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 3, 1997
[ ] 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)
10300 49TH STREET NORTH, CLEARWATER, FLORIDA 33762
- --------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code..............(813) 561-2100
104 INDUSTRIAL BOULEVARD, SUGAR LAND, TEXAS 77478
- --------------------------------------------- -------------------
(Former address if changed since last report)
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 AUGUST 29, 1997
- ----------------------------- ------------------------------
COMMON STOCK, $.001 PAR VALUE 8,538,307
<PAGE>
MAXXIM MEDICAL, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Condensed Consolidated Balance Sheets as of
August 3, 1997 and November 3, 1996 2
Condensed Consolidated Statements of Operations
for the Three Months and Nine Months
Ended August 3, 1997 and August 4, 1996 3
Condensed Consolidated Statements of Cash Flows
for the Nine Months Ended August 3, 1997 and
August 4, 1996 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
Item 2. Changes in Securities 10
SIGNATURES 11
1
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
AUGUST 3, NOVEMBER 3,
1997 1996
----------- -----------
ASSETS (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 10,473 $ 8,044
Accounts receivable, net of allowances of
$4,685 and $4,092, respectively 82,757 86,207
Inventory 84,422 95,087
Prepaid expenses, deferred taxes and other 13,458 15,386
--------- ---------
Total current assets 191,110 204,724
Property and equipment 121,838 123,077
Less: accumulated depreciation (30,377) (24,562)
--------- ---------
91,461 98,515
Goodwill and other intangibles, net 152,071 156,046
Deferred taxes and other assets, net 8,148 8,156
--------- ---------
Total assets $ 442,790 $ 467,441
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 12,000 $ 7,500
Accounts payable 28,139 30,084
Accrued liabilities 37,798 45,375
Other short-term obligations 1,667 3,645
--------- ---------
Total current liabilities 79,604 86,604
Long-term debt, net of current maturities 101,000 121,090
10 1/2% Senior subordinated notes 100,000 100,000
6 3/4% Convertible subordinated debentures 28,750 28,750
Other long-term obligations, net of current maturities 810 1,624
Deferred taxes 5,817 5,817
--------- ---------
Total liabilities 315,981 343,885
Commitments and contingencies
Shareholders' equity
Preferred Stock, $1.00 par, 20,000,000 shares
authorized, none issued or outstanding -- --
Common Stock, $.001 par value, 40,000,000
shares authorized, 8,531,767 and 8,128,827
shares issued and outstanding, respectively 9 8
Additional paid-in capital 97,730 92,445
Unrealized gain on investments - net of tax -- 259
Retained earnings 41,737 32,369
Subscriptions receivable (5,200) --
Cumulative translation adjustment (7,467) (1,525)
--------- ---------
Total shareholders' equity 126,809 123,556
--------- ---------
Total liabilities and shareholders' equity $ 442,790 $ 467,441
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------- ------------------------
AUGUST 3, AUGUST 4, AUGUST 3, AUGUST 4,
1997 1996 1997 1996
----------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Net sales $ 128,654 $ 84,128 $ 398,097 $ 261,587
Cost of sales 96,351 61,817 300,555 188,531
--------- --------- --------- ---------
Gross profit 32,303 22,311 97,542 73,056
Operating expenses 21,368 15,885 65,385 53,438
--------- --------- --------- ---------
Income from operations 10,935 6,426 32,157 19,618
Interest expense (5,293) (1,795) (16,475) (5,582)
Other income (expense), net (357) 134 (110) (265)
--------- --------- --------- ---------
Income before taxes 5,285 4,765 15,572 13,771
Income taxes 2,093 1,813 6,204 5,142
--------- --------- --------- ---------
Net income $ 3,192 $ 2,952 $ 9,368 $ 8,629
========= ========= ========= =========
Primary earnings per share $ 0.37 $ 0.36 $ 1.12 $ 1.04
========= ========= ========= =========
Fully diluted earnings per share $ 0.34 $ 0.33 $ 1.03 $ 0.97
========= ========= ========= =========
Weighted average shares outstanding 8,647 8,309 8,387 8,304
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, In thousands)
NINE MONTHS ENDED
------------------------
AUGUST 3, AUGUST 4,
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9,368 $ 8,629
Adjustment to reconcile net income to net
cash provided by operations:
Depreciation and amortization 13,571 10,087
Gain on sale of investment in equity securities (1,510) --
Change in operating assets and liabilities 9,753 (14,992)
--------- ---------
Net cash provided by operations 31,182 3,724
Cash flows from investing activities
Purchase of property and equipment (5,486) (9,597)
Payment of accrued fees and expenses related
to the acquisition of Sterile Concepts (3,313) --
Proceeds from sale of investment in equity securities 3,130 --
Proceeds from sale of building 450 --
Proceeds from the sale of Henley Assets -- 6,000
Purchase of Sterile Concepts, net of cash acquired -- (108,800)
--------- ---------
Net cash used in investing activities (5,219) (112,397)
Cash flows from financing activities
Decrease in negative book cash balance (4,391) (304)
Payments on long-term debt--net (18,382) --
Increase in long-term borrowings and other obligations--net -- 45,313
Net proceeds from the issuance of bonds -- 97,000
Payoff of Sterile Concepts' debt -- (34,247)
Other financing activities (173) (1,364)
--------- ---------
Net cash (used in) provided by financing activities (22,946) 106,398
Effect of foreign currency translation adjustment (588) (94)
--------- ---------
Net increase (decrease) in cash and cash equivalents 2,429 (2,369)
Cash and cash equivalents at beginning of period 8,044 5,074
--------- ---------
Cash and cash equivalents at end of period $ 10,473 $ 2,705
========= =========
Supplemental disclosure on non-cash activities:
Note received from the sale of building $ 350 $ --
========= =========
Subscriptions receivable from officers for stock purchase $ 5,200 $ --
========= =========
Convertible note received from the sale of Henley assets $ -- $ 7,000
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
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 November 3,
1996, 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 fiscal 1996 condensed
consolidated financial statements to conform with the fiscal 1997 presentation.
Note 2 - Summary of Significant Accounting Policies
Fiscal Year.
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 1997 the year end date will be
November 2 compared to a 1996 year end date of November 3. Fiscal 1997 will
consist of 52 weeks. The third quarter of fiscal 1997 ended on August 3 compared
to the fiscal 1996 third quarter end date of August 4.
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.
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
<PAGE>
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
New Accounting Pronouncement
Subsequent to December 31, 1996, the Financial Accounting Standards
Board (the "FASB") issued SFAS No. 128, "Earnings Per Share." This statement
established standards for computing and presenting earnings per share ("EPS"),
replacing the presentation of currently required primary EPS with a presentation
of Basic EPS. SFAS No. 128 is effective for financial statements issued for
periods ending after December 15, 1997, including interim periods, and earlier
application is not permitted. When adopted, the Company will be required to
restate its EPS data for all prior periods presented. The adoption of this
statement is not expected to have a material effect on the Company's financial
statements.
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 3, 1997 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 3, 1997 and November 3, 1996 included the following:
AUGUST 3, NOVEMBER 3,
1997 1996
--------- -----------
(In thousands)
Raw materials $34,202 $40,239
Work In progress 8,471 8,232
Finished goods 41,749 46,616
------- -------
$84,422 $95,087
======= =======
Income Taxes -
The Company has calculated current and deferred income tax provisions
for the quarters ended August 3, 1997 and August 4, 1996, based on its best
estimate of the effective income tax rate expected to be applicable for the full
fiscal year.
Note 3 - Sale of Marketable Equity Securities
In the first quarter of fiscal 1997, the Company recorded a one-time
gain from the sale of an investment in marketable equity securities in the
amount of $1,510,000, which is reflected in other income in the financial
statements.
6
<PAGE>
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 4 - Stock Issuance
On May 23, 1997 the Company issued 400,000 shares of common stock
pursuant to a Senior Management Stock Purchase Plan at $13.00 per share, the
closing stock price on April 30, 1997. The stock was issued in exchange for an
aggregate of $5.2 million in notes due May 23, 2000 from the participating
managers. These notes have been recorded as subscriptions receivable and are
included in the equity section of the balance sheet.
7
<PAGE>
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:
PERCENTAGE OF NET SALES
------------------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
--------------------- --------------------
AUGUST 3, AUGUST 4, AUGUST 3, AUGUST 4,
1997 1996 1997 1996
--------- --------- --------- ---------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 74.9% 73.5% 75.5% 72.1%
----- ----- ----- -----
Gross profit 25.1% 26.5% 24.5% 27.9%
Operating expenses 16.6% 18.9% 16.4% 20.4%
----- ----- ----- -----
Income from operations 8.5% 7.6% 8.1% 7.5%
Interest expense (4.1%) (2.1%) (4.1%) (2.1%)
Other income (expense), net (0.3%) 0.2% 0.0% (0.1%)
----- ----- ----- -----
Income before taxes 4.1% 5.7% 4.0% 5.3%
Income taxes 1.6% 2.2% 1.6% 2.0%
----- ----- ----- -----
Net income 2.5% 3.5% 2.4% 3.3%
===== ===== ===== =====
NET SALES -- Net Sales for the third fiscal quarter of 1997 increased
52.9% to $128,654,000 from $84,128,000 reported for the third fiscal quarter of
1996. Net sales for the first nine months of fiscal 1997 were $398,097,000, a
52.2% increase over the $261,587,000 reported for the comparable period in the
prior fiscal year. This increase is primarily due to the Sterile Concepts
acquisition which was consummated at the end of the third quarter of fiscal
1996.
GROSS PROFIT -- In the third quarter of fiscal 1997 the Company's gross
profit increased to $32,303,000, compared to $22,311,000 reported in the third
quarter of last year. The Company's gross profit rate declined from 26.5% in the
third quarter of fiscal 1996 to 25.1% in the third quarter of fiscal 1997. For
the nine months ended August 3, 1997 and the nine months ended August 4, 1996
gross profit was $97,542,000 and $73,056,000 , or 24.5% and 27.9% of net sales
respectively. The increase in dollars and the decline in rate are both
attributable to the Sterile Concepts acquisition which added significant sales
volume at lower gross margin rates compared to the Company's prior year fiscal
periods.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION - (Continued)
OPERATING EXPENSES -- Operating expenses for the third quarter were
$21,368,000 or 16.6% of net sales for fiscal 1997 compared to $15,885,000 or
18.9% of net sales for fiscal 1996. For the first nine months of fiscal 1997 and
1996 operating expenses were $65,385,000 and $53,438,000 , or 16.4% and 20.4% of
net sales, respectively. The increase in operating expenditures was directly
attributable to the Sterile Concepts acquisition and the decrease in the
operating expense rate to sales was primarily attributable to cost savings that
resulted from combining the sales, distribution and administrative functions of
the Sterile Concepts operations with the existing operations of the Company.
INCOME FROM OPERATIONS -- Income from operations increased to
$10,935,000, or 8.5% of net sales, in the third quarter of fiscal 1997 from
$6,426,000, or 7.6% of net sales, in the comparable period of the prior fiscal
year. This is an increase of 70.2% over the prior fiscal period. For the first
nine months of fiscal 1997 and 1996 income from operations was $32,157,000 and
$19,618,000, or 8.1% and 7.5 % of net sales, respectively.
INTEREST EXPENSE -- The Company's interest expense increased to
$5,293,000 in the third quarter of fiscal 1997 from $1,795,000 in the third
quarter of fiscal 1996. For the nine months ended August 3, 1997 and August 4,
1996 interest expense was $16,475,000 and $5,582,000, respectively. The increase
in interest expense for the quarter is directly related to the debt incurred to
finance the Sterile Concepts acquisition.
INCOME TAXES -- The Company's effective tax rate for the quarter and
nine months ended August 3, 1997 was 39.6% and 39.8%, respectively, and is
higher than the statuatory rate primarily due to non-deductible goodwill from
acquisitions.
NET INCOME -- As a result of the foregoing, net income for the third
quarter of fiscal 1997 was $3,192,000 or $0.34 a share, fully diluted, versus
$2,952,000 or $0.33 a share, fully diluted for fiscal 1996. For the first nine
months of fiscal 1997 and 1996, net income was $9,368,000 or $1.03 a share,
fully diluted, versus $8,629,000 or $0.97 a share, fully diluted, respectively.
LIQUIDITY AND CAPITAL RESOURCES
On August 3, 1997 the Company had cash and cash equivalents of
$10,473,000, working capital of $111,506,000, long-term liabilities of
$230,560,000 and shareholders' equity of $126,809,000. For the nine months ended
August 3, 1997 net cash provided by operations was $31,182,000 versus $3,724,000
for the nine months ended August 4, 1996.
On August 3, 1997 the outstanding balance on the term loan and revolver
was $84,000,000 and $29,000,000, respectively, resulting in $46,000,000 of
availability on the revolver at the end of the third quarter.
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 for
the reasonably forseeable future.
9
<PAGE>
PART II. OTHER INFORMATION
Items 1, 3, 4, 5 and 6 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 2.CHANGES IN SECURITIES
On July 10, 1997, the Board of Directors of Maxxim Medical, Inc. (the
"Company") declared a dividend of one right to purchase preferred stock
("Right") for each outstanding share of the Company's Common Stock, par value
$0.001 per share ("Common Stock"), to stockholders of record at the close of
business on September 15, 1997 (the "Record Date"). Each Right entitles the
registered holder to purchase from the Company one one-thousandth of a share of
Series A Participating Preferred Stock, par value $1.00 per share (the
"Preferred Shares"), at an exercise price of $85 per one one-thousandth of a
Preferred Share, subject to adjustment (the "Exercise Price"). The description
and terms of the Rights are set forth in a Rights Agreement dated as of July 10,
1997, as it may from time to time be supplemented or amended (the "Rights
Agreement"), between the Company and Harris Trust and Savings Bank, as Rights
Agent.
The Rights will have certain anti-takeover effects. The Rights are
designed to protect and maximize the value of the outstanding equity interests
in the Company in the event of an unsolicited attempt by an acquiror to take
over the Company in a manner or on terms not approved by the Board of Directors.
The Rights will cause substantial dilution to any person or group that attempts
to acquire the Company without the approval of the Company's Board of Directors.
As a result, the overall effect of the Rights may be to render more difficult or
discourage any attempt to acquire the Company, even if such acquisition may be
favorable to the interests of the Company's stockholders. Because the Board of
Directors can redeem the Rights or approve a Permitted Offer, the Rights should
not interfere with a merger or other business combination approved by the Board
of Directors of the Company.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 10 - Rights Agreement dated as of July 10, 1997 between Maxxim
Medical, Inc. and Harris Trust and Savings Bank, as Rights Agent. Exhibit 1 to
the Form 8-A of the Registrant filed with the Commission on July 11, 1997 and
incorporated herein by reference.
10
<PAGE>
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: 9/11/97 By: /s/ KENNETH W. DAVIDSON
---------------------------
Kenneth W. Davidson
Chairman of the Board, President &
Chief Executive Officer
Date: 9/11/97 By: /s/ PETER M. GRAHAM
---------------------------
Peter M. Graham
Secretary and Chief Operating Officer
(Principal Financial Officer)
11
<PAGE>
EXHIBIT INDEX
EXHIBIT PAGE
27 Financial Data Schedule (for SEC use only)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-02-1997
<PERIOD-START> MAY-05-1997
<PERIOD-END> AUG-03-1997
<CASH> 10,473
<SECURITIES> 0
<RECEIVABLES> 82,757
<ALLOWANCES> 0
<INVENTORY> 84,422
<CURRENT-ASSETS> 191,110
<PP&E> 121,838
<DEPRECIATION> 30,377
<TOTAL-ASSETS> 442,790
<CURRENT-LIABILITIES> 79,604
<BONDS> 128,750
0
0
<COMMON> 9
<OTHER-SE> 126,800
<TOTAL-LIABILITY-AND-EQUITY> 442,790
<SALES> 398,097
<TOTAL-REVENUES> 398,097
<CGS> 300,555
<TOTAL-COSTS> 65,385
<OTHER-EXPENSES> 110
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,475
<INCOME-PRETAX> 15,572
<INCOME-TAX> 6,204
<INCOME-CONTINUING> 9,368
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,368
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.03
</TABLE>
