UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A-2
[ 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
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.
The undersigned registrant hereby amends Item 8 of Part II of its amended Annual
Report on Form 10-K/A for the period ended February 27, 1994.
<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 then
<PAGE>
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 25,650,765 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
stockholders (574,958) (3,545,972) 5,451,106 353,869
Net income (loss)
per common share $ (0.04) $ (0.15) $ 0.23 $ 0.02
<PAGE>
First Second Third Fourth
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
Fiscal 1993 May 31, August 31, November 30, February 28,
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)
Square
Location Use Footage Ownership
Chelsea, Massachusetts Executive and 94,000 Leased/
administrative offices Owned
manufacturing, marketing,
and distribution facility.
Dallas, Texas Administrative offices, 23,000 Leased
marketing, and
distribution facility.
New York, New York(2) Administrative offices, 91,000 Owned
manufacturing, marketing
and distribution facility.
Attleboro, Massachusetts Administrative offices, 257,000 Owned
manufacturing, marketing,
and distribution facility.
Louisville, Kentucky Manufacturing and 42,000 Owned
distribution facility.
Dallas, Texas Manufacturing and 55,000 Leased/
distribution facility. Owned
Houston, Texas Administrative offices, 31,000 Owned
manufacturing, marketing,
and distribution facility.
Hong Kong Administrative offices, 9,000 Leased
manufacturing, and
distribution facility.
Bangkok, Thailand Administrative offices, 36,000 Leased/
manufacturing, marketing Owned
and distribution facility.
(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.
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
<PAGE>
are impacted 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
<PAGE>
responsibility for these 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.
Class A Common
Stock Price Range
Fiscal Year Ended High Low
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
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
Balance Sheet Data:
Fiscal Year Ended
(In thousands)
Feb. 27, Feb. 28, Feb. 29, Feb. 28, Feb. 28,
1994 1993 1992 1991 1990
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 -- -- -- --
<FN>
(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.
</FN>
</TABLE>
<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 sales increase is attributable to increased volume rather than
increased prices. Product costs have remained relatively stable while
competitive pressure on margin has continued to intensify. 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. Gross profit also
benefited from the $1.3 million liquidation of the Company's remaining LIFO
based inventory.
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
Note 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
<PAGE>
overhead have negatively impacted Little Switzerland, Inc.'s and Solomon
Brothers, Limited's results of operations.
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
<PAGE>
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 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%
of 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 29, 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-42
Schedules:
VIII Valuation Accounts.......................................F-43
IX Short-term Borrowings................................... F-44
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
21 Subsidiaries of the Registrant.................Filed Herewith
23.1 Consent of Arthur Andersen & Co................Filed Herewith
99 Additional Exhibits
99.1 Little Switzerland, Inc. and Subsidiaries,
Consolidated Financial Statements for the Fiscal Year
ended May 31, 1994.............................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 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: April 03, 1995 By: /s/Francis X. Correra
------------------
Francis X. Correra
Senior Vice President and
Chief Financial Officer
<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 LLP
Boston, Massachusetts
April 21, 1994
<PAGE>
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
February 27, February 28,
ASSETS 1994 1993
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
February 27, February 28,
LIABILITIES AND STOCKHOLDERS' EQUITY 1994 1993
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
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, February 28, February 29,
1994 1993 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):
$ 0.08 $ (3.80) $ (1.64)
Income (loss) before extraordinary gain
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
Number of Par Value Number of Par Value
Shares $.01 Shares $.01
<S> <C> <C> <C> <C>
BALANCE, February 28, 1991 9,290,185 $ 92,901 2,671,643 $ 26,717
Net proceeds from the exercise of
options to purchase common stock 82,658 827 -- --
(Notes 10 and 11)
Conversion of Class B Common Stock 1,179 12 (1,179) (12)
into Class A Common Stock
Net loss -- -- -- --
BALANCE, February 29, 1992 9,374,022 $ 93,740 2,670,464 $ 26,705
Share issuance related to Forbearance
Agreements 602,224 6,022 -- --
Net proceeds from the exercise of
options to purchase common stock 24,292 243 -- --
(Notes 10 and 11)
Conversion of Class B Common Stock
into Class A Common Stock (229) (2) 229 2
Net loss -- -- -- --
BALANCE, February 28, 1993 10,000,309 $ 100,003 2,670,693 $ 26,707
Share issuance related to
exchange offer 9,992,648 99,927 -- --
Share issuance related to purchase
commitment on senior secured notes 750,000 7,500 -- --
Accretion of discount on
exchangeable preferred stock -- -- -- --
Net proceeds from the exercise of
options to purchase common stock 12,944 129 -- --
(Notes 10 and 11)
Net income -- -- -- --
BALANCE, February 27, 1994 20,755,901 $ 207,559 2,670,693 $ 26,707
</TABLE>
<TABLE>
<CAPTION>
Additional Retained Total
Paid-in Earning Stockholders'
Capital (Deficit) Equity
<S> <C> <C> <C>
BALANCE, February 28, 1991 $ 39,516,807 $ 49,819,686 $ 89,456,111
Net proceeds from the exercise of
options to purchase common stock 269,877 -- 270,704
(Notes 10 and 11)
Conversion of Class B Common Stock -- -- --
into Class A Common Stock
Net loss -- (19,018,207) (19,018,207)
BALANCE, February 29, 1992 $ 39,786,684 $ 30,801,479 $ 70,708,608
Share issuance related to Forbearance
Agreements 1,273,704 -- 1,279,726
Net proceeds from the exercise of
options to purchase common stock 50,871 -- 51,114
(Notes 10 and 11)
Conversion of Class B Common Stock
into Class A Common stock -- -- --
Net loss -- (47,295,592) (47,295,592)
BALANCE, February 28, 1993 $ 41,111,259 $(16,494,113) $ 24,743,856
Share issuance related to
exchange offer 26,755,361 -- 26,855,288
Share issuance related to purchase
commitment on senior secured notes 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 34,740 -- 34,869
(Notes 10 and 11)
Net income -- 3,137,556 3,137,556
BALANCE, February 27, 1994 $ 69,909,485 $(14,810,068) $ 55,333,683
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<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 -- -- 12,615,542
inventory (Note 3)
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)
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
For the Year Ended
February 27, February 28, February 29,
1994 1993 1992
CASH FLOWS FROM INVESTING ACTIVITIES:
<S> <C> <C> <C>
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:
1994 1993
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
<PAGE>
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 on consignment during the period
prior to sale. For the years ended February 27, 1994, February 28, 1993 and
February 29, 1992, these fees totaled $1.5 million, $1.4 million and $1.5
million, respectively.
The Company does not include the value of consigned gold in inventory or the
corresponding liability in borrowings for financial statement purposes. As of
February 27, 1994 and February 28, 1993, the Company held approximately 64,000
ounces, valued at $24.4 million, and 91,000 ounces, valued at $29.8 million,
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>
Property and equipment consisted of the following at February 27, 1994 and
February 28, 1993:
Useful Life
Ranges 1994 1993
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
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:
1994 1993 1992
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
<PAGE>
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:
1994 1993
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
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>
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, the estimated useful lives. The Company continually
evaluates whether events and circumstances have occurred that indicate that the
remaining estimated useful life of goodwill may warrant revision or that the
remaining balance of goodwill may not be recoverable. When factors indicate that
goodwill should be evaluated for possible impairment, the Company uses an
estimate of the related business segments' undiscounted operating income over
the remaining life of the goodwill in measuring whether the goodwill is
recoverable. In fiscal 1993, the Company recorded a write-down of approximately
$1.6 million of goodwill associated with changes made to part of its business
and the disposal of certain related assets (See Note 2). 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.
<PAGE>
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.
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 recognized a pretax charge of $14.5 million in the fourth
quarter of fiscal 1993 to cover losses associated with the disposal of certain
inventory and fixed assets, including property, plant and equipment of
approximately $12.9 million and intangibles of approximately $1.6 million, no
longer considered necessary to its modified business. At February 27, 1994 the
disposals have been substantially completed and the remaining reserve, of
approximately $.6 million, is intended to cover the sale of the remaining
assets, as well as expected losses associated with the disposition of the plant,
which is currently for sale.
(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
<PAGE>
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.
(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 $ --
<PAGE>
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
(Continued)
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 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
<PAGE>
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.
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.
<PAGE>
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.
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. The program included
negotiating new agreements with the lending group which supplied short- and
intermediate-term funding and the sale of assets which contributed to the
deleveraging of the balance sheet.
The following table summarizes the activities included in the 1992 results of
operations:
A gain on the sale of approximately 68% of the Company's $45,233,242
ownership of its retail subsidiary (net of underwriters'
fee)
A gain on the sale of approximately 30% of the Company's 10,909,448
ownership of its Thailand manufacturing subsidiary (net of
underwriters' fee)
Expenses associated with the above sales and banking (5,271,016)
agreements
$50,871,674
<PAGE>
On May 2, 1991, Essex International Company Limited (Essex), a Thailand
subsidiary of the Company, sold 880,000 shares of its common stock in a public
offering in Thailand. The shares were sold for 240 Baht per share raising
approximately $8 million of new capital which Essex intends to use for
expansion. In a related transaction, TNC Holding, B.V., a Netherlands subsidiary
of the Company, sold 637,500 shares of Essex common stock in a private placement
raising approximately $6 million of new capital to be used for general purposes
of the Company. Related to this offering, 120,000 shares of Essex common stock
were sold to directors, officers and employees of the Company and certain
outsiders at various prices with compensation expense recorded where
appropriate. As a result of these transactions, Essex has become a listed
company on the Stock exchange of Thailand (SET). These transaction had the net
result of reducing the Company's ownership of Essex to approximately 70%.
In fiscal 1992, the Company recorded a gain of approximately $4.4 million from
the private placement by TNC Holding B.V. and a gain of approximately $6.5
million which was a result of valuing the Company's ownership of Essex after its
sale of stock and recognizing the resulting increase in value as current period
income.
On July 25, 1991, Switzerland Holding, Inc. a subsidiary of the Company, sold
5.7 million shares of its subsidiary, Little Switzerland, Inc., in a public
offering. The offering price was $12 per share resulting in gross proceeds, net
of underwriters discount , of $64 million. After giving effect to the other
offering expenses, net proceeds to the Company were approximately $62 million
before taxes. The Company's subsidiary continues to own approximately 32% of the
shares of Little Switzerland, Inc.
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. The restructuring charge
consisted of approximately $15 million representing the costs which the Company
incurred with regard to the disposal of inventory which was considered to be
inconsistent with the sales and marketing plan for the future, approximately $13
million of severance and related payments and approximately $3 million of
physical renovation, merger costs and various other transaction and start-up
costs. At February 27, 1994 the restructuring was complete.
Based on the success of its operational restructuring during fiscal 1993, the
Company concluded that the Feature facility in New York will not be required as
a long-term manufacturing site. The Company expects to maintain a continuing
presence in New York in the form of sales and marketing functions, product
development, and manufacturing support services, including a repair function and
subcontractor control operations. These functions will remain in the Feature
facility until the Company is able to sell the facility at a price which it
considers acceptable. As a result of its decision to dispose of the facility,
the Company adjusted the carrying value of the Feature facility by approximately
$5 million, which was recorded as a restructuring charge during the fourth
quarter of fiscal 1993. As of February 27, 1994, the Company has not sold this
facility.
<PAGE>
(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.
(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:
1994 1993 1992
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)
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:
1994 1993 1992
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
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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:
1994 1993 1992
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
February 27, 1994
DEFERRED TAX ASSETS
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
<PAGE>
DEFERRED TAX LIABILITIES February 27,
1994
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) $ --
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>
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:
Total
Year Commitment
1995 $787,000
1996 632,000
1997 548,000
1998 531,000
1999 259,000
Thereafter 3,000
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>
The following table summarizes the stock option transactions for the three years
ended February 27, 1994:
Number of Price Range
Options Per Share
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
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>
(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 million on
<PAGE>
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.
Total
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
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>
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. These guarantees are full, unconditional, and joint and several.
As a result, the Company has included condensed consolidating financial
statements for the Company, the domestic subsidiaries, and the foreign
subsidiaries for the years ended February 27, 1994, February 28, 1993 and
February 29, 1992 (in 000's). Foreign gross profit includes 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-(Continued)
FEBRUARY 27, 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
February 27, 1994 (000's)
Domestic Parent Foreign
ASSETS Subsidiaries Company Subsidiaries Eliminations Consolidated
CURRENT ASSETS:
Cash and cash equivalents $ 58 $ 145 $ 5,125 $ (2,054) $ 3,274
Restricted cash - 38 - - 38
Accounts receivable, net 54,678 1,596 2,684 (3,334) 55,624
Inventories 73,073 (1,899) 4,214 (359) 75,029
Prepaid expenses and other
current assets 3,329 233 349 81 3,992
Total current assets 131,138 113 12,372 (5,666) 137,957
PROPERTY, PLANT AND
EQUIPMENT, at cost 71,832 290 7,219 - 79,341
Less--Accumulated
depreciation 30,666 208 2,762 - 33,636
41,166 82 4,457 - 45,705
INTERCOMPANY LOANS 957 1,098 1,534 (3,589) -
INVESTMENT IN SUBSIDIARIES - 163,819 - (163,819) -
INVESTMENT IN LITTLE
SWITZERLAND, INC. - 13,304 - - 13,304
INVESTMENT IN SOLOMON
BROTHERS, LIMITED - 13,734 - - 13,734
OTHER ASSETS 12,331 303 587 - 13,221
$185,592 $192,453 $18,950 $(173,074) $223,921
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' February 27, 1994 (000's)
EQUITY Domestic Parent Foreign
Subsidiaries Company Subsidiaries Eliminations Consolidated
CURRENT LIABILITIES:
Notes payable $ (1,980) $ 1,980 $ - $ - $ -
Current portion of long-
term debt 1,480 - - - 1,480
Accounts payable 14,702 205 1,155 (3,334) 12,728
Accrued expenses 14,377 4,725 854 - 19,956
Accrued and currently
deferred income taxes 275 324 264 11 874
Total current
liabilities 28,854 7,234 2,273 (3,323) 35,038
LONG-TERM DEBT, less
current portion 6,205 91,265 - (5,643) 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 37,175 234 2,109 (39,284) 234
Additional paid-in capital 200,599 69,909 8,515 (209,114) 69,909
Retained earnings (deficit) (89,334) (11,974) 6,052 80,447 (14,809)
Total stockholders'
equity 148,440 58,169 16,676 (167,951) 55,334
$185,592 $192,453 $18,950 $(173,074) $223,921
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CONSOLIDATING STATEMENT OF February 27, 1994 (000's)
OPERATIONS Domestic Parent Foreign
Subsidiaries Company Subsidiaries Eliminations Consolidated
NET SALES $258,898 $ 200 $38,406 $(19,754) $277,750
COST OF SALES 170,785 (925) 30,250 (19,754) 180,356
Gross profit $ 88,113 $ 1,125 $ 8,156 $ - $ 97,394
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 75,824 960 3,437 - 80,221
Income from operations $ 12,289 165 $ 4,719 $ - $ 17,173
INTEREST EXPENSE, net (9,918) (3,589) 161 - (13,346)
INCOME FROM AFFILIATES - 1,262 - - 1,262
MINORITY INTEREST - - - (941) (941)
Income before income taxes $ 2,371 $(2,162) $ 4,880 $ (941) $ 4,148
PROVISION FOR INCOME TAXES 1,946 (1,218) 282 - 1,010
Net income (loss) $ 425 $ (944) $ 4,598 $ (941) $ 3,138
ACCRETION OF DIVIDEND ON
PREFERRED STOCK - 1,454 - - 1,454
Income (loss) attributable
to common stockholders $ 425 $(2,398) $ 4,598 $ (941) $ 1,684
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CONSOLIDATING STATEMENT OF February 27, 1994 (000's)
CASH FLOWS Domestic Parent Foreign
Subsidiaries Company Subsidiaries Eliminations Consolidated
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $ 425 $ (944) $4,598 $ (941) $ 3,138
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities-
Depreciation and
amortization 5,646 (613) 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 (3,766) (1,380) 887 255 (4,004)
(Increase) decrease in
inventories (3,137) (925) 2,467 - (1,595)
(Increase) decrease in
prepaid expenses and
other current assets 1,446 225 (86) 883 2,468
(Increase) decrease in
other assets 3,557 (79) 245 - 3,723
Increase (decrease) in
accounts payable 4,402 (1,471) (772) (255) 1,904
Increase (decrease) in
accrued expenses (3,557) 6,375 (628) - 2,190
Increase (decrease) in
accrued and deferred
taxes 1,947 (776) 201 (883) 489
Increase (decrease) in
other liabilities (1,086) - (77) - (1,163)
Net cash provided by
(used in) operating
activities $ 5,902 $ 6,013 $7,292 $(1,228) $17,979
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CONSOLIDATING STATEMENT OF February 27, 1994 (000's)
CASH FLOWS (Continued) Domestic Parent Foreign
Subsidiaries Company Subsidiaries Eliminations Consolidated
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of
fixed assets $ 13 $ - $ 210 $ - $ 223
Proceeds from sale of
investments - 3,486 - - 3,486
Capital expenditures (1,721) (207) (2,129) - (4,057)
Net cash provided by
(used in) investing
activities $(1,708) $ 3,279 $ (1,919) $ - $ (348)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Payments on revolving
credit facility $(1,980) $(204,889) $ - $ - $(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 4,686 (701) (1,931) (2,054) -
Payments for recapitalization
expenses - (8,255) - - (8,255)
Payments on debt (3,646) (10,020) - - (13,666)
Payment of dividends - 6,800 (8,563) 1,228 (535)
Proceeds from the issuance
of common stock - 35 - - 35
Net cash provided by
(used in) financing
activities $ (940) $ (17,449) $(10,494) $ (826) $ (29,709)
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ 3,254 $ (8,157) $ (5,121) $(2,054) $ (12,078)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR (3,196) 8,302 10,246 - 15,352
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 58 $ 145 $ 5,125 $(2,054) $ 3,274
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
February 28, 1993 (000's)
ASSETS Domestic Parent Foreign
Subsidiaries Company Subsidiaries Eliminations Consolidated
CURRENT ASSETS:
Cash and cash equivalents $ (3,196) $ 8,302 $10,247 $ - $ 15,353
Accounts receivable, net 51,254 216 3,411 (3,262) 51,619
Inventories 70,833 (2,825) 6,681 (359) 74,330
Prepaid expenses and other
current assets 5,739 458 263 - 6,460
Total current assets 124,630 6,151 20,602 (3,621) 147,762
PROPERTY, PLANT AND
EQUIPMENT, at cost 70,391 1,181 5,398 - 76,970
Less-Accumulated
depreciation 27,563 347 2,452 - 30,362
42,828 834 2,946 - 46,608
INTERCOMPANY LOANS - 397 - (397) -
INVESTMENT IN SUBSIDIARIES - 166,825 - (166,825) -
INVESTMENT IN LITTLE
SWITZERLAND, INC. - 12,198 - - 12,198
INVESTMENT IN SOLOMON
BROTHERS, LIMITED - 19,202 - - 19,202
OTHER ASSETS 16,405 3,801 882 - 21,088
$183,863 $209,408 $24,430 $(170,843) $246,858
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' February 28, 1993 (000's)
EQUITY Domestic Parent Foreign
Subsidiaries Company Subsidiaries Eliminations Consolidated
CURRENT LIABILITIES:
Notes payable to banks $ - $ 7,250 $ - $ - $ 7,250
Current portion of long-
term debt 3,668 - - - 3,668
Accounts payable 10,643 1,675 1,767 (3,262) 10,823
Accrued expenses 17,932 21,573 1,484 - 40,989
Accrued and currently
deferred income taxes (307) 817 (54) (70) 386
Total current
liabilities 31,936 31,315 3,197 (3,332) 63,116
LONG-TERM DEBT, less
current portion 1,133 151,173 397 (397) 152,306
LONG-TERM DEFERRED INCOME
TAXES AND OTHER
LIABILITIES 2,778 283 195 - 3,256
MINORITY INTEREST - - - 3,436 3,436
STOCKHOLDERS' EQUITY:
Common stock 33,284 127 2,109 (35,393) 127
Additional paid-in capital 199,495 41,111 8,515 (208,010) 41,111
Retained earnings (deficit) (84,763) (14,601) 10,017 72,853 (16,494)
Total stockholders'
equity 148,016 26,637 20,641 (170,550) 24,744
$183,863 $209,408 $24,430 $(170,843) $246,858
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CONSOLIDATING STATEMENT OF February 28, 1993 (000's)
OPERATIONS Domestic Parent Foreign
Subsidiaries Company Subsidiaries Eliminations Consolidated
NET SALES $255,243 $ - $38,149 $(23,028) $270,364
COST OF SALES 173,275 - 29,587 (23,028) 179,834
Gross profit $ 81,968 $ - $ 8,562 $ - $ 90,530
RESTRUCTURING, SELLING, GENERAL
& ADMINISTRATIVE EXPENSES 81,181 4,396 4,673 - 90,250
Income (loss) from operations $ 787 $ (4,396) $ 3,889 $ - $ 280
INTEREST EXPENSE, net (26,185) 5,818 955 - (19,412)
LOSS ON ASSETS HELD FOR SALE OR
DISPOSAL (14,500) - - - (14,500)
RECAPITALIZATION COSTS - (14,440) - - (14,440)
EQUITY INCOME OF LITTLE
SWITZERLAND, INC. - 1,914 - - 1,914
INVESTMENT INCOME FROM SOLOMON
BROTHERS, LIMITED - 808 - - 808
MINORITY INTEREST - - - (989) (989)
Income (loss) before income
taxes $(39,898) $(10,296) $ 4,844 $ (989) $(46,339)
PROVISION FOR INCOME TAXES 558 317 81 - 956
Net income (loss) $(40,456) $(10,613) $ 4,763 $ (989) $(47,295)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CONSOLIDATING STATEMENT OF February 28, 1993 (000's)
CASH FLOWS Domestic Parent Foreign
Subsidiaries Company Subsidiaries Eliminations Consolidated
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $(40,456) $(10,613) $ 4,763 $(989) $(47,295)
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities-
Depreciation and
amortization 6,468 1,527 673 - 8,668
Loss (gain) on disposal
of fixed assets 3 (28) (2,559) - (2,584)
Loss on restructuring 5,000 - - - 5,000
Loss on assets held for
sale or disposal 14,500 - - - 14,500
Bank fees paid by issuance
of common stock - 1,274 - - 1,274
Undistributed earnings of
affiliates - (2,443) - 989 (1,454)
Change in assets and
liabilities
(Increase)decrease in
accounts receivable (10,568) 91 1,292 19 (9,166)
(Increase) decrease in
inventories (8,621) 2,824 4,174 - (1,623)
(Increase) decrease in
prepaid expenses and
other current assets 2,065 (26) 618 - 2,657
(Increase) decrease in
other assets 2,632 - 532 - 3,164
Increase (decrease) in
accounts payable 3,308 (2,970) 632 (19) 951
Increase (decrease) in
accrued expenses 4,738 5,921 383 - 11,042
Increase (decrease) in
accrued and deferred taxes (1,400) 428 (51) - (1,023)
Increase (decrease) in
other liabilities (301) - (6) - (307)
Net cash provided by
(used in) operating
activities $(22,632) $ (4,015) $10,451 $ - $(16,196)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CONSOLIDATING STATEMENT OF February 28, 1993 (000's)
CASH FLOWS (Continued) Domestic Parent Foreign
Subsidiaries Company Subsidiaries Eliminations Consolidated
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of
fixed assets $ (80) $ 61 $ 3,908 $- $ 3,889
Capital expenditures (1,794) (690) (1,035) - (3,519)
Net cash provided by
(used in) investing
activities $(1,874) $ (629) $ 2,873 $- $ 370
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of debt $ - $ 31,000 $ - $- $ 31,000
Change in intercompany notes
payable 21,727 (16,392) (5,335) - -
Payments on debt (736) (10,750) - - (11,486)
Payment of dividends - 3,275 (4,694) - (1,419)
Proceeds from the issuance
of common stock - 136 (80) - 56
Net cash provided by
(used in) financing
activities $20,991 $ 7,269 $(10,109) $- $ 18,151
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $(3,515) $ 2,625 $ 3,215 $- $ 2,325
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 319 5,677 7,032 - 13,028
CASH AND CASH EQUIVALENTS AT
END OF YEAR $(3,196) $ 8,302 $ 10,247 $- $ 15,353
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
FEBRUARY 27, 1994
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
February 29, 1992 (000's)
ASSETS Domestic Parent Foreign
Subsidiaries Company Subsidiaries Eliminations Consolidated
CURRENT ASSETS:
Cash and cash equivalents $ 319 $ 5,677 $ 7,032 $ - $ 13,028
Accounts receivable, net 46,066 307 4,892 (5,445) 45,820
Inventories 69,868 - 10,855 (359) 80,364
Prepaid expenses and other
current assets 5,112 432 881 - 6,425
Total current assets 121,365 6,416 23,660 (5,804) 145,637
PROPERTY, PLANT AND
EQUIPMENT, at cost 77,972 552 8,642 - 87,166
Less-Accumulated
depreciation 21,948 192 4,761 - 26,901
56,024 360 3,881 - 60,265
INTERCOMPANY LOANS - 158,712 2,869 (161,581) -
INVESTMENT IN SUBSIDIARIES - 18,947 - (18,947) -
INVESTMENT IN LITTLE
SWITZERLAND, INC. - 10,284 - - 10,284
INVESTMENT IN SOLOMON
BROTHERS, LIMITED - 18,675 - - 18,675
OTHER ASSETS 21,605 4,356 1,465 - 27,426
$198,994 $217,750 $31,875 $(186,332) $262,287
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' February 29, 1992 (000's)
EQUITY Domestic Parent Foreign
Subsidiaries Company Subsidiaries Eliminations Consolidated
CURRENT LIABILITIES:
Notes payable $ - $ 17,000 $ - $ - $ 17,000
Current portion of long-
term debt 737 - - - 737
Accounts payable 9,349 4,644 1,324 (5,445) 9,872
Accrued expenses 24,522 4,324 1,101 - 29,947
Accrued and currently
deferred income taxes 1,184 (656) 22 (70) 480
Total current
liabilities 35,792 25,312 2,447 (5,515) 58,036
LONG-TERM DEBT, less
current portion 167,268 119,497 - (161,581) 125,184
LONG-TERM DEFERRED INCOME
TAXES AND OTHER
LIABILITIES 2,988 1,329 176 - 4,493
MINORITY INTEREST - - - 3,866 3,866
STOCKHOLDERS' EQUITY:
Common stock 33,255 120 2,082 (35,337) 120
Additional paid-in capital 3,993 39,787 8,515 (12,508) 39,787
Retained earnings (deficit) (44,302) 31,705 18,655 24,743 30,801
Total stockholders'
equity (7,054) 71,612 29,252 (23,102) 70,708
$ 198,994 $217,750 $31,875 $(186,332) $262,287
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CONSOLIDATING STATEMENT OF February 29, 1992 (000's)
OPERATIONS Domestic Parent Foreign
Subsidiaries Company Subsidiaries Eliminations Consolidated
NET SALES $245,066 $ 3,188 $42,656 $(18,716) $272,194
COST OF SALES 170,663 3,196 30,467 (18,880) 185,446
Gross profit $ 74,403 $ (8) $12,189 $ 164 $ 86,748
RESTRUCTURING CHARGE 31,003 - - - 31,003
ZALE BANKRUPTCY CHARGE 12,616 - - - 12,616
SELLING, GENERAL &
ADMINISTRATIVE EXPENSES 76,479 5,927 10,050 - 92,456
Income (loss) from operations $(45,695) $(5,935) $ 2,139 $ 164 $(49,327)
INTEREST EXPENSE, net (25,091) 2,330 951 - (21,810)
NET GAIN ON NONRECURRING ITEMS - 50,872 - - 50,872
EQUITY IN NET INCOME OF LITTLE
SWITZERLAND, INC. - 3,396 - - 3,396
INVESTMENT INCOME FROM SOLOMON
BROTHERS LIMITED - 993 - - 993
MINORITY INTEREST - - - (616) (616)
Income (loss) before income
taxes and extraordinary gain $(70,786) $51,656 $ 3,090 $ (452) $(16,492)
PROVISION FOR INCOME TAXES (11,299) 14,429 122 - 3,252
Income (loss) before
extraordinary gain $(59,487) $37,227 $ 2,968 $ (452) $(19,744)
EXTRAORDINARY GAIN FROM
EXTINGUISHMENT OF DEBT - 726 - - 726
Net income (loss) $(59,487) $37,953 $ 2,968 $ (452) $(19,018)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CONSOLIDATING STATEMENT OF February 29, 1992 (000's)
CASH FLOWS Domestic Parent Foreign
Subsidiaries Company Subsidiaries Eliminations Consolidated
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $(59,487) $ 37,953 $ 2,968 $ (452) $(19,018)
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 12,616 - - - 12,616
Depreciation and
amortization 8,748 1,255 933 - 10,936
Loss (gain) on disposal
of fixed assets (11) - (623) - (634)
Gain on extinguishment
of debt - (726) - - (726)
Gain on subsidiary sale
of stock - (56,143) - - (56,143)
Ordinary dividends
received from affiliates - 19,395 - (16,724) 2,671
Undistributed earnings
of affiliates - (3,409) - (42) (3,451)
Change in assets and
liabilities-
(Increase) decrease in
accounts receivable 26,701 12 (2,211) 1,003 25,505
(Increase) decrease in
inventories 14,928 - 2,704 (193) 17,439
(Increase) decrease in
prepaid expenses and
other current assets 4,378 2,619 (654) - 6,343
(Increase) decrease in
other assets (20) 293 (332) - (59)
Increase (decrease) in
accounts payable (5,604) (3,873) (1,236) (1,003) (11,716)
Increase (decrease) in
accrued expenses 8,071 (2,252) 481 29 6,329
Increase (decrease) in
accrued and deferred
taxes (1,345) (215) (249) - (1,809)
Increase (decrease) in
other liabilities 497 - (25) - 472
Net cash provided by
(used in) operating
activities $ 9,472 $ (5,091) $ 1,756 $(17,382) $(11,245)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
CONSOLIDATING STATEMENT OF February 29, 1992 (000's)
CASH FLOWS (Continued) Domestic Parent Foreign
Subsidiaries Company Subsidiaries Eliminations Consolidated
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds from sale of
fixed assets $ 994 $ 14 $ 1,846 $ - $ 2,854
Capital expenditures (2,073) (283) (697) - (3,053)
Proceeds from sales of
subsidiary stock 2,375 73,002 - 2,817 78,194
Net cash provided by
investing
activities $ 1,296 $ 72,733 $ 1,149 $ 2,817 $ 77,995
CASH FLOWS FROM FINANCING
ACTIVITIES:
Changes in notes payable $ - $ (38,300) $ - $ - $ (38,300)
Change in intercompany
notes payable (5,151) 4,817 334 - -
Payments on long-term debt (937) (79,285) (1,030) - (81,252)
Payments to retire - (1,638) - - (1,638)
subordinated debt
Payment of dividends (6,979) (6,797) (9,687) 23,202 (261)
Proceeds from the issuance _ 17,000 - - 17,000
of debt
Proceeds from the issuance
of common stock - 271 8,637 (8,637) 271
Net cash provided by
(used in) financing
activities $(13,067) $(103,932) $(1,746) $14,565 $(104,180)
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ (2,299) $ (36,290) $ 1,159 $ - $ (37,430)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 2,618 41,967 5,873 - 50,458
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 319 $ 5,677 $ 7,032 $ - $ 13,028
</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 LLP
Boston, Massachusetts
April 21, 1994
<PAGE>
SCHEDULE VIII
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
Valuation Accounts
Balance Write-offs, Balance
Beginning Net of End of
Description of Year Provision Recoveries Year
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
<PAGE>
SCHEDULE IX
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
Short-Term Borrowings
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*
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%
*Computed as an average of actual monthly interest expense.
<PAGE>
EXHIBITS
TOWN & COUNTRY CORPORATION AND SUBSIDIARIES
Exhibits, other than Exhibits 11, 21, 23.1 and 99.1 have been omitted.
The Company will supply, upon written request, copies of any exhibit from
the Document list.
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.
EXHIBIT 21
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%
<FN>
- -----------------------
(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.
</FN>
</TABLE>
EXHIBIT 23.1
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 previously
filed Registration Statements on Form S-4, File No. 33-49028, and on Form
S-8, File No. 33-23860.
Arthur Andersen LLP
Boston, Massachusetts
April 03, 1995
EXHIBIT 99.1
LITTLE SWITZERLAND, INC., AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
TOGETHER WITH AUDITORS REPORT
<PAGE>
LITTLE SWITZERLAND, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
Report of Independent Public Accountants ..................... 2
Consolidated Balance Sheets .................................. 3
Consolidated Statements of Income ............................ 4
Consolidated Statements of Stockholders' Equity .............. 5
Consolidated Statements of Cash Flows ........................ 6
Notes to Consolidated Financial Statements ................... 7 - 19
Report of Independent Public Accountants...................... 20
Schedule II - Amounts Receivable from Related Parties
and Underwriters, Promoters and Employees
other than Related Parties.................... 21
Schedule V - Property, Plant and Equipment.................... 22
Schedule VI - Accumulated Depreciation, Depletion and
Amortization of Property Plant and Equipment.. 23
Schedule VIII - Valuation and Qualifying Accounts............. 24
Schedule IX - Short-Term Borrowings........................... 25
Schedule X - Supplementary Income Statement Information....... 26
<PAGE>
Report of Independent Public Accountants
To Little Switzerland, Inc.:
We have audited the accompanying consolidated balance sheets of Little
Switzerland, Inc. ( a Delaware corporation) and subsidiaries as of May 31, 1994
and 1993 and the related consolidated statements of income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended May 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principals used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly in all material respects, the consolidated financial position of
Little Switzerland, Inc. and subsidiaries as of May 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the three years in
the period ended May 31, 1994, in conformity with generally accepted accounting
principles.
Boston, Massachusetts
July 15, 1994
<PAGE>
LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
May 31, May 31,
<S> <C> <C>
ASSETS ................................................... 1994 1993
-------- --------
Current assets:
Cash and cash equivalents (Note 2) ....................... $ 4,632 $ 1,907
Accounts receivable ...................................... 1,576 1,444
Inventory (Note 2) ....................................... 29,077 35,559
Prepaid expenses and other current assets ................ 1,296 1,515
-------- --------
Total current assets ..................................... 36,581 40,425
Property, plant and equipment,
at cost, (Note 2) ................................. 28,405 24,450
Less--Accumulated depreciation ........................... 14,638 13,043
-------- --------
13,767 11,407
Other assets (Note 2) .................................... 2,521 2,328
-------- --------
Total assets ...................................... $ 52,869 $ 54,160
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Unsecured notes payable (Note 4) ........................ -- $ 4,875
Accounts payable ......................................... 5,134 5,582
Accrued and currently deferred
income taxes (Notes 2 and 5) .................... 1,861 1,214
Other accrued expenses (Note 2) .......................... 2,060 2,378
-------- --------
Total current liabilities ........................... 9,055 14,049
Deferred income taxes (Notes 2 and 5) .................... 356 794
Commitments and contingencies (Note 6)
Stockholders' equity (Notes 1, 3 and 10):
Preferred stock, $.01 par value--
Authorized--5,000 shares
Issued and outstanding--none ........................ -- --
Common stock, $.01 par value--
Authorized--20,000 shares
Issued and outstanding--8,449 shares
in 1994 and 8,442 in 1993 .......................... 84 84
Capital in excess of par .............................. 14,758 14,715
Retained earnings ..................................... 28,616 24,518
-------- --------
Total stockholders' equity ........................ 43,458 39,317
-------- --------
Total liabilities and
stockholders' equity ......................... $ 52,869 $ 54,160
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share amounts)
<TABLE>
<CAPTION>
For the Years Ended
May 31,
1994 1993 1992
------- ------- ------
<S> <C> <C> <C>
Net sales ................ $64,312 $63,396 $57,140
Cost of sales ............ 35,968 34,110 30,277
------- ------- -------
Gross profit .......... 28,344 29,286 26,863
Selling, general and
administrative expenses
(Note 2)............... 23,123 22,730 18,499
------- ------- -------
Operating income ....... 5,221 6,556 8,364
Interest expense ......... 245 286 251
Interest income .......... (20) (66) (102)
------- ------- -------
Income before income
taxes ............... 4,996 6,336 8,215
Provision for income taxes
(Notes 2 and 5) ........ 898 1,145 1,501
------- ------- -------
Net income ............... $ 4,098 $ 5,191 $ 6,714
======= ====== =======
Net income per share
(Note 2) ................ $ 0.49 $ 0.62 $ 0.80
======= ====== =======
Weighted average shares
outstanding (Notes 1
and 2) ............... 8,446 8,419 8,400
======= ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Capital in
Common Stock Excess of Retained
Shares Amount Par Earnings Total
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1991 ............. 8,400 $84 $14,296 $12,613 $26,993
Net income ..................... -- -- -- 6,714 6,714
----- --- ------- ------- -------
Balance, May 31, 1992 ............. 8,400 84 14,296 19,327 33,707
Net income ..................... -- -- -- 5,191 5,191
Exercise of stock options
(Notes 2 and 10) ............. 38 -- 380 -- 380
Shares issued under stock
purchase plan (Note 10) ........ 4 -- 39 -- 39
----- --- ------- ------- -------
Balance, May 31, 1993 ............. 8,442 84 14,715 24,518 39,317
Net income ...................... -- -- -- 4,098 4,098
Shares issued under stock
purchase plan (Note 10) ......... 7 -- 43 -- 43
----- --- ------- ------- -------
Balance, May 31, 1994 ............. 8,449 $84 $14,758 $28,616 $43,458
===== === ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Years Ended
May 31,
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income ........................................................................ $ 4,098 $ 5,191 $ 6,714
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization ................................................... 1,833 1,757 1,357
Changes in assets and liabilities:
(Increase) decrease in accounts receivable ..................................... (132) 141 (310)
(Increase) decrease in inventory ............................................... 6,812 (4,159) (9,504)
(Increase) decrease in prepaid expenses
and other current assets ................................................... 219 224 (769)
Increase (decrease) in accounts payable ........................................ (448) (1,406) 3,753
Increase (decrease) in other accrued expenses .................................. (318) 423 (182)
Increase (decrease) in accrued and
currently deferred income taxes ........................................ 647 (158) 135
Increase (decrease) in payable to affiliates ................................... -- -- (209)
Increase (decrease) in deferred income taxes ................................... (438) (53) 433
-------- -------- --------
Net cash provided by operating activities ................................ 12,273 1,960 1,418
-------- -------- --------
Cash flows from investing activities:
Decrease in long-term receivable
from Town & Country (Note 3) .................................................. -- -- 1,832
Capital expenditures ............................................................ (3,738) (1,382) (1,986)
(Increase) decrease in other assets ............................................. 269 (129) (192)
Acquisition of inventory and fixed assets
(Note 2) .................................................................. (1,247) (590) (1,750)
-------- -------- --------
Net cash used in investing activities ................................... (4,716) (2,101) (2,096)
-------- -------- --------
Cash flows from financing activities:
Borrowings under unsecured notes payable ........................................ 7,100 8,240 3,945
Repayment of unsecured notes payable ............................................ (11,975) (6,800) (4,440)
Issuance of common stock ........................................................ 43 419 --
------- ------ ------
Net cash
provided by (used in)
financing activities ..................................................... (4,832) 1,859 (495)
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents: ................................................. 2,725 1,718 (1,173)
Cash and cash equivalents, beginning of period ..................................... 1,907 189 1,362
-------- -------- --------
Cash and cash equivalents, end of period ........................................... $ 4,632 $ 1,907 $ 189
======== ======== ========
Cash paid during the period for:
Income Taxes ........................................................ $ 620 $ 1,146 $ 910
======== ======== ========
Interest ............................................................ $ 289 $ 231 $ 215
======== ======== ========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
<PAGE>
LITTLE SWITZERLAND, INC, AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANICAL STATEMENTS
MAY 31, 1994
(1) Organization
Little Switzerland, Inc. (the "Company") was incorporated in May 1991. A
wholly owned subsidiary of Town & Country Corporation ("Town & Country")
contributed to the Company all of the outstanding shares of L.S. Holding, Inc.
and L.S. Wholesale, Inc. in exchange for 10,000,000 shares of the Company's
common stock. On June 3, 1991, the Company declared an 84 for 100 stock split
resulting in outstanding shares of common stock of 8,400,000, which has been
retroactively reflected in the accompanying consolidated financial statements.
L.S. Holding, Inc. was incorporated in July 1980 and has nine
subsidiaries: Montres et Bijoux, S.A.R.L.; World Gifts Imports N.V.; L.S.
Holding (Aruba) N.V.; L.S. Holding (Curacao) N.V.; Little Switzerland (St. Kitts
& Nevis) Limited; Little Switzerland (Antigua) Limited and Little Switzerland
(St. Lucia) Limited (Note 2) which operate retail stores in the Virgin Islands,
Aruba, St. Kitts, Antigua, St. Lucia, the French and Netherlands Antilles.
Little Switzerland (BVI) Limited, incorporated in the British Virgin Islands and
L.S. Holding (USA), Inc., incorporated in Alaska, were not yet in operation at
May 31, 1994.
L.S. Wholesale, Inc. was incorporated in October 1987 and purchases
inventory for distribution to L.S. Holding, Inc.'s retail stores.
In July 1991, the Company completed an initial public offering (the
"Offering") whereby Switzerland Holding Inc., a wholly-owned subsidiary of Town
& Country, sold 5,700,000 shares of the Company's common stock at $12 per share.
Switzerland Holding, Inc. received all of the proceeds and paid substantially
all of the costs of the offering.
Subsequent to the offering, Switzerland Holding owned 2,700,000 shares
of the Company's Common Stock (approximately 32% of the issued and outstanding
Common Stock as of May 31, 1994) which were not registered in the Offering. In
connection with the consummation of the recapitalization of Town & Country
("T&C") in May 1993 (the "Recapitalization"), Switzerland Holding was dissolved
and 2,533,279 shares of such stock were transferred to a trust (the "Trust")
established for the benefit of T&C and the holders of T&C's Exchangeable
Preferred Stock (the "T&C Exchangeable Preferred Stock"). Except under certain
limited circumstances, each holder of a share of T&C Exchangeable Preferred
Stock may exchange such share for one share of the Company's Common Stock held
in the Trust. Pursuant to a trust agreement between BayBank, N.A. ("BayBank"),
as trustee (the "Trustee"), and T&C, T&C has the right, except under the
circumstances described below, to vote the shares of the Company's Common Stock
held in the Trust on all matters submitted for vote to holders of such stock.
<PAGE>
(1) Organization--(Continued)
If and whenever two semi-annual dividend payments on the T&C
Exchangeable Preferred Stock are in arrears, then during the period commencing
with such time and ending when all arrearages in dividends on the T&C
Exchangeable Preferred Stock shall have been paid, the Trustee shall vote the
shares of the Company's Common Stock held in the Trust in the manner directed by
the holders of the T&C Exchangeable Preferred Stock.
On July 17, 1991, the Company and T&C entered into a Registration
Rights Agreement, pursuant to which T&C has the right to include its shares of
Common Stock in registered offerings by the Company and to require the Company
to register such shares on not more than two occasions, subject to certain
conditions and limitations. Under the Registration Rights Agreement, the Company
may be required to pay for some of the expenses of these offerings and the
Company and T&C have agreed to indemnify each other against certain liabilities.
On April 6, 1993, T&C exercised its rights under the Registration Rights
Agreement and requested that the Company file with the SEC a registration
statement covering the shares of the Company's Common Stock currently held in
trust by BayBank. In accordance with the terms of the Registration Rights
Agreement, the Company caused such shares to be registered with the SEC.
(2) Summary of Significant Accounting Policies
Presentation
The accompanying consolidated financial statements include the
operations of the Company and its wholly owned subsidiaries L.S. Holding, Inc.
and L.S. Wholesale, Inc. Effective May 31, 1992, the Company changed its fiscal
year end from the last day of February to May 31. Certain reclassifications have
been made to prior years' consolidated financial statements to conform to the
May 31, 1994 presentation. All significant intercompany balances have been
eliminated in consolidation.
Foreign Operations
Net sales and operating income from foreign operations (non-U.S.
possessions) amounted to 52%, 49% and 49%, and 34%, 50% and 26% of total net
sales and operating income, respectively, in fiscal 1994, 1993 and 1992,
respectively. Inter-segment sales were not material for all periods presented.
Identifiable assets of foreign operations amounted to 51%, 49% and 45% of total
assets as of May 31, 1994, 1993 and 1992, respectively.
<PAGE>
(2) Summary of Significant Accounting Policies--(Continued)
Acquisitions
In January 1992, the Company purchased certain inventory and fixed
assets of the china division of a St. Thomas retailer for approximately
$1,800,000. The transaction was accounted for using the purchase method of
accounting. On an unaudited pro forma basis, net sales would have increased by
3.1% for fiscal 1992, assuming the transaction had occurred on June 1, 1990. The
pro forma impact on net income and net income per share would not have been
material to the results of the period presented.
On June 4, 1992, the Company purchased certain assets from a St. Lucia
retailer for $590,000. The transaction was accounted for using the purchase
method of accounting. The pro forma impact of the transaction is not material to
the results of the periods presented.
On April 25, 1994, the Company purchased certain inventory, fixed
assets and leasehold interest of "La Parfumerie", a fragrance boutique located
in Antigua, for $1,247,000. The transaction was accounted for using the purchase
method of accounting. The pro forma impact of the transaction is not material to
the results of the periods presented.
Inventory
Inventory is valued at the lower of cost (first-in, first-out) or
market value and consists almost entirely of finished merchandise purchased for
resale.
<PAGE>
(2) Summary of Significant Accounting Policies--(Continued)
Property, Plant and Equipment
Fixed assets are depreciated over their estimated useful lives,
principally using the straight-line method. Property, plant and equipment
consist of the following:
Estimated
Useful Life May 31 May 31
Range 1994 1993
------ ------ -----
Real estate 20-40 Years $ 8,450,000 $ 7,420,000
Furniture and fixtures 3-10 Years 9,956,000 9,108,000
Equipment 3-20 Years 3,708,000 3,332,000
Leasehold Life of the lease
improvements or useful life,
whichever is shorter 6,291,000 4,590,000
----------- -----------
$28,405,000 $24,450,000
=========== ===========
Income Taxes
Effective June 1, 1993, the Company adopted SFAS No. 109 "Accounting
for Income Taxes" which requires the use of the liability method in accounting
for income taxes. This standard determines deferred income taxes based on the
estimated future tax effects of any differences between the financial statement
and tax basis of assets and liabilities, given the provisions of enacted tax
laws. The effect of adopting this change in accounting principle had no
cumulative impact on reported net income per share or financial position and did
not have a material impact on the current fiscal year's income tax expense.
Prior to the implementation of this statement, the Company accounted for income
taxes under Accounting Principals Board Opinion No. 11. Each of the consolidated
companies files a separate tax return.
Other Assets
Other assets consist primarily of amounts related to non-competition
agreements, rental premiums, rental deposits and the excess of cost over the
fair market value of the net assets of the business acquired (goodwill). Amounts
related to non-competition agreements are amortized over the lives of the
respective agreements and amounts related to rental premiums are amortized over
the lives of the related leases. Amounts related to goodwill are being amortized
over periods of up to 10 years. The Company continually evaluates whether later
events
<PAGE>
(2) Summary of Significant Accounting Policies--(Continued)
and circumstances have occurred that indicate the remaining estimated
useful life of goodwill may warrant revision or that the remaining balance of
goodwill may not be recoverable. When factors indicate that goodwill should be
evaluated for possible impairment, the Company uses an estimate of the related
business segment's future cash flow over the remaining life of the goodwill in
measuring whether the goodwill is recoverable. Accumulated amortization for all
periods presented was not material.
Foreign Exchange Contracts
The Company enters into foreign exchange contracts to hedge against
foreign currency fluctuations for purchase commitments and accounts payable
denominated in foreign currencies. Gains and losses on contracts to hedge
purchase commitments are included in the cost basis of the related purchases.
Deferred gains and losses of approximately $60,000 and $260,000, respectively,
are included in the inventory balances at May 31, 1994 and 1993, respectively.
Gains and losses on accounts payable are recognized as selling, general and
administrative expenses and were not material for all periods presented.
At May 31, 1994, the Company had Swiss Franc contracts maturing during
the period from June through August, 1994 at contractually predetermined rates
totaling approximately $4,400,000.
The Company's functional currency, under Statement of Financial
Accounting Standards No. 52, for all foreign locations is the U.S. dollar.
Accordingly, all transaction and translation gains and losses are included in
the accompanying consolidated income statements. Gains and losses for all
periods presented were not material.
Other Accrued Expenses
Other accrued expenses are comprised of the following:
May 31, May 31,
1994 1993
Customer deposits............... $ 585,000 $ 628,000
Compensation and related items.. 1,034,000 1,238,000
Other........................... 441,000 512,000
---------- ---------
$2,060,000 $2,378,000
========== ==========
<PAGE>
(2) Summary of Significant Accounting Policies--(Continued)
Net Income per Share
Net income per share is computed based on the weighted average number
of common and common equivalent shares outstanding, where dilutive, during each
period. Common equivalent shares result from the assumed exercise of stock
options (Note 10).
Cash Flows
For purposes of the Consolidated Statements of Cash Flows, the Company
considers all highly liquid instruments with a purchased maturity of three
months or less to be cash equivalents. The carrying amount of cash and cash
equivalents approximates fair value due to the short maturities.
(3) Transactions with Affiliates
The Company enters into a number of transactions with Town & Country, a
stockholder. The Company purchases a portion of its merchandise from Town &
Country and its affiliated companies at prices that approximate arm's-length
transactions. Such purchases totaled approximately $1,388,000, $1,800,000 and
$1,800,000 in fiscal 1994, 1993 and 1992, respectively.
(4) Credit Arrangements
The Company has available a total of $15,500,000 in unsecured credit
facilities, of which $3,000,000 is available for borrowings with maturities not
to exceed three years. Any unfunded portion of the facilities can be withdrawn
at the bank's discretion. As of May 31, 1994, there were no outstanding
borrowings against these credit facilities.
In connection with the acquisition of certain inventory and fixed
assets (Note 2), the Company had a note payable to the seller which amounted to
$225,000 at May 31, 1993. The second and final installment was paid in fiscal
1994.
<PAGE>
(5) Income Taxes
The domestic (United States Virgin Islands, "USVI") and foreign
components of income before income taxes are as follows:
For the Fiscal Years Ended:
May 31,
1994 1993 1992
----------- ----------- -----------
Domestic.......................... $ 3,296,000 $ 4,372,000 $ 6,999,000
Foreign ........................ 1,700,000 1,964,000 1,216,000
----------- ----------- -----------
$ 4,996,000 $ 6,336,000 $ 8,215,000
=========== =========== ===========
The components of the provision (benefit) for income taxes are as follows:
For the Fiscal Years Ended:
May 31,
1994 1993 1992
------------ ------------ ------------
Current:
Domestic ............. $ 647,000 $ 549,000 $ 572,000
Foreign .............. 689,000 649,000 496,000
------------ ------------ ------------
1,336,000 1,198,000 1,068,000
------------ ------------ ------------
Deferred:
Domestic ............. (438,000) (53,000) 433,000
Foreign .............. -- -- --
------------ ------------ ------------
(438,000) (53,000) 433,000
------------ ------------ ------------
$ 898,000 $ 1,145,000 $ 1,501,000
============ ============ ============
The deferred tax provision (benefit) results from timing differences in
the recognition of revenue and expense for tax and financial reporting purposes.
The principal difference arises from the use of different depreciation methods
for financial reporting and tax purposes.
<PAGE>
(5) Income Taxes--(Continued)
The Company's effective tax rate is less than the USVI statutory rate
of 37.4% due to the following:
<TABLE>
<CAPTION>
For the Fiscal Years Ended:
May 31,
1994 1993 1992
--------- ---------- -------
<S> <C> <C> <C>
Computed tax provision
at statutory rate $1,869,000 $2,370,000 $3,072,000
Increases (reductions)
resulting from--
Differences between
foreign provisions
recorded and provisions
at USVI rate....... 53,000 (86,000) (15,000)
Effect of earnings of
subsidiary in USVI subject
to lower tax rate..... (1,033,000) (1,139,000) (1,636,000)
Other................. 9,000 -- 80,000
---------- ---------- ----------
$ 898,000 $1,145,000 $1,501,000
========== ========== ==========
</TABLE>
The lower tax rate in effect on certain of the income of a subsidiary
in the USVI expires, subject to renewal, in 1998 and had the effect of
increasing earnings per share by $0.12, $0.14 and $0.19 in fiscal 1994, 1993 and
1992, respectively.
The net effective tax rate for all income and income taxes was
approximately 18% for each of the fiscal years 1994, 1993 and 1992.
The deferred tax liability of $356,000 at May 31, 1994 is exclusively
the result of the use of accelerated depreciation methods for tax purposes. The
Company has no deferred tax assets and therefore, no valuation reserve is
required.
<PAGE>
(6) Commitments and Contingencies
Certain of the Company's facilities and retail stores are occupied
under operating leases expiring at various dates. The Company's rental
commitments under the noncancelable portion of these leases for each of the next
five years and, in total, thereafter at May 31, 1994 are as follows:
Total Lease
Year Commitment
---- ----------
1995................................. $ 2,619,000
1996................................. 2,518,000
1997................................. 2,264,000
1998................................. 1,952,000
1999................................. 1,241,000
Thereafter........................... 2,076,000
-----------
$12,670,000
===========
Rental expense included in the accompanying consolidated statements of
income amounted to approximately $2,487,000, $2,349,000 and $1,918,000 in fiscal
1994, 1993 and 1992, respectively.
The Company owns the building which houses its headquarters and
warehouse on St. Thomas and leases the underlying real property from the Virgin
Islands Port Authority under a 10-year ground lease. The ground lease is subject
to two five-year renewal terms and may be terminated by the lessor prior to the
expiration of its term subject to payment to the Company of the fair market
value of the Company's improvements.
Prior to the Company's initial public offering, Town & Country and
several of its wholly-owned subsidiaries had supplied the Company with jewelry.
Pursuant to written agreements entered into between Town & Country and each of
their subsidiaries and the Company, the subsidiaries have continued to supply
jewelry to the Company at the Company's option on the same terms and conditions
as were in effect prior to the initial public offering (Note 1). These
agreements are automatically renewed each year unless either party terminates
upon 60 days notice prior to the end of a year.
The Company is not a party to any material pending legal proceedings,
other than ordinary litigation incidental to the business. The Company believes
that none of these proceedings, if adversely determined, would have a material
adverse effect on the Company's financial condition.
As a result of escalating costs of wind insurance within the Caribbean,
management believes that premiums are no longer justifiable in light of the
related risk. For fiscal 1995, the Company is only insured for damage caused by
wind for amounts in excess of $5,000,000, subject to certain deductibles.
<PAGE>
(7) Franchise Agreement
In fiscal 1987, the Company entered into a 10-year franchise agreement
with Solomon Brothers Limited ("Solomon"), a Bahamian company engaged in the
wholesale and retail distribution of jewelry, gift items and consumables in the
Bahamas. Solomon is responsible for developing each store, in accordance with
the Company's specifications, once a new location has been agreed upon. The
Company provides ongoing assistance in retail and merchandising methods. Solomon
is responsible for the operation of each store, but the general operating
methods are dictated by the Company. Currently, Solomon operates nine locations
in the Bahama Islands under the name of "Little Switzerland."
In return for the use of the Little Switzerland name and the services
provided by Little Switzerland, the Company receives an annual franchise fee
which enables the Company to participate in the revenue of both Little
Switzerland stores operated by Solomon and other Solomon retail stores which are
not operated under the Little Switzerland name. Franchise fees are accrued by
the Company as earned based upon Solomon's revenues, as defined, and for fiscal
1994, 1993 and 1992 were approximately $76,000, $122,000 and $141,000,
respectively. The decline in fees for fiscal 1994 was mostly due to the closing
during the year of two Solomon stores not operated under the "Little
Switzerland" name but subject to the franchise fee.
(8) Employee Benefit Plans
The Company provides a tax-qualified discretionary contribution
retirement plan for eligible USVI employees to which the Company, at its
discretion, contributes. Each employee becomes a participant following
completion of one year's employment, or, if later, the attainment of age 21. All
participants become fully vested after seven years of service. The amounts
accrued and charged to expense for fiscal 1993 and 1992 in connection with this
plan were approximately $135,000 and $153,000, respectively. The Company will
not contribute to this plan for fiscal 1994.
<PAGE>
(9) Quarterly Data (Unaudited)
The following presents the unaudited quarterly results of
operations for fiscal 1994 and 1993 (in thousands except per share data):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
Ended Ended Ended Ended
August 31 November 30 February 28 May 31
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Fiscal 1994
Net sales $ 11,489 $ 13,581 $ 22,938 $ 16,305
Gross profit 4,921 5,884 10,193 7,348
Net income(loss) (210) 304 2,856 1,148
Net income(loss) per share $ (0.02) $ 0.03 $ 0.34 $ 0.14
Fiscal 1993
Net sales $ 12,813 $ 12,615 $ 22,249 $ 15,719
Gross profit 5,913 6,086 10,002 7,285
Net income 729 801 2,711 951
Net income per share $ 0.09 $ 0.10 $ 0.32 $ 0.11
</TABLE>
(10) Stockholders' Equity
Stock Options
In June 1991, certain officers and employees of the Company were
granted incentive stock options to purchase 223,250 shares of the Company's
common stock at a price per share of $10.00. During fiscal 1992, additional
stock options were issued for 1,500 shares having an exercise price of $15.62
per share. All options vest ratably over a three-year period. As of May 31,
1994, 74,594 options were exercisable. In addition, 37,956 options have been
exercised and 10,700 shares having an exercise price of $10.00 per share were
canceled.
In June 1991, non-employee directors of the Company were granted stock
options to be effective upon the closing of the initial public offering to
purchase an aggregate total of 50,000 shares of the Company's common stock at
the initial public offering price of $12.00 per share. These options vested one
year from the date of issuance. As of May 31, 1994, no options have been
exercised or canceled.
On October 13, 1992, non-employee directors of the Company were granted
non-qualified stock options to purchase an aggregate of 25,000 shares of the
Company's common stock at a price per share of $12.75, the fair market value on
the date of grant. All options vested immediately upon grant. As of May 31,
1994, no options have been exercised or canceled.
<PAGE>
(10) Stockholders' Equity--(Continued)
In November 1992, certain officers and employees of the Company were
granted incentive stock options to purchase an aggregate 132,500 shares of the
Company's common stock at a price per share of $12.75, the fair market value on
the date of grant. All options vest ratably over a three-year period. As of May
31, 1994, 26,167 options were exercisable. In addition, no shares have been
exercised and 54,000 shares have been canceled.
On May 31, 1993, non-employee directors of the Company were granted
non-qualified stock options to purchase an aggregate 12,000 shares of the
Company's common stock at a price per share of $10.00, the fair market value on
the date of grant. All options vested immediately upon grant. As of May 31,
1994, no options have been exercised or canceled.
In September 1993, certain officers and employees of the Company were
granted incentive stock options to purchase an aggregate 25,000 shares of the
Company's common stock at a price per share of $6.00, the fair market value on
the date of grant. All options vest ratably over a three-year period. In
December 1993, additional stock options were issued for 50,000 shares having an
exercise price of $9.00 per share. These options vest ratably over a five-year
period. As of May 31, 1994, no options have been exercised or canceled.
On May 31, 1994, non-employee directors of the Company were granted
non-qualified stock options to purchase an aggregate 9,000 shares of the
Company's common stock at a price per share of $6.50, the fair market value on
the date of grant. All options vest immediately upon grant.
Employee Stock Purchase Plan
The Company has reserved 100,000 shares of common stock for issuance to
employees under the terms of the 1992 Employee Stock Purchase Plan. Under this
plan, 10,569 shares have been issued as of May 31, 1994.
Shareholder Rights Agreement
On July 24, 1991, the Board of Directors adopted a Shareholder Rights
Plan and declared a dividend distribution of one preferred stock purchase right
for each outstanding share of common stock to stockholders of record as of the
close of business on July 25, 1991. Such rights only become exercisable, and
transferable apart from the common stock upon the earliest to occur of (i) ten
business days after the first public announcement that a person or group of
affiliated or associated persons has acquired beneficial ownership of 15% or
more of the outstanding shares of common stock (an "Acquiring Person")(the date
of the public announcement is hereinafter referred to as the "Stock Acquisition
<PAGE>
(10) Stockholders' Equity--(Continued)
Shareholder Rights Agreement--(Continued)
Date"); (ii) ten business days following the commencement of tender or exchange
offer that would result in a person or group becoming an Acquiring Person, or
(iii) the declaration by the Board of Directors that any person is an Adverse
Person. A "Grandfathered Person" (as defined below) shall not become an
Acquiring Person unless such Person shall become the beneficial owner of more
than the Grandfathered Percentage (as defined below) of the outstanding shares
of common stock. In the event that a person becomes an Acquiring Person or the
Board of Directors determines that a person is an Adverse Person, proper
provision will be made so that each holder of a Right will thereafter have the
right to receive upon exercise that number of Units of Series A Preferred Stock
having a market value of two times the exercise price of the Right. In the event
that, at any time following the Stock Acquisition Date, the Company is acquired
in a merger or other business combination transaction or 50% of the
Corporation's assets or earning power is sold, the rights entitle holders to
acquire common stock of the acquiring company having a value equal to two times
the exercise price of the rights (such right is referred to as the "Merger
Right"). The rights may be redeemed in whole by the Corporation at $.01 per
right at any time prior to (i) the date on which a person is declared an Adverse
Person, (ii) the tenth business day after the Stock Acquisition Date, or (iii)
the occurrence of an event giving right to a Merger Right. The rights will
expire on July 24, 2001.
A Grandfathered Person is generally defined as any person who or which,
together with its affiliates and associates, was, as of the close of business on
July 25, 1991, the beneficial owner of 15% or more of the shares of common stock
then outstanding. The Grandfathered Percentage is generally defined as the
percentage of outstanding shares of common stock beneficially owned by a
Grandfathered Person as of the close of business on July 25, 1991 plus an
additional two percentage points.
The Shareholder Rights Agreement was amended in April 1993 in
connection with the recapitalization of Town & Country to permit, among other
things, the shares of common stock owned by Town & Country to be transferred to
a trust established for the benefit of Town & Country and the holders of shares
of Town & Country's Exchangeable Preferred Stock.
<PAGE>
Report of Independent Public Accountants
To Little Switzerland, Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements of Little Switzerland, Inc. and
subsidiaries and have issued our report thereon dated July 15, 1994. Our audits
were made for the purpose of forming an opinion on the basic consolidated
financial statements taken as a whole. The schedules listed in the foregoing
index are the responsibility of the Company's management and are presented for
purposes of complying with the Securities and Exchange Commission's rules and
are not a required part of the basic consolidated financial statements. These
schedules have been subjected to the auditing procedures applied in our audits
of the basic consolidated financial statements and, in our opinion, are fairly
stated, in all material respects, in relation to the basic consolidated
financial statements taken as a whole.
Boston, Massachusetts
July 15, 1994
<PAGE>
SCHEDULE II
LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS AND
EMPLOYEES OTHER THAN RELATED PARTIES
(in thousands)
<TABLE>
<CAPTION>
Balance @ Amounts Balance @ End of
Beginning Amounts Written Period
Name of Debtor Of Period Additions Collected Off Current Non-current
<S> <C> <C> <C> <C> <C> <C>
For the Year Ended
May 31, 1994:
Town & Country
Corporation....... --- --- --- --- --- ---
For the Year Ended
May 31, 1993:
Town & Country
Corporation....... --- --- --- --- --- ---
For the Year Ended
May 31, 1992:
Town & Country
Corporation....... $ 1,832 $ 0 $ 1,832 --- --- ---
</TABLE>
<PAGE>
SCHEDULE V
LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
PROPERTY, PLANT AND EQUIPMENT
(in thousands)
<TABLE>
<CAPTION>
For the years ended
May 31, 1994
Beginning Retire- Ending
FIXED ASSETS Balance Additions ments Transfers Balance
<S> <C> <C> <C> <C> <C>
Buildings.................. $ 6,770 $ 2 $ -- $ -- $ 6,772
Furniture & Fixtures....... 9,108 862 (14) -- 9,956
Leasehold Improvements..... 4,590 1,701 -- -- 6,291
Machinery & Equipment...... 3,332 376 -- -- 3,708
Construction in Progress... 85 1,028 -- -- 1,113
Real Estate (Land)......... 565 -- -- -- 565
-------- -------- ------ ------- -------
Total................... $ 24,450 $ 3,969 $ (14) $ -- $ 28,405
======== ======== ======= ======= ========
May 31, 1993
Beginning Retire- Ending
FIXED ASSETS Balance Additions ments Transfers Balance
- ------------ --------- --------- ------- --------- --------
Buildings.................. $ 6,760 $ 10 $ -- $ -- $ 6,770
Furniture & Fixtures....... 8,691 423 (6) -- 9,108
Leasehold Improvements..... 4,208 382 -- -- 4,590
Machinery & Equipment...... 2,759 573 -- -- 3,332
Construction in Progress... 85 -- -- -- 85
Real Estate (Land)......... 565 -- -- -- 565
--------- ---------- ------ ------- -------
Total.................. $ 23,068 $ 1,388 $ (6) $ -- $ 24,450
========= ========== ======= ======== ========
May 31, 1992
Beginning Retire- Ending
FIXED ASSETS Balance Additions ments Transfers Balance
- ------------ --------- --------- ------- --------- --------
Buildings.................. $ 6,385 $ 399 $ -- $ (24) $ 6,760
Furniture & Fixtures....... 7,870 823 (2) -- 8,691
Leasehold Improvements..... 3,919 265 -- 24 4,208
Machinery & Equipment...... 2,258 514 (13) -- 2,759
Construction in Progress... 85 -- -- -- 85
Real Estate (Land)......... 565 -- -- -- 565
-------- ---------- ------ ---------- -------
Total.................. $ 21,082 $ 2,001 $ (15) $ -- $ 23,068
======== ========= ====== ========== ========
</TABLE>
<PAGE>
SCHEDULE VI
LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION
OF PROPERTY, PLANT AND EQUIPMENT
(in thousands)
<TABLE>
<CAPTION>
For the years ended
May 31, 1994
Beginning Retire- Ending
ACCUMULATED DEPRECIATION Balance Additions ments Transfers Balance
<S> <C> <C> <C> <C> <C>
Buildings.................. $ 1,108 $ 233 $ -- $ -- $ 1,341
Furniture & Fixtures....... 6,258 610 (14) -- 6,854
Leasehold Improvements..... 3,257 363 -- -- 3,620
Machinery & Equipment...... 2,420 403 -- -- 2,823
Construction in Progress... -- -- -- -- --
Real Estate (Land)......... -- -- -- -- --
-------- -------- ------ ------- -------
Total................... $ 13,043 $ 1,609 $ (14) $ -- $ 14,638
======== ======== ====== ======= =======
May 31, 1993
Beginning Retire- Ending
ACCUMULATED DEPRECIATION Balance Additions ments Transfers Balance
Buildings.................. $ 874 $ 234 $ -- $ -- $ 1,108
Furniture & Fixtures....... 5,666 592 -- -- 6,258
Leasehold Improvements..... 2,990 267 -- -- 3,257
Machinery & Equipment...... 2,420 410 (12) -- 2,420
Construction in Progress... -- -- -- -- --
Real Estate (Land)......... -- -- -- -- --
-------- -------- ----- ----- -------
Total.................. $ 11,552 $ 1,503 $ (12) $ -- $ 13,043
======== ======== ===== ===== =======
May 31, 1992
Beginning Retire- Ending
ACCUMULATED DEPRECIATION Balance Additions ments Transfers Balance
Buildings.................. $ 649 $ 225 $ -- $ -- $ 874
Furniture & Fixtures....... 5,120 546 -- -- 5,666
Leasehold Improvements..... 2,738 252 -- -- 2,990
Machinery & Equipment...... 1,746 286 (10) -- 2,022
Construction in Progress... -- -- -- -- --
Real Estate (Land)......... -- -- -- -- --
-------- -------- ----- ------ -------
Total................... $ 10,253 $ 1,309 $ (10) $ -- $ 11,552
======== ======== ===== ====== =======
</TABLE>
<PAGE>
SCHEDULE VIII
LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Balance @ Write-Offs Balance @
Beginning Net of End
Description Of Period Provision Recoveries Of Period
Allowance for
Doubtful Accounts
<S> <C> <C> <C> <C>
For the Year Ended:
May 31, 1994............ --- $ 12 ($ 12) ---
May 31, 1993............ --- --- --- ---
May 31, 1992............ $ 31 --- ($ 31) ---
</TABLE>
<PAGE>
SCHEDULE IX
LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
SHORT-TERM BORROWINGS
(in thousands)
<TABLE>
<CAPTION>
Weighted
Average
Weighted Maximum Average Interest
Balance Average Outstanding Outstanding Rate
Category of Aggregate at End Interest During During During
Short-Term Borrowings Of Period Rate Period Period Period*
<S> <C> <C> <C> <C> <C>
For the Year Ended:
May 31, 1994............ --- --- $9,014 $4,646 5.6%
May 31, 1993............ $4,650 5.6% $6,600 $4,811 6.0%
May 31, 1992............ $2,935 7.1% $4,130 $3,426 7.3%
</TABLE>
- -------
* Computed as an average of actual monthly interest expense.
<PAGE>
SCHEDULE X
LITTLE SWITZERLAND, INC. AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
(in thousands)
Year Ended Year Ended Year Ended
May 31 May 31 May 31
1994 1993 1992
---- ---- ----
Maintenance and repairs......... (1) (1) (1)
Depreciation and amortization... $ 1,833 $ 1,757 $ 1,357
Taxes, other than payroll and
income taxes.................. $ 1,360 $ 1,376 $ 1,221
Royalties....................... (1) (1) (1)
Advertising costs............... $ 1,958 $ 2,295 $ 1,978
- -------
(1) Items are either not applicable or less than 1% of net sales.
