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, 1997 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 $8,740,000 of February 28, 1998.
The number of shares outstanding of each of the Registrant's classes of
common stock as of February 28, 1998, was 8,830 shares of Class A Common Stock,
$100 par value, and 53,473 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 13, 1998
<PAGE>
TABLE OF CONTENTS
PART I
Item 1. Business...........................................................1
Item 2. Properties.........................................................7
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 7a. Quantitative and Qualitative Disclosures About Market Risk........12
Item 8. Financial Statements and Supplementary Data.......................12
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.......................................33
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...33
* 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.
FORWARD-LOOKING STATEMENTS
The statements contained in this Annual Report on Form 10-K ("Annual
Report") that are not historical facts are forward-looking statements as that
term is defined in Section 21E of the Securities and Exchange Act of 1934, as
amended, and therefore involve a number of risks and uncertainties. Such
forward-looking statements may be or may concern, among other things, sales
levels, the general condition of retail markets, levels of costs and margins,
capital expenditures, liquidity, and competition. Such forward-looking
statements generally are accompanied by words such as "plan," "budget,"
"estimate," "expect," "predict," "anticipate," "projected," "should," "believe,"
or other words that convey the uncertainty of future events or outcomes. Such
forward-looking information is based upon management's current plans,
expectations, estimates and assumptions and is subject to a number of risks and
uncertainties that could significantly affect current plans, anticipated
actions, the timing of such actions and the Company's financial condition and
results of operations. As a consequence, actual results may differ materially
from expectations, estimates or assumptions expressed in or implied by any
forward-looking statements made by or on behalf of the Company, including those
regarding the Company's financial results, levels of revenues, capital
expenditures, and capital resource activities. Among the factors that could
cause actual results to differ materially are: fluctuations of the prices
received for or demand for the Company's goods, requirements for capital;
general economic conditions or specific conditions in the retail hardware
business; weather conditions; competition; as well as the risks and
uncertainties discussed in this Annual Report, including, without limitation,
the portions referenced above and the uncertainties set forth from time to time
in the Company's other public reports, filings, and public statements.
<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
977 active Member-Dealers and sales of more than $128,100,000 in 1997. 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, industrial and automotive stores. 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 38 trailers owned by the Company and 42 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,
1997, Handy Hardware's Member-Dealers were located in Texas, Louisiana,
Mississippi, Alabama, Florida, Oklahoma, Arkansas, Mexico, Central America, and
Saudi Arabia. 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, 1997, the Company sold its products to
a total of 977 Member-Dealers, of which 625 were located in Texas, 176 in
Louisiana, 74 in Oklahoma, 52 in Arkansas, 15 in Alabama, 16 in Mississippi, 11
in Florida, 6 in Mexico, 1 in Central America, and 1 in Saudi Arabia. No
individual Member-Dealer accounted for more than 1.5% of the sales of the
Company during fiscal 1997. 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 33% of Company sales during 1997 and 32% in both
1996 and 1995, while warehouse shipments accounted for approximately 67% of
total net sales in 1997 and 68% of total net sales in both 1996 and 1995.
The Company's total sales include 14 different major classes of
merchandise. In 1997, 1996 and 1995, the Company's total sales and total
warehouse sales were divided among classes of merchandise listed below.
<PAGE>
<TABLE>
<CAPTION>
Total Sales(1) Warehouse Sales
Class of Merchandise 1997 1996 1995 1997 1996 1995
- -------------------- ---- ---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Plumbing Supplies 17% 18% 16% 20% 20% 19%
General Hardware 13 14 14 13 13 14
Paint Sundries 12 12 13 14 14 15
Electrical Supplies 12 12 12 14 14 14
Hand Tools 10 10 10 9 9 9
Lawn and Garden Products 8 8 9 10 10 10
Paint 4 4 4 4 4 4
Building Materials 6 5 6 2 2 2
Power Tools 5 5 4 2 3 2
Housewares & Related Supplies 3 3 2 3 3 3
Fasteners 2 2 2 1 1 1
Automotive After Market 2 2 2 2 2 2
Outdoor Products 2 1 1 2 1 1
Miscellaneous 4 4 5 4 4 4
-- --- --- --- --- ----
100% 100% 100% 100% 100% 100%
=== === === === === ===
- -----------
<FN>
(1) These amounts include direct sales and warehouse sales. Total sales in 1997
generated from sales of store supplies, catalogs, office supplies, and
special purchases from vendors of goods not part of the Company's regular
inventory represented less than .52% of total sales.
</FN>
</TABLE>
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>
In 1997 the Company maintained a 95.1 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 94.6 percent and 92.8 percent in 1996 and 1995,
respectively. No policy of inventory shrinkage has been implemented or is
planned.
Dealer Services and Advertising
The Company employs a staff of eight full time account representatives who
visit Member-Dealers to advise them on display techniques, record keeping,
inventory control, promotional sales, advertising programs and other dealer-
related 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 cooperative funds, allowing the dealer to deduct
such cooperative claims from the cost of the circular program. The Company
estimates that approximately $855,480 was expended in 1997 for dealer
advertising activities. These advertising costs were completely offset by
contributory payments by participating Member-Dealers and cooperative
advertising allowances by participating manufacturers.
Suppliers
The Company purchases merchandise from various vendors, depending upon
product specifications and Member-Dealer requirements. Approximately 1,400
vendors supplied merchandise to the Company during 1997. 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 1997. 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 Group, Inc., of Englewood, Colorado, an
independent hardware merchandising group. PRO Group, Inc. is a merchandising
organization with 38 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 Group, Inc. in order to take
advantage of this buying power, which gives PRO Group, Inc. and its members
access to potentially lower prices, bigger discounts, extended terms and other
purchasing advantages. The Company may participate in other benefits available
to PRO Group, Inc. members at its option, but is under no obligation to do so
and currently does not participate in such benefits.
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, 1997, the Company had 259 full-time employees, of which
44 were in management positions and 215 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
0calculates 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"). The Purchase Funds are
recognized by the Company as Class B Common, subscribed, and Preferred Stock,
subscribed. Until such time as the Purchase Funds are applied to purchase Class
B Common and Preferred Stock for a Member- Dealer, such Purchase Funds are used
by the Company for working capital and general corporate purposes. The period of
time for which Purchase Funds are held by the Company varies, depending on the
amount of Warehouse Purchases by the Member-Dealer. See "--Collection of
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(1) Desired Stock Ownership(2)
- --------------------------------- -----------------------------------------------------
<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
<PAGE>
$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
- -----------
<FN>
(1) Including all Class A Common Stock, Class B Common Stock and Preferred
Stock owned by the Member-Dealer.
(2) The minimum Desired StockOwnership is an aggregate of all classes of
capital stock of $10,000. In each case "Total Purchases" are measured as of
the end of the immediately preceding fiscal year.
</FN>
</TABLE>
Example.
In March 1998, the Company calculates that as of December 31, 1997, a
Member-Dealer's Actual Stock Ownership was $32,000 and his Total
Purchases during 1997 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,
1998 to March 31, 1999 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 $2,000 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 1997 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 1997, approximately
16% of the shares eligible for repurchase from Overinvested Member-Dealers were
submitted for repurchase, for which the Company expended $34,800. 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, 1997, the total amount was
$205,400 (excluding shares held by the Texas and Louisiana State Treasury
Unclaimed Property Divisions). 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
<PAGE>
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 seven years of the repurchase program, the Company has repurchased a total
of $324,600 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 Member- Dealer as an entirely separate entity for purposes of
determining required stock purchases. The Company will calculate 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 earnings 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 earnings has varied substantially
from year to year in the fourth quarter as a result of corrections to inventory
made at year-end.
In 1997 and 1996, traditional seasonality trends deviated from the norm.
Purchase discount and factory rebate credits increased $332,512 and $199,335
respectively in these periods from the corresponding periods in the previous
years. This timing difference in the receipt of such discounts and rebates
resulted in higher than usual first quarter net earnings in these years.
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.
Pursuant to a remedial action plan submitted to the Texas Natural Resource
Conservation Commission ("TNRCC"), (formerly the Texas Water Commission) in
1992, the Company proposed vacuum extraction of contaminants, enhanced
bioremediation and on-site remediation of soils previously generated during
subsurface drilling. At December 31, 1997, the Company had expended $375,989 on
these measures, of which the TNRCC had reimbursed $316,699 to the Company
pursuant to a reimbursement application submitted by the Company for all
potentially allowable expenses. Although the Company followed up with the TNRCC
to try and collect the remainder of the submission that had not been reviewed by
the TNRCC in the amount of $14,418, no further reimbursement is anticipated.
Terra-Mar, Inc., Environmental Engineers in charge of the clean-up project are
preparing a proposal to install an automated product recovery system acceptable
to the TNRCC to extract product from the site. Recovery time is expected to be
12 months.
<PAGE>
Total expense for 1998 is expected to be approximately $35,000. If the automated
recovery system is successful, site closure may be obtained by late 1999.
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 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 obligations
associated with a bank line of credit. 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.
Item 3. Legal Proceedings
In August 1997 a Handy Hardware truck struck two passenger vehicles in a
multi-vehicle accident in Harris County, Texas. Two lawsuits have been filed in
the District Court of Harris County, Texas, arising out of the accident, one a
wrongful death action by the parents of two women killed in the accident, and
one a case for damages related to disabling injuries to a third person in the
same accident. It is anticipated that these cases will be mediated, possibly as
early during the spring of 1998, and that any liability will be covered by the
Company's insurance.
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
1997.
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, 1998, was as
follows:
Description Number of Holders
- ------------------------------------------------- -----------------
Class A Common Stock (Voting), $100 par value 883
Class B Common Stock (Non-Voting), $100 par value 726
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.
<PAGE>
Item 6. Selected Financial Data
The following table provides selected financial information for the five
years ended December 31, 1997, 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.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating Income Data:
Total Earnings $128,966,073 $121,416,635 $115,802,817 $109,282,083 $100,270,031
Net Revenues from Sales 128,112,754 120,698,632 114,885,634 108,766,633 99,739,046
Total Expenses 126,796,355 119,559,309 114,234,183 108,394,298 99,503,930
Net Earnings from
Operations after Tax 1,408,203 1,206,222 1,016,484 571,710 503,260
Preferred Stock Dividends
Paid 620,812 515,029 401,155 438,654 501,547
Net Earnings Per Share of
Class A and Class B
Common Stock $ 12.71 $ 12.13 $ 11.55 $ 2.71 $ 0.04
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Current Assets $ 24,821,508 $ 22,168,721 $ 18,607,029 $ 21,219,403 $ 18,552,958
Property (Net of
Accumulated
Depreciation) 9,408,768 9,466,577 9,787,350 7,334,774 7,233,306
Other Assets 477,010 440,405 386,648 281,151 239,996
------------ ------------ ------------ ------------ ------------
Total Assets $ 34,707,286 $ 32,075,703 $ 28,781,027 $ 28,835,328 $ 26,026,260
============ ============ ============ ============ ============
Current Liabilities $ 15,705,578 $ 14,131,330 $ 10,835,557 $ 12,090,327 $ 10,038,999
Long Term Liabilities 1,015,855 1,833,508 3,497,845 3,580,174 3,774,409
Stockholders' Equity 17,985,853 16,110,865 14,447,625 13,164,827 12,212,852
------------ ------------ ------------ ------------ ------------
Total Liabilities and
Stockholders' Equity $ 34,707,286 $ 32,075,703 $ 28,781,027 $ 28,835,328 $ 26,026,260
============ ============ ============ ============ ============
</TABLE>
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
The Company maintained its steady growth in 1997 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 1997 increased 6.1%
($7,414,122) over 1996 net revenues from sales, compared to a 5.1% growth rate
($5,812,998) of net revenues from sales in 1996 over 1995.
Sales in the retail hardware industry in the first five months of 1997 were
suppressed by an unusually wet spring and pressure from retail warehouses, which
eroded the market share of independent hardware stores. However, beginning in
June 1997 as consumer confidence and the economy strengthened, sales began a
steady increase. Sales for June 1997 through December 1997 increased 9.6 percent
over the same period in 1996. These factors have resulted in moderate sales
growth in most territories for the year as a whole.
Other factors have resulted in flat sales in the Baton Rouge, New Orleans
and Gulf Coast East territory and strong increases in the Austin, Brenham and
Central Texas area and in the Arkansas territory. Sales in the Baton Rouge, New
Orleans and Gulf Coast East territory grew by only 1% as compared to 1996 as a
result of a personnel change in that territory. The increase of 8 percent in
sales for 1997 in the Austin, Brenham and Central Texas area has resulted from
increased marketing efforts by the Company's employees in that territory. The 28
percent increase in sales during the same period in Arkansas area was the result
of two significant factors (i) the increased marketing efforts by the Company's
employees in that area and (ii) the positive result of a territory
reorganization which transferred the sales of ten Member-Dealers with $1,122,941
in sales from the North Texas, Dallas and Fort Worth area to this territory. The
North Texas, Dallas and Fort Worth area sales decreased two percent due to the
same territory reorganization. Without the territory reorganization, sales in
the Arkansas area would have decreased approximately 5 percent and sales in the
North Texas, Dallas and Fort Worth area would have increased approximately 5
percent.
The following table summarizes the Company's sales during the period 1995
to 1997 by sales territory:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------------------- -------- ------
%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 $ 32,646,260 5% 26.2% 26.0% 26.7%
Victoria, San Antonio, Corpus Christi &
Rio Grande Valley Area* 22,450,181 4% 18.0% 18.0% 18.4%
North Texas, Dallas & Fort Worth Area 17,181,818 (2%) 13.8% 14.6% 16.5%
Austin, Brenham & Central Texas Area 14,912,899 8% 12.0% 11.5% 10.1%
Southern Louisiana Area 14,476,488 5% 11.6% 11.6% 11.2%
Baton Rouge, New Orleans, Mississippi,
Alabama & Florida Area 10,977,111 1% 8.8% 9.1% 9.2%
Arkansas Area 4,343,359 28% 3.5% 3.2% -0-
Oklahoma Area 7,518,189 (2%) 6.0% 6.0% 7.9%
------------- ------ ---- ----
Totals: $ 124.506,305(1) 100.0% 100.0% 100.0%
============= ====== ====== ======
- ----------
<FN>
* Includes sales to Mexican, Central American and Saudi Arabian dealers.
(1) Total does not include sales to dealers who were no longer Member-Dealers
at December 31, 1997.
</FN>
</TABLE>
Net material costs during 1997 were $113,213,122 compared to
$106,732,258 in 1996 and $101,115,786 in 1995. The increase of 6.1 percent in
net material costs for 1997 is in line with the 6.1 percent increase in sales.
By way
<PAGE>
of comparison, net material costs increased 5.6 percent in 1996 over 1995 while
sales increased 5.1 percent in 1996 over 1995. Net material costs as a
percentage of sales remained relatively stable in 1997, 1996 and 1995, at 88.4%,
88.4% and 88.0%, respectively. The stability in net material costs and in net
material costs as a percentage of sales is due to the continuing efforts of the
Company to maintain a reasonable level of markup, in order to allow
Member-Dealers to have a competitive edge in the markets they serve and due to
the relative stability of factory rebate income and purchase discount income as
a percentage of net material costs. Factory rebate income in 1997 was $4,594,730
(4.1% of material costs) as compared to $4,035,298 (3.8% of material costs) and
$4,143,225 (4.1% of material costs) for 1996 and 1995, respectively. Purchase
discount income during the same three periods was $2,895,498 (2.6% of material
costs), $2,663,891 (2.5% of material costs) and $2,447,862 (2.4% of material
costs), respectively. As a result, gross profit (net sales less net material
costs) in 1997 was $14,899,632, which represents a $933,258 (6.7%) increase over
1996 gross profit of $13,966,374.
Payroll costs during 1997 increased $397,107 (6.2%) over 1996 levels, while
in 1996 payroll costs increased $179,960 (2.9%) over 1995 levels. The increase
in 1997 payroll costs over 1996 resulted primarily from regular salary increases
for employees, a slight increase in the number of employees and a 17.0% increase
in overtime payroll. Payroll costs constituted 5.3%, 5.3% and 5.4% of both total
expenses and net sales for 1997, 1996 and 1995, respectively. The stability in
payroll costs as a percentage of total expenses has been a result of a
continuing effort to maintain employee productivity.
In 1997, other operating costs increased $488,754 (7.8%) over 1996 levels,
while in 1996 these costs decreased $407,047 (6.1%) over 1995 levels. Other
operating costs include a wide variety of expenses related to the Company. The
largest components of other operating costs in 1997 were $1,749,675 of employee
expenses (representing an increase of $40,993 or 2.4% over 1996 levels),
$1,815,837 of delivery expenses (representing an increase of $221,276 or 13.9%
over 1996 levels) and $897,878 of warehouse expenses (representing an increase
of $32,161 or 3.7% over 1996 levels). Over 45% of the increase in other
operating costs resulted from an increase in delivery expenses, while over
another 35% of the increase is the result of property tax increases. In 1997, in
response to Member-Dealers' request to make it easier to unload their
merchandise from our trucks, the Company started palletizing orders. This
resulted in a decline in the optimizing of the cube space of each trailer and in
turn increased the number of trucks that needed to be leased. In 1997, rental
truck expense increased to $1,093,636 from $952,899 in 1996, an increase of
$140,737. Further, due to a shortage in qualified truck drivers and the increase
in the number of routes, contract labor for truck drivers increased from $87,610
in 1996 to $157,585, an increase of $69,975. In addition, property tax expense
increased from $325,358 in 1996 to $497,730 in 1997. In 1996, actual property
taxes were $495,381, however, due to prior period reassessments by the Harris
County Appraisal District, a $170,023 credit was realized.
Net Earnings
Net income increased 16.7% to $1,408,203 from $1,206,222 in 1996. This
increase was primarily due to the $933,258 increase in gross profit from
operations in 1997 over gross profit from operations in 1996 and the $135,316
increase in sundry income and the $129,679 decline in interest expense,
principally offset by the $397,907 increase in payroll costs and the $488,754
increase in other operating costs. The principal component of the decrease in
interest expense was the result of utilizing a line of credit to replace the
Company's mortgage, thus allowing the Company to apply excess cash to reduce the
balance owing on the line of credit on a daily basis, consequently reducing
interest. In 1997 and 1996, the earnings per share of common stock were $12.71
and $12.13, respectively. The increase in earnings per share in 1997 over 1996
is due to the moderate increase in net earnings of $201,981, offset by a
moderate increase of $105,783 in dividends paid to preferred stockholders in
1997 as compared to 1996.
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 earnings 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 1997, Handy Hardware maintained its financial condition and its ability
to generate adequate amounts of cash while continuing to make significant
investments in inventory, warehouse and computer equipment, and software and
delivery equipment to better meet the needs of its Member-Dealers.
<PAGE>
The Company's operating activities provided net cash of $2,171,548 in 1997,
$1,113,103 in 1996, and $3,754,401 in 1995. 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.
During 1997 there was a net decrease of $100,485 in the Company's cash and
cash equivalents as compared to a decrease of $42,588 in 1996. Cash flow from
operating activities from the beginning to the end of 1997 was $2,171,548, as
compared to $1,113,103 in 1996. The variance between cash flow from operating
activities in 1997 as compared to 1996 consisted principally of the following
differences in cash inflows: (i) a $2,617,806 increase in accounts payable in
1997 as compared to a $2,412,614 increase in accounts payable in 1996; (ii) an
increase in net earnings to $1,408,203 in 1997 from $1,206,222 in 1996; (iii) an
increase in accounts receivable of $825,868 as compared to an increase in
accounts receivable of $2,641,404 in 1996; and (iv) a decrease of $70,665 in
prepaid expense in 1997, as compared to an increase of $23,489 in 1996. These
cash inflows in 1997 were offset by (i) a $1,974,820 increase in inventory in
1997 as compared to a $966,057 increase in 1996, (ii) a decrease of $22,488 in
current income tax payable as compared to an increase of $67,741 during 1996 and
(iii) a $3,813 decrease in accrued expenses in 1997 as compared to a $139,660
increase in accrued expenses in 1996.
The significant increase in inventory in 1997 was the result of the
addition of approximately 2,266 stockkeeping units (i.e. products), which were
added in response to Member-Dealer demand for more breadth of inventory. The
Company ended the 1997 year with 32,250 stockkeeping units. In addition in 1997,
the increase in accounts receivable were mainly attributable to two factors: (i)
the strong economy gave Member-Dealers sufficient cash flow to pay down their
account and (ii) the 1998 spring trade show was held later than the 1997 spring
market. Thirty days prior to these trade shows manufacturers have an opportunity
to market pre-show special pricing programs. With the 1997 spring trade show
held in mid January many of these promotions were recognized in December 1996.
By comparison, with the 1998 spring trade show not held until February 1998,
these pre-show special programs will not be recognized until January 1998.
Further accrued expenses were affected by the timing of the spring trade show
with corresponding expense accruals in anticipation of the show being recognized
in December 1996 as compared to January 1998.
Net cash used for financing activities was $1,386,331 in 1997, as compared
to net cash used for financing activities of $543,481 in 1996. The use of cash
in 1997 consisted principally of (i) retirement of $1,837,424 from the proceeds
of a line of credit extended to the Company and (ii) a larger preferred stock
dividend payment in the first quarter of 1997 ($620,812 as compared to $515,029
in 1996) because of an increase in the dividend rate to 13 percent from 12
percent, which increases were offset by (i) a decrease in the repurchase of
Company stock ($298,800 compared to $320,675 in 1996) and (ii) an increase of
cash from the issuance of stock ($1,384,333 compared to $1,303,921 in 1996).
In August 1996, Texas Commerce Bank ("the Bank") extended to the company an
unsecured $7.5 million revolving line of credit with an April 30, 1998, maturity
date (anticipated to be renewed in the Spring of 1998) at an interest rate of
prime minus one and one-half percent (1.5%) or the London Interbank Offering
rate ("LIBOR") plus one and one-quarter percent (1.25%). The new line of credit
was used to retire the company's mortgage ($2,449,898) with the Bank and
subsequent to August 1996 was used from time to time for working capital and
other financing needs of the Company. At December 1996 the balance was
$1,837,424. During the course of 1997 the outstanding balance of the line was
paid down using cash flow, ultimately retiring the outstanding balance of the
line in December 1997.
<PAGE>
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:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Working Capital $9,115,930 $8,037,391 $7,771,472
Current Ratio 1.58 to 1 1.57 to 1 1.72 to 1
Debt as Percentage of Capitalization 5.6% 11.4% 24.2%
</TABLE>
In 1998, 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.
Capital Resources
The Company invested $896,362 in plant and equipment in 1997. Over the past
five years the Company's investments in plant and equipment have amounted to
more than $6.5 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 1997, approximately 31.2% ($279,710) of the $896,362 amount invested
in plant and equipment was used for building improvements, 26.4% was invested in
upgrading the Company's computer system and used to purchase order entry
terminals. The remainder was used to purchase warehouse equipment ($178,692),
office fixtures and equipment ($112,670) and in upgrading the Company's auto
fleet ($88,648).
The Company has budgeted approximately $880,000 for 1998 capital
expenditures. Of this amount, approximately $400,000 has been allocated to
upgrading the Company's computer equipment. Approximately $350,000 has been
allocated to upgrading the Company's warehouse equipment. The Company has also
allocated approximately $60,000 for improving the automobile fleet,
approximately $50,000 for building improvements, and approximately $25,000 to
improve the Company's office facility and equipment. 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 4 to the
Financial Statements included in Item 8.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
REPORT OF EXAMINATION
DECEMBER 31, 1997
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders
Handy Hardware Wholesale, Inc.
Houston, Texas
We have audited the accompanying balance sheets of Handy Hardware Wholesale,
Inc., as of December 31, 1997 and 1996, and the related statements of earnings,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. 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, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles.
/s/ Clyde D. Thomas
--------------------------------------
CLYDE D. THOMAS & COMPANY, P. C.
Certified Public Accountants
February 24, 1998
Pasadena, Texas
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1997 1996
----------- ------------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS
Cash $ 1,123,842 $ 1,224,327
Accounts receivable, net of subscriptions receivable in the
amount of $43,451 for 1997 and $45,515 for 1996 10,032,045 9,206,177
Inventory (Note 1) 13,395,947 11,421,127
Note receivable (Note 2) 5,394 -
Prepaid expenses 264,280 317,090
------------ ------------
$ 24,821,508 $ 22,168,721
PROPERTY, PLANT AND EQUIPMENT
At cost, less accumulated depreciation of
$4,148,927 (1997) and) $3,380,058 (1996) (Note 1) $ 9,408,768 $ 9,466,577
------------ -----------
OTHER ASSETS
Notes receivable (Note 2) $ 120,513 $ 105,844
Deferred compensation funded 284,901 245,110
Prepaid expenses 71,596 89,451
------------ -----------
$ 477,010 $ 440,405
------------ ------------
TOTAL ASSETS $ 34,707,286 $ 32,075,703
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable - Line of Credit (Note 9) $ - $ 985,883
Notes payable - Stock - Current portion (Note 3) 7,000 23,860
Notes payable - Capital Leases (Note 5) 52,488 67,002
Accounts payable - Trade 14,550,157 11,932,351
Accrued expenses payable 1,050,680 1,054,493
Current income tax payable 45,253 67,741
------------- -------------
$15,705,578 $ 14,131,330
NONCURRENT LIABILITIES
Note payable - Line of credit (Note 9) $ - $ 851,541
Notes payable - Stock - Noncurrent portion (Note 3) 223,750 209,950
Notes payable - Capital Leases (Note 5) 125,172 123,290
Notes payable - Vendor consignment merchandise 117,196 105,844
Deferred compensation payable 284,901 245,110
Deferred income taxes payable (Notes 1 and 4) 264,836 297,773
----------- ------------
$ 1,015,855 $ 1,833,508
----------- -----------
Total Liabilities $16,721,433 $15,964,838
----------- -----------
</TABLE>
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
<S> <C> <C>
1997 1996
STOCKHOLDERS' EQUITY ---------- -------------
Common stock, Class A, authorized 20,000 shares, $100
par value per share, issued 8,680 and 8,220 shares $ 868,000 $ 822,000
Common stock, Class B, authorized 100,000 shares, $100
par value per share, issued 52,513 and 41,733 share 5,251,300 4,773,300
Common stock, Class B subscribed, 4,361.35 and
4,036.51 shares 436,135 403,651
Less subscriptions receivable 21,725) (22,757)
Preferred stock, 7% cumulative, authorized 100,000 shares $100 par value
per share, issued 55,001.75
and 50,213.75 shares 5,500,175 5,021,375
Preferred stock subscribed, 4,036.52 and 3,915.35 shares 436,135 403,652
Less subscriptions receivable (21,726) (22,758)
Paid in surplus 314,731 296,965
----------- ----------
$12,763,025 $11,675,428
Retained earnings 5,222,828 4,435,437
----------- -----------
Total Stockholders' Equity $17,985,853 $16,110,865
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $34,707,286 $32,075,703
------------------------------------------ =========== ===========
</TABLE>
See accompanying notes.
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1997 1996 1995
------------ ----------- ------------
<S> <C> <C> <C>
EARNINGS
Net sales $128,112,754 $120,698,632 $114,885,634
Sundry income 853,319 718,003 917,183
------------ ------------ ------------
TOTAL EARNINGS $128,966,073 $121,416,635 $115,802,817
-------------- ------------ ------------ ------------
EXPENSES
Net material costs $113,213,122 $106,732,258 $101,115,786
Payroll costs 6,787,426 6,390,319 6,210,359
Other operating costs 6,753,003 6,264,249 6,671,296
Interest expense 42,804 172,483 236,742
------------ ------------ ------------
TOTAL EXPENSES $126,796,355 $119,559,309 $114,234,183
------------ ------------ ------------
NET EARNINGS BEFORE PROVISION FOR FEDERAL INCOME TAX $ 2,169,718 $ 1,857,326 $ 1,568,634
PROVISION FOR FEDERAL INCOME TAX (Note 4) 761,515 651,104 (552,150)
------------ ------------ ------------
NET EARNINGS $ 1,408,203 $ 1,206,222 $ 1,016,484
LESS DIVIDENDS ON PREFERRED STOCK 620,812 515,029 401,155
------------ ------------ ------------
NET EARNINGS APPLICABLE TO COMMON STOCKHOLDERS $ 787,391 $ 691,193 $ 615,329
TO COMMON STOCKHOLDERS
NET EARNINGS PER SHARE OF COMMON STOCK
CLASS A & CLASS B (Note 1) $ 12.71 $ 12.13 $ $11.55
------------ ------------ ------------
</TABLE>
See accompanying notes.
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------
1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
COMMON STOCK, CLASS A $100 PAR VALUE
Balance at January 1, $ 822,000 $ 796,000 $ 779,000
Stock issued 80,000 65,000 75,000
Stock canceled (34,000) (39,000) (58,000)
------------ ------------ -----------
Balance at December 31, $ 868,000 $ 822,000 $ 796,000
------------ ------------ -----------
COMMON STOCK, CLASS B, $100 PAR VALUE
Balance at January 1, $ 4,773,300 $ 4,314,900 $ 4,020,500
Stock issued 601,700 591,700 585,100
Stock canceled (123,700) (133,300) (290,700)
Balance at December 31, $ 5,251,300 $ 4,773,300 $ 4,314,900
------------ ------------ -----------
COMMON STOCK, CLASS B, SUBSCRIBED
Balance at January 1, $ 403,651 $ 391,535 $ 389,897
Stock subscribed 627,484 596,416 580,138
Transferred to stock (595,000) (584,300) (578,500)
------------- ------------ -----------
Balance at December 31, $ 436,135 $ 403,651 $ 391,535
Less subscription receivable (21,725) (22,757) (17,158)
------------ ------------ ------------
Total $ 414,410 $ 380,894 $ 374,377
------------ ------------ ------------
PREFERRED STOCK, 7% CUMULATIVE $100 PAR VALUE
Balance at January 1, $ 5,021,375 $ 4,563,450 $ 4,256,900
Stock issued 619,900 606,300 614,000
Stock canceled (141,100) (148,375) (307,450)
------------ ------------ -----------
Balance at December 31, $ 5,500,175 $ 5,021,375 $ 4,563,450
------------ ------------ ------------
PREFERRED STOCK, 7% CUMULATIVE SUBSCRIBED
Balance at January 1, $ 403,652 $ 391,535 $ 389,897
Stock subscribed 627,483 596,417 580,138
Transferred to stock (595,000) (584,300) (578,500)
------------ ------------ -----------
Balance at December 31, $ 436,135 $ 403,652 $ 391,535
Less subscription receivable (21,726) (22,758) (17,158)
------------ ------------ ------------
Total $ 414,409 $ 380,894 $ 374,377
PAID IN CAPITAL SURPLUS
Balance at January 1, $ 296,965 $ 280,277 $ 239,162
Additions 17,766 16,688 41,115
------------ ----------- ------------
Balance at December 31, $ 314,731 $ 296,965 $ 280,277
------------ ------------ ------------
TREASURY STOCK, AT COST
COMMON STOCK, CLASS A, AT COST
Balance at January 1, $ - $ - $ -
Stock reacquired (34,000) (39,000) (143,000)
Stock canceled 34,000 39,000 58,000
Stock issued - - 85,000
------------ ------------ ------------
Balance at December 31, $ - $ - $ -
------------ ------------ ------------
</TABLE>
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
PAGE 2
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1996 1995
----------- ------------ ------------
<S> <C> <C> <C>
COMMON STOCK, CLASS B, AT COST
Balance at January 1, $ - $ - $ -
Stock reacquired (123,700) (133,300) (377,700)
Stock canceled 123,700 133,300 290,700
Stock issued - - 87,000
------------ ------------ ------------
Balance at December 31, $ - $ - $ -
------------ ------------ ------------
PREFERRED STOCK, 7% CUMULATIVE AT COST
Balance at January 1, $ - $ - $ -
Stock reacquired (141,100) (148,375) (402,350)
Stock canceled 141,100 148,375 307,450
Stock issued - - 94,900
------------ ------------ ------------
Balance at December 31, $ - $ - $ -
------------ ------------ ------------
TOTAL TREASURY STOCK $ - $ - $ -
------------ ------------ ------------
RETAINED EARNINGS
Balance at January 1 $ 4,435,437 $ 3,744,244 $ 3,128,915
Add: Net earnings year ending December 31 1,408,203 1,206,222 1,016,484
Deduct: Cash dividends on Preferred Stock (Note 1) 620,812 515,029 401,155
------------ ------------ ------------
Balance at December 31, $ 5,222,828 $ 4,435,437 $ 3,744,244
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY $ 17,985,853 $ 16,110,865 $ 14,447,625
============ ============ ============
</TABLE>
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 1,408,203 $ 1,206,222 $ 1,016,484
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 947,004 933,983 907,565
Deferred income tax (32,937) (16,637) 21,523
(Gain) Loss on sale of property, plant
and equipment (3,493) (1,000) (126,931)
Changes in assets and liabilities:
(Increase) Decrease in Accounts Receivable (825,868) (2,641,404) 776,897
(Increase) Decrease in Notes Receivable (20,063) 3,639 (33,617)
(Increase) Decrease in Deferred
Compensation Investment (39,791) (30,726) (51,622)
(Increase) Decrease in Inventory (1,974,820) (966,057) 2,525,192
(Increase) Decrease in Prepaid Expense 70,665 (23,489) (131,993)
Increase (Decrease) in Note Payable for Vendor
Consignment Merchandise 11,352 (2,169) 34,293
Increase (Decrease) in Accounts Payable 2,617,806 2,412,614 (1,718,857)
Increase (Decrease) in Accrued Expenses Payable (3,813) 139,660 483,845
Increase (Decrease) in Current Income Tax Payable (22,488) 67,741 -
Increase (Decrease) in Deferred
Compensation Payable 39,791 30,726 51,622
------------ ------------ ------------
Net cash provided by (used for)
operating activities $ 2,171,548 $ 1,113,103 $ 3,754,401
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures $ (896,362) $ (617,062) $ (3,419,243)
Sale of property, plant and equipment 10,660 4,852 186,033
------------ ------------ ------------
Net cash provided by (used for ) investing activities $ (885,702) $ (612,210) $ (3,233,210)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (Decrease) in Mortgage Payable $ - $ (2,823,306) $ (308,205)
Increase (Decrease) in Notes Payable - Line of Credit (1,837,424) 1,837,424 -
Increase (Decrease) in Notes Payable - Lease (12,632) (71,617) 15,640
Increase (Decrease) in Notes Payable - Stock (3,060) 57,000 83,040
(Increase) Decrease in Subscription Receivable 2,064 (11,199) 5,128
Proceeds from issuance of stock 1,384,333 1,303,921 1,585,391
Purchase of Treasury Stock (298,800) (320,675) (923,050)
Dividends paid (620,812) (515,029) (401,155)
------------ ------------ ------------
Net Cash provided by (used for) financing activities $ (1,386,331) $ (543,481) $ 56,789
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS $ (100,485) (42,588) $ 577,980
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,224,327 1,266,915 688,935
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,123,842 $ 1,224,327 $ 1,266,915
============ ============ ============
ADDITIONAL RELATED DISCLOSURES TO THE STATEMENT OF CASH FLOWS
Interest expense paid $ 42,804 $ 172,483 $ 236,742
Income tax payments 724,440 492,922 637,705
See accompanying notes.
</TABLE>
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - ACCOUNTING POLICIES
Nature of Business
Handy Hardware Wholesale, Inc., (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. The
Company is owned entirely by its Member-Dealers and Former
Member-Dealers.
Handy Hardware Wholesale, Inc., sells to its Member-Dealers products
primarily for retail hardware, lumber and home center stores. In
addition, the Company offers advertising and other services to
Member-Dealers.
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. The
company maintains a checking account which, at times, exceeds the FDIC
coverage normally extended to such accounts. At December 31, 1997, the
balance of this account amounted to $ 1,107,342.
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/MACRS
Transportation equipment 3-5 Straight Line
</TABLE>
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Land $ 2,027,797 $ 2,027,797
Buildings & improvements 7,752,216 7,479,697
Furniture, computer, warehouse equipment 3,341,692 2,875,288
Transportation equipment 435,990 463,853
------------ ------------
$13,557,695 $ 12,846,635
Less: Accumulated depreciation 4,148,927 3,380,058
----------- ------------
$ 9,408,768 $ 9,466,577
============ ============
</TABLE>
Depreciation expense for the year ended December 31, 1997, amounted to
$947,004 compared with $933,983 for the year ended December 31, 1996.
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 2
DECEMBER 31, 1997
NOTE 1 - ACCOUNTING POLICIES (CONTINUED)
Changes in Property, Plant, and Equipment for the year ended December 31, 1997,
are shown in the following schedule:
<TABLE>
<CAPTION>
BALANCE ADDITIONS OTHER BALANCE
1-1-97 AT COST RETIREMENTS CHANGES 12-31-97
----------- --------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C>
Land $ 2,027,797 $ - $ - $ - $ 2,027,797
Buildings and improvements 7,479,697 279,710 7,191 - 7,752,216
Furniture, Computers and
warehouse equipment 2,875,288 528,004 61,600 - 3,341,692
Transportation equipment 463,853 88,648 116,511 - 435,990
--------- -------- ---------- ------ -----------
$12,846,635 $ 896,362 $ 185,302 $ - $13,557,695
=========== ========= ========== ====== ===========
</TABLE>
Changes in Property, Plant, and Equipment for the year ended December 31, 1996,
are shown in the following schedule:
<TABLE>
<CAPTION>
BALANCE ADDITIONS OTHER BALANCE
1-1-96 AT COST RETIREMENTS CHANGES 12-31-96
----------- --------- ----------- ------- -----------
<S> <C> <C> <C> <C> <C>
Land $ 2,027,797 $ - $ - $ - $ 2,027,797
Buildings and improvements 7,450,391 29,305 - - 7,479,697
Furniture, Computers and
warehouse equipment 2,960,102 483,291 568,105 - 2,875,288
Transportation equipment 473,706 104,465 114,318 - 463,853
----------- ----------- ------- ------ -----------
$12,911,996 $ 617,061 $ 682,423 $ - $12,846,635
=========== =========== ========= ====== ===========
</TABLE>
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 - - 7,479,697
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>
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 3
DECEMBER 31, 1997
NOTE 1 - ACCOUNTING POLICIES (CONTINUED)
Changes in Accumulated Depreciation for Property, Plant, and Equipment for the
year ended December 31, 1997, are shown in the following schedule:
<TABLE>
<CAPTION>
BALANCE ADDITIONS OTHER BALANCE
1-1-97 AT COST RETIREMENTS CHANGES 12-31-97
----------- ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C>
Land $ - $ - $ - $ - $ -
Buildings and improvements 1,602,694 241,315 7,191 - 1,836,818
Furniture, Computers and
warehouse equipment 1,497,560 605,214 61,600 - 2,041,174
Transportation equipment 279,804 100,475 109,344 - 270,935
--------- --------- ---------- ------ -----------
$ 3,380,058 $ 947,004 $ 178,135 $ - $ 4,148,927
=========== ========== ========== ====== ===========
</TABLE>
Changes in Accumulated Depreciation for Property, Plant, and Equipment for the
year ended December 31, 1996, are shown in the following schedule:
<TABLE>
<CAPTION>
BALANCE ADDITIONS OTHER BALANCE
1-1-96 AT COST RETIREMENTS CHANGES 12-31-96
----------- ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C>
Land $ - $ - $ - $ - $ -
Buildings and improvements 1,364,782 237,912 - - 1,602,694
Furniture, Computers and
warehouse equipment 1,464,406 601,259 568,105 - 1,497,560
Transportation equipment 295,458 94,812 110,466 - 279,804
--------- --------- ---------- ------ -----------
$ 3,124,646 $ 933,983 $ 678,571 $ - $ 3,380,058
=========== ========== ========== ====== ===========
</TABLE>
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>
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 4
DECEMBER 31, 1997
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 and Modified Accelerated Cost Recovery System
are 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>
12-31-95 30,849 (27,981) 1,313,051
12-31-96 23,003 (4,582) 1,331,472
12-31-97 (34,032) 639 1,298,079
</TABLE>
2. Deferred compensation is accrued as follows:
Balance, December 31, 1996 $ 245,110
Addition for year ended December 31, 1997 39,791
------------
Balance, December 31, 1997 $ 284,901
=============
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,
----------------------------------
1997 1996
----------- -----------
<S> <C> <C>
Book inventory $13,395,947 $11,421,127
Adjustment for 263A Uniform
Capitalization costs 288,788 249,239
------------ ------------
Inventory for tax return $13,684,735 $11,670,366
=========== ===========
</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, 1997
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,
--------------------------------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Net Earnings $ 1,408,203 $1,206,222 $1,016,484
Less: Dividends on Preferred Stock 620,812 515,029 401,155
--------- ---------- ----------
$ 787,391 $ 691,193 $ 615,329
Weighted average shares of common stock
(Class A and Class B outstanding) 61,394 56,984 53,253
Net Earnings (Loss) per share of
common stock 12.71 12.13 11.55
</TABLE>
Preferred Stock Dividends
Cash dividends paid on the Company's outstanding preferred stock (par value
$100 per share) were 13% for 1997, 12% for 1996, and 10% for 1995,
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
----------- ------------------ -----
1997 55,929 $11.10
1996 51,277 10.04
1995 47,787 8.39
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 and receivables are recognized when
merchandise is shipped or services are rendered, and expenses are
recognized when the liability is incurred.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures.
Accordingly, actual results could differ from those estimates.
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 6
DECEMBER 31, 1997
NOTE 2 - NOTES RECEIVABLE
The notes receivable 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.
Notes receivable are classified as follows:
December 31,
--------------------------
1997 1996
---------- -----------
Current $ 5,394 $ -
Nonncurrent 120,513 105,844
---------- -----------
Total $ 25,907 $ 105,844
NOTE 3 - NOTES PAYABLE - STOCK
The five year, interest bearing notes payable - stock 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. Interest rates range from 6.0% to 7.0%.
Notes payable - stock are classified as follows:
December 31,
--------------------------
1997 1996
---------- -----------
Current $ 7,000 $ 23,860
Nonncurrent 223,750 209,950
---------- -----------
Total $ 230,750 $ 233,810
Principal payments applicable to the next five years are as follows:
1998 $ 7,000
1999 26,750
2000 107,200
2001 57,000
2002 32,800
--------
$230,750
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 7
DECEMBER 31, 1997
NOTE 4- 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 major categories of deferred income tax provisions are as follows
(based on FASB 109):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Excess of tax over book depreciation $1,298,079 $1,331,472 $1,313,050
Allowance for bad debts (7,195) (7,195) -
Inventory - ending inventory adjustment
for tax recognition of Sec. 263A
Uniform Capitalization Costs (288,788) (249,239) (208,561)
Deferred compensation (223,165) (199,235) (179,754)
---------- ---------- ----------
Total $ 778,931 $ 875,803 $ 924,735
Statutory tax rate 34% 34% 34%
---------- ---------- ----------
Cumulative deferred income tax payable $ 264,836 $ 297,773 $ 314,410
========== ========== ==========
Classified as:
Current liability $ - $ - $ -
Noncurrent liability 264,836 297,773 314,410
---------- ---------- ----------
$ 264,836 $ 297,773 $ 314,410
========== ========== ==========
</TABLE>
Reconciliation of income taxes on difference between tax and financial
accounting:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1997 1996 1995
-------- ---------- ----------
<S> <C> <C> <C>
Principal components of income tax expense Federal:
Current
Income tax paid $ 724,440 $ 492,922 $ 637,705
Carryover of prepayment from prior year 24,686 107,078 -
Current income tax payable 45,253 67,741 -
-------- ---------- ----------
$ 794,379 $ 667,741 $ 637,705
Carryover to subsequent year - - 107,078
---------- ---------- ----------
Income tax for tax reporting at statutory rate of 34% $ 794,379 $ 667,741 $ 530,627
Deferred
Adjustments for financial reporting:
Depreciation (11,354) 6,263 975
263A Uniform capitalization costs (13,447) (13,831) 26,325
Other (8,063) (9,069) (5,777)
--------- ---------- ---------
Provision for federal income tax (U.S.) $ 761,515 $ 651,104 $ 552,150
========= ========== =========
</TABLE>
The Company is not exempt from income tax except for municipal bond
interest earned in an amount of $1,830
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 8
DECEMBER 31, 1997
NOTE 5 - LEASES
Operating Leases
The Company leases certain trucks and warehouse equipment under long-term
operating lease agreements. The leases expire in 1999, 2000, 2001, and
2002.
The following is a schedule of future minimum lease payments for operating
leases as of December 31, 1997 and 1996 for the subsequent five years:
DECEMBER 31,
------------------------------
1997 1996
----------- ----------
1997 $ - $ 584,407
1998 543,843 546,220
1999 543,843 535,845
2000 537,394 508,881
2001 359,056 352,349
2002 102,192 -
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:
DECEMBER 31,
------------------------------
1997 1996
----------- ----------
Class of Property
Furniture, computers,
and warehouse equipment $ 473,164 $ 413,506
Transportation equipment 39,971 39,971
---------- ----------
$ 513,135 $ 453,477
Less: Accumulated depreciation 369,089 263,078
---------- ----------
$ 144,046 $ 190,399
========== ==========
The following is a schedule by year of future minimum lease payments for
capital leases.
DECEMBER 31,
------------------------------
1997 1996
----------- ----------
1997 $ $ 67,002
1998 52,488 39,377
1999 58,308 38,985
2000 41,383 31,506
2001 7,889 13,422
2002 17,592 -
---------- ----------
$ 177,660 $ 190,292
========== ==========
The lease payments are reflected in the Balance Sheet as current and
noncurrent obligations under capital leases of $52,488 and $125,172,
respectively. The estimated interest rates range from 4% to 9%.
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 9
DECEMBER 31, 1997
NOTE 5 - LEASES CONTINUED
Rental Expenses
Rental expenses for the preceding three years are:
1997 $1,041,985
1996 909,912
1995 854,603
NOTE 6 - 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 7 - RETIREMENT PLAN - HANDY HARDWARE WHOLESALE, INC. 401(K) PROFIT SHARING
PLAN
During 1997, the Company transferred the former Profit Sharing and Savings
Plan to a 401(K)Profit Sharing 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. The Plan includes a 401(K) arrangement to
allow employees to contribute a portion of their compensation to the Plan
known as elective deferrals. Each year, the Company will make matching
contributions in the amount determined by the Board of Directors at its
discretion. The Board of Directors may choose not to make matching
contributions to the Plan for a particular year. Employees are 100% vested
at all times for elective deferrals in the Plan. The Plan permits the
Company to contribute a discretionary amount for a plan year designated as
qualified nonelective contributions. Company qualified nonelective
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:
1997 $ 599,475
1996 561,318
1995 515,847
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 10
DECEMBER 31, 1997
NOTE 8 - STOCKHOLDERS' EQUITY
Terms of Capital Stock
The holders of Class A Common Stock are entitled to one vote for each share
held of record on each matter submitted to a vote of shareholders. Holders
of Class A Common Stock must be engaged in the retail sale of goods and
merchandise, and may not be issued or retain more than ten shares of Class
A Common Stock at any time. The holders of Class B Common Stock are not
entitled to vote on matters submitted to a vote of shareholders except as
specifically provided by Texas law.
The holders of Preferred Stock are entitled to cumulative dividends of not
less than 7 percent per year nor more than 20 percent per year of the par
value ($100.00 per share) of the shares of Preferred Stock, as fixed by the
Board of Directors. The Preferred Stock has a liquidation value of $100 per
share. The holders of Preferred Stock are not entitled to vote on matters
submitted to a vote of shareholders except as specifically provided by
Texas law. The shares of Preferred Stock are not convertible, but are
subject to redemption (at the option of the Company) by vote of the
Company's Board of Directors, in exchange for $100 per share and all
accrued unpaid dividends.
Capitalization
To become a Handy Hardware Member-Dealer, an independent hardware dealer
must enter into a Subscription Agreement with the Company for the purchase
of ten shares of Handy Hardware Class A Common Stock, $100 par value per
share and for any additional store, ten shares of Preferred Stock, with an
additional agreement to purchase a minimum number of shares of Class B
Common Stock, $100 par value per share and Preferred Stock, $100 par value
per share. 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, which determines the "Desired Stock Ownership" for each
Member-Dealer. The minimum Desired Stock Ownership is $10,000.
Each Member-Dealer receives from the Company a semimonthly statement of
Total Purchases made during the covered billing period and an additional
charge ("Purchase Funds") of 2 percent of warehouse purchases until the
Member-Dealer's Desired Stock Ownership is attained. (The Subscription
Agreement entitles the Company to collect 2 percent of total purchases. At
present, however, the Board of Directors has determined to collect 2
percent of warehouse purchases only.) On a monthly basis, the Company
reviews the amount of unexpended Purchase Funds being held for each
Member-Dealer. If a Member-Dealer has unexpended Purchase Funds of at least
$2,000, the Company applies $2,000 to the purchase of ten shares of Class B
Common Stock and ten shares of Preferred Stock at $100 per share.
Transferability
Holders of Class A Common Stock may not sell those shares to a third party
without first offering to sell them back to the Company. There are no
specific restrictions on the transfer of the Company's Class B Common or
Preferred Stock.
Membership Termination
Following written request, the Company will present to the Board of
Directors a Member-Dealer's desire to have his stock repurchased and the
Member-Dealer Contract terminated. According to the current procedures
established by the Board of Directors, a Member-Dealer's stock may be
repurchased according to either of two options.
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 11
DECEMBER 31, 1997
NOTE 8 - STOCKHOLDERS' EQUITY- CONTINUED
Option I The Member-Dealer's Class A Common Stock is repurchased at
$100 per share. Any funds remaining in the Member-Dealer's
Purchase Fund Account will be returned at the dollar value
of such account. Twenty percent or $3,000, whichever is
greater, of the total value of the Class B Common and
Preferred Stock will be repurchased. The remaining value of
the Class B Common and Preferred Stock is converted to a
five-year interest bearing note. During the first four years
this note only pays interest. In the fifth year both
interest and principal are paid. The interest rate is
determined by the Company's Board of Directors at the same
time they approve the repurchase.
Option II Same as Option I except that the remaining value of the
Class B Common and Preferred Stock is discounted 15 percent
and reimbursed to the Member-Dealer.
Stock Repurchase
In 1997 and 1996 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 over-invested
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 is $10,000. In 1997 and 1996 the
Company repurchased 348 and 168 shares for $34,800 and $16,800,
respectively.
NOTE 9 - LINE OF CREDIT
Texas Commerce Bank committed to a $7,500,000 unsecured revolving line of
credit. The commitment expires on April 30, 1998. Borrowing against and
payments of the line of credit during the year were as follows.
<TABLE>
<CAPTION>
BALANCE BORROWING BALANCE INTEREST INTEREST
1-01-97 -1997 PAYMENTS 12-31-97 RATE PAID
---------- ---------- ----------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
$1,837,424 $ -0- $ 1,837,424 $ -0- 6.25% $ 12,080
</TABLE>
The line of credit liability is classified as follows:
December 31,
---------------------------
1997 1996
------- -----------
Current Liabilities $ - $ 985,883
Noncurrent Liabilities - 851,541
======= ===========
The line of credit loan was used to retire the mortgage payable. Terms of
the line of credit require monthly payments of accrued interest with the
balance if any, of the loan to be repaid on April 30, 1998.
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 12
DECEMBER 31, 1997
NOTE 10 - SUBSEQUENT EVENT
None
NOTE 11 - LITIGATION
In the opinion of the Company, there is no litigation that would have a
material effect on the financial position or results of operations of the
Company at December 31, 1997.
NOTE 12 - OTHER DISCLOSURES
1. Costs incurred for advertising are expensed when incurred.
2. The Company wholesales hardware to its dealers in Texas, Oklahoma,
Louisiana, Alabama, Mississippi, Arkansas, and Florida.
3. 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.
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.
<PAGE>
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........................................... 14
Balance Sheets at December 31,
1997 and 1996............................................ 15
Statements of Income for the
years ended December 31,
1997, 1996 and 1995 ..................................... 17
Statements of Stockholders' Equity
for the years ended December 31,
1997, 1996 and 1995 ..................................... 18
Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 ........................ 19
Notes to Financial Statements.............................. 21
(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).
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).
<PAGE>
*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 Amendment and Restatement of Credit Agreement between
Handy Hardware Wholesale, Inc. and Texas Commerce Bank,
N.A., dated as of April 30, 1996. (filed as Exhibit 10.2
to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996 and incorporated herein
by reference).
*10.11 Sixth Amendment to the Employment Agreement, as amended,
between Handy Hardware Wholesale, Inc. and James D. Tipton
dated November 14, 1995.
*10.12 Seventh Amendment to the Employment Agreement, as amended,
between Handy Hardware Wholesale, Inc. and James D. Tipton
dated September 30, 1996.
*,->10.13 Eighth Amendment to the Employment Agreement, as
amended, between Handy Hardware Wholesale, Inc. and James
D. Tipton dated December 24, 1997.
->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, 1997.
(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.
/S/ James D. Tipton
-----------------------------------
JAMES D. TIPTON
President and Chief Executive Officer
March 18, 1998
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 25, 1998
- ------------------- Officer and Director
/s/ Tina S. Kirbie Chief Financial and March 18, 1998
- ------------------- Accounting Officer
/s/ Weldon D. Bailey Director March 20, 1998
- -------------------
/s/ Norman J. Bering, II Director March 24, 1998
- -------------------
/s/ Susie Bracht-Black Director March 20, 1998
- -------------------
/s/ Virgil H. Cox Director March 20, 1998
- -------------------
/s/ Samuel J. Dyson Director March 21, 1998
- -------------------
/s/ Robert L. Eilers Director March 21, 1998
- -------------------
/s/ Richard A. Lubke Director March 24, 1998
- -------------------
/s/ Jimmy T. Pate Director March 24, 1998
- -------------------
/s/ Leroy Wellborn Director March 24, 1998
- -------------------
<PAGE>
EXHIBIT 10.12
<PAGE>
Eighth 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"), the Fifth Amendment to the Agreement, dated September 7, 1993 (the
"Fifth Amendment"), the Sixth Amendment to the Agreement, dated November 14,
1995 (the "Sixth Amendment"), and the Seventh Amendment to Employment Agreement,
dated September 30, 1996 (the "Seventh Amendment").
At this time, Employer and Employee wish to amend the Agreement, the First
Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the
Fifth Amendment, Sixth Amendment, and the Seventh Amendment as herein 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, the Fifth Amendment, the Sixth Amendment, and
the Seventh 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, 1999, 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, 1999, 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, the Fifth Amendment, the
Sixth Amendment, and the Seventh Amendment remain unchanged and continue in full
force and effect.
This Eighth Amendment is executed in multiple counterparts, each of which
shall have the force and effect of an original, this 24th day of December, 1997.
HANDY HARDWARE WHOLESALE, INC.
/s/ James D. Tipton /s/ Weldon D. Bailey
- -------------------- By: ------------------------------------
James D. Tipton Chairman of the Board
Employee Employer
<PAGE>
EXHIBIT 11.1
Computation of Per Share Earnings
1997 1996 1995
---- ---- ----
Net Earnings $1,408,203 $1,206,222 $1,016,484
Dividends Paid (620,812) (515,029) (401,155)
------- ------- -------
$ 787,391 $ 691,193 $ 615,329
Weighted Average Shares Outstanding 61,934 56,984 53,253
Earnings Per Share of Common Stock $ 12.71 $ 12.13 $ 11.55
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the
filer's operatioins as of December 31, 1997, 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-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,123,842
<SECURITIES> 0
<RECEIVABLES> 10,030,244<F1>
<ALLOWANCES> 7,195
<INVENTORY> 13,395,947
<CURRENT-ASSETS> 24,821,508
<PP&E> 9,408,768
<DEPRECIATION> 4,148,927
<TOTAL-ASSETS> 34,707,286
<CURRENT-LIABILITIES> 15,705,578
<BONDS> 0
0
5,914,584<F2>
<COMMON> 6,533,710<F3>
<OTHER-SE> 5,537,559<F4>
<TOTAL-LIABILITY-AND-EQUITY> 34,707,286
<SALES> 128,112,754
<TOTAL-REVENUES> 128,966,073
<CGS> 113,213,122
<TOTAL-COSTS> 113,213,122
<OTHER-EXPENSES> 6,753,003<F5>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 42,804
<INCOME-PRETAX> 2,169,718
<INCOME-TAX> 761,515
<INCOME-CONTINUING> 1,408,203
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,408,203
<EPS-PRIMARY> 12.71
<EPS-DILUTED> 12.71
<FN>
<F1> Accounts Receivable and current Notes Receivable.
<F2> Preferred Stock and Subscriptions less Subscription Receivable and
Treasury Stock.
<F3> Class A Common Stock and Class B Common Stock Less Treasury Stock and
Subscription for Class B Common Stock less Subscription Receivables.
<F4> Paid in Surplus and Retained Earnings.
<F5> Other Operating Costs. (Does not include payroll costs of $6,787,426.
</FN>
</TABLE>
