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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, 2000 Commission File Number 0-15708
HANDY HARDWARE WHOLESALE, INC.
(Exact Name of Registrant)
TEXAS 74-1381875
(State of incorporation or organization) (I.R.S. Employer 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
$1,005,000 as of February 28, 2001.
The number of shares outstanding of each of the Registrant's classes of
common stock as of February 28, 2001, was 10,150 shares of Class A Common Stock,
$100 par value, and 64,963 shares of Class B Common Stock, $100 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Document Incorporated as to
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Notice and Proxy Statement for the Part III, Items 10, 11, 12 and 13
Annual Meeting of Stockholders
to be held May 9, 2001
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.....................................................................9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......9
Item 7a. Quantitative and Qualitative Disclosures About Market Risk.................................14
Item 8. Financial Statements and Supplementary Data................................................14
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.......38
PART III
Item 10.* Directors and Executive Officers of the Registrant.........................................38
Item 11.* Executive Compensation.....................................................................38
Item 12.* Security Ownership of Certain Beneficial Owners and Management.............................38
Item 13.* Certain Relationships and Related Transactions.............................................38
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K............................38
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* 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, amounts of goods sold for
reduced or no mark-up, a need for additional labor or transportation costs for
delivery of 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.
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
1,143 active Member-Dealers and sales of more than $168,100,000 in 2000. 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, building material and home center stores as
well as in plant nurseries, marine, 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 45 trailers owned by the Company and 51 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, 2000, Handy Hardware's Member-Dealers were
located in Texas, Louisiana, Oklahoma, Arkansas, Alabama, Mississippi, Florida,
Colorado, New Mexico, Mexico and Central America. 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 large quantity lots,
warehouses the merchandise and resells it in smaller lots to its Member-Dealers.
During the Company's fiscal year ended December 31, 2000, 697 of the Company's
Member-Dealers were located in Texas, 196 in Louisiana, 101 in Oklahoma, 86 in
Arkansas, 14 in Alabama, 24 in Mississippi, 10 in Florida, 1 in Colorado, 6 in
New Mexico, 6 in Mexico and 2 in Central America. No individual Member-Dealer
accounted for more than 2.3% of the sales of the Company during fiscal 2000. 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 Member-Dealers accounted
for approximately 37% of the Company's total sales during 2000, 39% in 1999 and
36% in 1998, while warehouse shipments accounted for approximately 63% of total
sales in 2000, 61% in 1999 and 64% in 1998.
The Company's total sales include 14 different major classes of
merchandise. In 2000, 1999 and 1998, the Company's total sales and total
warehouse sales were divided among classes of merchandise listed below.
1
TOTAL SALES(1) WAREHOUSE SALES
----------- -----------------
CLASS OF MERCHANDISE 2000 1999 1998 2000 1999 1998
- -------------------- ---- ---- ---- ---- ---- ----
Plumbing Supplies 19% 17% 17% 23% 21% 20%
General Hardware 11 11 12 12 12 12
Paint Sundries 10 11 11 13 14 14
Electrical Supplies 10 10 11 13 13 14
Hand Tools 9 9 9 8 9 9
Lawn and Garden Products 8 8 8 10 10 10
Paint 3 4 4 4 4 4
Building Materials 12 12 11 2 2 2
Power Tools 4 5 5 2 2 2
Housewares & Related Supplies 3 3 3 3 3 3
Fasteners 2 2 2 1 1 1
Automotive After Market 2 2 2 3 3 3
Outdoor Products 2 2 1 1 2 2
Miscellaneous 5 4 4 5 4 4
--- --- --- --- --- ---
100% 100% 100% 100% 100% 100%
=== === === === === ===
(1) These amounts include direct sales and warehouse sales.
Warehouse sales normally carry a markup of 9%, excluding any purchase
discounts and manufacturer's rebates. As an incentive to Member-Dealers to make
direct sale purchases, since June 1, 1989, direct sales have been sold at the
Company's cost with no markup, excluding purchase discounts and manufacturers'
rebates. The Company maintains a list of price-sensitive, high volume items on
which the markup is reduced from 9 percent to 2 or 4 percent. This program was
developed in order to allow Handy Hardware 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.
2
In 2000 the Company maintained a 94.8 percent service level (the measure of
the Company's ability to meet Member-Dealer orders out of current stock), as
compared to service levels of 95.0 percent in 1999 and 94.8 percent in 1998. No
policy of inventory shrinkage has been implemented or is planned.
DEALER SERVICES AND ADVERTISING
The Company employs a staff of nine full-time account representatives who
visit Member-Dealers to advise them on display techniques, location surveying,
inventory control, promotional sales, advertising programs and other
dealer-related services available to them by and through the Company.
The Company offers Member-Dealers an electronic ordering system that can
assist them in placing orders, receiving price changes, tracking promotions and
processing invoice transactions electronically. In addition, the Company
provides Member-Dealers an inventory catalog which is available in paper or
CD-ROM format.
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 $855,173 was expended in 2000 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 1,750
vendors supplied merchandise to the Company during 2000. 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 2.2% of the
Company's total purchases during 2000. 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 31 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, but is under no obligation to do so. The Company
currently does not participate in such benefits because these benefits generally
are already provided by the Company to its Member-Dealers.
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, 2000, the Company had 272 full-time employees, of which
56 were in management positions and 216 in warehouse, office or delivery
operations. Company employees are not represented by any labor unions. The
Company believes its employee relations are satisfactory and it has experienced
no work stoppage as a result of labor disputes.
TRADE NAMES
The Company has a trade name, "Handy Hardware Stores," that it licenses to
Member-Dealers at no additional charge. This trade name has been registered in
all the states in which the Company's Member-Dealers are located.
3
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 also
believes that the loss of ability to utilize this trade name would not have a
material adverse effect upon the business of the Company.
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"), calculated as detailed below. The minimum number of shares
of Class B Common Stock and Preferred Stock to be purchased by a Member-Dealer
is determined pursuant to a formula based upon that Member-Dealer's total
purchases of merchandise 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, that
dealer is required to purchase, in cash, 10 shares of Class A Common Stock at
$100 per share.
Purchases of Class B Common Stock and Preferred Stock
General. In approximately March of each fiscal year, the Company calculates
the minimum desired level of stock ownership for each Member-Dealer ("Desired
Stock Ownership") for the next twelve months, based on (i) the dollar amount of
Class A Common Stock, Class B Common Stock and Preferred Stock, valued at $100
per share, 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"), as detailed below. 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
recorded on the Company's financial statements 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 a particular
Member-Dealer. See "--Collection of Purchase Funds."
4
Calculation of Desired Stock Ownership. Each Member-Dealer's Desired Stock
Ownership is calculated as set forth in the following table:
ACTUAL STOCK
OWNERSHIP(1) DESIRED STOCK OWNERSHIP(2)
--------- ------------------------
$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 $250,001 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 $250,001 to $500,000
+ $1.00 for every $13.33 of Total Purchases from $500,001 to $750,000
+ $1.00 for every $20.00 of Total Purchases over $750,000
$87,500 and above $1.00 for every $8.00 of Total Purchases from $1 to $250,000
+ $1.00 for every $10.00 of Total Purchases from $250,001 to $500,000
+ $1.00 for every $13.33 of Total Purchases from $500,001 to $750,000
+ $1.00 for every $20.00 of Total Purchases from $750,001 to $1,000,000
+ $1.00 for every $40.00 of Total Purchases over $1,000,000
- ----------------------------
(1) Including all Class A Common Stock, Class B Common Stock and Preferred Stock owned by Member-Dealers.
(2) The minimum Desired Stock Ownership for a Member-Dealer is $10,000. In each case "Total Purchases"
are measured as of the end of the immediately preceding fiscal year.
Example.
In March 2001, the Company determines that as of December 31, 2000, a
Member-Dealer's Actual Stock Ownership was $32,000 and his Total
Purchases during 2000 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
remaining $50,000 of Total Purchases [$5,000]). Because as of December
31, 2000, that Member-Dealer's Actual Stock Ownership was less than his
Desired Stock Ownership, the Company will collect Purchase Funds
throughout the period from April 1, 2001 to March 31, 2002 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 (2.0%)
of the Warehouse Purchases invoiced on the statement. The Subscription Agreement
entitles the Company to collect 2.0% of Total Purchases as Purchase Funds. At
present, however, the board of directors has determined to collect 2.0% of
Warehouse Purchases only. The Company will continue to collect Purchase Funds
throughout the April 1 to March 31 period, even if 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 all 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
5
"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
2.0% of Warehouse Purchases.
Repurchases from Overinvested Member-Dealers. During the past ten years,
the Company has 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. In each year of the repurchase
program, the Company has offered to repurchase from each Overinvested
Member-Dealer 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 2000, approximately 9% of the shares
eligible for repurchase from Overinvested Member-Dealers were submitted for
repurchase, for which the Company expended $21,700. 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, 2000, the total amount was $223,000
(excluding shares held by the Texas and Louisiana State Treasury Unclaimed
Property Divisions). The overinvested amount varies over time due to repurchases
and additional Member- Dealers becoming overinvested because of additional stock
purchases. Additionally, because stock purchases are based on each
Member-Dealer's Desired Stock Ownership, which fluctuates depending on the total
dollar amount of annual purchases of merchandise from the Company, some
Member-Dealers who were overinvested in one year may no longer be overinvested
in the following year because of an increase in purchases of merchandise. Over
the ten years of the repurchase program, the Company has repurchased a total of
$401,500 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 vary based on the timing
of events which affect the Company's sales. Traditionally, 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. However, the Company's overall sales
levels often increase during the trade shows, which, in some years, offsets the
negative effect of the increased level of direct sales. In addition, the timing
difference in the receipt of discounts, rebates and miscellaneous income can
cause the Company's net earnings per quarter to vary substantially from year to
year, as in the case of the substantial increase in net earnings in the first
quarter of 2000. Sales during the fourth quarter are often lower, as hardware
sales are slowest during the winter months preceding ordering for significant
sales for the spring. In some years, however, this decrease in sales is offset
by the corrections to inventory made at year-end, causing fourth quarter sales
to vary from year to year.
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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 Company also owns 5.2 acres of vacant land adjoining the Company's property,
which is currently being used to increase the warehouse size by approximately
241,000 square feet.
In January 1999 the Company purchased an additional 29.96 acres of land
located across the street from its current warehouse facility. This land has
been used to relocate the Company's retention pond, provide additional parking
facilities and allow for future expansion of the Company's current warehouse
facility. The purchase price for the land was $1,174,774. The purchase was
funded by drawing down on the Company's Chase Bank line of credit. As of
February 28, 2001, the total capital expenditures for the Company's expansion
project were $5,993,727, of which $1,864,830 (37.1%) was spent in 1999 for the
purchase of land, and $2,781,161 (46.4%) was spent in 2000 for the preparation
of the land and initial construction costs. The entire amount drawn on the
Company's Chase Bank line of credit during 1999 and 2000 to fund the expansion
project was repaid by the Company during the course of each year from its cash
flow. We expect to substantially complete the expansion project by the end of
the second quarter of 2001, with expenditures being funded primarily from cash
flow and draws on our line of credit.
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
There are no legal proceedings involving the Company.
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
2000.
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. 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.
7
Shares of Class A Common Stock are the only shares of capital stock with
voting rights. A Member-Dealer receives one vote for each share of Class A
Common Stock it owns. The number of record holders of each class of the
Company's Common Stock at February 28, 2001, was as follows:
DESCRIPTION NUMBER OF HOLDERS
- ----------- -----------------
Class A Common Stock (Voting), $100 par value 990
Class B Common Stock (Non-Voting), $100 par value 834
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.
8
ITEM 6. SELECTED FINANCIAL DATA
The following table provides selected financial information for the five
years ended December 31, 2000, derived from financial statements that have been
examined by independent public accountants. The table should be read in
conjunction with "Management's Discussion and Analysis" below and the financial
statements and the notes thereto included in Item 8.
YEAR ENDED DECEMBER 31,
----------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
OPERATING INCOME DATA:
Total Revenues $171,826,695 $161,375,588 $149,362,454 $128,966,073 $121,416,635
Net Sales 168,108,099 158,066,302 146,009,972 128,112,754 120,698,632
Total Expenses 170,655,442 159,894,033 147,999,775 126,796,355 119,559,309
Net Earnings
after Tax 704,849 992,020 893,489 1,408,230 1,206,222
Preferred Stock Dividends
Paid 585,925 554,346 682,368 620,812 515,029
Net Earnings Per Share of
Class A and Class B
Common Stock $ 1.60 $ 6.24 $ 3.16 $ 12.71 $ 12.13
YEAR ENDED DECEMBER 31,
----------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
BALANCE SHEET DATA:
Current Assets $ 27,290,088 $ 27,247,000 $ 26,041,957 $ 24,821,508 $ 22,168,721
Property
(Net of Accumulated
Depreciation) 13,204,168 10,756,483 9,516,835 9,408,768 9,466,577
Other Assets 753,462 677,547 483,405 477,010 440,405
------------ ------------ ------------ ------------ ------------
Total Assets $ 41,247,718 $ 38,681,030 $ 36,042,197 $ 34,707,286 $ 32,075,703
============ ============ ============ ============ ============
Current Liabilities $ 18,137,338 $ 16,969,588 $ 15,894,431 $ 15,705,578 $ 14,131,330
Long Term Liabilities 1,716,416 1,696,595 1,279,968 1,015,855 1,833,508
Stockholders' Equity 21,393,964 20,014,847 18,867,798 17,985,853 16,110,865
------------ ------------ ------------ ------------ ------------
Total Liabilities and
Stockholders' Equity $ 41,247,718 $ 38,681,030 $ 36,042,197 $ 34,707,286 $ 32,075,703
============ ============ ============ ============ ============
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The Company maintained its steady growth in 2000 while continuing to meet
its goal of providing quality goods to its Member-Dealers at its cost plus a
reasonable mark-up charge. Net sales in 2000 increased 6.4% ($10,041,797) over
1999 net sales, compared to an 8.3% growth rate ($12,056,330) of net sales in
1999 over 1998.
9
While sales grew in 2000, the increase was not as robust as the increase in
1999. The softening sales can be attributed to the weakening economy and decline
in consumer confidence especially evident in the last two quarters of the year,
as well as decreases in merchandise purchases of significant Member-Dealers in
the Houston, Central Texas, Southern Louisiana and Gulf Coast East selling
territories, and a curbing of Member-Dealer merchandise purchases in the Central
Texas and Gulf Coast East selling territories due to dry weather conditions
during the first three quarters of the year, labor and material shortages in the
building industry and pressure from retail warehouses in those markets.
Net Sales. During 2000, the increases in sales in the Houston territory,
the Austin, Brenham and Central Texas territory, the Southern Louisiana
territory and the Gulf Coast East territory were substantially dampened by
Member-Dealers reducing their purchases during this period. Comparing their
level of purchases in 1999 to their purchases in 2000, five significant Houston
territory Member-Dealers collectively decreased their sales by $2,579,821, three
significant Member-Dealers in the Austin, Brenham and Central Texas territory
collectively decreased their sales by $465,388, four significant Southern
Louisiana territory Member-Dealers collectively decreased their sales by
$982,871 and one significant Member-Dealer in the Gulf Coast East territory
decreased its sales by $339,036. In addition, dry weather conditions and
significant declines in new home construction negatively affected sales growth
in the Central Texas territory, while independent hardware stores in the Baton
Rouge, New Orleans and Gulf Coast East sales territory are beginning to feel the
pressure from retail warehouses in their market area.
Despite the reductions in purchases by Member-Dealers in some sales
territories, during 2000, net sales were positively affected by the steady
growth in the number of new Member-Dealers, with the Company adding 69% more new
Member-Dealers than were added during 1999. The Company expects that the
addition of these and future Member-Dealers, in both our current selling
territories and in our recently added territories of West Texas and New Mexico,
will continue to offset the decreased levels of purchases by some of our
longer-term Member-Dealers.
The following table summarizes the Company's sales during 2000, 1999 and
1998 by sales territory:
2000 1999 1998
---------------------------------------------- ---- ----
% INCREASE
IN SALES % OF % OF % OF
FROM PRIOR TOTAL TOTAL TOTAL
SALES TERRITORY SALES YEAR SALES SALES SALES
--------------- ----- ------------ ----- ----- -----
Houston Area $ 40,233,270 3% 23.9% 25.2% 26.6%
Victoria, San Antonio, Corpus Christi &
Rio Grande Valley Area* 34,460,092 12% 20.5% 19.5% 18.8%
North Texas, Dallas & Fort Worth Area 20,056,747 14% 11.9% 11.1% 13.2%
Austin, Brenham & Central Texas Area 20,813,046 4% 12.4% 12.8% 11.5%
West Texas & Eastern New Mexico(1) 853,570 248% 0.5% 0.0% 0.0%
Southern Louisiana Area 17,292,686 1% 10.3% 12.8% 12.4%
Baton Rouge, New Orleans, Mississippi, 13,423,187 3% 8.0% 8.1% 8.0%
Alabama & Florida Area
Arkansas Area 9,774,651 15% 5.8% 4.0% 3.5%
Oklahoma Area 11,200,760 10% 6.7% 6.5% 6.0%
------------- ---- --- -----
Totals: $ 168,108,009 100.0% 100.0% 100.0%
============== ===== ===== ======
- ------------------------
* Includes sales to Member-Dealers in Colorado, Mexico and Central
America.
(1) Sales for the West Texas and Eastern New Mexico area commenced in June
of 2000.
10
Net Material Costs and Rebates. Net material costs during 2000 were
$150,557,247, compared to $141,831,398 in 1999 and $130,554,986 in 1998. Net
material costs for 2000 increased only 6.2% over those costs in 1999, compared
to a larger increase in net material costs in 1999 of 8.6% over 1998 levels. The
6.2% increase in net material costs for 2000 was slightly less than the 6.4%
increase in net sales for the same period, compared to 1999 levels in which the
8.6% increase in net material costs was slightly higher than the 8.3% increase
in net sales for the same period. Net material costs as a percentage of sales
have remained fairly constant, with such costs totaling 89.6% of sales in 2000
as compared to 89.7% of sales for the same period in 1999 and 89.4% in 1998. Net
materials costs as a percentage of sales decreased slightly in 2000 compared to
1999 due to the Company selling more inventory items during 2000 at the
Company's highest gross margin, consisting of sales with a markup of 9%. Such
sales increased from $81,946,906 in 1999 to $89,394,301 during 2000. Further,
factory rebates and purchase discounts which the Company took as a credit
against material costs in 2000 increased over amounts credited for the same 1999
period. Rebates for 2000 increased $739,863 or 15.5% (2000 - $5,514,113 vs. 1999
- - $4,774,250) while purchase discounts for 2000 increased $309,173 or 9.8% (2000
- - $3,465,505 vs. 1999 - $3,156,332).
Payroll Costs. With unemployment at a three-decade low, the U.S. labor
market in 2000 was very tight. The increase in 2000 payroll costs resulted
primarily from salary increases needed to attract or retain high-quality
employees, as well as an increase in overtime payroll costs of 21.3% due to the
addition of a significant number of new Member-Dealers and the addition of new
and expanded delivery routes. As a result, payroll costs during 2000 increased
$682,045, an 8.7% increase over 1999 levels, compared to a more modest increase
of $352,553 (4.7%) during 1999 over 1998 levels. Despite the higher increase in
payroll costs, when compared to the increases in net sales (6.4% in 2000 and
8.3% in 1999), payroll costs as a percentage of each of total expenses and net
sales remained fairly constant at approximately 5.1%, 5.0% and 5.1% for 2000,
1999 and 1998, respectively. The continuing stability in payroll costs,
especially considering the sustained pressure on wages, has been a result of an
ongoing effort to maintain employee productivity.
Other Operating Costs. In 2000, other operating costs increased $1,334,570
(13.1%) over 1999 levels, while in 1999, these costs increased only $242,332
(2.4%) over 1998 levels. Other operating costs were 6.7% of total expenses in
2000, as compared to 6.4% in 1999 and 6.7% in 1998. In 2000, other operating
costs increased at approximately twice the rate of the percentage growth in both
net sales and total expenses.
More than 71.1% of 2000's increase in other operating costs resulted from
increases in delivery expenses. Delivery expenses increased from $3,816,990 in
1999 to $4,765,491 for the same period in 2000, an increase of $948,501 (24.8%)
over 1999 levels. In particular, increases in gasoline prices, additions of new
and expanded delivery routes and increases in the number of Member-Dealer
locations, particularly in the Company's more remote sales territories such as
West Texas and Eastern New Mexico, have resulted in a 57.0% increase in fuel
costs in 2000 as compared to 1999 and a 21.1% increase in rental truck expenses
due to increased delivery demand in 2000. Further, due to the shortage of
qualified truck drivers, contract delivery expenses have increased significantly
over 1999 levels, increasing more than twofold during 2000, and contract labor
expenses have increased 68.0%. We expect delivery expenses to continue to
increase as we expand our selling territories and add Member-Dealer locations,
offset to some extent by an increase in sales in these territories.
NET EARNINGS
While net sales for 2000 increased $10,041,797 (6.4%) over net sales in
1999, net material costs for 2000 increased only $8,725,849 (6.2%) from levels
in 1999, causing gross margin for 2000 to increase by $1,315,948 (8.1%). This
substantial increase in gross margin, however, was offset by an increase in
payroll costs of $682,045 (8.7%) and a significant increase in other operating
costs of $1,334,570 (13.1%). Thus pretax net earnings decreased 28.5%, from
$1,543,855 for 1999 to $1,103,351 in 2000, while after-tax net earnings
decreased by 28.9%.
Net earnings per share for 2000 decreased 74.4% as compared to 1999 due to
a significant decrease in total comprehensive earnings from the 1999 level and
an increase in dividends accrued in 2000 over 1999 levels. Dividends accrued
reduced total comprehensive earnings by 83.1% in 2000 compared to a 55.9%
reduction in 1999, resulting in lower net earnings applicable to common
stockholders for 2000 ($118,924) when compared to 1999 ($437,674).
11
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, although this often results in
lower net earnings for the Company. Because these trends benefit the individual
shareholders of the Company, almost all of whom purchase the Company's
merchandise as Member-Dealers, there is no demand from shareholders that the
Company focus greater attention upon earnings per share.
FINANCIAL CONDITION AND LIQUIDITY
In 2000, 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, software and
delivery equipment to better meet the needs of its Member-Dealers. Net cash
provided by the Company's operating activities may vary substantially from year
to year. These variations result from (i) the state of the regional economy in
the Company's selling territories, (ii) payment terms the Company offers to its
Member-Dealers, (iii) payment terms available to the Company from its suppliers,
and (iv) the timing of promotional activities such as the Company's fall trade
show.
During 2000 there was an increase of $48,039 in the Company's cash and cash
equivalents. The Company generated cash flow from operating activities of
$3,112,053 compared to $1,928,910 of cash from operations during 1999 and
$858,114 in 1998. The substantial increase in cash flow in 2000 was principally
attributable to variances in accounts payable and accounts receivable, which
were offset by the negative effect on cash flow caused by a decrease in total
comprehensive earnings and accrued expenses payable and an increase in
inventory. Net cash provided by financing activities was $551,965 in 2000 and
$443,170 in 1999, as compared to $253,248 in 1998. This difference was
principally attributable to an increase in the proceeds from issuance of stock
and a decline in the purchase of treasury stock.
Accounts payable more than doubled over 1999 levels, increasing $1,963,384
during 2000. This significant increase is primarily attributable to the extended
dating terms for payment offered to the Company by suppliers.
Accounts receivable decreased in 2000 by $780,104 as compared to an
increase of $295,837 in 1999, a net variance of $1,075,941. The decline in the
levels of accounts receivable during the last year is attributable to a weaker
economy which resulted in Member-Dealers being more cautious in their purchasing
at the end of the year.
As of December 31, 2000, total comprehensive earnings were $704,849, 28.9 %
less than total comprehensive earnings in 1999. The 28.9% decrease in total
comprehensive earnings was mainly attributable to a 13.1% increase in operating
expenses during 2000, largely due to significantly increased delivery expenses.
Accrued expenses payable decreased by $711,940 in 2000 as compared to an
increase of $244,757 in the same 1999 period, a net variance of $956,697, mainly
attributable to a timing difference in the receipt of expenses for the warehouse
expansion project and other expenses, as well as a decline in 2000 of the
accrual for the employee profit sharing plan.
The increase in inventory of $819,972 in 2000 was significantly lower than
the increase in 1999 of $1,041,067 due to the shrinking availability of
warehouse space during 2000 as the Company awaits completion of its new 241,000
square foot warehouse addition. The Company ended 2000 with approximately 36,980
stockkeeping units.
12
The Company's continuing ability to generate cash to fund its 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:
DECEMBER 31,
---------------------------------------------------------------
2000 1999 1998
---- ---- ----
Working Capital $9,152,750 $10,277,412 $10,147,526
Current Ratio 1.50 to 1 1.61 to 1 1.64 to 1
Debt as Percentage of Capitalization 8.0% 8.5% 6.8%
In 2001, the Company expects to further expand its existing customer base
in Arkansas, Oklahoma, West Texas and New Mexico. The Company will finance this
expansion with anticipated increased revenues from sales to the new
Member-Dealers in these territories, and with receipts from sales of stock to
new and current Member-Dealers. The Company expects that expansion in these
selling territories will have a beneficial effect on its ability to generate
cash to meet its funding needs.
CAPITAL RESOURCES
Over the past five years the Company's investments in plant and equipment
have amounted to more than $8.4 million, and have provided the Company 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 2000, the Company invested $3,552,032 in plant and equipment, with
$2,112,416 used for the Company's warehouse expansion project, including capital
improvements such as a parking lot and retention pond ($692,571). The remainder
was used to upgrade the Company's computer system and purchase order entry
terminals ($179,274), to purchase office furniture and equipment ($105,917), to
upgrade the Company's auto fleet ($130,330), to purchase warehouse equipment
($183,151) and to purchase six trailers ($148,373).
In January, 1999 the Company purchased 29.96 acres of land located across
the street from the current warehouse facility for $1,174,774. The land has been
used to relocate the Company's retention pond, provide additional parking
facilities and allow for future expansion of the current warehouse facility. The
purchase was funded by drawing down on the Company's Chase Bank line of credit,
which has since been entirely repaid from cash flow. As of February 28, 2001,
the total capital expenditures for the Company's expansion project were
$5,993,727, 31.1% of which was spent in 1999 primarily for the purchase of the
land, and 46.4% of which was spent in 2000 for preparation of the land and
initial construction costs. The entire amount periodically drawn on the
Company's Chase Bank line of credit to fund the expansion project was repaid by
the Company during each of 1999 and 2000 from its cash flow.
In April 2000 the Company's unsecured revolving line of credit with Chase
Bank of Texas was increased to $10,000,000 and was extended to mature in April
2002. This line is used from time to time for brief periods for working capital
and other financing needs of the Company. The average daily outstanding balance
under this line during 2000 was $174,266. At December 31, 2000 there was no
outstanding balance on this line of credit.
In March 1999, Deutsche Financial Services extended to the Company a
$5,000,000 credit facility as an inventory financing source. There was no
borrowing under this agreement during 1999 or 2000. In 2000, the Company
discontinued this financing relationship.
13
The Company has budgeted approximately $4,407,000 for year 2001 capital
expenditures. Of this amount, $4,236,900 will be used to expand and upgrade the
Company's current warehouse facility. It is likely that the expense of this
project will be funded through third-party financing, including the Company's
existing credit sources. Of the remaining capital expenditures, the Company has
budgeted approximately $60,000 to improve the Company's fleet of automobiles,
$80,000 to upgrade the Company's computer equipment and approximately $30,000 to
upgrade office furniture and equipment.
The Company's cash position of $1,221,788 at December 31, 2000 is
anticipated to be sufficient to fund the budgeted year 2001 capital
expenditures, except for the warehouse expansion project for which the Company
will utilize some third party financing, including the Company's existing credit
sources.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
14
HANDY HARDWARE WHOLESALE, INC.
FINANCIAL STATEMENTS
DECEMBER 31, 2000
15
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, 2000 and 1999, and the related statements of earnings,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 2000. 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, 2000 and 1999, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2000, in conformity
with generally accepted accounting principles.
/s/ Clyde D. Thomas & Company, P.C.
---------------------------------------
CLYDE D. THOMAS & COMPANY, P. C.
Certified Public Accountants
February 23, 2001
Pasadena, Texas
16
HANDY HARDWARE WHOLESALE, INC.
BALANCE SHEETS
--------------
DECEMBER 31,
----------------------------------
2000 1999
---- ----
ASSETS
------
CURRENT ASSETS
- --------------
Cash $ 1,221,788 $ 1,173,749
Accounts receivable - trade, net of subscriptions receivable and
allowance for doubtful accounts 9,851,178 10,631,282
Inventory 15,967,049 15,147,077
Note receivable 6,904 12,748
Prepaid expenses 172,387 181,809
Prepaid income tax 70,782 100,335
------------ ------------
Total Current Assets $ 27,290,088 $ 27,247,000
------------ ------------
PROPERTY, PLANT AND EQUIPMENT
- -----------------------------
At cost, less accumulated depreciation of
$5,549,306 (2000) and $5,162,434 (1999) $ 13,204,168 $ 10,756,483
------------ ------------
OTHER ASSETS
- ------------
Notes receivable $ 310,910 $ 232,710
Deferred compensation funded 426,712 429,688
Prepaid expenses 15,840 15,149
------------ ------------
$ 753,462 $ 677,547
------------ ------------
TOTAL ASSETS $ 41,247,718 $ 38,681,030
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Notes payable - stock - current portion $ 57,000 $ 107,200
Notes payable - capital leases 7,889 41,383
Accounts payable - trade 17,415,001 15,679,858
Accrued expenses payable 657,448 1,141,147
------------ -----------
Total Current Liabilities $ 18,137,338 $ 16,969,588
------------ ------------
NONCURRENT LIABILITIES
- ----------------------
Notes payable - stock - noncurrent portion $ 756,560 $ 787,280
Notes payable - capital leases 17,591 25,480
Notes payable - vendor consignment merchandise 309,975 224,872
Deferred compensation payable 426,712 429,688
Deferred income taxes payable 205,578 229,275
------------ ------------
$ 1,716,416 $ 1,696,595
------------ ------------
Total Liabilities $ 19,853,754 $ 18,666,183
------------ ------------
17
HANDY HARDWARE WHOLESALE, INC.
BALANCE SHEETS
--------------
DECEMBER 31,
------------------------------------
2000 1999
---- ----
STOCKHOLDERS' EQUITY
- --------------------
Common stock, Class A, authorized 20,000 shares, $100
par value per share, issued 10,020 and 9,190 shares $ 1,002,000 $ 919,000
Common stock, Class B, authorized 100,000 shares, $100
par value per share, issued 64,053 and 58,768 shares 6,405,300 5,876,800
Common stock, Class B subscribed, 4,804.89 and
4,498.24 shares 480,489 449,824
Less subscriptions receivable for Class B Common stock (25,475) (27,242)
Preferred stock, 7% cumulative, authorized 100,000 shares
$100 par value per share, issued 66,826 and 61,386.5 shares 6,682,600 6,138,650
Preferred stock subscribed, 4,804.89 and 4,498.24 shares 480,489 449,824
Less subscriptions receivable for Preferred stock (25,475) (27,242)
Paid in surplus 403,489 363,610
-------------- --------------
$ 15,403,417 $ 14,143,224
-------------- --------------
Retained earnings exclusive of other comprehensive earnings $ 5,929,180 $ 5,765,441
Retained earnings applicable to other comprehensive earnings 61,367 106,182
-------------- --------------
Total retained earnings $ 5,990,547 $ 5,871,623
-------------- --------------
Total Stockholders' Equity $ 21,393,964 $ 20,014,847
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 41,247,718 $ 38,681,030
------------------------------------------ ============== ==============
See accompanying summary of accounting policies and notes to financial
statements.
18
HANDY HARDWARE WHOLESALE, INC.
STATEMENTS OF EARNINGS
----------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
2000 1999 1998
---- ---- ----
REVENUE
- -------
Net sales $ 168,108,099 $158,066,302 $146,009,972
Sundry income 3,718,596 3,309,286 3,352,482
------------- ------------ -------------
Total Revenue $ 171,826,695 $161,375,588 $149,362,454
------------- ------------ -------------
EXPENSES
- --------
Net material costs $ 150,557,247 $141,831,398 $130,554,986
Payroll costs 8,500,631 7,818,586 7,466,033
Other operating costs 11,510,385 10,175,815 9,933,483
Interest expense 87,179 68,234 45,273
------------- ------------ ------------
Total Expenses $ 170,655,442 $159,894,033 $147,999,775
------------- ------------ ------------
EARNINGS BEFORE PROVISION FOR FEDERAL
INCOME TAX $ 1,171,253 $ 1,481,555 $ 1,362,679
- -------------------------------------
PROVISION FOR FEDERAL INCOME TAX 421,589 530,653 485,530
- -------------------------------- ------------- ------------ ------------
NET EARNINGS $ 749,664 950,902 $ 877,149
- ------------ ------------- ------------ ------------
OTHER COMPREHENSIVE EARNINGS
- ----------------------------
Unrealized gain (loss) on securities $ (67,902) $ 62,300 $ 24,758
Provision for federal income tax (23,087) 21,182 8,418
------------- ------------ ------------
Other comprehensive earnings (loss) net of tax $ (44,815) $ 41,118 $ 16,340
------------- ------------ ------------
TOTAL COMPREHENSIVE EARNINGS $ 704,849 $ 992,020 $ 893,489
- ----------------------------
LESS DIVIDENDS ON PREFERRED STOCK 585,925 554,346 682,368
- --------------------------------- ------------- ------------ ------------
NET EARNINGS APPLICABLE
TO COMMON STOCKHOLDERS $ 118,924 $ 437,674 $ 211,121
- ------------------------ ============= ============ ============
NET EARNINGS PER SHARE OF COMMON STOCK
CLASS A & CLASS B $ 1.60 $ 6.24 $ 3.16
- -------------------------------------- ============= ============ ============
See accompanying summary of accounting policies and notes to financial
statements.
19
HANDY HARDWARE WHOLESALE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
----------------------------------
YEAR ENDED DECEMBER 31
----------------------------------------------------------
2000 1999 1998
---- ---- ----
COMMON STOCK, CLASS A $100 PAR VALUE
- ------------------------------------
Balance at January 1, $ 919,000 $ 893,000 $ 868,000
Stock issued (year 2000 - 1,270 shares) 127,000 79,000 83,000
Stock canceled (year 2000 - 440 shares) (44,000) (53,000) (58,000)
------------ ------------ ------------
Balance at December 31, $ 1,002,000 $ 919,000 $ 893,000
------------ ------------ ------------
COMMON STOCK, CLASS B, $100 PAR VALUE
- -------------------------------------
Balance at January 1, $ 5,876,800 $ 5,566,700 $ 5,251,300
Stock issued (year 2000 - 7,592 shares) 759,200 702,900 659,000
Stock canceled (year 2000 - 2,307 shares) (230,700) (392,800) (343,600)
----------- ----------- -----------
Balance at December 31, $ 6,405,300 $ 5,876,800 $ 5,566,700
------------ ------------ ------------
COMMON STOCK, CLASS B, SUBSCRIBED
- ---------------------------------
Balance at January 1, $ 449,824 $ 430,998 $ 436,135
Stock subscribed 778,265 687,326 658,663
Transferred to stock (747,600) (668,500) (663,800)
------------ ------------ ------------
Balance at December 31, $ 480,489 $ 449,824 $ 430,998
Less subscription receivable (25,475) (27,242) (25,867)
------------- ------------ ------------
Total $ 455,014 $ 422,582 $ 405,131
----------- ------------ ------------
PREFERRED STOCK, 7% CUMULATIVE $100 PAR VALUE
- ---------------------------------------------
Balance at January 1, $ 6,138,650 $ 5,824,650 $ 5,500,175
Stock issued (year 2000 - 7,922 shares) 792,200 728,925 691,000
Stock canceled (year 2000 - 2,485.5 shares) (248,250) (414,925) (366,525)
------------ ------------ -----------
Balance at December 31, $ 6,682,600 $ 6,138,650 $ 5,824,650
------------ ------------ -----------
PREFERRED STOCK, 7% CUMULATIVE SUBSCRIBED
- -----------------------------------------
Balance at January 1, $ 449,824 $ 430,998 $ 436,135
Stock subscribed 778,265 687,326 658,663
Transferred to stock (747,600) (668,500) (663,800)
------------ ------------ ------------
Balance at December 31, $ 480,489 $ 449,824 $ 430,998
Less subscription receivable (25,475) (27,242) (25,868)
------------ ------------ ------------
Total $ 455,014 $ 422,582 $ 405,130
------------ ------------ ------------
PAID IN CAPITAL SURPLUS
- -----------------------
Balance at January 1, $ 363,610 $ 339,238 $ 314,731
Additions 39,879 24,372 24,507
------------ ------------ ------------
Balance at December 31, $ 403,489 $ 363,610 $ 339,238
------------ ------------ ------------
TREASURY STOCK, AT COST
COMMON STOCK, CLASS A, AT COST
- ---------------------------------
Balance at January 1, $ - $ - $ -
Stock reacquired (44,000) (53,000) (58,000)
Stock canceled 44,000 53,000 58,000
Stock issued - - -
------------ ------------ ------------
Balance at December 31, $ - $ - $ -
------------ ------------ ------------
20
HANDY HARDWARE WHOLESALE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
----------------------------------
PAGE 2
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
2000 1999 1998
---- ---- ----
COMMON STOCK, CLASS B, AT COST
------------------------------
Balance at January 1, $ - $ - $ -
Stock reacquired (230,700) (392,800) (343,600)
Stock canceled 230,700 392,800 343,600
Stock issued - - -
------------ ------------ ------------
Balance at December 31, $ - $ - $ -
------------ ------------ ------------
PREFERRED STOCK, 7% CUMULATIVE AT COST
--------------------------------------
Balance at January 1, $ - $ - $ -
Stock reacquired (248,250) (414,925) (366,525)
Stock canceled 248,250 414,925 366,525
Stock issued - - -
------------- ------------ ------------
Balance at December 31, $ - $ - $ -
------------- ------------ ------------
TOTAL TREASURY STOCK $ - $ - $ -
-------------------- ------------- ------------ ------------
RETAINED EARNINGS
- -----------------
Balance at January 1 $ 5,871,623 $ 5,433,949 $ 5,222,828
Add: Net earnings year ending December 31 749,664 950,902 877,149
Other comprehensive earnings (loss) (44,815) 41,118 16,340
Deduct: Cash dividends on Preferred Stock 585,925 554,346 682,368
------------ ------------ ------------
Balance at December 31, $ 5,990,547 $ 5,871,623 $ 5,433,949
------------ ------------ ------------
TOTAL STOCKHOLDERS' EQUITY $ 21,393,964 $ 20,014,847 $ 18,867,798
- -------------------------- ============ ============ ============
See accompanying summary of accounting policies and notes to financial
statements.
21
HANDY HARDWARE WHOLESALE, INC.
STATEMENTS OF CASH FLOWS
------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------
2000 1999 1998
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Total Comprehensive Earnings $ 704,849 $ 992,020 $ 893,489
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation 1,104,347 1,034,733 1,005,576
Deferred income tax (23,697) (18,758) (16,803)
(Gain) Loss on sale of property, plant, and equipment (979) (1,232) (10,986)
Unrealized gain (increase) decrease in fair market
value of securities 67,902 (62,300) (24,758)
Changes in assets and liabilities:
(Increase) Decrease in accounts receivable 780,104 (295,837) (303,400)
(Increase) Decrease in notes receivable (72,356) (104,922) (14,629)
(Increase) Decrease in inventory (819,972) (1,041,067) (710,063)
(Increase) Decrease in prepaid expenses 38,284 203,872 (165,289)
Increase (Decrease) in note payable for vendor
consignment merchandise 85,103 110,165 (2,489)
Increase (Decrease) in accounts payable 1,963,384 766,875 362,826
Increase (Decrease) in accrued expenses payable (711,940) 244,757 (154,290)
Increase (Decrease) in current income tax payable - - (45,253)
Increase (Decrease) in deferred
compensation payable (2,976) 100,604 44,183
------------ ------------ ------------
Net Cash Provided by (Used for) Operating Activities 3,112,053 1,928,910 858,114
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Capital expenditures for property, plant, and equipment $ (3,552,032) $ (2,284,387) $ (1,113,643)
Investment in deferred compensation funded (9,650) (9,650) (9,650)
Sale of property, plant and equipment 979 11,238 10,986
Reinvested dividends, interest, and capital gains (55,276) (28,654) (9,775)
------------ ------------ ------------
Net Cash Provided by (Used for ) Investing Activities (3,615,979) (2,311,453) (1,122,082)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Note Payable - line of credit borrowing $ 22,306,000 $ 15,937,543 $ 4,320,000
Note Payable - line of credit payments (22,306,000) (15,937,543) (4,320,000)
Increase (Decrease) in notes payable - lease (41,383) (58,309) (52,488)
Increase (Decrease) in notes payable - stock (80,920) 346,450 317,280
(Increase) Decrease in subscription receivable 3,534 (2,749) (8,284)
Proceeds from issuance of stock 1,779,609 1,572,849 1,447,233
Purchase of treasury stock (522,950) (860,725) (768,125)
Dividends paid (585,925) (554,346) (682,368)
------------ ------------ ------------
Net Cash Provided by (Used for) Financing Activities $ 551,965 $ 443,170 $ 253,248
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 48,039 $ 60,627 $ (10,720)
- ----------------------------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,173,749 1,113,122 1,123,842
- ---------------------------------------------- ------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,221,788 $ 1,173,749 $ 1,113,122
- ---------------------------------------- ============ ============ ============
ADDITIONAL RELATED DISCLOSURES TO THE STATEMENT OF CASH FLOWS
- -------------------------------------------------------------
Interest expense paid $ 87,179 $ 68,234 $ 45,273
Income tax payments 392,646 565,043 616,635
See accompanying summary of accounting policies and notes to financial
statements.
22
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
-----------------
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.
The Company wholesales hardware to its dealers in Texas, Oklahoma,
Louisiana, Alabama, Mississippi, Arkansas, Florida, Colorado, New Mexico,
Mexico, and Central America.
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 of
$100,000 normally extended to such accounts. At December 31, 2000, the
balance of this account amounted to $1,203,357.
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:
Life Method of
Asset in Years Depreciation
------------------------------------------- -------- ------------
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
Property, plant and equipment consists of:
December 31,
--------------------------
2000 1999
---- ----
Land $ 3,207,866 $ 3,202,572
Buildings & improvements 11,342,194 8,549,156
Furniture, computer, warehouse equipment 3,642,310 3,740,954
Transportation equipment 561,104 426,235
----------- -----------
$18,753,474 $15,918,917
Less: Accumulated depreciation 5,549,306 5,162,434
----------- -----------
$13,204,168 $10,756,483
=========== ===========
Depreciation expense for the year ended December 31, 2000, amounted to
$1,104,347 compared with $1,034,733 for the year ended December 31, 1999.
23
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
-----------------
NOTE 1 - ACCOUNTING POLICIES (CONTINUED)
- ----------------------------------------
Changes in property, plant, and equipment for the year ended December 31, 2000,
are shown in the following schedule:
Balance Additions Other Balance
1-1-2000 At Cost Requirements Changes 12-31-2000
-------- -------- ------------ ------- ----------
Land $ 3,202,572 $ 5,294 $ - $ - $ 3,207,866
Construction in Progress-
warehouse expansion - 2,107,122 - - 2,107,122
Buildings and improvements 8,549,156 692,571 6,655 - 9,235,072
Furniture, computers and
warehouse equipment 3,740,954 468,342 566,986 - 3,642,310
Transportation equipment 426,235 278,703 143,834 - 561,104
----------- ---------- ----------- -------- -----------
$15,918,917 $3,552,032 $ 717,475 $ - $18,753,474
=========== ========== =========== ======== ===========
Changes in property, plant, and equipment for the year ended December 31, 1999,
are shown in the following schedule:
Balance Additions Other Balance
1-1-1999 At Cost Requirements Changes 12-31-1999
-------- -------- ------------ ------- ----------
Land $ 2,027,797 $1,174,775 $ - $ - $ 3,202,572
Buildings and improvements 7,859,100 690,056 - - 8,549,156
Furniture, computers and
warehouse equipment 3,721,832 348,494 329,372 - 3,740,954
Transportation equipment 425,272 71,063 70,100 - 426,235
----------- ---------- --------- -------- -----------
$14,034,001 $2,284,388 $ 399,472 $ - $15,918,917
=========== ========== ========= ======== ===========
Changes in property, plant, and equipment for the year ended December 31, 1998,
are shown in the following schedule:
Balance Additions Other Balance
1-1-1998 At Cost Requirements Changes 12-31-1998
-------- -------- ------------ ------- ----------
Land $ 2,027,797 $ - $ - $ - $ 2,027,797
Buildings and improvements 7,752,216 106,884 - - 7,859,100
Furniture, computers and
warehouse equipment 3,341,692 908,343 528,203 - 3,721,832
Transportation equipment 435,990 98,416 109,134 - 425,272
----------- ---------- --------- -------- -----------
$13,557,695 $1,113,643 $ 637,337 $ - $14,034,001
=========== ========== ========= ======== ===========
24
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
-----------------
NOTE 1 - ACCOUNTING POLICIES (CONTINUED)
- ----------------------------------------
Changes in accumulated depreciation for property, plant, and equipment for the
year ended December 31, 2000, are shown in the following schedule:
Balance Additions Other Balance
1-1-2000 At Cost Requirements Changes 12-31-2000
-------- -------- ------------ ------- ----------
Land $ - $ - $ - $ - $ -
Buildings and improvements 2,357,085 404,808 6,655 - 2,755,238
Furniture, computers and
warehouse equipment 2,496,183 579,484 566,986 - 2,508,861
Transportation equipment 309,166 120,055 143,834 - 285,387
----------- ---------- --------- -------- -----------
$ 5,162,434 $1,104,347 $ 717,475 $ - $ 5,549,306
=========== ========== ========= ======== ===========
Changes in accumulated depreciation for property, plant, and equipment for the
year ended December 31, 1999, are shown in the following schedule:
Balance Additions Other Balance
1-1-1999 At Cost Requirements Changes 12-31-1999
-------- -------- ------------ ------- ----------
Land $ - $ - $ - $ - $ -
Buildings and improvements 2,093,539 263,546 - - 2,357,085
Furniture, computers and
warehouse equipment 2,154,561 670,994 329,372 - 2,496,183
Transportation equipment 269,066 100,193 60,093 - 309,166
----------- ---------- --------- -------- -----------
$ 4,517,166 $1,034,733 $ 389,465 $ - $ 5,162,434
=========== ========== ========= ======== ===========
Changes in accumulated depreciation for property, plant, and equipment for the
year ended December 31, 1998, are shown in the following schedule:
Balance Additions Other Balance
1-1-1998 At Cost Requirements Changes 12-31-1998
-------- -------- ------------ ------- ----------
Land $ - $ - $ - $ - $ -
Buildings and improvements 1,836,818 256,721 - - 2,093,539
Furniture, computers and
warehouse equipment 2,041,174 641,590 528,203 - 2,154,561
Transportation equipment 270,935 107,265 109,134 - 269,066
----------- ---------- --------- -------- -----------
$ 4,148,927 $1,005,576 $ 637,337 $ - $ 4,517,166
=========== ========== ========= ======== ===========
25
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
-----------------
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 by 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:
Annual Tax Tax Depreciation
Depreciation Over (Over) Under Book Total Accumulation
(Under) Book Depreciation for Tax Over Book
Year Depreciation Deleted Assets Depreciation
---- ------------ -------------- ------------
12-31-98 (21,873) (5,322) 1,270,884
12-31-99 (22,129) 8,918 1,257,673
12-31-00 41,414 (197) 1,298,890
2. Deferred compensation is accrued as follows:
Balance, December 31, 1999 $ 429,688
Decrease for year ended December 31, 2000 (2,976)
------------
Balance, December 31, 2000 $ 426,712
============
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.
December 31,
--------------------------------------
2000 1999
--------------- ---------------
Book inventory $15,967,049 $15,147,077
Adjustment for 263A uniform
capitalization costs 320,046 296,130
------------ ------------
Inventory for tax return $16,287,095 $15,443,207
=========== ===========
The Company accounts for any tax credits as a reduction of income tax
expense in the year in which such credits arise.
26
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
-----------------
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:
Year ended December 31,
---------------------------------------------------
2000 1999 1998
---------- ----------- -----------
Total Comprehensive Earnings $ 704,849 $ 992,020 $ 893,489
Less: Dividends on preferred stock 585,925 554,346 682,368
----------- ----------- -----------
$ 118,924 $ 437,674 $ 211,121
Weighted average shares of common stock (Class A
and Class B outstanding) 74,492 70,101 66,763
Net earnings (Loss) per share of
common stock $ 1.60 $ 6.24 $ 3.16
Preferred Stock Dividends
-------------------------
Cash dividends paid on the Company's outstanding preferred stock (par value
$100 per share) were 10% for 2000, 10% for 1999, and 10% for 1998,
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
December 31 Shares Outstanding Per Share
----------- ------------------ ---------
2000 67,602 $ 8.67
1999 63,662 8.71
1998 60,531 11.27
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.
27
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.
28
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
-----------------
NOTE 1 - ACCOUNTING POLICIES (CONTINUED)
- ---------------------------------------
Reclassification of Reimbursements for Expenses
-----------------------------------------------
For the year ended December 31, 2000, the Company determined a preferable
method of recording reimbursements for expenses would be to record the
amounts received as sundry income and to report the other operating costs
without reduction for reimbursements. The change was made for business
planning purposes and has no effect on net earnings.
The following schedule shows the changes.
Year ended December 31,
----------------------------------------------------
2000 1999 1998
---- ---- ----
Sundry Income
Before change $ 1,138,257 $ 971,392 $ 915,430
Restated 3,718,596 3,309,286 3,352,482
------------ ------------- -------------
Difference $ 2,580,339 $ 2,337,894 $ 2,437,052
============ ============= =============
Other Operating Costs
Before change $ 8,930,046 $ 7,837,921 $ 7,496,431
Restated 11,510,385 10,175,815 9,933,483
------------ ------------- -------------
Difference $ 2,580,339 $ 2,337,894 $ 2,437,052
============ ============= =============
NOTE 2 - NOTES RECEIVABLE
- -------------------------
Notes receivable reflect amounts due to the Company from its Member-Dealers
under deferred payment agreements and installment sales agreements, as well
as amounts due from former Member-Dealers for inventory purchases.
Under the deferred 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. In September, 1999,
virtually the same type of deferred payment agreement was put into effect
with Chicago Specialty, a manufacturer of plumbing supplies.
Notes receivable are classified as follows:
December 31,
--------------------------------
2000 1999
----------- ----------
Current $ 6,904 $ 12,748
Nonncurrent 310,910 232,710
-------- --------
Total $ 317,814 $ 245,458
=========== ==========
29
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
-----------------
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 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 on outstanding notes currently range
from 5.25% to 7.0%.
Notes payable - stock are classified as follows:
December 31,
------------------------------
2000 1999
---------- ---------
Current $ 57,000 $ 107,200
Noncurrent 756,560 787,280
-------- --------
Total $ 813,560 $ 894,480
========== =========
Principal payments applicable to the next five years are as follows:
2001 $ 57,000
2002 32,800
2003 324,280
2004 358,200
2005 41,280
-----------
$ 813,560
===========
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):
Year ended December 31,
-------------------------------------------------
2000 1999 1998
---------- ---------- ----------
Excess of tax over book depreciation $1,298,890 $1,257,673 $1,270,884
Allowance for doubtful accounts (29,749) (7,195) (7,195)
Inventory - ending inventory adjustment
for tax recognition of sec. 263A
uniform capitalization costs (320,046) (296,130) (292,008)
Deferred compensation (344,453) (280,010) (242,173)
----------- ----------- -----------
Total $ 604,642 $ 674,337 $ 729,508
Statutory tax rate 34% 34% 34%
---------- ---------- ----------
Cumulative deferred income tax payable $ 205,578 $ 229,275 $ 248,033
========== ========== ==========
Classified as:
Current liability $ - $ - $ -
Noncurrent liability 205,578 229,275 248,033
---------- ---------- ----------
$ 205,578 $ 229,275 $ 248,033
========== ========== ==========
30
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
-----------------
NOTE 4- INCOME TAXES (CONTINUED)
- --------------------------------
Reconciliation of income taxes on difference between tax and financial
accounting:
Year ended December 31,
------------------------------------
2000 1999 1998
---------- --------- ---------
Principal components of income tax expense Federal:
Current
Income tax paid $ 392,646 $ 565,043 $ 616,635
Carryover of prepayment from prior year 100,335 105,884 -
Current income tax payable - - -
--------- --------- ---------
$ 492,981 $ 670,927 $ 616,635
Carryover to subsequent year (70,783) (100,335) (105,883)
--------- --------- ---------
Income tax for tax reporting at statutory rate of 34% $ 422,198 $ 570,592 $ 510,752
Deferred
Adjustments for financial reporting:
Depreciation 14,014 (4,492) (9,246)
263A uniform capitalization costs (8,131) (1,401) (1,095)
Other (29,579) (12,864) (6,463)
--------- --------- ---------
Provision for federal income tax (U.S.) $ 398,502 $ 551,835 $ 493,948
========= ========= =========
The Company is not exempt from income tax except for municipal bond
interest earned in an amount of $2,261.
Handy is not classified as a nonexempt cooperative under the provisions of
the Internal Revenue Code and is not entitled to deduct preferred dividends
in determining its taxable income.
NOTE 5 - LEASES
- ---------------
Operating Leases
----------------
The Company leases certain trucks and trailers under long-term operating
lease agreements. Leases expire in each of the years between 2000 and 2006.
The following is a schedule of future minimum lease payments for operating
leases as of December 31, 2000 and 1999 for the subsequent five years:
Year ended
December 31,
----------------------------------
2000 1999
--------- -----------
2000 $ - $ 644,799
2001 603,192 558,180
2002 359,873 215,282
2003 253,148 112,148
2004 219,239 70,126
2005 161,892 -
31
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
-----------------
NOTE 5 - LEASES (CONTINUED)
- ---------------------------
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:
Year ended
December 31,
------------------------------------------
2000 1999
---------- ----------
Class of Property
Furniture, computers,
and warehouse equipment $ 166,479 $ 166,479
Less: Accumulated depreciation 154,547 140,037
--------- ---------
$ 11,932 $ 26,442
========== ==========
The following is a schedule by year of future minimum lease payments for
capital leases.
Year ended
December 31,
------------------------------------------
2000 1999
---------- ----------
2000 $ - $ 41,383
2001 7,889 7,889
2002 17,591 17,591
---------- ----------
Total $ 25,480 $ 66,863
========== ==========
The lease payments at year-end 2000 are reflected in the Balance Sheet as
current and noncurrent obligations under capital leases of $7,889 and
$17,591 respectively. The estimated interest rates range from 4% to 9%.
Rental Expenses
Rental expenses for the preceding three years are:
2000 $ 1,328,764
1999 1,089,000
1998 1,251,805
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.
32
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
-----------------
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 to the Plan a portion of their compensation,
known as elective deferrals. Each year, the Company will make matching
contributions in the percentage 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. During 2000, the employees
could contribute up to 6% of their gross annual compensation with 50% of
such contribution matched by the Company. In addition, the employees could
contribute an additional 9% with no Company matching contribution.
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
vest after three years of service at 20% and continue 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:
2000 $ 397,387
1999 551,311
1998 506,812
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.
33
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
-----------------
NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED)
- -----------------------------------------
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, with an additional
charge ("Purchase Funds") equal to 2 percent of that Member-Dealer's
warehouse purchases until the Member-Dealer's Desired Stock Ownership for
that year is attained. Although the Subscription Agreement entitles the
Company 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, 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
($1,000) and ten shares of Preferred Stock ($1,000) each 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.
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 paid to the Member-Dealer immediately at the time of
repurchase.
Stock Repurchase
-----------------
In 2000 and 1999 the Board approved the continuation of its program of
repurchasing certain shares from those shareholders who are over-invested
in the Company's capital stock by $4,000 or more. The amount repurchased
each year was the amount of stock (based on purchase price of $100 per
34
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 at least $10,000, but may be more based on the
shareholder's Desired Stock Ownership level. In 2000 and 1999 the Company
repurchased 217 and 268 shares for $21,700 and $26,800 respectively.
35
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
-----------------
NOTE 9 - LINE OF CREDIT
- -----------------------
In April, 2000, Chase Bank of Texas, N. A., ("the Bank") extended to the
Company an unsecured $10 million revolving line of credit with an April 30,
2002, maturity date. The interest rate is 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 line has been used from time to time for
working capital and other financing needs of the Company. At December,
2000, there was no outstanding balance due on the line of credit. The total
of all the borrowings against and repayments of the line of credit
throughout the year were as follows.
Balance Borrowings Repayments Balance Interest Interest
1-01-00 Throughout 2000 Throughout 2000 12-31-00 Rate Paid
------- --------------- --------------- -------- -------- --------
$-0- $22,306,000 $22,306,000 $-0- 7% to 8% $29,144
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, 2002.
NOTE 10 - COMPREHENSIVE EARNINGS
- --------------------------------
1. Deferred compensation f unded in the amount of $426,712 on the Balance
Sheet as a non-current asset at December 31, 2000, includes equity
securities classified as investments available for sale in the amount of
$370,312 at fair market value. The $370,312 includes $92,979 unrealized
gain on securities resulting from the increase in fair market value. The
cost of the equity securities is $277,333.
2. Changes in Equity Securities:
Year Ended
December 31, 2000
-----------------
Balance, January 1, 2000 $ 376,768 $ -
Purchases 6,170 111,230
Dividends, interest and capital gains 55,276 166,103
Unrealized gains (losses) on securities resulting from
Increase (decrease) in fair market value (67,902) 92,979
----------- ----------
Balance, December 31, 2000 $ 370,312 $ 370,312
=========== ==========
3. Components of Comprehensive Earnings:
Other Comprehensive Net Earnings
Total Earnings - Unrealized Exclusive of Other
Comprehensive Gains (Losses) Comprehensive
Earnings on Securities Earnings
-------- ------------- --------
Net earnings before provision for
federal income tax $ 1,103,351 $ (67,902) $ 1,171,253
Provision for federal income tax 398,502 (23,087) 421,589
------------ ----------- -----------
Net earnings $ 704,849 $ (44,815) $ 749,664
============ =========== ===========
36
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
-----------------
NOTE 10 - COMPREHENSIVE EARNING (CONTINUED)
- -------------------------------------------
4. Components of Retained Earnings
Retained Earnings Retained Earnings
Applicable to Other Exclusive of Other
Total Comprehensive Earnings Comprehensive Earnings
----------- ---------------------- ----------------------
Balance, January 1, 2000 $ 5,871,623 $106,182 $5,765,441
Add: Net earnings year ended
December 31, 200 704,849 (44,815) 749,664
Deduct: Cash Dividends on
preferred stock (585,925) - (585,925)
----------- -------- ----------
Balance, December 31, 2000 $ 5,990,547 $ 61,367 $6,515,105
=========== ======== ==========
NOTE 11 - SUBSEQUENT EVENT
- --------------------------
None
NOTE 12 - LITIGATION
- --------------------
In the opinion of the Company, at December 31, 2000, there was no pending
or threatened litigation that would have a material effect on the financial
position or results of operations of the Company at December 31, 2000.
NOTE 13 - OTHER DISCLOSURES
- ---------------------------
1. Costs incurred for advertising are expensed when incurred. The amount
charged to advertising expense in the prior three years are:
2000 $ 855,173
1999 766,977
1998 889,238
2. Accounts receivable are net of subscriptions receivable and allowance for
doubtful accounts in the following amounts.
December 31,
-------------------------------
2000 1999
---- ----
Subscriptions receivable $ 50,951 $ 54,484
Allowance for doubtful accounts 29,749 7,195
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.
37
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 to be held May 9, 2001, which proxy
statement will be filed with the Securities and Exchange Commission within 120
days after the close of the Company's 2000 fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) DOCUMENTS FILED AS PART OF THIS REPORT
Page
(1) Financial Statements Reference
-------------------- ---------
Auditor's Report.............................................................................. 16
Balance Sheets at December 31,
2000 and 1999............................................................................... 17
Statements of Earnings for the
years ended December 31,
2000, 1999 and 1998 ........................................................................ 19
Statements of Stockholders' Equity
for the years ended December 31,
2000, 1999 and 1998 ........................................................................ 20
Statements of Cash Flows for the years ended
December 31, 2000, 1999 and 1998 ........................................................... 22
Notes to Financial Statements................................................................. 23
(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.
38
(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 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).
10.3 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).
10.4 Form of Dealer Contract (Mississippi) (Filed as Exhibit 10.7 to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1991, and incorporated herein by reference).
10.5 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).
10.6 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).
39
10.7 Second Amendment to Amendment and Restatement of Credit Agreement
between the Company and Chase Bank of Texas, National Association
dated April 30, 1998. (Filed as Exhibit 10.15 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998,
and incorporated herein by reference).
10.8 Third Amendment to Amendment and Restatement of Credit Agreement
between the Company and Chase Bank of Texas, National Association
dated April 30, 1999. (Filed as Exhibit 10.16 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1999,
and incorporated herein by reference.)
10.9 Agreement for Wholesale Financing between the Company and
Deutsche Financial Services dated March 9, 1999. (Filed as
Exhibit 10.17 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1999, and incorporated herein by
reference.)
*->10.10 Tenth Amendment to the Employment Agreement, as amended, between
Handy Hardware Wholesale, Inc. and James J. Tipton dated December
27, 2000.
->10.11 Fourth Amendment to Amendment and Restatement of Credit Agreement
between the Company and Chase Bank of Texas, National Association
dated April 30, 2000.
->10.12 Form of Dealer Contract (New Mexico and Colorado).
->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, 2000.
(C) EXHIBITS
Listed in Item 14(a)(3) above.
(D) FINANCIAL STATEMENT SCHEDULES
Listed in Item 14(a)(2) above.
40
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 23, 2001
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 23, 2001
- ------------------- Officer and Director
/s/ Tina S. Kirbie Chief Financial and March 22, 2001
- ------------------- Accounting Officer
/s/ Doug Ashy, Jr. Director March 23, 2001
- -------------------
/s/ Norman J. Bering, II Director March 27, 2001
- -------------------
/s/ Craig Blum Director March 23, 2001
- ------------------
/s/ Susie Bracht-Black Director March 26, 2001
- -------------------
/s/ Samuel J. Dyson Director March 27, 2001
- -------------------
/s/ Ben J. Jones Director March 24, 2001
- -------------------
/s/ Richard A. Lubke Director March 26, 2001
- -------------------
/s/ Jimmy T. Pate Director March 23, 2001
- -------------------
/s/ Leroy Wellborn Director March 23, 2001
- -------------------
41