-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, EOalB3dEUebYstz9n5UICC/7P4odFjIczRallc33IHH2Nngb6NF0/eUN5zQ0sbgK Bmnf5JbPEbwwz/TpWz/8Qw== 0000950144-02-003115.txt : 20020415 0000950144-02-003115.hdr.sgml : 20020415 ACCESSION NUMBER: 0000950144-02-003115 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOORE HANDLEY INC /DE/ CENTRAL INDEX KEY: 0000788951 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-HARDWARE [5072] IRS NUMBER: 630819773 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-14324 FILM NUMBER: 02594430 BUSINESS ADDRESS: STREET 1: 133 PEACHTREE STREET STREET 2: SUITE 4710 CITY: ATLANTA STATE: GA ZIP: 30303 BUSINESS PHONE: 2056638011 MAIL ADDRESS: STREET 2: 3140 PELHAM PKWY CITY: PELHAM STATE: AL ZIP: 35124 10-K 1 g75037e10-k.txt MOORE-HANDLEY, INC. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] 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, 35124 PELHAM, ALABAMA (Zip Code) (Address of principal executive offices)
(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 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ____________ As of March 19, 2002, 1,773,943 shares of the Registrant's Common Stock were outstanding, and the aggregate market value of such shares held by non-affiliates was approximately $1,111,000. 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. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- [MOORE HANDLEY INC. LOGO] March 30, 2002 To Our Shareholders: In last year's letter we wrote, "We have continued to strengthen the senior management team and are beginning to implement productivity and cost savings incentives throughout much of the company. As a result, despite the tough business economy we are experiencing early in 2001, we believe the year will be profitable and show continued improvement in expense control and our quality of service." As the accompanying 10-K report details, this turned out to be an accurate prediction. Retail business remained soft for much of the year, as did our sales to retailers, and our top line ended up slightly behind 2000. Despite this, improved cost controls and slightly better margins resulted in net income of 44 cents per share, a positive swing of $1.26 from the preceding year's loss of 82 cents per share. We expect continuing improvement in the current year, as we continue to execute our business plan. That plan consists of three elements: 1. Using electronic controls to reduce errors and improve productivity in our logistic functions. We have described the development of this complex program in previous reports. It has had dramatic results in reducing error rates, in allowing for individual incentive pay, and in increasing productivity. The program is ongoing, and we expect it to result in continuing improvements in the accuracy and cost of the way we do business. 2. Global sourcing to provide our customers with high-quality product lines they can sell at prices comparable to the "big boxes". These product lines carry our registered "Hardware House" trademark and are furnished as complete merchandising programs including point of purchase displays and advertising aids. We now have introduced Hardware House(R) product lines in locks, hand tools, long-handled tools, faucets, bath hardware, lawn and garden watering products, builders' hardware, lighting, and paint sundries. More introductions are planned for each of our three marts this year, and we expect this segment to be an increasingly important part of our (and our customers') business. 3. Taking our business national. Until a few years ago, Moore-Handley was mainly a mid-South distributor with some customers elsewhere in the Southeast. We have been testing means of serving customers outside this historic trading area, and results from these tests lead us to believe we can be competitive in any market east of the Rockies. We are now beginning a systematic effort to attain market penetration in this broad region beyond our historic trade area, while continuing to serve our core customers. We will report our progress in each of these areas as the year goes on. /s/ WILLIAM RILEY -------------------------------------- William Riley Chairman and Chief Executive Officer /s/ MICHAEL J. GAINES -------------------------------------- Michael J. Gaines President and Chief Operating Officer MOORE-HANDLEY, INC. TABLE OF CONTENTS
ITEM NO. PAGE NO. - -------- -------- Part I 1. Business.................................................... 1 2. Properties.................................................. 4 3. Legal Proceedings........................................... None 4. Submission of Matters to a Vote of Security Holders (none during the fourth quarter of 2001).......................... 3 Part II 5. Market for Registrant's Common Equity and Related Stockholder Matters......................................... None 6. Selected Financial Data..................................... 5 7. Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 7 7a. Quantitative and Qualitative Disclosures about Market Risk........................................................ 9 (The information required by this item is contained in "Management's Discussion and Analysis of Financial Condition and Results of Operations.")................................ 8. Financial Statements and Supplementary Data................. 17 9. Changes in 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 Statement Schedules.......................... 18 (b) Reports on Form 8-K.................................... None (c) Exhibits Filed......................................... 33
NOTE: Copies of the exhibits may be obtained by stockholders upon written request directed to the Secretary, Moore-Handley, Inc., P. O. Box 2607, Birmingham, Alabama 35202, and payment of processing and mailing costs. BUSINESS Moore-Handley, Inc. is a full-service distributor of plumbing and electrical supplies, power and hand tools, paint and paint sundries, lawn and garden equipment and other hardware and building materials products. Our customers include retail home centers, hardware stores, building materials dealers, paint stores, combination stores, a limited number of mass merchandisers, businesses and institutions. We have approximately 1,950 active customers located throughout the Southeast and approximately 200 customers elsewhere in the country, which we service from a 488,000 square foot distribution center located in Pelham, Alabama. DESCRIPTION OF BUSINESS In connection with our distribution activities, we offer a wide range of marketing, advertising and other support services designed to assist customers in maintaining and improving their market positions. These support services include computer-generated systems for the control of inventory, pricing and gross margin, as well as advertising and store installation and design services. Home centers and hardware and building supply retailers have a continuing need for a wide variety of items produced by a number of different manufacturers. Purchasing from us 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, we purchase products in quantities that enable us to obtain favorable prices and payment terms, which are reflected in prices and payment terms to our customers. Finally, the support services we offer to customers are generally not available from manufacturers, nor can most customers afford to develop them independently. We believe that our 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 our customers a substantial advantage over purchasing directly from manufacturers. In recent years there has been a trend toward consolidation in many wholesale industries, including the grocery, drug and hard goods distribution businesses. This trend also is apparent in the building supply and hardware business. We believe 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. We have benefited from this consolidating trend by increasing our customer base and sales. PRODUCTS We closely monitor our items in stock, maintaining a full range of products while concentrating our 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 us in the past three years:
PERCENTAGE OF NET SALES ------------------------ CLASS OF MERCHANDISE 2001 2000 1999 - -------------------- ------ ------ ------ Electrical and plumbing supplies............................ 20.7% 22.6% 21.2% Home center products (including lawn and garden equipment, paint and accessories, sporting goods and appliances)..... 17.9 21.6 22.4 Building supplies (including aluminum windows and doors, roofing products and lumber).............................. 24.0 23.2 24.6 General and shelf hardware (including power and hand tools, lock sets and wire products).............................. 37.4 32.6 31.8 ----- ----- ----- 100.0% 100.0% 100.0% ===== ===== =====
The table above also includes sales through our direct shipment program. 1 MARKETING PROGRAMS AND CUSTOMER SERVICES Sales Force. Our marketing program is implemented primarily by our 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, they promote our support services to our customers. Sales assistants work with certain of the more senior territory managers. At December 31, 2001, we employed 52 territory managers and assistants. At December 31, 2001, we also employed 6 district managers, each responsible for supervising and monitoring the activities of territory managers located in their assigned area. To supplement our primary sales force, we maintain a telemarketing group that solicits and accepts orders from customers between regular visits by territory managers. Customer Services. An important component of our marketing strategy is the range of support services we offer to our customers. These services, which we believe not only strengthen our relationship with existing customers but also attract new customers, are designed to enable customers to improve their marketing efforts and compete more effectively, thereby increasing our sales. Our support services include advertising and promotional services, some costs of which are shared by our suppliers; store installation and design services, and computer-generated systems for control of inventory, pricing and gross margin. We also provide 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 us. Similar programs are available through the national trade name of Pro Group, Inc., a merchandising and marketing group to which we belong. As described previously, we have developed a personal computer-based system for use by our 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. Our ability to fill and deliver small quantity orders for many different items enables customers to place orders on an as-needed basis, which in turn reduces our customers' inventory investment and storage costs. Our "fill-rate" -- the percentage of items shipped within 48 hours of receipt of an order -- is a measure of the efficiency of our order processing, inventory control and warehouse operations. Our fill-rate was approximately 95% for each of the last three years. Deliveries are made on a regular basis by common and contract carrier and our fleet of approximately 32 tractors and 62 trailers. 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 our customers, we maintain a direct shipment program where customers order and receive shipments of some products directly from suppliers but are invoiced through us. We act as principal in the direct sales transactions, pay the supplier for the goods shipped and assume the risk of loss for the collection of payment from our customer. This program enables us to distribute products that would be inconvenient or expensive to stock in our warehouse, such as commodity building materials, and allows customers to receive discounts that otherwise might not be available to them. Approximately 35%, 33% and 34% of our net sales were attributable to purchases under the direct shipment program for 2001, 2000 and 1999, respectively. CUSTOMERS We currently service over 2,100 customers, including retail home centers; hardware stores; building materials dealers; paint stores; combination stores and a limited number of mass merchandisers, businesses and institutions. No customer or affiliated group of customers accounted for more than 2% of our net sales in 2001, 2000 and 1999. Our current customers are located primarily in Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, Virginia and West Virginia. We also have active customers in 26 other states. 2 From time to time, we receive extended terms from our suppliers, which we pass on to our customers. PURCHASING, SUPPLIERS AND INVENTORY MANAGEMENT We distribute approximately 34,000 items purchased from approximately 1,075 manufacturers. Our ten largest vendors in 2001 accounted for approximately 21.9% of our total purchases, but no single manufacturer accounted for more than 3.7% of our total purchases during the year. We have no long-term supply or distribution agreements with our vendors. Substantially all products of the type distributed by us are available from a number of manufacturers. Because inventory constitutes a substantial portion of our total assets, efficient control of inventory is an important management priority. Our inventory turns (determined by dividing cost of stocked goods sold by average monthly inventory) were 4.5 in 2001 and 4.9 in 2000. Turns were lower in 2001 due to a slight decrease in warehouse shipments and an increase in imported products. COMPETITION Our markets and those of our customers are highly competitive. We compete directly with other national and regional wholesalers (including co-ops), direct-selling manufacturers and 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 us. The success of our business depends on our ability to distribute a large volume and variety of products efficiently and to provide high quality support services. EMPLOYEES As of December 31, 2001, we employed 391 persons, of whom 177 are subject to a collective bargaining agreement expiring in December 2004. We have not experienced any strikes or work stoppages and consider our relationship with our employees to be good. COMMON STOCK INFORMATION Our common stock trades on The NASDAQ SmallCap Market(SM) under the symbol MHCO. The following table shows the high and low bid prices by quarter in 2001 and 2000.
2001 2000 ----------- ----------- QUARTER ENDED HIGH LOW HIGH LOW - ------------- ---- ---- ---- ---- March 31,.................................................. 1.25 1.00 6.38 1.50 June 30,................................................... 1.85 0.97 2.31 1.50 September 30,.............................................. 2.45 1.45 1.44 1.00 December 31,............................................... 2.25 2.05 1.44 1.00
For periods prior to December 24, 1998, our common stock was included in The NASDAQ National Market(R) system and thereafter in The NASDAQ SmallCap Market(SM). Such over-the-counter quotations reflect inter-dealer quotations, without retail mark-up, markdown or commissions and may not necessarily represent actual transactions. On March 20, 2002, there were 179 holders of record of our common stock. Since a large number of these holders are nominees, we believe beneficial holders represent a substantially larger number. We have not paid cash dividends on our common stock as it has been the policy of the Board of Directors to retain all available earnings to support the growth and expansion of our 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 our earnings, financial condition and capital requirements. 3 EXECUTIVE OFFICERS The executive officers as of March 1, 2002, their ages and their present positions with us and their principal occupations since 1994 are as follows:
NAME AGE POSITION - ---- --- ------------------------------------------------- William Riley.......................... 70 Chairman of the Board and Chief Executive Officer Michael J. Gaines...................... 59 President and Chief Operating Officer(1) Gary C. Mercer......................... 49 Chief Financial Officer(2) Robert Tolbert......................... 47 Vice President -- Marketing Thomas A. Seifert...................... 54 Vice President -- Merchandising(3) Robert Grear........................... 51 Vice President -- Operations(4) Clay Alford............................ 53 Vice President -- Quality Assurance Andrew W. Reid......................... 54 Vice President -- Sales
- --------------- (1) Mr. Gaines was employed by Grossman's, a home center chain, from 1993 to 1996. (2) Mr. Mercer was employed by The Young & Vann Supply Company, an industrial distributor, from 1988 to 2000. (3) Mr. Seifert was employed by Marvin's, a home center and building materials chain, from 1994 to 2001. (4) Mr. Grear was owner and manager of SMB Trading Group, an internet trading and distribution consulting company, from 1998 to 2000; he was employed by Caldor, Inc., a mass merchandise retailer, from 1994 to 1998. Officers are elected annually and serve at the discretion of the Board of Directors. PROPERTIES Our distribution facility and executive offices are located in a single 488,000 square foot facility, which includes a 51,000 square foot mezzanine, on a 30-acre site in Pelham, Alabama. Until December 2001, we leased the Pelham facility pursuant to a lease entered into in connection with the issuance of industrial development bonds. In 2001, we paid an aggregate of $809,000 as final payments on such lease agreement. We had the option to purchase the Pelham facility for a nominal cost at the expiration of the lease and did so in the first quarter of 2002. We believe that our Pelham facility is adequate for our presently foreseeable needs. We also lease office space in New York, New York for which lease payments are approximately $79,000 per annum. 4 SELECTED FINANCIAL DATA
YEARS ENDED DECEMBER 31, -------------------------------------------------------------- 2001 2000 1999 1998 1997 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) Income Statement Data: Net sales.............. $ 152,790 $ 154,065 $ 167,217 $ 159,027 $ 145,730 Cost of merchandise sold................ 137,414 140,040 151,132 144,078 133,114 ---------- ---------- ---------- ---------- ---------- Gross profit........... 15,376 14,025 16,085 14,949 12,616 Selling and administrative expenses............ 12,869 14,687 14,234 13,315 13,705 ---------- ---------- ---------- ---------- ---------- Operating income (loss).............. 2,507 (662) 1,851 1,634 (1,089) Interest expense, net................. 1,276 1,650 1,407 1,337 991 ---------- ---------- ---------- ---------- ---------- Income (loss) before income taxes........ 1,231 (2,312) 444 297 (2,080) Income tax (benefit)... 443 (759) 145 136 (664) ---------- ---------- ---------- ---------- ---------- Net income (loss)...... $ 788 $ (1,553) $ 299 $ 161 $ (1,416) ========== ========== ========== ========== ========== Per share data: Net income (loss)... $ 0.44 $ (0.82) $ 0.16 $ 0.09 $ (0.66) ========== ========== ========== ========== ========== Weighted average common shares outstanding......... 1,795,000 1,903,000 1,881,000 1,861,000 2,135,000 ========== ========== ========== ========== ==========
YEARS ENDED DECEMBER 31, ----------------------------------------------- 2001 2000 1999 1998 1997 ------- ------- ------- ------- ------- (IN THOUSANDS) Balance Sheet Data: Current assets..................... $39,444 $44,411 $46,129 $46,105 $44,940 Property and equipment -- net...... 8,773 8,812 8,248 8,006 8,273 Other assets....................... 786 1,016 1,113 1,164 984 ------- ------- ------- ------- ------- Total assets.................... $49,003 $54,239 $55,490 $55,275 $54,197 ======= ======= ======= ======= ======= Current liabilities................ $17,233 $19,778 $22,701 $23,408 $21,482 Long-term debt..................... 18,025 21,664 17,963 17,453 18,397 Deferred income taxes.............. 926 671 1,076 1,085 1,150 Stockholders' equity............... 12,849 12,126 13,750 13,329 13,168 ------- ------- ------- ------- ------- Total liabilities and stockholders' equity.......... $49,033 $54,239 $55,490 $55,275 $54,197 ======= ======= ======= ======= =======
5 QUARTERLY FINANCIAL DATA -- UNAUDITED
QUARTERLY FINANCIAL DATA -- UNAUDITED --------------------------------------------------------------------------------- 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER ----------------- ----------------- --------------------- ----------------- 2001 2000 2001 2000 2001 2000 2001 2000 ------- ------- ------- ------- ------- ----------- ------- ------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales...................... $39,402 $43,755 $39,830 $38,642 $39,858 $38,903 $33,700 $32,765 Gross profit................... 4,093 4,260 4,024 3,959 3,928 3,651 3,331 2,155 Net income (loss).............. $ 250 $ 71 $ 255 $ (147) $ 155 $ (58) $ 128 $(1,419) Net income (loss) per share -- basic and diluted............ $ 0.14 $ 0.04 $ 0.14 $ (0.08) $ 0.09 $ (0.03) $ 0.07 $ (0.75)
Typically, sales in the 1st, 2nd and 3rd quarters are higher than in the 4th quarter due to additional sales generated by Dealers' Marts. In 2001 we held these Marts during the months of February, May and August. The Summer Mart in 2000 was held in June instead of May. The majority of the additional sales are factory direct shipments that carry a lower gross margin than warehouse shipments but contribute to our profitability. Sales in the 4th quarter are also negatively impacted by the effect of seasonal holidays. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CRITICAL ACCOUNTING POLICIES AND ESTIMATES Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We evaluate these estimates on an on-going basis using historical experience and various other assumptions believed to be reasonable under the circumstances. The results of these evaluations form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements. REVENUE RECOGNITION We recognize revenues, net of estimated sales returns, discounts and allowances, when goods are shipped, title has passed, the sales price is fixed and the collectibility is reasonably assured. We assume no significant obligations after goods are shipped. Regarding our direct shipment program, sales are recorded gross in our statements of operations since we act as principal in the sales transaction and assume the credit risk. We record provisions for estimated sales returns and allowances on sales in the same period as the related sales are recorded. These estimates are based on historical sales returns and analyses of credit memo data and other known factors. If the historic data we use to calculate these estimates does not properly reflect future returns and allowances, net sales could either be understated or overstated. In September 2000, the Emerging Issues Task Force issued EITF 00-10, Accounting for Shipping and Handling Fees and Costs (EITF 00-10). EITF 00-10 requires shipping and handling fees billed to customers to be classified as revenue and shipping and handling costs to be either classified as cost of sales or disclosed in the notes to the consolidated financial statements. Shipping and handling costs associated with inbound freight are included in cost of sales. Shipping and handling fees billed to customers are included in delivery, selling, general and administrative expenses. Statement of Position 93-7, Reporting on Advertising Costs, requires the disclosure of advertising costs. We expense the cost of advertising when incurred. Advertising expense was immaterial and did not have a significant impact on expenses for the years 2001, 2000 and 1999. ALLOWANCE FOR DOUBTFUL ACCOUNTS We maintain an allowance for doubtful accounts to reflect expected credit losses. We provide for bad debts based on collection history and specific risks identified on a customer-by-customer basis. A considerable amount of judgment is required to assess the ultimate realization of accounts receivable and the credit worthiness of each customer. Furthermore, these judgments must be continually evaluated and updated. If the financial condition of our customers were to deteriorate, resulting in impairment in their ability to make payments, additional allowances may be required in future periods. MERCHANDISE INVENTORY We state our inventory at the lower of average cost or market. An allowance for obsolete or excess inventory is maintained to reflect the estimated net realizable value of the inventory based on current market conditions and the inventory's recent historical movement and future demands. If actual market conditions and future demand are less favorable than we project, additional inventory provisions may be required. 7 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. We continuously assess the need for valuation allowances on recorded deferred tax assets and establish an allowance when we believe it is more likely than not that the asset will not be realized. PENSIONS We have pension benefit costs and credits that are developed from actuarial valuations. Inherent in these valuations are key assumptions including discount rates and expected return on plan assets. We are required to consider current market conditions, including changes in interest rates, in selecting these assumptions. Periodic changes in these key assumptions, along with changes in head count, could have a significant impact on future pension costs and recorded pension liabilities. IMPAIRMENT AND DEPRECIATION OF LONG-LIVED ASSETS We estimate the depreciable lives of property and equipment when purchased and evaluate those lives when facts and circumstances change. In regards to impairment, we have early adopted Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. Under SFAS No. 144, when events and circumstances indicate that long-lived assets used in operations may be impaired and the undiscounted cash flows estimated to be generated from those assets are less than their carrying values, we record an impairment loss equal to the excess of the carrying value over the fair value. Long-lived assets held for disposal are valued at the lower of the carrying value or fair value less disposal costs. The adoption of SFAS 144 had no significant impact on our financial condition or results of operations. RESULTS OF OPERATIONS Total gross margin for 2001 increased $449,000 or 1.9% from 2000 on a 0.8% net sales decrease. Total operating expenses decreased $2,720,000 or 11.0%. As a result of the increase in gross margin and decrease in operating expenses, operating income increased $3,169,000 to $2,507,000 compared to an operating loss of $662,000 in 2000. Total gross margin for 2000 decreased $2,750,000 or 10.2% from 1999 on a 7.9% net sales decrease. Total operating expenses decreased $237,000 or 1%. The decrease in gross margin was not fully offset by a decrease in expenses due in part to increases in benefit-related costs of $635,000 and a loss of approximately $300,000 related to start-up costs for new distribution channels for us. Operating income decreased $2,513,000 or 135.8% from 1999. NET SALES Net sales for 2001 decreased $1,275,000 or 0.8% compared to 2000. The majority of the decrease was due to territory consolidations initiated in May 2000. Quarterly comparisons for 2001 compared to 2000 were more favorable after the first quarter due to the effect of the timing of the territory consolidations. Net sales for 2000 decreased $13,152,000 or 7.9% compared to 1999 due to industry-wide trends and the effect of territory consolidations initiated during the year. 8 The following table sets forth quarterly net sales and changes by quarter for the past three years.
INCREASE (DECREASE) VS. SAME QUARTER NET SALES IN PREVIOUS YEAR -------------- ------------------- AMOUNT AMOUNT PERCENT QUARTER (IN THOUSANDS) (IN THOUSANDS) CHANGE - ------- -------------- ------------------- ------- 1999 1st......................................... $44,663 $ 4,191 10.4% 2nd......................................... 42,704 4,692 12.3 3rd......................................... 43,567 4,838 12.5 4th......................................... 36,283 (5,531) -13.2 2000 1st......................................... 43,755 (908) -2.0 2nd......................................... 38,642 (4,062) -9.6 3rd......................................... 38,903 (4,663) -10.7 4th......................................... 32,765 (3,518) -9.7 2001 1st......................................... 39,402 (4,353) -9.9 2nd......................................... 39,830 1,188 3.1 3rd......................................... 39,858 955 2.5 4th......................................... 33,700 935 2.9
OPERATIONS The following table sets forth certain financial data as a percentage of net sales for the past three years:
YEARS ENDED DECEMBER 31, ------------------------ 2001 2000 1999 ------ ------ ------ Net sales................................................... 100.0% 100.0% 100.0% ===== ===== ===== Gross margin................................................ 16.1% 15.7% 16.1% Warehouse and delivery expense.............................. 6.0 6.6 6.5 ----- ----- ----- Gross profit................................................ 10.1 9.1 9.6 Selling and administrative expense.......................... 8.5 9.5 8.5 ----- ----- ----- Operating income (loss)..................................... 1.6 -0.4 1.1 Interest expense, net....................................... 0.8 1.1 0.8 ----- ----- ----- Income (loss) before income tax (benefit)................... 0.8% -1.5% 0.3% ===== ===== =====
GROSS MARGIN Gross margin percentage increased to 16.1% of sales for 2001 from 15.7% for 2000. The effect of a higher mix of factory direct shipments that carry a lower margin rate was more than offset by an improved margin rate on a more favorable mix of warehouse shipments. Gross margin percentage decreased to 15.7% for 2000 from 16.1% for 1999, due to a devaluation in commodities (significant price reductions in copper wire, PVC pipe and polyethylene film) and a decrease in vendor incentives. Also, in the third and fourth quarters, we became more promotional in an effort to increase sales. In 2001 and 2000, there were three Dealers Marts. Most of the sales from the Dealers' Marts in both 2001 and 2000 were shipped in the first, second and third quarters and included a higher proportion of factory direct shipments at lower gross margins. The gross margin rate for the fourth quarter of 2001 was higher than 9 the first three quarters mainly due to a lower mix of lower margin factory direct shipments. The gross margin percentage for the fourth quarter of 2000 was unfavorably impacted by a decrease in incentive rebates received from our suppliers and a change in physical inventory counts from an annual count to a weekly count that cycles vendors throughout the year resulting in a lower fourth quarter positive adjustment. The following table sets forth gross margin and gross margin percentages and year-to-year changes by quarter for the last three years.
INCREASE (DECREASE) VS. SAME GROSS MARGIN QUARTER IN PREVIOUS YEAR --------------------------- ----------------------------- PERCENTAGE PERCENTAGE QUARTER AMOUNT OF SALES AMOUNT POINTS - ------- -------------- ---------- --------------- ----------- (IN THOUSANDS) (IN THOUSANDS) 1999 1st................................ $6,456 14.5% $ 390 (0.5)% 2nd................................ 6,826 16.0 789 0.1 3rd................................ 6,932 15.9 972 0.5 4th................................ 6,693 18.4 433 3.4 2000 1st................................ 6,916 15.8 460 1.3 2nd................................ 6,506 16.8 (320) 0.8 3rd................................ 6,101 15.7 (831) (0.2) 4th................................ 4,634 14.1 (2,059) (4.3) 2001 1st................................ 6,390 16.2 (526) 0.4 2nd................................ 6,276 15.8 (230) (1.0) 3rd................................ 6,244 15.7 143 0.0 4th................................ 5,696 16.9 1,062 2.8
WAREHOUSE AND DELIVERY EXPENSES As a percent of warehouse shipments, warehouse and delivery expenses decreased to 9.3% in 2001 compared to 9.8% in 2000. Continued warehouse productivity improvements and route consolidations initiated in May of 2000 had a favorable impact on warehouse and delivery expenses. Warehouse and delivery expenses decreased $690,000 or 6.49% during 2000, as compared to 1999, due to the elimination of unprofitable accounts and related expenses, as well as the maturing of the stocking and shipping system in the warehouse. 10 The following table shows the trend of warehouse and delivery expenses by quarter for the last three years.
INCREASE (DECREASE) VS. SAME WAREHOUSE & DELIVERY EXPENSES QUARTER IN PREVIOUS YEAR ----------------------------- ----------------------------- PERCENTAGE OF WAREHOUSE PERCENTAGE QUARTER AMOUNT SHIPMENTS AMOUNT POINTS - ------- -------------- ------------ --------------- ----------- (IN THOUSANDS) (IN THOUSANDS) 1999 1st.............................. $2,693 9.6% $439 0.6% 2nd.............................. 2,855 10.0 635 1.3 3rd.............................. 2,802 9.9 380 0.4 4th.............................. 2,472 9.9 (6) 0.6 2000 1st.............................. 2,656 9.2 (37) (0.4) 2nd.............................. 2,546 9.6 (309) (0.4) 3rd.............................. 2,451 9.6 (351) (0.3) 4th.............................. 2,479 10.9 7 2.3 2001 1st.............................. 2,297 8.9 (359) (0.3) 2nd.............................. 2,252 8.7 (294) (0.9) 3rd.............................. 2,316 9.3 (135) (0.3) 4th.............................. 2,365 10.3 (114) (0.6)
SELLING AND ADMINISTRATIVE EXPENSES Selling and administrative expenses decreased $1,818,000 or 12.4% in 2001 compared to the previous year. Reductions were attained during the year due to sales territory consolidations and general and administrative expense reductions initiated in May 2000. We also experienced an increase in vendor allowances. Selling and administrative expenses increased $453,000 or 3.2% in 2000 compared to the previous year. The expense for 2000 includes $300,000 relating primarily to new channel start-up costs. The following table shows the quarterly trend of selling and administrative expenses in the last three years. The fourth quarter expense in 2001 was favorably affected by the recording of an increase in vendor allowances and in 2000 was affected adversely by an increase in employee benefit expense.
INCREASE (DECREASE) VS. SAME SELLING & ADMINISTRATIVE QUARTER IN PREVIOUS YEAR --------------------------- ----------------------------- PERCENTAGE PERCENTAGE QUARTER AMOUNT OF SALES AMOUNT POINTS - ------- -------------- ---------- --------------- ----------- (IN THOUSANDS) (IN THOUSANDS) 1999 1st................................ $3,580 8.0% $206 (0.3)% 2nd................................ 3,620 8.5 253 (0.4) 3rd................................ 3,821 8.8 463 0.2 4th................................ 3,213 8.9 (3) 1.2 2000 1st................................ 3,772 8.6 192 0.6 2nd................................ 3,812 9.9 192 1.4 3rd................................ 3,309 8.5 (512) (0.3) 4th................................ 3,794 11.6 581 2.7 2001 1st................................ 3,267 8.3 (505) (0.3) 2nd................................ 3,294 8.3 (518) (1.6) 3rd................................ 3,387 8.5 78 0.0 4th................................ 2,921 8.7 (873) (2.9)
11 INTEREST EXPENSE In 2001, net interest expense decreased $374,000 or 22.7% compared to 2000. The decrease was primarily due to a decrease in the prime lending and LIBOR based rates in 2001. The weighted average interest rate was 7.10% for 2001 compared to 9.46% in 2000. In 2000, net interest expense increased $243,000 or 17.3% over 1999 due to higher interest rates and additional borrowings to fund the net operating loss and to maximize cash discounts on purchases. INCOME TAXES For information concerning income tax provisions for 2001, 2000 and 1999, as well as information regarding differences between effective tax rates and statutory tax rates, see Note 6 of our financial statements. LIQUIDITY AND CAPITAL RESOURCES In 2001, we purchased 58,200 shares of our common stock and issued 13,500 shares under the employee stock purchase plan. During 2000, we purchased 138,000 shares of our common stock and issued 44,700 shares under the employee stock purchase plan, as discussed in Note 10 of our financial statements. In 2001, we financed our working capital requirements with a line of credit under which we may borrow up to 85% of eligible receivables and 50% of eligible inventory up to $6,000,000. In December 2001, we received an extension to our working capital line that will become annually renewable in April 2003. In February 2002, we executed a working capital line increase and extension. This new line allows for a maximum borrowing of $28,000,000 and is based on 85% of eligible receivables and 50% of eligible inventory up to $11,000,000. This new line has a maturity date of April 30, 2005. The borrowings bear interest at the prime interest rate or, at our option, 2 1/2% over LIBOR (2 1/4% beginning the 2nd quarter of 2002 if we meet certain requirements). Our trade receivables and inventory secure the borrowings. Actual borrowings under lines of credit and the average interest rate were as follows during the past three years:
WEIGHTED AVERAGE YEAR-END AVERAGE YEAR-END MAXIMUM INTEREST INTEREST BORROWINGS(1) BORROWINGS BORROWINGS RATE(2) RATE ------------- ----------- ----------- -------- -------- 1999....................... $14,718,000 $16,217,000 $19,944,000 8.41% 8.50% 2000....................... 16,749,000 21,069,000 21,069,000 9.19 9.50 2001....................... 18,667,000 17,518,000 22,923,000 6.97 4.64(3)
- --------------- (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. (3) The year-end interest rate reflected for 2001 represents the LIBOR rate on the first $15,000,000 of borrowings. The remaining balance was subject to the prime rate of 4.75%. Average borrowings in 2001 increased as a result of our repayment of term debt and capital expenditures. 12 Average borrowings in 2000 increased from 1999 as a result of the company's net operating loss and effort to maximize cash discounts on purchases.
PAYMENTS DUE BY PERIOD ------------------------------------------------- LESS THAN 1 - 3 4 - 5 AFTER 5 CONTRACTUAL OBLIGATIONS TOTAL 1 YEAR YEARS YEARS YEARS - ----------------------- ------- --------- ------- ------- ------- Long Term Debt....................... $18,112 $ 280 $17,832 $ -- $ -- Capital Lease Obligations............ 247 54 101 92 -- Operating Leases..................... 2,070 765 1,088 217 -- ------- ------- ------- ------- ------- Total................................ $20,429 $ 1,099 $19,021 $ 309 $ -- ======= ======= ======= ======= =======
In February 2002, we negotiated an amendment to our working capital line that extended the maturity date to April 2005. We believe our new credit facility is adequate to finance our current working capital needs. We believe that we will have sufficient cash flow from operations and available capacity under the Credit Facility, to fund both our current operations and anticipated internal expansion, for the current year and for the subsequent two years remaining on the Credit Facility. On an historical basis, net cash provided by (used in) operating activities for fiscal years 2001, 2000 and 1999 was $5,743,000, ($1,680,000) and $746,000, respectively. The change from 2000 to 2001 was due to the increase in net income and a significant decrease in current assets (mainly trade accounts receivable - see discussion below) partially offset by a decrease in accounts payable and accrued expenses. The change from 1999 to 2000 was mainly due to the net loss in 2000. The change from 1998 to 1999 was primarily due to changes in accounts payable and accrued expenses, accounts receivable and inventory. Trade receivables decreased $6,503,000 or 29.1% and decreased $801,000 or 3.5% at December 31, 2001 and 2000, respectively, compared to the prior year. Although fourth quarter sales were 2.9% above the same quarter in 2000, trade receivables were down significantly due the effect of aggressive promotions offered to our customers in the fourth quarter of 2001. These promotions helped increase sales by offering incentive rebates to customers instead of extended dating terms provided in prior years. Fourth quarter sales in 2000 were lower than the same quarter in 1999 and consequently trade receivables were also lower. The following are the number of inventory items carried and average inventory turns for the last three years.
NUMBER OF AVERAGE ITEMS INVENTORY CARRIED TURNS --------- --------- 1999........................................................ 36,450 5.4 2000........................................................ 35,531 4.9 2001........................................................ 34,130 4.5
At December 31, 2001, inventories decreased $245,000 or 1.4% compared to the prior year, mainly due to fewer year-end purchases made to reach annual vendor incentive requirements. At December 31, 2000 inventories decreased $687,000 or 3.8% compared to 1999. The decrease in 2000 was at a rate less than the annual decrease in sales due to lower than average inventory turns. Capital expenditures in 2001 were $1,214,000. Depreciation and amortization for 2001 was $1,261,000. We have no commitments for material capital expenditures pending for 2002. INTEREST RATE RISK The following discussion about our 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. 13 Our principal credit agreement bears a floating interest rate based on the prime rate or, at our option, 2 1/2% over LIBOR. Accordingly, we are subject to market risk associated with changes in interest rates. At December 31, 2001, $17,518,000 was outstanding under the credit agreement. For 2001, the average principal amount outstanding under the credit agreement was $18,667,000. Assuming the average amount outstanding under the credit agreement during 2002 is equal to such average amount outstanding during 2001, a 1% increase in the applicable interest rate during 2002 would result in additional interest expense of approximately $186,670, which would reduce cash flow and pre-tax earnings dollar for dollar. At December 31, 2001 the prime rate was 4.75% and currently it is 4.75%. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS For information concerning the impact of recently issued accounting standards, see Note 1 to the financial statements. 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. Use of words such as "expects" and "believes" indicates 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 us 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 our customers; - our ability to achieve projected cost savings from our warehouse modernization program and ongoing cost reduction efforts; - changes in cost of goods and the effect of differential terms and conditions available to our larger competitors; - uncertainties associated with any acquisition we may seek to implement; and - changes in general economic conditions, including increases in interest rates. 14 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, 2001 and 2000, 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, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Moore-Handley, Inc. at December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Birmingham, Alabama March 1, 2002 15 MOORE-HANDLEY, INC. STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999 ------------ ------------ ------------ Net sales.......................................... $152,790,000 $154,065,000 $167,217,000 Cost of merchandise sold........................... 128,184,000 129,908,000 140,310,000 Warehouse and delivery expense..................... 9,230,000 10,132,000 10,822,000 ------------ ------------ ------------ Cost of sales...................................... 137,414,000 140,040,000 151,132,000 ------------ ------------ ------------ Gross profit....................................... 15,376,000 14,025,000 16,085,000 Selling and administrative expenses................ 12,869,000 14,687,000 14,234,000 ------------ ------------ ------------ Operating income (loss)............................ 2,507,000 (662,000) 1,851,000 Interest expense, net.............................. 1,276,000 1,650,000 1,407,000 ------------ ------------ ------------ Income (loss) before provision for income tax (benefit)........................................ 1,231,000 (2,312,000) 444,000 Income tax (benefit)............................... 443,000 (759,000) 145,000 ------------ ------------ ------------ Net income (loss).................................. $ 788,000 $ (1,553,000) $ 299,000 ============ ============ ============ Per share data: Net income (loss) per common share............... $ 0.44 $ (0.82) $ 0.16 ============ ============ ============ Weighted average common shares outstanding......... 1,795,000 1,903,000 1,881,000 ============ ============ ============
See accompanying notes. 16 MOORE-HANDLEY, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
2001 2000 1999 ----------- ----------- ----------- Cash flows from operating activities: Net income (loss)................................... $ 788,000 $(1,553,000) $ 299,000 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization.................... 1,261,000 1,302,000 1,226,000 Provision for doubtful accounts.................. 500,000 300,000 300,000 Gain on sale of equipment........................ (11,000) -- -- Deferred income taxes............................ 260,000 (565,000) 126,000 Change in assets and liabilities: Trade and other receivables.................... 3,873,000 879,000 281,000 Merchandise inventory.......................... 245,000 687,000 (602,000) Prepaid expenses............................... 103,000 227,000 (154,000) Prepaid pension cost........................... 222,000 93,000 45,000 Loan to officers............................... -- -- (60,000) Accounts payable and accrued expenses.......... (1,721,000) (2,827,000) (715,000) Refundable or accrued income taxes............. 223,000 (223,000) -- ----------- ----------- ----------- Total adjustments........................... 4,955,000 (127,000) 447,000 ----------- ----------- ----------- Net cash provided by (used in) operating activities... 5,743,000 (1,680,000) 746,000 Cash flows from investing activities: Capital expenditures................................ (1,214,000) (1,862,000) (1,462,000) Proceeds from sale of equipment..................... 11,000 -- -- ----------- ----------- ----------- Net cash used in investing activities............... (1,203,000) (1,862,000) (1,462,000) Cash flows from financing activities: Sale (purchase) of treasury stock................... (65,000) (71,000) 122,000 Net borrowings (repayments) under bank loans........ (3,551,000) 4,852,000 1,787,000 Principal payments under long-term debt............. (1,170,000) (1,247,000) (1,269,000) Additional long-term borrowings..................... 258,000 -- -- ----------- ----------- ----------- Net cash provided by (used in) financing activities....................................... (4,528,000) 3,534,000 640,000 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents...................................... 12,000 (8,000) (76,000) Cash and cash equivalents at beginning of year........ 38,000 46,000 122,000 ----------- ----------- ----------- Cash and cash equivalents at end of year.............. $ 50,000 $ 38,000 $ 46,000 =========== =========== =========== Supplemental Disclosures of Cash Flow Information; Cash paid (refunded) during the year for: Interest............................................ $ 1,435,000 $ 1,797,000 $ 1,636,000 Income taxes........................................ (102,000) 26,000 250,000
See accompanying notes. 17 (THIS PAGE INTENTIONALLY LEFT BLANK) 18 MOORE-HANDLEY, INC. BALANCE SHEETS DECEMBER 31, 2001 AND 2000
2001 2000 ------------ ----------- ASSETS Current assets: Cash and cash equivalents................................. $ 50,000 $ 38,000 Trade receivables, net of allowance for doubtful accounts of $1,028,000 in 2001 and $1,079,000 in 2000............ 15,815,000 22,318,000 Other receivables......................................... 5,413,000 3,283,000 Merchandise inventory..................................... 17,377,000 17,622,000 Prepaid expenses.......................................... 209,000 312,000 Refundable income taxes................................... -- 223,000 Deferred income taxes..................................... 610,000 615,000 ------------ ----------- Total current assets............................... 39,474,000 44,411,000 Prepaid pension cost........................................ 786,000 1,008,000 Property and equipment: Land.................................................. 718,000 718,000 Buildings............................................. 9,983,000 9,676,000 Equipment............................................. 8,804,000 8,144,000 Less accumulated depreciation......................... (10,732,000) (9,726,000) ------------ ----------- Net property and equipment............................ 8,773,000 8,812,000 Deferred charges, net of accumulated amortization of $90,000 in 2000................................................... -- 8,000 ------------ ----------- Total assets....................................... $ 49,033,000 $54,239,000 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable.......................................... $ 14,673,000 $16,927,000 Accrued payroll........................................... 893,000 464,000 Other accrued liabilities................................. 1,333,000 1,229,000 Long-term debt due within one year........................ 334,000 1,158,000 ------------ ----------- Total current liabilities.......................... 17,233,000 19,778,000 Long-term debt, less amount due within one year............. 18,025,000 21,664,000 Deferred income taxes....................................... 926,000 671,000 Commitments (Note 5)........................................ -- -- Stockholders' equity: Common stock, $.10 par value; 10,000,000 shares authorized; 2,510,040 shares issued..................... 251,000 251,000 Common stock subscribed, 112,000 shares subscribed........ 11,000 11,000 Capital in excess of par value............................ 13,150,000 13,166,000 Retained earnings......................................... 2,132,000 1,355,000 Less: Treasury stock, at cost, 736,097 shares and 691,397 shares in 2001 and 2000, respectively.................. (2,417,000) (2,363,000) Common stock subscription receivable.................... (278,000) (294,000) ------------ ----------- Total stockholders' equity......................... 12,849,000 12,126,000 ------------ ----------- Total liabilities and stockholders' equity......... $ 49,033,000 $54,239,000 ============ ===========
See accompanying notes. 19 MOORE-HANDLEY, INC. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
COMMON STOCK COMMON STOCK SUBSCRIBED CAPITAL IN TREASURY STOCK -------------------- ----------------- EXCESS OF RETAINED ---------------------- SHARES AMOUNT SHARES AMOUNT PAR VALUE EARNINGS SHARES AMOUNT --------- -------- ------- ------- ---------- ---------- -------- ----------- Balance at December 31, 1998....................... 2,510,040 $251,000 112,000 $11,000 $13,166,000 $2,826,000 655,497 $(2,631,000) Net income................... -- -- -- -- -- 299,000 -- -- Sale of treasury stock....... -- -- -- -- -- (29,000) (57,400) 151,000 --------- -------- ------- ------- ----------- ---------- -------- ----------- Balance at December 31, 1999....................... 2,510,040 251,000 112,000 11,000 13,166,000 3,096,000 598,097 (2,480,000) Net loss..................... -- -- -- -- -- (1,553,000) -- -- Sale of treasury stock....... -- -- -- -- -- (188,000) (44,700) 284,000 Purchases of treasury stock...................... -- -- -- -- -- 138,000 (167,000) --------- -------- ------- ------- ----------- ---------- -------- ----------- Balance at December 31, 2000....................... 2,510,040 251,000 112,000 11,000 13,166,000 1,355,000 691,397 (2,363,000) Net income................... -- -- -- -- -- 788,000 -- -- Loans repaid................. -- -- -- -- (16,000) -- -- -- Sale of treasury stock....... -- -- -- -- -- (11,000) (13,500) 44,000 Purchases of treasury stock...................... -- -- -- -- -- -- 58,200 (98,000) --------- -------- ------- ------- ----------- ---------- -------- ----------- Balance at December 31, 2001....................... 2,510,040 $251,000 112,000 $11,000 $13,150,000 $2,132,000 736,097 $(2,417,000) ========= ======== ======= ======= =========== ========== ======== =========== COMMON STOCK TOTAL SUBSCRIPTIONS STOCKHOLDERS' RECEIVABLE EQUITY ------------- ------------- Balance at December 31, 1998....................... $(294,000) $13,329,000 Net income................... -- 299,000 Sale of treasury stock....... -- 122,000 --------- ----------- Balance at December 31, 1999....................... (294,000) 13,750,000 Net loss..................... -- (1,553,000) Sale of treasury stock....... -- 96,000 Purchases of treasury stock...................... -- (167,000) --------- ----------- Balance at December 31, 2000....................... (294,000) 12,126,000 Net income................... -- 788,000 Loans repaid................. 16,000 -- Sale of treasury stock....... -- 33,000 Purchases of treasury stock...................... -- (98,000) --------- ----------- Balance at December 31, 2001....................... $(278,000) $12,849,000 ========= ===========
See accompanying notes. 20 MOORE-HANDLEY, INC. NOTES TO FINANCIAL STATEMENTS 1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES We are a full-service distributor of plumbing and electrical supplies, power and hand tools, paint and paint sundries, lawn and garden equipment and other hardware and building materials products. We service customers, throughout the Southeast, including retail home centers, hardware stores, building materials dealers, paint stores, combination stores, a limited number of mass merchandisers, businesses and institutions. CASH We consider all highly liquid securities with maturity at the time of purchase of three months or less to be cash. As of December 31, 2001, we had no such instruments. BASIS OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates. ALLOWANCE FOR DOUBTFUL ACCOUNTS We maintain an allowance for doubtful accounts to reflect expected credit losses. We provide for bad debts based on collection history and specific risks identified on a customer-by-customer basis. A considerable amount of judgment is required to assess the ultimate realization of accounts receivable and the credit worthiness of each customer. Furthermore, these judgments must be continually evaluated and updated. If the financial condition of our customers were to deteriorate, resulting in impairment in their ability to make payments, additional allowances may be required in future periods. CERTAIN CONCENTRATIONS We are a wholesaler of hardware and building materials products and as such grant credit to our customers, most of whom are independent retailers located in the Southeast. We perform periodic credit evaluations of our customers' financial condition and obtain personal guarantees and/or security interests where we deem necessary. No customer or affiliated group of customers accounted for more than 2% of net sales for 2001, 2000 and 1999. As of December 31, 2001, we employed 391 persons of whom 177 are subject to a collective bargaining agreement expiring in December 2004. MERCHANDISE INVENTORY We state our inventory at the lower of average cost or market. An allowance for obsolete or excess inventory is maintained to reflect the estimated net realizable value of the inventory based on current market conditions and the inventory's recent historical movement and future demands. If actual market conditions and future demand are less favorable than we project, additional inventory provisions may be required. OTHER RECEIVABLES Other receivables consist primarily of vendor rebates and vendor allowances receivable (see Note 2). We record the credits and payments as a reduction of cost of sales at the point in time at which the activities required by the supplier related to the credit or payment are completed, the amount is fixed and determinable, and collectibility is reasonably assured. Arrangements with suppliers for volume incentives are typically based 21 MOORE-HANDLEY, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) on a contractual arrangement covering a one-year or less period of time providing for incentives based on purchasing volumes. We are not obligated to purchase a specified volume of the product. 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................................................... 25-40 years Equipment................................................... 3-15 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. We continuously assess the need for valuation allowances on recorded deferred tax assets and establish an allowance when we believe it is more likely than not that the asset will not be realized. IMPAIRMENT AND DEPRECIATION OF LONG-LIVED ASSETS We estimate the depreciable lives of property and equipment when purchased and evaluate those lives when facts and circumstances change. In regards to impairment, we have early adopted Statement of Financial Accounting Standards (SFAS) No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, which supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. Under SFAS No. 144, when events and circumstances indicate that long-lived assets used in operations may be impaired and the undiscounted cash flows estimated to be generated from those assets are less than their carrying values, we record an impairment loss equal to the excess of the carrying value over the fair value. Long-lived assets held for disposal are valued at the lower of the carrying value or fair value less disposal costs. The adoption of SFAS 144 had no significant impact on our financial condition or results of operations. PENSIONS We have pension benefit costs and credits that are developed from actuarial valuations. Inherent in these valuations are key assumptions including discount rates and expected return on plan assets. We are required to consider current market conditions, including changes in interest rates, in selecting these assumptions. Periodic changes in these key assumptions, along with changes in head count, could have a significant impact on future pension costs and recorded pension liabilities. STOCK OPTION ACCOUNTING We account for our stock compensation arrangements under the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25), under which no compensation cost has been recognized. INCOME OR LOSS PER COMMON SHARE Basic net income or loss per share is computed using the weighted average number of common shares outstanding. Diluted net income or loss per share is computed using the weighted average number of common shares outstanding plus the effect of dilutive stock options. 22 MOORE-HANDLEY, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) REVENUE RECOGNITION We recognize revenues, net of estimated sales returns, discounts and allowances, when goods are shipped, title has passed, the sales price is fixed and the collectibility is reasonably assured. We assume no significant obligations after goods are shipped. Regarding our direct shipment program, sales are recorded gross in our statements of operations since we act as principal in the sales transaction and assume the credit risk. We record provisions for estimated sales returns and allowances on sales in the same period as the related sales are recorded. These estimates are based on historical sales returns and analyses of credit memo data and other known factors. If the historic data we use to calculate these estimates does not properly reflect future returns and allowances, net sales could either be understated or overstated. In September 2000, the Emerging Issues Task Force issued EITF 00-10, Accounting for Shipping and Handling Fees and Costs (EITF 00-10). EITF 00-10 requires shipping and handling fees billed to customers to be classified as revenue and shipping and handling costs to be either classified as cost of sales or disclosed in the notes to the consolidated financial statements. Shipping and handling costs associated with inbound freight are included in cost of sales. Shipping and handling fees billed to customers are included in delivery, selling, general and administrative expenses and totaled $169,164, $102,255 and $48,345 in 2001, 2000 and 1999, respectively. Statement of Position 93-7, Reporting on Advertising Costs, requires the disclosure of advertising costs. We expense the cost of advertising when incurred. Advertising expense was immaterial and did not have a significant impact on expenses for the years 2001, 2000 and 1999. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES We adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, effective January 1, 2001. SFAS No. 133 requires us 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 be recognized in other comprehensive income until the hedged item is recognized in earnings. The adoption of this statement did not have a significant impact on our financial statements. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In July 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 eliminates amortization of goodwill and requires an impairment-only model to record the value of goodwill. SFAS No. 142 requires that impairment be tested at least annually at the reporting unit level, using a two-step impairment test. Purchased intangibles with indefinite economic lives will be tested for impairment annually using a lower of cost or market approach. Other intangibles will continue to be amortized over their useful lives and reviewed for impairment when the facts and circumstances suggest that they may be impaired. The adoption of SFAS No. 142 is not expected to have a significant impact on our financial condition and results of operation. 2. OTHER RECEIVABLES Other receivables increased $2,130,000 or 64.9% due to an increase in vendor rebates and allowances receivable. Most of the increase was due to negotiated increases in vendor payments of rebates and allowances to be collected after year-end, including Mart booth fees that historically were charged and collected during the year, but were converted to a fixed vendor charge or a calculated rebate based on annual volume during 2001. 23 MOORE-HANDLEY, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The following table illustrates the content of other receivables as presented in our financial statements:
2001 2000 ---------- ---------- Vendor Rebates Receivable................................... $2,470,000 $2,300,000 Vendor Allowances Receivable................................ 2,678,000 863,000 Other Miscellaneous Receivables............................. 265,000 120,000 ---------- ---------- $5,413,000 $3,283,000 ========== ==========
3. LOANS TO OFFICERS In 1999, we loaned an officer $60,000. This loan bears interest at our average rate during the previous year, and the officer is required to make scheduled interest payments each April 1 over the term of the loan. In addition, the officer is required to make principal payments equal to one-third of any annual bonus received. This note is due and payable in full in April 2004. The principal balance outstanding as of December 31, 2001 was $57,481. 4. LONG-TERM DEBT Long-term debt at December 31, 2001 and 2000, includes obligations under capital leases, a term loan and a revolving line of credit all of which approximates fair value. At December 31, 2000, we also had outstanding long-term debt for industrial development bonds for our Pelham facility. These bonds retired in November 2001. Long-term debt at December 31 consisted of:
2001 2000 ----------- ----------- Industrial development bonds (paid in full at December 31, 2001, variable rate of 8.74% at December 31, 2000)....... $ -- $ 809,000 Note payable to bank (fixed rate of 8.25%; due January 2004).................................................... 595,000 881,000 Line of credit (variable rate of 4.64% and 9.50% at December 31, 2001 and 2000, respectively; due April 2003).................................................... 17,517,000 21,069,000 Capital lease obligations.................................. 247,000 63,000 ----------- ----------- 18,359,000 22,822,000 Less current maturities.................................... (334,000) (1,158,000) ----------- ----------- $18,025,000 $21,664,000 =========== ===========
We were party to lease agreements with an industrial development board, which were 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. We had an unconditional obligation to pay the principal and interest at 92% of the prime rate on the bonds and had options to purchase the property for a nominal cost at the expiration of the lease. The bonds were paid in full as of December 31, 2001. At December 31, 2000, the prime rate was 9.5%. Subsequent to year-end, we exercised our option to purchase the property for a nominal cost. We have financed the purchase of transportation and computer equipment with leases. These leases are being accounted for as capital leases. Annual installments of principal on all capital leases decrease from approximately $133,000 in 2001 to $49,000 in 2002. The amortization expense relating to these leases is combined with depreciation expense. 24 MOORE-HANDLEY, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The assets purchased under capital leases include:
2001 2000 ----------- ----------- Land, building and equipment............................... $10,304,380 $10,052,000 Less accumulated amortization.............................. (6,169,000) (5,863,000) ----------- ----------- Net land, building and equipment........................... $ 4,135,380 $ 4,189,000 =========== ===========
We have financed a $2,000,000 warehouse modernization program with a term loan payable in equal monthly principal payments through January 2004, together with interest at 8.25%. In March 2000, we executed a working capital line 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. In December 2001, we received an extension to our working capital line that will become annually renewable in April 2003. We believe this credit facility is adequate to finance our working capital needs. Maturity of long-term debt is as follows: 2002........................................................ $ 334,000 2003........................................................ 17,856,000 2004........................................................ 77,000 2005........................................................ 57,000 2006........................................................ 35,000 ----------- $18,359,000 ===========
In February 2002, we negotiated an amendment to our working capital line that extended the maturity date to April 2005. The amendment will allow maximum borrowings of $28,000,000 and will be secured with 50% of eligible inventory up to $11,000,000. The interest rate on the facility will remain at prime rate or, at our option, 2 1/2% over LIBOR (2 1/4% beginning the 2nd quarter of 2002 if we meet certain requirements). Interest expense on long-term debt bank loans and capital lease obligations for the years ended December 31, 2001, 2000 and 1999 was $1,422,000, $1,797,000 and $1,555,000, respectively. 5. COMMITMENTS Total future rental payments under non-cancelable operating leases that expire in 2006 are $2,070,000. Annual rentals for the remainder of the lease terms are as follows: 2002........................................................ $ 765,000 2003........................................................ 573,000 2004........................................................ 515,000 2005........................................................ 213,000 2006........................................................ 4,000 ---------- $2,070,000 ==========
Rental expense was $1,078,000, $1,082,000 and $1,107,000 in 2001, 2000 and 1999, respectively. 25 MOORE-HANDLEY, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 6. INCOME TAX The provision for income tax expense (benefit) consists of the following:
2001 2000 1999 -------- --------- -------- Current: Federal........................................... $141,000 $(194,000) $ 20,000 State............................................. 41,000 -- -- Deferred............................................ 261,000 (565,000) 125,000 -------- --------- -------- $443,000 $(759,000) $145,000 ======== ========= ========
The deferred income tax assets and liabilities are reflected in the balance sheets as follows:
2001 2000 -------- ---------- Deferred Tax Assets: Accrued vacation.......................................... $174,000 $ 109,000 Allowance for doubtful accounts........................... 379,000 398,000 Accrued health insurance costs............................ 57,000 52,000 NOL carryforward -- federal............................... -- 396,000 Inventory................................................. 57,000 108,000 -------- ---------- 667,000 1,063,000 Deferred Tax Liabilities: Depreciation.............................................. 693,000 747,000 Provision for pension expenses............................ 290,000 372,000 -------- ---------- 983,000 1,119,000 -------- ---------- Net liability............................................... $316,000 $ 56,000 ======== ==========
The provision for income taxes (benefit) differs from the statutory federal income tax rate as a result of the following:
PERCENT OF PRE-TAX INCOME ------------------ 2001 2002 1999 ---- ---- ---- Statutory U.S. income tax rate.............................. 34% (34)% 34% Increase in rates resulting from: State income taxes -- net of federal benefit.............. 3 -- -- Non-deductible meals and entertainment.................... 2 1 11 Section 170(e)(3) deduction................................. -- -- (15) Other non-deductible items.................................. (3) -- 3 -- --- --- Effective income tax rate................................... 36% (33)% 33% == === ===
7. PENSION PLANS We have two trusteed, noncontributory, qualified defined benefit pension plans covering substantially all of our employees. 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 26 MOORE-HANDLEY, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) are based on the amount necessary to fund the minimum level required by the Employee Retirement Income Security Act of 1974. Net periodic pension cost for the last three years included the following components:
2001 2000 1999 --------- --------- --------- Service cost -- benefits earned during the period.......................................... $ 359,000 $ 336,000 $ 315,000 Interest cost on projected benefit obligation..... 500,000 462,000 469,000 Expected return on assets......................... (537,000) (507,000) (528,000) Net amortization and deferral..................... 15,000 119,000 119,000 --------- --------- --------- Net periodic pension cost......................... $ 337,000 $ 410,000 $ 375,000 ========= ========= =========
The following table sets forth benefit obligations, the assets of the plans and the amount of the net prepaid pension cost recognized in the balance sheets as of December 31, 2001 and 2000.
2001 2000 ---------- ---------- Change in benefit obligation: Benefit obligation at beginning of year................... $7,297,000 $7,039,000 Service costs............................................. 359,000 336,000 Interest costs............................................ 501,000 462,000 Actuarial loss............................................ 175,000 111,000 Benefits paid............................................. (418,000) (651,000) ---------- ---------- Benefit obligation at end of year......................... $7,914,000 $7,297,000 ========== ========== Change in plan assets: Fair value of plan assets at beginning of year............ $7,660,000 $7,537,000 Actual return on plan assets.............................. 462,000 457,000 Company contributions..................................... 115,000 317,000 Benefits paid............................................. (418,000) (651,000) ---------- ---------- Fair value of assets at end of year....................... $7,819,000 $7,660,000 ========== ========== Funded status of plan (under) over funded................. $ (95,000) $ 363,000 Unrecognized obligations at transition.................... 34,000 37,000 Unrecognized net actuarial loss........................... 785,000 534,000 Unrecognized prior service cost........................... 62,000 74,000 ---------- ---------- Prepaid pension cost...................................... $ 786,000 $1,008,000 ========== ==========
The assumptions used to measure the projected benefit obligations and the expected earnings on plan assets at December 31 for the last three years were: Weighted average discount rate.............................. 7% Long-term rate of return on assets.......................... 7% Increase in future compensation levels...................... 4%
In addition, we have 401(k) savings plans covering substantially all employees. There were no employer contributions made in 2001, 2000 or 1999. 27 MOORE-HANDLEY, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 8. SEGMENT REPORTING We operate in one business segment. Revenues from products are as follows:
2001 2000 1999 ------------ ------------ ------------ Electrical and plumbing supplies........... $ 31,702,000 $ 34,819,000 $ 35,450,000 Home center products (including lawn and garden equipment, paint, sporting goods and appliances).......................... 27,389,000 33,278,000 37,457,000 Building supplies (including aluminum windows and doors, roofing products and lumber).................................. 36,679,000 35,743,000 41,135,000 General and shelf hardware (including power and hand tools, lock sets and wire products)................................ 57,020,000 50,225,000 53,175,000 ------------ ------------ ------------ $152,790,000 $154,065,000 $167,217,000 ============ ============ ============
9. 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. On April 26, 2001, the stockholders approved the 2001 Incentive Compensation Plan pursuant to which a maximum aggregate of 460,000 shares of common stock may be issued to employees and directors until March 23, 2011. We have elected to follow APB No. 25 and related interpretations in accounting for our employee stock options. Under APB No. 25, because the exercise price for the employees' stock options equal the market price of the underlying stock on the date of grant, no compensation expense is recognized. These options vest either in six months after the date of grant or in equal annual installments over five years. Pro forma information regarding net income and earnings per share is required by FASB Statement No. 123, Accounting for Stock-Based Compensation (Statement No. 123), and has been determined as if we had accounted for our employee stock options under the fair value method of Statement No. 123. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average calculations for 2001, 2000 and 1999; risk-free interest rate of 5.7%, 6.1%, and 7%, respectively; dividend yield of 0%; volatility factor of the expected market price of our common stock of .34, .28, and .31, respectively; and a weighted-average expected life of the option of 10.0, 10.0, and 10.0 years. The weighted average grant date fair value of options granted during 2001 was $.57. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. Our pro forma information follows:
2001 2000 1999 -------- ----------- -------- Pro forma net income (loss)........................ $721,000 $(1,617,000) $251,000 ======== =========== ======== Pro forma net income (loss) per share -- basic..... $ 0.40 $ (0.85) $ 0.05 ======== =========== ========
28 MOORE-HANDLEY, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The following table shows the shares under these plans:
2001 2000 1999 ------------------ ------------------ ------------------ WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE ------- -------- ------- -------- ------- -------- Outstanding at beginning of year..................... 221,000 $3.121 215,000 $3.337 186,000 $3.817 Granted.................... 261,000 1.127 6,000 1.063 44,000 1.875 Exercised.................. -- -- -- -- -- -- Forfeited.................. 35,000 1.707 -- -- 15,000 1.875 Expired.................... 20,000 4.555 -- -- -- -- ------- ------- ------- Outstanding at end of year..................... 427,000 $2.039 221,000 $3.121 215,000 $3.337 ======= ====== ======= ====== ======= ====== Exercisable at end of year..................... 182,000 $3.273 221,000 $3.121 175,000 $3.832 ======= ====== ======= ====== ======= ======
The range of exercise prices of the outstanding options and exercisable options at December 31, 2001 are as follows:
NUMBER OF NUMBER OF OUTSTANDING EXERCISE PRICE EXERCISABLE EXERCISABLE EXERCISABLE RANGE SHARES SHARES THROUGH - -------------- ----------- ----------- ------------- $4.750 4,000 4,000 April 2005 3.500 4,000 4,000 April 2006 3.375 4,000 4,000 April 2007 2.438 4,000 4,000 April 2008 1.875 4,000 4,000 April 2009 1.625 6,000 6,000 April 2010 1.080 6,000 6,000 April 2011 3.375 75,000 75,000 November 2006 3.267 75,000 75,000 January 2007 1.313 -- 75,000 August 2010 1.030 to 1.090 -- 90,000 June 2011 1.030 to 1.090 -- 80,000 December 2011 ------- ------- 182,000 427,000 ======= =======
10. COMMON STOCK SUBSCRIPTIONS RECEIVABLE During 1998, the stockholders approved the Employee Stock Purchase Plan (the "Plan"). The Plan is designed to encourage and facilitate stock ownership to its employees by providing a continued opportunity to purchase common stock, generally through voluntary after-tax payroll deductions. The price per share of the common stock shall be 85% of the fair market value on the date of the grant of the option for the qualified stock purchases and shall not be less than 100% of the fair market value on the date of the grant of the option for the non-qualified stock options. During 2001, 13,500 shares were issued under this Plan from treasury stock compared to 44,700 shares in 2000. 29 MOORE-HANDLEY, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) In connection with the Employee Stock Purchase Plan formed in 1998, certain individuals issued three-year promissory notes to us whereby the individuals are obligated to pay annual interest of 8.5% and a balloon principal payment no later than June 30, 2001. These notes are secured by related shares of common stock. In June 2001, one note was paid in full and the others were amended to extend their maturity date to June 2003. The amended promissory notes are also payable on demand and the interest rates have been reset to our average cost of borrowing plus 2.25%. 11. EARNINGS PER SHARE Basic and diluted earnings per share were the same for 2001, 2000 and 1999. The numerator for basic and diluted earnings per share includes net income (loss) of $788,000, ($1,553,000) and $299,000 for 2001, 2000 and 1999, respectively. The denominator for diluted earnings per share includes weighted average common shares and common stock equivalents outstanding of 1,845,000, 1,903,000 and 1,883,000 for 2001, 2000 and 1999, respectively. The denominator for basic earnings per share includes weighted average common shares outstanding of 1,795,000, 1,903,000, and 1,881,000 for 2001, 2000 and 1999, respectively. 30 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/ GARY C. MERCER ------------------------------------ Gary C. Mercer Chief Financial Officer (Principal Accounting and Financial Officer) March 30, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ WILLIAM RILEY Chairman of the Board, Director March 29, 2002 ------------------------------------------------ and Chief Executive Officer William Riley /s/ MICHAEL J. GAINES President and Chief Operating March 29, 2002 ------------------------------------------------ Officer Michael J. Gaines /s/ GARY C. MERCER Chief Financial Officer March 29, 2002 ------------------------------------------------ Gary C. Mercer /s/ PIERCE E. MARKS, JR. Director March 29, 2002 ------------------------------------------------ Pierce E. Marks, Jr. /s/ MICHAEL B. STUBBS Director March 29, 2002 ------------------------------------------------ Michael B. Stubbs /s/ MICHAEL PALMER Director March 29, 2002 ------------------------------------------------ Michael Palmer
31 MOORE-HANDLEY, INC. INDEX OF EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3(a) -- Restated Certificate of Incorporation of Company, filed as Exhibit 3(a) to the Company's Annual Report on Form 10-K for the year ended December 31, 1987 and incorporated herein by reference. 3(a)-1 -- Amendment to Restated Certificate of Incorporation dated May 7, 1987, filed as Exhibit 3(a)-1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1987 and incorporated herein by reference. 3(b) -- By-laws of the Company, filed as Exhibit 3(d) to the Company's Registration Statement on Form S-1 (Reg. No. 33-3032) and incorporated herein by reference. 3(b)-1 -- Article VII of By-laws of the Company, as amended May 7, 1987 filed as Exhibit 3(b)-1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1987 and incorporated herein by reference. 10.1 -- The Moore-Handley, Incorporated Salaried Pension Plan, effective January 1, 1985, as amended, filed as Exhibit 10(n) to the Company's Registration Statement on Form S-1 (Reg. No. 33-3032) and incorporated herein by reference. 10.2 -- Amendment No. 4 to The Moore-Handley Incorporated Salaried Pension Plan, dated February 10, 1992 but effective January 1, 1987, filed as Exhibit 10(n)-1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated herein by reference. 10.3 -- Amendment No. 5 to The Moore-Handley Incorporated Salaried Pension Plan, dated February 10, 1992 but effective January 1, 1988, filed as Exhibit 10(n)-2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated herein by reference. 10.4 -- Amended and Restated Moore-Handley, Inc. Salaried Pension Plan, dated February 10, 1992 but effective January 1, 1989, filed as Exhibit 10(n)-3 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated herein by reference. 10.5 -- Amendment No. 6 to The Moore-Handley Incorporated Salaried Pension Plan, dated February 10, 1992, filed as Exhibit 10(n)-4 to the Company's Annual Report on Form 10-K for the year ended December 31, 1991 and incorporated herein by reference. 10.6 -- Amendment No. 2 to The Moore-Handley Incorporated Salaried Pension Plan, dated December 29, 1994, filed as Exhibit 10(n)-5 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference. 10.7 -- The Moore-Handley Salaried Employees' Savings Plan and Trust, effective January 1, 1985, as amended, filed as Exhibit 10(p) to the Company's Registration Statement on Form S-1 (Reg. No. 33-3032) and incorporated herein by reference. 10.8 -- Amended and restated The Moore-Handley Salaried Employees' Savings Plan and Trust dated February 4, 1994 but effective January 1, 1989, filed as Exhibit 10(p)-1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1994 and incorporated herein by reference. 10.9 -- 1991 Incentive Compensation Plan, filed as Exhibit A to the Company's Proxy Statement dated April 30, 1991 and incorporated herein by reference. 10.10 -- 2001 Incentive Compensation Plan, filed as Appendix B to the Company's Proxy Statement dated March 30, 2001 and incorporated herein by reference. 10.11 -- Amendment to 2001 Incentive Compensation Plan, filed as Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the Quarter ended June 30, 2001 and incorporated herein by reference.
32
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.12 -- The Moore-Handley, Inc. Employees' 401(k) Profit Sharing Prototype Non-Standardized Adoption Agreement effective July 1, 1993, filed as Exhibit 10(gg) to the Company's Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference. 10.13 -- Financing Agreement, dated August 7, 1997, between the Company and The CIT Group/ Business Credit, Inc. filed as Exhibit 10(ii) to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997 and incorporated herein by reference. 10.14 -- The Moore-Handley, Inc. Employee Stock Purchase Plan filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999, and incorporated herein by reference. 10.15 -- Amendment dated September 24, 1999 to Financing Agreement, dated August 7, 1997, between the Company and The CIT Group/Business Credit, Inc. filed as Exhibit 10(a) to the Company's Quarterly Report on Form 10Q for the quarter ended September 30, 1999 and incorporated herein by reference. 10.16 -- Amendment dated March 10, 2000 to Financing Agreement, dated August 7, 1997, between the Company and The CIT Group/Business Credit, Inc. 10.17 -- Amendment dated February 14, 2002 to Financing Agreement, dated August 7, 1997, between the Company and The CIT Group/Business Credit, Inc. 21 -- List of Subsidiaries is incorporated herein by reference to Exhibit 9 to the Company's Annual Report on Form 10-K for the year ended December 31, 1997. 23 -- Consent of Ernst & Young LLP, Independent Auditors.
33 [MOORE-HANDLEY, INC. LOGO] ANNUAL REPORT YEAR ENDED DECEMBER 31, 2001 34 EX-10.16 3 g75037ex10-16.txt AMENDMENT TO FINANCING AGREEMENT EXHIBIT 10.16 The CIT Group/Business Credit, Inc. 1200 Ashwood Parkway Suite 150 Atlanta, GA 30338 770 522-7672 March 10, 2000 MOORE-HANDLEY, INC. 3140 Pelham Parkway Pelham, AL 35124 Gentlemen: Reference is made to the Financing Agreement between us dated August 7, 1997, as supplemented and amended (the "Financing Agreement"). Capitalized terms used and not otherwise defined herein shall have the same meanings given them in the Financing Agreement. You have requested that we (i) increase the Line of Credit to $24,000,000.00, (ii) establish a sub-line within the Line of Credit for advances against Eligible Inventory (as further set forth in the Inventory Security Agreement of even date herewith) and (iii) extend the term of the Financing Agreement to August 7, 2002, and we have agreed to such amendment subject to, and in accordance with the terms, provisions and conditions hereof: Effective immediately, pursuant to mutual agreement, the Financing Agreement shall be, and hereby is, amended as follows: 1. The definitions of "early Termination Date" and "Early Termination Fee" (as set forth in Section 1 of the Financing Agreement) shall be, and each hereby is amended by changing the references therein to "third Anniversary Date" to fifth Anniversary Date"; 2. The definition of "Line of Credit" (as set forth in Section 1 of the Financing Agreement" shall be, and hereby is amended by increasing the $20,000,000.00 amount as set forth therein to $24,000,000.00; and 3. Section 11 of the Financing Agreement shall be, and hereby is amended by changing all references "third Anniversary Date" in the first and fourth sentences thereof to read "fifth Anniversary Date". In addition, we will make advances against Eligible Inventory to you within the Line of Credit subject to and in accordance with the terms, provisions, conditions and limitations set forth in the Inventory Security Agreement. This Amendment shall be effective as of the date hereof upon the satisfaction of the following conditions precedent: 1. receipt by CITBC of (i) a manually signed original copy of this Amendment, Inventory Security Agreement and all other related documents thereto duly executed and delivered by all parties hereto, and (ii) the execution and delivery to CITBC of any other documentation reasonably requested by CITBC (all of which shall be acceptable to CITBC in its discretion); 2. The absence of (x) any Default and/or Event of Default and (y) any material adverse change in the financial condition, business, prospects, profitability, assets or operations of the Company; 3. CITBC's receipt of a secretary's certificate certifying Board of Directors Resolutions authorizing the execution, delivery and performance by the Company of this agreement and all documents and transactions contemplated hereby; and B-37 4. Payment by the Company of (i) any Out-of-Pocket Expenses incurred by CITBC with respect to the preparation, execution, filing of any financing statements and delivery of this Amendment, and (ii) in consideration of the preparation by CITBC's in house legal department of this Amendment, a Documentation Fee equal to $1,000.00. All such amounts may, at CITBC's option, be charged to Revolving Loan Account under the Financing Agreement. Except as set forth above no other changes in the terms and provisions of the Financing Agreement are intended or implied. If the foregoing is in accordance with your understanding of our agreement kindly so indicate by signing and returning to us the enclosed copy of the letter. Very truly yours, THE CIT GROUP/BUSINESS CREDIT, INC. By: --------------------------------- Name: Title Read and Agreed to: MOORE-HANDLEY, INC. By: --------------------------------- Name: Title B-38 The CIT Group/Business Credit, Inc. 1200 Ashwood Parkway Suite 150 Atlanta, GA 30338 770 522-7672 March 10, 2000 MOORE-HANDLEY, INC. 3140 Pelham Parkway Pelham, AL 35124 INVENTORY SECURITY AGREEMENT Ladies and Gentlemen: This agreement is being executed by you to induce us to make loans or advances to you and to induce us to enter into or continue a financing arrangement with you, and is executed in consideration of our doing or having done any of the foregoing. Capitalized terms used herein and defined in the Financing Agreement between as dated August 7, 1997, as amended (the "Financing Agreement") shall set forth therein unless otherwise specifically defined herein. 1. ADVANCES 1.1 Within the Line of Credit and so long as no Default or Even of Default has occurred under the Financing Agreement, we will make advances to you from time to time of up to fifty percent (50%) of the value of your Eligible Inventory (as hereinafter defined) calculated on the basis of the lower of cost or market, with cost calculated on a first in - first out basis, provided that in no event shall advances against Eligible Inventory exceed $6,000,000.00 in the aggregate at any one time outstanding. Eligible Inventory shall mean the gross amount of your Inventory (as hereinafter defined) that is subject to a valid, exclusive, first priority and fully perfected security interest in our favor and which Inventory at all times continues to be acceptable to us in our reasonable business judgement and less any (a) work-in-process, (b) supplies, other than raw material, (c) Inventory not present in the United States of America, (d) Inventory returned or rejected by your customers other than goods that are undamaged and resalable in the normal course of business, (e) Inventory to be returned to your suppliers, (f) Inventory in transit to third parties (other than you agents or warehouses), (g) Inventory in possession of a warehouseman, bailee or other third party, unless such warehouseman, bailee or third party has executed a notice of security interest agreement (in form and substance satisfactory to us) and we have taken all other action required by us in our reasonable discretion, including for special order goods, discontinued, slow-moving and obsolete Inventory, market value declines, bill and hold (deferred shipment), consignment sales and shrinkage. 1.2 Such loan and advances made or to be made by us to you, and the period of time during which they are to remain outstanding shall at all times by subject to the terms, provisions and conditions of the Financing Agreement, and shall constitute Revolving Loans and Obligations thereunder. The valuation and acceptability of the Eligible Inventory is to be determined exclusively by us. 1.3 Nothing contained herein shall be construed as limiting or modifying, in any way, any of our rights under the Financing Agreement including but not limited to our right to hold any reserve we deem necessary as security for payment and performance of your Obligations. 2. GRANT OF SECURITY INTEREST 2.1 As security for the prompt payment in full of all indebtedness, liabilities and/or obligations due by you from time to time to us, hereunder and under the Financing Agreement (herein the B-39 "Obligations"), you hereby pledge and grant to us a continuing general lien upon, and security interest in (herein "Security Interest"), the following described "Inventory": All present and hereafter acquired merchandise, inventory and goods, and all additions, substitutions and replacements thereof, wherever located, together with all goods and materials used or usable in manufacturing, processing, packaging or shipping same; in all stages of production - from raw materials through work-in-process to finished goods - and all proceeds of whatever sort. 2.2 The Security Interest in the Inventory shall extend and attach to: (a) All Inventory which is presently in existence and which is owned by you or in which you have any ownership interest, and all Inventory which you may purchase or in which you may acquire any ownership interest at any time and from time to time in the future, whether such Inventory is in transit or in your or our constructive, actual or exclusive possession, or is held by others for your account; (b) All Inventory wherever located, including, without limitation, all Inventory which may be located on your premises or upon the premises of any carriers, forwarding agents, truckers, warehousemen, vendors, selling agents, finishers, converters, processors, or other third persons who may have possession of the Inventory; and (c) All Inventory and any portion thereof which may be returned, rejected, reclaimed or repossessed by either of us from your customers, as well as to all supplies, goods, incidentals, packaging materials, and any other items which contribute to the finished goods or products manufactured or processed by you, or to the sale, promotion or shipment thereof. 3. OBLIGATIONS SECURED The Security Interest granted hereunder and any lien or security interest that we now or hereafter have in any of your other assets, collateral or property, secure the payment and performance of all of your now existing and future Obligations to us, whether absolute or contingent, whether arising under the Financing Agreement, this agreement or any other agreement or arrangement between us, by operation of law or otherwise, including indebtedness arising under any guaranty, credit enhancement or other credit support granted by us in your favor, including any accommodation extended with respect to applications for letters of credit, our acceptance of drafts or our endorsement of notes or other instruments for your account and benefit. Obligations shall also include, without limitation, all interest, commissions, financing and service charges, and expenses and fees chargeable to and due from you under this agreement, the Financing Agreement or any other agreement or arrangement which may be now or hereafter entered into between us. 4. REPRESENTATIONS, WARRANTIES AND COVENANTS 4.1.1 You agree to safeguard, protect and hold all Inventory for our account and make no disposition thereof except in the regular course of your business as herein provided. You represent and warrant that Inventory will be sold and shipped by you to your customers only in the ordinary course of your business and then only on open account and on terms not exceeding the terms currently being extended by you to your customers, provided that all proceeds of all sales (including cash, accounts receivable, checks, notes, instruments for the payment of money and similar proceeds) are forthwith transferred, assigned, endorsed, and turned over and delivered to us. Invoices covering sales of Inventory are to be assigned to us in accordance with the provisions of the Agreement, and the proceeds thereof (if collected by you) are to be turned over to us in accordance with the provisions of the Agreement. Consignment sales or sales in which a lien upon or security interest in the Inventory is retained by you shall only be made by you with our written approval, and all proceeds of such sales shall not be commingled with your other property, but shall be segregated, held by you in trust for us as our exclusive property, and shall be delivered immediately by you to us in the identical form received by you. Upon the sale, exchange, or other disposition of the Inventory, as herein provided, the Security Interest provided for herein shall, without break in continuity and without further formality or act, continue in, and attach to, all proceeds, including any instruments for the payment of money, accounts receivable, contract rights, documents of title, shipping documents, chattel paper and all other cash and non-cash proceeds of such sale, exchange or disposition. As to any such sale, exchange or other disposition, we shall have all of the rights of an unpaid seller, including stopping in transit, replevin, rescission and reclamation. B-40 4.2 You hereby warrant and represent that you are solvent; that this Security Interest constitutes and shall at all times constitute a first and only lien on the Inventory; that you are, or will be at the time additional Inventory is acquired by you, the absolute owner of the Inventory with full right to pledge, sell, consign, transfer and create a Security Interest therein, free and clear of any and all claims or liens in favor of others; that you will at your expense forever warrant and, at our request, defend the same from any and all claims and demands of any other person; and that you will not grant, create or permit to exist, any lien upon or security interest in the Inventory, or any proceeds, in favor of any other person. 4.3 You agree to comply with the requirements of all state and federal laws in order to grant to us a valid and perfected first Security Interest in the Inventory. We are hereby authorized by you to file any financing statements or amendments covering the Inventory whether or not your signature appears thereon. To the extent permitted by applicable law, you authorize us to sign your name, or to file financing statements or amendments without your signature, all in order to create, perfect or maintain our security interest n the Inventory. You agree to do whatever we may request, from time to time, by way of; leasing warehouses; filing notices of lien, financing statements, amendments, renewals and continuations thereof; cooperating with our agents and employees; keeping Inventory records; obtaining waivers from landlords and mortgagees; and performing such further acts as we may require in order to effect the purposes of this agreement. 4.4 You agree to maintain insurance on the Inventory under such policies of insurance, with such insurance companies, in such amounts and covering such risks as are at all times satisfactory to us. All policies covering the Inventory are to be made payable to us, in case of loss, under a standard non-contributory "mortgagee", "lender" or "secured party" clause and are to contain such other provisions as we may require to fully protect our interest in the Inventory and to any payments to be made under such policies. All original policies or true copies thereof are to be delivered to us, premium prepaid, with the loss payable endorsement in our favor, and shall provide for not less than thirty (30) days prior written notice to us of the exercise of any right of cancellation. At your request, or if you fail to maintain such insurance, we shall arrange for such insurance, but at your expense and without any responsibility on our part for: obtaining the insurance, the solvency of the insurance companies, the adequacy of the coverage, or the collection of claims. The insurance we purchase may not pay any claims made by you or against you in connection with your Inventory. You are responsible for the costs of this insurance, including interest and any other charges we may impose in connection with the purchase of this insurance. The costs of this insurance may be more than insurance you can buy on your own. You may still obtain insurance of your own choosing, subject to the terms and conditions of this paragraph 4.4, on the Inventory. If you provide us with proof that you have obtained adequate insurance on your Inventory, we will cancel the insurance that we purchased and refund or credit any unearned premiums to you. In the event that we purchase such insurance, we will notify you of said purchase within thirty (30) days after the date of such purchase. If, within thirty (30) days after the date notice was sent to you, you provide us with proof that you had adequate insurance on your Inventory as of the date we also purchased insurance and that you continue to have the insurance that you purchased yourself, we will cancel the insurance that we purchased without charging you any costs, interest, or other charges in connection with the insurance that we purchased. Unless we shall otherwise agree with you in writing, we shall have the sole right, in our name or yours, to file claims under any insurance policies, to receive receipt and give acquittance for any payments that may be payable thereunder, and to execute any and all endorsements, receipts, releases, assignments, reassignments or other documents that may be necessary to effect the collection, compromise or settlement of any claims under any such insurance policies. 4.5 You agree to pay, when due, all taxes assessments, claims and other charges (herein "taxes") lawfully levied or assessed upon the Inventory unless such taxes are being diligently contested in good faith by you by appropriate proceedings and adequate reserves are established in accordance with GAAP. Notwithstanding the foregoing, if such taxes remain unpaid after the date fixed for the payment thereof, and a lien therefore shall be claimed which in our opinion might create a valid obligation having priority over the rights granted to us herein, we may then, without notice to you, on your behalf, pay such taxes, and the amount thereof shall be an Obligation secured hereby and due to us on demand. 4.6 Any and all fees, costs and expenses, of whatever kind and nature, (including any taxes, attorneys' fees or costs for insurance of any kind), which we may incur in filing public notices; in preparing or filing documents, making title examinations; in protecting, maintaining, or preserving the Inventory; in enforcing or foreclosing the Security Interest hereunder, whether through judicial procedures or otherwise; or in defending or prosecuting any actions or B-41 proceedings arising our of or related to our transactions with you under this arrangement, shall be borne and paid by you. If same are not promptly paid by you, we may pay same on your behalf, and the amount thereof shall be an Obligation secured hereby and due to us on demand. 4.7 You agree to comply with all acts, rules, regulations, and orders of any legislative, administrative or judicial body or official, applicable to the Inventory or any part thereof, or to the operation of your business; provided that you may contest any acts, rules, regulations, orders and directions of such bodies or officials in any reasonable manner which will not, in our opinion, adversely affect our rights or priority in the Collateral hereunder. 5. BOOKS AND RECORDS AND EXAMINATIONS 5.1 You agree to maintain Books and Records pertaining to the Inventory in such detail, form and scope as we shall reasonably require. "Books and Records" means your accounting and financial records (whether paper, computer or electronic), data, tapes, discs, or other media, and all programs, files, records and procedure manuals relating thereto, wherever located. 5.2 You agree that we or our agents may enter upon your premises at any time during normal business hours, and from time to time, for the purpose of inspecting the Inventory and any and all Books and Records pertaining thereto. You agree to notify us promptly of any change in your name, mailing address, principal place of business or the location of the Inventory. You are also to advise us promptly, in sufficient detail, of any substantial change relating to the type, quantity or quality of the Inventory, or any event which would have a material effect on the value of the Inventory or on the Security Interest granted to us herein. 5.3 You agree to: execute and deliver to us, from time to time, solely for our convenience in maintaining a record of the Inventory, such consignments or written statements as we may reasonably require, designating, identifying or describing the Inventory pledged to us hereunder. Your failure, however, to promptly give us such consignments, or other statements shall not affect, diminish, modify or otherwise limit our Security Interest in the Inventory. 6. EVENTS OF DEFAULT AND REMEDIES UPON DEFAULT 6.1 It is an "Event of Default" under this agreement if: (a) you breach any representation, warranty or covenant contained in this agreement; (b) you fail to pay any Obligation when due; or (c) an Event of Default (as defined therein) occurs under the Financing Agreement. 6.2 After the occurrence of an Event of Default which is not waived by us, we shall have the right, with or without notice to you, to foreclose the Security Interest created herein by nay available judicial procedure, or to take possession of the Inventory without judicial process, and to enter any premises where the Inventory may be located for the purpose of taking possession of or removing the Inventory. We shall have the right, without notice or advertisement, to sell, lease, or otherwise dispose of all or any part of the Inventory, whether in its then condition or after further preparation or processing, in your name or in ours, or in the name of such party as we may designate, either at public or private sale or at any broker's board, in lots or in bulk, for cash or for credit, with or without warranties or representations, and upon such other terms and conditions as we in our sole discretion may deem advisable, and we shall have the right to purchase at any such sale. If notice of intended disposition of any said Inventory is required by law, five (5) days notice shall constitute reasonable notification. If any Inventory shall require maintenance, preparation, or is in process or other unfinished state, we shall have the right, at our option, to do such maintenance, preparation, processing or completion of manufacturing, for the purpose of putting the Inventory in such saleable form as we shall deem appropriate. You agree, at our request, to assemble the Inventory and to make it available to us at places which we shall select, whether at your premises or elsewhere, and to make available to us you premises and facilities for the purpose of our taking possession of, removing or putting the Inventory in saleable form. The proceeds of any such sale, lease or other disposition of the Inventory shall be applied first, to the expenses of taking, holding, storing, processing, preparing for sale, selling, and the like, and then to the satisfaction of your Obligations to us, application as to particular Obligations or as to principal or interest to be in our sole discretion. You shall be liable to us for, and shall pay to us on demand, any deficiency which may remain after such sale, lease or other disposition, and we in turn agree to remit to you, or your successors or assigns, any surplus resulting therefrom. The enumeration of the B-42 foregoing rights is not intended to be exhaustive and the exercise of any right shall not preclude the exercise of any other rights, all of which shall be cumulative. 6.3 To the extent that your Obligations are now or hereafter secured by any assets or property other than the Inventory, or by the guarantee, endorsement, assets or property of any other person, then we shall have the right in our sole discretion to determine which rights, security, liens, security interests or remedies we shall at any time pursue, foreclose upon, relinquish, subordinate, modify or take any other action with respect to, without in any way modifying or affecting any of them, or of any of our rights hereunder. 7. TERMINATION The rights and Security Interest granted to us hereunder are to continue in full force and effect, notwithstanding the fact that the account maintained in your name on our books may from time to time be temporarily in a credit position, until termination of the Financing Agreement and the final payment in full of all Obligations due us by you. 8. MISCELLANEOUS PROVISIONS 8.1 This agreement and all attendant documentation, as the same may be amended from time to time, constitutes the entire agreement between us with regard to the subject matter hereof and supersedes any prior agreements or understandings. This agreement can be changed only by a writing signed by both of us and our failure or delay in exercising any of our rights hereunder will not constitute a waiver thereof, unless such waiver is in writing and signed by us, or bar us from exercising any of our rights at any time. No course of dealing between us shall change or modify this agreement. A waiver on any one occasion shall not be construed as a bar to or waiver of any right or remedy on any future occasion. The validity, interpretation and enforcement of this agreement shall be governed by the laws of the State of Georgia. 8.2 This agreement binds and benefits each of us and our respective successors and assigns, provided, however, that you may not assign this agreement or your rights hereunder without our prior written consent. 8.3 If any provision of this agreement is contrary to, prohibited by, or deemed invalid under, applicable laws or regulations, such provision will be inapplicable and deemed omitted to such extent, but the remainder will not be invalidated thereby and will be given effect so far as possible. (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK) B-43 9. JURY TRIAL WAIVER TO THE EXTENT PERMITTED BY APPLICABLE LAW, WE EACH HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING ARISING DIRECTLY OR INDIRECTLY OUT OF THIS AGREEMENT, OR ANY OTHER AGREEMENT OR TRANSACTION BETWEEN US OR TO WHICH WE ARE PARTIES. If the foregoing is in accordance with your understanding, please so indicate by signing and returning to us the original and one copy of this agreement. The agreement shall take effect as of the date set forth above, after being accepted below by one of our officers after which we shall forward a fully executed copy to you for your files. Very truly yours, THE CIT GROUP/BUSINESS CREDIT, INC. By: --------------------------------- Name: Title Read and Agreed to: MOORE-HANDLEY, INC. By: --------------------------------- Name: Title Accepted at Atlanta, Georgia THE CIT GROUP/COMMERCIAL SERVICES, INC. By: --------------------------------- Name: Title B-44 EX-10.17 4 g75037ex10-17.txt AMENDMENT TO FINANCING AGREEMENT EXHIBIT 10.17 The CIT Group/Business Credit, Inc. 1200 Ashwood Parkway Suite 150 Atlanta, GA 30338 770 522-7672 February 14, 2002 MOORE-HANDLEY, INC. 3140 Pelham Parkway Pelham, AL 35124 Gentlemen: Reference is made to the (A) Financing Agreement between us dated August 7, 1997, as supplemented and amended (the "Financing Agreement") and (B) Inventory Security Agreement between us dated March 10, 2000, as supplemented and amended (the "Security Agreement") and together with the Financing Agreement, the "Financing Documents"). Capitalized terms used and not otherwise defined herein shall have the same meanings given them in the Financing Documents. You have requested that we amend certain provisions of the Financing Documents, including but not limited to: (I) increase the Line of Credit to $28,000,000.00, (II) increase the sub-line within the Line of Credit for advances against Eligible Inventory (as set forth in the Security Agreement from $6,000,000 to $11,000,000) and (III) extend the term of the Financing Agreement to April 30, 2005, and we have agreed to such amendments subject to, and in accordance with the terms, provisions and conditions hereof: Effective immediately, pursuant to mutual agreement, the Financing Documents shall be, and hereby are, amended as follows: 1. The definitions of "Anniversary Date", "Early Termination Date" and "Early Termination Fee" (as set forth in Section 1 of the Financing Agreement) shall be, and each hereby is amended entirely to read as follows: "ANNIVERSARY DATE shall mean April 30, 2005 and the same date in every year thereafter." "EARLY TERMINATION DATE shall mean the date on which the Company terminates this Financing Agreement or the Line of Credit which date is prior to an Anniversary Date." "EARLY TERMINATION FEE shall: (a) mean the fee CITBC is entitled to charge the Company in the event the Company terminates the Line of Credit or this Financing Agreement on a date prior to an Anniversary Date; and (b) be determined by multiplying the Line of Credit by (x) two percent (2%) if the Early Termination Date occurs on or before April 30, 2003, (y) one percent (1%) if the Early Termination Date occurs after April 30, 2003 but on or before April 30, 2004 and (z) zero percent (0%) if the Early Termination Date occurs after April 30, 2004 but prior to an Anniversary Date." B-45 2. The following definitions of "EBITDA" and "Fixed Charge Coverage Ratio" shall be and hereby are added to Section 1 of the Financing Agreement in the proper alphabetical order: "EBITDA shall mean in any period, all earnings of the Company before all (i) interest and tax obligations, (ii) depreciation and (iii) amortization for said period, all determined in accordance with GAAP on a consistent basis with the latest audited financial statements of the Company, but excluding the effect of extraordinary and/or non-reoccurring gains or losses for such period." "FIXED CHARGE COVERAGE RATIO shall mean, for the relevant period, the ratio determined by dividing the sum of EBITDA minus non-financed Capital Expenditures by the sum of (a) all interest obligations paid or due, (b) the amount of principal repaid or scheduled to be repaid on Indebtedness, and (c) all federal, state and local income tax actually paid." 3. The definition of "Line of Credit" (as set forth in Section 1 of the Financing Agreement) shall be, and hereby is amended by increasing the $24,000,000.00 amount as set forth therein to $28,000,000.00; and 4. The maximum dollar amount of advances against Eligible Inventory as set forth in Section 1 of the Security Agreement shall be and hereby is increased from $6,000,000 to $11,000,000. 5. Section 11 of the Financing Agreement shall be, and hereby is amended in its entirety to read as follows: "SECTION 11. TERMINATION Except as otherwise permitted herein, CIT may terminate this Financing Agreement only as of the initial or any subsequent Anniversary Date and then only by giving the Company at least sixty (60) days prior written notice of termination. Notwithstanding the foregoing CIT may terminate the Financing Agreement immediately upon the occurrence of an Event of Default, provided, however, that if the Event of Default is an event listed in Paragraph 10.1(c) or (d) of Section 10 of this Financing Agreement, this Financing Agreement shall terminate in accordance with Paragraph 10.2 of Section 10. This Financing Agreement, unless terminated as herein provided, shall automatically continue from Anniversary Date to Anniversary Date. The Company may terminate this Financing Agreement at any time upon sixty (60) days' prior written notice to CIT, provided that the Company pays to CIT immediately on demand an Early Termination Fee, if applicable. All Obligations shall become due and payable as of any termination hereunder or under Section 10 hereof and, pending a final accounting, CIT may withhold any balances in the Company's account (unless supplied with an indemnity satisfactory to CIT) to cover all of the Obligations, whether absolute or contingent, including, but not limited to, cash reserves for any contingent Obligations, including an amount of 110% of the face amount of any outstanding Letters of Credit with an expiry date on, or within thirty (30) days of the effective date of termination of this Financing Agreement. All of CIT's rights, liens and security interests shall continue after any termination until all Obligations have been paid and satisfied in full. B-46 6. Section 7, Paragraph 9 of the Financing Agreement shall be and hereby is amended in its entirety to read as follows: "9. The Company shall maintain, measured at the end of each quarter commencing with the fiscal quarter ending on March 31, 2002, a Fixed Charge Coverage Ratio for the previous four quarters of not less than 1.0 to 1.0." 7. The definition of "Eligible Accounts Receivable" shall be, and hereby is amended by amending clauses "iii)" and "viii)" thereof in their entirety to read as follows: "iii) accounts that remain unpaid more than (x) one hundred and eighty (180) days from invoice date or (y) sixty (60) days from due date; viii) all sales to any customer if fifty percent (50%) or more of either x) all outstanding invoices or y) the aggregate dollar amount of all outstanding invoices, are unpaid more than the applicable time periods set forth in clause iii) above;" 8. Section 8, Paragraph 1 of the Financing Agreement shall be, and hereby is amended by the addition thereto of the following provision: "Notwithstanding any provision to the contrary contained herein, subject to compliance with each of the conditions set forth below, the increment over the Libor as set forth in clause b) above shall be subject to reduction based upon the Company's Fixed Charged Coverage Ratio for the twelve (12) month period ending on June 30 and December 31 of each year hereafter commencing with June 30, 2002. The increment over Libor as set forth in clause b) above shall be subject to reduction by one quarter of one percent (1/4 of 1%) if the Company's Fixed Charge Coverage Ratio as determined on any such date is greater than 1.3 to 1.0, provided that in the event that the Company shall at any time thereafter fail to maintain the Fixed Charge Coverage Ratio (as determined and tested above) required to achieve such reduction, such increment over Libor as set forth in clause b) above shall be increased by one quarter of one percent (1/4 of 1%). Any rate reduction hereunder shall be subject to the Company's compliance with each of the following conditions: (i) timely receipt of CITBC pf the Company's financial statements as required by this Financing Agreement; (ii) the absence of any Default or Event of Default on the date of receipt by CITBC of such financial statements or the effective date of any such reduction. (iii) in no event shall any interest rate adjustments as set forth above (x) reduce the rate above under clause b) to less than two and one quarter percent (2 1/4%) plus Libor or (y) increase the rate above under clause b) to more than two and one half percent (2 1/2%) above Libor." 9. Notwithstanding any provision to the contrary contained in the Financing Documents, the Company shall provide to CITBC (i) upon CITBC's request (in its sole discretion), Inventory appraisals on an annual basis, such appraisals to be performed by an appraiser engaged by CITBC but paid for by the Company, (ii) such reports, statements and/or schedules as CITBC may reasonably require, designating, identifying and/or describing the Accounts, Inventory and other collateral together with all supporting documentation as CITBC may, reasonably request and in form and substance satisfactory to CITBC (herein "Collateral Reports"), such Collateral Reports to be provided no less frequently than weekly and (iii) a month end ageing of Accounts, no later than fifteen (15) days after the end of each month. This Amendment shall be effective as of the date hereof upon the satisfaction of the following conditions precedent: 1. receipt by CITBC of (i) a manually signed original copy of this Amendment, and all other related documents thereto duly executed and delivered by all parties hereto, and (ii) the execution and delivery to CITBC of any other documentation reasonably requested by CITBC (all of which shall be acceptable to CITBC in its discretion); 2. The absence of (x) any Default and/or Event of Default and (y) any material adverse change in the financial condition, business, prospects, profitability, assets or operations of the Company; B-47 3. CITBC's receipt of a secretary's certificate certifying Board of Directors Resolutions authorizing the execution, delivery and performance by the Company of this agreement and all documents and transactions contemplated hereby; and 4. Payment by the Company of (i) any Out-of-Pocket Expenses incurred by CITBC with respect to the preparation, execution, filing of any financing statements and delivery of this Amendment, and (ii) in consideration of the preparation by CITBC's in house legal department of this Amendment, a Documentation Fee equal to $500. All such amounts may, at CITBC's option, be charged to your Revolving Loan Account under the Financing Agreement. Except as set forth above no other changes in the terms and provisions of the Financing Documents are intended or implied. If the foregoing is in accordance with your understanding of our agreement kindly so indicate by signing and returning to us the enclosed copy of the letter. Very truly yours, THE CIT GROUP/BUSINESS CREDIT, INC. By: ------------------------------------- Name: John F. Bohan Title: Vice President Read and Agreed to: MOORE-HANDLEY, INC. By: --------------------------------- Name: Title B-48 EX-23 5 g75037ex23.txt CONSENT OF ERNST & YOUNG LLP EXHIBIT 23 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements of Moore-Handley, Inc. listed below of our report dated March 1, 2002, with respect to the financial statements of Moore-Handley, Inc. included in the Annual Report (Form 10-K) for the year ended December 31, 2001. Form S-8 Registration Statement No. 333-60406 Form S-8 Registration Statement No. 333-59611 /s/ Ernst & Young LLP Birmingham, Alabama March 25, 2002 B-49 -----END PRIVACY-ENHANCED MESSAGE-----