<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly period ended DECEMBER 31, 1996 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 January 31, 1996
- - --------------------------------- -----------------------------------
Common Stock, $0.05 par value 6,675,713 shares
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Minntech Corporation
Quarterly Report on Form 10-Q
December 31, 1996
Index
Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Earnings 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 8
Item 6. Exhibits and Reports on Form 8-K 8
SIGNATURES 9
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MINNTECH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31 December 31
----------- -----------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 16,772 $ 17,149 $ 49,302 $ 48,910
OPERATING COSTS AND EXPENSES
Cost of product sales 9,995 9,591 28,455 28,249
Research and development 928 729 2,582 2,410
Selling, general and administrative 4,374 3,970 12,781 11,180
Amortization of intangible assets 214 176 637 471
Loss due to fiber production scale-up - - - 936
--------- --------- --------- ---------
Total operating costs and expenses 15,511 14,446 44,455 43,246
--------- --------- --------- ---------
EARNINGS FROM OPERATIONS 1,261 2,683 4,847 5,664
Other income (expense, net) (96) 44 (190) 91
--------- --------- --------- ---------
EARNINGS BEFORE INCOME TAXES 1,165 2,727 4,657 5,755
AND MINORITY INTEREST
Provision for income taxes 569 924 2,120 2,012
Minority interest (65) (63) (196) (63)
--------- --------- --------- ---------
NET EARNINGS $ 661 $ 1,866 $ 2,733 $ 3,806
--------- --------- --------- ---------
--------- --------- --------- ---------
NET EARNINGS PER SHARE $.10 $.27 $.40 $.56
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common and
common equivalent shares 6,682 6,989 6,768 6,836
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
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MINNTECH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
ASSETS December 31, March 31,
1996 1996
--------- ---------
CURRENT ASSETS
Cash and cash equivalents $ 2,766 $ 4,064
Marketable securities 394 1,154
Accounts receivable, net 11,646 11,262
Inventories
Finished goods 7,934 4,768
Materials and work-in-process 8,510 6,667
Prepaid expenses 793 1197
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TOTAL CURRENT ASSETS 32,043 29,112
PROPERTY AND EQUIPMENT, AT COST
Land, buildings and improvements 9,701 9,326
Machinery and equipment 24,891 21,024
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34,592 30,350
Less accumulated depreciation (15,389) (13,027)
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19,203 17,323
OTHER ASSETS
Patent costs, net 713 802
Goodwill, net 1,443 1,770
Other 1,367 1,040
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$ 54,769 $ 50,047
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 4,129 $ -
Accounts payable 3,830 5,189
Accrued expenses 1,648 1,795
Income taxes payable (226) -
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TOTAL CURRENT LIABILITIES 9,381 6,984
DEFERRED INCOME TAXES 1,412 1,412
DEFERRED COMPENSATION 208 130
MINORITY INTEREST 114 310
STOCKHOLDERS' EQUITY
Preferred stock, no par value - -
Common stock, $.05 par value 334 332
Additional paid-in capital 12,131 11,647
Retained earnings 31,189 29,232
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43,654 41,211
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$ 54,769 $ 50,047
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MINNTECH CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
December 31
-----------------
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 2,733 $ 3,806
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities
Depreciation and amortization 2,997 2,474
Tax benefit from stock option exercises 274
Provision for losses on Accounts Receivable 86
Foreign currency exchange loss 160 101
Deferred income taxes 22 34
Minority interest (196)
Other 33 52
Changes in assets and liabilities:
Accounts receivable (590) (1,792)
Inventories (5,062) (1,498)
Prepaid expenses (26) 245
Accounts payable and accrued expenses (1,475) 448
Income taxes payable 143 157
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Total adjustments (3,908) 495
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NET CASH PROVIDED BY OPERATING ACTIVITIES (1,175) 4,301
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (4,607) (3,322)
Proceeds from sales of marketable securities 743 -
Patent application costs (204) (269)
Acquisition of product line - (1,452)
Other 26 (156)
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NET CASH USED IN INVESTING ACTIVITIES (4,042) (5,199)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable 4,136 -
Grant from foreign government - 335
Proceeds from exercise of stock options 486 1,714
Minority interest capital contribution - 450
Payments of cash dividends (667) (653)
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NET CASH PROVIDED BY FINANCING ACTIVITIES 3,955 1,846
-------- --------
Effects of exchange rate changes on foreign currency
cash balances (36) (73)
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NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,298) 875
Cash and cash equivalents at beginning of period 4,064 3,325
-------- --------
Cash and cash equivalents at end of period $ 2,766 $ 4,200
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MINNTECH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - FINANCIAL INFORMATION
The unaudited interim condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission; accordingly, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted.
These interim condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes in the
Company's Annual Report on Form 10-K for the year ended March 31, 1996 as filed
with the Securities and Exchange Commission.
In the opinion of management, the condensed consolidated financial statements
reflect all adjustments necessary for a fair presentation of the interim
periods.
NOTE B - NET EARNINGS PER SHARE
The calculations of net earnings per common and common equivalent share are
presented in the following table. All amounts are in thousands except per share
amounts.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31 December 31
----------- -----------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings $ 661 $ 1,866 $ 2,733 $ 3,806
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average common shares
outstanding 6,682 6,565 6,665 6,483
Weighted average common equivalent
shares for stock options - 424 103 353
-------- -------- -------- --------
Weighted average common and
common equivalent shares 6,682 6,989 6,768 6,836
-------- -------- -------- --------
-------- -------- -------- --------
Net earnings per share $ .10 $ .27 $ .40 $ .56
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
NOTE C - NOTE PAYABLE/LINE OF CREDIT
In September 1996, the Company borrowed $4,000,000 against its $10,000,000
unsecured line of credit with a commercial bank. The note bears interest at the
LIBOR index rate (7.5% at December 31, 1996). This line of credit expires
August 31, 1997.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues for the third quarter ended December 31, 1996 decreased by $377,000, or
2% due primarily to a 33% decline in cardiosurgery product sales, which more
than offset a 29% increase in sales of dialysis supplies. Revenues for the nine
months ended December 31, 1996 increased by $392,000, or 1%, due primarily to a
12% increase in sales of reprocessing products and an 8% increase in sales of
dialysis supplies, which offset a 20% decline in cardiosurgery product sales.
The decrease in sales of cardiosurgery products is due to the scheduled
reduction of oxgenator sales to C.R. Bard, Inc. Bard's obligation to purchase
minimum quantities expires on March 31, 1997, but may continue to purchase
oxygenators through June 30, 1997. At December 31, 1996, the Company was
awaiting FDA clearance to market its second generation oxygenator, the Biocor TM
200, in the United States.
Net revenues by product group are summarized in the following table:
Three Months Ended Nine Months Ended
December 31 December 31
---------------- ----------------
(in thousands) 1996 1995 1996 1995
-------- ------- -------- --------
Dialysis supplies and devices $ 5,612 $ 4,353 $ 15,255 $ 14,075
Reprocessing products 6,575 6,504 18,496 16,555
Cardiosurgery products 3,998 5,924 13,760 17,152
Water filtration products 587 368 1,791 1,128
-------- ------- -------- --------
$ 16,772 $17,149 $ 49,302 $ 48,910
-------- ------- -------- --------
-------- ------- -------- --------
Gross profit for the third quarter ended December 31, 1996 was $6,777,000, or
40.4% of net revenues, compared to $7,558,000, or 44.1% of net revenues, for the
quarter one year ago. For the nine months ended December 31, 1996, gross profit
was $20,847,000, or 42.2% of net revenues, compared to $20,661,000, or 42.2% of
net revenues, for the same period one year ago. The decline in gross margins
from one year ago was due primarily to increased costs of oxygenators and filter
products.
Research and development expenses for the third quarter ended December 31, 1996
totaled $928,000, or 5.5% of revenues compared to $729,000, or 4.3% of revenues,
in the quarter one year ago. For the nine months ended December 31, 1996,
expenses totaled $2,582,000, or 5.2% of sales, compared to $2,410,000, or 4.9%
of sales, for the same period one year ago.
Selling, general and administrative expenses for the third quarter ended
December 31, 1996 were $4,374,000, or 26% of revenues, compared to $3,970,000,
or 23.2% of revenues, in the third quarter one year ago. For the nine months
ended December 31, 1996, selling, general and administrative expenses totaled
$12,781,000, or 25.9% of revenues, compared to $11,180,000, or 22.9% of
revenues, for the same period one year ago. Selling, general and administrative
expenses increased due to expansion of international sales and marketing
efforts.
The Company's effective income tax rates for the third quarter and nine months
ended December 31, 1996 were 48.8% and 45.5% of revenues, respectively, compared
to 33.8% and 34.9% of revenues, respectively, for the same periods one year ago.
The increased tax rates are due to foreign subsidiary operating losses that were
not deductible in the current year.
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The Company reported net earnings of $661,000 for the quarter ended December 31,
1996, or 3.9%, compared to earnings of $1,866,000, or 10.9%, in the third
quarter one year ago. For the nine months ended December 31, 1996, earnings
were $2,733,000, or 5.5%, compared to earnings of $3,806,000, or 7.8%, for the
same period one year ago. The decline in net earnings from one year ago was due
to lower gross margins, higher general and administrative expenses, and a higher
effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company had $3,160,000 of cash, cash equivalents and
marketable securities, a decrease of $2,058,000 from the balance at March 31,
1996. Working capital at December 31, 1996 was $22,662,000 compared to
$22,128,000 at March 31, 1996. The decrease in cash was due to a build-up of
finished goods and increased raw material inventories. The Company's current
ratio at December 31, 1996 was 3.4 to 1 compared to 4.2 to 1 at March 31, 1996.
The company invested in $4,607,000 of capital equipment during the nine months
ended December 31, 1996 and expects to invest approximately $5,500,000 during
fiscal year 1997.
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
December 31, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MINNTECH CORPORATION
DATE: February 14 , 1997
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/s/ Jules 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 state of earnings and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> DEC-31-1996
<CASH> 2,766
<SECURITIES> 394
<RECEIVABLES> 11,646
<ALLOWANCES> 0
<INVENTORY> 16,444
<CURRENT-ASSETS> 32,043
<PP&E> 34,592
<DEPRECIATION> (15,389)
<TOTAL-ASSETS> 54,769
<CURRENT-LIABILITIES> 9,381
<BONDS> 0
0
0
<COMMON> 12,131
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 54,769
<SALES> 49,302
<TOTAL-REVENUES> 49,302
<CGS> 28,455
<TOTAL-COSTS> 44,455
<OTHER-EXPENSES> 190
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,657
<INCOME-TAX> 2,120
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,733
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
