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, 1995
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 7, 1995, 12,765,693 shares of the issuer's Common Stock,
$0.01 par value, were outstanding.
<PAGE>
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, 1995 and 1994
Consolidated Balance Sheets - . . . . . . . . . . . . 3
September 30, 1995 and December 31, 1994
Consolidated Statements of Cash Flows . . . . . . . . 4
For the Nine Months Ended
September 30, 1995 and 1994
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 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . 8
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . 8
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
<PAGE>
ITEM I - FINANCIAL STATEMENTS
OSMONICS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Sales $27,176 $23,383 $80,842 $71,760
Cost of sales 15,692 12,884 45,488 39,867
Gross profit 11,484 10,499 35,354 31,893
Less:
Selling, general and
administrative 6,187 5,859 19,260 17,188
Research, development
and engineering 2,015 1,816 5,891 5,379
Income from operations 3,282 2,824 10,203 9,326
Other income 523 246 1,473 449
Income before income
taxes 3,805 3,070 11,676 9,775
Income taxes 1,180 781 3,580 2,612
Net income $ 2,625 $ 2,289 $ 8,096 $ 7,163
Net income per common
share $ 0.21 $ 0.18 $ 0.64 $ 0.57
Average common shares
outstanding 12,751 12,678 12,738 12,661
<PAGE>
OSMONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Data)
September 30, December 31,
1995 1994
ASSETS
Current assets
Cash and cash equivalents $ 8,701 $ 9,453
Marketable securities 28,925 27,623
Trade accounts receivable, net of
allowance for doubtful accounts of
$1,123 in 1995, and $1,259 in 1994 17,928 15,536
Inventories 22,431 19,428
Deferred tax assets 3,167 3,284
Other current assets 1,136 1,303
Total current assets 82,288 76,627
Property and equipment, at cost
Land and land improvements 2,191 1,951
Building 16,735 12,300
Machinery and equipment 36,745 33,574
55,671 47,825
Less accumulated depreciation and
amortization (27,395) (25,262)
28,276 22,563
Other assets 3,094 2,845
$113,658 $102,035
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 7,805 $ 6,459
Notes payable and current portion
of long-term debt 1,693 744
Reserve for discontinued operations 1,958 2,088
Other accrued liabilities 10,385 11,341
Total current liabilities 21,841 20,632
Long-term debt 12,605 14,050
Deferred compensation and other liabilities 679 689
Deferred income taxes 3,875 2,913
Shareholders' equity
Common stock, $0.01 par value
Authorized -- 20,000,000
Issued -- 1995: 12,762,817 and
1994: 12,701,041 shares 128 127
Capital in excess of par value 21,547 21,000
Retained earnings 49,504 41,408
Unrealized gain on marketable securities 3,173 1,038
Foreign currency translation adjustments 306 178
Total shareholders' equity 74,658 63,751
$113,658 $102,035
OSMONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Nine Months Ended
September 30,
Cash flows from: 1995 1994
Operations:
Net income $ 8,096 $ 7,163
Non-cash items included in net income:
Depreciation and amortization 2,528 2,483
(Gain)/loss on sale of investments (702) 104
Deferred income taxes 117 (226)
Reserve for VAT - (1,363)
Accounts receivable (2,392) (457)
Inventories and other current assets (2,836) (200)
Accounts payable and accrued liabilities 260 (333)
Net cash provided by operations 5,071 7,171
Investing activities:
Purchase of investments (4,012) (10,200)
Sale of investments 6,374 7,096
Purchase of property and equipment (7,985) (2,505)
Other (153) 67
Cash provided (used) in investing
activities (5,776) (5,542)
Financing activities:
Reduction of debt (506) (288)
Issuance of common stock 548 467
Net cash provided (used) in financing
activities 42 179
Effect of exchange rates on cash (89) 61
(Decrease)/increase in cash and
cash equivalents (752) 1,869
Cash and cash equivalents -
beginning of year 9,453 9,710
Cash and cash equivalents -
end of quarter
$ 8,701 $11,579
<PAGE>
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, 1995, are not
necessarily indicative of the results that may be expected for the
year 1995.
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, 1994.
<PAGE>
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, 1995 and 1994.
Percent of Sales Percent of Sales
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 57.7 55.1 56.3 55.6
Gross profit 42.3 44.9 43.7 44.4
Selling, general
and administrative 22.8 25.0 23.8 23.9
Research, development
and engineering 7.4 7.8 7.3 7.5
Operating expenses 30.2 32.8 31.1 31.4
Income from operations 12.1 12.1 12.6 13.0
Other income 1.9 1.0 1.8 0.6
Income before income taxes 14.0 13.1 14.4 13.6
Income taxes 4.3 3.3 4.4 3.6
Net income 9.7% 9.8% 10.0% 10.0%
Sales
Sales for the quarter ended September 30, 1995 of $27,176 increased 16%
over sales for the third quarter of 1994. Year-to-date 1995 sales
through September have increased 13% over their 1994 level. The
increase was in both capital and replaceable products. The sales growth
reflects the Company's recent and continued investment in expanded sales
efforts, and the general strength of the economy.
Gross Margin
The gross margin for the third quarter of 1995 was 42.3% versus 44.9% in
the corresponding period of 1994. The gross margin for nine months
ended September 30 was 43.7% in 1995 and 44.4% in 1994. The lower gross
margin was due to increased costs for raw material, increased price
competition, and a less favorable product mix.
<PAGE>
Operating Expenses
Operating expenses decreased from 32.8% of sales in the third quarter of
1994 to 30.2% in the third quarter of 1995, and from 31.4% in the first
nine months of 1994 to 31.1% of sales in the corresponding period of
1995. The decrease in operating expense is primarily attributable to
improved operating efficiency realized in the integration of the
Company's recent acquisitions.
Other Income
Other income increased by $1,024 from the first nine months of 1994 to
the first nine months of 1995. The increase included $702 of gain on
the sale of investments.
Income Taxes
The effective tax rate for the nine months ended September 30, 1995 was
30.7% based on the forecasted rate for the full year. The current rate
compares to 26.7% in the corresponding period of 1994. The lower rate
for 1994 included the benefit of tax loss carryforwards acquired with
the Autotrol merger.
Net Income
Net income for the quarter ended September 30, 1995 was $2,625, up 15%
from $2,289 in the corresponding quarter last year. Net income per
common share for the quarter increased to $0.21 from $0.18 in the prior
year. Year-to-date net income was $8,096, up 13% from $7,163 in 1994.
Net income per common share year to date was $0.64 in 1995 versus
$0.57 in 1994.
Liquidity and Capital Resources
As of September 30, 1995, the Company had cash, cash equivalents and
marketable securities of $37,626 versus $37,076 at December 31, 1994.
The current ratio was 3.8 at September 30, 1995, as compared to 3.7 at
year-end 1994.
The increase in land and building relates to the purchase of the
previously-leased facility in Milwaukee, and the expansion of the
Minnetonka facility which will be completed by January 1996.
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.
<PAGE>
OSMONICS, INC.
PART II
OTHER INFORMATION
Item 5. Other Information
Osmonics, Inc. acquired the assets and operations of Western
Filter Co., Denver, Colorado, on October 4, 1995. Western
Filter, founded in 1934, is a leading supplier of water
treatment equipment to the beverage market, and will continue
to operate as an independent business unit in Denver. Western
Filter products will be sold through the existing Osmonics
distribution channels, offering a more complete line of water
and waste water treatment options. Revenues of Western Filter
were less than $10 million in 1994.
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) During the quarter ended September 30, 1995, the
Registrant did not file a Form 8-K report.
<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.
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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-Q
for the quarter ended September 30, 1995, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
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