-----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, E6SOOofYj4IIMQl+1f7Vbu2FZtXnZgNluztdf4PQDqEiRpJD2fvGWNQIDCa9G2oa 0KRinXhoP4FjXy8J8jJlfQ== 0000025095-97-000014.txt : 19970813 0000025095-97-000014.hdr.sgml : 19970813 ACCESSION NUMBER: 0000025095-97-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970628 FILED AS OF DATE: 19970812 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRUSERV CORP 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: 97656532 BUSINESS ADDRESS: STREET 1: 8600 WEST BRYN MAWR AVE CITY: CHICAGO STATE: IL ZIP: 60631 BUSINESS PHONE: 773-695-5000 MAIL ADDRESS: STREET 1: 8600 W. BRYN MAWR AVENUE CITY: CHICAGO STATE: IL ZIP: 60631-3505 FORMER COMPANY: FORMER CONFORMED NAME: COTTER & CO DATE OF NAME CHANGE: 19920703 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 June 28, 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 TRUSERV CORPORATION (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) COTTER & COMPANY (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 June 28, 1997. Class A Common Stock, $100 Par Value. 47,710 Shares. Class B Common Stock, $100 Par Value. 1,088,833 Shares.
2 PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS COTTER & COMPANY CONDENSED CONSOLIDATED BALANCE SHEET (000's Omitted)
June 28, December 28, 1997 1996 -------- ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 1,876 $ 1,662 Accounts and notes receivable 343,089 307,205 Inventories 348,431 347,554 Prepaid expenses 16,250 13,517 -------- -------- Total current assets 709,646 669,938 Properties owned, less accumulated depreciation 163,402 167,331 Properties under capital leases, less accumulated amortization 2,934 3,680 Other assets 30,379 13,036 -------- -------- TOTAL ASSETS $906,361 $853,985 ======== ========
See Notes to Condensed Consolidated Financial Statements. 3 COTTER & COMPANY CONDENSED CONSOLIDATED BALANCE SHEET (000's Omitted)
June 28, December 28, 1997 1996 -------- ------------ (UNAUDITED) LIABILITIES AND CAPITALIZATION Current liabilities: Accounts payable and accrued expenses $325,148 $338,440 Short-term borrowings 147,430 70,594 Current maturities of notes, long-term debt and lease obligations 43,780 43,458 Patronage dividends payable in cash 4,477 16,142 -------- -------- Total current liabilities 520,835 468,634 -------- -------- Long-term debt and obligations under capital leases 79,395 80,145 -------- -------- Capitalization: Promissory (subordinated) and instalment notes 182,025 185,366 Class A common stock and partially paid subscriptions (Authorized 100,000 shares; issued and fully paid, 47,710 and 48,480 shares) 4,771 4,876 Class B nonvoting common stock and paid-in capital (Authorized 2,000,000 shares; issued and fully paid, 1,088,833 and 1,043,521 shares; issuable as partial payment of patronage dividends, 83,794 and 84,194 shares) 118,608 114,053 Retained earnings 1,614 1,751 -------- -------- 307,018 306,046 Foreign currency translation adjustment (887) (840) -------- -------- Total capitalization 306,131 305,206 -------- -------- TOTAL LIABILITIES AND CAPITALIZATION $906,361 $853,985 ======== ========
See Notes to Condensed Consolidated Financial Statements. 4 COTTER & COMPANY CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (000's Omitted) (UNAUDITED)
FOR THE THIRTEEN FOR THE TWENTY-SIX WEEKS ENDED WEEKS ENDED ------------------ ---------------------- June 28, June 29, June 28, June 29, 1997 1996 1997 1996 -------- -------- ---------- ---------- Revenues $645,070 $644,399 $1,206,766 $1,223,008 -------- -------- ---------- ---------- Cost and expenses: Cost of revenues 597,740 593,972 1,115,919 1,129,497 Warehouse, general and administrative 26,900 32,816 61,409 67,014 Interest paid to Members 4,255 4,727 8,552 9,385 Other interest expense 3,472 2,656 6,505 4,885 Other (income) expense, net (306) 83 (469) (176) Income tax expense (benefit) (219) 145 (59) 320 -------- -------- ---------- ---------- 631,842 634,399 1,191,857 1,210,925 -------- -------- ---------- ---------- Net margin before merger integration costs 13,228 10,000 14,909 12,083 Merger integration costs 1,422 -- 2,032 -- -------- -------- ---------- ---------- Net margins $ 11,806 $ 10,000 $ 12,877 $ 12,083 ======== ======== ========== ==========
See Notes to Condensed Consolidated Financial Statements. 5 COTTER & COMPANY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE TWENTY-SIX WEEKS ENDED (000's Omitted) (UNAUDITED)
June 28, June 29, 1997 1996 -------- -------- Operating activities: Net margins $12,877 $12,083 Adjustments to reconcile net margins to cash and cash equivalents from operating activities: Statement of operations components not affecting cash and cash equivalents 12,373 12,916 Net change in working capital components (58,541) (92,404) ------- ------- Net cash and cash equivalents used for operating activities (33,291) (67,405) ------- ------- Investing activities: Additions to properties owned (15,158) (12,745) Changes in other assets (8,218) 201 ------- ------- Net cash and cash equivalents used for investing activities (23,376) (12,544) ------- ------- Financing activities: Proceeds from short-term borrowings 76,836 82,344 Proceeds from long-term borrowings 2,371 -- Payment of annual patronage dividend (16,142) (18,188) Payment of notes, long-term debt, lease obligations and common stock (6,184) (5,548) ------- ------- Net cash and cash equivalents provided by financing activities 56,881 58,608 ------- ------- Net increase (decrease) in cash and cash equivalents 214 (21,341) Cash and cash equivalents at beginning of the period 1,662 22,473 ------- ------- Cash and cash equivalents at end of the period $ 1,876 $ 1,132 ======= =======
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 June 28, 1997 and the condensed consolidated statement of operations and statement of cash flows for the period ended June 29, 1996 are unaudited. In the opinion of the management of Cotter & Company (the "Company"), these financial statements 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 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. The transactions will be recorded using the purchase accounting method. 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 consummation of the merger, the Company was renamed TruServ Corporation. In accordance with the merger, the Company will be distributing a Patronage Dividend based on its results of operations for the twenty-six week period ended June 28, 1997. Certain amounts in the June 29, 1996 financial statements have been reclassified to conform with the June 28, 1997 presentation. NOTE 2 - PATRONAGE DIVIDENDS Patronage dividends were declared and will be paid by the Company after the close of the current twenty-six week period ended June 28, 1997. This semi-annual patronage dividend will be 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 in accordance with the patronage dividend policy that was changed effective in 1997 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 patronage dividend for the twenty-six weeks ended June 28, 1997 is $13,014,000 compared to estimate of $12,201,000 for the corresponding period in 1996. Patronage dividends for the twenty-six week period will be paid in the third quarter of 1997. Such patronage dividends, consisting of substantially all of the Company's patronage source income, have been paid since 1949. 7 NOTE 3 - INVENTORIES Inventories consisted of:
June 28, December 28, 1997 1996 -------- ------------ (UNAUDITED) (000's Omitted) Manufacturing inventories: Raw materials $ 3,123 $ 2,797 Work-in-process and finished goods 32,284 24,558 -------- -------- 35,407 27,355 Merchandise inventories 313,024 320,199 -------- -------- $348,431 $347,554 ======== ========
NOTE 4 - MERGER INTEGRATION COSTS Merger integration costs consist of expenses incurred with the consolidation and restructuring of certain functions due to the aforementioned merger. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS TWENTY-SIX WEEKS ENDED JUNE 28, 1997 COMPARED TO TWENTY-SIX WEEKS ENDED JUNE 29, 1996 RESULTS OF OPERATIONS: Revenues for the twenty-six weeks ended June 28, 1997 totaled $1,206,766,000. This represented a decrease of $16,242,000 or 1.3% compared to the same period last year. The decrease was due to seasonal merchandise which was affected by adverse weather conditions. These decreases were concentrated in the merchandise categories of Electrical & Plumbing, Farm & Garden, and Sporting Goods & Toys. Comparable store sales increased 0.1%. Gross margins decreased by $2,664,000 or 2.8% and, as a percentage of revenues, declined from 7.6% to 7.5% for the same period last year. The reduction resulted from the decrease in sales volume plus a change in the sales mix between Stock, Relay, and Direct Shipment Sales. The lower margin Direct Shipment Sales was the only category to show an increase for the twenty-six week period. Warehouse, general and administrative expenses decreased by $5,605,000 and, as a percentage of revenues, decreased from 5.5% to 5.1%. The decrease was attributed to the Company's continued efforts to reduce operating costs. Interest paid to Members decreased by $833,000 or 8.9% primarily due to a lower average interest rate. Other interest expense increased $1,620,000 or 33.2% due to higher borrowings compared to the same period last year. The higher borrowings was required because of increased inventory levels. Merger integration costs consist of expenses incurred with the consolidation and restructuring of certain functions due to the aforementioned merger. The continued effort of expense reduction, partially offset by the combination of decreased gross margin and increased borrowing costs, resulted in a higher net margin. Net margins were $12,877,000 compared to $12,083,000 for the same period last year. 8 TWENTY-SIX WEEKS ENDED JUNE 28, 1997 COMPARED WITH THE YEAR ENDED DECEMBER 28, 1996 LIQUIDITY AND CAPITAL RESOURCES: The Company has a seasonal need for cash. During the first six months 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. Accounts and notes receivable increased by $35,884,000 due to the seasonal payment terms extended to the Company's Members. Short-term borrowings increased by $76,836,000 and accounts payable and accrued expenses decreased by $13,292,000. At June 28, 1997, net working capital decreased to $188,811,000 from $201,304,000 at December 28, 1996. The current ratio decreased to 1.36 at June 28, 1997 compared to 1.43 at December 28, 1996. On June 28, 1997 the Company had established a $125,000,000 five-year revolving credit facility with a group of banks and had various short-term lines of credit available under informal agreements with lending banks, cancelable by either party under specific circumstances. Borrowing under these agreements were $147,430,000 at June 28, 1997. Effective with the merger, this revolving credit facility was increased to $300,000,000. In addition, the Company has a $50,000,000 private shelf agreement. 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. Total capital expenditures, including those made under capital leases, were $15,158,000 for the twenty-six weeks ended June 28, 1997 compared to $12,745,000 during the comparable period in 1996. These capital expenditures relate to additional equipment and technological improvements at the regional distribution centers and at the World Headquarters. Funding of any additional 1997 capital expenditures is anticipated to come from operations and external sources, if necessary. A portion of the Company's information systems are not "Year 2000 Compliant." This means that the Company will need to incur certain costs to modify non-compliant systems prior to the Year 2000 in order to ensure that those systems continue to serve the needs of the Company and its Membership. Based upon an initial investigation of our systems, we estimate that such costs could exceed $8 million. Actual costs may exceed this estimate depending on our merger efforts and system resource constraints. Further, based upon current FASB Guideline, costs incurred to modify systems to be Year 2000 compliant must be expensed. Accordingly, such costs will reduce our patronage dividends in years in which they are incurred. THIRTEEN WEEKS ENDED JUNE 28, 1997 COMPARED TO THIRTEEN WEEKS ENDED JUNE 29, 1997 RESULTS OF OPERATIONS: Revenues increased by $671,000 or 0.1% compared to the same period last year. Most merchandise categories were comparable to the same period last year with Lumber & Building Materials showing an increase for the thirteen week period. Comparable store sales increased 1.8%. 9 Gross margins decreased by $3,097,000 or 6.1% compared to the same period last year. Gross margins as a percentage of revenues declined to 7.3% from 7.8% for the same period last year. The reduction resulted from a change in the sales mix which was weighted heavily toward the lower margin Direct Shipment sales. Direct Shipments showed the largest increase for the thirteen week period. Warehouse, general and administrative expenses decreased by $5,916,000 or 18.0% and as a percent of revenues, decreased to 4.2% from 5.1% for 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 $472,000 or 10.0% primarily due to a lower average interest rate. Other interest expense increased $816,000 or 30.7% due to higher borrowings compared to the same period last year. The higher borrowings was required because of increased inventory levels. Merger integration costs consist of expenses incurred with the consolidation and restructuring of certain functions due to the aforementioned merger. Net margins were $11,806,000 compared to $10,000,000 for the same period last year. 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 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. The Company consummated the Merger on July 1 ,1997. 10 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.
11 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: August 12, 1997 By /s/KERRY J. KIRBY Kerry J. Kirby Executive Vice President 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. 6-MOS DEC-31-1997 JUN-28-1997 1,876 0 343,089 0 348,431 709,646 338,812 172,476 906,361 520,835 79,395 0 0 123,379 182,752 906,361 1,206,766 1,206,766 1,115,919 1,115,919 0 0 15,057 12,818 (59) 12,877 0 0 0 12,877 0 0
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