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 1, 2000 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 1, 2000
- ------------------------------------- -----------------------------
Class A Voting Stock - $1,000 par value 3,816 shares
Class B Stock - $1,000 par value 2,380 shares
Class C Stock - $ 100 par value 2,594,392 shares
ACE HARDWARE CORPORATION
INDEX
Part I. - Financial Information: Page No.
--------
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
April 1, 2000 and January 1, 2000 1
Condensed Consolidated Statements of Earnings and
Condensed Consolidated Statements of Comprehensive
Income - Thirteen Weeks Ended April 1, 2000
and April 3, 1999 2
Condensed Consolidated Statements of Cash Flows -
Thirteen Weeks Ended April 1, 2000
and April 3, 1999 3
Notes to Condensed Consolidated Financial Statements 4 - 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 8
Part II. - Other Information
Item 6. Exhibits and Reports on Form 8-K 9
PART I. FINANCIAL INFORMATION
ACE HARDWARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
April 1, January 1,
2000 2000
--------------- ---------------
(000's omitted)
ASSETS
Current Assets:
Cash $ 32,024 $ 35,422
Accounts Receivable, Net 406,753 370,879
Merchandise Inventory 415,154 373,090
Prepaid Expenses and Other Current Assets 14,020 13,341
--------------- ---------------
Total Current Assets 867,951 792,732
Property and Equipment, Net 250,012 247,174
Other Assets 48,977 41,578
--------------- ---------------
Total Assets $ 1,166,940 $ 1,081,484
=============== ===============
LIABILITIES AND MEMBER DEALERS' EQUITY
Current Liabilities:
Current Installment of Long-Term Debts $ 2,970 $ 4,067
Short-Term Borrowings 88,840 49,869
Accounts Payable 499,917 449,497
Patronage Dividends Payable in Cash 44,431 38,173
Patronage Refund Certificates Payable 4,825 373
Accrued Expenses 58,881 69,990
--------------- ---------------
Total Current Liabilities 699,864 611,969
Notes Payable 111,221 111,895
Patronage Refund Certificates Payable 53,740 55,257
Other Long-Term Liabilities 22,748 22,400
--------------- ---------------
Total Liabilities 887,573 801,521
Member Dealers' Equity:
Class A Stock of $1,000 Par Value 3,915 3,856
Class B Stock of $1,000 Par Value 6,499 6,499
Class C Stock of $100 Par Value 241,476 241,226
Class C Stock of $100 Par Value, Issuable 25,977 21,648
Additional Stock Subscribed, Net of Unpaid
Portion 510 498
Retained Earnings (541) 594
Contributed Capital 13,485 13,485
Accumulated Other Comprehensive Income 235 291
--------------- ---------------
Total Member Dealers' Equity 291,556 288,097
Less: Treasury Stock, at Cost 12,189 8,134
--------------- ---------------
Total Member Dealers' Equity 279,367 279,963
Total Liabilities and Member Dealers Equity $ 1,166,940 $ 1,081,484
=============== ===============
See accompanying notes to condensed consolidated financial statements.
ACE HARDWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
Thirteen Weeks Ended Thirteen Weeks Ended
April 1, April 3,
2000 1999
---------------- ----------------
(000's omitted)
<S> <C> <C>
Net Sales $ 701,009 $ 774,225
Cost of Sales 633,951 711,050
---------------- ----------------
Gross Profit 67,058 63,175
Operating Expenses:
Warehouse and Distribution 11,026 10,295
Selling, General and Administrative 23,602 22,699
Retail Success and Development 17,029 10,969
---------------- ----------------
Total Operating Expenses 51,657 43,963
---------------- ----------------
Operating Income 15,401 19,212
Interest Expense (4,702) (3,844)
Other Income, Net 3,137 2,191
Income Taxes 510 (250)
---------------- ----------------
Net Earnings $ 14,346 $ 17,309
================ ================
Distribution of Net Earnings:
Patronage Dividend $ 15,481 $ 18,738
Retained Earnings (1,135) (1,429)
---------------- ----------------
Net Earnings $ 14,346 $ 17,309
================ ================
</TABLE>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Thirteen Weeks Ended Thirteen Weeks Ended
April 1, April 3,
2000 1999
---------------- ----------------
(000's omitted)
Net Earnings $ 14,346 $ 17,309
Foreign currency translation, net (56) 44
---------------- ----------------
Comprehensive Income $ 14,290 $ 17,353
================ ================
See accompanying notes to condensed consolidated financial statements.
ACE HARDWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Thirteen Weeks Ended Thirteen Weeks Ended
April 1, April 3,
2000 1999
---------------- ----------------
(000's omitted)
Operating Activities:
<S> <C> <C> <C> <C>
Net Earnings $ 14,346 $ 17,309
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation 6,116 5,580
Increase in accounts receivable, net (35,874) (57,100)
Increase in merchandise inventory (42,064) (36,447)
Decrease (Increase) in prepaid expenses (679) 922
and other current assets
Increase in accounts payable and accrued
expense 39,311 50,873
Increase in other long-term liabilities 348 606
---------------- ----------------
Net Cash Used In Operating Activities (18,496) (18,257)
Investing Activities:
Purchases of property and equipment, net (8,954) (4,864)
Decrease (Increase) in other assets (7,455) (4,453)
---------------- ----------------
Net Cash Used In Investing Activities (16,409) (9,317)
Financing Activities:
Proceeds of short-term borrowings, net 38,971 36,000
Principal payments on long-term debt (1,772) (3,280)
Payments on refund certificates and
patronage financing programs (2,114) (23,641)
Proceeds from sale of common stock 477 466
Repurchase of common stock (4,055) (3,830)
---------------- ----------------
Net Cash Provided By Financing Activities 31,507 5,715
---------------- ----------------
Decrease in Cash and Cash Equivalents (3,398) (21,859)
Cash and Cash Equivalents at Beginning of Period 35,422 53,901
---------------- ----------------
Cash and Cash Equivalents at End of Period $ 32,024 $ 32,042
================ ================
See accompanying notes to condensed consolidated financial statements.
</TABLE>
ACE HARDWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1) General
The condensed consolidated interim period financial statements presented
herein do not include all of the information and disclosures customarily
provided in annual financial statements and they have not been audited, as
permitted by the rules and regulations of the Securities and Exchange
Commission. The consolidated interim period financial statements should be
read in conjunction with the annual financial statements included in the
Annual Report on Form 10-K. In the opinion of management, these financial
statements have been prepared in conformity with generally accepted
accounting principles and reflect all adjustments necessary for a fair
statement of the results of operations and cash flows for the interim
periods ended April 1, 2000 and April 3, 1999 and of it's financial
position as of April 1, 2000. All such adjustments are of a normal
recurring nature. The results of operations for the thirteen week periods
ended April 1, 2000 and April 3, 1999 are not necessarily indicative of the
results of operations for a 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 losses 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 2000.
-4-
4) Segments
The Company is principally engaged as a wholesaler of hardware and related
products and manufactures paint products. The Company identifies segments
based on management responsibility and the nature of the business
activities of each component of the Company. The Company measures segments
earnings as operating earnings including an allocation for administrative
expenses, interest expense and income taxes. Information regarding the
identified segments and the related reconciliation to consolidated
information is as follows:
<TABLE>
Thirteen Weeks Ended
April 1, 2000
----------------------------------------------------------------------
Elimination
Paint Intersegment
Wholesale Manufacturing Other Activities Consolidated
--------- ------------- ----- ---------- ------------
<S> <C> <C> <C> <C> <C>
Net Sales from External Customers 686,781 5,001 9,227 - 701,009
Intersegment Sales 4,535 23,372 - (27,725) -
Segment Earnings (Loss) 13,123 2,171 (893) (55) 14,346
Thirteen Weeks Ended
April 3, 1999
----------------------------------------------------------------------
Elimination
Paint Intersegment
Wholesale Manufacturing Other Activities Consolidated
--------- ------------- ----- ---------- ------------
<S> <C> <C> <C> <C> <C>
Net Sales from External Customers 765,624 4,515 4,086 - 774,225
Intersegment Sales 4,999 27,596 - (32,595) -
Segment Earnings (Loss) 15,554 2,679 (804) (102) 17,309
</TABLE>
5) Business Combination
On June 30, 1999 the Company entered into a business combination agreement
with Builder Marts of America, Inc. (BMA) to combine the LBM Division of
the Company with BMA. Under this agreement, the Company contributed
defined business assets (primarily vendor rebate receivables, fixed assets
and inventories) for a non-controlling interest in the combined entity. The
investment in the combined entity is accounted for under the equity method
of accounting. The accompanying consolidated financial statements include
the financial results of the LBM Division through the closing date of
August 2, 1999. Accordingly, the accompanying financial statements for the
thirteen weeks ended April 1, 2000 do not include activity for the LBM
Division of the Company.
-5-
ACE HARDWARE CORPORATION
------------------------
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
-------------------------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
Thirteen Weeks Ended April 1, 2000 compared to Thirteen Weeks
- -------------------------------------------------------------
Ended April 3, 1999.
- --------------------
Results of Operations
- ---------------------
The total sales decrease of 9.4% was affected by the business combination of
Ace LBM with BMA. As a result of this transaction, LBM sales are not reported
within the Company's sales results after August 2, 1999. Basic business sales
increased 9.1% in 2000 primarily due to increased existing retailer volume,
targeted efforts on new store development within our retailer base, conversions
to the Ace program and additional sales to non-members. Domestic and
International basic business sales increased 9.6% and .6%, respectively, for
the first quarter.
Gross profit increased $3.9 million and increased as a percent of total sales
from 8.2% in 1999 to 9.6% in 2000. The increase as a percent of sales results
primarily from the loss of lower margin LBM sales volume since August 1999.
Basic business gross profit improved slightly for the quarter as a percent of
basic business sales (9.0% in 2000 vs. 9.48% in 1999) due to higher vendor
rebates, increased margin from retail operations and lower inventory
adjustments. Higher costs absorbed into inventory partially offset this
positive improvement for the quarter.
Warehouse and distribution expenses increased $731,000 over 1999 and increased
as a percent of total sales from 1.33% in 1999 to 1.57% in 2000. As a percent
to basic business sales, these costs decreased from 1.60% in 1999 to 1.57% in
2000. Increased warehouse and distribution costs required to support increased
sales through distribution centers along with pre-opening costs associated with
a new distribution facility are partially offset by higher logistics income for
the quarter.
Selling, general and administrative expenses increased $903,000 or 4.0% and
increased as a percent of total sales due to increased information technology
costs partially offset by decreased LBM Division costs.
Retail success and development expenses increased $6.1 million due to costs
associated with additional company-owned stores, costs to support retail
computer initiatives, increased retail field personnel costs and new business
development costs.
Interest expense increased $858,000 due to increased average borrowing levels
and increased interest rates. The increase in borrowing levels is due primarily
to the construction of a distribution center and increased retailer dating
programs.
Other income increased $946,000 primarily due to income realized on
non-controlling investments in affiliates.
-6-
Income taxes decreased due to decreased income from non-patronage activities.
Operating losses from non-patronage activities resulted in an income tax
benefit for the quarter.
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 in the foreseeable future to finance the Company's working
capital requirements and patronage dividend and capital expenditures programs.
-7-
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
There have been no material changes in the Company's market risk
during the thirteen week period ended April 1, 2000. For additional
information, refer to Item 7a in the Company's Annual Report on Form
10-K for the year ended January 1, 2000.
-8-
PART II. OTHER INFORMATION
--------------------------
ACE HARDWARE CORPORATION
------------------------
Item 6. Exhibits and Reports on Form 8-K.
(b) A Form 8-K was filed on May 2, 2000 containing:
.Plan of Distribution of patronage dividends with
respect to purchases of merchandise made from the
Registrant from January 1, 1999 adopted by the Board
of Directors, and
.Notice of Annual Meeting of Stockholders on June 5,
2000 and Proxy solicited by Board of Directors and
related information.
-9-
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
Lori L. Bossmann
Vice President, Finance
(Principal Accounting Officer, and duly
authorized Officer of the registrant)
-10-
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This schedule contains summary financial information extracted from the SEC Form
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