SEC Info - True Value Co - ‘10-K405’ for 12/30/95

SEC Info℠

Home

Help

Please Sign In

True Value Co – ‘10-K405’ for 12/30/95

As of: Thursday, 3/21/96 · For: 12/30/95 · Accession #: 950137-96-313 · File #: 2-20910

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

 3/21/96  True Value Co                     10-K405    12/30/95    5:170K                                   Bowne Boc/FA

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                                             35    196K 
 2: EX-21       Subsidiaries                                           1      6K 
 3: EX-99.A     Supplement A                                           2     11K 
 4: EX-99.B     Supplement B                                           2±     9K 
 5: EX-99.C     Supplement C                                          22    134K

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 Chicago, Illinois 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 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
6	Item 2. Properties
7	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
8	Item 6. Selected Financial Data
"	Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
10	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
12	Item 11. Executive Compensation
15	Item 12. Security Ownership of Certain Beneficial Owners and Management
"	Item 13. Certain Relationships and Related Transactions
16	Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
18	Item 14(A). Index to Consolidated Financial Statements
20	Report of Independent Auditors
"	Chicago, Illinois
26	Notes to Consolidated Financial Statements

10-K405 1st Page of 35 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 30, 1995 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

COTTER & COMPANY

(Exact name of Registrant as specified in its charter)

[Download Table]

DELAWARE 36-2099896

(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

[Download Table]

8600 WEST BRYN MAWR AVENUE, CHICAGO, ILLINOIS 60631-3505

(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (312) 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 TEN-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
FEBRUARY
CLASS 24, 1996
---------------------------------------------------- ---------

CLASS A COMMON STOCK, $100 PAR VALUE................ 52,220
CLASS B COMMON STOCK, $100 PAR VALUE................ 1,111,143

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

10-K405 2nd Page of 35 TOC 1st Previous Next ↓Bottom Just 2nd

PART I

ITEM 1. BUSINESS.

Cotter & Company (the "Company") was organized as a Delaware corporation in
1953. Upon its organization, it succeeded to the business of Cotter & Company,
an Illinois corporation organized in 1948. The Company's principal executive
offices are located at 8600 West Bryn Mawr Avenue, Chicago, Illinois,
60631-3505. Its telephone number is (312) 695-5000.

The Company is a Member-owned wholesaler of hardware and related
merchandise. It is the largest wholesaler of hardware 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 entitles a Member to use certain Company trademarks and trade
names, including the federally registered collective membership trademark
indicating membership in "True Value(R) Hardware Stores". The "True Value(R)"
collective membership mark has a present expiration date of January 2, 2003.

The Company serves approximately 5,600 True Value(R) Hardware Stores
throughout the United States. Primary concentrations of Members exist in
California (approximately 8%), Illinois and New York (approximately 6% each),
Pennsylvania and Texas (approximately 5% each) and Michigan, Ohio and Wisconsin
(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
--------------------------
1995 1994 1993
------ ------ ------

Hardware Goods................................. 22.3% 20.1% 20.0%
Electrical and Plumbing........................ 17.7% 15.8% 16.3%
Painting and Cleaning.......................... 13.3% 14.4% 14.9%
Farm and Garden................................ 13.3% 12.5% 12.3%
Lumber and Building Materials.................. 12.7% 12.9% 12.3%
Appliances and Housewares...................... 11.7% 10.4% 10.3%
Sporting Goods and Toys........................ 9.0% 13.9% 13.9%

The Company serves its Members by purchasing products in quantity lots and
selling them to Members in smaller lots, passing along any savings to Members in
the form of lower prices and/or patronage dividends.
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 48% of total sales); (2) direct shipment sales
(approximately 42% of total sales); and (3) relay sales (approximately 10% 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 not normally held in inventory and 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.

10-K405 3rd Page of 35 TOC 1st Previous Next ↓Bottom Just 3rd

The Company annually sponsors two "markets" (one in the Spring and one in
the Fall). In fiscal year 1996, these markets will be held in 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 February 24, 1996 and February 25, 1995, the Company had a backlog of
firm orders (including relay orders) of approximately $23,000,000 and
$21,000,000 respectively. It is anticipated that the entire backlog existing at
February 24, 1996 will be filled by April 30, 1996. 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
(Pinpoint Pricing program). The trueAdvantage program was introduced in 1995 to
promote higher retail standards in order to build consumer goodwill and create a
positive image for all True Value stores.

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 430 True Value(R) and V&S(R) Stores, all located in Canada. The
cooperative has approximately 340 employees and generated less than 5% of the
Company's consolidated revenue in fiscal year 1995.

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 3,500 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 34% 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

The Company operates on a cooperative basis with respect to business done
with or for Members. 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 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.

10-K405 4th Page of 35 TOC 1st Previous Next ↓Bottom Just 4th

Patronage dividends are usually paid to Members within 60 days after the
close of the Company'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 the Company's fiscal year, and the Company
may elect to distribute the annual patronage dividend at a later time than usual
in accordance with the provisions of the Code.

The Company'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 nonvoting common
stock based on book value thereof, to a maximum of 2% of the Member's net
purchases of merchandise from the Company 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. The Company may also issue nonqualified written
notices of allocation to its Members as part of its annual patronage dividend.

In determining the form of the annual patronage dividend, a Member's
required investment in Class B common stock of the Company had been limited by
the Board of Directors to an amount in the aggregate not exceeding an amount
(computed on the basis of par value thereof and to the nearest multiple of $100)
equal to (i) two percent (2%) of a Member's net purchases of direct shipment
sales from the Company and purchases of direct shipment sales of 'Competitive
Edge Program Lumber' materials computed separately at one percent (1%), (ii)
four percent (4%) of a Member's net purchases of relay sales from the Company
and (iii) eight percent (8%) of a Member's net warehouse purchases from the
Company in the year of the highest total net purchases of the three preceding
years. In 1995, the Board of Directors adopted a plan to continue to adequately
capitalize the Company, as a result, effective with the 1996 patronage dividend,
these percentages may be changed. In that each Member has equal voting power
(voting rights being limited to Class A common stock), acquisition of Class B
common stock as patronage dividends generally results in the larger-volume
Members having greater common stock equity in the Company but a lesser
proportionate voting power per dollar of common stock owned than smaller-volume
Members.

PAYMENT OF PATRONAGE DIVIDENDS IN ACCORDANCE WITH THE INTERNAL REVENUE CODE

The Code specifically provides for the taxation of cooperatives (such as
the Company) and their patrons (such as the Company'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 common stock and the promissory (subordinated) notes
distributed by the Company to its Members as partial payment of the patronage
dividend are "written notices of allocation" within the meaning of that phrase
as used in the Code. In order that such written notices of allocation shall be
deducted from earnings in determining taxable income of the Company, it is
necessary that the Company 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. These conditions being met, the shares of Class B common
stock and the promissory (subordinated) notes distributed in payment of
patronage dividends become "qualified written notices of allocation" as that
phrase is used in the Code. Section 1385(a) of the Code provides, in substance,
that the amount of any patronage dividend which is paid in money or in qualified
written notices of allocation shall be included in the gross income of the
patron (Member) for the taxable year in which it receives such money or such
qualified written notices of allocation.

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 common stock or promissory (subordinated) notes, 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, Class B
common stock and promissory (subordinated) notes.

10-K405 5th Page of 35 TOC 1st Previous Next ↓Bottom Just 5th

In response to the provisions of the Code, the Company's By-Laws provide
for the treatment of the shares of Class B common stock, promissory
(subordinated) notes 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 common stock
and promissory (subordinated) notes 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 the Company) 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
the Company 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 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.

Each year since 1978, the Company 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 the Company or
its ability to maintain adequate working capital for the normal requirements of
its business. However, the Company 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.

10-K405 6th Page of 35 TOC 1st Previous Next ↓Bottom Just 6th

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
---------------------------------------------- ------------- -------- ------------------

Chicago, Illinois............................. 980,000 Owned
Chicago, Illinois............................. 175,000 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
Fogelsville (Allentown), Pennsylvania......... 600,000 Owned
Harvard, Illinois............................. 750,000 Owned
Harvard, Illinois............................. 720,000 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
Peachtree City, Georgia....................... 60,500 Leased November 24, 2005
Portland, Oregon.............................. 405,000 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 (Cotter &
Company 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 August 1995, the Company closed the 720,000 square foot Harvard,
Illinois facility formerly used to manufacture outdoor power equipment.

In 1996, the Company will close the 980,000 square foot Chicago, Illinois
facility formerly used as the Company's national headquarters.

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

10-K405 7th Page of 35 TOC 1st Previous Next ↓Bottom Just 7th

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 Notes 3 and 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 and related products
each of whom is a Member of the Company and purchases ten 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 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 24, 1996) of each class of
stock of the Company is as follows:

[Download Table]

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

Class A common stock, $100 Par Value............................ 5,222
Class B common stock, $100 Par Value............................ 5,197

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

10-K405 8th Page of 35 TOC 1st Previous Next ↓Bottom Just 8th

ITEM 6. SELECTED FINANCIAL DATA.

SELECTED FINANCIAL DATA

[Enlarge/Download Table]

FOR THE FISCAL YEARS
------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS EXCEPT PER SHARE DATA)

Revenues........................... $2,437,002 $2,574,445 $2,420,727 $2,356,468 $2,139,887
Gross margins...................... $ 202,068 $ 223,331 $ 217,921 $ 216,608 $ 197,745
Net margins........................ $ 59,037 $ 60,318 $ 57,023 $ 60,629 $ 59,425
Patronage dividends................ $ 60,140 $ 60,421 $ 54,440 $ 60,901 $ 60,339
Total assets....................... $ 819,576 $ 868,785 $ 803,528 $ 833,372 $ 763,109
Long-term debt and obligations
under capital leases............. $ 79,213 $ 75,756 $ 69,201 $ 72,749 $ 13,335
Promissory (subordinated) and
installment notes payable........ $ 186,335 $ 199,099 $ 217,996 $ 235,695 $ 235,289
Redeemable Class A common stock.... $ 5,294 $ 6,370 $ 6,633 $ 6,857 $ 7,077
Redeemable Class B common stock.... $ 113,062 $ 116,663 $ 110,773 $ 108,982 $ 104,151
Book value per share of Class A
common stock and Class B common
stock(a)......................... $ 102.68 $ 103.57 $ 103.85 $ 101.42 $ 102.50

---------------
(a) The book value per share of the Company's Class A common stock and Class B
common stock is the value, determined in accordance with generally accepted
accounting principles, of such shares as shown by 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, and 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.

RESULTS OF OPERATIONS

FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994

In fiscal year 1995, Cotter & Company revenues were $2,437,002,000, a
decrease of 5.3% from fiscal year 1994. This decrease was attributable to the
phase-out of the V&S(R) Variety division and the sale of the General Power
Equipment manufacturing division. Comparable sales categories were flat with the
prior year due to the soft economy and unusual weather in the United States,
combined with the declining sales in Mexico. In addition, the Company expanded
the Pinpoint Pricing program which reduced the selling price of many core
hardware and related products.

Overall merchandise gross margins, as a percentage of revenues, decreased
for the fourth year in a row. This reduction in gross margin percentage was the
result of an expanded Pinpoint Pricing program and the withdrawal from the
resigned businesses of V&S(R) Variety division and General Power Equipment
manufacturing division.

Warehouse, general and administrative expenses decreased by $18,652,000 or
14.0% compared to the prior year. As a percentage of revenue, these expenses
were 4.7% in 1995 compared to 5.2% in 1994. The decrease in operating expenses
was attributable to continued efforts to reduce operating costs, an expense
recovery associated with prior years' favorable risk loss experience and
efficiencies derived from the resigned businesses.

10-K405 9th Page of 35 TOC 1st Previous Next ↓Bottom Just 9th

Interest paid to Members decreased by $2,267,000 or 9.9% primarily due to a
lower average principal balance and a decrease in the average interest rate.

Other interest increased due to the increase in the Cotter & Company term
note program.

Net margins were $59,037,000 for the year ended December 30, 1995 compared
to $60,318,000 for the year ended December 31, 1994.

FISCAL YEAR 1994 COMPARED TO FISCAL YEAR 1993

In fiscal year 1994, the Company's revenues increased $153,718,000 from
last year. Total revenues grew to $2,574,445,000, an increase of 6.4%. The
improvement resulted from increased merchandise shipments to existing Members.

Classes of merchandise with the strongest percentage increases in fiscal
year 1994 were Lumber and Building Materials, up 11.9%; Farm and Garden
Supplies, up 8.9%; Hardware Goods, up 7.3%; Appliances and Housewares, up 7.0%;
and Variety and Related Goods, up 6.4%. The South Central region of the United
States showed the largest growth at 9.4%. Other regions showing strong growth
were the Southeast at 8.1%; the Northeast at 7.2%; and North Central at 7.1%.

Consolidated gross margins increased by $5,410,000 or 2.5% but as a
percentage of revenues decreased to 8.7% from 9.0% reflecting a change in the
Company's sales mix from warehouse to direct shipments, combined with the new
Pinpoint Pricing program and more promotionally oriented merchandising programs.

Warehouse, general and administrative expenses remained comparable with the
previous year but expressed as a percentage of revenues decreased to 5.2% from
5.5% due to the Company's continuing efforts to reduce operating costs.

Interest paid to Members decreased by $1,564,000 or 6.4% primarily due to a
lower average interest rate.

Net margins were $60,318,000 for the year ended December 31, 1994 compared
to $57,023,000 for the year ended January 1, 1994. The fiscal year 1993 net
margins include a one-time gain on the sale of properties of $5,985,000 offset
by the related income tax of $2,162,000.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents in fiscal year 1995 increased $20,642,000 to
$22,473,000. This improvement was primarily due to improved cash flow from
operating activities, which was $106,640,000 for the year ended December 30,
1995 compared to $88,663,000 for the year ended December 31, 1994. This
improvement in cash flow from operating activities was the result of better
management of current assets. Inventories decreased by $69,436,000 during fiscal
year 1995. Much of this reduction can be attributed to the sale of the V&S(R)
Variety and General Power Equipment Manufacturing divisions. This was
accomplished with no reduction in the Company's ability to provide merchandise
to Members. This decrease in inventory was offset partially by a corresponding
decrease in accounts payable of $36,584,000 and short-term borrowings of
$6,672,000 from fiscal year 1994 to fiscal year 1995.

Cash flows of $19,265,000 used for investing activities were comparable to
the previous year. Financing activities required $66,733,000 for the year ended
December 30, 1995 compared to $70,025,000 a year earlier.

At December 30, 1995, net working capital decreased to $202,999,000 from
$221,054,000 at December 31, 1994. The current ratio of 1.47 for December 30,
1995 is comparable to last year.

The Company has various short-term lines of credit available under informal
agreements with lending banks, cancelable by either party under specific
circumstances, which amount to $63,000,000 at December 30, 1995. The Company
pays commitment fees for these lines. The borrowings under these agreements were
$2,657,000 at December 30, 1995 and $9,329,000 at December 31, 1994.

The Company's capital is primarily derived from redeemable Class A common
stock and retained earnings, together with promissory (subordinated) notes and
redeemable nonvoting Class B common stock issued in connection with the
Company's annual patronage dividend. Funds derived from these capital resources
are usually sufficient to satisfy long-term capital needs.

10-K405 10th Page of 35 TOC 1st Previous Next ↓Bottom Just 10th

Total capital expenditures, including those made under capital leases, were
$28,912,000 in fiscal year 1995 compared to $21,427,000 in fiscal year 1994 and
$13,382,000 in fiscal year 1993. These capital expenditures were principally
related to additional equipment and technological improvements at the regional
distribution centers and National Headquarters. Funding of capital expenditures
in fiscal year 1996 is anticipated to come from operations and external sources
if necessary. On December 29, 1995, the Company finalized a private shelf
agreement for available borrowings of up to $50,000,000.

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 executive officers of the Company are:

[Enlarge/Download Table]

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

Karen M. Agnew...................... 53 Vice President since February, 1992. Director of
National Headquarters Support from July, 1991 to
February, 1992. Prior position was Executive
Assistant to the President.
Joe W. Blagg........................ 46 Nominated by the Board of Directors for election
as a Director to a three-year term to replace
Donald E. Yeager, whose term expires April, 1996.
Daniel T. Burns..................... 45 Secretary since February, 1995. Vice President
since November, 1990. General Counsel since
April, 1988.
Danny R. Burton..................... 49 Vice President since May, 1992. National Member
Development Manager from July, 1990 to May, 1992.
David W. Christmas.................. 47 Vice President of Merchandising since July, 1994.
Prior position was Vice President of Sales and
Marketing of a manufacturing company based in
North Carolina.
William M. Claypool, III............ 73 Director since March, 1970. Term expires April,
1997.
Samuel D. Costa, Jr. ............... 54 Director since July, 1988. Term expires April,
1996. Nominated by the Board of Directors for
reelection to a three-year term.
Daniel A. Cotter.................... 61 President and Chief Executive Officer since
January, 1983 and Director since September, 1989.
Term expires April, 1996. Nominated by the Board
of Directors for reelection to a three-year term.
Leonard C. Farr..................... 74 Director since March, 1972. Term expires April,
1996. Nominated by the Board of Directors for
reelection to a three-year term.
William M. Halterman................ 48 Director since June, 1990. Term expires April,
1998.

10-K405 11th Page of 35 TOC 1st Previous Next ↓Bottom Just 11th

[Enlarge/Download Table]

Robert F. Johnson................... 52 Vice President since January, 1994. Director of
Corporate Planning and Information Services from
March, 1992 to January, 1994. Prior position was
Distribution Industry Consulting Manager of a
corporation in Illinois.
Jerrald T. Kabelin.................. 58 Chairman of the Board since April, 1993. Director
since April, 1985. Term as Chairman of the Board
expires April, 1996. Term as Director expires
April, 1997.
Kerry J. Kirby...................... 49 Vice President and Chief Financial Officer since
November, 1990. Treasurer (Principal Financial
and Accounting Officer) since April, 1989.
Secretary from April, 1989 to February, 1995.
Charles L. Kremers.................. 45 Appointed Vice President in April, 1995. Director
of Marketing from February, 1994 to April, 1995.
Prior position was a Vice President of
Advertising and Sales Promotions for a retail
computer company based in Texas.
Robert J. Ladner.................... 49 Director since April, 1994. Term expires April,
1997. Elected Chairman of the Board for a
one-year term beginning April, 1996.
John F. Lottes, III................. 55 Nominated by the Board of Directors for election
to a one-year term to replace Robert G. Waters,
who resigned and whose unexpired term will expire
in April, 1997.
Lewis W. Moore...................... 83 Director since June, 1948. Term expires April,
1997.
Kenneth M. Noble.................... 38 Director since April, 1995. Term expires April,
1998.
Steven J. Porter.................... 43 Executive Vice President and Chief Operating
Officer since August, 1993. Prior position was
Vice President of Merchandising of a retail
building materials and hardware company based in
Missouri.
Richard L. Schaefer................. 66 Director since May, 1976. Term expires April,
1998.
John P. Semkus...................... 49 Vice President, Distribution and Transportation
since February 1992. Appointed Vice President in
June, 1988. Prior position was Operating Manager
of a regional distribution center.
George V. Sheffer................... 43 Director since July, 1994. Term expires April,
1998.
Dennis A. Swanson................... 56 Director since April, 1995. Term expires April,
1996. Nominated by the Board of Directors for
reelection to a three-year term.
Robert G. Waters.................... 75 Director since March, 1973. Term expires April,
1997. Retired February, 1996.
John M. West, Jr.................... 43 Director since October, 1991. Term expires April,
1998.
Donald E. Yeager.................... 53 Director since April, 1993. Term expires April,
1996.

---------------
During the past five years, the principal occupation of each director of the
Company, other than Daniel A. Cotter, was the operation of retail hardware
stores.

10-K405 12th Page of 35 TOC 1st Previous Next ↓Bottom Just 12th

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: Samuel D.
Costa, Jr. (Chairman), Lewis W. Moore , Kenneth M. Noble and Dennis A. Swanson.
In addition, Jerrald T. Kabelin, Chairman of the Board of Directors, and Daniel
A. Cotter, President and Chief Executive Officer, served as ex-officio members
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 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. In fiscal year 1995, the Committee
met on three occasions. Primary responsibilities of the Committee include:

- Establishing the 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. In fiscal year
1995, the plan's overall Company goal was based on achieving Member payout
objectives. Each executive's incentive award was determined by Member payout
results.

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 revenue growth.

10-K405 13th Page of 35 TOC 1st Previous Next ↓Bottom Just 13th

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
1995 and the total compensation paid to each such individual for the Company's
two previous fiscal years:

SUMMARY COMPENSATION TABLE

[Enlarge/Download Table]

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

Daniel A. Cotter......................... 1995 $500,000 $250,000 $ 6,305 $ --
President and Chief 1994 500,000 375,000 4,430 250,000
Executive Officer 1993 500,000 -- 4,996 --
Steven J. Porter......................... 1995 375,000 131,250 6,461 --
Executive Vice President 1994 325,000 170,625 58,719 --
and Chief Operating Officer 1993 167,115 25,000 11,944 --
Kerry J. Kirby........................... 1995 250,000 75,000 6,750 --
Vice President, Treasurer and 1994 225,000 101,250 6,930 45,000
Chief Financial Officer 1993 225,000 25,313 6,746 --
Daniel T. Burns.......................... 1995 225,000 67,500 6,750 --
Vice President, Secretary 1994 175,000 78,750 6,906 35,000
and General Counsel 1993 175,000 23,625 5,214 --
David W. Christmas....................... 1995 200,000 60,000 3,750 --
Vice President, 1994 80,200 26,250 -- --
Merchandising 1993 -- -- -- --

---------------
(1) Annual bonus amounts are earned and accrued during the fiscal years
indicated, and paid subsequent to the end of each fiscal year.

(2) Other compensation consists primarily of Company contributions to the Cotter
& Company Employee's Savings and Compensation Deferral Plan (the "Savings
Plan"). Under the Savings Plan, each participant may elect to make a
contribution in an amount of up to ten percent (10%) of his annual
compensation, not to exceed $30,000 (including Company contributions) a
year, of which $9,240 of the executive officer's salary in fiscal year 1995
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. Mr. Porter's other compensation consists of $56,891 and
$11,944 of relocation payments in fiscal year 1994 and 1993, respectively.

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. Mr.
Cotter agreed, in 1990, to revise his contract to conform his compensation to
that applicable to all other executives. His base salary has remained the same
from 1990 to 1995.

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 reportable loans were made by the Company to its executive officers or
to its directors during the last three fiscal years.

LONG-TERM PERFORMANCE CASH AWARDS

The Board of Directors adopted a long-term incentive plan for selected
senior executive officers of the Company. Senior executives of the Company are
eligible for cash payouts ranging from 10% to 75% of their annual salary if
performance goals established for the plan are met. Performance goals for the
current plans relate to the achievement of revenue growth.

10-K405 14th Page of 35 TOC 1st Previous Next ↓Bottom Just 14th

A new plan starts each year with goals set for the next three-year period.
A range of estimated payouts which could be earned by the individuals listed in
the Summary Compensation Table in fiscal year 1996, and paid in fiscal year 1997
is shown in the following table:

[Enlarge/Download Table]

NAME PERFORMANCE PERIOD THRESHOLD TARGET MAXIMUM
---------------------------------------------- ------------------ --------- -------- --------

Daniel A. Cotter.............................. 1994-1996 $ 143,750 $287,500 $431,250
Steven J. Porter.............................. 1994-1996 65,625 131,250 196,875
Kerry J. Kirby................................ 1994-1996 25,000 50,000 75,000
Daniel T. Burns............................... 1994-1996 22,500 45,000 67,500

DEFINED BENEFIT RETIREMENT PLANS

The Company has a defined benefit pension plan, the Cotter & Company
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 $150,000 for 1996. Section 415 of the Code
outlines the maximum annual benefit which may be payable from the Plan during
the year; The

10-K405 15th Page of 35 TOC 1st Previous Next ↓Bottom Just 15th

dollar limit is $120,000 for 1996 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................................ $255,122 $360,535 $465,948 $465,948 $465,948
900,000................................. 228,290 323,162 418,033 418,033 418,033
800,000................................. 201,458 285,788 370,118 370,118 370,118
700,000................................. 174,625 248,414 322,203 322,203 322,203
600,000................................. 147,793 211,041 274,288 274,288 274,288
500,000................................. 120,960 173,667 226,373 226,373 226,373
400,000................................. 94,128 136,293 178,458 178,458 178,458
300,000................................. 67,296 98,920 130,543 130,543 130,543
200,000................................. 40,463 61,546 82,628 82,628 82,628
100,000................................. 13,631 24,172 34,713 34,713 34,713

The present credited years of service for the officers listed in the above
table are as follows: Daniel A. Cotter, 30 years; Kerry J. Kirby, 20 years,
Daniel T. Burns, 15 years, Steven J. Porter, 3 years and David W. Christmas, 2
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 1995 directors of the Company were each paid $1,000 per
month. Effective 1996, this amount will be $1,500 per month. The Chairman of the
Board is paid $1,000 per day to a maximum of $100,000 per year, when serving in
the capacity as Chairman.

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

As of February 24, 1996, each of the directors of the Company was the
beneficial owner of 10 shares of Class A common stock of the Company comprising
.3% of such shares issued and outstanding. Other than Daniel A. Cotter, no
executive officer owns any shares of Class A common stock.

The directors own in the aggregate approximately 1.6% of Class B common
stock as of February 24, 1996. No executive officer owns any shares of Class B
common stock.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The Company previously used Galaxy Travel Agency, Inc., a company engaged
in providing normal travel business services, for Company officers, directors,
employees, and Members. Daniel A. Cotter and his brother each owned a one-half
interest of Galaxy Travel. The total bookings placed by the Company with Galaxy
Travel in fiscal year 1995 were approximately $1,650,000. Subsequent to the sale
of Galaxy Travel by Mr. Cotter and his brother, the relationship between the
Company and Galaxy Travel Agency, Inc. was terminated at the end of 1995.

The Company believes the foregoing transactions were on no-less favorable
terms to it than could have been obtained from an independent party.

10-K405 16th Page of 35 TOC 1st Previous Next ↓Bottom Just 16th

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.

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.

10-K405 17th Page of 35 TOC 1st Previous Next ↓Bottom Just 17th

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.

COTTER & COMPANY

By: /s/ KERRY J. KIRBY

--------------------------------------
Kerry J. Kirby,
Vice President, Treasurer and
DATED: March 19, 1996 Chief Financial Officer

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 President, Chief Executive March 19, 1996
--------------------------------------------- Officer and Director
Daniel A. Cotter
/s/ STEVEN J. PORTER Executive Vice President March 19, 1996
--------------------------------------------- and Chief Operating Officer
Steven J. Porter
/s/ KERRY J. KIRBY Vice President, Treasurer and March 19, 1996
--------------------------------------------- Chief Financial Officer
Kerry J. Kirby
/s/ JERRALD T. KABELIN Chairman of the Board March 19, 1996
--------------------------------------------- and Director
Jerrald T. Kabelin
/s/ WILLIAM M. CLAYPOOL, III Director March 19, 1996
---------------------------------------------
William M. Claypool, III
/s/ SAMUEL D. COSTA, JR. Director March 19, 1996
---------------------------------------------
Samuel D. Costa, Jr.
/s/ LEONARD C. FARR Director March 19, 1996
---------------------------------------------
Leonard C. Farr
/s/ WILLIAM M. HALTERMAN Director March 19, 1996
---------------------------------------------
William M. Halterman
/s/ ROBERT J. LADNER Director March 19, 1996
---------------------------------------------
Robert J. Ladner
/s/ LEWIS W. MOORE Director March 19, 1996
---------------------------------------------
Lewis W. Moore
/s/ KENNETH M. NOBLE Director March 19, 1996
---------------------------------------------
Kenneth M. Noble
/s/ RICHARD L. SCHAEFER Director March 19, 1996
---------------------------------------------
Richard L. Schaefer
/s/ GEORGE V. SHEFFER Director March 19, 1996
---------------------------------------------
George V. Sheffer
/s/ DENNIS A. SWANSON Director March 19, 1996
---------------------------------------------
Dennis A. Swanson
/s/ ROBERT G. WATERS Director March 19, 1996
---------------------------------------------
Robert G. Waters
/s/ JOHN M. WEST, JR. Director March 19, 1996
---------------------------------------------
John M. West, Jr.
/s/ DONALD E. YEAGER Director March 19, 1996
---------------------------------------------
Donald E. Yeager

10-K405 18th Page of 35 TOC 1st Previous Next ↓Bottom Just 18th

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

[Enlarge/Download Table]

PAGE(S)
-----------

Report of Independent Auditors................................................. F-3
Consolidated Balance Sheet at December 30, 1995 and December 31, 1994.......... F-4; F-5
Consolidated Statement of Operations for each of the three years in the period
ended December 30, 1995...................................................... F-6
Consolidated Statement of Cash Flows for each of the three years in the period
ended December 30, 1995...................................................... F-7
Consolidated Statement of Capital Stock and Retained Earnings for each of the
three years in the period ended December 30, 1995............................ F-8
Notes to Consolidated Financial Statements..................................... F-9 to F-16

F-1

10-K405 19th Page of 35 TOC 1st Previous Next ↓Bottom Just 19th

-------------------------------------
THIS PAGE INTENTIONALLY
LEFT BLANK
-------------------------------------

F-2

10-K405 20th Page of 35 TOC 1st Previous Next ↓Bottom Just 20th

REPORT OF INDEPENDENT AUDITORS

To the Members and the Board of Directors
Cotter & Company

We have audited the accompanying consolidated balance sheets of Cotter &
Company as of December 30, 1995 and December 31, 1994, 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 30, 1995.
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 Cotter &
Company at December 30, 1995 and December 31, 1994, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 30, 1995 in conformity with generally accepted accounting
principles.

ERNST & YOUNG LLP

Chicago, Illinois
February 12, 1996

F-3

10-K405 21st Page of 35 TOC 1st Previous Next ↓Bottom Just 21st

COTTER & COMPANY

------------------

CONSOLIDATED BALANCE SHEET

ASSETS

[Enlarge/Download Table]

DECEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
(000'S OMITTED)

Current assets:
Cash and cash equivalents..................................... $ 22,473 $ 1,831
Accounts and notes receivable................................. 287,888 294,663
Inventories................................................... 315,311 384,747
Prepaid expenses.............................................. 11,180 7,861
------------ ------------
Total current assets............................. 636,852 689,102
Properties owned, less accumulated depreciation................. 165,683 164,261
Properties under capital leases, less accumulated
amortization.................................................. 5,393 4,691
Other assets.................................................... 11,648 10,731

------------ ------------
Total assets..................................... $819,576 $868,785
========== ==========

See Notes to Consolidated Financial Statements.

F-4

10-K405 22nd Page of 35 TOC 1st Previous Next ↓Bottom Just 22nd

COTTER & COMPANY

------------------

CONSOLIDATED BALANCE SHEET

LIABILITIES AND CAPITALIZATION

[Enlarge/Download Table]

DECEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
(000'S OMITTED)

Current liabilities:
Accounts payable.............................................. $297,884 $334,468
Accrued expenses.............................................. 53,363 45,304
Short-term borrowings......................................... 2,657 9,329
Current maturities of notes, long-term debt and lease
obligations................................................ 61,634 60,564
Patronage dividend payable in cash............................ 18,315 18,383
------------ ------------
Total current liabilities........................ 433,853 468,048
Long-term debt.................................................. 75,449 72,163
Obligations under capital leases................................ 3,764 3,593
Capitalization:
Promissory (subordinated) and instalment notes................ 186,335 199,099
Redeemable Class A common stock and partially paid
subscriptions
(Authorized 100,000 shares; issued and fully paid 52,710
and
63,350 shares)............................................. 5,294 6,370
Redeemable Class B nonvoting common stock and paid-in capital
(Authorized 2,000,000 shares; issued and fully paid
1,055,700 and 1,047,756 shares; issuable as partial payment
of patronage dividends, 62,005 and 104,275 shares)......... 113,062 116,663
Retained earnings............................................. 2,661 3,764
------------ ------------
307,352 325,896
Foreign currency translation adjustment....................... (842) (915)
------------ ------------
Total capitalization............................. 306,510 324,981
------------ ------------
Total liabilities and capitalization............. $819,576 $868,785
========== ==========

See Notes to Consolidated Financial Statements.

F-5

10-K405 23rd Page of 35 TOC 1st Previous Next ↓Bottom Just 23rd

COTTER & COMPANY

------------------

CONSOLIDATED STATEMENT OF OPERATIONS

[Enlarge/Download Table]

FOR THE YEARS ENDED
----------------------------------------------
DECEMBER 30, DECEMBER 31, JANUARY 1,
1995 1994 1994
------------ ------------ ----------
(000'S OMITTED)

Revenues........................................... $2,437,002 $2,574,445 $2,420,727
------------ ------------ ----------
Cost and expenses:
Cost of revenues................................. 2,234,934 2,351,114 2,202,806
Warehouse, general and administrative............ 114,107 132,759 132,674
Interest paid to Members......................... 20,627 22,894 24,458
Other interest expense........................... 9,298 7,493 7,429
Gain on sale of properties owned................. -- (692) (5,985)
Other income, net................................ (1,177) (604) (260)
Income tax expense............................... 176 1,163 2,582
------------ ------------ ----------
2,377,965 2,514,127 2,363,704
------------ ------------ ----------
Net margins........................................ $ 59,037 $ 60,318 $ 57,023
========== ========== =========

See Notes to Consolidated Financial Statements.

F-6

10-K405 24th Page of 35 TOC 1st Previous Next ↓Bottom Just 24th

COTTER & COMPANY

------------------

CONSOLIDATED STATEMENT OF CASH FLOWS

[Enlarge/Download Table]

FOR THE YEARS ENDED
------------------------------------------------
DECEMBER 30, DECEMBER 31, JANUARY 1,
1995 1994 1994
------------ ------------ ----------
(000'S OMITTED)

Operating activities:
Net margins....................................... $ 59,037 $ 60,318 $ 57,023
Adjustments to reconcile net margins to cash and
cash equivalents from operating activities:
Depreciation and amortization.................. 20,706 21,613 21,566
Provision for losses on accounts and notes
receivable................................... 3,741 4,233 4,057
Changes in operating assets and liabilities:
Accounts and notes receivable.................. (13,921) (33,112) (38,605)
Inventories.................................... 69,436 (49,145) 183
Accounts payable............................... (36,584) 79,957 (45,070)
Accrued expenses............................... 7,552 6,022 (1,143)
Other adjustments, net......................... (3,327) (1,223) (2,679)
------------ ------------ ----------
Net cash and cash equivalents
provided
by (used for) operating
activities......................... 106,640 88,663 (4,668)
------------ ------------ ----------
Investing activities:
Additions to properties owned..................... (24,904) (21,427) (13,382)
Proceeds from sale of properties owned............ 5,022 2,174 13,999
Changes in other assets........................... 617 1,132 (3,850)
------------ ------------ ----------
Net cash and cash equivalents (used
for) investing activities.......... (19,265) (18,121) (3,233)
------------ ------------ ----------
Financing activities:
Payment of annual patronage dividend.............. (18,383) (16,614) (18,570)
Payment of notes, long-term debt and lease
obligations.................................... (43,106) (39,632) (32,730)
Proceeds from long-term borrowings................ 3,000 -- --
Increase (decrease) in short-term borrowings...... (6,672) (13,851) 23,059
Purchase of common stock.......................... (1,740) (216) (470)
Proceeds from sale of Class A common stock........ 168 288 323
------------ ------------ ----------
Net cash and cash equivalents (used
for) financing activities.......... (66,733) (70,025) (28,388)
------------ ------------ ----------
Net increase (decrease) in cash and cash
equivalents....................................... 20,642 517 (36,289)
------------ ------------ ----------
Cash and cash equivalents at beginning of year...... 1,831 1,314 37,603
------------ ------------ ----------
Cash and cash equivalents at end of year............ $ 22,473 $ 1,831 $ 1,314
========== ========== ========

See Notes to Consolidated Financial Statements.

F-7

10-K405 25th Page of 35 TOC 1st Previous Next ↓Bottom Just 25th

COTTER & COMPANY

------------------

CONSOLIDATED STATEMENT OF CAPITAL STOCK AND RETAINED EARNINGS

FOR THE THREE YEARS ENDED DECEMBER 30, 1995

[Enlarge/Download Table]

COMMON STOCK, $100 PAR VALUE
--------------------------------------
CLASS B FOREIGN
CLASS A ---------------- CURRENCY
------------------- ISSUED AND RETAINED TRANSLATION
ISSUED SUBSCRIBED TO BE ISSUED EARNINGS ADJUSTMENT
------ ---------- ---------------- -------- -----------
(000'S OMITTED)

Balances at January 2, 1993............. $6,808 $ 49 $108,982 $ 1,284 $(932)
Net margins........................... 57,023
Foreign currency translation
adjustment......................... 262
Patronage dividend.................... 7,686 (54,440)
Stock issued for paid-up
subscriptions...................... 312 (312)
Stock subscriptions................... 308
Stock purchased and retired........... (532) (5,895)
------ ------ -------- ------ ------
Balances at January 1, 1994............. 6,588 45 110,773 3,867 (670)
Net margins........................... 60,318
Foreign currency translation
adjustment......................... (245)
Patronage dividend.................... 10,829 (60,421)
Stock issued for paid-up
subscriptions...................... 275 (275)
Stock subscriptions................... 265
Stock purchased and retired........... (528) (4,939)
------ ------ -------- ------ ------
Balances at December 31, 1994........... 6,335 35 116,663 3,764 (915)
Net margins........................... 59,037
Foreign currency translation
adjustment......................... 73
Patronage dividend.................... 6,422 (60,140)
Stock issued for paid-up
subscriptions...................... 168 (168)
Stock subscriptions................... 156
Stock purchased and retired........... (1,232) (10,023)
------ ------ -------- ------ ------
Balances at December 30, 1995........... $5,271 $ 23 $113,062 $ 2,661 $(842)
====== ====== ======== ====== ======

---------------
Subscribed Class A common stock amounts are net of unpaid amounts of $1,000
at December 30, 1995 and December 31, 1994, $14,000 at January 1, 1994 and
$27,000 at January 2, 1993 (for 240, 360, 590, and 760 shares subscribed,
respectively).

See Notes to Consolidated Financial Statements.

F-8

10-K405 26th Page of 35 TOC 1st Previous Next ↓Bottom Just 26th

COTTER & COMPANY

------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. DESCRIPTION OF BUSINESS AND ACCOUNTING POLICIES

Cotter & Company (the Company) is a Member-owned wholesaler of hardware 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 and related lines, each of whom has
purchased ten shares 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. 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. The significant accounting policies of the Company
are summarized below.

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.

On January 13, 1995, the Company agreed to the sale of certain inventory of
its V&S(R) Variety division to a national wholesaler who has also agreed to
supply the majority of the V&S(R) Stores. Also, on January 31, 1995, the Company
sold certain assets of its outdoor power equipment manufacturing division to a
nationally recognized company and secured a favorable supply agreement for such
equipment. These transactions did not have a material impact on the Company's
results of operation or financial position.

Capitalization. The Company's capital (Capitalization) is derived from
redeemable Class A voting common stock and retained earnings, together with
promissory (subordinated) notes and redeemable 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, of which at least twenty percent must be paid
in cash, and the balance in five-year promissory (subordinated) notes and
redeemable $100 par value Class B common stock.

Membership may be terminated without cause by either the Company or the
Member upon sixty 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 common stock at
book value. Payment for the Class A common stock will be in cash. Payment for
the Class B common stock will be a note payable in five equal annual instalments
bearing interest at the same rate per annum as the promissory (subordinated)
notes most recently issued as part of the Company's patronage dividend.

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.

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.

F-9

10-K405 27th Page of 35 TOC 1st Previous Next ↓Bottom Just 27th

COTTER & COMPANY

------------------

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.

Reporting year. The Company's reporting year-end is the Saturday closest to
December 31.

2. INVENTORIES

Inventories consisted of:

[Download Table]

DECEMBER 30, 1995 DECEMBER 31, 1994
----------------- -----------------
(000'S OMITTED)

Manufacturing inventories:
Raw materials......................... $ 2,139 $ 12,986
Work-in-process and finished goods.... 19,407 60,094
-------- --------
21,546 73,080
Merchandise inventories................. 293,765 311,667
-------- --------
$ 315,311 $ 384,747
======== ========

3. PROPERTIES

Properties owned or leased under capital leases consisted of:

[Enlarge/Download Table]

DECEMBER 30, 1995 DECEMBER 31, 1994
-------------------- --------------------
OWNED LEASED OWNED LEASED
-------- ------- -------- -------
(000'S OMITTED)

Buildings and improvements.................... $173,568 $ -- $168,311 $ --
Machinery and warehouse equipment............. 60,197 -- 79,953 --
Office and computer equipment................. 77,340 -- 62,868 --
Transportation equipment...................... 21,076 11,454 22,757 14,556
-------- -------- -------- --------
332,181 11,454 333,889 14,556
Less accumulated depreciation and
amortization................................ 178,793 6,061 181,920 9,865
-------- -------- -------- --------
153,388 5,393 151,969 4,691
Land.......................................... 12,295 -- 12,292 --
-------- -------- -------- --------
$165,683 $ 5,393 $164,261 $ 4,691
======== ======== ======== ========

F-10

10-K405 28th Page of 35 TOC 1st Previous Next ↓Bottom Just 28th

COTTER & COMPANY

------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

4. LONG-TERM DEBT AND BORROWING ARRANGEMENTS

Long-term debt consisted of:

[Download Table]

DECEMBER 30, 1995 DECEMBER 31, 1994
----------------- -----------------
(000'S OMITTED)

Senior note at 8.60%..................... $49,000 $50,000
Term loans:
5.97%.................................. 3,000 --
Canadian prime (7.50% and 8.00%,
respectively)....................... 3,665 3,565
Variable (7.60% and 7.20%,
respectively)....................... 6,200 6,200
Redeemable (subordinated) term notes:
6.85%.................................. 3,328 --
6.97%.................................. 1,131 --
7.00%.................................. 4,363 4,346
7.05%.................................. 3,054 --
7.37%.................................. 1,491 1,512
7.61%.................................. 3,330 3,540
Industrial Revenue Bonds (5.28%):........ 4,000 4,000
----------------- -----------------
82,562 73,163
Less amounts due within one year......... 7,113 1,000
----------------- -----------------
$75,449 $72,163
============= =============

Principal payments for the 8.60% senior note are due in incrementally
increasing amounts through maturity in 2007. Under the senior note agreement,
the Company is required to meet certain financial ratios and covenants.

Principal payments for the 5.97% term loan are due quarterly beginning in
1996 through maturity in 1999. Payments for the other two term loans are due in
1997 and 1999, respectively.

The redeemable (subordinated) term notes were issued in exchange for
promissory (subordinated) notes maturing on December 31, 1995 and 1994, that
were held by promissory (subordinated) note holders, who do not own the
Company's Class A common stock. The notes are due in 1996, 1997, 1998 and 1999.

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.

Total maturities of long-term debt for fiscal years 1996, 1997, 1998, 1999,
2000 and thereafter are $7,113,000, $12,234,000, $9,211,000, $14,004,000,
$4,000,000 and $36,000,000, respectively.

In addition, the Company has various short-term lines of credit available
under informal agreements with lending banks, cancellable by either party under
specific circumstances, which amount to $63,000,000 at December 30, 1995. The
Company pays commitment fees for these lines. The borrowings under these
agreements were $2,657,000 at December 30, 1995 and were at a rate of 7.50%. All
of these borrowings were for the Canadian subsidiary. At December 31, 1994, the
Company had a weighted average interest rate on short-term borrowings of 6.63%
and included both U.S. and Canadian borrowings.

F-11

10-K405 29th Page of 35 TOC 1st Previous Next ↓Bottom Just 29th

COTTER & COMPANY

------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

5. CAPITAL LEASES AND OTHER LEASE COMMITMENTS

The Company rents buildings and warehouse, office, computer and
transportation equipment under operating and capital leases. The following is a
schedule of future minimum lease payments under capital and operating leases,
together with the present value of the net minimum lease payments, as of
December 30, 1995:

[Download Table]

CAPITAL OPERATING
------- ---------
(000'S OMITTED)

Fiscal years
1996................................................. $ 1,984 $ 6,832
1997................................................. 1,409 9,067
1998................................................. 1,135 7,102
1999................................................. 800 5,669
2000................................................. 305 5,134
Thereafter........................................... 306 47,599
------- ---------
Net minimum lease payments............................. 5,939 $81,403
=======
Less amount representing interest...................... 314
-------
Present value of net minimum lease payments............ 5,625
Less amounts due within one year....................... 1,861
-------
$ 3,764
======

Capitalized leases expire at various dates and generally provide for
purchase options but not renewals. Purchase options provide for purchase prices
at either fair market value or a stated value which is related to the lessor's
book value at expiration of the lease term.

Rent expense under operating leases was as follows:

[Enlarge/Download Table]

FOR THE YEARS ENDED
--------------------------------------------
DECEMBER 30, DECEMBER 31, JANUARY 1,
1995 1994 1994
------------ ------------ ----------
(000'S OMITTED)

Minimum rent.................................. $ 9,553 $8,487 $8,174
Contingent rent............................... 510 611 575
------------ ------------ ----------
$ 10,063 $9,098 $8,749
========== ========== ========

F-12

10-K405 30th Page of 35 TOC 1st Previous Next ↓Bottom Just 30th

COTTER & COMPANY

------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

6. CAPITALIZATION

Promissory (subordinated) and instalment notes consisted of:

[Enlarge/Download Table]

DECEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
(000'S OMITTED)

Promissory (subordinated) notes -
Due on December 31, 1995--7.50%........................ $ -- $ 20,783
Due on December 31, 1995--10.00%....................... -- 35,355
Due on December 31, 1996--6.00%........................ 23,588 24,888
Due on December 31, 1996--9.50%........................ 27,029 28,436
Due on December 31, 1997--10.00%....................... 16,660 17,579
Due on December 31, 1997--7.87%........................ 15,616 16,793
Due on December 31, 1998--7.47%........................ 16,461 --
Due on December 31, 1998--8.00%........................ 27,048 28,512
Due on December 31, 1999--8.00%........................ 25,470 27,030
Due on December 31, 1999--8.20% (issued in 1995)....... 25,327 27,909
Due on December 31, 2000--6.50%........................ 23,996 25,628
Due on December 31, 2000--7.58% (to be issued)......... 32,047 --
Instalment notes at interest rates of 6.50% to 10.00%
with maturities through 1999........................ 5,753 4,010
------------ ------------
238,995 256,923
Less amounts due within one year......................... 52,660 57,824
------------ ------------
$186,335 $199,099
========== ==========

The promissory notes are issued principally in 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. Notes to be issued relate to the patronage dividend
which is distributed after the end of the year. 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 substantially equivalent to
competitive market rates of comparable instruments. The Company anticipates that
this practice will continue.

Total maturities of promissory and instalment notes for fiscal years 1996,
1997, 1998, 1999, and 2000 are $52,660,000, $34,007,000, $44,772,000,
$51,514,000, and $56,042,000, respectively.

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

At December 30, 1995, the Company has alternative minimum tax credit
carryforwards of approximately $900,000 which do not expire. The carryforwards
are available to offset future federal tax liabilities.

F-13

10-K405 31st Page of 35 TOC 1st Previous Next ↓Bottom Just 31st

COTTER & COMPANY

------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Significant components of the Company's deferred tax assets and liabilities
as of December 30, 1995 resulted primarily from alternative minimum tax credit
carryforwards and temporary differences between income tax and financial
reporting for depreciation, vacation pay and contributions to fund retirement
plans.

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

[Enlarge/Download Table]

FOR THE YEARS ENDED
--------------------------------------------
DECEMBER 30, DECEMBER 31, JANUARY 1,
1995 1994 1994
------------ ------------ ----------
(000'S OMITTED)

Current:
Federal..................................... $ (363) $ 486 $ 343
State....................................... 379 462 22
Foreign..................................... 273 278 237
------------ ------------ ----------
Total current............................... 289 1,226 602
------------ ------------ ----------
Deferred:
Federal..................................... (145) (147) 1,582
State....................................... (26) (26) 317
Foreign..................................... 58 110 81
------------ ------------ ----------
Total deferred.............................. (113) (63) 1,980
------------ ------------ ----------
$ 176 $1,163 $2,582
========== ========== ========

The Company operates as a nonexempt cooperative and is allowed a deduction
in determining its taxable income for amounts paid as 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 1995, 1994 and 1993 is as follows:

[Enlarge/Download Table]

FOR THE YEARS ENDED
------------------------------------------
DECEMBER 30, DECEMBER 31, JANUARY 1,
1995 1994 1994
------------ ------------ ----------
(000'S OMITTED)

Tax at U.S. statutory rate.................. $ 20,725 $ 21,518 $ 20,862
Effects of:
Patronage dividend........................ (21,049) (21,147) (19,054)
State income taxes, net of federal tax
benefit................................ 229 283 220
Other, net................................ 271 509 554
------------ ------------ ----------
$ 176 $ 1,163 $ 2,582
========== ========== ========

F-14

10-K405 32nd Page of 35 TOC 1st Previous Next ↓Bottom Just 32nd

COTTER & COMPANY

------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

9. CASH FLOW

The Company's noncash financing and investing activities in fiscal year
1995 include acquisition of transportation equipment by entering into capital
leases and the acquisition of property for resale. These transactions aggregate
$4,008,000. In addition, the annual patronage dividend and promissory
(subordinated) note renewals relating to noncash operating and financing
activities are as follows:

[Enlarge/Download Table]

FOR THE YEARS ENDED
------------------------------------------
DECEMBER 30, DECEMBER 31, JANUARY 1,
1995 1994 1994
------------ ------------ ----------
(000'S OMITTED)

Patronage dividend payable in cash......................... $ 18,315 $ 18,383 $ 16,614
Promissory (subordinated) notes............................ 23,536 23,213 20,852
Class B nonvoting common stock............................. (2,592) 5,900 2,086
Instalment notes........................................... 5,972 3,058 2,939
Member indebtedness........................................ 14,909 9,867 11,949
------------ ------------ ----------
$ 60,140 $ 60,421 $ 54,440
========== ========== =======
Note renewals.............................................. $ 23,974 $ 26,191 $ 27,187
========== ========== =======

Cash paid for interest during fiscal years 1995, 1994 and 1993 totaled
$29,624,000, $30,583,000 and $32,056,000, respectively. Cash paid for income
taxes during fiscal years 1995, 1994 and 1993 totaled $1,012,000, $1,709,000 and
$1,387,000, 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 30, DECEMBER 31, JANUARY 1,
1995 1994 1994
------------ ------------ ----------
(000'S OMITTED)

Income:
Actual return (loss) on plan assets................. $ 25,564 $ (1,543) $ 7,486
Amortization of excess plan assets.................. 914 920 920
------------ ------------ ----------
26,478 (623) 8,406
------------ ------------ ----------
Expenses:
Service cost-benefits earned during year............ 4,152 4,765 4,556
Interest on projected benefit obligation............ 7,242 6,736 6,266
Deferral of excess (deficiency) of actual over
estimated return on plan assets.................. 18,021 (8,815) 1,042
------------ ------------ ----------
29,415 2,686 11,864
------------ ------------ ----------
Net pension cost...................................... $ 2,937 $ 3,309 $ 3,458
========== ========== =======

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 7.25% and 4.50%, respectively, in 1995, 8.50% and 4.50%,
respectively, in fiscal year 1994 and 7.50% and 4.50%, respectively, in fiscal
year 1993. These changes in actuarial assumptions did not have a material impact
on net pension cost for fiscal year 1995 and the

F-15

10-K405 33rd Page of 35 TOC 1st Previous Next ↓Bottom Just 33rd

COTTER & COMPANY

------------------

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Company does not anticipate that these changes will have a material impact on
net pension cost in future years. In fiscal years 1995, 1994 and 1993, the
expected long-term rate of return on assets was 9.50%. During 1995, the Company
amended its pension plan. This amendment had no material impact on the projected
benefit obligation.

Plan assets are composed primarily of corporate equity and debt securities.
Benefits are based on years of service and the employee's compensation during
the last ten years of employment, offset by a percentage of 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 30, DECEMBER 31,
1995 1994
------------ ------------
(000'S OMITTED)

Assets:
Total plan assets at fair value................................. $104,396 $ 80,046
========== ==========
Obligations:
Accumulated benefit obligations:
Vested....................................................... $ 77,435 $ 53,055
Non-vested................................................... 10,830 7,683
Effect of projected compensation increases...................... 21,730 19,924
------------ ------------
Total projected benefit obligations............................. 109,995 80,662
------------ ------------
Net excess assets (liabilities):
Unrecognized:
Unamortized excess assets at original date................... 7,673 8,643
Net actuarial gain (loss).................................... (3,793) 565
Prior service costs.......................................... (4,017) (5,313)
Recognized accrued pension cost................................. (5,462) (4,511)
------------ ------------
Total net excess assets (liabilities)........................... (5,599) (616)
------------ ------------
Total obligations and net excess assets (liabilities)............. $104,396 $ 80,046
========== ==========

The Company also participates in union-sponsored defined contribution
plans. Pension costs related to these plans were $720,000, $757,000, and
$702,000 for fiscal years 1995, 1994 and 1993, respectively.

F-16

10-K405 34th Page of 35 TOC 1st Previous Next ↓Bottom Just 34th

INDEX TO EXHIBITS

[Enlarge/Download Table]

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

21 Subsidiaries.

[Enlarge/Download Table]

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

3-A Amended and Restated Certificate of Incorporation of Cotter & Company dated
May 10, 1993. Incorporated by reference--Exhibit 3-A to the Company's Form
10-K Annual Report for the year ended January 1, 1994.
3-B By-Laws of Cotter & Company as amended and restated through June 1, 1993.
Incorporated by reference--Exhibit 3-B to the Company's Form 10-K Annual
Report for the year ended January 1, 1994.
4-A Article Fourth of the Certificate of Incorporation of the Company, setting
forth the designations and the powers, preferences and rights, and the
qualifications, limitations and restrictions of the Class A common stock and
Class B common stock of the Company. Article Twelfth of the Certificate of
Incorporation of the Company, setting forth certain limitations on the rights
of shareholders to bring an action against directors for breach of the duty
of care. Incorporated by reference--Exhibit 3-A to the Company's Form 10-K
Annual Report for the year ended January 1, 1994.
4-B Articles VI, VII, VIII, IX and XI of the By-Laws of the Company relating to:
certain qualifications, limitations and restrictions on the common stock of
the Company; the Member agreement between the Company and its shareholders;
the payment of patronage dividends; dividends; qualifying shares; and
valuation of Class B common stock of the Company issued as part of the annual
patronage dividend. Incorporated by reference-- Exhibit 3-B to the Company's
Form 10-K Annual Report for the year ended January 1, 1994.
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 Instalment 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).

E-1

10-K405 Last Page of 35 TOC 1st Previous Next ↓Bottom Just 35th

[Enlarge/Download Table]

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

10-A Form of "Retail Member Agreement with Cotter & Company" between the Company
and its Members that offer primarily hardware and related items. Incorporated
by reference-- Exhibit 10-C to Post-Effective Amendment No. 2 to Registration
Statement on Form S-2 (No. 33-39477).
10-B Current form of "Subscription to Shares of Cotter & Company". Incorporated by
reference--Exhibit 10-H to Registration Statement on Form S-2 (No. 2-82836).
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 Cotter & 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 Cotter & 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).

[Enlarge/Download Table]

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

(a) Notice of Annual Meeting of Stockholders on April 2, 1996.
(b) Proxy solicited by the Board of Directors.
(c) Cotter & Company 1995 Annual Report.

E-2

10-K405	1st Page of 35	TOC	↑Top	Previous	Next	↓Bottom	Just 1st

10-K405	2nd Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 2nd

10-K405	3rd Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 3rd

10-K405	4th Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 4th

10-K405	5th Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 5th

10-K405	6th Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 6th

10-K405	7th Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 7th

10-K405	8th Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 8th

10-K405	9th Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 9th

10-K405	10th Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 10th

10-K405	11th Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 11th

10-K405	12th Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 12th

10-K405	13th Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 13th

10-K405	14th Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 14th

10-K405	15th Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 15th

10-K405	16th Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 16th

10-K405	17th Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 17th

10-K405	18th Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 18th

10-K405	19th Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 19th

10-K405	20th Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 20th

10-K405	21st Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 21st

10-K405	22nd Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 22nd

10-K405	23rd Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 23rd

10-K405	24th Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 24th

10-K405	25th Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 25th

10-K405	26th Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 26th

10-K405	27th Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 27th

10-K405	28th Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 28th

10-K405	29th Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 29th

10-K405	30th Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 30th

10-K405	31st Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 31st

10-K405	32nd Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 32nd

10-K405	33rd Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 33rd

10-K405	34th Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 34th

10-K405	Last Page of 35	TOC	1st	Previous	Next	↓Bottom	Just 35th

Dates Referenced Herein and Documents Incorporated by Reference

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

	12/31/10	6
	4/1/07	34
	11/24/05	6
	6/30/04	6		8-K
	1/2/03	2
	12/31/00	30		10-K405, 10-K405/A, NT 10-K
	10/31/00	6
	12/31/99	13	30	10-K405, NT 10-K
	12/31/98	30		10-K405
	12/31/97	30		10-K405, 10-K405/A
	10/1/97	6	28
	12/31/96	30
	4/30/96	3
	4/2/96	35
Filed on:	3/21/96			S-2/A
	3/19/96	17
	2/24/96	3	15
	2/12/96	20
	1/2/96	35
	1/1/96	14	35
	12/31/95	28	30
For Period End:	12/30/95	1	31
	12/29/95	10	34
	2/25/95	3
	1/31/95	26
	1/13/95	26
	12/31/94	9	28	10-K405
	11/7/94	35
	4/1/94	35
	1/1/94	9	34	10-K
	6/1/93	34
	5/10/93	34
	1/2/93	25
	4/13/92	34
				List all Filings

↑Top

Filing Submission 0000950137-96-000313 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

True Value Co – ‘10-K405’ for 12/30/95

As of: Thursday, 3/21/96 · For: 12/30/95 · Accession #: 950137-96-313 · File #: 2-20910

Previous ‘10-K405’: ‘10-K405’ on 3/17/95 for 12/31/94 · Next: ‘10-K405’ on 3/27/97 for 12/28/96 · 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