-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RWGOUl2lXYndBuLtUTL/xPq+L4AxuHNKQZSeyL38vP/fg3MN+joRrF1hD8qebysq mlI2Xt/eATuFAoChfaK3Gw== 0000927356-99-000357.txt : 19990322 0000927356-99-000357.hdr.sgml : 19990322 ACCESSION NUMBER: 0000927356-99-000357 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19990319 ITEM INFORMATION: FILED AS OF DATE: 19990319 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAXXIM MEDICAL INC CENTRAL INDEX KEY: 0000858660 STANDARD INDUSTRIAL CLASSIFICATION: ORTHOPEDIC, PROSTHETIC & SURGICAL APPLIANCES & SUPPLIES [3842] IRS NUMBER: 760291634 STATE OF INCORPORATION: TX FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-10600 FILM NUMBER: 99568818 BUSINESS ADDRESS: STREET 1: 10300 49TH ST N CITY: CLEARWATER STATE: FL ZIP: 33762 BUSINESS PHONE: 7132405588 MAIL ADDRESS: STREET 1: 10300 49TH STREET NORTH CITY: CLEARWATER STATE: FL ZIP: 33762 8-K 1 MAXXIM MEDICAL, INC. 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 Date of Report (Date of earliest event reported): March 19, 1999 (January 5, 1999)
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 ------------ ================================================================================ 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
Page ---- 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
(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 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 CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS (Dollars in thousands, except per share data) (unaudited)
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 ----------- ----------- ----------- --------- 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 ============================== ===============
5 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:
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 ====================
(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
Year Ended November 1, 1998 ----------------------- Amortization of goodwill of $130,659.......................... 4,355 Amortization of patents of $13,488............................ 899 Less Circon historical amortization .......................... (2,478) ----------------------- $ 2,776 =======================
(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 CIRCON CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1997 AND 1998 ASSETS (In thousands)
December 31, December 31, 1997 1998 ------------ ------------ 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 ======== ========
The accompanying notes are an integral part of theses consolidated balance sheets. 5 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 CIRCON CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended December 31, 1996, 1997, and 1998 (In thousands except per share amounts)
1996 1997 1998 --------- --------- --------- 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 --------- --------- ---------
The accompanying notes are an integral part of these consolidated statements. 7 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)
Accumulated Other Shares Common Additional Comprehensive Issued Stock Paid-in Capital Income (Loss) ------------------------------------------------------------------- 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 - --------------------------------------------- $ ( 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 ============== ========
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 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 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 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
The accompanying notes are an integral part of these consolidated statement. 10 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:
1996 1997 1998 ---------- ---------- ---------- Domestic sales $ 131,675 $ 138,166 $ 134,626 International sales 22,104 21,788 18,011 ---------- ---------- ---------- $ 153,779 $ 159,954 $ 152,637 ========== ========== ==========
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 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: 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
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 (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 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:
1997 1998 ----------------- ----------------- Available For Sale Mutual fund of preferred stock of utility companies $ 1,115 $ 1,163 ================= =================
(10) INVENTORIES Inventories at December 31, 1997 and 1998 consist of the following:
1997 1998 ----------------- ----------------- Raw materials $ 8,559 $ 7,201 Work in process 18,309 18,393 Finished goods 11,621 11,966 ----------------- ----------------- $ 38,489 $ 37,560 ================= =================
(11) PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following at December 31, 1997 and 1998:
1997 1998 ----------------- ----------------- 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 ----------------- -----------------
16 (12) OTHER ASSETS Other assets consist of the following at December 31, 1997 and 1998:
1997 1998 ----------------------------------------- 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 ============ ============
(13) ACCRUED LIABILITIES Accrued liabilities consist of the following at December 31, 1997 and 1998:
1997 1998 ------------------------------------ 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 ============ ============
(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:
1996 1997 1998 ---------- -------- -------- 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 ========== ========= ========
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 A reconciliation of the provision (benefit) for income taxes to the Federal statutory provision (benefit) is as follows:
1996 1997 1998 ---------- --------- -------- 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 ========== ======== ========
The components of the net deferred tax asset are as follows:
1997 1998 ----------------------------------------- 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 ============ ============
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:
1997 1998 -------------------------------------- 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 ============ ============
18 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: 1999 $ 405 2000 430 2001 32,950 2002 475 Thereafter 1,039 ------------------- $ 35,299 ===================
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:
At December 31, 1997 1998 -------------------------------------- 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 ------------ -------------
19
1997 1998 ------------------------------------- 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 ------------ ------------
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 (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:
1997 1998 ----------------- ----------------- 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)
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:
1996 1997 1998 ------------------------- -------------------------- ---------------------- Option Weighted Weighted Weighted Exercise Average Average Average Price Exercise Exercise Exercise Range Shares Price Shares Price Shares Price -------------- ---------- ----------- ------------ ----------- ---------- ---------- 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
21 The following table summarizes information about stock options outstanding at December 31, 1998:
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 - ----------------------- ------------------ ------------------- ----------------- ---------------- ----------------- $ 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 ================= ================
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:
Per Share Income Shares Amount -------------- -------------- --------------- 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)
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 (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:
1999 $ 1,814 2000 1,832 2001 1,760 2002 1,807 2003 1,771 2004 and thereafter 1,821 ----------------- $ 10,805 =================
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 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:
Quarter Ended ---------------------------------------------------------------------- March 31 June 30 September 30 December 31 ----------- ---------- --------------- -------------- 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)
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.
24 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 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 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 -----END PRIVACY-ENHANCED MESSAGE-----