ITEM 1. BUSINESS
COMPANY PROFILE
Sunglass Hut International, Inc. ("Sunglass Hut" or the "Company") is the world's largest specialty retailer of sunglasses with over 2,000 locations worldwide. During fiscal 1996, the Company initiated an additional specialty store concept, Watch Station, and it is currently anticipated that this concept will continue to expand in fiscal 1998. Since opening its first kiosk in Miami, Florida in 1971, the Company has grown rapidly, both through internal expansion and acquisitions, increasing from 873 stores as of fiscal yearend 1993 to 2,089 specialty sunglass and 77 Watch Station locations as of fiscal yearend 1997.
During fiscal 1997, the Company opened 92 Sunglass Hut locations, 63 licensed departments and 27 Watch Station stores. The Company also (1) closed 105 locations as a part of its 1996 restructuring plan, (2) adopted a plan to discontinue its EyeX optical segment and (3) announced the future closing of approximately 250 additional locations as part of its 1997 restructuring plan.
The following table shows the historical growth of the Company's locations at yearend:
- ------------------- (1) Amounts exclude EyeX (the Company's discontinued optical segment) stores of 26, 28 and 2 at fiscal yearend 1997, 1996 and 1995, respectively.
At January 31, 1998, the Company operated 1,501 stores and 169 licensed departments throughout the United States as well as 107 stores and 42 licensed departments in Canada, 126 stores in Australia, ten stores in New Zealand, six stores in Singapore and one store in Hong Kong, 104 locations (including 102 stores and two licensed departments) throughout ten countries in Europe, 12 stores in Puerto Rico, six stores in the U.S. Virgin Islands and five stores in other Caribbean locations for a total of 2,089 specialty sunglass locations. At yearend, the Company also operated 77 Watch Station stores (75 in the United States and two in Europe) and 26 EyeX stores.
The Company believes that the flexibility of its specialty store formats and its attractive unit level economics provide it with access to a wide range of leasing opportunities which will facilitate its continued expansion. The Company is pursuing opportunities to continue to expand sunglass and watch specialty locations both domestically and internationally and plans to open approximately 60 - 80 domestic and 10 - 20 international Sunglass Hut locations in fiscal 1998. The Company also plans to open approximately 55 - 65 Watch Station stores in fiscal 1998.
RECENT DEVELOPMENTS
During fiscal 1997, the Company's net income was negatively impacted by significant charges related to (1) the evaluation of the Company's asset base, (2) management's related decision to focus the Company's merchandise assortment through a reduction of vendor and total unit presentation, (3) the impact of adoption of new accounting principles related to internal use software and (4) costs in connection with the resignation of the Company's former President and CEO.
Results of operations for the second quarter of fiscal 1997 were negatively impacted by $1.7 million, or $0.02 per share, of costs recorded in connection with the resignation of the Company's former President and CEO.
Results of operations for the fourth quarter of fiscal 1997 were negatively impacted by $102.6 million of costs ($75.8 million net of tax), or $1.39 per share, associated with the Company's evaluation of its asset base, the Company's related decision to focus the Company's merchandise assortment and reduce its vendor base, the adoption of new accounting principles, as well as a variety of other charges related to other responses to the current specialty sunglass environment. (See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Overview" for further information.)
In January 1998, the Company appointed a new President and Chief Executive Officer, John X. Watson. Prior to this appointment, the Company's Chairman of the Board served as acting Chief Executive Officer. Also, the Company has reorganized its corporate structure to allocate additional resources to its international and Watch Station operations, and hired an Executive Vice President of Strategic Business Development and International, and an Executive Vice President and General Manager for Watch Station to support these initiatives. In addition, the Company filled a number of open management positions including the positions of Vice President of Inventory Management and Logistics, Vice President of Real Estate and Construction and Vice President of Management Information Systems.
In March 1998, the Board of Directors authorized the repurchase of up to 7.5 million shares of Sunglass Hut's common stock. The repurchase program authorizes management, at its discretion, to make purchases from time to time on the open market or in privately negotiated transactions, as well as to sell put options. Stock repurchases and sales of put options would be based on management's assessment of Sunglass Hut's capital structure and liquidity, the market price of Sunglass Hut's stock compared to management's assessment of its underlying value, as well as regulatory, accounting and other factors. As of April 28, 1998, the Company had not made any repurchases of common shares under this program.
During 1997, the Company substantially completed its 1996 restructuring plan, closing 82 North America and 23 international locations, in addition to the 23 locations closed in the fourth quarter of 1996. To complete the 1996 restructuring plan, the Company plans to close 10 additional Sunglass Hut stores in fiscal 1998.
COMPETITION
The Company is the largest specialty retailer of sunglasses in the world. However, both the retail sunglass and watch businesses are highly competitive and the Company competes with many different types of retail stores. Since retail stores generally serve individual or local markets, competition is fragmented and varies substantially from one location or geographic area to another. Competitors in the over $30 sunglass market include chain and individual sunglass specialty stores, department stores, optical chains and sporting goods specialty stores. Catalog showrooms, warehouse clubs, discount stores, drug stores and other mass merchandisers that currently compete primarily in the under $30 segment of the retail sunglass industry also have a significant market share in the over $30 segment and could increase competitive pressure in this segment in the future. Competitors in the retail watch market include chain and individual watch specialty stores, department stores, catalog showrooms and jewelry stores. Certain of these competitors may have greater industry experience, financial and other resources than the Company. Management believes that the primary elements of competition in specialty stores are breadth, quality and in-stock availability of merchandise selection, price, level of customer service and convenience of store location, and that its specialty store concepts compete successfully on the basis of such factors.
EMPLOYEES
At January 31, 1998, the Company employed 8,843 persons, of whom 3,788 were full-time employees and 5,055 were part-time employees. The number of part-time associates employed by the Company fluctuates depending on seasonal needs. None of the Company's domestic employees are covered by collective bargaining agreements, and management believes that the Company's relations with its employees are good.
SERVICEMARKS AND TRADEMARKS
The names "Sunglass Hut International", "Watch Station" and "Sungear" are servicemarks registered in the United States Patent and Trademark Office. As of fiscal yearend 1997, the "Sunglass Hut International" servicemark and its logo were registered with approximately 34 legal jurisdictions worldwide. The Company has also taken active steps to register its "Watch Station", "SunGear", "Code" and "Torque" servicemarks on a worldwide basis. Management believes that these servicemarks are an integral element of the Company's marketing strategy. Although the Company has a number of other registered servicemarks, management does not believe that these are material to the Company's operations.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
The Company plans to selectively expand its specialty concepts into international markets. In 1997, the Company opened eight new stores in six European countries. In the Pacific Rim region, the Company opened 15 stores in Australia, six in Singapore and one in Hong Kong. See Note 14 of the Notes to Consolidated Financial Statements for additional information with respect to foreign and domestic operations.
ITEM 2.
ITEM 2. PROPERTIES
The Company currently leases all of its existing store locations and expects that its policy of leasing rather than owning will continue as it expands. The Company's leases generally provide for initial lease terms ranging up to seven years for kiosks and up to 10 years for in-line stores. Management believes that the use of short-term leases enhances the Company's flexibility to pursue various expansion opportunities resulting from changing market conditions. Rent generally includes a percentage of the store's sales volume and a fixed minimum base rent. The majority of lease rental payments are also subject to annual increases for taxes, common area maintenance and insurance.
As current leases expire, the Company believes that it will be able either to obtain lease renewals, if desired, for present store locations, or to obtain leases for equivalent or better locations in the same general area. To date, the Company has not experienced difficulty in either renewing leases for existing locations or securing leases for suitable locations for new stores.
The Company leases its corporate headquarters in Coral Gables, Florida. The lease has a ten-year term (expiring in 2004) with options to expand to additional space. The Company has a five-year lease with two renewable options of five years each at the 92,000 square foot Atlanta distribution center.
See Note 11 of the Notes to Consolidated Financial Statements for additional information with respect to the Company's operating leases.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
In January 1997, a class action securities lawsuit was filed against the Company and certain of its executive officers in the U.S. District Court of the Southern District of Florida. The lawsuit alleges, among other things, that the Company and certain of its officers made materially false and misleading statements regarding the Company's business performance and prospects. The Company believes that the lawsuit has no basis, and intends to vigorously defend the action. Although the ultimate outcome of the lawsuit cannot be predicted, management does not believe the lawsuit will have a material adverse effect on the financial position, results of operations or cash flows of the Company. However, there can be no assurance as to the ultimate resolution of this matter.
In October 1997, two class action lawsuits were filed against the Company in the State of California in the Superior Court of California. The lawsuits allege, among other things, that the Company violated California wage, overtime and vacation pay laws. The Company is in the process of joining the two claims and working with lead counsel to investigate and respond to the charges. Although the ultimate outcome of this lawsuit cannot be predicted, management does not believe that the outcome will have a material adverse effect on the results of operations of the Company. However, there can be no assurance as to the ultimate resolution of this matter.
In fiscal 1995, the Internal Revenue Service ("IRS") began an examination of the Company's federal income tax returns for fiscal 1992 through 1994. While the audit has not yet been finalized, the IRS personnel conducting the examination have advised the Company of concerns related to the Company's income tax reporting of certain deductions. The Company believes its position on these deductions is supportable. While this matter is in the early stage of development, based on information available to the Company at this time, management believes that this issue will not have a material adverse effect on the results of operations of the Company. However, there can be no assurance as to the ultimate resolution of this matter.
There are no other significant legal proceedings pending against the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of the Company's 1997 fiscal year.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ National Market under the symbol "RAYS." The following table sets forth, for the periods indicated, the high and low sale prices of shares of the common stock as reported on the NASDAQ National Market.
On April 24, 1998 the last reported sale price for the Company's common stock on the NASDAQ National Market was $9.94 per share. As of April 24, 1998 the Company had 300 stockholders of record (including brokerage firms and other nominees).
The Company intends to retain its earnings to finance the growth and development of its business and does not anticipate paying cash dividends on its capital stock in the foreseeable future. Future dividends, if any, will depend, among other things, on the future earnings, capital requirements and financial condition of the Company, and on such other factors as the Company's Board of Directors may consider relevant. In addition, the Company's revolving credit facility prohibits the payment of cash dividends. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources."
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below should be read in conjunction with the consolidated financial statements and related notes, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the other financial information included elsewhere in this Form 10-K. The data as of January 31, 1998 and February 1, 1997 and for each of fiscal 1997, 1996 and 1995 are derived from the Company's audited consolidated financial statements included elsewhere in this Form 10-K. The data as of February 3, 1996, January 28, 1995, and January 29, 1994 and for the fiscal 1994 and 1993 periods are derived from audited financial statements not included in this Form 10-K. Amounts for fiscal 1997, 1996 and 1995 have been reclassified from amounts originally reported to segregate the effects of EyeX from continuing operations.
- --------------------------- (1) In June 1995, the Company acquired Sunsations through the exchange of 7,411,764 shares of the Company's common stock for all of the outstanding common stock of Sunsations. The acquisition was accounted for as a pooling of interests, and, accordingly, the accompanying selected financial data has been retroactively adjusted to include the operations of Sunsations for all periods prior to the acquisition. Prior to the acquisition, Sunsations used a calendar yearend. Accordingly, the selected financial data for fiscal 1995, 1994 and 1993 combine Sunsations' historical selected financial data on a calendar yearend basis with the Company's historical selected financial data on a fiscal yearend basis. As a result of the acquisition, effective January 29, 1995 (the first day of the Company's fiscal 1995 year), Sunsations' yearend was changed to conform to the Company's fiscal yearend.
(2) The Company adopted a plan to discontinue its EyeX segment in January 1998 (see Note 4 to the Consolidated Financial Statements for additional details).
(3) The Company adopted Emerging Issues Task Force Issue No. 97-13, "Accounting for Costs Incurred in Connection with a Consulting Contract that Combines Business Process Reengineering and Information Technology Transformation" in the fourth quarter of fiscal 1997 (see Note 3 to the Consolidated Financial Statements for additional details).
(4) The pro forma adjustment for income taxes reflects the additional tax provision that would have been recorded at the corporation level had Sunsations not been an S corporation during the respective periods.
(5) All prior period net income (loss) per share data has been restated to reflect the requirements of Statement of Financial Accounting Standards No. 128, "Earnings per Share," which became effective for the year ended January 31, 1998.
(6) A store becomes comparable after it has been operated by the Company for more than 12 full months. In addition, all comparable store results reflect the operations of Sunsations.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain selected income statement data expressed as a percentage of net sales:
Amounts for 1997, 1996 and 1995 have been reclassified from amounts originally reported to segregate the effects of EyeX, the Company's optical segment, which was recorded as a discontinued operation in fiscal 1997, from continuing operations.
OVERVIEW
During fiscal 1997, the Company's operations continued to be negatively affected by a slowdown in comparable store sales, and certain international and licensed department operations continued to perform below expectations. In response to these performance levels, management performed an assessment of the Company's asset base, and determined (1) that approximately 250 marginal or unprofitable locations should be closed, (2) asset impairments should be recognized with respect to certain international and licensed department locations, certain store locations and other fixed assets, (3) merchandise assortments should be focused and the Company's vendor base should be reduced, and (4) the Company's EyeX segment should be discontinued.
The evaluation of the Company's asset base, the related decision to reduce vendor and total unit presentation, the adoption of two new accounting principles and other responses to the current sunglass specialty environment resulted in $102.6 million of costs ($75.8 million net of tax), or $1.39 per share, during the fourth quarter of fiscal 1997 as follows: (1) $31.1 million of long-lived and intangible asset impairments recognized in the Company's international operations, licensed department operations, selected store locations, as well as certain other fixed assets, (2) $23.5 million of costs (write-off of fixed assets, lease exit and other incremental exit costs) related to the elimination of approximately 250 marginal or unprofitable sites through closure, (3) $13.3 million of costs associated with the discontinuation and disposal of the Company's EyeX optical segment, (4) $13.0 million of inventory disposition costs in connection with the Company's decision to improve merchandise clarity and focus through the reduction of its vendor and total unit presentation, (5) $4.6 million of costs related to the impact of the adoption of new accounting principles during fiscal 1997 related to internal use software, including the cumulative effect of a change in accounting principle related to costs incurred in connection with the Company's information technology transformation projects, and (6) $17.1 million of other costs and expenses attributable to, among other things, efforts to restructure the Company's organizational infrastructure (including management retention and severance costs associated with the reorganization of international operations and other items). The net cash impact of these actions in 1998 is expected to be positive, as cash restructuring costs will likely be more than offset by income tax savings and inventory reduction associated with store closings. Also, it is estimated that annual pre-tax earnings could improve by up to $10 million once these restructuring actions are fully completed by fiscal 1999, although no assurance can be given in this regard.
The fiscal 1997 charges discussed above are reflected in the accompanying consolidated statement of operations as follows:
FISCAL 1997 COMPARED TO FISCAL 1996
Net sales increased $51.5 million, or 9.9%, to $573.8 million in fiscal 1997 from $522.3 million in fiscal 1996. Comparable store sales for fiscal 1997 were flat. Management attributes this weakness to a variety of factors including a lack of successful industry marketing initiatives.
Gross profit decreased $2.5 million, or 1.2%, to $207.1 million in fiscal 1997 from $209.6 million in fiscal 1996. As a percentage of net sales, gross profit decreased by 4.0% to 36.1% in fiscal 1997 from 40.1% in fiscal 1996. The 4.0% decrease in gross profit margin was primarily due to (1) the fourth quarter charges for (a) the vendor and unit discontinuation of $13.0 million to reflect discontinued merchandise at its realizable value upon disposal and other related disposal costs and (b) an additional $2.6 million of other costs, (2) markdowns and promotions as part of the Company's 1997 initiative to reduce and rebalance inventory levels, (3) reduced manufacturers' rebates and other vendor support, and (4) negative occupancy expense leverage due to flat comparable store sales, as well as higher occupancy costs in international markets.
Operating expenses increased $38.0 million, or 25.3%, in fiscal 1997, primarily due to fourth quarter charges of $16.8 million and costs associated with the operations and management of new stores opened in fiscal 1997 and fiscal 1996. As a percentage of net sales, operating expenses increased 4.1% to 32.8% in fiscal 1997 from 28.7% in fiscal 1996, primarily due to fourth quarter charges of $16.8 million, a charge of $1.7 million in connection with the resignation of the Company's former President and Chief Executive Officer, and higher marketing costs, coupled with the negative expense leverage impact of flat comparable store sales.
Depreciation and leasehold amortization expense increased $3.8 million, or 16.4%, in fiscal 1997, primarily due to new store growth during fiscal 1997 and 1996.
Amortization of cost in excess of net assets of acquired businesses increased by $84,000, or 3.6%, in fiscal 1997.
Restructuring expenses and asset impairment charges of $54.6 million consist of $31.1 million non-cash asset impairment charges and $23.5 million of restructuring expenses related to the closing of 250 marginal or unprofitable locations. Restructuring expenses consist of $12.9 million of non-cash fixed and other asset write-downs and $10.6 million for lease exit and other incremental cash exit costs (see "Overview" for additional details).
Interest expense increased $395,000, or 5.0%, in fiscal 1997 due to an increase in average outstanding borrowings, primarily to support new store operating and capital cash needs.
The Company's effective tax rate for fiscal 1997 and fiscal 1996 was 20.8% and 88.1%, respectively. The variation in the effective rate from the statutory rate for the tax benefit in fiscal 1997 and the tax provision in 1996 is primarily due to the recording of a valuation allowance for certain international deferred tax assets.
As a result of the foregoing, the Company had a net loss from continuing operations before cumulative effect of accounting change of $58.3 million in fiscal 1997 compared to net income from continuing operations of $994,000 in fiscal 1996.
The net loss from discontinued operations reflects the operating losses of EyeX, the Company's optical segment, net of taxes.
The estimated loss from disposal of discontinued operations of $8.1 million, net of taxes, reflects the estimated loss to dispose of EyeX, including costs to dispose of inventory and store locations, and the estimated remaining operating losses through closure.
The Company reported a net loss of $69.7 million in 1997 compared to a net loss of $225,000 in 1996.
FISCAL 1996 COMPARED TO FISCAL 1995
Amounts for 1996 and 1995 have been reclassified from amounts originally reported to segregate the effects of EyeX from continuing operations.
Net sales increased $104.2 million, or 24.9%, to $522.3 million in fiscal 1996 from $418.1 million in fiscal 1995, of which $94.0 million, or 90.2%, was primarily attributable to sales from new stores opened in fiscal 1996 (and fiscal 1995 to the extent not reflected in comparable store sales increases), and $10.2 million or 9.8% was attributable to an increase in comparable store sales. Comparable store sales increased 2.5% in fiscal 1996 from fiscal 1995. Throughout fiscal 1996, sales performance in both comparable and new stores progressively weakened. Management attributes this weakness to a variety of factors, including unfavorable weather conditions (as compared to the prior year), lack of timely new product introductions and increased turnover of store level associates (particularly as a result of acquisitions completed in fiscal 1995).
Gross profit increased $26.7 million, or 14.6%, to $209.6 million in fiscal 1996 from $182.9 million in fiscal 1995, primarily due to the increase in net sales. As a percentage of net sales, gross profit decreased by 3.6% to 40.1% in fiscal 1996 from 43.7% in fiscal 1995. The 3.6% decrease in gross profit margin was primarily due to (1) higher occupancy costs related to the Company's new store expansion, including expansion into international markets, and (2) higher inventory shrinkage and changes in manufacturers' return policies which resulted in defective product write-offs.
Operating expenses increased $36.2 million, or 31.7%, in fiscal 1996, primarily due to costs associated with the operations and management of new stores opened in fiscal 1996 and fiscal 1995. As a percentage of net sales, operating expenses increased 1.4% to 28.7% in fiscal 1996 from 27.3% in fiscal 1995, primarily due to (1) fourth quarter charges of $1.1 million associated with efforts to establish an organizational infrastructure to support the Company's 1997 strategic initiatives and (2) the negative impact of slower sales growth on the Company's fixed expenses.
Depreciation and leasehold amortization expense increased $6.7 million, or 40.3%, in fiscal 1996, primarily due to new store growth during fiscal 1996 and 1995.
Amortization of cost in excess of net assets of acquired businesses increased by $577,000, or 33.0%, in fiscal 1996.
Restructuring expenses consist of $17.5 million of nonrecurring costs and expenses incurred in connection with the planned store closures of approximately 120 stores. The $17.5 million pre-tax charge includes non-cash charges related to store closures, consisting of expenses related to the write-down of fixed and other assets of $8.9 million and other non-cash expenses of $700,000. Cash expenditures included in the pre-tax restructuring charge include lease exit, inventory restocking and handling, and severance costs of $7.9 million. The planned closures and conversions were substantially completed during 1997.
Interest expense increased $4.7 million, or 142%, in fiscal 1996 due to an increase in average outstanding borrowings, primarily to support inventory growth, and new store operating and capital cash needs.
The Company's effective tax rate for fiscal 1996 and fiscal 1995 was 88.1% and 41.8%, respectively. The increase in the tax rate for fiscal 1996 is primarily due to an increase in the valuation allowance for foreign net operating loss carryforwards.
As a result of the foregoing, the Company had net income from continuing operations of $994,000 in fiscal 1996 compared to $21.7 million in fiscal 1995. Results in fiscal 1996 include operating earnings from domestic operations, operating losses from international operations (see Note 14 of Notes to Consolidated Financial Statements for additional information regarding segment performance), interest costs related to indebtedness, and restructuring and strategic initiative costs.
The net loss from discontinued operations segregates the operating losses of EyeX, the Company's optical segment.
The Company reported a total net loss of $225,000 in fiscal 1996 compared to pro forma net income of $20.9 million in fiscal 1995.
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, and cash needs for its 1997 restructuring plan, as well as for the potential repurchase of stock, as authorized by the Company's Board of Directors in March 1998. The Company's long-term liquidity requirements relate principally to the maturity of the new revolving credit facility in April 2001, the maturity of the $115 million convertible subordinated Notes in June 2003, operating lease commitments and continued store expansion. In April 1998, the Company entered into an $80 million revolving credit facility with BankBoston Retail Finance Inc. ("BankBoston"), which replaced its former revolving credit agreement. BankBoston's commitment to fund revolving credit borrowings will reduce to $65 million effective February 1, 1999. The credit facility includes up to $10.0 million in letters of credit. Borrowings under the credit facility generally bear interest at a floating rate equal to, at the Company's option, (a) the prime rate or (b) LIBOR plus 1.50%. The facility is secured with a first priority lien and security interest in substantially all assets. Borrowings under the BankBoston facility can be used for working capital and other general corporate purposes, including stock repurchases (subject to minimum remaining borrowing availability of $10 million).
Due to the seasonal nature of the Company's business, outstanding borrowings 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." At January 31, 1998, the Company had outstanding borrowings under its former credit facility of $12.4 million and $2.2 million in letters of credit outstanding, which were maintained as security for performance under the Company's executive office lease and for purchases of certain merchandise.
Net cash provided by operating activities was $66.6 million during fiscal 1997 compared to net cash used of $18.2 million in fiscal 1996. The difference between the Company's net loss and operating cash flow in fiscal 1997 is primarily attributable to the reduction in inventory of $41.8 million (including a provision of $13.0 million to reduce discontinued merchandise to its net realizable value as a result of management's decision to focus the Company's merchandise assortment), the increase in accounts payable and accrued expenses of $35.3 million, depreciation and amortization of $29.5 million, and the provision for restructuring expenses and asset impairment charges of $54.6 million, offset by an increase in other current assets for tax refunds receivable of $13.4 million.
Net cash used in investing activities was $31.1 million during fiscal 1997 compared to $76.2 million during fiscal 1996. The fiscal 1997 and 1996 cash flows reflect capital expenditures for new stores as well as expenditures for renovation of existing stores. The decrease in 1997 capital expenditures is due to a lower number of new store openings.
Net cash used in financing activities was $38.7 million for fiscal 1997 compared to net cash provided by financing activities of $94.5 million for fiscal 1996. Financing cash flows for 1997 primarily reflect net repayment of the Company's revolving credit facility of $38.1 million, primarily due to the net reduction in inventory.
At January 31, 1998, the Company's commitments for capital expenditures totaled $1.5 million and related primarily to capital costs for new store construction and existing store renovations. Management believes that net cash provided by operations together with borrowing availability under the Company's new credit facility will be sufficient to fund estimated capital expenditures associated with the Company's planned opening of approximately 125 to 165 Sunglass Hut and Watch Station locations in fiscal 1998, potential stock repurchases under the Company's common stock repurchase program, planned cash expenditures associated with the Company's restructuring plan and other working capital requirements through at least fiscal 1998.
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 yearend 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, the integration of new stores into the operations of the Company and the timing of planned store closures, as well as other factors. The addition of a large number of new stores can affect results of operations on a quarter-to-quarter basis. See Note 15 of the Notes to Consolidated Financial Statements for additional information regarding quarterly financial data.
EFFECT OF NEW ACCOUNTING PRONOUNCEMENT
In April 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities". SOP 98-5 requires that costs incurred during the organization, pre-opening and start-up phases of a project be expensed as incurred, unless they are appropriately capitalizable under other existing accounting pronouncements. The Company is required to adopt the SOP prior to or in the first quarter of fiscal 1999, and, upon adoption, expense all remaining capitalized start-up costs as a cumulative effect of change in accounting principle. The Company is in the process of reviewing its capitalization policies and determining the impact of adoption of SOP 98-5 on its financial position and results of operations.
YEAR 2000 COMPLIANCE
The Company has substantially completed an assessment of its present management information systems' ability to recognize and process data containing dates beyond December 31, 1999. A portion of the Company's needs are being addressed with the implementation of new software for the human resources function (which was put in service in May 1997), and new financial software which is expected to be in service in the first quarter of 1998. The Company's 1998 capital plan includes upgrades and modifications to its remaining major system - for merchandising and inventory management - that will address Year 2000 compliance of this system. The Company has communicated with its vendors and other major suppliers, and is in the process of performing testing for changes made to address Year 2000 compliance.
The Company plans to use both internal and external resources to complete Year 2000 reprogramming, software replacement and testing. Preliminary plans anticipate completion of the implementation of the systems discussed above and other remedial work by the first quarter of 1999. The total remaining cost of the remedial work is estimated to be immaterial.
The costs of the projects and the date on which the Company plans to complete the work are based on management's best estimates, which were derived from numerous assumptions about future events, including the availability of certain resources, third-party modification plans and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. Specific factors that might cause material differences include, but are not limited to, the availability and cost of trained personnel and the ability to identify and correct all relevant computer codes.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
On a limited basis, the Company selectively uses foreign currency swap agreements to hedge the effect of changes in currency exchange rates on certain short-term intercompany transactions. No derivative contracts are entered into for trading or speculative purposes. The use of derivatives did not have a material impact on the Company's financial position, results of operations or cash flows in fiscal 1997, 1996 or 1995. See Note 1 to the Consolidated Financial Statements for further information.
PAGE ITEM 8.
ITEM 8. FINANCIAL STATEMENTS ---- Report of Independent Certified Public Accountants .............. 15
Consolidated Balance Sheets ..................................... 16
Consolidated Statements of Operations ........................... 17
Consolidated Statements of Stockholders' Equity ................. 18
Consolidated Statements of Cash Flows ........................... 19
Notes to Consolidated Financial Statements ...................... 21
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of Sunglass Hut International, Inc.:
We have audited the accompanying consolidated balance sheets of Sunglass Hut International, Inc. (a Florida corporation) and subsidiaries as of January 31, 1998 and February 1, 1997, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three fiscal years in the period ended January 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sunglass Hut International, Inc. and subsidiaries as of January 31, 1998 and February 1, 1997, and the results of their operations and their cash flows for each of the three fiscal years in the period ended January 31, 1998 in conformity with generally accepted accounting principles.
As discussed in Note 3 to the consolidated financial statements, the Company adopted the provisions of Emerging Issues Task Force Issue No. 97-13 and American Institute of Certified Public Accountants Statement of Position No. 98-1 in the fourth quarter of fiscal 1997.
ARTHUR ANDERSEN LLP
Miami, Florida, March 11, 1998 (except for the refinancing of debt discussed in the third paragraph of Note 10, as to which the date is April 28, 1998).
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
The accompanying notes to consolidated financial statements are an integral part of these statements.
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT SHARE DATA)
The accompanying notes to consolidated financial statements are an integral part of these statements.
SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
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SUNGLASS HUT INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED) (IN THOUSANDS)
The accompanying notes to consolidated financial statements are an integral part of these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Sunglass Hut International, Inc., a Florida corporation, and subsidiaries (collectively, the "Company"), are engaged in retail sunglass and watch sales. The Company operates stores located throughout the United States, Canada, the Caribbean, Europe, Australia, New Zealand, Singapore and Hong Kong.
FISCAL YEAR
The Company's yearend is the Saturday nearest January 31. Consequently, the Company's fiscal 1997, 1996 and 1995 years encompass the periods of February 2, 1997 through January 31, 1998, February 4, 1996 through February 1, 1997, and January 29, 1995 through February 3, 1996 (which constituted 53 weeks), respectively.
PRINCIPLES OF CONSOLIDATION/RECLASSIFICATIONS
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. EyeX, the Company's optical segment, has been recorded as a discontinued operation, and, accordingly, is accounted for using the equity method. The consolidated financial statements and notes thereto for all periods presented have been reclassified to reflect EyeX as a discontinued operation in accordance with Accounting Principles Board Opinion No. 30 (See Note 4).
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by management include but are not limited to the realizability of the Company's deferred tax assets, the possible outcome of outstanding litigation, inventory shrinkage accruals, recognition of supplier incentives and support, and future obligations and costs associated with the Company's restructuring plan and strategic initiatives. Actual results in subsequent periods could differ from those estimates.
STOCK DIVIDENDS
On September 15, 1995, the Company's Board of Directors declared a two-for-one stock split effected in the form of a 100% stock dividend paid on October 16, 1995. Except as otherwise noted, all share data relating to the Company's common stock has been restated to reflect the two-for-one stock split.
EARNINGS PER SHARE
Effective January 31, 1998, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share". Basic earnings per common share calculations are determined by dividing earnings available to common shareholders by the weighted average number of shares of common stock. Diluted earnings per share are determined by dividing earnings available to common shareholders by the weighted average number of shares of common stock and dilutive common stock equivalents outstanding (all related to outstanding stock options discussed in Note 13). SFAS No. 128 did not have a material impact on the Company's previously reported earnings (loss) per share for 1997, 1996 and 1995.
Basic and diluted earnings per share for income (loss) from continuing operations before cumulative effect of accounting change is computed as follows:
CONCENTRATION OF SUPPLIERS
In fiscal 1997, Bausch & Lomb (including Ray-Ban, Revo, Killer Loop and other brands) and Oakley, the Company's largest suppliers, accounted for approximately 21.0% and 16.9%, respectively, of the Company's total merchandise purchases. The Company has not experienced any significant difficulty in obtaining satisfactory sources of supply in the past. However, the Company has no long-term purchase contracts or other contractual assurance of continued supply, pricing or access to new products. While the Company believes that it has good relationships with its vendors, the inability to obtain merchandise from one or more key vendors on a timely basis, or a material change in the Company's current purchase terms, could have a material adverse effect on its results of operations.
INVENTORY
Inventory, which consists of retail merchandise, is stated at the lower of cost (computed using the average cost method which approximates the first-in, first-out method) or market. Provision, when necessary, has been made to reduce excess or obsolete inventory to its net realizable value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation and leasehold amortization. Depreciation and leasehold amortization are calculated using the straight-line method over the expected useful lives of the related assets. Useful lives generally range from 5 to 10 years. Upon the sale or disposition of property and equipment, the asset cost and related accumulated depreciation and leasehold amortization are removed from the accounts and any resulting gain or loss is included in income. Maintenance and repairs are expensed as incurred.
In the fourth quarter of fiscal 1997, the Company performed an analysis of the recoverability of the net book value of property and equipment for underperforming operations. As a result of the analysis, the Company reduced property and equipment by $20.2 million. (See Note 2 for further information).
COST IN EXCESS OF NET ASSETS OF ACQUIRED BUSINESSES
The unamortized cost in excess of net assets of acquired businesses is being amortized on a straight-line basis over periods ranging primarily from 15 to 25 years. Accumulated amortization at January 31, 1998 and February 1, 1997 was $28,408,000 and $27,587,000, respectively. The Company continually evaluates whether events and circumstances have occurred subsequent to acquisitions that indicate the remaining estimated useful life of cost in excess of net assets of acquired businesses may warrant revision or that the remaining balance of cost in excess of net assets of acquired businesses may not be recoverable. When factors indicate that cost in excess of net assets of acquired businesses should be evaluated for possible impairment, the Company uses an estimate of the related business' undiscounted projected net operating cash flows over the remaining life of the cost in excess of net assets of acquired businesses in measuring whether the remaining unamortized cost and the net book value of the related fixed and other assets are recoverable. If the cost in excess of net assets of acquired businesses is determined to be impaired, such assets are reduced to management's best estimate of the discounted projected net operating cash flows over the remaining life.
In response to events and circumstances in the fourth quarter of 1997, the Company completed an analysis of the recoverability of cost in excess of net assets of acquired businesses based on estimated projected net operating cash flows for underperforming operations. As a result of the analysis, the Company reduced cost in excess of net assets of acquired businesses for its Australian operations by $7.9 million (reducing the carrying value to $3.7 million at January 31, 1998) and reduced cost in excess of net assets of acquired businesses for certain North American acquisitions by $1.6 million. (See Note 2 for further information).
STORE OPENING COSTS
Salaries, training and travel costs relating to opening new retail locations are expensed as incurred.
INCOME TAXES
Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Deferred income tax provisions and benefits are based on the changes to the asset or liability from period to period. A valuation reserve is recognized to reduce net deferred tax assets to amounts that management believes are more likely than not to be realized. The Company files a consolidated tax return with its domestic subsidiaries in the United States.
TRANSLATION OF FOREIGN CURRENCIES
Assets and liabilities of foreign subsidiaries are translated at the rate of exchange in effect at the balance sheet date; income and expenses are translated at the average rates of exchange prevailing during the year. The related translation adjustments are reflected in the other comprehensive income section of the consolidated statements of stockholders' equity. Foreign currency gains and losses resulting from transactions denominated in foreign currencies, including intercompany transactions, except for intercompany loans of a long-term investment nature, are included in results of operations.
FORWARD CURRENCY SWAP AGREEMENTS
The Company enters into forward currency swap agreements from time to time to hedge the effect of changes in currency exchange rates on certain short-term intercompany transactions. Forward currency swap agreements obligate the Company to exchange, at future dates, various currencies at agreed upon exchange rates. Gains and losses on these agreements resulting from changes in currency exchange rates, if any, are offset against corresponding gains and losses on the short-term intercompany transactions, if any. Premiums paid or discounts received on these agreements are amortized over the term of the agreement. For reporting purposes, the assets and liabilities resulting from these agreements are offset because there is a legal right of offset.
At January 31, 1998, foreign currency swap agreements approximate $2.9 million and mature in fiscal 1998 and 1999. The fair values of these instruments approximate their carrying values at January 31, 1998.
The counterparties to these agreements are major international financial institutions, and the Company does not anticipate losses resulting from the credit risk of these institutions.
CASH AND CASH EQUIVALENTS/FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company classifies as cash and cash equivalents all interest-bearing deposits with original maturities of three months or less. The carrying amount of cash and cash equivalents, accounts receivable, accounts payable and borrowings under the revolving
credit facility approximate fair value as of January 31, 1998 and February 1, 1997. The fair value of convertible subordinated debentures approximates $86.2 million based on the quoted market value as of January 31, 1998.
NEW ACCOUNTING STATEMENTS
Comprehensive Income
In 1997, the Company adopted SFAS No. 130, "Reporting Comprehensive Income," which requires companies to report all changes in equity during a period, except those resulting from investments by owners or distributions to owners, in a financial statement for the period in which they are recognized. The Company has chosen to disclose comprehensive income, which encompasses net income and foreign currency translation adjustments, in the Consolidated Statements of Stockholders' Equity. Prior years have been restated to conform to the SFAS No. 130 requirements.
Start-Up Costs
In April 1998, the American Institute of Certified Public Accountants ("AICPA") issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities". SOP 98-5 requires that costs incurred during the organization, pre-opening and start-up phases of a project be expensed as incurred, unless they are appropriately capitalizable under other existing accounting pronouncements. The Company is required to adopt the SOP prior to or in the first quarter of fiscal 1999, and, upon adoption, expense all remaining capitalized start-up costs as a cumulative effect of change in accounting principle. The Company is in the process of reviewing its capitalization policies and determining the impact of adoption of SOP 98-5 on its financial position and results of operations.
NOTE 2--RESTRUCTURING EXPENSES AND ASSET IMPAIRMENT CHARGES
In the fourth quarter of 1997, management performed an assessment of the recoverability of the Company's asset base and, as a result, recorded $54.6 million ($34.8 net of tax benefits) for restructuring expenses and asset impairment charges. Pre-tax restructuring charges related to the closing of approximately 250 marginal or unprofitable locations consist of non-cash charges of $12.9 million for fixed and other asset write-downs and cash charges of $10.6 million for lease exit and other incremental exit costs. The Company expects the planned closures to be completed during fiscal 1998. Asset impairment charges of $31.1 million ($20.1 million net of tax) were determined based on an analysis of projected estimated cash flows for underperforming operations, and consist of write-downs of fixed and other assets for European operations of $6.5 million, Australian operations of $10.3 million (including $7.9 million of cost in excess of assets of acquired businesses), licensed departments of $4.0 million, certain underperforming domestic acquisitions of $2.5 million, and other underperforming assets of $7.8 million. The after-tax charge also reflects the probability that certain net operating loss carryforwards will not provide future tax benefits for the Company.
In the fourth quarter of 1996, the Company developed and commenced implementation of a restructuring plan to eliminate approximately 120 marginal or unprofitable locations through closure or conversion. In connection with the restructuring plan, the Company recorded restructuring expenses of $17.5 million ($14.7 million net of tax). The pre-tax charge includes non-cash charges related to store closures, consisting of expenses related to the write-down of fixed and other assets of $8.9 million and other non-cash expenses of $700,000. Cash expenditures included in the pre-tax restructuring charge include lease exit, inventory restocking and handling, and severance costs of $7.9 million. The after-tax charge also reflects the probability that certain net operating loss carryforwards will not provide future tax benefits to the Company. Through January 31, 1998, $15.9 million of the restructuring expenses provided for in 1996 have been used for restructuring purposes. The remaining accrual at January 31, 1998 for the 1996 restructuring plan was $1.6 million.
NOTE 3--ADOPTION OF NEW ACCOUNTING PRONOUNCEMENTS REGARDING ACCOUNTING FOR INTERNAL USE SOFTWARE
In the fourth quarter of fiscal 1997, as required, the Company adopted Emerging Issues Task Force ("EITF") Issue No. 97-13, "Accounting for Costs Incurred in Connection with a Consulting Contract that Combines Business Process Reengineering and Information Technology Transformation", which requires that reengineering costs incurred as part of an acquisition, installation or development of software be separated from other software project costs and expensed as incurred. In accordance with EITF Issue No. 97-13, the cumulative effect of the change in accounting principle of $2.3 million ($1.4 million net of tax) has been recognized in the fourth quarter of fiscal 1997 in the accompanying consolidated statements of operations to reflect reengineering costs previously capitalized as part of the consulting costs incurred for the Company's human resources and financial software implementation projects.
As of fiscal yearend 1997, the Company adopted AICPA SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use". SOP 98-1 requires, in general, that all costs in the preliminary project stage of a software
installation or development project (prior to software selection) and all costs in the post-implementation stage (once the software is operational), as well as costs incurred to convert data (other than coding), should be expensed as incurred. In accordance with this pronouncement, the provisions of SOP 98-1 were retroactively adopted as of the beginning of fiscal year 1997, and, as a result, the Company recorded charges of $2.3 million in operating expenses in the accompanying consolidated statements of operations for the period. Data for the first three quarters of fiscal 1997 has not been restated due to immateriality.
NOTE 4--DISCONTINUED OPERATIONS
In January 1998, as part of the Company's evaluation of its asset base, the Company adopted a plan to discontinue its EyeX segment. Net assets of the discontinued operation at January 31, 1998 consist primarily of inventory, property and equipment, which are partially offset by the estimated loss from disposal of EyeX of $8.1 million (net of taxes of $5.2 million), which includes the estimated cost to dispose of the segment and the estimated operating losses through the expected date of disposition. The Company intends to complete the disposition of EyeX during fiscal 1998. Summarized results of EyeX since inception are as follows:
The net assets of discontinued operations are summarized as follows:
NOTE 5--ACQUISITIONS
SUNSATIONS SUNGLASS COMPANY ACQUISITION
During the second quarter of fiscal 1995, the Company acquired Sunsations Sunglass Company ("Sunsations"), an Indiana corporation, through the exchange of all of the outstanding common stock of Sunsations for 7,411,764 shares of the Company's common stock. At the time of the acquisition, Sunsations operated 351 stores in 44 states and Canada. The acquisition was accounted for as a pooling of interests, and, accordingly, the accompanying consolidated financial statements have been retroactively restated to include the accounts and operations of Sunsations for the period prior to the acquisition.
Prior to the acquisition, Sunsations used a calendar yearend. As a result of the acquisition, effective January 29, 1995 (the first day of the Company's fiscal 1995 year), Sunsations' fiscal yearend was changed to conform with the Company's fiscal yearend. Sunsations' results of operations for the 28 days ended January 28, 1995 have been recorded in the accompanying fiscal 1995 financial statements as an adjustment to accumulated deficit. Net sales and pro forma net loss for Sunsations for the 28 days ended January 28, 1995, not included in the accompanying statement of operations, were approximately $2,190,000 and $1,321,000 (or $789,000 net of pro forma income tax benefit), respectively. Results of operations for this 28-day period ended January 28, 1995 reflects the impact of the seasonal nature of Sunsations' sales results and is not necessarily indicative of results expected for the entire fiscal year.
The Company's and Sunsations' separate results for the twenty-two weeks ended July 1, 1995 is as follows:
TWENTY-TWO WEEKS ENDED JULY 1, 1995 (IN THOUSANDS) Net sales: Sunglass Hut International, Inc. $ 146,227 Sunsations Sunglass Company 28,780 -------------------- $ 175,007 ==================== Pro forma net income: Sunglass Hut International, Inc. $ 9,118 Sunsations Sunglass Company 1,319 -------------------- $ 10,437 ====================
In connection with the acquisition, approximately $10.1 million of nonrecurring acquisition-related costs and expenses were incurred and charged to expense in the Company's second quarter of fiscal 1995. These nonrecurring acquisition-related costs and expenses included (1) $2.3 million of expense related to pre-existing Sunsations' debt, consisting primarily of contingent interest incurred by Sunsations as a result of the acquisition, (2) $1.4 million incurred in connection with the termination of Sunsations' management agreement with one of Sunsations' affiliates (under which Sunsations incurred management fees of $125,000 during 1995), (3) $3.1 million incurred for legal, accounting and consulting fees relating to the acquisition, and (4) $3.3 million incurred for other costs and expenses relating to the business combination.
SUNGLASS WORLD HOLDINGS PTY LTD. ACQUISITION
In fiscal 1994, the Company acquired a 50% interest in Sunglass World Holdings Pty Ltd. ("Sunglass World"), a premier specialty retailer of sunglasses in Australia. The 50% interest was accounted for using the equity method until the third quarter of 1995, when the Company acquired the remaining 50% interest. As such, in the third quarter of 1995, the acquisition of Sunglass World was accounted for as a purchase, and the assets acquired and liabilities assumed, and results of operations since the acquisition, have been included in the Company's consolidated financial statements. The fair value of the net assets acquired approximated their book value at the dates of acquisition. The aggregate purchase price paid for Sunglass World exceeded the fair value of the net assets acquired by approximately $13.7 million and is being amortized over 25 years. At the time of acquisition, Sunglass World operated 85 stores in Australia. In the fourth quarter of 1997, management reassessed the recoverability of this asset, and, as a result, reduced cost in excess of net assets of acquired businesses by $7.9 million (see Notes 1 and 2).
Pro forma results of operations, assuming the acquisition occurred at the beginning of fiscal 1995, would not be materially different from the consolidated results reported herein. Equity in the loss of the joint venture (net of management fees and interest on advances charged to the joint venture) was approximately $562,000 in fiscal 1995, and is included in operating expenses in the accompanying consolidated statements of operations for fiscal 1995.
OTHER ACQUISITIONS
During fiscal 1997, 1996 and 1995, Sunglass Hut continued to take advantage of additional opportunities to acquire other smaller competitive chains of sunglass specialty retailers that provide the Company with access to new markets as well as desirable locations in existing markets. The Company acquired an additional 41 store locations in 1997, 19 store locations in fiscal 1996 and 89 store locations in fiscal 1995 from competitors in a number of acquisitions, a majority of which were accounted for as purchases. For those acquisitions accounted for as poolings of interests, prior periods were not restated due to immateriality.
NOTE 6--OTHER CURRENT ASSETS
Other current assets consist of the following at fiscal yearend:
FISCAL --------------------------------- 1997 1996 ------------- --------------- (IN THOUSANDS) Current deferred tax assets $ 19,822 $ 4,695 Tax refund receivable 17,660 4,200 Other 5,295 3,815 ============= =============== $ 42,777 $ 12,710 ============= ===============
NOTE 7--PROPERTY AND EQUIPMENT
NOTE 8--ACCRUED EXPENSES
NOTE 9--INCOME TAXES
Income tax expense (benefit) attributable to income (loss) from continuing operations before cumulative effect of accounting change consists of:
Income tax expense (benefit) attributable to income (loss) from continuing operations before cumulative effect of accounting change differed from the amounts computed by applying the U.S. federal income tax rate of 35% to pretax income (loss) from continuing operations before cumulative effect of accounting change as a result of the following:
The pro forma adjustment to reflect income taxes in the consolidated statements of operations and in the reconciliation above reflects the additional tax provision that would have been recorded at the corporation level had Sunsations (see Note 5) not been an S corporation during the respective periods. Taxes paid, as presented in the accompanying consolidated statements of cash flows for fiscal 1995, represent those paid by the Company and Sunsations and do not include distributions made to the former stockholders of Sunsations for payment of federal income taxes.
The components of the current and non-current deferred tax assets are summarized as follows at fiscal yearend:
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset may not be realized. The net change in the total valuation allowance and contingencies for the year ended January 31, 1998 was an increase of $2.9 million.
The Company has not recognized a deferred tax liability for the undistributed earnings of its wholly-owned foreign subsidiaries because the Company currently does not expect those unremitted earnings to reverse and become taxable to the Company in the foreseeable future. A current or deferred tax provision, as applicable, will be recognized when the Company expects that it will recover those undistributed earnings in a taxable manner. At of January 31, 1998, the undistributed earnings of these subsidiaries (not including subsidiaries with foreign net operating losses) was approximately $4.0 million.
NOTE 10--LONG-TERM DEBT
Long-term debt consists of the following at fiscal yearend:
The Company's former unsecured revolving credit facility, as amended, with NationsBank of Florida, National Association ("NationsBank"), acting as the agent for a conglomerate of banks, provided for a commitment through June 1998 to fund revolving credit borrowings of up to $40 million and up to $10 million in letters of credit. During fiscal 1997, the Company amended the NationsBank facility to reduce the maximum borrowings under the facility to $40 million from $75 million and amend certain financial covenants. As of January 31, 1998, primarily as a result of restructuring expenses, and asset impairment and other fourth quarter charges, the Company was not in compliance with the financial covenants required under its former credit facility. The former NationsBank facility also required that borrowing levels be reduced to a maximum of $20 million for any selected 45 day period prior to the expiration of the facility in June 1998. At January 31, 1998, the Company had $2.2 million in unsecured letters of credit outstanding which are being maintained as security for performance under the Company's executive office lease and for certain purchases of merchandise.
In April 1998, the Company refinanced the NationsBank revolving credit facility, by entering into an $80 million revolving credit facility with BankBoston Retail Finance Inc. ("BankBoston"). The facility provides for a three-year commitment through April 2001 and will reduce to $65 million effective February 1, 1999. The credit facility includes up to $10.0 million in letters of credit. Borrowings under the credit facility generally bear interest at a floating rate equal to, at the Company's option, (a) the prime rate or (b) LIBOR plus 1.50%. The facility is secured with a first priority lien and security interest in substantially all assets. Borrowings under the BankBoston facility can be used for working capital and other general corporate purposes, including stock repurchases (subject to minimum remaining availability of $10 million).
In June 1996, the Company issued $115 million principal amount of convertible subordinated notes (the "Notes") to certain qualified institutional investors. (The resale of the Notes was later registered with the Securities and Exchange Commission in October 1996.) The private placement was made for the purpose of refinancing 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.
Maturities of long-term debt are as follows at January 31, 1998:
FISCAL YEAR AMOUNT ----------------------- --------------------- (IN THOUSANDS)
1998 $ 12,575 1999 - 2002 0 Thereafter 115,000 --------------------- $ 127,575 =====================
NOTE 11--COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases all of its retail stores and its office and warehouse facilities under operating leases. Store rent expense generally includes a percentage of the retail store's sales volume or a fixed minimum base rent. In addition, the majority of leases are subject to an annual adjustment for increases in real estate taxes, maintenance and insurance costs.
The Company was obligated for the following minimum annual base rentals under operating leases at January 31, 1998:
FISCAL YEAR AMOUNT ------------------- ------------------- (IN THOUSANDS)
1998 $ 75,427 1999 67,049 2000 55,296 2001 48,131 2002 41,175 Thereafter 124,370 ------------------- $ 411,448 ===================
Base rent expense totaled $83,878,000, $73,402,000 and $49,007,000 for fiscal years 1997, 1996 and 1995, respectively. Percentage of sales over a fixed minimum base rent totaled $6,195,000, $5,677,000 and $6,132,000 for fiscal years 1997, 1996 and 1995, respectively.
SELF-INSURED GROUP HEALTH
The Company is self-insured for employee medical benefits under the Company's group health plan. The Company maintains stop loss coverage for individual medical claims in excess of $125,000 and for annual Company medical claims which exceed approximately $2,750,000 in the aggregate. While the ultimate amount of claims incurred are dependent on future developments, in management's opinion, recorded reserves are adequate to cover the future payment of claims. However, it is reasonably possible that recorded reserves may not be adequate to cover the future payment of claims. Adjustments, if any, to estimates recorded resulting from ultimate claim payments will be reflected in operations in the periods in which such adjustments are known.
CONSTRUCTION COMMITMENTS
In the normal course of business, the Company enters into commitments for the construction of both new stores and existing store renovations. At January 31, 1998, the amount outstanding under these construction commitments totaled approximately $1.5 million.
LITIGATION, CLAIMS AND ASSESSMENTS
In January 1997, a class action securities lawsuit was filed against the Company and certain of its executive officers in the U.S. District Court of the Southern District of Florida. The lawsuit alleges, among other things, that the Company and certain of its officers made materially false and misleading statements regarding the Company's business performance and prospects. The Company believes that the lawsuit has no basis, and intends to vigorously defend the action. Although the ultimate outcome of the lawsuit cannot be predicted, management does not believe the outcome of the lawsuit will have a material adverse effect on the financial position, results of operations or cash flows of the Company. However, there can be no assurance as to the ultimate resolution of this matter.
In October 1997, two class action lawsuits were filed against the Company in the State of California in the Superior Court of California. The lawsuits allege, among other things, that the Company violated California wage, overtime and vacation pay laws. The Company is in the process of joining the two claims and working with lead counsel to investigate and respond to the charges. Although the ultimate outcome of this lawsuit cannot be predicted, management does not believe that the outcome will have a material adverse effect on the results of operations of the Company.
The Internal Revenue Service ("IRS") is conducting an examination of the Company's federal income tax returns for fiscal 1992 through 1994. While the audit has not yet been finalized, the IRS personnel conducting the examination have advised the Company of concerns related to the Company's income tax reporting of certain deductions. The Company believes its positions on
these matters are supportable. While this matter is in the early stage of development, based on information available to the Company at this time, management believes that this issue will not have a material adverse effect on the results of operations of the Company. However, there can be no assurance as to the ultimate resolution of this matter.
There are no other significant legal proceedings pending against the Company.
NOTE 12--STOCKHOLDERS' EQUITY
PREFERRED AND COMMON STOCK
The Company is authorized to issue 1,000,000 shares of preferred stock, $.01 par value per share. The Company's Board of Directors has the authority to fix the voting powers, dividend rates, liquidation preferences, conversion and other rights. No preferred stock is outstanding.
As of January 31, 1998, the Company was authorized to issue 100,000,000 shares of common stock, $.01 par value per share, and had issued and outstanding 54,704,646 shares with a par value of $547,046. As of February 1, 1997, the Company was authorized to issue 100,000,000 shares of common stock, $.01 par value per share, and had issued and outstanding 54,448,646 shares.
During March 1998, the Board of Directors authorized the repurchase of up to 7.5 million shares of Sunglass Hut's common stock. The repurchase program authorizes management, at its discretion, to make purchases from time to time on the open market or in privately negotiated transactions, as well as to sell put options. Stock repurchases and sales of put options would be based on management's assessment of the Company's capital structure and liquidity, the market price of the Company's common stock compared to management's assessment of its underlying value, as well as regulatory, accounting and other factors. As of April 28, 1998, the Company had not made any repurchases of common stock or sold any put options under this program.
NOTE 13--EMPLOYEE BENEFIT PLANS
STOCK-BASED COMPENSATION PLAN
Effective March 31, 1996, the Company adopted the Sunglass Hut International, Inc. 1996 Executive Incentive Compensation Plan (the "1996 Plan") for key employees, officers, non-employee directors and independent contractors, which superseded the Company's previous stock-based compensation plan. The 1996 Plan provides for grants of stock options, stock appreciation rights, restricted common stock and other related awards that may be settled in cash, stock or other property. The total number of common shares subject to grant under the 1996 Plan is limited to 6,000,000, as adjusted, based on the 1996 Plan's formula, for issuances, redemptions, forfeitures and certain outstanding awards plan. As of January 31, 1998, 3,735,816 common shares remained available for grant under the 1996 Plan, and, through this date, awards of stock options, common stock and restricted common stock had been granted under the 1996 Plan. The exercise period for all grants expires ten years from date of grant.
A summary of the status of the Company's stock-based compensation plans as of the end of fiscal years 1997, 1996 and 1995, and changes during the fiscal years then ended is presented below:
The following table summarizes information about stock options outstanding at fiscal 1997 yearend:
As permitted under SFAS No. 123, "Accounting for Stock-Based Compensation", the Company accounts for stock-based employee compensation arrangements in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", whereby no compensation cost is deducted in determining net income (loss). Had the Company recorded stock-based compensation cost for options granted in fiscal 1997, 1996 and 1995 pursuant to SFAS No. 123 (using the Black-Scholes options pricing model) net income (loss) and diluted net income (loss) per share, including the assumptions used in these calculations, would have been as follows for fiscal 1997, 1996, and 1995:
SAVINGS PLAN
The Company has an employee savings plan (the "Savings Plan") pursuant to Section 401(k) of the Internal Revenue Code. All employees who are age 21 or older and who have been credited with at least 1,000 hours of service within 12 consecutive months are eligible to participate in the Savings Plan. Employees may elect to contribute to the Savings Plan through payroll deductions in an amount not to exceed the amount permitted under the Internal Revenue Code. The Company makes matching contributions equal to 50% of the participant's eligible tax deferred contribution to a maximum of 5% of their compensation on behalf of the participants. Employees are fully vested in their contributions. Company contributions vest at a rate of 20% on February 1 of each year, provided that the participant has completed one full year of employment with the Company as of such date.
During fiscal years 1997, 1996 and 1995, the Company's contributions to the Savings Plan aggregated approximately $250,000, $295,000 and $246,000, respectively.
STOCK PURCHASE PLAN
In February 1996, the Company implemented an employee stock purchase plan (the "Stock Purchase Plan"). The Stock Purchase Plan enables qualified employees of the Company to subscribe to shares of the Company's common stock on periodic offering dates at a purchase price equal to the fair market value of the shares on such dates.
NOTE 14--SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in the retail sunglass, watch and eyeglass industries. Retail watch and eyeglass operations are not material to the operations of the Company. Substantially all net sales result from the sale of sunglasses to unaffiliated customers. The Company's international operations are located in Canada, the Caribbean, Europe, Australia, New Zealand, Singapore and Hong Kong. The following summarizes the Company's domestic and international operations:
In fiscal 1995, the Company acquired the remaining 50% interest in a joint venture in Australia (see Note 5). Equity in the loss of the joint venture (net of management fees and interest on advances charged to the joint venture) was approximately $562,000 in fiscal 1995.
NOTE 15--QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited summarized financial data by quarter for fiscal 1997 and 1996 is as follows (in thousands, except per share data):
Quarterly amounts for 1997 and 1996 have been reclassified from amounts originally reported to segregate the effects of EyeX from continuing operations.
1997 QUARTERLY INFORMATION - CONTINUING OPERATIONS
Results of operations for the second quarter of 1997 were negatively impacted by $1.7 million, or $0.02 per share, of costs recorded in connection with the resignation of the Company's former President and CEO.
In the fourth quarter of 1997, the Company's management performed an assessment of the recoverability of the Company's asset base, and, based on the results of the assessment, recorded restructuring expenses and asset impairment charges of $54.6 million in connection with the planned closure of approximately 250 locations and the recognition of asset impairments for underperforming operations. (See Note 2 for further information.)
Additional pre-tax charges recorded in the fourth quarter of 1997 include (1) $13.3 to record the Company's EyeX optical segment as a discontinued operation (see Note 4), (2) $4.6 million as a result of the adoption of two new accounting pronouncements concerning internal use software costs (see Note 3), (3) $17.1 million for reorganization of the Company's management structure and other non-operational initiatives, and (4) $13.0 million to reflect discontinued merchandise at its realizable value upon disposal and other related disposal costs.
1996 QUARTERLY INFORMATION - CONTINUING OPERATIONS
In the fourth quarter of 1996, the Company's management developed and commenced implementation of a restructuring plan for the Company's worldwide operations (including the elimination of marginal or unprofitable locations through closure or conversion) and recorded a $17.5 million restructuring charge in connection with the planned closure of approximately 120 Sunglass Hut locations. (See Note 2 for further information).
Additionally, during the third and fourth quarters of 1996, the Company incurred the following other costs and expenses: (1) $2.5 million recognized during the third quarter to reflect higher than anticipated inventory shrinkage and defective product write-offs due to changes in manufacturers' return policies recognized as a result of a physical inventory conducted at the end of the third quarter after the consolidation of the Company's U.S. distribution facilities, (2) $5.0 million of costs and expenses during the fourth quarter related to its product purchases from Bausch & Lomb, including a reduction of the Company's performance incentive and other margin and marketing support attributable to the Company's lower than expected fourth quarter sales performance, cancellation of purchase orders and return of product, and (3) $1.1 million of expenses during the fourth quarter primarily associated with its efforts to establish an organizational infrastructure to support the Company's 1997 strategic initiatives.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
The Proxy Statement for the Annual Meeting of Stockholders to be held June 4, 1998 which, when filed pursuant to Regulation 14A under the Securities Exchange Act of 1934, will be incorporated by reference in this Annual Report on Form 10-K pursuant to General Instruction G(3) of Form 10-K, will provide the information required under Part III (Items 10, 11, 12, and 13).
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS. Reference is made to the Index set forth on page 14 of this Annual Report on Form 10-K.
2. FINANCIAL STATEMENTS SCHEDULE. All schedules for which provision is made in the applicable accounting regulations of the Commission are not required under the related instructions or are not applicable, and therefore have been omitted.
3. EXHIBITS. An asterisk to the left of an exhibit number denotes a management contract or compensatory plan or arrangement required to be filed as an exhibit to the Annual Report on Form 10-K.
EXHIBIT DESCRIPTION - -------------------------------------------------------------------------------- 3.1 Registrant's Articles of Incorporation(3.1)(4) 3.2 Registrant's Amended and Restated Bylaws(3.2)(4) 4.1 Registration Rights Agreement, dated June 26, 1996, between the Registrant and the initial purchasers of the 51/4% Convertible Subordinated Notes due 2003 (4.7)(4) 4.2 Indenture, dated as of June 26, 1996, among the Registrant and the Bank of New York for Convertible Subordinated Notes (4.8)(4) *10.1 Registrant's Amended and Restated Stock Option Plan, as amended. *10.2 Sunglass Hut International, Inc. 1996 Executive Incentive Compensation Plan (10.1)(5) 10.3 Form of Indemnification Agreement between the Registrant and each of its directors and certain executive officers(10.2)(1) 10.4 Office Space Lease Agreement, dated as of October 28, 1993, between The Travelers Insurance Company and the Registrant(10.7)(3) *10.5 Sunglass Hut International, Inc. 1996 Executive Incentive Compensation Plan. *10.6 Consulting and Management Services Agreement between Sunglass Hut International, Inc. and Hauslein & Company, Inc. dated February 24, 1997 (incorporated by reference to Exhibit 10.11 of the Company's Report on form 10-Q for the fiscal quarter ended May 3, 1997). *10.7 Stock Award Agreement between Sunglass Hut International, Inc. and Edward L. Grund dated April 1, 1997 (incorporated by reference to Exhibit 10.12 of the Company's Report on form 10-Q for the fiscal quarter ended May 3, 1997). *10.8 Restricted Stock Agreement between Sunglass Hut International, Inc. and Edward L. Grund dated April 1, 1997 (incorporated by reference to Exhibit 10.13 of the Company's Report on form 10-Q for the fiscal quarter ended May 3, 1997). *10.9 Separation Agreement and General Release between the Registrant and Jack B. Chadsey dated May 29, 1997 (incorporated by reference to Exhibit 10.14 of the Company's Report on form 10-Q for the fiscal quarter ended August 2, 1997). *10.10 Stock Option Agreement between the Registrant and James N. Hauslein (incorporated by reference to Exhibit 10.17 of the Company's Report on form 10-Q for the fiscal quarter ended November 1, 1997).
10.11 Agreement for revolving credit facility dated as of April 28, 1998, amoung the Registrant, Bank Boston Retail Finance Inc. and the other Lenders named therein(2)
21.1 Subsidiaries of the Registrant(2) 23.1 Consent of Arthur Andersen LLP(2) 27 Financial Data Schedule(2)
- -------------------------- (1) Incorporated by reference to the exhibit shown in the preceding parentheses and filed with the Registrant's Registration Statement on Form S-1 (File No. 33-59872).
(2) Filed herewith.
(3) Incorporated by reference to the exhibit shown in the preceding parenthesis and filed with the Registrant's Registration Statement on Form S-1 (File No. 33-70214).
(4) Incorporated by reference to the exhibit shown in the preceding parenthesis and filed with Registrant's Registration Statement on form 8-B filed on August 23, 1996 (File No. 000-21690).
(5) Incorporated by reference to the exhibit shown in the preceding parenthesis and filed with the Registrant's Registration Statement on Form S-8 (File No. 333-20107).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period covered by this report.
(c) Exhibits Required by Item 601 of Regulation S-K
The index to exhibits that are listed in Item 14(a)(3) of this report and not incorporated by reference follows the "Signatures" section hereto and is incorporated herein by reference.
(d) Financial Statement Schedules Required by Regulation S-X
Reference is made to Item 14(a)2.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
SUNGLASS HUT INTERNATIONAL, INC.
By: /S/ LARRY G. PETERSEN ------------------------------------------------------------------- Larry G. Petersen, Senior Vice President--Finance and Chief Financial Officer
Dated: April 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities and on the dates indicated.
EXHIBIT INDEX
EXHIBIT DESCRIPTION
10.11 Agreement for revolving credit facility dated as of April 28, 1998, among the Registrant, Bank Boston Retail Finance Inc. and the other Lenders named therein
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
27 Financial Data Schedule
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. FINANCIAL STATEMENTS. Reference is made to the Index set forth on page 14 of this Annual Report on Form 10-K.
2. FINANCIAL STATEMENTS SCHEDULE. All schedules for which provision is made in the applicable accounting regulations of the Commission are not required under the related instructions or are not applicable, and therefore have been omitted.
3. EXHIBITS. An asterisk to the left of an exhibit number denotes a management contract or compensatory plan or arrangement required to be filed as an exhibit to the Annual Report on Form 10-K.
EXHIBIT DESCRIPTION - -------------------------------------------------------------------------------- 3.1 Registrant's Articles of Incorporation(3.1)(4) 3.2 Registrant's Amended and Restated Bylaws(3.2)(4) 4.1 Registration Rights Agreement, dated June 26, 1996, between the Registrant and the initial purchasers of the 51/4% Convertible Subordinated Notes due 2003 (4.7)(4) 4.2 Indenture, dated as of June 26, 1996, among the Registrant and the Bank of New York for Convertible Subordinated Notes (4.8)(4) *10.1 Registrant's Amended and Restated Stock Option Plan, as amended. *10.2 Sunglass Hut International, Inc. 1996 Executive Incentive Compensation Plan (10.1)(5) 10.3 Form of Indemnification Agreement between the Registrant and each of its directors and certain executive officers(10.2)(1) 10.4 Office Space Lease Agreement, dated as of October 28, 1993, between The Travelers Insurance Company and the Registrant(10.7)(3) *10.5 Sunglass Hut International, Inc. 1996 Executive Incentive Compensation Plan. *10.6 Consulting and Management Services Agreement between Sunglass Hut International, Inc. and Hauslein & Company, Inc. dated February 24, 1997 (incorporated by reference to Exhibit 10.11 of the Company's Report on form 10-Q for the fiscal quarter ended May 3, 1997). *10.7 Stock Award Agreement between Sunglass Hut International, Inc. and Edward L. Grund dated April 1, 1997 (incorporated by reference to Exhibit 10.12 of the Company's Report on form 10-Q for the fiscal quarter ended May 3, 1997). *10.8 Restricted Stock Agreement between Sunglass Hut International, Inc. and Edward L. Grund dated April 1, 1997 (incorporated by reference to Exhibit 10.13 of the Company's Report on form 10-Q for the fiscal quarter ended May 3, 1997). *10.9 Separation Agreement and General Release between the Registrant and Jack B. Chadsey dated May 29, 1997 (incorporated by reference to Exhibit 10.14 of the Company's Report on form 10-Q for the fiscal quarter ended August 2, 1997). *10.10 Stock Option Agreement between the Registrant and James N. Hauslein (incorporated by reference to Exhibit 10.17 of the Company's Report on form 10-Q for the fiscal quarter ended November 1, 1997).
10.11 Agreement for revolving credit facility dated as of April 28, 1998, amoung the Registrant, Bank Boston Retail Finance Inc. and the other Lenders named therein(2)
21.1 Subsidiaries of the Registrant(2) 23.1 Consent of Arthur Andersen LLP(2) 27 Financial Data Schedule(2)
- -------------------------- (1) Incorporated by reference to the exhibit shown in the preceding parentheses and filed with the Registrant's Registration Statement on Form S-1 (File No. 33-59872).
(2) Filed herewith.
(3) Incorporated by reference to the exhibit shown in the preceding parenthesis and filed with the Registrant's Registration Statement on Form S-1 (File No. 33-70214).
(4) Incorporated by reference to the exhibit shown in the preceding parenthesis and filed with Registrant's Registration Statement on form 8-B filed on August 23, 1996 (File No. 000-21690).
(5) Incorporated by reference to the exhibit shown in the preceding parenthesis and filed with the Registrant's Registration Statement on Form S-8 (File No. 333-20107).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the period covered by this report.
(c) Exhibits Required by Item 601 of Regulation S-K
The index to exhibits that are listed in Item 14(a)(3) of this report and not incorporated by reference follows the "Signatures" section hereto and is incorporated herein by reference.
(d) Financial Statement Schedules Required by Regulation S-X
Reference is made to Item 14(a)2.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
SUNGLASS HUT INTERNATIONAL, INC.
By: /S/ LARRY G. PETERSEN ------------------------------------------------------------------- Larry G. Petersen, Senior Vice President--Finance and Chief Financial Officer
Dated: April 30, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities and on the dates indicated.
EXHIBIT INDEX
EXHIBIT DESCRIPTION
10.11 Agreement for revolving credit facility dated as of April 28, 1998, among the Registrant, Bank Boston Retail Finance Inc. and the other Lenders named therein
21.1 Subsidiaries of the Registrant
23.1 Consent of Arthur Andersen LLP
27 Financial Data Schedule