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, 1995 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 June 30, 1995
Class A Voting Stock - $1,000 par value 3,900 shares
Class B Stock - $1,000 par value 3,140 shares
Class C Stock - $ 100 par value 1,828,817 shares
ACE HARDWARE CORPORATION
INDEX
Part I. - Financial Information: Page No.
Balance Sheets - June 30, 1995 and December 31, 1994 1
Statements of Earnings - Six Months and Three Months
Ended June 30, 1995 and 1994 2
Statements of Cash Flows - Six Months Ended
June 30, 1995 and 1994 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
<TABLE>
PART I FINANCIAL INFORMATION
ACE HARDWARE CORPORATION
BALANCE SHEETS
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
(000'S OMITTED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 102 $ 4,868
Accounts receivable, net 319,164 259,611
Merchandise inventory 261,146 270,391
Prepaid expenses and other current assets 6,878 6,810
Total current assets 587,290 541,680
Property and equipment, net 184,225 177,098
Other assets 8,595 6,703
Total assets $ 780,110 $ 725,481
LIABILITIES AND MEMBER DEALERS' EQUITY
Current liabilities:
Current installments of long-term debt 7,477 7,369
Short-term borrowings 76,000 30,000
Accounts payable 311,401 293,088
Patronage dividends payable in cash 12,561 27,302
Patronage refund certificates payable 12,771 1,315
Accrued expenses 35,971 38,627
Total current liabilities 456,181 397,701
Long-term debt:
Notes and bonds payable 60,583 64,030
Capitalized leases 549 257
Total long-term debt 61,132 64,287
Patronage refund certificates payable 52,758 63,666
Member dealers' equity:
Class A stock of $1,000 par value 4,039 3,924
Class B stock of $1,000 par value 6,499 6,499
Class C stock of $100 par value 187,165 164,666
Class C stock of $100 par value, issuable to
dealers for patronage dividends 14,313 21,766
Additional stock subscribed, net of unpaid portion 553 555
Retained Earnings 5,314 5,624
Contributed Capital 3,295 3,295
221,178 206,329
Less: Treasury stock, at cost 11,139 6,502
210,039 199,827
Total liabilities and member dealers' equity $ 780,110 $ 725,481
</TABLE>
See accompanying notes to financial statements.
-1-
<TABLE>
ACE HARDWARE CORPORATION
STATEMENTS OF EARNINGS
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1995 1994 1995 1994
(000's omitted) (000's omitted)
<S> <C> <C> <C> <C>
Net Sales $643,982 $626,786 $1,203,469 $1,142,616
Cost of Sales 594,967 580,101 1,113,088 1,057,818
Gross Profit 49,015 46,685 90,381 84,798
Operating expenses:
Warehouse and distribution 7,691 6,778 15,977 13,442
Selling, general and administrative 20,728 18,066 37,526 33,016
Total operating expenses 28,419 24,844 53,503 46,458
Operating income 20,596 21,841 36,878 38,340
Interest expense (3,363) (3,395) (6,430) (6,370)
Other income, net 1,380 798 2,526 1,422
Income taxes (130) (120) (503) (402)
Net earnings 18,483 19,124 32,471 32,990
Distribution of net earnings
Patronage Dividends 18,524 19,071 32,781 32,911
Retained earnings ( 41) 53 (310) 79
Net earnings $ 18,483 $ 19,124 $ 32,471 $ 32,990
</TABLE>
See accompanying notes to financial statements.
-2-
<TABLE>
ACE HARDWARE CORPORATION
STATEMENTS OF CASH FLOWS
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
(000's OMITTED)
1995 1994
<S> <C> <C>
Operating activities:
Net earnings $ 32,471 $ 32,990
Adjustments to reconcile net earnings to net
cash used in operating activities:
Depreciation 8,456 8,376
Loss on sale of property and equipment 1 55
Increase in accounts receivable, net (59,553) (71,883)
(Increase) Decrease in inventory 9,245 (6,501)
(Increase) Decrease in prepaids and other current assets (68) 457
Increase in accounts payable and
accrued expenses 15,659 33,010
Net cash provided by (used in) operating activities 6,211 (3,496)
Investing activities:
Purchases of property and equipment (15,585) (15,706)
Proceeds from sale of property and equipment 2 139
Increase in other assets (1,892) (1,312)
Net cash used in investing activities (17,475) (16,879)
Financing activities:
Proceeds from short-term borrowings 46,000 69,500
Principal payments on long-term debt (3,047) (8,816)
Payments on refund certificates and patronage
financing programs (5,361) (15,043)
Proceeds from sale of common stock 845 469
Repurchase of common stock (4,637) (4,111)
Payments of cash portion of patronage dividend (27,302) (25,766)
Net cash provided by financing activities 6,498 16,233
Decrease in cash and cash equivalents (4,766) (4,142)
Cash and cash equivalents at beginning of period 4,868 4,142
Cash and cash equivalents at end of period $ 102 $ --
</TABLE>
See accompanying notes to financial statements.
-3-
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,
1994 balance sheet but in the opinion of the Company reflect
all adjustments necessary to present fairly the financial
position as of June 30, 1995 and 1994 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 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 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 1995.
-4-
ACE HARDWARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended June 30, 1995 compared to Three Months Ended
June 30, 1994.
Results of Operations
Net sales increased 2.7% as a result of an increase in the volume
to existing members, partially offset by lower International
sales. Net sales were effected by the economic slowdown, late
spring weather effecting lawn and garden seasonal sales and the
Mexican peso decline.
Gross profit increased 5.0% vs. 1994 and as a percent of sales due
to sales mix shifts toward warehouse sales categories and
increased vendor allowances.
Warehouse and distribution expenses increased vs. 1994 due to
increased building costs partially offset by a reduction in
distribution labor costs resulting from improved productivity.
Selling, general and administrative expenses increased vs. 1994
and increased as a percent of sales due to higher field support
personnel costs, increased data processing costs and reduced net
advertising income.
Other income increased primarily due to growth in dealer financing
programs.
-5-
ACE HARDWARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six Months Ended June 30, 1995 compared to Six Months Ended
June 30, 1994.
Results of Operations
Net sales increased 5.3% in 1995 primarily due to increases in
volume from existing dealers and new store development and
conversions. International sales declined, primarily in Mexico
due to the peso decline and resulting decreases in export sales to
that country.
Gross profit increased 6.6% vs. 1994 and as a percent of sales due
to sales mix shifts and increased vendor allowances, partially
offset by an increased LIFO provision.
Warehouse and distribution expenses increased vs. 1994 and as a
percent of sales due to reduced traffic revenues, increased
building costs, and distribution cost increases to support the
sales growth.
Selling, general and administrative expenses increased vs. 1994
and as a percent of sales due to increased personnel costs for
field retail support and new business development, increased data
processing costs, and reduced advertising income.
Interest expense increased slightly as a result of higher interest
rates vs. 1994.
Other income increased primarily due to growth in dealer financing
programs.
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 future capital expenditures.
The Company believes that these sources, along with retail growth
of the membership leading to patronage stock growth, will provide
adequate liquidity for the long-term.
-6-
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 5, 1995 - said meeting was
an annual meeting.
(b) 1. The following director was elected at said
meeting for a three year term expiring in
1998:
Roger E. Peterson
2. The following directors were reelected at said
meeting for a three year term expiring in 1998:
Lawrence R. Bowman
Richard E. Laskowski
James R. Williams
3. The names of the other directors other than the
above elected directors whose terms of office as
directors continue after the meeting are:
Howard J. Jung
Jon R. Weiss
John E. Kingery
Jennifer C. Anderson
Mark Jeronimous
Ray W. Osborne
Don S. Williams
(c) Matters voted upon and approved at the meeting were:
Amendment to the By-laws, limiting the number of directors
elected or appointed to office who are non-dealer directors
to 25%.
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, 1995.
-7-
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
RITA D. KAHLE DATE
Rita D. Kahle
Vice President, Finance
(Principal Financial and Accounting Officer,
and duly authorized Officer of the registrant)
<TABLE> <S> <C>
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 102
<SECURITIES> 0
<RECEIVABLES> 321,220
<ALLOWANCES> 2,056
<INVENTORY> 261,146
<CURRENT-ASSETS> 587,290
<PP&E> 313,160
<DEPRECIATION> 128,935
<TOTAL-ASSETS> 780,110
<CURRENT-LIABILITIES> 456,181
<BONDS> 0
<COMMON> 212,569
0
0
<OTHER-SE> 8,609
<TOTAL-LIABILITY-AND-EQUITY> 780,110
<SALES> 1,203,469
<TOTAL-REVENUES> 1,203,469
<CGS> 1,113,088
<TOTAL-COSTS> 1,113,088
<OTHER-EXPENSES> 53,503
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,430
<INCOME-PRETAX> 32,974
<INCOME-TAX> 503
<INCOME-CONTINUING> 32,471
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,471
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
