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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 June 30, 1994 Commission File Number 2-63880
ACE HARDWARE CORPORATION
(Exact name of registrant as specified in itscharter)
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 June 30, 1994
Class A Voting Stock - $1,000 par value 3,934 shares
Class B Stock - $1,000 par value 3,312 shares
Class C Stock - $ 100 par value 1,677,833 shares
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ACE HARDWARE CORPORATION
INDEX
Part I. - Financial Information: Page No.
Balance Sheet - June 30, 1994 and December 31, 1993 1
Statement of Earnings - Six Months and Three Months
Ended June 30, 1994 and 1993 2
Statement of Cash Flows - Six Months Ended
June 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>
JUNE 30, DECEMBER 31,
1994 1993
(000'S OMITTED)
<S> <C> <C>
ASSETS
Current assets:
Cash $ -- $ 4,142
Accounts receivable, net 284,487 212,604
Merchandise inventory 270,077 263,576
Prepaid expenses and other current assets 6,412 6,869
Total current assets 560,976 487,191
Property and equipment, net 173,273 166,137
Other assets 15,472 14,160
Total assets $ 749,721 $ 667,488
LIABILITIES AND MEMBER DEALERS' EQUITY
Current liabilities:
Current installments of long-term debt 5,436 10,707
Short-term borrowings 108,000 38,500
Accounts payable 267,930 234,190
Patronage dividends payable in cash 14,475 25,766
Patronage refund certificates payable 1,324 11,059
Accrued expenses 32,952 33,682
Total current liabilities 430,117 353,904
Long-term debt:
Notes Payable 66,480 69,552
Industrial development revenue and variable rate bonds 750 1,000
Capitalized leases 510 734
Total long-term debt 67,740 71,286
Patronage refund certificates payable 60,610 56,270
Member dealers' equity:
Class A stock of $1,000 par value 4,059 3,946
Class B stock of $1,000 par value 6,499 6,499
Class C stock of $100 par value 171,561 153,155
Class C stock of $100 par value, issuable to
dealers for patronage dividends 9,874 19,064
Additional stock subscribed, net of unpaid portion 542 613
Retained Earnings 5,701 5,622
Contributed Capital 3,295 3,295
201,531 192,194
Less: Treasury stock, at cost 10,277 6,166
191,254 186,028
Total liabilities and member dealers' equity $ 749,721 $ 667,488
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See accompanying notes to financial statements.
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ACE HARDWARE CORPORATION
STATEMENT OF EARNINGS
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1994 1993 1994 1993
(000's omitted) (000's omitted)
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Net Sales $626,786 $537,878 $1,142,616 $980,982
Cost of Sales 580,101 498,982 1,057,818 908,042
Gross Profit 46,685 38,896 84,798 72,940
Operating expenses:
Warehouse and distribution 6,816 7,716 13,518 16,687
Selling, general and administrative 18,028 13,329 32,940 25,312
Total operating expenses 24,844 21,045 46,458 41,999
Operating income 21,841 17,851 38,340 30,941
Interest expense (3,395) (2,402) (6,370) (4,642)
Other income, net 678 285 1,020 808
Earnings before patronage dividends 19,124 15,734 32,990 27,107
Patronage dividends (Note 2) 19,071 16,457 32,911 28,445
Net earnings $ 53 $ (723) $ 79 $ (1,338)
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See accompanying notes to financial statements.
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ACE HARDWARE CORPORATION
STATEMENT OF CASH FLOWS
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
(000's OMITTED)
1994 1993
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OPERATING ACTIVITIES:
Earnings before patronage dividends $ 32,990 $ 27,107
Patronage dividends (32,911) (28,445)
Net earnings 79 (1,338)
Adjustments to reconcile net earnings to net
cash used in operating activities:
Depreciation 8,376 7,982
Loss on sale of property & equipment 55 348
Changes in operating assets and liabilities:
Increase in accounts receivable, net (71,883) (37,885)
Increase in inventories (6,501) (9,522)
Decrease in prepaids and other current assets 457 680
Increase in accounts payable and accrued expenses 33,010 57,535
NET CASH PROVIDED (USED) IN OPERATING ACTIVITIES (36,407) 17,800
INVESTING ACTIVITIES:
Purchases of property and equipment (15,706) (7,027)
Proceeds from sale of property and equipment 139 202
Increase in other assets (1,312) (2,343)
NET CASH USED IN INVESTING ACTIVITIES (16,879) (9,168)
FINANCING ACTIVITIES:
Proceeds from short-term borrowings 69,500 10,500
Principal payments on long-term debt and patronage
refund certificates (21,880) (18,088)
Patronage dividends payable in cash 14,475 12,339
Patronage refund certificates 6,583 6,730
Class C stock issuable to dealers for patronage dividends 9,874 8,973
Proceeds from sale of common stock 469 457
Repurchase of common stock (4,111) (4,149)
Payment of cash portion of patronage dividends (25,766) (27,538)
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 49,144 (10,776)
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 $ -- $ --
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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 June 30, 1994 and 1993 and the
results of operations and cash flows for the six 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 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 June 30, 1994 compared to Three Months Ended
June 30, 1993.
Results of Operations
Net sales increased 16.5% as a result of an increase in the
volume to existing members and increased International sales.
Gross profit increased 20% and as a percent of sales due to the
strong sales results, particularly in the warehouse sales
categories.
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 higher field support personnel
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.
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 reoccur in 1994.
Liquidity and Capital Resources
In the second quarter of 1994, the Company established an
unsecured revolving credit facility with a group of banks. 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
Six Months Ended June 30, 1994 compared to Six Months Ended June
30, 1993.
Results of Operations
Net sales increased 16.5% 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 and was comparable as a percent of sales due to the
strong sales results, 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.
Distribution costs also declined as a percent of sales due to
the 1993 facility closing.
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 reoccur in 1994.
Liquidity and Capital Resources
In the second quarter of 1994, the Company established an
unsecured revolving credit facility with a group of banks. 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 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 6, 1994 - said meeting was
an annual meeting.
(b) The following director was elected at said
meeting:
For a three year term expiring in 1997:
Jennifer C. Anderson.
(c) The following directors were reelected at said
meeting:
For a three year term expiring in 1997:
Mark Jeronimus, Ray W. Osborne and Don S.
Williams.
The names of each of the other directors other
than the above elected directors whose terms of
office as directors continue after the meeting
are:
Richard E. Laskowski; Lawrence R. Bowman; James R.
Williams; Howard J. Jung; Jon R. Weiss; John E.
Kingrey
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 June 30, 1994.
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SIGNATURES
Pursuant to the regulations of the Securities and Exchange
Commission, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
ACE HARDWARE CORPORATION
RITA D. KAHLE DATE
Rita D. Kahle
Vice President, Finance
(Principal Financial Officer, and duly
authorized Officer of the registrant)
