<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 October 3, 1998 or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 2-20910
TRUSERV
CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-2099896
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8600 West Bryn Mawr Avenue
Chicago, Illinois 60631-3505
(Address of principal executive offices) (Zip Code)
(773) 695-5000
(Registrant's telephone number, including area code)
not applicable
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d)of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares outstanding of each of the issuer's classes
of common stock, as of October 31, 1998.
Class A Common Stock, $100 Par Value. 492,609 Shares.
Class B Common Stock, $100 Par Value. 1,770,941 Shares.
<PAGE>2
PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
TRUSERV CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(000's Omitted)
<TABLE>
<CAPTION>
October 3, December 31,
1998 1997
--------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,694 $ 2,224
Accounts and notes receivable 559,941 476,527
Inventories 644,826 543,946
Prepaid expense 21,592 16,092
--------- ---------
Total current assets 1,228,053 1,038,789
Properties less
accumulated depreciation 272,014 241,236
Goodwill, net 109,629 107,711
Other assets 60,791 51,177
---------- ----------
TOTAL ASSETS $1,670,487 $1,438,913
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE>3
TRUSERV CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(000's Omitted)
<TABLE>
<CAPTION>
October 3, December 31,
1998 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND CAPITALIZATION
Current liabilities:
Accounts payable and accrued expenses $ 530,634 $ 572,565
Short-term borrowings 337,014 215,467
Current maturities of notes,
long-term debt and lease obligations 64,580 62,640
Patronage dividends payable in cash 5,585 12,142
----------- -----------
Total current liabilities 937,813 862,814
----------- -----------
Long-term debt and obligations under
capital leases 323,971 169,209
---------- -----------
Capitalization:
Promissory (subordinated) and installment notes 170,843 172,579
Class A common stock and partially paid subscriptions
authorized 750,000 shares; issued and fully paid
406,388 and 387,240 shares; issued 162,700 and
144,865 shares (net of receivable of $6,836,000
and $6,269,000); subscribed 5,010 shares (net
of stock subscription receivable of $20,000
in 1997). 49,171 47,423
Class B nonvoting common stock and
paid-in capital; authorized 4,000,000 shares;
issued and fully paid, 1,776,945 and 1,681,934
shares; issuable as partial payment of patronage
dividends 177,655 shares as of December 31, 1997. 189,151 187,259
Retained earnings 931 685
---------- -----------
410,096 407,946
Foreign currency translation adjustment (1,393) (1,056)
---------- -----------
Total capitalization 408,703 406,890
---------- -----------
TOTAL LIABILITIES AND CAPITALIZATION $1,670,487 $1,438,913
========== ===========
</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 THIRTY-NINE
WEEKS ENDED WEEKS ENDED
-------------------------- --------------------------
October 3, September 27, October 3, September 27,
1998 1997 1998 1997
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Revenues $1,078,481 $1,036,622 $3,264,135 $2,243,388
---------- ---------- ---------- -----------
Cost and expenses:
Cost of revenues 990,675 952,086 2,995,703 2,068,005
Warehouse, general and
administrative 68,736 66,316 201,076 127,725
Interest paid to Members 3,766 4,237 11,422 12,789
Other interest expense 10,543 5,979 28,456 12,484
Other expense (income), net 22 455 (203) (14)
Income tax expense 160 160 480 101
---------- ---------- ---------- ----------
1,073,902 1,029,233 3,236,934 2,221,090
---------- ---------- ---------- ----------
Net margin before
integration costs 4,579 7,389 27,201 22,298
Integration costs 4,300 1,562 8,342 3,594
---------- ---------- ---------- ----------
Net margins $ 279 $ 5,827 $ 18,859 $ 18,704
========== ========== ========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<PAGE> 5
TRUSERV CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THIRTY-NINE WEEKS ENDED
(000's Omitted)
(UNAUDITED)
<TABLE>
<CAPTION>
October 3, September 27,
1998 1997
----------- ------------
<S> <C> <C>
Operating activities:
Net margins $ 18,859 $ 18,704
Adjustments to reconcile net margins to cash and
cash equivalents from operating activities:
Statement of operations components not affecting
cash and cash equivalents 25,368 19,931
Net change in working capital components (236,953) (41,802)
----------- -----------
Net cash and cash equivalents used for
operating activities (192,726) ( 3,167)
----------- -----------
Investing activities:
Additions to properties owned (59,614) (27,509)
Proceeds from sale of properties owned 4,716 1,100
Changes in other assets (9,614) (1,639)
----------- -----------
Net cash and cash equivalents used for
investing activities (64,512) (28,048)
----------- -----------
Financing activities:
Proceeds from short-term borrowings 121,547 180,523
Proceeds from long-term borrowings 157,616 52,371
Payment of annual patronage dividend (12,142) (20,699)
Purchase of common stock, net (801) (19,530)
Payment of notes, long-term debt, lease
obligations (9,512) (158,236)
----------- -----------
Net cash and cash equivalents provided by
financing activities 256,708 34,429
----------- -----------
Net increase (decrease) in cash and cash equivalents (530) 3,214
Cash and cash equivalents at beginning of the period 2,224 1,662
----------- -----------
Cash and cash equivalents at end of the period $ 1,694 $ 4,876
=========== ===========
</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 October 3, 1998 and
December 31, 1997 reflect the post-Merger Company. The financial
information for the thirty-nine weeks ended October 3, 1998, reflects the
post-Merger results of the Company. The thirty-nine weeks ended September
27, 1997 reflect the financial information of the pre-Merger Company
for the twenty-six weeks ended June 28, 1997 and the results of the post-
Merger Company for the thirteen weeks ended September 27, 1997.
The following summarized unaudited pro forma operating data for the
thirty-nine weeks ended September 27, 1997 are presented below giving effect
to the Merger, as if it had been consummated at the beginning of the
period. These pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of
operations that actually would have resulted had the Merger been in
effect on the date indicated, or which may result in the future. The
pro forma results exclude one-time non-recurring charges or credits
directly attributable to the transaction.
The pro forma adjustments consist of (i) an adjustment for
amortization of the estimated excess of cost over the fair value of
the net assets of SCC, (ii) an adjustment for interest expense on
promissory notes issued in connection with the Merger, (iii) an
adjustment for interest expenses on short-term borrowings issued in
connection with the Merger and (iv) an adjustment for incremental
differences in depreciation expense.
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
-----------------------
October 3, September 27,
1998 1997
------------ -------------
Actual Pro Forma (1)
------------ -------------
(000's OMITTED)
<S> <C> <C>
Revenue $3,264,135 $3,135,917
Net margin before integration cost $ 27,201 $ 33,289
Net margin $ 18,859 $ 33,289
(1) Assumes the Merger was consummated at January 1, 1997.
</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 October 3, 1998, approximately 94%
of these employees have been terminated with the related cost of
benefits of approximately $10,883,000 charged against the liability.
The Merger plan specifies the closing of redundant former SCC
distribution centers and the elimination of overlapping former SCC
inventory items stockkeeping units substantially within a one-year
period. Distribution center closing costs include net occupancy
and costs after facilities are vacated. In addition, stockkeeping
unit reduction costs include losses on the sale of inventory items
which have been discontinued solely as a result of the Merger. As of
October 3, 1998, $2,785,000 relating to distribution center closing
cost and the reduction of stockkeeping units have been charged against
the liability. Merger integrations costs of $8,342,000 consist of
one time non-recurring expenses directly attributable to the Merger
including distribution center closings, severance pay, information
service costs and general and administrative costs.
NOTE 2 - GENERAL
The condensed consolidated balance sheet, statement of operations and
statement of cash flows at and for the period ended October 3, 1998 and
the condensed consolidated statement of operations and statement of
cash flows for the period ended September 27, 1997 are unaudited and, in
the opinion of the management of the Company, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of financial position, results of operations and cash
flows for the respective interim periods. The accompanying unaudited
condensed consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted
accounting principles for complete financial statements. This
financial information should be read in conjunction with the
consolidated financial statements for the year ended December 31, 1997
included in the Company's 1997 Annual Report on Form 10-K.
NOTE 3 - ESTIMATED PATRONAGE DIVIDENDS
Patronage dividends are declared and paid by the Company after the
close of each fiscal year. The 1997 annual patronage dividend was
distributed through a payment of 30% of the total distribution in
cash, with the balance being paid through the issuance of the
Company's Class B nonvoting common stock. Such patronage dividends,
consisting of substantially all of the Company's patronage source
income, have been paid since 1949. The estimated patronage dividend
for the thirty-nine weeks ended October 3, 1998 is $18,613,000 compared to
$24,354,000 for the corresponding period in 1997.
<PAGE> 8
NOTE 4 - INVENTORIES
<TABLE>
<CAPTION>
Inventories consisted of: October 3, December 31,
1998 1997
--------- -----------
(UNAUDITED)
(000's Omitted)
<S> <C> <C>
Manufacturing inventories:
Raw materials $ 4,826 $ 4,878
Work-in-process and finished goods 44,865 29,241
</TABLE>
--------- ----------
49,691 34,119
Merchandise inventories 595,135 509,827
--------- ----------
$ 644,826 $ 543,946
========= ==========
NOTE 5 - COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for the
reporting and display of comprehensive income and its components;
however, the adoption of this Statement had no impact on the Company's
net margin or capitalization. Statement 130 requires unrealized
gains or losses on the Company's foreign currency translation
adjustments, which prior to adoption were reported separately in
shareholder's equity to be included in other comprehensive income.
Comprehensive income for the thirteen weeks ended October 3, 1998 was
$65,000 compared to $5,813,000 for the corresponding period in 1997.
Comprehensive income for the thirty-nine weeks ended October 3, 1998
was $18,522,000 compared to $18,643,000 for the corresponding period
in 1997.
.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BUSINESS COMBINATION
On July 1, 1997, TruServ Corporation (the "Company"), formerly
Cotter & Company ("Cotter"), merged with Servistar Coast to Coast Corporation
("SCC") (the "Merger"). The transaction was accounted for using the
purchase accounting method. Accordingly, the financial information
for the thirty-nine weeks ended October 3, 1998 reflects the results of
the post-Merger Company and the financial information for the thirty-nine
weeks ended September 27, 1997 reflects the results of the pre-Merger
Company for the twenty-six weeks ended June 28, 1997 and the results of
the post-Merger Company for the thirteen weeks ended September 27, 1997.
To facilitate the comparison of interim results for 1998 and 1997,
supplemental comparisons have been provided using pro forma financial
information. This pro forma information has been prepared for
comparative purposes only and does not purport to be indicative of the
results of operation that actually would have resulted had the Merger
been in effect on the dates indicated, or which may result in the future.
<TABLE>
<CAPTION>
Thirty-nine weeks ended Thirty-nine weeks ended
October 3, 1998 September 27, 1997
Actual Actual Pro Forma (1)
----------------------- -------- ------------
(000'S Omitted)
<S> <C> <C> <C>
Revenue $3,264,135 $2,243,388 $3,135,917
Gross margin 268,432 175,383 218,719
Warehouse, general and
administrative expense 201,076 127,725 154,732
Interest expense 39,878 25,273 31,767
Merger integration cost 8,342 3,594 --
Net margin 18,859 18,704 33,289
(1) Assumes the Merger was consummated at January 1, 1997.
</TABLE>
<PAGE> 9
THIRTY-NINE WEEKS ENDED OCTOBER 3, 1998 COMPARED TO THIRTY-NINE WEEKS ENDED
SEPTEMBER 27, 1997
RESULTS OF OPERATIONS:
Revenues for the thirty-nine weeks ended October 3, 1998 totaled
$3,264,135,000. This represented an increase of $1,020,747,000 or 45.5%
compared to the comparable period last year. The increase was primarily
due to the addition of Servistar Coast to Coast revenues that
resulted from the July 1, 1997 merger of Cotter and SCC.
Gross margins increased by $93,049,000 or 53.1% and as a percentage of
revenues, increased to 8.2% from 7.8% for the comparable period last year.
The increase in gross margin percentage resulted primarily from
increased sales in manufactured products and increased margins from
improved merchandising strategies. Certain estimates of expenses
are recorded throughout the year including expenses related to
capitalizable inventory related costs. During the thirty-nine weeks,
ended October 3, 1998, the Company recorded an increase of
approximately $4,000,000 of these estimated costs.
Warehouse, general and administrative expenses as a percentage of
revenues increased to 6.2% from 5.7% compared with the prior year.
The Company incurred additional warehousing expenses in association
with commonizing inventory assortments, increased inventory
levels, and the implementation of the distribution network strategy.
Many of the potential cost efficiencies related to the Merger
have not yet been realized and costs should be reduced as the
Merger strategy is further implemented.
Interest paid to Members decreased by $1,367,000 or 10.7% primarily due
to a lower average interest rate and lower principal balance. Other
interest expense increased $15,972,000 due to higher borrowings
compared to the same period last year. The higher borrowings were
required because of the increased cash requirement resulting from the
merger and increased inventory levels. The effective
borrowing rate has been lowered due to the renegotiation of the rates
since the date of the Merger.
Integration costs consist of costs associated with the implementation of
the merger plan.
The combination of increased gross margins, offset by increased
expenses and increased borrowing costs, resulted in a net margin of
$18,859,000 compared to $18,704,000 for the same period last year.
ACTUAL THIRTY-NINE WEEKS ENDED OCTOBER 3, 1998 COMPARED TO PRO FORMA
THIRTY-NINE WEEKS ENDED SEPTEMBER 27, 1997 ASSUMING THE MERGER WAS
CONSUMMATED ON JANUARY 1, 1997
RESULTS OF OPERATIONS:
Revenues for the thirty-nine weeks ended October 3, 1998 totaled
$3,264,135,000. This represented an increase of $128,218,000 or 4.1%
compared to the comparable period last year. The increase was
attributable to revenue increases in lumber/building materials and
manufacturing products.
Gross margins increased by $49,713,000 or 22.7% and as a percentage of
revenues, increased to 8.2% from 7.0% for the comparable period last
year. The increase in gross margins resulted from improved
merchandising strategies and manufacturing margins.
Warehouse, general and administrative expenses increased by $46,344,000
or 30.0% and as a percentage of revenues increased to 6.2% from 4.9% for
the comparable period last year. The Company incurred additional warehousing
expenses in association with commonizing inventory assortments,
increased inventory levels, and the implementation of the distribution
<PAGE> 10
network strategy. Many of the potential cost efficiencies related to
the Merger have not yet been realized and costs should be reduced as
the Merger strategy is further implemented.
Interest expense increased from $31,767,000 to $39,878,000 primarily
due to higher short-term borrowings because of the increased cash
requirement resulting from increased inventory levels.
Integration costs consist of costs associated with the implementation of
the merger plan.
The combination of increased gross margin partially offset by higher
warehouse, general and administrative expense and higher interest
expense, resulted in a net margin of $18,859,000 compared to
$33,289,000 for the comparable period last year.
LIQUIDITY AND CAPITAL RESOURCES:
The Company has a seasonal need for cash. During the first thirty-nine
weeks of the year, as seasonal inventories are purchased for resale or
manufacture and shipment, cash and cash equivalents are used for
operating activities. In subsequent quarterly periods, the Company
anticipates that cash and cash equivalents will be provided by
operating activities and financing activities, if necessary.
During the first thirty-nine weeks of 1998, inventories increased by
$100,880,000 to support anticipated future orders of seasonal
merchandise, from the commonization of inventory and the
implementation of the Distribution Network Strategic plan. Accounts
and notes receivable increased by $83,414,000 due to the seasonal
payment terms extended to the Company's Members. Short-term
borrowings increased by $121,547,000, accounts payable and accrued
expenses decreased by $41,931,000.
At October 3, 1998, net working capital increased to $290,240,000 from
$175,975,000 at December 31, 1997. The current ratio was 1.31 at
October 3, 1998 and 1.20 at December 31, 1997.
At July 1, 1997, the Company had established a $300,000,000 five-
year revolving credit facility with a group of banks. In addition,
on September 30, 1998, the Company established a $100,000,000 three
hundred sixty four day revolving credit facility. The borrowings
under these agreements were $324,000,000 and $210,000,000 at
October 3, 1998 and December 31, 1997, respectively.
The Company's capital is primarily derived from Class A common stock
and retained earnings, together with promissory (subordinated) notes
and nonvoting Class B common stock issued in connection with the
Company's annual patronage dividend. The Company believes the funds
derived from these capital resources, as well as operations and the
credit facilities noted above, will be sufficient to satisfy capital
needs.
Total capital expenditures, including those made under capital leases,
were $59,614,000 for the thirty-nine weeks ended October 3, 1998 compared
to $27,509,000 during the comparable period in 1997. These capital
expenditures relate to additional equipment and technological
improvements at the regional distribution centers and at the corporate
headquarters.
<PAGE> 11
THIRTEEN WEEKS ENDED OCTOBER 3, 1998 COMPARED TO THIRTEEN WEEKS ENDED
SEPTEMBER 27, 1997
<TABLE>
<CAPTION>
Thirteen weeks ended
---------------------------------------
October 3, 1998 September 27, 1997
--------------- ------------------
Actual Actual
------ ------
(000'S OMITTED)
<S> <C> <C>
Revenue $1,078,481 $1,036,622
Gross margin 87,806 84,536
Warehouse, general and
administrative expense 68,736 66,316
Interest expense 14,309 10,216
Merger integration cost 4,300 1,562
Net margin 279 5,827
(1) Assumes the Merger was consummated at January 1, 1997.
RESULTS OF OPERATIONS:
Revenues increased by $41,859,000 or 4.0% compared to the same
period last year. The increase was due primarily to increased sales in
Direct Shipment and in the Lumber product lines.
Gross margins increased by $3,270,000 or 3.9% compared to the same
period last year. Gross margins as a percentage of revenues
remained comparable to the prior year.
Warehouse, general and administrative expenses increased by $2,420,000
or 3.6% and as a percent of revenues was 6.4% which is comparable
to the same period last year. The Company incurred additional warehousing
expenses in association with commonizing inventory assortments,
increased inventory and the implementation of the distribution network
strategy.
Interest paid to Members decreased by $471,000 or 11.1% primarily due to
a lower principal balance and a lower average interest rate. Other
interest expense increased $4,564,000 or 76.3% due to higher borrowings
compared to the same period last year. The higher borrowings was
required because of increased inventory levels and other merger
requirements.
Integration costs consist of implementation of Merger plan.
Net margins were $279,000 compared to $5,827,000 for the same
period last year.
YEAR 2000
A portion of the Company's information systems are not "Year 2000
Compliant". This means that the Company will need to incur certain
costs to modify non-compliant systems prior to the Year 2000 in order
to ensure that those Systems continue to serve the needs of the
Company and its Membership. Based upon current FASB Guideline,
costs incurred to modify systems to be Year 2000 must be expensed.
Accordingly, such costs will reduce patronage dividends in years
in which they are incurred.
<PAGE> 12
The company relies on both information technology and non-information
technology computer systems in its operations. The mission critical
information technology systems include the Company's operating and
accounting systems. The non-information technology computer systems include
such items as telecommunications, security systems, elevators and climate
control at all warehouse locations and remote facilities.
There can be no assurance that all systems needing modification prior to
the Year 2000 will be properly and timely completed by the Company or
third parties. Failure to do so could have a material adverse effect
on the Company's financial condition. The Company cannot predict the
actual effects on the Company if all Year 2000 issues are not resolved
in a timely manner because of a number of uncertainties such as: (1) whether
major third parties address this issue properly and timely and (2) whether
broad-based economic failures may occur. The Company is currently
unaware of any events, trends, or condition regarding this issue that
may have a material effect on the Company's results of operations,
liquidity, or financial position. If the year 2000 issue is not resolved by
January 1, 2000 the adverse affect on the Company's results of operations
or financial condition could be material.
TruServ has established a corporate-wide Year 2000 program to help
assure that TruServ is able to conduct business in a Year 2000
compliant environment. As a part of this effort, we are requiring our
suppliers to assess their ability to continue trading with the Company
as we approach the new millenium. In addition, the Company is planning
to establish an alternative supplier plan in the event our key vendors
have difficulty providing product to us. The program is on schedule
for a completion date of July 1, 1999. The Year 2000 budget has been
established at $16,900,000. Actual costs to date are $10,700,000. The
approximate percentage of the Year 2000 costs to the total
Information Services expenses is 14.0%. The source of these funds
will be provided by the normal operating and financing activities of
TruServ Corporation.
The expenses for the Year 2000 program is as follows:
1996 $ 1.0 million
1997 $ 3.2 million
1998 $ 8.5 million projected
1999 $ 4.0 million projected
2000 $ 0.2 million projected
Total $ 16.9 million
PART II - OTHER. INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 4. Instruments defining the rights of security holders,
including indentures; incorporated herein by reference those
items included as Exhibits 4A through 4K, inclusive, in the
Company's Post-Effective Amendment No. 5 on Form S-2 to Form S-
4 Registration Statement (No. 333-18397) filed with the
Securities and Exchange Commission on April 4, 1998.
(b) Reports on Form 8-K
NONE
SIGNATURE
<PAGE> 13
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf
by the undersigned thereunto duly authorized.
TRUSERV CORPORATION
Date: November 17, 1998 By /s/ KERRY J. KIRBY
Kerry J. Kirby
Executive Vice President, Finance
and Chief Financial Officer
(Mr. Kirby is the principal accounting officer and has been duly
authorized to sign on behalf of the Registrant.)
</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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> OCT-04-1998
<CASH> 1,694
<SECURITIES> 0
<RECEIVABLES> 559,941
<ALLOWANCES> 0
<INVENTORY> 644,826
<CURRENT-ASSETS> 1,288,053
<PP&E> 533,847
<DEPRECIATION> 261,833
<TOTAL-ASSETS> 1,670,487
<CURRENT-LIABILITIES> 937,813
<BONDS> 323,971
0
0
<COMMON> 238,322
<OTHER-SE> 170,381
<TOTAL-LIABILITY-AND-EQUITY> 1,670,487
<SALES> 3,264,135
<TOTAL-REVENUES> 3,264,135
<CGS> 2,995,703
<TOTAL-COSTS> 2,995,703
<OTHER-EXPENSES> 209,215
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,878
<INCOME-PRETAX> 19,339
<INCOME-TAX> 480
<INCOME-CONTINUING> 18,859
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,589
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
