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
Commission File No. 2-55860
For the fiscal year ended December 31, 1995
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
23, 1996, the aggregate value of the Class A stock held by non-
affiliates (dealer-stockholders) calculated on the basis of such
repurchase price was $3,893,000.
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.
X Yes 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 23,
1996:
Class A (voting) Stock, $1,000 par value 3,893 shares
Class B (nonvoting) Stock, $1,000 par value 3,032 shares
Class C (nonvoting) Stock, $ 100 par value 1,770,346 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, 1995 there were 5,007 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%), Illinois (approximately
8%), Texas (approximately 7%), Florida (approximately 6%), Michigan
and Georgia (approximately 4% each). States into which were shipped
the largest percentages of the merchandise sold by the Company in
1995 are California (approximately 11%), Illinois (approximately
8%), Florida and Texas (approximately 6% each), Michigan
(approximately 5%) and Georgia (approximately 4%). Approximately 3%
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:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Member outlets at beginning of period 4,940 4,921 4,986
New member outlets 285 198 158
Member outlets terminated 218 179 223
Member outlets at end of period 5,007 4,940 4,921
Dealers having one or more member outlets at end of period 4,055 4,054 4,045
</TABLE>
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 1995 warehouse sales accounted for 62% of
total sales and bulletin sales accounted for 3% of total sales with
the balance of 35% representing direct shipment, including lumber
and building material sales. 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:
<TABLE>
<CAPTION>
Class of Merchandise 1995 1994 1993
<S> <C> <C> <C>
Paint, cleaning and related supplies 19% 19% 19%
Plumbing and heating supplies 16% 16% 15%
Hand and power tools 14% 14% 14%
General hardware 13% 13% 12%
Electrical supplies 13% 12% 12%
Garden, rural equipment and related supplies 13% 11% 12%
Sundry 7% 9% 9%
Housewares and appliances 5% 6% 7%
</TABLE>
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.
<TABLE>
<CAPTION>
Invoice Amount Handling Charge (Markup)
<S> <C>
$ 0 to $ 999.99 2.00% or $1.00 whichever is greater
$1,000.00 to $1,999.99 1.75%
$2,000.00 to $2,999.99 1.50%
$3,000.00 to $3,999.99 1.25%
$4,000.00 to $4,999.99 1.00%
$5,000.00 to $5,999.99 .75%
$6,000.00 to $6,999.99 .50%
$7,000.00 to $7,999.99 .25%
$8,000.00 and over .00%
</TABLE>
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% applies to various categories of
sales of merchandise exported to certain dealers located outside
of the United States and its territories and possessions. Ace
dealers located outside of the United States and its territories
and possessions not subject to the additional 3% markup are
assessed a flat 2% markup on all direct shipment sales.
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.")
The Company has an ongoing strategic planning process and has
focused its strategic plans around four cornerstones for future
growth and success in this competitive industry. The four
cornerstones are: Retail Success (store operations), Wholesale
Success (distribution), International growth and new member growth.
Dealer retail success is a primary objective since it drives both
retail performance and wholesale growth of the Company. The Company
has accelerated its efforts in assisting member dealers in "retail
success initiatives" designed to document and improve their retail
performance and competitiveness. The retail success initiatives
include retail goals which each dealer should strive for within
their store and local competitive environment, but do not dictate
material restrictions or requirements on member dealers. Minimum
requirements for acceptance of a member dealer by the Company are
outlined only in the Membership Agreement and in the Member
Operational Requirements under the Ace Hardware Membership
Agreement. The Operational Requirements do require that, within one
year from the Company's acceptance of the Agreement, the member
dealer make Ace their primary source of supply and terminate
participation in the program of any other major hardware
wholesaler. There are currently no specific requirements as to
percentage of purchases required through Ace or minimum retail
performance which must be achieved (i.e. sales dollars per square
foot). This strategic plan, referred to as "The New Age of Ace" is
an extension of previous strategic efforts under Ace 2000 and is
not in conflict with these efforts.
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.,
another 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
facilities owned by it in Matteson and Chicago Heights, Illinois.
These facilities now constitute the primary source of such products
offered for sale by the Company to its dealers. The Company's paint
manufacturing business 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.
The Company makes available some services to members which are
related to the operation of their retail business. These services
(such as advertising, store supplies and training programs) are
provided in order to assist members and/or to utilize the
centralized buying power of the Company. Members are rebilled in
order to reimburse the Company for related expenses paid on their
behalf. The special charges and assessments described below are
similar in nature and are intended only to reimburse the Company
for related expenses.
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 purchases of lumber, LTL, LTL Plus,
building materials products and PACE hardware and software computer
systems), with the current minimum annual assessment for each
dealer location being established at $1,560.00 (or such greater
amount as would be required to maintain such minimum assessment at
1.25% of the annual volume of purchases required in order for a
retail outlet to avoid imposition of the low volume account service
charge) for 1996 ($1,300.00 for 1995), subject to: 1) a maximum
annual assessment for each dealer location for which a membership
agreement has been entered into with the Company of $5,000.00 for
1996 ($4,750.00 for 1995); 2) a maximum total annual assessment for
any one dealer determined by multiplying the number of such
dealer's retail outlets supplied by the Company which serve the
general public by $5,000.00 with certain exemptions from or
adjustments to the national advertising assessment for dealer
outlets located outside of the contiguous 48 states of the United
States and the District of Columbia, based on the evaluation by the
Company's management 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.
A special low volume account service charge of $30.00 per bi-
weekly billing statement period is imposed on all stores whose
purchases (exclusive of lumber and LTL purchases) during such
period are less than $4,800.00, or, effective January 1, 1996 a
$50.00 per bi-weekly billing statement on all stores whose annual
purchases are less than $50,000.00. Any such charges imposed on a
store during a specified year will be automatically refunded to the
store if its total purchases (exclusive of lumber and LTL purchases)
exceed $124,800.00 for 1996 ($104,000.00 for 1995) during the year.
All stores are exempted from such special charge during the first
12 months from the date that they are affiliated as Ace dealers.
Exceptions to the low volume account service charge are as follows:
1. when a dealer has purchased $124,800.00 for 1996
($104,000.00 for 1995) of merchandise (exclusive of carload
lumber purchases) during the applicable year, the dealer
will be given credit on the next bi-weekly billing
statement for any low volume charges which have been added
to the account during such year and the low volume charge
shall no longer be added on any of such dealer's bi-weekly
billing statements during the remainder of such period even
if the current purchases shown on the billing statement are
less than $4,800.00; and
2. the low volume account service charge will not be billed
on a bi-weekly basis to those accounts whose previous
year's sales volume exceeded the low volume purchases
minimum ($124,800.00 for 1996; $104,000.00 for 1995) for
the previous year, but the full annual low volume account
service charge will be billed on the last billing statement
of the year to those accounts if the minimum purchases to
avoid imposition of the charge have not been met for the
current 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 $16.00 for 1996 ($14.50 for 1995) for
each single store or parent store and $11.00 for 1996 ($10.00 for
1995) 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, set forth in Appendix A). 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 $32.00 for 1996 ($30.00 for 1995) for each
single store or parent store and $16.00 for 1996 ($15.00 for 1995)
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
"HARDWARE UNIVERSITY"
with Design Service Mark 1,180,539 December 1, 2001
"SUPER STRIKER" 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
lettering design Service Mark 1,487,216 May 3, 2008
"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
Registration
Description of Mark Type of Mark Number Expiration Date
<S> <C> <C>
"ACE BEST BUYS" in
circle design Service Mark 1,560,250 October 10, 2009
"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 OAKBROOK 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" design Service Mark 1,764,803 April 13, 2003
"THE OAKBROOK 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
"CELEBRATIONS" Service Mark 1,918,785 September 12, 2005
Repetitive Stylized
"A" design Service Mark 1,926,798 October 10, 2005
"The NEW AGE OF ACE"
design Service Mark 1,937,008 November 21, 2005
"ACE RENTAL PLACE" in
stylized lettering
design Service Mark 1,943,140 December 19, 2005
</TABLE>
Currently, the Company has applications pending before the U.S.
Patent and Trademark Office for Registration of "GREAT FINISHES" for
paints, paint-like coatings, primers, lacquers, stains and varnishes,
"WOOD ROYAL" for paint, exterior stains and wood cleaners, "ROYAL TOUCH"
for paints, primers, stains, lacquers and varnishes, "ROYAL SHIELD" for
paints, primers, stains, lacquers and varnishes and "SEAL TECH" for
acrylic waterproof coatings for porous surfaces. In addition, the
Company also has service mark applications pending for "ACE HOME
CENTER," "HELPFUL HARDWARE FOLKS," 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 and increasing 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, Sears,
and Lowe's, 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.
Employees
The Company employs 3,917 full-time employees, of which 1,194 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 the dealer, 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 "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:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Warehouse Sales 4.42965% 4.64117% 4.94434%
Bulletin Sales 2.0% 2.0% 2.0%
Direct Shipment Sales 1.0% 1.0% 1.0%
Paint Sales 6.8725% 8.2205% 7.9389%
</TABLE>
In addition to the dividends described above, patronage dividends
are calculated separately and distributed on sales of lumber products,
building material and millwork products and less-than-truckload (LTL)
sales of lumber and building material products. Patronage dividends
equal to .3560%, .4073% and .1763% 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 1995, 1994 and 1993, 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 1995, 1994 and 1993.
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 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 four sales categories involving these
types of products. These four categories are (a) lumber products
(other than less-than-truckload sales); (b) building materials
products (other than less-than-truckload sales); (c) millwork products
and (d) 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;
(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, building material and
millwork (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 was 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, 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, building material and
millwork (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 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), (b) sales of building materials
(other than LTL sales) (c) sales of millwork products, and (d) 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), (b)
purchases of building materials products (other than LTL purchases) or
(c) purchases of millwork products 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 per location
the funds required for such 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 per location 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 per location 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.
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 45% 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 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 and Non-Member Accounts
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 distribution
of patronage dividends. As of December 31, 1995, 1994 and 1993
International Retail Merchant volume accounted for approximately 3% of
the Company's total sales in each such year. In 1995, the Company's
Board of Directors authorized the Company to affiliate non-member
retail accounts, which are not entitled to membership in the
cooperative, and which therefore will neither own stock in the
Company, nor receive patronage dividends. (See Article XXV, Sections 3
and 4 of the By-laws regarding International Retail Merchants and non-
member accounts.)
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
<S>
General Offices: <C> <C> <C>
Oak Brook, Illinois 206,030 Leased September 30, 2009
Oak Brook, Illinois (1) 70,508 Owned
Markham, Ontario, Canada (2) 15,372 Leased February 28, 2006
Distribution Warehouses:
Lincoln, Nebraska 346,000 Leased December 31, 2006
Arlington, Texas 313,000 Leased July 31, 1997
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 (3) 250,000 Leased September 30, 1999
Chicago, Illinois (4) 18,168 Leased May 31, 1997
Brantford, Ontario, Canada (5) 354,000 Leased March 31, 2006
Baltimore, Maryland (6) 158,485 Leased March 31, 1998
Print Shop Facility:
Downers Grove, Illinois 41,000 Leased January 31, 1998
Paint Manufacturing Facilities:
Matteson, Illinois 356,000 Owned
Chicago Heights, Illinois 194,000 Owned
Other Property:
Aurora, Illinois 72 acres Owned
Square Feet Owned Lease
of Facility or Expiration
Location (Land in Acres) Leased Date
LaCrosse, Wisconsin (7) 3 acres Owned
Colorado Springs, Colorado (8) 42 acres Owned
Yorkville, Illinois (9) 12,500 Leased July 31, 2005
</TABLE>
(1) Includes 35,254 square feet leased to tenant until September 30, 1996.
The subject property is adjacent to the Company's general offices.
(2) This facility is leased by the Company's wholly owned subsidiary,
Ace Hardware Canada, Limited.
(3) This facility was leased by the Company in October, 1994, for use
as a bulk merchandise redistribution center.
(4) This facility was leased by the Company in June, 1994 for use
as a freight consolidation center.
(5) This facility is leased by the Company's wholly owned
subsidiary, Ace Hardware Canada, Limited.
(6) This facility was leased by the Company in February, 1995 for
use as a redistribution center.
(7) This land is adjacent to the Company's LaCrosse, Wisconsin
warehouse.
(8) This property was purchased by the Company in March, 1995. A
distribution warehouse containing approximately 493,000 square
feet is currently under construction and expected to be in
operation during the second quarter of 1996.
(9) This facility is a retail hardware store leased by the
Company's wholly owned subsidiary, A.H.C. Store Development Corp.
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 of Matters 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 23, 1996 of each class of
stock of the Company is as follows:
<TABLE>
<CAPTION>
Title of Class Number of Record Holders
<S> <C>
Class A stock, $1,000 par value 3,887
Class B stock, $1,000 par value 3,024
Class C stock, $100 par value 4,775
</TABLE>
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.
Item 6. Selected Financial Data
SELECTED FINANCIAL DATA
Income Statement Data:
<TABLE>
<CAPTION>
For the Years Ended December 31,
1995 1994 1993 1992 1991
(000's omitted)
<S> <C> <C> <C> <C> <C>
Net sales $2,436,012 $2,326,115 $2,017,763 $1,870,625 $1,704,203
Cost of sales 2,252,125 2,152,835 1,866,768 1,722,493 1,569,871
Gross profit 183,887 173,280 150,995 148,132 134,332
Total expenses 120,145 108,758 93,903 87,365 75,175
Net earnings $63,742 $64,522 $57,092 $60,767 $59,157
Patronage dividends (Notes A, B, 5 and 8) $64,716 $64,520 $59,023 $63,207 $57,729
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993 1992 1991
(000's omitted)
<S> <C> <C> <C> <C> <C>
Total assets $759,133 $723,610 $666,022 $593,399 $539,753
Working capital 134,354 146,170 135,224 105,641 107,408
Long-term debt 57,795 64,287 71,286 51,696 38,737
Patronage refund certificates payable,
long-term 54,741 63,666 56,270 55,389 58,559
Member dealers' equity 217,245 199,827 186,028 175,681 164,411
</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, 1995, patronage dividends were payable as
follows:
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
(000's omitted)
<S> <C> <C> <C> <C> <C>
In cash $23,522 $27,302 $25,766 $27,538 $26,864
In patronage refund
certificates payable 5,032 9,920 12,728 14,598 15,176
In Class C Stock 27,506 21,766 19,064 20,301 14,841
In patronage financing
deductions 8,656 5,532 1,465 770 848
Total patronage dividends $64,716 $64,520 $59,023 $63,207 $57,729
</TABLE>
(C) Numbered notes refer to Notes to Financial Statements, beginning on
page F-8.
(5) & (8) refers to Notes (5) and (8) of the Financial Statements
included on page F-10, F-12 and F-13 of this Form 10-K.
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).
The Company's long and short-term liquidity is dependent on retail
growth as described under the "Company's Business." Nothing in the
Company's plans as discussed under the "Company's Business" has led or
is expected to lead to any material change in pricing, margins or
product focus or is expected to materially impact the results or
operations or liquidity of the Company. The Company's long-term
strategic plan is only for a renewed focus on supporting retail growth.
Retail growth provides equity growth for the Company. Recognizing the
need for equity growth in order to properly capitalize the Company, the
patronage stock formula for years beginning in 1995 was changed. See
"Forms of Patronage Dividend Distributions." Additionally, to help
ensure adequate accessibility to cash, the Company established a
revolving credit facility in 1994. The Company believes that these
changes and the retail growth of the membership will provide adequate
liquidity for the long-term.
The Company has an established unsecured revolving credit facility
with a group of banks. During 1995, the Company increased its unsecured
lines of credit to $185.0 million of which $172.0 million was available
at December 31, 1995. 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. The Company's
credit facilities provide that certain ratios be maintained with the
only material covenant related to fixed charge coverage. The Company is
in compliance with all debt covenants.
Capital expenditures for new and improved facilities were $31.3,
$28.3 and $16.3 million in 1995, 1994 and 1993, respectively. During
1995, the Company financed the $31.3 million of capital expenditures out
of current and accumulated internally generated funds and short-term
borrowings. 1996 capital expenditures are anticipated to be
approximately $49.0 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"). Prior to 1994, patronage dividends
were distributed on the basis of taxable income. Accordingly, patronage
dividends can exceed net income or be less than net income due to the
timing of certain items for income tax purposes. The Board of Directors
does have the authority to determine reasonable reserves for the purpose
of ensuring the welfare of the Company, but it has been the practice of
the Company to distribute substantially all patronage sourced earnings
in the form of patronage dividends. Non-patronage sourced earnings
(including international earnings) have been minimal in all years
presented except for capital gains related to the sale and leaseback of
a distribution center in 1991 which resulted in nonpatronage sourced
income not available for distribution as patronage dividends.
No adverse trends in revenue or net income have occurred since the
end of the Company's last reported financial period. 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 working capital requirements and patronage
dividend and capital expenditure programs.
Operations-1995 Compared to 1994
Net sales increased 4.7% in 1995 due to increases in existing dealer
volume, new store development and increased store conversions. 1995 net
sales were affected by slow retail and economic growth, moderate
seasonal sales primarily related to late spring weather, and lumber
price declines. International sales also decreased in 1995 due to the
peso devaluation resulting in lower export sales to Mexico. Sales of
basic hardware and paint merchandise (including warehouse, bulletin and
direct shipments) increased 4.3%. Lumber and building material sales
experienced slightly higher percentage increases in 1995 due to
accelerated sales efforts, but were affected by industrywide lumber
price declines. Net dealer outlets increased in 1995 due to targeted
sales efforts on new store development and conversions to the Ace
program and increased emphasis on dealer retail success.
Gross profit increased $10.6 million or 6.1% and increased as a
percent of sales to 7.55% from 7.45% in 1994 due primarily to shifts
in the Company's sales mix towards the warehouse categories and higher
merchandise discounts and allowances. Growth in competitively priced
and promotional items within the overall sales mix moderated resulting
in a slight gross profit improvement as a percent of sales. However,
emphasis on upfront rebates through reduced handling charges and low
upfront pricing programs and discounts continued with total upfront
rebates increasing 9.5% in 1995.
Warehouse and distribution expenses increased $1.4 million or 4.7%
due to increased building and distribution costs to support the sales
growth. Warehouse productivity improvements and increased freight
consolidation revenue offset these increases resulting in total
warehouse and distribution expenses remaining comparable to 1994 levels
as a percent of sales.
Selling, general and administrative expenses increased by $6.5
million or 12.3% and as a percent of sales due to increased data
processing and personnel costs.
Retail success and development expenses increased by $4.1 million or
27.6% due to increased personnel costs for field retail support and new
business development. Decreased advertising income resulting from
industrywide paper price increases also contributed to the 1995 expense
increase. Increases in this category are directly related to retail
support of the Ace dealer as the Company continues to make retail
investments in our dealer base.
Paint Division sales increased 6.2% to $90.2 million due to strong
dealer support. As a separate division of the Company, the Paint
Division produced net manufacturing profits of $5.8 million in 1995 vs.
$6.7 million in 1994. The decreased net manufacturing profit is a result
of increased raw material prices and costs associated with opening a
second facility. Paint is the only product manufactured by the Company.
As discussed on page 8, patronage dividends are calculated separately
for paint sales and decreased to 6.87% in 1995 from 8.22% in 1994.
Interest expense decreased $337,000 or 2.5% due to lower borrowing
levels resulting from improved inventory turnover. The use of both
short-term borrowings and long-term financing is expected to continue to
fund planned capital expenditures in 1996.
Other income increased $192,000 or 5.2% due primarily to the growth
in dealer financing 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 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 $22.3 million or 14.8% 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 $1.4 million or
4.4%, 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.
Selling, general and administrative expenses increased by $6.0
million or 12.8% and as a percent of sales due to increased building,
data processing and purchasing costs.
Retail success and development expenses increased by $6.9 million due
to reduced net advertising income, increased personnel costs for field
retail support and increased marketing costs. Increases within these
categories are directly related to retail support of Ace dealers.
Paint Division sales increased 24% to $84.9 million due to strong
dealer support and growing recognition of Ace Paint as a quality private
label brand. Paint is the only product manufactured by the Company.
Manufacturing margins are characteristically higher than distribution
margins due to the inherent risks and capital invested in the
manufacturing process. As a separate division of the Company, the Paint
Division produced net manufacturing profits of $6.7 million in 1994 vs.
$5.1 million in 1993. Price increases did not occur in 1994 or
contribute to the sales or income increase. Rather, a drop in raw
material prices and the increase in production volume which improved
absorption of fixed overhead costs were the major factors leading to
increased manufacturing profits.
Interest expense increased $3.1 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.
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 covered by the report of the Company's
independent certified public accountants are listed on Page F-1.
Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosures
None.
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 45 Director since June 6, 1994; term
expires 1997; President of Davis Lumber
and Ace Hardware, Inc., Davis, California.
Michael C. Bodzewski 46 Vice President-Merchandising effective
June, 1990; General Merchandise Manager
effective April, 1988.
Lawrence R. Bowman 49 Director since February 4, 1991; term
expires 1998; Vice President of
Owenhouse Hardware Co., Inc., Bozeman,
Montana.
David F. Hodnik 48 President and Chief Executive Officer
effective January 1, 1996; President and
Chief Operating Officer effective
January 1, 1995; Executive Vice
President and Chief Operating Officer
effective January, 1994; Executive Vice
President and Treasurer effective
January, 1991; Senior Vice President and
Treasurer effective January, 1988; Vice
President-Finance and Management
Information Systems and Treasurer
effective September, 1986; Vice
President-Finance and Treasurer
effective December, 1982.
Paul M. Ingevaldson 50 Vice President-Corporate Strategy and
International Business effective
September, 1992; Vice President-Retail
Support Services effective August, 1989;
Vice President-Western Region effective
September 1, 1988; Vice
President-Distribution effective
September, 1986; Vice
President-Management Information Systems
effective October, 1985; Director of
Data Processing effective October, 1982.
Mark Jeronimus 47 Director since June 3, 1991; term
expires 1997; President of Duluth
Hardware, Inc., Duluth, Minnesota.
Howard J. Jung 48 Director since June 1, 1987; term
expires 1996; Vice President of Ace
Hardware & Home Center, Inc., Raleigh,
North Carolina.
Rita D. Kahle 39 Vice President-Finance effective
January, 1994; Vice President-Controller
effective January, 1992; Controller
effective July, 1988.
John E. Kingrey 52 Director since May 17, 1992; term
expires 1996; President of WK&K
Corp., Wimberley, Texas.
Position(s) Held
Name Age and Business Experience
Richard E. Laskowski 54 Chairman of the Board since
February 18, 1992 and Director since
June 1, 1987; term expires 1998; Pres-
ident of Ace Hardware Home Center of
Round Lake, Inc., Round Lake, Illinois.
David W. League 56 Vice President-General Counsel and
Secretary effective June, 1990; General
Counsel and Secretary effective January,
1990; General Counsel effective January,
1989.
William A. Loftus 57 Senior Vice President-Retail Operations
and Marketing effective October, 1994;
Senior Vice President-Marketing and
Advertising effective September, 1992;
Senior Vice President since
January 1, 1991; Vice President-Retail
Support Operations effective August,
1989; Vice President-Eastern Region
effective September 1, 1988; Vice
President-Sales effective October, 1983;
National Sales Manager effective
October, 1976.
David F. Myer 50 Vice President-Retail Support and New
Business effective October, 1994; Vice
President-Retail Support effective
August, 1992; Vice President-Distribution
effective July, 1989.
Fred J. Neer 56 Vice President-Human Resources effective
April, 1989; Director of Human Resources
effective April, 1986.
Ray W. Osborne 59 Director since June 6, 1988; term
expires 1997; President of Cook & Sons
Ace Hardware Company, Inc., Albertville,
Alabama.
Roger E. Peterson 58 Director since June 5, 1995; Chief
Executive Officer (CEO) effective
January 1, 1995; President and Chief
Executive Officer (CEO) effective
December, 1989; President effective
August, 1986; Executive Vice President
effective March, 1985; Vice
President-Operations effective December,
1982.
Donald L. Schuman 57 Vice President-Information Systems
effective June, 1990; Director-
Information Systems effective
January, 1987.
Jon R. Weiss 60 Director since June 4, 1990; term
expires 1996; President of John W. Weiss
Hardware Company, Glenview, Illinois.
Don S. Williams 54 Director since June 6, 1988; term
expires 1997; President of Williams
Lumber, Inc., Rhinebeck, New York.
James R. Williams 48 Director since June 5, 1989; term
expires 1998; 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, but
non-dealer directors may not exceed 25% of the total number of
directors in office at any one time. 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.
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 3,
1996, as directors of the classes, from the regions, and for terms as
indicated below:
Nominee Class Region Term
John E. Kingrey Third 6 3 years
Jon R. Weiss Third 4 3 years
Mr. Howard Jung is not eligible for reelection as a director
commencing in 1996. The person named below has been selected as the
nominee for election to the Board for the first time at the 1996
annual meeting as a dealer director of the class, and for the term
indicated.
Nominee Age Class Region Term
James T. Glenn 36 Third 2 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.
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
$100,000, for services rendered by them in all capacities to the
Company and its subsidiaries during the fiscal year ended December 31,
1995 and the two previous fiscal years:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
(2)
Name Other (4)
and Annual (3) All Other
Principal (1) Compen- Long-Term Compen-
Position Year Salary ($) Bonus ($) sation ($) Payouts ($) sation ($)
<S> <C> <C> <C> <C> <C> <C>
David F. Hodnik 1995 $450,000 - $17,021 $105,870 $ 97,624
President and Chief 1994 350,000 61,250 17,561 15,583 77,782
Executive Officer 1993 328,000 50,840 14,794 15,500 75,210
(CEO effective 1/1/96)
Roger E. Peterson 1995 333,333 - 6,087 - 105,487
Chief Executive 1994 800,000 125,000 12,907 - 147,159
Officer (through 5/31/95) 1993 670,000 100,000 19,001 - 139,598
William A. Loftus 1995 275,000 42,350 6,298 80,204 59,153
Senior Vice President-
Retail Operations 1994 260,000 45,500 10,163 12,000 61,308
and Marketing 1993 250,000 37,500 32,881 12,000 61,560
Paul M. Ingevaldson 1995 247,000 33,100 7,215 71,221 49,466
Vice President- 1994 232,000 41,760 7,190 10,583 59,111
Corporate Strategy and 1993 222,000 31,080 23,195 10,700 53,457
International Business
Michael C. Bodzewski 1995 192,500 36,800 9,555 48,158 36,523
Vice President-Merchandising 1994 165,000 28,900 7,946 6,926 37,739
1993 147,000 18,750 6,797 - 34,403
Rita D. Kahle 1995 195,000 32,175 9,012 44,807 35,573
Vice President-Finance 1994 160,000 29,600 7,874 6,104 36,670
1993 133,000 19,950 7,762 - 32,680
</TABLE>
(1) The Incentive Compensation Plan covers each of the executive
officers (except Mr. Hodnik). 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 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.
(2) The Company provides automobiles 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.
Country club memberships granted prior to 1994 to some officers have
been eliminated, except for the President. 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.
(3) Includes the long-term incentive award under the Long-Term
Incentive Compensation Deferral Option Plan in 1995. In 1994 and
thereafter, the 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 paid in 1995 were $105,870,
$80,204, $71,221, $48,158 and $44,807 for Messrs. Hodnik, Loftus,
Ingevaldson, Bodzewski and Ms. Kahle, respectively.
Effective January 1, 1995, 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 1995
awards, amounts deferred were $84,696, $64,163, $71,221, $32,105 and
$44,807 for Messrs. Hodnik, Loftus, Ingevaldson, Bodzewski and Ms.
Kahle, respectively.
(4) Includes 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. 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 1995, the
Company contributed 10.1% of each participant's eligible compensation
to the Plan. During the year 1995, $15,150 was expensed by the
Company pursuant to the Plan for Messrs. Hodnik, Loftus, Ingevaldson,
Bodzewski and Ms. Kahle.
The Company has also established a Retirement Benefits Replacement
Plan covering all 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 1995, amounts expensed by the Company
pursuant to the Plan were $82,474 for Mr. Hodnik, $44,003 for Mr.
Loftus, $34,316 for Mr. Ingevaldson, $21,373 for Mr. Bodzewski and
$20,423 for Ms. Kahle.
The Company also funds the base premium for a supplemental universal
life insurance policy for each officer 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. In December 1995, the Company settled a portion of its pension
liability to retirees and vested terminated participants through lump
sum payments and the purchase of single premium annuity contracts.
Pension benefits were frozen to active participants and the plan was
closed to new entrants effective January 1, 1996.
(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. Bodzewski and Ms. Kahle are employed
under contracts dated March 24, 1994 and December 15, 1995 for a two
year term terminating March 24, 1996 and December 31, 1997,
respectively. The contracts provide for annual compensation effective
January 1, 1996 of $500,000, $290,000, $257,000, $200,000 and $218,000,
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. In December 1995, the Company settled a portion of its
pension liability to retirees and vested terminated participants
through lump sum payments and the purchase of single premium annuity
contracts. The plan was closed to new entrants on December 31, 1995
and pension benefits were frozen to active participants on January 1,
1996.
Examples of yearly benefits provided by the Pension Plan (prior to
reduction by the Profit Sharing Plan offset) are as follows:
<TABLE>
<CAPTION>
Years of Service
Remuneration 10 15 20 25 30 or more
<S> <C> <C> <C> <C> <C>
$150,000 30,000 45,000 60,000 75,000 90,000
$100,000 20,000 30,000 40,000 50,000 60,000
$250,000 10,000 15,000 20,000 25,000 30,000
</TABLE>
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 amount of covered compensation under the Pension Plan,
therefore is $150,000 for each Executive Officer named in the
Compensation table. The present credited years of service under the
Pension Plan for the currently employed executive officers named in the
compensation table are as follows: David F. Hodnik-23 years; William A.
Loftus-19 years; Paul M. Ingevaldson-16 years; Michael C. Bodzewski-18
years and Rita D. Kahle-9 years.
Compensation Committee Report
The Compensation Committee reviews the executive compensation and
benefits provided all senior executives. 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.
The Compensation Committee changed the compensation mix in 1994 to
one which stresses the provision of more significant performance based
incentives, particularly long term. Annual and long term incentive
opportunities have increased, 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 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.
Compensation of Directors
Effective January 1, 1996, and January 1, 1995, each member of the
Board of Directors receives a monthly fee of $2,750 and $2,650,
respectively, for their services. Effective as of the foregoing dates,
Mr. Laskowski is paid a total annual fee of $120,000 and $110,000 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) 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 (and nominee) owning such shares, individually itemized,
and by all officers and directors as a group, as of February 23, 1996:
<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 .132 2,436 .138
Lawrence R. Bowman 4 .132 1,431 .081
Mark Jeronimus 0 .000 730 .041
Howard J. Jung 0 .000 3,578 .202
John E. Kingrey 4 .132 680 .038
Richard E. Laskowski 4 .132 11,608 .656
Ray W. Osborne 4 .132 856 .048
Jon R. Weiss 4 .132 2,469 .139
Don S. Williams 0 .000 3,713 .210
James R. Williams 4 .132 772 .044
James T. Glenn 4 .132 6,527 .369
All above directors and officers as a group 32 1.056 34,800 1.966
</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 or 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.
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 was elected as an outside Director effective June 5, 1995
and retired 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
None.
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.
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 11, 1996
Pursuant to the requirement 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 11, 1996
Richard E. Laskowski and Director
DAVID F. HODNIK President and March 11, 1996
David F. Hodnik Chief Executive Officer
RITA D. KAHLE Vice President-Finance March 11, 1996
Rita D. Kahle (Principal Financial and
Accounting Officer)
Jennifer C. Anderson, Lawrence R. Bowman, Directors
Mark Jeronimus, Howard J. Jung,
John E. Kingrey, Ray W. Osborne,
Roger E. Peterson, Jon R. Weiss,
Don S. Williams, and James R. Williams, Jr.
*By DAVID F. HODNIK
David F. Hodnik
*By RITA D. KAHLE March 11, 1996
Rita D. Kahle
*Attorneys-in-fact
Item 14(a). Index to Financial Statements and Financial
Statement Schedules
Page(s)
Independent Auditors' Report F-2
Balance Sheets at December 31, 1995 and 1994 F-3
Statements of Earnings for each of the three
years in the period ended December 31, 1995 F-5
Statements of Member Dealers' Equity for each
of the three years in the period ended
December 31, 1995 F-6
Statements of Cash Flows for each of the three
years in the period ended December 31, 1995 F-7
Notes to Financial Statements F-8
All 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.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Ace Hardware Corporation:
We have audited the accompanying balance sheets of Ace
Hardware Corporation as of December 31, 1995 and 1994 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, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements 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 as of December 31, 1995
and 1994, and the results of its operations and its cash flows
for each of the years in the three-year period ended December
31, 1995 in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Chicago, Illinois
January 31, 1996
<TABLE>
<CAPTION>
ACE HARDWARE CORPORATION
BALANCE SHEETS
December 31, 1995 and 1994
ASSETS
1995 1994
(000's omitted)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 12,853 $ 4,868
Receivables:
Dealers 248,572 228,525
Other 39,916 32,377
288,488 260,902
Less allowance for doubtful receivables (1,410) (1,350)
Net receivables 287,078 259,552
Inventories (Note 2) 254,451 270,391
Other current assets 9,324 7,189
Total current assets 563,706 542,000
Property and equipment (Note 9):
Land 16,063 14,219
Buildings and improvements 145,359 135,252
Warehouse equipment 51,396 48,947
Office equipment 61,568 54,056
Manufacturing equipment 12,697 12,165
Transportation equipment 14,763 14,557
Leasehold improvements 13,498 10,928
Construction in progress 12,449 7,561
327,793 297,685
Less accumulated depreciation and amortization (136,289) (120,577)
Net property and equipment 191,504 177,108
Other assets 3,923 4,502
$759,133 $723,610
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
ACE HARDWARE CORPORATION
BALANCE SHEETS
December 31, 1995 and 1994
LIABILITIES AND MEMBER DEALERS' EQUITY
1995 1994
(000's omitted)
<S> <C> <C>
Current Liabilities:
Current installments of long-term debt (Note 4) $ 7,378 $ 7,369
Short-term borrowings (Note 3) 13,000 30,000
Accounts payable 337,414 291,185
Patronage dividends payable in cash (Note 5) 23,522 27,302
Patronage refund certificates payable (Note 5) 12,641 1,315
Accrued expenses 35,397 38,659
Total current liabilities 429,352 395,830
Long-term debt (Note 4) 57,795 64,287
Patronage refund certificates payable (Note 5) 54,741 63,666
Member dealers' equity (Notes 5 and 8):
Class A Stock of $1,000 par value 3,905 3,924
Class B Stock of $1,000 par value 6,499 6,499
Class C Stock of $100 par value 177,817 164,666
Class C Stock of $100 par value, issuable to
dealers for patronage dividends 27,506 21,766
Additional stock subscribed, net 515 555
Retained earnings 4,650 5,624
Contributed capital 3,295 3,295
224,187 206,329
Less: Treasury stock, at cost (6,942) (6,502)
Total member dealers' equity 217,245 199,827
Commitments (Notes 6 and 9)
$759,133 $723,610
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
ACE HARDWARE CORPORATION
STATEMENTS OF EARNINGS
Years Ended December 31,
1995 1994 1993
(000's omitted)
<S> <C> <C> <C>
Net sales $2,436,012 $2,326,115 $2,017,763
Cost of sales 2,252,125 2,152,835 1,866,768
Gross profit 183,887 173,280 150,995
Operating expenses:
Warehouse and distribution 31,476 30,056 31,432
Selling, general and administrative 59,157 52,662 46,706
Retail success and development 18,889 14,798 7,891
Total operating expenses 109,522 97,516 86,029
Operating income 74,365 75,764 64,966
Interest expense (Note 11) (13,137) (13,474) (10,355)
Other income, net 3,908 3,716 2,909
Income taxes (Note 7) (1,394) (1,484) (428)
Net earnings $ 63,742 $ 64,522 $ 57,092
Retained earnings at beginning of year $ 5,624 $ 5,622 $ 7,553
Net earnings 63,742 64,522 57,092
Patronage dividends (Notes 5 and 8) (64,716) (64,520) (59,023)
Retained earnings at end of year $ 4,650 $ 5,624 $ 5,622
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
ACE HARDWARE CORPORATION
STATEMENTS OF MEMBER DEALERS' EQUITY
Three Years Ended December 31, 1995
(000's omitted)
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, 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
Net earnings - - - - -
Net payments on subscriptions - - - - 1,580
Patronage financing deductions - - - (15) -
Stock issued 237 - 23,149 (21,751) (1,620)
Stock repurchased - - - - -
Stock retired (256) - (9,998) - -
Stock issuable as patronage dividends - - - 27,506 -
Patronage dividends payable - - - - -
Balance at December 31, 1995 $3,905 $6,499 $177,817 $27,506 $ 515
</TABLE>
(Table Continued on following page)
*Additional stock subscribed is comprised of the following amounts at
December 31, 1993, 1994 and 1995:
<TABLE>
<CAPTION>
Retained Contributed Treasury
Earnings Capital Stock Total
<S> <C> <C> <C> <C>
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
Patronage financing deductions - - - (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
Net earnings 63,742 - - 63,742
Net payments on subscriptions - - - 1,580
Patronage financing deductions - - - (15)
Stock issued - - - 15
Stock repurchased - - (10,694) (10,694)
Stock retired - - 10,254 -
Stock issuable as patronage dividends - - - 27,506
Patronage dividends payable (64,716) - - (64,716)
Balance at December 31, 1995 $ 4,650 $ 3,295 $(6,942) $217,245
*Additional stock subscribed is comprised of the following amounts at December 31, 1993, 1994 and 1995:
</TABLE>
1993 1994 1995
Class A Stock $ 223 $ 291 $ 332
Class B Stock - - -
Class C Stock 1,952 2,180 2,332
2,175 2,471 2,664
Less unpaid portion 1,562 1,916 2,149
$ 613 $ 555 $ 515
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
ACE HARDWARE CORPORATION
STATEMENTS OF CASH FLOWS
Year Ended December 31,
(000's omitted)
Operating Activities: 1995 1994 1993
<S> <C> <C> <C>
Net Earnings $63,742 $64,522 $57,092
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation 16,837 16,963 16,166
Loss on sale of property and equipment 3 175 460
Increase in accounts receivable, net (27,526) (46,950) (18,878)
Decrease (Increase) in inventories 15,940 (6,815) (50,099)
Decrease (Increase) in
other current assets (2,135) 153 (70)
Increase in accounts payable and
accrued expenses 42,967 63,437 57,898
Net Cash Provided by Operating
Activities 109,828 91,485 62,569
Investing Activities:
Purchase of property and equipment (31,263) (28,285) (16,350)
Proceeds from sale of property and equipment 27 187 238
Decrease (Increase) in other assets 579 7,711 (2,092)
Net Cash Used in Investing Activities (30,657) (20,387) (18,204)
Financing Activities:
Payments of short-term borrowings (17,000) (8,500) (17,500)
Proceeds from notes payable - - 30,000
Principal payments on long-term debt (6,483) (10,337) (1,092)
Payment of cash portion of patronage dividend (27,302) (25,766) (27,538)
Payments of patronage refund certificates
and patronage financing deductions (11,287) (18,886) (19,451)
Proceeds from sale of common stock 1,580 1,394 1,049
Repurchase of common stock (10,694) (8,277) (7,835)
Net Cash Used in
Financing Activities (71,186) (70,372) (42,367)
Increase in Cash and Cash Equivalents 7,985 726 1,998
Cash and Cash Equivalents at beginning of year 4,868 4,142 2,144
Cash and Cash Equivalents at end of year $12,853 $ 4,868 $ 4,142
See accompanying notes to financial statements.
</TABLE>
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
primarily in the United States, 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
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 to be cash equivalents.
(c) Receivables
Receivables from dealers include amounts due from the sale of
merchandise and special equipment used in the operation 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 are generally 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 Accelerated
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) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(h) Reclassifications
Certain financial statement reclassifications have been made to prior
year amounts to conform to comparable classifications followed in 1995.
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 $66,319,000 and $65,052,000 at
December 31, 1995 and 1994, 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 1995 and 1994. The maximum
amount outstanding at any month-end during the period was $95,000,000 in
1995 and $115,500,000 in 1994. The interest rate effective as of December
31, 1995 and 1994 was 6.13% and 6.5%, respectively. Short term borrowings
outstanding as of December 31, 1995 and 1994 were $13,000,000 and
$30,000,000 respectively. At December 31, 1995 the Company has available
a revolving credit facility with a group of banks providing for $100
million in committed lines and also has available $85 million in
uncommitted lines. The aggregate unused line of credit available at
December 31, 1995 and 1994 was $172,000,000 and $120,000,000,
respectively. At December 31, 1995 the Company had no compensating
balance requirements.
(4) Long-Term Debt
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
December 31,
1995 1994
(000's omitted)
<S> <C> <C>
Industrial Development Revenue Bond -
$125,000 payable quarterly through December 1, 1996 with
interest at 65% of the prime rate $ 500 $ 1,000
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% 16,757 18,919
$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% 16,190 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) 816 726
Installment notes with maturities through 1999 with
various interest rates 910 1,011
65,173 71,656
Less current installments 7,378 7,369
$57,795 $64,287
</TABLE>
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
Prime interest rates in effect ranged from 8.5% to 9.0% in 1995 and
from 6.0% to 8.5% in 1994.
Aggregate maturities of long-term debt are $7,378,000, $6,460,000,
$6,222,000 $6,052,000 and $3,115,000 in 1996 through 2000, respectively.
The fair value of the Company's debt based upon discounting future
cash flows does not materially vary from the carrying value of such debt
as of December 31, 1995 and 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 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 1995, 1994 and 1993 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>
1995 $23,522 $5,032 $27,506 $8,656 $64,716
1994 27,302 9,920 21,766 5,532 64,520
1993 25,766 12,728 19,064 1,465 59,023
</TABLE>
Patronage dividends are allocated on a calendar year basis with issuance
in the following year.
The patronage refund certificates outstanding at December 31, 1995 are
payable as follows:
Interest
January 1, Amount Rate
(000's omitted)
1996 $12,641 7.0%
1997 14,303 6.25
1998 13,981 6.0
1999 11,902 6.0
2000 9,523 7.0
2001 5,032 6.0
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
(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, 1995 plan assets were held
primarily in equities, mutual funds and group annuity contracts.
Pension income for the years 1995, 1994 and 1993 included the
following components:
<TABLE>
<CAPTION>
1995 1994 1993
(000's omitted)
<S> <C> <C> <C>
Service cost-benefits earned during the
period $ 355 $ 323 $ 292
Interest cost on projected benefit obligation 845 805 752
Actual return on plan assets (2,288) (121) (1,104)
Net amortization and deferral 1,257 (1,073) (169)
Net periodic pension expense (income) $ 169 $ (66) $ (229)
In December 1995 the plan settled a portion of the liability to
retirees and vested terminated participants through lump sum payments and
the purchase of single premium annuity contracts. In addition to the net
periodic pension expense in 1995, the Company recognized a net loss of
$1,380,100 related to this settlement.
The following table sets forth the funded status of the plans and
amounts recognized in the Company's Balance Sheet at December 31, 1995
and 1994 (December 31, 1995 and September 30, 1994 measurement dates):
</TABLE>
<TABLE>
<CAPTION>
1995 1994
(000's omitted)
<S> <C> <C>
Accumulated benefit obligation, including vested
benefits of $7,383,000 and $10,919,000 $ 7,613 $11,384
Plan assets at fair value $ 9,932 $13,654
Projected benefit obligation for service rendered
to date 8,832 12,364
Plan assets in excess of projected benefit obligation $ 1,100 $ 1,290
Unrecognized net gain from past experience
different from that assumed and effects of changes
in assumptions 1,775 3,361
Remaining unrecognized net asset being amortized
over participants average remaining service period (1,672) (1,983)
Prepaid pension cost included in other assets $ 1,203 $ 2,668
</TABLE>
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 1995 and
1994. The related expected long-term rate of return was 8.0% in 1995 and
1994. The rate of increase in future compensation was projected using
actuarial salary tables plus 1.0% in 1995 and 1994.
The Company also participates in several multi-employer plans covering
union employees. Amounts charged to expense and contributed to the plans
totaled approximately $275,000, $282,000 and $275,000, in 1995, 1994 and
1993, respectively.
The Company's profit sharing plan contribution for the years ended
1995, 1994 and 1993 was approximately $9,902,000, $9,381,000 and
$8,690,000, respectively.
(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 1995, 1994 and 1993 provisions for federal income taxes were $939,000,
$924,000 and $141,000, respectively, and for state income taxes were $455,000,
$560,000 and $287,000, respectively.
The Company made tax payments of $1,685,000, $1,428,000 and $357,000
during 1995, 1994 and 1993, respectively.
(8) Member Dealers' Equity
The Company's classes of stock are described below:
<TABLE>
<CAPTION>
Number of Shares
at December 31,
1995 1994
<S> <C> <C>
Class A Stock, voting, redeemable at par value-
Authorized 10,000 10,000
Issued and outstanding 3,905 3,924
Class B Stock, nonvoting, redeemable at not less than
twice par value-
Authorized 6,500 6,500
Issued 6,499 6,499
Outstanding 3,028 3,248
Treasury stock 3,471 3,251
Class C Stock, nonvoting, redeemable at not less
than par value-
Authorized 2,000,000 2,000,000
Issued and outstanding 1,778,173 1,646,656
Issuable as patronage dividends 275,059 217,658
Additional Stock Subscribed:
Class A Stock 332 291
Class B Stock - -
Class C Stock 23,320 21,800
</TABLE>
At December 31, 1995 and 1994 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.
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
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. Class C stock issuable as patronage dividends are
issued in the following year and are not issued in excess of amounts
authorized. Additional Stock Subscribed in the accompanying statements
represents the par value of shares subscribed, reduced by the unpaid
portion.
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, 1994 and 1995 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 -
Stock issued - - -
Stock repurchased 256 220 99,975
Stock retired (256) - (99,975)
Balance at December 31, 1995 - 3,471 -
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
(9) Commitments
Leased property under capital leases is included as "Property and
Equipment" in the balance sheets as follows:
</TABLE>
<TABLE>
<CAPTION>
December 31,
1995 1994
(000's omitted)
<S> <C> <C>
Buildings and improvements $3,422 $3,422
Data processing equipment 1,441 723
Less: Accumulated depreciation and amortization (4,106) (3,609)
$ 757 $ 536
</TABLE>
<TABLE>
<CAPTION>
The Company rents buildings and warehouse, office and certain other
equipment under capital and operating leases. At December 31, 1995 annual
minimum rental commitments under leases that have initial or remaining
noncancelable terms in excess of one year are as follows:
Year Ending
December 31, Capital Operating
(000's omitted)
<S> <C> <C>
1996 $515 $13,383
1997 257 12,269
1998 77 10,116
1999 - 8,555
2000 - 7,744
Thereafter - 33,304
Total minimum lease payments $849 $85,371
Less amount representing interest 33
Present value of total minimum lease payments $816
</TABLE>
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 $25,024,000, $21,814,000 and $21,444,000 in 1995, 1994 and
1993, respectively. Rent expense includes $4,724,000, $4,382,000 and
$4,282,000 in contingent rentals paid in 1995, 1994 and 1993,
respectively, primarily for transportation equipment mileage.
(10) Media Expense
The Company expenses media costs the first time the advertising takes place.
Gross media expense, prior to income offsets from dealers and suppliers,
amounting to $59,167,000, $52,185,000 and $48,293,000 were charged to
operations in 1995, 1994 and 1993, respectively.
(11) Interest Expense
Capitalized interest totaled $497,000, $213,000 and $29,000 in 1995, 1994
and 1993, respectively. Interest paid was $13,574,000, $13,518,000 and
$10,670,000 in 1995, 1994 and 1993, respectively.
INDEX TO EXHIBITS
Exhibits
Enclosed Description
21 Subsidiaries of the Registrant
24 Powers of Attorney
Exhibits
Incorporated
by Reference Description
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 (Registration No. 2-55860) on March 30,
1976 and incorporated herein by reference.
3-B By-laws of the Registrant as amended through September 19, 1995
included as Appendix A to the Prospectus constituting a part of the
Post Effective Amendment No. 1 to the Registrant's Form S-2
Registration Statement filed on or about March 15, 1996
(Registration No. 33-58191) 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.
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
Exhibits
Incorporated
by Reference
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 15,
1996 (Registration No. 33-58191) 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-N to Post-Effective Amendment No. 1 to the Registrant's
Form S-2 Registration Statement (Registration No. 33-58191) on or
about March 15, 1996 and incorporated 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.
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.
Exhibits
Incorporated
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 (Registration
No. 33-58191) 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 (Registration No.
33-58191) 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 (Registration No.
33-58191) 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 $9,000,000 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 with a maturity date of July 1, 2003 filed as
Exhibit 10-A-q to the Registrant's Form S-2 Registration Statement
(Regis-tration No. 33-46449) on March 23, 1992 and incorporated
herein 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.
Exhibits
Incorporated
by Reference
10-P Copy of current standard form of Ace Hardware Membership Agreement
filed as Exhibit 10-P to Pre-Effective Amendment No. 2 to the
Registrant's form S-2 Registration Statement on or about April 26,
1995 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 (Registration
No. 33-46449) 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.
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 (Registration No. 33-58191) on or about March 23, 1995
and incorporated herein by reference.
Exhibits
Incorporated
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 (Registration No. 33-
58191) 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 (Registration No.
33-58191) 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 (Registration No. 33-58191) 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 (Registration
No. 33-58191) 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
(Registration No. 33-58191) 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
(Registration No. 33-58191) 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
(Registration No. 33-58191) 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
(Registration No. 33-58191) on or about March 23, 1995 and
incorporated herein by reference.
10-a-8 Copy of Employment Agreement 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
(Registration No. 33-58191) 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 (Registration No.
33-58191) on or about March 23, 1995 and incorporated herein 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 (Registration No. 33-58191) on
or about March 23, 1995 and incorporated herein by reference.
Exhibits
Incorporated
by Reference
10-a-11 Copy of Lease dated July 28, 1995 between A.H.C. Store
Development Corp. and Tri-R Corporation for retail hardware
store premises located in Yorkville, Illinois filed as Exhibit
10-a-11 to Post-Effective Amendment No. 1 to the Registrant's
Form S-2 Registration Statement (Registration No. 33-58191) on
or about March 15, 1996 and incorporated herein by reference.
10-a-12 Copy of Lease dated October 31, 1995 between Brant Trade
&Industrial Park, Inc. and Ace Hardware Canada Limited for
warehouse space in Brantford, Ontario, Canada filed as Exhibit
10-a-12 to Post-Effective Amendment No. 1 to the Registrant's
Form S-2 Registration Statement (Registration No. 33-58191) on
or about March 15, 1996 and incorporated herein by reference.
10-a-13 Copy of Lease dated November 27, 1995 between 674573 Ontario
Limited and Ace Hardware Canada Limited for general office space
in Markham, Ontario, Canada filed as Exhibit 10-a-13 to Post-
Effective Amendment No. 1 to the Registrant's Form S-2
Registration Statement (Registration No. 33-58191) on or about
March 15, 1996 and incorporated herein by reference.
10-a-14 Copy of Lease dated February 9, 1995 between Leroy M. Merritt
and the Registrant for its Baltimore, Maryland redistribution
center filed as Exhibit 10-a-14 to Post-Effective Amendment No. 1
to the Registrant's Form S-2 Registration Statement
(Registration No. 33-58191) on or about March 15, 1996 and
incorporated herein by reference.
10-a-15 Copy of First Amendment to the Ace Hardware Corporation Long-
Term Incentive Compensation Deferral Option Plan effective
December 5, 1995 filed as Exhibit 10-a-15 to Post-Effective
Amendment No. 1 to the Registrant's Form S-2 Registration
Statement (Registration No. 33-58191) on or about March 15, 1996
and incorporated herein by reference.
10-a-16 Copy of First Amendment to the Ace Hardware Corporation
Directors' Deferral Option Plan effective December 5, 1995 filed
as Exhibit 10-a-16 to Post-Effective Amendment No. 1 to the
Registrant's Form S-2 Registration Statement (Registration No.
33-58191) on or about March 15, 1996 and incorporated herein by
reference.
10-a-17 Copy of Form of Executive Officer Employment Agreement effective
January 1, 1996 filed as Exhibit 10-a-17 to Post-Effective
Amendment No. 1 to the Registrant's Form S-2 Registration
Statement (Registration No. 33-58191) on or about March 15, 1996
and incorporated herein by reference.
10-a-18 Copy of Ace Hardware Corporation Executive Benefit Security
Trust Agreement effective July 19, 1995 filed as Exhibit 10-a-18
to Post-Effective Amendment No. 1 to the Registrant's Form S-2
Registration Statement (Registration No. 33-58191) on or about
March 15, 1996 and incorporated herein by reference.
11 No Exhibit.
12 No Exhibit.
13 No Exhibit.
16 Not Applicable.
18 No Exhibit.
Exhibits
Incorporated
by Reference
21 No Exhibit.
22 Not Applicable.
23 Independent Auditors' Consent, dated March 8, 1996, filed as
Exhibit 23(a) to Post-Effective Amendment No. 1 to the Registrant's
Form S-2 Registration Statement (Registration No. 33-58191) filed
on or about March 15, 1996 and incorporated herein by reference.
27 Financial Data Schedule filed as Exhibit 27 to Post-Effective
Amendment No. 1 to the Registrant's Form S-2 Registration
Statement (Registration 33-58191) filed on or about March 15,
1996 and incorporated herein by reference.
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, 1995, nor any proxy soliciting
materials for the Registrant's 1996 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.
EXHIBIT 21
ACE HARDWARE CORPORATION
SUBSIDIARIES OF THE REGISTRANT
(as of March 11, 1996)
NAME UNDER
STATE OF WHICH SUBSIDIARY
SUBSIDIARY INCORPORATION DOES BUSINESS
Ace Insurance Agency Illinois Ace Insurance Agency
AHC Realty Corporation Illinois AHC Realty Corporation
Loss Prevention Services, Illinois Loss Prevention Services,
Inc. Inc.
A.H.C. Store Development Illinois A.H.C. Store Development
Corp. Corp.
Ace Hardware Canada Limited Canada Ace Hardware Canada Limited
National Hardlines Supply, Inc Illinois National Hardlines Supply
EXHIBIT 24
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 11th day of March, 1996.
JENNIFER C. ANDERSON RAY W. OSBORNE
Jennifer C. Anderson Ray W. Osborne
LAWRENCE R. BOWMAN ROGER E. PETERSON
Lawrence R. Bowman Roger E. Peterson
MARK JERONIMUS JON R. WEISS
Mark Jeronimus Jon R. Weiss
HOWARD J. JUNG DON S WILLIAMS
Howard J. Jung Don S. Williams
JOHN E. KINGREY JAMES R. WILLIAMS, JR.
John E. Kingrey James R. Williams, JR.
RICHARD E. LASKOWSKI
Richard E. Laskowski
