10-Q 1 g70781e10-q.txt MORE-HANDLEY, INC. 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES EXCHANGE ACT OF 1934 [ ] FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001 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. ------------------- (Exact name of registrant as specified in its charter) DELAWARE 63-0819773 (State or other jurisdiction of (I.R.S. Employer incorporation of organization) Identification No.) 3140 PELHAM PARKWAY, PELHAM, ALABAMA 35124 ----------------------------------------- ------------- (Address of principal executive offices) (Zip Code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to filing requirements for the past 90 days. 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 1,800,943 Shares ----------------------------- ----------------------------- Class Outstanding at June 30, 2001 2 MOORE-HANDLEY, INC. INDEX
Item No. Page No. -------- -------- PART I. FINANCIAL INFORMATION - UNAUDITED 1. Condensed Balance Sheets - June 30, 2001 and 2000 and December 31, 2000 3 Statements of Operations - Three Months and Six Months Ended June 30, 2001 and 2000 4 Statements of Cash Flows - Six Months Ended June 30, 2001 and 2000 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 (The information required by this item is contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations.") 10-11 PART II. OTHER INFORMATION 4. Submission of Matters to a Vote of Security Holders 11 6. Exhibits and Reports on Form 8-K 12 Signatures 12 Exhibit Index 13
2 3 MOORE-HANDLEY, INC. CONDENSED BALANCE SHEETS JUNE 30, 2001 AND 2000 AND DECEMBER 31, 2000
JUNE 30 DECEMBER 31 ------------------------------------------------------ 2001 2000 2000 ------------ ------------ ------------ (unaudited) (unaudited) (Note 1) ASSETS: Current assets: Cash and cash equivalents $ 54,000 $ 104,000 $ 38,000 Trade receivables, net 23,769,000 25,074,000 22,318,000 Other receivables 4,820,000 4,046,000 3,283,000 Merchandise inventory 17,562,000 16,492,000 17,622,000 Prepaid expenses 167,000 599,000 312,000 Refundable income tax -- -- 223,000 Deferred income taxes 615,000 456,000 615,000 ------------ ------------ ------------ Total current assets 46,987,000 46,771,000 44,411,000 Prepaid pension cost 905,000 1,078,000 1,008,000 Property and equipment 18,692,000 21,708,000 18,538,000 Less accumulated depreciation (10,304,000) (13,405,000) (9,726,000) ------------ ------------ ------------ Net property and equipment 8,388,000 8,303,000 8,812,000 Deferred charges, net 7,000 8,000 8,000 ------------ ------------ ------------ $ 56,287,000 $ 56,160,000 $ 54,239,000 ============ ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY: Current liabilities: Accounts payable $ 20,328,000 $ 19,526,000 $ 16,927,000 Accrued payroll 523,000 473,000 464,000 Other accrued liabilities 1,844,000 1,757,000 1,229,000 Long-term debt due in one year 1,158,000 1,253,000 1,158,000 ------------ ------------ ------------ Total current liabilities 23,853,000 23,009,000 19,778,000 Long-term debt 19,143,000 18,401,000 21,664,000 Deferred income taxes 671,000 1,076,000 671,000 Stockholders' equity: Common stock, $.10 par value; 10,000,000 shares authorized, 2,510,000 shares issued 251,000 251,000 251,000 Other stockholders' equity 12,369,000 13,423,000 11,875,000 ------------ ------------ ------------ Total stockholders' equity 12,620,000 13,674,000 12,126,000 ------------ ------------ ------------ $ 56,287,000 $ 56,160,000 $ 54,239,000 ============ ============ ============
See accompanying notes. 3 4 MOORE-HANDLEY, INC. STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS SIX MONTHS ENDED JUNE 30 ENDED JUNE 30 ------------------------------- ------------------------------- 2001 2000 2001 2000 ----------- ------------ ----------- ------------ Net sales $39,830,000 $ 38,642,000 $79,232,000 $ 82,397,000 Cost of merchandise sold 33,554,000 32,136,000 66,566,000 68,975,000 Warehouse and delivery expense 2,252,000 2,547,000 4,549,000 5,203,000 ----------- ------------ ----------- ------------ Cost of sales 35,806,000 34,683,000 71,115,000 74,178,000 ----------- ------------ ----------- ------------ Gross profit 4,024,000 3,959,000 8,117,000 8,219,000 Selling and administrative expense 3,294,000 3,812,000 6,561,000 7,584,000 ----------- ------------ ----------- ------------ Operating income 730,000 147,000 1,556,000 635,000 Interest expense, net 333,000 385,000 767,000 758,000 ----------- ------------ ----------- ------------ Income before income tax 397,000 (238,000) 789,000 (123,000) Income tax 142,000 (91,000) 284,000 (47,000) ----------- ------------ ----------- ------------ Net income $ 255,000 $ (147,000) $ 505,000 $ (76,000) =========== ============ =========== ============ Net income per common share - basic and diluted $ 0.14 $ (0.08) $ 0.28 $ (0.04) =========== ============ =========== ============ Weighted average common shares outstanding 1,809,000 1,923,000 1,809,000 1,923,000 =========== ============ =========== ============
See accompanying notes. 4 5 MOORE-HANDLEY, INC. STATEMENTS OF CASH FLOW (UNAUDITED)
SIX MONTHS ENDED JUNE 30 2001 2000 ------------- ---------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 505,000 $ (76,000) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 596,000 693,000 Provision for doubtful accounts 150,000 150,000 Gain on sale of equipment (11,000) (16,000) Change in assets and liabilities: Trade and other receivables (3,138,000) (2,490,000) Merchandise inventory 60,000 1,817,000 Accounts payable and accrued expenses 4,075,000 309,000 Other assets 471,000 (38,000) ----------- ----------- Total adjustments 2,203,000 425,000 ----------- ----------- NET CASH PROVIDED BY OPERATING ACTIVITIES 2,708,000 349,000 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (171,000) (744,000) Proceeds from sale of equipment 11,000 16,000 ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES (160,000) (728,000) CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings (payments) of long-term debt (1,892,000) 437,000 Principal payments under long-term debt (629,000) -- Treasury stock issued (11,000) ----------- ----------- NET CASH PROVIDED BY(USED) IN FINANCING ACTIVITIES (2,532,000) 437,000 ----------- ----------- Net increase in cash and cash equivalents 16,000 58,000 Cash and cash equivalents at beginning of period 38,000 46,000 ----------- ----------- Cash and cash equivalents at end of period $ 54,000 $ 104,000 =========== ===========
See accompanying notes. 5 6 MOORE-HANDLEY, INC. NOTES TO FINANCIAL STATEMENTS (INFORMATION PERTAINING TO THE THREE MONTHS ENDED JUNE 30, 2001 AND 2000 IS UNAUDITED) 1. BASIS OF PRESENTATION The financial statements included herein have been prepared by Moore-Handley, Inc. (the "Company"), without audit in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10Q and Article 10 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in complete 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. The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. For further information, 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 30, 2001. The financial information presented herein reflects all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation 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 number 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 and second quarter of 2001 and 2000. 3. REVENUE RECOGNITION The Company recognizes revenues when goods are shipped. 4. RECLASSIFICATIONS Certain amounts in the financial statements for the quarter ended June 30, 2000 have been reclassified to conform to the June 30, 2001 presentation. 5. DERIVATIVE INVESTMENTS AND HEDGING ACTIVITIES As of January 1, 2001, the Company adopted Financial Accounting Standards Board (FASB) Statement No. 133, Accounting for Derivative Instruments and Hedging Activities. FASB Statement 133 requires the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If a derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either offset against the change in fair value of the hedged item through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. As of and since the adoption of FASB 133, the Company has not entered into any derivative instruments, as defined in the statement. 6 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (UNAUDITED) SUMMARY Net sales for the quarter ended June 30, 2001, increased $1,188,000 or 3% from the same quarter in 2000. Net income per share for the quarter ended June 30, 2001 was 14 cents per share compared to a net loss per share of 8 cents for the quarter ended June 30, 2000. Net income per share for the six months ended June 30, 2001 was 28 cents per share compared to a net loss of 4 cents per share for the same period a year ago. Lower gross margin compared to a year ago of $230,000 and $756,000 for the quarter and six months ended June 30, 2001, respectively, was more than offset by lower logistic, selling and administrative expenses and an increase in vendor allowances. NET SALES For the three months ended June 30, 2001, warehouse shipments decreased $829,000 or 3.1% and factory direct shipments increased $2,017,000 or 16.8% compared to the three months ended June 30, 2000. For the six months ended June 30, 2001 warehouse shipments decreased $3,902,000 or 7% and factory direct shipments increased $737,000 or 2.7% compared to the six months ended June 30, 2000. Total net sales decreased $3,165,000 or 3.8% for the same six-month period. While sales have remained strong at our dealer marts held in February and May 2001 (February and June in 2000), the Company has experienced a softness in its regular (between Marts) business. The Company has received a favorable response at its marts to the introduction of new programs, products and its Hardware House private labeling efforts which were expanded at our May Mart. This introduction of new products and programs, along with the earlier scheduling of our Spring Mart (moved from June in 2000 to May in 2001), favorably impacted sales for the second quarter ended June 30, 2001. Gross margins on direct shipments are lower than gross margins on warehouse shipments; however, expenses related to direct shipments are also lower. Although factory direct shipments result in lower gross margin percentages, 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 trend in net sales for 2000 and the first and second quarters of 2001:
Increase (Decrease) vs. Same Quarter Net sales in Previous Year -------------- ----------------- Amount Amount Percent (in thousands) (in thousands) Change -------------- -------------- --------- Quarter 2000 - 1st ................... 43,755 (908) (2.0) 2nd ................... 38,642 (4,062) (9.6) 3rd ................... 38,903 (4,663) (10.7) 4th ................... 32,765 (3,518) (9.7) 2001 - 1st ................... 39,402 (4,353) (9.9) 2nd ................... 39,830 1,188 3.0
7 8 OPERATIONS The following table sets forth certain financial data as a percentage of net sales for the periods indicated:
Three Months Ended Six Months Ended June 30, June 30, --------------------- --------------------- 2001 2000 2001 2000 ------- ------- ------- ------- Net sales 100.0% 100.0% 100.0% 100.0% ======= ======= ======= ======= Gross margin 15.7 16.8 16.0 16.3 Warehouse and delivery expense 5.6 6.6 5.7 6.3 ------- ------- ------- ------- Gross profit 10.1 10.2 10.3 10.0 Selling and administrative expenses 8.3 9.9 8.3 9.2 ------- ------- ------- ------- Operating income 1.8 0.3 2.0 0.8 Interest expense, net 0.8 0.9 1.0 0.9 ------- ------- ------- ------- Income before provision for income tax 1.0% -0.6% 1.0% -0.1% ======= ======= ======= =======
GROSS MARGIN The gross margin percentage for the quarter ended June 30, 2001 was 15.7%, down from 16.8% in the second quarter of 2000. The decrease was due primarily to the increase in factory direct shipments as a percent of total sales. The gross margin percentage for the six months ended June 30, 2001 was 16%, down slightly from 16.3% for the six months ended June 30, 2000. Improved gross margin rates for warehouse shipments during the six months ended June 30, 2001 compared to the same period a year ago were offset by an increase in factory direct shipments as a percent of total sales. The following table sets forth the gross margin dollars, gross margin percentages and year-over-year changes for 2000 and the first and second quarters of 2001:
Increase (Decrease) vs. Same Quarter Gross Margin in Previous Year --------------------------- ----------------------------- Amount Percentage Amount Percentage (in thousands) of Sales (in thousands) Points ------------- ---------- -------------- -------- Quarter 2000 - 1st ................... $6,916 15.8% $ 460 1.3% 2nd ................... 6,506 16.8 (320) 0.8 3rd ................... 6,101 15.7 (831) (0.2) 4th ................... 4,634 14.1 (2,059) (4.3) 2001 - 1st ................... 6,390 16.2 (526) 0.4 2nd ................... 6,276 15.7 (230) (1.1)
8 9 WAREHOUSE AND DELIVERY EXPENSE As a percentage of warehouse shipments, warehouse and delivery expense decreased to 8.7% in the second quarter of 2001 from 9.6% in the same quarter last year. For the six months ended June 30, 2001, warehouse and delivery expense decreased to 8.8% compared to 9.4% for the same period a year ago. Warehouse productivity improvements and route consolidations initiated in May of 2000 had a favorable impact on warehouse and delivery expenses. The following table sets forth the trend in warehouse and delivery expense in 2000 and the first and second quarter of 2001:
Increase (Decrease) Warehouse and Delivery vs. Same Quarter Expense in Previous Year ------------------------------ ----------------------------- Percent of Amount Warehouse Amount Percentage (in thousands) Shipments (in thousands) Points -------------- ---------- -------------- ---------- Quarter 2000 - 1st ................... $2,656 9.2% $ (37) (0.4)% 2nd ................... 2,546 9.6 (309) (0.4) 3rd ................... 2,451 9.6 (351) (0.3) 4th ................... 2,479 10.9 7 2.3 2001 - 1st ................... 2,297 8.9 (359) (0.3) 2nd ................... 2,252 8.7 (294) (0.9)
SELLING AND ADMINISTRATIVE EXPENSE Selling and administrative expense decreased $518,000 or 13.6% compared to the second quarter of 2000. For the six months ended June 30, 2001, selling and administrative expense decreased $1,023,000 or 13.5% compared to the six months ended June 30, 2000. Reductions were attained during the first six months of 2001 due to sales territory consolidation and general and administrative expense reductions initiated in May 2000. The Company has also experienced an increase in vendor allowances. The following table sets forth the quarterly trend in selling and administrative expense in 2000 and the first and second quarters of 2001:
Increase (Decrease) Selling and Adminstrative vs. Same Quarter Expense in Previous Year --------------------------- ------------------------------ Amount Percentage Amount Percentage (in thousands) of Sales (in thousands) Points -------------- ----------- ------------- ------------- Quarter 2000 - 1st .......... $3,772 8.6% $ 192 0.6% 2nd .......... 3,812 9.9 192 1.4 3rd .......... 3,309 8.5 (512) (0.3) 4th .......... 3,794 11.6 581 2.7 2001 - 1st .......... 3,267 8.3 (505) (0.3) 2nd .......... 3,294 8.3 (518) (1.6)
9 10 INTEREST EXPENSE Interest expense decreased $52,000 or 13.5% during the second quarter of 2001 compared to the same period during 2000. The decrease was primarily due to a decrease in the prime lending and libor based rates. As the greater average principal amount outstanding outweighed lower average interest rates during the six months ended June 30, 2001, interest expense increased $9,000 or 1.2% over the same period last year. LIQUIDITY AND CAPITAL RESOURCES Net trade receivables decreased during the second quarter of 2001 by $1,305,000 or 5.2% compared to the second quarter 2000 while inventory levels have increased $1,070,000 or 6.5% compared to the second quarter in 2000. From December 31, 2000 to June 30, 2001, the Company's net trade receivables increased by $1,451,000 or 6.5%. The increase was primarily due to the May Dealers' Mart. Net trade receivables decreased $1,305,000 or 5.2% compared to June 30, 2000. Inventories decreased by $60,000 or .3% in the six months ended June 30, 2001 compared with December 31, 2000. Inventories increased $1,070,000 or 6.5% compared to June 30, 2000. The increase in inventories can be attributed to the ongoing special merchandise promotions. The Company continues its efforts to manage and control 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 $3,401,000 or 20.1% from December 31, 2000 because of extended terms received from suppliers in connection with the May Dealers' Mart. Trade payables increased $802,000 or 4.1% compared to June 30, 2000. At June 30, 2001, the Company had unused lines of credit of $4,829,000. In March 2000, the Company executed a working capital line increase and extension. This new line allows for a maximum borrowing of $24,000,000 and, in addition to 85% of eligible receivables, it is secured with 50% of eligible inventory up to $6,000,000. This new line becomes annually renewable in August 2002. The Company believes this credit facility is adequate to finance its working capital needs. INTEREST RATE RISK The following discussion about the Company's interest rate risk includes "forward-looking statements" that involve risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. The Company's principal credit agreement bears a floating interest rate based on the prime rate or at the Company's option a 2 1/2% over LIBOR. The Company's lease with respect to industrial development bonds, issued to finance the Company's principal warehouse distribution facility, bears a floating interest rate based on 92% of the prime rate. Accordingly, the Company is subject to market risk associated with changes in interest rates. At June 30, 2001, $19,177,301 was outstanding under the credit agreement and $368,000 was outstanding under the industrial development lease agreement. For 2000, the average principal amount outstanding under the credit agreement was $16,749,000. Assuming the average amount outstanding under the credit agreement during 2001 is equal to such average amount outstanding during 2000 and assuming the Company makes its scheduled amortization payments on its industrial development lease of $589,000 in 2001, a 1% increase in the applicable interest rate during 2001 would result in additional interest expense of approximately $173,000, which would reduce cash flow and pre-tax earnings dollar for dollar. 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- 10 11 looking statements. Words such as "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 and ongoing cost reduction efforts; - changes in cost of goods and the effect of differential terms and conditions available to larger competitors of the Company; - uncertainties associated with any acquisition the Company may seek to implement; and - changes in general economic conditions, including interest rates. PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of the Registrant was held on Thursday, April 26, 2001 at 10:00 a.m. At the meeting, Messrs. William Riley, Pierce E. Marks, Jr., Michael B. Stubbs, Michael Palmer and Michael Gaines were elected as directors of the Registrant. The following table sets forth the distribution of votes cast with regard to each of the nominees:
Votes Cast Votes Nominee for Nominee Withheld ----------- -------- William Riley 1,451,592 61,100 --------- ------ Pierce E. Marks, Jr 1,451,592 61,100 --------- ------ Michael B. Stubbs 1,451,292 61,400 --------- ------ Michael Palmer 1,451,292 61,400 --------- ------ Michael Gaines 1,450,692 62,000 --------- ------
Also at the meeting, the proposed Moore-Handley, Inc. 2001 Stock Incentive Compensation Plan was approved. The following table sets forth the distribution of votes cast with regard to the proposal:
Number of Votes ------------- For 762,915 Against 80,869 Abstain 5,700
11 12 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, 10.1 - Amendment to 2001 Incentive Compensation Plan of the Registrant, adopted June 1, 2001, 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 June 30, 2001. SIGNATURES 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. MOORE-HANDLEY, INC. ------------------- (Registrant) /s/ Michael J. Gaines --------------------- Date: July 31, 2001 Michael J. Gaines President and Chief Operating Officer /s/ Gary C. Mercer ------------------ Gary C. Mercer Chief Financial Officer 12 13 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION ----------- ----------- 3 (a) Restated Certificate of Incorporation of Company, filed as Exhibit 3(a) to the Company's Annual Report on Form 10-K For the year ended December 31, 1987 and incorporated herein by reference. 3 (a)-1 Amendment to Restated Certificate of Incorporation dated May 7, 1987, filed as Exhibit 3(a)-1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1987 and incorporated herein by reference. 3 (b) By-laws of the Company, filed as Exhibit 3(d) to the Company's Registration Statement on Form S-1 (Reg. No. 33-3302) and incorporated herein by reference. 3 (b)-1 Article VII of By-laws of the Company, as amended May 7, 1987 filed as Exhibit 3(b)-1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1987 and incorporated herein by reference. 10.1 Amendment to 2001 Incentive Compensation Plan, adopted June 1, 2001 27 Financial Data Schedule (For SEC Purposes Only).
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