-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VkE+ZXbMBlTkmAb8x138JvAvJorY/Zk45eDH5jyaIhKbInIqu0jcffqE37XuxA7X jNOfYZznuOca4w1yP1AQsA== /in/edgar/work/20000815/0000002024-00-000015/0000002024-00-000015.txt : 20000922 0000002024-00-000015.hdr.sgml : 20000921 ACCESSION NUMBER: 0000002024-00-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000701 FILED AS OF DATE: 20000815 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACE HARDWARE CORP CENTRAL INDEX KEY: 0000002024 STANDARD INDUSTRIAL CLASSIFICATION: [5070 ] IRS NUMBER: 360700810 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 002-55860 FILM NUMBER: 702614 BUSINESS ADDRESS: STREET 1: 2200 KENSINGTON COURT CITY: OAK BROOK STATE: IL ZIP: 60521 BUSINESS PHONE: 7089906600 MAIL ADDRESS: STREET 1: 1300 KENSINGTON RD CITY: OAKBROOK STATE: IL ZIP: 60521 10-Q 1 0001.txt FORM 10-Q, 2ND QUARTER 2000 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Period ended July 1, 2000 Commission File Number 2-63880 ACE HARDWARE CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 36-0700810 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 2200 Kensington Court, Oak Brook, IL 60523 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (630) 990-6600 NONE Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES XX NO Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the period covered by this report. Class Outstanding at July 1, 2000 - --------------------------------------- --------------------------- Class A Voting Stock - $1,000 par value 3,833 shares Class B Stock - $1,000 par value 2,332 shares Class C Stock - $ 100 par value 2,569,525 shares ACE HARDWARE CORPORATION INDEX Part I. - Financial Information: Page No. -------- Item 1. Condensed Consolidated Financial Statements (Unaudited) Condensed Consolidated Balance Sheets - July 1, 2000 and January 1, 2000 1 Condensed Consolidated Statements of Earnings and Condensed Consolidated Statements of Comprehensive Income - Twenty-six Weeks and Thirteen Weeks Ended July 1, 2000 and July 3, 1999 2 Condensed Consolidated Statements of Cash Flows - Twenty-six Weeks Ended July 1, 2000 and July 3, 1999 3 Notes to Condensed Consolidated Financial Statements 4 - 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 - 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 10 Part II. - Other Information Item 4. Submission of Matters to a Vote of Security Holders 11 Item 6. Exhibits and Reports on Form 8-K 12 PART I. FINANCIAL INFORMATION ACE HARDWARE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (000's omitted) (Unaudited) July 1, January 1, 2000 2000 --------------- -------------- ASSETS Current Assets: Cash and Cash Equivalents $ 36,630 $ 35,422 Accounts Receivable, Net 459,725 370,879 Merchandise Inventory 413,520 373,090 Prepaid Expenses and Other Current Assets 15,072 13,341 --------------- -------------- Total Current Assets 924,947 792,732 Property and Equipment, Net 261,471 247,174 Other Assets 52,508 41,578 --------------- -------------- Total Assets $ 1,238,926 $ 1,081,484 =============== ============== LIABILITIES AND MEMBER DEALERS' EQUITY Current Liabilities: Current Installment of Long-Term Debt $ 4,970 $ 4,067 Short-Term Borrowings 91,788 49,869 Accounts Payable 579,578 449,497 Patronage Dividends Payable in Cash 16,792 38,173 Patronage Refund Certificates Payable 4,812 373 Accrued Expenses 67,128 69,990 --------------- -------------- Total Current Liabilities 765,068 611,969 Notes Payable 108,808 111,895 Patronage Refund Certificates Payable 59,010 55,257 Other Long-Term Liabilities 23,654 22,400 --------------- -------------- Total Liabilities 956,540 801,521 Member Dealers' Equity: Class A Stock of $1,000 Par Value 3,997 3,856 Class B Stock of $1,000 Par Value 6,499 6,499 Class C Stock of $100 Par Value 263,926 241,226 Class C Stock of $100 Par Value, Issuable 10,929 21,648 Additional Stock Subscribed, Net of Unpaid 450 498 Portion Retained Earnings (1,181) 594 Contributed Capital 13,485 13,485 Accumulated Other Comprehensive Income (266) 291 --------------- -------------- Total Member Dealers' Equity 297,839 288,097 Less: Treasury Stock, at Cost 15,453 8,134 --------------- -------------- Total Member Dealers' Equity 282,386 279,963 Total Liabilities and Member Dealers Equity $ 1,238,926 $ 1,081,484 =============== ============== See accompanying notes to condensed consolidated financial statements. ACE HARDWARE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (000's omitted) (Unaudited) Thirteen Weeks Ended Twenty-six Weeks Ended -------------------- ---------------------- July 1, July 3, July 1, July 3, 2000 1999 2000 1999 -------------- -------------- -------------- -------------- Net Sales $ 807,116 $ 907,308 $ 1,508,125 $ 1,681,533 Cost of Sales 728,224 829,256 1,362,175 1,540,306 -------------- -------------- -------------- -------------- Gross Profit 78,892 78,052 145,950 141,227 Operating Expenses: Warehouse and Distribution 9,815 9,079 20,841 19,374 Selling, General and Administration 22,646 22,132 46,248 44,831 Retail Success and Development 18,588 12,491 35,617 23,460 -------------- -------------- -------------- -------------- Total Operating Expenses 51,049 43,702 102,706 87,665 -------------- -------------- -------------- -------------- Operating Income 27,843 34,350 43,244 53,562 Interest Expense (5,264) (4,593) (9,966) (8,437) Other Income, net 2,817 2,119 5,954 4,310 Income Taxes 148 (587) 658 (837) -------------- -------------- -------------- -------------- Net Earnings $ 25,544 $ 31,289 $ 39,890 $ 48,598 ============== ============== ============== ============== Distribution of Net Earnings: Patronage Dividend $ 26,184 $ 31,154 $ 41,665 $ 49,892 Retained Earnings (640) 135 (1,775) (1,294) -------------- -------------- -------------- -------------- Net Earnings $ 25,544 $ 31,289 $ 39,890 $ 48,598 ============== ============== ============== ==============
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (000's omitted) (Unaudited) Thirteen Weeks Ended Twenty-six Weeks Ended July 1, July 3, July 1, July 3, 2000 1999 2000 1999 -------------- -------------- -------------- -------------- Net Earnings $ 25,544 $ 31,289 $ 39,890 $ 48,598 Foreign currency translation, net (501) 58 (557) 102 -------------- -------------- -------------- -------------- Comprehensive Income $ 25,043 $ 31,347 $ 39,333 $ 48,700 ============== ============== ============== ============== See accompanying notes to condensed consolidated financial statements.
ACE HARDWARE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (000's omitted) (Unaudited) Twenty-Six Weeks End Twenty-Six Weeks Ended July 1, July 3, 2000 1999 -------------- -------------- Operating Activities: Net Earnings $ 39,890 $ 48,598 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 12,221 11,026 Increase in accounts receivable, net (88,846) (70,128) Increase in merchandise inventory (40,430) (887) Increase in prepaid expenses and other current assets (1,731) (3,141) Increase in accounts payable and accrued expense 127,219 55,866 Increase in other long-term liabilities 1,254 1,619 -------------- -------------- Net Cash Provided by Operating Activities 49,577 42,953 Investing Activities: Purchases of property and equipment, net (26,518) (14,571) Increase in other assets (11,487) (8,567) -------------- -------------- Net Cash Used In Investing Activities (38,005) (23,138) Financing Activities: Proceeds of short-term borrowings, net 41,919 30,000 Principal payments on long-term debt (2,184) (4,939) Payments on refund certificates and patronage financing programs (5,752) (28,741) Proceeds from sale of common stock 1,145 811 Repurchase of common stock (7,319) (6,623) Payments of cash portion of patronage dividends (38,173) (34,826) -------------- -------------- Net Cash Used In Financing Activities (10,364) (44,318) -------------- -------------- Increase (Decrease) in Cash and Cash Equivalents 1,208 (24,503) Cash and Cash Equivalents at Beginning of Period 35,422 53,901 -------------- -------------- Cash and Cash Equivalents at End of Period $ 36,630 $ 29,398 ============== ============== See accompanying notes to condensed consolidated financial statements.
ACE HARDWARE CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1) General The condensed consolidated interim period financial statements presented herein do not include all of the information and disclosures customarily provided in annual financial statements and have not been audited, as permitted by the rules and regulations of the Securities and Exchange Commission. The condensed consolidated interim period financial statements should be read in conjunction with the annual financial statements included in the Annual Report on Form 10-K. In the opinion of management, these financial statements have been prepared in conformity with generally accepted accounting principles and reflect all adjustments necessary for a fair statement of the results of operations and cash flows for the interim periods ended July 1, 2000 and July 3, 1999 and of it's financial position as of July 1, 2000. All such adjustments are of a normal recurring nature. The results of operations for the thirteen week and twenty-six week periods ended July 1, 2000 and July 3, 1999 are not necessarily indicative of the results of operations for a full year. 2) Patronage Dividends The Company operates as a cooperative organization and will pay patronage dividends to consenting member dealers based on the earnings derived from business done with such dealers. It has been the practice of the Company to distribute substantially all patronage sourced earnings in the form of patronage dividends. Net earnings and patronage dividends will normally be similar since patronage sourced net earnings is paid to consenting member dealers. International dealers signed under a Retail Merchant Agreement are not eligible for patronage dividends and related earnings or losses are not included in patronage sourced earnings. 3) Reclassifications Certain financial statement reclassifications have been made to prior year and prior quarter amounts to conform to comparable classifications followed in 2000. -4- 4) Segments The Company is principally engaged as a wholesaler of hardware and related products and manufactures paint products. The Company identifies segments based on management responsibility and the nature of the business activities of each component of the Company. The Company measures segments earnings as operating earnings including an allocation for administrative expenses, interest expense and income taxes. Information regarding the identified segments and the related reconciliation to consolidated information is as follows: Twenty-six Weeks Ended July 1, 2000 ----------------------------------------------------------------------- Elimination Paint Intersegment Wholesale Manufacturing Other Activities Consolidated --------- ------------- ----- ---------- ------------ Net Sales from External Customers 1,475,319 11,708 21,098 - 1,508,125 Intersegment Sales 11,966 56,654 - 68,620 - Segment Earnings (Loss) 35,854 5,648 (1,497) (115) 39,890 Twenty-six Weeks Ended July 3, 1999 ----------------------------------------------------------------------- Elimination Paint Intersegment Wholesale Manufacturing Other Activities Consolidated --------- ------------- ----- ---------- ------------ Net Sales from External Customers 1,659,658 12,393 9,482 - 1,681,533 Intersegment Sales 11,225 56,514 - (67,739) - Segment Earnings (Loss) 44,324 5,358 (864) (220) 48,598 Thirteen Weeks Ended July 1, 2000 ----------------------------------------------------------------------- Elimination Paint Intersegment Wholesale Manufacturing Other Activities Consolidated --------- ------------- ----- ---------- ------------ Net Sales from External Customers 788,538 6,707 11,871 - 807,116 Intersegment Sales 7,613 33,282 - (40,895) - Segment Earnings (Loss) 22,731 3,477 (604) (60) 25,544 Thirteen Weeks Ended July 3, 1999 ----------------------------------------------------------------------- Elimination Paint Intersegment Wholesale Manufacturing Other Activities Consolidated --------- ------------- ----- ---------- ------------ Net Sales from External Customers 894,034 7,878 5,396 - 907,308 Intersegment Sales 6,226 28,918 - (35,144) - Segment Earnings (Loss) 28,774 2,675 (60) (100) 31,289
-5- 5) Business Combination On June 30, 1999 the Company entered into a business combination agreement with Builder Marts of America, Inc. (BMA) to combine the LBM Division of the Company with BMA. Under this agreement, the Company contributed defined business assets (primarily vendor rebate receivables, fixed assets and inventories) for a non-controlling interest in the combined entity. The investment in the combined entity will be accounted for under the equity method of accounting. The accompanying consolidated financial statements include the financial results of the LBM Division through the closing date of August 2, 1999. Accordingly, the accompanying financial statements for the twenty-six weeks ended July 1, 2000 do not include activity for the LBM Division of the Company. ACE HARDWARE CORPORATION ------------------------ PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF ------------------------------------------------------- FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- Thirteen Weeks Ended July 1, 2000 compared to Thirteen Weeks - ------------------------------------------------------------ Ended July 3, 1999. - ------------------- Results of Operations The total sales decrease for the quarter of 11.0% was affected by the business combination of Ace LBM with BMA. As a result of this transaction, LBM sales are not reported within the Company's sales results after August 2, 1999. Basic business sales increased 8.0% in 2000 primarily due to increased existing retailer volume, conversions to the Ace program and additional sales to non-members. Domestic and International basic business sales increased 7.7% and 14.8%, respectively. Gross profit increased $840,000 and increased as a percent of total sales from 8.6% in 1999 to 9.8% in 2000. The increase, as a percent of sales, results primarily from the loss of lower margin LBM sales volume since August 1999. Basic business (excluding LBM) gross profit decreased for the quarter as a percent of basic business sales (9.8% in 2000 vs. 10.2% in 1999) due to higher costs absorbed into inventory and sales mix shifts towards the lower margin direct ship sales category. Higher vendor rebates combined with improved Corporate store retail margins partially offset the gross profit decline for the quarter. Warehouse and distribution expenses increased $736,000 over 1999 and increased as a percent of total sales from 1.0% in 1999 to 1.2% in 2000. As a percent to basic business sales, these costs remained constant at 1.2%. Higher distribution wages required to support the increased sales volume combined with pre-opening costs for a new Loxley, Alabama distribution facility are partially offset by higher logistics income for the quarter. Selling, general and administrative expenses increased $514,000 or 2.3% and increased as a percent of total sales due to increased information technology costs, lower convention income and expenses associated with opening the Loxley, Alabama distribution facility. Lower LBM Division costs partially offset these expense increases. Retail success and development expenses increased $6.1 million due to operating costs associated with operating additional Corporate stores. Excluding Corporate store operating expenses, retail success and development expenses are up $2.9 million or 29.1% due to additional paint advertisment costs, costs to support retail computer initiatives and increased retail field personnel costs. -6- ACE HARDWARE CORPORATION ------------------------ PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF ------------------------------------------------------- FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- Twenty-six Weeks Ended July 1, 2000 compared to Twenty-six Weeks - ---------------------------------------------------------------- Ended July 3, 1999. - ------------------- Results of Operations - --------------------- The total sales decrease of 10.3% was affected by the business combination of Ace LBM with BMA. As a result of this transaction, LBM sales are not reported within the Company's sales results after August 2, 1999. Basic business sales increased 8.2% in 2000 primarily due to increased existing retailer volume, targeted efforts on new store development within our retailer base, conversions to the Ace program and additional sales to non-members. Domestic and International basic business sales increased 8.2% and 8.1%, respectively. Gross profit increased $4.7 million and increased as a percent of total sales from 8.4% in 1999 to 9.7% in 2000. The increase, as a percent of sales, results primarily from the loss of lower margin LBM sales volume since August 1999. Basic business (excluding LBM) gross profit decreased slightly as a percent of basic business sales (9.7% in 2000 vs. 9.9% in 1999) due to a sales mix shift towards the lower margin direct ship sales category and higher warehousing costs absorbed into inventory. Higher vendor rebates combined with improved Corporate store gross margin partially offset the year-to-date gross profit decline. Warehouse and distribution expenses increased $1.5 million over 1999 and increased as a percent of total sales from 1.2% in 1999 to 1.4% in 2000. As a percent of basic business sales, these costs remained constant at 1.4%. Higher distribution wages required to support the increased sales volume combined with pre-opening costs associated for a new Loxley, Alabama distribution facility are partially offset by higher logistics income. Selling, general and administrative expenses increased $1.4 million or 3.2% and increased as a percent of total sales due to higher information technology costs, lower convention income and expenses associated with opening the Loxley, Alabama distribution facility. Lower LBM Division costs partially offset these expense increases. Retail success and development expenses increased $12.2 million due to operating costs associated with operating additional Corporate stores. Excluding Corporate store operating expenses, retail success and development expenses are up $6.6 million or 36.2% due to additional paint advertising costs, costs to support retail computer initiatives, increased retail field personnel costs and costs to support the Vision 21 strategy. Interest expense increased $1.5 million due to higher average borrowing levels and interest rates. The increased borrowing levels result from the construction of the Loxley, Alabama distribution center and increased retailer dating programs. Other income increased $1.6 million primarily due to income realized on non-controlling investments in affiliates. -7- Income taxes decreased due to decreased income from non-patronage activities. Operating losses from non-patronage activities resulted in a net income tax benefit. Liquidity and Capital Resources - ------------------------------- The Company expects that existing and internally generated funds, along with new and established lines of credit and long-term financing, will continue to be sufficient in the foreseeable future to finance the Company's working capital requirements and patronage dividend and capital expenditures programs. Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes in the Company's market risk during the twenty-six week period ended July 1, 2000. For additional information, refer to Item 7a in the Company's Annual Report on Form 10-K for the year ended January 1, 2000. -8- PART II. OTHER INFORMATION -------------------------- ACE HARDWARE CORPORATION ------------------------ Item 4. Submission of Matters to a Vote of Security Holders The following information is furnished with respect to matters submitted to a vote of the stockholders of the registrant at a meeting thereof held during the quarter covered by this report: (a) Date of meeting: June 5, 2000 - said meeting was an annual meeting. (b) 1. The following director was elected at said meeting for a three year term expiring in 2003: Richard A. Karp 2. The following directors were reelected at said meeting for a three year term expiring in 2003: Eric R. Bibens II D. William Hagan Jennifer C. Anderson 3. The names of the other directors other than the above elected directors whose terms of office as directors continue after the meeting are: Richard F. Baalmann, Jr. Richard W. Stine J. Thomas Glenn Daniel L. Gust Lawrence R. Bowman Howard J. Jung Mario R. Nathusius Roger E. Peterson resigned from the Board of Directors on May 31, 2000. Item 6. Exhibits and Reports on Form 8-K. (b) A Form 8-K was filed on May 2, 2000 containing: .Plan of Distribution of patronage dividends with respect to purchases of merchandise made from the Registrant from January 1, 1999 adopted by the Board of Directors, and .Notice of Annual Meeting of Stockholders on June 5, 2000 and Proxy solicited by Board of Directors and related information. -11- SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ACE HARDWARE CORPORATION - -------------------------------- LORI L. BOSSMANN DATE August 15, 2000 Lori L. Bossmann Vice President, Finance (Principal Accounting Officer, and duly authorized Officer of the registrant) EX-27 2 0002.txt ART.5 FDS FOR 2ND QUARTER 2000
5 This schedule contains summary financial information extracted from the SEC Form 10-Q and is qualified in its entirety by reference to such financial statements. YEAR DEC-30-2000 JUL-01-2000 36630 0 462870 (3145) 413520 67580 457197 (195726) 1238926 956540 0 0 0 285351 (2965) 1238926 1508125 1508125 1362175 1362175 96752 0 9966 39232 658 39890 0 0 0 39890 0 0
-----END PRIVACY-ENHANCED MESSAGE-----