<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, 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 January 27, 1998
----------------------------- -------------------------------
Common Stock, $0.05 par value 6,767,274 shares
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Minntech Corporation
Quarterly Report on Form 10-Q
December 31, 1997
Index
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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
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1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES $ 17,430 $ 16,772 $ 51,540 $ 49,302
OPERATING COSTS AND EXPENSES
Cost of product sales 9,780 9,995 29,872 28,455
Research and development 715 928 2,046 2,582
Selling, general and administrative 4,838 4,374 14,045 12,781
Amortization of intangible assets 211 214 632 637
-------- -------- -------- --------
Total operating costs and expenses 15,544 15,511 46,595 44,455
-------- -------- -------- --------
EARNINGS FROM OPERATIONS 1,886 1,261 4,945 4,847
Other income (expense, net) (129) (96) (168) (190)
-------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES
AND MINORITY INTEREST 1,757 1,165 4,777 4,657
Provision for income taxes 580 569 1,590 2,120
Minority interest (22) (65) (105) (196)
-------- -------- -------- --------
NET EARNINGS $ 1,199 $ 661 $ 3,292 $ 2,733
-------- -------- -------- --------
-------- -------- -------- --------
NET EARNINGS PER SHARE
Basic $.18 $.10 $.49 $.41
-------- -------- -------- --------
-------- -------- -------- --------
Diluted $.18 $.10 $.49 $.40
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average common and common
equivalent shares
Basic 6,762 6,682 6,748 6,665
-------- -------- -------- --------
-------- -------- -------- --------
Diluted 6,827 6,682 6,762 6,769
-------- -------- -------- --------
-------- -------- -------- --------
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MINNTECH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
ASSETS December 31, March 31,
1997 1997
(Unaudited) ---------
------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 4,947 $ 3,222
Marketable securities 442 400
Accounts receivable, net 14,151 11,583
Inventories
Finished goods 5,430 6,181
Materials and work-in-process 5,601 5,652
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Total Inventories 11,031 11,833
Prepaid expenses 1,560 2,945
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TOTAL CURRENT ASSETS 32,131 29,983
PROPERTY AND EQUIPMENT, AT COST
Land, buildings and improvements 9,569 9,647
Machinery and equipment 24,077 23,444
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33,646 33,091
Less accumulated depreciation (19,297) (17,444)
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14,349 15,647
OTHER ASSETS
Patent costs, net 726 711
Goodwill, net 999 1,327
Deferred income taxes 1,408 1,408
Other 923 925
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TOTAL ASSETS $ 50,536 $ 50,001
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 227 $ 3,241
Accounts payable 4,184 3,921
Accrued expenses 4,013 3,584
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TOTAL CURRENT LIABILITIES 8,424 10,746
DEFERRED INCOME TAXES 1,553 1,553
DEFERRED COMPENSATION 242 224
MINORITY INTEREST (61) 44
STOCKHOLDERS' EQUITY
Preferred stock, no par value - -
Common stock, $.05 par value 338 334
Additional paid-in capital 12,545 12,143
Retained earnings 27,495 24,957
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Total Stockholder's equity 40,378 37,434
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Total Liabilities and Stockholder's equity $ 50,536 $ 50,001
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MINNTECH CORPORATION
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended
December 31
-----------------
1997 1996
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 3,292 $ 2,733
Adjustments to reconcile net earnings to
net cash provided by (used in) operating
activities
Depreciation and amortization 2,696 2,997
Tax benefit from stock option exercises
Provision for losses on Accounts Receivable (64) 86
Foreign currency exchange loss 455 160
Minority interest (105) (196)
Other 20 55
Changes in assets and liabilities:
Accounts receivable (2,760) (590)
Inventories 736 (5,062)
Prepaid expenses (126) (26)
Accounts payable and accrued expenses 753 (1,475)
Income taxes payable 1,506 143
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Total adjustments 3,111 (3,908)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 6,403 (1,175)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property and equipment (979) (4,607)
Proceeds from sales of marketable securities - 743
Patent application costs (307) (204)
Acquisition of product line - -
Other (2) (26)
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NET CASH USED IN INVESTING ACTIVITIES (1,288) (4,042)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable (3,000) 4,136
Grant from foreign government - -
Proceeds from exercise of stock options 406 486
Minority interest capital contribution - -
Payments of cash dividends (674) (667)
-------- -------
NET CASH PROVIDED BY FINANCING ACTIVITIES (3,268) 3,955
-------- -------
Effects of exchange rate changes on foreign
currency cash balances (122) (36)
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NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,725 (1,298)
Cash and cash equivalents at beginning of period 3,222 4,064
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Cash and cash equivalents at end of period $ 4,947 $ 2,766
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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 - NET EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" (SFAS No. 128). SFAS No. 128 applies to
entities with publicly held common stock and is effective for financial
statements for both interim and annual periods ending after December 15,
1997. After the effective date, all prior-period earnings (loss) per share
data presented shall be restated to conform to the provisions of this
statement. Under SFAS No. 128, the presentation of primary earnings (loss)
per share is replaced with a presentation of basic earnings (loss) per share.
SFAS No. 128 requires dual presentation of basic and diluted earnings (loss)
per share for entities with complex capital structures. Basic earnings
(loss) per share includes no dilution and is computed by dividing net
earnings (loss) available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted earnings (loss)
per share reflects the potential dilution of securities that could share in
the earnings of an entity and is similar to the former fully diluted earnings
(loss) per share calculation. The Company has adopted SFAS No. 128 for the
quarter ended December 31, 1997 and all net earnings (loss) per share data
presented complies with this statement. The difference between basic and
diluted earnings (loss) per share data as presented is due to the dilutive
impact from stock options whose exercise price was below the average common
stock price for the respective period presented.
NOTE 3 - NOTES PAYABLE/LINE OF CREDIT
In December 1997, the Company renewed its 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 (8.5% as of December 31, 1997) or the
indexed London Interbank Offered Rate (LIBOR), at Minntech's option.
As of December 31, 1997, the entire $227,000 balance in Notes Payable related
to borrowings in foreign subsidiaries and is secured by a letter of credit
against the Company's unsecured line.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Sales in the third quarter ended December 31, 1997, increased by $659,000,
or 3.8%, to $17,431,000. Cardiosurgery sales declined by 16.1% due to the
conclusion of the distribution agreement with C.R. Bard for the Company's
first generation oxygenator. Oxygenator sales to C.R. Bard represented 8.3%
of total Company sales in the third quarter of fiscal 1997 and 12.8% of
Company sales through nine months of the prior year.
Excluding oxygenator sales for both fiscal years 1997 and 1998, sales of our
other products increased by 10.5% compared to the third quarter of fiscal
1997. The sales growth in other products is attributable to a 21.3% increase
in reprocessing products combined with a 51.6% increase in water filtration
products. The 7.2% decline in dialysis supplies and devices in the quarter
is due primarily to lower sales of our discontinued dialyzer product line.
Dialysis concentrate sales increased by 4.9% in the third quarter.
Sales for the nine months ended December 31, 1997 increased by $2,238,000, or
4.5%, to $51,540,000 from $49,302,000 in the prior year. The sales increase
results from a 24.7% growth in reprocessing products, a 4.2% increase in
dialysis supplies and devices, combined with a 20.7% increase in water
filtration products; partially offset by a 24.2% decrease in cardiosurgery
products. Excluding the oxygenator, sales of our other product lines
increased by 15.0% over the first nine months of fiscal year 1997.
Sales by product group are summarized in the following table:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
December 31 December 31
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(in thousands) 1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Dialysis supplies and devices $ 5,208 $ 5,612 $ 15,890 $ 15,255
Reprocessing products 7,977 6,575 23,065 18,496
Cardiosurgery products 3,355 3,998 10,424 13,760
Water filtration products 890 587 2,161 1,791
-------- -------- -------- --------
$ 17,431 $ 16,772 $ 51,540 $ 49,302
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
Gross profit for the third quarter ended December 31, 1997 was $7,650,000, or
43.9% of net revenues, compared to $6,777,000, or 40.4% of net revenues, for
the quarter one year ago. The improvement in gross margins is attributable
to favorable a product mix and product cost reductions. For the nine months
ended December 31, 1997, gross profit was $21,669,000, or 42.0% of net
revenues, compared to $20,847,000, or 42.2% of net revenues, for the same
period one year ago.
Research and development expenses for the third quarter ended December 31,
1997 totaled $715,000, or 4.1% of revenues, compared to $928,000, or 5.5% of
revenues, in the third quarter one year ago. For the nine months ended December
31, 1997, expenses totaled $2,046,000, or 4.0% of sales, compared to
$2,582,000, or 5.2% of sales, for the same period one year ago. The decrease
in spending is attributable to transitioning our research and development
efforts from products discontinued in our fiscal 1997 fourth quarter to new
areas. The Company intends to continue investing a substantial amount of
funds in new product development.
Selling, general and administrative expenses for the third quarter ended
December 31, 1997 were $4,838,000, or 27.7% of revenues, compared to
$4,374,000, or 26.1% of revenues, in the third quarter one year ago. For the
nine months ended December 31, 1997, selling, general and administrative
expenses totaled $14,045,000, or 27.3% of revenues, compared to $12,781,000,
or
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25.9% of revenues, for the same period one year ago. Selling, general and
administrative expenses increased due to spending to support the
Biocor-TM-200 Oxygenator launch.
The Company's effective income tax rates for the third quarter and nine
months ended December 31, 1997 were 33.0% and 33.3% of revenues,
respectively, compared to 48.8% and 45.5% of revenues, respectively, for the
same periods one year ago. The tax provision for the quarter and nine 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 $1,199,000 for the third quarter ended
December 31, 1997, or 6.9% of sales, compared to earnings of $661,000, or
3.9% of sales, in the third quarter one year ago. The increase in net
earnings for the quarter is primarily attributable to improved gross margins
combined with the lower effective tax rate. For the nine months ended
December 31, 1997, earnings were $3,292,000, or 6.4% of sales, compared to
earnings of $2,733,000, or 5.5% of sales, for the same period one year ago.
The increase in net earnings for the nine months ended December 31, 1997, are
primarily attributable to the lower effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided $1,500,000 and $6,403,000 of cash and cash
equivalents for the quarter and nine months ended December 31, 1997. At
December 31, 1997, the Company had $5,389,000 of cash, cash equivalents and
marketable securities, an increase of $1,767,000 from the balance at March
31, 1997.
Working capital at December 31, 1997 was $23,707,000 compared to $19,237,000
at March 31, 1997. The Company's current ratio at December 31, 1997 was
3.8:1 compared to 2.8:1 at March 31, 1997. The company invested in $907,000
of capital equipment during the nine months ending December 31, 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, 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: February 14 , 1998
/s/ Jules Fisher
-----------------------------------
Jules Fisher
Vice President and Chief
Financial Officer
(Duly authorized officer)
(Principal financial officer)
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<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> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 4,947
<SECURITIES> 442
<RECEIVABLES> 14,151
<ALLOWANCES> 0
<INVENTORY> 11,031
<CURRENT-ASSETS> 32,131
<PP&E> 33,646
<DEPRECIATION> 19,297
<TOTAL-ASSETS> 50,536
<CURRENT-LIABILITIES> 8,424
<BONDS> 0
0
0
<COMMON> 12,883
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 50,536
<SALES> 51,540
<TOTAL-REVENUES> 51,540
<CGS> 29,872
<TOTAL-COSTS> 46,595
<OTHER-EXPENSES> 168
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,777
<INCOME-TAX> 1,590
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,292
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
</TABLE>
