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
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2001
[] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from_____to______
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)
(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 [x] NO []
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the close of the latest practicable date.
Class Outstanding at March 31, 2001
Class A Voting Stock - $1,000 par value 3,741 shares
Class B Stock - $1,000 par value 2,204 shares
Class C Stock - $ 100 par value 2,451,662 shares
ACE HARDWARE CORPORATION
INDEX
Part I. - Financial Information: Page No.
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 2001 and December 30, 2000 1
Condensed Consolidated Statements of Earnings and
Condensed Consolidated Statements of Comprehensive
Income - Thirteen Weeks Ended March 31, 2001
and April 1, 2000 2
Condensed Consolidated Statements of Cash Flows -
Thirteen Weeks Ended March 31, 2001
and April 1, 2000 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 1. Legal Proceedings 9
Item 2. Changes in Securities and Use of Proceeds 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
ACE HARDWARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(000's omitted)
March 31, | December 30, | ||
2001 | 2000 | ||
(Unaudited) | |||
ASSETS | |||
Current Assets: | |||
Cash and Cash Equivalents | $ 23,470 | $ 24,644 | |
Short-Term Investments | 12,723 | 12,772 | |
Accounts Receivable, Net | 380,951 | 372,971 | |
Merchandise Inventory | 405,107 | 395,565 | |
Prepaid Expenses and Other | |||
Current Assets | 14,871 | 15,105 | |
Total Current Assets | 837,122 | 821,057 | |
Property and Equipment, Net | 264,228 | 261,890 | |
Other Assets | 42,435 | 40,863 | |
Total Assets | $1,143,785 | $ 1,123,810 | |
Liabilities and Member Dealers' Equity | |||
Current Liabilities: | |||
Current Installment of Long-Term Debt | $ 6,834 | $ 6,904 | |
Short-Term Borrowings | 119,500 | 81,500 | |
Accounts Payable | 443,108 | 448,766 | |
Patronage Dividends Payable in Cash | 37,776 | 34,764 | |
Patronage Refund Certificates Payable | 9,121 | 4,795 | |
Accrued Expenses | 58,048 | 63,224 | |
Total Current Liabilities | 674,387 | 639,953 | |
Long-Term Debt | 105,620 | 105,891 | |
Patronage Refund Certificates Payable | 60,705 | 68,385 | |
Other Long-Term Liabilities | 25,934 | 24,923 | |
Total Liabilities | 866,646 | 839,152 | |
Member Dealers' Equity: | |||
Class A Stock of $1,000 Par Value | 3,819 | 3,783 | |
Class B Stock of $1,000 Par Value | 6,499 | 6,499 | |
Class C Stock of $100 Par Value | 250,758 | 250,480 | |
Class C Stock of $100 Par Value, Issuable | 26,220 | 24,267 | |
Additional Stock Subscribed, Net | |||
Of Unpaid Portion | 345 | 351 | |
Retained Deficit | (8,725) | (5,551) | |
Contributed Capital | 13,485 | 13,485 | |
Accumulated Other Comprehensive Income | (1,003) | (162) | |
291,398 | 293,152 | ||
Less: Treasury Stock, at Cost | (14,259) | (8,494) | |
Total Member Dealers' Equity | 277,139 | 284,658 | |
Total Liabilities and Member Dealers' Equity | $1,143,785 | $ 1,123,810 | |
See accompanying notes to condensed consolidated financial statements.
ACE HARDWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(000'S OMITTED)
Unaudited
Thirteen Weeks Ended |
March 31, | April 1, | ||
2001 | 2000 | ||
Net Sales | $ 659,595 | $ 701,009 | |
Cost of Sales | 600,917 | 638,250 | |
Gross Profit | 58,678 | 62,759 | |
Operating Expenses | |||
Warehouse and Distribution | 9,598 | 7,974 | |
Selling, General and Administrative | 23,304 | 23,385 | |
Retail Success and Development | 18,575 | 16,648 | |
Total Operating Expenses | 51,477 | 48,007 | |
Operating Income | 7,201 | 14,752 | |
Interest Expense | (5,603) | (4,702) | |
Other Income, Net | 3,210 | 3,786 | |
Income Taxes | 228 | 510 | |
Net Earnings | $ 5,036 | $ 14,346 | |
Distribution of Net Earnings | |||
Patronage Dividends | $ 8,210 | $ 15,481 | |
Retained Earnings | (3,174) | (1,135) | |
Net Earnings | $ 5,036 | $ 14,346 | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
000's Omitted |
(Unaudited) |
Thirteen Weeks Ended |
March 31, | April 1, | ||
2001 | 2000 | ||
Net Earnings | $ 5,036 | $ 14,346 | |
Unrealized Gains on Securities | 339 | - | |
Foreign Currency Translation, Net | (1,180) | (56) | |
Comprehensive Income | $ 4,195 | $ 14,290 | |
See accompanying notes to condensed consolidated financial statements. |
ACE HARDWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's omitted)
(Unaudited)
Thirteen Weeks Ended |
March 31, | April 1, | ||
2001 | 2000 | ||
Operating Activities: | |||
Net Earnings | $ 5,036 | $ 14,346 | |
Adjustments to reconcile net earnings to | |||
net cash used in operating activities: |
Depriciation and amortization | 6,788 | 6,116 | |
Increase in accounts receivable, net | (9,726) | (37,868) | |
Increase in inventories | (9,542) | (42,064) | |
(Increase) decrease in other current | |||
assets | 234 | (679) | |
Increase (decrease) in accounts payable | |||
And accrued expenses | (10,834) | 39,280 | |
Increase in other long-term liabilities | 1,011 | 348 | |
Net Cash Used in Operating Activities | (17,033) | (20,521) | |
Investing Activities: | |||
Purchase of property and equipment | (9,126) | (8,811) | |
Increase in other assets | (2,364) | (7,598) | |
Net Cash Used in Investing Activities | (11,490) | (16,409) | |
Financiang Activities: | |||
Proceeds of short-term borrowings | 38,000 | 38,971 | |
Principal payments on long-term debt | (341) | (1,772) | |
Payment of patronage refund certificates | (4,853) | (89) | |
Proceeds from sale of common stock | 308 | 477 | |
Repurchase of common stock | (5,765) | (4,055) | |
Net Cash Provided By Financing Activities | 27,349 | 33,532 | |
Decrease in Cash and Cash Equivalents | (1,174) | (3,398) | |
Cash and Cash Equivalents at Beginning of | |||
Period | 24,644 | 35,422 | |
Cash and Cash Equivalents at End of Period | $ 23,470 | $ 32,024 | |
See accompanying notes to condensed consolidated financial statements. |
ACE HARDWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS1) General
The condensed consolidated interim period financial statements presented herein do not include all of the information and disclosures required in annual financial statements and have not been audited, as permitted by the rules and regulations of the Securities and Exchange Commission. The condensed consolidated interim period financial statements should be read in conjunction with the annual financial statements included in the Ace Hardware Corporation Annual Report on Form 10K as filed with the Securities and Exchange Commission on March 22, 2001. 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 March 31, 2001 and April 1, 2000 and of it's financial position as of March 31, 2001. All such adjustments are of a normal recurring nature. The results of operations for the thirteen week periods ended March 31, 2001 and April 1, 2000 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 2001.
4. SegmentsThe 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 segment 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:
Thirteen Weeks Ended
March 31, 2001
Elimination Paint Intersegment Wholesale Manufacturing Other Activities Consolidated Net Sales from External Customers $ 644,030 $ 4,154 $11,411 $ - $ 695,595 Intersegment Sales 4,221 23,919 - (28,140) - Segment Earnings (Loss) 3,999 2,362 (1,325) - 5,036
Thirteen Weeks Ended
April 1, 2000
Elimination Paint Intersegment Wholesale Manufacturing Other Activities Consolidated Net Sales from External Customers $ 686,781 $ 5,001 $ 9,227 $ - $ 701,009 Intersegment Sales 4,353 23,372 - (27,725) - Segment Earnings (Loss) 13,123 2,171 (893) (55) 14,346
5) Subsequent Event
Subsequent to March 31, 2001 the Company entered into a
$100.0 million private placement Master Note Agreement of
which $70.0 million was issued on April 26, 2001. These
Senior Notes have an effective rate of 7.27% and mature
April 30, 2013. Proceeds were used to reduce
short-term borrowings and for other general corporate
purposes.
ACE HARDWARE CORPORATION
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Thirteen Weeks Ended March 31, 2001 compared to Thirteen Weeks
Ended April 1, 2000.
Results of Operations
Consolidated sales decreased 5.9%. Domestic sales declined 4.0%
while International sales were affected by a sale of Ace stores
and reduced sales in Canada. The decline in domestic sales is
primarily due to lower sales ro our existing retailer base due
to the softening economy and later spring weather partially
offset by conversions of new stores to the Ace program.
Gross profit decreased $4.1 million and decreased slightly as a
percent of total sales from 8.95% in 2000 to 8.90% in 2001. The
decrease resulted primarily from lower handling charges, lower
cash discounts due to lower sales and merchandise purchases and
higher warehousing costs absorbed into inventory. Higher vendor
rebates and margin from company-owned retail locations partially
offset the gross profit decline.
Warehouse and distribution expenses increased $1.6 million over
2000 and increased as apercent of total handled sales from 1.63%
in 2000 to 2.05% in 2001. Increased utilities and distribution
expenses associated with the new Loxley, Alabama distribution
facility and the start-up of the Prince George, Virginia
facility drove the higher warehouse expenses.
Selling, general and administrative expenses remained flat due
to continued cost control measures put in place.
Retail success and development expenses increased $1.9 million
primarily due to costs associated with operating additional
company-owned retail locations and investments made at retail to
support our Vision 21 strategy. Increases in this category are
directly related to retail support of the Ace retailer as the
Company continues to make investments in our dealer base.
Internet expense increased $901,000 due to higher average
borrowing levels. The increased borrowing levels result from
completion of the construction of the Loxley, Alabama
distribution center, the expansion of our LaCrosse, Wisconsin
facility and increased retailer dating programs.
Other income decreased $576,000 primarily due to lower income
realized on non-controlling investments in affiliates.
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. The
Company entered into a $100.0 million private placement Master
Note Agreement. Proceeds were used to reduce short-term
borrowings and for other general corporate purposes.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
PART II. OTHER INFORMATIONThere have been no material changes in the Company's market risk during the thirteen week period ended March 31, 2001. For additional information, refer to Item 7a in the Company's Annual Report on Form 10-K for the year ended December 30, 2000.
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(b) A Form 8-K was filed on May 8, 2001 containing:
Notice of Annual Meeting of Stockholders on June 4, 2001 and Proxy solicited by Board of Directors and related information.
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
DATE May 11, 2001
Rita D. Kahle
Executive Vice President
(Principal Financial and Accounting
Officer, and duly authorized
Officer of the registrant)