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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 May 1, 1999, 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 May 24, 1999, 14,850,743 shares of the registrant's common stock were
outstanding.
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<TABLE>
<CAPTION>
COLE NATIONAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED MAY 1, 1999
INDEX
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financia1 Statements
Consolidated Balance Sheets as of May 1, 1999
and January 30, 1999....................................1
Consolidated Statements of Operation. for the 13
weeks ended May 1, 1999 and May 2, 1998.................2
Consolidated Statements of Cash Flows for the 13
weeks ended May 1, 1999 and May 2, 1998.................3
Notes to Consolidated Financia1 Statements..............4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...........6 - 9
Item 3. Quantitative and Qualitative Disclosures about
Market Risk.............................................9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K........................10
</TABLE>
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<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
COLE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
May 1, January 30,
1999 1999
-------- --------
Assets
- ------
<S> <C> <C>
Current assets:
Cash and temporary cash investments $ 25,009 $ 51,057
Accounts receivable, less allowance for
doubtful accounts of $7,754 in 1999 and
$7,189 in 1998 50,365 45,561
Current portion of notes receivable 3,425 2,707
Refundable income taxes 9,556 9,556
Inventories 128,039 119,881
Prepaid expenses and other 5,780 8,582
Deferred income tax benefits 14,048 14,048
-------- --------
Total current assets 236,222 251,392
Property and equipment, at cost 265,188 261,605
Less-accumulated depreciation and amortization (139,238) (135,731)
-------- --------
Total property and equipment, net 125,950 125,874
Other assets:
Notes receivable, excluding current portion 30,194 32,039
Deferred income taxes and other assets 60,132 59,021
Intangible assets, net 158,450 159,698
-------- --------
Total assets $610,948 $628,024
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Current portion of long-term debt $ 1,564 $ 1,497
Accounts payable 61,849 73,065
Accrued interest 7,153 6,216
Accrued liabilities 91,418 101,791
Accrued income taxes 1,805 128
-------- --------
Total current liabilities 163,789 182,697
Long-term debt, net of discount and current portion 285,629 276,013
Other long-term liabilities 13,616 23,954
Stockholders' equity 147,914 145,360
-------- --------
Total liabilities and stockholders' equity $610,948 $628,024
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated balance sheets.
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<TABLE>
<CAPTION>
COLE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except per share amounts)
13 Weeks Ended
--------------------------
May 1, May 2,
1999 1998
-------- --------
<S> <C> <C>
Net revenue $ 266,632 $ 271,828
Costs and expenses:
Cost of goods sold 87,298 90,289
Operating expenses 158,960 156,318
Depreciation and amortization 9,134 8,398
-------- --------
Total costs and expenses 255,392 255,005
-------- --------
Operating income 11,240 16,823
Interest and other (income) expense, net 6,089 6,287
-------- --------
Income before income taxes 5,151 10,536
Income tax provision 2,112 4,424
-------- --------
Net income $ 3,039 $ 6,112
======== ========
Earnings per common share:
Basic- $ .20 $ .41
Diluted- $ .20 $ .40
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
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<TABLE>
<CAPTION>
COLE NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH PLOWS
(Unaudited)
(Dollars in thousands)
13 Weeks Ended
--------------------------
May 1, May 2,
1999 1998
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,039 $ 6,112
Adjustments to reconcile net income to net cash used by
operating activities:
Depreciation and amortization 9,134 8,398
Amortization of restricted stock awards 132 -
Non-cash interest, net (260) (226)
Change in assets and liabilities:
Increase in accounts and notes receivable, prepaid
expenses and other assets (1,646) (1,957)
Increase in inventories (8,158) (1,502)
Decrease in accounts payable, accrued liabilities
and other liabilities (20,720) (22,686)
Increase in accrued interest 937 820
Increase in accrued, refundable and deferred
income taxes 1,677 3,464
-------- --------
Net cash used by operating activities (15,865) (7,577)
-------- --------
Cash flows from investing activities:
Purchases of property and equipment, net (6,621) (5,973)
Systems development costs (3,328) (6,332)
Investment in Pearle Europe - (10,296)
Other, net (148) (678)
-------- --------
Net cash used by investing activities (10,097) (23,279)
-------- --------
Cash flows from financing activities:
Repayment of long-term debt (346) (335)
Net proceeds from exercise of stock options and warrants 153 818
Common stock repurchased (327) -
Other, net 434 27
-------- --------
Net cash provided (used) by financing activities (86) 510
-------- --------
Cash and temporary cash investments:
Net decrease during the period (26,048) (30,346)
Balance, beginning of the period 51,057 68,053
-------- --------
Balance, end of the period $ 25,009 $ 37,707
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
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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 and its wholly owned subsidiaries, including Cole National
Group, Inc. and its 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 management
believes that the disclosures herein are adequate to make the information not
misleading. Results for interim periods are not necessarily indicative of the
results to be expected for the full year. These statements should be read in
conjunction with Cole National Corporation's consolidated financial statements
for the fiscal year ended January 30, 1999.
In the opinion of management, the accompanying financial statements
contain all adjustments (consisting only of normal recurring accruals) necessary
to present fairly its financial position as of May 1, 1999 and the results of
operations and cash flows for the 13 weeks ended May 1, 1999 and May 2, 1998.
Inventories
The accompanying interim consolidated financial statements have been
prepared without physical inventories.
Cash Flows
Net cash flows from operating activities reflect cash payments for
income taxes and interest of $234,000 and $5,620,000, respectively, for the 13
weeks ended May 1, 1999, and $443,000 and $5,838,000, respectively, for the 13
weeks ended May 2, 1998.
Earnings Per Share
Earnings per share for the 13 weeks ended May 1, 1999 and May 2, 1998
have been calculated based on the following weighted average number of common
shares and equivalents outstanding:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Basic 14,869,996 14,754,887
Diluted 15,068,447 15,277,070
</TABLE>
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(2) Restructuring Charge
In the fourth quarter of fiscal 1998, the Company recorded a
restructuring charge related to Pearle's operations. The Company's restructuring
plan, which included the closing of certain unprofitable stores during fiscal
1999 and removing surfacing equipment from certain in-store full service labs
through the second quarter of 2000, is proceeding as planned. The estimated
costs of the restructuring are expected to approximate original estimates.
During the first quarter of fiscal 1999, the Company closed 6 stores and no
in-store labs. The restructuring reserves remaining at January 30, 1959 were
$7.1 million, of which approximately $3.4 million were paid in the first quarter
of fiscal 1999. The remaining reserve at May 1, 1999 of $3.7 million is expected
to be paid through the fourth quarter of fiscal 1999.
(3) Long Term Debt
In the fourth quarter of fiscal 1998, the Company entered into an
irrevocable commitment to contribute $10,000,000 to a leading medical
institution, supporting the development of a premier eye care research and
surgical facility.
On April 23, 1999, the Company issued a $10,000,000 promissory note
bearing interest at 5% per annum in recognition of the commitment. Prior to
this, the obligation was classified with other long-term liabilities in the
consolidated balance sheet. The note requires a $5,000,000 principal payment to
be made on April 23, 2004, and principal payments in the amount of $1,000,000 to
be made on the anniversary date of the note each successive year through 2009.
Interest will be paid at the end of each year for the first 5 years, and
thereafter with each payment of principal.
(4) Segment Information
Information on the Company's reportable segments is as follows
(000's omitted):
<TABLE>
<CAPTION>
13 weeks Ended
------------------------------
May 1, 1999 May 2, 1998
----------- -----------
<S> <C> <C>
Net revenue:
Cole Vision $ 218,231 $ 226,100
Things Remembered 48,401 45,728
----------- -----------
Consolidated net revenue $ 266,632 $ 271,828
=========== ===========
Income or loss;
Cole Vision $ 14,327 $ 20,856
Things Remembered (1,341) (2,627)
----------- -----------
Total segment profit 12,986 18,229
Unallocated amounts:
Corporate expenses (1,746) (1,406)
----------- -----------
Consolidated operating income 11,240 16,823
Interest and other expense, net (6,089) (6,287)
----------- -----------
Income before income taxes $ 5,151 $ 10,536
=========== ===========
</TABLE>
(5) Reclassifications
Certain 1998 amounts have been reclassified to conform with the 1999
presentation.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following is a discussion of certain factors affecting Cole
National Corporation's results of operations for the 13 week periods ended
May 1, 1999 and May 2, 1998 (the Company's first quarter) 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 audited financial statements for the fiscal year ended January
30, 1999 included in the annual report on Form 10-K.
Fiscal years end on the Saturday closest to January 31 and are
identified according to the calendar year in which they begin. For example, the
fiscal year ended January 30, 1999 is referred to as "fiscal 1998." The current
fiscal year, which will end January 29, 2000, is referred to as "fiscal 1999."
Results of Operations
Net revenue for the first quarter of fiscal 1999 decreased 1.9% to
$266.6 million from $271.8 million for the same period in fiscal 1998. The
decrease was primarily attributable to a consolidated comparable store sales
decrease of 3.1%, partially offset by the growth in number of locations. At Cole
Vision, comparable store sales decreased 4.8% and 7.4% at Cole Licensed Brands
and Pearle, respectively. Cole Vision's sales were negatively impacted by a
competitive promotional environment that began as a result of slowing growth in
the retail optical market in 1998. This coincided with a marketing change to a
long-term, brand-building position at Pearle. First quarter sales comparisons
for Pearle were also impacted by higher advertising expenditures during the same
period a year ago. This promotional environment also had a negative impact on
Cole Licensed Brands and on the rate of growth in managed vision care retail
sales. The Cole Vision sales decrease reflected a decrease in the number of
transactions, as the average selling price was essentially flat between years.
At Things Remembered, the comparable store sales increase of 7.1% reflected
increased sales of additional personalization and new merchandise at higher
average unit retails, along with the benefits from marketing directly to its
existing customer base. The number of transactions was similar to a year ago. At
May 1, 1999, the Company had 2,883 retail locations, including 817 Things
Remembered stores, 1,185 Cole Licensed Brands locations and 881 Pearle stores,
of which 412 were franchised locations, compared to 2,832 retail locations at
May 2, 1998.
Gross profit decreased 1.2% to $179.3 million in the first quarter of
fiscal 1999 from $181.5 million in the same period last year. The gross profit
decrease wag primarily attributable to the lower revenue at Cole Vision,
partially offset by the revenue increase at Things Remembered. Gross margins for
the first quarter of fiscal 1999 and fiscal 1998 were 67.3% and 66.8%,
respectively. Gross margin at Cole Vision improved slightly, by 0.2 percentage
points in fiscal 1999 compared to the first quarter last year. Gross margin at
Things Remembered improved 1.3 percentage points reflecting increased sales of
additional personalization, improved margins on new products and lower sales of
clearance merchandise.
Operating expenses increased 1.7% to $159.0 million in the first
quarter of fiscal 1999 from $156.3 million in fiscal 1998, and as a percentage
of revenue, operating expenses increased to 59.6% in fiscal 1999 from 57.5% in
fiscal 1998.
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The unfavorable leverage was primarily attributable to a 1.2 percentage point
increase in payroll costs, a 1.0 percentage point increase in information
systems costs and a 0.5 percentage point increase in managed vision care
expenses, partially offset by a 0.6 percentage point decrease in advertising
costs. The unfavorable payroll leverage was due to the comparable store sales
decrease at Cole Vision and to staffing increases in managed vision care and
information systems. The increase in managed vision care expenses was primarily
attributable to growth in call and claims volumes associated with an increase in
sponsor-funded programs. The improved leverage in advertising was largely due to
lower advertising expenditures at Pearle in the first quarter of fiscal 1999.
Fiscal 1999 depreciation and amortization expense of $9.1 million was $0.7
million more than fiscal 1998 reflecting an increase in amortization of deferred
systems development and software costs.
See the notes to consolidated financial statements for information on
the status of the Company's restructuring charge recorded in the fourth quarter
of fiscal 1998.
Income from operations decreased 33.2% to $11.2 million for the first
quarter of fiscal 1999 from $16.8 million for the same period a year ago,
primarily the result of the decrease in net revenue and the increase in
operating expenses and depreciation and amortization.
Net interest and other expense decreased slightly from the first
quarter of fiscal 1998 to $6.1 million in the first quarter of fiscal 1999. An
income tax provision was recorded in the first quarter of fiscal 1999 and fiscal
1998 using the Company's estimated annual effective tax rate of 41% and 42%,
respectively. The reduction in the rate reflects the full year effective rate
realized in fiscal 1998.
Net income decreased to $3.0 million for the first quarter of fiscal
1999 from $6.1 million for the first quarter of fiscal 1998. The decrease was
primarily due to the decrease in income from operations, offset in part by the
lower interest expense and the lower effective tax rate.
Liquidity and Capital Resources
The Company's primary source of liquidity is funds provided from
operations of its operating subsidiaries. In addition, its wholly-owned
subsidiary, Cole National Group, Inc., and its operating subsidiaries have
available to them working capital commitments of $75.0 million, reduced by
commitments under letters of credit, under a credit facility. There were no
working capital borrowings outstanding at any time during the first quarter of
fiscal 1999 and 1998.
Operations for the first quarter used $15.9 million of cash in fiscal
1999 compared to $7.6 million in fiscal 1998. The primary reasons for the
additional $8.3 million in cash used by operations were a $6.7 million larger
increase in inventories in fiscal 1999 and the decrease in income from
operations.
Cash used by investing activities included capital additions of $6.6
million and $6.0 million for the first quarter of fiscal 1999 and fiscal 1998,
respectively. The majority of capital expenditures were for store fixtures,
equipment and leasehold improvements for new stores and the remodeling of
existing stores. Investments in systems development costs totaled $3.3 and $6.3
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<PAGE> 10
million in the first quarter of fiscal 1999 and fiscal 1998, respectively. In
February 1998, the Company repaid a $3.2 million note payable to a subsidiary of
Pearle Europe B.V. (Pearle Europe) and invested an additional $7.2 million in
the form of 8% shareholder loans to Pearle Europe in connection with Pearle
Europe's acquisition of two optical operations in Germany and Austria.
The Company believes that funds provided from operations, along with
funds available under the credit facility, will provide adequate sources of
liquidity to allow its operating subsidiaries to continue to expand the number
of stores and to fund capital expenditures and systems development costs.
Year 2000
The Company is proceeding with the implementation of its Year 2000
Readiness Program, including ascertaining Year 2000 readiness of critical third
parties. Management continues to believe that all critical programs and hardware
will be Year 2000 ready, including testing, by the end of the third quarter of
fiscal 1999 and expects that any necessary contingency plans will be completed
at that time.
Management continues to estimate the total cost of the Year 2000
Readiness Program will be approximately $3.5 million, including $0.3 million of
new hardware and software that will be capitalized. The remaining $3.2 million
is being expensed as incurred (approximately $2.4 million in fiscal 1998 and
$0.8 million in fiscal 1999, including $0.3 million during the first quarter).
These costs include only external costs as internal costs, which consist
primarily of payroll-related costs of employees, are not tracked separately for
the Year 2000 Readiness Program. The estimate of external costs does not include
costs associated with addressing and resolving issues as a result of the failure
of third parties to become Year 2000 ready. See the Company's Annual Report on
Form 10-K for the fiscal year ended January 30, 1999 for further discussion of
Year 2000.
Recent Developments and Forward-Looking Information
Beginning in the second quarter of fiscal 1999, the Company intends to
respond to the competitive pricing environment that exists in the retail optical
market with the development and implementation of promotional messages in order
to attract customers. Depending on customer response and product mix, these
actions may cause a negative impact on gross margin. These actions may not
significantly change the recent trend in sales and operating income for the
second quarter, which are expected to be below the prior year. It is unlikely
that any improvement in sales levels in the second half of the year resulting
from these and other actions would be enough to realize an increase in year-
over-year earnings in fiscal 1999.
Certain sections of this Form 10-Q, including this Management's
Discussion and Analysis, contain forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. Actual results may
differ materially from those forecast due to a variety of factors that can
adversely affect operating results, liquidity and financial condition such as
risks associated with the timing and achievement of the continuing restructuring
and improvements in the operations of the optical business, the ability of Cole
National Corporation and its suppliers, host stores, and managed vision care
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<PAGE> 11
organization partners to achieve Year 2000 readiness, the integration of
acquired operations, the ability to select, stock and price merchandise
attractive to customers, the implementation of its store acquisition program,
economic and weather factors affecting consumer spending, operating factors
affecting customer satisfaction, including manufacturing quality of optical and
engraved goods, the relationships with host stores and franchisees, the mix of
goods sold, pricing and other competitive factors, and the seasonality of the
business. Forward-looking statements are made based upon management's
expectations and beliefs concerning future events impacting Cole National
Corporation. All forward-looking statements involve risk and uncertainty.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
The Company is exposed to market risk from changes in foreign currency
exchange rates, which could impact its results of operations and financial
condition. Foreign exchange risk arises from the Company's exposure in
fluctuations in foreign currency exchange rates because the Company's reporting
currency is the United States dollar. Management seeks to minimize the exposure
to foreign currency fluctuations through natural internal offsets to the fullest
extent possible.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following Exhibits are filed herewith and made a part
hereof:
27 Financial Data Schedule
10.1 Restricted Stock Agreement between Cole National Corporation
and George Bernstein, Jr. dated as of March 10, 1999
(b) Reports on Form 8-K
Report on Form 8-K dated March 5, 1999.
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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: June 15, 1999
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COLE NATIONAL CORPORATION
FORM 10-Q
QUARTER ENDED MAY 1, 1999
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
27 Financial Data Schedule
10.1 Restricted Stock Agreement between Cole National Corporation and
George Bernstein, Jr. dated as of March 10, 1999.
</TABLE>
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<PAGE> 1
Exhibit 10.1
COLE NATIONAL CORPORATION
Restricted Stock Agreement
--------------------------
THIS RESTRICTED STOCK AGREEMENT (as amended, modified or supplemented
from time to time, this "AGREEMENT") is made by and between Cole National
Corporation, a Delaware corporation (the "COMPANY"), and George Bernstein, Jr.,
an individual residing in the State of Ohio (the "GRANTEE").
PRELIMINARY STATEMENTS:
A. The Grantee is an employee of Cole National Group, Inc.,
a Delaware corporation, Cole Vision Corporation, a Delaware corporation, and
Things Remembered, Inc., a Delaware corporation; and
B. The execution of a restricted stock agreement in the form
hereof has been authorized by a resolution of the Special Compensation Committee
(the "COMMITTEE") of the Board of Directors of the Company (the "BOARD");
NOW, THEREFORE, in consideration of the Grantee's acceptance
of the terms and conditions of this Agreement, and subject to the terms of this
Agreement, the Company hereby grants to the Grantee 10,000 shares (together with
all other shares of Common Stock that become subject to this Agreement,
collectively, the "SHARES") of the Company's common stock, par value $.001 per
share ("COMMON STOCK"), which are to be issued out of the Company's treasury.
AGREEMENT:
1. ISSUANCE OF COMMON STOCK. The Shares will be issued as soon
as practicable after the date of this Agreement as fully paid and nonassessable
shares and will be represented by certificates registered in the name of the
Grantee and bearing a legend referring to the restrictions set forth in this
Agreement.
2. RESTRICTION ON TRANSFER OF COMMON STOCK. The Shares may not
be transferred, sold, pledged, exchanged, assigned or otherwise encumbered or
disposed of by the Grantee, except to the Company, until they have become
nonforfeitable in accordance with Section 3 of this Agreement. Any purported
transfer, encumbrance or other disposition of the Shares that is in violation of
this Section 2 will be null and void, and the other party to any such purported
transaction will not obtain any rights to or interest in the Shares.
3. VESTING OF COMMON STOCK. (a) The Shares will become
nonforfeitable upon the occurrence of the following:
1
<PAGE> 2
<TABLE>
<CAPTION>
Amount Nonforfeitable Date Nonforfeitable
--------------------- -------------------
<S> <C>
1/2 of the Shares On the first date on or after March 10, 2002
on which the Stock Price has averaged at
least $15.00 per share for a continuous
period of 20 consecutive Trading Days
ending on such date.
1/2 of the Shares On the first date on or after March 10, 2002
on which the Stock Price has averaged at
least $20.00 per share for a continuous
period of 20 consecutive Trading Days
ending on such date.
</TABLE>
Any Shares which have not become nonforfeitable on or before March 10, 2005
shall thereupon immediately be forfeited and returned to the Company and
canceled.
(b) Notwithstanding the provisions of Section 3(a), all
of the Shares will immediately become nonforfeitable if a Change in Control
occurs after the March 10, 2001. "CHANGE OF CONTROL" means if at any time any of
the following events has occurred:
(i) the Company merges itself, or is merged or
consolidated with, another corporation and as a
result of such merger or consolidation less than 51%
of the voting power of the then-outstanding voting
securities of the surviving corporation immediately
after such transaction are directly or indirectly
beneficially owned in the aggregate by the former
stockholders of the Company immediately prior to such
transaction;
(ii) all or substantially all the assets accounted for on
the Consolidated Balance Sheet of the Company are
sold or transferred to one or more corporations or
persons, and as a result of such sale or transfer
less than 51% of the voting power of the then-
outstanding voting securities of such corporation or
person immediately after such sale or transfer is
directly or indirectly beneficially held in the
aggregate by the former stockholders of the Company
immediately prior to such transaction or series of
transactions;
(iii) a person, within the meaning of Section 3(a)(9) or
13(d)(13) (as in effect on the date of the award) of
the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), becomes the beneficial owner (as
defined in Rule 13d-3 of the Securities and Exchange
Commission pursuant to the Exchange Act) of (i) 15%
or more but less than 35% of the voting power of the
then-outstanding voting securities of the Company
without prior approval of the Company's Board, or
(ii) 35% or more of the voting power of the then-
outstanding voting securities of the Company;
PROVIDED, HOWEVER, that the foregoing does not apply
to any such acquisition that is made by (w) any
Subsidiary of the Company (x) any employee benefit
2
<PAGE> 3
plan of the Company or any Subsidiary or (y) any
person or group of which employees of the Company or
of any Subsidiary control a greater than 25% interest
unless the Board determines that such person or group
is making a "hostile acquisition;"
(iv) a majority of the members of the Board or of any
Subsidiary are not Continuing Directors, where a
"CONTINUING DIRECTOR" is any member of the Board or,
with respect to a Subsidiary, of such Subsidiary who
(x) was a member of the Board or, with respect to a
Subsidiary, of such Subsidiary on the date of the
award or (y) was nominated for election or elected to
such Board with the affirmative vote of a majority of
the Continuing Directors who were members of such
Board at the time of such nomination or election.
4. TERMINATION OF RIGHTS AND FORFEITURE OF COMMON STOCK. Except
for Shares that have become nonforfeitable, all of the Shares will be forfeited
if the Grantee ceases to be continuously employed by the Company or a Subsidiary
at any time either in his current position of Executive Vice President or a
higher position. In the event of a forfeiture, any certificate(s) representing
the Shares will be canceled. For purposes of this Agreement, the continuous
employment of the Grantee with the Company or a Subsidiary will not be deemed to
have been interrupted, and the Grantee will not be deemed to have ceased to be
an employee of the Company or a Subsidiary, by reason of the transfer of his
employment among the Company and its subsidiaries in an equal or higher position
or a leave of absence approved by the Committee.
5. DIVIDEND, VOTING AND OTHER RIGHTS. (a) Except as otherwise
provided in this Agreement, the Grantee will have all of the rights of a
stockholder with respect to the Shares, including the right to vote the Shares
and receive any dividends that may be paid thereon; PROVIDED, HOWEVER, that any
additional shares of Common Stock or other securities that the Grantee may
become entitled to receive pursuant to a stock dividend, stock split,
combination of shares, recapitalization, merger, consolidation, separation or
reorganization or any other change in the capital structure of the Company will
be subject to the same restrictions as the Shares.
(b) Cash dividends, if any, and any other distributions paid
on the Shares will be sequestered by the Company until such time as such Shares
become nonforfeitable in accordance with Section 3 and will, to the extent
practicable, be deemed to be reinvested (at the Stock Price on the dividend
payment date) on an immediate basis in additional shares of Common Stock from
the Company's treasury, which will be subject to the same restrictions as the
underlying Shares granted under this Agreement. If Shares are forfeited pursuant
to Section 4, all dividends and other distributions, together with the earnings
thereon, with respect to such Shares will likewise be forfeited.
6. RETENTION OF STOCK CERTIFICATE(S) BY COMPANY. Any certificates
representing Shares will be held in custody by the Company together with a stock
power endorsed in blank by the Grantee with respect thereto, until those shares
have become nonforfeitable in accordance with Section 3.
7. COMPLIANCE WITH LAW. The Company shall make reasonable efforts
to comply with all applicable federal, state and other applicable securities
laws; PROVIDED, HOWEVER,
3
<PAGE> 4
notwithstanding any other provision of this Agreement, the Company will not be
obligated to issue any securities pursuant to this Agreement if the issuance
thereof would result in a violation of any such law. Grantee acknowledges that
Grantee is an executive officer of the Company, has complete access to the
Company's financial and other information, is fully capable of making an
investment decision concerning the Company's Common Stock without assistance of
third parties, and has no intention to distribute any of the Shares to third
parties.
8. WITHHOLDING TAXES. If the Company is required to withhold any
federal, state, local or foreign tax in connection with any issuance of
restricted or nonrestricted shares of Common Stock or other securities pursuant
to this Agreement, the Grantee shall pay the tax or make provisions that are
satisfactory to the Company for the payment thereof.
9. RIGHT TO TERMINATE EMPLOYMENT. No provision of this Agreement
will limit in any way whatsoever any right that the Company or a Subsidiary may
otherwise have to terminate the employment of the Grantee at any time.
10. RELATION TO OTHER BENEFITS. Any economic or other benefit to
the Grantee under this Agreement shall not be taken into account in determining
any benefits to which the Grantee may be entitled under any profit-sharing,
retirement or other benefit or compensation plan maintained by the Company or a
Subsidiary and shall not affect the amount of any insurance coverage available
to any beneficiary under any insurance plan covering employees of the Company or
a Subsidiary.
11. SEVERABILITY. In the event that one or more of the provisions
of this Agreement are invalidated for any reason by a court of competent
jurisdiction, any provision so invalidated will be deemed to be separable from
the other provisions hereof, and the remaining provisions hereof will continue
to be valid and fully enforceable.
12. GOVERNING LAW. This Agreement is made under, and will be
construed in accordance with, the laws of the State of Ohio without regard to
conflict of law principles of such state.
13. TAXES. Grantee may make a proper election under Section 83(b)
of the Internal Revenue Code of 1986, as amended, no later than 30 days after
the date of this Agreement with respect to all of the Shares.
14. DEFINITIONS. As used in this Agreement, the following terms
have the following meanings:
"GRANT DATE" means March 10, 1999.
"STOCK PRICE" means the closing price of the Common Stock on the
principal exchange on which the Common Stock is traded.
"SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of such
corporations (or a group of
4
<PAGE> 5
corporations that themselves are Subsidiaries) 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.
"TRADING DAYS" means days on which the principal exchange on which the
Common Stock is traded is open for trading, regardless of whether actual trading
in the Common Stock occurs.
This Restricted Stock Agreement has been executed by the parties at
Cleveland, Ohio as of March 10, 1999.
COLE NATIONAL CORPORATION
By:
-------------------------
Name:
Title:
------------------------------
George Bernstein, Jr.
5
<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> 3-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> MAY-1-1999
<CASH> 25,009
<SECURITIES> 0
<RECEIVABLES> 61,544
<ALLOWANCES> 7,754
<INVENTORY> 128,039
<CURRENT-ASSETS> 236,222
<PP&E> 265,188
<DEPRECIATION> 139,238
<TOTAL-ASSETS> 610,948
<CURRENT-LIABILITIES> 163,789
<BONDS> 285,629
0
0
<COMMON> 15
<OTHER-SE> 147,899
<TOTAL-LIABILITY-AND-EQUITY> 610,948
<SALES> 266,632
<TOTAL-REVENUES> 266,632
<CGS> 87,298
<TOTAL-COSTS> 255,392
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,089
<INCOME-PRETAX> 5,151
<INCOME-TAX> 2,112
<INCOME-CONTINUING> 3,039
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,039
<EPS-BASIC> 0.20
<EPS-DILUTED> 0.20
</TABLE>
