<PAGE>
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 25, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-14394
TOWN & COUNTRY CORPORATION
(Exact name of Registrant as specified in its charter)
Massachusetts 04-2384321
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or 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
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 s uch filing
requirements for the past 90 days. Yes X No
On September 30, 1996, the Registrant had outstanding 23,301,192 shares of Class
A Common Stock, $.01 par value and 2,664,927 shares of Class B Common Stock,
$.01 par value. The Registrant also had 1,366,631 shares of Convertible
Preferred Stock, $1 par value, outstanding on September 30, 1996. These shares
are immediately convertible into 2,733,262 shares of Class A Common Stock.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 2
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
August 25, February 25,
1996 1996
(Unaudited)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $2,778,318 $5,151,929
Restricted cash 103,513 102,012
Accounts receivable--
Less allowances for doubtful
accounts of $6,436,000 at
8/25/96 and $2,120,000 at
2/25/96 43,919,333 51,294,879
Inventories (Note 4) 50,096,093 90,138,403
Prepaid expenses and other
current assets 3,407,989 1,956,537
Total current assets $ 100,305,246 $ 148,643,760
PROPERTY, PLANT & EQUIPMENT, at cost $ 85,543,386 $ 84,073,513
Less - Accumulated depreciation 45,888,473 43,814,604
$ 39,654,913 $ 40,258,909
INVESTMENT IN AFFILIATES $ 15,385,482 $ 15,385,482
OTHER ASSETS $ 6,366,443 $ 6,841,345
$ 161,712,084 $ 211,129,496
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 3
CONSOLIDATED BALANCE SHEETS (Continued)
<TABLE>
<CAPTION>
August 25, February 25,
1996 1996
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
CURRENT LIABILITIES:
<S> <C> <C>
Notes payable to banks (Note 3) $24,856,833 $15,193,176
Current portion of long-term debt
(Note 3) 6,636,770 244,928
Accounts payable 18,649,521 20,237,262
Accrued expenses 8,514,882 15,078,569
Accrued taxes 484,833 659,744
Total current liabilities $59,142,839 $51,413,679
LONG-TERM DEBT, less current portion
(Note 2) $85,827,695 $93,174,432
OTHER LONG-TERM LIABILITIES $1,055,354 $ 1,122,625
Total liabilities $146,025,888 $145,710,736
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST $5,022,637 $ 5,228,363
EXCHANGEABLE PREFERRED STOCK, $1.00
par value--$14.59 preference value-
Authorized--200,000 shares
Issued and outstanding--
152,217 shares $2,313,333 $2,319,476
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par value-
Authorized and unissued--800,000 and
2,266,745 shares, respectively $ -- $ --
Convertible Preferred Stock, $1.00 par
value, $6.50 preference value
Authorized--4,000,000 and
2,533,255 shares, respectively
Issued and outstanding--1,366,631 and
2,288,567 shares, respectively 1,366,631 2,288,567
Class A Common Stock, $ .01 par value-
Authorized--40,000,000 shares
Issued and outstanding--23,301,178
and 21,235,246 shares, respectively 233,012 212,352
Class B Common Stock, $.01 par value-
Authorized--8,000,000 shares
Issued and outstanding--
2,664,941 shares 26,649 26,649
Additional paid-in capital 75,399,374 74,175,437
Retained deficit (68,675,440) (18,832,084)
Total stockholders' equity $ 8,350,226 $57,870,921
$161,712,084 $211,129,496
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 4
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended Ended
August 25, August 27, August 25, August 27,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
NET SALES $43,192,085 $48,194,042 101,456,209 $117,165,025
COST OF SALES 30,315,885 33,549,046 68,381,785 80,623,605
INVENTORY CHARGE
(Note 1) 35,521,000 -- 35,521,000 --
Gross profit (loss)$(22,644,800) $14,644,996 $(2,446,576) $36,541,420
SELLING, GENERAL &
ADMINISTRATIVE
EXPENSES 21,928,851 15,448,826 40,904,377 34,549,732
Income (loss)from
operations $(44,573,651) (803,830) $(43,350,953) $1,991,688
INTEREST EXPENSE,
net (3,125,377) (3,077,090) (6,151,528) (6,048,971)
MINORITY INTEREST 112,275 (212,352) 141,310 (334,651)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 5
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
August 25, August 27, August 25, August 27,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
LOSS BEFORE
INCOME TAXES $(47,586,753) $(4,093,272) $(49,361,171) $(4,391,934)
PROVISION FOR
INCOME TAXES 60,000 87,740 140,025 303,502
NET LOSS $(47,646,753) $(4,181,012) $(49,501,196) $(4,695,436)
ACCRETION OF DISCOUNT
AND DIVIDENDS ON
PREFERRED STOCKS 119,032 287,304 342,160 531,039
LOSS ATTRIBUTABLE
TO COMMON
STOCKHOLDERS $(47,765,785) $(4,468,316) $(49,843,356) $(5,226,475)
LOSS PER COMMON
SHARE (Note 5): $(1.86) $(0.19) $(1.99) $(0.22)
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING
(Note 5): 25,706,935 23,774,892 25,012,072 23,675,234
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
August 25, August 27,
1996 1995
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ (49,501,196) $ (4,695,436)
Adjustments to reconcile net loss
to net cash used in operating activities-
Depreciation and amortization 1,438,352 2,355,676
Loss on disposal of certain
assets -- 1,138
Undistributed earnings of affiliates,
net of minority interest (141,310) 334,652
Interest paid with issuance of debt 4,200,569
Change in assets and liabilities--
Decrease (increase) in accounts
receivable 7,375,546 5,382,086
Decrease (increase) in inventory 40,042,310 (4,339,040)
Decrease (increase) in prepaid
expenses and other current assets (1,451,452) (602,775)
Decrease (increase) in other assets 333,132 (346,102)
Increase (decrease) in accounts
payable (1,587,741) (982,259)
Increase (decrease) in accrued
expenses (6,563,687) (2,992,385)
Increase (decrease) in accrued taxes (174,911) (362,468)
Increase (decrease) in other
liabilities (67,271) (136,508)
Net cash used in operating
activities (10,298,228) (2,182,852)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,537,885) (1,191,035)
Proceeds from sale of certain assets 26,001 10,370
Net cash used in investing
activities (1,511,884) (1,180,665)
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 7
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months Ended
August 25, August 27,
1996 1995
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C>
Payments on revolving credit facilities $(99,482,302) $(117,253,432)
Proceeds from borrowings under
revolving credit facilities 109,145,959 123,192,699
Payments on long-term debt (135,610) (1,462,053)
Proceeds from the issuance
of common stock 40,994 12,073
Decrease (increase) in restricted cash (1,501) 1,344
Payment of dividend (131,039) (61,734)
Net cash provided by
financing activities $ 9,436,501 $ 4,428,897
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ (2,373,611) $ 1,065,380
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 5,151,929 3,336,921
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 2,778,318 $ 4,402,301
SUPPLEMENTAL CASH FLOW DATA:
Cash paid during the period for:
Interest $ 7,164,987 $ 2,448,318
Income taxes 210,006 696,146
</TABLE>
Supplemental Disclosure of Noncash Investing and Financing Activities (Note 6)
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 8
PART I - FINANCIAL INFORMATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 25, 1996
(1)Inventory Charge
During the period from late August up to and including the
issuance of this report, the Company implemented a program to
recycle approximately $44 million of inventory to recover gold
and diamonds to meet immediate production requirements. The
Company also sold, for approximately $2 million, inventory with
an original cost basis of approximately $5 million. The Company
has charged second quarter operations approximately $35.5
million. Of this amount only approximately $2.5 million was
incurred in the second quarter. The remaining approximately
$33.0 million represents third quarter activity, including a
$2.9 million provision as an estimate of additional activity
which will be required.
These actions were taken when access to cash and gold under the
Company's working capital facility and gold leasing agreement
became constrained near the end of the second quarter and on a
more pronounced basis in the third quarter, and also because of
the Company's commitment to meet its customers' shipping requirements.
(2) Significant Accounting Policies
The unaudited consolidated financial statements presented herein
have been prepared by the Company and contain all adjustments
(consisting of only normal recurring adjustments) necessary to
present fairly and on a basis consistent with the consolidated
financial statements for the year ended February 25, 1996, the
Company's financial position as of August 25, 1996, and the
results of its operations for the three- and six-month periods
ended August 25, 1996, and August 27, 1995, and cash flows for
the six-month periods ended August 25, 1996, and August 27, 1995.
The results of operations for the six months ended August 25,
1996 are not necessarily indicative of the results to be
expected for the year due to the seasonal nature of the
Company's operations and the significant inventory charge taken
in the three-months ended August 25, 1996.
The significant accounting policies followed by the Company are
set forth in Note (2) of the Company's consolidated financial
statements for the year ended February 25, 1996, which have been
included in the Annual Report on Form 10-K, Commission File
Number 0-14394, for the fiscal year ended February 25, 1996.
Except as disclosed below, the Company has made no change in
these policies during the six months ended August 25, 1996.
<PAGE>
Long-Lived Assets
On February 26, 1996, the Company adopted Financial Accounting
Standard Board's Statement of Financial Accounting Standards
(SFAS) No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed of". SFAS No.
121 addresses accounting and reporting requirements for
long-term assets based on their fair market values. The
Company's financial condition and results of operations were not
materially impacted as a result of adopting SFAS No. 121.
Stock Options
On February 26, 1996, the Company adopted SFAS No. 123
"Accounting for Stock-Based Compensation". The Company intends
to continue accounting for its stock based compensation plans
for employees in accordance with Accounting Principles Board
Opinion (APB) No. 25. Under SFAS No. 123, companies choosing to
continue to use APB No. 25 to account for stock based
compensation plans for employees, must make footnote disclosure
of the effects that use of the valuation methods described in
SFAS No. 123 would have on their earnings per share. The
Company will disclose this information in the notes to its
consolidated financial statements for the fiscal year ended
February 23, 1997. The company accounts for non-employee stock
based compensation under SFAS No. 123.
(3) Loan Arrangements
On July 3, 1996, the Company entered into a new credit agreement
with Foothill Capital Corporation ("Foothill"). The agreement
provides senior secured financing consisting of a $40 million
revolving credit facility and a $30 million letter of credit in
support of a Gold Consignment Facility provided by Fleet
Precious Metals ("Fleet"); however, the aggregate amount of the
combined facilities which may be outstanding at any date is $65
million. The agreement is for a period of two years and
provides Foothill with an option to renew for three additional
years. The loans bear interest at a rate per annum equal to the
greater of (a) 2% above the reference rate announced by an
identified group of major banks selected by Foothill or (b) 8%.
The agreement contains standard covenants for facilities of this
type including financial covenants relating to interest
coverage, minimum net worth, minimum working capital, debt to
net worth and current ratios and limitations on dividends,
distributions and capital expenditures. Advances under the
credit line are based on eligible accounts receivables and
inventory. Foothill has first priority security interest in
receivables, inventory and substantially all real estate and
fixed assets owned by the Company and its domestic subsidiaries
subject to Fleet's first position as gold consignor, supported
by the letter of credit.
The Company's results of operations created potential violations
of certain financial covenants in its working capital facility.
The Company has received waivers of these financial covenants
from Foothill. The Company is currently discussing with its
lender permanent modifications of the covenants in the working
capital facility. There can be no assurance, however, that the
Company and its lenders will be able to agree upon such
modifications to the working capital facility. The working
capital facility, pursuant to its terms, is expected to be
amended following completion of the Balfour sale (Note 7), to
reflect such sale.
<PAGE>
During the first quarter of fiscal 1996, the Company used its
final PIK to make the semiannual interest payment due May 13,
1995, on the 13% Senior Subordinated Notes, due May 31, 1998,
with approximately $4.2 million of additional notes. The
Company is obligated to make semiannual cash interest payments
of approximately $4.5 million. Such a payment was made on May
15, 1996, and the next payment is due to be made on November 15,
1996.
In charging the second quarter with the inventory charge, the
Company has reduced its net worth below a covenant threshold
established in the Senior Secured Notes and Senior Subordinated
Notes. If the Company's net worth remains below this threshold
for two consecutive quarters, within 45 days thereafter, the
Company is required to make an offer to redeem 7.5% of the
outstanding notes under these two indentures, and to continue to
offer such redemptions semiannually as long as the condition
persists. If such redemption needed to be made, the first such
redemption offer of approximately $6.2 million would need to be
made on or about January 8, 1997. Such redemption would be
made sixty days thereafter, on or about March 9, 1997. An
assumed bond redemption amount has been included in current
portion of long-term debt on the accompanying Consolidated
Balance Sheet as of August 25, 1996.
The Company is currently taking action to amend the indentures
to the Senior Secured Notes and the Senior Subordinated Notes.
Such amendments would, among other things, reduce the covenant
threshold referred to above to a level that is below the
Company's current net worth. To amend each indenture, the
Company believes it must receive the written consent of the
holders of at least a majority in principal amount of the
outstanding notes under each indenture. Such a majority has
executed such written consents. However, such consents and the
related amendments shall not be effective until the Trustees of
the indentures have approved and executed them the
Company and its lender under its working capital facility have
entered into a written amendment to the working capital facility
which modifies the financial covenants set forth in the working
capital facility. Therefore, there can be no assurances that
such written consents shall become effective and that the
indentures will be amended.
The Company's domestic gold facility provides secured gold
consignment availability of approximately 70,000 troy ounces. A
subsidiary of the Company has an agreement with a gold supplier
to provide secured gold consignment availability of
approximately 4,800 troy ounces. As of August 25, 1996,
approximately 68,000 ounces of gold valued at approximately
$25.8 million were on consignment under the Company's gold
consignment facilities.
<PAGE>
(4)Inventories
Inventories consisted of the following at August 25, 1996, and February 25,
1996:
<TABLE>
<CAPTION>
August 25, February 25,
1996 1996
<S> <C> <C>
Raw Materials $10,509,726 $14,820,768
Work-in-Process 10,926,966 9,947,057
Finished Goods 28,659,401 65,370,578
---------- ----------
$50,096,093 $90,138,403
</TABLE>
(5)Loss Per Common Share
Loss per common share is computed by adjusting the Company's net loss for the
accretion of discount and dividends on preferred stocks and dividing by the
weighted average number of common shares outstanding during each period.
(6) Supplemental Disclosure of Noncash Investing and Financing Activities
On May 15, 1995, the Company issued approximately $4.2 million in new 13% Senior
Subordinated Notes due May 31, 1998, as payment of the semiannual interest
installment. Approximately $2.5 million of this amount was classified as accrued
expense in the February 26, 1995, Consolidated Balance Sheet.
<PAGE>
(7) Agreement for the Sale of Subsidiary Assets
On May 20, 1996, the Company entered into an agreement to sell
assets and liabilities of its Balfour and Gold Lance
subsidiaries constituting substantially all of the operations of
Balfour and Gold Lance to Class Rings, Inc. (CRI), a new company
formed by Castle Harlan Partners II, L.P. and the Company.
Separately, CRI entered into an agreement with CJC Holdings,
Inc. (CJC) to acquire its school ring business.
The Federal Trade Commission (FTC), which has had the
transaction under review since May 1996, has given preliminary
approval to a modified agreement between the Company and CRI.
Under the modifications which received preliminary approval by
the FTC, the purchase price has been adjusted to $44 million,
adjustable for the fluctuation in working capital from January
28, 1996 to the date of closing, plus the cash equivalent to the
value of gold on hand as of the date of closing. The Company
will not receive any stock interest in CRI. The Company will
retain the operations of Gold Lance. The Company is working to
reflect such changes in an amended purchase agreement which is
anticipated to be completed in the near future.
Completion of the proposed transaction, as modified, is
contingent upon certain closing conditions being met, including,
without limitation, final Federal Trade Commission approval,
CRI's ability to raise sufficient capital to complete the
acquisition and the parties entering into an amended purchase
agreement. There can be no assurance as to the timing of the
completion of such transaction or as to whether such transaction
shall be consummated. The transaction, if consummated, is not
expected to have an unfavorable impact on the Company's
financial position.
The Company also has agreements to sell a number of real estate
parcels, the principal component of which is its building in New
York City. Although the closings of these real estate sales are
subject to a number of contingencies, and there can be no
assurance that any or all of these real estate parcels will be
sold, the Company currently expects to close these sales prior
to the end of the current fiscal year. If all of the real
estate parcels were to be sold, the Company expects that it
would realize net proceeds of approximately $7.8 million of cash
and should not have a significant effect on results of
operations.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
This Form 10-Q contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The Company's actual results could differ
materially from those set forth in the forward-looking
statements. Certain factors that might cause such a difference
include the inability to: (i) obtain permanent modifications of
certain covenants in the Company's working capital facility;
(ii) amend the indentures to the Senior Secured notes and the
Senior Subordinated Notes; (iii) sell the Company's Balfour
subsidiary and (iv) close certain real estate transactions
described herein.
Results of Operations for the Six Months Ended August 25, 1996
Compared to the Six Months Ended August 27, 1995
During the period from late August up to and including the
issuance of this report, the Company implemented a program to
recycle approximately $44 million of inventory to recover gold
and diamonds to meet immediate production requirements. The
Company also sold, for approximately $2 million, inventory with
an original cost basis of approximately $5 million. The Company
has charged second quarter operations approximately $35.5
million. Of this amount only approximately $2.5 million was
incurred in the second quarter. The remaining approximately
$33.0 million represents third quarter activity, including a
$2.9 million provision as an estimate of additional activity
which will be required.
These actions were taken when access to cash and gold under the
Company's working capital facility and gold leasing agreement
became constrained near the end of the second quarter and on a
more pronounced basis in the third quarter, and also because of
the Company's commitment to meet its customers' shipping requirement.
Net sales for the six months ended August 25, 1996, decreased
$15.7 million or 13.4 % from $117.2 million in fiscal 1996 to
$101.5 million in fiscal 1997. Current year sales of fine
jewelry have decreased approximately $15.1 million or 20.2% over
the corresponding period in fiscal 1996. The Company is
working to improve its product offerings, reduce the cost of
procurement and provide a higher standard of service to convince
its customer base that the Company should get a larger piece of
their business.
Cost of goods sold for the six months ended August 25, 1996,
decreased approximately $12.2 million from $80.6 million in
fiscal 1996 to $68.4 million in fiscal 1997. Margin on sales
increased 1.4% from 31.2% in fiscal 1996 to 32.6% in fiscal
1997. Gross profit margin has benefited from the higher mix of
Balfour sales to total sales where scholastic product margin is
higher than fine jewelry.
Selling, general, and administrative expenses for the current
period increased approximately $6.3 million from $34.6 million
in fiscal 1996 to $40.9 million in fiscal 1997. As a percentage
of net sales, selling, general, and administrative expenses were
approximately 10.8% higher in the current year than for the six
months ended August 27, 1995. Included in the period were
charges of approximately $5.5 million in excess of expected
costs to resolve disputed items with customers.
Net interest expense for the six months ended August 25, 1996,
increased approximately $0.1 million relative to the
corresponding period in fiscal 1996.
Although the Company had a taxable loss for the six months ended
August 25, 1996, a tax provision of approximately $140,000 was
recorded. The tax provision was primarily due to the Company's
inability to fully recognize the tax benefits of operating
losses in certain jurisdictions, as well as state and foreign
income taxes.
Liquidity and Working Capital
The Company's results of operations created potential violations
of certain financial covenants in its working capital facility.
The Company has received waivers of these financial covenants
from Foothill. The Company is currently discussing with its
lender permanent modifications of the covenants in the working
capital facility. There can be no assurance, however, that the
Company and its lenders will be able to agree upon such
modifications to the working capital facility. The working
capital facility, pursuant to its terms, is expected to be
amended following completion of the Balfour sale (Note 7), to
reflect such sale.
In charging the second quarter with the inventory charge, the
Company has reduced its net worth below a covenant threshold
established in the Senior Secured Notes and Senior Subordinated
Notes. If the Company's net worth remains below this threshold
for two consecutive quarters, within 45 days thereafter, the
Company is required to make an offer to redeem 7.5% of the
outstanding notes under these two indentures, and to continue to
offer such redemptions semiannually as long as the condition
persists. If such redemption needed to be made, the first such
redemption offer of approximately $6.2 million would need to be
made on or about January 8, 1997. Such redemption would be
made sixty days thereafter, on or about March 9, 1997. An
assumed bond redemption amount has been included in current
portion of long-term debt on the accompanying Consolidated
Balance Sheet as of August 25, 1996.
The Company is currently taking action to amend the indentures
to the Senior Secured Notes and the Senior Subordinated Notes.
Such amendments would, among other things, reduce the covenant
threshold referred to above to a level that is below the
Company's current net worth. To amend each indenture, the
Company believes it must receive the written consent of the
holders of at least a majority in principal amount of the
outstanding notes under each indenture. Such a majority has
executed such written consents. However, such consents and the
related amendments shall not be effective until the Trustees of
the indentures have approved and executed them and the
Company and its lender under its working capital facility have
entered into a written amendment to the working capital facility
which modifies the financial covenants set forth in the working
capital facility. Therefore, there can be no assurances that
such written consents shall become effective and that the
indentures will be amended.
An interest payment of approximately $4.5 million on the Senior
Subordinated Notes is due on November 15, 1996.
On May 20, 1996, the Company entered into an agreement to sell
assets and liabilities of its Balfour and Gold Lance
subsidiaries constituting substantially all of the operations of
Balfour and Gold Lance to Class Rings, Inc. (CRI), a new company
formed by Castle Harlan Partners II, L.P. and the Company.
Separately, CRI entered into an agreement with CJC Holdings,
Inc. (CJC) to acquire its school ring business.
The Federal Trade Commission (FTC), which has had the
transaction under review since May 1996, has given preliminary
approval to a modified agreement between the Company and CRI.
Under the modifications which received preliminary approval by
the FTC, the purchase price has been adjusted to $44 million,
adjustable for the fluctuation in working capital from January
28, 1996 to the date of closing, plus the cash equivalent to the
value of gold on hand as of the date of closing. The Company
will not receive any stock interest in CRI. The Company will
retain the operations of Gold Lance. The Company is working to
reflect such changes in an amended purchase agreement which is
anticipated to be completed in the near future.
Completion of the proposed transaction, as modified, is
contingent upon certain closing conditions being met, including,
without limitation, final Federal Trade Commission approval,
CRI's ability to raise sufficient capital to complete the
acquisition and the parties entering into an amended purchase
agreement. There can be no assurance as to the timing of the
completion of such transaction or as to whether such transaction
shall be consummated. The transaction, if consummated, is not
expected to have an unfavorable impact on the Company's
financial position.
The Company also has agreements to sell a number of real estate
parcels, the principal component of which is its building in New
York City. Although the closings of these real estate sales are
subject to a number of contingencies, and there can be no
assurance that any or all of these real estate parcels will be
sold, the Company currently expects to close these sales prior
to the end of the current fiscal year. If all of the real
estate parcels were to be sold, the Company expects that it
would realize net proceeds of approximately $7.8 million of cash
and should not have a significant effect on results of
operations.
Cash used in operating activities for the six months ended
August 25, 1996 was approximately $10.3 million, compared with a
use of approximately $2.2 million for the corresponding period
of fiscal 1996. The additional cash requirements are the
result of the earnings deterioration and the requirement to make
cash interest payments on the 13% Senior Subordinated Notes.
Cash used in investing activities for the six months ended
August 25, 1996 was approximately $1.5 million versus
approximately $1.2 million for the corresponding period in
fiscal 1996.
Cash provided by financing activities was approximately $9.4
million for the six months ended August 25, 1996, compared with
$4.4 million for the six months ended August 27, 1995. Cash
generated from financing activities was primarily used to fund
operations during both periods. The Company was able to finance
a portion of its operating cash requirements from cash available
at foreign subsidiaries.
The Company's net cash position decreased from approximately
$5.2 million at February 25, 1996, to approximately $2.8 million
at August 25, 1996.
<PAGE>
Item 4. Submission of Matters to a Vote of Security-Holders
On July 18, 1996, the Company held its Annual Meeting of Stockholders. At this
meeting, one matter was submitted for a vote of the stockholders: election of
one director. The following votes were cast on the foregoing matter:
BROKER
FOR WITHHELD NON-VOTE
Election of Charles Hill 44,479,437 36,142 473,252
Directors C. William Carey, Richard E. Floor, Marcia C. Morris and William
Schawbel continue their terms of office.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11 Earnings Per Share Computations
27 Financial Data Schedule
99 Waiver of Events of Default with respect to the
"Non-Compliance Items
(b) Reports on Form 8-K
There were no Form 8-K filings during the second quarter ended August 25, 1996.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
TOWN & COUNTRY CORPORATION
(Registrant)
Date: October 25, 1996 /s/ Francis X. Correra
--------------------------
Francis X. Correra
Senior Vice President and
Chief Financial Officer
<PAGE>
TOWN & COUNTRY CORPORATION EXHIBIT 11
Earnings Per Share Computations
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
August 25, August 27, August 25, August 27,
1996 1995 1996 1995
PRIMARY EPS:
<S> <C> <C> <C> <C>
Net loss $(47,646,753) $(4,181,012) $(49,501,196) $(4,695,436)
Accretion of discount
and dividends
on preferred stocks 119,032 287,304 342,160 531,039
Loss attributable to
common stockholders $(47,765,785) $(4,468,316) $(49,843,356) $(5,226,475)
Weighted average common
shares outstanding 25,706,935 23,774,892 25,012,072 23,675,234
Weighted shares issued
from exercise and
assumed execise of:
warrants -- -- -- --
options -- -- -- --
Shares for EPS
calculation 25,706,935 23,774,892 25,012,072 23,675,234
REPORTED EPS:
Net loss $(1.85) $(0.18) $(1.98) $(0.20)
Accretion of discount
and dividends
on preferred stocks (0.01) (0.01) (0.01) (0.02)
Loss per common share $(1.86) $(0.19) $(1.99) $(0.22)
</TABLE>
FULLY DILUTED EPS:
For the periods presented in this exhibit, there is no dilution from Primary
EPS.
This exhibit should be reviewed in conjunction with Note 4 of Notes to
Consolidated Financial Statements.
<PAGE>
TOWN & COUNTRY CORPORATION EXHIBIT 27
FINANCIAL DATA SCHEDULE
<TABLE>
<S> <C>
Cash and cash items $ 2,778,318
Marketable securities --
Notes and accounts receivable--
Trade 50,355,333
Allowances for doubtful accounts 6,436,000
Inventory 50,096,093
Total current assets 100,305,246
Property, plant and equipment 85,543,386
Accumulated depreciation 45,888,473
Total assets 161,712,084
Total current liabilities 59,142,839
Bonds, mortgages, and similar debt 85,827,695
Common stock 259,661
Preferred stock--
Mandatory redemption 2,313,333
No mandatory redemption 1,366,631
Other stockholders' equity 6,723,934
Total liabilities and stockholders' equity 161,712,084
Net sales of tangible products 101,456,209
Total revenues 101,456,209
Cost of tangible goods sold 68,381,785
Total costs and expenses applicable to
sales and revenues 68,381,785
Other costs and expenses 70,026,162
Provision for doubtful accounts and notes 6,399,215
Interest and amortization of debt discount 6,151,528
Income (loss) before taxes and other items (49,361,171)
Income tax expense 140,025
Income (loss) continuing operations (49,501,196)
Discontinued operations --
Extraordinary items --
Cumulative effect--
Changes in accounting principles --
Net income (loss) per common share (49,843,356)
Earnings per share--
Primary $(1.99)
Fully diluted $(1.99)
</TABLE>
<PAGE>
EXHIBIT 99
FOOTHILL CAPITAL CORPORATION
October 24, 1996
Town & Country Corporation
Town & Country Fine Jewelry Group, Inc.
Gold Lance, Inc.
L.G. Balfour Company, Inc.
25 Union Street
Chelsea, Massachusetts 02150
Re: Waivers of Events of Default with respect to the "Non-Compliance Items"
as defined below
Gentlemen:
Reference is made to the Loan Agreement dated as of July 3, 1996
(as the same heretofore may have been amended or modified, the
"Agreement") between Foothill Capital Corporation ("Lender") and
Town & Country Corporation, Town & Country Fine Jewelry Group,
Inc., Gold Lance, Inc., and L.G. Balfour Company, Inc.
(collectively, "Borrower"). Terms used herein and not otherwise
defined herein shall have the meaning ascribed thereto in the
Agreement.
Borrower has advised Lender that:
1. Borrower is not in compliance with Section 6.13(a) of the
Agreement on August 25, 1996, because Borrower failed to
maintain the minimum ratio of Consolidated Current Assets
divided by Consolidated Current Liabilities required therein at
all times;
2. Borrower is not in compliance with Section 6.13(b) of the
Agreement on August 25, 1996, because Borrower failed to
maintain the minimum Consolidated Tangible Net Worth required
therein at all times;
3. Borrower is not in compliance with Section 6.13(c) of the
Agreement on August 25, 1996, because Borrower failed to
maintain the minimum Working Capital amount required therein at
all times;
4. Borrower is not in compliance with Section 6.13(d) of the
Agreement on August 25, 1996, because Borrower failed to
maintain the minimum Consolidated Interest Coverage Ratio
required therein for the twelve (12) month period ended August
25, 1996; and
5. Borrower is not in compliance with Section 6.13(f) of the
Agreement on August 25, 1996, because Borrower failed to
maintain a ratio of Consolidated Total Senior Liabilities
divided by Consolidated Tangible Capital Base not more than
the ratio required therein at all times;
(the foregoing items 1, 2, 3, 4, and 5 are referred
to herein, collectively, as the "Non-Compliance Items").
Borrower has asked Lender to waive any Event of Default
that may have been occasioned by any of the Non-Compliance
Items. Lender hereby waives any Event of Default that may
have been occasioned solely by any of the Non-Compliance Items.
The waiver of the Non-Compliance Items is limited to the
specifics hereof, shall not apply with respect to any facts or
occurrences other than those on which the applicable
Non-Compliance Item is based, shall not excuse future
non-compliance with the Agreement (as it may from time to time
be amended), including Section 6.13 thereof, and except as
expressly set forth herein, shall not operate as a waiver or an
amendment of any right, power or remedy of Lender, nor as a
consent to any further or other matter, under the Loan Documents.
This waiver shall not be effective until Lender advises
Borrower in writing that Lender has obtained any consents that
Lender may need or require from participants of Lender.
Cordially,
Foothill Capital Corporation
By: /s/Anthony Aloi
Name: Anthony Aloi
Title: Senior Vice President
<PAGE>
FOOTHILL
October 24, 1996
Mr. Robert Hannon
Town & Country Corporation
25 Union Street
Chelsea, MA 02150
Dear Bob:
This letter should serve as notice that Foothill Capital has
received proper
consent from our participants and the "Waiver of Event of
Default with respect to
the Non-Compliance Items" dated October 24, 1996, is now
effective.
Sincerely
/S/ Anthony Aloi
Anthony Aloi
Assistant Vice President
CC:
Bruce Hilowitz, CIT
Alan Ghole, FINOVA Capital Corporation
Kevin Vaughan, Textron Financial Corporation
Britt Terrell, Coast Business Credit
Foothill Capital Corporation
617-624-4400 / Fax 617-722-9493
60 State Street, Suite 1150, Boston, MA 02109
