Washington, D.C. 20549
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 June 30, 2001
[] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from_____to______
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
(Address of principal executive offices) (Zip code)
(Registrant's telephone number, including area 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 June 30, 2001
Class A Voting Stock - $1,000 par value 3,718 shares
Class B Stock - $1,000 par value 2,152 shares
Class C Stock - $ 100 par value 2,638,887 shares
Part I. - Financial Information: Page No.
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
June 30, 2001 and December 30, 2000 1
Condensed Consolidated Statements of Earnings and
Condensed Consolidated Statements of Comprehensive
Income - Twenty-six Weeks and Thirteen Weeks Ended
June 30, 2001 and July 1, 2000 2
Condensed Consolidated Statements of Cash Flows -
Twenty-six Weeks Ended June 30, 2001
and July 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 - 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 9
Part II. - Other Information
Item 1. Legal Proceedings 10
Item 2. Changes in Securities and Use of Proceeds 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submission of Matters to a Vote of Security Holders 10
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
ACE HARDWARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(000 Omitted)
June 30, December 30,
2001 2000
(Unaudited)
ASSETS
Current Assets:
Cash and Cash Equivalents $ 22,406 $ 24,644
Short-term Investments 11,512 12,772 Accounts Receivable, Net 404,110 372,971
Merchandise Inventory 395,081 395,565
Prepaid Expenses and Other Current Assets 16,313 15,105
Total Current Assets 849,422 821,057
Property and Equipment, Net 286,848 261,890
Other Assets 39,959 40,863
Total Assets $ 1,176,229 $ 1,123,810
============== ==============
LIABILITIES AND MEMBER DEALERS' EQUITY
Current Liabilities:
Current Installment of Long-Term Debt $ 7,018 $ 6,904
Short-Term Borrowings 42,000 81,500
Accounts Payable 498,993 448,766
Patronage Dividends Payable in Cash 13,445 34,764
Patronage Refund Certificates Payable 9,114 4,795
Accrued Expenses 63,870 63,224
Total Current Liabilities 634,440 639,953
Long-Term Debt 173,158 105,891
Patronage Refund Certificates Payable 65,502 68,385
Other Long-Term Liabilities 26,984 24,923
Total Liabilities 900,084 839,152
Member Dealers' Equity:
Class A Stock of $1,000 Par Value 3,872 3,783
Class B Stock of $1,000 Par Value 6,499 6,499
Class C Stock of $100 Par Value 274,087 250,480
Class C Stock of $100 Par Value, Issuable 8,718 24,267
Additional Stock Subscribed, Net of Unpaid Portion 327 351
Retained Deficit (11,199) (5,551)
Contributed Capital 13,485 13,485
Accumulated Other Comprehensive Income (598) (162)
295,191 293,152
Less: Treasury Stock, at Cost (19,046) (8,494)
Total Member Dealers' Equity 276,145 284,658
Total Liabilities and Member Dealers' Equity $ 1,176,229 $ 1,123,810
============== ==============
See accompanying notes to condensed consolidated financial statements.
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(000's omitted)
(Unaudited)
Thirteen Weeks Ended Twenty-six Weeks Ended
June 30, July 1, June 30, July 1,
2001 2000 2001 2000
Net Sales $ 792,233 $ 807,116 $1,451,828 $1,508,125
Cost of Sales 719,250 732,983 1,320,167 1,371,233
Gross Profit 72,983 74,133 131,661 136,892
Operating Expenses:
Warehouse and Distribution 6,314 6,124 15,912 14,098
Selling, General and Administration 21,729 22,391 45,033 45,776
Retail Success and Development 19,489 18,145 38,064 34,793
Total Operating Expenses 47,532 46,660 99,009 94,667
Operating Income 25,451 27,473 32,652 42,225
Interest Expense (5,993) (5,264) (11,596) (9,966)
Other Income, net 4,323 3,187 7,533 6,973
Income Taxes (1,606) 148 (1,378) 658
Net Earnings $ 22,175 $ 25,544 $ 27,211 $ 39,890
========== =========== =========== ===========
Distribution of Net Earnings:
Patronage Dividends $ 24,649 $ 26,184 $ 32,859 $ 41,665
Retained Earnings (2,474) (640) (5,648) (1,775)
Net Earnings $ 22,175 $ 25,544 $ 27,211 $ 39,890
========== =========== =========== ===========
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(000's omitted)
(Unaudited)
Thirteen Weeks Ended Twenty-six Weeks Ended
June 30, July 1, June 30, July 1,
2001 2000 2001 2000
Net Earnings $ 22,175 $ 25,544 $ 27,211 $ 39,890
Unrealized gains on securities �� (419) - (80) -
Foreign currency translation, net 824 (501) (356) (557)
Comprehensive Income $ 22,580 $ 25,043 $ 26,775 $ 39,333
========== =========== =========== ===========
ACE HARDWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(000's omitted)
(Unaudited)
Twenty-six Weeks Ended
June 30, July 1,
2001 2000
Operating Activities:
Net Earnings $ 27,211 $ 39,890
Adjustments to reconcile net earnings
to net cash used in operating activities:
Depreciation and amortization 13,855 12,462
Gain on sale of property and equipment, net of
deferred taxes of $1,522 (2,953) -
Increase in accounts receivable, net (36,536) (94,321)
Decrease (increase) in inventories 484 (40,430)
Increase in other current assets (1,208) (1,731)
Increase in accounts payable and
accrued expenses 49,351 127,219
Increase in other long-term liabilities 2,061 1,254
Net Cash Provided by Operating Activities 52,265 44,343
Investing Activities:
Purchase of property and equipment (34,338) (26,518)
Decrease (increase) in other assets 1,728 (11,728)
Net Cash Used in Investing Activities (32,610) (38,246)
Financing Activities:
Proceeds (payments) of short-term borrowings (39,500) 41,919
Proceeds from issuance of long-term debt 70,000 -
Principal payments on long-term debt (2,619) (2,184)
Payments of patronage refund certificates (5,260) (277)
Proceeds from sale of common stock 802 1,145
Repurchase of common stock (10,552) (7,319)
Payments of cash portion of patronage dividend (34,764) (38,173)
Net Cash Used in Financing Activities (21,893) (4,889)
Increase (decrease) in Cash and Cash Equivalents (2,238) 1,208
Cash and Cash Equivalents at Beginning of Period 24,644 35,422
Cash and Cash Equivalents at End of Period $ 22,406 $ 36,630
=========== =========
See accompanying notes to condensed consolidated financial statements.
ACE HARDWARE CORPORATION
1) 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 10-K 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 accounting principles generally accepted in the United States and reflect all adjustments necessary for a fair statement of the results of operations and cash flows for the interim periods ended June 30, 2001 and July 1, 2000 and of the Company's financial position as of June 30, 2001. All such adjustments are of a normal recurring nature. The results of operations for the thirteen week and twenty-six week periods ended June 30, 200 1 and July 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.3) Reclassifications
Net earnings and patronage dividends will normally be similar since patronage sourced net earnings is paid to consenting member dealers. International operations and 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.
Certain financial statement reclassifications have been made to prior year and prior quarter amounts to conform to comparable classifications followed in 2001.
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 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:
Twenty-six Weeks Ended
June 30, 2001
Elimination
Paint Intersegment
Wholesale Manufacturing Other Activities Consolidated
Net Sales from External Customers $1,415,378 $10,522 $25,928 $ - $1,451,828
Intersegment Sales 12,378 56,840 - (69,181) -
Segment Earnings (Loss) 22,396 6,839 (1,904) (120) 27,211
Twenty-six Weeks Ended
July 1, 2000
Elimination
Paint Intersegment
Wholesale Manufacturing Other Activities Consolidated
Net Sales from External Customers $1,475,319 $11,708 $21,098 $ - $1,508,125
Intersegment Sales 11,966 56,654 - (68,620) -
Segment Earnings (Loss) 35,854 5,648 (1,497) (115) 39,890
Thirteen Weeks Ended
June 30, 2001
Elimination
Paint Intersegment
Wholesale Manufacturing Other Activities Consolidated
Net Sales from External Customers $ 771,348 $ 6,368 $14,517 $ - $ 792,233
Intersegment Sales 8,120 32,921 - (41,041) -
Segment Earnings (Loss) 18,397 4,477 (579) (120) 22,175
Thirteen Weeks Ended
July 1, 2000
Elimination
Paint Intersegment
Wholesale Manufacturing Other Activities Consolidated
Net Sales from External Customers $ 788,538 $ 6,707 $11,871 $ - $ 807,116
Intersegment Sales 7,613 33,282 - (40,895) -
Segment Earnings (Loss) 22,731 3,477 (604) (60) 25,544
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Thirteen Weeks Ended June 30, 2001 compared to Thirteen Weeks Ended July 1, 2000.
Results of Operations
Consolidated sales decreased 1.8%. Domestic sales increased 1.3% primarily due to conversions of new stores to the Ace program. Sales to our existing retailer base were flat due to the softening economy. The decline in international sales was affected by a sale of Ace stores and reduced sales in Canada.
Gross profit decreased $1.2 million and increased slightly as a percent of total sales from 9.18% in 2000 to 9.21% in 2001. The increase, as a percent of sales, results primarily from higher margin from company-owned retail locations. Lower cash discounts due to lower sales and merchandise purchases partially offset the gross profit percentage increase.
Warehouse and distribution expenses increased $190,000 over 2000 and increased as a percent of total handled sales from 1.08% in 2000 to 1.12% 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 expenses.
Selling, general and administrative expenses decreased $662,000 over 2000 and decreased slightly as a percent of total sales from 2.77% in 2000 to 2.74% in 2001 due to continued cost control measures put in place.
Retail success and development expenses increased $1.3 million primarily due to costs associated with operating additional company-owned retail locations, timing of advertising income 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.
Interest expense increased $729,000 due to higher average borrowing levels partially offset by a decline in interest rates. 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 increased $1.1 million primarily due to a gain recognized on the sale of two retail support centers offset by lower income realized on non-controlling investments in affiliates and a partial write-down of an affiliate investment.
Income taxes increased $1.8 million primarily due to the tax incurred on the sale of two retail support centers.
Twenty-six Weeks Ended June 30, 2001 compared to Twenty-six Weeks Ended July 1, 2000.
Results of Operations
Consolidated sales decreased 3.7%. Domestic sales declined 1.2% 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 to our existing retailer base due to the softening economy partially offset by conversions of new stores to the Ace program.
Gross profit decreased $5.2 million and decreased slightly as a percent of total sales from 9.08% in 2000 to 9.07% in 2001. The decrease resulted primarily from lower handling charges and lower cash discounts due to lower sales and merchandise purchases. Higher vendor rebates and margin from company-owned retail locations partially offset the gross profit decline.
Warehouse and distribution expenses increased $1.8 million over 2000 and increased as a percent of total handled sales from 1.33% in 2000 to 1.54% 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 decreased $743,000 due to continued cost control measures put in place.
Retail success and development expenses increased $3.3 million primarily due to costs associated with investments made at retail to support our Vision 21 strategy and operating additional company-owned retail locations. 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.
Interest expense increased $1.6 million due to higher average borrowing levels partially offset by lower interest rates. 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 increased $560,000 primarily due to a gain recognized on the sale of two retail support centers partially offset by lower income realized on non-controlling investments in affiliates and a partial write-down of an affiliate investment.
Income taxes increased primarily due to the gain recognized on the sale of two retail support centers.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the Company's market risk during the twenty-six week period ended June 30, 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
The following information is furnished with respect to matters
submitted to a vote of the shareholders of the registrant at a
meeting thereof held during the quarter covered by this report:
(a) Date of meeting: June 4, 2001 - said meeting was
an annual meeting.
(b) 1. The following director was elected at said
meeting for a three year term expiring in 2004:
David S. Ziegler
2. The following director was reelected at said
meeting for a three year term expiring in 2004:
Daniel L. Gust
3. The following director was reelected at said
meeting for a two year term expiring in 2003:
Howard J. Jung
4. The names of the other directors other than the
above elected directors whose terms of office
as directors continue after the meeting are:
Richard F. Baalmann, Jr.
Richard W. Stine
J. Thomas Glenn
Jennifer C. Anderson
Eric R. Bibens II
D. William Hagan
Richard A. Karp
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 August 14, 2001
Rita D. Kahle
Executive Vice President
(Principal Financial and Accounting
Officer, and duly authorized
Officer of the registrant)