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 the Period ended April 3, 1999 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 60523
(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 April 3, 1999
Class A Voting Stock - $1,000 par value 3,826 shares
Class B Stock - $1,000 par value 2,544 shares
Class C Stock - $ 100 par value 2,485,626 shares
ACE HARDWARE CORPORATION
INDEX
Part I. - Financial Information: Page No.
Consolidated Balance Sheets -
April 3, 1999 and January 2, 1999 1
Consolidated Statements of Earnings and
Consolidated Statements of Comprehensive Income -
Thirteen Weeks Ended April 3, 1999 and April 4, 1998 2
Consolidated Statements of Cash Flows - Thirteen Weeks
Ended April 3, 1999 and April 4, 1998 3
Notes to Consolidated Financial Statements 4 & 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
Part II. - Other Information 7
PART I. FINANCIAL INFORMATION
ACE HARDWARE CORPORATION
CONSOLIDATED BALANCE SHEETS
April 3, January 2,
1999 1999
(000's omitted)
ASSETS
Current Assets:
Cash $ 32,042 $ 53,901
Accounts Receivable, Net 449,020 397,120
Merchandise Inventory 371,290 334,405
Prepaid Expenses and Other Current Assets 14,224 15,146
------------ -------------
Total Current Assets 866,576 800,572
Property and Equipment, Net 239,351 239,845
Other Assets 11,540 7,309
------------ -------------
Total Assets $ 1,117,467 $ 1,047,726
============ =============
LIABILITIES AND MEMBER DEALERS' EQUITY
Current Liabilities:
Current Installment of Long-Term Debt $ 6,490 $ 7,433
Short-Term Borrowings 61,000 25,000
Accounts Payable 510,032 466,008
Patronage Dividends Payable in Cash 41,836 34,826
Patronage Refund Certificates Payable 416 20,655
Accrued Expenses 57,359 54,724
------------ -------------
Total Current Liabilities 677,133 608,646
Notes Payable 113,084 115,421
Patronage Refund Certificates Payable 46,511 43,465
Other Long-Term Liabilities 18,696 18,682
------------ -------------
Total Liabilities 855,424 786,214
Member Dealers' Equity:
Class A Stock of $1,000 Par Value 3,889 3,846
Class B Stock of $1,000 Par Value 6,499 6,499
Class C Stock of $100 Par Value 226,916 226,571
Class C Stock of $100 Par Value, Issuable 31,476 26,170
Additional Stock Subscribed, Net of Unpaid Portion 523 471
Retained Earnings and Contributed Capital 5,158 6,587
Accumulated Other Comprehensive Income (774) (818)
------------ -------------
Total Member Dealers' Equity 273,687 269,326
Less: Treasury Stock, at Cost 11,644 7,814
------------ -------------
Total Member Dealers' Equity 262,043 261,512
Total Liabilities and Member Dealers' Equity $ 1,117,467 $ 1,047,726
============ =============
See accompanying notes to consolidated financial statements.
ACE HARDWARE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
Thirteen Weeks Ended Thirteen Weeks Ended
April 3, April 4,
1999 1998
(000's omitted)
Net Sales $ 774,225 $ 721,403
Cost of Sales 711,050 668,177
---------- ----------
Gross Profit 63,175 53,226
Operating Expenses:
Warehouse and Distribution 10,167 10,471
Selling, General and Administrative 22,666 20,817
Retail Success and Development 11,130 6,810
---------- ----------
Total Operating Expenses 43,963 38,098
Operating Income 19,212 15,128
Interest Expense (3,816) (3,855)
Other Income, net 2,163 1,788
Income Taxes (250) (683)
---------- ----------
Net Earnings $ 17,309 $ 12,378
========== ==========
Distribution of Net Earnings:
Patronage Dividend $ 18,738 $ 12,588
Retained Earnings (1,429) (210)
---------- ----------
Net Earnings $ 17,309 $ 12,378
========== ==========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Thirteen Weeks Ended Thirteen Weeks Ended
April 3, April 4,
1999 1998
(000's omitted)
Net Earnings $ 17,309 $ 12,378
Foreign currency translation, net 44 123
---------- ----------
Comprehensive Income $ 17,353 $ 12,501
========== ==========
See accompanying notes to consolidated financial statements.
ACE HARDWARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Thirteen Weeks Ended Thirteen Weeks Ended
April 3, April 4,
1999 1998
(000's omitted)
Operating Activities:
Net Earnings $ 17,309 $ 12,378
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 5,580 5,260
Increase in accounts receivable, net (52,180) (43,505)
Increase in merchandise inventory (36,447) (10,576)
Decrease (Increase) in prepaid expenses
and other current assets 922 (963)
Increase in accounts payable and
accrued expenses 46,545 26,164
Increase in other long-term liabilities 14 966
--------- ----------
Net Cash Used In Operating Activities (18,257) (10,276)
Investing Activities:
Purchases of property and equipment (5,086) (4,708)
Increase in other assets (4,231) (2,427)
--------- ----------
Net Cash Used In Investing Activities (9,317) (7,135)
Financing Activities:
Proceeds of short-term borrowings 36,000 22,904
Proceeds from notes payable 25,481
Principal payments on long-term debt (3,280) (3,391)
Payments on refund certificates and
patronage financing programs (23,642) (16,235)
Proceeds from sale of common stock 466 869
Repurchase of common stock (3,830) (3,673)
--------- ----------
Net Cash Provided By Financing Activities 5,714 25,955
--------- ----------
Increase (Decrease) in Cash and
Cash Equivalents (21,860) 8,544
Cash and Cash Equivalents at
Beginning of Period 53,902 14,171
--------- ----------
Cash and Cash Equivalents at
End of Period $ 32,042 $ 22,715
========= ==========
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 January 2, 1999
balance sheet but in the opinion of the Company reflect all adjustments
necessary to present fairly the financial position as of April 3, 1999 and
April 4, 1998 and the results of operations and cash flows for the thirteen
weeks 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 1999.
4) Fiscal Year
Effective January 1, 1998, the Board of Directors approved a change to
the Company's fiscal year from December 31 to the Saturday nearest
December 31. Accordingly, the first quarter of 1999 and 1998 consists of
thirteen weeks. However, due to the conversion in 1998 the 1st quarter of
1998 includes 3 additional working days over the 1st quarter of 1999.
5) Year 2000
A detailed plan has been established to identify and track progress on
the identification of systems, changing of non-compliant systems and
testing of those systems for Year 2000 compliance. Project completion
is planned for the middle of 1999. In addition, a plan has been developed
for all devices (time clocks, power systems, etc.) within the Company. The
Company is approximately 83% complete with the project as of April 3,
1999. The remaining 17% will be dedicated to the Enterprise testing in the
second quarter of 1999. The Company expects its Year 2000 date conversion
project to be completed on a timely basis.
The Company expects to incur internal staff costs as well as incremental
consulting and other expenses related to infrastructure and facilities
enhancements necessary to prepare the systems for the Year 2000. A
significant portion of these costs will represent the re-deployment of
existing information technology resources. Based upon current estimates,
such costs could range between $5.0 million and $6.5 million. The Company
has expended approximately $4.4 million through April 3, 1999.
To date, correspondence has been received from the Company's primary
vendors that plans are being developed to address processing of
transactions in the Year 2000. However, there can be no assurance that
the systems of other companies on which the Company's system rely will be
converted timely or that any such failure to convert by another company
would not have an adverse affect on the Company's systems.
The Company has developed a Business Recovery Plan to address specific
business risks related to year 2000. This plan includes specific
direction, including but not limited to, trigger events to invoking the
Plan, length of period that could be sustained under the Plan,
implementation procedures, training, data security and integrity and
resource requirements in the unlikely event that the plan will be
implemented.
ACE HARDWARE CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Thirteen Weeks Ended April 3, 1999 compared to Thirteen Weeks Ended
April 4, 1998.
Results of Operations
Net sales increased 7.3% in 1999 primarily due to increased existing retailer
volume, targeted efforts on new store development within our retailer base and
conversions to the Ace program. Sales of basic hardware and paint merchandise
(including warehouse, bulletin and direct shipments) increased 7.0%. The rebound
of lumber prices has contributed to the total sales increase; however, a
decrease in sales to international customers offset the first quarter domestic
sales increase. 1999 includes three fewer working days than 1998.
Gross profit increased $10.0 million and increased as a percent of sales from
7.38% in 1998 to 8.16% in 1999. Increased paint manufacturing profit, higher
vendor allowances and increased gross profit from the Company's retail
operations resulted in the first quarter increase.
Warehouse and distribution expenses decreased 2.9% vs. 1998 and decreased as a
percent of handled sales from 1.45% in 1998 to 1.31% in 1999. Increased traffic
and freight consolidations income partially offset higher warehouse and
distribution costs required to support increased handled sales.
Selling, general and administrative expenses increased $1.8 million or 8.9% and
increased slightly as a percent of sales due to increased information
technology costs to support our year 2000 efforts.
Retail success and development expenses increased $4.3 million due to costs
associated with additional company-owned stores, costs to support retail
initiatives and new business development costs. Decreased advertising income
due to the timing of promotions also contributed to the increase.
Income taxes decreased due to decreased income from non-patronage activities.
Liquidity and Capital Resources
The Company expects that existing and internally generated funds, along with
new and established lines of credit and long-term financing, will continue to
be sufficient to finance the Company's working capital requirements and
patronage dividend and capital expenditures programs.
PART II. OTHER INFORMATION
ACE HARDWARE CORPORATION
Item 6. Exhibits and Reports on Form 8-K.
(b) A Form 8-K was filed on April 30, 1999 containing Notice of
Annual Meeting of Stockholders on June 7, 1999 and Proxy solicited
by Board of Directors and related information.
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
LORI L. BOSSMANN DATE May 17, 1999
Lori L. Bossmann
Vice President, Controller
(Principal Accounting Officer, and duly
authorized Officer of the registrant)
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This schedule contains summary financial information extracted from SEC Form
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