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Ace Hardware Working To Restate Past Financial Results

By: Ace Hardware |  4 Shares     638 Reads

September 06, 2007 // Franchising.com // OAK BROOK, ILL. – Ace Hardware Corporation announced today that, based on an internal review of certain financial reports and part of Ace's long-standing full disclosure policy, it discovered an error in the company's historical financial statements. Based on the most current information available, there is a difference between the company's 2006 general ledger balance (the company's primary method for recording financial transactions) and the perpetual inventory balance (actual inventory records) – that amounts to approximately $154 million. The final amount could be less, but will likely result in a restatement of the company's financial results. The error appears to have accumulated over a minimum of five years. Ace Hardware is not a publicly traded company.

Upon discovering the issue, Ace immediately engaged Protiviti Inc., an independent consulting firm with significant expertise in inventory reconciliation matters, to help identify the exact cause, extent of and solution to this problem. The company and Protiviti are working diligently and urgently to tackle the issue; however, given the complexity of the situation and Ace's desire to be as thorough as possible, a full assessment of the error could take several months to complete.

"Our top priority is to confirm the exact nature and extent of this accounting problem and fix it," said Ray Griffith, Ace's president and chief executive officer. "I am deeply committed to working with the Board, Ace's management team and outside experts to find out what happened, why it happened, and put processes in place to ensure something like this never happens again."

Griffith continued, "At this time, we have no reason to believe there are any other significant problems in our financial statements/reporting and have absolutely no indication of theft or missing inventory."

In August, the company discussed with retailers the possibility of a future conversion from a cooperative to a traditional corporation. Ace has decided that it will not pursue this proposed change in the near future as resolving this issue is a top priority.

Ace's financial position, business and operations are fundamentally strong with current revenues on track to exceed 2006 levels. The company's balance sheet is sound, its earning power and cash flow are very strong, service levels remain high and the Ace brand is one of the strongest in the industry. At retail, same-store sales are outpacing a number of big-box competitors.

"The Board of Directors is actively engaged and intensely focused on this issue," said J. Thomas Glenn, chairman of Ace's Board of Directors." "We take this matter very seriously and will see that it is resolved. We approve of the way Ray Griffith, Ace's management team and our outside partners are handling this complex situation."

"As we navigate through this challenging situation, Ace remains as committed as ever to being 'the helpful place' for consumers, partners and vendors alike," Griffith said. "This issue will not impact Ace's ability to provide anyone with the merchandise or services they've come to expect from Ace. We will continue serving all of our customers and retailers as we do today."

Ace will regularly communicate updates as additional facts/information are known and until this matter is fully resolved. The company will restate its affected financial statements and issue its second quarter financials as soon as it is practical to do so.

About Ace Hardware Throughout its 83-year history, Ace Hardware has been known as the helpful hardware store by both customers and communities. In 2007, Ace Hardware was ranked the "Highest in Customer Satisfaction among Major Home Improvement Retail Stores" by J.D. Power and Associates in its inaugural study of the retail home improvement industry. With 4,600 hardware, home center and building materials stores, Ace is the largest retailer-owned hardware cooperative in the industry. Headquartered in Oak Brook, Ill., Ace currently operates 14 distribution centers in the U.S. and a warehouse in Shanghai, China, and its retailers' stores are located in all 50 states and 60 countries. More information about Ace can be found at www.acehardware.com.

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