<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
1997
FORM 10 - Q
For the Fiscal
SECOND QUARTER
Ended June 28, 1997
Quarterly Report Pursuant To Section 13 or 15(d)
of the Securities Exchange Act of 1934
MOORE MEDICAL CORP.
(Exact name of registrant as specified in its charter)
- --------------------------------------------------------------------------------
Delaware 1-8903
(State of incorporation) (Commission File Number)
P.O. Box 1500, New Britain, CT 06050 22-1897821
(Address of principal executive offices) (I.R.S. Employer
Identification Number)
860-826-3600
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock ($.01 Par Value) American Stock Exchange
(Title of Each Class) (Name of each exchange on which registered)
- --------------------------------------------------------------------------------
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 twelve months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
2,924,454
Number of shares of Common Stock outstanding as of August 5, 1997.
Total number of pages in the numbered original is 12
This is page 1 of 12 pages.
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1
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MOORE MEDICAL CORP.
Index
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets at the end of the second quarter of
1997 and at the end of the year 1996............... 3
Statements of Operations for the second quarters
of 1997 and 1996................................... 4
Statements of Operations for the first two quarters
of 1997 and 1996................................... 5
Statements of Cash Flows for the first two quarters
of 1997 and 1996................................... 6
Notes to Financial Statements......................... 7-8
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition.............. 9-11
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders... 12
Item 6. Exhibits and Reports on Form 8-K...................... 12
Signatures.................................................... 12
2
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MOORE MEDICAL CORP.
<TABLE>
<CAPTION>
Balance Sheets at end of
- --------------------------------------------------------------------------------
Amounts in thousands Second Quarter 1997 Year 1996
(Unaudited)
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<S> <C> <C>
ASSETS
Current Assets
Cash $ 5 $ 16
Accounts receivable, less allowances
of $328 and $626......................... 27,521 25,761
Inventories................................. 34,034 43,828
Prepaid expenses and other current assets... 4,337 4,117
Deferred income taxes....................... 2,177 2,356
------- -------
Total Current Assets................... 68,074 76,078
------- -------
Noncurrent Assets
Equipment and leasehold improvements, net... 4,201 4,411
Other assets................................ 1,301 1,052
------- -------
Total Noncurrent Assets................ 5,502 5,463
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$73,576 $81,541
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable............................ $21,275 $27,071
Accrued expenses............................ 5,604 6,022
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Total Current Liabilities.............. 26,879 33,093
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Deferred Income Taxes........................ 394 346
Revolving Credit Financing................... 20,190 22,726
Shareholders' Equity
Preferred stock - no shares outstanding..... -- --
Common stock - $.01 par value;
5,000 shares authorized;
3,246 shares issued...................... 33 32
Capital in excess of par value.............. 21,737 21,692
Retained earnings........................... 7,305 6,709
------- -------
29,075 28,433
Less treasury shares, at cost, 323 and 343
shares................................... (2,962) (3,057)
------- -------
Total Shareholders' Equity............. 26,113 25,376
------- -------
$73,576 $81,541
======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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MOORE MEDICAL CORP.
<TABLE>
<CAPTION>
Statements of Operations for the
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Amounts in thousands, except per share data Second Quarter
-------------------------------
1997 1996
(Unaudited)
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<S> <C> <C>
Net sales................................... $77,038 $72,840
Cost of products sold....................... 65,687 62,058
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Gross profit................................ 11,351 10,782
Selling, general & administrative expenses.. 9,833 9,284
Unusual item................................ 580 -
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Operating income............................ 938 1,498
Interest expense, net....................... 522 513
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Income before income taxes.................. 416 985
Income tax provision........................ 150 344
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Net income.................................. $ 266 $ 641
======= =======
Net income per share........................ $ .09 $ .22
======= =======
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</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
MOORE MEDICAL CORP.
<TABLE>
<CAPTION>
Statements of Operations for the
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Amounts in thousands, except per share data First Two Quarters
----------------------------
1997 1996
(Unaudited)
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<S> <C> <C>
Net sales................................... $158,080 $148,673
Cost of products sold....................... 135,513 127,294
-------- --------
Gross profit................................ 22,567 21,379
Selling, general & administrative expenses.. 19,797 18,442
Unusual item................................ 800 -
-------- --------
Operating income............................ 1,970 2,937
Interest expense, net....................... 1,039 979
-------- --------
Income before income taxes.................. 931 1,958
Income tax provision........................ 335 684
-------- --------
Net income.................................. $ 596 $ 1,274
======== ========
Net income per share........................ $ .20 $ .44
======== ========
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</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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MOORE MEDICAL CORP.
<TABLE>
<CAPTION>
Statements of Cash Flows for the
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Amounts in thousands First Two Quarters
------------------------------
1997 1996
<S> <C> <C>
(Unaudited)
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Cash Flows From Operating Activities
Net income................................ $ 596 $ 1,274
Adjustments to reconcile net income to
net cash flows provided by
operating activities
Depreciation and amortization.......... 755 881
Deferred income taxes.................. 227 (120)
Changes in operating assets and
liabilities
Accounts receivable.................. (1,760) (1,615)
Inventories.......................... 9,794 1,197
Other current assets................. (220) (944)
Accounts payable..................... (5,795) (2,713)
Other current liabilities............ (617) 361
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Net cash flows provided by (used in)
operating activities................. 2,980 (1,679)
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Cash Flows From Investing Activities
Equipment and leasehold improvements...... (545) (550)
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Net cash flows used in investing
activities........................... (545) (550)
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Cash Flows From Financing Activities
Revolving credit financing (decrease)
increase, net........................... (2,536) 2,232
Other, net................................ 90 36
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Net cash flows (used in) provided by
financing activities.................. (2,446) 2,268
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Increase (decrease) in cash................... (11) 39
Cash at beginning of period................... 16 39
------- ------
Cash At End Of Period......................... $ 5 $ 78
======= ======
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</TABLE>
The accompanying notes are an integral part of the financial statements.
6
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MOORE MEDICAL CORP.
NOTES TO FINANCIAL STATEMENTS
Note 1 - Basis of Presentation of Financial Statements
The accompanying 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 1996
Annual Report filed on Form 10-K and in this Form 10-Q Report.
In the opinion of management, all adjustments necessary for a fair presentation
of the results for the interim periods have been made. The results of
operations for the second quarter and first two quarters are not necessarily
indicative of the results to be expected for the full year. The fiscal quarters
ended June 28, 1997 and June 29, 1996.
Note 2 - Business Developments
On April 2, 1997, the Company announced that its Board of Directors had
initiated a process to explore alternatives for enhancing shareholder value,
including joint ventures or a possible sale of all or part of the Company,
giving due consideration to the interests of the Company's shareholders,
employees, customers and other constituencies. The Board of Directors
authorized the engagement of the investment banking firm of Schroder Wertheim &
Co. Incorporated to act as advisor to the Company regarding the process. The
President and CEO of this investment banking firm is a director of the Company.
Note 3 - Contingencies
Beginning in 1991, the Company entered into various supply contracts with the
U.S. Department of Veterans Affairs and the Defense Department. In April 1997,
the Company completed a review of its compliance with various pricing provisions
of these contracts and, with the assistance of special legal counsel, has
concluded that adjustments may be due to the federal agencies for potential
unasserted claims against the Company relating to pricing deficiencies under
product supply contracts subject to General Services Administration and
Department of Defense regulations. Management has assessed its estimated
liability, and anticipates discussion of the identified pricing issues with the
contracting officers responsible for the Company's contracts. The ultimate
resolution of this matter potentially could involve purchase price adjustments
and associated legal costs of approximately $3.8 million. The Company
established a reserve for this amount in December, 1996. In management's
opinion, the ultimate resolution of this matter will not have a material adverse
effect on the Company's financial position. Although management believes that
the reserve is sufficient, it is
7
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MOORE MEDICAL CORP.
NOTES TO FINANCIAL STATEMENTS
Note 3 - Contingencies (cont'd)
possible the final resolution could exceed such reserve and could have a
material impact on the statement of operations and cash flow in such period.
Note 4 - Unusual Item
The "unusual item" consists of charges to earnings of $580,000 in the second
quarter of 1997 and $800,000 in the first half of 1997 in connection with
exiting supply contracts with the U.S. government. These charges are primarily
for write-offs and write-downs of product returns and for severance pay to
terminated employees. Without these charges, earnings per share would have been
$.22 for the second quarter of 1997 and $.38 for the first half.
Note 5 - Net Income Per Share
Net income per share of common stock is based on the weighted average number of
common shares outstanding (adjusted for dilutive common stock options), which
was 2,931,000 shares and 2,918,000 shares in the second quarters of 1997 and
1996, respectively, and 2,925,000 shares and 2,914,000 shares in the first two
quarters of 1997 and 1996, respectively.
8
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MOORE MEDICAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
OVERVIEW
- --------
The following table sets forth items included in the Statements of Operations as
a percentage of sales for the second quarter and first two quarters of 1997 and
1996, respectively. The table also shows, for each line item, the percentage
change in the 1997 periods from the comparable 1996 periods.
<TABLE>
<CAPTION>
Second Quarter First Two Quarters
--------------------------------------------------
% of Sales % % of Sales %
---------------- -------- --------------- -------
1997 1996 Change 1997 1996 Change
-------- ------- -------- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net sales..................... 100.0% 100.0% 6% 100.0% 100.0% 6%
Cost of products sold......... 85.3 85.2 6 85.7 85.6 6
----- ----- ----- -----
Gross profit.................. 14.7 14.8 5 14.3 14.4 5
Selling, general & admin exp.. 12.8 12.7 6 12.5 12.4 7
Unusual item 0.7 - - 0.5 - -
----- ----- ----- -----
Operating income.............. 1.2 2.1 (37) 1.3 2.0 (33)
Interest expense, net......... 0.7 0.7 2 0.7 0.6 6
----- ----- ----- -----
Income before income taxes.... 0.5 1.4 (58) 0.6 1.4 (52)
Income tax provision.......... 0.2 0.5 - 0.2 0.5 -
----- ----- ----- -----
Net income.................... 0.3% 0.9% (59)% 0.4% 0.9% (53)%
===== ===== ==== ===== ===== =====
</TABLE>
RESULTS OF OPERATIONS
- ---------------------
Second Quarter
1997 Compared with 1996
- -----------------------
Net sales for the second quarter of 1997 increased 6% to $77,038,000, compared
to $72,840,000 in the quarter a year ago. Sales of brand-name pharmaceuticals
increased approximately 20%, sales of generic pharmaceuticals decreased
approximately 30% and sales of medical/surgical supplies increased over 15%.
The decrease in sales of generic pharmaceuticals was due to significant
industry-wide deflation that resulted in lower prices in the 1997 quarter
compared with the 1996 quarter and due to exiting the government supply contract
business. Growth in sales to health-care practitioner customers accounted for
the sales increase in medical/surgical supplies.
9
<PAGE>
The gross margin rate of 14.7% in the second quarter of 1997 was slightly lower
than the 14.8% in the same quarter a year earlier. Gross profit dollars
increased in the second quarter of 1997 by 5% to $11.4 million. The increased
gross profit resulted from greater gross profits on increased sales of
medical/surgical supplies and brand-name pharmaceuticals, which more than
offset decreased gross profits on lower sales of generic pharmaceuticals.
Selling, general and administrative expenses during the second quarter of 1997
increased 6% from the comparable quarter of 1996. The increased expenses
resulted primarily from enlarging the sales staff. In addition, freight
expenses increased in the 1997 quarter.
Interest expense for the 1997 quarter increased slightly from the 1996 quarter.
The effect on interest expense of higher interest rates for the 1997 quarter was
mostly offset by decreased debt levels in the 1997 quarter.
The "unusual item" consists of charges to earnings of $580,000 in the second
quarter of 1997 in connection with exiting supply contracts with the U.S.
government. These charges are primarily for write-offs and write-downs of
product returns and for severance pay to terminated employees.
Net income and earnings per share for the 1997 quarter decreased 59% from the
same quarter of 1996 due to the charges associated with the decision to exit the
government supply contract business. Without these charges, earnings per share
for the second quarter of 1997 would have been equal to the $.22 per share
earned in the second quarter of 1996.
First Two Quarters
1997 Compared with 1996
- -----------------------
Net sales for the first half of 1997 increased 6% to $158,080,000 from
$148,673,000 in the comparable 1996 period. Sales of brand-name pharmaceuticals
increased approximately 20%, sales of generic pharmaceuticals decreased
approximately 30% and sales of medical/surgical supplies increased over 15%.
The decrease in sales of generic pharmaceuticals was due to significant
industry-wide deflation that resulted in lower prices in the 1997 half compared
with the 1996 half and due to exiting the government supply contract business.
Growth in sales to health-care practitioner customers accounted for the sales
increase in medical/surgical supplies.
For the 1997 first half, the gross margin rate of 14.3% was slightly lower than
the 14.4% in the same period a year earlier. Gross profit dollars increased by
5% to $22.6 million. The increased gross profit resulted from greater gross
profits on increased sales of medical/surgical supplies and brand-name
pharmaceuticals, which more than offset decreased gross profits on lower sales
of generic pharmaceuticals.
10
<PAGE>
Selling, general and administrative expenses during the first half of 1997
increased 7% compared with the first half of 1996. The increased expenses
resulted primarily from enlarging the sales staff. In addition, freight
expenses increased in the 1997 first half.
Interest expense during the first half of 1997 increased 6% compared with the
first half of 1996 due to higher interest rates.
The "unusual item" consists of previously announced charges to earnings of
$800,000 in the first half of 1997 in connection with exiting supply contracts
with the U.S. government. These charges are primarily for write-offs and write-
downs of product returns and for severance pay to terminated employees.
Net income and earnings per share for the first half of 1997 as compared to the
same 1996 period decreased over 50% due primarily to the charges associated
with the decision to exit the government supply contract business. Without
these charges, earnings per share would have been $.38 for the first half of
1997.
FINANCIAL CONDITION
- -------------------
During the first half of 1997, net cash flow from operating activities of $3.0
million was used to fund $0.5 million of equipment purchases and to reduce
revolving credit financing by $2.5 million. Cash sources from operating
activities were $0.6 million in net income, $1.0 million in non-cash items
included in net income and a $9.8 million reduction in inventories. Somewhat
offsetting these cash sources were uses for operations of a $1.8 million
increase in accounts receivable, a $5.8 million decrease in accounts payable and
a $0.8 million change in prepaid/accrued expenses and other current assets. The
increase in accounts receivable was due to higher sales in the second quarter of
1997 than in the fourth quarter of 1996. The decrease in inventories and the
related decrease in accounts payable were attributable to a decrease in
inventory position buying of brand-name pharmaceuticals from the end of 1996 to
June of 1997 and to inventory management.
The Company's bank financing agreement provides a $35 million revolving line of
credit through December, 1999. The facility provides for funding limited by a
formula using accounts receivable balances and inventory levels as the primary
variables. Interest on loans is charged at the prime rate or, at the option of
the Company, at the Eurodollar rate plus a rate in a range of 1% to 2% depending
on the financial leverage of the Company. In addition, the Company pays a 1/4%
commitment fee on the unused line of credit. Substantially all assets of the
Company have been pledged as collateral and the agreement contains covenants and
restrictions relating to asset protection, financial condition, dividends,
investments, acquisitions and certain other matters.
Management believes that the funding needs of the Company for operating working
capital and equipment purchases will continue to be met through income from
operations and financing under its line of credit.
11
<PAGE>
PART II. OTHER INFORMATION
-----------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The 1997 Annual Meeting of Shareholders of the Company was
held May 21, 1997.
(b) At the Annual Meeting, the following persons were elected
directors, with the following number of shares voted for and
withheld:
For Withheld
--------- ---------------
Mark E. Karp 2,450,026 14,136
Steven Kotler 2,450,026 14,136
Robert H. Steele 2,450,026 14,136
Peter C. Sutro 2,449,526 14,636
Wilmer J. Thomas, Jr. 2,450,026 14,136
Dan K. Wassong 2,450,026 14,136
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
--------
None.
(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/ John A. Murray By: /s/ Victor H. Emerson, Jr.
------------------------ ----------------------------
John A. Murray Victor H. Emerson, Jr.
Vice President - Finance and Controller and Chief
Chief Financial Officer Accounting Officer
August 7, 1997 August 7, 1997
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> JAN-03-1998 JAN-03-1998
<PERIOD-START> MAR-30-1997 DEC-30-1996
<PERIOD-END> JUN-28-1997 MAR-29-1997
<CASH> 5 7
<SECURITIES> 0 0
<RECEIVABLES> 27,849 29,098
<ALLOWANCES> 328 333
<INVENTORY> 34,034 43,703
<CURRENT-ASSETS> 68,074 79,258
<PP&E> 14,630 14,430
<DEPRECIATION> (10,429) (10,086)
<TOTAL-ASSETS> 73,576 84,772
<CURRENT-LIABILITIES> 26,879 29,518
<BONDS> 0 0
0 0
0 0
<COMMON> 33 32
<OTHER-SE> 26,112 25,814
<TOTAL-LIABILITY-AND-EQUITY> 73,576 84,772
<SALES> 77,038 81,042
<TOTAL-REVENUES> 77,038 81,042
<CGS> 65,687 69,826
<TOTAL-COSTS> 65,687 69,826
<OTHER-EXPENSES> 10,413 10,184
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 522 517
<INCOME-PRETAX> 416 515
<INCOME-TAX> 150 185
<INCOME-CONTINUING> 266 330
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 266 330
<EPS-PRIMARY> 0.09 0.11
<EPS-DILUTED> 0.09 0.11
</TABLE>
