-----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, H2nbzN5og5mQ2DIHs0x1aUDR9XOa4KwgljA2f5On+fBc+d7FrseLfwjI4pYCcg1p LF5fQ5ncsWWo/uHypVky5A== 0000002024-96-000024.txt : 19961118 0000002024-96-000024.hdr.sgml : 19961118 ACCESSION NUMBER: 0000002024-96-000024 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACE HARDWARE CORP CENTRAL INDEX KEY: 0000002024 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-HARDWARE & PLUMBING & HEATING EQUIPMENT & SUPPLIES [5070] IRS NUMBER: 360700810 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 002-55860 FILM NUMBER: 96666034 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 FORM 10-Q 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 Quarter ended September 30, 1996 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 60521 (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 September 30, 1996 Class A Voting Stock - $1,000 par value 3,934 shares Class B Stock - $1,000 par value 2,924 shares Class C Stock - $ 100 par value 1,989,710 shares ACE HARDWARE CORPORATION INDEX Part I. - Financial Information: Page No. Balance Sheets - September 30, 1996 and December 31, 1995 1 Statements of Earnings - Nine Months and Three Months Ended September 30, 1996 and 1995 2 Statements of Cash Flows - Nine Months Ended September 30, 1996 and 1995 3 Notes to Financial Statements 4 Management's Discussion and Analysis of Financial Condition and Results of Operations 5 & 6 Part II. - Other Information 7 PART I. FINANCIAL INFORMATION ACE HARDWARE CORPORATION BALANCE SHEETS
September 30, December 31, 1996 1995 (000's omitted) ASSETS Current Assets: Cash $ 3,620 $ 12,853 Accounts Receivable, Net 318,914 287,078 Merchandise Inventory 333,353 254,451 Prepaid Expenses and Other Current Assets 13,244 9,324 Total Current Assets 669,131 563,706 Property and Equipment, Net 204,591 191,504 Other Assets 3,878 3,923 Total Assets $ 877,600 $ 759,133 LIABILITIES AND MEMBER DEALERS' EQUITY Current Liabilities: Current Installment of Long-Term Debt $ 6,849 $ 7,378 Short-Term Borrowings 53,500 13,000 Accounts Payable 384,731 338,577 Patronage Dividends Payable in Cash 19,438 23,522 Patronage Refund Certificates Payable 14,295 12,641 Accrued Expenses 43,446 32,177 Total Current Liabilities 522,259 427,295 Notes Payable 73,311 57,795 Other Long-Term Liabilities 3,985 2,057 Patronage Refund Certificates Payable 46,060 54,741 Total Liabilities 645,615 541,888 Member Dealers' Equity: Class A Stock of $1,000 Par Value 4,117 3,905 Class B Stock of $1,000 Par Value 6,499 6,499 Class C Stock of $100 Par Value 206,295 177,817 Class C Stock of $100 Par Value, Issuable to Dealers for Patronage Dividends 22,329 27,506 Additional Stock Subscribed, Net of Unpaid Portion 506 515 Retained Earnings and Contributed Capital 6,896 7,945 Total Member Dealers' Equity 246,642 224,187 Less: Treasury Stock, at Cost 14,657 6,942 Total Member Dealers' Equity 231,985 217,245 Total Liabilities and Member Dealers' Equity $ 877,600 $ 759,133
See accompanying notes to financial statements. -1- ACE HARDWARE CORPORATION STATEMENTS OF EARNINGS
Three Months Ended Nine Months Ended Sept 30, Sept 30, Sept 30, Sept 30, 1996 1995 1996 1995 (000's omitted) (000's omitted) Net Sales $ 712,597 $ 604,570 $ 2,020,220 $ 1,808,039 Cost of Sales 656,176 558,027 1,867,429 1,666,036 Gross Profit 56,421 46,543 152,791 142,003 Operating Expenses: Warehouse and Distribution 9,545 6,995 27,049 22,972 Selling, General and Administrative 16,670 15,621 49,148 46,902 Retail Success and Development 5,966 4,777 17,893 14,902 Total Operating Expenses 32,181 27,393 94,090 84,776 Operating Income 24,240 19,150 58,701 57,227 Interest Expense (3,235) (2,981) (8,100) (10,180) Other Income, Net 1,226 1,193 3,532 3,290 Income Taxes (392) (600) (1,186) (1,103) Net Earnings $ 21,839 $ 16,762 $ 52,947 $ 49,234 Distribution of Net Earnings: Patronage Dividends $ 21,666 $ 17,220 $ 53,996 $ 50,002 Retained Earnings 173 (458) (1,049) (768) Net Earnings $ 21,839 $ 16,762 $ 52,947 $ 49,234
See accompanying notes to financial statements. - 2 - ACE HARDWARE CORPORATION STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30 (000's omitted) 1996 1995 Operating Activities: Net Earnings $ 52,947 $ 49,234 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 13,060 12,612 Gain on sale of property and equipment (22) (10) Increase in accounts receivable, net (31,836) (4,294) Increase in merchandise inventory (78,902) (6,424) Increase in prepaids and other current assets (3,920) (935) Increase in accounts payable and accrued expenses 57,423 16,635 Increase in other long-term liabilities 1,928 689 Net Cash Provided By Operating Activities 10,678 67,507 Investing Activities: Purchases of property and equipment (26,178) (23,603) Proceeds from sale of property and equipment 53 22 Decrease (Increase) in other assets 45 (4,189) Net Cash Used In Investing Activities (26,080) (27,770) Financing Activities: Proceeds (Payments) from short-term borrowings 40,500 (500) Proceeds (Payments) on long-term debt 14,987 (4,805) Payments on refund certificates and patronage financing programs (19,257) (7,477) Proceeds from sale of common stock 1,176 1,204 Repurchase of common stock (7,715) (7,257) Payments of cash portion of patronage dividend (23,522) (27,302) Net Cash Provided by (Used in) Financing Activities 6,169 (46,137) Decrease in Cash and Cash Equivalents (9,233) (6,400) Cash and Cash Equivalents at Beginning of Period 12,853 6,501 Cash and Cash Equivalents at End of Period $ 3,620 $ 101
See accompanying notes to financial statements. -3- ACE HARDWARE CORPORATION NOTES TO FINANCIAL STATEMENTS 1) General The accompanying financial statements have not been examined by independent public accountants except for the December 31, 1995 balance sheet but in the opinion of the Company reflect all adjustments necessary to present fairly the financial position as of September 30, 1996 and 1995 and the results of operations and cash flows for the nine months then ended. These interim figures are not necessarily indicative of the results to be expected for the 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 loss 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 1996. 4) Notes Payable In August 1996, the Company entered into a $20,000,000 loan agreement due June 15, 2011. The note bears interest at 7.49% per annum, payable quarterly. Quarterly principle payments commence on September 15, 2004 and continue through 2011. -4- ACE HARDWARE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Months Ended September 30, 1996 compared to Three Months Ended September 30, 1995. Results of Operations Net sales increased 17.9% in 1996 primarily due to increased existing dealer volume, increased advertising promotions, targeted efforts on new store development and conversions to the Ace program and the June 1996 start-up of Canadian operations. Gross profit increased 21.2% vs. 1995, and increased as a percent of sales due to increased cash and vendor discounts, improved manufacturing gross profits and gross profit from the Canadian operation. Increased levels of warehouse costs absorbed into inventory and reduced levels of dealer price increases partially offset the current quarter increases. Warehouse and distribution expenses increased $2.5 million and as a percent of sales vs. 1995. 1996 start-up costs for the opening of one domestic and two Canadian facilities and wages to support the sales increase are partially offset by increased levels of warehouse costs absorbed into inventory. Lower freight consolidation income also contributed to the 1996 expense increase. Selling, general and administrative expenses increased $1.0 million or 6.7% compared to 1995, but decreased as a percent of sales. Personnel costs for the start up facilities and increased data processing expenses are offset by reduced corporate administrative expenses due to re-engineering efforts. Retail success and development expenses increased $1.2 million or 24.9%, and increased slightly as a percent of sales. The increase is primarily due to increased advertising and new business development costs. Interest expenses increased $254,000 or 8.5% vs. 1995 due to inventory level increases and additional dealer dating programs. Additional long-term debt was issued in the third quarter to fund long-term capital investments. -5- ACE HARDWARE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Nine Months Ended September 30, 1996 compared to Nine Months Ended September 30, 1995. Results of Operations Net sales increased 11.7% in 1996 primarily due to increased volume from existing dealers, increased advertising promotions, targeted efforts on new store development and conversions to the Ace program and the Canadian operation start-up. Gross profit increased 7.6% vs. 1995, but decreased as a percent of sales due to reduced levels of dealer price increases, a shift in sales mix resulting in lower handling charges as a percent of sales, and increased warehouse costs absorbed into inventory. This decrease is partially offset by a lower LIFO provision, improved manufacturing gross profit and Canadian operation results. Warehouse and distribution expenses increased 17.8% and as a percent of sales vs. 1995. 1996 start-up costs for the opening of one domestic and two Canadian facilities, combined with increased wages to support the sales increase and lower freight consolidation income resulted in the expense increase. Increased warehouse costs absorbed into inventory partially offset the year-to-date expense increase. Selling, general and administrative expenses increased by 4.8% vs. 1995, but decreased as a percent of sales. The increase is primarily related to increased personnel and relocation costs for the start-up facilities and increased data processing expenses. This is offset by reduced corporate administrative expenses due to re-engineering efforts. Retail success and development expenses increased $3.0 million or 20.1% vs. 1995 and as a percent of sales due to increased new business development costs and decreased computer systems income. Interest expenses decreased 20.4% or $2.1 million vs. 1995 due primarily to inventory turnover improvements in the first half of 1996. Other income increased $242,000 vs. 1995 due primarily to the growth in dealer financing programs. Liquidity and Capital Resources The Company expects that internally generated funds, along with new and established lines of credit and long-term financing, will be the primary financing sources for capital expenditures in the future. -6- PART II. OTHER INFORMATION ACE HARDWARE CORPORATION Item 6. Exhibits and Reports on Form 8-K (b) There were no reports on Form 8-K filed for the three month period ended September 30, 1996. -7- 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 RITA D. KAHLE DATE November 14, 1996 Rita D. Kahle Vice President, Finance (Principal Financial and Accounting Officer, and duly authorized Officer of the registrant) EX-27 2 ART.5 FDS FOR SECOND QTR 10-Q
5 This schedule contains summary financial information extracted from SEC Form 10-Q and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS DEC-31-1996 JUN-30-1996 2138 0 371527 2352 287114 673051 346940 143889 880192 557431 0 0 0 229983 6662 880192 1307623 1307623 1211253 1211253 0 0 4865 31902 794 31108 0 0 0 31108 0 0
EX-27 3 ART.5 FDS FOR THIRD QTR
5 This schedule contains summary financial information extracted from SEC Form 10-Q and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS DEC-31-1996 SEP-30-1996 3620 0 321334 2420 333353 669131 353091 148500 877600 522259 0 0 0 239240 7402 877600 2020220 2020220 1867429 1867429 0 0 8100 54133 1186 52947 0 0 0 52947 0 0
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