-----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, JUzqXcocAKhc+WbLPbmYTDYlg2lvDlI08V66R0vC4hJu7Q2IiuMGwYKIjaArWH34 pYOiZtip4d7lShzrdWH9LA== 0000002024-98-000030.txt : 19981118 0000002024-98-000030.hdr.sgml : 19981118 ACCESSION NUMBER: 0000002024-98-000030 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19981003 FILED AS OF DATE: 19981116 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: 98751536 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 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 October 3, 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 October 3, 1998 Class A Voting Stock - $1,000 par value 3,820 shares Class B Stock - $1,000 par value 2,610 shares Class C Stock - $ 100 par value 2,281,160 shares ACE HARDWARE CORPORATION INDEX Part I. - Financial Information: Page No. Consolidated Balance Sheets - October 3, 1998 and December 31, 1997 1 Consolidated Statements of Earnings - Thirty-nine Weeks and Thirteen Weeks Ended October 3, 1998 and Nine Months and Three Months Ended September 30, 1997 2 Consolidated Statements of Cash Flows - Thirty-nine Weeks Ended October 3, 1998 and Nine Months Ended September 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 October 3, December 31, 1998 1997 (000's omitted) ASSETS Current Assets: Cash $ 26,460 $ 14,171 Accounts Receivable, Net 386,643 364,541 Merchandise Inventory 361,688 338,509 Prepaid Expenses and Other Current Assets 17,777 11,966 ------------- ------------ Total Current Assets 792,568 729,187 Property and Equipment, Net 235,986 242,979 Other Assets 10,415 4,405 ------------- ------------ Total Assets $ 1,038,969 $ 976,571 ============= ============ LIABILITIES AND MEMBER DEALERS' EQUITY Current Liabilities: Current Installment of Long-Term Debt $ 7,401 $ 7,515 Short-Term Borrowings 39,005 42,000 Accounts Payable 462,274 423,499 Patronage Dividends Payable in Cash 25,801 29,943 Patronage Refund Certificates Payable 10,324 13,636 Accrued Expenses 52,005 53,583 ------------- ------------ Total Current Liabilities 596,810 570,176 Notes Payable 115,549 96,815 Patronage Refund Certificates Payable 51,113 49,044 Other Long-Term Liabilities 17,686 14,722 ------------- ------------ Total Liabilities 781,158 730,757 Member Dealers' Equity: Class A Stock of $1,000 Par Value 4,020 3,874 Class B Stock of $1,000 Par Value 6,499 6,499 Class C Stock of $100 Par Value 236,983 213,609 Class C Stock of $100 Par Value, Issuable 19,970 22,366 Additional Stock Subscribed, Net of Unpaid Portion 222 383 Retained Earnings and Contributed Capital 6,994 6,649 ------------- ------------ Total Member Dealers' Equity 274,688 253,380 Less: Treasury Stock, at Cost 16,877 7,566 ------------- ------------ Total Member Dealers' Equity 257,811 245,814 ------------- ------------ Total Liabilities and Member Dealers' Equity $ 1,038,969 $ 976,571 ============= ============ See accompanying notes to consolidated financial statements. ACE HARDWARE CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS Thirteen Weeks Endeed Three Months Ended Thirty-nine Weeks Ended Nine Months Ended October 3, September 30, October 3, September 30, 1998 1997 1998 1997 (000's omitted) (000's omitted) Net Sales $ 782,002 $ 734,353 $ 2,332,974 $ 2,165,057 Cost of Sales 716,163 673,932 2,146,068 1,995,059 ------------ ------------ ------------ ------------ Gross Profit 65,839 60,421 186,906 169,998 Operating Expenses: Warehouse and Distribution 9,228 9,764 28,540 29,521 Selling, General and Administrative 19,140 18,224 57,585 54,331 Retail Success and Development 9,703 7,764 24,050 20,314 ------------- ------------- ------------ ------------ Total Operating Expenses 38,071 35,752 110,175 104,166 ------------- ------------- ------------ ------------ Operating Income 27,768 24,669 76,731 65,832 Interest Expense (4,941) (3,537) (13,090) (11,202) Other Income, Net 1,578 1,285 4,360 4,143 Income Taxes (514) (505) (1,862) (1,687) ------------ ------------ ------------ ------------ Net Earnings $ 23,891 $ 21,912 $ 66,139 $ 57,086 ============ ============ ============ ============ Distribution of Net Earnings: Patronage Dividend $ 23,638 $ 21,785 $ 65,794 $ 56,349 Retained Earnings 253 127 345 737 ------------ ------------ ------------ ------------ Net Earnings $ 23,891 $ 21,912 $ 66,139 $ 57,086 ============ ============ ============ ============ See accompanying notes to consolidated financial statements.
ACE HARDWARE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Thirty-nine Weeks Ended Nine Months Ended October 3, September 30, 1998 1997 (000's omitted) Operating Activities: Net Earnings $ 66,139 $ 57,086 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 16,124 14,296 Loss on sale of property and equipment 417 212 Increase in accounts receivable, net (22,102) (3,203) Increase in merchandise inventory (23,179) (2,173) Increase in prepaid expenses and other current assets (5,811) (1,837) Increase in accounts payable and accrued expenses 37,197 706 Increase in other long-term liabilities 2,964 4,049 ----------- ----------- Net Cash Provided By Operating Activities 71,749 69,136 Investing Activities: Purchases of property and equipment (17,697) (43,161) Proceeds from sale of property and equipment 8,149 154 Increase in other assets (6,010) (5,966) ----------- ----------- Net Cash Used In Investing Activities (15,558) (48,973) Financing Activities: Proceeds (Payments) of short-term borrowings (2,995) 6,500 Proceeds from notes payable 26,022 33,016 Principal payments on long-term debt (7,402) (5,492) Payments on refund certificates and patronage financing programs (21,266) (20,974) Proceeds from sale of common stock 993 1,781 Repurchase of common stock (9,311) (8,661) Payments of cash portion of patronage dividend (29,943) (28,178) ----------- ----------- Net Cash Provided By Financing Activities (43,902) (22,008) ----------- ----------- Increase (Decrease) in Cash and Cash Equivalents 12,289 (1,845) Cash and Cash Equivalents at Beginning of Period 14,171 12,657 ----------- ----------- Cash and Cash Equivalents at End of Period $ 26,460 $ 10,812 =========== =========== 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 October 3, 1998 and September 30, 1997 and the results of operations and cash flows for the thirty-nine 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 third quarter of 1998 consists of thirteen weeks ending October 3, 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 has been developed for all devices (time clocks, power systems, etc.) within the Company. The Company is approximately 40% complete with the project as of the 3rd quarter. An additional 20% is anticipated to be completed by year-end. The remaining 40% will be dedicated to the Enterprise testing in the first half of 1999. 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 current estimates, such costs could range between $5.0 million and $6.5 million. As of October 3, 1998 the Company has expended approximately $2.4 million. 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 affect on the Company's systems. The Company is in the process of identifying specific business risks as they relate to Year 2000 and is developing a Contingency Plan. It is anticipated that the Contingency plan will be completed in the first half of 1999. ACE HARDWARE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Thirteen Weeks Ended October 3, 1998 compared to Three Months Ended September 30, 1997. Results of Operations Net sales increased 6.5% in 1998 primarily due to increased existing retailer volume, targeted efforts on new store development within our retailer base and conversions to the Ace program. 1998 includes one less working day than 1997. Gross profit increased 9.0% vs. 1997, and increased as a percent of sales due to increased handling charges from sales mix shifts, higher vendor allowances, increased gross profit from the Company's retail operations and lower warehouse costs absorbed into inventory. Decreased paint manufacturing profit partially offsets these increases. Warehouse and distribution expenses decreased 5.5% vs. 1997 due to increased traffic and freight consolidations income and efficiencies realized due to the replacement of an existing facility in the third quarter of 1997. Selling, general and administrative expenses increased $916,000 or 5.0%, however, decreased as a percent of sales due primarily to continued cost control measures. Retail success and development expenses increased $1.9 million or 25.0%, and increased as a percent of sales. Retail store development costs combined with lower advertising income generated the third quarter expense increase. Interest expense increased $1.4 million vs. 1997 due to additional dealer dating programs and long-term debt issued during 1998 to fund long-term capital investments. Thirty-nine Weeks Ended October 3, 1998 compared to Nine Months Ended September 30, 1997. Results of Operations Net sales increased 7.8% in 1998 primarily due to increased existing retailer volume, targeted efforts on new store development within our retailer base and conversions to the Ace program. Additionally, three additional workdays are included in the 1998 results. Gross profit increased 9.9% vs. 1997, and increased as a percent of sales due to increased handling charges from sales mix shifts, increased vendor discounts and lower distribution costs absorbed into inventory. Gross profit from the Company's retail operations is partially offset by lower paint manufacturing gross profit year-to-date. Warehouse and distribution expenses decreased $981,000 or 3.3% vs. 1997 due to increased traffic and freight consolidations income, partially offset by wage increases to support the increased warehouse sales volume. Year-to-date wages as a percent of sales have declined due to the replacement of a facility in 1997 and productivity improvements. Selling, general and administrative expenses increased $3.3 million or 6.0%, however, decreased as a percent of sales. Increased information technology costs to support our year 2000 efforts results in the year-to-date expense increase. Retail success and development expenses increased $3.7 million or 18.4%. Retail store development costs partially offset by increased advertising income generated the year-to-date expense increase. Interest expense increased $1.9 million vs. 1997 due to additional dealer dating programs and long-term debt issued during 1998 to fund long-term capital investments. 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 6. Exhibits and Reports on Form 8-K. (b) There were no reports on Form 8-K filed for the thirty-nine weeks ended October 3, 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 NOVEMBER 16, 1998 Lori L. Bossmann Vice President, Controller (Principal Accounting Officer, and duly authorized Officer of the registrant) EX-27 2 ART.5 FDS FOR 3RD 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 OCT-3-1998 26460 0 389125 2482 361688 792568 397262 161276 1038969 596810 0 0 0 267472 7216 1038969 2332974 2332974 2146068 2146068 0 0 13090 68001 1862 66139 0 0 0 66139 0 0
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