Good news, bad news from TruServ at fall show - company losing money, but has raised additional funds - Brief Article

Home Channel News, Oct 22, 2001 by Andrew M. Carlo

Execs offer morale boost with news of new loan guarantees, but nine-month financial results bleed red

LAS VEGAS -- TruServ, the dealer-owned buying cooperative based in Chicago, took full opportunity of its fall market in Las Vegas to tout a much-needed injection of financing and reassure members that it's now headed in a positive direction.

But on the last day of the show, TruServ officials announced that revenue through August totaled nearly $2 billion, compared to $2.7 billion for the same period a year ago -- a 35 percent decline. The co-op said that nearly 58 percent of the decline in year-to-date revenue has been caused by member loss. Moreover, last year's numbers include the co-op's lumber division, which has since been sold off -- the absent division accounted for just $21.3 million this year but $770.3 million for the 12 months of 2000.

The announced 2001 nine-month earnings represent a loss of $15.6 million, compared to a profit of $1.8 million over the same period in 2000.

TruServ vp and controller Dave Shadduck presented the numbers to several thousand members at the co-op's business update meeting, the final major event on closing day of TruServ's fall market here, on Oct. 11. Despite appearances, Shadduck pitched the results as positive by focusing on profit improvements in several divisions, including advertising, transportation and paint pricing, that total $33 million.

Indeed, TruServ executives sought to use the meeting to put a more positive spin on their company. At the week-long market's Oct. 9 general member meeting, TruServ chief operating officer and chief financial officer Pamela Forbes Lieberman told an audience of several thousand members and associates that the Bank of America had promised the co-op a $350 million asset-backed loan based on TruServ's inventory and accounts receivable. In addition, Lieberman said the co-op had reached an agreement, based on its real estate holdings, on another $100 million in mortgaged-backed loans from an undis-closed bank. Both loans are expected to be finalized by December.

TruServ has been in difficult financial straights since announcing two years ago that it was $131 million in debt. In an unexpected move, acting CEO Bill Blagg told members attending the show that TruServ has prepared a lawsuit against global financial firm Ernst and Young, which served as the co-op's accountants when that huge debt was disclosed in 1999.

"We have a lawsuit ready to file," said Blagg, noting that the suit could result in a "significant recovery" of funds that TruServ officials believe had been mismanaged. The size of the suit or "recovery" was not disclosed, however.

Currently, the two companies are in settlement discussions.

"I'm hoping a satisfactory agreement can be reached without going to the court system," Blagg said.

For members, news of the suit and the new financing were much-needed signs that TruServ's past woes finally might be put to rest.

"I'm very optimistic," said Willis Qualheim, owner of Qualheim's True Value in Shawano, Wis. Qualheim said he had questioned the co-op's stability as recently as six months ago, but word of the new loans and additional members-only information he'd received before the show have since put him at ease.

"The lenders are currently in place [so] I'm very impressed," Qualheim noted. "There's no question we are going forward."

In the meantime, TruServ continues to forge ahead on a range of other initiatives with financial implications. The co-op is on the verge of closing the sale of TruServ Canada to its Canadian members. Under the nearly 50 million Canadian dollar (US$34 million) deal, TruServ Canada would enter into a 10-year licensing agreement for the use of the co-op's trademark True Value brand name and a distribution center in Manitoba. The deal also involves the sale of inventory and TruServ Canada's debt, which had been on TruServ's books.

TruServ is also close to selling its defunct 300,000-square-foot DC in Indianapolis, as well as a 386,000-square-foot Bulter, Pa.-based DC. Along with warehouse storage, the Butler location and an adjoining office building currently are being used for customer support, as well as hot he co-op's IT and accounts payable departments. TruServ plans to sell the facility, then lease back part of the space.

While timetables have not been set, both sales could bring the co-op as much as $20 million, which will then be used to reduce debt, according to Lieberman.

TruServ officials sought to portray the co-op's initiatives -- from the potential lawsuit against Ernst and Young to the sales of the DCs -- as part of a new culture - "A culture of accountability that must deliver results," Blagg explained.

Now, TruServ must gain the understanding and support of members. Toward that end, a short film was shown at the show's opening session in which Blagg and Lieberman replaced Tom Cruise in the "Show me the money!" scene from the movie, "Jerry Maguire." In it, actor Cuba Gooding Jr. told the TruServ execs that they had some work to do to regain his trust. "Show me the money!" Gooding declared, while Blagg and Lieberman fired back the same line.