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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
1998
FORM 10 - Q
For the Fiscal
FIRST QUARTER
Ended April 4, 1998
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)
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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)
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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 twelve months, and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No _____
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2,933,096
Number of shares of Common Stock outstanding as of May 14, 1998
Total number of pages in the numbered original is 13
This is page 1 of 13 pages.
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MOORE MEDICAL CORP.
INDEX
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<CAPTION>
Page No.
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<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets at the end of the first quarter of
1998 and at the end of the year 1997............... 3
Statements of Operations for the first quarters
of 1998 and 1997................................... 4
Statements of Cash Flows for the first quarters
of 1998 and 1997................................... 5
Notes to Financial Statements........................ 6-7
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition.............. 8-10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.................... 11-13
Signatures................................................... 11
</TABLE>
2
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MOORE MEDICAL CORP.
<TABLE>
<CAPTION>
Balance Sheets at end of
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Amounts in thousands FIRST QUARTER 1998 YEAR 1997
(Unaudited)
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 4,785 $ 54
Accounts receivable, less allowances
of $656 and $891......................... 10,225 15,212
Inventories................................. 13,987 13,416
Prepaid expenses and other current assets... 3,395 2,960
Deferred income taxes....................... 3,354 3,354
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Total Current Assets.................. 35,746 34,996
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NONCURRENT ASSETS
Equipment and leasehold improvements, net... 3,641 3,511
Other assets................................ 722 696
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Total Noncurrent Assets............... 4,363 4,207
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$40,109 $39,203
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............................ $10,013 $ 9,053
Accrued expenses............................ 6,794 5,801
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Total Current Liabilities............. 16,807 14,854
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DEFERRED INCOME TAXES.......................... 214 214
REVOLVING CREDIT FINANCING..................... -- 1,512
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.............. 21,656 21,644
Retained earnings........................... 4,192 3,788
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25,881 25,464
Less treasury shares, at cost, 314 and 319
shares................................... (2,793) (2,841)
------- -------
Total Shareholders' Equity............ 23,088 22,623
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$40,109 $39,203
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</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 FIRST QUARTER
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1998 1997
(Unaudited)
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<S> <C> <C>
Net sales................................... $30,939 $81,042
Cost of products sold....................... 21,601 69,826
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Gross profit................................ 9,338 11,216
Selling, general & administrative expenses.. 8,701 10,184
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Operating income............................ 637 1,032
Interest (income) expense, net.............. (6) 517
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Income before income taxes.................. 643 515
Income tax provision........................ 238 185
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Net income.................................. $ 405 $ 330
======= =======
Basic and diluted net income
per share................................ $ .14 $ .11
======= =======
</TABLE>
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The accompanying notes are an integral part of the financial statements.
4
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MOORE MEDICAL CORP.
<TABLE>
<CAPTION>
Statements of Cash Flows for the
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Amounts in thousands FIRST QUARTER
-----------------------
1998 1997
(Unaudited)
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................. $ 404 $ 330
Adjustments to reconcile net income to net cash
flows provided by operating activities:
Depreciation and amortization......................... 331 412
Deferred income taxes................................. - 27
Changes in operating assets and liabilities:
Accounts receivable.................................. 4,987 (3,004)
Inventories.......................................... (571) 125
Other current assets................................. (435) (329)
Accounts payable..................................... 960 (3,473)
Other current liabilities............................ 974 (170)
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Net cash flows provided by (used in)
operating activities.................................. 6,650 (6,082)
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CASH FLOWS FROM INVESTING ACTIVITIES
Equipment & leasehold improvements acquired.......... (461) (345)
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Net cash flows used in investing activities....... (461) (345)
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CASH FLOWS FROM FINANCING ACTIVITIES
Revolving credit financing (decrease)
increase, net..................................... (1,512) 6,328
Other, net........................................... 54 90
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Net cash flows (used in) provided by financing
activities..................................... (1,458) 6,418
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Increase (decrease) in cash............................. 4,731 (9)
Cash at beginning of period............................. 54 16
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CASH AT END OF PERIOD................................... $ 4,785 $ 7
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</TABLE>
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The accompanying notes are an integral part of the financial statements.
5
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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 1997 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 first quarter are not necessarily
indicative of the results to be expected for the full year. The fiscal
quarters ended April 4, 1998 and March 29, 1997.
NOTE 2 - BASIC AND DILUTED NET INCOME PER SHARE
In the fourth quarter of 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share," for all
periods presented. Basic earnings per share computations are determined
based on the weighted average number of shares outstanding during the
period. The effect of the exercise and conversion of all securities,
including stock options are included in the diluted earnings per share
calculation.
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, 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. In the fourth quarter of 1996, the Company
established a $3.8 million reserve for estimated pricing deficiency
liabilities and associated legal costs. As of the end of 1997 and first
quarter end of 1998, the reserve balance was $3.3 million. The final
amount of the pricing deficiency adjustment is subject to the outcome
of contract settlement
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NOTE 3 - CONTINGENCIES (CONTINUED)
discussions which the Company has requested with the governmental
agencies or to an adjudicated disposition. 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 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.
7
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MOORE MEDICAL CORP.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OVERVIEW
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The following table sets forth items included in the Statements of Operations as
a percentage of sales for the first quarters of 1998 and 1997. The table also
shows, for each line item, the percentage change in the 1998 period from the
comparable 1997 period.
<TABLE>
<CAPTION>
FIRST QUARTER
-------------------------------
% OF SALES % CHANGE
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1998 1997
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<S> <C> <C> <C>
Net sales............................... 100.0% 100.0% (62)%
Cost of products sold................... 69.8 86.2 (69)
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Gross profit............................ 30.2 13.8 (17)
Selling, general & administrative 28.1 12.6 (15)
expenses............................... ----- -----
Operating income........................ 2.1 1.2 (38)
Interest (income) expense, net.......... 0 .6 (101)
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Income before income taxes.............. 2.1 .6 25
Income tax provision.................... .8 .2 29
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Net income.............................. 1.3% .4% 23%
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</TABLE>
RESULTS OF OPERATIONS
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FIRST QUARTER
1998 COMPARED WITH 1997
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In the fourth quarter of 1997, the Company exited from its wholesale drug
distribution business to concentrate on its remaining and more profitable
healthcare practitioner business. The wholesale drug distribution business
generated approximately 60% of the Company's 1997 sales, while the remaining
healthcare practitioner business generated approximately 40% of its sales.
Sales by quarter in 1997 of the healthcare practitioner business were $24.7
million, $27.5 million, $31.4 million and $29.3 million in the first, second,
third and fourth quarters, respectively.
Net sales of $30.9 million for the first quarter of 1998 decreased 62% from the
same quarter of 1997 due to the withdrawal from the wholesale drug distribution
business. Sales of pharmaceuticals decreased 87% and sales of medical/surgical
supplies increased 13%. Sales of the healthcare practitioner business for the
1998 quarter were 23% higher than sales for this business in the comparable
quarter of 1997.
For the 1998 quarter, gross profit dollars decreased 17% to $9.3 million. The
gross profit margin rate in the 1998 quarter increased to 30.2% of sales from
13.8% in the
8
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same quarter a year earlier. Gross profit margins are higher on medical/surgical
supplies than on pharmaceuticals, and they are higher in the healthcare
practitioner market than in the drug wholesale market.
Selling, general and administrative expenses in the first quarter of 1998
decreased 15% from the quarter a year ago. The decrease is wholly attributable
to reductions in staff, freight expense and other variable expenses previously
associated with the wholesale drug distribution business. In the 1997 first
quarter, a pre-tax charge of $220,000 ($.05 per share) was taken in connection
with exiting various federal government supply contracts.
The 1998 quarter benefited significantly from a $523,000 change in interest
charges, due to significant positive cash flows from exiting the wholesale drug
distribution business which have left the Company with no debt and $4.8 million
in cash and equivalents at the end of the first quarter.
Net income for the 1998 quarter increased 23%. A decrease in gross profit was
more than offset by decreases in selling, general and administrative expenses
and interest expense. The 1997 charge related to exiting federal government
supply contracts did not recur in the 1998 quarter, which more than accounts for
the entire increase in net income between the two quarters. Net income in the
1998 first quarter was not significantly affected by any revenues or expenses of
the former wholesale drug distribution business.
FINANCIAL CONDITION
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During the first quarter of 1998, $6.7 million in funds provided by operating
activities were used to pay off the remaining bank debt of $1.5 million, for
capital expenditures of $0.5 million and accounted for an increase of $4.7
million in cash. Operating activities generated cash of $5.0 million from a
decrease in accounts receivable, $1.0 million from an increase in accounts
payable, $0.4 million from net income, $0.3 million from depreciation and
amortization and $0.5 million from a net change in other assets and liabilities.
Operating activities used cash of $0.6 million to increase inventories. The
large decrease in accounts receivable was due primarily to the collection of
accounts in connection with exiting from the wholesale drug distribution
business.
The Company's bank financing agreement provides a $10 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
commitment fee on the unused line of credit at a 1/4% annual rate.
Substantially all assets of the Company have been pledged as collateral and the
agreement contains covenants and restrictions relating to
9
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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 capital expenditures will continue to be met through income from
operations and financing available under its line of credit.
FORWARD-LOOKING INFORMATION
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From time to time, the Company or its representatives may have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but, not limited to, press releases, oral
statements made by or with the approval of an authorized executive officer, or
in this report or other filings made by the Company with the Securities and
Exchange Commission. The words or phrases "trend," "expect," "grow," "will,"
"could," "likely result," "planned," "continued," "anticipated," "estimated,"
"projected" or similar expressions are intended to identify "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. The Company wishes to ensure that such statements are accompanied by
meaningful cautionary statements, so as to maximize to the fullest extent
possible the protections of the safe harbor established in the said Act.
Accordingly, such statements are qualified in their entirety by reference to and
are accompanied by the following discussion of certain important factors that
could cause actual results to differ materially from such forward-looking
statements.
Investors should also be aware of factors that could have an impact on the
Company's business or financial position or performance. These include
possible: pressures on revenues resulting, for example, from customer
consolidations or changes in customer buying patterns; intensified competition
resulting, for example, from distributor consolidations or pricing pressures
from distributors able to benefit from economies of scale or other operating
efficiencies; disruptions in services on which the Company is dependent, such as
by truckers in deliveries from its suppliers, by UPS or other common carriers in
deliveries to its customers, by its catalog printers or in telecommunication
services, or relating to its computer systems; unfavorable outcomes of
litigation to which the Company may become a party; and other factors detailed
from time to time in the Company's Securities and Exchange Commission filings or
other readily available or generally disseminated writings. The risks
identified here are not all inclusive. Reference is also made to other parts of
this report that include additional information concerning factors that could
adversely impact the Company's business or financial position or performance.
Moreover, the Company operates in a changing and very competitive business
environment. New risks may emerge from time to time, and it is not possible for
management to predict all risk factors, nor can it necessarily identify or
assess the impact of all such factors on the Company or the extent to which any
factor or combination of factors may cause actual results to differ materially
from those contained in any forward-looking statements. Accordingly, forward-
looking statements should not be relied upon as a prediction of actual results.
10
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PART II. OTHER INFORMATION
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
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10.9(a). 1998 Corporate Vice Presidents' Bonus Plan (Revised).
27. Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
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/ John A. Murray By: /s/ Susan G. D'Amato
----------------------------- ----------------------------
John A. Murray Susan G. D'Amato
Vice President - Finance and Controller and Chief
Chief Financial Officer Accounting Officer
May 18, 1998 May 18, 1998
11
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EXHIBIT 10.9(A)
MOORE MEDICAL CORP.
1998 CORPORATE VICE PRESIDENTS' BONUS PLAN (REVISED)
1. Purpose; Eligibility; Etc. This plan is designed to offer the
--------------------------
incentive of bonus compensation to the Company's corporate vice presidents. The
Plan is for the Company's 1998 fiscal year. Only employees who are corporate
vice presidents, elected to such position by the Company's Board of Directors,
are participants in the Plan. (As of February 17, 1998, the corporate vice
presidents are Richard A. Bucchi, Kenneth S. Kollmeyer and John A. Murray.) No
bonus compensation will be payable if a participant breaches a material
obligation to the Company. This Plan does not constitute an employment contract
or confer a right to continued employment. An employee first elected a
corporate vice president by the Board or its Executive Committee during the year
is eligible from the date of election, on an elapsed day basis, pro rated from
that date. If a participant should cease being continually employed by the
Company on a full-time basis during 1998, his bonus compensation will be
computed on an elapsed day basis, pro rated to the date of cessation.
2. Bonus As bonus compensation, the Company will pay each participant,
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within 75 days after its 1998 fiscal year end: (a) a bonus of up to $20,000
based on the achievement of the specific individual participant's "hard goals"
agreed to in writing between the Company's President and the participant; and
(b) the percentage of his Salary (defined below) set forth in Column A if its
pre-tax income for that fiscal year, as shown in its audited financial
statements for the year (subject to adjustment as hereinafter provided for),
exceeds the amount set forth opposite the percentage in Column B:
<TABLE>
<CAPTION>
A B A B
- - - -
<S> <C> <C> <C>
50%........$5,735,000 25%........$4,485,000
45%........$5,485,000 20%........$4,235,000
40%........$5,235,000 15%........$3,985,000
35%........$4,985,000 10%........$3,735,000
30%........$4,735,000 5%........$3,485,000
</TABLE>
A participant's Salary is his W-2 gross pay for 1998 plus any bonus earned
under paragraph 2(a) of this Plan, but excluding any bonus under paragraph 2(b)
of this Plan and excluding pay for periods during which he was not actively
working for the Company, such as a period of disability or severance pay.
No bonus compensation will be paid under paragraph 2(b) of this Plan if the
Company's pre-tax income for the fiscal year does not exceed $3,485,000. If the
pre-tax income is effected by any charge or associated cost or change in a prior
year's reserve relating to a federal government contract pricing deficiency, for
purposes of Column B the amount of the pre-tax income will be subject to such
adjustments (if any) as the Compensation Committee of the Board of Directors of
the Company may, in its sole and absolute discretion, determine.
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-05-1998
<PERIOD-END> APR-04-1998
<CASH> 4,785
<SECURITIES> 0
<RECEIVABLES> 10,881
<ALLOWANCES> 656
<INVENTORY> 13,987
<CURRENT-ASSETS> 35,746
<PP&E> 13,567
<DEPRECIATION> (9,927)
<TOTAL-ASSETS> 40,109
<CURRENT-LIABILITIES> 16,807
<BONDS> 0
0
0
<COMMON> 33
<OTHER-SE> 23,055
<TOTAL-LIABILITY-AND-EQUITY> 40,109
<SALES> 30,939
<TOTAL-REVENUES> 30,939
<CGS> 21,601
<TOTAL-COSTS> 21,601
<OTHER-EXPENSES> 8,701
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (6)
<INCOME-PRETAX> 643
<INCOME-TAX> 238
<INCOME-CONTINUING> 405
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 405
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
