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 FEBRUARY 1, 1998
( ) 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.)
incorporation or organization)
10300 49TH STREET NORTH, CLEARWATER, FLORIDA 33762
- -------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code........................(813) 561-2100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities and Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----------------------- -----------------------
Indicate the number of shares outstanding of each of the registrant's classes of
common stock:
Class Outstanding at March 13, 1998
- ----------------------------------- -------------------------------------
COMMON STOCK, $.001 PAR VALUE 14,213,665
2
MAXXIM MEDICAL, INC.
INDEX
PART I. Financial Information Page No.
--------------------- --------
Item 1. Condensed Consolidated Balance Sheets as of
February 1, 1998 and November 2, 1997 2
Condensed Consolidated Statements of Operations
for the Three Months Ended February 1, 1998 and
February 2, 1997 3
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended February 1, 1998 and
February 2, 1997 4
Notes to Condensed Consolidated Financial
Statements 5
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition 9
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 10
PART II. Other Information 11
-----------------
Signatures
- ----------
1
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
February 1, November 2,
1998 1997
------------ -----------
ASSETS (Unaudited)
Current assets:
Cash and cash equivalents $ 3,322 $ 3,130
Accounts receivable, net of allowances of
$2,922 and $3,181, respectively 75,328 77,209
Inventory, net 81,349 83,184
Prepaid expenses, deferred taxes and other 11,076 11,000
--------- ---------
Total current assets 171,075 174,523
Property and equipment 123,574 122,938
Less: accumulated depreciation (33,725) (31,384)
--------- ---------
89,849 91,554
Goodwill and other intangibles, net 147,787 150,234
Deferred taxes and other assets, net 7,706 7,735
--------- ---------
Total assets $ 416,417 $ 424,046
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 13,500 $ 12,750
Accounts payable 35,539 32,194
Accrued liabilities 26,215 26,631
Other short-term obligations 2,623 3,133
--------- ---------
Total current liabilities 77,877 74,708
Long-term debt, net of current maturities 65,270 78,550
10 1/2% Senior subordinated notes 100,000 100,000
6 3/4% Convertible subordinated debentures -- 23,352
Other long-term obligations, net of current maturities 2,702 3,300
Deferred taxes 8,565 6,208
--------- ---------
Total liabilities 254,414 286,118
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, 10,170,262 and 8,871,355
shares issued and outstanding, respectively 10 9
Additional paid-in capital 126,456 103,872
Retained earnings 49,001 45,250
Subscriptions receivable (5,200) (5,200)
Cumulative translation adjustment (8,264) (6,003)
--------- ---------
Total shareholders' equity 162,003 137,928
--------- ---------
Total liabilities and shareholders' equity $ 416,417 $ 424,046
========= =========
See accompanying notes to condensed consolidated financial statements.
2
4
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
(Unaudited)
Three Months Ended
--------------------------------
February 1, February 2,
1998 1997
----------- -----------
Net sales $ 128,003 $ 133,401
Cost of sales 94,942 101,165
--------- ---------
Gross profit 33,061 32,236
Operating expenses 22,334 22,517
--------- ---------
Income from operations 10,727 9,719
Interest expense (4,333) (5,541)
Other income (expense), net 164 1,799
--------- ---------
Income before taxes 6,558 5,977
Income taxes 2,807 2,518
--------- ---------
Net income $ 3,751 $ 3,459
========= =========
Basic earnings per share $ 0.38 $ 0.43
========= =========
Diluted earnings per share $ 0.37 $ 0.39
========= =========
Basic weighted average shares outstanding 9,793 8,131
========= =========
Diluted weighted average shares outstanding 10,492 9,835
========= =========
See accompanying notes to condensed consolidated financial statements.
3
5
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, In thousands)
Three Months Ended
---------------------------------
February 1, February 2,
1998 1997
----------- -----------
Cash flows from operating activities:
Net income $ 3,751 $ 3,459
Adjustment to reconcile net income to net
cash provided by operating activities:
Deferred income tax expense 789 --
Depreciation and amortization 4,630 4,644
Gain on sale of investment in equity securities -- (1,510)
Change in operating assets and liabilities 1,908 (1,022)
-------- --------
Net cash provided by operations 11,078 5,571
Cash flows from investing activities
Purchase of property and equipment (2,324) (2,943)
Proceeds from available-for-sale securities -- 3,130
Proceeds from sale of building -- 450
-------- --------
Net cash (used in) provided by investing activities (2,324) 637
Cash flows from financing activities
Increase (decrease) in bank overdraft 5,513 (589)
Payments on long-term debt--net (12,530) (6,533)
Payment on debenture redemption (152) --
(Decrease) increase in other obligations (1,338) 301
Other,net 88 --
-------- --------
Net cash used in financing activities (8,419) (6,821)
Effect of foreign currency translation adjustment (143) (263)
-------- --------
Net increase (decrease) in cash and cash equivalents 192 (876)
Cash and cash equivalents at beginning of period 3,130 5,950
-------- --------
Cash and cash equivalents at end of period $ 3,322 $ 5,074
======== ========
Supplemental cash flow disclosures:
Interest paid during the period $ 2,026 $ 2,434
Income taxes paid during the period 826 512
Conversion of 6 3/4% convertible subordinated debentures 22,278 --
Note received from the sale of building -- 350
See accompanying notes to condensed consolidated financial statements.
4
6
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
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 2,
1997, included in the Company's Annual Report on Form 10-K/A as filed with the
Securities and Exchange Commission.
Certain reclassifications have been made to the fiscal 1997 condensed
consolidated financial statements to conform with the fiscal 1998 presentation.
Note 2 - Summary of Significant Accounting Policies
Fiscal Year.
Commencing in fiscal year 1994 the Company implemented a fiscal year
which ends on the Sunday nearest to the end of the month of October. 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 1998 the year end date will be
November 1 compared to a 1997 year end date of November 2. Fiscal 1998 will
consist of 52 weeks. The first quarter of fiscal 1998 ended on February 1
compared to the fiscal 1997 first quarter end date of February 2.
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.
Earnings Per Share.
Statement of Financial Accounting Standards No. 128, "Earnings per
Share", specifies new measurement, presentation and disclosure requirements for
earnings per share and is required to be applied retroactively upon initial
adoption. The Company has adopted SFAS No. 128 effective with the release of
February 1, 1998 earnings data, and accordingly, has restated herein all
previously reported earnings per share data. Basic earnings per share is based
on the weighted average shares outstanding without any dilutive effects
considered. Diluted earnings per share reflects dilution from all contingently
issuable shares, including options and convertible debt. A reconciliation of
such earnings per share data is as follows:
5
7
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended February 2, 1998
Per Share
Income Shares Amounts
------ ------ ---------
(In thousands)
Basic EPS
Net Income $3,751 9,793 $ 0.38
=========
Effect of dilutive securities
Convertible Debt 107 363
Options 336
------ ------
Diluted EPS $3,858 10,492 $ 0.37
====== ====== =========
Three Months Ended February 1, 1997
Per Share
Income Shares Amounts
------ ------ ---------
Basic EPS
Net Income $3,459 8,131 $ 0.43
=========
Effect of dilutive securities
Convertible Debt 341 1,597
Options 107
------ ------
Diluted EPS $3,800 9,835 $ 0.39
====== ====== =========
Unexercised employee and director stock options to purchase 35,900 and
18,000 shares of Maxxim Medical common stock as of February 2, 1997,
respectively, were not included in the computation of diluted EPS because the
options' exercise prices were greater than the average market price of Maxxim
Medical's common stock during the quarter.
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 amount reflected as inventory as of February 1, 1998 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 1, 1998 and November 2, 1997 included the following:
6
8
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
February 1, November 2,
1998 1997
----------- -----------
(In thousands)
Raw materials $ 35,510 $ 36,613
Work In progress 8,734 7,227
Finished goods 40,661 43,393
Reserve (3,556) (4,049)
----------- -----------
$ 81,349 $ 83,184
=========== ===========
Income Taxes.
The Company has calculated current and deferred income tax provisions
for the quarters ended February 1, 1998 and February 1, 1997, based on its best
estimate of the effective income tax rate expected to be applicable for the full
fiscal year.
Note 3 - 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.
Note 4 - 6 3/4% Convertible Subordinated Debentures
In March 1993, the Company issued $28,750,000 in principal amount of 6
3/4% Convertible Subordinated Debentures (the "Debentures") due March 1, 2003.
The Debentures are convertible at the option of the holder into Common Stock at
a conversion price of $18 per share and pay interest every six months commencing
September 1, 1993, through maturity on March 1, 2003.
On October 3, 1997, the Company called for the redemption of
$10,000,000, in principal amount, of the Debentures effective as of November 4,
1997 (the "First Redemption Date"). On the First Redemption Date, the redemption
price of 104.17% of the principal amount, or $1,041.70 plus accrued interest of
$11.81 per $1,000 face amount of the Debentures was paid to the holders of
Debentures called for redemption who did not exercise their right to convert
their Debentures into common stock. On November 12, 1997, the Company called for
the redemption of the remaining outstanding Debentures effective as of December
12, 1997 (the "Second Redemption Date"). On the Second Redemption Date, the
redemption price of 104.17% of the principal amount, or $1,041.70 plus accrued
interest of $18.94 per $1,000 face amount of the Debentures, was paid to the
holders who had not exercised their right to convert their Debentures into
common stock.
As of the February 1, 1998, $28,381,000 of the debentures had converted
into 1,576,614 shares of the Company's common stock and debt issuance costs of
$867,000 related to these converted debentures were written off to additional
paid-in capital. During the conversion, $152,000 in principal amount was paid to
debenture holders who presented their certificates for redemption. As of
February 1, 1998, $217,000 in principal amount remains due and payable and is
held in trust by the trustee. Holders may surrender their certificates for
payment within two years of the respective redemption dates after which the
funds revert back to the Company.
7
9
MAXXIM MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Unaudited)
Note 5 - Management Stock Purchase Plan
On May 23, 1997 the Company issued 400,000 shares of common stock
pursuant to a Senior Management Stock Purchase Plan at $13.00 per share, the
closing stock price on April 30, 1997. The stock was issued in exchange for an
aggregate of $5.2 million in non-interest bearing, full recourse promissory
notes due May 23, 2000 from the participating managers. These notes have been
recorded as subscriptions receivable and are included in the shareholders'
equity section of the balance sheet. Payment of these notes also is secured by
the pledge of the 400,000 shares of common stock. Net compensation costs
associated with these shares is not significant.
Note 6 - Subsequent Event
In March 1998, the Company completed an offering of 4,025,000 shares of
its common stock at a price to the public of $24.00 per share, including 525,000
shares pursuant to the underwriters' exercise of the overallotment option. After
deducting offering costs and commissions, the Company received net proceeds of
approximately $91,500,000. The Company will use approximately $20,000,000 to
expand glove production capacity and the balance to repay certain outstanding
bank debt.
8
10
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 1, February 2,
1998 1997
------------- --------------
Net sales 100.0% 100.0%
Cost of sales 74.2% 75.8%
----------- ------------
Gross profit 25.8% 24.2%
Operating expenses 17.4% 16.9%
----------- ------------
Income from operations 8.4% 7.3%
Interest expense (3.4%) (4.1%)
Other income (expense), net 0.1% 1.3%
----------- ------------
Income before taxes 5.1% 4.5%
Income taxes 2.2% 1.9%
----------- ------------
Net income 2.9% 2.6%
=========== ============
Net sales - Net Sales for the first fiscal quarter of 1998 decreased
4.0% to $128,003,000 from $133,401,000 reported for the first fiscal quarter of
1997. This decrease is primarily due to the planned cessation of certain low
margin custom procedure trays.
Gross profit - In the first quarter of fiscal 1998 the Company's gross
profit increased to $33,061,000, compared to $32,236,000 reported in the first
quarter of last year. The Company's gross profit rate increased to 25.8% in the
first quarter of fiscal 1998 from 24.2% in the first quarter of fiscal 1997. The
increase in both dollars and rate are primarily attributable to the improved
gross profit in the Company's custom procedure trays.
Operating expenses - Operating expenses for the first quarter were
$22,334,000 or 17.4% of net sales for fiscal 1998 compared to $22,517,000 or
16.9% of net sales for fiscal 1997. The increase in operating expense as a
percentage of net sales is primarily attributable to increases in administrative
fees paid on contracts with group purchasing organizations and the effect of
lower net sales as discussed above.
9
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION - (Continued)
Income from operations - Income from operations increased to
$10,727,000, or 8.4% of net sales, in the first quarter of fiscal 1998 from
$9,719,000, or 7.3% of net sales, in the comparable period of the prior fiscal
year. This is an increase of 10.4% over the prior fiscal period.
Interest expense - The Company's interest expense decreased from
$5,541,000 in the first quarter of fiscal 1997 to $4,333,000 in the first
quarter of fiscal 1998. The decrease in interest expense for the quarter is
primarily related to the conversion of the Company's remaining 6 3/4% debentures
in the first quarter of fiscal 1998 and the lower bank debt balance in fiscal
1998 versus the prior year.
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 quarter ended
February 1, 1998 and February 2, 1997 was 42.8% and 42.1%, respectively and is
higher than the statutory rate primarily due to non-deductible goodwill from
acquisitions.
Net income - As a result of the foregoing, net income for the first
quarter of fiscal 1998 was $3,751,000 versus $3,459,000 for fiscal 1997.
Excluding the one-time gain from the sale of marketable equity securities net
income increased by 51.4%. Diluted earnings per share was $0.37 compared to
$0.39 for the same period last year. Excluding the one-time gain diluted
earnings per share was $0.37 versus $0.29 for the same period last year.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
On February 1, 1998 the Company had cash and cash equivalents of
$3,322,000, working capital of $93,198,000, long-term liabilities of
$176,537,000 and shareholders' equity of $162,003,000. For the three months
ended February 1, 1998 net cash provided by operations was $11,078,000 versus
$5,571,000 for the three months ended February 2, 1997.
During the first quarter of fiscal 1998, the Company repaid $12,530,000
of bank debt resulting in a term loan balance of $78,000,000 and a revolver
balance of $770,000. As a result of debt repayments, the Company had $74,230,000
of available credit under its revolver facility on February 1, 1998.
On October 3, 1997, the Company called for redemption of $10,000,000 in
principal amount of its $28,750,000 debentures effective as of November 4, 1997.
On November 12, 1997, the Company called for the redemption of the remaining
outstanding principal amount of Debentures effective as of December 12, 1997.
$28,381,000 of the debentures converted into 1,576,614 shares of common stock as
a result of the redemptions. The balance of $369,000 was paid to the trustee for
distribution to debenture holders upon surrender of their certificates.
In March 1998, the Company completed an offering of 4,025,000 shares of
its common stock at a price to the public of $24.00 per share, including 525,000
shares pursuant to the underwriters' exercise of the overallotment option. After
deducting offering costs and commissions, the Company received net proceeds of
approximately $91,500,000.
The Company believes that its present cash balances together with
internally generated cash flows, the net proceeds from the March 1998 common
stock offering and borrowings under its existing credit facility will be
sufficient to meet its future working capital requirements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable to the registrant at this time.
10
12
PART II. OTHER INFORMATION
Items 1, 2, 3 and 4 for which provision is made in the applicable
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
Item 5. OTHER INFORMATION
Restatement of Earnings Per Share Data
November 2, November 3, October 29, October 30, October 31,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
As Previously Reported
- ----------------------
Primary earnings per share $ 1.51 $ 1.05 $ 0.36 $ 1.05 $ 0.94
Fully diluted earnings per share $ 1.40 $ 1.01 $ 0.36 $ 1.00 $ 0.91
As Restated for SFAS No. 128, "Earnings per Share"
Basic earnings per share $ 1.55 $ 1.08 $ 0.36 $ 1.10 $ 0.94
Diluted earnings per share $ 1.42 $ 1.02 $ 0.36 $ 1.05 $ 0.92
The Company has restated all previous earnings per share data to comply
with Statement of Financial Accounting Standards No. 128 "Earnings per Share,"
which became effective on a retroactive basis with the issuance of February 1,
1998 earnings data.
Item 6. EXHIBITS AND REPORTS
Exhibit 10.1* - 1998 Non-Employee Directors' Stock Option Plan
10.2* - 1997 Employment Agreement between Registrant and
Kenneth W. Davidson dated November 1, 1997
27 - Financial Data Schedule (for SEC use only)
- -------------
* Compensatory plan or agreement.
11
13
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: 3/17/98 By: /s/ Kenneth W. Davidson
----------------------------- -------------------------------------
Kenneth W. Davidson
Chairman of the Board, President &
Chief Executive Officer
Date: 3/17/98 By: /s/ Peter M. Graham
----------------------------- -------------------------------------
Peter M. Graham
Executive Vice President,
Chief Operating Officer & Secretary
12