<PAGE> 1
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, 1995 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
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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.)
2740 North Clybourn Avenue
Chicago, Illinois 60614
(Address of Principal Executive Offices) (Zip Code)
(312) 975-2700
(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
APPLICABLE ONLY TO CORPORATE ISSUERS
The number of shares outstanding of each of the issuer's classes of
common stock, as of April 29, 1995.
Class A Common Stock, $100 Par Value. 61,030 Shares.
Class B Common Stock, $100 Par Value. 1,129,586 Shares.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
COTTER & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(000's Omitted)
<TABLE>
<CAPTION>
April 1, December 31,
1995 1994
-------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,298 $ 1,831
Accounts and notes receivable 350,965 294,663
Inventories 407,873 384,747
Prepaid expenses 13,030 7,861
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Total current assets 773,166 689,102
Properties owned,
less accumulated depreciation 163,494 164,261
Properties under capital leases,
less accumulated amortization 4,234 4,691
Other assets 11,123 10,731
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TOTAL ASSETS $952,017 $868,785
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</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 3
COTTER & COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET
(000's Omitted)
<TABLE>
<CAPTION>
April 1, December 31,
1995 1994
-------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND CAPITALIZATION
Current liabilities:
Accounts payable and accrued expenses $404,998 $379,772
Short-term borrowings 87,554 9,329
Current maturities of notes,
long-term debt and lease obligations 60,123 60,564
Patronage dividends payable in cash
(Estimated at April 1, 1995) 2,570 18,383
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Total current liabilities 555,245 468,048
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Long-term debt and obligations under
capital leases 74,456 75,756
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Capitalization:
Estimated patronage dividends to be
distributed principally by the
issuance of promissory (subordinated)
notes and redeemable Class B nonvoting
common stock 2,437 --
Promissory (subordinated) and
instalment notes 196,146 199,099
Redeemable Class A common stock and
partially paid subscriptions
(Authorized 100,000 shares; issued
and fully paid, 62,480 and 63,350 shares) 6,281 6,370
Redeemable Class B nonvoting common stock
and paid-in capital (Authorized 2,000,000
shares; issued and fully paid, 1,138,584
and 1,047,756 shares; issuable as partial
payment of patronage dividends, 104,275
shares as of December 31, 1994) 115,264 116,663
Retained earnings 3,137 3,764
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323,265 325,896
Foreign currency translation adjustment (949) (915)
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Total capitalization 322,316 324,981
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TOTAL LIABILITIES AND CAPITALIZATION $952,017 $868,785
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</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 4
COTTER & COMPANY
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THIRTEEN WEEKS ENDED
(000's Omitted)
(UNAUDITED)
<TABLE>
<CAPTION>
April 1, April 2,
1995 1994
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<S> <C> <C>
Revenues $625,939 $607,300
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Cost and expenses:
Cost of revenues 573,265 554,564
Warehouse, general and
administrative 37,098 36,152
Interest paid to Members 5,217 5,759
Other interest expense 2,514 1,796
Other expense(income), net (221) 88
Income tax expense 115 105
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617,988 598,464
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Net margins $ 7,951 $ 8,836
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</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 5
COTTER & COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THIRTEEN WEEKS ENDED
(000's Omitted)
(UNAUDITED)
<TABLE>
<CAPTION>
April 1, April 2,
1995 1994
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<S> <C> <C>
Operating activities:
Net margins $ 7,951 $ 8,836
Adjustments to reconcile net margins to
cash and cash equivalents from
operating activities:
Statement of operations components not
affecting cash and cash equivalents 6,140 6,790
Net change in working capital components (66,806) (25,161)
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Net cash and cash equivalents used for
operating activities (52,715) (9,535)
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Investing activities:
Additions to properties owned (3,986) (3,328)
Changes in other assets (392) (100)
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Net cash and cash equivalents used for
investing activities (4,378) (3,428)
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Financing activities:
Proceeds from short-term borrowings 78,225 31,600
Payment of annual patronage dividend (18,383) (16,614)
Payment of notes, lease obligations,
and Class A common stock (3,282) (2,968)
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Net cash and cash equivalents provided by
financing activities 56,560 12,018
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Net decrease in cash and cash equivalents (533) (945)
Cash and cash equivalents at
beginning of the year 1,831 1,314
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Cash and cash equivalents at
end of the period $ 1,298 $ 369
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</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 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 April 1, 1995 and the
condensed consolidated statement of operations and statement of cash flows
for the period ended April 2, 1994 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 31, 1994
included in the Company's Post-Effective Amendment No.4 to Form S-2
Registration Statement (No. 33-39477) and in the Company's 1994 Annual Report
on Form 10-K.
NOTE 2 - ESTIMATED PATRONAGE DIVIDENDS
Patronage dividends are declared and paid by the Company after the close of
each fiscal year. It is estimated that, based on past experience, the 1995
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 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. The
estimated patronage dividend for the thirteen weeks ended April 1, 1995 is
$8,578,000 compared to $8,680,000 for the corresponding period in 1994.
NOTE 3 - INVENTORIES
<TABLE>
<CAPTION>
Inventories consisted of: April 1, December 31,
1995 1994
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(UNAUDITED)
(000's Omitted)
<S> <C> <C>
Manufacturing inventories:
Raw materials $ 14,154 $ 12,986
Work-in-process and finished goods 51,604 60,094
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65,758 73,080
Merchandise inventories 342,115 311,667
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$407,873 $384,747
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</TABLE>
<PAGE> 7
NOTE 4 - DISPOSITION OF ASSETS
On January 13, 1995, the Company announced the sale of certain inventory of
its V&S Variety division to a national wholesaler who has also agreed to supply
the majority of the V&S stores. Also, on January 31, 1995, the Company agreed
to sell certain assets of its outdoor power equipment manufacturing division to
a nationally recognized company and secured a favorable supply agreement for
such equipment. These transactions will not have a material impact on the
Company's results of operations or financial position.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIRTEEN WEEKS ENDED APRIL 1, 1995 COMPARED TO THIRTEEN WEEKS ENDED
APRIL 2, 1994
RESULTS OF OPERATIONS:
Revenues increased by $18,639,000 or 3.1% compared to the same period last
year. The improvement resulted from increased merchandise shipments to existing
True Value Members from the Company's regional distribution network and paint
manufacturing facilities.
Gross margins remained comparable with the same period last year. Gross
margins as a percentage of revenues declined from 8.7% to 8.4% for the same
period last year, due to a change in the Company's sales mix, pricing strategy,
and more promotionally-oriented merchandising programs.
Warehouse, general and administrative expenses increased by $946,000 but
as a percent of revenues, decreased from 6.0% to 5.9% for the same period
last year. The decrease resulted from the Company's continuing efforts to
reduce operating costs.
Interest paid to Members decreased by $542,000 or 9.4% primarily due to a
lower principal balance and a lower average interest rate.
Net margins were $7,951,000 compared to $8,836,000 for the same period last
year.
THIRTEEN WEEKS ENDED APRIL 1, 1995 COMPARED WITH THE YEAR ENDED
DECEMBER 31, 1994
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 1995, inventories increased by $23,126,000 to
support anticipated future orders of seasonal merchandise. Accounts and notes
receivable increased by $56,302,000 attributable to increased revenues and the
result of seasonal payment terms for merchandise extended to the Company's
Members. Short-term borrowings increased by $78,225,000 and accounts payable
and accrued expenses increased by $25,226,000 in support of the increased
inventories and favorable seasonal terms obtained from vendors which were
passed on to the Company's Members.
<PAGE> 8
At April 1, 1995, net working capital decreased to $217,921,000 from
$221,054,000 at December 31, 1994. The current ratio decreased to 1.39
at April 1, 1995 compared to 1.47 at December 31, 1994.
Short-term lines of credit under informal agreements with lending banks,
cancelable by either party under specific circumstances, amounted to
$112,865,000. Borrowing under these agreements was $87,554,000 at
April 1, 1995.
The Company's capital is primarily derived from redeemable Class A common
stock and retained earnings, together with promissory (subordinated) notes and
redeemable nonvoting Class B common stock issued in connection with the
Company's annual patronage dividend. Funds derived from these capital
resources are usually sufficient to satisfy long-term capital needs.
Total capital expenditures, including those made under capital leases, were
$3,986,000 for the thirteen weeks ended April 1, 1995 compared to $3,328,000
during the comparable period in 1994. These capital expenditures relate to
additional equipment and technological improvements at the regional distribution
centers and the National Headquarters. Funding of any additional 1995 capital
expenditures is anticipated to come from operations and external sources, if
necessary.
The effects of all recent tax legislation have been reflected in the
condensed consolidated financial statements included elsewhere herein.
Additionally, the Company has reviewed the impact of all new accounting
standards issued as of April 1, 1995 that will be adopted at a future date,
and has determined that these will not have a material impact on the
Company's operating results and financial position.
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The annual meeting of stockholders was held on April 4, 1995.
(b) The annual meeting involved the election of five Directors for a
term of three years and the election of one new Director for a
one-year term.
The following Directors were reelected for a term of three years:
William M. Halterman George V. Sheffer
Kenneth W. Noble* John M. West, Jr.
Richard L. Schaefer
*(Kenneth W. Noble was elected as a Director for a three-year term to
replace Jeremiah J. O'Connor who had completed his term of office as
prescribed by the Company's By-Laws. Mr. Noble operates True Value
hardware stores in New York.)
The number of affirmative votes cast were 3,026, the number of negative
votes cast were 167, and the number of abstentions were 106.
Dennis A. Swanson was elected as a Director for a one-year term to
replace Michael P. Cole who retired as Director of the Company. Mr.
Swanson operates True Value hardware stores in Colorado and Illinois.
The number of affirmative votes cast were 2,979, the number of negative
votes cast were 153, and the number of abstentions were 167.
<PAGE> 9
In addition to the foregoing, the following persons were, on April 4,
1995, Directors of the Company whose terms of office continued after
the annual meeting:
William M. Claypool, III Robert J. Ladner
Samuel D. Costa, Jr. Lewis W. Moore
Daniel A. Cotter Robert G. Waters
Leonard C. Farr Donald E. Yeager
Jerrald T. Kabelin
(c) The annual meeting involved the appointment of Ernst & Young LLP,
independent public accountants, as auditor of the Company for fiscal
year 1995. The number of affirmative votes cast were 3,048, the
number of negative votes cast were 80, and the number of abstentions
were 171.
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.4 to form S-2 Registration Statement (No. 33-
39477) filed with the Securities and Exchange Commission on March 18,
1995.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the period for which this
report is filed.
<PAGE> 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.
COTTER & COMPANY
<TABLE>
<S> <C>
Date: May 15, 1995 By /s/ KERRY J. KIRBY
------------------------------------
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.)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-END> APR-01-1995
<CASH> 1,298
<SECURITIES> 0
<RECEIVABLES> 350,965
<ALLOWANCES> 0
<INVENTORY> 407,873
<CURRENT-ASSETS> 773,166
<PP&E> 364,711
<DEPRECIATION> 196,983
<TOTAL-ASSETS> 952,017
<CURRENT-LIABILITIES> 555,245
<BONDS> 74,456
<COMMON> 121,545
0
0
<OTHER-SE> 200,771
<TOTAL-LIABILITY-AND-EQUITY> 952,017
<SALES> 625,939
<TOTAL-REVENUES> 625,939
<CGS> 573,265
<TOTAL-COSTS> 573,265
<OTHER-EXPENSES> 36,877
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,731
<INCOME-PRETAX> 8,066
<INCOME-TAX> 115
<INCOME-CONTINUING> 7,951
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,951
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
