SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994 Commission File No. 2-55860
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
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
State the aggregate market value of the voting stock held by
non-affiliates of the Registrant. The Registrant's shares are issued only
to, and may be held only by, its dealer-stockholders, and the shares held
by a dealer-stockholder are subject to repurchase by the Registrant upon
termination of the membership agreement of a dealer-stockholder. Thus,
there is no market for the Registrant's shares. The repurchase price for
each share of Class A stock, the only voting stock issued by the
Registrant, is equal to the par value of $1,000 per share. As of February
28, 1995, the aggregate value of the Class A stock held by non-affiliates
(dealer-stockholders) calculated on the basis of such repurchase price was
$3,891,000.
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 X No
Indicate the number of shares outstanding of each of the Registrant's
classes of common stock, as of the latest practicable date (applicable only
to corporation Registrants). Outstanding shares as of February 28, 1995:
Class A (voting) Stock, $1,000 par value 3,901 shares
Class B (nonvoting) Stock, $1,000 par value 3,212 shares
Class C (nonvoting) Stock, $ 100 par value 1,631,920 shares
PART I
Item 1. Business
Ace Hardware Corporation was formally organized as a Delaware
corporation in 1964. In 1973, by means of a corporate merger, it succeeded
to the business of Ace Hardware Corporation, an Illinois corporation
organized in 1928. Until 1973, the business now being engaged in by the
Company had been conducted by the Illinois corporation. The Company's
principal executive offices are located at 2200 Kensington Court, Oak Brook,
Illinois 60521. Its telephone number is (708) 990-6600.
The Company functions as a wholesaler of hardware and related products,
and manufactures paint products. Sales of the products distributed by it
are presently made primarily to individuals, partnerships or corporations
who are engaged in business as retail dealers of hardware or related items
and who have entered into Membership Agreements with the Company entitling
them to purchase merchandise and services from the Company and to use the
Company's marks as provided therein.
The Company operates on a cooperative basis and distributes patronage
dividends to its eligible member dealers each year in proportion to the
amount of their annual purchases of merchandise from it. (See the
subheading "Distribution of Patronage Dividends.")
At December 31, 1994 there were 4,940 retail business outlets with
respect to which such Membership Agreements had been entered into. Those
States having the largest concentration of member outlets are California
(approximately 10%), Texas (approximately 6%), Illinois and Florida
(approximately 5% each), Michigan (approximately 4%) and Georgia
(approximately 3%). States into which were shipped the largest percentages
of the merchandise sold by the Company in 1994 are California
(approximately 11%), Illinois (approximately 9%), Florida and Texas
(approximately 6% each) and Michigan and Georgia (approximately 4% each).
Less than 4% of the Company's sales are made to outlets located outside of
the United States or its territories.
Information as to the number of the Company's member outlets during
each of the past three calendar years is set forth in the following table:
1994 1993 1992
Member outlets at beginning of period 4,921 4,986 5,111
New member outlets 198 158 183
Member outlets terminated 179 223 308
Member outlets at end of period 4,940 4,921 4,986
Dealers having one or more
member outlets at end of period 4,054 4,045 4,134
The Company services its dealers by purchasing merchandise in quantity
lots, primarily from manufacturers, by warehousing substantial quantities
of said merchandise and by selling the same in smaller lots to the dealers.
Most of the products that the Company distributes to its dealers from its
regional warehouses are sold at a 10% markup. In 1994 warehouse sales
accounted for 62% of total sales and bulletin sales accounted for 2% of
total sales with the balance of 36% representing direct shipment,
including lumber and building material sales.
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The proportions in which the Company's total warehouse sales were
divided among the various classes of merchandise sold by it during each of
the past three calendar years are as follows:
Class of Merchandise 1994 1993 1992
Paint, cleaning and related supplies 19% 19% 18%
Hand and power tools 14% 14% 15%
Electrical supplies 12% 12% 13%
Plumbing and heating supplies 16% 15% 15%
General hardware 13% 12% 12%
Housewares and appliances 6% 7% 7%
Garden, rural equipment and related supplies 11% 12% 11%
Sundry 9% 9% 9%
The Company sponsors two major conventions annually (one in the Spring
and one in the Autumn) at various locations. Dealers and vendors are
invited to attend, and dealers generally place orders for delivery during
the period prior to the next convention. During the convention regular
merchandise, new merchandise and seasonal merchandise for the coming season
are displayed to attending dealers. Lawn and garden supplies, building
materials and exterior paints are seasonal merchandise in many parts of the
country, as are certain sundries such as holiday decorations.
Warehouse sales involve the purchase of merchandise from the Company
that is maintained in inventory by the Company at its warehouses. Direct
shipment sales involve the purchase of merchandise from the Company with
shipment directly from the vendors. Bulletin sales involve the purchase of
merchandise from the Company pursuant to special bulletin offers by the
Company.
Direct shipment sales are orders placed by dealers directly with
vendors, using special purchase orders. Such vendors bill the Company for
such orders, which are shipped directly to dealers. The Company, in turn,
bills the ordering dealers at a markup. The markup on this category of
sales varies with invoice amounts in accordance with the following schedule
and is exclusive of sales under the LTL Plus program discussed below.
Invoice Amount Handling Charge (Markup)
0.00 to $ 999.99 2.00% or $1.00 whichever is greater
$1,000.00 to $1,999.99 1.75%
$2,000.00 to $2,999.00 1.50%
$3,000.00 to $3,999.00 1.25%
$4,000.00 to $4,999.00 1.00%
$5,000.00 to $5,999.00 .75%
$6,000.00 to $6,999.00 .50%
$7,000.00 to $7,999.00 .25%
$8,000.00 and over .00%
Bulletin sales are made based upon notification from dealers of their
participation in special bulletins offered by the Company. Generally, the
Company will give notice to all members of its intention to purchase
certain products for bulletin shipment and then purchases only so many of
such products as the members order. When the bulletin shipment arrives at
the Company, it is not warehoused, but is broken up into appropriate
quantities and delivered to members who placed orders. A 6% markup is
generally applied to this category of sales.
An additional markup of 3% is applied on the various categories of
sales of merchandise exported to certain dealers located outside of the
United States and its territories and possessions. Effective April 1995, a
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flat 2% markup is applied to all direct shipment sales placed by all
dealers located outside of the United States and its territories and
possessions.
The Company maintains inventories to meet only normal resupply orders.
Resupply orders are orders from members for merchandise to keep inventories
at normal levels. Generally, such orders are filled within one week of
receipt. Bulletin orders (which are in the nature of resupply orders) may
be for future delivery. The Company does not backlog normal resupply orders
and, accordingly, no significant backlog exists at any point in time.
The Company also has established special sales programs for lumber and
building materials products and for products assigned from time to time to
an "extreme competitive price sales" classification and for products
purchased from specified vendors for delivery to certain of the Company's
dealers on a direct shipment basis (LTL Plus Program). Under its lumber and
building materials ("LBM") program, the Company imposes no handling charge,
markup or national advertising assessment on direct shipment orders for
such products. The LBM program also enables the Company's dealers to
purchase these products at net invoice prices which pass on to them
important cost savings resulting from the Company's closely monitored
lumber and building materials purchasing procedures. Additionally, the LBM
program offers dealers the opportunity to order less than truckload
quantities of many lumber and building materials products at economical
prices under the LTL warehouse redistribution procedure which the Company
has established with certain major vendors.
The Store Traffic Opportunity Program ("STOP") established by the
Company is a program under which certain stockkeeping units of specific
products assigned to an "extreme competitive price sales" classification
are offered for sale to its dealers for delivery from designated Company
retail support centers. Sales under this program are made without the
addition of freight charges and with such handling charge or markup (if
any) of not more than 5% as shall be specified for each item. The Company's
officers have authority to add items to, and to withdraw items from, the
STOP program from time to time and to establish reasonable minimum or
multiple item purchase requirements for the items offered under the
program. No allocations or distributions of patronage dividends are made
with respect to sales under the STOP program. Purchases under the STOP
program are, however, deemed to be warehouse purchases or bulletin
purchases, as the case may be, for purposes of calculating the forms of
patronage dividend distributions. (See the subheading under this Item 1
entitled "Forms of Patronage Dividend Distributions.")
The LTL Plus Program established by the Company is a program under
which full or partial truckloads of products are purchased by the
Company's dealers from specified vendors for delivery to such dealers on a
direct shipment basis. No markup, handling charge or national advertising
assessment is imposed by the Company on sales under the LTL Plus Program,
and the maximum amount of patronage dividends allocated or distributed to
the Company's dealers with respect to their purchases of products in the
LTL Plus category is .5% of such sales. (See the subheading under this
Item 1 entitled "Patronage Dividend Determinations and Allocations.")
The Company, in addition to conducting semi-annual and other
conventions and product exhibits for its dealers, also provides them with
numerous special services (on a voluntary basis and at a cost to cover its
related expenses), such as inventory control systems, price and bin
ticketing, and an electronic ordering system. In order for them to have on
hand current pricing and other information concerning the merchandise
obtainable from the Company, the Company further provides to each of its
dealers either a catalogue checklist service or a microfiche film service
(whichever the dealer selects), for either of which services the dealer
must pay a monthly charge. The Company also provides on a full-participation
basis videotapes and related materials for educational and training programs
for which dealers must pay an established monthly charge. (See the
subheading under this Item 1 entitled "Special Charges and Assessments.")
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Through its wholly-owned subsidiary, Ace Insurance Agency, Inc., the
Company makes available to its dealers a Group Dealer Insurance Program
under which they can purchase a package of insurance coverages, including
"all risk" property insurance and business interruption, crime, liability
and workers'compensation coverages, as well as medical insurance coverage
for their employees. AHC Realty Corporation, another wholly-owned
subsidiary of the Company, provides the services of a broker to those
dealers who desire to sell or seek a new location for a presently owned
store or to acquire an additional store. Loss Prevention Services, Inc. a
third wholly-owned subsidiary provides security training and services for
all dealers desiring security assistance. In addition, the Company offers
to its dealers retail computer systems consisting of computer equipment,
maintenance service and certain software programs and services. These are
marketed by the Company under its registered service mark "PACE".
The Company manufactures paint and related products at a facility
owned by it in Matteson, Illinois and will begin manufacturing paint and
related products at a Chicago Heights, Illinois facility in mid 1995. These
facilities now constitute the primary source of such products offered for
sale by the Company to its dealers. It is operated as a separate Division
of the Company for accounting purposes. All raw materials used by the
Company to manufacture paint are purchased from outside sources. The
Company has had adequate sources of raw materials, and no shortages of any
materials which would materially impact operations are currently
anticipated. The manufacturing of paint is seasonal to the extent that
greater paint sales are found in the months of April through September.
Historically, compliance with federal, state and local provisions which
have been enacted or adopted regulating the discharge of materials into the
environment or otherwise relating to the protection of the environment
have not had any material impact.
The Company's business, either in hardware wholesaling or paint
manufacturing activities is not dependent on any major suppliers and the
Company feels that any seasonal fluctuations do not have a significant
impact upon operations. For further discussion of the Company's business,
see "Management's Discussion and Analysis of Financial Condition and
Results of Operations", in Item 7 hereof.
Special Charges and Assessments
The Company sponsors a national advertising program for which its
dealers are currently assessed an amount equal to 1.25% of their purchases
(exclusive of lumber, building materials, purchases of PACE computer
systems (hardware and software), less than truckload lumber and building
material program purchases and LTL Plus Program purchases as described
above in this Item 1) from the Company during each bi-weekly period, with
the current minimum annual assessment being $975.00 and with the maximum
annual assessment being $4,750 for each business location of any one
dealer which has become a member of the Company. The total annual amount of
advertising assessments payable by any one dealer is also subject to a
further maximum limit which is determined by multiplying the number of such
dealer's member retail store outlets serving the general public by $4,750.
In the case of a dealer whose place of business is located outside the
contiguous States of the United States, the Company's management has
authority to determine the extent, if any, to which such dealer shall be
required to pay the annual national advertising assessment based upon its
evaluation of the amount and nature of the television broadcasts received
in the dealer's area. The percentage of bi-weekly purchases to be assessed
for the Company's national advertising program and the amount of the
maximum annual assessment for such program are both subject to being
changed from time to time by action of the Board of Directors of the
Company. The Company also has the authority, effective January 1, 1993 to
impose a regional advertising assessment (for select geographic regions)
not to exceed 2% of annual purchases with the same minimum and maximum
assessments imposed by the National Advertising assessment.
Each dealer must pay a low volume service charge if the dealer's
purchases during the calendar year are less than the minimum purchase
levels described below. Minimum purchase levels and the amount of the low
volume service charge are subject to change from time to time by the
Company's Board of Directors. Presently, the low volume service charge is
$30.00 and applies beginning one (1) year after the granting of the
membership, if the dealer's purchases from the Company (exclusive of
4
carload lumber purchases) are less than $4,000.00 per bi-weekly billing
period. If the dealer's purchases from the Company reach $104,000 during
the calendar year, then the dealer receives credit on its next bi-weekly
billing statement for all low volume service charges imposed on that
account earlier in the same calendar year, and the account is not subject
to any further low volume service charges for the rest of the calendar
year. The low volume service charge is not billed on a bi-monthly basis to
those accounts whose previous year's sales volume exceeded the minimum
purchases level for the previous year, but the full annual low volume
service charge will be billed at year end to those accounts if the minimum
purchase level to avoid imposition of the charge has not been met for the
current year. For the calendar year in which the first anniversary of the
store's membership occurs, the $104,000 purchase requirement is pro-rated
from the first billing statement after that anniversary through December
31, if less than a full calendar year. An Ace store that falls below
minimum purchase levels may also be subject to termination.
A late payment service charge is added on any past due balance owing
by a dealer to the Company for purchases of merchandise and services or
for the purchase price of the capital stock of the Company subscribed for
by the dealer. The late payment service charge currently in effect is an
amount equal to .77% per bi-weekly statement period, except in Texas where
the charge is .384% and Georgia where the charge is .692%. A past due
balance is created whenever payment of the amounts shown as due on any such
statement is not received by the Company within 10 days following the date
of the statement. The percentage for determining the amount of the late
payment service charge may be changed from time to time by the Company.
Subscriptions to a retail training program consisting of video tapes
and related course materials (the "S.T.A.R. Program") are mandatory for
all stores located in the United States and U.S. Territories. The initial
monthly assessment imposed on such stores for such subscriptions is $14.50
for each single store or parent store and $10.00 for each branch store. A
single store or parent store is an initial retail outlet for which a dealer
owns, or has subscribed for, one (1) share of Class A stock and forty (40)
shares of Class C stock of the Company. A branch store is an additional
retail outlet for which a dealer owns, or has subscribed for, fifty (50)
shares of Class C stock of the Company. (See Article XXV, Section 2 of
the By-laws.) Branch stores may, upon request, be granted an exemption
from the monthly subscription fee.
Subscriptions to a Material Safety Data Sheet information service are
also mandatory for all stores located in the United States. The initial
annual assessment imposed on such stores for such subscriptions is $30.00
for each single store or parent store and $15.00 for each branch store.
Trademark and Service Mark Registrations
The names "ACE HARDWARE" and "ACE" are used extensively by the Company
and by its member-dealers in connection with the promotion, advertising
and marketing of products and services sold by the Company. The Company
holds the following Trademark and Service Mark Registrations issued by the
U.S. Patent and Trademark Office for the marks used by it:
<TABLE>
<CAPTION>
Registration
Description of Mark Type of Mark Number Expiration Date
<S> <C> <C> <C>
"ACE HARDWARE" with winged
emblem design Service Mark 840,176 December 5, 2007
"ACE HARDWARE" with winged
emblem design Trademark 898,070 September 8, 2000
"WEATHER SHEDDER" Trademark 1,053,816 December 7, 1996
"THE HELPFUL HARDWARE MAN" Service Mark 1,055,741 January 4, 1997
"ACE IS THE PLACE WITH THE
HELPFUL HARDWARE MAN" Service Mark 1,055,743 January 4, 1997
"BRIGHT & EASY" Trademark 1,058,117 February 8, 1997
"THE PAINTIN' PLACE" Service Mark 1,138,654 August 12, 2000
5
"HARDWARE UNIVERSITY" with design Service Mark 1,180,539 December 1, 2001
"SUPER STRICKER" Trademark 1,182,330 December 15, 2001
"PACE" with design Service Mark 1,208,887 September 14, 2002
"ACE HARDWARE" with winged
emblem design Trademark 1,277,581 May 15, 2004
"ACE HARDWARE" in slanted
bar design Trademark 1,426,137 January 27, 2007
"ACE" in stylized
lettering design Service Mark 1,464,025 November 3, 2007
"ACE HARDWARE" in stylized
lettering design Service Mark 1,486,528 April 26, 2008
"ACE HARDWARE AND GARDEN
CENTER" in stylized
letting design Service Mark 1,487,216 May 3, 2008
"FLO-SOFT" Trademark 1,532,900 April 14, 2009
"ACE NEW EXPERIENCE" in
stylized lettering design Trademark 1,554,322 September 5, 2009
"ACE SEVEN STAR" in
stylized lettering design Trademark 1,556,389 September 19, 2009
"ACE BEST BUYS" in
circle design Service Mark 1,560,250 October 10, 2009
"PACER" Trademark 1,570,820 December 12, 1999
"ACENET" Service Mark 1,574,019 December 26, 1999
"ACE IS THE PLACE" Service Mark 1,602,715 June 19, 2000
"LUB-E" Trademark 1,615,386 October 2, 2000
"ACE FIVE STAR" in
stylized lettering design Trademark 1,627,887 December 18, 2000
"ACE THREE STAR" in
stylized lettering design Trademark 1,631,237 January 15, 2001
"ACE PRO" Trademark 1,632,078 January 22, 2001
"ASK ACE" Service Mark 1,653,263 August 6, 2001
Christmas Elves design Trademark 1,669,306 December 24, 2001
"ACE 2000" Service Mark 1,682,467 April 7, 2002
"ACE" in stylized
lettering design Trademark 1,683,538 April 21, 2002
"HARMONY" in stylized
lettering design Trademark 1,700,526 July 14, 2002
"SEVEN STAR SATISFACTION GUARANTEED
QUALITY ACE PAINTS" with design Service Mark 1,705,321 August 4, 2002
"THE OAK BROOK COLLECTION"
in stylized lettering design Trademark 1,707,986 August 18, 2002
"ACE HARDWARE BROWN
BAG BONANZA" with design Service Mark 1,761,277 April 13, 2003
"ACE HARDWARE COMMITTED
TO A QUALITY ENVIRONMENT" Service Mark 1,764,803 April 13, 2003
"THE OAK BROOK COLLECTION"
in stylized lettering design Trademark 1,783,335 July 20, 2003
"STORE 2000 THE STORE
OF THE FUTURE" Service Mark 1,811,032 December 14, 2003
"ENVIRO-CHOICE" Trademark 1,811,392 December 14, 2003
</TABLE>
Currently, the Company has applications pending before the U.S. Patent
and Trademark Office for Registration of "ACE RENTAL PLACE" in stylized
lettering design for use in connection with the rental of equipment,
6
merchandise and supplies; "THE NEW AGE OF ACE" with design for business
consulting and retail store services; "CELEBRATIONS" for Christmas lights
and light fixtures and "GREAT FINISHES" for paints, paint-like coatings,
primers, lacquers, stains and varnishes. In addition, the Company also has
service mark applications pending for "ACE HOME CENTER," "HELPFUL HARDWARE
FOLKS," Repeating "A" in stylized lettering design and Repeating "A" in
stylized lettering design with "ACE" in stylized lettering design for
retail store services.
Competition
The competitive conditions in the wholesale hardware industry can be
characterized as intensive due to the fact that independent retailers are
required to remain competitive with discount stores and chain stores such
as Wal-Mart, Home Depot, Menard's and Sears and with other mass
merchandisers. The gradual shift of retail operations to high rent shopping
center locations and the trend toward longer store hours have also
intensified pressures to obtain low cost wholesale supply sources. The
Company directly competes in several U.S. markets with Cotter & Company,
Servistar Corporation, Hardware Wholesalers, Inc., Our Own Hardware
Company, and United Hardware Distributing Co., all of which companies are
also dealer-owned wholesalers. Of the aforementioned companies, only Cotter
& Company, headquartered in Chicago, Illinois, has a larger sales volume
than the Company.
Employees
The Company employs 3,664 full-time employees, of which 1,083 are
salaried employees. Collective bargaining agreements covering one truck
drivers' bargaining unit and four warehouse bargaining units are currently
in effect at certain of the Company's distribution warehouses. The
Company's employee relations with both union and non-union employees are
considered to be good, and the Company has experienced no significant
employee-related work stoppage in the past five years. All employees are
covered either by negotiated or non-negotiated employee benefit plans
which include hospitalization, death benefits and, with few exceptions,
retirement benefits.
Limitations on Ownership of Stock
All of the issued and outstanding shares of capital stock of the
Company are owned by its dealers. Only approved retail and other dealers in
hardware and related products having Membership Agreements with the Company
are eligible to own or purchase shares of any class of the Company's stock.
No dealer, regardless of the number of member business outlets owned
or controlled by him, shall be entitled to own more than 1 share of Class A
Stock, which is the only class of voting stock which can be issued by the
Company. This ensures that each stockholder-dealer will have an equal
voice in the management of the Company. An unincorporated person or
partnership shall be deemed to be controlled by another person, partnership
or corporation if 50% or more of the assets or profit shares therein are
owned (i) by such other person, partnership or corporation or (ii) by the
owner or owners of 50% or more of the assets or profit shares of another
unincorporated business firm or (iii) by the owner or owners of 50% or
more of the capital stock of an incorporated business firm. A corporation
shall be deemed to be controlled by another person, partnership or
corporation if 50% or more of the capital stock of said corporation is
owned (i) by such person, partnership or corporation or (ii) by the owner
or owners of 50% or more of the capital stock of another incorporated
business firm or (iii) by the owner or owners of 50% or more of the assets
or profit shares of an unincorporated business firm.
Distribution of Patronage Dividends
The Company operates on a cooperative basis with respect to purchases
of merchandise made from it by those of its dealers who have become
"members" of the Company as described below and in the Company's By-laws.
In addition, the Company operates on a cooperative basis with respect to
all dealers who have subscribed for shares but who have not as yet become
7
"members" by reason of the fact that the payments made by them on account
of the purchase price of their shares have not yet reached an amount equal
to the $1,000 purchase price of 1 share of Class A Voting Stock. All
member dealers falling into either of the foregoing classifications are
entitled to receive patronage dividend distributions once each year from
the Company in proportion to the amount of their annual purchases of
merchandise from it.
The patronage dividends distributed on wholesale warehouse, bulletin
and direct shipment sales made by the Company and on total sales of
products manufactured by the Paint Division represented the following
percentages of each of said categories of sales during each of the past
three calendar years:
1994 1993 1992
Warehouse Sales 4.64117% 4.94434% 5.26838%
Bulletin Sales 2.0% 2.0% 2.0%
Direct Shipment Sales 1.0% 1.0% 1.0%
Paint Sales 8.2205% 7.9389% 8.9440%
In addition to the dividends described above, patronage dividends are
calculated separately and distributed on sales of lumber products,
building material products and less-than-truckload (LTL) sales of lumber
and building material products. Patronage dividends equal to .4073%,
.1763% and .1260% of the total sales of these products (calculated
separately by each of these three sales categories) were distributed to
the Company's dealers who purchased those products in 1994, 1993 and 1992,
respectively. Under the LTL Plus Program, patronage dividends are also
calculated separately on sales of full or partial truckloads of products
purchased by eligible dealers from specified vendors (see discussion of
LTL Plus Program set forth above in this Item 1). The maximum amount of
patronage dividends allocable to LTL Plus sales is .5% of such sales. The
LTL Plus Program dividend was .5% of such sales for 1994, 1993 and 1992.
Patronage Dividend Determinations and Allocations
The amounts distributed by the Company as patronage dividends consist
of its gross profits on business done with dealers who qualify for
patronage dividend distributions after deducting from said gross profits a
proportionate share of the Company's expenses for administration and
operations. Such gross profits consist of the difference between the price
at which merchandise is sold to such dealers and the cost of such
merchandise to the Company. All income and expenses associated with
activities not directly related to patronage transactions are excluded from
the computation of patronage dividends. Generally these include profits on
business done with dealers who do not qualify for patronage dividend
distributions and any income (loss) realized by the Company from the
disposition of property and equipment (except that, to the extent that
depreciation on such assets has been deducted as an expense during the time
that the Company has been operating on a cooperative basis and is
recaptured in connection with such a disposition, the income derived from
such recapture would be included in computing patronage dividends).
The By-laws of the Company provide that, by virtue of a dealer being a
"member" of the Company (that is, by virtue of his ownership of 1 share of
Class A Voting Stock), he will be deemed to have consented to include in
his gross income for federal income tax purposes for the dealer's taxable
year in which they are received by him all patronage dividends distributed
to him by the Company in connection with his purchases of merchandise from
the Company. A dealer who has not yet paid an amount which at least equals
the $1,000 purchase price of the 1 share of Class A Voting Stock subscribed
for by him will also be required to include all patronage dividends
distributed to him by the Company in his gross income for federal income
tax purposes in the year in which they are received by him. This is
required by virtue of a provision in the Subscription Agreement executed
by him under which he expressly consents to take all such patronage
dividends into his gross income for such purposes. The amount of the
patronage dividends which must be included in a dealer's gross income
includes both the portion of such patronage dividends received by him in
cash or applied against indebtedness owing by him to the Company in
8
accordance with Section 7 of Article XXIV of the Company's By-laws and the
portion or portions thereof which he receives in shares of Class C
Nonvoting Stock of the Company or in patronage refund certificates.
Patronage dividends on each of the Company's three basic categories of
sales (warehouse sales, bulletin sales and direct shipment sales) are
allocated separately, as are patronage dividends under the LTL Plus
Program. However, the maximum amount of patronage dividends allocable to
LTL Plus Program sales is an amount no greater than .5% of such sales, the
maximum amount of patronage dividends allocable to direct shipment sales
exclusive of LTL Plus Program sales is an amount equal to 1% of such sales
and the maximum amount of patronage dividends allocable to bulletin sales
is an amount equal to 2% of that category of sales. All remaining patronage
dividends resulting from sales made under these programs are allocated by
the Company to warehouse sales. The Company feels that this allocation
procedure provides a practical and understandable method for the
distribution of these patronage dividends in a fair and equitable manner.
Sales of lumber and building materials products are not included as
part of warehouse sales, bulletin sales, or direct shipment sales for
patronage dividend purposes. Patronage dividends are calculated separately
and distributed to the Company's dealers with respect to their purchases
within each of three sales categories involving these types of products.
These three categories are (a) lumber products (other than
less-than-truckload sales); (b) building materials products (other than
less-than-truckload sales); and (c) less-than-truckload ("LTL") sales of
lumber and building material products. Patronage dividends are also
calculated separately and distributed to the Company's dealers for full and
partial truckloads of products purchased under the LTL Plus Program. (See
the discussion of the LTL Plus Program set forth above in this Item 1 and
under the subheading "Forms of Patronage Dividend Distributions,"
subparagraphs 2(a)-(b) below).
Any manufacturing profit realized on intracompany sales of the
products manufactured by the Company's Paint Division is allocated among
and distributed as patronage dividends to those member dealers who are
eligible to receive patronage dividends from the Company in proportion to
their respective annual dollar purchases of paint and related products
manufactured by said Division. The earnings realized by the Company on
wholesale sales of such products made by it to its member dealers are
distributed as patronage dividends to all of its dealers who are eligible
to receive patronage dividends from it as part of the patronage dividends
which they receive each year with respect to the basic patronage dividend
categories established for warehouse sales, bulletin sales, and direct
shipment sales. Under Section 8 of Article XXIV of the Company's By-laws,
if the Paint Division's manufacturing operations for any year result in a
net loss, rather than a profit, to the Paint Division, such loss would be
netted against the earnings realized by the Company from its other
activities during the year, with the result that the earnings available
from such other activities for distribution as patronage dividends for
such year would be correspondingly reduced.
Forms of Patronage Dividend Distributions
Patronage dividend distributions will be made to the eligible and
qualified member dealers of the Company in cash, shares of the Company's
Class C stock and patronage refund certificates in accordance with the
following plan which has been adopted by the Company's Board of Directors
with respect to purchases of merchandise made by such dealers from the
Company on or after January 1, 1995, and which will continue to be in
effect until such time as the Board of Directors, in the exercise of their
authority and discretion based upon business conditions from time to time
and the requirements of the Company, shall determine that such plan should
be altered or amended:
1. With respect to each store owned or controlled by each eligible
and qualifying dealer, such dealer shall receive a minimum cash
distribution determined as follows:
(a) an amount equal to 20% of the first $5,000 of the total
patronage dividends allocated for distribution each year to
such dealer in connection with the purchases made for such store;
9
(b) an amount equal to 25% of the portion of the total patronage
dividends allocated for distribution each year to such dealer for
such store which exceeds $5,000 but does not exceed $7,500;
(c) an amount equal to 30% of the portion of the total patronage
dividends allocated for distribution each year to such dealer for
such store which exceeds $7,500 but does not exceed $10,000;
(d) an amount equal to 35% of the portion of the total patronage
dividends allocated for distribution each year to such dealer for
such store which exceeds $10,000 but does not exceed $12,500;
(e) an amount equal to 40% of the portion of the total patronage
dividends allocated for distribution each year to such dealer for
such store which exceeds $12,500;
2. The portion of the total annual distribution allocated to any such
dealer for each store owned or controlled by such dealer in excess of
the amount to be distributed to such dealer for such store in cash
shall be distributed each year in the form of shares of Class C
Non-voting Stock of Ace Hardware Corporation (par value $100 per
share), valued at the par value thereof, until the total par value of
all shares of all classes of capital stock of the corporation held
by such dealer with respect to such store equals the greater of:
(a) $20,000; or
(b) a sum equal to the total of the following categories of
purchases made by such dealer for such store during the most recent
calendar year;
(i) 15% of the volume of warehouse (including STOP and
excluding Ace manufactured paint and related products)
and bulletin purchases, plus
(ii) 15% of the volume of Ace manufactured paint and related
products purchases, plus
(iii) 3% of the volume of drop-shipment or direct purchases
(excluding Ace manufactured paint and related products),
plus
(iv) 4% of the volume of lumber and building material
(excluding LTL) purchases, plus
(v) 4% of the volume of LTL Plus purchases;
provided, however, that no fractional shares of Class C Non-voting
Stock shall be issued to any dealer and that any amount which
would have otherwise been distributable as a fractional share of
such stock shall instead be distributed to such dealer in cash.
3. The portion of the total patronage dividends allocated each year
to any such dealer for each store owned or controlled by such dealer
which exceeds the sum of (a) the amount to be distributed to such
dealer for such store in cash pursuant to Paragraph 1., above and
(b) any amount to be distributed to him in the form of shares of
Class C Non-voting Stock of Ace Hardware Corporation (par value $100
per share) pursuant to Paragraph 2., above shall be distributed to
such dealer in cash; provided, however, that in no event shall the
total amount distributed under this plan to any such dealer for any
such store in cash exceed 45% of the total patronage dividends
allocated for such store for such year, and to the extent that any
distribution to be made to any such dealer for any store pursuant
to this Paragraph 3., would otherwise cause the total cash
distribution to such dealer for such store to exceed 45% of the
total patronage dividends allocated for such store for such year,
the distribution to be made under this Paragraph 3., shall instead
be made in the form of a non-negotiable patronage refund certificate
having such a maturity date and bearing interest at such an annual
rate as shall be determined by the Board of Directors prior to the
issuance thereof.
Patronage dividend distributions will be made to the eligible and
qualified member dealers of the Company in cash, shares of the Company's
Class C stock and patronage refund certificates in accordance with the
following plan which has been adopted by the Company's Board of Directors
10
with respect to purchases of merchandise made by such dealers from the
Company on or after January 1, 1993, through and including December 31, 1994.
1. With respect to each store owned or controlled by each eligible
and qualifying dealer, such dealer shall receive a minimum cash
distribution determined as follows:
(a) an amount equal to 20% of the first $5,000 of the total
patronage dividends allocated for distribution each year to such
dealer in connection with the purchases made for such store;
(b) an amount equal to 25% of the portion of the total patronage
dividends allocated for distribution each year to such dealer
for such store which exceeds $5,000 but does not exceed $7,500;
(c) an amount equal to 30% of the portion of the total patronage
dividends allocated for distribution each year to such dealer
for such store which exceeds $7,500 but does not exceed $10,000;
(d) an amount equal to 35% of the portion of the total patronage
dividends allocated for distribution each year to such dealer
for such store which exceeds $10,000 but does not exceed $12,500;
(e) an amount equal to 40% of the portion of the total patronage
dividends allocated for distribution each year to such dealer
for such store which exceeds $12,500;
2. The portion of the total annual distribution allocated to any such
dealer for each store owned or controlled by such dealer in excess of
the amount to be distributed to such dealer for such store in cash
shall be distributed to him each year in the form of shares of
Class C Non-voting Stock of Ace Hardware Corporation (par value $100
per share), valued at the par value thereof, until the total par value
of all shares of all classes of capital stock of the corporation held
by such dealer with respect to such store equals the greater of:
(a) $20,000; or
(b) a sum equal to the total of the following categories of
purchases made by such dealer for such store during the most
recent calendar year;
(i) 13% of the volume of warehouse (including STOP and
excluding Ace manufactured paint and related products)
and bulletin purchases, plus
(ii) 10% of the volume of Ace manufactured paint and related
products purchases, plus
(iii) 3% of the volume of drop-shipment or direct purchases
(excluding Ace manufactured paint and related products),
plus
(iv) 4% of the volume of lumber and building material
(excluding LTL) purchases, plus
(v) 4% of the volume of LTL Plus purchases;
provided, however, that no fractional shares of Class C Non-voting
Stock shall be issued to any dealer and that any amount which would
have otherwise been distributable as a fractional share of such stock
shall instead be distributed to such dealer in cash.
3. The portion of the total patronage dividends allocated each year
to any such dealer for each store owned or controlled by such dealer
which exceeds the sum of (a) the amount to be distributed to such
dealer for such store in cash pursuant to Paragraph 1., above and
(b) any amount to be distributed to him in the form of shares of
Class C Non-voting Stock of Ace Hardware Corporation (par value
$100 per share) pursuant to Paragraph 2., above shall be distributed
to such dealer in cash; provided, however, that in no event shall
the total amount distributed under this plan to any such dealer for
any such store in cash exceed 49.9% of the total patronage dividends
allocated for such store for such year, and to the extent that any
distribution to be made to any such dealer for any store pursuant
to this Paragraph 3., would otherwise cause the total cash
distribution to such dealer for such store to exceed 49.9% of the
11
total patronage dividends allocated for such store for such year,
the distribution to be made under this Paragraph 3., shall instead
be made in the form of a non-negotiable patronage refund certificate
having such a maturity date and bearing interest at such an annual
rate as shall be determined by the Board of Directors prior to the
issuance thereof.
With certain modifications, the above Plans are applied separately in
determining the form in which patronage dividends accrued with respect to
sales of lumber and building materials products are distributed. In this
connection the combined patronage dividends allocated annually to a store
from (a) sales of lumber products (other than LTL sales) to the store, (b)
sales of building materials (other than LTL sales) to the store, and (c)
LTL sales to the store are used in determining the minimum cash
distribution percentages to be applied under Paragraph 1 of the above
Plans. A store's patronage dividends from any other sales category with
respect to which patronage dividends are distributed by the Company are
not taken into account in determining either the minimum portion or any
additional portion of the store's patronage dividends derived from its
purchases of lumber and building materials products which is to be
distributed in cash. Also, Paragraphs 2 and 3 of the above Plans are
applied separately to patronage dividends on lumber and building materials
sales and the requirements of Paragraph 2 of the Plans shall not be deemed
to have been complied with in the cases of (a) purchases of lumber products
(other than LTL purchases) or (b) purchases of building materials products
(other than LTL purchases) until the store's holdings of Class C Non-voting
Stock of the Company resulting from patronage dividends on the Company's
sales to it within the particular one of those two sales categories for
which a patronage dividend distribution is to be made equal 4% of the
volume of the store's purchases within such category during the most
recent calendar year. However, no such special Class C Stock requirement
applies to patronage dividends accrued on LTL purchases.
Notwithstanding the provisions of the above-described Plans, however,
under Section 7 of Article XXIV of the Company's By-laws the portion of
any patronage dividends which would otherwise be distributable in cash with
respect to a retail dealer outlet which is a member of the Company will
instead be applied against any indebtedness owing by the dealer to the
Company to the extent of such indebtedness in any case where the membership
for such outlet is cancelled or terminated prior to the distribution of
such patronage dividends except that an amount equal to 20% of the dealer's
total annual patronage dividends for such outlet will be paid in cash if a
timely request for the payment of such amount in cash is submitted to the
Company by the dealer.
Because of the requirement of the U.S. Internal Revenue Code that the
Company withhold 30% of the annual patronage dividends distributed to
member dealers of the Company whose places of business are located in
foreign countries or Puerto Rico (except in the case of unincorporated
Puerto Rico dealers owned by individuals who are U.S. citizens and certain
dealers incorporated in Guam, American Samoa, the Northern Mariana
Islands, or the U.S. Virgin Islands, if less than 25% of its stock is owned
by foreign persons, and at least 65% of the Corporation's gross income for
the last three years has been effectively connected with the conduct of a
trade or business in such possession or in the United States), the cash
portion of the annual patronage dividends of such dealers shall in no event
be less than 30%.
It is anticipated that the terms of any patronage refund certificates
issued pursuant to Paragraph 3. of the foregoing Plans would include
provisions giving the Company a first lien thereon for the amount of any
indebtedness owing to it at any time by the owner of any such certificate
and provisions subordinating the certificates to all the rights and claims
of secured, general and bank creditors against the Company. It is further
anticipated that all such patronage refund certificates will have maturity
dates which will be no later than five years from the dates of issuance
thereof.
In order to aid the Company's dealers in acquiring and installing
standardized exterior signs identifying the retail stores operated by them
as member outlets supplied by the Company, the Board of Directors of the
Company has authorized a program under which a dealer may borrow from the
Company within a range of $100 to $20,000 the funds required for such
12
purpose. A dealer who obtains a loan under this program may either repay
the loan in twelve substantially equal payments billed on such dealer's
regular by-weekly billing statement, or may execute a direction to have the
portion of the dealer's annual patronage dividends which would otherwise
be distributed under the above plan in a form other than cash from no more
than the next three annual distributions of such dividends applied toward
payment of the principal and interest on the loan.
In order to aid the Company's dealers in acquiring and installing PACE
and PAINTMAKER computer systems purchased from the Company, the Board of
Directors of the Company has also authorized programs under which the
Company will finance, for qualified dealers, (but not to exceed 80% of the
cost of any system) in the case of a PAINTMAKER computer, within the range
of $1,000 to $15,000 repayable over a period of three (3) years, and in
the case of a PACE computer, within the range of $5,000 to $50,000
repayable over a period of five (5) years for such purpose. Dealers who
obtain financing from the Company for these purposes direct the Company,
during the financing term, to first apply toward the principal and
interest due on such loans, the patronage dividends which would otherwise
be payable in the form of patronage refund certificates for each year, and
then to apply the patronage dividends which would otherwise be payable for
the same year in the form of the Company's Class C stock.
The aforementioned signage and computer financing programs may be
revised or discontinued by the Board at any time.
Federal Income Tax Treatment of Patronage Dividends
Both the shares of Class C Non-voting Stock and the patronage refund
certificates used by the Company to pay patronage dividends that accrue to
its eligible and qualifying dealers constitute "qualified written notices
of allocation" within the meaning of that term as used in Sections 1381
through 1388 of the U.S. Internal Revenue Code, which specifically provide
for the income tax treatment of cooperatives and their patrons and which
have been in effect since 1963. The stated dollar amounts of such
qualified written notices of allocation must be taken into the gross
income of each of the recipients thereof for the taxable years in which
they are received, not withstanding the fact that stated dollar amounts
may not be received in such taxable years.
In order for the Company to receive a deduction from its gross income
for federal income tax purposes for the amount of any patronage dividends
paid by it to a patron (that is, to one of its eligible and qualifying
dealers) in the form of qualified written notices of allocation, it is
necessary that the Company pay (or apply against indebtedness owing to the
Company by such patron in accordance with Section 7 of Article XXIV of the
Company's By-laws) not less than 20% of the total patronage dividends
distributable to such patron in cash and that the patron consent to having
the written notices of allocation, at their stated dollar amounts, included
in his gross income for the taxable year in which they are received by him.
It is also required under the Code that any patronage dividend distributions
deducted by the Company on its federal income tax return with respect to
business done by it with patrons during the year for which such deduction
is taken must be made to the Company's patrons within 8 months after the
end of such year.
Dealers who have become "members" of the Company by owning 1 share of
Class A Voting Stock are deemed under the U.S. Internal Revenue Code to
have consented to take any written notices of allocation distributed to
them into their gross income by their act of obtaining or retaining
membership in the Company and by having received from the Company a written
notification of the By-law provision providing that membership in the
Company constitutes such consent. In accordance with another provision in
the Internal Revenue Code, nonmember dealers who have subscribed for
shares of the Company's stock will also be deemed to have consented, by
virtue of the consent provisions included in their Subscription
Agreements, to take any written notices of allocation distributed to them
into their gross income.
13
A dealer receiving a patronage refund certificate as part of the
dealer's patronage dividends in accordance with the last clause of
Paragraph 3 of the patronage dividend distribution plans previously
described under the subheading "Forms of Patronage Dividend Distributions"
in this Item 1, may be deemed to have received interest income in the form
of an original issue discount to the extent of any excess of the face
amount of the certificate over the present value of the stated principal
and interest payments to be made by the Company under the terms of the
certificate. Such income would be taxable to the dealer ratably over the
term of the certificate under Section 7872(b) (2) of the U.S. Internal
Revenue Code. The present value for this purpose is to be determined by
using a discount rate equal to the applicable Federal rate in effect as of
the day of issuance of the certificate, compounded semi-annually.
The Company will be required to withhold federal income tax on the
patronage dividend distribution which is made to a payee who has not
furnished his taxpayer identification number to the Company or as to whom
the Company has notice of the fact that the number furnished to it is
incorrect. A cooperative organization may also be required to withhold on
the cash portion of each patronage dividend distribution made to a payee
who becomes a member of the cooperative if the payee fails to certify to
the cooperative that he is not subject to backup withholding. It is the
opinion of counsel for the Company that this provision is not applicable to
any patronage dividend distribution to a payee unless 50% or more of the
total distribution is made in cash. Since all of the Company's patronage
dividends for a given year are distributed at the same time and the
Company's currently effective patronage dividend plan does not permit any
store which is a member of the Company to receive more than 49.9% of its
patronage dividends for the year in the form of cash, it is said counsel's
further opinion that such a certification failure would ordinarily have no
effect on the Company or any of its dealers.
Patronage dividends distributed by a cooperative organization to its
patrons who are located in foreign countries or certain U.S. possessions
have been held to constitute fixed or determinable annual or periodic
income on which such patrons are required to pay a tax of 30% of the
amount received in accordance with the provisions of Sections 871(a)(1)(A)
and 881(a) (1) of the Internal Revenue Code, as do patronage dividends
distributed to patrons which are incorporated in Puerto Rico or who reside
in Puerto Rico but have not become citizens of the United States. With
respect to its dealers who are subject to such 30% tax, the Company is also
obligated to withhold from their patronage dividends and pay over to the
U.S. Internal Revenue Service an amount equal to the tax. The foregoing
provisions do not apply to a corporation organized in Guam, American
Samoa, the Northern Mariana Islands, or the U.S. Virgin Islands if less
than 25% of its stock is owned by foreign persons and at least 65% of its
gross income for the last three years has been effectively connected with
the conduct of a trade or business in such possession or in the United
States.
The 20% minimum portion of the patronage dividends to be paid in
cash to a patron with respect to whom the Company is neither required to
withhold 30% of his total patronage dividend distribution nor permitted to
apply such minimum portion against indebtedness owing to it by him may be
insufficient depending upon the income tax bracket of each individual
patron, to provide funds for the full payment of the federal income tax for
which such patron will be liable as a result of the receipt of the total
patronage dividends distributed to him during the year, including cash,
patronage refund certificates and/or Class C Non-voting Stock.
In the opinion of the Company's management, payment in cash of not
less than 20% of the total patronage dividends distributable each year to
the Company's eligible and qualifying dealers will not have a material
adverse effect on the operations of the Company or its ability to obtain
adequate working capital for the normal requirements of its business.
Membership Agreement
In addition to signing a Subscription Agreement for the purchase of
shares of the Company's stock, each retail dealer who applies to become an
14
Ace dealer (excluding the firms which are "International Retail Merchants"
as discussed below under the subheading "International Retail Merchants"
in this Item 1) must sign the Company's customary Membership Agreement. A
payment of $400 must accompany the signed Membership Agreement to defray
the Company's estimated costs of processing the membership application. If
the application is accepted, copies of both the Membership Agreement and
the Stock Subscription Agreement, signed on behalf of the Company to
evidence its acceptance, are forwarded to the dealer. No royalties are
payable at any time by a dealer for an outlet which the Company accepts
for affiliation into its dealer network. Membership may be terminated upon
various notice periods and for various reasons (including voluntary
termination by either party) as prescribed in the membership agreement,
except to the extent that special laws or regulations applicable to
specific locations may limit the Company's right to terminate memberships,
or may prescribe greater periods of notice under particular circumstances.
International Retail Merchants
In 1989, the Company's Board of Directors authorized the Company to
affiliate International Retail Merchants, who operate retail businesses
outside the United States, its territories and possessions. International
Retail Merchants do not sign the Company's Regular Membership Agreement,
but may, depending on the circumstances, be granted a license to use
certain of the Company's trademarks and service marks. They do not sign
stock subscription agreements or become shareholders of the Company, nor
do they receive distributions of patronage dividends. As of December 31,
1994, 1993 and 1992 International Retail Merchant volume with the Company
accounts for less than 4% of the Company's total sales in each such year.
Item 2. Properties
The Company's general offices are located at 2200 Kensington Court,
Oak Brook, Illinois 60521. Information with respect to the Company's
principal properties follows:
<TABLE>
<CAPTION>
Square Feet Owned Lease
of facility or Expiration
Location (Land in Acres) Leased Date
General Offices:
<S> <C> <C> <C>
Oak Brook, Illinois 206,030 Leased September 30, 2009
Oak Brook, Illinois (1) 70,508 Owned
Distribution Warehouses:
Lincoln, Nebraska 346,000 Leased December 31, 2006
Arlington, Texas 313,000 Leased July 31, 1996
Perrysburg, Ohio 396,000 Leased November 1, 2004
Tampa, Florida 391,760 Owned
Harmans, Maryland 277,000 Owned
Yakima, Washington 502,400 Owned
Maumelle, Arkansas 585,500 Owned
LaCrosse, Wisconsin 363,000 Owned
Bloomfield, Connecticut 449,820 Owned
Huntersville, North Carolina 354,000 Owned
Rocklin, California 470,000 Owned
Gainesville, Georgia 478,000 Owned
Prescott Valley, Arizona 633,000 Owned
Princeton, Illinois 1,080,000 Owned
Carol Stream, Illinois (2) 250,000 Leased September 30, 1999
Chicago, Illinois (3) 18,168 Leased May 31, 1997
15
Print Shop Facility:
Downers Grove, Illinois 41,000 Leased January 31, 1998
Paint Manufacturing Facility:
Matteson, Illinois 356,000 Owned
Chicago Heights, Illinois (4) 194,000 Owned
Other Property (Land):
Aurora, Illinois 72 acres Owned
LaCrosse, Wisconsin (5) 3 acres Owned
</TABLE>
(1) Includes 35,254 square feet leased to tenant until July 31, 1996.
The subject property is adjacent to the Company's general offices.
(2) This facility was leased by the Company in October, 1994, for use as
a bulk merchandise redistribution center.
(3) This facility was leased by the Company in June, 1994 for use as a
freight consolidation center.
(4) This facility was purchased by the Company in December, 1994 and is
currently being remodeled. The Company anticipates that
production will commence the second quarter of 1995.
(5) This land is adjacent to the Company's LaCrosse, Wisconsin warehouse.
The Company also leases a fleet of transportation equipment for the
primary purpose of delivering merchandise from the Company's warehouses to
its dealers.
Item 3. Legal Proceedings
There are no material pending legal proceedings which either
individually or in the aggregate involve claims for damages that exceed 10%
of the current assets of the Company and its subsidiaries on a consolidated
basis.
Item 4. Submission To A Vote Of Security Holders
None.
PART II
Item 5. Market For The Registrant's Common Equity And Related Stockholder
Matters
There is no existing market for the stock of the Company and there is
no expectation that any market will develop. The Company is organized and
operates as a cooperative corporation, and its stock is owned exclusively
by retailers of hardware and related merchandise who are members of the
Company.
The number of holders of record as of February 28, 1995 of each class
of stock of the Company is as follows:
Title of Class Number of Record Holders
Class A stock, $1,000 par value 3,901
Class B stock, $1,000 par value 803
Class C stock, $100 par value 4,770
Dividends, other than patronage dividends are prohibited by the
Company's Articles of Incorporation and By-laws. See the discussion of
patronage dividends under Item 1. Business.
16
Item 6. Selected Financial Data
<TABLE>
SELECTED FINANCIAL DATA
Income Statement Data:
Year Ended December 31,
<CAPTION>
1994 1993 1992 1991 1990
(000's omitted)
<S> <C> <C> <C> <C> <C>
Net sales $2,326,115 $2,017,763 $1,870,625 $1,704,203 $1,625,029
Cost of sales 2,158,896 1,867,326 1,723,017 1,569,871 1,497,147
Gross profit 167,219 150,437 147,608 134,332 127,882
Total expenses 102,697 93,345 86,841 75,175 67,470
Net earnings $ 64,522 $ 57,092 $ 60,767 $ 59,157 $ 60,412
Patronage dividends (Note A, B, 5 and 8) $ 64,520 $ 59,023 $ 63,207 $ 57,729 $ 57,519
</TABLE>
<TABLE>
Balance Sheet Data:
Year Ended December 31,
<CAPTION>
1994 1993 1992 1991 1990
(000's omitted)
<S> <C> <C> <C> <C> <C>
Total assets $725,481 $667,488 $594,676 $540,953 $479,202
Working capital 143,979 133,287 103,952 105,899 92,376
Long-term debt 64,287 71,286 51,696 38,737 22,521
Patronage refund certificates payable,
long-term 63,666 56,270 55,389 58,559 52,134
Member dealers' equity 199,827 186,028 175,681 164,411 154,563
</TABLE>
(A) The Company operates as a cooperative organization, and pays
patronage dividends to member dealers on earnings derived from
business done with such dealers. It is the practice of the
Company to distribute substantially all patronage sourced earnings
in the form of patronage dividends.
(B) The form in which patronage dividends are to be distributed can
only be determined at the end of each year when the amount
distributable to each of the member dealers is known. For the
five years ended December 31, 1994, patronage dividends were
payable as follows:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
(000's omitted)
<S> <C> <C> <C> <C> <C>
In cash $27,302 $25,766 $27,538 $26,864 $26,462
In patronage refund certificates payable 9,920 12,728 14,598 15,176 13,597
In Class C Stock 21,766 19,064 20,301 14,841 16,322
In patronage financing deductions 5,532 1,465 770 848 1,138
Total patronage dividends $64,520 $59,023 $63,207 $57,729 $57,519
</TABLE>
(C) Numbered notes refer to Notes to Financial Statements, beginning
on page F-8.
17
Item 7. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company's ability to generate cash adequate to meet its needs
("liquidity") results from internally generated funds, short-term lines of
credit and long-term financings (see Notes 3 and 4 to the financial
statements). These sources have been sufficient to finance the Company's
seasonal and other working capital requirements and its capital expenditure
programs.
In the second quarter of 1994, the Company established an unsecured
revolving credit facility with a group of banks. The Company had unused
unsecured lines of credit of $120.0 million at December 31, 1994. Any
borrowings under these lines of credit would bear interest at the prime
rate or less. Long-term financings are arranged as determined necessary to
meet the Company's capital or other requirements, with principal amount,
timing and form dependent on prevailing debt markets and general economic
conditions.
Capital expenditures for new and improved facilities were $28.3, $16.3
and $34.6 million in 1994, 1993 and 1992, respectively. During 1994, the
Company financed the $28.3 million of capital expenditures out of current
and accumulated internally generated funds, and short-term borrowings.
1995 capital expenditures are anticipated to be approximately $44.3 million
primarily for a new distribution facility and improvements to existing
facilities.
As a cooperative, the Company distributes substantially all of its
patronage source earnings to its members in the form of patronage
dividends, which are deductible for income tax purposes (see headings
"Patronage Dividend Determinations And Allocations" and "Federal Tax
Treatment of Patronage Dividends").
The Company expects that existing and new internally generated funds,
along with established lines of credit and long-term financings, will
continue to be sufficient to finance the Company's patronage dividend and
capital expenditure programs.
Operations-1994 Compared to 1993
Net sales increased 15.3% in 1994 primarily due to increases in volume
from existing dealers and increased International sales. Sales of basic
hardware and paint merchandise (including warehouse, bulletin, and direct
shipments) increased 13.5%. Increased advertising activity fueled strong
1994 promotional increases, particularly in the warehouse sales categories.
Lumber and building material sales experienced higher percentage increases
in 1994 as sales efforts were accelerated. Net dealer outlets increased in
1994 as set forth on page 1 partially reversing previous year declines.
Targeted sales efforts on new store development and conversions to the Ace
program and increased emphasis on dealer retail success resulted in
positive 1994 dealer growth.
Gross profit increased $16.8 million or 11.2% vs. 1993 due primarily
to the strong sales results in the basic sales categories and strong
manufacturing profits. As a percent of sales, however, gross profit
declined due to continued growth of competitively priced and promotional
items within the overall sales mix. Upfront rebates through reduced
handling charges and low upfront pricing programs and discounts have
accelerated and reduced gross profit as a percent of sales.
Warehouse and distribution expenses decreased by $2.3 million or 7.2%,
and as a percent of sales due to increased traffic revenues and reduced
building and operating costs due to the replacement of a facility in
early 1993.
18
Selling, general, and administration expenses increased by $9.1
million or 16.8% and as a percent of sales due to reduced net advertising
income, increased personnel costs for field retail support and increased
marketing costs. Increases within these expense categories are directly
related to retail support of Ace dealers.
Interest expense increased $2.2 million in 1994 due to increased
borrowing levels to fund the sales growth and increased interest rates.
The use of both short-term borrowings and long-term financing is expected
to continue to fund planned capital expenditures (see liquidity and
capital resources and Notes 3 and 4 to the financial statements).
Other income increased $807,000 or 27.7% in 1994 due to increased
interest income related to dealer financing programs and 1993 losses on
asset disposals at a replaced facility which did not re-occur in 1994.
Operations-1993 Compared to 1992
Net sales increased 7.9% in 1993 primarily due to increases in volume
from existing dealers. Sales of basic hardware and paint merchandise
(including warehouse, bulletin, and direct shipments) increased 6.8%.
Lumber and building material sales experienced a higher percentage increase
in 1993. Net dealer outlets decreased as set forth on page 1 as a result
of increased sales and marketing efforts with existing dealers and
increased competition.
Gross profit increased $2.8 million or 1.9% vs. 1992 due primarily to
higher net merchandise discounts and allowances. Gross profit decreased as
a percent of sales, however, due to reduced handling charges on
competitively priced items and shifts in the Company's sales mix.
Warehouse and distribution expenses decreased by $641,000 or 2.0% due
to decreased building rental and facility costs and increased levels of
warehousing costs absorbed into cost of sales, partially offset by
increased personnel and equipment costs and traffic freight subsidies.
Selling, general, and administration expenses increased by $5.9 million
or 12.2% due to higher personnel costs and marketing expenses partially
offset by higher advertising and retail support income.
Interest expense increased $1.4 million in 1993 despite lower interest
rates due to increased borrowing levels resulting from the financing of
planned capital expenditures and increased inventory levels.
Inflation and Changes in Prices
The Company's business is not generally governed by contracts that
establish prices substantially in advance of the receipt of goods or
services. As vendors increase their prices for merchandise supplied to the
Company, the Company increases the price to its dealers in an equal amount
plus the normal handling charge on such amounts. In the past, these
increases have provided adequate gross profit to offset the impact of
inflation on operating expenses.
Item 8. Financial Statements And Supplementary Data
Financial statements and financial statement schedules covered by the
report of the Company's certified public accountants are listed on Page
F-1.
Item 9. Changes In And Disagreements With Accountants On Accounting And
Financial Disclosures
None.
19
PART III
Item 10. Directors And Executive Officers Of The Company
The directors and the executive officers of the Company are:
Position(s) Held
Name Age and Business Experience
Jennifer C. Anderson 44 Director since June 6, 1994; term
expires 1997; President of Davis
Lumber and Ace Hardware, Inc.,
Davis, California.
Michael C. Bodzewski 45 Vice President-Merchandising since
June, 1990; General Merchandise
Manager since April, 1988.
Lawrence R. Bowman 48 Director since February 4, 1991;
term expires 1995; Vice President
of Owenhouse Hardware Co., Inc.,
Bozeman, Montana.
David F. Hodnik 47 President and Chief Operating
Officer since January 1, 1995;
Executive Vice President and Chief
Operating Officer since January,
1994; Executive Vice President and
Treasurer since January, 1991;
Senior Vice President and Treasurer
since January, 1988; Vice
President-Finance and Management
Information Systems and Treasurer
since September, 1986; Vice
President-Finance and Treasurer
from December, 1982.
Paul M. Ingevaldson 49 Vice President-Corporate Strategy
and International Business since
September, 1992; Vice President-
Retail Support Services since
August, 1989; Vice President-
Western Region since September 1,
1988; Vice President-Distribution
since September, 1986; Vice
President-Management Information
Systems from October, 1985;
Director of Data Processing from
October, 1982.
Mark Jeronimus 46 Director since June 3, 1991; term
expires 1997; President of Duluth
Hardware, Inc., Duluth, Minnesota.
Howard J. Jung 47 Director since June 1, 1987; term
expires 1996; Vice President of
Ace Hardware & Home Center, Inc.,
Raleigh, North Carolina.
Rita D. Kahle 38 Vice President-Finance since
January, 1994; Vice President-
Controller since January, 1992;
Controller from July, 1988.
John E. Kingrey 51 Director since May 17, 1992;
term expires 1996; President of
WK&K Corp., Wimberley, Texas.
Richard E. Laskowski 53 Chairman of the Board since
February 18, 1992 and Director
since June 1, 1987; term expires
1995; President of Ace Hardware
Home Center of Round Lake, Inc.,
Round Lake, Illinois.
David W. League 55 Vice President-General Counsel and
Secretary since June, 1990; General
Counsel and Secretary since
January, 1990; General Counsel
since January, 1989.
20
Position(s) Held
Name Age and Business Experience
William A. Loftus 56 Senior Vice President-Retail
Operations and Marketing since
October, 1994; Senior Vice
President-Marketing and Advertising
since September, 1992; Senior Vice
President since January 1, 1991;
Vice President-Retail Support
Operations since August, 1989; Vice
President-Eastern Region since
September 1, 1988; Vice President-
Sales since October, 1983; National
Sales Manager from October, 1976.
David F. Myer 49 Vice President-Retail Support and
New Business since October, 1994;
Vice President-Retail Support
since August, 1992; Vice President-
Distribution since July, 1989.
Fred J. Neer 55 Vice President-Human Resources
since April, 1989; Director of
Human Resources from April, 1986.
Ray W. Osborne 58 Director since June 6, 1988; term
expires 1997; President of Cook &
Sons Ace Hardware Company, Inc.,
Albertville, Alabama.
Roger E. Peterson 57 Chief Executive Officer (CEO) since
January 1, 1995; President and
Chief Executive Officer (CEO) since
December, 1989; President since
August, 1986; Executive Vice
President from March, 1985; Vice
President-Operations from
December, 1982.
Donald L. Schuman 56 Vice President-Information Systems
since June, 1990; Director-
Information Systems since January,
1987.
Jon R. Weiss 59 Director since June 4, 1990; term
expires 1996; President of John W.
Weiss Hardware Company, Glenview,
Illinois.
Don S. Williams 53 Director since June 6, 1988; term
expires 1997; President of Williams
Lumber, Inc., Rhinebeck, New York.
James R. Williams 47 Director since June 5, 1989; term
expires 1995; Vice President of
Williams Ace Hardware, Inc.,
Wichita, Kansas.
The By-laws of the Company provide that its Board of Directors shall
be comprised of such number of persons, not less than 9 and not greater
than 12, as shall be fixed from time to time by the Board of Directors. A
minimum of 9 of the directors shall be dealer directors. A maximum of
two of the directors may be non-dealer directors. A person shall be
eligible for election or appointment as a non-dealer director without
regard to whether or not such person is the owner of a retail business
organization which is a stockholder of Ace Hardware Corporation, or an
executive officer, general partner or general manager of such a retail
business organization. The By-laws also provide for three classes of
directors who are to be elected for staggered 3-year terms.
21
The By-laws provide that no person is eligible to serve as a dealer
director unless such person is either the owner of a retail business
organization holding stock in the Company or an executive officer, general
partner or general manager of such a retail business organization.
Regional dealer directors are elected from geographic regions of the United
States established by the Board. If the Board determines that all regions
have representation by regional dealer directors and the maximum number of
directors would not thereby be exceeded, then dealer directors at large
may also be elected.
In accordance with the applicable procedure established by the
By-laws, the following directors have been selected as nominees for
reelection at the annual stockholders meeting to be held on June 5, 1995,
as directors of the classes, from the regions, and for terms as indicated
below:
Nominee
Class Region Term
Richard E. Laskowski Third 4 3 years
James R. Williams Third 5 3 years
Lawrence R. Bowman Third 7 3 years
The person named below has been selected as the nominee for election
to the Board for the first time at the 1995 annual meeting as a non-dealer
director of the class, and for the term indicated.
Nominee
Age Class Region Term
Roger E. Peterson 57 Third None 3 years
Reference should be made to Article IV of the By-laws for information
concerning the qualifications required for membership on the Board of
Directors, the terms of directors, the limitations on the total period of
time for which a director may hold office, the procedure established for
the designation of Nominating Committees to select certain persons as
nominees for election to the Board of Directors, and the procedure for
filling vacancies on the Board for the remaining portion of unexpired
terms.
None of the events described under Item 401(f) of Regulation S-K
occurred during the past 5 years with respect to any director of the
Registrant, any nominee for membership on the Board of Directors of the
Registrant or any executive or staff officer of the Registrant.
22
Item 11. Executive Compensation
The following information is set forth with respect to the cash
compensation paid by the Company to each of the five highest paid
executive officers of the Company whose cash compensation exceeded
$100,000, for services rendered by them in all capacities to the Company
and its subsidiaries during the fiscal year ended December 31, 1994 and
the two previous fiscal years:
<TABLE>
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
<CAPTION>
(2)
Name Other (4)
and Annual (3) All Other
Principal (1) Compen- Long-Term Compen-
Position Year Salary ($) Bonus ($) sation ($) Payouts ($) sation ($)
<S> <C> <C> <C> <C> <C> <C>
Roger E. Peterson 1994 $800,000 $125,000 $12,907 - $147,159
Chief Executive Officer (CEO) 1993 670,000 100,000 19,001 - 139,598
1992 635,000 - 17,174 - 115,758
David F. Hodnik 1994 350,000 61,250 17,561 15,583 77,782
President and Chief Operating 1993 328,000 50,840 14,794 15,500 75,210
Officer (COO) 1992 312,000 49,920 13,929 - 66,943
William A. Loftus 1994 260,000 45,500 10,163 12,000 61,308
Senior Vice President-Retail 1993 250,000 37,500 32,881 12,000 61,560
Operations and Marketing 1992 240,000 24,000 16,447 - 51,918
Paul M. Ingevaldson 1994 232,000 41,760 7,190 10,583 59,111
Vice President- 1993 222,000 31,080 23,915 10,700 53,457
Corporate Strategy and 1992 212,000 30,740 9,584 - 46,522
International Business
David F. Myer 1994 170,000 28,050 11,021 6,896 39,690
Vice President- 1993 150,000 15,750 7,475 6,800 35,579
Retail Support and 1992 135,250 18,259 8,209 - 32,030
New Business
</TABLE>
(1) The Incentive Compensation Plan covers each of the executive officers
(except Mr. Peterson). The bonus amounts awarded to participants
in the Plan are determined in accordance with achievement of
individual performance based objectives and achievement of corporate
goals. For 1991 to 1993, the maximum short-term incentive award for
Messrs. Hodnik, Loftus and Ingevaldson was 18% of their respective
annual salaries and for other executive officers was 15% of their
annual salary. For 1994, and after, the maximum short-term incentive
award for each executive officer is 20% of their respective salary.
The short-term bonus award becomes payable to each participant as early
as practicable at or after the end of the fiscal year. The bonus amounts
for Mr. Peterson were special awards as described in the Compensation
Committee Report.
(2) The Company provides automobiles and prior to 1993 provided club
memberships to certain of its executive officers. The Company requires
them to maintain records with respect to any business automobile use.
Such officers pay, both directly and by reimbursement to the Company,
personal automobile expenses and personal charges at clubs. The
compensation table set forth above includes the value of these items and
such value for any officer did not exceed the lesser of $25,000 or 10%
of the compensation reported for each in said table.
23
(3) Includes the long-term incentive award under the Incentive Compensation
Plan paid in 1994. The long-term executive award is based on corporate
performance over a three year time frame (beginning with the period 1990
to 1992). For the 1993 Plan, payable in 1994, the maximum long-term
incentive award for Messrs. Hodnik, Loftus, Ingevaldson, and Myer and
other executive officers was 8.7% of their respective average 3 year
annual salaries. The long term incentive award is determined and
becomes payable to each participant as early as practicable each year
if the participant is still employed by the Company on the preceding
31st of December.
In 1994, the incentive plan was revised and a new long term Officer
Incentive Plan was adopted. The 1994 value added long-term Officer
incentive plan is based upon corporate performance over a three year
period with emphasis on total shareholder return through maximizing
both year-end patronage dividends and upfront dividends (throughout
the year) through pricing programs and discounts. This plan maintains
the commitment to long-term performance and shareholder return in a
cooperative environment. One third of the total long-term incentive
award is subject to a one year vesting provision. Total awards granted
for 1994, payable in 1995, were $105,870, $80,204, $71,221 and $48,684
for Messrs. Hodnik, Loftus, Ingevaldson and Myer, respectively.
Effective January 1, 1995, a Long Term Incentive Compensation Deferral
Option Plan was adopted. Executive officers may elect to defer a
portion (20% to 100%, in 20% increments) of the annual award granted.
Participants' compensation deferrals are credited with a specified
rate of interest to provide a means to accumulate supplemental
retirement benefits. Deferred benefits are payable over a period of
5 to 20 years. Annual elections are required for the upcoming deferral
year by December of the preceding year. Of the total 1994 awards,
amounts deferred were $84,696, $64,163, $71,221 and $32,456 for Messrs.
Hodnik, Loftus, Ingevaldson and Myer, respectively.
(4) Includes compensation for the Executive Supplemental Benefit Plan
(ESBP), contributions to the Company's Profit Sharing Plan which has
been in existence since January 1, 1953, and contributions to the
Company's Retirement Benefits Replacement Plan.
The Board of Directors adopted the Executive Supplemental Benefit Plan
(ESBP) in 1991. ESBP provides supplemental life insurance through
a universal life insurance policy, supplemental long-term disability
and supplemental retirement benefits to the executive officers. Under
the supplemental retirement benefits portion of ESBP a formula equal
to .02 of 1% of the total corporate annual Patronage Dividend times
the number of executive officers participating determines the total
annual supplemental retirement benefits under ESBP. This total sum
for all executive officers allocated to the supplemental retirement
benefits portion of ESBP cannot exceed $200,000 in any year. The sum
is allocated to the executive officers and placed in the cash value
portion of each participant's variable annuity insurance policy as
soon as practicable in each subsequent year. During the year 1994,
total contributions were $13,414 for Messrs. Peterson, Hodnik, Loftus
and Ingevaldson and $10,731 for Mr. Myer.
In 1994, the supplemental retirement benefits portion of the ESBP was
replaced with the Long Term Incentive Compensation and Deferral
Option Plan, as described above. The Company funds only the base
premium to keep the supplemental universal life insurance policy in
force but does not contribute to supplemental retirement benefits
through this vehicle. Participants may elect to deposit a portion
(up to one third) of the long term incentive award into the variable
annuity insurance policy in their name or may elect to defer this
portion under the Deferral Option Plan.
24
All active employees are eligible to participate in the Company's
profit sharing plan after one year of service. Those active employees
covered by a collective bargaining agreement regarding retirement
benefits, which were the subject of good faith bargaining, are not
eligible if such agreement does not include them in the plan. For the
year 1994, the Company contributed 10.9% of each participant's
eligible compensation to the Plan. During the year 1994, $16,350 was
expensed by the Company pursuant to the Plan for Messrs. Peterson,
Hodnik, Loftus, Ingevaldson and Myer.
The Company has also established a Retirement Benefits Replacement
Plan coveringall executive officers of the Company. This is an unfunded
Plan under which the participants therein are eligible to receive
retirement benefits equal to the amounts by which the benefits they
would otherwise have been entitled to receive under the Company's
Profit Sharing Plan may be reduced by reason of the limitations on
contributions and benefits imposed by any current or future provisions
of the U.S. Internal Revenue Code or other federal legislation.
During the year 1994, amounts expensed by the Company pursuant to the
Plan were $113,078 for Mr. Peterson, $42,535 for Mr. Hodnik, $26,074
for Mr. Loftus, $25,380 for Mr. Ingevaldson and $9,465 for Mr. Myer.
(5) As a cooperative whereby all stockholders are member dealers, the
Company does not grant or issue stock awards of any kind.
Messrs. Hodnik, Loftus, and Ingevaldson are employed under contracts,
each dated October, 1994 for respective terms of two years, terminating
December 31, 1996. Mr Myer is employed under a contract dated December 15,
1993 for a two year term terminating December 31, 1995. The contracts
provide for annual compensation effective January 1, 1995 of $450,000,
$275,000, $247,000, and $187,000 respectively or such increased amount, if
any, as shall be approved by the Board of Directors.
The Company also maintains a Pension Plan which has been in existence
since December 31, 1970. All active employees are eligible to participate
in this Plan on the first January 1 that they are working for the Company.
Those active employees covered by a collective bargaining agreement
regarding retirement benefits, which were the subject of good faith
bargaining are not eligible if such agreement does not include them in the
plan. The Plan provides benefits at retirement at or after age 65
determined under a formula which takes into account 60% of a participant's
average base pay (including overtime) during the 5 highest consecutive
calendar years of employment and years of service prior to age 65, and
under which an offset is applied for the straight life annuity equivalent
of the vested portion of the participant in the amount of benefits provided
for them by the Company under the Profit Sharing Plan.
Examples of yearly benefits provided by the Pension Plan (prior to
reduction by the Profit Sharing Plan offset) are as follows:
Years of Service
Remuneration 10 15 20 25 30 or more
$200,000 $40,000 $60,000 $80,000 $90,000 $90,000
$150,000 30,000 45,000 60,000 75,000 90,000
$100,000 20,000 30,000 40,000 50,000 60,000
$ 50,000 10,000 15,000 20,000 25,000 30,000
The amounts shown above represent straight life annuity amounts.
Maximum benefits from the Pension Plan are attained after 30 years of
service and attainment of age 65. The compensation covered by the Pension
Plan consists of base compensation (exclusive of bonuses and non-recurring
salary or wage payments) and shall not exceed $150,000 of such total
remuneration paid to a participant during any plan year. Remuneration and
yearly benefits under the Plan are limited, and subject to adjustment,
under Sections 415(d) and 401(a)17 of the U.S. Internal Revenue Code. The
present credited years of service under the Pension Plan for the currently
employed executive officers named in the compensation table are as follows:
25
Roger E. Peterson-18 years; David F. Hodnik-22 years; William A. Loftus-18
years; Paul M. Ingevaldson-15 years; David F. Myer-13 years.
Compensation Committee Report
The corporation's Executive Compensation philosophy is one that
supports the Company's fundamental business strategies. We stress long
term measured results, focus on teamwork, accepting prudent risks, and are
strongly committed to fulfilling dealer/consumer needs.
Our compensation program reflects a policy of competitive performance
based pay. Our competitors for Human Resources include publicly owned for
profit retail corporations, privately owned for profit retail enterprises,
and other national cooperatives. Each of these comparative groupings has
quite a different compensation practice/philosophy. An annual review is
performed of executive cash compensation at competitor enterprises. Our
orientation is to be cognizant of their respective practices and pay levels,
but to give greater emphasis to that which supports the needs of our dealer
network.
In 1994, the Compensation Committee changed the compensation mix to
one which stresses the provision of more significant performance based
incentives, particularly long term. 1994 salary increases for executive
officers, excluding Mr. Peterson, averaged 8.8% per eligible executive.
Annual and long term incentive opportunities were increased beginning in
1994, with substantive changes in long term performance criteria.
Individual, isolated criteria to achieve results have been eliminated due
to their emphasis on short-term decisions. Long-term performance is
evaluated heavily on a measurement of total shareholder return including
both year-end patronage dividends and upfront dividends through
low-upfront pricing programs and discounts. This criteria maximizes total
return to our membership.
As it relates to the President/CEO compensation, the Committee in the
past relied on providing the President/CEO with a base salary without
either annual or long term incentives. The primary rationale for this was
to allow the President/CEO to make objective recommendations pertaining to
incentive eligible officers without the incumbrance of a personal stake
associated with the same performance criteria. In connection with the
pending retirement of the CEO in May, 1995 and the election of a new
President effective January 1, 1995, this has changed so as to ensure the
commitment of the President position to the longer term interest of our
dealer network. Effective in 1995, the President's compensation includes
a base salary and a long-term incentive award only (no short-term award) so
as to maintain the commitment to long-term performance and shareholder
return.
For 1994 and 1993, special incentive awards of $125,000 and $100,000
were granted to the CEO. This was warranted due to his exclusion from all
previous incentive awards, exceptional Company results during these years
and Mr. Peterson's long-term contribution to the success of Ace and its
retailers.
The Committee reviews the executive benefits provided all senior
executives. Country club memberships previously granted to some officers
have been eliminated, except for the President.
Compensation of Directors
Effective January 1, 1995, and January 1, 1994, each member of the
Board of Directors receives a monthly fee of $2,650 and $2,500,
respectively, for their services. Effective as of the foregoing dates,
Mr. Laskowski is paid a total annual fee of $110,000 and $100,000 per year,
respectively, in his capacity as Chairman of the Board.
In 1994, the previous Deferred Director Fee Plan was amended, restated
and retitled the Directors' Deferral Option Plan. Like the Officers' Long
Term Incentive Compensation Deferral Option Plan, under this Directors'
Plan, directors may elect to defer a portion (5% to 100%, in 5% increments)
26
of their annual director's fee. Deferred benefits are payable over a period
of 5 to 20 years, as elected. Annual elections are required for the upcoming
deferral year by December of the preceding year.
Each member of the Board is also reimbursed for the amount of travel
and lodging expenses incurred in attending meetings of the Board and of
the Committees of the Board. The expenses incurred by them in attending
the semi-annual conventions and exhibits which the Company sponsors are
also paid by the Company. Each member of the Board is also paid $200.00 per
diem compensation for special committee meetings and nominating committee
regional trips attended.
Item 12. Security Ownership Of Certain Beneficial Owners And Management
With the exception of Mr. Laskowski, no shares of the Company's stock
were held by any of its officers. No person owns of record or is known by
the Company to own beneficially more than five percent of the outstanding
voting securities of the Company.
The following table sets forth the shares of Class B Stock and Class C
Stock of the Company held beneficially, directly or indirectly, by each
director owning such shares, individually itemized, and by all officers and
directors as a group, as of February 15, 1995:
<TABLE>
<CAPTION>
Class B Stock Owned Class C Stock Owned
Number Percent Number Percent
of Shares of Class of Shares of Class
<S> <C> <C> <C> <C>
Jennifer C. Anderson 4 0.118% 2,037 0.134%
Lawrence R. Bowman 4 0.118% 1,176 0.077%
Mark Jeronimus - - 730 0.048%
Howard J. Jung - - 3,261 0.214%
John E. Kingrey 4 0.118% 680 0.045%
Richard E. Laskowski 4 0.118% 10,213 0.670%
Ray W. Osborne 4 0.118% 705 0.046%
Jon R. Weiss 4 0.118% 2,037 0.134%
Don S. Williams - - 2,529 0.166%
James R. Williams 4 0.118% 671 0.044%
All above directors and
officers as a group 28 0.826% 24,039 1.578%
</TABLE>
There are no known contractual arrangements nor any pledge of securities
of the Company which may at a subsequent date result in a change in control
of the Company.
Item 13. Certain Relationships And Related Transactions
No director, executive officer, security holder who is known to the
Registrant to own of record or beneficially more than five percent of any
class of the Registrant's voting securities, or any member of the
immediate family of any of the foregoing persons, had during the last
fiscal year or is currently proposed to have any material interest, direct
or indirect, in any transaction in which the amount involved exceeds
$60,000 and to which the Registrant was or is to be a party, except that
each of the directors purchased merchandise and services from the
Registrant in the ordinary course of business on behalf of the retail
hardware businesses in which they have ownership interests. None of such
persons received benefits not shared by other hardware retailers supplied
by the Registrant.
27
No director has had any business relationship which is required to be
disclosed pursuant to Item 404(b) of Regulation S-K of the Securities and
Exchange Commission, during the Registrant's last fiscal year. Mr.
Peterson, who is a director nominee, and has announced his retirement as
CEO of the Company effective May 31, 1995 is subject to an agreement
through May 31, 2000 providing for non competition within the industry,
participation in designated Company functions and total renumeration of
$150,000 per year over the 5 year term.
No director, director nominee, executive officer, any member of the
immediate family of any of the foregoing, or any corporation or
organization of which any of the foregoing is an executive officer,
partner, or, directly or indirectly, the beneficial owner of ten percent or
more of any class of equity securities, or any trust or other estate in
which any of the foregoing has a substantial beneficial interest or as to
which such person serves as a trustee or in a similar capacity, has been
indebted to the Registrant or its subsidiaries at any time since the
beginning of the Registrant's last fiscal year in an amount in excess of
$60,000, except for indebtedness incurred in connection with purchases of
merchandise and services made from the Registrant in the ordinary course
of business by the retail hardware businesses in which the directors have
ownership interest.
PART IV
Item 14. Exhibits, Financial Statement Schedules And Reports On Form 8-K.
(a) 1. Financial Statements
The financial statements listed in the accompanying index
(page F-1) to the financial statements are filed as part of
this annual report.
2. Financial Statement Schedules
The financial statement schedules listed in the accompanying
index (page F-1) to the financial statements are filed as part
of this annual report.
3. Exhibits
The exhibits listed on the accompanying index to exhibits
(pages E-1 through E-6) are filed as part of this annual report.
(b) Reports on Form 8-K
None.
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
ACE HARDWARE CORPORATION
By RICHARD E. LASKOWSKI
Richard E. Laskowski
Chairman of the Board and Director
DATED: March 23, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
RICHARD E. LASKOWSKI Chairman of the Board March 23, 1995
Richard E. Laskowski and Director
ROGER E. PETERSON Chief Executive Officer March 23, 1995
Roger E. Peterson
DAVID F. HODNIK President and March 23, 1995
David F. Hodnik Chief Operating Officer
RITA D. KAHLE Vice President-Finance March 23, 1995
Rita D. Kahle (Principal Financial Officer)
Jennifer C. Anderson, Directors
Lawrence R. Bowman, Mark
Jeronimus, Howard J. Jung,
John E. Kingrey, Ray W.
Osborne, Don S. Williams,
Jon R. Weiss and
James R. Williams
*By DAVID F. HODNIK
David F. Hodnik
*By RITA D. KAHLE
Rita D. Kahle
*Attorneys-in-fact
March 23, 1995
29
Item 14(a). Index To Financial Statements And Financial Statement Schedules
Page(s)
Independent Auditors' Report F-2
Balance Sheets at December 31, 1994 and 1993 F-3
Statements of Earnings for each of the three years
in the period ended December 31, 1994 F-5
Statements of Member Dealers' Equity for each of
the three years in the period ended December 31, 1994 F-6
Statements of Cash Flows for each of the three years
in the period ended December 31, 1994 F-7
Notes to Financial Statements F-8
Financial Statement Schedule for each of the three years in the period
ended December 31, 1994:
II-Valuation and qualifying accounts - Allowance for doubtful accounts F-16
All other schedules have been omitted because the required information is
not present or is not present in amounts sufficient to require submission
of the schedule or the required information is included in the financial
statements or the notes thereto.
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Ace Hardware Corporation:
We have audited the balance sheets of Ace Hardware Corporation as of
December 31, 1994 and 1993, and the related statements of earnings, member
dealers' equity, and cash flows for each of the years in the three-year
period ended December 31, 1994. In connection with our audits of the
financial statements, we also have audited the financial statement schedule
as listed in the accompanying index. These financial statements and
financial statement schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Ace Hardware Corporation
at December 31, 1994 and 1993, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1994
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Chicago, Illinois
January 31, 1995
F-2
<TABLE>
ACE HARDWARE CORPORATION
BALANCE SHEEET
December 31, 1994 and 1993
ASSETS
<CAPTION>
1994 1993
(000's omitted)
<S>
Current assets: <C> <C>
Cash $ 4,868 $ 4,142
Receivables:
Dealers 228,584 183,493
Others 32,377 29,831
260,961 213,324
Less Allowance for doubtful receivables (1,350) (720)
Net receivables 259,611 212,604
Inventories (Note 2) 270,391 263,576
Prepaid expenses and other current assets 6,810 6,869
Total current assets 541,680 487,191
Property and equipment (Notes 4 and 9):
Land 14,219 13,673
Buildings and improvements 135,252 131,794
Warehouse equipment 48,947 47,146
Office equipment 53,965 48,842
Manufacturing equipment 12,165 12,012
Transportation equipment 14,557 12,508
Leasehold improvements 10,925 6,553
Construction in progress 7,561 2,319
297,591 274,847
Less accumulated depreciation and amortization (120,493) (108,710)
Net property and equipment 177,098 166,137
Other assets 6,703 14,160
$ 725,481 $ 667,488
See accompanying notes to financial statements.
</TABLE>
F-3
<TABLE>
ACE HARDWARE CORPORATION
BALANCE SHEETS
December 31, 1994 and 1993
LIABILITIES AND MEMBER DEALERS' EQUITY
<CAPTION>
1994 1993
(000's omitted)
<S>
Current Liabilities: <C> <C>
Current installments of long-term debt (Note 4) $ 7,369 $ 10,707
Short-term borrowings (Note 3) 30,000 38,500
Accounts payable 293,088 234,190
Patronage dividends payable in cash (Note 5) 27,302 25,766
Patronage refund certificates payable (Note 5) 1,315 11,059
Accrued expenses 38,627 33,682
Total current liabilities 397,701 353,904
Long-term debt (Note 4) 64,287 71,286
Patronage refund certificates payable (Note 5) 63,666 56,270
Member dealers' equity (Notes 5 and 8):
Class A Stock of $1,000 par value 3,924 3,946
Class B Stock of $1,000 par value 6,499 6,499
Class C Stock of $100 par value 164,666 153,155
Class C Stock of $100 par value, issuable to dealers for
patronage dividends 21,766 19,064
Additional stock subscribed, net 555 613
Retained earnings 5,624 5,622
Contributed capital 3,295 3,295
206,329 192,194
Less: Treasury stock, at cost (6,502) (6,166)
Total member dealers' equity 199,827 186,028
Commitments (Notes 6 and 9) -- --
$ 725,481 $ 667,488
See accompanying notes to financial statements.
</TABLE>
F-4
<TABLE>
ACE HARDWARE CORPORATION
STATEMENTS OF EARNINGS
<CAPTION>
Year Ended December 31,
1994 1993 1992
(000's omitted)
<S> <C> <C> <C>
Net sales $ 2,326,115 $ 2,017,763 $ 1,870,625
Cost of sales 2,158,896 1,867,326 1,723,017
Gross Profit 167,219 150,437 147,608
Operating expenses:
Warehouse and distribution 29,379 31,650 32,291
Selling, general and administration 63,515 54,378 48,451
Total operating expenses 92,894 86,028 80,742
Operating income 74,325 64,409 66,866
Interest expense (Note 11) (12,035) (9,798) (8,380)
Other income, net (Note 11) 3,716 2,909 2,852
Income taxes (Note 7) (1,484) (428) (571)
Net earnings 64,522 57,092 60,767
Retained earnings at beginning of year 5,622 7,553 9,993
Net earnings 64,522 57,092 60,767
Patronage Dividends (Notes 5 and 8) (64,520) (59,023) (63,207)
Retained earnings at end of year $ 5,624 $ 5,622 $ 7,553
See accompanying notes to financial statements.
</TABLE>
F-5
<TABLE>
ACE HARDWARE CORPORATION
STATEMENTS OF MEMBER DEALERS' EQUITY
Three Years Ended December 31, 1994
(000's omitted)
<CAPTION>
Class C
Stock
Issuable to
Dealers for Additional
Class A Class B Class C Patronage Stock
Stock Stock Stock Dividends Subscribed*
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1991 $ 4,165 $ 6,499 $ 130,083 $ 14,841 $ 1,069
Net earnings -- -- -- -- --
Net payments on subscriptions -- -- -- -- 1,302
Stock issued 224 -- 16,191 (14,841) (1,574)
Stock repurchased -- -- -- -- --
Stock retired (329) -- (7,260) -- --
Stock issuable as patronage dividends -- -- -- 20,301 --
Patronage dividends payable -- -- -- -- --
Balance at December 31, 1992 $ 4,060 $ 6,499 $ 139,014 $ 20,301 $ 797
Net earnings -- -- -- -- --
Net payments on subscriptions -- -- -- -- 1,049
Stock issued 157 -- 21,377 (20,301) (1,233)
Stock repurchased -- -- -- -- --
Stock retired (271) -- (7,236) -- --
Stock issuable as patronage dividends -- -- -- 19,064 --
Patronage dividends payable -- -- -- -- --
Balance at December 31, 1993 $ 3,946 $ 6,499 $ 153,155 $ 19,064 $ 613
Net earnings -- -- -- -- --
Net payments on subscriptions -- -- -- -- 1,394
Patronage financing deductions -- -- -- (1,086) --
Stock issued 218 -- 19,212 (17,978) (1,452)
Stock repurchased -- -- -- -- --
Stock retired (240) -- (7,701) -- --
Stock issuable as patronage dividends -- -- -- 21,766 --
Patronage dividends payable -- -- -- -- --
Balance at December 31, 1994 $ 3,924 $ 6,499 $ 164,666 $ 21,766 $ 555
</TABLE>
(Table Continued on following page)
<TABLE>
* Additional stock subscribed is comprised of the following amounts at December 31, 1992, 1993 and 1994:
<CAPTION>
1992 1993 1994
<S> <C> <C> <C>
Class A Stock . . . . . . . . . $ 185 $ 223 $ 291
Class B Stock . . . . . . . . . -- -- --
Class C Stock . . . . . . . . . 2,184 1,952 2,180
2,369 2,175 2,471
Less unpaid portion . . . . . . 1,572 1,562 1,916
$ 797 $ 613 $ 555
</TABLE>
<TABLE>
<CAPTION>
Retained Contributed Treasury
Earnings Capital Stock Total
<S> <C> <C> <C> <C>
Balance at December 31, 1991 $ 9,993 $ 3,295 $ (5,534) $ 164,411
Net earnings 60,767 -- -- 60,767
Net payments on subscriptions -- -- -- 1,302
Stock issued -- -- -- --
Stock repurchased -- -- (7,893) (7,893)
Stock retired -- -- 7,589 --
Stock issuable as patronage dividends -- -- -- 20,301
Patronage dividends payable (63,207) -- -- (63,207)
Balance at December 31, 1992 $ 7,553 $ 3,295 $ (5,838) $ 175,681
Net earnings 57,092 -- -- 57,092
Net payments on subscriptions -- -- -- 1,049
Stock issued -- -- -- --
Stock repurchased -- -- (7,835) (7,835)
Stock retired -- -- 7,507 --
Stock issuable as patronage dividends -- -- -- 19,064
Patronage dividends payable (59,023) -- -- (59,023)
Balance at December 31, 1993 $ 5,622 $ 3,295 $ (6,166) $ 186,028
Net earnings 64,522 -- -- 64,522
Net payments on subscriptions -- -- -- 1,394
Net payments on patronage
financing programs -- -- -- (1,086)
Stock issued -- -- -- --
Stock repurchased -- -- (8,277) (8,277)
Stock retired -- -- 7,941 --
Stock issuable as patronage dividends -- -- -- 21,766
Patronage dividends payable (64,520) -- -- (64,520)
Balance at December 31, 1994 $ 5,624 $ 3,295 $ (6,502) $ 199,827
See accompanying notes to financial statements.
</TABLE>
F-6
<TABLE>
ACE HARDWARE CORPORATION
STATEMENTS OF CASH FLOWS
Year Ended December 31,
<CAPTION>
(000's omitted)
Operating Activities: 1994 1993 1992
<S> <C> <C> <C>
Net earnings $ 64,522 $ 57,092 $ 60,767
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation 16,954 16,156 14,817
Loss on sale of property and equipment 175 460 507
Increase in accounts receivable, net (47,007) (18,880) (32,783)
Increase in inventories (6,815) (50,099) (2,091)
(Increase) Decrease in prepaids and other current assets 59 (352) (632)
Increase (Decrease) in accounts payable and accrued expenses 63,843 58,087 (2,237)
Net Cash Provided by Operating Activities 91,731 62,464 38,348
Investing Activities:
Purchase of property, plant and equipment (28,277) (16,346) (34,582)
Proceeds from sale of property and equipment 187 238 83
(Increase) Decrease in other assets 7,457 (1,991) (3,831)
Net Cash Used in Investing Activities (20,633) (18,099) (38,330)
Financing Activities:
(Payments of) Proceeds from short-term borrowings (8,500) (17,500) 34,000
Proceeds from Notes Payable -- 30,000 20,000
Principal payments on long-term debt (10,337) (1,092) (16,170)
Payment of cash portion of patronage dividend (25,766) (27,538) (26,864)
Payments of Patronage refund certificates
and patronage financing deductions (18,886) (19,451) (9,182)
Proceeds from sale of common stock 1,394 1,049 1,302
Repurchase of common stock (8,277) (7,835) (7,893)
Net Cash Used by Financing Activities (70,372) (42,367) (4,807)
Increase (Decrease) in Cash and Cash Equivalents 726 1,998 (4,789)
Cash and Cash Equivalents at beginning of year 4,142 2,144 6,933
Cash and Cash Equivalents at end of year $ 4,868 $ 4,142 $ 2,144
See accompanying notes to financial statements.
</TABLE>
F-7
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) The Company and Its Business
The Company operates as a wholesaler of hardware and related products,
and manufactures paint products. As a dealer-owned cooperative, the Company
distributes substantially all of its patronage sourced earnings in the form
of patronage dividends to its member dealers based on their volume of
merchandise purchases.
(b) Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
(c) Receivables
Receivables from dealers include amounts due from the sale of merchandise
and special equipment used in the operations of dealers' businesses. Other
receivables are principally amounts due from suppliers for promotional and
advertising allowances.
(d) Inventories
Inventories are valued at the lower of cost or net realizable value.
Cost is determined using the last-in, first-out method on substantially all
inventories.
(e) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation
and amortization. Expenditures for maintenance, repairs and renewals of
relatively minor items generally are charged to earnings. Significant
improvements or renewals are capitalized.
Depreciation expense is computed on both straight-line and accelerated
methods based on estimated useful lives as follows:
Useful Life Principal
Years Depreciation Method
Buildings and improvements 10-40 Straight line
Warehouse equipment 5-10 Sum of years
Office equipment 3-10 Various
Manufacturing equipment 3-20 Straight line
Transportation equipment 3-7 Straight line
Leasehold improvements are generally amortized on a straight-line basis
over the term of the respective leases.
(f) Retirement Plans
The Company has retirement plans covering substantially all non-union
employees. Costs with respect to the noncontributory pension plans are
determined actuarially and consist of current costs and amounts to amortize
prior service costs and unrecognized gains and losses. The Company
contribution under the profit sharing plan is determined annually by the
Board of Directors.
(g) Reclassifications
Certain financial statement reclassifications have been made to prior year
amounts to conform to comparable classifications followed in 1994.
F-8
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
(2) Inventories
Inventories consist primarily of merchandise inventories. Substantially
all of the Company's inventory is valued on the last-in, first-out (LIFO)
method; the excess of replacement cost over the LIFO value of inventory was
approximately $65,052,000 and $63,615,000 at December 31, 1994 and 1993,
respectively. Indirect costs, consisting primarily of warehousing costs,
are absorbed as inventory costs rather than period costs.
(3) Short-Term Borrowings
Short-term borrowings were utilized during 1994 and 1993. The maximum
amount outstanding at any month-end during the period was $115,500,000 in
1994 and $91,000,000 in 1993. The interest rate effective as of December 31,
1994 and 1993 was 6.5% and 3.6%, respectively. Short term borrowings
outstanding as of December 31, 1994 and 1993 were $30,000,000 and $38,500,000,
respectively. At December 31, 1994 the Company has available a revolving
credit facility with a group of banks providing for $100 million in committed
lines and $50 million in uncommitted lines. The aggregate unused line of
credit available at December 31, 1994 and 1993 was $120,000,000 and
$69,000,000, respectively. At December 31, 1994, the Company had no
compensating balance requirements. Aggregate compensating balances (not
legally restricted) at December 31, 1993 were $600,000.
(4) Long-Term Debt
Long-term debt is comprised of the following:
<TABLE>
December 31,
<CAPTION>
1994 1993
(000's omitted)
<S> <C> <C>
Industrial Development Revenue and Variable Rate Bonds:
$125,000 payable quarterly through December 1, 1996 with interest
at 65% of the prime rate $ 1,000 $ 1,500
$8,250,000 due on February 1, 1994 with interest payable monthly
beginning September 1, 1988 at variable rates ranging from
1.95% to 4.95% -- 8,250
Notes Payable:
$20,000,000 due in quarterly installments of $540,500 commencing
July 1, 1994 with interest payable quarterly beginning
January 1, 1992 at a fixed rate of 8.74% 18,919 20,000
$20,000,000 due in quarterly installments of $952,400 commencing
January 1, 1995 with interest payable quarterly beginning
October 1, 1992 at a fixed rate of 6.89% 20,000 20,000
$30,000,000 due in semi-annual installments of $2,000,000 commencing
June 22, 2001 with interest payable quarterly beginning
December 22, 1993 at a fixed rate of 6.47% 30,000 30,000
Liability under capitalized leases (see Note 9) 726 1,197
Installment notes with maturities through 1998 with various
interest rates 1,011 1,046
71,656 81,993
Less current installments 7,369 10,707
$64,287 $71,286
</TABLE>
F-9
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
Prime interest rates in effect ranged from 6.0% to 8.5% in 1994 and were
6.0% in 1993.
Aggregate maturities of long-term debt are $7,369,000, $7,060,000,
$6,131,000, $6,064,000 and $5,972,000 in 1995 through 1999, respectively.
The fair value of the Company's debt based upon discounting of future
cash flows does not materially vary from the carrying value of such debt as
of December 31, 1994.
(5) Patronage Dividends and Refund Certificates Payable
The Company operates as a cooperative organization and has paid or will
pay patronage dividends to member dealers on the portion of earnings derived
from business done with such dealers. Patronage dividends are allocated in
proportion to the volume of purchases by member dealers during the period.
The amount of patronage dividends to be remitted in cash depends upon the
level of dividends earned by each member outlet, varying from 20% on the
total dividends under $5,000 and increasing by 5% on total dividends for
each subsequent $2,500 earned to a maximum of 40% on total dividends
exceeding $12,500. All amounts exceeding the cash portions will be
distributed in the form of Class C $100 par value stock, to a maximum based
upon the current year's purchase volume or $20,000 whichever is greater, and
thereafter in a combination of additional cash and patronage refund
certificates having maturity dates and bearing interest as determined by the
Board of Directors. A portion of the dealer's annual patronage dividends
distributed under the above plan in a form other than cash can be applied
toward payment of principal and interest on any balances outstanding for
approved exterior signage and computer equipment financing.
The patronage dividend composition for 1994, 1993 and 1992 follows:
<TABLE>
<CAPTION>
Subordinated Class Patronage Total
Cash Refund C Financing Patronage
Portion Certificates Stock Deductions Dividend
(000's omitted)
<S> <C> <C> <C> <C> <C>
1994 $27,302 $ 9,920 $21,766 $5,532 $64,520
1993 25,766 12,728 19,064 1,465 59,023
1992 27,538 14,598 20,301 770 63,207
</TABLE>
Patronage dividends are allocated on a calendar year basis with issuance
in the following year.
The patronage refund certificates outstanding at December 31, 1994 are
payable as follows:
<TABLE>
<CAPTION>
Interest
January 1, Amount Rate
(000's omitted)
<S> <C> <C>
1995 $ 1,315 7.0%
1996 12,868 7.0
1997 14,570 6.25
1998 14,227 6.0
1999 12,081 6.0
2000 9,920 7.0
</TABLE>
F-10
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
On January 1, 1994 the Company prepaid a portion of the patronage refund
certificates payable on January 1, 1995 and accordingly, these certificates
are classified as current liabilities in the December 31, 1993 balance sheet.
The remaining patronage refund certificates payable on January 1, 1995 will
be paid in January 1995.
(6) Retirement Plans
The Company has defined benefit pension plans covering substantially all
non-union employees. Benefits are based on years of service, highest average
compensation (as defined) and the related profit sharing and primary social
security benefit. Contributions to the plan are based on the Entry Age
Normal, Frozen Initial Liability actuarial funding method and are limited to
amounts that are currently deductible for tax reporting purposes. As of
December 31, 1994, plan assets were held primarily in group annuity and
guaranteed interest contracts, equities and mutual funds.
Pension income for the years 1994, 1993 and 1992 included the following
components:
<TABLE>
<CAPTION>
1994 1993 1992
(000's omitted)
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 323 $ 292 $ 338
Interest cost on projected benefit obligation 805 752 722
Actual return on plan assets (121) (1,104) (975)
Net amortization and deferral (1,073) (169) (313)
Net periodic pension income $ (66) $ (229) $ (228)
</TABLE>
The following table sets forth the funded status of the plans and amounts
recognized in the Company's Balance Sheet at December 31, 1994 and 1993
(September 30th measurement date):
<TABLE>
<CAPTION>
1994 1993
(000's omitted)
<S> <C> <C>
Accumulated benefit obligation, including vested
benefits of $10,919,000 and $8,500,000 $11,384 $ 9,515
Plan assets at fair value $13,654 $14,023
Projected benefit obligation for service rendered to date 12,364 10,897
Plan assets in excess of projected benefit obligation $ 1,290 $ 3,126
Unrecognized net (gain) loss from past experience
different from that assumed and effects of changes
in assumptions 3,361 1,544
Remaining unrecognized net asset being amortized
over participants average remaining service period (1,983) (2,148)
Prepaid pension cost included in other assets $ 2,668 $ 2,522
</TABLE>
F-11
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.0% in 1994 and 7.5%
in 1993. The related expected long-term rate of return was 8.0% in 1994 and
8.5% in 1993. The rate of increase in future compensation was projected
using actuarial salary tables plus 1% in 1994 and using a rate of 6% in 1993.
The Company also participates in several multi-employer plans covering
union employees. Amounts charged to expense and contributed to the plans
totaled approximately $282,000, $275,000, and $426,000 in 1994, 1993 and
1992, respectively.
The Company's profit sharing plan contribution for the years ended 1994,
1993, and 1992 was approximately $9,381,000, $8,690,000 and $7,374,000,
respectively.
The Company has no significant post-retirement benefit
liabilities as defined under Financial Accounting Standard No. 106.
(7) Income Taxes
As a cooperative, the Company distributes substantially all of its
patronage sourced earnings to its members in the form of patronage dividends.
The 1994, 1993 and 1992 provisions for federal income taxes were $924,000,
$141,000 and $162,000, respectively, and for state income taxes were
$560,000, $287,000 and $409,000, respectively.
The Company made tax payments of $1,428,000, $357,000, and $728,000 during
1994, 1993 and 1992, respectively.
(8) Member Dealers' Equity
The Company's founders for many years contemplated that the ownership of
the Company would eventually be with the Company's member dealers. Prior to
November 30, 1976, dealers deposited monies to the Ace Dealer's Perpetuation
Fund for the purpose of accumulating funds for the purchase of stock when
such ownership became available. The Company registered its stock with the
Securities and Exchange Commission on October 1, 1976 and existing dealers
who subscribed for stock applied their deposits toward payment of such
shares. The small number of dealers who did not subscribe for shares had
their respective deposits refunded during 1977.
F-12
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
The Company's classes of stock are described below:
<TABLE>
<CAPTION>
Number of Shares
at December 31,
1994 1993
<S> <C> <C>
Class A Stock, voting, redeemable at par value --
Authorized 10,000 10,000
Issued and outstanding 3,924 3,946
Class B Stock, nonvoting, redeemable at not less than
twice par value --
Authorized 6,500 6,500
Issued 6,499 6,499
Outstanding 3,248 3,416
Treasury stock 3,251 3,083
Class C Stock, nonvoting, redeemable at not less than
par value --
Authorized 2,000,000 2,000,000
Issued and outstanding 1,646,656 1,531,549
Issuable as patronage dividends 217,658 190,635
Additional Stock Subscribed:
Class A Stock 291 223
Class B Stock -- --
Class C Stock 21,800 19,520
</TABLE>
At December 31, 1994 and 1993 there were no common shares reserved for
options, warrants, conversions or other rights; nor were any options granted
or exercised during the two years then ended.
Member dealers may subscribe for the Company's stock in various prescribed
combinations. Only one share of Class A Stock may be owned by a dealer with
respect to the first member retail outlet controlled by such dealer. Only
four shares of Class B Stock may be owned by a dealer with respect to each
retail outlet controlled by such dealer, but only if such outlet was a member
of the Company on or before February 20, 1974. An appropriate number of
shares of Class C Stock must be included in any subscription by a dealer in
an amount to provide that such dealer has a par value of all shares
subscribed for equal to $5,000 for each retail outlet. Unregistered shares
of Class C Stock are also issued to dealers in connection with patronage
dividends. No dividends can be declared on any shares of any class of the
Company's Stock.
Upon termination of the Company's membership agreement with any retail
outlet, all shares of stock of the Company, held by the dealer owning or
controlling such outlet, must be sold back to the Company, unless a transfer
of such shares is made to another party accepted by the Company as a member
dealer with respect to the same outlet.
A Class A share is issued to a member dealer only when the share
subscribed has been fully paid. Class B and Class C shares are only issued
when all such shares subscribed with respect to a retail outlet have been
fully paid. Additional Stock Subscribed in the accompanying statements
represents the par value of shares subscribed, reduced by the unpaid portion.
F-13
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
All shares of stock are currently issued and repurchased at par value,
except for Class B Stock which is repurchased at twice its par value, or
$2,000 per share. Upon retirement of Class B shares held in treasury, the
excess of redemption price over par is allocated equally between contributed
capital and retained earnings.
Transactions during 1993 and 1994 affecting treasury shares follow:
<TABLE>
<CAPTION>
Shares Held in Treasury
Class A Class B Class C
<S> <C> <C> <C>
Balance at December 31, 1992 -- 2,919 --
Stock issued -- -- --
Stock repurchased 271 164 72,359
Stock retired (271) -- (72,359)
Balance at December 31, 1993 -- 3,083 --
Stock issued -- -- --
Stock repurchased 240 168 77,013
Stock retired (240) -- (77,013)
Balance at December 31, 1994 -- 3,251 --
</TABLE>
(9) Commitments
Leased property under capital leases is included under "Property and
Equipment" in the balance sheets as follows:
<TABLE>
<CAPTION>
December 31,
(000's omitted)
1994 1993
<S> <C> <C>
Buildings and improvements $ 3,422 $ 3,422
Data processing equipment 723 723
Less: Accumulated depreciation and amortization (3,609) (3,291)
$ 536 $ 854
</TABLE>
F-14
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
The Company rents buildings and warehouse, office and certain other
equipment under operating and capital leases. At December 31, 1994 annual
minimum rental commitments under leases that have initial or remaining
noncancelable terms in excess of one year were as follows:
Year Ending Capital Operating
December 31, Leases Leases
(000's omitted)
1995 $502 $ 9,421
1996 271 7,746
1997 -- 5,768
1998 -- 4,502
1999 -- 3,448
Thereafter -- 24,780
Total minimum lease payments $773 $55,665
Less amount representing interest 47
Present value of total minimum lease payments $726
All leases expire prior to 2010. Under certain leases, the Company pays
real estate taxes, insurance and maintenance expenses in addition to rental
expense. Management expects that in the normal course of business, leases
that expire will be renewed or replaced by other leases. Rent expense was
approximately $21,814,000, $21,444,000 and $21,073,000 in 1994, 1993 and
1992, respectively. Rent expense includes $4,382,000, $4,282,000 and
$3,706,000 in contingent rentals paid in 1994, 1993 and 1992, respectively,
primarily for transportation equipment mileage.
(10) Supplementary Income Statement Information
Gross media expense, prior to income offsets from dealers and suppliers,
amounting to $52,185,000, $48,293,000 and $47,813,000 were charged to
operations in 1994, 1993, and 1992, respectively.
(11) Interest Expense and Other Income, Net
Capitalized interest totaled $213,000, $29,000 and $836,000 in 1994, 1993
and 1992, respectively. Interest paid was $13,518,000, $10,670,000 and
$9,149,000 in 1994, 1993 and 1992, respectively.
F-15
<TABLE>
Schedule II
ACE HARDWARE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS-
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(000's omitted)
<CAPTION>
Provision Collections Uncollectible
Balance at for Losses on Receivables Accounts Balance
Beginning Charged to Previously Written At End
Description of Period Income Written Off Off Of Period
<S> <C> <C> <C> <C>
1992 $660 1,387 20 (1,367) $ 700
1993 $700 1,412 46 (1,438) $ 720
1994 $720 1,243 26 (639) $1,350
</TABLE>
F-16
INDEX TO EXHIBITS
Exhibits
Enclosed Description
21 Subsidiaries of the Registrant.
24 Powers of Attorney.
Exhibits
Incorporated
by Reference
2 Not Applicable
3-A Restated Certificate of Incorporation of the Registrant
dated September 18, 1974 filed as Exhibit 3-A to the
Registrant's Form S-1 Registration Statement (Registra-
tion No. 2-55860) on March 30, 1976 and incorporated
herein by reference.
3-B By-laws of the Registrant as amended on September 20,
1994 included as Appendix A to the Prospectus constitut-
ing a part of the Registrant's Form S-2 Registration
Statement filed on or about March 23, 1995 and
incorporated herein by reference.
3-C Certificate of Amendment to the restated Certificate of
Incorporation of the Registrant dated May 19, 1976 filed
as Exhibit 3-D to Amendment No. 1 to the Registrant's
Form S-1 Registration Statement (Registration No. 2-55860)
on June 10, 1976 and incorporated herein by reference.
3-D Certificate of Amendment to the restated Certificate of
Incorporation of the Registrant dated May 21, 1979 filed
as Exhibit 3-F to Amendment No. 1 to the Registrant's
Form S-1 Registration Statement (Registration No. 2-63880)
on May 23, 1979 and incorporated herein by reference.
3-E Certificate of Amendment to the restated Certificate of
Incorporation of the Registrant dated June 7, 1982 filed
as Exhibit 3-G to the Registrant's Form S-1 Registration
Statement (Registration No. 2-82460) on March 16, 1983
and incorporated herein by reference.
3-F Certificate of Amendment to the restated Certificate of
Incorporation of the Registrant dated June 5, 1987 filed
as Exhibit 3-F to the Registrant's Form S-1 Registration
Statement (Registration No. 33-4299) on March 29, 1988
and incorporated by reference.
3-G Certificate of Amendment to the restated Certificate of
Incorporation of the Registrant dated June 16, 1989 filed
as Exhibit 4-G to Post Effective Amendment No. 1 to the
Registrant's S-2 Registration Statement filed on or about
March 20, 1990 and incorporated by reference.
4-A Specimen copy of Class B stock certificate as revised as
of November, 1984, filed as Exhibit 4-A to Post-Effective
Amendment No. 2 to the Registrant's Form S-1 Registration
Statement (Registration No. 2-82460) on March 15, 1985
and incorporated herein by reference.
4-B Specimen copy of Patronage Refund Certificate as revised
in 1988 filed as Exhibit 4-B to Post-Effective Amendment
No. 2 to the Registrant's Form S-1 Registration Statement
(Registration No. 33-4299) on March 29, 1988 and
incorporated herein by reference.
E-1
Exhibits
Incorporated
by Reference
4-C Specimen copy of Class A stock certificate as revised in
1987 filed as Exhibit 4-C to Post-Effective Amendment
No. 2 to the Registrant's Form S-1 Registration Statement
(Registration No. 33-4299) on March 29, 1988 and
incorporated herein by reference.
4-D Specimen copy of Class C stock certificate filed as Exhibit
4-I to the Registrant's Form S-1 Registration Statement
(Registration No. 2-82460) on March 16, 1983 and
incorporated herein by reference.
4-E Copy of current standard form of Subscription for Capital
Stock Agreement to be used for dealers to subscribe for
shares of the Registrant's stock in conjunction with new
membership agreements submitted to the Registrant filed
as Exhibit 4-L to Post-Effective Amendment No. 2 to the
Registrant's Form S-2 Registration Statement (Registration
No. 33-46449) on or about March 23, 1994 and incorporated
herein by reference.
4-F Copy of plan for the distribution of patronage dividends
with respect to purchases of merchandise made from the
Registrant on or after January 1, 1995 adopted by the
Board of Directors of the Registrant on July 26, 1994
filed as Exhibit 4-M to the Registrant's Form S-2
Registration Statement on or about March 23, 1995 and
incorporated herein by reference.
4-G Copy of plan for the distribution of patronage dividends
with respect to purchases of merchandise made from the
Registrant on or after January 1, 1993 through December 31,
1994, adopted by the Board of Directors of the Registrant
on December 8, 1992, filed as Exhibit 4-M to Post-Effective
Amendment No. 2 to the Registrant's Form S-2 Registration
Statement (Registration No. 33-46449) on or about March
23, 1994 and incorpoated herein by reference.
9 No Exhibit
10-A Copy of Retirement Benefits Replacement Plan of the
Registrant, restated as of January 1, 1989, filed as
Exhibit 10-A to Post-Effective Amendment No. 2 to the
Registrant's Form S-2 Registration Statement (Registration
No. 33-46449) on or about March 23, 1994 and incorporated
herein by reference.
10-B Copy of resolutions amending the 1990 Incentive
Compensation Plans for Executives and establishing the
Executive Supplemental Benefit Plans of the Registrant
adopted by its Board of Directors on December 11, 1990
and filed as Exhibit 10-G to Post Effective Amendment
No. 2 to the Registrant's Form S-2 Registration Statement
(Registration No. 33-27790) on March 20, 1991 and
incorporated herein by reference.
10-C Copy of amendment to the Executive Supplemental Benefits
Plan of the Registrant adopted by its Board of Directors
on July 30, 1991 filed as Exhibit 10-E to the Registrant's
Form S-2 Registration Statement (Registration No. 33-46449)
on March 23, 1992 and incorporated herein by reference.
10-D Copy of amendment to the Executive Supplemental Benefits
Plan of the Registrant adopted by its Board of Directors
on December 9, 1991 filed as Exhibit 10-F to the
Registrant's Form S-2 Registration Statement (Registration
No. 33-46449) on March 23, 1992 and incorporated herein
by reference.
E-2
Exhibits
Incorporated
by Reference
10-E Copy of the "Ace Hardware Corporation Officer's (sic)
Incentive Compensation Plan" as amended and restated
effective January 1, 1994, filed as Exhibit 10-G to
Post-Effective Amendment No. 2 to the Registrant's Form
S-2 Registration Statement (Registration No. 33-46449)
on or about March 23, 1994 and incorporated herein by
reference.
10-F Copy of Employment Agreement dated October 4, 1994 between
Ace Hardware Corporation and Paul M. Ingevaldson filed as
Exhibit 10-F to the Registrant's Form S-2 Registration
Statement on or about March 23, 1995 and incorporated
herein by reference.
10-G Copy of Employment Agreement dated October 4, 1994 between
Ace Hardware Corporation and David F. Hodnik filed as
Exhibit 10-G to the Registrant's Form S-2 Registration
Statement on or about March 23, 1995 and incorporated
herein by reference.
10-H Copy of Employment Agreement dated October 12, 1994 between
Ace Hardware Corporation and William A. Loftus filed as
Exhibit 10-H to the Registrant's Form S-2 Registration
Statement on or about March 23, 1995 and incorporated
herein by reference.
10-I Copy of Employment Agreement effective January 1, 1993
between Ace Hardware Corporation and Roger E. Peterson
filed as Exhibit 10-K to Post Effective Amendment No. 1
to the Registrant's Form S-2 Registration Statement
(Registration No. 33-46449) on March 22, 1993 and
incorporated herein by reference.
10-J Copy of Employment Agreement effective January 1, 1993
between Ace Hardware Corporation and Paul Ingevaldson
filed as Exhibit 10-I to Post Effective Amendment No. 1
to the Registrant's Form S-2 Registration Statement
(Registration No. 33-46449) on March 22, 1993 and
incorporated herein by reference.
10-K Copy of Employment Agreement effective January 1, 1993
between Ace Hardware Corporation and David F. Hodnik filed
as Exhibit 10-J to Post Effective Amendment No. 1 to the
Registrant's Form S-2 Registration Statement (Registration
No. 33-46449) on March 22, 1993 and incorporated herein by
reference.
10-L Copy of Employment Agreement effective January 1, 1993
between Ace Hardware Corporation and William A. Loftus
filed as Exhibit 10-L to Post Effective Amendment No. 1
to the Registrant's Form S-2 Registration Statement
(Registration No. 33-46449) on or about March 22, 1993
and incorporated herein by reference.
10-M Copy of Loan Agreement with Anne Arundel County, Maryland
dated December 1, 1981 securing 15-year floating rate
industrial development revenue bonds in the principal sum
of $9 million held by The Northern Trust Company, Chicago,
Illinois, for itself and other participating lenders filed
as Exhibit 10-A-k to Post-Effective Amendment No. 3 to the
Registrant's Form S-1 Registration Statement (Registration
No. 2-63880) on March 9, 1982 and incorporated herein by
reference.
10-N Copy of Note Purchase and Private Shelf Agreement with
the Prudential Insurance Company of America dated
September 27, 1991 securing 8.74% Senior Series A Notes
in the principal sum of $20,000,000.00 with a maturity
date of July 1, 2003 filed as Exhibit 10-A-q to the
Registrant's Form S-2 Registration Statement (Registration
No. 33-46449) on March 23, 1992 and incorporated herein by
reference.
E-3
Exhibits
Incorporated
by Reference
10-O Copy of Standard Form of Ace Hardware International Retail
Merchant Agreement adopted in 1990, filed as Exhibit 10-A-q
to Post Effective Amendment No. 2 to the Registrant's Form
S-2 Registration Statement (Registration No. 33-27790) on
March 20, 1991 and incorporated herein by reference.
10-P Copy of current standard form of Ace Hardware Membership
Agreement filed as Exhibit 10-P to Post-Effective
Amendment No. 2 to the Registrant's form S-2 Registration
Statement (Registration No. 33-46449) on or about March
23, 1994 and incorporated herein by reference.
10-Q Copy of 6.89% Senior Series B notes in the aggregate
principal sum of $20,000,000 issued July 29, 1992 with a
maturity date of January 1, 2000 pursuant to Note Purchase
and Private Shelf Agreement with the Prudential Insurance
Company of America dated September 27, 1991 and filed as
Exhibit 10-A-r to Post Effective Amendment No. 1 to the
Registrant's Form S-2 Registration Statement on March 22,
1993 and incorporated herein by reference.
10-R Copy of 6.47% Senior Series A notes in the aggregate
principal amount of $30,000,000 issued September 22, 1993
with a maturity date of June 22, 2008, and $20,000,000
Private Shelf Facility, pursuant to Note Purchase and
Private Shelf Agreement with the Prudential Insurance
Company of America dated as of September 22, 1993, filed
as Exhibit 10-R to Post-Effective Amendment No. 2 to the
Registrant's Form S-2 Registration Statement (Registration
No. 33-46449) on or about March 23, 1994 and incorporated
herein by reference.
10-S Assignment and Assumption dated October 22, 1992 of Lease
dated August 31, 1992 with MTI Vacations, Inc. filed as
Exhibit 10-A-s to Post Effective Amendment No. 1 to the
Registrant's Form S-2 Registration Statement (Registration
No. 33-46449) on March 22, 1993 and incorporated herein by
reference.
10-T Copy of Amendment to the Executive Supplemental Benefit
Plans of the Registrant adopted by its Board of Directors
on March 17, 1992 and filed as Exhibit 10-A-t to the
Registrant's Form S-2 Registration Statement (Registration
No. 33-46449) on March 22, 1993 and incorporated herein by
reference.
10-U Copy of Lease dated September 30, 1992 for general offices
of the Registrant in Oak Brook, Illinois filed as Exhibit
10-A-u to the Registrant's Form S-2 Registration Statement
(Registration No. 33-46449) on March 22, 1993 and
incorporated herein by reference.
10-V Copy of Fourth Amendment to Executive Supplemental Benefit
Plans effective January 1, 1994 filed as Exhibit 10-V to
Post-Effective Amendment No. 2 to the Registrant's Form S-2
Registration Statement (Registration No. 33-46449) on or
about March 23, 1994 and incorporated herein by reference.
10-W Copy of Ace Hardware Corporation Deferred Director Fee
Plan as amended on June 8, 1993, filed as Exhibit 10-W
to Post-Effective Amendment No. 2 to the Registrant's
Form S-2 Registration Statement (Registration No. 33-46449)
on or about March 23, 1994 and incorporated herein by
reference.
10-X Copy of Ace Hardware Corporation Deferred Compensation
Plan effective January 1, 1994, filed as Exhibit 10-X to
Post-Effective Amendment No. 2 to the Registrants Form S-2
Registration Statement (Registration No. 33-46449) on or
about March 23, 1994 and incorporated herein by reference.
E-4
Exhibits
Incorporated
by Reference
10-Y Copy of Lease dated September 22, 1994 for bulk
merchandise redistribution center of the Registrant in
Carol Stream, Illinois filed as Exhibit 10-Y to the
Registrant's Form S-2 Registration Statement on or about
March 23, 1995 and incorporated herein by reference.
10-Z Copy of Lease dated May 4, 1994 for freight consolidation
center of the Registrant in Chicago, Illinois filed as
Exhibit 10-Z to the Registrant's Form S-2 Registration
Statement on or about March 23, 1995 and incorporated
herein by reference.
10-a-1 Copy of Long-Term Incentive Compensation Deferral Option
Plan of the Registrant effective January 1, 1995 adopted
by its Board of Directors on December 6, 1994 filed as
Exhibit 10-a-1 to the Registrant's Form S-2 Registration
Statement on or about March 23, 1995 and incorporated
herein by reference.
10-a-2 Copy of Directors' Deferral Option Plan of the Registrant
effective January 1, 1995 adopted by its Board of
Directors on December 6, 1994 filed as Exhibit 10-a-2
to the Registrant's Form S-2 Registration Statement on
or about March 23, 1995 and incorporated herein by
reference.
10-a-3 Copy of Employment Agreement dated March 22, 1994 between
Ace Hardware Corporation and Fred J. Neer filed as Exhibit
10-a-3 to the Registrant's Form S-2 Registration Statement
on or about March 23, 1995 and incorporated herein by
reference.
10-a-4 Copy of Employment Agreement dated March 22, 1994 between
Ace Hardware Corporation and Donald L. Schuman filed as
Exhibit 10-a-4 to the Registrant's Form S-2 Registration
Statement on or about March 23, 1995 and incorporated
herein by reference.
10-a-5 Copy of Employment Agreement dated December 13, 1993
between Ace Hardware Corporation and David W. League
filed as Exhibit 10-a-5 to the Registrant's Form S-2
Registration Statement on or about March 23, 1995
and incorporated herein by reference.
10-a-6 Copy of Employment Agreement dated December 15, 1993
between Ace Hardware Corporation and David F. Myer
filed as Exhibit 10-a-6 to the Registrant's Form S-2
Registration Statement on or about March 23, 1995
and incorporated herein by reference.
10-a-7 Copy of Employment Agreement dated March 24, 1994 between
Ace Hardware Corporation and Michael C. Bodzewski filed
as Exhibit 10-a-7 to the Registrant's Form S-2 Registration
Statement on or about March 23, 1995 and incorporated
herein by reference.
10-a-8 Copy of Employment Agrement dated December 15, 1993
between Ace Hardware Corporation and Rita D. Kahle
filed as Exhibit 10-a-8 to the Registrant's Form S-2
Registration Statement on or about March 23, 1995
and incorporated herein by reference.
10-a-9 Copy of Agreement dated January 6, 1995 between Ace
Hardware Corporation and Roger E. Peterson filed as
Exhibit 10-a-9 to the Registrant's Form S-2
Registration Statement on or about March 23, 1995 and
incorporated herein by reference.
E-5
Exhibits
Incorporated
by Reference
10-a-10 Copy of Ace Hardware Corporation Officer Incentive Plan
for Fiscal Year 1994 filed as Exhibit 10-a-10 to the
Registrant's Form S-2 Registration Statement on or about
March 23, 1995 and incorporated herein by reference.
11 No Exhibit.
12 No Exhibit.
13 No Exhibit.
16 Not Applicable.
18 No Exhibit.
22 Not Applicable.
23 Auditors' Consent, dated March 23, 1995, filed as
Exhibit 23(a) to the Registrant's Form S-2 Registration
Statement filed on or about March 23, 1995 and
incorporated herein by reference.
27 No Exhibit.
28 Not Applicable.
Supplemental Information to be Furnished with Reports Filed Pursuant to
Section 15(d) of the Act by Registrants which have not Registered
Securities Pursuant to Section 12 of the Act.
As of the date of the foregoing Report, no annual report for the
Registrant's year ended December 31, 1994, nor any proxy soliciting
materials for the Registrant's 1995 annual meeting have been sent to
security holders. Copies of such Annual Report and proxy soliciting
materials will subsequently be sent to security holders and furnished to
the Securities and Exchange Commission.
E-6
EXHIBIT 21
ACE HARDWARE CORPORATION
LIST OF SUBSIDIARIES
(as of March 23, 1995)
NAME UNDER
STATE OF WHICH SUBSIDIARY
SUBSIDIARY INCORPORATION DOES BUSINESS
Ace Insurance Agency, Inc. Illinois Ace Insurance Agency, Inc.
AHC Realty Corporation Illinois AHC Realty Corporation
Loss Prevention Services, Illinois Loss Prevention Services,
Inc. Inc.
ACE HARDWARE CORPORATION: POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each of the undersigned
directors of ACE HARDWARE CORPORATION, a Delaware corporation, hereby
constitutes and appoints DAVID F. HODNIK and RITA D. KAHLE, and each
of them, his true and lawful attorneys-in-fact and agents, each with
full power to act without the other, with full power of substitution,
for him and in his name, place and stead, in any and all capacities,
to sign the Annual Report on Form 10-K, and any and all amendments
thereto, and to file the same with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys and agents full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all
intents and purposes as they might or could do in person, hereby
ratifying and confirming all that said attorneys and agents, or either
of them, or their substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, each of the undersigned has set his or her
hand and seal as of this 23rd day of March, 1995.
Jennifer C. Anderson Richard E. Laskowski
Lawrence R. Bowman Ray W. Osborne
Mark Jeronimus Jon R. Weiss
Howard J. Jung Don S. Williams
John E. Kingrey James R. Williams, Jr.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
SEC Form 10-K and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 4868
<SECURITIES> 0
<RECEIVABLES> 260961
<ALLOWANCES> 1350
<INVENTORY> 270391
<CURRENT-ASSETS> 541680
<PP&E> 297591
<DEPRECIATION> 16954
<TOTAL-ASSETS> 725481
<CURRENT-LIABILITIES> 397701
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 725481
<SALES> 2326115
<TOTAL-REVENUES> 2326115
<CGS> 2158896
<TOTAL-COSTS> 2158896
<OTHER-EXPENSES> 92894
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12035
<INCOME-PRETAX> 66006
<INCOME-TAX> 1484
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64522
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
