<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarterly period ended JUNE 30, 1997 or
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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COMMISSION FILE NUMBER 0-11278
MINNTECH CORPORATION
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1229121
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
14605 - 28TH AVENUE NORTH
MINNEAPOLIS, MINNESOTA 55447
(Address of principal executive offices)
Registrant's telephone number, including area code: (612) 553-3300
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at July 31, 1997
- ---------------------------------- ----------------------------------
Common Stock, $0.05 par value 6,742,275 shares
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Minntech Corporation
Quarterly Report on Form 10-Q
June 30, 1997
Index
Page
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Earnings 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MINNTECH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
June 30
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1997 1996
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<S> <C> <C>
Net sales $17,755 $16,685
Operating costs and expenses
Cost of sales 10,542 9,383
Research and development 699 834
Selling, general and administrative 4,675 4,092
Amortization of intangible assets 211 212
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Total operating costs and expenses 16,127 14,521
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Earnings from operations 1,628 2,164
Other income (expense), net (11) (73)
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Earnings before income taxes and
minority interest 1,617 2,091
Provision for income taxes 624 871
Minority interest (40) (70)
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Net earnings $ 1,033 $ 1,290
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Net earnings per share $ .15 $ .19
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Weighted average common and
common equivalent shares 6,736 6,962
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</TABLE>
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MINNTECH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
ASSETS (Unaudited)
June 30, March 31,
1997 1997
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<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 3,601 $ 3,222
Marketable securities 400 400
Accounts receivable, net 12,450 11,583
Inventories
Finished goods 5,185 6,181
Materials and work-in-process 4,966 5,652
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Total inventories 10,151 11,833
Prepaid expenses 2,231 2,945
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TOTAL CURRENT ASSETS 28,833 29,983
PROPERTY AND EQUIPMENT, AT COST
Land, buildings and improvements 9,598 9,647
Machinery and equipment 23,623 23,444
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33,221 33,091
Less accumulated depreciation (18,131) (17,444)
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Net property and equipment 15,090 15,647
OTHER ASSETS
Patent costs, net 680 711
Goodwill, net 1,217 1,327
Deferred income taxes 1,408 1,408
Other 995 925
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TOTAL ASSETS $ 48,223 $ 50,001
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 1,262 $ 3,241
Accounts payable 2,991 3,921
Accrued expenses 3,497 3,584
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TOTAL CURRENT LIABILITIES 7,750 10,746
DEFERRED INCOME TAXES 1,553 1,553
DEFERRED COMPENSATION 230 224
MINORITY INTEREST 4 44
STOCKHOLDERS' EQUITY
Preferred stock, no par value - -
Common stock, $.05 par value 337 334
Additional paid-in capital 12,424 12,143
Retained earnings 25,925 24,957
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TOTAL STOCKHOLDERS' EQUITY 38,686 37,434
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TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 48,223 $ 50,001
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</TABLE>
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MINNTECH CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended
June 30
-----------------------
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 1,032 $ 1,290
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities
Depreciation and amortization 905 974
Provision for losses on Accounts Receivable (52) 38
Foreign currency exchange (gain) loss 146 96
Minority interest (40) (70)
Other (5) 24
Changes in assets and liabilities:
Accounts receivable (923) (516)
Inventories 1,631 (3,286)
Prepaid expenses 91 50
Accounts payable and accrued expenses (995) (712)
Income taxes payable 628 827
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Total adjustments 1,386 (2,575)
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NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,418 (1,285)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (261) (1,667)
Patent application costs (67) (70)
Other (1) -
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NET CASH USED IN INVESTING ACTIVITIES (329) (1,737)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from exercise of stock options 285 204
Payment of note payable (2,000) -
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NET CASH PROVIDED BY FINANCING ACTIVITIES (1,715) 204
Effects of exchange rate changes on foreign currency
cash balances 5 (12)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 379 (2,830)
Cash and cash equivalents at beginning of period 3,222 4,064
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Cash and cash equivalents at end of period $ 3,601 $ 1,234
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</TABLE>
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MINNTECH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - FINANCIAL INFORMATION
The unaudited interim condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission; accordingly, certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
These interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes in the
Company's Annual Report on Form 10-K for the year ended March 31, 1997 as
filed with the Securities and Exchange Commission.
In the opinion of management, the condensed consolidated financial statements
reflect all adjustments necessary for a fair presentation of the interim
periods.
NOTE 2 - RESTRUCTURING AND UNUSUAL ITEMS
During the first quarter ended June 30, 1997 there were no significant
changes in the restructuring charges recorded March 31, 1997.
NOTE 3 - LINE OF CREDIT
At June 30, 1997, the Company had a 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 (8.50% at June 30, 1997) or the indexed London
Interbank Offered Rate (LIBOR). As of June 30, 1997, the Company had
$1,000,000 of outstanding borrowings under the line of credit. This line of
credit expires August 31, 1997, and the Company plans to extend the bank line
at that time.
NOTE 4 - NET EARNINGS PER SHARE
The calculations of net earnings per common and common equivalent share are
presented in the following table. All amounts are in thousands except per
share amounts.
<TABLE>
<CAPTION>
Three Months Ended
June
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1997 1996
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<S> <C> <C>
Net earnings $ 1,033 $ 1,290
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Weighted average common shares outstanding 6,736 6,652
Weighted average common equivalent shares
for stock options - 310
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Weighted average common and common
equivalent shares 6,736 6,962
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-------- --------
Net earnings per share $ .15 $ .19
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</TABLE>
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In March 1997, the Financial Accounting Standards Board issued Statement No.
128, "Earnings per Share" ("FAS No. 128"). FAS No. 128 applies to entities
with publicly held common stock or potential common stock and is effective
for financial statements issued for periods ending after December 15, 1997.
Under FAS No. 128 the presentation of primary earnings per share is replaced
with a presentation of basic earnings per share. FAS No. 128 requires dual
presentation of basic and diluted earnings per share for entities with
complex capital structures. Basic earnings per share includes no dilution
and is computed by dividing net income (loss) available to common
stockholders by the weighted average number of common shares outstanding for
the period. Diluted earnings per share reflects the potential dilution of
securities that could share in the earnings of an entity, similar to fully
diluted earnings per share. Management believes the adoption of FAS No. 128
will not have a material effect on the financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales for the first quarter ended June 30, 1997 increased by 6.4% to
$17,755,000. This increase was achieved despite a 29.5% decline in
cardiosurgery product sales. Sales of our first generation oxygenator to
C.R. Bard declined to 2% of total Company revenue from 17% in the first
quarter of last year. This was the Company's first complete quarter without
a contractual minimum purchase guarantee from C.R. Bard for the O.E.M.
oxygenator.
Excluding the oxygenator, sales of our other products increased by 19% over
the same quarter of last year. This is attributable to increases of 37% in
reprocessing products and 13% in dialysis supplies and devices. The
reprocessing growth resulted from record domestic sales of
Renatron-Registered Trademark- II dialyzer reprocessing stations combined
with increases in dialyzer reprocessing supplies and endoscope reprocessing
products. Increases in concentrate product sales account for the growth in
dialysis supplies and devices.
Net revenues by product group are summarized in the following table:
<TABLE>
<CAPTION>
Three Months Ended June 30
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(in thousands) 1997 1996
---- ----
<S> <C> <C> <C> <C>
Dialysis supplies and devices $ 5,383 30% $ 4,770 28%
Reprocessing products 7,932 45 5,794 35
Cardiosurgery products 3,846 22 5,457 33
Water filtration products 594 3 664 4
------- --- ------- ---
$17,755 100% $16,685 100%
------- --- ------- ---
------- --- ------- ---
</TABLE>
Gross profit for the first quarter ended June 30, 1997 was $7,213,000, or
40.6% of net revenues, compared to $7,302,000, or 43.8% of net revenues, for
the quarter one year ago. The decline in gross margins from one year ago is
due primarily to the decline in oxygenator sales to C.R. Bard.
Research and development expenses for the third quarter ended June 30, 1997
totaled $699,000, or 3.9% of revenues compared to $834,000, or 5.0% of
revenues, in the quarter one year ago. The Company expects total research and
development expenses for fiscal 1998 to be approximately 5.5% of sales.
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Selling, general and administrative expenses for the first quarter ended June
30, 1997 were $4,675,000, or 26.3% of revenues, compared to $4,092,000, or
24.5% of revenues, in the first quarter one year ago. The increase in
selling, general and administrative expenses is primarily attributable to
spending to support the Biocor-TM- 200 oxygenator launch.
The Company's effective tax rate was 38.6% for the quarter ended June 30,
1997 compared to a rate of 41.7% in the first quarter of the prior fiscal
year. The comparable effective tax rate for the quarter ended June 30, 1997
decreased due to the ability to utilize European subsidiary operating loss
carry fowards for which benefit had not previously been claimed.
The Company reported net earnings of $1,033,000 for the quarter ended June
30, 1997, or 5.8% of sales, compared to earnings of $1,290,000, or 7.7% of
sales, in the first quarter one year ago. The decline in net earnings from
one year ago was due to lower gross margins, combined with higher selling,
general, and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided $2,418,000 of cash and cash equivalents for the
quarter ended June 30, 1997. At June 30, 1997, the Company had $4,001,000 of
cash, cash equivalents and marketable securities, an increase of $379,000
from March 31, 1997. The increase in cash was due primarily to a decrease in
inventories. Working capital on June 30, 1997 was $21,083,000 compared to
$19,237,000 as of March 31, 1997. The Company's current ratio at June 30,
1997 was 3.7:1 compared to 2.8:1 at March 31, 1997.
Improvements in cash flow during the first quarter of fiscal 1998 enabled the
Company to pay off $2,000,000 of the outstanding balance on our domestic bank
line of credit. As a result, the notes payable balance was reduced to
$1,262,000 on June 30, 1997 from $3,241,000 on March 31, 1997. The company
invested $261,000 in capital equipment during the three months ended June 30,
1997 and plans to invest approximately $3,800,000 during fiscal year 1998.
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27. Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
June 30, 1997.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MINNTECH CORPORATION
DATE: August , 1997
----------------------
/s/ Jules L. Fisher
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Jules Fisher
Chief Financial Officer
(Duly authorized officer)
(Principal financial officer)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF EARNING AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 3,601
<SECURITIES> 400
<RECEIVABLES> 12,450
<ALLOWANCES> 0
<INVENTORY> 10,151
<CURRENT-ASSETS> 28,833
<PP&E> 33,221
<DEPRECIATION> (18,131)
<TOTAL-ASSETS> 48,223
<CURRENT-LIABILITIES> 7,750
<BONDS> 0
0
0
<COMMON> 12,761
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 48,223
<SALES> 17,755
<TOTAL-REVENUES> 17,755
<CGS> 10,542
<TOTAL-COSTS> 16,127
<OTHER-EXPENSES> 11
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40
<INCOME-PRETAX> 1,617
<INCOME-TAX> 624
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,033
<EPS-PRIMARY> .15
<EPS-DILUTED> .15
</TABLE>
