-----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, Gu81YDtTztGj7sslziOVDxa5nC9zpQoWEd6+hnlfCw7MTAcZahHRQTArdO5YrFCP sWS8nTWZuEfH/G6QLCsPNg== 0000950152-96-002890.txt : 19960719 0000950152-96-002890.hdr.sgml : 19960719 ACCESSION NUMBER: 0000950152-96-002890 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960504 FILED AS OF DATE: 19960612 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLE NATIONAL CORP /DE/ CENTRAL INDEX KEY: 0000769644 STANDARD INDUSTRIAL CLASSIFICATION: 5945 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: 96579870 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 CORP. 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 May 4, 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 May 28, 1996, 10,490,356 shares of the registrant's Class A common stock were outstanding. ================================================================================ 2 - - - -------------------------------------------------------------------------------- COLE NATIONAL CORPORATION AND SUBSIDIARIES FORM 10-Q QUARTER ENDED MAY 4, 1996 INDEX
Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements Consolidated Balance Sheets as of May 4, 1996 and February 3, 1996................................................... 1 Consolidated Statements of Income for the 13 weeks ended May 4, 1996 and April 29, 1995..................................... 2 Consolidated Statements of Cash Flows for the 13 weeks ended May 4, 1996 and April 29, 1995............................... 3 Notes to Financial Statements...................................... 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................ 5 - 6 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K................................... 7
- - - -------------------------------------------------------------------------------- 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS COLE NATIONAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (DOLLARS IN THOUSANDS)
May 4, February 3, Assets 1996 1996 - - - ------ --------- --------- Current assets: Cash and temporary cash investments $ 12,626 $ 29,260 Accounts receivable 21,289 18,589 Inventories 88,404 84,794 Prepaid expenses and other 5,057 5,892 Deferred income tax benefits 10,675 10,675 --------- --------- Total current assets 138,051 149,210 Property and equipment, at cost 158,411 157,050 Less-accumulated depreciation and amortization (92,212) (90,909) --------- --------- Total property and equipment, net 66,199 66,141 Other assets 5,551 5,070 Cost in excess of net assets of purchased businesses, net 80,871 81,163 --------- --------- Total assets $ 290,672 $ 301,584 ========= ========= Liabilities and Stockholders' Equity - - - ------------------------------------ Current liabilities: Current portion of long-term debt $ 712 $ 705 Accounts payable 22,493 29,273 Accrued interest 1,943 7,050 Accrued liabilities 57,192 53,933 Accrued income taxes 2,698 5,976 --------- --------- Total current liabilities 85,038 96,937 Long-term debt, net of discount 181,860 181,903 Deferred income taxes and other 5,579 5,611 Stockholders' equity: Common stock 10 10 Paid-in capital 99,942 99,827 Notes receivable - stock option exercise (1,150) (1,117) Accumulated deficit (80,607) (81,587) --------- --------- Total stockholders' equity 18,195 17,133 --------- --------- Total liabilities and stockholders' equity $ 290,672 $ 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 -------------------- May 4, April 29, 1996 1995 -------- --------- Net sales $142,890 $ 125,254 Costs and expenses: Cost of goods sold 44,500 38,724 Operating expenses 87,352 77,468 Depreciation and amortization 4,235 3,827 -------- --------- Total costs and expenses 136,087 120,019 -------- --------- Income from operations 6,803 5,235 Interest expense, net 5,052 5,284 -------- --------- Income (loss) before income taxes 1,751 (49) Income tax provision (benefit) 771 (22) -------- --------- Net income (loss) $ 980 $ (27) ======== ========= Earnings per share $ .09 $ .00 ======== =========
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)
13 Weeks Ended -------------------- May 4, April 29, 1996 1995 -------- -------- Cash flows from operating activities: Net income (loss) $ 980 $ (27) Adjustments to reconcile net income (loss) to net cash used by operations: Depreciation and amortization 4,235 3,827 Non-cash interest expense 106 100 Change in assets and liabilities: Increase in accounts receivable, prepaid expenses and other assets (2,079) (4,073) Decrease (increase) in inventories (3,610) 908 Increase (decrease) in accounts payable and accrued liabilities (3,842) 1,602 Decrease in accrued interest (5,107) (5,243) Decrease in accrued income taxes (3,278) (3,207) -------- -------- Net cash used by operating activities (12,595) (6,113) -------- -------- Cash flows from financing activities: Repayment of long-term debt (221) -- Proceeds from exercise of stock options 82 -- -------- -------- Net cash used by financing activities (139) -- -------- -------- Cash flows from investing activities: Purchases of property and equipment, net (3,406) (4,584) Other, net (494) (844) -------- -------- Net cash used by investing activities (3,900) (5,428) -------- -------- Cash and temporary cash investments: Net decrease during the period (16,634) (11,541) Balance, beginning of the period 29,260 19,730 -------- -------- Balance, end of the period $ 12,626 $ 8,189 ======== ========
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 May 4, 1996 and the results of operations and cash flows for the 13 weeks ended May 4, 1996 and April 29, 1995. Inventories The accompanying interim consolidated financial statements have been prepared without physical inventories. Inventories at May 4, 1996 and April 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 $4,095,000 and $10,323,000, respectively, for the 13 weeks ended May 4, 1996, and $3,186,000 and $10,627,000, respectively, for the 13 weeks ended April 29, 1995. Earnings Per Share Earnings per share for the 13 weeks ended May 4, 1996 and April 29, 1995 have been calculated based on 10,435,423 and 10,405,119, respectively, weighted average number of common shares outstanding. (2) 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. (3) 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. -4- 7 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 periods ended May 4, 1996 and April 29, 1995 (the Company's first quarter) 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 first quarter of fiscal 1996 increased 14.1% to $142.9 million from $125.3 million for the same period of fiscal 1995. The increase in sales was due to a comparable store sales increase of 7.6%, the opening of additional Cole Gift and Cole Vision units and a shift in the Company's fiscal calendar. Comparable store sales increased primarily as a result of strong sales at Cole Vision due to successful eyewear promotions and growth in the managed vision care program, along with the roll-out of monogrammed softgoods and introduction of new merchandise at Cole Gift. At May 4, 1996, the Company operated 2,308 specialty service retail units compared to 2,249 at April 29, 1995. Also, sales increased approximately $3.5 million as Cole Gift benefited from a week of Mother's Day sales that were shifted into the quarter this year. Gross profit increased to $98.4 million in the first 13 weeks of fiscal 1996 from $86.5 million for the same period a year ago. First quarter gross margins in fiscal 1996 and fiscal 1995 were 68.9% and 69.1%, respectively. The decrease of 0.2% in the first quarter gross margin percentage was due to clearance sales in connection with the closing of 85 low volume Cole Gift Center departments at host stores during the first quarter of fiscal 1996 that more than offset other improvements in gross margin. Operating expenses increased 12.8% to $87.4 million in the first quarter of fiscal 1996 from $77.5 million for the first quarter last year due primarily to higher payroll costs, store occupancy expenses and advertising expenditures. Payroll costs increased because of more retail units open in 1996 and additional payroll to support the increased sales. Store occupancy expenses increased primarily as a result of higher percentage rents caused by increased comparable store sales, more retail units open in 1996 and the increased number of Things Remembered personalization superstores. Advertising expenditures for the optical promotions were increased to encourage continued sales growth above last year's successful promotions. Depreciation and amortization expense of $4.2 million in fiscal 1996 was $0.4 million more than fiscal 1995 reflecting an increase in capital expenditures beginning in the latter part of fiscal 1993. Income from operations increased 30.0% or $1.6 million to $6.8 million in the first quarter of fiscal 1996 primarily because of strong sales at Cole Vision and the reduction of operating expenses as a percentage of sales, due in part to the performance of Cole Gift which benefited from the aforementioned shift in Mother's Day sales. Net interest expense decreased $0.2 million to $5.1 million in the first quarter of fiscal 1996 primarily because of the retirement of $5.0 million of Senior Notes in November 1995, the elimination of working capital borrowings and increased interest income from an increase in temporary cash investments. An income tax provision or benefit was recorded in the first quarter of both fiscal 1996 and fiscal 1995 using the Company's estimated annual effective tax rate of 44%. -5- 8 Net income increased to $1.0 million for the first quarter of fiscal 1996 from approximately break-even for the first quarter of fiscal 1995. The increase was due to the improvement in income from operations and the decrease in net interest expense. 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 of its operating subsidiaries. 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 quarter of fiscal 1996. The maximum amount outstanding during the first quarter of fiscal 1995 was $3.5 million. Operations for the first quarter used cash of $12.6 million in fiscal 1996 compared to $6.1 million of cash usage in fiscal 1995. The increase in cash used by operations resulted primarily from the timing of inventory disbursements. Cash used by investing activities included capital additions of $3.4 million and $4.6 million for the 13 weeks of fiscal 1996 and fiscal 1995, respectively. The majority of 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. -6- 9 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. The following Exhibits are 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 May 4, 1996. -7- 10 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: June 12, 1996 -8- 11 COLE NATIONAL CORPORATION FORM 10-Q QUARTER ENDED MAY 4, 1996 EXHIBIT INDEX
Pagination By Sequence Exhibit Numbering Number Description System - - - ------- ----------- ------------- 27 Financial Data Schedule 10
-9- EX-27 2 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 3-MOS FEB-01-1997 FEB-03-1996 MAY-04-1996 12,626 0 21,289 0 88,404 138,051 158,411 92,212 290,672 85,038 181,860 10 0 0 18,185 290,672 142,890 142,890 44,500 136,087 0 0 5,052 1,751 771 980 0 0 0 980 .09 0
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