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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10 - K/A
(Amendment No. 1)
FOR ANNUAL AND TRANSITION REPORTS
Pursuant to Sections 13 or 15(d) of the Securities and Exchange Act of 1934
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities and
Exchange Act of 1934
For the fiscal year ended December 29, 2001
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities and
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(g) of the Act:
Common Stock ($.01 Par Value) American Stock Exchange
Rights to Purchase Series I Junior Preferred Stock 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 and 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.[X]
The aggregate market value of the voting stock held by non-affiliates
(i.e. other than identified 5% holders, and holdings attributed to executive
officers and directors) of the registrant as of March 11, 2002 was $16,381,610.
Determination of affiliate status for such purpose is not a conclusive
determination thereof for other purposes.
Number of shares of Common Stock outstanding (exclusive of 92,096 treasury
shares) as of March 11, 2002: 3,153,943.
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DOCUMENTS INCORPORATED BY REFERENCE
The portions of the registrant's proxy statement for its 2002 Annual Meeting of
Shareholders referred to in Part III of this report are incorporated by
reference.
This is page 1 of 37 pages.
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1
MOORE MEDICAL CORP. & Subsidiary
2001 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
This amendment No. 1 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 29, 2001 is being filed to revise the
consolidated financial statements to adjust certain current liabilities
and cost of product sold amounts as set forth in Notes 10 and 11 to the
Notes to the Consolidated Financial Statements, from those previously
filed on March 29, 2002. In this amendment, the disclosures have not been
updated other than to reflect the adjustments specifically discussed in
Notes 10 (unaudited quarterly data) and 11 to the Notes to the
Consolidated Financial Statements.
Part I
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Item 1. Business 3
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
Part II
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 8
Item 6. Selected Financial Data 9
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 10
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 13
Item 8. Financial Statements and Supplementary Data 13
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 31
Part III
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Item 10. Directors and Executive Officers of the Registrant 31
Item 11. Executive Compensation 31
Item 12. Security Ownership of Certain Beneficial Owners and Management 31
Item 13. Certain Relationships and Related Transactions 31
Part IV
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Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K 32
SIGNATURES 35
CERTIFICATIONS 36
2
ITEM 1. BUSINESS
OVERVIEW
In 1997 Moore Medical Corp. generated 60% of its revenues from its wholesale
drug distribution business to pharmacies and 40% of its revenues from the sale
of medical and surgical supplies to health care practices in non-hospital
settings. The Company exited the less profitable wholesale drug distribution
business in October 1997 with accompanying non-recurring inventory markdowns and
write-offs, costs and expenses of $6.0 million.
Today, 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.
MOORE MEDICAL'S MISSION & KEY INITIATIVES
Our mission is to empower health care professionals with the tools, and
resources they need to improve the health of their patients and save lives.
We strive to:
Maintain a strong customer focus
Our customers are the focal point of all that we do. We have established a
Corporate Customer Council, health care specialty online advisory groups and
ongoing surveys to help us learn more about customer needs and how to best serve
them.
Provide an enjoyable and efficient multi-channel customer experience
We offer our customers a variety of ways to communicate with us and have
streamlined the process of providing the quality goods and services that they
have come to expect. Our second-generation web site, launched in October 2001,
houses a sophisticated e-commerce application that allows customers to make
real-time selections and purchases online. We complement the total buying
experience with an unparalleled gateway to industry associations and affiliate
companies, while continuing to maintain a traditional direct mail communication
campaign through our market-specific sales flyers and catalogs.
HEALTH CARE PRODUCTS DISTRIBUTION INDUSTRY/COMPETITION
Industry: Current statistics from Hoover Online, an informational business
network, report that the $1.2 trillion health care industry is the largest
segment of the U.S. economy. About $35 billion is spent annually on
medical/surgical supplies. There are three primary types of purchasers of
medical supplies: hospitals, large Integrated Delivery Networks (IDNs) and
Independent Physician Associations (IPAs). Moore distributes its products
predominantly to IPAs, individual physicians' offices and clinics, as well as to
emergency medical providers and health care professionals in institutional
settings.
The total market for sales by distributors to physicians for these products is
approximately $3.3 billion, per current HIDA (Health Industry Distributors
Association) statistics. Most manufacturers will not sell directly to health
care practitioners in non-hospital settings. Likewise, most health care
practitioners/practices prefer to purchase from a few distributors rather than
from hundreds of manufacturers. Customers find it efficient and convenient to
rely on these distributors for product availability, competitive prices, prompt
delivery, and other services.
Competition: The trend of health care product distributor consolidation
continues in an effort to realize economies of scale. Our competitors are large
national distributors, regional distributors, and local distributors. Some
primarily use direct mail and telemarketing, some rely on the Internet, and
others make
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sales and deliveries to their customers with a dedicated sales force and a fleet
of distributor-operated delivery vehicles.
Generally, we compete with other distributors on breadth of product line, brand
recognition, delivery speed, price, order completion rates, and other
value-added customer service factors, such as the convenience of ordering
through the Internet. As more health care practices consolidate, we expect that
a growing number of large customers will require their distributor to reliably
service many delivery locations in different regions across the country. By
providing a multi-channel distribution network, we expect that we will be able
to meet the needs of our present and prospective customers.
MARKETING
Marketing: Moore Medical conducts business-to-business marketing of its medical,
surgical, and pharmaceutical products to existing and prospective customers
nationwide. The Company employs various marketing vehicles and channels to reach
its target market: direct mail catalogs, flyers and letters; e-marketing
initiatives (including e-mail campaigns and web site promotions); a toll-free
customer support center which takes calls for orders, requests for catalogs, and
provides product information; and market-specific sales representatives. The
Company considers direct marketing to be one of its core competencies.
An in-house creative department designs and produces all Company marketing
collateral, examples of which include catalogs and flyers, web graphics and
animations, Moore brand product packaging, trade show booth graphics, and
affiliate-sponsored pieces. The Company contracts printing services through
outside printers. Marketing materials are mailed throughout the year, utilizing
a schedule based on historic results, customer-buying patterns, and forecasted
segment penetration.
SUPPLY CHAIN
During 2001, Moore Medical focused on analyzing the material movement process to
identify ways to increase customer satisfaction while eliminating non-value
added processes. The material movement analysis identified two significant
opportunities to improve customer satisfaction and reduce internal costs.
The first opportunity was the reengineering of our Demand Planning / Inventory
Control process. In March 2001, we implemented a fully automated advanced
forecasting and replenishment solution called E3TRIM(TM) by JDA(R) Software
Group, Inc. The E3TRIM(TM) software automatically determines the appropriate
inventory levels needed in our warehouses to meet our customers' expectations.
The E3TRIM(TM) software has reduced manual labor, helped increase inventory
turns and improved customer service levels for our Company as measured by
complete, on time orders and line fill rates.
The second significant opportunity was the consolidation of our distribution
center network. After conducting a thorough analysis of our customers'
expectations, we determined that we could improve our customer service levels
and reduce costs by consolidating our distribution network to three
strategically located distribution centers. We implemented our consolidation
plan in September 2001 and eliminated our Illinois distribution center. Since we
implemented the consolidation plan, we have realized record setting customer
service levels as measured by complete, on time orders and line fill rates.
Our core supply chain objective is to continuously identify new processes that
improve customer satisfaction, eliminate non-value added processes and reduce
costs.
Distribution: We distribute our products throughout the United States and U.S.
territories from our three distribution centers in Connecticut, California, and
Florida. The Distribution network has been designed with the objectives of
delivering a completely satisfying purchasing experience to the customer,
providing broader second-day delivery coverage, and minimizing inventory and
transportation costs. We provide consistent, time-sensitive and high-quality
order fulfillment services through sophisticated product allocation strategies,
maintaining high standards of accuracy and fulfillment.
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Customer orders enter the enterprise resource planning (ERP) system via our web
site, and through entry by our market-specific sales representatives, customer
support center representatives, or field representatives. Order fulfillment is
completed the same day when the order is received by 4:00 p.m. eastern time.
United Parcel Services (UPS) is our primary small package carrier, and we enjoy
national account status. FedEx Ground provides small package service to our
customers in the Midwest. Small package deliveries constitute over 90% of our
package volume, with over 99% of orders filled to completion the same business
day. With our national coverage, nearly 90% of our customers receive delivery
within two business days.
We are continually benchmarking our service and fulfillment performance against
our system of Perfect Order Metrics, which is the percentage of orders shipped
complete, on time, from the customer's assigned primary shipping warehouse
(i.e., distribution center closest to customer's ship-to location) and received
by the customer error-free. We have also implemented a process mapping method to
identify every one of the individual steps involved in taking and fulfilling an
order, with a goal towards streamlining and/or eliminating steps to make the
process flow more smoothly.
Product Line/Suppliers: Moore Medical's product line consists of over 10,000 of
the most popular medical/surgical supplies and pharmaceutical products,
encompassing a broad and diversified selection. Over 7,500 stock keeping units
(SKUs) are carried in stock. We are one of the few distributors of
medical/surgical products to health care practitioners in non-hospital settings
who also offer pharmaceuticals to those practices. Although many of our products
are consumables and disposables, we also sell medical/surgical equipment and a
variety of diagnostic instrumentation and accessories.
We purchase products primarily from manufacturers and other distributors and do
not manufacture or assemble any products, with the exception of medical and
first aid kits. We maintain insurance coverage against potential losses due to
product liability claims, and we believe such coverage is adequate. In 2001, our
largest product suppliers were 3M, Allied Healthcare Products, Inc, Aventis
Pasteur, Becton Dickinson, Glaxo SmithKline, Johnson & Johnson Healthcare
Systems, Kendall Healthcare Products Co., Laerdal Medical Corp, Microflex
Corporation (Microflex(R) is a registered trademark of the Microflex
Corporation), and Welch Allyn. We have several competing sources for many
medical/surgical supplies and pharmaceuticals. Sales of products from our
largest supplier in 2001 (Microflex Corporation) accounted for 4.9% of total
sales. In the pharmaceutical market, novel products are licensed which affects
both product acquisition costs and obtainable margins that the Company can
achieve.
Our purchasing team also has ready access to several hundred industry
manufacturers and suppliers and in 2001, we established a Vendor Council, which
assists us in meeting customers' special requirements. We have long-term
purchase arrangements (i.e., 2 years or longer) with several of our suppliers
(American Diagnostic Corp., ASO, Graham Medical, and Microflex Corporation). We
do not have any exclusive product rights, although we have preferred supplier
status in a number of vertical markets and online health care communities for
particular product offerings.
CUSTOMERS
Our customers are the focal point of our marketing, sales and supply chain
strategies, and we strive to provide value-added services to the health care
specialties we serve. In order to better serve the podiatry community, for
example, we published a podiatry-only specialty catalog in January 2002. Moore
Medical also maintains a number of Internet alliances to help new customers find
us more easily, encourage existing customers to choose us more frequently, and
help Moore Medical understand customer community needs. Internet alliances
include strategic partnerships, advertising sponsorships, preferred affiliates
(collaborative joint marketing) and Internet affiliates. These alliances are
designed to link sales from the affiliate's web site to www.mooremedical.com,
encourage direct sales through our web site and establish pre-conditioned sales
through our Customer Support Center.
We continue to benefit from our Corporate Customer Council, where customers
share their views on Moore Medical's support, service, products, terms, pricing
and delivery, and make suggestions on ways to improve their customer experience.
We have recently expanded this concept to create individual Customer Advisory
Groups for selected health care specialties.
5
SALES STAFF
Moore Medical's multi-channel capabilities allow customers and prospective
customers to communicate and conduct business with us in the method or
combination of methods they prefer. The majority of our business is conducted
through industry-expert customer support representatives and market-specific
sales representatives based in New Britain, Connecticut. Our customer support
representatives are trained and organized by health care specialty and product
knowledge to better serve our customers.
Health care specialty key account and field representatives are located in
Florida, Georgia, Texas, California, Indiana, Massachusetts, and Connecticut.
Encouraged by our growing success in large and national account customer
opportunities in the occupational health care, correctional and institutional
markets, we are increasing our geographic field force in these specialty areas,
as well as in multi-clinic primary care settings.
Ten percent of our customers transacted through the Internet in 2001, using
www.mooremedical.com to order, in addition to other means of communication. The
launch of a greatly enhanced web site in mid -October, 2001, contributed to the
increased utilization.
A small team of net agents, trained to facilitate live, online chats with
customers, assists in the customer Internet purchase experience as requested by
the customer. Our customer relations representatives are also conversant in web
ordering so that a customer inquiry can be a one-stop ordering experience.
REGULATION
The health care delivery industry in the United States continues to be under
intensive scrutiny as a result of a wide variety of political, economic and
regulatory influences. Because of uncertainty regarding the ultimate features of
any future reform initiatives, the Company cannot predict the impact such
proposals, should they be adopted, will have on its business.
Moore Medical's business is subject to regulation under various federal, state
and local laws governing the sale, marketing, packaging and distribution of
prescription drugs, including controlled substances, regulated chemicals and
medical devices, as well as licensing requirements.
Each of our distribution centers is registered with the Drug Enforcement Agency
(DEA) and, as a wholesale distributor of prescription drugs and devices, in each
state that requires registration and/or licensure. In addition, we are
registered with the Food and Drug Administration (FDA) as a Drug Establishment
and as a Device Establishment.
We are mandated by the Prescription Drug Marketing Act of 1987 and the
Controlled Substance Act to validate our customers for purchases of regulated
products. We require documentary evidence of our customers' regulatory authority
to purchase regulated products and we are in material compliance with applicable
federal and state statutes, which protect against the diversion of those
products. We maintain extremely tight standards designed to ensure that every
transaction constitutes a legal sale prior to shipping.
In our capacity as a distributor of prescription pharmaceuticals, the Company is
also subject to Medicare, Medicaid and state health care fraud, abuse and
anti-kickback laws and regulations.
In order to remain current with the regulatory environment, Moore Medical
employs an in-house pharmacist who serves as Senior Manager of Regulatory
Affairs as well as Immediate Past President of the Connecticut Pharmacists'
Association. This individual is responsible for monitoring all pharmaceutical
sales for compliance with federal and state regulations as well as with Company
policy. He works closely with the U.S. Drug Enforcement Agency to help spot
potential abuses, and serves as a source of information for our customers
regarding regulations and recalls.
6
INFORMATION TECHNOLOGY
Moore Medical will continue to invest in strategic technology initiatives as
required to sustain competitiveness. Our business strategy and Information
Technology (IT) planning are fused together to shorten time to market with new
services, rapidly respond to IT-enabled opportunities and threats, and leverage
IT-enabled value by re-purposing and connecting different parts of our
enterprise.
In 2001 Moore Medical IT focused on delivering best-in-class services to our
customers for ordering medical supplies across all channels. This included an
Ariba and Commerce One initiative allowing order processing through online
marketplaces, which our customers had employed.
We engaged Blue Barn Interactive (New York, New York) in the first quarter of
2001 to design the blueprint for our second-generation web site. On October 15,
2001, Moore Medical launched an enhanced e-commerce web site, with robust
product and site navigation, an improved supply list, and an improved customer
experience. To meet the needs of Moore Medical's growing customer database, we
conducted three hardware upgrades. First, we upgraded to an AS/400 hardware
platform, which approximately doubled system performance. Second, we upgraded
150 personal computers in the customer support center. And third, we upgraded
the server farm that supports our data warehouse initiatives. All three upgrades
resulted in significant improvements in order processing time, transaction
throughput, and the ability to perform detailed analytics. We accomplished
several key initiatives for Moore Medical's Supply Chain area, one of which was
the implementation of the E3TRIM(TM) software package by JDA(R) Software Group,
Inc. and its integration into JD Edwards, our enterprise resource planning
system (ERP). We also made significant upgrades to our network services.
EMPLOYEES
We continue to recruit, hire, and retain individuals with the specific skills
that complement our corporate growth strategy, and leverage current and future
technological advances. Employees are encouraged to enhance their skills and
professional development.
As of December 29, 2001, the Company had 275 full time equivalent employees
(including 13 part-time employees) in three locations, none of whom had
collective bargaining agreements. Overall, the Company considers its employee
relations to be good.
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ITEM 2. PROPERTIES
The Company owns no real property and it leases all its operating facilities.
Its distribution centers are located in New Britain, Connecticut (92,000 square
feet), Jacksonville, Florida (60,000 square feet), and Visalia, California
(51,000 square feet). During the third quarter of 2001, the Company closed its
Lemont, Illinois (58,000 square feet) distribution facility and the fulfillment
activities of that location have been allocated to the remaining three
facilities. The Company believes that its properties are generally in good
condition.
The Company's main offices are located in an industrial park in New Britain,
Connecticut, where it occupies three buildings (41,000 square feet) adjacent to
its main distribution center in a campus-like setting. In these offices, the
business functions of order processing, telesales, marketing, purchasing,
information services, finance, and administration are performed. Office space is
adequate for the Company's present needs.
ITEM 3. LEGAL PROCEEDINGS
As of the date of this document there are no legal proceedings which are
material to the financial position, results of operations or cashflow of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of shareholders during the fiscal fourth
quarter of 2001.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock is listed on the American Stock Exchange (trading
symbol "MMD"). The following sets forth, for each quarter since the beginning of
2000 the high and low sale prices of the common stock on the American Stock
Exchange Composite Tape.
2001 2000
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QUARTERS: HIGH LOW HIGH LOW
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First........................... $ 9.950 $ 5.000 $ 13.063 $ 9.313
Second.......................... 9.400 8.000 11.625 6.000
Third........................... 8.500 5.800 8.375 5.125
Fourth.......................... 9.000 6.250 7.625 3.875
The high and low sale prices of the common stock on March 11, 2002 were $9.57
and $9.25, respectively. The estimated number of holders (including estimated
beneficial holders) of the Company's common stock as of March 11, 2002 was
approximately 1,200.
The Company has paid no cash dividends and has no plans to do so in the
foreseeable future. Its loan agreement contains restrictions on dividend
payments.
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ITEM 6. SELECTED FINANCIAL DATA
AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA 2001* 2000* 1999* 1998 1997**
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SUMMARY OF OPERATIONS RESTATED RESTATED RESTATED
Net sales $ 132,833 $ 123,922 $ 118,536 $ 120,846 $ 288,513
Cost of products sold 97,518 91,841 86,221 87,590 255,252
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Gross profit 35,315 32,081 32,315 33,256 33,261
Selling, general and
administrative expenses 37,546 38,076 29,730 28,879 36,056
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Operating (loss) income (2,231) (5,995) 2,585 4,377 (2,795)
Interest expense (income), net 209 (228) (8) (82) 1,898
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(Loss) income before income taxes (2,440) (5,767) 2,593 4,459 (4,693)
Income tax (benefit) provision (803) (1,357) 636 1,650 (1,772)
---------- ---------- ---------- ---------- ----------
Net (loss) income $ (1,637) $ (4,410) $ 1,957 $ 2,809 $ (2,921)
========== ========== ========== ========== ==========
Basic net (loss) income per share $ (0.52) $ (1.45) $ 0.67 $ 0.96 $ (1.00)
Diluted net (loss) income per share $ (0.52) $ (1.45) $ 0.67 $ 0.95 $ (1.00)
Basic weighted average shares outstanding 3,144 3,050 2,939 2,932 2,921
Diluted weighted average shares outstanding 3,144 3,050 2,943 2,949 2,921
BALANCE SHEET DATA
Working capital $ 16,011 $ 20,012 $ 18,613 $ 18,521 $ 20,142
Total assets $ 40,972 $ 44,990 $ 41,902 $ 38,481 $ 39,203
Debt $ 5,326 $ 5,938 $ - $ - $ 1,512
Shareholders' equity $ 22,985 $ 24,589 $ 27,555 $ 25,553 $ 22,623
* As described in Notes 10 (unaudited quarterly data) and 11 to the Notes to the
Consolidated Financial Statements, amounts previously reported for certain
current liabilities and cost of product sold have been restated.
** 1997 Operating results include sales and related expenses of the Company's
wholesale drug distribution business. During the fourth quarter of 1997, the
Company notified customers of its intention of a planned withdrawal from the
business.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESTATEMENT
As set forth in Note 10 (unaudited quarterly data) and described in Note 11 to
the Notes to the Consolidated Financial Statements, certain current liabilities
and cost of product sold amounts have been restated.
RECLASSIFICATION
Certain prior year amounts have been reclassified to conform with the current
year presentation. Please refer to Note 1 to the Consolidated Financial
Statements.
RESULTS OF OPERATIONS
2001 COMPARED WITH 2000
Net sales increased 7.2% to $132.8 million from $123.9 million in the prior
year, which was primarily volume driven. The Company distributes its products to
markets 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. The sales increase was driven by multi-channel targeted marketing
to health care specialties, through direct mail, national and field sales
representatives and via the Internet. The sales growth that we realized in 2001
demonstrates continued strength in the physician and public sectors. Net Sales
to physician and public sectors grew 10.7% and 19.4%, respectively, while
Internet based sales revenue increased 129.5% over prior year's results to
represent 7.9% of our total net sales.
Gross profit increased by 10.0% to $35.3 million compared to $32.1 million in
the prior year. The gross profit margin percentage increased to 26.6% from 25.9%
in 2000. The increased gross profit margin is attributable to both product and
market mix combined with continued improvements in our supply chain operation.
Selling, general and administrative (S,G&A) expenses decreased $0.5 million to
$37.5 million compared to $38.0 million for the prior year. S,G&A expenses for
the year ended December 30, 2000 contained a one-time charge in the amount of
$2.5 million related to a matter the Company settled with the U.S. Government.
As a percentage of net sales, S,G&A expenses decreased to 28.3% from 30.7%.
Excluding the government settlement (see note 4) one-time charge, S,G&A
expenditures increased $2.0 million due to expenses related to the
transformation of the Company into a multi-channel direct marketer, including
depreciation and amortization expenses related to prior investments in
technology and the acquisitions of Podiatry Online and MERGInet.com. The
increase in expenses was partially offset by the realization of efficiencies in
the supply chain, including the closing of the Lemont distribution facility
during the third quarter 2001. Continued leveraging of supply chain initiatives
without adversely impacting customer service levels should continue to reduce
fulfillment costs and overall operating costs. The Company believes the existing
cost structure is adequate to support future growth.
Net interest expense of $0.2 million in contrast to $0.2 million of net interest
income was attributable to the interest on the government settlement note
payable which was executed on February 1, 2001.
The effective income tax benefit rate of 32.9% was lower than the federal
statutory rate due to tax implications relating to the closure of the Lemont
distribution facility.
Fiscal 2001 operations showed a net loss of ($1.6) million or ($0.52) per share
in comparison with a net loss of ($4.4) million or ($1.45) per share including
one-time charge ($2.5) million or ($0.79) per share in 2000.
2000 COMPARED WITH 1999
Revenue for fiscal 2000 was $123.9 million, compared to $118.5 million in fiscal
1999, representing growth of 4.6%, which was primarily volume driven. The
Company's growth reflected strength in key communities, including a 28.5%
increase in the reseller community, as well as an 8.2% increase in our
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public community, and a 5.5% increase in our EMS community. Results for fiscal
2000 were significantly affected by a one-time charge of $2.5 million, reflected
in selling, general and administrative expenses or ($.79) per share, related to
a matter the Company settled with the U.S. Government in the fourth quarter.
Earnings per share decreased to ($1.45) from $0.67 a year ago. Excluding the
one-time charge as a result of the government settlement, 2000 earnings per
share would have been ($0.66) versus $0.67 a year ago.
Gross profit margin was 25.9% for the year, which was lower than the 27.3% of
the prior year primarily due to the increased volume in the reseller community,
which typically reflects lower margins.
Selling, general and administrative expenses increased to 30.7% of revenue as
compared to 25.1% in the prior year. These expenses included incremental costs
such as higher depreciation and amortization due to investments in technology,
increased advertising and promotional costs associated with media initiatives,
and outside consulting costs associated with the transformation to a "bricks and
clicks" enterprise.
Interest income was $0.2 million in 2000, an increase of over 100% from the
prior year. The increase was due to the Company maintaining favorable cash
investments for eleven months of the year.
The effective income tax benefit rate of 23.5% was lower than the federal
statutory tax rate due primarily to a net income tax provision from the
settlement of the government contract.
LIQUIDITY AND CAPITAL RESOURCES
At its December 29, 2001 fiscal year end, the Company's cash and cash
equivalents totaled $0.8 million, a $4.4 million decrease from December 30,
2000. The Company's operations used $2.4 million during the fiscal year 2001
compared to providing $1.4 million and $2.5 million in 2000 and 1999,
respectively. In 2001, primary components of cash generated from operating
activities were from depreciation offset by uses of cash from deferred income
taxes (a net source of $2.2 million). This was offset by a use of cash of $2.9
million which resulted from a $2.8 million increase in trade receivables, a $1.3
million increase in inventory both of which are consistent with the Company's
revenue growth, offset partially by an increase in accounts payable. In 2000,
operating activities generated cash uses of $3.0 million which was offset by
sources of $4.4 million in working capital. In 1999, operating activities
generated cash sources of $5.6 million of which $3.7 million was from net
non-cash elements in earnings, partially offset by a use of $3.1 million in
working capital.
Investing activities used $1.5 million during the year 2001 compared to $3.5
million and $5.3 million in 2000 and 1999, respectively. The primary use of cash
for 2001 was continued investment in technology relating to the Internet in
comparison to 2000 when the Company invested in strategic acquisitions in key
communities. In 2000, the Company used $1.5 million to acquire a controlling
interest in Podiatry Online, $0.4 million to acquire MERGInet Medical Resources
and also purchased $1.6 million in equipment and software as a result of the
Company's ongoing investment in multi-channel marketing and e-commerce
initiatives. The $5.3 million in 1999 was used for capital expenditures,
primarily in technology such as the remaining investment of the ERP system as
well as e-commerce initiatives.
Financing activities used cash of $0.6 million during 2001, compared with
providing a source of cash in 2000 of $6.7 million and being neutral in 1999.
The use of $0.6 million for 2001 is the result of payments made on the
government settlement note payable. In 2000, $5.2 million was primarily
attributed to an increase in long term notes payable relating to the government
settlement note and the minimum purchase cost for the remaining minority
interest in Podiatry Online. The Company also received $1.0 million in proceeds
from the sale of treasury stock in 2000.
As the business grows, the Company believes that the funding needs for our
operating working capital and investments will continue to be met through cash
flow from operations and financing under our line of credit. On January 26,
2001, the Company entered into a three-year bank financing agreement which will
provide up to $15 million in a revolving credit line. The credit line provides
the Company with the latitude it needs to implement strategic initiatives as
they arise. Our business continues not to be materially impacted by seasonal
factors. The Company believes it has adequate capital resources at its disposal
to fund currently anticipated capital expenditures, business growth and
expansion, and current and projected debt service requirements.
11
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 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
.. The inability to generate adequate revenues and income from our strategy
to transform the Company to a multi-channel e-commerce enabled business.
.. Our limited experience as an online marketer.
.. 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.
.. 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.
12
.. 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.
RECENT FINANCIAL ACCOUNTING STANDARDS
Please refer to Notes to the Consolidated Financial Statements - Footnote 1.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have no material market risk exposure associated with activities in
derivative financial instruments, 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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary data have been filed as
part of this Annual Report as indicated in the index to consolidated Financial
Statements and consolidated Financial Statement Schedule appearing on page 14.
13
MOORE MEDICAL CORP. & SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
This amendment No. 1 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 29, 2001 is being filed to revise the consolidated financial
statements to adjust certain current liabilities and cost of product sold
amounts as set forth in Notes 10 and 11 to the Notes to the Consolidated
Financial Statements, from those previously filed on March 29, 2002. In this
amendment, the disclosures have not been updated other than to reflect the
adjustments specifically discussed in Notes 10 (unaudited quarterly data) and 11
to the Notes to the Consolidated Financial Statements.
Page No.
Report of Independent Accountants 15
Consolidated Balance Sheets at the end of years 2001 and 2000 16
Consolidated Statements of Operations for the years 2001, 2000 and 1999 17
Consolidated Statements of Shareholders' Equity for the years 2001, 2000
and 1999 18
Consolidated Statements of Cash Flows for the years 2001, 2000 and 1999 19
Notes to Consolidated Financial Statements 20
Consolidated Financial Statement Schedule II - Valuation and Qualifying
Accounts for the years ended 2001, 2000 and 1999 37
14
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Moore Medical Corp.
In our opinion, the consolidated financial statements listed in the accompanying
index, after the restatement described in Note 11, present fairly, in all
material respects, the consolidated financial position of Moore Medical Corp.
and its subsidiary at December 29, 2001 and December 30, 2000, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 29, 2001, in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the accompanying index,
after the restatement described in Note 11, presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
------------------------------
PricewaterhouseCoopers LLP
Hartford, Connecticut
February 18, 2002, except for
Note 11 for which the date is
March 20, 2003
15
MOORE MEDICAL CORP. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS AT END OF YEARS
(AMOUNTS IN THOUSANDS, EXCEPT PAR VALUE) 2001 2000
-------------------------------------------------------------------------------
RESTATED RESTATED
CURRENT ASSETS
Cash ........................................... $ 835 $ 5,233
Accounts receivable, less allowances
of $933 and $664 .............................. 15,122 12,326
Inventories .................................... 10,829 9,554
Prepaid expenses and other current assets ...... 1,875 2,152
Deferred income taxes .......................... 1,367 3,553
---------- ----------
Total Current Assets ........................ 30,028 32,818
---------- ----------
NONCURRENT ASSETS
Equipment and leasehold improvements, net ...... 8,271 9,672
Other assets ................................... 2,673 2,500
---------- ----------
Total Noncurrent Assets ..................... 10,944 12,172
---------- ----------
$ 40,972 $ 44,990
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ............................... $ 10,788 $ 9,822
Accrued expenses ............................... 1,873 2,254
Current Portion Long Term Debt ................. 1,356 730
---------- ----------
Total Current Liabilities ................... 14,017 12,806
---------- ----------
Deferred Income Taxes ................................ - 2,387
Long Term Notes Payable .............................. 3,970 5,208
Commitments and Contingencies (See Note 8)
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 ................. 21,548 21,700
Note Receivable ................................ (298) -
Retained earnings .............................. 2,523 4,144
---------- ----------
23,805 25,876
Less treasury shares, at cost, 92 and 145 shares (820) (1,287)
---------- ----------
Total Shareholders' Equity .................. 22,985 24,589
---------- ----------
$ 40,972 $ 44,990
========== ==========
The accompanying notes are an integral part of the consolidated financial
statements.
16
MOORE MEDICAL CORP. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 2001 2000 1999
----------------------------------------------------------------------------------------------------------
Restated Restated Restated
Net sales ....................................................... $ 132,833 $ 123,922 $ 118,536
Cost of products sold ........................................... 97,518 91,841 86,221
----------- ----------- -----------
Gross profit .................................................... 35,315 32,081 32,315
Selling, general and administrative expenses .................... 37,546 38,076 29,730
----------- ----------- -----------
Operating (loss)income .......................................... (2,231) (5,995) 2,585
Interest expense (income), net .................................. 209 (228) (8)
----------- ----------- -----------
(Loss) income before income taxes ............................... (2,440) (5,767) 2,593
Income tax (benefit) provision .................................. (803) (1,357) 636
----------- ----------- -----------
Net (loss) income ............................................... $ (1,637) $ (4,410) $ 1,957
=========== =========== ===========
Basic net (loss) income per share ............................... $ (0.52) $ (1.45) $ 0.67
Diluted net (loss) income per share ............................. $ (0.52) $ (1.45) $ 0.67
Weighted average number common shares outstanding:
Basic ........................................................... 3,144 3,050 2,939
Diluted ......................................................... 3,144 3,050 2,943
The accompanying notes are an integral part of the consolidated financial
statements.
17
MOORE MEDICAL CORP. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY FOR THE YEARS
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
-----------------------------------------------------------------------------------------------------------
1999
Beginning balance 3,246 $ 33 $ 21,667 $ 6,597 (308) $ (2,744) --
Net income (Restated) 1,957
Stock options/stock
compensation 8 3 37
--------- --------- --------- --------- --------- --------- ----------
Ending balance 3,246 33 21,675 8,554 (305) (2,707) --
2000
Net (loss) (Restated) (4,410)
Stock options/stock
Compensation (1) 25 160 1,420
--------- --------- --------- --------- --------- --------- ----------
Ending balance 3,246 32 21,700 4,144 (145) (1,287) --
2001
Net (loss) (Restated) (1,637)
Stock options/stock
Compensation (152) 16 53 467 $ (298)
--------- --------- --------- --------- --------- --------- ----------
Ending Balance 3,246 $ 32 $ 21,548 $ 2,523 (92) $ (820) $ (298)
========= ========= ========= ========= ========= ========= ==========
The accompanying notes are an integral part of the consolidated financial
statements.
18
MOORE MEDICAL CORP. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS
(AMOUNTS IN THOUSANDS) 2001 2000 1999
----------------------------------------------------------------------------------------------------
RESTATED RESTATED RESTATED
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income ............................................... $ (1,637) $ (4,410) $ 1,957
Adjustments to reconcile net (loss) income to net cash
flows (used in) provided by operating activities:
Depreciation and amortization ............................. 3,005 2,641 1,733
Deferred income taxes ..................................... (798) (1,268) 2,234
Other ..................................................... - 30 (307)
Changes in operating assets and liabilities
Accounts receivable ................................... (2,796) (838) (2,103)
Inventories ........................................... (1,275) 4,688 (558)
Other assets .......................................... 563 (300) 140
Accounts payable ...................................... 966 2,508 1,893
Other liabilities ..................................... (381) (1,681) (2,474)
--------- --------- ---------
Net cash flows (used in) provided by operating activities ....... (2,353) 1,370 2,515
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Equipment and leasehold improvements acquired ................... (1,468) (1,599) (5,336)
Acquisition of business ......................................... - (1,934) -
--------- --------- ---------
Net cash flows (used in) investing activities ................... (1,468) (3,533) (5,336)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Sale of treasury stock .......................................... 35 1,444 45
Long term notes payable ......................................... (612) 5,208 -
--------- --------- ---------
Net cash flows (used in) provided by financing
activities ..................................................... (577) 6,652 45
--------- --------- ---------
(Decrease) increase in cash ..................................... (4,398) 4,489 (2,776)
Cash at the beginning of year ................................... 5,233 744 3,520
--------- --------- ---------
Cash At End Of Year ............................................. $ 835 $ 5,233 $ 744
========= ========= =========
The accompanying notes are an integral part of the consolidated financial
statements.
19
MOORE MEDICAL CORP. & SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Restatement - As set forth in Note 10 (unaudited quarterly data) and described
in Note 11 to the Notes to the Consolidated Financial Statements, certain
current liabilities and cost of product sold amounts have been restated.
General - 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.
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its subsidiary using the fiscal year-ends discussed
below. All intercompany accounts and transactions have been eliminated. The
results of operations of companies acquired in purchase business transactions
are included in the accompanying consolidated financial statements from the
dates of acquisition.
During the year ended December 30, 2000, the Company completed two acquisitions
of premier on-line information sources, one serving the podiatry practice
community and the other servicing the EMS practice community. Both of these
acquisitions were accounted for under the purchase method of accounting.
On June 15, 2000, the Company acquired 51% of the outstanding shares of capital
stock of Podiatry Online, a Florida-based Internet magazine with circulation to
more than 4,000 podiatrists for $500,000 and 29,826 shares of the Company's
common stock valued at $254,000. In addition, the Company has committed to
purchase the remaining 49% interest for a payment of not less than $500,000. The
$1.5 million acquisition was recorded as a purchase, with $754,000 recorded as
goodwill. Podiatry Online enables the Company access to a significant electronic
sales channel to professionals in the podiatry market.
On July 14, 2000, the Company acquired 100% of the assets of MERGInet Medical
Resources, the premier Internet publication serving emergency medical services
and emergency medical professionals for $300,000 in cash and 26,432 shares of
the Company's common stock valued at $150,000. The acquisition was recorded as a
purchase with tangible and intangible assets being depreciated/amortized over
their respective useful lives. MERGInet is one of the most heavily visited
resource channel for emergency medical service professionals and the only
on-line publication in the market.
The operating expenses of each of the acquisitions have been consolidated into
the operating results for 2001 and for the period in 2000 during which the
Company controlled each entity. The pro forma results of operations for the year
ended December 30, 2000, assuming the acquisitions of MERGInet and Podiatry
Online would have occurred on January 1, 2000, would not have been materially
different than what was realized and reported in the results of operations for
the year ended December 30, 2000.
Fiscal Year - The Company's fiscal year ends on the Saturday closest to December
31. The fiscal years ended December 29, 2001, December 30, 2000 and January 1,
2000 were comprised of 52 weeks in 2001, 2000 and 1999.
Inventories - Inventories, consisting of products purchased for resale, are
stated at the lower of average cost or market value. Market values are based on
estimated sales prices of products.
20
Equipment and Leasehold Improvements - Equipment is recorded at cost.
Depreciation and amortization is provided on the straight-line method over the
estimated useful lives of the assets as follows:
------------------------------------------------------------------------
ESTIMATED USEFUL LIVES
------------------------------------------------------------------------
Equipment 7 years
Furniture & Fixtures 7 years
Computer equipment and software 3 years
Leasehold improvements Shorter of asset life or lease term
Additionally, in 1999, the Company adopted AICPA Statement of Position 98-1
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use," which requires capitalization of certain costs incurred in the
development of internal-use software. Expenditures for maintenance and repairs
are charged to expense as incurred. Major improvements to equipment are
capitalized. The cost of assets sold or retired and the related amounts of
accumulated depreciation are removed from the accounts in the year of disposal,
and any resulting gain or loss is included in income.
Intangible Assets - Included within other noncurrent assets is goodwill, net of
amortization, related to the acquisitions of MERGInet Medical Resources and
Podiatry Online in the amounts of $1.0 million and $1.1 million for 2001 and
2000, respectively.
Sales Recognition Policy and Customers - Sales are recorded upon shipment of
products to customers. Accounts receivable have been reduced by estimated
amounts for allowances related to future charges for uncollected accounts and
product returns.
Advertising - The cost of direct response catalog advertising is deferred and
amortized over the period of expected revenues. Direct response catalog
advertising consists primarily of catalog production expenses and related
postage costs. Catalogs are effective for varying time periods but the largest
catalogs are generally effective for less than a year. At December 29, 2001 and
December 30, 2000, $283,000 and $639,000, respectively, of direct response
catalog advertising expenses were deferred. Catalog advertising expense totaled
$5,039,000, $4,527,000 and $2,485,000 in 2001, 2000 and 1999, respectively.
Income Taxes - The liability method is used to calculate deferred income taxes.
Under this method, deferred income tax assets and liabilities are recognized on
temporary differences between the financial statement and tax bases of assets
and liabilities, using applicable tax rates, and on tax carryforwards.
Basic and Diluted Net Income (Loss) Per Share - 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
diluted securities, including stock options are included in the diluted earnings
per share calculation.
Estimates - The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Subsequent actual outcomes could differ from those estimated
and assumed.
Reclassification - Certain prior year amounts have been reclassified to conform
to the current year presentation.
RECENT ACCOUNTING 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
21
business combinations initiated after June 30, 2001. The Company does not
believe that the prospective adoption of these standards will have a material
impact on its consolidated financial statements.
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.
During September 2000, the Emerging Issues Task Force ("EITF") issued EITF No.
00-10, Accounting for Shipping and Handling Fees and Costs ("EITF 00-10"), which
addresses the income statement classification of amounts charged to customers
for, as well as costs incurred related to, shipping and handling. The effective
date of EITF 00-10 was the quarter ended December 30, 2000. EITF 00-10 requires
that amounts billed to a customer in a sale transaction related to shipping and
handling be classified as revenue. In addition, if costs incurred related to
shipping and handling are significant and are not included in cost of sales, an
entity should disclose both the amount of such costs and the income statement
classification.
Shipping and handling costs billed to customers are classified as revenues for
all periods presented; previously, these revenues were offset against the
related costs incurred, which were included in general and administrative
expenses. Revenues from shipping and handling for each of the three years in the
periods ended 2001, 2000, and 1999 were $640,000, $367,000 and $82,000,
respectively. Costs related to shipping and handling are classified as cost of
goods sold for all periods presented. Costs for shipping and handling were
$5,835,000, $5,330,000 and $4,817,000, during each of the three years in the
periods ended 2001, 2000, and 1999, respectively.
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 prospective adoption of this standard will have a material impact on
its consolidated financial statements.
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 144 will supersede SFAS 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of".
SFAS 144 changes the criteria for classifying an asset as held-for-sale. SFAS
144 will supersede APB Opinion 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 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
prospective adoption of this standard will have a material impact on its
consolidated financial statements.
NOTE 2 - INCOME TAXES
The income tax (benefit) provision consists of the following:
-------------------------------------------------------------------------------
AMOUNTS IN THOUSANDS 2001 2000 1999
-------------------------------------------------------------------------------
Current
Federal $ - $ (94) $ (1,554)
State 20 5 (44)
---------- ---------- ---------
Total current 20 (89) (1,598)
---------- ---------- ---------
Deferred (823) (1,268) 2,234
---------- ---------- ---------
Total (benefit) provision $ (803) $ (1,357) $ 636
========== ========== =========
22
A reconciliation of the statutory federal income tax rate to the effective
income tax rate as a percentage of pretax income is as follows:
-------------------------------------------------------------------------------
2001 2000 1999
-------------------------------------------------------------------------------
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal tax benefit 1.9 2.6 3.8
Valuation allowance (2.2) (1.5) 2.6
Other - net (0.8) (11.6) (15.9)
------- ---------- ---------
Effective income tax rate 32.9% 23.5% 24.5%
======= ========== =========
The effective income tax benefit rate of 32.9% was lower than the federal
statutory tax rate due primarily to a net income tax charge of 2.1% due to the
closure of the Lemont distribution facility. The effective income tax benefit
rate of 23.5% in 2000 included an income tax provision of 12.5% relating to the
government settlement (see note 4). The effective income tax provision of 24.5%
in 1999 included an income tax benefit of $0.3 million or 12% recorded from a
favorable settlement of a tax matter relating to 1998.
Deferred income tax assets and liabilities at the end of each year consist of
the tax effects of temporary differences related to the following:
---------------------------------------------------------------
AMOUNTS IN THOUSANDS 2001 2000
---------------------------------------------------------------
Allowance for doubtful accounts $ 398 $ 249
Inventories 584 734
Accrued expenses 201 1,368
Federal & State Tax NOLs 3,298 1,789
Other 173 183
State Tax Valuation Allowances (206) (155)
--------- ---------
Deferred Tax Assets 4,448 4,168
========= =========
Accumulated depreciation/amortization (1,986) (2,513)
Prepaid pension expense (342) (350)
Other (156) (139)
--------- ---------
Deferred Tax Liabilities (2,484) (3,002)
--------- ---------
$ 1,964 $ 1,166
========= =========
The Company had federal net operating loss carryforwards of $8,588,399 and state
net operating loss carryforwards of $8,119,931 at December 29, 2001. A valuation
allowance of $205,745 has been provided against the state net operating loss
deferred tax asset of $377,608. The net operating loss carryforwards begin to
expire in 2002 and continue through 2021. After application of the valuation
allowance described above, the Company anticipates no limitations will apply
with respect to utilization of the net deferred tax assets described above.
Income tax payments totaled $0, $31,000 and $1,004,000 in 2001, 2000 and 1999,
respectively.
NOTE 3 - EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment, leasehold improvements and accumulated depreciation are summarized as
follows:
---------------------------------------------------------------
AMOUNTS IN THOUSANDS 2001 2000
---------------------------------------------------------------
Equipment $ 4,285 $ 4,751
Furniture & Fixtures 1,290 1,297
Computer equipment and software 16,690 15,558
Leasehold improvements 3,231 3,214
--------- ---------
25,496 24,820
Less: accumulated depreciation (17,225) (15,148)
--------- ---------
$ 8,271 $ 9,672
========= =========
23
NOTE 4 - DEBT AND LONG TERM CONTINGENCIES
On January 26, 2001, the Company entered into a collateralized bank financing
agreement, which provides up to $15 million revolving line of credit through
January 26, 2004. Interest is charged at the prime rate or, at the option of the
Company, at the LIBOR rate plus a margin ranging from 0% to 2.75% depending on
the financial leverage of the Company. In addition, the Company pays a
commitment fee on the unused line of credit.
In consideration for the revolving line of credit, the Company has
collateralized all of the Company's assets (current and future existence) over
the term of the credit facility. Pursuant to the revolving line of credit
agreement, the Company covenants that as long as it has any obligations or
commitments to the lender, that the Company will be subject to financial
covenants involving Consolidated Tangible Net Worth and a Leverage Ratio
calculation. These covenant targets fluctuate over the course of the term of the
collateralized bank financing agreement.
The Company previously had an unsecured bank financing agreement that provided a
revolving line of credit of up to $10 million revolving line of credit that
ended on March 31, 2000.
---------------------------------------------------------------
AMOUNTS IN THOUSANDS 2001 2000
---------------------------------------------------------------
BORROWINGS
Average $ 0 $ 10
Maximum $ 0 $ 361
WEIGHTED DAILY AVERAGE INTEREST RATE
For the year 0.0% 1.6%
At year end 0.0% 0.0%
Cash payments for interest on revolving credit financing totaled $43,000, and
$1,000 in 2001 and 2000 respectively.
On February 1, 2001, the Company signed an agreement with the U.S. Government
settling a pricing error by its former wholesale division under federal supply
contracts entered into in 1991. In 1997, the Company voluntarily disclosed the
error to the Government and established a $3.8 million reserve for 1996. In the
fourth quarter of 2000, an additional $2.5 million reserve was recorded for the
liability and associated legal costs. In settlement, the Company agreed to pay
the government a total of $5.2 million ("government settlement note"), including
$0.5 million on signing, and $4.7 million over five years. The settlement is
interest bearing at rates ranging from 5.25% to 7.25%. The future principal and
interest payments for the government settlement note are as follows: 2002
$888,803; 2003 $1,066,075; 2004 $1,591,763; 2005 $1,852,106. The principal and
interest portion of the government settlement note is reflected in the Balance
Sheets as follows:
------------------------------------------------------------------
AMOUNTS IN THOUSANDS 2001 2000
------------------------------------------------------------------
Government Settlement note:
Current Portion Long Term Debt $ 635 $ 730
Long Term notes payable 3,970 4,470
--------- ---------
Total Government Settlement note $ 4,605 $ 5,200
========= =========
Included in the liability section of the Balance Sheet is a note payable related
to the acquisition of a controlling interest in Podiatry Online. The note
payable is classified as follows:
------------------------------------------------------------------
AMOUNTS IN THOUSANDS 2001 2000
------------------------------------------------------------------
Podiatry Online note:
Current Portion Long Term Debt $ 721 $ -
Long Term notes payable - 738
--------- ---------
Total Podiatry Online note $ 721 $ 738
========= =========
24
NOTE 5 - EMPLOYEE BENEFITS
All employees meeting eligibility requirements participate in the Company's
defined benefit pension plan under which pension benefits are based on the
employee's highest consecutive five-year average annual compensation. The
Company's funding policy is to comply with the minimum funding requirements set
by the Employee Retirement Income Security Act of 1974 (ERISA).
Pension disclosure requirements of Financial Accounting Standard No. 132:
-------------------------------------------------------------------------
AMOUNTS IN THOUSANDS 2001 2000
-------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 3,977 $ 3,722
Service cost 358 342
Interest cost 345 279
Actuarial gain 593 191
Benefits paid (802) (557)
--------- ---------
Benefit obligation at end of year $ 4,471 $ 3,977
========= =========
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 4,825 $ 5,218
Actual return on plan assets (125) 15
Employer contribution 286 149
Benefits paid (802) (557)
--------- ---------
Fair value of plan assets at end of year $ 4,184 $ 4,825
========= =========
Funded Status $ (289) $ 847
Unrecognized net actuarial gain (loss) 1,139 34
Unrecognized prior service cost 27 32
--------- ---------
Prepaid benefit cost $ 877 $ 913
========= =========
WEIGHTED-AVERAGE ASSUMPTIONS AS OF PERIOD
ENDING
Discount Rate 7.25% 7.50%
Expected return on plan assets 9.00% 9.00%
Rate of compensation increases 4.00% 4.00%
--------------------------------------------------------------------------
AMOUNTS IN THOUSANDS 2001 2000 1999
--------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $ 358 $ 342 $ 327
Interest cost 345 279 275
Expected return on plan assets (433) (470) (436)
Amortization prior service cost 5 5 5
Amortization transition cost - 12 12
Recognized net actuarial loss - - (65)
-------- -------- --------
Net periodic benefit cost $ 275 $ 168 $ 118
======== ======== ========
25
The present value of the projected benefit obligation was determined using a
discount rate of 7.5% in 2001, 2000 and 1999. The present value of the projected
benefit obligation is based on actuarial assumptions and on estimates, including
an assumed discount rate, which may change in the future and significantly
affect the amount of this obligation.
In addition to the pension plan, the Company has a 401(k) defined contribution
retirement plan available to employees meeting eligibility requirements. This
plan provides for Company non-discretionary matching contributions in an amount
equal to 50% of employee pretax contributions subject to a maximum of 6% of
employee's eligible compensation contributed to the plan. In 1999, the Company
provided additional Company contributions to partially match employee
contributions. The Company's expense in connection with this plan for the years
2001, 2000 and 1999 amounted to $139,000, $288,000 and $622,000, respectively.
NOTE 6 - SHAREHOLDERS' EQUITY
The Company's Board of Directors, with shareholders' approval, adopted, as of
June 22, 2000, an "Amendment of Certificate of Incorporation to increase
authorized Common Stock". Authorized Shares of Common Stock were increased to 10
million shares and the authorization of Class A Preferred Stock and Class B
Preferred Stock were deleted.
At December 29, 2001, the Company had Class C Preferred Stock, $1.00 par value,
1,000,000 shares authorized of which 35,000 shares have been designated as a
Series I Junior Participating Preferred Stock.
The Shareholder Rights Plan, which the Company adopted in March 1989, expired on
March 16, 1999. In November 1998, the Company adopted a successor Shareholder
Rights Plan and declared a dividend distribution, effective March 17, 1999, of
one Preferred Stock Purchase Right (the "Rights") for each outstanding share of
common stock. The Rights will become exercisable, with certain exceptions, only
if a party or group acquires 15% or more of the Company's common stock or
announces an offer to acquire 15% or more. When exercisable, with some
exceptions, each Right will entitle its holder (other than the party or group
acquiring 15% or more or offering to acquire 15% or more of the common stock) to
buy one one-hundredth of a share of a Series I Junior Participating Preferred
Stock at a purchase price of $70.00. Upon the occurrence of certain events,
Rights holders (other than such party or group) will be entitled to purchase
either preferred stock of the Company or shares of the acquiring company at half
of their market value. The Company will generally be entitled to redeem the
Rights at $.01 per Right at any time prior to the earlier of the expiration of
the Rights in March 2009 or ten days following the acquisition of or offer for
15% of the Company's common stock.
On January 11, 2001 the Company's Board of Directors authorized to transfer
50,000 shares of common stock from its treasury shares to Linda M. Autore in
consideration of Ms. Autore's promissory note secured by said shares in the
principal amount of $281,250 pursuant to the terms and conditions set forth in
an Executive Compensation Agreement, Recourse Promissory Note and Pledge
Agreement dated January 11, 2001.
On September 17, 2001, the Company adopted a stock repurchase program to
purchase, at the Board of Director's discretion, up to $2 million of its common
stock in the open market, through private transactions or otherwise. This stock
repurchase program shall remain in effect until the $2 million is used by the
Company to repurchase shares of its common stock, unless the Board of Directors
or its Executive Committee terminates the program before then. As of December
29, 2001, no shares of common stock have been repurchased under this program.
NOTE 7 - STOCK OPTIONS
In 2000, the Company's Board of Directors, with the shareholders' approval,
adopted the "2000 Incentive Compensation Program" for directors, officers,
employees, consultants, independent contractors and agents of the Company. Stock
options awarded under the "program" shall be a "non-qualified stock option"
exercisable in cumulative annual installments commencing one year from the date
of the grant and expiring in either four or five years from the grant date. The
new program may not exceed 505,000 shares, a total increase of 350,000 shares
over the number of shares available for the grant of new options under the
present program, including 155,000 shares issued from prior plan which were
available
26
for grant. Effective from the date of said approval, no new options shall be
granted under a "prior plan" (1992 incentive stock plan and 1998 non-qualified
plans) of Moore Medical.
The Company's Board of Directors adopted and approved the 1998 Stock Incentive
Plan that authorized stock option grants for 100,000 shares to directors,
officers and key employees. The Plan authorized and permitted the granting of
non-qualified stock options of the Company's stock exercisable in four
cumulative annual installments commencing one year from the date of the grant
and expiring five years from the grant date.
The 1992 Incentive Stock Option Plan authorized stock option grants for 200,000
shares. Under the plan, options were granted for ten years at prices not less
than 100% of the fair market value of the common stock on the date of grant. The
options were exercisable as determined by the Compensation Committee of the
Board of Directors at the time of grant and were typically exercisable in four
or five cumulative annual installments beginning one year after the date of
grant and expiring five to ten years from the date of grant.
Stock option transactions for all three plans as summarized as follows:
------------------------------------------------------------------------------------------------------------
2000 INCENTIVE
1992 INCENTIVE STOCK OPTION PLAN 1998 STOCK INCENTIVE PLAN COMPENSATION PROGRAM
------------------------------------------------------------------------------------------------------------
WEIGHTED
AVERAGE
NUMBER OF WEIGHTED AVERAGE NUMBER OF WEIGHTED AVERAGE NUMBER OF EXERCISE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS PRICE
------------------------------------------------------------------------------------------------------------
Outstanding at
end of 1999 27,900 $ 11.55 114,500 $ 11.54 - $ 0.00
Granted 69,000 10.21 - - 98,000 7.83
Canceled (25,300) 10.80 (12,750) 11.35 - -
Exercised (2,500) 10.63 (1,250) 10.88 - -
---------- ---------- ----------
Outstanding at
end of 2000 69,100 10.53 100,500 11.54 98,000 7.83
Granted - - - - 148,100 7.51
Canceled (23,100) 11.13 (27,000) 11.48 (90,400) 7.55
Exercised - - - - (2,500) 6.76
---------- ---------- ----------
Outstanding at
end of 2001 46,000 $ 10.22 73,500 $ 11.58 153,200 $ 7.74
========== ========== ==========
Exercisable 2001 16,750 $ 10.62 46,375 $ 11.60 19,125 $ 9.12
Exercisable 2000 20,100 $ 11.56 40,750 $ 11.59 7,000 $ 11.00
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees". If the Company had elected to recognize compensation cost based on
the fair value of the options granted at grant date as prescribed by SFAS No.
123, net income and earnings per share, basic and diluted, would have been
reduced to pro forma amounts of ($2.2) million and ($0.71) per share, ($4.5)
million and ($1.49) per share, and $1.9 million and $.63 per share for 2001,
2000, and 1999, respectively. The fair value of each option grant is estimated
on the date of the grant using the Black-Scholes option pricing model with the
following assumptions used for grants issued during the year ended December 29,
2001: dividend yield of 0%; risk-free rates ranging from 4.6% to 5.8%, expected
volatility factors ranging from 34% to 50%; and expected option terms ranging
from four to five years.
27
NOTE 8 - COMMITMENTS
The Company leases its various facilities such as its distribution centers,
office facilities and certain equipment. Certain lease commitments provide that
the Company pay taxes, insurance, and maintenance expenses relating to the
leased assets. Rental expense approximated $1,334,000, $1,240,000, and
$1,218,000 in 2001, 2000, and 1999, respectively. As of December 29, 2001,
future minimum payments, for all leases are as follows: 2002, $1,240,000; 2003,
$638,000; 2004, $419,000; 2005, $203,000; 2006 $92,000 thereafter, $0.
NOTE 9 - SUBSEQUENT EVENTS
Subsequent to year-end 2001, on February 13, 2002 the Company utilized its
collateralized revolving credit facility to pay off the government settlement
note in full to take advantage of the current low interest rate environment.
In addition, on February 15, 2002, the Company purchased a 30 month Interest
Rate Cap in the amount of $3.0 million with a cap rate of 4.0% to hedge against
an increase in interest rates. The fee of $56,000 will be recorded in accordance
with FAS 133 as amended "Accounting for Derivatives and Hedging Activity". Under
this standard, all derivative instruments are recorded at fair value on the
balance sheet and all changes in fair value are recorded to earnings or to
shareholders' equity through other comprehensive income.
Based upon the "Job Creation and Worker Assistance Act" signed by President Bush
on March 9, 2002, which allows companies to carry current year net operating
losses back five years, the Company will be able to carry its current year net
operating loss back five years. The Company estimates the carry back will result
in a current refund of approximately $1.0 million.
28
NOTE 10 - SELECTED QUARTERLY INFORMATION (UNAUDITED)
The effect of the restatement described in Note 11 on the quarterly operating
results for the fiscal years ended December 29, 2001, December 30, 2000 and
January 1, 2000, as previously reported in the Company's Annual Report on Form
10-K filed on March 29, 2002, is as follows:
------------------------------------------------------------------------------------------------------------------
NET NET NET INCOME NET INCOME
AMOUNTS IN THOUSANDS, GROSS GROSS INCOME INCOME (LOSS) (LOSS)
EXCEPT PER SHARE DATA NET SALES PROFIT PROFIT (LOSS) (LOSS) PER SHARE PER SHARE
------------------------------------------------------------------------------------------------------------------
As Previously As Previously As Previously
Reported Restated Reported Restated Reported Restated
1999
First $ 29,055 $ 8,434 $ 8,434 $ 477 $ 477 $ 0.16 $ 0.16
Second 29,377 8,163 8,189 428 444 0.15 0.15
Third 31,110 8,125 8,208 803 855 0.27 0.30
Fourth 28,994 7,424 7,484 144 181 0.05 0.06
------------ ---------- ------------- ---------- ------------ ----------- -----------
Year $ 118,536 $ 32,146 $ 32,315 $ 1,852 $ 1,957 $ 0.63 $ 0.67
============ ========== ============= ========== ============ =========== ===========
2000
First $ 29,594 $ 7,517 $ 7,550 $ (255) $ (234)$ (0.09) $ (0.08)
Second 30,340 7,856 7,916 79 116 0.03 0.04
Third 33,146 8,580 8,640 (567) (530) (0.18) (0.17)
Fourth 30,842 7,927 7,975 (3,793) (3,762) (1.25) (1.24)
------------ ---------- ------------- ---------- ------------ ----------- -----------
Year $ 123,922 $ 31,880 $ 32,081 $ (4,536) $ (4,410)$ (1.49) $ (1.45)
============ ========== ============= ========== ============ =========== ===========
2001
First $ 32,365 $ 8,419 $ 8,503 $ (1,097) $ (1,041)$ (0.35) $ (0.33)
Second 32,620 8,601 8,657 (760) (722) (0.24) (0.23)
Third 34,685 9,087 9,147 (126) (86) (0.04) (0.03)
Fourth 33,163 9,162 9,008 317 212 0.10 0.07
------------ ---------- ------------- ---------- ------------ ----------- -----------
Year $ 132,833 $ 35,269 $ 35,315 $ (1,666) $ (1,637)$ (0.53) $ (0.52)
============ ========== ============= ========== ============ =========== ===========
Net Sales and Gross Profit reflect reclassifications due to the impact of EITF
00-10 "Accounting for Shipping and Handling Fees and Costs"
NOTE 11 - RESTATEMENT
This amendment to the Company's Annual Report on Form 10-K for the fiscal year
ended December 29, 2001 is being filed to revise the consolidated financial
statements from those previously filed on March 29, 2002. In this amendment, the
disclosures have not been updated other than to reflect the adjustments
specifically noted below.
During the fourth quarter of fiscal 2002, the management of the Company became
aware that its previously reported cost of product sold was overstated and its
corresponding gross profit was understated for fiscal years 2001, 2000 and 1999
by $46,000, $201,000 and $169,000, respectively, and net income was understated
by $29,000, $126,000, and $106,000, respectively. These errors resulted from the
implementation of the Company's Enterprise Resource Planning ("ERP") system in
1999 and involved the initial recording of inventory receipts and subsequent
recognition of inventory book-to-physical and cycle count adjustments, and the
accounting for returned inventory to suppliers. In addition to the
understatement of gross profit and net income for fiscal years 2001, 2000 and
1999, the current liabilities
29
on the Company's consolidated balance sheet as of December 29, 2001 and December
30, 2000 (prior to the restatement) were overstated in the amounts of $416,000
and $370,000 respectively.
The effect of restatement on the operating results for the fiscal years ended
December 29, 2001, December 30, 2000 and January 1, 2000, as previously reported
in the Company's Annual Report on Form 10-K filed on March 29, 2002, is as
follows:
2001 2000 1999
-------------------------- -------------------------- --------------------------
AS PREVIOUSLY AS PREVIOUSLY AS PREVIOUSLY
REPORTED RESTATED REPORTED RESTATED REPORTED RESTATED
------------ ------------ ------------ ------------ ------------ ------------
Net sales $ 132,833 $ 132,833 $ 123,922 $ 123,922 $ 118,536 $ 118,536
Cost of products sold 97,564 97,518 92,042 91,841 86,390 86,221
------------ ------------ ------------ ------------ ------------ ------------
Gross profit 35,269 35,315 31,880 32,081 32,146 32,315
S,G&A expenses 37,546 37,546 38,076 38,076 29,730 29,730
------------ ------------ ------------ ------------ ------------ ------------
Operating (loss) income (2,277) (2,231) (6,196) (5,995) 2,416 2,585
Interest expense
(income), net 209 209 (228) (228) (8) (8)
------------ ------------ ------------ ------------ ------------ ------------
(Loss) income before
income taxes (2,486) (2,440) (5,968) (5,767) 2,424 2,593
Income tax (benefit)
provision (820) (803) (1,432) (1,357) 572 636
------------ ------------ ------------ ------------ ------------ ------------
Net (loss) income $ (1,666) $ (1,637) $ (4,536) $ (4,410) $ 1,852 $ 1,957
============ ============ ============ ============ ============ ============
Basic net (loss) income
per share $ (0.53) $ (0.52) $ (1.49) $ (1.45) $ 0.63 $ 0.67
Diluted net (loss) income
per share $ (0.53) $ (0.52) $ (1.49) $ (1.45) $ 0.63 $ 0.67
The effect of restatement on the quarterly operating results for the fiscal
years ended December 29, 2001, December 30, 2000 and January 1, 2000, as
previously reported in the Company's Annual Report on Form 10-K filed on March
29, 2002, is set forth in Note 10.
The effect on the consolidated balance sheets as of December 29, 2001 and
December 30, 2000, previously reported in the Company's Annual Report on Form
10-K filed on March 29, 2002 is as follows:
2001 2000
------------------------- ------------------------
AS PREVIOUSLY AS PREVIOUSLY
REPORTED RESTATED REPORTED RESTATED
------------- ---------- ------------- ----------
Total Current Assets $ 30,184 $ 30,028 $ 32,957 $ 32,818
Total Noncurrent Assets 10,944 10,944 12,172 12,172
------------- ---------- ------------- ----------
Total Assets $ 41,128 $ 40,972 $ 45,129 $ 44,990
============= ========== ============= ==========
Total Current Liabilities $ 14,433 $ 14,017 $ 13,176 $ 12,806
Total Noncurrent Liabilities 3,970 3,970 7,595 7,595
Total Shareholders' Equity 22,725 22,985 24,358 24,589
------------- ---------- ------------- ----------
Total Liabilities and Equity $ 41,128 $ 40,972 $ 45,129 $ 44,990
============= ========== ============= ==========
30
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference to information under the caption "Certain Information
Regarding Management's Nominees" and "Executive Officers" and "Section 16(a)
Beneficial Ownership Reporting Compliance" in the Company's 2002 definitive
proxy statement to be filed pursuant to Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference to information under the caption "Executive
Compensation," "Defined Benefit Plans," "Stock Options," "Compensation Committee
Interlocks and Insider Participation," "Compensation Committee's Report,"
"Performance Graph," and "Fees Paid to Directors" in the Company's 2002
definitive proxy statement to be filed pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to information under the caption "Principal Holders of
Common Stock," "Certain Information Regarding Management's Nominees," and
"Executive Officers" in the Company's 2002 definitive proxy statement to be
filed pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to information under the captions "Fees Paid to
Directors," "Executive Compensation," and "Defined Benefit Plans" in the
Company's 2002 definitive proxy statement to be filed pursuant to Regulation
14A.
31
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Form 10-K.
1. Financial Statements. The financial statements filed as part
of this Form 10-K are listed in the index on page 14.
2. Financial Statement Schedule. The financial statement schedule
filed as part of this Form 10-K is listed in the index on page
14.
Financial statement schedules not included in this Form 10-K
Annual Report have been omitted because they are not
applicable or the required information is shown in the
financial statements or notes thereto.
Exhibits Filed Under Item 601 of Regulation Filed Herewith or Incorporated by Reference To:
S-K
3. ARTICLES OF INCORPORATION AND BY-LAWS
..1 Certificate of Incorporation, as Exhibit 3.1 to Form 10-K for the fiscal year
Amended. ended January 3, 1981, Exhibit 1 to Form 10-
Q for the quarter ended June 29, 1985, Exhibit
3.1 to Form 10-K for the fiscal year ended
January 2, 1988, Exhibit 3.1 to Form 10-K for
the fiscal year ended January 2, 1999, Exhibit
3.4 to Form 10-Q for the quarter ended July 1,
2000.
..2 Certificate of Designation under Exhibit 3 to Form 8-A filed December 30,
Delaware General Corporation Law. 1998.
..3 By-law, as amended. Exhibit 3.3 to Form 10-K for the fiscal year
ended January 3, 1981, Exhibit 3.3 to Form 10-
K for the fiscal year ended December 30, 1989,
and Exhibit 3.3 to Form 10-K for the fiscal year
ended January 2, 1999.
4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY
HOLDERS
..1 Stock Repurchase Program, adopted September Exhibit 3.4 to Form 10-Q for the period ended
17, 2001. September 29, 2001
..2 Rights Agreement, between the Company and Exhibit 4 to Form 8-K dated December 22,
American Stock Transfer & Trust Co., dated 1998.
November 18, 1998 (includes as Exhibit B the
forms of Rights Certificate and Election to
Purchase, and as Exhibit C the form of Amended
and Restated Certificate of Designations of Series
I Junior Preferred Stock Certificate).
32
10. MATERIAL CONTRACTS
..3 Leases of property located in New Exhibit 10.3A to Form 10-K for the fiscal year
Britain, Connecticut, as amended. ended December 28, 1985 and Exhibit 10.3 to
Form 10-K for the fiscal year ended December
30, 1989.
..4A Moore Medical Corp. Capital Accumulation Plan, Exhibit 10.4A to Form 10-K for the fiscal year
Fidelity - The Corporateplan for Retirement ended December 29, 2001.
Service Agreement with Fidelity, effective
November 1, 2001.
..4B Summary Plan Description - Moore Medical Exhibit 10.4B to Form 10-K for the fiscal year
Corp. Capital Accumulation Plan, effective ended December 29, 2001.
November 1, 2001.
..4C Fidelity - The CORPORATEPlan For Exhibit 10.4C to Form 0-K for the fiscal year
Retirement Adoption Agreement, effective ended December 29, 2001.
November 1, 2001
..5 Defined Benefit Pension Plan and Trust Exhibits 10.5A, 10.5B and 10.5C to Form 10-K
Agreement dated September 26, 1994, as for the fiscal year ended December 31, 1994
amended. and Exhibit 10.5D to Form 10-K for the fiscal
year ended January 1, 2000.
..6 Incentive Stock Option Plan, as amended. Exhibit A to the 1982 Proxy Statement, Exhibit
10.2 to Form 10-K for the fiscal year ended
January 1, 1983 and Exhibit 4(d) to a
Registration statement on Form S-8
(commission file No. 33-20037) effective
February 29, 1988 and Exhibit A to the 1992
Proxy Statement.
..7 Non-qualified Stock Option Plan. Exhibit 10.7 to Form 10-K for the fiscal year
ended January 2, 1999.
..8 2001 - 2002 Change of Control and Position Exhibit 10.8 to Form 10-K for the fiscal year
Payment Plan. ended December 30, 2000.
..9 Employment Agreement between the Company Exhibit 10.9 to Form 10-K for the fiscal year
and Jerry Flasz, effective January 15, 2001. ended December 30, 2000.
..10 Employment Agreement between the Company Exhibit 10.10 to Form 10-K for the fiscal year
and James R. Simpson, effective ended December 30, 2000.
March 5, 2001.
..11 Loan and Security Agreement between the Exhibit 10.11 to Form 10-K for the fiscal year
Company and Fleet Capital Corporation dated ended December 30, 2000.
January 26, 2001.
..12 Appendix A to Security Agreement dated January Exhibit 10.12 to Form 10-K for the fiscal year
26, 2001, between the Company and Fleet ended December 30, 2000.
Capital Corporation.
33
..13 Amended and Restated Employment Agreement Exhibit 10.20 to Form 10-Q for period ended
between the Company and Linda M. Autore, April 1, 2000.
effective March 1, 2001.
..14 Subscription Agreement between the Company Exhibit 10.21 to Form 10-Q for period ended
and Vantage Venture Partners, LP, dated April 1, 2000.
February 28, 2000.
..15 Executive Subscription Agreement between the Exhibit 10.25 to Form 10-K for the fiscal year
Company and Linda M. Autore dated January ended December 30, 2000.
11, 2001.
..16 Pledge Agreement between the Company and Exhibit 10.26 to Form 10-K for the fiscal year
Linda M. Autore dated January 11, 2001. ended December 30, 2000.
..17 Recourse Promissory Note between the Exhibit 10.27 to Form 10-K for the fiscal year
Company and Linda M. Autore dated January 11, 2001. ended December 30,2000.
..18 Consulting Agreement between the Company and Exhibit 10.18 to Form 10-K for the fiscal year
Peter A. Derow effective October 8, 2001 ended December 29, 2001.
..19 Employment Agreement between the Company Exhibit 10.19 to Form 10-K for the fiscal year
and Jon Garrity, effective October 1, 2001 ended December 29, 2001.
..20 Promissory Note of the Company to the U.S. Exhibit 10.28 to Form 10-Q for period Ended
Government dated February 1, 2001. March 31, 2001.
21. SUBSIDIARIES
..1 Subsidiaries, identifiable pursuant to Item Exhibit 22 to Form 10-K for the fiscal year
601 (21) of Regulation S-K. ended December 28, 1991.
23. CONSENT OF EXPERT
..1 Consent of PricewaterhouseCoopers LLP. Filed herewith.
99. CERTIFICATIONS
..1 Certification of the Chief Executive Officer Filed herewith
pursuant to Section 906 of the Sarbanes Oxley
Act of 2002
..2 Certification of the Chief Financial Officer Filed herewith
pursuant to Section 906 of the Sarbanes Oxley
Act of 2002
(b) Reports on Form 8-K: The Company filed no Current Report on Form 8-K
during the quarter ended December 29, 2001.
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
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.
BY: /s/ Linda M. Autore BY: /s/ John M. Zinzarella
------------------------------------------------------- ---------------------------------------------------------
Linda M. Autore, President and Chief Executive John M. Zinzarella, Vice President of Finance,
Officer Treasurer and Chief Financial Officer
March 28, 2003 March 28, 2003
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
/s/ Linda M. Autore /s/ Steven Kotler
------------------------------------------------------ -------------------------------------------------------
Linda M. Autore, Director, President and Chief Steven Kotler, Director
Executive Officer March 28, 2003
March 28, 2003
/s/ Robert H. Steele /s/ Wilmer J. Thomas, Jr.
------------------------------------------------------ -------------------------------------------------------
Robert H. Steele, Chairman of the Board Wilmer J. Thomas, Jr., Director
March 28, 2003 March 28, 2003
/s/ Christopher W. Brody /s/ Dan K. Wassong
------------------------------------------------------ -------------------------------------------------------
Christopher W. Brody, Director Dan K. Wassong, Director
March 28, 2003 March 28, 2003
/s/ Peter A. Derow
------------------------------------------------------
Peter A. Derow, Director
March 28, 2003
35
CERTIFICATIONS
I, Linda M. Autore, certify that:
1. I have reviewed Amendment No. 1 to this annual report on Form 10-K/A of Moore
Medical Corp.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
March 28, 2003
BY: /s/ Linda M. Autore
--------------------------------
Linda M. Autore, President and
Chief Executive Officer
I, John M. Zinzarella, certify that:
1. I have reviewed Amendment No. 1 to this annual report on Form 10-K/A of Moore
Medical Corp.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report.
March 28, 2003
BY: /s/ John M. Zinzarella
---------------------------------------
John M. Zinzarella, Vice President of
Finance, Treasurer and Chief Financial
Officer
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SCHEDULE II
MOORE MEDICAL CORP. & SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCES FOR RETURNS AND UNCOLLECTIBLES
BALANCE AT ADDITIONS BALANCE AT
BEGINNING CHARGED TO END OF
OF PERIOD EXPENSES DEDUCTIONS PERIOD
------------ ---------- ---------- -----------
ALLOWANCE FOR RETURNS AND UNCOLLECTIBLES
Fiscal Year End December 29, 2001 $ 664 $ 367 $ (98) $ 933
Fiscal Year End December 30, 2000 $ 663 $ 89 $ (88) $ 664
Fiscal Year End January 1, 2000 $ 835 $ 16 $ (188) $ 663
37