<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 30, 1995
REGISTRATION NO.
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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COTTER & COMPANY
(Exact Name of Registrant as Specified in Its Charter)
Delaware 36-2099896
(State or Other Jurisdiction of (IRS Employer Identification No.)
Incorporation or Organization)
2740 North Clybourn Avenue
Chicago, Illinois 60614
(312) 975-2700
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
Kerry J. Kirby, Vice President and Chief Financial Officer
Cotter & Company Cotter & Company
(Present Address) (Address After December 15, 1995)
2740 North Clybourn Avenue 8600 W. Bryn Mawr Avenue
Chicago, Illinois 60614 Chicago, Illinois 60631
(312) 975-2700 (312) 695-5000
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent For Service)
Copies to:
Daniel T. Burns, Vice President and Secretary
Cotter & Company Cotter & Company
(Present Address) (Address After December 15, 1995)
2740 North Clybourn Avenue 8600 W. Bryn Mawr Avenue
Chicago, Illinois 60614 Chicago, Illinois 60631
(312) 975-2700 (312) 695-5000
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Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this form, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OFFERING AGGREGATE AMOUNT OF
OF SECURITIES TO BE AMOUNT TO BE PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED UNIT(1) PRICE FEE
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<S> <C> <C> <C> <C>
Variable Denomination Fixed Rate 30,000 units $1,000 $30,000,000 $10,345
Redeemable Term Notes
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</TABLE>
(1) These Notes will be offered only in units of $1,000 and no investor may
purchase less than one such unit.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
COTTER & COMPANY
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CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
CAPTION IN
ITEM IN FORM S-2 PROSPECTUS
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<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus........... Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus....................................... Available Information; Reports to
Security Holders; Documents
Incorporated by Reference
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................ Summary; The Company; Certain Terms
of the Notes
4. Use of Proceeds.................................. Use of Proceeds
5. Determination of Offering Price.................. Outside Front Cover Page of
Prospectus and Plan of Distribution
6. Dilution......................................... Not Applicable
7. Selling Security Holders......................... Not Applicable
8. Plan of Distribution............................. Plan of Distribution
9. Description of Securities to be Registered....... General; Certain Terms of the Notes
10. Interests of Named Experts and Counsel........... Not Applicable
11. Information with Respect to the Registrant....... Summary; The Company; Consolidated
Ratio of Earnings to Fixed Charges
of The Company; Dividends; Selected
Financial Data; Management's
Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Distribution
of Patronage Dividends; Certain
Terms of the Notes; Index to
Consolidated Financial Statements
12. Incorporation of Certain Information by
Reference........................................ Documents Incorporated By Reference
13. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities... Not Applicable
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED NOVEMBER 30, 1995
PROSPECTUS
COTTER & COMPANY
$30,000,000
VARIABLE DENOMINATION FIXED RATE REDEEMABLE TERM NOTES
These Variable Denomination Fixed Rate Redeemable Term Notes (the "Notes")
are being issued and offered by Cotter & Company (the "Company") pursuant to the
Cotter & Company Investment Program (the "Program"). This Offering (the "Offer")
is being made in reliance to Rule 415 under the Securities Act of 1933.
The Notes are offered exclusively to current Members of Cotter & Company
holding Class A Common Stock and their immediate family members, current holders
of certain Cotter & Company variable denomination fixed rate redeemable term
notes, and current employees of Cotter & Company and its subsidiaries
(collectively, the "Offerees"). The Program is designed to provide investors
with a convenient means of investing funds directly with the Company.
The Notes will be offered through a mailing to all Offerees (See "How to
Invest"). The Notes will have various maturity dates and pay fixed rates of
interest, as stated, for each maturity (See "General"). The Notes are restricted
as to transferability (See "How to Redeem") and are subject to call by the
Company (See "Certain Terms of the Notes"). Investment in a Note will be
represented by a program account ("Account") established for each Offeree who
purchase the Notes (the "Investor") by the agent bank (the "Agent Bank")
appointed by the Company. The Notes will not be represented by a certificate or
any other instrument evidencing the Company's indebtedness (See "Trust
Indenture"). The Company reserves the right to modify, withdraw, or cancel this
Offer at any time.
For further information regarding the Cotter & Company Investment Program,
please call toll-free 800-507-9000.
Please read this Prospectus carefully and retain for future reference.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
=====================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY
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<S> <C> <C> <C>
Per Unit(1)........................ $1,000 See (2) Below $1,000(3)
Total.............................. $30,000,000 See (2) Below $30,000,000(3)
=====================================================================================================
</TABLE>
(1) The Notes will be offered only in units of $1,000 and no Investor may
purchase less than one such unit.
(2) There will be no underwriters. The subject Notes will be sold directly by
the Company at par value.
(3) There is no firm commitment for the sale of the securities offered
hereunder; they will be sold from time to time by the Company. However,
assuming the sale of all securities offered hereunder, and before deduction
of approximately $81,345 for estimated expenses in connection with this
offering, the total proceeds will be as shown above.
------------------
THE DATE OF THIS PROSPECTUS IS
<PAGE> 4
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information filed by the
Company with the Commission can be inspected and copied at the public reference
facilities maintained by the Commission at its principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as the Regional Offices of the
Commission at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such material can be obtained from the Public Reference Section
of the Commission, Washington, D.C. 20549 at prescribed rates.
REPORTS TO SECURITY HOLDERS
Each year the Company distributes to its stockholder-Members an annual
report containing consolidated financial statements reported upon by a firm of
independent auditors. The Company may, from time to time, also furnish to its
stockholder-Members interim reports, as determined by management.
DOCUMENTS INCORPORATED BY REFERENCE
The Company's Quarterly Report on Form 10-Q for the quarter ended September
30, 1995 and Annual Report on Form 10-K for the fiscal year ended December 31,
1994 filed pursuant to Section 15(d) of the Exchange Act are incorporated herein
by reference. All documents filed by the Company pursuant to Section 15(d) of
the Exchange Act after the date of this Prospectus and prior to the termination
of the Offer shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof from the date of filing such documents. The
Company currently estimates that the Offer will terminate on or about one year
from offer date.
The Company will provide without charge to each person to whom a Prospectus
is delivered, upon written or oral request of such person, a copy of any and all
of the documents incorporated by reference in the Prospectus (other than
exhibits to such documents unless such exhibits are specifically incorporated by
reference into the documents that the Prospectus incorporates). Requests for
such copies should be directed to Kerry J. Kirby, Vice President and Chief
Financial Officer, Cotter & Company, presently located at 2740 North Clybourn
Avenue, Chicago, IL 60614, telephone number 312-975-2700. After December 15th,
the Company will be located at 8600 West Bryn Mawr Avenue, Chicago, Illinois,
60631, telephone number 312-695-5000.
2
<PAGE> 5
SUMMARY
This Summary is qualified in its entirety by the detailed information and
the Company's consolidated financial statements (including the notes thereto)
appearing elsewhere in this Prospectus and in the documents incorporated herein
by reference.
Cotter & Company (the "Company"), is presently located at 2740 North
Clybourn Avenue, Chicago, Illinois, 60614, telephone number (312) 975-2700.
After December 15th, the Company will be located at 8600 West Bryn Mawr Avenue,
Chicago, Illinois, 60631, telephone number (312) 695-5000. The Company is a
Member-owned wholesaler of hardware and related merchandise. It is the largest
wholesaler of hardware and related merchandise in the United States. The Company
also manufactures paint and paint applicators. For reporting purposes, the
Company operates in a single industry as a Member-owned wholesaler cooperative.
The Notes being offered hereby are offered exclusively to current Members
of the Company holding Class A Common Stock and their immediate family members,
current holders of certain Cotter & Company variable denomination fixed rate
redeemable notes and current employees of the Company and its subsidiaries. The
Notes are offered only in units of $1,000. Ownership of the Notes can be issued
in one of the following four types of accounts: Single Tenancy, Joint Tenancy
with Right of Survivorship, Tenancy by Custodian (under the Uniform Gifts to
Minors Act) and Living Trust. Notes are issued quarterly in two-year terms; in
three-year terms; and in four-year terms. Sales of Notes are made for cash.
Investors will have the option to elect to receive the interest payments or
to have the interest payments added to the Note on a semi-annual basis.
The Notes are not equivalent to a deposit or other bank account and are not
subject to the protection of the Federal Deposit Insurance Corporation or any
other insurance. The Program is not subject to the requirements of the
Investment Company Act of 1940 (including diversification of investments) or the
Employee Retirement Income Security Act of 1974. All investments in the Notes
are investments in securities of the Company and are not an obligation of the
Agent Bank or any other company.
The Notes being offered hereby are not transferable and may not be pledged
as collateral for any debt of the Investor. Additionally, the Company has the
option to redeem the Notes in whole or in part of the principal amount thereof
plus accrued and unpaid interest to the redemption date.
The Notes will be subordinated in right of payment to senior notes,
indebtedness to banking institutions, trade creditors and other indebtedness of
the Company.
There is no existing market for the Notes offered hereunder and there is no
expectation that any market will develop.
The Company intends to use the proceeds of this offering primarily for
general working capital purposes, including the purchase of merchandise for
resale to Members and the maintenance of adequate inventory levels.
3
<PAGE> 6
THE COMPANY
The Company was organized as a Delaware corporation in 1953. Upon its
organization, it succeeded to the business of Cotter & Company, an Illinois
corporation organized in 1948. The Company's principal executive offices are
presently located at 2740 North Clybourn Avenue, Chicago, Illinois 60614,
telephone number 312-975-2700. After December 15, 1995 the Company will be
located at 8600 West Bryn Mawr Avenue, Chicago, Illinois 60631, telephone number
312-695-5000.
The Company is a Member-owned wholesaler of hardware and related
merchandise. It is the largest wholesaler of hardware and related merchandise in
the United States. The Company also manufactures paint and paint applicators.
For reporting purposes, the Company operates in a single industry as a
Member-owned wholesaler cooperative.
The Company serves approximately 5,700 True Value(R) Hardware Stores
throughout the United States. Primary concentrations of Members exist in
California (approximately 8%), New York, Illinois and Texas (approximately 6%
each), Pennsylvania (approximately 5%) and Michigan, Ohio and Wisconsin
(approximately 4% each).
CONSOLIDATED RATIO OF EARNINGS TO
FIXED CHARGES OF THE COMPANY
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR
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1994 1993 1992 1991 1990
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<S> <C> <C> <C> <C>
2.84 2.73 2.73 2.96 2.89
<CAPTION>
FOR THE THIRTY-NINE WEEKS
ENDED
----------------------------
SEPTEMBER 30, OCTOBER 1,
1995 1994
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<S> <C>
2.07 2.77
</TABLE>
The ratio of earnings to fixed charges has been computed by dividing
earnings before income taxes and fixed charges by fixed charges. Fixed charges
consist of interest expense and the portion of rental expense deemed to
represent interest expense.
4
<PAGE> 7
USE OF PROCEEDS
The proceeds from the sale of the Notes will be made available for general
working capital purposes, including the purchase of merchandise for resale to
Members and the maintenance of adequate inventory levels.
PLAN OF DISTRIBUTION
The Notes being offered hereby are offered exclusively to current members
of the Company holding Class A Common Stock and their immediate family members,
current holders of certain Cotter & Company variable denomination fixed rate
Redeemable Term Notes, and current employees of the Company and its
subsidiaries. The Notes are offered only in units of $1,000. All sales of the
Notes will be made for cash.
The availability of the Program will be communicated through a mailing to
all Offerees. An Offeree, upon request of an application package will receive
the Prospectus, the Program Description, IRS W-9 Certification Form, and
application form to be returned to the Company. The application will include the
Investor's registration form for Two-Year Notes, Three-Year Notes, or Four-Year
Notes. By signing and returning the application form and IRS W-9 Certification
Form, together with the check for the invested amount to the Company's
designated lockbox bank account, an Investor shall consent to be bound by the
terms of the Program, as described in the Program Description, as amended from
time to time by the Company.
5
<PAGE> 8
GENERAL
The Program is designed to provide Investors with a convenient means of
investing funds directly with the Company. The Notes are available in units of
$1,000.
NOTE TERMS
The Notes will be issued quarterly commencing April 1st, 1996 and will be
offered in two-year terms; in three-year terms; and in four-year terms.
INTEREST RATE
The Notes will bear interest at a rate determined by the Company. The fixed
interest rate on the Notes will be set for each quarter by the Company as a
spread of 1% over the comparable Treasury Note. Information concerning the
interest rate on the Notes will be available by calling toll free 800-507-9000.
Investors will have the option to elect to receive interest payments or to
have the interest payments added to the Note on a semi-annual basis. Interest is
calculated on a 365 day year and will be issued on a semi-annual basis. Interest
payments and principal at maturity will be paid by check and mailed on the next
business day.
The Investor can change the interest payment option between paid or
reinvested by notifying the Agent Bank in writing.
TYPES OF ACCOUNTS
Investors may hold ownership of the Notes in one of the following four
types of accounts: Single Tenancy, Joint Tenancy with Right of Survivorship,
Tenancy by Custodian (under the Uniform Gifts to Minors Act) and Living Trust.
The Notes are not transferable and may not be pledged as collateral for any debt
of the Investor.
If an Investor's legal name changes, Form W-9 and a signature guarantee
will be needed to change the name of the Investor on an account.
These Notes cannot be held by a retirement savings plan described in
Section 4975(e)(1) of the Internal Revenue Code of 1986, as amended.
ACCOUNT INFORMATION
For current Account Information, Investors may call toll-free 800-507-9000.
HOW TO INVEST
The availability of the Program will be communicated through a mailing to
all Offerees. An Offeree, upon request of an application package will receive
the Prospectus, the Program Description, IRS W-9 Certification Form and an
application form to be returned to the Company. The application form will
include the Investors registration form, for Two-Year Notes, Three-Year Notes,
and Four-Year Notes. By signing and returning the application form together with
the check of the invested amount to the Company's designated lockbox bank
account, an Investor shall consent to be bound by the terms of the Program as
described in the Program Description, as amended from time to time by the
Company. THIS COMPLETED APPLICATION, THE IRS W-9 CERTIFICATION FORM AND THE
CHECK FOR THE INVESTED AMOUNT MUST BE RECEIVED BY THE COMPANY AT THE COMPANY'S
DESIGNATED LOCKBOX BANK ACCOUNT ON OR BEFORE THE LAST BUSINESS DAY BEFORE THE
START OF EACH
6
<PAGE> 9
CALENDAR YEAR QUARTER (MARCH 31ST FOR APRIL 1ST; JUNE 30TH FOR JULY 1ST;
SEPTEMBER 30TH FOR OCTOBER 1ST AND DECEMBER 31ST FOR JANUARY 1ST).
HOW TO REDEEM
The Notes may be redeemed prior to maturity subject to a penalty (the
"Penalty") consisting of the loss of 120 days of interest as calculated on the
most recent quarterly stated principal balance. This Penalty may result in a
reduction of the Investor's principal balance.
Investors may not transfer ownership of the Notes. In cases of probate or
court decree, the Notes will be redeemed and will be subject to Penalty. The
Investors will not be able to break the Notes into smaller denominations at any
time during the life of the Notes.
CERTAIN TERMS OF THE NOTES
TRUST INDENTURE
The Notes shall be issued under an indenture (the "Indenture"), between the
Company and Bank of America Illinois (the "Trustee"). The statements under this
heading are subject to the detailed provisions of the Indenture, a copy of which
will be provided without charge to each person to whom a Prospectus is
delivered, upon written or oral request. Such request should be directed to
Kerry J. Kirby, Vice President and Chief Financial Officer, Cotter & Company,
presently located at 2740 North Clybourn Avenue, Chicago, IL 60614, telephone
number 312-975-2700. After December 15th, the Company will be located at 8600
West Bryn Mawr Avenue, Chicago, Illinois 60631, telephone number 312-695-5000.
NOTE SUBORDINATION/RISK FACTORS
The Notes will be subordinated in right of payment to senior notes,
indebtedness to banking institutions, trade creditors and other indebtedness of
the Company.
OPTIONAL REDEMPTION BY THE COMPANY
The Notes will be redeemable at the Company's option at any time, in whole
or in part, at 100% of the principal amount thereof, plus accrued and unpaid
interest to the redemption date. Any partial redemption of the Notes will be
effected by lot or pro rata or by any other method that is deemed fair and
appropriate by the Trustee.
Any Notes redeemed at the Company's option, plus accrued and unpaid
interest thereon to the date of redemption, will be paid by check to the
Investor. Interest on all redeemed Notes shall cease to accrue on and after the
effective date of redemption.
7
<PAGE> 10
DIVIDENDS
Other than the payment of patronage dividends, including the redemption of
some nonqualified written notices of allocation, the Company has not paid
dividends on its Class A Common Stock or Class B Common Stock. The Board of
Directors does not plan to pay dividends on either of said classes. See
"Distribution of Patronage Dividends".
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
----------------------------------------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2, DECEMBER 28, DECEMBER 29,
1994 1994 1993 1991 1990
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(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues............................. $2,574,445 $2,420,727 $2,356,468 $2,139,887 $2,135,120
Net margins.......................... $ 60,318 $ 57,023 $ 60,629 $ 59,425 $ 54,847
Patronage dividends.................. $ 60,421 $ 54,440 $ 60,901 $ 60,339 $ 56,269
Total assets......................... $ 868,785 $ 803,528 $ 833,372 $ 763,109 $ 709,895
Long-term debt and obligations under
capital leases..................... $ 75,756 $ 69,201 72,749 $ 13,335 $ 15,077
Promissory (subordinated) and
instalment notes payable........... $ 199,099 $ 217,996 $ 235,695 $ 235,289 $ 215,452
Redeemable Class A Common Stock...... $ 6,370 $ 6,633 $ 6,857 $ 7,077 $ 7,362
Redeemable Class B Common Stock...... $ 116,663 $ 110,773 $ 108,982 $ 104,151 $ 101,398
Book value per share of Class A
Common Stock and Class B Common
Stock(a)........................... $ 103.57 $ 103.85 $ 101.42 $ 102.50 $ 103.38
</TABLE>
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(a) The book value per share of the Company's Class A Common Stock and Class B
Common Stock is the value, determined in accordance with generally accepted
accounting principles, of such shares as shown by the respective year-end
consolidated balance sheets of the Company, included elsewhere herein as
reported on by the Company's independent auditors, after eliminating
therefrom all value for goodwill, and other intangible assets and any
retained earnings specifically appropriated by the Company's Board of
Directors.
8
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED SEPTEMBER 30, 1995 COMPARED TO THIRTEEN WEEKS ENDED
OCTOBER 1, 1994
Revenues decreased by $59,019,000 or 9.0% compared to the same period last
year. The decrease was attributable to the phase out of the V&S(R) Variety
division and the outdoor power equipment manufacturing division, and lower
pricing of lumber related products.
Gross margins decreased by $6,957,000 or 12.1% compared to the same period
last year. Gross margins as a percentage of revenues declined to 8.5% from 8.8%
for the same period last year. Warehouse, general and administrative expenses
decreased by $3,815,000 or 11.4% and as a percent of revenues, decreased to 5.0%
from 5.1% for the same period last year. Both decreases were primarily due to
the phase out of the V&S(R) Variety division and the outdoor power equipment
manufacturing division.
Interest paid to Members decreased by $649,000 or 11.4% primarily due to a
lower principal balance and a lower average interest rate.
Other interest expense remained comparable to the same period last year.
Net margins were $13,447,000 compared to $15,452,000 for the same period
last year.
THIRTY-NINE WEEKS ENDED SEPTEMBER 30, 1995 COMPARED TO THIRTY-NINE WEEKS ENDED
OCTOBER 1, 1994
Revenues decreased by $91,081,000 or 4.7% compared to the same period last
year. The decrease was attributable to the phase out of the V&S(R) Variety
division and the outdoor power equipment manufacturing division and lower
pricing of lumber related products.
Gross margins decreased by $18,101,000 or 10.5%. Gross margins as a
percentage of revenues declined to 8.4% from 8.9% for the same period last year.
Warehouse, general and administrative expenses decreased by $8,232,000 or 7.8%
and as a percentage of revenues, decreased to 5.3% from 5.4% for the same period
last year. Both decreases were primarily due to the phase out of the V&S(R)
Variety division and the outdoor power equipment manufacturing division during
the second quarter of the year. The majority of the impact to the gross margin
from this phase out was completed by the second quarter, but the benefits to
warehouse, general and administrative expenses will continue for the remainder
of the year.
Interest paid to Members decreased by $1,704,000 or 9.9% primarily due to a
lower principal balance and lower average interest rates.
Other interest expense increased by $1,647,000 or 28.8% compared to the
same period last year primarily due to higher borrowings and a higher average
interest rate.
Net margins were $34,591,000 compared to $44,081,000 for the same period
last year.
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993
In fiscal year 1994, the Company's revenues increased $153,718,000 from
last year. Total revenues grew to $2,574,445,000, an increase of 6.4%. The
improvement resulted from increased merchandise shipments to existing Members.
Classes of merchandise with the strongest percentage increases in fiscal
year 1994 were Lumber and Building Materials, up 11.9%; Farm and Garden
Supplies, up 8.9%; Hardware Goods, up 7.3%; Appliances
9
<PAGE> 12
and Housewares, up 7.0%; and Variety and Related Goods, up 6.4%. The South
Central region of the United States showed the largest growth at 9.4%. Other
regions showing strong growth were the Southeast at 8.1%; the Northeast at 7.2%;
and North Central at 7.1%.
Consolidated gross margins increased by $5,410,000 or 2.5% but as a
percentage of revenues decreased to 8.7% from 9.0% reflecting a change in the
Company's sales mix from warehouse to direct shipments, combined with the new
Pinpoint Pricing program and more promotionally oriented merchandising programs.
Warehouse, general and administrative expenses remained comparable with the
previous year but expressed as a percentage of revenues decreased to 5.2% from
5.5% due to the Company's continuing efforts to reduce operating costs.
Interest paid to Members decreased by $1,564,000 or 6.4% primarily due to a
lower average interest rate.
Net margins were $60,318,000 for the year ended December 31, 1994 compared
to $57,023,000 for the year ended January 1, 1994. The fiscal year 1993 net
margins include a one-time gain on the sale of properties of $5,985,000 offset
by the related income tax of $2,162,000.
FISCAL YEAR 1993 COMPARED TO FISCAL YEAR 1992
Revenues increased $64,259,000 or 2.7% compared to the previous year. The
majority of this revenue gain resulted from increased direct shipment sales to
Members. Contributing to the increased direct shipments were strong increases of
15.6% from Lumber and Building Materials and a 20.5% increase from the Company's
manufacturing division, General Power Equipment Company. Another significant
portion of the Company's revenue increase was due to Cotter Canada Hardware and
Variety Cooperative, Inc. ("Cotter Canada"). With its growth in membership and
its first full year of operations, Cotter Canada shipments to Canadian members
increased by 36.4%.
Consolidated gross margins increased $1,313,000 but as a percentage of
revenue decreased to 9.0% from 9.2% reflecting the change in sales mix from
warehouse to direct shipments.
Warehouse, general and administrative expenses increased by $9,430,000 or
7.7% due to higher manufacturing and logistic costs, increases associated with a
full year of operations at Cotter Canada and non-recurring expenses related to
the decentralization of functions previously performed at the Company's National
Headquarters.
Interest paid to Members decreased $1,258,000 or 4.9% primarily due to a
lower average interest rate.
Other interest expense increased by $156,000 or 2.1% due to a long-term
financing agreement entered into by the Company during the second quarter of
fiscal year 1992 to finance the expansion of the Company's distribution network
and entry into Canada. This increase was partially offset by a decrease in
short-term borrowings and the average rate of interest compared to the
corresponding period last year.
The gain on sale of properties owned of $5,985,000 and the corresponding
increase in income tax expense of $2,193,000 resulted primarily from the
disposition of a regional distribution center in Pomona, California and real
estate located in Chicago, Illinois.
Net margins were $57,023,000 for the year ended January 1, 1994 compared to
$60,629,000 for the year ended January 2, 1993.
10
<PAGE> 13
LIQUIDITY AND CAPITAL RESOURCES
THIRTY-NINE WEEKS ENDED SEPTEMBER 30, 1995 COMPARED WITH THE YEAR ENDED
DECEMBER 31, 1994
Cash and cash equivalents were comparable at September 30, 1995 and
December 31, 1994.
Cash flows for the thirty-nine weeks ended September 30, 1995 of
$43,210,000 were provided by operating activities. Accounts and notes receivable
increased by $24,991,000 due to seasonal payment terms for merchandise extended
to the Company's Members. Accounts payable and accrued expenses decreased by
$21,203,000 primarily due to the decrease in inventory of $59,081,000 offset by
favorable seasonal terms obtained from vendors which were passed on to the
Company's Members. The decrease in inventory is due to the phase out of the
V&S(R) Variety division and the outdoor power equipment manufacturing division.
Cash flows for the thirty-nine weeks ended September 30, 1995 of
$12,880,000 were used for investing activities. Total capital expenditures,
including those made under capital leases of $2,470,000, were $18,468,000 for
the thirty-nine weeks ended September 30, 1995 compared to $16,796,000 during
the comparable period in 1994. These capital expenditures were related 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.
Cash flows for the thirty-nine weeks ended September 30, 1995 of
$30,603,000 were used for financing activities. Short-term lines of credit under
informal agreements with lending banks, cancelable by either party under
specific circumstances, totaled $63,000,000 at September 30, 1995. Borrowings
under these agreements were $8,042,000 at September 30, 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.
At September 30, 1995, net working capital increased to $223,807,000 from
$221,054,000 at December 31, 1994. The current ratio is 1.51 compared to 1.47 at
December 31, 1994.
The Company has reviewed the impact of all new accounting standards issued
as of September 30, 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.
FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993
Cash and cash equivalents in 1994 remained comparable to the previous year.
Cash flows for the year ended December 31, 1994 of $88,663,000 were provided by
operating activities through shipment of inventories to True Value(R) and V&S(R)
Members, which were purchased or manufactured by the Company. Cash flows of
$18,121,000 were used for investing activities and cash flows of $70,025,000
were used for financing activities.
At the end of fiscal year 1994, inventories increased by $48,681,000, to
support anticipated future orders of seasonal merchandise. Short-term borrowings
decreased by $13,958,000, but accounts payable increased by $79,252,000 in
support of the increased inventories for anticipated future orders of seasonal
merchandise and favorable seasonal terms obtained from vendors. Since the
favorable seasonal terms were passed on to the Company's Members, accounts and
notes receivable increased by $18,078,000.
11
<PAGE> 14
At December 31, 1994, net working capital decreased to $221,054,000 from
$225,206,000 at January 1, 1994. The current ratio decreased to 1.47 at December
31, 1994 compared to 1.57 at January 1, 1994.
Short-term lines of credit available under informal agreements with lending
banks, cancellable by either party under specific circumstances, amounted to
$67,800,000 at December 31, 1994. Borrowings under these agreements were
$9,329,000 at December 31, 1994 compared to $23,287,000 at January 1, 1994.
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
$21,427,000 in fiscal year 1994 compared to $13,382,000 in fiscal year 1993 and
$30,398,000 in fiscal year 1992. These capital expenditures were principally
related to additional equipment and technological improvements at the regional
distribution centers and National Headquarters. Funding of capital expenditures
in fiscal year 1995 is anticipated to come from operations and external sources,
if necessary.
Effective January 3, 1993, the Company adopted SFAS No. 109, "Accounting
for Income Taxes". As permitted under the new rules, prior years' financial
statements have not been restated. The cumulative effect of this adoption did
not have a material effect on the consolidated financial statements.
Additionally, the Company has reviewed the impact of all new accounting
standards issued as of the filing date of this report, that will be adopted at a
future date, and has determined that these will not have a material impact on
the Company's results of operations or financial position.
BUSINESS
The Company is a Member-owned wholesaler of hardware and related
merchandise. It is the largest wholesaler of hardware and related merchandise in
the United States. The Company also manufactures paint and paint applicators.
For reporting purposes, the Company operates in a single industry as a
Member-owned wholesaler cooperative.
Membership entitles a Member to use certain Company trademarks and trade
names, including the federally registered collective membership trademark
indicating membership in "True Value(R) Hardware Stores". The "True Value(R)"
collective membership mark has a present expiration date of January 2, 2003.
The Company serves approximately 5,700 True Value(R) Hardware Stores
throughout the United States. Primary concentrations of Members exist in
California (approximately 8%), New York, Illinois and Texas (approximately 6%
each), Pennsylvania (approximately 5%) and Michigan, Ohio and Wisconsin
(approximately 4% each).
12
<PAGE> 15
The Company's total sales of merchandise to its U.S. Members were divided
among the following general classes of merchandise:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1, JANUARY 2,
1994 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Hardware Goods............................ 20.1% 20.0% 20.8%
Electrical and Plumbing Supplies.......... 15.8% 16.3% 16.3%
Painting and Cleaning Supplies............ 14.4% 14.9% 14.7%
Variety and Related Goods................. 13.9% 13.9% 14.2%
Lumber and Building Materials............. 12.9% 12.3% 10.8%
Farm and Garden Supplies.................. 12.5% 12.3% 11.7%
Appliances and Housewares................. 10.4% 10.3% 11.5%
</TABLE>
The Company serves its Members by purchasing products in quantity lots and
selling them to Members in smaller lots, passing along any savings to Members in
the form of lower prices and/or patronage dividends. The Company holds
conventions and meetings for its Members in order to keep them better informed
as to industry trends and the availability of new merchandise. The Company also
provides each of its Members with an illustrated price catalog showing the
products available from the Company. The Company's sales to its Members are
divided into three categories, as follows: (1) warehouse shipment sales
(approximately 47% of total sales); (2) direct shipment sales (approximately 42%
of total sales); and (3) relay sales (approximately 11% 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 Members for a product which is not normally
held in inventory and is 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 purchases 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 also manufactures paint and paint applicators. The principal
raw materials used by the Company are chemicals. All raw materials are purchased
from outside sources. The Company has been able to obtain adequate sources of
raw materials and other items used in production and no shortages of such
materials which will materially impact operations are currently anticipated.
The Company annually sponsors two "markets" (one in the Spring and one in
the Fall). In fiscal year 1996, these markets will be held in St. Louis,
Missouri. Members are invited to the markets and generally place substantial
orders for delivery during the period prior to the next market. During such
markets, new merchandise and seasonal merchandise for the coming season is
displayed to attending Members.
As of October 31, 1995 and October 31, 1994, the Company had comparatively
lower backlog of firm orders (including relay orders). The date coincides with
the current fall market held recently and tabulations of order are not available
as of this time. The Company's backlog at any given time is made up of two
principal components: (i) normal resupply orders and (ii) market orders for
future delivery. Resupply orders are orders from Members for merchandise to keep
inventories at normal levels. Generally, such orders are filled the day
following receipt, except that relay orders for future delivery (which are in
the nature of resupply orders) are not intended to be filled for several months.
Market orders for future delivery are Member orders for new or seasonal
merchandise given at the Company's two markets, for delivery during the several
months subsequent
13
<PAGE> 16
to the markets. Thus, the Company will have a relatively high backlog at the end
of each market which will diminish in subsequent months until the next market.
The retail hardware industry is characterized by intense competition.
Independent retail hardware businesses served by the Company continue to face
intense competition from chain stores, discount stores, home centers, and
warehouse operations. Increased operating expenses for the retail stores,
including increased costs due to longer open-store hours and higher rental costs
of retail space, have cut into operating margins and brought pressures for lower
merchandise costs, to which the Company has been responsive through a retail
oriented competitive pricing strategy on high turnover, price sensitive items
(Pinpoint Pricing program). The Company competes with other Member-owned and
non-member-owned wholesalers as a source of supply and merchandising support for
independent retailers. Competitive factors considered by independent retailers
in choosing a source of supply include pricing, servicing capabilities,
promotional support and merchandise selection and quality. Increased operating
expenses and decreased margins have resulted in the withdrawal from business of
several non-member-owned wholesalers.
During fiscal year 1992, the Company acquired through a Canadian
subsidiary, a majority equity interest in Cotter Canada Hardware and Variety
Cooperative, Inc., a Canadian wholesaler of hardware, variety and related
merchandise. This cooperative serves 425 True Value(R) and V&S(R) Stores, all
located in Canada. The cooperative has approximately 338 employees and generated
less than 5% of the Company's consolidated revenue in three quarters of 1995 and
in fiscal year 1994.
The Company operates several other subsidiaries, most of which are engaged
in businesses providing additional services to the Company's Members. In the
aggregate, these subsidiaries are not significant to the Company's results of
operations.
The Company employs approximately 3,500 persons in the United States on a
full-time basis. Due to the widespread geographical distribution of the
Company's operations, employee relations are governed by the practices
prevailing in the particular area and are generally dealt with locally.
Approximately 35% of the Company's hourly-wage employees are covered by
collective bargaining agreements which are generally effective for periods of
three or four years. In general, the Company considers its relationship with its
employees to be good.
DISTRIBUTION OF PATRONAGE DIVIDENDS
The Company operates on a cooperative basis with respect to business done
with or for Members. All Members are entitled to receive patronage dividend
distributions from the Company on the basis of gross margins of merchandise
and/or services purchased by each Member. In accordance with the Company's
By-Laws and Retail Member Agreement; the annual patronage dividend is paid to
Members out of the gross margins from operations and other patronage source
income, after deduction for expenses, reserves and provisions authorized by the
Board of Directors.
Patronage dividends are usually paid to Members within 60 days after the
close of the Company's fiscal year; however, the Internal Revenue Code (the
"Code") permits distribution of patronage dividends as late as the 15th day of
the ninth month after the close of the Company's fiscal year, and the Company
may elect to distribute the annual patronage dividend at a later time than usual
in accordance with the provisions of the Code.
The Company's By-Laws provide for the payment of year-end patronage
dividends, after payment of at least 20% of such patronage dividends in cash, in
qualified written notices of allocation including (i) Class B
14
<PAGE> 17
nonvoting Common Stock based on book value thereof, to a maximum of 2% of the
Member's net purchases of merchandise from the Company for the year (except in
unusual circumstances of individual hardships, in which case the Board of
Directors reserves the right to make payments in cash), (ii) Promissory
(Subordinated) Notes, or (iii) other property. The Company may also issue
nonqualified written notices of allocation to its Members as part of its annual
patronage dividend.
In determining the form of the annual patronage dividend, a Member's
required investment in Class B Common Stock of the Company had been limited by
the Board of Directors to an amount in the aggregate not exceeding an amount
(computed on the basis of par value thereof and to the nearest multiple of $100)
equal to (i) two percent (2%) of a Member's net purchases of direct shipment
sales from the Company and purchases of direct shipment sales of "Competitive
Edge Program Lumber" materials computed separately at one percent (1%), (ii)
four percent (4%) of a Member's net purchases of relay sales from the Company
and (iii) eight percent (8%) of a Member's net warehouse purchases from the
Company in the year of the highest total net purchases of the three preceding
years. In 1995, the Board of Directors adopted a plan to continue to adequately
capitalize the Company and to more equitably divide the responsibility for
capitalizing the Company among its Members. As a result, it is anticipated that
these percentages will be changed. In that each Member has equal voting power
(voting rights being limited to Class A Common Stock), acquisition of Class B
Common Stock as patronage dividends generally results in the larger-volume
Members having greater Common Stock equity in the Company but a lesser
proportionate voting power per dollar of Common Stock owned than smaller-volume
Members.
PAYMENT OF PATRONAGE DIVIDENDS IN ACCORDANCE WITH THE INTERNAL REVENUE CODE
The Code specifically provides for the taxation of cooperatives (such as
the Company) and their patrons (such as the Company's Members) so as to ensure
that the business earnings of cooperatives are currently taxable either to the
cooperatives or to the patrons.
The shares of Class B Common Stock and the Promissory (Subordinated) Notes
distributed by the Company to its Members as partial payment of the patronage
dividend are "written notices of allocation" within the meaning of that phrase
as used in the Code. In order that such written notices of allocation shall be
deducted from earnings in determining taxable income of the Company, it is
necessary that the Company pay 20% or more of the annual patronage dividend in
cash and that the Members consent to having the allocations (at their stated
dollar amount) treated as being constructively received by them and includable
in their gross income. These conditions being met, the shares of Class B Common
Stock and the Promissory (Subordinated) Notes distributed in payment of
patronage dividends become "qualified written notices of allocation" as that
phrase is used in the Code. Section 1385(a) of the Code provides, in substance,
that the amount of any patronage dividend which is paid in money or in qualified
written notices of allocation shall be included in the gross income of the
patron (Member) for the taxable year in which it receives such money or such
qualified written notices of allocation.
Thus, every year each Member may receive, as part of the Member's patronage
dividend, non-cash "qualified written notices of allocation", which may include
Class B Common Stock or Promissory (Subordinated) Notes, the stated dollar
amount of which must be recognized as gross income for the taxable year in which
received. The portion of the patronage dividend paid in cash (at least 20%) may
be insufficient, depending on the tax bracket in each Member's case, to provide
funds for the payment of income taxes for which the Member will be liable as a
result of the receipt of the entire patronage dividend, including cash, Class B
Common Stock and Promissory (Subordinated) Notes.
15
<PAGE> 18
In response to the provisions of the Code, the Company's By-Laws provide
for the treatment of the shares of Class B Common Stock, Promissory
(Subordinated) Notes and such other notices as the Board of Directors may
determine, distributed in payment of patronage dividends as "qualified written
notices of allocation." The By-Laws provide in effect:
(i) for payment of patronage dividends partly in cash, partly in
qualified written notices of allocation (including the Class B Common Stock
and Promissory (Subordinated) Notes as described above), other property or
in nonqualified written notices of allocation, and
(ii) that membership in the organization (i.e. the status of being a
Member of the Company) shall constitute consent by the Member to take the
qualified written notices of allocation or other property into account in
the Member's gross income as provided in Section 1385(a) of the Code.
Under the provisions of the Code, persons who become or became Members of
the Company or who retained their status as Members after adoption of the
By-Laws providing that membership in the organization constitutes consent, and
after receiving written notification and a copy of the By-Laws are deemed to
have consented to the tax treatment of the cash and the qualified written
notices of allocation in which the patronage dividends are paid, in accordance
with Section 1385(a) of the Code. Written notification of the adoption of the
By-Laws and its significance, and a copy of the By-Laws, were sent to each then
existing Member and have been, and will continue to be, delivered to each party
that became, or becomes a Member thereafter. Such consent is then effective
except as to patronage occurring after the distributee ceases to be a Member of
the organization or after the By-Laws of the organization cease to contain the
provision with respect to the above described consent.
Each year since 1978, the Company has paid its Members 30% of the annual
patronage dividend in cash in respect to patronage (excluding nonqualified
written notices of allocation) occurring in the preceding year. It is the
judgment of management that the payment of 30% or more of patronage dividends in
cash will not have a material adverse effect on the operations of the Company or
its ability to maintain adequate working capital for the normal requirements of
its business. However, the Company is obligated to distribute only 20% of the
annual patronage dividend (excluding nonqualified written notices of allocation)
in cash and it may distribute this lesser percentage in future years.
In order to avoid the administrative inconvenience and expense of issuing
separate certificates representing shares of Class B Common Stock and separate
Promissory (Subordinated) Notes to each Member, the Company deposits a bulk
certificate and a bulk Promissory (Subordinated) Note with Harris Trust and
Savings Bank, Chicago, Illinois for safekeeping for and on behalf of its Members
and sends a written notice to each Member of these deposits and the allocation
thereof to such Member. Each Member is, and is shown on the books of the Company
as, the registered owner of his allocation of Class B Common Stock and
Promissory (Subordinated) Notes. Upon written request to the Company, a Member
can obtain a certificate for all or any portion of his Class B Common Stock and
a Note or Notes for all or any portion of the amount allocated to his account.
16
<PAGE> 19
MANAGEMENT
The directors and principal executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME (AGE) OFFICE
---------- ------
<S> <C>
Karen M. Agnew (53)............................... Vice President and Assistant
Secretary
Daniel T. Burns (44).............................. Vice President and Secretary
Danny R. Burton (49).............................. Vice President
David W. Christmas (47)........................... Vice President
William M. Claypool, III (73)..................... Director
Samuel D. Costa, Jr. (54)......................... Director
Daniel A. Cotter (60)............................. President, Chief Executive Officer
and Director
Leonard C. Farr (74).............................. Director
William M. Halterman (48)......................... Director
Robert F. Johnson (52)............................ Vice President
Jerrald T. Kabelin (58)........................... Chairman of the Board and Director
Kerry J. Kirby (49)............................... Vice President, Chief Financial
Officer and Treasurer
Charles L. Kremers (45)........................... Vice President
Robert J. Ladner (49)............................. Director
Lewis W. Moore (83)............................... Director
Kenneth W. Noble (38)............................. Director
Steven J. Porter (43)............................. Executive Vice President and Chief
Operating Officer
Richard L. Schaefer (66).......................... Director
John P. Semkus (48)............................... Vice President
George V. Sheffer (43)............................ Director
Dennis A. Swanson (56)............................ Director
Robert G. Waters (75)............................. Director
John M. West, Jr. (42)............................ Director
Donald E. Yeager (53)............................. Director
</TABLE>
During the past five years, the principal occupation of each director of
the Company, other than Daniel A. Cotter, was the operation of retail hardware
stores.
17
<PAGE> 20
DESCRIPTION OF REDEEMABLE TERM NOTES
These Variable Denomination Fixed Rate Redeemable Term Notes are being
issued and offered by Cotter & Company pursuant to the Cotter & Company
Investment Program. The Notes will be made available to current Members of
Cotter & Company holding Class A Common Stock and their immediate family
members, current holders of certain Cotter & Company variable denomination fixed
rate redeemable term notes, and to current employees of Cotter & Company and its
subsidiaries. The Program is designed to provide investors with a means of
investing funds directly with the Company.
AGENT BANK AND ADMINISTRATION
The Company has engaged the Northern Trust Bank of Chicago as the Agent
Bank to service the Program. The Agent Bank will send the following to the
Investor:
-- Investment confirmation,
-- Quarterly statements listing all notes held and all transaction
information on a year-to-date basis,
-- Advance maturity notices with renewal forms,
-- Form 1099INT and
-- Form 1099B (if applicable).
Additionally, the Agent Bank will provide an automated voice response
system, 800-507-9000, to allow Investors to call and obtain aggregate account
and individual Note information. The Agent Bank will also process early
redemption requests, respond to inquiries and provide to Investors information
on Notes and accounts. Additional or other inquiries from Investors to the Agent
Bank will be forwarded to the Company.
TAXES
The Program is not qualified under Section 401(a) of the Internal Revenue
Code. Accordingly, all interest credited to the Notes or paid in any taxable
year is reportable by the Investor as taxable income for Federal income tax
purposes. No part of the taxable interest is excludable from taxable income.
The December statement to each Investor from the Agent Bank each year will
state the full amount reportable as taxable income. The Agent Bank also will
file tax information returns as required by law. State and local income taxes
and tax reporting also may be applicable. Investors are individually responsible
for complying with applicable Federal, state, and local tax laws and should
consult their individual tax advisors with respect to tax consequences which may
be applicable to their particular situation.
LEGAL MATTERS
The legality of the Notes will be passed upon for the Company by Daniel T.
Burns, Vice President, Secretary and General Counsel of the Company.
18
<PAGE> 21
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS COVERED
BY THIRD QUARTER FORM 10-Q
<TABLE>
<CAPTION>
PAGE(S)
-----
<S> <C>
Condensed Consolidated Balance Sheet at September 30, 1995 and December 31, 1994..... 20-21
Condensed Consolidated Statement of Operations for each of the thirteen weeks and the
thirty-nine weeks in the periods ended September 30, 1995 and October 1, 1994...... 22
Condensed Consolidated Statement of Cash Flows for the thirty-nine weeks ended
September 30, 1995 and October 1, 1994............................................. 23
Notes to Condensed Consolidated Financial Statements................................. 24-25
</TABLE>
19
<PAGE> 22
PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
COTTER & COMPANY
------------------
CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
(UNAUDITED)
(000'S OMITTED)
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................... $ 1,558 $ 1,831
Accounts and notes receivable................................. 319,654 294,663
Inventories................................................... 325,666 384,747
Prepaid expenses.............................................. 13,781 7,861
-------- --------
Total current assets............................. 660,659 689,102
Properties owned, less accumulated depreciation................. 161,747 164,261
Properties under capital leases, less accumulated
amortization.................................................. 5,843 4,691
Other assets.................................................... 11,773 10,731
-------- --------
Total assets..................................... $840,022 $868,785
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
20
<PAGE> 23
COTTER & COMPANY
------------------
CONDENSED CONSOLIDATED BALANCE SHEET
LIABILITIES AND CAPITALIZATION
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------ -------------
(UNAUDITED)
(000'S OMITTED)
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses............................. $ 358,569 $379,772
Short-term borrowings............................................. 8,042 9,329
Current maturities of notes, long-term debt and lease
obligations.................................................... 59,738 60,564
Patronage dividends payable in cash (Estimated at September 30,
1995).......................................................... 10,503 18,383
-------- --------
Total current liabilities............................ 436,852 468,048
-------- --------
Long-term debt and obligations under capital leases................. 74,904 75,756
-------- --------
Capitalization:
Estimated patronage dividends to be distributed principally by the
issuance of promissory (subordinated) notes and redeemable
Class B nonvoting common stock................................. 20,541 --
Promissory (subordinated) and instalment notes.................... 191,340 199,099
Redeemable Class A common stock and partially paid subscriptions
(Authorized 100,000 shares; issued and fully paid, 54,550 and
63,350 shares)................................................. 5,482 6,370
Redeemable Class B nonvoting common stock and paid-in capital
(Authorized 2,000,000 shares; issued and fully paid, 1,071,574
and 1,047,756 shares; issuable as partial payment of patronage
dividends, 104,275 shares as of December 31, 1994)............. 108,292 116,663
Retained earnings................................................. 3,346 3,764
-------- --------
329,001 325,896
Foreign currency translation adjustment........................... (735) (915)
-------- --------
Total capitalization................................. 328,266 324,981
-------- --------
Total liabilities and capitalization................. $ 840,022 $868,785
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
21
<PAGE> 24
COTTER & COMPANY
------------------
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE THIRTEEN FOR THE THIRTY-NINE
WEEKS ENDED WEEKS ENDED
--------------------------- ---------------------------
SEPTEMBER 30, OCTOBER 1, SEPTEMBER 30, OCTOBER 1,
1995 1994 1995 1994
------------- ---------- ------------- ----------
(UNAUDITED)
(000'S OMITTED)
----------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues...................................... $ 594,808 $ 653,827 $ 1,840,663 $1,931,744
Cost and expenses:
Cost of revenues............................ 544,407 596,469 1,686,660 1,759,640
Warehouse, general and administrative....... 29,676 33,491 96,680 104,912
Interest paid to members.................... 5,047 5,696 15,476 17,180
Other interest expense...................... 2,083 2,070 7,362 5,715
Other expense (income), net................. 18 461 (466) (212)
Income tax expense.......................... 130 188 360 428
-------- -------- ---------- ----------
581,361 638,375 1,806,072 1,887,663
-------- -------- ---------- ----------
Net margins................................... $ 13,447 $ 15,452 $ 34,591 $ 44,081
======== ======== ========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
22
<PAGE> 25
COTTER & COMPANY
------------------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE THIRTY-NINE WEEKS ENDED
----------------------------------
SEPTEMBER 30, OCTOBER 1,
1995 1994
------------- ----------
(UNAUDITED)
(000'S OMITTED)
<S> <C> <C>
Operating activities:
Net margins................................................. $ 34,591 $ 44,081
Adjustments to reconcile net margins to cash and cash
equivalents from operating activities:
Statement of operations components not affecting cash and
cash equivalents....................................... 18,475 19,127
Net change in working capital components................. (9,856) (35,256)
-------- --------
Net cash and cash equivalents provided by operating
activities............................................... 43,210 27,952
-------- --------
Investing activities:
Additions to properties owned............................... (15,998) (16,796)
Proceeds from sale of properties owned...................... 4,160 313
Changes in other assets..................................... (1,042) 139
-------- --------
Net cash and cash equivalents used for investing
activities............................................... (12,880) (16,344)
-------- --------
Financing activities:
Proceeds (payments) of short-term borrowings................ (1,287) 12,545
Payment of annual patronage dividend........................ (18,383) (16,614)
Payment of notes, long-term debts, lease obligations, and
Class A common stock..................................... (10,933) (6,936)
-------- --------
Net cash and cash equivalents used for financing
activities............................................... (30,603) (11,005)
-------- --------
Net increase (decrease) in cash and cash equivalents.......... (273) 603
Cash and cash equivalents at beginning of the year............ 1,831 1,314
-------- --------
Cash and cash equivalents at end of the period................ $ 1,558 $ 1,917
======== ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
23
<PAGE> 26
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 September 30, 1995 and the
condensed consolidated statement of operations and statement of cash flows for
the period ended October 1, 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 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 thirty-nine weeks ended September 30, 1995
is $35,009,000 compared to $44,244,000 for the corresponding period in 1994.
NOTE 3--INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
------------- ------------
(UNAUDITED)
(000'S OMITTED)
<S> <C> <C>
Manufacturing inventories:
Raw materials................................ $ 1,981 $ 12,986
Work-in-process and finished goods........... 18,489 60,094
-------- --------
20,470 73,080
Merchandise inventories........................ 305,196 311,667
-------- --------
$ 325,666 $384,747
======== ========
</TABLE>
24
<PAGE> 27
COTTER & COMPANY
------------------
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
NOTE 4--DISPOSITION OF ASSETS
On January 13, 1995, the Company announced the sale of certain inventory of
its V&S(R) Variety division to a national wholesaler who has also agreed to
supply the majority of the V&S(R) 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.
25
<PAGE> 28
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS COVERED
BY REPORT OF INDEPENDENT AUDITORS
<TABLE>
<CAPTION>
PAGE(S)
-------
<S> <C>
Report of Independent Auditors...................................................... 27
Consolidated Balance Sheet at December 31, 1994 and January 1, 1994................. 28-29
Consolidated Statement of Operations for each of the three years in the period ended
December 31, 1994................................................................. 30
Consolidated Statement of Cash Flows for each of the three years in the period ended
December 31, 1994................................................................. 31
Consolidated Statement of Capital Stock and Retained Earnings for each of the three
years in the period ended December 31, 1994....................................... 32
Notes to Consolidated Financial Statements.......................................... 33-41
</TABLE>
26
<PAGE> 29
REPORT OF INDEPENDENT AUDITORS
To the Members and the Board of Directors
Cotter & Company
We have audited the accompanying consolidated balance sheets of Cotter &
Company as of December 31, 1994 and January 1, 1994, and the related
consolidated statements of operations, cash flows and capital stock and retained
earnings for each of the three years in the period ended December 31, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cotter &
Company at December 31, 1994 and January 1, 1994, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
February 13, 1995
27
<PAGE> 30
COTTER & COMPANY
------------------
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1994 1994
------------ ----------
(000'S OMITTED)
<S> <C> <C>
Current assets:
Cash and cash equivalents....................................... $ 1,831 $ 1,314
Accounts and notes receivable................................... 294,663 276,585
Inventories..................................................... 384,747 336,066
Prepaid expenses................................................ 7,861 6,969
-------- --------
Total current assets............................... 689,102 620,934
Properties owned, less accumulated depreciation................... 164,261 164,319
Properties under capital leases, less accumulated amortization.... 4,691 6,769
Other assets...................................................... 10,731 11,506
-------- --------
Total assets....................................... $868,785 $ 803,528
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE> 31
COTTER & COMPANY
------------------
CONSOLIDATED BALANCE SHEET
LIABILITIES AND CAPITALIZATION
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1994 1994
------------ ----------
(000'S OMITTED)
<S> <C> <C>
Current liabilities:
Accounts payable................................................ $334,468 $ 255,216
Accrued expenses................................................ 45,304 38,926
Short-term borrowings........................................... 9,329 23,287
Current maturities of notes, long-term debt and lease
obligations.................................................. 60,564 61,685
Patronage dividend payable in cash.............................. 18,383 16,614
-------- --------
Total current liabilities.......................... 468,048 395,728
Long-term debt.................................................... 72,163 63,977
Obligations under capital leases.................................. 3,593 5,224
Capitalization:
Promissory (subordinated) and instalment notes.................. 199,099 217,996
Redeemable Class A common stock and partially paid subscriptions
(Authorized 100,000 shares; issued and fully paid 63,350 and
65,880 shares)............................................... 6,370 6,633
Redeemable Class B nonvoting common stock and paid-in capital
(Authorized 2,000,000 shares; issued and fully paid 1,047,756
and 1,019,640 shares; issuable as partial payment of
patronage dividends, 104,275 and 75,780 shares).............. 116,663 110,773
Retained earnings............................................... 3,764 3,867
-------- --------
325,896 339,269
Foreign currency translation adjustment......................... (915) (670)
-------- --------
Total capitalization............................... 324,981 338,599
-------- --------
Total liabilities and capitalization............... $868,785 $ 803,528
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
29
<PAGE> 32
COTTER & COMPANY
------------------
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2,
1994 1994 1993
------------ ---------- ----------
(000'S OMITTED)
<S> <C> <C> <C>
Revenues........................................... $2,574,445 $2,420,727 $2,356,468
---------- ---------- ----------
Cost and expenses:
Cost of revenues................................. 2,351,114 2,202,806 2,139,860
Warehouse, general and administrative............ 132,759 132,674 123,244
Interest paid to Members......................... 22,894 24,458 25,716
Other interest expense........................... 7,493 7,429 7,273
Gain on sale of properties owned................. (692) (5,985) --
Other income, net................................ (604) (260) (643)
Income tax expense............................... 1,163 2,582 389
---------- ---------- ----------
2,514,127 2,363,704 2,295,839
---------- ---------- ----------
Net margins........................................ $ 60,318 $ 57,023 $ 60,629
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
30
<PAGE> 33
COTTER & COMPANY
------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
----------------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2,
1994 1994 1993
------------ ---------- ----------
(000'S OMITTED)
<S> <C> <C> <C>
Operating activities:
Net margins......................................... $ 60,318 $ 57,023 $ 60,629
Adjustments to reconcile net margins to cash and
cash equivalents from operating activities:
Depreciation and amortization.................... 21,613 21,566 21,869
Provision for losses on accounts and notes
receivable..................................... 4,233 4,057 4,447
Changes in operating assets and liabilities:
Accounts and notes receivable.................... (33,112) (38,605) (29,798)
Inventories...................................... (49,145) 183 (11,819)
Accounts payable................................. 79,957 (45,070) 23,770
Accrued expenses................................. 6,022 (1,143) (6,221)
Other adjustments, net........................... (1,223) (2,679) (3,035)
-------- -------- --------
Net cash and cash equivalents provided
by (used for) operating activities... 88,663 (4,668) 59,842
-------- -------- --------
Investing activities:
Additions to properties owned....................... (21,427) (13,382) (17,871)
Proceeds from sale of properties owned.............. 2,174 13,999 682
Changes in other assets............................. 1,132 (3,850) (2,076)
-------- -------- --------
Net cash and cash equivalents (used
for) investing activities............ (18,121) (3,233) (19,265)
-------- -------- --------
Financing activities:
Payment of annual patronage dividend................ (16,614) (18,570) (18,423)
Payment of notes, long-term debt and lease
obligations...................................... (39,632) (32,730) (18,776)
Proceeds from long-term borrowings.................. -- -- 54,124
Increase (decrease) in short-term borrowings........ (13,851) 23,059 (20,975)
Purchase of Class A common stock.................... (216) (470) (337)
Proceeds from sale of Class A common stock.......... 288 323 352
-------- -------- --------
Net cash and cash equivalents (used
for) financing activities............ (70,025) (28,388) (4,035)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents......................................... 517 (36,289) 36,542
-------- -------- --------
Cash and cash equivalents at beginning of year........ 1,314 37,603 1,061
-------- -------- --------
Cash and cash equivalents at end of year.............. $ 1,831 $ 1,314 $ 37,603
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
31
<PAGE> 34
COTTER & COMPANY
------------------
CONSOLIDATED STATEMENT OF CAPITAL STOCK AND RETAINED EARNINGS
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
COMMON STOCK, $100 PAR VALUE
------------------------------------
CLASS A CLASS B FOREIGN
-------------------- ------------ CURRENCY
ISSUED AND RETAINED TRANSLATION
ISSUED SUBSCRIBED TO BE ISSUED EARNINGS ADJUSTMENT
------ ---------- ------------ -------- -----------
(000'S OMITTED)
<S> <C> <C> <C> <C> <C>
Balances at December 28, 1991.............. $7,016 $ 61 $104,151 $ 1,556 $ --
Net margins.............................. 60,629
Foreign currency translation
adjustment............................ (932)
Patronage dividend....................... 10,029 (60,901)
Stock issued for paid-up subscriptions... 357 (357)
Stock subscriptions...................... 345
Stock purchased and retired.............. (565) (5,198)
------ ----- -------- -------- -----
Balances at January 2, 1993................ 6,808 49 108,982 1,284 (932)
Net margins.............................. 57,023
Foreign currency translation
adjustment............................ 262
Patronage dividend....................... 7,686 (54,440)
Stock issued for paid-up subscriptions... 312 (312)
Stock subscriptions...................... 308
Stock purchased and retired.............. (532) (5,895)
------ ----- -------- -------- -----
Balances at January 1, 1994................ 6,588 45 110,773 3,867 (670)
Net margins.............................. 60,318
Foreign currency translation
adjustment............................ (245)
Patronage dividend....................... 10,829 (60,421)
Stock issued for paid-up subscriptions... 275 (275)
Stock subscriptions...................... 265
Stock purchased and retired.............. (528) (4,939)
------ ----- -------- -------- -----
Balances at December 31, 1994.............. $6,335 $ 35 $116,663 $ 3,764 $(915)
====== ===== ======== ======== =====
</TABLE>
- ---------------
Subscribed Class A common stock amounts are net of unpaid amounts of $1,000
at December 31, 1994, $14,000 at January 1, 1994 and $27,000 at January 2, 1993
and December 28, 1991 (for 360, 590, 760 and 880 shares subscribed,
respectively).
See Notes to Consolidated Financial Statements.
32
<PAGE> 35
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES
Cotter & Company (the Company) is a Member-owned wholesaler of hardware and
related merchandise. The Company also manufactures paint and paint applicators.
The Company's goods and services are sold predominantly within the United
States, primarily to retailers of hardware and related lines, each of whom has
purchased ten shares of the Company's Class A common stock upon becoming a
Member. The Company operates in a single industry as a Member-owned wholesaler
cooperative. In accordance with the Company's By-laws, the annual patronage
dividend is paid to Members out of gross margins from operations and other
patronage source income, after deduction for expenses and provisions authorized
by the Board of Directors. The significant accounting policies of the Company
are summarized below.
Consolidation. The consolidated financial statements include the accounts
of the Company and all wholly-owned subsidiaries. The consolidated financial
statements also include the accounts of Cotter Canada Hardware and Variety
Cooperative, Inc., a Canadian Member-owned wholesaler of hardware, variety and
related merchandise, in which the Company has a majority equity interest.
Capitalization. The Company's capital (Capitalization) is derived from
redeemable Class A voting common stock and retained earnings, together with
promissory (subordinated) notes and redeemable Class B nonvoting common stock
issued in connection with the Company's annual patronage dividend. The By-laws
provide for partially meeting the Company's capital requirements by payment of
the year-end patronage dividend, of which at least twenty percent must be paid
in cash, and the balance in five-year promissory (subordinated) notes (from
fiscal year 1985 through fiscal year 1993, the promissory (subordinated) notes
were for a term of seven years) and redeemable $100 par value Class B common
stock.
Membership may be terminated without cause by either the Company or the
Member upon sixty days' written notice. In the event membership is terminated,
the Company undertakes to purchase, and the Member is required to sell to the
Company, all of the Member's Class A common stock and Class B common stock at
book value. Payment for the Class A common stock will be in cash. Payment for
the Class B common stock will be a note payable in five equal annual instalments
bearing interest at the same rate per annum as the promissory (subordinated)
notes most recently issued as part of the Company's patronage dividend.
Cash equivalents. The Company classifies its temporary investments in
highly liquid debt instruments, with an original maturity of three months or
less, as cash equivalents.
Inventories. Inventories are stated at the lower of cost, determined on the
"first-in, first-out" basis, or market.
Properties. Properties are recorded at cost. Depreciation and amortization
are computed by using the straight-line method over the following estimated
useful lives: buildings and improvements--10 to 40 years; machinery and
warehouse, office and computer equipment--5 to 10 years; transportation
equipment--3 to 7 years; and leasehold improvements--the life of the lease
without regard to options for renewal.
Income Taxes. The Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes," effective January 3,
1993. Under this standard, the liability method is used
33
<PAGE> 36
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
whereby deferred income taxes are recognized for the tax consequences of
temporary differences by applying enacted statutory rates applicable to future
years to differences between the financial statement carrying amounts and the
tax basis of existing assets and liabilities adjusting for the impact of tax
credit carryforwards.
Retirement plans. The Company sponsors two noncontributory defined benefit
retirement plans covering substantially all of its employees. Company
contributions to union-sponsored defined contribution plans are based on
collectively bargained rates times hours worked. The Company's policy is to fund
annually all tax-qualified plans to the extent deductible for income tax
purposes.
Reporting year. The Company's reporting year-end is the Saturday closest to
December 31.
NOTE 2--INVENTORIES
Inventories consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 JANUARY 1, 1994
----------------- ---------------
(000'S OMITTED)
<S> <C> <C>
Manufacturing inventories:
Raw materials........................... $ 12,986 $ 14,795
Work-in-process and finished goods...... 60,094 54,992
-------- --------
73,080 69,787
Merchandise inventories................... 311,667 266,279
-------- --------
$ 384,747 $ 336,066
======== ========
</TABLE>
NOTE 3--PROPERTIES
Properties owned or leased under capital leases consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 JANUARY 1, 1994
-------------------- --------------------
OWNED LEASED OWNED LEASED
-------- ------- -------- -------
(000'S OMITTED)
<S> <C> <C> <C> <C>
Buildings and improvements.................... $168,311 $ -- $166,055 $ --
Machinery and warehouse equipment............. 79,953 -- 76,330 --
Office and computer equipment................. 62,868 -- 55,191 --
Transportation equipment...................... 22,757 14,556 18,778 15,337
-------- ------- -------- -------
333,889 14,556 316,354 15,337
Less accumulated depreciation and
amortization................................ 181,920 9,865 164,731 8,568
-------- ------- -------- -------
151,969 4,691 151,623 6,769
Land.......................................... 12,292 -- 12,696 --
-------- ------- -------- -------
$164,261 $ 4,691 $164,319 $ 6,769
======== ======= ======== =======
</TABLE>
34
<PAGE> 37
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--LONG-TERM DEBT AND BORROWING ARRANGEMENTS
Long-term debt consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 JANUARY 1, 1994
----------------- ---------------
(000'S OMITTED)
<S> <C> <C>
Senior note at 8.60%........................ $50,000 $50,000
Term loans:
Canadian prime (8.00% and 5.50%,
respectively).......................... 3,565 3,777
United States prime plus .5% (9.00%) and
fixed (7.75%), respectively............ 6,200 6,200
Redeemable (subordinated) term notes:
7.00%..................................... 4,346 --
7.37%..................................... 1,512 --
7.61%..................................... 3,540 --
Industrial Revenue Bonds:
5.28% and 5.94%, respectively............. 4,000 4,000
8.25%..................................... -- 1,150
------- -------
73,163 65,127
Less amounts due within one year............ 1,000 1,150
------- -------
$72,163 $63,977
======= =======
</TABLE>
Principal payments for the 8.60% senior note are due in incrementally
increasing amounts starting in 1995 through maturity in 2007. Under the senior
note agreement, the Company is required to meet certain financial ratios and
covenants.
The two term loans are due in 1997 and 1999, respectively.
The redeemable (subordinated) term notes were issued in exchange for
promissory (subordinated) notes maturing on December 31, 1994 that were held by
promissory note holders, who do not own the Company's Class A Common Stock. The
notes are due in 1996, 1997 and 1998.
On October 1, 1997, and every three-year period thereafter, the interest
rate on the 5.28% industrial revenue bonds will be adjusted based on a bond
index. These bonds may be redeemed at face value at either the option of the
Company or the bondholders at each interest reset date through maturity in 2003.
Total maturities of long-term debt for fiscal years 1995, 1996, 1997, 1998,
1999 and thereafter are $1,000,000, $6,346,000, $8,077,000, $7,540,000,
$10,200,000 and $40,000,000, respectively.
In addition, the Company has various short-term lines of credit available
under informal agreements with lending banks, cancelable by either party under
specific circumstances, which amount to $67,800,000 at December 31, 1994.
Borrowings under these agreements were $9,329,000 at December 31, 1994. The
35
<PAGE> 38
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Company pays commitment fees for these lines. The weighted average interest rate
on short-term borrowings was 6.63% at December 31, 1994 and 3.48% at January 1,
1994.
NOTE 5--CAPITAL LEASES AND OTHER LEASE COMMITMENTS
The Company rents buildings and warehouse, office, computer and
transportation equipment under operating and capital leases.
The following is a schedule of future minimum lease payments under capital
and operating leases, together with the present value of the net minimum lease
payments, as of December 31, 1994:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
(000'S OMITTED)
<S> <C> <C>
Fiscal years
1995................................................. $ 1,887 $ 6,356
1996................................................. 1,538 4,812
1997................................................. 1,039 2,892
1998................................................. 751 1,830
1999................................................. 416 1,351
Thereafter........................................... -- 4,400
------ -------
Net minimum lease payments............................. 5,631 $21,641
=======
Less amount representing interest...................... 298
------
Present value of net minimum lease payments............ 5,333
Less amounts due within one year....................... 1,740
------
$ 3,593
======
</TABLE>
Capitalized leases expire at various dates and generally provide for
purchase options but not renewals. Purchase options provide for purchase prices
at either fair market value or a stated value which is related to the lessor's
book value at expiration of the lease term.
Rent expense under operating leases was as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1, JANUARY 2,
1994 1994 1993
------------ ---------- ----------
(000'S OMITTED)
<S> <C> <C> <C>
Minimum rent..................................... $8,487 $8,174 $7,253
Contingent rent.................................. 611 575 616
---------- -------- --------
$9,098 $8,749 $7,869
========== ======== ========
</TABLE>
36
<PAGE> 39
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--CAPITALIZATION
Promissory (subordinated) and instalment notes consisted of:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1994 1994
------------ ----------
(000'S OMITTED)
<S> <C> <C>
Promissory (subordinated) notes--
Due currently............................................ $ 39 $ 51
Due on December 31, 1994--8.50%.......................... -- 26,173
Due on December 31, 1994--9.50%.......................... -- 30,321
Due on December 31, 1995--7.50%.......................... 20,744 21,324
Due on December 31, 1995--10.00%......................... 35,355 36,257
Due on December 31, 1996--9.50%.......................... 28,436 28,930
Due on December 31, 1996--6.00%.......................... 24,888 27,187
Due on December 31, 1997--10.00%......................... 17,579 18,138
Due on December 31, 1997--7.87%.......................... 16,793 --
Due on December 31, 1998--8.00%.......................... 28,512 29,266
Due on December 31, 1999--8.00%.......................... 27,030 27,827
Due on December 31, 1999--8.20% (to be issued)........... 27,909 --
Due on December 31, 2000--6.50% (issued 1994)............ 25,628 26,752
Instalment notes at interest rates of 6.50% to 10.00%
with maturities through 1998............................. 4,010 4,062
-------- --------
256,923 276,288
Less amounts due within one year........................... 57,824 58,292
-------- --------
$199,099 $ 217,996
======== ========
</TABLE>
The promissory (subordinated) notes are issued principally in payment of
the annual patronage dividend. Promissory notes are subordinated to indebtedness
to banking institutions, trade creditors and other indebtedness of the Company
as specified by its Board of Directors. Promissory (subordinated) notes to be
issued relate to the patronage dividend which is distributed after the end of
the year. Prior experience indicates that the maturities of a significant
portion of the promissory (subordinated) notes due within one year are extended,
for a three year period, at interest rates substantially equivalent to
competitive market rates of comparable instruments. The Company anticipates that
this practice will continue.
Total maturities of promissory (subordinated) and instalment notes for
fiscal years 1995, 1996, 1997, 1998, 1999 and thereafter are $57,824,000,
$54,463,000, $35,197,000, $28,872,000, $54,939,000 and $25,628,000,
respectively.
37
<PAGE> 40
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--FAIR VALUE OF FINANCIAL INSTRUMENTS
Due to the uncertainty of the ultimate maturities of the promissory
(subordinated) notes, management believes it is impracticable to estimate their
fair value. The carrying amounts of the Company's other financial instruments
approximate fair value. Fair value was estimated using discounted cash flow
analyses, based on the Company's incremental borrowing rate for similar
borrowings.
NOTE 8--INCOME TAXES
Effective January 3, 1993, the Company adopted SFAS No. 109, "Accounting
for Income Taxes" (See Note 1). As permitted under the new rules, prior years'
financial statements have not been restated.
The cumulative effect of adopting SFAS No. 109 as of January 3, 1993 was
not material to the consolidated financial statements of the Company.
At December 31, 1994, the Company has alternative minimum tax credit
carryforwards of approximately $1,200,000 which do not expire. The carryforwards
are available to offset future federal tax liabilities.
Significant components of the Company's deferred tax assets and liabilities
as of December 31, 1994 resulted primarily from alternative minimum tax credit
carryforwards and temporary differences between income tax and financial
reporting for depreciation, vacation pay and contributions to fund retirement
plans.
Significant components of the provision (benefit) for income taxes are as
follows:
<TABLE>
<CAPTION>
DEFERRED
LIABILITY METHOD METHOD
--------------------------- ----------
FOR THE YEARS ENDED
------------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2,
1994 1994 1993
------------ ---------- ----------
(000'S OMITTED)
<S> <C> <C> <C>
Current:
Federal........................................ $ 486 $ 343 $ 551
State.......................................... 462 22 152
Foreign........................................ 278 237 122
------ ------ -----
Total current.................................. 1,226 602 825
------ ------ -----
Deferred:
Federal........................................ (147) 1,582 (497)
State.......................................... (26) 317 (14)
Foreign........................................ 110 81 75
------ ------ -----
Total deferred................................. (63) 1,980 (436)
------ ------ -----
$1,163 $2,582 $ 389
====== ====== =====
</TABLE>
38
<PAGE> 41
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company operates as a nonexempt cooperative and is allowed a deduction
in determining its taxable income for amounts paid as patronage dividend based
on margins from business done with or for Members. The reconciliation of income
tax expense to income tax computed at the U.S. federal statutory tax rate of 35%
in fiscal year 1994 and 1993 and 34% in fiscal year 1992 is as follows:
<TABLE>
<CAPTION>
DEFERRED
LIABILITY METHOD METHOD
-------------------------- ----------
FOR THE YEARS ENDED
----------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2,
1994 1994 1993
------------ ---------- ----------
(000'S OMITTED)
<S> <C> <C> <C>
Tax at U.S. statutory rate.................... $ 21,518 $ 20,862 $ 20,746
Effects of:
Patronage dividend.......................... (21,147) (19,054) (20,706)
State income taxes, net of federal tax
benefit.................................. 283 220 91
Other, net.................................. 509 554 258
-------- -------- --------
$ 1,163 $ 2,582 $ 389
======== ======== ========
</TABLE>
NOTE 9--CASH FLOW
The Company's noncash financing and investing activities in fiscal year
1992 include acquisitions of transportation and warehouse equipment by entering
into capital leases. In fiscal year 1992, ownership of a distribution center
previously under capital lease was transferred to the Company. Also in fiscal
year 1992, a wholly-owned subsidiary of the Company acquired certain assets, in
part, by assuming debt. These transactions aggregate $12,527,000. In addition,
the annual patronage dividend and promissory (subordinated) note renewals
relating to noncash operating and financing activities are as follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2,
1994 1994 1993
------------ ---------- ----------
(000'S OMITTED)
<S> <C> <C> <C>
Patronage dividend payable in cash...................... $ 18,383 $ 16,614 $ 18,570
Promissory (subordinated) notes......................... 23,213 20,852 22,711
Class B nonvoting common stock.......................... 5,900 2,086 4,934
Instalment notes........................................ 3,058 2,939 2,485
Member indebtedness..................................... 9,867 11,949 12,201
------- ------- -------
$ 60,421 $ 54,440 $ 60,901
======= ======= =======
Note renewals........................................... $ 26,191 $ 27,187 $ 22,686
======= ======= =======
</TABLE>
39
<PAGE> 42
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Cash paid for interest during fiscal years 1994, 1993 and 1992 totalled
$30,583,000, $32,056,000 and $31,638,000, respectively. Cash paid for income
taxes during fiscal years 1994, 1993 and 1992 totalled $1,709,000, $1,387,000
and $1,771,000, respectively.
NOTE 10--RETIREMENT PLANS
The components of net pension cost for the Company administered pension
plans consisted of:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------------
DECEMBER 31, JANUARY 1, JANUARY 2,
1994 1994 1993
------------ ---------- ----------
(000'S OMITTED)
<S> <C> <C> <C>
Income:
Actual return (loss) on plan assets................... $ (1,543) $ 7,486 $ 2,856
Amortization of excess plan assets.................... 920 920 920
------- ------- -------
(623) 8,406 3,776
------- ------- -------
Expenses:
Service cost-benefits earned during year.............. 4,765 4,556 3,633
Interest on projected benefit obligation.............. 6,736 6,266 5,738
Deferral of excess (deficiency) of actual over
estimated return on plan assets.................... (8,815) 1,042 (3,060)
------- ------- -------
2,686 11,864 6,311
------- ------- -------
Net pension cost........................................ $ 3,309 $ 3,458 $ 2,535
======= ======= =======
</TABLE>
The discount rate and the rate of increase in future compensation levels
used in determining the actuarial present value of the projected benefit
obligation were 8.5% and 4.5%, respectively, in fiscal year 1994; 7.5% and 4.5%,
respectively, in fiscal year 1993; and 9.0% and 6.0%, respectively, in fiscal
year 1992. These changes in actuarial assumptions did not have a material impact
on net pension cost for fiscal year 1994 and the Company does not anticipate
that these changes will have a material impact on net pension cost in future
years. In fiscal years 1994, 1993 and 1992, the expected long-term rate of
return on assets was 9.5%.
Plan assets are composed primarily of corporate equity and debt securities.
Benefits are based on years of service and the employee's compensation during
the last ten years of employment, offset by a percentage of
40
<PAGE> 43
COTTER & COMPANY
------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Social Security retirement benefits. Trusteed net assets and actuarially
computed benefit obligations for the Company administered pension plans are
presented below:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 1,
1994 1994
------------ ----------
(000'S OMITTED)
<S> <C> <C>
Assets:
Total plan assets at fair value................................... $ 80,046 $ 81,726
======= =======
Obligations:
Accumulated benefit obligations:
Vested......................................................... $ 53,055 $ 55,605
Non-vested..................................................... 7,683 8,704
Effect of projected compensation increases........................ 19,924 24,110
------- -------
Total projected benefit obligations............................... 80,662 88,419
------- -------
Net excess assets (liabilities):
Unrecognized:
Unamortized excess assets at original date..................... 8,643 9,563
Net actuarial gain (loss)...................................... 565 (5,773)
Prior service costs............................................ (5,313) (6,170)
Recognized accrued pension cost................................... (4,511) (4,313)
------- -------
Total net excess assets (liabilities)............................. (616) (6,693)
------- -------
Total obligations and net excess assets (liabilities)............... $ 80,046 $ 81,726
======= =======
</TABLE>
The Company also participates in union-sponsored defined contribution
plans. Pension costs related to these plans were $757,000, $702,000 and $556,000
for fiscal years 1994, 1993 and 1992, respectively.
NOTE 11--SUBSEQUENT EVENTS
On January 13, 1995, the Company announced the sale of certain inventory of
its V&S(R) Variety division to a national wholesaler who has also agreed to
supply the majority of the V&S(R) 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 should not have a material
impact on the Company's results of operations or financial position.
41
<PAGE> 44
=========================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Available Information..................... 2
Reports to Security Holders............... 2
Documents Incorporated by Reference....... 2
Summary................................... 3
The Company............................... 4
Consolidated Ratio of Earnings to Fixed
Charges of the Company.................. 4
Use of Proceeds........................... 5
Plan of Distribution...................... 5
General................................... 6
Note Terms................................ 6
Interest Rate............................. 6
Types of Accounts......................... 6
Account Information....................... 6
How to Invest............................. 6
How to Redeem............................. 7
Certain Terms of the Notes................ 7
Trust Indenture........................... 7
Note Subordination/Risk Factors........... 7
Optional Redemption by the Company........ 7
Dividends................................. 8
Selected Financial Data................... 8
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 9
Business.................................. 12
Distribution of Patronage Dividends....... 14
Management................................ 17
Description of Redeemable Term Notes...... 18
Agent Bank and Administration............. 18
Taxes..................................... 18
Legal Matters............................. 18
Index to Condensed Consolidated Financial
Statements Covered by Third Quarter Form
10-Q.................................... 19
Index to Consolidated Financial Statements
Covered by Report of Independent
Auditors................................ 26
</TABLE>
=========================================================
=========================================================
$30,000,000
COTTER & COMPANY
VARIABLE DENOMINATION
FIXED RATE
REDEEMABLE TERM NOTES
FOR INFORMATION CONCERNING
THE COTTER & COMPANY
INVESTMENT PROGRAM,
WRITE TO:
THE COTTER & COMPANY INVESTMENT PROGRAM
P.O. BOX 75933
CHICAGO, ILLINOIS 60675-5933
OR CALL:
TOLL FREE 800-507-9000
PROSPECTUS
------------------------
DATED
=========================================================
<PAGE> 45
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the actual or estimated expenses in connection with the
issuance and distribution of the Variable Denomination Fixed Rate Redeemable
Term Notes being registered:
<TABLE>
<S> <C>
Registration Fee.................................................... $10,345
Printing of Registration Statement and Prospectus................... 16,000
Accounting Fees and Expenses........................................ 10,000
Legal Fees.......................................................... 10,000
Fees and Expenses for Qualifying Securities under "Blue Sky" Laws of
Various States.................................................... 35,000
-------
Total............................................................... $81,345
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's certificate of incorporation, as amended, provides that the
Company shall indemnify, in accordance with and to the full extent permitted by
the Delaware General Corporation Law, any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(including, without limitation, an action by or in the right of the Company), by
reason of the fact that such person is or was a director, officer, employee or
agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another Company, partnership, joint
venture, trust or other enterprise, against any liability or expense actually
and reasonably incurred by such person in respect thereof. Such indemnification
is not exclusive of any other right of such director, officer, or employee to
indemnification provided by law or otherwise.
Additionally, pursuant to Section 145(a)-(g) of the Delaware Corporation
Law which empowers a corporation to indemnify its directors, officers, employees
and agents, the Board of Directors of the Company on July 23, 1973 adopted a
By-Law (Article XII, Indemnification of Directors, Officers and
Employees--Exhibit 3-A to the Company's Form 10-K Annual Report for the year
ended January 1, 1994 and incorporated herein by reference) providing for such
indemnification. The following is a summary of the most significant provisions
of said By-Law:
As against third parties, the Company shall indemnify any director,
officer, employee or agent for any expenses (including attorneys' fees,
judgments, fines and amounts paid in settlement) actually and reasonably
incurred in defending any threatened, pending or completed suit or proceeding,
whether civil, criminal, administrative or investigative brought against such
person by reason of the fact that he was or is a director, officer, employee or
agent, if such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interest of the Company, and with respect to
any criminal action or proceeding if he had no reasonable cause to believe his
conduct unlawful.
In any action or suit by or in the right of the Company, the Company shall
indemnify any director, officer, employee or agent who is or was a party or
threatened to be made a party to such threatened, pending or completed action or
suit, for expenses (including attorney's fees and amounts paid in settlement)
reasonably and actually incurred in connection with the defense or settlement of
such suit or action, if such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the Company,
except that no indemnification shall be made if such person has been adjudged to
be liable for negligence or misconduct in the performance of his duty to the
Company unless and only to the extent that the Court of Chancery of Delaware or
the court where the suit was brought finds that in view of all the circumstances
of the case, such person is entitled to indemnification.
Any indemnification, unless ordered by a court, shall be made by the
Company only as authorized in the specific case upon a determination that
indemnification is proper in the circumstances because the party to be
S-1
<PAGE> 46
indemnified has met the applicable standard of conduct. Such determination shall
be made by the Board of Directors by a majority vote of a quorum, consisting of
directors who were not parties of such action, suit or proceeding, or if such a
quorum is not obtainable, or even if obtainable, if a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, or by
the stockholders.
Additionally, the shareholders of the Company have approved an amendment to
the Certificate of Incorporation to eliminate personal liability of directors to
the Company or its shareholders for monetary damages for breach of fiduciary
duty of care. The amendment provides that a director of the Company shall not be
liable to the Company or its stockholders for monetary damages for breach of
fiduciary duty as a director, except to the extent such exemption from liability
or limitation thereof is not permitted under the Delaware General Corporation
Law as the same exists or may hereafter be amended.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 is concerned, see Item 17 "Undertakings" below.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----- -------------------------------------------------------------------------------
<S> <C>
4-A Article Fourth of the Certificate of Incorporation of the Company, setting
forth the designations and the powers, preferences and rights, and the
qualifications, limitations and restrictions of the Class A Common Stock and
Class B Common Stock of the Company. Article Twelfth of the Certificate of
Incorporation of the Company, setting forth certain limitations on the rights
of shareholders to bring an action against directors for breach of the duty of
care. Incorporated by reference--Exhibit 3-A to the Company's Form 10-K Annual
Report for the year ended January 1, 1994.
4-B Articles VI, VII, VIII, IX and XI of the By-Laws of the Company relating to:
certain qualifications, limitations and restrictions on the Common Stock of the
Company; the Member agreement between the Company and its shareholders; the
payment of patronage dividends; dividends; qualifying shares; and valuation of
Class B Common Stock of the Company issued as part of the annual patronage
dividend. Incorporated by reference--Exhibit 3-B to the Company's Form 10-K
Annual Report for the year ended January 1, 1994.
4-C Specimen certificate of Class A Common Stock. Incorporated by
reference--Exhibit 4-A to Registration Statement on Form S-2 (No. 2-82836).
4-D Specimen certificate of Class B Common Stock. Incorporated by
reference--Exhibit 4-B to Registration Statement on Form S-2 (No. 2-82836).
4-E Promissory (Subordinated) Note form effective for the year-ending December 31,
1986 and thereafter. Incorporated by reference--Exhibit 4-H to Registration
Statement on Form S-2 (No. 33-20960).
4-F Instalment Note form. Incorporated by reference--Exhibit 4-F to Registration
Statement on Form S-2 (No. 2-82836).
4-G Copy of Note Agreement with Prudential Insurance Company of America dated April
13, 1992 securing 8.60% Senior Notes in the principal sum of $50,000,000 with a
maturity date of April 1, 2007. Incorporated by reference--Exhibit 4-J to
Post-Effective Amendment No. 2 to Registration Statement on Form S-2 (No.
33-39477).
4-H Trust Indenture between Cotter & Company and Bank of America. Incorporated by
reference. Exhibit T3C to Cotter & Company Form T-3 (No. 22-26210).
5 Opinion of Daniel T. Burns, Vice President, Secretary and General Counsel of
the Company.
10-A Form of "Retail Member Agreement with Cotter & Company" between the Company and
its Members that offer primarily hardware and related items. Incorporated by
reference--Exhibit 10-C to Post-Effective Amendment No. 2 to Registration
Statement on Form S-2 (No. 33-39477).
</TABLE>
S-2
<PAGE> 47
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
----- -------------------------------------------------------------------------------
<S> <C>
10-B Current form of "Subscription to Shares of Cotter & Company". Incorporated by
reference--Exhibit 10-H to Registration Statement on Form S-2 (No. 2-82836).
10-C Cotter & Company Pension Plan (As Amended and Restated June 20, 1994 Effective
As Of January 1, 1989). Incorporated by reference--Exhibit 10-C to
Post-Effective Amendment No. 4 to Registration Statement on Form S-2 (No.
33-39477).
10-D Cotter & Company Employees' Savings and Compensation Deferral Plan (As Amended
and Restated Effective April 1, 1994). Incorporated by reference--Exhibit 10-D
to Post-Effective Amendment No. 4 to Registration Statement on Form S-2 (No.
33-39477).
10-E Supplemental Retirement Plan between Cotter & Company and selected executives
of the Company dated December 30, 1988. Incorporated by reference--Exhibit 10-V
to Post-Effective Amendment No. 1 to Registration Statement on Form S-2 (No.
33-20960).
10-F Amendment dated November 1, 1991 to Supplemental Retirement Plan between Cotter
& Company and selected executives of the Company. Incorporated by
reference--Exhibit 10-Q to Post-Effective Amendment No. 1 to Registration
Statement on Form S-2 (No. 33-39477).
10-G Amendment dated December 15, 1994 to Supplemental Retirement Plan between
Cotter & Company and selected executives of the Company. Incorporated by
reference--Exhibit 10-G to Post-Effective Amendment No. 4 to Registration
Statement on Form S-2 (No. 33-39477).
10-H Annual Incentive Compensation Program and Long-Term Incentive Compensation
Program between Cotter & Company and selected executives of the Company.
Incorporated by reference--filed as Exhibits A and B to Exhibit 10-N to
Registration Statement on Form S-2 (No. 33-39477).
10-I Cotter & Company Long-Term Incentive Compensation Program for Executive
Management (Amended) dated November 7, 1994. Incorporated by reference--Exhibit
10-I to Post-Effective Amendment No. 4 to Registration Statement on Form S-2
(No. 33-39477).
10-J Employment Agreement between Cotter & Company and Daniel A. Cotter dated
October 15, 1984. Incorporated by reference--Exhibit 10-N to Post-Effective
Amendment No. 2 to Registration Statement on Form S-2 (No. 2-82836).
10-K Amendment No. 1 to Employment Agreement between Cotter & Company and Daniel A.
Cotter dated October 15, 1984 effective January 1, 1991. Incorporated by
reference-- Exhibit 10-N to Registration Statement on Form S-2 (No. 33-39477).
12 Statement of Computation of Consolidated Ratio of earnings to fixed charges of
the Company for the thirty-nine weeks ended September 30, 1995 and October 1,
1994 and for the Fiscal Years Ended 1994, 1993, 1992, 1991 and 1990.
23-A Consent of Daniel T. Burns, Vice President, Secretary and General Counsel of
the Company is included in Exhibit 5 to this Registration Statement.
23-B Consent of Independent Auditors (included on page S-6).
99 Current Application Package for Cotter & Company Investment Program.
</TABLE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement.
S-3
<PAGE> 48
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in
the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions described in Item 15, or otherwise,
the Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the Company in
the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
S-4
<PAGE> 49
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-2 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF CHICAGO, STATE OF ILLINOIS, ON THE 30TH DAY OF
NOVEMBER 1995.
COTTER & COMPANY
By: /s/ DANIEL A. COTTER
---------------------------------
Daniel A. Cotter
President, Chief Executive Officer and
Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------- ------------------
<S> <C> <C>
/s/ DANIEL A. COTTER President, Chief Executive November 30, 1995
- --------------------------------------------- Officer and Director
Daniel A. Cotter
/s/ STEVEN J. PORTER Executive Vice President November 30, 1995
- --------------------------------------------- and Chief Operating Officer
Steven J. Porter
/s/ KERRY J. KIRBY Vice President, Treasurer and November 30, 1995
- --------------------------------------------- Chief Financial Officer
Kerry J. Kirby
/s/ JERRALD T. KABELIN Chairman of the Board November 30, 1995
- --------------------------------------------- and Director
Jerrald T. Kabelin
/s/ WILLIAM M. CLAYPOOL, III Director November 30, 1995
- ---------------------------------------------
William M. Claypool, III
/s/ SAMUEL D. COSTA, JR. Director November 30, 1995
- ---------------------------------------------
Samuel D. Costa, Jr.
/s/ LEONARD C. FARR Director November 30, 1995
- ---------------------------------------------
Leonard C. Farr
/s/ WILLIAM M. HALTERMAN Director November 30, 1995
- ---------------------------------------------
William M. Halterman
/s/ ROBERT J. LADNER Director November 30, 1995
- ---------------------------------------------
Robert J. Ladner
/s/ LEWIS W. MOORE Director November 30, 1995
- ---------------------------------------------
Lewis W. Moore
/s/ KENNETH M. NOBLE Director November 30, 1995
- ---------------------------------------------
Kenneth M. Noble
/s/ RICHARD L. SCHAEFER Director November 30, 1995
- ---------------------------------------------
Richard L. Schaefer
/s/ GEORGE V. SHEFFER Director November 30, 1995
- ---------------------------------------------
George V. Sheffer
/s/ DENNIS A. SWANSON Director November 30, 1995
- ---------------------------------------------
Dennis A. Swanson
/s/ ROBERT G. WATERS Director November 30, 1995
- ---------------------------------------------
Robert G. Waters
/s/ JOHN M. WEST, JR. Director November 30, 1995
- ---------------------------------------------
John M. West, Jr.
/s/ DONALD E. YEAGER Director November 30, 1995
- ---------------------------------------------
Donald E. Yeager
</TABLE>
S-5
<PAGE> 50
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated February 13, 1995, in the
Registration Statement (Form S-2) and related Prospectus of Cotter & Company for
the registration of $30,000,000 of Variable Denomination Fixed Rate Redeemable
Term Notes.
ERNST & YOUNG LLP
Chicago, Illinois
November 30, 1995
S-6
<PAGE> 51
INDEX TO EXHIBITS FILED
TO REGISTRATION STATEMENT ON
FORM S-2 OF COTTER & COMPANY
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ ----------------------------------------------------------------------------------
<S> <C>
5 Opinion of Daniel T. Burns, Vice President, Secretary and General Counsel of the
Company.
12 Statement of Computation of Consolidated Ratio of earnings to fixed charges of the
Company for the thirty-nine weeks ended September 30, 1995 and October 1, 1994 and
for the Fiscal Years Ended 1994, 1993, 1992, 1991 and 1990.
23-B Consent of Independent Auditors (included on page S-6).
99 Current Application Package for Cotter & Company Investment Program.
</TABLE>
Exhibits incorporated by reference are listed on Pages S-2 and S-3 of
Registration Statement on Form S-2 of Cotter & Company.
S-7
<PAGE> 1
EXHIBIT 5
November 30, 1995
RE: REGISTRATION STATEMENT ON FORM S-2 (NO.__________) BEING FILED BY
COTTER & COMPANY, A DELAWARE CORPORATION ("COMPANY"), WITH THE
SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, PERTAINING TO THE REGISTRATION OF $30,000,000 OF VARIABLE
DENOMINATION FIXED RATE REDEEMABLE TERM NOTES ("NOTES").
Ladies and Gentlemen:
The Notes shall be issued and sold directly by the Company in $1,000 units for
an aggregate purchase price of $1,000 per unit. Sales shall be made to current
Members of the Company holding Class A Common Stock and their family members,
current holders of certain Cotter & Company variable denomination fixed rate
redeemable term notes, and current employees of the Company and its
subsidiaries.
Upon the basis of our examination, I am of the opinion that:
1. The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of
Delaware.
2. The Company has an authorized capital consisting of 100,000
shares of Class A Common Stock, $100 par value and 2,000,000
shares of Class B Common Stock, $100 par value. As of
November 30, 1995, there were 52,960 Class A Common shares
issued and outstanding and 1,058,309 Class B Common shares
issued and outstanding. All of said shares were legally
issued, fully paid and non-assessable as of said date.
3. The proposed offering of $30,000,000 of Notes of the Company
has been duly authorized and when sold as contemplated will be
legally issued, fully paid and non-assessable, and binding
obligations of the Company.
<PAGE> 2
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and the related Prospectus and the references therein to me as
General Counsel for the Company who has passed upon the legalities of the
securities registered thereunder.
Very truly yours,
Daniel T. Burns
General Counsel
DTB:ref
<PAGE> 1
EXHIBIT 12
COTTER & COMPANY
STATEMENT OF COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS
TO FIXED CHARGES OF THE COMPANY
FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 30, 1995 AND OCTOBER 1, 1994
AND FOR THE FISCAL YEARS ENDED 1994, 1993, 1992, 1991 AND 1990
(000'S OMITTED)
<TABLE>
<CAPTION>
3RD QUARTER YEAR-END
----------------- -------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
NET EARNINGS AFTER TAX $34,591 $44,081 $60,318 $57,023 $60,629 $59,425 $54,847
ADD: TAX PROVISION 360 428 1,163 2,582 389 153 0
------- ------- ------- ------- ------- ------- -------
PRETAX INCOME 34,951 44,509 61,481 59,605 61,018 59,578 54,847
------- ------- ------- ------- ------- ------- -------
ADD: FIXED CHARGES
INTEREST PAID TO MEMBERS 22,838 17,180 22,894 24,458 25,716 26,006 24,083
OTHER INTEREST PAID 7,362 5,715 7,493 7,429 7,273 2,466 2,721
------- ------- ------- ------- ------- ------- -------
TOTAL INTEREST EXPENSE 30,200 22,895 30,387 31,887 32,989 28,472 26,804
------- ------- ------- ------- ------- ------- -------
RENTAL EXPENSES 7,284 6,679 9,098 7,536 6,850 5,583 6,471
% OF RENTAL EXPENSES 33.33% 33.33% 33.33% 33.33% 33.33% 33.33% 33.33%
------- ------- ------- ------- ------- ------- -------
APPLICABLE RENTAL EXPENSES 2,428 2,226 3,033 2,512 2,283 1,861 2,157
------- ------- ------- ------- ------- ------- -------
TOTAL FIXED CHARGES 32,628 25,121 33,420 34,399 35,272 30,333 28,961
------- ------- ------- ------- ------- ------- -------
PRETAX EARNINGS BEFORE
FIXED CHARGES $67,579 $69,630 $94,901 $94,004 $96,290 $89,911 $83,808
======= ======= ======= ======= ======= ======= =======
PRETAX EARNINGS
RATIO TO FIXED CHARGES 2.07 2.77 2.84 2.73 2.73 2.96 2.89
======= ======= ======= ======= ======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 99
COTTER & COMPANY INVESTMENT PROGRAM DESCRIPTION
NEW OR ADDITIONAL INVESTMENT AMENDMENT
General Program Description
The Cotter & Company Investment Program has been in place since 1994
to accommodate the continued investment of non Members holding
subordinated patronage dividend notes. A new feature of the Cotter &
Company Investment Program extends the opportunity to include Cotter &
Company employees, active Members, current Cotter & Company
subordinate note holders, and current Cotter & Company Investment
Program investors and their families. This program allows people who
support and contribute to Cotter & Company to benefit from it's
success. The Notes are available for purchase in one thousand dollar
($1,000.00) denominations. The investor can elect for the Notes to be
issued for two, three and four year periods.
Cotter & Company reserves the right to modify, withdraw, or cancel the
offer made hereby at any time.
Communications with Cotter & Company are effective only upon actual
receipt by the Agent Bank, The Northern Trust.
In acting upon or rejecting any request by an Investor or by a
purported Investor, Cotter & Company may conclusively presume the
accuracy of any statements or representations contained in the
Application submitted by the Investor.
Interest Rate
The rate of interest on the Notes are set by Cotter & Company. Rate
information for the current Investment period is available by
consulting the current rate information card or by calling
1-800-507-9000.
Investors will have the option to elect to receive interest payment on
a semi-annual basis, with payment mailed the following business day,
or to have the interest payments added to the Note principal resulting
in compounded interest calculations. Interest is calculated on a 365
day year actual/actual basis. Interest payments and principal at
maturity will be paid by check.
Account Statement and check payouts may be mailed separately.
1
<PAGE> 2
Each investor ("Investor") will have the ability to change the option
on the way interest is paid or reinvested by notifying the Agent Bank
at:
The Cotter & Company Investment Program
P.O. Box 75933
Chicago, Illinois, 60675-5933
Types of Accounts
The Notes must be registered in one of the four categories listed
below and investment applications must include documentation as
listed.
-SINGLE TENANCY- Social Security or Federal Tax
Identification Number, Signature on the Application.
-JOINT TENANCY WITH RIGHT OF SURVIVORSHIP- Social
Security or Federal Tax Identification Numbers,
Signatures of all parties on the Application.
-TENANCY BY CUSTODIAN (Uniform Gift to Minor Act) -
Social Security or Federal Tax Identification Number and
signatures of Guardian(s) on the Application.
(For a custodial account, the minor is considered the
beneficial owner of the account. An adult Custodian manages
the account until the minor comes of age as specified in the
Uniform Gift to Minors Act in the applicable state of
residence. The Custodian's signature is required for all
transactions.)
-LIVING TRUST- Copy of Living Trust (1st and last page only),
Social Security Number or Federal Tax Identification Number,
Signatures on the Application
These Notes cannot be held by a retirement savings plan described in
Section 4975 (e) (1) of the Internal Revenue Code of 1986, as amended.
Note Characteristics
The Notes are not transferable to any other party in any fashion.
Assignment of the Notes is not permitted.
Pledging of Notes is not permitted.
Notes can not be split into smaller denominations.
2
<PAGE> 3
Cotter & Company may comply with any levies, garnishments and court
orders at its sole and absolute discretion.
A Note is not equivalent to a deposit or other bank account and is not
subject to the protection of the Federal Deposit Insurance Corporation
or any other insurance. The Program is not subject to the
requirements of the Investment Company Act of 1940 (including
diversification of Investment) or the Employee Retirement Income
Security Act of 1974.
There are no up front "sales load", management or redemption fees.
Taxes
The Program is not qualified under Section 401 (a) of the Internal
Revenue Code. Accordingly, all interest credited to the Notes or paid
in any taxable year is reportable by the registered holder as taxable
income for Federal income tax purposes. No part of the taxable
interest is excludable from taxable income.
The interest income information needed to prepare tax returns will be
sent to the taxpayer shortly after the end of each calendar year on
FORM 1099INT.
Under Federal tax law, Noteholders must provide Cotter & Company with
a correct Social Security Number or other Taxpayer Identification
Number, a certification that the number provided is correct and a
certification that the Noteholder is not subject to backup
withholding. This information is to be included on Form W-9, which is
included in the Cotter & Company Investment Program Application and
Agreement form. Failure to furnish the correct Social Security or
Taxpayer Identification Number or to so certify will result in 31% of
interest paid being withheld and paid to the IRS. In addition, the
taxpayer may be subject to a penalty imposed by the IRS if he/she/it
fails to provide his/her/it's correct Social Security or Taxpayer ID
number or makes an incorrect certification.
Applicable Law
This Program shall be enforced and interpreted under the laws of the
State of Illinois. Any controversy or claims arising out of or
relating to this offering, or any breach thereof, including, without
limitation, any claim that this offering or any portion thereof is
invalid, illegal or otherwise voidable, shall be submitted to
arbitration before and in accordance with the rules of the American
Arbitration
3
<PAGE> 4
Association unless another extra judicial dispute resolution process
has been agreed to in writing by the parties, Judgement upon the award
may be entered in any court having jurisdiction thereof. The location
of the arbitration proceedings shall be at the American Arbitration
Association office geographically or physically located closest to the
Investor's domicile, unless otherwise agreed upon in writing by the
parties.
Agent Bank
Cotter & Company has engaged the Northern Trust Bank of Chicago as the
Agent Bank to service this Program. The Agent Bank will send the
following to the Investor:
Confirmation of new investment.
Quarterly statements listing all Notes held and all
transaction information on a year-to-date basis.
Advance maturity notices with renewal forms.
Form 1099INT.
Form 1099B (If applicable - See Redemptions)
Semi-annual interest check with amount for multiple Notes (if
the Investor owns more than one) combined.
Northern Trust is not a co-principal of the Cotter & Company
Investment Program and no investment dollars will be held by Northern
Trust.
Additionally, the Agent Bank provides an automated voice response
system (800-507-9000) to allow Investors to call and obtain aggregate
account and individual Note information. The Agent Bank will also set
up new accounts and notes, process early redemption requests, respond
to inquiries and provide to Investors information on Notes and
accounts. Additional or other inquiries from Investors will be
forwarded to Cotter & Company.
Investments in a Note will be represented by a Program account (an
"Account") established for the Investor by the Agent Bank. The Notes
will not be represented by a certificate or any other instrument
evidencing the Cotter & Company's indebtedness.
4
<PAGE> 5
Each Investor will be assigned a new Account number and Personal
Identification Number (P.I.N.) for telephone access to their Account
information.
All investments in the Notes are investments in securities of Cotter &
Company and are not an obligation of the Agent Bank.
Communications with the Agent Bank will be deemed to be received by
the Agent Bank when received by the Agent Bank's personnel with the
responsibility for action on the contents thereof.
In acting upon or rejecting any request by an Investor or by a
purported Investor, the Agent bank may conclusively presume the
accuracy of any statements or representations contained in the
Application submitted by the Investor.
Trustee
The Notes are issued under an Indenture between Cotter & Company and
Bank of America Illinois of Chicago.
Redemption by the Noteholder
Investors will have the option of redeeming a Note at any time. In
all cases of early redemption, the penalty ("penalty") will be the
equivalent of 120 days interest calculated on the latest Principal
statement balance and there will be no transfer of ownership under any
circumstances. Early withdrawal may result in a deduction from
principal balance - A form 1099B will be sent to the taxpayer shortly
after the end of the calendar year.
In cases of probate or court decree the Note(s) will have to be
redeemed and will be subject to the Penalty. The Investors will not
be able to break the Note into smaller denominations at any time
during the life of the Note.
Notes may be redeemed by writing to:
The Cotter & Company Investment Program
PO BOX 75933
Chicago, Illinois, 60675-5933
All signatures of registered owners are required. Checks will be sent
only to Noteholder or Noteholders' registered account address.
5
<PAGE> 6
Redemptions will be posted by the Agent Bank no later than the
business day following the business day of the receipt of the
redemption request.
Redemption by Cotter & Company
The Notes will be redeemable at the Company's option, in whole or in
part, at 100% of the principal amount thereof, plus accrued and unpaid
interest to the redemption date. Any partial redemption of the
entirety of the Notes will be effected by lot or pro rata or by any
other method that is deemed fair and appropriate by the Trustee. The
Company may also, at any time at its option, redeem one or more
individual Notes.
The Notes being redeemed by Cotter & Company, plus accrued and unpaid
interest thereon to the date of redemption, will be paid by check to
the investor of the Note. Interest on the redeemed amount shall cease
to accrue on and after the effective date of redemption.
Account Information
For current Account Information, Investors may call toll-free
800-507-9000
Note Subordination
The Notes will be subordinated in right of payment to indebtedness to
Banking institutions, trade creditors and to other indebtedness of the
Company.
Additional Information
A W-9 and signature guarantee will be needed for all title and trust
changes, such as name changes due to marriage or adoption. The W-9
portion of the application must be completed.
The Prospectus for this offering and Cotter & Company Investment
Program Application and Agreement Form mailed with this Program
Description are incorporated herein by reference. Additional copies
of the Prospectus may be obtained by contacting Cotter & Company at
312-975-4135.
6
<PAGE> 7
Account Setup and Investment
All account setup forms, (W-9, Cotter & Company application and
agreement), accompanied by a personal, certified or cashiers check,
should be mailed to:
COTTER & COMPANY INVESTMENT PROGRAM
INVESTOR SERVICES
PO BOX 75933
CHICAGO, ILLINOIS, 60675-5933
7
<PAGE> 8
<TABLE>
<S><C>
COTTER & COMPANY INVESTMENT PROGRAM (Page 1 of 2)
APPLICATION & AGREEMENT FORM
- - Name 1
---------------------------------------------------------------
FIRST MIDDLE LAST
- - Name 2 (Joint Tenancy Partner 1)
---------------------------------------------------------------
FIRST MIDDLE LAST
- - Registered Address
---------------------------------------------------------------
- - City, State, and Zip Code
---------------------------------------------------------------
AREA CODE
- - Telephone ( )
---------------------------------------------------------------
- - Name 3 (Joint Tenancy Partner 2)
---------------------------------------------------------------
FIRST MIDDLE LAST
- - Name 4 (Joint Tenancy Partner 3)
---------------------------------------------------------------
FIRST MIDDLE LAST
====================================================================================================
PLEASE CHECK ONE AND COMPLETE THE REQUIRED INFORMATION:
/ / Cotter & Company Member/Investor - Member Number: __ __ __ __ - __ __
/ / Current Cotter & Company Investment Program - Investor Account Number: 942__ __ __ __ __ __ __
/ / Current Cotter & Company Employee - Clock Number:____________ Dist Ctr.:______________________
/ / Family Member of Cotter & Company Member/Investor *** Member Number: __ __ __ __ - __ __
Relationship: ______________________________________________
/ / Family Member of Investor currently in Cotter & Company's Investment Program***
Account Number: 942__ __ __ __ __ Relationship: ______________________________________________
/ / Family Member of Current Cotter & Company Employee *** Clock Number: _________________________
Dist Ctr.: ____________________ Relationship: ______________________________________________
*** I certify that the above applicant is a member of my family.
__________________________________________ _______________________________
SIGNATURE OF MEMBER/INVESTOR/EMPLOYEE DATE
====================================================================================================
====================================================================================================
PLEASE ENTER ALL THE FOLLOWING INFORMATION BELOW:
W-9 INFORMATION MUST BE COMPLETED OR APPLICATION WILL NOT BE PROCESSED.
- ----------------------------------------------------------------------------------------------------
TYPE OF ACCOUNT: (SELECT ONE) MATURITY SELECTION: (SELECT ONE)
/ / Individual Ownership / / 2 Year Term NOTE: ONLY ONE TERM PER APPLICATION.
For additional term investment please
/ / Joint Tenancy With Rights / / 3 Year Term complete separate application form(s)
Of Survivorship and submit separate check(s) for each
/ / 4 Year Term term.
/ / Tenancy of Custodian
(Under the Uniform Total $______________
Gift to Minor Act) Amount
----------------------------------------------------------
Interest Payment Option: (Select One)**
/ / Living Trust / / Issue Semi-Annual Interest Payment
(A copy of the first &
last page of Trust Agreement) / / Compound Interest To Note Principal
** Accrued interest will be compounded (added to the
principal balance) if no selection is made.
====================================================================================================
11/95
</TABLE>
<PAGE> 9
COTTER & COMPANY INVESTMENT AGREEMENT APPLICATION (PAGE 2 OF 2)
Instructions for Completing Payer's Request for Taxpayers Identification
Certification:
Under Federal tax law, you must provide Cotter & Company with your correct
Social Security Number or other Taxpayer ID Number, a certification that the
number provided is correct and a certification that you are not subject to
backup withholding. Failure to furnish your correct Social Security or
Taxpayer ID Number or to so certify will result in 31% of interest paid to your
account being withheld and paid to the IRS. In addition, you may be subject to
a penalty imposed by the IRS if you fail to provide your correct Social
Security or Taxpayer ID Number or if you make an incorrect certification.
Application
I/We request the rollover of the Cotter & Company Patronage Dividend Promissory
Subordinated notes as I/we have identified on the annual renewal form with
regards to the two-, three- and/or four year term(s) and semi-annual interest
compounding or payment, into the Cotter & Company Investment Program.
I/We agree to all terms and conditions of the Cotter & Company Investment
Program as set forth in the Program Description. I/We acknowledge that I/we
have received and reviewed the Program Description, Prospectus and have
reviewed and approved all schedules, including renewal addendum and IRS W-9
Taxpayer and Certification Form. I/We agree that Cotter & Company may amend
the Program Description from time to time and that such amendments shall be
binding upon me/us.
I/We agree that Cotter & Company may comply with any levies, garnishments and
court orders at the sole and absolute discretion of Cotter & Company.
I/We jointly and severally hereby agree to defend, indemnify, reimburse,
exonerate, save and hold harmless Cotter & Company and its agents for, from and
against any and all loses, damages, claims, demands, and expenses including
reasonable attorneys fees of any and every nature actually or allegedly arising
in whole or in part out of the written information, tax identification number,
certifications, notice or instructions provided by me/us or out of my/our bad
faith, negligence, willful misconduct, strict liability of breach of this
agreement/application.
I/We agree that this agreement application may be terminated by Cotter &
Company at any time upon Cotter & Company's written notice mailed to me/us at
the address stated herein.
I/We understand that Cotter & Company Investment Program is administered by The
Northern Trust Company on behalf of Cotter & Company. The Northern Trust
Company is not a co-principal of the Cotter & Company Investment Program and no
investment dollars will be held by The Northern Trust Company. Bank of America
is the acting indenture trustee of the Cotter & Company Investment Program
pursuant to a written trust indenture between Cotter & Company and Bank of
America.
Written Redemption: Subject to the terms of the Program Description as
amended, you may redeem any or all of your account by writing: Cotter & Company
Investment Program, Investor Services Attn: Agent of Issuer, P.O. Box 75933,
Chicago, IL 60675-5933. All Signatures of registered owners are required.
Checks will be sent only to your registered account address.
Custodial Account: A minor is the beneficial owner of the account. An adult
Custodian manages the account until the minor comes of age as specified in the
Uniform Gift to Minors Act in the applicable state of residence. Custodian's
signature is required for all transactions.
Additional copies of the Program Description and Prospectus are available upon
request by writing to: Cotter & Company Investment Program, Investor Services
Attn: Agent of Issuer, P.O. Box 75933, Chicago, IL 60675-5933.
This form is intended for the sole use of Investors by the agent of the Cotter
& Company Investment Program. INCOMPLETE FORMS, MISSING SUPPORTING
DOCUMENTATION FOR THE PURCHASE OF NOTE OR NOTES, WILL RESULT IN THE RETURN OF
YOUR INVESTMENT.
Summary of Key Features of the Program include, (full Program provisions are
detailed in the Program Description and Prospectus):
* Investment in the Cotter & Company Investment Program cannot be pledged;
* Note Denominations cannot be altered once purchased;
* Ownership cannot be transferred or changed;
* Subordination; it is a condition of this obligation of the Company, and the
holder by the acceptance hereof agrees, that the indebtedness evidenced by
and accruing on notes to be purchased shall be and at all times remain
junior and subordinate in right of payment to any and all indebtedness of
Company the Company and to other indebtedness of the Company
* Cotter & Company retains the sole right to call any and Cotter & Company
Investment Program Notes at any time.
APPLICATIONS WILL BE REJECTED IF THIS FORM IS NOT COMPLETE. ALL APPLICANTS
SIGNATURE ARE REQUIRED.
PLEASE SIGN HERE
PRIMARY SIGNATURE ______________________________ DATE _________________
CO-APPLICANT SIGNATURE __________________________ DATE _________________
CO-APPLICANT SIGNATURE __________________________ DATE _________________
CO-APPLICANT SIGNATURE __________________________ DATE _________________
11/95NM
