<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 September 30, 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
(Present address of principal executive offices) (Zip Code)
8600 West Bryn Mawr Avenue
Chicago, Illinois 60631
(Address of principal executive offices (Zip Code)
after December 17, 1995)
(312) 975-2700
(Registrant's present telephone number, including area code)
(312) 695-5000
(Registrant's telephone number after December 15, 1995, 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 28, 1995.
Class A Common Stock, $100 Par Value. 53,730 Shares.
Class B Common Stock, $100 Par Value. 1,064,963 Shares.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
COTTER & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(000's Omitted)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,558 $ 1,831
Accounts and notes receivable 319,654 294,663
Inventories 325,666 384,747
Prepaid expenses 13,781 7,861
------- -------
Total current assets 660,659 689,102
Properties owned,
less accumulated depreciation 161,747 164,261
Properties under capital leases,
less accumulated amortization 5,843 4,691
Other assets 11,773 10,731
-------- --------
TOTAL ASSETS $840,022 $868,785
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 3
COTTER & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(000's Omitted)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- -----------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND CAPITALIZATION
Current liabilities:
Accounts payable and accrued expenses $358,569 $379,772
Short-term borrowings 8,042 9,329
Current maturities of notes,
long-term debt and lease obligations 59,738 60,564
Patronage dividends payable in cash
(Estimated at September 30, 1995) 10,503 18,383
-------- --------
Total current liabilities 436,852 468,048
-------- --------
Long-term debt and obligations under
capital leases 74,904 75,756
-------- --------
Capitalization:
Estimated patronage dividends to be distributed
principally by the issuance of promissory
(subordinated) notes and redeemable Class B
nonvoting common stock 20,541 --
Promissory (subordinated) and instalment notes 191,340 199,099
Redeemable Class A common stock and partially
paid subscriptions (Authorized 100,000 shares;
issued and fully paid, 54,550 and 63,350 shares) 5,482 6,370
Redeemable Class B nonvoting common stock and
paid-in capital (Authorized 2,000,000 shares;
issued and fully paid, 1,071,574 and 1,047,756
shares; issuable as partial payment of patronage
dividends, 104,275 shares as of
December 31, 1994) 108,292 116,663
Retained earnings 3,346 3,764
-------- --------
329,001 325,896
Foreign currency translation adjustment (735) (915)
-------- --------
Total capitalization 328,266 324,981
-------- --------
TOTAL LIABILITIES AND CAPITALIZATION $840,022 $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 THIRTY-NINE
WEEKS ENDED WEEKS ENDED
------------------------ ------------------------
September 30, October 1, September 30, October 1,
1995 1994 1995 1994
------------ --------- ------------ ---------
<S> <C> <C> <C> <C>
Revenues $594,808 $653,827 $1,840,663 $1,931,744
-------- -------- ---------- ----------
Cost and expenses:
Cost of revenues 544,407 596,469 1,686,660 1,759,640
Warehouse, general and
administrative 29,676 33,491 96,680 104,912
Interest paid to members 5,047 5,696 15,476 17,180
Other interest expense 2,083 2,070 7,362 5,715
Other expense (income), net 18 461 (466) (212)
Income tax expense 130 188 360 428
-------- -------- ---------- ----------
581,361 638,375 1,806,072 1,887,663
-------- -------- ---------- ----------
Net margins $ 13,447 $ 15,452 $ 34,591 $ 44,081
======== ======== ========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 5
COTTER & COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED
(000's Omitted)
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, October 1,
1995 1994
------------ ---------
<S> <C> <C>
Operating activities:
Net margins $34,591 $44,081
Adjustments to reconcile net margins to cash and
cash equivalents from operating activities:
Statement of operations components not affecting
cash and cash equivalents 18,475 19,127
Net change in working capital components ( 9,856) (35,256)
------- -------
Net cash and cash equivalents provided by
operating activities 43,210 27,952
------- -------
Investing activities:
Additions to properties owned (15,998) (16,796)
Proceeds from sale of properties owned 4,160 313
Changes in other assets (1,042) 139
------- -------
Net cash and cash equivalents used for
investing activities (12,880) (16,344)
------- -------
Financing activities:
Proceeds (payments) of short-term borrowings (1,287) 12,545
Payment of annual patronage dividend (18,383) (16,614)
Payment of notes, long-term debts, lease
obligations, and Class A common stock (10,933) (6,936)
------- -------
Net cash and cash equivalents used for
financing activities (30,603) (11,005)
------- -------
Net increase (decrease) in cash and cash equivalents (273) 603
Cash and cash equivalents at beginning of the year 1,831 1,314
------- -------
Cash and cash equivalents at end of the period $ 1,558 $ 1,917
======= =======
</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 September 30, 1995 and the
condensed consolidated statement of operations and statement of cash flows for
the period ended October 1, 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 thirty-nine weeks ended September 30, 1995
is $35,009,000 compared to $44,244,000 for the corresponding period in 1994.
NOTE 3 - INVENTORIES
<TABLE>
<CAPTION>
Inventories consisted of: September 30, December 31,
1995 1994
------------ -----------
(UNAUDITED)
(000's Omitted)
<S> <C> <C>
Manufacturing inventories:
Raw materials $ 1,981 $ 12,986
Work-in-process and finished goods 18,489 60,094
-------- --------
20,470 73,080
Merchandise inventories 305,196 311,667
-------- --------
$325,666 $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
THIRTY-NINE WEEKS ENDED SEPTEMBER 30, 1995 COMPARED TO THIRTY-NINE WEEKS ENDED
OCTOBER 1, 1994
RESULTS OF OPERATIONS:
Revenues decreased by $91,081,000 or 4.7% compared to the same period last
year. The decrease was attributable to the phase out of the V&S Variety
division and the outdoor power equipment manufacturing division and lower
pricing of lumber related products.
Gross margins decreased by $18,101,000 or 10.5%. Gross margins as a
percentage of revenues declined to 8.4% from 8.9% for the same period last
year. Warehouse, general and administrative expenses decreased by $8,232,000
or 7.8% and as a percentage of revenues, decreased to 5.3% from 5.4% 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 manufacturing 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 $1,704,000 or 9.9% primarily due to a
lower principal balance and lower average interest rates.
Other interest expense increased by $1,647,000 or 28.8% compared to the same
period last year primarily due to higher borrowings and a higher average
interest rate.
Net margins were $34,591,000 compared to $44,081,000 for the same period last
year.
THIRTY-NINE WEEKS ENDED SEPTEMBER 30, 1995 COMPARED WITH THE YEAR ENDED
DECEMBER 31, 1994
LIQUIDITY AND CAPITAL RESOURCES:
Cash and cash equivalents were comparable at September 30, 1995 and December
31, 1994.
Cash flows for the thirty-nine weeks ended September 30, 1995 of $43,210,000
were provided by operating activities. Accounts and notes receivable increased
by $24,991,000 due to seasonal payment terms for merchandise extended to the
Company's Members. Accounts payable and accrued expenses decreased by
$21,203,000 primarily due to the decrease in inventory of $59,081,000 offset by
favorable seasonal terms obtained from vendors which were passed on to the
Company's Members. The decrease in inventory is due to the phase out of the V&S
Variety division and the outdoor power equipment manufacturing division.
<PAGE> 8
Cash flows for the thirty-nine weeks ended September 30, 1995 of $12,880,000
were used for investing activities. Total capital expenditures, including
those made under capital leases of $2,470,000, were $18,468,000 for the
thirty-nine weeks ended September 30, 1995 compared to $16,796,000 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 thirty-nine weeks ended September 30, 1995 of $30,603,000
were used for financing activities. Short-term lines of credit under informal
agreements with lending banks, cancelable by either party under specific
circumstances, totaled $63,000,000 at September 30, 1995. Borrowings under
these agreements were $8,042,000 at September 30, 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 September 30, 1995, net working capital increased to $223,807,000 from
$221,054,000 at December 31, 1994. The current ratio is 1.51 compared to 1.47
at December 31, 1994.
The Company has reviewed the impact of all new accounting standards issued as
of September 30, 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 SEPTEMBER 30, 1995 COMPARED TO THIRTEEN WEEKS ENDED
OCTOBER 1, 1994
RESULTS OF OPERATIONS:
Revenues decreased by $59,019,000 or 9.0% compared to the same period last
year. The decrease was attributable to the phase out of the V&S Variety
division and the outdoor power equipment manufacturing division, and lower
pricing of lumber related products.
Gross margins decreased by $6,957,000 or 12.1% compared to the same period
last year. Gross margins as a percentage of revenues declined to 8.5% from
8.8% for the same period last year. Warehouse, general and administrative
expenses decreased by $3,815,000 or 11.4% and as a percent of revenues,
decreased to 5.0% from 5.1% 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 manufacturing division.
Interest paid to Members decreased by $649,000 or 11.4% primarily due to a
lower principal balance and a lower average interest rate.
Other interest expense remained comparable to the same period last year.
Net margins were $13,447,000 compared to $15,452,000 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
Date: November 13, 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> <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-30-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,558
<SECURITIES> 0
<RECEIVABLES> 319,654
<ALLOWANCES> 0
<INVENTORY> 325,666
<CURRENT-ASSETS> 660,659
<PP&E> 356,934
<DEPRECIATION> 189,344
<TOTAL-ASSETS> 840,022
<CURRENT-LIABILITIES> 436,852
<BONDS> 74,904
<COMMON> 113,774
0
0
<OTHER-SE> 214,492
<TOTAL-LIABILITY-AND-EQUITY> 840,022
<SALES> 1,840,663
<TOTAL-REVENUES> 1,840,663
<CGS> 1,686,660
<TOTAL-COSTS> 1,686,660
<OTHER-EXPENSES> 95,214
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,838
<INCOME-PRETAX> 34,951
<INCOME-TAX> 360
<INCOME-CONTINUING> 34,591
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,591
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
