-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PFi7vXPHE/xrZaOn0pTB8Sgff/a/z+rPwirf77UFVAXH9WvrViVoVaRwkyTYAejo jHRYolJDO3gauKUsOMzyeA== 0000025095-97-000002.txt : 19970513 0000025095-97-000002.hdr.sgml : 19970513 ACCESSION NUMBER: 0000025095-97-000002 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970329 FILED AS OF DATE: 19970512 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COTTER & CO CENTRAL INDEX KEY: 0000025095 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-HARDWARE [5072] IRS NUMBER: 362099896 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-18397 FILM NUMBER: 97600735 BUSINESS ADDRESS: STREET 1: 8600 WEST BRYN MAWR AVE CITY: CHICAGO STATE: IL ZIP: 60631 BUSINESS PHONE: 3129752700 MAIL ADDRESS: STREET 1: 2740 N CLYBOURN AVE CITY: CHICAGO STATE: IL ZIP: 60614 10-Q 1 FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 29, 1997 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 2-20910 COTTER & COMPANY (Exact name of registrant as specified in its charter)
DELAWARE 36-2099896 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.)
8600 West Bryn Mawr Avenue Chicago, Illinois 60631-3505 (Address of principal executive offices) (Zip Code)
(773) 695-5000 (Registrant's telephone number, including area code) not applicable (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No The number of shares outstanding of each of the issuer's classes of common stock, as of April 26, 1997. Class A Common Stock, $100 Par Value. 48,100 Shares. Class B Common Stock, $100 Par Value. 1,098,408 Shares.
2 PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS COTTER & COMPANY CONDENSED CONSOLIDATED BALANCE SHEET (000's Omitted)
March 29, December 28, 1997 1996 ---------- ----------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 1,863 $ 1,662 Accounts and notes receivable 336,733 307,205 Inventories 390,358 347,554 Prepaid expenses 21,915 13,517 ------- ------- Total current assets 750,869 669,938 Properties owned, less accumulated depreciation 168,792 167,331 Properties under capital leases, less accumulated amortization 3,270 3,680 Other assets 13,578 13,036 -------- -------- TOTAL ASSETS $936,509 $853,985 ======== ========
See Notes to Condensed Consolidated Financial Statements. 3 COTTER & COMPANY CONDENSED CONSOLIDATED BALANCE SHEET (000's Omitted)
March 29, December 28, 1997 1996 ----------- ------------ (UNAUDITED) LIABILITIES AND CAPITALIZATION Current liabilities: Accounts payable and accrued expenses $394,863 $338,440 Short-term borrowings 116,101 70,594 Current maturities of notes, long-term debt and lease obligations 43,495 43,458 Patronage dividends payable in cash (Estimated at March 29, 1997) 1,109 16,142 ------- ------- Total current liabilities 555,568 468,634 Long-term debt and obligations under capital leases 79,673 80,145 ------- ------- Capitalization: Estimated patronage dividends to be distributed principally by the issuance of Class B nonvoting common stock and if necessary, promissory (subordinated) notes 939 -- Promissory (subordinated) and instalment notes 182,972 185,366 Class A common stock and partially paid subscriptions (Authorized 100,000 shares; issued and fully paid, 48,030 and 48,480 shares) 4,804 4,876 Class B nonvoting common stock and paid-in capital (Authorized 2,000,000 shares; issued and fully paid, 1,107,342 and 1,043,521 shares; issuable as partial payment of patronage dividends, 84,194 shares as of December 28, 1996) 111,961 114,053 Retained earnings 1,481 1,751 ------- ------- 302,157 306,046 Foreign currency translation adjustment (889) (840) ------- ------- Total capitalization 301,268 305,206 -------- -------- TOTAL LIABILITIES AND CAPITALIZATION $936,509 $853,985 ======== ========
See Notes to Condensed Consolidated Financial Statements. 4 COTTER & COMPANY CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (000's Omitted) (UNAUDITED)
FOR THE THIRTEEN WEEKS ENDED ------------------------ March 29, March 30, 1997 1996 --------- --------- Revenues $561,696 $578,609 -------- -------- Cost and expenses: Cost of revenues 518,179 533,025 Warehouse, general and administrative 35,119 36,698 Interest paid to Members 4,297 4,658 Other interest expense 3,033 2,229 Other income, net (163) (259) Income tax expense 160 175 ------- ------- 560,625 576,526 ------- ------- Net margins $ 1,071 $ 2,083 ======== ========
See Notes to Condensed Consolidated Financial Statements. 5 COTTER & COMPANY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THIRTEEN WEEKS ENDED (000's Omitted) (UNAUDITED)
March 29, March 30, 1997 1996 -------- -------- Operating activities: Net margins $ 1,071 $ 2,083 Adjustments to reconcile net margins to cash and cash equivalents from operating activities: Statement of operations components not affecting cash and cash equivalents 6,307 6,273 Net change in working capital components (28,013) (53,194) ------- ------- Net cash and cash equivalents used for operating activities (20,635) (44,838) ------- ------- Investing activities: Additions to properties owned (6,571) (6,580) Changes in other assets (318) (426) ------- ------- Net cash and cash equivalents used for investing activities (6,889) (7,006) ------- ------- Financing activities: Proceeds from short-term borrowings 45,507 51,627 Proceeds from long-term borrowings 1,088 -- Payment of annual patronage dividend (15,435) (17,659) Payment of notes, long-term debt, lease obligations and common stock (3,435) (3,112) ------- ------- Net cash and cash equivalents provided by financing activities 27,725 30,856 ------- ------- Net increase (decrease) in cash and cash equivalents 201 (20,988) Cash and cash equivalents at beginning of the year 1,662 22,473 -------- -------- Cash and cash equivalents at end of the period $ 1,863 $ 1,485 ======== ========
See Notes to Condensed Consolidated Financial Statements. 6 COTTER & COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - GENERAL The condensed consolidated balance sheet, statement of operations and statement of cash flows at and for the period ended March 29, 1997 and the condensed consolidated statement of operations and statement of cash flows for the period ended March 30, 1996 are unaudited and, in the opinion of the management of Cotter & Company (the "Company"), include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of financial position, results of operations and cash flows for the respective interim periods. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. This financial information should be read in conjunction with the consolidated financial statements for the year ended December 28, 1996 included in the Company's Post-Effective Amendment No. 6 to Form S-2 Registration Statement (No. 33-39477) and in the Company's 1996 Annual Report on Form 10-K. On April 1, 1997, the stockholders of the Company and the shareholders of ServiStar Coast to Coast Corporation ("SCC") agreed by a majority vote to merge the two companies effective July 1, 1997. SCC is a hardware wholesaler with annual revenues of $1,700,000,000 and with a strong market presence in retail lumber and building materials. Following completion of the merger, the Company will be renamed TruServ Corporation. NOTE 2 - ESTIMATED PATRONAGE DIVIDENDS Patronage dividends are declared and paid by the Company after the close of each fiscal year. The 1996 annual patronage dividend was distributed through a payment of 30% of the total distribution in cash, with the balance being paid through the issuance of the Company's Class B nonvoting common stock and five-year promissory (subordinated) notes. Such patronage dividends, consisting of substantially all of the Company's patronage source income, have been paid since 1949. Effective in 1997, the Board of Directors changed the patronage dividend policy to increase the Class B nonvoting common stock requirements after payment of at least 20% in cash and any further distribution in cash versus promissory notes. The estimated patronage dividend for the thirteen weeks ended March 29, 1997 is $1,341,000 compared to $2,064,000 for the corresponding period in 1996. Patronage dividends for the period December 29, 1996 to June 28, 1997 will be paid in the third quarter of 1997, in accordance with the new patronage dividend policy noted above. NOTE 3 - INVENTORIES
Inventories consisted of: March 29, December 28, 1997 1996 ---------- ----------- (UNAUDITED) (000's Omitted) Manufacturing inventories: Raw materials $ 4,291 $ 2,797 Work-in-process and finished goods 30,333 24,558 ------- ------- 34,624 27,355 Merchandise inventories 355,734 320,199 -------- -------- $390,358 $347,554 ======== ========
7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIRTEEN WEEKS ENDED MARCH 29, 1997 COMPARED TO THIRTEEN WEEKS ENDED MARCH 30, 1996 RESULTS OF OPERATIONS: Revenues decreased by $16,913,000 or 2.9% compared to the same period last year. The decrease was due to seasonal merchandise departments mostly affected by adverse weather. These decreases were concentrated in the seasonal merchandise categories of Farm and Garden and Sporting Goods and Toys. Comparable store sales decreased 1.7%. Gross margins decreased by $2,067,000 or 4.5% and, as a percentage of revenues, declined from 7.9% to 7.7% for the same period last year. The reduction resulted from decreased sales volume and a change in sales mix. The lower margin "direct shipments sales" was the only category to show an increase in the quarter. Warehouse, general and administrative expenses decreased by $1,579,000 or 4.3% and, as a percentage of revenues, remained comparable with the same period last year. The decrease was attributed to the Company's continued efforts to reduce operating costs. Interest paid to Members decreased by $361,000 or 7.8% due to a lower principal balance and lower average interest rates. Other interest expense increased $804,000 or 36.1% due to higher short- term borrowings compared to the same period last year. Net margins were $1,071,000 compared to $2,083,000 for the same period last year. THIRTEEN WEEKS ENDED MARCH 29, 1997 COMPARED WITH THE YEAR ENDED DECEMBER 28, 1996 LIQUIDITY AND CAPITAL RESOURCES: The Company has a seasonal need for cash. During the first quarter of the year, as seasonal inventories are purchased for resale or manufacture and shipment, cash and cash equivalents are used for operating activities. In subsequent quarterly periods, the Company anticipates that cash and cash equivalents will be provided by operating activities and financing activities, if necessary. During the first quarter of 1997, inventories increased by $42,804,000 to support anticipated future orders of seasonal merchandise. Accounts and notes receivable increased by $29,528,000 due to the seasonal payment terms extended to the Company's Members. Short-term borrowings increased by $45,507,000 and accounts payable and accrued expenses increased by $56,423,000 in support of the increased inventories and favorable seasonal terms obtained from vendors which were passed on to the Company's Members. At March 29, 1997, net working capital decreased to $195,301,000 from $201,304,000 at December 28, 1996. The current ratio decreased to 1.35 at March 29, 1997 compared to 1.43 at December 28, 1996. In March of 1996 the Company established a $125,000,000 five-year revolving credit facility with a group of banks. In addition, the Company has a $50,000,000 private shelf agreement and various short- term lines of credit available under informal agreements with lending banks, cancelable by either party under specific circumstances. Borrowing under the short-term credit facility were $116,101,000 at March 29, 1997. The Company's capital is primarily derived from Class A common stock and retained earnings, together with promissory (subordinated) notes and nonvoting Class B common stock issued in connection with the Company's annual patronage dividend. The Company believes the funds derived from these capital resources, as well as operations and the credit facilities noted above, will be sufficient to satisfy capital needs. 8 Total capital expenditures, including those made under capital leases, were $6,571,000 for the thirteen weeks ended March 29, 1997 compared to $6,580,000 during the comparable period in 1996. These capital expenditures relate to additional equipment and technological improvements at the regional distribution centers and at the National Headquarters. The Company is in the process of assessing and renegotiating its long-term and short-term capital needs in connection with the Merger which will be consummated July 1, 1997. PART II - OTHER INFORMATION Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At the Company's Annual Meeting of Stockholders held on April 1, 1997, the Stockholders approved the Agreement and Plan of Merger dated as of December 9, 1996, providing for the merger of ServiStar Coast to Coast Corporation with and into Cotter & Company, thereafter known as TruServ Corporation. The Agreement and Plan of Merger addressed, among other things, the following items: (a) Additional capital requirements; (b) New form of Retail Member Agreement; (c) Revised By-Laws and (d) Restatement of Certificate of Incorporation, including without limitation: 1) Authorizing an increase in the maximum outstanding Class A Common Stock to 750,000 shares and Class B Common Stock to 4,000,000 shares; 2) Elimination of cumulative voting; 3) Elimination of required uniform ownership of Class A Common Stock and 4) Changing the corporate name. The approval of the new form of Retail Member Agreement automatically superseded all prior Cotter & Company Retail Member Agreements. The number of affirmative votes cast for the above items were 37,520, the number of negative votes cast were 2,100 and the number of abstentions were 540. In addition, the Stockholders of Class B common stock voted to increase the number of authorized shares of Class B Common Stock to 4,000,000 shares. The number of affirmative votes were 927,296, the number of negative votes cast were 47,881, and the number of abstentions were 6,904. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Exhibit 4. Instruments defining the rights of security holders, including indentures; incorporated herein by reference those items included as Exhibits 4A through 4G, inclusive, in the Company's Post-Effective Amendment No. 6 to Form S-2 Registration Statement (No. 33-39477) filed with the Securities and Exchange Commission on April 3, 1997. (b) Reports on Form 8-K 1) Current Report on Form 8-K, dated as of March 5, 1997. 2) Form 8K/A Amendment to Current Report on Form 8-K, dated as of March 26, 1997. 9 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. COTTER & COMPANY Date: May 12, 1997 By /s/ KERRY J. KIRBY Vice President, Treasurer and Chief Financial Officer (Mr. Kirby is the principal accounting officer and has been duly authorized to sign on behalf of the Registrant.) EX-27 2 FINANCIAL DATA SCH
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS DEC-31-1997 DEC-29-1996 MAR-29-1997 1,863 0 336,733 0 390,358 750,869 358,630 186,568 936,509 555,568 79,673 0 0 116,762 184,506 936,509 561,696 561,696 518,179 518,179 0 0 7,330 1,231 160 1,071 0 0 0 1,071 0 0
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