<PAGE> 1
================================================================================
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 OCTOBER 30, 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 33-66342
COLE NATIONAL GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 34-1744334
(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)
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION H(1)(a) AND
(b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM IN THE REDUCED DISCLOSURE
FORMAT.
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
--- ---
ALL OF THE OUTSTANDING CAPITAL STOCK OF THE REGISTRANT IS HELD BY COLE NATIONAL
CORPORATION.
AS OF NOVEMBER 15, 1999, 1,100 SHARES OF THE REGISTRANT'S COMMON STOCK, $.01 PAR
VALUE, WERE OUTSTANDING.
================================================================================
<PAGE> 2
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED OCTOBER 30, 1999
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS AS OF OCTOBER 30, 1999
AND JANUARY 30, 1999 ............................................. 1
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE 13
AND 39 WEEKS ENDED OCTOBER 30, 1999 AND
OCTOBER 31, 1998 ................................................. 2
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE 39
WEEKS ENDED OCTOBER 30, 1999 AND OCTOBER 31, 1998 ................ 3
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ....................... 4 - 5
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....................................................... 10
PART II.OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ................................. 11
</TABLE>
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
October 30, January 30,
ASSETS 1999 1999
--------- ---------
<S> <C> <C>
Current assets:
Cash and temporary cash investments $ 22,793 $ 51,057
Accounts receivable, less allowance for doubtful
accounts of $8,421 in 1999 and $7,189 in 1998 47,676 45,302
Current portion of notes receivable 4,386 2,707
Refundable income taxes - 1,113
Inventories 133,849 119,881
Prepaid expenses and other 5,135 8,520
Deferred income tax benefits 14,546 13,742
--------- ---------
Total current assets 228,385 242,322
Property and equipment, at cost 258,403 246,597
Less - accumulated depreciation and amortization (143,281) (133,595)
--------- ---------
Total property and equipment, net 115,122 113,002
Other assets:
Notes receivable, excluding current portion 15,335 17,308
Deferred income taxes and other 56,638 51,555
Intangible assets, net 158,144 159,698
--------- ---------
Total assets $ 573,624 $ 583,885
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current portion of long-term debt $ 662 $ 407
Accounts payable 63,181 70,125
Payable to affiliates 73,078 69,060
Accrued interest 7,090 6,216
Accrued liabilities 83,019 101,040
Accrued income taxes 3,644 131
--------- ---------
Total current liabilities 230,674 246,979
Long-term debt, net of discount and current portion 274,215 274,706
Other long-term liabilities 14,491 13,954
Stockholder's equity 54,244 48,246
--------- ---------
Total liabilities and stockholder's equity $ 573,624 $ 583,885
========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated balance sheets.
-1-
<PAGE> 4
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
-------------------------- --------------------------
October 30, October 31, October 30, October 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenue $ 256,861 $ 255,615 $ 789,615 $ 792,929
Costs and expenses:
Cost of goods sold 86,354 84,910 263,857 264,331
Operating expenses 156,379 150,983 469,335 453,350
Depreciation and amortization 9,363 8,421 26,632 24,441
--------- --------- --------- ---------
Total costs and expenses 252,096 244,314 759,824 742,122
--------- --------- --------- ---------
Operating income 4,765 11,301 29,791 50,807
Interest and other (income) expense, net 6,702 814 19,891 14,374
--------- --------- --------- ---------
Income (loss) before income taxes (1,937) 10,487 9,900 36,433
Income tax provision (benefit) (794) 1,840 4,059 12,478
--------- --------- --------- ---------
Net income (loss) $ (1,143) $ 8,647 $ 5,841 $ 23,955
========= ========= ========= =========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
-2-
<PAGE> 5
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
39 Weeks Ended
------------------------
October 30, October 31,
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 5,841 $ 23,955
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 26,632 24,441
Non-cash interest, net 799 788
Change in assets and liabilities:
Decrease (increase) in accounts and notes
receivable, prepaid expenses and other
assets 959 (301)
Increase in inventories (13,968) (30,947)
Decrease in accounts payable, accrued
liabilities and other liabilities (23,537) (13,153)
Increase in accrued interest 874 608
Increase in net income tax liabilities 3,513 9,629
-------- --------
Net cash provided by operating activities 1,113 15,020
-------- --------
Cash flows from investing activities:
Purchases of property and equipment, net (20,436) (20,644)
Systems development costs (10,980) (12,417)
Acquisition of businesses, net (2,281) (6,848)
Other, net (582) 284
-------- --------
Net cash used by investing activities (34,279) (39,625)
-------- --------
Cash flows from financing activities:
Repayment of long-term debt (303) (14,973)
Advances from (to) affiliates, net 5,338 (8,851)
Other, net (133) (267)
-------- --------
Net cash provided (used) by financing activities 4,902 (24,091)
-------- --------
Cash and temporary cash investments:
Net decrease during the period (28,264) (48,696)
Balance, beginning of the period 51,057 67,989
-------- --------
Balance, end of the period $ 22,793 $ 19,293
======== ========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these consolidated statements.
-3-
<PAGE> 6
COLE NATIONAL GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BASIS OF PRESENTATION AND ACCOUNTING POLICIES
Cole National Group, Inc. is a wholly owned subsidiary of Cole National
Corporation. The consolidated financial statements include the accounts of Cole
National Group 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 the Company's consolidated financial statements and notes
thereto included in its annual report on Form 10-K 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 Cole National Group's financial position as of October 30,
1999 and the results of operations and cash flows for the 39 weeks ended October
30, 1999 and October 31, 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 $407,000 and $18,676,000, respectively, for the 39 weeks
ended October 30, 1999, and $1,618,000 and $19,090,000, respectively, for the 39
weeks ended October 31, 1998.
(2) RESTRUCTURING CHARGE
In the fourth quarter of fiscal 1998, the Company recorded a restructuring
charge primarily related to Pearle's operations. The Company's restructuring
plan 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. The estimated costs of the restructuring
are expected to approximate original estimates. During the first 39 weeks of
fiscal 1999, the Company closed a total of 25 Pearle stores. The restructuring
reserves remaining at January 30, 1999 were $7.1 million, of which
approximately $6.0 million were paid in the first 39 weeks of fiscal 1999. The
remaining reserve at October 30, 1999 of $1.1 million is expected to be paid
through the first quarter of fiscal 2000. The Company is currently reevaluating
its plan to remove labs from certain stores and, as a result, has closed no
in-store labs in fiscal 1999. Since there were no costs accrued at January 30,
1999 related to closing of any in-store labs, any revisions to this portion of
the original plan will have no effect on the restructuring reserves remaining.
-4-
<PAGE> 7
(3) CREDIT FACILITY
In August 1999, the credit facility was amended and extended until January
31, 2003. Borrowings under the credit facility initially bear interest based on
leverage ratios at a rate equal to, at the option of the principal operating
subsidiaries of Cole National Group, either (a) the Eurodollar Rate plus 2% or
(b) 1% plus the highest of (i) the prime rate, (ii) the three-week moving
average of the secondary market rates for three-month certificates of deposit
plus 1% and (iii) the federal funds rate plus .5%. Cole National Group pays a
commitment fee of between .375% and .75% per annum on the total unused portion
of the facility based on the percentage of revolving credit commitments used.
(4) SEGMENT INFORMATION
Information on the Company's reportable segments is as follows (000's
omitted):
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
-------------------- --------------------
Oct. 30, Oct. 31, Oct. 30, Oct. 31,
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenue:
Cole Vision $ 203,672 $ 206,108 $ 619,157 $ 633,451
Things Remembered 53,189 49,507 170,458 159,478
--------- --------- --------- ---------
Consolidated net revenue $ 256,861 $ 255,615 $ 789,615 $ 792,929
========= ========= ========= =========
Income or loss:
Cole Vision $ 6,622 $ 15,230 $ 25,040 $ 51,204
Things Remembered 270 (2,440) 9,408 3,902
--------- --------- --------- ---------
Total segment profit 6,892 12,790 34,488 55,106
Unallocated amounts:
Corporate expenses (2,127) (1,489) (4,657) (4,299)
--------- --------- --------- ---------
Consolidated operating income 4,765 11,301 29,791 50,807
Interest and other expense, net (6,702) (814) (19,891) (14,374)
--------- --------- --------- ---------
Income before income taxes $ (1,937) $ 10,487 $ 9,900 $ 36,433
=========- ========= ========= =========
</TABLE>
(5) RECLASSIFICATIONS
Certain 1998 amounts have been reclassified to conform with the 1999
presentation.
(6) ACQUISITIONS AND DISPOSITIONS
During the third quarter of fiscal 1999, the Company acquired MetLife's
managed vision care benefits business. The business consists of vision care
contracts with over 250 institutional customers and generates approximately
$15.0 million of revenue annually. The initial purchase price totaled $2.0
million, with additional amounts contingently due upon certain conditions being
met over the next four years. The acquisition is being accounted for under the
purchase method of accounting, including any contingent payments that may be
made in the future.
On November 23,1999 the Company announced that, by the end of the fourth
quarter, it plans to exit the 150 Wards Optical departments that it operates.
The Company expects to incur a pretax loss associated with these closings of
approximately $2.0 - $2.5 million in the fourth quarter, primarily consisting of
inventory and fixed asset write-offs. The after-tax cash cost of the closings is
expected to be minimal.
-5-
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain information required by this item has been omitted pursuant to
General Instruction H of Form 10-Q.
The following is a discussion of certain factors affecting Cole National
Group's results of operations for the 13 and 39 week periods ended October 30,
1999 and October 31, 1998 (the Company's third quarter and first nine months).
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
The following table sets forth certain operating information for the third
quarter and first nine months of fiscal 1999 and fiscal 1998 (dollars in
millions):
<TABLE>
<CAPTION>
Third Quarter First Nine Months
--------------------------------- -----------------------------------
Fiscal Fiscal Fiscal Fiscal
1999 1998 Change 1999 1998 Change
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Net Revenue-
Cole Vision $ 203.7 $ 206.1 (1.2%) $ 619.1 $ 633.4 (2.3%)
Things Remembered 53.2 49.5 7.4% 170.5 159.5 6.9%
-------- -------- --------- ---------
Total net revenue $ 256.9 $ 255.6 0.5% $ 789.6 $ 792.9 (0.4%)
Gross profit $ 170.5 $ 170.7 (0.1%) $ 525.7 $ 528.6 (0.5%)
Operating expenses 156.3 151.0 3.6% 469.3 453.4 3.5%
Depreciation & amortization 9.4 8.4 11.2% 26.6 24.4 9.0%
-------- -------- --------- ---------
Operating income $ 4.8 $ 11.3 (57.8%) $ 29.8 $ 50.8 (41.4%)
======== ======== ========= =========
Percentage of Net Revenue-
Gross margin 66.4% 66.8% (0.4) 66.6% 66.7% (0.1)
Operating expenses 60.9 59.1 1.8 59.4 57.2 2.2
Depreciation & amortization 3.6 3.3 0.3 3.4 3.1 0.3
-------- -------- --------- ---------
Operating income 1.9% 4.4% (2.5) 3.8% 6.4% (2.6)
======== ======== ========= =========
Number of Retail Locations
at the End of the Period-
Cole Licensed Brands 1,199 1,180
Pearle company-owned 455 469
Pearle franchised 412 406
-------- --------
Total Cole Vision 2,066 2,055
Things Remembered 811 827
-------- --------
Total Cole National 2,877 2,882
======== ========
</TABLE>
-6-
<PAGE> 9
The softness in net revenue for the third quarter and first nine months of
fiscal 1999 was primarily attributable to decreases in consolidated comparable
store sales, partially offset by $1.4 million of revenue from the sale of rights
under various franchise and other agreements for 13 franchised stores. Changes
in comparable store sales by business compared to the same period a year ago
were:
Third Quarter First Nine Months
------------- -----------------
Cole Licensed Brands (U.S.) 0.3% (3.0%)
Pearle company-owned (U.S.) (6.9%) (6.2%)
Total Cole Vision (1.7%) (3.8%)
Things Remembered 7.8% 7.3%
Total Cole National 0.4% (1.3%)
Sales at Cole Licensed Brands have been negatively impacted by a
competitive promotional environment. Licensed Brands' response which began at
the end of the second quarter produced an improvement in third quarter sales.
Sales this year at Pearle have also been impacted by the competitive promotional
environment and Pearle's focus, earlier in the year, on long-term,
brand-building in its advertising campaign, as well as operating and systems
issues that the Company is addressing. Pearle refocused its marketing efforts to
become more promotional during the second and third quarters, but to date has
not achieved any sustained improvement in comparable store sales trends. The
third quarter sales decrease at Cole Vision reflected a lower average selling
price for spectacles and contact lenses due primarily to more promotional
pricing, partially offset by increased unit sales at Cole Licensed Brands. At
Things Remembered, the comparable store sales increase 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 at Things Remembered in the third
quarter was slightly behind a year ago. During the first nine months of fiscal
1999, the Company opened 95 new locations and closed 102 locations.
The gross profit decreases for the third quarter and first nine months of
fiscal 1999 compared to those same periods in fiscal 1998 were primarily
attributable to the lower revenue at Cole Vision, partially offset by higher
revenue at Things Remembered. Gross margin at Cole Vision declined 0.9 and 0.5
percentage points in the third quarter and first nine months of fiscal 1999,
respectively, compared to the same periods last year. The lower gross margin at
Cole Vision was due in part to the impact of more promotional pricing, lower
margins on contact lenses and costs resulting from problems that arose during
the integration of Pearle's new manufacturing and merchandise/inventory
management systems. The integration of these systems with Pearle's existing
warehouse management system resulted in manufacturing and distribution
inefficiencies that led to increased costs and lost sales in the quarter.
Progress has been made to date in bringing the systems up to pre-installation
expectations; however, some continuing inefficiencies are expected to have a
negative impact on fourth quarter earnings. Gross margin at Things Remembered
improved 1.1 and 1.2 percentage points in the third quarter and first nine
months of fiscal 1999, respectively, benefiting from increased sales of
additional personalization and higher margins from new products.
The unfavorable leverage in operating expenses for the third quarter was
primarily attributable to a 0.5 percentage point increase in managed vision care
costs and a 0.5 percentage point increase in payroll costs. The unfavorable
leverage for the first nine months was primarily attributable to a 0.9
percentage
-7-
<PAGE> 10
point increase in payroll costs, a 0.5 percentage point increase in managed
vision care costs and a 0.3 percentage point increase in net advertising
expenditures. The unfavorable payroll leverages were primarily due to the
comparable store sales decreases at Cole Vision and staffing increases in
managed vision care, partly offset by payroll leverage gains on the sales
increases at Things Remembered. The increases in managed vision care expenses
were primarily attributable to growth in call and claims volumes associated with
increases in sponsor-funded programs. The unfavorable advertising leverage was
due to increased advertising at Cole Licensed Brands in response to the
competitive pricing environment, partly offset by reduced spending at Pearle.
The depreciation and amortization expense increases were attributable to
increases in amortization of 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.
The decreases in income from operations were primarily the result of the
decreases in net revenue and gross profit, and the increases in operating
expenses and depreciation and amortization. Interest and other income includes
the recognition of $6.0 million of income in the third quarter of fiscal 1998
from a nontaxable cash settlement with the former owner of Pearle. Excluding the
Pearle settlement, net interest and other expense in fiscal 1999 decreased
slightly from the third quarter and first nine months of fiscal 1998. An income
tax provision was recorded in the first nine months of fiscal 1999 and fiscal
1998 using the Company's estimated annual effective tax rate of 41% in both
years.
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 believes that all critical programs and hardware are Year
2000 ready, including Y2K testing. As a precautionary measure, end-to-end Y2K
testing is being performed throughout the month of December. The Company has
communicated with its critical third party business partners and has received a
positive response of 90% overall. Contingency business relationships have been
set up for those who did not respond to the Company's inquiries. Detailed backup
and contingency plans for the year-end crossover are currently being developed
and management believes that they will be completed by mid-December.
Management estimates the total cost of the Year 2000 Readiness Program
will be approximately $4.2 million, including $1.0 million of new hardware and
software that has been 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 $0.6 million during the first nine months). 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.
-8-
<PAGE> 11
RECENT DEVELOPMENTS AND FORWARD-LOOKING INFORMATION
In the fourth quarter of fiscal 1999, the Company will continue to respond
to the competitive pricing environment that exists in the retail optical
industry. In addition, costs and expenses will be incurred to begin addressing
merchandise, field/store and franchise support, systems integration and other
initiatives with a primary focus of increasing comparable store sales growth in
the upcoming fiscal year. These actions may cause a negative impact on gross
margin and operating expenses before any significant sales improvements are
realized. As a result, it is unlikely there will be an improvement in the sales
and earnings trends of the Company's vision segment for the balance of fiscal
1999.
Further, the Company recently announced it has decided to exit the 150
Wards Optical departments it operates by the end of the fourth quarter of fiscal
1999 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.
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 Group and its suppliers, host stores, and managed vision care
organization partners to achieve Year 2000 readiness, the integration of
acquired operations, the 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, 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 Group. All forward-looking statements involve risk and uncertainty.
-9-
<PAGE> 12
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.
-10-
<PAGE> 13
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
(b) Report on Form 8-K
The Company has not filed any reports on Form 8-K for the quarterly period
ended October 30, 1999.
-11-
<PAGE> 14
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 GROUP, INC.
By: /s/ Wayne L. Mosley
--------------------------------------
Wayne L. Mosley
Vice President and Controller
(Duly Authorized Officer and Principal
Accounting Officer)
Date: December 3, 1999
-12-
<PAGE> 15
COLE NATIONAL GROUP, INC.
FORM 10-Q
QUARTER ENDED OCTOBER 30, 1999
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
27 Financial Data Schedule
-13-
<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> 9-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> OCT-30-1999
<CASH> 22,793
<SECURITIES> 0
<RECEIVABLES> 60,483
<ALLOWANCES> 8,421
<INVENTORY> 133,849
<CURRENT-ASSETS> 228,385
<PP&E> 258,403
<DEPRECIATION> 143,281
<TOTAL-ASSETS> 573,624
<CURRENT-LIABILITIES> 230,674
<BONDS> 274,215
0
0
<COMMON> 0
<OTHER-SE> 54,244
<TOTAL-LIABILITY-AND-EQUITY> 573,624
<SALES> 789,615
<TOTAL-REVENUES> 789,615
<CGS> 263,857
<TOTAL-COSTS> 759,824
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,891
<INCOME-PRETAX> 9,900
<INCOME-TAX> 4,059
<INCOME-CONTINUING> 5,841
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,841
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
