<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
---- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED AUGUST 2,
1997, 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 1-12814
COLE NATIONAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 34-1453189
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
5915 LANDERBROOK DRIVE
MAYFIELD HEIGHTS, OHIO 44124
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(440)449-4100
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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. X YES NO
------ ----
AS OF AUGUST 29, 1997, 14,724,935 SHARES OF THE REGISTRANT'S CLASS A COMMON
STOCK WERE OUTSTANDING.
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COLE NATIONAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED AUGUST 2, 1997
INDEX
<TABLE>
<CAPTION>
PAGE NO.
PART I. FINANCIAL INFORMATION
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS AS OF AUGUST 2, 1997
AND FEBRUARY 1, 1997 ...................................... 1
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE 13
WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3, 1996
AND FOR THE 26 WEEKS ENDED AUGUST 2, 1997
AND AUGUST 3, 1996.......................................... 2
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE 26
WEEKS ENDED AUGUST 2, 1997 AND AUGUST 3, 1996............... 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.................. 4 - 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................ 7 - 10
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES....................................... 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K............................ 11
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COLE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
August 2, February 1,
1997 1997
--------- ----------
<S> <C> <C>
Assets
- ------
Current assets:
Cash and temporary cash investments $ 133,142 $ 73,141
Accounts receivable, less allowance for doubtful
accounts of $2,104 in 1997 and $3,068 in 1996 52,212 39,660
Current portion of notes receivable 5,049 6,060
Inventories 129,570 119,236
Prepaid expenses and other 14,248 7,378
Deferred income tax benefits 24,948 24,948
--------- ---------
Total current assets 359,169 270,423
Property and equipment, at cost 227,624 216,575
Less-accumulated depreciation and amortization (111,809) (100,918)
--------- ---------
Total property and equipment, net 115,815 115,657
Other assets:
Notes receivable, excluding current portion 23,427 27,951
Deferred income taxes and other 43,359 29,504
Intangible assets, net 137,205 139,308
--------- ---------
Total assets $ 678,975 $ 582,843
========= =========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,352 $ 1,336
Accounts payable 47,912 62,379
Accrued interest 7,804 9,630
Accrued liabilities 119,216 123,263
Accrued income taxes 10,702 21,970
--------- ---------
Total current liabilities 186,986 218,578
Long-term debt, net of discount and current portion 317,116 317,547
Other long-term liabilities 26,949 27,000
Stockholders' equity:
Common stock 15 12
Paid-in capital 250,447 131,238
Foreign currency translation adjustment (1,515) (606)
Notes receivable - stock option exercise (927) (1,024)
Accumulated deficit (100,096) (109,902)
--------- ---------
Total stockholders' equity 147,924 19,718
--------- ---------
Total liabilities and stockholders' equity $ 678,975 $ 582,843
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
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<PAGE> 4
COLE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
----------------------- ----------------------
August 2, August 3, August 2, August 3,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenue $ 254,943 $ 153,465 $ 504,473 $ 296,355
Costs and expenses:
Cost of goods sold 85,352 47,400 171,122 91,900
Operating expenses 141,247 87,799 284,590 175,151
Depreciation and amortization 7,337 4,294 15,152 8,529
--------- --------- --------- ---------
Total costs and expenses 233,936 139,493 470,864 275,580
--------- --------- --------- ---------
Income from operations 21,007 13,972 33,609 20,775
Interest expense, net 8,173 4,729 16,404 9,781
--------- --------- --------- ---------
Income before income taxes
and extraordinary item 12,834 9,243 17,205 10,994
Income tax provision 5,476 4,066 7,399 4,837
--------- --------- --------- ---------
Income before extraordinary item 7,358 5,177 9,806 6,157
Extraordinary loss on early
extinguishment of debt -- (682) -- (682)
--------- --------- --------- ---------
Net income $ 7,358 $ 4,495 $ 9,806 $ 5,475
========= ========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
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<PAGE> 5
COLE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
26 Weeks Ended
------------------------
August 2, August 3,
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,806 $ 5,475
Adjustments to reconcile net income to net cash
provided (used) by operating activities:
Extraordinary loss on early extinguishment of debt -- 682
Depreciation and amortization 15,152 8,529
Non-cash interest 113 214
Change in assets and liabilities:
Increase in accounts and notes receivable, prepaid
expenses and other assets (18,632) (790)
Decrease (increase) in inventories (10,334) 630
Increase (decrease) in accounts payable, accrued
liabilities and other liabilities (13,416) 3,237
Decrease in accrued interest (1,826) (637)
Increase (decrease) in accrued income taxes (11,268) 327
--------- ---------
Net cash provided (used) by operating activities (30,405) 17,667
--------- ---------
Cash flows from financing activities:
Repayment of long-term debt (564) (16,457)
Proceeds from exercise of stock options and warrants 2,668 271
Proceeds from public stock offering, net 115,909 26,202
Other, net (107) 93
--------- ---------
Net cash provided by financing activities 117,906 10,109
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment, net (13,110) (8,584)
Systems development costs (6,990) (2,219)
Other, net (7,400) (145)
--------- ---------
Net cash used by investing activities (27,500) (10,948)
--------- ---------
Cash and temporary cash investments:
Net increase during the period 60,001 16,828
Balance, beginning of the period 73,141 29,260
--------- ---------
Balance, end of the period $ 133,142 $ 46,088
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
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<PAGE> 6
COLE NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION AND ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Cole National
Corporation (CNC), its wholly owned subsidiaries, including Cole National Group,
Inc. (CNG), and CNG's wholly owned subsidiaries (collectively, the "Company").
All significant intercompany transactions have been eliminated in
consolidation.
The accompanying consolidated financial statements have been prepared
without audit and certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted, although the Company
believes that the disclosures herein are adequate to make the information not
misleading. These statements should be read in conjunction with the Company's
consolidated financial statements for the fiscal year ended February 1, 1997.
In the opinion of management, the accompanying financial statements contain
all adjustments (consisting only of normal recurring accruals) necessary to
present fairly the Company's financial position as of August 2, 1997 and the
results of operations for the 13 and 26 weeks ended August 2, 1997 and August 3,
1996, and cash flows for the 26 weeks ended August 2, 1997 and August 3, 1996.
Inventories
The accompanying interim consolidated financial statements have been
prepared without physical inventories. Inventories at August 2, 1997 and August
3, 1996 were valued at the lower of first-in, first-out (FIFO) cost or market.
Cash Flows
Net cash flows from operating activities reflect cash payments for income
taxes and interest of $18,661,000 and $19,044,000, respectively, for the 26
weeks ended August 2, 1997, and $4,556,000 and $11,073,000, respectively, for
the 26 weeks ended August 3, 1996.
Earnings Per Share
In the fourth quarter of fiscal 1997 the Company will adopt Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share". Under SFAS
No. 128, the Company's basic earnings per share and diluted earnings per share
will be presented on the face of the income statement. The basic earnings per
share will be determined using only the weighted average number of outstanding
shares during the period. The computation for diluted earnings per share will
include common stock equivalents and will not differ materially from current
accounting requirements.
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<PAGE> 7
Due to the change in accounting required by SFAS No. 128, the Company has
provided the following to illustrate its earnings per share calculation under
current accounting, as well as under SFAS No. 128:
<TABLE>
<CAPTION>
13 Weeks 26 Weeks
------------------------ -------------------------
August 2, August 3, August 2, August 3,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
SFAS NO. 128:
Basic -
Income before extraordinary item $ .59 $ .47 $ .80 $ .57
Extraordinary loss -- (.06) -- (.06)
---------- ---------- ---------- ----------
Net income $ .59 $ .41 $ .80 $ .51
========== ========== ========== ==========
Weighted Average Shares
Outstanding (in 000's) 12,437 11,002 12,228 10,719
Diluted -
Income before extraordinary item $ .57 $ .47 $ .77 $ .57
Extraordinary loss -- (.06) -- (.06)
---------- ---------- ---------- ----------
Net income $ .57 $ .41 $ .77 $ .51
========== ========== ========== ==========
Weighted Average Shares and
Common Stock Equivalents
Outstanding (in 000's) 12,964 11,098 12,723 10,841
CURRENT ACCOUNTING:
Primary and fully diluted -
Income before extraordinary item $ .57 $ .47 $ .77 $ .57
Extraordinary loss -- (.06) -- (.06)
---------- ---------- ---------- ----------
Net income $ .57 $ .41 $ .77 $ .51
========== ========== ========== ==========
Weighted Average Shares
and Common Stock Equivalents
Outstanding (in 000's) 12,964 11,002 12,723 10,719
</TABLE>
(2) STOCK OFFERING
On July 18, 1997, the Company completed a public offering of
2,587,500 shares of its Class A Common Stock at a price of $47.00 per share.
Net proceeds from the offering were approximately $116 million.
(3) STOCK WARRANT EXERCISES
During the 26 weeks ended August 2, 1997, warrants to purchase 90,389
shares of the Company's Class A Common Stock were exercised at a price of
$24.70. Proceeds from the warrant exercise were approximately $2.2 million.
-5-
<PAGE> 8
(4) SEASONALITY
The Company's business historically has been seasonal with
approximately 30% of its revenues and approximately 50% of its income from
operations occurring in the fourth fiscal quarter because of the importance
of gift sales during the Christmas retailing season. Although the Pearle
acquisition will moderate the seasonality of the Company due to relatively
lower levels of optical product sales during the Christmas holiday season,
the Company's business will remain seasonal. Therefore, results of
operations for interim periods are not necessarily indicative of full year
results.
(5) RECLASSIFICATIONS
Certain 1996 amounts have been reclassified to conform with the 1997
presentation.
(6) SUBSEQUENT EVENTS
On August 5, 1997, the Company acquired all of the issued and
outstanding common stock of American Vision Centers, Inc. (AVC), the ninth
largest retail optical chain in the United States, for an aggregate purchase
price of approximately $28.9 million, including debt assumed. The
acquisition will be accounted for under the purchase method of accounting.
The Company anticipates that it will take a non-recurring business
integration charge in fiscal 1997.
On August 15, 1997, CNG announced a tender offer to purchase up to
all of its $165.8 million 11-1/4% Senior Notes (the Senior Notes) due 2001
at a price of $1,105.61 per $1,000 of principal, plus accrued interest. The
tender offer expired on September 12, 1997, at which time a total of $150.9
million of principal amount of Senior Notes were tendered, leaving $14.9
million outstanding.
As a result of the tender offer, the Company expects to record an
extraordinary charge of up to $20.0 million, representing the tender
premium, the write-off of the related unamortized debt discount and other
costs associated with purchasing the debt.
On August 22, 1997, CNG issued $125.0 million of 8-5/8% Senior
Subordinated Notes (the Senior Subordinated Notes) due 2007. Proceeds from
this debt issuance of approximately $121.7 million, along with cash on hand,
will be used to fund the above-mentioned tender offer.
-6-
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of certain factors affecting the Company's
results of operations for the 13 week and 26 week periods ended August 2, 1997
and August 3, 1996 (the Company's second quarter and first six months,
respectively) and its liquidity and capital resources. This discussion should be
read in conjunction with the consolidated financial statements and notes thereto
included elsewhere in this filing and the Company's audited financial statements
for the fiscal year ended February 1, 1997 included in its annual report on Form
10-K.
The Company's fiscal year ends on the Saturday closest to January 31.
Fiscal years are identified according to the calendar year in which they begin.
For example, the fiscal year ended February 1, 1997 is referred to as "fiscal
1996."
RESULTS OF OPERATIONS
Net revenue for the second quarter of fiscal 1997 increased 66.1% to $254.9
million from $153.5 million for the same period in fiscal 1996. Net revenue for
the first six months of fiscal 1997 increased 70.2% to $504.5 million from
$296.4 million for the same period in fiscal 1996. The increases in revenue were
primarily attributable to the acquisitions of Pearle and Sears Optical of Canada
in November 1996, which accounted for $81.7 and $167.2 million of the increases
for the second quarter and first six months, respectively. The Company's
consolidated comparable store sales increased 3.0% and 4.2% in the second
quarter and first six months of fiscal 1997, respectively. A second quarter
comparable store sales increase of 7.8% at Cole Vision was primarily a result of
successful eyewear promotions and growth in managed vision care sales. Second
quarter comparable store sales decreased 2.4% at Cole Gift, which was negatively
impacted by the lower levels of mall traffic. In the first quarter of fiscal
1997, the Company began classifying capitation and other fees associated with
its growing managed vision care business as revenue. Such fees are netted with
operating expenses in the fiscal 1996 financial statements. The opening of
additional Cole Gift and Cole Vision units also contributed to the second
quarter revenue increase. At August 2, 1997, the Company had 3,130 specialty
service retail locations, including 321 franchised locations, compared to 2,321
at August 3, 1996.
Gross profit increased to $169.6 million in the second quarter of fiscal
1997 from $106.1 million in the same period last year. The gross profit increase
was primarily attributable to the addition of Pearle, increased revenue at Cole
Vision and the classification of managed vision care fees as revenue. Gross
margins for the second quarters of fiscal 1997 and fiscal 1996, respectively,
were 66.5% and 69.1%, respectively. For the first six months, gross profit
increased to $333.4 million from $204.5 million for the same period a year ago.
Gross margins for the first six months in fiscal 1997 and fiscal 1996 were 66.1%
and 69.0%, respectively. The lower gross margin percentages in fiscal 1997
resulted primarily from the addition of Pearle which operates at a
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<PAGE> 10
lower gross margin than the Company has historically experienced due to the
higher costs of in-store laboratories and lower margin wholesale sales to
franchised stores. This was partially offset by revenue generated by Pearle's
franchise royalties and fees, interest income on Pearle's franchise notes
receivable and the managed vision care fees, each of which has no corresponding
cost of goods sold.
Operating expenses increased 60.9% to $141.2 million in the second quarter
of fiscal 1997 from $87.8 million in fiscal 1996, but as a percentage of
revenue, operating expenses decreased to 55.4% in fiscal 1997 from 57.2% in
fiscal 1996. For the first six months of fiscal 1997, operating expenses
increased 62.5% to $284.6 million from $175.2 million for the same period last
year. As a percentage of revenue, operating expenses for the first six months
decreased to 56.4% in fiscal 1997 from 59.1% in fiscal 1996. The leverage
improvement for the second quarter and first six months was primarily a result
of the addition of Pearle, which has lower operating expenses as a percentage of
revenue than the rest of the Company, along with leverage gains achieved by Cole
Vision's comparable store sales increase. Fiscal 1997 depreciation and
amortization expense of $7.3 million in the second quarter and $15.2 million in
the first six months was $3.0 and $6.6 million more, respectively, than the same
periods in fiscal 1996 reflecting the addition of Pearle and an increase in
capital expenditures.
Income from operations increased 50.4% to $21.0 million for the second
quarter of fiscal 1997 and increased 61.8% to $33.6 million for the first six
months, primarily the result of the Pearle acquisition and strong sales growth
at Cole Vision, offset in part by softer sales performance at Cole Gift.
Net interest expense increased $3.4 million over the second quarter of
fiscal 1996 to $8.2 million and increased $6.6 million over the first six months
of fiscal 1996 to $16.4 million. The increase was primarily attributable to the
additional interest on $150.0 million of 9-7/8% Senior Subordinated Notes (the
Existing Senior Subordinated Notes) issued in connection with financing the
Pearle acquisition, partially offset by a decrease in interest expense due to
the purchase and subsequent retirement of $15.1 million of Senior Notes in the
second quarter of fiscal 1996.
An income tax provision was recorded in the first six months of fiscal 1997
and fiscal 1996 using the Company's estimated annual effective tax rate of 43%
and 44%, respectively.
Net income increased to $7.4 million for the second quarter of fiscal 1997
from $4.5 million for the same period in fiscal 1996. For the first six months
of fiscal 1997, net income increased to $9.8 million from $5.5 million for that
period last year. The increases were due to improvement in income from
operations offset, in part, by the increase in net interest expense. A $0.7
million extraordinary loss, net of an income tax benefit of $0.5 million, was
recorded in the second quarter of fiscal 1996 in connection with the early
retirement of debt.
The Company's business historically has been seasonal with approximately
30% of its revenue and approximately 50% of its income from operations occurring
in the fourth fiscal quarter because of the importance of gift sales during the
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<PAGE> 11
Christmas retailing season. Although the Pearle acquisition will moderate the
seasonality of the Company due to relatively lower levels of optical product
sales during the Christmas holiday season, the Company's business will remain
seasonal. Therefore, results of operations for interim periods are not
necessarily indicative of full year results.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity is funds provided from operations
of its operating subsidiaries. In addition, the Company's operating subsidiaries
have available to them working capital commitments of $75.0 million under their
Credit Facility, reduced by commitments under letters of credit.
There were no working capital borrowings outstanding during the first six
months of fiscal 1997 and fiscal 1996.
During the second quarter of fiscal 1997, the Company completed a public
offering of 2,587,500 shares of its Class A Common Stock at an offering price of
$47.00 per share. The Company intends to use the net proceeds of approximately
$116 million for general corporate purposes including reducing outstanding
indebtedness and financing possible future acquisitions including the
transactions described below.
On August 5, 1997, the Company purchased, for an aggregate purchase price
of approximately $28.9 million, including debt assumed, all of the issued and
outstanding common stock of AVC. AVC consisted of 79 company-owned and 85
franchised optical retail stores. The Company anticipates that it will take a
non-recurring business integration charge in fiscal 1997. The acquisition will
be accounted for under the purchase method of accounting and the results of
AVC's operations will be included in the consolidated financial statements for
periods following the date of acquisition. For its most recent fiscal year ended
December 31, 1996, AVC reported annual net revenue of $52.5 million.
In August 1997, CNG issued $125.0 million of 8-5/8% Senior Subordinated
Notes (the Senior Subordinated Notes) Due 2007. The net proceeds of the
issuance were approximately $121.7 million. CNG also commenced a tender offer
which expired on September 12, 1997, to purchase up to all of its $165.8
million outstanding Senior Notes at $1,105.61 per $1,000 principal amount, plus
accrued interest thereon using the net proceeds of the Senior Subordinated
Notes issuance and cash on hand. A total of $150.9 million of Senior Notes were
tendered. As a result, an extraordinary charge of up to $20.0 million will be
recorded in connection with the early extinguishment of debt, representing the
tender premium, the write-off of the related unamortized debt discount and
other costs associated with purchasing the Senior Notes. The issuance of the
Senior Subordinated Notes and the purchase of the Senior Notes are expected to
result in a reduction of interest expense of approximately $7.0 million
annually.
Operations for the six months used $30.4 million of cash in fiscal 1997
compared to $17.7 million of cash provided from operations for the first six
months in fiscal 1996. The increase in cash used by operations was primarily
attributable to the payment of $15.0 million of taxes due on the sale of
Pearle's European operation, increased accounts receivable related to third
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<PAGE> 12
party optical sales, increased payments related to inventory disbursements, and
payment of certain business integration and other non-recurring charges accrued
in fiscal 1996, partially offset by an increase in net income and higher
depreciation and amortization expense.
Cash used by investing activities included capital additions of $13.1
million and $8.6 million for the first six months of fiscal 1997 and fiscal
1996, respectively. The majority of capital expenditures were for store
fixtures, equipment and leasehold improvements for new stores and the remodeling
of existing stores. In addition, expenditures for systems development costs
increased to $7.0 million in the first six months of fiscal 1997 from $2.2
million for the same period last year, reflecting an increase in activity to
complete the Company's new systems implementation. Expenditures of $6.9 million
were also incurred in the first six months of fiscal 1997 in connection with the
construction of Cole Gift's new warehouse and distribution facility. This
facility, which became operational in the second quarter of fiscal 1997, will
most likely be financed through a sale and lease-back transaction in the third
quarter of fiscal 1997.
The Company believes that funds provided from operations along with funds
available under the Credit Facility will provide adequate sources of liquidity
to allow the Company's operating subsidiaries to meet their operating needs and
to continue to expand the number of stores.
FORWARD-LOOKING INFORMATION
Certain sections of this Form 10-Q contain forward-looking statements.
Forward-looking statements are made based upon management's expectations and
beliefs concerning future events impacting the Company. All forward-looking
statements involve risk and uncertainty.
The Company operates in a highly competitive environment, and its future
liquidity, financial condition and operating results may be materially affected
by a variety of factors, some of which may be beyond the control of the Company,
including risks associated with the integration of Pearle, the Company's ability
to select and stock merchandise attractive to customers, economic and weather
factors affecting consumer spending, operating factors, including manufacturing
quality of optical and engraved goods, affecting customer satisfaction, the
Company's relationships with host stores and franchisees, the mix of goods sold,
pricing and other competitive factors, and the seasonality of the Company's
business.
-10-
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
During the 26 weeks ended August 2, 1997, warrants to purchase unregistered
shares of the Company's Class A Common Stock were exercised by certain warrant
holders at a price of $24.70 per share. The dates of exercise, number of shares
issued and proceeds to the Company are as follows:
<TABLE>
<CAPTION>
No.
Shares
Date of Exercise Issued Proceeds
---------------- ------ --------
<S> <C> <C>
March 5, 1997 1,715 $ 42,361
April 3, 1997 3,155 77,928
April 30, 1997 9,434 233,020
May 1, 1997 1,774 43,818
May 2, 1997 3,430 84,721
May 5, 1997 1,588 39,223
May 6, 1997 12,801 316,185
May 7, 1997 56,492 1,395,352
------ --------------
Total 90,389 $ 2,232,608
</TABLE>
The above-mentioned shares of common stock were issued pursuant to Section
4(2) of the Securities Exchange Act of 1933.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following Exhibits are filed herewith and made a part hereof:
4.1 Amendment No. 1, dated as of August 21, 1997, to the Rights Agreement,
dated as of August 22, 1995, between the Company and National City
Bank, as Rights Agent, incorporated by reference to Exhibit 4.1 of the
Company's current report on Form 8-K, filed with the Securities and
Exchange Commission of August 22, 1997 (File No. 1-12814).
4.2 Indenture, dated August 22, 1997, between Cole National Group, Inc.
and Norwest Bank Minnesota, National Association, as Trustee, relating
to the 8-5/8% Senior Subordinated Notes Due 2007, incorporated by
reference to Exhibit 4.4 of Cole National Group, Inc.'s Registration
Statement on Form S-1 (Registration No. 333-34963).
4.3 Registration Rights Agreement, dated August 22, 1997, between Cole
National Group, Inc. and CIBC Wood Gundy Securities Corp., Credit
Suisse First Boston Corporation and McDonald & Company Securities,
Inc., incorporated by reference to Exhibit 4.5 of Cole National Group,
Inc.'s Registration Statement on Form S-1 (Registration No.
333-34963).
4.4 First Supplemental Indenture, dated August 14, 1997, between Cole
National Group, Inc. and Norwest Bank Minnesota, National Association,
as Trustee, relating to the 11-1/4% Senior Notes Due 2001,
incorporated by reference to Exhibit 4.6 of Cole National Group,
Inc.'s Registration Statement on Form S-1 (Registration No.
333-34963).
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<PAGE> 14
10.1 First Amendment to the Credit Agreement, dated as of January 13, 1997,
among Cole Vision Corporation, Things Remembered, Inc., Cole Gift
Centers, Inc., Pearle, Inc., and Pearle Service Corporation and
Canadian Imperial Bank of Commerce, incorporated by reference to
Exhibit 10.33 of Cole National Group, Inc.'s Registration Statement on
Form S-1 (Registration No. 333-34963).
10.2 Second Amendment to Credit Agreement, dated as of August 8, 1997,
among Cole Vision Corporation, Things Remembered, In., Cole Gift
Centers, Inc., Pearle, Inc. and Pearle Service Corporation and
Canadian Imperial Bank of Commerce, incorporated by reference to
Exhibit 10.34 of the Cole National Group, Inc.'s Registration
Statement on Form S-1 (Registration No. 333-34963).
10.3 Agreement, dated August 4, 1997, between the Company and Leslie D.
Dunn regarding termination of employment, incorporated by reference to
Exhibit 10.37 of Cole National Group, Inc.'s Registration Statement on
Form S-1 (Registration No. 333-34963).
10.4 Cole National Corporation amended and restated Non Qualified Stock
Option Plan for Non Employee Directors, incorporated by reference to
Exhibit A to Cole National Corporation's definitive Proxy Statement
dated May 6, 1997 (File No. 1-12814).
10.5 Form of Cole National Corporation Non Qualified Stock Option Agreement
(Nonemployee Directors).
10.6 Cole National Corporation Non Employee Director Equity and Deferred
Compensation Plan, incorporated by reference to Exhibit B to Cole
National Corporation's definitive Proxy Statement dated May 6, 1997
(File No. 1-12814).
10.7 Form of Cole National Corporation Non Employee Director Equity and
Deferred Compensation Plan Participation Agreement Plan Year 1997.
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company has not filed any reports on Form 8-K for the quarterly period
ended August 2, 1997.
-12-
<PAGE> 15
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.
COLE NATIONAL CORPORATION
By: /s/ Wayne L. Mosley
--------------------------------------------
Wayne L. Mosley
Vice President and Controller
(Duly Authorized Officer and Principal
Accounting Officer)
Date: September 15, 1997
-13-
<PAGE> 16
COLE NATIONAL CORPORATION
FORM 10-Q
QUARTER ENDED AUGUST 2, 1997
EXHIBIT INDEX
Exhibit
Number Description
------- -----------
4.1 Amendment No. 1, dated as of August 21, 1997, to the Rights Agreement,
dated as of August 22, 1995, between the Company and National City
Bank, as Rights Agent, incorporated by reference to Exhibit 4.1 of
the Company's Current Report on Form 8-K, filed with the Securities
and Exchange Commission on August 22, 1997 (File No. 1-12814).
4.2 Indenture, dated August 22, 1997, between Cole National Group, Inc.
and Norwest Bank Minnesota, National Association, as Trustee, relating
to the 8-5/8% Senior Subordinated Notes Due 2007, incorporated by
reference to Exhibit 4.4 of Cole National Group, Inc.'s Registration
Statement on Form S-1 (Registration No. 333-34963).
4.3 Registration Rights Agreement, dated August 22, 1997, between Cole
National Group, Inc. and CIBC Wood Gundy Securities Corp., Credit
Suisse First Boston Corporation and McDonald & Company Securities,
Inc., incorporated by reference to Exhibit 4.5 of Cole National Group,
Inc.'s Registration Statement on Form S-1 (Registration No.
333-34963).
4.4 First Supplemental Indenture, dated August 14, 1997, between Cole
National Group, Inc. and Norwest Bank Minnesota, National Association,
as Trustee, relating to the 11-1/4% Senior Notes Due 2001,
incorporated by reference to Exhibit 4.6 of Cole National Group,
Inc.'s Registration Statement on Form S-1 (Registration No.
333-34963).
10.1 First Amendment to the Credit Agreement, dated as of January 13, 1997,
among Cole Vision Corporation, Things Remembered, Inc., Cole Gift
Centers, Inc., Pearle, Inc., and Pearle Service Corporation and
Canadian Imperial Bank of Commerce, incorporated by reference to
Exhibit 10.33 of Cole National Group, Inc.'s Registration Statement on
Form S-1 (Registration No. 333-34963).
10.2 Second Amendment to Credit Agreement, dated as of August 8, 1997,
among Cole Vision Corporation, Things Remembered, In., Cole Gift
Centers, Inc., Pearle, Inc. and Pearle Service Corporation and
Canadian Imperial Bank of Commerce, incorporated by reference to
Exhibit 10.34 of the Cole National Group, Inc.'s Registration
Statement on Form S-1 (Registration No. 333-34963).
10.3 Agreement, dated August 4, 1997, between the Company and Leslie D.
Dunn regarding termination of employment, incorporated by reference to
Exhibit 10.37 of Cole National Group, Inc.'s Registration Statement on
Form S-1 (Registration No. 333-34963).
-14-
<PAGE> 17
10.4 Cole National Corporation amended and restated Non Qualified Stock
Option Plan for Non Employee Directors, incorporated by reference to
Exhibit A to Cole National Corporation's definitive Proxy Statement
dated May 6, 1997 (File No. 1-12814).
10.5 Form of Cole National Corporation Non Qualified Stock Option Agreement
(Nonemployee Directors).
10.6 Cole National Corporation Non Employee Director Equity and Deferred
Compensation Plan, incorporated by reference to Exhibit B to Cole
National Corporation's definitive Proxy Statement dated May 6, 1997
(File No. 1-12814).
10.7 Form of Cole National Corporation Non Employee Director Equity and
Deferred Compensation Plan Participation Agreement Plan Year 1997.
27 Financial Data Schedule
-15-
<PAGE> 1
Exhibit 10.5
ANNEX A-2
COLE NATIONAL CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
(NONEMPLOYEE DIRECTORS)
June 12, 1997
<PAGE> 2
[1997 Version B]
COLE NATIONAL CORPORATION
Nonqualified Stock Option Agreement
(Nonemployee Directors)
This Nonqualified Stock Option Agreement (this "Agreement"),
dated as of June 12, 1997 (the "Date of Grant"), is entered into between the
individual optionee named on the signature page hereof (the "Optionee") and Cole
National Corporation, a Delaware corporation (the "Company").
WHEREAS, the Company's Amended and Restated Nonqualified Stock
Option Plan for Nonemployee Directors (the "Plan") and approved by the Company's
stockholders on the Date of Grant provides for automatic periodic grants of
options to purchase shares ("Shares") of Class A Common Stock, par value $.001
per share, of the Company ("Common Stock") to each member of the Board of
Directors (the "Board") of the Company who is a Nonemployee Director (as defined
in the Plan); and
WHEREAS, the Optionee is a Nonemployee Director to whom a
grant of 1000 Shares was made pursuant to the Plan effective as of the Date of
Grant; and
WHEREAS, the execution of a Stock Option Agreement evidencing
such grant in the form hereof is authorized by a resolution of the Board duly
adopted as of the Date of Grant; and
WHEREAS, the option granted by this Agreement (the "Option")
is intended as a nonqualified stock option and shall not be treated as an
"incentive stock option" within the meaning of that term under Section 422 of
the Internal Revenue Code of 1986.
<PAGE> 3
2
NOW, THEREFORE, the Company and the Optionee agree as
follows: [Certain capitalized terms used herein are defined in
Paragraph 8.]
1. GRANT AND EXERCISE. (a) The Optionee has an option to
purchase 1000 Shares on the terms and conditions of this Agreement. Except as
otherwise provided herein, this Option (until terminated as hereinafter
provided) shall become exercisable on the first anniversary of the date of this
Agreement if the Optionee is then still serving as a Nonemployee Director.
(b) If a change in Control Event occurs prior to the first
anniversary of the date of this Agreement and while the Optionee is still
serving as a Nonemployee Director, this Option shall immediately become
exercisable in full as to any then Unvested Shares.
(c) If the Optionee dies or becomes permanently disabled prior
to the first anniversary of the date of this Agreement and while the Optionee is
still serving as a Nonemployee Director of the Company, this Option shall
immediately become exercisable in full with respect to all then Unvested Shares.
(d) To the extent exercisable, this Option may be exercised in
whole or in part from time to time. Any exercise of 0this Option shall be made
in writing by the Optionee delivered to the Secretary of the Company.
2. EXERCISE PRICE AND PAYMENT. (a) This Option shall
be exercisable for Vested Shares (whether such vesting occurs
pursuant to Paragraph 1.(a), 1.(b) or 1.(c)) at the price of $41.25
<PAGE> 4
3
per share.
(b) The exercise price for any Shares shall be
payable in cash or by check.
3. TERMINATION. This Option shall terminate and all options
then outstanding for Unvested Shares and Vested Shares shall be forfeited on the
earliest of the following dates:
(i) Thirty days after the Optionee ceases to be a
member of the Board for any reason other than death or permanent disability;
(ii) One year after the death or permanent
disability of the Optionee if the Optionee dies or becomes
permanently disabled while still serving as a member of the Board;
or
(iii) Ten years from the Date of Grant.
4. TRANSFERABILITY. This Option is not transferable by the
Optionee otherwise than by will or the laws of descent and distribution. This
Option may not be exercised during the Optionee's lifetime except by the
Optionee or, in the event of the Optionee's incapacity, by his or her guardian
or legal representative acting in a fiduciary capacity on behalf of the Optionee
under state law and court supervision.
5. SECURITIES LAWS. This Option shall not be exercisable if
such exercise would involve a violation of any applicable federal or state
securities law, and the Company hereby agrees to make reasonable efforts to
comply with such securities laws. This Option shall not be exercisable unless
under said laws
<PAGE> 5
4
at the time of exercise the shares of Common Stock or other securities
purchasable hereunder are exempt, are the subject matter of an exempt
transaction, or are registered in accordance with such laws.
6. ADJUSTMENTS. (a) The Board shall make or provide for such
adjustments in the number of shares of Common Stock covered by this Agreement,
the exercise price per share of Common Stock applicable thereto, and the kind of
shares (including shares of another issuer) covered hereby, as the Board in good
faith determines to be equitably required in order to prevent dilution or
expansion of the rights of the Optionee that otherwise would result from (a) any
stock dividend, stock split, combination of shares, recapitalization or other
changes in the capital structure of the Company or (b) any merger,
consolidation, spin-off, spin-out, split-off, split-up, reorganization, partial
or complete liquidation or other distribution of assets, issuance of warrants or
other rights to purchase securities or (c) any other corporate transaction or
event having an effect similar to any of the foregoing.
(b) In the event that any provision of this Agreement would
result in a calculation of a number of shares in amounts other than a whole
number, the number of shares so calculated shall be reduced or increased to the
nearest whole number (rounding 0.50 up), with the effect of any such rounding
deemed to attach to the last group of shares to be so calculated (with
calculations to be conducted in alphabetical or numerical order, as applicable).
<PAGE> 6
5
7. WITHHOLDING. If the Company shall be required to withhold
any federal, state, local or foreign tax in connection with the exercise of this
Option, it shall be a condition to such exercise that the Optionee pay or make
provision satisfactory to the Company for payment of all such taxes.
8. DEFINITIONS. The following terms shall have meanings set
forth below.
"Change of Control Event" means (i) the happening of a filing
pursuant to any federal or state law in connection with any tender offer for
shares of the Company (other than a tender offer by the Company or a Subsidiary)
or upon the execution of any agreement for the merger or consolidation of the
Company with another corporation or for the sale of all or substantially all of
the assets of the Company or upon the adoption by the stockholders of any
resolution of reorganization or dissolution of the Company or upon the
occurrence of any other event or series of events having an effect similar to
any of the foregoing, which tender offer, merger, consolidation, sale,
reorganization, dissolution or other event or series of events, if consummated,
will result in the holders of Common Stock ceasing to own directly or indirectly
at least 80 percent of either the voting securities of the Company or the assets
then owned by the Company, or (ii) if during any period of two consecutive years
from and after the Date of Grant, individuals who at the beginning of such
period constituted the members of the Board cease for any reason to constitute a
majority thereof (unless the election, or the nomination for election by the
<PAGE> 7
6
stockholders, of each member of the Board first elected during such period was
approved by a vote of at least two-thirds of the members of the Board then still
in office who were members of the Board then still in office who were members of
the Board at the beginning of any such period).
"Nonemployee Director" means a member of the Board who is
not an employee of the Company or any Subsidiary.
"Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing fifty percent or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
"Unvested Shares" means, as of any given time, those Shares
relating to this Option that are not, at the time in question, otherwise
permitted, under the terms of this Agreement, to be acquired pursuant to the
exercise of this Option.
"Vested Shares" means, as of any given time, those Shares
relating to this Option that are, at the time in question, otherwise permitted,
under the terms of this Agreement, to be acquired pursuant to the exercise of
this Option.
9. ACKNOWLEDGEMENT. The undersigned Optionee hereby
acknowledges receipt of an executed original of this Agreement and accepts the
Option granted hereunder.
<PAGE> 8
7
Nonqualified Stock Option
Agreement (Directors Plan)
--------------------------
EXECUTED at Cleveland, Ohio as of the date first set forth
above.
COLE NATIONAL CORPORATION
By
-------------------------
OPTIONEE
Name of Optionee:
-------------------------
<PAGE> 1
EXHIBIT 10.7
COLE NATIONAL CORPORATION
NONEMPLOYEE DIRECTOR EQUITY AND
DEFERRED COMPENSATION PLAN
PARTICIPATION AGREEMENT
Plan Year 1997
--------------
By signing this Participation Agreement, I elect to participate
in the Company's Nonemployee Director Equity and Deferred Compensation Plan (the
"Plan") for the 1997 Plan Year. I understand that this Participation Agreement
will continue to govern my elections for subsequent Plan Years as well unless I
file a new Participation Agreement. I also understand that by signing this
Participation Agreement, I have read the Plan and agree to be bound by its
terms.
I understand that I have two basic options under the Plan:
First, I may elect to defer all or any portion of my Director
Fees for any Plan Year. These fees that are deferred (a) will not be subject to
income tax while in my Deferred Account, (b) will be invested entirely in
Company Common Stock, and (c) will be distributed at a future date in shares of
Company Common Stock rather than cash.
Second, I may elect to be paid all or any portion of my
Director Fees for any fiscal quarter in Company Common Stock rather than cash.
The fees I elect to take as Company Common Stock that are not deferred are still
subject to income tax on a current basis.
1. PARTICIPATION COMMITMENTS. I hereby elect to defer my fees
and/or elect to take a certain portion of my Fees up-front in Company Common
Stock in the amount and applicable percentages as identified in (a) and (b)
below:
<PAGE> 2
a. DEFERRAL OF FEES. This Deferral with respect to Fees
is effective for the Plan Year beginning June 12,
1997 and ending December 31, 1997. I elect to defer
from my:
<TABLE>
<CAPTION>
Meeting and Total Retainer
Annual Retainer Other Fees and Other Fees
Payable in Cash Payable in Cash Payable in Cash
- --------------- --------------- ---------------
<S> <C> <C>
$_______________ or $______________ or $______________
---------------% --------------% --------------%
_______________ (total) ______________ (total) ______________ (total)
</TABLE>
I understand that I can change these amounts by filing a new
Participation Agreement, which will take effect as of the first day of the next
Plan Year.
b. VOLUNTARY AMOUNT. This election to take Company
Common Stock in lieu of certain Fees payable in cash
is effective for the Plan Year beginning June 12,
1997 and ending December 31, 1997. I hereby elect to
take:
<TABLE>
<CAPTION>
Meeting and Total Retainer
Annual Retainer Other Fees and Other Fees
Payable in Cash Payable in Cash Payable in Cash
- --------------- --------------- ---------------
<S> <C> <C>
$_______________ or $______________ or $______________
---------------% --------------% --------------%
_______________ (total) ______________ (total) ______________ (total)
</TABLE>
in the form of shares of Company Common Stock.
I understand that I may change my Voluntary Amount as to any
subsequent fiscal quarter by executing a new Participation Agreement by a date
before the applicable Payment Date of the subsequent fiscal quarter.
2. DISTRIBUTION OF DEFERRAL. I understand that I may elect to
receive distribution of my Deferral either (a) upon my ceasing to be a Director
of the Company or (b) at a date prior to my ceasing to be a Director of the
Company, but no earlier than three years from the date of this election. I
hereby elect as shown in (a) or (b) below:
2
<PAGE> 3
______ a (1) IN-SERVICE DISTRIBUTION [ELECTIVE]. I hereby elect
to receive an in-service distribution of the value of my Deferral for Plan Year
97, as adjusted for dividends attributable thereto, in the form specified in
Section 4, on or commencing__________. I understand that this election is
irrevocable under the Plan. I further understand that I must wait a minimum of
three calendar years after the end of Plan Year 97 until I can receive this
In-Service Distribution. If my Settlement Date occurs before the date identified
above, I will receive the distribution within thirty days following the end of
the Accounting Period in which my Settlement Date occurs.
______ a (2) IN-SERVICE DISTRIBUTION [ELECTIVE]. I hereby elect
to receive an in-service distribution of the value of my Deferral for Plan Year
98, as adjusted for dividends attributable thereto, in the form specified in
Section 4, on or commencing ________________. I understand that this election is
irrevocable under the Plan. I further understand that I must wait a minimum of
three calendar years after the end of Plan Year 98 until I can receive this
In-Service Distribution. If my Settlement Date occurs before the date identified
above, I will receive the distribution within thirty days following the end of
the Accounting Period in which my Settlement Date occurs.
______ b DELAYED DISTRIBUTIONS [ELECTIVE]. I hereby elect to
delay distribution of my Deferred Account, as adjusted for dividends
attributable thereto, in the form specified in Section 4, until the beginning of
the Plan Year next following my Settlement Date. I understand that this election
is irrevocable.
3. FORM OF DISTRIBUTION OF THE DEFERRAL. I hereby elect that
the value of any distribution, as adjusted for dividends attributable thereto,
shall be distributed:
______ In a single payment in shares of Company Common
Stock;
______ In___________ annual installments of shares of
Company Common Stock [not more than 10]; or
______ A combination of _____% in a single payment in shares
of Company Common Stock and _____ % in _____ annual
installments of shares of Company Common Stock
[not more than 10].
Each such distribution will commence within thirty days following the end of the
Accounting Period in which my Settlement Date occurs under the Plan. If I elect
to receive an In-Service Distribution or a Delayed Distribution, I understand
that my Deferral distributed after my Settlement Date will be adjusted
accordingly.
3
<PAGE> 4
4. BENEFICIARY DESIGNATION. I hereby elect to have any
undistributed balance credited to my Deferred Account under the Plan upon my
death paid in a lump sum to the following primary Beneficiary (attach other
forms if necessary):
Primary:
Name:
-----------------------------------
Relationship:
---------------------------
Address:
--------------------------------
Percentage of Account:
------------------
Name:
-----------------------------------
Relationship:
---------------------------
Address:
--------------------------------
Percentage of Account:
------------------
If the primary Beneficiary predeceases me, the following
person is designated as contingent Beneficiary to receive any such unpaid
balance:
Name:
-----------------------------------
Relationship:
---------------------------
Address:
--------------------------------
Percentage of Account:
------------------
Name:
-----------------------------------
Relationship:
---------------------------
Address:
--------------------------------
Percentage of Account:
------------------
I understand that the foregoing Beneficiary designation
supersedes any prior designations.
4
<PAGE> 5
5. DIRECTOR ACKNOWLEDGEMENT AND SIGNATURE. I understand that my
participation in the Plan is subject to the terms and conditions contained in
the Plan. As such, I understand that (i) the Deferral Commitment in Section 1(a)
of this Participation Agreement is irrevocable during the Plan Year of filing;
(ii) the election to receive the Voluntary Amount in Section 1(b) of this
Participation Agreement is irrevocable for the fiscal quarter of filing; and
(iii) I may change a Beneficiary designation at any time by filing a subsequent
designation with the Administrator.
I understand that any deferrals made under the Plan are assets
of the Corporation and may be subject to the claims of the Corporation's
creditors or used to discharge other legal obligations in the event the
Corporation is declared insolvent or in the event of a bankruptcy.
5
<PAGE> 6
IN WITNESS WHEREOF, the Director has executed this
Participation Agreement as of the ______ day of ______________, 1997.
The "Director"
-----------------------------
Signature
---------------------------
Name of the Director
Received and accepted by the Administrator of The Cole
National Corporation Nonemployee Director Equity and Deferred Compensation Plan
as of the _______ day of __________, 1997.
----------------------------------------
Signature of Administrator or Authorized
Representative
I do not wish to participate in The Cole National Corporation
Nonemployee Director Equity and Deferred Compensation Plan during the period
beginning July ____, 1997 and ending December 31, 1997.
, 1997 -----------------------------------
- ---------------------- Signature
Date
6
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FILED AS
PART OF THE QUARTERLY REPORT ON FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH QUARTERLY REPORT ON FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-2-1997
<PERIOD-END> AUG-2-1997
<CASH> 133,142
<SECURITIES> 0
<RECEIVABLES> 59,365
<ALLOWANCES> 2,104
<INVENTORY> 129,570
<CURRENT-ASSETS> 359,169
<PP&E> 227,624
<DEPRECIATION> 111,809
<TOTAL-ASSETS> 678,975
<CURRENT-LIABILITIES> 186,986
<BONDS> 317,116
<COMMON> 15
0
0
<OTHER-SE> 147,909
<TOTAL-LIABILITY-AND-EQUITY> 678,975
<SALES> 504,473
<TOTAL-REVENUES> 504,473
<CGS> 171,122
<TOTAL-COSTS> 470,864
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,404
<INCOME-PRETAX> 17,205
<INCOME-TAX> 7,399
<INCOME-CONTINUING> 9,806
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,806
<EPS-PRIMARY> .77
<EPS-DILUTED> .77
</TABLE>
