-----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, MEkBK6iQWUHzYk7TX6wSNHUQrYo9prrm0N0dg5NZ1W/ECwcPZRUn3oS21XNhUbuU DIhQtACOV9+IVust1tQZMA== 0000950144-98-000612.txt : 19980128 0000950144-98-000612.hdr.sgml : 19980128 ACCESSION NUMBER: 0000950144-98-000612 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971102 FILED AS OF DATE: 19980127 SROS: NONE 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-K/A SEC ACT: SEC FILE NUMBER: 001-10600 FILM NUMBER: 98513401 BUSINESS ADDRESS: STREET 1: 10300 49TH STREET NORTH CITY: CLEARWATER STATE: FL ZIP: 33762 BUSINESS PHONE: 7132405588 MAIL ADDRESS: STREET 1: 10300 49TH STREET NORTH CITY: CLEARWATER STATE: FL ZIP: 33762 10-K/A 1 MAXXIM MEDICAL 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 --------------------- FORM 10-K/A (AMENDMENT NO. 1) --------------------- (MARK ONE) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. FOR THE FISCAL YEAR ENDED NOVEMBER 2, 1997 OR [ ] 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 0-18208 MAXXIM MEDICAL, INC. (Exact name of registrant as specified in its charter) TEXAS 76-0291634 (State or other jurisdiction (I.R.S. Employer of incorporation) Identification No.)
10300 49TH STREET NORTH, CLEARWATER, FLORIDA 33762 (Address of principal executive offices) (zip code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 813-561-2100 --------------------- Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED ------------------- ----------------------------------------- Common Stock, $.001 par value New York Stock Exchange 6 3/4% Convertible Subordinated Debentures due 2003 New York Stock Exchange Rights to Purchase Preferred Stock New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE 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 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [ ]. The aggregate market value of the registrant's Common Stock, $.001 par value, held by non-affiliates of the registrant as of December 30, 1997, was $193,629,231 based on the closing price on that date on the New York Stock Exchange. As of December 30, 1997, 10,171,625 shares of the registrant's Common Stock, $.001 par value, were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's definitive proxy statement for the 1998 Annual Meeting of Shareholders to be filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 are incorporated herein by reference in Part III, Items 10, 11, 12, and 13. ================================================================================ 2 AMENDMENT NO. 1 ANNUAL REPORT ON FORM 10-K/A THIS AMENDMENT NO. 1 AMENDS AND RESTATES IN ITS ENTIRETY THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED NOVEMBER 2, 1997. ITEM 1: BUSINESS OVERVIEW Maxxim Medical, Inc. (the "Company" or "Maxxim") is a major manufacturer and developer of a diversified range of specialty medical products and a leading supplier to hospitals, clinics and outpatient surgery centers of single-use custom procedure trays. The Company operates three divisions: Case Management, Argon Medical and Maxxim Medical Europe. The Company's Case Management division manufactures, assembles and sells custom procedure trays for a wide variety of operating room and other medical procedures, complete lines of surgical gloves and medical examination gloves, infection control apparel for operating room personnel and patient draping systems. The Company believes that it currently controls a 35% market share in custom procedure trays and a 61% market share in non-latex medical examination gloves in the U.S. The Argon Medical division manufactures and markets guidewires, needles, introducers, catheters, manifolds, transducers, high pressure syringes and certain other single-use medical and surgical specialty products, which are used in the Company's procedure trays or are sold separately. This division also assembles and markets procedure trays for use primarily in cardiology and radiology procedures. The Company's third division, Maxxim Medical Europe, serves as the Company's European manufacturer and distributor of Company products. HISTORY Since its inception in 1976, the Company has grown through a series of acquisitions, development of new or modified products, expanded sales of existing products and distribution agreements with third parties. As a result, the Company has a diversified product mix, with no single product constituting more than 5% of net sales in fiscal 1997. The Company's current and historical acquisition strategy has been to make acquisitions that increase the Company's vertical integration or customer base or include products that complement or expand existing product lines. INDUSTRY TRENDS Management believes that demand for products manufactured and distributed by the Company has been favorably impacted by the emphasis on less invasive surgical products, outpatient care and the continuing pressure to utilize low-cost, single-use medical products to improve productivity, contain costs and reduce the transmission of infectious diseases. Demographic trends, such as the aging of the population, have also had a favorable effect on the demand for the Company's products since older people generally require more medical care and undergo more surgical procedures. The Company believes that there is an increased emphasis on less invasive procedures because such procedures generally involve reduced patient trauma and shorter recovery time. Improvements in medical technology and enhanced awareness on the part of the public and healthcare professionals of the lower costs and other benefits of less invasive procedures have resulted in significant increases in such procedures in recent years. Many of the Company's products are specifically designed for less invasive procedures. Rising healthcare costs, ease of set-up and decreased turn-around times, and the shortage of nursing and other healthcare professionals have also created a need for medical products that improve healthcare professional productivity and have been principal factors in the trend towards use of single-use medical products and procedure trays instead of reusable products. Unlike reusable products, single-use products such as the Company's specialty medical products do not require costly, labor intensive laundering, disinfecting or reassembling processes. The risks of transmission of infectious diseases such as AIDS, hepatitis and tuberculosis, and related concerns about occupational safety of healthcare professionals, have also contributed to an increased demand for sterile, single-use products. Management also believes that there has been a growing trend by large customers to concentrate their purchases of medical products with fewer, larger suppliers, and that the acquisition of Sterile Concepts 1 3 Holdings, Inc. ("Sterile Concepts") in July 1996 has significantly improved its ability to capitalize on such a trend. Management believes that this trend will continue to benefit the Company as it grows and diversifies its product lines. Although the aggregate number of surgical procedures performed in Europe is approximately equivalent to the number of surgical procedures performed in the U.S., the use of single-use products and custom procedure trays in Europe is not as prevalent as in the U.S. The Company believes that European healthcare providers will increase their use of disposable products and custom procedure trays for substantially the same reasons that caused U.S. healthcare providers to do so. Certain European countries have implemented healthcare price controls and experienced consolidation of hospitals and shifting of surgical procedures away from hospitals towards outpatient surgery centers. The Company believes that these developments will increase the demand among European healthcare providers for the greater efficiency and productivity associated with the single-use products of the type it manufactures. STRATEGIC OBJECTIVES Since the acquisition of Sterile Concepts, the Company's long-term strategic objectives have been: (i) improve profitability, (ii) reduce long-term indebtedness, (iii) emphasize the sale of the entire range of the Company's products to large buying groups and healthcare provider networks, (iv) expand international operations, (v) pursue strategic acquisitions that promote a vertical integration strategy, or complement the existing product offering and increase market share and (vi) increase productivity by maximizing the utilization of existing facilities. Management believes that the Company must continue to focus more of its sales effort on the emerging integrated healthcare networks. Many hospitals are forming alliances and are increasingly buying their medical products on a national accounts basis, which favors suppliers that can bundle multiple products. The Company will place greater emphasis on leveraging the sales force's existing relationships to sell all of its product lines. The Company believes that the acquisition of Sterile Concepts has helped the Company exploit the current trends described above as it now has a much larger presence in the custom procedure tray market and additional plants in Virginia and California which expand the Company's geographical coverage of domestic markets. Management believes that the international market for single-use medical products is in the early stage of development. In fiscal 1997, approximately 10.8% of the Company's net sales were derived from international sales and exports. The Company established a beachhead in Europe in January 1995 through the acquisition of Medica and then expanded its presence with the glove acquisition in June 1995. These operations specialize in the manufacture and sale of single-use medical products for hospital operating rooms and constitute the Company's Maxxim Medical Europe division. An important part of the Company's strategy has been to add or expand product lines through acquisitions, enabling the Company to develop its primary business of manufacturing and distributing low-cost single-use medical surgical products, which are sold individually and as components of the Company's procedure trays. In addition, acquisitions have enabled the Company to implement its strategy of becoming a leading supplier of procedure trays in order to maintain direct customer contact while providing a distribution vehicle for the Company's disposable medical products. The Company intends to continue to consider acquisitions of other medical products companies and to continue its internal product development and enhancement efforts in order to increase the number of products that can be sold directly or included in its procedure trays. The Company has the capacity to increase its manufacturing and assembly operations for most of its medical specialty products without incurring significant capital expenditures. Since most of the Company's facilities currently operate using one or two shifts per day, the Company can efficiently manufacture additional product by adding shifts. In the glove plants, capacity can shift between glove styles with moderate capital expenditures; however, significant investment would be required to add to total, non-latex glove capacity. The acquisition of Sterile Concepts provided the Company with a significant vertical integration opportunity. By 2 4 including more of its products in trays, the Company has been able, and will continue, to more fully utilize existing capacity and improve gross margins. OPERATING DIVISIONS Case Management Division The Case Management division manufactures, assembles and sells custom procedure trays, complete lines of surgical gloves and non-latex medical examination gloves, infection control apparel for operating room personnel and patient draping systems. The Company formed this division in the third fiscal quarter of 1995. Case Management products are marketed principally through its sales force consisting of approximately 105 account managers throughout the United States and Canada. Division sales were $417,594,000 in fiscal 1997, or 78.8% of the Company's net sales. Case Management Division Product Lines Custom Trays -- The Company assembles and markets procedure trays for use in a variety of medical and surgical procedures. Procedure trays are assembled with single-use products selected by the operating room personnel performing a certain medical or surgical procedure. Among the types of single-use medical or surgical products typically included in the procedure trays are surgical gowns, surgical drapes, electrosurgical accessories, instruments, needles, gloves, syringes, tubing, sponges, towels and gauze. The Company's ValuQuote system allows the account managers to meet customers on-site to design cost-effective custom procedure tray configurations in accordance with individual customer specifications, from a selection of over 9,000 component parts, which are manufactured either by the Company or third party vendors. The computer-aided design of custom tray prototypes helps to ensure that client product and sequencing needs are met. Assembly of procedure trays is then performed in facilities located in Temecula, California, Clearwater, Florida, and Richmond, Virginia. The Company's Encompass program bundles the customer's choice of sterile and nonsterile procedure-based products and then converts into an efficient disposal system after use. Drapes & Gowns -- The Company manufactures a complete line of single-use, non-woven infection control apparel for operating room personnel and patient draping systems. These products offer a wide range of features such as patented fluid collection pouches to minimize the risk of transmission of infectious agents or other waste during medical procedures. The drapings are utilized in various general and specialty surgical procedures, as components of procedure trays (including those assembled and distributed by the Company), in a sterile pack, or as a single product. The Company has modified the design of many of its products and has developed new products to accommodate new medical advances. The Company manufactures its non-woven products at its facilities located in Columbus, Mississippi and La Romana in the Dominican Republic. Gloves -- The Case Management division also manufactures and distributes a complete line of surgical and non-latex medical examination gloves. The gloves, which are sold under brand names such as Tru-Touch, SensiCare, Tradition, Eudermic, Sentura and Neolon, are manufactured from latex, synthetic rubber and various non-latex materials. The Company's non-latex medical examination gloves currently hold an estimated 61% share of the U.S. non-latex medical examination market segment. The Company believes that its non-latex medical examination gloves provide a viable alternative to traditional latex medical examination gloves, and the recent concern of healthcare professionals about purported allergic reactions to latex medical examination gloves has increased demand for the Company's non-latex medical examination and surgical gloves, particularly for the Company's SensiCare gloves. The Company continues to research and develop new compounds to improve its non-latex products. The Case Management gloves, together with the drape and gown products, allow the Company to provide healthcare personnel with infection control apparel from head to foot. The gloves are manufactured at the Company's facilities in Honea Path, South Carolina, Los Gatos, California, Mississauga, Canada, and Aalst/Erembodegem, Belgium. The highly mechanized, non-labor intensive facilities in California, Canada and Belgium are currently producing non-latex medical examination gloves at full capacity. 3 5 Other Products -- The Company also manufactures a variety of single-use medical bowls and containers as well as a line of electrosurgery accessory products which are primarily sold through inclusion in procedure trays. Argon Medical Division The Argon Medical division manufactures single-use specialty vascular access and pressure monitoring products and assembles procedure trays for the cardiology and interventional radiology markets. The Division's specialty medical products include single-use guidewires, needles, introducers, catheters, manifolds, transducers and high pressure syringes. Its products are either utilized in the Company's procedure trays or are sold separately. The specialty medical products manufactured by Argon Medical include technologically advanced products which have been developed by the Division's technical staff. Argon Medical division products are marketed principally through its sales force of approximately 40 direct sales persons. The Argon Medical division manufactures or assembles the medical specialty products and procedure trays at the Company's plant in Athens, Texas. Division sales for fiscal 1997 amounted to $61,870,000, or 11.7% of Company net sales. Maxxim Medical Europe Division The Company's European acquisitions were combined to form Maxxim Medical Europe in the third fiscal quarter of 1995. This division serves as the Company's European distributor of Case Management, Argon and Medica products. Medica products consist of various self-manufactured and assembled single-use hospital supply products and custom procedure kits for transfusion, infusion and patient monitoring. The European market for single-use items and custom procedure trays is in a very early stage of development. The Company was provided with a small base of custom procedure tray sales to build upon when the European operations of Sterile Concepts were acquired and combined with Maxxim Medical Europe. Maxxim Medical Europe products are marketed principally through its sales force of approximately 21 direct sales persons in The Netherlands and Belgium. Dealers and independent sales representatives are utilized throughout the rest of Europe. The Company manufactures or assembles the Medica products at the Company's plants in The Netherlands and gloves are manufactured in Belgium. Division sales for fiscal 1997 amounted to $50,088,000, or 9.5% of the Company's net sales. CUSTOMERS The Company's products are typically purchased pursuant to purchase orders or supply agreements in which the purchaser specifies whether such products are to be supplied through a national distributor or directly by the Company. The Company derives its revenues principally through its supply agreements with hospitals and outpatient surgery centers. In response to the trend within the hospital industry toward requiring suppliers to provide reduced order turnaround time and more frequent deliveries to a greater number of locations within a hospital, the Company distributes to certain customers pursuant to agreements with national and regional distributors. Under these agreements, the customers remain under contract with the Company. The Company records sales upon the shipment of inventory to the distributor, at which time title passes to the distributor. Pricing to the end customer under these supply agreements is usually established for the contract period which will typically be from one to three years. The Company views, as its ultimate customers, the medical professionals who use its products, rather than the distributors. No individual customer or affiliated group of customer accounts accounted for more than five percent of the Company's net sales in any of the past three fiscal years. Nevertheless, the Company estimates that in fiscal 1997, 1996 and 1995 a substantial portion of its products are actually sold to Owens & Minor, Inc. ("Owens & Minor"), a diversified distribution company. Although Owens & Minor may be deemed in a technical sense to be a major purchaser of the Company's products. Owens & Minor typically serves as a distributor under a purchase order or supply agreement between the customer and the Company and does not purchase for its own account. The Company, therefore, does not believe it is appropriate to categorize Owens & Minor as an actual customer. 4 6 PRODUCT DEVELOPMENT AND PATENTS The Company is continually conducting research and developing new products utilizing a team approach that involves its engineering, manufacturing and marketing resources. Although the Company has developed a number of its own products, most of its research and development efforts have historically been directed towards product improvement and enhancement of previously developed or acquired products. Company research and development expenses were approximately $5,158,000, $5,124,000, and $3,777,000 in fiscal 1997, 1996 and 1995, respectively. The Company actively pursues a policy of seeking patent protection both in the U.S. and abroad for its proprietary technology. There can be no assurance that the Company's patents will not be invalidated or that any issued patent will provide protection that has commercial significance. Litigation may be necessary to protect the Company's patent position. Such litigation may be costly and time consuming, and there can be no assurance that the Company will be successful in such litigation. Since no single patent covers product sales that constituted 5% or more of net sales of the Company in fiscal 1997, the Company does not believe that the invalidation of any patents owned by or licensed to the Company would have a material adverse effect on it or its business prospects. While the protection of patents is important to the Company's business, management does not believe any one patent is essential to the success of the Company. The Company also relies on trade secrets and continuing technological advancement to maintain its competitive position. It is the practice of the Company to enter into confidentiality agreements with key employees and consultants. There can be no assurance, however, that these measures will prevent the unauthorized disclosure or use of the Company's trade secrets and know-how or that others may not independently develop similar trade secrets or know-how or obtain access to the Company's trade secrets, know-how or proprietary technology. DISTRIBUTION AND MARKETING Management believes that its approach to marketing supports the desires of its customers to identify with individual account managers who are supported by product specialists. The Company believes that maintenance of these product specialists enables it to provide better customer service and to maintain specialized expertise in each product line. The Company account managers typically attempt to establish and maintain direct contact with operating room personnel or other medical professionals that directly utilize the Company's procedure trays and specialty products. As medical product purchases are typically made on a centralized basis by hospital purchasing departments, and increasingly by healthcare networks, account managers must also maintain relationships with purchasing department personnel. The Company has approximately 145 account managers representing its products in Canada and the United States. The Company has distribution centers in nineteen states throughout the country and in Ontario, Canada. Customers may choose to have products delivered directly from one of these distribution centers or the regional or national distributor of their choice. In Europe, the Company utilizes a contract warehousing and logistics company to deliver products to its customers and distributors. The Company's products are primarily warehoused at facilities in the Netherlands and Belgium which are linked to Maxxim Medical Europe's computer system at its headquarters in s'Hertogenbosch, the Netherlands. MANUFACTURING AND ENGINEERING The Company's products are manufactured and/or assembled from a variety of component parts and materials, all of which are expected to continue to be readily available at reasonable costs from a variety of manufacturers and suppliers. Most of the medical and surgical specialty products included in the Company's procedure trays are purchased from other domestic or foreign manufacturers. The Company's glove manufacturing facilities are highly mechanized, unlike most of the Company's other operations which are 5 7 labor intensive. For products other than gloves, the Company's remaining manufacturing operations currently operate using one or two shifts per day, so the Company has capacity to produce additional product by adding additional shifts. The three exam glove manufacturing facilities operate almost continuously at full capacity. BACKLOG It is Company's policy and practice to maintain an inventory of finished products or component parts and materials sufficient to ship products within a few days of receipt of a product order. As a result, the Company had no significant backlog of unshipped orders at November 2, 1997. Management believes that such policy and practice are typical of industry practice. COMPETITION In general, the Company's products compete with the products of numerous major companies in the business of developing, manufacturing, distributing and marketing medical specialty products. Some of these competitors have greater financial or other resources than the Company. The Company believes that the principal competitive factors in each of its markets are product features and benefits, customer service and pricing. The Company does not typically provide the least expensive products available in the markets in which it competes. Instead, the Company emphasizes overall value through a combination of competitive pricing, product quality and customer service. The Company's Argon Medical and Case Management divisions each compete with numerous major companies, including among others, Allegiance Corporation, Baxter Healthcare Corp. and Johnson & Johnson and divisions or subsidiaries thereof. Maxxim Medical Europe's primary competition includes the European divisions of these same companies as well as locally based competitors such as Schneider Worldwide and the Molnlycke division of Tamro. EFFECTS OF HEALTHCARE REFORM The recent government focus on healthcare reform and on the escalating cost of medical care has increased pressures on all participants in the healthcare industry to reduce the costs of products and services. The Company does not believe that the continuation of these trends will have a significant effect on the Company's results of operations or financial condition; however the Company believes that healthcare legislation may have some beneficial effect on its business by increasing the availability of healthcare, emphasizing less invasive surgery and increasing the need for efficiency of healthcare personnel. GOVERNMENT REGULATION Domestic: Most of the products being developed, manufactured and sold by the Company (and products likely to be researched, developed or marketed in the future) are subject to regulation as medical devices by the Food and Drug Administration ("FDA"). The FDA regulates the development, production, distribution and promotion of medical devices in the U.S. Various states in which the Company's products are being sold or may be sold in the future may impose additional regulatory requirements. Pursuant to the Food Drug & Cosmetic Act ("FDCA"), a medical device is ultimately classified as either a Class I, Class II or Class III device. Class I devices are subject only to general controls that are applicable to all devices. Such controls include regulations regarding FDA inspections of facilities, "Good Manufacturing Practices," labeling, maintenance of records and filings with the FDA. Class II devices must meet general performance standards established by the FDA. Class III devices require the most stringent pre-market approval by the FDA before they can be marketed and must adhere to such standards once on the market. Such pre-market approval can involve extensive testing to prove safety and efficacy of the devices. Most of the Company's products are Class II devices. FDA marketing approval of these devices is obtained under Section 510(k) of the FDCA, which provides for FDA approval on an expedited basis for products that can be shown to be substantially equivalent to devices in commerce prior to May 1976 (the month and year of 6 8 enactment of the FDCA. Most of the Company's remaining products are Class I devices. Recent passage of the FDA Modernization Act of 1997 may lessen some of the burden of reporting and scrutiny on several Class I and certain Class II devices. The Company is actively involved with the Medical Device Manufacturing Association ("MDMA"), a Washington, D.C. based industry lobbying group. The MDMA is currently providing input on the implementation of several aspects of this new legislation. At present, most of the Company's products and manufacturing facilities are subject to pervasive and continuing regulation by the FDA. All phases of the manufacturing and distribution process are governed by FDA regulation. Products must be produced in registered establishments and be manufactured in accordance with "Good Manufacturing Practices," as such term is defined under the FDCA. In addition, all such devices must be periodically listed with the FDA. Labeling and promotional activities are subject to scrutiny by the FDA and, in certain instances, by the Federal Trade Commission. The export of devices is also subject to regulation in certain instances. The mandatory Medical Device Reporting ("MDR") regulation obligates the Company to provide information to the FDA on injuries alleged to have been associated with the use of a product or in connection with certain product failures which could cause injury. If as a result of FDA inspections, MDR reports or other information, the FDA believes that the Company is not in compliance with the law, the FDA can institute proceedings to detain or seize products, enjoin future violations, impose product labeling restrictions or enforce product recalls or withdrawals from the market. In addition to the foregoing, numerous other federal, state and local agencies, such as environmental, fire hazard control, working condition and other similar regulators, have jurisdiction to take actions that could have a material adverse effect upon the Company's ability to do business. Compliance with federal, state and local provisions that have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, including in particular the stringent regulation of the use of ethylene oxide in the sterilization process, have not had, and are not anticipated to have, any material effect upon the capital expenditures, earnings or competitive position of the Company or any of its subsidiaries. International: The products manufactured and sold by the Company in Europe are subject to the European Community regulations for medical devices. The European Community has a registration process which includes registration of manufacturing facilities ("ISO certification") and product certification ("CE Mark"). The ISO certification requires that there be functioning quality systems at each facility, and following an acceptable certification inspection, the facility receives an ISO certification number. The CE Mark certification applies to the products or product types which meet the European requirements for those products. Following CE Mark certification, the CE symbol is printed on the product label to show the customer that the product complies with the requirements of the European market. The European Community has imposed a deadline of June 1998, after which products without a CE Mark may not be sold in Europe. The Company has obtained ISO certification and CE Mark certification for its facilities and products in Europe. In North America, the Company has begun the process of European compliance by completing a certification plan with a Notified Body ( a member of the European Network for Quality System Assessment and Certification) and contracting ISO certification and CE Mark registration for those facilities and products which are exported to European markets. All facilities which produce products for export to European markets have received ISO certification. The Company anticipates that it will be in material compliance with the CE Mark certification requirement by the required date. Similar to the domestic regulatory bodies, Europe has numerous government and local agencies which have jurisdiction to take actions that could have a material adverse effect upon the Company's ability to conduct business in Europe. European governmental and local agencies have enacted or adopted regulations which concern the discharge of materials into the environment, or otherwise relating to the protection of the environment, which have not had, and are not anticipated to have, any material effect upon the capital expenditures, earnings or competitive position of the Company or any of its subsidiaries. 7 9 ENVIRONMENTAL The Company is subject to a variety of environmental laws, rules and regulations, as are other companies in the same or similar business. The Company believes that it is in substantial compliance with such laws, rules and regulations; however, these laws, rules and regulations change from time to time, and such changes may affect the ongoing business and operations of the Company. From time to time, the Company has received, and in the future may receive, requests from environmental regulatory authorities to provide information or to conduct investigative or remediation activities with respect to its facilities. None of these requests, if made, is expected, by management, to have a material adverse effect on the Company's business. EMPLOYEES At November 2, 1997, the Company had approximately 2,815 full-time domestic employees and 1,143 foreign employees. None of the Company's U.S. based employees is represented by a union. Management believes that its relations with its employees are satisfactory. ITEM 2: PROPERTIES The Company's principal executive and administrative offices are located in Clearwater, Florida. The following table sets forth information with respect to the Company's principal facilities. Each of the facilities in the table may include office, product development, manufacturing and/or warehouse space. Several of the facilities may also serve as a regional distribution center.
OWNED OR BUILDING AREA LOCATION PRINCIPAL DIVISION LEASED FACILITY (SQUARE FEET) - -------- ------------------ --------------- ------------- Clearwater, Florida......................... Headquarters Owned 21,000 Athens, Texas............................... Argon Owned 186,700 Decatur, Alabama............................ Case Management Leased 70,000 Los Gatos, California....................... Case Management Owned 79,000 Temecula, California........................ Case Management Leased 178,000 Mississuagua, Ontario, Canada............... Case Management Owned 170,000 La Romana, Dominican Republic............... Case Management Leased 69,000 Clearwater, Florida......................... Case Management Owned 189,500 Columbus, Mississippi....................... Case Management Owned 135,000 Honea Path, South Carolina.................. Case Management Owned 89,000 Sugar Land, Texas........................... Case Management Owned 40,000 Richmond, Virginia.......................... Case Management Leased 205,000 Aalst/Erembodegem, Belgium.................. Maxxim Medical Europe Owned 150,700 Ommen, The Netherlands...................... Maxxim Medical Europe Owned 27,600 s'Hertogenbosch, The Netherlands............ Maxxim Medical Europe Leased 34,000
The Company has distribution centers in nineteen states throughout the country and also owns, operates or contracts for the use of various other minor facilities. Management believes that the Company's facilities, whether leased or owned, are adequate to meet its current needs and should continue to be adequate for the foreseeable future. ITEM 3: LEGAL PROCEEDINGS The Company has been named as a defendant in various lawsuits arising in the ordinary course of business. Management believes that the ultimate resolution of such litigation will not have a material adverse impact on the Company's results of operations or financial position (see Note 5 of Notes to Consolidated Financial Statements). ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of the security holders of the Company through the solicitation of proxies or otherwise during the fourth quarter of the fiscal year ended November 2, 1997. 8 10 PART II ITEM 5: A: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Since December 22, 1993, the Company's Common Stock has traded on the New York Stock Exchange under the symbol "MAM." The following table sets forth the high and low sale prices on the New York Stock Exchange for the Common Stock for the periods indicated:
HIGH LOW ---- --- FISCAL YEAR ENDED NOVEMBER 3, 1996: First Quarter............................................. $20 1/4 $13 3/8 Second Quarter............................................ 19 3/4 17 3/8 Third Quarter............................................. 19 15 Fourth Quarter............................................ 17 1/2 12 3/4 FISCAL YEAR ENDED NOVEMBER 2, 1997: First Quarter............................................. 15 1/8 12 1/4 Second Quarter............................................ 16 12 5/8 Third Quarter............................................. 19 5/16 13 1/4 Fourth Quarter............................................ 26 19 1/2
As of December 30, 1997, there were 251 holders of record of the Company's Common Stock. The Company has never paid cash dividends on its Common Stock. The Company presently intends to retain earnings to finance the expansion of its business and, therefore, does not expect to pay any cash dividends in the foreseeable future. Any determination as to the payment of cash dividends will depend upon the Company's earnings, general financial condition, capital needs and other factors deemed pertinent by the Board of Directors, as well as any limitations imposed by lenders under credit facilities. The Company's present credit facility prohibits payment of dividends. B: RECENT SALES OF UNREGISTERED SECURITIES On October 3, 1997, the Company called for the redemption of $10,000,000, in principal amount, of its $28,750,000 6 3/4% Convertible Subordinated Debentures due March 1, 2003, (the "Debentures") effective as of November 4, 1997 (the "First Redemption Date"). On the First Redemption Date, the redemption price of 104.17% of the principal amount, or $1,041.70 plus accrued interest of $11.81 per $1,000 face amount of the Debentures was paid to the holders of Debentures called for redemption who had not exercised their right to convert their Debentures into common stock. As of November 2, 1997, $5,398,000 of the debentures had converted into 299,882 shares of the Company's common stock and debt issuance costs of $166,000 related to these converted debentures were written off to additional paid-in capital in fiscal 1997 and are reflected in the accompanying financial statements. On November 12, 1997, the Company called for the redemption of the remaining outstanding Debentures effective as of December 12, 1997 (the "Second Redemption Date"). On the Second Redemption Date, the redemption price of 104.17% of the principal amount, or $1,041.70 plus accrued interest of $18.94 per $1,000 face amount of the Debentures was paid to the holders who had not exercised their right to convert their Debentures into common stock. Subsequent to November 2, 1997, $22,983,000 of the Debentures were converted into 1,276,732 shares of the Company's common stock. As of the Second Redemption Date, $217,000 in principal amount remains due and payable. Holders may surrender their certificates for payment within two years of the respective redemption dates after which the funds revert back to the Company. The common stock described above was issued in transactions exempt under the Securities Act of 1933, pursuant to Sections 3(a)(9) and 4(2). 9 11 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA The following selected historical consolidated financial data is derived from the financial statements of the Company. The information for the fiscal years 1997, 1996, and 1995 are derived from the Consolidated Financial Statements which financial statements have been audited by KPMG Peat Marwick LLP, independent certified public accountants appearing elsewhere herein. The information in the table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements and Notes thereto appearing elsewhere in this Report and previous Reports.
FISCAL YEAR ENDED ---------------------------------------------------- 1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net sales................................. $529,552 $399,836 $265,726 $191,382 $129,740 Cost of sales............................. 397,691 294,164 186,495 129,569 85,247 -------- -------- -------- -------- -------- Gross profit.............................. 131,861 105,672 79,231 61,813 44,493 Operating expenses........................ 90,101 77,980 60,329 48,390 35,489 Nonrecurring charges...................... -- -- 10,845 -- -- -------- -------- -------- -------- -------- Income from operations.................... 41,760 27,692 8,057 13,423 9,004 Interest expense.......................... (21,620) (13,143) (4,088) (2,059) (1,476) Other income (expense), net............... 2,226 583 1,014 859 856 -------- -------- -------- -------- -------- Income before income taxes................ 22,366 15,132 4,983 12,223 8,384 Income taxes.............................. 9,485 6,422 2,054 4,538 2,847 Change in accounting for income tax....... -- -- -- 380 -- -------- -------- -------- -------- -------- Net income................................ 12,881 8,710 2,929 8,065 5,537 ======== ======== ======== ======== ======== Primary earnings per share(1),(3)......... $ 1.51 $ 1.05 $ 0.36 $ 1.05 $ 0.94 ======== ======== ======== ======== ======== Fully diluted earnings per share(1),(3)... $ 1.40 $ 1.01 $ 0.36 $ 1.00 $ 0.91 ======== ======== ======== ======== ======== Weighted average shares outstanding(1).... 8,534 8,264 8,159 7,326 5,890
1997 1996 1995 1994 1993 -------- -------- -------- -------- -------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital........................... 99,815 122,086 73,286 82,886 52,722 Total assets.............................. 424,046 465,347 264,490 165,416 114,040 Long-term liabilities(2): Bank debt and other.................... 81,850 126,680 67,412 1,181 2,086 Convertible debentures................. 23,352 28,750 28,750 28,750 28,750 Senior notes........................... 100,000 100,000 -- -- -- Shareholders' equity...................... 137,928 123,556 116,351 111,470 68,458
- --------------- (1) For information concerning calculation of earnings per share, see Note 1 of the Notes to Consolidated Financial Statements. (2) Excludes current maturities of long-term debt. (3) Fiscal 1994 primary and fully diluted earnings per share exclude a $.05 and $.04 adjustment respectively, to reflect the change in accounting for income taxes. 10 12 ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Maxxim develops, manufactures and distributes a diversified group of specialty medical products. The Company has grown significantly during the past five years. Net sales increased from $129,740,000 in 1993 to $529,552,000 in 1997, a compound annual growth rate of 42%. This growth resulted primarily from acquisitions of established businesses or product lines. Maxxim Medical, Inc., a Delaware subsidiary of Maxxim, operates the Company's three divisions: Case Management, Argon Medical, and Maxxim Medical Europe. Set forth below is a brief description of the most significant acquisitions made by the Company since 1993. (See Note 2 of the Notes to Consolidated Financial Statements). STERILE CONCEPTS. In July 1996, the Company acquired the outstanding common stock of Sterile Concepts through completion of a tender offer. Sterile Concepts assembles, packages and distributes sterile custom procedure trays for hospitals, outpatient surgery centers and medical clinics. As a result of the acquisition, the Company's Case Management division became the second largest producer of custom procedure trays in the United States and holds an approximate 35% market share in this product segment. GLOVE OPERATIONS. In June 1995, the Company acquired the Glove Operations from Becton Dickinson. The gloves, which are sold under such brand names as Tru-Touch, SensiCare, Tradition, Eudermic, Dextren and Neolon, include latex and non-latex surgical and examination versions. Since being acquired, the North American operations have been included in the Case Management division and the European operations have been a part of Maxxim Medical Europe. This acquisition gave the Company a leading worldwide market share in non-latex medical examination gloves. MEDICA. In January 1995, the Company purchased Medica B.V., a Netherlands corporation. Medica's operations included manufacturing, fabricating, distributing and selling various types of disposable medical supplies in Europe, principally in The Netherlands and Belgium. Since July 1995, the Medica products have been sold in Europe through the Maxxim Medical Europe division. STERILE DESIGN. In July 1993, Maxxim acquired the custom procedure tray operations of Sterile Design from a division of Johnson & Johnson. As a result of this acquisition, the Company became the third largest provider of sterile custom procedure trays in the United States. The following discussion should be read in conjunction with the consolidated financial statements and the related notes thereto and other detailed information appearing elsewhere herein. RESULTS OF OPERATIONS The following table presents selected financial information for the periods indicated as a percentage of net sales and sets forth the percentage dollar increase (decrease) of such items from period to period.
PERCENTAGE CHANGE FISCAL YEAR ENDED FROM PRIOR PERIOD ----------------------- ----------------------------- 1997 1996 1995 1997 VS. 1996 1996 VS. 1995 ----- ----- ----- ------------- ------------- Net sales..................................... 100.0% 100.0% 100.0% 32.4% 50.5% Gross profit.................................. 24.9 26.4 29.8 24.8 33.4 Marketing and selling expenses................ 11.8 13.0 15.6 20.9 25.0 General and administrative expenses........... 5.2 6.5 7.1 5.0 38.6 Nonrecurring charges.......................... -- -- 4.1 n/a -100.0 Income from operations........................ 7.9 6.9 3.0 50.8 243.7 Interest expense.............................. 4.1 3.3 1.5 64.5 221.5 Other income (expense), net................... 0.4 0.2 0.4 281.8 -42.5 Income before income taxes.................... 4.2 3.8 1.9 47.8 203.7 Income taxes.................................. 1.8 1.6 0.8 47.7 212.7 Net income.................................... 2.4 2.2 1.1 47.9 197.4
11 13 FISCAL 1997 COMPARED TO 1996 Net Sales -- Net sales for fiscal 1997 were $529,552,000, a 32.4% increase over the $399,836,000 reported for fiscal 1996. The Case Management division had sales of $417,594,000 for fiscal 1997 versus sales of $274,611,000 for fiscal 1996. This increase is due to a full year of sales from the Sterile Concepts acquisition (see Note 2 of the Notes to Consolidated Financial Statements). The Argon division had sales of $61,870,000 in fiscal 1997, 2.7% lower than the $63,614,000 recorded in fiscal 1996. This decline is attributable to competitive factors primarily affecting the patient monitoring product line. Maxxim Medical Europe's fiscal 1997 sales of $50,088,000 were 5.9% lower than the fiscal 1996 sales of $53,272,000 due to foreign exchange rates. Excluding the impact of foreign currency translation, Maxxim Medical Europe's fiscal 1997 sales were 6.1% higher than fiscal 1996. Gross Profit -- The Company's gross profit was $131,861,000 for fiscal 1997, a 24.8% increase over the $105,672,000 reported for fiscal 1996. The gross profit margin declined to 24.9% in fiscal 1997 from 26.4% in fiscal 1996 primarily due to the acquisition of Sterile Concepts (which had a gross margin of 19.1% in fiscal 1996). However, gross margins have improved each quarter since the acquisition from 23.4% in the fourth quarter of fiscal 1996 to 25.6% in the fourth quarter of fiscal 1997. Operating Expenses -- Marketing and selling expenses increased from $51,781,000 in fiscal 1996 to $62,603,000 in fiscal 1997; however, as a percentage of net sales, these expenses dropped from 13.0% to 11.8% in the same periods. General and administrative expenses increased from $26,199,000 in fiscal 1996 to $27,498,000 in fiscal 1997; but once again, as a percentage of net sales, these expenses dropped from 6.5% to 5.2% for the respective periods. The Company estimates that operating expenses for fiscal 1996 included approximately $1,640,000 of one-time expenses as a result of the acquisition of Sterile Concepts. The reduction of expense rates resulted from the leveraging of the Sterile Concepts operations with the existing operations of the Company. Income from Operations -- Income from operations increased 50.8% to $41,760,000 in fiscal 1997, from $27,692,000 in fiscal 1996. Excluding the one-time expenses in fiscal 1996 mentioned above, income from operations increased from $29,332,000, or 7.3% of net sales in fiscal 1996 to $41,760,000, or 7.9% of net sales in fiscal 1997. Interest Expense -- The Company's interest expense increased to $21,620,000 in fiscal 1997 from $13,143,000 in fiscal 1996. The increase in interest expense is the direct result of the increase in outstanding debt incurred to finance the acquisition of Sterile Concepts. Income Taxes -- Maxxim's effective income tax rate was 42.4% in both fiscal 1997 and fiscal 1996. The Company's effective tax rate is higher than the statutory rate as a result of nondeductible amortization expenses resulting from goodwill recorded in past acquisitions. Net Income -- As a result of the foregoing, fiscal 1997 net income was $12,881,000 as compared to fiscal 1996 net income of $8,710,000. Fully diluted earnings per share were $1.40 and $1.01 for fiscal years 1997 and 1996 respectively. FISCAL 1996 COMPARED TO 1995 Net Sales -- Net sales for fiscal 1996 were $399,836,000, a 50.5% increase over the $265,726,000 reported for fiscal 1995. The Case Management division had sales of $274,611,000 for fiscal 1996 versus sales of $168,295,000 for fiscal 1995. This increase is primarily due to a full year of sales for the Glove operations (acquired in June 1995) and three months of sales from the Sterile Concepts acquisition (see Note 2 of the Notes to Consolidated Financial Statements). The Argon division had sales of $63,614,000 in fiscal 1996, 15.7% higher than the $54,991,000 recorded in fiscal 1995. Sales increased in almost all product lines with the largest increase coming from pressure monitoring kits, a product line which was expanded in February of 1995. Maxxim Medical Europe's fiscal 1996 sales of $53,272,000 were 125.3% higher than the $23,649,000 recorded for fiscal 1995. This increase is attributable to the European operations of the Glove Operation which was acquired in June 1995. The Henley Healthcare division was sold in April 1996 and had sales of $8,339,000 for fiscal 1996 versus a full year sales figure of $18,791,000 for fiscal 1995. 12 14 Gross Profit -- The Company's gross profit was $105,672,000 for fiscal 1996, a 33.4% increase over the $79,231,000 reported for fiscal 1995. The gross profit margin declined to 26.4% in fiscal 1996 from 29.8% in fiscal 1995 primarily due to the acquisition of Sterile Concepts (which had a gross margin of 19.1% in fiscal 1996) and continued pricing pressure on procedure trays for most of the year. Operating Expenses -- Marketing and selling expenses increased from $41,430,000 in fiscal 1995 to $51,781,000 in fiscal 1996, however, as a percentage of net sales these expenses dropped from 15.6% to 13.0% in the same periods. General and administrative expenses increased from $18,899,000 in fiscal 1995 to $26,199,000 in fiscal 1996, but once again, as a percentage of net sales, these expenses dropped from 7.1% to 6.5% for the respective periods. The Company estimates that operating expenses for fiscal 1996 included approximately $1,640,000 of one-time expenses as a result of the acquisition of Sterile Concepts. Income from Operations -- Income from operations increased to $27,692,000 in fiscal 1996, from $8,057,000 in fiscal 1995. Excluding the nonrecurring charge in fiscal 1995 and the one-time expenses in fiscal 1996 mentioned above, income from operations increased from $18,902,000 or 7.1% of net sales in fiscal 1995 to approximately $29,332,000 or 7.3% of net sales in fiscal 1996. Interest Expense -- The Company's interest expense increased to $13,143,000 in fiscal 1996 from $4,088,000 in fiscal 1995. The increase in interest expense is the direct result of the new debt facilities created to finance the acquisition of Sterile Concepts. Interest expense for fiscal 1996 also includes nonrecurring financing fees of approximately $1,900,000 related to bridge financing established in connection with the Sterile Concepts acquisition. Income Taxes -- Maxxim's effective income tax rate was 42.4% in fiscal 1996 and 41.2% in fiscal 1995. The Company's effective tax rate is higher than the statutory rate as a result of increased nondeductible amortization expenses resulting from goodwill recorded from past acquisitions. Net Income -- As a result of the foregoing, fiscal 1996 net income was $8,710,000 as compared to fiscal 1995 net income of $2,929,000. Fully diluted earnings per share were $1.01 and $.36 for fiscal years 1996 and 1995 respectively. LIQUIDITY AND CAPITAL RESOURCES At November 2, 1997, the Company had cash and cash equivalents of $3,130,000, working capital of $99,815,000, long-term liabilities of $211,410,000 and shareholders equity of $137,928,000. Cash flow from operations was $49,577,000 in fiscal 1997 versus $357,000 in fiscal 1996. Cash flow from operations was favorably impacted by a reduction in operations working capital of $16,394,000 primarily resulting from improved management of accounts receivable and inventory. In the first quarter of Fiscal 1997, the Company received $3,130,000 from the sale of its marketable equity securities. A resulting one-time gain of $1,510,000 was included in other income in fiscal 1997. During fiscal 1997, the Company repaid $37,290,000 of bank debt resulting in a term loan balance of $81,000,000 and a revolver balance of $10,300,000 at fiscal year end. As a result of debt repayments, the Company had $64,700,000 of available credit under its revolver facility on November 2, 1997, and received a 37.5 basis point reduction in its borrowing rate during the fourth quarter due to improved financial ratios. On October 3, 1997, the Company called for redemption $10,000,000 in principal amount of its $28,750,000 debentures effective as of November 4, 1997. As of November 2, 1997 $5,398,000 of the debentures had converted into common stock and debt issuance costs of $166,000 related to these converted debentures were written off to additional paid-in capital in fiscal 1997. On November 12, 1997, the Company called for the redemption of the remaining outstanding principal amount of the Debentures effective as of December 12, 1997 (see Note 3 of the Notes to Consolidated Financial Statements). On May 23, 1997 the Company issued 400,000 shares of common stock pursuant to a Senior Management Stock Purchase Plan at $13.00 per share, the closing stock price on April 30, 1997. The stock was issued in exchange for an aggregate of $5.2 million in notes due May 23, 2000 from the participants. 13 15 These notes have been recorded as subscriptions receivable and are included in the equity section of the balance sheet (see Note 11 of the Notes to Consolidated Financial Statements). The Company is in the process of remediating certain software for the impact of Year 2000 issues on its computer systems and applications. Management believes that such remediation effort will not have a significant impact on the financial results or prospects of the Company. The Company believes that its present cash balances together with internally generated cash flows and borrowings under its existing credit facility will be sufficient to meet its future working capital requirements. INFLATION The Company believes inflation has not had a material effect on its results of operations for the past three years. Historically, the Company believes it has been able to minimize the effect of inflation by increasing the selling prices of its products, improving its manufacturing efficiency and increasing its employee productivity. FOREIGN CURRENCY The Company's results of operations and the value of its foreign assets are affected by fluctuations in foreign currency exchange rates. The impact of changes in exchange rates on results of operations has been minimal since a majority of the Company's exports are contracted in the Company's functional currencies. The Company can not determine the impact of the adoption of the EURO in January 1999 on its financial statements or operations. Foreign currency transaction gains and losses are included in the Consolidated Statements of Operations. FORWARD-LOOKING STATEMENTS Statements, either written or oral, that are not historical facts and which express the Company's expectation for the future with respect to financial performance or operating strategies are "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934. These statements are made to provide the public with management's assessment of the Company's business. Caution must be taken to consider these statements in light of the following factors: the Company assumes that products in development will be introduced successfully and on schedule; the Company will make acquisitions which contribute to profitability; key distributors will make purchases at the same level as their sales; demand for the Company's products will follow recent growth trends; competitors will not introduce new products which will substantially reduce Maxxim's market share in its most significant product lines; and the Company will continue to manufacture high quality products at competitive costs and maintain or increase product pricing. In the event any of the above factors do not occur as management anticipates, actual results could differ materially from the expectations expressed in the forward-looking statements. Further information relating to factors that could cause actual results to differ from those anticipated is included but not limited to information under the heading "Business" in this Form 10-K report. The Company disclaims any intention or obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise. NEW ACCOUNTING PRONOUNCEMENTS Information regarding the impact of new accounting pronouncements on the results of operations, financial position or cash flows is set forth in Note 1 of the Notes to Consolidated Financial Statements under the caption "New Accounting Pronouncements." ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable to the Company for this annual report on Form 10-K. 14 16 ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MAXXIM MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF NOVEMBER 2, 1997 AND NOVEMBER 3, 1996 (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
1997 1996 -------- -------- ASSETS Current assets: Cash and cash equivalents................................. $ 3,130 $ 5,950 Accounts receivable, net of allowances of $3,181 and $3,901, respectively................................... 77,209 86,207 Inventory, net............................................ 83,184 95,087 Prepaid expenses, deferred taxes and other................ 11,000 15,386 -------- -------- Total current assets.............................. 174,523 202,630 Property and equipment...................................... 122,938 123,077 Less: accumulated depreciation............................ (31,384) (24,562) -------- -------- 91,554 98,515 Goodwill and other intangibles, net of accumulated amortization of $14,982 and $7,664, respectively.......... 150,234 156,046 Other assets, net........................................... 7,735 8,156 -------- -------- Total assets...................................... $424,046 $465,347 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt...................... $ 12,750 $ 7,500 Accounts payable.......................................... 32,194 39,915 Accrued liabilities....................................... 26,631 28,133 Other short-term obligations.............................. 3,133 4,996 -------- -------- Total current liabilities......................... 74,708 80,544 Long-term debt, net of current maturities................... 78,550 121,090 10 1/2% Senior subordinated notes........................... 100,000 100,000 6 3/4% Convertible subordinated debentures.................. 23,352 28,750 Other long-term obligations, net of current maturities...... 3,300 5,590 Deferred taxes.............................................. 6,208 5,817 -------- -------- Total liabilities................................. 286,118 341,791 Commitments and contingencies Shareholders' equity Preferred Stock, $1.00 par, 20,000,000 shares authorized, none issued or outstanding............................. -- -- Common Stock, $.001 par value, 40,000,000 shares authorized, 8,871,355 and 8,128,827 shares issued and outstanding, respectively.............................. 9 8 Additional paid-in capital................................ 103,872 92,445 Unrealized gain on investments -- net of tax.............. -- 259 Retained earnings......................................... 45,250 32,369 Subscriptions receivable.................................. (5,200) -- Cumulative translation adjustment......................... (6,003) (1,525) -------- -------- Total shareholders' equity........................ 137,928 123,556 -------- -------- Total liabilities and shareholders' equity........ $424,046 $465,347 ======== ========
See accompanying notes to Consolidated Financial Statements. 15 17 MAXXIM MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FISCAL YEARS ENDED NOVEMBER 2, 1997, NOVEMBER 3, 1996 AND OCTOBER 29, 1995 (IN THOUSANDS, EXCEPT PER SHARE DATA)
1997 1996 1995 --------------- --------------- --------------- Net sales................................................... $529,552 $399,836 $265,726 Cost of sales............................................... 397,691 294,164 186,495 -------- -------- -------- Gross profit................................................ 131,861 105,672 79,231 -------- -------- -------- Operating expenses Marketing and selling..................................... 62,603 51,781 41,430 General and administrative................................ 27,498 26,199 18,899 Nonrecurring charges...................................... -- -- 10,845 -------- -------- -------- 90,101 77,980 71,174 -------- -------- -------- Income from operations...................................... 41,760 27,692 8,057 Interest expense............................................ (21,620) (13,143) (4,088) Other income (expense), net................................. 2,226 583 1,014 -------- -------- -------- Income before income taxes.................................. 22,366 15,132 4,983 Income taxes................................................ 9,485 6,422 2,054 -------- -------- -------- Net income.................................................. $ 12,881 $ 8,710 $ 2,929 ======== ======== ======== Primary earnings per share.................................. $ 1.51 $ 1.05 $ 0.36 ======== ======== ======== Fully diluted earnings per share............................ $ 1.40 $ 1.01 $ 0.36 ======== ======== ========
See accompanying notes to Consolidated Financial Statements. 16 18 MAXXIM MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
COMMON STOCK ADDITIONAL CUMULATIVE UNREALIZED ------------------ PAID-IN RETAINED SUBSCRIPTIONS TRANSLATION GAIN ON SHARES PAR VALUE CAPITAL EARNINGS RECEIVABLE ADJUSTMENTS INVESTMENTS TOTAL ------ --------- ---------- -------- ------------- ----------- ----------- -------- Balances at October 31, 1994..................... 8,022 $8 $ 90,732 $20,730 $ -- $ -- $ -- $111,470 Stock issued in connection with acquisition (see note 2).................. 25 -- 360 -- -- -- -- 360 Stock option compensation............. -- -- 244 -- -- -- -- 244 Stock options exercised, including federal income tax benefit of $130...... 41 -- 341 -- -- -- -- 341 Net income................. -- -- -- 2,929 -- -- -- 2,929 Translation adjustment..... -- -- -- -- -- 1,007 -- 1,007 ----- -- -------- ------- ------- ------- ----- -------- Balances at October 31, 1995..................... 8,088 8 91,677 23,659 -- 1,007 -- 116,351 Stock option compensation............. -- -- 311 -- -- -- -- 311 Stock options exercised, including federal income tax benefit of $123...... 41 -- 417 -- -- -- -- 417 Payment received on officer loan..................... -- -- 40 -- -- -- -- 40 Unrealized gain on investment securities -- net of tax (see note 1)............. -- -- -- -- -- -- 259 259 Net income................. -- -- -- 8,710 -- -- -- 8,710 Translation adjustment..... -- -- -- -- -- (2,532) -- (2,532) ----- -- -------- ------- ------- ------- ----- -------- Balances at November 3, 1996..................... 8,129 8 92,445 32,369 -- (1,525) 259 123,556 Senior management stock purchase (see note 11 )........................ 400 1 5,199 -- (5,200) -- -- -- Officer loan, net of payment received......... -- -- (11) -- -- -- -- (11) Stock option compensation............. -- -- 471 -- -- -- -- 471 Stock options exercised, including federal income tax benefit of $122...... 43 -- 536 -- -- -- -- 536 Realized gain on sale of investment securities -- net of tax (see note 1)............. -- -- -- -- -- -- (259) (259) Conversion of convertible debentures (see note 3)....................... 299 -- 5,232 -- -- -- -- 5,232 Net income................. -- -- -- 12,881 -- -- -- 12,881 Translation adjustment..... -- -- -- -- -- (4,478) -- (4,478) ----- -- -------- ------- ------- ------- ----- -------- Balances at November 2, 1997..................... 8,871 $9 $103,872 $45,250 $(5,200) $(6,003) $ -- $137,928 ===== == ======== ======= ======= ======= ===== ========
See accompanying notes to Consolidated Financial Statements. 17 19 MAXXIM MEDICAL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FISCAL YEARS ENDED NOVEMBER 2, 1997, NOVEMBER 3, 1996, AND OCTOBER 29, 1995 (IN THOUSANDS)
1997 1996 1995 -------- --------- --------- Cash flows from operating activities: Net income................................................ $ 12,881 $ 8,710 $ 2,929 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income tax expense (benefit)................... 3,846 3,352 (1,251) Depreciation and amortization........................... 17,495 14,968 9,233 Compensation expense for outstanding stock options...... 471 311 244 Gain on sale of investment in equity securities......... (1,510) -- -- Nonrecurring write off of intangibles and estimated restructuring reserve.................................. -- -- 9,380 Changes in current assets and liabilities, net of effects of asset acquisitions and dispositions and business combinations: Decrease (increase) in accounts receivable, net......... 8,694 (8,793) (14,618) Decrease (increase) in inventory, net................... 11,073 (9,447) (7,288) Increase in prepaid expenses and other.................. (619) (2,248) (291) Increase in accounts payable............................ 23 10,299 3,030 (Decrease) increase in accrued liabilities.............. (2,777) (16,795) 2,934 -------- --------- --------- Net cash provided by operating activities................... 49,577 357 4,302 -------- --------- --------- Cash flows from investing activities: Proceeds from building sale............................... 500 -- -- Proceeds from (investment in) available-for-sale securities.............................................. 3,130 (1,620) -- Proceeds from the sale of Henley assets................... -- 6,000 -- Purchase of Sterile Concepts, net of cash acquired........ -- (118,676) -- Purchase of Medica........................................ -- -- (11,000) Purchase of Bovie electrosurgery product line............. -- -- (2,600) Purchase of Property and equipment, Inventory and Other Assets, Net of Stock Issued Valued at $360.............. -- -- (1,500) Purchase of Glove Operations.............................. -- -- (70,605) Purchase of property, equipment and other assets, net of asset acquisitions and business combinations............ (6,829) (10,625) (21,174) -------- --------- --------- Net cash used in investing activities....................... (3,199) (124,921) (106,879) -------- --------- --------- Cash flows from financing activities: Payments on long-term borrowings.......................... (37,290) (180,629) (20,852) Increase in long-term borrowing........................... -- 228,647 94,206 (Decrease) increase in other obligations.................. (4,153) 8,165 894 Net proceeds from the issuance of 10 1/2% Notes........... -- 97,000 -- Payments on Sterile Concepts debt......................... -- (34,247) -- (Decrease) increase in negative book cash balance......... (7,893) 6,091 1,163 Other, net................................................ 529 457 371 -------- --------- --------- Net cash (used in) provided by financing activities......... (48,807) 125,484 75,782 -------- --------- --------- Effect of foreign currency translation adjustment........... (391) (44) -- -------- --------- --------- Net (decrease) increase in cash and cash equivalents........ (2,820) 876 (26,795) Cash and cash equivalents at beginning of year.............. 5,950 5,074 31,869 -------- --------- --------- Cash and cash equivalents at end of year.................... $ 3,130 $ 5,950 $ 5,074 ======== ========= ========= Supplemental cash flow disclosure: Interest paid during the year............................. $ 21,643 $ 9,090 $ 3,161 Income taxes paid during the year......................... 6,147 5,336 3,100 Noncash investing and financing activities Conversion of 6 3/4% Convertible Subordinated Debentures............................................. $ 5,232 $ -- $ -- Subscriptions receivable from senior management for stock purchase......................................... 5,200 -- -- Note received on building sale.......................... 300 -- -- Convertible note received from sale of Henley assets.... -- 7,000 -- Unrealized gain on investment........................... -- 259 --
See accompanying notes to Consolidated Financial Statements 18 20 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Maxxim Medical, Inc., ("Maxxim" ), a Texas corporation, and its subsidiaries (collectively, "the Company") develops, manufactures, and markets specialty medical products. BASIS OF PRESENTATION Certain reclassifications have been made to the fiscal 1996 and fiscal 1995 consolidated financial statements to conform with the fiscal 1997 presentation. PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of Maxxim and its wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated. CASH EQUIVALENTS AND FINANCIAL INSTRUMENTS Cash equivalents consist of highly liquid investments purchased with original maturities of three months or less. MARKETABLE SECURITIES The Company considered its marketable securities available-for-sale as defined in Statement of Financial Accounting Standards No. 115. In adjusting the Company's investments to fair value, an unrealized gain of $259,000, net of tax, was recognized at November 3, 1996. This unrealized gain is presented in the equity section of the Consolidated Balance Sheet. In the first quarter of fiscal 1997, the Company recorded a realized gain from the sale of these marketable equity securities in the amount of $1,510,000 which is reflected in other income in the Consolidated Statements of Operations. CONCENTRATION OF CREDIT RISK Trade receivables have a concentration of credit risk in the hospital and healthcare sectors. The Company performs continuing credit evaluations of its customers and generally does not require collateral; however, in certain circumstances, the Company may require letters of credit from its customers. Historically, the Company has not experienced significant losses related to receivables from individual customers or groups of customers in any geographic area. INVENTORY Inventory is priced at the lower of cost or market. In determining market value, allowances for excess and obsolete items are provided. Cost is determined using the average cost method. Inventory as of November 2, 1997 and November 3, 1996, included the following:
1997 1996 ------- ------- (IN THOUSANDS) Raw materials............................................... $36,613 $40,718 Work in Progress............................................ 7,227 8,744 Finished Goods.............................................. 43,393 50,231 Reserve..................................................... (4,049) (4,606) ------- ------- $83,184 $95,087 ======= =======
19 21 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) PROPERTY AND EQUIPMENT The costs of ordinary maintenance and repairs are expensed, while renewals and betterments are capitalized. Depreciation on property and equipment is computed for financial reporting purposes using the straight-line method over the estimated useful lives of the assets. As of November 2, 1997 and November 3, 1996, property and equipment included the following:
USEFUL LIFE 1997 1996 ----------- -------- -------- (IN THOUSANDS) Land.................................................. $ 15,610 $ 9,490 Buildings and improvements............................ 5-25 years 40,240 45,522 Machinery and equipment............................... 2-10 years 64,370 64,699 Furniture and fixtures................................ 3-5 years 2,718 3,366 Accumulated depreciation.............................. (31,384) (24,562) -------- -------- $ 91,554 $ 98,515 ======== ========
In fiscal 1997, the Company adopted the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of" (SFAS 121). SFAS 121 requires that long-lived assets and certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Recoverability of assets to be held and used is measured by comparison of the carrying amount of an asset to future net cash flows (undiscounted and without interest charges) expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the asset exceeds the fair value of the asset. The adoption of SFAS 121 did not have a material impact on the Company's consolidated financial statements. INCOME TAXES 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. 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. GOODWILL AND INTANGIBLES Goodwill represents the excess of the aggregate price paid by the Company in business combinations accounted for as purchases over the fair market value of the tangible and identifiable intangible net assets acquired. Goodwill is being amortized on a straight-line basis from 10 to 40 years. Other intangible assets are being amortized on a straight-line basis for periods ranging from 3 to 15 years. The Company assesses the recoverability of intangible assets by determining whether 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 the Company's average cost of funds. The Company believes that no impairment of goodwill exists. REVENUE RECOGNITION The Company recognizes revenue upon shipment to customers, pursuant to customer orders. The Company grants rebates to certain of its customers. These sales and related receivables are recorded net of the expected rebate. 20 22 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) RESEARCH AND DEVELOPMENT EXPENSES The Company is continually conducting research and developing new products utilizing a team approach that involves its engineering, manufacturing and marketing resources. Although the Company has developed a number of its own products, most of its research and development efforts have historically been directed towards product improvement and enhancement of previously developed or acquired products. Company research and development expenses were approximately $5,158,000, $5,124,000, and $3,777,000 in fiscal 1997, 1996 and 1995, respectively. EARNINGS PER SHARE Earnings per share is based on the weighted average number of common shares and common stock equivalents outstanding for each year. For purposes of this calculation, outstanding stock options are considered common stock equivalents using the treasury stock method. The weighted average number of shares utilized in the primary earnings per share calculation was 8,534,000, 8,264,000, and 8,159,000 for fiscal 1997, 1996, and 1995, respectively. On a fully diluted basis, both net income and shares outstanding are adjusted to assume the conversion of the convertible subordinated debentures from the date of issue. The weighted average number of shares utilized in the fully diluted earnings per share calculation was 9,947,000, 9,861,000 and 8,159,000 for fiscal 1997, 1996 and 1995, respectively, and interest savings, net of tax, was $1,024,000 in fiscal 1997 and $1,261,000 in both fiscal 1996 and 1995. Assuming the convertible debentures were converted at the beginning of fiscal 1997, primary earnings per share would have approximated fully diluted earnings per share. STOCK BASED COMPENSATION In October 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). SFAS 123 allows a company to adopt a new fair value based method of accounting for its stock based compensation plans, or to continue to follow the intrinsic method of accounting prescribed by Accounting Principles Board (APB) Opinion No. 25 "Accounting for Stock to Employees." The Company has elected to continue to follow APB Opinion No. 25. If the Company had adopted SFAS 123 the Company's net income and earnings per share for years ended November 2, 1997 and November 3, 1996 would have been impacted as discussed in Note 9. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 52 WEEK FISCAL YEAR Commencing in fiscal year 1994, the Company implemented a fiscal year which ends on the Sunday nearest to the end of the month of October. TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS Assets and liabilities of foreign subsidiaries have been translated into United States dollars at the applicable rates of exchange in effect at the end of the period reported. Revenues and expenses have been translated at the applicable weighted average rates of exchange in effect during the period reported. 21 23 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Translation adjustments are reflected as a separate component of shareholders equity. Any transaction gains and losses are included in net income. NEW ACCOUNTING PRONOUNCEMENTS In February 1997, the Financial Accounting Standards Board (the "FASB") issued Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS 128). This statement established standards for computing and presenting earnings per share ("EPS"), replacing the presentation of currently required primary EPS and fully diluted EPS with a presentation of basic EPS and diluted EPS. In accordance with SFAS 128, basic EPS excludes the effect of potentially dilutive securities, such as options and convertible securities, while diluted EPS reflects the potential dilution that would have occurred if securities or other contracts to issue common stock had been exercised, converted, or resulted in the issuance of common stock. SFAS 128 is effective for financial statements issued for both interim and annual periods ending after December 15, 1997, and earlier application is not permitted. When adopted in the Company's first quarter of fiscal 1998, the Company will be required to restate its EPS data for all prior periods presented. The Company has not completed its implementation study, but believes that under SFAS 128, diluted EPS will approximate currently presented fully diluted EPS, and that basic EPS will be different from primary EPS because no dilutive effects will be included in the computation of basic EPS. In June 1997, the FASB issued Statement of Financial Accounting Standards No. 131, "Disclosure About Segments of an Enterprise and Related Information" (SFAS 131)which is effective for the Company's fiscal year ending in 1999. This statement establishes standards for reporting segment information in annual and interim financial statements. It also establishes standards for related disclosure of products and services, geographical areas and major customers. Under SFAS 131, reporting segments are determined consistent with the way management organizes and evaluates financial information internally for making operating decisions and assessing performance. The Company has not determined the impact of adoption of SFAS 131 on its consolidated financial statements. (2) BUSINESS COMBINATIONS, SIGNIFICANT ASSET ACQUISITIONS AND DISPOSITIONS ASSET ACQUISITIONS On June 30, 1995, the Company entered into various agreements of Purchase and Sale of Assets with Becton Dickinson and Company and affiliates to purchase, for approximately $70,600,000 in cash, after various post-closing adjustments, assets pertaining to the worldwide glove business of Becton Dickinson ("Glove Operation"). The assets acquired consist primarily of inventory, equipment, manufacturing facilities in Honea Path, South Carolina, Los Gatos, California, Mississauga, Ontario, Canada and Erembodegem, Belgium, and certain intangible assets. The Company financed the purchase price and ancillary working capital with borrowings from its principal bank lender under an amended credit facility. The transaction was accounted for as an asset purchase with the purchase price and direct acquisition costs allocated based on the fair value of assets acquired and liabilities assumed. No goodwill was recorded in connection with this transaction. On June 1, 1995, the Company acquired the Bovie line of electrosurgical products from MDT Corporation. The purchase price was approximately $2,600,000, subject to certain inventory and other adjustments. The Bovie product lines include electrosurgical generators and related disposable products and supplies. The transaction was accounted for as an asset purchase with the purchase price and direct acquisition costs allocated based on the fair value of assets acquired and liabilities assumed. Goodwill of approximately $1,300,000 was recorded in connection with this transaction. The Company used funds on hand to finance the purchase. 22 24 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) BUSINESS COMBINATIONS On July 30, 1996, the Company successfully completed a tender offer (the "Tender Offer") for Sterile Concepts. As of completion of a merger of Sterile Concepts and Maxxim in September of 1996, all of the outstanding stock of Sterile Concepts was purchased for approximately $110,500,000, excluding acquisition costs of approximately $8,600,000 paid in fiscal 1996 and $465,000 of cash acquired with the acquisition. The Company also refinanced existing Maxxim debt of approximately $72,700,000 contemporaneously with and repaid approximately $34,200,000 of Sterile Concepts debt shortly after the consummation of the Tender Offer. Funding to complete the acquisition and debt repayment was derived from approximately $121,000,000 of borrowings under a $165,000,000 amended credit facility with its primary lender and the net proceeds of $97,000,000 from the offering of $100,000,000 of 10 1/2% Senior Subordinated Notes (See Note 3). The assets acquired in the Sterile Concepts acquisition consist primarily of accounts receivable, inventory, furniture and equipment and leased assembly and other facilities in Richmond, Virginia, Temecula, California and Minnetonka, Minnesota. Sterile Concepts assembles, packages and sterilizes custom procedure trays for hospitals, outpatient surgery centers and medical clinics. In the fourth quarter of fiscal 1996, Sterile Concepts was integrated into the already existing custom procedure tray assembly and packaging operations of the Case Management division. The acquisition was accounted for by the purchase method of accounting and approximately $116,000,000 of goodwill was recorded with the transaction. One time costs of $3,500,000 relating to the acquisition were recorded in the fourth fiscal quarter of fiscal 1996. Effective January 1, 1995, the Company purchased all of the issued and outstanding common stock of Medica B.V., a Netherlands corporation and certain assets of S.A. DPC N.V., a Belgian corporation (collectively, "Medica"). The assets acquired in the Medica acquisition consist primarily of receivables, inventory, furniture and equipment, the disposable medical supplies manufacturing facility situated on a tract of land located in Ommen, the Netherlands, and certain intangible assets. Such assets were used by Medica in connection with its business of manufacturing, fabricating, distributing and selling various types of disposable medical supplies, principally in the Netherlands and Belgium. The purchase price of Medica and the execution of a non-competition agreement by the seller, Internatio-Meuller N.V., a Netherlands corporation, consisted of $11,000,000 in cash. The acquisition has been accounted for as a purchase with the purchase price and direct acquisition costs allocated based on fair value of assets acquired and liabilities assumed. Goodwill of approximately $5,600,000 was recorded in connection with this transaction. ASSET DISPOSITIONS Effective May 1, 1996, the Company sold certain assets related to the Henley Healthcare division operations to Lasermedics, Inc. of Missouri City, Texas for approximately $13,000,000, which consisted of approximately $6,000,000 in cash and a $7,000,000 convertible note. The assets, which were sold at net book value, consisted primarily of receivables, inventory, furniture and equipment, two manufacturing facilities located in Sugar Land and Belton, Texas, and intangible assets related to the Henley product lines. The assets were used by the Henley division to manufacture and sell various types of products for the physical medicine, rehabilitation and pain management markets. SUMMARY PRO FORMA RESULTS The following unaudited pro forma summary results of operations assume the acquisition of Sterile Concepts occurred on October 31, 1994. The summary results of operations also give effect to the acquisition by the Company of the Glove Operations, the divestiture by the Company of the Henley Healthcare division and the acquisitions by Sterile Concepts of Associated Medical Products and Medical Design Concepts, as if 23 25 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) the acquisitions and the divestiture occurred on October 31, 1994. The following results of operations are presented (in thousands, except per share amounts):
1996 1995 -------- -------- Revenues.................................................... $534,635 $502,349 Net income.................................................. 5,865 1,480 Primary earnings per share.................................. $ .71 $ .18
The adjustments to the accounts include (a) the additional amortization expense associated with debt financing costs, (b) the additional amortization expense associated with goodwill acquired, (c) a federal income tax adjustment, (d) the additional interest expense incurred to make the acquisitions, at the beginning of the Company's fiscal year and (e) the elimination of salaries, benefits and related costs of redundant personnel in the combined operations. The pro forma information does not purport to be indicative of results of operations or financial position which would have occurred had the acquisitions or divestiture been consummated on the date indicated, or which may be expected to occur in the future by reason of such acquisition or divestiture. (3) DEBT AND OTHER LONG-TERM OBLIGATIONS LONG-TERM DEBT The following summarizes the Company's long-term debt at November 2, 1997 and November 3, 1996:
1997 1996 -------- -------- (IN THOUSANDS) Revolving line of credit.................................... $ 10,300 $ 40,090 Term loan................................................... 81,000 88,500 Less -- Current maturities.................................. (12,750) (7,500) -------- -------- $ 78,550 $121,090 ======== ========
CREDIT FACILITY On July 30, 1996, the Company entered into a Second Amended and Restated Credit Agreement ("Credit Agreement") with several lending institutions. This new Credit Agreement replaced the Company's previous credit facility. The Credit Agreement provided for a term loan of $90,000,000 and a $75,000,000 revolving line of credit. At closing, the term loan was fully drawn and approximately $31,000,000 of the revolver was used in conjunction with proceeds from the 10 1/2% Senior Subordinated Notes to finance the Sterile Concepts acquisition (See Note 2). Both loans mature on July 30, 2002, with the term loan requiring repayment in twenty four quarterly installments ranging from $1,500,000 to $5,500,000, commencing October 31, 1996. Both loans bear interest, payable quarterly on the Interest Period as defined in the Credit Agreement. The interest rate is prime or, for LIBOR advances, the LIBOR rate, plus a margin ranging from 1.0% to 2.0%, indexed according to a defined financial ratio. For fiscal 1997, the weighted average rate of interest on the revolver and term loan was 7.47%. At November 2, 1997, the unused portion of the revolver was approximately $64,700,000. The credit facilities are unsecured and require the Company to maintain certain customary financial and operating ratios. The Company's present credit facility prohibits payment of dividends. 10 1/2% SENIOR SUBORDINATED NOTES In July 1996, the Company issued $100,000,000 of 10 1/2% Senior Subordinated Notes ("Notes"). The Notes mature on August 1, 2006, unless previously redeemed by the Company. Interest on the Notes is payable semi-annually on February 1 and August 1, commencing on February 1, 1997. 24 26 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The notes will not be redeemable at the Company's option prior to August 1, 2001. Thereafter, the Notes will be subject to redemption at the option of the Company, in whole or in part, upon not less than 30 nor more than 60 days' notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on August 1 of the years indicated below:
YEAR PERCENTAGE - ---- ---------- August 1, 2001.............................................. 105.25% August 1, 2002.............................................. 103.50% August 1, 2003.............................................. 101.75% August 1, 2004 and thereafter............................... 100.00%
Net proceeds from the offering of approximately $97,000,000 were used in conjunction with proceeds from the new credit facility to finance the Sterile Concepts acquisition (See Note 2). 6 3/4% CONVERTIBLE SUBORDINATED DEBENTURES In March 1993, the Company issued $28,750,000 of 6 3/4% Convertible Subordinated Debentures (the "Debentures") due March 1, 2003. The Debentures are convertible at the option of the holder into Common Stock at a conversion price of $18 per share and pay interest every six months commencing September 1, 1993, through maturity on March 1, 2003. On October 3, 1997, the Company called for the redemption of $10,000,000, in principal amount, of the Debentures effective as of November 4, 1997 (the "First Redemption Date"). On the First Redemption Date, the redemption price of 104.17% of the principal amount, or $1,041.70 plus accrued interest of $11.81 per $1,000 face amount of the Debentures was paid to the holders of Debentures called for redemption who had not exercised their right to convert their Debentures into common stock. As of November 2, 1997, $5,398,000 of the debentures had converted into 299,882 shares of the Company's common stock and debt issuance costs of $166,000 related to these converted debentures were written off to additional paid-in capital in fiscal 1997 and are reflected in the accompanying financial statements. On November 12, 1997, the Company called for the redemption of the remaining outstanding Debentures effective as of December 12, 1997 (the "Second Redemption Date"). On the Second Redemption Date, the redemption price of 104.17% of the principal amount, or $1,041.70 plus accrued interest of $18.94 per $1,000 face amount of the Debentures was paid to the holders who had not exercised their right to convert their Debentures into common stock. Subsequent to November 2, 1997, $22,983,000 of the Debentures were converted into 1,276,732 shares of the Company's common stock. As of the Second Redemption Date, $217,000 in principal amount remains due and payable. Holders may surrender their certificates for payment within two years of the respective redemption dates after which the funds revert back to the Company. OTHER DEBT OBLIGATIONS The following summarizes the Company's other debt obligations at November 2, 1997 and November 3, 1996:
1997 1996 ------- ------- (IN THOUSANDS) Other debt obligations...................................... $ 6,433 $10,586 Less -- Current maturities.................................. (3,133) (4,996) ------- ------- $ 3,300 $ 5,590 ======= =======
25 27 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Other debt obligations consist primarily of capital leases and other contractual obligations of the Company. FUTURE MINIMUM PRINCIPAL PAYMENTS Future minimum principal payments on long-term debt and other obligations (adjusted for the $22,983,000 of Debentures converted subsequent to November 2, 1997) are as follows:
FISCAL YEARS - ------------ (IN THOUSANDS) 1998........................................................ $ 15,883 1999........................................................ 18,329 2000........................................................ 18,191 2001........................................................ 18,802 2002........................................................ 26,800 Thereafter.................................................. 100,097 -------- $198,102 ========
(4) FINANCIAL INSTRUMENTS During the first quarter of fiscal 1996, the Company entered into an interest rate swap agreement with its primary lender in order to reduce the impact of changes in variable interest rates on consolidated results of operations and future cash outflows for interest. The agreement converts a portion of the non-indexed part of the interest rate of the Credit Agreement facilities to a fixed rate of 5.4%. At November 2, 1997, the notional amount of the swap was $43,125,000 and expires on March 31, 2000. In fiscal 1997, the Company's financial position and results of operations were not materially impacted by the swap agreement. The Company uses an 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. The Company accounts for its interest rate swap on the accrual method, whereby the net receivable or payable is recognized on a periodic basis and included as a component of interest expense. The Company does not trade in derivative securities. 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 were as follows:
1997 1996 ----------------------------- ----------------------------- CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE ---------------- ---------- ---------------- ---------- (IN THOUSANDS) Swap agreement, receiving fixed.......................... $ -- $ 310 $ -- $ 488 Long-term debt................... (221,085) (230,559) (267,926) (272,364)
Fair values were determined from quoted market prices or discounted cash flows. 26 28 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (5) COMMITMENTS AND CONTINGENCIES LEASES The Company is obligated under various operating leases. Rent expense under these operating leases for fiscal years 1997, 1996 and 1995 were approximately $3,519,000, $1,215,000 and $1,164,000, respectively. Minimum future rental payments are as follows:
FISCAL YEARS - ------------ (IN THOUSANDS) 1998........................................................ $ 2,765 1999........................................................ 2,517 2000........................................................ 1,203 2001........................................................ 1,214 2002........................................................ 1,026 Thereafter.................................................. 3,444 ------- $12,169 =======
CLAIMS AND LITIGATION On May 9, 1994, an out of court settlement was reached between the Company and Futurmed Intervention, Inc., a Texas corporation, ("Futurmed"), Angiomed Aktengesellschaft, a German corporation ("Angiomed") and a number of individual defendants. Pursuant to the terms of the agreement, Futurmed will pay the Company $4,150,000, which is guaranteed by Angiomed. The defendants also agreed to certain covenants regarding supply of certain products, non-competition and other matters. Of the settlement amount, $1,150,000, was paid to the Company by Futurmed at the time of the settlement with $3,000,000 to be paid in five equal annual installments of $600,000 which began June 1, 1995 and will continue through June 1, 1999. The remaining $1,200,000 of future payments are secured by an irrevocable letter of credit in favor of the Company. The proceeds received at settlement were used to offset legal expenses incurred and to establish a reserve for defective, excess and obsolete inventory previously purchased from Angiomed. Installment proceeds are being recorded as non-operating income. Since March 1996, the Company has been served with various lawsuits alleging various adverse reactions to the latex used in certain of the medical gloves alleged to have been manufactured by the Company or the prior owner of the assets relating to the Company's Glove Operations acquired in June 1995. The Company believes that most of such claims relate to gloves produced and sold prior to June 1995, and that such prior obligation has been assumed by the prior owner. The Company is aware that there have been an increasing number of lawsuits brought against latex glove manufacturers with respect to such allergic reactions. The Company, like its competitors, has continued to manufacture and sell latex gloves and, therefore, may be subject to further claims surrounding the manufacture of these latex gloves. In the ordinary course of business, the Company has been named in various other lawsuits. While the final resolution of any matter may have an impact on the Company's consolidated financial results for a particular reporting period, management believes, based on consultation with counsel, that the ultimate resolution of these matters and the matters specifically discussed above will not have a material adverse impact on the Company's financial position or results of operations. PRODUCT LIABILITY The Company currently has product liability insurance which it believes to be adequate for its business. The Company's existing policy expires October 31, 1998. 27 29 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (6) INCOME TAXES The components of the provision for income taxes are as follows:
1997 1996 1995 ------ ------ ------- (IN THOUSANDS) Current domestic............................................ $3,784 $1,050 $ 1,882 Current foreign............................................. 1,855 2,020 1,423 ------ ------ ------- $5,639 $3,070 $ 3,305 ------ ------ ------- Deferred domestic........................................... $3,724 $2,693 $(1,251) Deferred foreign............................................ 122 659 -- ------ ------ ------- $3,846 $3,352 $(1,251) ------ ------ ------- Total............................................. $9,485 $6,422 $ 2,054 ====== ====== =======
Income tax expense differed from the amounts computed by applying the statutory U.S. federal income tax rate as a result of the following:
1997 1996 1995 ---- ---- ---- Statutory rate.............................................. 35% 35% 35% Amortization of goodwill.................................... 4 4 6 State taxes, net of federal benefit......................... 2 2 2 Tax-exempt interest income.................................. -- -- (1) Surtax exemption............................................ -- -- (1) Other, net.................................................. 1 1 -- -- -- -- Effective rate.............................................. 42% 42% 41% == == ==
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at November 2, 1997 and November 3, 1996 are presented below:
1997 1996 ------- ------- (IN THOUSANDS) Current deferred: Deferred tax assets: Accounts receivable, principally due to allowance for doubtful accounts...................................... $ 1,257 $ 2,125 Inventory, principally due to reserve for obsolescence and costs inventoried for tax purposes..................... 3,369 4,603 Net operating loss carryforwards.......................... 84 2,390 Accruals and provisions not currently deductible.......... 4,160 4,315 ------- ------- 8,870 13,433 Deferred tax liabilities: Tax over book depreciation................................ (179) (792) Other..................................................... -- (495) ------- ------- Net current deferred tax asset............................ $ 8,691 $12,146 ======= =======
28 30 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997 1996 ------- ------- (IN THOUSANDS) Noncurrent deferred: Deferred tax assets: Net operating loss carryforwards.......................... $ 506 $ 534 Deferred tax liabilities: Book over tax amortization................................ (5,933) (3,798) Differences between book and tax basis of property and equipment.............................................. (781) (2,553) ------- ------- Net noncurrent deferred tax liability..................... $(6,208) $(5,817) ======= =======
There is no valuation allowance as of the fiscal year ended November 2, 1997. It is the opinion of management that future operations will more likely than not generate taxable income to realize the deferred tax assets. At November 2, 1997, the Company has net operating loss carryforwards for federal income tax purposes of approximately $1,573,000 which are available to offset future federal taxable income, if any, through 2009. (7) ACCRUED LIABILITIES Accrued liabilities as of November 2, 1997 and November 3, 1996 are as follows:
1997 1996 ------- ------- (IN THOUSANDS) Health insurance and benefit accrual........................ $ 8,471 $ 5,554 Accrued taxes payable....................................... 3,831 4,951 Fees payable to hospital buying groups...................... 1,941 502 Accrued payroll and commissions............................. 2,751 4,760 Accrued interest payable.................................... 3,349 3,627 Other....................................................... 6,288 8,739 ------- ------- $26,631 $28,133 ======= =======
(8) GOODWILL AND INTANGIBLES Goodwill and intangibles, net of accumulated amortization, as of November 2, 1997 and November 3, 1996 are as follows:
1997 1996 -------- -------- (IN THOUSANDS) Goodwill.................................................... $128,782 $131,161 Patents..................................................... 13,336 14,787 Debt offering costs......................................... 3,381 4,006 Non-compete agreements...................................... 3,048 3,985 Other intangibles........................................... 1,687 2,107 -------- -------- $150,234 $156,046 ======== ========
29 31 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (9) STOCK OPTION AGREEMENTS Commencing with November 1, 1989, it has been the practice of the board of directors on or around November 1 of each year to grant stock options to certain employees of the Company. The Company has also granted options to its non-employee directors from time to time. The shares purchasable by employees under such stock option agreements (subject to continued employment with the Company) vest over five years. The shares purchasable by non-employee directors under such stock option agreements (subject to continued director service to the Company) vest over a period of one to three years. Set forth below is certain information regarding such issuances, exercises and cancellations of options in each of the indicated fiscal years:
WEIGHTED AVERAGE EXERCISE SHARES PRICE --------- ---------------- Balance at October 30, 1994............................... 205,000 $11.11 Fiscal 1995: Granted................................................. 426,000 10.73 Exercised............................................... (41,000) 6.64 Cancelled............................................... (8,700) 12.81 --------- Balance at October 29, 1995............................... 581,300 11.22 Fiscal 1996: Granted................................................. 275,000 11.48 Exercised............................................... (41,180) 7.06 Cancelled............................................... (21,420) 12.06 --------- Balance at November 3, 1996............................... 793,700 11.40 Fiscal 1997: Granted................................................. 294,800 11.48 Exercised............................................... (43,000) 12.99 Cancelled............................................... (28,780) 11.68 --------- Balance at November 2, 1997............................... 1,016,720 11.40 =========
The 1,016,720 options outstanding as of November 2, 1997 had exercise prices ranging between $10.73 and $15.40, a weighted average exercise price of $11.40 and a weighted average remaining contract life of 3.64 years. At November 2, 1997, options to purchase 501,020 shares, were exercisable with exercise prices ranging between $10.73 and 15.40, and a weighted average exercise price of $11.49. The Company has elected to continue to follow APB Opinion No. 25; however, if the Company adopted SFAS 123, the Company's net income and earnings per share for the years ended November 2, 1997, and November 3, 1996 would have been reduced as follows:
1997 1996 ---------------------- ---------------------- AS REPORTED PROFORMA AS REPORTED PROFORMA ----------- -------- ----------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net income................................. $12,881 $12,638 $8,710 $8,663 Primary earnings per share................. 1.51 1.48 1.05 1.05 Fully diluted earnings per share........... 1.40 1.37 1.01 1.01
The weighted average fair value of options granted in 1997 and 1996 was $6.59 and $7.10, respectively. The fair value of each option was determined using the Black-Scholes option valuation model. The key input variables used in valuing the options were as follows: average risk-free interest rate based on 5-year Treasury bonds, stock price volatility of 36% and estimated option term ranging from 4 to 6 years. The Company has no 30 32 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) present plans to pay dividends on its Common Stock. The effects of applying SFAS 123 as calculated above may not be representative of the effects on reported net income for future years. (10) SAVINGS PLAN The Company has a 401(k) savings plan which permits participants to contribute up to 15 percent of their base compensation (as defined) each year. The Company will match at least 25 percent of a participant's contribution up to a maximum of 6 percent of gross pay. The Company's matching percentage may be adjusted as Company profitability dictates. Employer contributions were $801,000, $606,000 and $559,000 for the 1997, 1996 and 1995 plan years, respectively. (11) MANAGEMENT STOCK PURCHASE PLAN On May 23, 1997, the Company issued 400,000 shares of common stock pursuant to a Senior Management Stock Purchase Plan at $13.00 per share, the closing stock price on April 30, 1997. The stock was issued in exchange for an aggregate of $5,200,000 in non-interest bearing, full recourse promissory notes due May 23, 2000 from the participating managers. These notes have been recorded as subscriptions receivable and are included in the shareholders' equity section of the Consolidated Balance Sheet. Payment of these notes also is secured by the pledge of the 400,000 shares of common stock. Net compensation costs associated with these shares is not significant. (12) SHAREHOLDER RIGHTS PLAN On July 10, 1997, the Board of Directors of the Company declared a dividend of one right to purchase preferred stock ("Right") for each outstanding share of the Company's Common Stock, par value $0.001 per share ("Common Stock"), to stockholders of record at the close of business on September 15, 1997 (the "Record Date"). The Rights will have certain anti-takeover effects. The Rights are designed to protect and maximize the value of the outstanding equity interests in the Company in the event of an unsolicited attempt by an acquiror to take over the Company in a manner or on terms not approved by the Board of Directors. The Rights will cause substantial dilution to any person or group that attempts to acquire the Company without the approval of the Company's Board of Directors. As a result, the overall effect of the Rights may be to render more difficult or discourage any attempt to acquire the Company, even if such acquisition may be favorable to the interests of the Company's stockholders. Because the Board of Directors can redeem the Rights or approve a Permitted Offer, the Rights should not interfere with a merger or other business combination approved by the Board of Directors of the Company. The description and terms of the Rights are set forth in a Rights Agreement dated as of July 10, 1997, as it may from time to time be supplemented or amended (the "Rights Agreement"), between the Company and Harris Trust and Savings Bank, as Rights Agent. 31 33 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (13) NONRECURRING CHARGES In the third quarter of fiscal 1995, the Company made a decision to form its Case Management division by combining the Boundary and Sterile Design divisions with the newly acquired Glove Operations and Bovie product line. As a result of this decision, the Company incurred approximately $10,800,000 (pre-tax) nonrecurring charges comprised primarily of restructuring expenses (approximately $1,300,000), facility consolidation expenses (approximately $2,200,000) and non-cash asset write-downs (approximately $7,300,000). (14) QUARTERLY FINANCIAL DATA (UNAUDITED)
FIRST SECOND THIRD FOURTH -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED NOVEMBER 2, 1997 Net Sales......................................... $133,401 $136,042 $128,654 $131,455 Gross Profit...................................... 32,236 33,439 32,489 33,697 Net Income........................................ 3,459 2,717 3,192 3,513 Primary earnings per share........................ 0.42 0.33 0.37 0.39 Fully diluted earnings per share.................. 0.38 0.31 0.34 0.37 YEAR ENDED NOVEMBER 3, 1996 Net Sales......................................... $ 86,600 $ 90,859 $ 84,128 $138,249 Gross Profit...................................... 25,285 25,592 22,397 32,398 Net Income........................................ 2,726 2,951 2,952 81 Primary earnings per share........................ 0.33 0.35 0.36 0.01 Fully diluted earnings per share.................. 0.31 0.33 0.33 0.01
32 34 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Maxxim Medical, Inc.: We have audited the consolidated financial statements of Maxxim Medical, Inc. and subsidiaries as listed in Item 14 a) 1. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedule as listed in 14 a) 2. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule 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 consolidated financial statements referred to above present fairly, in all material respects, the financial position of Maxxim Medical, Inc. and subsidiaries as of November 2, 1997, and November 3, 1996, and the results of their operations and their cash flows for the years ended November 2, 1997, November 3, 1996 and October 29, 1995, in conformity with generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Houston, Texas December 23, 1997 33 35 ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. PART III ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information is furnished under the captions "Directors and executive officers of the registrant" and "Compliance with Section 16(a) of the Exchange Act" in the Company's definitive proxy statement for its 1998 Annual Shareholders Meeting, which is incorporated herein by reference. The following table sets forth certain information with respect to executive officers of the Company. Executive officers are elected by the Board of Directors to hold office until their successors are elected and qualified.
NAME AGE POSITION(S) WITH COMPANY - ---- --- ------------------------ Kenneth W. Davidson........................ 50 Chairman of the Board, President and Chief Executive Officer Peter M. Graham............................ 51 Executive Vice President, Chief Operating Officer and Secretary David L. Lamont............................ 51 Vice President, Group Vice President Alan S. Blazei............................. 42 Vice President, Controller and Treasurer Joseph D. Dailey........................... 49 Vice President -- Information Services Henry T. DeHart............................ 51 Vice President, Executive Vice President Operations, Case Management Jack F. Cahill............................. 48 Vice President, Executive Vice President Sales and Marketing, Case Management Suzanne R. Garon........................... 45 Vice President, Human Resources Rob W. Beek................................ 53 Vice President, Managing Director, Maxxim Medical Europe
ITEM 11: EXECUTIVE COMPENSATION Information concerning management remuneration will be furnished under the caption "Election of Directors -- Executive Compensation and Other Information," "-- Director Compensation" and "Approval of 1998 Non-Employee Directors' Stock Option Plan" in the Company's definitive proxy statement for its 1998 Annual Shareholders Meeting, which is incorporated herein by reference. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information under the caption "Security Ownership" contained in Registrant's definitive proxy statement for its 1998 Annual Shareholders Meeting is incorporated herein by reference. ITEM 13: CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS The information under the caption "Election Of Directors -- Certain Transactions" and "Employment Contracts" contained in Registrant's definitive proxy statement for its 1998 Annual Shareholders Meeting is incorporated herein by reference. 34 36 ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this report: (1) Financial Statements:
PAGE ---- Consolidated Balance Sheets of the Company as of November 2, 1997 and November 3, 1996................................. 15 Consolidated Statements of Operations of the Company for the years ended November 2, 1997, November 3, 1996 and October 29, 1995.................................................. 16 Consolidated Statements of Shareholders' Equity of the Company for the years ended November 2, 1997, November 3, 1996 and October 29, 1995................................. 17 Consolidated Statements of Cash Flows of the Company for the years ended November 2, 1997, November 3, 1996 and October 29, 1995.................................................. 18 Notes to Consolidated Statements of the Company............. 19 Independent Auditors Report on Consolidated Financial Statements and Financial Statement Schedule of the Company................................................... 33
(2) The following consolidated financial statement schedule of Maxxim Medical, Inc. is included in Item 14(d): Schedule II -- Valuation and Qualifying Accounts and Allowances All other schedules for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions, are inapplicable or information required is included in the consolidated financial statements and, therefore, have been omitted. (b) Reports on Form 8-K None. (c) Exhibits
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 3.1(a) -- Restated Articles of Incorporation of the Company -- Exhibit No. 3.1 to the Registration Statement on Form S-1 of Registrant, Registration No. 33-32630, filed with the Commission on December 19, 1989 and incorporated herein by reference. 3.1(b) -- Articles of Amendment to Articles of Incorporation -- Exhibit No. 3.1 (b) to the Registration Statement on Form S-1 of Registrant, Registration No. 33-57800, filed with the Commission on February 2, 1993 and incorporated herein by reference. 3.2 -- Bylaws of the Registrant -- Exhibit No. 3.2 to the Registration Statement on Form S-1 of Registrant, Registration No. 33-32630, filed with the Commission on December 19, 1989 and incorporated herein by reference. 3.3 -- Certificate and Agreement of Merger and Articles of Merger with attached Plan and Agreement of Merger of the Registrant and Henley Holding Company -- Exhibit No. 3.3 to the Registration Statement on Form S-1 of Registrant, Registration No. 33-32630, filed with the Commission on December 19, 1989 and incorporated herein by reference. 4.1 -- Specimen Common Stock Certificate -- Exhibit No. 4.1 to the Registration Statement on Form S-1 of Registrant, Registration No. 33-57800, filed with the Commission on February 2, 1993 and incorporated herein by reference.
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EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 4.2 -- Indenture dated March 18, 1993 between the Registrant and Trustee, for 6 3/4% Convertible Subordinated Debentures due 2003 -- Exhibit No. 4.2 to the Registration Statement on Form S-1 of Registrant, Registration No. 33-57800, filed with the Commission on February 2, 1993 and incorporated herein by reference. 4.3 -- Specimen Debenture -- Exhibit No. 4.3 to the Registration Statement on Form S-1 of Registrant, Registration No. 33-57800, filed with the Commission on February 2, 1993 and incorporated herein by reference. 4.4 -- Indenture dated July 30, 1996, by and among Maxxim, as Issuer, Maxxim-Delaware, Purchaser, Fabritek La Romana, Inc., Maxxim Medical Canada Limited, Medica B.V. and Medica Inc., Maxxim Medical Canada Limited, Medica B.V. and Medica Hospital Supplies, N.V., as Guarantors and First Union National Bank of North Carolina, as Trustee -- Exhibit No. 4 to the Form 8-K of Registrant, filed with the Commission on August 14, 1996 and incorporated herein by reference. 4.5 -- Rights Agreement dated as of July 10, 1997 between Maxxim Medical, Inc. and Harris Trust and Savings Bank, as Rights Agent -- Exhibit 1 to the Form 8-A of the Registrant filed with the Commission on July 11, 1997 and incorporated herein by reference. 10.1* -- Consulting Agreement dated November 1, 1989, between the Registrant and Ernest J. Henley -- Exhibit No. 10.13 to the Registration Statement on Form S-1 of Registrant, Registration No. 33-32630, filed with the Commission on December 19, 1989 and incorporated herein by reference. 10.2* -- Employment Agreement dated November 1, 1989, between Kenneth W. Davidson and the Registrant -- Exhibit No. 10.2 to the Annual Report of Form 10-K of Registrant, for the fiscal year end October 30, 1994, filed with the Commission on January 26, 1995 and incorporated herein by reference. 10.3* -- Form of Amended and Restated Stock Option Agreement dated November 1, 1990, between the Registrant and various officers of the Registrant -- Exhibit No. 10.12 to the Registration Statement on Form S-1 of Registrant, Registration No. 33-44536, filed with the Commission on December 16, 1991 and incorporated herein by reference. 10.4* -- Form of Stock Option Agreement dated effective November 1, 1990, between the Registrant and various officers of the Registrant -- Exhibit No. 10.11 to the Registration Statement on Form S-1 of Registrant, Registration No. 33-44536, filed with the Commission on December 16, 1991 and incorporated herein by reference. 10.5* -- From of Non-Employee Director Stock Option Agreement dated effective February 28, 1991, between the Registrant and the non-employee directors of the Registrant -- Exhibit No. 10.14 to the Registration Statement on Form S-1 of Registrant, Registration No. 33-44536, filed with the Commission on December 16, 1991 and incorporated herein by reference. 10.6* -- Form of Stock Option Agreement dated effective November 1, 1991, between the Registrant and various officers of the Registrant -- Exhibit No. 10.15 to the Registration Statement on Form S-1 of Registrant, Registration No. 33-44536, filed with the Commission on December 16, 1991 and incorporated herein by reference. 10.7* -- 1992 Employee Stock Option Plan -- Exhibit No. 10.13 to the Annual Report of Form 10-K of Registrant, for fiscal year ended October 31, 1992 filed with the Commission on January 29, 1993 and incorporated herein by reference. 10.8* -- 1993 Non-Employee Director Stock Option Plan -- Exhibit No. 10.14 to the Registration Statement on Form S-1 of Registrant, Registration No. 33-57800, filed with the Commission on February 2, 1993 and incorporated herein by reference.
36 38
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ------- ---------------------- 10.9* -- 1994 Non-Employee Director Stock Option Plan -- Exhibit No. 10.11 to the Annual Report of Form 10-K of Registrant, for the fiscal year ended October 31, 1993 filed with the Commission on January 28, 1994 and incorporated herein by reference. 10.10* -- Form of 1995 Employee Stock Option Plan -- Exhibit No. 10.10 to the Annual Report of Form 10-K of Registrant, for the fiscal year ended October 30, 1994, filed with the Commission on January 26, 1995 and incorporated herein by reference. 10.11* -- Form of 1995 Non-Employee Directors' Stock Option Plan -- Exhibit No. 10.11 to the Annual Report of Form 10-K of Registrant, for the fiscal year ended October 30, 1994, filed with the Commission on January 26, 1995 and incorporated herein by reference. 10.12* -- Form of 1996 Non-Employee Directors' Stock Option Plan -- Exhibit No. 10.12 to the Annual Report of Form 10-K of Registrant, for the fiscal year ended November 3, 1996, filed with the Commission on January 22, 1996 and incorporated herein by reference. 10.13* -- Form of 1997 Non-Employee Director's Stock Option Plan -- Exhibit No. 4.5 to the Registration Statement on Form S-8 of Registrant filed with the Commission on May 22, 1997 and incorporated herein by reference. 10.14* -- Form of 1997 Employee Stock Option Plan -- Exhibit No. 4.2 to the Registration Statement on Form S-8 of Registrant filed with the Commission on May 22, 1997 and incorporated herein by reference. 10.15* -- Senior Management Stock Purchase Plan -- Exhibit No. 4.6 to the Registration Statement on Form S-8 of Registrant filed with the Commission on May 22, 1997 and incorporated herein by reference. 10.16 -- Agreement of Purchase and Sale of Assets, dated June 30, 1995, by and among Purchaser and Becton, Dickinson and Company and Becton Dickinson Vascular Access Inc -- Exhibit No 2.1 to the Current Report of Form 8-K of Registrant, dated June 30, 1995, filed with the Commission on July 14, 1995 and incorporated herein by reference. 10.17 -- Agreement of Purchase and Sale of Assets, dated June 30, 1995, by and among Maxxim Medical Canada Limited and Becton Dickinson Canada Inc -- Exhibit No 2.2 to the Current Report of Form 8-K of Registrant, dated June 30, 1995, filed with the Commission on July 14, 1995 and incorporated herein by reference. 10.18 -- Agreement of Purchase and Sale of Assets, dated June 30, 1995, by and among N.V. Medica Hospital Supplies and N.V. Becton Dickinson Benelux S.A. -- Exhibit No 2.3 to the Current Report of Form 8-K of Registrant, dated June 30, 1995, filed with the Commission on July 14, 1995 and incorporated herein by reference. 10.19 -- Purchase Agreement dated July 18, 1996 between Maxxim and Initial Purchasers relating to the Old Notes -- Exhibit No. 3 to the Form 8-K of Registrant, filed with the Commission on August 14, 1996 and incorporated herein by reference. 10.20 -- Agreement and Plan of Merger dated as of June 10, 1996, by and among Maxxim-Delaware, Maxxim Acquisition and Sterile Concepts -- Exhibit (d) to Schedule 14D-1 of Registrant, Maxxim-Delaware, and Purchaser, filed with the Commission on June 14, 1996 and incorporated herein by reference. 10.21 -- Second Amended and Restated Credit Agreement, dated July 30, 1996, by and among Maxxim, NationsBank of Texas, N.A. and the banks named therein -- Exhibit No. 2 to the Form 8-K of Registrant, filed with the Commission on August 14, 1996 and incorporated herein by reference. 10.22* -- Termination Agreement between Registrant and Kenneth W. Davidson -- Exhibit No. 4.4 to the Quarterly Report of Form 10-Q of Registrant for the quarterly period ended May 4, 1997, filed with the Commission on June 13, 1997 and incorporated herein by reference.
37 39
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT - ---------- ----------------------- 21 -- Subsidiaries of the Registrant 23 -- Consent of KPMG Peat Marwick LLP 27 -- Financial Data Schedule (for SEC use only)
- --------------- * Compensatory plan or agreement. 38 40 (d) Schedules SCHEDULE II MAXXIM MEDICAL, INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS AND ALLOWANCES FISCAL YEARS ENDED 1997, 1996 AND 1995 (IN THOUSANDS)
BALANCE AT CHARGED TO BALANCE BEGINNING OPERATING AT END DESCRIPTION OF YEAR EXPENSES DEDUCTIONS OF YEAR - ----------- ---------- ---------- ---------- ------- 1997: Allowance for uncollectible accounts receivable.... $3,901 $1,800 $(2,520) $3,181 1996: Allowance for uncollectible accounts receivable.... $2,054 $3,075 $(1,228) $3,901 1995: Allowance for uncollectible accounts receivable.... $1,629 $2,566 $(2,141) $2,054 1997: Reserve for excess and obsolete inventory.......... $4,606 $1,585 $(2,142) $4,049 1996: Reserve for excess and obsolete inventory.......... $5,149 $2,133 $(2,676) $4,606 1995: Reserve for excess and obsolete inventory.......... $2,584 $4,129 $(1,564) $5,149
The notes to the consolidated financial statements of Maxxim Medical, Inc., and subsidiaries are an integral part of this schedule. 39 41 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. By: /s/ KENNETH W. DAVIDSON ------------------------------------ Kenneth W. Davidson Chairman of the Board, President and Chief Executive Officer Date: January 26, 1998 Pursuant to the requirements of the Securities Act of 1934, as amended, this report has been signed by the following persons in the capacities indicated on January 26, 1998.
SIGNATURES TITLE ---------- ----- /s/ KENNETH W. DAVIDSON Chairman of the Board, President and Chief - ----------------------------------------------------- Executive Officer (principal executive (Kenneth W. Davidson) officer) /s/ PETER M. GRAHAM Executive Vice President, Secretary and Chief - ----------------------------------------------------- Operating Officer (principal financial (Peter M. Graham) officer) /s/ ALAN S. BALZEI Vice President -- Controller and Treasurer - ----------------------------------------------------- (principal accounting officer) (Alan S. Balzei) /s/ ERNEST J. HENLEY, PH.D. Director - ----------------------------------------------------- (Ernest J. Henley, Ph.D.) /s/ PETER G. DORFLINGER Director - ----------------------------------------------------- (Peter G. Dorflinger) /s/ MARTIN GRABOIS, M.D. Director - ----------------------------------------------------- (Martin Grabois, M.D.) /s/ RICHARD O. MARTIN, PH.D. Director - ----------------------------------------------------- (Richard O. Martin, Ph.D.) /s/ HENK R. WAFELMAN, ING. Director - ----------------------------------------------------- (Henk R. Wafelman, Ing.) /s/ DONALD R. DEPRIEST Director - ----------------------------------------------------- (Donald R. DePriest)
40 EX-23 2 CONSENT 1 Exhibit 23 The Board of Directors Maxxim Medical, Inc. We consent to incorporation by reference in the registration statements (No. 333-27609 and No. 33-87112) on Form S-8 of Maxxim Medical, Inc. of our report dated December 23, 1997, relating to the consolidated balance sheets of Maxxim Medical, Inc. and subsidiaries as of November 2, 1997 and November 3, 1996, and the related consolidated statements of operations, shareholders' equity and cash flows for the years ended November 2, 1997, November 3, 1996 and October 29, 1995 and the related financial statement schedule, which report appears in the November 2, 1997, annual report on Form 10-K of Maxxim Medical, Inc. and subsidiaries. KPMG PEAT MARWICK LLP Houston, Texas January 26, 1998 -----END PRIVACY-ENHANCED MESSAGE-----