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 March 31, 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 (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 March 31, 1996
Class A Voting Stock - $1,000 par value 3,925 shares
Class B Stock - $1,000 par value 3,012 shares
Class C Stock - $ 100 par value 1,874,955 shares
ACE HARDWARE CORPORATION
INDEX
Page No.
PART I. - Financial Information
Balance Sheet - March 31, 1996 and December 31, 1995 1
Statement of Earnings - Three Months Ended March 31, 1996
and 1995 2
Statement of Cash Flows - Three Months Ended March 31, 1996
and 1995 3
Notes to Financial Statements 4
Management's Discussion and Analysis of Financial Condition
and Results of Operations 5
PART II. - Other Information 6
<TABLE>
PART I. FINANCIAL INFORMATION
ACE HARDWARE CORPORATION
BALANCE SHEET
<CAPTION>
March 31, December 31,
1996 1995
(000'S OMITTED)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 101 $ 12,853
Accounts Receivable, Net 325,971 287,078
Merchandise Inventory 278,328 254,451
Prepaid Expenses and Other Current Assets 11,228 9,324
Total Current Assets 615,628 563,706
Property and Equipment, Net 196,347 191,504
Other Assets 4,072 3,923
Total Assets $ 816,047 $ 759,133
LIABILITIES AND MEMBER DEALERS' EQUITY
Current Liabilities:
Current Installment of Long-Term Debt 7,245 7,378
Short-Term Borrowings 35,500 13,000
Accounts Payable 369,930 337,414
Patronage Dividends Payable in Cash 27,290 23,522
Patronage Refund Certificates Payable 14,377 12,641
Accrued Expenses 44,787 35,397
Total Current Liabilities 499,129 429,352
Notes Payable 56,491 57,795
Patronage Refund Certificates Payable 41,250 54,741
Total Liabilities 596,870 541,888
Member Dealers' Equity:
Class A Stock of $1,000 Par Value 3,979 3,905
Class B Stock of $1,000 Par Value 6,499 6,499
Class C Stock of $100 Par Value 178,104 177,817
Class C Stock of $100 Par Value, Issuable to
Dealers for Patronage Dividends 31,797 27,506
Additional Stock Subscribed, Net of Unpaid Portion 536 515
Retained Earnings and Contributed Capital 7,057 7,945
227,972 224,187
Less: Treasury Stock, at Cost 8,795 6,942
Total Member Dealers' Equity 219,177 217,245
Total Liabilities and Member Dealers' Equity $ 816,047 $ 759,133
</TABLE>
See accompanying notes to financial statements.
-1-
<TABLE>
ACE HARDWARE CORPORATION
STATEMENT OF EARNINGS
<CAPTION>
THREE MONTHS ENDED
MARCH 31, MARCH 31
1996 1995
(000's omitted)
<S> <C> <C>
Net Sales $593,186 $559,487
Cost of Sales 551,741 515,804
Gross Profit 41,445 43,683
Operating Expenses:
Warehouse and Distribution 8,506 8,463
Selling, General and Administrative 15,814 14,648
Retail Success and Development 5,907 3,765
Total Operating Expenses 30,227 26,876
Operating Income 11,218 16,807
Interest Expense (2,472) (3,372)
Other Income, Net 1,219 926
Income Taxes (386) (373)
Net Earnings 9,579 13,988
Distribution of Net Earnings
Patronage Dividends 10,467 14,257
Retained Earnings (888) (269)
Net Earnings $ 9,579 $ 13,988
</TABLE>
See accompanying notes to financial statements.
-2-
<TABLE>
ACE HARDWARE CORPORATION
STATEMENT OF CASH FLOWS
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
(000's OMITTED)
1996 1995
<S> <C> <C>
Operating activities:
Net earnings $ 9,579 $ 13,988
Adjustments to reconcile net earnings to net
cash used in operating activities:
Depreciation 4,051 4,179
Increase in accounts receivable, net (38,893) (52,943)
Increase in merchandise inventory (23,877) (32,535)
Increase in prepaids and other current assets (1,904) (769)
Increase in accounts payable and
accrued expenses 41,906 18,886
Net cash used in operating expenses (9,138) (49,194)
Investing activities:
Purchases of property and equipment (8,894) (7,944)
Increase in other assets (149) (1,285)
Net cash used in investing activities (9,043) (9,229)
Financing activities:
Proceeds from short-term borrowings 22,500 61,000
Principal payments on long-term debt (1,437) (1,836)
Payments on refund certificates and patronage
financing programs (14,163) (3,306)
Proceeds from sale of common stock 382 398
Repurchase of common stock (1,853) (2,597)
Net cash provided by financing activities 5,429 53,659
Decrease in cash and cash equivalents (12,752) (4,764)
Cash and cash equivalents at beginning of period 12,853 4,868
Cash and cash equivalents at end of period $ 101 $ 104
</TABLE>
See accompanying notes to financial statements.
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ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1) General
The accompanying financial statements have not been
examined by independent public accountants except for the
December 31, 1995 balance sheet, however, in the opinion
of the Company reflect all adjustments necessary to
present fairly the financial position as of March 31, 1996
and 1995 and the results of operations and cash flows for
the three 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 1996.
-4-
ACE HARDWARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 compared to Three Months Ended
March 31, 1995.
Results of Operations
Net sales increased 6.0% in 1996 primarily due to increases in
volume from existing dealers, targeted efforts on new store
development and conversions to the Ace program.
Gross profit declined 5.1% vs. 1995 and as a percent of sales due
to reduced levels of vendor and dealer price increases and lower
manufacturing gross profit. This decrease is partially offset by
increased vendor allowances and a lower LIFO provision.
Warehouse and distribution expenses increased slightly vs. 1995 but
decreased as a percent of sales. 1996 start-up costs for the
opening of two facilities are partially offset by increased freight
consolidation income and increased levels of warehouse costs
absorbed into inventory.
Selling, general and administrative expenses increased by 7.9% vs.
1995 and as a percent of sales due to increased personnel and
relocation costs for the start-up facilities and increased data
processing expenses.
Retail success and development increased $2.1 million vs. 1995 and
as a percent of sales due to increased personnel costs for field
retail support and new business development, decreased Retail
Computer Systems income and additional advertising costs.
Interest expenses decreased 27.0% or $900,000 vs. 1995 primarily
due to inventory turnover improvements over the prior year. The
use of both short-term borrowing and long-term financing is
expected to continue to fund planned capital expenditures in 1996.
Other income increased $293,000 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.
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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 March 31, 1996.
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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 05/14/96
Rita D. Kahle
Vice President, Finance
(Principal Financial and Accounting Officer,
and duly authorized Officer of the registrant)
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<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 101
<SECURITIES> 0
<RECEIVABLES> 327,754
<ALLOWANCES> 1,783
<INVENTORY> 278,328
<CURRENT-ASSETS> 615,628
<PP&E> 336,672
<DEPRECIATION> 140,325
<TOTAL-ASSETS> 816,047
<CURRENT-LIABILITIES> 499,129
<BONDS> 0
0
0
<COMMON> 220,915
<OTHER-SE> 7,057
<TOTAL-LIABILITY-AND-EQUITY> 816,047
<SALES> 593,186
<TOTAL-REVENUES> 593,186
<CGS> 551,741
<TOTAL-COSTS> 551,741
<OTHER-EXPENSES> 30,227
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,472
<INCOME-PRETAX> 9,965
<INCOME-TAX> 386
<INCOME-CONTINUING> 9,579
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,579
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
