-----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, OEVoJpNzwwJNjjEipQI0Q2nykpWzRyOTMjziDM5qFoNBpEHPClrnIUPFKEPIXq/H /Gi4o7URSKpendsZhSRl1A== 0000002024-97-000017.txt : 19971117 0000002024-97-000017.hdr.sgml : 19971117 ACCESSION NUMBER: 0000002024-97-000017 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971114 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: SEC FILE NUMBER: 002-55860 FILM NUMBER: 97720466 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, 3RD 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 September 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 September 30, 1997 Class A Voting Stock - $1,000 par value 3,945 shares Class B Stock - $1,000 par value 2,760 shares Class C Stock - $ 100 par value 2,167,810 shares ACE HARDWARE CORPORATION INDEX Part I. - Financial Information: Page No. Consolidated Balance Sheets - September 30, 1997 and December 31, 1996 1 Consolidated Statements of Earnings - Nine Months and Three Months Ended September 30, 1997 and 1996 2 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1997 and 1996 3 Notes to Consolidated Financial Statements 4 Management's Discussion and Analysis of Financial Condition and Results of Operations 5 - 7 Part II. - Other Information 8 PART I. FINANCIAL INFORMATION ACE HARDWARE CORPORATION CONSOLIDATED BALANCE SHEETS September 30, December 31, 1997 1996 (000's omitted) ASSETS Current Assets: Cash $ 10,812 $ 12,657 Accounts Receivable, Net 350,258 347,248 Merchandise Inventory 329,318 327,145 Prepaid Expenses and Other Current Assets 13,717 11,880 ---------- ---------- Total Current Assets 704,105 698,930 Property and Equipment, Net 242,033 213,534 Other Assets 9,877 3,911 ---------- ---------- Total Assets $ 956,015 $ 916,375 ========== ========== LIABILITIES AND MEMBER DEALERS' EQUITY Current Liabilities: Current Installment of Long-Term Debt $ 7,642 $ 6,727 Short-Term Borrowings 77,500 71,000 Accounts Payable 380,464 394,070 Patronage Dividends Payable in Cash 21,977 28,178 Patronage Refund Certificates Payable 13,614 14,138 Accrued Expenses 50,167 36,349 ---------- ---------- Total Current Liabilities 551,364 550,462 Notes Payable 98,446 71,837 Patronage Refund Certificates Payable 43,082 49,639 Other Long-Term Liabilities 15,424 11,074 ---------- ---------- Total Liabilities 708,316 683,012 Member Dealers' Equity: Class A Stock of $1,000 Par Value 4,124 3,937 Class B Stock of $1,000 Par Value 6,499 6,499 Class C Stock of $100 Par Value 224,992 196,742 Class C Stock of $100 Par Value, Issuable 20,479 26,474 Additional Stock Subscribed, Net of Unpaid Portion 320 502 Retained Earnings and Contributed Capital 7,152 6,415 ---------- ---------- Total Member Dealers' Equity 263,566 240,569 Less: Treasury Stock, at Cost 15,867 7,206 ---------- ---------- Total Member Dealers' Equity 247,699 233,363 Total Liabilities and Member Dealers Equity $ 956,015 $ 916,375 ========== ========== See accompanying notes to consolidated financial statements. -1- ACE HARDWARE CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS Three Months Ended Nine Months Ended Sept 30, Sept 30, Sept 30, Sept 30, 1997 1996 1997 1996 (000's omitted) (000's omitted) Net Sales $734,353 $712,597 $2,165,057 $2,020,220 Cost of Sales 673,932 656,030 1,995,059 1,867,283 Gross Profit 60,421 56,567 169,998 152,937 Operating Expenses: Warehouse and Distribution 9,764 9,456 29,521 26,960 Selling, General and Administrative 18,224 16,862 54,331 49,124 Retail Success and Development 7,764 5,949 20,314 18,065 -------- -------- ---------- ---------- Total Operating Expenses 35,752 32,267 104,166 94,149 Operating Income 24,669 24,300 65,832 58,788 Interest Expense (3,537) (3,235) (11,202) (8,100) Other Income, Net 1,285 1,142 4,143 3,279 Income Taxes (505) (368) (1,687) (1,020) -------- -------- ---------- ---------- Net Earnings $ 21,912 $ 21,839 $ 57,086 $ 52,947 ======== ======== ========== ========== Distribution of Net Earnings: Patronage Dividend $ 21,785 $ 21,666 $ 56,349 $ 53,996 Retained Earnings 127 173 737 (1,049) -------- -------- ---------- ---------- Net Earnings $ 21,912 $ 21,839 $ 57,086 $ 52,947 ======== ======== ========== ========== See accompanying notes to consolidated financial statements. -2- ACE HARDWARE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Nine Months Ended September, 30 1997 1996 (000's omitted) Operating Activities: Net Earnings $ 57,086 $ 52,947 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 14,296 13,060 Loss (Gain) on sale of property and equipment 212 (22) Increase in accounts receivable, net (3,010) (31,836) Increase in merchandise inventory (2,173) (78,903) Increase in prepaid expenses and other current (1,837) (3,920) Increase in accounts payable and accrued expenses 212 56,921 Increase in other long-term liabilities 4,350 2,430 -------- -------- Net Cash Provided By Operating Activities 69,136 10,677 Investing Activities: Purchases of property and equipment (43,161) (26,178) Proceeds from sale of property and equipment 154 53 Decrease (Increase) in other assets (5,966) 45 -------- -------- Net Cash Used In Investing Activities (48,973) (26,080) Financing Activities: Proceeds from short-term borrowings 6,500 40,500 Proceeds from notes payable 33,016 20,808 Principal payments on long-term debt (5,492) (5,821) Payments on refund certificates and patronage financing programs (20,974) (19,257) Proceeds from sale of common stock 1,781 1,176 Repurchase of common stock (8,661) (7,715) Payments of cash portion of patronage dividend (28,178) (23,522) -------- -------- Net Cash Provided By (Used In) Financing Activities (22,008) 6,169 Decrease in Cash and Cash Equivalents (1,845) (9,234) Cash and Cash Equivalents at Beginning of Period 12,657 12,853 -------- -------- Cash and Cash Equivalents at End of Period $ 10,812 $ 3,619 ======== ======== 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 September 30, 1997 and 1996 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 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 September 30, 1997, compared to Three Months Ended September 30, 1996. Results of Operations Net sales increased 3.1% primarily due to increased existing dealer volume, targeted efforts on new store development and conversions to the Ace program. Gross profit increased 6.8% vs. 1996, and increased as a percent of sales due to increased cash and vendor discounts, improved product and manufacturing gross profit and increased handling charges due to a shift in sales mix. Gross profit on the Company's retail operations also contributed to increased 1997 gross profit. Warehouse and distribution expenses increased $308,000 or 3.3% and remained consistent as a percent of sales versus 1996. Start-up and shutdown costs for the replacement of an existing facility are partially offset by increased traffic and freight consolidations income. Selling, general and administrative expenses increased $1.4 million or 8.1% and as a percent of sales due to increased data processing expenses and start-up and shutdown costs for the opening and closure of facilities in August 1997. Retail success and development expenses increased $1.8 million or 30.5% and as a percent of sales due to increased advertising expenses and expenses for the Company's retail operations. Interest expense increased $302,000 vs. 1996 due to increased borrowings, additional dealer dating programs and higher interest rates. Income taxes increased $137,000 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 Nine Months Ended September 30, 1997 compared to Nine Months Ended September 30, 1996. Results of Operations Net sales increased 7.2% 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 Canadian operations. Gross profit increased 11.2% 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 Canadian operations. Warehouse and distribution expenses increased $2.6 million or 9.5% due to costs for the operation of one additional domestic and two Canadian facilities opened in mid 1996 partially offset by increased traffic revenues. Costs for the replacement of an existing facility also contributed to the increase. Selling, general and administrative expenses increased $5.2 million or 10.6% and as a percent of sales due to Canadian operation costs and increased data processing expenses. Retail success and development expenses increased $2.2 million or 12.4% and as a percent of sales primarily due to increased expenses associated with the Company's retail operations and lower retailer computer systems income partially offset by increased advertising income. Interest expense increased $3.1 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. Other income increased due to increased penalty charges. Income taxes increased $667,000 vs. 1996 due to improved profitability of the Company's non-patronage operations. -6- 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. -7- 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, 1997. -8- 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: 11/14/97 Lori L. Bossmann Vice President, Controller (Principal Accounting Officer, and duly authorized Officer of the registrant) -9- EX-27 2 ART.5 FDS FOR 3RD 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 9-MOS DEC-31-1997 SEP-30-1997 10812 0 353204 2946 329318 704105 390439 148406 956015 551364 0 0 0 256094 7472 956015 2165057 2165057 1995059 1995059 0 0 11202 58773 1687 57086 0 0 0 57086 0 0
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