<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 1994 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 2-20910
COTTER & COMPANY
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 36-2099896
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2740 North Clybourn Avenue
Chicago, Illinois 60614
(Address of Principal Executive Offices) (Zip Code)
(312) 975-2700
(Registrant's Telephone Number, Including Area Code)
Not applicable
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of each of the issuer's classes of common
stock, as of October 29, 1994.
Class A Common Stock, $100 Par Value. 63,560 Shares.
Class B Common Stock, $100 Par Value. 1,054,934 Shares.
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
COTTER & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(000's Omitted)
<TABLE>
<CAPTION>
October 1, January 1,
1994 1994
---------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
- ------
Current assets:
Cash and cash equivalents $ 1,917 $ 1,314
Accounts and notes receivable 334,206 276,585
Inventories 377,134 336,066
Prepaid expenses 10,326 6,969
-------- --------
Total current assets 723,583 620,934
Properties owned, less accumulated depreciation 166,391 164,319
Properties under capital leases, less accumulated
amortization 5,156 6,769
Other assets 11,367 11,506
-------- --------
TOTAL ASSETS $906,497 $803,528
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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COTTER & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(000's Omitted)
<TABLE>
<CAPTION>
October 1, January 1,
1994 1994
---------- ----------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND CAPITALIZATION
- ------------------------------
Current liabilities:
Accounts payable and accrued expenses $373,886 $294,142
Short-term borrowings 35,832 23,287
Current maturities of notes,
long-term debt and lease obligations 60,028 61,685
Patronage dividends payable in cash
(Estimated at October 1, 1994) 13,273 16,614
-------- --------
Total current liabilities 483,019 395,728
-------- --------
Long-term debt and obligations under
capital leases 67,420 69,201
-------- --------
Capitalization:
Estimated patronage dividends to be distributed
principally by the issuance of promissory
(subordinated) notes and redeemable Class B
nonvoting common stock 26,633 --
Promissory (subordinated) and instalment notes 213,125 217,996
Redeemable Class A common stock and partially
paid subscriptions (Authorized 100,000 shares;
issued and fully paid, 63,670 and 65,880 shares) 6,405 6,633
Redeemable Class B nonvoting common stock and
paid-in capital (Authorized 2,000,000 shares;
issued and fully paid, 1,058,303 and 1,019,640
shares; issuable as partial payment of patronage
dividends, 75,780 shares as of January 1, 1994) 106,932 110,773
Retained earnings 3,704 3,867
-------- --------
356,799 339,269
Foreign currency translation adjustment (741) (670)
-------- --------
Total capitalization 356,058 338,599
-------- --------
TOTAL LIABILITIES AND CAPITALIZATION $906,497 $803,528
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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COTTER & COMPANY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(000's Omitted)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THIRTEEN FOR THE THIRTY-NINE
WEEKS ENDED WEEKS ENDED
------------------------ ------------------------
October 1, October 2, October 1, October 2,
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $653,827 $601,781 $1,931,744 $1,806,275
-------- -------- ---------- ----------
Cost and expenses:
Cost of revenues 596,469 544,260 1,759,640 1,637,995
Warehouse, general and
administrative 33,491 31,653 104,912 100,331
Interest paid to members 5,696 6,023 17,180 18,250
Other interest expense 2,070 1,892 5,715 5,647
Gain on sale of properties -- (76) -- (4,501)
Other expense(income), net 461 (470) (212) (968)
Income tax expense 188 105 428 2,087
-------- -------- ---------- ----------
638,375 583,387 1,887,663 1,758,841
-------- -------- ---------- ----------
Net margins $ 15,452 $ 18,394 $ 44,081 $ 47,434
======== ======== ========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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COTTER & COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED
(000's Omitted)
(UNAUDITED)
<TABLE>
<CAPTION>
October 1, October 2,
1994 1993
---------- ----------
<S> <C> <C>
Operating activities:
Net margins $ 44,081 $ 47,434
Adjustments to reconcile net margins to cash
and cash equivalents from operating activities:
Statement of operations components not affecting
cash and cash equivalents 19,127 14,112
Net change in working capital components (35,256) (110,112)
-------- --------
Net cash and cash equivalents provided by
(used for) operating activities 27,952 (48,566)
-------- --------
Investing activities:
Additions to properties owned (16,796) (10,710)
Proceeds from sale of properties owned 313 12,455
Changes in other assets 139 (1,251)
-------- --------
Net cash and cash equivalents provided by
(used for) investing activities (16,344) 494
-------- --------
Financing activities:
Proceeds from short-term borrowings, net 12,545 44,468
Payment of annual patronage dividend (16,614) (18,570)
Payment of long-term debt, notes, lease
obligations, and Class A common stock (6,936) (14,316)
-------- --------
Net cash and cash equivalents provided by
(used for) financing activities (11,005) 11,582
-------- --------
Net increase (decrease) in cash and cash equivalents 603 (36,490)
Cash and cash equivalents at beginning of the year 1,314 37,603
-------- --------
Cash and cash equivalents at end of the period $ 1,917 $ 1,113
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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COTTER & COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - GENERAL
The condensed consolidated balance sheet, statement of operations, and
statement of cash flows at and for the period ended October 1, 1994 and the
condensed consolidated statement of operations and statement of cash flows for
the period ended October 2, 1993 are unaudited and, in the opinion of the
management of Cotter & Company (the Company), include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of financial position, results of operations and cash flows for
the respective interim periods. The accompanying unaudited condensed
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
This financial information should be read in conjunction with the consolidated
financial statements for the year ended January 1, 1994 included in the
Company's Post-Effective Amendment No. 3 to Form S-2 Registration Statement (No.
33-39477) and in the Company's 1993 Annual Report on Form 10-K.
NOTE 2 - ESTIMATED PATRONAGE DIVIDENDS
Patronage dividends are declared and paid by the Company after the close of
each fiscal year. It is estimated that, based on past experience, the 1994
annual patronage dividend will be distributed through a payment of 30% of the
total distribution in cash, with the balance being paid through the issuance of
the Company's Class B nonvoting common stock and five-year promissory
(subordinated) notes (since 1985, the promissory (subordinated) notes were for
a term of seven years). Such patronage dividends, consisting of substantially
all of the Company's patronage source income, have been paid since 1949. The
estimated patronage dividend for the thirty-nine weeks ended October 1, 1994 is
$44,244,000 compared to $44,668,000 for the corresponding period in 1993.
NOTE 3 - INVENTORIES
<TABLE>
<CAPTION>
Inventories consisted of: October 1, January 1,
1994 1994
---------- ----------
(UNAUDITED)
(000's Omitted)
<S> <C> <C>
Manufacturing inventories:
Raw materials $ 12,748 $ 14,795
Work-in-process and finished goods 52,714 54,992
-------- --------
65,462 69,787
Merchandise inventories 311,672 266,279
-------- --------
$377,134 $336,066
======== ========
</TABLE>
NOTE 4 - SUBSEQUENT EVENT
Through a prospectus dated November 8, 1994, the Company has offered
variable denomination fixed rate redeemable term notes to be issued January 1,
1995 to current holders of certain Company promissory (subordinated) notes
maturing on December 31, 1994, who are not holders of the Company's Class A
Common Stock in exchange for such promissory (subordinated) notes.
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THIRTY-NINE WEEKS ENDED OCTOBER 1, 1994 COMPARED TO THIRTY-NINE WEEKS ENDED
OCTOBER 2, 1993
RESULTS OF OPERATIONS:
Revenues increased by $125,469,000 or 6.9% compared to the same period last
year. The improvement resulted from increased merchandise shipments to
existing True Value(R) and V&S(R) Members from the Company's regional
distribution network and manufacturing facilities.
Gross margins increased by $3,824,000 or 2.3%. Gross margins as a
percentage of revenues declined to 8.9% from 9.3% for the same period last
year, due to a change in the Company's sales mix, pricing strategy, and more
promotionally-oriented merchandising programs.
Warehouse, general and administrative expenses increased by $4,581,000 or
4.6% but as a percent of revenues, decreased to 5.4% from 5.6% for the same
period last year. The decrease resulted from the Company's continuing efforts
to reduce operating costs.
Interest paid to Members decreased by $1,070,000 or 5.9% primarily due to a
lower average interest rate.
Net margins were $44,081,000 compared to $47,434,000 for the same period
last year. The 1993 net margins included a one time gain on the sale of
properties of $4,501,000 offset by the related income tax of $1,936,000.
THIRTY-NINE WEEKS ENDED OCTOBER 1, 1994 COMPARED WITH THE YEAR ENDED JANUARY 1,
1994
LIQUIDITY AND CAPITAL RESOURCES:
Cash flows for the thirty-nine weeks ended October 1, 1994 were provided by
operating activities through shipment of seasonal inventories to True Value(R)
and V&S(R) Members, which were purchased or manufactured by the Company. The
Company anticipates that cash and cash equivalents for the remaining period of
the fiscal year will also be provided by operating activities and financing
activities, if necessary.
At the end of the third quarter of 1994, inventories increased by $41.1
million, to support anticipated future orders of seasonal merchandise.
Short-term borrowings increased by $12.5 million and accounts payable and
accrued expenses increased by $79.7 million in support of the increased
inventories for anticipated future orders of seasonal merchandise and favorable
seasonal terms obtained from vendors. Since the favorable seasonal terms were
passed on to the Company's Members, accounts and notes receivable increased by
$57.6 million.
At October 1, 1994, net working capital increased to $240.6 million from
$225.2 million at January 1, 1994. The current ratio decreased to 1.50 at
October 1, 1994 compared to 1.57 at January 1, 1994.
Short-term lines of credit utilized by the Company for normal operating
activities are available under informal agreements with lending banks,
cancelable by either party. At October 1, 1994, $51.0 million was available
under these agreements, of which $35.8 million was outstanding.
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The Company's capital is primarily derived from redeemable Class A common
stock and retained earnings, together with promissory (subordinated) notes and
redeemable nonvoting Class B common stock issued in connection with the
Company's annual patronage dividend. Funds derived from these capital
resources are usually sufficient to satisfy long-term capital needs.
Total capital expenditures, including those made under capital leases, were
$16.8 million for the thirty-nine weeks ended October 1, 1994 compared to
$10.7 million during the comparable period in 1993. These capital expenditures
relate to additional equipment and technological improvements at the regional
distribution centers and the National Headquarters. Funding of any additional
1994 capital expenditures is anticipated to come from operations and external
sources, if necessary.
The effects of all recent tax legislation have been reflected in the
condensed consolidated financial statements included elsewhere herein.
Additionally, the Company has reviewed the impact of all new accounting
standards issued as of October 1, 1994 that will be adopted at a future date,
and has determined that these will not have a material impact on the Company's
operating results and financial position.
THIRTEEN WEEKS ENDED OCTOBER 1, 1994 COMPARED WITH THE THIRTEEN WEEKS ENDED
OCTOBER 2, 1993
RESULTS OF OPERATIONS:
Revenues increased by $52,046,000 or 8.6% compared to the previous year.
The improvement resulted from increased merchandise shipments to existing True
Value(R) and V&S(R) Members from the Company's regional distribution network
and manufacturing facilities.
Gross margins decreased slightly compared with the same period last year.
Gross margins as a percentage of revenue declined to 8.8% compared to 9.6% for
the same period last year. Lower margins resulted from a change in the
Company's sales mix, pricing strategy, and more promotionally-oriented
merchandising programs.
Warehouse, general and administrative expenses increased by $1,838,000 or
5.8%, but as a percentage of revenues, decreased to 5.1% from 5.3% for the same
period last year. The decrease resulted from the Company's continuing efforts
to reduce operating costs.
Interest paid to Members decreased by $327,000 or 5.4% due to a lower
average interest rate.
Net margins were $15,452,000 compared to $18,394,000 for the same period
last year.
PART II - OTHER INFORMATION
Item 5. OTHER INFORMATION
At the September 29, 1994 Board of Directors meeting, Mr. Michael P. Cole
resigned as a director of the Company. The Company is seeking his replacement
as director of the Company.
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<PAGE> 9
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 4. Instruments defining the rights of security holders,
including indentures; incorporated herein by reference those items
included as Exhibits 4A through 4G, inclusive, in the Company's
Post-Effective Amendment No.3 to form S-2 Registration Statement
(No. 33-39477) filed with the Securities and Exchange Commission on
March 18, 1994.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the period for which
this report is filed.
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<PAGE> 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.
COTTER & COMPANY
Date: November 15, 1994 By /s/ Kerry J. Kirby
Kerry J. Kirby
Vice President, Secretary, Treasurer
and Chief Financial Officer
(Mr. Kirby is the principal accounting officer and has been duly
authorized to sign on behalf of the Registrant.)
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-02-1994
<PERIOD-END> OCT-01-1994
<CASH> 1,917
<SECURITIES> 0
<RECEIVABLES> 334,206
<ALLOWANCES> 0
<INVENTORY> 377,134
<CURRENT-ASSETS> 723,583
<PP&E> 359,510
<DEPRECIATION> 187,963
<TOTAL-ASSETS> 906,497
<CURRENT-LIABILITIES> 483,019
<BONDS> 67,420
<COMMON> 113,337
0
0
<OTHER-SE> 242,721
<TOTAL-LIABILITY-AND-EQUITY> 906,497
<SALES> 1,931,744
<TOTAL-REVENUES> 1,931,744
<CGS> 1,759,640
<TOTAL-COSTS> 1,759,640
<OTHER-EXPENSES> 104,700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,895
<INCOME-PRETAX> 44,509
<INCOME-TAX> 428
<INCOME-CONTINUING> 44,081
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,081
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
