Ace Hardware 2011 Annual Report Download

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ACE HARDWARE CORPORATION
2011 Annual Report

Table of contents

  • Page 1
    ACE HARDWARE CORPORATION 2011 Annual Report

  • Page 2
    ... of Cash Flows for the years ended December 31, 2011, January 1, 2011 and January 2, 2010 ...Notes to the Consolidated Financial Statements...Management's Discussion and Analysis of Financial Condition and Results of Operations ...Five Year Summary of Earnings and Distributions ...Management...

  • Page 3
    ... of Ace Hardware Corporation as of December 31, 2011 and January 1, 2011, and the related consolidated statements of income, equity, and cash flows for each of the three fiscal years in the period ended December 31, 2011. These financial statements are the responsibility of the Company's management...

  • Page 4
    ... distributions payable in cash Patronage refund certificates payable Accrued expenses Total current liabilities Long-term debt Patronage refund certificates payable Other long-term liabilities Total liabilities Member Retailers' Equity: Class A voting common stock, $1,000 par value, 10,000 shares...

  • Page 5
    ACE HARDWARE CORPORATION CONSOLIDATED STATEMENTS OF INCOME Years Ended December 31, 2011 (52 Weeks) January 1, 2011 (52 Weeks) (In thousands) Revenues Cost of revenues Gross profit Distribution operations expenses Selling, general and administrative expenses Retail success and development expenses ...

  • Page 6
    ... on investments Total Comprehensive income Change in accounting for income tax uncertainties Net payments on subscriptions Stock issued Stock repurchased Patronage distributions issuable Patronage distributions payable Variance allocation applications Treasury stock retirement Class B common stock...

  • Page 7
    ...) in notes receivable, net Other Net cash used in investing activities Financing Activities (Payments of) proceeds from short-term borrowings, net Principal payments on long-term debt Payments of cash portion of patronage distribution Payments of patronage refund certificates Proceeds from sale of...

  • Page 8
    ... Its Business Ace Hardware Corporation ("the Company") is a wholesaler of hardware and other related products and is a manufacturer and wholesaler of paint products. The Company also provides to its retail members value-added services such as advertising, marketing, merchandising and store location...

  • Page 9
    ... the sale of merchandise and services and equipment used in the operation of retailers' businesses. Notes Receivable The Company makes available to its retailers various lending programs whose terms exceed one year. The notes bear interest at various rates based on market rates, the loan program or...

  • Page 10
    ... financing costs related to the issuance of long-term debt and the revolving credit facility. Amortization is provided using the effective-interest method over the life of the related agreements. Leases The Company leases certain warehouse and distribution space, office space, retail locations...

  • Page 11
    ...statement of comprehensive income or in t wo separate but consecutive statements. This new guidance will be effective for the Company's 2012 interim and annual financial statements and is to be applied retrospectively. In May 2011, the FASB issued Accounting Standards Update No. 2011-04, "Fair Value...

  • Page 12
    ...internal risk category. The Company's risk categories include: Low - The retailer possesses a strong financial position, above average payment record to both Ace and other vendors, and the business is well established. Medium - The retailer possesses an average financial position, an average payment...

  • Page 13
    ... 5-8 years 9-12 years Total $19,328 41,839 9,192 $70,359 (6) Patronage Distributions and Refund Certificates Payable The Company operates as a cooperative organization and has paid or may pay patronage distributions to member retailers on a portion of patronage based income derived from business...

  • Page 14
    ... 2011 patronage distribution. The patronage refund certificates outstanding at December 31, 2011 are payable as follows: Amount Interest Rate 2012 ...$17,259 2016 ...6,722 2017 ...9,076 (7) Debt Line of Credit 6.00% 4.00% 4.00% On May 15, 2008, the Company entered into a $300,000 senior secured...

  • Page 15
    ... 31, 2011 are as follows: Fiscal Year Amount 2012 ...$ 5,835 2013 ...4,017 2014 ...2,374 2015 ...1,156 2016 ...288,180 Thereafter ...- Total long-term debt...$301,562 The indenture governing the 9.125% senior secured notes contains covenants, representations and events of default that management...

  • Page 16
    ... accounts payable, approximate fair value due to the short maturity of such instruments. Carrying Value Measured at Fair Value December 31, 2011 Items measured at fair value on a recurring basis: Level 1 Level 2 Level 3 Cash equivalents: Money market funds ...$ Marketable securities: Corporate...

  • Page 17
    ...fair value and cost basis of the Company's marketable securities at December 31, 2011 and January 1, 2011, respectively. Gross proceeds from the sale of marketable securities were $40,447, $22,662 and $16,865 during the years ended December 31, 2011, January 1, 2011 and January 2, 2010, respectively...

  • Page 18
    .... Foreign tax credits may be carried forward to tax years 2016 through 2020. The federal income tax returns of the consolidated group are subject to examination by the Internal Revenue Service, generally for three years after the returns are filed. The 2007 through 2011 tax years remain subject to...

  • Page 19
    ... the Ace cooperative structure. As part of this restructuring, the Company received cash consideration of $8,780 and redeemed all shares of stock in the Company owned by its international retailers along with patronage refund certificates issued as part of the 2010 patronage distribution in exchange...

  • Page 20
    ...of the business activities of each component of the Company. Corporate expenses are included in the wholesale segment. The Company measures segment profit as operating profit including an allocation of interest expense and income taxes based on sales. Year Ended December 31, 2011 Paint Manufacturing...

  • Page 21
    ... are issued generally to insurance agencies and financial institutions in direct support of the Company's corporate and retailer insurance programs and retailer lending programs. As o f December 31, 2011, the Company had outstanding standby letters of credit with expiration terms less than one year...

  • Page 22
    ...within the current Ace cooperative structure. During the year ended December 31, 2011, the Company redeemed all shares of stock in the Company owned by its international retailers along with patronage refund certificates issued as part of the 2010 patronage distribution in exchange for stock in this...

  • Page 23
    ...to sell an assortment of Craftsman® tools, the number one tool brand in America, and Benjamin Moore paints has continued to drive significant increases across the tool and paint categories for the Company. These new products are reinforcing Ace stores as a premier destination for customers shopping...

  • Page 24
    ... sales it expects to make to these stores in future periods. Management also monitors the number of stores that have cancelled their membership with Ace in the current and prior year periods. The Company posted net domestic store count declines of 36 outlets, 51 outlets and 107 outlets in 2011, 2010...

  • Page 25
    ... competitive prices to its retailers. The Company's inventory line review process enables it to evaluate gross profit levels while creating profit opportunities at retail through product assortments, retail pricing services, opening stock order and inventory discounts, and reduced cost of goods...

  • Page 26
    ...'s senior secured notes payable. The Company's external debt position decreased in 2011 primarily due to a reduction of borrowings under the Company's revolving line of credit facility. Total year end debt to retailers includes patronage refund certificates payable and other notes payable to current...

  • Page 27
    ... average debt levels, excluding patronage refund certificates, increased $39.3 million to $347.8 million in 2011 from $308.5 million in 2010. Other income and expense increased $2.3 million primarily due to gains realized on the sale of investment securities held by the Company's New Age Insurance...

  • Page 28
    ... significantly to support new retail initiatives, such as Craftsman and Benjamin Moore, that began in 2010 as well as to maintain inventory availability during the implementation of the Company's supply chain initiative. In addition, less cash was used in receivables primarily due to the timing of...

  • Page 29
    ... by the increased payment of the cash portion of the patronage distribution. The Company increased the cash portion of the patronage distribution for 2009, paid in 2010, to 35% from 20% in the previous year. In 2010 and 2011, the Company approved two new store financing programs that would provide...

  • Page 30
    ... adjustments. Vendor Funds. The Company receives funds from vendors in the normal course of business principally as a result of purchase volumes, sales, early payments or promotions of vendors' products. Based on the provisions of the vendor agreements in place, management develops accrual rates by...

  • Page 31
    ... using significant unobservable (Level 3) inputs. This new guidance is effective for the Company in 2012 and is not expected to materially impact the Company's consolidated financial statements. Qualitative and Quantitative Disclosure About Market Risk Inflation and Changes in Prices. The Company...

  • Page 32
    ...; performance of major customers, transporters, suppliers and contractors; labor relations; and acts of terrorism. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this filing. The Company undertakes no obligation to publicly...

  • Page 33
    .... The Company also includes a quantitative reconciliation of EBITDA and adjusted EBITDA to the most directly comparable GAAP financial performance measure, which is net income. Years Ended December 31, 2011 (52 Weeks) January 1, 2011 (52 Weeks) (Unaudited, in thousands) January 2, 2010 (52 Weeks...

  • Page 34
    ... 1, 2011 (52 Weeks) January 2, 2010 (52 Weeks) (In thousands) January 3, 2009 (53 Weeks) December 29, 2007 (52 Weeks) Revenues ...Cost of revenues ...Gross profit ...Total operating and other expenses, net ...Net income attributable to Ace Hardware Corporation Distribution of net income: Patronage...

  • Page 35
    ... the independent au ditors and with the Company's internal auditors, both privately and with management present, to review accounting, auditing, internal control and financial reporting matters. The Audit Committee recommends to the full Board of Directors the selection of the independent auditors...

  • Page 36
    Ace Hardware Corporation • 2200 Kensington Court • Oak Brook, IL 60523 www.acehardware.com