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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)
(205) 663-8011
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(Registrant's telephone number, including area code)
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Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Common stock, $.10 par value 1,854,543 shares
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Class Outstanding at May 10, 1999
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Item No. Page No.
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PART I. FINANCIAL INFORMATION - UNAUDITED
1. Balance Sheets -
March 31, 1999 and 1998 and December 31, 1998.................................................. 3
Statements of Operations -
Three Months Ended March 31, 1999 and 1998..................................................... 4
Statements of Cash Flows -
Three Months Ended March 31, 1999 and 1998..................................................... 5
Notes to Financial Statements......................................................................... 6
2. Management's Discussion and Analysis
of Financial Condition and Results of Operations............................................... 7-11
3. Quantitative and Qualitative Disclosures About Market Risk............................................. 10
PART II. OTHER INFORMATION
6. Exhibits and Reports on Form 8-K....................................................................... 11
Signatures............................................................................................ 12
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MARCH 31, DECEMBER 31,
-------------------------------- -------------
1999 1998 1998
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(unaudited) (unaudited) (Note 1)
(restated)
(Note 4)
ASSETS:
Current assets:
Cash and cash equivalents............................. $ 309,000 $ 866,000 $ 122,000
Trade receivables, net................................ 30,599,000 29,626,000 24,228,000
Other receivables..................................... 3,549,000 2,580,000 3,073,000
Merchandise inventory................................. 16,242,000 16,502,000 17,707,000
Prepaid expenses...................................... 701,000 444,000 385,000
Refundable income tax................................. - 632,000 -
Deferred income taxes................................. 590,000 551,000 590,000
----------- ------------ -----------
Total current assets............................. 51,990,000 51,201,000 46,105,000
Prepaid pension cost..................................... 1,080,000 965,000 1,146,000
Property and equipment................................... 19,770,000 19,716,000 19,502,000
Less accumulated depreciation......................... (11,798,000) (11,662,000) (11,496,000)
----------- ------------ -----------
Net property and equipment....................... 7,972,000 8,054,000 8,006,000
Deferred charges, net.................................... 16,000 27,000 18,000
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$61,058,000 $ 60,247,000 $55,275,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $25,549,000 $25,542,000 $19,633,000
Accrued payroll....................................... 606,000 453,000 535,000
Other accrued liabilities............................. 2,232,000 2,030,000 1,994,000
Long-term debt due in one year........................ 1,243,000 1,160,000 1,246,000
----------- ----------- -----------
Total current liabilities........................ 29,630,000 29,185,000 23,408,000
Long-term debt........................................... 17,099,000 16,695,000 17,453,000
Deferred income taxes.................................... 1,085,000 1,150,000 1,085,000
Stockholders' equity:
Common stock, $.10 par value;
10,000,000 shares authorized,
2,510,040 shares issued.......................... 251,000 251,000 251,000
Other stockholders' equity............................ 12,993,000 12,966,000 13,078,000
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Total stockholders' equity....................... 13,244,000 13,217,000 13,329,000
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$61,058,000 $60,247,000 $55,275,000
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See accompanying notes.
THREE MONTHS
ENDED MARCH 31,
1999 1998
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(restated)
(Note 4)
Net sales ................................................. $44,663,000 $40,472,000
Cost of merchandise sold .................................. 38,207,000 34,406,000
Warehouse and delivery expense ............................ 2,693,000 2,254,000
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Cost of sales ............................................. 40,900,000 36,660,000
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Gross profit .............................................. 3,763,000 3,812,000
Selling and administrative expense ........................ 3,580,000 3,374,000
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Operating income .......................................... 183,000 438,000
Interest expense, net ..................................... 318,000 365,000
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Income (loss) before provision for income tax (benefit) ... (135,000) 73,000
Income tax (benefit)....................................... (51,000) 24,000
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Net income (loss).......................................... $ (84,000) $ 49,000
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Net income (loss) per common share - basic and diluted .... $ (.04) $ .03
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Weighted average common shares outstanding ................ 1,876,000 1,855,000
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See accompanying notes.
1999 1998
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(restated)
(Note 4)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ (84,000) $ 49,000
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization ..................... 304,000 326,000
Provision for doubtful accounts ................... 75,000 60,000
Change in assets and liabilities:
Trade and other receivables ................... (6,922,000) (6,925,000)
Merchandise inventory ......................... 1,465,000 533,000
Accounts payable and accrued expenses ......... 6,225,000 7,714,000
Other assets .................................. (250,000) (226,000)
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Total adjustments ............................. 792,000 1,482,000
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NET CASH PROVIDED BY OPERATING ACTIVITIES ... 813,000 1,531,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures ....................................... (269,000) (107,000)
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NET CASH USED IN INVESTING ACTIVITIES ............. (269,000) (107,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments of long-term debt ....................... (357,000) (1,713,000)
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NET CASH USED IN FINANCING ACTIVITIES ................. (357,000) (1,713,000)
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Net increase (decrease) in cash and cash equivalents .......... 187,000 (289,000)
Cash and cash equivalents at beginning of period .............. 122,000 1,155,000
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Cash and cash equivalents at end of period .................... $ 309,000 $ 866,000
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See accompanying notes.
1. BASIS OF PRESENTATION
The financial statements included herein have been prepared by Moore-Handley, Inc. (the "Company"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's Annual Report on Form 10-K filed with the Commission on March 31, 1999.
The financial information presented herein reflects all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary to a fair statement of the results of the interim periods. The results for interim periods are not necessarily indicative of results to be expected for the year.
2. INCOME PER COMMON SHARE
Basic net income per share is based on the weighted average number of common shares outstanding and net income. Diluted net income per share is based on the weighted average of common shares outstanding plus the effect of dilutive employee stock options and net income. Basic and diluted earnings per share were the same for the first quarter of 1999 and 1998.
3. REVENUE RECOGNITION
The Company recognizes revenues when goods are shipped.
4. RESTATEMENT OF FINANCIAL INFORMATION
The financial statements as of March 31, 1999, as filed in the Company's Form 10-Q on May 14, 1999, have been restated to correct a miscalculation of accrued payroll in March 1999. The effect of the correction has been to reduce net income by $105,000 and earnings per share by $0.05.
SUMMARY
Net sales for the quarter ended March 31, 1999 increased $4,191,000 or 10.4% from the same quarter in 1998. Net loss of 4 cents per share on 1,876,000 average shares outstanding compared to net income of 3 cents per share on 1,855,000 average shares as of March 31, 1998. Gross margin improvement of $390,000 in the first quarter of 1999 over the same period in 1998 was offset by disproportionately higher warehouse costs resulting in lower earnings per share on a quarter to quarter basis.
NET SALES
Warehouse shipments increased $2,866,000 or 11.4% and factory direct shipments increased $1,325,000 or 8.6% compared to the three months ended March 31, 1998. The Company has been making a concerted effort through coordinated sales planning and activities to develop new business utilizing warehouse shipments. The increase in factory direct shipments reflects record sales at a Dealers' Mart held during the quarter and the Company's expanded efforts to increase sales of lumber and building materials.
Gross margins on direct shipments are lower than gross margins on warehouse shipments; however, expenses related to direct shipments are also lower. While the trend toward factory direct shipments has resulted in decreased gross margins, the Company believes that direct shipments are an important part of its business as a full-service wholesale distributor.
The following table sets forth the major elements of net sales:
Three Months Ended March 31,
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1999 1998
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(dollars in thousands)
Net Sales:
Warehouse shipments.................................... $27,997 62.7% $25,131 62.1%
Factory direct shipments............................... 16,666 37.3 15,341 37.9
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Net Sales.......................................... $44,663 100.0% $40,472 100.0%
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OPERATIONS
The following table sets forth certain financial data as a percentage of net sales for the periods indicated:
Three Months Ended
March 31,
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1999 1998
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Net Sales ..................................................... 100.0% 100.0%
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Gross margin .................................................. 14.5 15.0
Warehouse and delivery expense ................................ 6.1 5.6
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Gross profit .................................................. 8.4 9.4
Selling and administrative expenses ........................... 8.0 8.3
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Operating income .............................................. .4 1.1
Interest expense, net ......................................... .7 .9
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Income (loss) before provision for income tax (benefit) ....... (0.3)% 0.2%
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The gross margin percentage for the quarter ended March 31, 1999 was 14.5%, down from 15.0% in the first quarter of 1998. The decrease is due to competitive pricing pressures and to slightly higher cost of merchandise charged to the Company by its suppliers. These factors were offset somewhat by the decrease in factory direct shipments as a percentage of total sales.
The following table sets forth the gross margin dollars, gross margin percentages and year-over-year changes for 1998 and the first quarter of 1999:
Increase (Decrease)
vs. Same Quarter
Gross Margin in Previous Year
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Amount Percentage Amount Percentage
Quarter (in thousands) of Sales (in thousands) Points
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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)
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WAREHOUSE AND DELIVERY EXPENSES
As a percentage of warehouse shipments, warehouse and delivery expenses increased to 9.6% in the first quarter of 1999 from 9.0% in the same quarter last year.
The following table sets forth the trend in warehouse and delivery expenses in 1998 and the first quarter of 1999:
Increase (Decrease)
Warehouse and Delivery vs. Same Quarter
Expenses in Previous Year
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Percentage
Amount of Warehouse Amount Percentage
Quarter (in thousands) Sales (in thousands) Points
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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
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Selling and administrative expenses for the first quarter of 1999 increased by $206,000 or 6.1% over the same period in 1998, however, as a percentage of sales, this category of expenses decreased by 0.3%.
The following table sets forth the quarterly trend in selling and administrative expenses in 1998 and the first quarter of 1999:
Increase (Decrease)
Selling and Administrative vs. Same Quarter
Expense in Previous Year
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Amount Percentage Amount Percentage
Quarter (in thousands) of Sales (in thousands) Points
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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)
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INTEREST EXPENSE
Interest expense decreased $46,000 or 12.6% during the first quarter of 1999 compared to the same period during 1998. Although net trade receivables increased during this period, this asset was financed primarily through extended terms from our suppliers. Inventory levels were reduced compared to the first quarter in 1998 and December 31, 1998, despite record sales at our Spring Dealers' Mart (See Liquidity and Capital Resources). Additionally, interest on the Company's working capital line of credit is charged at the prime rate which was 8.50% during the first quarter of 1998 and was 7.75% during the same period in 1999.
LIQUIDITY AND CAPITAL RESOURCES
From December 31, 1998 to March 31, 1999, the Company's net trade receivables increased by $6,371,000 or 26.3%. The increase was due to the higher level of sales in March 1999 (which includes shipment of orders taken at a Dealers' Mart held in February) and because of extended terms given to customers as a part of the sales promotion conducted in the first quarter of 1999.
Inventories decreased by $1,465,000 or 8.3% in the three months ended March 31, 1999. Additionally, inventories decreased $260,000 or 1.6% compared to March 31, 1998, as the Company continues its efforts to reduce inventory levels while maintaining its high "fill rate" (the percentage of items shipped within 48 hours of the receipt of an order) on customer orders.
Trade payables increased $5,916,000 or 30.1% from December 31, 1998, because of extended
At March 31, 1999, the Company had unused lines of credit of $5,673,000, which it believes are adequate to finance its working capital requirements.
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 and the Company's lease with respect to industrial development bonds issued to finance the Company's principal warehouse distribution facility both bear a floating interest rate based on, in the case of the credit agreement, the prime rate or at the Company's option 2 1/2% over LIBOR, and in the case of the industrial development lease, based on 92% of the prime rate. Accordingly, the Company is subject to market risk associated with changes in interest rates. At March 31, 1999, $14,327,000 was outstanding under the credit agreement and $2,278,000 was outstanding under the industrial development lease agreement. For 1998, the average principal amount outstanding under the credit agreement was $12,039,000. Assuming the average amount outstanding under the credit agreement during 1999 is equal to such average amount outstanding during 1998 and assuming the Company makes its scheduled amortization payments on its industrial development lease of $769,000 in 1999, a 1% increase in the applicable interest rate during 1999 would result in additional interest expense of approximately $60,000, which would reduce cash flow and pre-tax earnings dollar for dollar.
IMPACT OF YEAR 2000
The Company is in the process of modifying or replacing those portions of its software which are used in the ordinary course of the Company's business so that its computer, telephone and other systems will function properly with respect to dates of the year 2000 and thereafter. Based on its current assessment of which portions of the software and hardware must be modified, the Company estimates the cost of the year 2000 project will be approximately $200,000, of which $39,000 has been expended through the first quarter of 1999. The Company anticipates that the required modifications will be largely completed in a timely fashion between now and year end and does not anticipate any material interruption of its business stemming from the failure of its software and hardware to be year 2000 compliant. The Company is focusing its efforts on those systems which it believes are essential to its ability to conduct its operations in the ordinary course of business and anticipates that the modification, replacement and testing of those systems will be largely completed by the end of the third quarter of 1999.
The Company has made an assessment of the year 2000 compliance of most of its embedded microchips and other micro-processors in the non-information technology equipment that it uses in its operations. While it is impossible to be certain, the Company presently anticipates that it will be able to repair or replace non-year 2000 compliant equipment as necessary without material disruption to it operations.
Even though the Company is in the process of converting its computer
and other systems so that they will be year 2000 compliant, it is possible that
third parties with whom the Company does business will encounter problems with
their systems that may have an adverse impact on the Company. The Company has
not ascertained the year 2000 compliance of the approximate 1,400 suppliers
of the products it distributes. However, no supplier accounts for more than
4.5% of the Company's total purchases and substantially all products of the
type distributed by the Company are available from a number of manufacturers.
The Company has no contingency plan for addressing possible disruptions in
utility service to the Company stemming from year 2000 problems, such as power,
telephone and the like, but will rely on those suppliers to address their year
2000 issues in a timely manner so as to avoid a material disruption of service
to the Company.
The Company is unable to predict with any certainty the reasonable worst case scenario for disruption to its operations stemming from year 2000 issues. These could range from minor disruption of its operations requiring temporary work-around solutions that may involve additional overtime or other unanticipated costs, to the potential for lost sales and additional costs to repair or replace equipment if the Company encounters greater disruption than is currently anticipated.
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
Certain of the statements contained in this report (other than the financial statements and other
- 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;
- changes in general economic conditions, including interest rates; and
- impact of year 2000 on the Company's operations, including issues relating to the compliance or lack thereof by third-party suppliers.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 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, 27 -- Financial Data
Schedule (For SEC Purposes Only).
(b) There were no reports on Form 8-K filed by the Company during the three month period ended March 31,1999.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: June 10, 1999 /s/ Michael J. Gaines
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Michael J. Gaines
President and
Chief Operating Officer
/s/ Peter B. Covert
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Peter B. Covert
Chief Financial Officer
(Principal Accounting and
Financial Officer)
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EXHIBIT NO. DESCRIPTION
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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.
27 Financial Data Schedule (For SEC purposes only).
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF MOORE HANDLEY FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
ARTICLE 5
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MOORE HANDLEY FOR THE THREE MONTHS ENDED MARCH 31, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
RESTATED:
MULTIPLIER: 1,000
PERIOD TYPE
3 MOS
FISCAL YEAR END
DEC 31 1999
PERIOD START
JAN 01 1999
PERIOD END
MAR 31 1999
CASH
309
SECURITIES
0
RECEIVABLES
30,599
ALLOWANCES
0
INVENTORY
16,242
CURRENT ASSETS
51,990
PP&E
19,770
DEPRECIATION
(11,798)
TOTAL ASSETS
61,058
CURRENT LIABILITIES
29,630
BONDS
17,099
PREFERRED MANDATORY
0
PREFERRED
0
COMMON
251
OTHER SE
12,993
TOTAL LIABILITY AND EQUITY
61,058
SALES
44,663
TOTAL REVENUES
44,663
CGS
38,207
TOTAL COSTS
40,900
OTHER EXPENSES
3,580
LOSS PROVISION
0
INTEREST EXPENSE
318
INCOME PRETAX
(135)
INCOME TAX
(51)
INCOME CONTINUING
(84)
DISCONTINUED
0
EXTRAORDINARY
0
CHANGES
0
NET INCOME
(84)
EPS BASIC
(.04)
EPS DILUTED
(.04)