SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
March 31,June 30, 2001 and December 30, 2000 1
Condensed Consolidated Statements of Earnings and
Condensed Consolidated Statements of Comprehensive
Income - Twenty-six Weeks and Thirteen Weeks Ended March 31,
June 30, 2001
and AprilJuly 1, 2000 2
Condensed Consolidated Statements of Cash Flows -
ThirteenTwenty-six Weeks Ended March 31,June 30, 2001
and AprilJuly 1, 2000 3
Notes to Condensed Consolidated Financial Statements 4 - 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 78
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 89
Part II. - Other Information
Item 1. Legal Proceedings 910
Item 2. Changes in Securities and Use of Proceeds 910
Item 3. Defaults Upon Senior Securities 910
Item 4. Submission of Matters to a Vote of Security Holders 910
Item 5. Other Information 911
Item 6. Exhibits and Reports on Form 8-K 911
March 31, | December 30, | ||
2001 | 2000 | ||
(Unaudited) | |||
ASSETS | |||
Current Assets: | |||
Cash and Cash Equivalents | $ 23,470 | $ 24,644 | |
Short-Term Investments | 12,723 | 12,772 | |
Accounts Receivable, Net | 380,951 | 372,971 | |
Merchandise Inventory | 405,107 | 395,565 | |
Prepaid Expenses and Other | |||
Current Assets | 14,871 | 15,105 | |
Total Current Assets | 837,122 | 821,057 | |
Property and Equipment, Net | 264,228 | 261,890 | |
Other Assets | 42,435 | 40,863 | |
Total Assets | $1,143,785 | $ 1,123,810 | |
Liabilities and Member Dealers' Equity | |||
Current Liabilities: | |||
Current Installment of Long-Term Debt | $ 6,834 | $ 6,904 | |
Short-Term Borrowings | 119,500 | 81,500 | |
Accounts Payable | 443,108 | 448,766 | |
Patronage Dividends Payable in Cash | 37,776 | 34,764 | |
Patronage Refund Certificates Payable | 9,121 | 4,795 | |
Accrued Expenses | 58,048 | 63,224 | |
Total Current Liabilities | 674,387 | 639,953 | |
Long-Term Debt | 105,620 | 105,891 | |
Patronage Refund Certificates Payable | 60,705 | 68,385 | |
Other Long-Term Liabilities | 25,934 | 24,923 | |
Total Liabilities | 866,646 | 839,152 | |
Member Dealers' Equity: | |||
Class A Stock of $1,000 Par Value | 3,819 | 3,783 | |
Class B Stock of $1,000 Par Value | 6,499 | 6,499 | |
Class C Stock of $100 Par Value | 250,758 | 250,480 | |
Class C Stock of $100 Par Value, Issuable | 26,220 | 24,267 | |
Additional Stock Subscribed, Net | |||
Of Unpaid Portion | 345 | 351 | |
Retained Deficit | (8,725) | (5,551) | |
Contributed Capital | 13,485 | 13,485 | |
Accumulated Other Comprehensive Income | (1,003) | (162) | |
291,398 | 293,152 | ||
Less: Treasury Stock, at Cost | (14,259) | (8,494) | |
Total Member Dealers' Equity | 277,139 | 284,658 | |
Total Liabilities and Member Dealers' Equity | $1,143,785 | $ 1,123,810 | |
|
March 31, | April 1, | ||
2001 | 2000 | ||
Net Sales | $ 659,595 | $ 701,009 | |
Cost of Sales | 600,917 | 638,250 | |
Gross Profit | 58,678 | 62,759 | |
Operating Expenses | |||
Warehouse and Distribution | 9,598 | 7,974 | |
Selling, General and Administrative | 23,304 | 23,385 | |
Retail Success and Development | 18,575 | 16,648 | |
Total Operating Expenses | 51,477 | 48,007 | |
Operating Income | 7,201 | 14,752 | |
Interest Expense | (5,603) | (4,702) | |
Other Income, Net | 3,210 | 3,786 | |
Income Taxes | 228 | 510 | |
Net Earnings | $ 5,036 | $ 14,346 | |
Distribution of Net Earnings | |||
Patronage Dividends | $ 8,210 | $ 15,481 | |
Retained Earnings | (3,174) | (1,135) | |
Net Earnings | $ 5,036 | $ 14,346 | |
|
March 31, | April 1, | ||
2001 | 2000 | ||
Net Earnings | $ 5,036 | $ 14,346 | |
Unrealized Gains on Securities | 339 | - | |
Foreign Currency Translation, Net | (1,180) | (56) | |
Comprehensive Income | $ 4,195 | $ 14,290 | |
|
March 31, | April 1, | ||
2001 | 2000 | ||
Operating Activities: | |||
Net Earnings | $ 5,036 | $ 14,346 | |
Adjustments to reconcile net earnings to | |||
net cash used in operating activities: |
Depriciation and amortization | 6,788 | 6,116 | |
Increase in accounts receivable, net | (9,726) | (37,868) | |
Increase in inventories | (9,542) | (42,064) | |
(Increase) decrease in other current | |||
assets | 234 | (679) | |
Increase (decrease) in accounts payable | |||
And accrued expenses | (10,834) | 39,280 | |
Increase in other long-term liabilities | 1,011 | 348 | |
Net Cash Used in Operating Activities | (17,033) | (20,521) | |
Investing Activities: | |||
Purchase of property and equipment | (9,126) | (8,811) | |
Increase in other assets | (2,364) | (7,598) | |
Net Cash Used in Investing Activities | (11,490) | (16,409) | |
Financiang Activities: | |||
Proceeds of short-term borrowings | 38,000 | 38,971 | |
Principal payments on long-term debt | (341) | (1,772) | |
Payment of patronage refund certificates | (4,853) | (89) | |
Proceeds from sale of common stock | 308 | 477 | |
Repurchase of common stock | (5,765) | (4,055) | |
Net Cash Provided By Financing Activities | 27,349 | 33,532 | |
Decrease in Cash and Cash Equivalents | (1,174) | (3,398) | |
Cash and Cash Equivalents at Beginning of | |||
Period | 24,644 | 35,422 | |
Cash and Cash Equivalents at End of Period | $ 23,470 | $ 32,024 | |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1) General
The condensed consolidated interim period financial statements presented herein do not include all of the information and disclosures required in annual financial statements and have not been audited, as permitted by the rules and regulations of the Securities and Exchange Commission. The condensed consolidated interim period financial statements should be read in conjunction with the annual financial statements included in the Ace Hardware Corporation Annual Report on Form 10K10-K as filed with the Securities and Exchange Commission on March 22, 2001. In the opinion of management, these financial statements have been prepared in conformity with accounting principles generally accepted accounting principlesin the United States and reflect all adjustments necessary for a fair statement of the results of operations and cash flows for the interim periods ended March 31,June 30, 2001 and AprilJuly 1, 2000 and of it'sthe Company's financial position as of March 31,June 30, 2001. All such adjustments are of a normal recurring nature. The results of operations for the thirteen week and twenty-six week periods ended March 31, 2001June 30, 200 1 and AprilJuly 1, 2000 are not necessarily indicative of the results of operations for a full year.
2) Patronage Dividends
The Company operates as a cooperative organization and will pay patronage dividends to consenting member dealers based on the earnings derived from business done with such dealers. It has been the practice of the Company to distribute substantially all patronage sourced earnings in the form of patronage dividends.
Net earnings and patronage dividends will normally be similar since patronage sourced net earnings is paid to consenting member dealers. International operations and dealers signed under a Retail Merchant Agreement are not eligible for patronage dividends and related earnings or losses are not included in patronage sourced earnings.3) Reclassifications
Certain financial statement reclassifications have been made to prior year and prior quarter amounts to conform to comparable classifications
followed in 2001.4) Segments
4. Segments
The Company is principally engaged as a wholesaler of hardware and related products and manufactures paint products. The Company identifies segments based on management responsibility and the nature of the business activities of each component of the Company. The Company measures segment earnings as operating earnings including an allocation for administrative expenses, interest expense and income taxes. Information regarding the identified segments and the related reconciliation to consolidated information is as follows:
Thirteen Weeks Ended
March 31, 2001
Elimination Paint Intersegment Wholesale Manufacturing Other Activities Consolidated Net Sales from External Customers $ 644,030 $ 4,154 $11,411 $ - $ 695,595 Intersegment Sales 4,221 23,919 - (28,140) - Segment Earnings (Loss) 3,999 2,362 (1,325) - 5,036
Thirteen Weeks Ended
April 1, 2000
Elimination Paint Intersegment Wholesale Manufacturing Other Activities Consolidated Net Sales from External Customers $ 686,781 $ 5,001 $ 9,227 $ - $ 701,009 Intersegment Sales 4,353 23,372 - (27,725) - Segment Earnings (Loss) 13,123 2,171 (893) (55) 14,346 5) Subsequent EventSubsequent to March 31, 2001 the Company entered into a$100.0 million private placement Master Note Agreement ofwhich $70.0 million was issued on April 26, 2001. TheseSenior Notes have an effective rate of 7.27% and matureApril 30, 2013. Proceeds were used to reduceshort-term borrowings and for other general corporatepurposes.
Twenty-six Weeks Ended
June 30, 2001
Elimination
Paint Intersegment
WholesaleManufacturingOtherActivitiesConsolidated
Net Sales from External Customers $1,415,378 $10,522 $25,928 $ - $1,451,828
Intersegment Sales 12,378 56,840 - (69,181) -
Segment Earnings (Loss) 22,396 6,839 (1,904) (120) 27,211
Twenty-six Weeks Ended
July 1, 2000
Elimination
Paint Intersegment
WholesaleManufacturingOtherActivitiesConsolidated
Net Sales from External Customers $1,475,319 $11,708 $21,098 $ - $1,508,125
Intersegment Sales 11,966 56,654 - (68,620) -
Segment Earnings (Loss) 35,854 5,648 (1,497) (115) 39,890
Thirteen Weeks Ended
June 30, 2001
Elimination
Paint Intersegment
WholesaleManufacturingOtherActivitiesConsolidated
Net Sales from External Customers $ 771,348 $ 6,368 $14,517 $ - $ 792,233
Intersegment Sales 8,120 32,921 - (41,041) -
Segment Earnings (Loss) 18,397 4,477 (579) (120) 22,175
Thirteen Weeks Ended
July 1, 2000
Elimination
Paint Intersegment
WholesaleManufacturingOtherActivitiesConsolidated
Net Sales from External Customers $ 788,538 $ 6,707 $11,871 $ - $ 807,116
Intersegment Sales 7,613 33,282 - (40,895) -
Segment Earnings (Loss) 22,731 3,477 (604) (60) 25,544ACE HARDWARE CORPORATION
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Thirteen Weeks EndedMarch 31,June 30, 2001 compared to Thirteen Weeks
EndedAprilJuly 1, 2000.
Results of Operations
Consolidated sales decreased 1.8%. Domestic sales increased 1.3% primarily due to conversions of new stores to the Ace program. Sales to our existing retailer base were flat due to the softening economy. The decline in international sales was affected by a sale of Ace stores and reduced sales in Canada.
Gross profit decreased $1.2 million and increased slightly as a percent of total sales from 9.18% in 2000 to 9.21% in 2001. The increase, as a percent of sales, results primarily from higher margin from company-owned retail locations. Lower cash discounts due to lower sales and merchandise purchases partially offset the gross profit percentage increase.
Warehouse and distribution expenses increased $190,000 over 2000 and increased as a percent of total handled sales from 1.08% in 2000 to 1.12% in 2001. Increased utilities and distribution expenses associated with the new Loxley, Alabama distribution facility and the start-up of the Prince George, Virginia facility drove the higher expenses.
Selling, general and administrative expenses decreased $662,000 over 2000 and decreased slightly as a percent of total sales from 2.77% in 2000 to 2.74% in 2001 due to continued cost control measures put in place.
Retail success and development expenses increased $1.3 million primarily due to costs associated with operating additional company-owned retail locations, timing of advertising income and investments made at retail to support our Vision 21 strategy. Increases in this category are directly related to retail support of the Ace retailer as the Company continues to make investments in our dealer base.
Interest expense increased $729,000 due to higher average borrowing levels partially offset by a decline in interest rates. The increased borrowing levels result from completion of the construction of the Loxley, Alabama distribution center, the expansion of our LaCrosse, Wisconsin facility and increased retailer dating programs.
Other income increased $1.1 million primarily due to a gain recognized on the sale of two retail support centers offset by lower income realized on non-controlling investments in affiliates and a partial write-down of an affiliate investment.
Income taxes increased $1.8 million primarily due to the tax incurred on the sale of two retail support centers.ACE HARDWARE CORPORATION PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Twenty-six Weeks Ended June 30, 2001 compared to Twenty-six Weeks Ended July 1, 2000.
Results of Operations
Consolidated sales decreased5.9%3.7%. Domestic sales declined4.0%
1.2% while International sales were affected by a sale of Ace stores
and reduced sales in Canada. The decline in domestic sales is
primarily due to lower salesroto our existing retailer base due
to the softening economyand later spring weatherpartially
offset by conversions of new stores to the Ace program.
Gross profit decreased$4.1$5.2 million and decreased slightly as a
percent of total sales from8.95%9.08% in 2000 to8.90%9.07% in 2001. The
decrease resulted primarily from lower handling charges and lower
cash discounts due to lower sales and merchandisepurchases andhigher warehousing costs absorbed into inventory.purchases. Higher vendor
rebates and margin from company-owned retail locations partially
offset the gross profit decline.
Warehouse and distribution expenses increased$1.6$1.8 million over
2000 and increased asapercenta percent of total handled sales from1.63%
1.33% in 2000 to2.05%1.54% in 2001. Increased utilities and distribution
expenses associated with the new Loxley, Alabama distribution
facility and the start-up of the Prince George, Virginia
facility drove the higher warehouse expenses.
Selling, general and administrative expensesremained flatdecreased $743,000 due
to continued cost control measures put in place.
Retail success and development expenses increased$1.9$3.3 million
primarily due to costs associated withoperating additionalcompany-owned retail locations andinvestments made at retail to
support our Vision 21strategy.strategy and operating additional company-owned retail locations. Increases in this category are
directly related to retail support of the Ace retailer as the
Company continues to make investments in our dealer base.InternetInterest expense increased$901,000$1.6 million due to higher average
borrowinglevels.levels partially offset by lower interest rates. The increased borrowing levels result from
completion of the construction of the Loxley, Alabama
distribution center, the expansion of our LaCrosse, Wisconsin
facility and increased retailer dating programs.
Other incomedecreased $576,000increased $560,000 primarily due to a gain recognized on the sale of two retail support centers partially offset by lower income
realized on non-controlling investments inaffiliates.affiliates and a partial write-down of an affiliate investment.
Income taxes increased primarily due to the gain recognized on the sale of two retail support centers.
Liquidity and Capital Resources
The Company expects that existing and internally generated funds,
along with new and established lines of credit and long-term
financing, will continue to be sufficient in the foreseeable
future to finance the Company's working capital requirements and
patronage dividend and capital expenditures programs.TheCompany entered into a $100.0 million private placement MasterNote Agreement. Proceeds were used to reduce short-termborrowings and for other general corporate purposes.
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
There have been no material changes in the Company's market risk during the
thirteentwenty-six week period endedMarch 31,June 30, 2001. For additional information, refer to Item 7a in the Company's Annual Report on Form 10-K for the year ended December 30, 2000.
(b) A Form 8-K was filed on May 8, 2001 containing:
- Notice of Annual Meeting of Stockholders on June 4, 2001 and Proxy solicited by Board of Directors and related information.