1
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended JANUARY 28, 2001
----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ____________ to _______________.
Commission File Number
333-92825
---------
MAXXIM MEDICAL, INC.
--------------------
(Exact name of registrant as specified in its charter)
TEXAS 76-0291634
------------------------------ -----------------------------------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
10300 49TH STREET NORTH, CLEARWATER, FLORIDA 33762
- --------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(727) 561-2100
--------------
Registrant's telephone number, including area code
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 14, 2001
- ----------------------------- ------------------------------
COMMON STOCK, $.001 PAR VALUE 30,165,161
2
MAXXIM MEDICAL, INC.
INDEX
PART I. Financial Information Page No.
--------------------- --------
Item 1. Condensed Consolidated Balance Sheets as of
October 29, 2000 and January 28, 2001 2
Condensed Consolidated Statements of Operations
for the Fiscal Quarters Ended
January 30, 2000 and January 28, 2001 3
Condensed Consolidated Statements of Cash Flows
for the Fiscal Quarters Ended January 30, 2000
and January 28, 2001 4
Notes to Condensed Consolidated Financial
Statements 5
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 17
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 20
PART II. Other Information 21
-----------------
Signatures 22
- ----------
1
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
January 28, October 29,
2001 2000
----------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 933 $ 1,287
Accounts receivable, net of allowances of $3,560 and
$3,526, respectively 53,596 46,256
Inventory, net 66,195 66,913
Other receivables 15,024 15,024
Prepaid expenses and other 3,847 5,906
Assets held for sale 18,388 18,388
--------- ---------
Total current assets 157,983 153,774
Property and equipment 106,273 103,952
Less: accumulated depreciation (50,788) (47,206)
--------- ---------
55,485 56,746
Goodwill, net of accumulated amortization of $47,578 and
$46,508, respectively 110,030 110,969
Other assets, net 25,903 27,834
--------- ---------
Total assets $ 349,401 $ 349,323
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt $ 10,708 $ 10,688
Current maturities of capital leases and other long-term obligations 679 712
Accounts payable 49,173 47,505
Accrued liabilities 50,492 50,066
--------- ---------
Total current liabilities 111,052 108,971
Long-term debt, net of current maturities 201,232 200,182
Senior subordinated discount notes 110,976 110,123
Senior discount notes 55,648 53,579
10 1/2% Senior subordinated notes 5 5
Capital leases and other long-term obligations, net of current maturities 3,611 3,728
--------- ---------
Total liabilities 482,524 476,588
Shares with put rights ($.001 par value common stock, 882,019 shares
issued and outstanding) 4,410 4,410
Commitments and contingencies
Shareholders' equity (deficit)
Preferred Stock, $1.00 par value, 10,000,000 shares authorized, none
issued or outstanding -- --
Common Stock, $.001 par value, 40,000,000 shares authorized,
29,283,142 and 74,250,498 issued and outstanding, respectively 29 29
Additional paid-in capital (4,731) (4,731)
Accumulated deficit (115,066) (107,964)
Subscriptions receivable (2,974) (2,974)
Accumulated other comprehensive loss (14,791) (16,035)
--------- ---------
Total shareholders' deficit (137,533) (131,675)
--------- ---------
Total liabilities and shareholders' equity (deficit) $ 349,401 $ 349,323
========= =========
See accompanying notes to condensed consolidated financial statements.
2
4
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
Fiscal Quarter Ended
-----------------------------
January 28, January 30,
2001 2000
--------- ---------
Net sales $ 123,498 $ 122,828
Cost of sales 93,820 89,897
--------- ---------
Gross profit 29,678 32,931
Selling, general and administrative expenses 21,579 22,529
Restructure charges and transition expenses -- 3,785
--------- ---------
Income from operations 8,099 6,617
Interest expense, net (14,148) (11,252)
Other income (expense), net (698) (242)
Recapitalization expenses -- (18,697)
--------- ---------
Loss from continuing operations before income taxes (6,747) (23,574)
Income tax benefit -- (3,209)
--------- ---------
Loss from continuing operations (6,747) (20,365)
Income from discontinued operations, net of tax of $56 -- 87
--------- ---------
Loss before extraordinary item (6,747) (20,278)
Extraordinary item - loss related to early retirement of debt,
net of tax benefit of $7,136 -- (11,160)
--------- ---------
Loss before cumulative effect of change in accounting principle (6,747) (31,438)
Cumulative effect of change in accounting principle (355) --
--------- ---------
Net loss $ (7,102) $ (31,438)
========= =========
See accompanying notes to condensed consolidated financial statements.
3
5
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
Fiscal Quarter Ended
----------------------------
January 28, January 30,
2001 2000
----------- -----------
Cash flows from operating activities:
Net loss $(7,102) $ (31,438)
Adjustment to reconcile net income to net cash provided by operating
activities:
Loss on fair value of investment in derivative and hedging securities 1,645 --
Loss on sale of investment in derivative securities 151 --
Cumulative effect of change in accounting principle 355 --
Debt tender and recapitalization expenses -- 37,029
Deferred income tax expense -- 74
Write-off of debt offering costs -- 7,100
Amortization of financing fees and accretion of debt discount 3,748 2,921
Depreciation and amortization 4,045 5,560
Change in operating assets and liabilities (5,945) (18,717)
------- ---------
Net cash (used in) provided by operating activities (3,103) 2,529
------- ---------
Cash flows from investing activities:
Proceeds from sale of investment in derivative securities 250 --
Proceeds from sale of Circon -- 228,000
Proceeds from sale of investment securities -- 445
Payment received on notes -- 869
Purchase of property, equipment and other assets, net of asset
acquisitions and business combinations (331) (4,460)
------- ---------
Net cash (used in) provided by investing activities (81) 224,854
------- ---------
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)
Increase in long-term borrowings -- 260,000
Repayment of long-term borrowings (430) (254,000)
Net proceeds from the issuance of senior discount notes -- 50,000
Net borrowings (payments) on revolving line of credit 1,500 --
Payments on capital leases and other long-term obligations (150) (525)
Recapitalization of Maxxim -- (232,361)
Debt tender and recapitalization expenses -- (37,029)
Payment of debt offering costs -- (20,616)
(Decrease) increase in bank overdraft 1,837 (1,243)
Other, net (27) (537)
------- ---------
Net cash provided by (used in) financing activities 2,730 (226,302)
------- ---------
Effect of foreign currency translation adjustment 100 (94)
------- ---------
Net (decrease) increase in cash and cash equivalents (354) 987
Cash and cash equivalents at beginning of period 1,287 4,040
------- ---------
Cash and cash equivalents at end of period $ 933 $ 5,027
======= =========
Supplemental cash flow disclosures:
Interest paid during the period $ 7,760 $ 10,671
Income taxes paid during the period -- 1,365
Noncash investing and financing activities
Net unrealized (loss) gain on investment $ (385) $ 861
See accompanying notes to condensed consolidated financial statements.
4
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MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
On November 12, 1999, Maxxim Medical, Inc. ("Maxxim" or the "Company")
was recapitalized in a going private transaction. Current financial information
includes the accounts of Maxxim, Maxxim Medical Group Inc., ("Maxxim Group") and
Maxxim Group's wholly owned subsidiaries.
Effective November 1, 2000, we announced a 5.2 for 1 stock split in
the form of stock dividend of 4.2 shares of common stock on each share of
common stock issued and outstanding on such effective date. These financial
statements have been adjusted to reflect this stock split.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with U.S. Generally Accepted
Accounting Principles have been omitted. The accompanying unaudited condensed
consolidated financial statements reflect all adjustments of a normal recurring
nature which, in the opinion of management, are necessary for a fair
presentation of the results for the interim periods presented. All significant
intercompany balances and transactions have been eliminated in consolidation.
These financial statements should be read in conjunction with Maxxim's
annual audited financial statements for the fiscal year ended October 29, 2000,
included in its Annual Report on Form 10-K as filed with the Securities and
Exchange Commission.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL QUARTER
The first quarter of fiscal 2001 ended on January 28th compared to the
fiscal 2000 first quarter end date of January 30th .
INVENTORIES
Inventory includes the following as of:
JANUARY 28, OCTOBER 29,
2001 2000
----------- -----------
(UNAUDITED)
(IN THOUSANDS)
Raw materials $ 35,865 $32,667
Work in progress 9,476 9,301
Finished goods 34,308 41,063
Allowance for excess and obsolete (13,454) (16,118)
-------- -------
$ 66,195 $66,913
======== =======
GOODWILL
Goodwill represents the excess of the aggregate price paid by Maxxim in
business combinations accounted for as purchases over the fair market value of
the tangible and identifiable intangible net assets acquired. Goodwill from the
Company's previous acquisitions is approximately $157,608,000 of which
approximately $110,030,000 remains unamortized as of January 28, 2001.
Amortization periods for goodwill range from 5 to 40 years. The Company
evaluates its goodwill for impairment on comparison of carrying value against
undiscounted future pre-tax cashflows. If an impairment is identified, we adjust
the asset's carrying amounts to the value of future discounted cashflows.
5
7
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates in effect for the year in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date.
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) includes all changes in a company's equity
including, among other things, unrealized holding gains and losses on
available-for-sale securities and foreign currency translation adjustments.
Total comprehensive income is as follows:
FISCAL QUARTER ENDED
JANUARY 28, JANUARY 30,
2001 2000
----------- -----------
(IN THOUSANDS)
Net loss $(7,102) $(31,438)
Foreign currency translation adjustments 1,629 (1,546)
Net unrealized gains (losses) on available for sale securities (385) 861
------- --------
Total comprehensive loss $(5,858) $(32,123)
======= ========
NOTE 3 - BUSINESS COMBINATIONS, SIGNIFICANT ASSET ACQUISITIONS, DISPOSITIONS
AND DISCONTINUED OPERATIONS
DISCONTINUED OPERATIONS
On November 12, 1999, in connection with the recapitalization, Maxxim
sold all of the common stock of Circon Corporation, a wholly owned subsidiary of
the Company, to Circon Holdings Corporation ("Circon Holdings"), a newly formed
Delaware corporation. Income of $87,000 from these discontinued operations was
recorded in the quarter ended January 30, 2000.
6
8
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 4 - DEBT
The following summarizes the Company's long-term debt as of:
JANUARY 28, 2001 OCTOBER 29, 2000
---------------- ----------------
(unaudited)
(In thousands)
Industrial revenue bonds $ 1,940 $ 2,370
Revolving line of credit 1,500 --
Term loan under credit facility 208,500 208,500
--------- --------
Total long term debt 211,940 210,870
Less -- Current maturities (10,708) (10,688)
--------- --------
$201,232 $200,182
========= ========
7
9
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 5 - FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS No. 133), was issued by
the Financial Accounting Standards Board in June 1998. SFAS No. 133
standardizes the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts. Under the standard,
entities are required to carry all derivative instruments in the statement of
financial position at fair value. SFAS No. 133 is effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. Maxxim has adopted
SFAS No. 133 and recorded a cumulative change in accounting method of $355,000
in the first quarter of fiscal 2001.
In January 1999, the Company entered into a swap agreement with three
banks participating in the Company's Third Credit Agreement. The total notional
value of the swap is $125,000,000. In the first quarter of fiscal 2001, the
Company sold a portion of this swap agreement, with a notional value of
$25,000,000, for $250,000. The agreement fixed a portion of the Company's
non-indexed part of the interest rate at 5.08% and 5.02%, so long as LIBOR does
not exceed 6.75%.
The Company used the interest rate swap to manage the interest risk
associated with its borrowings and to manage the Company's allocation of fixed
and variable rate debt associated with the credit facility in existence prior to
the recapitalization. This swap agreement was continued by the Company
subsequent to termination of the Company's previous credit facility . The swap
was redesignated as a speculative position for accounting purposes and has been
recorded at its market value in the financial statements. The Company includes
gains and losses associated with recording this instrument at fair value as a
component of interest expense.
Pursuant to the Credit Facility, Maxxim Group and the Chase Manhattan
Bank entered into a hedging arrangement to cap Maxxim Group's floating interest
rate at 8.0% on an agreed upon notional principal amount of $130,000,000, in
April 2000. The Company has designated this instrument as a cash flow hedge and
has recorded the instrument at fair value in its financial statements as of
October 30, 2000. Accordingly, the Company recorded a $355,000 transition entry
to record the instrument at fair value upon the adoption of SFAS No. 133.
Subsequent adjustments to the fair value of this instrument have been recorded
as a component of interest expense.
The estimated fair value of cash and cash equivalents, accounts
receivable, and accounts payable, approximate their carrying amount. The
estimated fair values and carrying amounts of long-term borrowings and the
interest rate swap and cap were as follows:
JANUARY 28, 2001 OCTOBER 29, 2000
------------------------------ --------------------------------
CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE
--------------- ---------- --------------- ----------
(UNAUDITED)
Interest rate cap $ 44,555 $ 44,555 $ 576,000 $ 220,786
Swap agreement, paying fixed 136,001 136,001 2,006,609 2,006,609
Long-term debt (including
current maturities) (382,430) (382,430) (379,017) (379,017)
Fair values for the Company's 10 1/2% Senior Subordinated Notes were
based upon the redemption value paid in connection with the recapitalization.
Fair values for the Company's other debts were determined from quoted market
prices or estimated discounted cash flows.
NOTE 6 - OTHER ASSETS
Other assets, net of accumulated amortization, include the following
as of:
JANUARY 28, OCTOBER 29,
2001 2000
------------ -----------
(UNAUDITED)
(IN THOUSANDS)
Patents $ 3,959 $ 4,118
Debt offering costs 19,748 21,105
Non-compete agreements 618 596
Notes receivable 90 338
Other 1,488 1,677
------- -------
$25,903 $27,834
======= =======
8
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MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 7 - BUSINESS SEGMENTS, GEOGRAPHIC AREAS AND MAJOR CUSTOMERS
The Company's business is organized, managed and internally reported as
a single segment comprised of medical products used in surgical and other
medical procedures. The Company believes its various product lines have similar
economic, operating and other related characteristics.
Information in the table below is presented on the basis Maxxim uses
to manage its business. Export sales are reported within the geographic areas
where the final sales to customers are made.
FISCAL QUARTER ENDED
JANUARY 28, 2001 JANUARY 30, 2000
---------------- ----------------
(UNAUDITED, IN THOUSANDS)
United States $107,639 $104,882
Europe 10,069 11,312
Rest of World 5,790 6,634
-------- --------
Total Company $123,498 $122,828
======== ========
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 January 28, 2001 and
January 30, 2000.
The Company distributes primarily through major distributors in the
United States. Those distributors typically serve under a purchase order or
supply agreement between the end-user and the Company. Sales through Owens &
Minor, Inc., and General Medical Corp., our largest distributors, were 30.8%
and 9.7% of our net sales in the United States, respectively, for the fiscal
quarter ended January 28, 2001, and 25.5% and 11.4% of our net sales,
respectively, for the fiscal quarter ended January 30, 2000. For the fiscal
quarter ended January 28, 2001, no other single distributor accounted for more
than 10% of our total net sales in the United States.
NOTE 8 - RELATED PARTY TRANSACTIONS
LOANS TO RELATED PARTIES
In connection with the recapitalization, the continuing shareholders
received loans in the aggregate amount of $2,580,000 for the purchase of Maxxim
common stock which are reflected as subscriptions receivable in the
accompanying balance sheet. Also in connection with the recapitalization, the
continuing shareholders received loans from Maxxim totaling $1,559,000 in an
amount sufficient to cover the taxes due on the cash received from the
conversion of the 2,056,413 shares used to purchase Circon Holdings shares.
Under the terms of the Company's former Chief Executive Officer's
("CEO") employment agreement, the former CEO could borrow up to an aggregate of
$500,000 for the principal purpose of payment of federal income tax payments
associated with the exercise of stock options to purchase shares of the
Company's common stock. Each loan was non-interest bearing, unsecured and
repayable in ten equal annual installments on the third through the twelfth
anniversaries of the dates of such loans. The total amount outstanding under
this loan agreement was $500,000 at January 28, 2001. The former CEO is
delinquent in payment of his fiscal 2000 repayment obligation under the loans.
In conjunction with the relocation of the Company's former Chief
Operations Officer ("COO") from Houston, Texas to the Company's corporate
headquarters in Clearwater, Florida, the former COO received a loan in the
amount of $320,000. This loan is non-interest bearing, unsecured and repayable
upon the earlier of the sale of his prior residence or December 31, 2000. The
former COO is delinquent in payment of his obligation under this loan.
9
11
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
On May 31, 2000, Maxxim executed a $270,000 promissory note to its
former Corporate Controller. This loan is non-interest bearing, unsecured and
repayable on June 3, 2006.
NOTE 9 - FINANCIAL INFORMATION REGARDING GUARANTOR SUBSIDIARIES
Consolidating financial information regarding the Company, guarantor
subsidiaries and non-guarantor subsidiaries as of January 28, 2001 and October
29, 2000 and for each of the fiscal quarters ended January 28, 2001 and January
30, 2000 is presented below for purposes of complying with the reporting
requirements of the guarantor subsidiaries. Separate financial statements and
other disclosures concerning each guarantor subsidiary have not been presented
because management has determined that such information is not material to
investors. The guarantor subsidiaries are wholly-owned subsidiaries of Maxxim
that have fully and unconditionally guaranteed the Senior Subordinated Discount
Notes due 2009 issued in connection with the recapitalization.
10
12
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
CONDENSED CONSOLIDATED BALANCE SHEET
JANUARY 28, 2001
JANUARY 28, 2001
----------------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR MAXXIM GROUP PARENT CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES TOTAL GUARANTOR TOTAL
------------ ------------- ------------ --------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 323 $ 610 $ 933 $ -- $ 933
Accounts receivable, net 43,954 9,642 53,596 -- 53,596
Inventory, net 54,229 11,966 66,195 -- 66,195
Other receivables 10,746 -- 10,746 4,278 15,024
Prepaid expenses and other 3,200 647 3,847 -- 3,847
Assets held for sale 18,388 -- 18,388 -- 18,388
--------- -------- --------- --------- ---------
Total current assets 130,840 22,865 153,705 4,278 157,983
Property and equipment 52,730 53,543 106,273 -- 106,273
Less: accumulated depreciation (29,256) (21,532) (50,788) -- (50,788)
--------- -------- --------- --------- ---------
23,474 32,011 55,485 -- 55,485
Goodwill and other intangibles, net 109,072 958 110,030 -- 110,030
Other assets, net 23,067 627 23,694 2,209 25,903
--------- -------- --------- --------- ---------
Total assets $ 286,453 $ 56,461 $ 342,914 $ 6,487 $ 349,401
========= ======== ========= ========= =========
LIABILITIES AND
SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term
debt $ 10,708 $ -- $ 10,708 $ -- $ 10,708
Current maturities of capital
leases and other long term
obligations 679 -- 679 -- 679
Accounts payable 42,537 6,636 49,173 -- 49,173
Accrued liabilities 48,129 2,363 50,492 -- 50,492
--------- -------- --------- --------- ---------
Total current liabilities 102,053 8,999 111,052 -- 111,052
Intercompany (receivable) payable (33,557) 33,557 -- -- --
Long-term debt, net of current
maturities 201,232 -- 201,232 -- 201,232
Senior subordinated discount notes 110,976 -- 110,976 -- 110,976
Senior discount notes -- -- -- 55,648 55,648
10 1/2% Senior subordinated notes 5 -- 5 -- 5
Capital leases and other long term
obligations, net of current
maturities 3,611 -- 3,611 -- 3,611
--------- -------- --------- --------- ---------
Total liabilities 384,320 42,556 426,876 55,648 482,524
Shares with put rights -- -- -- 4,410 4,410
Commitments and contingencies
Shareholders' deficit:
Preferred Stock -- -- -- -- --
Common Stock -- -- -- 29 29
Additional paid-in capital -- -- -- (4,731) (4,731)
Retained earnings -- -- -- (115,066) (115,066)
Subscriptions receivable -- -- -- (2,974) (2,974)
Accumulated other comprehensive
loss -- -- -- (14,791) (14,791)
--------- -------- --------- --------- ---------
Total shareholders' deficit -- -- -- (137,533) (137,533)
(Investment in) / net equity of
guarantor subsidiaries (83,962) -- (83,962) 83,962 --
(Investment in) / net equity of
Non-guarantor subsidiaries (13,905) 13,905 -- -- --
--------- -------- --------- --------- ---------
Total liabilities and
shareholders' equity (deficit) $ 286,453 $ 56,461 $ 342,914 $ 6,487 $ 349,401
========= ======== ========= ========= =========
11
13
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
CONSOLIDATED BALANCE SHEET
OCTOBER 29, 2000
(IN THOUSANDS)
OCTOBER 29, 2000
-----------------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR MAXXIM GROUP PARENT CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES TOTAL GUARANTOR TOTAL
------------ ------------- ------------ --------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 171 $ 1,116 $ 1,287 $ -- $ 1,287
Accounts receivable, net 38,454 7,802 46,256 -- 46,256
Inventory, net 55,697 11,216 66,913 -- 66,913
Other receivables 10,746 -- 10,746 4,278 15,024
Prepaid expenses and other 4,859 1,047 5,906 -- 5,906
Assets to be held for sale 18,388 -- 18,388 -- 18,388
--------- -------- --------- --------- ---------
Total current assets 128,315 21,181 149,496 4,278 153,774
Property and equipment 52,699 51,253 103,952 -- 103,952
Less: accumulated depreciation (27,971) (19,235) (47,206) -- (47,206)
--------- -------- --------- --------- ---------
24,728 32,018 56,746 -- 56,746
Goodwill, net 110,067 902 110,969 -- 110,969
Other assets, net 24,983 605 25,588 2,246 27,834
--------- -------- --------- --------- ---------
Total assets $ 288,093 $ 54,706 $ 342,799 $ 6,524 $ 349,323
========= ======== ========= ========= =========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
debt $ 10,688 $ -- $ 10,688 $ -- $ 10,688
Current maturities of capital
leases and other obligations 712 -- 712 -- 712
Accounts payable 41,676 5,829 47,505 -- 47,505
Accrued liabilities 48,243 1,823 50,066 -- 50,066
--------- -------- --------- --------- ---------
Total current liabilities 101,319 7,652 108,971 -- 108,971
Intercompany (receivable) payable (35,221) 35,221 -- -- --
Long-term debt, net of current
maturities 200,182 -- 200,182 -- 200,182
Senior subordinated discount notes 110,123 -- 110,123 -- 110,123
Senior discount notes -- -- -- 53,579 53,579
10 1/2% Senior subordinated notes 5 -- 5 -- 5
Capital lease and other obligations,
net of current maturities 3,728 -- 3,728 -- 3,728
--------- -------- --------- --------- ---------
Total liabilities 380,136 42,873 423,009 53,579 476,588
Shares with put rights
Commitments and contingencies -- -- -- 4,410 4,410
Shareholders' equity:
Preferred Stock -- -- -- -- --
Common Stock -- -- -- 29 29
Additional paid-in capital -- -- -- (4,731) (4,731)
Accumulated deficit -- -- -- (107,964) (107,964)
Subscriptions receivable -- -- -- (2,974) (2,974)
Accumulated other comprehensive
loss -- -- -- (16,035) (16,035)
--------- -------- --------- --------- ---------
Total shareholders' equity -- -- -- (131,675) (131,675)
(Investment in) / net equity of
Guarantor subsidiaries (80,210) -- (80,210) 80,210 --
(Investment in) / net equity of
Non-guarantor subsidiaries (11,833) 11,833 -- -- --
--------- -------- --------- --------- ---------
Total liabilities and
shareholders' equity $ 288,093 $ 54,706 $ 342,799 $ 6,524 $ 349,323
========= ======== ========= ========= =========
12
14
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL QUARTER ENDED JANUARY 28, 2001
FISCAL QUARTER ENDED JANUARY 28, 2001
-----------------------------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR ELIMINATING MAXXIM GROUP PARENT CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL GUARANTOR TOTAL
------------ ------------- ----------- ------------ -------- ------------
Net sales $ 112,025 $ 16,844 $ 5,371 $ 123,498 $ -- $ 123,498
Cost of sales 85,757 13,434 5,371 93,820 -- 93,820
--------- -------- -------- --------- -------- ---------
Gross profit 26,268 3,410 -- 29,678 -- 29,678
--------- -------- -------- --------- -------- ---------
Selling, general and
administrative 18,926 2,653 -- 21,579 -- 21,579
--------- -------- -------- --------- -------- ---------
Income from operations 7,342 757 -- 8,099 -- 8,099
Interest (expense), net (11,524) (518) -- (12,042) (2,106) (14,148)
Other income/(expense), net (506) (192) -- (698) -- (698)
--------- -------- -------- --------- -------- ---------
Income (loss) before
cumulative effect of
change in accounting (4,688) 47 -- (4,641) (2,106) (6,747)
Cumulative effect of change
in accounting principle (355) -- -- (355) -- (355)
--------- -------- -------- --------- -------- ---------
Net income (loss) $ (5,043) $ 47 $ -- $ (4,996) $ (2,106) $ (7,012)
========= ======== ======== ========= ======== =========
FISCAL QUARTER ENDED JANUARY 30, 2000
-----------------------------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR ELIMINATING MAXXIM GROUP PARENT CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES ENTRIES TOTAL GUARANTOR TOTAL
------------ ------------- ----------- ------------ -------- ------------
Net sales $ 109,095 $ 20,786 $ (7,053) $ 122,828 $ -- $ 122,828
Cost of sales 79,612 17,338 (7,053) 89,897 -- 89,897
--------- -------- -------- --------- -------- ---------
Gross profit 29,483 3,448 -- 32,931 -- 32,931
--------- -------- -------- --------- -------- ---------
Selling, general and
Administrative 18,880 3,649 -- 22,529 -- 22,529
Restructure and transition
Expenses 3,785 -- -- 3,785 -- 3,785
--------- -------- -------- --------- -------- ---------
22,665 3,649 -- 26,314 -- 26,314
--------- -------- -------- --------- -------- ---------
Income (loss) from operations 6,818 (201) -- 6,617 -- 6,617
Interest (expense), net (9,024) (593) -- (9,617) (1,635) (11,252)
Other income/(expense), net (265) 23 -- (242) -- (242)
Recapitalization expenses (18,697) -- -- (18,697) -- (18,697)
--------- -------- -------- --------- -------- ---------
Loss before income taxes (21,168) (771) -- (21,939) (1,635) (23,574)
Income tax benefit (2,287) (284) -- (2,571) (638) (3,209)
--------- -------- -------- --------- -------- ---------
Loss from continuing
Operations (18,881) (487) -- (19,368) (997) (20,365)
Income from discontinued
operations, net 87 -- -- 87 -- 87
--------- -------- -------- --------- -------- ---------
Loss before extraordinary
item (18,794) (487) -- (19,281) (997) (20,278)
Extraordinary item - loss on
early retirement of debt, net (8,084) -- -- (8,084) (11,160)
--------- -------- -------- --------- -------- ---------
Net loss $ (26,878) $ (487) $ -- $ (27,365) $ (4,073) $ (31,438)
========= ======== ======== ========= ======== =========
13
15
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FISCAL QUARTER ENDED JANUARY 28, 2001
FISCAL QUARTER ENDED JANUARY 28,2001
------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR MAXXIM GROUP PARENT CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES TOTAL GUARANTOR TOTAL
------------ ------------- ------------ --------- ------------
Cash flows from operating activities:
Net income (loss) $(5,043) $ 47 $(4,996) $(2,106) $(7,102)
Adjustment to reconcile net income
to net cash provided by operating
activities:
Loss on fair value of investment
in Derivative and hedging
securities 1,645 -- 1,645 -- 1,645
Loss on sale of derivative
securities 151 -- 151 -- 151
Cumulative effect of accounting
change 355 -- 355 -- 355
Amortization of financing fees
and accretion of debt discount 1,642 -- 1,642 2,106 3,748
Depreciation and amortization 2,661 1,384 4,045 -- 4,045
Change in operating assets
and liabilities (4,239) (1,706) (5,945) -- (5,945)
------- ------- ------- ------- -------
Net cash (used in) provided by
operating activities (2,828) (275) (3,103) -- (3,103)
------- ------- ------- ------- -------
Cash flows from investing activities:
Proceeds from sale of investment
In derivative securities 250 -- 250 -- 250
Purchase of property, equipment
and other assets, net of asset
acquisitions and business
combinations (67) (264) (331) -- (331)
------- ------- ------- ------- -------
Net cash provided by (used in)
investing activities 183 (264) (81) -- (81)
------- ------- ------- ------- -------
-------
Cash flows from financing activities:
Repayment on long-term borrowings (430) -- (430) -- (430)
Net borrowings on revolving line of
credit 1,500 -- 1,500 -- 1,500
Payments on capital lease and other
long term obligations (150) -- (150) -- (150)
Decrease in bank overdraft 1,837 -- 1,837 -- 1,837
Other, net 40 (67) (27) -- (27)
------- ------- ------- ------- -------
Net cash (used in) provided by
financing activities 2,797 (67) 2,730 -- 2,730
------- ------- ------- ------- -------
Effect of foreign currency
translation adjustment -- 100 100 -- 100
------- ------- ------- ------- -------
Net increase (decrease) in cash
and cash Equivalents 152 (506) (354) -- (354)
Cash and cash equivalents
at beginning of period 171 1,116 1,287 -- 1,287
------- ------- ------- ------- -------
Cash and cash equivalents
at end of period $ 323 $ 610 $ 933 $ -- $ 933
======= ======= ======= ======= =======
14
16
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FISCAL QUARTER ENDED JANUARY 30, 2000
FISCAL QUARTER ENDED JANUARY 30, 2000
----------------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR MAXXIM GROUP PARENT CONSOLIDATED
SUBSIDIARIES SUBSIDIARIES TOTAL GUARANTOR TOTAL
------------ ------------ ------------ --------- -----
Cash flows from operating activities:
Net loss $ (26,878) $ (487) $ (27,365) $ (4,073) $ (31,438)
Adjustment to reconcile net income
to net cash provided by operating
activities:
Debt tender and recapitalization
Expenses 37,029 -- 37,029 -- 37,029
Deferred income tax (benefit)
expense (221) 295 74 -- 74
Write-off of debt offering costs 2,057 -- 2,057 5,043 7,100
Amortization of financing fees
and accretion of debt discount 1,285 -- 1,285 1,636 2,921
Depreciation and amortization 4,002 1,558 5,560 -- 5,560
Change in operating assets
and liabilities (11,739) (24) (11,763) (6,954) (18,717)
--------- ------- --------- --------- ---------
Net cash (used in) provided by
operating activities 5,535 1,342 6,877 (4,348) 2,529
--------- ------- --------- --------- ---------
Cash flows from investing activities:
Proceeds from sale of Circon 228,000 -- 228,000 -- 228,000
Proceeds from sale of investment
Securities 445 -- 445 -- 445
Payment received on notes 869 -- 869 -- 869
Purchase of property, equipment
and other assets, net of asset
acquisitions and business
combinations (3,456) (1,004) (4,460) -- (4,460)
--------- ------- --------- --------- ---------
Net cash provided by (used in)
investing activities 225,858 (1,004) 224,854 -- 224,854
--------- ------- --------- --------- ---------
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)
Increase in long-term borrowings 260,000 -- 260,000 -- 260,000
Repayment on long-term borrowings -- -- -- (254,000) (254,000)
Net proceeds from the issuance of
senior discount notes -- -- -- 50,000 50,000
Payments on capital lease
obligations (116) -- (116) -- (116)
Payments on other long term
obligations (409) -- (409) -- (409)
Recapitalization of Maxxim (443,170) -- (443,170) 210,809 (232,361)
Debt tender and recapitalization
Expenses (37,029) -- (37,029) -- (37,029)
Payment of debt offering costs (18,155) -- (18,155) (2,461) (20,616)
Decrease in bank overdraft (1,243) -- (1,243) -- (1,243)
Other, net (244) (293) (537) -- (537)
--------- ------- --------- --------- ---------
Net cash (used in) provided by
financing activities (230,357) (293) (230,650) 4,348 (226,302)
--------- ------- --------- --------- ---------
Effect of foreign currency
translation adjustment -- (94) (94) -- (94)
--------- ------- --------- --------- ---------
Net increase (decrease) in cash
and cash Equivalents 1,036 (49) 987 -- 987
Cash and cash equivalents
at beginning of period 474 3,566 4,040 -- 4,040
--------- ------- --------- --------- ---------
Cash and cash equivalents
at end of period $ 1,510 $ 3,517 $ 5,027 $ -- $ 5,027
========= ======= ========= ========= =========
15
17
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
NOTE 10 - RESTRUCTURE CHARGES AND TRANSITION EXPENSES
Through January 28, 2001 we have separated approximately 557 employees
relating to the restructuring charge taken in fiscal 2000. The remaining
severance benefits of $1,542,000 will be paid in accordance with plan
provisions.
BEGINNING ENDING
BALANCE FISCAL 2001 FISCAL 2001 BALANCE
OCTOBER 29, RECORDED CASH JANUARY 28,
2000 EXPENSES PAYMENTS 2001
----------- ----------- ----------- -----------
(IN THOUSANDS)
Severance $ 2,211 $ -- $ 669 $1,542
Termination benefits 410 -- 76 334
Plant closure expenses 1,523 -- 262 1,261
------- ------- ------- ------
$ 4,144 $ -- $ 1,007 $3,137
======= ======= ======= ======
16
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
The following discussion should be read in conjunction with the
Condensed Consolidated Financial Statements and related Notes appearing
elsewhere in this report.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentage which selected items in the Condensed Consolidated Statements of
Operations bear to net sales:
-------------------------
Percent of Net Sales
-------------------------
Fiscal Quarter Ended
-------------------------
January 28, January 30,
2001 2000
----- -----
Net sales 100.0% 100.0%
Cost of sales 76.0 73.2
----- -----
Gross profit 24.0 26.8
Selling, general and administrative expenses 17.4 18.3
Restructure charges and transition expenses 0.0 3.1
----- -----
Income from operations 6.6 5.4
Interest expense (11.5) (9.2)
Other income (expense), net (0.6) (0.2)
Recapitalization expenses 0.0 (15.2)
----- -----
Loss from continuing operation before income taxes (5.5) (19.2)
Income taxes 0.0 (2.6)
----- -----
Loss from continuing operations (5.5) (16.6)
Income from discontinued operations, net of tax 0.0 0.1
----- -----
Loss before extraordinary item (5.5) (16.5)
Extraordinary item - loss related to early
retirement of debt, net of tax 0.0 (9.1)
----- -----
Loss before cumulative effect of accounting change (5.5) (25.6)
Cumulative effect of accounting change (0.3) 0.0
----- -----
Net income (5.8)% (25.6)%
===== =====
Net sales - Net sales for the first fiscal quarter of 2001 were $123.5
million compared to $122.8 million in the first fiscal quarter of 2000. Although
sales were relatively flat quarter over quarter the Company's tray sales grew
$5.9 million primarily due to increased sales related to a large group
purchasing organization contract obtained in January 2000. This increase was
offset by lower O.E.M. sales of our glove product group.
Gross profit - Gross profit declined to $29.7 million in the first
quarter of fiscal 2001 from $32.9 million reported in the first quarter of
fiscal 2000. The corresponding gross profit rate fell to 24.0% in the first
quarter of fiscal 2001 from 26.8% in the first quarter of fiscal 2000 due to
declines in both medical glove and custom procedure tray margins primarily
caused by competitive pricing pressure in the marketplace.
Selling, general and administrative expenses - Selling, general and
administrative expenses declined to $21.6 million or 17.4% of net sales in the
first quarter of fiscal 2001 from $22.5 million or 18.3% of net sales in the
first quarter of fiscal 2000. The improvement in selling, general and
administrative expenses quarter over quarter is attributable to improvements in
distribution expense as well as general cost reductions.
17
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION - (CONTINUED)
Restructure charges and transition expenses -In the first quarter of
fiscal 2000, we recorded restructure charges of $2.7 million related to the
closing of one of our exam glove plants and $1.1 million related to idle plant
costs at our surgeon's glove facility.
Income from operations - Income from operations for the first quarter
of fiscal 2001 was $8.1 million or 6.6% of net sales, compared to $6.6 million
or 5.4% of net sales in the first quarter of fiscal 2000.
Interest expense - Interest expense increased to $14.1 million in the
first quarter of fiscal 2001 from $11.3 million reported in the first quarter of
fiscal 2000. The increased interest expense quarter over quarter is primarily a
function of the marking to market of the Company's derivative securities, the
out of the money position on our financial instruments and a full quarter's
interest expense and amortization on the debt incurred with the
recapitalization.
Recapitalization expenses - Recapitalization expenses of $18.7 million
were recorded in the first quarter of fiscal 2000 due to the recapitalization
of Maxxim on November 12, 1999. The recapitalization expenses include
approximately $14.0 million of professional fees.
Income taxes - The Company has determined that it is more likely than
not that future operations will not generate sufficient taxable income to
realize tax loss carryovers and other deferred tax assets. As a result, the
Company has recorded a full valuation allowance on tax benefits generated for
the quarter ended January 28, 2001. Our effective tax rate for the fiscal
quarters ended January 30, 2000 was 13.6%. The tax benefit rate for January 30,
2000 is lower than the statutory rate due to nondeductible goodwill amortization
and recapitalization expenses.
Loss from continuing operations - As a result of the foregoing, we
reported a loss from continuing operations of $6.7 million in the first quarter
of fiscal 2001 versus $20.4 million in the first quarter of fiscal 2000.
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 consolidated statement of operations.
In the quarter ended January 30, 2000, we recorded a gain of $87,000 on the
sale of Circon.
Extraordinary item - In connection with the recapitalization, we
consummated a tender offer for our 10 1/2% senior subordinated notes.
Accordingly, the tender premium and deferred debt issuance costs related to
these notes were written off as an extraordinary loss in the quarter ended
January 30, 2000.
Cumulative effect of change in accounting principle - In the quarter
ended January 28, 2001, the Company implemented FASB 133. Accordingly, a loss
was recorded to record a hedging instrument at its fair value at October 30,
2000.
Net loss - As a result of the foregoing, we reported a loss of $7.1
million for the first quarter of fiscal 2001 versus $31.4 million in the first
quarter of fiscal 2000.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided (used) by operating activities was ($3.1) million in
the first quarter of 2001 versus $2.5 million in the first quarter of fiscal
2000. Net cash from operating activities was negatively impacted in the first
quarter of fiscal 2001 due to an increase in accounts receivable and a decline
in accounts payable. Net cash from operating activities was negatively impacted
in first quarter of fiscal 2000 due to increases in inventory, accounts
receivable, and income tax receivable and declines in accounts payable and
accrued expenses.
18
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION - (CONTINUED)
Cash flows used by investing activities were $0.1 million in the
first quarter of fiscal 2001 while cash flows generated in investing activities
were $224.9 in the first quarter of 2000. The sale of Circon as part of the
recapitalization provided $228 million in the first quarter of fiscal 2000.
Capital expenditures totaled $0.3 million and $4.5 million in first quarter of
fiscal 2001 and 2000, respectively.
We believe that borrowings available under our existing credit
facility will be sufficient to fund our working capital requirements for the
foreseeable future.
Cash flows provided from financing activities was $2.7 million in the
first quarter of fiscal 2001 while cash flows used in financing activities was
$226.3 million in the first quarter of fiscal 2000. In the first quarter of
fiscal 2000 Maxxim or its subsidiaries received the following proceeds as a
result of the recapitalization: $50.0 million from the issuance of senior
discount notes, $110.0 million from the issuance of senior subordinated
discount notes and $260.0 million from a new credit facility. Then, as part of
the recapitalization, these funds were used to pay the following debts in the
first quarter of fiscal 2000: $100.0 million for Maxxim's 10 1/2% senior
subordinated notes, $254.0 million for the outstanding balance on Maxxim's
previous credit facility, $20.6 million for debt offering costs and $37.0
million for debt tender and recapitalization expenses. In addition, the net
impact from the repurchase of outstanding stock and options and proceeds from
the issuance of new common stock in accordance with the provisions of the
recapitalization was the payment of $232.4 million in the first quarter of
fiscal 2000.
At January 28, 2001 our balance sheet included net goodwill of $110.0
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 $21.7
million at January 28, 2001, which represents 19.7% of net goodwill on that
date. In July 1996, Maxxim acquired Sterile Concepts. Unamortized goodwill from
the Sterile Concepts acquisition totaled $76.3 million at January 28, 2001, and
represented 69.4% of net goodwill as of that date. The remaining $12.0 million
of unamortized goodwill at January 28, 2001 relates to various other
acquisitions made between 1992 and 2000. All components of goodwill are being
amortized on a straight line basis over the applicable useful life. Useful
lives have been estimated at 30 years for Winfield Medical, 40 years for
Sterile Concepts and 5 to 20 years for the remaining goodwill components. Total
goodwill amortization expense for the quarters ended January 28, 2001 and
January 30, 2000 were $1.1 million and $1.3 million, respectively. Management
believes that there is not persuasive evidence that any material portion of
this intangible asset will dissipate over a period shorter than the determined
useful life.
The revolving credit facility is available for general corporate
purposes, including working capital and capital expenditures, and includes
sublimits of $25.0 million and $10.0 million, respectively, for letters of
credit and swingline loans. At January 28, 2001, the Company had $1.5 million
drawn under its revolving credit facility.
The credit facilities and the terms of our senior subordinated discount
notes impose certain restrictions on us and our subsidiaries, including
restrictions on our ability to incur additional indebtedness, issue preferred
stock, pay dividends and make certain distributions, make investments, sell
assets, create liens, enter into certain transactions with affiliates and engage
in certain other activities. In addition, the credit facilities require us to
maintain certain financial ratios. The credit facilities are secured by
substantially all of our assets, including real and personal property,
inventory, accounts receivable and other intangibles, in each case subject to
certain limited exceptions.
19
21
Our ability to satisfy our debt obligations and to pay principal and
interest on debt, fund working capital and make anticipated capital expenditures
will depend on our future performance, which is subject to general economic,
financial and other factors, some of which are beyond our control. We believe
that based on current levels of operations and anticipated growth, cash flow
from operations, together with borrowings under the revolving credit facility,
will be adequate for the foreseeable future to make required payments of
principal and interest on our debt, to fund working capital, and to make
expected capital expenditures. There can be no assurance, however, that our
business will generate sufficient cash flow from operations or that future
borrowings will be available under the revolving credit facility in an amount
sufficient to enable us to service our debt or to fund other liquidity needs.
FORWARD-LOOKING STATEMENTS
This report contains forward looking statements. Forward looking
statements are statements of our expectations, estimates, projections and
beliefs and are based on assumptions made by and information currently available
to us regarding our business and the industry in which we operate.
Forward-looking statements describe our expectations today of what we believe is
most likely to occur or reasonably achievable in the future, but such statements
do not predict or assure any future occurrence and may turn out to be wrong.
Forward-looking statements can be identified by the fact that they do not relate
strictly to historical or current facts. The words "believe," "anticipate,"
"intend," "expect," "estimate," "project," "predict," "hope" and "should,"
variations of such words, and similar expressions, among others, are intended to
identify forward-looking statements.
Forward looking statements are subject to potential risks and
uncertainties that could cause actual results to differ materially from
historical results or those currently anticipated. The potential risks and
uncertainties that could affect forward looking statements are detailed within
our Annual Report on Form 10-K filed with the Securities and Exchange Commission
on February 14, 2001.
We caution that undue reliance should not be placed on our
forward-looking statements, which speak only as of the date of this document. We
hereby disclaim any obligation to update information contained in any
forward-looking statement.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks. Market risk is the potential loss
arising from adverse changes in market prices, interest rates and foreign
currency exchange rates.
Interest Rate Risk --We are subject to market risk exposure related to
changes in interest rates on the new credit facilities. Interest on borrowings
under the new credit facilities are at a fixed percentage point spread from
either (1) the greater of prime, base CD or federal funds rates or (2) LIBOR.
We are able to, at our option, fix the interest rate for LIBOR for periods
ranging from one to six months. The interest rate on all outstanding
obligations under the new credit facility are currently set off three month
LIBOR. We have entered into, and are required to maintain for at least three
years, one or more interest rate protection agreements in order to fix or limit
our interest costs with respect to at least 50% of the outstanding term loans
under the new credit facilities. In accordance with the obligations of our
credit facility, we and the Chase Manhattan Bank entered into an arrangement to
cap our floating interest rate at 8.0% on an agreed upon notional principal
amount of $130,000,000, in April 2000.
Foreign Currency Exchange Rate Risk -- Generally we generate net sales
and expenses in the local currency where our products are sold and thus are not
currently subject to significant currency exchange risk. In the future, it is
possible that a greater portion of our net sales outside of North America may
not be denominated in the same local currency as the related expenses and thus
we may be subject to currency exchange risks in connection therewith.
20
22
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK -
(CONTINUED)
Intangible Asset Risk - Our balance sheet includes intangible assets.
We assess the recoverability of intangible assets by determining whether the
amortization of the asset balance over its remaining life can be recovered
through undiscounted future operating cash flows of the acquired operation. The
amount of asset impairment, if any, is measured based on projected discounted
future operating cash flows using a discount rate reflecting our average cost
of funds. In fiscal 2000, we recorded goodwill and other intangible asset
impairments of $33.5 million. We do not believe that any other impairment of
intangible assets existed as of January 28, 2001.
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
None.
(b) Reports on Form 8-K
None.
21
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAXXIM MEDICAL, INC.
Date: 3/14/01 By: /s/ Akbar Naderi
--------------- ---------------------------------------
Akbar Naderi
Vice Chairman and President
(principal executive officer)
Date: 3/14/01 By: /s/ Mark S. Seller
--------------- ---------------------------------------
Mark S. Sellers
Vice Chairman and Chief Financial
Officer (principal financial officer)
22