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FORM 10 - Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 29, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
For the transition period from ________ to ______________
Commission file number 1-8903
MOORE MEDICAL CORP.
(Exact name of registrant as specified in its charter)
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Delaware 22-1897821
(State of incorporation) (I.R.S. Employer
Identification Number)
389 John Downey Drive
P.O. Box 1500, New Britain, CT 06050
(Address of principal executive offices)
860-826-3600
(Registrant's telephone number)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No _____
3,156,218 number of shares of Common Stock outstanding as of June 29, 2002.
.
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MOORE MEDICAL CORP. & SUBSIDIARY
Consolidated Balance Sheets
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(Amounts in thousands, except par value) June 29, 2002 December 29, 2001
Unaudited
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ASSETS
Current Assets
Cash .............................................. $ - $ 835
Accounts receivable, less allowances
of $1,278 and $933 .......................... 15,345 15,122
Inventories ....................................... 10,162 10,829
Prepaid expenses and other current assets ......... 2,306 1,875
Deferred income taxes ............................. 3,045 1,523
--------- -----------
Total Current Assets .......................... 30,858 30,184
--------- -----------
Noncurrent Assets
Equipment and leasehold improvements, net ......... 7,221 8,271
Other assets ...................................... 2,275 2,673
--------- -----------
Total Noncurrent Assets ....................... 9,496 10,944
--------- -----------
$ 40,354 $ 41,128
========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable .................................. 10,681 $ 11,204
Accrued expenses .................................. 2,058 1,873
Current portion long term debt ................... 708 1,356
--------- -----------
Total Current Liabilities ..................... 13,447 14,433
--------- -----------
Deferred Income Taxes .................................. 925 -
Long Term Notes Payable ................................ 2,765 3,970
Shareholders' Equity
Preferred stock, no shares outstanding ............ - -
Common stock - $.01 par value;
Shares authorized - 10,000
Shares issued - 3,246 ........................... 32 32
Capital in excess of par value .................... 21,551 21,548
Note receivable ................................... (307) (298)
Retained earnings ................................. 2,739 2,263
--------- -----------
24,015 23,545
Less treasury shares, at cost, 90 and 92 shares ... (798) (820)
--------- -----------
Total Shareholders' Equity .................... 23,217 22,725
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$ 40,354 $ 41,128
========= ===========
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The accompanying notes are an integral part of the consolidated financial
statements.
2
MOORE MEDICAL CORP. & SUBSIDIARY
Consolidated Statements of Operations For The Three Months Ended
Unaudited
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(Amounts in thousands, except per share data) June 29, 2002 June 30, 2001
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Net sales ......................................... $33,441 $32,620
Cost of products sold ............................. 24,267 24,019
------- -------
Gross profit ...................................... 9,174 8,601
Sales and marketing expenses ...................... 2,703 3,484
General and administrative expenses ............... 5,991 6,147
------- -------
Operating income (loss) ........................... 480 (1,030)
Interest expense, net ............................. 40 108
------- -------
Income (loss) before income taxes ................. 440 (1,138)
Income tax provision (benefit) .................... 159 (378)
------- -------
Net income (loss) ................................. $ 281 $ (760)
======= =======
Basic net income (loss) per share ................. $ 0.09 $ (0.24)
Diluted net income (loss) per share ............... $ 0.09 $ (0.24)
Basic common shares outstanding* .................. 3,156 3,154
Diluted common shares outstanding* ................ 3,181 3,154
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*weighted average
2001 Net Sales and Gross Profit reflect reclassifications due to the impact of
EITF 00-10 "Accounting for Shipping and Handling Fees and Costs."
The accompanying notes are an integral part of the consolidated financial
statements.
3
MOORE MEDICAL CORP. & SUBSIDIARY
Consolidated Statements of Operations For The Six Months Ended
Unaudited
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(Amounts in thousands, except per share data) June 29, 2002 June 30, 2001
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Net sales ....................................... $65,878 $64,985
Cost of products sold ........................... 47,708 47,965
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Gross profit .................................... 18,170 17,020
Sales and marketing expenses .................... 5,269 6,934
General and administrative expenses ............. 12,071 12,954
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Operating income (loss) ......................... 830 (2,868)
Interest expense, net ........................... 87 72
------- -------
Income (loss) before income taxes ............... 743 (2,940)
Income tax provision (benefit) .................. 267 (1,083)
------- -------
Net income (loss) ............................... $ 476 $ (1,857)
======= ========
Basic net income (loss) per share ............... $ 0.15 $ (0.59)
Diluted net income (loss) per share ............. $ 0.15 $ (0.59)
Basic common shares outstanding* ................ 3,155 3,135
Diluted common shares outstanding* .............. 3,179 3,135
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*weighted average
2001 Net Sales and Gross Profit reflect reclassifications due to the impact of
EITF 00-10 "Accounting for Shipping and Handling Fees and Costs."
The accompanying notes are an integral part of the consolidated financial
statements.
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MOORE MEDICAL CORP. & SUBSIDIARY
Consolidated Statements of Cash Flows For The Six Months Ended
Unaudited
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(Amounts in thousands) June 29, 2002 June 30, 2001
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Cash Flows From Operating Activities
Net income (loss) ...................................................... $ 476 $ (1,857)
Adjustments to reconcile net income (loss) to net cash flows
provided by (used in) operating activities:
Depreciation and amortization ..................................... 1,506 1,565
Changes in operating assets and liabilities:
Accounts receivable ........................................... (223) (2,134)
Inventories ................................................... 667 118
Other assets .................................................. (630) (584)
Accounts payable .............................................. (523) 1,903
Accrued expenses .............................................. 185 (1,678)
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Net cash flows provided by (used in) operating activities .............. 1,458 (2,667)
------ --------
Cash Flows From Investing Activities
Equipment and leasehold improvements acquired .......................... (456) (831)
------ --------
Net cash flows (used in) investing activities .......................... (456) (831)
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Cash Flows From Financing Activities
Revolving line of credit ............................................... 2,765 -
Sale of treasury stock ................................................. 25 323
Note receivable ........................................................ (9) (289)
Long term notes payable ................................................ (4,618) (273)
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Net cash flows (used in) financing activities .......................... (1,837) (239)
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(Decrease) in cash ..................................................... (835) (3,737)
Cash at the beginning of year .......................................... 835 5,233
------ --------
Cash At End Of Period .................................................. $ - $ 1,496
====== ========
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The accompanying notes are an integral part of the consolidated financial
statements.
5
MOORE MEDICAL CORP. & SUBSIDIARY
Consolidated Statement of Shareholders' Equity
Unaudited
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Common Stock Capital
$.01 par value in Excess
Shares Par of Par Retained Treasury Stock Note
(Amounts in thousands) Issued Value Value Earnings Shares Cost Receivable
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Balance at 12/30/00 3,246 $ 32 $ 21,700 $ 3,913 (145) $ (1,287) $ -
Net (loss) - - - (1,858) - - -
Stock options/stock
compensation - - (144) - 53 467 (289)
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Balance at 6/30/01 3,246 $ 32 $ 21,556 $ 2,055 (92) $ (820) $ (289)
=====================================================================================================================
Balance at 12/29/01 3,246 $ 32 $ 21,548 $ 2,263 (92) $ (820) $ (298)
Net income - - - 476 - - -
Stock options/stock
Compensation - - 3 - 2 22 (9)
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Balance at 6/29/02 3,246 $ 32 $ 21,551 $ 2,739 (90) $ (798) $ (307)
=====================================================================================================================
The accompanying notes are an integral part of the consolidated financial
statements.
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MOORE MEDICAL CORP. & SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
The Company
Moore Medical is an Internet-enabled multi-channel marketer and distributor of
medical, surgical and pharmaceutical products to over 100,000 health care
practices and facilities in non-hospital settings nationwide, including:
physicians, emergency medical technicians, schools, correctional institutions,
municipalities, occupational/industrial health doctors and nurses, and other
specialty practice communities. Moore Medical also serves the medical/surgical
supply needs of over 26 customer community affiliates. We market to and serve
our customers through direct mail, industry-specialized telephone support staff,
field sales representatives, and the Internet. Our direct marketing and
distribution business has been in operation for over 50 years.
Basis of Presentation
Moore Medical has prepared the accompanying unaudited financial statements in
accordance with generally accepted accounting principles for interim financial
statements. In the opinion of management, all adjustments necessary for a fair
presentation of the results for the interim period have been made. The results
for the three and six month periods ended June 29, 2002 do not necessarily
indicate the results to be expected for the fiscal year ended December 28, 2002
or any other future period. The fiscal quarters ended on June 29, 2002 and June
30, 2001.
The accompanying unaudited financial statements should be read in conjunction
with the Notes to Financial Statements and Management's Discussion and Analysis
of Results of Operations and Financial Condition included in the Company's 2001
Annual Report filed on Form 10-K and in this Form 10-Q Quarterly Report.
Certain prior year amounts have been reclassified to conform with the current
year presentation.
Recent Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," and
SFAS No. 142, "Goodwill and Other Intangible Assets."
SFAS No. 141 requires that the purchase method of accounting be used for all
business combinations initiated after June 30, 2001. The Company has not been
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involved with any business combinations subsequent to June 30, 2001, and
therefore there is no action required with respect to this pronouncement.
SFAS No. 142 changes the accounting for goodwill and certain other intangible
assets from an "amortization" method to an "impairment only" approach. Due to
the adoption of SFAS No. 142, the Company will not amortize goodwill beginning
in fiscal 2002. The goodwill amortization expense during fiscal 2001 was
$137,771. The Company does not anticipate the adoption of this standard will
result in a material write down during fiscal 2002.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." The statement, effective for fiscal years beginning after June 15,
2002, requires companies to record a liability for asset retirement obligations
in the period in which they are incurred, which typically could be upon
completion of construction or shortly thereafter. The Company does not believe
that the adoption of this standard will have a material impact on its
consolidated financial statements.
In October 2001, the FASB issued SFAS No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." The statement is effective for fiscal years
beginning after December 15, 2001. SFAS No. 144 will supersede SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." SFAS No. 144 changes the criteria for classifying an asset as
held-for-sale. The Company does not believe that the adoption of this standard
will have a material impact on its consolidated financial statements.
In April 2002, the FASB issued SFAS No. 145 "Rescission of FASB Statement No. 4,
44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." The
Statement is effective for fiscal years beginning after May 15, 2002. The
Company does not believe that the adoption of this standard will have a material
impact on its consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the current
year presentation.
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RESULTS OF OPERATIONS
Three Months Ended June 29, 2002 compared to Three Months Ended June 30, 2001.
Net sales for the second quarter increased to $33.4 million, an increase of $0.8
million or 2.5% from net sales of $32.6 million for the same period a year ago.
The Company's growth was primarily experienced in its public sector, podiatry
and primary care specialty markets which had growth rates of 17.3%, 5.9% and
4.4%, respectively, over the prior year's second quarter. The Company's
continued emphasis on multi-channeled marketing and distribution initiatives
resulted in continued growth in the Company's Internet based revenues.
Gross profit increased $0.6 million or 7.0% to $9.2 million compared to $8.6
million for the same period a year ago. Overall gross profit margins increased
to 27.4% in the second quarter 2002 from 26.4% in second quarter 2001, primarily
attributable to product and market mix, and the realization of benefits from our
supply chain initiatives.
Sales and marketing expenses decreased by $0.8 million or 22.9% to $2.7 million
in 2002 from $3.5 million in 2001 due to continued efforts to establish and
implement more effective targeted marketing campaigns and increased efforts to
develop vendor co-operative programs. General and administrative expenses
decreased by $0.1 million or 1.6% to $6.0 million in 2002 from $6.1 million in
2001 reflecting the continued realization of benefits from third and fourth
quarter 2001 cost containment initiatives. As a percentage of net sales, total
S,G&A decreased to 26.0% in the second quarter 2002 from 29.4% for the same
period a year ago. The Company believes its existing cost structure continues to
be adequate to support future growth.
Interest expense for the second quarter of 2002 decreased to $40 thousand from
$108 thousand for the same period a year ago. The decrease is attributable to
the refinancing of the government settlement note with the revolving credit
facility to take advantage of the lower interest rates.
The effective income tax rate of 36.1% for the second quarter of 2002 was higher
than the prior fiscal year's effective income tax benefit rate of 33.0%, due to
the impact of the government settlement and consolidation activities within the
Company's distribution network on the 2001 tax benefit rate. The effective
income tax rate for the second quarter of 2002 was also impacted by the
Company's successful attainment of a net income position compared to a net loss
for fiscal year 2001.
Net income increased to $0.3 million, or $0.09 earnings per share compared to a
net loss of ($0.8) million, or ($0.24) loss per share, for the same period a
year ago.
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Six Months Ended June 29, 2002 Compared to Six Months Ended June 30, 2001
For the first two quarters of 2002, net sales were $65.9 million, an increase of
$0.9 million or 1.4% from $65.0 million for the comparable period in 2001. The
revenue base that was established during 2001 has been maintained and
supplemented through the development and implementation of more effective
targeted marketing campaigns. The overall net sales growth reflects strong
revenue growth for the Company's Internet-based revenue, which increased $1.9
million, or 33.9%, to $7.5 million for the first six months of the fiscal year,
compared to $5.6 million for the same period a year ago. Internet based revenue
represented 11.5% of the first two quarters net sales versus 8.7% in the same
period a year ago.
Gross profit increased $1.2 million or 7.1% to $18.2 million, compared to $17.0
million for the same period in 2001. Overall gross profit margin increased to
27.6% from 26.2% in 2001. The increase is primarily attributable to the
increased sales volume, product mix and continuing improvements in our supply
chain operations.
Sales and marketing expenses decreased by $1.6 million or 23.2% to $5.3 million
in 2002 from $6.9 million in 2001 due to continued efforts to establish and
implement more effective targeted marketing campaigns and increased efforts to
develop vendor co-operative programs. General and administrative expenses
decreased by $0.9 million or 6.9% to $12.1 million in 2002 from $13.0 million in
2001 reflecting the continued realization of benefits from cost containment
initiatives. As a percentage of net sales, total S,G&A decreased to 26.4% in the
first two quarters of 2002 from 30.6% for the same period a year ago. The
Company believes its existing cost structure continues to be adequate to support
future growth.
Interest expense for the first two quarters of 2002 increased to $87 thousand
from $72 thousand for the same period a year ago. The slight increase is
attributable to the higher interest rate on the government settlement note for
the period prior to refinancing.
The effective income tax rate of 35.9% for the first two quarters of 2002 was
higher than the prior year's effective income tax benefit rate of 33.0% due to
the impact of the government settlement and the closure of the Lemont facility
and consolidation of remaining distribution center operations. The effective
income tax rate for the first six months of 2002 was also impacted by the
Company's successful attainment of a net income position compared to a net loss
for fiscal year 2001.
Net income increased to $0.5 million or $0.15 earnings per share compared to
($1.9) million, or ($0.59) loss per share, for the same period in 2001.
10
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the second quarter 2002 with a zero balance in cash and cash
equivalents, a $0.8 million decrease from December 29, 2001. The liquidity
decline was the result of the decision to refinance the government settlement
note on February 13, 2002 with a combination of cash on hand and the draw-down
of the collateralized revolving credit facility. According to the design of the
collateralized revolving credit facility, all amounts of cash and cash
equivalents are offset against outstanding loan balances. As of June 29, 2002,
the Company had $2.8 million outstanding on its collateralized revolving credit
facility.
The Company's operations provided $1.4 million in cash during the first six
months 2002. The primary sources of cash from operations were: net income of
$0.5 million, depreciation expense of $1.5 million, sources of cash from working
capital consisting of a $0.7 million reduction in inventory, offset by uses of
working capital consisting of a $0.2 million increase in accounts receivable,
$0.6 million increase in other assets which was due to the timing of advertising
material, and a $0.5 million decrease in accounts payable.
Investing activities used $0.5 million for the first two quarters 2002 compared
with $0.8 million in 2001. Capital expenditures were made for technology and
operating efficiency initiatives which will produce future benefits for the
Company.
Financing activities used $1.8 million during the first two quarters of 2002,
which is the net of the government settlement note refinancing offset by the
incremental borrowings on the Company's collateralized revolving credit
facility. As a result, the Company's reported borrowings were $1.8 million less
than that which was reported at 2001 year-end.
On January 26, 2001, the Company entered into a three-year bank financing
agreement which will provide up to $15 million in a collateralized revolving
credit facility. The credit facility provides the Company with the latitude it
needs to implement strategic initiatives as they arise. During the first quarter
of 2002, the Company utilized its collateralized revolving credit facility to
refinance the government settlement note in full to take advantage of the
current low interest rate environment.
The Company believes that cash flows from operations and available cash and cash
equivalents are adequate to fund the Company's operations for the foreseeable
future.
FORWARD-LOOKING INFORMATION
This report contains statements about future events and expectations that
constitute forward-looking statements within the meaning of the Private
Securities Litigation
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Reform Act of 1995. Forward-looking statements are based on management's
beliefs, assumptions and expectations of the Company's future economic
performance, taking into account the information that is currently available to
management. These statements are not statements of historical fact.
Forward-looking statements involve risks and uncertainties (including, but not
limited to, economic, competitive, governmental and technological factors
outside our control) that may cause the Company's actual results, performance or
financial condition to differ materially from the expectations of future
results, performance or financial condition we express or imply in any
forward-looking statements. Factors that could contribute to these differences
include, but are not limited to:
Business Strategy Factors
o The inability to generate adequate revenues and income from our strategy to
transform the Company to a multi-channel e-commerce enabled business.
o Changes in demand for the Company's products.
o Pressures on revenues resulting from, for example, customer consolidations or
changes in customer buying patterns.
o Changes in the availability or salability of products manufactured by our
suppliers.
Operating Factors
o Unforeseen web site hosting or other service disruptions, or online credit
card fraud or security breaches in the Company's web site.
o Failure to keep up with rapidly changing technologies or Internet
developments.
o Our internal systems are located in a single facility, the loss of which
would significantly impact our continued business operations.
o Disruptions in or cost increases for services or systems upon which we are
dependent, such as the trucking companies that deliver products from our
suppliers, common carriers (such as United Parcel Service and Federal
Express) that deliver products to our customers, telecommunication
services, computer systems services, and printing services.
Competitive Factors
o Intense competition in health care product distribution from distributor
consolidations, new online entrants and pricing pressures from larger
distributors able to benefit from economies of scale or other operating
efficiencies.
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Governmental Factors
o Changes in, or compliance with, laws regulating the distribution of drugs and
medical devices.
o Changes in governmental support or insurance coverage of health care
products or services, including potential governmental reductions in health
care funding affecting our customers' services or revenues.
o New governmental regulation of the Internet.
o New sales tax collection obligations.
General Economic Factors
o The effect of general economic conditions, inflation and interest rates.
o Changes in currency exchange rates and political and economic conditions
nationwide.
Although we believe that the expectations reflected in such forward-looking
statements are based on reasonable assumptions, we can give no assurance that
the Company's expectations will be achieved. We qualify any forward-looking
statements entirely by these cautionary factors, and readers are cautioned not
to place undue reliance on forward-looking statements.
The words "believe," "may," "will," "could," "should," "would," "anticipate,"
"estimate," "expect," "intend," "project," "objective," "seek," "strive,"
"might," "seeks," "likely result," "build," "grow," "plan," "goal," "expand,"
"position," or similar words, or the negatives of these words, or similar
terminology, identify forward-looking statements.
The forward-looking statements contained in this report only speak as of the
date of this report. The Company disclaims any obligation or undertaking to
provide any updates or revisions to any forward-looking statements to reflect
any change in management's expectations or any change in events, conditions or
circumstances on which the forward-looking statements are based.
ITEM 3. Quantitative & Qualitative Disclosures About Market Risk
We have no material market risk exposure associated with activities in
derivative financial statements, other financial instruments, or derivative
commodity instruments. The Company does not expect changes in interest rates to
have a material effect on income or cash flows in fiscal 2002, although there
can be no assurances that interest rates will not significantly change.
13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The 2002 Annual Meeting of Shareholders of the Company was held
May 23, 2002.
(b) At the Annual Meeting, the Company's shareholders voted on the
following:
1. Election of directors
Name of Nominee For Withheld
----------------------------- ---------------- --------------
Linda M. Autore 2,779,946 128,852
Christopher Brody 2,779,946 128,852
Peter A. Derow 2,779,946 128,852
Steven Kotler 2,779,946 128,852
Robert H. Steele 2,779,946 128,852
Wilmer J. Thomas, Jr. 2,779,946 128,852
Dan K. Wassong 2,779,946 128,852
2. Ratification of appointment of Independent Auditors
For 2,864,316
Against 15,100
Item 5. Other Matters
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
99.1 Certification Pursuant to 18 U.S.C. Section 1350 Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
14
99.2 Certification Pursuant to 18 U.S.C. Section 1350 Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
No Report on Form 8-K was filed during the quarter.
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 MEDICAL CORP.
(REGISTRANT)
BY: /s/ Linda M. Autore BY: /s/ John M. Zinzarella
- ----------------------------- ---------------------------------------
Linda M. Autore, President John M. Zinzarella, Vice President,
and Chief Executive Officer Controller and Interim Chief Financial
August 9, 2002 Officer
August 9, 2002
15