DELAWARE 63-0819773
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(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OF ORGANIZATION) IDENTIFICATION NO.)
3140 Pelham Parkway, Pelham, Alabama 35124
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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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
filing requirements for the past 90 days.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. X
As of March 3, 2000, 1,911,943 shares of the Registrant's Common Stock were outstanding, and the aggregate market value of such shares held by non-affiliates was approximately $1,212,417. For this computation, the Registrant has excluded the market value of all common stock beneficially owned by officers and directors of the Registrant and their associates. Such exclusion does not constitute an admission that any such person is an "affiliate" of the Registrant.
Certain portions of the following documents are incorporated by reference into Part III of this Annual Report on Form 10-K: the Registrant's definitive Proxy Statement to be filed with the Commission not later than 120 days after the end of the fiscal year covered hereby.
ITEM NO. PAGE NO.
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Part I
1. Business......................................................... 3
2. Properties....................................................... 6
3. Legal Proceedings................................................ None
4. Submission of Matters to a Vote of Security Holders (none during
the fourth quarter of 1999).................................... None
Part II
5. Market for Registrant's Common Equity and Related Stockholder
Matters........................................................ 5
6. Selected Financial Data.......................................... 7
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 9
7a. Quantitative and Qualitative Disclosures about Market Risk....... 9
(the information required by this item is contained in
"Management's Discussion and Analysis of Financial Condition
and Results of Operations.")
8. Financial Statements and Supplementary Data...................... 15
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure........................................... None
Part III
10. Directors and Executive Officers of the Registrant............... *
11. Executive Compensation........................................... *
12. Security Ownership of Certain Beneficial Owners and Management... *
13. Certain Relationships and Related Transactions................... *
*Part III (other than Item 401(b) of Regulation S-K, which is
included in Item 1 of this Form 10-K) is incorporated by
reference to the Registrant's definitive Proxy Statement to be
filed with the Commission not later than 120 days after the end
of the fiscal year covered hereby.
Part IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements........................................ 15
(b) Reports on Form 8-K......................................... None
(c) Exhibits Filed.............................................. 28
(d) Financial Statement Schedules filed (Financial statement
Schedules have been omitted because they are not required,
not applicable or the required information is set forth in
the Financial Statements or Notes thereto or in the
Discussion of Liquidity and Capital Resources in Item 7 of
this Form 10-K.).......................................... None
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NOTE: Copies of the exhibits may be obtained by stockholders upon written request directed to the Secretary, Moore-Handley, Inc., P. O. Box 2607, Birmingham, Alabama 35202, and payment of processing and mailing costs.
BUSINESS
Moore-Handley, Inc. (the "Company") is a full-service distributor of plumbing and electrical supplies, power and hand tools, paint and paint sundries, lawn and garden equipment and other hardware and building materials products. The Company's customers include retail home centers, hardware stores, building materials dealers, paint stores, combination stores, a limited number of mass merchandisers, businesses and institutions. The Company has approximately 1,500 active customers located mainly throughout the Southeast which it services from a 488,000 square foot distribution center located in Pelham, Alabama, a suburb of Birmingham, and a 20,000 square foot redistribution center located in Ocala, Florida.
DESCRIPTION OF BUSINESS
In connection with its distribution activities, the Company offers a wide range of marketing, advertising and other support services which are designed to assist customers in maintaining and improving their market positions. These support services include computer-generated systems for the control of inventory, pricing and gross margin, as well as advertising and store installation and design services.
Home centers and hardware and building supply retailers have a continuing need for a wide variety of items produced by a number of different manufacturers. Purchasing from a distributor rather than directly from manufacturers allows independent retailers to simplify the purchasing process and to place smaller orders on an as-needed basis, thereby reducing their inventory carrying costs and excess stock risks. Moreover, distributors purchase products in quantities that enable them to obtain favorable prices and payment terms, which are reflected in prices and payment terms to independent retailers. Finally, the support services the Company offers to customers (in most instances at or near the Company's cost) are generally not available from manufacturers, nor can most customers afford to develop them independently. The Company believes that its ability to provide a broad range of merchandise from a single source on a timely basis and at competitive prices, together with support services, offers its customers a substantial advantage over purchasing directly from manufacturers.
In recent years there has been a trend toward consolidation in many wholesale industries, including the grocery, drug and hard goods distribution businesses. This trend also is apparent in the building supply and hardware business.
The Company believes that this consolidating trend is attributable to, among other things, the inability of small distributors to provide a full range of advertising, store layout and computer-generated pricing and inventory control services offered by larger entities. The Company has benefitted from this consolidating trend by recruiting experienced territory managers from competitors who have been acquired, gone out of business or reduced market area, thereby increasing the Company's customer base and sales.
PRODUCTS
The Company closely monitors its items in stock, maintaining a full range of products while concentrating its efforts on carrying quantities of stock designed to achieve high inventory turns. The following table indicates the percentage of net sales by class of merchandise sold by the Company in the past three years:
PERCENTAGE OF NET SALES
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CLASS OF MERCHANDISE 1999 1998 1997
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Electrical and plumbing supplies............................ 21.2% 22.4% 22.2%
Home center products (including lawn and garden equipment,
paint and accessories, sporting goods and appliances)..... 22.4 22.0 17.7
Building supplies (including aluminum windows and doors,
roofing products and lumber).............................. 24.6 25.6 24.9
General and shelf hardware (including power and hand tools,
lock sets and wire products).............................. 31.8 30.0 35.2
----- ----- -----
100.0% 100.0% 100.0%
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MARKETING PROGRAMS AND CUSTOMER SERVICES
Sales Force. The Company's marketing program is implemented primarily by its sales force of territory managers, each of whom is responsible for specific customers within a particular geographic area. Territory managers generally call on customers weekly to check inventories, take orders and perform various in-store services. In addition, the territory managers act as liaison between the customer and the Company to promote the Company's support services. Sales assistants work with certain of the more senior territory managers. At December 31, 1999, there were 77 territory managers and assistants employed by the Company.
At December 31, 1999, the Company also employed 8 district managers, each responsible for supervising and monitoring the activities of territory managers located in their assigned area. To supplement its primary sales force, the Company maintains a telemarketing group which solicits and accepts orders from customers between regular visits by territory managers.
Customer Services. An important component of the Company's marketing strategy is the range of support services it offers to its customers. These services, which the Company believes not only strengthen its relationships with existing customers but also attract new customers, are designed to enable customers to improve their marketing efforts and compete more effectively, thereby increasing the Company's sales.
The Company's support services include advertising and promotional services, some costs of which are shared by the Company's suppliers, store installation and design services, and computer-generated systems for control of inventory, pricing and gross margin. The Company also provides a store identification program, as well as additional promotional services, to selected customers under the name "Hardware House", a registered trade name owned and developed by the Company, and similar programs under the national trade name of "Pro", a registered trade name of Pro Group, Inc. Pro Group, Inc. is a merchandising and marketing group to which the Company belongs.
The Company has developed a personal computer-based system for use by its customers which includes a color digitized catalog, electronic ordering and order editing capabilities and additional software programs to enable the dealer to increase profitability.
Operations. The Company's ability to fill and deliver small quantity orders for many different items enables customers to place orders on an as-needed basis, and in turn, to reduce inventory investment, storage and control costs. The Company's "fill-rate" -- the percentage of items shipped within 48 hours of receipt of an order -- is a measure of the efficiency of its order processing, inventory control and warehouse operations. In 1996 the Company's fill-rate, which has generally exceeded 95%, fell as a result of disruption to operations caused by changes made to the warehouse. By the end of 1997 and continuing throughout 1999 the fill-rate had returned to normal levels. See "Management's Discussion and Analysis of Financial Condition and Results of Operations".
Deliveries are made on a regular basis primarily by the Company's fleet of approximately 42 leased trucks and vans. The Company's sales personnel generally call on customers weekly, and deliveries of merchandise are normally made within two or three business days after placement of an order.
Direct Shipment Program. As an additional service to its customers, the Company maintains a direct shipment program under which customers order and receive shipments of some products directly from suppliers but are invoiced through the Company. The Company pays the supplier for the goods shipped and has the risk of loss for the collection of payment from its customer. These programs enable the Company to distribute products that would be inconvenient or expensive to stock at its warehouse, such as commodity building materials, and allow customers to receive discounts that otherwise might not be available to them. In 1999, approximately 34% of the Company's net sales were attributable to purchases under the direct shipment program.
CUSTOMERS
The Company currently services approximately 1,500 customers, including retail home centers, hardware stores, building materials dealers, paint stores, combination stores, a limited number of mass merchandisers, businesses and institutions. No customer or affiliated group of customers accounted for more than 1.6% of the Company's 1999 net sales.
The Company's current customers are located primarily in Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, Virginia and West Virginia.
From time to time the Company receives extended terms from its suppliers which it passes on to its customers.
PURCHASING, SUPPLIERS AND INVENTORY MANAGEMENT
The Company distributes approximately 36,450 items purchased from approximately 1,500 manufacturers. The Company's ten largest vendors in 1999 accounted for approximately 20.0% of total Company purchases, but no single manufacturer accounted for more than 4.0% of the Company's total purchases during the year. The Company has no long-term supply or distribution agreements with its vendors. Substantially all products of the type distributed by the Company are available from a number of manufacturers.
Because inventory constitutes a substantial portion of the Company's total assets, efficient control of inventory is an important management priority. The Company's inventory turns (determined by dividing cost of stocked goods sold by average monthly inventory) were 5.4 in 1999 and 5.1 in 1998.
COMPETITION
The Company's markets and those of its customers are highly competitive. The Company competes directly with other national and regional wholesalers (including co-ops), with direct-selling manufacturers and with specialty distributors on the basis of fill-rate, delivery time, price, breadth of product lines, marketing programs and support services. A number of these competitors are larger and have greater financial resources than the Company. The Company's business depends on its ability to distribute a large volume and variety of products efficiently and to provide high quality support services.
EMPLOYEES
As of December 31, 1999, the Company employed 492 persons, of whom approximately 235 are subject to a collective bargaining agreement expiring in December 2001. The Company has not experienced any strikes or work stoppages and considers its relationship with employees to be good. In December 1998 the Company entered into a three year collective bargaining agreement that provides for gain-sharing with employees based upon warehouse cost reductions.
COMMON STOCK INFORMATION
The Company's common stock trades on The Nasdaq SmallCap Market(SM) under the symbol MHCO. The following table shows the high and low bid prices by quarter in 1999 and 1998.
1999 1998
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QUARTER ENDED HIGH LOW HIGH LOW
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March 31,................................................... 2 7/8 2 2 11/16 2 5/16
June 30,.................................................... 2 7/16 1 7/8 2 3/4 2 3/8
September 30,............................................... 2 1 1/4 3 1/4 2 1/2
December 31,................................................ 1 7/8 1 1/4 2 7/8 1 3/4
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For periods prior to December 24, 1998, the Company's common stock was included in The Nasdaq National Market(R) system and thereafter in The Nasdaq SmallCap Market(SM). Such over-the-counter quotations reflect inter-dealer quotations, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions.
At March 3, 2000, there were 179 holders of record of the Company's common stock. Since a large number of these holders are nominees, the Company believes beneficial holders represent a substantially larger number.
The Company has not paid cash dividends on its common stock. It has been the policy of the Board of Directors to retain all available earnings to support the growth and expansion of its business. The payment of dividends on common stock in the future and the rate of such dividends, if any, will be determined by the Board of Directors based on the Company's earnings, financial condition and capital requirements.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company as of March 1, 2000, their ages and their present positions with the Company and their principal occupations since 1994 are as follows:
NAME AGE POSITION
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William Riley...................................... 68 Chairman of the Board and Chief Executive Officer
Pierce E. Marks, Jr................................ 71 Director and Member of the Executive Committee
Michael J. Gaines.................................. 57 President and Chief Operating Officer(1)
Peter B. Covert.................................... 44 Chief Financial Officer(2)
Andrew W. Reid..................................... 52 Vice President-- Sales
Clay Alford........................................ 51 Vice President-- Quality Assurance
Robert Grear....................................... 49 Vice President-- Operations(3)
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(1) Mr. Gaines was employed by Grossman's, a home center chain, from 1993 to 1996.
(2) Mr. Covert was employed by Industrial Distribution Group from 1990 to 1998.
(3) Mr. Grear was owner and manager of SMB Trading Group, an Internet Trading and Distribution Consulting Company, from 1997 to 1999; he was employed by Caldor, Inc., a Mass Merchandise Retailer, from 1994 to 1997.
Officers are elected annually and serve at the discretion of the Board of
Directors.
PROPERTIES
The Company's distribution facility and executive offices are located in a single 488,000 square foot facility, which includes a 51,000 square foot mezzanine, on a 30-acre site in Pelham, Alabama. The Company leases the Pelham facility pursuant to a lease entered into in connection with the issuance of industrial development bonds. The Company has guaranteed payment of the principal and interest on such bonds, and in 1999 paid an aggregate of $945,000 pursuant to such lease agreement. The Company has options to purchase the property for a nominal cost at the expiration of the lease. The Company believes that its Pelham facility is adequate for its presently foreseeable needs. The Company also leases a 20,000 square foot warehouse redistribution facility in Ocala, Florida for monthly rental of approximately $6,200 and office space in New York, New York for which lease payments are approximately $79,000 per annum. In 1998, the Company leased a 20,000 square foot redistribution center in Winston-Salem, North Carolina and office space in Atlanta, Georgia. During 1999, both leases expired and the Company closed these locations.
SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
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1999 1998 1997 1996 1995
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(IN THOUSANDS, EXCEPT PER SHARE DATA)
Income Statement Data:
Net sales.......................... $ 167,217 $ 159,027 $ 145,730 $ 145,785 $ 142,157
Cost of sales...................... 151,132 144,078 133,114 132,329 127,076
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Gross profit....................... 16,085 14,949 12,616 13,456 15,081
Selling and administrative
expenses......................... 14,234 13,315 13,705 14,140 13,094
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Operating income (loss)............ 1,851 1,634 (1,089) (684) 1,987
Interest expense, net.............. 1,407 1,337 991 908 659
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Income (loss) before income tax
(benefit)........................ 444 297 (2,080) (1,592) 1,328
Income tax (benefit)............... 145 136 (664) (520) 520
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Net income (loss).................. $ 299 $ 161 $ (1,416) $ (1,072) $ 808
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Per share -- basic and diluted
data:
Net income (loss)................ $ .16 $ .09 $ (.66) $ (.50) $ .37
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Weighted average common shares
outstanding...................... 1,883,000 1,861,000 2,135,000 2,159,000 2,203,000
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DECEMBER 31,
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1999 1998 1997 1996 1995
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(IN THOUSANDS)
Balance Sheet Data:
Current assets..................... $ 46,129 $ 46,105 $ 44,940 $ 43,876 $ 39,597
Property and equipment -- net...... 8,248 8,006 8,273 8,771 7,421
Other assets....................... 1,113 1,164 984 825 797
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Total assets.................. $ 55,490 $ 55,275 $ 54,197 $ 53,472 $ 47,815
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Current liabilities................ 22,701 $ 23,408 $ 21,482 $ 31,860 $ 26,316
Long-term debt..................... 17,963 17,453 18,397 5,111 3,996
Deferred income taxes.............. 1,076 1,085 1,150 1,129 1,059
Stockholders' equity............... 13,750 13,329 13,168 15,372 16,444
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Total liabilities and
stockholders'
equity...................... $ 55,490 $ 55,275 $ 54,197 $ 53,472 $ 47,815
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QUARTERLY FINANCIAL DATA -- UNAUDITED
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
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1999 1998 1999 1998 1999 1998 1999 1998
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Net sales........................... $44,663 $40,472 $42,704 $38,012 $43,566 $38,729 $36,283 $41,814
Gross profit........................ 3,763 3,812 3,971 3,817 4,130 3,538 4,220 3,782
Net income (loss)................... $ (84) $ 49 $ 20 $ 58 $ (42) $ (97) $ 405 $ 151
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Net income (loss) per Share -- basic
and diluted....................... $ (.04) $ .03 $ .01 $ .03 $ (.02) $ (.05) $ .21 $ .08
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Typically, sales in the 1st and 3rd quarters are higher than in other quarters due to additional sales generated by Dealers' Marts. The majority of the additional sales are factory direct shipments which carry a lower gross margin than warehouse shipments so the gross margin percentage for these quarters is generall