PRESS RELEASE
ACE HARDWARE REPORTS FIRST QUARTER 2010 FINANCIAL RESULTS
Revenues of $830.7 million, down 2.4 percent
Operating expenses increased $1.3 million, up 1.7 percent
EBITDA of $29.7 million, down 7.3 percent
Net income of $11.8 million, down 18.0 percent
For the third year in a row, “BusinessWeek” ranked Ace in the top 10 on its
list of "Customer Service Champs"
Oak Brook, Ill. (May 18, 2010) – Ace Hardware Corporation, the largest retailer-owned
cooperative in the hardware industry, today reported net income of $11.8 million for the quarter
ended April 3, 2010, a decrease of $2.6 million or 18.0 percent, compared to $14.4 million for
2009.
Ace reported EBITDA (earnings before interest, taxes, depreciation and amortization expenses)
of $29.7 million for the first quarter of 2010, a decrease of $2.3 million or 7.3 percent, as
compared to $32.0 million in the prior year quarter.
“While our overall sales and profit are down slightly from last year, I’m pleased with our first
quarter performance,” said Ray Griffith, Ace president and CEO. “Both sales and profit are
ahead of plan and, although our operating expenses are slightly above plan, we continue to
significantly invest in our business and improve core business processes. During the quarter, we
successfully completed the second phase of the Business Transformation Project and replaced
many of our legacy systems with new supply chain technology.”
Revenues
Total revenues for the quarter ended April 3, 2010 were $830.7 million, a decrease of $20.6
million or 2.4 percent from 2009. Merchandise sales to comparable domestic stores for the first
quarter of 2010 decreased $36.0 million primarily due to consumer spending in a soft economy.
On a category basis, domestic sales were most negatively impacted by declines in the paint,
hardware and plumbing categories. These declines were partially offset by a sales increase in the
lawn and garden category. Merchandise sales to new domestic stores activated since January
2009 contributed $18.7 million in incremental sales in the quarter. Ace added 20 new stores and
cancelled 47 stores in the first quarter and ended the quarter with a total store count of 4,464.
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Merchandise sales from Ace’s international business increased $12.8 million, or 36.4 percent, in
the first quarter of 2010 as compared to the prior year quarter primarily due to strong sales to
retailers in the Middle East.
“While our overall sales results are reflective of the continued challenging sales environment, we
have several initiatives underway to ensure we are well positioned to drive results throughout the
recovery,” Griffith said. “Ace kicked off the year with the announcement of two powerful brand
partnerships. We signed an agreement with Sears that paves the way for Craftsman, America’s
most trusted tool brand, to be sold at Ace stores. We also expanded our strategic alliance with
Benjamin Moore, opening the door for more Ace stores to sell Benjamin Moore paint. The
execution of these and other proven retail initiatives will position Ace stores to take advantage of
early spring business and drive sales in both the short and long term.”
Gross profit
Gross profit for the quarter ended April 3, 2010 was $97.0 million, a decrease of $2.0 million
from 2009, and the gross profit percentage was 11.7 percent, relatively flat to the prior year
quarter.
Expenses
Operating expenses increased $1.3 million, or 1.7 percent, to $78.5 million in the first quarter of
2010 as compared to 2009. The increase in operating expenses reflects higher selling, general
and administrative expenses of $1.8 million primarily driven by higher information technology
expenses of $2.5 million and depreciation expense of $1.0 million related to the company’s
Business Transformation Project, partially offset by lower bad debt expense of $1.2 million.
Balance sheet
The company had working capital of $259.3 million, $265.4 million and $249.0 million at April
3, 2010, January 2, 2010 and April 4, 2009, respectively.
The company had cash and cash equivalents totaling $31.6 million, $105.7 million and $47.4
million at April 3, 2010, January 2, 2010, and April 4, 2009, respectively.
Inventories at the end of the first quarter of 2010 were $536.2 million, an increase of $97.2
million and $10.0 million as compared to the end of fiscal year 2009 and the first quarter of
2009, respectively. The incremental inventory investment in 2010 is to support warehouse
service levels during the spring selling season.
Trade accounts receivable at the end of the first quarter of 2010 were $296.2 million, an increase
of $105.2 million as compared to the end of fiscal year 2009 primarily due to normal extended
seasonal datings at this time of the year. As compared to the first quarter of 2009, trade accounts
receivable decreased $31.6 million primarily due to reduced sales.
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Total debt including patronage refund certificates was $334.3 million at April 3, 2010, a decrease
of $19.4 million and $18.1 million as compared to January 2, 2010 and April 4, 2009,
respectively. These decreases were primarily due to the payment of the patronage refund
certificates during the first quarter of 2010.
During the quarter, the Company also paid the patronage distribution early to the retailer
shareholders and increased that cash payout from 20 percent to 35 percent. After record earnings
in 2009, the Company paid $29.2 million of cash patronage distributions in March of 2010. This
is compared to last year’s payment of $15.6 million which was paid in April of 2009.
Cash payments for property and equipment for the quarter ended April 3, 2010 were $8.3
million, an increase of $2.3 million over the comparable period in 2009. Capital expenditures in
both 2010 and 2009 were driven primarily by technology spending to support Ace’s Business
Transformation Project.
About Ace Hardware
For more than 85 years, Ace Hardware has been known as the helpful hardware store by both
customers and communities. With approximately 4,500 locally owned and operated hardware,
home center and building materials stores, Ace is the largest hardware cooperative in the
industry. Headquartered in Oak Brook, Ill., Ace currently operates 14 distribution centers in the
U.S. and one in Shanghai, China, and its retailers' stores are located in all 50 states and more
than 60 countries. For more information on Ace, visit www.acehardware.com.
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Contacts:
Shareholders’/Investors’ Inquiries:
Pete Ting, Vice President, International Finance
630-472-4031, pting@acehardware.com
Media Inquiries:
Christopher Boniface, Public Relations Manager
630-990-6756, cboni@acehardware.com
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ACE HARDWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
April 3, April 4,
2010 2009
(13 Weeks) (13 Weeks)
(Unaudited, in thousands)
Revenues $ 830,662 $ 851,217
Cost of revenues 733,614 752,141
Gross profit 97,048 99,076
Distribution operations expenses 23,588 23,740
Selling, general and administrative expenses 32,729 30,882
Retail success and development expenses 22,231 22,579
Total operating expenses 78,548 77,201
Operating income 18,500 21,875
Interest expense (8,472) (8,989)
Interest income 1,032 1,106
Other income, net 1,128 1,035
Income tax expense (348) (584)
Net income $ 11,840 $ 14,443
Accrued patronage distributions $ 10,453 $ 13,247
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ACE HARDWARE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
April 3, January 2,
2010 2010
(In thousands, except share data)
Assets (Unaudited) (Audited)
Cash and cash equivalents $ 31,573 $ 105,723
Marketable securities 47,273 46,024
Receivables, net of allowance for doubtful accounts of $7,203 and $6,697, respectively 336,820 241,442
Inventories 536,150 438,934
Prepaid expenses and other current assets 23,553 22,823
Total current assets 975,369 854,946
Property and equipment, net 322,234 325,901
Notes receivable, net of allowance for doubtful accounts of $16,039 and $15,249, respectively 38,347 40,389
Other assets 59,626 61,028
Total assets $ 1,395,576 $ 1,282,264
Liabilities and Member Retailers' Equity
Current maturities of long-term debt $ 4,713 $ 4,685
Accounts payable 576,739 405,785
Patronage distributions payable in cash 3,785 32,018
Patronage refund certificates payable 17,141 19,306
Accrued expenses 113,646 127,775
Total current liabilities 716,024 589,569
Long-term debt 294,327 294,484
Patronage refund certificates payable 18,072 35,262
Other long-term liabilities 54,925 55,462
Total liabilities 1,083,348 974,777
Member Retailers' Equity:
Class A voting common stock, $1,000 par value, 10,000 shares authorized, 2,939 and
2,955 issued and outstanding, respectively 2,939 2,955
Class C nonvoting common stock, $100 par value, 4,000,000 shares authorized, 3,146,598
and 2,877,461 issued and outstanding, respectively 314,660 287,746
Class C nonvoting common stock, $100 par value, issuable to retailers for patronage
distributions, 52,929 and 302,343 shares issuable, respectively 5,293 30,234
Additional stock subscribed, net 108 163
Contributed capital 6,986 6,986
Variance allocation (4,878) (5,960)
Accumulated deficit (13,360) (14,657)
Accumulated other comprehensive income 480 20
Total member retailers' equity 312,228 307,487
Total liabilities and member retailers' equity $ 1,395,576 $ 1,282,264
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ACE HARDWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
April 3, April 4,
2010 2009
(13 Weeks) (13 Weeks)
(Unaudited, in thousands)
Operating Activities
Net income $ 11,840 $ 14,443
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization 9,040 8,019
Amortization of deferred gain on sale leaseback (309) (320)
Amortization of deferred financing costs 682 681
Provision for doubtful accounts 1,572 2,821
Deferred income tax benefit (1,273) (2,242)
Changes in operating assets and liabilities:
Receivables (100,554) (98,477)
Inventories (97,216) (65,720)
Other current assets 543 1,698
Other long-term assets 1,088 (1,432)
Accounts payable and accrued expenses 159,979 138,624
Other long-term liabilities (299) (1,233)
Net cash used in operating activities (14,907) (3,138)
Investing Activities
Purchases of marketable securities (2,933) (5,725)
Proceeds from sale of marketable securities 2,401 3,283
Purchases of property and equipment (8,346) (6,086)
Increase in notes receivable, net (187) (250)
Other (613) -
Net cash used in investing activities (9,678) (8,778)
Financing Activities
Payments of short-term borrowings - (1,100)
Principal payments on long-term debt (1,150) (689)
Payments of cash portion of patronage distribution (29,208) -
Payments of patronage refund certificates (19,355) (19,485)
Proceeds from sale of stock 148 249
Net cash used in financing activities (49,565) (21,025)
Decrease in cash and cash equivalents (74,150) (32,941)
Cash and cash equivalents at beginning of period 105,723 80,326
Cash and cash equivalents at end of period $ 31,573 $ 47,385
Supplemental disclosure of cash flow information:
Interest paid (net of amounts capitalized) $ 3,308 $ 4,393
Income taxes paid $ 434 $ 3,442
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Non-GAAP Financial Measures
The company defines “EBITDA” as earnings before interest, taxes, depreciation and
amortization. The company cautions investors that amounts presented in accordance with its
definition of EBITDA may not be comparable to similar measures disclosed by other companies,
because not all companies calculate EBITDA in the same manner.
EBITDA, as presented in this earnings release, is a supplemental measure of the company’s
performance that is not required by, or presented in accordance with, accounting principles
generally accepted in the United States (“GAAP”). It is not a measurement of the company’s
financial performance under GAAP and should not be considered as an alternative to net income
or any other performance measures derived in accordance with GAAP or as an alternative to
cash flows from operating activities as measures of the company’s liquidity.
The company presents EBITDA because the company considers it an important supplemental
measure of its performance and believes it is frequently used in the evaluation of companies in
its industry. In addition, the instruments governing the company’s indebtedness use EBITDA
(with additional adjustments) to measure the company’s compliance with covenants such as
interest coverage and debt incurrence. The company also includes a quantitative reconciliation of
EBITDA to the most directly comparable GAAP financial performance measure, which is net
income.
Three Months Ended
April 3, April 4,
2010 2009
(13 Weeks) (13 Weeks)
(Unaudited, in thousands)
EBITDA Reconciliation:
Net income $ 11,840 $ 14,443
Income tax expense 348 584
Interest expense 8,472 8,989
Depreciation and amortization 9,040 8,019
EBITDA $ 29,700 $ 32,035
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