<PAGE> 1
UNITED STATES
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 July 1, 1995 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 July 29, 1995.
Class A Common Stock, $100 Par Value. 56,440 Shares.
Class B Common Stock, $100 Par Value. 1,093,096 Shares.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
COTTER & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(000's Omitted)
<TABLE>
<CAPTION>
July 1, December 31,
1995 1994
-------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,634 $ 1,831
Accounts and notes receivable 312,998 294,663
Inventories 345,759 384,747
Prepaid expenses 15,737 7,861
-------- --------
Total current assets 676,128 689,102
Properties owned,
less accumulated depreciation 165,302 164,261
Properties under capital leases,
less accumulated amortization 4,043 4,691
Other assets 11,077 10,731
-------- --------
TOTAL ASSETS $856,550 $868,785
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 3
COTTER & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(000's Omitted)
<TABLE>
<CAPTION>
July 1, December 31,
1995 1994
-------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND CAPITALIZATION
Current liabilities:
Accounts payable and accrued expenses $318,319 $379,772
Short-term borrowings 69,548 9,329
Current maturities of notes,
long-term debt and lease obligations 60,533 60,564
Patronage dividends payable in cash
(Estimated at July 1, 1995) 6,430 18,383
-------- --------
Total current liabilities 454,830 468,048
-------- --------
Long-term debt and obligations under
capital leases 73,783 75,756
-------- --------
Capitalization:
Estimated patronage dividends to be distributed
principally by the issuance of promissory
(subordinated) notes and redeemable Class B
nonvoting common stock 11,869 --
Promissory (subordinated) and instalment notes 195,181 199,099
Redeemable Class A common stock and partially
paid subscriptions (Authorized 100,000 shares;
issued and fully paid, 58,270 and 63,350 shares) 5,871 6,370
Redeemable Class B nonvoting common stock and
paid-in capital (Authorized 2,000,000 shares;
issued and fully paid, 1,110,042 and 1,047,756
shares; issuable as partial payment of patronage
dividends, 104,275 shares as of December 31, 1994) 112,395 116,663
Retained earnings 3,474 3,764
-------- --------
328,790 325,896
Foreign currency translation adjustment (853) (915)
-------- --------
Total capitalization 327,937 324,981
-------- --------
TOTAL LIABILITIES AND CAPITALIZATION $856,550 $868,785
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 4
COTTER & COMPANY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(000's Omitted)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THIRTEEN FOR THE TWENTY-SIX
WEEKS ENDED WEEKS ENDED
-------------------- -----------------------
July 1, July 2, July 1, July 2,
1995 1994 1995 1994
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $619,916 $670,617 $1,245,855 $1,277,917
-------- -------- ---------- ----------
Cost and expenses:
Cost of revenues 568,988 608,607 1,142,253 1,163,171
Warehouse, general and
administrative 29,906 35,269 67,004 71,421
Interest paid to members 5,212 5,725 10,429 11,484
Other interest expense 2,765 1,849 5,279 3,645
Other income, net (263) (761) (484) (673)
Income tax expense 115 135 230 240
-------- -------- ---------- ----------
606,723 650,824 1,224,711 1,249,288
-------- -------- ---------- ----------
Net margins $ 13,193 $ 19,793 $ 21,144 $ 28,629
======== ======== ========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 5
COTTER & COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED
(000's Omitted)
(UNAUDITED)
<TABLE>
<CAPTION>
July 1, July 2,
1995 1994
------- -------
<S> <C> <C>
Operating activities:
Net margins $21,144 $28,629
Adjustments to reconcile net margins to cash and
cash equivalents from operating activities:
Statement of operations components not affecting
cash and cash equivalents 12,652 13,887
Net change in working capital components (59,495) (30,288)
------- -------
Net cash and cash equivalents provided by (used for)
operating activities (25,699) 12,228
------- -------
Investing activities:
Additions to properties owned (10,921) (11,203)
Proceeds from sale of properties owned -- 216
Changes in other assets (346) (417)
------- -------
Net cash and cash equivalents used for
investing activities (11,267) (11,404)
------- -------
Financing activities:
Proceeds from short-term borrowings 60,219 20,230
Payment of annual patronage dividend (18,383) (16,614)
Payment of notes, lease obligations, and
Class A common stock (5,067) (4,295)
------- -------
Net cash and cash equivalents provided by (used for)
financing activities 36,769 (679)
------- -------
Net increase (decrease) in cash and cash equivalents (197) 145
Cash and cash equivalents at beginning of the year 1,831 1,314
------- -------
Cash and cash equivalents at end of the period $ 1,634 $ 1,459
======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 6
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 July 1, 1995 and the
condensed consolidated statement of operations and statement of cash flows for
the period ended July 2, 1994 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 December 31, 1994 included in the
Company's 1994 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 1995
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. 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 twenty-six weeks ended July 1, 1995 is
$21,434,000 compared to $28,503,000 for the corresponding period in 1994.
NOTE 3 - INVENTORIES
<TABLE>
<CAPTION>
Inventories consisted of: July 1, December 31,
1995 1994
------- ------------
(UNAUDITED)
(000's Omitted)
<S> <C> <C>
Manufacturing inventories:
Raw materials $ 7,444 $ 12,986
Work-in-process and finished goods 40,439 60,094
-------- --------
47,883 73,080
Merchandise inventories 297,876 311,667
-------- --------
$345,759 $384,747
======== ========
</TABLE>
<PAGE> 7
NOTE 4 - DISPOSITION OF ASSETS
On January 13, 1995, the Company announced the sale of certain inventory of
its V&S Variety division to a national wholesaler who has also agreed to supply
the majority of the V&S stores. Also, on January 31, 1995, the Company agreed
to sell certain assets of its outdoor power equipment manufacturing division to
a nationally recognized company and secured a favorable supply agreement for
such equipment. These transactions will not have a material impact on the
Company's results of operations or financial position.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
TWENTY-SIX WEEKS ENDED JULY 1, 1995 COMPARED TO TWENTY-SIX WEEKS ENDED JULY 2,
1994
RESULTS OF OPERATIONS:
Revenues decreased by $32,062,000 or 2.5% compared to the same period last
year. The decrease was attributable to the phase out of the V&S Variety
division, lower pricing of lumber related products and unusual weather
conditions.
Gross margins decreased by $11,144,000 or 9.7%. Gross margins as a
percentage of revenues declined to 8.3% from 9.0% for the same period last
year. Warehouse, general and administrative expenses decreased by $4,417,000
or 6.2% and as a percentage of revenues, decreased to 5.4% from 5.6% for the
same period last year. Both decreases were primarily due to the phase out of
the V&S Variety division and the outdoor power equipment division during the
second quarter of the year. The majority of the impact to the gross margin
from this phase out was completed by the second quarter, but the benefits to
warehouse, general and administrative expenses will continue for the remainder
of the year.
Interest paid to Members decreased by $1,055,000 or 9.2% primarily due to a
lower principal balance and lower average interest rates.
Other interest expense increased by $1,634,000 or 44.8% compared to the same
period last year primarily due to higher short-term borrowings and a higher
average interest rate.
Net margins were $21,144,000 compared to $28,629,000 for the same period last
year.
TWENTY-SIX WEEKS ENDED JULY 1, 1995 COMPARED WITH THE YEAR ENDED DECEMBER 31,
1994
LIQUIDITY AND CAPITAL RESOURCES:
Cash and cash equivalents were comparable at July 1, 1995 and December 31,
1994.
Cash flows for the twenty-six weeks ended July 1, 1995 of $25,699,000 were
used for operating activities. Accounts and notes receivable increased by
$18,335,000 due to seasonal payment terms for merchandise extended to the
Company's Members. Accounts payable and accrued expenses decreased by
$61,453,000 primarily due to the decrease in inventory of $38,988,000. The
decrease in inventory is due to the phase out of the V&S Variety division and
the outdoor power equipment division.
<PAGE> 8
Cash flows for the twenty-six weeks ended July 1, 1995 of $11,267,000 were
used for investing activities. Total capital expenditures, including those
made under capital leases, were $10,921,000 for the twenty-six weeks ended
July 1, 1995 compared to $11,203,000 during the comparable period in 1994.
These capital expenditures were related to additional equipment and
technological improvements at the regional distribution centers and the
National Headquarters. Funding of any additional 1995 capital expenditures
is anticipated to come from operations and external sources, if necessary.
Cash flows for the twenty-six weeks ended July 1, 1995 of $36,769,000 were
provided by financing activities. Short-term lines of credit under informal
agreements with lending banks, cancelable by either party under specific
circumstances, totaled $113,117,000 at July 1, 1995. Borrowings under these
agreements were $69,548,000 at July 1, 1995.
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.
At July 1, 1995, net working capital increased slightly to $221,298,000 from
$221,054,000 at December 31, 1994. The current ratio is 1.49 compared to 1.47
at December 31, 1994.
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 July 1, 1995 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 JULY 1, 1995 COMPARED TO THIRTEEN WEEKS ENDED JULY 2, 1994
RESULTS OF OPERATIONS:
Revenues decreased by $50,701,000 or 7.6% compared to the same period last
year. The decrease was attributable to the phase out of the V&S Variety
division, lower pricing of lumber related products and unusual weather
conditions.
Gross margins decreased by $11,082,000 or 17.9% compared to the same period
last year. Gross margins as a percentage of revenues declined to 8.2% from
9.2% for the same period last year. Warehouse, general and administrative
expenses decreased by $5,363,000 or 15.2% and as a percent of revenues,
decreased to 4.8% from 5.3% for the same period last year. Both decreases
were primarily due to the phase out of the V&S Variety division and the
outdoor power equipment division.
Interest paid to Members decreased by $513,000 or 9.0% primarily due to a
lower principal balance and a lower average interest rate.
Other interest expense increased by $916,000 or 49.5% compared to the same
period last year primarily due to higher short-term borrowings and a higher
average interest rate.
Net margins were $13,193,000 compared to $19,793,000 for the same period last
year.
<PAGE> 9
PART II - OTHER INFORMATION
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.4 to form S-2 Registration Statement (No. 33-
39477) filed with the Securities and Exchange Commission on March 18,
1995.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the period for which this
report is filed.
<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
<TABLE>
<S> <C>
Date: August 14, 1995 By /S/ KERRY J. KIRBY
Kerry J. Kirby
Vice President, Treasurer
and Chief Financial Officer
(Mr. Kirby is the principal accounting officer and has been duly
authorized to sign on behalf of the Registrant.)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUL-01-1995
<PERIOD-TYPE> 6-MOS
<CASH> $ 1,634
<SECURITIES> 0
<RECEIVABLES> 312,998
<ALLOWANCES> 0
<INVENTORY> 345,759
<CURRENT-ASSETS> 676,128
<PP&E> 371,624
<DEPRECIATION> 202,279
<TOTAL-ASSETS> 856,550
<CURRENT-LIABILITIES> 454,830
<BONDS> 73,783
<COMMON> 118,266
0
0
<OTHER-SE> 209,671
<TOTAL-LIABILITY-AND-EQUITY> 856,550
<SALES> 1,245,855
<TOTAL-REVENUES> 1,245,855
<CGS> 1,142,253
<TOTAL-COSTS> 1,142,253
<OTHER-EXPENSES> 66,520
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,708
<INCOME-PRETAX> 21,374
<INCOME-TAX> 230
<INCOME-CONTINUING> 21,144
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,144
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
