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 March 31, 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 March 31, 1995, was 7870 shares of
Class A Common Stock, $100 par value, and 40,971 shares of Class
B Common Stock, $100 par value.
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
INDEX
Page
No.
PART I - Financial Information
Item 1. Financial Statements
Condensed Balance Sheet March 31, 1995
and December 31, 1994 3
Condensed Statement of Income - Three Months
Ended March 31, 1995 and 1994 5
Condensed Statement of Cash Flows - Three Months
Ended March 31, 1995 and 1994 6
Notes to Condensed Financial Statements 8
Item 2. Management's Discussion & Analysis of
Financial Condition and Results of
Operations 14
PART II Other Information
Items 1. - 6. None 19
Signatures 20
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
___________ ____________
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 925,976 $ 688,935
Accounts Receivable, net of subscriptions
receivable in the amount of $65,839 12,421,489 7,341,670
for 1995 and $39,444 for 1994
Inventory 13,309,627 12,980,262
Other Current Assets 132,680 208,536
___________ ___________
$26,789,772 $21,219,403
___________ ___________
PROPERTY, PLANT AND EQUIPMENT (Note 2)
At Cost Less Accumulated Depreciation of
$3,390,345 (1995) and
$3,179,972 (1994) $ 8,075,156 $ 7,334,774
___________ ___________
OTHER ASSETS
Notes Receivable (Note 3) $ 101,633 $ 75,866
Deferred Compensation Funded 162,762 162,762
Other Noncurrent Assets -0- 42,523
___________ ___________
$ 264,395 $ 281,151
___________ ___________
TOTAL ASSETS $35,129,323 $28,835,328
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Mortgage Payable $ 308,204 $ 308,204
Notes Payable-Stock (Note 4) 24,160 24,160
Notes Payable-Capital Lease 106,405 88,381
Accounts Payable - Trade 17,536,382 11,238,594
Other Current Liabilities 287,183 430,988
Federal Income Taxes Payable (Note 5) 86,531 0
___________ ___________
$18,348,865 $12,090,327
___________ ___________
NONCURRENT LIABILITIES
Mortgage Payable $ 2,746,255 $ 2,823,307
Notes Payable-Stock (Note 4) 131,010 69,610
Notes Payable-Capital Lease 227,798 157,888
Notes Payable-Vendor 99,651 73,720
Deferred Compensation Payable 162,762 162,762
Deferred Income Taxes Payable (Note 5) 294,292 292,887
___________ ___________
$ 3,661,768 $ 3,580,174
___________ ___________
TOTAL LIABILITIES $22,010,633 $15,670,501
___________ ___________
STOCKHOLDERS' EQUITY
Common Stock, Class A, authorized 10,000
shares, $100 par value per share,
issued 7,960 & 7,790 shares $ 796,000 $ 779,000
Common Stock, Class B, authorized 100,000
shares, $100 par value per share,
issued 41,515 & 40,205 shares 4,151,500 4,020,500
Common Stock, Class B Subscribed 4,187.83 &
3,898.97 shares 418,783 389,897
Less Subscription Receivable (32,920) (19,722)
Preferred Stock 10% Cumulative, authorized
100,000 shares, $100 par value per
share, issued 43,959 & 42,569 shares 4,395,900 4,256,900
Preferred Stock, Subscribed 4,187.83 & 3,898.97 418,783 389,897
Less Subscription Receivable (32,919) (19,722)
Paid in Surplus 240,182 239,162
___________ ___________
$10,355,309 $10,035,912
Less: Cost of Treasury Stock 1,238
(90 shares Class A, 544 shares Class B
and 604 shares Preferred) & -0- shares (123,800) 0
___________ ___________
$10,231,509 $10,035,912
Retained Earnings 2,887,181 3,128,915
___________ ___________
TOTAL STOCKHOLDERS' EQUITY $13,118,690 $13,164,827
___________ ___________
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $35,129,323 $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>
THREE MONTHS ENDED MARCH 31,
____________________________________
1995 1994
___________ ___________
<S> <C> <C>
INCOME
Net Sales $31,443,728 $28,596,256
Sundry Income 147,977 143,815
___________ ___________
TOTAL INCOME $31,591,705 $28,740,071
___________ ___________
EXPENSE
Net Material Costs $28,355,064 $25,813,541
Payroll Costs 1,526,952 1,232,276
Other Operating Costs 1,403,070 1,407,470
Interest Expense 59,056 61,555
___________ ___________
TOTAL EXPENSE $31,344,142 $28,514,842
___________ ___________
INCOME BEFORE PROVISIONS FOR ESTIMATED FEDERAL
INCOME TAX (Note 5) $ 247,563 $ 225,229
PROVISIONS FOR ESTIMATED FEDERAL INCOME TAX
(Note 5) (88,142) (80,112)
___________ ___________
NET INCOME $ 159,421 $ 145,117
LESS ACCRUED DIVIDENDS ON PREFERRED STOCK $ (100,289) $ (109,664)
___________ ___________
NET INCOME APPLICABLE TO COMMON STOCKHOLDERS $ 59,132 $ 35,453
=========== ===========
EARNINGS PER SHARE OF COMMON STOCK, CLASS A &
CLASS B (Note 1) $ 1.13 $ 0.74
=========== ===========
</TABLE>
The accompanying notes are an integral part of the Condensed
Financial Statements.
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
____________________________
1995 1994
__________ ___________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITY
Net Income $ 159,421 $ 145,117
___________ ___________
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Depreciation $ 210,373 $ 194,895
Amortization -0- -0-
Increase in Deferred Income Tax 1,405 7,287
Changes in Assets and Liabilities
Increase in Accounts Receivable $(5,079,819) $(4,721,867)
Increase in Notes Receivable (25,767) (2,144)
Increase in Inventory (329,365) (880,487)
Decrease in Other Assets 118,379 71,700
Increase in N/P-Vendor 25,931 2,297
Increase in Accounts Payable 6,297,788 5,738,442
Decrease in Other Liabilities (143,805) (70,360)
Increase in Federal Income Taxes Payable 86,531 7,502
___________ ___________
TOTAL ADJUSTMENTS $ 1,161,651 $ 347,265
___________ ___________
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 1,321,072 $ 492,382
___________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures $ (950,755) $ (114,611)
Disposition of Fixed Assets -0- 1,500
___________ ___________
NET CASH USED FOR INVESTING ACTIVITIES $ (950,755) $ (113,111)
___________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in Mortgage Payable $ (77,052) $ (77,051)
Increase in Notes Payable-Stock 61,400 10,000
Increase (Decrease) in Notes Payable-Capital Lease 87,934 (14,192)
Increase in Subscription Receivable (26,395) (23,461)
Proceeds From Issuance of Stock 345,792 339,437
Purchase of Treasury Stock (123,800) (90,700)
Dividends Paid (401,155) (438,654)
___________ ___________
NET CASH USED FOR FINANCING ACTIVITIES $ (133,276) $ (294,621)
___________ ___________
NET INCREASE
IN CASH & CASH EQUIVALENTS $ 237,041 $ 84,650
CASH & CASH EQUIVALENTS AT BEGINNING OF PERIOD 688,935 666,387
___________ ___________
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 925,976 $ 751,037
=========== ===========
ADDITIONAL RELATED DISCLOSURES TO THE STATEMENT OF CASH FLOWS
Interest Expense Paid $ 59,057 $ 61,555
Income Taxes Paid -0- -0-
</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>
THREE MONTHS ENDED MARCH 31,
____________________________
1995 1994
____ ____
<S> <C> <C>
Calculation of Earnings Per Share
of Common Stock
Net Income $ 159,421 $ 145,117
Less: Accrued Dividends on
Preferred Stock (100,289) (109,664)
_________ _________
$ 59,132 $ 35,453
Weighted Average
Shares of Common Stock (Class A
& Class B) outstanding 52,377 48,163
Income Per Share of Common Stock $ 1.13 $ 0.74
========= =========
</TABLE>
<PAGE>
(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.
NOTE 2 - PROPERTY, PLANT & EQUIPMENT
Property, Plant & Equipment Consists of:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994
___________ ___________
<S> <C> <C>
Land $ 2,027,797 $ 2,027,797
Building & Improvements 5,655,473 5,026,886
Furniture, Computer, Warehouse 3,165,030 2,842,862
Transportation Equipment 617,201 617,201
___________ ___________
$11,465,501 $10,514,746
Less: Accumulated
Depreciation (3,390,345) (3,179,972)
___________ ___________
$ 8,075,156 $ 7,334,774
=========== ===========
</TABLE>
NOTE 3 - NOTES RECEIVABLE
<TABLE>
<CAPTION>
CURRENT PORTION NONCURRENT PORTION
_________________________ _________________________
MARCH 31, DEC. 31, MARCH 31, 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- 1,982 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
____ ____ ________ _______
$-0- $-0- $101,633 $75,866
==== ==== ======== =======
</TABLE>
<PAGE>
NOTE 4 - NOTES PAYABLE - STOCK
<TABLE>
<CAPTION>
CURRENT PORTION NONCURRENT PORTION
_____________________ ________________________
INTEREST MATURITY MARCH 31, DEC. 31, MARCH 31, 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 4,200 4,200 -0- -0-
C & S Hdwe., Inc. 8% None 1995 3,800 3,800 -0- -0-
Cleveland Hdwe. 6% None 1997 -0- -0- 21,760 21,760
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
Edinburg, Inc. 6.25% None 2000 -0- -0- 50,400 -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
Space City Hdwe. 6% None 1999 -0- -0- 9,000 9,000
Terrebonne Hdwe. 8% None 1995 3,200 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-
_______ _______ ________ _______
$24,160 $24,160 $131,010 $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 $24,160
1996 $ -0-
1997 $23,860
1998 $ 7,000
1999 $38,750
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
MARCH 31, 1995 DECEMBER 31, 1994
______________ _________________
<S> <C> <C>
Excess of tax over book depreciation $ 1,323,483 $ 1,310,183
Inventory - Ending inventory adjustment for tax recognition
of Sec. 263A Uniform Capitalization Costs (293,043) (285,988)
Deferred Compensation (164,875) (162,762)
___________ ___________
Total $ 865,565 $ 861,433
Statutory Tax Rate 34% 34%
___________ ___________
Cumulative Deferred Income Tax Payable $ 294,292 $ 292,887
=========== ===========
Classified as:
Current Liability $ -0- $ -0-
Noncurrent Liability 294,292 292,887
___________ ___________
$ 294,292 $ 292,887
=========== ===========
</TABLE>
Reconciliation of income taxes on the difference between tax and
financial accounting is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED
________________________________________
MARCH 31, 1995 MARCH 31, 1994
______________ ______________
<S> <C> <C>
Principal Components of Federal Income Tax Expense:
Current
Income tax paid $ -0- $ -0-
Carry-over of prepayment from prior year 93,583 65,323
Refund received for overpayment from prior year (93,377) -0-
___________ ___________
$ 206 $ 65,323
Federal Income Tax Payable 86,531 7,502
Carry-over to subsequent year -0- -0-
___________ ___________
Income tax for tax reporting
at statutory rate of 34% $ 86,737 $ 72,825
Deferred
Adjustments for financial reporting:
Depreciation 4,522 11,333
263A Uniform Capitalization Costs (2,399) (3,328)
Other (718) (718)
__________ ___________
Provision for federal income tax $ 88,142 $ 80,112
========== ===========
</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 first 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 first quarter of 1995, total sales were 9.96
% higher than during the same quarter of 1994. This increase was
generated from all of the Company's selling territories, with six
of the Company's seven sales territories showing double digit
increases over last year.
Sales
The following table compares the Company's sales during the first
quarter of 1995 to sales during the same period of 1994, by sales
territory:
<TABLE>
<CAPTION>
First Quarter 1995 First Quarter 1994
__________________ __________________
% Increase
in Sales
From First % of % of
Quarter Total Total
Sales Territory Sales 1994 Sales Sales Sales
____________________ ___________ ____ _______ ___________ ______
<S> <C> <C> <C> <C> <C>
Houston Area $ 8,402,990 15% 26.8% $ 7,281,122 26.6%
Victoria, San Antonio, Corpus
Christi & Rio Grande
Valley Area* 6,080,911 11% 19.4% 5,476,073 20.0%
North Texas, Dallas
& Fort Worth Area 5,233,204 11% 16.7% 4,726,664 17.3%
Austin, Brenham & Central
Texas Area 3,228,902 15% 10.3% 2,813,831 10.3%
Southern Louisiana Area 3,333,669 29% 10.6% 2,575,422 9.4%
Baton Rouge, New Orleans,
Mississippi, Alabama &
Florida Area 2,559,910 6% 8.2% 2,424,088 8.8%
Oklahoma & Arkansas Area 2,519,853 22% 8.0% 2,073,408 7.6%
___________ ______ ___________ ______
Totals: $31,359,439(1) 100.0% $27,370,608(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.
In the Houston territory, independent hardware stores have
regained some of the market share previously lost to retail
warehouses. This has resulted from the 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 quarter of 1995 over the same period of 1994 (15%), as
compared to 1994 over 1993 (2%) and 1993 over 1992 (5%).
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. In addition, the
Company's newest selling territory, covering Oklahoma and
Arkansas, generated sales of $2,519,853, an increase of 22% over
the first quarter of 1994. 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 first quarter in 1995 were
$28,355,064, compared to $25,813,541 during the first quarter in
1994. The 1995 increase of 9.85% in net material costs was
slightly lower than the increase of 9.96% in sales for the same
period. Net material costs as a percentage of sales were 90.2%
in 1995 as compared to 90.3% in 1994. The slight decline in net
material costs as a percentage of sales was a result of a 26.3%
increase in purchase discounts and a 7.3% increase in factory
rebates, both of which are taken by the Company as a credit
against material costs in the first quarter of 1995. Purchase
discount income during the first quarter of 1995 was $520,846 as
compared to $412,465 during the same 1994 period, an increase of
$108,381. The increase in purchase discounts is largely the
result of accounting entries made to reconcile book and physical
inventory, which adjustments were made in the fourth quarter in
prior years. The effect of such entries is to increase net
income for the quarter and is anticipated to have the same effect
for the year as a whole. Rebate income during the same two
periods was $831,995 and $775,242, respectively, an increase of
$56,753.
Payroll Costs
Payroll costs during the quarter ended March 31, 1995, increased
to $1,526,952 from $1,232,276 for the same period in 1994. This
increase resulted primarily from regular salary increases for
<PAGE>
employees and a 14.8% increase in the number of employees needed
to meet increased Member-Dealer demand for inventory and a 23.9%
increase in overtime payroll associated with the Company's
warehouse expansion project. Due to the lack of adequate storage
space for inventory, the Company was forced to lease additional
warehouse space in an offsite facility, with the increase in
payroll costs a result of the lack of proximity of the additional
space to the offices of the Company. Payroll costs for first
quarter 1995 constituted 4.9% of both total expenses and net
sales, compared to 4.3% for the first quarter of 1994. The
relative stability in payroll costs has been a result of a
continuing effort to increase employee productivity as sales and
expenses have grown.
Other Operating Costs
During the first quarter in 1995, other operating costs remained
virtually unchanged compared to the same quarter of 1994. First
quarter 1995 operating expenses were $1,403,070 (4.5% of sales)
as compared to $1,407,470 of these expenses for the same period
of 1994 (4.9% of sales).
Net Income and Earnings Per Share
As a result of an increase in gross margin, pretax net income
increased 9.9%, from $225,229 for the first quarter of 1994 to
$247,563 in the same 1995 period. Net income also increased 9.9%.
The increase in the Company's earnings per share in the first
quarter 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 a 52.7% increase in earnings per share.
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 seasonal 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
<PAGE>
from PRO Hardware, Inc. which was paid during the first quarter
of 1993 and the second quarter of 1992. In September 1993, the
Company 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, although this was offset to a
large extent in the first quarter of 1993 by rebates from PRO
Hardware. 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
Warehouse Expansion Project
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
September 1995. Of the $3,500,000 total budget for the project,
approximately $947,000 (27%) has been expended to date, with
$628,587 expended in the first quarter 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 second quarter of 1995. For more information
regarding the warehouse expansion project, see "Capital
Expenditures" below.
Cash Flow
During the period ending March 31, 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 net increase of $237,041 in the Company's cash and
cash equivalents in the first quarter of 1995, which was
substantially more than the $84,650 increase in cash and cash
equivalents in the first quarter of 1994. The improvement in the
Company's cash position was due to the fact that the Company's
operating activities provided net cash of $1,321,072 in the first
<PAGE>
quarter of 1995 as compared to $492,382 in the same period of
1994. The increase in cash flow from operating activities in the
first quarter of 1995 as compared to the first quarter of 1994
was principally attributable to: (i) a larger increase in
accounts payable ($6,297,788 vs. $5,738,442); and (ii) a smaller
increase in inventory ($329,365 vs. $880,457) offset by (i) a
larger increase in accounts receivable ($5,079,819 vs.
$4,721,867). These factors were mostly the result of increased
sales and extended payment terms generated at the Company's
spring trade show and the state of the regional economy.
The Company expended a net of $950,755 to purchase fixed assets
($628,587 of which was expended on the warehouse expansion
project) in the first quarter of 1995, which is significantly
more than the $113,111 expended in the same period in 1994. In
the first quarter of 1995, $133,276 of cash was used for
financing activities, which was 54.8% lower than the $294,621
used in the first quarter 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 $87,934, (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% to 10%, (iii) an increase in notes payable
to former member-dealers for their stock investment ($61,400 vs.
$10,000) and (iv) a slight increase in proceeds from the issuance
of stock ($345,792 vs. $339,437). Partially offsetting these
factors in the quarter-to-quarter comparison was an increase in
the use of cash to repurchase treasury stock ($123,800 vs.
$90,700).
Working Capital
The Company's continuing ability to generate cash to meet its
needs for funding its activities is illustrated by three key
liquidity measures shown in the following table:
<TABLE>
<CAPTION>
MARCH 31, 1995 DECEMBER 31, 1994 MARCH 31, 1994
______________ _________________ ______________
<S> <C> <C> <C>
Working Capital $ 8,440,907 $ 9,129,076 $ 8,487,044
Current Ratio 1.5 to 1 1.8 to 1 1.5 to 1
(Current Assets to
Current Liabilities)
Long-term Debt as percentage
of Capitalization 27.9 27.2 30.5
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.
<PAGE>
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 quarter of 1995, the Company maintained a 90.2%
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 93.7% for the same period of 1994. This
decrease in service level is the result of an inadequate amount
of storage for inventory which has since been rectified by
leasing additional temporary warehouse space until the warehouse
expansion project can be completed. Inventory turnover was 5.9
times during the first quarter of 1995 and 6.0 times for the
first quarter of 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 March 31, 1995, of
approximately $3,054,459. The note is a result of a refinancing
that occurred in 1993 and has a five-year fixed rate of interest
of 7.2%. 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 a $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 the 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.
<PAGE>
Capital Expenditures
In the three month periods ending March 31, 1995, and March 31,
1994, the Company's investment in capital items was $950,755 and
$113,111 (net of dispositions), respectively. Approximately
66.1% ($628,587) of the amount expended in the first quarter was
used to finance the costs of the 96,715 square foot addition to
the existing warehouse facility. Thus far, $946,716 has been used
from cash flow to fund 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, 27.6%
($262,697) of the amount expended in the first quarter was
invested in upgrading warehouse equipment.
Significant outlays of cash or cash equivalents foreseen for the
remainder of the year include the cost of the 96,715 square foot
addition to the existing warehouse facility ($2,553,284) 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 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: fleet and warehouse equipment
($74,600), the purchase of data processing equipment ($121,500),
and Company vehicles ($40,000).
The Company's cash position of $925,976 at March 31, 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 -
None
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 _________________
<PAGE>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-30-1995
<CASH> 925,976
<SECURITIES> 0
<RECEIVABLES> 12,421,489
<ALLOWANCES> 0
<INVENTORY> 12,209,627
<CURRENT-ASSETS> 26,789,772
<PP&E> 11,465,501
<DEPRECIATION> 3,390,345
<TOTAL-ASSETS> 35,129,323
<CURRENT-LIABILITIES> 18,348,865
<BONDS> 2,746,255
<COMMON> 5,333,363
0
4,781,764
<OTHER-SE> 3,003,563
<TOTAL-LIABILITY-AND-EQUITY> 35,129,323
<SALES> 31,443,728
<TOTAL-REVENUES> 31,591,705
<CGS> 28,355,064
<TOTAL-COSTS> 28,355,064
<OTHER-EXPENSES> 2,930,022
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 59,056
<INCOME-PRETAX> 247,563
<INCOME-TAX> 88,142
<INCOME-CONTINUING> 159,421
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 159,421
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.13
</TABLE>
