SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended June 30, 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 June 30, 1996
Class A Voting Stock - $1,000 par value 3,919 shares
Class B Stock - $1,000 par value 2,968 shares
Class C Stock - $ 100 par value 2,006,247 shares
ACE HARDWARE CORPORATION
INDEX
Part I. - Financial Information: Page No.
Balance Sheets - June 30, 1996 and December 31, 1995 1
Statements of Earnings - Six Months and Three Months
Ended June 30, 1996 and 1995 2
Statements of Cash Flows - Six Months Ended
June 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>
JUNE 30, DECEMBER 31,
1996 1995
(000'S OMITTED)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 2,138 $ 12,853
Accounts Receivable, Net 369,175 287,078
Merchandise Inventory 287,114 254,451
Prepaid Expenses and Other Current Assets 14,624 9,324
Total Current Assets 673,051 563,706
Property and Equipment, Net 203,051 191,504
Other Assets 4,090 3,923
Total Assets $ 880,192 $ 759,133
LIABILITIES AND MEMBER DEALERS' EQUITY
Current Liabilities:
Current Installments of Long-Term Debt 7,053 7,378
Short-Term Borrowings 48,000 13,000
Accounts Payable 433,378 338,577
Patronage Dividends Payable in Cash 11,852 23,522
Patronage Refund Certificates Payable 14,300 12,641
Accrued Expenses 42,848 34,234
Total Current Liabilities 557,431 429,352
Notes Payable 54,884 57,795
Patronage Refund Certificates Payable 43,736 54,741
Total Liabilities 656,051 541,888
Member Dealers' Equity:
Class A Stock of $1,000 Par Value 4,051 3,905
Class B Stock of $1,000 Par Value 6,499 6,499
Class C Stock of $100 Par Value 205,936 177,817
Class C Stock of $100 Par Value, Issuable to
Dealers for Patronage Dividends 13,497 27,506
Additional Stock Subscribed, Net of Unpaid Portion 532 515
Retained Earnings and Contributed Capital 6,130 7,945
Total Member Dealers' Equity 236,645 224,187
Less: Treasury stock, at cost 12,504 6,942
Total Member Dealers' Equity 224,141 217,245
Total Liabilities and Member Dealers' Equity $ 880,192 $ 759,133
</TABLE>
See accompanying notes to financial statements.
-1-
<TABLE>
ACE HARDWARE CORPORATION
STATEMENTS OF EARNINGS
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
(000's omitted) (000's omitted)
<S> <C> <C> <C> <C>
Net Sales $714,437 $643,982 $1,307,623 $1,203,469
Cost of Sales 659,512 592,205 1,211,253 1,108,009
Gross Profit 54,925 51,777 96,370 95,460
Operating Expenses:
Warehouse and Distribution 8,998 7,515 17,504 15,978
Selling, General and Administrative 16,664 16,634 32,478 31,282
Retail Success and Development 6,019 6,360 11,927 10,125
Total Operating Expenses 31,681 30,509 61,909 57,385
Operating Income 23,244 21,268 34,461 38,075
Interest Expense (2,393) (3,828) (4,865) (7,200)
Other Income, Net 1,087 1,173 2,306 2,099
Income Taxes (408) (130) (794) (503)
Net Earnings 21,530 18,483 31,108 32,471
Distribution of Net Earnings:
Patronage Dividends 22,456 18,524 32,923 32,781
Retained Earnings (926) (41) (1,815) (310)
Net Earnings $ 21,530 $ 18,483 $ 31,108 $ 32,471
</TABLE>
See accompanying notes to financial statements.
-2-
<TABLE>
ACE HARDWARE CORPORATION
STATEMENTS OF CASH FLOWS
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1996 1995
(000'S OMITTED)
<S> <C> <C>
Operating Activities:
Net Earnings $ 31,108 $ 32,471
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 8,160 8,456
Loss (Gain) on sale of property and equipment (22) 1
Increase in accounts receivable, net (82,097) (59,793)
Decrease (Increase) in merchandise inventory (32,663) 9,245
Decrease (Increase) in prepaids and other current assets (5,300) 147
Increase in accounts payable and accrued expenses 103,415 15,574
Net cash Provided by Operating Activities 22,601 6,101
Investing Activities:
Purchases of property and equipment (19,736) (15,588)
Proceeds from sale of property and equipment 51 2
Increase in other assets (167) (1,779)
Net cash Used in Investing Activities (19,852) (17,365)
Financing Activities:
Proceeds from short-term borrowings 35,000 46,000
Principal payments on long-term debt (3,236) (3,047)
Payments on refund certificates and patronage
financing programs (16,920) (5,361)
Proceeds from sale of common stock 776 845
Repurchase of common stock (5,562) (4,637)
Payments of cash portion of patronage dividend (23,522) (27,302)
Net Cash Provided by (Used in) Financing Activities (13,464) 6,498
Decrease in Cash and Cash Equivalents (10,715) (4,766)
Cash and Cash Equivalents at Beginning of Period 12,853 4,868
Cash and Cash Equivalents at End of Period $ 2,138 $ 102
</TABLE>
See accompanying notes to financial statements.
-3-
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS
1) General
The accompanying financial statements have not been
examined by independent public accountants except for
the December 31, 1995 balance sheet but in the opinion
of the Company reflect all adjustments necessary to
present fairly the financial position as of June 30,
1996 and 1995 and the results of operations and cash
flows for the six months then ended. These interim
figures are not necessarily indicative of the results
to be expected for the full year.
2) Patronage Dividends
The Company operates as a cooperative organization and
will pay patronage dividends to consenting member
dealers based on the earnings derived from business
done with such dealers. It has been the practice of
the Company to distribute substantially all patronage
sourced earnings in the form of patronage dividends.
Net earnings and patronage dividends will normally be
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-
ACE HARDWARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended June 30, 1996 compared to Three Months Ended
June 30, 1995.
Results of Operations
Net sales increased 10.9% 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 increased 6.1% vs. 1995, but decreased as a percent
of sales due to reduced levels of vendor and dealer price
increases and increased warehouse costs absorbed into inventory.
This decrease is partially offset by a lower LIFO provision and
increased manufacturing gross profit.
Warehouse and distribution expenses increased $1.5 million or
19.7% and as a percent of sales vs. 1995. 1996 start-up costs
for the opening of two facilities and wages to support the sales
increase are partially offset by increased levels of warehouse
costs absorbed into inventory.
Selling, general and administrative expenses are comparable to
1995 and decreased as a percent of sales. Corporate expense
declines are offset by increased personnel costs for the start up
facilities in 1996.
Retail success and development expenses decreased $300,000 and as
a percent of sales primarily due to increased corporate
advertising income. Increased personnel costs for field retail
support and new business development partially offset the second
quarter expense declines.
Interest expenses decreased 37.5% or $1.4 million vs. 1995 due
primarily 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.
-5-
ACE HARDWARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Six Months Ended June 30, 1996 compared to Six Months Ended June 30, 1995.
Results of Operations
Net sales increased 8.7% in 1996 primarily due to increases in
volume from existing dealers and targeted efforts on new store
development and conversions to the Ace program.
Gross profit increased 1.0% vs. 1995, but decreased as a percent
of sales due to reduced levels of vendor and dealer price
increases and increased warehouse costs absorbed into inventory.
This decrease is partially offset by a lower LIFO provision.
Warehouse and distribution expenses increased 9.6% and slightly
as a percent of sales vs. 1995. 1996 start-up costs for the
opening of two facilities, combined with increased wages to
support the sales increase result 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 3.8%
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.
Retail success and development expenses increased $1.8 million or
17.8% vs. 1995 and as a percent of sales due to increased
personnel costs for field retail support and new business
development and decreased computer systems income.
Interest expenses decreased 32.4% or $2.3 million vs. 1995 due
primarily to inventory turnover improvements versus 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 $207,000 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 4. Submission of Matters to a Vote of Security Holders
The following information is furnished with respect to
matters submitted to a vote of the stockholders of the
registrant at a meeting thereof held during the quarter
covered by this report:
(a) Date of meeting: June 3, 1996 - said meeting was
an annual meeting.
(b) 1. The following director was elected at said
meeting for a three year term expiring in 1999:
J. Thomas Glenn
2. The following directors were reelected at said
meeting for a three year term expiring in 1999:
Jon R. Weiss
John E. Kingrey
3. The names of the other directors other than the
above elected directors whose terms of office
as directors continue after the meeting are:
Roger E. Peterson
Lawrence R. Bowman
Richard E. Laskowski
James R. Williams
Jennifer C. Anderson
Mark Jeronimous
Ray W. Osborne
Don S. Williams
(c) Matters voted upon and approved at the meeting were:
Amendment to the Corporation's restated Certificate
of Incorporation increasing the number of shares of
Class "C" nonvoting stock which the Corporation
is authorized to issue from 2,000,000 to 4,000,000.
Item 6. Exhibits and Reports on Form 8-K
(b) There were no reports on Form 8-K filed for the
three month period ended June 30, 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 AUGUST 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 entirely by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,138
<SECURITIES> 0
<RECEIVABLES> 371,527
<ALLOWANCES> 2,352
<INVENTORY> 287,114
<CURRENT-ASSETS> 673,051
<PP&E> 346,940
<DEPRECIATION> 143,889
<TOTAL-ASSETS> 880,192
<CURRENT-LIABILITIES> 557,431
<BONDS> 0
0
0
<COMMON> 229,983
<OTHER-SE> 6,662
<TOTAL-LIABILITY-AND-EQUITY> 880,192
<SALES> 714,437
<TOTAL-REVENUES> 714,437
<CGS> 659,512
<TOTAL-COSTS> 659,512
<OTHER-EXPENSES> 30,594
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,393
<INCOME-PRETAX> 21,938
<INCOME-TAX> 408
<INCOME-CONTINUING> 21,530
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,530
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
