SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarterly period ended March 31, 1996.
Commission File Number 0-15708
HANDY HARDWARE WHOLESALE, INC.
(Exact name of Registrant as specified in its charter)
TEXAS 74-1381875
(State of incorporation) (I.R.S. Employer
Identification No.)
8300 Tewantin Drive, Houston, Texas 77061
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number: (713) 644-1495
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
The number of shares outstanding of each of the Registrant's classes of common
stock as of March 31, 1996, was 7970 shares of Class A Common Stock, $100 par
value, and 44,412 shares of Class B Common Stock, $100 par value.
Page #1 of 21 Pages
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
INDEX
PART I Financial Information Page No.
--------
Item 1. Financial Statements
Condensed Balance Sheet March 31, 1996
and December 31, 1995 ..........................3 - 4
Condensed Statement of Income - Three Months
Ended March 31, 1996 and 1995.......................5
Condensed Statement of Cash Flows - Three Months
Ended March 31, 1996 and 1995...................6 - 7
Notes to Condensed Financial Statements..............8 - 13
Item 2. Management's Discussion & Analysis of Financial
Condition and Results of Operations...........14 - 19
PART II Other Information
Items 1.- 6. None 20
Signatures 21
Page #2 of 21 Pages
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
<S> <C> <C>
ASSETS
------
CURRENT ASSETS
--------------
Cash $ 2,839,669 $ 1,266,915
Accounts Receivable, net of 11,825,300 6,564,773
subscriptions receivable in
the amount of $52,882 for 1996
and $34,316 for 1995
Inventory 13,234,298 10,455,070
Other Current Assets 239,015 320,271
----------- -----------
$28,138,282 $18,607,029
----------- -----------
PROPERTY, PLANT AND EQUIPMENT (Note 2)
--------------------------------------
At Cost Less Accumulated Depreciation
of $3,336,908 (1996) and $3,124,646 (1995) $ 9,633 469 $ 9,787,350
----------- -----------
OTHER ASSETS
------------
Notes Receivable (Note 3) $ 114,476 $ 109,483
Deferred Compensation Funded 214,384 214,384
Other Noncurrent Assets -0- 62,781
----------- -----------
$ 328,860 $ 386,648
----------- -----------
TOTAL ASSETS $38,100,611 $28,781,027
------------ =========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY
-----------------------------
CURRENT LIABILITIES
-------------------
Mortgage Payable $ 308,204 $ 308,204
Notes Payable-Capital Lease 80,639 92,783
Accounts Payable - Trade 18,995,973 9,519,737
Other Current Liabilities 697,535 914,833
Current Deferred Income Taxes
Payable (Note 5) 25,553 -0-
Federal Income Taxes Payable
(Note 5) 58,874 -0-
----------- -----------
$20,166,778 $10,835,557
----------- -----------
NONCURRENT LIABILITIES
----------------------
Mortgage Payable $ 2,438,051 $ 2,515,102
Notes Payable-Stock(Note 4) 185,810 176,810
Notes Payable-Capital Lease 165,246 169,126
Notes Payable-Vendor 113,182 108,013
Deferred Compensation Payable 214,384 214,384
Deferred Income Taxes Payable
(Note 5) 297,694 314,410
----------- -----------
$ 3,414,367 $ 3,497,845
----------- -----------
TOTAL LIABILITIES $23,581,145 $14,333,402
----------------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the Condensed Financial
Statement.
Page #3 of 21 Pages
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
CONDENSED BALANCE SHEET (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------ -----------
<S> <C> <C>
STOCKHOLDERS' EQUITY (NOTE 6)
-----------------------------
Common Stock, Class A,
authorized 20,000 shares, $100
par value per share, issued
8,060 & 7,960 shares $ 806,000 $ 796,000
Common Stock, Class B,
authorized 100,000 shares, $100
par value per share, issued
44,639 & 43,149 shares 4,463,900 4,314,900
Common Stock, Class B
Subscribed 4,045.59 & 3,915.35
shares 404,559 391,535
Less Subscription Receivable (26,441) (17,158)
Preferred Stock 12% Cumulative,
authorized 100,000 shares, $100
par value per share, issued
47,164.5 & 45,634.5 shares 4,716,450 4,563,450
Preferred Stock, Subscribed
4,045.59 & 3,915.35 shares 404,559 391,535
Less Subscription Receivable (26,441) (17,158)
Paid in Surplus 284,021 280,277
------------ -----------
$ 11,026,607 $10,703,381
Less: Cost of Treasury Stock
632 & -0- shares (63,200) -0-
------------ -----------
$ 10,963,407 $10,703,381
Retained Earnings 3,556,059 3,744,244
Total Stockholders' Equity $ 14,519,466 $14,447,625
------------ -----------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 38,100,611 $28,781,027
-------------------- ============ ===========
</TABLE>
The accompanying notes are an integral part of the Condensed Financial
Statement.
Page #4 of 21 Pages
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
CONDENSED STATEMENT OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------------------
1996 1995
------------ ------------
<S> <C> <C>
INCOME
- ------
Net Sales $ 32,934,675 $ 31,443,728
Sundry Income 142,708 147,977
------------ ------------
TOTAL INCOME $ 33,077,383 $ 31,591,705
- ------------ ------------ ------------
EXPENSE
- -------
Net Material Costs $ 29,577,383 $ 28,355,064
Payroll Costs 1,465,273 1,526,952
Other Operating Costs 1,477,733 1,403,070
Interest Expense 55,361 59,056
------------ ------------
TOTAL EXPENSE $ 32,575,750 $ 31,344,142
- ------------- ------------ ------------
INCOME BEFORE PROVISIONS
FOR ESTIMATED FEDERAL
INCOME TAX (Note 5) $ 501,633 $ 247,563
- ------------------------
PROVISIONS FOR ESTIMATED
FEDERAL INCOME TAX
(Note 5) (174,789) (88,142)
- ------------------------ ------------ ------------
NET INCOME $ 326,844 $ 159,421
- ----------
LESS ACCRUED DIVIDENDS ON
PREFERRED STOCK $ (128,757) $ (100,289)
- ------------------------- ------------ ------------
NET INCOME APPLICABLE TO
COMMON STOCKHOLDERS $ 198,087 $ 59,132
- ------------------------ ============ ============
EARNINGS PER SHARE OF
COMMON STOCK, CLASS A &
CLASS B (Note 1) $ 3.57 $ 1.13
- ----------------------- ============ ============
</TABLE>
The accompanying notes are an integral part of the Condensed Financial
Statements.
Page #5 of 21 Pages
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------------
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITY
- ----------------------------------
Net Income $ 326,844 $ 159,421
----------- -----------
Adjustments to Reconcile Net
Income to Net Cash Provided by
Operating Activities:
Depreciation $ 212,262 $ 210,373
Amortization -0- -0-
Increase in Deferred
Income Tax 8,837 1,405
Changes in Assets and Liabilities
Increase in Accounts Receivable $(5,260,527) $(5,079,819)
Increase in Notes Receivable (4,993) (25,767)
Increase in Inventory (2,779,228) (329,365)
Decrease in Other Assets 144,037 118,379
Increase in N/P-Vendor 5,169 25,931
Increase in Accounts Payable 9,476,236 6,297,788
Decrease in Other Liabilities (217,298) (143,805)
Increase in Federal Income
Taxes Payable 58,874 86,531
----------- -----------
TOTAL ADJUSTMENTS $ 1,643,369 $ 1,161,651
----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 1,970,213 $ 1,321,072
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Capital Expenditures $ (58,381) $ (950,755)
Disposition of Fixed Assets -0- -0-
----------- -----------
NET CASH USED FOR
INVESTING ACTIVITIES $ (58,381) $ (950,755)
----------- -----------
</TABLE>
The accompanying notes are an integral part of the Condensed Financial
Statements.
Page #6 of 21 Pages
<PAGE>
STATEMENT OF CASH FLOWS (UNAUDITED) Cont.
- -----------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
--------------------------------
1996 1995
---------- ----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Decrease in Mortgage Payable $ (77,051) $ (77,052)
Increase in Notes Payable-Stock 9,000 61,400
Increase (Decrease) in Notes Payable-Capital Lease (16,024) 87,934
Increase in Subscription Receivable (18,566) (26,395)
Proceeds From Issuance of Stock 341,792 345,792
Purchase of Treasury Stock (63,200) (123,800)
Dividends Paid (515,029) (401,155)
---------- ----------
NET CASH USED FOR FINANCING
ACTIVITIES $ (339,078) $ (133,276)
---------- ----------
NET INCREASE
IN CASH & CASH EQUIVALENTS $1,572,754 $ 237,041
CASH & CASH EQUIVALENTS AT BEGINNING
OF PERIOD 1,266,915 688,935
---------- ----------
CASH & CASH EQUIVALENTS AT END OF
PERIOD $2,839,669 $ 925,976
========== ==========
ADDITIONAL RELATED DISCLOSURES TO THE
STATEMENT OF CASH FLOWS
-------------------------------------
Interest Expense Paid $ 55,361 $ 59,057
Income Taxes Paid -0- -0-
</TABLE>
The accompanying notes are an integral part of the Condensed Financial
Statements.
Page #7 of 21 Pages
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
- ----------------------------
(1) General Information:
-------------------
The condensed consolidated financial statements included herein have
been prepared by Handy Hardware Wholesale, Inc. (the "Company"). The
financial statements reflect all adjustments, which were all of a
recurring nature, which are, in the opinion of management, necessary
for a fair presentation. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to
the rules and regulations of the Securities and Exchange Commission
(SEC). The Company believes that the disclosures made are adequate to
make the information presented not misleading. The condensed
consolidated financial statements should be read in conjunction with
the audited financial statements and the notes thereto included in the
latest Form 10-K Annual Report.
(2) Earnings Per Share:
------------------
Earnings per common share (Class A and Class B Combined) are based on
the weighted average number of shares outstanding in each period after
giving effect to the stock issued, stock subscribed, accrued dividends
on preferred stock, and treasury stock as set forth by Accounting
Principles Board Opinion No. 15 as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
1996 1995
------------------------------------
<S> <C> <C>
Calculation of Earnings Per Share
of Common Stock
- ---------------------------------
Net Income $ 326,844 $ 159,421
Less: Accrued Dividends
On Preferred Stock (128,757) (100,289)
--------- ---------
$ 198,087 $ 59,132
Weighted Average
Shares of Common Stock
(Class A & Class B)
outstanding 55,514 52,377
Income Per Share
of Common Stock $ 3.57 $ 1.13
========= =========
</TABLE>
Page #8 of 21 Pages
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(3) Revenue Recognition:
-------------------
The accompanying financial statements have been prepared in conformity
with generally accepted accounting principles. Accordingly, revenues
and expenses are accounted for using the accrual basis of accounting.
Under this method of accounting, revenues are recognized when a
receivable exists and expenses are recognized when the liability is
incurred.
(4) Accounting for Dividends on Preferred Stock:
-------------------------------------------
The Company pays dividends on Preferred Stock during the first quarter
of each fiscal year. Only Shareholders of Preferred Stock on the record
date for the payment of the dividend are entitled to receive dividends.
Dividends are prorated for the portion of the twelve-month period
ending January 31, during which the Preferred Stock was held.
Because the Company is unable to anticipate the amount of the Preferred
Stock dividends, it does not accrue a liability for the payment of
those dividends on its balance sheet. To more properly reflect income,
however, on the Condensed Statement of Income included herein, the
Company has accrued an estimated portion of the dividends to be paid in
the first quarter of 1997 based on the dividends paid in the first
quarter of 1996.
When dividends on Preferred Stock are actually paid, there is a
reduction of retained earnings. Retained earnings on the Condensed
Balance Sheet for the three months ended March 31, 1996, contained
herein, therefore, are net of dividends actually paid during the first
quarter of 1996 in the amount of $515,029.
NOTE 2 - PROPERTY, PLANT & EQUIPMENT
- ------------------------------------
Property, Plant & Equipment Consists of:
- ---------------------------------------
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------ -----------
<S> <C> <C>
Land $ 2,027,797 $ 2,027,797
Building & Improvements 7,450,391 7,450,391
Furniture, Computer, Warehouse 3,018,483 2,960,102
Transportation Equipment 473,706 473,706
------------ -----------
$ 12,970,377 $12,911,996
Less: Accumulated Depreciation (3,336,908) (3,124,646)
------------ -----------
$ 9,633,469 $ 9,787,350
============ ===========
</TABLE>
Page #9 of 21 Pages
<PAGE>
NOTE 3 - NOTES RECEIVABLE
- -------------------------
<TABLE>
<CAPTION>
CURRENT PORTION NONCURRENT PORTION
--------------------------- ---------------------------
MARCH 31, DEC. 31, MARCH 31, DEC. 31,
DEBTOR COLLATERAL 1996 1995 1996 1995
- ----------------------------- ---------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
Alamo Heights Hdwe. - $ -0- $ -0- $ 5,893 $ 5,893
Breed & Co., Inc. - -0- -0- 3,090 3,089
Broadway Hdwe. - -0- -0- 21,333 21,333
Commerce Hdwe. - -0- -0- 3,053 -0-
Decatur Hdwe. - -0- -0- 2,340 2,340
Doug Ashy Bldg. Mt'l. - -0- -0- 1,912 1,912
Grandbury Farm
& Ranch - -0- -0- 1,219 1,219
Handyman Hdwe. - -0- -0- 13,165 13,165
Henckel's Hwy. 6
Ace Home Ctr. - -0- -0- 5,446 5,446
Island Hdwe. - -0- -0- 2,807 2,807
J & B Auto Supply & Hdwe. - -0- -0- 2,171 2,171
Jackson Hdwe.
& Supply Co. - -0- -0- 2,297 2,297
Karl Obst Feed Sales - -0- -0- 825 -0-
Katy Mason Hdwe. - -0- -0- 3,427 3,427
Kilgore Hdwe. - -0- -0- 3,556 3,556
King Feed & Hdwe. - -0- -0- 4,255 4,255
Liberty Auto Parts & Hdwe. - -0- -0- 2,880 2,880
Marchand's Inc. - -0- -0- 2,830 2,830
Mardis Auto Parts & Hdwe. - -0- -0- 2,619 2,619
Max Squires - -0- -0- 1,294 1,471
Mike's Hdwe. - -0- -0- 1,511 1,511
Overall Lumber - -0- -0- 3,362 3,362
Pitts Hdwe. - -0- -0- 1,772 1,772
RBC Hdwe. - -0- -0- 2,549 2,549
Rusty's Plumbing & Hdwe. - -0- -0- 1,291 -0-
Sawyer Brothers Hdwe. - -0- -0- 4,840 4,840
Sealy Ace Hdwe. - -0- -0- 4,920 4,920
Stifter Lbr. - -0- -0- 3,087 3,087
Trahan Hdwe. - -0- -0- 1,372 1,372
Wagner Hdwe. - -0- -0- 3,360 3,360
----- ----- --------- --------
$ -0- $ -0- $ 114,476 $109,483
===== ===== ========= ========
</TABLE>
The notes reflected in the above table (except the note due from Max Squires)
reflect amounts due to the Company from its Member-Dealers under a deferred
payment agreement with the Company. Under this agreement, the Company supplies
Member-Dealers with an initial order of General Electric lamps. The payment for
this order is deferred so long as the Member-Dealer continues to purchase
General Electric lamps through the Company. If a Member-Dealer ceases to
purchase lamp inventory or sells or closes his business, then General Electric
bills the Company for the Member-Dealer's initial order and the note becomes
immediately due and payable in full to the Company.
Page #10 of 21 Pages
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 - NOTES PAYABLE - STOCK
- ------------------------------
<TABLE>
<CAPTION>
CURRENT PORTION NONCURRENT PORTION
---------------------- -----------------------
INTEREST MATURITY MARCH 31, DEC. 31, MARCH 31, DEC. 31,
PAYEE RATE COLLATERAL DATE 1996 1995 1996 1995
- ---------------------- -------- ---------- -------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Alamo Lbr. 6.25% None 2000 $ -0- $-0- $ 3,000 $ 3,000
Arlington Hdwe. 6.25% None 2000 -0- -0- 56,400 56,400
Beere Hdwe. 6.00% None 1997 -0- -0- 1,100 1,100
Cleveland Hdwe. 6.00% None 1997 -0- -0- 21,760 21,760
Community Hdwe. 6.25% None 2000 -0- -0- 6,400 6,400
Company Store 6.25% None 2000 -0- -0- 9,600 9,600
D.A.D.S. Whlse. Inc. 6.25% None 2000 -0- -0- 5,000 5,000
Dan's Home Ctr. 6.00% None 1999 -0- -0- 8,600 8,600
Eagle Lake Farm &
Home Supply 6.25% None 2001 -0- -0- 9,000 -0-
Gulfway Lbr. 6.25% None 2000 -0- -0- 12,800 12,800
Hawkins Hdwe. 6.00% None 1999 -0- -0- 2,150 2,150
Hometown Hdwe. 6.00% None 1997 -0- -0- 1,000 1,000
J & B Builders 6.00% None 1998 -0- -0- 7,000 7,000
Ken's Hdwe. 6.00% None 1999 -0- -0- 5,000 5,000
Patterson Hdwe. 6.00% None 1999 -0- -0- 12,000 12,000
Rockdale Bldg. Ctr. 6.25% None 2000 -0- -0- 3,000 3,000
Space City Hdwe. 6.00% None 1999 -0- -0- 9,000 9,000
Swan Lake Hdwe. 6.25% None 2000 -0- -0- 5,000 5,000
Yeager Hdwe. 6.00% None 1999 -0- -0- 2,000 2,000
Yeager Hdwe. 7.00% None 2000 -0- -0- 6,000 6,000
------ ----- --------- ---------
$ -0- $ -0- $ 185,810 $ 176,810
====== ===== ========= =========
</TABLE>
The five-year, interest bearing notes listed in the above table reflect amounts
due from the Company to former Member-Dealers for the Company's repurchase of
shares of Company stock owned by these former Member-Dealers. According to the
terms of the note, only interest is paid on the outstanding balance of the note
during the first four years. In the fifth year, both interest and principal are
paid.
Principal payments due over the next five years are as follows:
1996 $ -0-
1997 $ 23,860
1998 $ 7,000
1999 $ 38,750
2000 $ 111,200
---------
$ 176,810
Page #11 of 21 Pages
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - INCOME TAXES
- ---------------------
The Company adopted FASB Statement No. 109, "Accounting for Income Taxes,"
effective January 1, 1993, on a prospective basis. The major categories of
deferred income tax provisions are as follows:
<TABLE>
<CAPTION>
QUARTER ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Excess of tax over book depreciation $ 1,321,796 $ 1,313,050
Inventory - Ending inventory adjustment
for tax recognition of Sec. 263A
Uniform Capitalization Costs (189,204) (208,561)
Deferred Compensation (181,867) (179,754)
----------- -----------
Total $ 950,725 $ 924,735
Statutory Tax Rate 34% 34%
----------- -----------
Cumulative Deferred Income Tax Payable $ 323,247 $ 314,410
=========== ===========
Classified as:
Current Liability $ 25,553 $ -0-
Noncurrent Liability 297,694 314,410
----------- -----------
$ 323,247 $ 314,410
=========== ===========
</TABLE>
Reconciliation of income taxes on the difference between tax and financial
accounting is as follows:
<TABLE>
<CAPTION>
QUARTER ENDED QUARTER ENDED
MARCH 31, MARCH 31,
1996 1995
------------- -------------
<S> <C> <C>
Principal Components of Income Tax Expense
Federal:
Current
-------
Income tax paid $ -0- $ -0-
Carry-over of prepayment from
prior year 107,078 93,583
Refund received for overpayment
from prior year -0- (93,377)
----------- ----------
$ 107,078 $ 206
Federal Income Tax Payable 58,874 86,531
Carry-over to subsequent year -0- -0-
Income tax for tax reporting
at statutory rate of 34% $ 165,952 $ 86,737
Deferred
--------
Adjustments for financial reporting:
Depreciation 2,974 4,522
263A Uniform Capitalization Costs 6,581 (2,399)
Other (718) (718)
----------- ----------
Provision for federal income tax $ 174,789 $ 88,142
=========== ==========
</TABLE>
Page #12 of 21 Pages
<PAGE>
NOTE 6 - STOCKHOLDERS'S EQUITY
Both classes of Common Stock and Preferred Stock are reported on the
Condensed Balance Sheet including shares that have been issued, but have been
repurchased by the Company as treasury stock. The number of shares of each class
for each of the periods presented that have been issued, the number that have
been repurchased as treasury stock and the number that remain outstanding are as
follows:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
--------- ------------
<S> <C> <C>
Common Stock, Class A
Issued 8,060 7,960
Held as Treasury (90) -0-
Outstanding 7,970 7,960
Common Stock, Class B
Issued 44,639 43,149
Held as Treasury (227) -0-
Outstanding 44,412 43,149
Preferred Stock
Issued 47,164.5 45,634.5
Held as Treasury (315) -0-
-------- --------
Outstanding 46,849.5 45,634.5
======== ========
</TABLE>
Page #13 of 21 Pages
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
During the first quarter of 1996 total sales were 4.74 percent higher than
during the same quarter of 1995, as compared to a 9.96 percent increase in 1995
over 1994 and a 9.58 percent increase in 1994 over 1993. Sales in the retail
hardware industry in the first quarter of 1996 mirrored sales in the retail
environment in general. Since the beginning of the fourth quarter 1995, retail
sales have been suppressed by high consumer debt. Additional factors that have
suppressed sales include an unusually late spring, lower than normal rainfall
and continued pressure from retail warehouses in some selling territories,
particularly in the Houston territory. These factors have resulted in only
moderate sales growth or a slight decline in most territories other than
Louisiana and the eastern Gulf Coast region. In addition, sales in the Rio
Grande Valley area have been negatively effected by the monetary and political
unrest in Mexico. Sales in the Southern Louisiana territory and the Baton Rouge,
New Orleans, Gulf Coast East territory, however, showed significant increases of
17 percent and 22 percent, respectively, during the first three months of 1996
over the first three months of 1995. These increases have resulted primarily
from increased marketing efforts by Company employees in those territories. The
Company believes that an increase in promotional sales activities and inventory
available for orders, plus low-cost dealer buying programs were also key
elements of the Company's sales growth in these territories.
Sales: The following table compares the Company's sales during the first
quarter of 1996 to sales during the same period of 1995, by sales territory:
<TABLE>
<CAPTION>
First Quarter First Quarter
1996 1995
----------------------------------------- -------------------------------
% Increase
in Sales
From First % of % of
Quarter Total Total
Sales Territory Sales 1995 Sales Sales Sales
- ----------------------------- ----------- --------- ------ ----------- ------
<S> <C> <C> <C> <C> <C>
Houston Area $ 8,157,056 -3% 24.8% $ 8,402,990 26.8%
Victoria, San Antonio,
Corpus Christi & Rio Grande
Valley Area* 6,013,870 -1% 18.3% 6,080,911 19.4%
North Texas, Dallas
& Fort Worth Area 5,460,625 4% 16.6% 5,233,204 16.7%
Austin, Brenham & Central
Texas Area 3,524,868 9% 10.7% 3,228,902 10.3%
Southern Louisiana Area 3,884,976 17% 11.8% 3,333,669 10.6%
Baton Rouge, New Orleans,
Mississippi, Alabama &
Florida Area 3,123,622 22% 9.5% 2,559,910 8.2%
Oklahoma & Arkansas Area 2,749,285 9% 8.3% 2,519,853 8.0%
----------- --- ------ ----------- ------
Totals: $32,914,302 (1) 100.0% $31,359,439 (1) 100.0%
=========== ====== =========== ======
</TABLE>
- -------------------
* Includes sales to Mexico dealers
(1) Total does not include sales to dealers who were no longer Member-
Dealers at the end of the period.
Page #14 of 21 Pages
<PAGE>
Net Material Costs and Rebates: Net material costs for the first quarter
in 1996 were $29,577,383, compared to $28,355,064 during the first quarter in
1995. The 1996 increase of 4.31 percent in net material costs was slightly lower
than the 4.74 percent increase in sales for the same period. Net material costs
as a percentage of sales were 89.8 percent in 1996 as compared to 90.2 percent
in 1995. The slight decline in net material costs as a percentage of sales was a
result of a 5.9 percent increase in purchase discounts and a 20.2 percent
increase in factory rebates, both of which were taken by the Company as a credit
against material costs in the first quarter of 1996. As a result of increased
purchases of inventory, purchase discount income during the first quarter of
1996 was $551,832 as compared to $520,846 during the same 1995 period, an
increase of $30,986. Additionally, rebate income during the same two periods was
$1,000,344 and $831,995, respectively, which is an increase of $168,349.
Payroll Costs: Payroll costs during the quarter ended March 31, 1996,
decreased to $1,465,273 from $1,526,952 for the same period in 1995. This
decrease of 4 percent resulted primarily from a 49 percent decrease in overtime
payroll. This decrease was due to the completion of the warehouse expansion
project in the third quarter of 1995, which allowed employees to perform their
work onsite. (In 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, with the increase in payroll costs a result of the lack
of proximity of the additional space to the offices of the Company.) Payroll
costs for first quarter 1996 constituted 4.4 percent of both total expenses and
net sales, compared to 4.9 percent for the first quarter of 1995. The relative
stability in payroll costs has been a result of a continuing effort to increase
employee productivity as sales and expenses have grown.
Other Operating Costs: During the first quarter in 1996, other operating
costs increased $74,663 (5.3%) compared to the same quarter of 1995, but
remained the same as a percentage of sales. First quarter 1996 operating
expenses were $1,477,733 (4.5% of sales) as compared to $1,403,070 of these
expenses for the same period of 1995 (4.5% of sales). The increase in other
operating costs is the result of increased accruals for employee benefits and
property taxes. In the fourth quarter of 1995, the Harris County Appraisal
District ("HCAD") notified the Company that as a result of a clerical error
regarding the size of the Company's warehouse, the Company's real property was
undervalued. Following a hearing with the HCAD, the value of the Company's real
property was increased from approximately $1.1 million to approximately $3.5
million for the years 1991 through 1995. In April, 1996, the Company filed a
lawsuit against HCAD and the Harris County Appraisal Review Board contesting
their authority to increase the appraised value of the property. The lawsuit is
based, in part, on the fact that the Company's property was correctly described
on the appraisal roll for each of years 1991 through 1995. Pending the outcome
of the lawsuit, however, the Company is accruing property tax monthly based on
the $3.5 million appraisal.
Net Income and Earnings Per Share: As a result of an increase in gross
margin, pretax net income more than doubled, from $247,563 for the first quarter
of 1995 to $501,633 in the same 1996 period. Net income also more than doubled.
Page #15 of 21 Pages
<PAGE>
The increase in the Company's earnings per share in the first quarter of 1996 as
compared to the same period of 1995 was due to an increase in gross margin in
1996 offset by an increase in the 1996 dividend paid on preferred stock.
Dividends accrued in the first quarter of 1996 represented a smaller percentage
of 1996 net income than dividends accrued in the first quarter of 1995 and
resulted in a twofold increase in earnings per share.
Quarter-to-quarter variations in the Company's earnings per share reflect (in
addition to the factors discussed above) the Company's pricing of its
merchandise in order to deliver the lowest cost buying program for Member-
Dealers (who own all of the stock of the Company), although this often results
in lower net income for the Company. Because these trends benefit the
individual stockholders of the Company who purchase its merchandise, there
is no demand from shareholders that the Company focus greater attention upon
earnings per share.
Seasonality: The Company's quarterly net income traditionally has been
subject to 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
have been lower, as hardware sales are slowest during the winter months
preceding ordering for significant sales for the spring. However, net income has
varied substantially from year to year in the fourth quarter as a result of
corrections to inventory made at year-end.
FINANCIAL CONDITION AND LIQUIDITY
- ---------------------------------
During the period ending March 31, 1996, Handy Hardware further improved its
financial condition and its ability to generate adequate amounts of cash while
continuing to make significant investments in inventory, warehouse and data
processing equipment, delivery equipment, and software to better meet the needs
of its Member-Dealers. The completion of the Company's warehouse expansion
project in the third quarter of 1995 has resulted in the Company's ability to
increase the depth of inventory to better meet Member-Dealer needs since
approximately 97,000 square feet of additional warehouse space is now available.
Cash Flow: There was a significant net increase of $1,572,754 in the
Company's cash and cash equivalents in the first quarter of 1996 compared to the
same period in 1995. The improvement in the Company's cash position is reflected
in the fact that the Company's operating activities provided net cash of
$1,970,213 in the first quarter of 1996 as compared to $1,321,072 in the same
period of 1995. The increase in cash flow from operating activities in the first
three months of 1996 as compared to the first three months of 1995 was
principally attributable to: (i) a $9,476,236 increase in accounts payable in
1996 as compared to a $6,297,788 increase in accounts payable for the same
period in 1995 and (ii) an increase in net income to $326,844 in the first
quarter of 1996 from $159,421 for the same 1995 quarter, offset by (i)
Page #16 of 21 Pages
<PAGE>
an increase of $2,779,228 in inventory in 1996 as compared to an increase in
inventory of $329,365 for the same 1995 period and (ii) an increase in 1996 in
accounts receivable of $5,260,527 as compared to an increase of $5,079,819 in
1995.
In the first quarter of 1996, the Company expended a net amount of $58,381 to
purchase fixed assets, which is significantly less than the $950,755 ($628,587
of which was expended on the warehouse expansion project) expended in the same
period of 1995. In the first three months of 1996, $339,078 of cash was used for
financing activities, which was 154.4 percent higher than the $133,276 used in
the first three months of 1995. The cash used for financing activities in the
1996 period was increased by (i) a larger preferred stock dividend payment in
the first quarter of 1996 ($515,029) than in the same 1995 period ($401,155)
because of an increase in the dividend rate from 10 percent to 12 percent, (ii)
a decrease in notes payable for capital leases ($16,024) as compared to an
increase of $87,934 in the same 1995 period, (iii) a smaller increase in notes
payable from stock repurchases ($9,000 vs $61,400), which increases were offset
by a decrease in the repurchase of Company stock ($63,200 vs $123,800).
Working Capital: The Company's continuing ability to generate cash to meet
its needs for funding its activities is illustrated by three key liquidity
measures shown in the following table:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31 MARCH 31
1996 1995 1995
---------- ---------- ----------
<S> <C> <C> <C>
Working Capital $7,971,504 $7,771,472 $8,440,907
Current Ratio 1.4 to 1 1.7 to 1 1.5 to 1
(Current Assets to
Current Liabilities)
Long-term Debt as Percentage
of Capitalization 23.5 24.2 27.9
</TABLE>
Working capital has been principally generated from the sale of stock and
capital provided from operations. The major component of the Company's long-term
debt is bank indebtedness resulting from the Company's financing of the original
construction of its facility in 1986.
Texas Commerce Bank, Houston, Texas, currently extends to the Company a
$2,000,000 unsecured revolving line of credit. The Company is not currently
utilizing this line, and has entered into negotiations with Texas Commerce Bank
to replace this line of credit with one for up to $7,500,000 with more favorable
terms. The new line of credit, if consummated, will be used for the purpose of
working capital and other financing needs of the Company, which may include, for
instance, reducing the other outstanding debt of the Company with Texas Commerce
Bank.
During the remainder of 1996 Handy Hardware expects to further expand its
existing customer base in Oklahoma and Arkansas. The Company will finance this
expansion with receipts from the sale of stock to new and current Member-Dealers
and with anticipated increased revenues from sales to Member-Dealers in Oklahoma
and Arkansas. The Company foresees that this expansion will have a beneficial
effect on its ability to generate cash to meet its funding needs.
Page #17 of 21 Pages
<PAGE>
In the first quarter of 1996, the Company maintained a 93.6 percent service
level (the measure of the Company's ability to meet Member-Dealers' orders out
of current stock) as compared to a service level of 90.2 percent for the same
period of 1995. This increase in service level is the result of an adequate
amount of storage for inventory available since the warehouse expansion project
was completed. Inventory turnover was 6.2 times during the first quarter of 1996
and 5.9 times for the first quarter of 1995. This high rate of inventory
turnover, which is higher than the national industry average, is primarily the
result of tight control of the product mix, increase in depth of inventory,
continued high service level, and increased warehouse sales.
The Company has an outstanding mortgage note payable to Texas Commerce Bank with
a principal balance as of March 31, 1996, of approximately $2,746,255. The note
is a result of a refinancing that occurred in 1993 and has a five-year fixed
rate of interest of 7.2 percent. Although the note is payable in full on March
31, 1998, the Company anticipates refinancing the principal balance on or
before that date.
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 through the first quarter of 1996
without payment of any commitment fee while providing a source of liquidity
for other financing needs that may arise.
Capital Expenditures: In the three month period ending March 31, 1996, and
March 31, 1995, the Company's investment in capital items was $58,381 and
$950,755 (net of dispositions), respectively. Approximately 96.3 percent
($56,209) of the amount expended in the first three months of 1996 was used to
upgrade warehouse equipment. By comparison, 86.1 percent ($628,587) of the
amount expended in the first three months of 1995 was used to finance the costs
of the 96,715 square foot addition to the Company's existing warehouse facility.
Significant outlays of cash or cash equivalents foreseen by the Company for the
remainder of the year include the payment of accounts payable generated by the
spring trade show and increased inventory purchases. Additional cash outlays
anticipated for the remainder of the year include: the purchase of office
equipment ($15,000), delivery vehicles and warehouse equipment ($45,000),
Company automobiles ($60,000), data processing equipment ($65,000), warehouse
and material handling improvements ($150,000), and the purchase of an upgraded
catalog system ($250,000).
The Company's cash position of $2,839,669 at March 31, 1996, is anticipated to
be sufficient to fund all planned capital expenditures.
Page #18 of 21 Pages
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits & Reports on Form 8-K - None
Page #19 of 21 Pages
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HANDY HARDWARE WHOLESALE, INC.
/s/ James D. Tipton
------------------------------------
JAMES D. TIPTON
President
(Chief Executive Officer)
/s/ Tina S. Kirbie
------------------------------------
TINA S. KIRBIE
Senior Vice President, Finance
Secretary and Treasurer
(Chief Financial and Accounting
Officer)
Date: May 15, 1996
Page #20 of 21 Pages
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
filer's operations as of March 31, 1996, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-30-1996
<CASH> 2,839,669
<SECURITIES> 0
<RECEIVABLES> 11,825,300<F1>
<ALLOWANCES> 0
<INVENTORY> 13,234,298
<CURRENT-ASSETS> 28,138,282
<PP&E> 9,633,469
<DEPRECIATION> 3,336,908
<TOTAL-ASSETS> 38,100,611
<CURRENT-LIABILITIES> 20,166,778
<BONDS> 2,438,051<F2>
0
5,063,068<F3>
<COMMON> 5,616,318<F4>
<OTHER-SE> 3,840,080<F5>
<TOTAL-LIABILITY-AND-EQUITY> 38,100,611
<SALES> 32,934,675
<TOTAL-REVENUES> 33,077,383
<CGS> 29,577,383
<TOTAL-COSTS> 29,577,383
<OTHER-EXPENSES> 1,477,733<F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,361
<INCOME-PRETAX> 501,633
<INCOME-TAX> 174,789
<INCOME-CONTINUING> 326,844
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 326,844
<EPS-PRIMARY> 3.57
<EPS-DILUTED> 3.57
<FN>
<F1>Accounts Receivable and Current Notes Receivable.
<F2>Long-term mortgage payable.
<F3>Preferred Stock and Subscription for Preferred Stock
less Subscription Receivables for Preferred Stock.
<F4>Class A Common Stock and Class B Common Stock less
Treasury Stock plus Subscription for Class B Common Stock
less Subscription Receivables for Class B Common Stock.
<F5>Paid in Surplus and Retained Earnings.
<F6>Other Operating Costs. (Does not include payroll
costs of 1,465,273.)
</FN>
</TABLE>
