<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 April 1, 2000 or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ------------ to -----------------
Commission file number 2-20910
----------------------------
TRUSERV CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-2099896
- ------------------------------- ---------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8600 West Bryn Mawr Avenue
Chicago, Illinois 60631-3505
- ------------------------------- -----------
(Address of principal executive offices) (Zip Code)
(773) 695-5000
----------------------------------------------------
(Registrant's telephone number, including area code)
Not applicable
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of each of the issuer's classes of common
stock, as of April 29, 2000.
Class A Common Stock, $100 Par Value. 464,737 Shares.
Class B Common Stock, $100 Par Value. 1,720,552 Shares.
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PART I - FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
TRUSERV CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
April 1, December 31,
2000 1999
------------ ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,376 $ 1,815
Accounts and notes receivable, net 554,387 460,419
Inventories 566,580 482,415
Other current assets 21,390 9,937
----------- -----------
Total current assets 1,143,733 954,586
Properties less accumulated depreciation 238,950 244,845
Goodwill, net 113,774 114,537
Other assets 32,125 34,179
----------- -----------
TOTAL ASSETS $ 1,528,582 $ 1,348,147
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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TRUSERV CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands, except share data)
<TABLE>
<CAPTION>
April 1, December 31,
2000 1999
-------------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND CAPITALIZATION
Current liabilities:
Accounts payable $ 633,934 $ 544,904
Accrued expenses 89,105 75,347
Short-term borrowings 260,516 167,007
Current maturities of notes, long-term debt
and capital lease obligations 87,158 88,088
------------- ------------
Total current liabilities 1,070,713 875,346
------------- ------------
Long-term debt and obligations under capital leases 309,147 309,796
Capitalization:
Promissory (subordinated) and installment notes 83,728 83,804
Class A common stock, net of subscriptions receivable;
authorized 750,000 shares; issued and subscribed
501,840 and 511,440 shares (net of stock subscriptions
receivable of $3,843,000 and $3,874,000) 46,341 47,270
Class B nonvoting common stock and paid-in capital;
authorized 4,000,000 shares; issued and fully-paid,
1,720,552 and 1,764,797 shares 173,354 177,779
Deferred patronage (13,969) (14,063)
Retained earnings (139,863) (130,939)
Accumulated other comprehensive income (869) (846)
------------ -----------
Total capitalization 148,722 163,005
------------ -----------
TOTAL LIABILITIES AND CAPITALIZATION $ 1,528,582 $ 1,348,147
============ ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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TRUSERV CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THIRTEEN
WEEKS ENDED
---------------------------
April 1, April 3,
2000 1999
----------- -----------
<S> <C> <C>
Revenues $ 1,027,605 $ 1,070,892
Cost and expenses:
Cost of revenues 964,939 1,016,660
Warehouse, general
and administrative 57,988 51,870
Interest paid to Members 2,815 3,471
Other interest expense 11,600 10,740
Other expense (income), net
(868) (564)
Income tax expense
55 87
----------- -----------
1,036,529 1,082,264
----------- -----------
Net loss before merger integration costs and
cumulative effect of a change in accounting
principle (8,924) (11,372)
Merger integration costs -- 6,524
----------- -----------
Net loss before cumulative effect of a change
in accounting principle (8,924) (17,896)
Cumulative effect on prior years of a change in
accounting principle -- 6,484
----------- -----------
Net loss $ (8,924) $ (24,380)
=========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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TRUSERV CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THIRTEEN WEEKS ENDED
-----------------------------
April 1, April 3,
2000 1999
------------ ------------
<S> <C> <C>
Operating activities:
Net loss $ (8,924) $ (24,380)
Adjustments to reconcile net loss to cash and
cash equivalents used for operating activities:
Statement of operations components not affecting
cash and cash equivalents 11,314
9,913
Net change in working capital components (88,832) 6,933
------------ ------------
Net cash and cash equivalents used for
operating activities (86,442) (7,534)
------------ ------------
Investing activities:
Additions to properties owned (3,389) (20,452)
Changes in other assets 924 (2,322)
------------ ------------
Net cash and cash equivalents used for investing activities (2,465) (22,774)
------------ ------------
Financing activities:
Proceeds from short-term borrowings 93,509 50,637
Proceeds from long-term borrowings 791 336
Payment of annual patronage dividend --- (12,604)
Payment of notes, long-term debt, lease obligations
and common stock (5,832) (8,102)
------------ ------------
Net cash and cash equivalents provided by financing
activities 88,468 30,267
------------ ------------
Net increase (decrease) in cash and cash equivalents (439) (41)
Cash and cash equivalents at beginning of period 1,815 1,650
------------ ------------
Cash and cash equivalents at end of period $ 1,376 $ 1,609
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
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TRUSERV CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - GENERAL
The condensed consolidated balance sheet, statement of operations and statement
of cash flows at and for the thirteen weeks ended April 1, 2000 and the
condensed consolidated statement of operations and statement of cash flows for
the thirteen weeks ended April 3, 1999 are unaudited and, in the opinion of the
management of the Company, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of financial position,
results of operations and cash flows for the respective interim periods. The
accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. This financial information should be read in conjunction
with the consolidated financial statements for the year ended December 31, 1999
included in the Company's 1999 Annual Report on Form 10-K.
NOTE 2 - ESTIMATED PATRONAGE DIVIDENDS
If financial and operating conditions permit, patronage dividends are declared
and paid by the Company after the close of each fiscal year. No annual patronage
dividend was declared for 1999. The 1998 annual patronage dividend was
distributed through a payment of 30% of the total distribution in cash, with the
balance being paid through the issuance of the Company's Class B nonvoting
common stock. There is no estimated patronage dividend for the period ended
April 1, 2000 and there was no patronage dividend estimated for the
corresponding period in 1999.
NOTE 3 - INVENTORIES
Inventories consisted of: April 1, December 31,
2000 1999
------------- -----------
(UNAUDITED)
(000's Omitted)
Manufacturing inventories:
Raw materials $ 3,967 $ 2,473
Work-in-process and finished goods 37,509 39,945
-------- --------
41,476 42,418
Merchandise inventories 525,104 439,997
-------- --------
$566,580 $482,415
======== ========
NOTE 4 - SEGMENT INFORMATION
The Company operates as a single reportable segment as the largest Member-owned
wholesaler cooperative of hardware, lumber/building materials and related
merchandise in the United States. Operations outside the United States were
immaterial for the period ended April 1, 2000. The Company's sales to its
Members are divided into three categories, as follows: (1) warehouse shipment
sales (approximately 35% of total sales); (2) direct shipment sales
(approximately 61% of total sales); and (3) relay sales (approximately 4% of
total sales). Warehouse shipment sales are sales of products purchased,
warehoused and resold by the Company upon orders from the Members. Direct
shipment sales are sales of products purchased by the Company but delivered
directly to Members from manufacturers. Relay sales are sales of products
purchased by the Company in response to the requests of several
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Members for a product which is (i) included in future promotions, (ii) not
normally held in inventory and (iii) not susceptible to direct shipment.
Generally, the Company will give notice to all Members of its intention to
purchase products for relay shipment and then purchase only so many of such
products as the Members order. When the product shipment arrives at the Company,
it is not warehoused; rather, the Company breaks up the shipment and "relays"
the appropriate quantities to the Members who placed orders.
The Company's product offering, comprised of more than 72,000 stockkeeping units
("SKUs"), may be divided into seven classes of merchandise which are set forth,
with their correspondent percentage of total revenue in the following table.
For the Thirteen Weeks Ended
------------------------------
April 1, 2000 April 3, 1999
------------- -------------
Lumber and Buildings Materials 32.8% 31.1%
Farm and Garden 20.0% 20.3%
Hardware Goods 15.3% 15.5%
Electrical and Plumbing 12.3% 12.7%
Painting and Cleaning 9.1% 9.2%
Appliance and Housewares 7.4% 7.8%
Sporting Goods and Toys 3.1% 3.4%
NOTE 5 - CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, Reporting the Costs of Start-Up Activities, which
requires that costs related to start-up activities be expensed as incurred.
Prior to 1999, the Company capitalized its costs incurred in connection with
opening new distribution centers. The Company adopted the provisions of the SOP
in its financial statements for the fiscal year ended December 31, 1999. The
effect of adoption of SOP 98-5 was to record a charge for the cumulative effect
of an accounting change of $6,484,000, to expense costs that had been previously
capitalized prior to 1999.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIRTEEN WEEKS ENDED APRIL 1, 2000 COMPARED TO THIRTEEN WEEKS ENDED APRIL 3,
1999
RESULTS OF OPERATIONS:
Revenues for the thirteen weeks ended April 1, 2000 totaled $1,027,605,000. This
represented a decrease of $43,287,000 or 4.0% compared to the comparable period
last year. The decrease was due primarily to mild weather in the first quarter
which reduced the sale of winter goods compared to the prior year.
Gross margins increased by $8,434,000 or 15.6%, and as a percentage of revenues,
increased to 6.1% from 5.1% for the comparable period last year. The increased
gross margins came about from reduced transportation costs due to the
finalization of the distribution network strategy that were partially offset by
higher fuel costs and a reduction in estimated capitalizable inventory-related
costs.
Warehouse, general and administrative expenses as a percentage of revenues
increased to 5.6% from 4.8% compared with the prior year. The general and
administrative expense were down 7.7% in the thirteen weeks ended April 1, 2000
compared to the same period last year due to headcount reductions. Warehouse
expenses increased 10.3% in the thirteen weeks ended April 1, 2000 compared to
the same period last year due to a reduction in estimated capitalizable
inventory-related costs.
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Total interest expense remained comparable to the prior year.
In the prior year, the cumulative effect on prior years of a change in
accounting principle of $6,484,000 reflects the start-up costs of converting the
systems used by SCC distribution centers prior to the merger to those systems
currently used by the Company. This reduction in net margins is in compliance
with SOP 98-5, Reporting the Costs of Start-up Activities. There were no merger
integration costs for the thirteen weeks ended April 1, 2000, compared to
$6,524,000 for the comparable period last year.
Even with the decrease in revenues, the Company improved its overall operating
performance over the same period last year by reducing the net loss before
merger integration costs and cumulative effect of a change in accounting
principle by $2,448,000. In addition to this improved operating performance, the
elimination of merger integration costs and the change in accounting principle
reduced the net loss for the thirteen weeks ended April 1, 2000 to $8,924,000
compared to a net loss of $24,380,000 for the thirteen weeks ended April 3,
1999.
LIQUIDITY AND CAPITAL RESOURCES:
Cash used in operations during the first quarter of 2000 was $86,442,000.
Inventories increased by $84,165,000 to support orders of seasonal merchandise.
Accounts and notes receivable increased by $93,968,000 due to seasonal payment
terms extended to the Company's Members. Accounts payable increased by
$89,030,000 as a result of seasonal terms obtained from vendors.
At April 1, 2000, net working capital decreased to $73,020,000 from $79,240,000
at December 31, 1999. The current ratio decreased to 1.07 at April 1, 2000
compared to 1.09 at December 31, 1999.
At July 1, 1997, the Company had established a $300,000,000 five-year revolving
credit facility with a group of banks. These agreements were amended during
April, 2000. The borrowings under these agreements were $238,000,000 and
$135,000,000 at April 1, 2000 and December 31, 1999, respectively.
Under the senior notes and revolving credit facility the Company is required to
meet certain financial ratios and covenants. The Company's lenders have waived
compliance with certain covenants as of December 31, 1999 through the first
quarter of 2000 and amended and restated the debt agreements including increased
interest rates, new financial ratios and covenants and the securitization of the
Company's assets, which were finalized by the Company during April of 2000.
The Company's capital is primarily derived from Class A common stock and
retained earnings, together with promissory (subordinated) notes and nonvoting
Class B common stock issued in connection with the Company's annual patronage
dividend. The Company believes the funds derived from these capital resources,
as well as operations and the credit facilities noted above, will be sufficient
to satisfy capital needs.
In view of the prior year financial results, the Company has initiated a
moratorium on the redemption of its stock. The Board of Directors will review
this matter from time to time in light of the then current financial
circumstances of the Company.
Total capital expenditures, including those made under capital leases, have
been reduced significantly compared to the comparable period in 1999. For the
thirteen weeks ended April 1, 2000 and April 3, 1999, capital expenditures were
$3,389,000 and $20,452,000, respectively. These capital expenditures relate to
additional equipment and technological improvements at the regional
distribution centers and at the corporate headquarters.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company's operations are subject to certain market risks, primarily
interest rate risk and credit risk. Interest rate risk pertains to the
Company's variable rate debt which totals approximately $150 million at April 1,
2000. A 50 basis point movement in the interest rates would result in an
approximate $750,000 annualized increase or decrease in
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interest expense and cash flows. Interest rate risk is managed through a
combination of variable and fixed-rate debt instruments with varying maturities.
Credit risk pertains mostly to the Company's trade receivables. The Company
extends credit to its members as part of its day-to-day operations. The Company
believes that as no specific receivable or group of receivables comprises a
significant percentage of total trade accounts, its risk in respect to trade
receivable is limited. Additionally, the Company believes that its allowance
for doubtful accounts is adequate in respect to member credit risks.
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting of Stockholders held on May 9, 2000, the
election results were as follows:
Shares Outstanding as of Record Date (March 31, 2000) were 501,840.
Total Votes received were 265,920 or approximately 53% of the total shares
outstanding.
Election of Directors:
Votes Withheld
Term Votes for Or Abstained
------------ --------------- -----------------
James D. Burnett 3 years 226,500 39,420
William H. Hood 3 years 227,160 38,760
George V. Sheffer 3 years 226,800 39,120
John B. Wake, Jr 3 years 227,100 38,820
All nominees have been duly elected.
Approval of Proxies Voting on Other Business:
For Against Abstained
------- ------- ---------
Approval of Proxies Voting on Other Business 219,060 26,700 19,800
Item 5. OTHER INFORMATION.
NONE
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
NONE
(b) Reports on Form 8-K
NONE
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRUSERV CORPORATION
Date: May 16, 2000 By /s/ LEONARD G. KUHR
----------------------
Leonard G. Kuhr
Senior Vice President and
Chief Financial Officer
(Mr. Kuhr is the principal financial officer and has been duly authorized to
sign on behalf of the Registrant.)
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> APR-01-2000
<CASH> 1,376
<SECURITIES> 0
<RECEIVABLES> 554,387
<ALLOWANCES> 0
<INVENTORY> 566,580
<CURRENT-ASSETS> 1,143,733
<PP&E> 500,129
<DEPRECIATION> 261,179
<TOTAL-ASSETS> 1,528,582
<CURRENT-LIABILITIES> 1,070,713
<BONDS> 309,147
219,695
0
<COMMON> 0
<OTHER-SE> (70,973)
<TOTAL-LIABILITY-AND-EQUITY> 1,528,582
<SALES> 1,027,605
<TOTAL-REVENUES> 1,027,605
<CGS> 964,939
<TOTAL-COSTS> 964,939
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,415
<INCOME-PRETAX> (8,869)
<INCOME-TAX> 55
<INCOME-CONTINUING> (8,924)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,924)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
