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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) November 22, 1999
Cole National Corporation
(Exact Name of Registrant as Specified in Charter)
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Delaware 001-12814 34-1453189
(State or Other Jurisdiction (Commission) (IRS Employer
of Incorporation) File Number) Identification No.)
5915 Landerbrook Drive, Mayfield Hts., Ohio 44124
(Address of Principal Executive Offices) (Zip Code)
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Registrant's telephone number, including area code (216) 449-4100
(Former Name or Former Address, if Changed Since Last Report)
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ITEM 5. OTHER EVENTS.
On November 22, 1999, Cole National Corporation (the "Company") entered
into an agreement with HAL International N.V. ("HAL") to permit HAL to increase
its ownership of shares of Common Stock, par value $.001 per share (the "Common
Shares"), of the Company from its current 2,102,100 Common Shares to an
aggregate of 25% of the then-outstanding Common Shares. HAL is permitted to
acquire the additional Common Shares through open market purchases. The Company
is not selling any Common Shares directly to HAL.
As a condition to the Company's granting of such permission, HAL has
agreed to a five year standstill on certain activities including voting and
other restrictions. Under the agreement, HAL will be entitled to nominate a
director to the Board of Directors of the Company if it purchases shares that
give it an aggregate of at least 20% of the Company's outstanding Common Shares.
The Board of Directors of the Company would be expanded by one position to
accommodate the election of HAL's nominee.
The Company issued a press release on November 23, 1999, a copy of
which is filed as Exhibit 99.1 hereto and incorporated herein by this reference.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) Financial Statements of Businesses Acquired: None
(b) Pro Forma Financial Information: None
(c) Exhibits:
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Exhibit
Number Exhibit
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99.1 Press release, dated November 23, 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 hereunto duly authorized.
COLE NATIONAL CORPORATION
By: /s/ Joseph Gaglioti
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Name: Joseph Gaglioti
Title: Vice President and Treasurer
Date: November 23, 1999
3
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INDEX TO EXHIBITS
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EXHIBIT
NUMBER Exhibit
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99.1 Press release, dated November 23, 1999
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Exhibit 99.1
[COLE NATIONAL LETTERHEAD]
COLE NATIONAL ANNOUNCES THIRD QUARTER RESULTS
Cleveland, Ohio, November 23, 1999 - Cole National Corporation
(NYSE:CNJ), today announced a fiscal third quarter loss of $.19 per share,
compared to last year's earnings of $.60 per share. Results for the quarter
ended October 30, 1999 include the previously announced charges associated with
the resignation of the Company's former president and severance of other
executives, totaling $.19 per share. Third quarter 1998 earnings included a
gain of $.40 per share associated with a settlement of certain indemnification
claims against the former owner of Pearle.
Revenue for the quarter increased to $257,618,000, compared to
$256,654,000 last year. Current quarter earnings were negatively impacted by a
comparable store sales decrease in the vision segment, somewhat offset by
Things Remembered's strong performance. Total comparable store sales increased
.4%, comprised of a 7.8% increase at Things Remembered, a .3% increase for Cole
Licensed Brands and a 6.9% decrease at Pearle.
Gross margin for the quarter of 66.5% was negatively impacted by a .9%
decrease in the vision segment's gross margin, caused primarily by
inefficiencies from the integration of new systems at Pearle and the continuing
promotional environment in the optical industry, including aggressive pricing
on contact lenses. Things Remembered's gross margin rate improved 1.1% as a
result of higher margins on new product and increased personalization sales.
During the quarter, Pearle's new manufacturing and merchandise/inventory
management system went live. These new systems are integrated with Pearle's
warehouse management system. The integration of these systems did not go
smoothly, resulting in manufacturing and distribution inefficiencies that led
to increased
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costs and lost sales. Progress has been made to date in bringing the system up
to pre-installation expectations; however, some continuing inefficiencies are
expected to have a negative impact on fourth quarter earnings.
Jeffrey A. Cole, Chairman and President, said, "Since taking over as Chief
Operating Officer of the vision segment 35 days ago, I have spent virtually all
of my time with the executive team, field employees and Pearle franchisees to
assess the business challenges that are impeding the significant opportunities
of each of our vision businesses. I have made our primary focus for the
upcoming year to increase comparable store sales growth. My initial assessment
is that we need to reduce the number of initiatives we expect our field and
store personnel to execute and must enhance our merchandise and support in
order to allow our people to deliver a superior level of service to our
customers.
"Given the competitive environment in the optical industry, I continue to
be impressed by the performance of the Pearle franchisees. We will enhance our
relationship with franchisees by offering more support through reorganizing and
strengthening our franchise organization. In addition, over the next several
months we will be re-evaluating our strategy of eliminating in-store labs from
Pearle stores, as well as rethinking the media mix used to advertise Pearle's
positioning. We plan to begin flowing our new frame assortment to all stores
during the first quarter of 2000. The new assortment is in test in two markets
and producing improved results."
Mr. Cole added, "We expect that we will incur expenses related to these
and other initiatives before we see any significant sales improvement. As a
result, for the balance of 1999 we believe it is unlikely there will be a
change in the sales and earnings trends of our optical business."
The Company also announced today that it has decided to exit the 150 Ward
Optical departments it operates by the end of the fourth quarter to focus its
resources on enhancing the performance of its remaining vision businesses. As a
result, a pretax charge in the range of $2.0-$2.5 million is expected to be
included in fourth quarter operating results for the costs to close these
stores. The net after tax cash cost of the closing is expected to be minimal.
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Revenue for the nine months ended October 30, 1999 was $791,752,000 and
earnings per share was $.28 compared to last year's revenue of $796,093,000 and
earnings per share of $1.64 including the one time gain.
Cole National Corporation also announced today that it has entered into an
agreement with HAL Holding N.V. to permit HAL to increase its ownership of Cole
National common stock from its current 14.1% ownership position to an aggregate
of 25%. Shares will be purchased through open market or block purchases from
time to time. This agreement does not include Cole selling any shares directly.
As a condition to the Company's granting of such permission, HAL has agreed
to a five year standstill on certain activities including voting and other
restrictions. Under the agreement, HAL will be entitled to nominate a director
to the Cole National board if it purchases shares that give them an aggregate of
at least 20% of the Company's outstanding shares. The Cole National board of
directors would be expanded by one position to accommodate the election of HAL's
nominee.
"I am pleased to announce our agreement with HAL. They are currently our
largest stockholder, and we have a very successful relationship with them
through our respective investments in Pearle Europe," said Mr. Cole. "I have a
high regard for them and believe their increased involvement will assist our
Company in building our strategic platform."
In other action, Cole National's board of directors authorized redemption
of the existing stockholders' rights plan and replaced it with a new
stockholders' rights plan. The new plan eliminates the so-called "dead hand"
provision of the former plan, and permits HAL's increased ownership. The rights
under the new plan will expire in 2009. As a result of the redemption of the
rights issued under the original plan, shareholders of record as of December 6,
1999 will receive a payment of $.01 per share of common stock, payable December
20, 1999. Expense related to the redemption will be incurred in the fourth
quarter.
Cole National, including Pearle franchisees, has more than 2,700 locations
in the United States, Canada, Puerto Rico and the Virgin Islands, as well as a
24% stake in Pearle Europe, which has 557 optical stores in the Netherlands,
Belgium, Germany, Austria and Italy.
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The Company's expectations and beliefs concerning the future contained in
this press release are forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Actual results may differ
materially from those forecasted due to a variety of factors that can adversely
affect the Company's operating results, liquidity and financial condition such
as risks associated with the timing and achievement of the continuing
restructuring and improvements in the operations of the optical business, the
ability of the Company and its suppliers, host stores, and managed care
organization partners to achieve Year 2000 readiness, the integration of
acquired operations, the Company's ability to select, stock and price
merchandise attractive to customers, success of systems integration, competition
in the optical industry, economic and weather factors affecting consumer
spending, operating factors affecting customer satisfaction, including
manufacturing quality of optical and engraved goods, the Company's relationships
with host stores and franchises, the mix of goods sold, pricing and other
competitive factors, and the seasonality of the Company's business.
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RESULTS OF OPERATIONS
(Unaudited--$ in thousands, except earnings per share amounts)
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13 Weeks Ended 39 Weeks Ended
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Oct. 30, Oct. 31, Oct. 30, Oct. 31,
1999 1998 1999 1998
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Net revenue $ 257,618 $ 256,654 $ 791,752 $ 798,093
Cost of goods sold 86,354 84,810 263,857 264,331
Operating expenses 159,315 151,790 474,103 455,829
Depreciation and amortization 10,785 8,855 28,716 25,144
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Total costs and expenses 256,454 245,355 766,576 745,304
Income from operations 1,164 11,293 25,076 50,780
Interest expense (income) and other, net 5,921 109 17,905 12,629
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Income (loss) before income taxes (4,757) 11,190 7,171 38,180
Income tax provision (benefit) (1,951) 2,128 2,940 13,188
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Net income (loss) $ (2,805) $ 9,062 $ 4,231 $ 24,974
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Diluted earnings (loss) per share(1) $ (0.19) $ 0.60 $ 0.28 $ 1.64
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Average shares and equivalents 14,857,634 15,100,447 14,933,582 15,240,685
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(1) Basic earnings per share for the 13 and 39 weeks ended October 30, 1999
were ($0.19) and $0.28, respectively.
Basic earnings per share for the 13 and 39 weeks ended October 31, 1998
were $0.61 and $1.69, respectively.
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BALANCE SHEET
(Unaudited--$ in thousands)
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Oct. 30, Oct. 31,
1999 1998
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ASSETS
Current assets:
Cash and investments $ 22,793 $ 19,293
Accounts and notes receivable 51,790 57,252
Inventories 133,849 151,802
Deferred income tax benefits 16,179 22,335
Other 5,810 8,688
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Total current assets 230,421 259,370
Property and equipment, net 126,991 139,291
Other assets, net 254,586 264,484
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Total assets $611,998 $663,145
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,739 $ 1,471
Accounts payable 65,299 77,794
Accrued liabilities 96,324 121,010
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Total current liabilities 163,362 200,275
Long-term debt, net of discount and
current portion 284,735 276,393
Other long-term liabilities 14,491 30,664
Stockholders' equity 149,410 155,813
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Total liabilities and stockholders'
equity $611,998 $663,145
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(End)
