In a letter to Ace retailers, president and CEO Ray Griffith said the company’s $152 million shortfall led to the overpayment of patronage payouts -- money that retailers will, in essence, need to pay back to the company over a multi-year period.
The Dec. 14 letter also said the co-op has gained the support of its lenders, who will help Ace restore the equity to the $320-million level.
To make up the shortfall, Ace will establish variance allocation accounts that would be based on each store’s proportionate share of warehouse dividend pool purchases between 2002 and 2006, the period under review.
Each retailer’s patronage dividend for 2007 and beyond will be distributed 20 percent in cash and 80 percent in Class C stock -- the latter portion being first applied against the variance account. New shares will be issued after the variance account is satisfied.
“In essence, shareholders received excess patronage payouts, and now we must make this unfortunate correction,” Griffith said in the letter. “We sincerely apologize for this event, but believe this to be the most prudent way to recoup this overpayment and restore the equity position of your company.”
Many stores will be able to satisfy their variance accounts with distributions for 2007 and 2008, with complete restoration for all but a few stores estimated to take place with distributions for 2009, Griffith further explained.
Ace is expected to make further announcements about the shortfall in the coming weeks. Griffith said Ace’s board of directors will distribute an executive summary of an independent investigation report when it becomes available, most likely in early January.
“There are several components to the independent investigation of Ace Hardware's $152 million shortfall,” Ace public relations manager Christopher Boniface told HCN. “The restoration plan, which was communicated to Ace retailers and employees on Friday, is just one piece of the puzzle.”