SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended September 30, 1995 Commission File Number 2-63880
ACE HARDWARE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-0700810
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2200 Kensington Court, Oak Brook, IL 60521
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (708) 990-6600
NONE
Former name, former address and former
fiscal year, if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES XX NO
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the close of the period covered by this report.
Class Outstanding at September 30, 1995
Class A Voting Stock - $1,000 par value 3,927 shares
Class B Stock - $1,000 par value 3,088 shares
Class C Stock - $ 100 par value 1,806,814 shares
ACE HARDWARE CORPORATION
INDEX
Part I. - Financial Information: Page No.
Balance Sheets - September 30, 1995 and December 31, 1994 1
Statements of Earnings - Nine Months and Three Months
Ended September 30, 1995 and 1994 2
Statements of Cash Flows - Nine Months Ended
September 30, 1995 and 1994 3
Notes to Financial Statements 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations 5 & 6
Part II. - Other Information 7
<TABLE>
PART I.FINANCIAL INFORMATION
ACE HARDWARE CORPORATION
BALANCE SHEETS
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1994
(000'S OMITTED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 101 $ 4,868
Accounts receivable, net 263,846 259,552
Merchandise inventory 276,815 270,391
Prepaid expenses and other current assets 8,124 7,189
Total current assets 548,886 542,000
Property and equipment, net 188,087 177,108
Other assets 8,690 4,502
Total assets $ 745,663 $ 723,610
LIABILITIES AND MEMBER DEALERS' EQUITY
Current liabilities:
Current installments of long-term debt 7,444 7,369
Short-term borrowings 29,500 30,000
Accounts payable 311,500 291,185
Patronage dividends payable in cash 19,198 27,302
Patronage refund certificates payable 12,770 1,315
Accrued expenses 37,301 38,659
Total current liabilities 417,713 395,830
Long-term debt:
Notes and bonds payable 58,985 64,030
Capitalized leases 422 257
Total long-term debt 59,407 64,287
Patronage refund certificates payable 53,660 63,666
Member dealers' equity:
Class A stock of $1,000 par value 4,120 3,924
Class B stock of $1,000 par value 6,499 6,499
Class C stock of $100 par value 187,340 164,666
Class C stock of $100 par value, issuable to
dealers for patronage dividends 21,986 21,766
Additional stock subscribed, net of unpaid portion 546 555
Retained Earnings 4,856 5,624
Contributed Capital 3,295 3,295
228,642 206,329
Less: Treasury stock, at cost 13,759 6,502
Total member dealers' equity 214,883 199,827
Total liabilities and member dealers' equity $ 745,663 $ 723,610
</TABLE>
See accompanying notes to financial statements.
-1-
<TABLE>
ACE HARDWARE CORPORATION
STATEMENTS OF EARNINGS
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1995 1994 1995 1994
(000's omitted) (000's omitted)
<S> <C> <C> <C> <C>
Net Sales $604,570 $572,094 $1,808,039 $1,714,710
Cost of Sales 558,938 529,995 1,671,451 1,587,343
Gross Profit 45,632 42,099 136,588 127,367
Operating expenses:
Warehouse and distribution 6,993 7,385 22,970 20,751
Selling, general and administrative 19,480 13,777 56,391 47,021
Total operating expenses 26,473 21,162 79,361 67,772
Operating income 19,159 20,937 57,227 59,595
Interest expense (3,127) (3,602) (10,746) (10,442)
Other income, net 1,330 1,023 3,856 2,597
Income taxes (600) (737) (1,103) (1,139)
Net earnings 16,762 17,621 49,234 50,611
Distribution of net earnings
Patronage Dividends 17,220 17,234 50,002 50,145
Retained earnings (458) 387 (768) 466
Net earnings $ 16,762 $ 17,621 $ 49,234 $ 50,611
</TABLE>
See accompanying notes to financial statements.
-2-
<TABLE>
ACE HARDWARE CORPORATION
STATEMENTS OF CASH FLOWS
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
(000's OMITTED)
1995 1994
<S> <C> <C>
Operating Activities:
Net earnings $ 49,234 $ 50,611
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 12,612 12,693
Loss (Gain) on sale of property & equipment (10) 127
Increase in accounts receivable, net (4,294) (23,802)
Increase in merchandise inventory (6,424) (3,680)
Decrease (Increase) in prepaids and other current assets (935) 660
Increase (Decrease) in accounts payable and
accrued expenses 17,324 (109)
Net cash provided by operating activities 67,507 36,500
Investing Activities:
Purchases of property and equipment (23,603) (20,123)
Proceeds from sale of property and equipment 22 157
Increase in other assets (4,189) (1,880)
Net cash used in investing activities (27,770) (21,846)
Financing Activities:
Proceeds (payments) from short-term borrowings (500) 38,000
Principal payments on long-term debt (4,805) (9,629)
Payments on refund certificates and patronage
financing programs (7,477) (16,267)
Proceeds from sale of common stock 1,204 1,040
Repurchase of common stock (7,257) (6,174)
Payments of cash portion of patronage dividend (27,302) (25,766)
Net cash used in financing activities (46,137) (18,796)
Decrease in cash and cash equivalents (6,400) (4,142)
Cash and cash equivalents at beginning of period 6,501 4,142
Cash and cash equivalents at end of period $ 101 $ -
</TABLE>
See accompanying notes to financial statements.
-3-
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1) General
The accompanying financial statements have not been examined
by independent public accountants except for the December 31,
1994 balance sheet, however, in the opinion of the Company
reflect all adjustments necessary to present fairly the
financial position as of September 30, 1995 and 1994 and the
results of operations and cash flows for the nine months then
ended. These interim figures are not necessarily indicative
of the results to be expected for the full year.
2) Patronage Dividends
The Company operates as a cooperative organization and will
pay patronage dividends to consenting member dealers based on
the earnings derived from business with such dealers. It has
been the practice of the Company to distribute substantially
all patronage sourced earnings in the form of patronage
dividends.
Net earnings and patronage dividends will normally be the
same with approximately 99% of the Company's patronage
sourced net earnings being paid to consenting member dealers.
International dealers signed under an International Retail
Merchant Agreement are not eligible for patronage dividends
and related earnings are not included in patronage sourced
earnings.
3) Reclassifications
Certain financial statement reclassifications have been made
to prior year and prior quarter amounts to conform to
comparable classifications followed in 1995.
-4-
ACE HARDWARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended September 30, 1995 compared to Three Months
Ended September 30, 1994.
Results of Operations
Net sales increased 5.7% as a result of an increase in the volume
to existing members and new member sales, partially offset by
lower international sales to Mexico.
Gross profit increased 8.4% vs. 1994 and as a percent of sales due
to sales mix shifts toward warehouse categories and increased
vendor allowances, partially offset by an increased LIFO
provision.
Warehouse and distribution expenses decreased vs. 1994 due to
increased traffic revenues from freight consolidation and
crossdocking activities, partially offset by increased
distribution costs.
Selling, general and administrative expenses increased vs. 1994
and as a percent of sales due to higher field support personnel
costs, increased data processing costs and reduced net advertising
income.
Interest expense decreased due to lower borrowing levels vs. 1994.
Other income increased primarily due to growth in dealer financing
programs.
-5-
ACE HARDWARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine Months Ended September 30, 1995 compared to Nine Months Ended
September 30, 1994.
Results of Operations
Net sales increased 5.4% in 1995 primarily due to increases in
volume from existing dealers and new store development and
conversions. 1995 net sales have been effected by slow retail and
economic growth, more moderate seasonal sales related to late
spring weather, moderate lumber and building material increases
due to lower lumber prices, and lower international sales to
Mexico related to the peso decline and resulting decreases in
export sales to that country.
Gross profit increased 7.2% vs. 1994 and as a percent of sales due
to sales mix shifts toward warehouse sales categories and
increased vendor allowances, partially offset by an increased LIFO
provision.
Warehouse and distribution expenses increased vs. 1994 due to
increased building and distribution costs to support the sales
growth, partially offset by improved warehouse productivity and
increased freight consolidation revenues.
Selling, general and administrative expenses increased vs. 1994
and as a percent of sales due to increased personnel costs for
field retail support and new business development and increased
costs for data processing supplies and print advertising due to
industry wide paper increases.
Interest expense and other income increased primarily due to
growth in dealer financing programs.
Liquidity and Capital Resources
The Company expects that internally generated funds, along with
new and established lines of credit and long-term financing, will
be the primary financing sources for future capital expenditures.
The Company believes that these sources, along with retail growth
of the membership leading to patronage stock growth, will provide
adequate liquidity for the long-term.
-6-
PART II. OTHER INFORMATION
ACE HARDWARE CORPORATION
Item 6. Exhibits and Reports on Form 8-K.
(b) There were no reports on Form 8-K filed for the
three month period ended September 30, 1995.
-7-
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ACE HARDWARE CORPORATION
RITA D. KAHLE DATE
Rita D. Kahle
Vice President, Finance
(Principal Financial and Accounting Officer,
and duly authorized Officer of the registrant)
-8-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10-Q and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 101
<SECURITIES> 0
<RECEIVABLES> 266,069
<ALLOWANCES> 2,223
<INVENTORY> 276,815
<CURRENT-ASSETS> 548,886
<PP&E> 321,125
<DEPRECIATION> 133,038
<TOTAL-ASSETS> 745,663
<CURRENT-LIABILITIES> 417,713
<BONDS> 0
<COMMON> 220,491
0
0
<OTHER-SE> 8,151
<TOTAL-LIABILITY-AND-EQUITY> 745,663
<SALES> 1,808,039
<TOTAL-REVENUES> 1,808,039
<CGS> 1,671,451
<TOTAL-COSTS> 1,671,451
<OTHER-EXPENSES> 79,361
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,746
<INCOME-PRETAX> 50,337
<INCOME-TAX> 1,103
<INCOME-CONTINUING> 49,234
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 49,234
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
