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 AUGUST 3, 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 54,241,902
(as of September 12, 1996).
<PAGE>
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE
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PART I - FINANCIAL INFORMATION
<S> <C>
ITEM 1. Financial Statements
Consolidated Balance Sheets as of August 3, 1996 (Unaudited) and February 3, 1996............3
Consolidated Statements of Income for the Thirteen Weeks Ended August 3, 1996
and July 29, 1995 (Unaudited)................................................................4
Consolidated Statements of Income for the Twenty-Six Weeks Ended August 3, 1996
and July 29, 1995 (Unaudited)................................................................5
Consolidated Statements of Cash Flows for the Twenty-Six Weeks Ended August 3, 1996
and July 29, 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 4. Submission of Matters to a Vote of Security Holders...............................................13
ITEM 6. Exhibits and Reports on Form 8-K..................................................................14
Signatures........................................................................................15
</TABLE>
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SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
AUGUST 3, FEBRUARY 3,
ASSETS 1996 1996
---------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,988 $ 4,506
Accounts receivable 5,222 2,379
Inventory 151,843 110,268
Prepaid rent 6,799 5,912
Other current assets 19,612 9,680
---------------- ---------------
Total current assets 189,464 132,745
PROPERTY AND EQUIPMENT, net of accumulated depreciation 110,091 83,980
and amortization of $53,354 and $46,084
UNAMORTIZED COST IN EXCESS OF NET ASSETS OF ACQUIRED 39,349 39,095
BUSINESSES, net of accumulated amortization of $26,318 and $25,273
OTHER ASSETS 12,216 11,256
---------------- ---------------
Total assets $351,120 $ 267,076
================ ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 21,823 $ 28,791
Accrued payroll and related taxes 6,052 5,662
Accrued rent 4,663 3,568
Accrued expenses 11,585 6,670
Current portion of long-term debt 155 129
--------------- ----------------
Total current liabilities 44,278 44,820
LONG-TERM DEBT, net of current portion and unamortized discount 121,653 69,432
---------------- ---------------
Total liabilities 165,931 114,252
---------------- ---------------
STOCKHOLDERS' EQUITY:
Preferred stock - -
Common stock 542 538
Additional paid-in capital 164,065 159,088
Foreign currency translation adjustment 42 (500)
Retained earnings (accumulated deficit) 20,540 (6,302)
---------------- ---------------
Total stockholders' equity 185,189 152,824
---------------- ---------------
Total liabilities and stockholders' equity $351,120 $ 267,076
================ ===============
</TABLE>
See Note to Consolidated Financial Statements.
3
<PAGE>
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
THIRTEEN WEEKS ENDED
--------------------------------
AUGUST 3, JULY 29,
1996 1995
-------------- --------------
<S> <C> <C>
Net sales $ 166,469 $127,512
Cost of goods sold, occupancy and buying expenses 87,828 66,928
-------------- --------------
Gross profit 78,641 60,584
-------------- --------------
Selling, general and administrative expenses:
Operating expenses 37,812 28,623
Depreciation and leasehold amortization 5,371 3,865
Amortization of cost in excess of net assets of acquired 597 366
businesses
Expenses related to acquisitions - 10,100
-------------- --------------
43,780 42,954
-------------- --------------
Earnings before interest and income taxes 34,861 17,630
Interest expense 1,530 553
-------------- --------------
Earnings before income taxes 33,331 17,077
Provision for income taxes 13,323 8,001
-------------- --------------
Net income 20,008 9,076
Proforma adjustment for income taxes - 718
-------------- --------------
Pro forma net income $ 20,008 $ 8,358
============== ==============
Pro forma net income per share $ .36 $ .15
============== ==============
Weighted average shares outstanding 55,747 55,184
============== ==============
</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)
TWENTY-SIX WEEKS ENDED
--------------------------------
AUGUST 3, JULY 29,
1996 1995
-------------- --------------
<S> <C> <C>
Net sales $ 289,291 $ 215,091
Cost of goods sold, occupancy and buying expenses 157,939 116,933
-------------- --------------
Gross profit
131,352 98,158
-------------- --------------
Selling, general and administrative expenses:
Operating expenses 71,333 53,094
Depreciation and leasehold amortization 10,548 7,406
Amortization of cost in excess of net assets of acquired 1,118 715
businesses
Expenses related to acquisitions - 10,100
-------------- --------------
82,999 71,315
-------------- --------------
Earnings before interest and income taxes 48,353 26,843
Interest expense 2,992 1,195
-------------- --------------
Earnings before income taxes 45,361 25,648
Provision for income taxes 18,195 11,500
-------------- --------------
Net income 27,166 14,148
Proforma adjustment for income taxes - 775
-------------- --------------
Pro forma net income $ 27,166 $ 13,373
-------------- --------------
Pro forma net income per share $ .49 $ .25
============== ==============
Weighted average shares outstanding 55,755 54,501
============== ==============
</TABLE>
See Note to Consolidated Financial Statements.
5
<PAGE>
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
TWENTY-SIX WEEKS ENDED
----------------------------------
AUGUST 3, JULY 29,
1996 1995
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 27,166 $ 14,148
--------------- ---------------
Adjustments to reconcile net income to net cash used in
operating activities-
Depreciation and amortization 11,666 8,151
Amortization of discount on debt 35 -
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 (2,839) (5,103)
Inventory (41,370) (19,524)
Prepaid rent (887) (769)
Other current assets (9,902) (3,465)
Other assets (1,512) (1,222)
Changes in liabilities:
Accounts payable (7,036) (3,304)
Accrued expenses 9,583 10,241
--------------- ---------------
(42,262) (15,895)
--------------- ---------------
Net cash used in operating activities (15,096) (1,747)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (36,157) (19,717)
Acquisitions of businesses (567) (6,129)
Investment in and advances to affiliate - (5,500)
--------------- ---------------
Net cash used in investing activities (36,724) (31,346)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 112,369 4,000
Principal payments on long-term debt - (8,869)
Proceeds from borrowings under revolving credit facilities 199,994 56,695
Principal payments on revolving credit facilities (260,700) (71,746)
Proceeds from sale of common stock - 53,800
Distributions to stockholders by pooled company - (545)
Payment of deferred financing costs (110) (16)
Proceeds from exercise of stock options 1,632 453
--------------- ---------------
Net cash provided by financing activities 53,185 33,772
--------------- ---------------
Effect of exchange rate changes on cash and cash equivalents 117 -
--------------- ---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,482 679
CASH AND CASH EQUIVALENTS, beginning of period 4,506 3,673
--------------- ---------------
CASH AND CASH EQUIVALENTS, end of period $ 5,988 $ 4,352
=============== ===============
Continued on Next Page
6
<PAGE>
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
(UNAUDITED)
TWENTY-SIX WEEKS ENDED
----------------------------------
AUGUST 3, JULY 29,
1996 1995
--------------- ---------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for-
Interest $ 2,451 $ 937
=============== ===============
Income taxes $ 9,659 $ 4,566
=============== ===============
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 twenty-six weeks ended August 3,
1996 are not necessarily indicative of the results to be expected for the entire
fiscal year ending February 1, 1997.
In June 1996, as a result of a 144A private offering made to certain qualified
institutional investors, the Company issued $115 million principal amount of
Convertible Subordinated Notes (the "Notes"). The offering 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 at any time 90 days
after issuance 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, 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 1,971 worldwide locations as of August 3, 1996. The Company has
expanded rapidly since opening its first store in 1971, and continued its
expansion in the first six months of 1996 by opening 244 sunglass stores, 10
EyeX optical and 10 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 compactibility of the
Company's products allows it to use a wide variety of sales location formats,
including malls, airports, on-street sites, licensed departments within
department stores and catalogs. A typical store carries approximately 1,000
stock keeping units.
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, 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 or the federal funds
effective rate plus 0.50% or (ii) LIBOR plus 1.00%. In June 1996, the Company
issued $115 million principal amount of Convertible Subordinated Notes, due June
2003, for the purpose of refinancing senior indebtedness to reduce interest
costs and for financing expansion plans. Subsequently, the Company reduced its
commitment under the NationsBank revolving credit facility to $75 million.
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 August 3,
1996, the Company had $4.8 million in letters of credit 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 $15.1 million for the first six months
of fiscal 1996 compared to $1.7 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 $51.3 million investment in
inventory and other current assets and reductions of accounts payable of $7.0
million, partially offset by $11.7 million of non-cash charges for depreciation
and amortization. Inventory levels have increased $41.6 million since 1995
year-end to provide for seasonal demand, store growth and higher levels of
safety stock during the Company's consolidation of warehouses to a single
location in Atlanta. The Atlanta warehouse became fully operational in August
1996.
Net cash used in investing activities was $36.7 million for the first six months
of fiscal 1996 compared to $31.3 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 $53.2 million for the first six
months of fiscal 1996 compared to $33.8 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 fiscal
1995 cash flow reflects the proceeds of $53.8 million from a secondary offering
of 4.2 million shares of the Company's common stock completed in February 1995.
The net proceeds from the offerings in 1996 and 1995 were used to repay
approximately $96.5 and $41.3 million, respectively, of 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 and the proceeds from
the 144A private offering of Convertible Subordinated Notes will be sufficient
to fund estimated capital expenditures associated with the Company's planned
opening of approximately 280 more stores in fiscal 1996 and other working
capital requirements through at least fiscal 1996. The Company estimates that
its typical capital expenditures to open new in-line stores range from $75,000
to $125,000 for fixtures and leasehold improvements, while the costs for kiosk
locations range from $25,000 to $40,000. In addition, initial inventory for a
new store ranges from $30,000 for a small kiosk to over $50,000 for a large
in-line store.
RESULTS OF OPERATIONS
QUARTER ENDED AUGUST 3, 1996 COMPARED TO QUARTER ENDED JULY 29, 1995
Net sales increased $39.0 million, or 30.6%, to $166.5 million during the
quarter ended August 3, 1996 compared to $127.5 million for the same period of
fiscal 1995. Approximately 83% of this increase was attributable to sales from
new stores opened and acquired during the second 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 4.9% accounted for approximately
17% of this increase. The comparable store sales increase was primarily due to
increased unit sales of the Company's sunglass offerings.
Gross profit increased $18.0 million, or 29.7%, to $78.6 million during the
quarter ended August 3, 1996 compared to $60.6 million for the same period of
fiscal 1995 primarily due to the increase in net sales. As a percentage of net
sales, gross profit decreased 0.3% to 47.2% for the quarter ended August 3, 1996
from 47.5% for the quarter ended July 29, 1995. 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 its
increasing international expansion, coupled with the Company's entry into the
retail watch industry (which has lower gross profit rates than the Company's
sunglass specialty units), future gross profit rates will continue to decline
when compared to 1995.
Operating expenses increased $9.2 million, or 32.1%, during the quarter ended
August 3, 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 and 1995. Operating
expenses as a percentage of net sales were 22.7% in 1996 and 22.4% in 1995.
Depreciation and leasehold amortization expense increased $1.5 million, or
39.0%, to $5.4 million during the quarter ended August 3, 1996 compared to $3.9
million for the same period of fiscal 1995, primarily due to new store growth.
10
<PAGE>
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Operating margins during the second quarter of 1996 were negatively impacted by
the consolidation of our Australian operations which resulted in a decrease in
sales leverage due to seasonally lower sales in that market during this time of
year. Excluding the impact of the Australian operations, operating margins were
either the same or improved when compared to the same period last year.
As a result of the foregoing, the Company reported net income of $20.0 million
during the quarter ended August 3, 1996 compared to $8.4 million for the same
period of fiscal 1995.
FIRST SIX MONTHS OF 1996 COMPARED TO FIRST SIX MONTHS OF 1995
Net sales increased $74.2 million, or 34.5%, to $289.3 million during the first
six months of fiscal 1996 compared to $215.1 million for the same period of
fiscal 1995. Sales from new stores opened and acquired during the first six
months of fiscal 1996 (and fiscal 1995 to the extent not reflected in comparable
store sales increases) accounted for 81% of this increase while comparable store
sales of 6.0% accounted for 19% of this increase. The increase was primarily due
to increased unit sales of the Company's sunglass offerings.
Gross profit increased $33.2 million, or 33.8%, to $131.4 million during the
first six months of fiscal 1996 compared to $98.2 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 45.4% in 1996 and 45.6% in 1995. 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
its increasing international expansion, coupled with the Company's entry into
the retail watch industry (which has lower gross profit rates than the Company's
sunglass specialty units), future gross profit rates will continue to decline
when compared to 1995.
Operating expenses increased $18.2 million, or 34.4%, during the first six
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 24.7% in both 1996 and 1995.
Depreciation and leasehold amortization expense increased approximately $3.1
million, or 41.9%, to $10.5 million during the first six months of fiscal 1996
compared to $7.4 million for the same period of fiscal 1995. This increase is
primarily due to new store growth.
As a result of the foregoing, the Company reported earnings of $0.49 per share,
or $27.2 million, during the first six months of fiscal 1996 compared to $0.25
per share or $13.4 million (inclusive of nonrecurring acquisition-related costs
and expenses of approximately $10.1 million) for the same period of 1995.
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
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.
11
<PAGE>
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISK
This report contains forward-looking statements, which 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. 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 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 4, 1996, the Company held its 1996 Annual Meeting of Shareholders (the
"Annual Meeting") for the following purposes:
1. To elect two members to the Company's Board of Directors to
hold office until the Company's 1999 Annual Meeting of
Shareholders or until their successors are duly elected and
qualified;
2. To consider and vote upon a proposal to approve and ratify the
Company's 1996 Executive Compensation Incentive Plan; and
3. To consider and vote on a proposal to approve the
reincorporation of the Company from Delaware to Florida.
The votes cast at the Annual Meeting were as follows:
1. Election of Directors:
Rohit M. Desai -
For 51,074,834
------------------
Withheld 1,139,283
------------------
William E. Phillips -
For 51,074,834
------------------
Withheld 1,139,283
------------------
2. Proposal to approve the Company's 1996 Executive Incentive Compensation
Plan:
For 31,835,334
------------------
Against 17,447,942
------------------
Abstain 57,176
------------------
Broker Non-Vote 2,873,665
------------------
3. Proposal to approve the reincorporation of the Company from Delaware to
Florida:
For 34,159,844
------------------
Against 15,177,371
------------------
Abstain 51,082
------------------
Broker Non-Vote 2,825,820
------------------
13
<PAGE>
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.7 Sunglass Hut International, Inc. 1996 Executive Incentive
Compensation Plan (1)
10.8 Amendment No. 2 to Revolving Credit and Reimbursement Agreement,
dated as of September 9, 1996, among the Registrant, NationsBank
N.A. and the other Lenders named therein (B) (2)
27 Financial Data Schedule
- --------------------------
(1) Incorporated by reference to the exhibit shown in the preceding
parenthesis and filed with the Registrant's Notice of Annual
Meeting of Shareholders, dated as of May 3, 1996.
(2) Filed herewith.
(b) The Company did not file any reports on Form 8-K during the quarter
ended August 3, 1996.
14
<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: September 17, 1996 By: /s/ JACK B. CHADSEY
------------------------------------------
Jack B. Chadsey
President and Chief Executive Officer and
Director (principal executive officer)
Date: September 17, 1996 By: /s/ LARRY G PETERSEN
------------------------------------------
Larry G. Petersen
Senior Vice President-Finance
and Chief Financial Officer
(principal financial officer)
Date: September 17, 1996 By: /s/ GEORGE L. PITA
------------------------------------------
George L. Pita
Vice President-Finance and International
Business Development
(principal accounting officer)
15
AMENDMENT AGREEMENT NO. 2 TO
AMENDED AND RESTATED REVOLVING CREDIT
AND REIMBURSEMENT AGREEMENT
THIS AMENDMENT AGREEMENT is made and entered into this 9th day of
September, 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, Commonwealth Bank of Australia Grand Cayman Branch has elected
to assign its Applicable Commitment Percentage of the Revolving Credit Facility
to various of the other Lenders pursuant to Section 11.01 of the Agreement; 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:
<PAGE>
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 August 3, 1996, as follows:
(a) The definition of "Applicable Margin" in Section 1.01 is
amended by deleting the table appearing therein and substituting the
following table in lieu thereof:
FIXED BASE
"CONSOLIDATED FIXED RATE RATE UNUSED
CHARGE RATIO LOAN LOAN FEE
------------------- ----- ---- ------
(a) Greater than or equal 5/8% 0% 1/5%
to 1.75 to 1.00
(b) Greater than or equal 3/4% 0% 1/4%
to 1.50 to 1.00 but
Less than 1.75 to 1.00
(c) Greater than or equal 7/8% 0% 1/4%
to 1.25 to 1.00 but
Less than 1.50 to 1.00
(d) Greater than or equal 1% 1/8% 27.5 basis
to 1.10 to 1.00 but points"
less than 1.25 to 1.00
(b) The definition of "Consolidated Fixed Charges" in Section
1.01 is amended by deleting the phrase "including, without duplication,
twenty percent (20%) of the average Revolving Credit Debit Balance
during such period" from clause (iv) hereof.
(c) Section 8.04 is hereby amended in its entirety so that as
amended it shall read as follows:
"8.04 CONSOLIDATED FIXED CHARGE RATIO. Permit at any
time the Consolidated Fixed Charge Ratio to be less than 1.10 to 1.00"."
2
<PAGE>
(d) Section 8.06 is hereby amended in its entirety so that as
amended it shall read as follows:
"8.06 CONSOLIDATED LEVERAGE RATIO. Permit at any time
the Consolidated Leverage Ratio to be greater than 2.00 to 1.00."
(e) Clauses (iii) and (vii) of Section 8.07 are hereby amended in
their entirety so that as amended each shall read as follows:
"(iii) $115,000,000 Convertible Subordinated Notes due 2003;
* * * * * * * * *
(vii) Additional Indebtedness not to exceed in the
aggregate outstanding amount the lesser of (x) ten percent (10%)
of Consolidated Shareholders' Equity or (y) $20,000,000."
(f) Clause (iii) of Section 11.01(a) is hereby amended in its
entirety so that as amended it shall read as follows:
"(iii) the minimum Revolving Credit Commitment which shall
be assigned is the lesser of $10,000,000 or the Revolving Credit
Commitment (together with the assigning Lender's applicable
portion of Participations and the Letter of Credit Commitment),"
(g) EXHIBIT A to the Agreement is deleted and a new EXHIBIT A in
the form attached is added thereto.
4. 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.
5. 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
3
<PAGE>
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
(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.
6. 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; and
(b) such other instruments and documents as the Agent
may reasonably request.
7. 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
4
<PAGE>
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.
8. 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.
9. 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.
5
<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
6
<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
7
<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
8
<PAGE>
ABN AMRO BANK N.V.
By:________________________________
Name:______________________________
Title:_____________________________
9
<PAGE>
THE BANK OF NOVA SCOTIA
By:________________________________
Name:______________________________
Title:_____________________________
10
<PAGE>
CREDIT LYONNAIS NEW YORK BRANCH
By:________________________________
Name:______________________________
Title:_____________________________
11
<PAGE>
UNITED STATES NATIONAL BANK OF OREGON
By:________________________________
Name:______________________________
Title:_____________________________
12
<PAGE>
LTCB TRUST COMPANY
By:________________________________
Name:______________________________
Title:_____________________________
13
<PAGE>
EXHIBIT A
Applicable Commitment Percentages
COMMITTED COMMITMENT
AMOUNT PERCENTAGE
------------- -------------
NationsBank, N.A. $ 20,625,000 27.500000%
United States National Bank
of Oregon 15,000,000 20.000000%
ABN AMRO Bank N.V. 12,500,000 16.666667%
The Bank of Nova Scotia 10,000,000 13.333333%
Credit Lyonnais New York Branch
and Credit Lyonnais Cayman
Island Branch 9,375,000 12.500000%
LTCB Trust Company 7,500,000 10.000000%
------------- -------------
$ 75,000,000 100.000000%
14
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-END> AUG-03-1996
<CASH> 5,988
<SECURITIES> 0
<RECEIVABLES> 5,222
<ALLOWANCES> 0
<INVENTORY> 151,843
<CURRENT-ASSETS> 189,464
<PP&E> 110,091
<DEPRECIATION> 10,548
<TOTAL-ASSETS> 351,120
<CURRENT-LIABILITIES> 44,278
<BONDS> 0
0
0
<COMMON> 542
<OTHER-SE> 184,647
<TOTAL-LIABILITY-AND-EQUITY> 351,120
<SALES> 289,291
<TOTAL-REVENUES> 289,291
<CGS> 157,939
<TOTAL-COSTS> 82,999
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,992
<INCOME-PRETAX> 45,361
<INCOME-TAX> 18,195
<INCOME-CONTINUING> 27,166
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,166
<EPS-PRIMARY> 0.49
<EPS-DILUTED> 0.49
</TABLE>
