-----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, T3LTklk/0/f7D/PzmBRfyidQHI9qTBQ/PcSgWHrgV6l4MCyTlmD+QCA+/brhGQqA fa6SBf3g4bS2SfM7rBGEng== 0000002024-98-000025.txt : 19980817 0000002024-98-000025.hdr.sgml : 19980817 ACCESSION NUMBER: 0000002024-98-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980704 FILED AS OF DATE: 19980814 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: 98688755 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 1998 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 4, 1998 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 4, 1998 Class A Voting Stock - $1,000 par value 3,810 shares Class B Stock - $1,000 par value 2,650 shares Class C Stock - $ 100 par value 2,301,870 shares ACE HARDWARE CORPORATION INDEX Part I. - Financial Information: Page No. Consolidated Balance Sheets - July 4, 1998 and December 31, 1997 1 Consolidated Statements of Earnings - Twenty-six Weeks and Thirteen Weeks Ended July 4, 1998 and Six Months and Three Months Ended June 30, 1997 2 Consolidated Statements of Cash Flows - Twenty-six Weeks Ended July 4, 1998 and Six Months Ended June 30, 1997 3 Notes to Consolidated Financial Statements 4 & 5 Management's Discussion and Analysis of Financial Condition and Results of Operations 6 & 7 Part II. - Other Information 8 PART I. FINANCIAL INFORMATION ACE HARDWARE CORPORATION CONSOLIDATED BALANCE SHEETS July 4, December 31, 1998 1997 (000's omitted) ASSETS Current Assets: Cash $ 46,492 $ 14,171 Accounts Receivable, Net 450,840 364,541 Merchandise Inventory 331,747 338,509 Prepaid Expenses and Other Current Assets 16,675 11,966 -------------- -------------- Total Current Assets 845,754 729,187 Property and Equipment, Net 235,069 242,979 Other Assets 7,104 4,405 -------------- -------------- Total Assets $ 1,087,927 $ 976,571 ============== ============== LIABILITIES AND MEMBER DEALERS' EQUITY Current Liabilities: Current Installment of Long-Term Debt $ 7,402 $ 7,515 Short-Term Borrowings 43,990 42,000 Accounts Payable 525,843 423,499 Patronage Dividends Payable in Cash 16,721 29,943 Patronage Refund Certificates Payable 10,362 13,636 Accrued Expenses 50,520 53,583 -------------- -------------- Total Current Liabilities 654,838 570,176 Notes Payable 117,221 96,815 Patronage Refund Certificates Payable 46,137 49,044 Other Long-Term Liabilities 17,069 14,722 -------------- -------------- Total Liabilities 835,265 730,757 Member Dealers' Equity: Class A Stock of $1,000 Par Value 3,963 3,874 Class B Stock of $1,000 Par Value 6,499 6,499 Class C Stock of $100 Par Value 236,613 213,609 Class C Stock of $100 Par Value, Issuable 12,633 22,366 Additional Stock Subscribed, Net of Unpaid 220 383 Retained Earnings and Contributed Capital 6,741 6,649 -------------- -------------- Total Member Dealers' Equity 266,669 253,380 Less: Treasury Stock, at Cost 14,007 7,566 -------------- -------------- Total Member Dealers' Equity 252,662 245,814 -------------- -------------- Total Liabilities and Member Dealers $ 1,087,927 $ 976,571 ============== ============== See accompanying notes to consolidated financial statements. ACE HARDWARE CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS Thirteen Weeks Ended Three Months Ended Twenty-six Weeks Ended Six Months Ended July 4, June 30, July 4, June 30, 1998 1997 1998 1997 (000's omitted) (000's omitted) Net Sales $ 829,569 $ 788,567 $ 1,550,972 $ 1,430,704 Cost of Sales 761,008 725,269 1,429,905 1,321,127 ------------ ------------ ------------- ------------- Gross Profit 68,561 63,298 121,067 109,577 Operating Expenses: Warehouse and Distribution 8,266 8,299 19,312 19,757 Selling, General and Administrative 19,088 18,247 38,445 36,107 Retail Success and Development 7,537 6,604 14,347 12,550 ------------ ------------ ------------- ------------- Total Operating Expenses 34,891 33,150 72,104 68,414 Operating Income 33,670 30,148 48,963 41,163 Interest Expense (4,294) (4,059) (8,149) (7,666) Other Income, Net 1,159 1,653 2,782 2,857 Income Taxes (665) (871) (1,348) (1,181) ------------ ------------ ------------- ------------- Net Earnings $ 29,870 $ 26,871 $ 42,248 $ 35,173 ============ ============ ============= ============= Distribution of Net Earnings: Patronage Dividends $ 29,568 $ 26,342 $ 42,156 $ 34,563 Retained Earnings 302 529 92 610 ------------ ------------ ------------- ------------- Net Earnings $ 29,870 $ 26,871 $ 42,248 $ 35,173 ============ ============ ============= ============= See accompanying notes to consolidated financial statements.
ACE HARDWARE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Twenty-six Weeks Ended Six Months Ended July 4, June 30, 1998 1997 (000's omitted) Operating Activities: Net Earnings $ 42,248 $ 35,173 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 10,812 9,578 Loss on sale of property and equipment 415 203 Increase in accounts receivable, net (86,299) (72,910) Decrease in merchandise inventory 6,762 28,473 Increase in prepaid expenses and other current assets (4,709) (3,944) Increase in accounts payable and accrued expenses 99,281 67,450 Increase in other long-term liabilities 2,347 2,587 ----------- ------------- Net Cash Provided By Operating Activities 70,857 66,610 Investing Activities: Purchases of property and equipment (11,460) (35,666) Proceeds from sale of property and equipment 8,143 145 Increase in other assets (2,699) (3,927) ----------- ------------- Net Cash Used In Investing Activities (6,016) (39,448) Financing Activities: Proceeds (Payments) of short-term borrowings 1,990 (6,097) Proceeds from notes payable 25,713 32,464 Principal payments on long-term debt (5,420) (3,145) Payments on refund certificates and patronage financing programs (18,983) (18,790) Proceeds from sale of common stock 564 736 Repurchase of common stock (6,441) (5,633) Payments of cash portion of patronage dividend (29,943) (28,178) ------------- ------------- Net Cash Provided By Financing Activities (32,520) (28,643) ------------- ------------- Increase (Decrease) in Cash and Cash Equivalents 32,321 (1,481) Cash and Cash Equivalents at Beginning of Period 14,171 12,657 ------------- ------------- Cash and Cash Equivalents at End of Period $ 46,492 $ 11,176 ============= ============= See accompanying notes to consolidated financial statements.
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, 1997 balance sheet but in the opinion of the Company reflect all adjustments necessary to present fairly the financial position as of July 4, 1998 and June 30, 1997 and the results of operations and cash flows for the twenty-six weeks 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 1998. 4) Notes Payable In March 1998, the Company entered into a $25,000,000 loan agreement due February 9, 2010. The note bears interest at 6.61% per annum, payable annually. Annual principle payments commence on February 9, 2006 and continue through 2010. 5) Fiscal Year Effective January 1, 1998, the Board of Directors approved a change to the Company's fiscal year from December 31 to the Saturday nearest December 31. Accordingly, the second quarter of 1998 consists of thirteen weeks ending July 4, 1998. 6) Year 2000 A detailed plan has been established to identify and track progress on the identification of systems, changing of non-compliant systems and testing of those systems for Year 2000 compliance. Project completion is planned for the middle of 1999. In addition, a plan is being developed for all devices (time clocks, power systems, etc.) within the Company. The Company expects its Year 2000 date conversion project to be completed on a timely basis. The Company expects to incur internal staff costs as well as incremental consulting and other expenses related to infrastructure and facilities enhancements necessary to prepare the systems for the Year 2000. A significant portion of these costs will represent the re-deployment of existing information technology resources. Based upon an initial investigation, the Company estimates that such costs could range between $3,000,000 and $5,000,000. To date, correspondence has been received from the Company's primary vendors that plans are being developed to address processing of transactions in the Year 2000. However, there can be no assurance that the systems of other companies on which the Company's system rely will be converted timely or that any such failure to convert by another company would not have an adverse effect on the Company's systems. ACE HARDWARE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Thirteen Weeks Ended July 4, 1998 compared to Three Months Ended June 30, 1997. Results of Operations Net sales increased 5.2% in 1998 primarily due to increased existing retailer volume, targeted efforts on new store development and conversions to the Ace program. Price deflation in the lumber category negatively impacted second quarter sales results. Gross profit increased 8.3% vs. 1997, and increased as a percent of sales due to increased handling charges from sales mix shifts, increased cash and vendor discounts and gross profit from the Company's manufacturing, retail and Cana- dian operations. Warehouse and distribution expenses decreased slightly vs. 1997 due to increased traffic and freight consolidations income, partially offset by increased warehousing costs absorbed into inventory and wage increases to sup- port increased warehouse sales volume. Selling, general and administrative expenses increased $841,000 or 4.6%, however, decreased as a percent of sales due primarily to increased data processing expenses offset by increased convention income. Retail success and development expenses increased $933,000 or 14.1%, and increased as a percent of sales. Retail store development costs partially offset by increased advertising income generated the second quarter expense increase. Interest expense increased $235,000 vs. 1997 due to additional long-term debt issued during 1998 to fund long-term capital investments. Other income decreased $494,000 vs. 1997 primarily due to a loss on the sale of property and equipment and lower retailer service charges. Twenty-six Weeks Ended July 4, 1998 compared to Six Months Ended June 30, 1997. Results of Operations Net sales increased 8.4% in 1998 primarily due to increased existing retailer volume, targeted efforts on new store development and conversions to the Ace program. Additionally, four additional workdays are included in the 1998 results. Gross profit increased 10.5% vs. 1997, and increased as a percent of sales due to increased handling charges from sales mix shifts, and higher cash and vendor discounts. Gross profit from the Company's retail and Canadian operations also contributed to increased year-to-date gross profit. Warehouse and distribution expenses decreased $445,000 vs. 1997 due to increased traffic and freight consolidations income, partially offset by wage increases to support increased warehouse sales volume. Selling, general and administrative expenses increased $2.3 million or 6.5%, however, decreased as a percent of sales due primarily to increased data processing expenses. Retail success and development expenses increased $1.8 million or 14.3%. Retail store development costs partially offset by increased advertising income generated the year-to-date expense increase. Interest expense increased $483,000 vs. 1997 due to additional dealer dating programs and long-term debt issued during 1998 to fund long-term capital investments. Income taxes increased $167,000 primarily 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. 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 1, 1998 - said meeting was an annual meeting. (b) 1. The following directors were elected at said meeting for a three year term expiring in 2001: Daniel L. Gust Howard J. Jung Mario R. Nathusius 2. The following directors were reelected at said meeting for a three year term expiring in 2001: Lawrence R. Bowman Roger E. Peterson 3. The names of the other directors other than the above elected directors whose terms of office as directors continue after the meeting are: Eric R. Bibbens, II D. William Hagan Jennifer C. Anderson Mark Jeronimus Jon R. Weiss John E. Kingrey J. Thomas Glenn Item 6. Exhibits and Reports on Form 8-K. (b) There were no reports on Form 8-K filed for the twenty-six weeks ended July 4, 1998. 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 14, 1998 Lori L. Bossmann Vice President, Controller (Principal Accounting Officer, and duly authorized Officer of the registrant) EX-27 2 ART.5 FDS FOR 2ND QUARTER 1998
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 OTHER JAN-2-1999 JUL-4-1998 46492 0 453291 2451 331747 845754 391856 156787 1087927 654838 0 0 0 259708 6961 1087927 1550972 1550972 1429905 1429905 0 0 8149 43596 1348 42248 0 0 0 42248 0 0
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