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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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, 2001 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 incorporation or organization) | (I.R.S. Employer Identification No.) |
14605 - 28th Avenue North
Minneapolis, Minnesota 55447
(Address of principal executive offices)
Registrant's telephone number, including area code:(763) 553-3300
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
Preferred Share Purchase Rights, par value $.05 per share.
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 the 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 April 30, 2001, 6,679,287 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 MarketSM) held by non-affiliates of the registrant was approximately $56,460,013.
The information presented in this Annual Report on Form 10-K under the headings "Item 1. Business" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" contain certain forward-looking statements within the meaning of the safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements are based on the beliefs of the Company's management as well as on assumptions made by and information currently available to the Company at the time such statements were made. Although the Company believes these statements are reasonable, readers of this Form 10-K should be aware that actual results could differ materially from those projected by such forward-looking statements as a result of a number of factors, many of which are outside of the Company's control, including those set forth under "Risk Factors" in Item 7 below, beginning on page 20 of this Form 10-K. Readers of this Form 10-K should consider carefully the factors listed under "Risk Factors" in Item 7 as well as the other information and data contained in this Form 10-K. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements set forth under "Risk Factors" in Item 7. When used in this Form 10-K, the words "anticipate," "believe," "estimate," "expect," "intend," "plan" and similar expressions, as they relate to the Company, are intended to identify such forward-looking statements.
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, manufacture, and marketing of medical supplies and devices, sterilants, and filtration and separation products. The Company's products are used primarily in kidney dialysis and in open-heart surgery. The trade name of Minntech Renal Systems is used for products sold in the dialysis market and the trade name of Minntech Fibercor is used for filtration and separation products marketed to the pharmaceutical, medical, semiconductor, and biotechnology industries. The Company has core technologies in electronics, fibers, plastics, and chemical solutions, all of which were internally developed.
On May 30, 2001, the Company entered into an Agreement and Plan of Merger with Cantel Medical Corporation ("Cantel") and a newly formed, wholly owned subsidiary of Cantel. Under the merger agreement, the Company will become a wholly owned subsidiary of Cantel and the Company's shareholders will be entitled to receive $6.25 in cash and approximately $4.25 worth of Cantel stock for each share of the Company that they hold, subject to possible adjustment. The merger is subject to standard closing conditions, including the approval of the shareholders of the Company and Cantel. Those looking for more information regarding the merger should review the filings that the Company and Cantel make with the Securities and Exchange Commission. See also "Risk Factors—Risks Relating to Merger" in Item 7 below.
Industry Segments
Through March 31, 2001, the Company has been primarily engaged in the manufacture and marketing of medical devices and supplies. The Company also markets filtration devices and disinfectants for filtration and separation applications. See "Notes to Consolidated Financial Statements, Note 4—Segment Data and Significant Customers," pages 44-46 of this Form 10-K, for financial information by segment.
Products
The Company has three interrelated product segments:
- •
- Dialysis Products
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- •
- Cardiosurgery Products
- •
- Other Developing Businesses (including filtration and separation and endoscope reprocessing products)
DIALYSIS PRODUCTS
The Company manufactures supplies, concentrates, and electronic equipment for hemodialysis treatment of patients with chronic kidney failure or end-stage renal disease (ESRD). These dialysis products accounted for approximately 75.0 percent of the Company's product sales in fiscal 2001, 72.6 percent of product sales in fiscal 2000, and 69.5 percent of product sales in fiscal 1999.
Concentrates
The Company's main dialysis supply product is a line of acid and bicarbonate concentrates used by kidney centers to prepare dialysate, a chemical solution used to draw waste products out of the blood during hemodialysis treatments. According to the United States Renal Data Service, over 208,000 Americans suffering from ESRD were receiving life-sustaining hemodialysis treatments at dialysis centers as of December 31, 1998. These treatments are typically administered three times a week and require approximately three gallons of dialysis concentrate each. The Company believes it provides the industry's most complete line of these concentrates in both liquid and powder form for use in virtually all types of kidney dialysis machines.
In April 2000 the Company introduced the Renapak 2™, an innovative concentrate manufacturing system that produces on-demand hemodialysis concentrates in less than 30 minutes without the substantial freight costs and storage space required for pre-mixed concentrates. Minntech manufactures and markets the powdered concentrate for this product, which features a convenient labeling system that allows users to "peel-and-stick" package labels directly into their concentrate manufacturing documentation.
Dialyzer Reprocessing
The Company's dialyzer reprocessing products include the Renatron® II Automated Dialyzer Reprocessing System, the Renalog® III Data Management System, the RenaClear™ Dialyzer Cleaning System; and Renalin® Cold Sterilant and Renalin® 100, peracetic acid solutions that replace formaldehyde, glutaraldehyde, and bleach in dialyzer reprocessing. Actril® Cold Sterilant, primarily a dialysis machine disinfectant, is also part of the dialyzer reprocessing product line.
Renalin® 100, a specially-packaged formulation of the Company's cold sterilant product, was introduced in January 2001. When used with a Renatron® II converted for use with the Renatron® 100 Series Conversion Kit, Renalin® 100 requires no premixing, which reduces staff exposure to vapors and automates the dilution process. In addition, Renalin® 100 packaging reduces required storage space by 66% from traditional Renalin®.
In response to government-mandated cost containment measures, in the late 1970s many United States dialysis centers began cleaning, disinfecting, and reusing dialyzers (artificial kidneys) instead of discarding them after a single use (a procedure now known as "dialyzer reuse"). Data released by the Centers for Disease Control (CDC) indicate that, as of 1999, 80 percent of all dialysis centers in the United States reuse dialyzers. Between 1983 and 1999, the percentage of these facilities using a peracetic-acid based product such as Renalin® for dialyzer reprocessing grew from 5 to 58 percent. The other dialysis centers used primarily formaldehyde or glutaraldehyde disinfectants to reprocess dialyzers. The CDC also reported that in 1997, 62 percent of centers practicing reuse used an automated system to reprocess their dialyzers. Based upon the data collected from the CDC, the Company estimates dialyzer reprocessing eliminated 11,000 metric tons of biohazardous waste in the United States in 1999.
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Dialyzer reuse is widely practiced throughout most of Eastern Europe and the Asia/Pacific region, and sales of reprocessing products have grown significantly in these markets. In order to further improve support of its Asia/Pacific distributors, Minntech recently opened an Asia/Pacific representative office in Singapore.
Reuse growth in Western Europe has been stagnant, pending changes to the reimbursement system in several key markets. Minntech recently started its first Dialyzer Reprocessing Service in Europe and is positioning itself to take maximum advantage of the expected future growth in reuse.
The Renatron® reprocessing system, first introduced in 1982, provides an automated method of rinsing, cleaning, sterilizing, and testing dialyzers for multiple use. The Renatron® II, the most current version of the product introduced in 1990, includes a bar code reader, computer, and a Renalog® III software system that provides dialysis centers with automated record keeping and data analysis capabilities. The Company believes its Renatron® system is faster, easier to use, and more efficient than competitive automated systems. The Company also believes that the Renatron® system is one of the top selling automated dialyzer reprocessing systems in the world. As of March 31, 2001, the Company had an installed customer base of approximately 4,600 Renatron® stations.
The Company estimates that Renalin® Cold Sterilant is currently used in over 20 million treatments per year in the U.S. The product's proprietary peracetic acid-based formula effectively cleans, disinfects, and sterilizes dialyzers without the hazardous fumes and disposal problems related to older glutaraldehyde and formaldehyde reprocessing solutions. The Company believes Renalin® is the leading dialyzer reprocessing solution in the United States.
In May 1999 the Company introduced the RenaClear™ Dialyzer Cleaning System, the first dedicated automated dialyzer cleaning system. The system removes blood and organic debris from difficult-to-clean dialyzers before reprocessing, a process known as "precleaning." Precleaning is common in dialysis units because the practice can help extend the useful clinical life of a dialyzer. When dialyzers are precleaned by hand, many dialysis facilities remove the dialyzer header caps (the end caps of a dialyzer) to more effectively rinse out heavy blood debris. However, opening the dialyzer in this fashion can increase the risk of contamination of the dialyzer components and damage to the membrane. The RenaClear™ system features a high-powered fluid injector that cleans dialyzer headers (the two internal ends of a dialyzer) without requiring removal of the header caps. The RenaClear™ Dialyzer Cleaning System is designed for use with peracetic acid-based RenaClear™ Disinfectant.
Dialyzer Reprocessing Services
The Company opened its first Minntech Dialyzer Reprocessing Center in Orlando, Florida in November 1999. In October 2000 a second facility opened in Atlanta, Georgia and a third center was launched in Boston, Massachusetts the following month. Dialyzer reprocessing has traditionally required hemodialysis providers to make a significant investment in dedicated staff, facilities, and capital equipment. By outsourcing this service to Minntech, providers are able to focus resources on improved patient care.
Minntech reprocessing centers handle all aspects of dialyzer reprocessing, including compliance with regulatory requirements and record keeping. Dialyzers are picked up at dialysis centers by Minntech personnel and brought to the reprocessing center, where they are cleaned, tested, inspected, sterilized, and returned to their facility within a 24-hour period. Minntech reprocessing centers are equipped with Minntech's Renatron® II Automated Dialyzer Reprocessing System, RenaClear™ Dialyzer Cleaning System, and Renalin® Cold Sterilant.
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Electronics
The Company's major dialysis electronic products are the Sonalarm® Foam Detector, a device that detects air emboli, or bubbles in blood during hemodialysis; and the Minipump™ Hemodialysis Blood Pump, which circulates blood during hemodialysis. The Sonalarm® and the Minipump™ are sold to end-users and (in component form) to other manufacturers of blood processing equipment.
CARDIOSURGERY PRODUCTS
The Company manufactures several hollow fiber devices and ancillary products for use in cardiosurgery. The Company's cardiosurgery products accounted for approximately 14.1 percent of total product sales in fiscal 2001, 17.4 percent of product sales in fiscal 2000, and 21.8 percent of product sales in fiscal 1999.
In October 1999 the Company sold off all assets and rights related to its Biocor™ oxygenator and EnGUARD™ PHX cardioplegia system components to LifeStream International, LLC (LifeStream), a leading global cardiopulmonary products company. The products, which are used during open-heart surgery, were acquired by LifeStream in exchange for $7.2 million in cash and warrants. The Company also entered into an exclusive distribution agreement with LifeStream for the Hemocor HPH® hemoconcentrator product line that ended in February 2001. LifeStream continues to sell the Hemocor HPH® on a non-exclusive basis.
Under the terms of the asset purchase agreement, the Company received $2.5 million in cash on October 6, 1999, with the balance of $4.7 million to be received over a two-year period. The Company also received a warrant to purchase up to 5 percent of LifeStream's outstanding equity securities within a term of one year. The Company did not exercise the rights under the warrant and it has subsequently expired. The Company continues to manufacture ancillary cardiosurgery products and molded plastic components of the Biocor™ oxygenator and EnGUARD™ PHX cardioplegia system for LifeStream under a two-year agreement that will end in March 31, 2002.
Oxygenator and Cardioplegia System Components
The Company manufactured membrane oxygenators based on its proprietary hollow fiber technology from 1987 through 1999, and continues to manufacture components of the Biocor™ oxygenator for LifeStream. An oxygenator is used by a perfusionist (a health care professional who operates heart-lung bypass equipment) to replace the function of the lungs during open-heart surgery. The patient's blood is circulated through the device, which removes the carbon dioxide in the blood and exchanges it for oxygen. The Company estimates that there are approximately 850,000 open-heart procedures performed annually worldwide.
Minntech also continues to manufacture molded plastic components of the EnGUARD™ PHX cardioplegia system, a cardioplegia heat exchanger, for LifeStream. The EnGUARD™ PHX was CE marked by the Company in April 1999 and the 510(k) clearance for the product was received from the FDA on June 8, 2000. The EnGUARD™ PHX precisely controls the temperature and delivery of cardioplegia, a blood and/or chemical solution that arrests and protects the heart during cardiopulmonary bypass procedures. The device is used by a perfusionist as part of the cardiopulmonary bypass circuit.
Hemoconcentrators
A hemoconcentrator is used by a perfusionist to concentrate red blood cells and remove excess fluid from the bloodstream during open-heart surgery. Because the entire blood volume of the patient passes through the hemoconcentrator device during an open-heart procedure, the biocompatibility of the blood-contact components of the device is critical.
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In fiscal 1999 the Company received 510(k) market clearance from the U.S. Food and Drug Administration (FDA) for two new hemoconcentrators—the Hemocor HPH® 700, an adult hemoconcentrator (December 1998), and the Hemocor HPH® Mini, a hemoconcentrator designed specifically for pediatric and neonatal patients (May 1998). With the addition of these two new hemoconcentrators, the Company now offers a total of five hemoconcentrator devices to meet the clinical volume requirements of neonatal through large adult patients. Since 1985 the Company has manufactured and marketed a line of hemoconcentrators. The Hemocor HPH® hemoconcentrator line, the Company's current third-generation product, succeeded the Hemocor Plus® second-generation hemoconcentrator line in February 1994.
The entire line of Hemocor HPH® high performance hemoconcentrator products contains the Company's proprietary polysulfone fiber. The Hemocor HPH® line also features a unique "no-rinse" design that allows it to be quickly and efficiently inserted into the bypass circuit at any time during an open-heart procedure.
The Company's market-leading Hemocor HPH® hemoconcentrator line was not sold in the LifeStream acquisition. The product is primarily distributed through LifeStream under a non-exclusive worldwide distribution agreement initiated in fiscal 2000 and through others.
The Company estimates that hemoconcentration is currently used in up to 30 percent of the estimated 440,000 open-heart procedures performed annually in the United States, and to a lesser extent internationally. Such procedures require up to 132,000 hemoconcentrator devices each year worldwide. The Company believes it currently leads the United States hemoconcentrator market. In fiscal 2001, the Company completed clinical studies on the removal of inflammatory mediators using a hemoconcentrator and added language to the Hemocor HPH® labeling that indicates that the product removes specific mediators.
Hemofilters
In October 1997, the Company entered into a marketing and distribution agreement with Baxter Healthcare Corporation to sell the Company's entire line of Renaflo™ II and Minifilter Plus™ hemofilter products in all world markets. This contract has been extended through June 30, 2001 pending completion negotiations or a definitive agreement. The Company expects the definitive agreement will be executed during the second quarter of fiscal 2002.
The Company entered into an Interim Supply and Distribution Agreement with Edwards Lifesciences (Edwards) on January 1, 2001, for the worldwide distribution of the Company's hemofilter line of products pending the completion of negotiations of a definitive agreement with Edwards. The Company expects the definitive agreement will be executed during the second quarter of fiscal 2002.
The Renaflo® hemofilter, introduced in 1985, is a device that performs hemofiltration—a slow, continuous blood filtration therapy used to control fluid overload and acute renal failure in unstable, critically ill patients that cannot tolerate the rapid filtration rates of conventional hemodialysis. The hemofilter removes plasma water, waste products, and toxins from the circulating blood of patients while conserving the cellular and protein content of the patient's blood. The Company's hemofilter line features no-rinse, polysulfone fiber that requires minimal set up time for healthcare professionals. The hemofilter is available in five different sizes to meet the clinical needs of neonatal through adult patients.
OTHER DEVELOPING BUSINESSES
The Company's other developing businesses include the Company's filtration and separation product line and endoscope reprocessing product line. Developing business products accounted for 10.9 percent of the Company's product sales in fiscal 2001, 10 percent of product sales in fiscal 2000, and 8.7 percent of product sales in fiscal 1999.
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FILTRATION AND SEPARATION PRODUCTS
The Company's filtration and separation division, Minntech Fibercor, manufactures hollow fiber filters and disinfectants for high-purity fluid and gas filtration systems in the pharmaceutical, electronics (microelectronic and semiconductor), medical, and biotechnology industries. The Company's filtration and separation products are currently sold primarily in the United States. However, the Company began the establishment of a European distribution network in fiscal 1998 in order to capture a larger share of the estimated $3.5 billion worldwide healthcare and technology filtration market. The Company intends to grow this portion of the business through internal product development and selected acquisitions.
Filtration and separation product sales accounted for approximately 8.2 percent of the Company's total product sales in fiscal 2001, 7.5 percent in fiscal 2000, and 5.5 percent in fiscal 1999.
Filter Products
In May 2000 the Company introduced the FiberFlo® Membrane Degassing System, a high-performance hollow fiber module and customized housing for the addition or removal of gases from liquid streams. The FiberFlo® Membrane Degassing System was developed for use in pharmaceutical manufacturing, laboratory, medical, and bioprocessing applications. The polypropylene hollow fiber cartridge degas module features easy operation and maintenance, minimizes energy consumption, and can be used for CO2 and O2 removal, humidification, pH adjustment, oxygenation, and sparging of gases to solutions.
The Company received 510(k) clearance from the FDA in March 1999 to market FiberFlo® Hollow Fiber Capsule Filters for medical applications. The FiberFlo® Hollow Fiber Capsule Filter line, which made its market debut in April 1998, is based on the same high performance hollow fiber technology used in the Company's polysulfone FiberFlo® HF Cartridge Filter product line. Capsule filters are used in the cell and tissue engineering industry, bioprocessing, pharmaceutical manufacturing, food and beverage processing, cosmetic manufacturing, and electronics industries to filter spores, bacteria, and pyrogens from aqueous solutions and gases. FiberFlo® Capsule Filters are engineered for point-of-use applications that require very fine filtration. Their hollow fiber design provides a surface area that is up to six times larger than traditional pleated capsule filters on the market. The large surface area provides greater capacity and longer filter life for the customer. FiberFlo® Capsule Filters and Cartridge Filters are available in a variety of styles, sizes, and configurations to meet a comprehensive range of customer needs and applications.
FiberFlo® Cartridge Filters are used in high-purity industrial water systems to filter spores, bacteria, and pyrogens from fluids. They are also used in medical device reprocessing to help health care facilities meet reprocessing water quality guidelines outlined by the American Association of Medical Instrumentation (AAMI). The cartridge filters feature large surface area and fine filtration advantages that are similar to the Company's capsule filter line.
Disinfectants
The Company's Minncare® Cold Sterilant is a liquid sterilant product that is used to sanitize high-purity water treatment systems. Minncare® is based on the Company's proprietary peracetic-acid sterilant technology, and is engineered to clean and disinfect reverse osmosis (RO) membranes and associated water distribution systems. The Company has private label agreements for both Minncare® and Actril® sterilants with several other companies in the infection control industry.
Other
The Company offers a line of ancillary filtration products, including cleaning solutions, disinfectant test strips, and filtration housings and accessories.
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ENDOSCOPE REPROCESSING
In April 2000 the Company submitted to the FDA a pre-market notification under Section 510(k) of the Federal Food Drug and Cosmetic Act (FDCA) for two next-generation endoscope reprocessing products—an automated endoscope reprocessor and companion sterilant. The Company has received comments from FDA and is in the process of collecting additional data to support an amended 510(k) submission. The 510(k) submission made pursuant to a multi-year joint development agreement with Advanced Sterilization Products (ASP), a division of Ethicon (a Johnson & Johnson Company). The joint development agreement, executed in April 1998, was the Company's second strategic agreement with ASP and included contract revenues of $1.5 million. In February 1998 the Company also entered into a distribution and marketing agreement with ASP to sell the Company's existing automated endoscope reprocessor (the AER™ Plus) and endoscope reprocessing sterilant/disinfectant product (formerly Peract® 20). See "Research and Product Development" below for more information.
The Company's endoscope reprocessing product line was originally purchased from Bard International Products, a division of C.R. Bard Inc., in September 1994. Through February 1998 the products were sold under the Company's trade name Unitrol™.
An estimated 12 million gastrointestinal endoscopy procedures are performed in the United States each year. Unlike disposable medical devices, which are discarded after a patient procedure, the endoscopes used in these procedures may be used on hundreds of patients a year before being retired from use. These multi-channel scopes have numerous joints and crevices that can easily become clogged with blood, tissue, or other biological material. The risk of transmitting infection from patient to patient can be high if a thorough and reliable disinfection procedure is not performed after each procedure. The Company's AER Plus™ automated endoscope reprocessor provides consistent high-level endoscope disinfection. The self-contained system also helps safeguard reprocessing staff by containing any disinfectant fumes.
Endoscope reprocessing product sales accounted for approximately 2.7 percent of the Company's total product sales in fiscal 2001, 2.0 percent in fiscal 2000, and 3.0 percent in fiscal 1999.
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 a direct sales force and through distributors. At March 31, 2001, the Company employed a total of 12 dialysis sales representatives in the United States, and three water filtration sales representatives. In addition, a customer service staff and a technical services department support field activity. The Company operates its own trucks to minimize shipping costs and to expedite delivery of certain dialysis products from its Plymouth, Minnesota facilities. In fiscal 2000 the Company opened distribution centers in Columbia, South Carolina and Jackson, Mississippi to serve the southeastern and the south-central United States. A third distribution center, established in fiscal 1999, is located in Camp Hill, Pennsylvania and serves customers in the northeast.
Minntech B.V., the Company's headquarters for its European operations in The Netherlands, employed a total of 26 people in Europe at March 31, 2001. This wholly-owned subsidiary has been the base for the Company's European dialysis and cardiosurgery sales operations since 1995. In fiscal 1999 the Company began to establish a European sales distribution network for filtration and separation products. The Company's goal is to increase its revenues in Europe through expanded direct sales activities. In May 1998, the Company formed its Minntech International division to oversee operations of both Minntech B.V. and Minntech Japan.
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
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decisions. Cardiosurgery marketing programs are directed at Original Equipment Manufacturers (OEM) customers, and filtration and separation marketing programs are directed at distributors and large OEM's.
Pursuant to its marketing agreement with ASP, the Company does not directly engage in endoscope reprocessing marketing activities. However, the Company does support ASP's marketing programs by providing sales training, clinical education, and technical assistance as needed. ASP's endoscope reprocessing customer base includes gastroenterology nurses and physicians, infection control and central sterile processing personnel, and hospital and clinic administrators.
Sources and Availability of Materials
The Company has multiple sources of supplies for use in its manufacturing operations. In addition, the Company constructs many of its injection molds and also molds and extrudes many of its component plastic parts. High demand for polycarbonate products by various industries has at times caused temporary shortages of their supply.
Patents and Trademarks
The Company holds rights under 94 patents worldwide (including 34 United States patents) covering its products or components thereof. At March 31, 2001, the Company also had a total of 62 pending patent applications in the United States and in foreign countries. The Company also holds rights under 254 trademark registrations worldwide and had 38 trademark applications pending as of March 31, 2001.
The Company believes that patent protection is a significant factor in maintaining its market position, but the rapid changes of technology in reprocessing, hollow fiber membranes, dialysis, liquid and dry chemical sterilants and 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 may also 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.
Working Capital and Backorder
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 within five working days of receipt. The Company had approximately $.43 million of backorders as of March 31, 2001.
Significant Customers
The Company's five largest customers accounted for approximately 33.2 percent of total sales in 2001, 29.3 percent in 2000, and 33.4 percent in 1999. The Company's largest customer accounted for 9.3 percent of total sales in 2001.
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.
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Competition
Dialysis
The Company's dialysis and dialyzer 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 Healthcare, Gambro AB, and Fresenius Medical Care 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.
In fiscal 1999, two of the Company's competitors (Fresenius Medical Care AG and HDC Medical, Inc.) introduced peracetic acid-based dialyzer reprocessing germicides, expanding a market previously dominated by the Company's Renalin® Cold Sterilant product. However, Renalin® remains the only reprocessing chemical that has been validated for use with the Renatron® dialyzer reprocessing system and cleared for marketing as such under section 510(k) of the Federal Food, Drug and Cosmetic Act. Renalin® is also the only dialyzer reprocessing germicide that carries a sterilization claim in the United States market. The Company has informed its Renatron® customers that it is unable to guarantee the integrity, reliability, and chemical interaction of alternative germicides with the Renatron® system. The Company believes that this validation, coupled with the Company's extensive dialyzer reprocessing education, administration, and technical support services, are strong competitive advantages for their product. However, the competitive price pressures introduced by these new germicides has impacted the Company's current dialyzer reprocessing chemical market share.
There is a growing trend in the dialysis industry whereby manufacturers of supplies are acquiring chains of dialysis treatment centers. These manufacturers have a built-in customer base for their products. However, the Company currently views its manufacturer-only status as a competitive market advantage. The Company believes that many dialysis treatment providers do not want to purchase hemodialysis supplies from manufacturers who also provide dialysis services and are, in effect, their competitors.
Cardiosurgery
The Company does not engage in direct sales of its cardiosurgery products and product components. Substantially, all rights and assets related to the Company's oxygenator and cardioplegia system products were sold to LifeStream in October 1999. Minntech's hemofilter line is sold on an OEM basis to Baxter Healthcare International, and its Hemocor HPH® hemoconcentrator products are sold primarily through LifeStream under a non-exclusive, worldwide distribution agreement initiated in fiscal 2000; and through others (see "Cardiosurgery Products" above for more information).
Developing Businesses—Filtration and Separation
Major competitors in the industry include Pall Corporation, Millipore Corporation, Sartorius AG, Cuno, Inc., Whatman, Inc., U.S. Filter (Filterite), and Osmonics, Inc. (see " Filtration and Separation" above for more information). There are a number of different mediums currently used in the manufacture of microfilters that compete with the Company's polysulfone fibers (e.g., PTFE, cellulose, polypropylene, nylon, PVDF).
Market Conditions
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
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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 over 25 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 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. While this may adversely affect some of the Company's supply products, cost containment pressures may be a positive factor for certain Company products, such as dialyzer reprocessing products and the Renapak 2™ Concentrate Manufacturing System.
Research and Product Development
The Company strives to design and develop technologically advanced products that are customer driven, 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.
In April 1998 the Company entered into an agreement with ASP for the development of a next-generation automatic endoscope reprocessing machine and chemical sterilant. This multi-year joint development and licensing agreement called for $1.5 million in licensing fees to be paid to the Company upon the completion of certain milestone events. ASP has paid $1.1 million to date under the joint development and licensing agreement. Minntech is currently in negotiations with ASP regarding the future distribution of the product.
The Company's other current research and development efforts are directed toward core technology development in dialyzer reprocessing applications, hemodialysis concentrate technologies, blood filtration technologies, sterilant/disinfectant applications, and filtration and separation technologies.
As of March 31, 2001, twenty 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 $12.6 million in research and development as follows: fiscal 2001—$3.7 million; fiscal 2000—$4.5 million; and fiscal 1999—$4.4 million. Such costs represented 4.8 percent, 6.0 percent, and 5.8 percent of revenues, respectively, in each period.
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 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 Quality System Regulations (QSR) under which the FDA conducts periodic inspections to verify compliance.
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Further, the QSRs impose certain requirements regarding manufacturing procedures, distribution, advertising, labeling, and record keeping. The FDA also has the power to order suspension of manufacturing or marketing and 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. In some cases, 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.
In January 1995, the Company received ISO 9001 certification for its Plymouth, Minnesota facilities, and in April 1999 Minntech B.V. received ISO 9002 certification for its facility in Herleen, The Netherlands. 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.
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, 2001, the Company employed 369 full-time and 7 part-time employees, including 253 persons in manufacturing operations. An additional 39 people were contracted as temporary labor. None of these employees are covered by a collective bargaining agreement, and the Company believes that its employee relations are good.
Geographic Area Information
The major foreign markets for the Company's products are Europe and the Pacific Rim. Sales outside the United States for the fiscal years ended March 31, 2001, 2000, and 1999 were approximately $11.4 million, $15.0 million, and $17.2 million, respectively. Sales outside the United States accounted for approximately 14.9 percent, 20 percent, and 23 percent of total sales, respectively, in each period.
Item 2. PROPERTIES
United States
The Company owns three facilities located on adjacent sites, comprising a total of 16.5 acres of land in Plymouth, a western 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, representing the Company's headquarters, including executive, administrative and sales staffs, and research operations. This building is also used
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for manufacturing and warehousing. The third facility is a 43,100 square-foot building adjacent to the Company's headquarters and was purchased in February 2001. This building is used primarily for manufacturing and warehouse operations, and houses some administrative staff. The Company also owns a 2.3 acre parcel of undeveloped land adjacent to the Company's headquarters.
The Company leases additional facilities to support its businesses. The Company ended its lease of a 14,300 square-foot concentrate and sterilant warehouse facility in Plymouth, Minnesota to move to a larger 21,000 square-foot leased warehouse in Plymouth in October 2000.
In fiscal 2001 the Company leased six additional out-of-state properties, including three facilities for Minntech's Dialyzer Reprocessing Centers. These Centers include a 1,060 square-foot office space in Edgewood, Florida; a 3,469 square-foot facility in Boston, Massachusetts; and a 3,216 square-foot space in Atlanta, Georgia. The Company is currently in the process of adding an additional 1,270 square feet to the Edgewood, Florida facility, and expects renovations to be completed in fiscal 2002.
The Company vacated a 24,311 square-foot building located in Camp Hill, Pennsylvania in October 2000 and moved operations into a 31,000 square-foot facility in Middletown, Pennsylvania. The Pennsylvania facility is a warehouse and distribution hub for the Company's dialysis concentrate business. The other two leased properties are also used as warehouse and distribution hubs for the Company's dialysis business. They include a 30,000 square-foot building in Columbia, South Carolina, and a 30,132 square-foot building in Jackson, Mississippi.
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 and warehouse. In fiscal 1998 the Company also began manufacturing activities at the Heerlen location.
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.
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, 2001.
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Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on The Nasdaq National MarketSM 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.
| Years ended March 31 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | ||||||||||
Fiscal Quarter Prices | ||||||||||||
High | Low | High | Low | |||||||||
First Quarter | $ | 8.50 | $ | 6.50 | $ | 16.75 | $ | 11.00 | ||||
Second Quarter | $ | 8.50 | $ | 6.03 | $ | 14.63 | $ | 9.75 | ||||
Third Quarter | $ | 7.25 | $ | 6.00 | $ | 10.88 | $ | 9.00 | ||||
Fourth Quarter | $ | 8.69 | $ | 6.53 | $ | 10.38 | $ | 7.50 |
As of June 18, 2001, the Company had more than 413 shareholders of record.
The Company paid annual cash dividends of $0.10 per share on its common stock in September 2000 and September 1999. 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
| Years Ended March 31 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | 1999 | 1998 | 1997 | |||||||||||
| (in thousands of dollars except per share amounts) | |||||||||||||||
Statement of Earnings Data | ||||||||||||||||
Net sales—product | $ | 76,585 | $ | 77,112 | $ | 77,835 | $ | 71,362 | $ | 67,729 | ||||||
Contract revenues | — | 60 | 1,040 | — | — | |||||||||||
Total revenues | 76,585 | 77,172 | 78,875 | 71,362 | 67,729 | |||||||||||
Cost of product sales | 49,315 | 45,222 | 44,351 | 41,799 | 40,315 | |||||||||||
Research and development expenses | 3,664 | 4,493 | 4,440 | 2,862 | 3,424 | |||||||||||
Selling, general and administrative expenses(1) | 20,698 | 19,140 | 20,249 | 19,154 | 17,404 | |||||||||||
Amortization of intangibles | 316 | 589 | 848 | 752 | 856 | |||||||||||
Restructuring and other unusual items(2) | — | — | — | — | 9,569 | |||||||||||
Earnings (loss) from operations | 2,592 | 7,728 | 8,987 | 6,795 | (3,839 | ) | ||||||||||
Other income (expense), net(3) | 716 | 1,090 | 1,804 | 33 | (499 | ) | ||||||||||
Earnings (loss) before income taxes | 3,308 | 8,818 | 10,791 | 6,828 | (4,338 | ) | ||||||||||
Provision (benefit) for income taxes | 1,030 | 2,877 | 3,647 | 2,253 | (700 | ) | ||||||||||
Minority interest | — | — | (16 | ) | (110 | ) | (266 | ) | ||||||||
Net earnings (loss) before cumulative effect of change in accounting principle | 2,278 | 5,941 | 7,160 | 4,685 | (3,372 | ) | ||||||||||
Cum. effect of change in accounting principle(4) | (136 | ) | — | — | — | — | ||||||||||
Net earnings (loss) | $ | 2,142 | $ | 5,941 | $ | 7,160 | $ | 4,685 | $ | (3,372 | ) | |||||
Diluted earnings (loss) per share | $ | 0.32 | $ | 0.86 | $ | 1.05 | $ | 0.69 | $ | (0.50 | ) | |||||
Diluted weighted average common shares | 6,682 | 6,912 | 6,850 | 6,833 | 6,722 | |||||||||||
Balance Sheet Data | ||||||||||||||||
Cash, cash equivalents and marketable securities | $ | 15,344 | $ | 10,687 | $ | 9,171 | $ | 7,236 | $ | 3,622 | ||||||
Working capital | 34,258 | 33,161 | 31,904 | 26,080 | 20,104 | |||||||||||
Property and equipment, net | 17,410 | 15,359 | 15,021 | 14,191 | 15,647 | |||||||||||
Total assets | 63,012 | 61,834 | 58,726 | 51,550 | 48,594 | |||||||||||
Stockholders' equity | 53,421 | 52,308 | 48,518 | 41,833 | 37,435 | |||||||||||
Book value per common share | $ | 8.00 | $ | 7.82 | $ | 7.16 | $ | 6.18 | $ | 5.61 | ||||||
General Data and Ratios | ||||||||||||||||
Earnings before interest, taxes, depreciation and amortization EBITDA(5) | $ | 6,053 | $ | 11,168 | $ | 12,628 | $ | 10,433 | $ | 1,061 | ||||||
Dividends per share | $ | .10 | $ | .10 | $ | .10 | $ | .10 | $ | .10 | ||||||
Current ratio | 4.9 | 4.9 | 4.4 | 4.1 | 3.0 | |||||||||||
Gross margin on net product sales | 35.6 | % | 41.4 | % | 43.0 | % | 41.4 | % | 40.5 | % | ||||||
Net earnings (loss) as a % of revenues | 2.8 | % | 7.7 | % | 9.1 | % | 6.6 | % | (5.0 | %) | ||||||
Return on average stockholders' equity | 4.1 | % | 11.8 | % | 15.8 | % | 11.8 | % | (8.6 | %) |
- (1)
- In fiscal 2001, selling, general and administrative expenses include an increase of approximately $1.9 million as compared to the prior year for employee severance costs and estimated state sales and use tax expenses, partially offset by a recovery of $234 in finite risk insurance premiums received after cancellation of the Company's policy.
- (2)
- Includes a fiscal 1997 restructuring charge related to the discontinuation of the Company's Primus® Dialyzer and Cathetron® catheter reprocessing system.
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- (3)
- Includes for fiscal 2001 recovery of $155 in finite risk insurance premiums received after cancellation of the Company's policy. The Company recorded a $260 loss related to the resolution of certain business issues in connection with the sale of certain cardiosurgery assets to Life Stream in fiscal 2001. Includes for fiscal 2000 a gain of $176 from the sale of an unused parcel of land. Includes, for fiscal 1999 $1,481 related to the sale of two U.S. patents.
- (4)
- Effect of the change in certain revenue recognition policies, as of April 1, 2001, has been reported as a cumulative effect of an accounting change in 2001 as a $136, net of tax, reduction to earnings.
- (5)
- EBITDA is the sum of earnings before interest, taxes, cumulative effect, depreciation and amortization and is utilized as a performance measure within the medical device industry. EBITDA is not intended to be a performance measure that should be regarded as an alternative for other performance measures and should not be considered in isolation. EBITDA is not a measurement of financial performance under generally accepted accounting principles in the United States and does not reflect all income and expenses of doing business (e.g. interest income, interest expense, taxes, depreciation, amortization, exchange gain/(loss), other income/(expense)). Accordingly, EBITDA should not be considered as having greater significance than or as an alternative to net income or operating income as an indicator of operating performance or to cash flows as a measure of liquidity.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Revenues
Revenues in fiscal 2001 decreased $.6 million, or .8 percent from fiscal 2000 to $76.6 million from $77.2 million in the prior year. Fiscal 2001 product sales decreased by $.5 million or .7 percent due primarily to a decrease in sales of dialyzer reprocessing equipment, and hemoconcentrators, which are included in the cardiosurgery product group, combined with the unfavorable impact of foreign exchange rate movements on international product sales.
Sales of dialysis products totaled $57.4 million in fiscal 2001, an increase of $.9 million or 1.6 percent from fiscal 2000. Dialysis concentrate product sales growth of 7.0 percent was partially offset by a 10.1 percent decline in dialyzer reprocessing equipment sales. Cardiosurgery product sales decreased $2.2 million or 17 percent from fiscal 2000, due primarily to a decline in hemoconcentrator sales, partially offset by increases in hemofilter and oxygenator product sales. Developing business sales increased $.8 million or 10.7 percent over the prior year. The increase is attributable to 8.5 percent growth in filtration and separation products combined with 17.6 percent growth in endoscope reprocessing. Foreign exchange rate movements had an unfavorable year-to-year impact on international product sales of $1.3 million in fiscal 2001.
Revenues in fiscal 2000 decreased by $1.7 million, or 2.2 percent over fiscal 1999 revenues. Fiscal 2000 product sales decreased by $.7 million or .9 percent, due primarily to a decrease in sales of cardio and dialyzer reprocessing products combined with the unfavorable impact of foreign exchange rate movements on international product sales. Revenues for fiscal 2000 reflect contract revenues of $0.06 million for achieving milestone events in the Company's licensing and development agreement with ASP, which is down from $1.04 million in fiscal 1999.
Sales of dialysis products totaled $56.5 million in fiscal 2000, an increase of $1.8 million or 3.3 percent from fiscal 1999. Dialysis concentrate product sales growth of 22.6 percent was partially offset by a 9.3 percent decline in dialyzer reprocessing sales. Sales of cardiosurgery products decreased $3.4 million or 20.6 percent from fiscal 1999, due primarily to the sale of the oxygenator product line to LifeStream. Developing business sales in fiscal 2000 increased $0.9 million or 12.8 percent over the prior year. This increase is attributable to 35.0 percent growth in filtration and separation products partially offset by a
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26.8 percent decline in endoscope reprocessing products. Foreign exchange rate movements had an unfavorable impact on international product sales of $.72 million in fiscal 2000.
In the fourth quarter of 2001, the Company adopted the Financial Accounting Standards Board's (FASB) Emerging Issues Task Force (EITF) No. 00-10, "Accounting for Shipping and Handling Fees and Costs." The Company's previous practice was to record freight invoiced to customers as a reduction in cost of sales. Under EITF No. 00-10, freight invoiced to customers is recorded as revenue. The impact of this change was to increase revenues, with a corresponding increase in cost of sales, by $3.1 million in fiscal 2001, $2.8 million in fiscal 2000, and $2.6 million in fiscal 1999, respectively.
The following table is a summary of sales and percent of total sales by business segment over the last three fiscal years:
| Year ended March 31 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | 1999 | |||||||||||||
| (in thousands of dollars) | |||||||||||||||
Dialysis products | $ | 57,397 | 75.0 | % | $ | 56,513 | 73.3 | % | $ | 54,718 | 70.3 | % | ||||
Cardiosurgery products | 10,821 | 14.1 | 13,038 | 16.9 | 16,413 | 21.1 | ||||||||||
Developing business products | 8,367 | 10.9 | 7,561 | 9.8 | 6,704 | 8.6 | ||||||||||
Total Company Sales | $ | 76,585 | 100.0 | % | $ | 77,112 | 100.0 | % | $ | 77,835 | 100.0 | % | ||||
Earnings/Loss from Operations by Business Segment
Following is a summary of earnings/(loss) from operations before income taxes.
| Year ended March 31 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2001 | % of Segment Revenues | 2000 | % of Segment Revenues | 1999 | % of Segment Revenues | ||||||||||
| (in thousands of dollars) | |||||||||||||||
Dialysis products | $ | 11,863 | 20.7 | % | $ | 15,590 | 27.6 | % | $ | 17,062 | 31.2 | % | ||||
Cardiosurgery products | 1,923 | 17.8 | 2,682 | 20.6 | 3,039 | 18.5 | ||||||||||
Other Developing business products | 1,043 | 12.5 | (291 | ) | — | (153 | ) | — | ||||||||
Corporate & Unallocated | (12,237 | ) | — | (10,253 | ) | — | (10,961 | ) | — | |||||||
Total Company | $ | 2,592 | 3.4 | % | $ | 7,728 | 10.0 | % | $ | 8,987 | 11.6 | % | ||||
Gross Margin, Operating Expenses, and Net Earnings
Following is a summary of gross margins on net product sales, key operating expenses and net earnings as a percent of total revenues:
| Year ended March 31 | ||||||
---|---|---|---|---|---|---|---|
| 2001 | 2000 | 1999 | ||||
Gross margin on net product sales | 35.6 | % | 41.4 | % | 43.0 | % | |
Research and development | 4.8 | 5.8 | 5.6 | ||||
Selling, general, and administrative | 27.0 | 24.8 | 25.7 | ||||
Net earnings | 2.8 | 7.7 | 9.1 |
Gross margin as a percent of product sales in fiscal 2001 decreased to 35.6 percent from 41.4 percent in fiscal 2000. The lower gross margins in fiscal 2001 are primarily the result of increased distribution costs, (primarily in concentrate products) combined with higher overhead costs resulting from lower sales volumes, and lower average selling prices in the hemoconcentrator product line. The hemoconcentrator average selling price decline is attributable to selling the product through a strategic OEM partnership as
17
compared to the first half of fiscal 2000 when the Company sold the product direct. In fiscal 2000 gross margin as a percentage of product sales was 41.4 percent compared to 43.0 percent in fiscal 1999. The decrease in fiscal 2000 gross margin is attributable to a shift in product sales mix, which is related to growth in the dialysis concentrate product line; generally this product line has lower gross margins.
Research and development expenses in fiscal 2001 were $3.7 million, or 4.8 percent of revenues, compared to $4.5 million, or 5.8 percent of revenues, in fiscal 2000, and $4.4 million, or 5.6 percent of revenues, in fiscal 1999. In fiscal 2001 research and development spending decreased due to transitioning major development projects to later stages of completion as compared to fiscal 2000. Research and development spending in fiscal 2000 was primarily related to the development of a second generation endoscope reprocessing machine and sterilant combined with increased spending for dialyzer reprocessing programs. The Company intends to continue investing a substantial portion of its revenue in new product development and expects that total research and development expenses in fiscal 2002 will approximate 4.5 to 5.0 percent of revenues.
Selling, general, and administrative expenses as a percentage of total revenues were 27.0 percent in fiscal 2001, compared to 24.8 percent in fiscal 2000, and 25.7 percent in fiscal 1999. Fiscal 2001 selling, general, and administrative expenses reflect increased sales and use tax expenses and legal and consulting expenses to assess strategic alternatives for the Company. Fiscal 2001 also includes $.4 million in severance costs related to management changes during the year partially offset by a recovery of $.2 million in finite risk insurance premiums associated with a policy cancellation. Excluding these items, selling, general, and administrative expenses were comparable to fiscal 2000. Selling, general, and administrative expenses declined as a percentage of revenues in fiscal 2000 due to reduced cardiosurgery sales and marketing efforts. Fiscal 2000 selling, general, and administrative expenses include $.2 million of severance costs.
Other Income/(Expense)
Fiscal 2001 other income reflects $.93 million of interest income partially offset by a non-recurring $.26 million loss related to the sale of certain cardiosurgery assets to LifeStream. Fiscal 2001 other income also includes a $.2 million gain related to a cancelled finite risk insurance policy.
Fiscal 2000 other income reflects a $.18 million gain related to the sale of a 5.5 acre parcel of land. This parcel was not included in any future development plans. Fiscal 2000 other income also includes service and transition fees related to the sale of the oxygenator product line to LifeStream and $.4 million of interest income.
Fiscal 1999 other income reflects a $1.48 million gain related to the sale of two U.S. patents. The technology covered in the patents sold was not utilized in any of the Company's current products or future development plans.
Income Taxes
The income tax expense for fiscal 2001 was approximately $1.0 million, which represents an effective tax rate of 31.1 percent, compared to income tax expense of approximately $2.9 million or an effective tax rate of 32.6 percent in fiscal 2000. In fiscal 1999, the Company recorded income tax expense of $3.6 million or an effective tax rate of 33.8 percent. The Company expects the effective tax rate for fiscal 2002 to range between 34.0 percent and 36.0 percent.
Net Earnings
The Company reported net earnings of $2.1 million, or $.32 per share (basic and diluted), compared to net earnings of $5.9 million, or $.87 and $.86 per share (basic and diluted, respectively) in fiscal 2000. Fiscal 2001 net earnings were unfavorably impacted by the decline in gross margins combined with additional selling, general and administrative expenses during the year. The Company's fiscal 2000 net
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earnings were unfavorably impacted by a decrease in contract revenue combined with a shift in product sales mix resulting in lower gross margins, and $.24 million for expenses related to a cancer therapy acquisition which was canceled in October 1999.
Fiscal 1999 net earnings reflect $.98 million for the sale of two U.S. patents. Excluding the patent sale, the Company's 1999 fiscal year net earnings totaled $6.2 million, or $.91 per share (basic and diluted). The Company's fiscal 1999 net earnings were favorably impacted by contract 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:
| March 31 | ||||||||
---|---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | 1999 | ||||||
| (in thousands of dollars) | ||||||||
Cash, cash equivalents and marketable securities | $ | 15,344 | $ | 10,687 | $ | 9,171 | |||
Working capital | 34,258 | 33,161 | 31,904 | ||||||
Stockholders' equity | 53,421 | 52,308 | 48,518 | ||||||
Cash flow from operations | 9,360 | 4,849 | 5,174 | ||||||
Cash dividends paid | 668 | 691 | 679 |
Cash and cash equivalents increased $4.7 million to $15.3 million as of March 31, 2001. The Company's current ratio at March 31, 2001 was 4.9 compared to 4.9 at March 31, 2000. Cash flows from operations in fiscal 2001 increased to $9.4 million from $4.8 million in the prior year. The increase in cash flow from operations is primarily attributable to a decrease in inventories and accounts receivable combined with an increase in accrued expenses.
A total of $5.7 million was expended for plant improvements and equipment in fiscal 2001, compared to $4.1 million and $3.7 million in fiscal 2000 and 1999, respectively. The Company expended $2.3 million in fiscal 2001 to purchase and upgrade a third facility adjacent to the Company's headquarters in Plymouth, Minnesota. The Company plans to invest between $2.0 million and $4.0 million in capital equipment in fiscal 2002.
The Company received $2.03 million of deferred purchase price and milestone payments in fiscal 2001 and $2.24 million in fiscal 2000 related to the sale of certain cardiosurgery product lines in fiscal 2000.
During the past three years, proceeds from stock options exercised and common stock issued under the employee stock purchase plan provided a total of $2.9 million in equity capital as follows: fiscal 2001—$.1 million; fiscal 2000—$1.7 million; and fiscal 1999—$1.1 million. The Company initiated a stock repurchase program in August 1998. The Company spent $.2 million to repurchase 24,100 shares of common stock in fiscal 2001; $2.65 million to repurchase 262,800 shares of common stock in fiscal 2000; and $1.01 million to repurchase 101,200 shares of common stock in fiscal 1999. The Company has spent $3.85 million to repurchase a total of 388,100 shares to date under the program.
In April 1998, the Company signed a finite risk insurance policy to cover potential future product liability and legal defense exposures. A total of $1.7 million in premium payments were made in fiscal 1999 and 2000. The Company cancelled the finite risk coverage in the second quarter of fiscal 2001 and recovered $1.3 million of premiums and interest. This recovery resulted in a gain of approximately $.2 million.
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The Company expects its cash balances, cash flow from operations, and line of credit to be adequate to meet its obligations and other anticipated operating cash needs, including planned capital expenditures, in its core business in fiscal 2002.
On May 30, 2001, the Company entered into an Agreement and Plan of Merger with Cantel Medical Corporation and a newly formed, wholly owned subsidiary of Cantel. Under the merger agreement, the Company's ability to incur additional indebtedness without Cantel's consent is substantially limited. In addition, the merger agreement precludes the Company's issuance of debt or equity securities (except in connection with option exercises) without Cantel's consent.
Euro Conversion
Effective January 1, 1999, the European Economic and Monetary Union created a single Eurocurrency (the euro) for its member countries. A transition period is in effect that began January 1, 1999, and goes through December 31, 2001, during which time transactions will be executed in both the euro and the member country currencies. Effective January 1, 2002, euro bank notes will be introduced and on July 1, 2002, the euro will be the sole legal tender of the European Economic and Monetary Union countries.
In general, the adoption of a single currency for the participating countries is expected to result in greater transparency of pricing, making Europe a more competitive environment for businesses. However, conversion to the euro is expected to affect many financial systems and business applications.
The Company switched all European business to the euro as the functional currency as of April 1, 2001. This conversion required minimal information system modifications. It is not anticipated at this time that the euro will have a material impact on our fundamental risk management philosophy. Any costs incurred associated with the adoption of the euro were expensed as incurred and were not material to the Company's results of operations, financial condition, or liquidity.
Foreign Currency Transactions
Substantially all of the Company's United States-based export sales are invoiced and paid in United States dollars. The transactions of the Company's Netherlands-based subsidiary are invoiced and paid in several currencies, including U.S. dollars, euros and euro-linked currencies such as Dutch guilders and German marks. The Company does not currently hedge its foreign currency transactions. Accordingly, the Company is subject to risks associated with fluctuations in currency exchange rates.
Risk Factors
Certain statements made in this Annual Report on Form 10-K are forward-looking statements that involve risks and uncertainties, and actual results may differ. Factors that could cause actual results to differ include those identified below.
Risks Relating to the Company
The Company operates in a highly regulated industry, which may delay the introduction of new products, cause withdrawal of products from the market, and have other adverse consequences. In the United States, the Food and Drug Administration regulates the sale of medical supplies and devices as well as manufacturing procedures, labeling, and record keeping with respect to such products. The process of obtaining marketing clearances and approvals from the FDA for new products can be time consuming and expensive. There is no assurance that clearances or approvals will be granted or that FDA review will not involve delays that would adversely affect the Company's ability to commercialize its products. No assurance can be given that the Company will receive FDA approval for new products on a timely basis, or at all.
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Even if regulatory approvals for a product are obtained, these approvals may entail limitations on the indicated uses of the product. Product approvals by the FDA can also be withdrawn for failure to comply with regulatory requirements or unforeseen problems following initial approval. The FDA could also limit or prevent the manufacture or distribution of the Company's products and has the power to require the recall of such products. FDA regulations depend heavily on administrative interpretation, and there can be no assurance that future interpretations made by the FDA or other regulatory bodies, with possible retroactive effect, will not adversely affect the Company.
The FDA, various state agencies, and foreign regulatory bodies inspect the Company from time to time to determine whether the Company is in compliance with various regulations relating to manufacturing practices, validation, testing, quality control, and product labeling. For example, the United States Environmental Protection Agency regulates the chemical sterilants used in the Company's water filtration product line. A determination that the Company is in violation of these regulations could lead to imposition of civil penalties, including fines, product recall orders or product seizures, and, in extreme cases, criminal sanctions.
International regulatory bodies often establish varying regulations governing products standards, packaging requirements, labeling requirements, import restrictions, tariff regulations, duties, and tax requirements. As a result of the Company's sales in Europe, the Company was required to be certified as ISO 9001 compliant and to receive CE mark certification. Failure to maintain CE mark certification would have a material adverse effect on the Company's business, financial condition, results of operations, and cash flows.
The Company's competitors may develop products that render the Company's products noncompetitive or obsolete. The Company competes in markets that are highly competitive and are characterized by innovation and technological change. Its competitors often have capital resources, research and development staffs, facilities, experience in conducting clinical trials and obtaining regulatory approvals, and experience in manufacturing and marketing medical supplies and devices that are significantly greater than those of the Company. These competitors may develop technologies and products that are more effective than those being developed by the Company or that would render the Company's products obsolete or noncompetitive. In addition, the Company's competitors may achieve patent protection, regulatory approval, or product commercialization that would limit the Company's ability to compete with them.
The Company's intellectual property rights may not provide the competitive advantage they are designed to. The Company relies heavily on proprietary technology, which it protects primarily through licensing arrangements, patents, trade secrets, and proprietary know-how. There can be no assurance that any pending or future patent applications will be granted or that any current or future patents, regardless of whether the Company is an owner or a licensee of the patent, will not be challenged, rendered unenforceable, invalidated, or circumvented or that the rights will provide a competitive advantage to the Company. There can also be no assurance that the Company's trade secrets or non-disclosure agreements will provide meaningful protection of its proprietary information. There can also be no assurance that others will not independently develop similar technologies or duplicate any technology developed by the Company or that the Company's technology will not infringe upon patents or other rights owned by others.
The Company produces innovative products, which requires medical professionals to switch from established products. The Company's principal products are based upon innovative medical concepts. The Company believes that market acceptance of these products depends, in part, on the Company's ability to convince the medical community of the safety, efficacy, convenience, and cost effectiveness of these products as compared to existing ones. There can be no assurance that medical professionals will readily adopt new products or approaches, particularly when competitors may provide a more complete product mix than that offered by the Company.
21
Limitations on third-party reimbursement or other cost-cutting measures may adversely affect the Company's sales and revenues. The Company's ability to sell its products depends in part on the extent to which reimbursement for the cost of these products and related treatments are available to patients under domestic and foreign governmental health programs, private health insurance, managed care organizations, workers' compensation insurers, and other similar programs. Over the past decade, the cost of health care has risen significantly, and there have been numerous proposals by legislators, regulators, and third-party health care payors to curb these costs. In addition, certain health care providers are moving towards a managed care system in which the providers contract to provide comprehensive health care for a fixed cost per person. Moreover, hospitals and other health care providers have become increasingly price competitive and, in some instances, have put pressure on medical suppliers to lower their prices.
Product liability litigation can have a material adverse effect on suppliers of medical devices and supplies, such as the Company. The medical supply and device industry has been historically litigious and the Company faces an inherent business risk of financial exposure to product liability claims if the use of its products results in personal injury. Because the Company's principal products are designed to be used in connection with medical procedures on the human body, manufacturing errors or design defects could result in an unsafe condition, injury, or death to the patient, and could result in a recall of the Company's products and substantial monetary damages. Although the Company currently maintains liability insurance, there can be no assurance that the coverage limits of the Company's insurance policies will be adequate.
Industry consolidation may result in the Company's customers being acquired by its competitors. A significant percentage of dialysis treatment centers nationwide are owned by competitors of the Company. More of these centers may be acquired by competitors in the future. Accordingly, the Company may face difficulty in selling its dialysis products to these centers.
The Company depends on sales to its distributors, who are not bound to continue to do business with it. Sales to distributors constitute a significant portion of the Company's business both in the United States and foreign markets. There can be no assurance that the Company will be able to maintain its relationship with distributors, or, if these relationships terminate, that new distributors will be found. The loss of a significant distributor could have a material adverse effect on the Company if a new distributor (or other suitable sales organization) could not be found on a timely basis.
The Company has experienced temporary supply shortages, which may reoccur at any time. High demand for polycarbonate products by various industries has at times caused temporary shortages of their supply. Any significant interruption in the supply of these products could have a material adverse effect on the Company.
In its business, the Company uses substances regulated by environmental authorities, which could impose liability on the Company. In the ordinary course of its manufacturing process, the Company uses various chemical solvents and other regulated substances. Although the Company is not aware of any claim involving violation of environmental or occupational health and safety laws or regulations, there can be no assurance that such a claim may not arise in the future, which could have a material adverse effect on the Company.
The Company depends on a small group of customers for a significant portion of its business. The Company's five largest customers in fiscal 2001 accounted for 33% of its total revenues. The loss of one or more of these customers could have a material adverse effect on the Company.
The Company faces strong competition for skilled workers. The Company's success depends in large part on its ability to attract and retain highly qualified scientific, technical, management, and marketing personnel. Competition for such personnel is intense and there can be no assurance that the Company will be able to attract and retain the personnel necessary for the development and operation of its business.
22
Because the Company conducts business internationally, it is subject to currency risks. Approximately 15% of the Company's business is transacted in foreign markets. Long-term changes or short-term fluctuations in currency exchange rates could have a material adverse effect on the Company's results of operations.
Because the Company operates in international markets, it is subject to political and economic risks that it does not face in the United States. The Company and its subsidiaries operate in a global market. Global operations are subject to risks, including political and economic instability, general economic conditions, imposition of government controls, fluctuations of exchange rates, the need to comply with a wide variety of foreign and United States export laws, trade restrictions, and the greater difficulty of administering business overseas.
The Company's anti-takeover provisions could delay or discourage a takeover attempt that may be in a shareholder's best interest. The Company's Articles of Incorporation and Bylaws contain provisions that may delay or discourage a takeover attempt that a shareholder might consider to be in the shareholder's best interest. These provisions, among other things,
- •
- classify the Company's Board of Directors into three classes, each of which serves for different three-year periods;
- •
- allow shareholders to only remove an incumbent director for cause;
- •
- require a vote of the holders of more than two-thirds of the shares entitled to vote in order to amend the foregoing or to approve certain extraordinary transactions not approved by the Board;
- •
- establish certain advance-notice procedures for nominations of candidates for election as directors and for shareholder proposals to be considered at shareholders' meetings; and
- •
- permit the Board of Directors, without further action of the shareholders, to issue and fix the terms of preferred stock, which may have rights senior to those of the common stock.
In addition, as a Minnesota corporation, the Company is subject to certain anti-takeover provisions of the Minnesota Business Corporation Act. The Company has also adopted a Shareholders Rights Agreement, which is triggered, subject to certain exceptions, by any person or group acquiring 20% or more of the Company's common stock. These anti-takeover provisions could have the effect of delaying, deferring, or preventing a change in control of the Company, may discourage bids for the Company's common stock at a premium over the then-prevailing market price of the common stock, and may adversely effect the market price of, and the voting and other rights of the holders of, common stock.
Risks Relating to the Merger
Failure to complete the merger could negatively impact the Company's stock price and future business and operations. If the merger is not completed for any reason, the Company may be subject to the following risks:
- •
- if the merger is terminated and the Company's Board of Directors determines to seek another business combination, the Company may not be able to find a partner willing to pay an equivalent or more attractive price than the price to be paid in the merger;
- •
- various costs related to the merger, including legal, accounting and financial advisor fees, must be paid by the Company even if the merger is not completed; and
- •
- the price of the Company's common stock may decline to the extent that the current market price reflects a market assumption that the merger will be completed.
The termination fee and restrictions on solicitation contained in the merger agreement may discourage other companies from trying to acquire the Company. Until the completion of the merger, and with some
23
exceptions, the Company is prohibited from entering into or soliciting any acquisition proposal or offer for a merger or other business combination transaction with a party other than Cantel. In addition, the Company has agreed to pay Cantel a termination fee of $2.5 million and reimbursement of expenses of up to $750,000, in specified circumstances, including where the Company's directors terminate the agreement with Cantel in order to effect a combination with a third party. These provisions could discourage other companies from trying to acquire the Company even though those other companies might be willing to offer greater value to the Company's shareholders than Cantel has offered in the merger.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Market risk exposure of market risk sensitive instruments is not material.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and the Report of Independent Accountants are contained on pages 37 through 54 of this report.
Quarterly Financial Data
Quarterly financial data is disclosed in Note 13—Quarterly Data to the consolidated Financial Statements on Page 53 of this report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
24
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors and executive officers of the Company as of June 1, 2001, their ages, and the year they became directors and/or executive officers are listed below:
Name | Position with Company | Age | First Elected as Director and/or Officer | |||
---|---|---|---|---|---|---|
William Hope(3)(4) | Chairman of the Board | 67 | 1998 | |||
Norman Dann(1)(3)(4) | Director | 74 | 1995 | |||
George Heenan(1)(2)(4) | Director | 61 | 1982 | |||
Amos Heilicher(2)(3)(4) | Director | 83 | 1982 | |||
Malcolm W. McDonald(1)(2)(4) | Director | 64 | 1998 | |||
Fred L. Shapiro, M.D.(2) | Director | 66 | 1982 | |||
R. James Danehy | President, Chief Executive Officer and Director | 56 | 2000 | |||
Barbara A. Wrigley | Executive Vice President and Secretary | 49 | 1994 | |||
Paul E. Helms | Senior Vice President Operations | 55 | 1996 | |||
Andrew P. Cambell | Vice President Sales | 42 | 2000 | |||
Jules L. Fisher | Vice President Chief Financial Officer | 47 | 1996 | |||
Robert W. Johnson | Vice President Regulatory Affairs and Quality Assurance | 45 | 1994 | |||
Michael Petersen | Vice President Research and Development | 45 | 2000 |
- (1)
- Member of the Audit Committee.
- (2)
- Member of the Compensation Committee.
- (3)
- Member of the Acquisition Committee.
- (4)
- Member of the Nominating Committee.
William Hope is a director of the Company and has been Chairman of the Board of the Company since June 2000. Mr. Hope served as interim Chief Executive Officer of the Company from June 2000 to November 2000. He was President and Chief Executive Officer of G&K Services, Inc., a supplier of uniforms and specialty garments throughout North America, from 1997 to January 1999, and President and Chief Operating Officer from 1993 to 1997. Mr. Hope is also a director of G&K Services.
Norman Dann is a director of the Company. Mr. Dann has been an independent business consultant concentrating in the areas of venture capital, strategic planning, marketing, and product development from 1992 to present. He previously was a general partner of three Pathfinder Venture Capital funds and partnerships from 1980 to 1992, and Vice President of Sales and Marketing and Senior Vice President of Development with Medtronic, Inc., a medical technology company, from 1971 to 1977. Mr. Dann is also a director of Medwave, Inc. and several private companies.
George Heenan is a director of the Company. Mr. Heenan has been an Executive Fellow and Director of the Institute of Strategic Management from July 1999 to present, and Executive Fellow and Director of the Institute of Venture Management at the University of St. Thomas from September 1994 to July 1999.
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He previously was President of Bissell Healthcare Corporation, North American Operations, a manufacturer and distributor of medical products, from February 1991 to August 1994, and Chairman of Clarus Medical Systems, Inc., a manufacturer of diagnostic and interventional endoscopes, from May 1987 to February 1991. Mr. Heenan has also been a principal of Heenan Investments, Inc., a venture development and investment company, since January 1986. He is also a director of Infinite Graphics Incorporated.
Amos Heilicher is a director of the Company. Mr. Heilicher has been President of Advance-Carter, a venture capital company, and Advance Realty Co. for more than five years. Mr. Heilicher is the uncle by marriage of Dr. Fred L. Shapiro.
Malcolm W. McDonald is a director of the Company. Mr. McDonald has been Director and Sr. Vice President of Space Center, Inc., an industrial real estate firm, and related entities from 1977 to present. Mr. McDonald is also a director of a private company and a director or trustee of several nonprofit organizations.
Fred L. Shapiro, M.D., is a director of the Company. Dr. Shapiro has been a consultant to Hennepin Faculty Associates, a nonprofit organization involved in medical education, research and patient care, from 1995 to 1999, President of Hennepin Faculty Associates from 1984 to 1995, and Medical Director of the Regional Kidney Disease Program from 1966 to 1984. He has also been a Professor of Medicine at Hennepin County Medical Center and the University of Minnesota from 1976 to present. Dr. Shapiro is the nephew by marriage of Amos Heilicher.
Mr. Danehy joined the Company in November 2000 as President, Chief Executive Officer and director. Prior to joining the Company, Mr. Danehy was founder and sole owner of JDMD Company LLC, a custom home developer, from January 1999 to November 2000. He served as President, Chief Executive Officer, and board member of Centocor Diagnostics of Pennsylvania, a medical device company, from July 1997 to December 1998. From 1994 through 1997, he served as President, Chief Executive Officer, and board member of Ventana Medical Systems, Inc., a manufacturer of medical instruments for clinical histology and drug discovery.
Ms. Wrigley has served as Executive Vice President and Secretary from April 2000 to present, as Executive Vice President Corporate Development, General Counsel and Secretary from April 1999 to March 2000, and as Vice President, General Counsel and Secretary from March 1994 to March 1999.
Mr. Helms joined the Company in August 1996 as Senior Vice President Operations, having previously been employed by Cabot Medical Corporation, a medical device company, from 1988 to 1996, most recently as Vice President of Operations from 1991 to 1996.
Mr. Cambell has served as Vice President Sales from September 2000 to present, as President of Minntech's international operations from April 1998 to September 2000, and as Managing Director of Minntech's international operations from 1994 to 1998.
Mr. Fisher joined the Company in November 1996 as Vice President Chief Financial Officer, having previously been employed by U.S. Surgical Corporation, a medical device manufacturer, as Director, Operations Accounting from 1991 to 1996.
Mr. Johnson has served as Vice President Regulatory Affairs and Quality Assurance from March 1997 to present, as Vice President Quality Assurance from April 1994 to March 1997, and as Director, Quality Assurance from August 1992 through April 1994.
Mr. Petersen joined the Company in May 2000 as Vice President Research and Development, having previously been employed by Medtronic Inc., a medical technology company, from 1995 to 2000, most recently as Director, Research and Development for Medtronic's perfusion system business.
The Company's Restated Articles of Incorporation, as amended, provide that the number of directors constituting the Board of Directors will not be more than eleven nor less than three persons and will be
26
determined from time to time by resolution of the Board. The Board of Directors has fixed the size of the Board at seven. The Articles of Incorporation also provide for the election of approximately one-third of the Board of Directors annually.
Executive officers and officers are elected annually by the Board of Directors and serve until their successors are duly elected and qualified.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's directors and executive officers, and persons who own more than 10% of a registered class of the Company's equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. These insiders are required by Securities and Exchange Commission regulations to furnish the Company with copies of all Section 16(a) forms they file, including Forms 3, 4 and 5.
To the Company's knowledge, based solely on a review of copies of such reports furnished to the Company and written representations that no other reports were required during and with respect to the fiscal year ended March 31, 2001, there were no failures in such fiscal year to file on a timely basis a report required under Section 16(a).
ITEM 11. EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation
The following table shows, for the fiscal years ended March 31, 2001, 2000 and 1999, the cash compensation paid by the Company, as well as certain other compensation paid or accrued for those years, to R. James Danehy, the Company's President and Chief Executive Officer, William Hope, the Company's interim Chief Executive Officer from June 2000 to November 2000, and Thomas J. McGoldrick, the Company's President and Chief Executive Officer from March 1997 to June 2000, and to each of the other
27
four most highly compensated executive officers of the Company during fiscal 2001 (together, the "Named Executives").
Summary Compensation Table
| | Annual Compensation | Long-Term Compensation | | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Name and Position | Fiscal Year Ended March 31 | Salary | Bonus | Stock Options | All Other Compensation | |||||||||
R. James Danehy President and Chief Executive Officer | 2001 2000 1999 | $ | 112,154 — — | $ | — — — | 333,964 — — | $ | 7,801 — — | (1) | |||||
William Hope Former Interim Chief Executive Officer | 2001 2000 1999 | $ | 195,000 — — | $ | — — — | 25,000 — — | $ | 2,160 — — | (2) | |||||
Thomas J. McGoldrick Former President and Chief Executive Officer | 2001 2000 1999 | $ | 74,554 287,338 264,223 | $ | — — 198,750 | — 24,000 24,000 | $ | 207,639 14,198 20,302 | (3) | |||||
Barbara A. Wrigley Executive Vice President and Secretary | 2001 2000 1999 | $ | 216,727 211,864 182,337 | $ | — — 91,260 | — 10,000 12,000 | $ | 16,298 10,961 12,043 | (4) | |||||
Paul E. Helms Sr. Vice President Operations | 2001 2000 1999 | $ | 207,122 195,805 172,510 | $ | — — 86,346 | — 12,000 12,000 | $ | 8,582 10,142 11,208 | (5) | |||||
Andrew P. Cambell Vice President Sales | 2001 2000 1999 | $ | 178,251 162,012 170,844 | $ | — — 75,366 | — 11,500 12,000 | $ | 27,922 13,594 15,630 | (6) | |||||
Jules Fisher Vice President Chief Financial Officer | 2001 2000 1999 | $ | 165,298 167,900 151,974 | $ | — — 76,063 | — 10,000 12,000 | $ | 6,749 8,383 10,686 | (7) |
- (1)
- Includes $468 of premium payments for life insurance and long-term disability insurance and $7,333 of payments for an apartment lease and furniture rental.
- (2)
- Includes $2,160 of payments for attending certain Company meetings after Mr. Hope had finished serving as interim Chief Executive Officer.
- (3)
- Includes $1,025 of 401(k) matching contributions under the Company's Profit Sharing and Retirement Plan, $3,838 of matching contributions under the Company's Supplemental Executive Retirement Plan and $414 of premium payments for life insurance and long-term disability insurance. Also includes $202,362 of payments to Mr. McGoldrick in fiscal 2001 in connection with his separation from the Company effective July 7, 2000. In connection with his separation, the Company entered into an agreement with Mr. McGoldrick to pay him $276,917, less applicable taxes, to provide, at the Company's request, up to an average of 40 hours a month of consulting services to the Company as an independent contractor from July 8, 2000 to July 7, 2001. The Company also agreed to pay Mr. McGoldrick additional compensation for hours worked in excess of 40 hours a month and to reimburse him for expenses incurred in connection with his consulting work for the Company. See also "Certain Relationships and Related Transactions" in Item 13 below.
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- (4)
- Includes $9,547 of profit sharing contributions and/or 401(k) matching contributions under the Company's Profit Sharing and Retirement Plan, $5,675 of matching contributions under the Company's Supplemental Executive Retirement Plan and $1,076 of premium payments for life insurance and long-term disability insurance.
- (5)
- Includes $7,541 of profit sharing contributions and/or 401(k) matching contributions under the Company's Profit Sharing and Retirement Plan and $1,041 of premium payments for life insurance and long-term disability insurance.
- (6)
- Includes $12,872 of pension and savings fund contributions and $15,050 of payments for an apartment lease and furniture rental.
- (7)
- Includes $5,828 of profit sharing contributions and/or 401(k) matching contributions under the Company's Profit Sharing and Retirement Plan and $921 of premium payments for life insurance and long-term disability insurance.
Stock Options
The following table contains information concerning the grant of stock options under the Company's 1998 Stock Option Plan during fiscal 2001 to the Named Executives identified in the Summary Compensation Table above.
Option Grants in Last Fiscal Year
| | | | | Potential Realizable Value at Assumed Rates of Stock Price Appreciation for Option Term(1) | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| | % of Total Options Granted to Employees in Fiscal Year Ended March 31, 2001 | | | |||||||||||
Name | Number of Shares Granted | Exercise Price | Expiration Date | ||||||||||||
5% | 10% | ||||||||||||||
R. James Danehy(2) | 333,964 | 91.8 | % | $ | 6.3125 | 11/29/10 | $ | 1,325,670 | $ | 3,359,845 | |||||
William Hope(3) | 25,000 | 6.9 | 7.3750 | 5/31/10 | 115,952 | 293,846 | |||||||||
Thomas J. McGoldrick | — | — | — | — | — | — | |||||||||
Barbara A. Wrigley | — | — | — | — | — | — | |||||||||
Paul E. Helms | — | — | — | — | — | — | |||||||||
Andrew P. Cambell | — | — | — | — | — | — | |||||||||
Jules L. Fisher | — | — | — | — | — | — |
- (1)
- Potential realized values shown above represent the potential gains based upon annual compound price appreciation of 5% and 10% from the date of grant through the full option term. The actual value realized, if any, on stock option exercises will be dependent upon overall market conditions and the future performance of the Company and its common stock. There is no assurance that the actual value realized will approximate the amounts reflected in this table.
- (2)
- Mr. Danehy received a non-qualified stock option, of which 111,321 shares vest on November 29, 2001, 111,321 shares vest on November 29, 2002 and 111,322 shares vest on November 29, 2003.
- (3)
- Mr. Hope received an incentive stock option for 13,559 shares of common stock, which is immediately exercisable. Mr. Hope also received a non-qualified stock option for 11,441 shares of common stock, which is immediately exercisable.
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Option Exercises and Holdings
The following table sets forth information with respect to the Named Executives concerning the exercise of options during the last fiscal year and unexercised options held as of the end of the fiscal year.
Aggregated Option Exercises In Last Fiscal Year
and Fiscal Year-End Option Values(1)
| Number of Unexercised Options at March 31, 2001 | Value of Unexercised In-the-Money Options as of March 31, 2001(2) | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Name | ||||||||||
Exercisable | Unexercisable | Exercisable | Unexercisable | |||||||
R. James Danehy | — | 333,964 | $ | — | $ | 714,850 | ||||
William Hope | 40,466 | — | 28,597 | — | ||||||
Thomas J. McGoldrick | 217,000 | — | 4,686 | — | ||||||
Barbara A. Wrigley | 113,500 | 9,250 | 2,441 | 1,464 | ||||||
Paul E. Helms | 74,000 | 10,000 | 2,929 | 1,757 | ||||||
Andrew P. Cambell | 48,875 | 19,625 | 1,123 | 3,368 | ||||||
Jules L. Fisher | 72,750 | 9,250 | 2,441 | 1,464 |
- (1)
- No options were exercised by any Named Executives during the fiscal year ended March 31, 2001.
- (2)
- Calculated on the basis of the fair market value of the underlying shares of common stock at March 30, 2001, the last trading day of the Company's fiscal year, as reported by The Nasdaq National Market of $8.453 per share, minus the per share exercise price, multiplied by the number of shares underlying the option. Options are in-the-money if the market value of the shares covered thereby is greater than the option exercise price. On June 1, 2001, the closing sale price of a share of the common stock was $9.77.
Employment Agreements
The Company has entered into management agreements with its executive officers, including the Named Executives, that provide for a lump sum cash severance payment equal to an amount of one dollar less than three times the executive's average annual compensation for the preceding five year period or, if less, the period of the executive's employment with the Company, plus fringe benefits, in the event of a "change of control" (as defined in the management agreements) of the Company. The maximum amounts currently payable to the Named Executives in the event of a change of control are as follows: Ms. Wrigley, $699,413, Mr. Helms, $633,169, and Mr. Fisher, $540,461. Mr. Danehy's change in control provision does not vest until November 29, 2001, at which time his maximum payout would be $1,079,999. The agreements automatically renew year to year on September 1st until notice of termination of the agreement is given by either party within 60 days prior to the expiration of the annual renewal period then in effect. If a change in control of the Company occurs when the agreement is in effect, the severance payments are due to any executive who either is involuntarily terminated by the Company or voluntarily terminates his or her employment after a reduction in his or her duties, compensation or fringe benefits which occurs within the 36-month period following the change of control. Under the agreement, each executive agrees to remain with the Company for 90 days following a change of control to assist the transition, after which time the executive may, during the next 90 days, voluntarily terminate his or her employment and receive 50% of such severance payment.
The Company also entered into a separate employment agreement with Mr. Danehy, as President and Chief Executive Officer, on November 29, 2000. Under the employment agreement, Mr. Danehy receives a base salary of $360,000 per year. Beginning in fiscal 2002, Mr. Danehy is eligible to receive an annual bonus at the discretion of the Board of Directors. Mr. Danehy is also eligible to receive a transaction bonus
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at the discretion of the Board, if a "change in control" (as defined in the management agreement) occurs on or before November 29, 2001. In addition, the Company granted Mr. Danehy an option to purchase 333,964 shares of common stock, pursuant to the terms of a non-qualified stock option agreement. If a change in control occurs on or before November 29, 2001, this option will be immediately null and void. For a period up to twelve months, the Company will also reimburse Mr. Danehy for certain personal expenses related to housing and travel.
Mr. Danehy's employment will end only upon termination by the Company with or without cause (as defined in the employment agreement), upon death or disability (as defined in the employment agreement), upon expiration of the employment term or upon resignation. The employment agreement expires on December 31, 2001, subject to an automatic one-year extension on each January 1, unless, no later than the October 31st proceeding such automatic extension, the Company gives written notice to Mr. Danehy that it elects not to extend his employment term. If Mr. Danehy's employment ends because of resignation, termination for cause, death or disability, the Company will pay him, or his beneficiary or estate, his base salary through the termination date. If his employment ends for reasons other than for cause, disability or the expiration of his employment term and he is not entitled to any payments under his management agreement, the Company will pay Mr. Danehy an amount equivalent to his base salary at the time of termination in twelve equal monthly installments and continue his health insurance benefits for twelve months. If Mr. Danehy's employment ends at the time of, or following, or in connection with, a change in control, his management agreement will solely determine his rights to any payments and benefits following his employment termination. The employment agreement also includes certain non-compete, confidentiality and non-solicitation provisions.
Director Compensation
Effective July 1, 2000, the Board of Directors decreased the annual fee paid to all non-employee directors from $15,000 to $12,000 annually and increased the number of scheduled full meetings from six to twelve. All non-employee directors also received $1,000 for each full meeting attended and $750 for each committee meeting attended in fiscal 2001. Directors and their spouses are reimbursed for all travel expenses incurred in connection with attendance at meetings of the Board of Directors.
Effective April 1, 1995, the Company adopted the Emeritus Director Consulting Plan (the "Plan"). The Plan has been adopted to enable the Company to continue to utilize the expertise of directors after retirement. Non-employee directors who have served on the Board of Directors for five full consecutive years are eligible for, and in the event of a change in control of the Company are, subject to certain exceptions, entitled to, participation in the Plan. An annual fee equal to the annual retainer in effect at the time of the director's retirement will be paid in consideration for consulting services to be provided to the Company following the director's retirement. Determination of eligibility and participation in the Plan will be made annually. The length of participation in the Plan will be limited to the number of years of service on the Board of Directors. There are presently no directors participating in the Plan.
The Company's 1998 Stock Plan (the "1998 Plan") provides for the annual, automatic granting of a defined number of options to non-employee directors at the last regularly scheduled meeting of the Board of Directors during the fiscal year. Such options are granted to each director who is not and has never been an employee of the Company and who (i) is serving an unexpired term as a director, as of the date of the last regularly scheduled meeting of the Board of Directors during any fiscal year of the Company, and (ii) at the time of any such meeting, has served as a director for at least six months of the year preceding the date of such meeting. The 1998 Plan provides that each such director shall, as of the date of the applicable meeting, automatically receive a non-qualified option to purchase 7,030 shares of the Company's common stock, with the option price equal to the fair market value of the Company's common stock on such date. The 1998 Plan was amended in September 1998 to provide that commencing April 1, 1998, no option may be granted under the 1998 Plan in any fiscal year if following such grant the number of shares purchasable pursuant to options granted under the 1998 Plan in such fiscal year would exceed 3% of
31
the total number of outstanding shares of the Company as of the date of such grant. Because of this amendment, the Board unanimously agreed not to grant any options to the non-employee directors in fiscal 2001.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the beneficial ownership of the common stock of the Company as of June 1, 2001 (except as otherwise noted) with respect to (i) all persons known by the Company to be the beneficial owners of more than 5% of the outstanding common stock of the Company, (ii) each director of the Company, (iii) each executive officer named in the Summary Compensation Table in Item 11 above and (iv) all directors and executive officers as a group. The Company had 6,679,287 shares of common stock outstanding as of June 1, 2001.
Beneficial Owner | Shares Beneficially Owned(1) | Percentage of Outstanding Shares | |||
---|---|---|---|---|---|
Heartland Advisors, Inc.(2) 789 North Water Street Milwaukee, Wisconsin 53202 | 999,900 | 15.0 | % | ||
T. Rowe Price Associates, Inc.(3) 100 East Pratt Street Baltimore, Maryland 21202 | 655,000 | 9.7 | |||
Dimensional Fund Advisors Inc.(4) 1299 Ocean Avenue, 11th Floor Santa Monica, California 90401 | 491,272 | 7.3 | |||
Fleet Boston Financial Corporation(5) 100 Federal Street Boston, Massachusetts 02110 | 429,350 | 6.4 | |||
Thomas J. McGoldrick(6) | 245,372 | 3.6 | |||
Fred L. Shapiro, M.D. | 163,454 | 2.4 | |||
George Heenan | 119,039 | 1.8 | |||
Barbara A. Wrigley | 113,500 | 1.7 | |||
William Hope | 75,766 | 1.1 | |||
Paul E. Helms | 74,760 | 1.1 | |||
Jules L. Fisher | 73,976 | 1.1 | |||
Amos Heilicher | 62,453 | * | |||
Andrew P. Cambell | 50,839 | * | |||
Norman Dann | 32,526 | * | |||
Malcolm W. McDonald | 16,007 | * | |||
R. James Danehy | 0 | * | |||
All directors and executive officers as a group (13 persons) | 888,945 | 12.1 |
- *
- Less than one percent.
- (1)
- Includes shares subject to options exercisable currently or within 60 days after June 1, 2001 as follows: Mr. McGoldrick, 187,000 shares; Dr. Fred Shapiro, 57,646 shares; Mr. Heenan, 60,993 shares; Ms. Wrigley, 113,500 shares; Mr. Hope, 40,466 shares; Mr. Helms, 74,000 shares; Mr. Fisher, 72,750 shares; Mr. Heilicher, 57,646 shares; Mr. Cambell, 48,875 shares; Mr. Dann, 29,526 shares; Mr. McDonald, 15,466 shares; and all directors and executive officers as a group, 675,993 shares.
- (2)
- Heartland Advisors, Inc. ("Heartland Advisors") reported its beneficial ownership on a Schedule 13G filed with the SEC on January 23, 2001. The filing indicates Heartland Advisors has sole voting power for 481,000 shares and sole dispositive power for 999,900 shares. It has no shared voting power and no
32
shared dispositive power. William J. Nasgovitz, President and principal shareholder of Heartland Advisors, joined in this filing. Of these 999,900 shares, 480,800 shares also may be deemed beneficially owned within the meaning of Rule 13d-3 of the Securities Exchange Act by Mr. Nasgovitz as a result of his position as an officer and director of Heartland Group, Inc. The reporting persons do not admit that they constitute a group.
- (3)
- T. Rowe Price Associates, Inc. ("T. Rowe Price") reported its beneficial ownership on a Schedule 13G filed with the SEC on February 9, 2001. The filing indicates that T. Rowe Price has sole dispositive power for 655,000 shares. It has no sole voting power, no shared voting power and no shared dispositive power. These securities are owned by various individual and institutional investors, including T. Rowe Price Small-Cap Value Fund, Inc. (which owns and has sole voting power for 650,000 shares, representing 9.6% of the outstanding shares), to which T. Rowe Price serves as investment adviser with power to direct investments. T. Rowe Price expressly disclaims beneficial ownership of such securities.
- (4)
- Dimensional Fund Advisors Inc. ("Dimensional Fund") reported its beneficial ownership on a Schedule 13G filed with the SEC on February 2, 2001. The filing indicates that Dimensional Fund has sole voting power for and sole dispositive power for 491,272 shares. It has no shared voting power and no shared dispositive power.
- (5)
- Fleet Boston Financial Corporation ("Fleet Boston") reported its beneficial ownership on a Schedule 13G filed with the SEC on February 14, 2001. The filing indicates that Fleet Boston has sole voting power for 309,350 shares and sole dispositive power for 429,350 shares. It has no shared voting power and no shared dispositive power.
- (6)
- Mr. McGoldrick separated from the Company effective July 7, 2000. His share ownership of 58,372 shares is given as of this date. His 187,000 shares subject to options exercisable currently or within 60 days is given as of June 1, 2001. This represents all of Mr. McGoldrick's remaining stock options, which will expire on July 7, 2001.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the fiscal year ended March 31, 2001, the Company had a loan outstanding to Mr. McGoldrick, its former President and Chief Executive Officer, who held office during a portion of that time period. The purpose of the loan was for the payment of taxes related to the exercise of options by Mr. McGoldrick in 1997. The highest amount outstanding of the loan during fiscal 2001 was $66,632. As of May 31, 2001, the outstanding balance of the loan was $21,701. During fiscal 2001, the loan bore interest at the rate of 6.49% per annum, compounded semi-annually.
In connection with Mr. McGoldrick's separation from the Company effective July 7, 2000, the Company entered into an agreement with Mr. McGoldrick that accelerated the repayment terms of his loan. The Company entered into an agreement with Mr. McGoldrick to pay him $276,917, less applicable taxes, to provide, at the Company's request, up to 40 hours a month of consulting services to the Company as an independent contractor from July 8, 2000 to July 7, 2001. The Company and Mr. McGoldrick also agreed that when the remaining balance of consulting fees due to Mr. McGoldrick equaled approximately $64,000, he would be required to repay the outstanding loan balance on his promissory note with the Company. If Mr. McGoldrick did not repay the balance of the loan at that time, then the Company would have the right to offset against all remaining amounts owing to him under the terms of the agreement. The Company began exercising its right of offset in March 2001. The loan balance will be paid in full on July 6, 2001.
33
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of report
- 1.
- Financial statements
- (i)
- Consolidated Balance Sheet for the years ended March 31, 2001 and 2000
- (ii)
- Consolidated Statement of Earnings for the three years ended March 31, 2001, 2000 and 1999
- (iii)
- Consolidated Statements of Stockholders' Equity and Comprehensive Income for the three years ended March 31, 2001, 2000, and 1999
- (iv)
- Consolidated Statement of Cash Flows for the three years ended March 31, 2001, 2000 and 1999
- (v)
- Notes to Consolidated Financial Statements
- (vi)
- Report of Independent Accountants
The following consolidated financial statements of the Company and its subsidiaries are filed as part of this Form 10-K:
- 2.
- Schedules filed as part of this Form 10-K: none
- 3.
- Exhibits included herein:
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.
2 | (a) | Agreement and Plan of Merger, dated as of May 30, 2001, among Cantel Medical Corporation, Canopy Merger Corporation, and the Company(1) |
3 | (a) | Restated Articles of Incorporation, as amended(2) |
3 | (b) | Restated Bylaws(3) |
3 | (c) | Amendment to Bylaws(4) |
4 | (a) | Form of Specimen Common Stock Certificate(5) |
4 | (b) | Rights Agreement, dated as of July 1, 1999, between the Company and Wells Fargo Bank Minnesota, N.A. (formerly known as Norwest Bank Minnesota, N.A.)(6) |
4 | (c) | First Amendment to Rights Agreement, dated as of May 30, 2001, between the Company and Wells Fargo Bank Minnesota, N.A.(7) |
10 | (a) | 1989 Stock Plan, as amended(8)* |
10 | (b) | Amendment to 1989 Stock Plan effective February 25, 1998(9)* |
10 | (c) | Amendment to 1989 Stock Plan effective September 30, 1998(10)* |
10 | (d) | Employment Agreement with Barbara A. Wrigley dated September 1, 1996(11)* |
10 | (e) | 1990 Employee Stock Purchase Plan, as amended and restated, effective June 1, 1998(12)* |
10 | (f) | Employment Agreement with R. James Danehy dated November 29, 2000(12)* |
10 | (g) | Management Agreement with R. James Danehy dated November 29, 2000(12)* |
10 | (h) | Non-Qualified Stock Option Agreement with R. James Danehy dated November 29, 2000(12)* |
34
10 | (i) | Emeritus Director Consulting Plan(13)* |
10 | (j) | Amendment to Emeritus Director Consulting Plan effective September 26, 1996(14)* |
10 | (k) | 1998 Stock Option Plan, as amended(15)* |
10 | (l) | Separation and Consulting Agreement with Richard P. Goldhaber dated February 18, 2000(16)* |
10 | (m) | Separation and Consulting Agreement with Thomas J. McGoldrick dated July 17, 2000(11)* |
10 | (n) | Amendment to Separation and Consulting Agreement with Thomas J. McGoldrick dated August 1, 2000(11)* |
10 | (o) | Separation and Consulting Agreement with Daniel H. Schyma dated July 31, 2000(11)* |
10 | (p) | Amended and Restated Supplemental Executive Retirement Plan effective April 1, 2000(11)* |
10 | (q) | Employment Agreement with Robert W. Johnson dated September 1, 1996, as amended April 1, 1997(11)* |
10 | (r) | Employment Agreement with Paul E. Helms dated September 1, 1996, as amended April 1, 1997(11)* |
10 | (s) | Employment Agreement with Jules L. Fisher dated December 11, 1996, as amended April 1, 1997(11)* |
10 | (t) | First Amendment to Supplemental Executive Retirement Plan effective September 27, 2000(17)* |
10 | (u) | Employment Agreement with Michael P. Petersen dated May 26, 2000(17)* |
10 | (v) | Second Amendment to 1998 Stock Option Plan effective March 28, 2001* |
10 | (w) | Amendment to 1990 Employee Stock Purchase Plan effective July 26, 2000(18)* |
10 | (x) | Amendment to 1990 Employee Stock Purchase Plan effective May 30, 2001* |
21 | Subsidiaries of the Registrant(19) | |
23 | Consent of PricewaterhouseCoopers LLP |
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the fourth quarter of fiscal 2001.
- *
- Management contract, compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K.
- (1)
- Incorporated by reference to Exhibit 2 to the Company's Current Report on Form 8-K dated May 30, 2001, File No. 0-11278.
- (2)
- Incorporated by reference to Exhibit 3(a) to the Company's Annual Report on Form 10-K for the year ended March 31, 1999, File No. 0-11278.
- (3)
- Incorporated by reference to Exhibit 3(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, File No. 0-11278.
- (4)
- Incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8, Registration No. 333-70545.
35
- (5)
- Incorporated by reference to Exhibit 4 to the Company's Annual Report on Form 10-K for the year ended March 31, 1993, File No. 0-11278.
- (6)
- Incorporated by reference to Exhibit 1 to the Company's Registration Statement on Form 8-A filed on July 12, 1999, File No. 0-11278.
- (7)
- Incorporated by reference to Exhibit 1 to the Company's Registration Statement on Form 8A/A filed on June 7, 2001, File No. 0-11278.
- (8)
- Incorporated by reference to Exhibit 10(a) to the Company's Annual Report on Form 10-K for the year-ended March 31, 1997, File No. 0-11278.
- (9)
- Incorporated by reference to Exhibit 10(b) to the Company's Annual Report on Form 10-K for the year ended March 31, 1998, File No. 0-11278.
- (10)
- Incorporated by reference to Exhibit 10(i) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, File No. 0-11278.
- (11)
- Incorporated by reference to the same-numbered exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended July 1, 2000, File No. 0-11278.
- (12)
- Incorporated by reference to the same-numbered exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended December 30, 2000, File No. 0-11278.
- (13)
- Incorporated by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, File No. 0-11278.
- (14)
- Incorporated by reference to Exhibit 10(b) filed as part of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, File No. 0-11278.
- (15)
- Incorporated by reference to Exhibit 10 to the Company's Registration Statement on Form S-8, Registration No. 333-70545.
- (16)
- Incorporated by reference to Exhibit 10(l) to the Company's Annual Report on Form 10-K for the year ended March 31, 2000, File No. 0-11278.
- (17)
- Incorporated by reference to the same-numbered exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, File No. 0-11278.
- (18)
- Incorporated by reference to Exhibit 10(f) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, File No. 0-11278.
- (19)
- Incorporated by reference to Exhibit 21 to the Company's Annual Report on Form 10-K for the year ended March 31, 1999, File No. 0-11278.
36
MINNTECH CORPORATION
CONSOLIDATED BALANCE SHEET
(in thousands of dollars, except share and per share data)
| March 31 | ||||||||
---|---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | |||||||
ASSETS | |||||||||
Current assets | |||||||||
Cash and cash equivalents | $ | 15,344 | $ | 10,687 | |||||
Accounts receivable, less allowance for doubtful accounts of $364 and $422, respectively | 13,333 | 14,800 | |||||||
Inventories | 11,246 | 12,663 | |||||||
Deferred taxes | 2,206 | 1,315 | |||||||
Prepaid expenses and other current assets | 925 | 2,115 | |||||||
Total current assets | 43,054 | 41,580 | |||||||
Property and equipment, at cost | |||||||||
Land, buildings and improvements | 12,685 | 10,340 | |||||||
Machinery and equipment | 24,538 | 22,338 | |||||||
Office and sales equipment | 4,608 | 4,301 | |||||||
Total property and equipment | 41,831 | 36,979 | |||||||
Less accumulated depreciation | (24,421 | ) | (21,620 | ) | |||||
Net property and equipment | 17,410 | 15,359 | |||||||
Other assets | |||||||||
Intangible assets, net | 820 | 1,085 | |||||||
Other | 1,728 | 3,810 | |||||||
Total assets | $ | 63,012 | $ | 61,834 | |||||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||
Current liabilities | |||||||||
Accounts payable | $ | 3,717 | $ | 4,593 | |||||
Accrued salaries and wages | 889 | 1,509 | |||||||
Accrued profit sharing | 130 | 628 | |||||||
Other accrued expenses | 3,789 | 1,211 | |||||||
Income taxes payable | 271 | 478 | |||||||
Total current liabilities | 8,796 | 8,419 | |||||||
Deferred income taxes | 57 | 241 | |||||||
Deferred compensation | 738 | 866 | |||||||
Stockholders' equity | |||||||||
Preferred Stock—$.05 par value; 5,000,000 shares authorized, none outstanding Common Stock—$.05 par value; 20,000,000 shares authorized, 6,679,287 and 6,686,714 shares issued and outstanding, respectively | 334 | 334 | |||||||
Additional paid-in capital | 12,084 | 12,181 | |||||||
Retained earnings | 42,361 | 40,887 | |||||||
Accumulated other comprehensive loss | (1,358 | ) | (1,094 | ) | |||||
Total stockholders' equity | 53,421 | 52,308 | |||||||
Commitments and contingencies | |||||||||
Total liabilities and stockholders' equity | $ | 63,012 | $ | 61,834 | |||||
The accompanying notes are an integral part of these financial statements.
37
MINNTECH CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(in thousands of dollars, except per share amounts)
| Years ended March 31 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | 1999 | |||||||||
Revenues | ||||||||||||
Net sales—products | $ | 76,585 | $ | 77,112 | $ | 77,835 | ||||||
Contract revenue | — | 60 | 1,040 | |||||||||
Total revenues | 76,585 | 77,172 | 78,875 | |||||||||
Operating costs and expenses | ||||||||||||
Cost of product sales | 49,315 | 45,222 | 44,351 | |||||||||
Research and development | 3,664 | 4,493 | 4,440 | |||||||||
Selling, general, and administrative | 20,698 | 19,140 | 20,249 | |||||||||
Amortization of intangible assets | 316 | 589 | 848 | |||||||||
Total operating costs and expenses | 73,993 | 69,444 | 69,888 | |||||||||
Earnings from operations | 2,592 | 7,728 | 8,987 | |||||||||
Other income (expenses) | ||||||||||||
Interest expense | (76 | ) | (38 | ) | (112 | ) | ||||||
Interest income and other, net | 792 | 1,128 | 1,916 | |||||||||
716 | 1,090 | 1,804 | ||||||||||
Earnings before income taxes and minority interest | 3,308 | 8,818 | 10,791 | |||||||||
Provision for income taxes | 1,030 | 2,877 | 3,647 | |||||||||
Minority interest | — | — | (16 | ) | ||||||||
Net earnings before cumulative effect of a change in accounting principle | 2,278 | 5,941 | 7,160 | |||||||||
Cumulative effect of a change in accounting principle, net of tax | (136 | ) | — | — | ||||||||
Net earnings | $ | 2,142 | $ | 5,941 | $ | 7,160 | ||||||
Weighted Average Common Shares Outstanding — Basic | 6,680 | 6,821 | 6,803 | |||||||||
Earnings Per Share—Basic: | ||||||||||||
Earnings Before Cumulative Effect | $ | 0.34 | $ | 0.87 | $ | 1.05 | ||||||
Cumulative Effect | (0.02 | ) | — | — | ||||||||
Net Earnings | $ | 0.32 | $ | 0.87 | $ | 1.05 | ||||||
Weighted Average Common Shares Outstanding — Diluted | 6,682 | 6,912 | 6,850 | |||||||||
Earnings Per Share—Diluted: | ||||||||||||
Earnings Before Cumulative Effect | $ | 0.34 | $ | 0.86 | $ | 1.05 | ||||||
Cumulative Effect | (0.02 | ) | — | — | ||||||||
Net Earnings | $ | 0.32 | $ | 0.86 | $ | 1.05 | ||||||
The accompanying notes are an integral part of these financial statements.
38
MINNTECH CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(dollars in thousands)
| Common Stock | | | | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Shares Issued and Outstanding | Amount At Par | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Total | ||||||||||||
Balances at March 31, 1998 | 6,771,736 | $ | 339 | $ | 12,657 | $ | (319 | ) | $ | 29,156 | $ | 41,833 | ||||||
Net earnings | 7,160 | 7,160 | ||||||||||||||||
Unrealized holding gain on securities (including taxes of $7) | 14 | 14 | ||||||||||||||||
Foreign currency translation adjustment | (42 | ) | (42 | ) | ||||||||||||||
Comprehensive income | 7,132 | |||||||||||||||||
Exercise of stock options | 88,833 | 4 | 865 | 869 | ||||||||||||||
Repurchase of shares | (101,200 | ) | (5 | ) | (1,006 | ) | (1,011 | ) | ||||||||||
Employee stock purchase plan | 19,248 | 1 | 205 | 206 | ||||||||||||||
Tax benefit from exercise of stock options | 168 | 168 | ||||||||||||||||
Dividend paid of $.10 per share | (679 | ) | (679 | ) | ||||||||||||||
Balances at March 31, 1999 | 6,778,617 | $ | 339 | $ | 12,889 | $ | (347 | ) | $ | 35,637 | $ | 48,518 | ||||||
Net earnings | 5,941 | 5,941 | ||||||||||||||||
Foreign currency translation adjustment | (747 | ) | (747 | ) | ||||||||||||||
Comprehensive income | 5,194 | |||||||||||||||||
Exercise of stock options | 148,888 | 7 | 1,512 | 1,519 | ||||||||||||||
Repurchase of shares | (262,800 | ) | (13 | ) | (2,633 | ) | (2,646 | ) | ||||||||||
Employee stock purchase plan | 22,009 | 1 | 253 | 254 | ||||||||||||||
Tax benefit from exercise of stock options | 160 | 160 | ||||||||||||||||
Dividend paid of $.10 per share | (691 | ) | (691 | ) | ||||||||||||||
Balances at March 31, 2000 | 6,686,714 | $ | 334 | $ | 12,181 | $ | (1,094 | ) | $ | 40,887 | $ | 52,308 | ||||||
Net earnings | 2,142 | 2,142 | ||||||||||||||||
Foreign currency translation adjustment | (264 | ) | (264 | ) | ||||||||||||||
Comprehensive income | 1,878 | |||||||||||||||||
Exercise of stock options | 1,271 | |||||||||||||||||
Repurchase of shares | (24,100 | ) | (1 | ) | (192 | ) | (193 | ) | ||||||||||
Employee stock purchase plan | 15,402 | 1 | 95 | 96 | ||||||||||||||
Dividend paid of $.10 per share | (668 | ) | (668 | ) | ||||||||||||||
Balances at March 31, 2001 | 6,679,287 | $ | 334 | $ | 12,084 | $ | (1,358 | ) | $ | 42,361 | $ | 53,421 | ||||||
The accompanying notes are an integral part of these financial statements.
39
MINNTECH CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
| Years ended March 31 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | 1999 | ||||||||||
Cash flows from operating activities | |||||||||||||
Net earnings | $ | 2,142 | $ | 5,941 | $ | 7,160 | |||||||
Adjustments to reconcile net earnings to net cash provided by operating activities | |||||||||||||
Depreciation and amortization | 3,461 | 3,440 | 3,625 | ||||||||||
Tax benefit from stock option exercises | — | 160 | 168 | ||||||||||
Foreign currency exchange gain | (130 | ) | (284 | ) | (46 | ) | |||||||
Deferred income taxes | (1,076 | ) | (317 | ) | (220 | ) | |||||||
Gain on sale of patents | — | — | (1,481 | ) | |||||||||
Loss on sale of assets to LifeStream | 261 | — | — | ||||||||||
Gain on sale of land | — | (176 | ) | — | |||||||||
Changes in assets and liabilities: | |||||||||||||
Accounts receivable | 1,139 | (62 | ) | (2,966 | ) | ||||||||
Inventories | 1,009 | (3,034 | ) | (1,041 | ) | ||||||||
Prepaid expenses | 1,257 | (630 | ) | (858 | ) | ||||||||
Accounts payable | (786 | ) | 527 | 84 | |||||||||
Accrued expenses | 2,049 | (547 | ) | 420 | |||||||||
Income taxes payable | (24 | ) | (226 | ) | 233 | ||||||||
Other | 58 | 57 | 96 | ||||||||||
Total adjustments | 7,218 | (1,092 | ) | (1,986 | ) | ||||||||
Net cash provided by operating activities | 9,360 | 4,849 | 5,174 | ||||||||||
Cash flows from investing activities | |||||||||||||
Purchases of property and equipment | (5,669 | ) | (4,088 | ) | (3,692 | ) | |||||||
Patent application costs | (147 | ) | (408 | ) | (237 | ) | |||||||
Proceeds from sale of undeveloped land | — | 710 | — | ||||||||||
Proceeds from sale of marketable securities | — | — | 445 | ||||||||||
Proceeds from sale of patents | — | — | 1,600 | ||||||||||
Proceeds from product line disposition | 2,029 | 2,239 | — | ||||||||||
Other | 194 | (102 | ) | 95 | |||||||||
Net cash used in investing activities | (3,593 | ) | (1,649 | ) | (1,789 | ) | |||||||
Cash flows from financing activities | |||||||||||||
Proceeds from note payable | — | — | 27 | ||||||||||
Payment of note payable | — | (252 | ) | — | |||||||||
Proceeds from exercise of stock options | — | 1,519 | 869 | ||||||||||
Proceeds from employee stock purchase plan | 96 | 254 | 206 | ||||||||||
Purchase of minority interest | — | — | (436 | ) | |||||||||
Stock repurchase | (193 | ) | (2,646 | ) | (1,011 | ) | |||||||
Payment of cash dividends | (668 | ) | (691 | ) | (679 | ) | |||||||
Net cash used in financing activities | (765 | ) | (1,816 | ) | (1,024 | ) | |||||||
Effects of exchange rate changes on foreign currency cash balances | (345 | ) | 132 | 5 | |||||||||
Net increase in cash and cash equivalents | 4,657 | 1,516 | 2,366 | ||||||||||
Cash and cash equivalents at beginning of year | 10,687 | 9,171 | 6,805 | ||||||||||
Cash and cash equivalents at end of year | $ | 15,344 | $ | 10,687 | $ | 9,171 | |||||||
Supplemental cash flow information: | |||||||||||||
Cash paid for interest | $ | — | $ | — | $ | 4 | |||||||
Cash paid for income taxes | $ | 600 | $ | 2,696 | $ | 3,409 |
The accompanying notes are an integral part of these financial statements.
40
MINNTECH CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(dollars in thousands)
Note 1—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 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 in the United States of America 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
The Company sells the majority of its products direct to the customer. Consequently, revenue is recognized when the risks and rewards of ownership and title have transferred to customers. This condition is normally met when the product has been delivered, or upon performance of services. Certain sales of equipment are deferred and recognized at the time of installation at the customer location, if required under the terms of the contract. Contract revenue derived from development and marketing agreements are recorded as earned based upon the performance requirements of the contract.
Prior to 2001, the Company recognized revenue upon shipment of products and equipment to customers (refer to "Accounting Change").
Provisions for sales allowances and returned products are estimated and recorded at the time of sale. The Company allows customers to return products for credit upon written authorization from the Company.
The Company sells a wide range of products to a diversified base of customers around the world. The Company's five largest customers accounted for approximately 33.2% of total sales in 2001. The largest customer accounted for 9.3% of sales in 2001.
41
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:
| Year ended March 31 | |||||
---|---|---|---|---|---|---|
| 2001 | 2000 | ||||
Cash | $ | 3,999 | $ | 4,590 | ||
Money market mutual funds | 11,345 | 6,097 | ||||
Total cash and equivalents | $ | 15,344 | $ | 10,687 | ||
A substantial portion of the Company's cash balances are held in one financial institution.
Money market mutual funds are stated at fair value, which approximates cost at March 31, 2001 and 2000.
Inventories
Inventories are valued at the lower of cost or market, with cost determined by the first-in, first-out method.
Inventories consisted of:
| Year ended March 31 | |||||
---|---|---|---|---|---|---|
| 2001 | 2000 | ||||
Finished goods | $ | 4,627 | $ | 5,095 | ||
Materials and work-in process | 6,619 | 7,568 | ||||
Total inventory | $ | 11,246 | $ | 12,663 | ||
Forward Contracts
As of March 31, 2001 the Company had one forward contract to purchase euro's. This contract serves to offset the foreign currency fluctuations experienced by The Netherlands subsidiary (Minntech BV), which uses the euro as their local functional currency. Minntech BV has the majority of its cash balances and customer invoicing in U.S. dollars. The notional value of the contract is $3.0 million. As of March 31, 2001 the contract had a total unrealized loss of $.27 million. The settlement date of the contract is May 25, 2001. Each month a valuation is done and the contract is marked to market with any gain or loss reflected in the Company's income statement as a component of other income and expense.
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Property, Plant 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.
| Estimated Lives in Years | |
---|---|---|
Buildings | 31.5 | |
Building improvements | 5 - 20 | |
Machinery & equipment | 3 - 10 | |
Transportation equipment | 3 - 5 | |
Office equipment | 3 - 10 |
Intangible Assets
Intangible assets include patent application costs and goodwill. Patent application costs consist principally of legal and filing fees and are capitalized and amortized over five years. 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 ten 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.
Accumulated amortization at March 31, 2001 was $4,421.
Research and Development
Research and development costs are charged to operations as incurred.
Income Taxes
The Company accounts for income taxes in accordance with the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes."
Foreign Currency Translation
Assets and liabilities of the Company's foreign operations with a functional currency other than the U.S. dollar are translated to U.S. dollars at year-end exchange rates. Revenues and expenses are translated at rates that approximate those prevailing at the time of transactions. The resulting translation adjustments are reported as a component of accumulated other comprehensive income in stockholders' equity.
Accounting Change
During the fourth quarter of 2001, the Company changed its revenue recognition policy for certain transactions. Essentially, the new policies recognize revenue for certain equipment sales at the time at which the equipment is installed at the customer location. In addition to this change in accounting, the Company has revised aspects of its accounting for certain product sales as the risks and rewards of ownership do not substantially transfer to customers until the product has been delivered. These new policies are consistent with the guidance contained in SEC Staff Bulletin No. 101. The effect of these
43
changes in revenue recognition policies, as of April 1, 2000, has been reported as a cumulative effect of an accounting change in 2001 as a $136, net of tax, reduction to earnings. This did not have a significant effect on previously reported 2001 quarters or prior years, consequently pro forma information has not been provided.
Reclassifications
Certain reclassifications have been made to make the prior year financial statements comparable with the current year's presentation. These reclassifications had no effect on earnings or shareholders' equity as previously reported.
Note 2—Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board "FASB," issued Statement of Financial Accounting Standard No. 133 "Accounting for Derivative Instruments and Hedging Activities." This statement, which must be adopted by the Company for transactions entered into beginning April 1, 2001, establishes new standards for recognition and measurement of derivatives and hedging activities. The Company does not have a practice of using derivatives for hedging purposes and as a result the adoption of this statement will not be material.
In the fourth quarter of 2001, the Company adopted the Financial Accounting Standards Board's Emerging Issues Task Force (EITF) No. 00-10, "Accounting for Shipping and Handling Fees and Costs." EITF No. 00-10 requires companies to classify as revenue all amounts billed to customers in a sales transaction, including those amounts related to shipping and handling. The adoption of EITF No. 00-10 has resulted in the reclassification of certain freight amounts invoiced from cost of goods sold to revenue. The effect on the Company's Consolidated Statement of Operations was to increase cost of sales and increase revenue by $3,128, $2,816, and $2,611 in 2001, 2000, and 1999, respectively. These reclassifications had no effect on consolidated net earnings.
Note 3—Line of Credit
At March 31, 2001, the Company had a line of credit with a commercial bank which allowed the Company to borrow up to $10,000 on an unsecured basis at the prime rate of interest (8.00 percent at March 31, 2001) or the indexed London Interbank Offered Rate (LIBOR). At March 31, 2001, the Company had no outstanding borrowings under the line of credit. This line of credit expires September 30, 2002.
Note 4—Segment Data and Significant Customers
Revenues in prior periods have been reclassified to conform with the current year's presentation. During 2001 identifiable assets were restated to be consistent with fiscal year 2001 management reporting practices.
The Company's businesses are organized, managed, and internally reported as three segments. These segments, which are based upon products, services and industry, are Dialysis Products, Cardiosurgery Products, and Other Developing Businesses. Management of these segments includes responsibility for
44
different product lines and services on a geographic basis, including accountability for revenues as well as sales and marketing costs.
Research and development is managed at the corporate level. Resource decisions and performance assessment is managed by corporate officers. Research and development expenses are monitored by project and allocated to their respective segments. Corporate administration costs are not allocated to reportable segments. Therefore, management does not represent that these segments, if operated independently, would report the operating income and other financial information shown below. The table below presents information about the Company's reportable segments for the fiscal years ended March 31, 2001, 2000, and 1999:
Business Segment Information
| Dialysis Products | Cardiosurgery Products | Other Developing Businesses | Corporate & Unallocated(1) | Total Company | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues | |||||||||||||||
2001 | $ | 57,397 | $ | 10,821 | $ | 8,367 | $ | — | $ | 76,585 | |||||
2000 | 56,513 | 13,038 | 7,561 | 60 | 77,172 | ||||||||||
1999 | 54,719 | 16,412 | 6,704 | 1,040 | 78,875 | ||||||||||
Earnings (loss) from Operations | |||||||||||||||
2001 | $ | 11,863 | $ | 1,923 | $ | 1,043 | $ | (12,237 | ) | $ | 2,592 | ||||
2000 | 15,590 | 2,682 | (291 | ) | (10,253 | ) | 7,728 | ||||||||
1999 | 17,062 | 3,039 | (153 | ) | (10,961 | ) | 8,987 | ||||||||
Identifiable assets(2) | |||||||||||||||
2001 | $ | 29,273 | $ | 9,101 | $ | 5,079 | $ | 19,559 | $ | 63,012 | |||||
2000 | 27,089 | 14,445 | 4,642 | 15,658 | 61,834 | ||||||||||
1999 | 25,658 | 14,215 | 4,922 | 13,931 | 58,726 |
- (1)
- Loss from operations consists of unallocated corporate administrative expenses and amortization of intangibles.
- (2)
- Identifiable segment assets include accounts receivable, property, plant and equipment inventories, and long term notes receivable. Additional assets included in corporate administration primarily include cash and short-term investments, capitalized patent costs, deferred income taxes, goodwill, land, and certain prepaid expenses.
Geographic Areas
Information in the table below is presented on the basis which the Company uses it to manage the identifiable segments. Export sales amounted to 18 percent and 22 percent of revenues for the twelve month periods ended March 31, 2001 and 2000, respectively. Substantially all of the Company's export sales are negotiated, invoiced, and paid in U.S. dollars.
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Geographic Area Information
| United States | International | Other(1) | Intercompany Revenues | Total | ||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Revenues | |||||||||||||||
2001 | $ | 71,203 | $ | 15,685 | $ | — | $ | (10,303 | ) | $ | 76,585 | ||||
2000 | 68,962 | 19,136 | 60 | (10,986 | ) | 77,172 | |||||||||
1999 | 69,803 | 20,575 | 1,040 | (12,543 | ) | 78,875 | |||||||||
Property, Plant & Equipment, net | |||||||||||||||
2001 | $ | 15,333 | $ | 2,077 | — | — | $ | 17,410 | |||||||
2000 | 12,836 | 2,523 | — | — | 15,359 | ||||||||||
1999 | 12,149 | 2,872 | — | — | 15,021 |
- (1)
- Contract revenue.
Significant Customers
For the period ended March 31, 1999, one customer in the Company's dialysis products segment accounted for 10% of total consolidated sales.
Note 5—Taxes
The provision for income taxes consisted of the following:
| Year Ended March 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| Federal | State | Total | |||||||
2001 | ||||||||||
Currently payable | $ | 1,991 | $ | 115 | $ | 2,106 | ||||
Deferred | (930 | ) | (146 | ) | (1,076 | ) | ||||
Total | $ | 1,061 | $ | (31 | ) | $ | 1,030 | |||
2000 | ||||||||||
Currently payable | $ | 2,708 | $ | 486 | $ | 3,194 | ||||
Deferred | (291 | ) | (26 | ) | (317 | ) | ||||
Total | $ | 2,417 | $ | 460 | $ | 2,877 | ||||
1999 | ||||||||||
Currently payable | $ | 3,195 | $ | 672 | $ | 3,867 | ||||
Deferred | (202 | ) | (18 | ) | (220 | ) | ||||
Total | $ | 2,993 | $ | 654 | $ | 3,647 | ||||
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The provision for income taxes differs from the statutory U.S. federal tax rate of 34 percent applied to earnings before income taxes as follows:
| Year Ended March 31, | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | 1999 | |||||||
Income tax expense at statutory federal income tax rates | $ | 1,119 | $ | 2,998 | $ | 3,669 | ||||
International operations | 126 | (725 | ) | (415 | ) | |||||
State income taxes, net of federal benefit | (30 | ) | 113 | 195 | �� | |||||
Exempt income attributable to foreign sales | (13 | ) | (49 | ) | (17 | ) | ||||
Other, net | (172 | ) | 540 | 215 | ||||||
Total provision | $ | 1,030 | $ | 2,877 | $ | 3,647 | ||||
The tax effects of cumulative temporary differences that give rise to significant portions of the deferred tax assets and liabilities are as follows:
| Year ended March 31 | |||||||
---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | ||||||
Current deferred tax asset | ||||||||
Foreign subsidiary net operating losses | $ | 799 | $ | 558 | ||||
Inventories | 810 | 716 | ||||||
Accrued expenses | 1,121 | 350 | ||||||
Other, net | 275 | 249 | ||||||
Gross current deferred tax asset | 3,005 | 1,873 | ||||||
Valuation allowance | (799 | ) | (558 | ) | ||||
Net current deferred tax asset | $ | 2,206 | $ | 1,315 | ||||
Non-current deferred tax asset | ||||||||
Amortization of goodwill | $ | 404 | $ | 433 | ||||
Deferred compensation and severance | 292 | 121 | ||||||
Other, net | 132 | — | ||||||
Net non-current deferred tax asset | 828 | 554 | ||||||
Non-current deferred tax liability | ||||||||
Property, plant and equipment depreciation | 885 | 795 | ||||||
Net non-current deferred tax liability | $ | (57 | ) | $ | (241 | ) | ||
The Company recorded valuation allowances related to foreign subsidiaries net operating losses which are not recognized until their ultimate realization is considered to be more likely than not. Cumulative net operating losses can be carried forward to offset income tax liability on income in certain foreign operations. These cumulative losses must be used during the 2002 - 2006 period.
U.S. income taxes have not been provided on approximately $6,400 of undistributed earnings of non-U.S. subsidiaries. The Company plans to reinvest these undistributed earnings. If any portion were to
47
be distributed, the related U.S. tax liability may be reduced by foreign income taxes paid on those earnings plus any available foreign tax credit carryovers. Determination of the unrecognized deferred tax liability related to these undistributed earnings is not practicable.
During fiscal 2001 the Company expanded its business presence in several areas and became aware of additional exposure related to state sales and use taxes. The Company is in the process of negotiating with certain states involving numerous facts and circumstances. Based upon the most current information available to management, the Company recorded a charge during the fourth quarter of fiscal 2001 of approximately $1,537 as a result of a change in estimate of their sales and use tax liability. In 2000, the Company had recorded a liability of approximately $1,100 for estimated state sales and use taxes. As of March 31, 2001, the estimated state sales and use tax accrual of $2,021 has been recorded for amounts expected to be paid, and is included in other accrued liabilities on the consolidated balance sheet. Final resolution of these negotiations and payment of sales and use tax amounts could result in different amounts than those provided.
Note 6—Commitments
Operating Leases
Total rental expense for operating leases for fiscal years 2001, 2000, and 1999 was approximately $869, $580, and $422, respectively. Operating leases are for warehouse space, reprocessing centers, and office equipment.
Future minimum lease payments for operating leases, net of cancellation clauses, consist of the following at March 31, 2001:
Fiscal Year | Amount | ||
---|---|---|---|
2002 | $ | 720 | |
2003 | 542 | ||
2004 | 368 | ||
2005 | 316 | ||
2006 | 97 | ||
$ | 2,043 | ||
Severance Agreements
The Company has management agreements with certain employees that provide severance pay benefits if there is a change in control of the Company. Under the agreements, these officers receive 100 percent of such severance benefits if they are involuntarily terminated and 50 percent of such severance benefits if they voluntarily terminate. The maximum contingent liability under these agreements at March 31, 2001, was approximately $3,025. On November 29, 2001 the total will increase to $4,105 due to additional vesting.
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At March 31, 2001, the Company has reserved 3,203,125 shares of common stock for issuance under its 1989 and 1998 Stock Plans. The plans provide for incentive stock options and non-qualified 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. The options vest over a three or four year period, or 50% immediately and 50% over 4 years, or over a 6 month period, depending upon the optionee. All options expire after ten years.
Option transactions under these plans during the three years ended March 31, 2001, are summarized as follows:
| Number of Options | Weighted- Average Option Price | ||||
---|---|---|---|---|---|---|
Outstanding at March 31, 1998 | 2,066,640 | $ | 11.27 | |||
Granted | 255,936 | 12.71 | ||||
Exercised | (88,833 | ) | 10.07 | |||
Cancelled | (29,568 | ) | 14.37 | |||
Outstanding at March 31, 1999 | 2,204,175 | 11.46 | ||||
Granted | 200,701 | 8.06 | ||||
Exercised | (148,888 | ) | 10.21 | |||
Cancelled | (78,340 | ) | 12.78 | |||
Outstanding at March 31, 2000 | 2,177,648 | 11.18 | ||||
Granted | 363,964 | 6.40 | ||||
Exercised | (7,030 | ) | 5.89 | |||
Cancelled | (361,941 | ) | 10.78 | |||
Outstanding at March 31, 2001 | 2,172,641 | $ | 10.46 | |||
The following table summarizes stock options outstanding and exercisable at March 31, 2001.
Outstanding | Exercisable | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Exercise Price Range | Options | Weighted-Average Contractual Life Remaining | Weighted-Average Exercise Price | Options | Weighted-Average Exercise Price | ||||||||
$ | 6.16 - $10.25 | 792,790 | 7.5 | $ | 8.01 | 380,940 | $ | 9.48 | |||||
$ | 10.26 - $14.35 | 1,285,114 | 3.6 | 11.47 | 1,189,678 | 11.39 | |||||||
$ | 14.36 - $20.50 | 94,737 | 3.5 | 17.41 | 94,737 | 17.41 | |||||||
2,172,641 | 5.0 | $ | 10.46 | 1,665,355 | $ | 11.29 | |||||||
The estimated weighted-average grant-date fair value of stock options granted during fiscal years 2001, 2000, and 1999 were $6.40, $8.06, and $5.70, per option, respectively. The Company applies Accounting Principles Board Opinion No. 25 and related interpretations in accounting for its stock option and purchase plans. Had the Company's stock option plans and its stock purchase plans compensation costs been determined based on the fair value at the option grant dates for awards consistent with the accounting provision of FAS 123 "Accounting for Stock Based Compensation," the Company's net earnings
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per share for fiscal 2001, 2000, and 1999 would have been adjusted to the pro forma amounts indicated below:
| | Year ended March 31 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
| | 2001 | 2000 | 1999 | |||||||
Net Earnings | As reported | $ | 2,142 | $ | 5,941 | $ | 7,160 | ||||
Pro-Forma | $ | 503 | $ | 4,019 | $ | 4,105 | |||||
Basic Earnings per share | As reported | $ | 0.32 | $ | 0.87 | $ | 1.05 | ||||
Pro-Forma | $ | 0.08 | $ | 0.59 | $ | 0.61 | |||||
Diluted Earnings per share | As reported | $ | 0.32 | $ | 0.86 | $ | 1.05 | ||||
Pro-Forma | $ | 0.08 | $ | 0.58 | $ | 0.60 |
The fair value of options granted under the Company's fixed stock option plans during fiscal 2001, 2000 and 1999 was estimated on the dates of grant using the Black-Scholes options-pricing model. The assumptions for fiscal 2001, 2000, and 1999 were as follows:
| Year ended March 31 | ||||||
---|---|---|---|---|---|---|---|
| 2001 | 2000 | 1999 | ||||
Risk free interest rates | 5.4 - 6.4 | % | 5.4 - 6.4 | % | 5.4 - 6.2 | % | |
Expected life | 6.1 years | 5.6 years | 6.6 years | ||||
Expected volatility | 59 | % | 55 | % | 38 | % | |
Expected dividends | 1.18 | % | 1.36 | % | .75 | % |
Pro forma compensation cost related to shares purchased under the Employee Stock Purchase Plan, discussed below, is measured based on the discount from market value. The effects of applying FAS 123 in this pro forma disclosure are not indicative of future pro forma effects. FAS 123 does not apply to awards prior to fiscal 1996, and additional awards in future years are anticipated.
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 percent of their base salaries for the purchase of shares of the Company's common stock at 85 percent of fair market value on the first day or last day of the plan period, whichever price is lower. The first plan period begins January 1, 2001 and ends on June 30, 2001. The second plan period begins July 1, 2001 and ends on December 31, 2001.
At March 31, 2001, the Company held a total of $92 in payroll withholdings for the purchase of stock under the plan. A total of 162,581 shares have been issued under the plan since inception: 18,394 shares in 2001; 15,402 shares in 2000, and 22,009 shares in 1999.
Note 8—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 percent of their salaries. The Company matches 50 percent of employee contributions to a maximum of 6 percent of compensation. The Company also makes annual profit sharing
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contributions to the plan at the discretion of the Board of Directors. The Company's contributions were as follows:
| Year Ended March 31, | ||||||||
---|---|---|---|---|---|---|---|---|---|
| 2001 | 2000 | 1999 | ||||||
Matching 401(k) contributions | $ | 370 | $ | 68 | $ | 63 | |||
Matching SERP contributions | 10 | — | — | ||||||
Profit sharing contributions | 274 | 629 | 624 | ||||||
Total Company contributions | $ | 654 | $ | 697 | $ | 687 | |||
Note 9—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.
A share rights plan was announced by the Company on July 1, 1999. Under the plan the Board of Directors has declared a dividend distribution of one preferred share purchase right on each outstanding share of Minntech's common stock held by shareholder's of record as of the close of business on July 22, 1999. The rights will expire on July 22, 2009. Each right will entitle Minntech shareholders to buy one hundredth of a share of a newly created series of preferred stock at an exercise price of $65 (subject to adjustment). The rights will generally become exercisable after any person or group acquires beneficial ownership of 20 percent or more of Minntech's common stock.
Note 10—Net Earnings per Share
The following table reconciles the numerators and denominators of the basic and diluted earnings per share computations for the years ended March 31, 2001, 2000, and 1999.
| Basic Earnings Per Share | Effect of Dilutive Stock Options | Diluted Earnings Per Share | |||||
---|---|---|---|---|---|---|---|---|
2001 | ||||||||
Net earnings | $ | 2,142 | $ | 2,142 | ||||
Weighted-average-shares | 6,680 | 2 | 6,682 | |||||
Per share amount | $ | 0.32 | $ | 0.32 | ||||
2000 | ||||||||
Net earnings | $ | 5,941 | $ | 5,941 | ||||
Weighted-average-shares | 6,821 | 91 | 6,912 | |||||
Per share amount | $ | 0.87 | $ | 0.86 | ||||
1999 | ||||||||
Net earnings | $ | 7,160 | $ | 7,160 | ||||
Weighted-average-shares | 6,803 | 47 | 6,850 | |||||
Per share amount | $ | 1.05 | $ | 1.05 |
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Outstanding stock options to purchase 545,000 shares, 308,000 shares, and 140,000 shares of common stock as of March 31, 2001, 2000, and 1999 respectively, were not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market price of the common stock during the period. Upon a change in control of the Company stock options to purchase 1,838,677 shares of common stock would accelerate and vest immediately.
Note 11—Product Line Disposition
On October 6, 1999, the Company finalized the sale of all assets and rights related to its Biocor™ oxygenator and EnGUARD™ PHX cardioplegia systems components to LifeStream International LLC, a newly formed cardiopulmonary products company, in exchange for $7.2 million in cash and warrants. Under the terms of the agreement Minntech received $2.24 million in cash at closing. One payment of $.25 million was received when a product modification met specifications and another $.25 million was received when 510K approval was received on a new product. $1.25 million was received on the one year anniversary of the sale and $.28 million of inventory was purchased. The remaining amount to be collected is $1.45 million in deferred payments. In addition, LifeStream will purchase the remaining inventory balances for these product lines when the Company ceases the contract manufacturing arrangement.. As of March 31, 2001 the Company had $.5 million in related inventory for these products. Upon resolution of several issues related to the sale of certain assets, the Company recorded a $.26 million loss in the fourth quarter of fiscal 2001.
Note 12—Subsequent Event (unaudited)
On May 30, 2001, the Company entered into a definitive merger agreement with Cantel Medical Corporation, under which Cantel will acquire the Company. Under the terms of the agreement, each share of Minntech stock will be converted into the right to receive $10.50, consisting of $6.25 in cash, and a fraction of a share of common stock of Cantel having a value of $4.25, subject to possible adjustment.
The transaction is subject to customary closing conditions, including the approval of the shareholders of the Company and Cantel. Under the merger agreement, the Company has the right to terminate the agreement if Cantel's average closing stock price during a defined period ending shortly before the merger is below $13.24, unless Cantel elects to provide the Company's shareholders additional consideration, in cash or Cantel shares, at Cantel's option, such that the total consideration is no less than $10.00 for each Minntech share.
On May 30, 2001, the Company's Board of Directors amended the share rights plan (described in "Note 9—Preferred Stock" above) to exempt this transaction from its application. The Company recorded a charge for approximately $.30 million of legal and consulting expenses incurred in connection with this transaction in the fourth quarter of fiscal 2001.
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Note 13—Quarterly Data (unaudited)
| First Quarter (3) | Second Quarter | Third Quarter | Fourth Quarter | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Fiscal year ended March 31, 2001: | |||||||||||||
Net Revenues(1) | $ | 17,605 | $ | 18,975 | $ | 19,911 | $ | 20,094 | |||||
Gross Profit | 5,984 | 6,534 | 7,351 | 7,401 | |||||||||
Operating Earnings / (Loss) | (141 | ) | 1,441 | 1,705 | (413 | ) | |||||||
Net Earnings / (Loss) | (197 | ) | 1,344 | 1,339 | (344 | ) | |||||||
Basic Net Earnings / (Loss) Per Share(2) | $ | (.03 | ) | $ | .20 | $ | .20 | $ | (.05 | ) | |||
Diluted Net Earnings / (Loss) Per Share(2) | $ | (.03 | ) | $ | .20 | $ | .20 | $ | (.05 | ) |
| First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Fiscal year ended March 31, 2000: | ||||||||||||
Net Revenues(1) | 19,522 | 19,584 | 19,434 | 18,632 | ||||||||
Gross Profit | 8,145 | 8,147 | 7,954 | 7,704 | ||||||||
Operating Earnings | 1,542 | 1,511 | 2,328 | 2,347 | ||||||||
Net Earnings | 1,167 | 1,238 | 1,691 | 1,845 | ||||||||
Basic Net Earnings Per Share(2) | $ | .17 | $ | .18 | $ | .25 | $ | .27 | ||||
Diluted Net Earnings Per Share(2) | $ | .17 | $ | .17 | $ | .25 | $ | .27 |
- (1)
- All revenues shown were restated to include additional shipping and handling revenue billed to customers in accordance with FASB EITF No. 00-10, "Accounting for Shipping and Handling Fees and Costs," which the Company adopted in the fourth quarter of fiscal 2001. Prior to the Company's adoption of EITF No. 00-10, amounts billed to customers for shipping and handling were netted against the related costs of goods sold. See Note 2 to the consolidated financial statements.
- (2)
- The summation of quarterly per share amounts may not equal the calculation for the full year, as each quarterly calculation is performed discretely.
- (3)
- The results of the first quarter of the fiscal year ended March 31, 2001 have been reduced from the previously reported amount by a $136 net-of-tax charge to earnings for the cumulative effect of certain changes in the Company's revenue recognition policies. See "Accounting Change" in Note 1 to the consolidated financial statements.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Minntech Corporation
In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of earnings, of stockholders' equity and comprehensive income, and of cash flows present fairly, in all material respects, the financial position of Minntech Corporation and its subsidiaries at March 31, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 2001 in conformity with accounting principles generally accepted in the United States of America. 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 auditing standards generally accepted in the United States of America, 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 our opinion.
/s/ PricewaterhouseCoopers, LLP
PricewaterhouseCoopers LLP
Minneapolis, Minnesota
May 16, 2001
54
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 | /s/ R. JAMES DANEHY R. James Danehy President and Chief Executive Officer |
Date: June 29, 2001
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 date indicated.
Signature | Title | Date | ||
---|---|---|---|---|
/s/ R. JAMES DANEHY R. James Danehy | President, Chief Executive Officer and Director (Principal Executive Officer) | June 28, 2001 | ||
/s/ WILLIAM HOPE William Hope | Chairman | June 28, 2001 | ||
/s/ JULES L. FISHER Jules L. Fisher | Vice President Chief Financial Officer (Principal Financial and Accounting Officer) | June 28, 2001 | ||
/s/ NORMAN DANN Norman Dann | Director | June 28, 2001 | ||
/s/ GEORGE HEENAN George Heenan | Director | June 28, 2001 | ||
/s/ AMOS HEILICHER Amos Heilicher | Director | June 28, 2001 | ||
/s/ MALCOLM MCDONALD Malcolm McDonald | Director | June 28, 2001 | ||
/s/ FRED L. SHAPIRO, M.D. Fred L. Shapiro, M.D. | Director | June 28, 2001 |
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Exhibit No. | Exhibit | Form of Filing | ||
---|---|---|---|---|
2 | (a) | Agreement and Plan of Merger, dated as of May 30, 2001, among Cantel Medical Corporation, Canopy Merger Corporation, and the Company(1) | ||
3 | (a) | Restated Articles of Incorporation, as amended(2) | ||
3 | (b) | Restated Bylaws(3) | ||
3 | (c) | Amendment to Bylaws(4) | ||
4 | (a) | Form of Specimen Common Stock Certificate(5) | ||
4 | (b) | Rights Agreement, dated as of July 1, 1999, between the Company and Wells Fargo Bank Minnesota, N.A. (formerly known as Norwest Bank Minnesota, N.A.)(6) | ||
4 | (c) | First Amendment to Rights Agreement, dated as of May 30, 2001, between the Company and Wells Fargo Bank Minnesota, N.A.(7) | ||
10 | (a) | 1989 Stock Plan, as amended(8)* | ||
10 | (b) | Amendment to 1989 Stock Plan effective February 25, 1998(9)* | ||
10 | (c) | Amendment to 1989 Stock Plan effective September 30, 1998(10)* | ||
10 | (d) | Employment Agreement with Barbara A. Wrigley dated September 1, 1996(11)* | ||
10 | (e) | 1990 Employee Stock Purchase Plan, as amended and restated, effective June 1, 1998(12)* | ||
10 | (f) | Employment Agreement with R. James Danehy dated November 29, 2000(12)* | ||
10 | (g) | Management Agreement with R. James Danehy dated November 29, 2000(12)* | ||
10 | (h) | Non-Qualified Stock Option Agreement with R. James Danehy dated November 29, 2000(12)* | ||
10 | (i) | Emeritus Director Consulting Plan(13)* | ||
10 | (j) | Amendment to Emeritus Director Consulting Plan effective September 26, 1996(14)* | ||
10 | (k) | 1998 Stock Option Plan, as amended(15)* | ||
10 | (l) | Separation and Consulting Agreement with Richard P. Goldhaber dated February 18, 2000(16)* | ||
10 | (m) | Separation and Consulting Agreement with Thomas J. McGoldrick dated July 17, 2000(11)* | ||
10 | (n) | Amendment to Separation and Consulting Agreement with Thomas J. McGoldrick dated August 1, 2000(11)* | ||
10 | (o) | Separation and Consulting Agreement with Daniel H. Schyma dated July 31, 2000(11)* | ||
10 | (p) | Amended and Restated Supplemental Executive Retirement Plan effective April 1, 2000(11)* | ||
10 | (q) | Employment Agreement with Robert W. Johnson dated September 1, 1996, as amended April 1, 1997(11)* | ||
10 | (r) | Employment Agreement with Paul E. Helms dated September 1, 1996, as amended April 1, 1997(11)* |
56
10 | (s) | Employment Agreement with Jules L. Fisher dated December 11, 1996, as amended April 1, 1997(11)* | ||
10 | (t) | First Amendment to Supplemental Executive Retirement Plan effective September 27, 2000(17)* | ||
10 | (u) | Employment Agreement with Michael P. Petersen dated May 26, 2000(17)* | ||
10 | (v) | Second Amendment to 1998 Stock Option Plan effective March 28, 2001* | Electronic Submission | |
10 | (w) | Amendment to 1990 Employee Stock Purchase Plan effective July 26, 2000(18)* | ||
10 | (x) | Amendment to 1990 Employee Stock Purchase Plan effective May 30, 2001* | Electronic Submission | |
21 | Subsidiaries of the Registrant(19) | |||
23 | Consent of PricewaterhouseCoopers LLP | Electronic Submission |
- *
- Management contract, compensatory plan or arrangement required to be filed as an exhibit to this Form 10-K.
- (1)
- Incorporated by reference to Exhibit 2 to the Company's Current Report on Form 8-K dated May 30, 2001, File No. 0-11278.
- (2)
- Incorporated by reference to Exhibit 3(a) to the Company's Annual Report on Form 10-K for the year ended March 31, 1999, File No. 0-11278.
- (3)
- Incorporated by reference to Exhibit 3(b) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1995, File No. 0-11278.
- (4)
- Incorporated by reference to Exhibit 4.3 to the Company's Registration Statement on Form S-8, Registration No. 333-70545.
- (5)
- Incorporated by reference to Exhibit 4 to the Company's Annual Report on Form 10-K for the year ended March 31, 1993, File No. 0-11278.
- (6)
- Incorporated by reference to Exhibit 1 to the Company's Registration Statement on Form 8-A filed on July 12, 1999, File No. 0-11278.
- (7)
- Incorporated by reference to Exhibit 1 to the Company's Registration Statement on Form 8A/A filed on June 7, 2001, File No. 0-11278.
- (8)
- Incorporated by reference to Exhibit 10(a) to the Company's Annual Report on Form 10-K for the year-ended March 31, 1997, File No. 0-11278.
- (9)
- Incorporated by reference to Exhibit 10(b) to the Company's Annual Report on Form 10-K for the year ended March 31, 1998, File No. 0-11278.
- (10)
- Incorporated by reference to Exhibit 10(i) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1998, File No. 0-11278.
- (11)
- Incorporated by reference to the same-numbered exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended July 1, 2000, File No. 0-11278.
- (12)
- Incorporated by reference to the same-numbered exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended December 30, 2000, File No. 0-11278.
- (13)
- Incorporated by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1995, File No. 0-11278.
57
- (14)
- Incorporated by reference to Exhibit 10(b) filed as part of the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, File No. 0-11278.
- (15)
- Incorporated by reference to Exhibit 10 to the Company's Registration Statement on Form S-8, Registration No. 333-70545.
- (16)
- Incorporated by reference to Exhibit 10(l) to the Company's Annual Report on Form 10-K for the year ended March 31, 2000, File No. 0-11278.
- (17)
- Incorporated by reference to the same-numbered exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, File No. 0-11278.
- (18)
- Incorporated by reference to Exhibit 10(f) to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000, File No. 0-11278.
- (19)
- Incorporated by reference to Exhibit 21 to the Company's Annual Report on Form 10-K for the year ended March 31, 1999, File No. 0-11278.
58
FORWARD-LOOKING STATEMENTS
PART I
PART II
- Item 6. SELECTED FINANCIAL DATA
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CONSOLIDATED BALANCE SHEET
CONSOLIDATED STATEMENT OF EARNINGS
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
CONSOLIDATED STATEMENT OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT ACCOUNTANTS
SIGNATURES
EXHIBIT INDEX