SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act
of 1934.
For the quarterly period ended March 31, 2000.
Commission File Number 0-15708
HANDY HARDWARE WHOLESALE, INC.
(Exact name of Registrant as specified in its charter)
TEXAS 74-1381875
(State of incorporation) (I.R.S. Employer
Identification No.)
8300 Tewantin Drive, Houston, Texas 77061
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number: (713) 644-1495
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares outstanding of each of the Registrant's classes of common
stock as of March 31, 2000, was 9,500 shares of Class A Common Stock, $100 par
value, and 59,602 shares of Class B Common Stock, $100 par value.
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
INDEX
PART I Financial Information Page No.
Item 1. Financial Statements
Condensed Balance Sheet March 31, 2000
and December 31, 1999 ....................... 3 - 4
Condensed Statement of Earnings - Three Months
Ended March 31, 2000 and 1999................. 5
Condensed Statement of Cash Flows - Three Months
Ended March 31, 2000 and 1999................ 6 - 7
Notes to Condensed Financial Statements........... 8 - 14
Item 2. Management's Discussion & Analysis of Financial
Condition and Results of Operations............ 15 - 18
Item 3. Quantitative & Qualitative Disclosures About
Market Risk.................................... 18
PART II Other Information 19
Items 1.- 6. None 19
Signatures 20
<PAGE>
<TABLE>
HANDY HARDWARE WHOLESALE, INC.
CONDENSED BALANCE SHEET
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 4,356,106 $ 1,173,749
Accounts Receivable, net of 18,127,408 10,631,282
subscriptions receivable in
the amount of $79,343 for 2000
and $54,484 for 1999
Notes Receivable (Note 3) 12,333 12,748
Inventory 17,458,384 15,147,077
Other Current Assets 173,642 181,809
Prepaid Income Tax -0- 100,335
----------- -----------
$40,127,873 $27,247,000
----------- -----------
PROPERTY, PLANT AND EQUIPMENT (NOTE 2)
At Cost Less Accumulated Depreciation
of $5,375,782(2000) and $5,162,434
(1999) $11,222,458 $10,756,483
----------- -----------
OTHER ASSETS
Notes Receivable (Note 3) $ 248,575 $ 232,710
Deferred Compensation Funded 496,514 429,688
Other Noncurrent Assets -0- 15,149
----------- -----------
$ 745,089 $ 677,547
----------- -----------
TOTAL ASSETS $52,095,420 $38,681,030
- ------------ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable-Stock (Note 4) $ 96,200 $ 107,200
Notes Payable-Capital Lease 36,365 41,383
Accounts Payable - Trade 29,556,730 15,679,858
Other Current Liabilities 388,692 1,141,147
Federal Income Taxes Payable (Note 5) 128,215 -0-
----------- -----------
$30,206,202 $16,969,588
----------- -----------
NONCURRENT LIABILITIES
Notes Payable-Stock (Note 4) $ 818,560 $ 787,280
Notes Payable-Capital Lease 23,508 25,480
Notes Payable-Vendor 243,436 224,872
Deferred Compensation Payable 496,514 429,688
Deferred Income Taxes Payable (Note 5) 231,998 229,275
----------- -----------
$ 1,814,016 $ 1,696,595
----------- -----------
TOTAL LIABILITIES $32,020,218 $18,666,183
- ----------------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the Condensed Financial
Statements.
<PAGE>
<TABLE>
HANDY HARDWARE WHOLESALE, INC.
CONDENSED BALANCE SHEET (CONTINUED)
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
STOCKHOLDERS' EQUITY
Common Stock, Class A,
authorized 20,000 shares, $100
par value per share, issued
9,600 & 9,190 shares $ 960,000 $ 919,000
Common Stock, Class B,
authorized 100,000 shares, $100
par value per share, issued
60,698 & 58,768 shares 6,069,800 5,876,800
Common Stock, Class B
Subscribed 4,594.91 & 4,498.24
shares 459,491 449,824
Less Subscription Receivable (39,671) (27,242)
Preferred Stock 10% Cumulative,
authorized 100,000 shares, $100
par value per share, issued
63,436.50 & 61,386.50 shares 6,343,650 6,138,650
Preferred Stock, Subscribed
4,594.91 & 4,498.24 shares 459,491 449,824
Less Subscription Receivable (39,671) (27,242)
Paid in Surplus 381,520 363,610
----------- -----------
$14,594,610 $14,143,224
Less: Cost of Treasury Stock
2,380.50 & -0- shares (238,050) -0-
------------ -----------
$14,356,560 $14,143,224
Retained Earnings exclusive of other
comprehensive earnings (Note 7) 5,568,719 5,765,441
Retained Earnings applicable to other
comprehensive earnings (Note 7) 149,922 106,182
----------- -----------
5,718,641 5,871,623
----------- -----------
Total Stockholders' Equity $20,075,202 $20,014,847
----------- -----------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $52,095,420 $38,681,030
-------------------- =========== ===========
</TABLE>
The accompanying notes are an integral part of the Condensed Financial
Statements.
<PAGE>
<TABLE>
HANDY HARDWARE WHOLESALE, INC.
CONDENSED STATEMENT OF INCOME
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
---- ----
<S> <C> <C>
REVENUES
Net Sales $46,358,406 $43,459,797
Sundry Income 584,329 475,718
------------ ------------
TOTAL REVENUES $46,942,735 $43,935,515
- -------------- ------------ ------------
EXPENSE
Net Material Costs $42,039,040 $39,693,476
Payroll Costs 1,933,290 1,772,223
Other Operating Costs 2,357,392 2,102,552
Interest Expense 15,069 19,003
------------ ------------
TOTAL EXPENSE $46,344,791 $43,587,254
- ------------- ------------ ------------
NET EARNINGS BEFORE PROVISIONS
FOR ESTIMATED FEDERAL INCOME TAX $ 597,943 $ 348,261
- --------------------------------
PROVISIONS FOR ESTIMATED
FEDERAL INCOME TAX (NOTE 5) (208,740) (124,787)
- -------------------------- ------------ -----------
NET EARNINGS $ 389,203 $ 223,474
- ------------
OTHER COMPREHENSIVE EARNINGS
Unrealized Gain on Securities (Note 7) $ 66,273 $ 1,063
Provision for Federal Income Tax(Note 5) (22,533) 361
------------ ----------
Other Comprehensive Earnings
Net of Tax $ 43,740 $ 702
------------ ----------
TOTAL COMPREHENSIVE EARNINGS $ 432,943 $ 224,176
- ----------------------------
LESS ACCRUED DIVIDENDS ON
PREFERRED STOCK (146,481) (138,587)
- --------------- ------------ ----------
NET EARNINGS APPLICABLE TO
COMMON STOCKHOLDERS $ 286,462 $ 85,589
- ------------------- ============ ===========
NET EARNINGS PER SHARE OF
COMMON STOCK, CLASS A &
CLASS B (NOTE 1) $ 3.92 $ 1.23
- --------------- ============ ===========
</TABLE>
The accompanying notes are an integral part of the Condensed Financial
Statements.
<PAGE>
<TABLE>
HANDY HARDWARE WHOLESALE, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITY
Net Earnings $ 432,943 $ 224,176
------------ -----------
Adjustments to Reconcile Net
Earnings to Net Cash Provided by
Operating Activities:
Depreciation $ 213,348 $ 240,605
Increase (Decrease) in Deferred
Income Tax 2,723 (1,153)
Unrealized gain (increase in fair
market value of securities) (66,273) (43,641)
Changes in Assets and Liabilities
Increase in Accounts Receivable $(7,496,126) $(7,281,214)
(Increase) Decrease in Notes Receivable (15,450) 1,137
Increase in Inventory (2,311,307) (1,163,744)
Decrease in Other Assets 123,651 214,393
Increase (Decrease)in Note Payable-Vendor 18,564 (1,773)
Increase in Accounts Payable 13,876,872 12,220,897
Decrease in Other Liabilities (752,455) (508,405)
Increase in Federal Income
Taxes Payable 128,215 20,056
Increase (Decrease) in Deferred Compensation
Payable 66,827 44,183
----------- -----------
TOTAL ADJUSTMENTS $ 3,788,589 $ 3,741,341
----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 4,221,531 $ 3,965,517
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures $ (679,323) $(1,276,221)
Disposition of Fixed Assets -0- -0-
Reinvested dividends, interest & capital gains (553) (542)
------------ ------------
NET CASH USED FOR
INVESTING ACTIVITIES $ (679,876) $(1,276,763)
----------- ------------
</TABLE>
The accompanying notes are an integral part of the Condensed Financial
Statements.
<PAGE>
<TABLE>
HANDY HARDWARE WHOLESALE, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)CONT.
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
---- ----
<S> <C> <
CASH FLOWS FROM FINANCING ACTIVITIES
Increase Note Payable - Line of Credit $ -0- $1,143,772
Increase in Notes Payable - Stock 20,280 10,000
Decrease in Notes Payable - Capital Lease (6,990) (11,817)
Increase in Subscription Receivable (24,858) (18,223)
Proceeds From Issuance of Stock 476,244 391,764
Purchase of Treasury Stock (238,050) (75,600)
Dividends Paid (585,925) (554,346)
---------- ----------
NET CASH PROVIDED BY (USED FOR) FINANCING
ACTIVITIES $ (359,299) $ 885,550
----------- ----------
NET INCREASE
IN CASH & CASH EQUIVALENTS $3,182,357 $3,574,304
CASH & CASH EQUIVALENTS AT BEGINNING
OF PERIOD 1,173,749 1,113,122
---------- -----------
CASH & CASH EQUIVALENTS AT END OF
PERIOD $4,356,106 $4,687,426
========== ===========
ADDITIONAL RELATED DISCLOSURES
TO THE STATEMENT OF CASH FLOWS
Interest Expense Paid $ 15,069 $ 19,003
Income Taxes Paid 100,335 105,884
</TABLE>
The accompanying notes are an integral part of the Condensed Financial
Statements.
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
(1) DESCRIPTION OF BUSINESS:
Handy Hardware Wholesale, Inc., ("Handy"), 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 is owned entirely by its member-dealers and former
member-dealers.
Handy sells to its member-dealers products primarily for retail
hardware, lumber and home center stores. In addition, we offer
advertising and other services to member-dealers.
(2) GENERAL INFORMATION:
The condensed consolidated financial statements included herein have
been prepared by Handy. The financial statements reflect all
adjustments, which were all of a recurring nature, and which are, in
the opinion of management, necessary for a fair presentation. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to the rules and regulations of
the Securities and Exchange Commission (SEC). Handy believes that the
disclosures made are adequate to make the information presented not
misleading. The condensed consolidated financial statements should be
read in conjunction with the audited financial statements and the notes
thereto included in the latest Form 10-K Annual Report.
(3) CASH
For purposes of the statement of cash flows, Handy considers all highly
liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents.
(4) 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.
(5) EARNINGS PER SHARE:
Net earnings per common share (Class A and Class B combined) are based
on the weighted average number of shares outstanding in each period
after giving effect to the stock issued, stock subscribed, accrued
dividends on Preferred Stock, and treasury stock as set forth by
Accounting Principles Board Opinion No. 15 as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
2000 1999
---- ----
<S> <C> <C>
CALCULATION OF NET EARNINGS PER SHARE
OF COMMON STOCK
Net Earnings $ 432,943 $ 224,176
Less: Accrued Dividends
On Preferred Stock (146,481) (138,587)
----------- -----------
$ 286,462 $ 85,589
Weighted Average
Shares of Common Stock
(Class A & Class B)
outstanding 73,080 69,304
Net Earnings Per Share
of Common Stock $ 3.92 $ 1.23
=========== ==========
</TABLE>
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(4) 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.
(5) ACCOUNTING FOR DIVIDENDS ON PREFERRED STOCK
Handy pays dividends on Preferred Stock during the first quarter of
each fiscal year. Only holders of Preferred Stock on the record date
for the payment of the dividend are entitled to receive dividends.
Dividends are prorated for the portion of the twelve-month period
ending January 31, during which the Preferred Stock was held.
Because Handy is unable to anticipate the amount of the Preferred Stock
dividends, it does not accrue a liability for the payment of those
dividends on its balance sheet. To more properly reflect net earnings,
however, on the Condensed Statement of Earnings included herein, Handy
shows an estimated portion of the dividends to be paid in the first
quarter of 2001 based on the dividends paid in the first quarter of
2000.
When dividends on Preferred Stock are actually paid, there is a
reduction of retained earnings. Retained earnings on the Condensed
Balance Sheet for the three months ended March 31, 2000 contained
herein, therefore, are net of dividends actually paid during the first
quarter of 2000 in the amount of $585,925.
<TABLE>
NOTE 2 - PROPERTY, PLANT & EQUIPMENT
Property, Plant & Equipment Consists of:
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
----------- ------------
<S> <C> <C>
Land $ 3,202,572 $ 3,202,572
Building & Improvements 8,965,519 8,549,156
Furniture, Computer, Warehouse 3,925,796 3,740,954
Transportation Equipment 504,353 426,235
----------- ------------
$16,598,240 $15,918,917
Less: Accumulated Depreciation (5,375,782) (5,162,434)
----------- ------------
$11,222,458 $10,756,483
=========== ===========
</TABLE>
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - NOTES RECEIVABLE
Notes receivable reflect amounts due to Handy from its member-dealers under a
deferred payment agreement and an installment sale agreement.
Under the deferred agreement, Handy 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
Handy. If a member-dealer ceases to purchase lamp inventory or sells or closes
his business, then General Electric bills Handy for the member-dealer's initial
order and the note becomes immediately due and payable in full to Handy. In
September 1999, virtually the same type of deferred agreement was put into
effect with Chicago Specialty, a manufacturer of plumbing supplies.
Under the installment sale agreement, we sell member-dealers computer hardware,
the purchase price of which is due and payable by member-dealers to us in
thirty-six monthly installments of principal and interest.
<TABLE>
Notes Receivable are classified as follows:
<CAPTION>
CURRENT PORTION NONCURRENT PORTION
MARCH 31, DEC. 31, MARCH 31, DEC. 31,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Deferred Agreements $ -0- $ -0- $243,436 $224,871
Installment Sale Agreement 12,333 12,748 5,139 7,839
------- ------- -------- --------
$12,333 $12,748 $248,575 $232,710
======= ======= ======== ========
</TABLE>
NOTE 4 - NOTES PAYABLE STOCK
The five year, interest bearing notes payable - stock reflect amounts due from
Handy to former member-dealers for our repurchase of shares of Handy stock owned
by these former member-dealers. According to the terms of the notes, only
interest is paid on the outstanding balance of the notes during the first four
years. In the fifth year, both interest and principal are paid. Interest rates
range from 5.25% to 7.0%.
<TABLE>
Notes payable - stock are classified as follows:
<CAPTION>
CURRENT PORTION NON-CURRENT PORTION
MARCH 31, DEC. 31, MARCH 31, DEC. 31,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
$96,200 $107,200 $818,560 $787,280
</TABLE>
Principal payments due over the next five years are as follows:
2000 $107,200
2001 57,000
2002 32,800
2003 324,280
2004 363,200
--------
$884,480
========
<PAGE>
<TABLE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
<CAPTION>
NOTE 5 - INCOME TAXES
Handy adopted FASB Statement No. 109, "Accounting for Income Taxes," effective
January 1, 1993. The adoption of this standard changed our method of accounting
for income taxes from the deferred method to the liability method.
QUARTER ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
2000 1999
------------- ------------
<S> <C> <C>
Excess of tax over book depreciation $ 1,268,628 $ 1,257,673
Allowance for Bad Debt (7,195) (7,195)
Inventory - Ending inventory adjustment
for tax recognition of Sec. 263A
Uniform Capitalization Costs (297,161) (296,130)
Deferred Compensation (281,925) (280,010)
----------- ------------
Total $ 682,347 $ 674,337
Statutory Tax Rate 34% 34%
----------- ------------
Cumulative Deferred Income Tax Payable $ 231,998 $ 229,275
=========== ============
Classified as:
Current Liability $ -0- $ -0-
Noncurrent Liability 231,998 229,275
----------- ------------
$ 231,998 $ 229,275
=========== ============
Reconciliation of income taxes on the difference between tax and financial
accounting is as follows:
QUARTER ENDED QUARTER ENDED
MARCH 31, MARCH 31,
2000 1999
------------- -------------
Principal Components of Income Tax Expense
Federal:
Current
Income tax paid $ -0- $ -0-
Carry-over of prepayment from
from prior year 100,335 105,884
Refund received for overpayment
from prior year -0- -0-
------------ --------------
$ 100,335 $ 105,884
Federal Income Tax Payable 128,215 20,056
Carry-over to subsequent year -0- -0-
------------ --------------
Income tax for tax reporting
at statutory rate of 34% $ 228,550 $ 125,940
Deferred
Adjustments for financial reporting:
Depreciation 3,725 (228)
263A Uniform Capitalization Costs (321) (274)
Other (651) (651)
------------- --------------
Provision for federal income tax $ 231,273 $ 124,787
============ ==============
</TABLE>
Handy is not exempt from income tax except for municipal bond interest
earned in the amount of $554.
We are not classified as a nonexempt cooperative under the provisions of
the Internal Revenue Code and are not entitled to deduct preferred dividends in
determining our taxable income.
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - STOCKHOLDERS' EQUITY
(1) 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. Handy's Article of Incorporation require the Board of
Directors to declare a dividend each year of not less than 7 percent
per year nor more than 20 percent of the par value ($100.00 per share)
of the shares of Preferred Stock. 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 Handy) by vote of Handy's Board of Directors, in
exchange for $100 per share and all accrued unpaid dividends.
(2) CAPITALIZATION
To become a Handy member-dealer, an independent hardware dealer must
enter into a Subscription Agreement with us for the purchase of ten
shares of Handy Class A Common Stock, $100 par value per share, or ten
shares of Preferred Stock for any additional store, 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 to a formula based
upon total purchases of merchandise by the member-dealer from Handy,
which determines the "Desired Stock Ownership" for each member-dealer.
The minimum Desired Stock Ownership is $10,000.
Each member-dealer receives from Handy a semimonthly statement
listing total purchases made during the covered billing period with an
additional charge ("Purchase Funds") equal to 2 percent of the
member-dealer's warehouse purchases until the member-dealer's Desired
Stock Ownership is attained. Although the Subscription Agreement entitles
Handy to collect 2 percent of total purchases, since May 1, 1983, the
Board of Directors has determined to collect 2 percent of warehouse
purchases only. On a monthly basis, we review the amount of unexpended
Purchase Funds being held for each member-dealer. If a member-dealer has
unexpended Purchase Funds of at least $2000, Handy applies such funds to
the purchase of ten shares of Class B Common Stock and ten shares of
Preferred Stock at $100 per share.
(3) TRANSFERABILITY
Holders of Class A Common Stock may not sell those shares to a third
party without first offering to sell them back to Handy. There are no
specific restrictions on the transfer of our Class B Common or Preferred
Stock.
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)
(4) MEMBERSHIP TERMINATION
Following written request, Handy will present to the Board of
Directors a member-dealer's desire to have his stock repurchased and the
member- dealer's 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.
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 $3000, 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 Handy'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 immediately at the time of
repurchase.
<PAGE>
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - COMPREHENSIVE EARNINGS
The following disclosures include those required by FASB 115 for financial
statements beginning after December 15, 1997.
1. Deferred compensation funded in the amount of $496,514 on the Balance
Sheet as a non-current asset at March 31, 2000, includes equity
securities classified as investments available for sale in the amount of
$443,595 at fair market value. The $443,595 includes $227,154 unrealized
gain on securities resulting from the increase in fair market value. The
cost of the equity securities is $216,441.
<TABLE>
2. Changes in Equity securities
<CAPTION>
YEAR ENDED
MARCH 31, 2000 CUMULATIVE
<S> <C> <C>
Beginning Balance-January 1, 2000 $ 376,768 $ -0-
Purchases - 0 - 105,060
Dividends, interest and capital gains 554 111,381
Unrealized gains on securities
resulting from increase in
fair market value 66,273 227,154
----------- ----------
Balance-March 31, 2000 $ 443,595 $ 443,595
=========== ==========
</TABLE>
<TABLE>
3. Components of Comprehensive Earnings
<CAPTION>
TOTAL OTHER COMPREHENSIVE NET EARNINGS EXCLUSIVE
COMPREHENSIVE EARNINGS-UNREALIZED OF OTHER
EARNINGS GAINS ON SECURITIES COMPREHENSIVE EARNINGS
<S> <C> <C> <C>
Net Earnings Before
Provision for
Federal Income Tax $ 664,216 $ 66,273 $ 597,943
Provision for
Federal Income Tax (231,273) (22,533) (208,740)
------------ ---------- ----------
Net Earnings $ 432,943 $ 43,740 $ 389,203
=========== ========= =========
</TABLE>
<TABLE>
4. Components of Comprehensive Earnings
<CAPTION>
RETAINED EARNINGS RETAINED EARNINGS
APPLICABLE TO OTHER EXCLUSIVE OF OTHER
TOTAL COMPREHENSIVE EARNINGS COMPREHENSIVE EARNINGS
<S> <C> <C> <C>
Balance-January 1, 2000 $5,871,623 $ 106,182 $5,765,441
Add: Net earnings 3 months
Ended March 31, 2000 432,943 43,740 389,203
Deduct: Cash Dividends on
Preferred Stock 585,925 -0- 585,925
---------- ---------- ----------
Balance-March 31, 2000 $5,718,641 $ 149,922 $5,568,719
========== ========== ==========
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MATERIAL CHANGES IN RESULTS OF OPERATIONS
We maintained our steady growth in the first quarter of 2000 while
continuing to meet our goal of providing quality goods to our member-dealers at
our cost plus a reasonable mark-up charge. Net sales in the first quarter of
2000 increased 6.7% ($2,898,609) over sales during the same period in 1999,
compared to a 15.3% growth rate ($5,755,444) in the first quarter of 1999 over
1998.
NET SALES. Although the overall economy continues to experience economic
growth and consumer confidence remains strong, the sales growth during the first
quarter of 2000 in several of our selling territories was not as robust as in
the first quarter of 1999. The softening sales can be attributed to the loss of
several significant member-dealers in various selling territories, the
continuing dry weather conditions and labor and material shortages in the
building industry.
<TABLE>
The following table summarizes sales during the first three months of 1999
and 2000 by sales territory:
<CAPTION>
First Quarter First Quarter
2000 1999
------------------- -------------------
% Increase
in Sales
From First % of % of
Quarter Total Total
Sales Territory Sales 1999 Sales Sales Sales
- --------------- ----------- ---------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
Houston Area $11,140,533 -0.9% 24.1% $11,244,308 25.9%
Victoria, San Antonio,
Corpus Christi &
Rio Grande Valley Area* 9,377,930 10.7% 20.2% 8,467,999 19.5%
North Texas, Dallas
& Fort Worth Area 5,750,624 22.9% 12.4% 4,681,179 10.8%
Austin, Brenham &
Central Texas Area 5,649,080 -0.9% 12.2% 5,702,107 13.1%
Southern Louisiana Area 5,666,995 7.5% 12.2% 5,273,643 12.2%
Baton Rouge, New Orleans,
Mississippi, Alabama &
Florida Area 3,569,596 --% 7.7% 3,569,935 8.2%
Arkansas Area 2,016,998 31.4% 4.4% 1,535,248 3.5%
Oklahoma Area 3,138,839 7.0% 6.8% 2,933,770 6.8%
--------- ---- --------- ----
Totals: $46,310,595 (1) 100.0% $43,408,189(1)100.0%
=========== ===== =========== =====
- ------------------------------------------------------
</TABLE>
* Includes sales to Mexico and Central America member-dealers.
(1) Total does not include miscellaneous sales to employees.
During the first quarter of 2000 the Houston territory lost sales from
several member- dealers who reduced their purchases during this period. These
member-dealers generated $1,277,342 more in sales during the first quarter in
1999 than they did for the same 2000 period. Had these member-dealers' first
quarter 2000 purchases remained equal to those of the same period in 1999, the
Houston territory's sales would have grown 10.4%.
Several factors negatively affected sales growth in the Austin, Brenham
and Central Texas territory, including extremely dry weather conditions and
significant declines in new home construction.
<PAGE>
The Baton Rouge, New Orleans and Gulf Coast East territory is beginning
to feel the pressure from retail warehouses in their market which is eroding the
market share of these independent hardware stores. The purchases, for example,
of five representative member-dealers in this territory declined from $285,974
in the first quarter of 1999 to $82,942 in the same 2000 period, a decrease of
approximately 71%.
NET MATERIAL COSTS AND REBATES Net material costs for the first quarter
of 2000 were $42,039,040 versus $39,693,476 for the same period in 1999. The
increase in net material costs of 5.9 percent, however, remained lower than the
6.7 percent increase in net sales in the same period. Net material costs as a
percentage of net sales were 90.7 percent in the first quarter of 2000 as
compared to 91.3 percent for the same period in 1999. This slight percentage
decrease was the result of a significant increase in the number of inventory
items sold at a higher gross margin. Sales with a markup of 9 percent increased
from $25,362,729 in the first quarter of 1999 to $27,887,108 in the same 2000
period, an increase of 9.6 percent. Further, factory rebates, which were taken
as a credit against material costs in both 2000 and 1999, increased $95,909 or
7.2% (2000 - $1,424,740 versus 1999 - 1,328,831).
PAYROLL COSTS With unemployment at a three decade low, the U.S. labor
market has seldom been tighter. The increase in payroll costs for the first
quarter of 2000 resulted from salary increases needed to attract or retain
high-quality employees. As a result, payroll costs during the quarter ended
March 31, 2000, increased $161,067, a 9.1 percent increase, over the same period
in 1999. Despite the pressure on wages, payroll costs as a percentage of total
expenses and of net sales remained fairly constant. Payroll costs for the first
quarter of 2000 constituted 4.2 percent of total expenses and of net sales,
compared to 4.1 percent of each for the first quarter of 1999. The relative
stability in payroll costs has been a result of a continuing effort to maintain
employee productivity.
OTHER OPERATING COSTS During the first quarter of 2000, other operating
costs increased $254,840 (12.1%) compared to the same costs in the first quarter
of 1999, and increased slightly as a percentage of net sales and total expenses.
The amount spent for other operating costs for the first quarter of 2000 totaled
$2,357,392 (5.1% of net sales and of total expenses) as compared to $2,357,392
spent for other operating costs during the same period of 1999 (4.8% of net
sales and of total expenses).
Over 74.3% of the 2000 first quarter increase in other operating costs resulted
from an increase in delivery expenses (an increase of $189,424 over 1999
levels), while another 19.5% of this increase was due to increases in accruals
for property taxes, employee bonuses and employee retirement (a combined
increase of $49,730 over 1999 levels).
NET EARNINGS AND EARNINGS PER SHARE
While net sales for the first quarter of 2000 increased $2,898,609
(6.7%) and net material costs for the first quarter of 2000 increased $2,345,564
(5.9%) from levels of net sales and net material costs in the first quarter in
1999, gross margin increased by $553,045 (14.7%). This increase in gross margin,
in addition to a $108,611 (22.8%) increase in other income during the same
period, was offset by the less substantial increases in payroll costs of
$161,067 (9.1%) and in other operating costs of $254,840 (12.1%). Thus pretax
net earnings increased 71.7 percent, from $348,261 for the first quarter of 1999
to $597,943 in the same 2000 period, while after-tax net earnings increased by
93.1 percent. Net earnings in the first quarter of 2000 increased primarily due
to an increase in sales with a markup of 9 percent, with fewer sales occurring
with a markup of only 4 percent or less, as previously discussed.
Our earnings per share increased more than twofold in the first quarter of 2000
as compared to the same period of 1999, due to the relatively large increase in
net earnings in the first quarter of 2000. In addition, dividends accrued in the
first quarter of 2000 represented a smaller percentage of 2000 net earnings than
dividends accrued in the first quarter of 1999.
Quarter-to-quarter variations in our earnings per share (in addition to the
factors discussed above) reflect our commitment to lower pricing of our
merchandise in order to deliver the lowest cost buying program to our
member-dealers, even though this often results in lower net earnings. Because
virtually all of our stockholders are also member-dealers, these trends benefit
our individual stockholders who purchase our merchandise. Therefore, our
shareholders do not demand that we focus greater attention upon earnings per
share.
<PAGE>
SEASONALITY
Our quarterly net earnings traditionally vary based on the timing of
events which affect our sales. First and third quarter earnings have been
negatively affected by the increased level of direct sales (with no markup)
resulting from our semiannual trade show always held in the first and third
quarters. However, net earnings per quarter may vary substantially from year to
year due to the timing difference in the receipt of discounts, rebates and
miscellaneous income. Secondly, sales during the fourth quarter traditionally
have been lower, as hardware sales are slowest during winter months preceding
ordering for significant sales in the spring. This decrease in sales, however,
is offset in most years by corrections to inventory made at year end, causing
net earnings to vary substantially from year to year in the fourth quarter.
MATERIAL CHANGES IN FINANCIAL CONDITION
FINANCIAL CONDITION AND LIQUIDITY During the period ending March 31,
2000, we maintained our financial condition and ability to generate adequate
amounts of cash while continuing to make significant investments in inventory,
warehouse and computer equipment, software, and delivery equipment to better
meet the needs of our member-dealers. Net cash provided by our operating
activities may vary substantially from year to year. These variations result
from (i) the timing of promotional activities such as our spring trade show,
(ii) payment terms available to us from our suppliers, (iii) payment terms
offered by us to our member-dealers, and (iv) the state of the regional economy
in our selling territories.
During the first quarter of 2000 there was a decrease of $331,320 in our cash
and cash equivalents as compared to an increase of $804,707 in the same 1999
period. During this period, we generated cash flow from operating activities of
$4,221,531, as compared to $3,964,975 in the first quarter of 1999. This
increase in cash flow in the 2000 period was principally attributable to an
increase in accounts payable, offset by larger increases in inventory and
accounts receivable in the first quarter of 2000 than in the first quarter of
1999. Further, net earnings increased during these same periods by $208,767
(2000 - $432,943 versus 1999 - $224,176).
Accounts payable increased $13,876,872 during the first three months of 2000 as
compared to an increase of $12,220,897 during the same period in 1999. This
increase was due primarily to extended payment terms offered to us by suppliers.
Inventory had 36,947 stockkeeping units in the period ending March 31, 2000,
which were maintained in response to member-dealer demand for more breadth of
inventory. The increase in inventory of $2,311,307 in the first three months of
2000, was significantly larger than the increase in inventory of $1,163,744 in
the same period in 1999, due to the availability of leased warehouse space which
provided us with an additional 50,000 square feet for stocking inventory.
In the first three months of 2000 and 1999, accounts receivable increased
$7,496,126 and $7,281,214, respectively. For both periods, this consistency in
levels of accounts receivable was mainly attributable to the strong economy
which gave member-dealers confidence to make significant purchases at the spring
trade show and to extended payment terms offered to member- dealers at this
trade show.
Net cash used for investing activities increased in the first quarters of 2000
and 1999 by $679,876 and $1,276,221, respectively. The significant increase in
the first quarter of 1999 was almost entirely due to the purchase of thirty
acres of land to be used for future warehouse expansion.
Net cash used for financing activities was $359,299 in the period ending March
31, 2000 as compared to net cash provided by financing activities of $885,550
during the same period in 1999. This difference was principally attributable to
borrowing on our line of credit in the first quarter of 1999 to meet short term
cash requirements, as well as an increase in the repurchase of shares from
retiring member-dealers which grew from $75,600 in the first three months of
1999 to $585,925 during the same period of 2000.
<PAGE>
Our continuing ability to generate cash for funding our activities is
highlighted by the relative constancy of three key liquidity measures - working
capital, current ratio (current assets to current liabilities) and long-term
debt as a percentage of capitalization, as shown in the following table:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31, MARCH 31,
2000 1999 1999
<S> <C> <C> <C>
Working Capital $9,921,671 $10,277,412 $9,677,910
Current Ratio 1.3 to 1 1.6 to 1 1.3 to 1
Long-term Debt as Percentage
of Capitalization 9.0% 8.5% 9.8%
</TABLE>
During the remainder of 2000, we expect to further expand our existing customer
base in Oklahoma and Arkansas. We will finance this expansion with receipts from
the sale of stock to new and current member-dealers and with anticipated
increased revenues from sales to member-dealers in Oklahoma and Arkansas. We
expect that this expansion will have a beneficial effect on our ability to
generate cash to meet our funding needs.
In the first three months of 2000, we maintained a 94.8 percent service level
(the measure of our ability to meet member-dealers' orders out of current stock)
as compared to a service level of 95.1 percent for the same period of 1999.
Inventory turnover was 6.1 times during the first three months of 2000 and 6.0
times for the first three months of 1999. This rate of inventory turnover, which
is higher than the national industry average of 3.8, is primarily the result of
tight control of the product mix, increase in depth of inventory and continued
high service level.
CAPITAL RESOURCES
In the three month periods ending March 31, 2000, and March 31, 1999, our
investment in capital assets (net of dispositions) was $679,323 and $1,276,221,
respectively. Approximately 61.3 percent ($416,363) of the amount expended in
the first three months of 2000 was used to construct an employee parking lot and
other capital expenditures related to the future expansion of our warehouse. In
addition, 18.0 percent ($122,215) was used to purchase warehouse equipment. By
comparison, of the total amount expended in the first three months of 1999,
$1,143,772 was used to complete the purchase of thirty acres of land for future
warehouse expansion.
In January, 1999 we purchased 29.96 acres of land located across the street from
our current warehouse facility for $1,174,774. The land has been used to
relocate our retention pond, provide additional parking facilities and allow for
future expansion of our current warehouse facility. The purchase was funded by
drawing down on our line of credit which has since been entirely repaid from our
cash flow.
Under our unsecured $7.5 million revolving line of credit with Chase Bank of
Texas, used from time to time for our working capital and other financing needs,
no balance was outstanding on March 31, 2000.
During the year 2000, we anticipate significant cash outlays for payment of
accounts payable and increased inventory purchases. Additional cash outlays
anticipated for the remainder of the year include: approximately $4,752,000 to
prepare the site and begin construction on an expansion to our current warehouse
facility, $150,000 to purchase warehouse equipment, $100,000 to upgrade computer
equipment, $50,000 to purchase office furniture and equipment and $115,000 to
improve our automobile fleet.
Our cash position of $4,356,106 at March 31, 2000, is anticipated to be
sufficient to fund all planned capital expenditures, although some third party
financing, including draws on our line of credit, may be needed to fund all or a
portion of the expansion project.
QUANTITATIVE & QUALITATIVE DISCLOSURES
ABOUT MARKET RISKS
Not Applicable
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - NONE
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS - NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
ITEM 5. OTHER INFORMATION - NONE
ITEM 6. EXHIBITS & REPORTS ON FORM 8-K - NONE
ITEM 7. SIGNATURES
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HANDY HARDWARE WHOLESALE, INC.
/s/ James D. Tipton
------------------------------
JAMES D. TIPTON
President
(Chief Executive Officer)
/s/ Tina S. Kirbie
------------------------------
TINA S. KIRBIE
Senior Vice President, Finance
Secretary and Treasurer
(Chief Financial and
Accounting Officer)
Date: May 12, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
the filer's operations as of March 31, 2000, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,356,106
<SECURITIES> 0
<RECEIVABLES> 18,139,741
<ALLOWANCES> 7,195
<INVENTORY> 17,458,384
<CURRENT-ASSETS> 40,127,873
<PP&E> 11,222,458
<DEPRECIATION> 5,375,782
<TOTAL-ASSETS> 52,095,420
<CURRENT-LIABILITIES> 30,206,202
<BONDS> 0
0
6,645,020
<COMMON> 7,330,020
<OTHER-SE> 6,100,161
<TOTAL-LIABILITY-AND-EQUITY> 52,095,420
<SALES> 46,358,406
<TOTAL-REVENUES> 46,942,735
<CGS> 42,039,040
<TOTAL-COSTS> 42,039,040
<OTHER-EXPENSES> 2,357,392
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,069
<INCOME-PRETAX> 664,216
<INCOME-TAX> 231,273
<INCOME-CONTINUING> 432,943
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 432,943
<EPS-BASIC> 3.92
<EPS-DILUTED> 3.92
</TABLE>
