<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 28, 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)
DELAWARE 36-2099896
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8600 West Bryn Mawr Avenue
Chicago, Illinois 60631-3505
(Address of principal executive offices) (Zip Code)
(773) 695-5000
(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
The number of shares outstanding of each of the issuer's classes
of common stock, as of October 26, 1996.
Class A Common Stock, $100 Par Value. 48,660 Shares.
Class B Common Stock, $100 Par Value. 1,053,052 Shares.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
COTTER & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(000's Omitted)
<TABLE>
September 28, December 30,
1996 1995
------------- ------------
(UNAUDITED)
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 1,570 $ 22,473
Accounts and notes receivable 302,196 287,888
Inventories 368,612 315,311
Prepaid expenses 16,796 11,180
------- -------
Total current assets 689,174 636,852
Properties owned,
less accumulated depreciation 167,811 165,683
Properties under capital leases,
less accumulated amortization 4,026 5,393
Other assets 7,675 11,648
------- -------
TOTAL ASSETS $868,686 $819,576
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 3
COTTER & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(000's Omitted)
<TABLE>
September 28, December 30,
1996 1995
------------- ------------
(UNAUDITED)
LIABILITIES AND CAPITALIZATION
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $340,190 $351,247
Short-term borrowings 78,039 2,657
Current maturities of notes,
long-term debt and lease obligations 61,198 61,634
Patronage dividends payable in cash
(Estimated at September 28, 1996) 7,075 18,315
------- -------
Total current liabilities 486,502 433,853
------- -------
Long-term debt and obligations under
capital leases 75,551 79,213
------- -------
Capitalization:
Estimated patronage dividends to be
distributed principally by the
issuance of promissory (subordinated)
notes and redeemable Class B nonvoting
common stock 13,642 --
Promissory (subordinated) and
installment notes 179,124 186,335
Redeemable Class A common stock and
partially paid subscriptions
(Authorized 100,000 shares; issued
and fully paid, 48,810 and 52,710 shares) 4,902 5,294
Redeemable Class B nonvoting common stock
and paid-in capital (Authorized
2,000,000 shares; issued and fully paid,
1,059,707 and 1,055,700 shares;
issuable as partial payment of patronage
dividends, 62,005 shares as of
December 30, 1995) 107,072 113,062
Retained earnings 2,712 2,661
------- -------
307,452 307,352
Foreign currency translation adjustment (819) (842)
------- -------
Total capitalization 306,633 306,510
------- -------
TOTAL LIABILITIES AND CAPITALIZATION $868,686 $819,576
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 4
COTTER & COMPANY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(000's Omitted)
(UNAUDITED)
<TABLE>
FOR THE THIRTEEN FOR THE THIRTY-NINE
WEEKS ENDED WEEKS ENDED
-------------------- ----------------------
September September September September
28, 30, 28, 30,
1996 1995 1996 1995
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Revenues $599,893 $594,808 $1,822,901 $1,840,663
-------- -------- ---------- ----------
Cost and expenses:
Cost of revenues 548,983 544,407 1,673,480 1,686,660
Warehouse, general and
administrative 31,773 29,676 103,787 96,680
Interest paid to Members 4,393 5,047 13,778 15,476
Other interest expense 2,721 2,083 7,606 7,362
Other income, net 311 18 135 (466)
Income tax expense 160 130 480 360
------- -------- --------- ---------
588,341 581,361 1,799,266 1,806,072
------- -------- --------- ---------
Net margins $ 11,552 $ 13,447 $ 23,635 $ 34,591
======== ========= ========== ==========
</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>
September 28, September 30,
1996 1995
<S> <C> <C>
Operating activities:
Net margins $ 23,635 $ 34,591
Adjustments to reconcile net margins
to cash and cash equivalents from
operating activities:
Statement of operations components
not affecting cash and cash equivalents 18,828 18,475
Net change in working capital components (100,410) (9,856)
-------- -------
Net cash and cash equivalents provided by
(used for) operating activities (57,947) 43,210
-------- -------
Investing activities:
Additions to properties owned (16,487) (15,998)
Proceeds from sale of properties owned 210 4,160
Changes in other assets 3,973 (1,042)
-------- -------
Net cash and cash equivalents used for
investing activities (12,304) (12,880)
-------- -------
Financing activities:
Proceeds (payments) of short-term borrowings 75,382 (1,287)
Payment of annual patronage dividend (18,315) (18,383)
Payment of notes, long term debts,
lease obligations and Class A common stock (7,719) (10,933)
------- -------
Net cash and cash equivalents provided by
(used for) financing activities 49,348 (30,603)
------- -------
Net decrease in cash and cash equivalents (20,903) (273)
Cash and cash equivalents at beginning
of the year 22,473 1,831
------- -------
Cash and cash equivalents at end of the period $ 1,570 $ 1,558
======== =========
</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
28, 1996 and the condensed consolidated statement of operations
and statement of cash flows for the period ended September 30, 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 thirty-nine
weeks ended September 28, 1996 is $23,584,000 compared to
$35,009,000 for the corresponding period in 1995.
NOTE 3 - INVENTORIES
<TABLE>
Inventories consisted of: September 28, December 30,
1996 1995
------------- ------------
(UNAUDITED)
(000's Omitted)
<S> <C> <C>
Manufacturing inventories:
Raw materials $ 3,126 $ 2,139
Work-in-process and finished goods 21,942 19,407
-------- --------
25,068 21,546
Merchandise inventories 343,544 293,765
-------- --------
$368,612 $315,311
======== ========
</TABLE>
<PAGE> 7
Item 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 1996 COMPARED TO THIRTY-NINE
WEEKS ENDED SEPTEMBER 30, 1995
RESULTS OF OPERATIONS:
Revenues decreased by $17,762,000 or 1.0% compared to the same
period last year. The decrease was attributable to the phase out
of the V&S Variety division and the sale of the General Power
Equipment manufacturing division. Comparable shipments to Member
stores increased 3.6% compared with the prior year.
Gross margins decreased by $4,582,000 or 3.0%. Gross margins as a
percentage of revenues declined to 8.2% from 8.4% for the same
period last year. The decrease in gross margin was primarily
attributable to the expanded Pinpoint Pricing program and the
resigned business of the V&S Variety division and the General Power
Equipment manufacturing division.
Warehouse, general and administrative expenses increased by
$7,107,000 or 7.4% and as a percentage of revenues was 5.7%
compared to 5.3% for the same period last year. The increase was
primarily the result of moving expenses, organizational
improvements in the area of management information services and
member incentives connected with the trueAdvantage program.
Interest paid to Members decreased by $1,698,000 or 11.0% primarily
due to a lower principal balance and lower average interest rates.
Other interest expense increased by $244,000 or 3.3% compared to
the same period last year primarily due to higher short-term
borrowings partially offset by a lower average interest rate.
Net margins were $23,635,000 compared to $34,591,000 for the same
period last year.
THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 1996 COMPARED WITH THE YEAR ENDED
DECEMBER 30, 1995
LIQUIDITY AND CAPITAL RESOURCES:
The Company has a seasonal need for cash. During the first nine
months of the year, as seasonal inventories are purchased for
resale or manufacture and shipment, cash and cash equivalents are
used for operating activities. The Company anticipates that cash
and cash equivalents will be provided by operating activities and
financing activities, if necessary, for the remainder of the year.
At the end of the third quarter of 1996, inventories increased by
$53,301,000 to support anticipated future orders of seasonal
merchandise. Accounts and notes receivable increased by
$14,308,000 due to the seasonal payment terms extended to the
Company's Members. Short-term borrowings increased by $75,382,000
in support of the increased inventories and accounts receivables
combined with a decrease of $11,057,000 in accounts payable and
accrued expenses.
At September 28, 1996, net working capital remained comparable at
$202,672,000 compared to $203,000,000 at December 30, 1995. The
current ratio decreased to 1.42 at September 28, 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, cancelable by either party
under specific circumstances. The Company has also established a
$125,000,000 five-year revolving credit facility with a group of
banks. Borrowings under these agreements were $78,039,000 at
September 28, 1996.
<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 $16,487,000 for the thirty-nine weeks ended September
28, 1996 compared to $15,998,000 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.
THIRTEEN WEEKS ENDED SEPTEMBER 28, 1996 COMPARED TO THIRTEEN WEEKS ENDED
SEPTEMBER 30, 1995
RESULTS OF OPERATIONS:
Revenues increased by $5,085,000 or 0.9% compared to the same
period last year. This increase was the result of increased
merchandise shipments to existing True Value Members from the
Company's regional distribution network and manufacturing
facilities.
Gross margins increased by $509,000 or 1.0% and as a percentage of
revenues remained comparable with the same period last year at
8.5%. The increase in gross margin was the result of the increased
sales and change in product mix.
Warehouse, general and administrative expenses increased by
$2,097,000 or 7.1% and as a percentage of revenues, increased to 5.3%
compared to 5.0% for the same period last year. The increase was
primarily the result of improvements in the area of management
information services and member incentives connected with the
trueAdvantage program.
Interest paid to Members decreased by $654,000 or 13.0% primarily
due to a lower principal balance and lower average interest rates.
Other interest expense increased by $638,000 or 30.6% compared to
the same period last year due to higher short-term borrowings.
Net margins were $11,552,000 compared to $13,447,000 for the same
period last year.
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. 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> 9
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 12, 1996 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>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 1,570
<SECURITIES> 0
<RECEIVABLES> 302,196
<ALLOWANCES> 0
<INVENTORY> 368,612
<CURRENT-ASSETS> 689,174
<PP&E> 369,694
<DEPRECIATION> 197,857
<TOTAL-ASSETS> 868,686
<CURRENT-LIABILITIES> 486,502
<BONDS> 75,551
0
0
<COMMON> 111,974
<OTHER-SE> 194,659
<TOTAL-LIABILITY-AND-EQUITY> 868,686
<SALES> 1,822,901
<TOTAL-REVENUES> 1,822,901
<CGS> 1,673,480
<TOTAL-COSTS> 1,673,480
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,384
<INCOME-PRETAX> 24,115
<INCOME-TAX> 480
<INCOME-CONTINUING> 23,635
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,635
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
