Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended AUGUST 4, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ____________ to _______________.
Commision File Number
0-18208
MAXXIM MEDICAL, INC.
(Exact name of registrant as specified in its charter)
TEXAS 76-0291634
State or other jurisdiction of (I.R.S. Employee Identification No.)
incorporation or organization)
104 INDUSTRIAL BOULEVARD, SUGAR LAND, TEXAS 77478
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code...............(713) 240-5588
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ X ] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock:
Class Outstanding at September 11, 1996
COMMON STOCK, $.001 PAR VALUE 8,089,127
<PAGE>
MAXXIM MEDICAL, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1.Condensed Consolidated Balance Sheets as of
August 4, 1996 and October 29, 1995 2
Condensed Consolidated Statements of Operations
for the Three Months and Nine Months
Ended August 4, 1996 and July 30, 1995 3
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended August 4, 1996 and
July 30, 1995 4
Notes to Condensed Consolidated Financial
Statements 5
Item 2.Management's Discussion and Analysis of Results
of Operations and Financial Condition 8
PART II. OTHER INFORMATION 11
SIGNATURES 12
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAXXIM MEDICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
August 4, October 29,
1996 1995
--------- ---------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and Cash Equivalents ........................ $ 2,705 $ 5,074
Accounts Receivable, net of allowances of
$2,698 and $2,054, respectively ................ 84,178 51,276
Inventory ........................................ 94,362 64,649
Prepaid Expenses, Deferred Assets and Other ...... 9,470 4,264
--------- ---------
Total Current Assets ........................... 190,715 125,263
PROPERTY AND EQUIPMENT ............................. 116,921 112,134
Less: Accumulated Depreciation ................ (18,697) (16,580)
--------- ---------
98,224 95,554
GOODWILL AND OTHER INTANGIBLES, Net ................ 144,538 41,536
DEFERRED TAXES AND OTHER ASSETS, Net ............... 8,660 2,137
--------- ---------
Total Assets .................................... $ 442,137 $ 264,490
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current Maturities of Long-Term Debt ............. $ 6,000 $ 11,250
Accounts Payable ................................. 33,004 21,917
Accrued Liabilities .............................. 33,807 18,064
Other Short-Term Obligations ..................... 551 746
--------- ---------
Total Current Liabilities ...................... 73,362 51,977
10 1/2% SENIOR SUBORDINATED NOTES .................. 100,000 --
6 3/4% CONVERTIBLE SUBORDINATED DEBENTURES ......... 28,750 28,750
LONG-TERM DEBT, net of current maturities ......... 116,300 65,737
OTHER LONG-TERM LIABILITIES ........................ 1,615 1,675
--------- ---------
Total Liabilities .............................. 320,027 148,139
--------- ---------
SHAREHOLDERS' EQUITY
Preferred Stock, $1.00 par, 10,000,000 shares
authorized, none issued or outstanding ......... -- --
Common Stock, $.001 par value, 40,000,000
shares authorized, 8,127,390, and 8,087,647
shares issued and outstanding, respectively .... 8 8
Additional Paid-in Capital ....................... 91,880 91,677
Retained Earnings ................................ 32,293 23,659
Cumulative Translation Adjustment ................ (2,071) 1,007
--------- ---------
Total Shareholders' Equity ..................... 122,110 116,351
--------- ---------
Total Liabilities and Shareholders' Equity ...... $ 442,137 $ 264,490
========= =========
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
MAXXIM MEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- ----------------------------
August 4, July 30, August 4, July 30,
1996 1995 1996 1995
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Net Sales ................................................ $ 84,128 $ 65,670 $ 261,587 $ 182,547
Cost of Sales ............................................ 61,817 46,097 188,531 126,602
-------- -------- --------- ---------
Gross Profit ............................................. 22,311 19,573 73,056 55,945
Operating Expenses:
Marketing and Selling ............................... 12,533 11,770 42,229 33,990
General and Administrative .......................... 3,352 2,940 11,209 8,612
Nonrecurring Charges ................................ 0 10,845 0 10,845
-------- -------- --------- ---------
15,885 25,555 53,438 53,447
Income (Loss) from Operations ............................ 6,426 (5,982) 19,618 2,498
Interest Expense ......................................... (1,795) (943) (5,582) (2,001)
Other Income (Expense), net .............................. 134 (393) (265) (410)
-------- -------- --------- ---------
Income (Loss) Before Taxes ............................... 4,765 (7,318) 13,771 87
Income Taxes (Benefit) ................................... 1,813 (2,540) 5,142 80
-------- -------- --------- ---------
Net Income (Loss) ........................................ $ 2,952 $ (4,778) $ 8,629 $ 7
======== ======== ========= =========
Primary Earnings (Loss) Per Share ........................ $ 0.36 $ (0.59) $ 1.04 $ --
======== ======== ========= =========
Fully Diluted Earnings (Loss) Per Share .................. $ 0.33 $ (0.59) $ 0.97 $ --
======== ======== ========= =========
Weighted Average Shares Outstanding ...................... 8,309 8,164 8,304 8,155
======== ======== ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
MAXXIM MEDICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, In thousands)
Nine Months Ended
----------------------
August 4, July 30,
1996 1995
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ...................................... $ 8,629 $ 7
Adjustment to Reconcile Net Income to Net
Cash Used in Operations:
Depreciation and Amortization ............. 10,087 5,904
Change in Operating Assets and Liabilities (12,008) (6,576)
--------- ---------
NET CASH PROVIDED BY (USED IN) OPERATIONS ............ 6,708 (665)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment, Inventory
and Other Assets, Net of Stock Issued
Valued at $360 ............................... -- (1,500)
Purchase of Medica .............................. -- (11,000)
Purchase of Bovie electrosurgery product line ... -- (2,600)
Purchase of Glove Operations .................... -- (73,905)
Proceeds from the Sale of Henley Assets ......... 6,000 --
Purchase of Sterile Concepts .................... (108,800) --
Purchase of Property and Equipment and Other .... (9,597) (16,055)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES ................ (112,397) (105,060)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) Increase in Negative
Book Cash Balance ............................ (304) 1,657
Net Proceeds from the Issuance of Notes ......... 97,000 --
Payments on Sterile Concepts Debt ............... (34,247) --
Borrowings on Long-term Debt--Net ............... 45,313 72,534
Other Financing Activities ...................... (1,364) 83
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES ............ 106,398 74,274
EFFECT OF FOREIGN CURRENCY TRANSLATION
ADJUSTMENT ........................................ (3,078) 759
--------- ---------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS .................................. (2,369) (30,692)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD ............................... 5,074 31,869
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........... $ 2,705 $ 1,177
========= =========
SUPPLEMENTAL DISCLOSURE ON NON-CASH ACTIVITIES
Convertible Note Received from the Sale
of Henley Assets ............................. $ 7,000 $ --
========= =========
4
MAXXIM MEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying condensed consolidated financial statements include the
accounts of Maxxim Medical, Inc. and its wholly owned subsidiaries
(collectively, the Company). The Company develops, manufactures and markets
specialty hospital products.
The accompanying unaudited condensed consolidated financial statements
reflect all adjustments of a normal recurring nature which, in the opinion of
management, are necessary for a fair presentation of the results for the interim
periods presented. All significant intercompany balances and transactions have
been eliminated in consolidation.
These financial statements should be read in conjunction with the
Company's annual audited financial statements for the year ended October 29,
1995, included in the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission.
Certain reclassifications have been made to the 1995 condensed
consolidated financial statements to conform with the 1996 presentation.
Note 2 - Summary of Significant Accounting Policies
Commencing in fiscal year 1994 the Company implemented a fiscal year
which ends on the Sunday nearest to the end of the month of October. Normally
each fiscal year will consist of 52 weeks, but every five or six years, the
fiscal year will consist of 53 weeks. For fiscal 1996 the year end date will be
November 3 compared to a 1995 year end date of October 29. Fiscal 1996 will
consist of 53 weeks. The third quarter of fiscal 1996 ended on August 4 compared
to the fiscal 1995 quarter end date of July 30.
Note 3 - Translation of Foreign Currency Financial Statements
Assets and liabilities of foreign subsidiaries have been translated into
United States dollars at the applicable rates of exchange in effect at the end
of the period reported. Revenues and expenses have been translated at the
applicable weighted average rates of exchange in effect during the period
reported. Translation adjustments are reflected as a separate component of
stockholders' equity.
Note 4 - Earnings Per Share
Earnings per share is based on the weighted average number of common
shares and common stock equivalents outstanding for the period. For purposes of
this calculation, outstanding stock options are considered common stock
equivalents using the treasury stock method. On a fully diluted basis, both net
income available to common shareholders and shares outstanding are adjusted to
assume the conversion of the 6 3/4% Convertible Subordinated Debentures from the
date of issue.
5
MAXXIM MEDICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 5 - Estimates Involved in Preparing the Condensed Consolidated Financial
Statements
The Company's interim financial statements are prepared in accordance
with the same accounting policies as those followed at year end. Certain items
in the financial statements can be determined on an interim basis only by making
accounting estimates. The accuracy of such amounts is dependent upon facts that
will exist and procedures that will be accomplished by the Company later in the
year. Certain of the significant accounting estimates related to the
accompanying statements are stated below.
Inventories -
The Company makes a physical count of portions of its inventory at or
near year end. The amount reflected as inventory as of August 4, 1996 and the
related amount for the cost of sales have been determined using the Company's
normal accounting procedures. In management's opinion, no significant adjustment
would have been required had an actual count of the inventory been made.
Inventory as of August 4, 1996 and October 29, 1995 included the following:
August 4, October 29,
1996 1995
--------- -----------
(In thousands)
Raw Materials .......................... $41,110 $24,335
Work In Progress ....................... 7,841 7,037
Finished goods and goods
purchased for resale ................. 45,411 33,277
------- -------
$94,362 $64,649
======= =======
Income Taxes -
The Company has calculated current and deferred income tax provisions
for the quarters ended August 4, 1996 and July 30, 1995, based on its best
estimate of the effective income tax rate expected to be applicable for the full
fiscal year.
Note 6 - Completion of a tender offer to the shareholders of Sterile Concepts
Holdings, Inc.
The company's tender offer (the "Tender Offer") to the shareholders of
Sterile Concepts Holdings, Inc. ("Sterile Concepts"), which commenced on June
14, 1996, was consummated just prior to the end of its third fiscal quarter.
Approximately 98.4% or 5,438,059 shares of Sterile Concepts outstanding common
stock was acquired for approximately $108,800,000 in cash or $20 per share. The
Company expects to acquire the remaining 88,325 shares, at $20 per share, in a
merger expected to be completed prior to the end of its fiscal year. The Company
funded the transaction from borrowings under an amended credit facility and the
net proceeds from the issuance of 10 1/2% Senior Subordinated Notes (see Notes 7
and 8). The transaction was accounted for by the purchase method of accounting.
The financial statements reflect the consolidation of Sterile Concepts balance
sheet, however no operating results of Sterile Concepts are reflected in the
statements of operations presented herein.
6
Note 7 - Amended Credit Facility
On July 30, 1996 the Company entered into an Amended and Restated Credit
Agreement ("Credit Agreement") with its primary lender. The Credit Agreement
provides for a six year term loan of $90 million and a six year $75 million
revolving line of credit. At the end of the fiscal quarter the Company had drawn
$32,300,000 on the revolver.
Note 8 - Senior Subordinated Notes
On July 30, 1996 the Company completed a private placement offering of
$100,000,000 of 10 1/2% Senior Subordinated Notes ("Notes"). The Notes mature on
August 1, 2006 unless previously redeemed. Interest on the Notes is payable
semiannually on February 1 and August 1, commencing February 1, 1997. At its
option the Company may redeem the Notes for cash at any time on or after August
1, 2001 at a fixed redemption price in accordance with the terms set forth in
the Indenture with respect the to Notes. Net proceeds from the offering of
approximately $97,000,000 were used to partially finance the purchase of shares
pursuant to the Tender Offer (See Note 6).
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
The following discussion should be read in conjunction with the
Condensed Consolidated Financial Statements and related Notes appearing
elsewhere in this report.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentage which selected items in the Condensed Consolidated Statements of
Operations bear to net sales:
<TABLE>
<CAPTION>
Percentage of Net Sales
-----------------------------------------------------
Three Months Ended Nine Months Ended
----------------------- -----------------------
August 4, July 30, August 4, July 30,
1996 1995 1996 1995
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Net Sales ..................... 100.0% 100.0% 100.0% 100.0%
Cost of Sales ................. 73.5% 70.2% 72.1% 69.4%
--------- -------- --------- --------
Gross Profit .................. 26.5% 29.8% 27.9% 30.6%
Operating Expenses ............ 18.9% 22.4% 20.4% 23.3%
Nonrecurring Charges .......... 0.0% 16.5% 0.0% 5.9%
--------- -------- --------- --------
Income (Loss) from Operations . 7.6% (9.1%) 7.5% 1.4%
Interest Expense .............. (2.1%) (1.4%) (2.1%) (1.1%)
Other Income (Expense), Net ... 0.2% (0.6%) (0.1%) (0.2%)
--------- -------- --------- --------
Income (Loss) Before Taxes .... 5.7% (11.1%) 5.3% 0.0%
Income Taxes (Benefit) ........ 2.2% (3.9%) 2.05 0.0%
--------- -------- --------- --------
Net Income (Loss) ............. 3.5% (7.3%) 3.3% 0.0%
========= ======== ========= ========
</TABLE>
Net Sales for the third quarter of fiscal 1996 were $84.1 million, an
increase of 28.1% over the $65.7 million reported for the third quarter of
fiscal 1995. Net sales for the first nine months of fiscal 1996 were $261.6
million, a 43.3% increase over the $182.5 million reported for the previous
year. The Company's gross profit increased to $22.3 million in the third quarter
of fiscal 1996 compared to $19.6 million for the same quarter last year. For the
nine months ended August 4, 1996, gross profit was $73.1 million versus the
$55.9 million reported for the same period last year. The increase in sales and
gross profit for both the quarter and nine month periods was primarily due to
the world-wide glove operation acquisition completed in July of fiscal 1995. The
Company's gross profit rate declined from 29.8% to 26.5 % for the third quarter
and from 30.6% to 27.9% for the nine month period of fiscal 1996 versus fiscal
1995. The decline in gross margin rate was caused by the acquisition of the
lower margin glove products and the divestiture of the higher margin product
lines of the Henley division.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION - (Continued)
Operating expenses for the third quarter were $15.9 million or 18.9% of
net sales for fiscal 1996 compared to $14.7 million or 22.4% of net sales for
fiscal 1995. For the first nine months of fiscal 1996 and 1995 operating
expenses were $53.4 million and $42.6 million, or 20.4% and 23.3% of net sales,
respectively. The increase in operating expenditures was directly attributable
to the glove operations acquisition and the decrease in the operating expense
rate to sales was attributable to cost savings that resulted from combining the
sales and distribution functions of the glove operations with the existing
operations of the Company. During the third quarter of fiscal 1995 the Company
recorded a nonrecurring charge of $10.8 million related to the formation of its
Case Management division.
Interest expense was $1,795,000 or 2.1% of net sales for the third
quarter of fiscal 1996 and $943,000 or 1.4% of net sales for the third quarter
of 1995. For the nine months ended August 4, 1996 and the nine months ended July
30, 1995 interest expense was $5,582,000 and $2,001,000, or 2.1% and 1.1% of net
sales, respectively. The increase in interest expense for both the quarter and
nine month periods is directly related to the credit facility established to
finance the glove operation acquisition. The Company's effective tax rate for
the quarter and nine months ended August 4, 1996 was 38.0% and 37.3% of income
before income taxes, respectively.
The Company is currently integrating the operations of Sterile Concepts
with its already existing operations. However, the Company is experiencing
issues relating to the merger with Sterile Concepts. These issues could affect
earnings in the fourth quarter and into fiscal 1997. In addition, the Company
anticipates taking a one-time charge in the fourth quarter of fiscal 1996 in
connection with the merger. Since the Tender Offer was consummated just prior to
the end of the third quarter, no operating results of Sterile Concepts are
included in the consolidated operating results reported herein.
Certain of the matters discussed in this report contain forward-looking
statements that involve risks and uncertainties. Although the Company believes
that its' expectations are based on reasonable assumptions, it can give no
assurance that anticipated results will occur.
LIQUIDITY AND CAPITAL RESOURCES
At August 4, 1996 the Company had cash and cash equivalents of
approximately $2.7 million, working capital of approximately $117.4 million,
long-term liabilities of $246.7 million and shareholders' equity of $122.1
million. For the nine months ended August 4, 1996 net cash provided by
operations was $6.7 million versus $0.7 million net cash used in operations for
the nine months ended July 30, 1995.
During the second quarter of fiscal 1996 the Company received
approximately $6 million in cash from the sale of certain assets of the Henley
Healthcare division. In accordance with the terms of the Company's credit
facility $5.6 million of these proceeds were used to retire a portion of the
Company's term loan.
On July 30, 1996 the Company completed a private placement offering of
$100 million 10 1/2% Senior Subordinated Notes, from which net proceeds of
approximately $97 million were received by the Company (See Note 8). In
addition, pursuant to the terms of an amended Credit Agreement with its primary
lender dated July 30, 1996, the Company established a $90.0 million term loan
and a $75.0 million revolving line of credit (See Note 7). On August 4, 1996 the
term loan was fully drawn and $32.3 million was borrowed on the revolver.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION - (Continued)
On July 30, 1996 the Company used approximately $108.8 million in cash
to complete a tender offer to the shareholders of Sterile Concepts (See Note 6),
approximately $34.2 million in cash to repay the outstanding debt of Sterile
Concepts, and $72.7 million in cash to repay outstanding debt related to the
previous credit agreement with its primary lender.
The Company believes that its present cash balances together with
internally generated cash flows and borrowings under its existing credit
facility will be sufficient to meet its future working capital requirements.
10
PART II. OTHER INFORMATION
Items 1, 2, 3, 4 and 5 for which provision is made in the applicable
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) - Exhibits - none
(b) Reports on Form 8-K
*1. Form 8-K dated effective August 14, 1996 regarding the
acquisition of Sterile Concepts.
An asterisk indicates an exhibit otherwise previously filed with the
Securities and Exchange Commission and incorporated herein by reference as
indicated.
11
SIGNATURES
Pursuant to the requirements 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.
MAXXIM MEDICAL, INC.
Date:9/17/96 By: /s/ KENNETH W. DAVIDSON
Kenneth W. Davidson
Chairman of the Board, President &
Chief Executive Officer
Date:9/17/96 By: /s/ PETER M. GRAHAM
Peter M. Graham
Treasurer and Chief Operating Officer
(Principal Financial Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM PART I OF FORM 10-Q FOR THE QUARTERLY PERIOD ENDED AUGUST 4, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-04-1996
<PERIOD-END> AUG-04-1996
<CASH> 2,705
<SECURITIES> 0
<RECEIVABLES> 84,178
<ALLOWANCES> 0
<INVENTORY> 94,362
<CURRENT-ASSETS> 190,715
<PP&E> 116,921
<DEPRECIATION> 18,697
<TOTAL-ASSETS> 442,137
<CURRENT-LIABILITIES> 73,362
<BONDS> 128,750
0
0
<COMMON> 8
<OTHER-SE> 122,102
<TOTAL-LIABILITY-AND-EQUITY> 442,137
<SALES> 261,587
<TOTAL-REVENUES> 261,587
<CGS> 188,531
<TOTAL-COSTS> 53,438
<OTHER-EXPENSES> (265)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,582
<INCOME-PRETAX> 13,771
<INCOME-TAX> 5,142
<INCOME-CONTINUING> 8,629
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,629
<EPS-PRIMARY> 1.04
<EPS-DILUTED> .97
</TABLE>
