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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1996 OR
/ / 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
MINNTECH CORPORATION
(Exact name of registrant as specified in its charter)
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MINNESOTA 41-1229121
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
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14605 - 28TH AVENUE NORTH
MINNEAPOLIS, MINNESOTA 55447
(Address of principal executive offices)
Registrant's telephone number, including area code: (6L2) 553-3300
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Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.05 PER SHARE
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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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. _X_
As of June 28, 1996, 6,653,214 shares of Common Stock, par value $.05 per
share, were outstanding, and the aggregate market value of the shares of Common
Stock (based upon the closing transaction price on such date as reported on the
NASDAQ National Market System) held by non-affiliates of the registrant was
approximately $55,912,323.
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DOCUMENTS INCORPORATED BY REFERENCE
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DOCUMENTS INCORPORATED BY REFERENCE 10-K PART AND ITEM WHERE INCORPORATED
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1. Certain portions of the Definitive Proxy Statement for the Annual Part III: Items 10, 11, 12 and 13
Meeting of Shareholders of the Registrant to be held August 28, 1996
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF THE BUSINESS
Minntech Corporation (the "Company") was incorporated on January 30, 1974
under the laws of Minnesota. The Company is engaged in the development,
manufacturing and marketing of medical supplies and devices, sterilants and
water filtration products. The Company's products are used primarily in kidney
dialysis and in open-heart surgery. The trade name of Renal Systems is used for
products sold in the dialysis market, the trade name of Minntech is used for
products sold in the cardiosurgery market, and the trade name of Fibercor is
used for marketing water filtration products. The Company has core technologies
in electronics, fibers, plastics, and chemical solutions, all of which were
internally developed.
INDUSTRY SEGMENTS
Through March 31, 1996, the Company has been engaged in a single industry
segment -- medical devices and supplies. The Company also markets filtration
devices for industrial water purification applications. Through March 31, 1996,
sales revenues from such filtration devices have not been material.
PRODUCTS
The Company has four interrelated product groups:
- Dialysis Supplies and Devices
- Reprocessing Products
- Cardiosurgery Products
- Water Filtration Products
DIALYSIS SUPPLIES AND DEVICES
The Company's main dialysis supply product is a line of concentrates used by
kidney centers to prepare dialysate (a salt solution) for hemodialysis
treatments. The Company provides the industry's most complete line of these
concentrates in both liquid and powder forms for use in virtually all types of
kidney dialysis machines. Sales of concentrate products accounted for more than
70% of all sales in this product group in each of the past three fiscal years.
The Company in fiscal 1992 introduced its first dialyzer (artificial kidney)
- -- the Renaflo-Registered Trademark- HDF 1350 dialyzer. In fiscal 1993, the
Company introduced the Primus-Registered Trademark- line of second generation
dialyzers in Europe. In August 1994, the Company received FDA market clearance
to sell the Primus-Registered Trademark- dialyzer in the United States. These
dialyzer products contain the Company's proprietary high flux polysulfone
membrane, and the Company is one of only three manufacturers of such polysulfone
devices in the world. High flux dialyzers allow for more rapid dialysis, are
capable of shortening patient treatment time, and are less traumatic to blood
than dialyzers containing traditional membranes. Dialyzers are the single most
expensive supply item used in hemodialysis treatments. The worldwide annual
market for high flux types of dialyzers is estimated to be approximately $180
million. (Market size is based on published information on patient populations
and the Company's estimate of the percentage of treatments performed with high
flux dialyzers.) The Company's market share at March 31, 1996 was approximately
one percent.
The Company's major dialysis electronic products are the Sonalarm-Registered
Trademark- Foam Detector, a device that detects air in blood during
hemodialysis, the Minipump-TM- Hemodialysis Blood Pump which circulates blood
during hemodialysis, and a peritoneal dialysis pump. The Sonalarm-Registered
Trademark- and the Minipump-TM- are sold to end users and in component form to
other manufacturers of blood processing equipment. The peritoneal pump is sold
as an OEM component to another manufacturer.
These dialysis products accounted for approximately 29% of sales in fiscal
1996, 33% of sales in fiscal 1995 and 34% of sales in fiscal 1994.
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REPROCESSING PRODUCTS
Reprocessing products include the Renatron-Registered Trademark- Dialyzer
Reprocessing System and associated supplies including Renalin-Registered
Trademark-, a cold sterilant solution which replaces formaldehyde in dialyzer
reprocessing, and Actril-Registered Trademark- Cold Sterilant, a kidney machine
disinfectant.
In response to government-mandated cost containment measures, many U.S.
dialysis centers in the late 1970s began reusing dialyzers (artificial kidneys)
instead of discarding them after a single use. In 1982, the Company introduced
the Renatron-Registered Trademark-, a machine that provides an automated method
of rinsing, cleaning, testing, and sterilizing dialyzers for multiple reuse. In
1985 dialysis centers began using Renalin-Registered Trademark- sterilant for
manual reprocessing of dialyzers. In 1990, the Company began sales of the
Renatron-Registered Trademark- II, a second generation system that includes a
bar code reader, computer and Renalog-Registered Trademark-software for
automated record keeping and analysis. Recent data released by the Centers for
Disease Control ("CDC") indicate that, as of 1993, 79% of all U.S. hemodialysis
patients were treated in centers that reuse dialyzers. The CDC also reported
that 73% of all dialysis centers in the United States reuse dialyzers and 51% of
these centers used Renalin-Registered Trademark- to sterilize their dialyzers.
The other dialysis centers used primarily formaldehyde or glutaraldehyde
disinfectants to reprocess dialyzers.
The Company believes its Renatron-Registered Trademark- system is faster and
easier to use than competitive automated systems. The Company also believes that
the Renatron-Registered Trademark- system is the top selling automated dialyzer
reprocessing system in the world. At March 31, 1996, the Company had an
installed customer base of more than 2,500 Renatron-Registered Trademark-
systems.
During fiscal 1994, the Company completed the purchase of a sterilant
product line from a German firm as part of its strategy of geographic expansion
of its reprocessing business. Unlike the United States market, dialyzer reuse is
in the formative stages in Europe. The Company has increased its reprocessing
product sales in Europe by employing direct salespersons in major dialysis
markets and promoting the advantages of reuse.
In September 1994, the Company purchased an endoscope reprocessor product
line from Bard Interventional Products, a division of C.R. Bard, Inc. ("Bard")
for $934,000 in cash. Manufacturing of the products was assimilated into the
Company's electronic device production facility in Plymouth, Minnesota. The
endoscope reprocessing machine provides high level disinfection for flexible
endoscopes and is marketed to gastroenterology units of hospitals and ambulatory
care units.
The Company began sales of the Cathetron-Registered Trademark- Reprocessing
System in Europe in April 1994. The Cathetron-Registered Trademark- System,
along with its companion cold sterilant CATHx-Registered Trademark-, provides an
automated method of cleaning and sterilizing cardiovascular catheters for
subsequent reuse. At March 31, 1996, the Company remained in the early stages of
marketing the Cathetron-Registered Trademark- System in Europe and certain other
international markets. A changing regulatory environment in Europe is limiting
the ability to sell a device to reprocess an angioplasty catheter labeled
"single use only." In order to address this concern, the Company intends to
market with the Cathetron-Registered Trademark- a catheter labeled for "multiple
use." The Company expects to have this catheter available in fiscal year 1997.
The Company plans to submit an Investigational Device Exemption application to
the FDA in fiscal 1997 so that clinical trials can be conducted in the United
States.
Reprocessing products accounted for approximately 34% of sales in fiscal
1996, 32% of sales in fiscal 1995, and 28% of sales in fiscal 1994.
CARDIOSURGERY PRODUCTS
The primary products in this group at March 31, 1996 consisted of three
hollow fiber devices.
OXYGENATORS
Since 1987, the Company has manufactured a hollow-fiber membrane oxygenator
for use in open-heart surgery. The device contains a highly efficient,
integrated heat exchanger, and the Company believes that the unit is capable of
transferring more oxygen than competitive products. Since 1987, the Company has
manufactured the oxygenator for exclusive worldwide distribution pursuant to an
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agreement with Bard under the terms of the agreement, Bard agreed to purchase
certain minimum quantities of the oxygenator through December 31, 1995. These
minimum quantities had an annual sales value to the Company of approximately $10
million, and Bard's annual purchases through March 31, 1995 exceeded such
minimums.
In April 1995, Bard and the Company entered into a new agreement for the
sale of the oxygenator whereby Bard agreed to purchase certain minimum
quantities of the oxygenator through March 31, 1997, but the agreement also
allows Bard to continue purchasing the oxygenator through June 30, 1997, without
any minimum purchase obligation. Bard will have exclusive distribution rights
through March 31, 1997 and nonexclusive rights thereafter. Bard's minimum
purchase obligation under the agreement for the period April 1, 1995 to March
31, 1997 has a sales value to the Company of approximately $20 million. The
agreement restricts Bard from selling any other oxygenator until January 1,
1997, but permits the Company to begin worldwide sales of its second generation
oxygenator whenever it becomes commercially available. See "Significant
Customers."
The Company has developed the Borcor-TM- 200, a second generation oxygenator
that requires less priming volume while improving the performance over its first
product. The device incorporates the Company's proprietary weaving technology
for the membrane oxygenation compartment and heat exchange compartment. The
product was introduced in Europe in November 1995, and the Company is currently
awaiting FDA clearance of a 510(k) application submitted in August 1995.
HEMOCONCENTRATORS
Since 1985, the Company has manufactured and sold hemoconcentrators, a
filtration device that removes excess body fluids during open-heart surgery. In
1988, the Company introduced a second generation product, the Hemocor
Plus-Registered Trademark- hemoconcentrator, a rinse-free device that allows for
faster set-up during surgery. In February 1994, the Company received FDA market
clearance for a third generation product, the Hemocor HPH-Registered Trademark-
line which contains a higher performance hollow fiber membrane. The Company
estimates that hemoconcentration is currently used in 25% of all open-heart
procedures in the United States and to a lesser extent internationally and that
such procedures require up to 125,000 hemoconcentrator devices annually
worldwide. At March 31, 1996, the Company held more than a 70% share of the
United States hemoconcentrator market.
HEMOFILTERS
The Renaflo-Registered Trademark- Hemofilter, introduced in 1985, is a
device that performs continuous arteriovenous hemofiltration (CAVH), an
intensive care therapy that treats acute renal failure and fluid overload in
critically ill patients. CAVH is an alternative to conventional dialysis for
these patients.
In April 1995, the Company completed the acquisition of the
hemoconcentrator, hemofilter and dialysate filter product lines from Amicon
Ireland Ltd, an indirect subsidiary of W.R. Grace & Co. ("Amicon"). The purchase
price was approximately $1.4 million, paid in cash. The Company also signed a
six-month supply agreement with Amicon whereby Amicon manufactured products for
the Company to be sold in Europe. The Company began manufacturing these products
in its Minneapolis facility in the first quarter of fiscal 1997.
Cardiosurgery products accounted for approximately 34% of sales in fiscal
1996, 33% of sales in fiscal 1995, and 37% of sales in fiscal 1994.
WATER FILTRATION PRODUCTS
There are two major products in this group: Fiberflo-Registered Trademark-
Microfilters and Minncare-Registered Trademark- Disinfectant. The
Fiberflo-Registered Trademark- Microfilter is a hollow fiber filter that has
"point-of-use" applications in industrial water purification. These filters are
being used for finer filtration in the pharmaceutical, medical device, and
biotechnology industries. Minncare-Registered Trademark- Disinfectant is used to
disinfect water treatment systems. Through March 31, 1996, water filtration
products sales revenues have not been material, accounting for 2.5% of sales in
fiscal 1996, 2.2% of sales in fiscal 1995, and 1.1% of sales in fiscal 1994.
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MARKETS AND DISTRIBUTION
The Company sells its medical products in the United States primarily to
hospitals, clinics, and kidney treatment centers. The Company markets these
products in the United States through direct sales forces and through
independent stocking distributors. At March 31, 1995, the Company employed a
total of seven dialysis sales representatives in the United States, two
cardiosurgery sales representatives, two water filtration sales representatives,
and one endoscope reprocessor sales representative. In addition, a customer
service staff and a technical services department support field activity. The
Company also operates its own trucks to expedite delivery of certain products
and minimize shipping costs.
Until 1991, the Company had historically marketed its products
internationally through independent distributors. Starting in 1991, the Company
began establishing direct sales operations in Europe to enhance marketing of its
products. The Company's goal is to increase its revenues in Europe through
expanded direct sales activities. The Company established a headquarters for its
European operations in the Netherlands in April 1995 and employed a total of 14
people in Europe at March 31, 1996.
The Company's dialysis marketing programs are directed at nephrologists
(doctors who specialize in treating kidney disease), nurses, hospital and clinic
administrators, and others who influence purchasing decisions. Cardiosurgery
marketing programs are directed at perfusionists (technicians who operate
heart-lung bypass equipment) and cardiovascular surgeons. The Company supports
its field organization and network of distributors through advertising,
distribution of sales materials, publication of articles in medical journals,
and attendance at medical conferences.
SOURCES AND AVAILABILITY OF MATERIALS
The majority of the materials and components that the Company uses in its
manufacturing operations are readily obtainable from multiple sources worldwide.
In addition, the Company constructs many of its injection molds and also molds
and extrudes many of its component plastic parts.
PATENTS AND TRADEMARKS
The Company holds rights under 125 patents worldwide (including 34 U.S.
patents) covering its products or components thereof. At March 31, 1996, the
Company also had a total of 100 pending patent applications in the United States
and in foreign countries. The Company also holds rights under 163 trademark
registrations worldwide and has 61 applications pending.
The Company believes that patent protection is a significant factor in
maintaining its market position but the rapid changes of technology in kidney
dialysis therapy, cardiosurgery, and the other areas in which the Company
competes may limit the value of the Company's existing patents.
While patents have a presumption of validity under the law, the issuance of
a patent is not conclusive as to its validity or the enforceable scope of its
claims. Accordingly, there can be no assurance that the Company's existing
patents will afford protection against competitors with similar inventions nor
can there be any assurance that the Company's patents will not be infringed.
Competitors also may obtain patents that the Company would need to license or
design around. These factors also tend to limit the value of the Company's
existing patents. Consequently, in certain instances, the Company may consider
trade secret protection to be a more effective method of maintaining its
proprietary positions.
SEASONALITY OF THE BUSINESS
The Company's business is not seasonal.
WORKING CAPITAL AND BACKLOG
The Company's credit practices and related working capital needs are
comparable to those of other companies in the medical device and supplies
industry. The Company generally fills orders
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within 30 days of receipt. No material order backlogs existed at March 31, 1996.
An order backlog existed for hemoconcentrators, dialyzers and water filters at
March 31, 1995. This backlog had an estimated aggregate sales value of $600,000,
and the Company filled these orders in fiscal 1996.
SIGNIFICANT CUSTOMERS
The Company's five largest customers in fiscal 1996 accounted for
approximately 36% of total sales. Sales of oxygenators to Bard accounted for 20%
or more of sales in fiscal years 1996, 1995, and 1994. Bard agreed to purchase
certain minimum quantities of the oxygenator under a contract that began in
fiscal 1988 and was scheduled to terminate December 31, 1995. In April 1995, a
new agreement was reached extending the term to June 30, 1997. The loss of Bard
as a customer would likely have a material adverse effect upon the Company's
business if the Company was unable to successfully market its second generator
oxygenator itself or to arrange for other means of distribution. See "Products
- -- Cardiosurgery Products -- Oxygenators."
RENEGOTIATION OR TERMINATION OF GOVERNMENT CONTRACTS
No material portion of the Company's business is subject to renegotiation of
profits or termination of contracts or subcontracts at the election of the
Government.
COMPETITION AND MARKET CONDITIONS
The Company's dialysis and reprocessing products are sold in a highly
competitive market, and the Company competes with many other firms. The dialysis
market is dominated by a few firms including Baxter International, Gambro AB
(CGH Medical), W.R. Grace & Co. (National Medical Care), and Fresenius AG. These
firms have substantially greater financial and personnel resources than the
Company and most of them produce and sell a more comprehensive line of dialysis
equipment and supplies. The Company also faces competition from other
international companies and several smaller companies that carry a limited line
of products.
The Company's first generation membrane oxygenator is sold exclusively by
Bard Cardiopulmonary Division of Bard. Bard's major competitors are Medtronic,
Inc., CGH Medical, Bentley Laboratories, Inc., Terumo Corporation and Avecor
Cardiovascular, Inc. The Company's new Borcor-TM- oxygenator is sold
internationally by a network of independent distributors. The Company's
hemoconcentrators are sold by its own direct sales force and by a network of
independent medical distributors. The major competitors in the hemoconcentrator
market are CGH Medical, Bentley Laboratories, Inc. and Research Industries.
The health care industry in the United States operates under cost
containment pressures imposed by the federal government, employers, and health
insurance carriers. One major influence is the Medicare Prospective Payment
System, implemented in 1983, which provides for fixed payments to hospitals for
care of Medicare patients based on diagnosis rather than actual hospital charges
(the DRG system). In addition, the Company's end user customers for its dialysis
and reprocessing products are subject to fixed payments per treatment under
separate Medicare regulations which have been in place for more than 20 years.
Health care providers, in general, have responded by shortening hospital
stays through quicker clinical diagnoses and by employing less invasive medical
procedures and more efficient therapies. In addition, hospitals and other health
care providers have sought to lower their costs by reducing their purchased
supplies costs and by improving their utilization of facilities and equipment.
Dialysis centers, in particular, have also responded by reprocessing and reusing
dialyzers and other supplies and by shortening treatment times.
Under the current cost containment environment, the competitive factors in
the medical markets served by the Company are such that cost reduction is a
prime consideration. Although cost containment may adversely affect some of the
Company's supply products, cost containment pressures may be a positive factor
for certain of the Company's products such as its dialyzer reprocessing
products, hemoconcentrators, and the Cathetron-Registered Trademark-
Reprocessing System.
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RESEARCH AND PRODUCT DEVELOPMENT
The Company strives to design and develop technologically advanced products
that are cost effective and, in the case of its medical products, improve the
quality of patient care. The Company emphasizes product development rather than
basic research. The ability of the Company to compete effectively depends upon
its ability to anticipate changing market needs and successfully develop
products to meet those needs.
As of March 31, 1996, 21 of the Company's employees were engaged in research
and development. In addition to its own research activities, the Company from
time to time obtains experimental and clinical research from outside
investigators, consultants and institutions.
Over the past three years the Company has expended a total of $9,149,000 in
research and development as follows: fiscal 1994 -- $2,893,000, fiscal 1995 --
$3,133,000 and fiscal 1996 -- $3,123,000. Such costs represented 6.1%, 5.6% and
4.8% of revenues, respectively, in each such period.
The Company's current research and development efforts are directed toward
reprocessing applications, blood filtration and oxygenation technologies, cold
sterilant/disinfection applications and water filtration.
GOVERNMENT REGULATION
The medical products manufactured and marketed by the Company are subject to
the Federal Food, Drug and Cosmetic Act and the Medical Device Amendments of
1976 (collectively, the "FDCA"). These laws give the Food and Drug
Administration ("FDA") extensive regulatory authority over medical products
developed, manufactured or marketed by the Company in the United States. The
FDCA requires the Company to register with the FDA, provide updated device
listings and submit a premarket notification to FDA when (i) a device is being
introduced into the market for the first time; (ii) the manufacturer makes a
significant change or modification to an already marketed device that could
affect safety or effectiveness; or (iii) there is a major change or modification
in the intended use of the device. The FDCA also requires that the Company
submit a premarket approval application for devices that are life supporting or
sustaining, or present a potential unreasonable risk of injury or illness. In
addition, the FDCA subjects the Company to the Good Manufacturing Practice
regulations under which the FDA conducts periodic unannounced inspections to
verify compliance. Further, the FDCA imposes certain requirements regarding
manufacturing procedures, distribution, advertising, labeling, and record
keeping. The FDA also has the power to order suspension of manufacturing or
marketing or to recall products that are not in compliance with law.
Before introducing its products into the market, the Company must comply
with the premarket approval and/or notification provisions of the FDCA. Data
regarding the product's safety and effectiveness must be submitted to the FDA.
In some instances, clinical studies may be necessary to obtain this data. Before
commencing clinical trials, the Company must apply for an Investigational Device
Exemption ("IDE"). Under an approved IDE, a device is exempt from certain FDA
provisions including misbranding, registration, listing, premarket approval,
records and reports and good manufacturing practices, thus enabling the
applicant company to test a device clinically. Before an IDE is granted,
sufficient nonclinical data must be submitted to demonstrate that the device is
safe and effective. Significant time and expense may be associated with the
collection of both clinical and nonclinical data and there are no assurances,
that the necessary FDA premarket approvals or clearances will be granted.
During 1992 and 1993, the time between submission to the FDA and final
clearance for marketing increased substantially; however, review times by the
FDA are beginning to decrease. Notwithstanding, there are no assurances that
this trend will continue, and the Company is still experiencing delays in
receiving product clearances.
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In January 1995, the Company received ISO 9001 certification for its
Minneapolis facilities. This certification allows the Company to self-certify
its products for sale throughout the European Community. In order to
self-certify, the Company must maintain certain records and files which are
reviewed by a "notified body" organization on an annual basis. Many of the
Company's products now display the CE mark.
Certain products of the Company are also subject to registration with the
Environmental Protection Agency (EPA). The registration process generally
entails the collection and submission of data to support the products' label
claims. Considerable time and cost may be involved with the collection of data
to support these submissions, and there are no assurances that the necessary EPA
approvals will be granted for the Company's new products. Currently, EPA and FDA
have entered into a memorandum of understanding whereby the agencies intend to
cooperate on chemical product submissions that are currently duplicative for
both applicants and the agencies.
Compliance with federal, state, and local provisions regulating the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, do not have a material adverse effect upon the
capital expenditures, earnings, and competitive position of the Company.
EMPLOYEES
As of March 31, 1996, the Company employed 17 part-time and 434 full-time
employees, including 334 persons in manufacturing operations. None of the
employees is covered by a collective bargaining agreement, and the Company
believes its employee relations are good.
GEOGRAPHIC AREA INFORMATION
The major foreign markets for the Company's products are Europe and the Far
East. Sales outside the United States for the years ended March 31, 1994, 1995
and 1996 were approximately $4,586,000, $7,261,000, and $10,462,000,
respectively. Sales outside the United States accounted for approximately 10%,
13% and 16% of total sales, respectively, in each such period.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their ages, and the year they became
executive officers are listed below:
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FIRST ELECTED
NAME POSITION WITH COMPANY AGE AS OFFICER
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Louis C. Cosentino, Ph.D. President, Chief Executive Officer and Director 52 1974
LeRoy J. Fischbach Vice President -- Regulatory Affairs 52 1980
Thomas J. McGoldrick Executive Vice President 55 1985
Daniel H. Schyma Vice President -- International 54 1992
Douglas A. Luehmann Vice President -- Dialysis 53 1993
Richard P. Goldhaber Vice President -- Technology 52 1993
Barbara A. Wrigley Vice President, General Counsel and Secretary 45 1994
Robert W. Johnson Vice President -- Quality Assurance 40 1994
Luis J. Berga Vice President, Manufacturing -- Cardiovascular 43 1995
Warren M. White Chief Financial Officer 54 1995
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Executive officers are elected annually by the Board of Directors and serve
until their successors are duly elected and qualified. Dr. Cosentino and Mssrs.
Fischbach, McGoldrick, Schyma and Luehmann have been employed by the Company in
an executive or management capacity for more than five years.
Mr. Goldhaber joined the Company in November 1993, having previously been
employed by Baxter Healthcare Corporation from 1965 to 1993 in various
manufacturing and engineering capacities including Vice President, New Product
Development for Baxter's European operations.
Ms. Wrigley joined the Company in September 1991, having previously been
associated with the Minneapolis law firm of Dorsey & Whitney from 1989 to 1991
and the Cleveland-based firm of Jones, Day, Reavis & Pogue during 1991. While in
private practice, Ms. Wrigley specialized in the areas of intellectual property
and general corporate law.
Mr. Berga joined the Company in August 1995, having previously been employed
from 1986 to 1995 by Baxter Healthcare Corporation in various manufacturing and
operations capacities, including most recently Vice President, Operations.
Mr. White joined the Company in December 1995, having previously been
employed from 1983 to 1995 by Dotronix, Inc. as Vice President Finance.
ITEM 2. PROPERTIES
UNITED STATES
The Company owns two facilities located on adjacent sites, comprising a
total of 14 acres of land in Plymouth, a suburb of Minneapolis, Minnesota. One
facility is a 65,000 square-foot building, occupied by the Company since 1977,
which is used for manufacturing and warehousing operations. The second facility
is a 110,000 square-foot building, purchased in 1990, that houses the Company's
executive, administrative and sales staffs, and research operations. This
building is also used for manufacturing and warehousing.
The Company also owns two parcels of undeveloped land adjacent to these
facilities comprising a total of 7.8 acres.
EUROPE
The Company owns a 21,000 square-foot building on a 4.4 acre site in
Heerlen, The Netherlands. Occupancy commenced in April 1995. The facility serves
as the Company's European headquarters and is being used as a sales office,
warehouse and manufacturing facility.
The Company believes its facilities are in good condition, being utilized
for their intended purposes, and have sufficient capacity to meet its reasonably
anticipated needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not aware of any pending or threatened legal proceedings
which it regards as likely to have a material adverse effect on its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
fourth quarter of the fiscal year ended March 31, 1996.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded on the NASDAQ National Market System
under the symbol "MNTX." The prices below are the high and low transaction
prices as reported in each quarter of the last two fiscal years.
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YEARS ENDED MARCH 31
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1996 1995
FISCAL ---------------- ----------------
QUARTER PRICES HIGH LOW HIGH LOW
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First Quarter............................................... $15.50 $11.50 $12.50 $10.50
Second Quarter.............................................. 19.25 13.75 16.50 11.50
Third Quarter............................................... 23.63 16.00 16.00 12.25
Fourth Quarter.............................................. 22.50 17.00 16.50 14.50
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As of June 28, 1996, the Company had approximately 510 shareholders of
record.
The Company paid annual cash dividends of ten cents per share on its common
stock in September 1994 and September 1995. The Board of Directors will consider
annually the payment of dividends. However, any future determination as to
payment of cash dividends will depend upon the financial condition and results
of operations of the Company and such other factors that are deemed relevant by
the Board of Directors.
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ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR SUMMARY OF SELECTED FINANCIAL DATA
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YEARS ENDED MARCH 31,
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1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF EARNINGS DATA
Net sales -- products....................................... $64,769,143 $55,882,512 $47,487,981 $44,016,645 $34,793,390
Contract revenues........................................... -- 300,000 300,000 300,000 100,000
----------- ----------- ----------- ----------- -----------
Total revenues.............................................. 64,769,143 56,182,512 47,787,981 44,316,645 34,893,390
Cost of product sales....................................... 38,108,313 31,774,240 26,620,243 24,799,821 19,709,208
Research and development expenses........................... 3,123,065 3,133,075 2,892,514 2,404,838 2,099,375
Selling, general and administrative expenses................ 15,319,533 11,939,902 10,053,196 9,552,534 7,013,315
Amortization of intangible assets........................... 762,552 358,068 197,578 141,473 105,573
Loss due to fiber production scale-up....................... 936,000 -- -- -- --
----------- ----------- ----------- ----------- -----------
Earnings from operations.................................... 6,519,680 8,977,227 8,024,450 7,417,979 5,965,919
Other income (expense), net................................. 42,535 236,630 (44,345) 115,181 (11,519)
----------- ----------- ----------- ----------- -----------
Earnings before income taxes................................ 6,562,215 9,213,857 7,980,105 7,533,160 5,954,400
Provision for income taxes.................................. 2,394,000 3,294,000 3,045,000 2,814,000 2,128,000
Minority interest........................................... (140,024) -- -- -- --
----------- ----------- ----------- ----------- -----------
Net earnings................................................ $ 4,308,239 $ 5,919,857 $ 4,935,105 $ 4,719,160 $ 3,826,400
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net earnings per share...................................... $ .62 $ .90 $ .78 $ .72 $ .58
Weighted average common and common equivalent shares........ 6,923,821 6,613,391 6,354,348 6,524,277 6,630,797
BALANCE SHEET DATA
Cash, cash equivalents and marketable securities............ $ 5,218,727 $ 4,487,345 $ 7,698,787 $ 6,249,516 $ 7,120,991
Working capital............................................. 22,128,080 18,105,889 17,874,988 13,653,062 11,239,365
Property and equipment, net................................. 17,323,495 15,631,510 12,899,800 12,039,244 10,909,692
Total assets................................................ 50,046,500 41,273,591 36,029,630 31,352,470 27,943,534
Long-term debt.............................................. -- -- 1,905,920 1,942,577 1,961,966
Stockholders' equity........................................ 41,210,272 35,052,404 28,704,406 23,066,499 19,131,053
Book value per common share................................. $ 6.21 $ 5.49 $ 4.66 $ 3.80 $ 3.26
GENERAL DATA AND RATIOS
Current ratio............................................... 4.17 4.56 5.36 3.71 3.08
Gross margin on net product sales........................... 41.2% 43.1% 43.9% 43.7% 43.4%
Net earnings as a % of total revenues....................... 6.7% 10.5% 10.3% 10.6% 11.0%
Return on average stockholders' equity...................... 11.3% 18.6% 19.1% 22.4% 22.9%
</TABLE>
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
REVENUES
Revenues in fiscal year 1996 increased by $8,587,000, or 15%, due primarily
to increased unit sales of dialyzer reprocessing and endoscope reprocessing
products and increased sales of cardiosurgery products. Sales of cardiosurgery
products grew 22% due to increased unit sales of hemoconcentrators and
hemofilters which more than offset a small decline in oxygenator sales. Product
lines acquired in the first quarter of the fiscal year contributed to the growth
of cardiosurgery product sales. Product price increases in fiscal year 1996 did
not have a significant impact on revenues.
Sales of membrane oxygenators to Bard accounted for 20% of revenues in
fiscal year 1996 compared to 25% in fiscal 1995. The Company's supply contract
with Bard expires on June 30, 1997. Sales of oxygenators under this agreement
are scheduled to decrease substantially in fiscal year 1997. The decline in
sales to Bard is expected to be offset to a certain extent by sales of the
Company's second generation oxygenator -- the Biocor-TM- 200. Sales of this
product commenced in Europe in the third quarter of fiscal year 1996. At March
31, 1996, the Company was awaiting FDA market clearance to sell its Biocor
oxygenator in the United States.
Revenues in fiscal year 1995 increased by $8,395,000, or 18%, due to
increased unit sales of all major product lines except for sales of oxygenators
to Bard which remained approximately constant with the prior year. Product price
increases in fiscal year 1995 accounted for approximately 10% of the increase in
revenue dollars.
Changes in foreign currency exchange rates did not have a significant impact
on the Company's revenues in fiscal years 1996, 1995 and 1994.
Product sales have grown at a compound annual rate of 14% over the past
three years. The following table indicates sales and percent of total corporate
sales by product group for each of the last three fiscal years:
<TABLE>
<CAPTION>
1996 1995 1994
----------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Dialysis supplies and devices.................................... $18,648,000 29% $18,552,000 33% $16,223,000 34%
Reprocessing products............................................ 22,220,000 34 17,816,000 32 13,127,000 28
Cardiosurgery products........................................... 22,298,000 34 18,263,000 33 17,637,000 37
Water filtration products........................................ 1,603,0003 3 1,252,000 2 501,000 1
----------- ---- ----------- ---- ----------- ----
$64,769,000 100% $55,883,000 100% $47,488,000 100%
----------- ---- ----------- ---- ----------- ----
----------- ---- ----------- ---- ----------- ----
</TABLE>
GROSS MARGINS
Gross profit from product sales in fiscal 1996 was $26,661,000, or 41.2% of
net sales, compared to $24,108,000, or 43.1%, in fiscal 1995 and $20,868,000, or
43.9%, in fiscal 1994. The decrease in gross margin in fiscal 1996 was due
primarily to lower margins on certain hollow fiber products. The decrease in
gross margin in fiscal 1995 resulted primarily from reduced dialysis concentrate
margins. Unabsorbed dialyzer manufacturing costs depressed gross margins in each
of fiscal years 1996, 1995, and 1994.
Some of the Company's research and development efforts are directed to the
development of new versions of existing products. Gross margin in the past has
not been materially impacted by obsolete inventories resulting from the
introduction of new products. The Company does not expect inventory obsolescence
to impact gross margins significantly in the foreseeable future.
RESEARCH AND DEVELOPMENT
Research and development expenses in fiscal 1996 were $3,123,000, or 4.8% of
revenues, compared to $3,133,00, or 5.6% of revenues, in fiscal 1995 and
$2,893,000, or 6.1% of revenues, in fiscal
11
<PAGE>
1994. The Company intends to continue investing a substantial portion of its
revenues in new product development. The Company expects that total research and
development expenses in fiscal 1997 will approximate 6% of revenues.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses as a percentage of revenues
increased to 23.7% in fiscal 1996 compared to 21.3% in fiscal 1995 and 21.0% in
fiscal 1994. The higher costs in fiscal years 1996 and 1995 were due primarily
to increases in sales and administrative staffs and expanded marketing efforts
in the United States, Europe and Japan (in 1996). The Company expects selling,
general and administrative expenses will approximate 24% of revenues in fiscal
1997.
INCOME TAXES
The Company recorded an income tax provision in fiscal 1996 of $2,394,000,
an effective tax rate of 36.5%, compared to effective tax rates of 35.8% in
fiscal 1995 and 38.1% in fiscal 1994. The Company benefited from deductible
losses related to investments in foreign subsidiaries in both fiscal years 1996
and 1995. The Company's effective income tax rate may increase in fiscal 1997
and any such increase will vary depending upon the operating results of its
foreign subsidiaries.
NET EARNINGS
Net earnings decreased by 27% in fiscal 1996 and totaled $4,308,000, or 6.7%
of revenues, compared to earnings of $5,920,000, or 10.5% of revenues, in fiscal
1995 and earnings of $4,935,000, or 10.3% of revenues, in fiscal 1994. The
decrease in earnings and net margin in fiscal 1996 was due to higher operating
expenses, lower gross margin, and fiber production scale-up losses of $936,000
incurred in the second quarter. The increase in earnings in fiscal 1995 was due
to higher sales revenues.
INFLATION
Management believes inflation has not had a material effect on the Company's
results of operations or on its financial condition.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to maintain a strong balance sheet, as evidenced by
the following liquidity trends:
<TABLE>
<CAPTION>
MARCH 31
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash, cash equivalents and marketable securities...................... $ 5,219,000 $ 4,487,000 $ 7,699,000
Working capital....................................................... 22,128,000 18,106,000 17,875,000
Long-term debt........................................................ -- -- 1,906,000
Stockholders' equity.................................................. 41,210,000 35,052,000 28,704,000
Cash flow from operations............................................. 5,312,000 5,615,000 5,183,000
Cash dividends paid................................................... 653,000 623,000 --
</TABLE>
The increases in cash and working capital in fiscal 1996 were due to funds
generated from operations. The decrease in cash in fiscal 1995 was due primarily
to real estate acquisitions, retirement of long-term debt, and the acquisition
of a product line. The Company's current ratio at March 31, 1996 was 4.2 to 1
compared to 4.6 to 1 at March 31, 1995. The Company has an unused $10,000,000
bank line of credit which allows the Company to borrow on an unsecured basis at
the prime rate of interest (8.25% at March 31, 1996).
Accounts receivable increased during fiscal 1996 due primarily to the
increased level of sales. Inventories increased during fiscal 1996 to
accommodate increased sales in the U.S. and internationally and as a result of
higher production levels of fiber products. Sales backlog conditions which
existed at the end of the prior year were eliminated in fiscal 1996.
12
<PAGE>
The Company continued to expand its production facilities to increase
capacity to manufacture new products in fiscal 1996. The Company expended a
total of $4,333,000 for plant improvements and equipment in fiscal 1996 compared
to $3,573,000 in fiscal 1995 and $2,970,000 in fiscal 1994. The Company plans to
invest approximately $4,000,000 in capital equipment in fiscal 1997 to meet the
needs of its expanding business. During fiscal 1995, the Company purchased a
building in The Netherlands for $1,539,000, acquired land in Plymouth, Minnesota
for $530,000, and retired mortgage debt of $1,942,000.
The Company in the first quarter of fiscal 1996 acquired a group of hollow
fiber product lines for $1,402,000 in cash. In fiscal 1995, the Company acquired
an endoscope reprocessing product line for $934,000 in cash. Assets acquired in
both of these transactions included inventory, equipment, and goodwill.
Over the past three years, proceeds from stock option exercises provided a
total of $3,209,000 in equity capital as follows: fiscal 1996 -- $1,979,000;
fiscal 1995 -- $909,000; and fiscal 1994 -- $321,000.
In fiscal 1994, the Company repurchased 27,500 shares of its common stock in
open market transactions for $264,000.
The Company believes that its strong financial condition at March 31, 1996,
along with funds expected to be generated from operations, will be sufficient to
meet its working capital and capital equipment needs in fiscal 1997.
FOREIGN CURRENCY TRANSACTIONS
Substantially all of the Company's U.S.-based export sales are invoiced and
paid in U.S. dollars. The transactions of the Company's Netherlands-based
subsidiary are invoiced and paid in several currencies including Dutch guilders,
German marks and U.S. dollars. The Company does not currently hedge its foreign
currency transactions. Accordingly, the Company is subject to risks associated
with fluctuations in currency exchange rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Reports of Independent Certified Public
Accountants are contained on pages 19 through 31 of this report.
QUARTERLY FINANCIAL DATA
Quarterly financial data has not been submitted because the Company has less
than 800 shareholders of record.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Grant Thornton LLP, the Company's independent accountants since 1974, was
dismissed on January 30, 1995 and Price Waterhouse LLP was appointed as the
Company's new independent accountants. Grant Thornton's report on the financial
statements for the year ended March 31, 1994 was unqualified. Price Waterhouse's
report on the financial statements for the year ended March 31, 1995 was
unqualified. There have been no disagreements with Grant Thornton LLP or Price
Waterhouse LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure. There have occurred no
"reportable events" as defined in Item 304(a) of Regulation S-K. The decision to
change accountants was recommended by the Audit Committee of the Company's Board
of Directors and approved by the Board of Directors.
13
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required under this Item with respect to directors will be
included under the heading "Election of Directors" in the Company's definitive
Proxy Statement for the Annual Meeting of Shareholders to be held August 28,
1996, and is incorporated herein by reference.
Pursuant to Instruction 3 to Item 401(b) of Regulation S-K, information as
to executive officers of the Company is set forth in Part I of this Form 10-K
under the caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required under this Item will be included under the heading
"Executive Compensation and Other Information" in the Company's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held August 28, 1996, and
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required under this Item will be included under the heading
"Security Ownership of Certain Beneficial Owners and Management" in the
Company's definitive Proxy Statement for the Annual Meeting of Shareholders to
be held August 28, 1996, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of report:
<TABLE>
<C> <S> <C>
1 Financial Statements.
The following consolidated financial statements of the Company and its
subsidiaries are filed as a part of this Form 10-K
(i) Consolidated Balance Sheets March 31, 1996 and 1995
(ii) Consolidated Statements of Earnings three years ended March 31, 1996,
1995, and 1994
(iii) Consolidated Statements of Stockholders' Equity three years ended
March 31, 1996, 1995, and 1994
(iv) Consolidated Statements of Cash Flows three years ended March 31,
1996, 1995, and 1994
(v) Notes to Consolidated Financial Statements
(vi) Reports of Independent Certified Public Accountants
2 Schedules filed as part of this Form 10-K: none
All schedules are omitted because they are not applicable to the
Company or because the information required is included in the
consolidated financial statements and notes thereto.
3 Exhibits included herein:
3 (a) Articles of Incorporation, as amended (1)
3 (b) Amendment of By-Laws in March 1986 (2)
3 (c) Restated By-Laws (2)
4 Form of Specimen Common Stock Certificate (3)
</TABLE>
14
<PAGE>
<TABLE>
<C> <S> <C>
10 (a) 1989 Stock Plan, as amended August 28, 1991 and August 25, 1993 (4)
10 (b) Restated 1982 Incentive Stock Option Plan, as amended (1)
10 (c) Form of Employment Agreement dated April 22, 1986 with certain
officers of the Company (5)
10 (d) Form of Amendment dated February 27, 1989 to Employment Agreements
dated April 22, 1986 (5)
10 (e) Form of Employment Agreement dated February 27,1989 with certain
officers and key employees of the Company (5)
10 (f) 1990 Employee Stock Purchase Plan, as amended June 1, 1993 (3)
10 (g) Supplemental Executive Retirement Plan effective April 1, 1996 (6)
23 (a) Consent of Price Waterhouse LLP
23 (b) Consent of Grant Thornton LLP
27 Financial Data Schedule
</TABLE>
- ------------------------
(1) Incorporated by reference to the specified exhibit filed as part of the
Company's Annual Report on Form 10-K for the year ended March 31, 1988, File
No. 0-11278.
(2) Incorporated by reference to the specified exhibit filed as part of the
Company's report on Form 8-K on March 12, 1986, File No. 0-11278.
(3) Incorporated by reference to the specified exhibit filed as part of the
Company's Annual Report on Form 10-K for the year ended March 31, 1993, File
No. 0-11278.
(4) Incorporated by reference to exhibit 4(a) filed as part of the Company's
registration statement on Form S-8, which became effective on December 5,
1989, File No. 33-32070.
(5) Incorporated by reference to the specified exhibit filed as part of the
Company's Annual Report on Form 10-K for the year ended March 31, 1989, File
No. 0-11278
(6) Incorporated by reference to the specified exhibit filed as part of the
Company's Annual Report on Form 10-K for the year ended March 31, 1995, File
No. 0-11278.
(b) Reports on Form 8-K.
None.
15
<PAGE>
MINNTECH CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents........................................... $ 4,064,391 $ 3,324,738
Marketable securities............................................... 1,154,336 1,162,607
Accounts receivable, less allowance for doubtful accounts of
$215,000 and $125,000.............................................. 11,261,603 10,329,512
Inventories......................................................... 11,435,335 7,463,675
Prepaid expenses and other current assets........................... 1,196,796 911,544
------------ ------------
TOTAL CURRENT ASSETS.............................................. 29,112,461 23,192,076
PROPERTY AND EQUIPMENT, AT COST
Land, buildings and improvements.................................... 9,325,804 9,145,529
Machinery and equipment............................................. 18,366,494 15,024,370
Office and sales equipment.......................................... 2,658,104 2,000,058
------------ ------------
30,350,402 26,169,957
Less accumulated depreciation....................................... (13,026,907) (10,538,447)
------------ ------------
17,323,495 15,631,510
OTHER ASSETS
Patent costs, net of accumulated amortization of $734,400 and
$520,300........................................................... 801,961 617,254
Goodwill, net of accumulated amortization of $603,000 and
$181,600........................................................... 1,769,542 1,151,185
Other............................................................... 1,039,121 681,566
------------ ------------
$ 50,046,580 $ 41,273,591
------------ ------------
------------ ------------
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable.................................................... $ 5,188,951 $ 2,810,844
Accrued compensation................................................ 1,170,454 1,684,072
Other accrued expenses.............................................. 624,976 519,416
Income taxes payable................................................ -- 71,855
------------ ------------
TOTAL CURRENT LIABILITIES......................................... 6,984,381 5,086,187
DEFERRED INCOME TAXES................................................. 1,412,000 1,135,000
DEFERRED COMPENSATION................................................. 129,455 --
MINORITY INTEREST..................................................... 310,472 --
COMMITMENTS........................................................... --
STOCKHOLDERS' EQUITY
Preferred stock -- 5,000,000 shares authorized, none outstanding.... --
Common stock -- $.05 par value; 10,000,000 shares authorized;
6,635,134 and 6,384,758 shares issued and outstanding.............. 331,757 319,238
Additional paid-in capital.......................................... 11,646,498 9,124,098
Retained earnings................................................... 29,232,017 25,609,068
------------ ------------
41,210,272 35,052,404
------------ ------------
$ 50,046,580 $ 41,273,591
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of these statements.
16
<PAGE>
MINNTECH CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
-------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES
Net sales -- products............................................... $64,769,143 $55,882,512 $47,487,981
Contract revenues................................................... -- 300,000 300,000
----------- ----------- -----------
Total revenues.................................................... 64,769,143 56,182,512 47,787,981
OPERATING COSTS AND EXPENSES
Cost of product sales............................................... 38,108,313 31,774,240 26,620,243
Research and development............................................ 3,123,065 3,133,075 2,892,514
Selling, general and administrative................................. 15,319,533 11,939,902 10,053,196
Amortization of intangible assets................................... 762,552 358,068 197,578
Loss due to fiber production scale-up............................... 936,000 -- --
----------- ----------- -----------
Total operating costs and expenses................................ 58,249,463 47,205,285 39,763,531
----------- ----------- -----------
EARNINGS FROM OPERATIONS.............................................. 6,519,680 8,977,227 8,024,450
OTHER INCOME (EXPENSE)
Interest expense.................................................... (1,849) (192,009) (250,697)
Interest income and other, net...................................... 44,384 428,639 206,352
----------- ----------- -----------
42,535 236,630 (44,345)
----------- ----------- -----------
EARNINGS BEFORE INCOME TAXES AND MINORITY INTEREST.................... 6,562,215 9,213,857 7,980,105
Provision for income taxes.......................................... 2,394,000 3,294,000 3,045,000
Minority interest................................................... (140,024) -- --
----------- ----------- -----------
NET EARNINGS.......................................................... $ 4,308,239 $ 5,919,857 $ 4,935,105
----------- ----------- -----------
----------- ----------- -----------
NET EARNINGS PER SHARE $ .62 $ .90 $ .78
----------- ----------- -----------
----------- ----------- -----------
Weighted average common and common equivalent shares.................. 6,923,821 6,613,391 6,354,348
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
17
<PAGE>
MINNTECH CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
COMMON STOCK
----------------------
SHARES ADDITIONAL
ISSUED AND PAID-IN RETAINED
OUTSTANDING AMOUNT CAPITAL EARNINGS TOTAL
----------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCES APRIL 1, 1993.................. 6,066,954 $303,347 $ 7,461,143 $15,302,009 $23,066,499
Exercise of stock options, net of 19,971
shares surrendered in payment.......... 124,303 6,215 314,488 -- 320,703
Tax benefit from exercise of stock
options................................ -- -- 648,100 -- 648,100
Repurchases of common stock............. (27,500) (1,375) (262,188) -- (263,563)
Foreign currency translation
adjustment............................. -- -- -- (2,438) (2,438)
Net earnings............................ -- -- -- 4,935,105 4,935,105
----------- -------- ----------- ----------- -----------
BALANCES MARCH 31, 1994................. 6,163,757 308,187 8,161,543 20,234,676 28,704,406
Exercise of stock options, net of 25,465
shares surrendered in payment.......... 221,001 11,051 898,355 -- 909,406
Tax benefit from exercise of stock
options................................ -- -- 64,200 -- 64,200
Dividend paid........................... -- -- -- (623,250) (623,250)
Unrealized holding losses on
investments............................ (153,803) (153,803)
Foreign currency translation
adjustment............................. -- -- -- 231,588 231,588
Net earnings............................ -- -- -- 5,919,857 5,919,857
----------- -------- ----------- ----------- -----------
BALANCES MARCH 31, 1995................. 6,384,758 319,238 9,124,098 25,609,068 35,052,404
Exercise of stock options, net of 40,555
shares surrendered in payment.......... 250,376 12,519 1,966,540 -- 1,979,059
Tax benefit from exercise of stock
options................................ -- -- 555,860 -- 555,860
Dividend paid........................... -- -- -- (652,542) (652,542)
Reduction of unrealized holding losses
on investments......................... -- -- -- 80,120 80,120
Foreign currency translation
adjustment............................. -- -- -- (112,868) (112,868)
Net earnings............................ -- -- -- 4,308,239 4,308,239
----------- -------- ----------- ----------- -----------
BALANCES MARCH 31, 1996................. 6,635,134 $331,757 $11,646,498 $29,232,017 $41,210,272
----------- -------- ----------- ----------- -----------
----------- -------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
18
<PAGE>
MINNTECH CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
----------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings.......................................................... $4,308,239 $5,919,857 $4,935,105
Adjustments to reconcile net earnings to net cash provided by
operating activities
Depreciation and amortization..................................... 3,406,339 2,775,352 2,290,535
Tax benefit from stock option exercises........................... 555,860 64,200 648,100
Deferred contract revenue......................................... -- (300,000) (300,000)
Foreign currency exchange (gain) loss............................. 159,150 (204,146) --
Deferred income taxes............................................. (143,600) 31,800 105,000
Minority interest................................................. (140,024) -- --
Other............................................................. (65,177) 90,528 118,790
Changes in assets and liabilities:
Accounts receivable............................................. (1,059,931) (2,429,575) (994,149)
Inventories..................................................... (3,658,623) (1,198,859) (537,629)
Prepaid expenses................................................ 135,348 (157,777) (140,930)
Accounts payable................................................ 2,399,860 432,485 (60,532)
Accrued expenses................................................ (513,618) 837,459 (762,346)
Income taxes payable............................................ (71,855) (246,647) (119,242)
---------- ---------- ----------
Total adjustments............................................... 1,003,729 (305,180) 247,597
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES............................. 5,311,968 5,614,677 5,182,702
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment................................. (4,333,385) (5,111,925) (2,970,214)
Purchase of undeveloped land........................................ -- (529,842) --
Proceeds from sale of equipment..................................... -- 18,772 22,965
Patent application costs............................................ (543,464) (385,725) (268,120)
Acquisition of product lines........................................ (1,402,087) (933,600) (467,453)
Other............................................................... (2,387) (1,742) (2,572)
---------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES................................. (6,281,323) (6,944,062) (3,685,394)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of long-term debt.......................................... -- (1,942,384) (29,402)
Proceeds from exercise of stock options............................. 1,979,059 909,406 320,703
Minority interest capital contribution.............................. 450,496 -- --
Payment of cash dividends........................................... (652,542) (623,250) --
Repurchases of common stock......................................... -- -- (263,563)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES................... 1,777,013 (1,656,228) 27,738
Effects of exchange rate changes on foreign currency cash balances.... (68,005) 103,533 1,872
---------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 739,653 (2,882,080) 1,526,918
Cash and cash equivalents at beginning of year........................ 3,324,738 6,206,818 4,679,900
---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END OF YEAR.............................. $4,064,391 $3,324,738 $6,206,818
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
19
<PAGE>
MINNTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS DESCRIPTION
Minntech Corporation is a leader in developing, manufacturing and marketing
medical devices, sterilants and water filtration products. The Company's
products are used in kidney dialysis, open-heart surgery, endoscopy and in the
preparation of pure water for medical, industrial and laboratory use.
CONSOLIDATION POLICY
The consolidated financial statements include the accounts of the Company,
its majority-owned subsidiary and its wholly-owned subsidiaries. All
intercompany balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
Sales are recognized at the time products are shipped. The Company allows
customers to return products for credit upon written authorization from the
Company.
Contract revenues derived from development and marketing agreements are
recorded as earned based on the performance requirements of the contract.
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, short-term trade
receivables and payables for which their current carrying amounts approximate
fair market value.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid temporary investments with original
maturities of three months or less to be cash equivalents. Cash and cash
equivalents consisted of:
<TABLE>
<CAPTION>
MARCH 31
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Cash............................................................ $ 2,117,793 $ 1,819,125
Money market mutual funds....................................... 1,946,598 --
Commercial paper................................................ -- 502,213
Municipal bonds................................................. -- 1,003,400
------------- -------------
$ 4,064,391 $ 3,324,738
------------- -------------
------------- -------------
</TABLE>
A substantial portion of the Company's cash balances are held in one
financial institution.
Commercial paper, money market mutual funds and municipal bonds are stated
at fair value, which approximates cost at March 31, 1996 and 1995.
MARKETABLE SECURITIES
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115), on April 1, 1994. In
20
<PAGE>
MINNTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
accordance with SFAS 115, prior period financial statements were not restated to
reflect the change in accounting principle. The effect of applying the new
standard to prior periods would not have had a material impact on the Company's
financial statements.
Marketable securities consisted of investments in bond funds. At March 31,
1996 and 1995, the adjusted cost of the funds exceed fair market value. The
unrealized holding losses, net of income taxes, are reported as a reduction in
stockholders' equity.
Marketable securities consisted of:
<TABLE>
<CAPTION>
MARCH 31
----------------------------
1996 1995
------------- -------------
<S> <C> <C>
Adjusted cost................................................... $ 1,269,019 $ 1,402,410
Unrealized holding loss......................................... 114,683 239,803
------------- -------------
Fair market value............................................... $ 1,154,336 $ 1,162,607
------------- -------------
------------- -------------
</TABLE>
INVENTORIES
Inventories are valued at the lower of cost or market, with cost determined
by the first-in, first-out method.
Inventories consisted of:
<TABLE>
<CAPTION>
MARCH 31
-----------------------------
1996 1995
-------------- -------------
<S> <C> <C>
Finished goods................................................. $ 4,768,680 $ 2,658,231
Materials and work-in-process.................................. 6,666,655 4,805,444
-------------- -------------
$ 11,435,335 $ 7,463,675
-------------- -------------
-------------- -------------
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are depreciated on a straight-line basis over their
estimated service lives. Accelerated and straight-line methods are used for
income tax reporting purposes.
PATENT COSTS
Patent application costs consist principally of legal and filing fees and
are capitalized and amortized over five years.
GOODWILL
Goodwill represents the cost in excess of the fair value of net assets
acquired and is amortized using the straight-line method over five to seven
years. The Company periodically evaluates the existence of goodwill impairment
on the basis of whether the goodwill is fully recoverable from projected,
undiscounted net cash flows of the related business unit.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred.
INCOME TAXES
Effective April 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." This standard
required a change from the deferred method of accounting for income taxes. Under
the asset and liability method of Statement 109, deferred tax
21
<PAGE>
MINNTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. The adoption of
this standard did not have a material impact on the Company's financial
statements and no cumulative effect adjustment was required.
FOREIGN CURRENCY TRANSLATION
Foreign assets and liabilities are translated to U.S. dollars at year-end
exchange rates. Revenues and expenses are translated at the average exchange
rates in effect for the year. Unrealized translation adjustments are reported as
a component of stockholders' equity.
NOTE B -- LINE OF CREDIT
At March 31, 1996, the Company had an unused line of credit with a
commercial bank which allows the Company to borrow up to $10,000,000 on an
unsecured basis at the prime rate of interest (8.25% at March 31, 1996). This
line of credit expires August 31, 1997.
Cash payments for interest on debt amounted to approximately $2,000,
$192,000 and $251,000 for fiscal years 1996, 1995 and 1994, respectively.
NOTE C -- SIGNIFICANT CUSTOMERS AND EXPORT SALES
Sales to one unaffiliated customer accounted for approximately 23%, 25% and
30% of sales in fiscal years 1996, 1995 and 1994, respectively. The Company has
a corresponding concentration of accounts receivable due from this customer.
Sales to this customer are made under a contract which is scheduled to expire
June 30, 1997.
Consolidated sales outside the United States, principally to customers in
Europe and the Far East, amounted to $10,462,000, $7,261,000 and $4,586,000, in
fiscal years 1996, 1995 and 1994, respectively.
NOTE D -- INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, FEDERAL STATE TOTAL
- --------------------------------------------------- ------------- ----------- -------------
<S> <C> <C> <C>
1996
Currently payable.................................. $ 2,375,600 $ 162,000 $ 2,537,600
Deferred........................................... (146,100) 2,500 (143,600)
------------- ----------- -------------
$ 2,229,500 $ 164,500 $ 2,394,000
------------- ----------- -------------
------------- ----------- -------------
1995
Currently payable.................................. $ 3,016,300 $ 245,900 $ 3,262,200
Deferred........................................... 25,800 6,000 31,800
------------- ----------- -------------
$ 3,042,100 $ 251,900 $ 3,294,000
------------- ----------- -------------
------------- ----------- -------------
1994
Currently payable.................................. $ 2,721,000 $ 219,000 $ 2,940,000
Deferred........................................... 102,000 3,000 105,000
------------- ----------- -------------
$ 2,823,000 $ 222,000 $ 3,045,000
------------- ----------- -------------
------------- ----------- -------------
</TABLE>
22
<PAGE>
MINNTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D -- INCOME TAXES (CONTINUED)
The provision for income taxes differs from the statutory U.S. federal tax
rate of 34% applied to earnings before income taxes as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
-------------------------------------------
1996 1995 1994
------------- ------------- -------------
<S> <C> <C> <C>
Income tax expense at statutory federal income tax rates... $ 2,254,700 $ 3,132,700 $ 2,713,200
Foreign subsidiary losses.................................. 671,600 261,800 224,800
State income taxes, net of federal tax benefit............. 108,500 166,300 155,000
Exempt income attributable to foreign sales................ (51,000) (59,200) --
Loss on investment in foreign subsidiary................... (593,800) (189,700) --
Other, net................................................. 4,000 (17,900) (48,000)
------------- ------------- -------------
$ 2,394,000 $ 3,294,000 $ 3,045,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The tax effects of cumulative temporary differences that give rise to
significant portions of the deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
MARCH 31
-----------------------------
1996 1995
-------------- -------------
<S> <C> <C>
Deferred tax assets
Foreign subsidiary net operating losses................................ $ 1,525,000 $ 705,300
Allowance for doubtful accounts........................................ 50,700 45,000
Inventories............................................................ 230,900 108,200
Unrealized holding losses on investments............................... 40,900 86,000
Accrued vacation pay................................................... 152,500 126,000
Amortization of goodwill............................................... 100,700 --
Other, net............................................................. 179,000 14,000
-------------- -------------
Gross deferred tax asset............................................... 2,279,700 1,084,500
Valuation allowance.................................................... (1,525,000) (705,300)
-------------- -------------
Net deferred tax asset................................................. $ 754,700 $ 379,200
-------------- -------------
-------------- -------------
Deferred tax liability
Plant and equipment depreciation....................................... $ 1,412,000 $ 1,135,000
-------------- -------------
-------------- -------------
</TABLE>
The Company recorded valuation allowances related to foreign subsidiary net
operating losses which are not recognized until their ultimate realization is
considered to be more likely than not.
Cash payments for income taxes were approximately $2,345,000, $3,452,000 and
$2,475,900 in fiscal years 1996, 1995 and 1994, respectively.
NOTE E -- COMMITMENTS
OPERATING LEASES
Total rental expense for operating leases for fiscal years 1996, 1995 and
1994 was approximately $905,000, $808,000 and $680,000, respectively.
23
<PAGE>
MINNTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE E -- COMMITMENTS (CONTINUED)
Future minimum lease payments for operating leases, net of cancellation
clauses, consist of the following at March 31, 1996:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ------------------------------------------------------------- -----------
<S> <C>
1997....................................................... $ 479,900
1998....................................................... 315,800
1999....................................................... 73,700
2000....................................................... 9,000
2001....................................................... 8,300
-----------
$ 886,700
-----------
-----------
</TABLE>
SEVERANCE AGREEMENTS
The Company has employment agreements with certain officers that provide
severance pay benefits if there is a change in control of the Company. Under the
agreements, these officers receive 100% of such severance benefits if they are
involuntarily terminated and 50% of such severance benefits if they voluntarily
terminate. The maximum contingent liability under these agreements at March 31,
1996 was approximately $2,248,000.
NOTE F -- STOCK OPTIONS
At March 31, 1996, the Company had 1,817,408 shares of common stock reserved
under its 1982 Incentive Stock Option Plan and 1989 Stock Plan. The plans
provide for incentive stock options and other options to be granted to
directors, officers, key employees, and consultants at an exercise price not
less than fair market value of the common stock at the date of grant.
Option transactions under these plans during the three years ended March 31,
1996 are summarized as follows:
<TABLE>
<CAPTION>
NUMBER AVERAGE OPTION
OF SHARES OPTION PRICE PRICE RANGE
--------- ------------ ---------------
<S> <C> <C> <C>
Outstanding at April 1, 1993................................ 1,472,532 $10.03 $ 2.03 - $17.25
Granted..................................................... 398,150 11.31 9.50 - 11.50
Exercised................................................... (128,722) 2.90 2.03 - 11.25
Cancelled................................................... (176,438) 12.29 4.83 - 16.75
--------- ------------ ---------------
Outstanding at March 31, 1994............................... 1,565,522 9.87 2.03 - 16.75
Granted..................................................... 96,150 14.45 10.88 - 15.83
Exercised................................................... (231,421) 4.89 2.03 - 13.75
Cancelled................................................... (121,035) 12.60 9.50 - 15.83
--------- ------------ ---------------
Outstanding at March 31, 1995............................... 1,309,216 10.84 2.03 - 16.75
Granted..................................................... 677,010 17.29 13.50 - 20.50
Exercised................................................... (273,058) 8.94 2.03 - 13.75
Cancelled................................................... (88,753) 13.27 9.50 - 19.25
--------- ------------ ---------------
Outstanding at March 31, 1996............................... 1,624,415 13.97 2.03 - 20.50
--------- ------------ ---------------
--------- ------------ ---------------
</TABLE>
In July 1993, 234,000 options granted in 1991 and 1992 with exercise prices
ranging from $14.00 to $17.25 were repriced to $11.25 per share, the market
price at the time of repricing.
Options to purchase 957,912 shares were exercisable at March 31, 1996.
24
<PAGE>
MINNTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F -- STOCK OPTIONS (CONTINUED)
The Company adopted an employee stock purchase plan on June 1, 1990. Under
the plan, 562,500 shares of common stock were reserved for issuance to eligible
employees. The plan allows employees to designate up to 10% of their base
salaries for purchase of common stock at 85% of fair market value.
A total of 81,363 shares have been issued under the plan since inception as
follows:
<TABLE>
<CAPTION>
NUMBER
MAY 31 OF SHARES
- ----------------------------------------------------------------- -----------
<S> <C>
1995........................................................... 17,873
1994........................................................... 15,045
1993........................................................... 15,552
1992........................................................... 14,787
1991........................................................... 18,106
</TABLE>
At March 31, 1996, the Company held a total of $162,800 in payroll
withholdings for the purchase of stock under the plan.
The Financial Accounting Standards Board has issued FAS 123, "Accounting for
Stock Based Compensation." FAS 123 establishes a fair value based method of
accounting for employee stock based compensation plans and encourages companies
to adopt that method. However, it also allows companies to continue to apply the
intrinsic value based method currently prescribed under APB Opinion No. 25,
provided certain pro forma disclosures are made. FAS 123 is not required to be
adopted by the Company until fiscal year 1997. The Company currently intends to
continue to apply the accounting method prescribed by APB 25 and, accordingly,
the adoption of FAS 123 will not have a material impact on the Company.
NOTE G -- PROFIT SHARING AND RETIREMENT SAVINGS
The Company has a 401(k) retirement savings and profit sharing plan under
which eligible employees may contribute up to 10% of their salaries. The Company
matches 10% of employee contributions to a maximum of 6/10ths of 1% of
compensation. The Company also makes annual profit sharing contributions to the
plan at the discretion of the Board of Directors. The Company's contributions
are as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Matching 401(k)contributions................. $ 42,800 $ 38,800 $ 32,900
Profit sharing contributions................. -- 363,600 171,700
--------- --------- ---------
$ 42,800 $ 402,400 $ 204,600
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE H -- PREFERRED STOCK
The Company's Board of Directors is authorized to issue five million shares
of no par value preferred stock in one or more series. The board can determine
voting, conversion, dividend and redemption rights, and other preferences of
each series. No shares have been issued under this authorization.
25
<PAGE>
MINNTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I -- FOREIGN OPERATIONS
Amounts attributable to foreign operations, primarily in Europe, included in
the consolidated financial statements at March 31, 1996 and for the year then
ended are as follows:
<TABLE>
<S> <C>
Net sales of consolidated foreign subsidiaries................. $ 6,439,973
Operating losses of consolidated foreign subsidiaries.......... $(1,582,564)
Total assets of consolidated foreign subsidiaries.............. $ 7,307,790
</TABLE>
NOTE J -- NET EARNINGS PER SHARE
Net earnings per share are computed based on the weighted average number of
common shares and common equivalent shares outstanding. Common share equivalents
include potentially dilutive stock options using the "modified treasury stock"
method. Shares used in the computations are as follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
-------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Weighted average common shares
outstanding.............................. 6,517,126 6,274,270 6,129,153
Weighted average common equivalent shares
for stock options........................ 406,695 339,121 225,195
--------- --------- ---------
6,923,821 6,613,391 6,354,348
--------- --------- ---------
--------- --------- ---------
</TABLE>
26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Minntech Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of earnings, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of Minntech
Corporation and its subsidiaries at March 31, 1996 and 1995, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Minneapolis, Minnesota
June 12, 1996
27
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Minntech Corporation and Subsidiaries
We have audited the accompanying consolidated statements of earnings,
stockholders' equity, and cash flows of Minntech Corporation (a Minnesota
corporation) and Subsidiaries for the year ended March 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and
consolidated cash flows of Minntech Corporation and Subsidiaries for the year
ended March 31, 1994 in conformity with generally accepted accounting
principles.
Grant Thornton LLP
Minneapolis, Minnesota
May 20, 1994
28
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
(Registrant)
By LOUIS COSENTINO, PH.D.
------------------------------------
Louis Cosentino, Ph.D.
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Date: July 12, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ----------------------------------------------- ----------------
<S> <C> <C>
LOUIS C. COSENTINO, PH.D. President, Chief Executive Officer and Director July 12, 1996
- ------------------------------------ (Principal Executive Officer)
Louis C. Cosentino, Ph.D.
WARREN M. WHITE Chief Financial Officer (Principal Accounting July 12, 1996
- ------------------------------------ and Financial Officer)
Warren M. White
GEORGE HEENAN Director July 12, 1996
- ------------------------------------
George Heenan
AMOS HEILICHER Director July 12, 1996
- ------------------------------------
Amos Heilicher
NORMAN DANN Director July 12, 1996
- ------------------------------------
Norman Dann
FRED L. SHAPIRO, M.D. Director July 12, 1996
- ------------------------------------
Fred L. Shapiro, M.D.
DONALD H. SOUKUP Director July 12, 1996
- ------------------------------------
Donald H. Soukup
</TABLE>
29
<PAGE>
MINNTECH CORPORATION
INDEX OF EXHIBITS TO ANNUAL REPORT ON FORM 10K
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT FORM OF FILING
- --------- --------------------------------------------------------------------------------------- ----------------
<S> <C> <C>
3(a) Articles of Incorporation, as amended (1)
3(b) Amendment of By-Laws in March 1986 (2)
3(c) Restated By-Laws (2)
4 Form of Specimen Common Stock Certificate (3)
10(a) 1989 Stock Plan, as amended August 28, 1991 and August 25, 1993 (4)
10(b) Restated 1982 Incentive Stock Option Plan, as amended (1)
10(c) Form of Employment Agreement dated April 22, 1986 with certain officers of the Company
(5)
10(d) Form of Amendment dated February 27, 1989 to Employment Agreements dated April 22, 1986
(5)
10(e) Form of Employment Agreement dated February 27, 1989 with certain officers and key
employees of the Company (5)
10(f) 1990 Employee Stock Purchase Plan, as amended June 1, 1993 (3)
10(g) Supplemental Executive Retirement Plan effective April 1, 1996 (6)
23(a) Consent of Price Waterhouse LLP Electronic
Transmission
23(b) Consent of Grant Thornton LLP Electronic
Transmission
27 Financial Data Schedule Electronic
Transmission
</TABLE>
- ------------------------
(1) Incorporated by reference to the specified exhibit filed as part of the
Company's Annual Report on Form 10-K for the year ended March 31, 1988, File
No. 0-11278.
(2) Incorporated by reference to the specified exhibit filed as part of the
Company's report on Form 8-K on March 12, 1986, File No. 0-11278.
(3) Incorporated by reference to the specified exhibit filed as part of the
Company's Annual Report on Form 10-K for the year ended March 31, 1993, File
No. 0-11278.
(4) Incorporated by reference to exhibit 4(a) filed as part of the Company's
registration statement on Form S-8, which became effective on December 5,
1989, File No. 33-32070.
(5) Incorporated by reference to the specified exhibit filed as part of the
Company's Annual Report on Form 10-K for the year ended March 31, 1989, File
No. 0-11278
(6) Incorporated by reference to the specified exhibit filed as part of the
Company's Annual Report on Form 10-K for the year ended March 31, 1995, File
No. 0-11278.
<PAGE>
EXHIBIT 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File No. 2-99511 effective July 18, 1985; File No.
33-32070 effective December 5, 1989; File No. 33-34621 effective May 20, 1990;
File No. 33-35368 effective July 1, 1990; File No. 33-35990 effective July 24,
1990; and File No. 33-45351 effective January 28, 1992) of Minntech Corporation
of our report dated June 12, 1996, appearing on page 27 of this Form 10-K.
Price Waterhouse LLP
Minneapolis, Minnesota
July 11, 1996
<PAGE>
EXHIBIT 23(b)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated May 20, 1994, appearing on page 28 of this
Form 10-K, accompanying the consolidated financial statements included in the
Annual Report on Form 10-K of Minntech Corporation and Subsidiaries for the year
ended March 31, 1996. We hereby consent to the incorporation by reference of
said report in the Registration Statements of Minntech Corporation on Forms S-8
(File No. 2-99511 effective July 18, 1988; File No. 33-32070 effective December
5, 1989; File No. 33-34621 effective May 20, 1990; File No. 33-35368 effective
July 1, 1990; File No. 33-335990 effective July 24, 1990; and File No. 33-45351
effective January 28, 1992).
Grant Thornton LLP
Minneapolis, Minnesota
July 8, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND STATEMENT OF EARNINGS WHICH SHOULD BE READ IN
CONJUNCTION WITH THIS INFORMATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 4064391
<SECURITIES> 1154336
<RECEIVABLES> 11476603
<ALLOWANCES> 215000
<INVENTORY> 11435335
<CURRENT-ASSETS> 1196796
<PP&E> 30350402
<DEPRECIATION> 13026907
<TOTAL-ASSETS> 50046580
<CURRENT-LIABILITIES> 6984381
<BONDS> 0
11978255
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 50046580
<SALES> 64769143
<TOTAL-REVENUES> 64769143
<CGS> 38108313
<TOTAL-COSTS> 58249463
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 66000
<INTEREST-EXPENSE> 1849
<INCOME-PRETAX> 6562215
<INCOME-TAX> 2394000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4308239
<EPS-PRIMARY> .62
<EPS-DILUTED> 0
</TABLE>
