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, 2002 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
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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]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes No X
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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
$1,015,000 as of February 28, 2003.
The number of shares outstanding of each of the Registrant's classes of
common stock as of February 28, 2003, was 10,230 shares of Class A Common Stock,
$100 par value, and 76,685 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 Annual Meeting Part III, Items 10, 11, 12 and 13
of Stockholders to be held April 21, 2003
TABLE OF CONTENTS
PART I
Item 1. Business........................................................................................1
Item 2. Properties......................................................................................6
Item 3. Legal Proceedings...............................................................................6
Item 4. Submission of Matters to a Vote of Security Holders.............................................6
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...........................6
Item 6. Selected Financial Data.........................................................................8
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...........9
Item 7a. Quantitative and Qualitative Disclosures About Market Risk.....................................14
Item 8. Financial Statements and Supplementary Data....................................................14
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........36
PART III
Item 10.*Directors and Executive Officers of the Registrant.............................................36
Item 11.*Executive Compensation.........................................................................36
Item 12.*Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters...............................................................................36
Item 13.*Certain Relationships and Related Transactions.................................................36
Item 14. Controls and Procedures .......................................................................36
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K...............................36
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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
1,174 active Member-Dealers and sales of more than $186,400,000 in 2002. 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 46 trailers owned by the Company and 65 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. However, Member-Dealers may buy merchandise from any source they
desire. As of December 31, 2002, 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, 2002, 712 of the Company's
Member-Dealers were located in Texas, 202 in Louisiana, 102 in Oklahoma, 89 in
Arkansas, 12 in Alabama, 29 in Mississippi, 11 in Florida, 1 in Colorado, 8 in
New Mexico, 6 in Mexico and 2 in Central America. No individual Member-Dealer
accounted for more than 2.0% of the sales of the Company during fiscal 2002. The
loss of a single Member-Dealer or several Member-Dealers 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 35% of the Company's total sales during 2002, 36% in 2001 and
37% in 2000, while warehouse shipments accounted for approximately 65% of total
sales in 2002, 64% in 2001 and 63% in 2000.
The Company's total sales include 14 different major classes of
merchandise. In 2002, 2001 and 2000, the Company's total sales and total
warehouse sales were divided among classes of merchandise listed below.
1
TOTAL SALES1 WAREHOUSE SALES
---------------------------------------------- -----------------------------------------
CLASS OF MERCHANDISE 2002 2001 2000 1999 2002 2001 2000 1999
- -------------------- ---- ---- ---- ---- ---- ---- ---- ----
Plumbing Supplies 19% 18% 19% 17% 23% 22% 23% 21%
Building Materials 12 12 12 12 3 2 2 2
General Hardware 10 11 11 11 11 12 12 12
Paint Sundries 11 11 10 11 13 13 13 14
Electrical Supplies 10 10 10 10 12 13 13 13
Hand Tools 8 8 9 9 7 7 8 9
Lawn and Garden Products 8 8 8 8 10 10 10 10
Paint 4 4 3 4 5 4 4 4
Power Tools 4 4 4 5 2 2 2 2
Housewares & Related Supplies 3 3 3 3 4 4 3 3
Fasteners 2 2 2 2 1 1 1 1
Automotive After Market 3 2 2 2 3 3 3 3
Outdoor Products 2 2 2 2 2 2 1 2
Miscellaneous 4 5 5 4 4 5 5 4
---- ---- ---- ---- ---- --- --- ----
100% 100% 100% 100% 100% 100% 100% 100%
==== ==== ==== ==== ==== ==== ==== ====
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(1) These amounts include direct sales and warehouse sales.
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. For example, 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. This program was developed in order to allow Handy Hardware
Member-Dealers to become more competitive in the markets they serve.
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, merchandise shipped from the
Company's warehouse arrives at the Member-Dealer's store the same day it is
shipped.
In 2002 the Company maintained a 95.9 percent service level (the measure of
the Company's ability to meet Member-Dealer orders out of current stock), as
compared to service levels of 94.5 percent in 2001 and 94.8 percent in 2000.
This slight increase in service level in 2002 can be attributed to a continuing
emphasis on improving inventory controls and delivery methods. Inventory
turnover was 6.0 times during 2002, 6.3 times in 2001 and 6.1 times in 2000.
2
This rate of inventory turnover is primarily the result of tight control of the
product mix, increase in depth of inventory and continued high service level. No
policy of inventory shrinkage has been implemented or is planned.
MEMBER-DEALER SERVICES AND ADVERTISING
The Company employs a staff of ten full-time account representatives who
visit Member-Dealers to advise them on display techniques, location surveying,
inventory control, promotional sales, advertising programs and other
Member-Dealer services available to them 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 with 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
Member-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 Member- Dealer to
deduct such cooperative claims from the cost of the circular program. The
Company estimates that approximately $1,026,960 was expended in 2002 for
Member-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 1,900
vendors supplied merchandise to the Company during 2002. 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 2.5% of the
Company's total purchases during 2002. 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, 2002, the Company had 353 full-time employees, of which
64 were in management or administrative positions and 289 in warehouse, office
or delivery operations. Company employees are not represented by any labor
unions. The Company believes its employee relations are satisfactory and it has
experienced no work stoppage as a result of labor disputes.
TRADE NAMES
The Company has a trade name, "Handy Hardware Stores," that it licenses to
Member-Dealers at no additional charge. This trade name has been registered in
all the states in which the Company's Member-Dealers are located. This trade
name is displayed by many of the Member-Dealers on storefronts and inside stores
and is used in advertising programs organized by Handy Hardware. The Company
believes that this trade name is useful to its operations, but 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.
3
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. 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. Handy Hardware does not permit a Member-Dealer to purchase more
than 10 shares of Class A Common Stock.
Purchases of Class B Common Stock and Preferred Stock by Member-Dealers
Process for Collecting Funds from Member-Dealers to Purchase Class B Common
Stock and Preferred Stock. The Company prepares a semi-monthly statement for
each Member-Dealer stating that Member-Dealer's total merchandise purchases made
during the preceding half month. Total merchandise purchases include both the
Member- Dealer's warehouse purchases from the Company's inventory and that
Member-Dealer's purchases directly from the manufacturer that are billed through
the Company. An additional charge equal to 2% of the Member-Dealer's warehouse
purchases from the Company's inventory is invoiced on each statement. The
Company's board may, but traditionally does not, include the amount of purchases
made by a Member-Dealer directly from the manufacturer when adding the 2%
charge. The Company accumulates the funds from this 2% charge for each
Member-Dealer to use for its purchase of Class B Common Stock and Preferred
Stock. When a Member-Dealer's accumulated funds total 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 and retains any amounts above $2,000 until the
accumulated amounts again equal the $2,000 required for additional purchases.
Formula for Calculating the Desired Stock Ownership Level of each
Member-Dealer. In April of each year, the Company calculates each
Member-Dealer's desired stock ownership level, which must be at least $10,000.
The Company bases each Member-Dealer's desired stock ownership level on the
amount of its total merchandise purchases made during the previous calendar
year. The formula for calculating a Member-Dealer's desired stock ownership
level compares the Member-Dealer's actual stock ownership as of December 31 of
the previous year to that Member-Dealer's level of merchandise purchases in the
prior year. Actual stock ownership includes all shares of Class A Common Stock,
Class B Common Stock and Preferred Stock owned by a Member-Dealer, with each
share valued at its $100 par value. Each Member-Dealer's desired stock ownership
level is calculated based on the applicable formula set forth in the following
table:
ACTUAL STOCK FORMULA FOR CALCULATING
OWNERSHIP DESIRED STOCK OWNERSHIP LEVEL
- --------------------------------------------------------------------------------------------------------------
$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
4
Example of How to Calculate a Member-Dealer's Desired Stock Ownership
Level. On December 31, a Member-Dealer's actual stock ownership totaled $32,000
and total merchandise purchases made from January 1 to December 31 amounted to
$300,000. For the first $250,000 of total merchandise purchases, the
Member-Dealer should own $1.00 of stock for each $8.00 of total merchandise
purchases, or $31,250. For the remaining $50,000 of total merchandise purchases,
the Member-Dealer should own an additional $1.00 of stock for each $10.00 of
total merchandise purchases, or $5,000, for a total desired stock ownership of
$36,250 [$31,250 plus $5,000]. The Member- Dealer's desired stock ownership
level of $36,250 is $4,250 higher than the Member-Dealer's actual stock
ownership of $32,000 on December 31. Thus, the Company will require this
Member-Dealer to make additional purchases of Class B Common Stock and Preferred
Stock during the twelve month period beginning April 1 of the following year
using the funds the Company collects from the 2% charges on this Member-Dealer's
semi-monthly invoice statement.
When Actual Stock Ownership is Less than Desired Stock Ownership. In April
of each year, the Company calculates the desired stock ownership level for each
Member-Dealer. If the Company determines that a Member- Dealer's actual stock
ownership on the previous December 31 was less than its desired stock ownership
level, then starting in April the Company will begin to collect funds for the
Member-Dealer's purchase of additional Class B Common Stock and Preferred Stock.
The Company collects these funds by adding the 2% charge described above to the
Member-Dealer's semi-monthly invoice statements. The Company will continue to
collect these funds for one year until the next March 31, even if the
Member-Dealer attains its desired stock ownership level before March 31. Until
funds for a Member-Dealer total $2,000 and are applied to purchase Class B
Common Stock and Preferred Stock, the Company uses that Member-Dealer's funds
for working capital.
When Actual Ownership is Greater than Desired Ownership. If a
Member-Dealer's actual stock ownership at year-end is equal to or exceeds its
desired stock ownership level, it is overinvested and is not required to make
additional purchases of Class B Common Stock and Preferred Stock during the
twelve month period beginning April 1 of the following year. However, a
Member-Dealer may voluntarily continue to make additional purchases of Class B
Common Stock and Preferred Stock by paying to the Company amounts equal to 2% of
the Member-Dealer's warehouse purchases invoiced on each semi-monthly statement.
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 Member-Dealers whose actual stock ownership exceeded their desired
stock ownership by $4,000 or more. Each year 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,
repurchased at the full initial sales price of $100 per share.
As of December 31, 2002, the total overinvested amount eligible for
repurchase by the Company was approximately $1,300,000, of which the Company
offered to repurchase 3,250 shares, valued at $325,000. Of the 3,250 shares
eligible for repurchase from overinvested Member-Dealers, 128 shares
(approximately 4%) were submitted for repurchase, for which the Company expended
$12,800. 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. Over the eleven years of the repurchase program, the
Company has repurchased from Member-Dealers a total of approximately 4,600
shares, valued at $460,050. The Company currently intends, but is not required,
to continue offering to repurchase from Member-Dealers overinvested amounts
eligible for repurchase. 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.
5
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 increase during the trade shows, which typically 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, as
well as changes in the weather and economic conditions in the Company's selling
territories, can cause the Company's net earnings per quarter to vary
substantially from year to year. For example, during 2002 the cumulative effect
of timing differences of rebates contributed to the increase in 2002 net
earnings. Sales during the fourth quarter are often lower, as hardware sales are
slowest during the winter months preceding ordering for significant sales in the
spring. In most years, however, this decrease in sales is partially offset by
the corrections to inventory made at year-end, causing fourth quarter net
earnings to vary from year to year.
ITEM 2. PROPERTIES
The Company's warehouse and administrative and marketing offices are
located on 25.2 acres of land in Houston, Texas. 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.
In January 1999 the Company purchased an additional 29.96 acres of land
located across the street from its warehouse facility. This land was used to
relocate the Company's retention pond, to provide additional parking facilities
and to allow for the Company's warehouse expansion project. Total capital
expenditures made from 1999 to 2001 for the Company's expansion project,
completed during 2001, were $8,872,075, of which $4,146,718 (53.9%) was spent in
2001. The warehouse expansion project increased the size of the warehouse from
297,000 square feet to 538,000 square feet.
ITEM 3. LEGAL PROCEEDINGS
To the Company's knowledge, there are no pending or threatened legal
proceedings which would have a material effect on the Company's financial
position, results of operation or its assets.
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
2002.
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. Each 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
6
knowledge of the Company, owned by Member-Dealers or former Member-Dealers of
the Company or affiliates of such Member-Dealers. In the past the Company has
acquired all the stock that former Member-Dealers have offered back to the
Company, paying par value in cash for the Class A Common Stock and acquiring
Class B Common Stock and Preferred Stock at par value on an installment sale
basis. There is no assurance that Handy Hardware will maintain such practices,
which could be discontinued without notice at any time. Other than as described
above, the Company is not aware of the existence of a trading market for any
class of its equity securities.
Shares of the Company's 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, 2003, was as follows:
DESCRIPTION NUMBER OF HOLDERS
----------- -----------------
Class A Common Stock (Voting), $100 par value 1,023
Class B Common Stock (Non-Voting), $100 par value 955
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.
7
ITEM 6. SELECTED FINANCIAL DATA
The following table provides selected financial information for the five
years ended December 31, 2002, 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,
------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
OPERATING INCOME DATA:
Net Sales $186,449,447 $178,503,543 $168,108,099 $158,066,302 $146,009,972
Total Revenues 190,989,139 182,617,439 171,826,695 161,375,588 149,362,454
Total Expenses 190,005,803 182,006,236 170,655,442 159,894,033 147,999,775
Net Earnings 614,096 389,075 749,664 950,902 877,149
Preferred Stock
Dividends Paid 491,484 635,737 585,925 554,346 682,368
Net Earnings (Loss)
Applicable to Common
Stockholders 122,612 (246,662) 163,739 396,556 194,781
Net Earnings (Loss) Per
Share of Class A and
Class B Common Stock 1.39 (3.03) 2.20 5.66 2.92
Total Comprehensive $ 75,486 $ (272,937) $ 118,924 $ 437,674 $ 211,121
Earnings
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------------
2002 2001 2000 1999 1998
---- ---- ---- ---- ----
BALANCE SHEET DATA:
Current Assets $ 30,776,898 $ 31,814,422 $ 27,290,088 $ 27,247,000 $ 26,041,957
Property 10,756,483
(Net of Accumulated
Depreciation) 15,902,215 16,776,391 13,204,168 9,516,835
Other Assets 436,638 698,012 753,462 677,547 483,405
------------ ------------ ------------ ------------ ------------
Total Assets $ 47,115,751 $ 49,288,825 $ 41,247,718 $ 38,681,030 $ 36,042,197
============ ============ ============ ============ ============
Current Liabilities $ 22,183,037 $ 25,055,255 $ 18,137,338 $ 16,969,588 $ 15,894,431
Long Term Liabilities 1,301,712 1,647,733 1,716,416 1,696,595 1,279,968
Stockholders' Equity 23,631,002 22,585,837 21,393,964 20,014,847 18,867,798
------------ ------------ ------------ ------------ ------------
Total Liabilities and
Stockholders' Equity $ 47,115,751 $ 49,288,825 $ 41,247,718 $ 38,681,030 $ 36,042,197
============= ============ ============ =============== ============
8
ITEM 7. 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, corporate layoffs and a pending military
conflict involving the United States thwarted economic growth during the
remainder of the year. Although the overall economic climate for 2002 was not
strong, the Company maintained its steady growth while continuing to meet its
goals of providing quality goods to its Member-Dealers at cost plus a reasonable
mark-up charge.
Net Sales. Despite the stock market declining, investor pessimism spreading
and pressure from retail warehouses continuing, the Company's sales growth
continued throughout 2002, although not as robustly as in 2001. Net sales in
2002 increased 4.5% ($ 7,945,904) over 2001 net sales, compared to a 6.2% growth
rate ($10,395,444) of net sales in 2001 over 2000 levels.
Net sales growth during 2002 was mainly attributable to keeping inventory
available for sale at a competitive price, supported by marketing initiatives to
help Member-Dealers maintain their competitiveness in their selling territories.
The number of Member-Dealers for the past three years has remained consistent,
with 1,174 Member-Dealers in 2002, 1,187 Member-Dealers in 2001 and 1,143
Member-Dealers in 2000. The recent lack of growth in the number of
Member-Dealers can be attributed primarily to competition from large retail
warehouses in many of the Member-Dealers' selling territories. The Company is
developing a strategic plan to increase the number of Member-Dealers. The
Company has recently hired personnel to assist in expanding its southern selling
territories, and during 2003, the Company intends to increase its presence in
Alabama and Mississippi, while evaluating additional potential markets.
Additionally, the Company intends to continue its marketing initiatives to
continue to improve Member-Dealers' competitiveness in their selling
territories. The Company expects that the addition of future Member- Dealers and
increased purchases from current Member-Dealers will continue to offset the
effects of negative economic factors on net sales.
Although the Company's annual sales growth has been relatively steady for
the past three years, sales within individual selling territories exhibit wide
variances from year to year. During 2002, sales growth in six of our nine
selling territories was more robust than in the same period in 2001. By
contrast, three selling territories, the North Texas, Dallas and Fort Worth
territory, the Oklahoma territory and the Houston territory, continue to
experience pressure from large retail warehouses, which has eroded the market
share of independent hardware stores in these selling territories. However, the
decrease in sales for these three selling territories averaged only a moderate
1.73% for 2002.
9
The following table summarizes the Company's net sales during 2002, 2001
and 2000 by sales territory:
2002 2001 2000
---------------------------------------------- ------ ------
% INCREASE
(DECREASE) % OF % OF
IN NET SALES % OF TOTAL TOTAL
FROM PRIOR TOTAL NET NET
SALES TERRITORY NET SALES YEAR NET SALES SALES SALES
----------------------------------------- ---------------- ------------- --------- ------- ------
Houston Area* $ 39,447,209 (1.3%) 21.2% 22.4% 23.9%
Victoria, San Antonio, Corpus 39,183,141
Christi & Rio Grande Valley Area(1) 6.7% 21.0% 20.6% 20.5%
Austin, Brenham & Central Texas 23,267,133 5.6% 12.5% 12.4% 12.4%
Area*
North Texas, Dallas & Fort Worth 21,346,353 (0.9%) 11.4% 12.1% 11.9%
Area
Baton Rouge, New Orleans, 15,343,976 3.5% 8.3% 8.3% 8.0%
Mississippi, Alabama & Florida
Area*
Arkansas Area* 15,091,953 15.9% 8.1% 7.3% 5.8%
Southern Louisiana Area* 14,875,212 3.3% 8.0% 8.1% 10.3%
Oklahoma Area 11,881,203 (3.0%) 6.4% 6.9% 6.7%
West Texas & Eastern New
Mexico(2) 5,786,519 62.3% 3.1% 2.0% 0.5%
-------------- ------ ------ ------
Totals: $ 186,222,699(3) 100.0% 100.0% 100.0%
============== ====== ====== ======
- ------------------------------
* Includes a selling territory which was reorganized by the Company in
2001. Therefore year to year comparisons may not yield meaningful
results.
(1) Includes sales to Member-Dealers in Colorado, Mexico and Central
America.
(2) Sales for the West Texas and Eastern New Mexico area comenced in June
of 2000.
(3) Total does not include miscellaneous sales to employees.
Net Material Costs and Rebates. Net material costs during 2002 were
$166,330,582, compared to $160,236,413 in 2001 and $150,557,247 in 2000. Net
material costs for 2002 increased only 3.8% over the level of those costs in
2001, compared to an increase in net material costs in 2001 of 6.4% over 2000
levels. For 2002, the percentage increase in net material costs (3.8%) remained
lower than the percentage increase in net sales (4.5%), while the percentage
increase in net material costs during 2001 (6.4%) compared to 2000 levels was
slightly more than the percentage increase in net sales (6.2%). Net material
costs as a percentage of net sales have remained fairly constant, with such
costs totaling 89.2% of net sales in 2002 as compared to 89.8% of 2001 net sales
and 89.6% of 2000 net sales. Two factors were primarily responsible for the 0.6%
decline in net material costs as a percentage of net sales for 2002: (a) an
increase in amounts of factory rebates and (b) increased purchase discounts,
both of which were credited against net material costs in 2002 and which led to
a lower growth rate in net material costs for 2002. Rebates for 2002 increased
$396,370 or 7.5% (2002 - $5,678,806 vs. 2001 - $5,282,436) while purchase
discounts for 2002 increased $139,948 or 2.6% (2002 - $3,526,217 vs. 2001 -
$3,386,270).
Payroll Costs. Payroll costs during 2002 increased only $333,604, a 3.5%
increase over 2001 levels, compared to a substantially higher increase in
payroll costs of $1,059,380 (12.5%) during 2001 over 2000 levels. The 2002
increase was primarily due to salary increases needed to attract or retain
high-quality employees. Despite payroll cost variances, payroll costs as a
percentage of each of total expenses and net sales remained fairly constant for
2002, 2001 and 2000, at approximately 5.3%, 5.3% and 5.1%, respectively,
primarily as a result of an ongoing effort to maintain employee productivity.
10
Other Operating Costs. In 2002, other operating costs increased $1,564,649
(13.0%) over 2001 levels, while in 2001 the Company experienced a much more
moderate increase of $546,880 (4.7%) over 2000 levels. The much larger increase
in other operating costs in 2002 resulted from an increase of $495,170 (32.2%)
in insurance expenses, an increase in property taxes of $232,800 (33.6%) and an
increase of $827,063 (17.3%) in combined warehouse and delivery expenses. Other
operating costs for 2002 represented 7.2% of total expenses in 2002, as compared
to 6.6% in 2001 and 6.7% in 2000.
More than 52.8% of 2002's increase in other operating costs resulted from
increases in warehouse and delivery expenses. Delivery expenses (net of payroll
and insurance) increased from $3,110,574 in 2001 to $3,676,533 in 2002, a
difference of $565,959 (18.2%). In particular, a 73.9% increase in contract
labor expenses coupled with a 27.3% increase in rental truck expenses in
response to 2002's increased delivery demands resulted in much higher delivery
expenses than seen in prior years. Further, warehouse expenses during 2002
increased $126,815 (7.6%) as a result of an increase in the cost of warehouse
supplies (21.3%) and a decrease in freight rebates (15.7%) which are used to
offset warehouse expenses.
NET EARNINGS
While net sales for 2002 increased $7,945,904 (4.5%) over net sales in
2001, net material costs for 2002 grew by $6,094,169 (3.8%) from levels in 2001,
causing gross margin for 2002 to increase by $1,851,735 (10.4%), more than
double the increase in gross margin during 2001 of $716,278 (4.1%). However,
during 2002 a rise in payroll costs of $333,604 (3.5%) and a considerable
increase in other operating costs of $1,564,649 (13.0%) partially offset the
increase in gross margin. After-tax net earnings increased 57.8% from $389,075
in 2001 to $614,096 in 2002. After-tax net earnings, combined with dividends on
preferred stock and other comprehensive losses resulted in total comprehensive
earnings of $75,486 in 2002, compared to a total comprehensive loss of $292,937
in 2001, a difference of $368,423.
Net earnings for 2002 increased due to factors previously discussed.
However, the third quarter of 2002 accounted for approximately 35.7% of the
total year's increase in net earnings, principally due to a sharp increase in
gross margin offset by moderate increases in payroll costs and in other
operating expenses for that period.
Net earnings per share for 2002 increased 145.9% as compared to 2001
levels, from a net loss per share of $3.03 in 2001, to net earnings per share of
$1.39 in 2002, a $4.42 increase per share. The 2002 level of net earnings per
share is primarily due to 2002 net earnings being approximately 57.8% higher
than net earnings in 2001, together with a $144,000 decrease in dividends paid
in 2002 over 2001 levels. In 2002, net earnings exceeded dividends by $122,612
(24.9%), resulting in net earnings applicable to the common shareholders. By
comparison, dividends for 2001 exceeded net earnings by $246,662 (63.4%),
resulting in a net loss applicable to common shareholders.
The variation in the Company's earnings per share from year to year results
from the Company's commitment 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 virtually all of the Company
shareholders are also Member- Dealers, these trends benefit the individual
shareholders of the Company who purchase the Company's merchandise. Therefore,
there is no demand from shareholders that the Company focus greater attention
upon earnings per share.
MATERIAL CHANGES IN FINANCIAL CONDITION AND LIQUIDITY
In 2002, Handy Hardware maintained its financial condition and its ability
to generate adequate amounts of cash while continuing to make significant
investments in inventory, warehouse facilities, delivery equipment and computer
software and hardware to better meet the needs of its Member-Dealers. However,
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 2002 there was a slight decrease of $16,772 in the Company's cash
and cash equivalents. The Company generated cash flow from operating activities
of $2,550,654, compared to $1,528,266 of cash from operations during 2001 and
$3,112,053 in 2000. The increase in cash flow in 2002 was principally
attributable to a significant increase in the combined total of net earnings and
other comprehensive losses, as well as major decreases in changes in inventory
and accounts receivable as compared to 2001. These positive influences on cash
flow were only partially offset by the negative effects on cash flow from a
decrease in accounts payable. Net cash used by financing activities
11
was $2,131,535 in 2002, as compared to net cash provided by financing activities
of $3,554,799 in 2001 and $551,965 in 2000. This difference was principally
attributable to increased payments on the Company's line of credit.
In 2002 net earnings and other comprehensive losses combined were $224,170
more than the combined total in 2001 (2002 - $566,970 vs. 2001 - $342,800). This
65.4% increase was mainly attributable to a 10.4% increase in both gross margin
and sundry income.
In 2002 inventory decreased $178,509 compared to a significant increase of
$2,240,641 in 2001. This decrease resulted from the leveling off of inventory
purchases following the completion of the Company's warehouse expansion project
in 2001. The Company ended 2002 with approximately 40,100 stockkeeping units,
compared to approximately 38,431 stockkeeping units at the end of 2001 and
approximately 36,980 stockkeeping units at the end of 2000.
Accounts receivable in 2002 decreased by $694,206 as compared to an
increase of $1,897,429 in 2001, a net variance of $2,591,635. The decrease in
accounts receivable levels during the last year is attributable to variances in
extended payment terms offered to Member-Dealers at the fall trade show.
Accounts payable decreased $829,058 during 2002 compared to an increase of
$3,619,253 in 2001. This substantial disparity when comparing these two periods,
in the aggregate $4,448,311, is primarily attributable to widespread tightening
by vendors in extended payment terms, as reflected in the reduced level of trade
accounts payable at year end, as well as a leveling off in inventory purchases
when compared to 2001.
The Company's continuing ability to generate cash to fund its activities is
highlighted by 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,
--------------------------------------------------------------
2002 2001 2000
---- ---- ----
Working Capital $8,593,861 $6,759,167 $9,152,750
Current Ratio 1.39 to 1 1.27 to 1 1.50 to 1
Debt as Percentage of 5.5% 7.3% 8.0%
Capitalization
These key liquidity measures have remained relatively constant over the
past few years. However, in 2001 these ratios were negatively affected by the
capital expenditures, and borrowings on our line of credit, for completion of
our warehouse expansion project.
In 2002, the Company expects to further expand its existing customer base
in Alabama, Arkansas, Oklahoma, West Texas, New Mexico, Louisiana, Mississippi
and Florida. The Company will finance this expansion with anticipated growth in
revenues from sales to the new Member-Dealers in these selling 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.
12
CONTRACTUAL COMMITMENTS AND OBLIGATIONS
Our contractual obligations for the next five years and thereafter are as
follows:
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------------------------
2003 2004 2005 2006 2007 THEREAFTER TOTAL
---- ---- ---- ---- ---- ---------- -----
CONTRACTUAL
OBLIGATION:
Non-cancelable
Operating Leases $ 719,782 $ 701,184 $640,014 $429,389 $366,609 -0- $2,856,978
Credit Facility
which expires in
April 2004 (1) (1) (1) -- -- -- -- --
Notes Payable - 324,280 358,200 41,280 26,600 150,440 -0- 900,800
Stock
Notes Payable -
Vendor
Consignment -0- -0- -0- -0- -0- 247,463 247,463
Non-cancelable
Capital Leases 9,780 9,780 9,780 4,896 -0- -0- 34,236
---------- ---------- -------- -------- -------- -------- ----------
$1,053,842 $1,069,164 $691,074 $460,885 $517,049 $247,463 $4,039,477
========== ========== ======== ======== ======== ======== ==========
---------------------
(1) There was no balance outstanding on the Company's credit facility at
December 31, 2002 and at March 21, 2003. The amounts outstanding under the
credit facility fluctuate on a daily basis.
CAPITAL RESOURCES
Over the past five years, the Company's investments in plant and equipment
have amounted to more than $12.2 million and have provided the Company with the
capacity for growth to meet Member-Dealers' 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 2002, the Company invested $460,891 in plant and equipment, with
$208,365 (45.2%) used to purchase warehouse equipment. The remainder was used to
upgrade computer equipment and purchase order entry terminals ($95,242), to
upgrade the Company's auto fleet ($88,967), to purchase office furniture and
equipment ($30,360) and to remodel and upgrade the Company's building facility
($37,957).
In April 2002, J P Morgan Chase Bank amended the Company's existing
unsecured $10,000,000 revolving line of credit to extend the maturity date to
April 2004. This line is used from time to time for brief periods for working
capital and other financing needs of the Company. For example, the line was used
during 2000 and 2001 to partially fund the warehouse expansion project,
resulting in $2,700,000 outstanding at December 31, 2001. At December 31, 2002
the entire amount outstanding under the line of credit had been repaid in full
through payments from cash flow.
The Company has budgeted approximately $280,000 for 2003 capital
expenditures. Of this amount, the Company will use approximately $70,000 to
purchase warehouse equipment, $75,000 to improve the Company's fleet of
automobiles, $125,000 to upgrade the Company's computer equipment and $10,000 to
upgrade office furniture and equipment.
The Company's cash position of $1,394,324 at December 31, 2002 is
anticipated to be sufficient to fund the budgeted year 2003 capital
expenditures. However, the Company may utilize some third party financing,
including the Company's existing credit sources, to increase inventory
throughout the year to meet Member-Dealer needs.
13
CRITICAL ACCOUNTING POLICIES
The following summarizes several of the Company's critical accounting
policies. The Company's significant accounting policies are also included in
Note 1 to the Company's Consolidated Financial Statements.
Inventories. Inventories are valued at the lower of cost or market,
determined on a first in, first out basis, with proper adjustments made for old
or obsolete merchandise, which adjustments have been immaterial in the past.
Revenue Recognition. The Company recognizes revenues and receivables when
merchandise is shipped or services are rendered, and expenses are recognized
when the liability is incurred.
Allowance for Doubtful Accounts. The allowance for doubtful accounts is
based upon a three year average of bad debt expense recognized by the Company in
the most recent three fiscal years.
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, 2002
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, 2002 and 2001, and the related statements of earnings,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 2002. 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 auditing standards generally accepted
in the United States of America. 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, 2002 and 2001, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 2002, in conformity
with accounting principles generally accepted in the United States of America.
/s/ Clyde D. Thomas & Company, P.C.
---------------------------------------
CLYDE D. THOMAS & COMPANY, P. C.
Certified Public Accountants
February 18, 2003
Pasadena, Texas
16
HANDY HARDWARE WHOLESALE, INC.
BALANCE SHEETS
DECEMBER 31,
-------------------------------------
2002 2001
---------------- --------------
ASSETS
------
CURRENT ASSETS
- --------------
Cash $ 1,394,324 $ 1,411,096
Accounts receivable - trade, net of subscriptions receivable and
allowance for doubtful accounts 11,054,401 11,748,607
Inventory 18,029,181 18,207,690
Note receivable 552 935
Prepaid expenses 122,850 213,461
Prepaid income tax 115,456 201,897
Deferred compensation funded 60,134 30,736
-------------- --------------
Total Current Assets 30,776,898 31,814,422
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT
- -----------------------------
At cost, less accumulated depreciation of
$7,006,662 (2002) and $6,088,346 (2001) 15,902,215 16,776,391
-------------- --------------
OTHER ASSETS
- ------------
Notes receivable 248,460 334,157
Deferred compensation funded 180,436 338,093
Prepaid expenses 1,874 25,762
Intangible asset, less accumulated amortization of $237 5,868
-------------- --------------
436,638 698,012
-------------- --------------
TOTAL ASSETS $ 47.115,751 $ 49,288,825
------------ ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES
- -------------------
Notes payable - line of credit $ - $ 2,700,000
Notes payable - stock - current portion 324,280 32,800
Notes payable - capital leases 9,780 27,371
Accounts payable - trade 20,214,196 21,034,254
Accrued expenses payable 1,574,647 1,230,094
Deferred compensation payable - current 60,134 30,736
-------------- --------------
Total Current Liabilities 22,183,037 25,055,255
-------------- --------------
NONCURRENT LIABILITIES
- ----------------------
Notes payable - stock - noncurrent portion 576,520 750,360
Notes payable - capital leases 24,456 34,235
Notes payable - vendor consignment merchandise 247,463 334,157
Deferred compensation payable 180,436 338,093
Deferred income taxes payable 272,837 190,888
-------------- --------------
1,301,712 1,647,733
Total Liabilities -------------- --------------
$ 23,484,749 $ 26,702,988
-------------- --------------
17
HANDY HARDWARE WHOLESALE, INC.
BALANCE SHEETS
DECEMBER 31,
-----------------------------------
2002 2001
------------- -------------
STOCKHOLDERS' EQUITY
- --------------------
Common stock, Class A, authorized 20,000 shares, $100
par value per share, issued 10,250 and 10,510 shares $ 1,025,000 $ 1,051,000
Common stock, Class B, authorized 100,000 shares, $100
par value per share, issued 75,475 and 70,753 shares 7,547,500 7,075,300
Common stock, Class B subscribed, 5099.95 and
5,093.62 shares 509,995 509,362
Less subscriptions receivable for Class B Common stock (25,560) (22,502)
Preferred stock, 7% cumulative, authorized 100,000
shares, $100 par value per share, issued 78,332
and 73,622 shares 7,833,200 7,362,200
Preferred stock subscribed 5099.95 and 5,093.62 shares 509,995 509,362
Less subscriptions receivable for Preferred stock (25,560) (22,502)
Paid in surplus 483,336 426,007
------------- -------------
17,857,906 16,888,227
------------- -------------
Retained earnings exclusive of other comprehensive earnings 5,805,131 5,682,518
Retained earnings applicable to other comprehensive earnings (32,035) 15,092
------------- -------------
Total retained earnings 5,773,096 5,697,610
------------- -------------
Total Stockholders' Equity 23,631,002 22,585,837
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 47,115,751 $ 49,288,825
------------------------------------------ =========== ===========
See accompanying summary of accounting policies and notes to financial
statements.
18
HANDY HARDWARE WHOLESALE, INC.
STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
2002 2001 2000
------------- ------------- -------------
REVENUE
- -------
Net sales $ 186,449,447 $ 178,503,543 $ 168,108,099
Sundry income 4,539,692 4,113,896 3,718,596
------------- ------------- -------------
Total Revenue 190,989,139 182,617,439 171,826,695
------------- ------------- -------------
EXPENSES
- --------
Net material costs 166,330,582 160,236,413 150,557,247
Payroll costs 9,893,615 9,560,011 8,500,631
Other operating costs 13,621,914 12,057,265 11,510,385
Interest expense 159,692 152,547 87,179
------------- ------------- -------------
Total Expenses 190,005,803 182,006,236 170,655,442
------------- ------------- -------------
EARNINGS BEFORE PROVISION FOR FEDERAL
INCOME TAX 983,336 611,203 1,171,253
- ------------------------------------
PROVISION FOR FEDERAL INCOME TAX 369,240 222,128 421,589
- -------------------------------- ------------- ------------- --------------
NET EARNINGS
- ------------ 614,096 389,075 749,664
LESS DIVIDENDS ON PREFERRED STOCK 491,484 635,737 585,925
- --------------------------------- ------------- ------------- --------------
NET EARNINGS (LOSS) APPLICABLE $ 122,612 $ (246,662) $ 163,739
TO COMMON STOCKHOLDERS ============= ============== ==============
- ------------------------------
NET EARNINGS (LOSS) PER SHARE OF
COMMON STOCK CLASS A & CLASS B $ 1.39 $ (3.03) $ 2.20
- --------------------------------- ============= ============== ==============
OTHER COMPREHENSIVE EARNINGS (LOSS)
- ----------------------------------
Unrealized gain (loss) on securities (71,403) (70,113) (67,902)
Provision for federal income tax 24,277 23,838 23,087
------------- -------------- -------------
Other comprehensive earnings (loss) net of tax (47,126) (46,275) (44,815)
------------- -------------- -------------
TOTAL COMPREHENSIVE EARNINGS (LOSS) $ 75,486 $ (292,937) $ 118,924
- ----------------------------------- ============= ============= =============
See accompanying summary of accounting policies and notes to financial
statements.
19
HANDY HARDWARE WHOLESALE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
2002 2001 2000
----------- ----------- ------------
COMMON STOCK, CLASS A $100 PAR VALUE
- ------------------------------------
Balance at January 1, $ 1,051,000 $ 1,002,000 $ 919,000
Stock issued (year 2002 - 390 shares) 39,000 91,000 127,000
Stock canceled (year 2002 - 650 shares) (65,000) (42,000) (44,000)
----------- ----------- ------------
Balance at December 31, 1,025,000 1,051,000 1,002,000
----------- ----------- ------------
COMMON STOCK, CLASS B, $100 PAR VALUE
- -------------------------------------
Balance at January 1, 7,075,300 6,405,300 5,876,800
Stock issued (year 2002 - 8,465 shares) 846,500 807,700 759,200
Stock canceled (year 2002 - 3,743 shares) (374,300) (137,700) (230,700)
----------- ----------- ------------
Balance at December 31, 7,547,500 7,075,300 6,405,300
----------- ----------- ------------
COMMON STOCK, CLASS B, SUBSCRIBED
- ---------------------------------
Balance at January 1, 509,362 480,489 449,824
Stock subscribed 839,233 831,173 778,265
Transferred to stock (838,600) (802,300) (747,600)
----------- ----------- ------------
Balance at December 31, 509,995 509,362 480,489
Less subscription receivable (25,560) (22,502) (25,475)
----------- ----------- ------------
Total 484,435 486,860 455,014
----------- ----------- ------------
PREFERRED STOCK, 7% CUMULATIVE $100 PAR VALUE
- ---------------------------------------------
Balance at January 1, 7,362,200 6,682,600 6,138,650
Stock issued (year 2002 - 8,585 shares) 858,500 825,700 792,200
Stock canceled (year 2002 - 3,875 shares) (387,500) (146,100) (248,250)
----------- ----------- ------------
Balance at December 31, 7,833,200 7,362,200 6,682,600
----------- ----------- ------------
PREFERRED STOCK, 7% CUMULATIVE SUBSCRIBED
- -----------------------------------------
Balance at January 1, 509,362 480,489 449,824
Stock subscribed 839,233 831,173 778,265
Transferred to stock (838,600) (802,300) (747,600)
----------- ----------- ------------
Balance at December 31, 509,995 509,362 480,489
Less subscription receivable (25,560) (22,502) (25,475)
------------ ----------- ------------
Total 484,435 486,860 455,014
------------ ----------- ------------
PAID IN CAPITAL SURPLUS
- -----------------------
Balance at January 1, $ 426,007 $ 403,489 $ 363,610
Additions 57,329 22,518 39,879
------------ ----------- ------------
Balance at December 31, $ 483,336 $ 426,007 $ 403,489
------------ ----------- ------------
TREASURY STOCK, AT COST
COMMON STOCK, CLASS A, AT COST
- ---------------------------------
Balance at January 1, $ - $ - $ -
Stock reacquired (65,000) (42,000) (44,000)
Stock canceled 65,000 42,000 44,000
Stock issued - - -
----------- ----------- ------------
Balance at December 31, $ - $ - $ -
----------- ----------- ------------
20
HANDY HARDWARE WHOLESALE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Page 2
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
2002 2001 2000
----------- ----------- ------------
COMMON STOCK, CLASS B, AT COST
------------------------------
Balance at January 1, $ - $ - $ -
Stock reacquired (374,300) (137,700) (230,700)
Stock canceled 374,300 137,700 230,700
Stock issued - - -
------------- ------------ ------------
Balance at December 31, - - -
------------- ------------ ------------
PREFERRED STOCK, 7% CUMULATIVE AT COST
--------------------------------------
Balance at January 1, - - -
Stock reacquired (387,500) (146,100) (248,250)
Stock canceled 387,500 146,100 248,250
Stock issued - - -
------------- ------------ ------------
Balance at December 31, - - -
------------- ------------ ------------
TOTAL TREASURY STOCK - - -
-------------------- ------------- ------------ ------------
RETAINED EARNINGS
- -----------------
Balance at January 1 5,697,610 5,990,547 5,871,623
Add: Net earnings year ending December 31 614,096 389,075 749,664
Other comprehensive earnings (loss) (47,126) (46,275) (44,815)
Deduct: Cash dividends on Preferred Stock 491,484 635,737 585,925
------------- ------------ ---------
Balance at December 31, 5,773,096 5,697,610 5,990,547
------------- ------------ ---------
TOTAL STOCKHOLDERS' EQUITY $ 23,631,002 $ 22,585,837 $ 21,393,964
- -------------------------- ============ ============ ============
See accompanying summary of accounting policies and notes to financial
statements.
21
HANDY HARDWARE WHOLESALE, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31,
---------------------------------------------------------
2002 2001 2000
----------- ----------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES
- ------------------------------------
Net earnings and other comprehensive earnings (loss) $ 566,970 $ 342,800 $ 704,849
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Amortization 237 - -
Depreciation 1,319,648 1,312,553 1,104,347
Deferred income tax 81,949 (14,690) (23,697)
(Gain) Loss on sale of property, plant, and equipment (18,830) (3,250) (979)
Unrealized loss, decrease, gain (increase) in fair
market value of securities 71,403 70,114 67,902
Deferred compensation funded 60,000 - -
Changes in assets and liabilities:
(Increase) Decrease in accounts receivable 694,206 (1,897,429) 780,104
(Increase) Decrease in notes receivable 86,080 (17,278) (72,356)
(Increase) Decrease in inventory 178,509 (2,240,641) (819,972)
(Increase) Decrease in prepaid expenses 200,940 (182,111) 38,284
Increase (Decrease) in note payable for vendor
consignment merchandise (86,694) 24,182 85,103
Increase (Decrease) in accounts payable (820,058) 3,619,253 1,963,384
Increase (Decrease) in accrued expenses payable 344,553 572,646 (711,940)
Increase (Decrease) in deferred
compensation payable (128,259) (57,883) (2,976)
----------- ----------- -----------
Net Cash Provided by (Used for) Operating Activities 2,550,654 1,528,266 3,112,053
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Capital expenditures for property, plant, and equipment (460,891) (4,884,777) (3,552,032)
Expenditure for intangible asset (6,105) - -
Investment in deferred compensation funded - (9,770) (9,650)
Sale of property, plant and equipment 34,250 3,250 979
Reinvested dividends, interest, and capital gains (3,145) (2,460) (55,276)
------------ ----------- -----------
Net Cash Provided by (Used for ) Investing Activities (435,891) (4,893,757) (3,615,979)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
Note Payable - line of credit borrowings 76,315,000 54,955,000 22,306,000
Note Payable - line of credit repayments (79,015,000) (52,255,000) (22,306,000)
Increase (Decrease) in notes payable - lease (27,370) 36,126 (41,383)
Increase (Decrease) in notes payable - stock 117,640 (30,400) (80,920)
(Increase) Decrease in subscription receivable (6,116) 5,946 3,534
Proceeds from issuance of stock 1,802,595 1,804,664 1,779,609
Purchase of treasury stock (826,800) (325,800) (522,950)
Dividends paid (491,484) (635,737) (585,925)
----------- ----------- -----------
Net Cash Provided by (Used for) Financing Activities (2,131,535) 3,554,799 551,965
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (16,772) 189,308 48,039
- -----------------------------------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,411,096 1,221,788 1,173,749
- ---------------------------------------------- ---------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,394,324 $ 1,411,096 $ 1,221,788
- ---------------------------------------- =========== =========== ===========
ADDITIONAL RELATED DISCLOSURES TO THE STATEMENT OF CASH FLOWS
- -------------------------------------------------------------
Interest expense paid $ 159,692 $ 152,547 $ 87,179
Income tax payments 176,572 344,094 392,646
See accompanying summary of accounting policies and notes to financial
statements.
22
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
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, 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, 2002, the balance of this account amounted
to $1,373,599.
Inventories
-----------
Inventories are valued at the lower of cost or market method, determined by
the first in, first out method.
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,
-------------------------------------
2002 2001
------------ ------------
Land $ 3,207,866 $ 3,207,866
Buildings & improvements 15,478,032 15,452,276
Furniture, computer, warehouse equipment 3,715,818 3,698,071
Transportation equipment 507,161 506,524
------------ ------------
$ 22,908,877 $ 22,864,737
Less: Accumulated depreciation 7,006,662 6,088,346
----------- -----------
$ 15,902,215 $ 16,776,392
============ ============
Depreciation expense for the year ended December 31, 2002, amounted to
$1,319,648 compared with $1,312,553 for the year ended December 31,
2001.
23
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
NOTE 1 - ACCOUNTING POLICIES (CONTINUED)
- ---------------------------------------
Changes in property, plant, and equipment for the year ended December 31, 2002,
are shown in the following schedule:
Balance Additions Other Balance
1-1-2002 At Cost Retirements Changes 12-31-2002
-------- --------- ----------- ------- ----------
Land $ 3,207,866 $ - $ - $ - $ 3,207,866
Buildings and improvements $ 15,452,276 37,957 $ 12,201 - 15,478,032
Furniture, computers and
warehouse equipment 3,698,071 333,967 316,220 - 3,715,818
Transportation equipment 506,524 88,967 88,330 - 507,161
------------ ------------- ---------- --------------- --------------
$ 22,864,737 $ 460,891 $ 416,751 $ - $ 22,908,877
============ ============= ========== =============== ==============
Changes in property, plant, and equipment for the year ended December 31, 2001,
are shown in the following schedule:
Balance Additions Other Balance
1-1-2001 At Cost Retirements Changes 12-31-2001
-------- --------- ----------- ------- ----------
Land $ 3,207,866 $ - $ - $ - $ 3,207,866
Construction in Progress-
warehouse expansion 2,107,122 4,044,192 - (6,151,314) -
Buildings and improvements 9,235,072 102,526 36,636 6,151,314 15,452,276
Furniture, computers and
warehouse equipment 3,642,310 610,767 555,006 - 3,698,071
Transportation equipment 561,104 132,084 186,664 - 506,524
------------ ------------- --------- --------------- --------------
$ 18,753,474 $ 4,889,569 $ 778,306 $ - $ 22,864,737
============ ============= ========== =============== ==============
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 Retirements 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
============ ============= =========== =============== ==============
24
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
NOTE 1 - ACCOUNTING POLICIES (CONTINUED)
- ---------------------------------------
Changes in accumulated depreciation for property, plant, and equipment for the
year ended December 31, 2002, are shown in the following schedule:
Balance Additions Other Balance
1-1-2002 At Cost Retirements Changes 12-31-2002
-------- --------- ----------- ------- ----------
Land $ - $ - $ - $ - $ -
Buildings and improvements 3,309,391 631,556 12,201 - 3,928,746
Furniture, computers and
warehouse equipment 2,528,656 544,906 316,220 - 2,757,342
Transportation equipment 250,299 143,186 72,911 - 320,574
----------- -------------- ----------- --------------- -------------
$ 6,088,346 $ 1,319,648 $ 401,332 $ - $ 7,006,662
=========== ============== =========== =============== =============
Changes in accumulated depreciation for property, plant, and equipment for the
year ended December 31, 2001, are shown in the following schedule:
Balance Additions Other Balance
1-1-2001 At Cost Retirements Changes 12-31-2001
-------- --------- ----------- ------- ----------
Land $ - $ - $ - $ - $ -
Buildings and improvements 2,755,238 590,789 36,636 - 3,309,391
Furniture, computers and
warehouse equipment 2,508,681 574,981 555,006 - 2,528,656
Transportation equipment 285,387 146,783 181,871 - 6,088,346
----------- -------------- ----------- --------------- -------------
$ 5,549,306 $ 1,312,553 $ 773,513 $ - $ 6,088,346
=========== ============== =========== =============== =============
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 Retirements 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 - 2,508,681
Transportation equipment 309,166 120,055 143,834 - 285,387
------------ -------------- ----------- --------------- -------------
$ 5,162,434 $ 1,104,347 $ 717,475 $ - $ 5,549,306
=========== ============== =========== =============== =============
25
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
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 Depreciation Total
Tax Depreciation (Over) Under Book Accumulation
Over (Under) Book Depreciation for Tax Over Book
Year Depreciation Deleted Assets Depreciation
---- ------------ -------------- ------------
12-31-00 41,414 (197) 1,298,890
12-31-01 67,232 (23,769) 1,342,353
12-31-02 157,844 40,587 1,540,784
2. Deferred compensation is accrued as follows:
Balance, December 31, 2001 $ 368,829
Decrease for year ended December 31, 2002 128,259
-------------
Balance, December 31, 2002 $ 240,570
=============
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,
----------------------------------
2002 2001
------------ ------------
Book inventory $ 18,029,181 $ 18,207,690
Adjustment for 263A uniform
capitalization costs 400,500 380,869
------------ ------------
Inventory for tax return $ 18,429,681 $ 18,588,559
============ ============
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, 2002
NOTE 1 - ACCOUNTING POLICIES (CONTINUED)
- ---------------------------------------
Net Earnings Per Share of Common Stock
--------------------------------------
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 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,
---------------------------------------------------
2002 2001 2000
----------- ----------- -----------
Net earnings $ 614,096 $ 389,075 $ 749,664
Less: Dividends on preferred stock 491,484 635,737 585,925
----------- ----------- -----------
Net earnings (loss) applicable to
common stockholders $ 122,612 $ (246,662) $ 163,739
Weighted average shares of common 88,223 81,415 74,492
stock (Class A and Class B outstanding)
Net earnings (loss) per share of $ 1.39 $ (3.03) $ 2.20
common stock
Preferred Stock Dividends
-------------------------
Cash dividends paid on the Company's outstanding preferred stock (par value
$100 per share) were 7% for 2002, 10% for 2001, and 10% for 2000, pro-rated
for the portion of a twelve-month period (ending January 31) during which
the preferred stock was held. The weighted average number of preferred
shares outstanding during each 12 month period was used to calculate the
per share cash dividends on preferred stock as reflected below. Cash
dividends have never been paid and are not anticipated to be paid in the
future on either class of the Company's outstanding common stock.
SCHEDULE OF PREFERRED STOCK DIVIDENDS
During the
Year Ended Weighted Average Per
December 31 Shares Outstanding Share
----------- ------------------ -----
2002 80,761 $6.09
2001 73,980 $8.59
2000 67,602 $8.67
Revenue Recognition
-------------------
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. Accordingly, revenues and
expenses are accounted for using the accrual basis of accounting. Under
this method of accounting, revenues and receivables are recognized when
merchandise is shipped or services are rendered, and expenses are
recognized when the liability is incurred.
Use of Estimates
----------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts of assets, liabilities,
revenues and expenses. Estimates in these financial statements include
allowance for doubtful accounts receivable and useful lives for
depreciation. Accordingly, actual results could differ from those
estimates.
27
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
NOTE 2 - NOTES RECEIVABLE
- -------------------------
Notes receivable reflect amounts due to the Company from its Member-Dealers
under deferred payment agreements.
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
invoices the Company for the Member-Dealer's initial order and the note
becomes immediately due and payable in full to the Company. In 2001,
virtually the same type of deferred payment agreement was in effect with
Chicago Specialty, a manufacturer of plumbing supplies. The deferred amount
for Chicago Specialty for 2001 was $25,607. In 2002, Chicago Specialty
ceased business operations.
Notes receivable are classified as follows:
December 31,
-----------------------------
2002 2001
--------- ------------
Current $ 552 $ 935
Noncurrent 248,460 334,157
-------- --------
Total $ 249,012 $ 335,092
========= ============
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,
-----------------------------
2002 2001
--------- ------------
Current $ 324,280 $ 32,800
Noncurrent 576,520 750,360
-------- --------
Total $ 900,800 $ 783,160
========= ============
Principal payments applicable to the next five years are as follows:
2003 $ 324,280
2004 358,200
2005 41,280
2006 26,600
2007 150,440
----------
$ 900,800
==========
28
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
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,
-------------------------------------------------
2002 2001 2002
---------- ---------- ----------
Excess of tax over book depreciation $1,540,784 $1,342,353 $1,298,890
Allowance for doubtful accounts (48,714) (44,001) (29,749)
Inventory - ending inventory adjustment
for tax recognition of sec. 263A
uniform capitalization costs (400,500) (380,869) (320,046)
Deferred compensation (289,107) (356,048) (344,453)
---------- ----------- -----------
Total 802,463 561,435 604,642
Statutory tax rate 34% 34% 34%
---------- ---------- ----------
Cumulative deferred income tax payable $ 272,837 $ 190,888 $ 205,578
========== ========== ==========
Classified as:
Current liability $ - $ - $ -
Noncurrent liability 272,837 190,888 205,578
---------- ---------- ----------
$ 273,837 $ 190,888 $ 205,578
========== ========== ==========
Reconciliation of income taxes on difference between tax and financial
accounting is as follows:
Year ended December 31,
-------------------------------------------------
2002 2001 2002
---------- ---------- ----------
Principal components of income tax expense Federal:
Current
Income tax paid $ 176,572 $ 344,094 $ 392,646
Carryover of prepayment from prior year 201,897 70,783 100,335
Current income tax payable - - -
------------ ------------ ------------
$ 378,469 $ 414,877 $ 492,981
Less carryover to subsequent year (115,456) (201,897) (70,783)
------------ ------------ ------------
Income tax for tax reporting at statutory rate of 34% $ 283,013 $ 212,980 $ 422,198
Deferred
Adjustments for financial reporting:
Depreciation 67,467 14,777 14,014
263A uniform capitalization costs (6,674) (20,680) (8,131)
Other 21,157 (8,787) (29,579)
------------ ------------ ------------
Provision for federal income tax (U.S.) $ 344,963 $ 198,290 $ 398,502
============ ============ =============
The Company is not exempt from income tax except for municipal bond
interest earned in an amount of $3,132.
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.
29
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
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 2001 and 2007.
The following is a schedule of future minimum lease payments for operating
leases as of December 31, 2002 and 2001 for the subsequent five years:
Year ended
December 31,
--------------------------------------------
2002 2001
------------ ------------
2002 $ - 617,080
2003 719,782 508,086
2004 701,184 489,487
2005 640,014 428,317
2006 429,389 280,692
2007 366,609 -
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,
----------------------------------------
2002 2001
---------- ------------
Class of Property
-----------------
Furniture, computers,
and warehouse equipment $ 100,467 $ 128,650
Less: Accumulated depreciation 80,878 92,566
---------- ----------
$ 19,589 $ 36,084
========== ==========
The following is a schedule by year of future minimum lease payments for
capital leases.
Year ended
December 31,
----------------------------------------
2002 2001
---------- ------------
2002 $ - $ 27,371
2003 9,780 9,780
2004 9,780 9,780
2005 9,780 9,780
2006 4,896 4,895
---------- ----------
Total $ 34,236 $ 61,606
========== ==========
30
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
NOTE 5 - LEASES (CONTINUED)
- --------------------------
The lease payments at year-end 2002 are reflected in the Balance Sheet as
current and noncurrent obligations under capital leases of $9,780 and
$24,456, respectively. The estimated interest rates range from 4% to 9%.
Amortization of leased property is included in depreciation expense.
Rental Expenses
---------------
Rental expenses for the preceding three years are:
2002 $ 1,613,719
2001 894,987
2000 1,328,764
NOTE 6 - RELATED PARTY TRANSACTIONS
- -----------------------------------
None
The Company is owned entirely by its Member-Dealers and former
Member-Dealers. No shareholder is the beneficial owner of more than five
percent of any class of the Company's voting securities. Substantially all
sales are made to the Member-Dealers (Owners) of the Company.
NOTE 7 - RETIREMENT PLAN - HANDY HARDWARE WHOLESALE, INC. 401(K) PROFIT
SHARING PLAN
---------------------------------------------------------------------------
During 1997, the Company transferred the former Profit Sharing and Savings
Plan to a 401(K)Profit Sharing Plan to help employees achieve financial
security during their retirement years. Employees are eligible to
participate in the plan if they have attained age 21 and have completed one
year of service with the Company. The Plan includes a 401(K) arrangement to
allow employees to contribute 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 2002, 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 $200 of
compensation and five points for each year of service. Employees' interests
in the value of the contributions made to their account first partially
vest after two years of service at 20% and continue to vest an additional
20% each year until fully vested after six 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:
Company Matching Company Qualified
Total Contribution Nonelective Contribution
----- ---------------- ------------------------
2002 $ 129,244 $ 129,244 $ -
2001 $ 133,959 $ 133,959 -
2000 397,787 120,587 277,200
31
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
NOTE 8 - STOCKHOLDERS' EQUITY
- -----------------------------
Terms of Capital Stock
----------------------
The holders of Class A Common Stock are entitled to one vote for each share
held of record on each matter submitted to a vote of shareholders. Holders
of Class A Common Stock must be engaged in the retail sale of goods and
merchandise, and may not be issued or retain more than ten shares of Class
A Common Stock at any time. The holders of Class B Common Stock are not
entitled to vote on matters submitted to a vote of shareholders except as
specifically provided by Texas law.
The holders of Preferred Stock are entitled to cumulative dividends of not
less than 7 percent per year nor more than 20 percent per year of the par
value ($100.00 per share) of the shares of Preferred Stock, as fixed by the
Board of Directors. The Preferred Stock has a liquidation value of $100 per
share. The holders of Preferred Stock are not entitled to vote on matters
submitted to a vote of shareholders except as specifically provided by
Texas law. The shares of Preferred Stock are not convertible, but are
subject to redemption (at the option of the Company) by vote of the
Company's Board of Directors, in exchange for $100 per share and all
accrued unpaid dividends.
Capitalization
--------------
To become a Handy Hardware Member-Dealer, an independent hardware dealer
must enter into a Subscription Agreement with the Company for the purchase
of ten shares of Handy Hardware Class A Common Stock, $100 par value per
share, and for any additional store, ten shares of Preferred Stock, with an
additional agreement to purchase a minimum number of shares of Class B
Common Stock, $100 par value per share, and Preferred Stock, $100 par value
per share. Class B Common Stock and Preferred Stock are purchased pursuant
to a formula based upon total purchases of merchandise by the Member-Dealer
from the Company, which determines the "Desired Stock Ownership" for each
Member-Dealer. The minimum Desired Stock Ownership is $10,000.
Each Member-Dealer receives from the Company a semimonthly statement of
Total Purchases made during the covered billing period, 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.
32
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
NOTE 8 - STOCKHOLDERS' EQUITY (CONTINUED)
- -----------------------------------------
Option I - The Member-Dealer's Class A Common Stock is repurchased at
$100 per share. Any funds remaining in the Member-Dealer's
Purchase Fund Account will be returned at the dollar value
of such account. Twenty percent or $3,000, whichever is
greater, of the total value of the Class B Common and
Preferred Stock will be repurchased. The remaining value of
the Class B Common and Preferred Stock is converted to a
five-year interest-bearing note. During the first four years
this note only pays interest. In the fifth year both
interest and principal are paid. The interest rate is
determined by the Company's Board of Directors at the same
time they approve the repurchase.
Option II - Same as Option I except that the remaining value of the
Class B Common and Preferred Stock is discounted 15 percent
and paid to the Member-Dealer immediately at the time of
repurchase.
Stock Repurchase
-----------------
In 2002 and 2001, the Board continued its program of offering to repurchase
from shareholders who are over-invested in the Company's capital stock by
$4,000 or more, an amount of stock (based on a purchase price of $100 per
share) equal to one-fourth of their 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
shareholders' Desired Stock Ownership level. As of December 31, 2002 and
2001, the total over-invested amount eligible for repurchase by the Company
was approximately $1,300,000 and $980,000, of which the Company offered to
repurchase 3,250 shares valued at $325,000 in 2002 and 2,450 shares valued
at $245,000 in 2001. Of the 3,250 shares and 2,450 shares which the Company
offered to repurchase during the last two years, Member-Dealers submitted
128 shares in 2002 (totaling $12,800) and 462 shares in 2001 (totaling
$46,200).
NOTE 9 - LINE OF CREDIT
- -----------------------
In April, 2002, JPMorgan Chase Bank, ("the Bank") amended the Company's
existing unsecured $10 million revolving line of credit to provide for an
April 30, 2004 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 31, 2002, 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
1-01-02 Throughout 2002 Throughout 2002 12-31-02 Rate Paid
------- --------------- --------------- -------- -------- --------
$2,700,000 $76,315,000 $79,015,000 $-0- 3.25% $107,338
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, 2004.
33
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
NOTE 10 - COMPREHENSIVE EARNINGS
- --------------------------------
1. Deferred compensation funded in the amount of $240,570 on the Balance
Sheet as a current asset in the amount of $60,134 and as a non-current
asset in the amount of $180,436 at December 31, 2002, includes equity
securities classified as investments available for sale in the amount
of $240,570 at fair market value. The $240,570 includes $48,537
unrealized loss on securities resulting from the decrease in fair
market value. The cost of the equity securities is $289,107.
2. Changes in Equity Securities:
Year Ended
December 31, 2002 Cumulative
----------------- ----------
Balance, January 1, 2002 $ 308,829 $ -
Purchases - 117,400
Dividends, interest and capital gains 3,144 171,707
Unrealized gains (losses) on securities resulting from
Increase (decrease) in fair market value (71,403) (48,537)
----------- --------
Balance, December 31, 2002 $ 240,570 $240,570
========== ========
3. Components of Net Earnings Plus Other Comprehensive Earnings and
Components of Total Comprehensive Earnings for the twelve months ended
December 31, 2002:
Other Comprehensive Net Earnings Plus Other
Net Earnings Earnings (Loss) Comprehensive Earnings
------------ ------------------- -----------------------
Earnings Before Provision Unrealized Gain
for Federal Income Tax $983,336 (Loss) on Securities $(71,403) Net Earnings $614,096
Provision for Provision for Other Comprehensive
Federal Income Tax 369,240 Federal Income Tax 24,277 Earnings (47,126)
--------- ------- --------
Other Comprehensive Net Earnings Plus Other
Net Earnings $614,096 Earnings (Loss) $(47,126) Comprehensive Earnings $566,970
======== ======== ========
Net Earnings Applicable to Other Comprehensive Total Comprehensive
Common Stockholders Earnings (Loss) Earnings
-------------------------- ------------------- -------------------
Unrealized Gain Net Earnings Applicable to
Net Earnings $614,096 (Loss) on Securities $(71,403) Common Stockholders $122,612
Less Dividends Provision for Other Comprehensive
On Preferred Stock (491,484) Federal Income Tax 24,277 Earnings (47,126)
--------- ------- --------
Net earnings Applicable Other Comprehensive Total Comprehensive
To Common Stockholders $122,612 Earnings (Loss) $(47,126) Earnings $ 75,486
======= ======= ========
34
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 2002
NOTE 10 - COMPREHENSIVE EARNINGS (CONTINUED)
- -------------------------------------------
4. Components of Retained Earnings
Retained Earnings Retained Earnings
Applicable to Other Exclusive of Other
Comprehensive Comprehensive
Earnings Earnings Total
------------------- ------------------ -----------
Balance, January 1, 2002 $ 15,092 $ 5,682,518 $ 5,697,610
Add: Net earnings year ended December 31, 2002 (47,127) 614,097 566,970
Deduct: Cash Dividends on preferred stock - 491,484 491,484
-------------- ----------- -----------
Balance, December 31, 2002 $ (32,035) $ 5,805,131 $ 5,773,096
============== =========== ===========
NOTE 11 - SUBSEQUENT EVENT
- --------------------------
None
NOTE 12 - LITIGATION
- --------------------
In the opinion of the Company no material legal proceedings and no
environmental clean-up actions are pending or threatened that would have a
material effect on the financial position or results of operations of the
Company.
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:
2002 $ 1,029,969
2001 873,059
2000 855,173
2. Accounts receivable are net of subscriptions receivable and
allowance for doubtful accounts in the following amounts.
December 31,
---------------------------------
2002 2001
------------ -----------
Subscriptions receivable $ 51,120 $ 45,004
Allowance for doubtful accounts 48,714 44,001
The allowance for doubtful accounts is determined based upon past
experience of the Company as follows:
Net Bad Debts Expense
December 31,
------------------------------
2002 2001
----------- --------
12-31-2002 $ 35,553 $ -
12-31-2001 50,933 50,933
12-31-2000 59,657 59,657
12-31-1999 - 21,413
--------- -----------
$ 146,143 $ 132,003
========= ===========
Average $ 48,714 $ 44,001
========= ===========
35
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 April 21, 2003, which proxy
statement will be filed with the Securities and Exchange Commission within 120
days after the close of the Company's 2002 fiscal year.
ITEM 14. CONTROLS AND PROCEDURES
Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
The Company's chief executive officer and chief financial officer have
evaluated the Company's disclosure controls and procedures, as defined in Rules
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the "Exchange
Act") as of a date within 90 days before the filing of this report. Based on
that evaluation, they have concluded that such disclosure controls and
procedures are effective in alerting them on a timely basis to material
information relating to the Company and required under the Exchange Act to be
disclosed in this annual report.
(b) Changes in Internal Controls
There were no significant changes in the Company's internal controls that
could significantly affect such controls subsequent to the date of their
evaluation.
PART IV
ITEM 15. 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,
2002 and 2001............................................................................... 17
Statements of Earnings for the
years ended December 31,
2002, 2001 and 2000 ........................................................................ 19
Statements of Stockholders' Equity
for the years ended December 31,
2002, 2001 and 2000 ........................................................................ 20
Statements of Cash Flows for the years ended
December 31, 2002, 2001 and 2000 ........................................................... 22
Notes to Financial Statements................................................................. 23
36
(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.
(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).
3.3 Bylaws of Handy Hardware Wholesale, Inc., as amended May 9, 2001. (Filed as Exhibit 3.3
to the Company's Annual Report on Form 10-K for the year ended December 31, 2001, 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 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).
10.2 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).
10.3 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).
10.4 Amendment and Restatement of Credit Agreement between Handy Hardware Wholesale, Inc.
and Texas Commerce Bank, N.A., dated as of April 30, 1996. (Filed as Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996 and
incorporated herein by reference).
10.5 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
37
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).
10.6 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.)
10.7 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.)
10.8 Fourth Amendment to Amendment and Restatement of Credit Agreement between the
Company and Chase Bank of Texas, National Association dated April 30, 2000. (Filed as
Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ended December
31, 2000, and incorporated herein by reference.)
10.9 Form of Dealer Contract (New Mexico and Colorado). (Filed as Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the year ended December 31, 2000, and
incorporated herein by reference.)
* 10.10 Employment Agreement between Handy Hardware Wholesale, Inc. and Jerry Donald Jameson
dated November 13, 2001. (Filed as Exhibit 10.13 to the Company's Annual Report on Form
10-K for the year ended December 31, 2001, and incorporated herein by reference.)
10.11 Fifth Amendment to Amendment and Restatement of Credit Agreement between the Company
and Chase Bank of Texas, National Association dated April 30, 2001. (Filed as Exhibit 10.14
to the Company's Annual Report on Form 10-K for the year ended December 31, 2001, and
incorporated herein by reference.)
10.12 Sixth Amendment to Amendment and Restatement of Credit Agreement between the Company
and JP Morgan Chase Bank dated April 30, 2002. (Filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 2002, and incorporated herein
by reference.)
*-> 10.13 First Amendment to the Employment Agreement, as amended, between Handy Hardware
Wholesale, Inc. and Jerry Donald Jameson, dated November 13, 2002.
-> 11.1 Statement re Computation of Per Share Earnings.
-> 99.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
* 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, 2002.
(c) EXHIBITS
Listed in Item 14(a)(3) above.
(d) FINANCIAL STATEMENT SCHEDULES
Listed in Item 14(a)(2) above.
38
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/ Don Jameson
-------------------------------------
DON JAMESON
President and Chief Executive Officer
March 19, 2003
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/ Don Jameson President, Chief Executive March 19, 2003
- -------------------------------------------- Officer and Director
Don Jameson
/s/ Tina s. Kirbie Chief Financial and March 19, 2003
- -------------------------------------------- Accounting Officer
Tina S. Kirbie
/s/ Doug Ashy, Jr. Director March 19, 2003
- --------------------------------------------
Doug Ashy, Jr.
/s/ Craig E. Blum Director March 19, 2003
- --------------------------------------------
Craig E. Blum
/s/ Susie Bracht-Black Director March 19, 2003
- --------------------------------------------
Susie Bracht-Black
/s/ Suzanne Elliott Director March 20, 2003
- --------------------------------------------
Suzanne Elliott
/s/ William R. Hill Director March 20, 2003
- --------------------------------------------
William R. Hill
/s/ Ben J. Jones Director March 19, 2003
- --------------------------------------------
Ben J. Jones
/s/ Jimmy T. Pate Director March 20, 2003
- --------------------------------------------
Jimmy T. Pate
/s/ Leroy Wellborn Director March 19, 2003
- --------------------------------------------
Leroy Welborn
39
CERTIFICATIONS
I, Don Jameson, Chief Executive Officer of Handy Hardware Wholesale, Inc.,
certify that:
1. I have reviewed this annual report on Form 10-K of Handy Hardware
Wholesale, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operations of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 24, 2003
/s/ Don Jameson
------------------------
Don Jameson
President
(Chief Executive Officer)
40
CERTIFICATIONS
I, Tina S. Kirbie, Chief Financial Officer of Handy Hardware Wholesale, Inc.,
certify that:
1. I have reviewed this annual report on Form 10-K of Handy Hardware
Wholesale, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
a) all significant deficiencies in the design or operations of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: March 24, 2003
/s/ Tina S. Kirbie
------------------------
Tina S. Kirbie
Executive Vice President
(Chief Financial Officer)
Secretary and Treasurer
41