-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PGR4hR35QUK12x1j0xOB+LRhxC6hogzXn/sDGZDI3Iw3fdjyHBupxCNlqf3ibKhe LSYwctYUS/d2yfWd8OHTqQ== 0000950152-96-004659.txt : 19960916 0000950152-96-004659.hdr.sgml : 19960916 ACCESSION NUMBER: 0000950152-96-004659 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960803 FILED AS OF DATE: 19960913 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLE NATIONAL CORP /DE/ CENTRAL INDEX KEY: 0000769644 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RETAIL STORES, NEC [5990] IRS NUMBER: 341453189 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12814 FILM NUMBER: 96629641 BUSINESS ADDRESS: STREET 1: 5915 LANDERBROOK DR CITY: MAYFIELD HEIGHTS STATE: OH ZIP: 44124 BUSINESS PHONE: 2164494100 MAIL ADDRESS: STREET 1: 5915 LANDERBROOK DRIVE STREET 2: SUITE 300 CITY: CLEVELAND STATE: OH ZIP: 44124 FORMER COMPANY: FORMER CONFORMED NAME: CNC HOLDING CORP/DE DATE OF NAME CHANGE: 19920703 10-Q 1 COLE N CORPORATION 10-Q 1 =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) X Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended August 3, 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 1-12814 COLE NATIONAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 34-1453189 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 5915 Landerbrook Drive Mayfield Heights, Ohio 44124 (Address of principal executive offices) (Zip code) (216)449-4100 (Registrant's telephone number, including area code) 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. X YES NO -- -- As of August 26, 1996, 11,941,506 shares of the registrant's Class A common stock were outstanding. =============================================================================== 2 COLE NATIONAL CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED AUGUST 3, 1996 INDEX
Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of August 3, 1996 and February 3, 1996.......................................... 1 Consolidated Statements of Income for the 13 weeks ended August 3, 1996 and July 29, 1995 and the 26 weeks ended August 3, 1996 and July 29, 1995.......................... 2 Consolidated Statements of Cash Flows for the 26 weeks ended August 3, 1996 and July 29, 1995 ................... 3 Notes to Financial Statements............................. 4 - 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 6 - 7 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders....... 8 Item 6. Exhibits and Reports on Form 8-K.......................... 8
3 PART I - FINANCIAL INFORMATION Item 1. Financial Statements COLE NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited) (Dollars in thousands)
August 3, February 3, Assets 1996 1996 - ------ -------- ----------- Current assets: Cash and temporary cash investments $ 46,088 $ 29,260 Accounts receivable 18,964 18,589 Inventories 84,164 84,794 Prepaid expenses and other 6,154 5,892 Deferred income tax benefits 10,675 10,675 --------- --------- Total current assets 166,045 149,210 Property and equipment, at cost 162,828 157,050 Less-accumulated depreciation and amortization (94,601) (90,909) --------- --------- Total property and equipment, net 68,227 66,141 Other assets 7,277 5,070 Cost in excess of net assets of purchased businesses, net 80,178 81,163 --------- --------- Total assets $ 321,727 $ 301,584 ========= ========= Liabilities and Stockholders' Equity Current liabilities: Current portion of long-term debt $ 794 $ 705 Accounts payable 25,238 29,273 Accrued interest 6,413 7,050 Accrued liabilities 61,544 53,933 Accrued income taxes 5,810 5,976 --------- --------- Total current liabilities 99,799 96,937 Long-term debt, net of discount 167,193 181,903 Deferred income taxes and other 5,561 5,611 Stockholders' equity: Common stock 12 10 Paid-in capital 126,348 99,827 Notes receivable - stock option exercise (1,074) (1,117) Accumulated deficit (76,112) (81,587) --------- --------- Total stockholders' equity 49,174 17,133 --------- --------- Total liabilities and stockholders' equity $ 321,727 $ 301,584 ========= =========
The accompanying notes to consolidated financial statements are an integral part of these balance sheets. -1- 4 COLE NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) (Dollars in thousands, except per share amounts)
13 Weeks Ended 26 Weeks Ended ------------------------- -------------------------- August 3, July 29, August 3, July 29, 1996 1995 1996 1995 --------- -------- --------- -------- Net sales $ 153,465 $138,099 $ 296,355 $263,353 Costs and expenses: Cost of goods sold 47,400 43,341 91,900 82,065 Operating expenses 87,799 78,865 175,151 156,333 Depreciation and amortization 4,294 3,851 8,529 7,678 --------- -------- --------- -------- Total costs and expenses 139,493 126,057 275,580 246,076 --------- -------- --------- -------- Income from operations 13,972 12,042 20,775 17,277 Interest expense, net 4,729 5,316 9,781 10,600 --------- -------- --------- -------- Income before income taxes and extraordinary item 9,243 6,726 10,994 6,677 Income tax provision 4,066 2,960 4,837 2,938 --------- -------- --------- -------- Income before extraordinary item 5,177 3,766 6,157 3,739 Extraordinary loss on early extinguishment of debt (682) -- (682) -- --------- -------- --------- -------- Net income $ 4,495 $ 3,766 $ 5,475 $ 3,739 ========= ======== ========= ======== Income per common share: Income before extraordinary item $ .47 $ .36 $ .57 $ .36 Extraordinary loss (.06) -- (.06) -- --------- -------- --------- -------- Net income $ .41 $ .36 $ .51 $ .36 ========= ======== ========= ======== The accompanying notes to consolidated financial statements are an integral part of these statements.
-2- 5 COLE NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Dollars in thousands)
26 Weeks Ended ----------------------- August 3, July 29, 1996 1995 -------- --------- Cash flows from operating activities: Net income $ 5,475 $ 3,739 Adjustments to reconcile net income to net cash provided by operations: Extraordinary loss on early extinguishment of debt 682 -- Depreciation and amortization 8,529 7,678 Non-cash interest expense 214 203 Change in assets and liabilities: Increase in accounts receivable, prepaid expenses and other assets (790) (5,101) Decrease in inventories 630 7,597 Increase (decrease) in accounts payable and accrued liabilities 3,237 (4,518) Decrease in accrued interest (637) (20) Increase (decrease) in accrued income taxes 327 (914) -------- -------- Net cash provided by operating activities 17,667 8,664 -------- -------- Cash flows from financing activities: Repayment of long-term debt (16,457) -- Repayment of stock option notes receivable 93 -- Proceeds from public offering, net 26,202 -- Proceeds from exercise of stock options 271 29 -------- -------- Net cash provided by financing activities 10,109 29 -------- -------- Cash flows from investing activities: Purchases of property and equipment, net (9,650) (8,495) Acquisition of business -- (800) Other, net (1,298) (990) -------- -------- Net cash used by investing activities (10,948) (10,285) -------- -------- Cash and temporary cash investments: Net increase (decrease) during the period 16,828 (1,592) Balance, beginning of the period 29,260 19,730 -------- -------- Balance, end of the period $ 46,088 $ 18,138 ======== ======== The accompanying notes to consolidated financial statements are an integral part of these statements.
-3- 6 COLE NATIONAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements (Unaudited) (1) BASIS OF PRESENTATION AND ACCOUNTING POLICIES The consolidated financial statements include the accounts of Cole National Corporation (CNC), its wholly owned subsidiaries, including Cole National Group, Inc. (CNG), and CNG's wholly owned subsidiaries (collectively, the "Company"). All significant intercompany transactions have been eliminated in consolidation. The accompanying consolidated financial statements have been prepared without audit and certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, although the Company believes that the disclosures herein are adequate to make the information not misleading. These statements should be read in conjunction with the Company's consolidated financial statements for the fiscal year ended February 3, 1996. In the opinion of management, the accompanying financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly the Company's financial position as of August 3, 1996 and the results of operations for the 13 and 26 weeks ended August 3, 1996 and July 29, 1995, and cash flows for the 26 weeks ended August 3, 1996 and July 29, 1995. Inventories The accompanying interim consolidated financial statements have been prepared without physical inventories. Inventories at August 3, 1996 and July 29, 1995 were valued at the lower of first-in, first-out (FIFO) cost or market. Cash Flows Net cash flows from operating activities reflect cash payments for income taxes and interest of $4,556,000 and $11,073,000, respectively, for the 26 weeks ended August 3, 1996, and $3,852,000 and $10,759,000, respectively, for the 26 weeks ended July 29, 1995. Earnings Per Share Earnings per share for the 13 weeks ended August 3, 1996 and July 29, 1995 have been calculated based on 11,002,262 and 10,408,642, respectively, weighted average number of common shares outstanding. Earnings per share for the 26 weeks ended August 3, 1996 and July 29, 1995 have been calculated based on 10,718,843 and 10,406,880, respectively, weighted average number of common shares outstanding. (2) PUBLIC OFFERING During the quarter ended August 3, 1996, the Company completed a public offering of 1,437,500 shares of Class A Common Stock, par value $.001, at a price of $19.25 per share. The total net proceeds from the offering were $26.2 million. A portion of the proceeds was used to purchase $15.1 million of the Company's 11.25% CNG Notes, plus accrued interest thereon. The Company recorded an extraordinary loss of $0.7 million, net of an income tax benefit of $0.5 million, representing the payment of premiums, the write-off of unamortized discount and other costs associated with purchasing the debt. (3) ASSET IMPAIRMENT During the first quarter of fiscal 1996, the Company adopted 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". Adoption of SFAS No. 121 had no material impact on the Company's results of operations, financial position or cash flows. -4- 7 4) SEASONALITY The Company's business is seasonal with approximately 30% of its sales and approximately 50% of its income from operations generated in the fourth fiscal quarter, which contains the important Christmas retailing season. Therefore, earnings or losses for a particular interim period are not necessarily indicative of full year results. -5- 8 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following is a discussion of certain factors affecting the Company's results of operations for the 13 week and 26 week periods ended August 3, 1996 and July 29, 1995 (the Company's second quarter and first six months, respectively) and its liquidity and capital resources. This discussion should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this filing and the Company's audited financial statements for the fiscal year ended February 3, 1996 included in its annual report on Form 10-K. The Company's fiscal year ends on the Saturday closest to January 31. Fiscal years are identified according to the calendar year in which they begin. For example, the fiscal year ended February 3, 1996 is referred to as "fiscal 1995." RESULTS OF OPERATIONS Net sales for the second quarter of fiscal 1996 increased 11.1% to $153.5 million from $138.1 million for the same period last year. Net sales for the first six months of fiscal 1996 increased 12.5% to $296.4 million from $263.4 million for the same period a year ago. The increases in consolidated sales for the second quarter and first six months of fiscal 1996 were due to comparable store sales increases of 8.2% and 7.9%, respectively, and to the opening of additional Cole Gift and Cole Vision units. Comparable store sales increased primarily as a result of successful eyewear promotions and growth in the managed vision care program at Cole Vision, along with the roll-out of monogrammed softgoods and introduction of new merchandise at Cole Gift. At August 3, 1996, the Company operated 2,321 specialty service retail units compared to 2,287 at July 29, 1995. Gross profit increased to $106.1 million in the second quarter of fiscal 1996 from $94.8 million for the same period last year. Second quarter gross margins in fiscal 1996 and fiscal 1995 were 69.1% and 68.6%, respectively. For the first six months, gross profit increased to $204.5 million in fiscal 1996 from $181.3 million for the same period a year ago. Gross margins for the first six months in fiscal 1996 and fiscal 1995 were 69.0% and 68.8%, respectively. The increases in gross margin percentages were the result of lower product costs and a higher level of personalization in the sales mix at Things Remembered. Operating expenses increased 11.3% to $87.8 million in the second quarter of fiscal 1996 from $78.9 million for the second quarter last year. For the first six months of fiscal 1996, operating expenses increased 12.0% to $175.2 million from $156.3 million for the same period in fiscal 1995. Operating expense increases for both periods compared to last year were primarily due to higher advertising expenditures, payroll costs and store occupancy expenses. Advertising expenditures at Cole Vision were increased for optical promotions to encourage continued sales growth above last year's successful promotions. Payroll costs increased because of more retail units open in 1996 and additional payroll to support increased sales. Store occupancy expenses increased primarily as a result of more retail units, higher percentage rents caused by increased comparable store sales and the increased number of Things Remembered personalization superstores. Fiscal 1996 depreciation and amortization expense of $4.3 million in the second quarter and $8.5 million in the first six months was $0.4 and $0.9 million more, respectively, than the same periods in fiscal 1995 reflecting an increase in capital expenditures beginning in the latter part of fiscal 1993. Income from operations increased 16.0% in the second quarter of fiscal 1996 to $14.0 million and increased 20.2% to $20.8 million in the first six months primarily because of strong sales at Cole Vision and Things Remembered. Net interest expense decreased $0.6 million to $4.7 million in the second quarter of fiscal 1996 and decreased $0.8 million to $9.8 million in the first six months. The decrease for both the quarter and the six months was primarily due to the retirement of $5.0 million of Senior Notes in November 1995, the purchase of $15.1 million of Senior Notes in the second quarter of fiscal 1996, the elimination of working capital borrowings and increased interest income from an increase in temporary cash investments. -6- 9 Income tax provisions were recorded in the second quarter and first six months of fiscal 1996 and fiscal 1995 using the Company's estimated annual effective tax rate of 44%. Net income for the second quarter increased to $4.5 million in 1996 from $3.8 million for the second quarter of 1995. For the first six months of fiscal 1996, net income increased to $5.5 million from $3.7 million for that same period last year. For both the second quarter and first six months of fiscal 1996, increases were due to the improvement in income from operations and the decrease in net interest expense. A $0.7 million extraordinary loss, net of an income tax benefit of $0.5 million, was recorded in the second quarter of fiscal 1996 in connection with the early extinguishment of debt, representing the payment of premiums, the writeoff of unamortized discount and other costs associated with purchasing the debt. See Liquidity and Capital Resources. The Company's business is seasonal with approximately 30% of its sales and approximately 50% of its income from operations occurring in the fourth fiscal quarter because of the importance of gift sales during the Christmas retailing season. Therefore, results of operations for interim periods are not necessarily indicative of full year results. LIQUIDITY AND CAPITAL RESOURCES The Company's primary source of liquidity is funds provided from operations. In addition, the Company's operating subsidiaries have available to them working capital commitments of $50.0 million under the Revolving Credit Facility, reduced by commitments under letters of credit. There were no working capital borrowings during the first six months of fiscal 1996. The maximum amount outstanding during the first six months of fiscal 1995 was $3.5 million. During the second quarter of fiscal 1996, the Company completed a public offering of 1,437,500 shares of its Class A Common Stock at an offering price of $19.25 per share. The net proceeds from the offering were $26.2 million. A portion of the net proceeds was used to purchase in the open market $15.1 million of the Company's 11.25% Senior Notes plus accrued interest thereon. This will result in a reduction of interest expense of $1.7 million annually. Operations for the first six months provided cash of $17.7 million in fiscal 1996 compared to $8.7 million provided in 1995. The increase in cash provided by operations resulted from an increase in net income and favorable changes in accounts receivable, prepaid expenses, accounts payable and accrued liabilities. These favorable changes were partially offset by unfavorable changes in inventory in fiscal 1996 as compared to fiscal 1995. Cash used by investing activities included net capital additions of $9.7 million and $8.5 million for the first six months of fiscal 1996 and fiscal 1995, respectively. The majority of the capital additions were for store fixtures, equipment and leasehold improvements for new stores and the remodeling of existing stores. The Company believes that funds provided from operations along with funds available under the Revolving Credit Facility will provide adequate sources of liquidity to allow the Company's operating subsidiaries to continue to expand the number of stores. -7- 10 PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS On June 6, 1996, the Company held its annual meeting of stockholders. At that meeting, the stockholders elected six directors to serve until the next annual meeting of a stockholders, approved the 1996 Management Stock Option Plan, approved the Management Incentive Bonus Program, and confirmed the appointment of Arthur Andersen LLP as independent auditors of the Company for the fiscal year ending February 1, 1997. Of the total eligible votes of 10,443,220, stockholders cast votes of 9,506,079 or 91.0%, of the total eligible votes. The votes cast for the aforementioned matters were as follows: 1) Election of Directors
For Withheld Abstain --------- -------- ------- Jeffrey A. Cole 9,168,697 337,382 0 Timothy F. Finley 9,182,597 323,482 0 Irwin W. Gold 9,178,597 327,482 0 Peter V. Handal 9,182,597 323,482 0 Charles A. Ratner 9,171,197 334,882 0 Brian B. Smith 9,171,697 334,382 0 2) 1996 Management Stock Option Plan For Withheld Abstain --------- -------- ------- Approval of Plan 6,345,502 1,483,632 131,449 3) Management Incentive Bonus Program For Withheld Abstain --------- -------- ------- Approval of Program 8,859,174 642,068 4,837 4) Confirmation of Independent Auditors For Withheld Abstain --------- -------- ------- Arthur Andersen LLP 9,499,624 3,190 3,265
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The following Exhibit is filed herewith and made a part hereof: 27 Financial Data Schedule (b) Reports on Form 8-K The Company has not filed any reports on Form 8-K for the quarterly period ended August 3, 1996. -8- 11 SIGNATURE --------- 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. COLE NATIONAL CORPORATION By: /s/ Wayne L. Mosley ----------------------------------------- Wayne L. Mosley Vice President and Controller (Duly Authorized Officer and Principal Accounting Officer) Date: September 13, 1996 -9- 12 COLE NATIONAL CORPORATION FORM 10-Q QUARTER ENDED AUGUST 3, 1996 EXHIBIT INDEX
Pagination By Sequence Exhibit Numbering Number Description System - ------- ----------- ------------- 27 Financial Data Schedule 11
-10- EX-27 2 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATE- MENT OF INCOME FILED AS PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q. 1,000 6-MOS FEB-1-1997 FEB-4-1996 AUG-3-1996 46,088 0 18,964 0 84,164 166,045 162,828 94,601 321,727 99,799 167,193 12 0 0 49,162 321,727 296,355 296,355 91,900 275,580 0 0 9,781 10,994 4,837 6,157 0 (682) 0 5,475 .51 0
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