<PAGE>1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 4, 1998 or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 2-20910
TRUSERV
CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-2099896
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
No.)
8600 West Bryn Mawr Avenue
Chicago, Illinois 60631-3505
(Address of principal executive offices) (Zip Code)
(773) 695-5000
(Registrant's telephone number, including area code)
not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares outstanding of each of the issuer's classes
of common stock, as of August 1, 1998.
Class A Common Stock, $100 Par Value. 486,368 Shares.
Class B Common Stock, $100 Par Value. 1,790,157 Shares.
<PAGE> 2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
TRUSERV CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(000's Omitted)
<TABLE>
<CAPTION>
July 4, December 31,
1998 1997
---------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,156 $ 2,224
Accounts and notes receivable 648,642 476,527
Inventories 616,021 543,946
Prepaid expenses 22,555 16,092
---------- ----------
Total current assets 1,289,374 1,038,789
Properties less
accumulated depreciation 254,872 241,236
Goodwill, net 110,319 107,711
Other assets 57,486 51,177
---------- ----------
TOTAL ASSETS $1,712,051 $1,438,913
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 3
TRUSERV CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(000's Omitted)
<TABLE>
<CAPTION>
July 4, December 31,
1998 1997
--------- -----------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND CAPITALIZATION
Current Liabilities
Accounts payable and accrued expenses $ 633,654 $ 572,565
Short-term borrowings 373,777 215,467
Current maturities of notes,
long-term debt and lease obligations 63,048 62,640
Patronage dividends payable in cash 5,574 12,142
--------- ----------
Total current liabilities 1,076,053 862,814
--------- ----------
Long-term debt and obligations under
capital leases 220,674 169,209
--------- ----------
Capitalization:
Promissory (subordinated) and installment notes 172,118 172,579
Class A common stock
authorized 750,000 shares; issued and fully paid
493,120 and 183,790 shares 49,312 47,423
Class B nonvoting common stock and
paid-in capital; authorized 4,000,000 shares;
issued and fully paid, 1,800,510 and 2,338,755
shares; issuable as partial payment of patronage
dividends 130,006 shares as of July 4, 1998
payable as of December 31, 1998; issuable as
partial payment of patronage dividends 177,655
shares as of December 31, 1997. 194,389 187,259
Retained earnings 684 685
---------- ----------
416,503 407,946
Foreign currency translation adjustment (1,179) (1,056)
---------- ----------
Total capitalization 415,324 406,890
---------- ----------
TOTAL LIABILITIES AND CAPITALIZATION $1,712,051 $1,438,913
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 4
TRUSERV CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(000's Omitted)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THIRTEEN FOR THE TWENTY-SIX
WEEKS ENDED WEEKS ENDED
------------------------- -------------------------
July 4,1998 June 28, 1997 July 4, 1998 June 28, 1997
----------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues $1,155,449 $645,070 $2,185,654 $1,206,766
---------- -------- ---------- ----------
Cost and expenses:
Cost of revenues 1,055,302 597,740 2,005,028 1,115,919
Warehouse, general and
administrative 68,231 26,900 132,340 61,409
Interest paid to Members 3,766 4,255 7,656 8,552
Other interest expense 9,492 3,472 17,913 6,505
Other income, net (385) (306) (225) (469)
Income tax expense (benefit) 439 (219) 320 (59)
--------- ------- --------- ---------
1,136,845 631,842 2,163,032 1,191,857
--------- ------- --------- ---------
Net margin before
integration costs 18,604 13,228 22,622 14,909
Integration costs 2,195 1,422 4,042 2,032
--------- ------- --------- ---------
Net margins $ 16,409 $ 11,806 $ 18,580 $ 12,877
========== ========= ========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 5
TRUSERV CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE TWENTY SIX WEEKS ENDED
(000's Omitted)
(UNAUDITED)
<TABLE>
<CAPTION>
July 4, June 28,
1998 1997
---------- ---------
<S> <C> <C>
Operating activities:
Net margins $ 18,580 $ 12,877
Adjustments to reconcile net margins to cash and
cash equivalents from operating activities:
Statement of operations components not affecting
cash and cash equivalents 16,510 12,373
Net change in working capital components (188,411) (58,541)
---------- ---------
Net cash and cash equivalents used for
operating activities (153,321) (33,291)
---------- ---------
Investing activities:
Additions to properties owned (31,090) (15,158)
Changes in other assets (6,309) (8,218)
---------- ---------
Net cash and cash equivalents used for
investing activities (37,399) (23,376)
---------- ---------
Financing activities:
Proceeds from short-term borrowings 158,310 76,836
Proceeds from long-term borrowings 52,616 2,371
Payment of annual patronage dividend (12,142) (16,142)
Payment of notes, long-term debt, lease
obligations and common stock (8,132) (6,184)
---------- ---------
Net cash and cash equivalents provided by
financing activities 190,652 56,881
---------- ---------
Net increase (decrease) in cash and cash equivalents (68) 214
Cash and cash equivalents at beginning of the period 2,224 1,662
--------- ---------
Cash and cash equivalents at end of the period $ 2,156 $ 1,876
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 6
TRUSERV CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BUSINESS COMBINATIONS
On July 1, 1997, pursuant to an Agreement and Plan of Merger dated
December 9, 1996 between Cotter & Company ("Cotter"), a Delaware
corporation and Servistar Coast of Coast ("SCC"), SCC merged with and
into Cotter, with Cotter being the surviving corporation (the
"Merger"). Cotter was renamed TruServ Corporation ("TruServ" or the
"Company"), effective with the Merger. Each outstanding share of SCC
Common Stock and SCC Series A Stock (excluding those shares canceled
pursuant to Article III of the Merger Agreement) were converted into
the right to receive one fully paid and nonassessable share of TruServ
Class A common stock and each two outstanding shares of SCC Preferred
Stock were converted into the right to receive one fully paid and non-
assessable share of TruServ Class B Common Stock. A total of 270,500
and 1,170,670 shares of TruServ Class A Common Stock and Class B
Common Stock, respectively, were issued in connection with the Merger.
Also 231,000 additional shares of TruServ Class A Common Stock were
issued in exchange for Class B common stock to pre-Merger Stockholders
of Cotter to satisfy the Class A Common Stock ownership requirement of
60 shares per store (up to a maximum of 5 stores) applicable to such
Members as a result of the Merger.
The Condensed Consolidated Balance Sheets as of July 4, 1998 and
December 31, 1997 reflect the post-Merger Company. The financial
information for the twenty-six weeks ended July 4, 1998, reflects the
post-Merger results of the Company. The twenty-six weeks ended June
28, 1997 reflect the financial information of the pre-Merger Company
only.
The following summarized unaudited pro forma operating data for the
twenty-six weeks ended June 28, 1997 are presented below giving effect
to the Merger, as if it had been consummated at the beginning of the
period. These pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of
operations that actually would have resulted had the Merger been in
effect on the date indicated, or which may result in the future. The
pro forma results exclude one-time non-recurring charges or credits
directly attributable to the transaction.
The pro forma adjustments consist of (i) an adjustment for
amortization of the estimated excess of cost over the fair value of
the net assets of SCC, (ii) an adjustment for interest expense on
promissory notes issued in connection with the Merger, (iii) an
adjustment for interest expenses on short-term borrowings issued in
connection with the Merger and (iv) an adjustment for incremental
differences in depreciation expense.
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
----------------------
July 4, June 28,
1998 1997
--------- ------------
Actual Pro Forma (1)
--------- ------------
(000's OMITTED)
<S> <C> <C>
Revenue $2,185,654 $2,105,852
Net margin $ 22,622 $ 25,465
(1) Assumes the Merger was consummated at January 1, 1997.
</TABLE>
<PAGE> 7
To refinance the existing debt of SCC and pay related fees and
expenses, the Company entered into a revolving loan agreement of up to
$300,000,000 in short-term credit facilities with a group of banks and
an additional $100,000,000 of long-term debt.
The total purchase price of approximately $141,400,000 was allocated
to assets and liabilities of the Company based on the estimated fair
value as of the date of acquisition. The allocation was based on
preliminary estimates which could be revised up until July 1, 1998.
The excess of consideration paid over the estimated fair value of net
assets acquired in the amount of $113,173,000 has been recorded as
goodwill and is being amortized on a straight-line basis over forty
years.
In connection with the purchase business combination, an estimated
liability of $38,200,000 was recognized for costs associated with the
Merger plan. The Merger plan specifies that certain former SCC
positions approximately 1,200 in total, will be eliminated
substantially within one year. As of July 4, 1998, approximately 93%
of these employees have been terminated with the related cost of
benefits of approximately $9,425,000 charged against the liability.
The Merger plan specifies the closing of redundant former SCC
distribution centers and the elimination of overlapping former SCC
inventory items stockkeeping units. Distribution center closing costs
include net occupancy and costs after facilities are vacated. In
addition, stockkeeping unit reduction costs include losses on the sale
of inventory items which have been discontinued solely as a result of
the Merger. As of July 4, 1998, $2,134,000 relating to distribution
center closing cost and the reduction of stockkeeping units have been
charged against the liability. Merger integrations costs of $4,042,000
consist of one time non-recurring expenses directly attributable to
the Merger including distribution center closings, severance pay,
information service costs and general and administrative costs.
NOTE 2 - GENERAL
The condensed consolidated balance sheet, statement of operations and
statement of cash flows at and for the periods ended July 4, 1998 and
the condensed consolidated statement of operations and statement of
cash flows for the periods ended June 28, 1997 are unaudited and, in
the opinion of the management of the Company, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of financial position, results of operations and cash
flows for the respective interim periods. The accompanying unaudited
condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements. This
financial information should be read in conjunction with the
consolidated financial statements for the year ended December 31, 1997
included in the Company's 1997 Annual Report on Form 10-K.
NOTE 3 - ESTIMATED PATRONAGE DIVIDENDS
Patronage dividends are declared and paid by the Company after the
close of each fiscal year. The 1997 annual patronage dividend was
distributed through a payment of 30% of the total distribution in
cash, with the balance being paid through the issuance of the
Company's Class B nonvoting common stock. Such patronage dividends,
consisting of substantially all of the Company's patronage source
income, have been paid since 1949. The estimated patronage dividend
for the twenty-six weeks ended July 4, 1998 is $18,581,000 compared to
$13,014,000 for the corresponding period in 1997.
<PAGE> 8
NOTE 4 - INVENTORIES
<TABLE>
<CAPTION>
Inventories consisted of: July 4, December 31,
1998 1997
-------- ----------
(UNAUDITED)
(000's Omitted)
<S> <C> <C>
Manufacturing inventories:
Raw materials $ 13,634 $ 4,878
Work-in-process and finished goods 32,173 29,241
</TABLE>
-------- --------
45,807 34,119
Merchandise inventories 570,214 509,827
-------- --------
$616,021 $543,946
======== ========
NOTE 5 - COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the
reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the Company's
net income margin or shareholders' equity capitalization. Statement
130 requires unrealized gains or losses on the Company's foreign
currency translation adjustments, which prior to adoption were
reported separately in shareholders' equity to be included in other
comprehensive income. Prior year financial statements have been
reclassified to conform to the requirements of Statement 130. The
impact of the foreign currency translation adjustment had no material
impact on the Comprehensive Income of the Company.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BUSINESS COMBINATION
On July 1, 1997, TruServ Corporation (the "Company"), formerly Cotter
& Company ("Cotter"), merged with Servistar Coast to Coast Corporation
("SCC") (the "Merger"). The transaction was accounted for using the
purchase accounting method. Accordingly, the financial information
for the twenty-six weeks ended July 4, 1998 reflects the results of
the post-Merger Company and the financial information for the twenty-
six weeks ended June 28, 1997 reflects the results of the pre-Merger
Company. To facilitate the comparison of interim results for 1998 and
1997, supplemental comparisons have been provided using pro forma
financial information. This unaudited pro forma information has been
prepared for comparative purposes only and does not purport to be
indicative of the results of operation that actually would have
resulted had the Merger been in effect on the dates indicated, or
which may result in the future.
<TABLE>
<CAPTION>
Twenty-six weeks ended Twenty-six weeks ended
July 4, 1998 June 28, 1997
Actual Actual Pro Forma(1)
---------------------- ------- -----------
(000'S OMITTED)
<S> <C> <C> <C>
Revenue $2,185,654 $1,206,766 $2,105,852
Gross margin 180,626 90,847 173,594
Warehouse, general and
administrative expense 132,340 61,409 128,714
Interest expense 25,569 15,057 20,259
Merger integration cost 4,042 2,032 --
Net margin 18,580 12,877 25,465
(1) Assumes the Merger was consummated at January 1, 1997.
</TABLE>
<PAGE> 9
TWENTY-SIX WEEKS ENDED JULY 4, 1998 COMPARED TO TWENTY-SIX WEEKS ENDED
JUNE 28, 1997
RESULTS OF OPERATIONS:
Revenues for the twenty-six weeks ended July 4, 1998 totaled
$2,185,654,000. This represented an increase of $978,888,000 or 81.1%
compared to the comparable period last year. The increase was due to
the addition of Servistar Coast to Coast revenues that resulted from
the July 1, 1997 merger of Cotter and SCC.
Gross margins increased by $89,779,000 or 98.8% and as a percentage of
revenues, increased to 8.3% from 7.5% for the comparable period last
year. The increase in gross margin percentage resulted primarily from
increased sales in manufactured products and improved margins from the
Distribution/Transportation network.
Warehouse, general and administrative expenses as a percentage of
revenues increased to 6.1% from 5.1% compared with the prior year.
The Company incurred additional warehousing expenses in association
with commonizing inventory assortments, increased inventory
levels, and the implementation of the distribution network strategy.
Many of the potential cost efficiencies related to the Merger
have not yet been realized and costs should be reduced as the
Merger strategy is further implemented.
Interest paid to Members decreased by $896,000 or 10.5% primarily due
to a lower average interest rate and lower principal balance. Other
interest expense increased $11,408,000 due to higher borrowings
compared to the same period last year. The higher borrowings were
required because of the increased cash requirement resulting from the
merger and the Merger and increased inventory levels. The effective
borrowing rate has been lowered due to the renegotiation of the rates
since the date of the Merger.
The combination of increased gross margins, offset by increased
expenses and increased borrowing costs, resulted in a net margin of
$18,580,000 compared to $12,877,000 for the same period last year.
ACTUAL TWENTY-SIX WEEKS ENDED JULY 4, 1998 COMPARED TO PRO FORMA
TWENTY-SIX WEEKS ENDED JUNE 28, 1997 ASSUMING THE MERGER WAS
CONSUMMATED ON JANUARY 1, 1997
RESULTS OF OPERATIONS:
Revenues for the twenty-six weeks ended July 4, 1998 totaled
$2,185,654,000. This represented an increase of $79,802,000 or 3.8%
compared to the comparable period last year. The increase was
attributable to revenue increases in lumber/building materials and
manufacturing products.
Gross margins increased by $7,032,000 or 4.1% and as a percentage of
revenues, increased to 8.3% from 8.2% for the comparable period last
year. The increase in gross margins resulted from improved
transportation and manufacturing margins. Certain estimates of
expenses are recorded throughout the year including expenses related
to capitalizable inventory related costs. During the twenty-six weeks
ended July 4, 1998, the Company recorded a reduction of approximately
$6,000,000 of these estimated costs.
Warehouse, general and administrative expenses increased by $3,626,000
or 2.8% and as a percentage of revenues is 6.1% for both the current
period and prior period. The Company incurred additional warehousing
expenses in association with commonizing inventory assortments,
increased inventory levels, and the implementation of the distribution
network strategy. Many of the potential cost efficiencies related to
the Merger have not yet been realized and costs should be reduced as
the Merger strategy is further implemented.
Interest expense increased from $20,259,000 to $25,569,000 primarily
due to higher short-term borrowings because of the increased cash
requirement resulting from increased inventory levels.
The combination of increased gross margin partially offset by higher
warehouse, general and administrative expense and higher interest
expense, resulted in a net margin of $18,580,000 compared to
$25,465,000 for the comparable period last year.
<PAGE> 10
TWENTY-SIX WEEKS ENDED JULY 4, 1998 COMPARED WITH THE YEAR ENDED DECEMBER
31, 1997
LIQUIDITY AND CAPITAL RESOURCES:
The Company has a seasonal need for cash. During the first twenty-six
weeks of the year, as seasonal inventories are purchased for resale or
manufacture and shipment, cash and cash equivalents are used for
operating activities. In subsequent quarterly periods, the Company
anticipates that cash and cash equivalents will be provided by
operating activities and financing activities, if necessary.
During the first twenty-six weeks of 1998, inventories increased by
$72,075,000 to support anticipated future orders of seasonal
merchandise resulting from the commonization of inventory. Accounts
and notes receivable increased by $172,115,000 due to the seasonal
payment terms extended to the Company's Members. Short-term
borrowings increased by $158,310,000 and accounts payable and accrued
expenses increased by $61,089,000 in support of the increased
inventories and favorable seasonal terms obtained from vendors which
were passed on to the Company's Members.
At July 4, 1998, net working capital increased to $213,321,000 from
$175,975,000 at December 31, 1997. The current ratio remained
comparable at 1.20 for both period ends.
At December 31, 1997, the Company had established a $300,000,000 five-
year revolving credit facility with a group of banks. 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. The borrowings under these agreements
were $363,000,000 and $210,000,000 at July 4, 1998 and December 31,
1997, respectively.
The Company's capital is primarily derived from Class A common stock
and retained earnings, together with promissory (subordinated) notes
and nonvoting Class B common stock issued in connection with the
Company's annual patronage dividend. The Company believes the funds
derived from these capital resources, as well as operations and the
credit facilities noted above, will be sufficient to satisfy capital
needs.
Total capital expenditures, including those made under capital leases,
were $31,090,000 for the twenty-six weeks ended July 4, 1998 compared
to $15,158,000 during the comparable period in 1997. These capital
expenditures relate to additional equipment and technological
improvements at the regional distribution centers and at the corporate
headquarters.
THIRTEEN WEEKS ENDED JULY 4, 1998 COMPARED TO THIRTEEN WEEKS ENDED
JUNE 28, 1997
To facilitate the comparison of interim results for 1998 and 1997,
supplemental comparisons have been provided using pro forma financial
information. This unaudited pro forma information has been prepared
for comparative purposes only and does not purport to be indicative of
the results of operation that actually would have resulted had the
Merger been in effect on the dates indicated, or which may result in
the future.
<TABLE>
<CAPTION>
Thirteen weeks ended
---------------------------------------
July 4, 1998 June 28, 1997
------------ --------------------
Actual Actual Pro Forma(1)
------ ------ -----------
(000'S OMITTED)
<S> <C> <C> <C>
Revenue $1,155,449 $645,070 $1,138,679
Gross margin 100,147 47,330 99,229
Warehouse, general and
administrative expense 68,231 26,900 65,572
Interest expense 13,258 7,727 9,847
Merger integration cost 2,195 1,422 --
Net margin 16,409 11,806 24,089
(1) Assumes the Merger was consummated at January 1, 1997.
<PAGE> 11
RESULTS OF OPERATIONS:
Revenues increased by $510,379,000 or 79.1% compared to the same
period last year. The increase was due to the addition of Servistar
Coast to Coast revenues that resulted from the July 1, 1997 merger of
Cotter and SCC.
Gross margins increased by $52,817,000 or 111.6% compared to the same
period last year. Gross margins as a percentage of revenues increased
to 8.7% from 7.3% for the same period last year. The increase in
gross margin percentage resulted primarily from increased sales in
manufactured products and improved margins from the
Distribution/Transportation network.
Warehouse, general and administrative expenses increased by
$41,331,000 or 153.6% and as a percent of revenues, increased to 5.9%
from 4.2% for the same period last year. The Company incurred
additional warehousing expenses in association with commonizing
inventory assortments, increased inventory and the implementation of
the distribution network strategy.
Interest paid to Members decreased by $489,000 or 11.5% primarily due
to a lower principal balance and a lower average interest rate. Other
interest expense increased $6,020,000 or 173.4% due to higher
borrowings compared to the same period last year. The higher
borrowings was required because of increased inventory levels and
other merger requirements.
Integration costs consist of expenses incurred with the consolidation
and restructuring of certain functions due to the aforementioned
merger.
Net margins were $16,409,000 compared to $11,806,000 for the same
period last year.
ACUTAL THIRTEEN WEEKS ENDED JULY 4, 1998 COMPARED TO PRO FORMA
THIRTEEN WEEKS ENDED JUNE 28, 1997
RESULTS OF OPERATIONS:
Revenues increased by $16,770,000 or 1.5% compared to the same period
last year. Most merchandise categories were comparable to the same
period last year with Lumber & Building Materials showing an increase
for the thirteen week period.
Gross margins increased by $918,000 or 0.9% compared to the same
period last year. The increase in gross margins resulted from improved
transportation and manufacturing margins. Certain estimates of
expenses are recorded throughout the year including expenses related
to capitalizable inventory related costs. During the thirteen weeks
ended July 4, 1998, the Company recorded a reduction of approximately
$4,000,000 of these estimated costs.
Warehouse, general and administrative expenses increased by $2,659,000
or 4.1% and as a percent of revenues, increased to 5.9% from 5.8% for
the same period last year. The Company incurred additional warehousing
expenses in association with commonizing inventory assortments,
increased inventory and the implementation of the distribution network
strategy.
Interest expense increased $3,411,000 or 34.6% due to higher
borrowings compared to the same period last year. The higher
borrowings were required because of increased inventory levels.
Integration costs consist of expenses incurred with the consolidation
and restructuring of certain functions due to the aforementioned
merger.
Net margins were $16,409,000 compared to $24,089,000 for the same
period last year.
<PAGE> 12
Year 2000
A portion of the Company's information systems are not "Year 2000
Compliant". This means that the Company will need to incur certain
costs to modify non-compliant systems prior to the Year 2000 in order
to ensure that those systems continue to serve the needs of the
Company and its Membership. Based upon an initial investigation of
the Company's systems, the Company estimates that such costs could
exceed $10,000,000. Actual costs may exceed this estimate depending
on Merger efforts and system resource constraints. Actual costs to
date are $7,800,000. Further, based upon current FASB Guideline,
costs incurred to modify systems to be Year 2000 compliant must be
expensed. Accordingly, such costs will reduce patronage dividends in
years in which they are incurred.
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 4. Instruments defining the rights of security holders,
including indentures; incorporated herein by reference those
items included as Exhibits 4A through 4K, inclusive, in the
Company's Post-Effective Amendment No. 5 on Form S-2 to Form S-
4 Registration Statement (No. 333-18397) filed with the
Securities and Exchange Commission on April 4, 1998.
(b) Reports on Form 8-K
NONE
<PAGE> 13
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf
by the undersigned thereunto duly authorized.
TRUSERV CORPORATION
Date: August 18, 1998 By /s/
KERRY J. KIRBY
Kerry J. Kirby
Executive Vice President,
Finance
and Chief Financial
Officer
(Mr. Kirby is the principal accounting officer and has been duly
authorized to sign on behalf of the Registrant.)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINES SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUL-04-1998
<CASH> 2,156
<SECURITIES> 0
<RECEIVABLES> 648,642
<ALLOWANCES> 0
<INVENTORY> 616,021
<CURRENT-ASSETS> 1,289,374
<PP&E> 520,080
<DEPRECIATION> 261,235
<TOTAL-ASSETS> 1,712,051
<CURRENT-LIABILITIES> 1,076,053
<BONDS> 217,553
0
0
<COMMON> 230,695
<OTHER-SE> 185,124
<TOTAL-LIABILITY-AND-EQUITY> 1,712,051
<SALES> 2,185,654
<TOTAL-REVENUES> 2,185,654
<CGS> 2,005,028
<TOTAL-COSTS> 2,005,028
<OTHER-EXPENSES> 132,340
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<INTEREST-EXPENSE> 25,569
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<INCOME-TAX> (320)
<INCOME-CONTINUING> 18,580
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,580
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
