<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly period ended DECEMBER 31, 1995 or
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[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________________ to ____________________
COMMISSION FILE NUMBER 0-11278
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MINNTECH CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1229121
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14605 - 28TH AVENUE NORTH
MINNEAPOLIS, MINNESOTA 55447
(Address of principal executive offices)
Registrant's telephone number, including area code: (612) 553-3300
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at January 26, 1996
- ------------------------------ -------------------------------
Common Stock, $0.05 par value 6,604,549 shares
Page 1 of 9
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Minntech Corporation
Quarterly Report on Form 10-Q
December 31, 1995
Index
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Earnings 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
Page 2 of 9
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MINNTECH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31 December 31
----------- -----------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
REVENUES
Net sales - products $ 17,149 $ 13,964 $ 48,910 $ 41,070
Contract revenues -- 75 -- 225
--------- --------- --------- ---------
Total revenues 17,149 14,039 48,910 41,295
OPERATING COSTS AND EXPENSES
Cost of product sales 9,591 7,829 28,249 23,142
Research and development 729 791 2,410 2,347
Selling, general and administrative 3,970 3,088 11,180 8,796
Amortization of intangible assets 176 103 471 248
Loss due to fiber production scale-up -- -- 936 --
--------- --------- --------- ---------
Total operating costs and expenses 14,466 11,811 43,246 34,533
--------- --------- --------- ---------
EARNINGS FROM OPERATIONS 2,683 2,228 5,664 6,762
Other income, net 44 63 91 192
--------- --------- --------- ---------
EARNINGS BEFORE INCOME TAXES 2,727 2,291 5,755 6,954
Provision for income taxes 924 837 2,012 2,486
Minority Interest (63) -- (63) --
--------- --------- --------- ---------
NET EARNINGS $ 1,866 $ 1,454 $ 3,806 $ 4,468
--------- --------- --------- ---------
--------- --------- --------- ---------
NET EARNINGS PER SHARE $.27 $.22 $.56 $.68
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common and common
equivalent shares 6,989 6,646 6,836 6,578
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Page 3 of 9
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MINNTECH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
ASSETS December 31, March 31,
1995 1995
------------ -----------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 4,200 $ 3,325
Marketable securities 1,185 1,163
Accounts receivable, net 12,137 10,329
Inventories
Finished goods 2,935 2,658
Materials and work-in-process 6,215 4,806
Prepaid expenses 690 911
--------- ---------
TOTAL CURRENT ASSETS 27,362 23,192
PROPERTY AND EQUIPMENT, AT COST
Land, buildings and improvements 9,276 9,146
Machinery and equipment 19,733 17,024
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29,009 26,170
Less accumulated depreciation (12,345) (10,538)
--------- ---------
16,664 15,632
OTHER ASSETS
Patent costs, net 685 617
Goodwill, net 1,540 1,151
Other 1,384 682
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$ 47,635 $ 41,274
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 3,917 $ 2,811
Accrued expenses 1,529 2,204
Income taxes payable 229 72
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TOTAL CURRENT LIABILITIES 5,675 5,087
DEFERRED COMPENSATION 116 -
DEFERRED INCOME TAXES 1,173 1,135
MINORITY INTEREST 387 -
STOCKHOLDERS' EQUITY
Preferred stock, no par value - -
Common stock, $.05 par value 330 319
Additional paid-in capital 11,101 9,124
Retained earnings 28,853 25,609
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40,284 35,052
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$ 47,635 $ 41,274
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</TABLE>
Page 4 of 9
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MINNTECH CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
December 31
-------------------
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 3,806 $ 4,468
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities
Depreciation and amortization 2,474 2,049
Tax benefit from stock option exercises 274 14
Deferred contract revenue - (225)
Foreign currency exchange (gain) loss 101 (153)
Deferred income taxes 34 121
Other 52 95
Changes in assets and liabilities:
Accounts receivable (1,792) (1,833)
Inventories (1,498) (912)
Prepaid expenses 245 36
Accounts payable and accrued expenses 448 785
Income taxes payable 157 (133)
--------- ---------
Total adjustments 495 (156)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 4,301 4,312
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (3,322) (2,725)
Purchase of land - (516)
Proceeds from sale of equipment - 18
Patent application costs (269) (179)
Purchases of product lines (1,452) (434)
Other (156) (1)
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NET CASH USED IN INVESTING ACTIVITIES (5,199) (3,837)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt - (1,942)
Grant from foreign government 335 -
Proceeds from exercise of stock options 1,714 586
Minority interest capital contribution 450 -
Payments of cash dividends (653) (623)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 1,846 (1,979)
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Effects of exchange rate changes on foreign currency
cash balances (73) (35)
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NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 875 (1,539)
Cash and cash equivalents at beginning of period 3,325 6,207
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Cash and cash equivalents at end of period $ 4,200 $ 4,668
--------- ---------
--------- ---------
</TABLE>
Page 5 of 9
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MINNTECH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - FINANCIAL INFORMATION
The unaudited interim condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission; accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted.
These interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes in the
Company's Annual Report on Form 10-K for the year ended March 31, 1995 as filed
with the Securities and Exchange Commission.
In the opinion of management, the condensed consolidated financial statements
reflect all adjustments necessary for a fair presentation of the interim
periods.
NOTE B - NET EARNINGS PER SHARE
The calculations of net earnings per common and common equivalent share are
presented in the following table. All amounts are in thousands except per share
amounts.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31 December 31
------------------- -------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net earnings $ 1,866 $ 1,454 $ 3,806 $ 4,468
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common shares
outstanding 6,565 6,324 6,483 6,244
Weighted average common equivalent
shares for stock options 424 322 353 334
--------- --------- --------- ---------
Weighted average common and common
equivalent shares 6,989 6,646 6,836 6,578
--------- --------- --------- ---------
--------- --------- --------- ---------
Net earnings per share $ .27 $ .22 $ .56 $ .68
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Page 6 of 9
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues for the third quarter and nine months ended December 31, 1995 increased
by $3,110,000, or 22%, and $7,615,000, or 18%, respectively, from revenues in
the comparable periods one year ago. The increase in revenues was primarily due
to increased unit sales of dialyzer and endoscopy reprocessing products and
increased sales of cardiosurgery products. Sales of cardiosurgery products
increased due to increased unit sales of hemoconcentrators and hemofilters,
including the Amicon product line of hemoconcentrators and hemofilters, which
more than offset a small decline in oxygenator sales revenues.
Net sales by product group are summarized on the following table:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31 December 31
------------------- --------------------
(in thousands) 1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Dialysis supplies and devices $ 4,353 $ 4,538 $ 14,075 $ 13,558
Reprocessing products 6,504 4,561 16,555 13,034
Cardiosurgery products 5,924 4,546 17,152 13,707
Water filtration products 368 319 1,128 771
--------- --------- --------- ---------
$ 17,149 $ 13,964 $ 48,910 $ 41,070
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
Gross profit from product sales for the third quarter ended December 31, 1995
was $7,558,000, or 44.1% of net sales, compared to $6,135,000, or 43.9% of net
sales, for the third quarter one year ago. For the nine months ended December
31,1995, gross profit from product sales was $20,661,000, or 42.2% of net sales,
compared to $17,928,000, or 43.7% of net sales, for the same period one year
ago. The decline in gross margin from one year ago was due primarily to
increased unit costs of dialyzer and cardio-filter products due to increased
manufacturing expenses related to expansion of the fiber products manufacturing
group.
Research and development expenses for the third quarter ended December 31, 1995
totaled $729,000, or 4.3% of revenues, compared to $791,000, or 5.6% of
revenues, for the third quarter one year ago. For the nine months ended
December 31, 1995, such expenses totaled $2,410,000, or 4.9% of revenues,
compared to $2,347,000, or 5.7% of revenues, for the same period one year ago.
Selling, general and administrative expenses for the third quarter ended
December 31, 1995 were $3,970,000, or 23.2% of revenues, compared to $3,088,000,
or 22% of revenues, for the third quarter one year ago. For the nine months
ended December 31, 1995, selling, general and administrative expenses totaled
$11,180,000, or 22.9% of revenues, up $2,384,000, compared to expenses of
$8,796,000, or 21.3% of revenues, for the same period one year ago. Selling,
general and administrative expenses have increased due to expansion of sales and
administrative staffs and expanded marketing efforts in the United States,
Europe and Japan.
The Company's effective income tax rates for the third quarter and nine months
ended December 31, 1995 were 33.9% and 35.0%, respectively, compared to 36.5%
and 35.8% for the same periods one year ago. The decrease in income tax rates
in the current year is due primarily to the deduction of losses related to the
investment in a foreign subsidiary.
Page 7 of 9
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The Company reported net earnings of $1,866,000, or 10.9% of revenues, for the
third quarter ended December 31, 1995 compared to $1,454,000, or 10.4% of
revenues in the third quarter one year ago. For the nine months ended December
31, 1995 net earnings were $3,806,000, or 7.8% of
revenues, compared to $4,468,000, or 10.8% of revenues, for the same period one
year ago. The decline in net earnings and profitability for the nine months
ended December 31, 1995, was primarily due to higher manufacturing expenses
related to fiber products production scale-up and increased selling, general and
administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had $5,385,000 of cash, cash equivalents and
marketable securities, an increase of $897,000 from the balance at March 31,
1995. Working capital at December 31, 1995 was $21,687,000 compared to
$18,105,000 of working capital at March 31, 1995, an increase of $3,582,000.
The Company's current ratio at December 31, 1995, was 4.8 to 1 compared to
4.6 to 1 at March 31, 1995. The increase in cash and working capital was due
primarily to cash generated from operations, proceeds of $1,714,000 from the
exercise of stock options, and a $450,000 capital contribution from minority
interests in the Company's Japanese subsidiary which was formed in the third
quarter. The Company acquired $3,322,000 of capital equipment during the nine
months ended December 31, 1995.
The Company believes that its strong financial condition at December 31, 1995,
along with funds expected to be generated from operations, will be sufficient to
meet its working capital and capital equipment needs in the immediate future.
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) None filed.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
December 31, 1995.
Page 8 of 9
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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.
MINNTECH CORPORATION
DATE: February 13 , 1996
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/s/ Warren White
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Warren White
Chief Financial Officer
(Duly authorized officer)
(Principal financial officer)
Page 9 of 9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF EARNINGS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 4,200
<SECURITIES> 1,185
<RECEIVABLES> 12,137
<ALLOWANCES> 166
<INVENTORY> 9,150
<CURRENT-ASSETS> 27,362
<PP&E> 29,009
<DEPRECIATION> 12,345
<TOTAL-ASSETS> 47,635
<CURRENT-LIABILITIES> 5,675
<BONDS> 0
0
0
<COMMON> 11,431
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 47,635
<SALES> 48,910
<TOTAL-REVENUES> 48,910
<CGS> 28,249
<TOTAL-COSTS> 43,246
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 46
<INTEREST-EXPENSE> 2
<INCOME-PRETAX> 5,755
<INCOME-TAX> 2,012
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,806
<EPS-PRIMARY> .27
<EPS-DILUTED> .27
</TABLE>
