<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-------
FORM 8-K
(Amendment No. 1)
------
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
<TABLE>
<S> <C>
Date of Report (Date of earliest event reported): March 19, 1999 (January 5, 1999)
</TABLE>
MAXXIM MEDICAL, INC.
--------------------
(Exact name of registrant as specified in its charter)
TEXAS 0-18208 76-0291634
-------------------------------------------------------------
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
10300 49/th/ Street North, Clearwater, Florida 33762
--------------------------------------------------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: 727-561-2100
------------
================================================================================
<PAGE>
Item 7: Financial Statements and Exhibits
(a) Pro forma financial information.
INDEX TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
Unaudited Pro Forma Financial Data 2
Unaduited Condensed Consolidated Pro Forma Statement of Operations 3
Notes to Unaudited Condensed Consolidated Pro Forma Financial
Statement 4
(b) Financial statements of businesses acquired.
INDEX TO FINANCIAL STATEMENTS OF CIRCON CORPORATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Balance Sheets at December 31, 1997 and 1998 5
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1997 and 1998 7
Consolidated Statements of Shareholders' Equity for the Years Ended
December 31, 1996, 1997 and 1998 8
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1997 and 1998 9
Notes to Consolidated Financial Statements 11
Report of Independent Public Accountants 28
</TABLE>
(c) Exhibits
The following exhibits are filed as part of this report:
2.1 Agreement and Plan of Merger, dated as of November 21, 1998, by and
among Maxxim Medical, Inc., a Delaware corporation ("Parent"), MMI
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary
of Parent ("Sub") and Circon Corporation, a Delaware corporation the
("Company") is incorporated by reference to Exhibit (c)(1) to the
Registrant's Schedule 14D-1 filed with the Commission on November 30,
1998, as amended on December 10, 1998, January 5, 1999 and January 6,
1999.
99.3 Press Release dated January 6, 1999, is incorporated by reference to
Exhibit (a) (12) to Maxxim's Schedule 14D-1 filed with the Commission
on November 30, 1998, as amended on December 10, 1998, January 5, 1999
and January 6, 1999.
1
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The following presents summary unaudited combined consolidated pro forma
financial data of Maxxim Medical, Inc. (the "Company"), and Circon Corporation
("Circon"). The combined consolidated pro forma statement of operations was
prepared as if the acquisition of Circon by the Company (the "Acquisition"),
occurred on November 3, 1997.
The historical data of the Company for the fiscal year ended November 1, 1998
have been derived from the Company's audited consolidated financial statements.
The historical data of Circon for the fiscal year ended December 31, 1998 have
been derived from Circon's audited consolidated financial statements.
The unaudited combined consolidated pro forma statement of operations is based
on assumptions and includes adjustments as explained in the notes thereto. The
summary unaudited combined consolidated pro forma financial data do not
necessarily reflect the results of operations of the Company and Circon that
actually would have resulted had the Acquisition been consummated as of the date
referred to above. Accordingly, such data should not be viewed as fully
representative of the past performance of the Company or Circon or indicative of
future results. The summary unaudited combined consolidated pro forma financial
data should be read together with the Financial Statements and Notes of the
Company and Circon included elsewhere and herein.
3
<PAGE>
CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
(Dollars in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Maxxim Circon
Historical Historical Pro Forma
Year Ended Year Ended Combined
November 1, December 31, Year Ended
1998 1998 Pro Forma November 1,
As Reported As Reported Adjustments 1998
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales .................................... $ 522,516 $152,637 $ <173> (a) $ 674,980
Cost of sales................................. 381,638 69,931 <72> (a) 451,497
----------- ----------- --------------- ---------------
Gross profit.................................. 140,878 82,706 <101> 223,483
Selling, general and administrative expense 94,410 78,264 2,776 (b) 175,450
------------ ----------- --------------- ---------------
Income from operations........................ 46,468 4,442 <2,877> 48,033
Tender offer, merger and other expenses - (1,775) - (1,775)
Interest expense, net ........................ (13,998) (3,401) <17,431> (c) (34,830)
Other income, net............................. 1,620 (336) - 1,284
------------------------------ --------------- ---------------
Income (loss) before income taxes............. 34,090 (1,070) <20,308> 12,712
Income taxes.................................. 14,454 1,503 <6,222> (d) 9,735
------------------------------ --------------- ---------------
Net income.................................... $ 19,636 $(2,573) $<14,086> $ 2,977
============================== =============== ===============
Basic earnings per share ...................... $1.55 $(0.19) $0.24
============================== ===============
Basic weighted average shares outstanding..... 12,665 13,392 12,665
============================== ===============
Diluted earnings per share ................... $1.50 $(0.19) $0.23
============================== ===============
Diluted weighted average shares outstanding... 13,124 13,392 13,030
============================== ===============
</TABLE>
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENT
(Dollars in thousands, except per share data)
Effective January 6, 1999 the Company successfully completed a
tender offer for Circon. Upon the completion of the merger of Circon and Maxxim
on January 8, 1999, all of the outstanding stock of Circon was purchased for
$15.00 per share or approximately $260,000 including the repayment of
approximately $32,500 of Circon debt and certain fees and expenses incurred in
connection with the acquisition. The Company obtained all funds required in
connection with the acquisition through a bank loan, pursuant to the Third
Amended and Restated Credit Agreement, date as of January 4, 1999. This new
Credit Agreement replaced the Company's previous credit facility. The Credit
Agreement provides for a term loan of $200,000 and a $125,000 revolving line of
credit. The assets acquired in the Circon acquisition consist primarily of
accounts receivable, inventory, furniture and equipment, intangible assets and
owned or leased facilities in Stamford, Connecticut; Norwalk, Ohio; Racine,
Wisconsin and Santa Barbara, California. Circon markets medical devices for
diagnosis and minimally invasive surgery and general surgery. This acquisition
was accounted for by the purchase method of accounting and approximately
$144,147 of intangible assets were recorded in connection with the transaction
(approximately $13,488 related to patents and $130,659 related to goodwill).
Patents are being amortized over 15 years and goodwill is being amortized over
30 years, using the straight-line method in each case.
Giving effect to the above, the Acquisition resulted in the following:
<TABLE>
<CAPTION>
<S> <C>
Assets Acquired
Current assets.............................................. $ 84,499
Property and equipment...................................... 51,710
Other assets................................................ 5,750
Goodwill and intangibles.................................... 144,147
--------------------
$ 286,106
====================
Liabilities Assumed and Considered Paid
Current liabilities......................................... $ 53,609
Long-term debt.............................................. 2,370
Other liabilities........................................... 467
Cash paid................................................... 229,660
--------------------
$ 286,106
====================
</TABLE>
(a) Reflects an adjustment to eliminate sales between Maxxim and Circon.
(b) Reflects increased amortization related to costs in excess of net
assets acquired, amortized over 30 years for Goodwill and 15 years for other
patents
<TABLE>
<CAPTION>
Year Ended
November 1,
1998
-----------------------
<S> <C>
Amortization of goodwill of $130,659.......................... 4,355
Amortization of patents of $13,488............................ 899
Less Circon historical amortization .......................... (2,478)
-----------------------
$ 2,776
=======================
</TABLE>
(c) Pro forma interest expense, which includes amortization of deferred
financing costs of $ 931, has been calculated on pro forma debt levels and
applicable interest rates after giving effect to the Acquisition.
(d) Reflects an adjustment to income tax expense to tax effect the pro
forma adjustments at the combined state and federal statutory rate of 39%. In
calculating the tax adjustment, the goodwill amortization as calculated in (b)
above has not been tax effected as it is non-deductible for tax purposes.
6
<PAGE>
CIRCON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
ASSETS
(In thousands)
<TABLE>
<CAPTION>
December 31, December 31,
1997 1998
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and temporary cash investments $ 3,660 $ 5,143
Marketable securities 1,115 1,163
Accounts receivable, net of allowances of
$1,606 in 1997 and $2,060 in 1998 33,535 33,505
Inventories (note 10) 38,489 37,560
Prepaid expenses and other assets 1,959 1,199
Deferred income taxes (note 14) 5,172 6,496
-------- --------
Total current assets 83,930 85,066
-------- --------
DEFERRED INCOME TAXES (note 14) 1,289 --
PROPERTY, PLANT AND EQUIPMENT, NET (note 11) 53,503 51,710
OTHER ASSETS, at cost net of accumulated amortization (note 12) 30,635 25,441
-------- --------
Total assets $169,357 $162,217
======== ========
</TABLE>
The accompanying notes are an integral part of
theses consolidated balance sheets.
5
<PAGE>
CIRCON CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
LIABILITIES AND SHAREHOLDERS' EQUITY
(In thousands except share amounts)
December 31, December 31,
1997 1998
------------ ------------
CURRENT LIABILITIES:
Current maturities of long-term debt obligations $ 390 $ 405
Accounts payable 4,629 8,790
Accrued liabilities (note 13) 10,892 14,158
Customer deposits 688 935
--------- ---------
Total current liabilities 16,599 24,288
--------- ---------
NONCURRENT LIABILITIES
Long-term obligations (note 15) 48,799 34,894
DEFERRED INCOME TAXES (note 14) -- 443
COMMITMENTS AND CONTINGENCIES (see note 20) -- --
SHAREHOLDERS' EQUITY:
Preferred stock: $0.01 par value
1,000,000 shares authorized,none
outstanding
Common stock: $0.01 par value
50,000,000 shares authorized
13,293,812 and 13,462,703 issued and outstanding
in 1997 and 1998, respectively 133 135
Additional paid-in capital 105,079 107,185
Accumulated other comprehensive loss (1,197) (2,099)
Accumulated deficit (56) (2,629)
--------- ---------
Total shareholders' equity 103,959 102,592
--------- ---------
Total liabilities and shareholders' equity $ 169,357 $ 162,217
========= =========
The accompanying notes are an integral part of
theses consolidated balance sheets.
6
<PAGE>
CIRCON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1996, 1997, and 1998
(In thousands except per share amounts)
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
NET SALES $ 153,779 $ 159,954 $ 152,637
Cost of sales 67,901 71,962 69,931
--------- --------- ---------
GROSS PROFIT 85,878 87,992 82,706
OPERATING EXPENSES:
Research and development 11,896 10,941 10,828
Selling, general and administrative 64,644 66,330 64,673
Facilities shutdown expense (see note 3) 2,629 -- --
Reorganization (see note 7) -- 512 --
Write down of intangibles (see note 6) -- -- 2,763
--------- --------- ---------
Total operating expenses 79,169 77,783 78,264
INCOME FROM OPERATIONS 6,709 10,209 4,442
Tender offer, merger and other expenses (see notes 1, 5 & 20) (3,000) -- (1,775)
Interest income 347 247 76
Interest expense (4,199) (4,062) (3,477)
Other income (expense), net 141 131 (336)
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES (2) 6,525 (1,070)
Provision (benefit) for income taxes (73) 2,276 664
Non-recurring tax provision (benefit) (see note 6) (2,000) (850) 839
--------- --------- ---------
NET INCOME (LOSS) $ 2,071 $ 5,099 $ (2,573)
========= ========= =========
EARNINGS (LOSS) PER SHARE BASIC: $ 0.16 $ 0.38 $ (0.19)
========= ========= =========
EARNINGS (LOSS) PER SHARE DILUTED: $ 0.16 $ 0.37 $ (0.19)
========= ========= =========
Weighted Average Number of Shares of Common
Stock and Equivalents Outstanding:
BASIC 12,828 13,260 13,392
--------- --------- ---------
DILUTED 13,339 13,658 13,392
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of
these consolidated statements.
7
<PAGE>
CIRCON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1997, and 1998
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Accumulated Other
Shares Common Additional Comprehensive
Issued Stock Paid-in Capital Income (Loss)
-------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance January 1, 1996 12,564,079 $126 $ 94,928 $ ( 656 )
Tax benefit from exercise of stock options - - 1,643 -
Stock options exercised 675,667 6 7,855 -
Comprehensive income
Minimum pension liability - - - 143
Cumulative translation adjustment - - - 11
Net income - - - -
Total comprehensive income ------------------------------------- ----------
Balance December 31, 1996 13,239,746 $132 $104,426 $ ( 502 )
Tax benefit from exercise of stock options - - 118 -
Stock options exercised 53,613 1 528 -
Stock issued to Circon Employee Stock
Purchase Plan 453 - 7 -
Comprehensive income
Cumulative translation adjustment - - - ( 695 )
Net income - - - -
Total comprehensive income ------------------------------------- ----------
Balance December 31, 1997 13,293,812 $133 $105,079 ( 1,197 )
Tax benefit from exercise of stock options - - 438 -
Stock options exercised 165,712 2 1,624 _
Stock issued to Circon Employee Stock
Purchase Plan 3,179 - 44 -
Comprehensive income
Minimum pension liability (less tax
benefit of $186) - - - ( 361 )
Cumulative translation adjustment
(less tax benefit of $279) - - - ( 541 )
Net income - - - -
Total comprehensive income
------------------------------------- ----------
Balance December 31, 1998 13,462,703 $135 $107,185 $ ( 2,099 )
===================================== ==========
Total
Retained Earnings Shareholders'
(Accumulated Deficit) Equity
- ---------------------------------------------
<C> <C>
$ ( 7,226) $ 87,172
- 1,643
- 7,861
- 143
- 11
2,071 2,071
---------- --------
2,225
-------- --------
$( 5,155 ) $ 98,901
- 118
- 529
- 7
- ( 695)
5,099 5,099
----------- --------
4,404
----------- --------
$ ( 56 ) $103,959
- 438
- 1,626
- 44
- ( 361 )
- ( 541)
( 2,573) ( 2,573)
--------
( 3,475)
- -------------- --------
$ ( 2,629) $102,592
============== ========
</TABLE>
The cumulative foreign currency translation adjustment was $1,208, $1,197, and
$1,738 at December 31, 1996, 1997, and 1998, respectively and is included as a
component of accumulated other comprehensive income (loss). In addition, at
December 31, 1998, the cumulative minimum pension liability was $361 and is
included as a component of accumulated other comprehensive income (loss).
The accompanying notes are an integral part
of consolidated statement.
10
<PAGE>
CIRCON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1997 and 1998
(In thousands)
1996 1997 1998
-------- -------- --------
CASH FLOWS FORM OPERATING ACTIVITIES
Net income (loss) $ 2,071 $ 5,099 $ (2,573)
Adjustment to reconcile net
income (loss) to cash provided by
operating activities:
Depreciation and amortization 8,598 7,940 8,182
Deferred income taxes (5,196) 1,411 873
Loss on disposals 66 5 --
Write down of intangibles -- -- 2,763
Changes in assets and liabilities:
Accounts receivable (1,958) (5,038) 30
Inventory (3,478) (3,366) 929
Prepaid expenses and other assets 1,530 209 760
Current liabilities (380) (2,048) 7,142
Other 143 -- (149)
-------- -------- --------
Net cash provided by operating activities $ 1,396 $ 4,212 $ 17,957
-------- -------- --------
9
<PAGE>
CIRCON CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1997 and 1998
(In thousands)
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES
Disposals (acquisitions) of marketable securities, net $ 5,422 $ (41) $ (48)
Purchases of property, plant and equipment and other (6,306) (4,938) (4,247)
-------- -------- --------
Net cash used in investing activities (884) (4,979) (4,295)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 7,861 536 2,108
Repayments of long-term obligations (21,379) (1,766) (13,905)
Tax benefit from exercise of stock options 1,643 118 438
-------- -------- --------
Net cash used in financing activities (11,875) (1,112) (11,359)
-------- -------- --------
Effect of foreign exchange on cash 11 (695) (820)
-------- -------- --------
Net decrease in cash and temporary cash investments (11,352) (2,574) 1,483
-------- -------- --------
Cash and temporary cash investments, beginning of period 17,586 6,234 3,660
-------- -------- --------
Cash and temporary cash investments, end of period $ 6,234 $ 3,660 $ 5,143
======== ======== ========
SUPPLEMENTAL DISCLOSURES
Cash paid for interest $ 3,294 $ 4,297 $ 2,830
Cash paid (refunded) for income taxes, net 410 (86) 1,782
</TABLE>
The accompanying notes are an integral part
of these consolidated statement.
10
<PAGE>
CIRCON CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(In thousands except share and per share information)
(1) ACQUISITION OF CIRCON BY MAXXIM MEDICAL, INC.
On November 21, 1998 Circon Corporation ("Circon") entered into a merger
agreement with Maxxim Medical, Inc. ("MAM") whereby MAM agreed to purchase all
of the outstanding shares of Circon at $15.00 per share. On January 8, 1999,
pursuant to the merger agreement, the transaction was completed.
Expenses of $1,775 were recorded in the fourth quarter of 1998 related to
costs incurred in connection with the merger with MAM.
(2) BACKGROUND
The Company markets medical devices for diagnosis and minimally invasive
surgery and general surgery. The Company's products are used in a number of
medical specialities including urology, gynecology, arthroscopy, laparoscopy,
thorascopy and plastic surgery. The Company's products compete in markets
characterized by continuing technological innovation, increasing competition and
pressures on cost. Political, economic and regulatory influences are subjecting
the Company's industry in the United States to rapid, continuing and fundamental
change.
The Company sells products worldwide from its facilities in the United States,
Canada, and France. Products were previously sold from a German facility, which
was closed as of December 31, 1997 (see Note 7). Net sales by geographic area
are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Domestic sales $ 131,675 $ 138,166 $ 134,626
International sales 22,104 21,788 18,011
---------- ---------- ----------
$ 153,779 $ 159,954 $ 152,637
========== ========== ==========
</TABLE>
Total net long-lived assets for all foreign entities are $467, $457, and $408
in 1996, 1997, and 1998, respectively.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company prepares its consolidated financial statements in accordance with
generally accepted accounting principles, which require that management make
estimates and assumptions that affect the reported amounts. Actual results
could differ from these estimates.
Principles of Consolidation
The consolidated financial statements include the accounts of Circon and its
domestic and foreign subsidiaries. All significant intercompany transactions
and accounts have been eliminated in consolidation.
Sales Recognition
The Company recognizes revenue from product sales upon shipment of goods.
Earnings Per Share
Basic earnings per share have been computed by dividing net income by the
weighted average number of shares of common stock . Diluted earnings per share
have been computed by dividing net income by the weighted average number of
share of common stock and common stock equivalents outstanding during the year.
The number of common shares used in the calculation of diluted earnings per
share was increased for the dilutive effect of shares issuable upon the exercise
of warrants and stock options.
13
<PAGE>
Inventory
Inventories include costs of materials, labor and manufacturing overhead.
Inventories are priced at the lower of cost (first-in, first-out) or market.
Property, Plant and Equipment and Other Assets
Depreciation of property, plant and equipment and amortization of other assets
are provided for using the straight-line method over the following estimated
useful lives:
<TABLE>
<S> <C>
Buildings 31-33 years
Manufacturing equipment 3-10 years
Office and other equipment 4-10 years
Demonstration equipment 3 years
Leasehold improvements and leasehold interest Lower of estimated useful life or
remaining term of lease
Goodwill 20-40 years
Patents and licenses 3-17 years
Trademarks 10-15 years
Other 5-21 years
</TABLE>
The Company capitalizes expenditures that materially increase asset lives and
charges ordinary maintenance and repairs to operations as incurred. When
properties are disposed of, the costs and accumulated depreciation are removed
from the accounts and any resulting gain or loss is reflected in the
consolidated statements of operations.
Long lived assets and intangibles held and used by the Company are reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable (See Note 6).
Demonstration equipment, which is eventually refurbished and sold, is
depreciated on a straight-line basis, after considering estimated residual
value.
Currency Translation Adjustment
The assets and liabilities of foreign subsidiaries are translated into U.S.
dollars at current exchange rates. The related translation adjustments are
recorded as cumulative translation adjustment in accumulated other comprehensive
income (loss). Revenues and expenses are translated at the average exchange
rates in effect during the period.
Research and Development
Expenditures for research and development are charged to operations as
incurred.
Cash and Temporary Cash Investments
The Company's cash and temporary cash investments include investments in bank
money market funds and other short-term, highly liquid investments with
maturities of three months or less.
(4) FACILITY SHUT-DOWN
During 1996, the Company announced the planned closure of its Langhorne,
Pennsylvania facility. The closure was completed by the end of 1996 and has
resulted in reduced operating costs through human resource and facility
rationalization. In connection with this plan, the Company recorded a pre-tax
charge of $2,629 consisting of $2,174 of employee severance and out-placement
costs and $455 of cancellation of operating leases and other facility closure
costs. Substantially all costs incurred in connection with this plan were paid
during 1996.
14
<PAGE>
(5) USSC TENDER OFFER
On August 1, 1996, United States Surgical Corporation ("USSC") through its
wholly-owned subsidiary, USS Acquisition Corp., launched an unsolicited tender
offer (the "Offer") for all of the common stock of the Company at a price of $18
per share. The Board of Directors considered the Offer and recommended that
stockholders reject it so the Company could continue to pursue its strategic
plan. In reaching its conclusion, the Board retained and consulted with Bear
Stearns and Company as financial advisors and Wilson, Sonsini, Goodrich & Rosati
as legal advisors. In addition, the Company retained The Abernathy/MacGregor
Group Inc. to advise the Company on public relations matters, Corporate
Investors Communications, Inc. to assist the Company in connection with
communications to stockholders and William M.Mercer Incorporated to advise the
Board of Directors on certain employee matters. In connection with rejecting
the Offer, the Company adopted a Shareholder's Rights Plan and an Employee
Retention Plan, both of which were the subject of a lawsuit brought by USSC
against the Company and certain of its officers and directors. In addition, the
Company and certain of its directors and officers are also defendants in certain
class action lawsuits purportedly brought on behalf of Circon stockholders. On
December 16, 1996, USSC reduced the offer to $17 per share and extended the
solicitation until February 13, 1997. On February 13, 1997, the offer was again
extended to June 16, 1997. On June 16, 1997, USSC modified their tender offer
by lowering the price to $14.50 and reducing the number of shares to 973,174 or
7.3% of Circon's total outstanding shares. On July 14, 1997, USSC purchased
973,174 shares at $14.50 per share. On August 5, 1997, USSC launched a new
tender offcer for all of the common stock of the Company at a price of $16.50
per share until November 25, 1997. On November 25, 1997, the offer of $16.50
per share was extended until January 15, 1998. On January 15, 1998, the offer
of $16.50 was extended until July 16, 1998. On September 16, 1998, USSC allowed
its $16.50 per share tender offer to expire. Tyco International Corporation
completed its acquisition of USSC on October 2, 1998. The Company charged
$3,000 into expense in 1996 primarily for costs related to the Offer and
defending the stockholder litigation (see Note 20).
(6) INTANGIBLE WRITE-DOWN
In the fourth quarter of 1998, Circon incurred a pre-tax charge of $2,763 for
the impairment of certain trademarks and other intangibles which were written
down to estimated fair value. During 1998, two of the Company's products
experienced significant declines in sales volume due primarily to the expiration
of patents. Accordingly, management concluded that an impairment of the value of
the related intangibles had occurred. The estimated fair value of the intangible
was determined based upon the projected discounted cash flows from these
products.
(7) REORGANIZATION
During the third quarter of 1997 the Company undertook a cost reduction/income
enhancement program to improve operating margins in the second half of 1997 and
1998. As part of this program, the Company eliminated certain domestic sales
territories and realigned others. The Company recorded a $139 charge for the
payment of employee severance.
In the fourth quarter of 1997, the Company reorganized its European operations
to consolidate customer service, operations, finance, and sales and marketing
functions in Paris, France. As part of this consolidation, Circon closed its
operations in Munich, Germany and recorded a charge of $373 for costs associated
with employee severance and lease buyouts.
Substantially all of the reorganization costs referred to above were paid in
1997.
(8) NON-RECURRING TAX PROVISION (BENEFITS)
During the second quarter of 1996, Cabot Medical Corporation ("Cabot"), a
wholly owned subsidiary that was acquired by Circon in 1995, was liquidated and
merged into Circon. Prior to the merger, the Cabot net operating loss
carryforwards ("NOL's") had a valuation allowance since historical data did not
support current recognition of the loss carryforwards. With the liquidation,
Circon's ability to utilize these NOL's became more probable than not and the
Company recognized a nonrecurring tax benefit by reducing the valuation
allowance by $2,000 in 1996.
During the fourth quarter of 1997, Circon recorded $850 of non-recurring tax
benefits resulting primarily from the reorganization of Circon's German
subsidiary. The reorganization enabled Circon to record the tax benefit of
German losses and closing costs that were not previously recorded by the
Company.
15
<PAGE>
During the fourth quarter of 1998, Circon recorded $839 of additional tax
provision by increasing the valuation allowance. Management believes that it is
more likely than not that certain deferred tax assets related to state net
operating loss carryforwards and other tax credit carryforwards will not be
utilized prior to expiration.
(9) MARKETABLE SECURITIES
The following summarizes the Company's marketable securities at December 31,
1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
----------------- -----------------
<S> <C> <C>
Available For Sale
Mutual fund of preferred stock of utility companies $ 1,115 $ 1,163
================= =================
</TABLE>
(10) INVENTORIES
Inventories at December 31, 1997 and 1998 consist of the following:
<TABLE>
<CAPTION>
1997 1998
----------------- -----------------
<S> <C> <C>
Raw materials $ 8,559 $ 7,201
Work in process 18,309 18,393
Finished goods 11,621 11,966
----------------- -----------------
$ 38,489 $ 37,560
================= =================
</TABLE>
(11) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following at December 31, 1997
and 1998:
<TABLE>
<CAPTION>
1997 1998
----------------- -----------------
<S> <C> <C>
Land $ 3,380 $ 3,380
Building 25,549 26,070
Manufacturing equipment 22,154 23,169
Office and other equipment 14,176 14,950
Platinum used in manufacturing equipment 1,423 1,446
Demonstration equipment 27,539 29,268
Construction in progress 610 383
Leasehold improvements 1,217 1,219
----------------- -----------------
96,048 99,885
Less Accumulated depreciation and amortization (42,545) (48,175)
----------------- -----------------
$ 53,503 $ 51,710
----------------- -----------------
</TABLE>
16
<PAGE>
(12) OTHER ASSETS
Other assets consist of the following at December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
-----------------------------------------
<S> <C> <C>
Goodwill $ 15,451 $ 15,105
Patents and licences 9,006 4,153
Trademarks 20,536 18,767
Other 3,368 2,839
------------ ------------
48,361 40,864
Less-Accumulated amortization (17,726) (15,423)
------------ ------------
$ 30,635 $ 25,441
============ ============
</TABLE>
(13) ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31, 1997 and 1998:
<TABLE>
<CAPTION>
1997 1998
------------------------------------
<S> <C> <C>
Payroll and payroll related $ 6,135 $ 7,323
Interest 47 25
Taxes-other than income 1,067 524
Professional fees 615 3,030
Other 3,028 3,256
------------ ------------
$ 10,892 $ 14,158
============ ============
</TABLE>
(14) INCOME TAXES
The components of the provision (benefit) for income taxes applicable to
income (loss) for the three years ended December 31, 1996 and 1998 are as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------- -------- --------
<S> <C> <C> <C>
Federal
Current $ 1,100 $ - $ 493
Deferred (3,164) 1,301 742
----------- -------- --------
(2,064) 1,301 1,235
----------- -------- --------
State
Current 148 - 87
Deferred (158) 110 131
----------- -------- --------
(10) 110 218
---------- -------- --------
Foreign
Current 1 15 50
---------- -------- --------
Provision (benefit) for income taxes $ ( 2,073) $ 1,426 $ 1,503
========== ========= ========
</TABLE>
The income (loss) before provision for income taxes includes foreign pretax
losses of $427, $394 and $1,615 in 1996, 1997 and 1998, respectively.
For income tax purposes, the Company deducts the difference between market
value and exercise price arising from the exercise of non-qualified stock
options and disqualifying dispositions of stock acquired under the Company's
qualified plans. Any reductions in income taxes payable resulting from these
differences are credited to additional paid in capital. A benefit of $1,643,
$118 and $438 was credited to additional paid in capital during 1996, 1997, and
1998, respectively.
17
<PAGE>
A reconciliation of the provision (benefit) for income taxes to the Federal
statutory provision (benefit) is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------- --------- --------
<S> <C> <C> <C>
Federal statutory provision (benefit) $ (1) $ 2,218 $ (364)
State tax, net of federal income tax (provision) benefit (10) 261 144
Addition (reduction) in valuation allowance (2,000) (305) 839
Non-deductible goodwill and amortization 20 98 67
Benefit of foreign sales corporation (350) (208) (117)
Loss of foreign subsidiaries for which no benefit is
currently available 145 134 630
Deduction related to foreign subsidiary - (545) -
Non-deductible merger costs - - 358
Research and development credit (115) (178) (163)
Other 238 (49) 109
---------- -------- --------
$ (2,073) $ 1,426 $ 1,503
========== ======== ========
</TABLE>
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
1997 1998
-----------------------------------------
<S> <C> <C>
Inventory reserves $ 3,215 $ 3,686
Accrued vacation 673 833
Net operating loss carryforwards 3,772 3,110
Income tax credit carryforwards 2,797 2,772
Depreciation (5,320) (6,701)
Other reserves 2,285 3,270
Other (560) 323
------------ ------------
6,862 7,293
Valuation allowance (401) (1,240)
------------ ------------
Net deferred tax asset $ 6,461 $ 6,053
============ ============
</TABLE>
At December 31, 1997 and 1998, the Company has recorded a deferred tax asset
of $2,797 and $2,772, respectively, consisting of research and development
credits not previously utilized and alternative minimum tax credit
carryforwards. To the extent not used, the research and development tax credit
carryforward expires in various amounts beginning in 2006. Additionally, the
Company has a deferred tax asset for federal and various state net operating
losses of $3,772 and $3,110 in 1997 and 1998, respectively. The federal net
operating loss will begin expiring in 2006 and the various state net operating
losses will begin expiring in 1999.
Based on projected earnings and the Company's current tax planning
strategies, the Company believes it is more probable then not that the net
deferred tax asset will be realized.
(15) LONG-TERM OBLIGATIONS
Long-term obligations as of December 31, 1997 and 1998 consist of the
following:
<TABLE>
<CAPTION>
1997 1998
--------------------------------------
<S> <C> <C>
Revolving credit facility $ 46,000 $ 32,500
Industrial development authority bonds due December 2, 2006 3,165 2,775
Other 24 24
------------ ------------
49,189 35,299
Less - Current maturities (390) (405)
------------ ------------
$ 48,799 $ 34,894
============ ============
</TABLE>
18
<PAGE>
The Company has a five year $75,000 reducing revolving credit facility (the
"Credit Facility") with a syndicate of banks which provides for direct
borrowings and a maximum of $5,000 in letters of credit. The line of
availability under the credit facility is reduced by $3,000 every six months and
is $60,000 at December 31, 1998. The Company has the option to borrow money
based upon (i) the higher of the prime rate or an adjusted federal funds rate or
(ii) an adjusted Eurodollar rate. The unused portion of the Credit Facility has
a commitment fee which ranges from .1875% to .375%. The Credit Facility, which
expires August 1, 2001, contains certain restrictive financial covenants and is
secured by substantially all of the assets of the Company.
The Company has a letter of credit in the amount of approximately $3,307 as
of December 31, 1998 underlying $3,555 of tax exempt Industrial Development
Authority Bonds (the "Bonds") issued in December 1991 with a 15 year maturity
requiring monthly interest payments and annual principal payments. The letter of
credit has a renewable 5 year term and carries an annual fee of 1% of the
outstanding bond principal amount. The bonds are subject to weekly repricing at
an interest rate based on the remarketing agents' professional judgement and
prevailing market conditions at the time. The Bonds and the letter of credit are
collateralized by the Company's two Langhorne, Pennsylvania facilities. These
facilities had a net carrying value of $4,300 as of December 31, 1998.
Future principal maturities of the long-term obligations are as follows:
<TABLE>
<S> <C>
1999 $ 405
2000 430
2001 32,950
2002 475
Thereafter 1,039
-------------------
$ 35,299
===================
</TABLE>
On January 8, 1999, the loan was fully paid down by MAM and the credit
facility was terminated.
(16) RETIREMENT PLANS
The Company has a defined benefit retirement plan (the "Plan") covering
certain hourly union employees at one of the Company's manufacturing facilities.
The following table represents the Plan's beginning benefit obligation
balance reconciled to the ending benefit obligation balance, beginning fair
value of plan assets balance reconciled to the ending fair value of plan assets
balance and the funded status reconciled to the Consolidated Balance Sheet:
<TABLE>
<CAPTION>
At December 31,
1997 1998
--------------------------------------
<S> <C> <C>
Change in benefit obligation:
- ----------------------------
Benefit obligation at beginning of year $ 1,369 $ 1,493
(Gain)/loss due to change in estimates at prior measurement date (41) 210
Service cost 79 94
Interest cost 98 117
Actuarial (gain)/loss 34 -
Benefits paid (46) (51)
------------ ------------
Benefit obligations at the end of year $ 1,493 $ 1,863
------------ ------------
Change in plan assets:
- ---------------------
Fair value of plan assets at beginning of year $ 951 $ 1,086
(Gain)/loss due to change in estimates at prior measurement date 8 (5)
Return on plan assets 48 67
Employer contribution 125 338
Benefits paid (46) (51)
------------ -------------
Fair value of plan assets at end of year $ 1,086 $ 1,435
------------ -------------
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
1997 1998
-------------------------------------
<S> <C> <C>
Funded status $ (338) $ (427)
Unrecognized net actuarial loss 2 2
Unrecognized prior service cost 141 185
Interest cost 347 547
------------ ------------
Net amount recognized $ 152 $ 307
------------ ------------
Amounts recognized in the statement of financial position consist of:
Prepaid benefit cost $ 151 $ 306
Accrued benefit liability (489) (733)
Intangible asset 211 187
Accumulate other comprehensive income 279 547
------------ ------------
Net amount recognized $ 152 $ 307
------------ ------------
At December 31,
1997 1998
------------ ------------
Weighted-average assumptions
Discount rate 7.00% 7.00%
Expected return on plan assets 10.00% 7.00%
Rate of compensation increase N/A N/A
Components of net periodic pension cost
At December 31,
1997 1998
------------ ------------
Service cost $ 79 $ 94
Interest cost 98 117
Expected return on plan assets (99) (83)
Amortization of prior service cost 23 23
Recognized actuarial loss 11 32
------------ ------------
Net periodic pension cost $ 112 $ 183
------------ ------------
</TABLE>
The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plan with accumulated benefit obligations
in excess of plan assets were $1,863, $1,863 and $1,435, respectively, as of
December 31, 1998, and $1,493, $1,423, and $1,086, respectively, as of December
31, 1997.
Certain other hourly manufacturing employees are covered by a union
sponsored collectively-bargained, multi-employer pension plan. Contributions to
this plan are based on collectively-bargained agreements and were approximately
$313, $331, and $186 in 1996, 1997, and 1998, respectively.
The Company also maintains a 401(k) plan for all employees except those
excluded by collective bargaining agreements. The Company matches 50% of the
first 3% of employee contributions. The amounts charged to income for the
Company match were $332, $512, and $498 in 1996, 1997, and 1998, respectively.
20
<PAGE>
(17) STOCK-BASED COMPENSATION PLANS
Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock Based Compensation," encourages, but does not require companies to
record compensation cost for stock-based employee compensation plans at fair
value. The Company has chosen to continue to account for stock-based
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees," and related Interpretations. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Company's stock at the date of grant over the amount an employee must pay to
acquire the stock. Compensation costs for phantom stock rights are recorded
annually based on the quoted market price of the Company's stock at the end of
the period
The Company has two stock-based compensation plans, a 1993 Stock Option Plan
(the "1993 Plan"), and a 1995 Directors Stock Option Plan (the "1995 Plan"). The
Company accounts for these plans pursuant to APB No. 25, under which no
compensation cost has been recognized for stock options granted. Had
compensation cost for these stock options been determined consistent with SFAS
No. 123, the Company's net income and earnings per share would have been reduced
to the following proforma amounts:
<TABLE>
<CAPTION>
1997 1998
----------------- -----------------
<S> <C> <C>
Net income: As Reported $ 5,099 $ ( 2,573)
Pro Forma 4,562 ( 3,277)
Basic EPS: As Reported $ 0.38 $ ( 0.19)
Pro Forma 0.34 ( 0.24)
</TABLE>
The effects of applying SFAS 123 in this proforma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995.
The 1993 Plan was adopted by the Board of Directors of Circon Corporation,
and subsequently approved by the stockholders. Pursuant to the 1993 Plan, the
Company may grant options for shares of common stock to employees and
consultants of the Company, for a price not less than the fair market value on
the date of grant. The total number of shares of stock with respect to which
options may be granted under the 1993 Plan is 2,000,000 shares. As of December
31, 1998, 819,276 options have been issued under the 1993 Plan.
The 1995 Plan was adopted by the Board of Directors of Circon Corporation,
and subsequently approved by the stockholders. Pursuant to the 1995 Plan, the
Company may grant options for shares of common stock to directors who are not
officers of the Company, for a price not less then 85% of the fair market value
of the common stock on the date of grant, The total number of shares of stock
with respect to which options may be granted under the 1995 Plan shall be
200,000 shares. As of December 31, 1998, 64,574 options have been issued under
the 1995 plan.
Option activity during 1996, 1997 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1996 1997 1998
------------------------- -------------------------- ----------------------
Option Weighted Weighted Weighted
Exercise Average Average Average
Price Exercise Exercise Exercise
Range Shares Price Shares Price Shares Price
-------------- ---------- ----------- ------------ ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Outstanding at beginnig of year $ 3.50-18.75 1,669,649 $ 10.740 1,041,318 $ 10.054 1,090,839 $ 10.918
Granted 9.75-16.75 176,402 10.304 204,378 15.026 91,482 11.451
Exercised 3.50-16.00 ( 675,667) 11.596 ( 53,613) 10.009 ( 165,712) 10.074
Forfeited 5.00-17.00 ( 129,066) 11.186 ( 101,244) 10.786 ( 47,704) 12.289
--------- --------- ---------
Outstanding at end of year 3.50-18.75 1,041,318 10.054 1,090,839 10.918 968,905 11.046
Exercisable at end of year 3.50-18.75 428,737 10.451 595,439 10.734 590,117 11.363
Weighted average fair value of
options granted 6.270 9.701 7.850
</TABLE>
21
<PAGE>
The following table summarizes information about stock options outstanding
at December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ----------------------- ------------------- -------------------- ----------------- --------------------------------------
Number Weighted Average Weighted Number Weighted
Range of Outstanding at Remaining Average Exercisable at Average
Exercise Prices 12/31/98 Contractual Life Exercise Price 12/31/98 Exercise Price
- ----------------------- ------------------ ------------------- ----------------- ---------------- -----------------
<S> <C> <C>
$ 3.50 - $ 6.25 43,330 0.323 $ 4.049 43,330 $ 4.049
6.26 - 12.75 669,511 5.341 9.690 350,609 9.695
12.76 - 18.75 256,064 7.249 15.777 196,178 15.960
----------------- ----------------
$ 3.50 $ 18.75 968,905 $ 11.046 590,117 $ 11.363
================= ================
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions used for
grants in 1997 and 1998, respectively: risk-free interest rates of 6.27 and 5.07
percent; expected lives of 7 years; expected dividend rate of zero; and expected
volatility of 54.41 and 54.61 percent.
In connection with the merger with MAM, all options at or below the $15.00
per share acquisition price became fully vested and were required to be
exercised or forfeited. In January 1999, 761,474 shares were issued pursuant to
such provision.
In addition, the Company has an employee stock purchase plan. Under such
plan, employees may purchase the Company's common stock. The Company matches 20%
of the employee purchase. Such purchases are limited to 7% of the employees's
salary.
(18) EARNINGS PER SHARE
A reconciliation of the Company's basic and diluted earnings (loss) per
share calculations for the three years ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Per Share
Income Shares Amount
-------------- -------------- ---------------
<S> <C> <C> <C>
For the year ended December 31, 1996:
- -------------------------------------
Basic Earnings Per Share:
Net Income $ 2,071 12,828 $ 0.16
Stock Options and Warrants 511
--------------
Basic and Diluted Earnings Per Share:
Net Income $ 2,071 13,339 $ 0.16
============== ============== ==============
For the year ended December 31, 1997:
- -------------------------------------
Basic Earnings Per Share:
Net Income $ 5,099 13,260 $ 0.38
Stock Options and Warrants 398
--------------
Diluted Earnings Per Share:
Net Income $ 5,099 13,658 $ 0.37
============== ============== ===============
For the year ended December 31, 1998:
- -------------------------------------
Basic and Diluted Loss Per Share:
Net Loss $ ( 2,573) 13,392 $ ( 0.19)
</TABLE>
Options and warrants to purchase 357,034, 257,707 and 354,610 shares of
common stock as of December 31, 1996, 1997 and 1998, respectively, were not
included in the computation of diluted earnings per share because the exercise
price was greater than the average market price of the common shares. In 1998,
the stock options and warrants have not been included in the diluted loss per
share as such options and warrants would be anti-dilutive.
22
<PAGE>
(19) RIGHTS AND WARRANTS
On August 21, 1996, the Company issued a dividend of one right ("Right") for
each share of the Company's common stock. Each Right represents the right to
purchase one-thousandth of a share of Series A Participating Preferred Stock
upon terms and conditions set forth in the Rights Agreement. Accordingly,
40,000 of the Company's authorized but unissued Preferred Stock was designated
as "Series A Participating Preferred Stock."
In 1989, the Company issued to the Company's former president warrants (the
"Warrants") to purchase up to $2.5 million of common stock at $4.33 per share
(or less under certain circumstances). The Warrants were issued in consideration
for the president agreeing to restructure his commitment to provide working
capital to the Company and to convert, at the demand of the Company, outstanding
borrowings owed to him into common shares (at the market price per share an the
conversion date) to prevent technical default under the Company's loan agreement
(the "Stock Purchase Commitment"). On May 7, 1990, the Company's president
agreed to return the Warrants. The Company terminated the Stock Purchase
Commitment and issued a warrant which allowed him to purchase 100,000 shares of
common stock at $4.61 per share. Prior to the merger with MAM, this warrant was
exercised and accordingly an additional 100,000 shares were issued in January
1999.
The Company has a warrant plan for consultants. A total of 25,000 shares of
common stock has been reserved under this plan and warrants to purchase 3,000
shares have been granted with an exercise price of $18.75 per share, of which
1,000 are outstanding at December 31, 1998.
Pursuant to the merger with Cabot in August 1995, the Company assumed
126,767 outstanding warrants issued to Medical Engineering Corporation at an
exercise price of $28.398 per share. These warrants remain outstanding at
December 31, 1998 and expire on July 29, 1999.
(20) COMMITMENTS AND CONTINGENCIES
Leases
The Company leases five facilities, one in Connecticut which expires in
2003, one in Ohio which expires in 1999, one in France which expires in 2002 and
two in Canada which expire in 2002. These leases provide for additional rental
payments to cover property taxes, insurance and maintenance, In addition, the
Company leases office equipment and vehicles. Rental expense for the years ended
December 31, 1996, 1997 and 1998 was $1,497, $1,910 and $1,537, respectively.
The minimum lease payments at December 31, 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 1,814
2000 1,832
2001 1,760
2002 1,807
2003 1,771
2004 and thereafter 1,821
-----------------
$ 10,805
=================
</TABLE>
Contingencies
In May 1996, an action was brought against the Company and certain officers
and directors alleging that the defendants knew synergies from the Cabot merger
would not be achieved but misrepresented to the public they would be achieved,
in order to obtain approval for the merger.
In August 1996 and shortly thereafter, actions were brought against the
Company and certain officers and directors alleging breach of fiduciary duty by
taking steps to resist the hostile USSC tender offer.
23
<PAGE>
The Company believes the above actions are without merit and intends to
vigorously defend the suits. Litigation is inherently unpredictable. No
assurance can be given that the Company will be successful in these matters, or
that they will not result in future charges to income which could be
significant.
In the course of conducting its business, the Company has various claims
asserted against it. Management believes the outcome of these claims will not
have a material adverse effect on the Company's financial position or results of
operations
(21) QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited selected quarterly financial data
for the years ended December 31, 1997 and 1998:
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------------
March 31 June 30 September 30 December 31
----------- ---------- --------------- --------------
<S> <C> <C> <C> <C>
1997
Net Sales $ 38,393 $ 40,455 $ 41,034 $ 40,072
Gross Profit 21,466 21,782 22,257 22,487
Operating Income 2,003 1,522 2,897 3,787
Net Income 791 440 1,236 2,632
Basic earnings per share $ 0.06 $ 0.03 (A) $ 0.09 (B) $ 0.20
Diluted earnings per share $ 0.06 $ 0.03 (A) $ 0.09 (B) $ 0.19
1998
Net Sales $ 36,279 $ 37,251 $ 38,400 $ 40,707
Gross Profit 20,408 20,817 21,173 20,308
Operating Income 2,758 3,272 4,492 (5,744)
Net Income 1,219 1,725 2,493 (7,037)
Basic earnings per share $ 0.09 $ 0.13 $ 0.19 (C) $ (0.53)
Diluted earnings per share $ 0.09 $ 0.13 $ 0.18 (C) $ (0.53)
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
A. Includes a charge associated with a cost reduction program - see Note 7.
B. Includes a charge for reorganization of the European operations and a non-recurring tax benefit - see Notes 7 and 8.
C. Includes a charge for the write-down of intangibles, merger and other costs - see Notes 1 and 6.
</TABLE>
24
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Shareholders of Circon Corporation:
We have audited the consolidated balance sheets of Circon Corporation (a
Delaware) corporation and subsidiaries as of December 31, 1998 and 1997, and the
related statements of operations, shareholders' equity and cash flows for each
of the three years ended December 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Circon Corporation and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years ended December 31
,1998 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Stamford, Connecticut
February 19, 1999
25
<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 hereunto duly authorized.
MAXXIM MEDICAL, INC.
Dated: March 19, 1999 By: /s/ Kenneth W. Davidson
Kenneth W. Davidson
Title: President and Chief Executive
Officer
26
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------- ------------------------------------------------------------------------
2.1 Agreement and Plan of Merger, dated as of November 21, 1998, by and
among Maxxim Medical, Inc., a Delaware corporation ("Parent"), MMI
Acquisition Corp., a Delaware corporation and a wholly owned subsidiary
of Parent ("Sub") and Circon Corporation, a Delaware corporation the ("
Company") is incorporated by reference to Exhibit (c)(1) to the
Registrant's Schedule 14D-1 filed with the Commission on November 30,
1998, as amended on December 10, 1998, January 5, 1999 and January 6,
1999.
99.3 Press Release dated January 6, 1999, is incorporated by reference to
Exhibit (a) (12) to Maxxim's Schedule 14D-1 filed with the Commission on
November 30, 1998, as amended on December 10, 1998, January 5, 1999 and
January 6, 1999.
30
