UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549Form 10-K/A NO.1
10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the 2001 fiscal year ended December 31, 199429, 2001 Commission File No. 2-55860
Ace Hardware Corporation
(Exact(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 60521
(Address60523
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including Area Code: (708)area code: (630) 990-6600
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
State the aggregate market value of the voting and nonvoting stock held by non-affiliates of the
Registrant. The Registrant'sThis Company's shares are only issued only to, and may be held only by, its dealer-stockholders, and thedealer-stockholders. All shares held
by a dealer-stockholder are subject to repurchasethese stockholders can be repurchased by the Registrant upon
termination ofCompany when the dealer-stockholder's membership
agreement of a dealer-stockholder.terminates. Thus, there is no market for the Registrant'sthese shares. The repurchase price for each share of
Class A stock, the only voting stock issued by the
Registrant,Stock is equal to the par value of $1,000 per share. The repurchase of Class B Stock is equal to
twice the par value or $2,000 per share. The repurchase price for each share of Class C Stock is equal to
the par value of $100. As of February 28, 1995,15, 2002, the aggregate value of the Class A stockStock, Class B Stock
and Class C Stock held by non-affiliates (dealer-stockholders) calculated on the basis of suchthis repurchase
price was $3,891,000.$266,434,000.
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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is not contained herein and will not be contained to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of
the latest practicable date (applicable only to corporation Registrants). Outstanding shares as of
February 28, 1995:
15, 2002:
Class A (voting) Stock, $1,000 par value 3,9013,680 shares
Class B (nonvoting) Stock, $1,000 par value 3,2122,092 shares
Class C (nonvoting) Stock, $ 100$100 par value 1,631,9202,585,700 shares
PART I
Item 1. Business
The terms "Ace," "Company," "cooperative," "we," "us," "our" and similar words refer to Ace
Hardware Corporation. The terms "member," "retailer," "dealer," "you," "your" and similar words refer to
someone who purchases our stock.
Ace Hardware Corporation was formally organized as a Delaware corporation in 1964. In 1973, by meansas the
result of a corporate merger, it succeeded
tobecame the businesssuccessor of Ace Hardware Corporation, an Illinois corporation
that was organized in 1928. Until 1973, the Illinois corporation conducted the business now being
engaged in by the
Company had been conducted by the Illinois corporation. The Company's
principalour Company. Our main executive offices are located at 2200 Kensington Court, Oak
Brook, Illinois 60521. Its60523. Our main telephone number is (708)(630) 990-6600.
The Company functions
We operate primarily as a wholesaler of hardware and related products, and manufactures we also manufacture
paint products. Sales of theWe mainly sell our products distributed by it
are presently made primarily to individuals, partnerships or corporations
who are engaged in business as retailhardware dealers of hardware or related items
and who have entered into Membership Agreements with
us. These Membership Agreements allow the Company entitling
themhardware dealers to purchase merchandise and services
from us and, in most cases, to license one or more of our trademarks. (See the Company and to use the
Company's marks as provided therein.
The Company operatesheading "Business",
subheading "Membership Agreements").
We operate on a cooperative basis and distributesdistribute patronage dividends to itsour eligible member dealers
each year in proportion toon the amountbasis of their annual purchasesquantity or value of merchandise from it.patronage business that we do with them. (See the heading
"Business", subheading "Distribution of Patronage Dividends."Dividends")
At.
As of the end of our 2001 fiscal year on December 31, 199429, 2001, there were 4,940 retail business outlets4,976 stores having Membership
Agreements with respect to which such Membership Agreements had been entered into. Those
States havingus. The states with the largest concentration of member outletsmembers are California (approximately
10%), Texas and Illinois (approximately 6%) each), Illinois and Florida (approximately 5% each),) and Michigan and
Georgia (approximately 4%) and Georgia
(approximately 3%) each). States into which wereThe states where we shipped the largest percentages of the merchandise sold by the Company
in 1994 arefiscal year 2001 were California (approximately 11%12%), Illinois (approximately 9%), Florida and(approximately
6%), Texas,
(approximately 6% each) and Michigan and Georgia (approximately 4% each). Less than 4%Approximately 4.4% of the Company'sour sales are
made to outlets locatedlocations outside of the United States orand its territories.
Information as to the
The number of the Company's member outletslocations that we had during each of theour past three calendarfiscal years is set forth summarized
in the following table:
1994 1993 1992
2001 2000 1999
Member outlets at beginning of period 4,921 4,986 5,111
5,011 5,082 5,039
New member outlets 198 158 183
220 208 264
Member outlets terminated 179 223 308
255 279 221
Member outlets at end of period 4,940 4,921 4,986
4,976 5,011 5,082
===== ===== =====
Dealers having one or more member outlets at end of period 4,054 4,045 4,134
The Company services its3,778 3,858 3,932 We service our dealers by purchasingbuying merchandise in quantity lots, primarilymainly from manufacturers, by warehousing substantialmanufacturers. We then
warehouse large quantities of saidthis merchandise and by selling the samesell it in smaller lots to theour dealers. Most of the products
that the Company distributeswe distribute to its dealersour members from its
regionalour warehouses are sold at a price that we establish ("dealer
cost"), to which a 10% markup.adder ("handling charge") is generally added. In 1994fiscal year 2001, warehouse sales
accounted for 62%
were 72% of our total sales and bulletin sales accounted for 2%were 3% of our total sales with the balance of 36% representing 25% being
direct shipment including lumber and building material sales.
1
The proportions in which the Company'sfollowing is a breakdown of our total warehouse sales were
divided among the various general classes of merchandise sold by it during
for each of the past three calendar years are as follows:
fiscal years:
Class of Merchandise 1994 1993 1992
200120001999
Paint, cleaning and related supplies 19% 19% 18%
21% 20% 20%
Plumbing and heating supplies 15% 15% 15%
Hand and power tools 14% 14% 15%
Electrical supplies 12% 12% 13%
Plumbing and heating supplies 16% 15% 15%
General hardware 13% 12% 12%
Housewares and appliances 6% 7% 7%
14%
Garden, rural equipment and related supplies 14% 14% 13%
Electrical supplies 12% 12% 13%
General hardware 11% 12% 11%
12%
Sundry 9% 9% 9%
The Company sponsors8% 7% 7%
Housewares and appliances 5% 6% 6%
We sponsor two major hardware conventions annually (one in the Spring
and one in the Autumn)each year at various locations. DealersWe invite dealers and
vendors are
invited to attend, and dealers generally place orders for delivery during
the period prior tothat are delivered before the next convention.
During the convention, there are exhibits of regular merchandise, new merchandise and seasonal merchandise for the coming season
are displayed to attending dealers.
merchandise. Lawn and garden supplies building
materials and exterior paints are seasonal merchandise in many parts of
the country, as are certain sundriescountry. Some types of goods such as holiday decorations.decorations are also seasonal.
Warehouse sales involve the purchasesale of merchandise from the Company
that is maintained inwe inventory by the Company at itsour warehouses. Direct shipment
sales involve sales where the purchase of merchandise from the Company with
shipmentis shipped directly from theto dealers by vendors. Bulletin sales
involve the purchase of
merchandise from the Company pursuant toour special bulletin offers by the
Company.
Directwhere we order specific merchandise after dealers sign up to buy particular
quantities of it.
Dealers place direct shipment sales are orders placed by dealers directly with our vendors using special purchase orders. SuchThe vendors
then bill the Companyus for suchthese orders, which are shipped directly to dealers. The Company,We, in turn, billsbill the ordering dealers at a markup. The markup on this category of
sales
with an adder ("handling charge") that varies with invoice amounts in accordance withaccording to the following schedule
and is exclusive of sales under the LTL Plus program discussed below.
schedule:
Invoice Amount Handling Charge (Markup)Adder (Handling Charge)
$ 0.00 to $ 999.99 2.00% or $1.00 whichever is greater
$1,000.00
$1,000.00 to $1,999.99 1.75%
$2,000.00
$2,000.00 to $2,999.00$2,999.99 1.50%
$3,000.00
$3,000.00 to $3,999.00$3,999.99 1.25%
$4,000.00
$4,000.00 to $4,999.00$4,999.99 1.00%
$5,000.00
$5,000.00 to $5,999.00$5,999.99 .75%
$6,000.00
$6,000.00 to $6,999.00$6,999.99 .50%
$7,000.00
$7,000.00 to $7,999.00$7,999.99 .25%
$8,000.00
$8,000.00 and over .00%
Bulletin
We make bulletin sales are made based upon notificationnotices from dealers that they wish to participate in one of their
participation in our
special bulletins offered by the Company.bulletin offers. Generally, the
Company will give notice to all memberswe notify dealers of itsour intention to purchase certain products for
bulletin shipment andshipment. We then purchases only so many of
suchpurchase these products asin the membersquantities that the dealers order. When the
bulletin shipment arrives, at
the Company,we do not place it is not warehoused, but is brokeninto warehouse inventory. Rather, we break it up into appropriate
smaller
quantities and delivereddeliver it to membersthe dealers who placed orders. Aordered it. We generally apply a 6% markup is
generally applied adder ("handling charge")
to this category of sales.
An
We typically apply an additional markupadder of 3% to merchandise that is applied onexported outside of the various categories of
sales of merchandise exported to certainUnited
States, its territories and possessions. Ace dealers located outside of the United States, and its territories and possessions. Effective April 1995,
possessions who are not subject to the additional 3% adder are assessed a
2 flat 2% markup is applied toadder on all direct shipment sales placed by all
dealers located outside of the United States and its territories and
possessions.
The Company maintains
sales. We maintain inventories to meet only normal resupply orders. Resupply orders are orders from members for merchandise tohelp keep our
inventories at normal levels. Generally, suchUsually these resupply orders are filled within one weekday of receipt. Bulletin
orders (which are in the nature ofsomewhat similar to resupply orders) mayorders, but can be for future delivery. The Company doesWe do not backlog normal
resupply orders and accordingly,therefore, no significant backlog exists at any point in time.
The Company also has established special sales programs for lumber and
building materials products and for products assigned from time to time to
an "extreme competitive price sales" classification and for products
purchased from specified vendors for delivery to certain of the Company's
dealers on a direct shipment basis (LTL Plus Program). Under its lumber and
building materials ("LBM") program, the Company imposes no handling charge,
markup or national advertising assessment on direct shipment orders for
such products. The LBM program also enables the Company's dealers to
purchase these products at net invoice prices which pass on to them
important cost savings resulting from the Company's closely monitored
lumber and building materials purchasing procedures. Additionally, the LBM
program offers dealers the opportunity to order less than truckload
quantities of many lumber and building materials products at economical
prices under the LTL warehouse redistribution procedure which the Company
has established with certain major vendors.
The
Our Store Traffic Opportunity Program ("STOP") established by the
Company is a program under which certain stockkeeping units ofwhere we offer our dealers specific
products assignedthat we assign to an "extreme competitivea "competitive price sales" classificationclassification. These products are offered for sale to its dealers for deliverydelivered from designated Company
retail support centers. Sales under this program are madeour
warehouses with or without the addition of freight charges and with such handling charge or markupan adder (if any) of not more thanup to 5% as shall be specified for each item. The Company's
officers have, determined
on an item by item basis. Management has the authority to add items to, and to withdraw items from the STOP
program, from time to time and to establish reasonable minimum or multiple item purchase requirements for the items offered under thethis program. No allocations or
We do not make any patronage dividend distributions of patronage dividends are made
with respect to salesfor purchases under the STOP program. Purchases under theWe do,
however, consider STOP program are, however, deemedpurchases to be either warehouse purchases or bulletin purchases, as the case may be, for purposes of calculatingapplicable,
in determining the forms of patronage dividend distributions. (See the heading "Business," subheading under this Item 1
entitled "Forms
"Forms of Patronage Dividend Distributions.")
The
Our LTL Plus Program established by the Company is a program under
whichallows dealers to purchase full or partial truckloads of products are purchased by the
Company's dealers from specified specific
vendors for delivery to such dealers on a
direct shipment basis.delivery. No markup, handling chargeadder or national advertising assessment is imposed by the Company on sales under the LTL Plus Program,
and the maximum amount of patronage dividends allocated or distributedapplies to the Company's dealers with respect to their purchases of products in the
LTL Plus category is .5% of such sales.these
purchases. (See theheading "Business," subheading under this
Item 1 entitled "Patronage Dividend Determinations and Allocations.")
The Company, in
In addition to conducting semi-annual andhosting conventions as well as other conventionsshows and product exhibits for itsour dealers, we also provides them with
numerous
provide many special services. We offer these services (on a voluntary basis and at a cost to cover its
related expenses), such as established charges. These services include
inventory control systems, as well as price and bin ticketing, and an electronic ordering system. In order for them toticketing. We also provide dealers with a checklist
service so that they can have on
hand current pricing and other information concerningabout the merchandise obtainable from the Company, the Company further provides to eachthat we offer. We also provide a
choice of its
dealers either a catalogue checklist service or a microfiche film service
(whichever the dealer selects), for either of which services the dealer
must pay a monthly charge. The Company also provides on a full-participation
basis videotapes and related materials forongoing educational and training programs for which dealers must pay an established monthly charge.dealers. (See the heading "Business," subheading under this Item 1 entitled "Special
"Special Charges and Assessments.")
3
Our wholly owned subsidiary, Ace Insurance Agency, Inc., offers a Group Dealer Insurance Program
so that dealers can purchase different types of insurance coverage. This program offers "all risk" property
insurance and business interruption, crime, liability and workers' compensation insurance, in addition to
medical insurance for store employees. AHC Realty Corporation, another wholly owned subsidiary, offers
broker services to dealers who want to buy or sell stores. Loss Prevention Services, Inc., another wholly
owned subsidiary, offers security training and other loss prevention services to dealers.
Our wholly owned subsidiary, Ace Hardware Canada, Limited, operates as a wholesaler of hardware
and related merchandise in Canada. It has two distribution facilities located in Calgary, Alberta
and Brantford, Ontario. In 1994,November 2001, the Company continued itsannounced the closure of the Calgary
facility. Ace Hardware Canada, Limited generated less than one percent (1%) of our consolidated
revenue during fiscal year 2001.
We operate our Company-owned retail hardware stores through our wholly owned subsidiary Ace
Corporate Stores, Inc. For further information about these stores, please see the heading "Properties."
We manufacture paint and similar coating products at our factories in Matteson and Chicago Heights,
Illinois. These factories are the main source of the paint products that we offer for sale. We operate our
paint manufacturing business as a separate Division of our Company for accounting purposes. We purchase
all our raw materials for paint manufacturing from outside sources. We have had adequate sources of raw
materials in the past, and we do not currently expect any shortages of raw materials that would have a major
impact on our paint operations. Paint manufacturing is seasonal in the sense that greater paint sales occur
from April through September. Historically, our need to comply with environmental laws and regulations
has not had a major effect on our ability to conduct our paint manufacturing operations.
Our business, both hardware wholesaling and paint manufacturing, is not dependent on any major suppliers
and we feel that seasonal fluctuations do not have a major effect on our operations. For more discussion of our
business, see "Management's Discussion and Analysis of Financial Condition and Results of Operations."
We also offer services to members that relate to the operation of their retail businesses. We provide
these services (such as advertising, merchandising and training programs) to assist our members and in
some cases, to maximize our centralized buying power.
Strategic Planning
We have a strategic planning process that results in goals, objectives and programs that we want to
develop in the future for our Company and our members. Because strategic plans deal with the future,
this discussion of them contains "forward looking statements," which are based on our current expectations.
The actual results of our efforts can differ greatly from the results that we might desire. We believe
that we have the facilities, the employees and the resources for ongoing success as we implement our
plans and programs, but the future is difficult to forecast, especially areas such as revenues, costs, margins
and profits which are influenced by many factors. Some of these factors are discussed below.
The effects of future growth in the hardware and hardlines-related industries are uncertain. By "hardlines-related
industries" we mean home center, do-it-yourself, rental and commercial/industrial categories. The future
condition of the economy is also uncertain, when viewed domestically, internationally or in specific geographical
regions. Some other uncertainties that could affect our plans include possible future changes in merchandise
and inventory prices, and the effect of increasingly intense competition. There could be potential shifts in market
demand for some products. Lawsuits and laws, especially laws dealing with franchising, licensing, importing,
exporting and environmental matters could affect our future business. We cannot predict whether these uncertainties
might cause future costs or liabilities or have some other effect on our future ability to achieve our plans.
Through our ongoing strategic planning process andwe have focused it's strategicour plans around four cornerstonessegments for
future growth and success in thisour competitive industry. TheThese four cornerstonessegments are: Retail Success (store operations),
Wholesale Success (distribution), International growth and new member growth. Dealer retailRetail success for our
dealers is a primary objective sincebecause, in our opinion, it drives both their retail performance and our wholesale
growth of the Company. In 1994, the Company accellerated it's
growth. We have therefore increased our efforts in assisting member dealersto assist members in "retail success initiatives" initiatives," which are
designed to
document and improve their retail performance and competitiveness. TheThese retail success initiatives include retail
goals which each dealer shouldthat we urge dealers to strive for within their storestores and localin locally competitive environment, butmarkets. These goals do
not, dictate materialhowever, impose major restrictions or requirements on member dealers.
Minimummembers. Our minimum requirements for the
acceptance of a member dealer by the Companynew members are outlined only in the current Membership Agreement and Supplement and in the
Member Operational Requirements that apply under the Ace Hardware Membershipthat Agreement. The Operational Requirements do
require that, within one year, from the
Company's acceptance of the Agreement, the member dealermust make Ace theirus the primary source of supply and terminate any
previous participation in the program of any other major hardware wholesaler. There are currently no specific
general
requirements as(apart from special voluntary programs) where members have to percentagemake particular percentages of
purchases required through Acefrom us or have to achieve minimum retail performance which must be achieved (i.e.levels, such as sales dollars per square foot). Thisfoot.
Our current strategic plan, referredinitiative, Vision 21, focuses on becoming a world class organization through encouraging
dealers to as "The New Ageadopt certain merchandising, marketing and operational practices that are supported by some of Ace" is an extension of previous strategic efforts under Ace 2000 and is
not in conflict with these efforts.
Through its wholly-owned subsidiary, Ace Insurance Agency, Inc.,our
most successful dealers to improve the Company makes available to its dealers a Group Dealer Insurance Program
under which they can purchase a package of insurance coverages, including
"all risk" property insurance and business interruption, crime, liability
and workers'compensation coverages, as well as medical insurance coverage
for their employees. AHC Realty Corporation, another wholly-owned
subsidiary of the Company, provides the services of a broker to those
dealers who desire to sell or seek a new location for a presently owned
store or to acquire an additional store. Loss Prevention Services, Inc. a
third wholly-owned subsidiary provides security training and services for
all dealers desiring security assistance. In addition, the Company offers
to its dealers retail computer systems consisting of computer equipment,
maintenance service and certain software programs and services. These are
marketed by the Company under its registered service mark "PACE".
The Company manufactures paint and related products at a facility
owned by it in Matteson, Illinois and will begin manufacturing paint and
related products at a Chicago Heights, Illinois facility in mid 1995. These
facilities now constitute the primary source of such products offered for
sale by the Company to its dealers. It is operated as a separate Division
of the Company for accounting purposes. All raw materials used by the
Company to manufacture paint are purchased from outside sources. The
Company has had adequate sources of raw materials, and no shortages of any
materials which would materially impact operations are currently
anticipated. The manufacturing of paint is seasonal to the extent that
greater paint sales are found in the months of April through September.
Historically, compliance with federal, state and local provisions which
have been enacted or adopted regulating the discharge of materials into the
environment or otherwise relating to the protection of the environment
have not had any material impact.
The Company's business, either in hardware wholesaling or paint
manufacturing activities is not dependent on any major suppliers and the Company feelsdealers' overall competitiveness and efficiency. The
cornerstones to Vision 21 are to improve retailer's sales and profits, streamline our processes, bring wholesale
and retail together as one Ace team and provide ultimate customer satisfaction. Vision 21 goals include minimizing
disparities between retail and wholesale, developing dealer-friendly procedures that any seasonal fluctuations do not have a significant
impact upon operations. For further discussiontake duplication
and costs out of dealers' operations, achieving consistent implementation of programs more rapidly and
improving the Company's business,
see "Management's Discussiondealers' financial performance and Analysis of Financial Conditiontheir ability to pursue new stores and Results of Operations", in Item 7 hereof.
The Company makes available some services to members whichstore expansions. As
retailers become Vision 21 retailers they are related
to the operation of their retail business. These services (such as
advertising, store supplies and training programs) are provided in orderafforded various benefits to assist members and/orthem to utilize the centralized buying power of the
Company. Members are rebilled in order to reimburse the Company for
related expenses paid on their behalf. The special charges and assessments
described below are similar in nature and are intended only to reimburse
the Company for related expenses.
succeed at retail.
Special Charges and Assessments
The Company sponsors
We sponsor a national advertising program. To pay for this program, for which itswe assess dealers are currently assessed an amount equal to 1.25%
1.50% of their purchases (exclusive of lumber, building materials,(except purchases of PACE computer
systems (hardware and software), less than truckload lumber and building
material program purchases and LTL Plus Program purchases as described
above in this Item 1) from the Company during each bi-weekly period,products and certain hardware and software computer
systems), with the current minimum annual assessment being $975.00 and with the maximum annual assessment being $4,750yearly assessments of $2,223.00 and $6,800.00, respectively, (based on
purchases) for each business location of any one
dealer which has become a member of the Company. The total annual amount of
advertisingstore location. We grant exemptions from these assessments payable by any one dealer is also subject and make various adjustments
to a
further maximum limit which is determined by multiplying the number of such
dealer's member retail store outlets serving the general public by $4,750.
In the case of a dealer whose place of business isthem for stores located outside the contiguous States of thecontinental United States and for new stores during their start up year,
and for stores operating under an agreement that does not permit them to use "Ace" or "Ace Hardware". For
the Company's management has
authority to determine the extent, if any, to which such dealer shall be
required year 2002, we will also impose a flat charge of $100.00 on May 1, 2002 and November 1, 2002 per store location
to pay for national sales promotions for Memorial Day and the annual day after Thanksgiving. The amount of our
national advertising assessment based upon its
evaluation of the amount and nature of the television broadcasts received
in the dealer's area. The percentage of bi-weekly purchases tocan be assessed
for the Company's national advertising program and the amount of the
maximum annual assessment for such program are both subject to being changed from time to time by action of theour Board of DirectorsDirectors. We can also impose
assessments at a flat monthly rate or based on a percentage of the
Company. The Company also has the authority, effective January 1, 1993 to
impose asales for regional advertising assessment (for select geographic regions) not to exceed 2% of
a dealer's annual purchases withpurchases. Regional advertising assessments are subject to the same minimum and maximum
assessments imposed by
amounts as the National Advertising assessment.
Each dealer must pay
Every two weeks, we bill the member store for a special low volume account service charge of $75 if the dealer's
annual purchases during the calendar yearfrom us are less than $50,000. We will bill the minimum purchase
levels described below. Minimum purchase levels and the amount of themember store for a special low volume
account service charge are subject to change from time to time by the
Company's Board of Directors. Presently, the low volume service charge is
$30.00$60 per bi-weekly and applies beginning one (1) year after the granting of the
membership,billing statement period if the dealer's purchases from the Company (exclusive of
4
carload lumber purchases)us during such
period are less than $4,000.00 per bi-weekly billing
period. If the dealer's purchases from the Company reach $104,000 during
the calendar year, then the dealer receives credit on its next bi-weekly
billing statement for all$5,700.00. The low volume service charges imposedthat we bill to the store in a specific year
are automatically refunded if that store's total purchases increase to over $148,200 during the year. The
store is excused from this low volume account service charge during the first 12 months that it is a
member. There are some exceptions to our low volume account service charges that are described below:
1. Stores which purchase $148,200 of merchandise from us during the year, are given a credit on
the next billing statement for any low volume charges which we billed that accountstore earlier in the same calendar year, and the account is not subject
to any further
year. We then stop billing that store for low volume account service charges for the rest of the calendar
year. The
year, even if its current purchases on a billing statement are less than $5,700; and
2. We do not bill low volume account service charge is not billed oncharges every two weeks if a bi-monthly basis to
those accounts whose previous year'sstore's sales volume exceededwith us
the year before was at our minimum purchases level for the previous year,($148,200), but the full annual low volume
service chargewe will be billed at year endbill these charges in a lump sum to those accounts if the minimum
purchase level to avoid impositiona
store's last statement of the charge hasyear if that store does not been met for the
current year. For the calendar year in which the first anniversary of the
store's membership occurs, the $104,000 purchase requirement is pro-rated
from the first billing statement afterreach our applicable minimum by that anniversary through December
31, if less than a full calendar year.time.
An Ace store that falls below our minimum purchase levels maycan also be subject to termination.
A
We add a late payment service charge on any past due balance that we are owed for merchandise,
services, or for a stock subscription. The current rate for the late payment service charge is added on any past due balance owing
by a dealer to the Company for purchases of merchandise and services or
for the purchase price of the capital stock of the Company subscribed for
by the dealer. The late payment service charge currently in effect is an
amount equal to .77% per
bi-weekly statement period, except in Texas where the charge is .384% and Georgia where the charge is
.692%. AWe consider a past due balance is createdto exist whenever we do not receive payment of the amountsamount shown
as due on any sucha billing statement is not received by the Company within 10 days followingafter the date of that statement. We can change the statement. The percentage for determining the amountrate of the
our late payment service charge may be changed from time to time bytime.
Effective August, 2001, we assess members operating under a standard Membership Agreement a
mandatory monthly fee for Core Retail Services in the Company.
Subscriptions to a retail training program consistingamount of video tapes$197 per month for all single stores or
parent stores and related course materials (the "S.T.A.R. Program") are mandatory$67 per month for all branch stores located in the United StatesStates. Core Retail Services
consist of the following elements:
1. ACENET. This service is our primary communications vehicle with our members. It is an
electronic network that allows defective goods claims processing, product search online or
through a CD-ROM catalog, electronic communications, employee testing and U.S. Territories. The initial
monthly assessment imposedtraining courses,
review and payment of retailer statements and numerous other applications.
2. Material Safety Data Sheet Subscription Service. This service provides members with access
24 hours per day and 7 days per week to information on such stores for such subscriptionsthe chemical ingredients of certain
products that we sell.
3. Ace Training Network. This service is $14.50
for eachone of our retail training programs. Each single store or
parent store is credited with 16 points per month and $10.00 for each branch store.store is credited with 11 points
per month. A single store or parent store is an initial retail outlet for which a dealer
owns,one that has purchased or has subscribed for one (1)a share of
our Class A stock and forty (40)
shares of Class C stock of the Company.voting stock. A branch store is an additional
retail outletone whose membership involves only shares (or a
subscription for which a dealer owns, or has subscribed for, fifty (50)
sharesshares) of our nonvoting Class C stock of the Company.Stock. (See Article XXV, Section 2 of our By-laws).
A store may use its points at any time to buy one of the By-laws.) Branchtraining programs that we offer. If a store does
not have enough points for the program that it wants, it can use the points that it has and
be billed the difference. Multiple stores may, upon request, be granted an exemptionand member groups can pool their points together
to purchase our training programs.
4. NRHA E-Tools. These include unlimited use of certain Internet-based services offered by
the National Retail Hardware Association (NRHA), including their Advanced Course in
Hardware Retailing, the Forte International Communications Survey and their Employee
Compensation Study.
5. Retail Pricing. This includes access to our national price shopping and ad data collected from
non-Ace stores, our suggested retail prices, our customized retail pricing strategy services and
catalog updates to our suggested retail prices.
Members operating under a Contractor agreement are assessed a mandatory monthly fee of $53 for
ACENET and the monthly subscription fee.
Subscriptions to a Material Safety Data Sheet information service are
also mandatory for all stores located in the United States. The initial
annual assessment imposed on such stores for such subscriptions is $30.00
for each single store or parent store and $15.00 for each branch store.
Subsciption Service.
Trademark and Service Mark Registrations
The names "ACE HARDWARE" and "ACE" are used extensively by the Companymembers and by its member-dealersourselves in connection with the
promotion, advertising and marketing of products and services sold bythat we sell. We have had the Company. The Company
holds the following
Trademark and Service Mark Registrations issued by the U.S. Patent and Trademark Office for our marks:
Registration
Description of MarkType of MarkNumberExpiration Date
"ACE HARDWARE" with winged
emblem design Service Mark 840,176 December 5, 2007
"ACE HARDWARE" with winged
emblem design Trademark 898,070 September 8, 2010
"THE PAINTIN' PLACE" Service Mark 1,138,654 August 12, 2010
"PACE" with design Service Mark 1,208,887 September 14, 2002
"ACE HARDWARE" with winged
emblem design Trademark 1,277,581 May 15, 2004
"ACE HARDWARE" in stylized
lettering design Trademark 1,426,137 January 27, 2007
"ACE" in stylized lettering design Service Mark 1,464,025 November 3, 2007
"ACE HARDWARE" in stylized
lettering design Service Mark 1,486,528 April 26, 2008
"ACE HARDWARE AND
GARDEN CENTER" in stylized
lettering design Service Mark 1,487,216 May 3, 2008
"ACE NEW EXPERIENCE" in
stylized lettering design Trademark 1,554,322 September 5, 2009
"ACE SEVEN STAR" in stylized
lettering design Trademark 1,556,389 September 19, 2009
"ACE BEST BUYS" in circle design Service Mark 1,560,250 October 10, 2009
"ACENET" Service Mark 1,574,019 December 26, 2009
"ACE IS THE PLACE" Service Mark 1,602,715 June 19, 2010
"LUB-E" Trademark 1,615,386 October 2, 2010
"ASK ACE" Service Mark 1,653,263 August 6, 2010
"ACE 2000" Service Mark 1,682,467 April 7, 2002
"ACE" in stylized lettering design Trademark 1,683,538 April 12, 2002
"THE OAKBROOK COLLECTION"
in stylized lettering design Trademark 1,707,986 August 18, 2002
"ACE HARDWARE BROWN BAG
BONANZA" with design Service Mark 1,761,277 April 13, 2003
"ACE HARDWARE
COMMITTED TO A QUALITY
ENVIRONMENT" design Service Mark 1,764,803 April 13, 2003
"CELEBRATIONS" Service Mark 1,918,785 September 12, 2005
Repetitive Stylized "A" design Service Mark 1,926,798 October 10, 2005
"The NEW AGE OF ACE" design Service Mark 1,937,008 November 21, 2005
"ACE RENTAL PLACE"
in stylized lettering design Service Mark 1,943,140 December 19, 2005
"HELPFUL HARDWARE FOLKS" Service Mark 1,970,828 April 30, 2006
"ACE HOME CENTER" Service Mark 1,982,130 June 25, 2006
"SEALTECH" Trademark 2,007,132 October 8, 2006
"GREAT FINISHES" Trademark 2,019,696 November 26, 2006
"WOODROYAL" Trademark 2,065,927 May 27, 2007
"ROYAL SHIELD" Trademark 2,070,848 June 10, 2007
"ROYAL TOUCH" Trademark 2,070,849 June 10, 2007
"QUALITY SHIELD" Trademark 2,102,305 September 30, 2007
"QUALITY TOUCH" Trademark 2,102,306 September 30, 2007
"STAINHALT" Trademark 2,122,418 December 16, 2007
"ACE CONTRACTOR CENTER" Service Mark 2,158,681 May 19, 2008
"NHS NATIONAL
HARDLINES SUPPLY" Service Mark 2,171,775 July 7, 2008
"ACE COMMERCIAL &
INDUSTRIAL SUPPLY" Service Mark 2,186,394 September 1, 2008
"THE OAKBROOK COLLECTION" Trademark 2,187,586 September 8, 2008
"ACE GARDEN PLACE" Service Mark 2,227,729 March 2, 2009
"ACE ROYAL" Trademark 2,237,981 April 13, 2009
"HELPFUL HARDWARE CLUB" Service Mark 2,239,400 April 13, 2009
"THE FOLKS IN THE RED VEST" Service Mark 2,261,946 July 20, 2009
"ACE CONTRACTOR PRO" Trademark 2,273,483 August 31, 2009
"ILLUMINATIONS" Trademark 2,353,666 May 30, 2010
"ACE YOUR NEIGHBROHOOD
SOLUTIONS PLACE" Service Mark 2,386,359 September 12, 2010
"ACE" with accent design Service Mark 2,378,123 August 15, 2010
"ACE SOLUTIONS PLACE" Service Mark 2,394,181 October 10, 2010
As of the marks used by it:
Registration
Description of Mark Type of Mark Number Expiration Date
"ACE HARDWARE" with winged
emblem design Service Mark 840,176 December 5, 2007
"ACE HARDWARE" with winged
emblem design Trademark 898,070 September 8, 2000
"WEATHER SHEDDER" Trademark 1,053,816 December 7, 1996
"THE HELPFUL HARDWARE MAN" Service Mark 1,055,741 January 4, 1997
"ACE IS THE PLACE WITH THE
HELPFUL HARDWARE MAN" Service Mark 1,055,743 January 4, 1997
"BRIGHT & EASY" Trademark 1,058,117 February 8, 1997
"THE PAINTIN' PLACE" Service Mark 1,138,654 August 12, 2000
5
"HARDWARE UNIVERSITY" with design Service Mark 1,180,539 December 1, 2001
"SUPER STRICKER" Trademark 1,182,330 December 15, 2001
"PACE" with design Service Mark 1,208,887 September 14, 2002
"ACE HARDWARE" with winged
emblem design Trademark 1,277,581 May 15, 2004
"ACE HARDWARE" in slanted
bar design Trademark 1,426,137 January 27, 2007
"ACE" in stylized
lettering design Service Mark 1,464,025 November 3, 2007
"ACE HARDWARE" in stylized
lettering design Service Mark 1,486,528 April 26, 2008
"ACE HARDWARE AND GARDEN
CENTER" in stylized
letting design Service Mark 1,487,216 May 3, 2008
"FLO-SOFT" Trademark 1,532,900 April 14, 2009
"ACE NEW EXPERIENCE" in
stylized lettering design Trademark 1,554,322 September 5, 2009
"ACE SEVEN STAR" in
stylized lettering design Trademark 1,556,389 September 19, 2009
"ACE BEST BUYS" in
circle design Service Mark 1,560,250 October 10, 2009
"PACER" Trademark 1,570,820 December 12, 1999
"ACENET" Service Mark 1,574,019 December 26, 1999
"ACE IS THE PLACE" Service Mark 1,602,715 June 19, 2000
"LUB-E" Trademark 1,615,386 October 2, 2000
"ACE FIVE STAR" in
stylized lettering design Trademark 1,627,887 December 18, 2000
"ACE THREE STAR" in
stylized lettering design Trademark 1,631,237 January 15, 2001
"ACE PRO" Trademark 1,632,078 January 22, 2001
"ASK ACE" Service Mark 1,653,263 August 6, 2001
Christmas Elves design Trademark 1,669,306 December 24, 2001
"ACE 2000" Service Mark 1,682,467 April 7, 2002
"ACE" in stylized
lettering design Trademark 1,683,538 April 21, 2002
"HARMONY" in stylized
lettering design Trademark 1,700,526 July 14, 2002
"SEVEN STAR SATISFACTION GUARANTEED
QUALITY ACE PAINTS" with design Service Mark 1,705,321 August 4, 2002
"THE OAK BROOK COLLECTION"
in stylized lettering design Trademark 1,707,986 August 18, 2002
"ACE HARDWARE BROWN
BAG BONANZA" with design Service Mark 1,761,277 April 13, 2003
"ACE HARDWARE COMMITTED
TO A QUALITY ENVIRONMENT" Service Mark 1,764,803 April 13, 2003
"THE OAK BROOK COLLECTION"
in stylized lettering design Trademark 1,783,335 July 20, 2003
"STORE 2000 THE STORE
OF THE FUTURE" Service Mark 1,811,032 December 14, 2003
"ENVIRO-CHOICE" Trademark 1,811,392 December 14, 2003
Currently,date of this filing, we also have the Company hasfollowing applications for new registrations pending before in
the U.S. Patent and Trademark OfficeOffice:
MarkType of goods/services
"STORE-IT-RIGHT" hardware products, namely, hooks
brackets, knobs, hangers and
extensions for Registration of "ACE RENTAL PLACE" in stylized
lettering design for use in connection with the rental of equipment,
6
merchandise and supplies; "THE NEW AGE OF support or hanging
"ACE HOMEPLACE" magazines
"ACE" with halo design for business
consultingretail hardware store services
"COLOR YOUR LIFE" indoor and outdoor paint, coatings and
varnishes
"CONTRACTOR CENTERS OF AMERICA"
and design retail store services in the field of
hardware and related goods
"NATIONAL SUPPLY NETWORK" wholesale store services; "CELEBRATIONS" for Christmas lightsnamely
providing wholesale industrial supplies
and light fixturesequipment to commercial and "GREAT FINISHES" for paints, paint-like coatings,
primers, lacquers, stains and varnishes. In addition, the Company also has
service mark applications pending for "ACE HOME CENTER," "HELPFUL HARDWARE
FOLKS," Repeating "A" in stylized lettering design and Repeating "A" in
stylized lettering design with "ACE" in stylized lettering design for
retail store services.
industrial customers
Competition
The competitive
Competitive conditions in the wholesale and retail hardware industry can be
characterized as intensiveare intense and increasing due to the fact that independentincreasing.
Independent hardware retailers are required tomust remain competitive with discount stores and chain stores, such as Wal-Mart,
WalMart, Home Depot, Menard's, Sears, and SearsLowe's, and with other mass merchandisers. The gradual shift of retail operationsRetail hardware
stores have been slowly shifting their locations to high rent shopping center locations and the centers. There has also been a
trend toward longer store hours have also
intensified pressureshours. There is intense pressure on hardware retailers to obtain low cost wholesale
supply sources. The
CompanyIn several markets in the United States, we also compete directly competes in several U.S. markets with Cotter & Company,
Servistarother
dealer-owned wholesalers such as TruServ Corporation, Hardware Wholesalers, Inc., Our Own Hardware
Company,Do it Best Corporation and United Hardware
Distributing Co., all of which companies are
also dealer-owned wholesalers. Of the aforementioned companies, only Cotter
& Company, headquartered in Chicago, Illinois, has a larger sales volume
than the Company.
Employees
The Company employs 3,664
We have 5,229 full-time employees, of which 1,0831,590 are salaried employees. Collective bargaining agreements Excluding our Canadian
operations and Company-owned retail locations, we have 4,828 full-time employees to support our
domestic and international retailers. We also have, as of the end of the 2001 fiscal year, union contracts
covering one (1) truck drivers' bargaining unit and fourtwo (2) warehouse bargaining units are currently
in effect at certain of the Company's distribution warehouses. The
Company's units. We consider our
employee relations with both union and non-union employees are
considered to be good, and the Company has experiencedwe have had no significant
employee-related work stoppagestrikes in
the past five years. AllIn general, our employees are covered by either by negotiated or non-negotiated employeenonnegotiated benefit
plans whichthat include hospitalization, death benefits and, with few exceptions, retirement benefits.
Limitations on Ownership of Stock
All
Our members own all of the issued andour outstanding shares of capital stock of thestock. Membership in our Company are owned by its dealers. Onlyis
limited to approved retail and other dealers in hardware and related products havingwho have Membership Agreements with
us. These are the Company
areonly ones eligible to own or purchase shares of any class of the Company'sour stock.
No dealer regardless of the number of member business outlets owned
or controlled by him, shall be entitledis allowed to own more than 1 share of our Class A Stock, which is the only class of voting stock, which can be issued by the
Company.no matter how many store
locations that dealer owns or controls. This ensures that each stockholder-dealer will havestockholder in our cooperative has equal
voting power. We treat an equal
voice in the management of the Company. An unincorporated personmember or a partnership shall be deemed to bemember as being controlled by another person, partnership
or corporation
someone else if 50% or more of the assets or profit shares thereinof that member are owned by (i) by such other another
person, partnership or corporationcorporation; or (ii) by the owner or ownersowner(s) of 50% or more of the assets or profit shares of
another unincorporated business firm or (iii) by the owner or ownersowner(s) of at least 50% or
more of the capital stock of an incorporated business firm. Aa corporation.
We treat a member that is a corporation shall be deemed to beas being controlled by someone else if at least 50% of the
capital stock of that member is owned by (i) another person, partnership or corporation if 50% or more of the capital stock of said corporation is
owned (i) by such person, partnership or corporationcorporation; or (ii) by the owner
or owners
owner(s) of at least 50% or more of the capital stock of another incorporated
business firmcorporation; or (iii) by the owner or ownersowner(s) of at least 50% or more
of the assets or profit shares of ananother unincorporated business firm.
business.
Distribution of Patronage Dividends
The Company operates
We operate on a cooperative basis for patronage purchases of merchandise from us that are made by
dealers who have become members of our Company. We also operate on a cooperative basis with respect to purchases
of merchandise made from it by those of its dealers who have become
"members" of the Company as described below and in the Company's By-laws.
In addition, the Company operates on a cooperative basis with respect to
all dealers
who have subscribed for shares of our stock but who have not as yet actually become 7
"members" by reason of the fact that the payments made by them on account
of the purchase price of their shares because they
have not yet reached an amount equal
to thefully paid for their $1,000 purchase pricepar value shares of 1 share ofour Class A Voting Stock. All
membervoting stock. The dealers falling intoin either
of the foregoing classificationsthese two categories are entitled to receive patronage dividends once a year on an equitable basis.
We made patronage dividend distributions once each year fromat the Companyfollowing percentages of our sales in proportion to the amount of their annual purchases of
merchandise from it.
The patronage dividends distributed on wholesale warehouse,
bulletin and direct shipment sales made by the Companycategories and on the total sales of products manufactured by theour Paint
Division represented the following
percentages of each of said categories of sales during each of the past three calendarfiscal years:
1994 1993 1992
200120001999
Warehouse Sales 4.64117% 4.94434% 5.26838%
4.27330% 4.43564% 4.98172%
Bulletin Sales 2.0% 2.0% 2.0%
Direct Shipment Sales 1.0% 1.0% 1.0%
Paint Sales 8.2205% 7.9389% 8.9440%
In addition to the dividends described above, patronage dividends are
calculated separately and distributed on sales of lumber products,
building material products and less-than-truckload (LTL) sales of lumber
and building material products. Patronage dividends equal to .4073%,
.1763% and .1260% of the total sales of these products (calculated
separately by each of these three sales categories) were distributed to
the Company's dealers who purchased those products in 1994, 1993 and 1992,
respectively.8.9371% 8.1131% 7.8827%
Under theour LTL Plus Program, we also calculate patronage dividends are also
calculated separately on sales of full or
partial truckloads of products purchased by eligible dealers from specifiedcertain vendors (see discussion of LTL
Plus Program set forth above in this Item 1). The maximum amount of
patronage dividends allocable to LTL Plus sales is .5% of such sales.under the heading "Business.") The LTL Plus Program patronage dividend was .5% of such
these sales for 1994, 1993fiscal year 2001, 2000 and 1992.
1999.
Sales of merchandise under our Contractor and Industrial Distributor Programs are made on a
nonpatronage basis.
Patronage Dividend Determinations and Allocations
The amounts distributed by the Companythat we distribute as patronage dividends consist of itsour gross profits on patronage business done
that we do with dealers who qualify for patronage dividend distributions, after deducting from said gross profitsless a proportionate share
of the Company'sour expenses for administration and operations. SuchOur gross profits consist of the difference between our
selling price for the merchandise that these dealers buy from us and our purchase price at which merchandise is sold to such dealers and the costfor that merchandise.
Our computation of such
merchandise to the Company. Allpatronage dividends excludes all of our income and expenses associated withfrom activities that
are not directly related to patronage transactions aretransactions. The excluded from
the computationitems primarily consist of patronage dividends. Generally these include profits on business done
that we do with dealers or other customers who do not qualify for patronage dividend distributions
and any income (loss) realized by the Companyor loss that we realize from the disposition of property and equipment (except that, to the extent that
depreciation on such assets has been deducted as an expense during the time
that the Company has been operating on a cooperative basis and is
recaptured in connection with such a disposition, the income derived from
such recapture would be included in computing patronage dividends).
Theequipment.
Our By-laws of the Company provide that, by virtue of a dealerdealers being a
"member""members" of theour Company (that is, by virtueowning
shares of his ownership of 1 share ofour Class A Voting Stock)voting stock), he will be deemed to have consentedthey consent to include in histheir gross income for federal income tax
purposes all patronage dividends that we distribute to them. These distributions must be included in gross
income for the dealer's taxable year in which they are received by him all patronage dividends distributed
to him by the Company in connection with his purchases of merchandise from
the Company. A dealer receives them. Dealers who hashave not yet fully paid an amount which at least equals the $1,000
purchase price for their shares of the 1 share ofour Class A Voting Stock subscribed
for by him willvoting stock are also be required to include all patronage dividends
distributed
we distribute to him by the Companythem in histheir gross income for federal income
tax purposes in the year in which they are received by him. This is
required by virtue of a provision in theas explained above. Under our Stock Subscription Agreement, executed
by him under which he
dealers must expressly consentsconsent to take all suchthese patronage dividendsdividend distributions into histheir gross income for such purposes.incomes.
The amount of the patronage dividends which dealers must be includedinclude in a dealer'stheir gross incomeincomes includes
both the cash portion of such patronage dividends received by himand any portion of patronage dividends that we apply against
any indebtedness the dealer owes to us in
cash or applied against indebtedness owing by him to the Company in
8 accordance with Section 7 of Article XXIV of the Company's By-laws and theour By-laws. It
also includes any portion or portions thereof which he receivesof patronage dividends that they receive in shares of our Class C Nonvoting Stock of the Company or innonvoting
stock, other property and patronage refund certificates. PatronageThe Company also has the authority to issue a
portion of the patronage dividend in the form of other property.
Under our present program, patronage dividends on each of the Company'sour three basic categories of sales (warehouse
sales, bulletin sales and direct shipment sales) are allocated separately, as are patronage dividends
under our LTL Plus Program. Dividend percentage calculations are made with reference to the net earnings
derived from each of the respective categories. The 2001 patronage dividend rate for the LTL Plus
Program. However, the maximum amount
Program is .5% of patronage dividends allocable toour LTL Plus Program sales is an amount no greater than .5% of such sales, the
maximum amount ofsales. The 2001 patronage dividends allocable todividend rates for direct shipment and bulletin
sales exclusive of LTL Plus Program salesare 1.0% and 2.0%, respectively, while the current 2001 patronage warehouse dividend rate is an amount equal to 1% of such sales
and the maximum amount of patronage dividends allocable to bulletin sales
is an amount equal to 2% of that category of sales. All remaining patronage
dividends resulting from sales made under these programs are allocated by
the Company to warehouse sales. The Company feels that this allocation
procedure provides a practical and understandable method for the
distribution of these patronage dividends in a fair and equitable manner.
Sales of lumber and building materials products are not included as
part of warehouse sales, bulletin sales, or direct shipment sales for
patronage dividend purposes.4.27%.
Patronage dividends are calculated separately
and distributed to the Company's dealers with respect to their purchases
within each of three sales categories involving these types of products.
These three categories are (a) lumber products (other than
less-than-truckload sales); (b) building materials products (other than
less-than-truckload sales); and (c) less-than-truckload ("LTL") sales of
lumber and building material products. Patronage dividends are also
calculated separately and distributed to the Company's dealers for full and partial truckloads of products purchased
under the LTL Plus Program. (See the heading "Business", discussion of the LTL Plus Program set forth above in this Item 1 and under the
subheading "Forms of Patronage Dividend Distributions,"
subparagraphs 2(a)-(b) below).Distributions" below.)
Any manufacturing profit realized on intracompany sales of the
products manufactured by the Company'sour Paint
Division is allocated among and distributed as patronage dividends to those membereligible dealers who are
eligible to receive patronage dividends from the Company in proportion to their respective
annual dollar purchases of paint and related products manufactured by said Division.from that division. The earnings realized by the Companywe realize on wholesale
sales of suchthe Paint Division's products made by it to its memberour eligible dealers are currently distributed as patronage
dividends to all of its dealers who are eligible
to receive patronage dividends from itthem as part of the patronage dividends which they receive each year with respect toin the basic patronage
dividend categories established forof warehouse sales, bulletin sales and direct shipment sales. The 2001 paint dividend rate
is 8.94%. Under Section 8 of Article XXIV of the Company'sour By-laws, if the Paint Division's manufacturing operations
for any year result in a net loss rather thaninstead of a profit to the Paint Division, suchthis loss would be netted
against the earnings we realized by the Company from itsour other activities during the year, with the resultso that the earnings available from such other activities for
distribution as patronage dividends for
such yearfrom these other activities would be correspondingly reduced.
reduced for the year.
We have established a LBM Retailer Incentive Pool Plan for our members who purchase LBM products
through Builder Marts of America, Inc. ("BMA"), and are eligible participants under our Contractor
Center standards. This is not a patronage dividend plan, but rather an allocation of the increase in our stock
investment in BMA. Under the plan, we calculate an annual estimate of the amount by which our stock in
BMA has increased or decreased in value from our initial investment, net of certain expenses. We allocate
this estimate to eligible members annually based on their qualifying purchases of LBM products.
A member's pool allocation only becomes vested and can only be redeemed upon the termination of the
member's Ace membership which results in the sale or redemption of Ace stock held for that location,
Ace's termination of the LBM Retailer Incentive Pool Plan, or Ace's liquidation, whichever occurs first.
Negative pool balances are not charged to members. The 2001 incentive pool rate under this plan is .40%
of qualifying purchases.
Forms of Patronage Dividend Distributions
Patronage
We make patronage dividend distributions will be made to theour eligible and
qualified member dealers of the Company in cash, shares of the Company'sour Class C stock Stock
and patronage refund certificates in accordance with the
followingaccording to a specific plan whichthat has been adopted by the Company'sour Board of Directors
with respect to purchases of merchandise made by such dealers from the
Company on or after January 1, 1995, and which will continue to
Directors. This plan can be in
effect until such time as the Board of Directors, in the exercise of their
authority and discretion based upon business conditionschanged from time to time by the Board as they deem fit depending on business
conditions and our Company's needs.
This plan is summarized below for the requirementspurchases that our eligible dealers make from us for the year
2001 and subsequent years.
1. For each of the Company, shall determine that such plan should
be altered or amended:
1. With respect to each store owned or controlled by eacha dealer's eligible and qualifying dealer, such dealer shall receive astores, we initially calculate the minimum cash patronage dividend
distribution determined as follows:
(a) an amount equal to 20% of the first $5,000 of the total patronage dividends allocated for distribution each year
to suchthe dealer in connection withbased on the purchases made for suchthe eligible store;
9
(b) an amount equal to 25% of the portion of the total patronage dividends allocated for distribution each year to such dealer for
suchthat store which exceedsexceed
$5,000 but doesdo not exceed $7,500;
(c) an amount equal to 30% of the portion of the total patronage dividends allocated for distribution each year to such dealer for
suchthat store which exceedsexceed
$7,500 but doesdo not exceed $10,000;
(d) an amount equal to 35% of the portion of the total patronage dividends allocated for distribution each year to such dealer for
suchthat store which exceedsexceed
$10,000 but doesdo not exceed $12,500;
(e) an amount equal to 40% of the portion of the total patronage dividends allocated for distribution each year to such dealer for
suchthat store which exceeds $12,500;exceed
$12,500.
2. TheWe distribute the portion of the total annual distribution allocated to any such
dealer for each store owned or controlled by such dealerpatronage dividends in excess of the amount to be distributed to such dealer for such store in cash shall be distributed each yearor property amounts above
in the form of shares of our Class C Non-voting Stock of Ace Hardware Corporationnonvoting stock (par value $100 per share), valued at the par value thereof, until the total par
value of all shares of all classes of our capital stock ofthat a dealer holds for the corporation held
by such dealer with respect to sucheligible store equals the
greater of:
(a) $20,000; or
(b) athe sum equal to the total of purchases in the following categories of
purchasesthat a dealer made by such dealer for suchthe eligible store during
the most recent calendar year;year:
(i) 15% of the volume of warehouse (including STOP and
excluding Ace manufactured paint and related products)
and bulletin purchases, plus
(ii) 15% of the volume of Ace manufactured paint and related products purchases, plus
(iii)
(ii) 3% of the volume of drop-shipment or direct purchases (excluding Ace manufactured
paint and related products), plus
(iv) 4%
(iii) 15% of the volume of lumberwarehouse and building material
(excluding LTL)bulletin purchases (including STOP and excluding
Ace manufactured paint and related products), plus
(v)
(iv) 4% of the volume of LTL Plus purchases;
provided,purchases.
Please note, however, that nowe do not issue fractional shares of Class C Non-voting
Stock shall be issued toStock. We take any dealer and amount
that any amount which
would have otherwise been distributable asresult in a fractional share of such stock shall instead be distributed to such dealerand distribute it in cash.cash or patronage refund certificates
instead.
3. The portion of thea dealer's total patronage dividends allocated each year
to any such dealer for each store owned or controlled by such dealerof the dealer's eligible stores which exceeds the
sum ofof:
(a) the cash amount to be distributed to such
dealer for such store in cash pursuant todetermined under Paragraph 1.,1 above and
(b) anythe amount to be distributed to him in the form of shares of Class C Non-voting Stock of Ace Hardware Corporation (par value $100
per share) pursuant todetermined under Paragraph 2.,2 above shall beis distributed to suchthe dealer in cash; provided, however, that in no event shall thecash
up to certain limits. The total amount distributed under this plan to any suchthat a dealer for any
such storereceives in cash for an eligible store cannot exceed
45% of thethat store's total patronage dividends allocated for such store for such year, and to the extent that any
distribution to be made to any such dealer for any store pursuant
to this Paragraph 3., would otherwise cause theyear. If a store's total cash distribution to such dealer for such store to
would exceed this 45% of the
total patronage dividends allocated for such store for such year,limit, then the distribution to beover that amount is made under this Paragraph 3., shall instead
be made in the form
of a non-negotiable patronage refund certificate
having such a maturity date and bearing interest at such an annual
rate as shall be determined by thecertificate. Our Board of Directors prior todetermines the issuance thereof.
Patronage dividend distributions will be made to the eligiblematurity
dates and qualified member dealersinterest rates of the Company in cash, shares of the Company's
Class C stock andthese patronage refund certificates in accordance withbefore they are issued. These
certificates include provisions that give us a first lien on the following plan which has been adopted byamount of any indebtedness that
a dealer owes us. The certificates also contain language subordinating them to all the Company's Boardrights and
claims of Directors
10
with respect to purchases of merchandise made by such dealersour secured creditors, general creditors and our bank creditors. Historically, these
patronage refund certificates have matured within five years from the Company on or after January 1, 1993, through and including December 31, 1994.
1. With respect to each store owned or controlled by each eligible
and qualifying dealer, such dealer shall receive a minimum cash
distribution determined as follows:
(a) an amount equal to 20% of the first $5,000 of the total
patronage dividends allocated for distribution each year to such
dealer in connection with the purchases made for such store;
(b) an amount equal to 25% of the portion of the total patronage
dividends allocated for distribution each year to such dealer
for such store which exceeds $5,000 but does not exceed $7,500;
(c) an amount equal to 30% of the portion of the total patronage
dividends allocated for distribution each year to such dealer
for such store which exceeds $7,500 but does not exceed $10,000;
(d) an amount equal to 35% of the portion of the total patronage
dividends allocated for distribution each year to such dealer
for such store which exceeds $10,000 but does not exceed $12,500;
(e) an amount equal to 40% of the portion of the total patronage
dividends allocated for distribution each year to such dealer
for such store which exceeds $12,500;
2. The portion of the total annual distribution allocated to any such
dealer for each store owned or controlled by such dealer in excess of
the amount to be distributed to such dealer for such store in cash
shall be distributed to him each year in the form of shares of
Class C Non-voting Stock of Ace Hardware Corporation (par value $100
per share), valued at the par value thereof, until the total par value
of all shares of all classes of capital stock of the corporation held
by such dealer with respect to such store equals the greater of:
(a) $20,000; or
(b) a sum equal to the total of the following categories of
purchases made by such dealer for such store during the most
recent calendar year;
(i) 13% of the volume of warehouse (including STOP and
excluding Ace manufactured paint and related products)
and bulletin purchases, plus
(ii) 10% of the volume of Ace manufactured paint and related
products purchases, plus
(iii) 3% of the volume of drop-shipment or direct purchases
(excluding Ace manufactured paint and related products),
plus
(iv) 4% of the volume of lumber and building material
(excluding LTL) purchases, plus
(v) 4% of the volume of LTL Plus purchases;
provided, however, that no fractional shares of Class C Non-voting
Stock shall bedate we issued to any dealer and that any amount which would
have otherwise been distributable as a fractional share of such stock
shall instead be distributed to such dealer in cash.
3. The portion of the total patronage dividends allocated each year
to any such dealer for each store owned or controlled by such dealer
which exceeds the sum of (a) the amount to be distributed to such
dealer for such store in cash pursuant to Paragraph 1., above and
(b) any amount to be distributed to him in the form of shares of
Class C Non-voting Stock of Ace Hardware Corporation (par value
$100 per share) pursuant to Paragraph 2., above shall be distributed
to such dealer in cash; provided, however, that in no event shall
the total amount distributed under this plan to any such dealer for
any such store in cash exceed 49.9% of the total patronage dividends
allocated for such store for such year, and to the extent that any
distribution to be made to any such dealer for any store pursuant
to this Paragraph 3., would otherwise cause the total cash
distribution to such dealer for such store to exceed 49.9% of the
11
total patronage dividends allocated for such store for such year,
the distribution to be made under this Paragraph 3., shall instead
be made in the form of a non-negotiable patronage refund certificate
having such a maturity date and bearing interest at such an annual
rate as shall be determined by the Board of Directors prior to the
issuance thereof.
With certain modifications, the above Plans are applied separately in
determining the form in which patronage dividends accrued with respect to
sales of lumber and building materials products are distributed. In this
connection the combined patronage dividends allocated annually to a store
from (a) sales of lumber products (other than LTL sales) to the store, (b)
sales of building materials (other than LTL sales) to the store, and (c)
LTL sales to the store are used in determining the minimum cash
distribution percentages to be applied under Paragraph 1 of the above
Plans. A store's patronage dividends from any other sales category with
respect to which patronage dividends are distributed by the Company are
not taken into account in determining either the minimum portion or any
additional portion of the store's patronage dividends derived from its
purchases of lumber and building materials products which is to be
distributed in cash. Also, Paragraphs 2 and 3 of the above Plans are
applied separately to patronage dividends on lumber and building materials
sales and the requirements of Paragraph 2 of the Plans shall not be deemed
to have been complied with in the cases of (a) purchases of lumber products
(other than LTL purchases) or (b) purchases of building materials products
(other than LTL purchases) until the store's holdings of Class C Non-voting
Stock of the Company resulting from patronage dividends on the Company's
sales to it within the particular one of those two sales categories for
which a patronage dividend distribution is to be made equal 4% of the
volume of the store's purchases within such category during the most
recent calendar year. However, no such special Class C Stock requirement
applies to patronage dividends accrued on LTL purchases.
Notwithstanding the provisions of the above-described Plans, however,
underthem.
Article XXIV, Section 7 of Article XXIV ofour By-laws requires the Company's By-laws thecash portion of any patronage dividends which would otherwiseto be distributable in cash with
respect to a retail dealer outlet which is a member of the Company will
instead be
applied against any indebtedness owing by the dealer to the
Company to the extent of such indebtedness in any casea member owes us where the membership for such outlethis store is cancelled or terminated prior to
before the distribution of such patronage dividends except that an amount equal todividends. Despite this, however, 20% of the dealer'sa terminated store's total
annual patronage dividends for such outlet will be paid in cash if we receive a timely request for the paymentthis form of such amount in cash is submitted to the
Company by the dealer.payment.
Because of the requirement of the U.S.U. S. Internal Revenue Code that the
Companywe withhold 30% of the annual
patronage dividends distributed to membereligible dealers of the Company whose places of business are located in foreign countries
or Puerto Rico, (exceptthe cash portion of patronage dividends to these dealers is a minimum of 30%. There
are exceptions to this 30% cash payment in the case of 1) unincorporated Puerto Rico dealers owned by
individuals who are U.S. citizens, and2) certain dealers incorporated in Guam, American Samoa, the
Northern Mariana Islands or the U.S. Virgin Islands,Islands. These exceptions apply if less than 25% of itsthe stock
of these dealers is owned by foreign persons, and at least 65% of the Corporation'stheir gross income for the last three years
has been effectivelysufficiently connected with the conduct of a trade or business in such possessionone of these locations or in the United States),States,
and 3) dealers located in countries maintaining tax treaties with the cashUnited States that provide for
reduced rates of withholding.
We also have certain loan programs that allow dealers to pay us back with part of their patronage dividend
distributions. For example, to help members buy standardized exterior signs identifying their stores,
our Board of Directors has authorized a loan program. Under this program, a dealer may apply to borrow
between $100 to $25,000 per location from us for this purpose. If a dealer obtains a loan under this program,
the dealer may either repay it in twelve payments billed on the regular bi-weekly billing statement, or the dealer may
apply the non-cash portion of the annual patronage dividends of such dealers shall in no event
be less than 30%.
It is anticipated that(for up to the terms of anynext three annual patronage refund certificates
issued pursuant to Paragraph 3.
dividend distributions) toward payment of the foregoing Plans would include
provisions giving the Company a first lien thereon for the amount of any
indebtedness owing to it at any time by the owner of any such certificate
and provisions subordinating the certificates to all the rights and claims
of secured, general and bank creditors against the Company. It is further
anticipated that all such patronage refund certificates will have maturity
dates which will be no later than five years from the dates of issuance
thereof.
In order to aid the Company's dealers in acquiring and installing
standardized exterior signs identifying the retail stores operated by them
as member outlets supplied by the Company, theloan.
Our Board of Directors of the
Company has also authorized a loan program under which ato help qualified dealers pay for costs of
converting their stores from another hardware distributor's program to our program. Under this loan
program, these dealers can borrow up to $95,000 per store. If the dealer may borrow from the
Company within a range of $100 to $20,000 the funds required for such
12
purpose. A dealer who obtains a loan under this program, may either repaywe will
apply the loan in twelve substantially equal payments billed on such dealer's
regular by-weekly billing statement, or may execute a direction to have thenon-cash portion of the dealer's annual patronage dividends which would otherwise
be distributed under the above plan in a form other than cash from no more
than(for up to the next three annual distributions of such dividends applied towardpatronage
dividend distributions) towards payment of the principal and interest on the loan. In order to aid the Company's dealers in acquiring and installing PACE
and PAINTMAKER computer systems purchased from the Company,Unless extended by the Board of Directors, this loan
program will remain in effect until June 1, 2002 or until 100 loans are made, whichever occurs first.
Our Board of the CompanyDirectors has also authorized finance programs under which the
Company will finance, forto help qualified dealers (but notbuy certain
computer systems from us and to finance capital improvements with patronage dividends. The amount
financed cannot exceed 80% of the cost of any system) in the case of asystem. For PAINTMAKER computer, within the range
of $1,000computers, members have
applied to��borrow between $4,000 to $15,000 per location repayable over a period of three (3) years, and in
the case of a PACE computer, within the range of $5,000 to $50,000
repayable over a period of five (5) years for such purpose. Dealers who
obtain financing from the Company foryears.
Under these purposes direct the Company,
during the financing term,programs, members have directed us to first apply the patronage refund certificate
portion of their patronage dividend distributions toward the principalbalance owed on financed items and interest due on such loans, the patronage dividends which would otherwise
be payable in the form of patronage refund certificates for each year, and
thennext to
apply the patronage dividends which would otherwise be payable for the same year in the form of the Company'sour Class C stock.
The aforementioned
Stock. These signage, and computer financing and store conversion programs may be revised or discontinued
by theour Board at any time.
Members also have the ability to apply for a Capital Stock loan which is designed to provide them with
access to their future patronage dividends to assist them in opening new retail stores or to assist in significant
store expansions. These loans are repaid at the end of seven (7) years from rebate distributions of the
non-cash portion of the annual rebate on the respective store during that period.
Federal Income Tax Treatment of Patronage Dividends
Both the shares of Class C Non-voting Stocknonvoting stock and the patronage refund certificates used by the Companythat we use to pay
patronage dividends that accrue to
its eligible and qualifying dealers constituteare "qualified written notices of allocation" within the meaning of that term as used in Sections 1381
through 1388 of the U.S. Internal Revenue Code. The Company may pay a portion of its dividend in the
form of other qualified property pursuant to Section 1382 of the U.S. Internal Revenue Code. These
Sections of the Internal Revenue Code which specifically provide
fordeal with the income tax treatment of cooperatives and their
patrons and which have been in effect since 1963. The dollar amount stated dollar amounts of suchon a qualified written noticesnotice of allocation
and fair market value of other qualified property must be taken into the gross income of each of the recipients thereof forperson
to whom the taxable years in which
they are received, not withstanding the fact that statednotice is issued, even though this dollar amountsamount may not actually be receivedpaid to the person in such taxable years.
the same year that it is taxed.
In order for the Companyus to receive a deduction from itsour gross income for federal income tax purposes for the
amount of any patronage dividends paid by itthat we pay to a patron (that is, to one of itsour eligible and qualifying
dealers) in the form of qualified written notices of allocation it is
necessaryor other qualified property, we have to pay
(or apply against any indebtedness that the Company pay (or apply against indebtedness owing to the
Company by such patron owes us in accordance with Section 7 of Article XXIV
of the
Company'sour By-laws) not less than 20% of theeach patron's total patronage dividends
distributable to such patrondividend distribution in cash and that the
patron also has to consent to having the written notices of allocation at their stated dollar amounts, and
other qualified property at the fair market value, included in his gross income for the taxable year in which they are received by him.
It is
he receives them. The Internal Revenue Code also required under the Coderequires that any patronage dividend distributions deducted by the Companythat
we deduct on itsour federal income tax return with respect tofor business done by itwe do with patrons during the year for which such deduction
is taken must be madepaid to the Company'sthose patrons
within 8eight and one-half months after the end of suchthat taxable year.
Dealers who have become
By becoming one of our "members" of the Company by owning 1 share of Class A Voting Stock arevoting stock, a patron is deemed
under the U.S. Internal Revenue Code to have consented to take anythe written notices of allocation distributed to
themand
other qualified property that we distribute into theirthe patron's gross income by theirincome. Such consent is deemed because
of 1) the act of obtaining or retaining membership in theour Company, and by having received from2) because our By-laws provide
that the Company amembership constitutes this consent, and we give written notification of thethat By-law provision providing that membership in the
Company constitutes such consent. In accordance withprovision.
Under another provision inof the Internal Revenue Code, nonmember dealers who have subscribed for shares of the Company's
our stock willare also be deemed to have consented by
virtueto take the dollar amounts of their written notices of allocation
and other qualified property into their gross incomes. This occurs because of the consent provisions
included in theirthe Subscription Agreements, to take any written notices of allocation distributed to them
into their gross income.
13Agreement for our stock.
A dealer receivingpatron receives a patronage refund certificate as part of the
dealer'sa patron's patronage dividends in accordance with(see the last clause of
Paragraph 3 of the patronage dividend distribution plans previously
described under the subheading "Forms
"Forms of Patronage Dividend Distributions"
in this Item 1,), the patron may be deemed to have received interest incomeincome.
This interest would arise in the form of an original issue discount to the extent of any excess ofthat the face amount of
the certificate overexceeds the present value of the stated principal and interest payments that we have to be made by pay
the Companypatron under the terms of the certificate. SuchThis interest income would be taxable to the dealer ratablya patron's "ratably" over the
term of the certificate under Section 7872(b) (2) of the U.S. Internal Revenue Code. The presentPresent value for
this purpose is to be determined by using a discount rate equal to the applicable Federal rate in effect as of the
day of issuance of the certificate, compounded semi-annually.
The Company will betwice a year.
We are required to backup withhold for federal income tax on the total patronage dividend distribution which is made
we make to a payeeanyone who has not furnished hisus with a correct taxpayer identification number to the Company or as to whom
the Company has notice of the fact that the number furnished to it is
incorrect. A cooperative organization may number. We can
also be required to backup withhold federal taxes on the cash portion of each patronage dividend distribution
made to a payeesomeone who becomes a member of the cooperative if the payee fails to certify to the cooperativeus that he is not subject to backup withholding. It is the
opinion of counsel for the Company that this provision isThis
backup withholding obligation based on a failure to certify may not be applicable, to
any patronage dividend distribution to a payeehowever, unless 50%
or more of the total distribution is made in cash. Since we distribute all of the Company'sour patronage dividends for a
given year are distributed at the same time and the
Company's currently effectivesince our current patronage dividend plan (see the heading "Business",
subheading "Forms of Patronage Dividend Distributions") does not permit any store which is a member of the Companystore to receive
more than 45% of its patronage dividends for the year in the form of cash, it is said counsel's
further opinionwe believe that such a certification failure wouldlike
this should not ordinarily have noany effect on theour Company or any of its dealers.
Patronage dividends distributed by a cooperative organizationthat we distribute to its patrons who are located in foreign countries or certain
U.S. possessions have been held to constitute fixed or determinable annual or periodic
income on which such patrons are required to pay a tax of 30% of the
amount received in accordance with the provisions of Sections 871(a)(1)(A)
and 881(a) (1) of the Internal Revenue Code, as do patronage dividends
distributed to patrons which(including those who are incorporated in Puerto Rico or who reside in Puerto Rico but
have not become citizens of the United States. With
respectStates) have been held to its be "fixed or determinable annual or
periodic income." Patrons who receive this type of income are currently required to pay a tax of 30% of
the amount received under Sections 871(a)(1)(A) and 881(a)(1) of the Internal Revenue Code. When
dealers who are subject to suchthis 30% tax, the Company is also
obligated towe must withhold it from their patronage dividends and pay it over to
the U.S. Internal Revenue Service an amount equal to the tax.Service. The foregoing
provisions doabove does not apply to a corporation organized in Guam,
American Samoa, the Northern Mariana Islands or the U.S.U. S. Virgin Islands if less than 25% of its stock is
owned by foreign persons and at least 65% of its gross income for the last three years has been effectively
connected with the conduct of a trade or business in such possessionthat location or in the United States. A reduced rate
of withholding may apply to dealers located in countries maintaining tax treaties with the United States.
The 20% minimum portion of the patronage dividends tothat must be paid in cash to a patron with respect to whom the Company is neither required to
withhold 30% of his total patronage dividend distribution nor permitted to
apply such minimum portion against indebtedness owing to it by himpatrons other than
those discussed above may not be insufficientenough, depending upon the patron's income tax bracket, of each individual
patron, to provide funds for pay all of
the full payment of thepatron's federal income tax for
which such patron will be liable ason his annual patronage dividend distributions. In our management's
opinion, the payment of a resultminimum of the receipt20% of the total patronage dividends distributed to him during the year, including cash,
patronage refund certificates and/or Class C Non-voting Stock.
In the opinion of the Company's management, payment in cash of not
less than 20% of the total patronage dividends distributable each year to
the Company's eligible and qualifying dealers will not have
a material adverse effectaffect on theour operations of the Company or itson our ability to obtain adequatesufficient working capital for the
normal requirements of itsour business.
Membership Agreement
In additionAgreements
Persons who apply to signingbecome an Ace member, must sign a Subscription Agreement for theto purchase of
shares of the Company's stock, each retail dealer who applies to become an
14
Ace dealer (excluding the firms which are "International Retail Merchants"
as discussed below under the subheading "International Retail Merchants"
in this Item 1)our
stock. They must also sign the Company'sour customary Membership Agreement. AAgreement and Supplement and submit
a payment of $400 must accompany the$1,500 ($2,500 for conversions or new investor ground-ups) with your signed
Membership Agreement to defray
the Company'sand Supplement. We use this fee toward our estimated costs of processing
the membership application.applications. If thea person submits a membership application is accepted, copies of both theand we accept it, we sign your
Stock Subscription Agreement and your Membership Agreement and the Stock Subscription Agreement, signed on behalf of the CompanySupplement and send them
back to evidence its acceptance, are forwarded to the dealer. No royalties are
payable at any time by a dealeryou for an outlet which the Company accepts
for affiliation into its dealer network. Membershipyour records. Your membership may generally be terminated upon various notice
periods and for various reasons (including voluntary termination by either party) as prescribedof us). The details of these
reasons and notice periods are in the membership agreement,Membership Agreement. These reasons for termination and
notice periods apply except to the extent thatwhere special laws or regulations applicable to
specificin certain locations may limit the Company'sour right to
terminate memberships, or may prescribe greater periods ofrequire longer notice under particular circumstances.
International Retail Merchantsperiods.
Non-Shareholder Programs
In 1989, the Company'sour Board of Directors first authorized the Companyus to affiliate International Retail Merchants, non-shareholder international dealers
who operate retail businesses outside the United States, its territories and possessions. International
Retail Merchants do notThese international
dealers sign the Company's Regularagreements that differ from our regular Membership Agreement,
butAgreement. They may depending on the circumstances, be granted
a license to use certain of the Company'sour trademarks and service marks. Theymarks, but they do not sign stock subscription agreements
or become shareholders, of the Company, nor do they receive distributionspatronage dividends.
In 1995, our Board of Directors first authorized us to affiliate non-shareholder retail accounts other
than international dealers. These accounts, which are generally served through our wholly-owned
subsidiary National Hardlines Supply, Inc. ("NHS"), are not granted an ongoing license to use our trademarks
and service marks. They can purchase selected types of products from us for resale. They are not
members of our cooperative, and therefore do not own our stock or receive patronage dividends.
In 1996, we established a license program for international non-shareholder dealers. These international
licensees typically receive the exclusive right to use our trademarks and service marks, as well as
exclusive rights to distribute the merchandise they purchase from us in their home countries.
International licensees pay us a negotiated license fee and ongoing royalties on their retail sales in
exchange for these rights, and for our ongoing training and support.
In 1996, we also began operations through our subsidiary Ace Hardware Canada, Limited ("Ace
Canada"). Ace Canada's customers are non-shareholders who do not receive patronage dividends from us.
Only customers signed under the Ace Canada Franchise Agreement are licensed to use our trademarks
and service marks.
In 1998, the Company began developing joint ventures with certain dealers as a way of increasing the
Ace presence in key markets without the need for Ace to use solely its own resources to open company
stores. For each joint venture, the Company and the dealer enter into a Limited Liability Company
Agreement, with the dealer acting as the managing member, and form a limited liability company ("LLC")
to operate the joint venture stores. In each joint venture, the Company owns 50% or less of the LLC's
units. Currently, the Company has an ownership interest in six joint ventures. In the future, we may
explore other joint venture opportunities with our members; however, we consider each situation unique
and we evaluate each opportunity on its own merits.
In our sole discretion, we may offer a member a mutually agreeable termination arrangement.
In some situations, a member who terminates on this basis may be offered the opportunity to
purchase products from us (including Ace private label products) for a period of up to 5 years after the
termination of membership. The former member is not required to make any such purchases from us,
but must maintain favorable credit status in order to do so.
In 2001, we developed a non-shareholder industrial distributor program and contractor program.
These retailers can purchase selected types of products from us for resale. They are not members of our
cooperative, and therefore do not own stock or receive patronage dividends. As These programs are made
available to cooperative members, however, members will not receive patronage dividends for purchases
of December 31,
1994, 1993products under these programs.
Sales to international non-shareholder dealers accounted for approximately 4.4% of our total sales in
2001, approximately 6.7% of our total sales in 2000 and 1992 International Retail Merchant volume with the Company
accountsapproximately 6.5% of our total sales in 1999.
Sales to domestic non-shareholder locations accounted for less than 4%2.0% of the Company'sour total sales in each such year.
2001, less
than 2.5% of our total sales in 2000 and less than 1.5% of our total sales in 1999. (See Appendix A, Article
XXV, section 2 of our By-laws regarding International Retail Merchants and non-member accounts.)
Item 2. Properties
The Company's
Our general offices are located at 2200 Kensington Court, Oak Brook, Illinois 60521.60523. Information with respect to the Company's
principal
about our main properties follows:
Square Feet Owned Lease
of facility or Expiration
Location (Landappears below:
Square Feet Owned Lease
of Facility or Expiration
Location(Land in Acres)LeasedDate
General Offices:
Oak Brook, Illinois 291,816 Leased September 30, 2009
Downers Grove, Illinois 23,962 Leased June 30, 2004
Markham, Ontario, Canada(1) 15,372 Leased February 28, 2006
Distribution Warehouses:
Lincoln, Nebraska 345,440 Leased December 31, 2006
Arlington, Texas 313,091 Leased Date
General Offices:
Oak Brook, Illinois 206,030 Leased September 30, 2009
Oak Brook, Illinois (1) 70,508 Owned
Distribution Warehouses:
Lincoln, Nebraska 346,000 Leased December 31, 2006
Arlington, Texas 313,000 Leased July 31, 1996
Perrysburg, Ohio 396,000 Leased November 1, 2004
Tampa, Florida 391,760 Owned
Harmans, Maryland 277,000 Owned
Yakima, Washington 502,400 Owned
Maumelle, Arkansas 585,500 Owned
LaCrosse, Wisconsin 363,000 Owned
Bloomfield, Connecticut 449,820 Owned
Huntersville, North Carolina 354,000 Owned
Rocklin, California 470,000 Owned
Gainesville, Georgia 478,000 Owned
Prescott Valley, Arizona 633,000 Owned
Princeton, Illinois 1,080,000 Owned
Carol Stream, Illinois (2) 250,000 Leased September 30, 1999
Chicago, Illinois (3) 18,168 Leased May 31, 1997
15
Print Shop Facility:
Downers Grove, Illinois 41,000 Leased January 31, 1998
Paint Manufacturing Facility:
Matteson, Illinois 356,000 Owned
Chicago Heights, Illinois (4) 194,000 Owned
Other Property (Land):
Aurora, Illinois 72 acres Owned
LaCrosse, Wisconsin (5) 3 acres Owned
Colorado Springs, Colorado (6) 42 acres Owned
(1) Includes 35,254 square feet leased to tenant until July 31, 1996.
The subject2003
Perrysburg, Ohio 393,720 Leased December 31, 2004
Tampa, Florida 391,755 Owned
Yakima, Washington 507,030 Owned
Maumelle, Arkansas 597,253 Owned
LaCrosse, Wisconsin 591,964 Owned
Rocklin, California (4) 478,468 Owned
Rocklin, California 75,000 Leased July 31, 2003
Gainesville, Georgia 481,013 Owned
Prescott Valley, Arizona 631,485 Owned
Princeton, Illinois 1,094,756 Owned
Chicago, Illinois (2) 18,168 Leased May 31, 2002
Summit, Illinois (2) 37,236 Leased February 28, 2017
Baltimore, Maryland (2) 19,600 Leased December 31, 2008
Colorado Springs, Colorado 494,219 Owned
Wilton, New York 800,525 Leased September 1, 2007
Loxley, Alabama 798,698 Leased May 27, 2009
Brantford, Ontario, Canada (3) 354,000 Leased March 31, 2006
Calgary, Alberta, Canada (3) 240,000 Leased June 30, 2002
Prince George County, Virginia 798,786 Owned
Fort Worth, Texas (2) 10,915 Leased December 31, 2005
Print Shop Facility:
Downers Grove, Illinois 41,000 Leased April 30, 2003
Paint Manufacturing Facilities:
Matteson, Illinois 371,411 Owned
Chicago Heights, Illinois 194,000 Owned
(1) This property is adjacent to the Company's general offices.
leased by our subsidiary Ace Hardware Canada Limited for its corporate office.
(2) This facility wasproperty is leased by the Company in October, 1994, for use as
a bulk merchandise redistribution center.
(3) This facility was leased by the Company in June, 1994 for use as a freight consolidation center.
(4) This facility was purchased by
(3) Our subsidiary, Ace Hardware Canada Limited, leases this property for a distribution warehouse.
Ace Hardware Canada Limited has exercised an option to terminate the Company in December, 1994 and is
currently being remodeled.lease for the Calgary Warehouse
effective April 30, 2002.
(4) The Company anticipates that
production will commence the second quarter of 1995.
(5) Thishas entered into an agreement to sell this property and plans to acquire vacant land is adjacentand
construct a larger replacement warehouse.
In addition to the Company's LaCrosse, Wisconsin warehouse.
(6) Land purchased forabove, we or our subsidiary, Ace Corporate Stores, Inc., lease 26 retail hardware
stores ranging from 13,000 to 25,000 square feet in size located in the following states: Colorado, Distribution Center to be constructed in
1995/1996.
The CompanyGeorgia,
Illinois, New Jersey, Oregon, Washington and Wisconsin.
We also leaseslease a fleet of transportationtrucks and equipment for the primarymain purpose of delivering merchandise from the Company's
our warehouses to itsour dealers.
Item 3. Legal Proceedings
There
In the normal course of our business, we are no materiala party to various legal proceedings. We do not expect
that any currently pending legal proceedings which eitherwill, individually or in the aggregate, involve claims for damages that exceed 10%have a material adverse
effect on our business, results of the current assets of the Company and its subsidiaries on a consolidated
basis.
operations or financial condition.
Item 4. Submission To Aof Matters to a Vote Ofof Security Holders
None.
PART II
Item 5. Market Forfor The Registrant's Common Equity Andand Related Stockholder Matters
There is no existing market for theour stock of the Company and there is no expectation that any marketone will develop. The Company is We are
organized as a Delaware corporation and operatesoperate as a cooperative corporation, and its stock is owned exclusively
byonly retailers of hardware
and relatedsimilar merchandise who are our members ofown our stock.
The table below shows the
Company.
The number of holdersstockholders of record that we had as of February 28, 1995 of each class
of stock of the Company is as follows:
15, 2002:
Title of ClassNumber of Record Holders
Class A stock,Stock, $1,000 par value 3,9013,680
Class B stock,Stock, $1,000 par value 803523
Class C stock,Stock, $100 par value 4,770
Dividends, other than patronage dividends are prohibited by the5,145
Our Company's Articles of Incorporation and By-laws. SeeBy-laws prohibit us from declaring dividends (other
than patronage dividends). (Please see the discussion of patronage dividends under Item 1. Business.
16
)
Item 6. Selected Financial Data
SELECTED FINANCIAL DATA
Income Statement Data:
Year Ended December 31,
1994 1993 1992 1991 1990
(000's omitted)
Net sales $2,326,115 $2,017,763 $1,870,625 $1,704,203 $1,625,029
Cost of sales 2,158,896 1,867,326 1,723,017 1,569,871 1,497,147
Gross profit 167,219 150,437 147,608 134,332 127,882
Total expenses 102,697 93,345 86,841 75,175 67,470
Net earnings $ 64,522 $ 57,092 $ 60,767 $ 59,157 $ 60,412
Patronage dividends (Note A, B, 5 and 8) $ 64,520 $ 59,023 $ 63,207 $ 57,729 $ 57,519
Balance Sheet Data:
Year Ended December 31,
1994 1993 1992 1991 1990
(000's omitted)
Total assets $725,481 $667,488 $594,676 $540,953 $479,202
Working capital 143,979 133,287 103,952 105,899 92,376
Long-term debt 64,287 71,286 51,696 38,737 22,521
Patronage refund certificates payable,
long-term 63,666 56,270 55,389 58,559 52,134
Member dealers' equity 199,827 186,028 175,681 164,411 154,563
SELECTED FINANCIAL DATA
Income Statement Data:
December 29, December 30, January 1, January 2, December 31,
2001 2000 2000 1999 1997
(000's omitted)
Net sales $2,894,369 $2,945,151 $3,181,802 $3,120,380 $2,907,259
Cost of sales 2,617,069 2,665,614 2,908,1382,879,2962,693,362
Gross profit 277,300 279,537 273,664 241,084 213,897
Total expenses 204,231 199,145 181,102 153,124 137,510
Net earnings $ 73,069 $80,392 $92,562 $87,960 $76,387
============ ============ ========== ========== ============
Patronage dividends (Notes A, B and C) $ 85,109 $86,537 $95,260 $88,022 $76,153
============ ============ ========== ========== ============
Balance Sheet Data:
December 29, December 30, January 1, January 2, December 31,
2001 2000 2000 1999 1997
�� (000's omitted)
Total assets $1,168,791 $1,123,810 $1,081,484 $1,047,580 $ 977,478
Working capital 226,326 181,104 180,763 191,926 158,676
Long-term debt 170,387 105,891 111,895 115,421 96,815
Patronage refund certificates payable,
long-term 77,401 68,385 55,257 43,465 49,044
Member dealers' equity 279,876 284,658 279,963 261,512 245,479
(A)The Company operates as a cooperative organization, and pays patronage dividends to member
dealers on earnings derived from business done with such dealers. It is the practice of the Company
to distribute substantially all patronage sourced earnings in the form of patronage dividends.
(B)The form in which patronage dividends are to be distributed can only be determined at the end of
each year when the amount distributable to each of the member dealers is known. For the
five years ended December 31, 1994, patronagePatronage dividends
were payable as follows:
1994 1993 1992 1991 1990
(000's omitted)
In cash $27,302 $25,766 $27,538 $26,864 $26,462
In patronage refund certificates payable 9,920 12,728 14,598 15,176 13,597
In Class C Stock 21,766 19,064 20,301 14,841 16,322
In patronage financing deductions 5,532 1,465 770 848 1,138
Total patronage dividends $64,520 $59,023 $63,207 $57,729 $57,519
listed in the table below.
(C) Numbered notes referRefer to Notes toNote 5 of the Consolidated Financial Statements beginning on page F-8.
(5) & (8) Refers to Notes (5) and (8) of the financial statements included
on pages F-10 F-11, F-12 and F-13 of this Form
10-K.
17
December 29 December 30 January 1 January 2 December 31
2001 2000 2000 1999 1997
(000's omitted)
In cash $34,229 $34,764 $38,173 $34,826 $29,943
In patronage refund certificates payable 18,739 18,029 12,249 15,720 13,726
In Class C Stock 23,284 24,267 21,648 26,170 22,366
In other property - - - - 10,190 - - -
In patronage financing deductions 8,857 9,477 13,000 11,306 10,118
Total patronage dividends $85,109 $86,537 $95,260 $88,022 $76,153
=========== =========== ========= ========= ===========
Item 7. Management's Discussion Andand Analysis Ofof Financial Condition Andand Results Ofof Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company's ability to generate cash adequate to meet its needs ("liquidity") results from internally
generated funds, short-term lines of credit and long-term financings (see Notes 3 and 4 to the financial
statements). These sources have been sufficient to finance the Company's
seasonal and other working capital requirements and its capital expenditure
programs.
The Company's long and short-term liquidity is dependent on retail growth
as described under the "Company's Business". Nothing in the Company's plans
as discussed under the "Company's Business" has lead or is expected to lead
to any material change in pricing, margins or product focus or is expected to
materially impact the results or operations or liquidity of the Company. The
Company's long-term strategic plan is only for a renewal focus on supporting
retail growth. Retail growth provides equity growth for the Company.
Recognizing the need for equity growth in order to properly capitalize the
Company, the patronage stock formula for years beginning in 1995 was changed.
See "Forms of Patronage Dividend Distributions." Also, beginning in 1994,
patronage dividend distributions are made on the basis of the lesser of book
or taxable income. The Company's working capital (as defined by Current
Assets less Current Liabilities) has shown steady increases since 1992.
Additionally, to help ensure adequate accessibility to cash, the Company
entered into a $100 million committed revolving credit agreement in 1994.financing.
The Company believes that these changes and the retail growth of the
membership will provide adequate liquidity for the long-term.
Additionally, in the second quarter of 1994, the Companyhas an established, a
committed, unsecured revolving credit facility for $100 million with a group of banks. The
Company had unusedhas unsecured lines of credit of $120.0$185.0 million of which $112.4 million was available at
December 31, 1994.29, 2001. Any borrowings under these lines of credit would bear interest at the prime rate or
less. Long-term financings arefinancing is arranged as determined necessary to meet the Company's capital or other
requirements, with principal amount, timing and form dependent on prevailing debt markets and general
economic conditions. The Company's credit facilities provide
that certain ratios be maintained with the only material covenant related
to fixed charge coverage. The Company is in compliance with all debt
covenants.
Capital expenditures for new and improved facilities were $28.3, $16.3$51.4, $44.7 and $34.6$43.1 million in 1994, 19932001,
2000 and 1992,1999, respectively. During 1994,2001, the Company financed the $28.3$51.4 million of capital expenditures
out of current and accumulated internally generated funds, short-term borrowings and short-term borrowings.
1995 capitalthe issuance of long-term
debt. Capital expenditures for 2002 are anticipated to be approximately $44.3$65.3 million primarily for a
new distribution facility, and improvements to existing facilities.facilities and technology investments.
As a cooperative, the Company distributes substantially all of its patronage sourcesourced earnings to its
members in the form of patronage dividends, which are deductible for income tax purposes (see headings
"Patronage Dividend Determinations And Allocations" and "Federal Tax
Treatment of Patronage Dividends"). Prior to 1994, patronage dividends
were distributed on the basis of taxable income. Accordingly, patronage
dividends can exceed net income or be less than net income due to the
timing of certain items for income tax purposes. The Board of Directors
does have the authority to determine reasonable reserves for the purpose
of ensuring the welfare of the Company, but it has been the practice of
the Company to distribute substantially all patronage sourced earnings
in the form of patronage dividends. Non-patronage sourced earnings
(including international earnings) have been minimal in all years presented
except for capital gains related to the sale and leaseback of two
distribution centers in 1990 and 1991 which resulted in nonpatronage sourced
income not available for distribution as patronage dividends.
No adverse trends in revenue or net income have occurred since the end
of the Company's last reported financial period.
The Company expects that existing and new internally generated funds, along with established lines
of credit and long-term financings,financing, will continue to be sufficient to finance the Company's working capital
requirements and patronage dividend and capital expenditureexpenditures programs.
Operations-1994
Operations 2001 Compared to 1993
Net2000
Consolidated sales decreased 1.7%. Domestic sales increased 15.3% in 1994.7% primarily due to increases in volume
from existing dealers (12.1% increase) and increased International sales.
Salesconversions of basic hardware and paint merchandise (including warehouse, bulletin,
and direct shipments) increased 13.5%. Increased advertising activity fueled
strong 1994 promotional increases, particularly in the warehouse sales
categories. Lumber and building material sales experienced higher percentage
increases in 1994 as sales efforts were accelerated. Net dealer outlets
increased in 1994 as set forth on page 1 partially reversing previous year
declines. Targeted sales efforts on
new store development and conversionsstores to the Ace programprogram. Sales to our existing retailer base were flat due to the soft economy and increased emphasis on dealer retail success resulted
inventory reductions at retail. International sales decreased 35.6% primarily due to a sale of Ace affiliated
stores and reduced sales in positive 1994 dealer growth.Canada.
Gross profit decreased $2.2 million; however increased $16.8 million or 11.2% vs. 1993 due primarily
to the strong sales results in the basic sales categories and strong
manufacturing profits. Asslightly as a percent of total sales however,from 9.49% in 2000
to 9.58% in 2001. The decrease resulted primarily due to lower sales and lower cash discounts from reduced
merchandise purchases. Higher vendor rebates, paint manufacturing margins and margin from company-owned
retail locations offset the gross profit declined duedecline and contributed to continued growth of competitively priced and promotional
items within the overall sales mix. Upfront rebates through reduced
handling charges and low upfront pricing programs and discounts have
accelerated and reducedincrease in gross profit as a percent of sales. The impact
of LIFO inventory accounting on gross profit and results of operations
was immaterial in both 1994 and 1993.
Warehouse and distribution expenses decreased by $2.3increased $2.4 million or 7.2%,over 2000 and increased as a percent of
total sales duefrom 1.10% in 2000 to 1.21% in 2001. Increased utilities and distribution expenses associated
with the new Loxley, Alabama distribution facility which was open for a full year in 2001 and the start-up
of the Prince George, Virginia distribution facility drove the higher expenses. Higher logistics income
partially offset the increased traffic revenues and reduced
building and operating costs due to the replacement of a facility in
early 1993.
18expenses.
Selling, general and administrationadministrative expenses increased by $9.1decreased $1.1 million or 16.8% and as a percent of sales due to reduced net advertising
income, increased personnelcontinued cost control
measures put into place offset by expenses related to the closure of three distribution facilities.
Retail success and development costs for field retail support and increased
marketing costs. Increases within these expense categoriesdecreased $3.0 million due to continued cost control measures.
Expenses in this category are directly related to retail support of the Ace dealers.
Paint Division salesretailer. The Company continues
to make investments in retail initiatives under our Vision 21 strategy to support Ace retailers.
Interest expense increased 24% to $84.9$1.4 million due to strong
dealer support and growing recognition of Ace Paint as a quality private
label brand. Paint is the only product manufactured by the Company.
Manufacturing margins are characteristically higher than distribution
margins due to the inherent risks and capital invested in the manufact-
uring process. As a separate division of the Company, the Paint Division
produced net manufacturing profits of $6.7 million in 1994 vs. $5.1
million in 1993. Price increases did not occur in 1994 or contribute
to the sales or income increase. Rather, a drop in raw material prices
and the increase in production volume which improved absorption of fixed
overhead costs were the major factors leading to increased manufacturing
profits. As discussed on page 8, patronage dividends are calculated
separately for paint sales and increased 8.22% in 1994 from 7.94% in 1993.
Interest expense increased $2.2 million in 1994 due to increasedaverage borrowing levels to fundduring the sales growth and increasedyear
partially offset by lower interest rates. The usehigher borrowing levels result from the completion of both short-term borrowingsthe
Loxley, Alabama and long-term financing is expected
to continue to fund planned capital expenditures (see liquidityPrince George, Virginia distribution centers, the expansion of the LaCrosse,
Wisconsin facility and capital resources and Notes 3 and 4 to the financial statements).increased retailer dating programs.
Other income increased $807,000 or 27.7% in 1994 due to increased
interest income related to dealer financing programs and 1993 losses on
asset disposals at a replaced facility which did not re-occur in 1994.
Operations-1993 Compared to 1992
Net sales increased 7.9% in 1993decreased $2.1 million primarily due to increases a nonrecurring gain on pension plan termination
in volume
from existing dealers. Sales2000. 2001 other income includes a write-down of basic hardwarea minority owned investment offset by the gain recognized
on the sale of two distribution facilities and paint merchandise
(including warehouse, bulletin, and direct shipments)higher income realized on non-controlling investments in
affiliates.
Income taxes increased 6.8%.
Lumber$3.3 million primarily due to deferred taxes recorded on the sale/exchange of
two distribution centers.
Operations 2000 Compared to 1999
On June 30, 1999 the Company entered into a business combination agreement with Builder Marts
of America, Inc. (BMA) to combine the Company's lumber and building materialmaterials division (the "LBM
Division") 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.
The total sales experienced a higher percentage increase
in 1993. Net dealer outlets decreased as set forth on page 1 asdecrease of 7.4% was affected by the business combination of the LBM Division with
BMA. As a result of this transaction, lumber and building materials (LBM) sales are not reported within
the Company's sales results after August 2, 1999. Excluding LBM, sales increased competition4.7% in 2000 primarily
due to conversions to Ace membership, additional sales to non-members, increased existing retailer
volume and more sales and marketing emphasis with
existing dealers rather thantargeted efforts on new store development.development within our retailer base. Domestic basic business
sales increased 5.3%, while international basic business sales decreased 1.8%.
Gross profit increased $2.8$5.9 million or 1.9% vs. 1992 due primarilyand increased as a percent of total sales from 8.60% in 1999 to
higher net merchandise discounts and allowances. Gross profit decreased
9.49% in 2000. The increase, as a percent of sales, however,results primarily from the loss of lower margin LBM
sales volume since August 1999. Basic business (excluding LBM Division) gross profit decreased slightly as
a percent of basic business sales (9.49% in 2000 vs. 9.52% in 1999) due to reduced handling charges on
competitively priced itemsa sales mix shift towards the lower
margin direct ship sales category and shifts inhigher warehousing costs absorbed into inventory. Increased vendor
rebates and increased company-owned store gross profit driven by higher sales volume partially offset the Company's sales mix.
year-to-date gross profit percentage decline.
Warehouse and distribution expenses decreased by $641,000 or 2.0% due
to decreased building rental and facility costsincreased $4.4 million over 1999 and increased levelsas a percent of
warehousing
total sales from 0.9% in 1999 to 1.1% in 2000. As a percent of basic business sales, these costs absorbed into cost ofincreased
from 1.0% in 1999 to 1.1% in 2000. Higher distribution wages required to support the increased sales partially offset by
increased personnel and equipment
volume combined with pre-opening costs and traffic freight subsidies.
Selling, general, and administration expenses increased by $5.9 million
or 12.2% due to higher personnel costs and marketing expenses associated for a new Loxley, Alabama distribution facility are
partially offset by higher logistics income.
Selling, general and administrative expenses decreased $395,000 or 0.5% due to continued cost
control measures and lower LBM Division costs. Higher information technology costs and expenses associated
with opening the Loxley, Alabama distribution facility partially offset these expense decreases and,
along with the exclusion of LBM sales in the sales base, account for the increase in general and administrative
expenses as a percent of sales.
Retail success and development expenses increased $14.4 million primarily due to costs associated
with operating additional company-owned stores and investments made at retail to support our Vision 21
strategy. As part of this strategy, the Company entered into an agreement with an outside party to co-develop
a common retail software platform for our dealers. This resulted in a write-down of prior software
development costs which will not contribute to the new system. Increased advertising andincome partially
offset these expense increases. Increases in this category are directly related to retail support income.of the Ace
retailer as the Company continues to make retail investments in our dealer base.
Interest expense increased $1.4$5.2 million due to higher average borrowing levels and increased interest
rates. The increased borrowing levels resulted from the construction of the Loxley, Alabama distribution
center, the expansion of our LaCrosse, Wisconsin facility and increased retailer dating programs.
Other income increased $3.8 million primarily due to the gain on pension plan termination and
income realized on non-controlling investments in 1993 despite lower interest
ratesaffiliates.
Income tax expense decreased due to increased borrowing levels resultingoperating losses from non-patronage activities.
Impact of New Accounting Standards
In July 2001, the financingFASB issued SFAS No. 141, "Business Combinations" and SFAS No. 142, "Goodwill
and Other Intangible Assets." SFAS No. 141 requires that all business combinations be accounted for
under the purchase method. The statement further requires separate recognition of planned capital expendituresintangible assets that
meet one of two specified criteria. The statement applies to all business combinations initiated after June
30, 2001. SFAS No. 142 requires that an intangible asset that is acquired shall be initially recognized and increased inventory levels.
measured based on its fair value. The statement also provides that goodwill should not be amortized, but
shall be tested for impairment annually, or more frequently if circumstances indicate potential impairment,
through a comparison of fair value to its carrying amount. SFAS No. 142 is effective for fiscal
periods beginning after December 15, 2001. The Company will implement the pronouncement beginning
in the first quarter of fiscal year 2002. The Company estimates that the adoption of this standard will
not have a material effect on its financial statements.
In July 2001, the FASB issued SFAS No. 144. "Accounting for the Impairment or Disposal of Long-
Lived Assets." SFAS No. 144 addresses financial accounting and reporting for the impairment or disposal of
long-lived assets. This statement supercedes SFAS No. 121 on the same topic and the accounting and certain
reporting provisions of Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Results of
Operations-Reporting Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions," for the disposal of a segment of a business (as defined in
that Opinion). This statement also amends Accounting Research Bulletin No. 51, "Consolidated Financial
Statements" to eliminate the exception to consolidation for a subsidiary for which control is likely to be
temporary. SFAS No. 144 is effective for fiscal periods beginning after December 15, 2001. The Company
will implement the pronouncement beginning in the first quarter of fiscal year 2002. The Company
estimates that the adoption of this standard will not have a material effect on its financial statements.
Inflation and Changes in Prices
The Company's business is not generally governed by contracts that establish prices substantially in
advance of the receipt of goods or services. As vendors increase their prices for merchandise supplied to
the Company, the Company increases the price to its dealers in an equal amount plus the normal handling
charge on such amounts. In the past, these increases have provided adequate gross profit to offset the
impact of inflation on operating expenses.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
The Company is subject to certain market risks, including foreign currency and interest rates. The
Company uses a variety of practices to manage these market risks, including, when considered appropriate,
derivative financial instruments. The Company uses derivative financial instruments only for risk
management and does not use them for trading or speculative purposes. The Company is exposed to
potential gains or losses from foreign currency fluctuations affecting net investments and earnings
denominated in foreign currencies. The Company's primary exposure is to changes in exchange rates for
the U.S. dollar versus the Canadian dollar.
Interest rate risk is managed through a combination of fixed rate debt and variable rate short-term
borrowings with varying maturities. At December 29, 2001, all long-term debt was issued at fixed rates.
The table below presents principal amounts and related weighted average interest rates by year of
maturity for the Company's investments and debt obligations:
20022003200420052006ThereafterTotal
(000's omitted)
Assets:
Short-term investment-
fixed rate - - $3,474 $1,043 - - $3,125 $9,516 $17,158
Fixed interest rate - - 6.96% 5.75% - - 7.98% 6.77% 6.97%
Liabilities:
Short-term borrowings-
variable rate $72,600 - - - - - - - - - $72,600
Average variable interest rate 2.58% - - - - - - - - - 2.58%
Long-term debt-fixed rate $ 7,179 $6,412 $6,066 $13,195 $17,857 $126,857 $177,566
Average fixed interest rate 7.07% 7.07% 7.09% 7.08% 7.09% 7.12% 7.07%
The Company is exposed to credit risk on certain assets, primarily accounts receivable. The Company
provides credit to customers in the ordinary course of business and performs ongoing credit evaluations.
Concentrations of credit risk with respect to trade receivables are limited due to the large number of
customers comprising the Company's customer base. The Company currently believes its allowance for
doubtful accounts is sufficient to cover customer credit risks.
The Company's various currency exposures often offset each other, providing a natural hedge against
currency risk. The Company has utilized foreign exchange forward contracts to hedge non-U.S. equity
investments. Gains and losses on these foreign currency hedges are included in the basis of the underlying
hedged investment. Accumulated other comprehensive loss at December 29, 2001 and December 30,
2000 includes gains of approximately $2.0 million related to previously settled foreign currency
contracts. The Company did not have any outstanding foreign exchange forward contracts at December
29, 2001. Settlement of foreign sales and purchases are generally denominated in U.S. currency resulting
in limited foreign currency transaction exposure.
Item 8. Financial Statements Andand Supplementary Data
Financial statements and financial statement schedules covered by the report of the Company's independent certified public accountants
are listed on Page F-1.
Item 9. Changes In Andin and Disagreements Withwith Accountants Onon Accounting Andand Financial Disclosures
None.
19
PART III
ItemItem 10. Directors Andand Executive Officers Of Theof the Company
The
Our directors and the executive officers of the Company are:
Position(s) Currently Held
NameAgeand Business Experience (for the past 5 years)
Jennifer C. Anderson 4451 Director since June, 6, 1994; term expires 1997;2003;
President of Davis Lumber and Ace Hardware,
Inc., Davis, California.
California since November, 1985.
Richard F. Baalmann, Jr. 42 Director since June, 1999; term expires 2002;
President of Homart, Inc., Centralia, Illinois since
May, 1988.
Eric R. Bibens II 45 Director since June, 1997; term expires 2003;
President of Bibens Home Center, Inc.,
Springfield, Vermont since 1983.
Michael C. Bodzewski 4552 Vice President-MerchandisingPresident, Marketing, Advertising, Retail
Development and Company Stores effective
October, 2000; Vice President- Marketing,
Advertising and Retail Operations East effective
October, 1999; Vice President- Sales and
Marketing effective October, 1998; Vice President
- - Merchandising effective June, 1990.
Lori L. Bossmann 41 Vice President, Merchandising effective October,
2000; Vice President- Finance effective October
1999; Vice President- Controller effective September,
1997; Controller effective January, 1994.
J. Thomas Glenn 42 Director since June 1990; General Merchandise
Manager1996; term expires 2002;
President of Ace Hardware of Chattanooga,
Chattanooga, Tennessee since April, 1988.
Lawrence R. BowmanJanuary, 1990.
Ray A. Griffith 48 Executive Vice President, Retail effective October,
2000; Vice President- Merchandising effective
October, 1998; Vice President- Retail
Development and Marketing effective September,
1997; Director- Retail Operations, Western
Division effective September, 1994.
Daniel L. Gust 52 Director since February 4, 1991;June , 1998; term expires 1995; Vice2004;
President of OwenhouseGarden Acres Ace Hardware, Co., Inc.,
Bozeman, Montana.
Longmont, Colorado since January, 1991.
D. William Hagan 44 Director since June, 1997; term expires 2003;
President of Hagan Ace Hardware, Orange Park,
Florida since February, 1980.
David F. Hodnik 4754 President and Chief Executive Officer effective
January, 1996; President and Chief Operating Officer since
effective January 1, 1995;
Executive Vice President and Chief
Operating Officer since January,
1994; Executive Vice President and
Treasurer since January, 1991;1995.
Paul M. Ingevaldson 56 Senior Vice President - International and Treasurer
since January, 1988;Technology
effective September, 1997; Vice President-Finance and Management
Information Systems and Treasurer
since September, 1986; Vice
President-Finance and Treasurer
from December, 1982.
Paul M. Ingevaldson 49 Vice President-CorporatePresident- Corporate
Strategy and International Business effective
September, 1992.
Howard J. Jung 54 Chairman of the Board and Director since June, 1998;
term expires 2003; Vice President of Ace Hardware
Stores, Inc., Raleigh, North Carolina since June, 1997.
Rita D. Kahle 45 Executive Vice President effective October, 2000;
Senior Vice President- Wholesale effective
September, 1992;1997; Vice President- Finance effective
January, 1994.
Richard A. Karp 50 Director since June, 2000; term expires 2003;
President, Cole Hardware, San Francisco, California
since June, 1979.
David F. Myer 56 Senior Vice President, Retail Support and Logistics
effective October, 2000; Vice President- Retail
Support effective September, 1997; Vice President-
Retail Support and New Business effective October,
1994.
Fred J. Neer 62 Vice President - Human Resources effective April, 1989.
Kenneth L. Nichols 53 Vice President, Retail Operations effective October,
2000; Vice President- Retail Support Services since
August, 1989;Operations West
effective October, 1999; Vice President- Western RegionNew
Business effective October, 1998; Director- Retail
Operations, Eastern Division effective October, 1994.
Richard W. Stine 56 Director since June, 1999; term expires 2002; Vice
President of Stine, Inc., Sulphur, Louisiana since
September, 1,
1988; Vice President-Distribution
since September, 1986; Vice
President-Management Information
Systems from October, 1985;
Director of Data Processing from
October, 1982.
Mark Jeronimus1976.
David S. Ziegler 46 Director since June 3, 1991;2001; term expires 1997;2004; Vice
President of DuluthZ Hardware Inc., Duluth, Minnesota.
Howard J. Jung 47 Director since June 1, 1987; term
expires 1996; Vice President of
Ace Hardware & Home Center, Inc.,
Raleigh, North Carolina.
Rita D. Kahle 38 Vice President-Finance since
January, 1994; Vice President-
Controller since January, 1992;
Controller from July, 1988.
John E. Kingrey 51 Director since May 17, 1992;
term expires 1996; President of
WK&K Corp., Wimberley, Texas.
Richard E. Laskowski 53 Chairman of the BoardCompany, Elgin, Illinois
since February, 18, 1992 and Director
since June 1, 1987; term expires
1995; President of Ace Hardware
Home Center of Round Lake, Inc.,
Round Lake, Illinois.
David W. League 55 Vice President-General Counsel and
Secretary since June, 1990; General
Counsel and Secretary since
January, 1990; General Counsel
since January, 1989.
20
Position(s) Held
Name Age and Business Experience
William A. Loftus 56 Senior Vice President-Retail
Operations and Marketing since
October, 1994; Senior Vice
President-Marketing and Advertising
since September, 1992; Senior Vice
President since January 1, 1991;
Vice President-Retail Support
Operations since August, 1989; Vice
President-Eastern Region since
September 1, 1988; Vice President-
Sales since October, 1983; National
Sales Manager from October, 1976.
David F. Myer 49 Vice President-Retail Support and
New Business since October, 1994;
Vice President-Retail Support
since August, 1992; Vice President-
Distribution since July, 1989.
Fred J. Neer 55 Vice President-Human Resources
since April, 1989; Director of
Human Resources from April, 1986.
Ray W. Osborne 58 Director since June 6, 1988; term
expires 1997; President of Cook &
Sons Ace Hardware Company, Inc.,
Albertville, Alabama.
Roger E. Peterson 57 Chief Executive Officer (CEO) since
January 1, 1995; President and
Chief Executive Officer (CEO) since
December, 1989; President since
August, 1986; Executive Vice
President from March, 1985; Vice
President-Operations from
December, 1982.
Donald L. Schuman 56 Vice President-Information Systems
since June, 1990; Director-
Information Systems since January,
1987.
Jon R. Weiss 59 Director since June 4, 1990; term
expires 1996; President of John W.
Weiss Hardware Company, Glenview,
Illinois.
Don S. Williams 53 Director since June 6, 1988; term
expires 1997; President of Williams
Lumber, Inc., Rhinebeck, New York.
James R. Williams 47 Director since June 5, 1989; term
expires 1995; Vice President of
Williams Ace Hardware, Inc.,
Wichita, Kansas.
The1979.
Our By-laws of the Company provide that itsour Board of Directors shall be comprised of such number of persons, not less thanhave between 9 and not greater
than 12 as shall be fixed from time to time by the Board of Directors.directors. A minimum of 9 of the directors shall
must be dealer directors. A maximum of two of the directors may be non-dealer directors. A person shallNon-dealer
directors cannot exceed 25% of the total number of directors in office at any one time. Non-dealer directors
may (but do not have to be) be eligible for election or appointment as a non-dealer director without
regard to whether or not such person isshareholders of ours who are in the owner of a retail business
organization which is a stockholder of Ace Hardware Corporation, or an
executive officer, general partner or general manager of such a retail
business organization. The hardware business. Our
By-laws also provide for three classes of directors who are to be elected for staggered 3-year terms.
21
Theterms, except that
one director who would not otherwise be eligible for reelection in 2001 was elected at the 2001 annual
meeting of stockholders for a two year term under Article IV, Sections 1 through 3 of our By-laws. On
January 23, 2001, the Board of Directors passed a resolution reducing the number of directors from
eleven to ten effective with the 2001 Annual Stockholders meeting on June 4, 2001.
Our By-laws also provide that no person is eligible toone can serve as a dealer director unless suchthat person is either thean owner, of a retail business
organization holding stock in the Company or an
executive officer, general partner or general manager of such a retail business organization.organization that is a shareholder
of ours. Regional dealer directors are elected from geographic regions of the United States established by the Board.States. The Board
under Article IV, Section 1 of our By-laws, determines these regions. If the Board determinesfinds that all regions
have representation by regional
dealer directors and the maximum number of
directors would not thereby be exceeded,represent all regions, then dealer directors at large may also be elected.
In accordance withelected, so long as the applicable
maximum number of directors allowed under our By-laws is not exceeded.
A geographic breakdown of our current regions for the election of directors at our 2002 annual stockholders
meeting to be held on June 3, 2002 appears below:
Region 1 - Maine, New Hampshire, Vermont, Massachusetts, Connecticut, Rhode Island, New York,
Pennsylvania, New Jersey;
Region 2 - Delaware, Maryland, Virginia, West Virginia, Kentucky, Tennessee, North Carolina,
South Carolina, District of Columbia, Ohio;
Region 3 - Alabama, Mississippi, Georgia, Florida;
Region 4 - Indiana, Illinois, Michigan, Wisconsin;
Region 5 - Colorado, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, North Dakota,
South Dakota, Utah, Wyoming;
Region 6 - Arkansas, Louisiana, Oklahoma, Texas, New Mexico, Arizona;
Region 7 - Hawaii, California, Nevada, Oregon, Washington, Alaska
Under the procedure establishedrequired by theour By-laws, the following directors have been selected as nominees
for reelectionre-election as dealer directors at the 2002 annual stockholders meeting to be held on June 5, 1995,
as directors of the classes, from the regions, and for terms as indicated
below:
meeting:
NomineeAgeClass RegionTerm
Richard E. Laskowski ThirdF. Baalmann, Jr. 42 Second 4 3 years
James R. Williams Third 5
J. Thomas Glenn 42 Second 2 3 years
Lawrence R. Bowman Third 7
Richard W. Stine 56 Second 6 3 years
The person named below has been selected as thea nominee for election to the Board for the first time at
the 19952002 annual meeting as a non-dealerdealer director of the class, from the region and for the term indicated.
indicated:
NomineeAgeClassRegionTerm
Jeffrey M. Schulein 60 Second 7* 3 years
*Jeffrey M. Schulein has been selected as a nominee to replace Jennifer C. Anderson, Region Term
Roger E. Peterson 57 Third None7, who has
announced her intention to resign from the Board for personal reasons effective June 3, years
Reference should be made to2002.
Non-dealer directors and dealer directors at large are not elected from particular geographic regions.
Article IV of theour By-laws forhas information concerningabout the qualifications required for membership on the Board of
Directors, the terms of directors, the limitations on the total period of time for whichthat a director may hold office,
the procedure established for
the designation of Nominating Committees to select certain persons ascandidates and nominees for election to the Board
of Directors and the procedure for filling vacancies on the Board for the remaining portion ofif one occurs during an unexpired terms.term.
None of the events described under Item 401(f) of Regulation S-K occurred during the past 5 years with respect to
for any director of the
Registrant,our directors, nominees for directorships or for any nominee for membership on the Board of Directors of the
Registrant or anyour executive or staff officer of the Registrant.
22
officers.
Item 11. Executive Compensation
The following
Below is information is set forth with respect toabout the cash compensation that we paid by the Company to each of theour five highest paid executive officers of the Company whose cash compensation exceeded
earning over $100,000 for their services rendered by them in all capacities to the Companyus and itsour subsidiaries during the fiscal year ended December 31, 1994years
2001, 2000 and the two previous fiscal years:
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
(2)
Name Other (4)
and Annual (3) All Other
Principal (1) Compen- Long-Term Compen-
Position Year Salary ($) Bonus ($) sation ($) Payouts ($) sation ($)
Roger E. Peterson 1994 $800,000 $125,000 $12,907 - $147,159
Chief Executive Officer (CEO) 1993 670,000 100,000 19,001 - 139,598
1992 635,000 - 17,174 - 115,758
David F. Hodnik 1994 350,000 61,250 17,561 15,583 77,782
President and Chief Operating 1993 328,000 50,840 14,794 15,500 75,210
Officer (COO) 1992 312,000 49,920 13,929 - 66,943
William A. Loftus 1994 260,000 45,500 10,163 12,000 61,308
Senior Vice President-Retail 1993 250,000 37,500 32,881 12,000 61,560
Operations and Marketing 1992 240,000 24,000 16,447 - 51,918
Paul M. Ingevaldson 1994 232,000 41,760 7,190 10,583 59,111
Vice President- 1993 222,000 31,080 23,915 10,700 53,457
Corporate Strategy and 1992 212,000 30,740 9,584 - 46,522
International Business
David F. Myer 1994 170,000 28,050 11,021 6,896 39,690
Vice President- 1993 150,000 15,750 7,475 6,800 35,579
Retail Support and 1992 135,250 18,259 8,209 - 32,030
New Business
1999:
SUMMARY COMPENSATION TABLE
Long-Term
Annual CompensationCompensation
Name (3)
and (2) All Other
Principal (1) Long-Term Compen-
PositionYearSalary ($)Bonus ($)Payouts ($)sation ($)
David F. Hodnik 2001 $649,000 $103,840 $531,474 $ 78,232
President and Chief 2000 630,000 56,700 533,829 117,568
Executive Officer 1999 600,000 - 478,104 187,730
Rita D. Kahle 2001 $313,000 $121,280 $ 99,843 $ 38,869
Executive Vice President 2000 298,000 103,704 85,921 51,455
1999 285,000 128,685 77,826 64,536
Paul M. Ingevaldson 2001 $305,000 $ 72,800 $100,779 $ 31,413
Senior Vice President, 2000 295,000 85,550 89,479 49,013
International and Technology 1999 287,000 99,662 85,242 73,401
Michael C. Bodzewski 2001 $280,500 $ 86,880 $ 91,182 $ 34,036
Vice President, Marketing, 2000 270,500 87,570 79,437 45,382
Advertising, Retail Development 1999 261,000 94,472 73,923 57,346
and Company Stores
David F. Myer 2001 $278,000 $102,980 $ 86,382 $ 33,651
Senior Vice President, 2000 263,000 80,215 73,967 42,994
Retail Support and Logistics 1999 245,000 92,453 69,180 53,849
(1) The Incentive Compensation Plan covers each of the executive officers
(exceptofficers. Mr. Peterson).Hodnik participates only
in the retail sales component of the Annual Incentive Plan. The bonus amounts awarded to participants
in the Plan are determined in accordance with achievement of individual performance based
objectives and achievement of corporate goals. For 1991 to 1993, theThe maximum short-term incentive award for Messrs. Hodnik, Loftus and Ingevaldson was 18%each
executive officer is 30% to 40% of their respective annual salariessalary in 1999 and for other executive officers was 15%35% to 45% of their annual salary. For 1994,respective
salary in 2000 and after, the maximum short-term incentive
award for each executive officer is 20% of their respective salary.2001. The short-term bonus award becomes payable to each participant as early
as practicable at or after the end of the fiscal year. The bonus amounts
for Mr. Peterson were special awards as described in the Compensation
Committee Report.
(2) The Company provides automobiles and prior to 1993 provided club
memberships to certain of its executive officers. The Company requires
them to maintain records with respect to any business automobile use.
Such officers pay, both directly and by reimbursement to the Company,
personal automobile expenses and personal charges at clubs. The
compensation table set forth above includes the value of these items and
such value for any officer did not exceed the lesser of $25,000 or 10%
of the compensation reported for each in said table.
23
(3) Includes the long-term incentive award under the Long-Term Incentive Compensation Deferral
Option Plan paideffective in 1994.1995. The long-term executive award is based on corporate
performance over a three year time frame (beginning with the period 1990
to 1992). For the 1993 Plan, payable in 1994, the maximum long-term
incentive award for Messrs. Hodnik, Loftus, Ingevaldson, and Myer and
other executive officers was 8.7% of their respective average 3 year
annual salaries. The long term incentive award is determined and
becomes payable to each participant as early as practicable each year
if the participant is still employed by the Company on the preceding
31st of December.
In 1994, the incentive plan was revised and a new long term Officer
Incentive Plan was adopted. The 1994 value added long-term Officer incentive plan is based upon corporate performance
over a three year period with emphasis on total shareholder return through maximizing both
year-end patronage dividends and upfront dividends (throughout the year) through pricing programs
and discounts. This plan maintains the commitment to long-term performance and shareholder
return in a cooperative environment. One third of the total long-term incentive award is subject to a
one year vesting provision. Total awards granted
for 1994, payable in 1995, were $105,870, $80,204, $71,221 and $48,684
for Messrs. Hodnik, Loftus, Ingevaldson and Myer, respectively.
Effective January 1, 1995, a Long Term Incentive Compensation Deferral
Option Plan was adopted. Executiveexecutive officers may elect to defer a portion (20% to 100%, in 20% increments)
of the annual award granted. Participants' compensation deferrals are credited with a
specified rate of interest to provide a means to accumulate supplemental retirement benefits.
Deferred benefits are payable over a period of 5 to 20 years. Annual elections are required for the
upcoming deferral year by December of the preceding year. OfTotal long-term incentives for the total 1994 awards,
amounts deferredthree
year period ended in 2001, to be awarded in 2002, were $84,696, $64,163, $71,221$505,594, $94,434, $86,396, $83,681 and $32,456
$95,392 for Messrs. Hodnik, Loftus, Ingevaldson, Bodzewski, Myer and Myer,Ms. Kahle, respectively.
(4)
(3) Includes compensation for the Executive Supplemental Benefit Plan
(ESBP), contributions to the Company's Profit Sharing401-k Savings and Retirement Plan which has
been in existence since January 1, 1953, and contributions to the
Company's Retirement Benefits Replacement Plan.
The Board of Directors adopted the Executive Supplemental Benefit Plan
(ESBP) in 1991. ESBP provides supplemental life insurance through
a universal life insurance policy, supplemental long-term disability
and supplemental retirement benefits to the executive officers. Under
the supplemental retirement benefits portion of ESBP a formula equal
to .02 of 1% of the total corporate annual Patronage Dividend times
the number of executive officers participating determines the total
annual supplemental retirement benefits under ESBP. This total sum
for all executive officers allocated to the supplemental retirement
benefits portion of ESBP cannot exceed $200,000 in any year. The sum
is allocated to the executive officers and placed in the cash value
portion of each participant's variable annuity insurance policy as
soon as practicable in each subsequent year. During the year 1994,
total contributions were $13,414 for Messrs. Peterson, Hodnik, Loftus
and Ingevaldson and $10,731 for Mr. Myer.
In 1994, the supplemental retirement benefits portion of the ESBP was
replaced with the Long Term Incentive Compensation and Deferral
Option Plan, as described above. The Company funds only the base
premium to keep the supplemental universal life insurance policy in
force but does not contribute to supplemental retirement benefits
through this vehicle. Participants may elect to deposit a portion
(up to one third) of the long term incentive award into the variable
annuity insurance policy in their name or may elect to defer this
portion under the Deferral Option Plan.
24 All active employees are eligible to participate
in the Company's profit sharing plan401-k Savings and Retirement Plan after one year of service. Those active
employees covered by a collective bargaining agreement regarding retirement benefits, which were
the subject of good faith bargaining, are not eligible if such agreement does not include them in the
plan. For the year 1994,2001, the Company contributed 10.9%a maximum of 8.9% of each participant's eligible
compensation to the Plan.401-k Savings and Retirement Plan (7.9% profit sharing and 1% Company 401-k
match). During the year 1994, $16,3502001, $15,130 was expensedcontributed to the Company's 401-k Savings and
Retirement Plan by the Company pursuant to the Plan for each of Messrs. Peterson,
Hodnik, Loftus, Ingevaldson,
Bodzewski, Myer and Myer.Ms. Kahle.
The Company has also established a Retirement Benefits Replacement Plan coveringallcovering all executive
officers of the Company. This is an unfunded Plan under which the participants therein are eligible to
receive retirement benefits equal to the amounts by which the benefits they would otherwise have been
entitled to receive under the Company's Profit Sharing401-k Savings and Retirement Plan may be reduced by reason
of the limitations on contributions and benefits imposed by any current or future provisions of the U.S.
Internal Revenue Code or other federal legislation. During the year 1994,2001, amounts expensed by the Company pursuantcontributed to the
Company's Retirement Benefits Replacement Plan were $113,078 for Mr. Peterson, $42,535$63,102 for Mr. Hodnik, $26,074$16,283 for
Mr. Ingevaldson, $18,906 for Mr. Loftus, $25,380Bodzewski, $18,251 for Mr. IngevaldsonMyer and $9,465$23,739 for Mr. Myer.
(5)Ms. Kahle.
The Company also funds the base premium for a supplemental universal life insurance policy for each
officer but does not contribute to supplemental retirement benefits through this vehicle. Participants
may elect to deposit a portion (up to one-third) of the long-term incentive award into the variable annuity
insurance policy in their name or may elect to defer this portion under the Deferral Option Plan.
(4) As a cooperative whereby all stockholders are member dealers, the Company does not grant or issue
stock awards of any kind.
Messrs. Hodnik Loftus, and Ingevaldson are employed under contracts, each dated October, 1994commencing January 1, 2001 for
respective terms of two years, through December 31, 2002. Ms. Kahle and Mr. Myer are employed under
contracts, each commencing January 1, 2002 for respective terms of two years, terminatingthrough December 31, 1996. Mr Myer
2003. Mr. Bodzewski is employed under a contract dated December 15,
1993commencing April 1, 2002 for a term of two year term years,
terminating DecemberMarch 31, 1995.2004. The contracts provide for annual compensation effective January 1, 19952002 of $450,000,
$275,000, $247,000,
$665,000, $305,000, $327,000, $290,000 and $187,000$288,000, respectively, or such increased amount, if any, as
shall be approved by the Board of Directors. If an executive's employment is terminated without cause,
each contract provides for continuing salary payments for the balance of the current contract term, with
the minimum period for these payments being 6 months (12 months in the case of Mr. Hodnik).
The Company also maintainsmaintained a Pension Plan which has been in existence
sincewas established December 31, 1970. The Plan
was closed to new entrants on December 31, 1995. Pension Plan benefit accruals were frozen as of
February 29, 2000. The Company terminated the Pension Plan effective April 30, 2000. All active
employees arewere eligible to participate in this Plan on the first January 1 that they arewere working for the
Company. Those active employees covered by a collective bargaining agreement regarding retirement
benefits which were the subject of good faith bargaining arewere not eligible if such agreement doesdid not
include them in the plan. The Plan providesprovided benefits at retirement at or after age 65 determined under a
formula which takestook into account 60% of a participant's average base pay (including overtime) during the
5 highest consecutive calendar years of employment and years of service prior to age 65, and under which
an offset iswas applied for the straight life annuity equivalent of the vested portion of the participant in the
amount of benefits provided for them by the Company under the Profit Sharing Plan.
Examples of yearly benefits provided by the Pension Plan (prior to reduction by the Profit Sharing
Plan offset) are as follows:
Years of Service
Remuneration1015202530 or more
$150,000
$170,000 $34,000 $51,000 $68,000 $85,000 $102,000
$150,000 30,000 45,000 60,000 75,000 90,000
$100,000
$100,000 20,000 30,000 40,000 50,000 60,000
$ 50,000 10,000 15,000 20,000 25,000 30,000
The amounts shown above represent straight life annuity amounts. Maximum benefits from the
Pension Plan arewere attained after 30 years of service and attainment of age 65. The compensation covered
by the Pension Plan consistsconsisted of base compensation (exclusive of bonuses and non-recurring salary or
wage payments) and shall not to exceed $150,000$170,000 of such total remuneration paid to a participant during any plan
year. Remuneration and yearly benefits under the Plan arewere limited, and subject to adjustment, under
Sections 415(d) and 401(a)17 of the U.S. Internal Revenue Code. The amount of covered compensation
under the Pension plan,Plan, therefore is $150,000was $170,000 for each Executive Officer named in the compensation Compensation
table. The presentUpon termination of the plan, the credited years of service under the Pension Plan for the currently
employed executive officers named in the compensation table arewere as follows: 25
Roger E. Peterson-18David F. Hodnik - 27 years;
Paul M. Ingevaldson - 20 years; Michael C. Bodzewski - 22 years; David F. Hodnik-22 years; William A. Loftus-18
years; Paul M. Ingevaldson-15 years; David F. Myer-13Myer - 18 years and Rita D.
Kahle - 14 years.
Compensation Committee Report
The corporation's Executive Compensation philosophyCommittee is one that
supportsresponsible for approving the compensation programs, plans and
guidelines for all Corporate and Company Officers, and administering the Company's fundamentalExecutive Incentive
Plans. Our decisions are based on our understanding of Ace's business strategies.and its long-term strategies, as well
as our knowledge of the capabilities and performance of the Company and of the executives. We stress long
term
long-term measured results, focus on teamwork,team work, accepting prudent risks and are strongly committed to
fulfilling dealer/retailer and consumer needs.
Our
We believe that our retailers (shareholders) are best served by managing the Company with a long-term
perspective while striving to deliver consistently good year-end results. Therefore, the Company's
Executive Compensation Program and Officer Incentive Plan has been designed to attract, retain and
reward superior talent that will produce positive results and enhance Ace's position in the highly competitive
hardware and home improvement marketplace. The Company is led by exceptional leaders, many of
them long-term Ace employees; while others bring experiences from outside of Ace.
We believe the compensation program reflectsfor our executives should be competitive with other high performing
companies in order to motivate and retain the talent needed to produce superior results. In that regard,
our Committee conducts an overall review of compensation programs and philosophies bi-annually. We
review information supplied by an independent Compensation consultant and other marketplace data to
determine the competitiveness of Ace's total compensation package.
The Committee believes that special leadership competencies and sensitivities are required to
balance the unique relationship between and among the Company, its employees, retailers, customers
and vendors. Therefore, we go beyond a policysimple evaluation of competitive salary information and
Company financial results in making compensation decisions.
Our Committee annually establishes an executive's base salary, based on evaluation of the executive's
level of responsibility and individual performance considered in light of competitive pay practices. We
gage Executive performance in developing and executing corporate strategies; leading and developing
people; initiating and leading change; passion for retail success; balancing the many relationships within
and outside the Ace family; and leading and coordinating with others, programs which impact the
Company and retailer performance.
Under the Annual Incentive Plan each officer is assigned an incentive target percent at the beginning
of the year (the greater the Officer's responsibility, the higher the target percent is of base salary). This
plan has individual, team and retail sales components. This concept is used to reflect the accomplishments
of each Officer's functional organization results, overall Company wholesale performance and retail sales
growth compared to the competition.
Consistent with our focus on long-term objectives, our long-term incentive plan is based pay. Our competitors for Human Resources include publicly owned for
profit retail corporations, privately owned for profit retail enterprises,
and other national cooperatives. Each of these comparative groupings has
quite a different compensation practice/philosophy. An annual reviewon total
corporate world-wide performance. A three-year performance cycle is performed of executive cash compensation at competitor enterprises. Our
orientation is to be cognizant of their respective practices and pay levels,
but to give greater emphasis to that which supports the needs of our dealer
network.
In 1994,established each year with Officers
receiving an award if minimum pre-determined (by the Compensation Committee changedCommittee) performance goals
are achieved at the compensation mixend of each annual cycle. As a pay for performance plan, the long-term incentive plan
is intended to one which stressesmotivate and reward executives by directly linking the provisionamount of more significant performance based
incentives, particularly long term. 1994 salary increases for executive
officers, excluding Mr. Peterson, averaged 8.8% per eligible executive.
Annualany award to specific long-term
corporate financial goals and long term incentive opportunities were increased beginningtotal team performance. There is a direct shared relationship between
what a retail owner receives in 1994, with substantive changes in long term performance criteria.
Individual, isolated criteria to achieve results have been eliminated due
to their emphasis on short-term decisions. Long-term performance is
evaluated heavily on a measurement of total shareholder return including
both year-end patronage dividendsrebate and upfront dividends through
low-upfront pricing programswhat the Officer group receives as an award pool.
The President and discounts. This criteria maximizes total
return to our membership.
As it relates to the President/CEO compensation, the Committeeparticipates in the past relied on providing the President/CEO with a base salary, without
either annual or long term incentives. The primary rationale forRetail Sales Incentive and Long-Term
Incentive Plan compensation programs described in this was
to allow the President/CEO to make objective recommendations pertaining to
incentive eligible officers without the incumbrance ofreport consistent with our compensation philosophy.
At risk compensation represents a personal stake
associated with the same performance criteria. In connection with the
pending retirement of the CEO in May, 1995 and the election of a new
President effective January 1, 1995, this has changed so as to ensure the
commitmentmajor portion of the President position to the longer term interest of our
dealer network. Effective in 1995, the President'sand CEO's total compensation
package. The President and CEO's compensation includes a competitive base salary, and a significant long-term
incentive award only (no short-term award) so
as to maintain theour commitment to long-term company performance and shareholder
return.
For 1994
return and 1993, special incentive awards of $125,000 and $100,000
were granted to the CEO. This was warranted due to his exclusion from all
previous incentive awards, exceptional Company results during these years
and Mr. Peterson's long-term contribution to the success of Ace and its
retailers.
The Committee reviews the executive benefits provided all senior
executives. Country club memberships previously granted to some officers
have been eliminated, except for the President.
a retail sales award.
Compensation of Directors
Effective January 1, 1995, and January 1, 1994,2001, each member of the Board of Directors (other than the Chairman of the
Board) receives a monthly fee of $2,650 and $2,500,
respectively,$2,917 for their services. Effective asservices, which was increased to $3,083 per month effective
January 1, 2002. Each member of the foregoing dates,Board of Directors (other than the Chairman of the Board) also
receives $1,500 per Board of Directors meeting attended. In addition, each Board of Director Committee
Chairperson receives $1,000 per meeting chaired. Mr. LaskowskiJung is paid a totalan annual fee of $110,000 and $100,000 per year,
respectively,$153,000 in his
capacity as Chairman of the Board.
In 1994, the previous Deferred Director Fee Plan was amended, restated
and retitled the
The Company has adopted a Directors' Deferral Option Plan. Like the Officers' Long
Term Long-Term
Incentive Compensation Deferral Option Plan, under this Directors' Plan, directors may elect to defer a
portion (5% to 100%, in 5% increments)
26 of their annual director's fee. Deferred benefits are payable over
a period of 5 to 20 years, as elected. Annual elections are required for the upcoming deferral year by
December 15 of the preceding year.
Each member of the Board is also reimbursed for the amount of travel and lodging expenses incurred
in attending meetings of the Board and of the Committees of the Board. The expenses incurred by them
in attending the semi-annual conventions and exhibits which the Company sponsors are also paid by the
Company. Each member of the Board is also paid $200.00$300 per diem compensation for special committee
meetings and nominating committee regional trips attended.
Item 12. Security Ownership Ofof Certain Beneficial Owners Andand Management
With the exception of Mr. Laskowski, no
No shares of the Company'sour stock wereare held by any of its officers. No person ownsour officers except for the shares held by Mr. Jung. He is a
director, but his position as Chairman of record orthe Board is known by
the Company to own beneficiallyalso an executive officer position under Article VIII
Section 1 of our By-laws. We are not aware of anyone who holds more than five percent of theour outstanding
voting securitiesstock, whether in their own names, or on behalf of the Company.someone else.
The following table sets forthbelow shows the shares of our Class B Stock and Class C Stock of the Companythat is held beneficially, directly(directly or indirectly, indirectly),
by each
director owning such shares, individually itemized, and by allour directors, officers and directors as a group,nominees for directorships as of February 15, 1995:
Class B Stock Owned Class C Stock Owned
Number Percent Number Percent
of Shares of Class of Shares of Class
Jennifer C. Anderson 4 0.118% 2,037 0.134%
Lawrence R. Bowman 4 0.118% 1,176 0.077%
Mark Jeronimus - - 730 0.048%
Howard J. Jung - - 3,261 0.214%
John E. Kingrey 4 0.118% 680 0.045%
Richard E. Laskowski 4 0.118% 10,213 0.670%
Ray W. Osborne 4 0.118% 705 0.046%
Jon R. Weiss 4 0.118% 2,037 0.134%
Don S. Williams - - 2,529 0.166%
James R. Williams 4 0.118% 671 0.044%
All above directors and
officers as a group 28 0.826% 24,039 1.578%
There2002:
Class B Stock OwnedClass C Stock Owned
Number Percent Number Percent
of Sharesof Classof Sharesof Shares
Jennifer C. Anderson 4 .191 3,881 .150
Richard F. Baalmann, Jr. 4 .191 3,615 .140
Eric R. Bibens II - - - - 1,143 .044
J. Thomas Glenn 4 .191 10,699 .414
Daniel L. Gust - - - - 509 .020
D. William Hagan - - - - 1,637 .063
Howard J. Jung - - - - 620 .024
Richard A. Karp - - - - 4,816 .186
Richard W. Stine 4 .191 9,635 .373
David S. Ziegler - - - - 10,141 .392
Jeffrey M. Schulein - - - - 8,138 .315
All above directors and officers as a group 16 .764 54,834 2.121
========= ======== ========= =========
We are no known contractual arrangements nornot aware of any pledge ofcontracts or securities of the Company whichpledges that may at a subsequent date result in a change in control of the Company.
our
Company at a later date.
Item 13. Certain Relationships Andand Related Transactions
The term "owner" as used in this section pertains to owners of our shares. It includes both those
who are named as owners of shares on our corporate books and records, as well as those who are not
named as owners of record, but for whose benefit someone else is holding the shares. No director,
executive officer security holder who is knownor shareholder whom we know to be the Registrant to ownowner of record or beneficially more than five percent of any class
of the Registrant'sour voting securities or any member of thetheir immediate family of any of the foregoing persons,families had during the last
fiscal year 2001 or is
currently proposedexpected to have any materialsignificant interest (whether direct or indirect,indirect) in any transaction in which the amount involved exceeds
$60,000 and to which the Registrant was or is to be a party,over
$60,000 with us, except that eachthose of theour directors who are also Ace Hardware dealers purchased
merchandise and services from the
Registrantus and participated in our programs for their stores, including but not
limited to our lending programs, in the ordinary course of business on behalf of the retail
hardware businesses in which they have ownership interests.business. None of such
personsthese directors received benefits not shared by other hardware retailers supplied
by the Registrant.
27
No director has had any business relationship which is required to be
disclosed pursuant to Item 404(b) of Regulation S-K of the Securities and
Exchange Commission, during the Registrant's last fiscal year. Mr.
Peterson, who is a director nominee, and has announced his retirement as
CEO of the Company effective May 31, 1995 is subject to an agreement
through May 31, 2000 providing for non competition within the industry,
participation in designated Company functions and total renumeration of
$150,000 per year over the 5 year term.
No director, director nominee, executive officer, any member of the
immediate family of any of the foregoing, or any corporation or
organization of which any of the foregoing is an executive officer,
partner, or, directly or indirectly, the beneficial owner of ten percent or
more of any class of equity securities, or any trust or other estate in
which any of the foregoing has a substantial beneficial interest or as to
which such person serves as a trustee or in a similar capacity, has been
indebted to the Registrant or its subsidiaries at any time since the
beginning of the Registrant's last fiscal year in an amount in excess of
$60,000, except for indebtedness incurred
special terms in connection with purchases of
merchandise and services made fromthese transactions (including, but not limited to our lending
programs) or any benefits that were not available to the Registrant in the ordinary course
of business by the retail hardware businesses in which the directors have
ownership interest.
other cooperative members that we supply.
PART IV
Item 14. Exhibits, Financial Statement Schedules Andand Reports Onon Form 8-K.
(a) 1. Financial Statements
The financial statements listed in the accompanying index (page F-1) to the consolidated
financial statements are filed as part of this annual report.
2. Financial Statement Schedules
The financial statement schedules listed in the accompanying
index (page F-1) to the financial statements are filed as part
of this annual report.
None.
3. Exhibits
The exhibits listed on the accompanying index to exhibits (pages E-1 through E-6) are filed as
part of this annual report.
(b) Reports on Form 8-K
None.
28
No Form 8-K was filed during the fourth quarter of fiscal 2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant
registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ACE HARDWARE CORPORATION
By RICHARD E. LASKOWSKI
Richard E. Laskowski HOWARD J. JUNG
Howard J. Jung
Chairman of the Board and Director
DATED: May 10, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report has been
signed below by the following persons on behalf of the Registrantregistrant and in the capacities and on
the dates indicated.
Signature
SignaturesTitleDate
RICHARD E. LASKOWSKI
HOWARD J. JUNG Chairman of the Board May 10, 1995
Richard E. LaskowskiMarch 22, 2002
Howard J. Jung and Director
ROGER E. PETERSON Chief Executive Officer May 10, 1995
Roger E. Peterson
DAVID F. HODNIK President and May 10, 1995
Chief March 22, 2002
David F. Hodnik Chief OperatingExecutive Officer
RITA D. KAHLE Executive Vice President-Finance May 10, 1995
President March 22, 2002
Rita D. Kahle (Principal Financial and
Accounting Officer)
Jennifer C. Anderson, Directors
LawrenceRichard F.
Baalmann, Jr., Eric R. Bowman, Mark
Jeronimus, Howard Bibens II, Directors
J. Jung,
John E. Kingrey, RayThomas Glenn, Daniel L. Gust,
D. William Hagan, Richard A. Karp,
Richard W. Osborne, DonStine, and David S. Williams,
Jon R. Weiss and
James R. Williams
*By Ziegler
*By: DAVID F. HODNIK March 22, 2002
David F. Hodnik
*By
*By: RITA D. KAHLE March 22, 2002
Rita D. Kahle
*Attorneys-in-fact
*Attorneys-in-fact
INDEX TO EXHIBITS
Exhibits
EnclosedDescription
21 21 Subsidiaries of the Registrant.
23 23 Consent of KPMG LLP.
24 24 Powers of Attorney.
Exhibits
Incorporated
by ReferenceDescription
3-A Copy of Restated Certificate of Incorporation of the Registrant, as amended
through June 3, 1996, filed as Exhibit 3-A to Post-Effective Amendment No. 6 to
the Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or
about March 22, 2001 and incorporated herein by reference.
3-B Copy of By-laws of the Registrant as amended through January 26, 2002 included
as Appendix A to the Prospectus constituting a part of the Registrant's Form S-2
Registration Statement filed on or about March 22, 2002 and incorporated herein
by reference.
4-A Specimen copy of Class B Stock certificate as revised as of November, 1984 filed as
Exhibit 4-A to Post-Effective Amendment No. 2 to the Registrant's Form S-1
Registration Statement (Registration No. 2-82460) on or about March 15, 1985 and
incorporated herein by reference.
4-B Specimen copy of Patronage Refund Certificate as revised in 1988 filed as Exhibit
4-B to Post-Effective Amendment No. 2 to the Registrant's Form S-1 Registration
Statement (Registration No. 33-4299) on or about March 29, 1988 and incorporated
herein by reference.
4-C Specimen copy of Class A Stock certificate as revised in 1987 filed as Exhibit 4-C
to Post-Effective Amendment No. 2 to the Registrant's Form S-1 Registration
Statement (Registration No. 33-4299) on or about March 29, 1988 and incorporated
herein by reference.
4-D Specimen copy of Class C Stock certificate filed as Exhibit 4-I to the Registrant's
Form S-1 Registration Statement (Registration No. 2-82460) on or about March 16,
1983 and incorporated herein by reference.
4-E Copy of current standard form of Subscription for Capital Stock Agreement to be
used for dealers to subscribe for shares of the Registrant's stock in conjunction with
new membership agreements submitted to the Registrant filed as Exhibit 4-E to
the Registrant's Form S-2 Registration Statement filed on or about March 22, 2002
and incorporated herein by reference.
4-F Copy of plan for the distribution of patronage dividends with respect to purchases
of merchandise made from the Registrant for the year 2000 and subsequent years
adopted by the Board of Directors of the Registrant on December 6, 2000 and filed
as Exhibit 4-F to Post-Effective Amendment No. 6 to the Registrant's Form S-2
Registration Statement (Registration No. 33-58191) on or about March 22, 2001
and incorporated herein by reference.
4-G Copy of LBM Retailer Incentive Pool Plan adopted on December 8, 1999 by the
Board of Directors of the Registrant filed as Exhibit 4-G to Post-Effective
Amendment No. 5 to the Registrant's Form S-2 Registration Statement
(Registration No. 33-58191) filed on or about March 15, 2000 and incorporated
herein by reference.
10-A Copy of Ace Hardware Corporation Retirement Benefits Replacement Plan Restated
and Adopted December 7, 1993, consolidated and refiled with First, Second, Third and
Fourth Amendments filed as Exhibit 10-A to the Registrant's Form S-2 Registration
Statement on or about March 22, 2002 and incorporated herein by reference.
10-B Copy of Ace Hardware Corporation Directors' Deferral Option Plan Amended and
Restated as of January 1, 1997 (for years 1995-2001), consolidated and refiled with First
and Second Amendments filed as Exhibit 10-B to the Registrant's Form S-2 Registration
Statement on or about March 22, 2002 and incorporated herein by reference.
10-C Copy of First Amendment to Ace Hardware Corporation Deferred Compensation
Plan adopted on August 19, 1997 filed as Exhibit 10-C to Post-Effective Amendment
No. 3 to the Registrant's Form S-2 Registration Statement (Registration No.
33-58191) on or about March 18, 1998 and incorporated herein by reference.
10-D Copy of Restated PREP Plan (formerly known as Executive Supplemental Benefit
Plans) adopted on December 6, 2000 filed as Exhibit 10-D to Post-Effective
Amendment No. 6 to the Registrant's Form S-2 Registration Statement (Registration
No. 33-58191) on or about March 22, 2001 and incorporated herein by reference.
10-E Copy of Ace Hardware Corporation Restated Officer Incentive Plan effective
January 1, 1999 consolidated and refiled with First, Second and Third Amendments
filed as Exhibit 10-E to the Registrant's Form S-2 Registration Statement on or about
March 22, 2002 and incorporated herein by reference.
10-F Copy of Second Modification of Amended and Restated Note Purchase and Private Shelf
Agreement dated as of August 23, 1996 as amended by the First Modification of Amended
and Restated Purchase and Private Shelf Agreement dated as of April 2, 1997 with The
Prudential Insurance Company of America filed as Exhibit 10-F to Post-Effective
Amendment No. 3 to the Registrant's Form S-2 Registration Statement (Registration No.
33-58191) on or about March 18, 1998 and incorporated herein by reference.
10-G Copy of Participation Agreement with PNC Commercial Corp. dated December 17,
1997 establishing a $10,000,000 discretionary leasing facility for the purchase of land
and construction of retail hardware stores filed as Exhibit 10-G to Post-Effective
Amendment No. 3 to the Registrant's Form S-2 Registration Statement (Registration
No. 33-58191) on or about March 18, 1998 and incorporated herein by reference.
10-H Copy of form of Executive Officer Employment Agreement effective January 1,
1996 filed as Exhibit 10-a-17 to Post-Effective Amendment No. 1 to the Registrant's
Form S-2 Registration Statement (Registration No. 33-58191) filed on or about
March 11, 1996 and incorporated herein by reference.
10-I Copy of Note Purchase and Private Shelf Agreement with The Prudential
Insurance Company of America dated September 27, 1991 securing 8.74% Senior
Series A Notes in the principal sum of $20,000,000 with a maturity date of July 1, 2003
filed as Exhibit 10-A-q to the Registrant's Form S-2 Registration Statement (Registration
No. 33-46449) on or about March 23, 1992 and incorporated herein by reference.
Exhibits
Incorporated
by ReferenceDescription
10-J Copy of current standard form of Ace Hardware Corporation International
Franchise Agreement filed as Exhibit 10-J to Post-Effective Amendment No. 6 to
the Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on
or about March 22, 2001 and incorporated herein by reference.
10-K Copy of current standard form of Ace Hardware Membership Agreement filed as
Exhibit 10-P to Pre-Effective Amendment No. 2 to the Registrant's Form S-2
Registration Statement (Registration No. 33-58191) on or about April 26, 1995 and
incorporated herein by reference.
10-L Copy of Supplement to Ace Hardware Membership Agreement effective April 1,
2000, filed as Exhibit 10-L to Post-Effective Amendment No. 6 to the Registrant's
Form S-2 Registration Statement (Registration No. 33-58191) on or about March
22, 2001 and incorporated herein by reference.
10-M Copy of 6.47% Senior Series A notes in the aggregate principal sum of $30,000,000
issued September 22, 1993 with a maturity date of June 22, 2008 and $20,000,000
Private Shelf Facility, pursuant to Note Purchase and Private Shelf Agreement with
the Prudential Insurance Company of America dated as of September 22, 1993
filed as Exhibit 10-R to Post-Effective Amendment No. 2 to the Registrant's Form
S-2 Registration Statement (Registration No. 33-46449) on or about March 23,
1994 and incorporated herein by reference.
10-N Copy of Lease dated March 24, 1997 for print shop facility of Registrant in
Downers Grove, Illinois filed as Exhibit 10-N to Post-Effective Amendment No. 3
to the Registrant's Form S-2 Registration Statement (Registration No. 33-58191)
on or about March 18, 1998 and incorporated herein by reference.
10-O Copy of Lease dated September 30, 1992 for general offices of the Registrant in
Oak Brook, Illinois filed as Exhibit 10-a-u to the Post-Effective Amendment No.1
to the Registrant's Form S-2 Registration Statement (Registration No. 33-46449)
on or about March 22, 1993 and incorporated herein by reference.
10-P Copy of Deed of Lease with Arundel II L.L.C. dated as of January 30, 1998 for the
Registrant's redistribution center in Odenton, Maryland filed as Exhibit 10-P to
Post-Effective Amendment No. 4 to the Registrant's Form S-2 Registration Statement
(Registration No. 33-58191) on or about March 15, 1999 and incorporated
herein by reference.
10-Q Copy of Ace Hardware Corporation Deferred Compensation Plan effective
January 1, 1994 filed as Exhibit 10-X to Post-Effective Amendment No. 2 to the
Registrant's Form S-2 Registration Statement (Registration No. 33-46449) on or
about March 23, 1994 and incorporated herein by reference.
10-R Copy of current standard form of Ace Hardware Corporation License Agreement
for international licensees filed as Exhibit 10-R to Post-Effective Amendment No.
6 to the Registrant's Form S-2 Registration Statement (Registration No. 33-58191)
on or about March 22, 2001 and incorporated herein by reference.
10-S Copy of Lease dated May 4, 1994 for freight consolidation center of the Registrant
in Chicago, Illinois filed as Exhibit 10-Z to the Registrant's Form S-2 Registration
Statement (Registration No. 33-58191) on or about March 23, 1995 and incorporated
herein by reference.
Exhibits
Incorporated
by ReferenceDescription
10-T Copy of Long-Term Incentive Compensation Deferral Option Plan of the
Registrant effective January 1, 2000 filed as Exhibit 10-a-13 to the Registrant's
Form S-2 Registration Statement (Registration No. 33-58191) on or about March
15, 2000 and incorporated herein by reference.
10-U Copy of Ace Hardware Corporation Directors' Deferral Option Plan effective
January 1, 2001 filed as Exhibit 10-U to Post-Effective Amendment No. 6 to the
Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or
about March 22, 2001 and incorporated herein by reference.
10-V Copy of Ace Hardware Corporation Long-Term Compensation Deferral Option
Plan effective January 1, 1995 consolidated and refiled with First, Second and
Third Amendments filed as Exhibit 10-V to the Registrant's Form S-2 Registration
Statement on or about March 22, 2002 and incorporated herein by reference.
10-W Copy of Lease dated July 28, 1995 between A.H.C. Store Development Corp. and
Tri-R Corporation for retail hardware store premises located in Yorkville, Illinois
filed as Exhibit 10-a-11 to Post-Effective Amendment No. 1 to the Registrant's
Form S-2 Registration Statement (Registration No. 33-58191) on or about March
11, 1996 and incorporated herein by reference.
10-X Copy of Lease dated October 31, 1995 between Brant Trade & Industrial Park, Inc.
and Ace Hardware Canada Limited for warehouse space in Brantford, Ontario,
Canada filed as Exhibit 10-a-12 to Post-Effective Amendment No. 1 to the
Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or
about March 11, 1996 and incorporated herein by reference.
10-Y Copy of Lease dated November 27, 1995 between 674573 Ontario Limited and
Ace Hardware Canada Limited for general office space in Markham, Ontario,
Canada filed as Exhibit 10-a-13 to Post-Effective Amendment No. 1 to the
Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or
about March 11, 1996 and incorporated herein by reference.
10-Z Copy of Executive Healthcare Plan adopted by the Board of Directors of the
Registrant on August 25, 1998 filed as Exhibit 10-Z to Post-Effective Amendment
No. 4 to the Registrant's Form S-2 Registration Statement (Registration No.
33-58191) on or about March 15, 1999 and incorporated herein by reference.
10-a-1 Copy of Ace Hardware Corporation Executive Benefit Security Trust Agreement
effective July 19, 1995 filed as Exhibit 10-a-18 to Post-Effective Amendment No. 1
to the Registrant's Form S-2 Registration Statement (Registration No. 33-58191)
on or about March 11, 1996 and incorporated herein by reference.
10-a-2 Copy of current standard form of International Retail Merchant Agreements filed
as Exhibit 10-a-2 to Post-Effective Amendment No. 6 to the Registrant's Form S-2
Registration Statement (Registration No. 33-58191) on or about March 22, 2001
and incorporated herein by reference.
10-a-3 Copy of Lease Agreement dated as of September 1, 1996 for the Registrant's
project facility in Wilton, New York filed as Exhibit 10-a-13 to Post-Effective
Amendment No. 2 to the Registrant's Form S-2 Registration Statement
(Registration No. 33-58191) on or about March 12, 1997 and incorporated herein
by reference.
Exhibits
Incorporated
by ReferenceDescription
10-a-4 Copy of 6.47% Series A Senior Notes in the aggregate principal amount of
$30,000,000 issued August 23, 1996 with a maturity date of June 22, 2008 and
$70,000,000 Private Shelf Facility, pursuant to Amended and Restated Note
Purchase and Private Shelf Agreement with the Prudential Insurance Company
dated August 23, 1996 filed as Exhibit 10-a-14 to Post-Effective Amendment No.
2 to the Registrant's Form S-2 Registration Statement (Registration No. 33-58191)
on or about March 12, 1997 and incorporated herein by reference.
10-a-5 Copy of First Amendment to Ace Hardware Corporation Directors' Deferral
Option Plan (effective January 1, 2001) adopted December 5, 2001 and effective
January 1, 2002 filed as Exhibit 10-a-5 to the Registrant's Form S-2 Registration
Statement on or about March 22, 2002 and incorporated herein by reference.
10-a-6 Copy of Lease Agreement dated May 27, 1999 for the Registrant's project facility
in Loxley, Alabama filed as Exhibit 10-a-9 to Post-Effective Amendment No. 5 to
Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or
about March 15, 2000 and incorporated herein by reference.
10-a-7 Copy of current standard form of Industrial Distributor Agreement filed as
Exhibit 10-a-7 to the Registrant's Form S-2 Registration Statement filed on or
about March 22, 2002 and incorporated herein by reference.
10-a-8 Copy of First Amendment to Ace Hardware Corporation Long-Term Incentive
Compensation Deferral Option Plan (effective January 1, 2000) adopted
December 5, 2001 and effective January 1, 2002 filed as Exhibit 10-a-8 to the
Registrant's Form S-2 Registration Statement on or about March 22, 2002 and
incorporated herein by reference.
10-a-9 Copy of Lease dated October 19, 2001 for the Registrant's freight consolidation center
in Baltimore, Maryland filed as Exhibit 10-a-9 to the Registrant's Form S-2 Registration
Statement on or about March 22, 2002 and incorporated herein by reference.
10-a-10 Copy of Amendment dated April 24, 2001 to Note Purchase and Private Shelf
Agreement dated as of September 27, 1991, and Restated Note Purchase and Private
Shelf Agreement dated as of August 23, 1996 with The Prudential Insurance
Company of America filed as Exhibit 10-a-10 to the Registrant's Form S-2 Registration
Statement on or about March 22, 2002 and incorporated herein by reference.
10-a-11 Copy of $175,000,000 Revolving Credit Facility Agreement dated as of May 2, 2000
filed as Exhibit 10-a-11 to Post-Effective Amendment No. 6 to the Registrant's
Form S-2 Registration Statement (Registration No. 33-58191) on or about March
22, 2001 and incorporated herein by reference.
10-a-12 Copy of Lease effective November 27, 2000 for freight consolidation center of the
Registrant in Fort Worth, Texas filed as Exhibit 10-a-12 to Post-Effective
Amendment No. 6 to the Registrant's Form S-2 Registration Statement
(Registration No. 33-58191) on or about March 22, 2001 and incorporated herein
by reference.
10-a-13 Copy of Lease (Reference Date April 1, 2000) for the Registrant's additional
general office space at 1220 and 1300 Kensington Rd., Oak Brook, Illinois filed as
Exhibit 10-a-13 to Post-Effective Amendment No. 6 to the Registrant's Form S-2
Registration Statement (Registration No. 33-58191) on or about March 22, 2001
and incorporated herein by reference.
Exhibits
Incorporated
by ReferenceDescription
10-a-14 Copy of current standard form of Limited Liability Company Agreement for retail
joint ventures filed as Exhibit 10-a-14 to Post-Effective Amendment No. 6 to the
Registrant's Form S-2 Registration Statement (Registration No. 33-58191) on or
about March 22, 2001 and incorporated herein by reference.
10-a-15 Copy of Amendment dated September 25, 2000 to Restated Note Purchase and
Private Shelf Agreement dated as of August 23, 1996 with The Prudential
Insurance Company of America filed as Exhibit 10-a-15 to Post-Effective
Amendment No. 6 to the Registrant's Form S-2 Registration Statement
(Registration No. 33-58191) on or about March 22, 2001 and incorporated herein
by reference.
10-a-16 Copy of Lease dated June 30, 2000 for the Registrant's supplemental warehouse
space in Rocklin, California filed as Exhibit 10-a-16 to the Registrant's Form S-2
Registration Statement on or about March 22, 2002 and incorporated herein by
reference.
10-a-17 Copy of Lease dated January 16, 2002 for the Registrant's freight consolidation
center in Summit, Illinois filed as Exhibit 10-a-17 to the Registrant's Form S-2
Registration Statement on or about March 22, 2002 and incorporated herein by
reference.
10-a-18 Copy of Amendment dated September 10, 1995
29
2001 to Note Purchase and Private
Shelf Agreement dated as of September 27, 1991, and Restated Note Purchase and
Private Shelf Agreement dated as of August 23, 1996 with The Prudential
Insurance Company of America filed as Exhibit 10-a-18 to the Registrant's Form S-
2 Registration Statement on or about March 22, 2002 and incorporated herein by
reference.
10-a-19 Copy of Note Purchase Agreement dated April 15, 2001 for the issuance and sale
of up to $100,000,000 of Senior Notes, under which $70,000,00 of 7.27% Senior
2001-A Notes with a maturity date of April 30, 2013 have been sold to various
purchasers filed as Exhibit 10-a-19 to the Registrant's Form S-2 Registration
Statement on or about March 22, 2002 and incorporated herein by reference.
Upon request of the Commission, we agree to furnish copies of any agreements regarding indebtedness
that does not exceed ten percent of our total assets and the assets of our subsidiaries on a consolidated basis.
Supplemental Information to be Furnished with Reports Filed Pursuant to Section 15(d) of
the Act by Registrants which have not Registered Securities Pursuant to Section 12 of the Act.
As of the date of the Report mentioned above, proxy soliciting materials for our 2002 annual meeting
have not been sent to our shareholders. Copies of proxy soliciting materials will be sent to our shareholders
and furnished to the Securities and Exchange Commission at a later date.
Item 14(a). Index Toto Consolidated Financial Statements Andand Financial Statement Schedules
Page(s)
�� Page
Independent Auditors' Report F-2
Consolidated Balance Sheets at December 31, 199429, 2001 and 1993December 30, 2000 F-3
Consolidated Statements of Earnings and Consolidated Statements of
Comprehensive Income for each of the three years in the three-year period
ended December 31, 199429, 2001 F-5
Consolidated Statements of Member Dealers' Equity for each of the three years in the
three-year period ended December 31, 199429, 2001 F-6
Consolidated Statements of Cash Flows for each of the three years in the three-year
period ended December 31, 199429, 2001 F-7
Notes to Consolidated Financial Statements F-8
Financial Statement Schedule for each of the three years in the period
ended December 31, 1994:
II-Valuation and qualifying accounts - Allowance for doubtful accounts F-16
All other schedules have been omitted because the required information is not present or is not present in
amounts sufficient to require submission of the schedule or the required information is included in the
consolidated financial statements or the notes thereto.
F-1
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Ace Hardware Corporation:
We have audited the accompanying consolidated balance sheets of Ace Hardware Corporation and
subsidiaries as of December 31, 199429, 2001 and 1993,December 30, 2000 and the related consolidated statements of
earnings, comprehensive income, member dealers' equity and cash flows for each of the years in the
three-year period ended December 31, 1994. In connection with our audits of the29, 2001. These consolidated financial statements we also have audited the financial statement schedule
as listed in the accompanying index. These financial statements and
financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted auditing
standards.in the United
States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management,
as well as evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Ace Hardware Corporation atand subsidiaries as of December 31, 1994 29, 2001
and 1993,December 30, 2000, and the results of itstheir operations and itstheir cash flows for each of the years in
the three-year period ended December 31, 199429, 2001 in conformity with accounting principles generally
accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
United States of America.
KPMG PEAT MARWICK LLP
Chicago, Illinois
January 31, 1995
F-2
ACE HARDWARE CORPORATION
BALANCE SHEEET
December 31, 1994 and 1993
ASSETS
1994 1993
(000's omitted)
Current assets:
Cash and Cash Equivalents $ 4,868 $ 4,142
Receivables:
Dealers 228,584 183,493
Others 32,377 29,831
260,961 213,324
Less Allowance for doubtful receivables (1,350) (720)
Net receivables 259,611 212,604
Inventories (Note 2) 270,391 263,576
Prepaid expenses and other current assets 6,810 6,869
Total current assets 541,680 487,191
Property and equipment (Notes 4 and 9):
Land 14,219 13,673
Buildings and improvements 135,252 131,794
Warehouse equipment 48,947 47,146
Office equipment 53,965 48,842
Manufacturing equipment 12,165 12,012
Transportation equipment 14,557 12,508
Leasehold improvements 10,925 6,553
Construction in progress 7,561 2,319
297,591 274,847
Less accumulated depreciation and amortization (120,493) (108,710)
Net property and equipment 177,098 166,137
Other assets 6,703 14,160
$ 725,481 $ 667,488
See accompanying notes to financial statements.
F-3
ACE HARDWARE CORPORATION
BALANCE SHEETS
December 31, 1994 and 1993
LIABILITIES AND MEMBER DEALERS' EQUITY
1994 1993
(000's omitted)
Current Liabilities:
Current installments of long-term debt (Note 4) $ 7,369 $ 10,707
Short-term borrowings (Note 3) 30,000 38,500
Accounts payable 293,088 234,190
Patronage dividends payable in cash (Note 5) 27,302 25,766
Patronage refund certificates payable (Note 5) 1,315 11,059
Accrued expenses 38,627 33,682
Total current liabilities 397,701 353,904
Long-term debt (Note 4) 64,287 71,286
Patronage refund certificates payable (Note 5) 63,666 56,270
Member dealers' equity (Notes 5 and 8):
Class A Stock of $1,000 par value 3,924 3,946
Class B Stock of $1,000 par value 6,499 6,499
Class C Stock of $100 par value 164,666 153,155
Class C Stock of $100 par value, issuable to dealers for
patronage dividends 21,766 19,064
Additional stock subscribed, net 555 613
Retained earnings 5,624 5,622
Contributed capital 3,295 3,295
206,329 192,194
Less: Treasury stock, at cost (6,502) (6,166)
Total member dealers' equity 199,827 186,028
Commitments (Notes 6 and 9) -- --
$ 725,481 $ 667,488
See accompanying notes to financial statements.
F-4
ACE HARDWARE CORPORATION
STATEMENTS OF EARNINGS
Year Ended December 31,
1994 1993 1992
(000's omitted)
Net sales $ 2,326,115 $ 2,017,763 $ 1,870,625
Cost of sales 2,158,896 1,867,326 1,723,017
Gross Profit 167,219 150,437 147,608
Operating expenses:
Warehouse and distribution 29,379 31,650 32,291
Selling, general and administration 63,515 54,378 48,451
Total operating expenses 92,894 86,028 80,742
Operating income 74,325 64,409 66,866
Interest expense (Note 11) (12,035) (9,798) (8,380)
Other income, net (Note 11) 3,716 2,909 2,852
Income taxes (Note 7) (1,484) (428) (571)
Net earnings 64,522 57,092 60,767
Retained earnings at beginning of year 5,622 7,553 9,993
Net earnings 64,522 57,092 60,767
Patronage Dividends (Notes 5 and 8) (64,520) (59,023) (63,207)
Retained earnings at end of year $ 5,624 $ 5,622 $ 7,553
See accompanying notes to financial statements.
F-5
ACE HARDWARE CORPORATION
STATEMENTS OF MEMBER DEALERS' EQUITY
Three Years Ended December 31, 1994
(000's omitted)
Class C
Stock
Issuable to
Dealers for Additional
Class A Class B Class C Patronage Stock
Stock Stock Stock Dividends Subscribed*
Balance at December 31, 1991 $ 4,165 $ 6,499 $ 130,083 $ 14,841 $ 1,069
Net earnings -- -- -- -- --
Net payments on subscriptions -- -- -- -- 1,302
Stock issued 224 -- 16,191 (14,841) (1,574)
Stock repurchased -- -- -- -- --
Stock retired (329) -- (7,260) -- --
Stock issuable as patronage dividends -- -- -- 20,301 --
Patronage dividends payable -- -- -- -- --
Balance at December 31, 1992 $ 4,060 $ 6,499 $ 139,014 $ 20,301 $ 797
Net earnings -- -- -- -- --
Net payments on subscriptions -- -- -- -- 1,049
Stock issued 157 -- 21,377 (20,301) (1,233)
Stock repurchased -- -- -- -- --
Stock retired (271) -- (7,236) -- --
Stock issuable as patronage dividends -- -- -- 19,064 --
Patronage dividends payable -- -- -- -- --
Balance at December 31, 1993 $ 3,946 $ 6,499 $ 153,155 $ 19,064 $ 613
Net earnings -- -- -- -- --
Net payments on subscriptions -- -- -- -- 1,394
Patronage financing deductions -- -- -- (1,086) --
Stock issued 218 -- 19,212 (17,978) (1,452)
Stock repurchased -- -- -- -- --
Stock retired (240) -- (7,701) -- --
Stock issuable as patronage dividends -- -- -- 21,766 --
Patronage dividends payable -- -- -- -- --
Balance at December 31, 1994 $ 3,924 $ 6,499 $ 164,666 $ 21,766 $ 555
(Table Continued on following page)
* Additional stock subscribed is comprised of the following amounts at December 31, 1992, 1993 and 1994:
1992 1993 1994
Class A Stock . . . . . . . . . $ 185 $ 223 $ 291
Class B Stock . . . . . . . . . -- -- --
Class C Stock . . . . . . . . . 2,184 1,952 2,180
2,369 2,175 2,471
Less unpaid portion . . . . . . 1,572 1,562 1,916
$ 797 $ 613 $ 555
Retained Contributed Treasury
Earnings Capital Stock Total
Balance at December 31, 1991 $ 9,993 $ 3,295 $ (5,534) $ 164,411
Net earnings 60,767 -- -- 60,767
Net payments on subscriptions -- -- -- 1,302
Stock issued -- -- -- --
Stock repurchased -- -- (7,893) (7,893)
Stock retired -- -- 7,589 --
Stock issuable as patronage dividends -- -- -- 20,301
Patronage dividends payable (63,207) -- -- (63,207)
Balance at December 31, 1992 $ 7,553 $ 3,295 $ (5,838) $ 175,681
Net earnings 57,092 -- -- 57,092
Net payments on subscriptions -- -- -- 1,049
Stock issued -- -- -- --
Stock repurchased -- -- (7,835) (7,835)
Stock retired -- -- 7,507 --
Stock issuable as patronage dividends -- -- -- 19,064
Patronage dividends payable (59,023) -- -- (59,023)
Balance at December 31, 1993 $ 5,622 $ 3,295 $ (6,166) $ 186,028
Net earnings 64,522 -- -- 64,522
Net payments on subscriptions -- -- -- 1,394
Net payments on patronage
financing programs -- -- -- (1,086)
Stock issued -- -- -- --
Stock repurchased -- -- (8,277) (8,277)
Stock retired -- -- 7,941 --
Stock issuable as patronage dividends -- -- -- 21,766
Patronage dividends payable (64,520) -- -- (64,520)
Balance at December 31, 1994 $ 5,624 $ 3,295 $ (6,502) $ 199,827
See accompanying notes to financial statements.
F-6
ACE HARDWARE CORPORATION
STATEMENTS OF CASH FLOWS
Year Ended December 31,
(000's omitted)
Operating Activities: 1994 1993 1992
Net earnings $ 64,522 $ 57,092 $ 60,767
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation 16,954 16,156 14,817
Loss on sale of property and equipment 175 460 507
Increase in accounts receivable, net (47,007) (18,880) (32,783)
Increase in inventories (6,815) (50,099) (2,091)
(Increase) Decrease in prepaids and other current assets 59 (352) (632)
Increase (Decrease) in accounts payable and accrued expenses 63,843 58,087 (2,237)
Net Cash Provided by Operating Activities 91,731 62,464 38,348
Investing Activities:
Purchase of property, plant and equipment (28,277) (16,346) (34,582)
Proceeds from sale of property and equipment 187 238 83
(Increase) Decrease in other assets 7,457 (1,991) (3,831)
Net Cash Used in Investing Activities (20,633) (18,099) (38,330)
Financing Activities:
(Payments of) Proceeds from short-term borrowings (8,500) (17,500) 34,000
Proceeds from Notes Payable -- 30,000 20,000
Principal payments on long-term debt (10,337) (1,092) (16,170)
Payment of cash portion of patronage dividend (25,766) (27,538) (26,864)
Payments of Patronage refund certificates
and patronage financing deductions (18,886) (19,451) (9,182)
Proceeds from sale of common stock 1,394 1,049 1,302
Repurchase of common stock (8,277) (7,835) (7,893)
Net Cash Used by Financing Activities (70,372) (42,367) (4,807)
Increase (Decrease) in Cash and Cash Equivalents 726 1,998 (4,789)
Cash and Cash Equivalents at beginning of year 4,142 2,144 6,933
Cash and Cash Equivalents at end of year $ 4,868 $ 4,142 $ 2,144
See accompanying notes to financial statements.
F-728, 2002
ACE HARDWARE CORPORATION
CONSOLIDATED BALANCE SHEETS
December 29, 2001 and December 30, 2000
ASSETS
December 29, December 30,
2001 2000
(000's omitted)
Current assets:
Cash and cash equivalents $ 25,213 $ 24,644
Short-term Investments 17,158 12,772
Receivables:
Trade 308,390 316,339
Other 63,064 59,090
371,454 375,429
Less allowances for doubtful receivables (2,419) (2,458)
Net receivables 369,035 372,971
Inventories (Note 2) 412,568 395,565
Prepaid expenses and other current assets 16,295 15,105
Total current assets 840,269 821,057
Property and equipment (Note 10):
Land 15,466 16,791
Buildings and improvements 232,015 211,024
Warehouse equipment 100,676 90,250
Office equipment 111,175 99,560
Manufacturing equipment 15,197 14,590
Transportaion equipment 16,345 16,888
Leasehold improvements 17,575 17,445
Construction in progress - - 2,054
508,449 468,602
Less accumulated depreciation and amortization (220,942) (206,712)
Net property and equipment 287,507 261,890
Other assets 41,015 40,863
$ 1,168,791 $ 1,123,810
============ ============
See accompanying notes to consolidated financial statements.
ACE HARDWARE CORPORATION
CONSOLIDATED BALANCE SHEETS
December 29, 2001 and December 30, 2000
LIABILITIES AND MEMBER DEALERS' EQUITY
December 29, December 30,
2001 2000
(000's omitted)
Current liabilities:
Current installment of long-term debt (Note 4) $ 7,179 $ 6,904
Short-term borrowings (Note 3) 72,600 81,500
Accounts payable 409,789 448,766
Patronage dividends payable in cash (Note 5) 34,229 34,764
Patronage refund certificates payable (Note 5) 9,084 4,795
Accrued expenses 81,062 63,224
Total current liabilities 613,943 639,953
Long-term debt (Note 4) 170,387 105,891
Patronage refund certificates payable (Note 5) 77,401 68,385
Other long-term liabilities 27,184 24,923
Total liabilities 888,915 839,152
Member dealers' equity (Notes 5 and 8):
Class A Stock of $1,000 par value 3,693 3,783
Class B Stock of $1,000 par value 6,499 6,499
Class C Stock of $100 par value 260,224 250,480
Class C Stock of $100 par value, issuable to dealers
for patronage dividends 23,284 24,267
Additional stock subscribed, net 303 351
Retained deficit (17,591) (5,551)
Contributed capital 13,485 13,485
Accumulated other comprehensive loss (1,239) (162)
288,658 293,152
Less: Treasury stock, at cost (8,782) (8,494)
Total member dealers' equity 279,876 284,658
Commitments (Notes 6 and 10)
$ 1,168,791 $ 1,123,810
============ ============
See accompanying notes to consolidated financial statements.
ACE HARDWARE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
Year Ended
December 29, December 30, January 1,
2001 2000 2000
(000's omitted)
Net sales $ 2,894,369 $ 2,945,151 $3,181,802
Cost of sales 2,617,069 2,665,614 2,908,138
Gross profit 277,300 279,537 �� 273,664
Operating expenses:
Warehouse and distribution 34,915 32,496 28,122
Selling, general and administrative 86,277 87,368 87,763
Retail success and development 68,523 71,558 57,149
Total operating expenses 189,715 191,422 173,034
Operating income 87,585 88,115 100,630
Interest expense (Note 12) (23,156) (21,803) (16,651)
Other income, net 12,058 14,207 10,416
Income taxes (Note 7) (3,418) (127) (1,833)
Net earnings $ 73,069 $ 80,392 $ 92,562
============ ============ ===========
Retained earnings (deficit) at beginning of year $ (5,551) $ 594 $ 3,292
Net earnings 73,069 80,392 92,562
Patronage dividends (Note 5) (85,109) (86,537) (95,260)
Retained earnings (deficit) at end of year $ (17,591) $ (5,551) $ 594
============ ============ ===========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended
December 29, December 30, January 1,
2001 2000 2000
(000's omitted)
Net earnings $ 73,069 $ 80,392 $ 92,562
Unrealized gains on securities 129 458 -
Foreign currency translation, net (1,206) (911) 1,109
Comprehensive income $ 71,992 $ 79,939 $ 93,671
============ ============ ===========
See accompanying notes to consolidated financial statements.
ACE HARDWARE CORPORATION
CONSOLIDATED STATEMENTS OF MEMBER DEALERS' EQUITY
Three Years Ended December 29, 2001 (000's Omitted)
Class C Stock
Issuable to Accumulated
Dealers for Additional Retained Other
Class A Class B Class C Patronage Stock Earnings Contributed Comprehensive Treasury
StockStockStockDividendsSubscribed*(deficit)CapitalIncome/(loss)StockTotal
Balance at January 2, 1999 $3,846 $6,499 $226,571 $26,170 $ 471 $3,292 $3,295 $(818) $(7,814) $261,512
Net earnings - - - - - 92,562 - - - 92,562
Net payments on subscriptions - - - - 1,531 - - - - 1,531
Patronage financing deductions - - - (847) - - - - - (847)
Stock issued 238 - 26,616 (25,323) (1,504) - - - - 27
Stock repurchased - - - - - - - - (12,509) (12,509)
Stock retired (228) - (11,961) - - - - - 12,189 -
Patronage dividends issuable - - - 21,648 - - 10,190 - - 31,838
Patronage dividends payable - - - - - (95,260) - - - (95,260)
Accumulated other comprehensive income (loss) - - - - - - - 1,109 - 1,109
Balance at January 1, 2000 3,856 6,499 241,226 21,648 498 594 13,485 291 (8,134) 279,963
Net earnings - - - - - 80,392 - - - 80,392
Net payments on subscriptions - - - - 1,830 - - - - 1,830
Patronage financing deductions - - - (158) - - - - - (158)
Stock issued 234 - 23,391 (21,490) (1,977) - - - - 158
Stock repurchased - - - - - - - - (14,804) (14,804)
Stock retired (307) - (14,137) - - - - - 14,444 -
Patronage dividends issuable - - - 24,267 - - - - - 24,267
Patronage dividends payable - - - - - (86,537) - - - (86,537)
Accumulated other comprehensive income (loss) - - - - - - - (453) - (453)
Balance at December 30, 2000 3,783 6,499 250,480 24,267 351 (5,551) 13,485 (162) (8,494) 284,658
Net earnings - - - - - 73,069 - - - 73,069
Net payments on subscriptions - - - - 1,479 - - - - 1,479
Patronage financing deductions - - - (1,324) - - - - - (1,324)
Stock issued 170 - 24,202 (22,943) (1,527) - - - - (98)
Stock repurchased - - - - - - - - (15,006) (15,006)
Stock retired (260) - (14,458) - - - - - 14,718 -
Patronage dividends issuable - - - 23,284 - - - - - 23,284
Patronage dividends payable - - - - - (85,109) - - - (85,109)
Accumulated other comprehensive income (loss) - - - - - - - (1,077) - (1,077)
Balance at December 29, 2001 $3,693 $6,499 $260,224 $23,284 $ 303 $(17,591) $13,485 $(1,239) $(8,782) $279,876
======= ======= ========= ======== ======= ========= ======== ======== ========= =========*Additional stock subscribed is comprised of the following amounts at January 1, 2000, December 30, 2000 and December 29, 2001:
1999 2000 2001
Class A Stock $ 118 $ 41 $ 94
Class B Stock - - - - -
Class C Stock 1,452 975 977
1,570 1,016 1,071
Less unpaid portion 1,072 665 768
$ 498 $ 351 $ 303
====== ====== ======
See accompanying notes to consolidated financial statements.
ACE HARDWARE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended
December 29, December 30, January 1,
2001 2000 2000
(000's Omitted) Operating Activities:
Net Earnings $ 73,069 $ 80,392 $ 92,562
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization 29,221 32,273 23,396
Gain on sale of property and equipment, net of
deferred taxes of $1,681 (3,264) - -
Decrease (increase) in accounts receivable, net 3,936 (2,092) 26,095
Increase in inventories (17,003) (22,475) (38,685)
Decrease (increase) in prepaid expenses
and other current assets (1,334) (1,764) 1,805
Decrease in accounts payable and accrued expenses (21,139) (7,497) (1,101)
Increase in other long-term liabilities 2,261 2,523 3,718
Net Cash Provided by Operating Activities 65,747 81,360 107,790 Investing Activities:
Purchase of short-term investments (4,386) (12,314) -
Purchase of property and equipment (51,430) (44,649) (43,074)
Proceeds from sale of property and equipment - 9,664 349
Increase in other assets (1,229) (12,200) (21,160)
Net Cash Used in Investing Activities (57,045) (59,499) (63,885) Financing Activities:
Proceeds (payments) of short-term borrowings (8,900) 31,631 24,869
Proceeds from issuance of long-term debt 70,000 - -
Payments on long-term debt (5,229) (3,167) (6,892)
Payment of cash portion of patronage dividend (34,764) (38,173) (34,826)
Payments of patronage refund certificates and
patronage financing deductions (15,713) (9,956) (34,557)
Proceeds from sale of common stock 1,479 1,830 1,531
Repurchase of common stock (15,006) (14,804) (12,509)
Net Cash Used in Financing Activities (8,133) (32,639) (62,384) Increase (decrease) in Cash and Cash Equivalents 569 (10,778) (18,479)
Cash and Cash Equivalents at beginning of year 24,644 35,422 53,901 Cash and Cash Equivalents at end of year $ 25,213 $ 24,644 $ 35,422
============ =========== ==========
See accompanying notes to consolidated financial statements.
ACE HARDWARE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
(a) The Company and Its Business
The Company
Ace Hardware Corporation (the Company) operates as a wholesaler of hardware and related
products, and manufactures paint products. As a dealer-owned cooperative, the Company distributes
substantially all of its patronage sourced earnings in the form of patronage dividends to its member dealers
based on their volume of merchandise purchases.
(b) Cash Equivalents and Investments
The Company considers all highly liquid investments with an original maturity of three months or less when purchased
to be cash equivalents. Short-term investments consist primarily of corporate and government agency
bonds and are classified as held for sale.
(c) Consolidation
The accompanying consolidated financial statements include the accounts of the Company and
subsidiaries. All significant intercompany transactions have been eliminated. The equity method of
accounting is used for the Company's 50% or less owned affiliates over which the Company has the ability
to exercise significant influence.
(d) Receivables
Receivables from dealers include amounts due from the sale of merchandise and special equipment
used in the operationsoperation of dealers' businesses. Other receivables are principally amounts due from suppliers
for promotional and advertising allowances. (d) The Company recognizes revenue from product sales upon
shipment to customers.
(e) Inventories
Inventories are valued at the lower of cost or net realizable value. Cost is determined primarily using
the last-in, first-out method on substantially all
inventories.
(e) method.
(f) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization.
Expenditures for maintenance, repairs and renewals of relatively minor items are generally are charged to
earnings. Significant improvements or renewals are capitalized.
Depreciation expense is computed on both straight-line and accelerated methods based on estimated
useful lives as follows:
Useful Life Principal
YearsDepreciation Method
Buildings and improvements 10-40 Straight lineLine
Warehouse equipment 5-10 Sum of yearsAccelerated
Office equipment 3-10 Various
Manufacturing equipment 3-20 Straight lineLine
Transportation equipment 3-7 Straight lineLine Leasehold improvements are generally amortized on a straight-line basis over the term of the respective leases.
(f)
lease.
(g) Foreign Currency Translation
Substantially all assets and liabilities of foreign operations are translated at the rate of exchange in
effect at the balance sheet date while revenues and expenses are translated at the average monthly exchange
rates prevailing during the year. The Company has utilized foreign exchange forward contracts to
hedge non-U.S. equity investments. Gains and losses on these foreign hedges are included in the basis of
the underlying hedged investment. Accumulated other comprehensive loss at December 29, 2001 and
December 30, 2000 includes gains of $2.0 million related to previously settled foreign currency contracts.
Foreign currency translation adjustments, net of gains on foreign exchange contracts, are reflected in the
accompanying Consolidated Statements of Comprehensive Income for 2001, 2000 and 1999. The
Company did not have any outstanding foreign exchange forward contracts at December 29, 2001 or
December 30, 2000.
(h) Financial Instruments
The carrying value of assets and liabilities that meet the definition of a financial instrument included
in the accompanying Consolidated Balance Sheets approximates fair value.
(i) Retirement Plans
The Company has retirement plans covering substantially all non-union employees. Costs with
respect to the noncontributory pension plans are determined actuarially and consist of current costs and
amounts to amortize prior service costs and unrecognized gains and losses. The Company contribution
under the profit sharing plan is determined annually by the Board of Directors.
(g)
(j) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could differ from those estimates.
(k) Fiscal Year
The Company's fiscal year ends on the Saturday nearest December 31st. Accordingly, 2001, 2000
and 1999 ended on December 29, 2001, December 30, 2000 and January 1, 2000, respectively.
(l) Reclassifications
Certain financial statement reclassifications have been made to prior year amounts to conform to
comparable classifications followed in 1994.
F-8
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
2001.
(2) Inventories
Inventories consist primarily of merchandise inventories. Substantially all of the Company's inventory isdomestic
inventories are valued on the last-in, first-out (LIFO) method; the excess of replacement cost over the
LIFO value of inventory was approximately $65,052,000$57,809,000 and $63,615,000$62,502,000 at December 31, 199429, 2001 and 1993,
December 30, 2000, respectively. Indirect costs, consisting primarily of warehousing costs, are absorbed
as inventory costs rather than period costs.
(3) Short-Term Borrowings
Short-term borrowings were utilized during 19942001 and 1993.2000. The maximum amount outstanding at any
month-end during the period was $115,500,000$128.0 million in 19942001 and $91,000,000$147.0 million in 1993.2000. The weighted
average interest rate effective as of December 31,
199429, 2001 and 1993December 30, 2000 was 6.5%2.58% and 3.6%7.18%,
respectively. Short termShort-term borrowings outstanding as of December 31, 199429, 2001 and 1993December 30, 2000 were $30,000,000
$72.6 and $38,500,000,$81.5 million, respectively. At December 31, 199429, 2001 the Company has available a revolving credit
facility with a group of banks providing for $100$175.0 million in committed lines and $50 also has available $10.0
million in uncommitted lines. The aggregate unused line of credit available at December 31, 199429, 2001 and 1993
December 30, 2000 was $120,000,000$112.4 million and $69,000,000,$108.5 million, respectively. At December 31, 1994,29, 2001 the
Company had no compensating balance requirements. Aggregate compensating balances (not
legally restricted) at December 31, 1993 were $600,000.
(4) Long-Term Debt
Long-term debt is comprised of the following:
December 31,
1994 1993
(000's omitted)
Industrial Development Revenue and Variable Rate Bonds:
$125,000 payable quarterly through December 1, 1996 with interest
at 65% of the prime rate $ 1,000 $ 1,500
$8,250,000 due on February 1, 1994 with interest payable monthly
beginning September 1, 1988 at variable rates ranging from
1.95% to 4.95% -- 8,250
Notes Payable:
$20,000,000 due in quarterly installments of $540,500 commencing
July 1, 1994 with interest payable quarterly beginning
January 1, 1992 at a fixed rate of 8.74% 18,919 20,000
$20,000,000 due in quarterly installments of $952,400 commencing
January 1, 1995 with interest payable quarterly beginning
October 1, 1992 at a fixed rate of 6.89% 20,000 20,000
$30,000,000 due in semi-annual installments of $2,000,000 commencing
June 22, 2001 with interest payable quarterly beginning
December 22, 1993 at a fixed rate of 6.47% 30,000 30,000
Liability under capitalized leases (see Note 9) 726 1,197
Installment notes with maturities through 1998 with various
interest rates 1,011 1,046
71,656 81,993
Less current installments 7,369 10,707
$64,287 $71,286
F-9
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
Prime
December 29, December 30,
2001 2000
(000's Omitted)
Notes Payable:
$20,000,000 due in quarterly installments of $540,500
with interest payable quarterly at a fixed rate of 8.74% $ 3,784 $ 5,946
$30,000,000 due in semi-annual installments of $2,000,000
with interest payable quarterly at a fixed rate of 6.47% 26,000 30,000
$20,000,000 due in quarterly installments of $714,300
commencing September 15, 2004 with interest payable quarterly
at a fixed rate of 7.49% 20,000 20,000
$30,000,000 due in annual installments of $6,000,000
commencing March 25, 2005 with interest payable quarterly
at a fixed rate of 7.55% 30,000 30,000
$25,000,000 due in annual installments of $5,000,000
commencing February 9, 2006 with interest payable quarterly
at a fixed rate of 6.61% 25,000 25,000
$70,000,000 due in annual installments of $14,000,000
commencing April 30, 2009 with interest payable semi-annually
at a fixed rate of 7.27% 70,000 -
Other long term debt 28 83
Installment notes with maturities through 2005 with various
interest rates in effect ranged from 6.0% to 8.5% in 1994 and were
6.0% in 1993. 2,754 1,766
177,566 112,795
Less current installments (7,179) (6,904)
$ 170,387 $ 105,891
=========== ===========
Aggregate maturities of long-term debt are $7,369,000, $7,060,000,
$6,131,000, $6,064,000$7,179,000, $6,412,000, $6,066,000, $13,195,000 and $5,972,000
$17,857,000 in 19952002 through 1999, respectively.
The fair value of the Company's debt based upon discounting of future
cash flows does not materially vary from the carrying value of such debt as
of December 31, 1994.
2006, respectively, and $126,857,000 thereafter.
(5) Patronage Dividends and Refund Certificates Payable
The Company operates as a cooperative organization and has paid or will pay patronage dividends
to member dealers on the portion of earnings derived from business done with such dealers. Patronage
dividends are allocated in proportion to the volume of purchases by member dealers during the period.
The amount of patronage dividends to be remitted in cash depends upon the level of dividends earned
by each member outlet, varying from 20% on the total dividends under $5,000 and increasing by 5%
on total dividends for each subsequent $2,500 earned to a maximum of 40% on total dividends
exceeding $12,500. AllIn 1999, amounts exceeding the cash portionsportion were distributed in the form of
options (i.e. other property) exercisable by the dealers at a future date to acquire shares of the
Company's ownership in a minority-owned investment. Amounts exceeding the cash portion will be
distributed in the form of Class C $100 par value stock, to a maximum based upon the current year's year
purchase volume or $20,000 whichever is greater, and thereafter in a combination of additional cash
and patronage refund certificates having maturity dates and bearing interest as determined by the
Board of Directors. A portion of the dealer's annual patronage dividends distributed under the above
plan in a form other than cash can be applied toward payment of principal and interest on any balances
outstanding for approved exterior signage and computer equipment financing.patronage financing programs.
The patronage dividend composition for 1994, 19932001, 2000 and 19921999 follows:
Subordinated Class Patronage Total
Cash Refund C Financing Patronage
Portion Certificates Stock Deductions Dividend
(000's omitted)
1994 $27,302 $ 9,920 $21,766 $5,532 $64,520
1993 25,766 12,728 19,064 1,465 59,023
1992 27,538 14,598 20,301 770 63,207
Subordinated Class Patronage Total
Cash Refund C Other Financing Patronage
PortionCertificatesStockPropertyDeductionsDividends
(000's Omitted)
2001 $34,229 $18,739 $23,284 $ - $ 8,857 $ 85,109
2000 34,764 18,029 24,267 - 9,477 86,537
1999 38,173 12,249 21,648 10,190 13,000 95,260
Patronage dividends are allocated on a calendarfiscal year basis with issuance in the following year.
The patronage refund certificates outstanding or issuable at December 31, 199429, 2001 are payable as follows:
Interest
January 1, Amount Rate
(000's omitted)
1995 $ 1,315 7.0%
1996 12,868 7.0
1997 14,570 6.25
1998 14,227 6.0
1999 12,081 6.0
2000 9,920 7.0
F-10
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
On
Interest
January 1, 1994 the Company prepaid a portion of the patronage refund
certificates payable on January 1, 1995 and accordingly, these certificates
are classified as current liabilities in the December 31, 1993 balance sheet.
The remaining patronage refund certificates payable on January 1, 1995 will
be paid in January 1995.
Amount �� Rate
(000's omitted)
2002 $ 9,084 6.25%
2003 13,319 6.00
2004 15,297 6.00
2005 12,449 6.25
2006 17,597 6.50
2007 18,739 6.00
(6) Retirement Plans
The Company has two defined benefit pension plans covering substantially all non-union employees. employees,
the Employees' Pension Plan and Trust and the Employees' Retirement Income Plan and Trust. The
Company terminated the Employees' Pension Plan and Trust effective April 30, 2000. In addition to the
net periodic pension expense, the Company recognized a gain of $3,131,000 (net of tax) in 2000 of which
the pre-tax portion is classified as other income, net in the accompanying consolidated financial statements.
Benefits in these plans are based on years of service, highest average compensation (as defined)
and the related profit sharing and primary social security benefit. Contributions to the planplans are based on
the Entry Age Normal, Frozen Initial Liability actuarial funding method and are limited to amounts that
are currently deductible for tax reporting purposes. As of December 31, 1994,29, 2001 plan assets in the
Employees' Retirement Income Plan and Trust were held primarily in equities, mutual funds and group
annuity contracts.
Pension expense for 2001, 2000 and guaranteed interest contracts, equities and mutual funds.
Pension income for the years 1994, 1993 and 19921999 included the following components:
1994 1993 1992
(000's omitted)
Service cost - benefits earned during the period $ 323 $ 292 $ 338
Interest cost on projected benefit obligation 805 752 722
Actual return on plan assets (121) (1,104) (975)
Net amortization and deferral (1,073) (169) (313)
Net periodic pension income $ (66) $ (229) $ (228)
December 29, December 30, January 1,
2001 2000 2000
(000's omitted)
Service cost - benefits earned during the
period $ 41 $ 52 $ 309
Interest cost on projected benefit obligation 116 112 399
Expected return on plan assets (123) (115) (733)
Net amortization and deferral - - (31) 125
Gain on curtailment (58) - - - -
Net periodic pension expense (income) $ (24) $ 18 $ 100
============ ============ ==========
The following table sets forth the funded status of the plans and amounts recognized in the Company's
Consolidated Balance SheetSheets at December 31, 199429, 2001 and 1993
(September 30th measurement date):
1994 1993
(000's omitted)
Accumulated benefit obligation, including vested
benefits of $10,919,000 and $8,500,000 $11,384 $ 9,515
Plan assets at fair value $13,654 $14,023
Projected benefit obligation for service rendered to date 12,364 10,897
Plan assets in excess of projected benefit obligation $ 1,290 $ 3,126
Unrecognized net (gain) loss from past experience
different from that assumed and effects of changes
in assumptions 3,361 1,544
Remaining unrecognized net asset being amortized
over participants average remaining service period (1,983) (2,148)
Prepaid pension cost included in other assets $ 2,668 $ 2,522
F-11
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)December 30, 2000:
December 29, December 30,
2001 2000
(000's omitted)
Change in benefit obligation:
Benefit obligation at beginning of year $ 1,656 $ 5,412
Service cost 41 52
Interest cost 116 112
Actuarial losses (gains) 91 (119)
Curtailment and settlements (141) -
Benefits paid (49) (3,801)
Benefit obligation at end of year 1,714 1,656
Change in plan assets:
Fair value of plan assets at beginning of year 1,560 10,293
Actual return on plan assets 91 29
Employer contribution (reversion) 43 (4,961)
Benefits paid (49) (3,801)
Fair value of plan assets at end of year 1,645 1,560
Funded status (69) (96)
Unrecognized transition asset 6 (65)
Unamortized prior service cost (4) (581)
Unrecognized net actuarial losses (gains) 78 688
Prepaid (accrued) pension cost $ 11 $ (54)
============ ============
The weighted average discount rate used in determining the actuarial present value of the projected
benefit obligation was 7.0%7.25% in 19942001 and 7.5%7.50% in 1993.2000. The related expected long-term rate of return
was 8.0% in 19942001 and 8.5% in 1993.2000. The rate of increase in future compensation was projected using actuarial
salary tables plus 1%1.0% in 19942001 and using a rate of 6% in 1993.2000.
The Company also participates in several multi-employer plans covering union employees. Amounts
charged to expense and contributed to the plans totaled approximately $282,000, $275,000,$212,000, $222,000 and $426,000 $233,000
in 1994, 19932001, 2000 and 1992,1999, respectively.
The Company's profit sharing plan contribution for the years ended 1994,
1993,2001, 2000 and 19921999 was approximately $9,381,000, $8,690,000
$14,253,000, $14,586,000 and $7,374,000,$15,071,000, respectively.
The Company has no significant post-retirement benefit
liabilities as defined under Financial Accounting Standard No. 106.
(7) Income Taxes
As a cooperative, the Company distributes substantially all of its patronage sourced earnings to
its members in the form of patronage dividends. The 1994, 19932001, 2000 and 19921999 provisions (benefit) for federal
income taxes were $924,000,
$141,000$3,037,000, $(162,000) and $162,000,$1,000,000, respectively, and for state income taxes were
$560,000, $287,000
$381,000, $289,000 and $409,000,$833,000, respectively. The current year increase in the effective tax rate was
primarily due to nonrecurring gains realized on the sale of property and equipment.
The Company made tax payments of $1,428,000, $357,000,$807,000, $1,095,000 and $728,000$2,755,000 during 1994, 19932001, 2000 and 1992,
1999, respectively.
(8) Member Dealers' Equity
The Company's founders for many years contemplated that the ownership of
the Company would eventually be with the Company's member dealers. Prior to
November 30, 1976, dealers deposited monies to the Ace Dealer's Perpetuation
Fund for the purpose of accumulating funds for the purchase of stock when
such ownership became available. The Company registered its stock with the
Securities and Exchange Commission on October 1, 1976 and existing dealers
who subscribed for stock applied their deposits toward payment of such
shares. The small number of dealers who did not subscribe for shares had
their respective deposits refunded during 1977.
F-12
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
The Company's classes of stock are described below:
Number of Shares
at December 31,
1994 1993
Class A Stock, voting, redeemable at par value --
Authorized 10,000 10,000
Issued and outstanding 3,924 3,946
Class B Stock, nonvoting, redeemable at not less than
twice par value --
Authorized 6,500 6,500
Issued 6,499 6,499
Outstanding 3,248 3,416
Treasury stock 3,251 3,083
Class C Stock, nonvoting, redeemable at not less than
par value --
Authorized 2,000,000 2,000,000
Issued and outstanding 1,646,656 1,531,549
Issuable as patronage dividends 217,658 190,635
Additional Stock Subscribed:
Class A Stock 291 223
Class B Stock -- --
Class C Stock 21,800 19,520
Number of Shares at
December 29, December 30,
2001 2000
Class A Stock, voting, redeemable at par value -
Authorized 10,000 10,000
Issued and outstanding 3,693 3,783
Class B Stock, nonvoting, redeemable at not less than
twice par value-
Authorized 6,500 6,500
Issued 6,499 6,499
Outstanding 2,108 2,252
Treasury stock 4,391 4,247
Class C Stock, nonvoting, redeemable at not less
than par value -
Authorized 4,000,000 4,000,000
Issued and outstanding 2,602,243 2,504,796
Issuable as patronage dividends 232,839 242,671
Additional Stock Subscribed:
Class A Stock 94 41
Class B Stock - -
Class C Stock 9,770 9,750
At December 31, 199429, 2001 and 1993December 30, 2000 there were no common shares reserved for options, warrants,
conversions or other rights; nor were any options granted or exercised during the two years then ended.
Member dealers may subscribe for the Company's stock in various prescribed combinations. Only one
share of Class A Stock may be owned by a dealer with respect to the first member retail outlet controlled by
such dealer. Only four shares of Class B Stock may be owned by a dealer with respect to each retail outlet
controlled by such dealer, but only if such outlet was a member of the Company on or before February 20,
1974. An appropriate number of shares of Class C Stock must be included in any subscription by a dealer
in an amount to provide that such dealer has a par value of all shares subscribed for equal to $5,000 for each
retail outlet. Unregistered shares of Class C Stock are also issued to dealers in connection with patronage
dividends. No dividends can be declared on any shares of any class of the Company's Stock.
Upon termination of the Company's membership agreement with any retail outlet, all shares of stock
of the Company held by the dealer owning or controlling such outlet, must be sold back to the Company,
unless a transfer of such shares is made to another party accepted by the Company as a member dealer
with respect to the same outlet.
A Class A share is issued to a member dealer only when the share subscribed has been fully paid.
Class B and Class C shares are only issued when all such shares subscribed with respect to a retail outlet
have been fully paid. Additional Stock Subscribedstock subscribed in the accompanying statements represents the par
value of shares subscribed, reduced by the unpaid portion.
F-13
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
All shares of stock are currently issued and repurchased at par value, except for Class B Stock which
is repurchased at twice its par value, or $2,000 per share. Upon retirement of Class B shares held in
treasury, the excess of redemption price over par is allocated equally between contributed capital and
retained earnings.
Transactions
Treasury stock transactions during 19931999, 2000 and 1994 affecting treasury shares follow:
Shares Held in Treasury
Class A Class B Class C
Balance at December 31, 1992 -- 2,919 --
Stock issued -- -- --
Stock repurchased 271 164 72,359
Stock retired (271) -- (72,359)
Balance at December 31, 1993 -- 3,083 --
Stock issued -- -- --
Stock repurchased 240 168 77,013
Stock retired (240) -- (77,013)
Balance at December 31, 1994 -- 3,251 --
2001 are summarized below:
Shares Held in Treasury
Class AClass BClass C
Balance at January 2, 1999 - 3,907 -
Stock issued - - -
Stock repurchased 228 160 119,614
Stock retired (228) - (119,614)
Balance at January 1, 2000 - 4,067 -
Stock issued - - -
Stock repurchased 307 180 141,365
Stock retired (307) - (141,365)
Balance at December 30, 2000 - 4,247 -
Stock issued - - -
Stock repurchased 260 144 144,584
Stock retired (260) - (144,584)
Balance at December 29, 2001 - 4,391 -
========= ========= =========
(9) Segments
The Company is principally engaged as a wholesaler of hardware and related products and is a manufacturer
of 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 interest expense and income taxes. Information
regarding the identified segments and the related reconciliation to consolidated information are as
follows:
December 29, 2001
(000's omitted)
Elimination of
Paint Intersegment
WholesaleManufacturingOtherActivitiesConsolidated
Net sales from external customers $2,822,727 $ 18,668 $52,974 - $2,894,369
Intersegment sales 27,881 110,621 - (138,502) -
Interest expense 23,156 1,094 1,459 (2,553) 23,156
Depreciation and amortization 25,520 1,768 1,933 - 29,221
Segment profit (loss) 63,504 11,255 (1,330) (360) 73,069
Identifiable segment assets 1,075,358 62,205 49,742 (18,514) 1,168,791
Expenditures for long-lived assets 47,165 1,673 2,592 - 51,430
December 30, 2000
(000's omitted)
Elimination of
Paint Intersegment
WholesaleManufacturingOtherActivitiesConsolidated
Net sales from external customers $2,879,952 $ 20,852 $44,347 - $2,945,151
Intersegment sales 28,641 100,780 - (129,421) -
Interest expense 21,803 1,209 1,278 (2,487) 21,803
Depreciation and amortization 29,176 1,694 1,403 - 32,273
Segment profit (loss) 73,540 9,739 (2,452) (435) 80,392
Identifiable segment assets 1,026,130 68,130 48,775 (19,225) 1,123,810
Expenditures for long-lived assets 39,807 937 3,905 - 44,649
January 1, 2000
(000's omitted)
Elimination of
Paint Intersegment
WholesaleManufacturingOtherActivitiesConsolidated
Net sales from external customers $3,128,269 $ 27,268 $26,265 - $3,181,802
Intersegment sales 22,647 100,758 - (123,405) -
Interest expense 16,651 1,383 590 (1,973) 16,651
Depreciation and amortization 21,022 1,589 785 - 23,396
Segment profit (loss) 85,574 9,475 (1,819) (668) 92,562
Identifiable segment assets 975,618 78,057 40,235 (12,426) 1,081,484
Expenditures for long-lived assets 35,027 2,846 5,201 - 43,074
Net sales and long-lived assets by geographic region based upon customer location for 2001, 2000 and
1999 were as follows:
December 29, 2001December 30, 2000January 1, 2000
(000's omitted)
Net sales:
United States $2,767,829 $2,748,740 $2,975,567
Foreign countries 126,540 196,411 206,235
Total $2,894,369 $2,945,151 $3,181,802
========== ========== ==========
Long-lived assets, net:
United States $ 285,345 $ 258,802 $ 254,747
Foreign countries 2,162 3,088 4,431
Total $ 287,507 $ 261,890 $ 259,178
=========== =========== ==========
(10) Commitments
Leased property under capital leases is included underas "Property and Equipment" in the balance sheetsConsolidated
Balance Sheets as follows:
December 31,
(000's omitted)
1994 1993
Buildings and improvements $ 3,422 $ 3,422
Data processing equipment 723 723
Less: Accumulated depreciation and amortization (3,609) (3,291)
$ 536 $ 854
F-14
ACE HARDWARE CORPORATION
NOTES TO FINANCIAL STATEMENTS-(Continued)
December 29, December 30,
2001 2000
(000's omitted)
Data processing equipment $3,444 $3,598
Less: accumulated depreciation and amortization (3,345) (3,252)
$99 $346
============ ============
The Company primarily rents buildings and warehouse, office and certain other equipment under
operating and capital leases. At December 31, 199429, 2001 annual minimum rental commitments under leases that have
initial or remaining noncancelable terms in excess of one year wereare as follows:
December 29,
Year Ending Capital Operating
December 31, Leases Leases 2001
(000's omitted)
1995 $502
2002 $ 9,421
1996 271 7,746
1997 -- 5,768
1998 -- 4,502
1999 -- 3,448
27,372
2003 20,905
2004 16,353
2005 13,481
2006 11,653
Thereafter -- 24,780 39,277
Total minimum lease payments $773 $55,665
Less amount representing interest 47
Present value of total minimum lease payments $726$ 129,041
============
All leases expire prior to 2010.2017. Under certain leases, the Company pays real estate taxes, insurance
and maintenance expenses in addition to rental expense. Management expects that in the normal course
of business, leases that expire will be renewed or replaced by other leases. Rent expense was approximately $21,814,000, $21,444,000
$49,336,000, $45,514,000 and $21,073,000$39,149,000 in 1994, 19932001, 2000 and 1992,1999, respectively. Rent expense
includes $4,382,000, $4,282,000$9,793,000, $9,977,000 and $3,706,000$7,352,000 in contingent rentals paid in 1994, 19932001, 2000 and 1992, 1999,
respectively, primarily for transportation equipment mileage.
(10) Supplementary Income Statement Information
(11) Media Expense
The Company expenses media costs the first time the advertising takes place. Gross media expense,
prior to income offsets from dealers and suppliers, amounting to $52,185,000, $48,293,000$76,898,000, $76,372,000 and $47,813,000 were
$79,639,000 was charged to operations in 1994, 1993,2001, 2000 and 1992,1999, respectively.
(11)
(12) Interest Expense and Other Income, Net
Capitalized interest totaled $213,000, $29,000 and $836,000 in 1994, 1993
and 1992, respectively.
Interest paid was $13,518,000, $10,670,000$20,574,000, $20,256,000 and $9,149,000$16,411,000 in 1994, 19932001, 2000 and 1992,1999, respectively, net
of capitalized interest of $289,000, $715,000 and $234,000 in 2001, 2000 and 1999, respectively.
F-15
Schedule II
ACE HARDWARE CORPORATION
VALUATION AND QUALIFYING ACCOUNTS-
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(000's omitted)
Provision Collections Uncollectible
Balance at for Losses on Receivables Accounts Balance
Beginning Charged to Previously Written At End
Description of Period Income Written Off Off Of Period
1992 $660 1,387 20 (1,367) $ 700
1993 $700 1,412 46 (1,438) $ 720
1994 $720 1,243 26 (639) $1,350
F-16
INDEX TO EXHIBITS
Exhibits
Incorporated
by Reference
2 Not Applicable
3-A Restated Certificate of Incorporation of the Registrant
dated September 18, 1974 filed as Exhibit 3-A to the
Registrant's Form S-1 Registration Statement (Registra-
tion No. 2-55860) on March 30, 1976 and incorporated
herein by reference.
3-B By-laws of the Registrant as amended on September 20,
1994 included as Appendix A to the Prospectus constitut-
ing a part of the Registrant's Form S-2 Registration
Statement filed on or about March 23, 1995 and
incorporated herein by reference.
3-C Certificate of Amendment to the restated Certificate of
Incorporation of the Registrant dated May 19, 1976 filed
as Exhibit 3-D to Amendment No. 1 to the Registrant's
Form S-1 Registration Statement (Registration No. 2-55860)
on June 10, 1976 and incorporated herein by reference.
3-D Certificate of Amendment to the restated Certificate of
Incorporation of the Registrant dated May 21, 1979 filed
as Exhibit 3-F to Amendment No. 1 to the Registrant's
Form S-1 Registration Statement (Registration No. 2-63880)
on May 23, 1979 and incorporated herein by reference.
3-E Certificate of Amendment to the restated Certificate of
Incorporation of the Registrant dated June 7, 1982 filed
as Exhibit 3-G to the Registrant's Form S-1 Registration
Statement (Registration No. 2-82460) on March 16, 1983
and incorporated herein by reference.
3-F Certificate of Amendment to the restated Certificate of
Incorporation of the Registrant dated June 5, 1987 filed
as Exhibit 3-F to the Registrant's Form S-1 Registration
Statement (Registration No. 33-4299) on March 29, 1988
and incorporated by reference.
3-G Certificate of Amendment to the restated Certificate of
Incorporation of the Registrant dated June 16, 1989 filed
as Exhibit 4-G to Post Effective Amendment No. 1 to the
Registrant's S-2 Registration Statement filed on or about
March 20, 1990 and incorporated by reference.
4-A Specimen copy of Class B stock certificate as revised as
of November, 1984, filed as Exhibit 4-A to Post-Effective
Amendment No. 2 to the Registrant's Form S-1 Registration
Statement (Registration No. 2-82460) on March 15, 1985
and incorporated herein by reference.
4-B Specimen copy of Patronage Refund Certificate as revised
in 1988 filed as Exhibit 4-B to Post-Effective Amendment
No. 2 to the Registrant's Form S-1 Registration Statement
(Registration No. 33-4299) on March 29, 1988 and
incorporated herein by reference.
E-1
Exhibits
Incorporated
by Reference
4-C Specimen copy of Class A stock certificate as revised in
1987 filed as Exhibit 4-C to Post-Effective Amendment
No. 2 to the Registrant's Form S-1 Registration Statement
(Registration No. 33-4299) on March 29, 1988 and
incorporated herein by reference.
4-D Specimen copy of Class C stock certificate filed as Exhibit
4-I to the Registrant's Form S-1 Registration Statement
(Registration No. 2-82460) on March 16, 1983 and
incorporated herein by reference.
4-E Copy of current standard form of Subscription for Capital
Stock Agreement to be used for dealers to subscribe for
shares of the Registrant's stock in conjunction with new
membership agreements submitted to the Registrant filed
as Exhibit 4-L to Post-Effective Amendment No. 2 to the
Registrant's Form S-2 Registration Statement (Registration
No. 33-46449) on or about March 23, 1994 and incorporated
herein by reference.
4-F Copy of plan for the distribution of patronage dividends
with respect to purchases of merchandise made from the
Registrant on or after January 1, 1995 adopted by the
Board of Directors of the Registrant on July 26, 1994
filed as Exhibit 4-M to the Registrant's Form S-2
Registration Statement on or about March 23, 1995 and
incorporated herein by reference.
4-G Copy of plan for the distribution of patronage dividends
with respect to purchases of merchandise made from the
Registrant on or after January 1, 1993 through December 31,
1994, adopted by the Board of Directors of the Registrant
on December 8, 1992, filed as Exhibit 4-M to Post-Effective
Amendment No. 2 to the Registrant's Form S-2 Registration
Statement (Registration No. 33-46449) on or about March
23, 1994 and incorpoated herein by reference.
9 No Exhibit
10-A Copy of Retirement Benefits Replacement Plan of the
Registrant, restated as of January 1, 1989, filed as
Exhibit 10-A to Post-Effective Amendment No. 2 to the
Registrant's Form S-2 Registration Statement (Registration
No. 33-46449) on or about March 23, 1994 and incorporated
herein by reference.
10-B Copy of resolutions amending the 1990 Incentive
Compensation Plans for Executives and establishing the
Executive Supplemental Benefit Plans of the Registrant
adopted by its Board of Directors on December 11, 1990
and filed as Exhibit 10-G to Post Effective Amendment
No. 2 to the Registrant's Form S-2 Registration Statement
(Registration No. 33-27790) on March 20, 1991 and
incorporated herein by reference.
10-C Copy of amendment to the Executive Supplemental Benefits
Plan of the Registrant adopted by its Board of Directors
on July 30, 1991 filed as Exhibit 10-E to the Registrant's
Form S-2 Registration Statement (Registration No. 33-46449)
on March 23, 1992 and incorporated herein by reference.
10-D Copy of amendment to the Executive Supplemental Benefits
Plan of the Registrant adopted by its Board of Directors
on December 9, 1991 filed as Exhibit 10-F to the
Registrant's Form S-2 Registration Statement (Registration
No. 33-46449) on March 23, 1992 and incorporated herein
by reference.
E-2
Exhibits
Incorporated
by Reference
10-E Copy of the "Ace Hardware Corporation Officer's (sic)
Incentive Compensation Plan" as amended and restated
effective January 1, 1994, filed as Exhibit 10-G to
Post-Effective Amendment No. 2 to the Registrant's Form
S-2 Registration Statement (Registration No. 33-46449)
on or about March 23, 1994 and incorporated herein by
reference.
10-F Copy of Employment Agreement dated October 4, 1994 between
Ace Hardware Corporation and Paul M. Ingevaldson filed as
Exhibit 10-F to the Registrant's Form S-2 Registration
Statement on or about March 23, 1995 and incorporated
herein by reference.
10-G Copy of Employment Agreement dated October 4, 1994 between
Ace Hardware Corporation and David F. Hodnik filed as
Exhibit 10-G to the Registrant's Form S-2 Registration
Statement on or about March 23, 1995 and incorporated
herein by reference.
10-H Copy of Employment Agreement dated October 12, 1994 between
Ace Hardware Corporation and William A. Loftus filed as
Exhibit 10-H to the Registrant's Form S-2 Registration
Statement on or about March 23, 1995 and incorporated
herein by reference.
10-I Copy of Employment Agreement effective January 1, 1993
between Ace Hardware Corporation and Roger E. Peterson
filed as Exhibit 10-K to Post Effective Amendment No. 1
to the Registrant's Form S-2 Registration Statement
(Registration No. 33-46449) on March 22, 1993 and
incorporated herein by reference.
10-J Copy of Employment Agreement effective January 1, 1993
between Ace Hardware Corporation and Paul Ingevaldson
filed as Exhibit 10-I to Post Effective Amendment No. 1
to the Registrant's Form S-2 Registration Statement
(Registration No. 33-46449) on March 22, 1993 and
incorporated herein by reference.
10-K Copy of Employment Agreement effective January 1, 1993
between Ace Hardware Corporation and David F. Hodnik filed
as Exhibit 10-J to Post Effective Amendment No. 1 to the
Registrant's Form S-2 Registration Statement (Registration
No. 33-46449) on March 22, 1993 and incorporated herein by
reference.
10-L Copy of Employment Agreement effective January 1, 1993
between Ace Hardware Corporation and William A. Loftus
filed as Exhibit 10-L to Post Effective Amendment No. 1
to the Registrant's Form S-2 Registration Statement
(Registration No. 33-46449) on or about March 22, 1993
and incorporated herein by reference.
10-M Copy of Loan Agreement with Anne Arundel County, Maryland
dated December 1, 1981 securing 15-year floating rate
industrial development revenue bonds in the principal sum
of $9 million held by The Northern Trust Company, Chicago,
Illinois, for itself and other participating lenders filed
as Exhibit 10-A-k to Post-Effective Amendment No. 3 to the
Registrant's Form S-1 Registration Statement (Registration
No. 2-63880) on March 9, 1982 and incorporated herein by
reference.
10-N Copy of Note Purchase and Private Shelf Agreement with
the Prudential Insurance Company of America dated
September 27, 1991 securing 8.74% Senior Series A Notes
in the principal sum of $20,000,000.00 with a maturity
date of July 1, 2003 filed as Exhibit 10-A-q to the
Registrant's Form S-2 Registration Statement (Registration
No. 33-46449) on March 23, 1992 and incorporated herein by
reference.
E-3
Exhibits
Incorporated
by Reference
10-O Copy of Standard Form of Ace Hardware International Retail
Merchant Agreement adopted in 1990, filed as Exhibit 10-A-q
to Post Effective Amendment No. 2 to the Registrant's Form
S-2 Registration Statement (Registration No. 33-27790) on
March 20, 1991 and incorporated herein by reference.
10-P Copy of current standard form of Ace Hardware Membership
Agreement filed as Exhibit 10-P to Pre-Effective
Amendment No. 2 to the Registrant's form S-2 Registration
Statement on or about April 26, 1995 and incorporated herein
by reference.
10-Q Copy of 6.89% Senior Series B notes in the aggregate
principal sum of $20,000,000 issued July 29, 1992 with a
maturity date of January 1, 2000 pursuant to Note Purchase
and Private Shelf Agreement with the Prudential Insurance
Company of America dated September 27, 1991 and filed as
Exhibit 10-A-r to Post Effective Amendment No. 1 to the
Registrant's Form S-2 Registration Statement on March 22,
1993 and incorporated herein by reference.
10-R Copy of 6.47% Senior Series A notes in the aggregate
principal amount of $30,000,000 issued September 22, 1993
with a maturity date of June 22, 2008, and $20,000,000
Private Shelf Facility, pursuant to Note Purchase and
Private Shelf Agreement with the Prudential Insurance
Company of America dated as of September 22, 1993, filed
as Exhibit 10-R to Post-Effective Amendment No. 2 to the
Registrant's Form S-2 Registration Statement (Registration
No. 33-46449) on or about March 23, 1994 and incorporated
herein by reference.
10-S Assignment and Assumption dated October 22, 1992 of Lease
dated August 31, 1992 with MTI Vacations, Inc. filed as
Exhibit 10-A-s to Post Effective Amendment No. 1 to the
Registrant's Form S-2 Registration Statement (Registration
No. 33-46449) on March 22, 1993 and incorporated herein by
reference.
10-T Copy of Amendment to the Executive Supplemental Benefit
Plans of the Registrant adopted by its Board of Directors
on March 17, 1992 and filed as Exhibit 10-A-t to the
Registrant's Form S-2 Registration Statement (Registration
No. 33-46449) on March 22, 1993 and incorporated herein by
reference.
10-U Copy of Lease dated September 30, 1992 for general offices
of the Registrant in Oak Brook, Illinois filed as Exhibit
10-A-u to the Registrant's Form S-2 Registration Statement
(Registration No. 33-46449) on March 22, 1993 and
incorporated herein by reference.
10-V Copy of Fourth Amendment to Executive Supplemental Benefit
Plans effective January 1, 1994 filed as Exhibit 10-V to
Post-Effective Amendment No. 2 to the Registrant's Form S-2
Registration Statement (Registration No. 33-46449) on or
about March 23, 1994 and incorporated herein by reference.
10-W Copy of Ace Hardware Corporation Deferred Director Fee
Plan as amended on June 8, 1993, filed as Exhibit 10-W
to Post-Effective Amendment No. 2 to the Registrant's
Form S-2 Registration Statement (Registration No. 33-46449)
on or about March 23, 1994 and incorporated herein by
reference.
10-X Copy of Ace Hardware Corporation Deferred Compensation
Plan effective January 1, 1994, filed as Exhibit 10-X to
Post-Effective Amendment No. 2 to the Registrants Form S-2
Registration Statement (Registration No. 33-46449) on or
about March 23, 1994 and incorporated herein by reference.
E-4
Exhibits
Incorporated
by Reference
10-Y Copy of Lease dated September 22, 1994 for bulk
merchandise redistribution center of the Registrant in
Carol Stream, Illinois filed as Exhibit 10-Y to the
Registrant's Form S-2 Registration Statement on or about
March 23, 1995 and incorporated herein by reference.
10-Z Copy of Lease dated May 4, 1994 for freight consolidation
center of the Registrant in Chicago, Illinois filed as
Exhibit 10-Z to the Registrant's Form S-2 Registration
Statement on or about March 23, 1995 and incorporated
herein by reference.
10-a-1 Copy of Long-Term Incentive Compensation Deferral Option
Plan of the Registrant effective January 1, 1995 adopted
by its Board of Directors on December 6, 1994 filed as
Exhibit 10-a-1 to the Registrant's Form S-2 Registration
Statement on or about March 23, 1995 and incorporated
herein by reference.
10-a-2 Copy of Directors' Deferral Option Plan of the Registrant
effective January 1, 1995 adopted by its Board of
Directors on December 6, 1994 filed as Exhibit 10-a-2
to the Registrant's Form S-2 Registration Statement on
or about March 23, 1995 and incorporated herein by
reference.
10-a-3 Copy of Employment Agreement dated March 22, 1994 between
Ace Hardware Corporation and Fred J. Neer filed as Exhibit
10-a-3 to the Registrant's Form S-2 Registration Statement
on or about March 23, 1995 and incorporated herein by
reference.
10-a-4 Copy of Employment Agreement dated March 22, 1994 between
Ace Hardware Corporation and Donald L. Schuman filed as
Exhibit 10-a-4 to the Registrant's Form S-2 Registration
Statement on or about March 23, 1995 and incorporated
herein by reference.
10-a-5 Copy of Employment Agreement dated December 13, 1993
between Ace Hardware Corporation and David W. League
filed as Exhibit 10-a-5 to the Registrant's Form S-2
Registration Statement on or about March 23, 1995
and incorporated herein by reference.
10-a-6 Copy of Employment Agreement dated December 15, 1993
between Ace Hardware Corporation and David F. Myer
filed as Exhibit 10-a-6 to the Registrant's Form S-2
Registration Statement on or about March 23, 1995
and incorporated herein by reference.
10-a-7 Copy of Employment Agreement dated March 24, 1994 between
Ace Hardware Corporation and Michael C. Bodzewski filed
as Exhibit 10-a-7 to the Registrant's Form S-2 Registration
Statement on or about March 23, 1995 and incorporated
herein by reference.
10-a-8 Copy of Employment Agrement dated December 15, 1993
between Ace Hardware Corporation and Rita D. Kahle
filed as Exhibit 10-a-8 to the Registrant's Form S-2
Registration Statement on or about March 23, 1995
and incorporated herein by reference.
10-a-9 Copy of Agreement dated January 6, 1995 between Ace
Hardware Corporation and Roger E. Peterson filed as
Exhibit 10-a-9 to the Registrant's Form S-2
Registration Statement on or about March 23, 1995 and
incorporated herein by reference.
E-5
Exhibits
Incorporated
by Reference
10-a-10 Copy of Ace Hardware Corporation Officer Incentive Plan
for Fiscal Year 1994 filed as Exhibit 10-a-10 to the
Registrant's Form S-2 Registration Statement on or about
March 23, 1995 and incorporated herein by reference.
11 No Exhibit.
12 No Exhibit.
13 No Exhibit.
16 Not Applicable.
18 No Exhibit.
21 Subsidiaries of Registrant filed as Exhibit 21
to the Registrant's Form 10-K on or about March 23,
1995 and incorporated herein by reference.
22 Not Applicable.
23 Auditors' Consent, dated April 25, 1996, filed as
Exhibit 23(a) to the Registrant's Pre-Effective
No. 2 Amendment to the Form S-2 Registration
Statement filed on or about April 26, 1995 and
incorporated herein by reference.
24 Powers of Attorney filed as Exhibit 24 to the
Registrant's Form 10-K on or about March 23, 1995
and incorporated herein by reference.
27 No Exhibit.
28 Not Applicable.
Supplemental Information to be Furnished with Reports Filed Pursuant to
Section 15(d) of the Act by Registrants which have not Registered
Securities Pursuant to Section 12 of the Act.
As of the date of the foregoing Report, no annual report for the
Registrant's year ended December 31, 1994, nor any proxy soliciting
materials for the Registrant's 1995 annual meeting have been sent to
security holders. Copies of such Annual Report and proxy soliciting
materials will subsequently be sent to security holders and furnished to
the Securities and Exchange Commission.
E-6