In the year of 2004 there were many amended filings for financial restatements by publicly traded companies due to accounting errors, according to a report by Huron Consulting Group. The company I will be discussing is Ace Hardware Corporation which is not a publicly traded company headquartered in Oak Brook, Ill. Throughout its 84-year history, Ace Hardware has been known as the “helpful place” by customers in the communities it serves. With 4,600 hardware, home center and building materials stores generating annual retail sales of more than $12 billion, Ace is the largest retailer-owned hardware cooperative in the industry.
Ace currently operates 14 distribution centers in the U. S. and one warehouse in Shanghai, China. Ace Hardware Corporation reported that it has successfully restated its previously issued financial statements for the fiscal years ended 2006, 2005 and 2004. The restatement was primarily the result of the discovery of a $154 million inventory accounting error by a mid-level employee in the finance department who worked there for eight years. The restatement included the correction of the inventory accounting error which reduced 2006, 2005 and 2004 net earnings by $18. million, $19. 3 million and $33. 5 million, respectively. Additionally, the company also recorded other out of period adjustments and reclassifications in the restatement of its financial statements. Measures were taken to restore the company’s equity, which included the establishment of variance allocation accounts for Ace’s stockholders, its independent store owners. According to Ace President and CEO Ray Griffith they anticipated having Ace’s equity restored to previously reported levels within the next two years.
They proved this by identifying the discrepancy when they conducted a full, third-party investigation that found no fraud, no missing money and no missing inventory, and issued audited restated financials within a six-month time frame. A summary of the impact of the restatement on net income and equity for 2006, 2005 and 2004 are as follows. As a result of the financial restatement Ace Hardware Corporation reported wholesale revenues of $3. 97 billion for the year ending December 29, 2007, which was a $39. 4 million, or 1. 0 percent increase, over the $3. 3 billion in wholesale revenues from the comparable period in 2006.
This increase represents the sixth consecutive year of positive revenue growth for Ace, the largest retailer-owned cooperative in the home improvement industry. The revenue increase was driven, in part, by the 171 new stores worldwide to join the Ace enterprise in 2007, as well as an increase in international revenues of $24. 1 million or 14. 4 percent. Ace currently operates stores in all 50 states and 63 countries. Ace reported net income of $86. 9 million for full year 2007, which was down from record net income of $94. million generated in 2006.
The decline in net income in 2007 was reflective of lower gross profit rates, due to one-time gains realized in 2006 on commodity pricing and opening stock order discounts associated with the opening of a new distribution center, and higher expenses to support new retail initiatives and the cost of the 2006 financial restatement. Year-end patronage dividends distributed to retailers for 2007 were $81. 2 million. As you can see with the restatement of their financials they bounced back to the leaders in this marketplace.
They learned to make some difficult decisions to operate in this economy being smarter and leaner.
- WEBCPA, . (2007, September 10). Ace Hardware finds 154M accounting error. WEBCPA.
- Taub, Stephen. (2008, December 4). Ace signs a Mr. Fixit to work with its CFO. CFO. com. (2008, April 23).
- Ace Hardware Reports 2007 Financial Results. Franchising . com. Retrieved from(2008, March 4).
- Ace Hardware Announces Restated Financial Results For 2004 – 2006. Franchising. com.