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 30, 2002
[] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from_____to______
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)
(630) 990-6600
(Registrant's telephone number, including area code)
Not Applicable
(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 30, 2002
Class A Voting Stock - $1,000 par value 3,695 shares
Class B Stock - $1,000 par value 2,064 shares
Class C Stock - $ 100 par value 2,802,047 shares
ACE HARDWARE CORPORATION
INDEX
Part I. - Financial Information: Page No.
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
March 30, 2002 and December 29, 2001 1
Condensed Consolidated Statements of Earnings and
Condensed Consolidated Statements of Comprehensive
Income - Thirteen Weeks Ended March 30, 2002
and March 31, 2001 2
Condensed Consolidated Statements of Cash Flows -
Thirteen Weeks Ended March 30, 2002
and March 31, 2001 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
PART I FINANCIAL INFORMATION
ACE HARDWARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(000's omitted)
March 30, December 29,
2002 2001
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 20,587 $ 25,213
Short-term investments 18,046 17,158
Receivables, net 379,633 369,035
Merchandise inventory 435,287 412,568
Prepaid expense and other current assets 17,806 16,295
Total current assets 871,359 840,269
Property and equipment, net 282,509 287,507
Other assets 43,722 41,015
$1,197,590 $1,168,791
=========== ===========
LIABILITIES AND MEMBER DEALERS' EQUITY
Current Liabilities:
Current installments of long-term debt $ 7,175 $ 7,179
Short-term borrowings 104,400 72,600
Accounts payable 429,225 409,789
Patronage dividends payable in cash 39,571 34,229
Patronage refund certificates payable 13,276 9,084
Accrued expenses 64,050 81,062
Total current liabilities 657,697 613,943
Long-term debt 170,160 170,387
Patronage refund certificates payable 66,900 77,401
Other long-term liabilities 27,811 27,184
Total liabilities 922,568 888,915
Member dealers' equity:
Class A Stock of $1,000 par value 3,761 3,693
Class B Stock of $1,000 par value 6,499 6,499
Class C Stock of $100 par value 260,511 260,224
Class C Stock of $100 par value, issuable to
dealers for patronage dividends 26,917 23,284
Additional stock subscribed, net 303 303
Retained deficit (22,571) (17,591)
Contributed capital 13,485 13,485
Accumulated other comprehensive loss (1,356) (1,239)
287,549 288,658
Less: Treasury Stock, at cost (12,527) (8,782)
Total member dealers' equity 275,022 279,876
$1,197,590 $1,168,791
=========== ===========
See accompanying notes to condensed consolidated financial statements.
ACE HARDWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(000'S OMITTED)
(Unaudited)
Thirteen Weeks Ended
March 30, March 31,
2002 2001
Net sales $707,167 $672,826
Cost of sales 646,959 612,978
Gross profit 60,208 59,848
Operating expenses:
Warehouse and distribution 9,242 10,768
Selling, general, and administrative 21,342 23,304
Retail success and development 18,110 18,575
Total operating expenses 48,694 52,647
Operating Income 11,514 7,201
Interest expense (5,714) (5,603)
Other income, net 2,334 3,210
Income taxes 126 228
Net earnings $ 8,260 $ 5,036
========= =========
Distribution of Net Earnings:
Patronage dividends $ 13,240 $ 8,210
Retained deficit (4,980) (3,174)
Net Earnings $ 8,260 $ 5,036
========= =========
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(000'S Omitted)
(Unaudited)
Thirteen Weeks Ended
March 30, March 31,
2002 2001
Net earnings $ 8,260 $ 5,036
Unrealized gains on securities (62) 339
Foreign currency translation, net (55) (1,180)
Comprehensive income $ 8,143 $ 4,195
========= =========
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 30, March 31,
2002 2001
Operating Activities:
Net earnings $ 8,260 $ 5,036
Adjustments to reconcile net earnings
to net cash provided by operating activities
Depriciation and amortization 7,984 6,788
Increase in accounts receivable, net (10,598) (7,980)
Increase in inventories (22,719) (9,542)
Decrease (increase) in prepaid expenses and
other current assets (1,548) 234
Increase (decrease) in accounts payable and
accrued expenses 2,424 (10,834)
Increase in other long-term liabilities 627 1,011
Net Cash Used in Operating Activities (15,570) (15,287)
Investing Activities:
Purchase of short-term investments (888) -
Purchase of property and equipment (2,949) (9,126)
Increase in other assets (2,824) (2,364)
Net Cash Used in Investing Activities (6,661) (11,490)
Financing Activities:
Proceeds of short-term borrowings 31,800 38,000
Payments of long-term debt (231) (341)
Payments of patronage refund certificates
and patronage financing deductions (10,574) (6,599)
Proceeds from sale of common stock 355 308
Repurchase of common stock (3,745) (5,765)
Net Cash Provided by Financing Activities 17,605 29,095
Decrease in Cash and Cash Equivalents (4,626) (1,174)
Cash and Cash Equivalents at beginning of period 25,213 24,644
Cash and Cash Equivalents at end of period $ 20,587 $ 23,470
========= =========
See accompanying notes to condensed consolidated financial statements.
ACE HARDWARE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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, 2002. In the opinion
of management, these financial statements have been prepared in
conformity with accounting principles generally accepted in the
United States of America and reflect all adjustments necessary for
a fair statement of the results of operations and cash flows for
the interim periods ended March 30, 2002 and March 31, 2001 and of
the Company's financial position as of March 30, 2002. All such
adjustments are of a normal recurring nature. The results of
operations for the thirteen week periods ended March 30, 2002 and
March 31, 2001 are not necessarily indicative of the results of
operations for a full year.
2) Patronage Dividends
3) ReclassificationsThe 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.
4) SegmentsCertain financial statement reclassifications have been made to prior year and prior quarter amounts to conform to comparable classifications followed in 2002. During 2002, the Company reclassified as sales and
cost of sales certain shipping and handling costs that had previously been presented on a net basis within warehouse and distribution expenses.
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. The net sales from external customers included in the other category are primarily generated from company-owned retail locations. Information regarding the identified segments and the related reconciliation to consolidated information is as follows:
Thirteen Weeks Ended
March 30, 2002
Eliminated
Paint Intersegment
Wholesale Manufacturing Other Activities Consolidated
Net Sales from External Customers $ 690,920 $ 5,613 $10,634 $ - $ 707,167
Intersegment Sales 4,225 30,760 - (34,985) -
Segment Earnings (Loss) 8,012 3,957 (3,709) - 8,260
Thirteen Weeks Ended
March 30, 2002
Eliminated
Paint Intersegment
Wholesale Manufacturing Other Activities Consolidated
Net Sales from External Customers $ 657,261 $ 4,152 $11,411 $ - $ 672,826
Intersegment Sales 4,221 23,919 - (28,140) -
Segment Earnings (Loss) 3,999 2,362 (1,325) - 5,036
ACE HARDWARE CORPORATION
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Thirteen Weeks Ended March 30, 2002 compared to Thirteen Weeks Ended March 31, 2001.
Results of Operations
Consolidated sales increased 5.1%. Domestic sales increased 5.8% despite
a decline in sales to a non-patronage affiliate. The increase in
domestic sales is primarily due to higher sales to our existing retailer
base, lower retailer cancellations and sales to newly affiliated
retailers. International sales were affected by reduced sales in Canada.
Gross profit was flat with 2001 but decreased slightly as a percent of
total sales from 8.90% in 2001 to 8.51% in 2002. The decrease is due to
lower vendor rebates as a percent of sales and a physical inventory
adjustment to retail store inventories.
Warehouse and distribution expenses decreased $1.5 million and
decreased as a percent of total sales from 1.60% in 2001 to 1.31% in
2002 primarily due to improved productivity and lower fixed costs as a
result of the east coast distribution center reconfiguration.
Selling, general and administrative expenses decreased $2.0 million and
decreased as a percent of total sales from 3.53% in 2001 to 3.07% in
2002 due to continued cost control measures put in place in 2001 and
savings realized by the closure of the Baltimore, Maryland and
Charlotte, North Carolina facilities offset with the opening of the
Prince George, Virginia facility.
Retail success and development expenses decreased $465,000 due to
continued cost control measures. Expenses in this category are
directly related to retail support of the Ace retailer. Ace
continues to make investments in retail initiatives under its Vision 21
strategy to support Ace retailers.
Interest expense increased $111,000 due to higher average borrowing
levels primarily as a result of the 2001 investments in our
distribution network. Lower interest rates under the revolving credit
facility largely offset the impact of higher borrowing levels.
Other income decreased $876,000 primarily due to decreased interest
income due to declining interest rates and lower past due service
charges to the retailers.
Liquidity and Capital Resources
Ace 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 thirteen week period ended March 30, 2002. For additional information,
refer to Item 7a in the Company's Annual Report on Form 10-K for the year
ended December 29, 2001.
PART II. OTHER INFORMATION
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
None.
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 14, 2002
Rita D. Kahle
Executive Vice President
(Principal Financial and Accounting
Officer, and duly authorized
Officer of the registrant)