SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarterly period ended June 30, 1995.
Commission File Number 0-15708
HANDY HARDWARE WHOLESALE, INC.
(Exact name of Registrant as specified in its charter)
TEXAS 74-1381875
(State of incorporation) (I.R.S. Employer
Identification No.)
8300 Tewantin Drive, Houston, Texas 77061
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number: (713) 644-1495
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the Registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X______ No ____________
The number of shares outstanding of each of the Registrant's
classes of common stock as of June 30, 1995, was 7910 shares of
Class A Common Stock, $100 par value, and 41,717 shares of Class
B Common Stock, $100 par value.
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
INDEX
PART I Financial Information Page No.
Item 1. Financial Statements
Condensed Balance Sheet June 30, 1995
and December 31, 1994 . . . . . . . . . . . . . 3-4
Condensed Statement of Income - Six Months
Ended June 30, 1995 and 1994 . . . . . . . . . . . 5
Condensed Statement of Cash Flows - Six Months
Ended June 30, 1995 and 1994 . . . . . . . . . . 6-7
Notes to Condensed Financial Statements . . . . . . 8-12
Item 2. Management's Discussion & Analysis of Financial
Condition and Results of Operations . . . . . 13-20
PART II Other Information
Items 1. - 6. 21
Signatures 22
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
___________ ___________
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 736,143 $ 688,935
Accounts Receivable, net of 8,025,522 7,341,670
subscriptions receivable in
the amount of $58,830 for 1995
and $39,444 for 1994
Inventory 11,659,591 12,980,262
Other Current Assets 217,027 208,536
____________ ___________
$ 20,638,283 $21,219,403
____________ ___________
PROPERTY, PLANT AND EQUIPMENT (Note 2)
At Cost Less Accumulated Depreciation
of $3,607,441 (1995) and $3,179,972
(1994) $ 8,874,405 $ 7,334,774
____________ ___________
OTHER ASSETS
Notes Receivable (Note 3) $ 104,909 $ 75,866
Deferred Compensation Funded 162,762 162,762
Other Noncurrent Assets -0- 42,523
____________ ___________
$ 267,671 $ 281,151
____________ ___________
TOTAL ASSETS $ 29,780,359 $28,835,328
============ ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
CURRENT LIABILITIES
Mortgage Payable $ 308,204 $ 308,204
Notes Payable-Stock(Note 4) 12,960 24,160
Notes Payable-Capital Lease 106,405 88,381
Accounts Payable - Trade 11,206,990 11,238,594
Other Current Liabilities 1,042,021 430,988
____________ ___________
$ 12,676,580 $12,090,327
____________ ___________
NONCURRENT LIABILITIES
Mortgage Payable $ 2,669,204 $ 2,823,307
Notes Payable-Stock(Note 4) 102,810 69,610
Notes Payable-Capital Lease 208,706 157,888
Notes Payable-Vendor 103,011 73,720
Deferred Compensation Payable 162,762 162,762
Deferred Income Taxes Payable
(Note 5) 296,348 292,887
____________ ___________
$ 3,542,841 $ 3,580,174
____________ ___________
TOTAL LIABILITIES $ 16,219,421 $15,670,501
============ ===========
</TABLE>
The accompanying notes are an integral part of the Condensed Financial
Statement.
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
CONDENSED BALANCE SHEET (CONTINUED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
____________ ___________
<S> <C> <C>
STOCKHOLDERS' EQUITY
Common Stock, Class A,
authorized 20,000 shares, $100
par value per share, issued
8,160 & 7,790 shares $ 816,000 $ 779,000
Common Stock, Class B,
authorized 100,000 shares, $100
par value per share, issued
43,176 & 40,205 shares 4,317,600 4,020,500
Common Stock, Class B
Subscribed 3,994.14 & 3,898.97
shares 399,414 389,897
Less Subscription Receivable (29,415) (19,722)
Preferred Stock 10% Cumulative,
authorized 100,000 shares, $100
par value per share, issued
45,679 & 42,569 shares 4,567,900 4,256,900
Preferred Stock, Subscribed
3,994.14 & 3,898.97 399,414 389,897
Less Subscription Receivable (29,415) (19,722)
Paid in Surplus 259,811 239,162
____________ ___________
$ 10,701,309 $10,035,912
Less: Cost of Treasury Stock
3,267.50 & -0- shares (326,750) -0-
____________ ___________
$ 10,374,559 $10,035,912
Retained Earnings 3,186,379 3,128,915
____________ ___________
Total Stockholders' Equity $ 13,560,938 $13,164,827
____________ ___________
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 29,780,359 $28,835,328
============ ===========
</TABLE>
The accompanying notes are an integral part of the Condensed Financial
Statement.
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
CONDENSED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
QUARTER SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
________________________________ ______________________________
1995 1994 1995 1994
<S> <C> <C> <C> <C>
INCOME
Net Sales $ 27,654,540 $ 26,227,302 $ 59,098,268 $ 54,823,558
Sundry Income 129,882 150,438 277,859 294,253
_____________ ____________ _____________ _____________
TOTAL INCOME $ 27,784,422 $ 26,377,740 $ 59,376,127 $ 55,117,811
EXPENSE
Net Mat'l. Costs $ 24,095,677 $ 22,864,678 $ 52,450,741 $ 48,678,219
Payroll Costs 1,419,943 1,215,034 2,946,895 2,447,310
Other Operating Costs 1,746,253 1,805,717 3,149,323 3,213,187
Interest Expense 58,700 61,867 117,756 123,422
_____________ ____________ _____________ _____________
TOTAL EXPENSE $ 27,320,573 $ 25,947,296 $ 58,664,715 $ 54,462,138
_____________ ____________ _____________ _____________
INCOME BEFORE PROVISIONS FOR
ESTIMATED FEDERAL INCOME TAX $ 463,849 $ 430,444 $ 711,412 $ 655,673
PROVISIONS FOR ESTIMATED FEDERAL
INCOME TAX (Note 5) (164,651) (151,030) (252,793) (231,142)
_____________ ____________ _____________ _____________
NET INCOME $ 299,198 $ 279,414 $ 458,619 $ 424,531
LESS ACCRUED DIVIDENDS ON
PREFERRED STOCK $ (100,288) $ (109,664) $ (200,577) $ (219,328)
NET INCOME APPLICABLE
TO COMMON STOCKHOLDERS $ 198,910 $ 169,750 $ 258,042 $ 205,203
============= ============ ============= =============
EARNINGS PER SHARE OF
COMMON STOCK, CLASS A &
CLASS B (Note 1) $ 3.73 $ 3.45 $ 4.90 $ 4.23
============= ============ ============= =============
</TABLE>
The accompanying notes are an integral part of the Condensed
Financial Statement.
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1995 1994
___________ ___________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITY
Net Income $ 458,619 $ 424,531
____________ ___________
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating Activities:
Depreciation $ 427,469 $ 387,940
Increase (Decrease) in Deferred Income Tax 3,461 (724)
Changes in Assets and Liabilities
Increase in Accounts Receivable (683,852) (1,436,886)
Increase in Notes Receivable (29,043) (2,381)
(Increase) Decrease in Inventory 1,320,671 (628,717)
Decrease in Other Assets 34,032 93,162
Increase in Notes Payable - Vendor 29,291 2,769
Increase (Decrease)in Accounts Payable (31,604) 1,016,124
Increase in Other Liabilities 611,033 588,868
____________ ___________
TOTAL ADJUSTMENTS $ 1,681,458 $ 20,155
____________ ___________
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 2,140,077 $ 444,686
____________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures $ (1,967,100) $ (175,373)
Disposition of Fixed Assets -0- 1,500
____________ ___________
NET CASH USED FOR
INVESTING ACTIVITIES $ (1,967,100) $ (173,873)
____________ ___________
</TABLE>
The accompanying notes are an integral part of the Condensed Financial
Statements.
<PAGE>
STATEMENT OF CASH FLOWS (UNAUDITED) Cont.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
_________________________________
1995 1994
__________ __________
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in Mortgage Payable $ (154,103) $ (154,102)
Increase in Notes Payable-Stock 22,000 15,400
Increase (Decrease) in Notes Payable-Capital Lease 68,842 (28,385)
(Increase) Decrease in Subscription Receivable (352) (21,525)
Proceeds From Issuance of Stock 665,749 674,102
Purchase of Treasury Stock (326,750) (325,700)
Dividends Paid (401,155) (438,654)
NET CASH USED FOR FINANCING
ACTIVITIES $ (125,769) $ (278,864)
__________ __________
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $ 47,208 $ (8,051)
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 688,935 666,387
__________ __________
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 736,143 $ 658,336
========== ==========
Additional Related Disclosures To The Statement of Cash Flows
Interest Expense Paid $ 117,756 $ 123,422
Income Taxes Paid 281,949 234,717
</TABLE>
The accompanying notes are an integral part of the Condensed Financial
Statements.
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
(1) General Information-
The condensed consolidated financial statements included
herein have been prepared by Handy Hardware Wholesale, Inc.
(the "Company"). The financial statements reflect all
adjustments, which were all of a recurring nature, which
are, in the opinion of management, necessary for a fair
presentation. Certain information and footnote disclosures
normally included in financial statements prepared in
accordance with generally accepted accounting principles
have been omitted pursuant to the rules and regulations of
the Securities and Exchange Commission (SEC). The Company
believes that the disclosures made are adequate to make the
information presented not misleading. The condensed
consolidated financial statements should be read in
conjunction with the audited financial statements and the
notes thereto included in the latest Form 10-K Annual
Report.
(2) Earnings Per Share -
Earnings per common share (Class A and Class B Combined) are
based on the weighted average number of shares outstanding
in each period after giving effect to the stock issued,
stock subscribed, accrued dividends on preferred stock, and
treasury stock as set forth by Accounting Principles Board
Opinion No. 15 as follows:
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
_______________________ _______________________
1995 1994 1995 1994
__________ __________ __________ __________
<S> <C> <C> <C> <C>
Calculation of Earnings Per Share of Common Stock
Net Income $ 299,198 $ 279,414 $ 458,619 $ 424,531
Less: Accrued Dividends on Preferred Stock
(100,288) (109,664) (200,577) (219,328)
__________ _________ _________ __________
$ 198,910 $ 169,750 $ 258,042 $ 205,203
Weighted Average
Shares of Common Stock (Class A & Class B)
outstanding 53,313 49,201 52,703 48,497
Income Per Share of Common Stock $ 3.73 $ 3.45 $ 4.90 $ 4.23
========== ========== ========== ==========
</TABLE>
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(3) Revenue Recognition
The accompanying financial statements have been prepared in
conformity with generally accepted accounting principles.
Accordingly, revenues and expenses are accounted for using
the accrual basis of accounting. Under this method of
accounting, revenues are recognized when a receivable exists
and expenses are recognized when the liability is incurred.
(4) Accounting for Dividends on Preferred Stock
The Company pays dividends on Preferred Stock during the
first quarter of each fiscal year. Only Shareholders of
Preferred Stock on the record date for the payment of the
dividend are entitled to receive dividends. Dividends are
prorated for the portion of the twelve-month period ending
January 31, during which the Preferred Stock was held.
Because the Company is unable to anticipate the amount of
the Preferred Stock dividends, it does not accrue a
liability for the payment of those dividends on its balance
sheet. To more properly reflect income, however, on the
Condensed Statement of Income included herein, the Company
has accrued an estimated portion of the dividends to be paid
in the first quarter of 1996 based on the dividends paid in
the first quarter of 1995.
When dividends on Preferred Stock are actually paid, there
is a reduction of retained earnings. Retained earnings on
the Condensed Balance Sheet for the six months ended June
30, 1995, contained herein, therefore, is net of dividends
actually paid during the first quarter of 1995.
NOTE 2 - PROPERTY, PLANT & EQUIPMENT
Property, Plant & Equipment Consists of:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
_____________ _____________
<S> <C> <C>
Land $ 2,027,797 $ 2,027,797
Building & Improvements 6,624,767 5,026,886
Furniture, Computer, Warehouse 3,212,081 2,842,862
Transportation Equipment 617,201 617,201
_____________ _____________
$ 12,481,846 $ 10,514,746
Less: Accumulated Depreciation $ (3,607,441) $ (3,179,972)
_____________ _____________
$ 8,874,405 $ 7,334,774
============= =============
</TABLE>
<PAGE>
NOTE 3 - NOTES RECEIVABLE
<TABLE>
<CAPTION>
CURRENT PORTION NON CURRENT PORTION
_________________________ __________________________
JUNE 30, DEC. 31, JUNE 30, DEC. 31,
DEBTOR COLLATERAL 1995 1994 1995 1994
------------------------------ ---------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Alamo Heights Hdwe. - $ -0- $ -0- $ 5,893 $ 5,893
Broadway - -0- -0- 21,333 -0-
Decatur Hdwe. - -0- -0- 2,340 2,340
Grandbury Farm & Ranch - -0- -0- 1,219 1,219
Handyman Hdwe. - -0- -0- 13,165 13,165
Henckel's Hwy. 6 Ace Home Ctr. - -0- -0- 5,446 5,446
Island Hdwe. - -0- -0- 2,807 2,807
J & B Auto - -0- -0- 2,171 2,171
Jackson Hdwe. & Supply Co. - -0- -0- 2,297 2,297
Katy Mason Hdwe. - -0- -0- 3,427 3,427
Kilgore Hdwe. - -0- -0- 3,556 3,556
King Feed & Hdwe. - -0- -0- 4,255 4,255
Liberty Auto - -0- -0- 2,880 2,880
Marchand's Inc. - -0- -0- 2,830 2,830
Mardis Auto Parts & Hdwe. - -0- -0- 2,619 2,619
Max Squires - -0- -0- 1,898 2,146
Mike's Hardware - -0- -0- 1,511 -0-
Overall Lumber - -0- -0- 3,362 3,362
Pitts Hdwe. - -0- -0- 1,772 1,772
RBC Hdwe. - -0- -0- 2,549 2,549
Sawyer Brothers - -0- -0- 4,840 4,840
Sealy Ace Hdwe. - -0- -0- 4,920 4,920
Stifter Lbr. - -0- -0- 3,087 -0-
Trahan Hdwe. - -0- -0- 1,372 1,372
Wagner Hdwe. - -0- -0- 3,360 -0-
___________ ___________ ____________ ____________
$ -0- $ -0- $ 104,909 $ 75,866
=========== =========== ============ ============
</TABLE>
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - NOTES PAYABLE - STOCK
<TABLE>
<CAPTION>
CURRENT PORTION NON-CURRENT PORTION
------------------- ----------------------
INTEREST MATURITY JUNE 30 DEC. 31, JUNE 30, DEC. 31,
PAYEE RATE COLLATERAL DATE 1995 1994 1995 1994
-------------- -------- ---------- -------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Beere Hdwe. 6% None 1997 $ -0- $ -0- $ 1,100 $ 1,100
C & S Hdwe., Inc. 8% None 1995 -0- 4,200 -0- -0-
C & S Hdwe., Inc. 8% None 1995 -0- 3,800 -0- -0-
Cleveland Hdwe. 6% None 1997 -0- -0- 21,760 21,760
Community Hdwe. 6.25% None 2000 -0- -0- 6,400 -0-
D.A.D.S. Whsle,Inc 6.25% None 2000 -0- -0- 5,000 -0-
Dan's Home Ctr. 6% None 1999 -0- -0- 8,600 8,600
Gulfway Lbr. Co. 6.25% None 2000 -0- -0- 12,800 -0-
Hawkins Hdwe. 6% None 1999 -0- -0- 2,150 2,150
Hometown Hdwe. 6% None 1997 -0- -0- 1,000 1,000
J & B Builders 6% None 1998 -0- -0- 7,000 7,000
Ken's Hdwe. 6% None 1999 -0- -0- 5,000 5,000
Morrison Lbr. 8% None 1995 12,960 12,960 -0- -0-
Patterson Hdwe. 6% None 1999 -0- -0- 12,000 12,000
Rockdale Bldg. Ctr. 6.25% None 2000 -0- -0- 3,000 -0-
Space City Hdwe. 6% None 1999 -0- -0- 9,000 9,000
Terrebonne Hdwe. 8% None 1995 -0- 3,200 -0- -0-
Yeager Hdwe. 6% None 1999 -0- -0- 2,000 2,000
Yeager Hdwe. 7% None 2000 -0- -0- 6,000 -0-
_______ ________ ________ _______
$12,960 $ 24,160 $102,810 $69,610
======= ======== ======== =======
</TABLE>
Only interest is paid on the outstanding balance of the note
during the first four years. In the fifth year both interest and
principal are paid.
Principal payments applicable to the next five years are as
follows:
1995 $12,960
1996 $ -0-
1997 $23,860
1998 $ 7,000
1999 $38,750
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - INCOME TAXES
The Company adopted FASB Statement No. 109, "Accounting for Income
Taxes," effective January 1, 1993, on a prospective basis. The major
categories of deferred income tax provisions are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
1995 1994
------------- -------------
<S> <C> <C>
Excess of tax over book depreciation $ 1,339,471 $ 1,310,183
Inventory - Ending inventory adjustment for tax recognition of Sec. 263A
Uniform Capitalization Costs (300,098) (285,988)
Deferred Compensation (167,762) (162,762)
------------- -------------
Total $ 871,611 $ 861,433
Statutory Tax Rate 34% 34%
------------- -------------
Cumulative Deferred Income Tax Payable $ 296,348 $ 292,887
============= =============
Classified as:
Current Liability $ -0- $ -0-
Noncurrent Liability 296,348 292,887
------------- -------------
$ 296,348 $ 292,887
============= =============
</TABLE>
Reconciliation of income taxes on the difference between tax and
financial accounting is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
JUNE 30, JUNE 30,
1995 1994
-------------- --------------
<S> <C> <C>
Principal components of income tax expense
Federal:
Current
Income tax paid $ 281,743 $ 169,394
Carry-over of prepayment from prior year 93,583 65,323
Refund received for overpayment from prior year (93,377) -0-
------------- -------------
Federal Income Tax Receivable (32,617) (2,851)
Carry-over to subsequent year -0- -0-
------------- -------------
Income tax for tax reporting at statutory rate
of 34% $ 249,332 $ 231,866
Deferred
Adjustments for financial reporting:
Depreciation 9,958 7,632
263A Uniform Capitalization Costs (4,797) (6,656)
Other (1,700) (1,700)
------------- -------------
Provision for federal income tax $ 252,793 $ 231,142
============= =============
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company continued its steady growth during the second quarter of
1995 while continuing to meet its goal of providing quality goods to
its Member-Dealers at its cost plus a reasonable markup charge.
During the second quarter and the first six months of 1995, total
sales were 5.4 percent higher and 7.8 percent higher than during the
same periods in 1994. This increase was generated from all of the
Company's selling territories. More specifically, all seven sales
territories showed double digit increases over last year.
Sales The following table compares the Company's sales
during the first six months of 1995 to sales during the same period
of 1994, by sales territory:
<TABLE>
<CAPTION>
Six Months Six Months
1995 1994
______________________________________ _________________________
% Increase
in Sales
from Six % of % of
Month Total Total
Sales Territory Sales 1994 Sales Sales Sales
--------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Houston Area $15,808,864 12% 27.0% $14,123,739 27.3%
Victoria, San Antonio,
Corpus Christi & Rio Grande
Valley Area* 11,273,954 10% 19.3% 10,258,909 19.8%
North Texas, Dallas
& Fort Worth Area 9,825,049 10% 16.8% 8,957,832 17.3%
Austin, Brenham & Central
Texas Area 5,584,136 14% 9.6% 4,884,632 9.5%
Southern Louisiana Area 6,263,707 28% 10.7% 4,891,678 9.5%
Baton Rouge, New Orleans,
Mississippi, Alabama &
Florida Area 5,177,942 11% 8.9% 4,667,082 9.0%
Oklahoma & Arkansas Area 4,538,690 16% 7.8% 3,928,895 7.6%
---------- ---- ----- ----------- ------
Totals: $58,472,342 (1) 100.0% $51,712,767 (1) 100.0%
=========== ======= =========== ======
</TABLE>
__________________________________
* Includes sales to Mexico dealers
(1) Total does not include sales to dealers who were no longer
Member-Dealers at end of period.
<PAGE>
In the Houston territory, independent hardware stores have regained
some of the market share previously lost to retail warehouses. This
has resulted from independent dealers developing new strategies to
compete with the aggressive marketing programs of the retail
warehouses. This is evidenced by the much larger increase in sales
in the Houston territory in the first six months of 1995 over the
same period of 1994 (12%), as compared to 1994 over 1993 (4%) and
1993 over 1992 (7%). However, the recent expansion of retail
warehouses to the Baton Rouge and New Orleans area has begun to
erode the market share of independent hardware stores in that
territory. Increases in sales in this latter territory are not as
large as in recent years. For the first six months of 1995 sales
increased 11 percent over the same 1994 period, as compared to a 21
percent increase in 1994 over 1993 and a 24 percent increase in 1993
over 1992. The Company believes that an increase in promotional
sales activities and inventory available for orders, plus low-cost
dealer buying programs, and a general strengthening of the economy
in the Company's sales territories were key elements of the
Company's sales growth.
Net Material Costs and Rebates. Net material costs for the
second quarter and the first six months of 1995 were $24,095,677 and
$52,450,741, respectively, compared to $22,864,678 and $48,678,219,
respectively, for the same periods in 1994. The increase of 7.8
percent in net material costs for the first half of 1995 closely
parallels the increase of 7.8 percent in sales for the same period.
Net material costs as a percentage of sales remained stable: 88.8
percent in the first six months of both 1995 and 1994. Net material
costs for the second quarter of 1995 increased 5.4 percent which
also parallels the 5.4 percent increase in sales. Net material
costs as a percentage of sales were 87.1 percent in the second
quarter of 1995 as compared to 87.2 percent for the same period in
1994.
The relative stability of net material costs as a percentage of
sales is further enhanced by the relative stability of purchase
discounts and factory rebates as a percentage of net material costs.
Both were taken by the Company as a credit against material costs.
Purchase discount income during the first six months of 1995 was
$1,195,056 (2.3% of material costs) as compared to $1,066,333 (2.2%
of material costs) during the same 1994 period. Factory rebate
income during the same two periods was $1,967,972 (3.7% of material
costs) and $1,713,812 (3.5% of material costs), respectively.
Payroll Costs. Payroll costs during the second quarter and six
months ended June 30, 1995, increased to $1,419,943 and $2,946,895
respectively, from $1,215,034 and $2,447,310 for the same 1994
period. The 16.9 percent second quarter increase and the 20.4
percent six month increase in 1995 payroll costs resulted primarily
from regular salary increases for employees, a 17.0 percent second
quarter increase and a 6.5 percent six month increase in the number
of employees needed to meet increased Member-Dealer demand for
inventory and a 35.7 percent increase in overtime payroll associated
with the Company's warehouse expansion program. Overtime payroll
actually declined in the second quarter of 1995 by 18.7 percent.
The increase in the number of employees, however, more than offset
any positive benefit.
Due to the lack of adequate storage space for inventory, the Company
was forced to lease additional warehouse space in an offsite
<PAGE>
facility. The lack of proximity of the additional space to the
offices of the Company resulted in an increase in payroll costs.
Payroll costs for the second quarter of 1995 constituted 5.1 percent
of net sales and 5.2 percent of total expenses, compared to 4.6
percent and 4.7 percent for the same quarter in 1994. Payroll costs
accounted for 5.0 percent of both sales and total expenses for the
first six months of 1995 as compared to 4.5 percent for the same
1994 period.
Other Operating Costs. During the second quarter, and for the
first six months in 1995, other operating costs declined 3.3
percent an 2.0 percent, respectively, compared to the same 1994
periods. Other operating expenses for the second quarter of 1995
were $1,419,943 (5.1% of sales) as compared to $1,805,717 (6.9% of
sales) for the same 1994 period. For the six month period ending
June 30, 1995, other operating expenses were $3,149,323 (5.3% of
sales) as compared to $3,213,187 of these expenses for the same
period of 1994 (5.9% of sales). The decrease in costs has been due
primarily to a decline in insurance premiums and a decline in
accruals for property tax. More specifically, workers' compensation
insurance premiums declined 28 percent. Although property taxes are
anticipated to increase in 1995, the accrual for these taxes is
being allocated over a longer period of time in 1995 than in 1994.
Net Income and Earnings Per Share. As a result of an increase
in gross margin, pre-tax net income increased 7.8 percent, from
$430,444 for the second quarter of 1994 to $463,849 in the same 1995
period, while net income increased 7.1 percent. Pre-tax net income
increased 8.5 percent, from $655,673 for the first six months of
1994 to $711,412 during the same 1995 period. Net income increased
8.0 percent.
The increase in the Company's earnings per share in the second
quarter and first six months of 1995 as compared to the same period
of 1994 was due to an increase in gross margin in 1995 and a decline
in the 1995 dividend paid on preferred stock. Dividends accrued in
the first quarter of 1995 represented a smaller percentage of 1995
net income than dividends accrued in the first quarter of 1994 and
resulted in an 8.1 percent and a 15.8 percent increase,
respectively, in earnings per share for the second quarter and first
six months of 1995.
Quarter-to-quarter variations in the Company's earnings per share
reflect (in addition to the factors discussed above) the Company's
pricing of its merchandise in order to deliver the lowest cost
buying program for Member-Dealers(who own all of the stock of the
Company), although this often results in lower net income for the
Company. Because these trends benefit the individual stockholders
of the Company who purchase its merchandise, there is no demand
from shareholders that the Company focus greater attention upon
earnings per share.
Seasonality. The Company's quarterly net income traditionally
has been subject to several factors. Prior to 1993, substantially
all of each fiscal year's net income was realized in the first two
quarters of the year. Since late 1993, however, the degree of
quarter-to-quarter variance in net income has begun to decrease.
The most significant seasonal factor has been the annual rebate from
PRO Hardware, Inc. which was paid during the first quarter of 1993
and the second quarter of 1992. In September 1993, the Company
<PAGE>
began receiving the PRO Hardware rebate on a monthly, rather than
annual basis. Until the last half of 1992, the Company accrued its
entire property tax in the fourth quarter, together with other
adjustments and accruals. In 1993 the Company began to accrue its
property tax expense on a monthly basis. Both changes should have a
stabilizing effect on quarter-to-quarter net income, although two
seasonal factors are likely to remain. First and third quarter
earnings have been negatively affected by the increased level of
direct sales (with no markup) resulting from the Company's
semiannual trade shows always held in the first and third quarters.
Lastly, sales during the fourth quarter have traditionally been
lower, as hardware sales are slowest during the winter months
preceding ordering for significant sales for the spring. However,
net income has varied substantially from year to year in the fourth
quarter as a result of corrections to inventory made at year-end.
FINANCIAL CONDITIONS AND LIQUIDITY
During the first quarter of 1995, the expansion of the Company's
warehouse facility continued to have the largest impact on the
financial condition of the Company. The project, which began in the
fourth quarter of 1994, is expected to be completed in August 1995.
Of the approximately $3,600,000 total budget for the project,
approximately $1,916,000 (55%) has been expended to date, with
$1,597,881 expended in the first six months of 1995. Although the
Company has secured a $3,500,000 revolving line of credit for the
expansion project, funds expended to date have been from cash flow
in an effort to avoid interest expense as long as possible. It is
anticipated that the Company will begin to draw on the line of
credit in the third quarter of 1995. For more information regarding
the warehouse expansion project, see Capital Expenditures below.
Cash Flow. During the period ending June 30, 1995, Handy
Hardware generated adequate amounts of cash while continuing to make
significant investments in inventory, warehouse and data processing
equipment, delivery equipment, and software to better meet the needs
of its Member-Dealers.
There was a significant net increase in the Company's cash and cash
equivalents in the first six months of 1995 compared to the same
period in 1994. The improvement in the Company's cash position was
due to the fact that the Company's operating activities provided net
cash of $2,140,077 in the first six months of 1995 as compared to
$444,686 in the same period of 1994. The increase in cash flow from
operating activities in the first half of 1995 as compared to the
first half of 1994 was principally attributable to: (i) a $1,320,671
decrease in inventory as compared to a $628,717 increase in
inventory for the same period in 1994 plus (ii) a smaller increase
in accounts receivable ($683,852 vs. $1,436,886), offset by a
decrease of $31,604 in accounts payable as compared to an increase
in accounts payable of $1,016,124 for the same 1994 period.
These factors were mostly the result of maintaining strict control
of inventory during the period of warehouse expansion. This, in
turn, resulted in a decrease in accounts payable, although not as
significant as the decline in inventory due to extended payment
terms granted by manufacturers to assist the Company's spring trade
show and other promotional activities.
Further, the decline in service level during the construction period
<PAGE>
had a somewhat negative effect on member-dealer purchases. Thus,
accounts receivable increased but not as significantly as in the
past periods.
The Company expended a net of $1,967,100 to purchase fixed assets
($1,597,881 of which was expended on the warehouse expansion
project) in the first six months of 1995, which is significantly
more than the $173,873 expended in the same period of 1994. In the
first half of 1995, $125,769 of cash was used for financing
activities, which was 54.9 percent lower than the $278,864 used in
the first half of 1994. The use of cash for financing activities in
the 1995 period was reduced by (i) capital leases for computer,
warehouse and delivery equipment which resulted in a positive cash
flow of $68,842 (ii) a smaller preferred stock dividend payment in
the first quarter of 1995 ($401,155) than in the 1994 period
($438,654), as a result of a decrease in the dividend rate from 12
percent to 10 percent, and (iii) a smaller increase in subscription
receivables ($352 vs. $21,525).
Working Capital. The Company's continuing ability to generate
cash to meet its needs for funding its activities is illustrated by
three key liquidity measure shown in the following table:
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31 JUNE 30
1995 1994 1994
---------- ----------- ----------
<S> <C> <C> <C>
Working Capital $7,961,703 $9,129,076 $8,898,722
Current Ratio 1.6 to 1 1.8 to 1 1.8 to 1
(Current Assets to
Current Liabilities)
Long-term Debt as percentage
of Capitalization 26.1 27.2 28.8
</TABLE>
Working capital has been principally generated from the sale
of stock and capital provided from operations. The major component of
the Company's long-term debt is bank indebtedness resulting from the
Company's financing of its current warehouse facility.
Texas Commerce Bank, Houston, Texas, currently extends to the
Company a $2,000,000 unsecured revolving line of credit. The Company
is not currently utilizing this line.
During the remainder of 1995 Handy Hardware expects to further
expand its existing customer base in Oklahoma and Arkansas. The
Company will finance this expansion with receipts from the sale of
stock to new and current Member-Dealers and with increased revenues
from sales to Member-Dealers in Oklahoma and Arkansas. The Company
anticipates that this expansion will have a beneficial effect on its
ability to generate cash to meet its funding needs.
In the first six months of 1995, the Company maintained a 92.3
percent service level (the measure of the Company's ability to meet
Member-Dealers' orders out of current stock) as compared to a
service level of 93.0 percent for the same period of 1994. This
decrease in service level is the result of an inadequate amount of
storage for inventory which has been somewhat rectified by leasing
<PAGE>
additional temporary warehouse space until the warehouse expansion
project can be completed. Inventory turnover was 5.9 times during
the first six months of both 1995 and 1994. This high rate of
inventory turnover, which is higher than the national industry
average, is primarily the result of tight control of the product
mix, increase in depth of inventory, continued high service level,
and increased warehouse sales.
The Company has an outstanding mortgage note payable to Texas
Commerce Bank with a principal balance as of June 30, 1995, of
approximately $2,977,408. The note is a result of a refinancing
that occurred in 1993 and has a five-year fixed rate of interest of
7.2 percent. Although the note is payable in full on March 31,
1998, the Company anticipates refinancing the principal balance at
that time.
On October 7, 1994, the board of directors approved the construction
of a 96,715 square foot expansion of its current warehouse facility.
The expansion is anticipated to cost $3,290,000, plus approximately
$300,000 for warehouse handling equipment, and will be financed
through Nations Bank. The financing will be evidenced by a Credit
Agreement and Promissory Note which will provide for $3,500,000
revolving line of credit. The revolving line of credit will have
three interest rate options: the London Inter-Bank Euro Rate ( LIBOR
rate ) plus 150 basis points, Nations Bank's floating prime rate,
and a treasury based rate plus 180 basis points. The loan will be
secured by a second lien on the approximately 20 acres of land owned
by the Company and on which Texas Commerce Bank has a first priority
lien. Only interest is payable during the first eighteen months of
the loan; thereafter interest and principal payments will be due
based on a 20-year amortization. Although the note is payable in
full on March 31, 1998, the Company anticipates refinancing the
principal balance at that time.
Capital Expenditures In the six month periods ending June 30,
1995, and June 30, 1994, the Company's investment in capital items
was $1,967,100 and $173,873 (net of dispositions), respectively.
Approximately 81.2 percent ($1,597,881) of the amount expended in
the first six months of 1995 was used to finance the costs of the
96,715 square foot addition to the Company's existing warehouse
facility. Thus far $1,916,010 has been funded from cash flow for
the expansion project. It is anticipated that all or a portion of
these expenditures will be reimbursed from the proceeds of the loan
discussed above. Further, 13.4 percent ($262,697) of the amount
expended in the first six months of 1995 was invested in upgrading
warehouse equipment.
Significant outlays of cash or cash equivalents foreseen for the
remainder of the year include the remaining cost of the 96,715
square foot addition to the existing warehouse facility ($1,583,990)
to be paid with proceeds from the loan discussed above. The
anticipated cost of the warehouse expansion project (which includes
modifications to the Company's current warehouse facility) is
approximately $34 per square foot. By way of comparison the current
warehouse, which is 220,000 square feet, cost $5.5 million or $25
per square foot to build. Given inflation, the smaller size of the
proposed project, and the additional modifications necessary, the
Company believes the $34 per square foot cost is appropriate.
Additional cash outlays anticipated for the remainder of the year
include: the purchase of data processing equipment ($80,700), fleet
and warehouse equipment ($74,600), and Company vehicles ($40,000).
The Company's cash position of $736,143 at June 30, 1995, is
anticipated to be sufficient to fund all planned capital
expenditures other than the warehouse expansion project.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders -
At the Annual Shareholder Meeting held on May 10, 1995,
Weldon D. Bailey, Truman Breed, and Samuel J. Dyson
were elected to serve as Directors of the Company for a
three year term. Phil M. Grothues and James D. Tipton,
President of the Company, were elected to serve one-year
terms. The other Directors continuing to serve are:
Norman J. Bering II, Susie Bracht-Black, Virgil H. Cox,
Robert L. Eilers, and Leroy Welborn.
<TABLE>
<CAPTION>
No. of Votes No. of Votes No. of Votes Nominee
Nominees for Directors For Against Abstain Approval
---------------------- ---- ------- ------- --------
<S> <C> <C> <C> <C>
Weldon D. Bailey 4890 120 -0- Yes
Truman Breed 4890 120 -0- Yes
Samuel J. Dyson 4890 120 -0- Yes
Phil M. Grothues 4890 120 -0- Yes
James D. Tipton 4890 120 -0- Yes
</TABLE>
Amendments to the Articles of Incorporation to increase the
authorized shares of Class A Common stock from 10,000 shares to
20,000 shares were voted upon at the meeting (as reconvened
after adjournment). The results of the vote were as follows:
No. of Votes No. of Votes No. of Votes
For Against Abstain
------------ ------------ ------------
5490 160 640
The amendment to increase the authorized shares of Class A Common
Stock was approved by the holders of more than 2/3 of the
Company's outstanding Common Stock eligible to vote thereon, and
consequently was adopted.
Item 5. Other Information - None
Item 6. Exhibits & Reports on Form 8-K - None
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
HANDY HARDWARE WHOLESALE, INC.
______________________________
JAMES D. TIPTON
President
(Chief Executive Officer)
_______________________________
TINA S. KIRBIE
Senior Vice President, Finance
Secretary and Treasurer (Chief
Financial and Accounting Officer)
Date: August ______, 1995
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
filer's balance sheet and statement of operations as of June 30, 1995,
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 736,143
<SECURITIES> 0
<RECEIVABLES> 8,025,522<F1>
<ALLOWANCES> 0
<INVENTORY> 11,659,591
<CURRENT-ASSETS> 20,638,283
<PP&E> 8,874,405
<DEPRECIATION> 3,607,441
<TOTAL-ASSETS> 29,780,359
<CURRENT-LIABILITIES> 12,676,580
<BONDS> 2,669,204<F2>
<COMMON> 5,332,699<F3>
0
4,782,049<F4>
<OTHER-SE> 3,446,190<F5>
<TOTAL-LIABILITY-AND-EQUITY> 29,780,359
<SALES> 59,098,268
<TOTAL-REVENUES> 59,376,127
<CGS> 52,450,741
<TOTAL-COSTS> 52,450,741
<OTHER-EXPENSES> 3,149,323<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 117,756
<INCOME-PRETAX> 711,412
<INCOME-TAX> 252,793
<INCOME-CONTINUING> 458,619
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 458,619
<EPS-PRIMARY> 4.90
<EPS-DILUTED> 4.90
<FN>
<F1>Accounts Receivable and Current Notes Receivable.
<F2>Long-term mortgage payable.
<F3>Class A Common Stock and Class B Common Stock less Treasury Stock and
Subscriptions less Subscription - Receivables for Class B Common Stock.
<F4>Preferred Stock less Treasury and Preferred Stock Subscriptions less
Subscription Receivables.
<F5>Paid in Capital and Retained Earnings.
<F6>Other Operating Costs.
</FN>
</TABLE>
