-----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, SQ6VywKSBMYrYpdm3znqpuEwBVNIzUlbMxGWhrCTPUoxVEhHXEzopvM+Puit9N1u GPozGU6wClJarzJMQM5/Ow== 0000002024-99-000012.txt : 19990519 0000002024-99-000012.hdr.sgml : 19990519 ACCESSION NUMBER: 0000002024-99-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990403 FILED AS OF DATE: 19990518 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: 99629462 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, 1ST QUARTER 1999 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 April 3, 1999 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 April 3, 1999 Class A Voting Stock - $1,000 par value 3,826 shares Class B Stock - $1,000 par value 2,544 shares Class C Stock - $ 100 par value 2,485,626 shares ACE HARDWARE CORPORATION INDEX Part I. - Financial Information: Page No. Consolidated Balance Sheets - April 3, 1999 and January 2, 1999 1 Consolidated Statements of Earnings and Consolidated Statements of Comprehensive Income - Thirteen Weeks Ended April 3, 1999 and April 4, 1998 2 Consolidated Statements of Cash Flows - Thirteen Weeks Ended April 3, 1999 and April 4, 1998 3 Notes to Consolidated Financial Statements 4 & 5 Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Part II. - Other Information 7 PART I. FINANCIAL INFORMATION ACE HARDWARE CORPORATION CONSOLIDATED BALANCE SHEETS April 3, January 2, 1999 1999 (000's omitted) ASSETS Current Assets: Cash $ 32,042 $ 53,901 Accounts Receivable, Net 449,020 397,120 Merchandise Inventory 371,290 334,405 Prepaid Expenses and Other Current Assets 14,224 15,146 ------------ ------------- Total Current Assets 866,576 800,572 Property and Equipment, Net 239,351 239,845 Other Assets 11,540 7,309 ------------ ------------- Total Assets $ 1,117,467 $ 1,047,726 ============ ============= LIABILITIES AND MEMBER DEALERS' EQUITY Current Liabilities: Current Installment of Long-Term Debt $ 6,490 $ 7,433 Short-Term Borrowings 61,000 25,000 Accounts Payable 510,032 466,008 Patronage Dividends Payable in Cash 41,836 34,826 Patronage Refund Certificates Payable 416 20,655 Accrued Expenses 57,359 54,724 ------------ ------------- Total Current Liabilities 677,133 608,646 Notes Payable 113,084 115,421 Patronage Refund Certificates Payable 46,511 43,465 Other Long-Term Liabilities 18,696 18,682 ------------ ------------- Total Liabilities 855,424 786,214 Member Dealers' Equity: Class A Stock of $1,000 Par Value 3,889 3,846 Class B Stock of $1,000 Par Value 6,499 6,499 Class C Stock of $100 Par Value 226,916 226,571 Class C Stock of $100 Par Value, Issuable 31,476 26,170 Additional Stock Subscribed, Net of Unpaid Portion 523 471 Retained Earnings and Contributed Capital 5,158 6,587 Accumulated Other Comprehensive Income (774) (818) ------------ ------------- Total Member Dealers' Equity 273,687 269,326 Less: Treasury Stock, at Cost 11,644 7,814 ------------ ------------- Total Member Dealers' Equity 262,043 261,512 Total Liabilities and Member Dealers' Equity $ 1,117,467 $ 1,047,726 ============ ============= See accompanying notes to consolidated financial statements. ACE HARDWARE CORPORATION CONSOLIDATED STATEMENTS OF EARNINGS Thirteen Weeks Ended Thirteen Weeks Ended April 3, April 4, 1999 1998 (000's omitted) Net Sales $ 774,225 $ 721,403 Cost of Sales 711,050 668,177 ---------- ---------- Gross Profit 63,175 53,226 Operating Expenses: Warehouse and Distribution 10,167 10,471 Selling, General and Administrative 22,666 20,817 Retail Success and Development 11,130 6,810 ---------- ---------- Total Operating Expenses 43,963 38,098 Operating Income 19,212 15,128 Interest Expense (3,816) (3,855) Other Income, net 2,163 1,788 Income Taxes (250) (683) ---------- ---------- Net Earnings $ 17,309 $ 12,378 ========== ========== Distribution of Net Earnings: Patronage Dividend $ 18,738 $ 12,588 Retained Earnings (1,429) (210) ---------- ---------- Net Earnings $ 17,309 $ 12,378 ========== ========== CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Thirteen Weeks Ended Thirteen Weeks Ended April 3, April 4, 1999 1998 (000's omitted) Net Earnings $ 17,309 $ 12,378 Foreign currency translation, net 44 123 ---------- ---------- Comprehensive Income $ 17,353 $ 12,501 ========== ========== See accompanying notes to consolidated financial statements. ACE HARDWARE CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Thirteen Weeks Ended Thirteen Weeks Ended April 3, April 4, 1999 1998 (000's omitted) Operating Activities: Net Earnings $ 17,309 $ 12,378 Adjustments to reconcile net earnings to net cash provided by operating activities: Depreciation 5,580 5,260 Increase in accounts receivable, net (52,180) (43,505) Increase in merchandise inventory (36,447) (10,576) Decrease (Increase) in prepaid expenses and other current assets 922 (963) Increase in accounts payable and accrued expenses 46,545 26,164 Increase in other long-term liabilities 14 966 --------- ---------- Net Cash Used In Operating Activities (18,257) (10,276) Investing Activities: Purchases of property and equipment (5,086) (4,708) Increase in other assets (4,231) (2,427) --------- ---------- Net Cash Used In Investing Activities (9,317) (7,135) Financing Activities: Proceeds of short-term borrowings 36,000 22,904 Proceeds from notes payable 25,481 Principal payments on long-term debt (3,280) (3,391) Payments on refund certificates and patronage financing programs (23,642) (16,235) Proceeds from sale of common stock 466 869 Repurchase of common stock (3,830) (3,673) --------- ---------- Net Cash Provided By Financing Activities 5,714 25,955 --------- ---------- Increase (Decrease) in Cash and Cash Equivalents (21,860) 8,544 Cash and Cash Equivalents at Beginning of Period 53,902 14,171 --------- ---------- Cash and Cash Equivalents at End of Period $ 32,042 $ 22,715 ========= ========== 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 January 2, 1999 balance sheet but in the opinion of the Company reflect all adjustments necessary to present fairly the financial position as of April 3, 1999 and April 4, 1998 and the results of operations and cash flows for the thirteen 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 1999. 4) 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 first quarter of 1999 and 1998 consists of thirteen weeks. However, due to the conversion in 1998 the 1st quarter of 1998 includes 3 additional working days over the 1st quarter of 1999. 5) 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 83% complete with the project as of April 3, 1999. The remaining 17% will be dedicated to the Enterprise testing in the second quarter 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. The Company has expended approximately $4.4 million through April 3, 1999. 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 has developed a Business Recovery Plan to address specific business risks related to year 2000. This plan includes specific direction, including but not limited to, trigger events to invoking the Plan, length of period that could be sustained under the Plan, implementation procedures, training, data security and integrity and resource requirements in the unlikely event that the plan will be implemented. ACE HARDWARE CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Thirteen Weeks Ended April 3, 1999 compared to Thirteen Weeks Ended April 4, 1998. Results of Operations Net sales increased 7.3% in 1999 primarily due to increased existing retailer volume, targeted efforts on new store development within our retailer base and conversions to the Ace program. Sales of basic hardware and paint merchandise (including warehouse, bulletin and direct shipments) increased 7.0%. The rebound of lumber prices has contributed to the total sales increase; however, a decrease in sales to international customers offset the first quarter domestic sales increase. 1999 includes three fewer working days than 1998. Gross profit increased $10.0 million and increased as a percent of sales from 7.38% in 1998 to 8.16% in 1999. Increased paint manufacturing profit, higher vendor allowances and increased gross profit from the Company's retail operations resulted in the first quarter increase. Warehouse and distribution expenses decreased 2.9% vs. 1998 and decreased as a percent of handled sales from 1.45% in 1998 to 1.31% in 1999. Increased traffic and freight consolidations income partially offset higher warehouse and distribution costs required to support increased handled sales. Selling, general and administrative expenses increased $1.8 million or 8.9% and increased slightly as a percent of sales due to increased information technology costs to support our year 2000 efforts. Retail success and development expenses increased $4.3 million due to costs associated with additional company-owned stores, costs to support retail initiatives and new business development costs. Decreased advertising income due to the timing of promotions also contributed to the increase. Income taxes decreased due to decreased income from non-patronage activities. Liquidity and Capital Resources The Company expects that existing and internally generated funds, along with new and established lines of credit and long-term financing, will continue to be sufficient to finance the Company's working capital requirements and patronage dividend and capital expenditures programs. PART II. OTHER INFORMATION ACE HARDWARE CORPORATION Item 6. Exhibits and Reports on Form 8-K. (b) A Form 8-K was filed on April 30, 1999 containing Notice of Annual Meeting of Stockholders on June 7, 1999 and Proxy solicited by Board of Directors and related information. 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 May 17, 1999 Lori L. Bossmann Vice President, Controller (Principal Accounting Officer, and duly authorized Officer of the registrant) EX-27 2 ART.5 FDS FOR 1ST QUARTER 1999
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 YEAR JAN-1-2000 APR-3-1999 32,042 0 452,097 3,077 371,290 866,576 408,141 168,790 1,117,467 677,133 0 0 0 268,780 4,907 1,117,467 774,225 774,225 711,050 711,050 0 0 3,816 17,559 250 17,309 0 0 0 17,309 0 0
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