event
that, at any time following the Stock Acquisition Date, the Company is acquired
in a merger or other business combination transaction or 50% of the
Corporation's assets or earning power is sold, the rights entitle holders to
acquire common stock of the acquiring company having a value equal to two times
the exercise price of the rights (such right is referred to as the "Merger
Right"). The rights may be redeemed in whole by the Corporation at $.01 per
right at any time prior to (i) the date on which a person is declared an Adverse
Person, (ii) the tenth business day after the Stock Acquisition Date, or (iii)
the occurrence of an event giving right to a Merger Right. The rights will
expire on July 24, 2001.
A Grandfathered Person is generally defined as any person who or which,
together with its affiliates and associates, was, as of the close of business on
July 25, 1991, the beneficial owner of 15% or more of the shares of common stock
then outstanding. The Grandfathered Percentage is generally defined as the
percentage of outstanding shares of common stock beneficially owned by a
Grandfathered Person as of the close of business on July 25, 1991 plus an
additional two percentage points.
The Shareholder Rights Agreement was amended in April 1993 in
connection with the recapitalization of Town & Country to permit, among other
things, the shares of common stock owned by Town & Country to be transferred to
a trust established for the benefit of Town & Country and the holders of shares
of Town & Country's Exchangeable Preferred Stock.
Report of Independent Public Accountants
To Little Switzerland, Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Little Switzerland, Inc. and
subsidiaries and have issued our report thereon dated July 15, 1994. Our audits
were made for the purpose of forming an opinion on the basic consolidated
financial statements taken as a whole. The schedules listed in the foregoing
index 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 a required part of the basic consolidated financial statements. These
schedules have been subjected to the auditing procedures applied in our audits
of the basic consolidated financial statements and, in our opinion, are fairly
stated, in all material respects, in relation to the basic consolidated
financial statements taken as a whole.
Boston, Massachusetts
July 15, 1994
SCHEDULE II
LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS AND
EMPLOYEES OTHER THAN RELATED PARTIES
(in thousands)
Balance @ Amounts Balance @ End of
Beginning Amounts Written Period
Name of Debtor Of Period Additions Collected Off Current Non-current
For the Year Ended
May 31, 1994:
Town & Country
Corporation....... --- --- --- --- --- ---
For the Year Ended
May 31, 1993:
Town & Country
Corporation....... --- --- --- --- --- ---
For the Year Ended
May 31, 1992:
Town & Country
Corporation....... $ 1,832 $ 0 $ 1,832 --- --- ---
SCHEDULE V
LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
(in thousands)
For the years ended
May 31, 1994
Beginning Retire- Ending
FIXED ASSETS Balance Additions ments Transfers Balance
Buildings.................. $ 6,770 $ 2 $ -- $ -- $ 6,772
Furniture & Fixtures....... 9,108 862 (14) -- 9,956
Leasehold Improvements..... 4,590 1,701 -- -- 6,291
Machinery & Equipment...... 3,332 376 -- -- 3,708
Construction in Progress... 85 1,028 -- -- 1,113
Real Estate (Land)......... 565 -- -- -- 565
-------- -------- ------ ------- -------
Total................... $ 24,450 $ 3,969 $ (14) $ -- $ 28,405
======== ======== ======= ======= ========
May 31, 1993
Beginning Retire- Ending
FIXED ASSETS Balance Additions ments Transfers Balance
- ------------ --------- --------- ------- --------- --------
Buildings.................. $ 6,760 $ 10 $ -- $ -- $ 6,770
Furniture & Fixtures....... 8,691 423 (6) -- 9,108
Leasehold Improvements..... 4,208 382 -- -- 4,590
Machinery & Equipment...... 2,759 573 -- -- 3,332
Construction in Progress... 85 -- -- -- 85
Real Estate (Land)......... 565 -- -- -- 565
--------- ---------- ------ ------- -------
Total.................. $ 23,068 $ 1,388 $ (6) $ -- $ 24,450
========= ========== ======= ======== ========
May 31, 1992
Beginning Retire- Ending
FIXED ASSETS Balance Additions ments Transfers Balance
- ------------ --------- --------- ------- --------- --------
Buildings.................. $ 6,385 $ 399 $ -- $ (24) $ 6,760
Furniture & Fixtures....... 7,870 823 (2) -- 8,691
Leasehold Improvements..... 3,919 265 -- 24 4,208
Machinery & Equipment...... 2,258 514 (13) -- 2,759
Construction in Progress... 85 -- -- -- 85
Real Estate (Land)......... 565 -- -- -- 565
-------- ---------- ------ ---------- -------
Total.................. $ 21,082 $ 2,001 $ (15) $ -- $ 23,068
======== ========= ====== ========== ========
SCHEDULE VI
LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
(in thousands)
For the years ended
May 31, 1994
Beginning Retire- Ending
ACCUMULATED DEPRECIATION Balance Additions ments Transfers Balance
Buildings.................. $ 1,108 $ 233 $ -- $ -- $ 1,341
Furniture & Fixtures....... 6,258 610 (14) -- 6,854
Leasehold Improvements..... 3,257 363 -- -- 3,620
Machinery & Equipment...... 2,420 403 -- -- 2,823
Construction in Progress... -- -- -- -- --
Real Estate (Land)......... -- -- -- -- --
-------- -------- ------ ------- -------
Total................... $ 13,043 $ 1,609 $ (14) $ -- $ 14,638
======== ======== ====== ======= =======
May 31, 1993
Beginning Retire- Ending
ACCUMULATED DEPRECIATION Balance Additions ments Transfers Balance
Buildings.................. $ 874 $ 234 $ -- $ -- $ 1,108
Furniture & Fixtures....... 5,666 592 -- -- 6,258
Leasehold Improvements..... 2,990 267 -- -- 3,257
Machinery & Equipment...... 2,420 410 (12) -- 2,420
Construction in Progress... -- -- -- -- --
Real Estate (Land)......... -- -- -- -- --
-------- -------- ----- ----- -------
Total.................. $ 11,552 $ 1,503 $ (12) $ -- $ 13,043
======== ======== ===== ===== =======
May 31, 1992
Beginning Retire- Ending
ACCUMULATED DEPRECIATION Balance Additions ments Transfers Balance
Buildings.................. $ 649 $ 225 $ -- $ -- $ 874
Furniture & Fixtures....... 5,120 546 -- -- 5,666
Leasehold Improvements..... 2,738 252 -- -- 2,990
Machinery & Equipment...... 1,746 286 (10) -- 2,022
Construction in Progress... -- -- -- -- --
Real Estate (Land)......... -- -- -- -- --
-------- -------- ----- ------ -------
Total................... $ 10,253 $ 1,309 $ (10) $ -- $ 11,552
======== ======== ===== ====== =======
SCHEDULE VIII
LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance @ Write-Offs Balance @
Beginning Net of End
Description Of Period Provision Recoveries Of Period
Allowance for
Doubtful Accounts
For the Year Ended:
May 31, 1994............ --- $ 12 ($ 12) ---
May 31, 1993............ --- --- --- ---
May 31, 1992............ $ 31 --- ($ 31) ---
SCHEDULE IX
LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
(in thousands)
Weighted
Average
Weighted Maximum Average Interest
Balance Average Outstanding Outstanding Rate
Category of Aggregate at End Interest During During During
Short-Term Borrowings Of Period Rate Period Period Period*
For the Year Ended:
May 31, 1994............ --- --- $9,014 $4,646 5.6%
May 31, 1993............ $4,650 5.6% $6,600 $4,811 6.0%
May 31, 1992............ $2,935 7.1% $4,130 $3,426 7.3%
- -------
* Computed as an average of actual monthly interest expense.
SCHEDULE X
LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(in thousands)
Year Ended Year Ended Year Ended
May 31 May 31 May 31
1994 1993 1992
---- ---- ----
Maintenance and repairs......... (1) (1) (1)
Depreciation and amortization... $ 1,833 $ 1,757 $ 1,357
Taxes, other than payroll and
income taxes.................. $ 1,360 $ 1,376 $ 1,221
Royalties....................... (1) (1) (1)
Advertising costs............... $ 1,958 $ 2,295 $ 1,978
- -------
(1) Items are either not applicable or less than 1% of net sales.