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EX - 20.2
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements are
based on the historical financial statements of Cotter & Company ("Cotter") and
ServiStar Coast to Coast Corporation ("SCC") adjusted to give effect to the
merger of SCC with and into Cotter (the "Merger"), pursuant to the Agreement
and Plan of Merger dated December 9, 1996. Cotter will be the surviving
corporation and will thereafter be known as TruServ Corporation ("TruServ").
The unaudited pro forma consolidated balance sheet as of December 28,
1996 has been prepared as if the Merger had occurred on December 28, 1996. The
unaudited pro forma consolidated statement of operations for the
year ended December 28, 1996 has been prepared as if the Merger had occurred on
December 31, 1995.
The Merger will be accounted for using the purchase method of
accounting. The pro forma adjustments reflect the preliminary allocation of
purchase price based on the estimated fair value of the assets and liabilities
of SCC and are based upon currently available information and certain
assumptions that management believes are reasonable. While management does not
expect the nature of the purchase accounting adjustments to change
significantly, it is likely that the amount of the actual purchase accounting
adjustments will differ from the adjustments set forth in the pro forma
financial statements because management has not completed appraisals of the SCC
assets and because the Merger is not expected to be consummated until July 1,
1997. The actual purchase price adjustments and other Merger related adjustments
will be determined based on the fair value of the assets and liabilities
acquired and may differ from the amounts reflected in the pro forma adjustments.
Under the proposed terms of the Merger, SCC members will exchange their SCC
common stock and SCC preferred stock for TruServ stock at a par value of $100.00
per share. SCC shareholders owning in excess of 40 shares of SCC common stock
(representing five stores), will have those excess shares purchased by Cotter,
at their $100 per share par value, in cash or by a credit against amounts owed
by those shareholders to SCC in respect of shares of SCC common stock and SCC
Series A stock.
The unaudited pro forma consolidated statements of operations do not
include the effects of certain cost savings that are expected to be realized as
a result of the actions TruServ management plans to take following the Merger.
When fully implemented, such cost savings are estimated to be approximately $50
million annually and include savings from reductions in employees and duplicate
facilities following the Merger as well as from increased vendor credits and
lower merchandise costs based on increased purchasing volumes.
The unaudited pro forma consolidated financial statements are intended for
informational purposes only and are not necessarily indicative of the financial
position or results of operations which would have been achieved had the Merger
occurred on the indicated dates, nor are they necessarily indicative of the
results of future operations. The unaudited pro forma consolidated financial
statements should be read in conjunction with the financial statements and notes
thereto of Cotter and SCC included or incorporated by reference in the Proxy
Statement/Prospectus of Cotter and SCC.
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COTTER & COMPANY
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 28, 1996
(000'S OMITTED)
AS REPORTED PRO FORMA PRO FORMA
COTTER SCC ADJUSTMENTS CONSOLIDATED
-------- -------- ----------- ------------
ASSETS
Current Assets:
Cash and cash equivalents.................. $ 1,662 $ 8,715 $ 10,377
Accounts and notes receivable.............. 307,205 158,636 $ (5,000) (1) 460,841
Inventories................................ 347,554 160,955 (6,000) (2) 502,509
Prepaid expenses........................... 13,517 7,355 20,872
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Total current assets.................... 669,938 335,661 (11,000) 994,599
Properties owned, less accumulated
depreciation............................... 167,331 80,384 247,715
Properties under capital leases, less
accumulated amortization................... 3,680 - 3,680
Unallocated purchase price................... - - 48,117 (3) 48,117
Other assets................................. 13,036 13,850 (1,000) (4) 25,886
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Total assets............................ $853,985 $429,895 $ 36,117 $1,319,997
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LIABILITIES AND CAPITALIZATION
Current liabilities:
Accounts payable and accrued expenses...... $338,440 $185,614 $ 29,500 (5) $ 553,554
Short-term borrowings...................... 70,594 - 17,000 (6) 87,594
Current maturities of notes, long-term debt
and lease obligations................... 43,458 5,679 49,137
Patronage dividends payable in cash........ 16,142 3,338 19,480
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Total current liabilities............... 468,634 194,631 46,500 709,765
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Long-term debt and obligations under capital
leases..................................... 80,145 113,514 193,659
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Capitalization:
Promissory (subordinated) and instalment
notes................................... 185,366 - 10,000 (7) 195,366
Class A common stock and partially paid
subscriptions and common stock of SCC... 4,876 12,432 25,100 (8) 42,408
Class B nonvoting common stock and paid-in
capital and preferred shares of SCC..... 114,053 115,935 (52,100) (9) 177,888
Retained earnings (deficit)................ 1,751 (6,617) 6,617 (10) 1,751
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306,046 121,750 (10,383) 417,413
Foreign currency translation adjustment...... (840) - (840)
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Total capitalization......................... 305,206 121,750 (10,383) 416,573
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Total liabilities and capitalization.... $853,985 $429,895 $ 36,117 $1,319,997
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See accompanying Notes to Unaudited Pro Forma Consolidated Balance Sheet.
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NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(1) Adjustment to reflect potential added risk of collectibility of receivables
resulting from Members withdrawing subsequent to the Merger.
(2) Represents the resulting adjustments from anticipated mark-downs in
commonizing the inventory mix and inventory that will be sold at reduced
prices due to the closure of certain SCC distribution centers. Other
commonization expenses are anticipated but are not reflected due to the
uncertainty as to amount.
(3) Represents a preliminary estimate of the excess of cost over the fair value
of the net assets of SCC. At each balance sheet date following the Merger,
TruServ will evaluate potential impairment of any goodwill created as a
result of the Merger using undiscounted future cash flows.
(4) Adjustment to other intangibles.
(5) Represents accrual of certain expenses and purchase accounting adjustments
as set forth below:
(000'S OMITTED)
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Employee benefits:
Principally to adjust for the effect of recording SCC's
postretirement benefit obligation...................... $ 7,200
Adjustment of SCC's vacation pay accrual to conform to
Cotter's vacation pay policy........................... 2,800
Closure of facilities -- severance payments, lease and asset
disposal costs associated with the closure of SCC's Butler
office facility, paint plant and certain distribution
centers -- see "Operations After the Merger".............. 9,300
Legal, accounting and other transaction costs............... 7,000
Other....................................................... 3,200
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$29,500
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(6) Adjustment to reflect short-term borrowings for redemption of Cotter Class
B common stock at par value.
(7) Adjustment to reflect promissory notes issued to SCC members in connection
with the redemption of SCC preferred stock. Such redemption relates to
certain SCC members with preferred stock investments in excess of the
proposed TruServ investment requirements.
(8) Represents the conversion of Cotter Class B common stock to Class A common
stock to meet additional required investment level. Under the proposed
terms of the Merger, additional Class A common stock investment is required
for Cotter Members to increase their investment to $6,000 per store for up
to five stores.
(9) Items (6), (7) and (8).
(10) Acquisition of SCC's capital stock through exchange of TruServ shares and
elimination of SCC's retained deficit.
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COTTER & COMPANY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 28, 1996
(000'S OMITTED)
AS REPORTED PRO FORMA PRO FORMA
COTTER SCC ADJUSTMENTS CONSOLIDATED
------ --- ----------- ------------
Revenues.................................. $2,441,707 $1,769,872 $ - $4,211,579
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Cost and expenses:
Cost of revenues........................ 2,245,071 1,645,080 3,890,151
Warehouse, general and administrative... 115,457 98,556 1,203(1) 215,216
Interest paid to Members................ 18,460 - 800(2) 19,260
Other interest expense.................. 10,175 9,765 935(3) 20,875
Other income, net....................... (228) (4,210) (4,438)
Income tax expense benefit.............. 362 (140) 222
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2,389,297 1,749,051 2,938 4,141,286
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Net margins............................... $ 52,410 $ 20,821 $(2,938) $ 70,293
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NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(1) Adjustment for amortization of the excess of cost over the fair value of the
net assets of SCC. Amortization has been calculated using the straight-line
method over an estimated useful life of 40 years.
(2) Adjustment for interest expense on promissory notes to be issued in
connection with the Merger. Such interest was calculated at an assumed
interest rate of 8%.
(3) Adjustment for interest expense on short-term borrowings to be issued in
connection with the Merger. Such interest was calculated at an assumed
interest rate of 5.5%.