<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 SEPTEMBER 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 ____________
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
---------
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 November 7, 1997
----------------------------- -------------------------------
Common Stock, $0.05 par value 6,742,275
<PAGE>
Minntech Corporation
Quarterly Report on Form 10-Q
September 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 9
SIGNATURES 10
Exhibit index 11
Page 2
<PAGE>
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 Six Months Ended
September 30 September 30
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $ 16,355 $ 15,845 $ 34,110 $ 32,530
OPERATING COSTS AND EXPENSES
Cost of sales 9,550 9,077 20,092 18,460
Research and development 631 829 1,330 1,654
Selling, general and administrative 4,532 4,306 9,207 8,407
Amortization of intangible assets 211 212 422 423
-------- -------- -------- --------
Total operating costs and expenses 14,924 14,424 31,051 28,944
-------- -------- -------- --------
EARNINGS FROM OPERATIONS 1,431 1,421 3,059 3,586
Other income (expense), net (29) (21) (40) (94)
-------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES AND
MINORITY INTEREST 1,402 1,400 3,019 3,492
Provision for income taxes 386 680 1,010 1,551
Minority interest (43) (61) (83) (131)
-------- -------- -------- --------
NET EARNINGS $ 1,059 $ 781 $ 2,092 $ 2,072
-------- -------- -------- --------
-------- -------- -------- --------
NET EARNINGS PER SHARE $ .16 $ .12 $ .31 $ .30
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average common and
common equivalent shares 6,746 6,662 6,741 6,812
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Page 3
<PAGE>
MINNTECH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
ASSETS
September 30, March 31,
1997 1997
(Unaudited)
--------- ---------
CURRENT ASSETS
Cash and cash equivalents $ 4,130 $ 3,222
Marketable securities 425 400
Accounts receivable, net 12,879 11,583
Inventories
Finished goods 5,509 6,181
Materials and work-in-process 5,211 5,652
--------- ---------
Total inventories 10,720 11,833
Prepaid expenses 1,807 2,945
--------- ---------
TOTAL CURRENT ASSETS 29,961 29,983
PROPERTY AND EQUIPMENT, AT COST
Land, buildings and improvements 9,583 9,647
Machinery and equipment 23,554 23,444
--------- ---------
33,137 33,091
Less accumulated depreciation (18,614) (17,444)
--------- ---------
14,523 15,647
OTHER ASSETS
Patent costs, net 707 711
Goodwill, net 1,109 1,327
Deferred income taxes 1,408 1,408
Other 924 925
--------- ---------
TOTAL ASSETS $ 48,632 $ 50,001
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable $ 249 $ 3,241
Accounts payable 3,437 3,921
Accrued expenses 4,115 3,584
--------- ---------
TOTAL CURRENT LIABILITIES 7,801 10,746
DEFERRED INCOME TAXES 1,553 1,553
DEFERRED COMPENSATION 236 224
MINORITY INTEREST (39) 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 26,320 24,957
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 39,081 37,434
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 48,632 $ 50,001
--------- ---------
--------- ---------
Page 4
<PAGE>
MINNTECH CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
September 30
---------------------
1997 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 2,093 $ 2,072
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities
Depreciation and amortization 1,782 1,968
Provision for losses on accounts receivable (108) 63
Foreign currency exchange loss 231 95
Minority interest (83) (131)
Other, net 12 31
Changes in assets and liabilities:
Accounts receivable (1,322) (183)
Inventories 1,067 (5,381)
Prepaid expenses 149 70
Accounts payable (486) (449)
Accrued expenses 570 -
Income taxes payable 998 187
-------- --------
Total adjustments 2,810 (3,730)
-------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 4,903 (1,658)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (386) (3,444)
Proceeds from sale of marketable securities - 743
Patent application costs (192) (118)
Acquisition of product line - -
Other (8) 18
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (586) (2,801)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of note payable (3,000) -
Proceeds from note payable - 4,000
Proceeds from exercise of stock options 285 486
Payment of cash dividends (674) (667)
-------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES (3,389) 3,819
-------- --------
Effects of exchange rate changes on foreign currency
cash balances (21) (12)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 907 (652)
Cash and cash equivalents at beginning of period 3,222 4,064
-------- --------
Cash and cash equivalents at end of period $ 4,129 $ 3,412
-------- --------
-------- --------
Page 5
<PAGE>
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, and second quarter ended
September 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 $1,000,000 of outstanding borrowings under
a line of credit with a commercial bank. The entire balance was repaid in
early July. The line of credit expired August 31, 1997, and the Company is
currently negotiating with several commercial banks to obtain more favorable
terms. The Company does not anticipate any problems in establishing a new
line of credit.
NOTE 4 - NET EARNINGS PER SHARE
The calculations of net earnings per common and common equivalent shares are
presented in the following table. All amounts are in thousands except per
share amounts.
Three Months Ended Six Months Ended
September 30 September 30
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
Net earnings $ 1,059 $ 781 $ 2,092 $ 2,072
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average common
shares outstanding 6,746 6,662 6,741 6,657
Weighted average common
equivalent shares for
stock options - - - 155
-------- -------- -------- --------
Weighted average common
and common equivalent
shares 6,746 6,662 6,741 6,812
-------- -------- -------- --------
-------- -------- -------- --------
Net earnings per share $ .16 $ .12 $ .31 $ .30
-------- -------- -------- --------
-------- -------- -------- --------
Page 6
<PAGE>
NOTE 4 - NET EARNINGS PER SHARE CONT.
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 reflect 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.
NOTE 5 - CASH DIVIDEND
On August 27, 1997, the Company's Board of Directors declared an annual cash
dividend of $.10 per share on the Company's common stock. The dividend was
paid on September 26, 1997, to stockholders of record as of September 12,
1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales in the second quarter ended September 30, 1997, increased by $510,000,
or 3.2%, to $16,355,000. Cardiosurgery sales declined 25.1% and continue to
be impacted by the conclusion of the purchase agreement with C.R. Bard for
the Company's first generation oxygenator. In the second quarter of fiscal
1997, oxygenator sales to C.R. Bard represented 13.3% of Company sales.
Excluding the oxygenator sales from both years, revenues of our other
products increased by 15.7% compared to the second quarter of fiscal 1997.
The sales growth in other product lines is primarily attributable to a 16.8%
increase in reprocessing products combined with an 8.7% increase in dialysis
supplies and devices.
Sales for the six months ended September 30, 1997, increased by $1,580,000,
or 4.9%, to $34,110,000 from $32,530,000 in the prior year. The increase
results from 26.6% growth in reprocessing products combined with a 10.8%
increase in dialysis supplies and devices; partially offset by a 27.6%
decline in cardiosurgery sales. Excluding the oxygenator, sales of other
product lines increased by 17.6% over the first half of last fiscal year.
Net sales by product group are summarized on the following table:
Three Months Ended Six Months Ended
September 30 September 30
------------------- -------------------
1997 1996 1997 1996
-------- -------- -------- --------
Dialysis supplies and devices $ 5,299 $ 4,873 $ 10,682 $ 9,643
Reprocessing products 7,156 6,127 15,088 11,921
Cardiosurgery products 3,223 4,305 7,069 9,762
Water filtration products 677 540 1,271 1,204
-------- -------- -------- --------
$ 16,355 $ 15,845 $ 34,110 $ 32,530
-------- -------- -------- --------
-------- -------- -------- --------
Page 7
<PAGE>
RESULTS OF OPERATIONS CONT.
Gross profit for the second quarter ended September 30, 1997, was $6,805,000
or 41.6% of net sales, compared to $6,768,000 or 42.7% of net sales for the
quarter one year ago. For the six months ended September 30, 1997, gross
profit was $14,018,000, or 41.1% of net sales, compared to $14,070,000, or
43.3% of net sales for the same period one year ago. The decrease in gross
margins is due primarily to the decline in unit sales of oxygenators.
Research and development expenses for the second quarter totaled $631,000 or
3.9% of sales, compared to $829,000 or 5.2% of sales in the quarter one year
ago. For the six months ended September 30, 1997, expenses totaled
$1,330,000, or 3.9% of sales, compared to $1,654,000 or 5.1% of sales for the
same period one year ago. The Company expects that total research and
development expenses for the fiscal year ending March 31, 1998, will
approximate 4.5% of sales.
Selling, general and administrative expenses for the second quarter ended
September 30, 1997, were $4,532,000 or 27.8% of sales, compared to $4,306,000
or 27.3% of sales in the second quarter one year ago. For the six months
ended September 30, 1997, selling, general and administrative expenses
totaled $9,207,000 or 27.0% of sales, compared to $8,407,000 or 25.8% of
sales for the same period one year ago. Selling, general and administrative
expenses have increased due to spending to support the Biocor-Registered
Trademark- 200 launch.
The Company's effective income tax rates for the second quarter and six
months ended September 30, 1997, were 27.5% and 33.4%, respectively, compared
to 48.6% and 44.4% for the same periods one year ago. The tax provision for
the quarter and six months year to date reflect a benefit for operating loss
carryforwards in our European subsidiary which lowers the Company's effective
tax rate.
The Company reported net earnings of $1,059,000, 6.5% of sales for the
quarter ended September 30, 1997, compared to earnings $781,000, or 4.9% of
sales in the second quarter one year ago. For the six months ended September
30, 1997, earnings were $2,092,000 or 6.1% of sales, compared to earnings of
$2,072,000 or 6.4% of sales for the same period one year ago. The increase
in net earnings for the quarter and six months are primary attributable to
the lower effective tax rates.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided $2,485,000 and $4,903,000 of cash and cash
equivalents for the quarter and six months ended September 30, 1997,
respectively. At September 30, 1997, the Company had $4,555,000 of cash,
cash equivalents and marketable securities, an increase of $933,000 from
March 31, 1997. Working capital on September 30, 1997, was $22,160,000
compared to $19,237,000 as of March 31, 1997. The Company's current ratio at
September 30, 1997, was 3.8:1 compared to 2.8:1 at March 31, 1997.
Improvements in cash flow during the first six months enabled the Company to
pay off $2,000,000 of the outstanding balance on our domestic bank line of
credit in the quarter ended June 30, 1997, and the remaining $1,000,000
balance in the quarter ended September 30, 1997. The Company invested
$386,000 in capital equipment during the six months ended September 30,1997,
and expects to invest approximately $3,000,000 during fiscal 1998.
Page 8
<PAGE>
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on August 27, 1997.
The stockholders took the following actions: (i) the stockholders
elected three directors to serve for terms ending in 2000 and until their
successors are elected. The stockholders present in person or by proxy
cast the following numbers of votes in connection with the election of
directors, resulting in the election of all of the nominees:
The names of the remaining directors whose term of office as a director
continued after the Annual Meeting are Fred Shapiro, M.D., Donald H.
Soukup, Louis C. Cosentino, and Norman Dann.
Votes For Withheld
--------- ---------
George Heenan 4,841,252 1,117,994
Amos Heilicher 4,835,142 1,124,104
Thomas J. McGoldrick 4,844,894 1,114,352
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 September 30, 1997.
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: NOVEMBER 12, 1997
/s/ Jules L. Fisher
------------------------
Jules L. Fisher
Vice President and Chief
Financial Officer
(Duly authorized officer)
(Principal financial officer)
Page 9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AND CONSOLIDATED STATEMENT OF EARNINGS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,130
<SECURITIES> 425
<RECEIVABLES> 12,879
<ALLOWANCES> 0
<INVENTORY> 10,720
<CURRENT-ASSETS> 29,961
<PP&E> 33,137
<DEPRECIATION> 18,614
<TOTAL-ASSETS> 48,632
<CURRENT-LIABILITIES> 7,801
<BONDS> 0
0
0
<COMMON> 12,761
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 48,632
<SALES> 34,110
<TOTAL-REVENUES> 34,110
<CGS> 20,092
<TOTAL-COSTS> 31,051
<OTHER-EXPENSES> 40
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,019
<INCOME-TAX> 1,010
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,092
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
