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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarter ended January 31, 1997 Commission file number 000-21109
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CUNO INCORPORATED
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(Exact name of registrant as specified in its charter)
Delaware 06-1159240
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 Research Parkway, Meriden, Connecticut 06450
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(Address of principal executive offices) (Zip Code)
(203) 237-5541
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Registrant's telephone number, including area code
Not Applicable
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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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
Common Stock, .001 Par Value --13,822,076 shares as of February 26, 1997.
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INDEX
CUNO INCORPORATED
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<CAPTION>
Page
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Part I. Financial Information 3
Item 1. Condensed Financial Statements (Unaudited)
Statements of Consolidated Income for the Three Months Ended January 31,
1997 and 1996 3
Consolidated Balance Sheets as of January 31, 1997 and October 31, 1996 4
Statements of Consolidated Cash Flows for the Three Months Ended January
31, 1997 and 1996 5
Notes to Unaudited Condensed Consolidated Financial Statements as of January 31,
1997 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations 7
Part II. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
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CUNO Incorporated and Subsidiaries
Statements of Consolidated Income (Unaudited)
(dollars in thousands, except share amounts)
<TABLE>
<CAPTION>
Three Months Ended January 31,
1997 1996
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<S> <C> <C>
Net sales $ 44,839 $ 41,004
Less costs and expenses:
Cost of products sold 25,638 25,256
Selling, general and
administrative expenses 15,274 13,112
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40,912 38,368
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Operating income 3,927 2,636
Nonoperating income (expense):
Interest income 36 31
Interest expense (591) (101)
Exchange losses (26) (10)
Gain on sale of assets 6 98
Other (48) (13)
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(623) 5
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Income before income taxes 3,304 2,641
Provision for income taxes 1,239 790
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Net income $ 2,065 $ 1,851
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Net income per common share $ 0.15 $ 0.14
=============== ===============
Weighted average common
shares outstanding 13,809,608 13,565,922
=============== ===============
See notes to unaudited condensed consolidated financial statements.
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CUNO Incorporated and Subsidiaries
Consolidated Balance Sheets
(in thousands, except per share data)
<TABLE>
<CAPTION> January 31,
1997 October 31,
(unaudited) 1996
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<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 3,586 $ 5,244
Accounts and notes receivable (less allowances for
doubtful accounts of $1,406 and $1,133, respectively) 36,437 36,944
Inventories 19,712 19,149
Deferred income taxes 5,301 5,333
Prepaid expenses and other current assets 1,393 1,484
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Total current assets 66,429 68,154
Noncurrent assets
Intangible assets, net 19,213 19,695
Pension assets 1,146 1,174
Other noncurrent assets 1,493 1,532
Property, plant and equipment, net 46,817 48,201
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Total assets $135,098 $138,756
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Liabilities and Stockholders' Equity
Current liabilities
Bank loans $ 12,306 $ 10,690
Accounts payable 11,797 12,719
Accrued payrolls and related taxes 6,905 9,084
Accrued expenses 7,223 6,986
Accrued income taxes 2,269 1,360
Current portion of long-term debt 912 962
Dividends payable to related party 2,170 4,612
Payable to related party 6,703 10,184
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Total current liabilities 50,285 56,597
Noncurrent liabilities
Long-term debt 35,577 33,772
Deferred income taxes 3,544 3,670
Retirement benefits 1,541 1,569
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Total noncurrent liabilities 40,662 39,011
Stockholders' equity
Preferred stock, $.001 par value; 2,000,000 shares
authorized, no shares issued and outstanding - -
Common Stock, $.001 par value; 50,000,000 shares
authorized, 13,822,076 and 13,774,568 shares outstanding 14 14
Additional paid-in-capital 7,262 6,736
Retained earnings 35,701 33,636
Unearned compensation (3,578) (3,448)
Minimum pension liability adjustment (811) (811)
Translation adjustments 5,563 7,021
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Total stockholders' equity 44,151 43,148
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Total liabilities and stockholders' equity $135,098 $138,756
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</TABLE>
See notes to unaudited condensed consolidated financial statements.
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<TABLE>
<CAPTION>
CUNO Incorporated and Subsidiaries
Statements of Consolidated Cash Flows (unaudited)
(dollars in thousands)
Three months ended,
January 31,
1997 1996
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<S> <C> <C>
Operating activities
Net income $ 2,065 $ 1,851
Adjustments to reconcile net income to net cash
(used for) provided by operating activities:
Depreciation and amortization 1,779 2,032
Gain on sale of equipment (4) -
Provision for unearned compensation 404 -
Pension plan credits - 309
Change in deferred income taxes (228) 708
Changes in assets and liabilities:
Accounts receivable (465) (49)
Inventories (1,196) 278
Prepaid expenses and other current assets (604) (30)
Payables to related party (3,149) 537
Accounts payable and accrued expenses (2,078) (2,787)
Accrued income taxes 891 (1,220)
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Net cash (used for) provided by operating activities (2,585) 1,629
Investing activities
Proceeds from sale of equipment 39 9
Capital expenditures (1,001) (1,050)
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Net cash (used for) investing activities (962) (1,041)
Financing activities
Proceeds from long-term debt 4,000 -
Principal payments on long-term debt (2,049) (46)
Net borrowings under bank loan agreements 2,371 344
Conversion of other assets - (558)
Dividends paid to related party (2,352) -
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Net cash provided by (used for) financing activities 1,970 (260)
Effect of exchange rate changes on cash and cash equivalents (81) (240)
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Net change in cash and cash equivalents (1,658) 88
Cash and cash equivalents -- beginning of period 5,244 6,740
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Cash and cash equivalents -- end of period $ 3,586 $ 6,828
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See notes to unaudited condensed consolidated financial statements.
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<PAGE>
CUNO INCORPORATED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
January 31, 1997
Note A - CUNO Organization and Distribution
On July 29, 1996, the Board of Directors of Commercial Intertech Corp.
("Commercial Intertech" or "Related Party") approved a plan to spin-off its
fluid purification business by declaring a dividend distribution of 100% of
the common stock of Cuno Incorporated ("CUNO" or the "Company") on a pro-
rata basis to the holders of Commercial Intertech common shares (the
"Distribution" or "Spin-off"). 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.
Note B - Basis of Presentation
The accompanying unaudited condensed consolidated 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 three-month period ended January 31, 1997 are not necessarily
indicative of the results that may be expected for the year ending October
31, 1997. The condensed consolidated balance sheet at October 31, 1996 was
derived from the audited financial statements as of that date. For further
information, refer to the consolidated financial statements and footnotes
thereto included in CUNO Incorporated's Form 10-K for the year ended
October 31, 1996.
Note C - Earnings per share data
All share and per share information has been retroactively restated to
reflect the Distribution in a manner similar to a stock split. In
determining the weighted average number of common shares outstanding, it
was assumed that the shares issued in conjunction with the reorganization
were outstanding during each period presented. Fully diluted earnings per
share is not presented as the effect of common stock equivalents was not
material.
Note D - Income Taxes
The Company's effective income tax rate for the period was 37.5% compared
to 30.0% during the first quarter of 1996. The change reflects a loss of
certain foreign tax benefits previously realized when the Company was a
part of Commercial Intertech's combined tax group.
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Note E - Inventories
Inventories consisted of the following:
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<CAPTION>
January 31, October 31,
1997 1996
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(In thousands)
<S> <C> <C>
Raw materials $ 2,642 $ 2,817
Work-in-process 8,001 6,503
Finished goods 9,069 9,829
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$19,712 $19,149
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</TABLE>
Inventories are stated at the lower of cost of market. Inventories in the
United States are primarily valued on the last-in, first-out (LIFO) cost
method. The method used for all other inventories is first-in, first-out
(FIFO). An actual valuation of inventory under the LIFO method can be made
only at the end of each year based on the inventory levels and costs at
that time. Accordingly, interim LIFO calculations must necessarily be based
on management's estimates of expected year-end inventory levels and costs.
Because these are subject to many factors beyond management's control,
interim results are subject to the final year-end LIFO inventory valuation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Three Months Ended January 31, 1997 Compared To Three Months Ended January 31,
1996
Results of operations for the three months ended January 31, 1997 are not
comparable to the three months ended January 31, 1996 because the Spin-off
occurred in the last quarter of fiscal year 1996. Results for the first quarter
of fiscal year 1996 do not include increased interest expense related to the
$30.0 million in debt assumed in the Spin-off, a higher tax rate resulting from
the loss of certain foreign tax benefits previously realized when the Company
was part of the Commercial Intertech combined tax group and the amortization
expense of performance shares.
Net Sales. Net sales of $44.8 million in the first quarter of fiscal year
1997 represented a 9.4% increase over net sales of $41.0 million in the first
quarter of fiscal year 1996. The effects of foreign currency fluctuations
reduced net sales by $3.8 million as compared to the first quarter in the prior
fiscal year. Net sales for the Company's U.S. operations increased by 15.0% over
the same period, reflecting continued penetration of the health care market by
nylon membrane products.
Gross Profit. Gross profit in the first quarter of fiscal year 1997
increased by $3.5 million, or 21.9%, to $19.2 million from $15.7 million in the
first quarter of fiscal year 1996 and increased as a percentage of net sales to
42.8% from 38.4%. This increase was a result of continued improvement in
manufacturing efficiencies, particularly in the U.S., in combination with
expanded sales of higher margin nylon membrane products.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $2.2 million, or 16.5%, to $15.3 million in
the first quarter of fiscal year 1997 from $13.1 million in the first quarter of
fiscal year 1996 and increased as a percentage of net sales to 34.1% from 32.0%
over the same period. Growth in these expenses stems from continued investment
in selling and engineering resources worldwide and from projects related to new
data processing systems in the U.S., Brazil and Singapore.
Operating Income. Operating income increased by $1.3 million, or 49.0%, to
$3.9 million in the first quarter of fiscal year 1997 from $2.6 million in the
first quarter of fiscal year 1996, with most of that gain in the U.S., where
expanded sales, an improved product mix and greater efficiencies resulted in an
overall significant improvement in operating performance.
Interest Expense. Interest expense increased by $0.5 million to $0.6
million in the first quarter of fiscal year 1997 from $0.1 million in the first
quarter of fiscal year 1996. The increase in interest expense primarily resulted
from the $30.0 million of debt assumed by the Company in conjunction with the
Spin-off.
Income Taxes. The Company's effective income tax rate for the first
quarter of 1997 was 37.5% as compared to 30.0% during the first quarter of
fiscal year 1996. The change reflects a loss of certain foreign tax benefits
previously realized when the Company was a part of the Commercial Intertech
combined tax group.
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Liquidity and Capital Resources
In the first quarter of fiscal year 1997, the Company generated cash from
operations of $.6 million before reducing its related party payables to
Commercial Intertech by $3.2 million, resulting in a net cash used in
operations of $2.6 million. In addition, the Company reduced its dividends
payable to Commercial Intertech by $2.4 million. By October 1997, the
Company expects to pay the balance of $8.9 million of payables due to
Commercial Intertech as of January 31, 1997, as well as other amounts due
under the Distribution and Interim Services Agreement between the Company
and Commercial Intertech.
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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 10-Q is
filed.
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<PAGE>
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 2/26/97 By /s/ Ronald C. Drabik
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Ronald C. Drabik
Senior Vice President and
Chief Financial Officer
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> OCT-31-1996 OCT-31-1996
<PERIOD-START> NOV-01-1996 NOV-01-1995
<PERIOD-END> JAN-31-1997 JAN-31-1996
<CASH> 3,586 5,244
<SECURITIES> 0 0
<RECEIVABLES> 37,843 38,077
<ALLOWANCES> 1,406 1,133
<INVENTORY> 19,712 19,149
<CURRENT-ASSETS> 66,429 68,154
<PP&E> 95,366 96,150
<DEPRECIATION> 48,548 47,949
<TOTAL-ASSETS> 135,008 138,756
<CURRENT-LIABILITIES> 50,285 56,597
<BONDS> 0 0
<COMMON> 14 14
0 0
0 0
<OTHER-SE> 44,137 43,134
<TOTAL-LIABILITY-AND-EQUITY> 135,008 138,756
<SALES> 44,839 41,004
<TOTAL-REVENUES> 44,839 41,004
<CGS> 25,638 25,256
<TOTAL-COSTS> 40,912 38,368
<OTHER-EXPENSES> 32 (106)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 591 101
<INCOME-PRETAX> 3,304 2,641
<INCOME-TAX> 1,239 790
<INCOME-CONTINUING> 2,065 1,851
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 2,065 1,851
<EPS-PRIMARY> .15 .14
<EPS-DILUTED> 0 0
</TABLE>
