SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report Pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934.
For the quarterly period ended June 30, 2002.
Commission File Number 0-15708
HANDY HARDWARE WHOLESALE, INC.
(Exact name of Registrant as specified in its charter)
TEXAS 74-1381875
(State of incorporation) (I.R.S. Employer
Identification No.)
8300 Tewantin Drive, Houston, Texas 77061
(Address of principal executive offic (ZIP Code)
Registrant's telephone number: (713) 644-1495
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
The number of shares outstanding of each of the Registrant's classes of common
stock as of June 30, 2002, was 10,280 shares of Class A Common Stock, $100 par
value, and 72,461 shares of Class B Common Stock, $100 par value.
HANDY HARDWARE WHOLESALE, INC.
INDEX
PART I Financial Information Page No.
-------
Item 1. Financial Statements
Condensed Balance Sheet June 30, 2002
and December 31, 2001 ....................... 3 - 4
Condensed Statement of Earnings - Three Months &
Six Months Ended June 30, 2002 and 2001..... 5
Condensed Statement of Cash Flows - Six Months
Ended June 30, 2002 and 2001................ 6
Notes to Condensed Financial Statements........... 7 - 13
Item 2. Management's Discussion & Analysis of Financial
Condition and Results of Operations............ 14 - 19
Item 3. Quantitative & Qualitative Disclosures About
Market Risk.................................... 20
Item 4. Forward-Looking Statements...................... 20
PART II Other Information
Items 1-3. None 21
Item 4. Submission of Matters to a Vote of Security Holders 21
Item 5. Other Information 21
Item 6. Exhibits 21
Signatures 22
2
HANDY HARDWARE WHOLESALE, INC.
CONDENSED BALANCE SHEET
JUNE 30, DECEMBER 31,
2002 2001
----------- -----------
ASSETS
------
CURRENT ASSETS
--------------
Cash $ 1,906,340 $ 1,411,096
Accounts Receivable, net of
subscriptions receivable and
allowance for doubtful
accounts (Note 8) 12,319,795 11,748,607
Inventory 20,567,386 18,207,690
Notes Receivable (Note 3) 251 935
Other Current Assets 206,035 213,461
Prepaid Income Tax 71,191 201,897
Deferred Compensation Funded 61,472 30,736
----------- -----------
$35,132,470 $31,814,422
---------- -----------
PROPERTY, PLANT AND EQUIPMENT (Note 2)
--------------------------------------
At Cost Less Accumulated Depreciation
of $6,692,159(2002) and $6,088,346 (2001) $16,310,118 $16,776,391
----------- -----------
OTHER ASSETS
------------
Notes Receivable (Note 3) $ 334,157 $ 334,157
Deferred Compensation Funded 210,316 338,093
Other Noncurrent Assets 6,071 25,762
----------- -----------
$ 550,544 $ 698,012
----------- -----------
TOTAL ASSETS $51,993,132 $49,288,825
------------ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
-------------------
Note Payable-Line of Credit $ 3,132,500 $ 2,700,000
Notes Payable-Stock (Note 4) 237,760 32,800
Notes Payable-Capital Lease 23,427 27,371
Accounts Payable - Trade 19,803,428 21,034,254
Other Current Liabilities 1,194,386 1,230,094
Deferred Compensation Payable 61,472 30,736
----------- -----------
$24,452,973 $25,055,255
----------- -----------
NONCURRENT LIABILITIES
----------------------
Note Payable-Line of Credit $ 3,132,500 $ -0-
Notes Payable-Stock (Note 4) 633,160 750,360
Notes Payable-Capital Lease 29,346 34,235
Notes Payable-Vendor 334,157 334,157
Deferred Compensation Payable 239,580 338,093
Deferred Income Taxes Payable (Note 5) 191,739 190,888
----------- ----------
$ 4,560,482 $ 1,647,733
----------- -----------
TOTAL LIABILITIES $29,013,455 $26,702,988
----------------- ----------- -----------
The accompanying notes are an integral part of the Condensed Financial
Statements.
3
HANDY HARDWARE WHOLESALE, INC.
CONDENSED BALANCE SHEET (CONTINUED)
JUNE 30, DECEMBER 31,
2002 2001
------------ ------------
STOCKHOLDERS' EQUITY
--------------------
Common Stock, Class A,
authorized 20,000 shares, $100
par value per share, issued
10,600 & 10,510 shares $ 1,060,000 $1,051,000
Common Stock, Class B,
authorized 100,000 shares, $100
par value per share, issued
73,734 & 70,753 shares 7,373,400 7,075,300
Common Stock, Class B
Subscribed 6,474.32 & 5,093.62
shares 647,432 509,362
Less Subscription Receivable (33,377) (22,502)
Preferred Stock 7% Cumulative,
authorized 100,000 shares, $100
par value per share, issued
76,693 & 73,622 shares 7,669,300 7,362,200
Preferred Stock, Subscribed
6,474.32 & 5,093.62 shares 647,432 509,362
Less Subscription Receivable (33,377) (22,502)
Paid in Surplus 436,141 426,007
----------- -----------
$17,766,951 $16,888,227
Less: Cost of Treasury Stock
2,898 & -0- shares (289,800) -0-
----------- -----------
$17,477,151 $16,888,227
Retained Earnings exclusive of other
comprehensive earnings (Note 7) 5,511,529 5,682,518
Retained Earnings applicable to other
comprehensive earnings (Note 7) (9,003) 15,092
----------- -----------
5,502,526 5,697,610
----------- -----------
Total Stockholders' Equity $22,979,677 $22,585,837
----------- -----------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $51,993,132 $49,288,825
-------------------- =========== ===========
The accompanying notes are an integral part of the Condensed Financial
Statements.
4
HANDY HARDWARE WHOLESALE, INC.
CONDENSED STATEMENT OF EARNINGS
(UNAUDITED)
QUARTER SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
---------------------------- ---------------------------
2002 2001 2002 2001
---- ---- ---- ----
REVENUES
- --------
Net Sales $ 46,936,553 $ 43,454,763 $ 96,191,630 $ 90,012,852
Sundry Income 356,515 345,252 1,239,520 1,124,706
------------ ------------ ------------ ------------
TOTAL REVENUES $ 47,293,068 $ 43,800,015 $ 97,431,150 $ 91,137,558
- -------------- ------------ ------------ ------------ ------------
EXPENSE
- -------
Net Mat'l. Costs $ 41,604,459 $ 38,796,981 $ 86,316,445 $ 81,529,878
Payroll Costs 2,377,733 2,164,357 4,692,962 4,309,585
Other Operating Costs 2,960,772 2,560,611 5,820,064 4,789,859
Interest Expense 43,235 52,687 92,823 85,673
------------ ------------ ------------ ------------
TOTAL EXPENSE $ 46,986,199 $ 43,574,636 $ 96,922,294 $ 90,714,995
- ------------- ------------ ------------ ------------ ------------
NET EARNINGS BEFORE
PROVISIONS FOR
ESTIMATED FEDERAL
INCOME TAX $ 306,869 $ 225,379 $ 508,856 $ 422,563
- ------------------ ------------ ------------ ------------ ------------
PROVISIONS FOR
ESTIMATED FEDERAL
INCOME TAX (Note 5 & 7) (113,413) (84,880) (188,361) (157,011)
- ----------------------- ------------ ------------ ------------ ------------
NET EARNINGS $ 193,456 $ 140,499 $ 320,495 $ 265,552
- ------------
LESS ACCRUED
DIVIDENDS ON
PREFERRED STOCK (122,871) (158,933) (245,742) (317,868)
- --------------- ------------ ------------ ------------ ------------
NET EARNINGS (LOSS)
APPLICABLE
TO COMMON
STOCKHOLDERS $ 70,585 $ (18,434) $ 74,753 $ (52,316)
- ------------------ ============ ============ ============ ============
NET EARNINGS (LOSS)
PER SHARE OF
COMMON STOCK,
CLASS A &
CLASS B (Note 1) $ 0.80 $ (0.23) $ 0.86 $ (0.65)
- ------------------ ============ ============ ============ ============
OTHER COMPREHENSIVE EARNINGS (LOSS)
- ----------------------------------
Unrealized Gain (Loss)on
Securities (Note 7) $ (36,090) $ 26,624 $ (38,256) $ (35,996)
Provision for Federal
Income Tax (Note 5) 13,425 (9,053) 14,161 12,238
------------ ------------ ------------ ------------
Other Comprehensive
Earnings Net of Tax $ (22,665) $ 17,571 $ (24,095) $ (23,758)
------------ ------------ ------------ ------------
TOTAL COMPREHENSIVE
EARNINGS (LOSS) (Note 7) $ 47,920 $ (863) $ 50,658 $ (76,074)
- ------------------- ------------ ------------ ------------ ------------
The accompanying notes are an integral part of the Condensed Financial
Statements.
5
HANDY HARDWARE WHOLESALE, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED JUNE 30,
2002 2001
---- ----
CASH FLOWS FROM OPERATING ACTIVITY
- ----------------------------------
Net Earnings Plus Other Comprehensive
Earnings (Note 7) $ 296,400 $ 241,794
----------- -----------
Adjustments to Reconcile Net
Earnings to Net Cash Provided by
Operating Activities:
Depreciation $ 632,483 $ 576,049
Increase (Decrease) in Deferred
Income Tax 851 8,723
Unrealized (gain) loss
In fair market value of securities 38,256 35,995
Changes in Assets and Liabilities
Increase in Accounts Receivable $ (571,188) $(3,087,616)
(Increase) Decrease in Notes Receivable 684 (27,110)
Increase in Inventory (2,359,696) (1,417,838)
Decrease in Other Assets 27,117 112,234
Decrease in Prepaid Income Tax 130,706 -0-
Increase in Note Payable-Vendor -0- 31,944
Increase (Decrease) in Accounts Payable (1,230,826) 4,514,582
Increase (Decrease) in Other Liabilities (35,708) 101,118
Increase in Federal Income
Taxes Payable -0- 10,229
Increase (Decrease) in Deferred Compensation
Payable (67,777) 1,158
----------- -----------
TOTAL ADJUSTMENTS $(3,435,098) $ 859,468
----------- -----------
NET CASH PROVIDED BY (USED FOR)
OPERATING ACTIVITIES $(3,138,698) $ 1,101,262
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Capital Expenditures $ (166,210) $(3,900,029)
(Investment in)Payment From Deferred
Compensation Funded 60,000 (35,995)
Reinvested dividends, interest & capital gains (1,215) (1,158)
----------- -----------
NET CASH USED FOR
INVESTING ACTIVITIES $ (107,425) $(3,937,182)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Increase Note Payable - Line of Credit $ 3,565,000 $ 3,260,000
Increase in Notes Payable - Stock 87,760 17,600
Increase (Decrease) in Notes Payable -
Capital Lease (8,833) 44,961
Increase in Subscription Receivable (21,750) (23,944)
Proceeds From Issuance of Stock 900,474 901,826
Purchase of Treasury Stock (289,800) (215,800)
Dividends Paid (491,484) (635,737)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES $ 3,741,367 $ 3,348,906
----------- -----------
NET INCREASE
IN CASH & CASH EQUIVALENTS $ 495,244 $ 512,986
CASH & CASH EQUIVALENTS AT BEGINNING
OF PERIOD 1,411,096 1,221,788
----------- -----------
CASH & CASH EQUIVALENTS AT END OF PERIOD $ 1,906,340 $ 1,734,774
=========== ===========
ADDITIONAL RELATED DISCLOSURES TO THE STATEMENT OF CASH FLOWS
- -------------------------------------------------------------
Interest Expense Paid $ 92,823 $ 85,673
Income Taxes Paid 244,540 125,821
The accompanying notes are an integral part of the Condensed Financial
Statements.
6
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
- ----------------------------
(1) Description of Business:
------------------------
Handy Hardware Wholesale, Inc., ("Handy"), was incorporated as a Texas
corporation on January 6, 1961. Its principal executive offices and
warehouse are located at 8300 Tewantin Drive, Houston, Texas 77061.
Handy is owned entirely by its member-dealers and former
member-dealers.
Handy sells to its member-dealers products primarily for retail
hardware, lumber and home center stores. In addition, we offer
advertising and other services to member-dealers. The Company
wholesales hardware to its member-dealers in Texas, Oklahoma,
Louisiana, Alabama, Mississippi, Arkansas, Florida, Colorado, New
Mexico, Mexico and Belize.
(2) General Information:
--------------------
The condensed consolidated financial statements included herein have
been prepared by Handy. The financial statements reflect all
adjustments, which were all of a recurring nature, and which are, in
the opinion of management, necessary for a fair presentation. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted pursuant to the rules and regulations of
the Securities and Exchange Commission (SEC). Handy believes that the
disclosures made are adequate to make the information presented not
misleading. The condensed consolidated financial statements should be
read in conjunction with the audited financial statements and the
notes thereto included in the latest Form 10-K Annual Report.
(3) Cash:
-----
For purposes of the statement of cash flows, Handy considers all
highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
(4) Inventories:
------------
Inventories are valued at the lower of cost or market method,
determined by the first in, first out method, with proper adjustment
having been made for any old or obsolete merchandise.
(5 ) Earnings Per Share:
-------------------
Net earnings per common share (Class A and Class B combined) are based
on the weighted average number of shares outstanding in each period
after giving effect to the stock issued, stock subscribed, accrued
dividends on Preferred Stock, and treasury stock, as set forth by
Accounting Principles Board Opinion No. 15 as follows:
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------- -------------------------
2002 2001 2002 2001
---- ---- ---- ----
Calculation of Net Earnings Per Share
of Common Stock
- -------------------------------------
Net Earnings Before Preferred
Dividends $ 193,456 $140,499 $320,495 $265,552
Less: Accrued Dividends
on Preferred Stock (122,871) (158,933) (245,742) (317,868)
--------- --------- --------- ---------
Net Earnings (Loss) Applicable
to Common Shareholders $ 70,585 $(18,434) $ 74,753 $(52,316)
Weighted Average
Shares of Common Stock
(Class A & Class B)
outstanding 88,399 81,515 87,363 80,160
Net Earnings(Loss)Per Share
of Common Stock $ 0.80 $ (0.23) $ 0.86 $ (0.65)
========= ========= ======== ========
7
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(6) 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.
(7) Accounting for Dividends on Preferred Stock:
--------------------------------------------
Handy pays dividends on Preferred Stock during the first quarter of
each fiscal year. Only holders of Preferred Stock on the record date
for the payment of the dividend are entitled to receive dividends.
Dividends are prorated for the portion of the twelve-month period
ending January 31, during which the Preferred Stock was held.
Because Handy is unable to anticipate the amount of the Preferred
Stock dividends, it does not accrue a liability for the payment of
those dividends on its balance sheet. To more properly reflect net
earnings, however, on the Condensed Statement of Earnings included
herein, Handy shows an estimated portion of the dividends to be paid
in the first quarter of 2003 based on the dividends paid in the first
quarter of 2002.
When dividends on Preferred Stock are actually paid, there is a
reduction of retained earnings. Retained earnings on the Condensed
Balance Sheet for the six months ended June 30, 2002 contained herein,
therefore, are net of dividends actually paid during the first quarter
of 2002 in the amount of $491,484.
NOTE 2 - PROPERTY, PLANT & EQUIPMENT
- ------------------------------------
Property, Plant & Equipment Consists of:
JUNE 30, DECEMBER 31,
2002 2001
------------ ------------
Land $ 3,207,866 $ 3,207,866
Building & Improvements 15,467,420 15,452,276
Furniture, Computer, Warehouse 3,799,165 3,698,071
Transportation Equipment 527,826 506,524
------------ ------------
$ 23,002,277 $ 22,864,737
Less: Accumulated Depreciation (6,692,159) (6,088,346)
------------ ------------
$ 16,310,118 $ 16,776,391
============ ============
8
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - NOTES RECEIVABLE
- -------------------------
Notes receivable reflect amounts due to Handy from its member-dealers under
deferred payment agreements and installment sale agreements.
Under the deferred agreement, Handy supplies member-dealers with an initial
order of General Electric Lamps. The payment for this order is deferred so long
as the member-dealer continues to purchase General Electric lamps through Handy.
If a member-dealer ceases to purchase lamp inventory or sells or closes his
business, then General Electric bills Handy for the member-dealer's initial
order and the note becomes immediately due and payable in full to Handy. In
September 1999, virtually the same type of deferred agreement was put into
effect with Chicago Specialty, a manufacturer of plumbing supplies.
Under the installment sale agreements, we sell member-dealers computer hardware,
the purchase price of which is due and payable by member-dealers to us in
thirty-six monthly installments of principal and interest.
Notes Receivable are classified as follows:
CURRENT PORTION NONCURRENT PORTION
---------------------- -----------------------------
JUNE 30, DEC. 31, JUNE 30, DEC. 31,
------- ------- --------- --------
2002 2001 2002 2001
---- ---- ---- ----
Deferred Agreements $ -0- $ -0- $334,157 $334,157
Installment Sale Agreements 251 935 -0- -0-
------- ------ -------- --------
$ 251 $ 935 $334,157 $334,157
======= ====== ======== =======
NOTE 4 - NOTES PAYABLE STOCK
- ----------------------------
The five year, interest bearing notes payable - stock reflect amounts due from
Handy to former member-dealers for our repurchase of shares of Handy stock owned
by these former member-dealers. According to the terms of the notes, only
interest is paid on the outstanding balance of the notes during the first four
years. In the fifth year, both interest and principal are paid. Interest rates
range from 4.00% to 6.25%.
Notes Payable - Stock are classified as follows:
CURRENT PORTION NONCURRENT PORTION
---------------------- -----------------------------
JUNE 30, DEC. 31, JUNE 30, DEC. 31,
------- ------- --------- --------
2002 2001 2002 2001
---- ---- ---- ----
$237,760 $ 32,800 $633,160 $750,360
Principal payments due over the next five years are as follows:
2002 237,760
2003 110,120
2004 358,200
2005 41,280
2006 26,600
Thereafter 96,960
-------
$870,920
9
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - INCOME TAXES
- ---------------------
Handy adopted FASB Statement No. 109, "Accounting for Income Taxes," effective
January 1, 1993. The adoption of this standard changed our method of accounting
for income taxes from the deferred method to the liability method.
QUARTER ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2002 2001
------------- ------------
Excess of tax over book depreciation $ 1,375,269 $ 1,342,353
Allowance for Bad Debt (44,001) (44,001)
Inventory - Ending inventory adjustment
for tax recognition of Sec. 263A
Uniform Capitalization Costs (411,281) (380,869)
Deferred Compensation (356,048) (356,048)
----------- -----------
Total 563,939 561,435
Statutory Tax Rate 34% 34%
----------- -----------
Cumulative Deferred Income Tax Payable $ 191,739 $ 190,888
=========== ===========
Classified as:
Current Liability $ -0- $ -0-
Noncurrent Liability 191,739 190,888
----------- -----------
$ 191,739 $ 190,888
=========== ===========
Reconciliation of income taxes on the difference between tax and financial
accounting is as follows:
QUARTER ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2002 2001
------------- ------------
Principal Components of Income Tax Expense
Federal:
Current
Income tax paid $ 42,643 $ 55,038
Carry-over of prepayment
from prior year 201,897 70,783
Refund received for overpayment
from prior year -0- -0-
----------- -----------
$ 244,540 $ 125,821
Federal Income Tax Payable (Receivable) (71,191) 10,229
Carry-over to subsequent year - 0- -0-
----------- -----------
Income tax for tax reporting
at statutory rate of 34% $ 173,349 $ 136,050
Deferred
Adjustments for financial reporting:
Depreciation 11,191 14,489
263A Uniform Capitalization Costs (10,340) (4,066)
Other -0- (1,700)
----------- -----------
Provision for federal income tax $ 174,200 $ 144,773
=========== ===========
Handy is not exempt from income tax except for municipal bond interest
earned in the amount of $1,215.
We are not classified as a nonexempt cooperative under the provisions of
the Internal Revenue Code and are not entitled to deduct preferred dividends in
determining our taxable income.
10
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - STOCKHOLDERS' EQUITY
- -----------------------------
(1) Terms of Capital Stock
----------------------
The holders of Class A Common Stock are entitled to one vote for each
share held of record on each matter submitted to a vote of
shareholders. Holders of Class A Common Stock must be engaged in the
retail sale of goods and merchandise, and may not be issued or retain
more than ten shares of Class A Common Stock at any time. The holders
of Class B Common Stock are not entitled to vote on matters submitted
to a vote of shareholders except as specifically provided by Texas
law.
The holders of Preferred Stock are entitled to cumulative dividends.
Handy's Articles of Incorporation require the Board of Directors to
declare a dividend each year of not less than 7 percent nor more than
20 percent of the par value ($100.00 per share) of the shares of
Preferred Stock. The Preferred Stock has a liquidation value of $100
per share. The holders of Preferred Stock are not entitled to vote on
matters submitted to a vote of shareholders except as specifically
provided by Texas law. The shares of Preferred Stock are not
convertible, but are subject to redemption (at the option of Handy) by
vote of Handy's Board of Directors, in exchange for $100 per share and
all accrued unpaid dividends.
(2) Capitalization
--------------
To become a member-dealer, an independent hardware dealer must enter
into a Subscription Agreement with us for the purchase of ten shares
of Handy Class A Common Stock, $100 par value per share, or ten shares
of Preferred Stock for any additional store, with an additional
agreement to purchase a minimum number of shares of Class B Common
Stock, $100 par value per share, and Preferred Stock, $100 par value
per share. Class B Common Stock and Preferred Stock are purchased
pursuant to a formula based upon total purchases of merchandise by the
member-dealer from Handy, which determines the "Desired Stock
Ownership" for each member-dealer. The minimum Desired Stock Ownership
is $10,000.
Each member-dealer receives from Handy a semimonthly statement listing
total purchases made during the covered billing period, with an
additional charge ("Purchase Funds") equal to 2 percent of the
member-dealer's warehouse purchases until the member-dealer's Desired
Stock Ownership is attained. Although the Subscription Agreement
entitles Handy to collect 2 percent of total purchases, since May 1,
1983, the Board of Directors has determined to collect 2 percent of
warehouse purchases only. On a monthly basis, we review the amount of
unexpended Purchase Funds being held for each member- dealer. If a
member-dealer has unexpended Purchase Funds of at least $2000, Handy
applies such funds to the purchase of ten shares of Class B Common
Stock ($1,000) and ten shares of Preferred Stock ($1,000), each at
$100 per share.
(3) Transferability
---------------
Holders of Class A Common Stock may not sell those shares to a third
party without first offering to sell them back to Handy. There are no
specific restrictions on the transfer of Class B Common or Preferred
Stock.
11
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)
- -----------------------------------------
(4) Membership Termination
----------------------
Following written request, Handy will present to the Board of Directors a
member-dealer's desire to have his stock repurchased and the
member-dealer's contract terminated. According to the current procedures
established by the Board of Directors, a member-dealer's stock may be
repurchased according to either of two options.
Option - I The member-dealer's Class A Common Stock is repurchased at
$100 per share. Any funds remaining in the member-dealer's
Purchase Fund Account will be returned at the dollar value
of such account. Twenty percent or $3000, whichever is
greater, of the total value of the Class B Common and
Preferred Stock will be repurchased. The remaining value of
the Class B Common and Preferred Stock is converted to a
five-year interest bearing note. During the first four
years, this note only pays interest. In the fifth year, both
interest and principal are paid. The interest rate is
determined by Handy's Board of Directors at the same time
they approve the repurchase.
Option - II Same as Option I except that the remaining value of the
Class B Common and Preferred Stock is discounted 15 percent
and reimbursed to the member-dealer immediately at the time
of repurchase.
12
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - COMPONENTS OF COMPREHENSIVE EARNINGS
- ---------------------------------------------
The following disclosures include those required by FASB 115 for financial
statements beginning after December 15, 1997.
1. Deferred compensation funded in the amount of $271,788 on the Balance
Sheet as a current asset in the amount of $61,472 and as a non-current
asset in the amount of $210,316 at June 30, 2002, includes equity
securities classified as investments available for sale in the amount
of $271,788 at fair market value. The $271,788 includes $15,390
unrealized loss on securities resulting from the decrease in fair
market value. The cost of the equity securities is $287,178.
2. Changes in Equity securities
Quarter Ended
June 30, 2002 Cumulative
-------------- ----------
Beginning Balance-January 1, 2002 $ 308,829 $ -0-
Purchases -0- 117,400
Dividends, interest and capital gains 1,215 169,778
Unrealized gains (losses) on securities
resulting from increase (decrease)
in fair market value (38,256) (15,390)
----------- ----------
Balance-June 30, 2002 $ 271,788 $ 271,788
=========== ==========
3. Components of Net Earnings plus Other Comprehensive Earnings and
Components of Total Comprehensive Earnings
Net Earnings
Other Net Earnings Exclusive Plus Other
Comprehensive Of Other Comprehensive
Earnings (Loss) Comprehensive Earnings Earnings
--------------- ---------------------- -------------
Net Earnings (Loss)
Before Provision for
Federal Income Tax $ (38,256) $ 508,856 $ 470,600
Provision for
Federal Income Tax 14,161 (188,361) 174,200)
--------- --------- ---------
Total $ (24,095) $ 320,495 $ 296,400
========= ========= =========
Other Net Earnings Total
Comprehensive Applicable to Comprehensive
Earnings (Loss) Common Stockholders Earnings
--------------- ------------------- --------
$ (24,095) $ 320,495 $ 296,400
Less Accrued Dividends
on Preferred Stock -0- (245,742) (245,742)
--------- --------- ---------
Total $ (24,095) $ 74,753 $ 50,658
========= ========= =========
4. Components of Retained Earnings
Retained Earnings Retained Earnings
Applicable to Other Exclusive of Other
Comprehensive Earnings Comprehensive Earnings Total
---------------------- ---------------------- -----
Balance-January 1, 2002 $ 15,092 $5,682,518 $5,697,610
Add: Net earnings (loss)
6 months ended
June 30, 2002 (24,095) 320,495 296,400
Deduct: Cash Dividends on
Preferred Stock -0- 491,484 491,484
--------- ---------- ----------
Balance-June 30, 2002 $ (9,003) $5,511,529 $5,502,526
========= ========== ==========
NOTE 8 - ACCOUNTS RECEIVABLE
- ----------------------------
Accounts receivable are net of subscriptions receivable and allowance for
doubtful accounts.
June 30, 2002 December 31, 2001
------------- -----------------
Accounts Receivable $12,430,550 $11,837,612
Subscription Receivable (66,754) (45,004)
Allowance for Doubtful Accounts (44,001) (44,001)
----------- -----------
Accounts Receivable, Net of
Subscription Receivable and
Allowance for Doubtful Accounts $12,319,795 $11,748,607
=========== ===========
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MATERIAL CHANGES IN RESULTS OF OPERATIONS
- -----------------------------------------
Although a moderate economic recovery began in the first quarter of 2002, a
decline in consumer confidence has threatened the economy during the second
quarter of 2002. Despite the reversal of economic recovery, net sales in the
second quarter of 2002 increased 8.0% ($3,481,790) over sales during the same
period in 2001, compared to an 8.1% growth rate ($3,241,739) in the second
quarter of 2001 over 2000's second quarter.
Net sales during the first six months of 2002 increased 6.9% ($6,178,778)
over sales during the same period in 2001,compared to a 4.0% increase in sales
($3,441,422) for the same period in 2001 over 2000.
Net Sales. Despite the stock market declining below 2001 levels, investor
pessimism spreading, and sustained pressure from retail warehouses, sales growth
during the first six months of 2002 in six of our nine selling territories was
more robust than in the first six months of 2001. By contrast, in three selling
territories, the North Texas, Dallas and Fort Worth territory, the Oklahoma
territory and the Baton Rouge, New Orleans, Mississippi, Alabama and Florida
territory continue to experience pressure from large retail warehouses which has
eroded the market share of independent hardware stores in those selling
territories. However, the decrease in sales for these territories averaged only
(0.8%) and represented only 25.8% of our total sales. In the Dallas area, in
particular, retail warehouses have saturated the market resulting in a decline
in sales of 0.7% in the first half of 2002. Further, the economy in the Oklahoma
area appears to be lagging behind our other selling territories. Thus, six month
2002 sales in the Oklahoma territory increased only 0.1% as compared to the
first six months of 2001, and sales in the Baton Rouge, New Orleans,
Mississippi, Alabama and Florida territory declined 1.8% for this same period.
The following table summarizes sales during the first six months of 2001
and 2002 by sales territory:
First Six Months 2002 First Six Months 2001
----------------------------------------------- -----------------------------
% Increase
(Decrease)
in Sales
From First % of % of
Six Months Total Total
Sales Territory Sales of 2001 Sales Sales Sales
- --------------- ----------- ---------- ----- ----------- ------
Houston Area $21,418,739 6.4% 22.3% $20,136,716 22.4%
Victoria, San Antonio,
Corpus Christi &
Rio Grande Valley Area* 20,185,793 9.1% 21.0% 18,501,807 20.6%
North Texas, Dallas
& Fort Worth Area 11,051,344 (0.7%) 11.5% 11,134,638 12.4%
Austin, Brenham &
Central Texas Area 11,968,420 9.6% 12.5% 10,922,522 12.1%
West Texas, New Mexico
Area 2,752,623 63.8% 2.9% 1,680,467 1.9%
Southern Louisiana Area 7,401,280 2.0% 7.7% 7,259,401 8.1%
Baton Rouge, New Orleans,
Mississippi, Alabama &
Florida Area 7,615,938 (1.8%) 7.9% 7,756,343 8.6%
Arkansas Area 7,498,677 18.5% 7.8% 6,326,925 7.0%
Oklahoma Area 6,188,242 0.1% 6.4% 6,181,473 6.9%
----------- ----- ----------- -----
Totals: $96,081,056 (1) 100.0% $89,900,292(1) 100.0%
=========== ===== =========== =====
* Includes sales to Colorado, Mexico and Central America member-dealers.
(1) Total does not include miscellaneous sales to employees.
14
NET MATERIAL COSTS AND REBATES Net material costs for the second quarter
and first six months of 2002 were $41,604,459 and $86,316,445, respectively,
compared to $38,796,981 and $81,529,878, respectively, for the same periods in
2001. Net material costs for the second quarter and first six months of 2002
increased 7.2 percent and 5.9 percent, respectively, over the same periods in
2001. However, the increases in net material costs were slightly lower than the
increases in net sales for the same periods (8.0% increase for the second
quarter of 2002 and 6.9% increase for the first six months of 2002). Net
material costs were 88.6 percent of net sales in the second quarter of 2002, as
compared to 89.3 percent of sales for the same period in 2001, while for the
first six months of 2002 and 2001 net materials costs were 89.7 percent and 90.6
percent of sales, respectively. The percentage decreases in net material costs
during these periods in 2002 compared to 2001 resulted from an increase in
factory rebates and purchase discounts due to increased inventory purchases made
in 2002, as well as a timing difference in the recognition of rebates. Factory
rebates, which were taken as a credit against material costs in both the second
quarters and first halves of 2002 and 2001, increased $226,124 or 20.0 percent
in the second quarter of 2002 (2002 - $1,359,073 vs. 2001 - $1,132,949) while
rebates for the first six months of 2002 increased $500,027 or 21.2 percent
(2002 - $2,863,993 vs. 2001 - $2,363,966). In addition, purchase discounts were
$117,817 higher in the second quarter of 2002 when compared to the second
quarter of 2001 (2002 - $1,159,960 vs. 2001 - $1,042,143) and $309,378 higher
for the first six months of 2002 as compared to the same period the previous
year (2002 - $1,890,385 vs. 2001 - $1,581,007).
PAYROLL COSTS With unemployment still relatively low and with the ongoing
shortage of qualified truck drivers, the increases in payroll costs for the
second quarter and first six months of 2002 resulted from salary increases
needed to attract or retain high-quality employees. In addition, due to an 8.2%
increase in warehouse sales in the second quarter of 2002 (2002 - $30,770,814
vs. 2001 - $28,429,141) and a 7.2% increase in warehouse sales in the first six
months of 2002 (2002 - $61,742,981 as compared to 2001 - $57,600,675), and due
to new marketing initiatives which were implemented in 2002, we increased the
number of employees (350 vs. 302 at June 30 of each year), particularly in our
warehouse, in order to continue to provide goods to our member-dealers on a
timely basis. As a result, payroll costs for the second quarter and first six
months of 2002 rose sharply, increasing 9.9 percent and 8.9 percent,
respectively, over the same periods in 2001.
Despite the pressure on wages, payroll costs as a percentage of both total
expenses and net sales remained fairly constant. Payroll costs for the second
quarter of 2002 constituted 5.1 percent of both net sales and total expenses,
compared to 5.0 percent of each for the same quarter of 2001. Payroll costs were
4.9 percent of both net sales and total expenses for the first six months of
2002 as compared to 4.8 percent for the same period in 2001. The relative
stability in payroll costs has been a result of a continuing effort to maintain
employee productivity.
OTHER OPERATING COSTS During the second quarter and the first six months of
2002, other operating costs increased $400,161 (15.6%) and $1,030,205 (21.5%),
respectively, compared to the same periods of 2001. Other operating costs also
increased as a percentage of total expenses, accounting for 6.3% of total
expenses in the second quarter of 2002 as compared to 5.9% of total expenses for
the second quarter of 2001. For the six month period ending June 30, 2002, other
operating costs were 6.0% of total expenses as compared to 5.3% of total
expenses during the same period in 2001. The increase in other operating costs
in the second quarter of 2002 can be attributed to an increase in insurance
expense of $131,118 and an increase in warehouse and delivery expense of
$200,802, while the increase in other operating costs in the first six months of
2002 resulted from an increase in the accrual for property taxes of $174,000 in
the first quarter, an increase in insurance expense of $285,401 and an increase
in warehouse and delivery expenses of $519,095 (an aggregate increase of
$978,496).
NET EARNINGS AND EARNINGS PER SHARE While net sales for the second quarter
of 2002 increased $3,481,790, net material costs for the second quarter of 2002
15
increased only $2,807,478 over those 2001 levels, resulting in an overall
increase in gross margin of $674,312 (14.5%). However, this substantial increase
in gross margin was offset by equally significant increases in payroll costs of
$213,376 (9.9%)and other operating costs of $400,161 (15.6%), as well as an
unrealized loss on securities of $36,090 as compared to a gain on securities of
$26,624 in the second quarter of 2001. Thus pretax net earnings increased 7.5%
from $252,003 for the second quarter of 2001 to $270,779 in the same 2002
period, with after-tax net earnings increasing only $12,721 due to factors
previously discussed.
Net sales for the first six months of 2002 increased $6,178,778 (6.9%),
while net material costs increased $4,786,567 (5.9%) from levels in the first
six months in 2001, resulting in gross margin increasing by $1,392,211 (16.4%).
This increase in gross margin, in addition to a $114,814 (10.2%) increase in
sundry income, was partially offset by a substantial increase in other operating
costs of $1,030,205 (21.5%) and an increase in payroll cost of $383,377. Thus
pretax net earnings increased 21.7 percent, from $386,567 for the first six
months of 2001 to $470,600 in the same 2002 period, while after-tax net earnings
increased by 22.6 percent, primarily due to factors previously discussed.
Historically, we calculated net earnings applicable to common stockholders
by combining net earnings and other comprehensive earnings, less accrued
preferred stock dividends. In response to a comment from the Securities and
Exchange Commission ("SEC") in the third quarter of 2001, we have changed our
presentation of net earnings per share to no longer include other comprehensive
earnings. Applying this presentation to the second quarters and first six months
of 2002 and 2001, our earnings per share increased more than fourfold and more
than doubled in the second quarter and first half of 2002, respectively, as
compared to the same periods in 2001. Net earnings per share for the second
quarter increased from a net loss per share of $0.23 for the 2001 period, to net
earnings per share of $0.80 for the 2002 period. Similarly, net earnings per
share for the first six months increased from a net loss per share of $0.65 to
net earnings per share of $0.86. The sharp increase in 2002 is due to the
factors previously discussed, as well as dividends accrued in the second quarter
and first half of 2002 representing a significantly smaller percentage of 2002
net earnings than dividends accrued in the second quarter of 2001 (2002 - 40.0%
versus 2001 - 70.5%) and (2002-48.3% versus 2001-75.2%), respectively.
Quarter-to-quarter variations in our earnings per share (in addition to the
factors discussed above) reflect our commitment to lower pricing of our
merchandise in order to deliver the lowest cost buying program to our
member-dealers, even though this often results in lower net earnings. Because
virtually all of our stockholders are also member-dealers, these trends benefit
our individual stockholders who purchase our merchandise. Therefore, our
shareholders do not demand that we focus greater attention upon earnings per
share.
Seasonality
-----------
Our quarterly net earnings traditionally vary based on the timing ofevents
which affect our sales. Traditionally, first and third quarter earnings have
been negatively affected by the increased level of direct sales (with no markup)
resulting from our semiannual trade show always held in the first and third
quarters. However, our overall sales levels often increase during the trade
shows, which, in some years, offsets the effect of increased direct sales.
Additionally, net earnings per quarter may vary substantially from year to year
due to the timing difference in the receipt of discounts, rebates, miscellaneous
income, weather conditions and the economic conditions in our selling
territories. For example, during the first and second quarters of 2002, the
cumulative effect of the various timing differences, as well as improved
economic conditions in most of our selling territories, caused a dramatic
increase in net earnings for those periods. Secondly, sales during the fourth
quarter traditionally have been lower, as hardware sales are slowest during
winter months preceding ordering for significant sales in the spring. This
decrease in sales, however, is offset in most years by corrections to inventory
made at year end, causing net earnings to vary substantially from year to year
in the fourth quarter.
16
QUARTERLY FINANCIAL DATA (UNAUDITED)
- ------------------------------------
The following is a summary of selected quarterly financial data for each
quarterly period beginning August 1, 2000 and ending June 30, 2002:
Qtr. Ended Qtr. Ended Qtr. Ended Qtr. Ended Qtr. Ended Qtr. Ended Qtr. Ended Qtr. Ended
9-30-00 12-31-00 3-31-01 6-30-01 9-30-01 12-31-01 3-31-02 6-30-02
Sales $45,842,797 $35,693,872 $46,558,089 $43,454,763 $45,810,043 $42,680,648 $49,255,077 $46,936,553
Net Mat'l Costs 41,591,943 31,232,374 42,732,897 38,796,981 41,479,089 37,227,446 44,711,986 41,604,459
Gross Margin 4,250,854 4,461,498 3,825,192 4,657,782 4,330,954 5,453,202 4,543,091 5,332,094
Other Operating Expenses 4,532,218 6,715,146 4,407,462 4,777,655 4,924,226 7,660,480 5,224,109 5,381,740
Sundry Income 546,562 2,199,635 779,454 345,252 774,826 2,214,364 883,005 356,515
Pre-Tax Net Earnings 265,198 (54,013) 197,184 225,379 181,554 7,086 201,987 306,869
(excludes other
comp. income)
Trends
- ------
In connection with our business operations, we maintain various types of
insurance coverage. As reflected in our numbers for the first six months of
2002, our insurance premium expenses have steadily increased, and are continuing
to rise at a rate faster than experienced in past years. We expect that the
trend toward increased insurance costs will continue for the foreseeable future,
as part of a general nationwide trend in increased insurance premiums as a
result of factors such as the events of September 11, 2001, recent insurance
company losses, insurance company risk assessments and continuing rising medical
costs.
17
MATERIAL CHANGES IN FINANCIAL CONDITION
- ---------------------------------------
FINANCIAL CONDITION AND LIQUIDITY During the period ending June 30, 2002,
we maintained our financial condition and ability to generate adequate amounts
of cash while continuing to make significant investments in inventory, warehouse
and computer equipment, software, and delivery equipment, all to better meet the
needs of our member-dealers. Net cash provided by our operating activities may
vary substantially from year to year. These variations result from (i) the
timing of promotional activities such as our spring trade show, (ii) payment
terms available to us from our suppliers, (iii) payment terms offered by us to
our member-dealers, and (iv) the state of the regional economy in our selling
territories.
During the first six months of 2002 our cash and cash equivalents increased
$171,566 as compared to the first six months of 2001, versus a decrease of
$136,962 when comparing the same 2001 period to that of 2000. During the first
six months of 2002, we used cash flow from operating activities of $3,138,698,
as compared to generating cash flow of $1,101,262 in the first six months of
2001. This reversal of cash flow in the 2002 period was principally attributable
to a sizeable increase in inventory, which increased by over 66.0 percent
compared to the same 2001 period, and a significant decrease in accounts payable
in comparison to an increase in accounts payable during the 2001 period, which
were only partially offset by a smaller increase in accounts receivable in the
first six months of 2002 than in the first six months of 2001.
Inventory had approximately 39,459 stockkeeping units in the period ending June
30, 2002, which were maintained in response to member-dealer demand for more
breadth of inventory. The $2,359,696 increase in inventory for the first six
months of 2002, was considerably higher (66.0%) than the $1,417,838 increase in
inventory for the same period in 2001, due to the completion of our warehouse
expansion project in late 2001, which added an additional 241,000 square feet of
warehouse space that was not available in the same period in 2001.
Accounts payable decreased $1,230,826 during the first six months of 2002, as
compared to an increase of $4,514,582 during the same period in 2001. The
substantial disparity when comparing these two periods, in the aggregate of
$5,745,408, was due primarily to selective tightening by vendors in extended
payment terms as reflected in the reduced level of trade accounts payable since
year end. In the first half of 2002 accounts payable represented 97.0% of
inventory as compared to 127.0% of inventory during the same period in 2001,
mainly as a result of our substantial increases in inventory during 2002 due to
the completion of our warehouse expansion project.
In the first six months of 2002 and 2001, accounts receivable increased $571,188
and $3,087,616, respectively. This variation in levels of accounts receivable
was mainly attributable to differences in extended payment terms offered to
member-dealers.
For the period ended June 30, 2002, net earnings plus other comprehensive
earnings were $296,400, compared to $241,794 for the same 2001 period. This 23%
increase during 2002 was mainly attributable to the increase in gross margin and
sundry income. Historically, our total comprehensive earnings consisted of net
earnings plus other comprehensive earnings. However, as discussed above, in
response to a comment from the SEC, we have changed the presentation of our
total comprehensive earnings which now consist of net earnings, less accrued
preferred stock dividends, plus other comprehensive earnings. Applying this
presentation to the first six months of 2002 and 2001, total comprehensive
earnings for 2002 were $50,658, compared to a total comprehensive loss of
$76,074 for the same 2001 period, for an overall increase of $126,732 during
2002. This 167% increase was mainly attributable to the decrease in dividends
accrued for the 2002 period ($245,742) versus those of the 2001 period
($317,868), as well as an increase in net earnings before dividends in the first
six months of 2002 (2002-$320,495 versus 2001-$265,552).
Net cash used for investing activities decreased significantly in the first half
of 2002 as compared to the same period in 2001, declining from $3,937,182 in the
first six months of 2001 to $107,425 for the same period in 2002. The
significant decrease in the first six months of 2002 was almost entirely due to
the completion of our warehouse expansion project during 2001.
Net cash provided by financing activities was $3,741,367 in the period ending
June 30, 2002 as compared to net cash provided by financing activities of
$3,348,906 during the same period in 2001. This difference in the first six
months of 2002 and 2001 was principally attributable to funds being provided
during 2002 from draws on the Company's line of credit, which were made to fund
our warehouse expansion project and increase inventory, as well as a decrease in
dividends paid to member-dealers during the first quarter of 2002 when compared
to the same 2001 quarter (2002 - $491,484 versus 2001 - $635,737).
18
Our continuing ability to generate cash for funding our activities is
highlighted by the relative constancy of three key liquidity measures - working
capital, current ratio (current assets to current liabilities) and long-term
debt as a percentage of capitalization, as shown in the following table:
JUNE 30, DECEMBER 31, JUNE 30,
2002 2001 2001
---------- ------------ ----------
Working Capital $10,679,497 $6,759,167 $7,813,937
Current Ratio 1.4 to 1 1.3 to 1 1.3 to 1
Long-term Debt as Percentage
of Capitalization 19.8% 7.3% 15.9%
During the remainder of 2002, we expect to further expand our existing customer
base in our current selling territories. We intend to finance our expansion with
anticipated increased revenues from sales to new member-dealers in these
territories, and with receipts from the sale of stock to new and current
member-dealers. We expect that this expansion will have a beneficial effect on
our ability to generate cash to meet our funding needs.
In the first six months of 2002, we maintained a 95.9 percent service level (the
measure of our ability to meet member-dealers' orders out of current stock) as
compared to a service level of 96.0 percent for the same period of 2001.
Inventory turnover was 6.1 times during the first six months of 2002 as compared
to 6.2 times during the same period of 2001. This rate of inventory turnover,
which is higher than the wholesale hardware buying groups' average of 5.5, is
primarily the result of tight control of the product mix, increase in depth of
inventory and continued high service level.
Capital Resources
- -----------------
In the six month periods ending June 30, 2002 and June 30, 2001, our
investment in capital assets (net of dispositions) was $166,210 and $3,900,029,
respectively. Approximately 30.8 percent ($51,152) of the amount expended in the
first six months of 2002 was used to purchase warehouse equipment, 30.1 percent
($49,972) was used to replace older company vehicles, 18.1 percent ($30,090) was
used to purchase computer equipment and member- dealer order entry terminals,
11.9 percent ($19,852) was used to purchase office furniture and equipment and
9.1 percent ($15,144) was used for building upgrades. By comparison, of the
total amount expended in the first six months of 2001, $3,476,629 (89.1%) was
used to fund capital expenditures related to our warehouse expansion project and
$301,321 (7.7%)was used for the purchase of warehouse equipment.
In April, 2002, JP Morgan Chase Bank amended the Company's existing unsecured
$10 million revolving line of credit to provide for an April 30, 2004 maturity
date. We use our unsecured $10 million revolving line of credit from time to
time for our working capital and other financing needs. During the first half of
2002, we borrowed $41,778,000 and repaid $35,513,000 from cash flow, leaving an
outstanding balance under our line of credit of $6,265,000 on June 30, 2002. Our
average outstanding balance on our line of credit for the second quarter and
first six months of 2002 was $2,387,363 and $3,495,923, respectively.
During the year 2002, we anticipate significant cash outlays for payment of
accounts payable and increased inventory purchases. Additional cash outlays
anticipated for the remainder of the year include: approximately $45,000 to make
building improvements, $146,000 to purchase warehouse equipment, $80,000 to
upgrade computer equipment, $38,000 to improve our automobile fleet and $10,000
to purchase office furniture and equipment.
Our cash position of $1,906,340 at June 30, 2002, is anticipated to be
sufficient to fund all planned capital expenditures, although some third party
financing, including draws on our line of credit, may be needed.
19
QUANTITATIVE & QUALITATIVE DISCLOSURES
ABOUT MARKET RISKS
--------------------------------------
Not Applicable
FORWARD-LOOKING STATEMENTS
--------------------------
The statements contained in this 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 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. Interim results are not necessarily
indicative of those for a full year.
20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Shareholders Meeting held on April 23, 2002, Norman
J. Bering, II, Susie Bracht-Black and Richard A. Lubke were
elected to serve as Directors of the Company for three-year
terms. Additionally, Don Jameson, President of the Company, was
elected to serve as Director for a one-year term. The other
Directors continuing to serve are: Craig E. Blum, Ben J. Jones
and Leroy Welborn, whose terms will expire at the Annual
Shareholders Meeting to be held in April 2003, and Doug Ashy,
Jr., William R. Hill and Jimmy T. Pate, whose terms will expire
at the Annual Shareholders Meeting in May 2004.
No. of Votes No. of Votes No. of Votes
Nominees for Directors For Against Abstain Approval
- ---------------------- ------------ ------------ ------------ --------
Norman J. Bering, II 5520 120 -0- Yes
Susie Bracht-Black 5520 120 -0- Yes
Richard A. Lubke 5520 120 -0- Yes
Don Jameson 5520 120 -0- Yes
No other proposals were submitted to a vote of security holders.
Item 5. Other Information
Effective July 23, 2002, Norman J. Bering, II, resigned as a
director of the Company. His resignation was not due to any
disagreements with the Company on any matter relating to the
Company's operations, policies or practices. The board of
directors appointed Suzanne Elliott to fill the remaining portion
of Mr. Bering's term, which will expire April 2005.
Item 6. Exhibits & Reports on Form 8-K
(a) Exhibits
Exhibit Number
--------------
*10.1 The Revolving Promissory Note and Sixth Amendment to
Amendment and Restatement of Credit Agreement between the
Company and JP Morgan Chase Bank dated April 30, 2002.
*99.1 Certification of Chief Executive Officer and Chief
Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
* Filed herewith.
21
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HANDY HARDWARE WHOLESALE, INC.
/s/ Don Jameson
------------------------------
DON JAMESON
President
(Chief Executive Officer)
/s/ Tina S. Kirbie
------------------------------
TINA S. KIRBIE
Senior Vice President, Finance
Secretary and Treasurer
(Chief Financial and Accounting Officer)
Date August 13, 2002
---------------
22