Ace Hardware 2005 Annual Report Download

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NEW FRONTIERS. NEW OPPORTUNITIES.
2005
ANNUAL
REPORT

Table of contents

  • Page 1
    2 0 0 5 A N N U A L R E P O R T N E W F R O N T I E R S. N E W O P P O R T U N I T I E S.

  • Page 2
    ... on new store growth and increasing market share. In addition to the Branching Out funding, Ace added the Equity Match Financing opportunity in 2005. Through these programs, millions of dollars were invested in retail in 2005, contributing to the highest number of new branch stores and new investors...

  • Page 3
    ...I E S. Ace Total Dividends (in Millions of Dollars) Ace Total Sales (in Billions of Dollars) $185.4 16.9 64.9 $3.466 $174.5 14.1 60.1 $3.289 $159.4 57.4 $3.159 103.6 100.3 102.0 2005 2004 2003 2005 2004 2003 Vision 21 Achievement Awards Upfront Dividends Year-End Patronage Dividends 2

  • Page 4
    ... survey of Real People Ratings "Best of 2005" ranks Ace Hardware number one in the home improvement category of providing customer service, beating out Home Depot, Lowe's, Menards, True Value and others. Congratulations, Ace retailers! As you read this annual report, you will garner more information...

  • Page 5
    I N V E S T I N G I N R E T A I L I N I T I A T I V E S 4

  • Page 6
    ... key departments within the store. These improvements have a direct impact on retail by boosting store traffic and, ultimately, sales. Now in its second year, the Growth Strategy is the cornerstone of Ace's retail-focused initiatives. The long-term strategy is designed to help retailers focus on key...

  • Page 7
    G R O W I N G T H E A C E B R A N D 6

  • Page 8
    ...market share in 2005 and further solidify its position as the leading retail hardware cooperative in the industry. During the past year, Ace was named the fourth largest franchise operation in the world, added a record number of new investors, attracted private equity groups and Ace retailers opened...

  • Page 9
    color for every personality B R A N D I N G A C E A S T H E H E L P F U L P L A C E 8

  • Page 10
    ...enhancing consumer loyalty and attracting new shoppers to Ace. Ace is The Helpful Place®, and the sharp focus on customer service is paying off. In the first-ever "Real People Ratings Best of 2005" report, Ace was ranked number one in the home improvement store customer service category, surpassing...

  • Page 11
    G I V I N G B A C K T O O U R C O M M U N I T I E S 10

  • Page 12
    ... Day gift for one New Orleansarea family. In partnership with the CBS "Early Show" Week of Wishes series and the contractor-based company Rent-a-Husband, a special Ace team comprised of local retailers, field staff and corporate employees cleaned, renovated and repaired a family's home that...

  • Page 13
    W E ' R E H E L P F U L W E ' R E C O N V E N I E N T 12

  • Page 14
    G L O B A L L Y T R U S T E D L O C A L L Y E M B R A C E D 13

  • Page 15
    O F F E R I N G C U S T O M E R S Q U A L I T Y P R O D U C T S 14

  • Page 16
    ...the number one merchandise class in average sales dollars for all Ace retailers, generating over $40,000 in sales per store and driving a sales increase of 24 percent over the past two years. To help retailers remain competitive in this important category, a Super Plus category management assortment...

  • Page 17
    D R I V I N G R E T A I L S U P P O R T P E R F O R M A N C E 16

  • Page 18
    ... between merchandising and logistics will ultimately enable Ace to help retailers get the best product mix in their stores at the lowest cost and highest service levels. Ace supply chain initiatives will pay dividends to the entire enterprise in both the shortand long-term. 2005 ANNUAL REPORT...

  • Page 19
    S E R V I C I A L EXEPERETISIS S E R V I C I A L H E L P F U L M AT U L U N G I N H E L P F U L S E R V I C I A L H E L P F U L M A L A Y S I A SAUDI ARABIA C A B H R A C H K U W A I T R U S S I A A B I V A L M I S N U E V A S F R O N T E R A S. N U E V A S O P O R T U N I D A D E ...

  • Page 20
    ...in the world. This growth was spurred, in part, by the agreements signed with several established international retail chains in 2005. In June, the 200 member stores which comprise Mica South Africa-Super Group began receiving hardware and home improvement products through Ace's distribution network...

  • Page 21
    1 2 3 4 5 6 7 8 P R O V I D I N G E X E C U T I V E L E A D E R S H I P 7 9 10 11 12 20 13

  • Page 22
    ...science degree at State University in Albany, N.Y., he worked for RKB Enterprises, as well as an Ace retail business manager and for Activant. 10 Jeffrey M. Schulein Regional Member Director, West Region Schulein is chief executive officer of Crown Hardware, Inc., an 11-store Ace chain in Southern...

  • Page 23
    1 2 3 P R O V I D I N G E X E C U T I V E L E A D E R S H I P 4 5 6 7 8 9 10 11 12 22 13

  • Page 24
    ...spent his 28-year Ace career working on retail initiatives on behalf of Ace retailers. He received a bachelor of science degree in communications from State University College of New York. Daniel C. Prochaska Vice President Supply Chain Prochaska was named vice president supply chain in 2005. He has...

  • Page 25
    ..., GA Retail Support Centers Colorado Springs, CO Arlington, TX Gainesville, GA La Crosse, WI Lincoln, NE Maumelle, AR Loxley, AL Prescott Valley, AZ Prince George, VA Princeton, IL Sacramento, CA Tampa, FL Perrysburg, OH Gansevoort, NY Yakima, WA Ace Paint Division Matteson, IL Chicago Heights...

  • Page 26
    ...current liabilities ...Long-term debt ...Patronage refund certificates payable ...Other long-term liabilities ... Total liabilities ...Member retailers' equity Class A stock of $1,000 par value ...Class B stock of $1,000 par value ...Class C stock of $100 par value ...Class C stock of $100 par value...

  • Page 27
    ...the Periods Ended December 31, 2005 (52 Weeks) January 1, 2005 (52 Weeks) (In thousands) $ 3,288,676 2,980,627 308,049 55,781 68,437 75,377 199,595 (21,577) 8,227 6,443 $ January 3, 2004 (53 Weeks) Net Sales ...Cost of sales ...Gross Profit ...Distribution operations expenses ...Selling, general...

  • Page 28
    ... ...Repurchase of stock ...Net Cash Used in Financing Activities ...Increase (Decrease) in Cash and Cash Equivalents ...Cash and Cash Equivalents at Beginning of Period ...Cash and Cash Equivalents at End of Period ...$ See accompanying notes to consolidated financial statements. 2005 ANNUAL REPORT...

  • Page 29
    ... CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies The Company and Its Business Ace Hardware Corporation (the Company) operates as a wholesaler of hardware and related products, and manufactures paint products. As a retailer-owned cooperative, the Company distributes...

  • Page 30
    ... transaction of certain corporate office buildings. The sale generated net proceeds of $39,619,000 which were used to pay down the revolving credit facility and to reinvest into the Company's growth strategy. The facilities are being leased back by the Company under a 10-year lease agreement that...

  • Page 31
    ...of Class C $100 par value stock, to a maximum based upon the current 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 Company's Board of Directors...

  • Page 32
    ...CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (7) Retirement Plans The Company has one defined benefit pension plan covering a limited number of non-union employees, the Employees' Retirement Income Plan and Trust. Benefits under this plan are based on years of service, highest average compensation...

  • Page 33
    ...TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (9) Member Retailers' Equity The Company's classes of stock are described below: Number of Shares at December 31, January 1, 2005 2005 Class A Stock, voting, redeemable at par value Authorized ...Issued and outstanding ...Class B Stock, nonvoting...

  • Page 34
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The transactions affecting capital stock and other member retailers' equity accounts in 2003, 2004 and 2005 are presented below: Class C Stock Issuable to Retailers for Additional Capital Stock Patronage Stock Retained Class B Class C Dividends...

  • Page 35
    ... 19,838 36,628 100,087 1,159,068 62,170 Net sales and long-lived assets by geographic region based upon customer location are as follows: December 31, 2005 January 1, 2005 (In thousands) Net sales for the period: United States ...Foreign countries ...Total ...Long-lived assets, net at end of period...

  • Page 36
    ... Company may build Company-owned stores as a way to expand the Ace brand into a particular market for resale to new or existing retail members, but the Company will no longer build and hold retail stores for long-term sales and profit growth. As a result of this change in strategy, the Company has...

  • Page 37
    ... to 2004. The decrease in gross profit rate in 2005 was driven by an increase in the inventory purchase price index resulting in higher LIFO expense, lower paint margins on higher raw material costs and lower margins on import products primarily in support of promotional events. These decreases were...

  • Page 38
    ...and expenses of Company-owned retail operations. Ace continues to make investments in retail initiatives under its growth strategy to support Ace retailers. Interest expense increased $1.7 million primarily due to increased average borrowing levels and higher short-term interest rates as a result of...

  • Page 39
    ... allowances to adjust the carrying value of inventories to the lower of cost or market, including costs to sell or dispose of surplus or damaged/obsolete inventory, and for estimated shrinkage. Estimates of the future demand for Ace's products are key factors used by management in assessing the net...

  • Page 40
    ...REPORT) For the Periods Ended December 31, 2005 (52 Weeks) January 1, 2005 (52 Weeks) January 3, 2004 (53 Weeks) (In thousands) $ 3,159,321 2,850,421 308,900 December 28, 2002 (52 Weeks) December 29, 2001 (52 Weeks) Net Sales ...Cost of Sales ...Gross Profit ...Total expenses and other income...

  • Page 41
    ... access to the Audit Committee. February 16, 2006 The Board of Directors Ace Hardware Corporation: We have audited the accompanying consolidated statements of financial position of Ace Hardware Corporation and subsidiaries (the Company) as of December 31, 2005 and January 1, 2005, and the related...