-----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, OOyjc73j47TYm8ShANZitpeOPSCBD6vCFTtE7fmdcJGeWnMjjw3qmXJ3KYUkq1nC hVhL3d32C7WWfIMLYjPYoQ== 0000950137-00-002454.txt : 20000517 0000950137-00-002454.hdr.sgml : 20000517 ACCESSION NUMBER: 0000950137-00-002454 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000401 FILED AS OF DATE: 20000516 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: SEC FILE NUMBER: 333-18397 FILM NUMBER: 637758 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 April 1, 2000 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 April 29, 2000. Class A Common Stock, $100 Par Value. 464,737 Shares. Class B Common Stock, $100 Par Value. 1,720,552 Shares. 1 2 PART I - FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS TRUSERV CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (In thousands)
April 1, December 31, 2000 1999 ------------ ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 1,376 $ 1,815 Accounts and notes receivable, net 554,387 460,419 Inventories 566,580 482,415 Other current assets 21,390 9,937 ----------- ----------- Total current assets 1,143,733 954,586 Properties less accumulated depreciation 238,950 244,845 Goodwill, net 113,774 114,537 Other assets 32,125 34,179 ----------- ----------- TOTAL ASSETS $ 1,528,582 $ 1,348,147 =========== ===========
See Notes to Condensed Consolidated Financial Statements. 2 3 TRUSERV CORPORATION CONDENSED CONSOLIDATED BALANCE SHEET (In thousands, except share data)
April 1, December 31, 2000 1999 -------------- ------------ (UNAUDITED) LIABILITIES AND CAPITALIZATION Current liabilities: Accounts payable $ 633,934 $ 544,904 Accrued expenses 89,105 75,347 Short-term borrowings 260,516 167,007 Current maturities of notes, long-term debt and capital lease obligations 87,158 88,088 ------------- ------------ Total current liabilities 1,070,713 875,346 ------------- ------------ Long-term debt and obligations under capital leases 309,147 309,796 Capitalization: Promissory (subordinated) and installment notes 83,728 83,804 Class A common stock, net of subscriptions receivable; authorized 750,000 shares; issued and subscribed 501,840 and 511,440 shares (net of stock subscriptions receivable of $3,843,000 and $3,874,000) 46,341 47,270 Class B nonvoting common stock and paid-in capital; authorized 4,000,000 shares; issued and fully-paid, 1,720,552 and 1,764,797 shares 173,354 177,779 Deferred patronage (13,969) (14,063) Retained earnings (139,863) (130,939) Accumulated other comprehensive income (869) (846) ------------ ----------- Total capitalization 148,722 163,005 ------------ ----------- TOTAL LIABILITIES AND CAPITALIZATION $ 1,528,582 $ 1,348,147 ============ ===========
See Notes to Condensed Consolidated Financial Statements. 3 4 TRUSERV CORPORATION CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (In thousands) (UNAUDITED)
FOR THE THIRTEEN WEEKS ENDED --------------------------- April 1, April 3, 2000 1999 ----------- ----------- Revenues $ 1,027,605 $ 1,070,892 Cost and expenses: Cost of revenues 964,939 1,016,660 Warehouse, general and administrative 57,988 51,870 Interest paid to Members 2,815 3,471 Other interest expense 11,600 10,740 Other expense (income), net (868) (564) Income tax expense 55 87 ----------- ----------- 1,036,529 1,082,264 ----------- ----------- Net loss before merger integration costs and cumulative effect of a change in accounting principle (8,924) (11,372) Merger integration costs -- 6,524 ----------- ----------- Net loss before cumulative effect of a change in accounting principle (8,924) (17,896) Cumulative effect on prior years of a change in accounting principle -- 6,484 ----------- ----------- Net loss $ (8,924) $ (24,380) =========== ===========
See Notes to Condensed Consolidated Financial Statements. 4 5 TRUSERV CORPORATION CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands) (UNAUDITED)
FOR THE THIRTEEN WEEKS ENDED ----------------------------- April 1, April 3, 2000 1999 ------------ ------------ Operating activities: Net loss $ (8,924) $ (24,380) Adjustments to reconcile net loss to cash and cash equivalents used for operating activities: Statement of operations components not affecting cash and cash equivalents 11,314 9,913 Net change in working capital components (88,832) 6,933 ------------ ------------ Net cash and cash equivalents used for operating activities (86,442) (7,534) ------------ ------------ Investing activities: Additions to properties owned (3,389) (20,452) Changes in other assets 924 (2,322) ------------ ------------ Net cash and cash equivalents used for investing activities (2,465) (22,774) ------------ ------------ Financing activities: Proceeds from short-term borrowings 93,509 50,637 Proceeds from long-term borrowings 791 336 Payment of annual patronage dividend --- (12,604) Payment of notes, long-term debt, lease obligations and common stock (5,832) (8,102) ------------ ------------ Net cash and cash equivalents provided by financing activities 88,468 30,267 ------------ ------------ Net increase (decrease) in cash and cash equivalents (439) (41) Cash and cash equivalents at beginning of period 1,815 1,650 ------------ ------------ Cash and cash equivalents at end of period $ 1,376 $ 1,609 ============ ============
See Notes to Condensed Consolidated Financial Statements. 5 6 TRUSERV CORPORATION 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 thirteen weeks ended April 1, 2000 and the condensed consolidated statement of operations and statement of cash flows for the thirteen weeks ended April 3, 1999 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, 1999 included in the Company's 1999 Annual Report on Form 10-K. NOTE 2 - ESTIMATED PATRONAGE DIVIDENDS If financial and operating conditions permit, patronage dividends are declared and paid by the Company after the close of each fiscal year. No annual patronage dividend was declared for 1999. The 1998 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. There is no estimated patronage dividend for the period ended April 1, 2000 and there was no patronage dividend estimated for the corresponding period in 1999. NOTE 3 - INVENTORIES Inventories consisted of: April 1, December 31, 2000 1999 ------------- ----------- (UNAUDITED) (000's Omitted) Manufacturing inventories: Raw materials $ 3,967 $ 2,473 Work-in-process and finished goods 37,509 39,945 -------- -------- 41,476 42,418 Merchandise inventories 525,104 439,997 -------- -------- $566,580 $482,415 ======== ======== NOTE 4 - SEGMENT INFORMATION The Company operates as a single reportable segment as the largest Member-owned wholesaler cooperative of hardware, lumber/building materials and related merchandise in the United States. Operations outside the United States were immaterial for the period ended April 1, 2000. The Company's sales to its Members are divided into three categories, as follows: (1) warehouse shipment sales (approximately 35% of total sales); (2) direct shipment sales (approximately 61% of total sales); and (3) relay sales (approximately 4% of total sales). Warehouse shipment sales are sales of products purchased, warehoused and resold by the Company upon orders from the Members. Direct shipment sales are sales of products purchased by the Company but delivered directly to Members from manufacturers. Relay sales are sales of products purchased by the Company in response to the requests of several 6 7 Members for a product which is (i) included in future promotions, (ii) not normally held in inventory and (iii) not susceptible to direct shipment. Generally, the Company will give notice to all Members of its intention to purchase products for relay shipment and then purchase only so many of such products as the Members order. When the product shipment arrives at the Company, it is not warehoused; rather, the Company breaks up the shipment and "relays" the appropriate quantities to the Members who placed orders. The Company's product offering, comprised of more than 72,000 stockkeeping units ("SKUs"), may be divided into seven classes of merchandise which are set forth, with their correspondent percentage of total revenue in the following table. For the Thirteen Weeks Ended ------------------------------ April 1, 2000 April 3, 1999 ------------- ------------- Lumber and Buildings Materials 32.8% 31.1% Farm and Garden 20.0% 20.3% Hardware Goods 15.3% 15.5% Electrical and Plumbing 12.3% 12.7% Painting and Cleaning 9.1% 9.2% Appliance and Housewares 7.4% 7.8% Sporting Goods and Toys 3.1% 3.4% NOTE 5 - CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE In April 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-5, Reporting the Costs of Start-Up Activities, which requires that costs related to start-up activities be expensed as incurred. Prior to 1999, the Company capitalized its costs incurred in connection with opening new distribution centers. The Company adopted the provisions of the SOP in its financial statements for the fiscal year ended December 31, 1999. The effect of adoption of SOP 98-5 was to record a charge for the cumulative effect of an accounting change of $6,484,000, to expense costs that had been previously capitalized prior to 1999. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIRTEEN WEEKS ENDED APRIL 1, 2000 COMPARED TO THIRTEEN WEEKS ENDED APRIL 3, 1999 RESULTS OF OPERATIONS: Revenues for the thirteen weeks ended April 1, 2000 totaled $1,027,605,000. This represented a decrease of $43,287,000 or 4.0% compared to the comparable period last year. The decrease was due primarily to mild weather in the first quarter which reduced the sale of winter goods compared to the prior year. Gross margins increased by $8,434,000 or 15.6%, and as a percentage of revenues, increased to 6.1% from 5.1% for the comparable period last year. The increased gross margins came about from reduced transportation costs due to the finalization of the distribution network strategy that were partially offset by higher fuel costs and a reduction in estimated capitalizable inventory-related costs. Warehouse, general and administrative expenses as a percentage of revenues increased to 5.6% from 4.8% compared with the prior year. The general and administrative expense were down 7.7% in the thirteen weeks ended April 1, 2000 compared to the same period last year due to headcount reductions. Warehouse expenses increased 10.3% in the thirteen weeks ended April 1, 2000 compared to the same period last year due to a reduction in estimated capitalizable inventory-related costs. 7 8 Total interest expense remained comparable to the prior year. In the prior year, the cumulative effect on prior years of a change in accounting principle of $6,484,000 reflects the start-up costs of converting the systems used by SCC distribution centers prior to the merger to those systems currently used by the Company. This reduction in net margins is in compliance with SOP 98-5, Reporting the Costs of Start-up Activities. There were no merger integration costs for the thirteen weeks ended April 1, 2000, compared to $6,524,000 for the comparable period last year. Even with the decrease in revenues, the Company improved its overall operating performance over the same period last year by reducing the net loss before merger integration costs and cumulative effect of a change in accounting principle by $2,448,000. In addition to this improved operating performance, the elimination of merger integration costs and the change in accounting principle reduced the net loss for the thirteen weeks ended April 1, 2000 to $8,924,000 compared to a net loss of $24,380,000 for the thirteen weeks ended April 3, 1999. LIQUIDITY AND CAPITAL RESOURCES: Cash used in operations during the first quarter of 2000 was $86,442,000. Inventories increased by $84,165,000 to support orders of seasonal merchandise. Accounts and notes receivable increased by $93,968,000 due to seasonal payment terms extended to the Company's Members. Accounts payable increased by $89,030,000 as a result of seasonal terms obtained from vendors. At April 1, 2000, net working capital decreased to $73,020,000 from $79,240,000 at December 31, 1999. The current ratio decreased to 1.07 at April 1, 2000 compared to 1.09 at December 31, 1999. At July 1, 1997, the Company had established a $300,000,000 five-year revolving credit facility with a group of banks. These agreements were amended during April, 2000. The borrowings under these agreements were $238,000,000 and $135,000,000 at April 1, 2000 and December 31, 1999, respectively. Under the senior notes and revolving credit facility the Company is required to meet certain financial ratios and covenants. The Company's lenders have waived compliance with certain covenants as of December 31, 1999 through the first quarter of 2000 and amended and restated the debt agreements including increased interest rates, new financial ratios and covenants and the securitization of the Company's assets, which were finalized by the Company during April of 2000. 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. In view of the prior year financial results, the Company has initiated a moratorium on the redemption of its stock. The Board of Directors will review this matter from time to time in light of the then current financial circumstances of the Company. Total capital expenditures, including those made under capital leases, have been reduced significantly compared to the comparable period in 1999. For the thirteen weeks ended April 1, 2000 and April 3, 1999, capital expenditures were $3,389,000 and $20,452,000, respectively. These capital expenditures relate to additional equipment and technological improvements at the regional distribution centers and at the corporate headquarters. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company's operations are subject to certain market risks, primarily interest rate risk and credit risk. Interest rate risk pertains to the Company's variable rate debt which totals approximately $150 million at April 1, 2000. A 50 basis point movement in the interest rates would result in an approximate $750,000 annualized increase or decrease in 8 9 interest expense and cash flows. Interest rate risk is managed through a combination of variable and fixed-rate debt instruments with varying maturities. Credit risk pertains mostly to the Company's trade receivables. The Company extends credit to its members as part of its day-to-day operations. The Company believes that as no specific receivable or group of receivables comprises a significant percentage of total trade accounts, its risk in respect to trade receivable is limited. Additionally, the Company believes that its allowance for doubtful accounts is adequate in respect to member credit risks. 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 May 9, 2000, the election results were as follows: Shares Outstanding as of Record Date (March 31, 2000) were 501,840. Total Votes received were 265,920 or approximately 53% of the total shares outstanding. Election of Directors: Votes Withheld Term Votes for Or Abstained ------------ --------------- ----------------- James D. Burnett 3 years 226,500 39,420 William H. Hood 3 years 227,160 38,760 George V. Sheffer 3 years 226,800 39,120 John B. Wake, Jr 3 years 227,100 38,820 All nominees have been duly elected. Approval of Proxies Voting on Other Business: For Against Abstained ------- ------- --------- Approval of Proxies Voting on Other Business 219,060 26,700 19,800 Item 5. OTHER INFORMATION. NONE Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits NONE (b) Reports on Form 8-K NONE 9 10 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. TRUSERV CORPORATION Date: May 16, 2000 By /s/ LEONARD G. KUHR ---------------------- Leonard G. Kuhr Senior Vice President and Chief Financial Officer (Mr. Kuhr is the principal financial officer and has been duly authorized to sign on behalf of the Registrant.) 10 EX-27 2 FINANCIAL DATA SCHEDULE
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-31-2000 JAN-01-2000 APR-01-2000 1,376 0 554,387 0 566,580 1,143,733 500,129 261,179 1,528,582 1,070,713 309,147 219,695 0 0 (70,973) 1,528,582 1,027,605 1,027,605 964,939 964,939 0 0 14,415 (8,869) 55 (8,924) 0 0 0 (8,924) 0 0
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