© 2001 | EDGAR Online, Inc.
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 12, 2001, 1,818,643 shares of the Registrant's Common Stock were outstanding, and the aggregate market value of such shares held by non-affiliates was approximately $820,020. 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 2000).................................... None
Part II
5. Market for Registrant's Common Equity and Related Stockholder
Matters........................................................ None
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.
DESCRIPTION OF BUSINESS
In connection with its distribution activities, the Company offers a wide range of marketing, advertising and other support services 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 benefited 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
-------------------------------
CLASS OF MERCHANDISE 2000 1999 1998
-------------------- ----- ----- -----
Electrical and plumbing supplies............................ 22.6% 21.2% 22.4%
Home center products (including lawn and garden equipment,
paint and accessories, sporting goods and appliances)..... 21.6 22.4 22.0
Building supplies (including aluminum windows and doors,
roofing products and lumber).............................. 23.2 24.6 25.6
General and shelf hardware (including power and hand tools,
lock sets and wire products).............................. 32.6 31.8 30.0
----- ----- -----
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 which 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, 2000, there were 54 territory managers and assistants employed by the Company.
At December 31, 2000, the Company also employed 9 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 that 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. 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.
Deliveries are made on a regular basis primarily by the Company's leased fleet of approximately 40 tractors and 63 trailers. 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 where 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 2000, approximately 33% of the Company's net sales were attributable to purchases under the direct shipment program.
CUSTOMERS
The Company currently services approximately 2,000 customers, including retail home centers, hardware stores, building materials dealers, paint stores, combination stores, and a limited number of mass merchandisers, businesses and institutions. No customer or affiliated group of customers accounted for more than 1% of the Company's 2000 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 35,531 items purchased from approximately 1,075 manufacturers. The Company's ten largest vendors in 2000 accounted for approximately 21.9% of total Company purchases, but no single manufacturer accounted for more than 3.7% 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 4.9 in 2000 and 5.4 in 1999.
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, 2000, the Company employed 410 persons, of whom 192 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 2000 and 1999.
2000 1999
--------------- ---------------
QUARTER ENDED HIGH LOW HIGH LOW
------------- ---- --- ---- ---
March 31,................................................... 6 3/8 1 1/2 2 7/8 2
June 30,.................................................... 2 5/16 1 1/2 2 7/16 1 7/8
September 30,............................................... 1 7/16 1 2 1 1/4
December 31,................................................ 1 7/16 1 1 7/8 1 1/4
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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, markdown or commissions and may not necessarily represent actual transactions.
At March 12, 2001, there were 190 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, 2001, their ages and their present positions with the Company and their principal occupations since 1994 are as follows:
NAME AGE POSITION
---- --- --------
William Riley...................................... 69 Chairman of the Board and Chief Executive Officer
Pierce E. Marks, Jr................................ 72 Director and Member of the Executive Committee
Michael J. Gaines.................................. 58 President and Chief Operating Officer(1)
Gary Smith......................................... 54 Chief Financial Officer(2)
Andrew W. Reid..................................... 53 Vice President -- Sales
Clay Alford........................................ 52 Vice President -- Quality Assurance
Robert Grear....................................... 50 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. Smith was employed by City Wholesale Grocery, Inc., from 1997 to 2000, and Parisian, Inc. from 1979 to 1997.
(3) Mr. Grear was owner and manager of SMB Trading Group, an Internet Trading and Distribution Consulting Company, from 1998 to 2000; he was employed by Caldor, Inc., a Mass Merchandise Retailer, from 1994 to 1998.
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 2000 paid an aggregate of $964,083 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.
SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31,
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2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Income Statement Data:
Net sales......................... $ 154,065 $ 167,217 $ 159,027 $ 145,730 $ 145,785
Cost of sales..................... 140,040 151,132 144,078 133,114 132,329
---------- ---------- ---------- ---------- ----------
Gross profit...................... 14,025 16,085 14,949 12,616 13,456
Selling and administrative
expenses........................ 14,687 14,234 13,315 13,705 14,140
---------- ---------- ---------- ---------- ----------
Operating income (loss)........... (662) 1,851 1,634 (1,089) (684)
Interest expense, net............. 1,650 1,407 1,337 991 908
---------- ---------- ---------- ---------- ----------
Income (loss) before income tax
(benefit)....................... (2,312) 444 297 (2,080) (1,592)
Income tax (benefit).............. (759) 145 136 (664) (520)
---------- ---------- ---------- ---------- ----------
Net income (loss)................. $ (1,553) $ 299 $ 161 $ (1,416) $ (1,072)
========== ========== ========== ========== ==========
Per share -- basic and diluted
data:
Net income (loss)................. $ (.82) $ .16 $ .09 $ (.66) $ (.50)
========== ========== ========== ========== ==========
Weighted average common shares
outstanding..................... 1,903,000 1,881,000 1,861,000 2,135,000 2,159,000
========== ========== ========== ========== ==========
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DECEMBER 31,
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2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS)
Balance Sheet Data:
Current assets.................... $ 44,411 $ 46,129 $ 46,105 $ 44,940 $ 43,876
Property and equipment -- net..... 8,812 8,248 8,006 8,273 8,771
Other assets...................... 1,016 1,113 1,164 984 825
---------- ---------- ---------- ---------- ----------
Total assets................. $ 54,239 $ 55,490 $ 55,275 $ 54,197 $ 53,472
========== ========== ========== ========== ==========
Current liabilities............... $ 19,778 $ 22,701 $ 23,408 $ 21,482 $ 31,860
Long-term debt.................... 21,664 17,963 17,453 18,397 5,111
Deferred income taxes............. 671 1,076 1,085 1,150 1,129
Stockholders' equity.............. 12,126 13,750 13,329 13,168 15,372
---------- ---------- ---------- ---------- ----------
Total liabilities and
stockholders'
equity..................... $ 54,239 $ 55,490 $ 55,275 $ 54,197 $ 53,472
========== ========== ========== ========== ==========
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QUARTERLY FINANCIAL DATA -- UNAUDITED
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------------- ----------------- ----------------- -----------------
2000 1999 2000 1999 2000 1999 2000 1999
---- ---- ------- ---- ------- ---- ------- ----
Net sales........................... $43,755 $44,663 $38,642 $42,704 $38,903 $43,567 $32,765 $36,283
Gross profit........................ 4,260 3,763 3,959 3,971 3,651 4,130 2,155 4,220
Net income (loss)................... $ 71 $ (84) $ (147) $ 20 $ (58) $ (42) $(1,419) $ 405
======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) per Share -- basic
and diluted....................... $ .04 $ (.04) $ (.08) $ .01 $ (.03) $ (.02) $ (.75) $ .21
======= ======= ======= ======= ======= ======= ======= =======
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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 that carry a lower gross margin than warehouse shipments so net income for these quarters is generally lower than in others. Sales and net income in the 2nd quarter are affected to a lesser degree by special promotions and smaller Summer Dealers' Marts. The net income for the fourth quarter of 2000 was unfavorably impacted by a decrease in incentive rebates, a change in physical inventory counts from an annual to a cycle count an increase in employee benefit expense and a decrease in sales of $3,518,000,.
Total gross margin for 2000 decreased $2,750,000 or 10.2% from 1999 on a 7.9% net sales decrease. Total operating expenses decreased $237,000 or 1%. The decrease in gross margin was not fully offset by a decrease in expenses due in part to increases in benefit-related costs of $635,000 and a loss of approximately $300,000 related to start-up costs for new distribution channels for the Company. Operating income decreased $2,513,000 from 1999.
Total gross margin for 1999 increased $2,584,000 or 10.6% from 1998 on a 5.2% net sales increase. At the same time total operating expenses increased $2,367,000 or 10.4%. These expenses included approximately $814,000 of special expenses related to warehouse improvements and new channel start-up costs. Operating income increased $217,000 from 1998.
NET SALES
Net sales for 2000 decreased $13,152,000 or 7.9% compared to 1999. Net Sales for 1999 increased $8,190,000 or 5.2% compared to 1998.
The following table sets forth quarterly net sales and changes by quarter for the past three years.
INCREASE (DECREASE)
VS. SAME QUARTER
NET SALES IN PREVIOUS YEAR
-------------- -------------------
AMOUNT AMOUNT PERCENT
QUARTER (IN THOUSANDS) (IN THOUSANDS) CHANGE
------- -------------- ------------------- -------
1998 -- 1st......................................................... 40,472 2,630 6.9
2nd......................................................... 38,012 2,588 7.3
3rd......................................................... 38,729 (1,271) (3.2)
4th......................................................... 41,814 9,350 28.8
1999 -- 1st......................................................... 44,663 4,191 10.4
2nd......................................................... 42,704 4,692 12.3
3rd......................................................... 43,567 4,838 12.5
4th......................................................... 36,283 (5,531) (13.2)
2000 -- 1st......................................................... 43,755 (908) (2.0)
2nd......................................................... 38,642 (4,062) (9.6)
3rd......................................................... 38,903 (4,663) (10.7)
4th......................................................... 32,765 (3,518) (9.7)
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Fourth quarter results in 1998 reflect later than usual shipments of a Fall Mart.
OPERATIONS
The following table sets forth certain financial data as a percentage of net sales for the past three years:
YEARS ENDED DECEMBER 31,
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2000 1999 1998
----- ----- -----
Net sales................................................... 100.0% 100.0% 100.0%
===== ===== =====
Gross margin................................................ 15.7% 16.1% 15.3%
Warehouse and delivery expense.............................. 6.6 6.5 5.9
----- ----- -----
Gross profit................................................ 9.1 9.6 9.4
Selling and administrative expense.......................... 9.5 8.5 8.4
----- ----- -----
Operating income (loss)..................................... (0.4) 1.1 1.0
Interest expense, net....................................... 1.1 .8 .8
----- ----- -----
Income (loss) before income tax (benefit)................... (1.5)% .3% .2%
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GROSS MARGIN
Gross margin percentage decreased to 15.7% for 2000 from 16.1% for 1999, due
to devaluation in commodities and decrease in vendor incentives. Also, in the
third and fourth quarters, the Company became more promotional in an
Total gross margin dollars in the 1st and 3rd quarters are normally higher than in other quarters, although gross margin percentages for the first and third quarters are typically lower than in other quarters. This is because of increased sales generated at Dealers' Marts typically held during the 1st and 3rd quarters that include a higher proportion of factory direct shipments at lower gross margins. In 2000 and 1999, there were three Dealers Marts. Most of the sales from the Dealers' Marts in both 2000 and 1999 were shipped in the first, second and third quarters. The gross margin percentage for the fourth quarter of 2000 was unfavorably impacted by a decrease in incentive rebates and a change in physical inventory counts from an annual count to a cycle count resulting in a lower fourth quarter positive adjustment.
The following table sets forth-gross margin and gross margin percentages and year-to-year changes by quarter for the last three years.
INCREASE (DECREASE)
VS. SAME QUARTER
GROSS MARGIN IN PREVIOUS YEAR
------------------------------ ------------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
QUARTER (IN THOUSANDS) OF SALES (IN THOUSANDS) POINTS
------- -------------- ---------- -------------- ----------
1998 -- 1st....................................... $6,066 15.0% $ 555 0.4%
2nd....................................... 6,037 15.9 643 0.7
3rd....................................... 5,960 15.4 117 0.8
4th....................................... 6,260 15.0 906 (1.5)
1999 -- 1st....................................... 6,456 14.5 390 (0.5)
2nd....................................... 6,826 16.0 789 0.1
3rd....................................... 6,932 15.9 972 0.5
4th....................................... 6,693 18.4 433 3.4
2000 -- 1st....................................... 6,916 15.8 460 1.3
2nd....................................... 6,506 16.8 (320) 0.8
3rd....................................... 6,101 15.7 (831) (0.2)
4th....................................... 4,634 14.1 (2,059) (4.3)
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WAREHOUSE AND DELIVERY EXPENSE
Warehouse and delivery expense decreased $690,000 or 6.4% during 2000 due to the elimination of unprofitable accounts and related expenses, as well as the maturing of the stocking and shipping system in the warehouse.
During 1999, warehouse and delivery expense increased $1,448,000 or 15.4%. The Company spent approximately $221,000 on systems and equipment to integrate a radio frequency for the picking, stock and shipping system in the warehouse. In addition to these costs, further costs were incurred as the Company's workforce learned how to use the new system. These additional costs were attributable primarily to overtime.
The following table shows the trend of warehouse and delivery expense by quarter for the last three years.
INCREASE (DECREASE)
WAREHOUSE & DELIVERY EXPENSE VS. SAME QUARTER
-------------------------------- IN PREVIOUS YEAR
PERCENTAGE ------------------------------
AMOUNT OF WAREHOUSE AMOUNT PERCENTAGE
QUARTER (IN THOUSANDS) SHIPMENTS (IN THOUSANDS) POINTS
------- -------------- ------------ -------------- ----------
1998 -- 1st..................................... $2,254 9.0% $ (40) (0.4)%
2nd..................................... 2,220 8.7 (250) (1.6)
3rd..................................... 2,422 9.5 93 0.2
4th..................................... 2,478 9.3 85 (1.7)
1999 -- 1st..................................... 2,693 9.6 439 0.6
2nd..................................... 2,855 10.0 635 1.3
3rd..................................... 2,802 9.9 380 0.4
4th..................................... 2,472 9.9 (6) 0.6
2000 -- 1st..................................... 2,656 9.2 (37) (0.4)
2nd..................................... 2,546 9.6 (309) (0.4)
3rd..................................... 2,451 9.6 (351) (0.3)
4th..................................... 2,479 7.6 7 2.3
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Selling and administrative expense increased $453,000 or 3.2% in 2000 compared to the previous year. The expense for 2000 includes $300,000 relating primarily to new channel start-up costs.
Selling and administrative expense increased $919,000 or 6.9% in 1999 compared to the previous year. The expense for 1999 includes $630,000 related to new channel start-up costs and year 2000 compliance.
The following table shows the quarterly trend of selling and administrative expense in the last three years. Fourth quarter expense in 2000 was affected adversely by an increase in employee benefit expense.
INCREASE (DECREASE)
SELLING & ADMINISTRATIVE VS. SAME QUARTER
EXPENSE IN PREVIOUS YEAR
-------------------------------- ------------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
QUARTER (IN THOUSANDS) OF SALES (IN THOUSANDS) POINTS
------- -------------- ------------ -------------- ----------
1998 -- 1st..................................... $3,374 8.3% $(123) (0.9)%
2nd..................................... 3,367 8.9 (161) (0.1)
3rd..................................... 3,358 8.6 146 0.6
4th..................................... 3,216 7.7 (252) (3.0)
1999 -- 1st..................................... 3,580 8.0 206 (0.3)
2nd..................................... 3,620 8.5 253 (0.4)
3rd..................................... 3,821 8.8 463 0.2
4th..................................... 3,213 8.9 (3) 1.2
2000 -- 1st..................................... 3,772 8.6 192 0.6
2nd..................................... 3,812 9.9 192 1.4
3rd..................................... 3,309 8.5 (512) (0.3)
4th..................................... 3,794 11.6 581 2.7
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INTEREST EXPENSE
In 2000, net interest expense increased $243,000 or 17.3% over 1999 due to higher interest rates and additional borrowings to fund the net operating loss and to maximize cash discounts on purchases.
Interest expense increased $70,000 or 5.2% in 1999 compared to 1998 due to increased average borrowings to finance higher average trade receivables and inventories.
INCOME TAXES
For information concerning income tax provisions for 2000, 1999 and 1998, as well as information regarding differences between effective tax rates and statutory tax rates, see Note 5 of the Company's financial statements.
EARNINGS PER SHARE
In 2000, the Company purchased 138,000 shares of its common stock and issued 93,300 shares under the employee stock purchase plan. During 1999, the Company issued 57,400 shares of treasury stock under the Employee Stock Purchase Plan, as discussed in Note 9 of the Company's financial statements.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its working capital requirements with a line of credit under which it may borrow up to 85% of eligible receivables. In March 2000, the Company executed a working capital line increase and extension. This new line allows for a maximum borrowing of $24,000,000 and is based on 85% of eligible receivables and 50% of eligible inventory up to $6,000,000. This new line has a term of 3 years. The Company believes this credit facility is adequate to finance its current working capital needs. The Company is reviewing its long-term capital needs. Actual borrowings under lines of credit and the average interest rate were as follows during the past three years:
WEIGHTED
AVERAGE YEAR-END
AVERAGE YEAR-END MAXIMUM INTEREST INTEREST
BORROWINGS(1) BORROWINGS BORROWINGS RATE(2) RATE
------------- ---------- ---------- -------- --------
1998.................................................. 12,039,000 14,430,000 15,014,000 8.57 7.75
1999.................................................. 14,718,000 16,217,000 19,944,000 8.41 8.50
2000.................................................. 16,749,000 21,069,000 21,069,000 9.19 9.50
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Average borrowings in 1999 increased from 1998 as a result of higher average receivables and inventories.
Typically, borrowings are greatest in December, January and February as average inventories increase as the Company takes advantage of special year-end buying opportunities from its suppliers. Borrowings then decrease as the inventory returns to normal levels.
(1) The average amount outstanding during the period was computed by dividing the daily outstanding principal balances by the number of days of the year.
(2) The weighted average interest rate during the period was computed by dividing the actual interest expense including availability fees by the average borrowings.
Trade receivables decreased $801,000 or 3.5% and decreased $1,109,000 or 4.6% at December 31, 2000 and 1999, respectively, compared to the prior year. Fourth quarter sales in 2000 were lower than the same quarter in 1999 and consequently trade receivables were also lower.
The following are the number of inventory items carried and average inventory turns for the last three years.
NUMBER OF AVERAGE
ITEMS INVENTORY
CARRIED TURNS
--------- ---------
1998........................................................ 37,250 5.1
1999........................................................ 36,450 5.4
2000........................................................ 35,531 4.9
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At December 31, 2000, inventories decreased $687,000 or 3.8% compared to the prior year. This decrease in 2000 is at a rate less than the annual decrease in sales due to lower than average inventory turns. At December 31, 1999 inventories increased $602,000 or 3.4% compared to the prior year. This increase in 1999 is at a rate less than the annual increase in sales due to higher than average inventory turns. Accounts payable at December 31, 2000 decreased $2,480,000 or 12.8% from December 31, 1999 and correlates to the decrease in inventory and prepaid expenses at the end of the year. This is compared to a decrease of $226,000 or 1.2% from December 1999.
Capital expenditures in 2000 were $1,862,000. Depreciation and amortization for 2000 was $1,302,000.
INTEREST RATE RISK
The following discussion about the Company's interest rate risk includes "forward-looking statements" that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements.
The Company's principal credit agreement bears a floating interest rate based on the prime rate or at the Company's option 2 1/2% over LIBOR. The Company's lease with respect to industrial development bonds, issued to finance the Company's principal warehouse distribution facility, bears a floating interest rate based on 92% of the prime rate. Accordingly, the Company is subject to market risk associated with changes in interest rates. At December 31, 2000, $21,069,000 was outstanding under the credit agreement and $809,000 was outstanding under the industrial development lease agreement. For 2000, the average principal amount outstanding under the credit agreement was $16,749,069. Assuming the average amount outstanding under the credit agreement during 2001 is equal to such average amount outstanding during 2000 and assuming the Company makes its scheduled amortization payments on its industrial development lease of $809,000 in 2001, a 1% increase in the applicable interest rate during 2000 would result in additional interest expense of approximately $176,900, which would reduce cash flow and pre-tax earnings dollar for dollar.
At December 31, 2000 the prime rate was 9.5% and currently it is 8.5%.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this report (other than the financial statements and other statements of historical fact) are forward-looking statements. "Expects" and "Believes" indicate the presence of forward-looking statements. There can be no assurance that future developments will be in accordance with management's expectations or that the effect of future developments on the Company will be those anticipated by management.
- Competitive pressures on sales and pricing, including those from other wholesale distributors and those from retailers in competition with the Company's customers;
- The Company's ability to achieve projected cost savings from its warehouse modernization program and ongoing cost reduction efforts;
- Changes in cost of goods and the effect of differential terms and conditions available to larger competitors of the Company;
- Uncertainties associated with any acquisition the Company may seek to implement; and
- Changes in general economic conditions, including interest rates.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors
Moore-Handley, Inc.
We have audited the accompanying balance sheets of Moore-Handley, Inc. as of December 31, 2000 and 1999, and the related statements of operations, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. 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 referred to above present fairly, in all material respects, the financial position of Moore-Handley, Inc. at December 31, 2000 and 1999, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Birmingham, Alabama
February 16, 2001
|
2000 1999 1998
--------------------------------------------------------------------------------------------
Net sales....................................... $154,065,000 $167,217,000 $159,027,000
Cost of merchandise sold........................ 129,908,000 140,310,000 134,704,000
Warehouse and delivery expense.................. 10,132,000 10,822,000 9,374,000
------------ ------------ ------------
Cost of sales................................... 140,040,000 151,132,000 144,078,000
------------ ------------ ------------
Gross profit.................................... 14,025,000 16,085,000 14,949,000
Selling and administrative expense.............. 14,687,000 14,234,000 13,315,000
------------ ------------ ------------
Operating income (loss)......................... (662,000) 1,851,000 1,634,000
Interest expense, net........................... 1,650,000 1,407,000 1,337,000
------------ ------------ ------------
Income (loss) before provision for income tax
(benefit).................................... (2,312,000) 444,000 297,000
Income tax (benefit)............................ (759,000) 145,000 136,000
------------ ------------ ------------
Net income (loss)............................... $ (1,553,000) $ 299,000 $ 161,000
============ ============ ============
Per share -- basic and diluted data:
Net income (loss) per common share........... $ (.82) $ .16 $ .09
============ ============ ============
Weighted average common shares outstanding... 1,903,000 1,881,000 1,861,000
============ ============ ============
|
See accompanying notes.
2000 1999 1998
---------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income (loss)...................................... $(1,553,000) $ 299,000 $ 161,000
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization..................... 1,302,000 1,226,000 1,220,000
Provision for doubtful accounts................... 300,000 300,000 280,000
Gain on sale of equipment......................... -- -- (173,000)
Deferred income taxes............................. (565,000) 126,000 (104,000)
Change in assets and liabilities:
Trade and other receivables.................. 879,000 281,000 (2,240,000)
Merchandise inventory........................ 687,000 (602,000) (672,000)
Prepaid expenses............................. 227,000 (154,000) (159,000)
Prepaid pension cost......................... 93,000 45,000 (191,000)
Loan to Officers............................. -- (60,000) --
Accounts payable and accrued expenses........ (2,827,000) (715,000) 1,851,000
Refundable or accrued income taxes........... (223,000) -- 632,000
----------- ----------- -----------
Total adjustments............................ (127,000) 447,000 444,000
----------- ----------- -----------
Net cash provided by (used in) operating
activities................................. (1,680,000) 746,000 605,000
Cash flows from investing activities:
Capital expenditures................................... (1,862,000) (1,462,000) (1,066,000)
Proceeds from sale of equipment........................ -- -- 297,000
----------- ----------- -----------
Net cash used in investing activities............. (1,862,000) (1,462,000) (769,000)
Cash flows from financing activities:
Net borrowings (repayments) under bank loans........... 4,852,000 1,787,000 --
Principal payments under long-term debt................ (1,247,000) (1,269,000) (1,214,000)
Additional long-term borrowings........................ -- -- 345,000
Sale (purchase) of treasury stock...................... (71,000) 122,000 --
----------- ----------- -----------
Net cash provided by (used in) financing
activities...................................... 3,534,000 640,000 (869,000)
----------- ----------- -----------
Net decrease in cash and cash equivalents......... (8,000) (76,000) (1,033,000)
----------- ----------- -----------
Cash and cash equivalents at beginning of year.............. 46,000 122,000 1,155,000
----------- ----------- -----------
Cash and cash equivalents at end of year.................... $ 38,000 $ 46,000 $ 122,000
=========== =========== ===========
|
2000 1999 1998
---- ---- ----
Cash paid (refunded) during the year for:
Interest............................................... $ 1,797,000 $ 1,636,000 $ 1,352,000
Income taxes........................................... $ 26,387 $ 250,000 $ (605,000)
|
See accompanying notes.
ASSETS 2000 1999
------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents............................ $ 38,000 $ 46,000
Trade receivables, net of allowance for doubtful
accounts of $1,079,000 in 2000 and $1,122,000 in
1999................................................ 22,318,000 23,119,000
Other receivables.................................... 3,283,000 3,661,000
Merchandise inventory................................ 17,622,000 18,309,000
Prepaid expenses..................................... 312,000 539,000
Refundable income taxes.............................. 223,000 --
Deferred income taxes................................ 615,000 455,000
----------- ------------
Total current assets........................... 44,411,000 46,129,000
Prepaid pension cost....................................... 1,008,000 1,101,000
Property and equipment:
Land................................................. 718,000 718,000
Buildings............................................ 9,676,000 9,637,000
Equipment............................................ 8,144,000 10,609,000
Less accumulated depreciation........................ (9,726,000) (12,716,000)
----------- ------------
Net property and equipment........................... 8,812,000 8,248,000
Deferred charges, net of accumulated amortization of
$82,000 and $90,000 in 2000 and 1999, respectively...... 8,000 12,000
----------- ------------
Total assets............................................... $54,239,000 $ 55,490,000
=========== ============
|
See accompanying notes.
LIABILITIES AND STOCKHOLDERS' EQUITY 2000 1999
----------------------------------------------------------------------------------------
Current liabilities:
Accounts payable......................................... $16,927,000 $19,407,000
Accrued payroll.......................................... 464,000 451,000
Other accrued liabilities................................ 1,229,000 1,589,000
Long-term debt due within one year....................... 1,158,000 1,254,000
----------- -----------
Total current liabilities....................... 19,778,000 22,701,000
Long-term debt, less amount due within one year............. 21,664,000 17,963,000
Deferred income taxes....................................... 671,000 1,076,000
Commitments (Note 4)........................................ -- --
Stockholders equity:
Common stock, $.10 par value: 10,000,000 shares
authorized, 2,510,040 shares issued.................... 251,000 251,000
Common stock subscribed, 112,000 shares subscribed....... 11,000 11,000
Capital in excess of par value........................... 13,166,000 13,166,000
Retained earnings........................................ 1,355,000 3,096,000
Less:
Treasury stock, at cost, 691,397 shares and 598,097
shares in 2000 and 1999, respectively............ (2,363,000) (2,480,000)
Common stock subscription receivable............... (294,000) (294,000)
----------- -----------
Total stockholders' equity.................................. 12,126,000 13,750,000
----------- -----------
Total liabilities and stockholders' equity......... $54,239,000 $55,490,000
=========== ===========
|
See accompanying notes.
COMMON STOCK COMMON STOCK SUBSCRIBED
-------------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997........................ 2,510,040 $251,000 -- $ --
Purchase of shares for treasury..................... -- -- -- --
Net income (loss)................................... -- -- 112,000 11,000
--------- -------- ------- -------
Balance at December 31, 1998........................ 2,510,040 251,000 112,000 11,000
Net income.......................................... -- -- -- --
Common stock subscribed............................. -- -- -- --
--------- -------- ------- -------
Balance at December 31, 1999........................ 2,510,040 251,000 112,000 11,000
Net Income (loss)................................... -- -- -- --
Net (sale) Purchases of treasury stock.............. -- -- -- --
--------- -------- ------- -------
Balance at December 31, 2000........................ 2,510,040 $251,000 112,000 $11,000
========= ======== ======= =======
|
See accompanying notes.
CAPITAL IN TREASURY SHARES COMMON STOCK TOTAL
EXCESS OF RETAINED ----------------------- SUBSCRIPTIONS STOCKHOLDERS'
PAR VALUE EARNINGS SHARES AMOUNT RECEIVABLE EQUITY
---------------------------------------------------------------------------------------
$12,883,000 $ 2,665,000 655,497 $(2,631,000) $ -- $13,168,000
-- 161,000 -- -- -- 161,000
283,000 -- -- -- (294,000) --
----------- ----------- -------- ----------- --------- -----------
13,166,000 2,826,000 655,497 (2,631,000) (294,000) 13,329,000
-- 299,000 -- -- -- 299,000
-- (29,000) (57,400) 151,000 -- 122,000
----------- ----------- -------- ----------- --------- -----------
13,166,000.. 3,096,000 598,097 (2,480,000) (294,000) 13,750,000
-- (1,553,000) -- -- (1,553,000)
-- (188,000) 93,300 117,000 -- (71,000)
----------- ----------- -------- ----------- --------- -----------
$13,166,000 $ 1,355,000 691,397 $(2,363,000) $(294,000) $12,126,000
=========== =========== ======== =========== ========= ===========
|
See accompanying notes.
MOORE-HANDLEY, INC.
NOTES TO FINANCIAL STATEMENTS
1. Description of Business and Significant Accounting Policies
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 services customers throughout the Southeast and includes retail home centers, hardware stores, building materials dealers, paint stores, combination stores, a limited number of mass merchandisers, businesses and institutions.
The Company considers all highly liquid securities with maturity at the time of purchase of three months or less to be cash equivalents.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
The Company is a wholesaler of hardware and building material products and as such grants credit to its customers, most of whom are independent retailers located in the Southeast. The Company performs periodic credit evaluations of its customers' financial condition and obtains personal guarantees and/or security interests where it deems necessary.
As of December 31, 2000, the Company employed 410 persons of whom 192 are subject to a collective bargaining agreement expiring in December 2001.
Merchandise inventory is stated at the lower of weighted average cost or market.
Property and equipment is stated at cost and depreciation is computed using the straight-line method over estimated useful lives as follows:
Buildings.............................. 25-31.5 years Equipment.............................. 3-10 years |
Deferred income taxes are provided for temporary differences between financial and income tax reporting, primarily related to depreciation, inventory valuation and certain accrued costs.
Deferred charges, consisting of financing costs, are amortized over the term of the indebtedness.
The Company accounts for its stock compensation arrangements under the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and intends to continue to do so.
Basic net income or loss per share is computed using the weighted average number of common shares outstanding. Diluted net income or loss per share is computed using the weighted average number of common shares outstanding plus the effect of dilutive employee stock options.
The Company recognizes revenues when goods are shipped and recognizes expenses when incurred. Any shared costs with its suppliers such as advertising and promotional items are offset against the specific expense.
In 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, delaying the effective date in 1999 to years beginning after June 15, 2000. FASB Statement 133 will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either offset against the change in fair value of the hedged item through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The Company expects to adopt Statement 133 effective after
December 31, 2000, and believes that this statement will not have a significant impact on the Company's financial statements.
2. Loans to Officers
In 1999, the Company loaned an officer $60,000. This loan bears interest at the average of the prime lending rate during the previous year, and the officer is required to make scheduled principal and interest payments each April 1 over the term of the loan. This note is due and payable in full in April 2004. The principal balance outstanding as of December 31, 2000 was $57,481.
3. Long-Term Debt
Long-term debt at December 31, 2000 and 1999 includes industrial development bonds, obligations under capital leases financing transportation equipment, a term loan and a revolving line of credit all of which approximates fair value.
The Company is a party to lease agreements with an industrial development board, which are being accounted for as asset purchases. Under the agreements, industrial development bonds were issued and the proceeds used to purchase land of $534,000 and building and equipment of $8,881,000. The Company has an unconditional obligation to pay the principal and interest at 92% of the prime rate on the bonds and has options to purchase the property for a nominal cost at the expiration of the lease. The outstanding balance of these bonds as of December 31, 2000 and 1999 was $809,000 and $1,637,000, respectively. At December 31, 2000 and 1999, the prime rate was 9.5% and 8.5%, respectively.
The Company has financed the purchase of certain transportation and computer equipment with leases. The leases, which include interest, are being accounted for as capital leases. The outstanding balance of these capital leases at December 31, 2000 and 1999 were $196,000 and $63,000, respectively. Annual installments of principal on these capital leases decrease from approximately $133,000 in 2000 to $63,000 in 2001. The amortization expense relating to these leases is combined with depreciation expense.
All existing capital leases will be paid in full during 2001.
The assets purchased under capital leases include:
2000 1999
----------- -----------
Land, building and
equipment................. $10,052,000 $10,052,000
Less accumulated
amortization.............. (5,863,000) (5,557,000)
----------- -----------
Net land, building and
equipment.............. $ 4,189,000 $ 4,495,000
=========== ===========
|
The Company has financed a $2,000,000 warehouse modernization program with a term loan payable in equal monthly principal payments through January 2004, together with interest at 8.25%. The outstanding balance of this term loan as of December 31, 2000 and 1999, was $881,000 and $1,167,000 respectively.
In March 2000, the Company executed an extension of a credit agreement, under which it may borrow up to 85% of eligible receivables up to a maximum of $24,000,000, of which $21,069,000 was outstanding at December 31, 2000. The borrowings bear interest at the prime interest rate or, at the Company's option, 2 1/2% over LIBOR, and are secured by the Company's trade receivables. The Company is charged a commitment fee of 1/4% on the unused portion of the line of credit. The new line is secured with 50% of eligible inventory up to $6,000,000. The new line becomes annually renewable in August 2002.
Maturity of long-term debt is as follows:
2001............................ $ 1,158,000 2002............................ 21,354,000 2003............................ 286,000 2004............................ 24,000 2005............................ -- |
Interest expense on long-term debt bank loans and capital lease obligations for the years ended December 31, 2000, 1999 and 1998 was $1,650,000, $1,555,000 and $1,419,000, respectively.
4. Commitments
Total future rental payments under non-cancelable operating leases that expire in 2005 are $3,225,000. Annual rentals for the remainder of the lease terms are as follows:
2001.............................. $ 953,000
2002.............................. 787,000
2003.............................. 497,000
2004.............................. 494,000
2005.............................. 494,000
----------
$3,225,000
==========
|
Rental expense was $1,082,000, $1,107,000 and $780,000 in 2000, 1999 and 1998, respectively.
5. Income Tax
The provision for income tax expense (benefit) consists of the following:
2000 1999 1998
--------- -------- --------
Current:
Federal............. $(194,000) $ 20,000 $240,000
State............... -- -- --
Deferred.............. (565,000) 125,000 (104,000)
--------- -------- --------
$(759,000) $145,000 $136,000
========= ======== ========
|
Net operating loss carryforward (NOLs) are available to offset future earnings
within the time periods specified by law. At December 30, 2000, the Company had
federal NOLs of approximately $1,164,000 expiring in 2020.
The deferred income tax assets and liabilities are reflected in the balance
sheets as follows:
2000 1999
---------- ----------
Deferred Tax Assets:
Accrued vacation....................... $ 109,000 $ 62,000
Allowance for doubtful accounts........ 398,000 417,000
Accrued Health Insurance Costs......... 52,000 --
NOL Carryforward -- federal............ 396,000 --
Reserve for write-down of excess
inventory............................ 160,000 71,000
---------- ----------
1,115,000 550,000
Deferred Tax Liabilities:
Depreciation........................... 747,000 739,000
Provision for pension expenses......... 372,000 337,000
Inventory costs capitalized for tax
purposes............................. 52,000 95,000
---------- ----------
1,171,000 1,171,000
---------- ----------
Net liability............................ $ 56,000 $ 621,000
========== ==========
|
The provision for income taxes (benefit) differs from the statutory federal income tax rate as a result of the following:
PERCENT OF PRE-TAX
INCOME
------------------
2000 1999 1998
---- ---- ----
Statutory U. S. income tax rate.............. (34)% 34% 34%
Increase in rates resulting from:
State income taxes -- net of federal
benefit.................................. -- -- --
Non-deductible meals and entertainment..... 1 11 8
Section 170 (e) (3) deduction................ -- (15) --
Other non-deductible items................... 3 4
--- --- --
Effective income tax rate.................... (33)% 33% 46%
=== === ==
|
6. Pension Plan
The Company has two trusteed, noncontributory, qualified defined benefit pension plans covering substantially all employees of the Company. Retirement benefits are provided based on employees' years of service and earnings. Contributions to the pension plans are based on the amount necessary to fund the net periodic pension cost. Contributions are limited to the amount that can be currently deducted for federal income tax purposes and are based on the amount necessary to fund the minimum level required by the Employee Retirement Income Security Act of 1974.
The Company's net periodic pension cost for the last three years included the following components:
2000 1999 1998
--------- --------- ---------
Service cost -- benefits earned
during the period.............. $ 336,000 $ 315,000 $ 290,000
Interest cost on projected
benefit obligation............. 462,000 469,000 432,000
Expected return on assets........ (507,000) (528,000) (457,000)
Net amortization and deferral.... 119,000 119,000 119,000
--------- --------- ---------
Net periodic pension cost........ $ 410,000 $ 375,000 $ 384,000
========= ========= =========
|
The following table sets forth benefit obligations, the assets and liabilities of the plans and the amount of the net prepaid pension cost recognized in the Company's balance sheets as of December 31, 2000 and 1999.
2000 1999
---------- ----------
Change in benefit obligation:
Benefit obligation at beginning of
year................................... $7,039,000 $6,796,000
Service costs............................ 336,000 315,000
Interest costs........................... 462,000 469,000
Actuarial loss........................... 111,000 --
Benefits paid............................ (651,000) (541,000)
---------- ----------
Benefit obligation at end of year........ $7,297,000 $7,039,000
========== ==========
Change in plan assets:
Fair value of plan assets at beginning of
year................................... $7,537,000 $7,405,000
Actual return on plan assets............. 457,000 333,000
Company contributions.................... 317,000 340,000
Benefits paid............................ (651,000) (541,000)
---------- ----------
Fair value of assets at end of year...... $7,660,000 $7,537,000
========== ==========
Funded status of plan.................... $ 363,000 $ 498,000
Unrecognized obligations at transition... 37,000 146,000
Unrecognized net actuarial loss.......... 534,000 372,000
Unrecognized prior service cost.......... 74,000 85,000
---------- ----------
Prepaid pension cost..................... $1,008,000 $1,101,000
========== ==========
|
The assumed rates used to measure the projected benefit obligations and the expected earnings on plan assets at December 31 for the last three years were:
Weighted average discount rate................. 7% Long-term rate of return on assets............. 7% Increase in future compensation levels......... 4% |
The Company has 401(k) savings plans covering substantially all employees. Contributions by the Company are discretionary and no contributions were made in 2000, 1999 or 1998.
7. Segment Reporting
The Company operates in one business segment. Revenues from products are as follows:
2000 1999 1998
------------ ------------ ------------
Electrical and plumbing
supplies.................. $ 34,819,000 $ 35,450,000 $ 35,622,000
Home center products
(including lawn and garden
equipment, paint and
accessories............... 33,278,000 37,457,000 34,986,000
Building supplies (including
aluminum windows and
doors, roofing products
and lumber)............... 35,743,000 41,135,000 40,711,000
General and shelf hardware
(including power and hand
tools, lock sets and wire
products)................. 50,225,000 53,175,000 47,708,000
------------ ------------ ------------
$154,065,000 $167,217,000 $159,027,000
============ ============ ============
|
8. Incentive Compensation Plan
On May 23, 1991, the stockholders approved the 1991 Incentive Compensation Plan pursuant to which a maximum aggregate of 460,000 shares of common stock may be issued to employees and directors until April 12, 2001.
The Company has elected to follow APB 25 and related interpretations in accounting for its employee stock options. Under APB 25, because the exercise price for the employees' stock options equal the market price of the underlying stock on the date of grant, no compensation expense is recognized. These options vest either in six months after the date of grant or in equal annual installments over five years.
Pro forma information regarding net income and earnings per share is required by FASB Statement 123, Accounting for Stock-Based Compensation ("Statement 123"), and has been determined as if the Company had accounted for its employee stock options under the fair value method of Statement 123. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 2000, 1999 and 1998; risk-free interest rate of 6.1%, 7% and 7%, respectively; dividend yield of 0%; volatility factor of the expected market price of the Company's common stock of .28, .31 and .33, respectively; a weighted-average expected life of the option of 10.0, 10.0 and 4.0 years; and a weighted average grant date fair value of options granted of $.69, $1.10 and $.95, respectively.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
2000 1999 1998
----------- -------- --------
Pro forma net Income (loss)...... $(1,617,000) $251,000 $101,000
=========== ======== ========
Pro forma net Income (loss) per
share -- basic and diluted..... $ (.85) $ .13 $ .05
=========== ======== ========
|
The effect of Statement 123 on pro forma net income or loss in 2000, 1999 and 1998 is not likely to be representative of the effects on pro forma net income or loss in future years.
As of December 31, 2000 the following options have been granted under this plan:
A. Options to officers for 80,000 shares at $3.75 per share (market value at date of grant) exercisable through April 2001 in four equal annual installments beginning April 12, 1992. Options for 40,000 shares were forfeited in 1997 and 30,000 shares have been exercised.
B. Options to Independent Directors for 12,000 shares at $5.00 per share (canceled in 1998); 4,000 shares at $4.75 per share; 4,000 shares at $4.875 per share; 4,000 at $3.50 per share; 4,000 at $3.375 per share; 4,000 at $2.438 per share and 4,000 at $1.875 per share (market value at date of grant) exercisable through October 2009.
C. Options to Officer-Directors for 110,000 shares at $5.36 per share (approximately 143% of market value at date of grant) exercisable, if at all, through April 2001 upon the first to occur of (i) the Company earning $.85 or more per share in any fiscal year during the term of the option; (ii) three months before the tenth anniversary of the date of grant of the option if the holder is still an employee; or (iii) the date of retirement of the holder if he is age 70 or older. Of these, 100,000 shares were canceled in 1998.
D. Options to an Officer for 100,000 shares at $5.50 per share (market value at date of grant) exercisable through June 2005, in five installments of 18,181 shares and one installment of 9,095 beginning in June 1997. These options were canceled in 1997.
E. Options to Officers and employees for 150,000 shares were granted in 1996 at $3.375 to $3.625 per share (market value at date of grant), of these, 75,000 have been canceled. The remaining options are exercisable through 2006 in five equal installments beginning in 1997. These options have a weighted average exercise price of approximately $3.48.
F. Options to Officers for 125,000 shares were granted in 1997 at $2.375 to $3.267 per share (market value at date of grant), of these, 50,000 have been
cancelled. The remaining options are exercisable through 2007 in five equal installments beginning in 1998. These options have a weighted average exercise price of approximately $3.267.
G. Options to Officers and employees for 40,000 shares were granted in 1998 at $1.875 to $2.532 per share (market value at date of grant), of these, 15,000 have been cancelled. The remaining options are exercisable through 2008 in five equal installments beginning in 1999. These options have a weighted average exercise price of $1.875.
9. Common Stock Subscriptions Receivable
During 1998, the stockholders approved the Employee Stock Purchase Plan (the "Plan"). The Plan is designed to encourage and facilitate stock ownership by employees by providing a continued opportunity to purchase Common Stock, generally through voluntary after-tax payroll deductions. The price per share of the Common Stock shall be 85% of the fair market value on the date of the grant of the option for the qualified stock purchases and shall not be less than 100% of the fair market value on the date of the grant of the option for the non-qualified stock options. During 2000, 93,300 shares were issued under this Plan, compared to 57,400 shares in 1999.
In connection with the Employee Stock Purchase Plan formed in 1998, certain individuals issued three-year promissory notes to the Company whereby the individuals are obligated to pay annual interest of 8.5% and a balloon principal payment no later than June 30, 2001. These notes are secured by related shares of common stock.
10. Earnings Per Share
Basic and diluted earnings per share were the same for 2000, 1999 and 1998.
The numerator for basic and diluted earnings per share includes net income
(loss) of ($1,553,000), $299,000 and $161,000 for 2000, 1999 and 1998,
respectively. The denominator for diluted earnings per share includes weighted
average common shares outstanding of 1,903,000, 1,883,000 and 1,863,000 for
2000, 1999 and 1998, respectively. The denominator for basic earnings per share
includes weighted average common shares outstanding of 1,903,000, 1,881,000 and
1,861,000 for 2000, 1999 and 1998, respectively.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
By: /s/ GARY SMITH
----------------------------------
Gary Smith
Chief Financial Officer
(Principal Accounting and
Financial Officer)
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March 30, 2001
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 and in the capacities and on the dates indicated.
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ WILLIAM RILEY Chairman of the Board, Director and Chief March 30, 2001
----------------------------------------------------- Executive Officer
William Riley
/s/ PIERCE E. MARKS, JR. Director March 30, 2001
-----------------------------------------------------
Pierce E. Marks, Jr.
/s/ MICHAEL J. GAINES President and Chief Operating Officer March 30, 2001
-----------------------------------------------------
Michael J. Gaines
/s/ GARY SMITH Chief Financial Officer March 30, 2001
-----------------------------------------------------
Gary Smith
/s/ MICHAEL B. STUBBS Director March 30, 2001
-----------------------------------------------------
Michael B. Stubbs
/s/ MICHAEL PALMER Director March 30, 2001
-----------------------------------------------------
Michael Palmer
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EXHIBIT NO. DESCRIPTION
----------- -----------
3(a) Restated Certificate of Incorporation of Company, filed as
Exhibit 3(a) to the Company's Annual Report on Form 10-K
for the year ended December 31, 1987 and incorporated
herein by reference.
3(a)-1 Amendment to Restated Certificate of Incorporation dated May
7, 1987, filed as Exhibit 3(a)-1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1987
and incorporated herein by reference.
3(b) By-laws of the Company, filed as Exhibit 3(d) to the
Company's Registration Statement on Form S-1 (Reg. No.
33-3032) and incorporated herein by reference.
3(b)-1 Article VII of By-laws of the Company, as amended May 7,
1987 filed as Exhibit 3(b)-1 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1987
and incorporated herein by reference.
10.1 Lease Agreement, dated as of December 30, 1986, between the
Company and the Industrial Development Board of the Town
of Pelham (the "Board"), filed as Exhibit 10(cc) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1987 and incorporated herein by reference.
10.2 Guarantee Agreement, dated as of December 30, 1986, between
the Company and the First Alabama Bank of Birmingham, as
Trustee ("Trustee"), filed as Exhibit 10(dd) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1987 and incorporated herein by reference.
10.3 Mortgage and Trust Indenture, dated as of December 30, 1986,
between the Trustee and the Board, filed as Exhibit 10(ee)
to the Company's Annual Report on Form 10-K for the year
ended December 31, 1987 and incorporated herein by
reference.
10.4 The Moore-Handley, Incorporated Salaried Pension Plan,
effective January 1, 1985, as amended, filed as Exhibit
10(n) to the Company's Registration Statement on Form S-1
(Reg. No. 33-3032) and incorporated herein by reference.
10.5 Amendment No. 4 to The Moore-Handley Incorporated Salaried
Pension Plan, dated February 10, 1992 but effective
January 1, 1987, filed as Exhibit 10(n)-1 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1991 and incorporated herein by reference.
10.6 Amendment No. 5 to The Moore-Handley Incorporated Salaried
Pension Plan, dated February 10, 1992 but effective
January 1, 1988, filed as Exhibit 10(n)-2 to the Company's
Annual Report on Form 10-K for the year ended December 31,
1991 and incorporated herein by reference.
10.7 Amended and Restated Moore-Handley, Inc. Salaried Pension
Plan, dated February 10, 1992 but effective January 1,
1989, filed as Exhibit 10(n)-3 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1991
and incorporated herein by reference.
10.8 Amendment No. 6 to The Moore-Handley Incorporated Salaried
Pension Plan, dated February 10, 1992, filed as Exhibit
10(n)-4 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1991 and incorporated herein
by reference.
10.9 Amendment No. 2 to The Moore-Handley Incorporated Salaried
Pension Plan, dated December 29, 1994, filed as Exhibit
10(n)-5 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994 and incorporated herein
by reference.
10.10 The Moore-Handley Salaried Employees' Savings Plan and
Trust, effective January 1, 1985, as amended, filed as
Exhibit 10(p) to the Company's Registration Statement on
Form S-1 (Reg. No. 33-3032) and incorporated herein by
reference.
10.11 Amended and restated The Moore-Handley Salaried Employees'
Savings Plan and Trust dated February 4, 1994 but
effective January 1, 1989, filed as Exhibit 10(p)-1 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference.
10.12 The Moore-Handley Return-on-Investment Bonus Program, dated
February 23, 1983, filed as Exhibit 10(r) to the Company's
Registration Statement on Form S-1 (Reg. No. 33-3032) and
incorporated herein by reference.
10.13 Form of Stock Subscription Agreement, dated as of January
29, 1986, between the Company and certain managers of the
Company, filed as Exhibit 10(aa) to the Company's
Registration Statement on Form S-1 (Reg. No. 33-3032) and
incorporated herein by reference.
10.14 1991 Incentive Compensation Plan, filed as Exhibit A to the
Company's Proxy Statement dated April 30, 1991 and
incorporated herein by reference.
10.15 The Moore-Handley, Inc. Employees' 401(k) Profit Sharing
Prototype Non-Standardized Adoption Agreement effective
July 1, 1993, filed as Exhibit 10(gg) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1993 and incorporated herein by reference.
10.16 Financing Agreement, dated August 7, 1997, between the
Company and The CIT Group/Business Credit, Inc. filed as
Exhibit 10(ii) to the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997 and incorporated
herein by reference.
10.17 The Moore-Handley, Inc. Employee Stock Purchase Plan filed
as Exhibit 10 to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1999, and
incorporated herein by reference.
10.18 Amendment dated September 24, 1999 to Financing Agreement,
dated August 7, 1997, between the Company and The CIT
Group/Business Credit, Inc. filed as Exhibit 10(a) to the
Company's Quarterly Report on Form 10Q for the quarter
ended September 30, 1999 and incorporated herein by
reference.
21 List of Subsidiaries is incorporated herein by reference to
Exhibit 9 to the Company's Annual Report on Form 10-K for
the year ended December 31, 1997.
23 Consent of Ernst & Young LLP, Independent Auditors.
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We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-59611) pertaining to the Moore-Handley, Inc. Employee Stock Purchase Plan of our report dated February 16, 2001, with respect to the financial statements of Moore-Handley, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 2000.
/s/ Ernst & Young LLP
Birmingham, Alabama
March 26, 2001
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