-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DZMzrS9CNCDf+YSoricb/U5IXm9R//1CLzFlcfm7BBohCAn8w+StWPG/wSmGsX+M vALNCrvBXLv6c+c/J6vyFw== 0000950109-00-001312.txt : 20000403 0000950109-00-001312.hdr.sgml : 20000403 ACCESSION NUMBER: 0000950109-00-001312 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20000101 FILED AS OF DATE: 20000331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MOORE MEDICAL CORP CENTRAL INDEX KEY: 0000074691 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-MEDICAL, DENTAL & HOSPITAL EQUIPMENT & SUPPLIES [5047] IRS NUMBER: 221897821 STATE OF INCORPORATION: DE FISCAL YEAR END: 0102 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08903 FILM NUMBER: 591199 BUSINESS ADDRESS: STREET 1: PO BOX 1500 STREET 2: 389 JOHN DOWNEY DR CITY: NEW BRITAIN STATE: CT ZIP: 06050 BUSINESS PHONE: 2038263600 MAIL ADDRESS: STREET 1: 389 JOHN DOWNEY DRIVE STREET 2: 389 JOHN DOWNEY DRIVE CITY: NEW BRITAIN STATE: CT ZIP: 06050 FORMER COMPANY: FORMER CONFORMED NAME: OPTEL CORP DATE OF NAME CHANGE: 19850611 10-K 1 FORM 10-K ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 _____________________________ 1999 FORM 10 - K ANNUAL REPORT For the fiscal year ended January 1, 2000 Pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 MOORE MEDICAL CORP. (Exact name of registrant as specified in its charter) - -------------------------------------------------------------------------------- Delaware 1-8903 (State of incorporation) (Commission File Number) P.O. Box 1500, New Britain, CT 06050 22-1897821 (Address of principal executive offices) (I.R.S. Employer Identification Number) 860-826-3600 (Registrant's telephone number) Securities registered pursuant to Section 12(b) of the Act: Common Stock ($.01 Par Value) American Stock Exchange Rights to Purchase Series I Junior Preferred Stock American Stock Exchange (Title of Each Class) (Name of each exchange on which registered)
- -------------------------------------------------------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months, and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No _________ -------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates (i.e. other than identified 5% holders, and holdings attributed to executive officers and directors) of the registrant as of March 3, 2000 was $17,001,778. Determination of affiliate status for such purpose is not a conclusive determination thereof for other purposes. Number of shares of Common Stock outstanding (exclusive of 204,604 treasury shares) as of March 3, 2000: 3,041,426. - -------------------------------------------------------------------------------- Documents Incorporated By Reference The portions of the registrant's proxy statement for its 2000 Annual Meeting of Shareholders referred to in Part III of this report are incorporated by reference. The exhibit index is located on pages 29-31. Total number of pages in the numbered original (including exhibits) is 44. This is page 1 of 33 pages. ================================================================================ Moore Medical Corp. 1999 Annual Report on Form 10-K Table of Contents Part I - -------------------------------------------------------------------------------------------------------- Item 1. Business 3 Item 2. Properties 9 Item 3. Legal Proceedings 9 Item 4. Submission of Matters to a Vote of Security Holders 9 Item 4A. Executive Officers of the Registrant 9 Part II - -------------------------------------------------------------------------------------------------------- Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 9 Item 6. Selected Financial Data 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 14 Item 8. Financial Statements and Supplementary Data 14 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 27 Part III - -------------------------------------------------------------------------------------------------------- Item 10. Directors and Executive Officers of the Registrant 28 Item 11. Executive Compensation 28 Item 12. Security Ownership of Certain Beneficial Owners and Management 28 Item 13. Certain Relationships and Related Transactions 28 Part IV - -------------------------------------------------------------------------------------------------------- Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K 29 Signatures 32
2 ITEM 1. Business Moore Medical Corp. is a national marketer and distributor of healthcare products, on a business-to-business basis, to approximately 92,000 healthcare practitioner customers operating in non-hospital settings. The Company serves, in addition to physicians and surgeons, podiatrists, emergency medical technicians, schools and colleges, correctional facilities, municipalities and occupational/industrial physicians and nurses. The Company believes that it is a significant factor in several of these specialty practice communities. Most customers buy Moore Medical's products for use in their healthcare practices, rather than for resale. Moore Medical Corp. and its early-phase e-commerce subsidiary market approximately 8,500 medical/surgical and pharmaceutical supply products (SKUs) through catalogs, other direct mail literature, telesales, a small field sales force and, to a limited degree, the Internet. Most customer orders are processed by our customer support center representatives. We fulfill more than 500,000 orders annually from our distribution centers in Connecticut, Florida, Illinois and California, and we ship orders nationwide by common carriers. More than 85% of our customers' orders are delivered within two business days. Our distribution business has served healthcare practitioners for more than 25 years, and has distributed healthcare products for more than 50 years. In 1997, we exited from our lower margin wholesale drug distribution business, which represented approximately two-thirds of our revenues, in order to concentrate on our more profitable healthcare practitioner distribution business. This report focuses on our continuing healthcare practitioner business. Recent Developments . Strategic Commitment to Transform Company into Full B2B Electronic Commerce --------------------------------------------------------------------------- Enterprise: We initiated a program of web enablement in mid-year to assess ---------- the costs and benefits of moving in the direction from our existing electronic catalog website to a comprehensive e-business platform. In the process we: surveyed current e-commerce customers; tracked their buying behaviors by industry markets; interviewed customers who were not among those early adopters; developed a detailed functional specification; and selected a design firm (from among eight respondents) to assist in the implementation of our design goals. Given our early results with an unpromoted transaction site, and the progress toward our design goals, Moore Medical's Board of Directors approved the Company's plan for transformation. The Board recognizes the level of investment required to accomplish Moore's Internet strategy and made a commitment to acquire the talent and develop the infrastructure needed to exploit this business opportunity. We anticipate incurring losses over the next two years as part of the accelerated spending plan required to fully web enable the Company. Our investment in the Internet is fundamental to our strategy and future sustainable growth as it provides: . more data on our customers' buying patterns, . greater ability to target our customers' needs, . the opportunity to streamline our buying decisions and to reduce relative inventory levels, . an enhanced selling environment at lower costs, . the ability to exploit the latest technological applications to eliminate labor intensive processes, and . the opportunity to reinvest any efficiencies realized through anticipated website economies in marketing and technology efforts. Our goal is to rapidly grow the size and revenue of the Company through web enablement of customers and employees. To accomplish this we will: . migrate and retain as many of our nearly 100,000 customers as possible to the e-business platform, . attract as many new customers as possible, leveraging our domain expertise in customer communities, and . increase the average annual expenditures that customers make with Moore Medical. Moore Medical's customer community based e-business site has entered beta testing and a 2000 launch is anticipated. . Market recognition: The 1999 Physician's Office World Class Survey ranked ------------------ Moore Medical Corp. as follows, based on the comparative quality of our products, competitive pricing and customer service: . #1 in North Central Region by geographic region . #2 in Northeast Region by geographic region . #3 in Direct Marketing overall ranking by market segment . Implemented our new Enterprise Resource Planning (ERP) system: In 1998, ------------------------------------------------------------- we prepared a comprehensive plan for a new ERP system. The plan encompassed new software and hardware, and the training of our entire staff, at all levels of our organization. It was implemented in 1999. We lost no sales days as a result of the implementation. However, the transition did adversely impact our day-to-day sales operations, during the transition period, as customers experienced some delays in reaching customer support representatives. The transition whose impact on revenues and income cannot be quantified, was completed in 1999. 3 . Remained debt-free for the second consecutive year: We maintained a very -------------------------------------------------- strong balance sheet, as evidenced by our cash position, cash flow and debt-free balance sheet at the end of each fiscal year. Despite expenditures on technology in 1999 of approximately $5.3 million, we reduced our debt to zero, utilizing operating funds and cash at the beginning of the year. The Healthcare Products Distribution Industry Most product manufacturers will not sell directly to healthcare practitioners in non-hospital settings for the small quantities of products regularly purchased. Moreover, most healthcare practitioners prefer the administrative efficiencies of purchasing supplies from a few sources rather than from hundreds of manufacturers. Healthcare product distributors, by selling a very wide range of products purchased from many manufacturers, economically move products from the manufacturers' large, but separately narrow product inventories to the smaller volume, but much more varied, product selections required by healthcare practitioners. Customers find it efficient and convenient to rely on the availability from distributors of thousands of different products, manufactured by hundreds of manufacturers, offered at competitive prices, with prompt delivery and a variety of other services. Overall, the healthcare distribution industry has experienced a growth in demand, cost containment pressures, and the introduction of e-commerce as a marketing tool and as an easy to use efficient supply source. The demand for healthcare products at non-hospital sites has continued to grow, largely because of: . an aging population, . increases in the amount and variety of products available for diagnosis and treatments, as a result of medical advances, and . an increase in healthcare at more economical sites than hospitals, as a result of cost containment pressures. 4 However, governmental programs such as Medicare and Medicaid, and HMOs, managed care and other insurance programs, have limited funding for healthcare products. This has contributed to continued consolidations of: . physician practices, as sole practitioners have formed groups and as practice organizations (PPOs) have formed to provide business management for large numbers of physicians, . other customer groups, notably emergency medical services and podiatrists, . local or regional distributors of healthcare products into larger organizations serving broader geographic areas, and . manufacturers of healthcare products. In addition, customers have continued to expect better prices and services. Service expectations include a broad selection of products, speed of delivery, reliability of supply, extensive information on product specifications, product use and pricing, and the ability to conveniently place orders and access such information on the distributor's Internet site. Increasingly, customers have come to rely on their distributors' websites for product-related information and for ordering products, as a means of reducing their operating costs and as a convenience. Our Marketing and Distribution We market nationally, on a business-to-business basis, to existing and prospective customers through catalogs, other direct mail literature, outbound specialty practice specific calls, an early-phase e-commerce website, and a small number of national account field sales representatives. We consider direct marketing to be one of our core strengths. Our in-house Creative Media Department designs our catalogs, product packaging, promotional literature and web screens, with distinct features for each specialty practice area. We mail our catalogs and promotional literature regularly to current customers based on their buying patterns, and to prospective customers based on market-specific or targeted mailing lists. In the fourth quarter of 1999 and early 2000, we freshly redesigned our catalogs and developed and launched a new company logo and corporate brand identity to re-vitalize our capabilities. Extensive customer surveys, in person and online, were conducted to arrive at our brand platform of service, expertise and hospitality. We invested in a new digital studio which enables us to develop and employ both the video and still digital images necessary to provide our customers with the most effective and pleasing projection of our products. These new digital video capabilities allow us to record and edit video messages, demonstrations and training. The video is formatted for both electronic and conventional viewing. The new digital photo studio includes a high-end digital camera, specialized lighting, color correction and image scripting software, and a new publications network and server. This process images simultaneously for both electronic and print media. In the second half of 1999 we captured over 2,500 new digital images. We fulfill orders from our distribution centers in Connecticut, Florida, Illinois and California. Customer orders are directed by our ERP system from our support and customer support center in Connecticut to our distribution center closest to the customer's delivery location. At the distribution center, we pick, pack and ship orders to our customers by common carriers. We use United Parcel Service (UPS) to ship most of our customers' orders, and we are dependent on UPS for efficient delivery services. More than 85% of our customers' orders are delivered within two business days. We consider distribution reliability to be one of our core strengths. 5 Our Product Lines We distribute approximately 8,500 SKUs of medical/surgical supply and pharmaceutical products, encompassing a broad and diversified selection of supplies such as gauze and wound dressings, examination room supplies, diagnostic tests and equipment, personal protection products, surgical instruments, emergency response supplies, continuing care products and infection control supplies. Although most of our products are consumables and disposables, we also sell medical/surgical equipment. We are one of the few distributors of medical/surgical products to non-hospital healthcare practitioners who also offer pharmaceuticals. Pharmaceutical products include unit-dose medications, vaccines, injectables and ointments. We purchase our products primarily direct from manufacturers and do not manufacture or assemble any products, except for medical and first aid kits, which we assemble. Insurance coverage against potential losses due to product liability claims has been adequate. We exited the wholesale drug distribution business, in which we sold primarily pharmaceuticals, during the fourth quarter of 1997, and we substantially concluded our disposal of our related inventory in the second quarter of 1998. Prior to the exit, most of our sales were of pharmaceuticals to pharmacies for resale, while in 1998 and 1999 most of our sales were of medical/surgical supplies and pharmaceuticals to healthcare practitioner end-users. The following table shows our sales and the percentages of our total sales for the past three years of medical/surgical supplies and pharmaceuticals:
(Dollars in thousands) 1999 1998 1997 ---- ---- ---- Medical/surgical supplies $88,792 $90,635 $ 91,030 75.0% 75.0% 31.5% Pharmaceuticals $29,662 $30,211 $197,483 25.0% 25.0% 68.5%
Our Customers Our approximately 92,000 healthcare practitioner customers typically use our products in non-hospital settings. Our more significant customer groups which accounted for approximately 85% of our sales are in addition to physicians and surgeons, podiatrists, emergency medical services, medical departments at industrial sites, municipalities, university and school health services and correctional facilities. We believe that we are an important factor in several of these specialty practice communities. Approximately 8,000 of the 12,000 podiatrists in the United States are our customers. Most of our customers use our products in their healthcare practice, rather than for resale. Typically, our customers order an average of five to six times a year, though some specialties order more frequently. Our Sales Force Our sales efforts are designed to establish and strengthen our customers' allegiance to us through frequent direct marketing contact supported by our staff of approximately thirty inbound customer support representatives and twenty outbound specialty practice-specific representatives, as well as through personal visits by a small field sales force. Our customer support representatives assist our customers in making purchasing decisions, as well as with product pricing and availability questions. They also market promotional and complementary products in support of our media offerings. We use outbound industry-specific representatives and programs to market our products to customer accounts identified as high volume or high order frequency accounts. Outbound representatives strive to achieve long-term relationships with their assigned customers through regularly scheduled telephone contacts and personalized service. We integrated our 6 inbound and outbound groups in 1999 as "flex teams" to handle inbound calls during periods of peak call volume and to increase our market-specific information level. Our representatives use on-line PCs to enter customer orders and to access information about products, product availability, pricing, promotions and customer buying history. Each representative undergoes a minimum of three weeks of training, with the outbound representatives also receiving market-specific training. In addition, all representatives attend periodic training sessions and special sales programs, and they earn bonus incentives or monthly commissions. Our field sales representatives concentrate on selected large accounts and on attracting new customers and increasing sales, cross-enterprise, to customers who do not currently order a high percentage of their total product needs from us, as a complement to our direct marketing and telesales strategies. Once a field sales representative has established a relationship with a customer, she or he encourages the customer to use our automated ordering process or customer support representatives for its day-to-day needs. This simplifies the ordering process for the customer and it increases the effectiveness of our field sales representatives, consistent with our plans for increased computer integration. Our Customer Relations Department provides access to knowledgeable support representatives for up to ten (8am-6pm EST) hours a day. Our representatives resolve customer-related issues, process catalog requests, authorize returns, allowances and exchanges, maintain high standards of service, expertise and hospitality, and foster long-term customer relationships. Subject to guidelines, they are empowered to make decisions regarding vendor and shipping related inquiries. Our Suppliers We distribute the products of approximately 650 manufacturers of medical/surgical supplies and pharmaceuticals. We purchase most products directly from manufacturers, but we also purchase some products from other distributors. In 1999, our largest product suppliers were 3M, Allied Healthcare Products, Inc., Aventis Pasteur, Banta Healthcare Products, Inc., Graham-Field Surgical Co., Johnson & Johnson Healthcare System, Laerdal Medical Corp., Microflex, Ortho Diagnostic Systems, Inc., and Tillotson Healthcare. We have several competing sources for many medical/surgical supplies and pharmaceuticals. Sales of products from our largest supplier in 1999 accounted for less than 5% of total sales. The pharmaceutical market continues to introduce alternative products affecting the product acquisition costs and obtainable margins. We do not have any significant long-term purchase commitments with our suppliers, nor do we have any exclusive product rights. Competition Our competitors are large national distributors, regional distributors and local distributors. Some primarily use direct mailing and telemarketing methods, like ours, 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. Ease of entry into the healthcare products distribution industry has changed significantly with the onset of the Internet. There were at least six new entrants in 1999 into our markets. Although several of the entrants have substantially greater financial resources than we do, few entered the market with as significant an established customer base as we have. E-commerce competitors generally compete aggressively on price and access to information. However, our strongest competitors (traditional or e-commerce) in each market generally compete with us in only one or a few of our specialty market areas. 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. Customers place high value on reliability, ease of doing business and speed. As more healthcare practices consolidate into larger, more geographically spread organizations, we expect that there will continue to be a growing number of large customers who will require their distributor of choice to be able to reliably service many delivery locations in different regions across the country. As the Internet becomes a more prominent marketing tool and order placement vehicle, we expect that the expanded selling opportunity will increase the order frequency of our present and prospective customers. We plan to take advantage of the shift to 7 the Internet as our marketing and sales medium of choice by employing distinct strategies by customer group to enhance the order size and frequency of known buying patterns. Regulation We are subject to federal, state and local statutes and regulations governing the sale, marketing, packaging and distribution of prescription drugs, including controlled substances and medical devices. In addition, we and our customers are subject to licensing requirements governing the various aspects of the healthcare delivery system. Our operating and security practices comply with the statutes and regulations of the Federal Drug Administration (FDA), Federal Drug Enforcement Agency (DEA) and state boards of pharmacy, health and wholesale drug distributor licensing boards in all material respects. We operate four distribution centers, in New Britain, Connecticut, Jacksonville, Florida, Lemont, Illinois, and Visalia, California. Each of these distribution centers is registered with the Drug Enforcement Agency and as a wholesale distributor of prescription drugs and devices in each state that requires registration and/or licensure. This registration and licensure is mandated by the Prescription Drug Marketing Act of 1987, with which we believe we are in material compliance. In addition, we are registered with the Federal Drug Administration as a Drug Establishment and as a Device Establishment. We are also mandated by the Prescription Drug Marketing Act of 1987 and the Control Substance Act to validate our customers for purchases of regulated products. We require documentary evidence of our customers' regulatory authority to purchase regulated products and we are in material compliance with applicable federal and state statutes which protect against the diversion of those products. Our Information Systems In 1999, our Information Systems Department completed the conversion of our legacy computer systems to a fully integrated software solution providing a stable database structure for all facets of our operations. Our new Enterprise Resource Planning (ERP) system gives our financial, sales, marketing, purchasing and warehousing functions database integration. In contrast to our legacy system, enhancements to the ERP system can be accomplished efficiently, with a better utilization of resources. Within the conversion, our main computer hardware was consolidated from two computer systems to one large multi-processing system. This allows for orders entered from our outbound and inbound sales forces to generate picking documents at our four distribution centers in a more timely manner. In 1999, we also developed and implemented our data warehousing technology; it gives our operating departments immediate access to historical sales order and real-time customer and product data. This enables our sales, marketing, financial and purchasing teams to analyze and project sales, customer and product information. Employees As of January 1, 2000, we had 307 full-time employees and 12 part-time employees. Of the full-time employees, 112 worked in its marketing, sales and sales support. The average tenure of our distribution centers' workforce is over fifteen years. All of our operations are non-union. 8 ITEM 2. Properties The Company owns no real property and it leases all its operating facilities. Its distribution centers are located in New Britain, Connecticut (92,000 square feet), Jacksonville, Florida (60,000 square feet), Lemont, Illinois (44,000 square feet), and Visalia, California (51,000 square feet). The Jacksonville, Visalia, and Lemont facilities have been constructed within the last ten years and are well equipped and arranged for operating efficiencies. Management considers all of the distribution centers to be in satisfactory condition. The Company's main offices are located in an industrial park in New Britain, Connecticut, where it occupies three buildings (41,000 square feet) adjacent to its main distribution center in a campus-like setting. In these offices, the business functions of order processing, telesales, marketing, purchasing, information services, finance, and administration are performed. Office space is adequate for the Company's present needs. ITEM 3. Legal Proceedings As of the date of this document there are no material legal proceedings which are material to the financial statements. ITEM 4. Submission of Matters to a Vote of Security Holders No matter was submitted to a vote of shareholders during the fiscal fourth quarter of 1999. ITEM 4A. Executive Officers of the Registrant The following table shows our current executive officers and their areas of responsibility: Name Age Position ---- --- -------- Linda M. Autore 49 President and Chief Executive Officer Kenneth S. Kollmeyer 50 Executive Vice President of Operations Joseph P. Savidge 43 Senior Vice President and Chief Financial Officer Peter T. Hood 54 Senior Vice President of Information Systems 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 1998 the high and low sale prices of the common stock on the American Stock Exchange Composite Tape.
1999 1998 ---------------------------------- --------------------------------- Quarters: High Low High Low ---- --- ---- --- First............................ $ 13 7/8 $ 10 1/2 $ 12 1/4 $ 10 5/8 Second........................... 12 5/8 9 1/2 13 1/2 11 1/4 Third............................ 14 7/8 7 3/8 14 3/16 10 3/16 Fourth........................... 10 11/16 7 14 15/16 10 3/4
The high and low sale prices of the common stock on March 3, 2000 were $12 13/16 and $12 1/4 respectively. The estimated number of holders (including estimated beneficial holders) of the Company's common stock as of March 3, 2000 was approximately 1,400. The Company has paid no cash dividends and has no plans to do so in the foreseeable future. Its loan agreement contains restrictions on dividend payments. 9 ITEM 6. Selected Financial Data
- ---------------------------------------------------------------------------------------------------------------------------------- Amounts in thousands, except per share data 1999 1998 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------------- SUMMARY OF OPERATIONS Net sales $118,454 $120,846 $288,513 $286,349 $289,062 Cost of products sold 81,573 83,143 249,451 243,949 247,556 -------- -------- -------- -------- -------- Gross profit 36,881 37,703 39,062 42,400 41,506 Selling, general and administrative expenses 34,465 33,326 41,857 41,481 35,410 -------- -------- -------- -------- -------- Operating income (loss) 2,416 4,377 (2,795) 919 6,096 Interest (income) expense, net (8) (82) 1,898 1,813 2,609 -------- -------- -------- -------- -------- Income (loss) before income taxes 2,424 4,459 (4,693) (894) 3,487 Income tax provision (benefit) 572 1,650 (1,772) (329) 1,168 -------- -------- -------- -------- -------- Net income (loss) $ 1,852 $ 2,809 $ (2,921) $ (565) $ 2,319 ======== ======== ======== ======== ======== Basic net income (loss) per share $ .63 $ .96 $ (1.00) $ (.19) $ .80 Diluted net income (loss) per share $ .63 $ .95 $ (1.00) $ (.19) $ .80 Basic weighted average shares outstanding 2,939 2,932 2,921 2,910 2,888 Diluted weighted average shares outstanding 2,943 2,949 2,923 2,921 2,900 BALANCE SHEET DATA Working capital $ 18,508 $ 18,521 $ 20,142 $ 42,985 $ 41,816 Total assets $ 41,966 $ 38,481 $ 39,203 $ 81,541 $ 75,363 Debt $ - $ - $ 1,512 $ 22,726 $ 21,672 Shareholders' equity $ 27,450 $ 25,553 $ 22,623 $ 25,376 $ 25,856
10 ITEM 7. Management's Discussion and Analysis of Results of Operations and Financial Condition Overview The following table sets forth items included in the Statements of Operations as a percentage of net sales for the fiscal years indicated.
% of Net Sales ------------------------------------------------------- 1999 1998 1997 ---- ---- ---- Net sales 100.0% 100.0% 100.0% Cost of products sold 68.9 68.8 86.5 ------ ----- ----- Gross profit 31.1 31.2 13.5 Selling, general & administrative expenses 29.1 27.6 14.5 ------ ----- ----- Operating income (loss) 2.0 3.6 (1.0) Interest (income) expense, net - (0.1) 0.6 ------ ----- ----- Income (loss) before income taxes 2.0 3.7 (1.6) Income tax provision (benefit) .5 1.4 (0.6) ------ ----- ----- Net income (loss) 1.5% 2.3% (1.0)% ====== ===== =====
Results of Operations 1999 Compared with 1998 Net sales for the year declined 2% to $118.5 million from $120.8 million in the prior year. Net income for the year decreased to $1.9 million compared with $2.8 million. Earnings per share decreased to $.63 from $.96 a year ago. The 1999 decrease in sales and net income is attributable to installation and implementation of the ERP system, which is designed to enable Moore Medical to utilize advanced technologies to provide greater responsiveness to our customers' needs. We lost no sales days as a result of the implementation. However, the transition did adversely impact our day-to-day sales operations, as customers experienced some delays in reaching customer support representatives. The transition, whose impact on revenues and income cannot be quantified, was completed in 1999. The 1999 results follow five year record earnings in 1998, which benefited from non-recurring inventory disposition sales in our discontinued wholesale drug distribution business. The gross profit margin rate was above 31% for both years. However, the gross profit dollars decreased slightly due to lower volumes, as well as greater competitive pricing on certain pharmaceutical products. Selling, general and administrative expenses increased 3% compared to 1998. During 1999, we made investments in our staff to broaden the breadth of its abilities, our technology and technological applications to more effectively and efficiently serve our customers, and in our marketing resource so that we could more effectively compete in our changing industry. The increase in selling, general and administrative expense was primarily due to increased freight as well as increases in depreciation, consulting and legal expenses associated with the Company's investment in technology. We ended the year with no debt, while investing over $5.3 million on technology capital. Further, at year-end 1999, we invested approximately $0.7 million in cash and equivalents. Our effective income tax provision rate of 23.6% was lower than the federal statutory tax rate due primarily to a net income tax benefit of $0.3 million recorded from the favorable settlement of a prior year's tax matter. 11 1998 Compared with 1997 Net sales for 1998 decreased 58% to $120.8 million from $288.5 million in 1997. This was due primarily to exiting the wholesale drug distribution business in the fourth quarter of 1997. Net sales in the wholesale drug distribution business decreased $175.0 million in 1998 as compared with 1997. Net sales in the healthcare practitioner business increased $7.4 million or 7% as compared to 1997. Gross profit decreased 4% to $37.7 million in 1998. This decrease was due primarily to the reduced sales volume as a result of exiting the wholesale drug distribution business. Overall gross margin rates increased to 31.2% from 13.5% in the prior year. This improvement was primarily due to the higher margins in the healthcare practitioner business. The Company's sales prices generally reflect changes in product acquisition costs, rather than the effects of inflation or deflation on the gross profit margin rate, which were not significant. In 1997, gross profit was negatively affected due to almost $5.0 million of inventory markdowns and write-offs associated with exiting from the wholesale drug distribution business and to approximately $500,000 of inventory markdowns for discontinued medical/surgical supplies. Selling, general and administrative expenses during 1998 decreased 20%, compared to 1997. The decrease was primarily attributable to reductions in staff, freight expense and other expenses previously associated with the wholesale drug distribution business. As a result of exiting from this part of the business, the remaining healthcare practitioner business in 1998 carried (and continues to carry) the fixed selling, general and administrative expenses related to all facilities, systems, management and other overhead. In addition, in 1997, a pre-tax charge of $0.8 million was taken in connection with exiting various federal government supply contracts and a charge of approximately $1.0 million was taken related to exiting the wholesale drug business. All debt was retired in 1998 and the Company therefore recorded income from its cash holdings instead of interest expense, as was the case in 1997. The effective income tax provision rate of 37.0% was higher than the federal statutory tax rate due primarily to state income tax provision. Financial Condition During 1999 our financial condition continued to remain stable. We ended the year debt-free for the second consecutive year. Net cash provided by operating activities in 1999 was $2.6 million. This cash combined with $3.5 million of cash at the beginning of the year, was used for $5.3 million of capital expenditures, primarily in technology. Operating activities generated cash sources of $3.9 million from net non-cash elements in earnings and $2.1 million from increase in accounts payable. Operating activities used cash sources of $2.1 million in accounts receivable, $2.6 million from net change in other assets and liabilities and $0.6 million for inventory. We have an unsecured bank financing agreement which provides a $10 million revolving line of credit that was extended through March 30, 2000. Interest on loans is charged at the prime rate or, at our option, at the Eurodollar rate plus a rate in a range of 1% to 1.5% depending on our financial leverage. In addition, we pay a 1/4% commitment fee on the unused line of credit. As of January 1, 2000 we were in compliance with all the financial covenants under the agreement. As our business grows, management believes that the funding needs for our operating working capital and investments will continue to be met through cash flow from operations and financing available under our line of credit. Year 2000 Issues Year 2000 issues are the result of computer programs that were written using two digits rather than four to define the applicable year. Our computer programs with date sensitive functions were sufficiently converted to be Year 2000 compliant. We experienced no failures, miscalculations, disruptions of operations, inability to process transactions, send invoices or interruptions in other normal business 12 activities as a result of the year 2000 arrival. This was essentially due to information technology planning and the implementing of Year 2000 compliant systems. We identified our Year 2000 risks in three categories: internal business software, internal non-information technology software, and external vendor compliance. Internal Information Technology - ------------------------------- During 1998, as part of a modernization program intended to improve productivity and increase profitability by upgrading data processing, integrating systems and enhancing internal reporting, the Company purchased an ERP system which includes software which the vendor has represented to be Year 2000 compliant. The total estimated hardware, software, installation, enhancements and training cost of the integrated ERP system, of which Year 2000 compliance was a by-product, was $7.3 million which was primarily funded through operating cash flow. We substantially completed the implementation of the system during the second quarter of 1999. With this implementation, we believed that our internal information technology systems to be in substantial compliance. Contingency plans were developed for areas where management considered there may have been some risk to modify certain of the major existing internal information technology systems to be Year 2000 compliant. Internal Non-Information Technology - ----------------------------------- We have assessed the Year 2000 compliance of its internal non-information software and of the technology embedded in such systems as security, telecommunications and building systems by contacting the providers of such systems. Written assurance of Year 2000 compliance had been received from substantially all providers. External Vendor Compliance - -------------------------- The Company had identified and contacted its major suppliers, service providers and contractors ("vendors") to determine the extent of their Year 2000 compliance. To the extent that responses were unsatisfactory, the Company had contingency plans in place, which included a number of measures such, where necessary, changing the vendors to those who have represented Year 2000 readiness. When the year 2000 arrived, the Company had not experienced any material Year 2000 problems, nor had the Company experienced any material problems with any of its key customers or vendors. Forward-Looking Information From time to time, the Company or its representatives may have made or may make forward-looking statements, orally or in writing. Such forward-looking statements may be included in, but, not limited to, press releases, oral statements made by or with the approval of an authorized executive officer, or in this report or other filings made by the Company with the Securities and Exchange Commission. The words or phrases "trend," "expect," "grow," "will," "could," "likely result," "transform," "planned," "continued," "anticipated," "estimated," "believes," "continuing," "considers," "may be," "assessed," "contingency," "projected," "scheduled," "could have," "intended," or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. The Company wishes to ensure that such statements are accompanied by meaningful cautionary statements, so as to maximize to the fullest extent possible the protections of the safe harbor established in the said Act. Accordingly, such statements are qualified in their entirety by reference to and are accompanied by the following discussion of certain important factors that could cause actual results to differ materially from such forward-looking statements. Investors should be aware of factors that could have an impact on the Company's business, financial position or performance. These include possible: pressures on the Company's revenues resulting, for example, from customer consolidations or changes in customer buying patterns; reductions in healthcare funding affecting its customers' services or revenues, resulting, for example, from changes in legislation or regulations or in HMO, managed care or other insurance programs; intensified competition resulting, for example, from distributor consolidations or pricing pressures from distributors able to benefit from 13 economies of scale or other operating efficiencies; and new Internet unanticipated expenses, delays on technical problems associated with the Company's planned Internet site; disruptions in services or systems on which the Company is dependent, such as by truckers in deliveries from its suppliers, by UPS or other common carriers in deliveries to its customers, by its catalog printers or in telecommunication services, or relating to its computer systems or; pending adjustments of pricing under exited government contracts or unfavorable outcomes of litigation; and other factors detailed from time to time in the Company's Securities and Exchange Commission filings or other readily available or generally disseminated writings. The risks identified here are not all inclusive. Reference is also made to other parts of this Annual Report on Form 10-K, which include additional information concerning factors that could adversely impact the Company's business or financial position or performance. Moreover, the Company operates in a changing and very competitive business environment. New risks may emerge from time to time, and it is not possible for management to predict all risk factors, nor can it necessarily identify or assess the impact of all such factors on the Company or the extent to which any factor or combination of factors may cause actual results to differ materially from those contained in any forward-looking statements. Accordingly, forward-looking statements should not be relied upon as a prediction of actual results. ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk We have no material market risk exposure associated with activities in derivative financial statements, other financial instruments, or derivative commodity instruments. ITEM 8. Financial Statements and Supplementary Data The financial statements and supplementary data have been filed as part of this Annual Report as indicated in the index to Financial Statements and Financial Statement Schedules appearing on page 15. 14 MOORE MEDICAL CORP. INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Page No. Report of Independent Accountants 16 Balance Sheets at the end of years 1999 and 1998 17 Statements of Operations for the years 1999, 1998 and 1997 18 Statements of Cash Flows for the years 1999, 1998 and 1997 19 Notes to Financial Statements 20-27 Financial Statement Schedule II - Valuation and Qualifying Accounts 33 for the years ended 1999, 1998 and 1997
15 Report of Independent Accountants To the Board of Directors and Shareholders of Moore Medical Corp. In our opinion, the financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Moore Medical Corp. and its subsidiary at January 1, 2000 and January 2, 1999, and the results of their operations and their cash flows for each of the three years in the period ended January 1, 2000, in conformity with accounting principles generally accepted in the United States. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related financial statements. These financial statements and financial statement schedule are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Hartford, Connecticut February 14, 2000 16 MOORE MEDICAL CORP. Balance Sheets at End of Years
- -------------------------------------------------------------------------------------------------------------- Amounts in thousands 1999 1998 - -------------------------------------------------------------------------------------------------------------- ASSETS Current Assets Cash................................................................. $ 744 $ 3,520 Accounts receivable, less allowances of $200 and $372................................................... 11,488 9,385 Inventories.......................................................... 14,242 13,684 Prepaid expenses and other current assets ........................... 1,852 1,992 Deferred income taxes................................................ 2,330 2,500 -------- --------- Total Current Assets............................................. 30,656 31,081 -------- --------- Noncurrent Assets Equipment and leasehold improvements, net ........................... 10,641 7,038 Other assets......................................................... 669 362 -------- --------- Total Noncurrent Assets.......................................... 11,310 7,400 -------- --------- $ 41,966 $ 38,481 ======== ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Accounts payable..................................................... $ 7,483 $ 5,421 Accrued expenses..................................................... 4,665 7,139 -------- --------- Total Current Liabilities........................................ 12,148 12,560 -------- --------- Deferred Income Taxes..................................................... 2,368 368 Shareholders' Equity Preferred stock, no shares outstanding .............................. - - Common stock-$.01 par value; 5,000 shares authorized; 3,246 shares issued ...................... 33 33 Capital in excess of par value....................................... 21,675 21,667 Retained earnings.................................................... 8,449 6,597 -------- --------- 30,157 28,297 Less treasury shares, at cost, 305 and 308 shares.................... (2,707) (2,744) -------- --------- Total Shareholders' Equity....................................... 27,450 25,553 -------- --------- $ 41,966 $ 38,481 ======== ========= - --------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 17 MOORE MEDICAL CORP. Statements of Operations for the Years
- --------------------------------------------------------------------------------------------------------------------- Amounts in thousands, except per share data 1999 1998 1997 - --------------------------------------------------------------------------------------------------------------------- Net sales....................................................... $118,454 $120,846 $288,513 Cost of products sold........................................... 81,573 83,143 249,451 -------- -------- -------- Gross profit.................................................... 36,881 37,703 39,062 Selling, general and administrative expenses.................... 34,465 33,326 41,857 -------- -------- -------- Operating income (loss)......................................... 2,416 4,377 (2,795) Interest (income) expense, net.................................. (8) (82) 1,898 -------- -------- -------- Income (loss) before income taxes............................... 2,424 4,459 (4,693) Income tax provision (benefit) ................................. 572 1,650 (1,772) -------- -------- -------- Net income (loss)............................................... $ 1,852 $ 2,809 $ (2,921) ======== ======== ======== Basic net income (loss) per share............................... $ .63 $ .96 $ (1.00) Diluted net income (loss) per share............................. $ .63 $ .95 $ (1.00) - ---------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 18 MOORE MEDICAL CORP. Statements of Cash Flows for the Years
- ---------------------------------------------------------------------------------------------------------------------------- Amounts in thousands 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------- Cash Flows From Operating Activities Net income (loss)................................................. $ 1,852 $ 2,809 $ (2,921) Adjustments to reconcile net income (loss) to net cash flow provided by operating activities: Depreciation and amortization................................ 1,733 1,251 1,481 Deferred income taxes........................................ 2,170 1,008 (1,130) Other........................................................ (262) 455 603 Changes in operating assets and liabilities Accounts receivable...................................... (2,103) 5,827 10,549 Inventories.............................................. (558) (268) 30,412 Other current assets..................................... 140 968 1,157 Accounts payable......................................... 2,062 (3,632) (18,018) Other current liabilities................................ (2,474) 1,338 (221) --------- --------- ---------- Net cash flows provided by operating activities ............. 2,560 9,756 21,912 --------- --------- ---------- Cash Flows From Investing Activities Equipment and leasehold improvements acquired..................... (5,336) (4,778) (660) --------- --------- ---------- Cash Flows From Financing Activities Revolving credit financing decrease, net.......................... - (1,512) (21,214) --------- --------- ---------- (Decrease) increase in cash....................................... (2,766) 3,466 38 Cash at the beginning of year..................................... 3,520 54 16 --------- --------- ---------- Cash At End Of Year............................................... $ 744 $ 3,520 $ 54 ========= ========= ========== - ----------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements. 19 MOORE MEDICAL CORP. Notes to Financial Statements Note 1 - Summary of Significant Accounting Policies General - The Company is a national marketer and distributor of healthcare products to approximately 92,000 healthcare practitioner customers in non-hospital settings. Primary customer groups are emergency medical services, medical departments at industrial sites, physicians, podiatrists, and university/school health services. It markets approximately 8,500 medical/surgical and pharmaceutical supply products (SKUs) through direct mail, telesales, and a small field sales force. Most customer orders are processed by customer support representatives. The Company fulfills orders from its regional distribution centers in Connecticut, Florida, Illinois and California and ships orders nationwide by common carriers. The Company is in its fifty-fourth year of operation, and it has served healthcare practitioner customers for over 25 years. Fiscal Year - The Company's fiscal year ends on the Saturday closest to December 31. The fiscal years ended January 1, 2000, January 2, 1999 and January 3, 1998 were comprised of 52 weeks in 1999 and 1998 and 53 weeks in 1997. Inventories - Inventories, consisting of products purchased for resale, are stated at the lower of average cost or market value. Market values are based on estimated sales prices of products. Equipment and Leasehold Improvements - Equipment is recorded at cost. Depreciation and amortization is provided on the straight-line method over the estimated useful lives (3-7 years) of the assets. Leasehold improvements are depreciated over the useful life of the asset or the term of the lease, whichever is shorter. Additionally, in 1999, the Company adopted AICPA Statement of Position 98-1 "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which requires capitalization of certain costs incurred in the development of internal-use software. Expenditures for maintenance and repairs are charged to expense as incurred. Major improvements to equipment are capitalized. The cost of assets sold or retired and the related amounts of accumulated depreciation are removed from the accounts in the year of disposal, and any resulting gain or loss is included in income. Sales Recognition Policy and Customers - Sales are recorded upon shipment of products to customers. Accounts receivable have been reduced by estimated amounts for allowances related to future charges for uncollected accounts and product returns. Advertising - The cost of direct response catalog advertising is deferred and amortized over the expected revenues. Direct response catalog advertising consists primarily of catalog production expenses and related postage costs. Catalogs are effective for varying time periods but the largest catalogs are generally effective for less than a year. At January 1, 2000 and January 2, 1999, $669,000 and $362,000, respectively, of direct response catalog advertising expenses were deferred. Catalog advertising expense totaled $2,485,000, $2,881,000 and $3,213,000 in 1999, 1998 and 1997, respectively. Income Taxes - The liability method is used to calculate deferred income taxes. Under this method, deferred income tax assets and liabilities are recognized on temporary differences between the financial statement and tax bases of assets and liabilities, using applicable tax rates, and on tax carryforwards. Basic and Diluted Net Income (Loss) Per Share - In the fourth quarter of 1997, the Company adopted Statement of Financial Accounting Standards No. 128, "Earnings per Share," for all periods presented. Basic earnings per share computations are determined based on the weighted average number of shares outstanding during the period. The effect of the exercise and conversion of all securities, including stock options are included in the diluted earnings per share calculation. 20 Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Subsequent actual outcomes could differ from those estimated and assumed. Reclassification - Certain prior year amounts have been reclassified to conform with the current year presentation. Note 2 - Income Taxes The income tax provision (benefit) consists of the following:
- ------------------------------------------------------------------------------------------------------ Amounts in thousands 1999 1998 1997 - ------------------------------------------------------------------------------------------------------ Current Federal $ (1,554) $ 625 $ (733) State (44) 17 91 ---------- --------- -------- Total current (1,598) 642 (642) ---------- --------- -------- Deferred 2,170 1,008 (1,130) ---------- --------- -------- Total provision (benefit) $ 572 $ 1,650 $(1,772) ========== ========= ========
A reconciliation of the statutory federal income tax rate and the effective income tax rate as a percentage of pretax income is as follows:
- ------------------------------------------------------------------------------------------------------------ 1999 1998 1997 - ------------------------------------------------------------------------------------------------------------ Statutory federal income tax rate 34.0% 34.0% (34.0)% State income taxes, net of federal tax benefit 3.8 3.8 (5.6) Valuation allowance 2.8 (2.2) - Other - net (17.0) 1.4 1.8 -------- --------- ---------- Effective income tax rate 23.6% 37.0% (37.8)% ======== ========= ==========
The effective income tax provision rate of 23.6% was lower than the federal statutory tax rate due primarily to a net income tax benefit of $0.3 million or 12% recorded from a favorable settlement of a prior year's tax matter. 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 1999 1998 - ----------------------------------------------------------------------------------------------------- Allowance for doubtful accounts $ 360 $ 316 Inventories 463 661 Accrued expenses 1,216 1,446 Other 209 134 --------- -------- Deferred Tax Assets 2,248 2,557 --------- -------- Accumulated depreciation/amortization (1,937) - Prepaid pension expense (350) (418) Catalog advertising - (7) --------- -------- Deferred Tax Liabilities (2,287) (425) --------- -------- $ (39) $ 2,132 ========= ========
Income tax payments totaled $1,004,000, $1,091,000 and $459,000 in 1999, 1998 and 1997, respectively. 21 Note 3 - Equipment and Leasehold Improvements Equipment, leasehold improvements and accumulated depreciation are summarized as follows:
- -------------------------------------------------------------------------------------------- Amounts in thousands 1999 1998 - -------------------------------------------------------------------------------------------- Equipment $ 6,030 $ 5,667 Computer equipment and software 13,995 9,132 Leasehold improvements 3,196 3,086 --------- --------- 23,221 17,885 Less accumulated depreciation (12,580) (10,847) --------- --------- $ 10,641 $ 7,038 ========= =========
Note 4 - Revolving Credit Financing The Company has an unsecured bank financing agreement which provides a $10 million revolving line of credit through March 30, 2000. Interest on loans is charged at the prime rate or, at the option of the Company, at the Eurodollar rate plus a rate in a range of 1% to 1.5% depending on the financial leverage of the Company. In addition, the Company pays a 1/4% commitment fee on the unused line of credit. As of January 1, 2000, the Company was in compliance with all the covenants under the agreement.
- --------------------------------------------------------------------------------------------------- Amounts in thousands 1999 1998 1997 - --------------------------------------------------------------------------------------------------- Borrowings Average $ 545 $ 149 $19,904 Maximum $ 2,661 $ 1,859 $32,312 Weighted daily average interest rate For the year 8.1% 0.0% 9.5% At year end 0.0% 0.0% 8.5%
Cash payments for interest on revolving credit financing totaled $44,000, $55,000, and $1,898,000 in 1999, 1998 and 1997, respectively. 22 Note 5 - Employee Benefits All employees meeting eligibility requirements participate in the Company's defined benefit pension plan under which pension benefits are based on the employee's highest consecutive five year average annual compensation. The Company's funding policy is to comply with the minimum funding requirements set by the Employee Retirement Income Security Act of 1974 (ERISA). Pension disclosure requirements of Financial Accounting Standards no. 132:
----------------------------------------------------------------------------------------------------------- Amounts in thousands 1999 1998 1997 ----------------------------------------------------------------------------------------------------------- Change in Benefit Obligation Benefit obligation at beginning of year $ 3,670 $ 3,467 $ 3,326 Service cost 327 333 373 Interest cost 275 260 250 Actuarial gain 262 317 46 Benefits paid (812) (707) (528) --------- --------- --------- Benefit obligation at end of year $ 3,722 $ 3,670 $ 3,467 ========= ========= ========= Change in plan assets Fair value of plan assets at beginning of year $ 4,840 $ 4,865 $ 4,371 Actual return on plan assets 1,061 682 714 Employer contribution 129 - 309 Benefits paid (812) (707) (529) --------- --------- --------- Fair value of plan assets at end of year $ 5,218 $ 4,840 $ 4,865 ========= ========= ========= Funded Status $ 1,497 $ 1,170 $ 1,398 Unrecognized net actuarial loss (613) (314) (387) Unrecognized prior service cost 37 41 46 Unrecognized transition cost 12 25 37 --------- --------- --------- Prepaid benefit cost $ 933 $ 922 $ 1,094 ========= ========= ========= Weighted-Average Assumptions as of Period Ending Discount rate 7.50% 7.50% 7.50% Expected return on plan assets 9.00% 9.00% 9.00% Rate of compensation increases 5.00% 5.00% 5.00% Components of Net Periodic Benefit Cost Service cost $ 327 $ 333 $ 373 Interest cost 275 260 250 Expected return on plan assets (436) (438) (393) Amortization prior service cost 5 5 5 Amortization transition cost 12 12 12 Recognized net actuarial loss (65) - - --------- --------- --------- Net periodic benefit cost $ 118 $ 172 $ 247 ========= ========= =========
23 The present value of the projected benefit obligation was determined using a discount rate of 7.5% in 1999, 1998 and 1997. The present value of the projected benefit obligation is based on actuarial assumptions and on estimates, including an assumed discount rate which may change in the future and significantly affect the amount of this obligation. The compensation rate increase assumption for all years was 5%. The assumed long-term rate of return on plan assets, which consist primarily of investments in various marketable securities, was 9% for all years presented. In addition to the pension plan, the Company has a 401(k) defined contribution retirement plan available to employees meeting eligibility requirements. This plan provides for Company contributions of up to 3% of employees' compensation plus additional Company contributions to partially match employee contributions. The Company's expense in connection with this plan for the years 1999, 1998 and 1997 amounted to $622,000, $469,000 and $562,000, respectively. Accrued expenses include accrued bonus at January 1, 2000 and January 2, 1999 of $234,000 and $857,000, respectively. Note 6 - Shareholders' Equity At January 1, 2000, the Company had three classes of preferred stock: Class A Cumulative Convertible, $5.00 par value, 200,000 shares authorized; Class B Cumulative Convertible, $10.00 par value, 70,002 shares authorized; and Class C, $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. Changes in Shareholders' Equity for the three years ended January 1, 2000 are as follows:
- -------------------------------------------------------------------------------------------------------- Common Stock Capital $.01 par value in Excess -------------- Shares Par of Par Retained Treasury Stock -------------- Amounts in thousands Issued Value Value Earnings Shares Cost - -------------------------------------------------------------------------------------------------------- 1997 Beginning balance 3,246 $ 32 $21,692 $ 6,709 (343) $(3,057) Net (loss) (2,921) Stock options/stock compensation (48) 24 216 ------- ------ ------- ------- -------- -------- Ending balance 3,246 32 21,644 3,788 (319) (2,841) 1998 Net income 2,809 Stock options/stock compensation 1 23 11 97 ------- ------ ------- ------- -------- -------- Ending balance 3,246 33 21,667 6,597 (308) (2,744) 1999 Net income 1,852 Stock options/stock compensation 8 3 37 ------- ------ ------- ------- -------- -------- Ending balance 3,246 $ 33 $21,675 $ 8,449 (305) $(2,707) ======= ====== ======= ======= ======== ========
The Shareholder Rights Plan which the Company adopted in March 1989 expired on March 16, 1999. In November 1998, the Company adopted a successor Shareholder Rights Plan and declared a dividend distribution, effective March 17, 1999, of one Preferred Stock Purchase Right (the "Rights") for each 24 outstanding share of common stock. The Rights will become exercisable, with certain exceptions, only if a party or group acquires 15% or more of the Company's common stock or announces an offer to acquire 15% or more. When exercisable, with some exceptions, each Right will entitle its holder (other than the party or group acquiring 15% or more or offering to acquire 15% or more of the common stock) to buy one one-hundredth of a share of a Series I Junior Participating Preferred Stock at a purchase price of $70.00. Upon the occurrence of certain events, Rightsholders (other than such party or group) will be entitled to purchase either preferred stock of the Company or shares of the acquiring company at half of their market value. The Company will generally be entitled to redeem the Rights at $.01 per Right at any time prior to the earlier of the expiration of the Rights in March, 2009 or ten days following the acquisition of or offer for 15% of the Company's common stock. Note 7 - Stock Options The 1992 Incentive Stock Option Plan authorizes stock option grants for 200,000 shares. Under the plan, options may be granted for ten years at prices not less than 100% of the fair market value of the common stock on the date of grant. The options are exercisable as determined by the Stock Option Committee of the Board of Directors at the time of grant and are typically exercisable in four or five cumulative annual installments beginning one year after the date of grant and expiring five to ten years from the date of grant. The table below summarizes share activity and weighted average price under this plan and a predecessor 1982 Incentive Stock Option Plan.
- --------------------------------------------------------------------------------------------------------------- Number of Options Weighted Average Exercise Price - --------------------------------------------------------------------------------------------------------------- Outstanding at end of 1997 106,450 $11.66 Granted 5,000 11.38 Canceled (55,075) 11.77 Exercised (7,975) 10.89 ----------- Outstanding at end of 1998 48,400 11.65 Canceled (17,750) 11.76 Exercised (2,750) 11.95 ----------- Outstanding at end of 1999 27,900 $11.55 ===========
At the end of 1999 there were exercisable 23,925 options at a weighted average price of $11.44 and at the end of 1998 there were exercisable 29,250 options at a weighted average price of $11.42. The Company's Board of Director's adopted and approved the 1998 Stock Incentive Plan (the "Plan") for directors, officers and key employees. The Plan permits the granting of non-qualified stock options of the Company's stock exercisable in four cumulative annual installments commencing one year from the date of the grant and expiring five years from the grant date. The Company issued the following non-qualified options to purchase shares of common stock:
- --------------------------------------------------------------------------------------------------------------- Number of Options Weighted Average Exercise Price - --------------------------------------------------------------------------------------------------------------- Outstanding at end of 1997 - $ 0.00 Granted 151,700 11.99 Canceled (10,500) 10.88 ----------- Outstanding at end of 1998 141,200 12.08 Granted 41,000 11.23 Canceled (67,700) 12.49 ----------- Outstanding at end of 1999 114,500 $11.54 ===========
25 At the end of 1999, there were 114,500 options outstanding and 18,375 options exercisable, and at the end of 1998 there were 141,200 options outstanding and zero options exercisable. The Company applies APB Opinion No. 25, "Accounting for Stock Issued to Employees". If compensation expense had been recognized based on the fair value of options at their grant date, as prescribed in Financial Accounting Standard No.123, the Company's 1999 and 1998 results of operations would not have been materially affected. The fair value of each option grant is estimated on the date of the grant using the Black-Scholes option pricing model with the following assumptions used for grants during the year ended January 1, 2000: dividend yield of 0%; risk-free rates ranging from 4.7% to 5.4%, expected volatility factors ranging from 34% to 38%; and an expected option term of a five year period. Note 8 - Commitments and Contingencies Beginning in 1991, the Company entered into various supply contracts with the U.S. Department of Veterans Affairs and the Defense Department. In April 1997, the Company completed a review of its compliance with various pricing provisions of these contracts and, with the assistance of special legal counsel, concluded that adjustments may be due to the federal agencies for potential unasserted claims against the Company relating to pricing deficiencies under product supply contracts subject to General Services Administration and Department of Defense regulations. In the fourth quarter of 1996, the Company established a $3.8 million reserve for estimated pricing deficiency liabilities and associated legal costs. As of the end of 1999, the reserve balance was $3.1 million. The final amount of the pricing deficiency adjustment is subject to the outcome of contract settlement discussions which the Company has requested with the governmental agencies or to an adjudicated disposition. In management's opinion, the ultimate resolution of this matter will not have a material adverse effect on the Company's financial position. Although management believes that the reserve is sufficient, it is possible the final resolution could exceed such reserve and could have a material impact on the statement of operations and cash flow in such period. In 1997, the Company established a $4.5 million restructuring reserve relating to its exit from the wholesale drug distribution business. At the end of 1999, $0.3 million was remaining and believes it will be substantially utilized during 2000. The Company leases its distribution centers, office facilities and certain equipment. Lease commitments under these agreements expire at various dates through 2006. Future minimum lease payments, as of January 1, 2000, under all leases are as follows: 2000, $1,190,000; 2001, $1,007,000; 2002, $467,000; 2003, $252,000 and later years $59,000. Rental expense amounted to $1,218,000, $1,416,000 and $1,537,000 in 1999, 1998 and 1997, respectively. 26 Note 9 - Selected Quarterly Information (Unaudited)
- ---------------------------------------------------------------------------------------------- Amounts in Net Income thousands, except Net Sales Gross Profit Net Income (Loss) Per per share data (Loss) Share - ---------------------------------------------------------------------------------------------- 1997 First $ 81,042 $ 11,216 $ 330 $ .11 Second 77,038 11,351 266 .09 Third 71,660 11,594 730 .25 Fourth 58,773 4,901 (4,247) (1.45) -------- -------- -------- -------- Year $288,513 $ 39,062 $ (2,921) $ (1.00) ======== ======== ========= ======== 1998 First $ 30,939 $ 9,338 $ 405 $ .14 Second 30,042 9,357 709 .24 Third 32,529 10,207 1,056 .36 Fourth 27,336 8,801 639 .21 -------- -------- -------- ------- Year $120,846 $ 37,703 $ 2,809 $ .95 ======== ======== ======== ======= 1999 First $ 29,055 $ 9,509 $ 477 $ .16 Second 29,367 9,215 428 .15 Third 31,077 9,446 803 .27 Fourth 28,955 8,711 144 .05 -------- -------- -------- ------- Year $118,454 $ 36,881 $ 1,852 $ .63 ======== ======== ======== ======= - ----------------------------------------------------------------------------------------------
ITEM 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None. 27 PART III ITEM 10. Directors and Executive Officers of the Registrant Incorporated by reference to information under the caption "Certain Information Regarding Management's Nominees" and "Executive Officers" in the Company's definitive proxy statement to be filed pursuant to Regulation 14A. ITEM 11. Executive Compensation Incorporated by reference to information under the caption "Executive Compensation," "Defined Benefit Plans," "Stock Options," "Compensation Committee Interlocks and Insider Participation," "Executive Committee's Compensation Report," "Performance Graph," and "Fees Paid to Directors" in the Company's definitive proxy statement to be filed pursuant to Regulation 14A. ITEM 12. Security Ownership of Certain Beneficial Owners and Management Incorporated by reference to information under the caption "Principal Holders of Common Stock," "Certain Information Regarding Management's Nominees," and "Executive Officers" in the Company's definitive proxy statement to be filed pursuant to Regulation 14A. ITEM 13. Certain Relationships and Related Transactions Incorporated by reference to information under the captions "Fees Paid to Directors," "Executive Compensation," and "Defined Benefit Plans" in the Company's definitive proxy statement to be filed pursuant to Regulation 14A. 28 PART IV ITEM 14. 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 15. 2. Financial Statement Schedules. The financial statement schedules filed as part of this Form 10-K are listed in the index on page 15. Financial statement schedules not included in this Form 10-K Annual Report have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
3. Exhibits Filed Under Item 601 of Regulation Filed Herewith or Incorporated by Reference To: S-K 3. Articles of Incorporation and By-Laws .1 Certificate of Incorporation, as Exhibit 3.1 to Form 10-K for the fiscal year ended amended. January 3, 1981, Exhibit 1 to Form 10-Q for the quarter ended June 29, 1985, Exhibit 3.1 to Form 10-K for the fiscal year ended January 2, 1988. Exhibit 3.1 to Form 10-K for the fiscal year ended January 2, 1999. .2 Certificate of Designation under Exhibit 3.2 to Form 10-K for the fiscal year ended Delaware General Corporation Law. January 3, 1981, Exhibit 2 to Form 8-K dated March 8, 1989, and Exhibit 3 to Form 8-A filed December 30, 1998. .3 By-law, as amended. Exhibit 3.3 to Form 10-K for the fiscal year ended January 3, 1981, Exhibit 3.3 to Form 10-K for the fiscal year ended December 30, 1989, and Exhibit 3.3 to Form 10-K for the fiscal year ended January 2, 1999. 4. Instruments Defining the Rights of Security Holders .1 Rights Agreement, as amended, dated Exhibit 1 to Form 8-K dated March 8, 1989 and Exhibit 1 March 8, 1989. to Form 8-K dated March 8, 1990. .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).
29 10. Material Contracts .3 Leases of property located in New Exhibit 10.3A to Form 10-K for the fiscal year ended Britain, Connecticut, as amended. December 28, 1985 and Exhibit 10.3 to Form 10-K for the fiscal year ended December 30, 1989. .4A MetLife Savings Plan Program - Exhibit 10.4A to Form 10-K for the fiscal year ended Defined Contribution Basic Plan December 31, 1994. Document dated March 30, 1994. .4B MetLife Savings Plan Program - Exhibit 10.4B to Form 10-K for the fiscal year ended 401(k) Plan Adoption Agreement dated December 31, 1994. October 20, 1994. .4C MetLife Savings Plan Program - Exhibit 10.4C to Form 10-K for the fiscal year ended Prototype Plan Amended & Restated January 1, 1994. Trust Agreement. .4D MetLife Savings Plan Program - Exhibit 10.4D to Form 10-K for the fiscal year ended Service Agreement. January 1, 1994. .5 Defined Benefit Pension Plan and Trust Exhibits 10.5A, 10.5B and 10.5C to Form 10-K for Agreement dated September 26, 1994, as the fiscal year ended December 31, 1994 and amended. Exhibit 10.5D filed herewith. .6 Incentive Stock Option Plan. Exhibit A to the 1982 Proxy Statement, Exhibit 10.2 to Form 10-K for the fiscal year ended January 1, 1983 and Exhibit 4(d) to a Registration statement on Form S-8 (commission file No. 33-20037) effective February 29, 1988 and Exhibit A to the 1992 Proxy Statement. .7 Non-qualified Stock Option Plan. Exhibit 10.7 to Form 10-K for fiscal year ended January 2, 1999. .8 Change of Control and Position on Payment Filed herewith. Plan. .9 Change of Control Payment Plan. Filed herewith. .12 Revolving Credit Agreement by and among Exhibit 1 to Form 8-K dated January 9, 1996. the Company, Bank of Boston Connecticut, the other lenders which are or may become parties thereto and Bank of Boston Connecticut, as agent, dated January 9, 1996.
30 .14 First Amendment to Revolving Credit Exhibit 10.14 to Form 10-K for the fiscal year ended Agreement by and among the Company, December 28, 1996. Bank of Boston Connecticut and certain other lending institutions, dated March 1, 1996. .15 Second Amendment to Revolving Credit Exhibit 10.15 to Form 10-K for the fiscal year ended Agreement by and among the Company, December 28, 1996. Bank of Boston Connecticut and certain other lending institutions, dated December 27, 1996. .16 Third Amendment to Revolving Credit Exhibit 1 to Form 10-Q for the first quarter, ended Agreement by the Company and BankBoston March 29, 1997. Connecticut, dated April 14, 1997. .17 Fourth Amendment to Revolving Credit Exhibit 10.17 to Form 10-K for fiscal year ended Agreement by the Company and BankBoston, N.A., January 3, 1998. dated March 30, 1998. .18 Fifth Amendment to Revolving Credit Exhibit 10.18 to Form 10-Q for the second quarter ended Agreement by the Company and BankBoston, July 3, 1999. N.A., dated April 30, 1999. .19 Sixth Amendment to Revolving Credit Filed herewith. Agreement by the Company and BankBoston, N.A., dated December 23, 1999. 21. Subsidiaries Exhibit 22 to Form 10-K for the fiscal year ended December 28, 1991. .1 Subsidiaries, identifiable pursuant to Item 601 (21) of Regulation S-K. 23. Consent of Expert .1 Consent of PricewaterhouseCoopers LLP. Filed herewith.
(b) Reports on Form 8-K: The Company filed no Current Report on Form 8-K during the quarter ended January 1, 2000. 31 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MOORE MEDICAL CORP. BY: /s/ Linda M. Autore BY: /s/ Joseph P. Savidge ------------------------------------------ ---------------------------------------------------- Linda M. Autore, President and Chief Joseph P. Savidge, Senior Vice Executive Officer President and Chief Financial Officer March 31, 2000 March 31, 2000 BY: /s/ Susan G. D'Amato ---------------------------------------------------- Susan G. D'Amato, Vice President - Finance and Chief Accounting Officer March 31, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. /s/ Robert H. Steele - ---------------------------------------------- -------------------------------------------------------- Robert H. Steele, Director Peter C. Sutro, Director March 31, 2000 March 31, 2000 /s/ Steven Kotler /s/ Wilmer J. Thomas, Jr. - ---------------------------------------------- ------------------------------------------------------- Steven Kotler, Director Wilmer J. Thomas, Jr., Director March 31, 2000 March 31, 2000 /s/ Dan K. Wassong - ---------------------------------------------- -------------------------------------------------------- Dan K. Wassong, Director Christopher W. Brody, Director March 31, 2000 March 31, 2000
32 SCHEDULE II MOORE MEDICAL CORP. VALUATION AND QUALIFYING ACCOUNTS ALLOWANCES FOR RETURNS AND UNCOLLECTIBLES AND CUSTOMER REBATES
Balance at Additions Balance at Beginning Charged to End of of Period Expenses Deductions Period ------------ ----------- ------------ ---------- Allowance for Returns and Uncollectibles Fiscal Year End January 1, 2000 $ 372 $ 16 $ (188) $ 200 Fiscal Year End January 2, 1999 $ 891 $ 112 $ (631) $ 372 Fiscal Year End January 3, 1998 $ 320 $1,115 $ (544) $ 891 Allowance for Customer Rebates Fiscal Year End January 1, 2000 $ 0 $ 0 $ 0 $ 0 Fiscal Year End January 2, 1999 $ 0 $ 0 $ 0 $ 0 Fiscal Year End January 3, 1998 $ 306 $ 82 $ (388) $ 0
33 EX-10.5D 2 DEFINED BENEFIT PENSION PLAN AND TRUST Exhibit 10.5D AMENDMENT NO. 4 TO THE ---------------------- MOORE MEDICAL CORP. DEFINED BENEFIT PENSION PLAN AND TRUST -------------------------------------- The Moore Medical Corp. Defined Benefit Pension Plan and Trust Agreement is amended, effective August 18, 1999, as follows: 1. Section 1.1, Trustees, is deleted in its entirety and the following Section ----------- -------- ------- 1.1, Trustees, is substituted therefor: --- -------- "1.1 TRUSTEES The following are hereby appointed to act as Trustees hereunder:
NAME ADDRESS ---- ------- (a) The President of Moore Medical Corp. 389 John Downey Drive, New Britain, CT 06050 (b) An Executive Vice President of 389 John Downey Drive, Moore Medical Corp., as designed by New Britain, CT 06050 The President from time to time. (c) An Senior Vice President of 389 John Downey Drive Moore Medical Corp., as designated by the New Britain, CT 06050 President from time to time
2. The remainder of the Moore Medical Corp. Defined Benefit Pension Plan and Trust Agreement is ratified and affirmed. IN WITNESS WHEREOF, the parties have executed this amendment this _______ day of November, 1999. MOORE MEDICAL CORP. By /s/ Linda M. Autore --------------------- Its President /s/ Linda M. Autore --------------------- Linda M. Autore, (President), Trustee /s/ Kenneth S. Kollmeyer -------------------------- Kenneth S. Kollmeyer, (Executive Vice President - Operations), Trustee /s/ Joseph S. Savidge ----------------------- Joseph P. Savidge, (Senior Vice President-Finance), Trustee EX-10.8 3 CHANGE OF CONTROL AND POSITION PAYMENT PLAN Exhibit 10.8 MOORE MEDICAL CORP. P.O. Box 1500 389 John Downey Drive New Britain, CT 06050-1500 Change of Control and Position Payment Plan 1. Purpose The plan is designed to offer an incentive to selected key employees of the Company to continue in its employ by providing for severance payments if they should be affected by a "change in position" as a result of a "change of control or position." 2. Eligibility The participants in this plan are the key employees of the Company selected for participation by the Chairman of the Board/President, as evidenced by his/her letter to the employee advising him or her of participation, and extent of participation, in the plan. A participant's eligibility will terminate in the event of, and on, the material breach of his or her duties to the Company. 3. Severance Payment Conditions Severance will be payable to participants if at least one of the following two defined conditions are satisfied: (a) a "change of control" on or before December 31, 2000, and (b) a "change in position" within twelve months after the control party change. (a) A "change of control" is: (i) either (x) any merger or consolidation of the Company into or with another corporation (other than a subsidiary of the Company), or (y) the acquisition by another person or entity of beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of more than 50% of the common stock of the Company unless, immediately after such merger, consolidation or acquisition, the holders of common stock of the Company immediately prior to such merger, consolidation or acquisition own more than 50% of the voting capital stock of such other corporation or the voting interests of such person or entity; or (ii) any sale by the Company of substantially all of the assets and business of the Company for cash, stock, or any combination thereof, unless, immediately after such sale, the holders of common stock of the Company immediately prior to such sale own 50% or more of the voting capital stock of the acquiring corporation or, if the acquiring person or entity is not a corporation, more than 50% of the voting equity interests of such acquiring person or entity; or (iii) either (x) the election or removal of a majority of the directors of the Company as a result of a solicitation subject to Rule 14a- 11 (or successor Rule) under the Securities Exchange Act of 1934 relating to the election or removal of directors, or (y) the election of directors constituting a majority of the directors of the Company by other than the action of directors a majority to whom consist of Continuing Directors; for purposes hereof, a "Continuing Director" means a director (aa) for whose election the Company solicited proxies pursuant to a proxy statement under Regulation 14A of said Act, or (bb) who was elected by action of the directors a majority of whom were elected as described in clause (aa) hereof, or (cc) who was elected by action of directors a majority of whom were elected as described in clause (aa) and/or clause (bb) hereof. (b) A participant's "change of position" is the termination of his or her employment by the Company (other than by reason of death, disability, or a material breach by the participant of his or her duties as an employee of the Company) or a substantial change in his or her duties. A participant will be considered to have had a substantial change in his or her duties only if: (I) (x) the position level of the participant is lowered, or (y) the duties of the participant (if he or she held a corporate position level immediately prior to the change of control) are changed to (aa) primarily consist of new duties not based upon his or her training or experience, or (bb) include substantial duties performed immediately prior to the change of control by employees of the Company previously subordinate to the participant, or (z) the principal location of employment by the Company of the participant is changed to a location more than 75 miles from his or her residence (for purposes hereof, such residence is to be the participant's residence when the intent of any party to cause a "change of control" becomes actually known to the participant or is first publicly disclosed); and (ii) within 90 days after the occurrence of any of the events referred to in clause (x), (y), or (z) of Section 3(b) (i) hereof, he or she terminates his or her employment by the Company. 4. Severance Amount Each participant's severance amount will be the amount stated in the Chairman of the Board's/President's letter referred to in paragraph 2, above, as a percentage of the participant's annualized W-2 gross salary plus employee 401(k) contribution, but will not include any amount computed with respect to any incentive or bonus compensation, Company 401(k) contribution, car allowance, or other Company provided benefit. Payment of severance amounts will be made within 45 days after the quarter-end during which the later of the two conditions described in paragraph 3, above, occurs. In no event shall the amount payable under this paragraph exceed an amount which would (when aggregated with any other amounts which would be subject to the Section 280G or Section 162(m) provisions hereinafter referred to) result in any part of a payment otherwise to be made under this paragraph constituting a "parachute payment" under Section 280G of the Internal Revenue Code of 1986, as amended, or a payment which, pursuant to Section 162(m) of said Code, would not be deductible by the Company as compensation for federal income tax purposes. 5. Administration; Determinations The plan will be administered by the Board's Compensation Committee. All interpretations and implementations of the plan by the Committee not expressly inconsistent with the plan will be final and binding on the company and all participants. Neither this plan nor any letter to a participant under Section 2 thereof can be changed orally and can be changed only by a writing specifically making a change and signed by the Chairman of the Board/President of the Company. EX-10.9 4 CHANGE OF CONTROL PAYMENT PLAN Exhibit 10.9 MOORE MEDICAL CORP. P.O. Box 1500 389 John Downey Drive New Britain, CT 06050-1500 Change of Control Payment Plan 6. Purpose The plan is designed to offer an incentive to selected key employees of the Company to continue in its employ by providing for severance payments if they should be affected as a result of a "change of control". 7. Eligibility The participants in this plan are the key employees of the Company selected for participation by the President, as evidenced by her letter to the employee advising him or her of participation, and extent of participation, in the plan. Eligibility will terminate in the event of, and on, the material breach of his or her duties to the Company. 8. Severance Payment Conditions Severance will be payable to participants only if the following condition is satisfied: (a) a "change of control" on or before December 31, 2000.* (c) A "change of control" is: (iv) either (x) any merger or consolidation of the Company into or with another corporation (other than a subsidiary of the Company), or (y) the acquisition by another person or entity of beneficial ownership (as defined in Rule 13d-3 under the Securities Exchange Act of 1934) of more than 50% of the common stock of the Company unless, immediately after such merger, consolidation or acquisition, the holders of common stock of the Company immediately prior to such merger, consolidation or acquisition own more than 50% of the voting capital stock of such other corporation or the voting interests of such person or entity; or (v) any sale by the Company of substantially all of the assets and business of the Company for cash, stock, or any combination thereof, unless, immediately after such sale, the holders of common stock of the Company immediately prior to such sale own 50% or more of the voting capital stock of the acquiring corporation or, if the acquiring person or entity is not a corporation, more than 50% of the voting equity interests of such acquiring person or entity; or (vi) either (x) the election or removal of a majority of the directors of the Company as a result of a solicitation subject to Rule 14a-11 (or successor Rule) under the Securities Exchange Act of 1934 relating to the election or removal of directors, or (y) the election of directors constituting a majority of the directors of the Company by other than the action of directors a majority to whom consist of Continuing Directors; for purposes hereof, a "Continuing Director" means a director (aa) for whose election the Company solicited proxies pursuant to a proxy statement under Regulation 14A of said Act, or (bb) who was elected by action of the directors a majority of whom were elected as described in clause (aa) hereof, or (cc) who was elected by action of directors a majority of whom were elected as described in clause (aa) and/or clause (bb) hereof. 9. Severance Amount Each participant's severance amount will be the amount stated in the President's letter referred to in paragraph 2, above, as a percentage of the participant's annualized W-2 gross salary plus employee 401(k) contribution, but will not include any amount computed with respect to any incentive or bonus compensation, Company 401(k) contribution, car allowance, or other Company provided benefit. (Should you accept, the letter refers to 75% of annualized W-2 gross salary). Payment of severance amounts will be made within 45 days after the quarter-end during which the later of the two conditions described in paragraph 3, above, occurs. In no event shall the amount payable under this paragraph exceed an amount which would (when aggregated with any other amounts which would be subject to the Section 280G or Section 162(m) provisions hereinafter referred to) result in any part of a payment otherwise to be made under this paragraph constituting a "parachute payment" under Section 280G of the Internal Revenue Code of 1986, as amended, or a payment which, pursuant to Section 162(m) of said Code, would not be deductible by the Company as compensation for federal income tax purposes. 10. Administration: Determinations The Board's Compensation Committee will administer the plan. All interpretations and implementations of the plan by the Committee not expressly inconsistent with the plan will be final and binding on the company and all participants. Neither this plan nor any letter or a participant under Section 2 thereof can be changed orally and can be changed only by writing specifically making a change and signed by the President of the Company. EX-10.19 5 SIXTH AMENDMENT AGREEMENT Exhibit 10.19 SIXTH AMENDMENT AGREEMENT - ------------------------- SIXTH AMENDMENT AGREEMENT (This "Amendment Agreement") dated as of December 23, 1999 by and among Moore Medical Corp. (the "Borrower"), BankBoston, N.A. (as successor by merger to Bank of Boston Connecticut) and certain other lending institutions (collectively, the "Banks"), and BankBoston, N.A. (as successor by merger to Bank of Boston Connecticut), as agent for the Banks (in such capacity, the "Agent"), amending a certain Revolving Credit Agreement dated as of January 9, 1996, as amended by the First Amendment Agreement dated as of March 1, 1996, the Second Amendment Agreement dated as of December 27, 1996, the Third Amendment and Waiver Agreement dated as of April 14, 1997, the Fourth Amendment and Waiver Agreement dated as of March 30, 1998 and the Fifth Amendment Agreement dated as of April 30, 1998 (as amended, the "Credit Agreement"). WITNESSETH - ---------- WHEREAS, the Borrower has requested that the Banks amend certain terms and conditions of the Credit Agreement; and WHEREAS, the Banks and the Agent are willing to amend such terms and conditions on the terms and conditions set forth herein. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: (S)1. Definitions. Capitalized terms used herein without definition that ----------- are defined in the Credit agreement shall have the same meanings herein as therein. (S)2. Ratification of Existing Agreements. All of the borrower's ----------------------------------- obligations and liabilities to the Agent and the Banks, and all the Agent's and Banks' obligations and liabilities to the Borrower, as evidenced by or otherwise arising under the Credit Agreement, the Notes and the other Loan Documents, except as otherwise expressly modified in this Amendment Agreement upon the terms set forth herein, are, by the Borrower's, the Agent's and Banks' execution of this Amendment Agreement, ratified and confirmed in all respects. In addition, by the Borrower's execution of this Amendment Agreement, the Borrower represents and warrants that, subject to the provided and provided, however, -------- -------- ------- clauses of Section 5.4 of the Credit Agreement, no counterclaim, right of set- off or defense of any kind exists or is outstanding with respect to such obligations and liabilities. (S)3. Representations and Warranties. All of the representations and ------------------------------ warranties made by the Borrower in the Credit Agreement, the Notes and the other Loan Documents are true and correct on the date hereof as if made on and as of the date hereof, except to the extent that any of such representations and warranties relate by their terms to a prior date and except to the extent of changes resulting from transactions contemplated or permitted by the Credit Agreement and changes occurring in the ordinary course of business that singly or in the aggregate do not have a Material Adverse Effect. (S)4. Conditions Precedent. The effectiveness of the amendments -------------------- contemplated hereby shall be subject to the satisfaction on or before the date hereof of each of the following conditions precedent: (a) Representations and Warranties. All of the representations and ------------------------------ warranties made by the Borrower herein, whether directly or incorporated by reference, shall be true and correct on the date hereof, except as provided in (S)3 hereof. (b) Performance; No Event of Default. The Borrower shall have -------------------------------- performed and complied in all material respects with all terms and conditions herein required to be performed or complied with by it prior to or at the time hereof, and there shall exist no Default or Event of Default. (c) Corporate Action. All requisite corporate action necessary for ---------------- the valid execution, delivery and performance by the Borrower of this Amendment Agreement and all other instruments and documents delivered by the Borrower in connection therewith shall have been duly and effectively taken. (d) Delivery. The parties hereto shall have executed and delivered -------- this Amendment Agreement. In addition, the borrower shall have executed and delivered such instruments, and take such further action as the Agent and the Banks may have reasonably requested, in each case further to effect the purpose of this Amendment Agreement, the Credit Agreement and the other Loan Documents. (e) Fees and Expenses. The Borrower shall have paid to the Agent ----------------- and the Banks all fees and expenses incurred by the agent in connection with this Amendment Agreement, the Credit Agreement or the other Loan Documents on or prior to the date hereof. (S)5. Amendment to Credit Agreement. ----------------------------- (S)5.1. Amendment to Revolving Credit Loan Maturity Date. The ------------------------------------------------ definition of "Revolving Credit Loan Maturity Date" appearing in Schedule 2 to the Credit Agreement, and as amended by the Second Amendment Agreement, is hereby further amended by deleting the date "December 31, 1999" appearing therein and substituting therefor the date "March 30, 2000". (S)6. Expenses. The Borrower agrees to pay to the Agent upon demand an -------- amount equal to any and all out-of-pocket costs or expenses (including reasonable legal fees and disbursements and appraisal expenses) incurred or sustained by the Agent in connection with the preparation of this Amendment Agreement and any related matters. (S)7. Miscellaneous. ------------- (a) This Amendment Agreement shall be governed by and construed in accordance with the laws of the State of Connecticut. (b) Except as otherwise expressly provided by this Amendment Agreement, all of the respective terms, conditions and provisions of the Credit Agreement shall remain the same and in full force and effect. It is declared and agreed by each of the parties hereto that this Amendment Agreement and the Credit Agreement be read and construed as one instrument, and all references in the Loan Documents to the Credit Agreement shall hereafter refer to the Credit Agreement, as amended by this Amendment Agreement. IN WITNESS WHEREOF, each of the parties hereto have caused this Amendment Agreement to be executed in its name and behalf by its duly authorized officer as of the date first written above. MOORE MEDICAL CORP. By: /s/ Joseph P. Savidge ----------------------- Title: Senior Vice President - Finance And Chief Financial Officer BANKBOSTON, N.A. (as successor by Merger to Bank of Boston Connecticut) Individually and as Agent By: /s/ Donald W. Peters ---------------------- Title: Vice President EX-23.1 6 CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the incorporation by reference in the Prospectuses constituting part of the Registration Statements on Form S-8 (Nos. 33-20037, 33-68128 and 333-75445) and in the Prospectuses on Form S-3 included therein of Moore Medical Corp. of our report dated February 16, 1998, except for Note 5, as to which the date is March 30, 1998, appearing on page 15 of this Form 10-K. We also consent to the reference to us under the heading "Experts" in such Prospectuses. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP Hartford, Connecticut March 28, 2000 EX-27 7 FINANCIAL DATA SCHEDULE
5 1,000 12-MOS 12-MOS JAN-01-2000 JAN-02-1999 JAN-03-1999 JAN-04-1998 JAN-01-2000 JAN-02-1999 744 3,520 0 0 11,688 9,757 200 372 14,242 13,684 30,656 31,081 23,221 17,885 12,580 10,847 41,966 38,481 12,148 12,560 0 0 0 0 0 0 33 33 27,417 25,520 41,966 38,481 118,454 120,846 118,454 120,846 81,573 83,143 81,573 83,143 34,465 33,326 0 0 (8) (82) 2,424 4,459 572 1,650 1,852 2,809 0 0 0 0 0 0 1,852 2,809 .63 .96 .63 .95
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