SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter ended March 31, 1997 Commission File Number 2-63880
ACE HARDWARE CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 36-0700810
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2200 Kensington Court, Oak Brook, IL 60521
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (630) 990-6600
NONE
Former name, former address and former
fiscal year, if changed since last report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES XX NO
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the close of the period covered by this report.
Class Outstanding at March 31, 1997
Class A Voting Stock - $1,000 par value 3,940 shares
Class B Stock - $1,000 par value 2,840 shares
Class C Stock - $ 100 par value 1,947,470 shares
ACE HARDWARE CORPORATION
INDEX
Part I. - Financial Information: Page No.
Consolidated Balance Sheets -
March 31, 1997 and December 31, 1996 1
Consolidated Statements of Earnings - Three Months Ended
March 31, 1997 and 1996 2
Consolidated Statements of Cash Flows - Three Months Ended
March 31, 1997 and 1996 3
Notes to Consolidated Financial Statements 4
Management's Discussion and Analysis of Financial
Condition and Results of Operations 5
Part II. - Other Information 6
PART I. FINANCIAL INFORMATION
ACE HARDWARE CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
(000's omitted)
ASSETS
Current Assets:
Cash $ 8,871 $ 12,657
Accounts Receivable, Net 371,499 347,248
Merchandise Inventory 317,325 327,145
Prepaid Expenses and Other Current Assets 12,250 11,880
-------------- --------------
Total Current Assets 709,945 698,930
Property and Equipment, Net 220,905 213,534
Other Assets 6,324 3,911
-------------- --------------
Total Assets $ 937,174 $ 916,375
============== ==============
LIABILITIES AND MEMBER DEALERS' EQUITY
Current Liabilities:
Current Installment of Long-Term Debt $ 6,953 $ 6,727
Short-Term Borrowings 86,968 71,000
Accounts Payable 369,506 394,070
Patronage Dividends Payable in Cash 30,783 28,178
Patronage Refund Certificates Payable 13,748 14,138
Accrued Expenses 46,173 36,349
-------------- --------------
Total Current Liabilities 554,131 550,462
Notes Payable 100,556 71,837
Patronage Refund Certificates Payable 36,612 49,639
Other Long-Term Liabilities 12,115 11,074
-------------- --------------
Total Liabilities 703,414 683,012
Member Dealers' Equity:
Class A Stock of $1,000 Par Value 3,990 3,937
Class B Stock of $1,000 Par Value 6,499 6,499
Class C Stock of $100 Par Value 197,150 196,742
Class C Stock of $100 Par Value, Issuable 28,902 26,474
Additional Stock Subscribed,
Net of Unpaid Portion 515 502
Retained Earnings and Contributed Capital 6,496 6,415
-------------- --------------
Total Member Dealers' Equity 243,552 240,569
Less: Treasury Stock, at Cost 9,792 7,206
-------------- --------------
Total Member Dealers' Equity 233,760 233,363
Total Liabilities and
Member Dealers' Equity $ 937,174 $ 916,375
============== ==============
See accompanying notes to consolidated financial statements.
ACE HARDWARE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended March 31,
1997 1996
(000's omitted)
Net Sales $ 642,137 $ 593,186
Cost of Sales 595,858 551,741
-------------- --------------
Gross Profit 46,279 41,445
Operating Expenses:
Warehouse and Distribution 11,468 8,506
Selling, General and Administrative 18,241 15,792
Retail Success and Development 5,555 5,908
-------------- --------------
Total Operating Expenses 35,264 30,206
-------------- --------------
Operating Income 11,015 11,239
Interest Expense (3,607) (2,472)
Other Income, Net 1,204 1,167
Income Taxes (310) (355)
-------------- --------------
Net Earnings $ 8,302 $ 9,579
============== ==============
Distribution of Net Earnings:
Patronage Dividends $ 8,221 $ 10,467
Retained Earnings 81 (888)
-------------- --------------
Net Earnings $ 8,302 $ 9,579
============== ==============
See accompanying notes to consolidated financial statements.
ACE HARDWARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31,
1997 1996
(000's omitted)
Operating Activities:
Net Earnings $ 8,302 $ 9,579
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Depreciation 4,620 4,051
Loss on sale of property and equipment 113 0
Increase in accounts receivable, net (24,251) (38,893)
Decrease (Increase) in
merchandise inventory 9,820 (23,877)
Increase in prepaid expenses and
other current assets (370) (1,904)
Increase (Decrease) in accounts
payable and accrued expenses (14,740) 41,900
Increase (Decrease) in other
long-term liabilities 1,041 6
-------------- ---------------
Net Cash Used In Operating Activities (15,465) (9,138)
Investing Activities:
Purchases of property and equipment (12,239) (8,894)
Proceeds from sale of
property and equipment 135 0
Increase in other assets (2,413) (149)
-------------- ---------------
Net Cash Used In Investing Activities (14,517) (9,043)
Financing Activities:
Proceeds from short-term borrowings 15,968 22,500
Proceeds from notes payable 30,000 0
Principal payments on long-term debt (1,055) (1,437)
Payments on refund certificates and
patronage financing programs (16,605) (14,163)
Proceeds from sale of common stock 474 382
Repurchase of common stock (2,586) (1,853)
-------------- ---------------
Net Cash Provided by Financing Activities 26,196 5,429
-------------- ---------------
Decrease in Cash and Cash Equivalents (3,786) (12,752)
Cash and Cash Equivalents at
Beginning of Period 12,657 12,853
-------------- ---------------
Cash and Cash Equivalents at
End of Period $ 8,871 $ 101
============== ===============
See accompanying notes to consolidated financial statements.
ACE HARDWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) General
The accompanying consolidated financial statements have not been
examined by independent public accountants except for the December
31, 1996 balance sheet but in the opinion of the Company reflect all
adjustments necessary to present fairly the financial position as of
March 31, 1997 and 1996 and the results of operations and cash flows
for the three months then ended. These interim figures are not
necessarily indicative of the results to be expected for the full
year.
2) Patronage Dividends
The Company operates as a cooperative organization and will pay
patronage dividends to consenting member dealers based on the earnings
derived from business done with such dealers. It has been the
practice of the Company to distribute substantially all patronage
sourced earnings in the form of patronage dividends.
Net earnings and patronage dividends will normally be similar since
patronage sourced net earnings is paid to consenting member dealers.
International dealers signed under a Retail Merchant Agreement are not
eligible for patronage dividends and related earnings or loss are not
included in patronage sourced earnings.
3) Reclassifications
Certain financial statement reclassifications have been made to prior
year and prior quarter amounts to conform to comparable
classifications followed in 1997.
4) Notes Payable
In March 1997, the Company entered into a $30,000,000 loan agreement
due March 25, 2009. The note bears interest at 7.55% per annum,
payable quarterly. Annual principle payments commence on March 25,
2005 and continue through 2009.
ACE HARDWARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three Months Ended March 31, 1997 compared to Three Months Ended March 31, 1996.
Results of Operations
Net sales increased 8.3% in 1997 primarily due to increased existing dealer
volume, targeted efforts on new store development and conversions to the Ace
program and the June 1996 start-up of Canada operations.
Gross profit increased 11.7% vs. 1996, and increased as a percent of sales due
to increased cash and vendor discounts, improved manufacturing gross profit and
gross profit from the Canadian operation.
Warehouse and distribution expenses increased $3.0 million and as a percent of
sales versus 1996 due to costs for the operation of one additional domestic and
two Canadian facilities opened in mid 1996 and wages to support the sales
increase. Lower traffic and freight consolidations income also contributed to
the 1997 expense increase.
Selling, general and administrative expenses increased $2.5 million or 15.5% and
as a percent of sales due to costs associated with the Canadian operation and
increased data processing expenses.
Retail success and development expenses decreased $353,000 or 6.0%, and as a
percent of sales primarily due to increased advertising income. Increased
retail investments partially offset the first quarter advertising income
increase.
Interest expense increased 45.9% or $1.1 million vs. 1996 due to increased
inventory levels, additional dealer dating programs and higher interest rates.
Additional long-term debt was issued in the first quarter to fund long-term
capital investments.
Liquidity and Capital Resources
The company expects that internally generated funds, along with new and
established lines of credit and long-term financing, will be the primary
financing sources for capital expenditures in the future.
PART II. OTHER INFORMATION
ACE HARDWARE CORPORATION
Item 6. Exhibits and Reports on From 8-K.
(b) There were no reports on Form 8-K filed for the three month
period ended March 31, 1997.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACE HARDWARE CORPORATION
RITA D. KAHLE DATE MAY 13, 1997
Rita D. Kahle
Vice President, Finance
(Principal Financial and Accounting Officer,
and duly authorized Officer of the registrant)
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