-----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, JCFDWhWj46slkA5AVW7R9be78Cwnd7Ci5DPsy0ztAztdwBT1584efMDiX+DLkOKN 6ByRCfq4aag9DANDzxPVLg== 0000950152-97-006618.txt : 19970918 0000950152-97-006618.hdr.sgml : 19970918 ACCESSION NUMBER: 0000950152-97-006618 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970802 FILED AS OF DATE: 19970916 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: 0203 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12814 FILM NUMBER: 97681047 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 NATIONAL 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 2, 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 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) (440)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 29, 1997, 14,724,935 SHARES OF THE REGISTRANT'S CLASS A COMMON STOCK WERE OUTSTANDING. =============================================================================== 2 - ------------------------------------------------------------------------------- COLE NATIONAL CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED AUGUST 2, 1997 INDEX
PAGE NO. PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS AS OF AUGUST 2, 1997 AND FEBRUARY 1, 1997 ...................................... 1 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE 13 WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3, 1996 AND FOR THE 26 WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3, 1996.......................................... 2 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE 26 WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3, 1996............... 3 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................. 4 - 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................ 7 - 10 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES....................................... 11 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 11
- ------------------------------------------------------------------------------- 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS COLE NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (DOLLARS IN THOUSANDS)
August 2, February 1, 1997 1997 --------- ---------- Assets - ------ Current assets: Cash and temporary cash investments $ 133,142 $ 73,141 Accounts receivable, less allowance for doubtful accounts of $2,104 in 1997 and $3,068 in 1996 52,212 39,660 Current portion of notes receivable 5,049 6,060 Inventories 129,570 119,236 Prepaid expenses and other 14,248 7,378 Deferred income tax benefits 24,948 24,948 --------- --------- Total current assets 359,169 270,423 Property and equipment, at cost 227,624 216,575 Less-accumulated depreciation and amortization (111,809) (100,918) --------- --------- Total property and equipment, net 115,815 115,657 Other assets: Notes receivable, excluding current portion 23,427 27,951 Deferred income taxes and other 43,359 29,504 Intangible assets, net 137,205 139,308 --------- --------- Total assets $ 678,975 $ 582,843 ========= ========= Liabilities and Stockholders' Equity - ------------------------------------ Current liabilities: Current portion of long-term debt $ 1,352 $ 1,336 Accounts payable 47,912 62,379 Accrued interest 7,804 9,630 Accrued liabilities 119,216 123,263 Accrued income taxes 10,702 21,970 --------- --------- Total current liabilities 186,986 218,578 Long-term debt, net of discount and current portion 317,116 317,547 Other long-term liabilities 26,949 27,000 Stockholders' equity: Common stock 15 12 Paid-in capital 250,447 131,238 Foreign currency translation adjustment (1,515) (606) Notes receivable - stock option exercise (927) (1,024) Accumulated deficit (100,096) (109,902) --------- --------- Total stockholders' equity 147,924 19,718 --------- --------- Total liabilities and stockholders' equity $ 678,975 $ 582,843 ========= =========
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 OPERATIONS (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
13 Weeks Ended 26 Weeks Ended ----------------------- ---------------------- August 2, August 3, August 2, August 3, 1997 1996 1997 1996 --------- --------- --------- --------- Net revenue $ 254,943 $ 153,465 $ 504,473 $ 296,355 Costs and expenses: Cost of goods sold 85,352 47,400 171,122 91,900 Operating expenses 141,247 87,799 284,590 175,151 Depreciation and amortization 7,337 4,294 15,152 8,529 --------- --------- --------- --------- Total costs and expenses 233,936 139,493 470,864 275,580 --------- --------- --------- --------- Income from operations 21,007 13,972 33,609 20,775 Interest expense, net 8,173 4,729 16,404 9,781 --------- --------- --------- --------- Income before income taxes and extraordinary item 12,834 9,243 17,205 10,994 Income tax provision 5,476 4,066 7,399 4,837 --------- --------- --------- --------- Income before extraordinary item 7,358 5,177 9,806 6,157 Extraordinary loss on early extinguishment of debt -- (682) -- (682) --------- --------- --------- --------- Net income $ 7,358 $ 4,495 $ 9,806 $ 5,475 ========= ========= ========= =========
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 2, August 3, 1997 1996 --------- --------- Cash flows from operating activities: Net income $ 9,806 $ 5,475 Adjustments to reconcile net income to net cash provided (used) by operating activities: Extraordinary loss on early extinguishment of debt -- 682 Depreciation and amortization 15,152 8,529 Non-cash interest 113 214 Change in assets and liabilities: Increase in accounts and notes receivable, prepaid expenses and other assets (18,632) (790) Decrease (increase) in inventories (10,334) 630 Increase (decrease) in accounts payable, accrued liabilities and other liabilities (13,416) 3,237 Decrease in accrued interest (1,826) (637) Increase (decrease) in accrued income taxes (11,268) 327 --------- --------- Net cash provided (used) by operating activities (30,405) 17,667 --------- --------- Cash flows from financing activities: Repayment of long-term debt (564) (16,457) Proceeds from exercise of stock options and warrants 2,668 271 Proceeds from public stock offering, net 115,909 26,202 Other, net (107) 93 --------- --------- Net cash provided by financing activities 117,906 10,109 --------- --------- Cash flows from investing activities: Purchases of property and equipment, net (13,110) (8,584) Systems development costs (6,990) (2,219) Other, net (7,400) (145) --------- --------- Net cash used by investing activities (27,500) (10,948) --------- --------- Cash and temporary cash investments: Net increase during the period 60,001 16,828 Balance, beginning of the period 73,141 29,260 --------- --------- Balance, end of the period $ 133,142 $ 46,088 ========= =========
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 1, 1997. 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 2, 1997 and the results of operations for the 13 and 26 weeks ended August 2, 1997 and August 3, 1996, and cash flows for the 26 weeks ended August 2, 1997 and August 3, 1996. Inventories The accompanying interim consolidated financial statements have been prepared without physical inventories. Inventories at August 2, 1997 and August 3, 1996 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 $18,661,000 and $19,044,000, respectively, for the 26 weeks ended August 2, 1997, and $4,556,000 and $11,073,000, respectively, for the 26 weeks ended August 3, 1996. Earnings Per Share In the fourth quarter of fiscal 1997 the Company will adopt Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share". Under SFAS No. 128, the Company's basic earnings per share and diluted earnings per share will be presented on the face of the income statement. The basic earnings per share will be determined using only the weighted average number of outstanding shares during the period. The computation for diluted earnings per share will include common stock equivalents and will not differ materially from current accounting requirements. -4- 7 Due to the change in accounting required by SFAS No. 128, the Company has provided the following to illustrate its earnings per share calculation under current accounting, as well as under SFAS No. 128:
13 Weeks 26 Weeks ------------------------ ------------------------- August 2, August 3, August 2, August 3, 1997 1996 1997 1996 ---------- ---------- ---------- ---------- SFAS NO. 128: Basic - Income before extraordinary item $ .59 $ .47 $ .80 $ .57 Extraordinary loss -- (.06) -- (.06) ---------- ---------- ---------- ---------- Net income $ .59 $ .41 $ .80 $ .51 ========== ========== ========== ========== Weighted Average Shares Outstanding (in 000's) 12,437 11,002 12,228 10,719 Diluted - Income before extraordinary item $ .57 $ .47 $ .77 $ .57 Extraordinary loss -- (.06) -- (.06) ---------- ---------- ---------- ---------- Net income $ .57 $ .41 $ .77 $ .51 ========== ========== ========== ========== Weighted Average Shares and Common Stock Equivalents Outstanding (in 000's) 12,964 11,098 12,723 10,841 CURRENT ACCOUNTING: Primary and fully diluted - Income before extraordinary item $ .57 $ .47 $ .77 $ .57 Extraordinary loss -- (.06) -- (.06) ---------- ---------- ---------- ---------- Net income $ .57 $ .41 $ .77 $ .51 ========== ========== ========== ========== Weighted Average Shares and Common Stock Equivalents Outstanding (in 000's) 12,964 11,002 12,723 10,719
(2) STOCK OFFERING On July 18, 1997, the Company completed a public offering of 2,587,500 shares of its Class A Common Stock at a price of $47.00 per share. Net proceeds from the offering were approximately $116 million. (3) STOCK WARRANT EXERCISES During the 26 weeks ended August 2, 1997, warrants to purchase 90,389 shares of the Company's Class A Common Stock were exercised at a price of $24.70. Proceeds from the warrant exercise were approximately $2.2 million. -5- 8 (4) SEASONALITY The Company's business historically has been seasonal with approximately 30% of its revenues 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. Although the Pearle acquisition will moderate the seasonality of the Company due to relatively lower levels of optical product sales during the Christmas holiday season, the Company's business will remain seasonal. Therefore, results of operations for interim periods are not necessarily indicative of full year results. (5) RECLASSIFICATIONS Certain 1996 amounts have been reclassified to conform with the 1997 presentation. (6) SUBSEQUENT EVENTS On August 5, 1997, the Company acquired all of the issued and outstanding common stock of American Vision Centers, Inc. (AVC), the ninth largest retail optical chain in the United States, for an aggregate purchase price of approximately $28.9 million, including debt assumed. The acquisition will be accounted for under the purchase method of accounting. The Company anticipates that it will take a non-recurring business integration charge in fiscal 1997. On August 15, 1997, CNG announced a tender offer to purchase up to all of its $165.8 million 11-1/4% Senior Notes (the Senior Notes) due 2001 at a price of $1,105.61 per $1,000 of principal, plus accrued interest. The tender offer expired on September 12, 1997, at which time a total of $150.9 million of principal amount of Senior Notes were tendered, leaving $14.9 million outstanding. As a result of the tender offer, the Company expects to record an extraordinary charge of up to $20.0 million, representing the tender premium, the write-off of the related unamortized debt discount and other costs associated with purchasing the debt. On August 22, 1997, CNG issued $125.0 million of 8-5/8% Senior Subordinated Notes (the Senior Subordinated Notes) due 2007. Proceeds from this debt issuance of approximately $121.7 million, along with cash on hand, will be used to fund the above-mentioned tender offer. -6- 9 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 2, 1997 and August 3, 1996 (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 1, 1997 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 1, 1997 is referred to as "fiscal 1996." RESULTS OF OPERATIONS Net revenue for the second quarter of fiscal 1997 increased 66.1% to $254.9 million from $153.5 million for the same period in fiscal 1996. Net revenue for the first six months of fiscal 1997 increased 70.2% to $504.5 million from $296.4 million for the same period in fiscal 1996. The increases in revenue were primarily attributable to the acquisitions of Pearle and Sears Optical of Canada in November 1996, which accounted for $81.7 and $167.2 million of the increases for the second quarter and first six months, respectively. The Company's consolidated comparable store sales increased 3.0% and 4.2% in the second quarter and first six months of fiscal 1997, respectively. A second quarter comparable store sales increase of 7.8% at Cole Vision was primarily a result of successful eyewear promotions and growth in managed vision care sales. Second quarter comparable store sales decreased 2.4% at Cole Gift, which was negatively impacted by the lower levels of mall traffic. In the first quarter of fiscal 1997, the Company began classifying capitation and other fees associated with its growing managed vision care business as revenue. Such fees are netted with operating expenses in the fiscal 1996 financial statements. The opening of additional Cole Gift and Cole Vision units also contributed to the second quarter revenue increase. At August 2, 1997, the Company had 3,130 specialty service retail locations, including 321 franchised locations, compared to 2,321 at August 3, 1996. Gross profit increased to $169.6 million in the second quarter of fiscal 1997 from $106.1 million in the same period last year. The gross profit increase was primarily attributable to the addition of Pearle, increased revenue at Cole Vision and the classification of managed vision care fees as revenue. Gross margins for the second quarters of fiscal 1997 and fiscal 1996, respectively, were 66.5% and 69.1%, respectively. For the first six months, gross profit increased to $333.4 million from $204.5 million for the same period a year ago. Gross margins for the first six months in fiscal 1997 and fiscal 1996 were 66.1% and 69.0%, respectively. The lower gross margin percentages in fiscal 1997 resulted primarily from the addition of Pearle which operates at a -7- 10 lower gross margin than the Company has historically experienced due to the higher costs of in-store laboratories and lower margin wholesale sales to franchised stores. This was partially offset by revenue generated by Pearle's franchise royalties and fees, interest income on Pearle's franchise notes receivable and the managed vision care fees, each of which has no corresponding cost of goods sold. Operating expenses increased 60.9% to $141.2 million in the second quarter of fiscal 1997 from $87.8 million in fiscal 1996, but as a percentage of revenue, operating expenses decreased to 55.4% in fiscal 1997 from 57.2% in fiscal 1996. For the first six months of fiscal 1997, operating expenses increased 62.5% to $284.6 million from $175.2 million for the same period last year. As a percentage of revenue, operating expenses for the first six months decreased to 56.4% in fiscal 1997 from 59.1% in fiscal 1996. The leverage improvement for the second quarter and first six months was primarily a result of the addition of Pearle, which has lower operating expenses as a percentage of revenue than the rest of the Company, along with leverage gains achieved by Cole Vision's comparable store sales increase. Fiscal 1997 depreciation and amortization expense of $7.3 million in the second quarter and $15.2 million in the first six months was $3.0 and $6.6 million more, respectively, than the same periods in fiscal 1996 reflecting the addition of Pearle and an increase in capital expenditures. Income from operations increased 50.4% to $21.0 million for the second quarter of fiscal 1997 and increased 61.8% to $33.6 million for the first six months, primarily the result of the Pearle acquisition and strong sales growth at Cole Vision, offset in part by softer sales performance at Cole Gift. Net interest expense increased $3.4 million over the second quarter of fiscal 1996 to $8.2 million and increased $6.6 million over the first six months of fiscal 1996 to $16.4 million. The increase was primarily attributable to the additional interest on $150.0 million of 9-7/8% Senior Subordinated Notes (the Existing Senior Subordinated Notes) issued in connection with financing the Pearle acquisition, partially offset by a decrease in interest expense due to the purchase and subsequent retirement of $15.1 million of Senior Notes in the second quarter of fiscal 1996. An income tax provision was recorded in the first six months of fiscal 1997 and fiscal 1996 using the Company's estimated annual effective tax rate of 43% and 44%, respectively. Net income increased to $7.4 million for the second quarter of fiscal 1997 from $4.5 million for the same period in fiscal 1996. For the first six months of fiscal 1997, net income increased to $9.8 million from $5.5 million for that period last year. The increases were due to improvement in income from operations offset, in part, by the increase 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 retirement of debt. The Company's business historically has been seasonal with approximately 30% of its revenue and approximately 50% of its income from operations occurring in the fourth fiscal quarter because of the importance of gift sales during the -8- 11 Christmas retailing season. Although the Pearle acquisition will moderate the seasonality of the Company due to relatively lower levels of optical product sales during the Christmas holiday season, the Company's business will remain seasonal. 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 of its operating subsidiaries. In addition, the Company's operating subsidiaries have available to them working capital commitments of $75.0 million under their Credit Facility, reduced by commitments under letters of credit. There were no working capital borrowings outstanding during the first six months of fiscal 1997 and fiscal 1996. During the second quarter of fiscal 1997, the Company completed a public offering of 2,587,500 shares of its Class A Common Stock at an offering price of $47.00 per share. The Company intends to use the net proceeds of approximately $116 million for general corporate purposes including reducing outstanding indebtedness and financing possible future acquisitions including the transactions described below. On August 5, 1997, the Company purchased, for an aggregate purchase price of approximately $28.9 million, including debt assumed, all of the issued and outstanding common stock of AVC. AVC consisted of 79 company-owned and 85 franchised optical retail stores. The Company anticipates that it will take a non-recurring business integration charge in fiscal 1997. The acquisition will be accounted for under the purchase method of accounting and the results of AVC's operations will be included in the consolidated financial statements for periods following the date of acquisition. For its most recent fiscal year ended December 31, 1996, AVC reported annual net revenue of $52.5 million. In August 1997, CNG issued $125.0 million of 8-5/8% Senior Subordinated Notes (the Senior Subordinated Notes) Due 2007. The net proceeds of the issuance were approximately $121.7 million. CNG also commenced a tender offer which expired on September 12, 1997, to purchase up to all of its $165.8 million outstanding Senior Notes at $1,105.61 per $1,000 principal amount, plus accrued interest thereon using the net proceeds of the Senior Subordinated Notes issuance and cash on hand. A total of $150.9 million of Senior Notes were tendered. As a result, an extraordinary charge of up to $20.0 million will be recorded in connection with the early extinguishment of debt, representing the tender premium, the write-off of the related unamortized debt discount and other costs associated with purchasing the Senior Notes. The issuance of the Senior Subordinated Notes and the purchase of the Senior Notes are expected to result in a reduction of interest expense of approximately $7.0 million annually. Operations for the six months used $30.4 million of cash in fiscal 1997 compared to $17.7 million of cash provided from operations for the first six months in fiscal 1996. The increase in cash used by operations was primarily attributable to the payment of $15.0 million of taxes due on the sale of Pearle's European operation, increased accounts receivable related to third -9- 12 party optical sales, increased payments related to inventory disbursements, and payment of certain business integration and other non-recurring charges accrued in fiscal 1996, partially offset by an increase in net income and higher depreciation and amortization expense. Cash used by investing activities included capital additions of $13.1 million and $8.6 million for the first six months of fiscal 1997 and fiscal 1996, respectively. The majority of capital expenditures were for store fixtures, equipment and leasehold improvements for new stores and the remodeling of existing stores. In addition, expenditures for systems development costs increased to $7.0 million in the first six months of fiscal 1997 from $2.2 million for the same period last year, reflecting an increase in activity to complete the Company's new systems implementation. Expenditures of $6.9 million were also incurred in the first six months of fiscal 1997 in connection with the construction of Cole Gift's new warehouse and distribution facility. This facility, which became operational in the second quarter of fiscal 1997, will most likely be financed through a sale and lease-back transaction in the third quarter of fiscal 1997. The Company believes that funds provided from operations along with funds available under the Credit Facility will provide adequate sources of liquidity to allow the Company's operating subsidiaries to meet their operating needs and to continue to expand the number of stores. FORWARD-LOOKING INFORMATION Certain sections of this Form 10-Q contain forward-looking statements. Forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting the Company. All forward-looking statements involve risk and uncertainty. The Company operates in a highly competitive environment, and its future liquidity, financial condition and operating results may be materially affected by a variety of factors, some of which may be beyond the control of the Company, including risks associated with the integration of Pearle, the Company's ability to select and stock merchandise attractive to customers, economic and weather factors affecting consumer spending, operating factors, including manufacturing quality of optical and engraved goods, affecting customer satisfaction, the Company's relationships with host stores and franchisees, the mix of goods sold, pricing and other competitive factors, and the seasonality of the Company's business. -10- 13 PART II - OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES During the 26 weeks ended August 2, 1997, warrants to purchase unregistered shares of the Company's Class A Common Stock were exercised by certain warrant holders at a price of $24.70 per share. The dates of exercise, number of shares issued and proceeds to the Company are as follows:
No. Shares Date of Exercise Issued Proceeds ---------------- ------ -------- March 5, 1997 1,715 $ 42,361 April 3, 1997 3,155 77,928 April 30, 1997 9,434 233,020 May 1, 1997 1,774 43,818 May 2, 1997 3,430 84,721 May 5, 1997 1,588 39,223 May 6, 1997 12,801 316,185 May 7, 1997 56,492 1,395,352 ------ -------------- Total 90,389 $ 2,232,608
The above-mentioned shares of common stock were issued pursuant to Section 4(2) of the Securities Exchange Act of 1933. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The following Exhibits are filed herewith and made a part hereof: 4.1 Amendment No. 1, dated as of August 21, 1997, to the Rights Agreement, dated as of August 22, 1995, between the Company and National City Bank, as Rights Agent, incorporated by reference to Exhibit 4.1 of the Company's current report on Form 8-K, filed with the Securities and Exchange Commission of August 22, 1997 (File No. 1-12814). 4.2 Indenture, dated August 22, 1997, between Cole National Group, Inc. and Norwest Bank Minnesota, National Association, as Trustee, relating to the 8-5/8% Senior Subordinated Notes Due 2007, incorporated by reference to Exhibit 4.4 of Cole National Group, Inc.'s Registration Statement on Form S-1 (Registration No. 333-34963). 4.3 Registration Rights Agreement, dated August 22, 1997, between Cole National Group, Inc. and CIBC Wood Gundy Securities Corp., Credit Suisse First Boston Corporation and McDonald & Company Securities, Inc., incorporated by reference to Exhibit 4.5 of Cole National Group, Inc.'s Registration Statement on Form S-1 (Registration No. 333-34963). 4.4 First Supplemental Indenture, dated August 14, 1997, between Cole National Group, Inc. and Norwest Bank Minnesota, National Association, as Trustee, relating to the 11-1/4% Senior Notes Due 2001, incorporated by reference to Exhibit 4.6 of Cole National Group, Inc.'s Registration Statement on Form S-1 (Registration No. 333-34963). -11- 14 10.1 First Amendment to the Credit Agreement, dated as of January 13, 1997, among Cole Vision Corporation, Things Remembered, Inc., Cole Gift Centers, Inc., Pearle, Inc., and Pearle Service Corporation and Canadian Imperial Bank of Commerce, incorporated by reference to Exhibit 10.33 of Cole National Group, Inc.'s Registration Statement on Form S-1 (Registration No. 333-34963). 10.2 Second Amendment to Credit Agreement, dated as of August 8, 1997, among Cole Vision Corporation, Things Remembered, In., Cole Gift Centers, Inc., Pearle, Inc. and Pearle Service Corporation and Canadian Imperial Bank of Commerce, incorporated by reference to Exhibit 10.34 of the Cole National Group, Inc.'s Registration Statement on Form S-1 (Registration No. 333-34963). 10.3 Agreement, dated August 4, 1997, between the Company and Leslie D. Dunn regarding termination of employment, incorporated by reference to Exhibit 10.37 of Cole National Group, Inc.'s Registration Statement on Form S-1 (Registration No. 333-34963). 10.4 Cole National Corporation amended and restated Non Qualified Stock Option Plan for Non Employee Directors, incorporated by reference to Exhibit A to Cole National Corporation's definitive Proxy Statement dated May 6, 1997 (File No. 1-12814). 10.5 Form of Cole National Corporation Non Qualified Stock Option Agreement (Nonemployee Directors). 10.6 Cole National Corporation Non Employee Director Equity and Deferred Compensation Plan, incorporated by reference to Exhibit B to Cole National Corporation's definitive Proxy Statement dated May 6, 1997 (File No. 1-12814). 10.7 Form of Cole National Corporation Non Employee Director Equity and Deferred Compensation Plan Participation Agreement Plan Year 1997. 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 2, 1997. -12- 15 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 15, 1997 -13- 16 COLE NATIONAL CORPORATION FORM 10-Q QUARTER ENDED AUGUST 2, 1997 EXHIBIT INDEX Exhibit Number Description ------- ----------- 4.1 Amendment No. 1, dated as of August 21, 1997, to the Rights Agreement, dated as of August 22, 1995, between the Company and National City Bank, as Rights Agent, incorporated by reference to Exhibit 4.1 of the Company's Current Report on Form 8-K, filed with the Securities and Exchange Commission on August 22, 1997 (File No. 1-12814). 4.2 Indenture, dated August 22, 1997, between Cole National Group, Inc. and Norwest Bank Minnesota, National Association, as Trustee, relating to the 8-5/8% Senior Subordinated Notes Due 2007, incorporated by reference to Exhibit 4.4 of Cole National Group, Inc.'s Registration Statement on Form S-1 (Registration No. 333-34963). 4.3 Registration Rights Agreement, dated August 22, 1997, between Cole National Group, Inc. and CIBC Wood Gundy Securities Corp., Credit Suisse First Boston Corporation and McDonald & Company Securities, Inc., incorporated by reference to Exhibit 4.5 of Cole National Group, Inc.'s Registration Statement on Form S-1 (Registration No. 333-34963). 4.4 First Supplemental Indenture, dated August 14, 1997, between Cole National Group, Inc. and Norwest Bank Minnesota, National Association, as Trustee, relating to the 11-1/4% Senior Notes Due 2001, incorporated by reference to Exhibit 4.6 of Cole National Group, Inc.'s Registration Statement on Form S-1 (Registration No. 333-34963). 10.1 First Amendment to the Credit Agreement, dated as of January 13, 1997, among Cole Vision Corporation, Things Remembered, Inc., Cole Gift Centers, Inc., Pearle, Inc., and Pearle Service Corporation and Canadian Imperial Bank of Commerce, incorporated by reference to Exhibit 10.33 of Cole National Group, Inc.'s Registration Statement on Form S-1 (Registration No. 333-34963). 10.2 Second Amendment to Credit Agreement, dated as of August 8, 1997, among Cole Vision Corporation, Things Remembered, In., Cole Gift Centers, Inc., Pearle, Inc. and Pearle Service Corporation and Canadian Imperial Bank of Commerce, incorporated by reference to Exhibit 10.34 of the Cole National Group, Inc.'s Registration Statement on Form S-1 (Registration No. 333-34963). 10.3 Agreement, dated August 4, 1997, between the Company and Leslie D. Dunn regarding termination of employment, incorporated by reference to Exhibit 10.37 of Cole National Group, Inc.'s Registration Statement on Form S-1 (Registration No. 333-34963). -14- 17 10.4 Cole National Corporation amended and restated Non Qualified Stock Option Plan for Non Employee Directors, incorporated by reference to Exhibit A to Cole National Corporation's definitive Proxy Statement dated May 6, 1997 (File No. 1-12814). 10.5 Form of Cole National Corporation Non Qualified Stock Option Agreement (Nonemployee Directors). 10.6 Cole National Corporation Non Employee Director Equity and Deferred Compensation Plan, incorporated by reference to Exhibit B to Cole National Corporation's definitive Proxy Statement dated May 6, 1997 (File No. 1-12814). 10.7 Form of Cole National Corporation Non Employee Director Equity and Deferred Compensation Plan Participation Agreement Plan Year 1997. 27 Financial Data Schedule -15- EX-10.5 2 EXHIBIT 10.5 1 Exhibit 10.5 ANNEX A-2 COLE NATIONAL CORPORATION NONQUALIFIED STOCK OPTION AGREEMENT (NONEMPLOYEE DIRECTORS) June 12, 1997 2 [1997 Version B] COLE NATIONAL CORPORATION Nonqualified Stock Option Agreement (Nonemployee Directors) This Nonqualified Stock Option Agreement (this "Agreement"), dated as of June 12, 1997 (the "Date of Grant"), is entered into between the individual optionee named on the signature page hereof (the "Optionee") and Cole National Corporation, a Delaware corporation (the "Company"). WHEREAS, the Company's Amended and Restated Nonqualified Stock Option Plan for Nonemployee Directors (the "Plan") and approved by the Company's stockholders on the Date of Grant provides for automatic periodic grants of options to purchase shares ("Shares") of Class A Common Stock, par value $.001 per share, of the Company ("Common Stock") to each member of the Board of Directors (the "Board") of the Company who is a Nonemployee Director (as defined in the Plan); and WHEREAS, the Optionee is a Nonemployee Director to whom a grant of 1000 Shares was made pursuant to the Plan effective as of the Date of Grant; and WHEREAS, the execution of a Stock Option Agreement evidencing such grant in the form hereof is authorized by a resolution of the Board duly adopted as of the Date of Grant; and WHEREAS, the option granted by this Agreement (the "Option") is intended as a nonqualified stock option and shall not be treated as an "incentive stock option" within the meaning of that term under Section 422 of the Internal Revenue Code of 1986. 3 2 NOW, THEREFORE, the Company and the Optionee agree as follows: [Certain capitalized terms used herein are defined in Paragraph 8.] 1. GRANT AND EXERCISE. (a) The Optionee has an option to purchase 1000 Shares on the terms and conditions of this Agreement. Except as otherwise provided herein, this Option (until terminated as hereinafter provided) shall become exercisable on the first anniversary of the date of this Agreement if the Optionee is then still serving as a Nonemployee Director. (b) If a change in Control Event occurs prior to the first anniversary of the date of this Agreement and while the Optionee is still serving as a Nonemployee Director, this Option shall immediately become exercisable in full as to any then Unvested Shares. (c) If the Optionee dies or becomes permanently disabled prior to the first anniversary of the date of this Agreement and while the Optionee is still serving as a Nonemployee Director of the Company, this Option shall immediately become exercisable in full with respect to all then Unvested Shares. (d) To the extent exercisable, this Option may be exercised in whole or in part from time to time. Any exercise of 0this Option shall be made in writing by the Optionee delivered to the Secretary of the Company. 2. EXERCISE PRICE AND PAYMENT. (a) This Option shall be exercisable for Vested Shares (whether such vesting occurs pursuant to Paragraph 1.(a), 1.(b) or 1.(c)) at the price of $41.25 4 3 per share. (b) The exercise price for any Shares shall be payable in cash or by check. 3. TERMINATION. This Option shall terminate and all options then outstanding for Unvested Shares and Vested Shares shall be forfeited on the earliest of the following dates: (i) Thirty days after the Optionee ceases to be a member of the Board for any reason other than death or permanent disability; (ii) One year after the death or permanent disability of the Optionee if the Optionee dies or becomes permanently disabled while still serving as a member of the Board; or (iii) Ten years from the Date of Grant. 4. TRANSFERABILITY. This Option is not transferable by the Optionee otherwise than by will or the laws of descent and distribution. This Option may not be exercised during the Optionee's lifetime except by the Optionee or, in the event of the Optionee's incapacity, by his or her guardian or legal representative acting in a fiduciary capacity on behalf of the Optionee under state law and court supervision. 5. SECURITIES LAWS. This Option shall not be exercisable if such exercise would involve a violation of any applicable federal or state securities law, and the Company hereby agrees to make reasonable efforts to comply with such securities laws. This Option shall not be exercisable unless under said laws 5 4 at the time of exercise the shares of Common Stock or other securities purchasable hereunder are exempt, are the subject matter of an exempt transaction, or are registered in accordance with such laws. 6. ADJUSTMENTS. (a) The Board shall make or provide for such adjustments in the number of shares of Common Stock covered by this Agreement, the exercise price per share of Common Stock applicable thereto, and the kind of shares (including shares of another issuer) covered hereby, as the Board in good faith determines to be equitably required in order to prevent dilution or expansion of the rights of the Optionee that otherwise would result from (a) any stock dividend, stock split, combination of shares, recapitalization or other changes in the capital structure of the Company or (b) any merger, consolidation, spin-off, spin-out, split-off, split-up, reorganization, partial or complete liquidation or other distribution of assets, issuance of warrants or other rights to purchase securities or (c) any other corporate transaction or event having an effect similar to any of the foregoing. (b) In the event that any provision of this Agreement would result in a calculation of a number of shares in amounts other than a whole number, the number of shares so calculated shall be reduced or increased to the nearest whole number (rounding 0.50 up), with the effect of any such rounding deemed to attach to the last group of shares to be so calculated (with calculations to be conducted in alphabetical or numerical order, as applicable). 6 5 7. WITHHOLDING. If the Company shall be required to withhold any federal, state, local or foreign tax in connection with the exercise of this Option, it shall be a condition to such exercise that the Optionee pay or make provision satisfactory to the Company for payment of all such taxes. 8. DEFINITIONS. The following terms shall have meanings set forth below. "Change of Control Event" means (i) the happening of a filing pursuant to any federal or state law in connection with any tender offer for shares of the Company (other than a tender offer by the Company or a Subsidiary) or upon the execution of any agreement for the merger or consolidation of the Company with another corporation or for the sale of all or substantially all of the assets of the Company or upon the adoption by the stockholders of any resolution of reorganization or dissolution of the Company or upon the occurrence of any other event or series of events having an effect similar to any of the foregoing, which tender offer, merger, consolidation, sale, reorganization, dissolution or other event or series of events, if consummated, will result in the holders of Common Stock ceasing to own directly or indirectly at least 80 percent of either the voting securities of the Company or the assets then owned by the Company, or (ii) if during any period of two consecutive years from and after the Date of Grant, individuals who at the beginning of such period constituted the members of the Board cease for any reason to constitute a majority thereof (unless the election, or the nomination for election by the 7 6 stockholders, of each member of the Board first elected during such period was approved by a vote of at least two-thirds of the members of the Board then still in office who were members of the Board then still in office who were members of the Board at the beginning of any such period). "Nonemployee Director" means a member of the Board who is not an employee of the Company or any Subsidiary. "Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations other than the last corporation in the unbroken chain owns stock possessing fifty percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "Unvested Shares" means, as of any given time, those Shares relating to this Option that are not, at the time in question, otherwise permitted, under the terms of this Agreement, to be acquired pursuant to the exercise of this Option. "Vested Shares" means, as of any given time, those Shares relating to this Option that are, at the time in question, otherwise permitted, under the terms of this Agreement, to be acquired pursuant to the exercise of this Option. 9. ACKNOWLEDGEMENT. The undersigned Optionee hereby acknowledges receipt of an executed original of this Agreement and accepts the Option granted hereunder. 8 7 Nonqualified Stock Option Agreement (Directors Plan) -------------------------- EXECUTED at Cleveland, Ohio as of the date first set forth above. COLE NATIONAL CORPORATION By ------------------------- OPTIONEE Name of Optionee: ------------------------- EX-10.7 3 EXHIBIT 10.7 1 EXHIBIT 10.7 COLE NATIONAL CORPORATION NONEMPLOYEE DIRECTOR EQUITY AND DEFERRED COMPENSATION PLAN PARTICIPATION AGREEMENT Plan Year 1997 -------------- By signing this Participation Agreement, I elect to participate in the Company's Nonemployee Director Equity and Deferred Compensation Plan (the "Plan") for the 1997 Plan Year. I understand that this Participation Agreement will continue to govern my elections for subsequent Plan Years as well unless I file a new Participation Agreement. I also understand that by signing this Participation Agreement, I have read the Plan and agree to be bound by its terms. I understand that I have two basic options under the Plan: First, I may elect to defer all or any portion of my Director Fees for any Plan Year. These fees that are deferred (a) will not be subject to income tax while in my Deferred Account, (b) will be invested entirely in Company Common Stock, and (c) will be distributed at a future date in shares of Company Common Stock rather than cash. Second, I may elect to be paid all or any portion of my Director Fees for any fiscal quarter in Company Common Stock rather than cash. The fees I elect to take as Company Common Stock that are not deferred are still subject to income tax on a current basis. 1. PARTICIPATION COMMITMENTS. I hereby elect to defer my fees and/or elect to take a certain portion of my Fees up-front in Company Common Stock in the amount and applicable percentages as identified in (a) and (b) below: 2 a. DEFERRAL OF FEES. This Deferral with respect to Fees is effective for the Plan Year beginning June 12, 1997 and ending December 31, 1997. I elect to defer from my:
Meeting and Total Retainer Annual Retainer Other Fees and Other Fees Payable in Cash Payable in Cash Payable in Cash - --------------- --------------- --------------- $_______________ or $______________ or $______________ ---------------% --------------% --------------% _______________ (total) ______________ (total) ______________ (total)
I understand that I can change these amounts by filing a new Participation Agreement, which will take effect as of the first day of the next Plan Year. b. VOLUNTARY AMOUNT. This election to take Company Common Stock in lieu of certain Fees payable in cash is effective for the Plan Year beginning June 12, 1997 and ending December 31, 1997. I hereby elect to take:
Meeting and Total Retainer Annual Retainer Other Fees and Other Fees Payable in Cash Payable in Cash Payable in Cash - --------------- --------------- --------------- $_______________ or $______________ or $______________ ---------------% --------------% --------------% _______________ (total) ______________ (total) ______________ (total)
in the form of shares of Company Common Stock. I understand that I may change my Voluntary Amount as to any subsequent fiscal quarter by executing a new Participation Agreement by a date before the applicable Payment Date of the subsequent fiscal quarter. 2. DISTRIBUTION OF DEFERRAL. I understand that I may elect to receive distribution of my Deferral either (a) upon my ceasing to be a Director of the Company or (b) at a date prior to my ceasing to be a Director of the Company, but no earlier than three years from the date of this election. I hereby elect as shown in (a) or (b) below: 2 3 ______ a (1) IN-SERVICE DISTRIBUTION [ELECTIVE]. I hereby elect to receive an in-service distribution of the value of my Deferral for Plan Year 97, as adjusted for dividends attributable thereto, in the form specified in Section 4, on or commencing__________. I understand that this election is irrevocable under the Plan. I further understand that I must wait a minimum of three calendar years after the end of Plan Year 97 until I can receive this In-Service Distribution. If my Settlement Date occurs before the date identified above, I will receive the distribution within thirty days following the end of the Accounting Period in which my Settlement Date occurs. ______ a (2) IN-SERVICE DISTRIBUTION [ELECTIVE]. I hereby elect to receive an in-service distribution of the value of my Deferral for Plan Year 98, as adjusted for dividends attributable thereto, in the form specified in Section 4, on or commencing ________________. I understand that this election is irrevocable under the Plan. I further understand that I must wait a minimum of three calendar years after the end of Plan Year 98 until I can receive this In-Service Distribution. If my Settlement Date occurs before the date identified above, I will receive the distribution within thirty days following the end of the Accounting Period in which my Settlement Date occurs. ______ b DELAYED DISTRIBUTIONS [ELECTIVE]. I hereby elect to delay distribution of my Deferred Account, as adjusted for dividends attributable thereto, in the form specified in Section 4, until the beginning of the Plan Year next following my Settlement Date. I understand that this election is irrevocable. 3. FORM OF DISTRIBUTION OF THE DEFERRAL. I hereby elect that the value of any distribution, as adjusted for dividends attributable thereto, shall be distributed: ______ In a single payment in shares of Company Common Stock; ______ In___________ annual installments of shares of Company Common Stock [not more than 10]; or ______ A combination of _____% in a single payment in shares of Company Common Stock and _____ % in _____ annual installments of shares of Company Common Stock [not more than 10]. Each such distribution will commence within thirty days following the end of the Accounting Period in which my Settlement Date occurs under the Plan. If I elect to receive an In-Service Distribution or a Delayed Distribution, I understand that my Deferral distributed after my Settlement Date will be adjusted accordingly. 3 4 4. BENEFICIARY DESIGNATION. I hereby elect to have any undistributed balance credited to my Deferred Account under the Plan upon my death paid in a lump sum to the following primary Beneficiary (attach other forms if necessary): Primary: Name: ----------------------------------- Relationship: --------------------------- Address: -------------------------------- Percentage of Account: ------------------ Name: ----------------------------------- Relationship: --------------------------- Address: -------------------------------- Percentage of Account: ------------------ If the primary Beneficiary predeceases me, the following person is designated as contingent Beneficiary to receive any such unpaid balance: Name: ----------------------------------- Relationship: --------------------------- Address: -------------------------------- Percentage of Account: ------------------ Name: ----------------------------------- Relationship: --------------------------- Address: -------------------------------- Percentage of Account: ------------------ I understand that the foregoing Beneficiary designation supersedes any prior designations. 4 5 5. DIRECTOR ACKNOWLEDGEMENT AND SIGNATURE. I understand that my participation in the Plan is subject to the terms and conditions contained in the Plan. As such, I understand that (i) the Deferral Commitment in Section 1(a) of this Participation Agreement is irrevocable during the Plan Year of filing; (ii) the election to receive the Voluntary Amount in Section 1(b) of this Participation Agreement is irrevocable for the fiscal quarter of filing; and (iii) I may change a Beneficiary designation at any time by filing a subsequent designation with the Administrator. I understand that any deferrals made under the Plan are assets of the Corporation and may be subject to the claims of the Corporation's creditors or used to discharge other legal obligations in the event the Corporation is declared insolvent or in the event of a bankruptcy. 5 6 IN WITNESS WHEREOF, the Director has executed this Participation Agreement as of the ______ day of ______________, 1997. The "Director" ----------------------------- Signature --------------------------- Name of the Director Received and accepted by the Administrator of The Cole National Corporation Nonemployee Director Equity and Deferred Compensation Plan as of the _______ day of __________, 1997. ---------------------------------------- Signature of Administrator or Authorized Representative I do not wish to participate in The Cole National Corporation Nonemployee Director Equity and Deferred Compensation Plan during the period beginning July ____, 1997 and ending December 31, 1997. , 1997 ----------------------------------- - ---------------------- Signature Date 6 EX-27 4 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT 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 JAN-31-1998 FEB-2-1997 AUG-2-1997 133,142 0 59,365 2,104 129,570 359,169 227,624 111,809 678,975 186,986 317,116 15 0 0 147,909 678,975 504,473 504,473 171,122 470,864 0 0 16,404 17,205 7,399 9,806 0 0 0 9,806 .77 .77
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