FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 25, 1997
------------
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 (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
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 __
On June 19, 1997, the Registrant had outstanding 23,687,200 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 1,263,741 shares of Convertible
Preferred Stock, $1 par value, outstanding on June 17, 1997. These shares are
immediately convertible into 2,527,482 shares of Class A Common Stock.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 2
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
May 25, February 23,
1997 1997
------------ ---------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,636,725 $ 10,431,911
Restricted cash (Note 6) 2,408,719 107,090
Accounts receivable--
Less allowances for doubtful
accounts of $1,412,000 and
$1,243,000 at May 25, 1997 and
February 23, 1997, respectively 20,554,214 22,247,826
Inventories (Note 4) 43,764,044 42,752,801
Prepaid expenses and other
current assets 2,623,869 1,956,587
------------ ------------
Total current assets 74,987,571 77,496,215
------------ ------------
PROPERTY, PLANT & EQUIPMENT, at cost 41,524,237 56,215,045
Less - Accumulated depreciation 24,773,791 33,242,256
------------ ------------
16,750,446 22,972,789
------------ ------------
INVESTMENT IN SOLOMON BROTHERS, LIMITED 13,734,000 13,734,000
------------ ------------
OTHER ASSETS 4,676,279 7,109,012
------------ ------------
$110,148,296 $121,312,016
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 3
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS (Continued)
May 25, February 23,
1997 1997
------------ ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) (Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Notes payable to banks (Note 3) $ 2,737,104 $ --
Current portion of long-term debt (Note 3) 13,254,000 13,254,000
Accounts payable 9,414,857 9,537,829
Accrued expenses 6,829,740 16,934,445
Accrued taxes 503,422 614,202
------------ ------------
Total current liabilities 32,739,123 40,340,476
------------ ------------
LONG-TERM DEBT, less current portion
(Note 3) 77,651,958 78,090,054
------------ ------------
Total liabilities 110,391,081 118,430,530
------------ ------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST (Note 6) 4,976,474 4,996,770
------------ ------------
EXCHANGEABLE PREFERRED STOCK, $1.00
par value--$14.59 preference value-
Authorized--200,000 shares
Issued and outstanding--152,217 shares 2,337,149 2,373,654
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $1.00 par value-
Authorized and unissued--800,000 shares -- --
Convertible preferred stock, $1.00 par
value, $6.50 preference value
Authorized--4,000,000 shares
Issued and outstanding--1,263,741 shares 1,263,741 1,302,673
and 1,302,673 shares, respectively
Class A Common Stock, $ .01 par value-
Authorized--40,000,000 shares
Issued and outstanding--23,683,647
and 23,508,096 shares, respectively 236,836 235,081
Class B Common Stock, $.01 par value-
Authorized--8,000,000 shares
Issued and outstanding--2,664,927 shares 26,649 26,649
Additional paid-in capital 75,965,971 75,797,457
Retained deficit (85,049,605) (81,850,798)
------------ ------------
Total stockholders' equity (deficit) (7,556,408) (4,488,938)
------------ ------------
$110,148,296 $121,312,016
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 4
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended
May 25, May 26,
1997 1996
------------ -------------
<S> <C> <C>
NET SALES $ 33,036,062 $ 58,264,124
COST OF SALES 25,263,526 38,065,900
------------ ------------
Gross profit $ 7,772,536 $ 20,198,224
SELLING, GENERAL &
ADMINISTRATIVE
EXPENSES 8,214,039 18,325,652
------------ ------------
Income (loss) from
operations $ (441,503) $ 1,872,572
INTEREST EXPENSE, net (2,701,898) (3,676,025)
GAIN ON SALE OF REAL ESTATE 185,867 --
INVESTMENT LOSS (40,950) --
MINORITY INTEREST 20,297 29,035
------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 5
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(Unaudited)
For the Three Months Ended
May 25, May 26,
1997 1996
------------ -------------
<S> <C> <C>
LOSS BEFORE
INCOME TAXES $ (2,978,187) $ (1,774,418)
PROVISION FOR
INCOME TAXES 63,000 80,025
------------ ------------
NET LOSS $ (3,041,187) $ (1,854,443)
ACCRETION OF DISCOUNT
AND DIVIDENDS ON
PREFERRED STOCKS 157,620 223,128
------------ ------------
LOSS ATTRIBUTABLE
TO COMMON
STOCKHOLDERS $ (3,198,807) $ (2,077,571)
============ ============
LOSS PER COMMON
SHARE (Note 5): $ (0.12) $ (0.09)
============ ============
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING
(Note 5): 26,263,863 24,317,210
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 6
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended
May 25, May 26,
1997 1996
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,041,187) $ (1,854,443)
Adjustments to reconcile net loss
to net cash used in operating activities-
Depreciation and amortization 510,907 708,983
Undistributed earnings of affiliates,
net of minority interest 20,659 (29,035)
Gain on sale of fixed assets (185,867) --
Change in assets and liabilities--
Decrease (increase) in accounts
receivable (1,127,567) (4,690,715)
Decrease (increase) in inventory (1,705,718) 6,419,370
Decrease (increase) in prepaid
expenses and other current assets (667,282) (759,566)
Decrease (increase) in other assets 239,786 11,929
Increase (decrease) in accounts
payable (122,972) (3,068,474)
Increase (decrease) in accrued
expenses (6,269,704) (5,830,863)
Increase (decrease) in accrued taxes (110,780) (93,894)
Increase (decrease) in other
liabilities -- 23,751
------------ ------------
Net cash used in operating
activities (12,459,725) (9,162,957)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (617,815) (630,070)
Proceeds from sale of certain assets of subsidiary 7,723,000 --
Proceeds from sale of fixed assets 186,666 19,000
------------ ------------
Net cash provided by (used in)
investing activities 7,291,851 (611,070)
------------ ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 7
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
For the Three Months Ended
May 25, May 26,
1997 1996
------------ -------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on revolving credit facilities $(40,594,261) $(50,435,747)
Proceeds from borrowings under
revolving credit facilities 43,331,365 59,655,078
Payments on long-term debt -- (59,038)
Proceeds from issuance of common stock 3,838 31,125
Payment of dividends (66,625) (66,626)
Decrease (increase) in restricted cash (2,301,629) (601)
------------ ------------
Net cash provided by
financing activities $ 372,688 $ 9,124,191
------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS $ (4,795,186) $ (649,836)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 10,431,911 5,151,929
------------ ------------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 5,636,725 $ 4,502,093
============ ============
SUPPLEMENTAL CASH FLOW DATA:
Cash paid during the period for:
Interest $ 4,936,892 $ 5,382,974
Income taxes 174,332 205,006
</TABLE>
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
MAY 25, 1997
(1) Liquidity
The Company has approximately $89.1 million in principal amount of
debt maturing through December 15, 1998. These debt issues mature as follows:
[bullet] September 15, 1997 $13.3 million Senior Secured Notes
[bullet] May 31, 1998 $68.8 million Senior Subordinated Notes
[bullet] December 15, 1998 $7.0 million Subordinated Notes
The near term maturity of these securities and the material amount of
the principal payments represents a potential liquidity issue for the Company.
The Company, with the assistance of professional advisors, is evaluating
possible alternatives with regard to addressing this situation. It is essential
for the Company to raise additional capital and/or to restructure its debt under
terms which will allow the Company to meet its expected future cash flow
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 23, 1997, the Company's financial position as of May 25, 1997, and the
results of its operations and cash flows for the quarters ended May 25, 1997 and
May 26, 1996.
The results of operations for the quarter ended May 25, 1997, are not
necessarily indicative of the results to be expected for the year due to the
seasonal nature of the Company's operations.
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 23, 1997, which have been included in the Annual Report on
Form 10-K, Commission File Number 0-14394, for the fiscal year ended February
23, 1997.
Certain reclassifications have been made to the prior period's
financial statements to conform with the presentation of the fiscal 1998
financial statements.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 9
(3) Loan Arrangements
On June 4, 1997, the Company obtained a modification to the
minimum net worth covenant in the indenture governing the 13% Senior
Subordinated Notes from a majority of the bondholders. According to the
modification, in the event that the Company's consolidated stockholders' deficit
exceeds $15 million for two consecutive quarters, the Company is required to
make an offer to redeem 7.5% of the outstanding Senior Subordinated Notes
semiannually and to continue to do so as long as the condition persists.
On May 30, 1997, the Company completed an amendment (the
"Amended Agreement") to its July 3, 1996 credit agreement (the "Agreement") with
Foothill Capital Corporation ("Foothill") to reflect changes which have taken
place in the Company. The Amended Agreement provides senior secured financing
consisting of a revolving credit facility and a letter of credit in support of a
Gold Consignment Facility provided by Fleet Precious Metals, Inc. ("Fleet"). The
aggregate amount of the combined facilities, which may be outstanding at any
date, is $55 million.
The revolving credit facility has a maximum amount of $40 million from
February through October and $45 million from November through January. The
letter of credit has a maximum amount of $20 million from February through
October and $15 million from November through January. 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 Amended Agreement contains
standard covenants for facilities of this type including financial covenants
relating to interest coverage ratio, minimum net worth, debt to EBITDA ratio and
limitations on dividends, distributions and capital expenditures, as defined.
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.
As of May 25, 1997, approximately $2.7 million was outstanding under
the Company's revolving credit agreement with Foothill and approximately 37,300
ounces of gold, valued at approximately $12.8 million, were on consignment under
the Company's domestic gold consignment facility.
The Company makes semiannual cash interest payments of approximately
$4.5 million including a payment on May 15, 1997 on the 13% Senior Subordinated
Notes, due May 31, 1998.
A foreign 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 May 25, 1997, approximately 3,300 ounces of gold, valued at
approximately $1.1 million, were on consignment under this gold consignment
facility.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 10
(4) Inventories
Inventories consisted of the following at May 25, 1997, and February
23, 1997:
May 25, February 23,
1997 1997
---------------------- -----------------------
Raw Materials $ 7,443,522 $ 8,547,459
Work-in-Process 4,793,087 5,643,042
Finished Goods 31,527,435 28,562,300
---------------------- -----------------------
$ 43,764,044 $ 42,752,801
====================== =======================
(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) Essex Privatization
During fiscal 1997, the Company began the process of purchasing the
approximately 1.6 million outstanding shares of its Essex subsidiary. The
Company estimates that the cost to repurchase the shares will be approximately
$3 million and that the process should be completed during the second quarter of
fiscal 1998. At May 25, 1997, the Company had approximately $2.3 million on
deposit in an escrow account to be used for the repurchase of the Essex shares
which is included in restricted cash in the accompanying consolidated balance
sheet.
(7) Sales of Assets
L.G. Balfour Company, Inc.
On December 16, 1996, the Company sold certain assets and liabilities
of its Balfour subsidiary constituting substantially all of the operations of
Balfour to Commemorative Brands, Inc. ("CBI") a new company formed by Castle
Harlan Partners II, L.P. (the "Balfour Sale").
On April 24, 1997, a settlement was reached in which the Company paid
CBI $1.1 million to resolve certain items and finalize the purchase price (the
"Purchase Price Adjustment"). Such amount was included in accrued expenses in
the accompanying consolidated balance sheet as of February 23, 1997 and was
included as a component of the net gain of approximately $10.5 million recorded
in the fourth quarter of fiscal 1997.
The Balfour Sale did not include any real property. The prime component
of real property is a facility in Attleboro, Massachusetts which had a net book
value of approximately $2.3 million and a fair value of approximately $1.4
million. A $1.1 million impairment of the carrying value of the facility has
been recognized in association with this transaction and is
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 11
included as a component of the gain recognized on the sale in the fourth
quarter of fiscal 1997 and reduced the carrying value of the facility included
in property, plant and equipment in the accompanying consolidated balance sheets
as of February 23, 1997 and May 25, 1997. The Company leased the facility to
CBI on a temporary basis until June 7, 1997. The Company continues to search
for a buyer. It is possible that the Company will be required to hold the
facility for an unspecified amount of time before being able to complete a
sale, therefore, the Company estimated a one year period to sell the facility
and included an estimate of the carrying costs of approximately $0.2 million in
the $1.1 million impairment recorded.
The Balfour Sale did not include the assumption of a lease facility in
North Attleboro, Massachusetts. On April 24, 1997, the lease was amended,
reducing the amount of space and the period of time for which the Company is
obligated. The Company's future lease obligation for this facility is until July
31, 1999 at an annual cost of approximately $0.2 million. The Company is
subleasing the remaining space to CBI on a temporary basis, however, it is
possible that the Company will be required to hold the property for a period of
time after CBI vacates the facility before being able to find replacement
tenants, or that the Company may be required to lease the property at lower rent
payments than the Company is currently obligated to pay. The Company has assumed
that the facility would remain vacant after CBI vacates for the remainder of the
lease term and accrued approximately $0.4 million which is included in accrued
expenses in the accompanying consolidated balance sheets as of February 23, 1997
and May 25, 1997.
The accompanying consolidated balance sheets as of February 23, 1997
and May 25, 1997, include assets of Balfour consisting primarily of real estate
and their associated liabilities discussed above. The Purchase Price Adjustment
was included in accrued expenses as of February 23, 1997 and was paid in the
first quarter of fiscal 1998. Other remaining assets and liabilities are not
material to the financial position of the Company as of February 23, 1997 and
May 25, 1997.
The accompanying consolidated statement of operations for the three
months ended May 26, 1996, includes the following amounts associated with
Balfour.
Net sales $24,133,620
Cost of sales 11,965,644
-----------
Gross profit 12,167,976
Selling, general and administrative expenses 10,276,544
-----------
Income from operations $ 1,891,432
===========
Gold Lance, Inc.
On April 18, 1997, the Company sold certain assets of its Gold Lance
subsidiary to Jostens, Inc. ("the Gold Lance Sale"). Prior to or at closing, on
April 18, 1997, the Company received cash equal to the purchase price of
approximately $10.8 million, less $2.5 million, the payment of which is
contingent on the operating performance of Gold Lance during a
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 12
transition period between April 18, 1997 and July 31, 1997 ("the Transition
Period"). The Company recorded a loss in the fourth quarter of fiscal 1997
of $5.0 million on the Gold Lance Sale.
The Gold Lance Sale did not include any real property. The prime
component of real property is a facility in Houston, Texas which had a net book
value of approximately $1.5 million and a fair value of approximately $0.7
million. A $0.8 million impairment of the carrying value of the facility has
been recognized in association with this sale and is included as a component of
the $5.0 million loss recognized on the sale. The carrying value of the facility
included in property, plant and equipment in the accompanying consolidated
balance sheets reflects such impairment as of February 23, 1997 and May 25,
1997. The Company will continue to operate the property during the Transition
Period. It is possible that the Company will be required to hold the facility
for an unspecified amount of time before being able to complete a sale.
The accompanying consolidated balance sheet as of February 23, 1997
includes the assets and liabilities of Gold Lance. The assets consist primarily
of approximately $2.1 million in accounts receivable, $6.9 million of property,
plant and equipment, net and $2.1 million in other assets primarily related to
goodwill and samples. The liabilities consist primarily of $0.5 million in
accounts payable and $4.5 million in accruals. Approximately $4.2 million of
losses accrued as part of the sale are included in accrued expenses of which
approximately $1.3 million relates to financial advisor, legal and other
transaction costs associated with the sale. As of May 25, 1997, significant
remaining assets and liabilities of Gold Lance consist primarily of the real
estate discussed above, extinguishment of transaction costs, accounts payable
and the accrued liabilities in the ordinary course and contingencies associated
with the Transition Period.
The accompanying consolidated statements of operations for the three
months ended May 25, 1997, and May 26, 1996 include the following amounts
associated with Gold Lance:
For the three months ended
May 25, 1997 May 26, 1996
---------------- ----------------
Net sales $ 3,762,256 $ 3,533,193
Cost of sales 2,357,578 2,330,246
---------------- ----------------
Gross profit 1,404,678 1,202,947
Selling, general and administrative expenses 1,528,684 1,355,839
---------------- ----------------
Loss from operations $ (124,006) $ (152,892)
================ ================
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 13
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements
Certain statements in this Form 10-Q constitute "forward-looking
statements" as that term is defined under the Private Securities Litigation
Reform Act of 1995 (the "Act") and releases issued by the Securities and
Exchange Commission. The words "believe," "expect," "anticipate," "intend,"
"estimate" and other expressions which are predictions of or indicate future
events and trends and which do not relate to historical matters identify
forward-looking statements. Reliance should not be placed on forward-looking
statements because they involve known and unknown risks, uncertainties and other
factors, which may cause the actual results, performance or achievements of the
Company to differ materially from anticipated future results, performance or
achievements expressed or implied by such forward-looking statements. The
Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise.
LIQUIDITY
The Company has approximately $89.1 million in principal amount of debt
maturing through December 15, 1998. These debt issues mature as follows:
[bullet] September 15, 1997 $13.3 million Senior Secured Notes
[bullet] May 31, 1998 $68.8 million Senior Subordinated Notes
[bullet] December 15, 1998 $7.0 million Subordinated Notes
The near term maturity of these securities and the material amount of
the principal payments represents a potential liquidity issue for the Company.
The Company, with the assistance of professional advisors, is evaluating
possible alternatives with regard to addressing this situation. It is essential
for the Company to raise additional capital and/or to restructure its debt under
terms which will allow the Company to meet its expected future cash flow
requirements.
FINANCIAL CONDITION
On May 30, 1997, the Company completed an amendment (the "Amended
Agreement") to its July 3, 1996 credit agreement (the "Agreement") with Foothill
Capital Corporation ("Foothill") to reflect changes which have taken place in
the Company. The Amended Agreement provides senior secured financing consisting
of a revolving credit facility and a letter of credit in support of a Gold
Consignment Facility provided by Fleet Precious Metals, Inc. ("Fleet"). The
aggregate amount of the combined facilities, which may be outstanding at any
date, is $55 million.
The revolving credit facility has a maximum amount of $40 million from
February through October and $45 million from November through January. The
letter of credit has a maximum amount of $20 million from February through
October and $15 million from
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 14
November through January. 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 Amended Agreement contains standard covenants for
facilities of this type including financial covenants relating to interest
coverage ratio, minimum net worth, debt to EBITDA ratio and limitations on
dividends, distributions and capital expenditures, as defined. 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.
Results of Operations for the Quarter Ended May 25, 1997, Compared to the
Quarter Ended May 26, 1996
Consolidated net sales for the three months ended May 25, 1997,
decreased $25.3 million or 43% from $58.3 million for the three months ended May
26, 1996 to $33.0 million for the three months ended May 25, 1997. Consolidated
gross profit for the three months ended May 25, 1997, was $7.8 million compared
with $20.2 million for the three months ended May 26, 1996. Consolidated gross
profit margin decreased from 34.7% for the quarter ended May 26, 1996 to 23.5%
for the quarter ended May 25, 1997. Consolidated selling, general and
administrative ("SG&A") expenses decreased from $18.3 million for the three
months ended May 26, 1996 to $8.2 million for the three months ended May 25,
1997. As a percentage of consolidated net sales, consolidated SG&A expenses
decreased from 31.5% for the three months ended May 26, 1996 to 24.9% for the
three months ended May 25, 1997.
On December 16, 1996, the Company sold certain assets and liabilities
of its Balfour subsidiary. The comparability of consolidated results of
operations for the quarter ended May 25, 1997 to consolidated results of
operations for the quarter ended May 26, 1996 is affected by this transaction.
The amounts included in the Consolidated Statement of Operations for the Balfour
subsidiary for the three months ended May 26, 1996, are set forth in Note 7.
On April 18, 1997, the Company sold certain assets of its Gold Lance
subsidiary. The amounts included in the Consolidated Statements of Operations
for the Gold Lance subsidiary for the three months ended May 25, 1997 and the
three months ended May 26, 1996, are set forth in Note 7. Comparison of
operating results for the Company's on-going business (the "Fine Jewelry"
business) for the first quarter of fiscal 1998 to the first quarter of fiscal
1997 follows.
Sales of Fine Jewelry decreased $1.3 million or 4.3% from $30.6
million for the three months ended May 26, 1996 to $29.3 million for the three
months ended May 25, 1997. The decrease is primarily attributable to delayed
shipments caused by a customs change in Russia and start-up distribution
problems related to the consolidation of domestic warehouse facilities, which
have been resolved.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 15
Gross profit on Fine Jewelry sales decreased from $6.8 million for
the three months ended May 26, 1996 to $6.4 million for the three months ended
May 25, 1997. Gross profit margin on Fine Jewelry sales decreased from 22.3% for
the quarter ended May 26, 1996 to 21.8% for the quarter ended May 25, 1997.
These decreases resulted from changes in customer and product mix.
Fine Jewelry SG&A expenses were $6.7 million for both the first
quarter of fiscal 1997 and the first quarter of fiscal 1998. Fine Jewelry SG&A
expenses as a percentage of Fine Jewelry net sales increased from 21.8% for the
three months ended May 26, 1996 to 22.8% for the three months ended May 25,
1997. The increased percentage is the result of the sales decrease.
Net interest expense decreased $1.0 million from $3.7 for the quarter
ended May 26, 1996, to $2.7 million for the quarter ended May 25, 1997. The
Company's average borrowings for the quarter ended May 25, 1997 decreased $21
million from $113 million for the three months ended May 26, 1996 to $92 million
for the three months ended May 25, 1997. The weighted average interest rate was
approximately 11.2% for the first quarter of fiscal 1997 and approximately 10.9%
for the first quarter of fiscal 1998.
Although the Company had a taxable loss for the fiscal quarter ended
May 25, 1997, the Company recorded a tax provision of approximately $63,000. The
tax provision was primarily due to the Company's inability to fully recognize
the tax benefits of operating losses in certain jurisdictions as well as state
and foreign income taxes.
Liquidity and Working Capital
Cash used in operating activities during the quarter ended May 25,
1997, was $12.5 million compared with $9.2 million for the quarter ended May 25,
1996. In the first quarter of fiscal 1998, the Company paid a $1.1 million
Purchase Price Adjustment to CBI relative to the sale of certain assets and
liabilities of the Company's Balfour subsidiary.
Cash provided by investing activities for the quarter ended May 25,
1997, was $7.3 million compared to a use of $0.6 million for the quarter ended
May 26, 1996. In the current year, the Company benefited from the net proceeds
related to the sale of certain assets of its Gold Lance subsidiary of $7.7
million.
Cash provided by financing activities was approximately $0.4 million
for the quarter ended May 25, 1997, compared with $9.1 million for the quarter
ended May 26, 1996. The change in cash provided by financing activities is the
result of lower net borrowings on the Company's revolving credit facility,
offset by a $2.3 million increase in restricted cash for the three months ended
May 25, 1997.
The Company's net cash position decreased from $10.4 million at
February 23, 1997, to $5.6 million at May 25, 1997.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 16
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Third Supplemental Indenture to the 13% Senior
Subordinated Notes, due May 31, 1998, dated
June 4, 1997.
11 Earnings Per Share Computations
27 Financial Data Schedule
(b) Reports on Form 8-K
The Registrant made an 8-K filing under Item 2 - Acquisition or
Disposition of Assets dated April 18, 1997. The report described
the sale of certain assets of the Company's Gold Lance subsidiary
to Jostens, Inc.
<PAGE>
TOWN & COUNTRY CORPORATION Form 10-Q
Page 17
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: July 8, 1997 /s/ Veronica Zsolcsak
-------------------------
Veronica Zsolcsak
Chief Financial Officer
TOWN & COUNTRY CORPORATION,
as Issuer
AND
TOWN & COUNTRY FINE JEWELRY GROUP, INC.,
L.G. BALFOUR COMPANY, INC. and GL, INC. (F/K/A GOLD LANCE, INC.),
as Guarantors
AND
BANKERS TRUST COMPANY,
as Trustee
--------------------------------------------------------------------
THIRD SUPPLEMENTAL INDENTURE
Dated as of June 4, 1997
to
INDENTURE
Dated as of May 14, 1993
----------------------------------------------------------------------
13% Senior Subordinated Notes Due May 31, 1998
<PAGE>
THIRD SUPPLEMENTAL INDENTURE
THIRD SUPPLEMENTAL INDENTURE dated as of June 4, 1997, by and among
TOWN & COUNTRY CORPORATION, a Massachusetts corporation (the "Issuer"),
BANKERS TRUST COMPANY, a New York banking corporation, as Trustee (the
"Trustee"), and TOWN & COUNTRY FINE JEWELRY GROUP, INC., L.G. BALFOUR
COMPANY, INC. and GL, INC. (F/K/A GOLD LANCE, INC.) (the "Guarantors").
WHEREAS, all capitalized terms used in this Third Supplemental
Indenture have the respective meanings set forth in the Indenture; and
WHEREAS, the Issuer, the Guarantors and the Trustee entered into that
certain Indenture dated as of May 14, 1993 (the "Indenture"), which authorized
the issuance of 13% Senior Subordinated Notes due May 31, 1998 (the
"Securities"); and
WHEREAS, Section 9.02 of the Indenture provides, among other things,
that the Issuer, the Trustee and the Guarantors may amend the Indenture as
provided herein with the written consent of the Holders of at least a majority
in principal amount of the outstanding Securities; and
WHEREAS, all acts and proceedings required by law, the Indenture, the
articles of organization and the by-laws of the Issuer and the Guarantors to
authorize, approve and constitute this Third Supplemental Indenture as a valid
and binding agreement for the uses and purposes set forth herein, in accordance
with its terms, have been done and taken, and the execution and delivery of this
Third Supplemental Indenture have in all respects been duly authorized by the
Issuer and the Guarantors.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the Issuer,
the Guarantors and the Trustee hereby agree as follows:
(1) The definition of "Minimum Net Worth" as set forth in the Indenture
(and as amended by the First Supplemental Indenture dated as of November 13,
1996) shall be deleted in its entirety and replaced as follows: "Minimum Net
Worth" means, as of any date, an amount equal to negative $15,000,000.
(2) The Trustee accepts the amendment of the Indenture effected by this
Third Supplemental Indenture. Without limiting the generality of the foregoing,
the Trustee has no responsibility for the correctness of the recitals of fact
herein contained which shall be taken as the statements of the Issuer and the
Guarantors.
(3) This Third Supplemental Indenture shall become valid, binding and
effective
<PAGE>
upon its execution by the Issuer, the Guarantors and the Trustee.
(4) Except as expressly amended hereby, the Indenture is in all
respects ratified and confirmed and all the terms, conditions and provisions
thereof shall remain in full force and effect. In addition, without limitation,
the Issuer and the Guarantors hereby reconfirm their obligations to the Trustee
under Section 7.07 of the Indenture.
(5) This Third Supplemental Indenture shall form a part of the
Indenture for all purposes, and every Holder of Securities heretofore or
hereafter authenticated and delivered shall be bound hereby.
(6) This Third Supplemental Indenture may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
and all of such counterparts shall together constitute one and the same
instrument.
(7) The laws of the State of New York shall govern this Third
Supplemental Indenture without regard to principles of conflicts of law.
(8) Nothing contained in this Third Supplemental Indenture shall
operate as a waiver or release of any right, remedy, claim or privilege against
the Company, the Guarantors or any other person as to matters not specifically
addressed by this Third Supplemental Indenture, and all such rights, remedies,
claims and privileges are hereby expressly preserved.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Third
Supplemental Indenture to be duly executed as of the date first written above.
TOWN & COUNTRY CORPORATION
By: /s/ William Schawbel
--------------------------
Name: William Schawbel
Title: President
TOWN & COUNTRY FINE JEWELRY
GROUP, INC.
By: /s/ William Schawbel
--------------------------
Name: William Schawbel
Title: President
L.G. BALFOUR COMPANY, INC.
By: /s/ William Schawbel
--------------------------
Name: William Schawbel
Title: President
GL, INC. (F/K/A GOLD LANCE, INC.)
By: /s/ Richard E. Floor
--------------------------
Name: Richard E. Floor
Title: Clerk
BANKERS TRUST COMPANY, as
Trustee
By: /s/ Kevin Weeks
--------------------------
Name: Kevin Weeks
Title: Assistant Treasurer
TOWN & COUNTRY CORPORATION EXHIBIT 11
<TABLE>
<CAPTION>
Earnings Per Share Computations
(Unaudited)
For the Three Months Ended
May 25, May 26,
1997 1996
------------ ------------
<S> <C> <C>
PRIMARY EPS:
Net loss $ (3,041,187) $ (1,854,443)
Accretion of discount and dividends
on preferred stocks 157,620 223,128
------------ ------------
Loss attributable to common
stockholders $ (3,198,807) $ (2,077,571)
============ ============
Weighted average common
shares outstanding 26,263,863 24,317,210
Weighted shares issued
from exercise and
assumed execise of:
warrants -- --
options -- --
------------ ------------
Shares for EPS
calculation 26,263,863 24,317,210
============ ============
REPORTED EPS:
Net loss $ (0.11) $ (0.08)
Accretion of discount and dividends
on preferred stocks (0.01) (0.01)
------------ ------------
Loss per common share $ (0.12) $ (0.09)
============ ============
FULLY DILUTED EPS:
For the periods presented in this exhibit, there is no dilution from Primary
EPS.
</TABLE>
This exhibit should be reviewed in conjunction with
Note 5 of Notes to Consolidated Financial Statements.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-22-1998
<PERIOD-START> FEB-24-1997
<PERIOD-END> MAY-25-1997
<CASH> 5,636,725
<SECURITIES> 0
<RECEIVABLES> 21,966,214
<ALLOWANCES> 1,412,000
<INVENTORY> 43,764,044
<CURRENT-ASSETS> 74,987,571
<PP&E> 41,524,237
<DEPRECIATION> 24,773,791
<TOTAL-ASSETS> 110,148,296
<CURRENT-LIABILITIES> 32,739,123
<BONDS> 77,651,958
2,337,149
1,263,741
<COMMON> 263,485
<OTHER-SE> (9,083,634)
<TOTAL-LIABILITY-AND-EQUITY> 110,148,296
<SALES> 33,036,062
<TOTAL-REVENUES> 33,036,062
<CGS> 25,263,526
<TOTAL-COSTS> 25,263,526
<OTHER-EXPENSES> 7,841,197
<LOSS-PROVISION> 372,842
<INTEREST-EXPENSE> 2,701,898
<INCOME-PRETAX> (2,978,187)
<INCOME-TAX> 63,000
<INCOME-CONTINUING> (3,041,187)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,198,807)
<EPS-PRIMARY> (0.12)
<EPS-DILUTED> (0.12)
</TABLE>
