-----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, JxAbXECfxDGsS+aFrU2G9b0ajVqaTMRqrtKiPfvnkrbtyYG+UpxTNIIMfJruCVkV +pmWX9qZZKyP3cqDGbULJg== 0000002024-97-000014.txt : 19970815 0000002024-97-000014.hdr.sgml : 19970815 ACCESSION NUMBER: 0000002024-97-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97662214 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, 2ND QUARTER 1997 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 June 30, 1997 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 60523-2100 (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 June 30, 1997 Class A Voting Stock - $1,000 par value 3,925 shares Class B Stock - $1,000 par value 2,800 shares Class C Stock - $ 100 par value 2,184,519 shares ACE HARDWARE CORPORATION INDEX Part I. - Financial Information: Page No. Consolidated Balance Sheets - June 30, 1997 and December 31, 1996 1 Consolidated Statements of Earnings - Six Months and Three Months Ended June 30, 1997 and 1996 2 Consolidated Statements of Cash Flows - Six Months Ended June 30, 1997 and 1996 3 Notes to Consolidated 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 CONSOLIDATED BALANCE SHEETS June 30, December 31, 1997 1996 (000's omitted) ASSETS Current Assets: Cash $ 11,176 $ 12,657 Accounts Receivable, Net 419,965 347,248 Merchandise Inventory 298,672 327,145 Prepaid Expenses and Other Current Assets 15,824 11,880 ---------- ---------- Total Current Assets 745,637 698,930 Property and Equipment, Net 239,274 213,534 Other Assets 7,838 3,911 ---------- ---------- Total Assets $ 992,749 $ 916,375 ========== ========== LIABILITIES AND MEMBER DEALERS' EQUITY Current Liabilities: Current Installment of Long-Term Debt $ 7,632 $ 6,727 Short-Term Borrowings 64,903 71,000 Accounts Payable 451,844 394,070 Patronage Dividends Payable in Cash 13,272 28,178 Patronage Refund Certificates Payable 13,665 14,138 Accrued Expenses 45,750 36,349 ---------- ---------- Total Current Liabilities 597,066 550,462 Notes Payable 100,251 71,837 Patronage Refund Certificates Payable 40,246 49,639 Other Long-Term Liabilities 13,743 11,074 ---------- ---------- Total Liabilities 751,306 683,012 Member Dealers' Equity: Class A Stock of $1,000 Par Value 4,046 3,937 Class B Stock of $1,000 Par Value 6,499 6,499 Class C Stock of $100 Par Value 223,776 196,742 Class C Stock of $100 Par Value, Issuable 12,368 26,474 Additional Stock Subscribed, Net of Unpaid Portion 568 502 Retained Earnings and Contributed Capital 7,025 6,415 ---------- ---------- Total Member Dealers' Equity 254,282 240,569 Less: Treasury Stock, at Cost 12,839 7,206 ---------- ---------- Total Member Dealers' Equity 241,443 233,363 Total Liabilities and Member Dealers' Equity $ 992,749 $ 916,375 ========== ========== See accompanying notes to consolidated financial statements. -1- ACE HARDWARE CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS Three Months Ended Six Months Ended June 30, June 30, June 30, June 30, 1997 1996 1997 1996 (000's omitted) (000's omitted) Net Sales $788,567 $714,437 $1,430,704 $1,307,623 Cost of Sales 725,269 659,512 1,321,127 1,211,253 -------- -------- ---------- ---------- Gross Profit 63,298 54,925 109,577 96,370 Operating Expenses: Warehouse and Distribution 8,289 8,998 19,757 17,504 Selling, General and Administration 18,825 16,659 37,066 32,451 Retail Success and Development 6,036 6,019 11,591 11,927 -------- -------- ---------- ---------- Total Operating Expenses 33,150 31,676 68,414 61,882 -------- -------- ---------- ---------- Operating Income 30,148 23,249 41,163 34,488 Interest Expense (4,059) (2,393) (7,666) (4,865) Other Income, Net 1,653 970 2,857 2,137 Income Taxes (871) (297) (1,181) (652) -------- -------- ---------- ---------- Net Earnings $ 26,871 $ 21,529 $ 35,173 $ 31,108 ======== ======== ========== ========== Distribution of Net Earnings: Patronage Dividend $ 26,342 $ 22,456 $ 34,563 $ 32,923 Retained Earnings 529 (927) 610 (1,815) -------- -------- ---------- ---------- Net Earnings $ 26,871 $ 21,529 $ 35,173 $ 31,108 ======== ======== ========== ========== See accompanying notes to financial statements. -2- ACE HARDWARE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE, 30 1997 1996 (000's omitted) Operating Activities: Net Earnings $ 35,173 $ 31,108 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 9,578 8,160 Loss on sale of property and equipment 203 (22) Increase in accounts receivable, net (72,717) (82,097) Decrease (Increase) in merchandise inventory 28,473 (32,663) Increase in prepaid expenses and other current assets (3,944) (5,300) Increase in accounts payable and accrued expenses 67,175 103,049 Increase in other long-term liabilities 2,669 366 --------- --------- Net Cash Provided By Operating Activities 66,610 22,601 Investing Activities: Purchases of property and equipment (35,666) (19,736) Proceeds from sale of property and equipment 145 51 Increase in other assets (3,927) (167) --------- --------- Net Cash Used In Investing Activities (39,448) (19,852) Financing Activities: Proceeds from short-term borrowings (6,097) 35,000 Proceeds from notes payable 32,464 0 Principal payments on long-term debt (3,145) (3,236) Payments on refund certificates and patronage financing programs (18,790) (16,920) Proceeds from sale of common stock 736 776 Repurchase of common stock (5,633) (5,562) Payments of cash portion of patronage dividend (28,178) (23,522) --------- --------- Net Cash Used in Financing Activities (28,643) (13,464) Decrease in Cash and Cash Equivalents (1,481) (10,715) Cash and Cash Equivalents at Beginning of Period 12,657 12,853 --------- --------- Cash and Cash Equivalents at End of Period $ 11,176 $ 2,138 ========= ========= See accompanying notes to consolidated financial statements. -3- ACE HARDWARE CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1) General The accompanying consolidated financial statements have not been examined by independent public accountants except for the December 31, 1996 balance sheet but in the opinion of the Company reflect all adjustments necessary to present fairly the financial position as of June 30, 1997 and 1996 and the results of operations and cash flows for the six 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 1997. 4) Notes Payable In March 1997, the Company entered into a $30,000,000 loan agreement due March 25, 2009. The note bears interest at 7.55% per annum, payable quarterly. Annual principle payments commence on March 25, 2005 and continue through 2009. -4- ACE HARDWARE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three Months Ended June 30, 1997, compared to Three Months Ended June 30, 1996. Results of Operations Net sales increased 10.4% primarily due to increased existing dealer volume, targeted efforts on new store development and conversions to the Ace program and the June 1996 start-up of Canada operations. Gross profit increased 15.2% vs. 1996, and increased as a percent of sales due to gross profit realized from the Canadian operation and increased levels of vendor discounts. Gross profit on the Company's retail operations also contributed to increased gross profit in 1997. Warehouse and distribution expenses decreased $709,000 or 7.9% and as a percent of sales versus 1996. This decrease is primarily due to increased traffic and freight consolidations revenue partially offset by an increase in expenses for the operation of two Canadian facilities. Selling, general and administrative expenses increased $2.2 million or 13.0% and as a percent of sales due to costs associated with the Canadian operation, increased data processing expenses and expenses for the Company's retail operations. Retail success and development expenses are comparable to 1996 but declined as a percent of sales due to lower 1997 net advertising expenses. Interest expense increased $1.7 million vs. 1996 due to increased borrowings, additional dealer dating programs and higher interest rates. Other income increased due to higher 1997 penalty charge income. Income taxes increased $574,000 primarily due to improved profitability of the Company's non-patronage operations. -5- ACE HARDWARE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Six Months Ended June 30, 1997 compared to Six Months Ended June 30, 1996. Results of Operations Net sales increased 9.4% in 1997 primarily due to increased existing dealer volume, targeted efforts on new store development and conversions to the Ace program and the June 1996 start-up of Canada operations. Gross profit increased 13.7% vs. 1996, and increased as a percent of sales due to increased levels of vendor discounts, improved product and manufacturing gross profit and gross profit realized from the Canadian operations. Warehouse and distribution expenses increased $2.3 million or 12.8% and as a percent of sales versus 1996 due to costs for the operation of one additional domestic and two Canadian facilities opened in mid 1996 partially offset by increased traffic revenues. Selling, general and administrative expenses increased $4.6 million or 14.2% and as a percent of sales due to costs associated with the Canadian operation and increased data processing expenses. Retail success and development expenses decreased $336,000 or 2.8%, and as a percent of sales primarily due to increased advertising income. Interest expense increased $2.8 million vs. 1996 due to increased borrowings, additional dealer dating programs and higher interest rates. Additional long-term debt was issued in the first quarter to fund long-term capital investments. Income taxes increased $529,000 vs. 1996 due to improved profitability of the Company's non-patronage operations. 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 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 2, 1997 - said meeting was an annual meeting. (b) 1. The following directors were elected at said meeting for a three year term expiring in 2000: Eric R. Bibens II D. William Hagan 2. The following directors were reelected at said meeting for a three year term expiring in 2000: Jennifer C. Anderson Mark Jeronimus 3. The names of the other directors other than the above elected directors whose terms of office as directors continue after the meeting are: Roger E. Peterson Lawrence R. Bowman Richard E. Laskowski James R. Williams, Jr. Jon R. Weiss John E. Kingrey James T. Glenn 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 June 30, 1997. -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: AUGUST 14, 1997 Rita D. Kahle Vice President, Finance (Principal Financial and Accounting Officer, and duly authorized Officer of the registrant) -8- EX-27 2 ART.5 FDS FOR 2ND QUARTER 1997
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. 1000 6-MOS DEC-31-1997 JUN-30-1997 11176 0 422551 2586 298672 745637 384223 144949 992749 597066 0 0 0 246689 7593 992749 1430704 1430704 1321127 1321127 0 0 7666 36354 1181 35173 0 0 0 35173 0 0
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