0000950144-01-506958.txt : 20011008
0000950144-01-506958.hdr.sgml : 20011008
ACCESSION NUMBER: 0000950144-01-506958
CONFORMED SUBMISSION TYPE: 10-Q
PUBLIC DOCUMENT COUNT: 2
CONFORMED PERIOD OF REPORT: 20010729
FILED AS OF DATE: 20010917
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: 10-Q
SEC ACT: 1934 Act
SEC FILE NUMBER: 333-92825-01
FILM NUMBER: 1739166
BUSINESS ADDRESS:
STREET 1: 10300 49TH ST N
CITY: CLEARWATER
STATE: FL
ZIP: 33762
BUSINESS PHONE: 7275612100
MAIL ADDRESS:
STREET 1: 10300 49TH STREET NORTH
CITY: CLEARWATER
STATE: FL
ZIP: 33762
10-Q
1
g71623e10-q.txt
MAXXIM MEDICAL, INC.
1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended JULY 29, 2001
-------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ____________ to _______________.
Commission File Number
333-92825
---------
MAXXIM MEDICAL, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
TEXAS 76-0291634
------------------------------- ------------------------------------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10300 49TH STREET NORTH, CLEARWATER, FLORIDA 33762
--------------------------------------------- ---------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code................(727) 561-2100
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock:
Class Outstanding at August 31, 2000
------------------------------------- ------------------------------
COMMON STOCK, $.001 PAR VALUE 30,165,161
2
MAXXIM MEDICAL, INC.
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets as of
October 29, 2000 and July 29, 2001 2
Condensed Consolidated Statements of Operations
for the Fiscal Quarters Ended
July 30, 2000 and July 29, 2001 3
Condensed Consolidated Statements of Cash Flows
for the Fiscal Quarters Ended July 30, 2000 and
July 29, 2001 4
Notes to Condensed Consolidated Financial
Statements 5
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 17
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
PART II. OTHER INFORMATION 21
SIGNATURES 22
1
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
July 29, October 29,
2001 2000
--------- ---------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,852 $ 1,287
Accounts receivable, net of allowances of $3,225 and $3,526, respectively 46,975 46,256
Inventory, net 80,312 66,913
Other receivables 2,561 15,024
Prepaid expenses and other 2,220 5,906
Assets held for sale 17,559 18,388
--------- ---------
Total current assets 151,479 153,774
Property and equipment 106,278 103,952
Less: accumulated depreciation (53,671) (47,206)
--------- ---------
52,607 56,746
Goodwill, net of accumulated amortization of $49,707 and $46,508, respectively 107,901 110,969
Other assets, net 24,143 27,834
--------- ---------
Total assets $ 336,130 $ 349,323
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt $ 10,708 $ 10,688
Current maturities of capital leases and other long-term obligations 462 712
Accounts payable 41,005 47,505
Accrued liabilities 37,547 50,066
--------- ---------
Total current liabilities 89,722 108,971
Long-term debt, net of current maturities 215,232 200,182
Senior subordinated discount notes 112,692 110,123
Senior discount notes 59,948 53,579
10 1/2% Senior subordinated notes 5 5
Capital leases and other long-term obligations, net of current maturities 3,358 3,728
--------- ---------
Total liabilities 480,957 476,588
Shares with put rights ($.001 par value common stock, 882,019 shares
issued and outstanding) 4,410 4,410
Shareholders' equity (deficit)
Preferred Stock, $1.00 par value, 10,000,000 shares authorized, none
issued or outstanding -- --
Common Stock, $.001 par value, 40,000,000 shares authorized,
29,283,142 and 29,283,142 issued and outstanding, respectively 29 29
Additional paid-in capital (4,731) (4,731)
Accumulated deficit (126,187) (107,964)
Subscriptions receivable (2,974) (2,974)
Accumulated other comprehensive loss (15,374) (16,035)
--------- ---------
Total shareholders' deficit (149,237) (131,675)
--------- ---------
Total liabilities and shareholders' equity (deficit) $ 336,130 $ 349,323
========= =========
See accompanying notes to condensed consolidated financial statements.
2
4
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
(Unaudited)
Three Months Ended Nine Months Ended
------------------------- -------------------------
July 29, July 30, July 29, July 30,
2001 2000 2001 2000
--------- --------- --------- ---------
Net sales $ 124,365 $ 129,883 $ 382,162 $ 383,471
Cost of sales 95,482 101,792 291,485 295,855
--------- --------- --------- ---------
Gross profit 28,883 28,091 90,677 87,616
Selling, general and administrative expenses 22,410 25,352 67,223 73,146
Restructure charges and transition expenses -- 935 -- 2,608
--------- --------- --------- ---------
Income from operations 6,473 1,804 23,454 11,862
Interest expense, net (12,687) (12,425) (39,890) (35,823)
Other income (expense), net 102 279 (1,432) (2,063)
Recapitalization expenses -- (148) -- (19,046)
--------- --------- --------- ---------
Loss from continuing operations
before income taxes (6,112) (10,490) (17,868) (45,070)
Income tax benefit -- (3,812) -- (10,740)
--------- --------- --------- ---------
Loss from continuing operations (6,112) (6,678) (17,868) (34,330)
Income from discontinued operations,
net of tax of $56 -- -- -- 87
--------- --------- --------- ---------
Loss before extraordinary item (6,112) (6,678) (17,868) (34,243)
Extraordinary item - loss related to early
retirement of debt, net of tax benefit of
$7,136 -- -- -- (11,160)
--------- --------- --------- ---------
Loss before cumulative effect of change in
accounting principle (6,112) (6,678) (17,868) (45,403)
Cumulative effect of change in accounting
principle -- -- (355) --
--------- --------- --------- ---------
Net loss $ (6,112) $ (6,678) $ (18,223) $ (45,403)
========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements.
3
5
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
Nine Months Ended
-------------------------
July 29, July 30,
2001 2000
--------- ---------
Cash flows from operating activities:
Net loss $ (18,223) $ (45,403)
Adjustment to reconcile net loss to net cash provided by operating
activities:
Loss in fair value of investment in derivative and hedging securities 3,550 --
Loss on sale of investment in derivative securities 151 --
Loss on sale of fixed assets 829
Cumulative effect of change in accounting principle 355 --
Debt tender and recapitalization expenses -- 37,378
Deferred income tax (benefit) expense -- (3,861)
Write-off of debt offering costs -- 7,100
Gain on sale of building -- (464)
Amortization of financing fees and accretion of debt discount 10,191 9,975
Depreciation and amortization 12,080 17,241
Change in operating assets and liabilities (17,118) (14,705)
--------- ---------
Net cash (used in) provided by operating activities (8,185) 7,261
--------- ---------
Cash flows from investing activities:
Proceeds from sale of investment in derivative securities 250 --
Proceeds from sale of Circon -- 228,000
Proceeds from sale of investment securities -- 1,226
Payment received on notes -- 1,211
Payment for contract rights -- (2,250)
Proceeds from building sale -- 19,937
Purchase of property, equipment and other assets, net of asset
acquisitions and business combinations (3,370) (5,766)
--------- ---------
Net cash (used in) provided by investing activities (3,120) 242,358
--------- ---------
Cash flows from financing activities:
Net proceeds from the issuance of senior subordinated discount notes -- 110,004
Repurchase of 10 1/2% senior subordinated notes -- (99,995)
Increase in long-term borrowings -- 260,000
Repayment of long-term borrowings (435) (254,000)
Net proceeds from the issuance of senior discount notes -- 50,000
Net borrowings (payments) on revolving line of credit 15,500 8,500
Payments on capital leases and other long-term obligations (620) (823)
Recapitalization of Maxxim -- (232,361)
Debt tender and recapitalization expenses -- (37,378)
Payment of debt offering costs -- (21,330)
(Decrease) increase in bank overdraft (3,010) 1,455
Other, net 389 (18)
--------- ---------
Net cash provided by (used in) financing activities 11,824 (215,946)
--------- ---------
Effect of foreign currency translation adjustment 46 (187)
--------- ---------
Net increase in cash and cash equivalents 565 33,486
Cash and cash equivalents at beginning of period 1,287 4,040
--------- ---------
Cash and cash equivalents at end of period $ 1,852 $ 37,526
========= =========
Supplemental cash flow disclosures:
Interest paid during the period $ 30,137 $ 23,538
Income taxes paid during the period -- 1,365
Noncash investing and financing activities
Net unrealized (loss) gain on investment $ (328) $ 544
See accompanying notes to condensed consolidated financial statements.
4
6
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
On November 12, 1999, Maxxim Medical, Inc. ("Maxxim" or the "Company") was
recapitalized in a going private transaction. Current financial information
includes the accounts of Maxxim, Maxxim Medical Group, Inc. ("Maxxim Group") and
Maxxim Group's wholly owned subsidiaries.
Effective November 1, 2000, we announced a 5.2 for 1 stock split in the
form of stock dividend of 4.2 shares of common stock on each share of common
stock issued and outstanding on such effective date. These financial statements
have been adjusted to reflect this stock split.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with U.S. Generally Accepted Accounting
Principles have been omitted. The accompanying unaudited condensed consolidated
financial statements reflect all adjustments of a normal recurring nature which,
in the opinion of management, are necessary for a fair presentation of the
results for the interim periods presented. All significant intercompany balances
and transactions have been eliminated in consolidation.
These financial statements should be read in conjunction with Maxxim's
annual audited financial statements for the fiscal year ended October 29, 2000,
included in its Annual Report on Form 10-K as filed with the Securities and
Exchange Commission.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL QUARTER
The third quarter of fiscal 2001 ended on July 29th compared to the fiscal
2000 third quarter end date of July 30th.
INVENTORIES
Inventory includes the following as of:
JULY 29, OCTOBER 29,
2001 2000
-------- -----------
(UNAUDITED)
(IN THOUSANDS)
Raw materials $ 44,275 $ 32,667
Work in progress 7,226 9,301
Finished goods 35,919 41,063
Allowance for excess and obsolete (7,108) (16,118)
-------- --------
$ 80,312 $ 66,913
======== ========
GOODWILL
Goodwill represents the excess of the aggregate price paid by Maxxim in
business combinations accounted for as purchases over the fair market value of
the tangible and identifiable intangible net assets acquired. Goodwill from the
Company's previous acquisitions is approximately $157,608,000 of which
approximately $107,901,000 remains unamortized as of July 29, 2001. Amortization
periods for goodwill range from 5 to 40 years. The Company evaluates its
goodwill for impairment by comparison of carrying value against undiscounted
future pre-tax cashflows. If an impairment is identified, we adjust the asset's
carrying amounts to the value of future discounted cashflows.
5
7
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes all changes in a company's equity
including, among other things, unrealized holding gains and losses on
available-for-sale securities and foreign currency translation adjustments.
Total comprehensive income is as follows:
THREE MONTHS ENDED
-----------------------------
JULY 29, JULY 30,
2001 2000
-------- --------
(IN THOUSANDS)
Net loss ..................................................... $ (6,112) $ (6,678)
Foreign currency translation adjustments ..................... (134) 450
Net unrealized gains (losses) on available for sale securities (6) (152)
-------- --------
Total comprehensive loss ..................................... $ (6,252) $ (6,380)
======== ========
NINE MONTHS ENDED
-----------------------------
JULY 29, JULY 30,
2001 2000
-------- --------
(IN THOUSANDS)
Net loss ..................................................... $(18,223) $(45,403)
Foreign currency translation adjustments ..................... 989 645
Net unrealized gains (losses) on available for sale securities (328) 544
-------- --------
Total comprehensive loss ..................................... $(17,562) $(44,214)
======== ========
NOTE 3 - BUSINESS COMBINATIONS, SIGNIFICANT ASSET ACQUISITIONS, DISPOSITIONS
AND DISCONTINUED OPERATIONS
DISCONTINUED OPERATIONS
On November 12, 1999, in connection with the recapitalization, Maxxim sold
all of the common stock of Circon Corporation, a wholly owned subsidiary of the
Company, to Circon Holdings Corporation ("Circon Holdings"), a newly formed
Delaware corporation. Income of $87,000 from these discontinued operations was
recorded in the quarter ended January 30, 2000.
6
8
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 4 - DEBT
The following summarizes the Company's long-term debt as of:
JULY 29, 2001 OCTOBER 29, 2000
------------- ----------------
(UNAUDITED)
(In thousands)
Industrial revenue bonds ....... $ 1,940 $ 2,370
Revolving line of credit ....... 15,500 --
Term loans under credit facility 208,500 208,500
--------- ---------
Total long term debt ........ 225,940 210,870
Less - Current maturities ...... (10,708) (10,688)
--------- ---------
$ 215,232 $ 200,182
========= =========
NOTE 5- FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133), was issued by the
Financial Accounting Standards Board in June 1998. SFAS No. 133 standardizes the
accounting for derivative instruments, including certain derivative instruments
embedded in other contracts. Under the standard, entities are required to carry
all derivative instruments in the statement of financial position at fair value.
SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. Maxxim has adopted SFAS No. 133 and recorded a cumulative
change in accounting method of $355,000 in the first quarter of fiscal 2001.
In January 1999, the Company entered into swap agreements with three banks
participating in the Company's Third Credit Agreement. The total notional value
of the swaps are $125,000,000. In the first quarter of fiscal 2001, the Company
terminated one of the swap agreements, with a notional value of $25,000,000, for
a payment of $250,000. The agreement fixed a portion of the Company's
non-indexed part of the interest rate at 5.08% and 5.02%, so long as LIBOR does
not exceed 6.75%.
The Company used the interest rate swap to manage the interest risk
associated with its borrowings and to manage the Company's allocation of fixed
and variable rate debt associated with the credit facility in existence prior to
the recapitalization. This swap agreement was continued by the Company
subsequent to termination of the Company's previous credit facility . The swap
was redesignated as a speculative position for accounting purposes and has been
recorded at its market value in the financial statements. The Company includes
gains and losses associated with recording this instrument at fair value as a
component of interest expense.
Pursuant to the Credit Facility, Maxxim Group and the Chase Manhattan Bank
entered into a hedging arrangement to cap Maxxim Group's floating interest rate
at 8.0% on an agreed upon notional principal amount of $130,000,000, in April
2000. The Company has designated this instrument as a cash flow hedge and has
recorded the instrument at fair value in its financial statements as of October
30, 2000. Accordingly, the Company recorded a $355,000 transition entry to
record the instrument at fair value upon the adoption of SFAS No. 133.
Subsequent adjustments to the fair value of this instrument have been recorded
as a component of interest expense.
The estimated fair value of cash and cash equivalents, accounts receivable,
and accounts payable, approximate their carrying amount. The estimated fair
values and carrying amounts of long-term borrowings and the interest rate swap
and cap were as follows:
JULY 29, 2001 OCTOBER 29, 2000
----------------------------------- ---------------------------------------
CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE
----------------- ------------- -------------------- -------------
(UNAUDITED)
(In thousands)
Interest rate cap .......... $ 5 $ 5 $ 576 $ 221
Swap agreement, paying fixed (1,729) (1,729) 0 2,007
Long-term debt (including
current maturities) .... (402,405) (402,405) (379,017) (379,017)
7
9
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
Fair values for the Company's 10 1/2% Senior Subordinated Notes were based
upon the redemption value paid in connection with the recapitalization. Fair
values for the Company's other debts were determined from quoted market prices
or estimated discounted cash flows.
NOTE 6 - OTHER ASSETS
Other assets, net of accumulated amortization, include the following as of:
JULY 29, OCTOBER 29,
2001 2000
-------- -----------
(UNAUDITED)
(IN THOUSANDS)
Patents .............. $ 3,690 $ 4,118
Debt offering costs .. 18,242 21,105
Non-compete agreements 520 596
Notes receivable ..... 146 338
Other ................ 1,545 1,677
------- -------
$24,143 $27,834
======= =======
NOTE 7 - BUSINESS SEGMENTS, GEOGRAPHIC AREAS AND MAJOR CUSTOMERS
The Company's business is organized, managed and internally reported as a
single segment comprised of medical products used in surgical and other medical
procedures. The Company believes its various product lines have similar
economic, operating and other related characteristics.
Information in the table below is presented on the basis Maxxim uses to
manage its business. Export sales are reported within the geographic areas where
the final sales to customers are made.
THREE MONTHS ENDED
---------------------------------
JULY 29, 2001 JULY 30, 2000
------------- -------------
(UNAUDITED, IN THOUSANDS)
United States ........... $109,231 $112,162
Europe .................. 9,331 11,207
Rest of World ........... 5,803 6,514
-------- --------
Total Company ........... $124,365 $129,883
======== ========
NINE MONTHS ENDED
---------------------------------
JULY 29, 2001 JULY 30, 2000
------------- -------------
(UNAUDITED, IN THOUSANDS)
United States ........... $334,520 $329,843
Europe .................. 30,136 33,788
Rest of World ........... 17,506 19,840
-------- --------
Total Company ........... $382,162 $383,471
======== ========
Export sales to rest of world are primarily sales to Canada, South America
and the Pacific Rim. There were no significant investments in long-lived assets
located outside the United States at July 29, 2001 and October 29, 2000.
The Company distributes primarily through major distributors in the United
States. Those distributors typically serve under a purchase order or supply
agreement between the end-user and the Company. Sales through Owens & Minor,
Inc., and General Medical Corp., our largest distributors, were 35.8% and 8.8%
of our net sales in the United States, respectively, for the nine months ended
July 29, 2001, and 26.3% and 10.1% of our net sales, respectively, for the nine
months ended July 30, 2000. For the nine months ended July 29, 2001, no other
single distributor accounted for more than 10% of our total net sales in the
United States.
8
10
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 8 - RELATED PARTY TRANSACTIONS
LOANS TO RELATED PARTIES
In connection with the recapitalization, the continuing shareholders
received loans in the aggregate amount of $2,580,000 for the purchase of Maxxim
common stock which are reflected as subscriptions receivable in the accompanying
balance sheet. Also in connection with the recapitalization, the continuing
shareholders received loans from Maxxim totaling $1,559,000 in an amount
sufficient to cover the taxes due on the cash received from the conversion of
the 2,056,413 shares used to purchase Circon Holdings shares.
Under the terms of the Company's former Chief Executive Officer's ("CEO")
employment agreement, the former CEO could borrow up to an aggregate of
$500,000 for the principal purpose of payment of federal income tax payments
associated with the exercise of stock options to purchase shares of the
Company's common stock. Each loan was non-interest bearing, unsecured and
repayable in ten equal annual installments on the third through the twelfth
anniversaries of the dates of such loans. The total amount outstanding under
this loan agreement was $500,000 at July 29, 2001. The former CEO is delinquent
in payment of his obligations under the loans.
In conjunction with the relocation of the Company's former Chief Operations
Officer ("COO") from Houston, Texas to the Company's corporate headquarters in
Clearwater, Florida, the former COO received a loan in the amount of $320,000.
This loan is non-interest bearing, unsecured and repayable upon the earlier of
the sale of his prior residence or December 31, 2000. The former COO is
delinquent in payment of his obligation under this loan.
On May 31, 2000, Maxxim executed a $270,000 promissory note to its former
Corporate Controller. This loan is non-interest bearing, unsecured and repayable
on June 3, 2006.
NOTE 9 - FINANCIAL INFORMATION REGARDING GUARANTOR SUBSIDIARIES
Consolidating financial information regarding the Company, guarantor
subsidiaries and non-guarantor subsidiaries as of July 29, 2001 and October 29,
2000 and for each of the fiscal quarters ended July 29, 2001 and July 30, 2000
is presented below for purposes of complying with the reporting requirements of
the guarantor subsidiaries. Separate financial statements and other disclosures
concerning each guarantor subsidiary have not been presented because management
has determined that such information is not material to investors. The guarantor
subsidiaries are wholly-owned subsidiaries of Maxxim that have fully and
unconditionally guaranteed the Senior Subordinated Discount Notes due 2009
issued in connection with the recapitalization.
9
11
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
CONDENSED CONSOLIDATED BALANCE SHEET
JULY 29, 2001
JULY 29, 2001
-----------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR MAXXIM GROUP PARENT CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES TOTAL GUARANTOR TOTAL
------------ ------------ ------------ --------- ------------
ASSETS
Current assets:
Cash and cash equivalents ...... $ 301 $ 1,551 $ 1,852 $ -- $ 1,852
Accounts receivable, net ....... 38,190 8,785 46,975 -- 46,975
Inventory, net ................. 68,708 11,604 80,312 -- 80,312
Other receivables .............. 2,561 -- 2,561 -- 2,561
Prepaid expenses and other ..... 1,464 756 2,220 -- 2,220
Assets held for sale ........... 17,559 -- 17,559 -- 17,559
--------- --------- --------- --------- ---------
Total current assets ......... 128,783 22,696 151,479 -- 151,479
Property and equipment ............ 53,020 53,258 106,278 -- 106,278
Less: accumulated depreciation . (30,647) (23,024) (53,671) -- (53,671)
--------- --------- --------- --------- ---------
22,373 30,234 52,607 -- 52,607
Goodwill and other intangibles, net 107,116 785 107,901 -- 107,901
Other assets, net ................. 21,515 531 22,046 2,097 24,143
--------- --------- --------- --------- ---------
Total assets ................. $ 279,787 $ 54,246 $ 334,033 $ 2,097 $ 336,130
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term
debt ........................ $ 10,708 $ -- $ 10,708 $ -- $ 10,708
Current maturities of capital
leases and other long-term
obligations ................. 462 -- 462 -- 462
Accounts payable ............... 32,679 8,326 41,005 -- 41,005
Accrued liabilities ............ 33,142 4,405 37,547 -- 37,547
--------- --------- --------- --------- ---------
Total current liabilities .... 76,991 12,731 89,722 -- 89,722
Intercompany (receivable) payable . (29,807) 29,807 -- -- --
Long-term debt, net of current
maturities ..................... 215,232 -- 215,232 -- 215,232
Senior subordinated discount notes 112,692 -- 112,692 -- 112,692
Senior discount notes ............. -- -- -- 59,948 59,948
10 1/2% senior subordinated notes . 5 -- 5 -- 5
Capital leases and other long term
obligations, net of current
maturities ..................... 3,358 -- 3,358 -- 3,358
--------- --------- --------- --------- ---------
Total liabilities ............ 378,471 42,538 421,009 59,948 480,957
Shares with put rights ............ -- -- -- 4,410 4,410
Shareholders' deficit:
Preferred Stock ................ -- -- -- -- --
Common Stock ................... -- -- -- 29 29
Additional paid-in capital ..... -- -- -- (4,731) (4,731)
Retained earnings .............. -- -- -- (126,187) (126,187)
Subscriptions receivable ....... -- -- -- (2,974) (2,974)
Accumulated other comprehensive
loss ....................... -- -- -- (15,374) (15,374)
--------- --------- --------- --------- ---------
Total shareholders' deficit .. -- -- -- (149,237) (149,237)
(Investment in)/net equity of
guarantor subsidiaries ..... (86,976) -- (86,976) 86,976 --
(Investment in)/net equity of
non-guarantor subsidiaries . (11,708) 11,708 -- -- --
--------- --------- --------- --------- ---------
Total liabilities and
shareholders' equity
(deficit) ............... $ 279,787 $ 54,246 $ 334,033 $ 2,097 $ 336,130
========= ========= ========= ========= =========
10
12
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
CONSOLIDATED BALANCE SHEET
OCTOBER 29, 2000
(IN THOUSANDS)
OCTOBER 29, 2000
-----------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR MAXXIM GROUP PARENT CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES TOTAL GUARANTOR TOTAL
------------ ------------- ------------ --------- -------------
ASSETS
Current assets:
Cash and cash equivalents ...... $ 171 $ 1,116 $ 1,287 $ -- $ 1,287
Accounts receivable, net ....... 38,454 7,802 46,256 -- 46,256
Inventory, net ................. 55,697 11,216 66,913 -- 66,913
Other receivables .............. 10,746 -- 10,746 4,278 15,024
Prepaid expenses and other ..... 4,859 1,047 5,906 -- 5,906
Assets to be held for sale ..... 18,388 -- 18,388 -- 18,388
--------- --------- --------- --------- ---------
Total current assets ......... 128,315 21,181 149,496 4,278 153,774
Property and equipment ............ 52,699 51,253 103,952 -- 103,952
Less: accumulated depreciation . (27,971) (19,235) (47,206) -- (47,206)
--------- --------- --------- --------- ---------
24,728 32,018 56,746 -- 56,746
Goodwill, net ..................... 110,067 902 110,969 -- 110,969
Other assets, net ................. 24,983 605 25,588 2,246 27,834
--------- --------- --------- --------- ---------
Total assets ................. $ 288,093 $ 54,706 $ 342,799 $ 6,524 $ 349,323
========= ========= ========= ========= =========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
debt ......................... $ 10,688 $ -- $ 10,688 $ -- $ 10,688
Current maturities of capital
leases and other obligations . 712 -- 712 -- 712
Accounts payable ............... 41,676 5,829 47,505 -- 47,505
Accrued liabilities ............ 48,243 1,823 50,066 -- 50,066
--------- --------- --------- --------- ---------
Total current liabilities .... 101,319 7,652 108,971 -- 108,971
Intercompany (receivable) payable . (35,221) 35,221 -- -- --
Long-term debt, net of current
maturities ..................... 200,182 -- 200,182 -- 200,182
Senior subordinated discount notes 110,123 -- 110,123 -- 110,123
Senior discount notes ............. -- -- -- 53,579 53,579
10 1/2% senior subordinated notes . 5 -- 5 -- 5
Capital lease and other obligations,
net of current maturities ...... 3,728 -- 3,728 -- 3,728
--------- --------- --------- --------- ---------
Total liabilities ............ 380,136 42,873 423,009 53,579 476,588
Shares with put rights ............ -- -- -- 4,410 4,410
Shareholders' equity:
Preferred Stock ................ -- -- -- -- --
Common Stock ................... -- -- -- 29 29
Additional paid-in capital ..... -- -- -- (4,731) (4,731)
Accumulated deficit ............ -- -- -- (107,964) (107,964)
Subscriptions receivable ....... -- -- -- (2,974) (2,974)
Accumulated other comprehensive
loss ........................ -- -- -- (16,035) (16,035)
--------- --------- --------- --------- ---------
Total shareholders' equity ... -- -- -- (131,675) (131,675)
(Investment in) / net equity of
guarantor subsidiaries ..... (80,210) -- (80,210) 80,210 --
(Investment in) / net equity of
non-guarantor subsidiaries . (11,833) 11,833 -- -- --
--------- --------- --------- --------- ---------
Total liabilities and
shareholders' equity .... $ 288,093 $ 54,706 $ 342,799 $ 6,524 $ 349,323
========= ========= ========= ========= =========
11
13
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JULY 29, 2001
THREE MONTHS ENDED JULY 29, 2001
---------------------------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR ELIMINATING MAXXIM GROUP PARENT CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL GUARANTOR TOTAL
-------------- --------------- ------------ -------------- -------------- -------------
Net sales ................... $ 113,261 $ 16,732 $ (5,628) $ 124,365 $ -- $ 124,365
Cost of sales ............... 86,639 14,471 (5,628) 95,482 -- 95,482
--------- --------- --------- --------- --------- ---------
Gross profit ................ 26,622 2,261 -- 28,883 -- 28,883
--------- --------- --------- --------- --------- ---------
Selling, general and
administrative ............. 19,599 2,811 -- 22,410 -- 22,410
--------- --------- --------- --------- --------- ---------
Income from operations ...... 7,023 (550) -- 6,473 -- 6,473
Interest (expense), net .... (9,944) (461) -- (10,405) (2,282) (12,687)
Other income/(expense), net 41 61 -- 102 -- 102
--------- --------- --------- --------- --------- ---------
Net loss ............... $ (2,880) $ (950) $ -- $ (3,830) $ (2,282) $ (6,112)
========= ========= ========= ========= ========= =========
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JULY 30, 2000
THREE MONTHS ENDED JULY 30, 2000
---------------------------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR ELIMINATING MAXXIM GROUP PARENT CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL GUARANTOR TOTAL
-------------- --------------- ------------ -------------- -------------- -------------
Net sales ................... $ 116,723 $ 22,518 $ (9,358) $ 129,883 $ -- $ 129,883
Cost of sales ............... 92,625 18,525 (9,358) 101,792 -- 101,792
--------- --------- --------- --------- --------- ---------
Gross profit ................ 24,098 3,993 -- 28,091 -- 28,091
--------- --------- --------- --------- --------- ---------
Selling, general and
administrative ............. 21,566 3,786 -- 25,352 -- 25,352
Restructure and transition
expenses ................... 935 -- -- 935 -- 935
--------- --------- --------- --------- --------- ---------
22,501 3,786 -- 26,287 -- 26,287
--------- --------- --------- --------- --------- ---------
Income (loss) from operations 1,597 207 -- 1,804 -- 1,804
Interest (expense), net .... (9,858) (572) -- (10,430) (1,995) (12,425)
Other income/(expense), net 138 141 -- 279) -- 279
Recapitalization expenses ... (148) -- -- (148) -- (148)
--------- --------- --------- --------- --------- ---------
Loss before income taxes .... (8,271) (224) -- (8,495) (1,995) (10,490)
Income tax benefit .......... (3,124) 90 -- (3,034) (778) (3,812)
--------- --------- --------- --------- --------- ---------
Net loss ............... $ (5,147) $ (314) $ -- $ (5,461) $ (1,217) $ (6,678)
========= ========= ========= ========= ========= =========
12
14
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED JULY 29, 2001
NINE MONTHS ENDED JULY 29, 2001
---------------------------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR ELIMINATING MAXXIM GROUP PARENT CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL GUARANTOR TOTAL
-------------- --------------- ------------ -------------- -------------- -------------
Net sales ................... $ 346,448 $ 51,556 $ (15,842) $ 382,162 $ -- $ 382,162
Cost of sales ............... 264,686 42,641 (15,842) 291,485 -- 291,485
--------- --------- --------- --------- --------- ---------
Gross profit ................ 81,762 8,915 -- 90,677 -- 90,677
--------- --------- --------- --------- --------- ---------
Selling, general and
administrative ............. 58,767 8,456 -- 67,223 -- 67,223
--------- --------- --------- --------- --------- ---------
Income from operations ...... 22,995 459 -- 23,454 -- 23,454
Interest (expense), net .... (31,868) (1,505) -- (33,373 (6,517) (39,890
Other income/(expense), net (1,320) (112) -- (1,432) -- (1,432)
--------- --------- --------- --------- --------- ---------
Income (loss) before
cumulative effect of
change in accounting....... (10,193) (1,158) -- (11,351) (6,517) (17,868)
Cumulative effect of change
in accounting principle ... (355) -- -- (355) -- (355)
--------- --------- --------- --------- --------- ---------
Net loss ............... $ (10,548) $ (1,158) $ -- $ (11,706) $ (6,517) $ (18,223)
========= ========= ========= ========= ========= =========
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED JULY 30, 2000
NINE MONTHS ENDED JULY 30, 2000
---------------------------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR ELIMINATING MAXXIM GROUP PARENT CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL GUARANTOR TOTAL
-------------- --------------- ------------ -------------- -------------- -------------
Net sales ................... $ 344,893 $ 65,397 $ (26,819 $ 383,471 $ -- $ 383,471
Cost of sales ............... 267,491 55,183 (26,819) 295,855 -- 295,855
--------- --------- --------- --------- --------- ---------
Gross profit ................ 77,402 10,214 -- 87,616 -- 87,616
--------- --------- --------- --------- --------- ---------
Selling, general and
administrative ............. 61,796 11,350 -- 73,146 -- 73,146
Restructure and transition
expenses ................... 2,608 -- -- 2,608 -- 2,608
--------- --------- --------- --------- --------- ---------
64,404 11,350 -- 75,754 -- 75,754
--------- --------- --------- --------- --------- ---------
Income (loss) from operations 12,998 (1,136) -- 11,862 -- 11,862
Interest (expense), net .... (28,583) (1,717) -- (30,300) (5,523) (35,823)
Other income/(expense), net.. (2,098) 35 -- (2,063) -- (2,063)
Recapitalization expenses ... (19,046) -- -- (19,046) -- (19,046)
--------- --------- --------- --------- --------- ---------
Loss before income taxes .... (36,729) (2,818) -- (39,547) (5,523) (45,070)
Income tax benefit .......... (7,787) (799) -- (8,586) (2,154) (10,740)
--------- --------- --------- --------- --------- ---------
Loss from continuing
operations ................. (28,942) (2,019) -- (30,961) (3,369) (34,330)
Income from discontinued
operations, net ........... 87 -- -- 87 -- 87
--------- --------- --------- --------- --------- ---------
Loss before extraordinary
item ...................... (28,855) (2,019) -- (30,874) (3,369) (34,243)
Extraordinary item - loss on
early retirement of debt,
net ....................... (8,084) -- -- (8.084) (3,076) (11,160)
--------- --------- --------- --------- --------- ---------
Net loss ............... $ (36,939) $ (2,019) $ -- $ (38,958) $ (6,445) $ (45,403)
========= ========= ========= ========= ========= =========
13
15
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 29, 2001
NINE MONTHS ENDED JULY 29, 2001
-------------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR MAXXIM GROUP PARENT CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES TOTAL GUARANTOR TOTAL
-------------- ---------------- -------------- -------------- --------------
Cash flows from operating activities:
Net loss .......................... $(10,548) $ (1,158) $(11,706) $ (6,517) $(18,223)
Adjustment to reconcile net loss to
net cash provided by operating
activities:
Loss in fair value of investment
in derivative and hedging
securities ................... 3,550 -- 3,550 -- 3,550
Loss on sale of investment
in derivative security........ 151 -- 151 -- 151
Loss on sale of fixed asset .... 829 -- 829 -- 829
Cumulative effect of accounting
change ....................... 355 -- 355 -- 355
Amortization of financing fees
and accretion of debt discount 3,674 -- 3,674 6,517 10,191
Depreciation and amortization .. 7,722 4,358 12,080 -- 12,080
Change in operating assets and
liabilities .................. (4,451) (12,667) (17,118) -- (17,118)
-------- -------- -------- -------- --------
Net cash (used in) provided by
operating activities ............. 1,282 (9,467) (8,185) -- (8,185)
-------- -------- -------- -------- --------
Cash flows from investing activities:
Proceeds from sale of investment
in derivative securities ........ 250 -- 250 -- 250
Purchase of property, equipment
and other assets, net of asset
acquisitions and business
combinations .................... (2,566) (804) (3,370) -- (3,370)
-------- -------- -------- -------- --------
Net cash used in investing activities (2,316) (804) (3,120) -- (3,120)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Repayment on long-term borrowings.. (435) -- (435) -- (435)
Net borrowings on revolving line of
credit ........................... 15,500 -- 15,500 -- 15,500
Payments on capital lease and other
long-term obligations ............ (620) -- (620) -- (620)
Decrease in bank overdraft ........ (3,010) -- (3,010) -- (3,010)
Other, net ........................ (488) 877 389 -- 389
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities ............. 10,947 877 11,824 -- 11,824
-------- -------- -------- -------- --------
Effect of foreign currency
translation adjustment ........... 317 (271) 46 -- 46
-------- -------- -------- -------- --------
Net increase in cash and cash
equivalents ...................... 10,230 (9,665) 565 -- 565
Cash and cash equivalents
at beginning of period ........... 171 1,116 1,287 -- 1,287
-------- -------- -------- -------- --------
Cash and cash equivalents
at end of period .................. $ 10,401 $ (8,549) $ 1,852 $ -- $ 1,852
======== ======== ======== ======== ========
14
16
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED JULY 30, 2000
NINE MONTHS ENDED JULY 30, 2000
-------------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR MAXXIM GROUP PARENT CONSOLIDATED
SUBSIDIARIES SUBSIDIAIRES TOTAL GUARANTOR TOTAL
-------------- ---------------- -------------- -------------- --------------
Cash flows from operating activities:
Net loss ............................... $ (36,939) $ (2,019) $ (38,958) $ (6,445) $ (45,403)
Adjustment to reconcile net loss to
net cash provided by operating
activities:
Debt tender and recapitalization
expenses .......................... 37,378 -- 37,378 -- 37,378
Deferred income tax (benefit) expense (3,670) (191) (3,861) -- (3,861)
Write-off of debt offering cost ..... 2,057 -- 2,057 5,043 7,100
Gain on sale of building ............ (464) -- (464) -- (464)
Amortization of financing fees
and accretion of debt discount ... 5,189 -- 5,189 4,786 9,975
Depreciation and amortization ....... 12,550 4,691 17,241 -- 17,241
Change in operating assets
and liabilities ................... (5,948) (1,025) (6,973) (7,732) (14,705)
--------- --------- --------- --------- ---------
Net cash (used in) provided by
operating activities .................. 10,153 1,456 11,609 (4,348) 7,261
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of Circon ........... 228,000 -- 228,000 -- 228,000
Proceeds from sale of investment
securities ........................... 1,226 -- 1,226 -- 1,226
Payment received on notes .............. 1,211 -- 1,211 -- 1,211
Payment for contract rights ............ (2,250) -- (2,250) -- (2,250)
Proceeds from sale of building ......... 19,937 -- 19,937 -- 19,937
Purchase of property, equipment
and other assets, net of asset
acquisitions and business combinations (3,618) (2,148) (5,766) -- (5,766)
--------- --------- --------- --------- ---------
Net cash provided by (used in)
investing activities ................ 244,506 (2,148) 242,358 -- 242,358
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Net proceeds from the issuance of notes 110,004 -- 110,004 -- 110,004
Repurchase of 10 1/2% senior
subordinated notes .................. (99,995) -- (99,995) -- (99,995)
Increase in long-term borrowings ....... 260,000 -- 260,000 -- 260,000
Repayment on long-term borrowings ...... -- -- -- (254,000) (254,000)
Net proceeds from the issuance of
senior discount notes ............... -- -- -- 50,000 50,000
Net borrowings on revolving line of
credit .............................. 8,500 -- 8,500 -- 8,500
Payments on capital leases and other
long-term obligations ............... (823) -- (823) -- (823)
Recapitalization of Maxxim ............. (443,170) -- (443,170) 210,809 (232,361)
Debt tender and recapitalization
expenses ............................ (37,378) -- (37,378) -- (37,378)
Payment of debt offering
costs ............................... (18,869) -- (18,869) (2,461) (21,330)
Increase in bank overdraft ............. 1,455 -- 1,455 -- 1,455
Other, net ............................. (84) 66 (18) -- (18)
--------- --------- --------- --------- ---------
Net cash (used in) provided by
financing activities .................. (220,360) 66 (220,294) 4,348 (215,946)
--------- --------- --------- --------- ---------
Effect of foreign currency
translation adjustment ................ -- (187) (187) -- (187)
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and
cash equivalents ...................... 34,299 (813) 33,486 -- 33,486
Cash and cash equivalents
at beginning of period .................. 474 3,566 4,040 -- 4,040
--------- --------- --------- --------- ---------
Cash and cash equivalents
at end of period ....................... $ 34,773 $ 2,753 $ 37,526 $ -- $ 37,526
========= ========= ========= ========= =========
15
17
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 10 -RESTRUCTURE CHARGES AND TRANSITION EXPENSES
Through July 29, 2001 we have separated approximately 470 employees
relating to the restructuring charges taken in fiscal 2000. The remaining
severance benefits of $396,000 will be paid in accordance with plan provisions.
BEGINNING ENDING
BALANCE FISCAL 2001 FISCAL 2001 BALANCE
OCTOBER 29, RECORDED CASH JULY 29,
2000 EXPENSES PAYMENTS 2001
----------- ------------ ------------ ----------
(IN THOUSANDS)
(UNAUDITED)
Severance ...................... $ 2,211 $ (696) $(1,119) $ 396
Termination benefits ........... 410 -- (133) 277
Plant closure expenses ......... 1,523 696 (2,057) 162
------- ------- ------- -------
$ 4,144 $ -- $(3,309) $ 835
======= ======= ======= =======
16
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
The following discussion should be read in conjunction with the
Condensed Consolidated Financial Statements and related Notes appearing
elsewhere in this report.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
which selected items in the Condensed Consolidated Statements of Operations bear
to net sales:
Percentage of Net Sales
--------------------------------------------------
Three Months Ended Nine Months Ended
---------------------- ----------------------
July 29, July 30, July 29, July 30,
2001 2000 2001 2000
-------- -------- -------- --------
Net sales .................................. 100.0% 100.0 % 100.0% 100.0%
Cost of sales .............................. 76.8 78.4 76.3 77.1
------ ------ ------ ------
Gross profit ............................... 23.2 21.6 23.7 22.9
Selling, general and administrative expenses 18.0 19.5 17.6 19.1
Restructure charges and transition expenses -- 0.7 -- 0.7
------ ------ ------ ------
Income from operations ..................... 5.2 1.4 6.1 3.1
Interest expense ........................... (10.2) (9.6) (10.4) (9.3)
Other income (expense), net ................ (0.1) 0.2 (0.4) (0.5)
Recapitalization expenses .................. -- (0.1) -- (5.0)
------ ------ ------ ------
Loss from continuing operations
before income taxes ..................... (4.9) (8.1) (4.7) (11.7)
Income tax benefit ......................... -- (2.9) -- (2.8)
------ ------ ------ ------
Loss from continuing operations ............ (4.9) (5.2) (4.7) (8.9)
Income from discontinued operations,
net of tax .............................. -- -- -- --
------ ------ ------ ------
Loss before extraordinary item ............. (4.9) (5.2) (4.7) (8.9)
Extraordinary item - loss related to early
retirement of debt, net of tax ........... -- -- -- (2.9)
------ ------ ------ ------
Loss before cumulative effect of change
in accounting principle .................. (4.9) (5.2) (4.7) (11.8)
Cumulative effect of change in accounting
principle ................................ -- -- (0.1) --
------ ------ ------ ------
Net loss ................................... (4.9)% (5.2)% (4.8)% (11.8)%
====== ====== ====== ======
NET SALES - Net sales for the third fiscal quarter of 2001 were $124.4
million compared to $129.9 million in the third fiscal quarter of 2000. The 4.2%
decrease in sales quarter over quarter is primarily the result of the following
factors: a decrease in custom procedure tray sales to $76.0 million for the
third quarter of fiscal 2001 from $78.2 million for the third quarter of fiscal
2000 due to a managed reduction in dealer inventory levels; a slight decline in
medical glove sales to $21.1 million in the third quarter of fiscal 2001 from
$21.7 million in the comparable quarter of fiscal 2000; and a decline in all
other product sales to $27.3 million in the third quarter of fiscal 2001 from
$29.9 million in the third quarter of fiscal 2000, primarily due to reduced
endoscopic sales to European distributors, offset in part by a reduction in
estimated rebate obligations. Net sales for the nine months ended July 29, 2001
were $382.2 million compared to $383.5 million in the first nine months of
fiscal 2000. An increase in custom procedure tray sales to $234.1 million for
the nine months ended July 29, 2001 from $224.8 million in the comparable period
of fiscal 2000 due to sales conversions from a large group purchasing
organization contract obtained in fiscal 2000 were offset by the following
factors; a decline in medical glove sales to $63.1 million in the nine months
ended July 29, 2001 from $67.0 million in the comparable period of fiscal 2000
primarily caused by lower O.E.M. sales; and a decline in all our other product
sales to $84.9 million in the nine months ended July 29, 2001 from $91.7 million
in the comparable period of fiscal 2000, primarily due to reduced endoscopic
sales to European distributors.
17
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION - (CONTINUED)
GROSS PROFIT - Gross profit increased to $28.8 million or 23.2% of net
sales in the third quarter of fiscal 2001 from $28.1 million or 21.6% of net
sales reported in the third quarter of fiscal 2000. For the nine month period
ended July 29, 2001, gross profit was $90.7 million or 23.7% of net sales in
fiscal 2001 versus $87.6 million or 22.8% of net sales in the comparable period
of fiscal 2000. Gross profit for fiscal 2001 was negatively impacted by costs
associated with the plant rationalization program that began in the fourth
quarter of fiscal 2000. The negative impact on the fiscal 2001 first quarter
gross profit was $2.1 million, $1.5 million in the second quarter, and $1.7
million in the third quarter. Gross profit for fiscal 2000 was negatively
impacted by a strike and a facility rationalization program in our glove
business. The negative impact on the fiscal 2000 first quarter gross profit was
$2.9 million of which $1.8 million was a non-cash inventory write-down. The
negative impact on the fiscal 2000 second quarter gross profit was $4.3 million
of which $1.2 million related to the strike which ended in May with the signing
of a new collective bargaining agreement.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and
administrative expenses declined to $22.4 million or 18.0% of net sales in the
third quarter of fiscal 2001 from $25.4 million or 19.5% of net sales in the
third quarter of fiscal 2000. For the nine month period ended July 29, 2001,
selling, general and administrative expenses declined to $67.2 million or 17.6%
of net sales in fiscal 2001 from $73.1 million or 19.1% of net sales in the
comparable period of fiscal 2000. The improvement in selling, general and
administrative expenses quarter over quarter as well as period over period is
attributable to improvements in sales, marketing and distribution expenses
combined with general cost reductions.
RESTRUCTURE CHARGES AND TRANSITION EXPENSES - In the first nine months of
fiscal 2000, we recorded charges of $0.9 million in severance costs and $2.6
million of other transition expenses related to the closing of one of our glove
plants. In connection with the resignation of Akbar Naderi, the Company has
recorded a liability of approximately $1.0 million.
INCOME FROM OPERATIONS - Income from operations for the third quarter of
fiscal 2001 was $6.4 million or 5.2% of net sales, compared to $1.8 million or
1.4% of net sales in the third quarter of fiscal 2000. Income from operations
for the nine months ended July 29, 2001 was $23.4 million or 6.1% of net sales,
compared to $11.9 million or 3.1% of net sales in the comparable period of
fiscal 2000.
INTEREST EXPENSE - Interest expense increased to $12.7 million in the
third quarter of fiscal 2001 from $12.4 million reported in the third quarter
of fiscal 2000. Interest expense increased to $39.9 million in the nine months
ended July 29, 2001 from $35.8 million reported in the comparable period of
fiscal 2000. The Company incurred cash interest expense of $7.9 million and
$9.4 million in the quarters ended July 29, 2001 and July 30, 2000,
respectively. In the nine months ended July 29, 2001 and July 30, 2000, the
Company incurred $25.4 million and $26.9 million of cash interest expense,
respectively. The increased interest expense period over period is primarily a
function of the marking to market of the Company's derivative securities and a
full period's interest expense and amortization on the debt incurred with the
recapitalization.
RECAPITALIZATION EXPENSES - Recapitalization expenses of $19.0 million were
recorded in the first nine months of fiscal 2000 due to the recapitalization of
Maxxim on November 12, 1999. The recapitalization expenses include approximately
$14.0 million of professional fees.
INCOME TAXES - The Company has determined that it is more likely than not
that future operations will not generate sufficient taxable income to realize
tax loss carryovers and other deferred tax assets. As a result, the Company has
recorded a full valuation allowance on tax benefits generated for the quarter
and the nine months ended July 29, 2001. Our effective tax rate for the nine
months ended July 30, 2000 was a benefit of 23.8%.
LOSS FROM CONTINUING OPERATIONS - As a result of the foregoing, we
reported a loss from continuing operations of $6.1 million in the third quarter
of fiscal 2001 versus $6.7 million in the third quarter of fiscal 2000. We
reported a loss from continuing operations of $17.9 million in the nine months
ended July 29, 2001 versus $34.3 million in the comparable period of fiscal
2000.
18
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION - (CONTINUED)
DISCONTINUED OPERATIONS - In connection with the recapitalization, all of
the outstanding stock of Circon was sold to Circon Holdings in exchange for
$208.0 million in cash and the repayment of $20.0 million of debt owed by Circon
to Maxxim. Accordingly, Circon's operations have been reflected as discontinued
operations in our condensed consolidating statements of operations. In the
quarter ended January 30, 2000, we recorded a gain of $87,000 on the sale of
Circon.
EXTRAORDINARY ITEM - In connection with the recapitalization, we consumated
a tender offer for our 10 1/2% senior subordinated notes. Accordingly, the
tender premium and deferred debt issuance costs related to these notes were
written off as an extraordinary loss in the quarter ended January 30, 2000.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE - In the quarter ended
January 28, 2001, the Company implemented FASB Statement No. 133. As a result,
a loss was recorded to reflect a derivative instrument at its fair value at
October 30, 2000.
NET LOSS - As a result of the foregoing, we reported a loss of $6.1 million
for the third quarter of fiscal 2001 versus $6.7 million in the third quarter of
fiscal 2000. We reported a loss of $18.2 million for the nine months ended July
29, 2001 versus $45.4 million in the comparable period of fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operating activities was $8.2 million in the nine months
ended July 29, 2001 versus cash provided from operations of $7.3 million in the
comparable period of fiscal 2000. Net cash from operating activities was
negatively impacted in the first nine months of fiscal 2001 due to an increase
in accounts receivable and inventory which was somewhat offset by an increase in
accounts payable and the receipt of an income tax refund. Net cash from
operating activities was negatively impacted in nine months of fiscal 2000 due
to increases in inventory, accounts receivable, an income tax receivable and a
decline in accrued expenses.
Cash flows used by investing activities were $3.1 million in the first nine
months of fiscal 2001 while cash flows generated in investing activities were
$242.4 in the first nine months of 2000. The sale of Circon as part of the
recapitalization provided $228 million in the first quarter of fiscal 2000.
Capital expenditures totaled $3.4 million and $5.8 million in first nine months
of fiscal 2001 and 2000, respectively.
Cash flows provided from financing activities were $11.8 million in the
first nine months of fiscal 2001 while cash flows used in financing activities
was $215.6 million in the first nine months of fiscal 2000. In the nine months
ended July 30, 2000 Maxxim or its subsidiaries received the following proceeds
as a result of the recapitalization: $50.0 million from the issuance of senior
discount notes, $110.0 million from the issuance of senior subordinated discount
notes and $260.0 million from a new credit facility. Then, as part of the
recapitalization, these funds were used to pay the following debts in the first
nine months of fiscal 2000: $100.0 million for Maxxim's 10 1/2% senior
subordinated notes, $254.0 million for the outstanding balance on Maxxim's
previous credit facility, $21.3 million for debt offering costs and $37.4
million for debt tender and recapitalization expenses. In addition, the net
impact from the repurchase of outstanding stock and options and proceeds from
the issuance of new common stock in accordance with the provisions of the
recapitalization was the payment of $232.4 million in the nine months ended July
30, 2000.
19
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION - (CONTINUED)
At July 29, 2001, our balance sheet included net goodwill of $107.9
million. The majority of this balance represents goodwill from the acquisitions
of Winfield Medical and Sterile Concepts. Maxxim acquired Winfield Medical in
June 1998. Unamortized goodwill from the Winfield acquisition totaled $21.3
million at July 29, 2001, which represents 19.7% of net goodwill on that date.
In July 1996, Maxxim acquired Sterile Concepts. Unamortized goodwill from the
Sterile Concepts acquisition totaled $75.3 million at July 29, 2001, and
represented 69.6% of net goodwill as of that date. The remaining $11.3 million
of unamortized goodwill at July 29, 2001, relates to various other acquisitions
made between 1992 and 2000. All components of goodwill are being amortized on a
straight line basis over the applicable useful life. Useful lives have been
estimated at 30 years for Winfield Medical, 40 years for Sterile Concepts and 5
to 20 years for the remaining goodwill components. Total goodwill amortization
expense for the nine months ended July 29, 2001, and July 30, 2000, were $3.1
million and $3.8 million, respectively. Management believes that there is not
persuasive evidence that any material portion of this intangible asset will
dissipate over a period shorter than the determined useful life.
The revolving credit facility is available for general corporate purposes,
including working capital and capital expenditures, and includes sublimits of
$25.0 million and $10.0 million, respectively, for letters of credit and
swingline loans. At July 29, 2001, the Company had $15.5 million drawn under its
revolving credit facility.
The credit facilities and the terms of our senior subordinated discount
notes impose certain restrictions on us and our subsidiaries, including
restrictions on our ability to incur additional indebtedness, issue preferred
stock, pay dividends and make certain distributions, make investments, sell
assets, create liens, enter into certain transactions with affiliates and engage
in certain other activities. In addition, the credit facilities require us to
maintain certain financial ratios. The credit facilities are secured by
substantially all of our assets, including real and personal property,
inventory, accounts receivable and other intangibles, in each case subject to
certain limited exceptions.
Our ability to satisfy our debt obligations and to pay principal and
interest on debt, fund working capital and make anticipated capital expenditures
will depend on our future performance, which is subject to general economic,
financial and other factors, some of which are beyond our control. We believe
that based on current levels of operations and anticipated growth, cash flow
from operations, together with borrowings under the revolving credit facility,
will be adequate for the foreseeable future to make required payments of
principal and interest on our debt, to fund working capital, and to make
expected capital expenditures. There can be no assurance, however, that our
business will generate sufficient cash flow from operations or that future
borrowings will be available under the revolving credit facility in an amount
sufficient to enable us to service our debt, or to fund other liquidity needs.
FORWARD LOOKING STATEMENTS
This report contains forward looking statements. Forward looking statements
are statements of our expectations, estimates, projections and beliefs and are
based on assumptions made by and information currently available to us regarding
our business and the industry in which we operate. Forward-looking statements
describe our expectations today of what we believe is most likely to occur or
reasonably achievable in the future, but such statements do not predict or
assure any future occurrence and may turn out to be wrong. Forward-looking
statements can be identified by the fact that they do not relate strictly to
historical or current facts. The words "believe," "anticipate," "intend,"
"expect," "estimate," "project", "predict", "hope" and "should", variations of
such words, and similar expressions, among others, are intended to identify
forward-looking statements.
Forward looking statements are subject to potential risks and uncertainties
that could cause actual results to differ materially from historical results or
those currently anticipated. The potential risks and uncertainties that could
affect forward looking statements are listed within our Annual Report on Form
10-K filed with the Securities and Exchange Commission on February 14, 2001.
We caution that undue reliance should not be placed on our forward-looking
statements, which speak only as of the date of this document. We hereby disclaim
any obligation to update information contained in any forward-looking statement.
20
22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks. Market risk is the potential loss arising
from adverse changes in market prices, interest rates and foreign currency
exchange rates.
INTEREST RATE RISK --We are subject to market risk exposure related to
changes in interest rates on the new credit facilities. Interest on borrowings
under the new credit facilities are at a fixed percentage point spread from
either (1) the greater of prime, base CD or federal funds rates or (2) LIBOR. We
are able to, at our option, fix the interest rate for LIBOR for periods ranging
from one to six months. The interest rate on all outstanding obligations under
the new credit facility are currently set off three month LIBOR. We have entered
into, and are required to maintain for at least three years, one or more
interest rate protection agreements in order to fix or limit our interest costs
with respect to at least 50% of the outstanding term loans under the new credit
facilities. In accordance with the obligations of our credit facility, we and
the Chase Manhattan Bank entered into an arrangement to cap our floating
interest rate at 8.0% on an agreed upon notional principal amount of
$130,000,000, in April 2000.
FOREIGN CURRENCY EXCHANGE RATE RISK -- Generally we generate net sales and
expenses in the local currency where our products are sold and thus are not
currently subject to significant currency exchange risk. In the future, it is
possible that a greater portion of our net sales outside of North America may
not be denominated in the same local currency as the related expenses and thus
we may be subject to currency exchange risks in connection therewith.
INTANGIBLE ASSET RISK - Our balance sheet includes intangible assets. We
assess the recoverability of intangible assets by determining whether the
amortization of the asset balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired operation. The
amount of asset impairment, if any, is measured based on projected discounted
future operating cash flows using a discount rate reflecting our average cost of
funds. In fiscal 2000, we recorded goodwill and other intangible asset
impairments of $33.5 million. We do not believe that any other impairment of
intangible assets existed as of July 29, 2001.
PART II. OTHER INFORMATION
Items 1, 2, 3 and 4 for which provision is made in the applicable regulations of
the Securities and Exchange Commission are not required under the related
instructions or are inapplicable and therefore have been omitted.
Item 5. OTHER
On June 18, 2001 Russell D. Hays was appointed Chief Executive Officer.
On June 28, 2001 Akbar Naderi resigned his position as President and as
Vice Chairman of the Company.
Item 6. EXHIBITS AND REPORTS
(a) Exhibits
Exhibit 10.1 Russell D. Hays Employment Agreement.
(b) Reports on Form 8-K
None.
21
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAXXIM MEDICAL, INC.
Date: 8/31/01 By: /s/ RUSSELL D. HAYS
------------------------------------
Russell D. Hays
Chief Executive Officer (principal
executive officer)
Date: 8/31/01 By: /s/ MARK S. SELLERS
------------------------------------
Mark S. Sellers
Vice Chairman and Chief Financial
Officer (principal financial
officer)
22
EX-10.1
3
g71623ex10-1.txt
RUSSELL D. HAYS EMPLOYMENT AGREEMENT
1
MAXXIM MEDICAL, INC.
EXECUTIVE EMPLOYMENT AGREEMENT
THE FOLLOWING CONSTITUTES THE EXECUTIVE EMPLOYMENT AGREEMENT ("AGREEMENT")
BETWEEN MAXXIM MEDICAL, INC. ("MAXXIM") AND RUSSELL D. HAYS ("CEO"):
POSITIONS & TITLES: Vice Chairman, Chief Executive Officer and Member of
the Board of Directors (the "Board") of Maxxim.
REPORTING: CEO will report to the Chairman of the Board and the
Board of Directors of Maxxim. Maxxim's President,
Chief Financial Officer and other senior executive
officers will report to CEO.
START DATE: June 18, 2001.
TERM: 5 years.
ANNUAL CASH
COMPENSATION: Base salary of $700,000, plus bonus
earned as follows: (i) $400,000 for the
Company's annual business plan proposed by CEO
and as approved by the Board (the "Plan"), plus
(ii) $150,000 for making material progress in
respect of the annual Corporate Goals
established by the Board. CEO must be employed
by the Company and in good standing on the
date the Company's auditors approve the prior
fiscal year's financial statements to be
eligible for a bonus in respect of such prior
fiscal year.
EQUITY PACKAGE: MAXXIM SHARES AND OPTIONS with purchase and
strike price of $5.00 per share (split adjusted)
all as set forth below.
STOCK: 200,000 SHARES - CEO will
pay cash of $500,000 for 100,000 shares and
Maxxim will loan CEO $500,000 for 100,000
shares. The loan will be evidenced by CEO's
non-cash pay note that will (i) be a 9-year
balloon; (ii) bear interest at the lowest rate
allowable by the Internal Revenue Service which
avoids the imputation of interest income to CEO,
compounding annually, but with no interest
payments required until maturity or an earlier
acceleration; (iii) be prepayable out of and
accelerate to
2
the extent of after tax proceeds from the
disposition of Maxxim shares and options;
(iv) become due and payable (accelerate)
upon termination of employment for any
reason; and (v) be secured by a pledge of
CEO's Company stock and options.
STOCK OPTIONS: 2,000,000 OPTIONS,
with an exercise price of $5.00 per share,
having a term of 10 years, to vest 20% on each
of the first five anniversaries of employment,
with acceleration upon a change in control.
Vesting ceases and the term of unvested options
lapse upon termination of employment for any
reason. Vested options may be exercised for 90
days following a termination of employment,
except upon a termination for cause.
3
SEVERANCE: In the event of the termination of CEO's employment
by the Board other than for cause of disability, CEO
shall receive the lesser of (i) $500,000 to be paid
over 12 months if such termination occurs during the
initial 4 years of the term of this Agreement or (ii)
$41,667 each month for the remaining term of this
Agreement if such termination occurs during the last
year of the term of this Agreement. As a condition to
the receipt of such payments, CEO shall execute a
general release in favor of the Company. For purposes
of this Agreement, "cause" shall mean (i) that CEO is
charged with a felony or other crime involving moral
turpitude, (ii) CEO commits fraud, embezzlement or
other conduct adverse to the interests of the Company
of its affiliates, or (iii) CEO substantially fails
to perform his duties or obligations to the Company
as a director or officer.
AUTOMOBILE ALLOWANCE: CEO will receive an annual automobile allowance of
$15,000.
COMMUTING EXPENSES: Maxxim will reimburse CEO for all reasonable and
documented business-related commuting expenses incurred
in connection with CEO's performance of his duties and
obligations under this Agreement, including reasonable
apartment/hotel expenses, auto rental expenses, and air
transportation.
ADDITIONAL BENEFITS: CEO will participate in Maxxim's health and other
benefit plans and programs for senior executives and
be covered under Maxxim's D&O insurance and corporate
indemnification policies.
MISCELLANEOUS: This Agreement is to be governed by and construed in
accordance with the laws of the State of New York,
without reference to principles of conflict of laws.
Any dispute between Maxxim and CEO arising out of,
related to, or in connection with any relationship
between them, contractual or otherwise (including
without limitation those created by or in connection
with this Agreement), shall be subject to binding
confidential arbitration in New York, New York in
accordance with the rules of the Commercial Panel of
the American Arbitration Association (the "AAA" and
not in accordance with the Employment Dispute
Resolution Rules of the AAA). This agreement (i)
supersedes all other offers, agreements, promises,
and representations between Maxxim and CEO, and shall
only be binding on Maxxim and CEO if and when Maxxim
and CEO execute the Agreement below and (ii) may only
be amended by a writing executed by Maxxim and CEO.
For purposes of the prior two sentences, "Maxxim"
includes
4
Maxxim Medical, Inc., its subsidiaries and related
entities; Fox Paine & Company, LLC, its subsidiaries
and related entities including without limitation Fox
Paine Capital, LLC, Fox Paine Capital Fund, L.P., Fox
Paine Capital Fund II GP, LLC, Fox Paine Capital Fund
II, L.P., and all persons and entities that are
partners or shareholders or members in any such
related entities) and all partners, members,
directors, employees, shareholders and agents of any
of the foregoing. Maxxim and CEO agree to further
document the provisions of this Agreement as need be
and to enter into other agreements regarding (i)
protection of Maxxim's corporate trade secrets and
the like and (ii) CEO's post-Maxxim employment
non-competition and non-solicitation of Maxxim
employees and customers for a period of twelve (12)
months.
IN WITNESS WHEREOF, the parties executed this agreement as of June 13, 2001.
MAXXIM MEDICAL, INC.
BY: /s/ Saul A. Fox
----------------------------------
SAUL A. FOX
CHAIRMAN OF THE BOARD OF DIRECTORS
/s/ Russell D. Hays
----------------------------------
RUSSELL D. HAYS
Address: 9 Stratford Way
Lincoln, MA 01773