-----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, TWAg4hEqlny7vHYmVy8DT51TUhillrPJ6f3pIZnJ7bx7LAkTMVEEncvTzHetoKlZ e8wdGHYGaJ4Zr4wZGqurIQ== /in/edgar/work/20000614/0001016843-00-000474/0001016843-00-000474.txt : 20000919 0001016843-00-000474.hdr.sgml : 20000919 ACCESSION NUMBER: 0001016843-00-000474 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000430 FILED AS OF DATE: 20000614 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAXXIM MEDICAL INC CENTRAL INDEX KEY: 0000858660 STANDARD INDUSTRIAL CLASSIFICATION: [3842 ] IRS NUMBER: 760291634 STATE OF INCORPORATION: TX FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-92825-01 FILM NUMBER: 655250 BUSINESS ADDRESS: STREET 1: 10300 49TH ST N CITY: CLEARWATER STATE: FL ZIP: 33762 BUSINESS PHONE: 7275612100 MAIL ADDRESS: STREET 1: 10300 49TH STREET NORTH CITY: CLEARWATER STATE: FL ZIP: 33762 10-Q 1 0001.txt Form 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended APRIL 30, 2000 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from ____________ to _______________. Commision File Number 333-92825 MAXXIM MEDICAL, INC. ----------------------------------------------------- (Exact name of registrant as specified in its charter) TEXAS 76-0291634 - ------------------------------ ----------------------------------- State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 10300 49TH STREET NORTH, CLEARWATER, FLORIDA 33762 - --------------------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code............(727) 561-2100 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [ ] No [X] Indicate the number of shares outstanding of each of the issuer's classes of common stock: CLASS OUTSTANDING AT MAY 31, 2000 - ----------------------------- ---------------------------- COMMON STOCK, $.001 PAR VALUE 5,770,704 MAXXIM MEDICAL, INC.
INDEX PART I. FINANCIAL INFORMATION PAGE NO. --------------------- -------- Item 1. Condensed Consolidated Balance Sheets as of April 30, 2000 and October 31, 1999 2 Condensed Consolidated Statements of Operations for the Fiscal Quarters Ended April 30, 2000 and May 2, 1999 3 Condensed Consolidated Statements of Shareholders' Equity for the Fiscal Year Ended October 31, 1999 and the Fiscal Quarter Ended April 30, 2000 4 Condensed Consolidated Statements of Cash Flows for the Fiscal Quarters Ended April 30, 2000 and May 2, 1999 5 Notes to Condensed Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 20 Item 3. Quantitative and Qualitative Disclosures About Market Risk 23 PART II. OTHER INFORMATION Item 6. Exhibits and Reports 23 SIGNATURES
1 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MAXXIM MEDICAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
APRIL 30, OCTOBER 31, 2000 1999 --------- --------- (unaudited) ASSETS Current assets: Cash and cash equivalents ................................................... $ 7,991 $ 4,040 Accounts receivable, net of allowances of $1,762 and $1,840 respectively .... 65,721 61,323 Inventory, net .............................................................. 101,232 97,811 Net current deferred tax asset .............................................. 8,128 9,189 Prepaid expenses and other .................................................. 6,721 6,597 Net assets held for sale .................................................... -- 224,909 --------- --------- Total current assets ......................................... 189,793 403,869 Property and equipment ......................................................... 191,581 194,208 Less: accumulated depreciation .............................................. (59,001) (54,902) --------- --------- 132,580 139,306 Goodwill, net of accumulated amortization of $18,715 and $16,152,respectively .. 143,036 142,459 Other assets, net .............................................................. 39,514 25,959 --------- --------- Total assets.................................................. $ 504,923 $ 711,593 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt......................................... $ 10,930 $ 430 Current maturities of capital leases and other long-term obligations ........ 599 1,019 Accounts payable ............................................................ 33,449 31,826 Accrued liabilities ......................................................... 9,532 22,279 Due to affiliate ............................................................ 3,923 -- --------- --------- Total current liabilities .................................... 58,433 55,554 Long-term debt, net of current maturities ...................................... 251,440 255,940 Senior subordinated discount notes ............................................. 108,440 -- Senior discount notes .......................................................... 49,680 -- 10 1/2% Senior subordinated notes .............................................. 5 100,000 Capital leases and other long-term obligations, net of current maturities....... 4,104 4,360 Net non-current deferred tax liability ......................................... 8,442 10,622 --------- --------- Total liabilities ............................................ 480,544 426,476 Shares with put rights ($.001 par value common stock, 169,619 shares issued and outstanding) ...................................................... 4,410 -- Commitments and contingencies Shareholders' equity Preferred Stock, $1.00 par value, 10,000,000 shares authorized, none issued or outstanding ........................................................... -- -- Common Stock, $.001 par value, 40,000,000 shares authorized, 5,601,085 and 14,278,942 issued and outstanding, respectively .......... 6 14 Additional paid-in capital .................................................. (9,696) 220,230 Retained earnings ........................................................... 40,225 78,950 Subscriptions receivable .................................................... (2,580) (5,200) Accumulated other comprehensive loss ........................................ (7,986) (8,877) --------- --------- Total shareholders' equity ................................... 19,969 285,117 --------- --------- Total liabilities and shareholders' equity ................... $ 504,923 $ 711,593 ========= =========
See accompanying notes to condensed consolidated financial statements. 2 MAXXIM MEDICAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands) (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED ----------------------- ---------------------- APRIL 30, MAY 2, APRIL 30, MAY 2, 2000 1999 2000 1999 --------- --------- --------- --------- Net sales ........................................ $ 130,760 $ 134,663 $ 253,588 $ 259,295 Cost of sales .................................... 101,221 97,045 194,063 186,328 --------- --------- --------- --------- Gross profit ................................ 29,539 37,618 59,525 72,967 Selling, general and administrative expenses ..... 25,265 24,830 47,794 46,521 Restructure charges and transition expenses ...... 833 -- 1,673 2,016 --------- --------- --------- --------- Income from operations ...................... 3,441 12,788 10,058 24,430 Interest expense, net ............................ (12,146) (7,912) (23,398) (12,200) Other income (expense), net ...................... (2,100) 141 (2,342) 127 Recapitalization expenses ........................ (201) -- (18,898) -- --------- --------- --------- --------- Income (loss) from continuing operations before income taxes ..................... (11,006) 5,017 (34,580) 12,357 Income tax (benefit) / provision ................. (3,719) 1,991 (6,928) 5,116 --------- --------- --------- --------- Income (loss) from continuing operations ......... (7,287 3,026 (27,652) 7,241 Income from discontinued operations, net of tax of $0, $2,861, $56 and $2,679, respectively ...... -- 3,041 87 2,702 --------- --------- --------- --------- Income (loss) before extraordinary item .......... (7,287) 6,067 (27,565) 9,943 Extraordinary item - loss related to early retirement of debt, net of tax benefit of ..... -- -- (11,160) -- --------- --------- --------- --------- Net income (loss) ........................... $ (7,287) $ 6,067 $ (38,725) $ 9,943 ========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements. 3 MAXXIM MEDICAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (IN THOUSANDS)
ACCUMULATED COMMON STOCK ADDITIONAL OTHER ------------------- PAID - IN RETAINED SUBSCRIPTIONS COMPREHENSIVE SHARES PAR VALUE CAPITAL EARNINGS RECEIVABLE INCOME (LOSS) TOTAL --------- --------- ---------------------- ------------ ------------- ------------ BALANCES AT NOVEMBER 1, 1998 ........... 14,239 $ 14 $ 219,268 $ 64,886 $ (5,200) $ (6,059) $ 272,909 Payment received on officer loan ....... -- -- 40 -- -- -- 40 Stock options compensation ............. -- -- 211 -- -- -- 211 Stock options exercised, including federal income tax benefit of $227 .. 40 -- 711 -- -- -- 711 Comprehensive income: Net income ............................. -- -- -- 14,064 -- -- 14,064 Other comprehensive loss, net of tax Net unrealized loss on investment securities ......................... -- -- -- -- -- (1,657) (1,657) Translation adjustment ............... -- -- -- -- -- (1,161) (1,161) --------- Total comprehensive income ........ 11,246 --------- --------- --------- --------- --------- --------- --------- BALANCES AT OCTOBER 31, 1999 ........... 14,279 14 220,230 78,950 (5,200) (8,877) $ 285,117 Payment/cancellation received on subscriptions receivable (unaudited) 5,200 5,200 Stock and options repurchased/ cancelled (unaudited) ............... (13,747) (14) (368,557) -- (2,580) -- (371,151) Issuance of common stock (unaudited) ... 5,069 6 131,794 -- -- -- 131,800 Issuance of warrants (unaudited) ....... -- -- 6,837 -- -- -- 6,837 Comprehensive income: Net loss ............................... -- -- -- (38,725) -- -- (38,725) Other comprehensive loss, net of tax Net unrealized loss on investment securities (unaudited) ............. -- -- -- -- -- 696 696 Translation adjustment(unaudited) .... -- -- -- -- -- 195 195 --------- --------- --------- --------- --------- --------- --------- Total comprehensive loss (unaudited) ................ (37,834) --------- BALANCES AT APRIL 30, 2000 (UNAUDITED) ......................... 5,601 $ 6 $ (9,696) $ 40,225 $ (2,580) $ (7,986) $ 19,969 ========= ========= ========= ========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements. 4 MAXXIM MEDICAL, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED, IN THOUSANDS)
SIX MONTHS ENDED ---------------------- APRIL 30, MAY 2, 2000 1999 --------- --------- Cash flows from operating activities: Net income (loss) .............................................................. $ (38,725) $ 9,943 Adjustment to reconcile net income to net cash provided by operating activities: Debt tender and recapitalization expenses ................................... 37,230 -- Write-off of debt offering costs ............................................ 7,100 -- Gain on sale of building .................................................... -- (167) Loss on sale of product line ................................................ -- 112 Income from discontinued operations, net of tax ............................. -- (2,702) Deferred income tax expense (benefit) ....................................... (2,373) 289 Amortization of financing fees and accretion of debt discount ............... 6,351 510 Depreciation and amortization ............................................... 11,449 11,049 Change in operating assets and liabilities .................................. (14,106) (501) --------- --------- Net cash provided by continuing operations .............................. 6,926 18,533 Net cash provided by discontinued operations ............................ -- 5,710 --------- --------- Net cash provided by operating activities ............................... 6,926 24,243 --------- --------- Cash flows from investing activities: Proceeds from sale of Circon ................................................... 228,000 -- Proceeds from sale of investment securities .................................... 884 -- Payment received on notes ...................................................... 1,036 -- Payment for contract rights .................................................... (2,250) -- Proceeds from product line sale ................................................ -- 1,500 Proceeds from building sale .................................................... -- 335 Purchase of Circon, net of cash acquired ....................................... -- (253,251) Purchase of property,equipment and other assets, net of asset acquisitions and business combinations ..................................................... (4,894) (17,508) --------- --------- Net cash provided by (used in) investing activities ..................... 222,776 (268,924) --------- --------- Cash flows from financing activities: Net proceeds from the issuance of senior subordinated discount notes ........... 110,004 -- Repurchase of 101/2% senior subordinated notes ................................. (99,995) -- Net proceeds from the issuance of senior discount notes ........................ 50,000 -- Recapitalization of Maxxim ..................................................... (232,361) -- Debt tender and recapitalization expenses ...................................... (37,230) -- Increase in long-term borrowings ............................................... 260,000 186,200 Repayment of long-term borrowings .............................................. (254,000) (5,000) Net borrowings on revolving line of credit ..................................... -- 72,300 Payment of debt offering costs ................................................. (21,330) (5,584) Payments on capital leases and other long-term obligations ..................... (676) (1,475) Increase in bank overdraft ..................................................... 363 2,327 Other, net ..................................................................... (390) 306 --------- --------- Net cash (used in) provided by financing activities ..................... (225,615) 249,074 --------- --------- Effect of foreign currency translation adjustment ................................ (136) (379) --------- --------- Net increase in cash and cash equivalents ............................... 3,951 4,014 Cash and cash equivalents at beginning of period ................................. 4,040 4,125 --------- --------- Cash and cash equivalents at end of period ....................................... $ 7,991 $ 8,139 ========= ========= Supplemental cash flow disclosures: Interest paid during the period ................................................ $ 13,219 $ 7,052 Income taxes paid during the period ............................................ 1,365 4,872 Noncash investing and financing activities Note receivable from sale of product line ................................... $ -- $ 1,600 Note receivable from sale of building ...................................... -- 198 Net unrealized gain on investment ........................................... 696 1,160
See accompanying notes to condensed consolidated financial statements. 5 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION On November 12, 1999, Maxxim Medical, Inc. ("Maxxim" or the "Company") was recapitalized in a going private transaction (see Note 4). As part of the recapitalization, Maxxim contributed to Maxxim Medical Group, Inc. ("Maxxim Group"), a newly formed wholly owned subsidiary of Maxxim, all of Maxxim's assets and liabilities other than those related to its previous credit facility. Current financial information includes the accounts of Maxxim, Maxxim Group and Maxxim Group's wholly owned subsidiaries. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles have been omitted. The accompanying unaudited condensed consolidated financial statements reflect all adjustments of a normal recurring nature which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented. All significant intercompany balances and transactions have been eliminated in consolidation. These financial statements should be read in conjunction with Maxxim's annual audited financial statements for the fiscal year ended October 31, 1999, included in its Form S-4 Registration Statement Amendment No. 2 as filed with the Securities and Exchange Commission on March 14, 2000. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FISCAL QUARTER The second quarter of fiscal 2000 ended on April 30th compared to the fiscal 1999 second quarter end date of May 2nd . INVENTORIES Inventory includes the following as of: APRIL 30, OCTOBER 31, 2000 1999 ---------- ---------- (UNAUDITED) (IN THOUSANDS) Raw materials .. $ 40,193 $ 36,325 Work in progress 13,286 11,313 Finished goods . 55,419 55,620 Reserve ........ (7,666) (5,447) --------- --------- $ 101,232 $ 97,811 ========= ========= GOODWILL Goodwill represents the excess of the aggregate price paid by Maxxim in business combinations accounted for as purchases over the fair market value of the tangible and identifiable intangible net assets acquired. Goodwill from Maxxim acquisitions is approximately $161,751,000 of which approximately $143,036,000 remains unamortized as of April 30, 2000. Amortization periods for goodwill range from 5 to 40 years. Maxxim believes that no impairment of goodwill exists. INCOME TAXES Maxxim has calculated current and deferred income tax provisions for the periods ended May 2, 1999, and April 30, 2000, based on its best estimate of the effective income tax rate expected to be applicable for the full fiscal year. 6 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) includes all changes in a company's equity including, among other things, unrealized holding gains and losses on available-for-sale securities and foreign currency translation adjustments. Total comprehensive income is as follows:
THREE MONTHS ENDED -------------------------- APRIL 30, MAY 2, 2000 1999 --------- -------- (UNAUDITED, IN THOUSANDS) Net earnings (loss) .......................................... $ (7,287) $ 6,067 Foreign currency translation adjustments ..................... 1,741 (2,234) Net unrealized losses on available for sale securities ....... (165) (369) -------- -------- Total comprehensive income (loss) ............................ $ (5,711) $ 3,464 ======== ========
SIX MONTHS ENDED --------------------------- APRIL 30, MAY 2, 2000 1999 --------- --------- (UNAUDITED, IN THOUSANDS) Net earnings (loss) ............................................. $(38,725) $ 9,943 Foreign currency translation adjustments ........................ 195 (3,035) Net unrealized gains (losses) on available for sale securities... 696 (1,160) -------- -------- Total comprehensive income (loss) ............................... $(37,834) 5,748 ======== ========
NEW ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), was issued by the Financial Accounting Standards Board in June 1998. SFAS No. 133 standardizes the accounting for derivative instruments, including certain derivative instruments embedded in other contracts. Under the standard, entities are required to carry all derivative instruments in the statement of financial position at fair value. SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. Maxxim will adopt SFAS No. 133 beginning in the first quarter of fiscal 2001, but has not yet determined its impact. NOTE 3 -DISCONTINUED OPERATIONS Effective January 6, 1999, Maxxim completed the acquisition of Circon Corporation ("Circon") for approximately $245,000,000, including the repayment of $32,500,000 of Circon debt and certain fees and expenses incurred in connection with the acquisition. On November 12, 1999, in connection with the recapitalization (see Note 4), Maxxim sold all of the common stock of Circon to Circon Holdings Corporation ("Circon Holdings"), a newly formed Delaware corporation which is owned by the shareholders of Maxxim, in exchange for the payment of $208 million in cash and the repayment of $20 million of debt owed by Circon to Maxxim. Maxxim recorded a nominal gain on the sale of Circon in the first quarter of fiscal year 2000. 7 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) At October 31, 1999, the net assets held for sale totaled $224,900,000 and were classified as current assets on the consolidated balance sheet. Circon's activities during fiscal year 1999 have been accounted for as discontinued operations. Net sales and income from Circon's operations through the second quarter of fiscal year 1999 are as follows (note that the results of discontinued operations do not reflect any interest expense or general corporate overhead allocated by the Company): FISCAL QUARTER ENDED MAY 2, 1999 -------------------- (IN THOUSANDS) Net sales..................................... $ 52,794 Income from operations........................ 5,040 Income taxes.................................. 2,531 Income from discontinued operations........... 2,702 NOTE 4 - RECAPITALIZATION On June 13, 1999, Maxxim and Fox Paine Medic Acquisition Corporation, a Texas corporation newly formed by Fox Paine Capital Fund, L.P., entered into a merger agreement providing for the recapitalization of Maxxim. The transactions contemplated by the merger agreement, including the recapitalization, were consummated on November 12, 1999. The recapitalization involved, among other transactions, (1) the sale to Circon Holdings of all of the capital stock of Circon in exchange for $208,000,000 in cash and the repayment of $20,000,000 of intercompany indebtedness owed by Circon to Maxxim, as a result of which Circon is separately capitalized, is pursuing separate business strategies and is operated separately from Maxxim and (2) the contribution to Maxxim Group of all of Maxxim's assets and liabilities, other than those relating to Maxxim's credit facility in existence prior to the consummation of the recapitalization, which was repaid and terminated as part of the recapitalization. Maxxim expects to conduct substantially all its business and operations through subsidiaries of Maxxim Group and any future subsidiaries it may form. The recapitalization required total funding of approximately $799,600,000. Sources of funding were as follows:
MAXXIM MAXXIM MEDICAL GROUP MAXXIM CONSOLIDATED ------------ ----------- ------------ Borrowings under new senior credit facility $261,600,000 $ -- $261,600,000 Senior subordinated discount notes ........ 110,000,000 -- 110,000,000 Senior discount notes ..................... -- 50,000,000 50,000,000 Proceeds from sale of Circon .............. 228,000,000 -- 228,000,000 New equity ................................ -- 150,000,000 150,000,000 ------------ ------------ ------------ $599,600,000 $200,000,000 $799,600,000 ============ ============ ============
In connection with the recapitalization, Maxxim (1) repaid all amounts outstanding under its previous credit facility and (2) consummated the tender offer for Maxxim's $100,000,000 principal amount of outstanding 10 1/2% senior subordinated notes due 2006. An aggregate principal amount of $99,995,000 of the senior subordinated notes were tendered in the tender offer, leaving $5,000 in aggregate principal amount of the senior subordinated notes outstanding. Transaction fees and expenses related to the recapitalization totaled approximately $54,200,000. Financing fees of approximately $24,200,000 have been capitalized and will be amortized with the applicable debt. Additionally, the transaction fees include the $11,200,000 premium paid on the tender of Maxxim's 10 1/2% senior subordinated notes. This tender premium, together with remaining unamortized debt issuance costs have been included in the extraordinary loss related to the early retirement of debt. Maxxim recognized one time expenses of $18,898,000 related to the recapitalization. These one time expenses include professional fees of $14,028,000. 8 MAXXIM MEDICAL GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) CREDIT FACILITY In connection with the recapitalization, Maxxim repaid all amounts outstanding under its previous credit facility. Maxxim Group entered into a new $310,000,000 senior secured credit facility ("Credit Facility") with several lending institutions on November 12, 1999. The Credit Facility consists of the following: Tranche A term loan ("term loan A facility").............. $ 80,000,000 Tranche B term loan ("term loan B facility").............. 90,000,000 Tranche C term loan ("term loan C facility").............. 90,000,000 Revolving credit facility ("revolver").................... 50,000,000 ------------ $310,000,000 ============ Financing for the recapitalization required the full use of the term loans and approximately $1,600,000 of the revolver. On April 30, 2000 the unused portion of the revolver was $50,000,000. The term loan A facility is repayable in six annual principal payments commencing October 31, 2000 with payments ranging from $10,000,000 to $16,000,000. This facility bears interest at a rate per annum equal to, at Maxxim Group's option: (1) an adjusted London interbank offered rate ("Adjusted LIBOR") plus 2.75% or (2) a rate equal to the greater of the administrative agent's prime rate, a certificate of deposit rate plus 1% and the Federal Funds effective rate plus 1/2 of 1% (the "Alternate Base Rate") plus 1.75%, in each case, subject to certain adjustments based on Maxxim Group's leverage. The term loan B facility is repayble in eight principal payments over seven and one-half years, with the first six payments of $250,000 due annually commencing October 31, 2000, a payment of $40,000,000 million due on October 31, 2006, and a final payment of $48,500,000 payable at maturity on May 12, 2007. The term loan B facility bears interest at a rate per annum equal to, at Maxxim Group's option: (1) Adjusted LIBOR plus 3.25% or (2) the Alternate Base Rate plus 2.25%. The term loan C facility is repayable in nine principal payments over eight and one-half years, with the first seven payments of $250,000 due annually commencing October 31, 2000, a payment of $30,000,000 million due on October 31, 2007, and a final payment of $58,250,000 payable at maturity on May 12, 2008. The term loan C facility bears interest at a rate per annum equal to, at Maxxim Group's option: (1) Adjusted LIBOR plus 3.50% or (2) the Alternate Base Rate plus 2.50%. The revolving credit facility is a six-year facility, and outstanding balances thereunder bear interest at a rate per annum equal to, at Maxxim Group's option: (1) Adjusted LIBOR plus 2.75% or (2) the Alternate Base Rate plus 1.75%, in each case, subject to certain adjustments based on Maxxim Group's leverage. All outstanding loans under the revolving credit facility will be repayable at maturity. SENIOR SUBORDINATED DISCOUNT NOTES In connection with the recapitalization, Maxxim Group issued Senior Subordinated Discount Notes due 2009 ("Maxxim Group Notes") with an aggregate principal amount at maturity of $144,552,000 ($110,004,072 aggregate accreted amount outstanding at issuance). The Maxxim Group Notes mature on November 15, 2009, unless previously redeemed by Maxxim Group. The Maxxim Group Notes were sold at a discount of $34,547,928 from their aggregate face value, which amount will be accreted over the 10 year life of the Maxxim Group Notes. With each $1,000 face amount of Maxxim Group Notes issued, Maxxim issued one warrant to purchase 0.8226 shares of its common stock on or before November 12, 2004, at a price per share of $0.01. Each warrant is valued at $21.38 and will be amortized over the life of the Maxxim Group Notes. Cash interest of 11% is payable on the accreted value of the Maxxim Group Notes as of the issue date, on May 15 and November 15, commencing May 15, 2000. The obligations under the Maxxim Group Notes are guaranteed by Maxxim and all of Maxxim Group's U.S. subsidiaries. Except as set forth in the following paragraph, Maxxim Group may not redeem the Maxxim Group Notes at its option prior to November 15, 2004. On or after November 15, 2004, Maxxim Group may redeem, in whole or in part, at the redemption prices (expressed as a percentage of accreted value) set forth below plus accrued and unpaid interest thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on November 15 of the years indicated below: 9 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) YEAR PERCENTAGE ---- ---------- November 15, 2004....................... 106.875% November 15, 2005....................... 104.583% November 15, 2006....................... 102.292% November 15, 2007 and thereafter........ 100.000% At any time prior to November 15, 2002, Maxxim Group may redeem up to 35% of the original aggregate principal amount of the Maxxim Group Notes at maturity plus accrued and unpaid interest thereon to the applicable redemption date with the net cash proceeds of certain equity offerings at a redemption price equal to 113 3/4% of the accreted value thereof so long as at least 65% of the original aggregate principal amount at maturity of the Maxxim Group Notes remains outstanding after each such redemption and any such redemption is made within 90 days of the consummation of such equity offering. Net proceeds from the offering of approximately $110,004,000 were used in conjunction with proceeds from the new Credit Facility and the Maxxim Notes (as defined below) to finance the recapitalization. SENIOR DISCOUNT NOTES In connection with the recapitalization, Maxxim issued $98,500,000 principal amount at maturity of senior unsecured discount notes ("Maxxim Notes"). The Maxxim Notes were sold at a $48,500,000 discount from their face value, resulting in accreted interest on the accreted value at a semi-annual rate of 7.0% until November 15, 2004. The Maxxim Notes will mature 11 years from the date of issuance and beginning November 15, 2004, will pay interest in cash at a rate of 14.0% per year on the accreted value of the Maxxim Notes payable semi-annually. For the first five years from the issue date, accreted interest will be added to the outstanding principal amount of the Maxxim Notes and will not be payable in cash. After five years from the issuance date, cash interest will be payable in cash unless cash interest cannot be paid without violating certain terms of Maxxim Group's senior or senior subordinated debt, in which case Maxxim may issue additional Maxxim Notes in payment of such interest. The Maxxim Notes were not registered for sale under the Securities Act and are not eligible for offer or sale in the United States absent registration or an exemption from the registration process. In addition, the purchasers of the Maxxim Notes received warrants to purchase 144,132 shares of Maxxim's common stock at a purchase price of $0.01 per share. The market value of the warrants was $3,746,000. NEW EQUITY Immediately prior to the recapitalization, which included the merger of Fox Paine Medic Acquisition Corporation ("Fox Paine Medic") with and into Maxxim, Maxxim had 14,278,942 shares of common stock outstanding. In the merger, all of the outstanding shares of Maxxim common stock, other than 531,854 shares held by the ten continuing shareholders, were converted into the right to receive $26 per share. Also immediately prior to the merger, present and former directors, officers and employees of Maxxim held options to purchase 1,481,460 shares of Maxxim common stock at a weighted average exercise price of $14.72. As part of the recapitalization, options to purchase 1,019,092 shares of Maxxim common stock were canceled in exchange for a cash payment equal to the difference between the $26.00 merger price and the exercise price per share under the relevant option. The remaining 462,368 options held by the management investors were canceled without any cash consideration. As a result of the merger, the 5,069,231 outstanding shares of Fox Paine Medic common stock were converted into the same number of shares of common stock of Maxxim, and the cash investment of $131.8 million by the investors in Fox Paine Medic became an asset of Maxxim. In addition, the eight continuing shareholders who were members of Maxxim's senior management used the after-tax proceeds from the cash-out of their stock options to purchase 169,619 additional shares of Maxxim common stock immediately after the merger, at a price of $26.00 per share. All of the 169,619 shares provide the shareholders, under certain conditions, with the right to put the shares to Maxxim at fair market value. Accordingly, such shares are reflected as shares with put rights in the accompanying balance sheet. Upon completion of the recapitalization, Maxxim had 5,770,704 shares of common stock outstanding. 10 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) NOTE 5 - OTHER ASSETS Other assets, net of accumulated amortization, include the following as of: APRIL 30, OCTOBER 31, 2000 1999 -------- ---------- (UNAUDITED) (IN THOUSANDS) Patents .................... $10,242 $10,736 Debt offering costs ........ 22,757 7,100 Non-compete agreements...... 915 1,338 Notes receivable ........... 1,157 1,909 Other ...................... 4,443 4,876 ------- ------- $39,514 $25,959 ======= ======= NOTE 6 - BUSINESS SEGMENTS, GEOGRAPHIC AREAS AND MAJOR CUSTOMERS Effective October 31, 1999, Maxxim adopted SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information." Maxxim's business is organized, managed and internally reported as a single segment comprised of medical products used in surgical and other medical procedures. Maxxim believes its various product lines have similar economic, operating and other related characteristics. Information in the table below is presented on the basis Maxxim uses to manage its business. Export sales are reported within the geographic areas where the final sales to customers are made. THREE MONTHS ENDED APRIL 30, 2000 MAY 2, 1999 -------------- ----------- (UNAUDITED, IN THOUSANDS) United States.............. $112,799 $116,108 Europe .................... 11,269 11,841 Rest of World ............. 6,692 6,714 -------- -------- Total Company ............. $130,760 $134,663 ======== ======== SIX MONTHS ENDED APRIL 30, 2000 MAY 2, 1999 -------------- ----------- (UNAUDITED, IN THOUSANDS) United States.............. $217,681 $222,215 Europe .................... 22,581 23,943 Rest of World ............. 13,326 13,137 -------- -------- Total Company ............. $253,588 $259,295 ======== ======== Export sales to rest of world are primarily sales to Canada, South America and the Pacific Rim. There were no significant investments in long-lived assets located outside the United States at April 30, 2000 and October 31, 1999. Maxxim distributes primarily through major distributors in the United States. Those distributors typically serve under a purchase order or supply agreement between the end-user and Maxxim. Sales through Owens & Minor, Inc.,and General Medical Corp., our largest distributors, were 26.8% and 10.8% of our net sales in the United States for the six months ended April 30, 2000, respectively and 26.3% and 10.7% of our net sales in the United States for the six months ended May 2, 1999, respectively. For the six months ended April 30, 2000, no other single distributor accounted for more than 10% of our United States total net sales. 11 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) NOTE 7 - RELATED PARTY TRANSACTIONS LOANS TO OFFICERS Under the terms of the Chief Executive Officer's ("CEO") employment agreement, the CEO may borrow up to an aggregate of $500,000 for the principal purpose of payment of federal income tax payments associated with the exercise of stock options to purchase shares of the Company's common stock. Each loan is non-interest bearing, unsecured and repayable in ten equal annual installments on the third through the twelfth anniversaries of the dates of such loans. The total amount outstanding under the CEO's loans at April 30, 2000 was $500,000. The CEO is current in all of his repayment obligations under the loans. In conjunction with the relocation of the Company's Chief Operations Officer ("COO") from Houston, Texas to the Company's corporate headquarters in Clearwater, Florida, the COO received a loan in the amount of $325,000. This loan is non-interest bearing, unsecured and repayable upon the earlier of the sale of his prior residence or December 31, 2000. MANAGEMENT AND ADVISORY SERVICES PROVIDED BY FOX PAINE In connection with the recapitalization, Maxxim and Maxxim Group entered into a management services agreement with an affiliate of Fox Paine pursuant to which such affiliate will provide certain financial and strategic consulting and advisory services to Maxxim and Maxxim Group. In exchange for these services, the Fox Paine affiliate will receive a fee of $763,000 for fiscal year 2000. Thereafter such fee shall be equal to 1% of the annual adjusted consolidated EBITDA of Maxxim for the prior fiscal year. For the six months ended April 30, 2000, other expense included $381,500 for the management and advisory services fee. Additionally, in the first quarter of fiscal year 2000, Maxxim paid to such affiliate transaction fees of approximately $9,814,000 plus reimbursement of its expenses in connection with the recapitalization. SERVICES AGREEMENT Maxxim, Maxxim Group, Circon Holdings and Circon have entered into a services agreement that provides for Maxxim and Maxxim Group to provide services to Circon Holdings and Circon, including services and advice provided by management employees as well as general corporate overhead services. In exchange for these services, Circon Holdings and Circon will reimburse Maxxim and Maxxim Group for all direct expenses or out of pocket fees directly attributable to the services provided to Circon Holdings and Circon. For services without expenses or fees directly attributable to Circon Holdings and Circon, the actual cost of such services will be allocated between Maxxim and Maxxim Group, on the one hand, and Circon Holdings and Circon, on the other hand, pro rata based on net sales. Maxxim's shared services charges billed to Circon Holdings and Circon totaled $1,000,000 in the six months ended April 30, 2000. NOTE 8 - FINANCIAL INFORMATION REGARDING GUARANTOR SUBSIDIARIES Consolidating financial information regarding Maxxim, guarantor subsidiaries and non-guarantor subsidiaries as of April 30, 2000 and October 31, 1999 and for each of the fiscal quarters ended April 30, 2000 and May 2, 1999 is presented below for purposes of complying with the reporting requirements of the guarantor subsidiaries. Separate financial statements and other disclosures concerning each guarantor subsidiary have not been presented because management has determined that such information is not material to investors. The guarantor subsidiaries are wholly-owned subsidiaries of Maxxim Group that have fully and unconditionally guaranteed Maxxim Group's senior subordinated discount notes due 2009 issued in connection with the recapitalization (see Note 4). Maxxim has also fully and unconditionally guaranteed the notes. 12 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) CONDENSED CONSOLIDATING BALANCE SHEET APRIL 30, 2000
APRIL 30, 2000 ---------------------------------------------------------------------------- GUARANTOR NON-GUARANTOR MAXXIM GROUP PARENT CONSOLIDATED SUBSIDIARIES SUBSIDIARIES TOTAL GUARANTOR TOTAL ------------ ------------- ------------ --------- ------------ ASSETS Current assets: Cash and cash equivalents ............ $ 5,622 $ 2,369 $ 7,991 $ -- $ 7,991 Accounts receivable, net ............. 54,137 11,584 65,721 -- 65,721 Inventory, net ....................... 84,515 16,717 101,232 -- 101,232 Net current deferred tax asset ....... 8,128 -- 8,128 -- 8,128 Prepaid expenses and other ........... 6,184 537 6,721 -- 6,721 --------- --------- --------- ------- --------- Total current assets ............... 158,586 31,207 189,793 -- 189,793 Property and equipment .................. 135,151 56,430 191,581 -- 191,581 Less: accumulated depreciation ....... (40,802) (18,199) (59,001) -- (59,001) --------- --------- --------- --------- --------- 94,349 38,231 132,580 -- 132,580 Goodwill and other intangibles, net ..... 140,455 2,581 143,036 -- 143,036 Other assets, net ....................... 35,967 1,189 37,156 2,358 39,514 --------- --------- --------- ------- --------- Total assets ....................... $ 429,357 $ 73,208 $ 502,565 $ 2,358 $ 504,923 ========= ========= ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $ 10,930 $ -- $ 10,930 $ -- $ 10,930 Current maturities of capital leases and other long-term obligations ... 599 -- 599 -- 599 Accounts payable ..................... 28,158 5,291 33,449 -- 33,449 Accrued liabilities .................. 17,039 185 17,224 (7,692) 9,532 Due (from)/ to affiliates ............ (2,759) 6,682 3,923 -- 3,923 --------- --------- --------- --------- --------- Total current liabilities .......... 53,967 12,158 66,125 (7,692) 58,433 Intercompany (receivable) payable ....... (39,288) 39,288 -- -- -- Long-term debt, net of current maturities 251,440 -- 251,440 -- 251,440 Senior subordinated discount notes ...... 108,440 -- 108,440 -- 108,440 Senior discount notes ................... -- -- -- 49,680 49,680 10 1/2% Senior subordinated notes ....... 5 -- 5 -- 5 Capital lease and other long-term obligations, net of current maturities 4,104 -- 4,104 -- 4,104 Net non-current deferred tax liability .. 6,102 2,340 8,442 -- 8,442 --------- --------- --------- ------- --------- Total liabilities .................. 384,770 53,786 438,556 41,988 480,544 Shares with put rights .................. -- -- -- 4,410 4,410 Commitments and contingencies Shareholders' equity: Preferred Stock ...................... -- -- -- -- -- Common Stock ......................... -- -- -- 6 6 Additional paid-in capital ........... -- -- -- (9,696) (9,696) Retained earnings .................... -- -- -- 40,225 40,225 Subscriptions receivable ............. -- -- -- (2,580) (2,580) Accumulated other comprehensive loss . -- -- -- (7,986) (7,986) --------- --------- --------- ------- --------- Total shareholders' equity ......... -- -- -- 19,969 19,969 (Investment in)/net equity of guarantor subsidiaires ........... 64,009 -- 64,009 (64,009) -- (Investment in)/net equity of Non-guarantor subsidiaries ....... (19,422) 19,422 -- -- -- --------- --------- --------- ------- --------- Total liabilities and shareholders' equity .......... $ 429,357 $ 73,208 $ 502,565 $ 2,358 $ 504,923 ========= ========= ========= ========= =========
13 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) CONSOLIDATING BALANCE SHEET OCTOBER 31, 1999
OCTOBER 31, 1999 --------------------------------------------- GUARANTOR NON-GUARANTOR CONSOLIDATED SUBSIDIARIES SUBSIDIARIES TOTAL ------------ ------------- ------------ ASSETS Current assets: Cash and cash equivalents ........................ $ 474 $ 3,566 $ 4,040 Accounts receivable, net ......................... 30,512 30,811 61,323 Inventory, net ................................... 81,610 16,201 97,811 Net current deferred tax asset ................... 9,189 -- 9,189 Prepaid expenses and other ....................... 6,339 258 6,597 Net assets held for sale ......................... -- 224,909 224,909 --------- --------- --------- Total current assets .............. 128,124 275,745 403,869 Property and equipment .............................. 134,375 59,833 194,208 Less: accumulated depreciation ................... (37,678) (17,224) (54,902) --------- --------- --------- 96,697 42,609 139,306 Goodwill and other intangibles, net ................. 140,811 1,648 142,459 Other assets, net ................................... 25,010 949 25,959 --------- --------- --------- Total assets ...................... $ 390,642 $ 320,951 $ 711,593 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt ............. $ 430 $ -- $ 430 Current maturities of capital leases and other long-term obligations ........................ 1,019 -- 1,019 Accounts payable ................................. 25,986 5,840 31,826 Accrued liabilities .............................. 18,380 3,899 22,279 --------- --------- --------- Total current liabilities ......... 45,815 9,739 55,554 Intercompany (receivables) payables ................. (42,704) 42,704 -- Long-term debt, net of current maturities ........... 255,940 -- 255,940 10 1/2% Senior subordinated notes ................... 100,000 -- 100,000 Capital leases and other long-term obligations, net of current maturities ....................... 4,360 38,396 4,360 Net non-current deferred tax liability .............. 10,553 69 10,622 --------- --------- --------- Total liabilities ................. 373,964 52,512 426,476 Commitments and contingencies Shareholders' equity Preferred Stock .................................. -- -- -- Common Stock ..................................... 14 -- 14 Additional paid-in capital ....................... 220,230 -- 220,230 Retained earnings ................................ 78,950 -- 78,950 Subscriptions receivable ......................... (5,200) -- (5,200) Accumulated other comprehensive loss ............. (8,877) -- (8,877) --------- --------- --------- Total shareholders' equity ............... 285,117 -- 285,117 (Investment in) / net equity of non-guarantor subsidiaries .................................. (268,439) 268,439 -- --------- --------- --------- Total liabilities and shareholders' equity $ 390,642 $ 320,951 $ 711,593 ========= ========= =========
14 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS THREE MONTHS APRIL 30, 2000
THREE MONTHS ENDED APRIL 30, 2000 ---------------------------------------------------------------------------------------- GUARANTOR NON-GUARANTOR ELIMINATING MAXXIM GROUP PARENT CONSOLIDATED SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL GUARANTOR TOTAL ------------ ------------- ----------- ------------ --------- ------------ Net sales .............................. $ 119,075 $ 22,093 $ (10,408) $ 130,760 $ -- $ 130,760 Cost of sales .......................... 92,309 19,320 (10,408) 101,221 -- 101,221 --------- --------- --------- --------- --------- --------- Gross profit ........................... 26,766 2,773 -- 29,539 -- 29,539 --------- --------- --------- --------- --------- --------- Selling, general and administrative .... 21,350 3,915 -- 25,265 -- 25,265 Restructure and transition expenses ............................... 833 -- -- 833 -- 833 --------- --------- --------- --------- --------- --------- 22,183 3,915 -- 26,098 -- 26,098 --------- --------- --------- --------- --------- --------- Income (loss) from operations .......... 4,583 (1,142) -- 3,441 -- 3,441 Interest (expense), net ................ (9,701) (552) -- (10,253) (1,893) (12,146) Other income/(expense), net ............ (1,971) (129) -- (2,100) -- (2,100) Recapitalization expenses .............. (201) -- -- (201) -- (201) --------- --------- --------- --------- --------- --------- Loss before income taxes ............... (7,290) (1,823) -- (9,113) (1,893) (11,006) Income taxes ........................... (2,376) (605) -- (2,981) (738) (3,719) --------- --------- --------- --------- --------- --------- Net loss .......................... $ (4,914) $ (1,218) $ -- $ (6,132) $ (1,155) $ (7,287) ========= ========= ========= ========= ========= ========= CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS THREE MONTHS ENDED MAY 2, 1999 THREE MONTHS ENDED MAY 2, 1999 ------------------------------------------------------------ GUARANTOR NON-GUARANTOR ELIMINATING CONSOLIDATED SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL ------------ ------------- ----------- ------------ Net sales ................................... $ 121,666 $ 21,429 $ (8,432) $ 134,663 Cost of sales ............................... 87,767 17,710 (8,432) 97,045 --------- --------- --------- --------- Gross profit ................................ 33,899 3,719 -- 37,618 Selling, general and administrative ......... 21,701 3,129 -- 24,830 --------- --------- --------- --------- Income from operations ...................... 12,198 590 -- 12,788 Interest expense, net ....................... (7,384) (528) -- (7,912) Other income/( expense ), net ............... 33 108 -- 141 --------- --------- --------- --------- Income before income taxes .................. 4,847 170 -- 5,017 Income taxes ................................ 1,920 71 -- 1,991 --------- --------- --------- --------- Income from continuing operations ........... 2,927 99 -- 3,026 Income from discontinued operations, net .... -- 3,041 -- 3,041 --------- --------- --------- --------- Net income (loss) ...................... $ 2,927 $ 3,140 $ -- $ 6,067 ========= ========= ========= =========
15 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS SIX MONTHS APRIL 30, 2000
SIX MONTHS ENDED APRIL 30, 2000 ------------------------------------------------------------------------------------- GUARANTOR NON-GUARANTOR ELIMINATING MAXXIM GROUP PARENT CONSOLIDATED SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL GUARANTOR TOTAL ------------ ------------- ----------- ------------ --------- ------------ Net sales ................................. $ 228,170 $ 42,879 $ (17,461) $ 253,588 $ -- $ 253,588 Cost of sales ............................. 174,866 36,658 (17,461) 194,063 -- 194,063 --------- --------- --------- --------- --------- --------- Gross profit .............................. 53,304 6,221 -- 59,525 -- 59,525 --------- --------- --------- --------- --------- --------- Selling, general and administrative ....... 40,230 7,564 -- 47,794 -- 47,794 Restructure and transition expenses ....... 1,673 -- -- 1,673 -- 1,673 --------- --------- --------- --------- --------- --------- 41,903 7,564 -- 49,467 -- 49,467 --------- --------- --------- --------- --------- --------- Income (loss) from operations ............. 11,401 (1,343) -- 10,058 -- 10,058 Interest (expense), net ................... (18,725) (1,145) -- (19,870) (3,528) (23,398) Other income/(expense), net ............... (2,236) (106) -- (2,342) -- (2,342) Recapitalization expenses ................. (18,898) -- -- (18,898) -- (18,898) --------- --------- --------- --------- --------- --------- Loss before income taxes .................. (28,458) (2,594) -- (31,052) (3,528) (34,580) Income taxes .............................. (4,663) (889) -- (5,552) (1,376) (6,928) --------- --------- --------- --------- --------- --------- Loss from continuing operations ........... (23,795) (1,705) -- (25,500) (2,152) (27,652) Income from discontinued operations, net .. 87 -- -- 87 -- 87 --------- --------- --------- --------- --------- --------- Loss before extraordinary item ............ (23,708) (1,705) -- (25,413) (2,152) (27,565) Extraordinary item - loss on early retirement of debt, net ........... (8,084) -- -- (8,084) (3,076) (11,160) --------- --------- --------- --------- --------- --------- Net loss ............................. $ (31,792) $ (1,705) $ -- $ (33,497) $ (5,228) $ (38,725) ========= ========= ========= ========= ========= ========= CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS SIX MONTHS ENDED MAY 2, 1999 SIX MONTHS ENDED MAY 2, 1999 ----------------------------------------------------------- GUARANTOR NON-GUARANTOR ELIMINATING CONSOLIDATED SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL ------------ ------------- ----------- ------------ Net sales ................................... $ 232,103 $ 42,841 $ (15,649) $ 259,295 Cost of sales ............................... 167,126 34,851 (15,649) 186,328 --------- --------- --------- --------- Gross profit ................................ 64,977 7,990 -- 72,967 --------- --------- --------- --------- Selling, general and administrative ......... 40,241 6,280 -- 46,521 Restructure and transition expenses ......... 2,016 -- -- 2,016 --------- --------- --------- --------- 42,257 6,280 -- 48,537 --------- --------- --------- --------- Income from operations ...................... 22,720 1,710 -- 24,430 Interest expense, net ....................... (11,169) (1,031) -- (12,200) Other income/(expense), net ................. 122 5 -- 127 --------- --------- --------- --------- Income before income taxes .................. 11,673 684 -- 12,357 Income taxes ................................ 4,830 286 -- 5,116 --------- --------- --------- --------- Income from continuing operations ........... 6,843 398 -- 7,241 Income from discontinued operations, net .... -- 2,702 -- 2,702 --------- --------- --------- --------- Net income (loss) ...................... $ 6,843 $ 3,100 $ -- $ 9,943 ========= ========= ========= =========
16 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED APRIL 30, 2000
SIX MONTHS ENDED APRIL 30, 2000 --------------------------------------------------------------------------- GUARANTOR NON-GUARANTOR MAXXIM GROUP PARENT CONSOLIDATED SUBSIDIARIES SUBSIDIAIRES TOTAL GUARANTOR TOTAL ------------ ------------- ------------ --------- ------------ Cash flows from operating activities: Net loss ......................................... $ (31,792) $ (1,705) $ (33,497) $ (5,228) $ (38,725) Adjustment to reconcile net income to net cash provided by operating activities: Debt tender and recapitalization expenses .... 37,230 -- 37,230 -- 37,230 Write-off of debt offering costs .............. 2,057 -- 2,057 5,043 7,100 Deferred income tax (benefit) expense ......... (2,640) 267 (2,373) -- (2,373) Amortization of financing fees and accretion of debt discount ................. 2,822 -- 2,822 3,529 6,351 Depreciation and amortization ................. 8,583 2,866 11,449 -- 11,449 Change in operating assets and liabilities ............................. (4,335) (2,079) (6,414) (7,692) (14,106) --------- --------- --------- --------- --------- Net cash (used in) provided by operating activities ............................ 11,925 (651) 11,274 (4,348) 6,926 --------- --------- --------- --------- --------- Cash flows from investing activities: Proceeds from sale of Circon ..................... 228,000 -- 228,000 -- 228,000 Proceeds from sale of investment securities ..................................... 884 -- 884 -- 884 Payment received on notes ........................ 1,036 -- 1,036 -- 1,036 Payment for contract rights ...................... (2,250) -- (2,250) -- (2,250) Purchase of property, equipment and other assets, net of asset acquisitions and business combinations ........ (4,521) (373) (4,894) -- (4,894) --------- --------- --------- --------- --------- Net cash provided by (used in) investing activities .......................... 223,149 (373) 222,776 -- 222,776 --------- --------- --------- --------- --------- Cash flows from financing activities: Net proceeds from the issuance of senior subordinated discount notes ............ 110,004 -- 110,004 -- 110,004 Repurchase of 10 1/2% senior subordinated notes ........................... (99,995) -- (99,995) -- (99,995) Net proceeds from the issuance of senior discount notes ........................ -- -- -- 50,000 50,000 Recapitalization of Maxxim ....................... (443,170) -- (443,170) 210,809 (232,361) Debt tender and recapitalization expenses ...................................... (37,230) -- (37,230) -- (37,230) Increase in long-term borrowings ................. 260,000 -- 260,000 -- 260,000 Repayment on long-term borrowings ................ -- -- -- (254,000) (254,000) Payment of debt offering costs ................... (18,869) -- (18,869) (2,461) (21,330) Payments on capital leases and other long-term obligations ........................ (676) -- (676) -- (676) Increase in bank overdraft ....................... 363 -- 363 -- 363 Other, net ....................................... (353) (37) (390) -- (390) --------- --------- --------- --------- --------- Net cash (used in) provided by financing activities ............................ (229,926) (37) (229,963) 4,348 (225,615) --------- --------- --------- --------- --------- Effect of foreign currency translation adjustment .......................... -- (136) (136) -- (136) --------- --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents ................................... 5,148 (1,197) 3,951 -- 3,951 Cash and cash equivalents at beginning of period ............................ 474 3,566 4,040 -- 4,040 --------- --------- --------- --------- --------- Cash and cash equivalents at end of period ................................. $ 5,622 $ 2,369 $ 7,991 $ -- $ 7,991 ========= ========= ========= ========= =========
17 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS FOR THE SIX MONTHS ENDED MAY 2, 1999
SIX MONTHS ENDED MAY 2, 1999 ------------------------------------------- GUARANTOR NON-GUARANTOR CONSOLIDATED SUBSIDIARIES SUBSIDIARIES TOTAL ------------ ------------- ------------ Cash flows from operating activities: Net income (loss) ............................................. $ 6,612 $ 3,331 $ 9,943 Adjustment to reconcile net income to net cash provided by operating activities: Gain on sale of building ................................... (167) -- (167) Loss on sale of product line ............................... 112 -- 112 Income from discontinued operations, net of tax ............ -- (2,702) (2,702) Deferred income tax expense (benefit) ...................... 1,303 (1,014) 289 Amortization of financing fees ............................. 510 -- 510 Depreciation and amortization .............................. 6,429 4,620 11,049 Changes in operating assets and liabilities ............... (4,567) 4,066 (501) --------- --------- --------- Net cash provided by continuing operations ...................... 10,232 8,301 18,533 Net cash provided by discontinued operations .................... -- 5,710 5,710 --------- --------- --------- Net cash provided by operating activities ....................... 10,232 14,011 24,243 --------- --------- --------- Cash flows from investing activities: Proceeds from product line sale ............................... 1,500 -- 1,500 Proceeds from building sale ................................... 335 -- 335 Purchase of Circon, net of cash acquired ...................... (250,875) (2,376) (253,251) Purchase of property, equipment, net of asset acquisitions and business combinations .................................. (8,391) (9,117) (17,508) --------- --------- --------- Net cash provided by (used in) investing activities ............. (257,431) (11,493) (268,924) --------- --------- --------- Cash flows from financing activities: Increase in long-term borrowings .............................. 186,200 -- 186,200 Payment of long-term borrowings ............................... (5,000) -- (5,000) Net borrowing (payments) on revolving line of credit .......... 72,300 -- 72,300 Payments on capital lease obligations and other long-term obligations ...................................... (1,475) -- (1,475) Payment of debt offering costs ................................ (5,584) -- (5,584) Increase in bank overdraft .................................... 2,327 -- 2,327 Other, net .................................................... 306 -- 306 --------- --------- --------- Net cash (used in) provided by financing activities ............ 249,074 -- 249,074 --------- --------- --------- Effect of foreign currency translation adjustment ............... -- (379) (379) --------- --------- --------- Net increase in cash and cash equivalents ....................... 1,875 2,139 4,014 Cash and cash equivalents at beginning of period ................ 742 3,383 4,125 --------- --------- --------- Cash and cash equivalents at end of period ...................... $ 2,617 $ 5,522 $ 8,139 ========= ========= =========
18 MAXXIM MEDICAL, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED) (UNAUDITED) NOTE 9 -RESTRUCTURE CHARGES AND TRANSITION EXPENSES In the first quarter of fiscal 1999, Maxxim incurred approximately $2,016,000 of transition costs in connection with the restructuring of its sales force. The sales force transition costs included severance and training expenses associated with the realignment of Maxxim's sales force. In the fourth quarter of fiscal year 1999, the Company announced the closing of one of its glove plants. We recorded charges of $2,621,000 in the fourth quarter of fiscal 1999, $840,000 in the first quarter of fiscal 2000 and $833,000 in the second quarter of fiscal 2000 related to this decision. The restructure charges and transition expenses are summarized below. Unpaid expenses are included in accrued expenses on Maxxim's consolidated balance sheet, and Maxxim expects to pay the remaining accruals in fiscal 2000. BEGINNING ENDING BALANCE FISCAL 1999 FISCAL 1999 BALANCE NOVEMBER 2, RECORDED PAYMENTS & OCTOBER 31, 1998 EXPENSES ADJUSTMENTS 1999 ------ ------ ------ ------ (IN THOUSANDS) Severance ................... $ -- $2,860 $1,739 $1,121 Training .................... -- 395 395 -- Termination benefits ........ -- 443 100 343 Other transition expenses ... -- 473 473 -- Plant closure expenses ...... -- 466 267 199 ------ ------ ------ ------ $ -- $4,637 $2,974 $1,663 ====== ====== ====== ====== BEGINNING ENDING BALANCE FISCAL 2000 FISCAL 2000 BALANCE NOVEMBER 1, RECORDED PAYMENTS & APRIL 30, 1999 EXPENSES ADJUSTMENTS 2000 ------ ------ ------ ------ (IN THOUSANDS ) Severance.................... $1,121 $ 247 $ 740 $ 628 Termination benefits......... 343 -- 195 148 Plant closure expenses....... 199 1,426 1,625 -- ------ ------ ------ ------ $1,663 $1,673 $2,560 $ 776 ====== ====== ====== ====== 19 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION. The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and related Notes appearing elsewhere in this report. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, the percentage which selected items in the Condensed Consolidated Statements of Operations bear to net sales:
PERCENTAGE OF NET SALES ----------------------------------------------- THREE MONTHS ENDED SIX MONTHS ENDED --------------------- --------------------- APRIL 30, MAY 2, APRIL 30, MAY 2, 2000 1999 2000 1999 --------- ------- --------- ------- Net sales .................................. 100.0% 100.0% 100.0% 100.0% Cost of sales .............................. 77.4 72.1 76.5 71.9 Gross profit ............................... 22.6 27.9 23.5 28.1 Selling, general and administrative expenses 19.3 18.4 18.8 17.9 Restructure charges and transition expenses 0.7 -- 0.7 0.8 Income from operations ..................... 2.6 9.5 4.0 9.4 Interest expense ........................... (9.3) (5.9) (9.2) (4.6) Other income (expense), net ................ (1.6) 0.1 (0.9) -- Recapitalization expenses .................. (0.1) -- (7.5) -- ------- ------- ------- ------- Income (loss) from continuing operation before income taxes ..................... (8.4) 3.7 (13.6) 4.8 Income taxes ............................... (2.8) 1.5 (2.7) 2.0 ------- ------- ------- ------- Income (loss) from continuing operations ... (5.6) 2.2 (10.9) 2.8 Income from discontinued operations, net of tax .............................. -- 2.3 -- (1.0) ------- ------- ------- ------- Income (loss) before extraordinary item .... (5.6) 4.5 (10.9) 3.8 Extraordinary item - loss related to early retirement of debt, net of tax ........... -- -- (4.4) -- ------- ------- ------- ------- Net income (loss) .......................... (5.6)% 4.5% (15.3)% 3.8% ======= ======= ======= =======
NET SALES - Net sales for the second fiscal quarter of 2000 were $130.8 million compared to $134.7 million in the second fiscal quarter of 1999. The 2.9% decline in sales quarter over quarter is primarily the result of the following factors: an increase in custom procedure tray sales to $77.1 million for the second quarter of fiscal 2000 from $76.6 million for the second quarter of fiscal 1999; a decline in medical glove sales to $21.8 million in the second quarter of fiscal 2000 from $29.4 million in the comparable quarter of fiscal 1999 primarily caused by a decrease in international and O.E.M. sales and somewhat mitigated by an increase in medical glove sales in North America; and an increase in all our other product sales to $31.9 million in the second quarter of fiscal 2000 from $28.7 million in the second quarter of fiscal 1999. Net sales for the six months ended April 30, 2000 were $253.6 million compared to $259.3 million in the first six months of fiscal 1999. The 2.2% decline in sales period over period is primarily the result of the following factors: an increase in custom procedure tray sales to $146.6 million for the six months ended April 30, 2000 from $144.4 million in the comparable period of fiscal 1999; a decline in medical glove sales to $45.3 million in the six months ended April 30, 2000 from $58.1 million in the comparable period of fiscal 1999 primarily caused by a decrease in international and O.E.M. sales and somewhat mitigated by an increase in medical glove sales in North America; and an increase in all our other product sales to $61.7 million in the six months ended April 30, 2000 from $56.8 million in the comparable period of fiscal 1999. 20 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - (CONTINUED) GROSS PROFIT - Gross profit was $29.5 million or 22.6% of net sales in the second quarter of fiscal 2000 versus $37.6 million or 27.9% of net sales reported in the second quarter of fiscal 1999. For the six month period ended April 30, 2000, gross profit was $59.5 million or 23.5% of net sales in fiscal 2000 versus $73.0 million or 28.1% of net sales in the comparable period of fiscal 1999. The decline in gross profit is generally the result of lower glove sales in the O.E.M. and international markets as well as lower pricing in both medical gloves and custom procedure trays caused by competitive pressure in the marketplace.The gross profit for fiscal 2000 was also negatively impacted by a strike and a facility rationalization program in our glove business. The negative impact on the fiscal 2000 first quarter gross profit was $2.9 million of which $1.8 million was a non-cash inventory write-down. The negative impact on the fiscal 2000 second quarter gross profit was $4.3 million of which $1.2 million related to the strike which ended in May with the signing of a new collective bargaining agreement. The remaining declines in each period are primarily due to under- utilized capacity at the facilities being rationalized. The Company expects to complete its rationalization program before the end of the fiscal year. One facility has been sold and the Company expects to receive proceeds of approximately $21.0 million in its third fiscal quarter. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, general and administrative expenses were $25.3 million or 19.3% of net sales in the second quarter of fiscal 2000 versus $24.8 million or 18.4% of net sales in the second quarter of fiscal 1999. For the six month period ended April 30, 2000, selling, general and administrative expenses were $47.8 million or 18.8% of net sales in fiscal 2000 versus $46.5 million or 17.9% of net sales in the comparable period of fiscal 1999. The increase in operating expenses year over year is primarily the result of higher administrative fees paid to group purchasing organizations and higher delivery costs caused by expedited shipments, a fuel price surcharge and the strike. These were somewhat offset by lower research and development expenses as well as reduced general and administrative expenses. RESTRUCTURE CHARGES AND TRANSITION EXPENSES - In the first six months of fiscal 2000, we recorded charges of $0.3 million in severance costs and $1.4 million of other transition expenses related to the closing of one of our glove plants. In the first quarter of fiscal 1999, we recorded transition expenses of $2.0 million related to the restructuring of our sales force. INCOME FROM OPERATIONS - Income from operations for the second quarter of fiscal 2000 was $3.4 million or 2.7% of net sales, compared to $12.8 million or 9.5% of net sales in the second quarter of fiscal 1999. Income from operations for the six months ended April 30, 2000 was $10.1 million or 4.0% of net sales, compared to $24.4 million or 9.4% of net sales in the comparable period of fiscal 1999. INTEREST EXPENSE - Interest expense increased to $12.1 million in the second quarter of fiscal 2000 from $7.9 million reported in the second quarter of fiscal 1999. Interest expense increased to $23.4 million in the six months ended April 30, 2000 from $12.2 million reported in the comparable period of fiscal 1999. Our debt level, including capital leases, increased to more than $420.0 million due to the recapitalization of the Company. The increased interest expense is primarily a function of higher average debt levels in the current year versus the prior year for the corresponding periods. RECAPITALIZATION EXPENSES - Recapitalization expenses of $18.9 million were recorded in the first half of fiscal 2000 due to the recapitalization of Maxxim on November 12, 1999. The recapitalization expenses include approximately $14.0 million of professional fees. INCOME TAXES - Our effective tax rate for the six months ended April 30, 2000 was a tax benefit of 20.0% and the rate for the six months ended May 2, 1999 was a tax provision of 41.4%. The tax benefit rate for April 30, 2000 is lower than the statutory rate due to nondeductible goodwill amortization and recapitalization expenses. The tax provision rate for May 2, 1999 is higher than the statutory rate due to nondeductible goodwill amortization resulting from acquisitions. INCOME (LOSS) FROM CONTINUING OPERATIONS - As a result of the foregoing, we reported a loss from continuing operations of $7.3 million in the second quarter of fiscal 2000 versus income of $3.0 million in the second quarter of fiscal 1999. We reported a loss from continuing operations of $27.7 million in the six months ended April 30, 2000 versus income of $7.2 million in the comparable period of fiscal 1999. 21 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - (CONTINUED) DISCONTINUED OPERATIONS - In connection with the recapitalization, all of the outstanding stock of Circon was sold to Circon Holdings in exchange for $208.0 million in cash and the repayment of $20.0 million of debt owed by Circon to Maxxim. Accordingly, Circon's operations have been reflected as discontinued operations in our condensed consolidating statements of operations. In the quarter ended January 30, 2000, we recorded a gain of $87,000 on the sale of Circon. In the six months ended May 2, 1999, Circon's operating activities resulted in net income of $2.7 million. EXTRAORDINARY ITEM - In connection with the recapitalization, we consumated a tender offer for our 10 1/2% senior subordinated notes. Accordingly, the tender premium and deferred debt issuance costs related to these notes were written off as an extraordinary loss in the quarter ended January 30, 2000. NET INCOME (LOSS) - As a result of the foregoing, we reported a loss of $7.3 million for the second quarter of fiscal 2000 versus net income of $6.1 million in the second quarter of fiscal 1999. We reported a loss of $38.7 million for the six months ended April 30, 2000 versus net income of $9.9 million in the comparable period of fiscal 1999. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operating activities was $6.9 million in the six months ended April 30, 2000 versus $24.2 million in the six months ended May 2, 1999. Net cash from operating activities was negatively impacted in the first half of fiscal 2000 due to increases in inventory, accounts receivable and income taxes receivable and a decline in accrued expenses. Net cash from operating activities was favorably impacted in the first half of fiscal 1999 due to a decrease in accounts receivable and an increase in accrued liabilities offset by an increase in inventory and a decline in accounts payable for the period. The purchase of Circon in January 1999 consumed $253.3 million in the six months ended May 2, 1999 and the sale of Circon as part of the recapitalization provided $228.0 million in the six months ended April 30, 2000. In the six months ended April 30, 2000 Maxxim or its subsidiaires received the following proceeds as a result of the recapitalization: $50.0 million from the issuance of senior discount notes, $110.0 million from the issuance of senior subordinated discount notes and $260.0 million from a new credit facility. Then, as part of the recapitalization, these funds were used to pay the following debts in the six months ended April 30, 2000: $100.0 million for Maxxim's 10 1/2% senior subordinated notes, $254.0 million for the outstanding balance on Maxxim's previous credit facility, $21.3 million for debt offering costs and $37.2 million for debt tender and recapitalization expenses. In addition, the net impact from the repurchase of outstanding stock and options and proceeds from the issuance of new common stock in accordance with the provisions of the recapitalization was $232.4 million in the six months ended April 30, 2000. The six months ended May 2, 1999 reflects borrowings of $258.5 million under a new credit facility established to fund the purchase of Circon, and payment of $5.6 million for related debt offering costs. We believe that borrowings available under our existing credit facility will be sufficient to fund our working capital and other cash requirements for the foreseeable future. At April 30, 2000 our balance sheet included net goodwill of $143.0 million. The majority of this balance represents goodwill from the acquisitions of Winfield Medical and Sterile Concepts. Maxxim acquired Winfield Medical in June 1998. Unamortized goodwill from the Winfield acquisition totaled $22.3 million at April 30, 2000, which represents 15.6% of net goodwill on that date. In July 1996, Maxxim acquired Sterile Concepts. Unamortized goodwill from the Sterile Concepts acquisition totaled $106.4 million at April 30, 2000, and represented 74.4% of net goodwill as of that date. The remaining $14.3 million of unamortized goodwill at April 30, 2000 relates to various other acquisitions made between 1992 and 2000. All components of goodwill are being amortized on a straight line basis over the applicable useful life. Useful lives have been estimated at 30 years for Winfield Medical, 40 years for Sterile Concepts and 5 to 20 years for the remaining goodwill components. Total goodwill amortization expense for the six months ended April 30, 2000 and May 2, 1999 were $2.6 million and $2.4 million, respectively. Management believes that there is not persuasive evidence that any material portion of this intangible asset will dissipate over a period shorter than the determined useful life. 22 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risks. Market risk is the potential loss arising from adverse changes in market prices, interest rates and foreign exchange rates. We do not enter into derivative or other financial instruments for trading or speculative purposes. INTEREST RATE RISK. We are subject to market risk exposure related to changes in interest rates on the new credit facilities. Interest on borrowings under the new credit facilities is at a fixed percentage point spread from either (1) the greater of prime, base CD or federal funds rates or (2) LIBOR. At our option we can fix the interest rate for LIBOR for periods ranging from one to six months. The interest on all outstanding obligations under the new credit facilities are currently based on one month LIBOR. In accordance with the credit facilities, Maxxim Group is required to enter into interest rate protection agreements to the extent necessary to provide that at least 50% of Maxxim Group's aggregate term loan indebtedness is subject to either fixed interest rates or interest rate protection. At April 30, 2000, more than 50% of Maxxim Group's aggregate term loan indebtedness was subject to such protection. The interest rate protection agreements in place at April 30, 2000, included agreements with the Chase Manhattan Bank, the Bank of Nova Scotia and Credit Lyonnais. Maxxim Group and the Chase Manhattan Bank entered into an agreement to cap Maxxim Group's floating interest rate at 8.0% on an agreed upon notional principal amount of $130,000,000. Maxxim and the Bank of Nova Scotia entered into a swap agreement whereby Maxxim agreed to pay a 5.02% fixed rate of interest in exchange for the receipt of variable LIBOR interest up to 6.75% on an agreed upon initial notional principal amount of $40,000,000. Additionally, Maxxim and the Bank of Nova Scotia entered into a swap agreement whereby Maxxim agreed to pay a 5.08% fixed rate of interest in exchange for the receipt of variable LIBOR interest up to 6.75% on an agreed upon initial notional principal amount of $60,000,000. Maxxim and Credit Lyonnais entered into a swap agreement whereby Maxxim agreed to pay a 5.02% fixed rate of interest in exchange for the receipt of variable LIBOR interest up to 6.75% on an agreed upon initial notional principal amount of $25,000,000. The notional amount of the agreed upon interest rate is used to measure interest to be received and does not represent the amount of exposure to credit loss. In accordance with the interest rate agreement, the measurement of three month London Interbank Offering Rate occurs on the first day of each calculation period. For interest rate instruments that effectively hedge interest rate exposure, the net cash amounts received on the agreement is accrued as incurred and recognized as an adjustment to interest expense. FOREIGN CURRENCY EXCHANGE RATE RISK. Generally, we generate net sales and expenses in the local currency where our products are sold and thus are not currently subject to significant currency exchange risk. In the future, it is possible that a greater portion of our net sales outside of North America may not be denominated in the same currency as the related expenses and thus we may be subject to currency exchange risks in connection therewith. INTANGIBLE ASSET RISK. Our balance sheet includes intangible assets. We assess the recoverability of intangible assets by determining whether the amortization of the asset balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. The amount of asset impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate reflecting our average cost of funds. We do not believe that any impairment of goodwill exists. PART II. OTHER INFORMATION Items 1, 2, 3, 4 and 5 for which provision is made in the applicable regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. Item 6. EXHIBITS AND REPORTS (a) Exhibits 27 - Financial Data Schedule (for SEC use only) (b) Reports on Form 8-K A report on Form 8-K was filed on April 5, 2000, reporting a change in the Company's independent auditors. 23 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MAXXIM MEDICAL, INC. Date: 6/14/00 By: /s/ KENNETH W. DAVIDSON ------------- ------------------------------------ Kenneth W. Davidson Chairman of the Board, President & Chief Executive Officer (principal executive officer) Date: 6/14/00 By: /s/ PETER M. GRAHAM ------------- ------------------------------------ Peter M. Graham Senior Executive Vice President, Chief Operating Officer & Secretary (principal financial officer) Date: 6/14/00 By: /s/ ALAN S. BLAZEI ------------- ------------------------------------ Alan S. Blazei Treasurer, Executive Vice President, & Corporate Controller (principal accounting officer) 24 EX-27 2 0002.txt
5 1,000 5-MOS OCT-29-2000 NOV-01-1999 APR-30-2000 7,991 0 67,483 1,762 101,232 189,793 132,580 59,001 504,923 58,433 158,125 0 0 6 19,969 504,923 253,588 253,588 194,063 243,530 2,342 0 23,398 (34,580) (6,928) (27,652) 87 (11,160) 0 (38,725) 0 0
-----END PRIVACY-ENHANCED MESSAGE-----