Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets -
JuneMarch 30, 20012002 and December 30, 200029, 2001 1
Condensed Consolidated Statements of Earnings and
Condensed Consolidated Statements of Comprehensive
Income - Twenty-six Weeks and Thirteen Weeks Ended March 30, 2002
June 30,and March 31, 2001 and July 1, 2000 2
Condensed Consolidated Statements of Cash Flows -
Twenty-sixThirteen Weeks Ended JuneMarch 30, 20012002
and July 1, 2000March 31, 2001 3
Notes to Condensed Consolidated Financial Statements 4 - 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6 - 8
7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 9
8
Part II. - Other Information
Item 1. Legal Proceedings 109
Item 2. Changes in Securities and Use of Proceeds 109
Item 3. Defaults Upon Senior Securities 109
Item 4. Submission of Matters to a Vote of Security Holders 109
Item 5. Other Information 119
Item 6. Exhibits and Reports on Form 8-K 119
1) General
The condensed consolidated interim period financial statements
presented herein do not include all of the information and
disclosures required in annual financial statements and have not
been audited, as permitted by the rules and regulations of the
Securities and Exchange Commission. The condensed consolidated
interim period financial statements should be read in conjunction
with the annual financial statements included in the Ace Hardware
Corporation Annual Report on Form 10-K as filed with the
Securities and Exchange Commission on March 22,2001.2002. In the opinion
of management, these financial statements have been prepared in
conformity with accounting principles generally accepted in the
United States of America and reflect all adjustments necessary for
a fair statement of the results of operations and cash flows for
the interim periods endedJuneMarch 30, 2002 and March 31, 2001 andJuly 1, 2000 andof
the Company's financial position as ofJuneMarch 30,2001.2002. All such
adjustments are of a normal recurring nature. The results of
operations for the thirteen weekand twenty-six weekperiods endedJuneMarch 30,200 12002 andJuly 1, 2000
March 31, 2001 are not necessarily indicative of the results of
operations for a full year.2) Patronage Dividends
3) ReclassificationsThe Company operates as a cooperative organization and will pay
patronage dividends to consenting member dealers based on the earnings
derived from business done with such dealers. It has been the practice
of the Company to distribute substantially all patronage sourced
earnings in the form of patronage dividends.
Net earnings and patronage dividends will normally be similar since
patronage sourced net earnings is paid to consenting member dealers.
Internationaloperations anddealers signed under a Retail Merchant Agreement are not
eligible for patronage dividends and related earnings or losses are not
included in patronage sourced earnings.Certain financial statement reclassifications have been made to prior year and prior quarter amounts to conform to comparable classifications followed in
2001.2002. During 2002, the Company reclassified as sales and
cost of sales certain shipping and handling costs that had previously been presented on a net basis within warehouse and distribution expenses.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. The net sales from external customers included in the other category are primarily generated from company-owned retail locations. Information regarding the identified segments and the related reconciliation to consolidated information is as follows:Twenty-six Weeks EndedJune 30, 2001EliminationPaint IntersegmentWholesaleManufacturingOtherActivitiesConsolidatedNet Sales from External Customers $1,415,378 $10,522 $25,928 $ - $1,451,828Intersegment Sales 12,378 56,840 - (69,181) -Segment Earnings (Loss) 22,396 6,839 (1,904) (120) 27,211Twenty-six Weeks EndedJuly 1, 2000EliminationPaint IntersegmentWholesaleManufacturingOtherActivitiesConsolidatedNet Sales from External Customers $1,475,319 $11,708 $21,098 $ - $1,508,125Intersegment Sales 11,966 56,654 - (68,620) -Segment Earnings (Loss) 35,854 5,648 (1,497) (115) 39,890Thirteen Weeks Ended
JuneMarch 30,20012002
EliminationEliminated
Paint Intersegment
WholesaleManufacturingOtherActivitiesConsolidated
Net Sales from External Customers $771,348690,920 $6,368 $14,5175,613 $10,634 $ - $792,233707,167
Intersegment Sales8,120 32,9214,225 30,760 -(41,041)(34,985) -
Segment Earnings (Loss)18,397 4,477 (579) (120) 22,1758,012 3,957 (3,709) - 8,260
Thirteen Weeks EndedJuly 1, 2000March 30, 2002
EliminationEliminated
Paint Intersegment
WholesaleManufacturingOtherActivitiesConsolidated
Net Sales from External Customers $788,538657,261 $6,707 $11,8714,152 $11,411 $ - $807,116672,826
Intersegment Sales7,613 33,2824,221 23,919 -(40,895)(28,140) -
Segment Earnings (Loss)22,731 3,477 (604) (60) 25,5443,999 2,362 (1,325) - 5,036ACE HARDWARE CORPORATION
PART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Thirteen Weeks EndedJuneMarch 30,20012002 compared to Thirteen Weeks EndedJuly 1, 2000.March 31, 2001.
Results of Operations
Consolidated salesdecreased 1.8%increased 5.1%. Domestic sales increased1.3%5.8% despite
a decline in sales to a non-patronage affiliate. The increase in
domestic sales is primarily due toconversions of new stores to the Ace program. Saleshigher sales to our existing retailer
base,were flat duelower retailer cancellations and sales tothe softening economy. The decline in internationalnewly affiliated
retailers. International saleswaswere affected bya sale of Ace stores andreduced sales in Canada.
Gross profit was flat with 2001 but decreased$1.2slightly as a percent of
total sales from 8.90% in 2001 to 8.51% in 2002. The decrease is due to
lower vendor rebates as a percent of sales and a physical inventory
adjustment to retail store inventories.
Warehouse and distribution expenses decreased $1.5 million andincreased slightly
decreased as a percent of total sales from9.18%1.60% in20002001 to9.21%1.31% in2001. The increase,
2002 primarily due to improved productivity and lower fixed costs as apercent 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-upresult of thePrince George, Virginia facility drove the higher expenses.east coast distribution center reconfiguration.
Selling, general and administrative expenses decreased$662,000 over 2000$2.0 million and
decreasedslightlyas a percent of total sales from2.77%3.53% in20002001 to2.74%3.07% in2001
2002 due to continued cost control measures put inplace.place in 2001 and
savings realized by the closure of the Baltimore, Maryland and
Charlotte, North Carolina facilities offset with the opening of the
Prince George, Virginia facility.
Retail success and development expensesincreased $1.3 million primarilydecreased $465,000 due tocosts associated with operating additional company-owned retail locations, timing of advertising income and investments made at retail to support our Vision 21 strategy. Increases
continued cost control measures. Expenses in this category are
directly related to retail support of the Aceretailer as the Companyretailer. Ace
continues to make investments inour dealer base.retail initiatives under its Vision 21
strategy to support Ace retailers.
Interest expense increased$729,000$111,000 due to higher average borrowing
levelspartially offset byprimarily as adecline in interest rates. The increased borrowing levelsresultfrom completionof theconstruction2001 investments in our
distribution network. Lower interest rates under the revolving credit
facility largely offset the impact ofthe Loxley, Alabama distribution center, the expansion of our LaCrosse, Wisconsin facility and increased retailer dating programs.higher borrowing levels.
Other incomeincreased $1.1 milliondecreased $876,000 primarily due toa gain recognized on the sale of two retail support centers offset by lowerdecreased interest
incomerealized on non-controlling investments in affiliates and a partial write-down of an affiliate investment.Income taxes increased $1.8 million primarilydue tothe tax incurred on the sale of two retail support centers.ACE HARDWARE CORPORATIONPART I. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONSTwenty-six Weeks Ended June 30, 2001 compared to Twenty-six Weeks Ended July 1, 2000.Results of OperationsConsolidated sales decreased 3.7%. Domestic sales declined 1.2% while International sales were affected by a sale of Ace storesdeclining interest rates andreduced sales in Canada. The decline in domestic sales is primarilylower past dueto lower sales to our existing retailer base dueservice
charges to thesoftening economy partially offset by conversions of new stores to the Ace program.retailers.Gross profit decreased $5.2 million and decreased slightly as a percent of total sales from 9.08% in 2000 to 9.07% in 2001. The decrease resulted primarily from lower handling charges and lower cash discounts due to lower sales and merchandise purchases. Higher vendor rebates and margin from company-owned retail locations partially offset the gross profit decline.Warehouse and distribution expenses increased $1.8 million over 2000 and increased as a percent of total handled sales from 1.33% in 2000 to 1.54% in 2001. Increased utilities and distribution expenses associated with the new Loxley, Alabama distribution facility and the start-up of the Prince George, Virginia facility drove the higher warehouse expenses.Selling, general and administrative expenses decreased $743,000 due to continued cost control measures put in place.Retail success and development expenses increased $3.3 million primarily due to costs associated with investments made at retail to support our Vision 21 strategy and operating additional company-owned retail locations. Increases in this category are directly related to retail support of the Ace retailer as the Company continues to make investments in our dealer base.Interest expense increased $1.6 million due to higher average borrowing levels partially offset by lower interest rates. The increased borrowing levels result from completion of the construction of the Loxley, Alabama distribution center, the expansion of our LaCrosse, Wisconsin facility and increased retailer dating programs.Other income increased $560,000 primarily due to a gain recognized on the sale of two retail support centers partially offset by lower income realized on non-controlling investments in affiliates and a partial write-down of an affiliate investment.Income taxes increased primarily due to the gain recognized on the sale of two retail support centers.
Liquidity and Capital ResourcesThe CompanyAce expects that existing and internally generated funds, along
with new and established lines of credit and long-term financing, will
continue to be sufficient in the foreseeable future to finance the
Company's working capital requirements and patronage dividend and
capital expenditures programs.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in the Company's market risk during
thetwenty-sixthirteen week period endedJuneMarch 30,2001.2002. For additional information,
refer to Item 7a in the Company's Annual Report on Form 10-K for the year
ended December30, 2000.29, 2001.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The following information is furnished with respect to matterssubmitted to a vote of the shareholders of the registrant at ameeting thereof held during the quarter covered by this report:(a) Date of meeting: June 4, 2001 - said meeting wasan annual meeting.(b) 1. The following director was elected at saidmeeting for a three year term expiring in 2004:David S. Ziegler2. The following director was reelected at saidmeeting for a three year term expiring in 2004:Daniel L. Gust3. The following director was reelected at saidmeeting for a two year term expiring in 2003:Howard J. Jung4. The names of the other directors other than theabove elected directors whose terms of officeas directors continue after the meeting are:Richard F. Baalmann, Jr.Richard W. StineJ. Thomas GlennJennifer C. AndersonEric R. Bibens IID. William HaganRichard A. KarpNone.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-KNone.
(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.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACE HARDWARE CORPORATION
RITA D. KAHLE DATEAugustMay 14,20012002
Rita D. Kahle
Executive Vice President
(Principal Financial and Accounting
Officer, and duly authorized
Officer of the registrant)