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True Value Co – ‘10-K405’ for 12/31/97

As of: Tuesday, 3/31/98 · For: 12/31/97 · Accession #: 950124-98-1829 · File #: 333-18397

  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 3/31/98  True Value Co                     10-K405    12/31/97    5:127K                                   Bowne - Bde

Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K405     Form 10-K                                             41    225K 
 2: EX-21       Subsidiaries                                           1      7K 
 3: EX-27       Financial Data Schedule                                1      6K 
 4: EX-99.A     Notice of Annual Meeting                               2     12K 
 5: EX-99.B     Proxy Solicited by Board of Directors                  2     11K

10-K405 — Form 10-K
Document Table of Contents

Page	(sequential)	\|	(alphabetic)	Top
			Alternative Formats (Word, et al.) Business Certain Relationships and Related Transactions Changes in and Disagreements With Accountants on Accounting and Financial Disclosure Directors and Executive Officers of the Registrant Executive Compensation Exhibits, Financial Statement Schedules and Reports on Form 8-K Financial Statements and Supplementary Data Index to Consolidated Financial Statements Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Market for Registrant's Common Equity and Related Stockholder Matters Notes to Consolidated Financial Statements Payment of Patronage Dividends in Accordance with the Internal Revenue Code Properties Report of Independent Auditors Security Ownership of Certain Beneficial Owners and Management Selected Financial Data Submission of Matters to A Vote of Security Holders
1	1st Page - Filing Submission
2	Item 1. Business
5	Payment of Patronage Dividends in Accordance with the Internal Revenue Code
7	Item 2. Properties
8	Item 3. Legal Proceedings
"	Item 4. Submission of Matters to A Vote of Security Holders
"	Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
9	Item 6. Selected Financial Data
"	Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
13	Item 8. Financial Statements and Supplementary Data
"	Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
"	Item 10. Directors and Executive Officers of the Registrant
14	Item 11. Executive Compensation
18	Item 12. Security Ownership of Certain Beneficial Owners and Management
"	Item 13. Certain Relationships and Related Transactions
"	Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
22	Item 14(A). Index to Consolidated Financial Statements
23	Report of Independent Auditors
28	Notes to Consolidated Financial Statements

10-K405 1st Page of 41 TOC ↑Top Previous Next ↓Bottom Just 1st

================================================================================

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM 10-K

(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997 OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

FOR THE TRANSITION PERIOD FROM TO
------------------------
COMMISSION FILE NUMBER 2-20910

TRUSERV CORPORATION
(PRIOR TO JULY 1, 1997 KNOWN AS COTTER & COMPANY)

(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)

Registrant's telephone number, including area code: (773) 695-5000

Securities registered pursuant to Section 12(b) of the Act: NONE

Securities registered pursuant to Section 12(g) of the Act: NONE

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 __.

INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K (SEC.229.405 OF THIS CHAPTER) IS NOT CONTAINED HEREIN, AND
WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE
PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS
FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. [X]

STATE THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY NON-AFFILIATES
OF THE REGISTRANT.

THERE IS NO PUBLIC MARKET FOR REGISTRANT'S CLASS A COMMON STOCK. SUCH
SHARES ARE OFFERED BY THE REGISTRANT IN SIXTY-SHARE UNITS, EXCLUSIVELY TO
RETAILERS OF HARDWARE AND RELATED MERCHANDISE, IN CONNECTION WITH BECOMING
MEMBERS OF THE COMPANY. SAID STOCK IS LIMITED AS TO TRANSFERABILITY BY ITS
TERMS.

INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.

[Download Table]

OUTSTANDING AT
CLASS FEBRUARY 28, 1998
----- -----------------

CLASS A COMMON STOCK, $100 PAR VALUE................ 567,048
CLASS B NONVOTING COMMON STOCK, $100 PAR VALUE...... 1,841,758

================================================================================

10-K405 2nd Page of 41 TOC 1st Previous Next ↓Bottom Just 2nd

PART I

ITEM 1. BUSINESS.

TruServ Corporation ("TruServ" or the "Company") was organized as Cotter &
Company ("Cotter"), a Delaware corporation, in 1953. Upon its organization, it
succeeded to the business of Cotter & Company, an Illinois corporation organized
in 1948. On July 1, 1997 Cotter & Company merged with ServiStar Coast to Coast
Corporation ("SCC") (the "Merger"). SCC was a hardware wholesaler organized in
1935 with a strong presence in retail lumber and building materials. Following
the Merger, the Company was renamed TruServ Corporation. The Company's principal
executive offices are located at 8600 West Bryn Mawr Avenue, Chicago, Illinois,
60631-3505. Its telephone number is (773) 695-5000.

The Company is a Member-owned wholesaler of hardware, lumber/building
materials and related merchandise. It is the largest wholesaler of hardware,
lumber/building materials 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, depending on the terms of the Member's Retail Member Agreement
with TruServ (the "Retail Member Agreement"), entitles TruServ Members to use
certain TruServ trademarks and trade names, including the federally registered
Coast to Coast(R), ServiStar(R) and True Value(R) trademarks, service marks and
collective membership marks. The True Value(R) collective membership mark has a
present expiration date of January 2, 2003; the ServiStar(R) mark has a present
expiration date of September 13, 2003; the Coast to Coast(R) mark expires on
November 3, 2004; the InduServe Supply(R) mark has a present expiration date of
February 13, 2000; the Grand Rental Station(R) mark has a present expiration
date of June 4, 2005; the Taylor Rental(R) mark has a present expiration date of
January 15, 2004; the Home & Garden Showplace(R) mark has a present expiration
date of February 13, 2000 and the Commercial Sales(R) mark has a present
expiration date of December 16, 2007. Generally speaking, former Cotter Members
and former SCC Members will continue to conduct their businesses under the same
retail banners as before the Merger, except to the extent permitted by TruServ
on a case by case basis. As soon as permitted by anticipated operating
synergies, those Members and new Members joining TruServ after the Merger will
have access to all private labels, except with respect to paint, outdoor power
equipment, the private labels of which will be limited to use by their
respective retail organizations. Membership also entitles the Member to receive
annual patronage dividends based upon the Member's purchases from TruServ. In
accordance with TruServ'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.

The Company serves approximately 9,800 Coast to Coast(R), ServiStar(R) and
True Value(R) Hardware Stores throughout the United States. Primary
concentrations of Members exist in New York (approximately 8%), Pennsylvania
(approximately 7%), California (approximately 5%) and Illinois, Michigan, Ohio
and Texas (approximately 4% each).

The Company's total sales of merchandise to its U.S. Members were divided
among the following general classes of merchandise:

[Download Table]

FOR THE FISCAL YEARS
------------------------
1997 1996 1995
------ ------ ------

Lumber and Building Materials.................. 24.5% 12.8% 12.7%
Hardware Goods................................. 19.5% 22.4% 22.3%
Electrical and Plumbing........................ 15.8% 18.2% 17.7%
Farm and Garden................................ 13.1% 13.8% 13.3%
Painting and Cleaning.......................... 12.0% 14.0% 13.3%
Appliances and Housewares...................... 9.4% 11.2% 11.7%
Sporting Goods and Toys........................ 5.7% 7.6% 9.0%

10-K405 3rd Page of 41 TOC 1st Previous Next ↓Bottom Just 3rd

The Company serves its Members by functioning as a low cost distributor of
goods and maximizing its volume purchasing abilities, primarily through vendor
rebates and discount programs, for the benefit of its Members. These benefits
are passed along to its Members in the form of lower prices and/or patronage
dividends. The Company has numerous individual agreements or commitments from
its suppliers, virtually all of which are terminable by such suppliers or the
Company without cause. Such provisions, either individually or in the aggregate,
have not had any material adverse effect on the Company's ability to conduct its
business. The goods and services purchased by the Company from these suppliers
are generally available from a wide variety of sources. The Company is not
dependent upon any one supplier or group of suppliers and has not experienced a
problem in obtaining necessary goods. 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 44% of total
sales); (2) direct shipment sales (approximately 49% of total sales); and (3)
relay sales (approximately 7% 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 (i) included in future promotions, (ii)
not normally held in inventory and (iii) 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 1998, these markets will be held in Dallas, Texas and
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 both February 28, 1998 and February 22, 1997, the Company had a
backlog of firm orders (including relay orders) of approximately $16,000,000. It
is anticipated that the entire backlog existing at February 28, 1998 will be
filled by April 30, 1998. 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 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.
The trueAdvantage program was introduced in 1995 and upgraded in 1997 to promote
higher retail standards in order to build consumer goodwill and create a
positive image for all Member stores.

10-K405 4th Page of 41 TOC 1st Previous Next ↓Bottom Just 4th

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 several non-member-owned wholesalers
withdrawing from business.

The Company, through a Canadian subsidiary, owns a majority equity interest
in Cotter Canada Hardware and Variety Cooperative, Inc., a Canadian wholesaler
of hardware, variety and related merchandise. This cooperative serves
approximately 520 True Value(R) and V&S(R) Stores, all located in Canada. The
cooperative has approximately 350 employees and generated less than 5% of the
Company's consolidated revenue in fiscal year 1997.

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 5,800 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 22% 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

TruServ operates on a cooperative basis with respect to business done with
or for Members. All Members are entitled to receive patronage dividend
distributions from TruServ on the basis of gross margins of merchandise and/or
services purchased by each Member. In accordance with TruServ'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 90 days after the
close of TruServ'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 TruServ's fiscal year, and TruServ may elect to
distribute the annual patronage dividend at a later time than usual in
accordance with the provisions of the Code.

TruServ'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 common stock based on par
value thereof, to a maximum of 2% of the Member's net purchases of merchandise
from TruServ 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. Such promissory (subordinated) notes are for a five year term, bear
interest at a fixed rate based on a premium spread above comparable U.S.
Treasury notes as approved by the Board of Directors, and are subordinated to
all other debt of TruServ. TruServ may also issue nonqualified written notices
of allocation to its Members as part of its annual patronage dividend. See
"Payment of Patronage Dividends in Accordance with the Internal Revenue Code."

In determining the form of the annual patronage dividend, a Member's
required investment in Class B common stock of TruServ had historically been
limited by the Board of Directors to an amount, the cumulative value of which
will not exceed two percent (2%) of the Member's net purchases of merchandise
from the Company. Commencing in 1996, the Board established minimum Class B
ownership requirements (currently $25,000 for hardware stores and $15,000 for
lumber stores) which may be varied from time to time and is comprised of the
aggregate of a Member's various types of annual purchases multiplied by a
specific percentage, that varies from 1% to 14%, decreasing as total dollar
purchases by category increase. The amount of such required investment is
determined by majority vote of the Board of Directors, and may be increased or
decreased by such vote. The basis for determining the necessity of an increase
or decrease is through

10-K405 5th Page of 41 TOC 1st Previous Next ↓Bottom Just 5th

evaluation of the financial needs of TruServ, while considering the needs of its
membership. The consideration and method of payment for such shares is by way of
the required amount being calculated as part of the annual patronage dividend
distribution amount.

Until at least December 31, 1998, new Members who join TruServ will have
their patronage dividend computed and distributed in accordance with the method
used prior to the Merger by the constituent corporation thereof offering the
retail program (e.g., Coast to Coast(R), ServiStar(R) or True Value(R)) chosen
by such new Members.

PAYMENT OF PATRONAGE DIVIDENDS IN ACCORDANCE WITH THE INTERNAL REVENUE CODE

The Code specifically provides for the taxation of cooperatives (such as
TruServ) and their patrons (such as TruServ'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 nonvoting common stock and other written notices,
which disclose to the recipient the stated amount allocated to him by TruServ
and the portion thereof which is a patronage dividend, distributed by TruServ to
its Members are "written notices of allocation" within the meaning of that
phrase as used in the Code. For such written notices to be "qualified written
notices of allocation" within the meaning of the Code, it is necessary that
TruServ 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. Such written notices that do not meet these requirements are
"nonqualified written notices of allocation" within the meaning of the Code.
Cash, qualified written notices, and other property (except nonqualified written
notices of allocation) are currently deducted from earnings in determining the
taxable income of TruServ and, accordingly such qualified written notices of
allocation are includable in gross income of the patron (Member). Section
1385(a) of the Code provides, in substance, that the amount of any patronage
dividend which is paid in cash, qualified written notices of allocation or other
property (except nonqualified written notices of allocation) shall be included
in the gross income of the patron (Member) for the taxable year in which it
receives such cash or such qualified written notices of allocation. In general,
with respect to nonqualified written notices of allocation, no amounts are
deductible by TruServ or includable in gross income of the patron (Member) until
redeemed by TruServ.

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 nonvoting common stock, 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 and Class B nonvoting
common stock.

In response to the provisions of the Code, TruServ's By-Laws provide for
the treatment of the shares of Class B nonvoting common stock 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 nonvoting
common stock 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 TruServ) 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
TruServ 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

10-K405 6th Page of 41 TOC 1st Previous Next ↓Bottom Just 6th

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. Such consent may be
revoked by the Member only by terminating its membership in TruServ in the
manner provided in its Retail Member Agreement.

Each year since 1978, TruServ 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 TruServ or its
ability to maintain adequate working capital for the normal requirements of its
business. However, TruServ 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 nonvoting common stock to
each Member, TruServ deposits a bulk certificate 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.

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ITEM 2. PROPERTIES.

The Company's national headquarters is located in Chicago, Illinois.
Information with respect to the Company's owned and leased warehousing and
office facilities is set forth below:

[Enlarge/Download Table]

SQUARE FEET OF LEASE
WAREHOUSE AND EXPIRATION
LOCATION OFFICE AREA INTEREST DATE
-------- -------------- -------- ----------

Brookings, South Dakota....................... 518,000 Owned
Butler, Pennsylvania.......................... 72,000 Owned
Charleston, Illinois.......................... 246,000 Owned
Chicago, Illinois............................. 228,100 Leased December 31, 2010
Chicago, Illinois............................. 83,000 Leased October 31, 2000
Corsicana, Texas.............................. 450,000 Owned
Denver, Colorado.............................. 360,000 Leased June 30, 2004
East Butler, Pennsylvania..................... 476,200 Owned
Fogelsville (Allentown), Pennsylvania......... 600,000 Owned
Ft. Smith, Arkansas........................... 206,500 Leased November 30, 2002
Harvard, Illinois............................. 1,470,000 Owned
Henderson, North Carolina..................... 300,000 Owned
Indianapolis, Indiana......................... 420,000 Owned
Jonesboro (Atlanta), Georgia.................. 360,000 Owned
Kansas City, Missouri......................... 415,000 Owned
Kingman, Arizona.............................. 375,000 Owned
Manchester, New Hampshire..................... 525,000 Owned
Mankato, Minnesota............................ 320,000 Owned
Ocala, Florida................................ 375,000 Owned
Parkesburg, Pennsylvania...................... 567,200 Owned
Peachtree City, Georgia....................... 60,500 Leased November 24, 2005
Piedmont, South Carolina...................... 350,400 Owned
Portland, Oregon.............................. 405,000 Owned
Schiller Park, Illinois....................... 42,500 Leased April 30, 2001
Springfield, Oregon........................... 504,000 Owned
Westfield, Massachusetts...................... 448,700 Owned
Westlake (Cleveland), Ohio.................... 405,000 Owned
Winnipeg, Manitoba............................ 432,000 Owned
Woodland, California.......................... 350,000 Owned

No location owned by the Company is subject to a mortgage.

In December 1983, the Company completed construction of a 150,000 square
foot addition to its regional distribution center in Manchester, New Hampshire.
This addition was financed with the proceeds from the sale of $4,000,000 State
of New Hampshire Industrial Development Authority Revenue Bonds (TruServ
Corporation Project) Series 1982. 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.

In 1997, the Company announced the closing of four Distribution Centers.
These are located in Ocala, Florida; Charleston, Illinois; Peachtree City,
Georgia; and Ft. Smith, Arkansas. The Company also closed the Butler,
Pennsylvania office building. The Fort Smith and Peachtree City properties are
under lease. The Company is seeking a subtenant for the Fort Smith property. The
Peachtree City property is currently under a

10-K405 8th Page of 41 TOC 1st Previous Next ↓Bottom Just 8th

sublease. The Butler and Ocala properties are available for sale. The Charleston
property is under contract for sale. The 980,000 square foot Chicago, Illinois
facility was sold during 1997.

Information with respect to the Company's manufacturing facilities is set
forth below:

[Enlarge/Download Table]

SQUARE FEET OF
MANUFACTURING PRINCIPAL
LOCATION AREA PRODUCT INTEREST
-------- -------------- --------- --------

Chicago, Illinois............................. 105,000 Paint Owned
Cary, Illinois................................ 580,000 Paint and Owned
Paint Applicators

The Company's facilities are suitable for their respective uses and are, in
general, adequate for the Company's present needs.

The Company owns and leases transportation equipment for use at its
regional distribution centers for the primary purpose of delivering merchandise
from the Company's regional distribution centers to its Members. Additional
information concerning these leases can be found in note 5 to the consolidated
financial statements included elsewhere herein.

ITEM 3. LEGAL PROCEEDINGS.

There are no material pending legal proceedings, other than ordinary
routine litigation incidental to the business, to which the Company or any of
its subsidiaries is a party or of which any of their property is the subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

There is no existing market for the common stock of the Company and there
is no expectation that any market will develop. The Company's Class A common
stock is owned almost exclusively by retailers of hardware, lumber/building
materials and related products each of whom is a Member of the Company and
purchases sixty shares of the Company's Class A common stock (the only class of
voting stock) upon becoming a Member. The Company is organized as a Delaware
stock corporation and operates as a Member-owned wholesaler cooperative
corporation. The shares of the Company's Class B nonvoting common stock now
outstanding were issued to Members in partial payment of the annual patronage
dividend to which they became entitled as a result of patronage business done by
such Members with the Company. In accordance with the Company's By-Laws, 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.

The number of holders of record (as of February 28, 1998) of each class of
stock of the Company is as follows:

[Download Table]

NUMBER OF
HOLDERS OF
RECORD
TITLE OF CLASS ----------

Class A common stock, $100 Par Value........................ 8,998
Class B nonvoting common stock, $100 Par Value.............. 8,843

Dividends (other than patronage dividends) on the Class A common stock and
Class B nonvoting common stock, subject to the provisions of the Company's
Certificate of Incorporation, may be declared out of

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gross margins of the Company, other than gross margins from operations with or
for Members and other patronage source income, after deduction for expenses,
reserves and provisions authorized by the Board of Directors. Dividends may be
paid in cash, in property, or in shares of the common stock, subject to the
provisions of the Certificate of Incorporation. Other than the payment of
patronage dividends, including the redemption of all nonqualified written
notices of allocation, the Company has not paid dividends on its Class A common
stock or Class B nonvoting common stock. The Board of Directors does not plan to
pay dividends on either class of stock. See the discussion of patronage
dividends under Item 1--Business.

ITEM 6. SELECTED FINANCIAL DATA.

SELECTED FINANCIAL DATA

[Enlarge/Download Table]

FOR THE FISCAL YEARS
------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)

Revenues........................... $3,331,686 $2,441,707 $2,437,002 $2,574,445 $2,420,727
Gross margins...................... $ 241,020 $ 196,636 $ 202,068 $ 223,331 $ 217,921
Net margins(a)..................... $ 42,716 $ 52,410 $ 59,037 $ 60,318 $ 57,023
Patronage dividends................ $ 43,782 $ 53,320 $ 60,140 $ 60,421 $ 54,440
Total assets....................... $1,438,913 $ 853,985 $ 819,576 $ 868,785 $ 803,528
Long-term debt..................... $ 169,209 $ 80,145 $ 79,213 $ 75,756 $ 69,201
Promissory (subordinated) and
installment notes payable........ $ 172,579 $ 185,366 $ 186,335 $ 199,099 $ 217,996
Redeemable Class A common stock.... $ 47,423 $ 4,876 $ 5,294 $ 6,370 $ 6,633
Redeemable Class B nonvoting common
stock............................ $ 187,259 $ 114,053 $ 113,062 $ 116,663 $ 110,773
Book value per share of Class A
common stock and Class B
nonvoting common stock(b)........ $ 100.40 $ 101.89 $ 102.68 $ 103.57 $ 103.85

---------------
(a) The net margin for fiscal 1997 includes a deduction of $13,650,000 of
non-recurring merger integration costs.

(b) The book value per share of the Company's Class A common stock and Class B
nonvoting common stock is the value, determined in accordance with generally
accepted accounting principles, of such shares as shown in 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, other intangible assets and
any retained earnings specifically appropriated by the Company's Board of
Directors.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

BUSINESS COMBINATION

On July 1, 1997, TruServ Corporation, formerly Cotter & Company ("Cotter"),
merged with ServiStar Coast to Coast Corporation ("SCC") (the "Merger"). SCC was
a hardware wholesaler with a strong presence in retail lumber and building
materials. The transaction was accounted for using the purchase accounting
method. The Consolidated Balance Sheet at December 31, 1997 reflects the
post-Merger Company. The Consolidated Balance Sheet at December 28, 1996
reflects the pre-Merger Company. The Consolidated Statement of Operations and
Consolidated Statement of Cash Flows for the year ended December 31, 1997,
reflect the results of the post-Merger Company, which includes the results of
operations of the former SCC since July 1, 1997. The Consolidated Statement of
Operations and Consolidated Statement of Cash Flows for the years ended December
28, 1996 and December 30, 1995 reflect the results of the

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pre-Merger Company. To facilitate the comparison of fiscal year results for 1997
and 1996, 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.

[Enlarge/Download Table]

PRO FORMA
------------------------
1997 1996
---------- ----------

Revenues.................................................... $4,224,215 $4,211,579
Gross margin................................................ 284,356 321,428
Warehouse, general and administrative....................... 175,774 215,216
Interest expense............................................ 43,459 40,135
Net margins................................................. 67,357 70,293

FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996

RESULTS OF OPERATIONS

In fiscal year 1997, TruServ Corporation revenues were $3,331,686,000, an
increase of 36.4% from fiscal year 1996. The majority of the increase was due
directly to the addition of SCC revenues since the July 1, 1997 Merger. The
department with the largest increase is the lumber/building material department
which is directly connected to the enhanced lumber program effective with the
Merger. In the hardware segment the largest increase was reflected in the direct
shipment categories with TruServ Members responding to the improved pricing
programs. Additionally, TruServ Corporation continued to pursue business
opportunities such as trueAdvantage, which increased 3.3% and the Canadian
business which increased 6.6%.

Overall gross margins as a percentage of revenues decreased for the sixth
year in a row to 7.2% from 8.1% last year. The reduction in the gross margin
percent was due to a combination of changes in sales mix, pricing improvements
and conforming accounting policies. The change in sales mix consisted of large
volume increases in lumber/building materials and direct shipments, which have
lower gross margins. Pricing improvements resulted in lower direct shipment
markups and a lower pricing on manufactured products.

Warehouse, general and administrative expenses as a percentage of revenues
were 4.5%, the lowest in over 10 years. The decrease in operating expenses was
attributable to continued efforts to reduce operating costs.

Certain estimates of warehouse, general and administrative expenses are
recorded throughout the year including expenses related to capitalizable
inventory related costs and other expense items. During the fourth quarter of
fiscal 1997, the Company recorded approximately $4,000,000 of net reductions in
warehouse, general and administrative expenses relating to the refinement of
these estimates recorded in the prior three quarters and cost recoveries from
manufacturers of approximately $8,000,000 related to the Fall market.

Interest paid to Members decreased by $595,000 or 3.2% primarily due to a
lower average interest rate and the lower principal balance. Other interest
expense increased $8,925,000 due to higher borrowings compared to the same
period last year. The higher borrowings were required because of the increased
cash requirements and inventory levels resulting from the Merger. The effective
borrowing rate was lower due to the renegotiation of the rates since the date of
the Merger.

As a result, the net margin before Merger integration costs is $56,366,000
in fiscal year 1997 compared to $52,410,000 in fiscal year 1996. Merger
integration costs of $13,650,000 consist of one time non-recurring expenses
directly attributable to the Merger including distribution center closings,
severance pay, information systems costs and general and administrative costs.
These one time costs reduced the net margin to $42,716,000 for the year ended
December 31, 1997.

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PRO FORMA FISCAL 1997 COMPARED TO PRO FORMA FISCAL 1996

RESULTS OF OPERATIONS

On a pro forma basis, TruServ Corporation revenues were $4,224,215,000 for
fiscal year 1997 compared to $4,211,579,000 in fiscal year 1996, for an increase
of 0.3%. The department with the largest increase is the lumber/building
material department which is directly connected to the enhanced lumber program
effective with the Merger.

Gross margin on a pro forma basis decreased by $37,072,000 and as a
percentage of revenues decreased to 6.7% from 7.6% last year. The reduction in
the gross margin percent was due to a combination of changes in sales mix,
pricing improvements and conforming accounting policies. The change in sales mix
consisted of large volume increases in lumber/building materials and direct
ship, which have lower gross margins.

Warehouse, general and administrative expenses on a pro forma basis as a
percentage of revenues were 4.2% compared to 5.1% the prior year. The decrease
in operating expenses was attributable to continued efforts to reduce operating
costs.

Interest paid to Members on a pro forma basis decreased by $1,534,000 or
8.0% primarily due to a lower average interest rate and the lower principal
balance. Other interest expense increased $4,858,000 due to higher borrowings
compared to the same period last year. The higher borrowings were required
because of the increased cash requirements and inventory levels resulting from
the Merger. The effective borrowing rate was lower due to the renegotiation of
the rates since the date of the Merger.

As a result of the decreased gross margin and increased borrowing costs,
the net margin on a pro forma basis is $67,357,000 in fiscal year 1997 compared
to $70,293,000 in fiscal year 1996.

FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995

RESULTS OF OPERATIONS

In fiscal year 1996, the Company's revenues were $2,441,707,000 an increase
of 0.2% from fiscal year 1995. Current year revenues were influenced by the 1995
phase-out of the V&S Variety and General Power Equipment divisions. Comparable
store revenues increased 4.4% due to improved Member participation. Fiscal year
1996 revenue increases were concentrated in the core merchandise categories of
Electrical and Plumbing, up 4.0%, Painting and Cleaning, up 5.0%, Farm and
Garden, up 3.8% and Lumber and Building Materials, up 2.4%. Additionally, the
Company continued to pursue business opportunities such as International and
trueAdvantage, which both increased 14.2%. Also, the Company further expanded
the Pinpoint Pricing program to further reduce the selling price of many core
hardware related products.

Overall gross margins, as a percent of revenues, decreased for the fifth
year in a row to 8.1% from 8.3% in fiscal year 1995. The reduction in gross
margin was the result of a more competitive pricing strategy, which included the
expanded Pinpoint Pricing program that resulted in a $7,100,000 price reduction
to the Members. Other strategies, predominantly the trueAdvantage program,
returned an additional $2,000,000 to the Members.

Warehouse, general and administrative expenses increased slightly compared
to the prior year but as a percent of revenues remained comparable at 4.7% with
the prior year, due to management's continued effort to control operating
expenses and an expense recovery associated with prior years' favorable risk
loss experience.

Certain estimates of warehouse, general and administrative expenses are
recorded throughout the year including expenses related to incurred but not
reported healthcare claims, premiums for comprehensive insurance, capitalizable
inventory related costs and other expense items. During the fourth quarter of
fiscal 1996, the Company recorded approximately $11,000,000 of net reductions in
warehouse, general and administrative expenses relating to the refinement of
these estimates recorded in the prior three quarters, a refund of insurance
premiums of approximately $7,000,000 and cost recoveries from manufacturers of
approximately $5,000,000 related to the Fall market.

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Interest paid to Members decreased by $2,167,000 or 10.5% primarily due to
lower principal balance and lower average interest rates.

Other interest expense increased by $877,000 or 9.4% compared to last year
primarily due to higher short-term borrowings partially offset by a lower
average interest rate.

Net margins were $52,410,000 for the year ended December 28, 1996 compared
to $59,037,000 for the year ended December 30, 1995.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents increased from $1,662,000 at December 28, 1996 to
$2,224,000 at December 31, 1997. This increase was primarily due to cash flow
provided by operating and financing activities. Cash provided by operating
activities was $19,771,000 for the year ended December 31, 1997 compared to cash
flow used for operating activities of $9,609,000 for the year ended December 28,
1996. The increase came primarily from better control of accounts and notes
receivables resulting in a $47,288,000 reduction in receivables. Inventory
levels, accounts payable and accrued expenses all increased with the additional
support requirements needed to service a larger Membership base resulting from
the Merger.

Cash flows used for investing activities increased to $44,359,000 in fiscal
year 1997. Total capital expenditures, including those made under capital
leases, were $38,493,000 for the fiscal year ended December 31, 1997 compared to
$23,530,000 during the comparable period in 1996. These capital expenditures
related to additional equipment and technological improvements at the regional
distribution centers and at the World Headquarters, in addition to capital
requirements resulting from the Merger. Funding of any additional 1998 capital
expenditures is anticipated to come from operations and external sources, if
necessary.

The cash flows used for investing activities were funded by both operating
activities and financing activities. The financing activities provided cash flow
of $25,150,000 in fiscal year 1997.

At December 31, 1997, net working capital decreased to $175,975,000 from
$201,304,000 at December 28, 1996. The current ratio decreased to 1.20 at
December 31, 1997 compared to 1.43 at December 28, 1996.

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 $210,000,000 and $70,594,000 at December
31, 1997 and December 28, 1996, respectively.

The Company's capital is primarily derived from Class A common stock and
retained earnings, together with Class B nonvoting common stock issued in
connection 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.

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 $2,500,000. 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.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The Company's consolidated financial statements and report of independent
auditors are listed on Page F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The directors and senior and executive officers of the Company are:

[Enlarge/Download Table]

POSITION(S) HELD AND
NAME AGE BUSINESS EXPERIENCE
---- --- --------------------

Donald C. Belt...................... 51 Senior Vice President, Marketing since July, 1997. Prior
position was with SCC as Senior Vice President, Marketing
and Strategic Planning since 1985.
Joe W. Blagg........................ 48 Director since April, 1996. Term expires April, 1998.
Nominated by the Board of Directors for reelection to a
three-year term.
Daniel T. Burns..................... 47 Senior Vice President and General Counsel since July, 1997.
Vice President and General Counsel since November, 1990 and
Secretary since February, 1995.
William M. Claypool, III............ 75 Director since March, 1970. Term expires April, 2000.
Daniel A. Cotter.................... 62 Chairman since July, 1997; Chief Executive Officer since
January 1983 and Director since September, 1989. Term
expires April, 1998. Nominated by the Board of Directors
for reelection to a three-year term.
Bernard D. Day...................... 50 Senior Vice President, Lumber since July, 1997. Prior
position was Senior Vice President of Lumber/Building
Materials for SCC.
Jay B. Feinsod...................... 54 Director. Term expires April, 1998. Nominated by the Board
of Directors for reelection to a three-year term. Formerly
Director of SCC since October, 1986.
David W. Guthrie.................... 45 Director since July, 1997. Term expires April, 2000.
Formerly Director of SCC since March, 1989.
William M. Halterman................ 50 Director since June, 1990. Term expires April, 1999.
William M. Hood..................... 58 Director since July, 1997. Term expires April, 2000.
Formerly Director of SCC since July, 1996.
James D. Howenstein................. 54 Director since July, 1997. Term expires April, 1999.
Formerly Director of SCC since October, 1995.
Donald J. Hoye...................... 49 Executive Vice President, Business Development since July,
1997. Prior position was with SCC as Executive Vice
President.
Jerrald T. Kabelin.................. 60 Director since April, 1985. Term expires April, 1999.
Peter G. Kelly...................... 54 Vice Chairman and Director since July, 1997. Term expires
April, 1999. Formerly chairman of SCC since January, 1981.

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[Enlarge/Download Table]

POSITION(S) HELD AND
NAME AGE BUSINESS EXPERIENCE
---- --- --------------------

Kerry J. Kirby...................... 52 Executive Vice President, Finance and Chief Financial
Officer since July, 1997.
Robert J. Ladner.................... 52 Vice Chairman and Director since April, 1994. Term expires
April, 1999. Formerly chairman of the Company.
Paul M. Lemerise.................... 52 Executive Vice President, Systems and Distribution/ Chief
Information Officer since April, 1997. Prior position was
as Senior Vice President and CIO for a wholesale
distributor of microcomputer hardware and software.
Eugene J. O'Donnell................. 51 Executive Vice President, Merchandising since July 1997.
Prior position was with SCC as Executive Vice President.
Robert Ostrov....................... 49 Senior Vice President, Human Resources since February,
1997. Prior position was Vice President of Human Re-
sources and Benefits Organization for a retail company.
Paul E. Pentz....................... 57 President and Chief Operating Officer and Director since
July, 1997. Prior position was President and Chief
Executive Officer of SCC.
John P. Semkus...................... 52 Senior Vice President, Distribution and Transportation
since July, 1997. Prior position was Vice President Distri-
bution and Transportation since June, 1988.
George V. Sheffer................... 45 Director since July, 1994. Term expires April, 2000.
Dennis A. Swanson................... 58 Director since April, 1995. Term expires April, 1998.
Nominated by the Board of Directors for reelection to a
three-year term.
Russ Thomas......................... 58 Senior Vice President, Human Resources since July, 1997.
Prior position was Vice President, Human Resources with
SCC.
John B. Wake, Jr. .................. 42 Director since July, 1997. Term expires April, 2000.
Formerly Director of SCC since May, 1996.
John M. West, Jr.................... 45 Director since October, 1991. Term expires April, 1998.
Nominated by the Board of Directors for reelection to a
three-year term.
Barbara B. Wilkerson................ 49 Director since July, 1997. Term expires April, 1998.
Nominated by the Board of Directors for reelection to a
three-year term. Formerly Director of SCC since October,
1986.

---------------
During the past five years, the principal occupation of each director of the
Company, other than Daniel A. Cotter and Paul E. Pentz, was the operation of
retail hardware stores or lumber/building materials stores.

ITEM 11. EXECUTIVE COMPENSATION.

COMPENSATION COMMITTEE

The Management Development and Compensation Committee of the Board of
Directors (the "Committee") consists of four non-employee directors: James D.
Howenstein, Jerrald T. Kabelin, Peter G. Kelly and Robert J. Ladner. In
addition, Daniel A. Cotter, Chairman of the Board of Directors, and Chief
Executive Officer, served as an ex-officio member of the Committee. The
Committee assists the Board of Directors in fulfilling its responsibilities for
setting and administering the policies which govern annual compensation and

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monitoring the Company's pension and certain other benefit plans. The Committee
calls upon outside consultants for assistance, as necessary.

The Committee meets at least annually. Primary responsibilities of the
Committee include:

- Establishing the Chairman and President's salary and annual and long-term
incentive opportunities.

- Approving other executive officer salaries recommended by the President.

- Setting performance goals for the annual and long-term incentive plans.

- Assessing performance achievement relative to goals and approving
incentive payments.

The Committee makes recommendations to the Board of Directors regarding
compensation of the Company's executive officers. The philosophy of the
Committee is to maintain an executive compensation program to help the Company
attract, retain and motivate the executive resources needed to maintain industry
leadership, provide high levels of service to Members, and achieve the financial
objectives as determined by the Board of Directors.

To achieve its stated goals, the Company has developed three executive
compensation policies.

- The Company provides levels of salaried compensation that are
competitive.

- The Company provides annual incentive compensation for executives that
vary in a consistent and predictable manner with the performance of the
Company.

- The Company provides an incentive program which enables selected
executives to achieve incentive awards based on the long-term (multiple
year) performance of the Company.

The combination of these three compensation policies is intended to provide
competitive earnings opportunities when performance reaches desired levels. Both
the annual and long-term incentive plans are cancelable by the Board of
Directors at any time.

The Company provides salary levels that are competitive with the median
(50th percentile) of the executive marketplace. The industry comparison groups
used to evaluate competitiveness include: member owned organizations, wholesale
distribution firms, mass merchandising firms and general industry and
manufacturing organizations. Competitiveness is measured using data from a
number of sources, including published information, proxies and surveys by
consulting firms.

The annual incentive plan is designed to ensure that executive compensation
varies in relation to achievement of annual performance goals. Each executive's
incentive award was determined by Company results and individual goals.

The long-term incentive plan assures a continuing focus on the Company's
future. Goals are set for performance achievement over three-year intervals. A
new performance period starts each year and goals for each three-year cycle
currently underway are related to achievement of financial goals.

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EXECUTIVE COMPENSATION

The following table sets forth the total annual compensation paid to the
Company's five most highly compensated executive officers during fiscal year
1997 and the total compensation paid to each such individual for the Company's
two previous fiscal years:

SUMMARY COMPENSATION TABLE

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NAME AND OTHER LONG-TERM
PRINCIPAL POSITION YEAR SALARY(1) BONUS(2) COMPENSATION(3) INCENTIVE(4)
------------------ ---- --------- -------- --------------- ------------

Daniel A. Cotter........................ 1997 $612,500 $345,000 $ 13,100 $843,750
Chairman of the Board and 1996 575,000 310,500 6,656 --
Chief Executive Officer 1995 500,000 250,000 6,305 --
Paul E. Pentz........................... 1997 262,500 240,000 539,700 52,500
President and Chief Operating Officer 1996 -- -- -- --
1995 -- -- -- --
Donald J. Hoye.......................... 1997 180,000 144,300 89,000 29,880
Executive Vice President, 1996 -- -- -- --
Business Development 1995 -- -- -- --
Kerry J. Kirby.......................... 1997 295,000 215,600 12,700 174,900
Executive Vice President, Finance and 1996 262,500 85,100 5,719 --
Chief Financial Officer 1995 250,000 75,000 6,750 --
Daniel T. Burns......................... 1997 252,800 188,000 11,100 139,040
Senior Vice President, Secretary 1996 236,250 87,500 6,750 --
and General Counsel 1995 225,000 67,500 6,750 --

---------------
(1) Salary for Paul E. Pentz and Donald J. Hoye is for the period from July 1,
1997 to December 31, 1997.

(2) Annual bonus amounts are earned and accrued during the fiscal years
indicated, and paid subsequent to the end of each fiscal year. In 1997
special one-time bonuses were granted for the successful completion of the
merger.

(3) Other compensation consists primarily of Company contributions to the
TruServ Corporation Employee's Savings and Compensation Deferral Plan (the
"Savings Plan") and automobile allowances. Under the Savings Plan, each
participant may elect to make a contribution in an amount of up to fifteen
percent (15%) of his annual compensation, not to exceed $30,000 (including
Company contributions) a year, of which $9,500 of the executive officer's
salary in fiscal year 1997 may be deferred. The Company's contribution to
the Savings Plan is equal to seventy-five percent (75%) of the participant's
contribution, but not to exceed four and one-half percent (4 1/2%) of the
participant's annual compensation.

Other compensation for Mr. Pentz consists primarily of life insurance
premiums payable under his executive retirement plan and relocation payments
of $427,697 and $76,569 respectively. Mr. Hoye's other compensation consists
of $61,491 for relocation payments.

(4) Long-term incentives for each open three year cycle were computed as of the
effective date of the merger and paid on a pro-rata basis during the fiscal
year.

Daniel A. Cotter is employed under a long-term contract which commenced
January 1, 1985 for a period of 15 years terminating December 31, 1999.

The Company has a severance policy providing termination benefits based
upon annual compensation and years of service. Officers of the Company are also
offered agreements providing for severance in the event of termination with the
imposition of certain restrictions regarding competition and confidentiality.

No loans were made by the Company to its executive officers or to its
directors during the last three fiscal years.

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LONG-TERM PERFORMANCE CASH AWARDS

The Board of Directors adopted a long-term incentive plan for the officers
of the Company. Officers are eligible for cash payouts based on a percentage of
their annual salary if performance goals established for the plan are met.
Performance goals for the current plans relate to the achievement of financial
goals of sales growth, net earnings and cash flow.

A new plan starts each year with goals set for the next three year period.
Target payouts which could be earned by the individuals listed in the Summary
Compensation Table in fiscal year 1999 and paid in fiscal year 2000 are as
follows: David B. Cotter and Paul E. Pentz at 60%; Donald J. Hoye and Kerry J.
Kirby at 50%; and Daniel T. Burns at 40%.

DEFINED BENEFIT RETIREMENT PLANS

The Company has a defined benefit pension plan, the TruServ Corporation
Defined Lump Sum Pension Plan (the "Plan"), which is qualified under the Code.
The Plan was amended and restated effective January 1, 1996. The amount of the
Company's annual contribution to the Plan is determined for the total of all
participants covered by the Plan, and the amount of payment with respect to a
specified person is not and cannot readily be separated or individually
calculated by the actuaries for the Plan. The Plan provides fully vested lump
sum benefits to eligible employees who have served a minimum of five years of
service. Annuities are also available and are the actuarial equivalent of the
lump sum payment. Each of the executive officers listed in the foregoing Summary
Compensation Table is a participant in the Plan.

For each year of service, a participant receives a percentage of his or her
"average compensation" in the form of a lump sum. The percentages range from two
percent of average compensation for years of service performed prior to age 26,
to twelve percent of average compensation for years of service performed at or
after age 61. Participants with average compensation in excess of two-thirds of
the Social Security Taxable Wage Base in the year of termination of employment
or retirement receive an additional benefit on this excess compensation equal to
half of the percentage applied to their full average compensation. Participants
who were age 50 with at least fifteen years of service as of January 1, 1996
receive an additional 25% of their average compensation. The benefits under the
Plan cannot be less than benefits already earned by the participant under the
Plan as it existed prior to its amendment.

"Average compensation" means the average of the compensation received by an
eligible employee during the three highest consecutive calendar years within the
ten consecutive calendar years immediately preceding the date of termination of
employment. Compensation considered in determining benefits includes salary,
overtime pay, commissions, bonuses, deferral contributions under the Savings
Plan, and pre-tax medical premiums.

The Company amended and restated effective January 1, 1996, a Supplemental
Retirement Plan (the "Supplemental Plan") for certain employees as designated by
the Company's President and Chief Executive Officer. For each year of service,
participants receive a percentage of their "average compensation" in the form of
a lump sum. The percentages are 22 percent of average compensation for years of
service performed prior to age 55, to 28 percent of average compensation for
years of service performed at or after age 55. Service is limited to 20 years,
and the maximum aggregate percentage is 500%. This amount is reduced by any
benefits payable under the Plan and eight times the participant's primary Social
Security benefit. "Average Compensation" for the Supplemental Plan is defined
the same as for the Plan, as discussed above. The benefits under the
Supplemental Plan cannot be less than benefits already earned by the participant
under the Supplemental Plan as it existed prior to its amendment.

The Supplemental Plan is not a qualified plan under the Code. Benefits
payable under the Supplemental Plan will be financed through internal
operations. The estimated annual retirement benefits which may be payable
pursuant to the Plan to the officers named in the Summary Compensation Table is
currently limited under Section 401(a)(17) of the Code, which outlines the
maximum earnings amounts which may be considered under the Plan in determining
retirement benefits. This limit is $160,000 for 1998. Section 415 of the Code
outlines the maximum annual benefit which may be payable from the Plan during
the year; the

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dollar limit is $130,000 for 1998 for a participant retiring at age 65, with
reduced amounts at younger ages. The actuarial equivalent of the annual amount
may be payable as a lump sum.

The following table reflects the combined estimated annual retirement
benefits which may be payable pursuant to the Plan and the Supplemental Plan to
the officers named in the Summary Compensation Table at retirement under various
assumed conditions, assuming retirement at age 65.

[Enlarge/Download Table]

YEARS OF SERVICE
AVERAGE --------------------------------------------------------
COMPENSATION 10 15 20 25 30
------------------------------------------ -------- -------- -------- -------- --------

$1,000,000................................ $298,974 $455,282 $611,590 $611,590 $611,590
900,000................................ 267,713 408,389 549,066 549,066 549,066
800,000................................ 236,451 361,497 486,543 486,543 486,543
700,000................................ 205,189 314,605 424,020 424,020 424,020
600,000................................ 173,928 267,713 361,497 361,497 361,497
500,000................................ 142,666 220,820 298,974 298,974 298,974
400,000................................ 111,405 173,928 236,451 236,451 236,451
300,000................................ 80,143 127,036 173,928 173,928 173,928
200,000................................ 48,882 80,143 111,405 111,405 111,405
100,000................................ 17,620 33,251 48,882 48,882 48,882

The present credited years of service for the officers listed in the above
table are as follows: Daniel A. Cotter, 31 years; Paul E. Pentz, 19 years;
Donald J. Hoye, 27 years; Kerry J. Kirby, 22 years, and Daniel T. Burns, 17
years.

There is no existing market for the Company's common stock and there is no
expectation that any market will develop. There are no broad market or peer
group indexes the Company believes would render meaningful comparisons.
Accordingly, a performance graph of the Company's cumulative total shareholder
return for the previous five years, with a performance indicator of the overall
stock market for the Company's peer group, has not been prepared.

In fiscal year 1997 directors of the Company were each paid $2,000 per
month and advisory board members received $1,000 per month. The two Vice
Chairmen of the Board are each paid to a maximum of $54,000 per year, when
serving in the capacity as Vice Chairmen.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

As of February 28, 1998, each of the directors of the Company was the
beneficial owner of 60 shares of Class A common stock of the Company comprising
.3% of such shares issued and outstanding. No executive officer owns any shares
of Class A common stock.

The directors own in the aggregate approximately 1.7% of Class B nonvoting
common stock as of February 28, 1998. No executive officer owns any shares of
Class B nonvoting common stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

[None]

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

(A) 1. FINANCIAL STATEMENTS

The consolidated financial statements listed in the accompanying
index (page F-1) to the consolidated financial statements are filed
as part of this annual report.

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2. FINANCIAL STATEMENT SCHEDULES

No schedules have been filed because the required information is not
applicable or is not material or because the required information is
included in the consolidated financial statements or the notes
thereto.

3. EXHIBITS

The exhibits listed on the accompanying index to exhibits (pages E-1
and E-2) are filed as part of this annual report.

(B) REPORTS ON FORM 8-K

None.

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SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS ANNUAL REPORT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

TRUSERV CORPORATION

By: /s/ KERRY J. KIRBY

--------------------------------------
Kerry J. Kirby,
Executive Vice President and
Chief Financial Officer
DATED: March 30, 1998

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
ANNUAL REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.

[Enlarge/Download Table]

SIGNATURE TITLE DATE
--------- ----- ----

/s/ DANIEL A. COTTER Chairman of the Board, March 30, 1998
----------------------------------------------------- Chief Executive Officer
Daniel A. Cotter

/s/ PAUL E. PENTZ President and Chief Operating March 30, 1998
----------------------------------------------------- Officer, Director
Paul E. Pentz

/s/ KERRY J. KIRBY Executive Vice President, March 30, 1998
----------------------------------------------------- Finance and Chief Financial
Kerry J. Kirby Officer

/s/ PETER G. KELLY Vice Chairman of the Board and March 30, 1998
----------------------------------------------------- Director
Peter G. Kelly

/s/ ROBERT J. LADNER Vice Chairman of the Board, March 30, 1998
----------------------------------------------------- Director
Robert J. Ladner

/s/ JOE W. BLAGG Director March 30, 1998
-----------------------------------------------------
Joe W. Blagg

/s/ WILLIAM M. CLAYPOOL, III Director March 30, 1998
-----------------------------------------------------
William M. Claypool, III

/s/ JAY B. FEINSOD Director March 30, 1998
-----------------------------------------------------
Jay B. Feinsod

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[Enlarge/Download Table]

SIGNATURE TITLE DATE
--------- ----- ----

/s/ DAVID W. GUTHRIE Director March 30, 1998
-----------------------------------------------------
David W. Guthrie

/s/ WILLIAM M. HALTERMAN Director March 30, 1998
-----------------------------------------------------
William M. Halterman

/s/ WILLIAM H. HOOD Director March 30, 1998
-----------------------------------------------------
William H. Hood

/s/ JAMES D. HOWENSTEIN Director March 30, 1998
-----------------------------------------------------
James D. Howenstein

/s/ JERRALD T. KABELIN Director March 30, 1998
-----------------------------------------------------
Jerrald T. Kabelin

/s/ GEORGE V. SHEFFER Director March 30, 1998
-----------------------------------------------------
George V. Sheffer

/s/ DENNIS A. SWANSON Director March 30, 1998
-----------------------------------------------------
Dennis A. Swanson

/s/ JOHN B. WAKE, JR. Director March 30, 1998
-----------------------------------------------------
John B. Wake, Jr.

/s/ JOHN M. WEST, JR. Director March 30, 1998
-----------------------------------------------------
John M. West, Jr.

/s/ BARBARA B. WILKERSON Director March 30, 1998
-----------------------------------------------------
Barbara B. Wilkerson

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ITEM 14(A). INDEX TO CONSOLIDATED FINANCIAL STATEMENTS.

[Download Table]

PAGE(S)
-------

Report of Independent Auditors.............................. F-2
Consolidated Balance Sheet at December 31, 1997 and December
28, 1996.................................................. F-3
Consolidated Statement of Operations for each of the three
years in the period ended December 31, 1997............... F-4
Consolidated Statement of Cash Flows for each of the three
years in the period ended December 31, 1997............... F-5
Consolidated Statement of Capital Stock and Retained
Earnings for each of the three years in the period ended
December 31, 1997......................................... F-6
Notes to Consolidated Financial Statements.................. F-7 to F-17

F-1

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REPORT OF INDEPENDENT AUDITORS

To the Members and the Board of Directors
TruServ Corporation

We have audited the accompanying consolidated balance sheets of TruServ
Corporation (formerly Cotter & Company) as of December 31, 1997 and December 28,
1996, 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, 1997. 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 TruServ
Corporation at December 31, 1997 and December 28, 1996 and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Chicago, Illinois
February 23, 1998

F-2

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TRUSERV CORPORATION

CONSOLIDATED BALANCE SHEET

[Enlarge/Download Table]

DECEMBER 31, DECEMBER 28,
1997 1996
------------ ------------
(000'S OMITTED)

ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,224 $ 1,662
Accounts and notes receivable............................. 476,527 307,205
Inventories............................................... 543,946 347,554
Prepaid expenses.......................................... 16,092 13,517
---------- --------
Total current assets................................... 1,038,789 669,938
Properties, less accumulated depreciation................... 241,236 171,011
Estimated goodwill, net..................................... 107,711 --
Other assets................................................ 51,177 13,036
---------- --------
Total assets........................................... $1,438,913 $853,985
========== ========
LIABILITIES AND CAPITALIZATION
Current liabilities:
Accounts payable.......................................... $ 455,906 $287,291
Accrued expenses.......................................... 116,659 51,149
Short-term borrowings..................................... 215,467 70,594
Current maturities of notes and long-term debt............ 62,640 43,458
Patronage dividend payable in cash........................ 12,142 16,142
---------- --------
Total current liabilities.............................. 862,814 468,634
Long-term debt.............................................. 169,209 80,145
Capitalization:
Promissory (subordinated) and installment notes........... 172,579 185,366
Class A common stock, net of subscriptions receivable;
authorized 750,000 shares; issued and fully paid
387,240 and 48,480 shares; issued 144,865 shares (net
of receivable of $6,269,000) in 1997; subscribed 5,010
and 290 shares (net of stock subscription receivable of
$20,000 and $1,000).................................... 47,423 4,876
Class B nonvoting common stock and paid-in capital;
authorized 4,000,000 shares; issued and fully paid
1,681,934 and 1,043,521 shares; issuable as partial
payment of patronage dividends 177,655 and 84,194
shares................................................. 187,259 114,053
Retained earnings........................................... 685 1,751
---------- --------
407,946 306,046
Foreign currency translation adjustment..................... (1,056) (840)
---------- --------
Total capitalization................................... 406,890 305,206
---------- --------
Total liabilities and capitalization................... $1,438,913 $853,985
========== ========

See Notes to Consolidated Financial Statements.

F-3

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TRUSERV CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

[Enlarge/Download Table]

FOR THE YEARS ENDED
------------------------------------------
DECEMBER 31, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------ ------------ ------------
(000'S OMITTED)

Revenues......................................... $3,331,686 $2,441,707 $2,437,002
Cost and expenses:
Cost of revenues............................... 3,090,666 2,245,071 2,234,934
Warehouse, general and administrative.......... 148,767 115,457 114,107
Interest paid to Members....................... 17,865 18,460 20,627
Other interest expense......................... 19,100 10,175 9,298
Gain on sale of properties..................... (990) -- --
Other income, net.............................. (1,688) (228) (1,177)
Income tax expense............................. 1,600 362 176
---------- ---------- ----------
3,275,320 2,389,297 2,377,965
---------- ---------- ----------
Net margins before merger integration costs...... 56,366 52,410 59,037
Merger integration costs......................... 13,650 -- --
---------- ---------- ----------
Net margins...................................... $ 42,716 $ 52,410 $ 59,037
========== ========== ==========

See Notes to Consolidated Financial Statements.

F-4

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TRUSERV CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

[Enlarge/Download Table]

FOR THE YEARS ENDED
------------------------------------------
DECEMBER 31, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------ ------------ ------------
(000'S OMITTED)

Operating activities:
Net margins............................................. $ 42,716 $ 52,410 $ 59,037
Adjustments to reconcile net margins to cash and cash
equivalents from operating activities:
Depreciation and amortization........................ 25,451 20,561 20,706
Provision for losses on accounts and notes
receivable......................................... 2,361 3,201 3,741
Changes in operating assets and liabilities -- net of
acquisition in 1997:
Accounts and notes receivable...................... 47,288 (38,581) (13,921)
Inventories........................................ (33,953) (32,243) 69,436
Accounts payable................................... (28,464) (10,593) (36,584)
Accrued expenses................................... (35,463) (2,563) 7,552
Other adjustments, net............................... (165) (1,801) (3,327)
-------- -------- --------
Net cash and cash equivalents provided by (used
for) operating activities....................... 19,771 (9,609) 106,640
-------- -------- --------
Investing activities:
Additions to properties owned........................... (38,493) (23,530) (24,904)
Proceeds from sale of properties owned.................. 2,628 3,151 5,022
Changes in other assets................................. (8,494) (1,388) 617
-------- -------- --------
Net cash and cash equivalents used for investing
activities...................................... (44,359) (21,767) (19,265)
-------- -------- --------
Financing activities:
Payment of patronage dividend........................... (20,619) (18,315) (18,383)
Payment of notes, long-term debt and lease
obligations.......................................... (179,363) (40,271) (43,106)
Proceeds from long-term borrowings...................... 102,897 1,693 3,000
Increase (decrease) in short-term borrowings............ 142,755 67,937 (6,672)
Purchase of common stock................................ (24,585) (660) (1,740)
Proceeds from sale of Class A common stock.............. 4,065 181 168
-------- -------- --------
Net cash and cash equivalents provided by (used
for) financing activities....................... 25,150 10,565 (66,733)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents...... 562 (20,811) 20,642
-------- -------- --------
Cash and cash equivalents at beginning of year............ 1,662 22,473 1,831
-------- -------- --------
Cash and cash equivalents at end of year.................. $ 2,224 $ 1,662 $ 22,473
======== ======== ========

See Notes to Consolidated Financial Statements.

F-5

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TRUSERV CORPORATION

CONSOLIDATED STATEMENT OF CAPITAL STOCK AND RETAINED EARNINGS

[Enlarge/Download Table]

FOR THE THREE YEARS ENDED DECEMBER 31, 1997
----------------------------------------------
COMMON STOCK
-------------------- FOREIGN
$100 PAR VALUE CURRENCY
-------------------- RETAINED TRANSLATION
CLASS A CLASS B EARNINGS ADJUSTMENT
------- ------- -------- -----------
(000'S OMITTED)

Balances at December 31, 1994........................ $ 6,370 $116,663 $ 3,764 $ (915)
Net margins........................................ 59,037
Foreign currency translation adjustment............ 73
Patronage dividend................................. 6,422 (60,140)
Stock subscriptions................................ 156
Stock purchased and retired........................ (1,232) (10,023)
------- -------- -------- -------
Balances at December 30, 1995........................ 5,294 113,062 2,661 (842)
Net margins........................................ 52,410
Foreign currency translation adjustment............ 2
Patronage dividend................................. 8,645 (53,320)
Stock subscriptions................................ 189
Stock purchased and retired........................ (607) (7,654)
------- -------- -------- -------
Balances at December 28, 1996........................ 4,876 114,053 1,751 (840)
Net margins........................................ 42,716
Foreign currency translation adjustment............ (216)
Patronage dividend................................. 26,304 (43,782)
Stock issued for increase in Class A
requirements.................................... 23,100 (23,100)
Stock issued for paid-up subscriptions............. 8,386
Stock issued due to acquisition, net of
subscription receivable......................... 13,608 117,067
Stock purchased and retired........................ (2,547) (47,065)
------- -------- -------- -------
Balances at December 31, 1997........................ $47,423 $187,259 $ 685 $(1,056)
======= ======== ======== =======

Class A common stock amounts are net of unpaid amounts of $6,289,000
relating to 144,865 issued shares and 5,010 subscribed shares at December 31,
1997 and unpaid amounts of $1,000 at December 28, 1996, December 30, 1995 and
December 31, 1994 for 290, 240, and 360 subscribed shares, respectively.

See Notes to Consolidated Financial Statements.

F-6

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TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES

TruServ Corporation ("TruServ" or the "Company") is a Member-owned
wholesaler of hardware, lumber/building materials 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, lumber/building materials and related lines, each of whom has
purchased 60 shares per store (up to a maximum of 5 stores) 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. 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, 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.

On July 1, 1997, TruServ Corporation, formerly Cotter & Company ("Cotter"),
merged with ServiStar Coast to Coast Corporation ("SCC") (the "Merger"). SCC was
a hardware wholesaler organized in 1935 with a strong presence in retail lumber
and building materials. The transaction was accounted for using the purchase
accounting method. The Consolidated Balance Sheet at December 31, 1997 reflects
the post-Merger Company. The Consolidated Balance Sheet at December 28, 1996
reflects the pre-Merger Company. The Consolidated Statement of Operations and
Consolidated Statement of Cash Flows for the year ended December 31, 1997,
reflect the results of the post-Merger Company, which include the results of
operations of the former SCC since July 1, 1997. The Consolidated Statement of
Operations and Consolidated Statement of Cash Flows for the years ended December
28, 1996 and December 30, 1995 reflect the results of the pre-Merger Company.

The significant accounting policies of the Company are summarized below:

BUSINESS COMBINATION

On July 1, 1997, pursuant to an Agreement and Plan of Merger dated December
9, 1996 between Cotter, a Delaware corporation, and SCC, SCC merged with and
into Cotter, with Cotter being the surviving corporation. Cotter was renamed
TruServ Corporation 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 following summarized unaudited pro forma operating data for the years
ended December 31, 1997 and December 28, 1996 is presented below giving effect
to the Merger as if it had been consummated at the beginning of the respective
periods. 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 combination been in effect on the dates
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 fair value of the net assets of SCC, (ii) an
adjustment for interest expense of promissory notes issued to former SCC Members
for excess Class B common stock in connection with the Merger, (iii) an
adjustment

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TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

for interest expenses on short-term borrowings obtained in connection with the
Merger and (iv) an adjustment for incremental differences in depreciation
expense.

[Enlarge/Download Table]

PRO FORMA FOR THE YEARS ENDED
-------------------------------
DECEMBER 31, DECEMBER 28,
1997 1996
------------ ------------
(000'S OMITTED)

Revenues.................................................... $ 4,224,215 $ 4,211,579
Net margin.................................................. $ 67,357 $ 70,293

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 $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
may 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 $109,200,000 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 employment positions,
approximately 1,200 in total, will be eliminated substantially within one year.
As of December 31, 1997, approximately 75% of these employees have been
terminated resulting in a $5,700,000 charge against the liability. The Merger
plan specifies the closure of redundant former SCC distribution centers and the
elimination of overlapping former SCC inventory items stockkeeping units
substantially within a one-year period. Distribution centers 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 December
31, 1997, $600,000 relating to distribution center closing costs have been
charged against the liability. Merger integration costs of $13,650,000 consists
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.

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 Class A voting
common stock and retained earnings, together with promissory (subordinated)
notes and 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.

In accordance with the Merger Agreement, patronage dividends earned through
June 30, 1997 were declared and paid to former Cotter & Company Members in
August 1997. Patronage dividends earned from July 1, 1997 through December 31,
1997 were declared and will be paid to TruServ Members in the first quarter of
1998, with at least thirty percent of the patronage dividend paid in cash and
the remainder paid through the issuance of the Company's Class B nonvoting
common stock. The Class B nonvoting common

F-8

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TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

stock that will be issued for the December 31, 1997 patronage dividend will be
designated as non-qualified and not taxable to the Member until redeemed at a
future date. The non-qualified notices in addition to not being taxable will be
included as part of a Members required investment in Class B nonvoting common
stock. Any further distributions after meeting the Class B nonvoting common
stock requirements agreed upon in the Merger Agreement will be in cash rather
than in promissory notes. Such patronage dividends, consisting of substantially
all of the Company's patronage source income, have been paid since 1949.

Membership may be terminated without cause by either the Company or the
Member upon ninety 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 nonvoting common
stock at par value. Payment for the Class A common stock will be in cash.
Payment for the qualified Class B nonvoting common stock will be a note payable
in five equal annual installments.

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.

Goodwill

Goodwill represents the excess of cost over the fair value of net assets
acquired and is amortized using the straight line method over 40 years.

Asset Impairment

For purposes of determining impairment, management groups long-lived assets
based on a geographic region or revenue producing activity as appropriate. Such
review includes, among other criteria, management's estimate of future cash
flows for the region or activity. If the estimated future cash flow
(undiscounted and without interest charges) were not sufficient to recover the
carrying value of the long-lived assets, including associated goodwill, of the
region or activity, such assets would be determined to be impaired and would be
written down to fair value. There was no asset impairment as of December 31,
1997.

Revenue Recognition

The Company recognizes revenue when merchandise is shipped or services are
rendered.

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.

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TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Use of estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

Reclassification

Certain prior year amounts have been reclassified to conform to the 1997
presentation.

Reporting year

The Company's reporting year end was changed to December 31 from the
Saturday closest to December 31 starting December 31, 1997.

2. INVENTORIES

Inventories consisted of:

[Enlarge/Download Table]

DECEMBER 31, DECEMBER 28,
1997 1996
------------ ------------
(000'S OMITTED)

Manufacturing inventories:
Raw materials............................................. $ 4,878 $ 2,797
Work-in-process and finished goods........................ 29,241 24,558
-------- --------
34,119 27,355
Merchandise inventories..................................... 509,827 320,199
-------- --------
$543,946 $347,554
======== ========

3. PROPERTIES

Properties consisted of:

[Enlarge/Download Table]

DECEMBER 31, DECEMBER 28,
1997 1996
------------ ------------
(000'S OMITTED)

Buildings and improvements.................................. $240,700 $179,206
Machinery and warehouse equipment........................... 92,832 61,183
Office and computer equipment............................... 113,386 74,065
Transportation equipment.................................... 28,470 27,763
-------- --------
475,388 342,217
Less accumulated depreciation............................... 248,168 183,252
-------- --------
227,220 158,965
Land........................................................ 14,016 12,046
-------- --------
$241,236 $171,011
======== ========

F-10

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TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

4. LONG-TERM DEBT AND BORROWING ARRANGEMENTS

Long-term debt consisted of:

[Enlarge/Download Table]

DECEMBER 31, DECEMBER 28,
1997 1996
------------ ------------
(000'S OMITTED)

Senior Notes:
8.60%..................................................... $ 44,000 $47,000
7.38%..................................................... 50,000 --
6.91%..................................................... 25,000 --
6.73%..................................................... 25,000 --
Term loans:
5.97%..................................................... 1,500 2,437
Variable (6.84% and 7.33%, respectively).................. 6,200 6,200
Redeemable (subordinated) term notes:
Fixed Interest rates ranging from 6.84% to 7.61%.......... 29,511 26,683
Industrial Revenue Bonds (4.50% and 5.28%, respectively).... 4,000 4,000
Other....................................................... 2,436 3,829
-------- -------
187,647 90,149
Less amounts due within one year............................ 18,438 10,004
-------- -------
$169,209 $80,145
======== =======

The principal payments for: the 8.60% senior note are due quarterly in
incrementally increasing amounts through maturity in 2007, the 7.38% senior note
are due annually in the amount of $4,545,000 starting in 2002 through maturity
in 2012, the 6.91% senior note are due annually in the amount of $3,571,000
starting November 2001 until maturity in 2007, the 6.73% senior note is due in
full in November 2002 and the 5.97% term loan are due quarterly in the amount of
$187,500 which began in 1996 and matures in 1999. Payment for the variable term
loan is due in 1999.

The redeemable (subordinated) term notes have two to four year terms and
are issued in exchange for promissory (subordinated) notes that were held by
promissory note holders, who do not own the Company's Class A common stock.
Also, effective October 1, 1996, the term notes were opened for purchase by
investors that are affiliated with the Company.

On October 1, 1997, and every three-year period thereafter, the interest
rate on the industrial revenue bonds will be adjusted based on a bond index.
These bonds may be redeemed at face value at the option of either the Company or
the bondholders at each interest reset date through maturity in 2003.

Total maturities of long-term debt for fiscal years 1998, 1999, 2000, 2001,
2002 and thereafter are $18,438,000, $22,372,000, $8,290,000, $10,012,000,
$37,224,000 and $91,311,000, respectively.

The Company is required to meet certain financial ratios and covenants
pertaining to certain debt arrangements.

See note 7 regarding the fair value of financial instruments.

F-11

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TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

5. LEASE COMMITMENTS

The Company rents buildings and warehouses, office, computer and
transportation equipment. The following is a schedule of future minimum lease
payments under long-term non-cancelable leases as of December 31, 1997 (000's
omitted):

[Download Table]

FISCAL YEARS
------------

1998...................................................... $ 17,029
1999...................................................... 16,016
2000...................................................... 12,363
2001...................................................... 9,480
2002...................................................... 9,274
Thereafter................................................ 60,389
--------
Net minimum lease payments.................................. $124,551
========

Rent expense under operating leases was $19,890,000, $14,971,000 and
$10,063,000 for the years ended December 31, 1997, December 28, 1996 and
December 30, 1995, respectively.

6. CAPITALIZATION

Promissory (subordinated) and installment notes consisted of:

[Enlarge/Download Table]

DECEMBER 31, DECEMBER 28,
1997 1996
------------ ------------
(000'S OMITTED)

Promissory (subordinated) notes -
Due on December 31, 1997 -- 10.00%........................ $ -- $ 16,037
Due on December 31, 1997 -- 7.87%......................... -- 14,832
Due on December 31, 1998 -- 7.47%......................... 14,252 14,886
Due on December 31, 1998 -- 8.00%......................... 25,128 25,684
Due on December 31, 1999 -- 7.86%......................... 14,104 15,349
Due on December 31, 1999 -- 8.00%......................... 23,809 24,254
Due on December 31, 1999 -- 8.20%......................... 22,528 23,431
Due on December 31, 2000 -- 6.50%......................... 22,493 23,010
Due on December 31, 2000 -- 7.42%......................... 14,951 --
Due on December 31, 2000 -- 7.58%......................... 28,357 29,315
Due on December 31, 2001 -- 8.06% (issued in 1997)........ 23,567 25,123
Term (subordinated) notes -
Due on June 30, 2002 -- 8.06%............................. 13,334 --
Installment notes at interest rates of 6.00% to 8.20% with
maturities through 2002................................... 14,258 6,899
-------- --------
216,781 218,820
Less amounts due within one year............................ 44,202 33,454
-------- --------
$172,579 $185,366
======== ========

Promissory notes were issued for partial 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. Due to a change in the Company's patronage policy
effective in 1997, notes will no longer be issued as part of the patronage
dividend. Prior experience indicates that the maturities of a significant
portion of the notes due within one year are extended, for a three year period,
at interest rates

F-12

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TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

substantially equivalent to competitive market rates of comparable instruments.
The Company anticipates that this practice of extending notes will continue.

Total maturities of promissory and installment notes for fiscal years 1998,
1999, 2000, 2001 and 2002 are $44,202,000, $64,494,000, $68,746,000, $25,387,000
and $13,952,000, respectively.

Term notes were issued in connection with the redemption of excess B stock.
Term notes are subordinated to indebtedness to banking institutions, trade
creditors and other indebtedness of the Company as specified by its Board of
Directors.

See note 7 regarding the fair value of financial instruments.

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.

8. INCOME TAXES

Significant components of the provision (benefit) for income taxes are as
follows:

[Enlarge/Download Table]

FOR THE YEARS ENDED
------------------------------------------
DECEMBER 31, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------ ------------ ------------
(000'S OMITTED)

Current:
Federal............................................... $ -- $ -- $(363)
State................................................. 491 237 379
Foreign............................................... 343 275 273
------ ----- -----
Total current......................................... 834 512 289
------ ----- -----
Deferred:
Federal............................................... 703 (147) (145)
State................................................. 124 (26) (26)
Foreign............................................... (61) 23 58
------ ----- -----
Total deferred........................................ 766 (150) (113)
------ ----- -----
$1,600 $ 362 $ 176
====== ===== =====

F-13

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TRUSERV CORPORATION

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 qualified 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 1997, 1996 and 1995 is as follows:

[Enlarge/Download Table]

FOR THE YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------ ------------ ------------
(000'S OMITTED)

Tax at U.S. statutory rate.............................. $ 15,511 $ 18,470 $ 20,725
Effects of:
Patronage dividend.................................... (15,324) (18,662) (21,049)
State income taxes, net of federal tax benefit........ 400 137 229
Other, net............................................ 1,013 417 271
-------- -------- --------
$ 1,600 $ 362 $ 176
======== ======== ========

Deferred income taxes reflect the net tax effects of a net operating loss
carryforward, which expires in 2012; alternative minimum tax credit
carryforwards, which do not expire; and temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. To the extent tax benefits are
subsequently recognized in excess of the net deferred tax assets, the valuation
allowance for deferred tax assets will reduce goodwill. Significant components
of the Company's deferred tax assets and liabilities are as follows:

[Enlarge/Download Table]

FOR THE YEARS ENDED
----------------------------
DECEMBER 31, DECEMBER 28,
1997 1996
------------ ------------
(000'S OMITTED)

Deferred tax assets:
Net operating loss carryforwards.......................... $ 9,937 $ 466
AMT credit carryforward................................... 911 911
Nonqualified notices of allocation........................ 6,890 --
Bad debt provision........................................ 3,305 1,298
Vacation pay.............................................. 3,225 2,119
Contributions to fund retirement plans.................... 627 886
Rent expense.............................................. 1,819 --
Merger-related valuations and accruals.................... 21,656 --
Other..................................................... 1,280 851
-------- ------
Total deferred tax assets................................... 49,650 6,531
Valuation allowance for deferred tax assets................. (25,000) --
-------- ------
Net deferred tax assets..................................... 24,650 6,531
Deferred tax liabilities:
Tax depreciation in excess of book........................ 5,102 2,100
Inventory capitalization.................................. 1,725 835
Other..................................................... 1,333 1,557
-------- ------
Total deferred tax liabilities.............................. 8,160 4,492
-------- ------
Net deferred taxes.......................................... $ 16,490 $2,039
======== ======

F-14

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TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

9. CASH FLOW

On July 1, 1997, the Company merged with SCC. The transaction was accounted
for using the purchase accounting method. The Merger was accomplished by
converting SCC shares into TruServ shares. See Note 1 for additional comments.

The patronage dividend and promissory (subordinated) note renewals relating
to non-cash operating and financing activities are as follows:

[Enlarge/Download Table]

FOR THE YEAR ENDED
------------------------------------------
DECEMBER 31, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------ ------------ ------------
(000'S OMITTED)

Patronage dividend payable in cash...................... $ 12,142 $16,142 $18,315
Promissory (subordinated) notes......................... 7,511 15,354 23,536
Class B nonvoting common stock.......................... (21,592) 1,248 (2,592)
Installment notes....................................... 11,742 4,605 5,972
Member indebtedness..................................... 29,502 15,971 14,909
-------- ------- -------
$ 39,305 $53,320 $60,140
======== ======= =======
Note renewals........................................... $ 16,379 $27,938 $23,974
======== ======= =======

The $39,305,000 above represents the 1997 patronage dividend less amounts
already paid in cash.

The Company's non-cash financing and investing activities in fiscal year
1996 include a $178,000 acquisition of transportation equipment by entering into
capital leases.

Cash paid for interest during fiscal years 1997, 1996, and 1995 totaled
$34,693,000, $28,694,000, and $29,624,000 respectively. Cash paid for income
taxes during fiscal years 1997, 1996, and 1995 totaled $1,148,000, $694,000, and
$1,012,000, respectively.

10. RETIREMENT PLANS

The components of net pension cost for the Company administered pension
plans consisted of:

[Enlarge/Download Table]

FOR THE YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 28, DECEMBER 30,
1997 1996 1995
------------ ------------ ------------
(000'S OMITTED)

Income:
Actual return on plan assets.......................... $27,243 $13,007 $25,564
Amortization of excess plan assets.................... 835 914 914
------- ------- -------
28,078 13,921 26,478
------- ------- -------
Expenses:
Service cost-benefits earned during the year.......... 6,511 4,851 4,152
Interest on projected benefit obligation.............. 10,386 7,623 7,242
Deferral of excess (deficiency) of actual over
estimated return on plan assets.................... 15,440 4,223 18,021
------- ------- -------
32,337 16,697 29,415
------- ------- -------
Net pension cost........................................ $ 4,259 $ 2,776 $ 2,937
======= ======= =======

F-15

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TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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 respectively, 7.25% and 4.50% in fiscal year 1997, 7.75% and
4.50%, in fiscal year 1996 and 7.25% and 4.50% in fiscal year 1995. These
changes in actuarial assumptions did not have a material impact on net pension
cost for fiscal year 1997 and the Company does not anticipate that these changes
will have a material impact on net pension cost in future years. In fiscal years
1997, 1996 and 1995, the expected long-term rate of return on assets was 9.50%.

Net periodic pension cost for 1997 includes pension cost for the former
employees of SCC subsequent to the Merger. The effect of including these
employees was an increase in net periodic pension cost by $1,318,000, an
increase in the projected benefit obligation of $73,124,000, and an increase in
plan assets of $72,181,000.

In 1997, the Company settled $6,600,000 of pension obligations resulting in
a minimal reduction in pension expense. During 1996, the Company settled
$8,520,000 of pension obligations under its amended plan, resulting in a
reduction of $798,000 in pension expense for fiscal 1996.

Plan assets are composed primarily of corporate equity and debt securities.
Benefits are based on an employee's age, years of service and the employee's
compensation during the last ten years of employment, and are coordinated with
Social Security retirement benefits. Trusteed net assets and actuarially
computed benefit obligations for the Company administered pension plans are
presented below:

[Enlarge/Download Table]

DECEMBER 31, DECEMBER 28,
1997 1996
------------ ------------
(000'S OMITTED)

Assets:
Total plan assets at fair value........................... $198,171 $107,954
======== ========
Obligations:
Accumulated benefit obligations --
Vested................................................. $158,534 $ 70,593
Non-vested............................................. 20,348 13,369
Effect of projected compensation increases................ 10,956 21,015
-------- --------
Total projected benefit obligations....................... 189,838 104,977
-------- --------
Net excess assets (liabilities):
Unrecognized --
Unamortized excess assets at original date............. 5,336 6,170
Net actuarial gain (loss).............................. 17,495 5,702
Prior service costs.................................... (8,824) (3,424)
Recognized accrued pension cost........................... (5,674) (5,471)
-------- --------
Total net excess assets (liabilities)..................... 8,333 2,977
-------- --------
Total obligations and net excess assets (liabilities)....... $198,171 $107,954
======== ========

The Company also participates in union-sponsored defined contribution
plans. Pension costs related to these plans were $654,000, $641,000 and $720,000
for fiscal years 1997, 1996 and 1995, respectively.

The Company sponsors a defined benefit retirement medical plan for those
SCC employees and former employees that meet certain age and service criteria as
of the Merger dated July 1, 1997. The components of net periodic postretirement
benefit costs only consisted of interest cost of $236,100. The plan was frozen
effective with the Merger.

F-16

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TRUSERV CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The trusteed net assets and actuarially computed benefit obligations for
the Company administered retiree medical plan are listed below:

[Download Table]

DECEMBER 31,
1997
------------
(000'S OMITTED)

Accumulated postretirement benefit obligation............... $(6,646)
Fair value of assets........................................ --
-------
Unfunded Status............................................. (6,646)
Unrecognized net gain....................................... (7)
-------
Accrued postretirement benefit cost......................... $(6,653)
=======

The discount rate and the medical trend rate used in determining the
actuarial present value of the projected benefit obligation were 7.25% and
5.00%, respectively, in fiscal year 1997. The Company does not anticipate that
changes in these rates will have a material impact on retiree medical cost in
future years.

A 1% increase in the trend rate for health care costs would have increased
the accumulated postretirement benefit obligation by 6.4% and the service and
interest costs by 12.5%.

F-17

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INDEX TO EXHIBITS

[Download Table]

SEQUENTIALLY
EXHIBITS NUMBERED
ENCLOSED DESCRIPTION PAGE
-------- ----------- ------------

21 Subsidiaries.

[Download Table]

EXHIBITS
INCORPORATED
BY REFERENCE
------------

2-A Agreement and Plan of Merger dated as of December 9, 1996
between the Company and ServiStar Coast to Coast Corporation
("SCC"). Incorporated by reference -- Exhibit 2-A to
Registration Statement on Form S-4 (No. 333-18397).
4-A Amended and Restated Certificate of Incorporation of the
Company, effective July 1, 1997. Incorporated by
reference--Exhibit 2-A to Registration Statement on Form S-4
(No. 333-18397).
4-B By-laws of the Company, effective July 1, 1997. Incorporated
by reference--Exhibit 2-A to Registration Statement on Form
S-4 (No. 333-18397).
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 Installment 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 Cotter & Company $50,000,000 Private Shelf Agreement with
Prudential Insurance Company of America dated December 29,
1995 incorporating amendment on existing 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-H to Post-Effective
Amendment No. 5 to Registration Statement on Form S-2 (No.
33-39477).
4-I Trust Indenture between Cotter & Company and First Trust of
Illinois (formerly Bank of America). Incorporated by
reference--Exhibit T3C to Cotter & Company Form T-3 (No.
22-26210).
4-J Credit Agreement dated July 1, 1997 for $300,000,000
Revolving credit between TruServ Corporation, various
financial institutions, and Bank of America. Incorporated by
reference--Exhibit 4-L to Post-Effective Amendment No. 5 to
Registration Statement on Form S-4 (H3-333-18397)
4-K Amended and Restated Private Shelf Agreement between TruServ
Corporation and Prudential Insurance Company of America
dated November 13, 1997 for $150,000,000. Incorporated by
reference--Exhibit 4-M to Post-Effective Amendment No. 5 to
Registration Statement on Form S-4 (No. 333-18397)
10-A Current Form of "Retail Member Agreement with TruServ"
between the Company and its Members that offer primarily
hardware and related items. Incorporated by reference--
Exhibit 10-A to Registration Statement on Form S-4 (No.
333-18397).

* Filed herewith

E-1

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[Download Table]

EXHIBITS
INCORPORATED
BY REFERENCE
------------

10-B Current Form of "Subscription to Shares of TruServ".
Incorporated by reference--Exhibit 10-B to Registration
Statement on Form S-2 (No. 2-333-18397).
10-C Cotter & Company Defined Lump Sum Pension Plan (As Amended
and Restated Effective As Of January 1, 1996). Incorporated
by reference--Exhibit 10-C to Post-Effective Amendment No. 5
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 Cotter & Company Supplemental Retirement Plan between Cotter
& Company and selected executives of the Company (As Amended
and Restated January 2, 1996 Effective As Of January 1,
1996). Incorporated by reference--Exhibit 10-E to
Post-Effective Amendment No. 5 to Registration Statement on
Form S-2 (No. 33-39477).
10-F 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-G 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-H Employment Agreement between the 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-I Amendment No. 1 to Employment Agreement between the 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).
10-J Contract between Daniel T. Burns and the Company.
Incorporated by reference--Exhibit 10-J to Post-Effective
Amendment No. 5 to Registration Statement on Form S-2 (No.
33-39477).
10-K Contract between Kerry J. Kirby and the Company.
Incorporated by reference--Exhibit 10-K to Post-Effective
Amendment No. 5 to Registration Statement on Form S-2 (No.
33-39477).
10-L Retail Conversion Funds Agreement dated as of December 9,
1996 between the Company and SCC. Incorporated by
reference--Exhibit 10-L to Registration Statement on Form
S-4 (No. 333-18397).

E-2

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[Enlarge/Download Table]

SEQUENTIALLY
SUPPLEMENTAL NUMBERED
INFORMATION PAGE
------------ ------------

99(a) Notice of Annual Meeting of Stockholders on April 6, 1998
and Proxy solicited by the Board of Directors.*
99(b) Proxy solicited by Board of Directors.*

Supplemental Information to be Furnished with Reports Filed Pursuant to
Section 15(d) of the Act by Registrants which have not Registered Securities
Pursuant to Section 12 of the Act.

As of the date of the foregoing Report, no annual report for the
Registrant's year ended December 31, 1997 has been sent to security holders.
Copies of such Annual Report and proxy soliciting materials will subsequently be
sent to security holders and furnished to the Securities and Exchange
Commission.

E-3

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Dates Referenced Herein and Documents Incorporated by Reference

		Referenced-On Page
This ‘10-K405’ Filing	Date	First	Last	Other Filings

	12/31/10	7
	12/16/07	2
	4/1/07	39
	11/24/05	7
	6/4/05	2
	11/3/04	2		8-K
	6/30/04	7		8-K
	1/15/04	2
	9/13/03	2
	1/2/03	2
	11/30/02	7
	6/30/02	33
	12/31/01	33		10-K, 8-K, NT 10-K
	4/30/01	7
	12/31/00	33		10-K405, 10-K405/A, NT 10-K
	10/31/00	7
	2/13/00	2
	12/31/99	16	33	10-K405, NT 10-K
	12/31/98	5	33	10-K405
	7/1/98	29
	4/30/98	3
	4/6/98	41
Filed on:	3/31/98			POS AM
	3/30/98	20	21	424B3
	2/28/98	1	18
	2/23/98	23		424B3
For Period End:	12/31/97	1	41	10-K405/A
	11/13/97	39
	10/1/97	7	32
	7/1/97	1	39
	6/30/97	29
	2/22/97	3
	12/28/96	9	33	10-K405
	12/9/96	28	40
	10/1/96	32
	1/2/96	40
	1/1/96	17	40
	12/30/95	9	33	10-K405
	12/29/95	39
	12/31/94	27		10-K405
	11/7/94	40
	4/1/94	40
	4/13/92	39
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Filing Submission 0000950124-98-001829 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

True Value Co – ‘10-K405’ for 12/31/97

As of: Tuesday, 3/31/98 · For: 12/31/97 · Accession #: 950124-98-1829 · File #: 333-18397

Previous ‘10-K405’: ‘10-K405’ on 3/27/97 for 12/28/96 · Next: ‘10-K405/A’ on 4/3/98 for 12/31/97 · Latest: ‘10-K405/A’ on 9/10/01 for 12/31/00

Annual Report — [x] Reg. S-K Item 405 — Form 10-KFiling Table of Contents

10-K405 — Form 10-KDocument Table of Contents

Dates Referenced Herein and Documents Incorporated by Reference

Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents

10-K405 — Form 10-K
Document Table of Contents