UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly Period Ended November 2, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-21690
SUNGLASS HUT INTERNATIONAL, INC.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Florida 65-0667471
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
255 Alhambra Circle
Coral Gables, Florida 33134
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 461-6100
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(Former name, former address and fiscal year, if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the registrant's common stock is 54,244,302
(as of December 10, 1996).
<PAGE>
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
Page
----
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets as of November 2, 1996 (Unaudited)
and February 3, 1996.....................................................3
Consolidated Statements of Income for the Thirteen Weeks
Ended November 2, 1996 and October 28, 1995
(Unaudited)..............................................................4
Consolidated Statements of Income for the Thirty-Nine Weeks
Ended November 2, 1996 and October 28, 1995
(Unaudited)..............................................................5
Consolidated Statements of Cash Flows for the Thirty-Nine Weeks
Ended November 2, 1996 and October 28, 1995
(Unaudited)..............................................................6
Note to Consolidated Financial Statements
(Unaudited)..............................................................8
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................9
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K....................................13
Signatures..........................................................14
<PAGE>
<TABLE>
<CAPTION>
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
NOVEMBER 2, FEBRUARY 3,
ASSETS 1996 1996
----------- ---------
(UNAUDITED)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 5,913 $ 4,506
Accounts receivable 3,537 2,379
Inventory 181,939 110,268
Prepaid rent 7,147 5,912
Other current assets 15,572 9,680
--------- ---------
Total current assets 214,108 132,745
PROPERTY AND EQUIPMENT, net of accumulated depreciation 118,725 83,980
and amortization of $58,767 and $46,084
UNAMORTIZED COST IN EXCESS OF NET ASSETS OF ACQUIRED 38,690 39,095
BUSINESSES, net of accumulated amortization of $26,927 and $25,273
OTHER ASSETS 13,893 11,256
--------- ---------
Total assets $ 385,416 $ 267,076
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 24,674 $ 28,791
Accrued payroll and related taxes 4,572 5,662
Accrued rent 5,633 3,568
Accrued expenses 5,215 6,670
Current portion of long-term debt 93 129
--------- ---------
Total current liabilities 40,187 44,820
LONG-TERM DEBT, net of current portion and unamortized discount 162,197 69,432
--------- ---------
Total liabilities 202,384 114,252
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock -- --
Common stock 542 538
Additional paid-in capital 164,121 159,088
Foreign currency translation adjustment 771 (500)
Retained earnings (accumulated deficit) 17,598 (6,302)
--------- ---------
Total stockholders' equity 183,032 152,824
--------- ---------
Total liabilities and stockholders' equity $ 385,416 $ 267,076
========= =========
</TABLE>
See Note to Consolidated Financial Statements.
-3-
<PAGE>
<TABLE>
<CAPTION>
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THIRTEEN WEEKS ENDED
--------------------------------
NOVEMBER 2, OCTOBER 28,
1996 1995
--------- ---------
<S> <C> <C>
Net sales $ 112,866 $ 91,426
Cost of goods sold, occupancy and buying expenses 72,087 53,953
--------- ---------
Gross profit 40,779 37,473
--------- ---------
Selling, general and administrative expenses:
Operating expenses 36,766 27,682
Depreciation and leasehold amortization 6,000 4,401
Amortization of cost in excess of net assets of acquired businesses 601 426
--------- ---------
43,367 32,509
--------- ---------
Earnings (loss) before interest and income taxes (2,588) 4,964
Interest expense 2,356 732
--------- ---------
Earnings (loss) before income taxes (4,944) 4,232
Provision for (benefit from) income taxes (2,002) 1,697
--------- ---------
Net income (loss) $ (2,942) $ 2,535
========= =========
Net income (loss) per share $ (.05) $ .05
========= =========
Weighted average shares outstanding 54,243 55,441
========= =========
</TABLE>
See Note to Consolidated Financial Statements.
-4-
<PAGE>
<TABLE>
<CAPTION>
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THIRTY-NINE WEEKS ENDED
-------------------------------
NOVEMBER 2, OCTOBER 28,
1996 1995
-------- --------
<S> <C> <C>
Net sales $402,157 $306,517
Cost of goods sold, occupancy and buying expenses 230,026 170,886
-------- --------
Gross profit 172,131 135,631
-------- --------
Selling, general and administrative expenses:
Operating expenses 108,099 80,776
Depreciation and leasehold amortization 16,548 11,807
Amortization of cost in excess of net assets of acquired businesses 1,719 1,141
Expenses related to acquisitions -- 10,100
-------- --------
126,366 103,824
-------- --------
Earnings before interest and income taxes 45,765 31,807
Interest expense 5,348 1,927
-------- --------
Earnings before income taxes 40,417 29,880
Provision for income taxes 16,193 13,197
-------- --------
Net income 24,224 16,683
Proforma adjustment for income taxes -- 775
-------- --------
Pro forma net income $ 24,224 $ 15,908
======== ========
Pro forma net income per share $ .44 $ .29
======== ========
Weighted average shares outstanding 55,251 54,818
======== ========
</TABLE>
See Note to Consolidated Financial Statements.
-5-
<PAGE>
<TABLE>
<CAPTION>
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
THIRTY-NINE WEEKS ENDED
-------------------------------
NOVEMBER 2, OCTOBER 28,
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 24,224 $ 16,683
--------- ---------
Adjustments to reconcile net income to net cash used in operating activities-
Depreciation and amortization 18,267 12,930
Amortization of discount on debt 117 --
Adjustment for change in fiscal year-end of pooled company -- (900)
Changes in assets and liabilities, net of effect of acquisitions-
Changes in assets:
Accounts receivable (1,154) (2,575)
Inventory (71,290) (31,158)
Prepaid rent (1,235) (1,877)
Other current assets (5,862) (3,916)
Other assets (3,730) (4,238)
Changes in liabilities:
Accounts payable (4,185) 4,723
Accrued expenses 3,133 7,419
--------- ---------
(65,939) (19,592)
--------- ---------
Net cash used in operating activities (41,715) (2,909)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (49,815) (30,587)
Acquisitions of businesses (1,618) (15,996)
Investment in and advances to affiliate -- (6,795)
--------- ---------
Net cash used in investing activities (51,433) (53,378)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 112,625 4,000
Principal payments on long-term debt (594) (8,885)
Proceeds from borrowings under revolving credit facilities 259,994 101,095
Principal payments on revolving credit facilities (280,000) (93,746)
Proceeds from sale of common stock -- 53,800
Distributions to stockholders by pooled company -- (545)
Payment of deferred financing costs (362) (147)
Proceeds from exercise of stock options 1,663 1,102
--------- ---------
Net cash provided by financing activities 93,326 56,674
--------- ---------
Effect of exchange rate changes on cash and cash equivalents 1,229 --
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,407 387
CASH AND CASH EQUIVALENTS, beginning of period 4,506 3,673
--------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 5,913 $ 4,060
========= =========
</TABLE>
Continued on Next Page
-6-
<PAGE>
<TABLE>
<CAPTION>
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
THIRTY-NINE WEEKS ENDED
--------------------------
NOVEMBER 2, OCTOBER 28,
1996 1995
------------ -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for-
<S> <C> <C>
Interest $ 3,011 $1,862
============ ======
Income taxes $ 13,146 $8,624
============ ======
In June 1995, the Company acquired Sunsations Sunglass Company in a transaction
in which the Company exchanged 7,411,764 shares of its common stock for all of
the outstanding common stock of Sunsations Sunglass Company. The acquisition was
accounted for as a pooling of interests.
</TABLE>
See Note to Consolidated Financial Statements.
-7-
<PAGE>
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The accompanying consolidated financial statements of Sunglass Hut
International, Inc. and subsidiaries (the "Company") have been prepared in
accordance with the instructions to Form 10-Q and, therefore, omit or condense
certain footnotes and other information normally included in financial
statements prepared in accordance with generally accepted accounting principles.
The accounting policies followed for interim financial reporting are the same as
those disclosed in Note 1 of the Notes to Consolidated Financial Statements
included in the Company's audited financial statements for the fiscal year ended
February 3, 1996 which are included in Form 10-K. In the opinion of management,
all adjustments (consisting only of normal recurring accruals) necessary for a
fair presentation of the financial information for the interim periods reported
have been made. Results of operations for the thirty-nine weeks ended November
2, 1996 are not necessarily indicative of the results to be expected for the
entire fiscal year ending February 1, 1997.
In June 1996, the Company issued $115 million principal amount of Convertible
Subordinated Notes (the "Notes") to certain qualified institutional investors.
The private placement was made for the purpose of refinancing outstanding senior
indebtedness and to finance the Company's expansion plans. The Notes bear
interest at 5 1/4%, payable semi-annually, and mature June 2003. The Notes are
subordinated to all existing and future indebtedness of the Company, and are
convertible into Company common stock at $30.25 per share.
As of June 27, 1996, the Company decreased its commitment under the unsecured
revolving credit facility with NationsBank of Florida, National Association,
from $125 million to $75 million.
-8-
<PAGE>
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Sunglass Hut International, Inc. is the world's largest specialty retailer of
sunglasses with 2,056 worldwide locations as of November 2, 1996. The Company
has expanded rapidly since opening its first store in 1971, and continued its
expansion in the first nine months of 1996 by opening 307 specialty sunglass
locations, 23 EyeX optical stores and 32 Watch Station stores. The Company's
business strategy is to combine the operating efficiencies, extensive product
assortment and everyday low prices of category dominant retailers with the level
of customer service and ambiance characteristic of specialty retailers. The size
of the Company's products allows the Company to use a wide variety of sales
location formats, including malls, airports, on-street sites and licensed
departments within department stores.
The Company plans to evaluate the profitability of its existing store base in
the fourth quarter of 1996 in order to eliminate marginal or unprofitable sites
through closure. Costs associated with sites identified for closure are expected
to be recorded during the fourth quarter and, as a result of these costs and
continued negative sales trends, the Company expects to report a loss in the
fourth quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's short-term cash needs are primarily for working capital to support
its inventory requirements and new store additions. The Company's long-term
liquidity requirements relate principally to the maturity of existing revolving
credit facility borrowings in December 1998, the maturity of the $115 million
Convertible Subordinated Notes in June 2003, operating lease commitments and
continued store expansion. The credit facility includes up to $10 million in
letters of credit. Borrowings under the credit facility generally bear interest
at a floating rate equal to (i) the prime lending rate plus .125% or the federal
funds effective rate plus 0.50% or (ii) LIBOR plus 1.00%.
Due to the seasonal nature of the Company's business, outstanding borrowings
under the credit facility typically peak during the first and third fiscal
quarters as the Company finances inventory purchases in advance of the Company's
highest sales periods. See "Seasonality and Quarterly Results." As of November
2, 1996, borrowings under the credit facility totaled $47.7 million, and $4.1
million in letters of credit were outstanding, which were maintained as security
for performance under the Company's executive office lease and to service other
debt.
Net cash used in operating activities was $41.7 million for the first nine
months of fiscal 1996 compared to $2.9 million for the same period in fiscal
1995. The difference between the Company's net income and operating cash flow in
fiscal 1996 was primarily attributable to the Company's $75.0 million investment
in inventory and other current assets and reductions in accounts payable of $4.2
million, partially offset by $18.4 million of non-cash charges for depreciation
and amortization.
Net cash used in investing activities was $51.4 million for the first nine
months of fiscal 1996 compared to $53.4 million for the same period last year.
The fiscal 1996 cash flow primarily reflects capital expenditures related to new
store expansion and the renovation of existing stores.
-9-
<PAGE>
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Net cash provided by financing activities was $93.3 million for the first nine
months of fiscal 1996 compared to $56.7 million for the same period last year.
The fiscal 1996 cash flow reflects the net proceeds of $112.2 million from the
issuance of 5 1/4% Convertible Subordinated Debentures in June 1996. The net
proceeds from the offering were used to repay approximately $96.5 million of the
then outstanding indebtedness under the NationsBank revolving credit facility,
and for other working capital requirements.
Management believes that cash provided by operations together with borrowing
availability under the Company's revolving credit facility, as amended, will be
sufficient to fund estimated capital expenditures associated with the Company's
planned opening of approximately 100 additional stores in fiscal 1996 and other
working capital requirements through at least fiscal 1996.
RESULTS OF OPERATIONS
QUARTER ENDED NOVEMBER 2, 1996 COMPARED TO QUARTER ENDED OCTOBER 28, 1995
Net sales increased $21.4 million, or 23.5%, to $112.9 million during the
quarter ended November 2, 1996 compared to $91.4 million for the same period of
fiscal 1995. Approximately 95% of this increase was attributable to sales from
new stores opened and acquired during the third quarter of fiscal 1996 (and
fiscal 1995 to the extent not reflected in comparable store sales increases),
while an increase in comparable store sales of 1.2% accounted for approximately
5% of this increase. During the quarter, operating margins were negatively
impacted as both comparable and new store sales trends weakened.
Gross profit increased $3.3 million, or 8.8%, to $40.8 million during the
quarter ended November 2, 1996 compared to $37.5 million for the same period of
fiscal 1995 primarily due to the increase in net sales. As a percentage of net
sales, gross profit decreased 4.9% to 36.1% for the quarter ended November 2,
1996 from 41.0% for the quarter ended October 28, 1995. Of the 4.9% decrease in
gross profit margin, 2.2% of the reduction is due to $2.5 million in charges
recorded in the third quarter of 1996 to reflect higher than anticipated
inventory shrinkage in the former Sunsations locations (shrinkage results in
Sunglass Hut locations were consistent with expectations) and changes in
manufacturers' return policies which resulted in defective product write-offs.
These charges were recognized as a result of the Company's physical inventory as
of the end of the third quarter, following the completion of the consolidation
of the Company's North American distribution activities. The remaining portion
of the decrease in gross profit margin is primarily due to an increase in
occupancy expenses, as a result of higher occupancy costs related to the
Company's new store expansion, including expansion into international markets.
Management expects that due to increasing international expansion, higher
occupancy costs, and changes in manufacturers' defective return policies,
coupled with the Company's entry into the retail watch industry, future gross
profit rates will continue to decline when compared to 1995.
Operating expenses increased $9.1 million, or 32.8%, during the quarter ended
November 2, 1996 compared to the same period of fiscal 1995. This increase is
primarily due to operating expenses associated with the operations and
management of new stores opened and acquired in fiscal 1996. Operating expenses
as a percentage of net sales were 32.6% in 1996 and 30.3% in 1995. The increase
in operating expenses as a percentage of net sales during 1996 is mainly due to
the negative impact of lower than expected comparable and new stores' sales.
-10-
<PAGE>
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Depreciation and leasehold amortization expense increased $1.6 million, or
36.3%, to $6.0 million during the quarter ended November 2, 1996 compared to
$4.4 million for the same period of fiscal 1995, primarily due to new store
growth.
Interest expense increased $1.6 million to $2.4 million for the quarter ended
November 2, 1996, compared to $.7 million for the same period last year mainly
to support inventory growth.
As a result of the foregoing, the Company reported a net loss of $.05 per share,
or $2.9 million, during the quarter ended November 2, 1996 compared to net
income of $.05 per share, or $2.5 million, for the same period of fiscal 1995.
FIRST NINE MONTHS OF 1996 COMPARED TO FIRST NINE MONTHS OF 1995
Net sales increased $95.6 million, or 31.2%, to $402.2 million during the first
nine months of fiscal 1996 compared to $306.5 million for the same period of
fiscal 1995. Sales from new stores opened and acquired during the first nine
months of fiscal 1996 (and fiscal 1995 to the extent not reflected in comparable
store sales increases) accounted for 85% of this increase while comparable store
sales increases of 4.6% accounted for 15% of this increase.
Gross profit increased $36.5 million, or 26.9%, to $172.1 million during the
first nine months of fiscal 1996 compared to $135.6 million for the same period
of fiscal 1995 primarily due to the increase in net sales. As a percentage of
net sales, gross profit was 42.8% in 1996 and 44.2% in 1995. Of the 1.4%
decrease in gross profit margin, .6% of the reduction is due to $2.5 million in
charges recorded in the third quarter of 1996 to reflect higher than anticipated
inventory shrinkage in the former Sunsations locations and changes in
manufacturers' return policies which resulted in defective product write-offs.
The remaining portion of the decrease in gross profit margin is primarily due to
an increase in occupancy expenses as a result of higher occupancy costs related
to the Company's new store expansion, including expansion into international
markets.
Operating expenses increased $27.3 million, or 33.8%, during the first nine
months of fiscal 1996 compared to the same period of fiscal 1995. This increase
is primarily due to operating expenses associated with the operation and
management of new stores opened and acquired in fiscal 1996. Operating expenses
as a percentage of net sales were 26.9% in 1996 and 26.4% in 1995.
Depreciation and leasehold amortization expense increased $4.7 million, or
40.2%, to $16.5 million during the first nine months of fiscal 1996 compared to
$11.8 million for the same period of fiscal 1995. This increase is primarily due
to new store growth.
Interest expense increased $3.4 million to $5.3 million for the nine months
ended November 2, 1996, compared to $1.9 million for the same period last year
mainly to support inventory growth.
As a result of the foregoing, the Company reported earnings of $.44 per share,
or $24.2 million, during the first nine months of fiscal 1996 compared to $0.29
per share, or $15.9 million, (inclusive of nonrecurring acquisition-related
costs and expenses of approximately $10.1 million) for the same period of 1995.
-11-
<PAGE>
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
SEASONALITY AND QUARTERLY RESULTS
Historically, the Company's operations have been seasonal, with highest net
sales and net income occurring in the second fiscal quarter (reflecting
increased demand for sunglasses during the spring and summer months) and, to a
lesser extent, the fourth fiscal quarter (reflecting increased demand during the
calendar year-end holiday selling season).
The Company's results of operations may also fluctuate from quarter to quarter
as a result of the amount and timing of sales contributed by new stores and the
integration of new stores into the operations of the Company, as well as other
factors. The addition of a large number of new stores can therefore
significantly affect results of operations on a quarter-to-quarter basis.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK
This report contains forward-looking statements, which are based largely on the
Company's expectations and are subject to a number of risks and uncertainties,
certain of which are beyond the Company's control. Discussion of factors that
could cause actual results to differ materially from management's projections,
forecasts, estimates and expectations is contained in the Company's 1995 Annual
Report filed on Form 10-K and the registration statement filed on Form S-3 in
September 1996 including, among others, competitive, regulatory and economic
influences, and product acceptance and availability. In light of these risks and
uncertainties, there can be no assurance that the forward-looking information
contained in this report will in fact transpire.
-12-
<PAGE>
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.9 Amendment Agreement No. 3 to Amended and Restated Revolving
Credit and Reimbursement Agreement, effective as of November 2,
1996, dated as of December 13, 1996, among the Registrant,
NationsBank N.A. and the other Lenders named therein(1)
27 Financial Data Schedule
- --------
1 Filed herewith
(b) The Company did not file any reports on Form 8-K during the quarter
ended November 2, 1996.
-13-
<PAGE>
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
SIGNATURES
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.
SUNGLASS HUT INTERNATIONAL, INC.
Date: December 17, 1996 By: /s/JACK B. CHADSEY
---------------------------------
Jack B. Chadsey
President and Chief Executive Officer and
Director (principal executive officer)
Date: December 17, 1996 By: /s/LARRY G. PETERSEN
---------------------------------
Larry G. Petersen
Senior Vice President-Finance
and Chief Financial Officer
(principal financial officer)
Date: December 17, 1996 By: /s/GEORGE L. PITA
---------------------------------
George L. Pita
Vice President-Finance and International
Business Development
(principal accounting officer)
-14-
EXHIBIT 10.9
AMENDMENT AGREEMENT NO. 3 TO
AMENDED AND RESTATED REVOLVING CREDIT
AND REIMBURSEMENT AGREEMENT
THIS AMENDMENT AGREEMENT is made and entered into as of this 13th day
of December, 1996, by and among SUNGLASS HUT INTERNATIONAL, INC., a Florida
corporation (herein called the "Borrower"), NATIONSBANK NATIONAL ASSOCIATION
(the "Agent"), as Agent for the lenders (the "Lenders") party to the Amended and
Restated Revolving Credit and Reimbursement Agreement dated December 14, 1995,
as amended, among such Lenders, Borrower and the Agent (the "Agreement") and
each of the Lenders party to the Agreement.
W I T N E S S E T H:
WHEREAS, the Borrower, the Agent and the Lenders have entered into the
Agreement pursuant to which the Lenders have agreed to make revolving loans to
the Borrower in the principal amount of up to $125,000,000 as evidenced by the
Notes (as defined in the Agreement); and
WHEREAS, as a condition to the making of the revolving loans pursuant
to the Agreement the Lenders have required that all Material Subsidiaries of the
Borrower guaranty payment of all Obligations of the Borrower arising under the
Agreement; and
WHEREAS, pursuant to Section 2.08 the Borrower has heretofore elected
to permanently reduce the Total Revolving Credit Commitment to $75,000,000; and
WHEREAS, the Borrower has requested that the Lenders further amend the
Agreement and the Agent and the Lenders have agreed subject to the terms of this
Amendment Agreement, to further amend the Agreement in the manner set forth
herein;
NOW, THEREFORE, the Borrower, the Agent and the Lenders do hereby agree
as follows:
1. DEFINITIONS. The term "Agreement" as used herein and in the Loan
Documents (as defined in the Agreement) shall mean the Agreement as hereby
amended and modified. Unless the context otherwise requires, all terms used
herein without definition shall have the definition provided therefor in the
Agreement.
2. AMENDMENTS. Subject to the conditions hereof, the Agreement is
hereby amended, effective as of November 2, 1996, as follows:
<PAGE>
(a) The definition of "Consolidated EBITDA" in Section 1.01 is
amended by adding the following clause (viii) thereto immediately
following the figure $10,000,000, at the end of clause (vii):
plus, (viii) a $1,500,000 non-cash charge taken in the quarterly
period ended November 2, 1996 resulting from a change in policy
relating to returned inventory,
(b) Section 8.04 is hereby amended to provide that the Consolidated
Fixed Charge Ratio for the period ending November 2, 1996 shall not be
less than 1.05 to 1.00.
(c) Section 8.06 is hereby amended to provide that the Consolidated
Leverage Ratio for the period ending November 2, 1996 shall not be
greater than 2.10 to 1.00.
3. Each Material Subsidiary of the Borrower has joined in the execution
of this Amendment Agreement for the purpose of (i) agreeing to the other
amendments to the Agreement and the other Loan Documents effected hereby and
(ii) confirming its guarantee of payment of all the Obligations.
4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby certifies that:
(a) The representations and warranties made by Borrower in Article
VI of the Agreement are true and correct in all material respects on
and as of the date hereof except to the extent that such
representations and warranties expressly relate to an earlier date and
except that the financial statements referred to in Section 6.01(f)
shall be those most recently furnished to each Lender pursuant to
Section 7.01(a) and (b);
(b) There has been no material change in the condition, financial or
otherwise, of the Borrower and its Subsidiaries since the date of the
most recent financial reports of the Borrower received by each Lender
under Section 7.01 thereof, other than changes in the ordinary course
of business, none of which has been a material adverse change;
(c) The business and properties of the Borrower and its Subsidiaries
are not, and since the date of the most recent financial report of the
Borrower and its Subsidiaries received by each Lender under Section
7.01 thereof have not been, adversely affected in any substantial way
as the result of any fire, explosion, earthquake, accident, strike,
lockout, combination of workers, flood, embargo, riot, activities of
armed forces, war or acts of God or the public enemy, or cancellation
or loss of any major contracts; and
<PAGE>
(d) No event has occurred and no condition exists which, upon the
consummation of the transaction contemplated hereby, constitutes a
Default or an Event of Default on the part of the Borrower under the
Agreement, the Notes or any other Loan Document either immediately or
with the lapse of time or the giving of notice, or both.
5. CONDITIONS. As a condition to the effectiveness of this Amendment
Agreement, the Borrower shall deliver, or cause to be delivered to the Agent,
the following:
(a) eight (8) counterparts of this Amendment Agreement duly executed
by the Borrower and the Material Subsidiaries;
(b) an amendment fee of $5,000.00 to each Lender executing this
Amendment Agreement; and
(c) such other instruments and documents as the Agent may reasonably
request.
6. OTHER DOCUMENTS. All instruments and documents incident to the
consummation of the transactions contemplated hereby shall be satisfactory in
form and substance to the Agent and its counsel; the Agent shall have received
copies of all additional agreements, instruments and documents which it may
reasonably request in connection therewith, including evidence of the authority
of Borrower and the Material Subsidiaries to enter into the transactions
contemplated by this Amendment Agreement, such documents, when appropriate, to
be certified by appropriate corporate or governmental authorities; and all
proceedings of the Borrower and the Material Subsidiaries relating to the
matters provided for herein shall be satisfactory to the Agent and its counsel.
7. ENTIRE AGREEMENT. This Amendment Agreement sets forth the entire
understanding and agreement of the parties hereto in relation to the subject
matter hereof and supersedes any prior negotiations and agreements among the
parties relative to such subject matter. No promise, conditions, representation
or warranty, express or implied, not herein set forth shall bind any party
hereto, and no one of them has relied on any such promise, condition,
representation or warranty. Each of the parties hereto acknowledges that, except
as in this Amendment Agreement otherwise expressly stated, no representations,
warranties or commitments, express or implied, have been made by any other party
to the other. None of the terms or conditions of this Amendment Agreement may be
changed, modified, waived or canceled orally or otherwise, except by writing,
signed by all the parties hereto, specifying such change, modification, waiver
or cancellation of such terms or conditions, or of any proceeding or succeeding
breach thereof.
<PAGE>
8. Full Force and Effect of Agreement. Except as hereby specifically
amended, modified or supplemented, the Agreement and all of the other Loan
Documents are hereby confirmed and ratified in all respects and shall remain in
full force and effect according to their respective terms.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Agreement to be duly executed by their duly authorized officers, all as of the
day and year first above written.
BORROWER:
SUNGLASS HUT INTERNATIONAL, INC.
WITNESS:
- --------------------------- By:--------------------------------
Name: Larry G. Petersen
- --------------------------- Title: Senior Vice President-Finance
Chief Financial Officer and
Treasurer
5
<PAGE>
GUARANTORS:
SUNGLASS HUT CORPORATION
SUNGLASS HUT TRADING CORPORATION
SUNSATIONS SUNGLASS COMPANY
SUNGLASS HUT REALTY CORPORATION
SUNGLASS HUT OF FLORIDA, INC.
SUNGLASS HUT ACQUISITION CORP.
IHS DISTRIBUTION CORP.
IHS PROCUREMENT CORP.
SUNGLASS HUT EYE X COMPANY
SHI SALES CORP.
SUNGLASS HUT HOLDINGS OF FRANCE, INC.
SUNGLASS HUT OF NORTHERN FRANCE, INC.
SUNGLASS HUT OF SOUTHERN FRANCE, INC.
By: ------------------------------
Name: Larry G. Petersen
Title: Vice President
SUNGLASS HUT (U.K.) LIMITED
SUNGLASS WORLD HOLDING PTY LIMITED
SUNGLASS HUT OF FRANCE, S.A.
By: -------------------------------
Name: Larry G. Petersen
Title: Director
SUNGLASS HUT AUSTRALIA PTY LIMITED
By: -------------------------------
Name: Larry G. Petersen
Title: Authorized Signatory
6
<PAGE>
NATIONSBANK, NATIONAL ASSOCIATION,
AS AGENT FOR THE LENDERS
By:-------------------------------
Name: Stephen Hanas
Title: Vice President
NATIONSBANK, NATIONAL ASSOCIATION,
as Lender
By:-------------------------------
Name: Stephen Hanas
Title: Vice President
7
<PAGE>
ABN AMRO BANK N.V.
By:--------------------------------
Name:------------------------------
Title:-----------------------------
By:--------------------------------
Name:------------------------------
Title:-----------------------------
8
<PAGE>
THE BANK OF NOVA SCOTIA
By:--------------------------------
Name:------------------------------
Title:-----------------------------
9
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By:--------------------------------
Name:------------------------------
Title:-----------------------------
10
<PAGE>
UNITED STATES NATIONAL BANK OF OREGON
By:--------------------------------
Name:------------------------------
Title:-----------------------------
11
<PAGE>
LTCB TRUST COMPANY
By:--------------------------------
Name:------------------------------
Title:-----------------------------
12
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<PERIOD-END> NOV-02-1996
<CASH> 5,913
<SECURITIES> 0
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0
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