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 929 active Member-Dealers and sales of more than $120,000,000 in 1996. 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, lumber and home center stores as well as in plant nurseries. 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 39 trailers owned by the Company and 43 leased power units and trailers which are used for merchandise delivery. The Company offers merchandise to its Member-Dealers at its cost plus a markup charge, resulting generally in a lower price than an independent dealer can obtain on its own. Member-Dealers may buy merchandise from any source they desire, and Member-Dealers are not required to make any minimum levels of purchases from Handy Hardware. As of December 31, 1996, Handy Hardware's Member-Dealers were located in Texas, Louisiana, Mississippi, Alabama, Florida, Oklahoma, Arkansas, 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 quantity lots, warehouses the merchandise and resells it in smaller lots to its Member-Dealers. During the Company's fiscal year ended December 31, 1996, the Company sold its products to a total of 929 Member-Dealers, of which 610 were located in Texas, 159 in Louisiana, 74 in Oklahoma, 40 in Arkansas, 14 in Alabama, 16 in Mississippi, 11 in Florida, 4 in Mexico and 1 in Central America. No individual Member-Dealer accounted for more than 1.6% of the sales of the Company during fiscal 1996. The loss of a single customer or several customers would not have a material adverse effect on the Company.
Often Member-Dealers may desire to purchase products that are not warehoused by the Company. In this instance, Handy Hardware will, when requested, purchase the product from the vendor and have it shipped directly to the Member-Dealer. Direct shipments from the vendor to the Member-Dealer accounted for approximately 32% of Company sales during 1996 and 1995 and 31% in 1994, while warehouse shipments accounted for approximately 68% of total net sales in 1996 and 1995 and 69% of total net sales in 1994.
The Company's total sales include 14 different major classes of merchandise. In 1996, 1995 and 1994, the Company's total sales and total warehouse sales were divided among classes of merchandise listed below.
1These amounts include direct sales and warehouse sales. Total sales in 1996 generated from sales of store supplies, catalogs and special purchases from vendors of goods not part of the Company's regular inventory represented less than .36% of total sales.
Warehouse sales normally carry a markup of 9%, excluding any purchase discounts and manufacturer's rebates. As an incentive to Member-Dealers to make direct sale purchases, since June 1, 1989 direct sales have been sold at the Company's cost with no markup, excluding purchase discounts and manufacturers' rebates. The Company maintains a list of price-sensitive, high volume items on which the markup is reduced from 9 percent to 2 or 4 percent. This program was developed in order to allow Handy Member-Dealers to become more competitive in the markets they serve. The price-sensitive items are reviewed every six months and additions and deletions are made based on Member-Dealer input and as the market dictates. Because the primary purpose of the Company is to provide its Member-Dealers with a low cost buying program, markups are kept as low as possible, although at a level sufficient to provide adequate capital to pay the expenses of the Company, improve the quality of services provided to the Member-Dealers and finance the increased inventory and warehouse capacity required to support the growth of the Company.
Most Member-Dealers have a computer terminal at their hardware store that provides a direct link to the offices of the Company. Each Member-Dealer is assigned a day of the week on which it is to transmit its orders through the computer terminal. Orders placed by Member-Dealers go directly into the Company computer where they are compiled and processed on the day received. The appropriate merchandise is gathered from the warehouse during the day following receipt of each order and on the next day, the merchandise leaves the warehouse for delivery to the Member-Dealer. Generally, the merchandise arrives at individual stores on the day that it is shipped from the Company's warehouse.
In 1996 the Company maintained a 94.6 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 92.8 percent and 92.6 percent in 1995 and 1994, respectively. No policy of inventory shrinkage has been implemented or is planned.
Dealer Services and Advertising
The Company employs a staff of eight full time account representatives who visit Member-Dealers to advise them on display techniques, record keeping, inventory control, promotional sales, advertising programs and other dealer-related services available to them by and through the Company.
The Company has participated in newspaper advertising programs, and has assisted in the preparation and distribution of sales circulars utilized by Member-Dealers. The Company has a computerized circular program which allows the retail dealer to customize its own unique advertising circular utilizing its individual inventory and targeting its particular market. In addition, the system tracks available vendor cooperative funds, allowing the dealer to deduct such cooperative claims from the cost of the circular program. The Company estimates that approximately $715,000 was expended in 1996 for dealer advertising activities. These advertising costs were completely offset by contributory payments by participating Member-Dealers and cooperative advertising allowances by participating manufacturers.
Suppliers
The Company purchases merchandise from various vendors, depending upon product specifications and Member-Dealer requirements. Approximately 1,400 vendors supplied merchandise to the Company during 1996. 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% of the Company's total purchases during 1996. 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 Hardware, Inc., of Englewood, Colorado, an independent hardware merchandising group. PRO Hardware, Inc. is a merchandising organization with 40 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 Hardware, Inc. in order to take advantage of this buying power, which gives PRO Hardware, 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 Hardware, Inc. members at its option, but is under no obligation to do so and currently does not participate in such benefits.
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, 1996, the Company had 249 full-time employees, of which 43 were in management positions and 206 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 that the loss of ability to utilize this trade name would not have a material adverse effect upon the business of the Company.
Capitalization by Member-Dealers
In order to become a Handy Hardware Member-Dealer, an independent hardware dealer must enter into a Dealer Contract with the Company. In addition, a Member-Dealer must enter into a Subscription Agreement with the Company for the purchase of 10 shares of Handy Hardware Class A Common Stock, $100 par value per share ("Class A Common Stock"), with an additional agreement to purchase a minimum number of shares of Class B Common Stock, $100 par value per share ("Class B Common Stock"), and Preferred Stock, $100 par value per share ("Preferred Stock"), as detailed below. The Class A Common Stock and Class B Common Stock are collectively referred to herein as the "Common Stock." 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. 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, he is required to purchase, in cash, 10 shares of Class A Common Stock at $100 per share.
Purchases of Class B Common Stock and Preferred Stock
General. In approximately March of each fiscal year, the Company calculates a minimum desired level of stock ownership for each Member-Dealer ("Desired Stock Ownership"), based on (i) the dollar amount of Class A Common Stock, Class B Common Stock and Preferred Stock owned by the Member-Dealer as of December 31 of the preceding fiscal year ("Actual Stock Ownership") and (ii) the Member-Dealer's total purchases of merchandise from the Company during that preceding fiscal year ("Total Purchases"). The minimum Desired Stock Ownership for a Member-Dealer is $10,000. If the Member-Dealer's Actual Stock Ownership is less than his Desired Stock Ownership, then throughout the period from April 1 of the current fiscal year to March 31 of the following fiscal year, the Company will collect funds from the Member-Dealer for the purchase of additional Class B Common Stock and Preferred Stock ("Purchase Funds").
Calculation of Desired Stock Ownership. Each Member-Dealer's Desired Stock Ownership is calculated as set forth in the following table:
1 The minimum Desired Stock Ownership is $10,000. In each case "Total Purchases" are measured as of the end of the immediately preceding fiscal year.
Example.
In March 1997, the Company calculates that as of December 31, 1996, a Member-Dealer's Actual Stock Ownership was $32,000 and his Total Purchases during 1996 were $300,000. The Member-Dealer's Desired Stock Ownership will be $36,250 ($1.00 for each $8.00 of the first $250,000 of Total Purchases [$31,250] plus $1.00 for each $10.00 of the next $50,000 of Total Purchases [$5,000]). Because the Member-Dealer's Actual Stock Ownership is less than his Desired Stock Ownership, the Company will collect Purchase Funds throughout the period from April 1, 1997 to March 31, 1998 for the purchase of additional Class B Common Stock and Preferred Stock.
Collection of Purchase Funds. Each Member-Dealer receives from the Company a semi-monthly statement of the Total Purchases made by the Member-Dealer during the covered billing period. Total Purchases include purchases of inventory from the Company's warehouse ("Warehouse Purchases") and purchases of inventory by the Member-Dealer directly from the manufacturer which are billed through the Company. If the Company has determined that Purchase Funds are to be collected from a Member-Dealer for a particular April 1 to March 31 period, then each statement sent to that Member-Dealer during that period will contain an additional charge for Purchase Funds, in an amount equal to two percent (2%) of the Warehouse Purchases invoiced on the statement. The Subscription Agreement entitles the Company to collect 2% of Total Purchases as Purchase Funds. At present, however, the board of directors has determined to collect 2% of Warehouse Purchases only. The Company will continue to collect Purchase Funds throughout the April 1 to March 31 period, even though the Member-Dealer attains his Desired Stock Ownership during the course of the period. On a monthly basis, the Company reviews the amount of unexpended Purchase Funds then being held for each Member-Dealer. If a Member-Dealer has unexpended Purchase Funds in an amount of at least $2,000, the Company applies such funds to the purchase of 10 shares of Class B Common Stock and 10 shares of Preferred Stock at $100 per share.
Overinvested Member-Dealers. If at the end of any fiscal year a Member-Dealer's Actual Stock Ownership exceeds his Desired Stock Ownership (an "Overinvested Member-Dealer"), he will not be required to pay any Purchase Funds during the following April 1 to March 31 period. An Overinvested Member-Dealer may voluntarily continue to make additional purchases of Class B Common Stock and Preferred Stock by paying Purchase Funds to the Company in amounts equal to 2% of Warehouse Purchases.
Repurchases from Overinvested Member-Dealers. In 1996 the Company repurchased certain shares of Class B Common Stock and Preferred Stock from Overinvested Member-Dealers whose Actual Stock Ownership exceeded their Desired Stock Ownership by $4,000 or more. The amount repurchased from each Overinvested Member-Dealer was equal to one-fourth of the excess amount, equally divided between shares of Class B Common Stock and Preferred Stock. The repurchases were made at the full initial sale price of $100 per share. In 1996, approximately 10% of the shares eligible for repurchase from Overinvested Member-Dealers were submitted for repurchase, for which the Company expended $16,825. When the Company began the repurchase program in 1991, the total overinvested amount for all Member-Dealers was $93,600 and as of December 31, 1996, the total amount was $153,800 (excluding shares held by the Texas and Louisiana State Treasury Unclaimed Property Divisions). The amount overinvested varies over time due to repurchases and additional Member-Dealers becoming overinvested because of additional stock purchases. Additionally, because stock purchases are based on each Member-Dealer's Desired Stock Ownership, which fluctuates depending on the total dollar amount of annual purchases of merchandise from the Company, some Member-Dealers who were overinvested in one year may no longer be overinvested in the following year because of an increase in purchases of merchandise. Over the six years of the repurchase program, the Company has repurchased a total of $289,800 of shares from Member-Dealers. The Company currently intends, but is not required, to repurchase from Overinvested Member-Dealers their entire overinvested amounts. The Company's ability to conduct such repurchases, however, will depend upon the Company's future results of operations, liquidity, capital needs and other financial factors.
Affiliated Member-Dealers
If one or more individuals who control an existing Member-Dealer open a new store which will also be a Member-Dealer, the new Member-Dealer is required to make an initial purchase of 10 shares of Preferred Stock rather than 10 shares of Class A Common Stock. In all other respects, however, the Company will treat the new Member-Dealer as an entirely separate entity for purposes of determining required stock purchases. The Company will calculate
a separate Desired Stock Ownership for the new Member-Dealer and will maintain a separate account for Purchase Funds paid by the new Member-Dealer.
Competition
The wholesale hardware industry in which the Company operates is highly competitive. The Company competes primarily with other dealer-owned wholesalers, cooperatives and independent wholesalers. The business of the Company is characterized by a small number of national companies that dominate the market, and a larger number of regional and local companies that compete for a limited share of the market. The Company considers itself a regional competitor. Competition is based primarily on price, delivery service, product performance and reliability. The Company's management believes that it competes effectively in each of these areas, and that proximity to the markets it serves is of special importance to its ability to attract business in those regions.
Seasonality
The Company's quarterly net income traditionally has been subject to two primary factors. 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. Secondly, sales during the fourth quarter have traditionally been lower, as hardware sales are slowest during the winter months preceding ordering for significant sales for the spring. However, net income has varied substantially from year to year in the fourth quarter as a result of corrections to inventory made at year-end.
In 1996, traditional seasonality trends deviated from the norm. As a result of a $200,000 increase in purchase discount and factory rebate credits due to the timing of receipt of such, net income in the first quarter of 1996 was higher than usual. In the second quarter of 1996, net income was lower than usual. This was due, in part, to the Company's decision to forego higher margins on selected inventory. This action was taken because of a repressed market caused by a severe drought in the Company's selling territories within Texas.
Environmental Matters
In 1990, the Company detected soil contamination apparently associated with the underground petroleum storage systems for its fleet of trucks located at its warehouse facility. The Company believes the contamination resulted from overfill and/or spillage prior to the installation of spill containment and overfill protection equipment. The Company has implemented corrective measures to mitigate any possible future environmental impact, including installation of a recovery well, daily removal of contaminants using a dual-pump product recovery system and in-place closure of two underground storage tanks.
Pursuant to a remedial action plan submitted to the Texas Natural Resource Conservation Commission ("TNRCC"), (formerly the Texas Water Commission) in 1992, the Company proposed vacuum extraction of contaminants, enhanced bioremediation and on-site remediation of soils previously generated during subsurface drilling. At December 31, 1996, the Company had expended $357,641 on these measures, of which the TNRCC had reimbursed $250,877 to the Company pursuant to a reimbursement application submitted by the Company for all potentially allowable expenses. Although the Company followed up with the TNRCC to try and collect the remainder of the submission that had not been reviewed by the TNRCC in the amount of $80,240, no further reimbursement is anticipated. The Company anticipates that the expense of its remediation efforts related to these storage tanks in 1997 will not exceed $35,000, and barring unforeseen developments, these efforts should be largely completed by year-end 1997.
Item 2.
Item 2. Properties
The Company's warehouse facility and administrative and marketing offices are located on 20 acres of land in Houston, Texas. The facility is 317,000 square feet with approximately 297,000 square feet utilized for warehouse space and the remainder used for offices. The building is of tilt wall construction. The warehouse and office facilities are subject to certain obligations associated with a bank line of credit. The Company also owns 5.2 acres of vacant land adjoining the Company's property, which is to be used for future expansion.
The Company's property has convenient access to the major freeways necessary for the shipment of products to and from the warehouse facility. Management believes that the current facility will be sufficient to serve the needs of the Company for the foreseeable future.
Item 3.
Item 3. Legal Proceedings
There are no material pending legal proceedings to which the Company is a party or to which any of its property is subject.
Item 4.
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 1996.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
There is no established public trading market for any class of Handy Hardware's capital stock. Upon becoming a Member-Dealer of Handy Hardware, the Member-Dealer enters into a Subscription Agreement with the Company whereby it purchases 10 shares of Class A Common Stock or, in certain cases, 10 shares of Preferred Stock, from the Company. In addition, the Member-Dealer agrees to purchase a minimum number of shares of Class B Common Stock and Preferred Stock pursuant to a formula based upon merchandise purchased by the Member-Dealer from Handy Hardware. See "Item 1. Business -- Capitalization by Member-Dealers" above. Holders of Class A Common Stock may not transfer those shares to a third party without first offering to sell them back to the Company. There are no restrictions on the transfer of the Company's Class B Common Stock or Preferred Stock; however, all shares of the equity securities of the Company are, to the best knowledge of the Company, owned by Member-Dealers or former Member-Dealers of the Company or affiliates of such Member-Dealers. In the past the Company has acquired all the stock that former Member-Dealers have offered back to the Company, paying par value in cash for the Class A Common Stock and acquiring Class B Common Stock and Preferred Stock at par value on an installment sale basis. There is no assurance that Handy Hardware will maintain such practices, which could be discontinued without notice at any time. Other than as described above, the Company is not aware of the existence of a trading market for any class of its equity securities.
Shares of Class A Common Stock are the only shares of capital stock with voting rights and are entitled to one vote per share. The number of record holders of each class of the Company's Common Stock at February 28, 1997, was as follows:
Description Number of Holders - ------------------------------------------------- ----------------- Class A Common Stock (Voting), $100 par value 831 Class B Common Stock (Non-Voting), $100 par value 700
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.
Item 6.
Item 6. Selected Financial Data
The following table provides selected financial information for the five years ended December 31, 1996, derived from financial statements that have been examined by independent public accountants. The table should be read in conjunction with the financial statements and the notes thereto included in Item 8.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
The Company continued its steady growth in 1996 while continuing to meet its goal of providing quality goods to its Member-Dealers at its cost plus a reasonable mark-up charge. Net revenues from sales in 1996 increased 5.1% ($5,812,998) over 1995 net revenues from sales, compared to a 5.6% growth rate ($6,119,001) of net revenues from sales in 1995 over 1994.
The following table summarizes the Company's sales during the period 1994 to 1996 by sales territory:
* Includes sales to Mexican and Central American dealers.
1 Total does not include sales to dealers who were no longer Member-Dealers at December 31, 1996.
The Company believes that an increase in promotional sales activities and quality inventory available for orders, plus low-cost dealer buying programs, as well as a continuing recovery of the economy in most of the areas the Company services, were key elements in the Company's sales growth. The significant increase of 22% in sales in the Austin, Brenham and Central Texas area has resulted from increased marketing efforts by the Company's employees in that area. The 25% increase in sales in the Oklahoma and Arkansas area was the result of two significant factors (1) the increased marketing efforts by the Company's employees in that area where twenty-four new dealers were added to the Company's membership and (2) the positive result of a territory reorganization which transferred the sales of eleven Member-Dealers with $733,463 in sales from the North Texas, Dallas and Fort Worth area to this territory. The North Texas, Dallas and Fort Worth area sales were negatively effected by the territory reorganization discussed above and the loss of $321,023 of Member-Dealer sales due to store closings or transfer of ownership. Three stores accounted for 71.6% of the latter loss of sales. Without considering the effect of the territory reorganization on the two sales areas, sales in the Oklahoma and Arkansas area increased approximately 16% and sales in the North Texas, Dallas and Fort Worth area decreased approximately 2%. In addition, throughout the Company's selling territories the expansion of retail warehouses continues to erode the market share of independent hardware stores. Furthermore, high consumer debt, an unusually late spring and significantly lower than normal rainfall suppressed sales.
Net material costs during 1996 were $106,732,258 compared to $101,115,786 in 1995 and $96,632,590 in 1994. The increase of 5.6 percent in net material costs for 1996 is slightly higher than the 5.1 percent increase in sales. By way of comparison, net material costs increased 4.6 percent in 1995 over 1994 while sales increased 5.6 percent in 1995 over 1994. Net material costs as a percentage of sales remained relatively stable in 1996, 1995 and 1994, at 88.4%, 88.0% and 88.4%, respectively. The stability in net material costs and in net material costs as a percentage of sales is due to the continuing efforts of the Company to maintain a reasonable level of markup, in order to allow Member-Dealers to have a competitive edge in the markets they serve and due to the relative stability of factory rebate income and purchase discount income as a percentage of net material costs. Factory rebate income in 1996 was $4,035,298 (3.8% of material costs) as compared to $4,143,225 (4.1% of material costs) and $3,494,854 (3.6% of material costs) for 1995 and 1994, respectively. Purchase discount income during the same three periods was $2,663,891 (2.5% of material costs), $2,447,862 (2.4% of material costs) and $2,168,015 (2.2% of material costs), respectively. As a result, gross profit (net sales less net material costs) in 1996 was $13,966,374, which represents a $196,526 increase over 1995 gross profit of $13,769,848.
Payroll costs during 1996 increased $179,960 (2.9%) over 1995 levels, while in 1995 payroll costs increased $588,621 (10.5%) over 1994 levels. The increase in 1996 payroll costs over 1995 resulted primarily from regular salary increases for employees. The payroll increase for the twelve month period ended December 31, 1995 over the same period in 1994 was the result of a 20.6% increase in overtime payroll associated with the Company's warehouse expansion program, most of which occurred during the first quarter of 1995. Due to the lack of adequate storage space for inventory, the Company was forced to lease additional warehouse space in an offsite facility. The lack of proximity of the additional space to the office of the Company resulted in an increase in overtime payroll. Payroll costs constituted 5.3%, 5.4% and 5.2% of both total expenses and net sales for 1996, 1995 and 1994, respectively. The stability in payroll costs as a percentage of total expenses has been a result of a continuing effort to maintain employee productivity.
Other operating costs include a wide variety of expenses related to the Company. The largest components of other operating costs in 1996 were $1,708,682 of employee expenses (representing an increase of $12,970 or .8% over 1995 levels), $1,594,561 of delivery expenses (representing an increase of $64,528 or 4.2% over 1995 levels) and $865,717 of warehouse expenses (representing an increase of $111,447 or 14.8% over 1995 levels).
In 1996, other operating costs decreased $407,047 (6.1%) over 1995 levels, while in 1995 these costs increased $779,242 (13.2%) over 1994 levels. A decrease in property tax expense accounted for almost all of the total decrease of other operating costs in 1996. Property tax expense was approximately $408,533 in 1996 ($495,381 for 1996 property tax less an $86,848 adjustment for overestimated 1995 taxes) as compared to $796,004 in 1995 and $357,620 in 1994. Property tax expense in 1995 was $438,384 higher than 1994 primarily because of $385,869 in prior period adjustments, which were imposed in 1995 by The Harris County Appraisal District ("HCAD") as a result of a revised appraisal for 1991-1995. The HCAD asserted that the value of the company's real property was actually $4.2 million, but as a result of a clerical error regarding the size of the Company's warehouse, HCAD had undervalued the Company's real property by approximately $3.1 million. As a result of a hearing with the HCAD, the value of the Company's real property was reappraised at approximately $3.5 million. In April 1996, the Company filed a lawsuit against HCAD and the Harris County Appraisal Review Board contesting their authority to increase the appraised value of the property. The lawsuit was based, in part, on the fact that the Company's property was correctly described on the appraisal roll for each year from 1991 through 1995. Pending the outcome of this lawsuit, however, the Company paid the additional property taxes due for the years 1991 through 1995 in April of 1996 based on the $3.5 million appraisal.
In September 1996, the company received a summary judgment reducing its 1991 property value by $2,532,000, generating a tax savings of approximately $60,000. In February 1997, HCAD agreed to reappraise the Company's property for the years 1992 through 1995, from approximately $3.5 million to $3.3 million. This generated a tax savings of approximately $23,000. This savings in addition to the savings for the 1991 reappraisal will result in a refund due the Company of approximately $83,000.
Net Income
Net income increased 18.7% to $1,206,222 from $1,016,484 in 1995. This increase was primarily due to the $196,526 increase in gross profit from operations in 1996 over gross profit from operations in 1995 and the $407,047 decline in other operating costs, principally offset by the $179,960 increase in payroll costs and the $199,180 decrease in other sundry income. The principal component of the decrease in sundry income is the amount received in 1995 from the TNRCC as reimbursement for expenses and capital expenditures for the Company's soil contamination remediation
efforts while the principal component in the decrease in other operating costs in 1996 is the reduction in property tax expense in 1996. In 1996 and 1995, the earnings per share of common stock were $12.13 and $11.55, respectively. The increase in earnings per share in 1996 over 1995 is due to the moderate increase in net income of $189,738, offset by a moderate increase of $113,874 in dividends paid to preferred stockholders in 1996 as compared to 1995.
The variation in the Company's earnings per share from year to year results from the Company's attempts to price its merchandise in order to deliver the lowest cost buying program for Member-Dealers (who own all of the stock of the Company), although this often results in lower net income for the Company. Because these trends benefit the individual shareholders of the Company who purchase its merchandise, there is no demand from shareholders that the Company focus greater attention upon earnings per share.
Financial Condition and Liquidity
In 1996, Handy Hardware maintained its financial condition and its ability to generate adequate amounts of cash while continuing to make significant investments in inventory, warehouse and computer equipment, and software and delivery equipment to better meet the needs of its Member-Dealers.
The Company's operating activities provided net cash of $1,113,103 in 1996, $3,754,401 in 1995, and $745,681 in 1994. As illustrated by these figures, net cash provided by the Company's operating activities may vary substantially from year to year. These variations result from (i) the timing of promotional activities such as the Company's Spring and Fall trade shows, (ii) payment terms available to the Company from its suppliers, (iii) payment terms offered by the Company to its Member-Dealers, and (iv) the state of the regional economy.
During 1996 there was a net decrease of $42,588 in the Company's cash and cash equivalents as compared to an increase of $577,980 in 1995. Cash flow from operating activities from the beginning to the end of 1996 was $1,113,103, as compared to $3,754,401 in 1995. The variance between cash flow from operating activities in 1996 as compared to 1995 consisted principally of the following differences in cash inflows: (i) a $2,412,614 increase in accounts payable in 1996 as compared to a $1,718,857 decrease in accounts payable in 1995; (ii) an increase in net income to $1,206,222 in 1996 from $1,016,484 in 1995; (iii) an increase in accrued expenses of $139,660 as compared to an increase in accrued expenses of $483,845 in 1995; and (iv) an increase to $67,741 in current income taxes payable in 1996, while there were no income taxes payable in 1995. These cash inflows in 1996 were offset by (i) a $2,641,404 increase in accounts receivable in 1996 as compared to a $776,897 decrease in 1995 and (ii) an increase of $966,057 in inventory in 1996 as compared to a decrease in inventory of $2,525,192 during 1995.
The significant increase in inventory in 1996 was the result of the addition of approximately 2,773 stockkeeping units (i.e. products), which were added in response to Member-Dealer demand for more breadth of inventory. The increase in inventory was made possible by the increase in the availability of warehouse space following the completion of the Company's warehouse expansion project in 1995. Conversely, during 1995 inventory decreased significantly because there was a lack of inventory stocking areas available during the construction phase of the Company's warehouse expansion project. In addition, the significant increase in accounts receivable, inventory and accounts payable is the result of the Company's fall trade show being held later in the third quarter of 1996 than in 1995, which resulted in the Company collecting a smaller portion of its accounts receivable, selling a smaller portion of its inventory and paying a smaller portion of its accounts payable prior to year-end 1996. Although, accrued expenses increased during 1996, it did not increase as significantly as during 1995. As previously discussed, it was necessary to accrue additional property tax in 1995 due to a reappraisal of the Company's property for the years 1991 through 1995.
Net cash used for financing activities was $543,481 in 1996, as compared to net cash provided by financing activities of $56,789 in 1995. The use of cash in 1996 consisted principally of (i) a larger decrease in mortgage payable ($2,823,306 as compared to $308,205 in 1995), (ii) a larger preferred stock dividend payment in the first quarter of 1996 ($515,029 as compared to $401,155 in 1995) because of an increase in the dividend rate to 12 percent from 10 percent, and (iii) a decline in proceeds from the issuance of stock ($1,303,921 compared to $1,585,391 in 1995), which increases were offset by (i) a decrease in the repurchase of Company stock ($320,675 compared to $923,050 in 1995) and (ii) an increase of cash from the proceeds of a line of credit of $1,837,424 extended to the Company.
In August 1996, Texas Commerce Bank ("the Bank") extended to the company an unsecured $7.5 million revolving line of credit with an April 30, 1998, maturity date at an interest rate of prime minus one and one-half percent (1.5%) or the London Interbank Offering rate ("LIBOR") plus one and one-quarter percent (1.25%). Prior to that date
the Bank extended the Company a $2 million revolving line of credit at the prime interest rate published by the Bank. The new line of credit was used to retire the company's mortgage ($2,449,898) with the Bank and may also be used for working capital and other financing needs of the Company. On December 31, 1996, the outstanding balance of the line of credit was $1,837,424, resulting from the initial draw on the line of credit of $2,449,898 net of total payments of $612,474 on the line of credit.
The Company's ability to generate cash sufficient to meet its needs for funding its activities is highlighted by comparing three key liquidity measures - -- working capital, current ratio (current assets to current liabilities) and long term debt as a percentage of capitalization, as shown below:
In 1996, Handy Hardware expects to further expand its existing customer base in Arkansas and Oklahoma. The Company will finance this expansion with receipts from sales of stock to new and current Member-Dealers and with increased revenues from sales to the new Member-Dealers in Arkansas and Oklahoma. The Company anticipates that this expansion will have a beneficial effect on its ability to generate cash to meet its funding needs.
Capital Resources
The Company invested $617,062 in plant and equipment in 1996. Over the past five years the Company's investments in plant and equipment have amounted to more than $6.7 million, and have provided Handy Hardware with the capacity for growth to meet the increasing demand for merchandise and expanded services. Management intends to continue to invest prudently at levels commensurate with the anticipated market expansion and needs of current Member-Dealers.
During 1996, approximately 45.9% ($283,449) of the $617,062 amount invested in plant and equipment was used to purchase warehouse equipment. The remainder was invested in upgrading the Company's computer system and used to purchase order entry terminals, building improvements, office fixtures and equipment and in upgrading the Company's auto fleet.
The Company has budgeted approximately $660,000 for 1997 capital expenditures. Of this amount, approximately $350,000 has been allocated to improving the Company's warehouse equipment. Approximately $150,000 has been allocated to upgrading the Company's computer equipment. The Company has also allocated approximately $75,000 for upgrading the Company's catalog, approximately $60,000 for improving the automobile fleet, and approximately $25,000 to improve the Company's office facility and equipment. The Company expects to fund the budgeted capital expenditures described herein from working capital, and believes that it will not need to rely upon external financing.
Adoption of FASB 109
The Company adopted FASB 109 for the year ended December 31, 1993 and subsequent years. The impact of this action is discussed in Note 5 to the Financial Statements included in Item 8.
Item 8. Financial Statements and Supplementary Data
HANDY HARDWARE WHOLESALE, INC.
REPORT OF EXAMINATION
DECEMBER 31, 1996
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Shareholders Handy Hardware Wholesale, Inc. Houston, Texas
Gentlemen:
We have audited the accompanying balance sheets of Handy Hardware Wholesale, Inc., as of December 31, 1996 and 1995, and the related statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements present fairly, in all material respects, the financial position of Handy Hardware Wholesale, Inc., as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles.
/s/ Clyde D. Thomas ---------------------------------- CLYDE D. THOMAS & COMPANY Certified Public Accountants
February 10, 1997
HANDY HARDWARE WHOLESALE, INC.
BALANCE SHEETS
HANDY HARDWARE WHOLESALE, INC.
BALANCE SHEETS
See accompanying notes.
HANDY HARDWARE WHOLESALE, INC.
STATEMENTS OF INCOME
See accompanying notes.
HANDY HARDWARE WHOLESALE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
HANDY HARDWARE WHOLESALE, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
HANDY HARDWARE WHOLESALE, INC. STATEMENTS OF CASH FLOWS
See accompanying notes.
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996
NOTE 1 - ACCOUNTING POLICIES
Cash
For purposes of the statement of cash flows, Handy Hardware Wholesale, Inc., the Company, considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Company maintains a checking account which, at times, exceeds the FDIC coverage normally extended to such accounts. At December 31, 1996, the balance of this account amounted to $1,207,098.
Inventories
Inventories are valued at the lower of cost or market method, determined by the first in, first out method, with proper adjustment having been made for any old or obsolete merchandise.
Property, Plant, and Equipment
Property, plant, and equipment are carried at cost. Depreciation of property accounts for financial statement presentation is based on estimated useful lives and methods as follows:
Property, plant and equipment consists of:
Depreciation expense for the year ended December 31, 1996, amounted to $933,983 compared with $907,565 for the year ended December 31, 1995.
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 2 DECEMBER 31, 1996
NOTE 1 - ACCOUNTING POLICIES (continued)
Changes in Property, Plant, and Equipment for the year ended December 31, 1996, are shown in the following schedule:
Changes in Property, Plant, and Equipment for the year ended December 31, 1995, are shown in the following schedule:
Changes in Property, Plant, and Equipment for the year ended December 31, 1994, are shown in the following schedule:
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 3 DECEMBER 31, 1996
NOTE 1 - ACCOUNTING POLICIES (CONTINUED)
Changes in Accumulated Depreciation for Property, Plant, and Equipment for the year ended December 31, 1996, are shown in the following schedule:
Changes in Accumulated Depreciation for Property, Plant, and Equipment for the year ended December 31, 1995, are shown in the following schedule:
Changes in Accumulated Depreciation for Property, Plant, and Equipment for the year ended December 31, 1994, are shown in the following schedule:
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 4 DECEMBER 31, 1996
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 prior to 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:
2. Deferred compensation is accrued as follows:
Balance, December 31, 1995 $ 214,384 Addition for year ended December 31, 1996 30,726 --------- Balance, December 31, 1996 $ 245,110 =========
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.
The Company accounts for any tax credits as a reduction of income tax expense in the year in which such credits arise.
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 5 DECEMBER 31, 1996
NOTE 1 - ACCOUNTING POLICIES (CONTINUED)
Earnings Per Share of Common Stock
Earnings per common share (Class A and Class B Combined) are based on the weighted average number of shares outstanding in each period after giving effect to stock issued, stock subscribed, dividends on preferred stock, and treasury stock as set forth by Accounting Principles Board Opinion No. 15 as follows:
Preferred Stock Dividends
Cash dividends paid on the Company's outstanding preferred stock (par value $100 per share) were 12% for 1996, 10% for 1995, and 12% for 1994, 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 ----------- ------------------ -------- 1996 51,277 $ 10.04 1995 47,787 8.39 1994 43,869 10.00
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 are recognized when a receivable exists and expenses are recognized with the liability is incurred.
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 6 DECEMBER 31, 1996
NOTE 2 - NOTES RECEIVABLE
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 7
DECEMBER 31, 1996
NOTE 3 - NOTES PAYABLE - STOCK
Interest only is paid the first four years, and interest and principal are paid in the fifth year.
Principal payments applicable to the next five years are as follows:
1997 $ 23,860 1998 7,000 1998 38,750 2000 107,200 2001 57,000 -------- $233,810 ========
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 8 DECEMBER 31, 1996
NOTE 4 - MORTGAGE PAYABLE
On April 2, 1993, Texas Commerce Bank approved a $3,670,868 loan for the purpose of refinancing the property at 8300 Tewantin Drive. Monthly principal payments in the amount of $25,684 began April 30, 1993. Interest was calculated at 7.2% annual rate payable monthly. The mortgage was retired in August, 1996 by using a portion of the line of credit extended by Texas Commerce Bank. See Note 10.
The mortgage payable is secured by land and buildings at the present location on Tewantin Street and classified as follows:
On October 7, 1994, the board of directors approved the construction of a 96,715 square foot expansion of the warehouse facility. The expansion was completed in 1995. Financing had been arranged through NationsBank for the cost of construction of the addition; however, no financing from this source was used during construction as a temporary loan was made on the line of credit at Texas Commerce Bank. This temporary loan was repaid in May, 1995.
NOTE 5 - 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):
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 9 DECEMBER 31, 1996
NOTE 5 - INCOME TAXES (CONTINUED)
Reconciliation of income taxes on difference between tax and financial accounting:
NOTE 6 - LEASES
Operating Leases
The Company leases certain trucks and warehouse equipment under long-term operating lease agreements. The leases expire in 1997, 1998, 1999, 2000, 2001, and 2002.
The following is a schedule of future minimum lease payments for operating leases as of December 31, 1996 and 1995 for the subsequent five years:
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 10 DECEMBER 31, 1996
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:
The following is a schedule by year of future minimum lease payments for capital leases.
The lease payments are reflected in the Balance Sheet as current and noncurrent obligations under capital leases of $67,002 and $123,290, respectively. The estimated interest rates range from 4% to 9%.
Rental Expenses
Rental expenses for the preceding three years are:
1996 $909,912 1995 854,603 1994 749,881
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 11 DECEMBER 31, 1996
NOTE 7 - RELATED PARTY TRANSACTIONS
NONE
The Company is owned entirely by its dealers and former dealers. No shareholder is the beneficial owner of more than five percent of any class of the company's voting securities. Substantially all sales are made to the member-dealers (owners) of the Company.
NOTE 8 - RETIREMENT PLAN - DEFINED CONTRIBUTIONS
the company maintains a Profit Sharing and Savings 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. Contributions to the plan are determined by the Board of Directors. Contributions are allocated to employees in the same proportion that the number of points per employee bears to the total points of all participants. Employees receive one point for each $1,000 of compensation and one point for each year of service. Employees' interests in the value of the contributions made to their account first partially vests after three years of service at 20% and continues to vest an additional 20% each year until fully vested after seven years of service. Participating employees who reach age 65 are fully vested without regard to their number of years of service. Benefits are paid to eligible employees under the plan in lump sum upon retirement, or at the direction of the employee, pursuant to the terms of an annuity plan selected by the employee. The amount of cost recognized during the years ended December 31, is as follows:
1996 $561,318 1995 515,847 1994 400,000
NOTE 9 - STOCK PURCHASE FORMULA
Effective July, 1991, the Board of Directors approved a modification of the stock investment formula for dealers. Based on annual purchases by dealers, limits of stock investments are determined by formula to arrive at a maximum investment in Handy stock. In 1995 and 1996 the Board approved the repurchase of certain shares from those shareholders who are over-invested in the Company's capital stock by $4,000 or more. The amount repurchased was the amount of stock (based on purchase price of $100 per share) equal to one fourth of the overinvested 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 was raised from $5,000 to $10,000. In 1995 and 1996 the Company repurchased 326 and 168 shares for $32,600 and $16,800, respectively.
HANDY HARDWARE WHOLESALE, INC.
NOTES TO FINANCIAL STATEMENTS, PAGE 12 DECEMBER 31, 1996
NOTE 10 - LINE OF CREDIT
Texas Commerce Bank committed to a $7,500,000 unsecured revolving line of credit. The commitment expires on April 30, 1998. Borrowing against the line of credit during the year was as follows.
The line of credit liability is classified as follows:
Principal payment applicable to the next five years is as follows:
1997 $367,485 1998 - 1999 - 2000 - 2001 -
The line of credit loan was used to retire the mortgage payable (see Note 4). Terms of the line of credit require monthly payments of accrued interest with the balance of the loan to be repaid on April 30, 1998. The amount shown as a current liability is the amount estimated to be paid in 1997.
NOTE 11 - SUBSEQUENT EVENT
None
NOTE 12 - OTHER DISCLOSURES
Costs incurred for advertising are expensed when incurred.
The Company wholesales hardware to its dealers in Texas, Oklahoma, Louisiana, Alabama, Mississippi, Arkansas, and Florida.
The Company is not a party to any legal proceedings or environmental clean-up actions that it believes will have a material adverse effect on its financial position or results of operations.
Item 9.
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 which will be subsequently filed with the Securities and Exchange Commission within 120 days after the close of the Company's fiscal year.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents Filed as Part of this Report Page (1) Financial Statements Reference
Auditor's Report................................................14
Balance Sheets at December 31, 1996 and 1995.................................................15
Statements of Income for the years ended December 31, 1996, 1995 and 1994 ..........................................17
Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994 ..........................................18
Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 .............................19
Notes to Financial Statements...................................21
(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).
4.1 Specimen copy of certificate representing Class A Common Stock (Filed as Exhibit 4.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1983, and incorporated herein by reference).
4.2 Specimen copy of certificate representing Class B Common Stock (Filed as Exhibit 4.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1983, and incorporated herein by reference).
4.3 Specimen copy of certificate representing Preferred Stock (Filed as Exhibit 4.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1983, and incorporated herein by reference).
4.4 Form of Subscription to Shares of Handy Hardware Wholesale, Inc. for Class A Common Stock, Class B Common Stock and Preferred Stock (Filed as Exhibit 4.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991, and incorporated herein by reference).
* 10.1 Employment Agreement, as amended, between Handy Hardware Wholesale, Inc. and James D. Tipton (Filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1983, and incorporated herein by reference).
* 10.2 Second Amendment to the Employment Agreement, as amended, between Handy Hardware Wholesale, Inc. and James D. Tipton dated July 19, 1985 (Filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1985, and incorporated herein by reference).
* 10.3 Third Amendment to the Employment Agreement, as amended, between Handy Hardware Wholesale, Inc. and James D. Tipton dated December 16, 1988 (Filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1988, and incorporated herein by reference).
* 10.4 Fourth Amendment to the Employment Agreement, as amended, between Handy Hardware Wholesale, Inc. and James D. Tipton dated September 20, 1991 (Filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991, and incorporated herein by reference).
10.5 Split-Dollar Agreement dated November 13, 1991 between the Company and James D. Tipton (Filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991, and incorporated herein by reference).
10.6 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).
10.7 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).
* 10.8 Fifth Amendment to the Employment Agreement, as amended, between Handy Hardware Wholesale, Inc. and James D. Tipton dated September 7, 1993. (Filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated herein by reference.)
10.9 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).
10.10 Credit Agreement between Handy Hardware Wholesale, Inc. ("Borrower") and NationsBank of Texas, N.A. ("Lender") dated November 2, 1994 (with Exhibits "A" and "B" intentionally omitted).
10.11 Sixth Amendment to the Employment Agreement, as amended, between Handy Hardware Wholesale, Inc. and James D. Tipton dated November 14, 1995.
*,** 10.12 Seventh Amendment to the Employment Agreement, as amended, between Handy Hardware Wholesale, Inc. and James D. Tipton dated September 30, 1996.
** 11.1 Statement re computation of per share earnings.
- ----------------------- * Management Contract ** Filed herewith.
The Company will furnish to any requesting shareholder a copy of any exhibit upon payment of $.40 per page to cover the expense of furnishing such copies. Requests should be directed to Tina S. Kirbie, Secretary and Treasurer, Handy Hardware Wholesale, Inc., 8300 Tewantin Drive, Houston, Texas 77061.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the three months ended December 31, 1996.
(c) Exhibits
Listed in Item 14(a)(3) above.
(d) Financial Statement Schedules
Listed in Item 14(a)(2) above.
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.
------------------------------------- JAMES D. TIPTON President and Chief Executive Officer March ___, 1997
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
- -------------------------- President, Chief Executive March __, 1997 James D. Tipton Officer and Director
- -------------------------- Chief Financial and March __, 1997 Tina S. Kirbie Accounting Officer
- -------------------------- Director March __, 1997 Weldon D. Bailey
- -------------------------- Director March __, 1997 Norman J. Bering, II
- -------------------------- Director March __, 1997 Susie Bracht-Black
- -------------------------- Director March __, 1997 Virgil H. Cox
- -------------------------- Director March __, 1997 Samuel J. Dyson
- -------------------------- Director March __, 1997 Robert L. Eilers
- -------------------------- Director March __, 1997 Phil Grothues
- -------------------------- Director March __, 1997 Larry Ward
- -------------------------- Director March __, 1997 Leroy Welborn
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant, Handy Hardware Wholesale, Inc., has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HANDY HARDWARE WHOLESALE, INC.
/s/James D. Tipton ------------------------------------- JAMES D. TIPTON President and Chief Executive Officer March 12, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant, Handy Hardware Wholesale, Inc., and in the capacities and on the dates indicated.
Signature Title Date
/s/James D. Tipton President, Chief Executive March 12, 1997 - -------------------------- Officer and Director James D. Tipton
/s/Tina S. Kirbie Chief Financial and March 12, 1997 - -------------------------- Accounting Officer Tina S. Kirbie
/s/Weldon D. Bailey Director March 12, 1997 - -------------------------- Weldon D. Bailey
/s/Norman J. Bering, II Director March 13, 1997 - -------------------------- Norman J. Bering, II
/s/ Susie Bracht-Black Director March 12, 1997 - -------------------------- Susie Bracht-Black
/s/Virgil H. Cox Director March 12, 1997 - -------------------------- Virgil H. Cox
/s/Samuel J. Dyson Director March 12, 1997 - -------------------------- Samuel J. Dyson
/s/Robert L. Eilers Director March 15, 1997 - -------------------------- Robert L. Eilers
/s/Phil Grothues Director March 17, 1997 - -------------------------- Phil Grothues
/s/ Larry Ward Director March 12, 1997 - -------------------------- Larry Ward
/s/Leroy Welborn Director March 12, 1997 - -------------------------- Leroy Welborn
EXHIBIT 10.12
Seventh Amendment to Employment Agreement
Reference is made to an Employment Agreement (hereinafter called "Agreement") dated July 9, 1980, between Handy Hardware Wholesale, Inc., a Texas corporation (therein and hereinafter called "Employer"), and James D. Tipton (therein and hereinafter called "Employee"), the First Amendment to the Agreement, dated August 18, 1980 (the "First Amendment"), the Second Amendment to the Agreement, dated July 18, 1985 (the "Second Amendment"), the Third Amendment to the Agreement, dated December 6, 1988 (the "Third Amendment"), the Fourth Amendment to the Agreement, dated September 20, 1991 (the "Fourth Amendment"), the Fifth Amendment to the Agreement, dated September 7, 1993 (the "Fifth Amendment"), and the Sixth Amendment to the Agreement, dated November 14, 1995 (the "Sixth Amendment").
At this time, Employer and Employee wish to amend the Agreement, the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment and the Sixth Amendment as hereinafter set forth:
NOW THEREFORE, in consideration of the premises, the agreements herein contained and other good and valuable considerations, Employer and Employee hereby amend the Agreement, the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment and the Sixth Amendment as follows:
1. Subparagraph (9) of Paragraph 2.a. is hereby amended to read as follows:
"(9) For the period from January 1, 1996 to December 31, 1998, Employer shall pay Employee $20,834.34 per month, payable semi-monthly on the 15th and last day of each month during this period."
2. Paragraph 3.a. is hereby amended to read as follows:
"a. The term of employment by Employer shall mean the period commencing August 18, 1980, and terminating December 31, 1998, unless sooner terminated in accordance with the terms and conditions hereinafter set forth, provided, however, in the event of the death of Employee, the term of employment shall end the 60th day after the date of the death of Employee."
Except as amended above, the Agreement, the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment and the Sixth Amendment remain unchanged and continue in full force and effect.
This Seventh Amendment is executed in multiple counterparts, each of which shall have the force and effect of an original, this 30th day of September, 1996.
HANDY HARDWARE WHOLESALE, INC.
/s/ James D. Tipton By: /s/ Weldon D. Bailey - --------------------------- --------------------------- James D. Tipton Chairman of the Board EMPLOYEE EMPLOYER
EXHIBIT 11.1
Computation of Per Share Earnings
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents Filed as Part of this Report Page (1) Financial Statements Reference
Auditor's Report................................................14
Balance Sheets at December 31, 1996 and 1995.................................................15
Statements of Income for the years ended December 31, 1996, 1995 and 1994 ..........................................17
Statements of Stockholders' Equity for the years ended December 31, 1996, 1995 and 1994 ..........................................18
Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994 .............................19
Notes to Financial Statements...................................21
(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).
4.1 Specimen copy of certificate representing Class A Common Stock (Filed as Exhibit 4.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1983, and incorporated herein by reference).
4.2 Specimen copy of certificate representing Class B Common Stock (Filed as Exhibit 4.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1983, and incorporated herein by reference).
4.3 Specimen copy of certificate representing Preferred Stock (Filed as Exhibit 4.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1983, and incorporated herein by reference).
4.4 Form of Subscription to Shares of Handy Hardware Wholesale, Inc. for Class A Common Stock, Class B Common Stock and Preferred Stock (Filed as Exhibit 4.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991, and incorporated herein by reference).
* 10.1 Employment Agreement, as amended, between Handy Hardware Wholesale, Inc. and James D. Tipton (Filed as Exhibit 10.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1983, and incorporated herein by reference).
* 10.2 Second Amendment to the Employment Agreement, as amended, between Handy Hardware Wholesale, Inc. and James D. Tipton dated July 19, 1985 (Filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1985, and incorporated herein by reference).
* 10.3 Third Amendment to the Employment Agreement, as amended, between Handy Hardware Wholesale, Inc. and James D. Tipton dated December 16, 1988 (Filed as Exhibit 10.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1988, and incorporated herein by reference).
* 10.4 Fourth Amendment to the Employment Agreement, as amended, between Handy Hardware Wholesale, Inc. and James D. Tipton dated September 20, 1991 (Filed as Exhibit 10.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991, and incorporated herein by reference).
10.5 Split-Dollar Agreement dated November 13, 1991 between the Company and James D. Tipton (Filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991, and incorporated herein by reference).
10.6 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).
10.7 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).
* 10.8 Fifth Amendment to the Employment Agreement, as amended, between Handy Hardware Wholesale, Inc. and James D. Tipton dated September 7, 1993. (Filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ended December 31, 1993, and incorporated herein by reference.)
10.9 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).
10.10 Credit Agreement between Handy Hardware Wholesale, Inc. ("Borrower") and NationsBank of Texas, N.A. ("Lender") dated November 2, 1994 (with Exhibits "A" and "B" intentionally omitted).
10.11 Sixth Amendment to the Employment Agreement, as amended, between Handy Hardware Wholesale, Inc. and James D. Tipton dated November 14, 1995.
*,** 10.12 Seventh Amendment to the Employment Agreement, as amended, between Handy Hardware Wholesale, Inc. and James D. Tipton dated September 30, 1996.
** 11.1 Statement re computation of per share earnings.
- ----------------------- * Management Contract ** Filed herewith.
The Company will furnish to any requesting shareholder a copy of any exhibit upon payment of $.40 per page to cover the expense of furnishing such copies. Requests should be directed to Tina S. Kirbie, Secretary and Treasurer, Handy Hardware Wholesale, Inc., 8300 Tewantin Drive, Houston, Texas 77061.
(b) Reports on Form 8-K
The Company filed no reports on Form 8-K during the three months ended December 31, 1996.
(c) Exhibits
Listed in Item 14(a)(3) above.
(d) Financial Statement Schedules
Listed in Item 14(a)(2) above.
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.
------------------------------------- JAMES D. TIPTON President and Chief Executive Officer March ___, 1997
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
- -------------------------- President, Chief Executive March __, 1997 James D. Tipton Officer and Director
- -------------------------- Chief Financial and March __, 1997 Tina S. Kirbie Accounting Officer
- -------------------------- Director March __, 1997 Weldon D. Bailey
- -------------------------- Director March __, 1997 Norman J. Bering, II
- -------------------------- Director March __, 1997 Susie Bracht-Black
- -------------------------- Director March __, 1997 Virgil H. Cox
- -------------------------- Director March __, 1997 Samuel J. Dyson
- -------------------------- Director March __, 1997 Robert L. Eilers
- -------------------------- Director March __, 1997 Phil Grothues
- -------------------------- Director March __, 1997 Larry Ward
- -------------------------- Director March __, 1997 Leroy Welborn
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant, Handy Hardware Wholesale, Inc., has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HANDY HARDWARE WHOLESALE, INC.
/s/James D. Tipton ------------------------------------- JAMES D. TIPTON President and Chief Executive Officer March 12, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant, Handy Hardware Wholesale, Inc., and in the capacities and on the dates indicated.
Signature Title Date
/s/James D. Tipton President, Chief Executive March 12, 1997 - -------------------------- Officer and Director James D. Tipton
/s/Tina S. Kirbie Chief Financial and March 12, 1997 - -------------------------- Accounting Officer Tina S. Kirbie
/s/Weldon D. Bailey Director March 12, 1997 - -------------------------- Weldon D. Bailey
/s/Norman J. Bering, II Director March 13, 1997 - -------------------------- Norman J. Bering, II
/s/ Susie Bracht-Black Director March 12, 1997 - -------------------------- Susie Bracht-Black
/s/Virgil H. Cox Director March 12, 1997 - -------------------------- Virgil H. Cox
/s/Samuel J. Dyson Director March 12, 1997 - -------------------------- Samuel J. Dyson
/s/Robert L. Eilers Director March 15, 1997 - -------------------------- Robert L. Eilers
/s/Phil Grothues Director March 17, 1997 - -------------------------- Phil Grothues
/s/ Larry Ward Director March 12, 1997 - -------------------------- Larry Ward
/s/Leroy Welborn Director March 12, 1997 - -------------------------- Leroy Welborn
EXHIBIT 10.12
Seventh Amendment to Employment Agreement
Reference is made to an Employment Agreement (hereinafter called "Agreement") dated July 9, 1980, between Handy Hardware Wholesale, Inc., a Texas corporation (therein and hereinafter called "Employer"), and James D. Tipton (therein and hereinafter called "Employee"), the First Amendment to the Agreement, dated August 18, 1980 (the "First Amendment"), the Second Amendment to the Agreement, dated July 18, 1985 (the "Second Amendment"), the Third Amendment to the Agreement, dated December 6, 1988 (the "Third Amendment"), the Fourth Amendment to the Agreement, dated September 20, 1991 (the "Fourth Amendment"), the Fifth Amendment to the Agreement, dated September 7, 1993 (the "Fifth Amendment"), and the Sixth Amendment to the Agreement, dated November 14, 1995 (the "Sixth Amendment").
At this time, Employer and Employee wish to amend the Agreement, the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment and the Sixth Amendment as hereinafter set forth:
NOW THEREFORE, in consideration of the premises, the agreements herein contained and other good and valuable considerations, Employer and Employee hereby amend the Agreement, the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment and the Sixth Amendment as follows:
1. Subparagraph (9) of Paragraph 2.a. is hereby amended to read as follows:
"(9) For the period from January 1, 1996 to December 31, 1998, Employer shall pay Employee $20,834.34 per month, payable semi-monthly on the 15th and last day of each month during this period."
2. Paragraph 3.a. is hereby amended to read as follows:
"a. The term of employment by Employer shall mean the period commencing August 18, 1980, and terminating December 31, 1998, unless sooner terminated in accordance with the terms and conditions hereinafter set forth, provided, however, in the event of the death of Employee, the term of employment shall end the 60th day after the date of the death of Employee."
Except as amended above, the Agreement, the First Amendment, the Second Amendment, the Third Amendment, the Fourth Amendment, the Fifth Amendment and the Sixth Amendment remain unchanged and continue in full force and effect.
This Seventh Amendment is executed in multiple counterparts, each of which shall have the force and effect of an original, this 30th day of September, 1996.
HANDY HARDWARE WHOLESALE, INC.
/s/ James D. Tipton By: /s/ Weldon D. Bailey - --------------------------- --------------------------- James D. Tipton Chairman of the Board EMPLOYEE EMPLOYER
EXHIBIT 11.1
Computation of Per Share Earnings