-----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, PHz81vcob3JzwM16vgN+03QCP4pe1zCF8Otg9G5UgmcBcBWtBMxNqAWjXfNr7GEB W5o31zn+IwSglofbFHobrw== 0000025095-98-000045.txt : 19981123 0000025095-98-000045.hdr.sgml : 19981123 ACCESSION NUMBER: 0000025095-98-000045 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981003 FILED AS OF DATE: 19981116 DATE AS OF CHANGE: 19981120 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRUSERV CORP CENTRAL INDEX KEY: 0000025095 STANDARD INDUSTRIAL CLASSIFICATION: 5072 IRS NUMBER: 362099896 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-18397 FILM NUMBER: 98754016 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 October 3, 1998 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) 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 October 31, 1998. Class A Common Stock, $100 Par Value. 492,609 Shares. Class B Common Stock, $100 Par Value. 1,770,941 Shares. 2 PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS TRUSERV CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (000's Omitted)
October 3, December 31, 1998 1997 --------- ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 1,694 $ 2,224 Accounts and notes receivable 559,941 476,527 Inventories 644,826 543,946 Prepaid expense 21,592 16,092 --------- --------- Total current assets 1,228,053 1,038,789 Properties less accumulated depreciation 272,014 241,236 Goodwill, net 109,629 107,711 Other assets 60,791 51,177 ---------- ---------- TOTAL ASSETS $1,670,487 $1,438,913 ========== ==========
See Notes to Condensed Consolidated Financial Statements. 3 TRUSERV CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (000's Omitted)
October 3, December 31, 1998 1997 ----------- ----------- (UNAUDITED) LIABILITIES AND CAPITALIZATION Current liabilities: Accounts payable and accrued expenses $ 530,634 $ 572,565 Short-term borrowings 337,014 215,467 Current maturities of notes, long-term debt and lease obligations 64,580 62,640 Patronage dividends payable in cash 5,585 12,142 ----------- ----------- Total current liabilities 937,813 862,814 ----------- ----------- Long-term debt and obligations under capital leases 323,971 169,209 ---------- ----------- Capitalization: Promissory (subordinated) and installment notes 170,843 172,579 Class A common stock and partially paid subscriptions authorized 750,000 shares; issued and fully paid 406,388 and 387,240 shares; issued 162,700 and 144,865 shares (net of receivable of $6,836,000 and $6,269,000); subscribed 5,010 shares (net of stock subscription receivable of $20,000 in 1997). 49,171 47,423 Class B nonvoting common stock and paid-in capital; authorized 4,000,000 shares; issued and fully paid, 1,776,945 and 1,681,934 shares; issuable as partial payment of patronage dividends 177,655 shares as of December 31, 1997. 189,151 187,259 Retained earnings 931 685 ---------- ----------- 410,096 407,946 Foreign currency translation adjustment (1,393) (1,056) ---------- ----------- Total capitalization 408,703 406,890 ---------- ----------- TOTAL LIABILITIES AND CAPITALIZATION $1,670,487 $1,438,913 ========== ===========
See Notes to Condensed Consolidated Financial Statements. 4 TRUSERV CORPORATION CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (000's Omitted) (UNAUDITED)
FOR THE THIRTEEN FOR THE THIRTY-NINE WEEKS ENDED WEEKS ENDED -------------------------- -------------------------- October 3, September 27, October 3, September 27, 1998 1997 1998 1997 ----------- ------------- ----------- ------------- Revenues $1,078,481 $1,036,622 $3,264,135 $2,243,388 ---------- ---------- ---------- ----------- Cost and expenses: Cost of revenues 990,675 952,086 2,995,703 2,068,005 Warehouse, general and administrative 68,736 66,316 201,076 127,725 Interest paid to Members 3,766 4,237 11,422 12,789 Other interest expense 10,543 5,979 28,456 12,484 Other expense (income), net 22 455 (203) (14) Income tax expense 160 160 480 101 ---------- ---------- ---------- ---------- 1,073,902 1,029,233 3,236,934 2,221,090 ---------- ---------- ---------- ---------- Net margin before integration costs 4,579 7,389 27,201 22,298 Integration costs 4,300 1,562 8,342 3,594 ---------- ---------- ---------- ---------- Net margins $ 279 $ 5,827 $ 18,859 $ 18,704 ========== ========== ========== ==========
See Notes to Condensed Consolidated Financial Statements. 5 TRUSERV CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THIRTY-NINE WEEKS ENDED (000's Omitted) (UNAUDITED)
October 3, September 27, 1998 1997 ----------- ------------ Operating activities: Net margins $ 18,859 $ 18,704 Adjustments to reconcile net margins to cash and cash equivalents from operating activities: Statement of operations components not affecting cash and cash equivalents 25,368 19,931 Net change in working capital components (236,953) (41,802) ----------- ----------- Net cash and cash equivalents used for operating activities (192,726) ( 3,167) ----------- ----------- Investing activities: Additions to properties owned (59,614) (27,509) Proceeds from sale of properties owned 4,716 1,100 Changes in other assets (9,614) (1,639) ----------- ----------- Net cash and cash equivalents used for investing activities (64,512) (28,048) ----------- ----------- Financing activities: Proceeds from short-term borrowings 121,547 180,523 Proceeds from long-term borrowings 157,616 52,371 Payment of annual patronage dividend (12,142) (20,699) Purchase of common stock, net (801) (19,530) Payment of notes, long-term debt, lease obligations (9,512) (158,236) ----------- ----------- Net cash and cash equivalents provided by financing activities 256,708 34,429 ----------- ----------- Net increase (decrease) in cash and cash equivalents (530) 3,214 Cash and cash equivalents at beginning of the period 2,224 1,662 ----------- ----------- Cash and cash equivalents at end of the period $ 1,694 $ 4,876 =========== ===========
See Notes to Condensed Consolidated Financial Statements. 6 TRUSERV CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BUSINESS COMBINATIONS On July 1, 1997, pursuant to an Agreement and Plan of Merger dated December 9, 1996 between Cotter & Company ("Cotter"), a Delaware corporation and Servistar Coast of Coast ("SCC"), SCC merged with and into Cotter, with Cotter being the surviving corporation (the "Merger"). Cotter was renamed TruServ Corporation ("TruServ" or the "Company"), effective with the Merger. Each outstanding share of SCC Common Stock and SCC Series A Stock (excluding those shares canceled pursuant to Article III of the Merger Agreement) were converted into the right to receive one fully paid and nonassessable share of TruServ Class A common stock and each two outstanding shares of SCC Preferred Stock were converted into the right to receive one fully paid and non- assessable share of TruServ Class B Common Stock. A total of 270,500 and 1,170,670 shares of TruServ Class A Common Stock and Class B Common Stock, respectively, were issued in connection with the Merger. Also 231,000 additional shares of TruServ Class A Common Stock were issued in exchange for Class B common stock to pre-Merger Stockholders of Cotter to satisfy the Class A Common Stock ownership requirement of 60 shares per store (up to a maximum of 5 stores) applicable to such Members as a result of the Merger. The Condensed Consolidated Balance Sheets as of October 3, 1998 and December 31, 1997 reflect the post-Merger Company. The financial information for the thirty-nine weeks ended October 3, 1998, reflects the post-Merger results of the Company. The thirty-nine weeks ended September 27, 1997 reflect the financial information of the pre-Merger Company for the twenty-six weeks ended June 28, 1997 and the results of the post- Merger Company for the thirteen weeks ended September 27, 1997. The following summarized unaudited pro forma operating data for the thirty-nine weeks ended September 27, 1997 are presented below giving effect to the Merger, as if it had been consummated at the beginning of the period. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations that actually would have resulted had the Merger been in effect on the date indicated, or which may result in the future. The pro forma results exclude one-time non-recurring charges or credits directly attributable to the transaction. The pro forma adjustments consist of (i) an adjustment for amortization of the estimated excess of cost over the fair value of the net assets of SCC, (ii) an adjustment for interest expense on promissory notes issued in connection with the Merger, (iii) an adjustment for interest expenses on short-term borrowings issued in connection with the Merger and (iv) an adjustment for incremental differences in depreciation expense.
THIRTY-NINE WEEKS ENDED ----------------------- October 3, September 27, 1998 1997 ------------ ------------- Actual Pro Forma (1) ------------ ------------- (000's OMITTED) Revenue $3,264,135 $3,135,917 Net margin before integration cost $ 27,201 $ 33,289 Net margin $ 18,859 $ 33,289 (1) Assumes the Merger was consummated at January 1, 1997.
7 To refinance the existing debt of SCC and pay related fees and expenses, the Company entered into a revolving loan agreement of up to $300,000,000 in short-term credit facilities with a group of banks and an additional $100,000,000 of long-term debt. The total purchase price of approximately $141,400,000 was allocated to assets and liabilities of the Company based on the estimated fair value as of the date of acquisition. The allocation was based on preliminary estimates which could be revised up until July 1, 1998. The excess of consideration paid over the estimated fair value of net assets acquired in the amount of $113,173,000 has been recorded as goodwill and is being amortized on a straight-line basis over forty years. In connection with the purchase business combination, an estimated liability of $38,200,000 was recognized for costs associated with the Merger plan. The Merger plan specifies that certain former SCC positions, approximately 1,200 in total, will be eliminated substantially within one year. As of October 3, 1998, approximately 94% of these employees have been terminated with the related cost of benefits of approximately $10,883,000 charged against the liability. The Merger plan specifies the closing of redundant former SCC distribution centers and the elimination of overlapping former SCC inventory items stockkeeping units substantially within a one-year period. Distribution center closing costs include net occupancy and costs after facilities are vacated. In addition, stockkeeping unit reduction costs include losses on the sale of inventory items which have been discontinued solely as a result of the Merger. As of October 3, 1998, $2,785,000 relating to distribution center closing cost and the reduction of stockkeeping units have been charged against the liability. Merger integrations costs of $8,342,000 consist of one time non-recurring expenses directly attributable to the Merger including distribution center closings, severance pay, information service costs and general and administrative costs. NOTE 2 - GENERAL The condensed consolidated balance sheet, statement of operations and statement of cash flows at and for the period ended October 3, 1998 and the condensed consolidated statement of operations and statement of cash flows for the period ended September 27, 1997 are unaudited and, in the opinion of the management of 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 31, 1997 included in the Company's 1997 Annual Report on Form 10-K. NOTE 3 - ESTIMATED PATRONAGE DIVIDENDS Patronage dividends are declared and paid by the Company after the close of each fiscal year. The 1997 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. Such patronage dividends, consisting of substantially all of the Company's patronage source income, have been paid since 1949. The estimated patronage dividend for the thirty-nine weeks ended October 3, 1998 is $18,613,000 compared to $24,354,000 for the corresponding period in 1997. 8 NOTE 4 - INVENTORIES
Inventories consisted of: October 3, December 31, 1998 1997 --------- ----------- (UNAUDITED) (000's Omitted) Manufacturing inventories: Raw materials $ 4,826 $ 4,878 Work-in-process and finished goods 44,865 29,241
--------- ---------- 49,691 34,119 Merchandise inventories 595,135 509,827 --------- ---------- $ 644,826 $ 543,946 ========= ========== NOTE 5 - COMPREHENSIVE INCOME As of January 1, 1998, the Company adopted Statement 130, Reporting Comprehensive Income. Statement 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of this Statement had no impact on the Company's net margin or capitalization. Statement 130 requires unrealized gains or losses on the Company's foreign currency translation adjustments, which prior to adoption were reported separately in shareholder's equity to be included in other comprehensive income. Comprehensive income for the thirteen weeks ended October 3, 1998 was $65,000 compared to $5,813,000 for the corresponding period in 1997. Comprehensive income for the thirty-nine weeks ended October 3, 1998 was $18,522,000 compared to $18,643,000 for the corresponding period in 1997. . Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS COMBINATION On July 1, 1997, TruServ Corporation (the "Company"), formerly Cotter & Company ("Cotter"), merged with Servistar Coast to Coast Corporation ("SCC") (the "Merger"). The transaction was accounted for using the purchase accounting method. Accordingly, the financial information for the thirty-nine weeks ended October 3, 1998 reflects the results of the post-Merger Company and the financial information for the thirty-nine weeks ended September 27, 1997 reflects the results of the pre-Merger Company for the twenty-six weeks ended June 28, 1997 and the results of the post-Merger Company for the thirteen weeks ended September 27, 1997. To facilitate the comparison of interim results for 1998 and 1997, supplemental comparisons have been provided using pro forma financial information. This pro forma information has been prepared for comparative purposes only and does not purport to be indicative of the results of operation that actually would have resulted had the Merger been in effect on the dates indicated, or which may result in the future.
Thirty-nine weeks ended Thirty-nine weeks ended October 3, 1998 September 27, 1997 Actual Actual Pro Forma (1) ----------------------- -------- ------------ (000'S Omitted) Revenue $3,264,135 $2,243,388 $3,135,917 Gross margin 268,432 175,383 218,719 Warehouse, general and administrative expense 201,076 127,725 154,732 Interest expense 39,878 25,273 31,767 Merger integration cost 8,342 3,594 -- Net margin 18,859 18,704 33,289 (1) Assumes the Merger was consummated at January 1, 1997.
9 THIRTY-NINE WEEKS ENDED OCTOBER 3, 1998 COMPARED TO THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 1997 RESULTS OF OPERATIONS: Revenues for the thirty-nine weeks ended October 3, 1998 totaled $3,264,135,000. This represented an increase of $1,020,747,000 or 45.5% compared to the comparable period last year. The increase was primarily due to the addition of Servistar Coast to Coast revenues that resulted from the July 1, 1997 merger of Cotter and SCC. Gross margins increased by $93,049,000 or 53.1% and as a percentage of revenues, increased to 8.2% from 7.8% for the comparable period last year. The increase in gross margin percentage resulted primarily from increased sales in manufactured products and increased margins from improved merchandising strategies. Certain estimates of expenses are recorded throughout the year including expenses related to capitalizable inventory related costs. During the thirty-nine weeks, ended October 3, 1998, the Company recorded an increase of approximately $4,000,000 of these estimated costs. Warehouse, general and administrative expenses as a percentage of revenues increased to 6.2% from 5.7% compared with the prior year. The Company incurred additional warehousing expenses in association with commonizing inventory assortments, increased inventory levels, and the implementation of the distribution network strategy. Many of the potential cost efficiencies related to the Merger have not yet been realized and costs should be reduced as the Merger strategy is further implemented. Interest paid to Members decreased by $1,367,000 or 10.7% primarily due to a lower average interest rate and lower principal balance. Other interest expense increased $15,972,000 due to higher borrowings compared to the same period last year. The higher borrowings were required because of the increased cash requirement resulting from the merger and increased inventory levels. The effective borrowing rate has been lowered due to the renegotiation of the rates since the date of the Merger. Integration costs consist of costs associated with the implementation of the merger plan. The combination of increased gross margins, offset by increased expenses and increased borrowing costs, resulted in a net margin of $18,859,000 compared to $18,704,000 for the same period last year. ACTUAL THIRTY-NINE WEEKS ENDED OCTOBER 3, 1998 COMPARED TO PRO FORMA THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 1997 ASSUMING THE MERGER WAS CONSUMMATED ON JANUARY 1, 1997 RESULTS OF OPERATIONS: Revenues for the thirty-nine weeks ended October 3, 1998 totaled $3,264,135,000. This represented an increase of $128,218,000 or 4.1% compared to the comparable period last year. The increase was attributable to revenue increases in lumber/building materials and manufacturing products. Gross margins increased by $49,713,000 or 22.7% and as a percentage of revenues, increased to 8.2% from 7.0% for the comparable period last year. The increase in gross margins resulted from improved merchandising strategies and manufacturing margins. Warehouse, general and administrative expenses increased by $46,344,000 or 30.0% and as a percentage of revenues increased to 6.2% from 4.9% for the comparable period last year. The Company incurred additional warehousing expenses in association with commonizing inventory assortments, increased inventory levels, and the implementation of the distribution 10 network strategy. Many of the potential cost efficiencies related to the Merger have not yet been realized and costs should be reduced as the Merger strategy is further implemented. Interest expense increased from $31,767,000 to $39,878,000 primarily due to higher short-term borrowings because of the increased cash requirement resulting from increased inventory levels. Integration costs consist of costs associated with the implementation of the merger plan. The combination of increased gross margin partially offset by higher warehouse, general and administrative expense and higher interest expense, resulted in a net margin of $18,859,000 compared to $33,289,000 for the comparable period last year. LIQUIDITY AND CAPITAL RESOURCES: The Company has a seasonal need for cash. During the first thirty-nine weeks 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 thirty-nine weeks of 1998, inventories increased by $100,880,000 to support anticipated future orders of seasonal merchandise, from the commonization of inventory and the implementation of the Distribution Network Strategic plan. Accounts and notes receivable increased by $83,414,000 due to the seasonal payment terms extended to the Company's Members. Short-term borrowings increased by $121,547,000, accounts payable and accrued expenses decreased by $41,931,000. At October 3, 1998, net working capital increased to $290,240,000 from $175,975,000 at December 31, 1997. The current ratio was 1.31 at October 3, 1998 and 1.20 at December 31, 1997. At July 1, 1997, the Company had established a $300,000,000 five- year revolving credit facility with a group of banks. In addition, on September 30, 1998, the Company established a $100,000,000 three hundred sixty four day revolving credit facility. The borrowings under these agreements were $324,000,000 and $210,000,000 at October 3, 1998 and December 31, 1997, respectively. 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 $59,614,000 for the thirty-nine weeks ended October 3, 1998 compared to $27,509,000 during the comparable period in 1997. These capital expenditures relate to additional equipment and technological improvements at the regional distribution centers and at the corporate headquarters. 11 THIRTEEN WEEKS ENDED OCTOBER 3, 1998 COMPARED TO THIRTEEN WEEKS ENDED SEPTEMBER 27, 1997
Thirteen weeks ended --------------------------------------- October 3, 1998 September 27, 1997 --------------- ------------------ Actual Actual ------ ------ (000'S OMITTED) Revenue $1,078,481 $1,036,622 Gross margin 87,806 84,536 Warehouse, general and administrative expense 68,736 66,316 Interest expense 14,309 10,216 Merger integration cost 4,300 1,562 Net margin 279 5,827 (1) Assumes the Merger was consummated at January 1, 1997. RESULTS OF OPERATIONS: Revenues increased by $41,859,000 or 4.0% compared to the same period last year. The increase was due primarily to increased sales in Direct Shipment and in the Lumber product lines. Gross margins increased by $3,270,000 or 3.9% compared to the same period last year. Gross margins as a percentage of revenues remained comparable to the prior year. Warehouse, general and administrative expenses increased by $2,420,000 or 3.6% and as a percent of revenues was 6.4% which is comparable to the same period last year. The Company incurred additional warehousing expenses in association with commonizing inventory assortments, increased inventory and the implementation of the distribution network strategy. Interest paid to Members decreased by $471,000 or 11.1% primarily due to a lower principal balance and a lower average interest rate. Other interest expense increased $4,564,000 or 76.3% due to higher borrowings compared to the same period last year. The higher borrowings was required because of increased inventory levels and other merger requirements. Integration costs consist of implementation of Merger plan. Net margins were $279,000 compared to $5,827,000 for the same period last year. YEAR 2000 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 current FASB Guideline, costs incurred to modify systems to be Year 2000 must be expensed. Accordingly, such costs will reduce patronage dividends in years in which they are incurred. 12 The company relies on both information technology and non-information technology computer systems in its operations. The mission critical information technology systems include the Company's operating and accounting systems. The non-information technology computer systems include such items as telecommunications, security systems, elevators and climate control at all warehouse locations and remote facilities. There can be no assurance that all systems needing modification prior to the Year 2000 will be properly and timely completed by the Company or third parties. Failure to do so could have a material adverse effect on the Company's financial condition. The Company cannot predict the actual effects on the Company if all Year 2000 issues are not resolved in a timely manner because of a number of uncertainties such as: (1) whether major third parties address this issue properly and timely and (2) whether broad-based economic failures may occur. The Company is currently unaware of any events, trends, or condition regarding this issue that may have a material effect on the Company's results of operations, liquidity, or financial position. If the year 2000 issue is not resolved by January 1, 2000 the adverse affect on the Company's results of operations or financial condition could be material. TruServ has established a corporate-wide Year 2000 program to help assure that TruServ is able to conduct business in a Year 2000 compliant environment. As a part of this effort, we are requiring our suppliers to assess their ability to continue trading with the Company as we approach the new millenium. In addition, the Company is planning to establish an alternative supplier plan in the event our key vendors have difficulty providing product to us. The program is on schedule for a completion date of July 1, 1999. The Year 2000 budget has been established at $16,900,000. Actual costs to date are $10,700,000. The approximate percentage of the Year 2000 costs to the total Information Services expenses is 14.0%. The source of these funds will be provided by the normal operating and financing activities of TruServ Corporation. The expenses for the Year 2000 program is as follows: 1996 $ 1.0 million 1997 $ 3.2 million 1998 $ 8.5 million projected 1999 $ 4.0 million projected 2000 $ 0.2 million projected Total $ 16.9 million PART II - OTHER. INFORMATION 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 4K, inclusive, in the Company's Post-Effective Amendment No. 5 on Form S-2 to Form S- 4 Registration Statement (No. 333-18397) filed with the Securities and Exchange Commission on April 4, 1998. (b) Reports on Form 8-K NONE SIGNATURE 13 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. TRUSERV CORPORATION Date: November 17, 1998 By /s/ KERRY J. KIRBY Kerry J. Kirby Executive Vice President, Finance 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 SCHEDULE
5 THIS SCHEDULE CONTAINES 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. 9-MOS DEC-31-1998 JAN-01-1998 OCT-04-1998 1,694 0 559,941 0 644,826 1,288,053 533,847 261,833 1,670,487 937,813 323,971 0 0 238,322 170,381 1,670,487 3,264,135 3,264,135 2,995,703 2,995,703 209,215 0 39,878 19,339 480 18,859 0 0 0 18,589 0 0
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