SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934.
For the quarterly period ended March 31, 2003.
Commission File Number 0-15708
HANDY HARDWARE WHOLESALE, INC.
(Exact name of Registrant as specified in its charter)
TEXAS 74-1381875
(State of incorporation) (I.R.S. Employer
Identification No.)
8300 Tewantin Drive, Houston, Texas 77061
(Address of principal executive offices) (ZIP Code)
Registrant's telephone number: (713) 644-1495
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes No X
------- -------
The number of shares outstanding of each of the Registrant's classes of common
stock as of March 31, 2003, was 10,250 shares of Class A Common Stock, $100 par
value, and 76,815 shares of Class B Common Stock, $100 par value.
HANDY HARDWARE WHOLESALE, INC.
INDEX
-----
PART I Financial Information Page No.
-------
Item 1. Financial Statements
Condensed Balance Sheet March 31, 2003
and December 31, 2002 ....................... 3 - 4
Condensed Statement of Earnings - Three Months
Ended March 31, 2003 and 2002................. 5
Condensed Statement of Cash Flows - Three Months
Ended March 31, 2003 and 2002................. 6 - 7
Notes to Condensed Financial Statements........... 8 - 15
Item 2. Management's Discussion & Analysis of Financial
Condition and Results of Operations............ 16 - 20
Item 3. Quantitative & Qualitative Disclosures About
Market Risk.................................... 21
Item 4. Controls and Procedures........................ 21
PART II Other Information
Items 1.-5. None 23
Item 6. Exhibits 23
Signatures 24
Certifications 25 - 26
2
HANDY HARDWARE WHOLESALE, INC.
CONDENSED BALANCE SHEET
MARCH 31, DECEMBER 31,
2003 2002
--------- ------------
ASSETS
- ------
CURRENT ASSETS
- --------------
Cash $ 3,479,403 $ 1,394,324
Accounts Receivable, net of 16,770,699 11,054,401
subscriptions receivable in
the amount of $94,267 for 2003
and $51,120 for 2002
Notes Receivable (Note 3) 417 552
Inventory 21,507,214 18,029,181
Other Current Assets 671,086 122,850
Prepaid Income Tax -0- 115,456
Deferred Compensation Funded 60,134 60,134
----------- -----------
$42,488,953 $30,776,898
----------- -----------
PROPERTY, PLANT AND EQUIPMENT (NOTE 2)
- -------------------------------------
At Cost Less Accumulated Depreciation
of $7,246,185(2003) and $7,006,662 (2002) $15,722,930 $15,902,215
----------- -----------
OTHER ASSETS
- ------------
Notes Receivable (Note 3) $ 248,460 $ 248,460
Deferred Compensation Funded 161,368 180,436
Other Noncurrent Assets 5,766 7,742
----------- -----------
$ 415,594 $ 436,638
----------- -----------
TOTAL ASSETS $58,627,477 $47,115,751
- ------------ =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES
- -------------------
Notes Payable-Stock (Note 4) $ 194,440 $ 324,280
Notes Payable-Capital Lease 9,780 9,780
Accounts Payable - Trade 32,828,684 20,214,196
Other Current Liabilities 590,773 1,574,647
Deferred Compensation Payable 60,134 60,134
Federal Income Taxes Payable (Note 5) 3,637 -0-
----------- -----------
$33,687,448 $22,183,037
----------- -----------
NONCURRENT LIABILITIES
- ----------------------
Notes Payable-Stock (Note 4) $ 584,420 $ 576,520
Notes Payable-Capital Lease 23,641 24,456
Notes Payable-Vendor 247,463 247,463
Deferred Compensation Payable 161,368 180,436
Deferred Income Taxes Payable (Note 5) 271,489 272,837
----------- -----------
$ 1,288,381 $ 1,301,712
----------- -----------
TOTAL LIABILITIES $34,975,829 $23,484,749
- ----------------- ----------- -----------
The accompanying notes are an integral part of the Condensed Financial
Statements.
3
HANDY HARDWARE WHOLESALE, INC.
CONDENSED BALANCE SHEET (CONTINUED)
MARCH 31, DECEMBER 31,
2003 2002
------------- ------------
STOCKHOLDERS' EQUITY
- --------------------
Common Stock, Class A,
authorized 20,000 shares, $100
par value per share, issued
10,430 & 10,250 shares $ 1,043,000 $ 1,025,000
Common Stock, Class B,
authorized 100,000 shares, $100
par value per share, issued
77,165 & 75,475 shares 7,716,500 7,547,500
Common Stock, Class B
Subscribed 5,402.90 & 5,099.95
shares 540,290 509,995
Less Subscription Receivable (47,134) (25,560)
Preferred Stock 7% Cumulative,
authorized 100,000 shares, $100
par value per share, issued
80,532 & 78,332 shares 8,053,200 7,833,200
Preferred Stock, Subscribed
5,402.90 & 5,099.95 shares 540,290 509,995
Less Subscription Receivable (47,134) (25,560)
Paid in Surplus 488,125 483,336
------------ ------------
$ 18,287,137 $ 17,857,906
Less: Cost of Treasury Stock
929 & -0- shares (92,900) -0-
------------ ------------
$ 18,194,237 $ 17,857,906
Retained Earnings exclusive of other
comprehensive earnings (Note 7) 5,492,108 5,805,131
Retained Earnings applicable to other
comprehensive earnings (Note 7) (34,697) (32,035)
------------ ------------
5,457,411 5,773,096
------------ ------------
Total Stockholders' Equity $ 23,651,648 $ 23,631,002
------------ ------------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY $ 58,627,477 $ 47,115,751
- ------------------------ ============ ============
The accompanying notes are an integral part of the Condensed Financial
Statements.
4
HANDY HARDWARE WHOLESALE, INC.
CONDENSED STATEMENT OF EARNINGS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
2003 2002
---- ----
REVENUES
- --------
Net Sales $ 48,974,287 $ 49,255,077
Sundry Income 1,634,618 1,369,002
------------ ------------
TOTAL REVENUES $ 50,608,905 $ 50,624,079
- -------------- ------------ ------------
EXPENSE
- -------
Net Material Costs $ 44,255,647 $ 44,711,986
Payroll Costs 2,376,432 2,315,229
Other Operating Costs 3,617,693 3,345,289
Interest Expense 28,846 49,588
------------ ------------
TOTAL EXPENSE $ 50,278,618 $ 50,422,092
- ------------- ------------ ------------
EARNINGS BEFORE PROVISIONS
FOR ESTIMATED FEDERAL INCOME TAX $ 330,287 $ 201,987
- --------------------------------
PROVISIONS FOR ESTIMATED
FEDERAL INCOME TAX (NOTE 5 & 7) (119,117) (74,948)
- ------------------------------- ------------ ------------
NET EARNINGS $ 211,170 $ 127,039
- ------------ ------------
LESS ESTIMATED DIVIDENDS ON
PREFERRED STOCK (131,048) (122,871)
- --------------------------- ------------ ------------
NET EARNINGS APPLICABLE TO
COMMON STOCKHOLDERS $ 80,122 $ 4,168
- -------------------------- ============ ============
NET EARNINGS PER SHARE OF
COMMON STOCK, CLASS A &
CLASS B (NOTE 1) $ 0.88 $ 0.05
- ------------------------- ------------ ============
OTHER COMPREHENSIVE LOSS
- ------------------------
Unrealized Loss on Securities
(Note 7) $ (4,034) $ (2,166)
Provision for Federal Income Tax(Note 5) 1,372 736
------------ ------------
Other Comprehensive Loss
Net of Tax $ (2,662) $ (1,430)
------------ ------------
TOTAL COMPREHENSIVE EARNINGS (NOTE 7) $ 77,460 $ 2,738
- ------------------------------------
The accompanying notes are an integral part of the Condensed Financial
Statements.
5
HANDY HARDWARE WHOLESALE, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
2003 2002
---- ----
CASH FLOWS FROM OPERATING ACTIVITY
- ----------------------------------
Net Earnings plus Other Comprehensive
Loss (Note 7) $ 208,508 $ 125,609
------------ ------------
Adjustments to Reconcile Net
Earnings to Net Cash Provided by
Operating Activities:
Amortization $ 339 $ -0-
Depreciation 245,759 320,150
Gain on Sale of property, plant & equipment (6,236) -0-
Increase (Decrease) in Deferred
Income Tax (1,348) 298
Unrealized gain (increase) decrease
In fair market value of securities 20,377 2,166
Changes in Assets and Liabilities
Increase in Accounts Receivable $ (5,716,298) $ (6,447,023)
(Increase) Decrease in Notes Receivable 135 437)
Increase in Inventory (3,478,033) (2,452,414)
Increase in Other Assets (546,599) (208,569)
Decrease in Prepaid Income Tax 115,456 73,913
Increase in Note Payable-Vendor -0- -0-
Increase in Accounts Payable 12,614,488 11,942,253
Decrease in Other Liabilities (983,874) (743,071)
Increase in Federal Income
Taxes Payable 3,637 -0-
Increase (Decrease) in Deferred Compensation Payable (19,068) (1,562)
------------ ------------
TOTAL ADJUSTMENTS $ 2,248,735 $ 2,486,578
------------ ------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 2,457,243 $ 2,612,187
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
- ------------------------------------
Capital Expenditures $ (102,928) $ (91,699)
Sale of property, plant and equipment 42,690 -0-
Reinvested dividends, interest & capital gains (1,309) (604)
------------ ------------
NET CASH (USED FOR)
INVESTING ACTIVITIES $ (61,547) $ (92,303)
------------ ------------
The accompanying notes are an integral part of the Condensed Financial
Statements.
6
HANDY HARDWARE WHOLESALE, INC.
STATEMENT OF CASH FLOWS
(UNAUDITED)CONT.
THREE MONTHS ENDED MARCH 31,
2003 2002
---- ----
CASH FLOWS FROM FINANCING ACTIVITIES
- ------------------------------------
(Decrease)in Notes Payable-Line of Credit $ -0- $(2,700,000)
Increase (Decrease) in Notes Payable-Stock (121,940) 74,160
Decrease in Notes Payable-Capital Lease (815) (4,417)
Increase in Subscription Receivable (43,148) (32,324)
Proceeds From Issuance of Stock 472,379 475,076
Purchase of Treasury Stock (92,900) (129,400)
Dividends Paid (524,193) (491,484)
----------- -----------
NET CASH (USED FOR) FINANCING
ACTIVITIES $ (310,617) $(2,808,389)
----------- -----------
NET INCREASE (DECREASE)
IN CASH & CASH EQUIVALENTS $ 2,085,079 $ (288,505)
CASH & CASH EQUIVALENTS AT BEGINNING
OF PERIOD 1,394,324 1,411,096
----------- -----------
CASH & CASH EQUIVALENTS AT END OF
PERIOD $ 3,479,403 $ 1,122,591
=========== ===========
ADDITIONAL RELATED DISCLOSURES TO THE STATEMENT OF CASH FLOWS
- -------------------------------------------------------------
Interest Expense Paid $ 28,846 $ 49,588
Income Taxes Paid 115,456 201,897
The accompanying notes are an integral part of the Condensed Financial
Statements.
7
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1 - ACCOUNTING POLICIES
- ----------------------------
(1) DESCRIPTION OF BUSINESS:
-----------------------
Handy Hardware Wholesale, Inc., ("Handy"), was incorporated as a Texas
corporation on January 6, 1961. Its principal executive offices and
warehouse are located at 8300 Tewantin Drive, Houston, Texas 77061. Handy
is owned entirely by its member-dealers and former member-dealers.
Handy sells to its member-dealers products primarily for retail hardware,
lumber and home center stores. In addition, Handy offers advertising and
other services to member-dealers. The Company wholesales hardware to its
member-dealers in Texas, Oklahoma, Louisiana, Alabama, Mississippi,
Arkansas, Florida, Colorado, New Mexico, Mexico and Belize.
(2) GENERAL INFORMATION:
-------------------
The condensed consolidated financial statements included herein have been
prepared by Handy. The financial statements reflect all adjustments, which
were all of a recurring nature, and which are, in the opinion of
management, necessary for a fair presentation. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). Handy believes that the disclosures made are adequate to
make the information presented not misleading. The condensed consolidated
financial statements should be read in conjunction with the audited
financial statements and the notes thereto included in the latest Form 10-K
Annual Report.
(3) CASH
----
For purposes of the statement of cash flows, Handy considers all highly
liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents.
(4) INVENTORIES
-----------
Inventories are valued at the lower of cost or market method, determined by
the first in, first out method, with proper adjustment having been made for
any old or obsolete merchandise.
(5) EARNINGS PER SHARE:
------------------
Net earnings per common share (Class A and Class B combined) are based on
the weighted average number of shares outstanding in each period after
giving effect to the stock issued, stock subscribed, accrued dividends on
Preferred Stock, and treasury stock as set forth by Accounting Principles
Board Opinion No. 15 as follows:
CALCULATION OF NET EARNINGS PER SHARE THREE MONTHS ENDED MARCH 31,
OF COMMON STOCK 2003 2002
- ------------------------------------- ---- ----
Net Earnings Before Preferred Dividends $ 211,170 $ 127,039
Less: Estimated Dividends
on Preferred Stock (131,048) (122,871)
---------- ---------
Net Earnings Applicable to
Common Stockholders $ 80,122 $ 4,168
Weighted Average
Shares of Common Stock
(Class A & Class B)
outstanding 91,377 86,866
Net Earnings Per Share
of Common Stock $ 0.88 $ 0.05
========== =========
8
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(4) REVENUE RECOGNITION:
-------------------
The accompanying financial statements have been prepared in conformity with
generally accepted accounting principles. Accordingly, revenues and
expenses are accounted for using the accrual basis of accounting. Under
this method of accounting, revenues and receivables are recognized when
merchandise is shipped or services are rendered, and expenses are
recognized when the liability is incurred.
(5) ACCOUNTING FOR DIVIDENDS ON PREFERRED STOCK
-------------------------------------------
Handy pays dividends on Preferred Stock during the first quarter of each
fiscal year. Only holders of Preferred Stock on the record date for the
payment of the dividend are entitled to receive dividends. Dividends are
prorated for the portion of the twelve-month period ending January 31,
during which the Preferred Stock was held.
Because Handy is unable to anticipate the amount of the Preferred Stock
dividends, it does not accrue a liability for the payment of those
dividends on its balance sheet. To more properly reflect net earnings,
however, on the Condensed Statement of Earnings included herein, Handy
shows an estimated portion of the dividends to be paid in the first quarter
of 2004 based on the dividends paid in the first quarter of 2003.
When dividends on Preferred Stock are actually paid, there is a reduction
of retained earnings. Retained earnings on the Condensed Balance Sheet for
the three months ended March 31, 2003 contained herein, therefore, are net
of dividends actually paid during the first quarter of 2003 in the amount
of $524,193.
NOTE 2 - PROPERTY, PLANT & EQUIPMENT
- ------------------------------------
Property, Plant & Equipment Consists of:
MARCH 31, DECEMBER 31,
2003 2002
----------- -----------
Land $ 3,207,866 $ 3,207,866
Building & Improvements 15,478,032 15,478,032
Furniture, Computer, Warehouse 3,753,952 3,715,818
Transportation Equipment 529,265 507,161
----------- -----------
$22,969,115 $22,908,877
Less: Accumulated Depreciation (7,246,185) (7,006,662)
----------- -----------
$15,722,930 $15,902,215
=========== ===========
9
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 - NOTES RECEIVABLE
- -------------------------
Notes receivable reflect amounts due to Handy from its member-dealers under
deferred payment agreements and installment sale agreements.
Under the deferred agreement, Handy supplies member-dealers with an initial
order of General Electric Lamps. The payment for this order is deferred so long
as the member- dealer continues to purchase General Electric lamps through
Handy. If a member-dealer ceases to purchase lamp inventory or sells or closes
his business, then General Electric invoices Handy for the member-dealer's
initial order and the member-dealer's note becomes immediately due and payable
in full to Handy.
Under the installment sale agreements, we sell member-dealers computer hardware,
the purchase price of which is due and payable by member-dealers to us in
thirty-six monthly installments of principal and interest.
Notes Receivable are classified as follows:
CURRENT PORTION NONCURRENT PORTION
----------------------- --------------------------
MARCH 31, DEC. 31, MARCH 31, DEC. 31,
2003 2002 2003 2002
--------- -------- --------- --------
Deferred Agreements $ -0- $ -0- $248,460 $248,460
Installment Sale Agreements 417 552 -0- -0-
------- ------- -------- --------
$ 417 $ 552 $248,460 $248,460
======= ======= ======== ========
NOTE 4 - NOTES PAYABLE STOCK
- ----------------------------
The five year, interest bearing notes payable - stock reflect amounts due from
Handy to former member-dealers for our repurchase of shares of Handy stock owned
by these former member-dealers. According to the terms of the notes, only
interest is paid on the outstanding balance of the notes during the first four
years. In the fifth year, both interest and principal are paid. Interest rates
range from 3.5% to 6.25%.
Notes payable - stock are classified as follows:
CURRENT PORTION NON-CURRENT PORTION
----------------------- --------------------------
MARCH 31, DEC. 31, MARCH 31, DEC. 31,
2003 2002 2003 2002
--------- -------- --------- --------
$194,440 $324,280 $584,420 $576,520
Principal payments due over the next five years are as follows:
2003 194,440
2004 358,200
2005 41,280
2006 26,600
2007 150,440
Thereafter 7,900
--------
$778,860
========
10
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 - INCOME TAXES
- ---------------------
Handy adopted FASB Statement No. 109, "Accounting for Income Taxes," effective
January 1, 1993. The adoption of this standard changed our method of accounting
for income taxes from the deferred method to the liability method.
QUARTER ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
2003 2002
---------- -----------
Excess of tax over book depreciation $ 1,541,727 $ 1,540,784
Allowance for Bad Debt (48,714) (48,714)
Inventory - Ending inventory adjustment
for tax recognition of Sec. 263A
Uniform Capitalization Costs (405,408) (400,500)
Deferred Compensation (289,107) (289,107)
------------ -----------
Total $ 798,498 $ 802,463
Statutory Tax Rate 34% 34%
-----------
Cumulative Deferred Income Tax Payable $ 271,489 $ 272,837
=========== ===========
Classified as:
Current Liability $ -0- $ -0-
Noncurrent Liability 271,489 272,837
----------- -----------
$ 271,489 $ 272,837
=========== ===========
Reconciliation of income taxes on the difference between tax and financial
accounting is as follows:
QUARTER ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
2003 2002
---------- -----------
Principal Components of Income Tax Expense
Federal:
Current
-------
Income tax paid $ -0- $ -0-
Carry-over of prepayment from
from prior year 115,456 201,897
Refund received for overpayment
from prior year -0- -0-
----------- -----------
$ 115,456 $ 201,897
Federal Income Tax Payable (Receivable) 3,637 (127,983)
Carry-over to subsequent year -0- -0-
----------- -----------
Income tax for tax reporting
at statutory rate of 34% $ 119,093 $ 73,914
Deferred
--------
Adjustments for financial reporting:
Depreciation 321 5,468
263A Uniform Capitalization Costs (1,669) (5,170)
Other -0- -0-
----------- -----------
Provision for federal income tax $ 117,745 $ 74,212
=========== ===========
Handy is not exempt from income tax except for municipal bond interest
earned in the amount of $1,309. We are not classified as a nonexempt cooperative
under the provisions of the Internal Revenue Code and are not entitled to deduct
preferred dividends in determining our taxable income.
11
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - STOCKHOLDERS' EQUITY
- -----------------------------
(1) TERMS OF CAPITAL STOCK
----------------------
The holders of Class A Common Stock are entitled to one vote for each share
held of record on each matter submitted to a vote of shareholders. Holders
of Class A Common Stock must be engaged in the retail sale of goods and
merchandise, and may not be issued or retain more than ten shares of Class
A Common Stock at any time. The holders of Class B Common Stock are not
entitled to vote on matters submitted to a vote of shareholders except as
specifically provided by Texas law.
The holders of Preferred Stock are entitled to cumulative dividends.
Handy's Article of Incorporation require the Board of Directors to declare
a dividend each year of not less than 7 percent per year nor more than 20
percent of the par value ($100.00 per share) of the shares of Preferred
Stock. The Preferred Stock has a liquidation value of $100 per share. The
holders of Preferred Stock are not entitled to vote on matters submitted to
a vote of shareholders except as specifically provided by Texas law. The
shares of Preferred Stock are not convertible, but are subject to
redemption (at the option of Handy) by vote of Handy's Board of Directors,
in exchange for $100 per share and all accrued unpaid dividends.
(2) CAPITALIZATION
--------------
To become a Handy member-dealer, an independent hardware dealer must enter
into a Subscription Agreement with us for the purchase of ten shares of
Handy Class A Common Stock, $100 par value per share, or ten shares of
Preferred Stock for any additional store, with an additional agreement to
purchase a minimum number of shares of Class B Common Stock, $100 par value
per share, and Preferred Stock, $100 par value per share. Class B Common
Stock and Preferred Stock are purchased to a formula based upon total
purchases of merchandise by the member-dealer from Handy, which determines
the "Desired Stock Ownership" for each member-dealer. The minimum Desired
Stock Ownership is $10,000.
Each member-dealer receives from Handy a semimonthly statement listing
total purchases made during the covered billing period with an additional
charge ("Purchase Funds") equal to 2 percent of the member-dealer's
warehouse purchases until the member-dealer's Desired Stock Ownership is
attained. Although the Subscription Agreement entitles Handy to collect 2
percent of total purchases, since May 1, 1983, the Board of Directors has
determined to collect 2 percent of warehouse purchases only. On a monthly
basis, we review the amount of unexpended Purchase Funds being held for
each member-dealer. If a member-dealer has unexpended Purchase Funds of at
least $2000, Handy applies such funds to the purchase of ten shares of
Class B Common Stock ($1,000) and ten shares of Preferred Stock ($1,000),
each at $100 per share.
(3) TRANSFERABILITY
---------------
Holders of Class A Common Stock may not sell those shares to a third party
without first offering to sell them back to Handy. There are no specific
restrictions on the transfer of our Class B Common or Preferred Stock.
12
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)
- ----------------------------------------
(4) MEMBERSHIP TERMINATION
----------------------
Following written request, Handy will present to the Board of Directors a
member-dealer's desire to have his stock repurchased and the member-
dealer's contract terminated. According to the current procedures
established by the Board of Directors, a member-dealer's stock may be
repurchased according to either of two options.
Option - I The member-dealer's Class A Common Stock is repurchased at
$100 per share. Any funds remaining in the member-dealer's
Purchase Fund Account will be returned at the dollar value of
such account. Twenty percent or $3000, whichever is greater,
of the total value of the Class B Common and Preferred Stock
will be repurchased. The remaining value of the Class B Common
and Preferred Stock is converted to a five-year interest
bearing note. During the first four years, this note only
pays interest. In the fifth year, both interest and principal
are paid. The interest rate is determined by Handy's Board of
Directors at the same time they approve the repurchase.
Option - II Same as Option I except that the remaining value
of the Class B Common and Preferred Stock is
discounted 15 percent and reimbursed to the
member-dealer immediately at the time of repurchase.
13
HANDY HARDWARE WHOLESALE, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 - COMPONENTS OF COMPREHENSIVE EARNINGS (LOSS)
- ---------------------------------------------------
The following disclosures include those required by FASB 115 for financial
statements beginning after December 15, 1997.
1. Deferred compensation funded in the amount of $221,502 on the Balance Sheet
as a current asset in the amount of $60,134 and as a non-current asset in
the amount of $161,368 at March 31, 2003, includes equity securities
classified as investments available for sale in the amount of $221,502 at
fair market value. The $221,502 includes $68,914 unrealized loss on
securities resulting from the decrease in fair market value. The cost of
the equity securities is $290,416.
2. Changes in Equity securities QUARTER ENDED
MARCH 31, 2003 CUMULATIVE
-------------- ----------
Beginning Balance-January 1, 2003 $ 240,570 $ -0-
Purchases -0- 117,400
Dividends, interest and capital gains 1,309 173,016
Unrealized gains (losses) on securities
resulting from increase (decrease)
in fair market value (20,377) (68,914)
----------- ----------
Balance-March 31, 2003 $ 221,502 $ 221,502
=========== ==========
3. Components of Net Earnings plus Other Comprehensive Earnings and Components
of Total Comprehensive Earnings for the three months ended March 31, 2003:
OTHER COMPREHENSIVE NET EARNINGS PLUS OTHER
NET EARNINGS EARNINGS (LOSS) COMPREHENSIVE EARNINGS (LOSS)
------------ ------------------- ----------------------------
Earnings Before Provision Unrealized Loss
For Federal Income Tax $330,287 on Securities $(4,034) Net Earnings $211,170
Provision for Provision for Other Comprehensive Loss
Federal Income Tax (119,117) Federal Income Tax 1,372 Loss (2,662)
-------- ------- --------
Other Comprehensive Net Earnings Plus Other
Net Earnings $211,170 Loss $(2,662) Comprehensive Loss $208,508
======== ======= ========
NET EARNINGS APPLICABLE TO OTHER COMPREHENSIVE TOTAL COMPREHENSIVE
COMMON STOCKHOLDERS LOSS EARNINGS
-------------------------- ------------------- -------------------
Unrealized Loss Net Earnings Applicable to
Net Earnings $211,170 on Securities $(4,034) Common Stockholders $ 80,122
Less Dividends Provision for Other Comprehensive
On Preferred Stock (131,048) Federal Income Tax 1,372 Loss (2,662)
-------- ------- --------
Net Earnings Applicable Other Comprehensive Total Comprehensive
to Common Stockholders $ 80,122 Loss $(2,662) Earnings $ 77,460
======== ======= ========
4. Components of Retained Earnings
RETAINED EARNINGS RETAINED EARNINGS
EXCLUSIVE OF OTHER APPLICABLE TO OTHER
COMPREHENSIVE LOSS COMPREHENSIVE LOSS TOTAL
------------------ ------------------- -----
Balance-January 1, 2003 $5,805,131 $ (32,035) $5,773,096
Add: Net earnings (loss)
3 months ended
March 31, 2003 211,170 (2,662) 208,508
Deduct: Cash Dividends on
Preferred Stock 524,193 -0- 524,193
---------- ---------- ----------
Balance-March 31, 2003 $5,492,108 $ (34,697) $5,457,411
========== ========== ==========
14
NOTE 8 - ACCOUNTS RECEIVABLE
- ----------------------------
Accounts receivable are net of subscriptions receivable and allowance for
doubtful accounts.
MARCH 31, 2003 DECEMBER 31, 2002
-------------- -----------------
Accounts Receivable $16,913,680 $11,154,235
Subscription Receivable (94,267) (51,120)
Allowance for Doubtful Accounts (48,714) (48,714)
----------- -----------
Accounts Receivable, Net of
Subscription Receivable and
Allowance for Doubtful Accounts $16,770,699 $11,054,401
=========== ===========
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MATERIAL CHANGES IN RESULTS OF OPERATIONS
- -----------------------------------------
With the U. S. economy experiencing a stalled recovery, net sales in the
first quarter of 2003 decreased 0.6% ($280,790)from sales during the same period
in 2002 compared to an increase of 5.8% (2,696,988) in the first quarter of 2002
from 2001 first quarter sales.
NET SALES. Despite the overall economy and consumer confidence failing to
fully rebound, sales growth during the first three months of 2003 in five of our
nine selling territories was more robust than in the first three months of 2002.
By contrast, four territories, the Houston Territory, the North Texas, Dallas
and Fort Worth territory, the Austin, Brenham and Central Texas territory and
Oklahoma territory, continue to experience pressure from large retail warehouses
which has eroded the market share of independent hardware stores in those
selling territories. In addition, poor weather conditions, as well as recent
purchase reductions by two multi-store member-dealers, plus the loss of two
significant member-dealers, contributed to the decline in these four
territories. In the Houston area reduced purchases from two multi-store
member-dealers resulted in a $658,199 reduction in sales income. In the Dallas,
Fort Worth, North Texas area, sales were reduced by $506,100 due to the loss of
a seven store member-dealer. In the Austin, Brenham and Central Texas area, the
loss of one dealer resulted in a decrease in sales income of $275,703. Further,
sales in the Oklahoma territory appear to be lagging behind 2002 sales levels
due to the poor weather and the lagging economy in this area.
The following table summarizes net sales during the first three months of
2003 and 2002 by sales territory:
First Three Months First Three Months
2003 2002
------------------------------------------------ ----------------------------
% Increase
(Decrease)
in Net Sales
From First % of % of
Total Three Months Total Total Total
Sales Territory Net Sales of 2002 Net Sales Net Sales Net Sales
- --------------- ----------- ------------ --------- ----------- ---------
Houston Area $ 9,483,859 (13.2%) 19.4% $10,926,825 22.2%
Victoria, San Antonio,
Corpus Christi & Rio
Grande Valley Area(1) 10,768,884 1.1% 22.0% 10,654,714 21.7%
North Texas, Dallas
& Fort Worth Area 5,086,396 (6.8%) 10.4% 5,455,339 11.1%
Austin, Brenham &
Central Texas Area 5,888,193 (4.2%) 12.0% 6,144,209 12.5%
West Texas, New Mexico
Area 1,905,740 46.7% 3.9% 1,298,748 2.6%
Southern Louisiana Area 4,038,317 10.6% 8.3% 3,651,409 7.4%
Baton Rouge, New Orleans,
Mississippi, Alabama &
Florida Area 4,384,565 17.4% 9.0% 3,735,318 7.6%
Arkansas Area 4,171,560 8.2% 8.5% 3,853,883 7.8%
Oklahoma Area 3,187,926 (8.5%) 6.5% 3,485,824 7.1%
----------- ----- ----------- -----
Totals: $48,915,440 (2) 100.0% $49,206,269(1) 100.0%
=========== ===== =========== =====
(1) Includes sales to member-dealers in Colorado, Mexico and Central America.
(2) Total does not include miscellaneous sales to employees.
16
NET MATERIAL COSTS AND REBATES Net material costs for the first quarter of
2003 were $44,255,647 versus $44,711,986 for the same period in 2002. This
decrease in net material costs of 1.0 percent, however, was greater than the 0.6
percent decrease in net sales. Net material costs as a percentage of net sales
were 90.4 percent in the first quarter of 2003 as compared to 90.8 percent for
the same period in 2002. The relative stability in net material costs as a
percentage of net sales, was primarily the result of improved warehouse
efficiencies which resulted in savings of $201,296.
PAYROLL COSTS Payroll costs for the first quarter of 2003 increased $61,203
over the same 2002 period, due to salary increases needed to attract or retain
high-quality employees. However, this increase was significantly offset by a
$44,204 decline in overtime payroll costs as the company continues to improve
efficiencies, particularly in managing sales from our warehouse facility. As a
result, payroll costs for the first three months of 2003 rose only slightly
(2.64%) over the first three months of 2002 costs. Despite the pressure on
wages, payroll costs as a percentage of total expenses and of net sales remained
fairly constant. Payroll costs for the first quarter of 2003 constituted 4.7
percent of total expenses and 4.8% of net sales, compared to 4.7 percent of
total expenses and 4.6 percent of net sales for the first quarter of 2002. The
relative stability in payroll costs has been a result of a continuing effort to
maintain employee productivity.
OTHER OPERATING COSTS During the first quarter of 2003, other operating
costs increased $272,404 (8.1%), a significant increase when compared to the
same costs in the first quarter of 2002. As a result, other operating costs for
the first quarter of 2003 increased as a percentage of net sales and total
expenses when compared to the same period in 2002. The amount spent for other
operating costs for the first quarter of 2003 totaled $3,617,693(7.4% of net
sales and 7.2% of total expenses) as compared to $3,345,289 spent for other
operating costs during the same period of 2002 (7.0% of net sales and 6.6% of
total expenses).
The increase in other operating costs in the first quarter of 2003 can be
fully attributed to an increase in the accrual for property taxes of $81,000, an
increase in the accrual for insurance of $138,611 and increases in truck fuel
costs of $170,147 which increases were only partially offset by a $119,214
decrease in contract delivery expenses.
NET EARNINGS AND EARNINGS PER SHARE
- -----------------------------------
Although net sales for the first quarter of 2003 decreased $280,790 (0.6%),
net material costs for the same period decreased $456,339 (1.0%) compared to
levels of net sales and net material costs in the first quarter of 2002,
resulting in an increase in gross margin of $175,549 (3.9%). The increase in
gross margin, as well as the substantial increase in other income of $265,616,
were only partially offset by an increase of $61,203 in payroll costs (2.6%) and
a substantial increase in other operating costs of $272,404 (8.1%). Thus after
tax net earnings increased $84,131 (66.0%), from $127,039 in the first quarter
of 2002 to $211,170 for the same 2003 period, due to factors previously
discussed. After tax net earnings, combined with estimated dividends on
preferred stock and other comprehensive losses resulted in total comprehensive
earnings for 2003 of $77,460, compared to total comprehensive earnings of $2,738
for the same 2002 period, for an overall increase of $74,722. This twenty-seven
fold increase was mainly attributable to the increase in net earnings before
estimated dividends in the first three months of 2003 (2003-$211,170 versus
2002-$127,039).
Our earnings per share increased more than seventeen times in the first
quarter of 2003 as compared to the same period of 2002, from a net earnings per
share of $0.05 for the 2002 period, to net earnings per share of $0.88 for the
2003 period. The increase in 2003 is due to the factors previously discussed, as
well as estimated dividends accrued in the first quarter of 2003 representing a
smaller percentage of 2003 net earnings than estimated dividends accrued in the
first quarter of 2002 (2003-62.1% versus 2002-96.7%).
Quarter-to-quarter variations in our earnings per share (in addition to the
factors discussed above) reflect our commitment to lower pricing of our
merchandise in order to deliver the lowest cost buying program to our
member-dealers, even though this often results in lower net earnings. Because
virtually all of our stockholders are also member- dealers, these trends benefit
our individual stockholders who purchase our merchandise. Therefore, our
shareholders do not demand that we focus greater attention upon earnings per
share.
17
SEASONALITY
- -----------
Our quarterly net earnings traditionally vary based on the timing of events
which affect our sales. Traditionally, first and third quarter earnings have
been negatively affected by the increased level of direct sales (with no markup)
resulting from our semiannual trade show always held in the first and third
quarters. However, our overall sales levels often increase during the trade
shows, which typically offsets the effect of increased direct sales.
Additionally, net earnings per quarter may vary substantially from year to year
due to the timing difference in the receipt of discounts, rebates and
miscellaneous income, as well as changes in the weather conditions and the
economic conditions in our selling territories. For example, during the first
quarter of 2003, the cumulative effect of the various timing differences, as
well as improved economic conditions in certain of our selling territories,
caused a dramatic increase in net earnings for that period. Also, sales during
the fourth quarter traditionally have been lower, as hardware sales are slowest
during winter months preceding ordering for significant sales in the spring.
This decrease in sales, however, is offset in most years by corrections to
inventory made at year end, causing net earnings to vary substantially from year
to year in the fourth quarter.
QUARTERLY FINANCIAL DATA (UNAUDITED)
- ------------------------------------
The following is a summary of selected quarterly financial data for each
quarterly period beginning April 1, 2001 and ending March 31, 2003;
Qtr. Ended Qtr. Ended Qtr. Ended Qtr. Ended Qtr. Ended Qtr. Ended Qtr. Ended Qtr. Ended
06-30-01 09-30-01 12-31-01 03-31-02 06-30-02 09-30-02 12-31-02 03-31-03
Sales $43,454,763 $45,810,043 $42,680,648 $49,255,077 $46,936,553 $45,337,615 $44,920,202 $48,974,287
Net
Mat'l
Costs 38,796,981 41,479,089 37,227,446 44,711,986 41,604,459 40,609,542 39,404,595 44,255,647
Gross
Margin 4,657,782 4,330,954 5,453,202 4,543,091 5,332,094 4,728,073 5,515,607 4,718,640
Other
Operating
Expenses(1) 4,778,648 5,817,873 7,671,738 5,710,106 5,382,108 5,229,594 7,840,146 6,022,971
Sundry
Income(1) 346,245 1,668,473 2,225,622 1,369,002 356,883 790,345 2,510,195 1,634,618
Pre-Tax Net
Earnings(2) 225,379 181,554 7,086 201,987 306,869 288,824 185,656 330,287
- ------------------------------
(1) Historically, sundry income has included income generated from our trade
shows offset by expenses incurred from our trade shows. Starting with the
quarter ended 12/31/02, we began to include expenses incurred from our trade
shows in other operating expenses rather than offsetting sundry income.
Therefore, in order to provide the data for other operating expenses and sundry
income using a consistent calculation method, for each quarter in the table
above, we include expenses incurred from our trade shows in other operating
expenses rather than offsetting sundry income. This change has no effect on
pre-tax net earnings.
(2) Excludes other comprehensive income/(loss).
TRENDS
- ------
In connection with our business operations, we maintain various types of
insurance coverage. As reflected in our numbers for the first three months of
2003, our insurance premium expenses have steadily increased, and are continuing
to rise at a rate faster than experienced in past years. We expect that the
trend toward increased insurance costs will continue for the foreseeable future,
as part of a general nationwide trend in increased insurance premiums as a
result of factors such as the events of September 11, 2001, recent insurance
company losses, insurance company risk assessments. In addition, our property
taxes are continuing to increase, and may increase in the future, due to the
completion of our warehouse expansion project and general increases in tax
assessments.
18
MATERIAL CHANGES IN FINANCIAL CONDITION
- ---------------------------------------
FINANCIAL CONDITION AND LIQUIDITY During the period ending March 31, 2003,
we maintained our financial condition and ability to generate adequate amounts
of cash while continuing to make significant investments in inventory, warehouse
and computer equipment, software, and office furniture and equipment, to better
meet the needs of our member-dealers. Net cash provided by our operating
activities may vary substantially from year to year. These variations result
from (i) the timing of promotional activities such as our spring trade show,
(ii) payment terms available to us from our suppliers, (iii) payment terms
offered by us to our member-dealers, and (iv) the state of the regional economy
in our selling territories.
During the first quarter of 2003 our cash and cash equivalents increased
$2,356,812 as compared to the first quarter of 2002, versus an increase of
$2,212,493 when comparing the same 2002 period to that of 2001. During the first
three months of 2003, we generated cash flow from operating activities of
$2,457,243, as compared to $2,612,187 in the first quarter of 2002. This
decrease in cash flow in the 2003 period was principally attributable to a
significant increase in inventory, which increased 41.8% compared to the same
2002 period, which was offset by smaller increases in both accounts receivable
and accounts payable during the first quarter of 2003 than during the first
quarter of 2002.
Inventory had approximately 41,000 stockkeeping units in the period ending
March 31, 2003, which were maintained in response to member-dealer demand for
more breadth of inventory. The increase in inventory of $3,478,033 in the first
three months of 2003, was significantly higher (41.8%) than the increase in
inventory of $2,452,414 in the same period in 2002, due to decreased sales in
the first quarter of 2003 as well as additional purchases to increase the
breadth of inventory in order to meet our member-dealers' inventory
requirements.
Accounts payable increased $12,614,488 during the first three months of
2003 as compared to a smaller increase of $11,942,253 during the same period in
2002. The difference in the increase during these two periods was due primarily
to variations in extended payment terms offered to us by suppliers, as well as a
substantial increase in inventory.
In the first three months of 2003 and 2002, accounts receivable increased
$5,716,298 and $6,447,023, respectively. For both periods, this variation in
levels of accounts receivable was mainly attributable to differences in extended
payment terms offered to member-dealers at the spring trade shows.
For the period ended March 31, 2003, net earnings plus other comprehensive
earnings were $208,508, compared to $125,609 for the same 2002 period. This 66%
increase was mainly attributable to the increase in gross margin and sundry
income.
Net cash used for investing activities decreased in the first quarter of
2003 as compared to the same period in 2002, declining from $92,303 in the first
quarter of 2002 to $61,547 for the same period in 2003. The decrease in the
first quarter of 2003 was due to a timing difference for purchases of capital
expenditures, as well as the sale of older company vehicles which generated
$42,690 in cash flow.
Net cash used for financing activities was $310,617 in the period ending
March 31, 2003 as compared to net cash used for financing activities of
$2,808,389 during the same period in 2002. This considerable difference in the
first quarters of 2003 and 2002 was principally attributable to funds being used
during 2002 to pay down draws on the Company's line of credit which were made
throughout 2001 to fund our warehouse expansion project.
Our continuing ability to generate cash for funding our activities is
highlighted by the relative constancy of three key liquidity measures - working
capital, current ratio (current assets to current liabilities) and long-term
debt as a percentage of capitalization, as shown in the following table:
MARCH 31, DECEMBER 31, MARCH 31,
2003 2002 2002
---------- ------------ ----------
Working Capital $8,801,505 $8,593,861 $6,903,030
Current Ratio 1.3 to 1 1.4 to 1 1.2 to 1
Long-term Debt as Percentage
of Capitalization 7.1% 5.5% 7.1%
19
During the remainder of 2003, we expect to further expand our existing
customer base in our current selling territories. We will finance our expansion
with anticipated increased revenues from sales to new member-dealers in these
territories, and with receipts from the sale of stock to new and current
member-dealers. We expect that expansion in these selling territories will have
a beneficial effect on our ability to generate cash to meet our funding needs.
In the first three months of 2003, we maintained a 95.6 percent service
level (the measure of our ability to meet member-dealers' orders out of current
stock) as compared to a service level of 96.0 percent for the same period of
2002. Inventory turnover was 5.9 times during the first three months of 2003 as
compared to 6.2 times during the same 2002 period. This rate of inventory
turnover, which is higher than the industry average of 5.3, is primarily the
result of tight control of the product mix, increase in depth of inventory and
continued high service level.
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 -
Stock 194,440 358,200 41,280 26,600 150,440 7,900 778,860
Notes Payable -
Vendor
Consignment -0- -0- -0- -0- -0- 247,463 247,463
Non-cancelable
Capital Leases 9,780 9,780 9,780 4,081 -0- -0- 33,421
$924,002 $1,069,164 $691,074 $460,070 $517,049 $255,363 $3,916,722
======== ========== ======== ======== ======== ======== ==========
- ------------------------------
(1) There was no balance outstanding on the Company's credit facility at March
31, 2003. The amounts outstanding under the credit facility fluctuate on a daily
basis.
CAPITAL RESOURCES
- -----------------
In the three month periods ending March 31, 2003 and March 31, 2002, our
investment in capital assets was $102,928 and $91,699, respectively.
Approximately 63.0 percent ($64,794) of the amount expended in the first three
months of 2003 was used to purchase company vehicles, 24.6 percent ($25,293) was
used to upgrade warehouse equipment and 12.5 percent ($12,841) was used to
purchase computer equipment. By comparison, of the total amount expended in the
first three months of 2002, $49,972 (54.5%) was used to purchase company
vehicles and $13,164 (14.4%) was used to purchase office furniture and
equipment.
In April, 2002, JP Morgan Chase Bank amended the Company's existing
unsecured $10 million revolving line of credit to provide for an April 30, 2004
maturity date. We use our unsecured $10 million revolving line of credit from
time to time for our working capital and other financing needs. During the first
three months of 2003, we borrowed $15,670,000 and repaid the entire amount from
cash flow, leaving no outstanding balance under our line of credit on March 31,
2003. Our average outstanding balance on our line of credit for the first
quarter of 2003 was $1,044,667.
During the year 2003, we anticipate significant cash outlays for payment of
accounts payable and increased inventory purchases. Additional cash outlays
anticipated for capital expenditures for the remainder of the year include:
approximately $10,000 to make building improvements, $50,000 to purchase
warehouse equipment, $110,000 to upgrade computer equipment, $25,000 to improve
our automobile fleet and $10,000 to purchase office furniture and equipment.
20
Our cash position of $3,479,403 at March 31, 2003 is anticipated to be
sufficient to fund all planned capital expenditures, although some third party
financing, including draws on our line of credit, may be needed.
QUANTITATIVE & QUALITATIVE DISCLOSURES
ABOUT MARKET RISKS
--------------------------------------
Not Applicable
CONTROLS AND PROCEDURES
-----------------------
(e) Evaluation of Disclosure Controls and Procedures (e) 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
required under the Exchange Act to be disclosed in this quarterly
report.
(f) 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.
CRITICAL ACCOUNTING POLICIES
----------------------------
For a discussion of our critical accounting policies and factors which
relate to inventory, revenue recognition and allowance for doubtful accounts,
and which remain unchanged, see our annual report on Form 10-K for the year
ended December 31, 2002.
21
QUANTITATIVE & QUALITATIVE DISCLOSURES
ABOUT MARKET RISKS
--------------------------------------
Not Applicable.
FORWARD-LOOKING STATEMENTS
--------------------------
The statements contained in this report that are not historical facts are
forward- looking statement 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, capital resource activities. Among the factors
that could cause actual results to differ materially are: fluctuations of the
prices received for or demand for the Company's goods, amounts of goods sold for
reduced or no mark-up, a need for additional labor or transportation costs for
delivery of goods, requirements for capital; general economic conditions or
specific conditions in the retail hardware business; weather conditions;
competition, as well as the risks and uncertainties discussed in this report,
including, without limitation, the portions referenced above and the
uncertainties set forth from time to time in the Company's other public reports,
filings, and public statements. Interim results are not necessarily indicative
of those for a full year.
22
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - NONE
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS - NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE
ITEM 5. OTHER INFORMATION - NONE
ITEM 6. EXHIBITS & REPORTS ON FORM 8-K
(a) EXHIBITS
EXHIBIT NUMBER
--------------
*99.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF
FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY
ACT OF 2002
*FILED HEREWITH
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HANDY HARDWARE WHOLESALE, INC.
/s/ Don Jameson
------------------------------
DON JAMESON
President
(Chief Executive Officer)
/s/ Tina S. Kirbie
------------------------------
TINA S. KIRBIE
Executive Vice President
Secretary and Treasurer
(Chief Financial and Accounting Officer)
Date: May 14, 2003
24
CERTIFICATIONS
I, Don Jameson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Handy Hardware
Wholesale, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly report;
4. The registrant's other certifying officer 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 quarterly
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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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 officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board o directors (or persons performing the
equivalent functions):
d) 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
e) 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 officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
control subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 14, 2003
/s/ Don Jameson
--------------------------------
Don Jameson
President
(Chief Executive Officer)
25
CERTIFICATIONS
I, Tina S. Kirbie, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Handy Hardware
Wholesale, Inc.;
2. Based on my knowledge, this quarterly 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly 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
quarterly report;
4. The registrant's other certifying officer 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 quarterly
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 quarterly report (the "Evaluation Date"); and
c) presented in this quarterly 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 officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board o 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 officer and I have indicated in this
quarterly 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: May 14, 2003
/s/ Tina S. Kirbie
------------------------------
Tina S. Kirbie
Executive Vice President
(Chief Financial Officer),
Secretary and Treasurer
26