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 FEBRUARY 2, 1997
( ) 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
0-18208
MAXXIM MEDICAL, INC.
(Exact name of registrant as specified in its charter)
TEXAS 76-0291634
State or other jurisdiction of (I.R.S. Employee Identification No.)
xincorporation or organization)
104 INDUSTRIAL BOULEVARD, SUGAR LAND, TEXAS 77478
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area CODE................(281) 240-5588
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock:
Class Outstanding at March 4, 1997
COMMON STOCK, $.001 PAR 8,130,827
VALUE
MAXXIM MEDICAL, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
Item 1. Condensed Consolidated Balance Sheets as of
February 2, 1997 and November 3, 1996 2
Condensed Consolidated Statements of Operations
for the Three Months Ended February 2, 1997
and February 4, 1996 3
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended February 2, 1997 and
February 4, 1996 4
Notes to Condensed Consolidated Financial
Statements 5
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 7
PART II. OTHER INFORMATION 9
SIGNATURES 10
1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
February 2, November 3,
1997 1996
--------- ---------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents .......................... $ 5,614 $ 8,044
Accounts receivable, net of allowances of
$4,786 and $4,092, respectively .................. 85,505 86,207
Inventory .......................................... 91,515 95,087
Prepaid expenses, deferred taxes and other ......... 12,733 15,386
--------- ---------
Total current assets ........................... 195,367 204,724
Property and equipment ............................. 123,403 123,077
Less: accumulated depreciation ................... (26,877) (24,562)
--------- ---------
96,526 98,515
Goodwill and other intangibles, net ................ 154,200 156,046
Deferred taxes and other assets, net ............... 8,408 8,156
--------- ---------
Total assets ................................... $ 454,501 $ 467,441
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt ............... $ 9,000 $ 7,500
Accounts payable ................................... 29,790 30,084
Accrued liabilities ................................ 39,026 45,375
Other short-term obligations ....................... 3,788 3,645
--------- ---------
Total current liabilities ...................... 81,604 86,604
Long-term debt, net of current maturities ............ 112,350 121,090
10 1/2% Senior subordinated notes .................... 100,000 100,000
6 3/4% Convertible subordinated debentures ........... 28,750 28,750
Other long-term obligations, net of current maturities 1,738 1,624
Deferred taxes ....................................... 5,817 5,817
--------- ---------
Total liabilities .............................. 330,259 343,885
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, 8,130,827 and 8,128,827
shares issued and outstanding, respectively ...... 8 8
Additional paid-in capital ......................... 92,453 92,445
Unrealized gain on investments - net of tax ........ -- 259
Retained earnings .................................. 35,828 32,369
Cumulative translation adjustment .................. (4,047) (1,525)
--------- ---------
Total shareholders' equity ..................... 124,242 123,556
--------- ---------
Total liabilities and shareholders' equity ..... $ 454,501 $ 467,441
========= =========
See accompanying notes to condensed consolidated financial statements.
2
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
Three Months Ended
-------------------------
February 2, February 4,
1997 1996
--------- --------
Net sales ..................................... $ 133,401 $ 86,600
Cost of sales ................................. 101,403 61,366
--------- --------
Gross profit .................................. 31,998 25,234
Operating expenses ............................ 21,747 18,743
--------- --------
Income from operations ........................ 10,251 6,491
Interest expense .............................. (5,541) (1,987)
Other income (expense), net ................... 995 (170)
--------- --------
Income before taxes ........................... 5,705 4,334
Income taxes .................................. 2,246 1,607
--------- --------
Net income .................................... $ 3,459 $ 2,727
========= ========
Primary earnings per share .................... $ 0.42 $ 0.33
========= ========
Fully diluted earnings per share .............. $ 0.38 $ 0.31
========= ========
Weighted average shares outstanding............ 8,238 8,270
========= ========
See accompanying notes to condensed consolidated financial statements.
3
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, In thousands)
Three Months Ended
------------------
February 2, February 4,
1997 1996
------- -------
Cash flows from operating activities:
Net income ............................................ $ 3,459 $ 2,727
Adjustment to reconcile net income to net
cash provided by operations:
Depreciation and amortization ..................... 4,644 3,490
Gain on sale of investment in equity securities ... (1,510) --
Change in operating assets and liabilities ........ 467 (4,848)
------- -------
Net cash provided by operations ......................... 7,060 1,369
Cash flows from investing activities
Purchase of property and equipment .................... (2,943) (972)
Proceeds from sale of investment in equity securities . 3,130 --
Proceeds from sale of building ........................ 450 --
------- -------
Net cash provided by (used in) investing activities ..... 637 (972)
Cash flows from financing activities
(Decrease) Increase in negative book cash balance ..... (2,881) 635
Payments on long-term debt--net ....................... (6,983) (2,563)
Other financing activities ............................ -- (172)
------- -------
Net cash used in financing activities ................... (9,864) (2,100)
Effect of foreign currency translation adjustment ....... (263) (87)
------- -------
Net decrease in cash and cash equivalents ............... (2,430) (1,790)
Cash and cash equivalents at beginning of period ........ 8,044 5,074
------- -------
Cash and cash equivalents at end of period .............. $ 5,614 $ 3,284
======= =======
Supplemental disclosure on non-cash investing activities:
Note received from the sale of building ............... $ 350 $ --
======= =======
See accompanying notes to condensed consolidated financial statements.
4
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying condensed consolidated financial statements include the
accounts of Maxxim Medical, Inc. and its wholly owned subsidiaries
(collectively, the Company). The Company develops, manufactures and markets
specialty hospital products.
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 the
Company's annual audited financial statements for the year ended November 3,
1996, included in the Company's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission.
Certain reclassifications have been made to the fiscal 1996 condensed
consolidated financial statements to conform with the fiscal 1997 presentation.
Note 2 - Summary of Significant Accounting Policies
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. Normally each
fiscal year will consist of 52 weeks, but every five or six years, the fiscal
year will consist of 53 weeks. For fiscal 1997 the year end date will be
November 2 compared to a 1996 year end date of November 3. Fiscal 1997 will
consist of 52 weeks. The first quarter of fiscal 1997 ended on February 2
compared to the fiscal 1996 quarter end date of February 4.
Note 3 - 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. Translation adjustments are reflected as a separate component of
stockholders' equity.
Note 4 - Earnings Per Share
Earnings per share is based on the weighted average number of common
shares and common stock equivalents outstanding for the period. For purposes of
this calculation, outstanding stock options are considered common stock
equivalents using the treasury stock method. On a fully diluted basis, both net
income available to common shareholders and shares outstanding are adjusted to
assume the conversion of the 6 3/4% Convertible Subordinated Debentures from the
date of issue.
5
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Note 5 - Estimates Involved in Preparing the Condensed Consolidated Financial
Statements
The Company's interim financial statements are prepared in accordance with
the same accounting policies as those followed at year end. Certain items in the
financial statements can be determined on an interim basis only by making
accounting estimates. The accuracy of such amounts is dependent upon facts that
will exist and procedures that will be accomplished by the Company later in the
year. Certain of the significant accounting estimates related to the
accompanying statements are stated below.
Inventories -
The Company makes a physical count of portions of its inventory at or near
year end. The amount reflected as inventory as of February 2, 1997 and the
related amount for the cost of sales have been determined using the Company's
normal accounting procedures. In management's opinion, no significant adjustment
would have been required had an actual count of the inventory been made.
Inventory as of February 2, 1997 and November 3, 1996 included the following:
February 2, November 3,
1997 1996
--------- ---------
(In thousands)
Raw materials $ 35,618 $ 40,239
Work in progress 8,259 8,232
Finished goods 47,638 46,616
--------- ---------
$ 91,515 $ 95,087
--------- ---------
Income Taxes -
The Company has calculated current and deferred income tax provisions for
the quarters ended February 2, 1997 and February 4, 1996, based on its best
estimate of the effective income tax rate expected to be applicable for the full
fiscal year.
Note 6 - Sale of Marketable Equity Securities
In the first quarter of fiscal 1997, the Company recorded a one-time gain
from the sale of an investment in marketable equity securities in the amount of
$1,510,000, which is reflected in other income in the financial statements.
6
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
February 2, February 4,
1997 1996
------ -----
Net sales ..............................100.0% 100.0%
Cost of sales .......................... 76.0% 70.9%
------ -----
Gross profit ........................... 24.0% 29.1%
Operating expenses ..................... 16.3% 21.6%
------ -----
Income from operations ................. 7.7% 7.5%
Interest expense ....................... (4.1%) (2.3%)
Other income (expense), net ............ 0.7% (0.2%)
------ -----
Income before taxes .................... 4.3% 5.0%
Income taxes ........................... 1.7% 1.9%
------ -----
Net income ............................. 2.6% 3.1%
====== =====
NET SALES -- Net Sales for the first fiscal quarter of 1997 increased
54.0% to $133,401,000 from $86,600,000 in the first fiscal quarter of 1996. This
increase is primarily due to the Sterile Concepts acquisition which was
consummated at the end of the third quarter of fiscal 1996.
GROSS PROFIT -- In the first quarter of fiscal 1997 the Company's gross
profit increased to $31,998,000, compared to $25,234,000 reported in the first
quarter of last year. The Company's gross profit rate declined from 29.1% in the
first quarter of fiscal 1996 to 24.0% in the first quarter of fiscal 1997. The
increase in dollars and the decline in rate are both attributable to the Sterile
Concepts acquisition which added significant sales volume at lower gross margin
rates compared to the Company's prior year fiscal quarter.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION - (Continued)
OPERATING EXPENSES -- Operating expenses for the first quarter were
$21,747,000 or 16.3% of net sales for fiscal 1997 compared to $18,743,000 or
21.6% of net sales for fiscal 1996. The increase in operating expenditures was
directly attributable to the Sterile Concepts acquisition and the decrease in
the operating expense rate to sales was primarily attributable to cost savings
that resulted from combining the sales, distribution and administrative
functions of the Sterile Concepts operations with the existing operations of the
Company.
INCOME FROM OPERATIONS -- Income from operations increased to $10,251,000,
or 7.7% of net sales, in the first quarter of fiscal 1997 from $6,491,000, or
7.5% of net sales, in the comparable period of the prior fiscal year. This is an
increase of 57.9% over the prior fiscal period.
INTEREST EXPENSE -- The Company's interest expense increased to $5,541,000
in the first quarter of fiscal 1997 from $1,987,000 in the first quarter of
fiscal 1996. The increase in interest expense for the quarter is directly
related to the debt instruments established to finance the Sterile Concepts
acquisition.
OTHER INCOME -- A one-time gain of $1,510,000 from the sale of investment
securities was included in other income for the first quarter of fiscal 1997.
INCOME TAXES -- The Company's effective tax rate for the first quarter of
fiscal 1997 and fiscal 1996 was 39.4% and 37.1%, respectively. The percentage
increase is primarily due to non-deductible goodwill expense recorded with the
Sterile Concepts acquisition.
NET INCOME -- As a result of the foregoing, net income increased 26.8% for
the first quarter of fiscal 1997 to $3,459,000 from $2,727,000 reported in the
comparable period of last year. Fully diluted earnings per share were $0.38 and
$0.31 for the first quarters of fiscal years 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At February 2, 1997 the Company had cash and cash equivalents of
$5,614,000, working capital of $113,763,000, long-term liabilities of
$242,838,000 and shareholders' equity of $124,242,000. For the three months
ended February 2, 1997 net cash provided by operations was $7,060,000 versus
$1,369,000 provided by operations for the three months ended February 4, 1996.
On February 2, 1997 the outstanding balance on the term loan and revolver
was $87,000,000 and $34,350,000, respectively, resulting in $40,650,000 of
availability on the revolver at the end of the first quarter.
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.
8
PART II. OTHER INFORMATION
Items 1, 2, 3, 4, 5 and 6 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.
9
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:3/19/97 By: /s/ Kenneth W. Davidson
Kenneth W. Davidson
Chairman of the Board,
President & Chief Executive
Officer
Date:3/19/97 By: /s/ Peter M. Graham
Peter M. Graham
Treasurer and Chief Operating
Officer
(Principal Financial Officer)
10