<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 June 29, 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)
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 July 27, 1996.
<TABLE>
<S> <C>
Class A Common Stock, $100 Par Value. 49,290 Shares.
Class B Common Stock, $100 Par Value. 1,070,906 Shares.
</TABLE>
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
COTTER & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(000's Omitted)
<TABLE>
<CAPTION>
June 29, December 30,
1996 1995
---------- ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,132 $ 22,473
Accounts and notes receivable 336,504 287,888
Inventories 348,030 315,311
Prepaid expenses 15,523 11,180
-------- --------
Total current assets 701,189 636,852
Properties owned,
less accumulated depreciation 168,336 165,683
Properties under capital leases,
less accumulated amortization 4,473 5,393
Other assets 11,655 11,648
-------- --------
TOTAL ASSETS $885,653 $819,576
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 3
COTTER & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(000's Omitted)
<TABLE>
<CAPTION>
June 29, December 30,
1996 1995
-------- -----------
(UNAUDITED)
LIABILITIES AND CAPITALIZATION
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses $356,433 $351,247
Short-term borrowings 85,001 2,657
Current maturities of notes,
long-term debt and lease obligations 61,104 61,634
Patronage dividends payable in cash
(Estimated at June 29, 1996) 3,787 18,315
-------- --------
Total current liabilities 506,325 433,853
-------- --------
Long-term debt and obligations under
capital leases 77,031 79,213
-------- --------
Capitalization:
Estimated patronage dividends to be distributed
principally by the issuance of promissory
(subordinated) notes and redeemable Class B
nonvoting common stock 5,920 --
Promissory (subordinated) and instalment notes 180,537 186,335
Redeemable Class A common stock and partially
paid subscriptions (Authorized 100,000 shares;
issued and fully paid, 49,640 and 52,710 shares) 5,007 5,294
Redeemable Class B nonvoting common stock and
paid-in capital (Authorized 2,000,000 shares;
issued and fully paid, 1,079,508 and 1,055,700
shares; issuable as partial payment of patronage
dividends, 62,005 shares as of December 30, 1995) 109,112 113,062
Retained earnings 2,543 2,661
-------- --------
303,119 307,352
Foreign currency translation adjustment (822) (842)
-------- --------
Total capitalization 302,297 306,510
-------- --------
TOTAL LIABILITIES AND CAPITALIZATION $885,653 $819,576
======== ========
</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
---------------- -------------------
June 29, July 1, June 29, July 1,
1996 1995 1996 1995
------- ------ ------- -------
<S> <C> <C> <C> <C>
Revenues $644,399 $619,916 $1,223,008 $1,245,855
-------- -------- ---------- ----------
Cost and expenses:
Cost of revenues 591,472 568,988 1,124,497 1,142,253
Warehouse, general and
administrative 35,316 29,906 72,014 67,004
Interest paid to Members 4,727 5,212 9,385 10,429
Other interest expense 2,656 2,765 4,885 5,279
Other income, net 83 (263) (176) (484)
Income tax expense 145 115 320 230
-------- -------- ---------- ----------
634,399 606,723 1,210,925 1,224,711
-------- -------- ---------- ----------
Net margins $ 10,000 $ 13,193 $ 12,083 $ 21,144
======== ======== ========== ==========
</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>
June 29, July 1,
1996 1995
------- -------
<S> <C> <C>
Operating activities:
Net margins $12,083 $21,144
Adjustments to reconcile net margins to cash and
cash equivalents from operating activities:
Statement of operations components not affecting
cash and cash equivalents 12,916 12,652
Net change in working capital components (92,404) (59,495)
-------- -------
Net cash and cash equivalents used for
operating activities (67,405) (25,699)
-------- -------
Investing activities:
Additions to properties owned (12,745) (10,921)
Proceeds from sale of properties owned 208 --
Changes in other assets (7) (346)
-------- -------
Net cash and cash equivalents used for
investing activities (12,544) (11,267)
-------- -------
Financing activities:
Proceeds from short-term borrowings 82,344 60,219
Payment of annual patronage dividend (18,188) (18,383)
Payment of notes, lease obligations and
Class A common stock (5,548) (5,067)
-------- -------
Net cash and cash equivalents provided by
financing activities 58,608 36,769
-------- -------
Net decrease in cash and cash equivalents (21,341) (197)
Cash and cash equivalents at beginning of the year 22,473 1,831
-------- -------
Cash and cash equivalents at end of the period $ 1,132 $ 1,634
======== =======
</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 June 29, 1996 and
the condensed consolidated statement of operations and statement of
cash flows for the period ended July 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 to ensure that the Company is adequately capitalized. The
estimated patronage dividend for the twenty-six weeks ended June 29,
1996 is $12,201,000 compared to $21,434,000 for the corresponding
period in 1995.
NOTE 3 - INVENTORIES
<TABLE>
<CAPTION>
Inventories consisted of: June 29, December 30,
1996 1995
-------- -----------
(UNAUDITED)
(000's Omitted)
<S> <C> <C>
Manufacturing inventories:
Raw materials $ 2,744 $ 2,139
Work-in-process and finished goods 21,101 19,407
-------- --------
23,845 21,546
Merchandise inventories 324,185 293,765
-------- --------
$348,030 $315,311
======== ========
</TABLE>
<PAGE> 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
TWENTY-SIX WEEKS ENDED JUNE 29, 1996 COMPARED TO TWENTY-SIX WEEKS
ENDED JULY 1, 1995
RESULTS OF OPERATIONS:
Revenues decreased by $22,847,000 or 1.8% 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 store sales increased 3.1%
compared with the prior year.
Gross margins decreased by $5,091,000 or 4.9%. Gross margins as a
percentage of revenues declined to 8.1% from 8.3% 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 $5,010,000
or 7.5% and as a percentage of revenues, increased from 5.4% to 5.9%
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 the trueAdvantage member
incentive programs.
Interest paid to Members decreased by $1,044,000 or 10.0% primarily
due to a lower principal balance and lower average interest rates.
Other interest expense decreased by $394,000 or 7.5% compared to the
same period last year primarily due to lower short-term borrowings
combined with a lower average interest rate.
Net margins were $12,083,000 compared to $21,144,000 for the same
period last year.
TWENTY-SIX WEEKS ENDED JUNE 29, 1996 COMPARED WITH THE YEAR ENDED
DECEMBER 30, 1995
LIQUIDITY AND CAPITAL RESOURCES:
The Company has a seasonal need for cash. During the first six months
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 six months of 1996, inventories increased by
$32,719,000 to support anticipated future orders of seasonal
merchandise. Accounts and notes receivable increased by $48,616,000
due to the seasonal payment terms extended to the Company's Members.
Short-term borrowings increased by $82,344,000 and accounts payable
and accrued expenses increased by $5,186,000 in support of the
increased inventories and favorable seasonal terms extended to the
Company's Members.
At June 29, 1996, net working capital decreased to $194,864,000 from
$203,000,000 at December 30, 1995. The current ratio decreased to
1.38 at June 29, 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. The Company has also established a
$125,000,000 five-year revolving credit facility with a group of
banks. Borrowings under these agreements were $85,001,000 at June 29,
1996. In addition, the Company has a private shelf agreement for
available borrowings of up to $50,000,000.
<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 $12,745,000 for the twenty-six weeks ended June 29, 1996 compared
to $10,921,000 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 JUNE 29, 1996 COMPARED TO THIRTEEN WEEKS ENDED
JULY 1, 1995
RESULTS OF OPERATIONS:
Revenues increased by $24,483,000 or 3.9% 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 $1,999,000 or 3.9% and as a percent of
revenues remained comparable with the same period last year. The
increase in gross margin was the result of the increased sales.
Warehouse, general and administrative expenses increased by $5,410,000
or 18.1% and as a percent of revenues, increased from 4.8% to 5.5%
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 the trueAdvantage member
incentive programs.
Interest paid to Members decreased by $485,000 or 9.3% primarily due
to a lower principal balance and a lower average interest rate.
Net margins were $10,000,000 compared to $13,193,000 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: August 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> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> JUN-29-1996
<CASH> 1,132
<SECURITIES> 0
<RECEIVABLES> 336,504
<ALLOWANCES> 0
<INVENTORY> 348,030
<CURRENT-ASSETS> 701,189
<PP&E> 367,599
<DEPRECIATION> 194,790
<TOTAL-ASSETS> 885,653
<CURRENT-LIABILITIES> 506,325
<BONDS> 77,031
0
0
<COMMON> 114,119
<OTHER-SE> 188,178
<TOTAL-LIABILITY-AND-EQUITY> 885,653
<SALES> 1,223,008
<TOTAL-REVENUES> 1,223,008
<CGS> 1,124,497
<TOTAL-COSTS> 1,124,497
<OTHER-EXPENSES> 71,838
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,270
<INCOME-PRETAX> 12,403
<INCOME-TAX> 320
<INCOME-CONTINUING> 12,083
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,083
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
