SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995 Commission File Number 0-15708
HANDY HARDWARE WHOLESALE, INC.
(Exact Name of Registrant)
TEXAS 74-1381875
(State of incorporation (I.R.S. Employer
or organization) Identification Number)
8300 Tewantin Drive
Houston, Texas 77061
(713) 644-1495
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $100.00 par value
(Title of Class)
Class B Common Stock, $100.00 par value
(Title of Class)
Preferred Stock, $100.00 par value
(Title of Class)
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
----------- ----------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part Ill of this Form 10-K or in any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of
the Registrant (computed by reference to the price at which the stock was sold)
was $787,000 of February 28, 1996.
The number of shares outstanding of each of the Registrant's classes of
common stock as of February 28, 1996 was 7,960 shares of Class A Common Stock,
$100 par value, and 43,979 shares of Class B Common Stock, $100 par value.
Documents Incorporated by Reference
Document Incorporated as to
Notice and Proxy Statement for the Part III, Items 10, 11, 12 and 13
Annual Meeting of Stockholders
to be held May 8, 1996
<PAGE>
TABLE OF CONTENTS
PART I
Item 1. Business.....................................................1
Item 2. Properties...................................................6
Item 3. Legal Proceedings............................................7
Item 4. Submission of Matters to a Vote of Security Holders..........7
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.......................................7
Item 6. Selected Financial Data......................................8
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................9
Item 8. Financial Statements and Supplementary Data.................13
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................34
PART III
Item 10.* Directors and Executive Officers of the Registrant
Item 11.* Executive Compensation
Item 12.* Security Ownership of Certain Beneficial Owners and Management
Item 13.* Certain Relationships and Related Transactions
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K..................................34
* Included in the Company's proxy statement to be delivered to the
Company's shareholders within 120 days following the Company's fiscal year end.
<PAGE>
PART I
Item 1. Business
General Development of Business
Handy Hardware Wholesale, Inc. ("Handy Hardware" or the "Company) was
incorporated as a Texas corporation on January 6, 1961. Its principal executive
offices and warehouse are located at 8300 Tewantin Drive, Houston, Texas 77061.
Handy Hardware was formed by 13 independent hardware dealers in
response to competitive pressure from larger businesses and chain discount
stores. The purpose of the Company is to provide the warehouse facilities and
centralized purchasing services that allow participating independent hardware
dealers ("Member-Dealers") to compete more effectively in areas of price and
service. Handy Hardware has grown from 13 Member-Dealers and sales of $150,000
in 1961 to 894 active Member-Dealers and sales of more than $114,000,000 in
1995. The Company is owned entirely by its Member-Dealers and former
Member-Dealers.
Handy Hardware is currently engaged in the sale to its Member-Dealers
of products used in retail hardware, lumber and home center stores as well as in
plant nurseries. In addition, the Company offers advertising and other services
to Member-Dealers. The Company utilizes a central warehouse and office facility
located in Houston, Texas, and maintains a fleet of 39 trailers owned by the
Company and 40 leased power units and trailers which are used for merchandise
delivery. The Company offers merchandise to its Member-Dealers at its cost plus
a markup charge, resulting generally in a lower price than an independent dealer
can obtain on its own. Member-Dealers may buy merchandise from any source they
desire, and Member-Dealers are not required to make any minimum levels of
purchases from Handy Hardware. As of December 31, 1995, Handy Hardware's
Member-Dealers were located in Texas, Louisiana, Mississippi, Alabama, Florida,
Oklahoma, Arkansas and Mexico. Information as to revenues, operating profit and
identifiable assets of the Company's single industry segment is presented under
"Item 6. Selected Financial Data."
Products and Distribution
The Company buys merchandise from vendors in quantity lots, warehouses
the merchandise and resells it in smaller lots to its Member-Dealers. During the
Company's fiscal year ended December 31, 1995, the Company sold its products to
a total of 894 Member-Dealers, of which 593 were located in Texas, 157 in
Louisiana, 68 in Oklahoma, 30 in Arkansas, 14 in Alabama, 18 in Mississippi, 11
in Florida and 3 in Mexico. No individual Member-Dealer accounted for more than
1.5% of the sales of the Company during fiscal 1995. The loss of a single
customer or several customers would not have a material adverse effect on the
Company.
Often Member-Dealers may desire to purchase products that are not
warehoused by the Company. In this instance, Handy Hardware will, when
requested, purchase the product from the vendor and have it shipped directly to
the Member-Dealer. Direct shipments from the vendor to the Member-Dealer
accounted for approximately 32% of Company sales during 1995, and 31% in 1994
and 1993. Warehouse shipments have accounted for all other material amounts of
sales by the Company during the past three years.
The Company's total sales include 14 different major classes of
merchandise. In 1995, 1994 and 1993, the Company's total sales and total
warehouse sales were divided among classes of merchandise listed below. In 1995
approximately 68% of total net sales were warehouse sales, while in 1994 and
1993 warehouse sales accounted for 69% of total net sales.
<PAGE>
<TABLE>
<CAPTION>
Total Sales1 Warehouse Sales
Class of Merchandise 1995 1994 1993 1995 1994 1993
- -------------------- ---------- ---------- ----------- ---------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Plumbing Supplies 16% 17% 16% 19% 19% 19%
General Hardware 14 15 15 14 14 14
Paint Sundries 13 12 12 15 15 15
Electrical Supplies 12 12 12 14 14 13
Hand Tools 10 10 10 9 9 9
Lawn and Garden Products 9 9 10 10 11 11
Paint 4 4 4 4 4 4
Building Materials 6 5 5 2 2 2
Power Tools 4 5 5 2 2 3
Housewares & Related Supplies 2 2 2 3 2 2
Fasteners 2 2 3 1 1 1
Automotive After Market 2 2 1 2 2 2
Outdoor Products 1 1 1 1 1 1
Miscellaneous 5 4 4 4 4 4
---- ---- ---- ---- ---- ----
100% 100% 100% 100% 100% 100%
==== ==== ==== ==== ==== ====
</TABLE>
1These amounts include direct sales and warehouse sales. Total sales in
1995 generated from sales of store supplies, catalogs and special purchases from
vendors of goods not part of the Company's regular inventory represented less
than .14% of total sales.
Warehouse sales normally carry a markup of 9%, excluding any purchase
discounts and manufacturer's rebates. As an incentive to Member-Dealers to make
direct sale purchases, since June 1, 1989 direct sales have been sold at the
Company's cost with no markup, excluding purchase discounts and manufacturers'
rebates. The Company maintains a list of price sensitive, high volume items on
which the markup is reduced from 9 percent to 2 or 4 percent. This program was
developed in order to allow Handy Member-Dealers to become more competitive in
the markets they serve. The price sensitive items are reviewed every six months
and additions and deletions are made based on Member-Dealer input and as the
market dictates. Because the primary purpose of the Company is to provide its
Member-Dealers with a low cost buying program, markups are kept as low as
possible, although at a level sufficient to provide adequate capital to pay the
expenses of the Company, improve the quality of services provided to the
Member-Dealers and finance the increased inventory and warehouse capacity
required to support the growth of the Company.
Most Member-Dealers have a computer terminal at their hardware store
that provides a direct link to the offices of the Company. Each Member-Dealer is
assigned a day of the week on which it is to transmit its orders through the
computer terminal. Orders placed by Member-Dealers go directly into the Company
computer where they are compiled and processed on the day received. The
appropriate merchandise is gathered from the warehouse during the day following
receipt of each order and on the next day, the merchandise leaves the warehouse
for delivery to the Member-Dealer. Generally, the merchandise arrives at
individual stores on the day that it is shipped from the Company's warehouse.
<PAGE>
Dealer Services and Advertising
The Company employs a staff of seven full time account representatives
who visit Member-Dealers to advise them on display techniques, record keeping,
inventory control, promotional sales, advertising programs and other
dealerrelated services available to them by and through the Company.
The Company has participated in newspaper advertising programs, and has
assisted in the preparation and distribution of sales circulars utilized by
Member-Dealers. The Company has a computerized circular program which allows the
retail dealer to customize its own unique advertising circular utilizing its
individual inventory and targeting its particular market. In addition, the
system tracks available vendor co-op funds, allowing the dealer to deduct such
co-op claims from the cost of the circular program. The Company estimates that
approximately $704,000 was expended in 1995 for dealer advertising activities.
These advertising costs were completely offset by contributory payments by
participating Member-Dealers and co-op advertising allowances by participating
manufacturers. In 1995, advertising expenditures were significantly more than
the $581,000 expended in 1994 largely because of the increased use of circulars
by Member-Dealers for retail advertising and the availability of a new circular
for the Company's paint program.
Suppliers
The Company purchases merchandise from various vendors, depending upon
product specifications and Member-Dealer requirements. Approximately 2,208
vendors supplied merchandise to the Company during 1995. The Company has no
significant long-term contract with any vendor. Most of the merchandise
purchased by the Company is available from several vendors and manufacturers,
and no single vendor or manufacturer accounted for more than 2.1% of the
Company's total purchases during 1995. The Company has not in the past
experienced any significant difficulties in obtaining merchandise and does not
anticipate any such difficulty in the foreseeable future.
The Company is a member of PRO Hardware, Inc., of Englewood, Colorado,
an independent hardware merchandising group. PRO Hardware, Inc. is a
merchandising organization with 37 wholesale hardware distributors as members.
The size of the organization generally provides greater buying power than that
of any individual member. The Company became a member of PRO Hardware, Inc. in
order to take advantage of this buying power, which gives PRO Hardware, Inc. and
its members access to potentially lower prices, bigger discounts, extended terms
and other purchasing advantages. The Company may participate in the benefits
available to PRO Hardware, Inc. members at its option, but is under no
obligation to do so.
All of the Company's products are warranted to various levels by the
manufacturers, whose warranties are passed on to the Member-Dealers. In
addition, the Company maintains product liability insurance which the Company
believes is sufficient to meet its needs.
Employees
As of December 31, 1994, the Company had 256 full-time employees, of
which 40 were in management positions and 216 in warehouse, office or delivery
operations. Company employees are not represented by any labor unions. The
Company believes its employee relations are satisfactory and it has experienced
no work stoppage as a result of labor disputes.
Trade Names
The Company has a trade name, "Handy Hardware Stores," that it licenses
to Member-Dealers at no additional charge. This trade name has been registered
in all the states in which the Company's Member-Dealers are located. This trade
name is displayed by many of the Member-Dealers on storefronts and inside stores
and is used in advertising programs organized by Handy Hardware. The Company
believes that this trade name is useful to its operations, but that the loss of
ability to utilize this trade name would not have a material adverse effect upon
the business of the Company.
<PAGE>
Capitalization by Member-Dealers
In order to become a Handy Hardware Member-Dealer, an independent
hardware dealer must enter into a Dealer Contract with the Company. In addition,
a Member-Dealer must enter into a Subscription Agreement with the Company for
the purchase of 10 shares of Handy Hardware Class A Common Stock, $100 par value
per share ("Class A Common Stock"), with an additional agreement to purchase a
minimum number of shares of Class B Common Stock, $100 par value per share
("Class B Common Stock"), and Preferred Stock, $100 par value per share
("Preferred Stock"), as detailed below. The Class A Common Stock and Class B
Common Stock are collectively referred to herein as the "Common Stock." Class B
Common Stock and Preferred Stock are purchased pursuant to a formula based upon
total purchases of merchandise by the Member-Dealer from the Company. All shares
of the Company's stock have a purchase price of $100 per share.
Purchase of Class A Common Stock
At the time an independent hardware dealer becomes a Member-Dealer, he
is required to purchase, in cash, 10 shares of Class A Common Stock at $100 per
share.
Purchases of Class B Common Stock and Preferred Stock
General. In approximately March of each fiscal year, the Company
calculates a minimum desired level of stock ownership for each Member-Dealer
("Desired Stock Ownership"), based on (i) the dollar amount of Class A Common
Stock, Class B Common Stock and Preferred Stock owned by the Member-Dealer as of
December 31 of the preceding fiscal year ("Actual Stock Ownership") and (ii) the
Member-Dealer's total purchases of merchandise from the Company during that
preceding fiscal year ("Total Purchases"). The minimum Desired Stock Ownership
for a Member-Dealer is $10,000. If the Member-Dealer's Actual Stock Ownership is
less than his Desired Stock Ownership, then throughout the period from April 1
of the current fiscal year to March 31 of the following fiscal year, the Company
will collect funds from the Member-Dealer for the purchase of additional Class B
Common Stock and Preferred Stock ("Purchase Funds").
Calculation of Desired Stock Ownership. Each Member-Dealer's Desired
Stock Ownership is calculated as set forth in the following table:
<TABLE>
<CAPTION>
Actual Stock
Ownership Desired Stock Ownership1
- ----------------------------- ------------------------------------------------------------------------
<S> <C>
$1 to $31,249 $1.00 for every $8.00 of Total Purchases
$31,250 to $56,249 $1.00 for every $8.00 of Total Purchases from $1 to $250,000
+ $1.00 for every $10.00 of Total Purchases over $250,000
$56,250 to $74,999 $1.00 for every $8.00 of Total Purchases from $1 to $250,000
+ $1.00 for every $10.00 of Total Purchases from $250,000 to $500,000
+ $1.00 for every $13.33 of Total Purchases over $500,000
$75,000 to $87,499 $1.00 for every $8.00 of Total Purchases from $1 to $250,000
+ $1.00 for every $10.00 of Total Purchases from $250,000 to $500,000
+ $1.00 for every $13.33 of Total Purchases from $500,000 to $750,000
+ $1.00 for every $20.00 of Total Purchases over $750,000
$87,500 and above $1.00 for every $8.00 of Total Purchases from $1 to $250,000
+ $1.00 for every $10.00 of Total Purchases from $250,000 to $500,000
+ $1.00 for every $13.33 of Total Purchases from $500,000 to $750,000
+ $1.00 for every $20.00 of Total Purchases from $750,000 to $1,000,000
+ $1.00 for every $40.00 of Total Purchases over $1,000,000
</TABLE>
1 The minimum Desired Stock Ownership is $10,000. In each case "Total
Purchases" are measured as of the end of the immediately preceding fiscal year.
<PAGE>
Example.
In March 1996, the Company calculates that as of December 31, 1995, a
Member-Dealer's Actual Stock Ownership was $32,000 and his Total
Purchases during 1995 were $300,000. The Member-Dealer's Desired Stock
Ownership will be $36,250 ($1.00 for each $8.00 of the first $250,000
of Total Purchases [$31,250] plus $1.00 for each $10.00 of the next
$50,000 of Total Purchases [$5,000]). Because the Member-Dealer's
Actual Stock Ownership is less than his Desired Stock Ownership, the
Company will collect Purchase Funds throughout the period from April 1,
1996 to March 31, 1997 for the purchase of additional Class B Common
Stock and Preferred Stock.
Collection of Purchase Funds. Each Member-Dealer receives from the
Company a semi-monthly statement of the Total Purchases made by the
Member-Dealer during the covered billing period. Total Purchases include
purchases of inventory from the Company's warehouse ("Warehouse Purchases") and
purchases of inventory by the Member-Dealer directly from the manufacturer which
are billed through the Company. If the Company has determined that Purchase
Funds are to be collected from a Member-Dealer for a particular April 1 to March
31 period, then each statement sent to that Member-Dealer during that period
will contain an additional charge for Purchase Funds, in an amount equal to two
percent (2%) of the Warehouse Purchases invoiced on the statement. The
Subscription Agreement entitles the Company to collect 2% of Total Purchases as
Purchase Funds. At present, however, the board of directors has determined to
collect 2% of Warehouse Purchases only. The Company will continue to collect
Purchase Funds throughout the April 1 to March 31 period, even though the
Member-Dealer attains his Desired Stock Ownership during the course of the
period. On a monthly basis, the Company reviews the amount of unexpended
Purchase Funds then being held for each Member-Dealer. If a Member-Dealer has
unexpended Purchase Funds in an amount of at least $2,000, the Company applies
such funds to the purchase of 10 shares of Class B Common Stock and 10 shares of
Preferred Stock at $100 per share.
Overinvested Member-Dealers. If at the end of any fiscal year a
Member-Dealer's Actual Stock Ownership exceeds his Desired Stock Ownership (an
"Overinvested Member-Dealer"), he will not be required to pay any Purchase Funds
during the following April 1 to March 31 period. An Overinvested Member-Dealer
may voluntarily continue to make additional purchases of Class B Common Stock
and Preferred Stock by paying Purchase Funds to the Company in amounts equal to
2% of Warehouse Purchases.
Repurchases from Overinvested Member-Dealers. In 1995 the Company
repurchased certain shares of Class B Common Stock and Preferred Stock from
Overinvested Member-Dealers whose Actual Stock Ownership exceeded their Desired
Stock Ownership by $4,000 or more. The amount repurchased from each Overinvested
Member-Dealer was equal to one-fourth of the excess amount, equally divided
between shares of Class B Common Stock and Preferred Stock. The repurchases were
made at the full initial sale price of $100 per share. In 1995, approximately
24% of the shares eligible for repurchase from Overinvested Member-Dealers were
submitted for repurchase, for which the Company expended $32,600. When the
Company began the repurchase program in 1991, the total overinvested amount for
all Member-Dealers was $93,600 and as of December 31, 1995, the total amount was
$136,000 (excluding shares held by the Texas State Treasury Unclaimed Property
Division). The amount overinvested varies over time due to repurchases and
additional Member-Dealers becoming overinvested because of additional stock
purchases. Additionally, because stock purchases are based on each
Member-Dealer's Desired Stock Ownership, which fluctuates depending on the total
dollar amount of annual purchases of merchandise from the Company, some
Member-Dealers who were overinvested in one year may no longer be overinvested
in the following year because of an increase in purchases of merchandise. Over
the five years of the repurchase program, the Company has repurchased a total of
$272,975 of shares from Member-Dealers. The Company currently intends, but is
not required, to repurchase from Overinvested Member-Dealers their entire
overinvested amounts. The Company's ability to conduct such repurchases,
however, will depend upon the Company's future results of operations, liquidity,
capital needs and other financial factors.
Affiliated Member-Dealers
If one or more individuals who control an existing Member-Dealer open a
new store which will also be a Member-Dealer, the new Member-Dealer is required
to make an initial purchase of 10 shares of Preferred Stock rather than 10
shares of Class A Common Stock. In all other respects, however, the Company will
treat the new MemberDealer as an entirely separate entity for purposes of
determining required stock purchases. The Company will calculate
<PAGE>
a separate Desired Stock Ownership for the new Member-Dealer and will maintain a
separate account for Purchase Funds paid by the new Member-Dealer.
Competition
The wholesale hardware industry in which the Company operates is highly
competitive. The Company competes primarily with other dealer-owned wholesalers,
cooperatives and independent wholesalers. The business of the Company is
characterized by a small number of national companies that dominate the market,
and a larger number of regional and local companies that compete for a limited
share of the market. The Company considers itself a regional competitor.
Competition is based primarily on price, delivery service, product performance
and reliability. The Company's management believes that it competes effectively
in each of these areas, and that proximity to the markets it serves is of
special importance to its ability to attract business in those regions.
Seasonality
The Company's quarterly net income traditionally has been subject to
two primary factors. 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 show always held in the first and third quarters.
Secondly, 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.
Environmental Matters
In 1990, the Company detected soil contamination apparently associated
with the underground petroleum storage systems for its fleet of trucks located
at its warehouse facility. The Company believes the contamination resulted from
overfill and/or spillage prior to the installation of spill containment and
overfill protection equipment. The Company has implemented corrective measures
to mitigate any possible future environmental impact, including installation of
a recovery well, daily removal of contaminants using a dual-pump product
recovery system and in-place closure of two underground storage tanks. At
December 31, 1995, the Company had expended $357,641 on these measures, of which
the Texas Natural Resource Conservation Commission ("TNRCC"), (formerly the
Texas Water Commission) had reimbursed $16,658 to the Company. Pursuant to a
remedial action plan submitted to the TNRCC in 1992, the Company proposed vacuum
extraction of contaminants, enhanced bioremediation and on-site remediation of
soils previously generated during subsurface drilling. The Company anticipates
that the expense of its remediation efforts related to these storage tanks in
1996 will not exceed $35,000, and barring unforeseen developments, these efforts
should be largely completed by year-end 1996. In the second quarter of 1994, the
Company submitted a reimbursement application for all potentially allowable
expenses in the amount of $325,473 to the TNRCC. Although the Texas Petroleum
Storage Tank Remediation Fund provides for the TNRCC to reimburse tank owners
for amounts expended on such efforts, the TNRCC had suspended such
reimbursements due to a lack of funds. In 1995 the TNRCC approved and paid
$9,000 of the $325,473 reimbursement claim. Of the remaining submission,
$234,219 was received in the first quarter of 1996. The Company intends to
follow up with the TNRCC to try and collect the remainder of the submission that
has not been reviewed by the TNRCC in the amount of $80,240.
Item 2. Properties
The Company's warehouse facility and administrative and marketing
offices are located on 20 acres of land in Houston, Texas. The facility is
317,000 square feet (including the 96,715 square foot expansion discussed
below), with approximately 297,000 square feet utilized for warehouse space and
the remainder used for offices. The building is of tilt wall construction. The
warehouse and office facilities are subject to certain mortgage obligations
associated with a bank loan facility. Between the fourth quarter of 1994 and the
third quarter of 1995, the Company constructed a 96,715 square foot expansion of
its warehouse facility. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations--Financial Condition and
Liquidity." The Company also owns 5.2 acres of vacant land adjoining the
Company's property, which is to be used for future expansion.
The Company's property has convenient access to the major freeways
necessary for the shipment of products to and from the warehouse facility.
Management believes that the current facility will be sufficient to serve the
needs of the Company for the foreseeable future.
<PAGE>
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the Company is
a party or to which any of its property is subject.
Item 4. Submission of Matters to a Vote of Security Holders
The Company did not submit any matter to a vote of security holders,
through the solicitation of proxies or otherwise, during the fourth quarter of
1995.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There is no established public trading market for any class of Handy
Hardware's capital stock. Upon becoming a Member-Dealer of Handy Hardware, the
Member-Dealer enters into a Subscription Agreement with the Company whereby it
purchases 10 shares of Class A Common Stock or, in certain cases, 10 shares of
Preferred Stock, from the Company. In addition, the Member-Dealer agrees to
purchase a minimum number of shares of Class B Common Stock and Preferred Stock
pursuant to a formula based upon merchandise purchased by the Member-Dealer from
Handy Hardware. See "Item 1. Business -- Capitalization by Member-Dealers"
above. Holders of Class A Common Stock may not transfer those shares to a third
party without first offering to sell them back to the Company. There are no
restrictions on the transfer of the Company's Class B Common Stock or Preferred
Stock; however, all shares of the equity securities of the Company are, to the
best knowledge of the Company, owned by Member-Dealers or former Member-Dealers
of the Company or affiliates of such Member-Dealers. In the past the Company has
acquired all the stock that former Member-Dealers have offered back to the
Company, paying par value in cash for the Class A Common Stock and acquiring
Class B Common Stock and Preferred Stock at par value on an installment sale
basis. There is no assurance that Handy Hardware will maintain such practices,
which could be discontinued without notice at any time. Other than as described
above, the Company is not aware of the existence of a trading market for any
class of its equity securities.
Shares of Class A Common Stock are the only shares of capital stock
with voting rights and are entitled to one vote per share. The number of record
holders of each class of the Company's Common Stock at February 28, 1996, was as
follows:
Description Number of Holders
- -------------------------------------------------- -----------------
Class A Common Stock (Voting), $100 par value 771
Class B Common Stock (Non-Voting), $100 par value 666
The Company has never paid cash dividends on either class of its Common
Stock and does not intend to do so in the foreseeable future. For information
concerning dividends paid on the Company's Preferred Stock, see Items 6 and 8
below.
Item 6. Selected Financial Data
The following table provides selected financial information for the
five years ended December 31, 1995, derived from financial statements that have
been examined by independent public accountants. The table should be read in
conjunction with the financial statements and the notes thereto included in Item
8.
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------- -------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Operating Income Data:
Total Revenues $ 115,802,817 $ 109,282,083 $ 100,270,031 $ 91,885,054 $ 79,956,333
Net Revenues from Sales 114,885,634 108,766,633 99,739,046 91,365,551 79,468,445
Total Expenses 114,234,183 108,394,298 99,503,930 91,267,839 79,617,642
Income from Operations
after Tax 1,016,484 571,710 503,260 400,744 221,364
Preferred Stock Dividends
Paid 401,155 438,654 501,547 457,755 412,231
Earnings Per Share of Class
A and Class B Common
Stock $ 11.55 $ 2.71 $ 0.04 $ (1.39) $ (5.12)
</TABLE>
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------- -------------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Current Assets $ 18,607,029 $ 21,219,403 $ 18,552,958 $ 17,591,341 $ 15,271,582
Property (Net of Accumulated
Depreciation) 9,787,350 7,334,774 7,233,306 7,389,410 6,993,754
Other Assets 386,648 281,151 239,996 240,101 214,542
------------- -------------- -------------- ------------- ------------
Total Assets $ 28,781,027 $ 28,835,328 $ 26,026,260 $ 25,220,852 $ 22,479,878
============= ============== ============== ============= ============
Current Liabilities $ 10,835,557 $ 12,090,327 $ 10,038,999 $ 9,741,215 $ 7,607,371
Long Term Liabilities 3,497,845 3,580,174 3,774,409 4,088,504 4,190,578
Stockholders' Equity 14,447,625 13,164,827 12,212,852 11,391,133 10,681,929
------------- -------------- -------------- ------------- ------------
Total Liabilities and
Stockholders' Equity $ 28,781,027 28,835,328 $ 26,026,260 $ 25,220,852 $ 22,479,878
============= ============== ============ ============= ============
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The Company continued its steady growth in 1995 while continuing to
meet its goal of providing quality goods to its Member-Dealers at its cost plus
a reasonable mark-up charge. Net revenues from sales in 1995 increased 5.6%
($6,119,001) from 1994 net revenues from sales, compared to a 9.1% growth rate
($9,027,587) of net revenues from sales in 1994 over 1993.
<PAGE>
The following table summarizes the Company's sales during the period
1993 to 1995 by sales territory:
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------------------- ------- -------
%
Increase
in Sales % of % of % of
from Prior Total Total Total
Sales Territory Sales Year Sales Sales Sales
- ----------------------------------------- ------------- --------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Houston Area $ 30,046,542 5% 26.7% 26.6% 28.5%
Victoria, San Antonio, Corpus Christi & 20,658,808 (7%) 18.4% 20.6% 20.4%
Rio Grande Valley Area*
North Texas, Dallas & Fort Worth Area 18,516,423 6% 16.5% 16.3% 16.6%
Austin, Brenham & Central Texas Area 11,300,252 6% 10.1% 9.9% 9.7%
Southern Louisiana Area 12,588,667 17% 11.2% 10.0% 9.8%
Baton Rouge, New Orleans, Mississippi, 10,390,342 9% 9.2% 8.8% 8.4%
Alabama & Florida Area
Oklahoma & Arkansas Area 8,839,655 4% 7.9% 7.8% 6.6%
------------- ------ ------ ------
Totals: $112,340,6891 100.0% 100.0% 100.0%
============= ====== ====== ======
</TABLE>
* Includes sales to Mexican dealers.
1 Total does not include sales to dealers who were no longer
Member-Dealers at December 31, 1995.
The Company believes that an increase in promotional sales activities
and quality inventory available for orders, plus low-cost dealer buying
programs, as well as a continuing recovery of the economy in most of the areas
the Company services, were key elements in the Company's sales growth. The
significant increase of 17% in sales in the Southern Louisiana area has resulted
from increased marketing efforts by the Company's employees in that area.
However, throughout the Company's selling territory, the expansion of retail
warehouses continues to erode the market share of independent hardware stores.
Further, the devaluation of the peso in Mexico had a major negative impact on
retail sales in the Victoria, San Antonio, Corpus Christi and Rio Grande Valley
area.
Net material costs during 1995 were $101,115,786 compared to
$96,632,590 in 1994 and $88,669,125 in 1993. The increase of 4.6 percent in net
material costs for 1995 is lower than the 5.6 percent increase in sales. By way
of comparison, net material costs increased 9.0 percent in 1994 over 1993 while
sales increased 9.1 percent in 1994 over 1993. Net material costs as a
percentage of sales declined in 1995 to 87.3% as compared to 88.4% in both 1994
and 1993. The slightly lower increase in the net material costs and in the net
material costs as a percentage of sales is due to the continuing efforts of the
Company to adjust its sales price of inventory to reflect increases in inventory
costs, and due to increases in factory rebates and purchase discounts, which
were taken by the Company as a credit against material costs. Factory rebate
income in 1995 was $4,143,225 (4.1% of material costs) as compared to $3,494,854
(3.6% of material costs) and $3,453,706 (3.9% of material costs) for the same
1994 and 1993 period, respectively. Purchase discount income during the same
three periods was $2,447,862 (2.4% of material costs), $2,168,015 (2.2% of
material costs) and $1,904,651 (2.1% of material costs), respectively. As a
result, gross profit (net sales less net material costs) in 1995 was
$13,769,848, which represents a $1,635,805 increase in gross profit over 1994
(gross profit was $12,134,043 in 1994).
Payroll costs during 1995 increased $588,621 (10.5%) over 1994 levels,
while in 1994 payroll costs increased $545,773 (10.7%) over 1993 levels. The
increase in 1995 payroll costs over 1994 resulted primarily from regular salary
increases for employees. In addition, the payroll increase for the twelve month
period ended December 31, 1995 over the same period in 1994 was the result of a
20.6% increase in overtime payroll associated with the Company's warehouse
expansion program, most of which occurred during the first quarter of 1995. Due
to the lack of adequate storage space for inventory, the Company was forced to
lease additional warehouse space in an offsite facility. The lack of proximity
of the additional space to the office of the Company resulted in an increase in
overtime payroll. Payroll costs constituted
<PAGE>
5.4%, 5.2% and 5.1% of both total expenses and net sales for 1995, 1994 and
1993, respectively. The relative stability in payroll costs as a percentage of
total expenses has been a result of a continuing effort to increase employee
productivity.
In 1995, other operating costs increased $779,242 (13.2%) over 1994
levels, while in 1994 these costs increased $405,692 (7.4%) over 1993 levels. An
increase in property tax expense accounted for 56.3% of the total increase of
other operating costs in 1995. In addition, during the construction of
additional warehouse space, the Company was forced to rent warehouse space in
its former warehouse facility. This increased 1995 other operating costs by
$69,000.
Property tax increased from $357,620 in 1994 to $796,004 in 1995. This
$438,384 increase includes $385,869 in prior period adjustments, which were
imposed by The Harris County Appraisal District ("HCAD") as a result of a
revised appraisal for 1991-1995. The HCAD asserted that as a result of a
clerical error regarding the size of the Company's warehouse, the Company's real
property was undervalued by approximately $3.1 million. Despite the Company's
efforts to gather data to refute HCAD's attempt to increase the Company's real
property value from approximately $1.1 million to approximately $4.2 million,
the potential liability based on the appraisal of $4.2 million, was accrued in
1995. Following a recent hearing with the HCAD, the value of the Company's real
property was decreased to approximately $3.5 million, but the Company does not
intend to adjust the accrued liability because certain items remain in dispute.
Despite significant increases in 1995 other operating expenses, these
costs remained in proportion to net sales, representing 5.8% of net sales in
1995, 5.4% of net sales in 1994 and 5.5% of net sales in 1993. Other operating
costs include a wide variety of expenses related to the Company. The largest
components of other costs in 1995 were $1,695,712 of employee expenses
(representing an increase of $10,947 or .6% over 1994 levels), $1,530,033 of
delivery expenses (representing a decline of $22,770 or 1.5% under 1994 levels)
and $754,270 of warehouse expenses (representing an increase of $37,308 or 5.2%
over 1994 levels).
Net Income
Net income increased 78 percent to $1,016,484 from $571,710 in 1994.
This increase was primarily due to the $1,635,805 increase in gross profit from
1995 operations and $401,733 increase in other sundry income, principally offset
by the $588,621 increase in payroll costs and the $779,242 increase in other
operating costs. The principal components of the increase in sundry income are
i) amounts received from the TNRCC as reimbursement for expenses and capital
expenditures for the Company's soil contamination remediation efforts and ii) a
reclassification of advertising revenues generated by the Company's
Member-Dealer newsletter, which were previously applied against advertising
expenses. In 1995 and 1994, the earnings per share of common stock were $11.55
and $2.71, respectively. The significant increase in earnings per share in 1995
over 1994 is due to the increase in net income and a decrease of $37,499 in
dividends paid to preferred stockholders in 1995 as compared to 1994.
The variation in the Company's earnings per share from year to year
results from the Company's attempts to price 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 shareholders of the Company who
purchase its merchandise, there is no demand from shareholders that the Company
focus greater attention upon earnings per share.
Financial Condition and Liquidity
In 1995, Handy Hardware further improved its financial condition and
its ability to generate adequate amounts of cash while continuing to make
significant investments in land, inventory, data processing equipment, software
and delivery equipment to better meet the needs of its Member-Dealers.
The Company's operating activities provided net cash of $3,754,401 in
1995, $745,681 in 1994, and $630,280 in 1993. As illustrated by these figures,
net cash provided by the Company's operating activities may vary substantially
from year to year. These variations result from (i) the timing of promotional
activities such as the Company's Spring and Fall trade shows, (ii) payment terms
available to the Company from its suppliers, (iii) payment terms offered by the
Company to its Member-Dealers, and (iv) the state of the regional economy.
<PAGE>
The increase of $3,008,720 in net cash provided by operations in 1995
as compared to 1994 is principally attributable to: (i) a large increase in net
income ($1,016,484 in 1995 compared to $571,710 in 1994); (ii) a significant
decrease in accounts receivable of $776,897 compared to an increase in 1994 of
$1,186,622; (iii) a significant decrease in inventory of $2,525,192 in 1995 as
compared to an increase of $1,496,643 in 1994 and (iv) a larger increase in
accrued expenses of $483,845 in 1995 as compared to $54,147 in 1994. These items
were offset by a significant decrease in accounts payable of $1,718,857 as
compared to an increase in 1994 accounts payable of $1,947,609.
The significant decrease in accounts receivable, inventory and accounts
payable is the result of the Company's fall trade show being held earlier in the
third quarter of 1995 than in 1994, which allowed the Company to collect a
larger portion of its accounts receivable, sell a larger portion of its
inventory and pay a larger portion of its accounts payable prior to year-end
1995. Furthermore, the decline in inventory at year-end 1995 compared to
year-end 1994 is a result of the Company purchasing a significant amount of
inventory at the end of 1994 to generate larger volume allowances. In 1995,
these additional purchases were made on a more limited basis. The large increase
in accrued expenses is the result of the increase in accrued expenses for
property tax previously discussed.
In 1995 the Company maintained a 92.8 percent service level (the
measure of the Company's ability to meet Member-Dealer orders out of current
stock), as compared to service levels of 92.6 percent and 92.9 percent in 1994
and 1993, respectively. No policy of inventory shrinkage has been implemented or
is planned.
Net cash provided by financing activities was $56,789 in 1995, 70.5
percent lower than the $192,194 provided during the previous year. The Company's
financing activities in 1995 consisted of transactions related to the Company's
stock. The Company raised $1,585,391 from the issuance of stock in 1995. (In
1994, the proceeds from the issuance of stock were $1,293,148.) This was offset
by the payment of an annual preferred stock dividend of $401,155 ($438,654 in
1994) and the repurchase of $923,050 in stock (as compared to $470,850 in 1994).
The $923,050 expended for the repurchase of stock was larger than the amount
paid for repurchases in past years due to the coincidence of timing of the
retirement from the hardware business of several significant Member-Dealers. The
decreased amounts paid as preferred dividends were due to a lower dividend rate
paid in 1995. The 1995 dividend rate was 10%. In 1994, the dividend rate was
12%. This decline reflected the decrease in national interest rates during the
first quarter of 1995. In the first quarter of 1996, the Company has increased
the amount paid as preferred dividends to 12% due to the Company's desire to
compensate shareholders for their contribution to the financial success of the
Company in 1995.
On April 2, 1993, the Company refinanced its warehouse facility with
Texas Commerce Bank for $3,670,868 at 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. The proceeds of the
refinancing were used to pay off the industrial revenue bonds originally used to
finance the construction of the warehouse facility for $80,000 less than the
full face value of the bonds. In the second quarter of 1993 this savings was
offset by the cost of refinancing ($26,396) and a charge for the unamortized
bond costs ($34,375). The fixed interest rate is 0.3 percent below the floor
interest rate on the bonds.
The Company believes that its cash flow position for 1996 should remain
fairly stable, as it has in recent years, in that the economy in the areas the
Company services appears to be stable and inventory has reached a level
commensurate with dealer demand.
The Company's ability to generate cash sufficient to meet its needs for
funding its activities is highlighted by comparing three key liquidity measures
- -- working capital, current ratio (current assets to current liabilities) and
long term debt as a percentage of capitalization, as shown below:
<PAGE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Working Capital $7,771,472 $9,129,076 $8,513,959
Current Ratio 1.72 to 1 1.75 to 1 1.85 to 1
Debt as Percentage of
Capitalization 24.2% 27.2% 30.9%
</TABLE>
The continued strength in working capital from 1993 through 1995 has
principally been due to the sale of stock, capital provided from operations and
tighter control of inventory and accounts receivable. Cash flow, in fact, was
strong enough in 1995 to allow the Company to add 96,715 square feet to the
existing warehouse facility without seeking outside financing. See "Capital
Resources," below. The Company's current ratio (current assets to current
liabilities) has remained fairly stable over the past three years. The major
component of the Company's long term debt is bank indebtedness resulting from
the Company's financing its current warehouse facility (excluding the recent
expansion).
In 1996, Handy Hardware expects to further expand its existing customer
base in Arkansas and Oklahoma. The Company will finance this expansion with
receipts from sales of stock to new and current Member-Dealers and with
increased revenues from sales to the new Member-Dealers in Arkansas and
Oklahoma. The Company anticipates that this expansion will have a beneficial
effect on its ability to generate cash to meet its funding needs. Although the
Company had previously expected to further expand its customer base in Mexico,
those plans have been forestalled because of the general economic and political
instability in Mexico at this time.
Texas Commerce Bank, Houston, Texas, currently extends the Company a
$2,000,000 unsecured revolving line of credit. The Company utilized this line
during seven days in the second quarter of 1995. As of December 31, 1995, there
were no draws on this line.
Capital Resources
The Company invested $3,419,243 in plant and equipment in 1995. Over
the past five years the Company's investments in plant and equipment have
amounted to more than $7.1 million, and have provided Handy Hardware with the
capacity for growth to meet the increasing demand for merchandise and expanded
services. Management intends to continue to invest prudently at levels
commensurate with the anticipated market expansion and needs of current
Member-Dealers.
During 1995, approximately 83.1% ($2,841,998) of the $3,419,243 amount
invested in plant and equipment was used for the Company's warehouse expansion
project and upgrading the current warehouse facility and 9.8% ($334,806) was
used to purchase warehouse equipment. The remainder was invested in upgrading
the Company's computer system and used to purchase order entry terminals, office
fixtures and equipment and an automobile.
The Company originally secured financing for the warehouse facility
expansion project in the form of a revolving line of credit through NationsBank,
evidenced by a Credit Agreement and Promissory Note which provided for a maximum
amount of $3,500,000 and which maximum principal amount would have declined
beginning April 1, 1996, based on a 20-year amortization to a maximum of
$3,150,000 on March 31, 1998. The Company was, however, able to fund the
warehouse expansion costs ($3,122,824) out of cash flow. Although the Company
has made no use of this line of credit, it has been maintained without payment
of any commitment fee while providing a source of liquidity for other financing
needs that may arise.
The Company has budgeted approximately $620,000 for 1996 capital
expenditures. Of this amount, approximately $250,000 has been allocated to
upgrade the Company's catalog. Approximately $45,000 has been allocated to
improving the Company's fleet of delivery vehicles and warehouse equipment. The
Company has also allocated approximately $65,000 for upgrading and adding data
processing equipment, approximately $15,000 for upgrading and adding office
equipment, approximately $200,000 for warehouse and material handling
improvements, and approximately $60,000 to improve the Company's automobile
fleet. The Company expects to fund the budgeted capital expenditures described
herein from working capital, and believes that it will not need to rely upon
external financing.
Adoption of FASB 109
The Company adopted FASB 109 for the year ended December 31, 1993 and
subsequent years. The impact of this action is discussed in Note 5 to the
Financial Statements included in Item 8.
Item 8. Financial Statements and Supplementary Data
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
REPORT OF EXAMINATION
DECEMBER 31, 1995
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
Handy Hardware Wholesale, Inc.
Houston, Texas
Gentlemen:
We have audited the accompanying balance sheets of Handy Hardware Wholesale,
Inc., as of December 31, 1995 and 1994, and the related statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all material
respects, the financial position of Handy Hardware Wholesale, Inc., as of
December 31, 1995 and 1994, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
/s/ Clyde D. Thomas
---------------------------------------------
CLYDE D. THOMAS & COMPANY
Certified Public Accountants
Pasadena, Texas
February 22, 1996
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------
1995 1994
--------------- ---------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
Cash $ 1,266,915 $ 688,935
Accounts receivable, net of subscriptions receivable in the amount of
$34,316 for 1995 and $39,444 for 1994 6,564,773 7,341,670
Inventory (Note 1) 10,455,070 12,980,262
Prepaid Expenses 320,271 208,536
--------------- ---------------
$ 18,607,029 $ 21,219,403
--------------- ---------------
PROPERTY, PLANT AND EQUIPMENT
At cost, less accumulated depreciation of $3,124,646 (1995) and $3,179,972
(1994) (Note 1) $ 9,787,350 $ 7,334,774
--------------- ---------------
OTHER ASSETS
Notes receivable (Note 2) $ 109,483 $ 75,866
Deferred compensation funded 214,384 162,762
Prepaid expenses 62,781 42,523
--------------- ---------------
$ 386,648 $ 281,151
--------------- ---------------
TOTAL ASSETS $ 28,781,027 $ 28,835,328
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
Mortgage payable - Current portion (Note 4) $ 308,204 $ 308,204
Notes payable - Stock - Current portion (Note 3) - 24,160
Notes payable - Capital Leases (Note 6) 92,783 88,381
Accounts payable - Trade 9,519,737 11,238,594
Accrued expenses payable 914,833 430,988
Current deferred income taxes payable (Notes 1 and 5) - -
--------------- ---------------
$ 10,835,557 $ 12,090,327
--------------- ---------------
NONCURRENT LIABILITIES
Mortgage payable - Noncurrent portion (Note 4) $ 2,515,102 $ 2,823,307
Notes payable - Stock - Noncurrent portion (Note 3) 176,810 69,610
Notes payable - Capital Leases (Note 6) 169,126 157,888
Notes payable - Dealer consignment merchandise 108,013 73,720
Deferred compensation payable 214,384 162,762
Deferred income taxes payable (Notes 1 and 5) 314,410 292,887
--------------- ---------------
$ 3,497,845 $ 3,580,174
--------------- ---------------
TOTAL LIABILITIES $ 14,333,402 $ 15,670,501
--------------- ---------------
</TABLE>
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1995 1994
--------------- ---------------
<S> <C> <C>
STOCKHOLDERS' EQUITY
Common stock, Class A, authorized 20,000 shares, $100 par value per
share, issued 7,960 and 7,790 shares $ 796,000 $ 779,000
Common stock, Class B, authorized 100,000 shares, 100 par value per
share, issued 43,149 and 40,205 shares 4,314,900 4,020,500
Common stock, Class B subscribed, 3,915.35 and 3,898.97 shares 391,535 389,897
Less subscriptions receivable (17,158) (19,722)
Preferred stock, 7% cumulative, authorized 100,000 shares,
$100 par value per share, issued 45,634.5 and 42,569 shares 4,563,450 4,256,900
Preferred stock subscribed, 3,915.35 and 3,898.97 shares 391,535 389,897
Less subscriptions receivable (17,158) (19,722)
Paid in surplus 280,277 239,162
--------------- ---------------
$ 10,703,381 $ 10,035,912
Less: Cost of treasury stock, -0- and -0- shares - -
--------------- ---------------
$ 10,703,381 $ 10,035,912
Retained earnings 3,744,244 3,128,915
--------------- ---------------
Total Stockholders' Equity $ 14,447,625 $ 13,164,827
--------------- ---------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 28,781,027 $ 28,835,328
=============== ===============
</TABLE>
See accompanying notes.
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1995 1994 1993
---------------- --------------- --------------
<S> <C> <C> <C>
INCOME
Net sales $ 114,885,634 $ 108,766,633 $ 99,739,046
Sundry income 917,183 515,450 530,985
---------------- --------------- --------------
TOTAL INCOME $ 115,802,817 $ 109,282,083 $ 100,270,031
---------------- --------------- --------------
EXPENSE
Net material costs $ 101,115,786 $ 96,632,590 $ 88,669,125
Payroll costs 6,210,359 5,621,738 5,075,965
Other operating costs 6,671,296 5,892,054 5,486,362
Interest expense 236,742 247,916 272,478
---------------- --------------- --------------
TOTAL EXPENSE $ 114,234,183 $ 108,394,298 $ 99,503,930
---------------- --------------- --------------
INCOME BEFORE PROVISION FOR FEDERAL
INCOME TAX $ 1,568,634 $ 887,785 $ 766,101
PROVISION FOR FEDERAL INCOME TAX (Note 5) (552,150) 316,075 (262,841)
---------------- --------------- --------------
NET INCOME $ 1,016,484 $ 571,710 $ 503,260
LESS DIVIDENDS ON PREFERRED STOCK 401,155 438,654 501,547
---------------- --------------- --------------
NET INCOME APPLICABLE TO COMMON
STOCKHOLDERS $ 615,329 $ 133,056 $ 1,713
================ =============== ==============
EARNINGS PER SHARE OF COMMON STOCK
CLASS A & CLASS B (Note 1) $ 11.55 $ 2.71 $ 0.04
================ =============== ============
</TABLE>
See accompanying notes.
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1994 1993
--------------- ------------ ------------
<S> <C> <C> <C>
COMMON STOCK, CLASS A $100 PAR VALUE
Balance at January 1, $ 779,000 $ 797,000 $ 701,000
Stock issued 75,000 72,000 96,000
Stock canceled (58,000) (90,000) --
--------------- ------------ ------------
Balance at December 31, $ 796,000 $ 779,000 $ 797,000
--------------- ------------ ------------
COMMON STOCK, CLASS B, $100 PAR VALUE
Balance at January 1, $ 4,020,500 $ 3,829,300 $ 3,317,300
Stock issued 585,100 568,700 512,000
Stock canceled (290,700) (377,500) --
--------------- ------------ ------------
Balance at December 31, $ 4,314,900 $ 4,020,500 $ 3,829,300
--------------- ------------ ------------
COMMON STOCK, CLASS B, SUBSCRIBED
Balance at January 1, $ 389,897 $ 367,121 $ 334,570
Stock subscribed 580,138 591,476 544,551
Transferred to stock (578,500) (568,700) (512,000)
--------------- ------------ -----------
Balance at December 31, $ 391,535 $ 389,897 $ 367,121
Less subscription receivable (17,158) (19,722) (18,033)
--------------- ------------ ------------
Total $ 374,377 $ 370,175 $ 349,088
--------------- ------------ ------------
PREFERRED STOCK, 7% CUMULATIVE $100 PAR VALUE
Balance at January 1, $ 4,256,900 $ 4,099,350 $ 3,566,750
Stock issued 614,000 578,300 532,600
Stock canceled (307,450) (420,750) --
--------------- ------------ ------------
Balance at December 31, $ 4,563,450 $ 4,256,900 $ 4,099,350
--------------- ------------ ------------
PREFERRED STOCK, 7% CUMULATIVE SUBSCRIBED
Balance at January 1, $ 389,897 $ 367,122 $ 334,569
Stock subscribed 580,138 601,075 565,153
Transferred to stock (578,500) (578,300) (532,600)
--------------- ------------ ------------
Balance at December 31, $ 391,535 $ 389,897 $ 367,122
Less subscription receivable (17,158) (19,722) (18,032)
--------------- ------------ ------------
Total $ 374,377 $ 370,175 $ 349,090
--------------- ------------ ------------
PAID IN CAPITAL SURPLUS
Balance at January 1, $ 239,162 $ 210,565 $ 177,547
Additions 41,115 28,597 33,018
--------------- ------------ ------------
Balance at December 31, $ 280,277 $ 239,162 $ 210,565
--------------- ------------ ------------
TREASURY STOCK, AT COST
COMMON STOCK, CLASS A, AT COST
Balance at January 1, $ -- $ (38,000) $ --
Stock reacquired (143,000) (52,000) (38,000)
Stock canceled 58,000 90,000 --
Stock issued 85,000 -- --
--------------- ------------ ------------
Balance at December 31, $ -- $ -- (38,000)
--------------- ------------ ------------
</TABLE>
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
PAGE 2
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1994 1993
--------------- ------------ ------------
<S> <C> <C> <C>
COMMON STOCK, CLASS B, AT COST
Balance at January 1, $ - $ (179,000) $ -
Stock reacquired (377,700) (198,500) (179,000)
Stock canceled 290,700 377,500 -
Stock issued 87,000 - -
--------------- ------------ ------------
Balance at December 31, $ - $ - $ (179,000)
--------------- ------------ ------------
PREFERRED STOCK, 7% CUMULATIVE AT COST
Balance at January 1, $ - $ (200,400) $ -
Stock reacquired (402,350) (220,350) (200,400)
Stock canceled 307,450 420,750 -
Stock issued 94,900 - -
--------------- ------------ ------------
Balance at December 31, $ - $ - $ (200,400)
--------------- ------------ ------------
TOTAL TREASURY STOCK $ - $ - $ (417,400)
--------------- ------------ ------------
RETAINED EARNINGS
Balance at January 1, $ 3,128,915 $ 2,995,859 $ 2,994,146
Add: Net income, year ending December 31, 1,016,484 571,710 503,260
Deduct: Cash dividends on Preferred Stock (Note 1) 401,155 438,654 501,547
--------------- ------------ ------------
Balance at December 31, $ 3,744,244 $ 3,128,915 $ 2,995,859
--------------- ------------ ------------
TOTAL STOCKHOLDERS' EQUITY $ 14,447,625 $ 13,164,827 $ 12,212,852
=============== ============ ============
</TABLE>
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1994 1993
--------------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,016,484 $ 571,710 $ 503,260
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 907,565 813,859 790,276
Amortization - - 35,000
Deferred income tax 21,523 10,701 21,203
(Gain) Loss on sale of property, plant and equipment (126,931 ) - 5,723
Changes in assets and liabilities:
(Increase) Decrease in Accounts Receivable 776,897 (1,186,622) (106,343)
(Increase) Decrease in Notes Receivable (33,617) (14,843) 959
(Increase) Decrease in Deferred Compensation Investment (51,622) (17,154) (22,684)
(Increase) Decrease in Inventory 2,525,192 (1,496,643) (808,647)
(Increase) Decrease in Prepaid Expense (131,993) 30,210 47,724
(Increase) Decrease in Note Payable for Dealer Consignment 34,293 15,553 14,583
Merchandise
(Increase) Decrease in Accounts Payable (1,718,857) 1,947,609 263,835
(Increase) Decrease in Accrued Expenses 483,845 54,147 (137,293)
(Increase) Decrease in Deferred Compensation Payable 51,622 17,154 22,684
--------------- ------------ ------------
Net cash provided by (used for) operating activities $ 3,754,401 $ 745,681 $ 630,280
--------------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures $ (3,419,243) $ (923,973) $ (676,667)
Sale of property, plant and equipment 186,033 8,646 36,772
--------------- ------------ ------------
Net cash provided by (used for) investing activities $ (3,233,210) $ (915,327) $ (639,895)
---------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in Mortgage Payable $ (308,205) $ (308,204) $ 3,439,715
Increase (Decrease) in Bonds Payable - - (3,792,084)
Increase (Decrease) in Notes Payable - Lease 15,640 89,583 156,686
Increase (Decrease) in Notes Payable - Stock 83,040 30,550 (5,640)
(Increase) Decrease in Subscription Receivable 5,128 (3,379) (1,316)
Proceeds from issuance of stock 1,585,391 1,293,148 1,238,722
Purchase of Treasury Stock (923,050) (470,850) (417,400)
Dividends paid (401,155) (438,654) (501,547)
---------------- ------------- -------------
Net cash provided by (used for) financing activities $ 56,789 $ 192,194 $ 117,136
--------------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 577,980 $ 22,548 $ 107,521
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 688,935 666,387 558,866
--------------- ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,266,915 $ 688,935 $ 666,387
=============== ============ ============
ADDITIONAL RELATED DISCLOSURES TO THE
STATEMENT OF CASH FLOWS
Interest expense paid $ 236,742 $ 247,916 $ 272,478
--------------- ------------ ------------
Income tax payments 637,705 333,427 266,961
--------------- ------------ ------------
</TABLE>
See accompanying notes
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
NOTE 1 - ACCOUNTING POLICIES
Cash
For purposes of the statement of cash flows, Handy Hardware Wholesale, Inc.,
the Company, considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.
Inventories
Inventories are valued at the lower of cost or market method, determined by
the first in, first out method, with proper adjustment having been made for any
old or obsolete merchandise.
Property, Plant, and Equipment
Property, plant, and equipment are carried at cost. Depreciation of property
accounts for financial statement presentation is based on estimated useful lives
and methods as follows:
<TABLE>
<CAPTION>
Life Method of
Asset in Years Depreciation
-------------------------------------------- -------- -------------
<S> <C> <C>
Building 30-39 Straight Line
Furniture and warehouse equipment including
computer and data processing equipment 3-7 Straight Line
Transportation equipment 3-5 Straight Line
</TABLE>
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994
-----------------------------
<S> <C> <C>
Land $ 2,027,797 $ 2,027,797
Buildings & improvements 7,450,391 5,026,886
Furniture, computer, warehouse equipment 2,960,102 2,842,862
Transportation equipment 473,706 617,201
----------- -----------
$12,911,996 $10,514,746
Less: Accumulated depreciation (3,124,646) (3,179,972)
----------- -----------
$ 9,787,350 $ 7,334,774
=========== ===========
</TABLE>
Depreciation expense for the year ended December 31, 1995, amounted to
$907,565 compared with $813,859 for the year ended December 31, 1994.
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 2
DECEMBER 31, 1995
NOTE 1 - ACCOUNTING POLICIES (CONTINUED)
Changes in Property, Plant, and Equipment for the year ended December 31,
1995, are shown in the following schedule:
<TABLE>
<CAPTION>
Balance Additions Other Balance
1-1-95 At Cost Retirements Changes 12-31-95
------------ ------------ ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
Land $ 2,027,797 $ -- $ -- $ -- $ 2,027,797
Buildings and improvements 5,026,886 2,659,709 236,204 -- 7,450,391
Furniture, Computers and
warehouse equipment 2,842,862 738,728 621,488 -- 2,960,102
Transportation equipment 617,201 20,806 164,301 -- 473,706
------------ ------------ ------------ --------- -------------
$ 10,514,746 $ 3,419,243 $ 1,021,993 $ -- $ 12,911,996
============ ============ ============ ========= =============
</TABLE>
Changes in Property, Plant, and Equipment for the year ended December 31,
1994, are shown in the following schedule:
<TABLE>
<CAPTION>
Balance Additions Other Balance
1-1-94 At Cost Retirements Changes 12-31-94
------------ ------------ ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
Land $ 2,027,797 $ -- $ -- $ -- $ 2,027,797
Buildings and improvements 4,702,101 324,785 -- -- 5,026,886
Furniture, Computers and
warehouse equipment 2,765,984 435,521 358,643 -- 2,842,862
Transportation equipment 519,243 163,667 65,709 -- 617,201
------------ ------------ ------------ --------- -------------
$ 10,015,125 $ 923,973 $ 424,352 $ -- $ 10,514,746
============ ============ ============ ========= =============
</TABLE>
Changes in Property, Plant, and Equipment for the year ended December 31,
1993, are shown in the following schedule:
<TABLE>
<CAPTION>
Balance Additions Other Balance
1-1-93 At Cost Retirements Changes 12-31-93
------------ ------------ ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
Land $ 2,027,797 $ -- $ -- $ -- $ 2,027,797
Buildings and improvements 4,699,014 3,087 -- -- 4,702,101
Furniture, Computers and
warehouse equipment 2,624,761 560,155 418,932 -- 2,765,984
Transportation equipment 491,257 113,425 85,439 -- 519,243
------------ ------------ ------------ --------- -------------
$ 9,842,829 $ 676,667 $ 504,371 $ -- $ 10,015,125
============ ============ ============ ========= =============
</TABLE>
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 3
DECEMBER 31, 1995
NOTE 1 - ACCOUNTING POLICIES (CONTINUED)
Changes in Accumulated Depreciation for Property, Plant, and Equipment for
the year ended December 31, 1995, are shown in the following schedule:
<TABLE>
<CAPTION>
Balance Additions Other Balance
1-1-95 at Cost Retirements Changes 12-31-95
-------------- --------------- --------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Land $ - $ - $ - $ - $ -
Buildings and improvements 1,317,804 225,914 178,936 - 1,364,782
Furniture, Computers and
warehouse equipment 1,524,434 561,461 621,489 - 1,464,406
Transportation equipment 337,734 120,190 162,466 - 295,458
-------------- --------------- --------------- -------- ---------------
$ 3,179,972 $ 907,565 $ 962,891 $ - $ 3,124,646
============= ============== ============== ======== ===============
</TABLE>
Changes in Accumulated Depreciation for Property, Plant, and Equipment for
the year ended December 31, 1994, are shown in the following schedule:
<TABLE>
<CAPTION>
Balance Additions Other Balance
1-1-94 at Cost Retirements Changes 12-31-94
-------------- --------------- --------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Land $ - $ - $ - $ - $ -
Buildings and improvements 1,117,714 200,090 - - 1,317,804
Furniture, Computers and
warehouse equipment 1,386,904 496,173 358,643 - 1,524,434
Transportation equipment 277,201 117,596 57,063 - 337,734
-------------- --------------- --------------- -------- ---------------
$ 2,781,819 $ 813,859 $ 415,706 $ - $ 3,179,972
============== =============== =============== ======== ===============
</TABLE>
Changes in Accumulated Depreciation for Property, Plant, and Equipment for the
year ended December 31, 1993, are shown in the following schedule:
<TABLE>
<CAPTION>
Balance Additions Other Balance
1-1-93 at Cost Retirements Changes 12-31-93
-------------- --------------- --------------- -------- ---------------
<S> <C> <C> <C> <C> <C>
Land $ - $ - $ - $ - $ -
Buildings and improvements 918,658 199,056 - - 1,117,714
Furniture, Computers and
warehouse equipment 1,321,185 473,258 407,539 - 1,386,904
Transportation equipment 213,576 117,962 54,337 - 277,201
-------------- --------------- --------------- -------- ---------------
$ 2,453,419 $ 790,276 $ 461,876 $ - $ 2,781,819
============== =============== =============== ======== ===============
</TABLE>
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 4
DECEMBER 31, 1995
NOTE 1 - ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Deferred income taxes are provided to reflect the tax effect of temporary
differences between financial statement and federal tax reporting arising from
the following:
1. Depreciation for federal income tax purposes is computed under the Straight
Line Method for assets acquired prior to December 31, 1986 and the Modified
Accelerated Cost Recovery System for assets acquired after December 31, 1986.
For financial statement purposes the straight line method is being used. The
following chart indicates the difference in the depreciation calculations:
<TABLE>
<CAPTION>
Annual Tax Depreciation Total
Tax Depreciation (over) under Book Accumulation
Over (Under) Book Depreciation for Tax Over Book
Year Depreciation Deleted Assets Depreciation
-------- ----------------- ----------------- ---------------
<S> <C> <C> <C>
12-31-93 $ 124,196 $ (23,468) $ 1,223,717
12-31-94 76,849 9,617 1,310,183
12-31-95 30,849 (27,981) 1,313,051
</TABLE>
2. Deferred compensation is accrued as follows:
Balance, December 31, 1994 $ 162,762
Addition for year ended December 31, 1995 51,622
---------
Balance, December 31, 1995 $ 214,384
=========
The deferred compensation has not been deducted for income tax purposes.
3. Internal Revenue Code Section 263A requires certain costs to be capitalized
for inventory purposes. The following schedule shows the amount reported on
the tax return.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1995 1994
--------------- ---------------
<S> <C> <C>
Book inventory $ 10,455,070 $ 12,980,262
Adjustment for 263A Uniform
Capitalization costs 208,561 285,988
--------------- ---------------
Inventory for tax return $ 10,663,631 $ 13,266,250
=============== ===============
</TABLE>
The Company accounts for any tax credits as a reduction of income tax expense
in the year in which such credits arise.
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 5
DECEMBER 31, 1995
NOTE 1 - ACCOUNTING POLICIES (CONTINUED)
Earnings Per Share of Common Stock
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 stock issued, stock subscribed, dividends on preferred stock, and
treasury stock as set forth by Accounting Principles Board Opinion No. 15 as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993
------------ ---------- ---------
<S> <C> <C> <C>
Net Income $ 1,016,484 $ 571,710 $ 503,260
Less: Dividends on Preferred Stock 401,155 438,654 501,547
------------ ---------- ---------
Difference $ 615,329 $ 133,056 $ 1,713
Weighted average shares outstanding 53,253 49,129 44,787
Income (Loss) per share 11.55 2.71 0.04
</TABLE>
Preferred Stock Dividends
Cash dividends paid on the Company's outstanding preferred stock (par value
$100 per share) were 10% for 1995, 12% for 1994, and 15% for 1993, pro-rated for
the portion of a twelve month period (ending January 31) during which the
preferred stock was held. The weighted average number of preferred shares
outstanding during each 12 month period was used to calculate the per share cash
dividends on preferred stock as reflected below. Cash dividends have never been
paid and are not anticipated to be paid in the future on either class of the
Company's outstanding common stock.
SCHEDULE OF PREFERRED STOCK DIVIDENDS
During the
Year ended Weighted Average Per
December 31 Shares Outstanding Share
----------- ------------------ ---------
1995 47,787 $ 8.39
1994 43,869 10.00
1993 40,034 12.53
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.
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 6
DECEMBER 31, 1995
NOTE 2 - NOTES RECEIVABLE
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------
1995 1994
--------------------------- -----------------------
Debtor Collateral Current Noncurrent Current Noncurrent
- ------------------------ ---------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C>
Alamo Heights Hardware None $ - $ 5,893 $ - $ 5,893
Breed Hardware None - 3,089 - -
Broadway Hardware None - 21,333 - -
Decatur Hardware None - 2,340 - 2,340
Doug Ashy Bldg. None - 1,912 - -
Granbury Farm & Ranch None - 1,219 - 1,219
Handyman Hardware None - 13,165 - 13,165
Henckel's None - 5,446 - 5,446
Island Hardware None - 2,807 - 2,807
J & B Auto None - 2,171 - 2,171
Jackson Hardware None - 2,297 - 2,297
Katy Mason Hardware None - 3,427 - 3,427
Kilgore Hardware None - 3,556 - 3,556
King Hardware None - 4,255 - 4,255
Liberty Auto Parts None - 2,880 - 2,880
Madis None - 2,619 - 2,619
Marchand's, Inc. None - 2,830 - 2,830
Max Squires None - 1,471 - 2,146
Mike's Hardware None - 1,511 - -
Overall Lumber None - 3,362 - 3,362
Pitts Hardware None - 1,772 - 1,772
RBC Hardware None - 2,549 - 2,549
Sawyer Brothers None - 4,840 - 4,840
Sealy Ace Hardware None - 4,920 - 4,920
Stifter Lumber None - 3,087 - -
Trahan Hardware None - 1,372 - 1,372
Wagner Hardware None - 3,360 - -
------ ---------- ------- ----------
$ - $ 109,483 $ - $ 75,866
====== ========== ======= ==========
</TABLE>
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 7
DECEMBER 31, 1995
NOTE 3 - NOTES PAYABLE - STOCK
<TABLE>
<CAPTION>
Current Portion Non-Current Portion
December 31, December 31,
----------------------- -----------------------
Interest Maturity
Payee Rate Collateral Date 1995 1994 1995 1994
- ------------------------ -------- ---------- --------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Alamo Lumber 6.25% None 2000 $ - $ - $ 3,000 $ -
Arlington Hardware 6.25% None 2000 - - 10,000 -
Arlington Hardware 6.25% None 2000 - - 46,400 -
Beere Hardware 6.0 % None 1997 - - 1,100 1,100
Brown 6.25% None 2000 - - 6,400 -
C & S Hardware, Inc. 8.0 % None 1995 - 4,200 - -
C & S Hardware, Inc. 8.0 % None 1995 - 3,800 - -
Cleveland Hardware 6.0 % None 1997 - - 21,760 21,760
Company Stor 6.25% None 2000 - - 9,600 -
Davis Home Center 6.0 % None 1999 - - 8,600 8,600
Gulfway World 6.25% None 2000 - - 12,800 -
Hawkins Hardware 6.0 % None 1999 - - 2,150 2,150
Hometown Hardware 6.0 % None 1997 - - 1,000 1,000
J & B Builders 6.0 % None 1998 - - 7,000 7,000
Ken's Hardware 6.0 % None 1999 - - 5,000 5,000
Morrison Lumber 8.0 % None 1995 - 12,960 - -
Patterson Hardware 6.0 % None 1999 - - 12,000 12,000
Rockdale 6.25% None 2000 - - 3,000 -
D. D. Southwell 6.25% None 2000 - - 5,000 -
Space City Hardware 6.0 % None 1999 - - 9,000 9,000
Swan Lake Hardware 6.25% None 2000 - - 5,000 -
Terrebonne Hardware 8.0 % None 1995 - 3,200 - -
Wheeler Lumber Co. 8.0 % None 1995 - - - -
Yeager TV Hardware 6.0 % None 1999 - - 2,000 2,000
Yeager TV Hardware 7.0 % None 2000 - - 6,000 -
-------- -------- --------- --------
$ - $ 24,160 $ 176,810 $ 69,610
======== ======== ========= ========
</TABLE>
Interest only is paid the first four years, and interest and principal are paid
in the fifth year.
Principal payments applicable to the next five years are as follows:
1996 $ -
1997 23,860
1998 7,000
1999 38,750
2000 107,200
--------
$176,810
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 8
DECEMBER 31, 1995
NOTE 4 - MORTGAGE PAYABLE
On April 2, 1993, Texas Commerce Bank approved a $3,670,868 loan for the
purpose of refinancing the property at 8300 Tewantin Drive. Monthly principal
payments in the amount of $25,684 began April 30, 1993, and shall continue until
maturity on March 31, 1998, with remaining balance to be paid in full. The
company anticipates refinancing the principal balance at that time. Interest is
calculated at 7.2% annual rate payable monthly.
The mortgage payable is secured by land and buildings at the present location
on Tewantin Street and classified as follows:
December 31,
----------------------------
1995 1994
------------ -----------
Current Liabilities $ 308,204 $ 308,204
Noncurrent Liabilities $ 2,515,102 $ 3,131,511
------------ -----------
$ 2,823,306 $ 3,439,715
============ ===========
Principal payments applicable to the next five years are as follows:
1996 $ 308,204
1997 308,204
1998 2,206,898
1999 -
2000 -
On October 7, 1994, the board of directors approved the construction of a 96,715
square foot expansion of the warehouse facility. The expansion was completed in
1995. Financing had been arranged through NationsBank for the cost of
construction of the addition; however, no financing from this source was used
during the construction as a temporary loan was made on the line of credit at
Texas Commerce Bank. This temporary loan was repaid in May, 1995.
NOTE 5 - INCOME TAXES
The Company adopted FASB Statement No. 109, "Accounting for Income Taxes,"
effective January 1, 1993. The adoption of this standard changed the Company's
method of accounting for income taxes from the deferred method to the liability
method. The effect of the change was not material to the 1993 financial
statements.
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 9
DECEMBER 31, 1995
NOTE 5 - INCOME TAXES (CONTINUED)
The major categories of deferred income tax provisions are as follows
(based on FASB 109):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1994 1993
--------------- ------------ ------------
<S> <C> <C> <C>
Excess of tax over book depreciation $ 1,313,050 $ 1,310,183 $ 1,233,333
Inventory - ending inventory adjustment for tax recognition of
Sec. 263A Uniform Capitalization Costs (208,561) (285,988) (257,768)
Deferred compensation (179,754) (162,762) (145,608)
--------------- ------------ ------------
Total $ 924,735 $ 861,433 $ 829,957
Statutory tax rate 34% 34% 34%
--------------- ------------ ------------
Cumulative deferred income tax payable $ 314,410 $ 292,887 $ 282,186
=============== ============ ============
Classified as:
Current liability $ - $ - $ -
Noncurrent liability 314,410 292,887 282,186
--------------- ------------ ------------
$ 314,410 $ 292,887 $ 282,186
=============== ============ ============
</TABLE>
Reconciliation of income taxes on difference between tax and financial
accounting:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------
1995 1994 1993
--------------- ------------ ------------
<S> <C> <C> <C>
Principal components of income tax expense Federal:
Current
Income tax paid $ 637,705 $ 333,427 $ 266,961
Carryover of prepayment from prior year - 65,323 40,000
--------------- ------------ ------------
$ 637,705 $ 398,750 $ 306,961
Carryover to subsequent year 107,078 93,377 65,323
--------------- ------------ ------------
Income tax for tax reporting at statutory rate of 34% $ 530,627 $ 305,373 $ 241,638
Deferred
Adjustments for financial reporting:
Depreciation 975 26,129 42,227
263A Uniform capitalization costs 26,325 (9,595) (8,602 )
Other (5,777) (5,832) (12,422)
---------------- ------------- ------------
Provision for federal income tax $ 552,150 $ 316,075 $ 262,841
=============== ============ ============
</TABLE>
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 10
DECEMBER 31, 1995
NOTE 6 - LEASES
Operating Leases
The Company leases certain trucks and warehouse equipment under
long-term operating lease agreements. The leases expire in 1997, 1998,
1999, 2000, 2001, and 2002.
The following is a schedule of future minimum lease payments for
operating leases as of December 31, 1995 and 1994 for the subsequent five
years:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------------
1995 1994
---------- -----------
<S> <C> <C>
1995 $ - $ 511,769
1996 496,571 394,893
1997 472,288 353,030
1998 424,156 245,087
1999 400,401 169,674
2000 354,240 -
</TABLE>
Capital Leases
The Company leases equipment as a capital lease. The following
is an analysis of the leased property under capital leases by major class:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
---------------------------------
1995 1994
---------- ---------
<S> <C> <C>
Class of Property
Furniture, computers, and
warehouse equipment $ 385,324 $ 304,848
Transportation equipment 39,971 39,971
---------- ---------
$ 425,295 $ 344,819
Less: Accumulated depreciation 172,383 $ 91,348
---------- ---------
$ 252,912 $ 253,471
========== =========
</TABLE>
The following is a schedule by year of future minimum lease payments for
capital leases.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------------------
1995 1994
--------- -----------
<S> <C> <C>
1995 $ - $ 88,381
1996 92,783 74,759
1997 49,636 33,780
1998 40,523 19,305
1999 36,937 30,044
2000 29,458 -
Thereafter 12,571 -
--------- -----------
TOTAL $ 261,908 $ 246,269
========= ===========
</TABLE>
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 11
DECEMBER 31, 1995
NOTE 6 - LEASES (CONTINUED)
The lease payments are reflected in the Balance Sheet as current and
noncurrent obligations under capital leases of $92,783 and $169,126,
respectively. The estimated interest rates range from 4% to 9%.
Rental Expenses
Rental expenses for the preceding three years are:
1995 $ 854,603
1994 749,881
1993 651,140
NOTE 7 - RELATED PARTY TRANSACTIONS
NONE
The Company is owned entirely by its dealers and former dealers. No
shareholder is the beneficial owner of more than five percent of any class of
the company's voting securities. Substantially all sales are made to the
member-dealers (owners) of the Company.
NOTE 8 - RETIREMENT PLAN - DEFINED CONTRIBUTION
The company maintains a Profit Sharing and Savings Plan to help employees
achieve financial security during their retirement years. Employees are eligible
to participate in the plan if they have attained age 21 and have completed one
year of service with the Company. Contributions to the plan are determined by
the Board of Directors. Contributions are allocated to employees in the same
proportion that the number of points per employee bears to the total points of
all participants. Employees receive one point for each $1,000 of compensation
and one point for each year of service. Employees' interests in the value of the
contributions made to their account first partially vests after three years of
service at 20% and continues to vest an additional 20% each year until fully
vested after seven years of service. Participating employees who reach age 65
are fully vested without regard to their number of years of service. Benefits
are paid to eligible employees under the plan in lump sum upon retirement, or at
the direction of the employee, pursuant to the terms of an annuity plan selected
by the employee. The amount of cost recognized during the years ended December
31, is as follows:
1995 $ 515,847
1994 400,000
1993 352,461
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 12
DECEMBER 31, 1995
NOTE 9 - STOCK PURCHASE FORMULA
Effective July, 1991, the Board of Directors approved a
modification of the stock investment formula for dealers. Based on annual
purchases by dealers, limits of stock investments are determined by formula
to arrive at a maximum investment in Handy stock. In 1994 and 1995 the
Board approved the repurchase of certain shares from those shareholders who
are over-invested in the Company's capital stock by $4,000 or more. The
amount repurchased was the amount of stock (based on purchase price of $100
per share) equal to one fourth of the overinvested amount, equally divided
between shares of Preferred Stock and Class B Common Stock. In connection
with the repurchase, the minimum required investment in the Company's
capital stock was raised from $5,000 to $10,000. In 1994 and 1995 the
Company repurchased 352 and 326 shares for $35,200 and $32,600,
respectively.
NOTE 10 - LINE OF CREDIT
Texas Commerce Bank committed to a $2,000,000 unsecured revolving
line of credit. The commitment expires on April 30, 1997. Borrowing against
the line of credit during the year was as follows.
Balance Borrowing Payments Balance Interest Interest
1-01-95 5-23-95 5-31-95 12-31-95 Rate Paid
- ------- ---------- ---------- -------- -------------- --------
$-0- $1,450,000 $1,450,000 $-0- Prime Floating $2,404
NOTE 11 - SUBSEQUENT EVENT
None
NOTE 12 - OTHER DISCLOSURES
Costs incurred for advertising are expensed when incurred.
The Company wholesales hardware to its dealers in Texas, Oklahoma,
Louisiana, Alabama, Mississippi, Arkansas, and Florida.
The Company is not a party to any legal proceedings or
environmental clean-up actions that it believes will have a material
adverse effect on its financial position or results of operations.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Items 10-13 are incorporated by reference to the Company's Proxy
Statement for its annual stockholders' meeting which will be subsequently filed
with the Securities and Exchange Commission within 120 days after the close of
the Company's fiscal year.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents Filed as Part of this Report
Page
(1) Financial Statements Reference
Auditor's Report........................................... 15
Balance Sheets at December 31,
1995 and 1994............................................ 16
Statements of Income for the
years ended December 31,
1995, 1994 and 1993...................................... 18
Statements of Stockholders' Equity
for the years ended December 31,
1995, 1994 and 1993...................................... 19
Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993......................... 21
Notes to Financial Statements.............................. 22
(2) Financial Statement Schedules
Schedule V has been omitted because none of the items
reflected thereon was in excess of 1% of total sales for the
periods covered.
All other schedules are omitted because the information is not
required or because the information required is in the
financial statements or notes thereto.
<PAGE>
(3) Exhibits
Exhibit
Number
-------
3.1 Articles of Incorporation of Handy Hardware
Wholesale, Inc., as amended (Filed as Exhibit 3.1 to
the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995, and incorporated
herein by reference).
3.2 Bylaws of Handy Hardware Wholesale, Inc. (Filed as
Exhibit 3.2 to the Company's Annual Report on Form
10-K for the year ended December 31, 1983, and
incorporated herein by reference).
4.1 Specimen copy of certificate representing Class A
Common Stock (Filed as Exhibit 4.1 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1983, and incorporated herein by
reference).
4.2 Specimen copy of certificate representing Class B
Common Stock (Filed as Exhibit 4.2 to the Company's
Annual Report on Form 10-K for the year ended
December 31, 1983, and incorporated herein by
reference).
4.3 Specimen copy of certificate representing Preferred
Stock (Filed as Exhibit 4.3 to the Company's Annual
Report on Form 10-K for the year ended December 31,
1983, and incorporated herein by reference).
4.4 Form of Subscription to Shares of Handy Hardware
Wholesale, Inc. for Class A Common Stock, Class B
Common Stock and Preferred Stock (Filed as Exhibit
4.4 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1991, and incorporated
herein by reference).
* 10.1 Employment Agreement, as amended, between Handy
Hardware Wholesale, Inc. and James D. Tipton (Filed
as Exhibit 10.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1983, and
incorporated herein by reference).
* 10.2 Second Amendment to the Employment Agreement, as
amended, between Handy Hardware Wholesale, Inc. and
James D. Tipton dated July 19, 1985 (Filed as
Exhibit 10.2 to the Company's Annual Report on Form
10-K for the year ended December 31, 1985, and
incorporated herein by reference).
* 10.3 Third Amendment to the Employment Agreement, as
amended, between Handy Hardware Wholesale, Inc. and
James D. Tipton dated December 16, 1988 (Filed as
Exhibit 10.3 to the Company's Annual Report on Form
10-K for the year ended December 31, 1988, and
incorporated herein by reference).
* 10.4 Fourth Amendment to the Employment Agreement, as
amended, between Handy Hardware Wholesale, Inc. and
James D. Tipton dated September 20, 1991 (Filed as
Exhibit 10.4 to the Company's Annual Report on Form
10-K for the year ended December 31, 1991, and
incorporated herein by reference).
10.5 Split-Dollar Agreement dated November 13, 1991
between the Company and James D. Tipton (Filed as
Exhibit 10.5 to the Company's Annual Report on Form
10-K for the year ended December 31, 1991, and
incorporated herein by reference).
10.6 Form of Dealer Contract (Alabama, Arkansas, Florida,
Louisiana, Oklahoma and Texas) (Filed as Exhibit
10.6 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1991, and incorporated
herein by reference).
<PAGE>
10.7 Form of Dealer Contract (Mississippi) (Filed as
Exhibit 10.7 to the Company's Annual Report on Form
10-K for the year ended December 31, 1991, and
incorporated herein by reference).
* 10.8 Fifth Amendment to the Employment Agreement, as
amended, between Handy Hardware Wholesale, Inc. and
James D. Tipton dated September 7, 1993. (Filed as
Exhibit 10.8 to the Company's Annual Report on Form
10-K for the year ended December 31, 1993, and
incorporated herein by reference.)
10.9 Loan Agreement dated March 30, 1993, between Texas
Commerce Bank, N.A., and Handy Hardware Wholesale,
Inc. (filed as Exhibit I to the Company's Quarterly
Report on Form 10- Q for the quarter ended June 30,
1993, and incorporated herein by reference).
10.10 Credit Agreement between Handy Hardware Wholesale,
Inc. ("Borrower") and NationsBank of Texas, N.A.
("Lender") dated November 2, 1994 (with Exhibits "A"
and "B" intentionally omitted).
*,** 10.11 Sixth Amendment to the Employment Agreement, as
amended, between Handy Hardware Wholesale, Inc. and
James D. Tipton dated November 14, 1995.
** 11.1 Statement re computation of per share earnings.
* Management Contract
** Filed herewith.
The Company will furnish to any requesting shareholder a copy of any
exhibit upon payment of $.40 per page to cover the expense of furnishing such
copies. Requests should be directed to Tina S. Kirbie, Secretary and Treasurer,
Handy Hardware Wholesale, Inc., 8300 Tewantin Drive, Houston, Texas 77061.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the three months ended
December 31, 1995.
(c) Exhibits
Listed in Item 14(a)(3) above.
(d) Financial Statement Schedules
Listed in Item 14(a)(2) above.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant, Handy Hardware Wholesale, Inc., 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 and Chief Executive Officer
March _____, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant, Handy Hardware Wholesale, Inc., and in the capacities and on the
dates indicated.
Signature Title Date
- ------------------------ -------------------------- -----------------
- ------------------------ President, Chief Executive March _____, 1996
James D. Tipton Officer and Director
- ------------------------ Chief Financial and March _____, 1996
Tina S. Kirbie Accounting Officer
- ------------------------ Director March _____, 1996
Weldon D. Bailey
- ------------------------ Director March _____, 1996
Norman J. Bering, II
- ------------------------ Director March _____, 1996
Susie Bracht-Black
- ------------------------ Director March _____, 1996
Truman Breed
- ------------------------ Director March _____, 1996
Virgil H. Cox
- ------------------------ Director March _____, 1996
Samuel J. Dyson
- ------------------------ Director March _____, 1996
Robert L. Eilers
- ------------------------ Director March _____, 1996
Phil Grothues
- ------------------------ Director March _____, 1996
Leroy Welborn
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant, Handy Hardware Wholesale, Inc., has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
HANDY HARDWARE WHOLESALE, INC.
/s/James D. Tipton
-------------------------------------
JAMES D. TIPTON
President and Chief Executive Officer
March 15, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant, Handy Hardware Wholesale, Inc., and in the capacities and on the
dates indicated.
Signature Title Date
- ------------------------ -------------------------- -----------------
/s/James D. Tipton
- ------------------------ President, Chief Executive March 15, 1996
James D. Tipton Officer and Director
/s/Tina S. Kirbie
- ------------------------ Chief Financial and March 15, 1996
Tina S. Kirbie Accounting Officer
/s/Weldon D. Bailey
- ------------------------ Director March 18, 1996
Weldon D. Bailey
/s/Norman J. Bering, II
- ------------------------ Director March 14, 1996
Norman J. Bering, II
/s/Susie Bracht-Black
- ------------------------ Director March 18, 1996
Susie Bracht-Black
/s/Truman Breed
- ------------------------ Director March 18, 1996
Truman Breed
/s/Virgil H. Cox
- ------------------------ Director March 19, 1996
Virgil H. Cox
/s/Samuel J. Dyson
- ------------------------ Director March 18, 1996
Samuel J. Dyson
/s/Robert L. Eilers
- ------------------------ Director March 18, 1996
Robert L. Eilers
/s/Phil Grothues
- ------------------------ Director March 18, 1996
Phil Grothues
/s/Leroy Welborn
- ------------------------ Director March 18, 1996
Leroy Welborn
<PAGE>
Exhibit 10.11
Sixth Amendment to Employment Agreement
Reference is made to an Employment Agreement (hereinafter called
"Agreement") dated July 9, 1980, between Handy Hardware Wholesale, Inc., a Texas
corporation (therein and hereinafter called "Employer"), and James D. Tipton
(therein and hereinafter called "Employee"), the First Amendment to the
Agreement, dated August 18, 1980 (the "First Amendment"), the Second Amendment
to the Agreement, dated July 18, 1985 (the "Second Amendment"), the Third
Amendment to the Agreement, dated December 6, 1988 (the "Third Amendment"), the
Fourth Amendment to the Agreement, dated September 20, 1991 (the "Fourth
Amendment") and the Fifth Amendment to the Agreement, dated September 7, 1993
(the "Fifth Amendment").
At this time, Employer and Employee wish to amend the Agreement, the
First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment
and the Fifth Amendment as hereinafter set forth:
NOW THEREFORE, in consideration of the premises, the agreements herein
contained and other good and valuable considerations, Employer and Employee
hereby amend the Agreement, the First Amendment, the Second Amendment, the Third
Amendment, the Fourth Amendment and the Fifth Amendment as follows:
1. Subparagraph (9) of Paragraph 2.a. is hereby amended to read
as follows:
"(9) For the period from January 1, 1996 to December 31,
1997, Employer shall pay Employee $20,834.34 per month, payable semi-
monthly on the 15th and last day of each month during this period."
2. Paragraph 3.a. is hereby amended to read as follows:
"a. The term of employment by Employer shall mean the
period commencing August 18, 1980, and terminating December 31, 1997,
unless sooner terminated in accordance with the terms and conditions
hereinafter set forth, provided, however, in the event of the death of
Employee, the term of employment shall end the 60th day after the date
of the death of Employee."
Except as amended above, the Agreement, the First Amendment, the Second
Amendment, the Third Amendment, the Fourth Amendment and the Fifth Amendment
remain unchanged and continue in full force and effect.
This Sixth Amendment is executed in multiple counterparts, each of
which shall have the force and effect of an original, this 14th day of November,
1995.
HANDY HARDWARE WHOLESALE, INC.
/s/ James D. Tipton By: /s/ Truman Breed
- --------------------------------------- ---------------------------------
James D. Tipton Chairman of the Board
EMPLOYEE EMPLOYER
<PAGE>
EXHIBIT 11.1
Computation of Per Share Earnings
<TABLE>
<CAPTION>
1995 1994 1993
------------ --------- ---------
<S> <C> <C> <C>
Net Income $ 1,016,484 $ 571,710 $ 503,260
Dividends Paid $ (401,155) $(438,654) $(501,547)
------------ --------- ---------
$ 615,329 $ 133,056 $ 1,713
Weighted Average
Shares Outstanding 53,253 49,129 44,787
Earnings Per Share of
Common Stock $ 11.55 $ 2.71 $ 0.04
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
filer's operations as of December 31, 1995, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000354053
<NAME> Handy Hardware Wholesale, Inc.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 1,266,915
<SECURITIES> 0
<RECEIVABLES> 6,564,773<F1>
<ALLOWANCES> 0
<INVENTORY> 10,455,070
<CURRENT-ASSETS> 18,607,029
<PP&E> 9,787,350
<DEPRECIATION> 3,124,646
<TOTAL-ASSETS> 28,781,027
<CURRENT-LIABILITIES> 10,835,557
<BONDS> 2,515,102<F2>
0
4,937,827<F4>
<COMMON> 5,485,277<F3>
<OTHER-SE> 4,024,521<F5>
<TOTAL-LIABILITY-AND-EQUITY> 28,781,027
<SALES> 114,885,634
<TOTAL-REVENUES> 115,802,817
<CGS> 101,115,786
<TOTAL-COSTS> 101,115,786
<OTHER-EXPENSES> 6,671,296<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 236,742
<INCOME-PRETAX> 1,568,634
<INCOME-TAX> 552,150
<INCOME-CONTINUING> 1,016,484
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,016,484
<EPS-PRIMARY> 11.55
<EPS-DILUTED> 11.55
<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
Subscription for Class B Common Stock less Subscription Receivables.
<F4> Preferred Stock and Subscriptions less Subscription Receivables and
Treasury Stock.
<F5> Paid in Surplus and Retained Earnings.
<F6> Other Operating Costs. (Does not include payroll costs of $6,210,359.00.)
</FN>
</TABLE>
