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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10 - K
FOR ANNUAL AND TRANSITION REPORTS
Pursuant to Sections 13 or 15 (D) of the
Securities Exchange Act of 1934
[x] Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 28, 2002
or
[] Transition Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the transition period from ______ to ______
Commission file number 1-8903
MOORE MEDICAL CORP.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware 22-1897821
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
P.O. Box 1500, New Britain, Connecticut 06050
(Address of Principal Executive Offices and Zip Code)
860-826-3600
(Registrant's Telephone Number, Including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock ($.01 Par Value) American Stock Exchange
Rights to Purchase Series I Junior American Stock Exchange
Preferred Stock (Name of Each Exchange on Which Registered)
(Title of Each Class)
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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 __
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]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2). Yes__ No X
As of March 6, 2003, 3,189,784 shares (exclusive of 56,030 Treasury
Shares) of the registrant's Common Stock were outstanding. The aggregate market
value of the voting stock held by non-affiliates (i.e. other than shares held by
identified 5% holders and executive officers and directors) of the registrant as
of June 29, 2002 was approximately $13,700,000.
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DOCUMENTS INCORPORATED BY REFERENCE
The information required to be furnished pursuant to Part III of this Form 10-K
will be set forth in, and incorporated by reference from, the registrant's
definitive proxy statement for the registrant's 2003 Annual Meeting of
Stockholders to be held on May 22, 2003, which definitive proxy statement will
be filed by the registrant with the Securities and Exchange Commission not later
than 120 days from the end of the fiscal year ended December 28, 2002.
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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:
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.
.. 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 political and economic conditions nationwide.
Business Strategy Factors
.. The inability to generate adequate revenues and income from our
transformation to a multi-channel e-commerce enabled business.
.. Changes in demand for the Company's products.
.. Pressures on revenues resulting from, for example, customer consolidations
or changes in customer buying patterns.
.. Changes in the availability or salability of products manufactured by our
suppliers.
Operating Factors
.. Unforeseen web site hosting or other service disruptions, or online credit
card fraud or security breaches in the Company's web operation.
.. Failure to keep up with rapidly changing technologies or Internet
developments.
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.. The loss of the single facility that houses our internal systems would
significantly impact our continued business operations until our disaster
recovery plan is fully executed and operations return to normal.
.. 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.
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.
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MOORE MEDICAL CORP. & SUBSIDIARY
2002 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
Part I
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Item 1. Business 1
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
Part II
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Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 7
Item 6. Selected Financial Data 8
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 9
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 13
Item 8. Financial Statements and Supplementary Data 14
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 32
Item 11. Executive Compensation 32
Item 12. Security Ownership of Certain Beneficial Owners and Management 32
Item 13. Certain Relationships and Related Transactions 32
Item 14. Controls and Procedures 32
Item 15. Principal Accountant Fees and Services 32
Part IV
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Item 16. Exhibits, Financial Statement Schedules and Reports on Form 8-K 33
Signatures 36
Certifications 37
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ITEM 1. BUSINESS
GENERAL
Moore Medical Corp. (the "Company," "Moore Medical," "we" or "us") is an
Internet-enabled, integrated multi-channel marketer and distributor of medical,
surgical and pharmaceutical products to approximately 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 28 customer community affiliates. The Company markets to and
serves 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 55 years. The Company operates
principally from three distribution facilities located in the United States with
nearly 100% of its revenues from customers in the United States. The Company
exited the less profitable wholesale drug distribution business in October 1997.
The Company is a Delaware corporation, organized in 1969. Its principal
executive offices are located at 389 John Downey Drive, New Britain, Connecticut
06050, telephone (860) 826-3600.
Moore Medical's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K, and Proxy Statements for its Annual Meeting of
Stockholders are filed electronically with the Securities and Exchange
Commission ("SEC") (http://www.sec.gov). Such documents are made available on
the Company's web site (http://www.mooremedical.com) after they are
electronically filed with the SEC.
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 utilize a Corporate
Customer Council, market-specific 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 web site 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.
FISCAL 2002 DEVELOPMENTS
In fiscal 2002, the Company completed its transformation into an integrated
multi-channel marketer, which resulted in our first profitable year since fiscal
1999 and our highest net sales attainment since the Company exited the wholesale
drug distribution business in fiscal 1997. Internet based revenues continued to
grow, increasing to approximately $14.3 million in fiscal 2002 from
approximately $10.8 million in fiscal 2001.
In February 2002, as a result of more favorable interest rates on the Company's
revolving line of credit, the Company utilized approximately $4.6 million of its
revolving line of credit to pay off the government settlement note. The
government settlement note related to a settlement with the U.S. Government over
a pricing error by our former wholesale division under Federal supply contracts
entered into in 1991. The government settlement noted was to be settled over a
five year period at higher interest rates.
In July 2002, the Company completed its purchase of the remaining 49% interest
it did not previously own in Podiatry Online, an online information site and
electronic newsletter. The total purchase price of $750,000 was made with a
combination of cash and the Company's common stock.
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During the second half of fiscal 2002, the Company made a strategic decision to
increase its field sales force and increase its product portfolio through the
introduction of new offerings in several areas, including physician in-office
testing equipment. Accordingly, the Company made significant investments in the
fourth quarter in field sales representatives' training and information
technology. The Company believes that these investments will help drive
continuing improvement in revenues and profitability in fiscal 2003.
HEALTH CARE PRODUCTS DISTRIBUTION INDUSTRY/COMPETITION
Industry: Current industry statistics report that the $1.3 trillion health care
industry is the largest segment of the U.S. economy. About $40 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 Medical 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, according to current Health Industry Distributors
Association ("HIDA") 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 sales and deliveries to their customers with a dedicated sales force
and a fleet of distributor-operated delivery vehicles.
The health care product industry is highly competitive and many of the Company's
customers utilize more than one health care product distributor. 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 are able to meet the needs of our present and
prospective customers.
SALES AND MARKETING
In fiscal 2002, the Company implemented a strategy to surround specialty health
care customers with convenient means of communication and commerce and to
deliver expert service and customer care in every experience in which the
Company engages the customer. The Company enhanced and integrated five channels
by which our customers may communicate with Moore Medical. The five channels
include: direct marketing, market-specific sales representatives, field and
national account representatives, web site and affiliate partners. All of our
customer gateways work together to foster a single voice to the customer and to
be a receptive listener to the needs of specialty health care customers and
prospective customers.
Direct Marketing: From Moore Medical's inception, the cornerstone of our
customer communication is direct marketing - sending a printed catalog, flyer or
promotional offer to our customers and receiving a response via a phone call,
fax or letter to our Customer Support Center. Our customer support
representatives are trained and organized by health care specialty and product
knowledge to better serve our customers. This approach continued to be important
in fiscal 2002 and the effectiveness of our targeted mail and its response rate
improved significantly. An in-house creative department, equipped with a digital
design studio, designs and produces all Company marketing material, examples of
which include catalogs and flyers, web graphics and animations, Moore Medical
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.
Market-Specific Sales Representatives and Field and National Account
Representatives: The results produced by our direct marketing channel of
communication were augmented by the efforts of two coordinated channels:
market-specific sales representatives (who provide service, generally by phone,
to assigned customers) and field and national account representatives
(geographically located across the country), who thus far have focused primarily
on the primary care and occupational health markets. During the second half of
fiscal 2002, the Company added a field sales manager position, 12 new field
sales representatives' positions and a market manager in the Primary Care unit
alone.
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The Company expects increased sales and profitability in fiscal 2003 as a result
of additional visits to current and prospective customers and due to the
diagnostic testing product line introduced to this market. Health care specialty
field and national account representatives in the Primary Care, Occupational
Health and Corrections markets are located in Alabama, California, Connecticut,
Florida, Georgia, Illinois, Indiana, Massachusetts, North Carolina, Ohio,
Pennsylvania and Texas.
Our Web Site: Moore Medical's third generation web site, www.mooremedical.com,
raised our fourth channel of communication to a new level of performance and
ease of use. Over 14,000 customers executed transactions on our web site during
fiscal 2002, either as their preferred or only method of communication or as a
"brick and click" customer, using the Internet in conjunction with our customer
support representatives, market-specific representatives, or field and national
account representatives. 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.
Affiliate Partners: Complementing the other channels created to support our
customers' needs, affiliate partners have joined Moore Medical to offer
additional value-added services to their memberships and audiences. Moore
Medical works with our affiliates to anticipate the needs of their customer
communities and engages in an ongoing dialogue regarding their product
requirements, business challenges and industry issues. The affiliate program
exposes Moore Medical to thousands of association members who might otherwise
not connect with or learn about Moore Medical.
SUPPLY CHAIN
Our core supply chain objective is to continuously identify new processes that
improve customer satisfaction, eliminate non-value added processes and reduce
costs. During fiscal 2002, Moore Medical deployed a workflow tool. Using this
flexible, Internet-enabled workflow tool for business process automation, Moore
Medical has streamlined and automated its product drop shipment process and
automated the creation of a purchase order. Not only do customers now receive
their orders faster, but Moore Medical employees spend significantly less time
processing the orders.
During fiscal year 2002, the Company completed construction of an additional
conveyor system in our largest distribution center. This new conveyor system
allows for a greater volume of orders and improved efficiency in fulfilling
orders. The Company also selectively introduced a hand-held computer device to
several customers, providing the customers with the ability to automatically
reorder inventory.
In an effort to reduce expenses in fiscal 2002, and going forward, the Company
was able to negotiate a reduction in certain lease rates, service agreement
costs and freight costs.
In March 2001, the Company 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. In fiscal 2002,
this ability allowed our suppliers to adjust their production schedule based on
our inventory demand projections. 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.
Distribution: Moore Medical distributes products throughout the United States
and U.S. territories from three distribution centers located 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.
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 and national account representatives.
We added five people in our Visalia, California, distribution center to assist
in the acceptance of customer calls and processing of orders, giving the Company
both extended hours coverage and an additional disaster recovery backup should
the New Britain, Connecticut center operations be disrupted in any way. Order
fulfillment is completed the same day when the order is received by 4:00 p.m.
local time. Moore Medical is a national account of United Parcel Services (UPS),
our primary small package carrier. 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
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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 toward streamlining and/or eliminating steps to make the
process flow more smoothly.
Product Line/Suppliers: Moore Medical's product line consists of over 13,000 of
the most popular medical/surgical supplies and pharmaceutical products,
encompassing a broad and diversified selection. Over 8,300 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. During the last quarter
of fiscal 2002, the Company increased its instrumentation product line as a
result of a new focus on selling physician in-office testing equipment. The
Company will also sell the necessary supplies to operate the medical equipment,
and it is anticipated that the medical equipment will provide a consistent
stream of revenue for the Company.
Moore Medical purchases products primarily from manufacturers and other
distributors and does not manufacture or assemble any products, with the
exception of medical and first aid kits. The Company maintains insurance
coverage against potential losses due to product liability claims and believes
such coverage is adequate. In fiscal 2002, our largest product suppliers were
3M, Becton Dickinson, Glaxo SmithKline, Johnson & Johnson, Kendall Healthcare
Products Co., Laerdal Medical Corp, Microflex Corporation (Microflex(R) is a
registered trademark of the Microflex Corporation), Wyeth-Ayerst Labs, Graham
Medical Products and Welch Allyn. The Company has several competing sources for
many medical/surgical supplies and pharmaceuticals. Sales of products from our
largest supplier in fiscal 2002 (Microflex Corporation) accounted for
approximately 5% of net sales. In the pharmaceutical market, novel products are
licensed affecting both product acquisition costs and obtainable margins that
the Company can achieve.
We have long-term purchase arrangements (i.e., 2 years or longer) with several
of our suppliers (American Diagnostic Corp., ASO, Beckman/Colter Corporation and
Graham Medical). The Company has preferred supplier status in a number of
markets and online health care communities for particular product offerings. In
addition, the Company has exclusive product rights to distribute Levulan from
Dusa Pharmaceuticals.
In January 2003, Moore Medical obtained exclusive rights to nationally
distribute the POLESTAR SmartLab, a turnkey laboratory solution for the primary
care market. In addition, the Opus and Opus Plus System, an in-office blood
analysis device used to detect various life-threatening disorders, will be
offered exclusively by Moore Medical to the POL (physicians' office
laboratories) market in a 10-state region including Delaware, Maine, New
Hampshire, Vermont, Massachusetts, Rhode Island, Connecticut, New York, New
Jersey and Pennsylvania, and will be sold to the rest of the United States on a
nonexclusive basis. Moore Medical also obtained the right to distribute Immulite
and Immulite 1000, an in-office blood analysis device used to detect various
life-threatening disorders to physician offices, nationwide.
CUSTOMERS
The Company serves approximately 100,000 customers nationwide in health care
practices in non-hospital settings. No single customer accounted for more than
1% of net sales in fiscal 2002. Customers are the focal point of Moore Medical's
marketing, sales and supply chain strategies, and the Company strives to provide
value-added services to the health care specialties Moore Medical serves. In
order to better serve the podiatry community, for example, the Company published
a podiatry-only specialty catalog in January 2002, and in April 2002, the
founders of Podiatry Online delivered a series of business management workshops
for graduating podiatry students at podiatry schools nationwide. The Company
also maintains a number of Internet alliances to help new customers find Moore
Medical 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
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experience. We have recently expanded this concept to create individual Market
Advisory Groups for selected health care specialties.
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 distribution center 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, Moore Medical is
registered with the Food and Drug Administration (FDA) as a Drug Establishment
and as a Device Establishment.
Moore Medical is mandated by the Prescription Drug Marketing Act of 1987 and the
Controlled Substances Act to validate customers for purchases of regulated
products. The Company requires documentary evidence of our customers' regulatory
authority to purchase regulated products and Moore Medical is in material
compliance with applicable federal and state statutes, which protect against the
diversion of those products. The Company maintains extremely strict standards
designed to ensure that every transaction constitutes a legal sale prior to
shipping.
In the Company's 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 the Company's Senior Manager of
Regulatory Affairs. This individual who was a former President of the
Connecticut Pharmacists' Association 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.
INFORMATION TECHNOLOGY
Moore Medical's technology and information services continue to further the
Company's business vision and goals. Our re-investment in this infrastructure,
in fiscal 2002, resulted in many proactive automation projects that benefited
the Company. Moore Medical employs a focused Business Applications Management
(BAM) team within the Information Technology department. These resources
document the current business process, identify gaps and issues, and develop the
necessary process change and/or system modification/management. In this way,
Moore Medical ensures that investments made in current systems and processes are
retained and maximized.
In fiscal 2002, Moore Medical deployed a fully integrated customer relationship
management tool for profiling our customer base and delivering more focused
marketing and customer related services. The Company's investment in integrating
and connecting different parts of our enterprise continues to deliver results.
For example, Moore Medical deployed a workflow tool. Using this flexible,
Internet-enabled workflow tool solution for business process automation, the
Company streamlined and automated its product drop shipment process and
automated the creation of a purchase order. Not only do customers now receive
their orders faster, but Moore Medical employees spend significantly less time
processing the orders.
In February 2003, the Company's web site passed the TRUSTe's extensive
evaluation of its privacy practices. The TRUSTe Privacy Seal is a consumer
branded symbol signifying that a web site has posted a privacy statement and,
moreover, that the Company's web site information gathering and dissemination
practices address the elements of notice, choice, access, security and redress
outlined in the Federal Trade Commission's Fair Information Practices. The
TRUSTe Privacy Seal distinguishes Moore Medical as a responsible and trustworthy
company that clearly discloses how the Company's web site handles personal
information.
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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 and to learn and apply "best practice" knowledge to
their respective business areas.
As of December 28, 2002, the Company had approximately 295 full time employees
and 20 part time employees (or 305 full-time equivalents), none of whom had
collective bargaining agreements. Overall, the Company considers its employee
relations to be good.
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
(55,000 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 two buildings (44,000 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
The Company is subject to various claims that arise in the ordinary course of
business. The Company believes such claims, individually or in the aggregate,
will not have a material adverse effect on the financial position, results of
operations or cash flow 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 fourth quarter of
fiscal 2002.
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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
2001, the high and low sale prices of the common stock on the American Stock
Exchange Composite Tape.
2002 2001
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QUARTERS: HIGH LOW HIGH LOW
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First.................. $ 9.57 $ 8.40 $ 9.95 $ 5.00
Second................. 10.00 7.26 9.40 8.00
Third.................. 8.00 6.05 8.50 5.80
Fourth................. 8.72 6.45 9.00 6.25
The high and low sale prices of the common stock on March 6, 2003 were $7.34 and
$7.05, respectively. The estimated number of holders (including estimated
beneficial holders) of the Company's common stock as of March 6, 2003 was
approximately 1,000.
The Company has paid no cash dividends to date and, for the foreseeable future,
anticipates that earnings will continue to be retained for use in the business.
The Company's loan agreement contains restrictions on dividend payments.
Information about the Company's equity compensation plans at December 28, 2002
is as follows:
NUMBER OF SHARES TO
BE ISSUED UPON WEIGHTED AVERAGE NUMBER OF SHARES
EXERCISE OF EXERCISE PRICE OF REMAINING AVAILABLE FOR
OUTSTANDING OPTIONS OUTSTANDING OPTIONS FUTURE ISSUANCE
------------------- -------------------- -----------------------
Equity Compensation Plans
Approved by Shareholders (a) 252,300 $ 9.11 361,300
=================== ==================== =======================
(a) Consists of the following plans: 2000 Incentive Compensation Program, 1998
Incentive Stock Plan and 1992 Incentive Stock Option Plan.
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ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data is derived from the Company's audited
consolidated financial statements. The data should be read in conjunction with
the consolidated financial statements and notes thereto and other financial
information included elsewhere in this Form 10-K.
------------------------------------------------------------------------------------------------------------------------------------
Fiscal Years Ended 2002 2001 2000 1999 1998
------------------------------------------------------------------------------------------------------------------------------------
(Amounts in thousands, except per share data)
SUMMARY OF OPERATIONS
Net sales $ 137,827 $ 132,833 $ 123,922 $ 118,536 $ 120,846
Cost of products sold 100,393 97,518 91,841 86,221 87,590
--------------- --------------- -------------- -------------- --------------
Gross profit 37,434 35,315 32,081 32,315 33,256
Selling, general and
administrative expenses (a) 35,823 37,546 38,076 29,730 28,879
--------------- --------------- -------------- -------------- --------------
Operating income (loss) 1,611 (2,231) (5,995) 2,585 4,377
Interest expense (income), net 241 209 (228) (8) (82)
--------------- --------------- -------------- -------------- --------------
Income (loss) before income taxes 1,370 (2,440) (5,767) 2,593 4,459
Income tax provision (benefit) 392 (803) (1,357) 636 1,650
--------------- --------------- -------------- -------------- --------------
Net income (loss) $ 978 $ (1,637) $ (4,410) $ 1,957 $ 2,809
=============== =============== ============== ============== ==============
Basic net income (loss) per share $ 0.31 $ (0.52) $ (1.45) $ 0.67 $ 0.96
Diluted net income (loss) per share $ 0.31 $ (0.52) $ (1.45) $ 0.67 $ 0.95
Basic weighted average shares outstanding 3,168 3,144 3,050 2,939 2,932
Diluted weighted average shares outstanding 3,184 3,144 3,050 2,943 2,949
BALANCE SHEET DATA
Working capital $ 20,113 $ 16,011 $ 20,012 $ 18,613 $ 18,521
Total assets $ 39,995 $ 42,814 $ 46,269 $ 42,988 $ 38,481
Debt $ 4,281 $ 5,326 $ 5,938 $ -- $ --
Shareholders' equity $ 23,135 $ 22,985 $ 24,589 $ 27,555 $ 25,553
(a) Selling, general and administrative 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.
- 8 -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations for the Years Ended December 28, 2002, December 29, 2001
and December 30, 2000
Reclassifications - Certain prior year amounts have been reclassified to conform
to the current year presentation, including the reclassification of amounts due
to customers from accounts receivable to a current liability in the amount of
$1,842,000.
OVERVIEW
Moore Medical is an Internet-enabled, integrated multi-channel marketer and
distributor of medical, surgical and pharmaceutical products to approximately
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 28 customer community affiliates.
The Company markets to and serves 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 55 years. The Company operates principally from three distribution
facilities located in the United States.
The transformation of the Company in fiscal 2002 into a multi-channel marketer
resulted in our first profitable year since fiscal 1999 and our highest net
sales since the Company exited the wholesale drug distribution business in
fiscal 1997. Internet-based sales continued to show growth, and represented
approximately 10.3% of net sales for fiscal 2002 compared to approximately 8.1%
in fiscal 2001. The gross profit margin percentage increase of 0.6% in fiscal
2002 compared to fiscal 2001 is a reflection of the continued improvement in
product diversification and supply chain efficiencies, offset by increased sales
in lower margin vaccines. The Company's improved targeted marketing campaigns
and cost control initiatives have positively impacted net income.
On February 13, 2002, as a result of favorable interest rates on the Company's
revolving line of credit, the Company utilized approximately $4.6 million of its
revolving line of credit to pay off the government settlement note. The
government settlement note related to a settlement with the U.S. Government over
a pricing error by our former wholesale division under Federal supply contracts
entered into in 1991. The government settlement noted was to be settled over a
five year period at higher interest rates. The interest rate on borrowings in
fiscal 2002 on the revolving line of credit averaged 5.25% while the government
settlement note had interest rates ranging from 5.30% to 7.30% over five years.
In July 2002, the Company completed its purchase of the remaining 49% interest
it did not previously own in Podiatry Online, an on line information site and
electronic newsletter. The total purchase price of $750,000 was made with cash
in the amount of $500,000 and 33,566 shares of the Company's common stock with
an aggregate value of $250,000.
MATERIAL CHANGES IN RESULTS OF OPERATIONS
The following table represents selected financial information, expressed as a
percentage of net sales:
2002 2001 2000
--------- ---------- ---------
Net sales 100% 100% 100%
Cost of products sold 72.8 73.4 74.1
--------- ---------- ---------
Gross profit 27.2 26.6 25.9
Sales and marketing expenses 7.9 9.0 9.1
General and administrative expenses 18.1 19.3 21.6
--------- ---------- ---------
Operating income (loss) 1.2% (1.7)% (4.8)%
========= ========== =========
2002 COMPARED WITH 2001
Net sales for fiscal 2002 were $137.8 million, an increase of $5.0 million or
3.8% from net sales of $132.8 million for the comparable period of fiscal 2001.
The increase was equally attributable to increases in prices and in sales
volume.
- 9 -
The development and implementation of more effective targeted marketing
campaigns contributed to the volume increase. The Company's sales growth
occurred primarily in its public sector and podiatry markets. The overall net
sales growth was supported by the Company's Internet-based revenue as more
customers took advantage of the Company's enhanced web-based channel.
Internet-based revenue increased $3.5 million, or 32.4%, to $14.3 million in
fiscal 2002 compared to $10.8 million for the same period a year ago.
Gross profit increased $2.1 million, or 5.9%, to $37.4 million for fiscal 2002
compared to $35.3 million for the same period a year ago. The gross profit
margin percentage increased to 27.2% in fiscal 2002 from 26.6% in fiscal 2001.
The increase is primarily attributable to increased sales volume in higher
margin products and continued realization of benefits from our supply chain
initiatives, offset by increased sales in lower margin vaccines.
Sales and marketing expenses decreased by $1.1 million, or 9.2%, to $10.8
million in fiscal 2002 from $11.9 million in fiscal 2001. Sales and marketing
expenses as a percentage of net sales decreased to 7.9% in fiscal 2002 from 9.0%
in fiscal 2001. The decreases are due to continued efforts to establish and
implement more effective targeted marketing campaigns and growth in vendor
cooperative advertising programs. The Company recorded approximately $0.4
million more in revenue from vendor cooperative advertising programs in fiscal
2002 than in fiscal 2001. During the second half of fiscal 2002, the Company
made a strategic decision to increase its field sales force by adding
experienced capital equipment representatives for the Primary Care Market. As a
result of the additional field sales force hired to support the new strategy of
selling physician in-office testing equipment, the Company made significant
investments in the fourth quarter in field sales representatives' training. The
Company expects that this investment in fiscal 2002 will provide increased
revenues and profitability in fiscal 2003.
General and administrative expenses decreased by $0.6 million, or 2.3%, to $25.0
million in fiscal 2002 from $25.6 million in fiscal 2001. As a percentage of net
sales, general and administrative expenses decreased to 18.1% in fiscal 2002
compared to 19.3% in the same period a year ago. The decreases are due to the
continued realization of benefits from cost containment initiatives. The Company
believes its existing cost structure continues to be adequate to support future
growth.
Interest expense for fiscal 2002 increased to $241 thousand from $209 thousand
for the same period a year ago, an increase of 15.3%. The Company recorded
$56,000 of interest expense attributable to recording the fair value of the
premium payment on the Company's interest rate cap agreement. Notwithstanding
the $56,000 expense recorded on the Company's interest rate cap agreement,
interest expense decreased primarily due to lower interest rates in fiscal 2002
on the Company's borrowing under its revolving line of credit compared to higher
interest rates in fiscal 2001 on the government settlement note.
The effective income tax rate was 28.6% for fiscal 2002 compared to the prior
fiscal year's effective income tax benefit rate of 32.9%. The difference between
the Company's effective tax rate and the federal statutory rate is due primarily
to state income taxes, a reduction in valuation allowances on state net
operating loss carryforwards and adjustments to estimates on previously recorded
income taxes.
Net income was $1.0 million, or $0.31 per diluted share for fiscal 2002, an
improvement of $2.6 million or $0.83 per diluted share over fiscal 2001,
compared to a net loss of ($1.6) million or ($0.52) per diluted share in fiscal
2001.
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 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 realized in 2001 demonstrated 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 net sales.
Gross profit in fiscal 2001 increased by 10.3% to $35.3 million compared to
$32.0 million in the prior year. The gross profit margin percentage increased to
26.6% in fiscal 2001 from 25.9% in fiscal 2000. The increased gross profit
margin is attributable to both product and market mix combined with continued
improvements in our supply chain operation.
Sales and marketing expenses increased by $0.6 million, or 5.3%, to $11.9
million in fiscal 2001 from $11.3 million in fiscal 2000. Sales and marketing as
a percentage of net sales decreased to 9.0% in fiscal 2001 from 9.1% in fiscal
2000.
- 10 -
General and administrative (G&A) expenses decreased $1.2 million to $25.6
million compared to $26.8 million for the prior year. 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, G&A expenses decreased to 19.3% in fiscal 2001 from
21.6% in fiscal 2000. Excluding the government settlement (see note 6) one-time
charge in fiscal 2000, G&A expenditures in fiscal 2001 increased by $1.3
million, or 5.3%, 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
diluted share in comparison with a net loss of ($4.4) million or ($1.45) per
diluted share including one-time charge ($2.5) million or ($0.79) per diluted
share in 2000.
LIQUIDITY AND CAPITAL RESOURCES
On January 26, 2001, the Company entered into a three-year bank financing
agreement which provides up to $15 million in a collateralized revolving credit
facility. Management believes the credit facility provides the Company with the
latitude it needs to implement strategic initiatives as they arise. During the
first quarter of 2002, the Company utilized its collateralized revolving credit
facility to pay off the government settlement note in full to take advantage of
the low interest rate environment. The Company's cash and cash equivalents at
December 28, 2002 totaled $0.1 million in the form of a certificate of deposit.
With the exception of the $0.1 million certificate of deposit, all amounts of
cash and cash equivalents are required to be offset against outstanding
borrowings on the collateralized revolving credit facility. As of December 28,
2002, the Company had $4.3 million outstanding on its collateralized revolving
credit facility.
Net cash used in operating activities was $0.5 million for fiscal 2002 and
resulted primarily from net income of $1.0 million and the combination of
non-cash charges of $4.2 million and an increase in operating items of working
capital of $5.7 million. Non-cash charges, consisting primarily of depreciation
expense of $3.1 million and bad debt expense of $0.7 million, were offset by a
net increase in cash used in operating items of working capital. The increase in
working capital needs was primarily due to a $5.2 million decrease in accounts
payable and accrued liabilities, a $1.0 million increase in accounts receivable,
a $0.4 million increase in inventory and a decrease in other assets of $0.9
million. The decrease in accounts payable and accrued liabilities was due to the
Company taking price discounts offered by vendors, because of a favorable
interest rate on borrowings under the Company's revolving credit facility. The
Company increased inventory levels (primarily physician in-office testing
equipment) in the fourth quarter of 2002 in anticipation of increased sales in
fiscal 2003. The sales growth during fiscal 2002 contributed to the increase in
accounts receivable. The decrease in other assets was primarily due to receiving
a $1.2 million tax refund on a net operating loss carry-back claim from the Job
Creation and Worker's Assistance Act of 2002.
Net cash used in investing activities was $1.1 million in fiscal 2002 and
consisted principally of computer equipment and software purchases of
approximately $1.0 million. The Company expects to invest approximately $2.0
million during fiscal 2003 in capital projects on computer infrastructure
systems and operating efficiency initiatives which will produce future benefits
to the Company.
Net cash provided by financing activities of $0.9 million for fiscal 2002 is net
of the payment of the government settlement note, incremental borrowings on the
Company's revolving credit facility and a cash overdraft. Outstanding
indebtedness was $1.0 million less at December 28, 2002 compared to December 29,
2001.
- 11 -
CASH REQUIREMENTS
The Company believes that cash flows from operations and available cash and cash
equivalents are adequate to fund the Company's operations for the foreseeable
future.
The following table quantifies the Company's future contractual cash obligations
as of December 28, 2002 (in millions):
PAYMENTS DUE IN FISCAL
----------------------------------------------------------------------------------------------------------------------------------
2003 2004 2005 2006 2007 Thereafter Total
----------------------------------------------------------------------------------------------------------------------------------
Long-term debt $ - $ 4.3 $ - $ - $ - $ - $ 4.3
Operating leases 1.4 1.2 0.4 0.3 0.2 1.2 4.7
-------- --------- -------- -------- -------- -------- ----------
$ 1.4 $ 5.5 $ 0.4 $ 0.3 $ 0.2 $ 1.2 $ 9.0
======== ========= ======== ======== ======== ======== ==========
CRITICAL ACCOUNTING POLICIES
The Company's consolidated financial statements are based on the application of
significant accounting policies, which require management to make significant
estimates and assumptions. The Company believes the following are some of the
more critical accounting policies that impact the Company's financial
statements:
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. 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.
Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
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. The more significant estimates
and assumptions used by management in the preparation of the financial
statements relate to the reserves established for uncollectible accounts
receivable, obsolete and slow moving inventory and certain accrued liabilities.
Inventories - Inventories, consisting of products purchased for resale, are
stated at the lower of average cost or market value. Market values are based on
the net realizable value of the products.
Intangible Assets - Intangible assets consist of goodwill and are included in
other assets, net of amortization. As a result of adopting SFAS No. 142,
"Goodwill and Other Intangible Assets," goodwill is no longer amortized, but is
evaluated for impairment and written down, if appropriate (see Note 3), and
intangible assets with estimated useful lives continue to be amortized.
Revenue Recognition - Sales are recorded upon shipment of products to customers.
Revenue from freight charged to customers is recognized when products are
shipped. Provisions for customer returns and allowances are recorded in the
period the related sales are recorded.
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. Advertising expenses
reimbursed under cooperative advertising programs from vendors are deferred and
recognized over the period the cost of catalog advertising is expensed.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." The standard changes the accounting for goodwill and
intangible assets with an indefinite life whereby such assets are no longer
amortized; however, the standard does require evaluation for impairment and a
corresponding writedown, if
- 12 -
appropriate. SFAS No. 142 requires an initial evaluation upon adoption. Such
evaluation was performed as of January 2002, resulting in no impairment in the
value of Company's goodwill or intangible assets. A similar evaluation was
performed in January 2003, which also resulted in no impairment.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." The statement, effective for fiscal years beginning after June 15,
2002, requires companies to record a liability for asset retirement obligations
in the period in which they are incurred, which typically could be upon
completion of construction or shortly thereafter. The Company does not believe
that the adoption of this standard will have a material impact on its
consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." The statement is effective for fiscal years
beginning after December 15, 2001. SFAS No. 144 changes the criteria for
classifying an asset as held-for-sale. The Company does not believe that the
adoption of this standard will have a material impact on its consolidated
financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statement No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
The statement is effective for fiscal years beginning after May 15, 2002. SFAS
No. 145 rescinds certain guidance for reporting extinguishments of debt and
provides guidance to determine if the transactions are part of recurring
operations or if they meet the criteria for classification as an extraordinary
item. Additionally, SFAS No. 145 requires that certain lease modifications be
accounted for in the same manner as sales-leaseback transactions. The Company
does not believe that the adoption of this standard will have a material impact
on its consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 nullifies Emerging Issues Task
Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)." The Company does not believe that the adoption of this
standard will have a material impact on its consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123." SFAS No. 148 requires quarterly disclosure of pro forma stock compensation
information. The Company does not believe that the adoption of this standard
will have a material impact on its consolidated financial statements.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
As described in the notes to the financial statements included in this Form
10-K, the Company maintains a collateralized bank financing agreement, which
provides up to a $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 February 2002, the Company purchased a 30-month
interest rate cap in the notional amount of $3.0 million with a cap rate of 4.0%
to hedge against an increase in interest rates. At December 28, 2002, the fair
value of the Interest Rate Cap was $0. The Company does not expect changes in
interest rates to have a material effect on income or cash flows in fiscal 2003,
although there can be no assurances that interest rates will not significantly
change.
- 13 -
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants 15
Consolidated Balance Sheets at December 28, 2002 and December 29,
2001 16
Consolidated Statements of Operations for the years ended December 28, 2002,
December 29, 2001 and December 30, 2000 17
Consolidated Statements of Shareholders' Equity for the years ended December 28,
2002, December 29, 2001 and December 30, 2000 18
Consolidated Statements of Cash Flows for the years ended December 28, 2002,
December 29, 2001 and December 30, 2000 19
Notes to Consolidated Financial Statements 20
Consolidated Financial Statement Schedule II - Valuation and Qualifying Accounts
for the years ended December 28, 2002, December 29, 2001 and December 30,
2000 39
- 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 present fairly, in all material respects, the consolidated financial
position of Moore Medical Corp. and its subsidiary at December 28, 2002 and
December 29, 2001, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 28, 2002, 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 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
March 27, 2003
- 15 -
MOORE MEDICAL CORP. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
-------------------------------------------------------------------------------------------------
DECEMBER 28, DECEMBER 29,
(Amounts in thousands, except par value) 2002 2001
-------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents ............................. $ 100 $ 835
Accounts receivable, less allowances
of $1,249 in 2002 and $1,146 in 2001 ................. 17,187 16,964
Inventories ........................................... 11,230 10,829
Prepaid expenses and other current assets ............. 1,216 1,875
Deferred income taxes ................................. 1,871 1,367
--------------- ---------------
Total Current Assets .............................. 31,604 31,870
--------------- ---------------
Noncurrent Assets
Property, Plant and Equipment, net .................... 6,254 8,271
Other assets .......................................... 2,137 2,673
--------------- ---------------
Total Noncurrent Assets ........................... 8,391 10,944
--------------- ---------------
$ 39,995 $ 42,814
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable ...................................... $ 5,794 $ 10,788
Amounts due to customers .............................. 2,342 1,842
Accrued payroll ....................................... 642 612
Accrued pension ....................................... 599 -
Accrued expenses ...................................... 482 1,261
Cash overdraft ........................................ 1,632 -
Current Portion Long-Term Debt ........................ - 1,356
--------------- ---------------
Total Current Liabilities ............................. 11,491 15,859
--------------- ---------------
Deferred Income Taxes ...................................... 855 -
Accrued Pension ............................................ 233 -
Long-Term Debt ............................................. 4,281 3,970
Commitments and Contingencies (See Note 11)
Shareholders' Equity
Preferred stock, Class C, no shares outstanding .... - -
Common stock-$.01 par value;
Share authorized - 10,000 in 2002 and 2001
Shares issued - 3,246 in 2002 and 2001
Shares outstanding 3,190 in 2002
and 3,154 in 2001 ................................. 32 32
Additional paid-in capital............................. 21,513 21,548
Note receivable ....................................... (316) (298)
Accumulated other comprehensive loss .................. (1,095) -
Retained earnings ..................................... 3,501 2,523
--------------- ---------------
23,635 23,805
Less treasury shares, at cost, 56 in 2002 and 92
in 2001 .............................................. (500) (820)
--------------- ---------------
Total Shareholders' Equity ........................ 23,135 22,985
--------------- ---------------
$ 39,995 $ 42,814
=============== ===============
The accompanying notes are an integral part of the consolidated financial
statements.
- 16 -
MOORE MEDICAL CORP. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED
---------------------------------------------------------------------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 30,
(Amounts in thousands, except per share data) 2002 2001 2000
---------------------------------------------------------------------------------------------------------
Net sales ........................................ $ 137,827 $ 132,833 $ 123,922
Cost of products sold ............................ 100,393 97,518 91,841
--------------- --------------- ---------------
Gross profit ..................................... 37,434 35,315 32,081
Sales and marketing expenses ..................... 10,814 11,908 11,278
General and administrative expenses .............. 25,009 25,638 26,798
--------------- --------------- ---------------
Operating income (loss) .......................... 1,611 (2,231) (5,995)
Interest expense (income), net ................... 241 209 (228)
--------------- --------------- ---------------
Income (loss) before income taxes ................ 1,370 (2,440) (5,767)
Income tax provision (benefit) ................... 392 (803) (1,357)
--------------- --------------- ---------------
Net income (loss) ................................ $ 978 $ (1,637) $ (4,410)
=============== =============== ===============
Basic net income (loss) per share ................ $ 0.31 $ (0.52) $ (1.45)
=============== =============== ===============
Diluted net income (loss) per share .............. $ 0.31 $ (0.52) $ (1.45)
=============== =============== ===============
Weighted average number common shares outstanding:
Basic ............................................ 3,168 3,144 3,050
=============== =============== ===============
Diluted .......................................... 3,184 3,144 3,050
=============== =============== ===============
The accompanying notes are an integral part of the consolidated financial
statements.
- 17 -
MOORE MEDICAL CORP. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 28, 2002, DECEMBER 29, 2001 AND DECEMBER 30, 2000
(Amounts in thousands) Common Stock Treasury Stock Additional
------------------- ------------------- Paid-In
Shares Amounts Shares Amounts Capital
------------------------------------------------------------------------------------------
Balance at January 2, 2000 3,246 $ 33 (305) $ (2,707) $ 21,675
Net loss - - - - -
Stock options/compensation - (1) 160 1,420 25
------- -------- ------ -------- ---------
Ending balance
December 30, 2000 3,246 32 (145) (1,287) 21,700
Net loss - - - - -
Stock options/compensation - - 53 467 (152)
Issuance of note receivable - - - - -
Interest on note receivable - - - - -
------- -------- ------ -------- ---------
Ending balance December
29, 2001 3,246 32 (92) (820) 21,548
Net Income - - - - -
Issuance (repurchase)
of stock - - 36 320 (53)
Interest on note receivable - - - - 18
Minimum pension liability,
net of $650 income tax
benefit - - - - -
------- -------- ------ -------- ---------
Ending balance December
28, 2002 3,246 $ 32 56 $ (500) $ 21,513
======= ======== ====== ======== =========
Accumulated
Other Total
Note Comprehensive Retained Shareholders' Comprehensive
(Amounts in thousands) Receivable Loss Earnings Equity Income (Loss)
-----------------------------------------------------------------------------------------------------------
Balance at January 2, 2000 $ - $ - $ 8,554 $ 27,555
Net loss - - (4,410) (4,410) $ (4,410)
Stock options/compensation - - - 1,444
---------- ------------- -------- ------------- -------------
Ending balance
December 30, 2000 - - 4,144 24,589 $ (4,410)
=============
Net loss - - (1,637) (1,637) $ (1,637)
Stock options/compensation - - 16 331
Issuance of note receivable (281) - - (281)
Interest on note receivable (17) - - (17)
---------- ------------- -------- ------------- -------------
Ending balance December
29, 2001 (298) - 2,523 22,985 $ (1,637)
=============
Net Income - - 978 978 $ 978
Issuance (repurchase)
of stock - - - 267
Interest on note receivable (18) - - -
Minimum pension liability,
net of $650 income tax
benefit - (1,095) - (1,095) (1,095)
---------- ------------- -------- ------------- -------------
Ending balance December
28, 2002 $ (316) $ (1,095) $ 3,501 $ 23,135 $ (117)
========== ============= ======== ============= =============
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
YEARS ENDED
--------------------------------------------------------------------------------------------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 30,
(Amounts in thousands) 2002 2001 2000
--------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) ...................................................... $ 978 $ (1,637) $ (4,410)
Adjustments to reconcile net income (loss) to net cash flows
provided by (used in) operating activities:
Depreciation and amortization .................................. 3,080 3,005 2,641
Provision for bad debt ......................................... 740 367 89
Deferred income taxes .......................................... 406 (798) (1,268)
Other .......................................................... 55 - 30
Changes in operating assets and liabilities
Accounts receivable ....................................... (963) (3,726) (1,120)
Inventories ............................................... (401) (1,275) 4,688
Other assets .............................................. 880 563 (300)
Accounts payable .......................................... (4,994) 966 2,508
Other liabilities ......................................... (251) 182 (1,488)
--------------- --------------- ---------------
Net cash flows (used in) provided by operating activities .............. (470) (2,353) 1,370
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES
Property, plant and equipment acquired ................................. (1,118) (1,468) (1,599)
Acquisition of business ................................................ - - (1,934)
--------------- --------------- ---------------
Net cash flows used in investing activities ............................ (1,118) (1,468) (3,533)
--------------- --------------- ---------------
Cash Flows From Financing Activities
Net borrowings on revolving line of credit ............................. 4,281 - -
Sale of treasury stock ................................................. 16 35 1,444
Cash overdraft ......................................................... 1,632 - -
(Repayments) proceeds of long-term debt ................................ (5,076) (612) 5,208
--------------- --------------- ---------------
Net cash flows provided by (used in)
financing activities ................................................... 853 (577) 6,652
--------------- --------------- ---------------
(Decrease) increase in cash ............................................ (735) (4,398) 4,489
Cash at the beginning of year .......................................... 835 5,233 744
--------------- --------------- ---------------
Cash At End Of Year .................................................... $ 100 $ 835 $ 5,233
=============== =============== ===============
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
General - Moore Medical is an Internet-enabled, integrated multi-channel
marketer and distributor of medical, surgical and pharmaceutical products to
approximately 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 28 customer community
affiliates. The Company markets to and serves 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 55 years. The Company operates principally from three distribution
facilities located in the United States.
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its subsidiaries 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.
Fiscal Year - The Company's fiscal year ends on the Saturday closest to December
31. The fiscal years ended December 28, 2002, December 29, 2001 and December 30,
2000 were comprised of 52 weeks in 2002, 2001 and 2000.
Cash and Cash Equivalents - Represents a certificate of deposit with a bank,
scheduled to mature in fiscal 2003.
Inventories - Inventories, consisting of products purchased for resale, are
stated at the lower of average cost or market value. Market values are based on
the net realizable value.
Property, Plant and Equipment - Property, plant and equipment is recorded at
cost. Depreciation 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 3-5 years
Leasehold improvements Shorter of asset life or lease term
The Company capitalizes software costs to purchase and develop software in
accordance with the American Institute of Certified Public Accountants ("AICPA")
Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). Costs incurred in
the application-development stage for software purchased and further customized
by outside consultants for the Company's use have been capitalized. Payroll and
payroll related costs incurred by the company's personnel in the
application-development stage are also capitalized. In addition, upgrades and
enhancements that result in additional functionality are capitalized by the
Company in accordance with SOP 98-1. 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.
- 20 -
Intangible Assets - Intangible assets consist of goodwill and are included in
other assets, net of amortization. As a result of adopting SFAS No. 142,
"Goodwill and Other Intangible Assets," goodwill is no longer amortized, but is
evaluated for impairment and written down, if appropriate (see Note 3).
Intangible assets with estimated useful lives continue to be amortized.
Revenue Recognition - Sales are recorded upon shipment of products to customers.
Revenue from freight charged to customers is recognized when products are
shipped. Provisions for customer returns and allowances are recorded in the
period the related sales are recorded.
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. Advertising expenses
reimbursed under cooperative advertising programs from vendors are deferred and
recognized in the period the cost of catalog advertising is expensed. At
December 28, 2002 and December 29, 2001, approximately $391,000 and $283,000,
respectively, of direct response advertising costs were deferred and included in
other noncurrent assets. Direct response advertising costs totaled approximately
$2,561,000, $4,579,000 and $4,209,000, net of co-operative advertising
reimbursement from vendors of approximately $872,000, $460,000, and $318,000 in
fiscal years 2002, 2001 and 2000 respectively.
Freight - The Company records freight costs in accordance with Emerging Issues
Task Force ("EITF") No. 00-10, "Accounting for Shipping and Handling Fees and
Costs" ("EITF 00-10"). Amounts billed to customers upon shipment of product are
recorded as revenue. Freight costs billed and not billed to customers are
recorded in cost of products sold.
Employee Benefit Plan - The Company accounts for its defined benefit plan in
accordance with SFAS No. 87, "Employers' Accounting for Pensions" and reports in
accordance with SFAS No. 132," Employers' Disclosure about Pensions and other
Post-retirement Benefits."
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.
Derivative Instruments and Hedging Activities - The Company records derivatives
on the balance sheet as assets or liabilities, measured at fair value. Gains or
losses resulting from changes in the values of those derivatives are reported in
the statement of operations or as accumulated other comprehensive income (loss),
a separate component of shareholders' equity, depending on the use of the
derivatives and whether they qualify for hedge accounting. In order to qualify
for hedge accounting, the derivative must be highly effective in achieving
offsetting changes in fair value or cash flows of the hedged items during the
term of the hedge.
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.
Business Combinations - In accordance with SFAS No. 141, "Business
Combinations," the Company records all business combinations under the purchase
method of accounting.
Stock Based Compensation - The Company records stock option awards in accordance
with the provisions of Accounting Principles Board Opinion 25, "Accounting for
Stock Issued to Employees." The Company estimates the fair value of stock option
awards in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation," and discloses the resulting estimated compensation effect on net
income on a pro forma basis.
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. The more significant estimates and assumptions used by management
in the preparation of the financial statements relate to the reserves
established for uncollectible accounts receivable, obsolete and slow moving
inventory and certain accrued liabilities.
- 21 -
Reclassifications - Certain prior year amounts have been reclassified to conform
to the current year presentation, including the reclassification of amounts due
to customers from accounts receivable to a current liability in the amount of
$1,842,000.
NOTE 2 - BUSINESS COMBINATION
In July 2002, the Company completed its purchase of the remaining 49% interest
it did not previously own in Podiatry Online, an on line information site and
electronic newsletter. The purchase of Podiatry Online created a sales channel
to serve podiatrists nationwide. The total purchase price of $750,000 was made
with cash in the amount of $500,000 and 33,566 shares of the Company's common
stock, with aggregate value of $250,000. The acquisition was recorded as a
purchase transaction, with $750,000 recorded as goodwill.
NOTE 3 - GOODWILL AND INTANGIBLE ASSETS
Effective January 1, 2002, the Company adopted Statement of Financial Accounting
Standard No. 142, ("SFAS No. 142") "Goodwill and Other Intangible Assets." The
standard changes the accounting for goodwill and intangible assets whereby such
assets are no longer amortized; however, the standard does require evaluation
for impairment and a corresponding writedown, if appropriate. Intangible assets
with estimated useful lives continue to be amortized. SFAS No. 142 requires an
initial evaluation of goodwill impairment upon adoption. The initial evaluation
was performed as of January 1, 2002 resulting in no impairment in the value of
the Company's goodwill. An annual evaluation is performed to test for goodwill
impairment by applying a fair value based test. The Company recorded no
impairment losses in fiscal 2002.
Included in other noncurrent assets are goodwill balances of $1.7 million and
$1.0 million at December 28, 2002 and December 29, 2001, respectively, which
represent the excess of the purchase price paid over the fair value of the net
assets acquired in the acquisitions of Podiatry Online and MERGInet Medical
Resources.
The following table shows the changes in carrying value of goodwill:
-----------------------------------------------------------------------
Amounts in thousands 2002 2001
-----------------------------------------------------------------------
Carrying value, beginning of period $ 974 $ 1,112
Amortization of goodwill - (138)
Acquisition of Podiatry Online 750 -
-------- ---------
Carrying value, end of period $ 1,724 $ 974
======== =========
Comparative information as if goodwill had not been amortized follows:
Years Ended
------------------------------------------------
(in thousands, except per share December 28, December 29, December 30,
information) 2002 2001 2000
------------- ------------ ------------
Reported net income (loss) $ 978 $ (1,637) $ (4,410)
Goodwill amortization, net of tax - 92 56
------------- ------------ ------------
Adjusted net income (loss) $ 978 $ (1,545) $ (4,354)
============= ============ ============
Basic and diluted earnings per share:
Reported basic and diluted earnings
(loss) per share $ 0.31 $ (0.52) $ (1.45)
Goodwill amortization - 0.03 0.02
------------- ------------ ------------
Adjusted basic and diluted earnings
(loss) per share $ 0.31 $ (0.49) $ (1.43)
============= ============ ============
As described in Note 7, the Company recorded an intangible pension asset at
December 28, 2002 of $23,000 as a result of the accumulated benefit obligation
exceeding plan assets.
- 22 -
NOTE 4 - EARNINGS PER SHARE
Earnings per share ("EPS") amounts are calculated in accordance with SFAS No.
128, "Earnings Per Share." Basic EPS is based on the weighted average number of
common shares outstanding for the period, excluding any dilutive common share
equivalents. Diluted EPS reflects the potential dilution that could occur if
securities to issue common stock were exercised.
A reconciliation of shares used in calculating basic and diluted EPS follows (in
thousands):
Years Ended
-----------------------------------------------------
December 28, December 29, December 30,
2002 2001 2000
------------ ------------ ------------
Basic EPS 3,168 3,144 3,050
Effect of assumed conversion of employee
stock options 16 - -
------------ ------------ ------------
Diluted EPS 3,184 3,144 3,050
============ ============ ============
Employee stock options to purchase approximately 175,000, 265,000 and 260,000
shares of common stock were outstanding during fiscal 2002, 2001 and 2000, and
could potentially dilute basic EPS in the future but were excluded from the
computation of diluted earnings per share due to being anti-dilutive.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment and accumulated depreciation are summarized as
follows:
Amounts in thousands 2002 2001
-----------------------------------------------------------------------
Equipment $ 3,839 $ 4,285
Furniture & fixtures 877 1,290
Computer equipment and software 14,378 16,690
Leasehold improvements 3,038 3,231
----------- ----------
22,132 25,496
Less: accumulated depreciation (15,878) (17,225)
----------- ----------
$ 6,254 $ 8,271
=========== ==========
Depreciation expense on property, plant and equipment was $3,080,000, $2,867,000
and $2,568,000 in fiscal 2002, 2001 and 2000, respectively.
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of the following:
Amounts in thousands 2002 2001
-----------------------------------------------------------------------
Revolving line of credit $ 4,281 $ -
Government settlement note - 4,605
Podiatry Online note - 721
----------- ----------
4,281 5,326
Less current portion - (1,356)
----------- ----------
$ 4,281 $ 3,970
=========== ==========
On January 26, 2001, the Company entered into a collateralized bank financing
agreement, which provides up to a $15 million revolving line of credit due on
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. The weighted average interest rate on the
collateralized credit facility was 5.25% for fiscal 2002. The Company pays a
commitment fee ranging from 0.25% to 0.35% per annum on the unused line of
credit. With the exception of the $0.1 million certificate of deposit, all
amounts of cash and cash equivalents are required to be offset against
outstanding borrowings on the collateralized revolving credit facility.
- 23 -
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, the Company will be subject to financial covenants
involving consolidated tangible net worth, minimum earnings requirements and a
leverage ratio calculation. These covenant targets fluctuate over the course of
the term of the collateralized bank financing agreement.
At December 28, 2002, the Company was in violation of the consolidated tangible
net worth and earnings before interest and taxes ("EBIT") financial covenants
contained in its revolving line of credit agreement for the fourth quarter of
fiscal 2002. On March 27, 2003, the Company and its lender amended certain
financial covenants and conditions of the revolving line of credit agreement
effective for the period ending December 28, 2002, including the consolidated
tangible net worth and EBIT financial covenants. As of December 28, 2002, the
Company was in compliance with the financial covenants, as amended.
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. On February 13, 2002,
the Company utilized approximately $4.6 million of its revolving line of credit
to pay off the government settlement note.
On February 15, 2002, the Company purchased a 30-month interest rate cap in the
notional amount of $3.0 million with a cap rate of 4.0% to hedge against an
increase in interest rates. The Company paid a $56,000 premium to enter into the
cap. The premium payment was recorded as an asset in accordance with SFAS No.
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. The fair value of the interest rate
cap at December 28, 2002 was $0, with the change in fair value recorded in
interest expense.
The weighted average interest rate on all borrowings was 5.3% and 6.4% for
fiscal 2002 and 2001, respectively. Cash payments for interest totaled $265,000,
$206,000 and $1,000 in fiscal 2002, 2001 and 2000 respectively.
Note 7 - 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).
- 24 -
Pension disclosure requirements of Financial Accounting Standard No. 132:
AMOUNTS IN THOUSANDS 2002 2001
-------------------------------------------------------------------------------
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 4,471 $ 3,977
Service cost 350 358
Interest cost 360 345
Actuarial gain 1,050 593
Benefits paid (814) (802)
---------- ----------
Benefit obligation at end of year $ 5,417 $ 4,471
========== ==========
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $ 4,184 $ 4,825
Actual return on plan assets (265) (125)
Employer contribution 521 286
Benefits paid (814) (802)
---------- ----------
Fair value of plan assets at end of year $ 3,626 $ 4,184
========== ==========
Funded Status $ (1,791) $ (289)
Unrecognized net actuarial loss 2,703 1,139
Unrecognized prior service cost 23 27
---------- ----------
Net amount recognized $ 935 $ 877
========== ==========
AMOUNTS RECOGNIZED IN THE BALANCE SHEET CONSIST OF:
Prepaid pension $ - $ 877
Accrued pension liability (832) -
Intangible asset 23 -
Accumulated other comprehensive loss 1,744 -
---------- ----------
$ 935 $ 877
========== ==========
WEIGHTED-AVERAGE ASSUMPTIONS AS OF PERIOD
ENDING
Discount Rate 6.75% 7.25%
Expected return on plan assets 9.00% 9.00%
Rate of compensation increases 4.00% 4.00%
AMOUNTS IN THOUSANDS 2002 2001 2000
-------------------------------------------------------------------------------
COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost $ 350 $ 358 $ 342
Interest cost 360 345 279
Expected return on plan assets (395) (433) (470)
Amortization prior service cost 5 5 5
Amortization transition cost - - 12
Recognized net actuarial loss 144 - -
---------- ---------- ----------
Net periodic benefit cost $ 464 $ 275 $ 168
========== ========== ==========
- 25 -
Provisions of SFAS No. 87, "Employers' Accounting for Pensions", require the
recognition of an additional liability and related intangible asset if the
accumulated benefit obligation exceeds plan assets. At December 28, 2002,
$832,000 was recorded as a liability with a related intangible asset of $23,000.
The additional liability exceeded the unrecognized prior service cost resulting
in a reduction in equity of $1.1 million, net of $0.6 million of income taxes.
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. The plan allows for
the Company to reduce its expense to the plan with amounts forfeited by
non-vested terminated employees. The Company's expense in connection with this
plan for fiscal years 2002, 2001 and 2000 amounted to $30,000, $139,000 and
$288,000, respectively.
Note 8 - Income Taxes
The income tax provision (benefit) consists of the following:
Amounts in thousands 2002 2001 2000
--------------------------------------------------------------------------------
Current
Federal $ (50) $ - $ (94)
State 36 20 5
---------- ---------- ----------
Total current (14) 20 (89)
---------- ---------- ----------
Deferred
Federal 561 (817) (1,200)
State (155) (6) (68)
---------- ---------- ----------
Total deferred 406 (823) (1,268)
---------- ---------- ----------
Total provision (benefit) $ 392 $ (803) $ (1,357)
========== ========== ==========
A reconciliation of the statutory federal income tax rate to the effective
income tax rate as a percentage of pretax income is as follows:
2002 2001 2000
--------------------------------------------------------------------------------
Statutory federal income tax rate 34.0% 34.0% 34.0%
State income taxes, net of federal tax benefit (5.4) 1.9 2.6
Valuation allowance (4.2) (2.2) (1.5)
Enacted tax law changes 1.6 - -
Goodwill 1.0 - -
Unconsolidated subsidiary 2.1 - -
Government settlement - - (12.5)
Other - net (0.5) (0.8) 0.9
------- ------ -------
Effective income tax rate 28.6% 32.9% 23.5%
======= ====== =======
The effective income tax rates of 28.6% and 32.9% in fiscal 2002 and 2001,
respectively, were lower than the Federal statutory rate due primarily to a
reduction in the valuation allowance on the state net operating losses. 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 6).
- 26 -
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 2002 2001
----------------------------------------------------------------------------------
Allowance for doubtful accounts $ 455 $ 398
Inventories 532 584
Accrued expenses 38 210
Federal and State NOLs and State tax credits 1,329 3,472
Accrued Pension 306 --
Other 91 96
---------- ----------
Deferred Tax Assets 2,751 4,760
---------- ----------
Accumulated depreciation (1,441) (1,986)
Prepaid pension expense -- (342)
Other -- (156)
Deferred advertising (144) (106)
---------- ----------
Deferred Tax Liabilities (1,585) (2,590)
---------- ----------
Net deferred tax asset before
valuation allowance 1,166 2,170
Valuation allowance on State NOLs (150) (206)
---------- ----------
Net deferred tax asset $ 1,016 $ 1,964
========== ==========
The Company had federal net operating loss carryforwards of $2,177,000 and
$8,589,000 and state net operating loss carryforwards of $8,340,000 and
$8,120,000 at December 28, 2002 and December 29, 2001, respectively. A valuation
allowance of $150,000 and $206,000 was provided against the state net operating
loss deferred tax asset of $323,000 and $378,000 at December 28, 2002 and
December 29, 2001, respectively. The net operating loss carryforwards begin to
expire in 2003 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.
The change in deferred tax asset allocated to current year income and the
Company's balance sheet for the years ended December 28, 2002 and December 29,
2001 is as follows:
(IN THOUSANDS) 2002 2001
-----------------------------------------------------------------------------------------------
FEDERAL STATE FEDERAL STATE
Deferred tax benefit allocated to
Shareholders' equity $ (601) $ (49) $ - $ -
Deferred tax asset realized on
carry back claim refund 1,192 - - -
Deferred tax expense (benefit)
allocated to income 561 (155) (817) (6)
---------- ---------- ---------- ----------
Total change in deferred tax asset $ 1,152 $ (204) $ (817) $ (6)
========== ========== ========== ==========
Based upon the Job Creation and Worker Assistance Act of 2002, which was signed
by President Bush in March 2002, and allowes companies to carry 2001 net
operating losses back five years, the Company received a refund of approximately
$1.2 million in 2002. Upon receipt of the $1.2 million, the Company reduced its
current deferred tax assets by $1.2 million.
Income tax payments totaled $45,000, $0 and $31,000 in fiscal 2002, 2001 and
2000, respectively.
Note 9 - 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 Class A Preferred Stock and Class B Preferred Stock were
eliminated.
- 27 -
In July 2002, the Company issued 33,566 shares of treasury stock valued at
$250,000 in connection with the acquisition of the remaining 49% interest of
Podiatry Online (See Note 2).
At December 28, 2002, 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. No shares were outstanding at
December 28, 2002 or December 29, 2001.
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 or announces an offer to acquire 15% or more of the Company's
common stock. 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 transfer of
50,000 shares of common stock from its treasury to Linda M. Autore in
consideration of Ms. Autore's promissory note collateralized by said shares in
the principal amount of $281,250, bearing interest at 6.0%, compounded annually,
pursuant to the terms and conditions set forth in an Executive Compensation
Agreement, Recourse Promissory Note and Pledge Agreement, each dated January 11,
2001.
On September 17, 2001, the Company adopted a stock repurchase program to
purchase, at the Board of Directors 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
28, 2002, no shares of common stock have been repurchased under this program.
Note 10 - 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 "non-qualified stock options" vesting
equally over four years commencing one year from the date of the grant and
expiring over five years from the grant date. This program may not exceed
505,000 shares, and approximately 360,000 shares were available for grant at
December 28, 2002. 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 150,000 shares to directors,
officers and key employees. The plan authorized and permitted the granting of
non-qualified stock options of the Company's stock vesting equally over four or
five years 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 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 typically vested equally over four or five
years beginning one year after the date of grant and expiring five to ten years
from the date of grant.
- 28 -
The following is a summary of changes in options under the Company's stock
option plans:
2002 2001 2000
------------------------------- ------------------------------- -------------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------------------------------- ------------------------------- -------------------------------
Outstanding at
beginning of year 272,700 $ 9.19 267,600 $ 9.92 142,400 $ 11.54
Granted 51,400 7.81 148,100 7.51 167,000 8.81
Canceled (69,300) 8.58 (140,500) 8.89 (38,050) 10.98
Exercised (2,500) 6.76 (2,500) 6.76 (3,750) 10.71
----------- ----------- -----------
Outstanding at
year end 252,300 9.11 272,700 9.19 267,600 9.92
=========== =========== ===========
Exercisable 124,625 $ 10.02 82,250 $ 10.82 67,850 $ 11.52
=========== =========== ===========
The following is a summary of options outstanding at December 28, 2002:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------------------- ---------------------------------------
NUMBER OF WEIGHTED-AVERAGE
OPTIONS REMAINING WEIGHTED- NUMBER OF OPTIONS WEIGHTED-
RANGE OF OUTSTANDING CONTRACTUAL LIFE AVERAGE EXERCISABLE AT AVERAGE
EXERCISE PRICES AT YEAR END (YEARS) EXERCISE PRICE YEAR END EXERCISE PRICE
------------------- ---------------- ----------------- ----------------- ------------------ -----------------
$ 6.00 - $ 9.25 165,700 3.3 $ 7.81 56,525 $ 8.03
$ 9.26 - $ 11.25 56,000 1.2 $ 10.69 42,500 $ 10.75
$ 11.26 - $ 14.25 30,600 1.2 $ 13.22 25,600 $ 13.20
================ ==================
252,300 2.6 $ 9.11 124,625 $ 10.02
Pursuant to SFAS No. 123, the Company elected to account for stock-based
compensation plans under Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." Had compensation cost for the stock option plans
been recognized based on the fair value at the grant dates for awards under
those plans, consistent with the provision of SFAS No. 123, net income (loss)
and earnings (loss) per share would have been as indicated in the table below.
Years Ended
----------------------- ----------------------- -----------------------
(in millions, except per share amounts) December 28, 2002 December 29, 2001 December 30, 2000
----------------------- ----------------------- -----------------------
Net income (loss)
As reported $ 1.0 $ (1.6) $ (4.4)
Pro forma $ 0.8 $ (2.2) $ (4.5)
Basic and diluted earnings (loss) per share
As reported $ 0.31 $ (0.52) $ (1.45)
Pro forma $ 0.26 $ (0.71) $ (1.49)
- 29 -
Fair values of the options were estimated at the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
Years Ended
------------------------------------------------------------------------------
December 28, 2002 December 29, 2001 December 30, 2000
----------------------- ----------------------- -----------------------
Expected stock price volatility 41% 50% 50%
Expected dividend yield - - -
Risk-free interest rate 3.0% 5.7% 5.8%
Expected life (in years) 5 4 - 5 4 - 5
Note 11 - 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 $1,664,000, $1,949,000 and
$1,835,000, in fiscal 2002, 2001, and 2000, respectively. As of December 28,
2002, future minimum payments for all operating leases are as follows: 2003,
$1,413,000; 2004, $1,170,000; 2005, $448,000; 2006, $323,000; 2007, $220,000;
thereafter, $1,150,000.
Note 12 - Recent Accounting Pronouncements
Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets." The standard changes the accounting for goodwill and
intangible assets whereby such assets are no longer amortized; however, the
standard does require evaluation for impairment and a corresponding writedown,
if appropriate. SFAS No. 142 requires an initial evaluation upon adoption. Such
evaluation was performed as of January 2002, resulting in no impairment in the
value of Company's goodwill or intangible assets. A similar evaluation was
performed in January 2003, which also resulted in no impairment.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement
Obligations." The statement, effective for fiscal years beginning after June 15,
2002, requires companies to record a liability for asset retirement obligations
in the period in which they are incurred, which typically could be upon
completion of construction or shortly thereafter. The Company does not believe
that the adoption of this standard will have a material impact on its
consolidated financial statements.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." The statement is effective for fiscal years
beginning after December 15, 2001. SFAS No. 144 changes the criteria for
classifying an asset as held-for-sale. The Company does not believe that the
adoption of this standard will have a material impact on its consolidated
financial statements.
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statement No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
The statement is effective for fiscal years beginning after May 15, 2002. SFAS
No. 145 rescinds certain guidance for reporting extinguishments of debt and
provides guidance to determine if the transactions are part of recurring
operations or if they meet the criteria for classification as an extraordinary
item. Additionally, SFAS No. 145 requires that certain lease modifications be
accounted for in the same manner as sales-leaseback transactions. The Company
does not believe that the adoption of this standard will have a material impact
on its consolidated financial statements.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 nullifies Emerging Issues Task
Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination
Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred
in a Restructuring)." The Company does not believe that the adoption of this
standard will have a material impact on its consolidated financial statements.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure, an amendment of FASB Statement No.
123." SFAS No. 148 requires quarterly disclosure of pro forma stock compensation
information. The Company does not believe that the adoption of this standard
will have a material impact on its consolidated financial statements.
- 30 -
Note 13 - Selected Quarterly Information (Unaudited)
NET INCOME
NET INCOME (LOSS)
AMOUNTS IN THOUSANDS, NET SALES GROSS PROFIT (LOSS) PER
EXCEPT PER SHARE DATA SHARE
---------------------------------------------------------------------------------------
2002
First $ 32,437 $ 8,996 $ 195 $ 0.06
Second 33,441 9,174 281 0.09
Third 37,032 10,255 643 0.20
Fourth 34,917 9,009 (141) (0.04)
------------ ------------ ------------ ------------
Year $ 137,827 $ 37,434 $ 978 $ 0.31
============ ============ ============ ============
2001
First $ 32,365 $ 8,503 $ (1,041) $ (0.33)
Second 32,620 8,657 (722) (0.23)
Third 34,685 9,147 (86) (0.03)
Fourth 33,163 9,008 212 0.07
------------ ------------ ------------ ------------
Year $ 132,833 $ 35,315 $ (1,637) $ (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."
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
- 31 -
PART III
ITEM 10. Directors and Executive Officers of the Registrant
Incorporated by reference to information under the caption "Certain Information
Regarding Nominees" and "Executive Officers" in the Company's 2003 definitive
proxy statement to be filed pursuant to Regulation 14A within 120 days the end
of the fiscal year covered by this Form 10-K (the "Proxy Statement").
ITEM 11. Executive Compensation
Incorporated by reference to information under the captions "Executive
Compensation," "Defined Benefit Plans," "Stock Options," "Compensation Committee
Interlocks and Insider Participation," "Compensation Committee's Report," and
"Compensation of Directors" in the Proxy Statement.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated by reference to information under the caption "Security Ownership
of Certain Beneficial Owners, Directors, Nominees and Officers" in the Proxy
Statement.
ITEM 13. Certain Relationships and Related Transactions
Incorporated by reference to information under the captions "Certain
Relationships and Related Transactions," "Fees Paid to Directors," "Executive
Compensation," and "Defined Benefit Plans" in the Proxy Statement.
ITEM 14. Controls and Procedures
Our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO") have
evaluated the effectiveness of our disclosure controls and procedures (as
defined in rules 13a-4(c) and 15d-14(c) of the Securities Exchange Act of 1934,
as amended) as of a date ("Evaluation Date") within 90 days prior to the filing
of this annual report. Based on such evaluation, our CEO and CFO have each
concluded that as of the Evaluation Date, our disclosure controls and procedures
were effective to ensure that information required to be disclosed by us in
reports that we file or submit under the Securities and Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the time periods
specified in the Securities and Exchange Commission's rules and forms. There
were no significant changes in our internal controls or in other factors that
could significantly affect the internal controls subsequent to the Evaluation
Date.
ITEM 15. Principal Accountant Fees and Services
Incorporated by reference to information under "Principal Accountant Fees and
Services" in the Proxy Statement.
- 32 -
PART IV
ITEM 16. Exhibits, Financial Statement Schedules, 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 iii.
2. Financial Statement Schedule. The financial statement schedule
filed as part of this Form 10-K is listed in the index on page
iii.
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 disclosed in the financial
statements or notes thereto.
EXHIBITS FILED UNDER ITEM 601 OF REGULATION FILED HEREWITH OR INCORPORATED BY
S-K REFERENCE TO:
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, 1998.
Delaware General Corporation Law.
..3 By-laws, 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 Exhibit 3.4 to Form 10-Q for the period ended
September 17, 2001. September 29, 2001.
..2 Rights Agreement, between the Company and Exhibit 4 to Form 8-K dated December 22, 1998.
American 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).
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.
- 33 -
..4A Moore Medical Corp. Capital Accumulation Exhibit 10.4A to Form 10-K for the fiscal year
Plan, Fidelity - The Corporate plan for ended December 29, 2001.
Retirement 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 CORPORATE Plan For Exhibit 10.4C to Form 10-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 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 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 ended December 30, 2000.
January 15, 2001.
..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 ended December 30, 2000.
dated January 26, 2001.
..12 Appendix A to Security Agreement dated Exhibit 10.12 to Form 10-K for the fiscal year
January 26, 2001, between the Company and ended December 30, 2000.
Fleet Capital Corporation.
..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.
- 34 -
..15 Executive Subscription Agreement between Exhibit 10.25 to Form 10-K for the fiscal year
the Company and Linda M.Autore dated ended December 30, 2000.
January 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 ended December 30, 2000.
January 11, 2001.
..18 Consulting Agreement between the Company Exhibit 10.18 to Form 10-K for the fiscal year
and Peter A. Derow effective ended December 29, 2001.
October 8, 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 Amended and Restated Employment Agreement Filed herewith.
between the Company and Jerry Flasz,
effective October 25, 2002
..22 Amended and Restated Employment Agreement Filed herewith.
between the Company and Jon Garrity,
effective October 25, 2002
..23 Amended and Restated Employment Agreement Filed herewith.
between the Company and Linda Autore,
effective October 25, 2002
..24 Employment Agreement between the Company Filed herewith.
and John Zinzarella, effective
February 10, 2003
21. Subsidiaries
..1 Subsidiaries, identifiable pursuant to Exhibit 22 to Form 10-K for the fiscal year ended
Item 601 (21) of Regulation S-K. December 28, 1991.
23. Consent of Expert
..1 Consent of PricewaterhouseCoopers LLP. Filed herewith.
99. Certifications
..1 Certification of the Chief Executive Filed herewith.
Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
..2 Certification of the Chief Financial Filed herewith.
Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K: The Company filed one Current Report on Form 8-K
during the quarter ended December 28, 2002.
- 35 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MOORE MEDICAL CORP.
(REGISTRANT)
BY: /s/ Linda M. Autore BY: /s/ John M. Zinzarella
-------------------------------------- ----------------------------------------------
Linda M. Autore, President John M. Zinzarella, Vice President of Finance,
and Chief Executive 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 by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ Linda M. Autore President & Chief Executive Officer March 28, 2003
---------------------------------------- (Principal Executive Officer)
Linda M. Autore
/s/ Robert H. Steele Director, Chairman of the Board March 28, 2003
---------------------------------------- of Directors
Robert H. Steele
/s/ Christopher W. Brody Director March 28, 2003
----------------------------------------
Christopher W. Brody
/s/ Peter A. Derow Director March 28, 2003
----------------------------------------
Peter A. Derow
/s/ Steven Kotler Director March 28, 2003
----------------------------------------
Steven Kotler
/s/ Wilmer J. Thomas, Jr. Director March 28, 2003
----------------------------------------
Wilmer J. Thomas, Jr.
/s/ Dan K. Wassong Director March 28, 2003
---------------------------------------- -
Dan K. Wassong
- 36 -
CERTIFICATIONS
I, Linda M. Autore, certify that:
1. I have reviewed this annual report on Form 10-K 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;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this annual
report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
March 28, 2003
BY: /s/ Linda M. Autore
------------------------------------
Linda M. Autore, President and
Chief Executive Officer
- 37 -
I, John M. Zinzarella, certify that:
1. I have reviewed this annual report on Form 10-K 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;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this annual report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the effectiveness
of the disclosure controls and procedures based on our evaluation as of
the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
the registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified
for the registrant's auditors any material weaknesses in internal
controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this annual
report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
March 28, 2003
BY: /s/ John M. Zinzarella
-----------------------------------------
John M. Zinzarella, Vice President of
Finance, Treasurer and Chief Financial
Officer
- 38 -
SCHEDULE II
MOORE MEDICAL CORP. & SUBSIDIARY
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 28, 2002 $ 1,146 $ 740 $ (637) $ 1,249
Fiscal Year End December 29, 2001 $ 877 $ 367 $ (98) $ 1,146
Fiscal Year End December 30, 2000 $ 876 $ 89 $ (88) $ 877
- 39 -