<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For period ended July 31, 1996 Commission file number 000-21109
------------- ---------
CUNO INCORPORATED
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1159240
- ------------------------------------------ -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 Research Parkway, Meriden, Connecticut 06450
- ------------------------------------------ -----------------------------
(Address of principal executive offices) (Zip Code)
(203) 237-5541
- ----------------------------------------------------------------------------
Registrant's telephone number, including area code
Not Applicable
- ----------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
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 periods that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, $1 Par Value--13,566,431 shares as of September 10, 1996
----------
<PAGE> 2
INDEX
CUNO INCORPORATED
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Combined balance sheets - July 31, 1996 and October 31, 1995
Statements of combined income - Nine months ended July 31, 1996 and 1995;
and three months ended July 31, 1996 and 1995
Statements of combined cash flows - Nine months ended July 31, 1996 and
1995
Notes to combined financial statements - July 31, 1996
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE> 3
PART I. FINANCIAL INFORMATION
CUNO INCORPORATED AND COMBINED AFFILIATES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
Pro Forma
(Thousands of dollars) July 31, July 31, October 31,
1996 1996 1995
--------- --------- --------
<S> <C> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash (including equivalents of $1,844,000
in 1996 and $1,582,000 in 1995). . . . . $ 4,682 $ 4,682 $ 6,740
Accounts receivable and notes receivable . 41,338 41,338 34,517
Less allowances for doubtful accounts. . 1,003 1,003 1,136
--------- --------- --------
40,335 40,335 33,381
Inventories . . . . . . . . . . . . . . . 17,455 17,455 21,763
Deferred income tax benefits. . . . . . . 5,552 5,552 5,766
Prepaid expenses. . . . . . . . . . . . . 2,364 2,364 2,511
Receivables from affiliates . . . . . . . 29,051 29,051 18,767
--------- --------- --------
TOTAL CURRENT ASSETS 99,439 99,439 88,928
PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements. . . . . . . . 6,334 6,334 6,672
Buildings and equipment . . . . . . . . . 84,113 84,113 84,256
Construction in progress. . . . . . . . . 4,256 4,256 2,451
--------- --------- --------
94,703 94,703 93,379
Less allowances for depreciation and
amortization . . . . . . . . . . . . . 46,744 46,744 45,448
--------- --------- --------
TOTAL PROPERTY, PLANT AND EQUIPMENT 47,959 47,959 47,931
NONCURRENT ASSETS:
Intangible assets . . . . . . . . . . . . 20,137 20,137 21,663
Pension assets. . . . . . . . . . . . . . 3,220 3,220 3,264
Other assets. . . . . . . . . . . . . . . 1,522 1,522 1,041
--------- --------- --------
TOTAL NONCURRENT ASSETS 24,879 24,879 25,968
--------- --------- --------
TOTAL ASSETS $172,277 $172,277 $162,827
========= ========= ========
LIABILITIES AND SHAREHOLDER'S EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Bank loans. . . . . . . . . . . . . . . . $ 11,264 $ 11,264 $ 10,440
Accounts and notes payable. . . . . . . . 30,622 30,622 25,331
Accrued income taxes. . . . . . . . . . . 3,164 3,164 2,947
Dividends payable . . . . . . . . . . . . 35,675 35,675 0
Current portion of long-term debt . . . . 1,009 1,009 1,036
--------- --------- --------
TOTAL CURRENT LIABILITIES 81,734 81,734 39,754
NONCURRENT LIABILITIES:
Long-term debt. . . . . . . . . . . . . . 3,403 3,403 4,060
Affiliate loan payable. . . . . . . . . . 30,000 0 0
Deferred income taxes . . . . . . . . . . 3,940 3,940 4,067
Postretirement benefits . . . . . . . . . 2,714 2,714 2,757
--------- --------- --------
TOTAL NONCURRENT LIABILITIES 40,057 10,057 10,884
SHAREHOLDER'S EQUITY:
Equity. . . . . . . . . . . . . . . . . . 44,340 74,340 105,650
Translation adjustment. . . . . . . . . . 6,146 6,146 6,539
--------- --------- --------
TOTAL SHAREHOLDER'S EQUITY 50,486 80,486 112,189
--------- --------- --------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY $172,277 $172,277 $162,827
========= ========= ========
</TABLE>
<PAGE> 4
CUNO INCORPORATED AND COMBINED AFFILIATES
STATEMENTS OF COMBINED INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
JULY 31, JULY 31,
(Thousands of dollars, -------------------- -------------------
except per-share data) 1996 1995 1996 1995
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Net sales...................... $134,636 $120,810 $ 48,542 $ 43,467
Less costs and expenses:
Cost of products sold....... 79,632 74,864 27,746 26,442
Selling, administrative and
general expense........... 41,252 38,611 14,668 14,382
Nonrecurring spin-off and
related costs............. 2,876 0 2,876 0
--------- --------- --------- --------
123,760 113,475 45,290 40,824
--------- --------- --------- --------
Operating income............... 10,876 7,335 3,252 2,643
Nonoperating income (expense):
Interest income............. 95 89 39 35
Interest expense............ (300) (566) (101) (145)
Foreign currency gains
(losses).................. (102) (230) (80) (169)
Other....................... (59) (156) (81) 49
--------- --------- --------- --------
(366) (863) (223) (230)
--------- --------- --------- ---------
Income before income taxes..... 10,510 6,472 3,029 2,413
Income taxes................... 4,778 2,396 2,399 994
--------- --------- --------- --------
Net income .................... $ 5,732 $ 4,076 $ 630 $ 1,419
========= ========= ========= ========
Pro forma earnings per share of
common stock:
Net Income............... $0.42 $0.30 $0.05 $0.10
Weighted average number of shares
used in pro forma earnings
per share:.................. 13,566 13,566 13,566 13,566
</TABLE>
<PAGE> 5
CUNO INCORPORATED AND COMBINED AFFILIATES
STATEMENTS OF CONDENSED COMBINED CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
(Thousands of dollars) July 31,
------------------
1996 1995
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income. . . . . . . . . . . . . . . . . . . . . . $ 5,732 $ 4,076
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation and amortization . . . 5,632 5,819
Pension plan credits. . . . . . . . . . . . . . . 905 770
Change in deferred income taxes . . . . . . . . . (87) (984)
Change in current assets and liabilities:
(Increase) in accounts receivable . . . . . . (7,527) (3,812)
Decrease in inventories . . . . . . . . . . . 4,040 270
Decrease (increase) in prepaid expenses and
other current assets. . . . . . . . . . . 60 (298)
(Increase) decrease in accounts receivables
from affiliates . . . . . . . . . . . . . (9,149) 2,320
Increase in accounts payable and
accrued expenses. . . . . . . . . . . . . 5,121 154
(Decrease) in accrued income taxes. . . . . . (856) (460)
-------- --------
Net cash provided by operating activities . . . . . . 3,871 7,315
INVESTING ACTIVITIES:
Proceeds from sale of fixed assets. . . . . . . . . . 41 71
Investment in intangibles . . . . . . . . . . . . . . 0 (226)
Capital expenditures. . . . . . . . . . . . . . . . . (4,699) (4,289)
-------- --------
Net cash (used) provided by investing activities. . . (4,658) (4,444)
FINANCING ACTIVITIES:
Proceeds from long-term debt . . . . . . . . . . . . 0 0
Principal payments on long-term debt . . . . . . . . (521) (510)
Net borrowings under bank loan agreements . . . . . . 1,228 (310)
Conversion of other assets. . . . . . . . . . . . . . (615) (50)
Dividends paid to affiliates. . . . . . . . . . . . . (1,268) 0
-------- --------
Net cash (used) by financing activities . . . . . . . (1,176) (870)
Effect of exchange rate changes on cash. . . . . . . . . (95) 100
-------- --------
Net (decrease) increase in cash and cash equivalents . . (2,058) 2,101
Cash and cash equivalents at beginning of period . . . . 6,740 4,408
-------- --------
Cash and cash equivalents at end of period . . . . . . . $ 4,682 $ 6,509
========= ========
Supplemental disclosures:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . $ 304 $ 550
Income taxes . . . . . . . . . . . . . . . . . . . 5,721 3,840
</TABLE>
<PAGE> 6
CUNO INCORPORATED AND COMBINED AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
July 31, 1996
Note A - Basis of Presentation
- ------------------------------
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine-month and three-month
period ended July 31, 1996 are not necessarily indicative of the
results that may be expected for the year ending October 31, 1996. For
further information, refer to the consolidated financial statements and
footnotes thereto included in Cuno Incorporated's Form 10 for the year
ended October 31, 1995.
Note B - Cuno Incorporated - Distribution
- -----------------------------------------
On July 29, 1996 the Board of Directors of Commercial Intertech Corp.
approved a plan to spin-off the fluid purification business by
declaring a dividend distribution of 100% of the common stock of Cuno
Incorporated ("CUNO") on a pro-rata basis to the holders of Commercial
Intertech common shares (the "Distribution"). On September 10, 1996,
the Distribution date, each holder of record of Commercial Intertech
common shares as of the close of business on August 9, 1996, the record
date for the Distribution, received one share of CUNO Common Stock for
every one share of Commercial Intertech common share. No fractional
shares of CUNO were issued.
In connection with the spin-off, the Company declared dividends of
approximately $35,675,000 payable from the CUNO subsidiaries to the
parent (Commercial Intertech), and immediately prior to the
Distribution, Cuno assumed $30,000,000 of Commercial Intertech's debt
in the form of a dividend.
CUNO and Commercial Intertech have entered into a Tax Allocation
Agreement in connection with the Distribution. In addition, the
companies have entered into a Distribution and Interim Services
Agreement which provides that certain services which have historically
been provided to CUNO by Commercial Intertech will continue to be
provided following the Distribution Date, at rates specified in such
agreement, for a period of up to twelve months.
For further information, refer to Form 10 filed on September 10, 1996.
<PAGE> 7
NOTE C - PRO FORMA PER-SHARE DATA
- ---------------------------------
Pro forma per-share data was computed using the weighted average number
of common shares outstanding as of September 10, 1996.
NOTE D - INVENTORIES
- --------------------
Inventories consisted of the following:
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
1996 1995
-------- -------
<S> <C> <C>
Raw materials $ 2,795 $ 3,063
Work-in-process 5,888 6,784
Finished goods 8,772 11,916
------- -------
$17,455 $21,763
======= =======
</TABLE>
NOTE E - NONRECURRING SPIN-OFF AND RELATED COSTS
- ------------------------------------------------
Nonrecurring spin-off and related costs represent the expenses
associated with the tax-free spin-off of the Company ($.21 per share).
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THIRD QUARTER 1996 COMPARED TO THIRD QUARTER 1995
- -------------------------------------------------
On July 29, 1996, Commercial Intertech Corp. of Youngstown,
Ohio announced that its Board of Directors declared a dividend to its
common shareholders of 100 percent of the common stock of Cuno
Incorporated of Meriden, Connecticut, its wholly-owned fluid
purification business (Cuno or the Company). The new Cuno shares were
distributed on September 10, 1996 on the basis of one common share of
Cuno for each Commercial Intertech common share outstanding, payable to
holders of record as of the close of business on August 9, 1996. The
accompanying financial statements represent the financial condition of
the Company and the results of operations as if the Company were a
stand-alone corporation during the periods shown.
All-time record quarterly sales of $48,542,000 were realized
by the Company during the current period, surpassing last year's
revenues by $5,075,000 or 12 percent. Revenues from operations in the
United States during the current period of $23,908,000, also an
all-time record, were $4,712,000 or 25 percent higher than last year as
shipments in the current quarter to the fluid processing and healthcare
markets were $3,392,000 or 32 percent higher than the same period last
year. Meanwhile, foreign revenues during the third quarter of the
fiscal year of $24,634,000 were slightly higher than the same period
last year. Adjusted for changes in foreign currency exchange rates and
due to a weaker U.S. dollar, foreign revenues would have been
$2,294,000 or 10 percent higher at last year's average foreign currency
exchange rates. Operations in Europe and Asia/Pacific reported all-time
record quarterly sales during the current period.
Consolidated gross profit of $20,796,000 was $3,771,000 or 22
percent higher than the same period last year, due principally to
increased sales volume. Consolidated gross profit margins were over
three percentage points higher than last year. Gross margins in the
United States were almost nine percentage points higher during the
current period due principally to improved manufacturing processes and
higher profit margins for new product introductions.
Selling, administrative and general expenses of $14,668,000
were only slightly higher than last year. Adjusted for fluctuating
foreign currency exchange rates, consolidated operating expenses were
just slightly lower than the third quarter of last year.
During the third quarter of fiscal 1996, the Company incurred
nonrecurring, non-tax deductible expenses of $2,876,000 associated with
the costs of the tax-free spin-off of Cuno.
<PAGE> 9
Operating income of $3,252,000 was $609,000 or 23 percent
higher than last year. Excluding the nonrecurring expenses associated
with the Cuno spin-off, operating income would have been $3,485,000 or
132 percent higher than the same period last year. All-time record
quarterly operating profits were realized in both the United States and
Europe with strong performances recorded in Asia/Pacific as well.
Nonoperating expenses of $223,000 during the third quarter of
the current fiscal year were only slightly lower than last year.
Foreign currency losses of $80,000 realized as a result of fluctuating
exchange rates incurred primarily by the Company's Brazilian and
Japanese operations were $89,000 lower than the same period last year.
The Corporation's effective income tax rate of 79 percent
during the current period, compared to 41 percent last year is due
principally to the nondeductibility of expenses associated with the
Cuno distribution incurred in the current quarter.
FIRST NINE MONTHS OF 1996 COMPARED TO THE FIRST NINE MONTHS OF 1995
- -------------------------------------------------------------------
Record nine-month revenues of $134,636,000, realized by the
Company for the period ended July 31, 1996, surpassed last year's
record first nine-month sales of $120,810,000 by $13,826,000 or 11
percent. Net income during the period of $5,732,000 was $1,656,000 or
41 percent higher than the same period last year, despite nonrecurring
distribution expenses of $2,876,000.
Revenues from United States operations of $64,516,000 during
the first three quarters of fiscal 1996, also an all-time record, were
$9,219,000 or 17 percent higher than last year. Record domestic sales
recorded to the fluid processing and healthcare markets of $37,050,000
during the first nine months of fiscal 1996 were $6,940,000 or 23
percent higher than the same period last year. Meanwhile, foreign
revenues during the current period of $70,120,000, another record, were
$4,607,000 or 7 percent higher than the first nine months of fiscal
1995. Significant gains were realized in Europe, as well as
Asia/Pacific. On a cumulative year-to-date basis, foreign revenues
would have been $3,042,000 or 5 percent higher, after adjusting for the
impact of currency exchange rate differences on foreign sales reported
in U.S. dollars.
The consolidated gross profit margin percentage during the
first nine months of fiscal 1996 was 41 percent versus 38 percent last
year. The improvement since last year was due principally to improved
manufacturing processes and higher profit margins for new product
introductions in the United States.
<PAGE> 10
Selling, administrative and general expenses of $41,252,000
was $2,641,000 or 7 percent higher than the first nine months of fiscal
1995. Adjusted for changes in foreign currency exchange rates,
consolidated operating expenses were 8 percent higher than the same
period last year.
During the current fiscal period, the Company realized
nonrecurring non-tax deductible expenses of $2,876,000 associated with
the costs of the tax-free distribution of the Company.
Operating income during the first nine months of fiscal 1996
of $10,876,000 was $3,541,000 or 48 percent higher than the same period
last year. Excluding the nonrecurring expenses associated with the Cuno
spin-off, operating income would have been $6,417,000 or 87 percent
higher than the same period last year. Record nine month cumulative
operating profits were realized in the United States and Europe.
During the first nine months of fiscal 1996, nonoperating
expenses of $366,000 were $497,000 lower than the same period last
year, due principally to realized gains of $121,000 on the disposal of
certain assets, principally in the United States, compared to a loss of
$7,000 recorded last year. Foreign currency losses of $102,000 during
the current period, realized as a result of fluctuating exchange rates
incurred primarily by the Company's operations in Brazil, were $128,000
lower than the same period last year. While interest income remained
the same, interest expense of $300,000 was $266,000 lower than the
first nine months of fiscal 1995 as the Company experienced a reduction
in borrowings, principally in Japan, and lower interest rates over the
past twelve months.
The effective income tax rate of 46 percent recorded during
the first nine months of fiscal 1996, compared to 37 percent last year,
is due principally to the nondeductibility of distribution expenses
associated with the Cuno spin-off.
FINANCIAL CONDITION
- -------------------
Cash and cash equivalents decreased $2,058,000 since the
beginning of fiscal 1996. Net cash provided by operating activities was
$3,871,000 compared to $7,315,000 in fiscal 1995, due principally to
increased accounts receivable associated with higher levels of sales.
Cash used by investing activities was $4,658,000 compared to $4,444,000
last year; capital expenditures during the first nine months of
$4,699,000 were $410,000 or 10 percent higher than the same period last
year.
<PAGE> 11
Interest expense of $2.7 million is projected for fiscal year
1997, reflecting $30 million additional debt assigned to the Company as
part of the distribution. Capital expenditures are projected to
increase to $10.5 million in fiscal 1997 as the Company invests in
manufacturing equipment, tooling, administrative support systems and
cost saving programs necessary to achieve revenue growth and margin
improvements. Internal cash flows are expected to be sufficient to
provide the necessary resources to support operating requirements and
to finance capital expenditure programs. Supplemental borrowings
against existing credit facilities will also be utilized as needed to
finance the planned capital programs.
Incoming trade customer orders received during the first nine
months of fiscal 1996 of $140,914,000 were 14 percent higher than
orders received last year, after adjusting for fluctuating foreign
currency exchange rate differences. Bookings received in the United
States were 21 percent over the same period last year. Third quarter
bookings received in the current period of $48,861,000 were 3 percent
higher than orders received in the second quarter of 1996 and 16
percent higher than orders received in the third quarter of last year,
adjusted for fluctuating foreign currencies. Bookings in the United
States during the third quarter were 7 percent higher than 1995 and
were 28 percent better during the first nine months of the current year
compared to the same period last year.
Despite record sales volume in the current period, trade
bookings outpaced net revenues on a consolidated basis. Worldwide
backlog of uncompleted orders of $17,229,000 is 23 percent higher than
the end of fiscal 1995 and 10 percent higher than the ending order
backlog twelve months ago, both adjusted for foreign currency exchange
rate differences.
SUBSEQUENT EVENTS
- -----------------
On September 9, 1996, the NASDAQ approved the Cuno shares for
trading on the stock exchange under the symbol "CUNO".
<PAGE> 12
PART II. OTHER INFORMATION
Item 6. Exhibits and reports on Form 8-K
Exhibit 27 - Financial Data Schedule
(b) Reports On Form 8-K
No reports were filed on Form 8-K during the quarter for which this report is
filed.
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CUNO INCORPORATED
Date October 9, 1996 By /s/Ronald C. Drabik
------------------ ------------------------------
Ronald C. Drabik
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-START> NOV-01-1995
<PERIOD-END> JUL-31-1996
<CASH> 4,682
<SECURITIES> 0
<RECEIVABLES> 43,182
<ALLOWANCES> 1,844
<INVENTORY> 17,455
<CURRENT-ASSETS> 99,439
<PP&E> 94,703
<DEPRECIATION> 46,744
<TOTAL-ASSETS> 172,277
<CURRENT-LIABILITIES> 81,734
<BONDS> 3,403
<COMMON> 14
0
0
<OTHER-SE> 50,472
<TOTAL-LIABILITY-AND-EQUITY> 172,277
<SALES> 134,636
<TOTAL-REVENUES> 134,636
<CGS> 79,632
<TOTAL-COSTS> 79,632
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 104
<INTEREST-EXPENSE> 300
<INCOME-PRETAX> 10,510
<INCOME-TAX> 4,778
<INCOME-CONTINUING> 5,732
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,732
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
