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, 1996 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 (630) 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, 1996
Class A Voting Stock - $1,000 par value 3,934 shares
Class B Stock - $1,000 par value 2,924 shares
Class C Stock - $ 100 par value 1,989,710 shares
ACE HARDWARE CORPORATION
INDEX
Part I. - Financial Information: Page No.
Balance Sheets - September 30, 1996 and December 31, 1995 1
Statements of Earnings - Nine Months and Three Months
Ended September 30, 1996 and 1995 2
Statements of Cash Flows - Nine Months Ended
September 30, 1996 and 1995 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,
1996 1995
(000's omitted)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 3,620 $ 12,853
Accounts Receivable, Net 318,914 287,078
Merchandise Inventory 333,353 254,451
Prepaid Expenses and Other
Current Assets 13,244 9,324
Total Current Assets 669,131 563,706
Property and Equipment, Net 204,591 191,504
Other Assets 3,878 3,923
Total Assets $ 877,600 $ 759,133
LIABILITIES AND MEMBER DEALERS' EQUITY
Current Liabilities:
Current Installment of
Long-Term Debt $ 6,849 $ 7,378
Short-Term Borrowings 53,500 13,000
Accounts Payable 384,731 338,577
Patronage Dividends Payable
in Cash 19,438 23,522
Patronage Refund
Certificates Payable 14,295 12,641
Accrued Expenses 43,446 32,177
Total Current Liabilities 522,259 427,295
Notes Payable 73,311 57,795
Other Long-Term Liabilities 3,985 2,057
Patronage Refund
Certificates Payable 46,060 54,741
Total Liabilities 645,615 541,888
Member Dealers' Equity:
Class A Stock of $1,000 Par Value 4,117 3,905
Class B Stock of $1,000 Par Value 6,499 6,499
Class C Stock of $100 Par Value 206,295 177,817
Class C Stock of $100 Par Value,
Issuable to Dealers for
Patronage Dividends 22,329 27,506
Additional Stock Subscribed,
Net of Unpaid Portion 506 515
Retained Earnings and
Contributed Capital 6,896 7,945
Total Member Dealers' Equity 246,642 224,187
Less: Treasury Stock, at Cost 14,657 6,942
Total Member Dealers' Equity 231,985 217,245
Total Liabilities and
Member Dealers' Equity $ 877,600 $ 759,133
</TABLE>
See accompanying notes to financial statements.
-1-
<TABLE>
ACE HARDWARE CORPORATION
STATEMENTS OF EARNINGS
<CAPTION>
Three Months Ended Nine Months Ended
Sept 30, Sept 30, Sept 30, Sept 30,
1996 1995 1996 1995
(000's omitted) (000's omitted)
<S> <C> <C> <C> <C>
Net Sales $ 712,597 $ 604,570 $ 2,020,220 $ 1,808,039
Cost of Sales 656,176 558,027 1,867,429 1,666,036
Gross Profit 56,421 46,543 152,791 142,003
Operating Expenses:
Warehouse and
Distribution 9,545 6,995 27,049 22,972
Selling, General and
Administrative 16,670 15,621 49,148 46,902
Retail Success and
Development 5,966 4,777 17,893 14,902
Total Operating
Expenses 32,181 27,393 94,090 84,776
Operating Income 24,240 19,150 58,701 57,227
Interest Expense (3,235) (2,981) (8,100) (10,180)
Other Income, Net 1,226 1,193 3,532 3,290
Income Taxes (392) (600) (1,186) (1,103)
Net Earnings $ 21,839 $ 16,762 $ 52,947 $ 49,234
Distribution of
Net Earnings:
Patronage Dividends $ 21,666 $ 17,220 $ 53,996 $ 50,002
Retained Earnings 173 (458) (1,049) (768)
Net Earnings $ 21,839 $ 16,762 $ 52,947 $ 49,234
</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)
1996 1995
<S> <C> <C>
Operating Activities:
Net Earnings $ 52,947 $ 49,234
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 13,060 12,612
Gain on sale of property and equipment (22) (10)
Increase in accounts receivable, net (31,836) (4,294)
Increase in merchandise inventory (78,902) (6,424)
Increase in prepaids and
other current assets (3,920) (935)
Increase in accounts payable and
accrued expenses 57,423 16,635
Increase in other long-term liabilities 1,928 689
Net Cash Provided By Operating Activities 10,678 67,507
Investing Activities:
Purchases of property and equipment (26,178) (23,603)
Proceeds from sale of
property and equipment 53 22
Decrease (Increase) in other assets 45 (4,189)
Net Cash Used In Investing Activities (26,080) (27,770)
Financing Activities:
Proceeds (Payments) from
short-term borrowings 40,500 (500)
Proceeds (Payments) on long-term debt 14,987 (4,805)
Payments on refund certificates and
patronage financing programs (19,257) (7,477)
Proceeds from sale of common stock 1,176 1,204
Repurchase of common stock (7,715) (7,257)
Payments of cash portion of
patronage dividend (23,522) (27,302)
Net Cash Provided by (Used in)
Financing Activities 6,169 (46,137)
Decrease in Cash and Cash Equivalents (9,233) (6,400)
Cash and Cash Equivalents at
Beginning of Period 12,853 6,501
Cash and Cash Equivalents at End of Period $ 3,620 $ 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, 1995
balance sheet but in the opinion of the Company reflect all
adjustments necessary to present fairly the financial position as of
September 30, 1996 and 1995 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 done with such dealers. It has been
the practice of the Company to distribute substantially all
patronage sourced earnings in the form of patronage dividends.
Net earnings and patronage dividends will normally be similar since
patronage sourced net earnings is paid to consenting member dealers.
International dealers signed under a Retail Merchant Agreement are
not eligible for patronage dividends and related earnings or loss
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 1996.
4) Notes Payable
In August 1996, the Company entered into a $20,000,000 loan
agreement due June 15, 2011. The note bears interest at 7.49% per
annum, payable quarterly. Quarterly principle payments commence on
September 15, 2004 and continue through 2011.
-4-
ACE HARDWARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended September 30, 1996 compared to Three Months Ended September
30, 1995.
Results of Operations
Net sales increased 17.9% in 1996 primarily due to increased existing dealer
volume, increased advertising promotions, targeted efforts on new store
development and conversions to the Ace program and the June 1996 start-up of
Canadian operations.
Gross profit increased 21.2% vs. 1995, and increased as a percent of sales due
to increased cash and vendor discounts, improved manufacturing gross profits
and gross profit from the Canadian operation. Increased levels of warehouse
costs absorbed into inventory and reduced levels of dealer price increases
partially offset the current quarter increases.
Warehouse and distribution expenses increased $2.5 million and as a percent of
sales vs. 1995. 1996 start-up costs for the opening of one domestic and two
Canadian facilities and wages to support the sales increase are partially
offset by increased levels of warehouse costs absorbed into inventory. Lower
freight consolidation income also contributed to the 1996 expense increase.
Selling, general and administrative expenses increased $1.0 million or 6.7%
compared to 1995, but decreased as a percent of sales. Personnel costs for
the start up facilities and increased data processing expenses are offset by
reduced corporate administrative expenses due to re-engineering efforts.
Retail success and development expenses increased $1.2 million or 24.9%, and
increased slightly as a percent of sales. The increase is primarily due to
increased advertising and new business development costs.
Interest expenses increased $254,000 or 8.5% vs. 1995 due to inventory level
increases and additional dealer dating programs. Additional long-term debt was
issued in the third quarter to fund long-term capital investments.
-5-
ACE HARDWARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 compared to Nine Months Ended September
30, 1995.
Results of Operations
Net sales increased 11.7% in 1996 primarily due to increased volume from
existing dealers, increased advertising promotions, targeted efforts on new
store development and conversions to the Ace program and the Canadian
operation start-up.
Gross profit increased 7.6% vs. 1995, but decreased as a percent of sales due
to reduced levels of dealer price increases, a shift in sales mix resulting in
lower handling charges as a percent of sales, and increased warehouse costs
absorbed into inventory. This decrease is partially offset by a lower LIFO
provision, improved manufacturing gross profit and Canadian operation results.
Warehouse and distribution expenses increased 17.8% and as a percent of sales
vs. 1995. 1996 start-up costs for the opening of one domestic and two
Canadian facilities, combined with increased wages to support the sales
increase and lower freight consolidation income resulted in the expense
increase. Increased warehouse costs absorbed into inventory partially offset
the year-to-date expense increase.
Selling, general and administrative expenses increased by 4.8% vs. 1995, but
decreased as a percent of sales. The increase is primarily related to
increased personnel and relocation costs for the start-up facilities and
increased data processing expenses. This is offset by reduced corporate
administrative expenses due to re-engineering efforts.
Retail success and development expenses increased $3.0 million or 20.1% vs.
1995 and as a percent of sales due to increased new business development costs
and decreased computer systems income.
Interest expenses decreased 20.4% or $2.1 million vs. 1995 due primarily to
inventory turnover improvements in the first half of 1996.
Other income increased $242,000 vs. 1995 due primarily to the 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 capital expenditures in the future.
-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, 1996.
-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 November 14, 1996
Rita D. Kahle
Vice President, Finance
(Principal Financial and Accounting Officer,
and duly authorized Officer of the registrant)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
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<PERIOD-TYPE> 6-MOS
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<CURRENT-ASSETS> 673051
<PP&E> 346940
<DEPRECIATION> 143889
<TOTAL-ASSETS> 880192
<CURRENT-LIABILITIES> 557431
<BONDS> 0
0
0
<COMMON> 229983
<OTHER-SE> 6662
<TOTAL-LIABILITY-AND-EQUITY> 880192
<SALES> 1307623
<TOTAL-REVENUES> 1307623
<CGS> 1211253
<TOTAL-COSTS> 1211253
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
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<NET-INCOME> 31108
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</TABLE>
<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> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
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</TABLE>
