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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, 1994 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 60521
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (708) 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, 1994
Class A Voting Stock - $1,000 par value 3,922 shares
Class B Stock - $1,000 par value 3,276 shares
Class C Stock - $ 100 par value 1,663,652 shares
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ACE HARDWARE CORPORATION
INDEX
Part I. - Financial Information: Page No.
Balance Sheet - September 30, 1994 and December 31, 1993 1
Statement of Earnings - Nine Months and Three Months
Ended September 30, 1994 and 1993 2
Statement of Cash Flows - Nine Months Ended
September 30, 1994 and 1993 3
Notes to Financial Statements 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations 5 & 6
Part II. - Other Information 7
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PART I FINANCIAL INFORMATION
ACE HARDWARE CORPORATION
BALANCE SHEET
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1994 1993
(000'S OMITTED)
<S> <C> <C>
ASSETS
Current assets:
Cash $ -- $ 4,142
Accounts receivable, net 236,327 212,604
Merchandise inventory 267,256 263,576
Prepaid expenses and other current assets 6,480 6,869
Total current assets 510,063 487,191
Property and equipment, net 173,283 166,137
Other assets 16,175 14,160
Total assets $ 699,521 $ 667,488
LIABILITIES AND MEMBER DEALERS' EQUITY
Current liabilities:
Current installments of long-term debt 6,403 10,707
Short-term borrowings 76,500 38,500
Accounts payable 233,190 234,190
Patronage dividends payable in cash 22,064 25,766
Patronage refund certificates payable 1,323 11,059
Accrued expenses 34,900 33,682
Total current liabilities 374,380 353,904
Long-term debt:
Notes Payable 64,994 69,552
Industrial development revenue and variable rate bonds 589 1,000
Capitalized leases 378 734
Total long-term debt 65,961 71,286
Patronage refund certificates payable 63,861 56,270
Member dealers' equity:
Class A stock of $1,000 par value 4,104 3,946
Class B stock of $1,000 par value 6,499 6,499
Class C stock of $100 par value 172,077 153,155
Class C stock of $100 par value, issuable to
dealers for patronage dividends 15,044 19,064
Additional stock subscribed, net of unpaid portion 552 613
Retained Earnings 6,088 5,622
Contributed Capital 3,295 3,295
207,659 192,194
Less: Treasury stock, at cost 12,340 6,166
195,319 186,028
Total liabilities and member dealers' equity $ 699,521 $ 667,488
</TABLE>
See accompanying notes to financial statements.
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<TABLE>
ACE HARDWARE CORPORATION
STATEMENT OF EARNINGS
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1994 1993 1994 1993
(000's omitted) (000's omitted)
<S> <C> <C> <C> <C>
Net Sales $572,094 $510,089 $1,714,710 $1,491,071
Cost of Sales 530,171 472,377 1,587,989 1,380,419
Gross Profit 41,923 37,712 126,721 110,652
Operating expenses:
Warehouse and distribution 7,347 7,261 20,865 23,948
Selling, general and administrative 14,552 13,182 48,046 39,000
Total operating expenses 21,899 20,443 68,911 62,948
Operating income 20,024 17,269 57,810 47,704
Interest expense (3,426) (2,446) (9,796) (7,088)
Other income, net 1,023 864 2,597 2,178
Earnings before patronage dividends 17,621 15,687 50,611 42,794
Patronage dividends (Note 2) 17,234 16,232 50,145 44,677
Net earnings $ 387 $ (545) $ 466 $ (1,883)
</TABLE>
See accompanying notes to financial statements.
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<TABLE>
ACE HARDWARE CORPORATION
STATEMENT OF CASH FLOWS
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
(000's OMITTED)
1994 1993
<S> <C> <C>
OPERATING ACTIVITIES:
Earnings before patronage dividends $ 50,611 $ 42,794
Patronage dividends (50,145) (44,677)
Net earnings 466 (1,883)
Adjustments to reconcile net earnings to net
cash used in operating activities:
Depreciation 12,693 12,047
Loss on sale of property & equipment 127 379
Changes in operating assets and liabilities:
Increase in accounts receivable, net (23,723) (5,622)
Increase in inventories (3,680) (19,149)
Decrease (increase) in prepaids and other current assets 389 (1,263)
Increase (decrease) in accounts payable and
accrued expenses 218 32,278
NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES (13,510) 16,787
INVESTING ACTIVITIES:
Purchases of property and equipment (20,123) (11,004)
Proceeds from sale of property and equipment 157 218
Increase in other assets (2,015) (2,504)
NET CASH USED IN INVESTING ACTIVITIES (21,981) (13,290)
FINANCING ACTIVITIES:
Proceeds from (repayments of) short-term
borrowings 38,000 (28,000)
Proceeds from notes payable 0 30,000
Principal payments on long-term debt and patronage
refund certificates (22,888) (18,631)
Patronage dividends payable in cash 22,064 19,644
Patronage refund certificates 10,029 10,073
Class C stock issuable to dealers for patronage dividends 15,044 14,002
Proceeds from sale of common stock 1,040 704
Repurchase of common stock (6,174) (5,895)
Payment of cash portion of patronage dividends (25,766) (27,538)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 31,349 (5,641)
Decrease in Cash and Cash Equivalents (4,142) (2,144)
Cash and Cash Equivalents at Beginning of Period 4,142 2,144
Cash and Cash Equivalents at End of Period $ -- $ --
</TABLE>
See accompanying notes to financial statements.
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ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1) General
The accompanying financial statements have not been examined
by independent public accountants except for the December 31,
1993 balance sheet but in the opinion of the Company reflect
all adjustments necessary to present fairly the financial
position as of September 30, 1994 and 1993 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 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.
Earnings before patronage dividends and patronage dividends
will normally be the same with approximately 99% of the
Company's patronage sourced net earnings being paid to
consenting member dealers. International dealers signed
under an International Retail Merchant Agreement are not
eligible for patronage dividends and related earnings 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 1994.
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ACE HARDWARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended September 30, 1994 compared to Three Months
Ended September 30, 1993.
Results of Operations
Net sales increased 12.2% as a result of an increase in the volume
to existing members and increased International sales. Gross
profit increased 11.2% due to the strong sales results,
particularly in the warehouse sales categories and increased
manufacturing gross profit.
Warehouse and distribution expenses increased vs. 1993 but have
declined as a percent of sales due to increased personnel costs to
support the sales increase which are offset by increased traffic
revenues.
Selling, general and administrative expenses increased vs. 1993
due to higher field support personnel costs, increased data
processing costs and reduced net advertising income.
Interest expense increased as a result of increased borrowing
levels to meet sales growth demands and rising interest rates.
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.
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ACE HARDWARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine Months Ended September 30, 1994 compared to Nine Months Ended
September 30, 1993.
Results of Operations
Net sales increased 15.0% as a result of an increase in the volume
to existing members and increased International sales. Increased
advertising activity has increased promotional sales, largely
through warehouse sales programs. Gross profit increased due to
the strong sales results and strong manufacturing profits, with a
slight shift in sales mix on a year to date basis.
Warehouse and distribution expenses decreased vs. 1993 and as a
percent of sales due to increased traffic revenues and reduced
building costs due to the closing of a facility in 1993.
Selling, general and administrative expenses increased vs. 1993
and as a percent of sales due to reduced net advertising income
and higher field support personnel costs.
Interest expense increased as a result of increased borrowing
levels to meet sales growth demands and higher interest rates.
Other income, net increased due to increased interest income
related to member financing programs and 1993 losses on asset
disposals at a replaced facility which did not re-occur in 1994.
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.
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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, 1994.
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SIGNATURES
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
DATE
RITA D. KAHLE
Vice President, Finance
(Principal Financial Officer, and duly
authorized Officer of the registrant)
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
SEC Form 10-Q and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 237,879
<ALLOWANCES> 1,552
<INVENTORY> 267,256
<CURRENT-ASSETS> 510,063
<PP&E> 290,168
<DEPRECIATION> 116,885
<TOTAL-ASSETS> 699,521
<CURRENT-LIABILITIES> 374,380
<BONDS> 129,822
<COMMON> 0
0
0
<OTHER-SE> 195,319
<TOTAL-LIABILITY-AND-EQUITY> 699,521
<SALES> 1,714,710
<TOTAL-REVENUES> 1,714,710
<CGS> 1,587,989
<TOTAL-COSTS> 1,587,989
<OTHER-EXPENSES> 68,911
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,796
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 466
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
