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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 March 30, 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 _____ ----------
3,156,443 number of shares of Common Stock outstanding as of March 30, 2002.
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MOORE MEDICAL CORP. & SUBSIDIARY
Consolidated Balance Sheets
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(Amounts in thousands, except par value) March 30, 2002 December 29, 2001
Unaudited
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ASSETS
Current Assets
Cash ................................................... $ 55 $ 835
Accounts receivable, less allowances
of $1,062 and $933 ............................... 14,496 15,122
Inventories ............................................ 10,116 10,829
Prepaid expenses and other current assets .............. 2,354 1,875
Deferred income taxes .................................. 2,523 1,523
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Total Current Assets ............................... 29,544 30,184
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Noncurrent Assets
Equipment and leasehold improvements, net .............. 7,731 8,271
Other assets ........................................... 2,421 2,673
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Total Noncurrent Assets ............................ 10,152 10,944
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$ 39,696 $ 41,128
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable ....................................... $ 10,719 $ 11,204
Accrued expenses ....................................... 1,494 1,873
Current portion long term debt ....................... 716 1,356
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Total Current Liabilities .......................... 12,929 14,433
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Deferred Income Taxes ....................................... 403 --
Long Term Notes Payable ..................................... 3,428
3,970
Shareholders' Equity
Preferred stock, no shares outstanding ................. -- --
Common stock - $.01 par value;
Shares authorized - 10,000
Shares issued - 3,246 .................................. 32 32
Capital in excess of par value ......................... 21,547 21,548
Note receivable ........................................ (303) (298)
Retained earnings ...................................... 2,458 2,263
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23,734 23,545
Less treasury shares, at cost, 90 and 92 shares ........ (798) (820)
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Total Shareholders' Equity ......................... 22,936 22,725
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$ 39,696 $ 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) March 30, 20 March 31, 2001
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Net sales ..................................................... $ 32,437 $ 32,365
Cost of products sold ......................................... 23,441 23,946
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Gross profit .................................................. 8,996 8,419
Sales and marketing expenses .................................. 2,566 3,450
General and administrative expenses ........................... 6,080 6,807
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Operating income (loss) ....................................... 350 (1,838)
Interest expense (income), net ................................ 47 (36)
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Income (loss) before income taxes ............................. 303 (1,802)
Income tax provision (benefit) ................................ 108 (705)
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Net income (loss) ............................................. $ 195 $ (1,097)
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Basic net income (loss) per share ............................. $ 0.06 $ (0.35)
Diluted net income (loss) per share ........................... $ 0.06 $ (0.35)
Basic common shares outstanding* .............................. 3,154 3,117
Diluted common shares outstanding* ............................ 3,177 3,117
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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 Cash Flows For The Three Months Ended
Unaudited
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(Amounts in thousands) March 30, 2002 March 31, 2001
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Cash Flows From Operating Activities
Net income (loss) .................................................. $ 195 $(1,097)
Adjustments to reconcile net income (loss) to net cash flows
provided by (used in) operating activities:
Depreciation and amortization ................................. 753 811
Changes in operating assets and liabilities:
Accounts receivable ....................................... 626 (1,275)
Inventories ............................................... 713 (815)
Other assets .............................................. (824) (1,245)
Accounts payable .......................................... (485) 1,044
Other liabilities ......................................... (384) (848)
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Net cash flows provided by (used in) operating activities 594 (3,425)
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Cash Flows From Investing Activities
Equipment and leasehold improvements acquired ...................... (214) (323)
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Net cash flows (used in) investing activities ...................... (214) (323)
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Cash Flows From Financing Activities
Revolving Line of Credit ........................................... 3,428 --
Sale of Treasury Stock ............................................. 22 302
Note Receivable .................................................... (5) (285)
Long term notes payable ............................................ (4,605) (141)
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Net cash flows (used in) provided by financing activities .......... (1,160) (124)
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(Decrease) in cash ................................................. (780) (3,872)
Cash at the beginning of year ...................................... 835 5,233
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Cash At End Of Period .............................................. $ 55 $ 1,361
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The accompanying notes are an integral part of the consolidated financial
statements.
4
MOORE MEDICAL CORP. & SUBSIDIARY
Consolidated Statement of Shareholders' Equity
Unaudited
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Common Stock
$.01 par value Capital
-------------- in Excess Treasury Stock
Shares Par of Par Retained -------------- 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)
Stock options/stock
compensation (165) (1,097) 53 467 (285)
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Balance at 3/31/01 3,246 $ 32 $ 21,535 $ 2,816 (92) $ (820) $ (285)
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Balance at 12/29/01 3,246 $ 32 $ 21,548 $ 2,263 (92) $ (820) $ (298)
Net income 195
Stock options/stock
compensation (1) 2 22 (5)
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Balance at 3/30/02 3,246 $ 32 $ 21,547 $ 2,458 (90) $ (798) $ (303)
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The accompanying notes are an integral part of the consolidated financial
statements.
5
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 months ended March 30, 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 March 30, 2002 and March 31, 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
involved with any business combinations subsequent to June 30, 2001, therefore
there is no action required with respect to this pronouncement.
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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 recently 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. SFAS No. 144 will supersede APB Opinion No. 30 with regards to
reporting the effects of a disposal of a segment of a business and will require
expected future operating losses from discontinued operations to be displayed in
discontinued operations in the period(s) in which the losses are incurred,
rather than as of the measurement date as presently required by APB Opinion No.
30. The new pronouncement also expands the amount of dispositions that will
qualify for discontinued operations treatment in the income statement. The
Company does not believe that the adoption of this standard will have a material
impact on its consolidated financial statements.
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MOORE MEDICAL CORP. & SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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RECLASSIFICATION
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Certain prior year amounts have been reclassified to conform with the current
year presentation.
RESULTS OF OPERATIONS
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Three Months Ended March 30, 2002 compared to Three Months Ended March 31, 2001.
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Net sales for the first quarter were $32.44 million, as compared to $32.37
million in the first quarter 2001. The Company's revenue attainment in the first
quarter 2001 was sustained through the development and implementation of more
effective targeted marketing campaigns. The Company continued to experience
growth in its public sector markets led by the corrections market which had a
growth rate of 22.7%, over the prior year's first quarter. During the first
quarter, the Company's Internet based net sales grew 41.4% over the prior year's
quarter to $3.3 million representing 10.3% of the Company's total net sales.
Gross profit increased $0.6 million or 7.1%, to $9.0 million compared to $8.4
million for the same period a year ago. Overall gross profit margins increased
to 27.7% in the first quarter 2002 from 26.0% in first 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 $0.9 million or 25.7% to $2.6 million
in 2002 from $3.5 million in 2001 due to the on-going effort to establish and
implement more effective targeted marketing campaigns. As a percentage of net
sales, sales and marketing expenses decreased to 8.0% in the first quarter 2002
from 10.8% for the same period a year ago. General and administrative expenses
decreased by $0.7 million or 10.3% to $6.1 million in 2002 from $6.8 million in
2001 reflecting the continued realization of benefits from third and fourth
quarter 2001 cost containment initiatives. As a percentage of net sales, general
and adminstrative expenses decreased to 18.8% in the first quarter 2002 from
21.0% for the same period a year ago. The Company believes the existing cost
structure continues to be adequate to support future growth.
Interest expense for the first quarter of 2002 increased to $47.3 thousand from
interest income of ($36.0) thousand for the same period a year ago. The increase
was attributable to the government settlement note payable, which was executed
February 1, 2001 and a higher marketable security balance in the first quarter
2001.
The effective income tax rate of 35.5% was lower than the prior year's effective
income tax benefit rate due to impact of the government settlement on 2001's tax
benefit rate.
8
Net income increased to $0.2 million, or $0.06 earnings per share compared to a
net loss of ($1.1) million, or ($0.35) loss per share, the same period a year
ago.
Three Months Ended March 31, 2001 Compared to Three Months Ended April 1, 2000
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Net sales for the first quarter ended March 31, 2001 increased to $32.4 million,
an increase of $2.8 million or 9.4% from the same period a year ago. This marked
the highest year-over-year quarterly growth rate in more than five years and the
third consecutive quarterly increase of over 6% on a year-to-year basis. The
Company's sales growth in the first quarter was primarily attributable to the
acceleration of numerous marketing programs, which were planned to be initiated
during the second quarter of the year, to early in the first quarter of 2001.
These programs include direct mail catalogs, flyers and letters, e-marketing
initiatives, customer support center representatives and specialty practice
sales representatives. The sales and marketing strategy focused on optimizing
direct marketing and channel deliverables resulting in a 12.2% increase in the
number of customer sales orders processed in the period from the same period in
2000. The Company's e-commerce net sales quadrupled to nearly $2.4 million for
the period from $0.6 million in 2000. The Company has achieved continued growth
in its online web site since the opening of its integrated e-business site on
May 30, 2000. Online sales growth for the three months ended March 31, 2001 was
reflected across all market communities and was the result of direct marketing
initiatives such as e-mail campaigns, web site promotions, investments in online
communities and web affiliations.
Gross profit increased $0.9 million or 12.0% to $8.4 million, compared to $7.5
million for the same period in 2000. Overall gross profit margins increased to
26.0% from 25.4% in 2000. The increase is primarily attributable to the
increased sales volume, product mix and continuing improvements in our supply
chain operations.
Selling, general and administrative expenses (S,G&A) increased by $2.3 million
or 28.8% to $10.3 million in 2001 from $8.0 million in 2000. S,G&A as a
percentage of net revenue was 31.8% as compared to 27.0% in 2000. The increase
was attributable to the timing of publication and distribution of our direct
mail catalog, increased salary expenses relating to filling key management and
staff positions, outside consulting primarily associated with e-commerce
initiatives and freight and distribution expenses proportionate to net revenue
growth. Besides the timing of certain marketing expenses compared to 2000, the
increase in S,G&A was primarily a result of the Company's transformation from an
online catalog direct marketer to a multi-channel Internet enabled marketer. The
Company continues to improve efficiencies in its cost structure but believes it
is adequate to attain future growth.
Net loss increased to ($1.1) million or ($0.35) loss per share compared to
($0.3) million, or ($0.09) loss per share, the same period in 2000.
9
LIQUIDITY AND CAPITAL RESOURCES
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The Company ended the first quarter 2002 with $55 thousand in cash and cash
equivalents, a $0.8 million decrease from December 29, 2001. The liquidity
decline was primarily 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.
The Company's operations provided $0.6 million in cash during the first quarter
2002. The primary sources of cash from operations were: net income of $0.2
million, depreciation expense of $0.8 million, sources of cash from working
capital consisting of a $0.6 million reduction in accounts receivable, a $0.7
million reduction in inventory, offset by uses of working capital consisting of
a $0.8 million increase in other assets which was due to the timing of
advertising material, a $0.5 million decrease in accounts payable and a $0.4
million decrease in accrued expenses.
Investing activities used $0.2 million for the first quarter 2002 compared with
$0.3 million in 2001. Investments were made for technology and operating
efficiency initiatives which will produce future benefits for the Company.
Financing activities used $1.2 million during the first quarter, which is the
net of the government settlement note re-financing offset by the incremental
borrowings on the Company's collateralized revolving credit facility. As a
result, the Company reported borrowings were $1.2 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
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This report contains statements about future events and expectations that
constitute forward-looking statements within the meaning of the Private
Securities Litigation 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
10
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
.. The inability to generate adequate revenues and income from our strategy to
transform the Company to a multi-channel e-commerce enabled business.
.. Changes in demand for the Company's products.
.. Pressures on revenues resulting from, for example, customer consolidations
or changes in customer buying patterns.
.. Changes in the availability or salability of products manufactured by our
suppliers.
Operating Factors
.. Unforeseen web site hosting or other service disruptions, or online credit
card fraud or security breaches in the Company's web site.
.. Failure to keep up with rapidly changing technologies or Internet
developments.
.. Our internal systems are located in a single facility, the loss of which
would significantly impact our continued business operations.
.. Disruptions in or cost increases for services or systems on 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) which deliver products to our customers, telecommunication
services, computer systems services, and printing services.
Competitive Factors
.. 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.
Governmental Factors
.. Changes in, or compliance with, laws regulating the distribution of drugs
and medical devices.
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.. 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.
.. New governmental regulation of the Internet.
.. New sales tax collection obligations.
General Economic Factors
.. The effect of general economic conditions, inflation and interest rates.
.. 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
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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.
12
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibit
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2002 Bonus Program Exhibit 10.21
(b) Reports on Form 8-K
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No report on Form 8-K was filed during the quarter.
SIGNATURES
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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/ James R. Simpson
----------------------------------- --------------------------------------
Linda M. Autore, President James R. Simpson, Executive
and Chief Executive Officer Vice President and Chief
May 13, 2002 Financial Officer
May 13, 2002
BY: /s/ John M. Zinzarella
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John M. Zinzarella, Vice President
and Controller
May 13, 2002
13