02-94-13--AS ELECTRONICALLY FILED WITH THE S.E.C.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ x ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For Fiscal Year Ended February 27, 1994
-----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the Transition Period from to
-------------------- -------------------
Commission File Number: 0-14394
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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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Class A Common Stock,
$.01 par value American Stock Exchange
===================== =======================
Securities registered pursuant to Section 12(g) of the Act: None
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
---- ----
<PAGE>
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ]
The aggregate market value of voting stock, based on the actual price at
which the Class A common stock sold, held by non-affiliates of the
Registrant was $58,881,603 as of April 11, 1994.
On April 11, 1994, the Registrant had outstanding 20,755,901 shares of
Class A Common Stock, $.01 par value and 2,670,693 shares of Class B
Common Stock, $.01 par value.
<PAGE>
TABLE OF CONTENTS
FORM 10-K ANNUAL REPORT
PART I PAGE
Item 1. Business 1
General Business Developments 1
Narrative Description of Business 2
Financial Information about Foreign and
and Domestic Operations and Export Sales 8
Item 2. Properties 9
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of
Security-Holders 11
PART II
Item 5. Market for the Registrant's Common
Equity and Related Stockholder Matters 12
Item 6. Selected Financial Data 13
Item 7. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 14
Item 8. Financial Statements and Supplementary
Data 20
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure 20
PART III
Item 10. Directors and Executive Officers of
the Registrant 21
Item 11. Executive Compensation 21
Item 12. Security Ownership of Certain Beneficial
Owners and Management 21
Item 13. Certain Relationships and Related
Transactions 21
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 22
<PAGE>
PART I
Item 1. BUSINESS
General Business Developments
GENERAL
Town & Country Corporation, a Massachusetts corporation
incorporated in 1965, (collectively with its consolidated subsidiaries
unless the context otherwise requires, the "Company") designs,
manufactures, and markets an extensive collection of fine jewelry,
scholastic and sports specialty products in the United States and
internationally. Prior to May 14, 1993, the Company consisted of seven
operating entities: the parent company, Town & Country Corporation ("Town &
Country"), headquartered in Chelsea, Massachusetts; its wholly owned
subsidiaries, Anju Jewelry Limited, a Hong Kong company and its
subsidiaries ("Anju"); Gold Lance, Inc. ("Gold Lance"), located in Houston,
Texas; Verilyte Gold, Inc. ("Verilyte"), located in Chelsea, Massachusetts
and Dallas, Texas; L.G. Balfour Company, Inc. ("Balfour"), headquartered in
Attleboro, Massachusetts; and Feature Enterprises, Inc. ("Feature"),
located in New York City, New York; and its majority-owned subsidiary Essex
International Public Company Limited and its affiliates ("Essex"), a
Thailand company. As of May 14, 1993, Verilyte and Feature were merged
into a new operating entity, Town & Country Fine Jewelry Group, Inc. ("Fine
Jewelry Group").
RECAPITALIZATION
The Company completed a recapitalization on May 14, 1993. The
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 has
been reduced and a significant portion of the old subordinated debt has
been exchanged for new debt and shares of Class A Common Stock and
Exchangeable Preferred Stock.
The recapitalization consisted of the following components:
(i) the Revised Debt Agreements
(ii) the Secured Debt Offering
(iii) the Exchange Offers
(iv) the Industrial Revenue Bond (IRB) Amendments
(v) the Stockholder Approvals
The Revised Debt Agreements consist of (a) a new revolving
credit agreement which has been obtained from Foothill Capital Corporation
to provide secured financing in an aggregate amount of up to $30,000,000
and (b) new gold consignment agreements which have been obtained from the
Company's current gold suppliers to provide an aggregate gold consignment
availability of up to approximately 100,000 troy ounces.
<PAGE>
The Secured Debt Offering consisted of $30,000,000 principal
amount of the Company's 11 1/2% Senior Secured Notes due September 15,
1997, purchased by various investors.
The Exchange Offers consisted of two parts:
(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 Industrial Revenue Bond (IRB) Amendments represent
agreements with Chemical Bank to change the terms of the IRB financing for
Feature's facility located in New York, New York and include, 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.
The Stockholder Approvals consisted of approval (a) to increase
the authorized shares of Class A Common Stock from 20,000,000 to
40,000,000, (b) the issuance of up to 11,399,905 shares of Class A Common
Stock (approximately 10,743,000 shares were issued), and (c) the issuance
by the Company of options to purchase an aggregate of 1,500,000 shares of
Class A Common Stock at an exercise price of $2.75 per share to members of
senior management.
As a result of this transaction, long-term debt with a carrying
value of $122,673,945, including 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.
(See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Financial Condition" and Note 5 of
Notes to Consolidated Financial Statements).
Narrative Description of Business
GENERAL
The Company designs and manufactures an extensive line of fine
jewelry which it markets on a wholesale basis throughout the U.S., and to a
lesser extent, in the international jewelry market. Its products include
10, 14, and 18-karat gold rings, earrings, pendants, and bracelets, many of
which are set with precious and semi-precious stones. The Company also
manufactures scholastic and sports specialty products.
<PAGE>
Town & Country Corporation
(Headquartered in Chelsea, Massachusetts)
-----------------------------------------------------------------
| | | | |
Town & Country Gold Lance, L.G. Balfour Anju Jewelry Essex
Fine Jewelry Inc. Company, Inc. Limited International
Group, Inc. (Houston, TX) (Attleboro, MA) (Hong Kong) Public Company
(Chelsea, MA) Limited
(Bangkok,
Thailand)
The Company has manufacturing facilities located in
Massachusetts, New York, Texas, Kentucky, Hong Kong, and in Thailand.
These facilities are located close to available labor forces and suppliers
of necessary raw materials.
PRODUCTION METHODS
The Company utilizes a variety of production methods to produce
jewelry. Principal among these is the "lost wax" method of investment
casting. This manufacturing operation originates with a hand designed
original which is then taken through a reverse molding procedure to create
a rubber mold. The rubber mold is infused with wax, and a series of such
wax pieces are then surrounded with plaster of Paris. The plaster of Paris
is placed in a furnace where the wax is eliminated by subjecting the
plaster to high temperatures. Molten gold is then poured into the areas
from which the wax has been eliminated and a rough gold piece is removed
after cooling. The piece produced through the investment casting method
may then be ground, polished, and set with stones.
One of the other production methods used is die striking. This
process begins by tooling a master hub (male impression) from an original
design. The hub is used to create dies (female impression) for machine
stamping. Additional tools are created to trim and shape the final
product. Gold or base metal is struck in hydraulic presses or with
pneumatic drop hammers in multiple steps with alternating annealing steps.
The product is then trimmed and rounded. Stamping dies are custom produced
by computer-aided tool cutting machines or are hand crafted. The rough,
stamped pieces are polished and finished. Precious, semi-precious, or
synthetic stones may be set in the individual pieces.
In addition, the Company utilizes the carbide, or swiss-cutting,
manufacturing operation. This method uses ring blanks of various widths
and dimensions which have been cut from tubes of karat gold in a lathing
process. The blanks are then placed on a cutting machine which is set up
to cut designs into the ring using diamond tipped or carbide tipped tools.
Photo-etching technology is used to manufacture precious metal
charms and earrings. The process consists of several stages. First, a
graphic image of a charm or earring is transferred to a photographic tool
and is replicated by computer control in an optimum layout. The tool is
<PAGE>
then placed on a thin metal plate and passed through an exposure unit which
photographically transfers the images from the tool onto that plate. Next,
the metal plate passes by conveyer through an etching solution where a
chemical milling of the exposed surfaces takes place. Finally, the etched
pieces from the plate are cleaned, shaped, and polished.
The Company uses foil stamping and embossing, offset printing,
die stamp and engraving presses, and laser technology in the manufacture of
graduation announcements, diplomas, certificates, and other printed
products.
MARKETING
There are numerous channels of distribution for fine jewelry,
including jewelry stores (ranging from the independent store with one
location to the large national chains), department stores, catalogue
showrooms, warehouse clubs, and home shopping networks. The Company
distributes its products through all of these channels.
As part of its marketing program, the Company provides a variety
of customer support services designed to meet the varying needs of
customers. For some customers, the Company designs product lines and
develops total merchandising programs including displays and advertising to
market these lines. The Company's sales staff provides quick reaction to
customer pricing and design requirements. The Company utilizes
computerized data bases and electronic data interfaces which assist these
customers by providing information that may be used in marketing,
merchandising, and inventory management. For the independent retail
jewelers, the Company has designed promotional flyer programs through which
marketing and merchandising support pertaining to a select group of
products at specific price ranges is provided.
An increasing portion of retail sales in the fine jewelry
industry is being made through discount department stores, warehouse clubs
and television shopping networks. These customers are more specifically
interested in unique designs, volume production, price and credit terms, as
opposed to the above-mentioned support services.
The Fine Jewelry Group has a single product development
organization built around product category specialists. Each product
category is analyzed so that each category is limited to items providing
the maximum return to the Company and its customers. Utilizing this
structure, the Company believes it is able to be more responsive to trends
in the marketplace.
Gold Lance and Balfour are engaged in the production and
distribution of high school and college class rings on a made-to-order
basis. Gold Lance distributes through retail jewelry stores, while Balfour
markets directly to students on campus and at campus book stores. Each
customer may choose from a wide variety of options. These selling methods
enable Gold Lance and Balfour to maintain low levels of inventory. Gold
Lance and Balfour have libraries of reusable tools and dies, allowing them
to offer a large selection of styles, including fashion-oriented class
rings with intricate designs.
<PAGE>
In conjunction with its school ring sales, Balfour also offers a
variety of graphics products, including graduation announcements, diplomas,
and memory books, and novelty items, such as key chains, and pendants.
Customized rings, insignia pins, and novelty items are also marketed to
associations and organizations.
Balfour markets licensed products, particularly rings and
jewelry licensed by the major professional sports organizations. The
primary distribution channel is direct solicitation through television and
print media.
The Company also markets directly from its Bangkok facility
where wholesale buyers are able to select and direct order jewelry from the
Company. The Company's products are also sold internationally by the
Company's marketing groups and are exhibited at the major international
jewelry trade fairs.
As of March 12, 1994, the Company had approximately $26 million
of orders believed to be firm, as compared to approximately $31 million at
a corresponding date last year. The Company believes that all of these
orders will be filled during fiscal 1995. The Company believes that
comparative open order information is not necessarily indicative of
comparative results due to the high level of timing sensitivity in the fine
jewelry business which depends significantly on orders from large
retailers.
COMPETITION
The Company competes with both domestic and foreign jewelry
suppliers, ranging in size from small regional suppliers to those which
have national distribution capabilities. The principal competitive factors
are price, quality, design, and customer service. Management believes that
the Company has a reputation for providing superior customer service and
delivering a quality product line with broad customer appeal. The Company
tries to achieve relative cost savings as a result of the large volume of
its purchases of diamonds and stones. Further, by manufacturing in higher
quantities, the Company improves its ability to achieve higher margins.
The Company historically has competed in all of the channels of
distribution across its price range and is therefore competing directly
with the specialists in each distribution category. It has been most
successful with retail jewelry stores and the department and discount store
chains which are also buying the numerous marketing and credit related
support services of the Company.
The Company also competes in the class ring industry which is
dominated by a small number of companies. The industry is made up of two
components, the "in-school" component in which ring orders are taken at the
school by the suppliers, and the "retail" component in which local jewelry
stores display samples and take orders. Historically, the "in-school"
component of this industry has been heavily influenced by the school
representative/sales person relationship. Factors which affect the
strength of this relationship include delivery time, price, quality,
design, and customer service. Class ring sales are affected by student
<PAGE>
demographics and economic conditions. Management believes that the Company
currently is competitive with other distributors with regard to the factors
listed above. Management believes that Jostens and CJC Holdings, Inc.
combined currently represent a majority market share of this industry.
Obtaining and maintaining licenses with the major professional
sports organizations is highly competitive. The Company's success has been
as a result of achieving high sales performance through creative marketing
and advertising coupled with strong design and manufacturing capability.
Management believes that Balfour's name recognition and
association with the class ring business gives it a competitive advantage
in the direct marketing of graphics products, such as diplomas, graduation
announcements, and accessories.
SEASONALITY
The Company is impacted by the seasonal demands of its
customers. A significant portion of sales in the fine jewelry industry is
concentrated in the fall in anticipation of the holiday season. Balfour is
also impacted by fluctuations in connection with the scholastic year.
Accordingly, the Company's operating results, and working capital
requirements fluctuate considerably during the year.
The following chart sets forth unaudited quarterly data for
fiscal 1994 and fiscal 1993.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
Fiscal 1994 May 30, August 29, November 28, February 27,
<S> <C> <C> <C> <C>
Net sales $64,125,732 $51,063,035 $94,346,432 $68,214,963
Gross profit 24,650,765 16,370,841 31,632,391 24,739,873
Net income (loss) (498,954) (3,090,822) 5,906,260 821,072
Income (loss)
attributable to
common stock-
holders (574,958) (3,545,972) 5,451,106 353,869
Net income (loss)
per common share $(0.04) $(0.15) $0.23 $0.02
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
Fiscal 1993 May 31, August 31, November 30, February 28,
<S> <C> <C> <C> <C>
Net sales $66,449,853 $51,678,153 $87,531,390 $64,704,655
Gross profit 23,051,036 14,939,776 29,348,114 23,191,753
Net income (loss) (2,832,388) (10,674,704) 1,128,274 (34,916,774)(1)
Net income (loss)
per common share $(0.24) $(0.86) $0.09 $(2.76)
</TABLE>
(1) During the fourth quarter of fiscal 1993, the Company recorded a
restructuring charge related to its New York facility of $5 million, a charge
relating to the disposal of certain Balfour assets of approximately $14.5
million, and expenses associated with recapitalizing the Company of
approximately $12.8 million. (See Notes 2 and 5 of Notes to Consolidated
Financial Statements.)
SIGNIFICANT CUSTOMER
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).
Sales to Zale were approximately $33 million or 12% of
consolidated sales in fiscal 1994 compared to $38 million or 14% of
consolidated sales in fiscal 1993 and $44 million or 16% of consolidated
sales in fiscal 1992. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Zale Bankruptcy." The loss
of Zale as a customer of the Company or a substantial reduction in the
amount of sales to Zale would have a material adverse effect on the
Company.
RAW MATERIALS
The principal raw materials purchased by the Company are gold and
precious and semi-precious stones. The Company currently takes delivery of
most of its gold through consignment programs. As the gold selling price
for orders is confirmed, the Company purchases the gold requirements at the
then current market prices and any additional requirements for gold are
held by the Company as a consignee. This technique enables the Company to
match the price it pays for gold with the price it charges its customers.
The Company pays a fee, which is subject to periodic change, for the value
of the gold held by it during the period prior to sale. The Company has
consignment arrangements in place with a group of suppliers of gold which
provide for the consignment of up to approximately 100,000 troy ounces.
<PAGE>
Colored precious and semi-precious stones are purchased by the
Company mainly in Asia and Europe. Diamonds are purchased principally at
major diamond markets throughout the world, including Bombay, Tel Aviv,
Antwerp, and New York. The Company is not dependent on one supplier or a
small number of suppliers for the purchases of these raw materials.
Availability and cost of these materials are affected by market conditions
and, when there is a period of volatility in the market, operating results
may be affected.
EMPLOYEES
The Company employs, on average, 2,500 persons, with approximately
23% of these persons located in the Far East. The number of employees from
quarter to quarter may vary significantly because of the seasonality of the
Company's business. See "Narrative Description of Business--Seasonality."
Of these 2,500 employees, approximately 600 are involved with selling and
administrative functions of the Company, and the remainder are involved in
the manufacturing functions of the Company.
The Company considers relations with its employees to be
satisfactory. Management does not believe the Company would experience any
significant difficulties in hiring or training additional employees at any
of its facilities.
INDUSTRY PRACTICES
In the jewelry industry, traditionally the wholesaler has provided
considerable working capital in the form of credit terms, inventory
stocking, consignment transactions, and transactions with a right of
return. The Company has historically provided this working capital, but in
today's retail and banking environment, has become more selective in its
commitment of resources. The Company is scrutinizing customer credit-
worthiness more closely and, as a result, is restricting customer credit
and requires security before providing consignment inventory. The Company
also is restricting the availability of consigned merchandise to items that
are actively promoted by the customer.
TRADEMARKS AND COPYRIGHTS
While the Company maintains certain trademarks and copyrights on
product styles and business names and enforces its rights relative to those
trademarks and copyrights, these are not economically material to the
Company and while the Company has licensing agreements with certain major
professional sports organizations, the Company believes that it has no
franchises or licenses which are of a material nature to the Company.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
For information on foreign and domestic operations, see Note 14,
"Consolidating Financial Information and Segment Information," in Notes to
Consolidated Financial Statements.
<PAGE>
Item 2. PROPERTIES
The Company occupies facilities in the United States and the
Far East as described below. (1)
<TABLE>
<CAPTION>
Square
Location Use Footage Ownership
<S> <C> <C> <C>
Chelsea, Massachusetts Executive and
administrative offices,
manufacturing, marketing,
and distribution facility. 94,000 Leased/Owned
Dallas, Texas Administrative offices,
marketing, and
distribution facility. 23,000 Leased
New York, New York (2) Administrative offices,
manufacturing, marketing,
and distribution facility. 91,000 Owned
Attleboro, Massachusetts Administrative offices,
manufacturing, marketing,
and distribution facility. 257,000 Owned
Louisville, Kentucky Manufacturing and
distribution facility. 42,000 Owned
Dallas, Texas Manufacturing and
distribution facility. 55,000 Leased/Owned
Houston, Texas Administrative offices,
manufacturing, and
distribution facility. 31,000 Owned
Hong Kong Administrative offices,
manufacturing, and
distribution facility. 9,000 Leased
Bangkok, Thailand Administrative offices,
manufacturing, marketing,
and distribution facility. 36,000 Leased/Owned
<FN>
(1) The Company's interests in these properties are security for loans made by the
Company's lenders. See Note 5 of Notes to Consolidated Financial Statements.
(2) The New York City Industrial Development agency has the first security position
in this property. See Note 5 of Notes to Consolidated Financial Statements.
</TABLE>
The fine jewelry manufacturing and distribution business is seasonal.
Historically, the Company's facilities operate in excess of full capacity
during the peak demand part of the season and are underutilized during the
slower portions of the season (See "Narrative Description of
Business--Seasonality"). Additional capacity requirements are satisfied
utilizing outside contractors and seasonal staffing is adjusted accordingly.
The school ring business is also seasonal and its factories are impacted
<PAGE>
similarly, but the total and peak demands on the school ring business are not
sufficient to stress the capacity constraints at any time. The Company has
recently consolidated manufacturing facilities to achieve higher average
utilization rates and will increase the amount of its outsourcing as necessary.
During fiscal 1994, the Company leased a portion of its Chelsea,
Massachusetts facility (approximately 44,000 square feet of combined
manufacturing and administrative space) from Carey Realty Trust, a
Massachusetts business trust, which is wholly owned by C. William Carey, the
Chairman, President, and a major stockholder of the Company. The lease expires
on August 31, 1998, and the Company has four five-year options to renew. The
current lease provides for an annual rental payment (subject to a Consumer
Price Index adjustment) on a net lease basis of $475,000. The Company obtained
comparison information from a third party when negotiating the current lease
and believes that these lease arrangements are on terms no less favorable to
the Company than could be obtained from unaffiliated third parties.
Management believes that all its facilities are well maintained, in
good condition and adequate for its present business.
Item 3. LEGAL PROCEEDINGS
The Company is not party to any pending legal proceedings, other
than ordinary routine litigation incidental to the business. In the opinion of
management, adverse decisions on those legal proceedings, in the aggregate,
would not have a materially adverse impact on the Company's business or
financial condition.
It is the Company's current understanding that companies which
may be considered predecessors to Balfour have been designated potentially
responsible parties by the Environmental Protection Agency ("EPA") under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980
with respect to cleanup of hazardous waste in four cases. One of the parties
that may be considered such a predecessor (the "1983 Owner") has, to date,
assumed responsibility for all of these cases in accordance with understandings
the 1983 Owner has reached with the party who bought the assets of the
predecessor Balfour Company in 1983 (the "1988 Owner"). In the first of these
cases, it is the Company's understanding that the predecessor 1983 Owner is
participating in the cleanup and has provided financial assurance that it will
pay its expected share of the cleanup expenses (which are currently estimated
to be under $200,000). In the other three cases, it is the Company's
understanding that the 1983 Owner has settled its liability as a de minimis
waste contributor in each case and has been given comprehensive releases from
further liability for cleanup costs. The Company acquired the stock of Balfour
from the 1988 Owner and believes that it did not assume responsibility for
these cases as a result of this acquisition. Since its acquisition of Balfour
in 1988, the Company has never paid any amounts with respect to any of these
matters and there are no outstanding claims against the Company or Balfour with
respect to any of these matters. While it is possible that a person or agency
could claim that Balfour as a successor to the 1983 Owner is jointly and
severally liable for the cost of the entire cleanup in these cases, the Company
believes that such a claim would have no merit and would vigorously defend and
contest any such claim. Because of the assumption of responsibility for these
<PAGE>
cases by the 1983 Owner and the small waste shares attributed to the 1983
Owner, Management believes that it is unlikely that the Company will suffer
material liability in connection with these cases.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
There were no matters submitted to a vote of security-holders
during the fourth quarter of fiscal 1994.
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Class A Common Stock is traded on the American Stock
Exchange (the "AMEX") under the symbol TNC. Set forth below are the high and
low sales prices for the shares of Class A Common Stock as reported by the AMEX.
<TABLE>
<CAPTION>
Class A Common
Stock Price Range
Fiscal Year Ended High Low
<S> <C> <C>
February 28, 1993:
First Quarter 2 3/4 1 3/4
Second Quarter 3 1/4 1 1/4
Third Quarter 2 1/8 1 1/2
Fourth Quarter 3 1/4 2
February 27, 1994:
First Quarter 3 7/8 2 3/16
Second Quarter 3 3/8 2 1/2
Third Quarter 3 1/8 2 1/2
Fourth Quarter 3 9/16 2 1/2
</TABLE>
There is no established public trading market in effect at this time for
the Class B Common Stock. Shares of Class B Common Stock, however, are
convertible on a share for share basis into shares of Class A Common Stock.
On April 11, 1994, there were 955 holders of record of Class A Common Stock
and 31 holders of record of the Class B Common Stock. The Company's
present policy is to reinvest its earnings in the business. No cash
dividends have been paid during the last two fiscal years, and the Company
has no intention to pay cash dividends in the foreseeable future.
The Company's ability to pay dividends is limited by its
financing agreements and other outstanding indebtedness. As a result of
these restrictions, the Company currently may not pay dividends.
<PAGE>
Item 6. SELECTED FINANCIAL DATA
The following table presents certain selected consolidated
financial data of the Company. The information for each of the five years
in the period ended February 27, 1994, has been derived from consolidated
financial statements audited by Arthur Andersen & Co., independent public
accountants.
Statement of Operations Data:
<TABLE>
<CAPTION>
Fiscal Year Ended
(In thousands, except per share data)
Feb. 27, Feb. 28, Feb. 29, Feb. 28, Feb. 28,
1994 1993 (1) 1992 (2) 1991 1990
<S> <C> <C> <C> <C> <C>
Net sales $277,750 $270,364 $272,194 $410,402 $423,939
Net income (loss) 3,138 (47,296) (19,018) 1,249 6,613
Earnings (loss)
per common
share: 0.08 (3.80) (1.58) 0.10 0.56
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
Fiscal Year Ended
(In thousands)
Feb. 27, Feb. 28, Feb. 29, Feb. 28, Feb. 28,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Total assets $223,921 $246,858 $262,288 $397,804 $327,780
Senior debt 22,022 35,688 6,424 87,676 51,026
Subordinated debt 71,285 120,285 119,496 121,277 127,799
Exchangeable
preferred stock 35,785 - - - -
</TABLE>
(1) In fiscal 1993, the Company recorded a restructuring charge related
to its New York facility of $5 million, a charge related to the disposal of
certain Balfour assets of approximately $14.5 million, and expenses
associated with recapitalizing the Company of approximately $14.4 million.
See Notes 2 and 5 of Notes to Consolidated Financial Statements.
(2) In fiscal 1992, the Company recorded restructuring and Zale bankruptcy
charges of $44 million and net gains from nonrecurring items of $51 million.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and Note 6 of Notes to Consolidated Financial Statements.
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Fiscal 1994 Compared to Fiscal 1993
Net sales for the fiscal year ended February 27, 1994, increased approximately
$8 million or 3% from approximately $270 million in fiscal 1993 to
approximately $278 million in fiscal 1994. Sales of fine jewelry increased
approximately $8 million or 5%, from approximately $169 million in fiscal 1993
to approximately $177 million in fiscal 1994. This increase was achieved
despite a decline in sales to Zale of approximately $5 million or 13% from $38
million in fiscal 1993 to $33 million in fiscal 1994. The increase in sales of
fine jewelry is validation that the Company is achieving more effective new
product development and sales efforts as a result of the 1993 restructuring and
has been able to take advantage of an improving economy.
Gross profit for the fiscal year ended February 27, 1994, increased
approximately $6 million or 7% from $91 million in fiscal 1993 to $97 million
in fiscal 1994. Gross profit margin improved from 33% for the fiscal year
ended February 28, 1993, to 35% for the fiscal year ended February 27, 1994.
Benefits from elimination of low-margin recognition products and entry into
higher-margin sports specialty marketing were offset to some extent by
continuing margin pressure in the fine jewelry business.
Selling, general and administrative expenses for fiscal 1994 declined
approximately $5 million or 6% from $85 million in fiscal 1993 to $80 million
in fiscal 1994. As a percentage of net sales, selling, general and
administrative expenses declined from 32% in fiscal 1993 to 29% in fiscal 1994.
This decline results from consolidations related to the restructuring of the
fine jewelry business.
Interest expense for the fiscal year ended February 27, 1994, declined
approximately $6 million from $20 million in fiscal 1993 to $14 million in
fiscal 1994. The weighted average interest rate was approximately 11.24% for
fiscal 1994 versus 12.3% for fiscal 1993. Average borrowings for the fiscal
year ended February 27, 1994, declined approximately $38 million from
approximately $163 million in fiscal 1993 to approximately $125 million in
fiscal 1994 due to the recapitalization completed on May 14, 1993. See Notes 5
of Notes to Consolidated Financial Statements.
During the fiscal year ended February 27, 1994, the Company had equity
income of approximately $1.1 million from its ownership of Little Switzerland,
Inc. stock and approximately $156,000 from its ownership of Solomon Brothers,
Limited stock. This compares to approximately $1.9 million and approximately
$800,000, respectively, for the same period in fiscal 1993. Both companies are
dependent, to different extents, on tourist travel and spending patterns. The
general level of tourist activity has not met expectations, and the commitments
for inventory and overhead have negatively impacted Little Switzerland, Inc.'s
and Solomon Brothers, Limited's results of operations.
<PAGE>
The Company has recorded a tax provision for fiscal 1994 of approximately
$1 million. The tax provision was primarily due to state and foreign income
taxes.
FISCAL 1993 COMPARED TO FISCAL 1992
Net sales for the fiscal year ended February 28, 1993, declined
approximately $2 million or .7% from approximately $272 million in fiscal 1992
to approximately $270 million in fiscal 1993. Sales of fine jewelry increased
approximately $6 million or 4%, from approximately $163 million in fiscal 1992
to approximately $169 million in fiscal 1993. This increase was achieved
despite a decline in sales to Zale of approximately $6 million or 14% from $44
million in fiscal 1992 to $38 million in fiscal 1993. The increase in sales in
fine jewelry reflects the results of the reorganization that merged the sales
and marketing areas of Town & Country, Feature, and Verilyte and provided the
framework for more focused and creative product development and aggressive
sales activity. Sales of education and recognition products were down
approximately $8 million or 7% from $109 million in fiscal 1992 to $101 million
in fiscal 1993. As a result of the economic climate, many of the Company's
corporate customers were forced to reduce work forces through cutbacks and
attrition, thereby lowering the number of employee award recipients.
Gross profit for the fiscal year ended February 28, 1993, increased
approximately $4 million or 5% from $87 million in fiscal 1992 to $91 million
in fiscal 1993. Gross profit margin improved from 32% for the fiscal year
ended February 29, 1992 to 33% for the fiscal year ended February 28, 1993.
This improvement was primarily the result of efficiencies and cost reductions
in the fine jewelry business produced by the operational restructuring.
Selling, general and administrative expenses for fiscal 1993 declined
approximately $7 million or 8% from $92 million in fiscal 1992 to $85 million
in fiscal 1993. As a percentage of net sales, selling, general and
administrative expenses declined from 34% in fiscal 1992 to 32% in fiscal 1993.
This decline was primarily a result of reductions relating to the restructuring
of the fine jewelry business.
Interest expense for the fiscal year ended February 28, 1993, declined
approximately $5 million from $25 million in fiscal 1992 to $20 million in
fiscal 1993. The weighted average interest rate was approximately 12.3% for
the fiscal year ended February 28, 1993, as compared to approximately 11.7% for
the same period in fiscal 1992. Average borrowings for the fiscal year ended
February 28, 1993, declined approximately $52 million from approximately $215
million in fiscal 1992 to approximately $163 million in fiscal 1993.
Interest income for the fiscal year ended February 28, 1993, declined
from approximately $3.3 million in fiscal 1992 to approximately $680,000 in
fiscal 1993 as a result of lower amounts of funds being held in interest
bearing accounts.
During the fiscal year ended February 28, 1993, the Company had equity
income of approximately $1.9 million from its ownership of Little Switzerland,
Inc. stock and approximately $800,000 from its ownership of Solomon Brothers,
Limited stock. This compares to approximately $3.4 million and approximately
$1.0 million, respectively, for the same period in fiscal 1992. The reduction
<PAGE>
in equity income from Little Switzerland, Inc. was the result of the Company
owning 100% of Little Switzerland, Inc. for the first five months of fiscal
1992 compared with approximately 32% for all of fiscal 1993.
During fiscal 1993, the Company recorded approximately $34 million of
nonrecurring charges related to recapitalizing and restructuring the business.
Approximately $5 million of this charge related to the Company's New York
facility, approximately $14.5 million related to the disposal of certain assets
at Balfour, and $14.4 million related to expenses associated with the Company's
recapitalization. (See Notes 2 and 5 of Notes to Consolidated Financial
Statements.)
Although the Company had a pretax loss of approximately $46 million for
the fiscal year ended February 28, 1993, the Company recorded a tax provision
of approximately $1 million. 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.
FISCAL 1992 COMPARED TO FISCAL 1991
Net sales declined from $410 million in fiscal 1991 to $272 million in
fiscal 1992 with $54 million of the decline due to the deconsolidation of
Little Switzerland, Inc. Comparable net sales for fiscal 1992 were down $85
million or 24% from $357 million in fiscal 1991 to $272 million in fiscal 1992.
Although sales declined in all of the Company's divisions, reduced sales in the
traditional fine jewelry division accounted for the most significant portion of
the decline. Sales in this division declined from $237 million in fiscal 1991
to $163 million in fiscal 1992, a decline of approximately $74 million or 31%
from fiscal 1991. Such reductions were primarily the result of the economic
recession, which led to a decrease in consumer spending for jewelry. This, in
turn, resulted in a reduction in jewelry purchases by large jewelry store
chains, as such chains sought to use inventory already in stock to meet lower
sales. Several large jewelry store chains have experienced severe financial
difficulties due to the economic recession and, in many cases, very high debt
service requirements, and have sought to reduce inventory purchases in an
effort to conserve cash. In addition, sales to the Company's largest customer,
Zale, decreased from $106 million in fiscal 1991 to $44 million in fiscal 1992.
See "Zale Bankruptcy."
Gross profits declined from $143 million in fiscal 1991 to $87 million in
fiscal 1992, and gross profit margins for fiscal 1992 declined to 32% of net
sales from 35% in fiscal 1991. After elimination of the gross profit impact of
Little Switzerland, Inc., gross profits declined $31 million from $118 million
to $87 million and gross profit margins declined to 32% of net sales in fiscal
1992 from 33% of adjusted net sales in fiscal 1991. Of the $31 million
decrease in gross profits, approximately $27 million or 87% of the decrease was
the result of the decrease in sales volume and approximately $4 million or 13%
was the result of margin decline. The Company believes that a majority of this
$4 million decrease resulted from the Company's inability to reduce
manufacturing overhead at the same rate as the decline in sales, and that less
than half represents accruals related to customer allowances.
<PAGE>
In fiscal 1992, the Company recorded restructuring and Zale bankruptcy
charges of $44 million. These expenses consisted of a charge-off of
approximately $13 million in connection with outstanding trade accounts
receivable from Zale and merchandise consigned to Zale, a charge of
approximately $15 million representing the costs that the Company has incurred
and will incur with regard to the disposal of inventory which is considered to
be inconsistent with the sales and marketing plan for the future, a charge of
approximately $13 million of severance and related payments and a charge of
approximately $3 million of physical renovation and merger costs and various
other transition and start-up costs. See "Zale Bankruptcy."
Selling, general and administrative expenses decreased $23 million to $92
million or 34% of net sales in fiscal 1992 as compared with $115 million or 28%
net sales in fiscal 1991. After eliminating the impact of Little Switzerland,
Inc., selling, general and administrative expenses decreased $6 million to $92
million or 34% of net sales as compared with $98 million or 28% of adjusted net
sales in fiscal 1991. This increase of selling, general and administrative
expenses as a percentage of net sales resulted from the decline in net sales
which occurred in fiscal 1992, without a commensurate reduction in fixed costs.
The effect of this decline in sales was partially offset by a reduction in
comparable selling, general and administrative expenses from fiscal 1991 to
fiscal 1992. This reduction was primarily due to the reorganization at
Balfour, which resulted in substantial cost savings and more efficient
operations. In the traditional fine jewelry business of the Company, cost
reductions are primarily the result of variable costs, such as commissions and
payroll, being reduced as a consequence of the lower level of business.
Interest expense declined from $29 million in fiscal 1991 to $25 million
in fiscal 1992, as a result of lower average borrowings in fiscal 1992, as well
as a reduction in the average interest rate paid in fiscal 1992 versus fiscal
1991 from 12.2% in fiscal 1991 to 11.7% in fiscal 1992. Interest and other
income increased from $1 million in fiscal 1991 to $3 million in fiscal 1992,
as a result of the Company having had larger cash positions in interest-bearing
accounts during fiscal 1992.
In fiscal 1992, the Company recorded net gains from nonrecurring items
totaling $51 million. These items included a gain on the sale of approximately
68% of the common stock of Little Switzerland, Inc. of $45 million and a gain
on the sale of approximately 30% of the common stock of Essex of $11 million,
offset by total fees and expenses associated with the above sales and the
banking agreements of $5 million.
In fiscal 1992, the Company recorded equity in net income of Little
Switzerland, Inc. of $3 million. This figure compares to fiscal 1991 Little
Switzerland, Inc. equity income of $6 million after adjusting the consolidated
1991 figures. The decline in equity in Little Switzerland, Inc. net income in
fiscal 1992 is the result of the sale of 68% of the ownership during fiscal
1992. For additional discussion of this transaction, see Note 1 of Notes to
Consolidated Financial Statements.
Although the Company generated a substantial loss in fiscal 1992, the
Company recorded a tax provision of $3 million in this year. 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.
<PAGE>
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 for the claim 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 $7 million. The Consolidated Financial
statements at February 27, 1994, reflect a net valuation of approximately $6
million, representing management's estimate of the value of the remaining claim
related assets.
The Company continues to conduct business with Zale.
LIQUIDITY AND WORKING CAPITAL
Cash provided by operations during fiscal 1994 was approximately
$18 million. Net income adjusted for noncash income and expenses
contributed approximately $12 million to operating activities. Dividends
received from Solomon Brothers, Limited contributed an additional $2
million to operating cash.
Proceeds from the sale of a portion of the Company's investment
in Solomon Brothers, Limited, approximated $3.5 million. Cash used for
fixed asset acquisitions was approximately $4 million.
Cash used in financing activities was approximately $30 million,
including $8 million of payments for expenses associated with the
recapitalization. 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
fiscal 1994, approximately $10 million of Senior Secured Notes were
redeemed with such proceeds.
On March 29, 1994, the Company gave written notice to Solomon
Brothers of the Company's intention to redeem 70,000 additional shares. It
is doubtful that Solomon Brothers will be able to make this payment when it
becomes due. The Company believes its investments are realizable, but is
unable to estimate the timing of future redemption payments from Solomon
Brothers.
The Company believes that it can meet its future working capital
needs through cash flow from operations and from its secured borrowing
facility.
<PAGE>
FINANCIAL CONDITION
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 has been reduced and a significant portion of the old
subordinated debt has been exchanged for new debt, shares of Class A Common
Stock and Exchangeable Preferred Stock.
The new debt structure consists of a new revolving credit
agreement that has been obtained from Foothill Capital Corporation to
provide secured financing in an aggregate amount of up to $30 million, new
gold consignment agreements that have been obtained from the Company's
current gold suppliers to provide an aggregate gold consignment
availability of up to approximately 100,000 troy ounces, $30 million
principal amount of the Company's 11 1/2% Senior Secured Notes due
September 15, 1997, which were purchased by various investors,
approximately $53 million principal amount of the Company's 13% Senior
Subordinated Notes due May 31, 1998, issued as a component of the exchange
together with approximately $7 million of the Company's previously existing
subordinated debt remaining after the exchange. See Note 5 of Notes to
Consolidated Financial Statements.
LOSS ON ASSETS HELD FOR SALE OR DISPOSAL
In fiscal 1993, the Company's management decided to make changes
with respect to certain of the operations of its Balfour subsidiary. As a
result of this decision, the Company sold or disposed of certain inventory
and equipment no longer considered necessary to its modified business. As
a result of these sales and disposals of assets, the Company recognized a
pretax charge in the fourth quarter of fiscal 1993 of $14.5 million which
management believes is adequate to complete the disposals and planned
changes.
INFLATION
The Company's operating expenses are directly affected by
inflation, resulting in an increased cost of doing business. Because the
cost of sales depends on the price of raw materials bought in markets
located throughout the world, the Company is influenced by inflation on an
international basis. In addition, gold prices are affected by political
factors, by changing perceptions of the value of gold relative to
currencies and by inflationary pressures.
The Company believes that inflation does not currently have a
material effect on the Company's operating expenses, although current rates
of inflation are not necessarily indicative of future effects of inflation
on the Company, and thus, inflation could have a material effect on the
Company's operating expenses in the future.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial statements of Town &
Country Corporation and subsidiaries are included as part of this Form
10-K:
Report of Independent Public Accountants . . . . . . . . . . . F-2
Consolidated Balance Sheets - February 27, 1994
and February 28, 1993. . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations - Years
Ended February 27, 1994, February 28, 1993,
and February 29, 1992. . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity -
Years Ended February 27, 1994, February 28, 1993,
and February 29, 1992 . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Cash Flows - Years
Ended February 27, 1994, February 28, 1993,
and February 29, 1992. . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . F-8
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning the age and principal occupation of
each director and executive officer is set forth under the captions
"Election of Directors," "Executive Officers," and "Executive Compensation"
in the Proxy Statement and is incorporated herein by reference.
Item 11. EXECUTIVE COMPENSATION
Information concerning compensation of directors and
executive officers of the Registrant is set forth under the captions "Board
Meetings, Committees, Attendance and Fees," "Executive Officers," and
"Executive Compensation" in the Proxy Statement and is incorporated herein
by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security ownership of executive officers and directors is
set forth under the caption "Election of Directors" and "Security Ownership
of Principal Stockholders and Management" in the Proxy Statement and is
incorporated herein by reference.
Solely for the purpose of calculating the aggregate market
value of the voting stock held by non-affiliates of the Registrant as set
forth on the cover of this report, it has been assumed that directors and
executive officers of the Registrant are affiliates.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information related to certain transactions with
directors of the Registrant is set forth under the caption "Certain
Transactions and Business Relationships" in the Proxy Statement and is
incorporated herein by reference.
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A) DOCUMENT LIST
1. Financial Statements
The following consolidated financial statements of Town &
Country Corporation and Subsidiaries are included in Item 8:
Page
Report of Independent Public Accountants . . . . . . . . . . . . F-2
Consolidated Balance Sheets - February 27, 1994. . . . . . . . . F-3
and February 28, 1993
Consolidated Statements of Operations - Years. . . . . . . . . . F-4
Ended February 27, 1994, February 28, 1993, and
February 29, 1992
Consolidated Statements of Stockholders' Equity -. . . . . . . . F-5
Years Ended February 27, 1994, February 28, 1993,
and February 29, 1992
Consolidated Statements of Cash Flows - Years. . . . . . . . . . F-6
Ended February 27, 1994, February 28, 1993, and
February 29, 1992
Notes to Consolidated Financial Statements . . . . . . . . . . . F-8
2. Financial Statement Schedules
Report of Independent Public Accountants . . . . . . . . . . . .F-32
Schedules:
VIII Valuation Accounts . . . . . . . . . . . . . . . . . . . .F-33
IX Short-term Borrowings. . . . . . . . . . . . . . . . . . F-34
Schedules other than those listed above are omitted because of
the absence of the condition under which they are required or because the
required information is reflected in the financial statements or notes
thereto.
<PAGE>
3. Exhibits
Page
3.1 Restated Articles of Organization, as amended. . . . .*7*(3.1)
3.2 By-laws, as amended. . . . . . . . . . . . . . . . . .*2*(3.2)
4.1 Amended and Restated Indenture governing 10 1/4% . . .*7*(4.1)
Subordinated Notes due 1995 (the "Old 10 1/4%
Notes"), dated as of 5/14/93, from Town & Country
Corporation to The Bank of New York, as Trustee.
4.2 Amended and Restated Indenture governing 13% . . . . .*7*(4.2)
Senior Subordinated Notes due 12/15/98, (the "Old
13% Notes), dated as of 5/14/93, from Town &
Country Corporation to State Street Bank and
Trust Company, as Trustee.
4.3 Supplemental Indenture relating to the Old 10 1/4% . .*7*(4.3)
Notes, dated as of 5/14/93, from Town & Country
Corporation to The Bank of New York, as Trustee.
4.4 Supplemental Indenture relating to the Old 13% . . . .*7*(4.4)
Notes, dated as of 5/14/93, from Town & Country
Corporation to State Street Bank and Trust
Company, as Trustee.
4.5 Indenture governing 11 1/2% Senior Secured Notes . . .*7*(4.5)
due 9/15/97, dated as of 5/14/93, from Town &
Country Corporation to Shawmut Bank, N.A., as
Trustee.
4.6 Indenture governing 13% Senior Subordinated Notes. . .*7*(4.6)
due 5/31/98, dated as of 5/14/93, from Town &
Country Corporation to Bankers Trust Company,
as Trustee.
4.7 Certificate of Vote of Directors Establishing the. . .*7*(4.7)
Exchangeable Preferred Stock, par value $1.00
per share, dated as of 5/14/93.
Material Contracts:
10.1 1989 Employee Stock Purchase Plan of the . . . . . .#1#(10.21)
Registrant.
10.2 Non-Qualified Stock Option dated 7/19/89, from . . .#2#(10.31)
the Registrant to Jerome Peterson.
10.3 1985 Amended and Restated Stock Option Plan of . . . *2*(10.1)
the Registrant.
<PAGE>
10.4 Amendment dated 7/27/89, to the Lease Agreement. . . *5*(10.8)
between Carey Realty Trust and Town & Country
Corporation.
10.5 Amendment dated 7/1/87, to the Lease Agreement . . . *3*(10.3)
between the Registrant and Carey Realty Trust
dated 9/1/84.
10.6 Lease Agreement between the Registrant and Carey . . *1*(10.2)
Realty Trust dated 9/1/84.
10.7 Lease dated 9/1/85, between the New York City. . . .#2#(10.30)
Industrial Development Agency and Feature
Enterprises, Inc.
10.8 First Amendment to Lease Agreement dated as of . . . *7*(10.8)
5/1/93, between the New York City Industrial
Development Agency and Town & Country Fine
Jewelry Group, Inc.
10.9 Amended and Restated Consignment Agreement by . . . *7*(10.9)
and between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Fleet Precious Metals, Inc. dated as of
5/14/93.
10.10 Amended and Restated Consignment Agreement by. . . .*7*(10.10)
and between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Rhode Island Hospital Trust National Bank
dated as of 5/14/93.
10.11 Amended and Restated Consignment Agreement by. . . .*7*(10.11)
and between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
ABN Amro Bank, N.V. dated as of 5/14/93.
10.12 Amended and Restated Consignment Agreement by. . . .*7*(10.12)
and between Town & Country Corporation, L.G.
Balfour Company, Inc., Gold Lance, Inc., and
Town & Country Fine Jewelry Group, Inc. and
Republic National Bank of New York dated as
of 5/14/93.
10.13 Registration Rights Agreement between Little . . . .*6*(10.13)
Switzerland, Inc. and Switzerland Holding, Inc.
dated as of 7/17/91.
10.14 Letter Agreement dated as of 4/6/93, between . . . .*7*(10.14)
Little Switzerland, Inc. and Town & Country
Corporation relating to the Switzerland
Holding, Inc. Registration Rights Agreement.
<PAGE>
10.15 Loan Agreement dated as of 5/14/93, by and among . .*7*(10.15)
Town & Country Corporation, L.G. Balfour Company,
Inc., Gold Lance, Inc., and Town & Country Fine
Jewelry Group, Inc. and Foothill Capital
Corporation.
10.16 Collateral Agency and Intercreditor Agreement. . . .*7*(10.16)
dated as of 5/14/93, by and among Town & Country
Corporation, L.G. Balfour Company, Inc., Gold
Lance, Inc., and Town & Country Fine Jewelry
Group, Inc. and Foothill Capital Corporation,
Fleet Precious Metals, Inc., Rhode Island Hospital
Trust National Bank, Republic National Bank, ABN
Amro Bank N.V., Bankers Trust Company, Shawmut
Bank, N.A., and Chemical Bank.
10.17 Form of 1993 Management Stock Option.. . . . . . . .#4#(10.23)
10.18 Registration Rights Agreement between Town & . . . .*6*(10.19)
Country Corporation and The First National
Bank of Boston, The Federal Deposit Insurance
Corporation, as Receiver of New Bank of New
England, N.A., as Assignee of Federal Deposit
Insurance Corporation, as Receiver of Bank of
New England, N.A., Chemical Bank (as successor
to Manufacturer's Hanover Trust Company) and
The Chase Manhattan Bank, N.A. dated as of
6/15/92.
10.19 Form of Executive Employment Agreement between . . .*4*(10.33)
the Registrant and C. William Carey effective
as of 3/1/89.
10.20 Form of Executive Employment Agreement between . . .*4*(10.34)
the Registrant and Francis X. Correra
effective as of 3/1/89.
10.21 Key Man Life Insurance Policy for C. William . . . .#3#(10.22)
Carey.
10.22 Trust Agreement dated as of 5/14/93, between . . . .*7*(10.22)
Town & Country Corporation and Baybank, as
Trustee.
10.23 Registration Effectiveness Agreement dated . . . . .*7*(10.23)
as of 5/14/93, between Town & Country Corporation
and Certain Funds managed by Fidelity Management &
Research Company.
11 Earnings per Share Computations. . . . . . . . .Filed Herewith
22 Subsidiaries of the Registrant . . . . . . . . .Filed Herewith
24.1 Consent of Arthur Andersen & Co. . . . . . . . .Filed Herewith
<PAGE>
*1* Incorporated by reference to the designated exhibit of the
Registration Statement on Form S-1 No. 2-97557 filed June 21,
1985.
*2* Incorporated by reference to the designated exhibit in the Annual
Report on Form 10-K, Commission File number 0-14394 filed May 26,
1987.
*3* Incorporated by reference to the designated exhibit in the Annual
Report on Form 10-K, Commission File number 0-14394 filed May 18,
1988.
*4* Incorporated by reference to the designated exhibit in the Annual
Report on Form 10-K, Commission File number 0-14394 filed May 26,
1989.
*5* Incorporated by reference to the designated exhibit in the Annual
Report on Form 10-K, Commission File number 0-14394 filed May 25,
1990.
*6* Incorporated by reference to the designated exhibit in the Annual
Report on Form 10-K, Commission File number 0-14394 filed July 6,
1992.
*7* Incorporated by reference to the designated exhibit in the Annual
Report on Form 10-K, Commission File number 0-14394 filed May 27,
1993.
#1# Incorporated by reference to the designated exhibit of the
Registration Statement on Form S-2 No. 33-25092 filed October 20,
1988.
#2# Incorporated by reference to the designated exhibit of Amendment
No. 2 to the Registration Statement on Form S-2 No. 33-25437 filed
December 12, 1988.
#3# Incorporated by reference to the designated exhibit of Amendment
No. 2 to the Registration Statement on Form S-4 No. 33-49028 filed
September 15, 1992.
#4# Incorporated by reference to the designated exhibit of Amendment
No. 6 to the Registration Statement on Form S-4 No. 33-49028 filed
March 12, 1993.
(B) REPORTS ON FORM 8-K
No Form 8-K was issued by the Registrant during the quarter ended
February 27, 1994.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, this Registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TOWN & COUNTRY CORPORATION
(Registrant)
Date: May 16, 1994 By: /s/ C. William Carey
C. William Carey, President
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been duly signed below by the following
persons on behalf of the Registrant and in the capacities and on the date
set forth above.
Signature . . . . . . . . . . . . . . .Title
Principal Executive Officer:
/s/ C. William Carey President, Treasurer, and
C. William Carey Director
Principal Financial and Accounting Officer:
/s/ Francis X. Correra Senior Vice President and
Francis X. Correra Chief Financial Officer
/s/ Richard E. Floor Director
Richard E. Floor
/s/ Philip H. Cahalin Director
Philip H. Cahalin
/s/ Charles Hill Director
Charles Hill
<PAGE>
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
=============================================
CONSOLIDATED FINANCIAL STATEMENTS
TOGETHER WITH AUDITORS' REPORT
<PAGE>
Report of Independent Public Accountants
To Town & Country Corporation:
We have audited the accompanying consolidated balance sheets of
TOWN & COUNTRY CORPORATION (a Massachusetts corporation) and subsidiaries
as of February 27, 1994 and February 28, 1993, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of
the three years in the period ended February 27, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 principles
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 financial statements referred to above present
fairly, in all material respects, the financial position of Town & Country
Corporation and subsidiaries as of February 27, 1994 and February 28, 1993,
and the results of their operations and their cash flows for each of the
three years in the period ended February 27, 1994, in conformity with
generally accepted accounting principles.
Arthur Andersen & Co.
Boston, Massachusetts
April 21, 1994
<PAGE>
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
February 27, February 28,
1994 1993
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 1) $3,273,876 $15,353,259
Restricted cash (Note 1) 37,971 -
Accounts receivable, less allowances for
doubtful accounts of $5,510,000 and
$4,910,000 at February 27, 1994 and
February 28, 1993, respectively 55,623,418 51,619,404
Inventories (Note 1) 75,029,397 74,330,038
Prepaid expenses and other current assets 3,991,883 6,459,519
Total current assets 137,956,545 147,762,220
PROPERTY, PLANT AND EQUIPMENT, at cost
(Note 1) 79,340,723 76,970,012
Less-Accumulated depreciation 33,636,099 30,361,895
45,704,624 46,608,117
INVESTMENT IN LITTLE SWITZERLAND, INC.
(Note 1) 13,304,089 12,198,203
INVESTMENT IN SOLOMON BROTHERS,
LIMITED (Note 12) 13,734,000 19,202,183
OTHER ASSETS (Notes 1 and 3) 13,221,467 21,087,580
$223,920,725 $246,858,303
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to banks (Note 5) $ - $7,250,000
Current portion of long-term debt
(Note 5) 1,479,590 3,667,662
Accounts payable 12,727,357 10,822,914
Accrued expenses (Note 1) 19,956,332 40,989,082
Accrued taxes (Notes 1 and 8) 874,253 386,072
Total current liabilities 35,037,532 63,115,730
LONG-TERM DEBT, less current portion
(Note 5) 91,827,239 152,305,678
OTHER LONG-TERM LIABILITIES 2,093,755 3,256,646
COMMITMENTS AND CONTINGENCIES (Note 9)
MINORITY INTEREST 3,843,117 3,436,393
EXCHANGEABLE PREFERRED STOCK, $1.00 par value
Authorized--2,700,000 shares
Issued and outstanding--2,533,255
shares (Note 5) 35,785,399 -
STOCKHOLDERS' EQUITY (Notes 1, 5, 7,
10, and 11):
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 and
10,000,309 shares at February 27, 1994
and February 28, 1993, respectively 207,559 100,003
Class B Common Stock, $.01 par value-
Authorized--8,000,000 shares
Issued and outstanding--2,670,693
shares at February 27, 1994 and
February 28, 1993 26,707 26,707
Additional paid-in capital 69,909,485 41,111,259
Retained earnings (deficit) (14,810,068) (16,494,113)
Total stockholders' equity 55,333,683 24,743,856
$ 223,920,725 $ 246,858,303
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Year Ended
February 27, 1994 February 28, 1993 February 29, 1992
<S> <C> <C> <C>
NET SALES $ 277,750,162 $ 270,364,051 $ 272,194,039
COST OF SALES 180,356,292 179,833,372 185,445,883
Gross profit $ 97,393,870 $ 90,530,679 $ 86,748,156
RESTRUCTURING CHARGE - 5,000,000 31,003,391
ZALE BANKRUPTCY CHARGE - - 12,615,542
SELLING, GENERAL & ADMINISTRATIVE EXPENSES 80,221,216 85,250,214 92,456,170
Income (loss) from operations $ 17,172,654 $ 280,465 $ (49,326,947)
INTEREST EXPENSE (14,044,933) (20,092,759) (25,067,154)
INTEREST AND OTHER INCOME, net 698,829 680,540 3,256,571
NET (LOSS) GAIN ON NONRECURRING ITEMS (Notes 2 and 6) - (14,500,000) 50,871,674
RECAPITALIZATION EXPENSES (Note 5) - (14,440,000) -
INCOME FROM AFFILIATES (Notes 1 and 12) 1,262,347 2,721,630 4,389,307
MINORITY INTEREST (Note 1) (941,341) (989,336) (615,870)
Income (loss) before provision for income taxes
and extraordinary gain $ 4,147,556 $ (46,339,460) $ (16,492,419)
PROVISION FOR INCOME TAXES (Notes 1 and 8) 1,010,000 956,132 3,252,131
Income (loss) before extraordinary gain $ 3,137,556 $ (47,295,592) $ (19,744,550)
EXTRAORDINARY GAIN FROM EXTINGUISHMENT OF DEBT - - 726,343
Net income (loss) $ 3,137,556 $ (47,295,592) $ (19,018,207)
ACCRETION OF DISCOUNT ON EXCHANGEABLE PREFERRED STOCK 1,453,511 - -
Income (loss) attributable to common stockholders $ 1,684,045 $ (47,295,592) $ (19,018,207)
EARNINGS (LOSS) PER COMMON SHARE (Notes 1, 10, and 11):
Income (loss) before extraordinary gain $ 0.08 $ (3.80) $ (1.64)
Extraordinary gain - - 0.06
Net income (loss) per common share $ 0.08 $ (3.80) $ (1.58)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
(Notes 1, 10, and 11) 21,205,949 12,450,290 12,005,752
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 27, 1994, FEBRUARY 28, 1993, AND FEBRUARY 29, 1992
<TABLE>
<CAPTION>
Class A Class B
Common Stock Common Stock
Additional Retained Total
Number of Par Value Number of Par Value Paid-in Earning Stockholders'
Shares $.01 Shares $.01 Capital (Deficit ) Equity
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, February 28, 1991 9,290,185 $92,901 2,671,643 $ 26,717 $39,516,807 $ 49,819,686 $ 89,456,111
Net proceeds from the exercise of
options to purchase common stock
(Notes 10 and 11) 82,658 827 - - 269,877 - 270,704
Conversion of Class B Common Stock
into Class A Common Stock 1,179 12 (1,179) (12) - - -
Net loss - - - - - (19,018,207) (19,018,207)
BALANCE, February 29, 1992 9,374,022 $93,740 2,670,464 $ 26,705 $39,786,684 $ 30,801,479 $ 70,708,608
Share issuance related to Forbearance
Agreements 602,224 6,022 - - 1,273,704 - 1,279,726
Net proceeds from the exercise of
options to purchase common stock
(Notes 10 and 11) 24,292 243 - - 50,871 - 51,114
Conversion of Class B Common Stock
into Class A Common stock (229) (2) 229 2 - - -
Net loss - - - - - (47,295,592) (47,295,592)
BALANCE, February 28, 1993 10,000,309 $100,003 2,670,693 $ 26,707 $41,111,259 $(16,494,113) $ 24,743,856
Share issuance related to
exchange offer 9,992,648 99,927 - - 26,755,361 - 26,855,288
Share issuance related to purchase
commitment on senior secured notes 750,000 7,500 - - 2,008,125 - 2,015,625
Accretion of discount on
exchangeable preferred stock - - - - - (1,453,511) (1,453,511)
Net proceeds from the exercise of
options to purchase common stock
(Notes 10 and 11) 12,944 129 - - 34,740 - 34,869
Net income - - - - - 3,137,556 3,137,556
BALANCE, February 27, 1994 20,755,901 $207,559 2,670,693 $ 26,707 $69,909,485 $(14,810,068) $ 55,333,683
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
</TABLE>
<TABLE>
<CAPTION>
For the Year Ended
February 27, February 28, February 29,
1994 1993 1992
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 3,137,556 $ (47,295,592) $ (19,018,207)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities--
Provision for loss on Zale accounts receivable and consigned
inventory (Note 3) - - 12,615,542
Depreciation and amortization 5,628,451 8,667,787 10,936,253
Gain on disposal of fixed assets (113,162) (2,583,573) (634,103)
Loss on restructuring - 5,000,000 -
Gain on extinguishment of debt - - (726,343)
Loss on assets held for sale or disposal (Note 2) - 14,500,000 -
Gain on subsidiary sale of stock - - (56,142,690)
Bank fees paid by issuance of stock - 1,273,704 -
Undistributed earnings of affiliates, net of minority interest (227,894) (1,453,506) (3,450,856)
Interest paid with issuance of debt (Note 5) 3,495,571 - -
Ordinary dividends received from affiliate 2,045,532 - 2,671,150
Change in assets and liabilities, net of effects from the
deconsolidation of Little Switzerland, Inc. and
restructuring (Note 1)--
(Increase) decrease in accounts receivable (4,004,014) (9,166,453) 25,504,871
(Increase) decrease in inventories (1,595,015) (1,623,039) 17,438,888
(Increase) decrease in prepaid expenses and other
current assets 2,467,636 2,657,448 6,343,038
(Increase) decrease in other assets 3,722,423 3,163,549 (59,278)
Increase (decrease) in accounts payable 1,904,443 950,586 (11,715,831)
Increase (decrease) in accrued expenses 2,190,050 11,042,155 6,328,989
Increase (decrease) in accrued and deferred taxes 488,181 (1,022,665) (1,808,896)
Increase (decrease) in other liabilities (1,162,891) (307,250) 472,167
Net cash provided by (used in) operating activities $ 17,976,867 $ (16,196,849) $ (11,245,306)
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
For the Year Ended
February 27, February 28, February 29,
1994 1993 1992
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of fixed assets $ 222,746 $ 3,889,387 $ 2,854,248
Capital expenditures (4,056,307) (3,519,205) (3,052,783)
Proceeds from sale of investments 3,486,000 - -
Proceeds from sale of Little Switzerland, Inc. stock (Note 1) - - 63,772,369
Proceeds from sale of Essex International Company
Limited stock - - 14,420,778
Net cash provided by (used in) investing activities $ (347,561) $ 370,182 $ 77,994,612
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in unsecured notes payable $ - $ - $ (38,300,000)
Payments on revolving credit facilities (206,869,004) - -
Proceeds from borrowings under revolving credit facilities 206,869,004 - -
Decrease (increase) in restricted cash (37,971) - -
Payments to retire credit facility (37,250,000) - -
Proceeds from senior secured notes 30,000,000 - -
Payments on other debt (13,666,180) (11,486,285) (81,251,934)
Payments to retire subordinated debt - - (1,637,500)
Payment of dividend by Essex to minority interests (534,617) (1,419,431) (260,712)
Proceeds from the issuance of debt - 31,000,000 17,000,000
Proceeds from the issuance of common stock 34,869 57,136 270,704
Payments for recapitalization expenses (8,254,790) - -
Net cash provided by (used in) financing activities $ (29,708,689) $ 18,151,420 $ (104,179,442)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ (12,079,383) $ 2,324,753 $ (37,430,136)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 15,353,259 13,028,506 50,458,642
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 3,273,876 $ 15,353,259 $ 13,028,506
SUPPLEMENTAL CASH FLOW DATA:
CASH PAID DURING THE YEAR FOR:
Interest $ 6,104,397 $ 10,693,175 $ 25,548,797
Income taxes $ 589,730 $ 712,606 $ 759,761
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 27, 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its controlled domestic and foreign
subsidiaries. All significant intercompany transactions have been
eliminated.
Reclassifications
Certain reclassifications have been made to the prior years' financial
statements to conform with the presentation of the fiscal 1994 financial
statements.
Cash and Cash Equivalents
Cash equivalents include highly liquid investments with original
maturities of three months or less.
Restricted Cash
Restricted cash includes cash payments from the Company's investment
in Solomon Brothers, Limited and cash proceeds with respect to the Zale
bankruptcy claim. These funds are escrowed for the benefit of the holders
of the Senior Secured Notes. During fiscal 1994, approximately $10 million
of Senior Secured Notes were redeemed with such proceeds.
Inventories
Inventories, which include materials, labor and manufacturing
overhead, are stated at the lower of cost or market using the first-in,
first-out (FIFO) method.
Inventories consisted of the following at February 27, 1994 and
February 28, 1993:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Raw materials $ 16,753,865 $ 22,373,004
Work-in-process 7,154,300 8,334,661
Finished goods 51,121,232 43,622,373
$ 75,029,397 $ 74,330,038
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 27, 1994
In prior years, certain of the material content, primarily diamond,
had been valued using the last-in, first-out (LIFO) method. During 1994,
the Company liquidated its remaining inventory valued on the LIFO method,
resulting in a decrease in cost of sales of approximately $1.3 million in
the accompanying consolidated statement of operations for the year ended
February 27, 1994. The Company now uses the FIFO method exclusively.
The effects of gold price fluctuations are mitigated by the use of a
consignment program with bullion dealers. As the gold selling price for
orders is confirmed, the Company purchases the gold requirements at the
then current market prices; any additional requirements for gold are held
as consignee. This technique enables the Company to match the price it
pays for gold with the price it charges its customers. The Company pays a
fee, which is subject to periodic change, for the value of the gold it
holds during the period prior to sale. As of February 27, 1994 and
February 28, 1993, the Company held approximately 64,000 ounces and 91,000
ounces, respectively, of gold on consignment (Note 5).
Advertising
The Company expenses the costs of advertising as incurred, except for
certain direct-response advertising costs, which are capitalized and
amortized over their expected period of future benefits.
Direct-response advertising consists primarily of print media and
television advertisements that provide for telephone response. The
capitalized costs are amortized over the four-month period following the
advertisement.
At February 27, 1994, February 28, 1993, and February 29, 1992,
advertising expense was $11,023,850, $9,292,461, and $10,040,611,
respectively. At February 27, 1994 and February 28, 1993, $2,680,852 and
$246,702 of advertising was capitalized and included in other current
assets.
Property, Plant and Equipment
The Company provides for depreciation, principally on the
straight-line method, at rates adequate to depreciate the applicable assets
over their estimated useful lives which range from 3 to 40 years. Certain
equipment is depreciated using the declining balance method.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 27, 1994
Property and equipment consisted of the following at February 27,
1994 and February 28, 1993:
<TABLE>
<CAPTION>
Useful Life
Ranges 1994 1993
<S> <C> <C> <C>
Real estate 10 - 40 Years $ 29,694,070 $ 28,042,711
Furniture and fixtures 3 - 7 Years 2,989,365 2,824,481
Equipment 3 - 20 Years 42,584,500 41,851,905
Leasehold improvements 4 - 20 Years 3,681,385 3,212,965
Construction-in-progress 391,403 1,037,950
$ 79,340,723 $ 76,970,012
</TABLE>
Investment in Little Switzerland, Inc.
The sale of approximately 68% of Little Switzerland, Inc.'s common
stock by a subsidiary of the Company resulted in the deconsolidation of
Little Switzerland, Inc. in the fiscal 1992 consolidated financial
statements of the Company. The continuing investment in Little
Switzerland, Inc. is now classified as a long-term asset in the
accompanying consolidated balance sheets, with income recognized using the
equity method of accounting. Equity in net income of Little Switzerland,
Inc. included in the consolidated statement of operations is presented as
if the deconsolidation occurred on March 1, 1991, and represents 100% of
Little Switzerland Inc.'s net income from March 1, 1991, to the date of the
sale of the common stock, and approximately 32% of Little Switzerland
Inc.'s net income thereafter.
Presented below is summarized financial information for Little
Switzerland, Inc. as of and for the years ended February 27, 1994,
February 28, 1993, and February 29, 1992:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Current assets $ 36,228,000 $ 40,179,000
Noncurrent assets 14,761,000 13,893,000
Current liabilities 7,884,000 14,858,000
Noncurrent liabilities 794,000 847,000
Total equity 42,311,000 38,367,000
Sales $ 63,727,000 $ 62,550,000 $ 55,571,000
Gross profit 28,282,000 29,232,000 25,948,000
Net income 3,900,000 5,980,000 6,534,000
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 27, 1994
At February 27, 1994, consolidated retained earnings of the Company
included approximately $8.7 million related to the undistributed earnings
of Little Switzerland, Inc.
Accrued Expenses
The principal components of accrued expenses at February 27, 1994 and
February 28, 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Compensation and related costs $ 8,877,284 $ 8,235,649
Customer deposits 4,242,529 5,767,701
Interest 2,621,644 11,077,327
Commissions 1,271,281 1,063,573
Restructuring - 1,596,549
Recapitalization - 8,254,790
Other 2,943,594 4,993,493
$ 19,956,332 $ 40,989,082
</TABLE>
Income Taxes
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Statement 109 requires a change from the deferred method of
accounting for income taxes of APB Opinion 11 to the asset and liability
method of accounting for income taxes. Under the asset and liability
method of Statement 109, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under Statement 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date.
Effective March 1, 1993, the Company adopted Statement 109. The
effect of the adoption of SFAS 109 was not material to the Company's
consolidated financial statements.
Earnings (Loss) Per Common Share
Earnings (loss) per common share is computed based on the weighted
average number of common and common equivalent, where dilutive, shares
outstanding during each period. Common equivalent shares result from the
assumed exercise of stock options and warrants.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 27, 1994
Long-term Intangible Assets
The excess ($7,172,000) of purchase price over the values assigned to
net assets acquired is being amortized using the straight-line method over
periods ranging from 30 to 40 years. Accumulated amortization was
approximately $2,920,000 and $2,715,000 at February 27, 1994 and
February 28, 1993, respectively.
Minority Interest
Minority interest is determined based on the percent ownership of the
equity by other investors of the related consolidated subsidiary.
Subsidiary Sale of Stock
At the time a subsidiary sells its stock to unrelated parties at a
price in excess of its book value, the Company's net investment in that
subsidiary increases. The Company records the increase as a gain in the
consolidated statement of operations.
Supplemental Disclosures of Noncash Investing & Financing Activities
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
(Note 5).
The Company transferred approximately $13 million of accounts
receivable and inventory held on consignment by Zale to other assets in
fiscal 1992 (Note 3).
The Company completed a recapitalization on May 14, 1993. (See
Note 5).
Financial Instruments
Cash and Cash Equivalents
The carrying amount approximates fair value because of the short
maturity of the instruments.
Restricted Cash
The Company's restricted cash is invested in short-term, highly-liquid
investments. The carrying amount approximates fair value because of the
short-term maturity of these investments.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 27, 1994
Investment in Solomon Brothers, Limited
The fair value of the Company's investment in Solomon Brothers,
Limited is considered to be equal to its carrying value as of February 27,
1994, based on the valuation method agreed upon for the redemption of
shares as discussed in Note 12.
Long-Term Subordinated Debt and Exchangeable Preferred Stock
The Company believes that the fair value of the Company's long-term
subordinated debt and exchangeable preferred stock approximates its
carrying value as of February 27, 1994, based on the valuation methodology
required for the recapitalization.
Long-Term Secured Debt
The fair value of the Company's various long-term secured debt, which
are secured by various assets, are considered to approximate their carrying
value as of February 27, 1994. This conclusion is based on the
relationship of carrying value to the value of the related security and the
relatively short maturities of the related debt.
(2) LOSS ON ASSETS HELD FOR SALE OR DISPOSAL
In fiscal 1993, the Company's management decided to make changes with
respect to certain of the operations of its Balfour subsidiary. As a
result of this decision, the Company sold or disposed of certain inventory
and equipment no longer considered necessary to its modified business. As
a result of these sales and disposals of assets, the Company recognized a
pretax charge in the fourth quarter of fiscal 1993 of $14.5 million which
management believes is adequate to complete the disposals and planned
changes.
(3) ZALE CORPORATION AND AFFILIATES
The Company's largest customer for a number of years has been the Zale
Corporation and its affiliated companies, including Gordon Jewelry
Corporation. Sales to the Zale Companies were approximately $33 million or
12% of consolidated sales in fiscal 1994 compared to $38 million or 14% of
consolidated sales in fiscal 1993 and $44 million or 16% of consolidated
sales in fiscal 1992. 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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 27, 1994
The Company's Consolidated Financial Statements at February 28, 1992,
originally reflected a net valuation for the claim 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 $7 million. The Consolidated Financial
Statements at February 27, 1994, reflect a net valuation of approximately
$6 million, representing management's estimate of the value of the
remaining claim related assets.
The Company continues to conduct business with Zale.
(4) CONCENTRATION OF CREDIT RISK
A significant portion of the Company's business activity is with large
jewelry retailers and department store chains, many of which are not only
subject to the risks associated with economic impacts on retailers of
discretionary, consumer goods but also are companies with high
debt-to-equity ratios.
(5) LONG-TERM DEBT AND CREDIT ARRANGEMENTS
Long-term debt at February 27, 1994 and February 28, 1993, consists of
the following:
<TABLE>
<CAPTION>
Town & Country Corporation 1994 1993
<S> <C> <C>
Senior Subordinated Notes due 1998
with interest payable semiannually at
13%, including unamortized premium of
$6,971,343. The first four interest
payments are expected to be made with
issuance of additional notes up to
$15,300,000. The first such required
payment due November 1993 was paid by
the issuance of approximately $3.5
million of new notes. $63,947,814 $ -
Senior Secured Notes due 1997 with
interest payable monthly at 11.5%.
Payments required prior to maturity for
proceeds received by the Company
related to the Company's investment in
Solomon Brothers, Limited and/or
settlement of the Zale bankruptcy claim
and certain other limited conditions. 19,980,300 -
Senior Subordinated Notes due 1998
with interest payable semiannually at
13%, net of unamortized discount of
$57,210 and $916,996 in 1994 and 1993,
respectively. 6,902,790 95,633,004
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 27, 1994
Town & Country Corporation (continued) 1994 1993
Subordinated Notes due 1995 with
interest payable semiannually at
10 1/4%, net of unamortized original
issue discount of $16,698 and
$1,703,768 in 1994 and 1993,
respectively. $ 434,302 $24,652,232
Other notes 25,583 4,732
Subsidiaries
Obligation under New York City
Industrial Development Agency
industrial revenue bond. The note
calls for four remaining quarterly
principal payments of $16,666 and a
final payment of $383,358. Quarterly
interest is determined at 75% of
Chemical Bank's "reference" rate (6% at
February 27, 1994), with a minimum of 6%. 450,022 516,686
Obligation under New York City
Industrial Development Agency
industrial revenue bond. The note
calls for four remaining quarterly
principal payments of $350,334 and a
final payment of $164,682. Quarterly
interest is determined at 1.25% above
Chemical Bank's "reference" rate
(6% at February 27, 1994). 1,566,018 5,166,686
$93,306,829 $125,973,340
Less-Current portion 1,479,590 3,667,662
Plus-Portion of Credit Agreement
refinanced with the Senior Secured
Notes due 1997. - 30,000,000
$91,827,239 $152,305,678
</TABLE>
On May 14, 1993, the Company completed a recapitalization. The
recapitalization was accounted for as a "troubled debt restructuring" under
SFAS 15 whereby the net carrying value of the old debt was allocated to the
new securities, issued in the recapitalization, based on their estimated,
relative, fair market values, and no gain or loss was recognized.
Recapitalization costs were expensed as incurred.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 27, 1994
As a result of this transaction, long-term debt with a carrying value
of $122,673,945, including 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. If the transaction had occurred on
March 1, 1993, interest expense for the year would have been approximately
$2 million lower.
On May 14, 1993, the Company entered into a new revolving credit
facility with Foothill Capital Corporation ("Foothill") providing senior
secured financing in an aggregate amount of up to $30 million. The line of
credit will mature on May 14, 1996, and will automatically renew for two
year periods unless terminated. The loans will bear interest at a rate per
annum equal to the greater of (a) two percent above the reference rate (the
highest "prime rate" or "reference rate" announced by an identified group
of major banks) selected by Foothill or (b) 8%. The agreement contains the
standard covenants for facilities of this type including, without
limitation, financial covenants relating to interest coverage, minimum net
worth, minimum working capital, debt to net worth and current ratios, and
limitations on dividends and distributions, dispositions of assets and
capital expenditures. Advances under the credit facility will be based on
eligible receivables and inventory. Foothill has a first priority security
interest in receivables, certain inventory, primarily stones and diamonds,
and substantially all real estate and fixed assets owned by the Company and
its domestic subsidiaries. The Company had no outstanding balance at
February 27, 1994, under the new credit agreement, and had availability of
$18 million.
On May 14, 1993, the Company entered into new gold agreements with its
gold suppliers providing secured gold consignment availability of up to
approximately 100,000 troy ounces. The agreements are terminable upon
thirty days' written notice and contain the standard covenants for
facilities of this type including, without limitation, financial covenants
relating to interest coverage, minimum net worth, minimum working capital,
debt to net worth and current ratios, and limitations on dividends and
distributions and first priority security interest in the precious metal
content of inventory. The Company had approximately 64,000 troy ounces on
consignment at February 27, 1994.
On May 14, 1993, the Company issued approximately 2,533,000 shares of
Exchangeable Preferred Stock, the outstanding shares of which will be
redeemed by the Company on December 31, 2000, for $14.59 per share plus
accrued and unpaid dividends payable in cash or shares of Little
Switzerland, Inc. common stock. No dividends will be paid until after the
second anniversary of the date of issuance of the stock. Thereafter,
holders will be entitled to receive cumulative cash dividends at a rate of
6% per annum based on $14.59 per share. Dividends will be payable
semiannually on each six-month and twelve-month anniversary of the issuance
date. At any time after March 1, 1994, each share of Exchangeable
Preferred Stock may be exchanged by the holder for a share of Little
Switzerland, Inc. common stock or redeemed by the Company, for cash, at a
declining premium through 1998. As of February 27, 1994, accretion of
discount on exchangeable preferred shares has amounted to $1,453,511.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 27, 1994
In the event that the land and building acquired with the New York
City Industrial Development Agency financing are sold within 10 years of
issuance of the bonds, which were issued on September 1, 1985, a subsidiary
of the Company is required to repay the Agency a percentage of the tax
abatements received as a result of the financing. The percentage of
recapture varies from 100% during the initial six years of the loan to 20%
in the tenth year. The debt is secured by the related real estate and
fixtures attached thereto. The loan agreement places restrictions upon the
subsidiary, including certain assumptions of term debt, liens or
encumbrances.
Aggregate maturities of long-term debt for each of the next five years
are approximately $1,480,000, $1,013,000, $0, $19,980,000, and $63,936,000,
respectively.
(6) NONRECURRING EVENTS
During 1992, the Company recorded a number of nonrecurring events as a
result of efforts to recapitalize and deleverage the Company. Gains of
approximately $45 million on the sale of approximately 68% of the Company's
ownership of its retail subsidiary (net of underwriters' fee), and of
approximately $11 million on the sale of approximately 30% of the Company's
ownership of its Thailand manufacturing subsidiary (net of underwriters'
fee) were recorded. Also recorded were expenses associated with the two
stock sales and the negotiation of new banking agreements which amounted to
approximately $5 million.
In addition, during 1992, the Company recorded a Zale bankruptcy
charge of $13 million (see Note 3), and a restructuring charge of $31
million related to the consolidation of its fine jewelry group operations.
In fiscal 1993, the Company recorded a restructuring charge of $5 million
as a consequence of adjusting the carrying value of its New York facility.
(7) CAPITALIZATION
Each share of Class B Common Stock entitles the holder to 10 votes,
and each share of Class A Common Stock entitles the holder to one vote on
matters submitted to stockholders. The Class B Common Stock is convertible
at any time, at the option of the holder, into Class A Common Stock on a
share-for-share basis. As part of the recapitalization, the Company issued
to its financial advisors warrants to purchase 125,000 shares of Class A
Common Stock, with an exercise price of $2.685 per share and a final
maturity of five years from the date of issuance of the warrants.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 27, 1994
(8) INCOME TAXES
The domestic and foreign components of income (loss) before provision
for income taxes (including the extraordinary gain in 1992) for the years
ended February 27, 1994, February 28, 1993, and February 29, 1992, are as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Domestic $ 221,748 $(50,196,999) $(22,408,961)
Foreign 3,925,808 3,857,539 6,642,885
$4,147,556 $(46,339,460) $(15,766,076)
</TABLE>
The components of the provision (benefit) for income taxes for the
years ended February 27, 1994, February 28, 1993, and February 29, 1992,
are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Current--
Federal $ - $ - $ 627,027
State 636,449 875,399 581,447
Foreign 373,551 80,733 202,652
$ 1,010,000 $ 956,132 $ 1,411,126
Deferred--
Federal $ - $ - $ 1,883,420
Foreign - - (42,415)
$ - $ - $ 1,841,005
Total provision $ 1,010,000 $ 956,132 $ 3,252,131
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 27, 1994
The Company's effective tax rate, including the extraordinary gain in
fiscal 1992, differs from the federal statutory rate of 35% in fiscal 1994 and
34% in fiscal 1993 and 1992 due to the following:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Computed tax provision
(benefit)
at statutory rate $ 1,451,645 $(15,755,416) $ (5,360,466)
Increases (reductions)
resulting from--
Difference between U.S.
and foreign tax rates 378,940 80,733 136,295
Repatriation of
foreign earnings - 3,310,405 3,056,000
State taxes 636,449 654,871 581,447
Tax basis differences
included in sale of
subsidiary stock - - 3,921,000
Loss on assets held for
sale or disposal not
deductible for
income tax purposes - 1,734,000 -
Items not deductible
for income tax
purposes 65,378 1,092,476 472,500
(Utilization) deferral
of net operating
losses (1,522,412) 9,618,535 425,855
Other - 220,528 19,500
$ 1,010,000 $ 956,132 $ 3,252,131
</TABLE>
<TABLE>
<CAPTION>
DEFERRED TAX ASSETS February 27,
1994
<S> <C>
Restructuring and recapitalization cost accruals $ 6,108
Accounts receivable reserves 4,861
Accrual for loss on assets held for sale or
disposal 1,873
Inventories 1,413
Other 1,899
Net operating loss carryforwards 10,944
Total gross deferred tax assets 27,098
Less--valuation allowance (8,742)
Net deferred tax assets $ 18,356
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 27, 1994
<TABLE>
<CAPTION>
DEFERRED TAX LIABILITIES February 27,
1994
<S> <C>
Property, plant and equipment, principally
due to differences in depreciation $ 6,888
Investments in affiliated companies,
principally due to undistributed income 9,815
Other 1,653
Total deferred tax liabilities 18,356
Net deferred tax asset (liability) $ -
</TABLE>
The valuation allowance relates to uncertainty surrounding the
realizability of the deferred tax assets, principally the net operating
loss carryforwards.
For tax reporting purposes, the Company has a U.S. net operating loss
carryforward of approximately $22 million, subject to Internal Revenue
Service review and approval. In addition, net operating loss carryforwards
of approximately $2,500,000 were generated by a U.S. subsidiary prior to
its acquisition by the Company. Utilization of the subsidiary's net
operating loss carryforward is contingent on the subsidiary's ability to
generate income in future years. The net operating loss carryforwards will
expire from 2003 to 2008 if not utilized. The recapitalization was
consummated on May 14, 1993, and constituted a change in control as defined
in Section 382 of the U.S. Internal Revenue Code. As a result, net
operating loss carryforwards incurred prior to the recapitalization
totaling approximately $6,000,000 will be available only to a limited
extent (approximately $2,000,000 per year) to offset future taxable income
recognized by the Company.
(9) COMMITMENTS AND CONTINGENCIES
The Company leases a portion of its Chelsea, Massachusetts,
facility comprised of approximately 44,000 square feet of combined
manufacturing and administrative space from Carey Realty Trust, a
Massachusetts business trust (the "Trust"), which is wholly owned by
C. William Carey, the President and a major stockholder of the Company. The
lease expires on August 31, 1998, and the Company has four five-year
options to renew. The current lease provides for an annual rental (subject
to a Consumer Price Index adjustment) on a net lease basis of $475,000. The
Company obtained comparison information from a third party when negotiating
the current lease and believes that these lease arrangements are on terms
no less favorable to the Company than could be obtained from unaffiliated
third parties.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 27, 1994
Certain other Company facilities and equipment are leased
under agreements expiring at various dates. Many of these leases provide
the Company with renewal options. The Company's commitments under the
noncancelable portion of all operating leases for the next five years and
in total thereafter at February 27, 1994, are approximately as follows:
<TABLE>
<CAPTION>
Total
Year Commitment
<S> <C>
1995 $ 787,000
1996 632,000
1997 548,000
1998 531,000
1999 259,000
Thereafter 3,000
</TABLE>
Subsequent to February 27, 1994, a subsidiary of the Company
entered into an agreement to lease manufacturing and office facilities for
a period of 15 years. The minimum future obligation for this lease is
$605,000 per year for fiscal 1995 through fiscal 1999, and $6.7 million
thereafter.
Lease and rental expense included in the accompanying
consolidated statements of operations amounted to approximately $1,090,000,
$1,290,000, and $1,015,000 for the years ended February 27, 1994, February
28, 1993, and February 29, 1992, respectively.
A subsidiary of the Company is a party to certain contracts
with some of its sales representatives whereby the representative has
purchased the right to sell the subsidiary's products, in a territory, from
his predecessor. The contracts generally provide that the value of these
rights is primarily determined by the amount of business achieved by a
successor sales representative and is therefore not determinable in advance
of performance by the successor sales representative.
The Company is not party to any pending legal proceedings,
other than ordinary routine litigation incidental to the business. In
management's opinion, adverse decisions on those legal proceedings, in the
aggregate, would not have a materially adverse impact on the Company's
consolidated results of operations or financial position.
(10) STOCK OPTION PLAN
An aggregate of 1,500,000 shares of Class A Common Stock were
registered for issuance under the Company's 1985 Amended and Restated Stock
Option Plan (the Plan). The Plan is administered by a committee of the
Board of Directors. Both incentive stock options and nonstatutory stock
options may be granted under the Plan. All options outstanding were issued
at the fair market value at the date of grant.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 27, 1994
The following table summarizes the stock option transactions
for the three years ended February 27, 1994:
<TABLE>
<CAPTION>
Number of Price Range
Options Per Share
<S> <C> <C>
Options outstanding at
February 28, 1991 935,100 $2.38 -$8.00
Options granted 7,500 2.50
Options canceled (80,900) 3.00 - 6.75
Options exercised (58,400) 3.00 - 3.13
Options outstanding at
February 29, 1992 803,300 $2.38 -$8.00
Options granted -
Options canceled (44,800) 3.00 - 6.75
Options exercised -
Options outstanding at
February 28, 1993 758,500 $2.38 -$8.00
Options granted 50,000 2.63
Options canceled (70,100) 3.00 - 5.63
Options exercised -
Options outstanding at
February 27, 1994 738,400 $2.38 -$8.00
Exercisable at
February 27, 1994 641,930
</TABLE>
At February 27, 1994, there were 627,150 shares reserved for
future grants under the Plan.
The Company has also granted stock options not under the Plan
to consultants and various individuals to purchase up to 1,610,000 shares
of Class A Common Stock at prices ranging from $1.75 to $6.75 per share
(fair market value at the date of grant).
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 27, 1994
(11) EMPLOYEE STOCK PURCHASE PLAN
On January 25, 1988, the Board of Directors adopted the 1988
Employee Stock Purchase Plan (the "Stock Purchase Plan") for 500,000 shares
of the Class A Common Stock. Under the Stock Purchase Plan, each eligible
participating employee is deemed to have been granted an option to purchase
shares of the Company's Class A Common Stock on a semiannual basis at a
price equal to 90% of the market value on the last day of the period.
During the year ended February 27, 1994, 7,926 shares were issued at $2.50
per share and 5,018 shares were issued at $3.00 per share. During the year
ended February 28, 1993, 14,171 shares were issued at $2.00 per share and
10,121 shares were issued at $2.25 per share. During the year ended
February 29, 1992, 10,214 shares were issued at $4.50 per share and 14,144
shares were issued at $2.25 per share. At February 27, 1994, there were
329,652 shares reserved for issuance under the Stock Purchase Plan.
(12) INVESTMENT IN SOLOMON BROTHERS, LIMITED
On May 27, 1988, the Company purchased 410,000 shares of
nonvoting, redeemable, cumulative, Participating Preferred Class B Stock of
Solomon Brothers, Limited ("Solomon Brothers"), a Bahamian company, for a
total purchase price of $17,220,020.
The Company is entitled, as holder, to a fixed, cumulative,
preferred dividend equal to 1% of the purchase price annually. The Company
is also entitled to a cumulative, ordinary dividend equal to the change in
net book value per ordinary share of Solomon Brothers, calculated as if the
Company was a holder of ordinary shares, less the preferred dividend and to
a fee determined as a percent of cumulative, accrued, unpaid ordinary
dividends. The combined dividend rate for the periods ended February 27,
1994, February 28, 1993, and February 29, 1992, was approximately 1.1%,
4.7%, and 5.8%, respectively. The Company received distributions of
$2,045,532 and $2,671,150 of previously accrued but unpaid ordinary
dividends during fiscal 1994 and 1992, respectively. On May 31, 1993, the
Company redeemed 83,000 of the Company's shares for approximately $3.5
million. On March 29, 1994, the Company gave written notice to Solomon
Brothers of the Company's intention to redeem 70,000 additional shares. It
is doubtful that Solomon Brothers will be able to make this payment when it
becomes due. The Company believes its investments are realizable, but is
unable to estimate the timing of future redemption payments from Solomon
Brothers.
(13) EMPLOYEE BENEFIT PLANS
(a) Postemployment Medical Benefits
In December 1990, the Financial Accounting Standards Board
issued SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions," which requires that the accrual method of accounting
for certain postretirement benefits be adopted. Adoption is required for
fiscal years beginning after December 1992. A subsidiary of the Company
provides certain health care and life insurance benefits for employees who
retired prior to December 31, 1990. The Company adopted this statement in
fiscal 1994 and is recognizing the actuarial present value of the
accumulated postretirement benefit obligation (APBO) of approximately $6.1
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 27, 1994
million on the delayed recognition method over a period of 20 years.
Amortization of the accumulated benefit obligation was approximately
$324,000 and increased the expense in 1994 over what the expense would have
been if the Company used a cumulative adjustment to recognize the APBO.
Prior to adopting SFAS No. 106, the cost of providing these benefits was
expensed as incurred and amounted to approximately $508,000, and $432,000
for the years ended February 28, 1993 and February 29, 1992, respectively.
The following table sets forth the plan status as of fiscal
1994 year-end.
<TABLE>
<CAPTION>
Total
<S> <C>
Accumulated postretirement benefit
obligation (in 000's)
Retired employees $(6,477)
Active employees -
Total (6,477)
Plan assets at fair value -
Unfunded accumulated benefit obligation
in excess of plan assets (6,477)
Unrecognized net gain -
Unrecognized prior service cost -
Unrecognized transition obligation 6,162
Prepaid (accrued) postretirement medical
benefit cost $ (315)
The net periodic postretirement benefit costs for fiscal 1994
included the following components:
Total
Service cost -- benefits attributed to
service during the period $-
Interest cost 494
Actual return on assets -
Amortization of unrecognized transition
obligation 324
Net periodic postretirement benefit cost $ 818
</TABLE>
For measurement purposes, a 16% annual rate of increase in
the per-capita cost of covered health care benefits is assumed for fiscal
1994 (10% for Medicare eligible retirees); the rate was assumed to decrease
gradually down to 6% for fiscal 2001 and remain at that level thereafter.
The health care cost trend rate assumption has a significant effect on the
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 27, 1994
amounts reported. To illustrate, increasing the assumed health care cost
trend rate one percentage point in each year would increase the accumulated
postretirement benefit obligation as of February 27, 1994, by $432,000 or
by 7%, and the aggregate of the service and interest cost components of the
net periodic postretirement benefit cost for fiscal 1994 by $32,000 or by
6%.
The weighted average discount rate used in determining the
accumulated postretirement benefit obligation was 8.0%.
(b) Pension Plans
Certain subsidiaries of the Company participate in
multiemployer pension plans. The plans provide for defined benefits for
substantially all unionized employees. The amounts charged for pension
contributions were approximately $62,000, $96,000, and $179,000 for the
years ended February 27, 1994, February 28, 1993, and February 29, 1992,
respectively.
(c) Deferred Compensation
A subsidiary of the Company has deferred compensation
agreements with certain sales representatives and executives which provide
for payments upon retirement or death based on the value of life insurance
policies or mutual fund shares at the retirement date. The cost of the
subsidiary's liability under these compensation agreements has been charged
to selling, general and administrative expense. The deferred compensation
expense for the years ended February 27, 1994, February 28, 1993, and
February 29, 1992, was approximately $156,000, $220,000, and $265,000,
respectively.
(14) CONSOLIDATING FINANCIAL INFORMATION AND SEGMENT INFORMATION
The securities issued in connection with the Company's
recapitalization, discussed in Note 5, are guaranteed by the Company and
its domestic subsidiaries. As a result, the Company has included condensed
consolidating financial statements on a domestic and foreign basis for the
year ended February 27, 1994. In addition, the Company has included
certain summarized consolidating financial information for the years ended
February 28, 1993 and February 29, 1992 (in 000's). Foreign gross profit
includes gross profit attributable to sales from foreign subsidiaries to
domestic subsidiaries, which is not included in the eliminations column as
the impact is included in cost of sales of the domestic subsidiaries.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 27, 1994
<TABLE>
<CAPTION>
February 27, 1994 (000's)
ASSETS Domestic Foreign Eliminations Consolidated
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 203 $ 5,125 $ (2,054) $ 3,274
Restricted cash 38 - - 38
Accounts receivable, net 54,572 2,684 (1,632) 55,624
Inventories 71,174 4,214 (359) 75,029
Prepaid expenses and other
current assets 3,562 349 81 3,992
Total current assets 129,549 12,372 (3,964) 137,957
PROPERTY, PLANT AND
EQUIPMENT, at cost 72,122 7,219 - 79,341
Less--Accumulated
depreciation 30,874 2,762 - 33,636
41,248 4,457 - 45,705
INTERCOMPANY LOANS (3,588) 1,534 2,054 -
INVESTMENT IN SUBSIDIARIES 15,379 - (15,379) -
INVESTMENT IN LITTLE
SWITZERLAND, INC. 13,304 - - 13,304
INVESTMENT IN SOLOMON
BROTHERS, LIMITED 13,734 - - 13,734
OTHER ASSETS 12,634 587 - 13,221
$ 222,260 $ 18,950 $ (17,289) $ 223,921
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 27, 1994
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' February 27, 1994 (000's)
EQUITY Domestic Foreign Eliminations Consolidated
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Current portion of long-
term debt $ 1,480 $ - $ - $ 1,480
Accounts payable 13,205 1,155 (1,632) 12,728
Accrued expenses 19,102 854 - 19,956
Accrued and currently
deferred income taxes 599 264 11 874
Total current
liabilities 34,386 2,273 (1,621) 35,038
LONG-TERM DEBT, less
current portion 91,827 - - 91,827
LONG-TERM DEFERRED INCOME
TAXES AND OTHER
LIABILITIES 2,093 1 - 2,094
MINORITY INTEREST - - 3,843 3,843
EXCHANGEABLE PREFERRED
STOCK 35,785 - - 35,785
STOCKHOLDERS' EQUITY:
Common stock 234 2,109 (2,109) 234
Additional paid-in capital 69,909 8,515 (8,515) 69,909
Retained earnings (deficit) (11,974) 6,052 (8,887) (14,809)
Total stockholders'
equity 58,169 16,676 (19,511) 55,334
$ 222,260 $ 18,950 $ (17,289) $ 223,921
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 27, 1994
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF February 27, 1994 (000's)
OPERATIONS Domestic Foreign Eliminations Consolidated
<S> <C> <C> <C> <C>
NET SALES $ 259,098 $ 38,406 $ (19,754) $ 277,750
COST OF SALES 169,860 30,250 (19,754) 180,356
Gross profit $ 89,238 $ 8,156 $ - $ 97,394
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 76,784 3,437 - 80,221
Income from operations $ 12,454 $ 4,719 $ - $ 17,173
INTEREST EXPENSE, net 13,507 (161) - 13,346
INCOME FROM AFFILIATES 1,262 - - 1,262
MINORITY INTEREST - - (941) (941)
Income before income taxes $ 209 $ 4,880 $ (941) $ 4,148
PROVISION FOR INCOME TAXES 728 282 - 1,010
Net income (loss) $ (519) $ 4,598 $ (941) $ 3,138
ACCRETION OF DISCOUNT ON
EXCHANGEABLE PREFERRED
STOCK 1,454 - - 1,454
Income (loss) attributable
to common stockholders $ (1,973) $ 4,598 $ (941) $ 1,684
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 27, 1994
<TABLE>
<CAPTION>
CONSOLIDATING STATEMENT OF February 27, 1994 (000's)
CASH FLOWS Domestic Foreign Eliminations Consolidated
<S> <C> <C> <C> <C>
Net income (loss) $ (519) $ 4,598 $ (941) $ 3,138
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities--
Depreciation and
amortization 5,033 595 - 5,628
Loss (gain) on disposal
of fixed assets 25 (138) - (113)
Ordinary dividends
received from affiliates 3,274 - (1,228) 2,046
Interest paid by debt
issuance 3,496 - - 3,496
Undistributed earnings
of affiliates (1,169) - 941 (228)
Change in assets and
liabilities--
(Increase) decrease in
accounts receivable (5,147) 888 255 (4,004)
(Increase) decrease in
inventories (4,062) 2,467 - (1,595)
(Increase) decrease in
prepaid expenses and
other current assets 1,671 (86) 883 2,468
(Increase) decrease in
other assets 3,478 245 - 3,723
Increase (decrease) in
accounts payable 2,931 (772) (255) 1,904
Increase (decrease) in
accrued expenses 2,818 (628) - 2,190
Increase (decrease) in
accrued and deferred
taxes 1,170 201 (883) 488
Increase (decrease) in
other liabilities (1,086) (77) - (1,163)
Net cash provided by
(used in) operating
activities $ 11,913 $ 7,293 $ (1,228) $ 17,978
</TABLE>
<TABLE>
<CAPTION>
CASH FLOWS FROM INVESTING
ACTIVITIES:
<S> <C> <C> <C> <C>
Proceeds from sale of
fixed assets $ 13 $ 210 $ - $ 223
Proceeds from sale of
investments 3,486 - - 3,486
Capital expenditures (1,928) (2,129) - (4,057)
Net cash provided by
(used in) investing
activities $ 1,571 $ (1,919) $ - $ (348)
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 27, 1994
<TABLE>
<CAPTION>
CASH FLOWS FROM FINANCING February 27, 1994 (000's)
ACTIVITIES: Domestic Foreign Eliminations Consolidated
<S> <C> <C> <C> <C>
Payments on revolving
credit facility $ (206,869) - - (206,869)
Proceeds from borrowings
under revolving credit
facility 206,869 - - 206,869
(Increase) decrease in
restricted cash (38) - - (38)
Payments to retire credit
facility (37,250) - - (37,250)
Proceeds from senior secured
notes 30,000 - - 30,000
Change in intercompany
notes payable 10,785 (8,731) (2,054) -
Payments for recapitalization
expenses (8,255) - - (8,255)
Payments on debt (13,666) - - (13,666)
Payment of dividends - (1,763) 1,228 (535)
Proceeds from the issuance
of common stock 35 - - 35
Net cash provided by
(used in) financing
activities $ (18,389) $ (10,494) $ (826) $ (29,709)
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ (4,905) $ (5,120) $ (2,054) $ (12,079)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 5,107 10,246 - 15,353
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 202 $ 5,126 $ (2,054) $ 3,274
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 27, 1994
Fiscal 1993 Summarized Consolidating Financial Information (000's)
<TABLE>
<CAPTION>
Domestic Foreign Eliminations Consolidated
<S> <C> <C> <C> <C>
Net sales $ 254,769 $ 38,623 $ (23,028) $ 270,364
Operating income (loss) (3,616) 3,896 - 280
Net income (loss) (51,057) 4,751 (989) (47,295)
Total assets 241,821 24,425 (19,388) 246,858
Total equity 25,032 20,452 (20,740) 24,744
</TABLE>
Fiscal 1992 Summarized Consolidating Financial Information (000's)
<TABLE>
<CAPTION>
Domestic Foreign Eliminations Consolidated
<S> <C> <C> <C> <C>
Net sales $ 248,233 $ 42,677 $ (18,716) $ 272,194
Operating income (loss) (51,482) 2,155 - (49,327)
Net income (loss)
before extra-
ordinary gain (22,069) 2,941 (616) (19,744)
Net income (loss) (21,343) 2,941 (616) (19,018)
Total assets 260,160 31,605 (29,477) 262,288
Total equity 70,998 28,994 (29,283) 70,709
</TABLE>
<PAGE>
Report of Independent Public Accountants
On Schedules
To Town & Country Corporation:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements of Town &
Country Corporation and subsidiaries included in this Form 10-K
and have issued our report thereon dated April 21, 1994. Our
audit was made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The
schedules listed in Item 14 (a) (2) 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 part of the basic consolidated financial statements.
These schedules have been subjected to the auditing procedures
applied in the audit of the basic consolidated financial
statements and, in our opinion, fairly state, in all material
respects, the financial data required to be set forth therein,
in relation to the basic consolidated financial statements taken
as a whole.
Arthur Andersen & Co.
Boston, Massachusetts
April 21, 1994
<PAGE>
SCHEDULE VIII
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
Valuation Accounts
<TABLE>
<CAPTION>
Balance Write-offs, Balance
Beginning Net of End of
Description of Year Provision Recoveries Year
<S> <C> <C> <C> <C>
Allowance for Doubtful
Accounts:
For the Year Ended:
February 27, 1994 $ 4,910,000 $ 2,550,000 $ (1,950,000) $ 5,510,000
February 28, 1993 6,392,000 1,746,000 (3,228,000) 4,910,000
February 29, 1992 4,002,000 5,026,000 (2,636,000) 6,392,000
</TABLE>
<PAGE>
SCHEDULE IX
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
Short-Term Borrowings
<TABLE>
<CAPTION>
Weighted
Average
Maximum Interest
Weighted Amount Average Rate
Balance Average Outstanding Outstanding During
End of Interest During During the
Category of Borrowings Year Rate Year Year Year*
<S> <C> <C> <C> <C> <C>
For the Year Ended:
February 27, 1994 $ - - $ 37,250,000 $20,300,000 9.2%
February 28, 1993 7,250,000 9.0% 48,000,000 33,625,000 8.2%
February 29, 1992 17,000,000 6.9% 42,810,000 29,650,000 9.6%
</TABLE>
*Computed as an average of actual monthly interest expense.
<PAGE>
EXHIBITS
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
Exhibits, other than Exhibits 11, 22, and 24.1 have been omitted.
The Company will supply, upon written request, copies of any exhibit
from the Document list.
<PAGE>
Exhibit 11
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
Earnings Per Share Computations
Five Years Ended
(Unaudited)
<TABLE>
<CAPTION>
February 27, February 28, February 29, February 28, February 28,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
PRIMARY EPS:
Net income (loss) $ 3,137,556 $ (47,295,592) $(19,018,207) $ 1,249,092 $ 6,613,097
Accretion of discount
on exchangeable
preferred stock (1,453,511) - - - -
Net income (loss)
attributable to
common stock $ 1,684,045 $ (47,295,592) $(19,018,207) $ 1,249,092 $ 6,613,097
Weighted average common
shares outstanding 21,205,949 12,450,290 12,005,752 11,908,913 11,848,755
Weighted shares issued
from exercise and
assumed exercise of:
warrants - - - - -
options - - - - -
Shares for EPS
calculation 21,205,949 12,450,290 12,005,752 11,908,913 11,848,755
Reported EPS:
Income (loss) before
extraordinary gain
and accretion of
discount on exchange-
able preferred stock $ 0.15 $ (3.80) $ (1.64) $ (0.05) $ 0.56
Extraordinary gain - - 0.06 0.15 -
Accretion of discount
on exchangeable
preferred stock (0.07) - - - -
Net income (loss)
per common share $ 0.08 $ (3.80) $ (1.58) $ 0.10 $ 0.56
</TABLE>
Fully Diluted EPS:
For the five years presented in this exhibit, there is no dilution from
Primary EPS.
This exhibit should be reviewed in conjunction with Note 1 of
Notes to Consolidated Financial Statements.
<PAGE>
Exhibit 22
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
Subsidiaries of the Registrant
Set forth below is a list of the Registrant's subsidiaries (1) as of February
27, 1994, with their state or other jurisdiction of incorporation, names under
which they do business, and the percentage of their voting securities owned by
the Registrant as of such date.
<TABLE>
<CAPTION>
Percent
Name Incorporation and Date Ownership
<S> <C> <C>
Essex International Public Company Limited Thailand, 1984 70%
Gold Lance, Inc. Massachusetts, 1986 100%
L.G. Balfour Company, Inc. Delaware, 1992 100%
Anju Jewelry Limited Hong Kong, 1973 100%
Town & Country Fine Jewelry Group, Inc. (2) Massachusetts, 1991 100%
</TABLE>
- - - -----------------------
(1)Excluded are the names of particular subsidiaries, which, when considered
in the aggregate as a single subsidiary, would not constitute a significant
subsidiary as of February 27, 1994.
(2)Verilyte Gold, Inc. and Feature Enterprises, Inc. were merged into
Town & Country Fine Jewelry Group, Inc. as of May 14, 1993.
<PAGE>
Exhibit 24.1
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports included in this Form 10-K, into the Company's previous filed
Registration Statements on Form S-4, File No. 33-49028, and on Form S-8,
File No. 33-23860.
Arthur Andersen & Co.
Boston, Massachusetts
May 13, 1994
