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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM 10 - K
FOR ANNUAL AND TRANSITION REPORTS
[X] Annual Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 30, 2000
or
[_] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
MOORE MEDICAL CORP.
(Exact name of registrant as specified in its charter)
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Delaware 1-8903
(State of incorporation) (Commission File Number)
P.O. Box 1500, New Britain, CT 06050 22-1897821
(Address of principal executive offices) (I.R.S. Employer
Identification Number)
860-826-3600
(Registrant's telephone number)
Securities registered pursuant to Section 12(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 Exchange Act of
1934 during the preceding twelve months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ________
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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. [_]
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 2, 2001 was $10,611,059.
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 94,596 treasury
shares) as of March 2, 2001: 3,151,443.
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Documents Incorporated By Reference
The portions of the registrant's proxy statement for its 2001 Annual Meeting of
Shareholders referred to in Part III of this report are incorporated by
reference. The exhibit index is located on pages 28-30. Total number of pages
in the numbered original (including exhibits) is 143.
This is page 1 of 32 pages.
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1
Moore Medical Corp.
2000 Annual Report on Form 10-K
Table of Contents
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 Results of Operations and Financial Condition 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 26
Part III
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Item 10. Directors and Executive Officers of the Registrant 27
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial Owners and Management 27
Item 13. Certain Relationships and Related Transactions 27
Part IV
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Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K 28
Signatures 31
2
ITEM 1. Business
Overview
Moore Medical Corp. is a multi-channel, Internet-enabled marketer and
distributor of medical/surgical products and pharmaceuticals. We provide these
products to nearly 100,000 health care professionals in non-hospital settings
nationwide, including: physicians, podiatrists, surgeons, obstetricians,
gynecologists, pediatricians, emergency medical technicians, medical departments
at industrial sites, municipalities, university and school health services,
correctional facilities and other specialty practice communities. We market and
serve our customers through the Internet, direct mail, industry specialized
telephone support representatives, and key opportunity sales representatives.
Moore Medical's direct marketing and distribution business has more than fifty
years of operating experience.
Moore Medical's Mission & Key Initiatives
Moore Medical's mission is to provide health care professionals with the
supplies, tools and resources they need to improve the wellness of their
patients and to save lives. We seek to achieve this goal by maintaining a
reliable customer support infrastructure, implementing vigorous supply chain
initiatives, and remaining dedicated to continuous improvement throughout the
organization. Following are three key initiatives that are fundamental to all of
our business activities and that enable us to develop solutions that will meet
our customers' needs in a cost-efficient, innovative manner:
1. Maintain a strong customer focus. The customer is the focal point of our
supply chain strategies, and we strive to solve complex customer problems
with innovative and easy-to-use solutions. For example, our Customer
Advisory Council and ongoing surveys enable customers to share their views
and suggestions on how to improve their customer experience.
2. Provide a multi-channel direct marketing experience. We adopted a strategy
in 1999 and updated it in 2000 to transform our business from an off-line-
only model relying on catalogs, telesales, and key opportunity and field
representatives, to a multi-channeled enabled model. Our strategy is
three-fold: a) to increase our revenues and improve our operating results
by attracting new customers and migrating existing customers to our web
site; b) to continue offering quality catalogs and collateral, print and
pictorial materials to customers who prefer to make product selections and
order offline; and c) to build our customer base in specialized
professional practice communities, including through the use of an
affiliate network of online professional associations.
3. Strive for continuous improvement across the organization. In order to meet
our quality improvement objectives, we contracted with Werner Consulting,
LLC, Madison, Connecticut, a top-rated management consulting firm, to work
with us to identify potential improvement opportunities and create an
action plan for process improvement.
Health Care Products Distribution Industry/Competition
Industry: Current statistics from Hoover Online, an informational business
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network, report the $1 trillion health care industry is the largest segment of
the U.S. economy, representing 14% of Gross Domestic Product (GDP). 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 to IPAs, individual physicians' offices and clinics,
and emerging medical providers.
The total physician market for these products is approximately $5 billion, per
current HIDA (Health Industry Distributors Association) statistics. The
physician supply market is quite fragmented: the four leading distributors
control only 40% of the market. 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.
3
Over the last year and a half, Moore Medical has focused on applying Internet
technology to our growth plans for distribution and fulfillment as well as
marketing. While many businesses in and out of our industry chose to abandon
their core infrastructure to concentrate solely on e-commerce, our assessment of
the marketplace indicated that we should maintain a multi-channel focus. This
logical evolution from "brick and mortar" to "brick and click" has enabled us to
remain true to those customers not yet ready for e-commerce, or who simply
prefer other means of communication such as by phone, fax or in person.
Competition: The trend of health care product distributor consolidations
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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 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. 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 & Distribution
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, including: 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 inbound calls for ordering and
requesting catalogs and provides product information; and outbound specialty
practice sales representatives. The Company considers direct marketing to be
one of its core competencies.
An in-house creative department designs and produces marketing collateral,
product packaging, web graphics, special offer coupons and trade show booth
graphics. Marketing materials are mailed throughout the year, utilizing a
schedule based on historic results and market segment buying patterns. In the
third quarter of 2000, an Internet-focused catalog (designed to teach customers
how to order through mooremedical.com) was produced and mailed to prospective
customers. And in the fourth quarter of 2000, we created a new design template
and color palette for our catalog and other marketing materials to provide a
more professional and consistent look to support our corporate brand.
Distribution: The Company distributes its products throughout the United States
------------
and U.S. territories from its four distribution centers in Connecticut, Florida,
Illinois and California. 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.
Customer orders enter the enterprise resource planning (ERP) system via our web
site, our market-specific sales representatives, or our customer support center.
Order fulfillment is completed the same business day when the order is received
by 4:00 p.m. United Parcel Services (UPS) is our preferred carrier and we enjoy
national account status. UPS delivers 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.
Moore Medical's customer community based e-business site went live on May 30,
2000. Our continuing commitment to e-commerce is fundamental to our strategy,
and our goal is to rapidly grow the size and revenue of the Company through
continued web enablement of customers and employees (e.g. through increased use
of the Company's intranet), while maintaining our multi-channel commitment. E-
commerce
4
is, in fact, steadily growing in acceptance among our customer base; in 2000, 4%
(7% in fourth quarter) of Moore Medical's commerce was conducted over the
Internet, and this percentage is projected to rise to 10% of 2001's revenue.
We are benchmarking our service and fulfillment performance against a system of
Perfect Order Metrics, which is the percentage of orders shipped complete, on-
time, from customer's assigned primary shipping warehouse 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 toward streamlining and/or eliminating steps to make the
process flow more efficiently.
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 non-
hospital health care practitioners who also offer pharmaceuticals. Although many
of our products are consumables and disposables, we also sell medical/surgical
equipment such as the new portable AED's (Automated External Defibrillators) and
other diagnostic tools. In 2000, we also began distributing basic office
supplies and stationery products.
We purchase our products primarily from manufacturers and to a lesser extent
from other distributers and do not manufacture or assemble any products except
for the assembly 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 2000, our largest product suppliers were 3M, Allied
Healthcare Products, Inc., Aventis Pasteur, Banta Healthcare Products, Inc.,
Graham-Field Surgical Co., Johnson & Johnson Healthcare System, Laerdal Medical
Corp., Microflex, SmithKline Beecham and Welch Allyn. We have several competing
sources for many medical/surgical supplies and pharmaceuticals. Sales of
products from our largest supplier in 2000 accounted for less than 5% of total
sales. The pharmaceutical market continues to introduce alternative products
affecting the product acquisition costs and obtainable margins.
Our purchasing team also has ready access to several hundred additional industry
manufacturers and suppliers, enabling us to meet customers' special
requirements. We do not have any significant long-term purchase commitments
with our suppliers, nor do we 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
Typically, our customers order an average of five to six times a year, though
some specialties order more frequently and order size may vary significantly
from one specialty to another. Our customers are always the focal point of our
supply chain strategies, and we strive to provide value-added services to the
health care specialties we serve. For example, approximately 8,000 of the
12,000 active podiatrists in the United States are our customers. In order to
better serve this specialty practice community, in June 2000, we acquired 51% of
the outstanding shares of capital stock of Podiatry Online, a Florida-based
Internet magazine serving 4,200 podiatrists for over four years. In addition,
to meet the needs of our emergency medical services customers, in July 2000, we
acquired 100% of the assets of MERGInet Medical Resources, the premier Internet
magazine and the largest Internet resource for emergency medical services (EMS)
and emergency medical professionals. We chose these sites based on their
ability to
5
provide content and services to the communities they serve and for their
reputation of dedication to their professional communities.
Moore Medical has also formed a number of Internet alliances in order to extend
our marketing resources, demonstrate our multi-channel direct marketing
strategy, help new customers find us more easily and encourage existing
customers to choose us more frequently. Types of Internet alliances include
strategic partnerships, advertising sponsorships, preferred affiliates
(collaborative joint marketing) and Internet affiliates. These alliances are
designed to enable us to grow our revenue by linking sales from the affiliate's
web site to mooremedical.com, encouraging direct sales through mooremedical.com,
and establishing pre-conditioned sales through our customer support center.
In order to keep abreast of the needs of the customer communities we serve, we
have established a Customer Advisory Council through which customers can share
their views on Moore Medical's support, service, products, terms, pricing and
delivery, and make suggestions on ways to improve their customer experience.
The Council was also instrumental in assisting us in the development of our web
site. We have recently expanded the Customer Advisory Council to include ongoing
participation by the customer community. To this end, we distribute regularly
scheduled questionnaires and surveys to gain feedback on potential web site
redesign, meaningful promotions and other enhancements.
Sales Force
Our sales efforts are designed to establish and strengthen our customers'
allegiance to us through frequent direct marketing contact, supported by our
inbound customer support representatives and outbound specialty-specific
representatives. In 2000, our sales force consisted of market-specific outbound
sales representatives, key opportunity sales representatives, national account
representatives and inbound customer support representatives. We intend to
strengthen our national accounts program in 2001 in order to attract and retain
large national customers. For example, we have recently hired a Vice President
of Strategic Sales, with a strong track record in multi-million dollar contract
wins, who plans to raise the bar for our performance.
With the launch of our online catalog and fully integrated web site, all sales
staff have been trained on the functionality of the web site in order to
encourage customers who prefer to move into online ordering. We also have a
team of dedicated Net Agents who facilitate live, online chats with customers to
assist with a variety of sales-focused issues.
By concentrating on our multi-channel capabilities, Moore Medical ensures that
no matter how our customers prefer to conduct business with us, our sales
personnel can meet their health care supply requirements.
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 local, state,
and federal 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
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 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
6
applicable federal and state statutes which protect against the diversion of
those products. We maintain extremely tight standards and 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 Manager of Regulatory Affairs as
well as President of the Connecticut Pharmacists' Association. This individual
is responsible for monitoring all pharmaceutical sales for compliance with state
and federal 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.
Information Systems
Moore Medical continues to invest in the technology, processes and
infrastructure that will make it more competitive as a multi-channel direct
marketer and distributor of medical supplies. Following a year of
implementation experience with an ERP system, the Company is beginning to more
fully realize the benefits of these investments, including the elimination of
manual process jobs and the consolidation of some functions.
For 2000, the primary focus of the Company was to continue to invest in
technologies and e-commerce initiatives. With that, the Company invested
approximately $1.5 million in capital expenditures related to the information
systems group transitioning Moore Medical's web site from a transaction
storefront site to a fully integrated e-business site. On May 30, 2000, this
was accomplished utilizing a mechanism to electronically send order information,
new customer information, and changes in customer information from the site to
the JD Edwards ERP computer system. An "Advance Ship Notice" e-mail system has
also been put in place, which e-mails shipping confirmation to customers once
product has left the distribution center. In conjunction with the web site
transition, Moore Medical's Information Systems department designed and
implemented a web-enabled intranet site. The intranet is utilized to
consolidate and facilitate communications across all areas of the business and
to encourage all employees to become proficient in the use of technology.
Employees
We continue to hire individuals with the specific skills that complement our
corporate growth strategy, and leverage current and future technological
advances.
As of December 30, 2000, the Company had 305 full-time employees and 15 part-
time employees in four locations, none of whom had collective bargaining
agreements. Overall, the Company considers its employee relations to be good.
7
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), Lemont, Illinois (58,000
square feet), and Visalia, California (51,000 square feet). 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 material 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 2000.
Executive Officers of the Registrant
The following table shows our current executive officers and their areas of
responsibility:
Name Age Position
---- --- --------
Linda M. Autore 50 President and Chief Executive Officer
Chad A. Roffers 30 Senior Executive Vice President Sales, Marketing and E
business
James R. Simpson 50 Executive Vice President and Chief Financial Officer
Jerry Flasz 40 Executive Vice President and Chief Technology Officer
Kenneth S. Kollmeyer served as Executive Vice President of Operations until
March 2, 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 1999 the high and low sale prices of the common stock on the American Stock
Exchange Composite Tape.
2000 1999
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Quarters: High Low High Low
---- --- ---- ---
First........................ $ 13.063 $ 9.313 $ 13.875 $ 10.500
Second....................... 11.625 6.000 12.625 9.500
Third........................ 8.375 5.125 14.875 7.375
Fourth....................... 7.625 3.875 10.688 7.000
The high and low sale prices of the common stock on March 2, 2001 were $7.830
and $7.500, respectively. The estimated number of holders (including estimated
beneficial holders) of the Company's common stock as of March 2, 2001 was
approximately 1,100.
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.
8
ITEM 6. Selected Financial Data
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Amounts in thousands, except per share data 2000 1999 1998 1997 1996
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SUMMARY OF OPERATIONS
Net sales $ 123,555 $ 118,454 $ 120,846 $ 288,513 $ 286,349
Cost of products sold 86,712 81,573 83,143 249,451 243,949
--------- --------- --------- --------- ---------
Gross profit 36,843 36,881 37,703 39,062 42,400
Selling, general and administrative
expenses 43,039 34,465 33,326 41,857 41,481
--------- --------- --------- --------- ---------
Operating (loss) income (6,196) 2,416 4,377 (2,795) 919
Interest (income) expense, net (228) (8) (82) 1,898 1,813
--------- --------- --------- --------- ---------
(Loss) income before income taxes (5,968) 2,424 4,459 (4,693) (894)
Income tax (benefit) provision (1,432) 572 1,650 (1,772) (329)
--------- --------- --------- --------- ---------
Net (loss) income $ (4,536) $ 1,852 $ 2,809 $ (2,921) $ (565)
========= ========= ========= ========= =========
Basic net (loss) income per share $ (1.49) $ 0.63 $ 0.96 $ (1.00) $ (0.19)
Diluted net (loss) income per share $ (1.49) $ 0.63 $ 0.95 $ (1.00) $ (0.19)
Basic weighted average shares outstanding 3,050 2,939 2,932 2,921 2,910
Diluted weighted average shares outstanding 3,052 2,943 2,949 2,923 2,921
BALANCE SHEET DATA
Working capital $ 19,781 $ 18,508 $ 18,521 $ 20,142 $ 42,985
Total assets $ 45,129 $ 41,966 $ 38,481 $ 39,203 $ 81,541
Debt $ 5,208 $ - $ - $ 1,512 $ 22,726
Shareholders' equity $ 24,358 $ 27,450 $ 25,553 $ 22,623 $ 25,376
9
ITEM 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
2000 Compared with 1999
Revenue for fiscal 2000 was $123.6 million, compared to $118.5 million in fiscal
1999, representing growth of 4%, which was primarily volume driven. The Company
distributes their products through such communities as health care professionals
in non-hospital settings, emergency medical technicians, medical departments at
industrial sites, municipalities, educational and correctional facilities and
other specialty practice communities as well as other resale distributors. 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 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 ($1.49) from $0.63 a year ago. 2000 earnings per
share would have been ($0.70) without giving effect to the one-time charge from
$0.63 a year ago.
Gross profit margins were almost 30% for the year, which was marginally lower
than in the prior year. This was primarily due to the increased volume in the
reseller community, which typically reflects lower margins.
Selling, general and administrative expenses increased to 34.8% of revenue as
compared to 29.1% 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. The Company believes the existing cost structure is
adequate to support future growth.
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 provision rate of 24% was lower than the federal
statutory tax rate due primarily to a net income tax benefit from the settlement
of the government contract.
1999 Compared with 1998
Net sales for the year declined 2% to $118.5 million from $120.8 million in the
prior year. Net income for the year decreased to $1.9 million compared with
$2.8 million. Earnings per share decreased to $.63 from $.96 a year ago. The
1999 decrease in sales and net income is attributable to installation and
implementation of the ERP system, which is designed to enable Moore Medical to
utilize advanced technologies to provide greater responsiveness to our
customers' needs. We lost no sales days as a result of the implementation.
However, the transition did adversely impact our day-to-day sales operations, as
customers experienced some delays in reaching customer support representatives.
The transition, whose impact on revenues and income cannot be quantified, was
completed in 1999. The 1999 results follow five year record earnings in 1998,
which benefited from non-recurring inventory disposition sales in our
discontinued wholesale drug distribution business which was disposed of in 1997.
The gross profit margin rate was above 31% for both years. However, the gross
profit dollars decreased slightly due to lower volumes, as well as greater
competitive pricing on certain pharmaceutical products.
Selling, general and administrative expenses increased 3% compared to 1998.
During 1999, we made investments in our staff to broaden the breadth of its
abilities, our technology and technological applications to more effectively and
efficiently serve our customers, and in our marketing resource so that we could
more effectively compete in our changing industry. The increase in selling,
general and administrative expense was primarily due to increased freight as
well as increases in depreciation, consulting and legal expenses associated
with the Company's investment in technology.
10
We ended the year with no debt, while investing over $5.3 million on technology
capital. Further, at year-end 1999, we invested approximately $0.7 million in
cash and equivalents.
Our effective income tax provision rate of 23.6% was lower than the federal
statutory tax rate due primarily to a net income tax benefit of $0.3 million
recorded from the favorable settlement of a prior year's tax matter.
Liquidity and Capital Resources
At December 30, 2000, the Company's cash and cash equivalents totaled $5.2
million, a $4.5 million increase from January 1, 2000. The Company's operations
provided $1.4 million during the fiscal year 2000 compared to $2.5 million and
$9.6 million in 1999 and 1998, respectively. In 2000, primary components of cash
from operations were net income adjustments made from non-cash expenses such as
depreciation and the changes in working capital. The source of working capital
resulted from a reduction of inventory levels of $4.7 million due to improved
inventory turns, and an increase in accounts payable, partially offset by an
$0.8 million increase in trade receivables that is consistent with the Company's
revenue growth. Additionally, a reclassification of $2.0 million from current
liabilities to long term notes payable related to the settlement of a legal
matter in 2000. In 1999, operating activities generated cash sources of $5.8
million of which $3.9 million was from net non-cash elements in earnings,
partially offset by a use of $2.9 million in working capital. In 1998, the net
cash from operating activities was primarily attributed to a $5.8 million
decrease in accounts receivable as a result of the withdrawal from the wholesale
business.
Investing activities used $3.5 million during the year 2000 compared to $5.3
million and $4.8 million in 1999 and 1998, respectively. The primary use of
cash for investing was strategic acquisitions in key communities. The Company
used $1.25 million to acquire a controlling interest in Podiatry Online and $0.4
million to acquire MERGInet Medical Resources. The Company also purchased $1.6
million in equipment and software as a result of the company's ongoing
investment in multi-channeled 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.
In 1998, approximately $4.5 million of the $4.8 million in capital expenditure
related to the initial implementation to the new ERP system.
Financing activities provided $6.7 million during 2000, compared to zero in 1999
and $1.4 million used in 1998. In 2000, $5.2 million was primarily attributed
to an increase in long term notes payable relating to a settlement of a legal
matter 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. The Company was able to satisfy its cash requirements
in 1999 without using its line of credit, but used $1.5 million from a line of
credit in 1998.
As the business grows, the Company believes that the funding needs for our
operating working capital and investments will continue to be met through
cashflow 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.
Forward-Looking Information
From time to time, the Company or its representatives may have made or may make
forward-looking statements, orally or in writing. Forward-looking statements
may be included in, but, not limited to, press releases, oral statements made by
or with the approval of an authorized executive officer, or in this report or
other filings made by the Company with the Securities and Exchange Commission.
The words or phrases "trend," "expects," "grow," "will," "could," "likely
result," "transform," "planned," "continued," "anticipated," "estimated,"
"believes," "continuing," "considers," "may be," "assessed," "contingency,"
"projected," "scheduled," "could have," "intended," or similar expressions are
intended to identify "forward-
11
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. The Company wishes to ensure that such statements are
accompanied by meaningful cautionary statements, so as to maximize to the
fullest extent possible the protections of the safe harbor established in the
said Act. Accordingly, such statements are qualified in their entirety by
reference to and are accompanied by the following important factors that could
cause actual results to differ materially from such forward-looking statements:
. we could be adversely affected if our strategy to transform ourselves to a
multi-channel e-commerce enabled business does not generate adequate revenues
and income;
. we have had limited experience as an online marketer and there may be
developments which affect us which we may not foresee;
. period-to-period comparisons of our financial results are not necessarily
meaningful;
. our common stock has been volatile;
. our web sites have had disruption, and if we do not continue with our present
hosting service we may become subject to host-transfer costs and disruptions;
. we are subject to online security breach risks;
. we may not be able to keep up with rapidly changing technological and
Internet developments;
. we may have difficulties in attracting and retaining qualified personnel;
. we are subject to online credit card fraud risks;
. our internal systems are located in a single facility;
. intellectual property claims against us can be costly;
. we may become subject to additional governmental regulation of the Internet;
. contracting-out functions have risks;
. we may be subject to new sales tax collection obligations;
. we have intense competition in health care products distribution, for
example, from distributor consolidations, new online entrants or pricing
pressures from larger distributors able to benefit from economies of scale or
other operating efficiencies;
. we have pressures on revenues resulting, for example, from customer
consolidations or changes in customer buying patterns;
. changes in the availability or saleability of products could affect us;
. our operations are subject to governmental regulation, for example,
reductions in healthcare funding affecting its customers' services or
revenues;
. we may face disruptions in or cost increases for services or systems on which
the Company is dependent, such as by truckers in deliveries from its
suppliers, by UPS or other common carriers in deliveries to its customers, by
its catalog printers or in telecommunications services, or relating to its
computer systems; and
. our change of control provisions may also discourage third party offers to
acquire us.
12
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
We have no material market risk exposure associated with activities in
derivative financial statements, other financial instruments, or derivative
commodity instruments. The Company does not expect changes in interest rates
to have a material effect on income or cash flows in fiscal 2001, although there
can be no assurances that interest rates will not significantly change.
ITEM 8. Financial Statements and Supplementary Data
The financial statements and supplementary data have been filed as part of this
Annual Report as indicated in the index to Financial Statements and Financial
Statement Schedule appearing on page 14.
13
MOORE MEDICAL CORP.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
Page No.
Report of Independent Accountants 15
Balance Sheets at the end of years 2000 and 1999 16
Statements of Operations for the years 2000, 1999 and 1998 17
Statements of Cash Flows for the years 2000, 1999 and 1998 18
Notes to Financial Statements 19-26
Financial Statement Schedule II - Valuation and Qualifying Accounts 32
for the years ended 2000, 1999 and 1998
14
Report of Independent Accountants
To the Board of Directors and Shareholders of Moore Medical Corp.
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of Moore
Medical Corp. and its subsidiary at December 30, 2000 and January 1, 2000, and
the results of their operations and their cash flows for each of the three years
in the period ended December 30, 2000, in conformity with accounting principles
generally accepted in the United States. In addition, in our opinion, the
financial statement schedule listed in the accompanying index presents fairly,
in all material respects, the information set forth therein when read in
conjunction with the related 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, 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 25, 2001
15
MOORE MEDICAL CORP.
Balance Sheets at End of Years
----------------------------------------------------------------------------------------------------------------
(Amounts in thousands, except par value) 2000 1999
----------------------------------------------------------------------------------------------------------------
ASSETS
Current Assets
Cash............................................................ $ 5,233 $ 744
Accounts receivable, less allowances
of $201 and $200.......................................... 12,326 11,488
Inventories................................................ 9,554 14,242
Prepaid expenses and other current assets.................. 2,152 1,852
Deferred income taxes...................................... 3,692 2,330
-------- --------
Total Current Assets..................................... 32,957 30,656
-------- --------
Noncurrent Assets
Equipment and leasehold improvements, net.................. 9,672 10,641
Other assets............................................... 2,500 669
-------- --------
Total Noncurrent Assets.................................. 12,172 11,310
-------- --------
$ 45,129 $ 41,966
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable........................................... $ 10,192 $ 7,483
Accrued expenses........................................... 2,984 4,665
-------- --------
Total Current Liabilities................................ 13,176 12,148
-------- --------
Deferred Income Taxes.............................................. 2,387 2,368
Long Term Notes Payable............................................ 5,208 -
Shareholders' Equity
Preferred stock, no shares outstanding..................... - -
Common stock-$.01 par value;
Shares authorized - 10,000 and 5,000
Shares issued - 3,246 ..................................... 32 33
Capital in excess of par value............................. 21,700 21,675
Retained earnings.......................................... 3,913 8,449
-------- --------
25,645 30,157
Less treasury shares, at cost, 145 and 305 shares.......... ( 1,287) ( 2,707)
-------- --------
Total Shareholders' Equity............................... 24,358 27,450
-------- --------
$ 45,129 $ 41,966
======== ========
________________________________________________________________________________
The accompanying notes are an integral part of the financial statements.
16
MOORE MEDICAL CORP.
Statements of Operations for the Years
------------------------------------------------------------------------------------------------------------------------
(Amounts in thousands, except per share data) 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------
Net sales........................................................ $123,555 $118,454 $120,846
Cost of products sold............................................ 86,712 81,573 83,143
-------- -------- --------
Gross profit..................................................... 36,843 36,881 37,703
Selling, general and administrative expenses..................... 43,039 34,465 33,326
-------- -------- --------
Operating (loss) income.......................................... (6,196) 2,416 4,377
Interest (income), net........................................... (228) (8) (82)
-------- -------- --------
(Loss) income before income taxes................................ (5,968) 2,424 4,459
Income tax (benefit) provision................................... (1,432) 572 1,650
-------- -------- --------
Net (loss) income................................................ $ (4,536) $ 1,852 $ 2,809
======== ======== ========
Basic net (loss) income per share................................ $ (1.49) $ 0.63 $ 0.96
Diluted net (loss) income per share.............................. $ (1.49) $ 0.63 $ 0.95
________________________________________________________________________________
The accompanying notes are an integral part of the financial statements.
17
MOORE MEDICAL CORP.
Statements of Cash Flows for the Years
------------------------------------------------------------------------------------------------------------------------------
(Amounts in thousands) 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net (loss) income........................................... $ (4,536) $ 1,852 $ 2,809
Adjustments to reconcile net (loss) income to net cash
flows provided by (used in) operating activities:
Depreciation and amortization........................... 2,641 1,733 1,251
Deferred income taxes................................... (1,343) 2,170 1,008
Other................................................... 30 (307) 334
Changes in operating assets and liabilities
Accounts receivable.................................. (838) (2,103) 5,827
Inventories.......................................... 4,688 (558) (268)
Other current assets................................. (300) 140 968
Accounts payable..................................... 2,709 2,062 (3,632)
Other current liabilities............................ (1,681) (2,474) 1,338
---------- ---------- ----------
Net cash flows provided by operating activities. ........... 1,370 2,515 9,635
---------- ---------- ----------
Cash Flows From Investing Activities
Equipment and leasehold improvements acquired............... (1,599) (5,336) (4,778)
Acquisition of (1,934) - -
business........................................... ---------- ---------- ----------
Net cashflows (used in) investing activities................ (3,533) (5,336) (4,778)
---------- ---------- ----------
Cash Flows From Financing Activities
Revolving credit financing decrease, net.................... - - (1,512)
Sale of treasury 1,444 45 121
stock.......................................................
Long term notes 5,208 - -
payable........................................ ---------- ---------- ----------
Net cash flows provided by (used in) financing
activities.................................................. 6,652 45 (1,391)
---------- ---------- ----------
Increase (decrease) in cash................................. 4,489 (2,766) 3,466
Cash at the beginning of year............................... 744 3,520 54
---------- ---------- ----------
Cash At End Of Year......................................... $ 5,233 $ 744 $ 3,520
========== ========== ==========
________________________________________________________________________________
The accompanying notes are an integral part of the financial statements.
18
MOORE MEDICAL CORP.
Notes to Financial Statements
Note 1 - Summary of Significant Accounting Policies
General - Moore Medical Corp. is a multi-channel, Internet-enabled marketer and
distributor of medical/surgical products and pharmaceuticals. We provide these
products to nearly 100,000 health care professionals in non-hospital settings
nationwide, including: physicians, podiatrists, surgeons, obstetricians,
gynecologists, pediatricians, emergency medical technicians, medical departments
at industrial sites, municipalities, university and school health services and
correctional facilities and other specialty practice communities. We market and
serve our customers through the Internet, direct mail, industry specialized
telephone support representatives, and key opportunity sales representatives.
Moore Medical's direct marketing and distribution business has more than fifty
years of operating experience.
Fiscal Year - The Company's fiscal year ends on the Saturday closest to December
31. The fiscal years ended December 30, 2000, January 1, 2000 and January 2,
1999 were comprised of 52 weeks in 2000, 1999 and 1998.
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.
Equipment and Leasehold Improvements - Equipment is recorded at cost.
Depreciation and amortization is provided on the straight-line method over the
estimated useful lives (3-7 years) of the assets. Leasehold improvements are
depreciated over the useful life of the asset or the term of the lease,
whichever is shorter. 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.
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 30, 2000 and
January 1, 2000, $639,000 and $669,000, respectively, of direct response catalog
advertising expenses were deferred. Catalog advertising expense totaled
$4,527,000, $2,485,000 and $2,881,000 in 2000, 1999 and 1998, 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.
19
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
with the current year presentation.
Note 2 - Income Taxes
The income tax (benefit) provision consists of the following:
-------------------------------------------------------------------------------------------------------------
Amounts in thousands 2000 1999 1998
-------------------------------------------------------------------------------------------------------------
Current
Federal $ (94) $ (1,554) $ 625
State 5 (44) 17
-------- -------- --------
Total current (89) (1,598) 642
-------- -------- --------
Deferred (1,343) 2,170 1,008
-------- -------- --------
Total (benefit) provision $ (1,432) $ 572 $ 1,650
======== ======== ========
A reconciliation of the statutory federal income tax rate and the effective
income tax rate as a percentage of pretax income is as follows:
---------------------------------------------------------------------------------------------------------------
2000 1999 1998
---------------------------------------------------------------------------------------------------------------
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal tax benefit 2.7 3.8 3.8
Valuation allowance (1.5) 2.8 (2.2)
Other - net (11.2) (17.0) 1.4
----- ----- ----
Effective income tax rate 24.0% 23.6% 37.0%
===== ===== ====
The effective income tax provision rate of 24.0% was lower than the federal
statutory tax rate due primarily to a net income tax benefit of 12.5% from the
settlement of the government contract. The effective income tax provision of
23.6% 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 2000 1999
----------------------------------------------------------------------------------------------
Allowance for doubtful accounts $ 249 $ 360
Inventories 734 463
Accrued expenses 1,368 1,216
Other 1,816 209
------- -------
Deferred Tax Assets 4,167 2,248
------- -------
Accumulated depreciation/amortization (2,513) (1,937)
Prepaid pension expense (350) (350)
------- -------
Deferred Tax Liabilities (2,863) (2,287)
------- -------
$ 1,304 $ (39)
======= =======
Income tax payments totaled $31,000, $1,004,000 and $1,091,000 in 2000, 1999 and
1998, respectively.
20
Note 3 - Equipment and Leasehold Improvements
Equipment, leasehold improvements and accumulated depreciation are summarized as
follows:
----------------------------------------------------------------------------------------------
Amounts in thousands 2000 1999
----------------------------------------------------------------------------------------------
Equipment $ 6,048 $ 6,030
Computer equipment and software 15,558 13,995
Leasehold improvements 3,214 3,196
-------- --------
24,820 23,221
Less accumulated depreciation (15,148) (12,580)
-------- --------
$ 9,672 $ 10,641
======== ========
Note 4 - Revolving Credit Financing
On January 26, 2001, the Company entered into a secured bank financing agreement
which provides up to $15 million revolving line of credit through January 26,
2004. Interest on loans 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. The Company previously had an
unsecured bank financing agreement which provided up to $10 million revolving
line of credit which ended on March 31, 2000.
----------------------------------------------------------------------------------------------------------------
Amounts in thousands 2000 1999 1998
----------------------------------------------------------------------------------------------------------------
Borrowings
Average $ 10 $ 545 $ 149
Maximum $ 361 $2,661 $1,859
Weighted daily average interest rate
For the year 1.6% 8.1% 0.0%
At year end 0.0% 0.0% 0.0%
Cash payments for interest on revolving credit financing totaled $1,000,
$44,000, and $55,000 in 2000, 1999 and 1998, respectively.
21
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 Standards No. 132:
--------------------------------------------------------------------------------------------------------------------
Amounts in thousands 2000 1999 1998
--------------------------------------------------------------------------------------------------------------------
Change in Benefit Obligation
Benefit obligation at beginning of year $ 3,722 $ 3,670 $ 3,467
Service cost 342 327 333
Interest cost 279 275 260
Actuarial gain 191 262 317
Benefits paid (557) (812) (707)
---------- ---------- ----------
Benefit obligation at end of year $ 3,977 $ 3,722 $ 3,670
========== ========== ==========
Change in plan assets
Fair value of plan assets at beginning of year $ 5,218 $ 4,840 $ 4,865
Actual return on plan assets 15 1,061 682
Employer contribution 149 129 -
Benefits paid (557) (812) (707)
---------- ---------- ----------
Fair value of plan assets at end of year $ 4,825 $ 5,218 $ 4,840
========== ========== ==========
Funded Status $ 847 $ 1,497 $ 1,170
Unrecognized net actuarial gain (loss) 34 (613) (314)
Unrecognized prior service cost 32 37 41
Unrecognized transition cost - 12 25
---------- ---------- ----------
Prepaid benefit cost $ 913 $ 933 $ 922
========== ========== ==========
Weighted-Average Assumptions as of Period
Ending
Discount Rate 7.50% 7.50% 7.50%
Expected return on plan assets 9.00% 9.00% 9.00%
Rate of compensation increases 5.00% 5.00% 5.00%
Components of Net Periodic Benefit Cost
Service cost $ 342 $ 327 $ 333
Interest cost 279 275 260
Expected return on plan assets (470) (436) (438)
Amortization prior service cost 5 5 5
Amortization transition cost 12 12 12
Recognized net actuarial loss - (65) -
---------- ---------- ----------
Net periodic benefit cost $ 168 $ 118 $ 172
========== ========== ==========
22
The present value of the projected benefit obligation was determined using a
discount rate of 7.5% in 2000, 1999 and 1998. 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.
The compensation rate increase assumption for all years was 5%. The assumed
long-term rate of return on plan assets, which consist primarily of investments
in various marketable securities, was 9% for all years presented.
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 contributions of up to 3% of employees' compensation.
In 1999 and 1998, the Company provided additional Company contributions to
partially match employee contributions. The Company's expense in connection
with this plan for the years 2000, 1999 and 1998 amounted to $288,000, $622,000
and $469,000, respectively.
Note 6 - Shareholders' Equity
The Company's Board of Directors, with shareholders' approval, adopted an
"Amendment of Certificate of Incorporation to increase authorized Common Stock".
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 30, 2000, 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.
Net income (loss) does not include any comprehensive income; Changes in
Shareholders' Equity for the three years ended December 30, 2000 are as follows:
---------------------------------------------------------------------------------------------------------------------------
Common Stock Capital
$.01 par value in Excess
--------------
Shares Par of Par Retained Treasury Stock
--------------
Amounts in thousands Issued Value Value Earnings Shares Cost
---------------------------------------------------------------------------------------------------------------------------
1998
----
Beginning balance 3,246 $ 32 $ 21,644 $ 3,788 (319) $ (2,841)
Net income 2,809
Stock options/stock
compensation 1 23 11 97
--------- --------- --------- --------- --------- ---------
Ending balance 3,246 33 21,667 6,597 (308) (2,744)
1999
----
Net income 1,852
Stock options/stock
compensation 8 3 37
--------- --------- --------- --------- --------- ---------
Ending balance 3,246 33 21,675 8,449 (305) (2,707)
2000
----
Net (loss) (4,536)
Stock options/stock
compensation (1) 25 160 1,420
--------- --------- --------- --------- --------- ---------
Ending Balance 3,246 $ 32 $ 21,700 $ 3,913 (145) $ (1,287)
========= ========= ========= ========= ========= =========
23
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,
Rightsholders (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.
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". 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 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 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 Stock Option 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.
The Company's Board of Directors adopted and approved the 1998 Stock Incentive
Plan for directors, officers and key employees. The Plan 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.
24
Stock option transactions for all three plans summarized as follows:
-----------------------------------------------------------------------------------------------------------------------------------
1992 Incentive 2000 Incentive
Stock Option Plan 1998 Stock Incentive Plan Compensation Program
-----------------------------------------------------------------------------------------------------------------------------------
Weighted
Weighted Weighted Average
Number of Average Number of Average Number of Exercise
Options Exercise Price Options Exercise Price Options Price
-----------------------------------------------------------------------------------------------------------------------------------
Outstanding at end of 1998 48,400 $11.65 141,200 $12.08 - $ 0.00
Granted - - 41,000 11.23 - -
Canceled (17,750) 11.76 (67,700) 12.49 - -
Exercised (2,750) 11.95 - - - -
-------- -------- -------
Outstanding at end of 1999 27,900 11.55 114,500 11.54 - -
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
======== ======== =======
Exercisable 2000 20,100 $11.56 40,750 $11.59 7,000 $11.00
Exercisable 1999 23,925 $11.44 18,375 $11.54 - -
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 ($4.6) million and ($1.51) per share, $1.8
million and $.61 per share, and $2.8 million and $.94 per share for 2000, 1999,
and 1998, 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 during the year ended December 30, 2000:
dividend yield of 0%; risk-free rates ranging from 4.7% to 5.4%, expected
volatility factors ranging from 34% to 38%; and an expected option term of a
five year period.
Note 8 - Commitments and Contingencies
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 $1,240,000, $1,218,000, and
$1,416,000 in 2000, 1999, and 1998, respectively. As of December 30, 2000,
future minimum payments, for all leases are as follows: 2001, $1,141,000; 2002,
$725,000; 2003, $322,000; 2004, $241,000; thereafter, $361,000.
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
settlement, the Company agreed to pay the government a total of $5.2 million,
including $0.5 million on signing, and $4.7 million over five years. The
settlement is an interest bearing note ranging
25
from 5.25% to 7.25%. In the fourth quarter of 2000, it recorded an additional
$2.5 million reserve for the liability and associated legal costs.
As of December 30, 2000, $4.5 million of the government settlement was recorded
in Long term notes payable along with $0.7 million of the rights to acquire the
remaining 49% in Podiatry Online. The remaining portion of the government
settlement is in other accrued expenses.
Note 9 - Selected Quarterly Information (Unaudited)
--------------------------------------------------------------------------------------------------------------------------
Amounts in thousand, Net Sales Gross Profit Net Income Net Income
Except per share data (Loss) (Loss) Per
Share
--------------------------------------------------------------------------------------------------------------------------
1998
----
First $ 30,939 $ 9,338 $ 405 $ 0.14
Second 30,042 9,357 709 0.24
Third 32,529 10,207 1,056 0.36
Fourth 27,336 8,801 639 0.21
--------- --------- --------- ---------
Year $ 120,846 $ 37,703 $ 2,809 $ 0.95
========= ========= ========= =========
1999
----
First $ 29,055 $ 9,509 $ 477 $ 0.16
Second 29,367 9,215 428 0.15
Third 31,077 9,446 803 0.27
Fourth 28,955 8,711 144 0.05
--------- --------- --------- ---------
Year $ 118,454 $ 36,881 $ 1,852 $ 0.63
========= ========= ========= =========
2000
----
First $ 29,517 $ 8,673 $ (255) $ (0.09)
Second 30,253 9,078 79 0.03
Third 33,038 9,911 (567) (0.18)
Fourth 30,747 9,181 (3,793) (1.25)
--------- --------- --------- ---------
Year $ 123,555 $ 36,843 $ (4,536) $ (1.49)
========= ========= ========= =========
___________________________________________________________________
ITEM 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
None
26
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" in the Company's 2001
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 2001
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 2001 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 2001 definitive proxy statement to be filed pursuant to Regulation
14A.
27
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.
3. 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 ended
Amended. 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, 1998.
Delaware General Corporation Law.
.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
.2 Rights Agreement, between the Company and American Exhibit 4 to Form 8-K dated December 22, 1998.
Stock Transfer & Trust Co., dated 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).
28
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 MetLife Savings Plan Program - Exhibit 10.4A to Form 10-K for the fiscal year
Defined Contribution Basic Plan ended December 31, 1994.
Document dated March 30, 1994.
.4B MetLife Savings Plan Program - Exhibit 10.4B to Form 10-K for the fiscal year
401(k) Plan Adoption Agreement dated ended December 31, 1994.
October 20, 1994.
.4C MetLife Savings Plan Program - Exhibit 10.4C to Form 10-K for the fiscal year
Prototype Plan Amended & Restated ended January 1, 1994.
Trust Agreement.
.4D MetLife Savings Plan Program - Exhibit 10.4D to Form 10-K for the fiscal year
Service Agreement. ended January 1, 1994.
.5 Defined Benefit Pension Plan and Trust Exhibits 10.5A, 10.5B and 10.5C to Form 10-K for
Agreement dated September 26, 1994, as the fiscal year ended December 31, 1994 and
amended. 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 fiscal year ended
January 2, 1999.
.8 2001 - 2002 Change of Control and Position Payment Filed herewith.
Plan.
.9 Employment Agreement between the Company Filed herewith.
and Jerry Flasz, effective January 15, 2001.
.10 Employment Agreement between the Company Filed herewith.
and James R. Simpson, effective
March 5, 2001.
.11 Loan and Security Agreement between the Company and Filed herewith.
Fleet Capital Corporation dated January 26, 2001.
29
.12 Appendix A to Security Agreement, dated January 26, Filed herewith.
2001, between the Company and Fleet Capital
Corporation.
.13 2000 Incentive Compensation Program Exhibit A to the 2000 Proxy Statement.
.20 Amended and Restated Employment Agreement between Filed herewith, Exhibit 10.20 to form 10-Q for
the Company and Linda M. Autore, effective March 1, period ended April 1, 2000.
2001.
.21 Subscription Agreement between the Company Exhibit 10.21 to form 10-Q for period ended April
and Vantage Venture Partners, LP, dated 1, 2000.
February 28, 2000.
.22 Website Development and Hosting Agreement Exhibit 10.22 to form 10-Q for period ended April
between the Company and e-Media, LLC, 1, 2000.
dated January 21, 2000.
.23 Executive Officer Bonus Program between the Filed herewith.
Company and Executive Officers of the
Company effective for the year ended December 31,
2001.
.24 Amended and Restated Employment Agreement between Filed herewith, Exhibit 10.24 to form 10-Q for
the Company and Chad A. Roffers, effective March 1, period ended September 30, 2000.
2001.
.25 Executive Subscription Agreement between the Filed herewith.
Company and Linda M. Autore dated January
11, 2001.
.26 Pledge Agreement between the Company and Linda M. Filed herewith.
Autore dated January 11, 2001.
.27 Recourse Promissory Note between the Company and Filed herewith.
Linda M. Autore dated January 11, 2001.
21. Subsidiaries
.1 Subsidiaries, identifiable pursuant to Item Exhibit 22 to Form 10-K for the fiscal year ended
601 (21) of Regulation S-K. December 28, 1991.
23. Consent of Expert
.1 Consent of PricewaterhouseCoopers LLP. Filed herewith.
(b) Reports on Form 8-K: The Company filed no Current Report on Form 8-K during
the quarter ended December 30, 2000.
30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MOORE MEDICAL CORP.
BY: /s/ Linda M. Autore BY: /s/ James R. Simpson
------------------------------------------ --------------------------------------------
Linda M. Autore, President and Chief James R. Simpson, Executive Vice
Executive Officer President and Chief Financial Officer
March 29, 2001 March 29, 2001
BY: /s/ Susan G. D'Amato
--------------------------------------------
Susan G. D'Amato, Vice President -
Finance and Chief Accounting Officer
March 29, 2001
Pursuant to the requirements of the Securities 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/ Peter C. Sutro
------------------------------------------- -------------------------------------------
Linda M. Autore, President and Chief Peter C. Sutro, Director
Executive Officer March 26, 2001
March 29, 2001
/s/ Christopher W. Brody /s/ Wilmer J. Thomas, Jr.
------------------------------------------- -------------------------------------------
Christopher W. Brody, Director Wilmer J. Thomas, Jr., Director
March 27, 2001 March 28, 2001
/s/ Steven Kotler /s/ Dan K. Wassong
------------------------------------------- -------------------------------------------
Steven Kotler, Director Dan K. Wassong, Director
March 28, 2001 March 28, 2001
/s/ Robert H. Steele
-------------------------------------------
Robert H. Steele, Director
March 28, 2001
31
SCHEDULE II
MOORE MEDICAL CORP.
VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCES FOR RETURNS AND UNCOLLECTIBLES
Balance at Additions Balance at
Beginning of Charged to End of
Period Expenses Deductions Period
---------------- ----------------- ------------------- ----------------
Allowance for Returns and Uncollectibles
Fiscal Year End December 30, 2000 $ 200 $ 89 $ (88) $ 201
Fiscal Year End January 1, 2000 $ 372 $ 16 $ (188) $ 200
Fiscal Year End January 2, 1999 $ 891 $ 112 $ (631) $ 372
32