SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 1994
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 No. 1-12714
OSMONICS, INC
(Exact name of registrant as specified in its charter)
Minnesota 41-0955759
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
5951 Clearwater Drive, Minnetonka, MN 55343
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 933-2277
N/A
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
period that the registrant was required to file such reports) and
(2) has been subject to such filing requirements for at least the past
90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. At
November 10, 1994, 12,688,476 shares of the issuer's Common Stock,
$0.01 par value, were outstanding.
OSMONICS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
ITEM I. FINANCIAL STATEMENTS
Consolidated Statements of Income - . . . . . . . . . 2
For the Three and Nine Month Periods
Ended September 30, 1994 and 1993
Consolidated Balance Sheets - . . . . . . . . . . . . 3
September 30, 1994 and December 31, 1993
Consolidated Statements of Cash Flows . . . . . . . . 4
For the Nine Months Ended
September 30, 1994 and 1993
Notes to Consolidated Financial Statements . . . . . . 5
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF . . . . . . 6-7
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . 8
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
<TABLE>
ITEM I - FINANCIAL STATEMENTS
<CAPTION>
OSMONICS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Sales $23,383 $21,683 $71,760 $66,485
Cost of sales 12,884 12,102 39,867 37,111
Gross profit 10,499 9,581 31,893 29,374
Less:
Selling, general and
administrative 5,859 5,269 17,188 15,874
Research, development
and engineering 1,816 1,632 5,379 4,987
Merger and transition
expense - 356 - 949
Income from operations 2,824 2,324 9,326 7,564
Other income 246 106 449 358
Income before income
taxes 3,070 2,430 9,775 7,922
Income taxes 781 651 2,612 2,252
Net income $ 2,289 $ 1,779 $ 7,163 $ 5,670
Net income per common
share $ 0.18 $ 0.14 $ 0.57 $ 0.45
Average common shares
outstanding 12,678 12,627 12,661 12,621
</TABLE>
<TABLE>
<CAPTION>
OSMONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Data)
September 30, December 31,
1994 1993
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $11,579 $ 9,710
Marketable securities 19,505 18,641
Trade accounts receivable, net of
allowance for doubtful accounts of
$1,289 in 1994, and $1,282 in 1993 14,112 13,655
Inventories 17,105 15,838
Deferred tax assets 3,460 3,234
Notes receivable - 667
Other current assets 1,339 1,739
Total current assets 67,100 63,484
Property and equipment, at cost
Land and land improvements 1,951 1,937
Building 12,380 12,056
Machinery and equipment 32,539 30,527
46,870 44,520
Less accumulated depreciation and
amortization (24,854) (22,564)
22,016 21,956
Long-term investments 4,957 1,233
Other assets 2,032 2,153
$96,105 $88,826
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 5,917 $ 5,714
Notes payable and current portion of
long-term debt 245 779
Reserve for VAT payable 242 1,605
Reserve for discontinued operations 2,083 2,212
Other accrued liabilities 8,782 9,126
Total current liabilities 17,269 19,436
Long-term debt 14,159 13,913
Deferred compensation and other liabilities 706 769
Deferred income taxes 3,157 2,638
Shareholders' equity
Common stock, $0.01 par value
Authorized -- 20,000,000
Issued -- 1994: 12,685,542 and
1993: 12,637,473 shares 127 126
Capital in excess of par value 20,787 20,321
Retained earnings 38,616 31,453
Unrealized gain on marketable securities 1,053 -
Foreign currency translation adjustments 231 170
Total shareholders' equity 60,814 52,070
$96,105 $88,826
</TABLE>
<TABLE>
<CAPTION>
OSMONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Nine Months Ended
September 30,
Cash flows from: 1994 1993
<S> <C> <C>
Operations:
Net income $ 7,163 $ 5,670
Non-cash items included in net income:
Depreciation and amortization 2,483 2,465
(Gain)/loss on sale of property 104 (275)
Deferred income taxes (226) -
Reserve for VAT (1,363) -
Accounts receivable (457) 61
Inventories and other current assets (200) 3,053
Accounts payable and accrued liabilities (333) (2,133)
Net cash provided by operations 7,171 8,841
Investing activities:
Purchase of investments (10,200) (7,778)
Sale of investments 7,096 1,940
Purchase of property and equipment (2,505) (2,386)
Disposal of property - 349
Other 67 (99)
Cash provided (used) in investing
activities (5,542) (7,974)
Financing activities:
Reduction of debt (288) (383)
Issuance of common stock 467 234
Net cash provided (used) in financing
activities 179 (149)
Effect of exchange rates on cash 61 123
Increase in cash and cash equivalents 1,869 841
Cash and cash equivalents -
beginning of year 9,710 7,327
Cash and cash equivalents -
end of quarter
$11,579 $ 8,168
</TABLE>
OSMONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all 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 months ended September 30, 1994, are not
necessarily indicative of the results that may be expected for the
year 1994.
These statements should be read in conjunction with the financial
statements and related notes included in the Company's Annual Report to
shareholders and Form 10-K for the year ended December 31, 1993.
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(Dollars in thousands, except per share data)
As an aid to understanding the Company's operating results, the
following table shows the percentage of sales that each income statement
item represents for the three-month and nine-month periods ended
September 30, 1994 and 1993.
<TABLE>
<CAPTION>
Percent of Sales Percent of Sales
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 55.1 55.8 55.6 55.8
Gross profit 44.9 44.2 44.4 44.2
Selling, general
and administrative 25.0 24.3 23.9 23.9
Research, development
and engineering 7.8 7.5 7.5 7.5
Merger and transition
expense - 1.7 - 1.4
Operating expenses 32.8 33.5 31.4 32.8
Income from operations 12.1 10.7 13.0 11.4
Other income 1.0 0.5 0.6 0.5
Income before income taxes 13.1 11.2 13.6 11.9
Income taxes 3.3 3.0 3.6 3.4
Net income 9.8% 8.2% 10.0% 8.5%
</TABLE>
Sales
Sales for both the quarter ended September 30, 1994 and for 1994 year-
to-date increased 8% over prior year sales for the corresponding
periods.
Gross Margin
The gross margins for the third quarter and year-to-date 1994 were 44.9%
and 44.4%, respectively. In 1993, gross margins were 44.2% for both the
third quarter and year-to-date through September 30. The improvement in
gross margin in 1994 is primarily due to increased plant utilization on
the higher sales and improved product mix.
Operating Expenses
Operating expenses were 32.8% of sales in the third quarter of 1994 and
31.4% for year-to-date 1994. Operating expense has decreased as a
percentage of sales from 33.5% in the third quarter of 1993 and 32.8% of
sales for the nine months ended September 30, 1993. The decrease was
primarily due to the reduction of merger and transition expenses related
to the 1993 Autotrol acquisition.
Other Income
Other income increased to $246 in the third quarter of 1994 compared to
$106 in third quarter 1993, and to $449 year-to-date 1994 from $358 for
the corresponding period a year ago. The increase is primarily due to
increased interest income on a larger investment portfolio.
Income Taxes
The effective tax rate for the nine months ended September 30, 1994 was
27%, based on the forecast for the full year. This compares to 28% in
the corresponding period of 1993. The reduced rate in 1994 reflects the
full year benefits of tax loss carryforwards related to the acquired
Autotrol operations. The tax rate in 1995 is expected to increase as
tax loss carryforwards are depleted.
Net Income
Net income for the quarter ended September 30, 1994 was $2,289, up 29%
from $1,779 in the corresponding quarter last year. Net income per
common share for the quarter increased to $0.18 from $0.14 in the prior
year. Year-to-date net income was $7,163, up 26% from $5,670 in 1993.
Net income per common share year to date was $0.57 in 1994 versus
$0.45 in 1993.
Liquidity and Capital Resources
As of September 30, 1994, the Company had cash, cash equivalents and
marketable securities of $31,084 versus $28,351 at December 31, 1993.
The current ratio was 3.9 at September 30, 1994, as compared to 3.3 at
year-end 1993.
The Company believes that its current cash and investments position, its
cash flow from operations, and amounts available from bank credit will
be adequate to meet its anticipated cash needs for working capital,
capital expenditures, and potential acquisitions during the foreseeable
future.
OSMONICS, INC.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) During the quarter ended September 30, 1994, the
Registrant did not file a Form 8-K report.
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.
Dated: _____________________
OSMONICS, INC.
(Registrant)
/s/ L. Lee Runzheimer
L. Lee Runzheimer
Chief Financial Officer
/s/ Howard W. Dicke
Howard W. Dicke
Treasurer and Vice President
Corporate Development
/s/ D. Dean Spatz
D. Dean Spatz
Chief Executive Officer
