<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[XX] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-14324
MOORE-HANDLEY, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
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)
</TABLE>
Registrant's telephone number, including area code: (205) 663-8011
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 Par Value
Indicate by checkmark 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.
Yes X No ___
Indicate by checkmark 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 5, 1998, 1,854,543 shares of the Registrant's Common Stock were
outstanding, and the aggregate market value of such shares held by
non-affiliates was approximately $1,911,431. 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.
DOCUMENTS INCORPORATED BY REFERENCE
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.
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1
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MOORE-HANDLEY, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM NO. PAGE NO.
--------- --------
<C> <S> <C> <C>
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 1997)....................... None
Part II.
5. Market for Registrant's Common Equity and Related Stockholder
Matters........................................................ 7
6. Selected Financial Data.......................................... 8
7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.......................................... 10
7a. Quantitative and Qualitative Disclosures about Market Risk....... N/A
8. Financial Statements and Supplementary Data...................... 14
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........................................ 14
(b) Reports on Form 8-K......................................... None
(c) Exhibits Filed.............................................. 25
(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
</TABLE>
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.
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2
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BUSINESS
Moore-Handley, Inc. (the "Company") is a full-service, wholesale distributor
of plumbing and electrical supplies, power and hand tools, lawn and garden
equipment and other hardware and building materials products. The Company's
customers include retail home centers, hardware stores, building materials
dealers, combination stores and a limited number of mass merchandisers. These
customers are located mainly in the Southeast. The Company has approximately
1,200 active customers located throughout the Southeast which it services from a
430,000 square foot distribution center located in Pelham, Alabama, a suburb of
Birmingham, and 20,000 square foot redistribution centers located in
Winston-Salem, North Carolina and Ocala, Florida.
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DESCRIPTION OF BUSINESS
In connection with its wholesale distribution activities, the Company offers a
wide range of marketing, advertising and other support services which are
designed to assist customers in maintaining and improving their market
positions. These support services include computer-generated systems for the
control of inventory, pricing and gross margin, as well as advertising and store
installation and design services.
Home centers and hardware and building supply retailers have a continuing need
for a wide variety of items produced by a number of different manufacturers.
Purchasing from a distributor rather than directly from manufacturers allows
independent retailers to simplify the purchasing process and to place smaller
orders on an as-needed basis, thereby reducing their inventory carrying costs
and excess stock risks. Moreover, wholesale 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 towards 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 wholesale
business.
The Company believes that this consolidating trend is attributable to, among
other things, the inability of small distributors to provide a full range of
advertising, store layout and computer-generated pricing and inventory control
services offered by larger entities. The Company has benefitted from this
consolidating trend by recruiting experienced territory managers from
competitors who have been acquired, gone out of business or reduced market area,
thereby increasing the Company's customer base and sales.
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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:
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-------------------------------
CLASS OF MERCHANDISE 1997 1996 1995
- -------------------- ----- ----- -----
<S> <C> <C> <C>
Electrical and plumbing supplies............................ 22.2% 23.2% 23.1%
Home center products (including lawn and garden equipment,
paint and accessories, sporting goods and appliances)..... 17.7 18.3 18.3
Building supplies (including aluminum windows and doors,
roofing products and lumber).............................. 24.9 21.9 26.4
General and shelf hardware (including power and hand tools,
lock sets and wire products).............................. 35.2 36.6 32.2
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
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3
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MARKETING PROGRAMS AND CUSTOMER SERVICES
Sales Force. The Company's marketing program is implemented primarily by its
sales force of territory managers, each of whom is responsible for specific
customers within a particular geographic area. Territory managers generally call
on customers weekly to check inventories, take orders and perform various
in-store services. In addition, the territory managers act as liaison between
the customer and the Company to promote the Company's support services. Sales
assistants work with certain of the more senior territory managers. At December
31, 1997 there were 66 territory managers and assistants employed by the
Company.
At December 31, 1997, the Company also employed 8 district managers, each
responsible for supervising and monitoring the activities of territory managers
located in his assigned area. To supplement its primary sales force, the Company
maintains a telemarketing group which solicits and accepts orders from customers
between regular visits by territory managers.
Customer Services. An important component of the Company's marketing strategy
is the range of support services it offers to its customers. These services,
which the Company believes not only strengthen its relationships with existing
customers but also attract new customers, are designed to enable customers to
improve their marketing efforts and compete more effectively, thereby increasing
the Company's sales.
The Company's support services include advertising and promotional services,
store installation and design services, and computer-generated systems for
control of inventory, pricing and gross margin. The Company also provides a
store identification program, as well as additional promotional services, to
selected customers under the name "Hardware House", a registered trade name
owned and developed by the Company, and similar programs under the national
trade name of "Pro".
The Company has developed a personal computer-based system for use by its
customers which includes a color digitized catalog, electronic ordering and
order editing capabilities and, additional software programs to enable the
dealer to increase profitability.
Operations. The Company's ability to fill and deliver small quantity orders
for many different items enables customers to place orders on an as-needed
basis, and in turn, to reduce inventory investment, storage and control costs.
The Company's "fill-rate" -- the percentage of items shipped within 48 hours of
receipt of an order -- is a measure of the efficiency of its order processing,
inventory control and warehouse operations. In 1996 the Company's fill-rate,
which has generally exceeded 95%, fell as a result of disruption to operations
caused by changes made to the warehouse. By the end of 1997 the fill-rate had
returned to normal levels. See Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Deliveries are made on a regular basis primarily by the Company's fleet of
approximately 40 owned and leased trucks and vans. The Company's sales personnel
generally call on customers weekly, and deliveries of merchandise are normally
made within two or three business days after placement of an order.
Direct Shipment Program. As an additional service to its customers, the
Company maintains a direct shipment program under which customers order and
receive shipments of some products directly from suppliers but are invoiced
through the Company. 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 1997, approximately 35% of the
Company's net sales were attributable to purchases under the direct shipment
program.
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CUSTOMERS
The Company currently services approximately 1,200 customers, including retail
home centers, hardware stores, building materials dealers, combination stores
and a limited number of mass merchandisers. No customer or affiliated group of
customers accounted for more than 2% of the Company's 1997 net sales.
The Company's current customers are located primarily in Alabama, Florida,
Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina,
Tennessee and Virginia.
From time to time the Company receives extended terms from its suppliers which
it passes on to its customers.
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4
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PURCHASING, SUPPLIERS AND INVENTORY MANAGEMENT
The Company distributes approximately 36,450 items purchased from
approximately 1,400 manufacturers. The Company's ten largest vendors in 1997
accounted for approximately 21.1% of total Company purchases, but no single
manufacturer accounted for more than 3.6% of the Company's total purchases
during the year. The Company has no long-term supply or distribution agreements
with its vendors. Substantially all products of the type distributed by the
Company are available from a number of manufacturers.
Because inventory constitutes a substantial portion of the Company's total
assets, efficient control of inventory is an important management priority. The
Company's inventory turns (determined by dividing cost of stocked goods sold by
average monthly inventory) were 5.1 in both 1997 and 1996.
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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.
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EMPLOYEES
As of December 31, 1997, the Company employed 404 persons, of whom
approximately 175 are subject to a collective bargaining agreement expiring in
December 1998. The Company has not experienced any strikes or work stoppages and
considers its relationship with employees to be good.
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5
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EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company as of March 1, 1998, their ages and
their present positions with the Company and their principal occupations since
1992 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William Riley...................................... 66 Chairman of the Board and Chief Executive Officer
Pierce E. Marks, Jr................................ 69 Vice Chairman
Michael J. Gaines.................................. 55 President and Chief Operating Officer(1)
L. Ward Edwards.................................... 61 Vice President -- Finance, Treasurer and Secretary
Andrew W. Reid..................................... 50 Vice President -- Sales
Gregory S. Murphy.................................. 35 Vice President -- Operations(2)
</TABLE>
(1) Mr. Gaines was employed by Grossman's, a home center chain, from 1993 to
1996; he was employed by Triangle Building Centers, a home center chain,
from 1992 to 1993; prior to that he was employed by Mr. Goodbuys, a home
center chain, from 1990 to 1992.
(2) Mr. Murphy was employed by Decatur-Hopkins, a hardware distributor, from
1982 to 1997.
Officers are elected annually and serve at the discretion of the Board of
Directors.
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PROPERTIES
The Company's distribution facility and executive offices are located in a
single 430,000 square foot facility, with a 65,000 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 1997 paid an aggregate of $665,000 pursuant to
such lease agreement. The Company has options to purchase the property for a
nominal cost at the expiration of the lease. The Company believes that its
Pelham facility is adequate for its presently foreseeable needs. The Company
also leases 20,000 square foot warehouse redistribution facilities in
Winston-Salem, North Carolina and in Ocala, Florida for monthly rental of
approximately $4,700 and $5,300, respectively, and office space in Atlanta,
Georgia and New York, New York for which lease payments are approximately
$64,000 and $87,000 per annum, respectively.
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6
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COMMON STOCK INFORMATION
The Company's common stock trades on The Nasdaq Stock Market(SM) under the
symbol MHCO. The following table shows the high and low sales prices by quarter
in 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
--------------- ---------------
QUARTER ENDED HIGH LOW HIGH LOW
- ------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
March 31,................................................... 3 5/8 2 3/4 3 1/2 3 1/2
June 30,.................................................... 3 3/8 2 3/4 4 1/4 3 5/8
September 30,............................................... 3 2 3 5/8 3 5/8
December 31,................................................ 3 3/8 2 3/8 3 7/8 3 1/4
</TABLE>
At March 5, 1998 there were 72 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.
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7
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SELECTED FINANCIAL DATA
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<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales................................. $ 145,730 $ 145,785 $ 142,157 $ 136,236 $ 129,355
Cost of sales............................. 133,114 132,329 127,076 120,945 114,684
--------- --------- --------- --------- ---------
Gross profit.............................. 12,616 13,456 15,081 15,291 14,671
Selling and administrative expenses....... 13,705 14,140 13,094 12,360 12,861
--------- --------- --------- --------- ---------
Operating income (loss)................... (1,089) (684) 1,987 2,931 1,810
Interest expense, net..................... 991 908 659 595 539
--------- --------- --------- --------- ---------
Income (loss) before income tax
(benefit)............................... (2,080) (1,592) 1,328 2,336 1,271
Income tax (benefit)...................... (664) (520) 520 880 465
--------- --------- --------- --------- ---------
Net income (loss)......................... $ (1,416) $ (1,072) $ 808 $ 1,456 $ 806
========= ========= ========= ========= =========
Per share -- basic and diluted data:
Net income (loss).................... $ (.66) $ (.50) $ .37 $ .65 $ .36
========= ========= ========= ========= =========
Weighted average common shares
outstanding............................. 2,135,000 2,159,000 2,203,000 2,249,000 2,265,000
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Current assets............................ $ 44,940 $ 43,876 $ 39,597 $ 42,747 $ 35,921
Property and equipment -- net............. 8,273 8,771 7,421 7,216 7,420
Other assets.............................. 984 825 797 785 776
--------- --------- --------- --------- ---------
Total assets......................... $ 54,197 $ 53,472 $ 47,815 $ 50,748 $ 44,117
========= ========= ========= ========= =========
Current liabilities....................... $ 21,482 $ 31,860 $ 26,316 $ 29,318 $ 23,531
Long-term debt............................ 18,397 5,111 3,996 4,699 5,198
Deferred income taxes..................... 1,150 1,129 1,059 988 968
Stockholders' equity...................... 13,168 15,372 16,444 15,743 14,420
--------- --------- --------- --------- ---------
Total liabilities and stockholders'
equity............................. $ 54,197 $ 53,472 $ 47,815 $ 50,748 $ 44,117
========= ========= ========= ========= =========
</TABLE>
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QUARTERLY FINANCIAL DATA -- UNAUDITED
QUARTERLY FINANCIAL DATA -- UNAUDITED
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER
----------------- ----------------- ----------------- -----------------
1997 1996 1997 1996 1997 1996 1997 1996
---- ---- ------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $37,842 $38,680 $35,424 $35,843 $40,000 $39,280 $32,464 $31,982
Gross profit....................... 3,217 3,710 2,924 3,220 3,514 3,252 2,961 3,274
Net income (loss).................. $ (381) $ 108 $ (561) $ (429) $ 45 $ (372) $ (519) $ (379)
======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) per share --basic
and diluted...................... $ (.18) $ .05 $ (.26) $ (.20) $ .02 $ (.17) $ (.25) $ (.18)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Sales in the 1st and 3rd quarters are higher than in other quarters due to
additional sales generated by Dealers' Marts. The majority of the additional
sales are factory direct shipments which carry a lower gross margin than
warehouse shipments so the gross margin percentage for these quarters is lower
than in others. Sales and margin in the 2nd quarter are affected to a lesser
degree by a special promotion.
Although sales for the year 1997 were flat compared to 1996, sales for the
last two quarters show improvement over the prior year while sales for the first
two quarters were less than the same quarters of the prior year.
Because of expanded efforts to increase sales of lumber and building
materials, factory direct shipments increased as a percent of total sales in
1997. Because factory direct shipments carry a lower gross margin percentage,
the gross profit percentage in 1997 is generally lower than in 1996. In the 3rd
quarter gross profit and the gross profit percentage increased because of
improvements in warehouse and delivery expense.
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9
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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In 1996 operations were disrupted by major changes and improvements made to
the warehouse resulting in higher warehouse expense and a lower than normal
service level. In addition, selling and administrative expenses increased, due
in part to personnel changes. As a result, there was a net loss for the year of
$1,072,000 compared to net income of $808,000 in 1995.
Although net sales for 1997 were flat compared to 1996, there was a 6%
decrease in warehouse shipments, which was offset by an increase in factory
direct shipments, which carry a lower gross margin. The resulting decrease in
total gross margin was only partially offset by expense reductions and the net
loss for 1997 was $1,416,000.
There were important personnel changes in 1997. See Management Changes, Page
13.
NET SALES
Net sales in 1997 were flat compared to 1996. Warehouse shipments were down
5.6% which was offset by an increase in factory direct shipments. The increase
in factory direct shipments is due to 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 in the past
three years.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net Sales:
Warehouse shipments............................ $ 94,960 65.2% $100,582 69.0% $ 98,558 69.3%
Factory direct shipments....................... 50,770 34.8 45,203 31.0 43,599 30.7
-------- ----- -------- ----- -------- -----
Net Sales.............................. $145,730 100.0% $145,785 100.0% $142,157 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
OPERATIONS
The following table sets forth certain financial data as a percentage of net
sales for the past three years:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
===== ===== =====
Gross margin................................................ 15.2% 16.0% 16.1%
Warehouse and delivery expense.............................. 6.5 6.8 5.5
----- ----- -----
Gross profit................................................ 8.7 9.2 10.6
Selling and administrative expense.......................... 9.4 9.7 9.2
----- ----- -----
Operating income (loss) .................................... (.7) (.5) 1.4
Interest expense, net....................................... .7 .6 .5
----- ----- -----
Income (loss) before income tax (benefit)................... (1.4)% (1.1)% .9%
===== ===== =====
</TABLE>
GROSS MARGIN
The gross margin percentage in 1997 decreased to 15.2% from 16.0% in 1996 and
16.1% in 1995. The decrease was due to the increase in factory direct shipments
as a percent of total sales.
Although total gross margin dollars in the 1st and 3rd quarters are normally
higher than in other quarters, the 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 held during the 1st and 3rd quarters
which include a higher proportion
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of factory direct shipments at lower gross margins. In 1998 there will be
Dealers Marts in the first, second and third quarters.
The following table sets forth gross margin and gross margin percentages and
year-to-year changes by quarter for the last three years.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
VS. SAME QUARTER
GROSS MARGIN IN PREVIOUS YEAR
------------------------------ ------------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
QUARTER (IN THOUSANDS) OF SALES (IN THOUSANDS) POINTS
------- -------------- ---------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C>
1995 -- 1st....................................... $5,829 16.3% $ 14 (.8)%
2nd....................................... 5,924 16.2 12 (1.3)
3rd....................................... 5,807 15.5 (129) (.7)
4th....................................... 5,388 16.8 (158) (.6)
1996 -- 1st....................................... 5,913 15.3 84 (1.0)
2nd....................................... 5,815 16.2 (109) --
3rd....................................... 5,955 15.2 148 (.3)
4th....................................... 5,681 17.8 293 1.0
1997 -- 1st....................................... 5,511 14.6 (402) (.7)
2nd....................................... 5,394 15.2 (421) (1.0)
3rd....................................... 5,843 14.6 (112) (.6)
4th....................................... 5,354 16.5 (327) (1.3)
</TABLE>
WAREHOUSE AND DELIVERY EXPENSE
In 1997 warehouse and delivery expense decreased by $422,000, compared to
1996. However, as a percent of warehouse shipments this expense was up slightly.
In 1996 the Company expanded and modernized its warehouse. This project
disrupted warehouse operations and increased warehouse expense. As a result, in
1996 warehouse and delivery expense increased $2,041,000 compared to 1995 and as
a percent of warehouse shipments increased from 8.7% to 9.9%.
The Company is taking several steps to improve service level, increase
warehouse efficiency, and reduce error rates. These steps thus far have
significantly improved service level and somewhat improved error rates. Ongoing
efforts to reduce expense include resetting the warehouse. The resetting and
related expense began in the second quarter of 1997 and the Company presently
expects these efforts will be substantially completed by the end of the second
quarter of 1998.
The following table shows the trend of warehouse and delivery expense by
quarter for the last three years.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
WAREHOUSE & DELIVERY EXPENSE VS. SAME QUARTER
-------------------------------- IN PREVIOUS YEAR
PERCENTAGE ------------------------------
AMOUNT OF WAREHOUSE AMOUNT PERCENTAGE
QUARTER (IN THOUSANDS) SHIPMENTS (IN THOUSANDS) POINTS
------- -------------- ------------ -------------- ----------
<C> <C> <S> <C> <C> <C> <C>
1995 -- 1st............................... $1,982 8.0% $ 62 .1%
2nd............................... 2,019 8.0 28 (.1)
3rd............................... 2,035 8.1 41 .2
4th............................... 1,831 7.7 (182) (.7)
1996 -- 1st............................... 2,203 8.5 221 .5
2nd............................... 2,595 10.1 576 2.1
3rd............................... 2,703 10.3 668 2.2
4th............................... 2,407 10.5 576 2.8
1997 -- 1st............................... 2,294 9.4 91 .9
2nd............................... 2,470 10.3 (125) .2
3rd............................... 2,329 9.3 (374) (1.0)
4th............................... 2,393 11.0 (14) .5
</TABLE>
SELLING AND ADMINISTRATIVE EXPENSE
As a result of personnel and other expense reductions made during the first
half of the year, selling and administrative expense in 1997 decreased by
$435,000, or 3.1%, compared to 1996. This expense increased
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11
<PAGE> 12
$1,046,000, or 8.0%, in 1996 compared to 1995 due, in part, to personnel
changes, severance pay to terminated employees and moving expenses of new
employees.
The following table shows the quarterly trend of selling and administrative
expense in the last three years.
<TABLE>
<CAPTION>
INCREASE (DECREASE)
SELLING & ADMINISTRATIVE VS. SAME QUARTER
EXPENSE IN PREVIOUS YEAR
------------------------------ ------------------------------
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
QUARTER (IN THOUSANDS) OF SALES (IN THOUSANDS) POINTS
------- -------------- ---------- -------------- ----------
<C> <C> <S> <C> <C> <C> <C>
1995 -- 1st................................. $3,145 8.8% $ 115 (.1)%
2nd................................. 3,400 9.3 296 .1
3rd................................. 3,382 9.0 84 .0
4th................................. 3,167 9.9 239 .7
1996 -- 1st................................. 3,339 8.6 194 (.2)
2nd................................. 3,732 10.4 332 1.1
3rd................................. 3,593 9.1 211 .1
4th................................. 3,476 10.9 309 1.0
1997 -- 1st................................. 3,497 9.2 158 .6
2nd................................. 3,528 10.0 (204) (.4)
3rd................................. 3,212 8.0 (381) (1.1)
4th................................. 3,468 10.7 (8) (.2)
</TABLE>
INTEREST EXPENSE
In 1997 net interest expense increased $83,000 or 9.1% over 1996 due to
increased average borrowings to finance higher average trade receivables.
Interest expense in 1996 increased by $249,000, or 37.8%, over 1995 due to
increased borrowings to finance the warehouse improvements and higher average
inventories.
EARNINGS PER SHARE
In late November 1997 the Company purchased 300,000 shares of its common stock
for treasury. Because the purchase was late in the year the effect on weighted
average shares outstanding was small. Had the purchase not been made, the loss
per share -- basic and diluted, for the year would have been $.65 per share
compared to the $.66 per share reported. If the purchase had taken place at the
beginning of the year, the loss per share -- basic and diluted, would have been
$.76.
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 up to a maximum of
$15,000,000. The Company believes this credit facility is adequate to finance
its working capital needs. Actual borrowings under lines of credit and the
average interest rate were as follows during the past three years:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE YEAR-END
AVERAGE YEAR-END MAXIMUM INTEREST INTEREST
BORROWINGS(1) BORROWINGS BORROWINGS RATE(2) RATE
------------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
1995............................................... $3,301,000 $ 7,750,000 $ 8,500,000 8.92% 8.50%
1996............................................... 6,198,000 10,450,000 10,450,000 8.38 8.25
1997............................................... 7,231,000 14,389,000 14,389,000 8.63 8.50
</TABLE>
Average borrowings in 1996 increased over 1995 to finance higher average
inventories as well as the loss for the year. Average borrowings in 1997 were up
only slightly from 1996 as average inventory levels were lowered offsetting
borrowings required to finance the loss for the year and capital expenditures.
Borrowings at December 31, 1997 were $3,939,000 higher than at December 31, 1996
due to higher year-end trade receivables as well as the loss for the year,
capital expenditures, the purchase of treasury stock and principal payments on
other long-term debt.
- --------------------------------------------------------------------------------
12
<PAGE> 13
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 increased $1,257,000 or 5.7% and $728,000 or 3.4% at
December 31, 1997 and 1996, respectively, compared to the prior year mainly due
to increased sales with extended payment terms in the fourth quarters.
The following are the number of inventory items carried and average inventory
turns for the last three years.
<TABLE>
<CAPTION>
NUMBER OF AVERAGE
ITEMS INVENTORY
CARRIED TURNS
--------- ---------
<S> <C> <C>
1995........................................................ 36,600 5.0
1996........................................................ 36,600 5.1
1997........................................................ 36,450 5.1
</TABLE>
At December 31, 1997 inventories decreased $658,000 or 3.7% compared to the
prior year. In order to improve the "fill rate" (the percentage of items shipped
within 48 hours of the receipt of an order) on customer orders, which decreased
due to warehouse disruption, inventories were increased in the latter part of
1996. Accounts payable at December 31, 1997 decreased $294,000 or 1.6% from
December 31, 1996.
Capital expenditures in 1997 were $792,000. Depreciation and amortization for
1997 was $1,268,000.
MANAGEMENT CHANGES
In March 1997 Mr. E. H. White, the Company's President and Chief Executive
Officer, resigned. Mr. William Riley, Chairman, was elected to the additional
post of Chief Executive Officer and Mr. Michael J. Gaines was elected President
and Chief Operating Officer of the Company. Mr. Gaines previously served as Vice
President of Merchandising. Later in the year Mr. Edwin F. Plemons was appointed
to head the merchandising department. In November Mr. Gregory S. Murphy was
appointed Vice President of Operations. Mr. Murphy held a similar position with
another hardware wholesaler.
IMPACT OF YEAR 2000
Some of the Company's older computer programs were written using two digits
rather than four to define the applicable year. As a result, those computer
programs have time-sensitive software that recognize a date using "00" as the
year 1900 rather than the year 2000. This could cause a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company is in the process of assessing which portions of its software will
have to be modified or replaced so that its computer systems will function
properly with respect to dates in the year 2000 and thereafter. The total year
2000 project cost is not yet available. To date, the Company has not incurred
any material costs related to the development of a modification plan.
- --------------------------------------------------------------------------------
13
<PAGE> 14
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. Among the
factors that could cause actual results to differ materially from estimates
reflected in such forward-looking statements are the following:
- 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; and
- impact of year 2000 on the Company's information systems.
- --------------------------------------------------------------------------------
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, 1997 and 1996, 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, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Moore-Handley, Inc. at December
31, 1997 and 1996, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
/s/ Ernst & Young LLP
Birmingham, Alabama
February 20, 1998
- --------------------------------------------------------------------------------
14
<PAGE> 15
MOORE-HANDLEY, INC.
STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales........................................ $145,730,000 $145,785,000 $142,157,000
Cost of merchandise sold......................... 123,628,000 122,421,000 119,209,000
Warehouse and delivery expense................... 9,486,000 9,908,000 7,867,000
------------ ------------ ------------
Cost of sales.................................... 133,114,000 132,329,000 127,076,000
------------ ------------ ------------
Gross profit..................................... 12,616,000 13,456,000 15,081,000
Selling and administrative expense............... 13,705,000 14,140,000 13,094,000
------------ ------------ ------------
Operating income (loss).......................... (1,089,000) (684,000) 1,987,000
Interest expense, net............................ 991,000 908,000 659,000
------------ ------------ ------------
Income (loss) before provision for income tax
(benefit)..................................... (2,080,000) (1,592,000) 1,328,000
Income tax (benefit)............................. (664,000) (520,000) 520,000
------------ ------------ ------------
Net income (loss)................................ $ (1,416,000) $ (1,072,000) $ 808,000
============ ============ ============
Per share -- basic and diluted data:
Net income (loss) per common share............ $ (.66) $ (.50) $ .37
============ ============ ============
Weighted average common shares outstanding.... 2,135,000 2,159,000 2,203,000
============ ============ ============
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
15
<PAGE> 16
MOORE-HANDLEY, INC.
BALANCE SHEETS
- --------------------------------------------------------------------------------
December 31, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
<S> <C> <C>
- ----------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents............................. $ 1,155,000 $ 596,000
Trade receivables, net of allowance for doubtful
accounts of $1,100,000 in 1997 and 1996.............. 23,252,000 21,995,000
Other receivables..................................... 2,089,000 1,969,000
Merchandise inventory................................. 17,035,000 17,693,000
Prepaid expenses...................................... 226,000 243,000
Refundable income taxes............................... 632,000 870,000
Deferred income taxes................................. 551,000 510,000
----------- -----------
Total current assets............................ 44,940,000 43,876,000
Prepaid pension cost........................................ 955,000 789,000
Property and equipment:
Land.................................................. 718,000 718,000
Buildings............................................. 9,288,000 8,797,000
Equipment............................................. 9,603,000 9,504,000
Less accumulated depreciation......................... (11,336,000) (10,248,000)
----------- -----------
Net property and equipment............................ 8,273,000 8,771,000
Deferred charges, net of accumulated amortization of $71,000
and $64,000 in 1997 and 1996, respectively............... 29,000 36,000
----------- -----------
Total Assets................................................ $54,197,000 $53,472,000
=========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
16
<PAGE> 17
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Bank loans............................................ $ -- $10,450,000
Accounts payable...................................... 17,840,000 18,134,000
Accrued payroll....................................... 437,000 453,000
Other accrued liabilities............................. 2,034,000 1,690,000
Long-term debt due within one year.................... 1,171,000 1,133,000
----------- -----------
Total current liabilities....................... 21,482,000 31,860,000
Long-term debt, less amount due within one year............. 18,397,000 5,111,000
Deferred income taxes....................................... 1,150,000 1,129,000
Stockholders equity:
Common stock, $.10 par value: 10,000,000 shares
authorized, 2,510,040 shares issued.................. 251,000 251,000
Capital in excess of par value........................ 12,883,000 12,883,000
Retained earnings..................................... 2,665,000 4,081,000
Less:
Treasury stock at cost, 655,497 and 355,497 shares
in 1997 and 1996, respectively................... (2,631,000) (1,843,000)
----------- -----------
Total stockholders' equity......................... 13,168,000 15,372,000
----------- -----------
Total Liabilities and Stockholders' Equity.................. $54,197,000 $53,472,000
=========== ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
17
<PAGE> 18
MOORE-HANDLEY, INC.
STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------
SHARES AMOUNT
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at December 31, 1994................................ 2,510,040 $251,000
Purchase of shares for treasury............................. -- --
Net income.................................................. -- --
--------- --------
Balance at December 31, 1995................................ 2,510,040 251,000
Purchase of shares for treasury............................. -- --
Net loss.................................................... -- --
--------- --------
Balance at December 31, 1996................................ 2,510,040 251,000
Purchase of shares for treasury............................. -- --
Net loss.................................................... -- --
--------- --------
Balance at December 31, 1997................................ 2,510,040 $251,000
========= ========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
18
<PAGE> 19
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CAPITAL IN TREASURY STOCK TOTAL
EXCESS OF RETAINED ---------------------- LOANS TO STOCKHOLDERS'
PAR VALUE EARNINGS SHARES AMOUNT OFFICERS EQUITY
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$12,883,000 $4,345,000 300,497 $(1,587,000) $(149,000) $15,743,000
-- -- 45,000 (213,000) 106,000 (107,000)
-- 808,000 -- -- -- 808,000
----------- ---------- ------- ----------- --------- -----------
12,883,000 5,153,000 345,497 (1,800,000) (43,000) 16,444,000
-- -- 10,000 (43,000) 43,000 --
-- (1,072,000) -- -- -- (1,072,000)
----------- ---------- ------- ----------- --------- -----------
12,883,000 4,081,000 355,497 (1,843,000) -- 15,372,000
-- -- 300,000 (788,000) -- (788,000)
-- (1,416,000) -- -- -- (1,416,000)
----------- ---------- ------- ----------- --------- -----------
$12,883,000 $2,665,000 655,497 $(2,631,000) $ -- $13,168,000
=========== ========== ======= =========== ========= ===========
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
19
<PAGE> 20
MOORE-HANDLEY, INC.
STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................... $(1,416,000) $(1,072,000) $ 808,000
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization..................... 1,268,000 1,176,000 1,084,000
Provision for doubtful accounts................... 224,000 500,000 422,000
Gain on sale of equipment......................... (86,000) (10,000) (17,000)
Deferred income taxes............................. (20,000) 30,000 315,000
Change in assets and liabilities:
Trade and other receivables.................. (1,601,000) (1,356,000) (1,191,000)
Merchandise inventory........................ 658,000 (2,362,000) 3,382,000
Prepaid expenses............................. 17,000 (28,000) 28,000
Prepaid pension cost......................... (166,000) (54,000) (31,000)
Loan to officer.............................. -- 19,000 12,000
Accounts payable and accrued expenses........ 34,000 2,679,000 (2,253,000)
Refundable or accrued income taxes........... 238,000 (551,000) (443,000)
----------- ----------- -----------
Total adjustments............................ 566,000 43,000 1,308,000
----------- ----------- -----------
Net cash (used in) provided by operating
activities................................. (850,000) (1,029,000) 2,116,000
Cash flows from investing activities:
Capital expenditures................................... (792,000) (2,519,000) (1,299,000)
Proceeds from sale of equipment........................ 115,000 10,000 34,000
----------- ----------- -----------
Net cash used in investing activities............. (677,000) (2,509,000) (1,265,000)
Cash flows from financing activities:
Net borrowings (repayments) under bank loans........... (10,450,000) 2,700,000 (750,000)
Principal payments under long-term debt................ (1,065,000) (978,000) (682,000)
Additional long-term borrowings........................ 14,389,000 2,258,000 104,000
Purchase of treasury stock............................. (788,000) (43,000) (107,000)
----------- ----------- -----------
Net cash provided by (used in) financing
activities...................................... 2,086,000 3,937,000 (1,435,000)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents..................................... 559,000 399,000 (584,000)
Cash and cash equivalents at beginning of year.............. 596,000 197,000 781,000
----------- ----------- -----------
Cash and cash equivalents at end of year.................... $ 1,155,000 $ 596,000 $ 197,000
=========== =========== ===========
</TABLE>
Supplemental Disclosures of Cash Flow Information
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash paid (refunded) during the year for:
Interest............................................... $ 929,000 $ 867,000 $ 742,000
Income taxes........................................... (882,000) 29,000 647,000
</TABLE>
Supplemental Disclosures of Non-cash Financing Activities
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Purchase of treasury stock in exchange for loan to
officer................................................... $ -- $ -- $ 106,000
</TABLE>
See accompanying notes.
- --------------------------------------------------------------------------------
20
<PAGE> 21
- --------------------------------------------------------------------------------
MOORE-HANDLEY, INC.
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid securities with maturities at the time
of purchase of three months or less to be cash equivalents.
Basis of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles 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.
Certain Concentrations
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, 1997, the Company employed 404 persons, of whom
approximately 175 are subject to a collective bargaining agreement expiring in
December, 1998.
Inventory
Inventory is stated at the lower of weighted average cost or market.
Property and Equipment
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
Income Taxes
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
Deferred charges, consisting of financing costs, are amortized over the term
of the indebtedness.
Stock Option Accounting
The Company accounts for its stock compensation arrangements under the
provisions of APB 25, "Accounting for Stock Issued to Employees," and intends to
continue to do so.
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.
Revenue Recognition
The Company recognizes revenues when goods are shipped.
2. Loans to Officers
In 1996 the Company loaned an employee who has since left the Company $100,000
in connection with the purchase of a home and which loan became due upon the
sale of his former residence. This note which bore interest at 1% above the
prime lending rate was repaid in 1997.
The Company also has a demand note of $5,000 outstanding to an officer which
bears interest at the prime rate.
3. Long-Term Debt
Long-term debt at December 31, 1997 and 1996 includes industrial development
bonds and obligations under capital leases financing transportation equipment.
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
- --------------------------------------------------------------------------------
21
<PAGE> 22
- --------------------------------------------------------------------------------
unconditional obligation to pay the principal and interest at 92% of prime (8.5%
December 31, 1997) on the bonds and has options to purchase the property for a
nominal cost at the expiration of the lease.
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. Total capital leases outstanding at December 31, 1997 and
1996 were $3,441,000 and $4,244,000, respectively. Annual installments of
principal on all capital leases decrease from approximately $885,000 in 1998 to
$812,000 in 2001.
The Company has financed a $2,000,000 warehouse modernization program with a
term loan payable in equal monthly principal payments thru January, 2004
together with interest at 8.25%. The balance of this term loan outstanding as of
December 31, 1997 and 1996 was $1,738,000 and $2,000,000 respectively.
On August 7, 1997 the Company entered into a credit agreement under which it
may borrow up to 85% of eligible receivables up to a maximum of $15,000,000, of
which $14,389,000 was outstanding at December 31, 1997. 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 1/2% on the unused portion of the line of credit.
Unless extended this line of credit becomes due in August 1999. This credit
facility replaced the Company's lines of credit with banks totaling $10,000,000
($12,000,000 available at December 31, 1996 of which $10,450,000 was
outstanding as of December 31, 1996) and one of which was amended in the
second quarter of 1997 to avoid a violation of a debt covenant.
Maturities of long-term debt during the next five years are as follows:
<TABLE>
<S> <C>
1998........................... 1,171,000
1999........................... 15,551,000
2000........................... 1,153,000
2001........................... 1,098,000
2002........................... 286,000
Thereafter..................... 309,000
-----------
$19,568,000
===========
</TABLE>
Interest expense on long-term debt and bank loans for the years ended December
31, 1997, 1996 and 1995 was $929,000, $975,000, and $739,000 respectively.
4. Commitments
Total future rental payments under non-cancelable equipment operating leases
which expire in 2000 are $142,000. Annual rentals for the remainder of the lease
terms are as follows:
<TABLE>
<S> <C>
1998................................ $92,000
1999................................ 49,000
2000................................ 1,000
</TABLE>
Rental expense was $384,000, $394,000, and $442,000 in 1997, 1996 and 1995,
respectively.
5. Income Tax
The provision for income tax (benefit) consists of the following:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Current:
Federal...................... $(633,000) $(542,000) $199,000
State........................ (11,000) (8,000) 6,000
Deferred....................... (20,000) 30,000 315,000
--------- --------- --------
$(664,000) $(520,000) $520,000
========= ========= ========
</TABLE>
Deferred income tax expense (benefit) is related to the following items:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- --------
<S> <C> <C> <C>
Depreciation................... $ (3,000) $ 35,000 $ 54,000
Provision for pension
expenses..................... 24,000 35,000 17,000
Accrued health insurance and
vacation costs............... (58,000) 15,000 (1,000)
Inventory costs capitalized for
tax purposes................. 23,000 (28,000) 222,000
Provision for writedown of
excess inventory............. (6,000) (27,000) 23,000
--------- --------- --------
$ (20,000) $ 30,000 $315,000
========= ========= ========
</TABLE>
- --------------------------------------------------------------------------------
22
<PAGE> 23
- --------------------------------------------------------------------------------
The deferred income tax liabilities (assets) are reflected in the balance
sheets as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Current assets
Accrued health insurance and vacation
costs.................................. $ (151,000) $ (93,000)
Allowance for doubtful accounts.......... (409,000) (409,000)
Inventory costs capitalized for tax
purposes............................... 83,000 60,000
Reserve for write down of excess
inventory.............................. (74,000) (68,000)
---------- ---------
(551,000) (510,000)
Non-current liabilities
Depreciation............................. 815,000 818,000
Provision for pension expenses........... 335,000 311,000
---------- ---------
1,150,000 1,129,000
---------- ---------
Net liability.............................. $ 599,000 $ 619,000
========== =========
</TABLE>
The provision for income taxes (benefit) differs from the statutory federal
income tax rate as a result of the following:
<TABLE>
<CAPTION>
PERCENT OF PRE-TAX INCOME
---------------------------
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Statutory U. S. income tax rate........ (34)% (34)% 34%
Increase in rates resulting from:
State income taxes -- net of federal
benefit............................ -- -- 2
Non-deductible and other items....... 2 1 3
--- --- --
Effective income tax rate.............. (32)% (33)% 39%
=== === ==
</TABLE>
6. Pension Plans
The Company has two trusteed, noncontributory, qualified defined benefit
pension plans ("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:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Service cost --
benefits earned
during the period.. $ 270,000 $ 273,000 $ 254,000
Interest cost on
projected benefit
obligation......... 392,000 356,000 268,000
Actual return on
assets............. (475,000) (260,000) (255,000)
Net amortization and
deferral........... 143,000 (30,000) 70,000
--------- --------- ---------
Net periodic pension
cost............... $ 330,000 $ 339,000 $ 337,000
========= ========= =========
</TABLE>
The following table sets forth 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, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Actuarial present value of
benefit obligations:
Vested benefit
obligations.............. $5,118,000 $4,626,000
Nonvested benefit
obligations.............. 66,000 38,000
---------- ----------
Accumulated benefit
obligations.............. 5,184,000 4,664,000
Effect of projected future
salary increases......... 1,088,000 1,064,000
---------- ----------
Projected benefit
obligations.............. 6,272,000 5,728,000
Plan assets at fair
value(a).................... 6,594,000 5,775,000
---------- ----------
Plan assets in excess of
projected benefit
obligations................. 322,000 47,000
Unrecognized obligations at
transition.................. 362,000 444,000
Unrecognized net loss......... 163,000 186,000
Unrecognized prior service
cost........................ 108,000 112,000
---------- ----------
Net prepaid pension cost
recognized in the balance
sheet....................... $ 955,000 $ 789,000
========== ==========
</TABLE>
(a) Plan assets consist of debt securities and comingled funds.
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:
<TABLE>
<S> <C>
Weighted average discount rate.................. 7%
Long-term rate of return on assets.............. 7%
Increase in future compensation levels.......... 4%
</TABLE>
The Company has 401(k) savings plans covering substantially all employees.
Contributions by the Company are discretionary and no contributions were made in
1997, 1996 or 1995.
- --------------------------------------------------------------------------------
23
<PAGE> 24
- --------------------------------------------------------------------------------
7. 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 Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" (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.
Pro forma information regarding net income and earnings per share is required
by Financial Accounting Standards Board (FASB) Statement 123, and has been
determined as if the Company had accounted for its employee stock options under
the fair value method of that Statement. 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 1997 and 1996; risk-free interest
rate of 7%; dividend yield of 0%; volatility factor of the expected market price
of the Company's common stock of .34; a weighted-average expected life of the
option of 4.0 and 5.3 years, respectively; and a weighted average grant date
fair value of options granted of $1.24 and $1.48, 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:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- --------
<S> <C> <C> <C>
Pro forma net income
(loss) $(1,463,000) $(1,161,000) $771,000
=========== =========== ========
Pro forma net income
(loss) per share --
basic and diluted $ (.69) $ (.54) $ .35
=========== =========== ========
</TABLE>
The effects of FASB Statement 123 on pro forma net income or loss in 1997,
1996 and 1995 is not likely to be representative of the effects on pro forma net
income or loss in future years.
As of December 31, 1997 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, 30,000 shares have been exercised, and 10,000 were
outstanding as of December 31, 1997.
B. Options to Independent Directors for 12,000 shares at $5.00 per share,
4,000 shares at $4.75 per share, 4,000 shares at $4.875 per share, 4,000 at
$3.50 per share and 4,000 at $3.375 per share (market value at date of grant)
exercisable through May 2005.
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.
D. Options to 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 cancelled 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) exercisable
through 2006 in five equal installments beginning in 1997. These options have
a weighted average exercise price of approximately $3.48. Of these, 75,000
have been cancelled.
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) exercisable through 2007 in
five equal installments beginning in 1998. These options have a weighted
average exercise price of approximately $2.91.
8. Earnings Per Share
Basic and diluted earnings per share were the same for 1997, 1996 and 1995.
The numerator for basic and diluted earnings per share includes net income
(loss) of $(1,416,000), $(1,072,000) and $808,000 for 1997, 1996 and 1995,
respectively. The denominator for basic earnings per share includes weighted
average common shares outstanding of 2,135,000, 2,159,000 and 2,191,000 for
1997, 1996 and 1995, respectively. The denominator for diluted earnings per
share includes, in addition to the above weighted average common shares, 12,000
shares related to employee stock options for 1995.
- --------------------------------------------------------------------------------
24
<PAGE> 25
MOORE-HANDLEY, INC.
Index of Exhibits
<TABLE>
<CAPTION>
PAGE
EXHIBIT NO. DESCRIPTION NO.
- ----------- ----------- --------
<C> <S> <C>
1(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.
(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.
(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.
(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.
2(a) 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.
(b) 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.
(c) 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.
3(a) 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.
(a)-1 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.
(a)-2 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.
(a)-3 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.
(a)-4 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.
(a)-5 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.
(b) 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.
</TABLE>
- --------------------------------------------------------------------------------
25
<PAGE> 26
<TABLE>
<CAPTION>
PAGE
EXHIBIT NO. DESCRIPTION NO.
- ----------- ----------- --------
<C> <S> <C>
(b)-1 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.
4 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.
5 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.
6 1991 Incentive Compensation Plan, filed as Exhibit A to the # *
Company's Proxy Statement dated April 30, 1991 and
incorporated herein by reference.
7 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.
8 Financing Agreement, dated August 7, 1997, between the #
Company and The CIT Croup/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.
21 List of Subsidiaries filed as Exhibit 21 to the Company's 30
Annual Report on Form 10-K for the 30 year ended December
31, 1997.
27 Financial Data Schedule (For SEC purposes only). 31
</TABLE>
# Incorporated by reference.
* Exhibits identified by * are management compensation contracts.
- --------------------------------------------------------------------------------
26
<PAGE> 27
SIGNATURES
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.
MOORE-HANDLEY, INC.
By: /s/ L. WARD EDWARDS
----------------------------------
L. Ward Edwards
Vice President, Treasurer and
Secretary and Director
(Principal Accounting and
Financial Officer)
March 26, 1998
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.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<C> <S> <C>
/s/ WILLIAM RILEY Chairman of the Board, Director and Chief March 23, 1998
- ----------------------------------------------------- Executive Officer
William Riley
/s/ PIERCE E. MARKS, JR. Vice Chairman and Director March 23, 1998
- -----------------------------------------------------
Pierce E. Marks, Jr.
/s/ MICHAEL J. GAINES President and Chief Operating Officer March 25, 1998
- -----------------------------------------------------
Michael J. Gaines
/s/ L. WARD EDWARDS Vice President, Treasurer and Secretary and March 26, 1998
- ----------------------------------------------------- Director (Principal Accounting and
L. Ward Edwards Financial Officer)
/s/ MICHEAL B. STUBBS Director March 25, 1998
- -----------------------------------------------------
Micheal B. Stubbs
/s/ RONALD J. JUVONEN Director March 25, 1998
- -----------------------------------------------------
Ronald J. Juvonen
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Subsidiary
----------
<S> <C>
Name Old Lyme Corporation
State of Incorporation Delaware
Percent of Ownership 100%
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF MOORE-HANDLEY FOR THE YEAR ENDED DECEMBER 31, 1997, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,155
<SECURITIES> 0
<RECEIVABLES> 23,252
<ALLOWANCES> 0
<INVENTORY> 17,035
<CURRENT-ASSETS> 44,940
<PP&E> 19,609
<DEPRECIATION> (11,336)
<TOTAL-ASSETS> 54,197
<CURRENT-LIABILITIES> 21,482
<BONDS> 18,397
0
0
<COMMON> 251
<OTHER-SE> 12,917
<TOTAL-LIABILITY-AND-EQUITY> 54,197
<SALES> 145,730
<TOTAL-REVENUES> 145,730
<CGS> 112,628
<TOTAL-COSTS> 112,628
<OTHER-EXPENSES> 13,705
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 991
<INCOME-PRETAX> (2,080)
<INCOME-TAX> (664)
<INCOME-CONTINUING> (1,416)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,416)
<EPS-PRIMARY> (.66)
<EPS-DILUTED> (.66)
</TABLE>
