ACE HARDWARE REPORTS FIRST QUARTER 2012 FINANCIAL RESULTS

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1 PRESS RELEASE ACE HARDWARE REPORTS FIRST QUARTER 2012 FINANCIAL RESULTS Revenues of $908.2 million, up 6.3 percent Net income of $10.2 million, up 49.3 percent Total debt of $355.1 million, down $105.5 million Entered into new five-year credit facility and loan agreement Ranked Highest in Customer Satisfaction among Home Improvement Stores Six Years in a Row according to J.D. Power and Associates Oak Brook, Ill. (May 11, 2012) Ace Hardware Corporation, the largest retailer-owned hardware cooperative in the industry, today reported total revenues of $908.2 million for the first quarter of 2012, an increase of $54.2 million or 6.3 percent from Net income was $10.2 million for the first quarter of 2012, an increase of $3.4 million or 49.3 percent, compared to $6.8 million in We are very pleased with our first quarter results," said Ray Griffith, Ace president and chief executive officer. The early spring weather and the successful launch of our new Clark + Kensington paint and primer in one drove substantial increases in revenue. In addition, we entered into a new credit agreement in April on favorable terms that will allow us to refinance our debt and realize significant interest savings over the life of the agreement. Revenues Merchandise sales to comparable domestic stores increased $34.7 million, or 4.8 percent, in the first quarter of 2012 compared to the prior year. Merchandise sales to new domestic stores activated in the 2011 and 2012 fiscal year periods contributed $19.8 million in incremental sales during the quarter while merchandise revenues decreased $10.3 million due to cancelled stores. This is a net increase in revenues of $9.5 million in 2012 compared to a net increase of $6.7 million in Merchandise sales from Ace s international business increased $7.7 million, or 19.3 percent, in the first quarter as compared to the prior year primarily due to higher sales to retailers in the Asia and Latin America markets. Ace added 30 new stores and cancelled 25 stores in the first quarter and ended the quarter with a total domestic store count of 4,077. 1

2 Gross profit Gross profit for the quarter ended March 31, 2012 was $107.4 million, an increase of $8.6 million from $98.8 million in The gross profit percentage was 11.8 percent, up from 11.6 percent the prior year quarter primarily related to pricing for inbound freight costs. Expenses Operating expenses increased $5.1 million, or 5.9%, to $90.5 million during the three months ended March 31, 2012 as compared to The increase in operating expenses reflects higher retail success and development expenses of $5.0 million partially due to marketing and advertising expenses incurred to support the launch of the Clark + Kensington paint and primer in one product line. In addition, employee benefit expenses increased $4.6 million across all expense categories in 2012 compared to the prior year, primarily due to timing of accruals. Partially offsetting the increases, selling, general and administrative expenses decreased primarily due to nonrecurring fees incurred in the prior year related to the Company s supply chain initiative. EBITDA Ace reported EBITDA (earnings before interest, taxes, depreciation and amortization expenses) of $29.4 million for the first quarter 2012, an increase of $2.2 million or 8.3 percent, as compared to $27.2 million in the prior year. Balance sheet The company had working capital of $304.2 million, $300.3 million and $264.1 million at March 31, 2012, December 31, 2011 and April 2, 2011, respectively. The company had cash and cash equivalents totaling $14.1 million, $15.8 million and $36.7 million at March 31, 2012, December 31, 2011 and April 2, 2011, respectively. Inventories at the end of the first quarter of 2012 were $628.1 million, an increase of $92.7 million and a decrease of $0.4 million compared to the end of fiscal year 2011 and the first quarter of 2011, respectively. The increase compared to the end of fiscal 2011 was due to incremental inventory investments to support anticipated demand during the spring selling season. Trade accounts receivable at the end of the first quarter were $357.7 million, an increase of $104.4 million and $26.9 million compared to the end of fiscal year 2011 and the first quarter of 2011, respectively. The increases were primarily due to higher sales in product categories for which the company generally offers extended payment terms. Total debt was $355.1 million at March 31, 2012, an increase of $22.7 million and a decrease of $105.5 million as compared to December 31, 2011 and April 2, 2011, respectively. The increase compared to year end 2011 was primarily due to short-term borrowings used for general working capital purposes including higher inventory levels, partially offset by the payment of patronage refund certificates in the first quarter of The decrease compared to first quarter 2011 is primarily due to reduced short-term borrowings. 2

3 Cash payments for property and equipment for the quarter ended March 31, 2012 were $8.3 million, an increase of $1.0 million over the comparable period in About Ace Hardware For more than 85 years, Ace Hardware has been known as the helpful hardware store in thousands of communities across America. Customers depend on Ace to help them take care of their homes quickly and easily so they can get on with their lives. In 2012, Ace ranked Highest in Customer Satisfaction among Home Improvement Stores for the Sixth Consecutive Year, according to J.D. Power and Associates. With over 4,600 hardware stores locally owned and operated across the globe, Ace is the largest hardware cooperative in the industry. Headquartered in Oak Brook, Ill., Ace and its subsidiaries currently operate 14 distribution centers in the U.S and also have distribution capabilities in Shanghai, China; Panama City, Panama; and Dubai, United Arab Emirates. Its retailers stores are located in all 50 states, the District of Columbia and approximately 60 countries. For more information on Ace, visit Contacts: Shareholders /Investors Inquiries: Erik Gast, Vice President, Finance , Media Inquiries: Kate Kirkpatrick, Public Relations Manager , ### 3

4 ACE HARDWARE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited, in thousands) Three Months Ended March 31, April 2, (13 Weeks) (13 Weeks) Revenues $ 908,182 $ 854,030 Cost of revenues 800, ,250 Gross profit 107,358 98,780 Distribution operations expenses 23,961 21,562 Selling, general and administrative expenses 36,288 38,662 Retail success and development expenses 30,229 25,188 Total operating expenses 90,478 85,412 Operating Income 16,880 13,368 Interest expense (8,714) (9,392) Interest income 932 1,076 Other income, net 1,742 2,935 Income tax expense (584) (1,099) Net Income 10,256 6,888 Less: net income attributable to noncontrolling interests Net Income atrributable to Ace Hardware Corporation $ 10,178 $ 6,818 Accrued Patronage Distribution $ 9,766 $ 4,278 4

5 ACE HARDWARE CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) March 31, December 31, Assets (Unaudited) (Audited) Cash and cash equivalents $ 14,086 $ 15,817 Marketable securities 51,737 50,980 Receivables, net of allowance for doubtful accounts of $9,592 and $9,836, respectively 397, ,550 Inventories 628, ,325 Prepaid expenses and other current assets 29,322 28,230 Total current assets 1,120, ,902 Property and equipment, net 305, ,073 Notes receivable, net of allowance for doubtful accounts of $12,573 and $12,126, respectively 47,400 41,206 Other assets 58,207 59,843 Total assets $ 1,531,726 $ 1,346,024 Liabilities and Equity Current maturities of long-term debt $ 6,295 $ 5,835 Short-term borrowings 37,500 - Accounts payable 625, ,304 Patronage distributions payable in cash 34,424 30,433 Patronage refund certificates payable - 17,259 Accrued expenses 112, ,803 Total current liabilities 816, ,634 Long-term debt 294, ,511 Patronage refund certificates payable 16,946 15,798 Other long-term liabilities 54,970 51,344 Total liabilities 1,182, ,287 Member Retailers' Equity: Class A voting common stock, $1,000 par value, 10,000 shares authorized, 2,750 and 2,758 issued and outstanding, respectively 2,750 2,758 Class C nonvoting common stock, $100 par value, 4,000,000 shares authorized, 2,950,764 and 2,982,828 issued and outstanding, respectively 295, ,283 Class C nonvoting common stock, $100 par value, issuable to retailers for patronage distributions, 279,087 and 246,727 shares issuable, respectively 27,909 24,673 Additional stock subscribed, net Contributed capital 20,683 20,888 Accumulated deficit (6,109) (6,668) Accumulated other comprehensive income Equity attributable to Ace member retailers 341, ,974 Equity attributable to noncontrolling interests 7,995 7,763 Total equity 349, ,737 Total liabilities and equity $ 1,531,726 $ 1,346,024 5

6 Operating Activities ACE HARDWARE CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, in thousands) Three Months Ended March 31, April 2, Net Income $ 10,256 $ 6,888 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 9,859 9,792 Amortization of deferred gain on sale leaseback (309) (309) Amortization of deferred financing costs Loss (gain) on disposal of assets, net 92 (1,817) Provision for doubtful accounts 1,118 1,012 Other, net Changes in operating assets and liabilities: Receivables (99,630) (86,027) Inventories (92,729) (117,698) Other current assets (1,036) 7,082 Other long-term assets (193) (1,713) Accounts payable and accrued expenses 153, ,719 Other long-term liabilities 3,861 (563) Deferred taxes Net cash used in operating activities (13,384) (60,636) Investing Activities Purchases of marketable securities (4,253) (9,821) Proceeds from sale of marketable securities 4,616 26,518 Purchases of property and equipment (8,279) (7,302) Decrease in notes receivable, net Other 6 33 Net cash (used in) provided by investing activities (7,256) 9,740 Financing Activities Proceeds from short-term borrowings 37, ,800 Principal payments on long-term debt (1,505) (1,061) Payments of cash portion of patronage distribution - (26,422) Payments of patronage refund certificates (17,301) (17,106) Proceeds from sale of noncontrolling interests - 8,755 Other Net cash provided by financing activities 18,909 78,218 (Decrease) increase in cash and cash equivalents (1,731) 27,322 Cash and cash equivalents at beginning of period 15,817 9,357 Cash and cash equivalents at end of period $ 14,086 $ 36,679 Supplemental disclosure of cash flow information: Interest paid (net of amounts capitalized) $ 2,530 $ 3,702 Income taxes paid $ 135 $ 141 6

7 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 a measure 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 March 31, 2012 (13 Weeks) April 2, 2011 (13 Weeks) EBITDA Reconciliation: Net income... $ 10,256 $ 6,888 Income tax expense ,099 Interest expense... 8,714 9,392 Depreciation and amortization... 9,859 9,792 EBITDA... $ 29,413 $ 27,171 7