<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 March 30, 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 2-20910
COTTER & COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 36-2099896
<S> <C>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
<TABLE>
<CAPTION>
8600 West Bryn Mawr Avenue
Chicago, Illinois 60631-3505
<S> <C>
(Address of principal executive offices) (Zip Code)
</TABLE>
(312) 695-5000
(Registrant's telephone number, including area code)
2740 North Clybourn Avenue, Chicago, Illinois 60614
(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
The number of shares outstanding of each of the issuer's classes
of common stock, as of April 27, 1996.
<TABLE>
<S> <C>
Class A Common Stock, $100 Par Value. 50,810 Shares.
Class B Common Stock, $100 Par Value. 1,088,910 Shares.
</TABLE>
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
COTTER & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(000's Omitted)
<TABLE>
<CAPTION>
March 30, December 30,
1996 1995
--------- ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,485 $ 22,473
Accounts and notes receivable 355,730 287,888
Inventories 369,122 315,311
Prepaid expenses 17,263 11,180
-------- --------
Total current assets 743,600 636,852
Properties owned,
less accumulated depreciation 167,210 165,683
Properties under capital leases,
less accumulated amortization 5,005 5,393
Other assets 12,213 11,648
-------- --------
TOTAL ASSETS $928,028 $819,576
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 3
COTTER & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(000's Omitted)
<TABLE>
<CAPTION>
March 30, December 30,
1996 1995
--------- ------------
(UNAUDITED)
LIABILITIES AND CAPITALIZATION
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $430,777 $351,247
Short-term borrowings 54,284 2,657
Current maturities of notes,
long-term debt and lease obligations 61,519 61,634
Patronage dividends payable in cash
(Estimated at March 30, 1996) 1,275 18,315
-------- --------
Total current liabilities 547,855 433,853
-------- --------
Long-term debt and obligations under
capital leases 78,050 79,213
-------- --------
Capitalization:
Estimated patronage dividends to be distributed
principally by the issuance of promissory
(subordinated) notes and redeemable Class B
nonvoting common stock 1,445 --
Promissory (subordinated) and instalment notes 182,713 186,335
Redeemable Class A common stock and partially
paid subscriptions (Authorized 100,000 shares;
issued and fully paid, 51,310 and 52,710 shares) 5,157 5,294
Redeemable Class B nonvoting common stock and
paid-in capital (Authorized 2,000,000 shares;
issued and fully paid, 1,097,157 and 1,055,700
shares; issuable as partial payment of patronage
dividends, 62,005 shares as of December 30, 1995) 110,933 113,062
Retained earnings 2,680 2,661
-------- --------
302,928 307,352
Foreign currency translation adjustment (805) (842)
-------- --------
Total capitalization 302,123 306,510
-------- --------
TOTAL LIABILITIES AND CAPITALIZATION $928,028 $819,576
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 4
COTTER & COMPANY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED
(000's Omitted)
(UNAUDITED)
<TABLE>
<CAPTION>
March 30, April 1,
1996 1995
--------- --------
<S> <C> <C>
Revenues $578,609 $625,939
-------- --------
Cost and expenses:
Cost of revenues 533,025 573,265
Warehouse, general and
administrative 36,698 37,098
Interest paid to Members 4,658 5,217
Other interest expense 2,229 2,514
Other income, net (259) (221)
Income tax expense 175 115
-------- --------
576,526 617,988
-------- --------
Net margins $ 2,083 $ 7,951
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 5
COTTER & COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED
(000's Omitted)
(UNAUDITED)
<TABLE>
<CAPTION>
March 30, April 1,
1996 1995
--------- --------
<S> <C> <C>
Operating activities:
Net margins $ 2,083 $ 7,951
Adjustments to reconcile net margins to cash and
cash equivalents from operating activities:
Statement of operations components not affecting
cash and cash equivalents 6,273 6,140
Net change in working capital components (53,194) (66,806)
-------- --------
Net cash and cash equivalents used for
operating activities (44,838) (52,715)
-------- --------
Investing activities:
Additions to properties owned (6,580) (3,986)
Changes in other assets (426) (392)
-------- --------
Net cash and cash equivalents used for
investing activities (7,006) (4,378)
-------- --------
Financing activities:
Proceeds from short-term borrowings 51,627 78,225
Payment of annual patronage dividend (17,659) (18,383)
Payment of notes, lease obligations and
common stock (3,112) (3,282)
-------- --------
Net cash and cash equivalents provided by
financing activities 30,856 56,560
-------- --------
Net decrease in cash and cash equivalents (20,988) (533)
Cash and cash equivalents at beginning of the year 22,473 1,831
-------- --------
Cash and cash equivalents at end of the period $ 1,485 $ 1,298
======== ========
</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 March 30,
1996 and the condensed consolidated statement of operations and
statement of cash flows for the period ended April 1, 1995 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 30, 1995 included
in the Company's Post-Effective Amendment No.5 to Form S-2
Registration Statement (No. 33-39477) and in the Company's 1995
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. The 1995 annual patronage dividend was
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. Annually, the Board of Directors reviews the
annual patronage dividend to ensure that the Company is adequately
capitalized. The estimated patronage dividend for the thirteen
weeks ended March 30, 1996 is $2,064,000 compared to $8,578,000 for
the corresponding period in 1995.
NOTE 3 - INVENTORIES
<TABLE>
<CAPTION>
Inventories consisted of: March 30, December 30,
1996 1995
--------- ------------
(UNAUDITED)
(000's Omitted)
<S> <C> <C>
Manufacturing inventories:
Raw materials $ 2,097 $ 2,139
Work-in-process and finished goods 20,816 19,407
-------- --------
22,913 21,546
Merchandise inventories 346,209 293,765
-------- --------
$369,122 $315,311
======== ========
</TABLE>
<PAGE> 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED MARCH 30, 1996 COMPARED TO THIRTEEN WEEKS
ENDED APRIL 1, 1995
RESULTS OF OPERATIONS:
Revenues decreased by $47,330,000 or 7.6% compared to the same
period last year. This decrease was attributable to the phase out
of the V&S Variety Division and the sale of the General Power
Equipment manufacturing division. Comparable sales categories were
flat with the prior year primarily due to the expanded Pinpoint
Pricing program which reduced the selling price of many core
hardware and related products.
Gross margins decreased by $7,090,000 or 13.5% and as a percent of
revenues declined from 8.4% to 7.9% for the same period last year.
This reduction in gross margin percentage was the result of the
expanded Pinpoint Pricing program and the resigned businesses of
V&S Variety division and General Power Equipment manufacturing
division.
Warehouse, general and administrative expenses decreased by $400,000
or 1.1% but as a percent of revenues, increased from 5.9% to 6.3% for
the same period last year. The decrease was attributed to the Company's
continued efforts to reduce operating costs.
Interest paid to Members decreased by $559,000 or 10.7% primarily
due to a lower principal balance and a lower average interest rate.
Net margins were $2,083,000 compared to $7,951,000 for the same period
last year.
THIRTEEN WEEKS ENDED MARCH 30, 1996 COMPARED WITH THE YEAR ENDED
DECEMBER 30, 1995
LIQUIDITY AND CAPITAL RESOURCES:
The Company has a seasonal need for cash. During the first quarter
of the year, as seasonal inventories are purchased for resale or
manufacture and shipment, cash and cash equivalents are used for
operating activities. In subsequent quarterly periods, the Company
anticipates that cash and cash equivalents will be provided by
operating activities and financing activities, if necessary.
During the first quarter of 1996, inventories increased by
$53,811,000 to support anticipated future orders of seasonal
merchandise. Accounts and notes receivable increased by
$67,842,000 due to the seasonal payment terms extended to the
Company's Members. Short-term borrowings increased by
$51,627,000 and accounts payable and accrued expenses increased
by $79,530,000 in support of the increased inventories and
favorable seasonal terms obtained from vendors which were passed on
to the Company's Members.
At March 30, 1996, net working capital decreased to $195,745,000
from $203,000,000 at December 30, 1995. The current ratio
decreased to 1.36 at March 30, 1996 compared to 1.47 at December
30, 1995.
The Company has various short-term lines of credit available under
informal agreements with lending banks, cancellable by either party
under specific circumstances, which amount to $73,000,000. Borrowings
under these agreements were $54,284,000 at March 30, 1996. In addition,
the Company has a private shelf agreement for available borrowings of
up to $50,000,000 and on March 29, 1996, the Company established a
$125,000,000 five-year revolving credit facility with a group of banks.
<PAGE> 8
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.
The Company believes the funds derived from these capital resources,
as well as operations and the credit facilities noted above, will be
sufficient to satisfy capital needs.
Total capital expenditures, including those made under capital
leases, were $6,580,000 for the thirteen weeks ended March 30, 1996
compared to $3,986,000 during the comparable period in 1995. These
capital expenditures relate to additional equipment and technological
improvements at the regional distribution centers and the National
Headquarters. Funding of any additional 1996 capital expenditures is
anticipated to come from operations and external sources, if necessary.
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Shareholders held on April 2,
1996, the following individuals were reelected to the Board of
Directors:
<TABLE>
<CAPTION>
Votes
Votes Votes Withheld/
Term For Against Abstained
<S> <C> <C> <C> <C>
Samuel D. Costa, Jr. 3 years 30,480 -- 800
Daniel A. Cotter 3 years 30,370 -- 910
Leonard C. Farr 3 years 30,400 -- 880
Dennis A. Swanson 3 years 30,500 -- 780
</TABLE>
The following individuals were elected to the Board of
Directors:
<TABLE>
<CAPTION>
Votes
Votes Votes Withheld/
Term For Against Abstained
<S> <C> <C> <C> <C>
Joe W. Blagg (a) 3 years 30,480 -- 800
John F. Lottes, III (b) 1 year 29,020 1,640 620
</TABLE>
(a) Joe W. Blagg was elected as a Director for a three-year term to
replace Donald E. Yeager, who retired as Director ofthe Company.
Mr. Blagg operates a True Value hardware store in Texas.
(b) John F. Lottes, III was elected as a Director for a one-year
term to replace Robert G. Waters who retired as Director of the
Company. Mr. Lottes operates a True Value hardware store in
Missouri.
In addition to the foregoing, the following persons were, on April 2,
1996, Directors of the Company whose terms of office continued after
the annual meeting:
<TABLE>
<S> <C>
William M. Claypool, III Kenneth M. Noble
William M. Halterman Richard L. Schaefer
Jerrald T. Kabelin George V. Sheffer
Robert J. Ladner John M. West, Jr.
Lewis W. Moore
</TABLE>
The annual meeting involved the appointment of Ernst & Young LLP,
independent public accountants, as auditor of the Company for
fiscal year 1996. The number of affirmative votes cast was
30,490, the number of negative votes cast was 380 and the number
of abstentions was 410.
<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.5 to Form S-2 Registration Statement
(No. 33-39477) filed with the Securities and Exchange Commission
on March 21, 1996.
(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: May 14, 1996 By /S/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> 3-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> MAR-30-1996
<CASH> 1,485
<SECURITIES> 0
<RECEIVABLES> 355,730
<ALLOWANCES> 0
<INVENTORY> 369,122
<CURRENT-ASSETS> 743,600
<PP&E> 362,295
<DEPRECIATION> 190,080
<TOTAL-ASSETS> 928,028
<CURRENT-LIABILITIES> 547,855
<BONDS> 78,050
<COMMON> 116,090
0
0
<OTHER-SE> 186,033
<TOTAL-LIABILITY-AND-EQUITY> 928,028
<SALES> 578,609
<TOTAL-REVENUES> 578,609
<CGS> 533,025
<TOTAL-COSTS> 533,025
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,887
<INCOME-PRETAX> 2,258
<INCOME-TAX> 175
<INCOME-CONTINUING> 2,083
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,083
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
