SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________________
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _________ to ________
Commission File No. 0-8282
OSMONICS, INC.
(Exact name of registrant as specified in its charter)
Minnesota 41-0955759
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5951 Clearwater Drive, Minnetonka, Minnesota 55343
(Address of principal executive offices) (Zip Code)
(612) 933-2277
(Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, par value $0.01 per share
(Title of Class)
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 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 March 6, 1995, 12,734,098 Common Shares were outstanding.
The aggregate market value of the Common Shares held by non-affiliates
of the Registrant on such date (based upon the closing price of such
shares on the New York Stock Exchange on March 6, 1995) was
$124,475,772.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the fiscal year
ended December 31, 1994 (the "Annual Report to Shareholders"), are
incorporated by reference into Parts II and IV. Portions of the
definitive Proxy Statement for the Annual Meeting of Shareholders to be
held on May 17, 1995 (the "Proxy Statement"), and to be filed within
120 days after the Registrant's fiscal year ended December 31, 1994, are
incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS
Osmonics, Inc. and its wholly-owned subsidiaries (the "Company")
design, manufacture and market machines, systems and components used in
the processing and handling of fluids. The Company was founded in 1969
and manufactures replaceable, semi-permeable membranes and other filter
media for use in fluid separation and filtration. The Company's
processing equipment employs crossflow filtration (including reverse
osmosis, nanofiltration, ultrafiltration and microfiltration), normal
filtration (including microfiltration and particle filtration),
coalescing filtration, ion exchange, chromatography, ozonation and
distillation. The Company's fluid handling equipment includes
centrifugal, diaphragm and bellows pumps; electronic controllers to
operate precision valves for water conditioning; flow control and
measuring devices and instrumentation; and specialty holders and devices
for retaining its membranes and filter media.
Crossflow, normal and coalescing filtration are precision
processes in which a semi-permeable membrane or other filter material
separates a fluid's components. Separation is accomplished by applying
pressure to a fluid in order to cause selective passage of some
components of the fluid through the membrane or filter media. Ion
exchange and chromatography are quasi-filtration processes in which
specialized plastic beads are used to selectively remove ionized or
charged particles from a fluid. The fluid is pressurized and passes
through a bed of the plastic beads in a normal filtration mode.
Distillation is the condensation of steam from boiling water to produce
ultrapure water. Ozone generation equipment uses electricity to develop
a corona discharge which produces ozone, a strong oxidant used in the
purification of water and other fluids.
The Company's processing products are used in fractionation,
preferential separation, conditioning and purification in connection
with such processes as purification of water and industrial solutions,
dewatering and recycling of commercial and industrial fluids, pollution
control and seawater desalting. The Company's principal domestic and
international markets, from which it derives more than 50% of its sales,
include the electronics, potable water, health care, biotechnology, food
and beverage, chemical processing and power generation industries.
Filtration processes cover a broad spectrum ranging from those
which separate discrete molecules and ions to those which separate
particles visible to the naked eye. Historically, the Company
specialized in products utilizing crossflow filtration processes
designed to separate particles in the molecular range. Through
acquisitions and internal product developments, the Company now has a
full line of filtration products including depth cartridge filters for
particle filtration and pleated membrane cartridge filters for
microfiltration. The filtration media and membrane is produced
primarily from polymers; however, inorganic membranes and filters of
metal and ceramic are also manufactured. In addition, the Company
manufactures housings to contain the filters. The crossflow filter
elements (sepralators), and the microfilter and depth filter cartridges
are replaceable while the housings are a permanent fixture in the fluid
processing system.
To provide a complete line of products for the production of pure
water, the Company manufactures distillation equipment, both single-
effect and more energy efficient multi-effect. In addition,
deionization and softening equipment in both laboratory size and large
scale is manufactured in multiple locations.
In June 1989, the Company acquired Ozone Research & Equipment
Corporation (OREC) of Phoenix, Arizona. OREC was founded in 1957 and is
a pioneer in the manufacture of ozone generation equipment for the
purification of water and the testing of elastomeric materials.
In November 1989, the Company acquired certain assets for the
manufacture and sale of MACE flow control and pumping products to
increase its fluid handling offerings. MACE products are made from
Teflon PTFE, the most chemically stable polymer available, and are used
to handle ultrapure and aggressive chemicals.
In December 1990, the Company acquired certain assets of the
FASTEK Division of Eastman Kodak for the production of reverse osmosis
membrane, home reverse osmosis sepralators, a rolled filter product, and
a blown microfiber filter cartridge product. This Syracuse, New York
facility and manufacturing equipment provides the Company with added
capacity and capability and gives the Company two sites for
manufacturing membrane and sepralators.
In October 1993, the Company acquired Autotrol Corporation through
a pooling-of-interests, stock-for-stock transaction. Autotrol was
founded in 1962 and is a leader in the manufacture of controllers for
water softening and filtration equipment. In addition, Autotrol
manufactures other fluid control and measuring devices such as a
totalizing flow meter and dosing system to assure proper treatment of
cooling tower water. Most of Autotrol's products are sold to OEM's who
then use them as a component in a water conditioning device which is
then sold to consumers.
In November 1994, the Company acquired substantially all of the
assets of Lakewood Instruments of Phoenix, Arizona. This acquisition
adds a line of instruments, sensors and analyzers used in the
measurement of fluid characteristics in the chemical water treatment and
pure water industries.
The Company focuses the marketing of its products through three
sales groups:
1. Large equipment and systems.
2. Distributor sales.
3. Original equipment manufacturers (OEM's) and system integrators.
All of these sales groups are supported by Application Engineers and
market support personnel.
Products
Membranes and Sepralators: The Company markets polymer membranes
for crossflow applications sold in replaceable elements called
sepralators. Most membranes are produced in a spiral-wound
configuration ranging in diameter from two to twelve inches and in
length from twelve to sixty inches.
Membrane sepralators are typically replaced every 6 to 60 months,
depending upon the severity of the application. The Company
manufactures the membrane material and membrane sepralators used in its
own systems, and also manufactures membrane sepralators for other OEM's
who include them as component parts in their products.
The Company's membranes are used in many bioengineering processes
such as the production of high fructose corn sugar, enzyme purification,
and purification of pharmaceuticals produced by biological processes.
Other uses include water purification applications in hemodialysis,
semiconductor manufacturing, production of pure water for beverages,
production of ultrapure pharmaceutical and boiler feed water, industrial
water purification and waste removal for pollution control compliance.
In addition, the Company sells its home reverse osmosis (HRO)
sepralators to OEM's who package them into systems for use in homes,
offices and retail vending establishments to produce purified drinking
water. The Company is registered with the United States Food and Drug
Administration for the manufacture and sale of certain membrane
sepralators used in biological preparations.
Beginning in December 1985, the Company funded the start-up of
Poretics Corporation for the development, manufacture, and sale of
polycarbonate track-etched membrane and the hardware for use in a
variety of laboratory and medical diagnostic applications. The Company
also manufactures silver microfiltration membranes and ceramic
microfilters used in the laboratory. Use of the silver membrane in
normal filtration will neither kill bacteria nor cause them to grow,
permitting use of this separation process to count bacteria by
collecting them on the membrane. Numerous applications exist for the
Company's microfilters because of unique features, including use in air
monitoring and in laboratory procedures for cancer and other research.
Filters: The Company markets replaceable depth cartridge filters,
pleated cartridge filters, and rolled cartridge filters. The depth
cartridge filters consist of a matrix of thermally-bonded polypropylene
blown microfibers. The structure of these fibers allows particles to be
trapped throughout the depth of the cartridge filter rather than simply
on its surface, enhancing the efficiency of the filtration process. The
pleated cartridge filters use either a specially processed sheet of
blown polypropylene microfibers or microporous membranes and use surface
filtration to act as a very selective filter. Rolled cartridge filters
use media similar to pleated filters in a semicrossflow configuration,
for enhanced filtration in specialized applications. Cartridge filters
are manufactured in a range of pore sizes and particulate retention
ratings. As a result of retention of particles in the filters,
cartridge filters are typically replaced at intervals of eight hours to
four weeks.
The Company markets ceramic cartridge filters for microfiltration
and particulate filtration. The ceramic cartridge filters operate
similar to the pleated cartridge filters in that particles are trapped
on the surface. Ceramic cartridge filters are used to sterilize
pharmaceutical solutions and are used in laboratory applications, where
many analytic and diagnostic procedures require purification or
sterilization.
The Company also markets separation elements and equipment used in
coalescing filtration, a process distinct from crossflow and normal
filtration, which separates different liquids based on their density and
adsorption differences. This process can reduce concentrations of
contaminants of several percent to only a few parts per million.
Applications of coalescing filtration include removal of contaminants
from compressed air and gas lines, dewatering of solvents and jet fuel,
and removal of trace oil from waste water prior to disposal.
Ion Exchange and Chromatography Equipment: The Company markets
equipment using ion exchange technology. Ion exchange plastic beads and
selected polymer gels are utilized to preferentially adsorb ionized and
charged material from a fluid stream. After the ion exchange beads have
adsorbed a certain amount of material, they must be regenerated,
typically with acid or caustic, or in the case of chromatography with a
selected fluid to strip off the adsorbed material. The most used ion
exchange process is for water softening where the ions of calcium and
magnesium are replaced with sodium to reduce soap usage, improve boiler
operation and improve cleaning. The Company is a leader in the
manufacture of the controllers and valves used to effect softening.
Another ion exchange application is to polish ultrapure water for
electronics manufacture and high pressure boiler feed. Chromatography
is primarily used to purify biotech fluids and food proteins.
Distillation Equipment: The Company markets distillation and
related water purification equipment used primarily in the laboratory
and pharmaceutical industries. Distillation, which involves the
condensation of steam from boiling water, was one of the first
technologies used to purify water. The Company's distillation product
lines range from laboratory stills to elaborate 2000-gallon-per-hour
multi-stage purifiers.
Ozonation Equipment: The Company markets equipment to generate
ozone from electricity using corona discharge. Ozone is becoming
increasingly important as a bactericide and water purifier because it
kills bacteria, virus and giardia cysts 10 to 300 times faster than
chlorine.
Ozone is also effective in oxidizing trace organic materials in
water which are precursors of the carcinogenic trihalomethanes. Ozone
can also be used to purify solvent-contaminated groundwater and is often
used to de-color water and waste water.
Pumps, Valves and Flow Control Devices: The Company markets a
line of multi-stage centrifugal pumps. These pumps were developed by
the Company to meet the need for dependable high pressure pumps and are
available in 60 standard sizes with flows ranging from 3 gallons per
minute to 500 gallons per minute and pressure capabilities from
25 pounds per square inch (psi) to 500 psi. The pumps are capable of
operating in series to obtain 1000 psi for seawater desalting and other
high pressure applications.
The Company markets two types of chemical-resistant, air-operated
pumps used in both the chemical and electronics industries. These
unique pumps are constructed of Teflon PTFE or polypropylene materials
making them resistant to acids, caustics, solvents and numerous other
aggressive chemicals.
The Company markets a dry chemical feeder system to sanitize well
water and reduce iron and sulfur odors, and also markets the pellets
used in the feeder.
The Company markets totalizing flow meters and electronic
controllers made of corrosion resistant Noryl plastic, as well as a line
of Teflon PTFE fluid control products including valves, fittings and
flow meters used in the electronics, pharmaceutical and chemical
industries. The PTFE is molded and machined into unique shapes to
provide extremely chemical resistant high temperature parts.
The acquisition of Lakewood Instruments brings to the Company a
line of analog and digital instrumentation which strengthens and
broadens corporate offerings to the chemical water treatment and high
purity water industries. Lakewood manufactures conductivity, pH, ORP,
chlorine and specific ion sensors, analyzers and controllers, which
offer unique synergies with Autotrol's flow-based controls, enabling
chemical water treatment companies to offer a comprehensive line of
products for cooling tower and boiler water treatment from a single
source. Lakewood is also developing new local operating network (LON)
communications and data acquisition capabilities, which allow networking
multiple sensors to an individual control/display device using standard
telephone cable.
Machines and Systems: The crossflow and normal filtration
machines manufactured by the Company are comprised of one or more
sepralators, cartridge filters, pumps, valves, controls, transformers,
heat exchangers, pipes and a steel frame on which the components are
mounted. The size and number of sepralators and filters can vary
greatly. Pumps, pipes and frames of various sizes can be combined and
configured to accommodate the sepralators or filters required for
various fluid handling or separation tasks.
The systems sold by the Company are comprised of one or more
machines or pieces of equipment designed and manufactured by the Company
as well as ancillary equipment, such as prefilters and postfilters, ion
exchange equipment, ozonator equipment, additional pumps, heat
exchangers and holding tanks. The type, size and number of machines and
the ancillary equipment included in a system will vary with the nature
and size of the fluid separation task.
The Company is registered with the United States Food & Drug
Administration as a Class II medical device manufacturer for certain of
its reverse osmosis machines, as is required to supply water
purification equipment for use in artificial kidney dialysis.
The following table shows the percentage of net sales during the
past five years attributable to the Company's fluid processing and
handling equipment compared to its replaceable components:
Year Ended Replaceable
December 31 Equipment1 Components2
1994 60% 40%
1993 60% 40%
1992 60% 40%
1991 60% 40%
1990 63% 37%
1 Equipment includes: (i) sepralators, filter elements, ion
exchange resin and filter cartridges sold with machines, (ii)
pumps, controls, instruments, valves, fittings, chemicals, and
other ancillary equipment sold with systems and (iii) pumps,
control valves, instruments and machines sold separately.
2 Replaceable components include only those sepralators, coalescer
and dielectric elements, cartridges, membranes, filters and other
components sold by the Company as replacements for its machines,
systems and products, or as replaceable components for products
manufactured by others. They do not include those components
originally sold as parts of new machines or systems manufactured
by the Company. Sales of components and replacement parts
provide the Company with a relatively stable and continuing
source of revenue.
Sales and Marketing
The Company markets its custom machines and systems through its
direct sales force. The Company's standard products are marketed to a
network of independent distributors with the help of Company district
managers. These distributors provide worldwide installation service and
stocking of a wide range of the Company's standard products. Some sales
are made directly to certain of the Company's largest customers and to
other manufacturers of filtration equipment and systems.
The Company's marketing activities include appearances at trade
shows, direct mail campaigns, advertisements in professional and trade
journals and appearances before professional organizations. The Company
participates with its customers in planning the systems in which its
products are to be used, particularly if new applications are involved.
In some cases, the sale of a system designed for a particular customer
may result from an engineering and service relationship which has
extended over several years.
Research and Development
Research and development activities emphasize product development
and applied research, with the goal of developing proprietary products.
Such expenditures totaled $7,174,000 in 1994, $6,795,000 in 1993, and
$5,902,000 in 1992. The Company anticipates that research and
development expenditures in 1995 will be similar to the 1994 level as a
percent of sales.
Patents and Trademarks
The Company has been granted domestic and certain foreign
trademarks on numerous product names, and on its logo-types. The
Company holds domestic and foreign patents on certain of its filter
media, filters, controlling valves, machine designs and other products.
Although the Company believes that its patents have value, the Company's
business is not dependent on any patent or group of related patents.
The Company considers its technological position to be based primarily
on its proprietary manufacturing methods, innovative engineering and
marketing expertise.
Employees
As of December 31, 1994, the Company employed 904 persons,
including 166 holding engineering or technical degrees.
Competition
The Company experiences competition from a variety of sources with
respect to virtually all of its products, although the Company knows of
no single entity that competes with it across the full range of its
products and systems. Competition in the markets served by the Company
is based on a number of factors, which may include price, technology,
applications experience, know-how, availability of financing,
reputation, product warranties, reliability, service and distribution.
With respect to the Company's membrane and related water treatment
equipment business activity, there are a number of companies, including
several sizable chemical companies, that manufacture membranes, but not
equipment. There are numerous smaller companies, primarily fabricators,
that build water treatment and desalination equipment, but which
generally do not have their own proprietary membrane technology. A
limited number of companies manufacture both membranes and equipment.
In ozone and distillation equipment, there are both large and small
competitors with no single dominant competitor. In water softener
controls and valves, the Company has three primary and numerous
secondary competitors. Some competitors sell only controller valves and
some sell complete softeners. The Company has numerous competitors in
its conventional water treatment and filtration products business
activities.
With respect to the Company's disposable filter and lab products,
two companies, Pall and Millipore, dominate the industry with several
smaller companies competing in selected product lines.
With respect to the Company's pump and fluid handling products,
there are numerous competitors of larger size and with greater resources
than the Company. Some competitors have significantly broader product
lines than the Company.
The Company is unable to state with certainty its relative market
position in all aspects of its business. Many of its competitors have
financial and other resources greater than those of the Company.
Raw Materials
The principal raw materials used by the Company are various
plastic materials including polyvinyl chloride, polypropylene, Noryl
PPO, cellulose acetate, polycarbonate, polyester, polysulfone, and PTFE;
ceramic and glass materials, stainless steel, steel, brass, copper,
titanium, silver and various synthetic materials, all of which are
normally available from sources within the continental United States.
Most raw materials used by the Company are available from multiple
sources of supply. A limited number of materials are proprietary
products of major chemical companies which, if not available, would have
a material effect on the Company's sales and profits. The Company
believes it could find substitutes for these materials if they should
become unavailable, but has no assurance that the substitute would
perform as well or be priced as favorably.
To date, the Company has experienced no difficulty in securing any
of its needed raw materials and components.
Customers
No one customer accounted for 10 percent or more of the Company's
consolidated revenue in 1994, 1993 or 1992.
Backlog
The dollar amount of the Company's backlog of orders considered to
be firm at December 31, 1994, was $15.7 million. The comparable backlog
at December 31, 1993, was $14.8 million. The Company expects that
nearly all orders included in the backlog at December 31, 1994, will be
filled during the 1995 fiscal year. The Company does not believe that
its backlog at any time is necessarily indicative of annual sales. The
business of the Company is not subject to significant seasonal
variations.
Governmental Regulation
Certain applications of the Company's reverse osmosis and
ultrafiltration products and distillation equipment are subject to
governmental regulation. Systems used for fractionation of cheese whey
for human consumption are subject to regulation by the United States
Department of Agriculture. Reverse osmosis, ultrafiltration and
distillation systems used in medical applications, particularly the
systems used in artificial kidney dialysis equipment and pharmaceutical
water for injection, are subject to regulation by the United States Food
and Drug Administration. Ultrafiltration and microfiltration products
used for biological separations are subject to regulation by the United
States Food and Drug Administration.
To date, compliance with federal, state and local provisions
relating to the protection of the environment has had no material effect
upon the capital expenditures, earnings or competitive position of the
Company.
Foreign Operations
Substantially all of the Company's operations and assets are
located in the United States. The Company has sales offices and
distribution facilities in France, Thailand, Switzerland, Hong Kong,
Japan, Australia, Singapore and Indonesia. Limited assembly is
conducted in Europe and Asia. The profitability of domestic and foreign
sales is substantially equal. Sales to Canada are made on the same
trade terms as are available to U.S. customers.
Large export sales are made on the basis of confirmed irrevocable
letters of credit or time drafts to selected customers in U.S. dollars.
Therefore, the Company believes that problems of currency fluctuation or
political and economic stability do not constitute substantial risks.
See Note 12 of Notes to Consolidated Financial Statements for a
breakdown of the Company's foreign operations and export sales by
geographic area.
ITEM 2. PROPERTIES
The executive offices and principal manufacturing facilities of
the Company are located in a modern facility in Minnetonka, Minnesota, a
suburb of Minneapolis.
A summary of the Company's main operating facilities is as
follows:
Location Status Size Function
Minnetonka, MN Owned 175,000 sq ft Sales, Manufacturing,
Warehouse
Milwaukee, WI Leased 101,000 sq ft Sales, Manufacturing,
Warehouse
Phoenix, AZ Owned 50,000 sq ft Sales, Manufacturing,
Warehouse
Phoenix, AZ Leased 25,400 sq ft Sales, Manufacturing,
Warehouse
Rockland, MA Leased 38,000 sq ft Sales, Manufacturing,
Warehouse
Syracuse, NY Owned 50,000 sq ft Manufacturing, Warehouse
Upland, CA Leased 22,000 sq ft Sales, Manufacturing,
Warehouse
Hopkins, MN Leased 7,800 sq ft Warehouse
Livermore, CA Leased 6,900 sq ft Sales, Manufacturing,
Warehouse
Emmetsburg, IA Leased 8,800 sq ft Manufacturing
Bryan, TX Owned 3,000 sq ft Manufacturing, Warehouse
Le Mee, France Owned 22,000 sq ft Sales, Warehouse
Neuchatel, Leased 4,300 sq ft Sales, Warehouse
Switzerland
Adelaide, Leased 11,000 sq ft Sales, Warehouse
Australia
Total Owned 300,000 sq ft
Total Leased 225,200 sq ft
Total Owned and Leased 525,200 sq ft
In 1992, the Company purchased a 50,000-square-foot sales,
manufacturing and warehouse facility in suburban Phoenix, Arizona. The
facility houses the operation of the Company's OREC subsidiary, as well
as manufacturing operations for silver membrane and ceramic
microfilters.
The current manufacturing facilities are adequate for near-term
operations, however additional plant and office capacity may be required
in Minnetonka as early as 1995. In addition, the Company leases small
amounts of space in Thailand, Japan, California, Hong Kong, Singapore,
England, and Indonesia that are used primarily for sales activities.
ITEM 3. LEGAL PROCEEDINGS
The Company is currently involved in several lawsuits incidental
to its business. Management does not believe that any of the lawsuits
will have a material adverse effect on the Company's financial position
or results of operations.
Autotrol's rotating biological contactor assemblies (the "RBC's")
were a product which Autotrol discontinued producing and selling in
1982. Currently there are no performance claims pending against the
Company with respect to the RBC's, and, as of December 31, 1994, the
Company has reserves to cover potential future liability with respect to
the RBC's.
The Securities & Exchange Commission informed Autotrol in 1993,
prior to the acquisition by Osmonics, that it was conducting an informal
inquiry regarding the previously reported embezzlement by a former
employee of Autotrol's French subsidiary and Autotrol's internal control
procedures in connection therewith. Such an inquiry was not an
indication by the Commission or its staff that any violations of law
occurred. The Company does not believe it will experience any loss with
respect to this inquiry, and had no indication during 1994 that the
inquiry was continuing.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
"Common Stock Data," and "Notes to Consolidated Financial
Statements," pages 19-23 of the Annual Report to Shareholders, are
incorporated herein by reference. As of March 6, 1995 there were
2,218 shareholders of record.
The Company has not paid cash dividends on its common shares. The
Board of Directors currently intends to retain its earnings for the
expansion of the Company's business. The Company has issued promissory
notes which contain a covenant limiting the payment of dividends to
shareholders. At December 31, 1994, approximately $21,744,000 of
retained earnings was restricted under this covenant.
ITEM 6. SELECTED FINANCIAL DATA
"Selected Financial Data," page 26 of the Annual Report to
Shareholders, is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," pages 24 and 25 of the Annual Report to
Shareholders, is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following consolidated financial information of the Registrant
and its subsidiaries, included in the Annual Report to Shareholders, is
incorporated herein by reference:
Page(s)
Consolidated Statements of Income . . . . . . 16
Consolidated Balance Sheets . . . . . . . . . 17
Consolidated Statements of Cash Flows . . . . 18
Consolidated Statements of Changes in
Shareholders' Equity . . . . . . . . . . . 19
Independent Auditors' Report . . . . . . . . 23
Notes to Consolidated Financial Statements . . 19-23
Quarterly Income Data . . . . . . . . . . . . 27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers of the Registrant
Officer
Name and Age Position with Company Since
D. Dean Spatz (50) President and Chairman 1969
of the Board
Ruth Carol Spatz (50) Secretary 1969
Howard W. Dicke (57) Vice President Human Resources 1978
and Corporate Development,
and Treasurer
L. Lee Runzheimer (52) Chief Financial Officer and 1988
Vice President Administration
James J. Carbonari (53) Vice President Sales & Marketing 1989
James W. Detert (36) Vice President Operations 1990
Kenneth E. Jondahl (38) Vice President International 1991
Andrew T. Rensink (38) Vice President Technology 1991
All of the executive officers, except Messrs. Carbonari, Detert,
Jondahl, and Rensink, have been officers of the Company for more than
five years. Mr. Carbonari joined the Company in 1989 in his present
position. Previously, he was employed as Vice President of the Day
Division of Carter Day Company. Mr. Detert joined the Company in 1986
as Assistant to the President with responsibilities in the marketing
area, was promoted to Vice President Technology in January 1990 and was
appointed Vice President Operations in February 1991. Mr. Jondahl
joined the Company in 1981 as an Application Engineer. Since then he
has served as a Regional Sales Manager, Dairy Market Specialist, General
Manager of Osmonics Asia/Pacific, General Manager of Osmonics Europa,
Marketing Manager and International Sales Manager. He was promoted to
Vice President International in April 1991. Mr. Rensink joined the
Company as Vice President Technology in September 1991. Prior to that
he had been a plant manager and manufacturing manager for Mantaline, an
elastomeric extrusion company. Previously he held various management
positions in both engineering and manufacturing in several General
Electric business units. All executive officers are elected annually
by, and serve at the direction of, the Board of Directors.
D. Dean Spatz and Ruth Carol Spatz are husband and wife.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by
reference to the definitive Proxy Statement for the Company's 1995
Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by
reference to the definitive Proxy Statement for the Company's 1995
Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by
reference to the definitive Proxy Statement for the Company's 1995
Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON
FORM 8-K
(a) (1) Financial Statement
The consolidated financial statements of the
Registrant and its subsidiaries, included in the
Annual Report to Shareholders, are incorporated by
reference in Item 8, and are also incorporated herein
by reference.
(a) (2) Financial Statement Schedules
Reports of Independent Public Accountants on
Supplemental Schedules to the Consolidated Financial
Statements.
Valuation and qualifying accounts.
Schedules not listed above have been omitted because
they are either not applicable, not material or the
required information has been given in the financial
statements or in the notes to the financial
statements.
(a) (3) Exhibits
(2) Agreement and Plan of Merger dated as of
April 15, 1993, as amended, among Osmonics,
Autotrol and Autotrol Acquisition Subsidiary.
(Incorporated herein by reference to Exhibit 2
to the Registrant's Registration Statement on
Form S-4, File No. 33-63098.)
(3)A. Certificate of Incorporation of the
Registrant, as amended. (Incorporated herein
by reference to Exhibit 3.1 to Registration
Statement on Form S-2, File No. 33-336.)
Certificate of Amendment. (Incorporated
herein by reference to Exhibit (3)A on Form
10-K for fiscal year ended December 31, 1987,
File No. 0-8282.)
B. By-Laws of the Registrant. (Incorporated
herein by reference to Exhibit 3.2 to
Registration Statement on Form S-2, File
No. 33-336.)
(4)A. Note Purchase Agreement dated July 12, 1991.
(Incorporated herein by reference to Annual
Report on Form 10-K for fiscal year ended
December 31, 1991.)
(10)A.* 1993 Stock Option Plan and related form of
stock option agreement. (Incorporated herein
by reference to Annex C of the Registrant's
Joint Proxy Statement/Prospectus dated
September 10, 1993.)
B. Stock Option Agreement with Michael L. Snow,
Director. (Incorporated herein by reference
to Annual Report on Form 10-K for fiscal year
ended December 31, 1993.)
C.* 1983 Stock Option Plan and related form of
stock option agreement. (Incorporated herein
by reference to Exhibit 10.2 to Registration
Statement on Form S-2, File No. 33-336.)
D. 1995 Employee Stock Purchase Plan.
(Incorporated herein by reference to the
Registrant's Proxy Statement dated
March 27, 1995.)
E.* 1995 Director Stock Option Plan.
(Incorporated herein by reference to the
Registrant's Proxy Statement dated
March 27, 1995.)
* Denotes Executive Compensation Plan.
(13) 1994 Annual Report to Shareholders. (Only
those portions incorporated herein by
reference shall be deemed filed with the
Commission.)
(21) Subsidiaries of the Registrant.
(23) Consent of Deloitte & Touche LLP.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended December 31, 1994.
SIGNATURES
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.
OSMONICS, INC.
By /s/ D. Dean Spatz
D. Dean Spatz, President
Dated: March 30, 1995
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 dates
indicated:
Signatures Title Date
/s/ L. Lee Runzheimer Chief Financial Officer February 24, 1995
L. Lee Runzheimer and Vice President
Administration (Principal
Finance and Accounting Officer)
/s/ Howard W. Dicke Vice President Human February 24, 1995
Howard W. Dicke Resources and Corporate
Development, and Treasurer
/s/ Ruth Carol Spatz Director February 27, 1995
Ruth Carol Spatz
/s/ Michael L. Snow Director February 24, 1995
Michael L. Snow
/s/ Ralph E. Crump Director February 27, 1995
Ralph E. Crump
/s/ Verity C. Smith Director February 27, 1995
Verity C. Smith
Director
Charles W. Palmer
/s/ D. Dean Spatz President, Chairman of February 27, 1995
D. Dean Spatz the Board and Director
(Principal Executive Officer)
<TABLE>
OSMONICS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except share data)
<CAPTION>
Year ended December 31,
1994 1993 1992
<S> <C> <C>
Sales $ 96,180 $ 89,043 $ 84,017
Cost of sales 52,841 49,272 47,643
Gross profit 43,339 39,771 36,374
Operating expenses:
Selling, general and administrative 23,480 21,839 22,344
Research, development and engineering 7,174 6,795 5,902
Embezzlement loss/(recovery) (Note 4) - (562) 2,342
Merger and transition expenses - 1,644 -
30,654 29,716 30,588
Income from operations 12,685 10,055 5,786
Other income (expense), net:
Interest income 1,543 1,279 925
Interest expense (747) (943) (952)
Other 142 401 (183)
938 737 (210)
Income from continuing operations
before income taxes and cumulative
effect of accounting change 13,623 10,792 5,576
Income taxes (Note 10) 3,668 2,897 2,321
Income from continuing operations
before cumulative effect of
accounting change 9,955 7,895 3,255
Discontinued operations (Note 3)
Operating loss - - (526)
Loss on disposal - - (1,700)
Loss from discontinued operations (Net of
income taxes of $1,147) - - (2,226)
Income before cumulative
effect of accounting change 9,955 7,895 1,029
Cumulative effect of accounting change
(Note 10) - - 420
Net income $ 9,955 $ 7,895 $ 1,449
Per share data:
Income from continuing operations before
cumulative effect of accounting change $ 0.79 $ 0.63 $ 0.26
Loss from discontinued operations - - (0.17)
Cumulative effect of accounting change - - 0.03
Net income $ 0.79 $ 0.63 $ 0.12
Average shares outstanding 12,668,000 12,624,000 12,561,000
</TABLE>
<TABLE>
OSMONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 9,453 $ 9,710
Marketable securities (Note 5) 27,623 19,874
Trade accounts receivable, net of allowance for doubtful
accounts of $1,259 in 1994 and $1,282 in 1993 15,536 13,655
Inventories (Note 6) 19,428 15,838
Deferred tax assets (Note 11) 3,284 3,234
Recoverable income taxes (Note 10) - 321
Notes receivable - 667
Other current assets 1,303 1,418
Total current assets 76,627 64,717
Property and equipment, at cost
Land and land improvements 1,951 1,937
Buildings 12,300 12,056
Machinery and equipment 33,574 30,527
47,825 44,520
Less accumulated depreciation and amortization (25,262) (22,564)
22,563 21,956
Other assets, net of accumulated amortization of
intangible assets of $315 in 1994 and $848 in 1993 2,845 2,153
Total Assets $102,035 $ 88,826
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 6,459 $ 5,714
Notes payable and current portion of long-term debt (Note 8) 744 779
Accrued compensation and employee benefits 4,154 3,787
Reserve for VAT taxes payable (Note 4) - 1,605
Reserve for discontinued operations (Note 3) 2,088 2,212
Other accrued liabilities (Note 7) 7,187 5,339
Total current liabilities 20,632 19,436
Long-term debt (Note 8) 14,050 13,913
Deferred compensation 651 729
Deferred income taxes (Note 11) 2,913 2,638
Other liabilities 38 40
Shareholders' equity
Common stock, $0.01 par value
Authorized -- 20,000,000
Issued -- 1994: 12,701,041 and 1993: 12,637,473 127 126
Capital in excess of par value 21,000 20,321
Retained earnings 41,408 31,453
Unrealized gain on marketable securities (Note 5) 1,038 -
Cumulative effect of foreign currency
translation adjustments 178 170
Total shareholders' equity 63,751 52,070
Total liabilities and shareholders' equity $102,035 $ 88,826
</TABLE>
<TABLE>
OSMONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<CAPTION>
Year ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Cash flows from operations:
Net income $ 9,955 $ 7,895 $ 1,449
Non-cash items included in net income:
Depreciation and amortization 3,048 3,080 3,298
Deferred income taxes (341) 281 (722)
Cumulative effect of accounting change - - (420)
Gain on sale of land and investments - (499) (88)
Provision for deferred compensation - 72 657
Reserve for VAT tax (1,605) (1,030) 822
Accounts receivable (1,881) 181 (1,745)
Inventories and other current assets (2,487) 2,483 2,651
Accounts payable and accrued liabilities 2,636 209 441
Reserves for losses of discontinued operations - (471) (541)
Net cash provided (used) by operations 9,325 12,201 5,802
Cash flows from investing activities:
Purchase of investments (17,467) (15,253) (5,965)
Maturities and sales of investments 11,225 8,680 3,261
Purchase of property and equipment (3,488) (3,257) (4,150)
Proceeds from sale of subsidiary - 613 509
Other 151 (111) 155
Net cash provided (used) for investing
activities (9,579) (9,328) (6,190)
Cash flows from financing activities:
Reduction of long-term debt (Note 8) (521) (552) (974)
Notes payable and current debt (Note 8) 282 (376) (22)
Issuance of common stock 680 295 417
Net cash provided (used) in financing
activities 441 (633) (579)
Effect of exchange rate changes on cash (444) 143 148
Increase (decrease) in cash and cash equivalents (257) 2,383 (819)
Cash and cash equivalents - beginning of year 9,710 7,327 8,146
Cash and cash equivalents - end of year $ 9,453 $ 9,710 $ 7,327
</TABLE>
<TABLE>
OSMONICS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share data)
<CAPTION>
Unrealized
Capital Gain on Cumulative
in Excess Retained Marketabe Translation
Common Stock Par Value Earnings Securities Adjustment
Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance - January 1, 1992 12,357,721 $ 124 $ 17,850 $ 23,874 $ - $ 102
Net income - - - 1,449 - -
Translation adjustment - - - - - 31
Employee stock purchase
plans 83,978 1 416 - - -
Stock dividend 166,008 1 1,760 (1,765) - -
Balance - December 31, 1992 12,607,707 126 20,026 23,558 - 133
Net income - - - 7,895 - -
Translation adjustment - - - - - 37
Employee stock purchase
plans 29,766 - 295 - - -
Balance - December 31, 1993 12,637,473 126 20,321 31,453 - 170
Net income - - - 9,955 - -
Translation adjustment - - - - - 8
Unrealized gain on
marketable securities - - - - 1,038 -
Business combinations
(Note 2) 7,000 - 102 - - -
Employee stock purchase
plans 56,568 1 577 - - -
Balance - December 31, 1994 12,701,041 $ 127 $ 21,000 $ 41,408 $ 1,038 $ 178
</TABLE>
<TABLE>
SELECTED FINANCIAL INFORMATION
(In thousands, except per share amounts)
<CAPTION>
INCOME DATA:
Year ended December 31,
1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
Sales $96,180 $89,043 $84,017 $77,253 $74,285
Income from continuing
operations 9,955 7,895 3,255 5,371 6,947
Income from continuing
operations per share $0.79 $0.63 $0.26 $0.43 $0.56
Average shares
outstanding 12,688 12,624 12,561 12,491 12,390
BALANCE SHEET DATA:
Total assets $102,035 $88,826 $82,874 $81,102 $77,440
Long-term debt 14,050 13,913 14,630 15,715 13,761
</TABLE>
<TABLE>
QUARTERLY INCOME DATA
(In thousands, except per share amounts)
Quarterly Income Data - 1994
<CAPTION>
Quarter Ended
March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Sales $23,534 $24,843 $23,383 $24,420
Gross profit 10,478 10,916 10,499 11,446
Net income 2,371 2,503 2,289 2,792
Net income per share $0.19 $0.20 $0.18 $0.22
</TABLE>
<TABLE>
Quarterly Income Data - 1993
<CAPTION>
Quarter Ended
March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
Sales $22,821 $21,981 $21,683 $22,558
Gross profit 9,940 9,853 9,581 10,397
Net income 1,934 1,957 1,779 2,225
Net income per share $0.15 $0.16 $0.14 $0.18
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
1. Summary of Significant Accounting Policies
The consolidated financial statements include the accounts of
Osmonics, Inc. and its wholly and majority owned subsidiaries (the
Company). Significant intercompany accounts and transactions have
been eliminated.
Sales are recorded when the product is shipped.
Inventories are stated at lower of cost (FIFO method) or market for
all operations except the Autotrol subsidiary domestic operations
which have historically valued inventory on the LIFO method.
Depreciation and amortization of property and equipment are provided
on the straight-line method over estimated lives of 3 to 40 years.
Deferred income taxes have been provided for income and expenses
which are recognized in different accounting periods for financial
reporting purposes than for income tax purposes.
Tax credits are recognized as a reduction of income taxes in the
year the credits are utilized.
The Company accrues for the estimated cost of warranty and start-up
obligations at the time revenue is recognized.
The excess of cost over the fair market value of assets acquired in
acquisitions is amortized over not more than 40 years. Other
intangibles are carried at cost and amortized using the
straight-line method over their estimated lives of 5 to 17 years.
Net income per share is based on the weighted average number of
shares outstanding during each year. The exercise of stock options
would not have a material effect on net income per share.
The Company considers highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents.
Certain reclassifications have been made to prior year amounts to
conform with current year presentations.
2. Business Acquisitions
On November 18, 1994, the Company acquired the assets including
receivables, inventory and equipment of Lakewood Instruments, Inc.
The Company also obtained noncompetition agreements from two
previous Lakewood directors. The purchase method of accounting was
used.
On January 1, 1994, the Company acquired the 18% minority
shareholder interest of its majority-owned subsidiary, Poretics.
The Company owns 100% of Poretics' shares after the transaction.
The purchase method of accounting was used.
These acquisitions had no significant pro forma effect on the
Company's sales, net income, or net income per share in 1994.
On October 15, 1993, Autotrol Corporation (Autotrol) merged with
Osmonics through an exchange of 0.77 of a share of Osmonics common
stock for each share of Autotrol common stock. The exchange ratio
and share amounts, when revised to reflect Osmonics' 3-for-2 stock
split on March 21, 1994, equate to an exchange of 1.155 shares of
Osmonics common stock for each of the 3.0 million shares of Autotrol
common stock. The transaction was accounted for as a pooling-of-
interests. Autotrol's principal business is the manufacture and
marketing of controls, valves and measuring devices related to water
conditioning.
The historical financial statements of the Company have been
restated to give effect to the acquisition as though the companies
had operated together from the beginning of the earliest period
presented. Before pooling, results for the first nine months of
1993 for Osmonics were net sales of $41,213 and net income of
$3,678, and for Autotrol were sales of $25,272 and net income of
$2,076. Sales for the year ended December 31, 1992 for Osmonics
were $50,541 and net income was $4,528. Sales for the year ended
December 31, 1992 for Autotrol were $33,476, with a net loss of
$3,900.
3. Discontinued Operations
In September 1982, Autotrol sold certain of its Wastewater Treatment
Group (Wastewater) assets and liabilities. Autotrol completed
contracts in progress at the date of sale and discontinued all
operations other than settling warranties, disputed claims and
litigation. In subsequent years, Autotrol incurred charges
significantly in excess of estimated amounts provided in 1982. In
1992, Autotrol recognized additional expenses of $1,403, net of tax
of $722, to reserve for potential litigation claims related to the
Wastewater business. Included in the charges was the effect of
Autotrol's decision to terminate its claims-filed insurance policy
which had been considered in prior years' provisions. In the
opinion of management, based on the advice of its legal counsel,
future claims related to the discontinued Wastewater business will
be resolved without any additional material adverse impact on the
Company's consolidated financial position.
In October 1992, Autotrol entered into an agreement to sell
essentially all of the equipment, intangible assets and the business
of its wholly owned subsidiary, Aquatrol Corporation (Aquatrol),
which represented a separate line of business selling electronic
systems for monitoring waste and wastewater treatment systems.
Proceeds from the sale of Aquatrol were in cash and notes
receivable. The notes receivable have been collected as of
December 31, 1994. The transaction was recorded in 1992 as a
disposal of a segment of business. The loss from the sale of $297,
net of tax of $154, included provisions for other anticipated
expenses.
The operating results of Aquatrol for the final year of operations
were as follows:
Year ended
December 31
1992
Net sales $ 4,725
Cost of sales 3,561
Selling and administrative expense 1,390
Research and development expense 571
Income taxes (271)
Loss from discontinued operations $ (526)
4. Embezzlement
In February 1993, Autotrol, prior to acquisition by Osmonics,
discovered that a former employee of its French subsidiary had been
embezzling funds for several years. The funds were embezzled
through the issuing of fraudulent checks by the former employee and
falsifying of value added tax (VAT) returns and diverting the funds
received from the French government.
Autotrol's investigation of the embezzlement revealed that
approximately $4,750 was embezzled from 1988 to 1992. Of this
total, $2,342 relates to 1992. The prior years' financial
statements reflect embezzlement losses in the year the embezzlement
initially occurred. The Company had net recoveries of $562 in 1993
from insurance and reductions in VAT payable.
5. Marketable Securities
Effective January 1, 1994, the Company adopted Statement of
Financial Accounting Standard No. 115 (SFAS 115), "Accounting for
Certain Investments in Debt and Equity Securities," which requires
the Company to report certain marketable securities at fair market
value. SFAS 115 requires that unrealized gains and losses on
available-for-sale securities be excluded from income, but included
in a separate component of shareholders' equity, net of income tax.
The Company considers all of its marketable securities available-
for-sale. Marketable securities at December 31, 1994 consist of the
following:
<TABLE>
<CAPTION>
Fair
Amortized Unrealized Unrealized Market
Cost Gain (Loss) Value
<S> <C> <C> <C> <C>
U.S. government securities
0-5 year maturity $ 6,479 $ - $ (318) $ 6,161
6 year or greater maturity 1,748 - (101) 1,647
Municipal bonds
0-5 year maturity 1,977 100 - 2,077
6 year or greater maturity 6,348 28 (374) 6,002
Corporate debt securities and other
0-5 year maturity 3,764 15 - 3,779
6 year or greater maturity 599 - (44) 555
Equity securities 5,104 2,319 (21) 7,402
Total before tax effect $26,019 $ 2,462 $ (858) $27,623
Deferred tax effect of
unrealized (gain) loss (869) 303
Unrealized gain (loss) on marketable
securities $1,593 $ (555)
</TABLE>
Market values are based on quoted market prices.
In 1994, proceeds from sales of available-for-sale securities were
$2,846. There were no material gross realized gains or losses on
these sales. Realized gains and losses are determined on the
specific identification method.
In 1993, marketable securities had an amoritized cost of $19,874 and
a market value of $21,817.
6. Inventories
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Finished goods $ 2,578 $ 2,770
Work in process 5,312 3,656
Raw materials 12,187 9,988
20,077 16,414
Less adjustment to reduce
inventories of $3,475 and $3,078
to last-in, first-out method
(See Note 1) (649) (576)
$19,428 $15,838
</TABLE>
7. Other Accrued Liabilities
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
December 31,
1994 1993
<S> <C> <C>
Warranty and start-up $ 1,942 $ 1,921
Professional fees and other accruals 2,377 1,670
Customer deposits 1,007 604
Accrued property taxes, income
taxes and other taxes 1,861 1,144
$ 7,187 $ 5,339
</TABLE>
8. Debt
Long-term debt is as follows:
<TABLE>
<CAPTION> December 31,
1994 1993
<S> <C> <C>
Promissory Notes; interest payable
quarterly at the three month LIBOR
rate plus 80 b.p.; due 1996 through
2001. The interest rate on
December 31, 1994 was 6.05%. $10,000 $10,000
Industrial revenue bonds (IRB's);
interest payable at LIBOR plus 45 to
95 b.p. depending on collateral
deposited with the lender; due in 1997.
The interest rate on December 31, 1994
was 6.20%. 2,800 2,900
Mortgage notes payable to two French
banks; interest payable monthly at PIBOR
plus 40 b.p. The interest rate on
December 31, 1994 was 6.65%. 993 1,028
Term notes payable to municipalities
in varying installments through
October 15, 1995. 421 453
Notes Payable; interest payable annually
and the prime rate; due 1995 through 1999.
The interest rate on December 31, 1994
was 8.5% 341 -
Other notes 239 311
14,794 14,692
Less current portion (744) (779)
$14,050 $13,913
</TABLE>
The IRB debt and mortgage notes payable to French banks are
collateralized by real and personal property of the Company.
The aggregate maturities of outstanding long-term debt are:
1995 - $744; 1996 - $1,681; 1997 - $4,456; 1998 - $1,656;
1999 - $1,656, beyond 1999 - $4,601.
In 1994, the terms of the IRB's were amended providing for all
principal payments to be made in 1997. As a result of this
amendment, $400 of current portion of long-term debt was
reclassified to long-term debt with no effect on cash flows.
The interest rate on the IRB's is determined in part by the amount
of collateral held by the lender. At December 31, 1994, $2,000 of
collateral was held by the lender, resulting in an interest rate of
LIBOR plus 45 b.p. The $2,000 of collateral is included in
marketable securities.
The Company has a $1,000 line of credit with a bank, with interest
at the bank reference rate (8.5% at December 31, 1994) and which
requires a 5% compensating cash balance. The line of credit was
unused at year-end and the $50 compensating balance is included in
the balance of cash and cash equivalents.
The promissory notes contain a covenant which limits the payment of
dividends to shareholders. At December 31, 1994 approximately
$21,744 of retained earnings was restricted under this covenant. In
addition, the promissory notes and IRB debt contain certain
restrictions related to ratios, indebtedness, tangible net worth and
capital expenditures.
Cash payments for interest related to all debts of the Company were
$735; $955; and $1,007; for 1994, 1993, and 1992, respectively.
9. Stock Options
At December 31, 1994, the Company had reserved 121,126 common shares
for issuance to key employees under a 1983 stock option plan.
Options are issued at a price not less than market value on date of
grant and become exercisable over a five-year period, after which
they expire. The following is a summary of activity under the 1983
stock option plan. No additional options can be granted under the
1983 plan.
Year ended December 31,
1994 1993 1992
Options held by employees
at December 31, 121,126 143,850 145,725
Exercise price range on $ 3.63 to $ 3.63 to $ 3.63 to
options held at December 31, $13.50 $13.50 $13.50
Number of options exercised
during the year 22,724 1,875 59,682
Price range of options $ 3.63 to $10.16 to $ 2.96 to
exercised during the year $10.16 $10.16 $ 5.26
Exercisable options held at
December 31, 97,500 83,289 49,066
Exercise price range of $ 3.63 to $ 3.63 to $ 3.63 to
exercisable options $13.50 $13.50 $13.50
The Company also has reserved 299,813 common shares at
December 31, 1994 for issuance to key employees under a 1993 Stock
Option Plan. Options are granted at a price not less than market
value on the date of the grant and become exercisable over a period
of up to ten years, after which they expire. At December 31, 1994,
12,633 options were held by employees under this plan with an
exercise price of $13.67 to $14.50. At December 31, 1993,
2,250 options were held by employees under this plan with an
exercise price of $13.66. During 1994, 187 options were exercised
under this plan at a price of $13.67, and 375 options were
exercisable at a price of $13.67 at December 31, 1994. No options
were exercised during 1993 under this plan and no options were
exercisable at December 31, 1993.
The Company also has an employee stock purchase plan with 45,680 and
79,729 common shares remaining unissued at December 31, 1994 and
1993, respectively. Employees may purchase common shares of the
Company at 85% of market price.
The following is a summary of shares issued under this plan:
1994 1993 1992
Number of shares 34,048 23,380 17,460
Average price per share $12.80 $10.62 $ 9.38
The Company had 500,000 authorized and unissued shares of preferred
stock at December 31, 1994 and 1993.
In 1993 the Company granted a director an option to purchase
45,000 shares of common stock at an exercise price of $12.33 per
share. This option vests over a five-year period.
10. Income taxes
Income tax expense consists of:
<TABLE>
<CAPTION>
Year ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Current:
Federal 3,506 2,632 1,588
State 354 134 168
Foreign 156 (250) 140
Deferred:
Depreciation (229) (157) (216)
Allowance for doubtful
accounts, start-up, warranty,
inventory and other accruals (247) 10 (87)
Discontinued operations 350 524 906
Other (222) 4 (178)
3,668 2,897 2,321
</TABLE>
Cash payments for income taxes were $3,062, $2,935, and $1,872, for
1994, 1993, and 1992, respectively.
A reconciliation of the income taxes computed at the Federal
statutory rate to the Company's income tax expense is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Taxes at Federal rate (35% in 4,768 3,670 1,895
1994 and 34% in 1993 and 1992)
Increase (decrease) resulting from:
State taxes, net of Federal tax
benefit 220 66 85
Foreign Sales Corp. benefit (167) (159) (167)
Tax credits (272) (209) -
Tax exempt interest/dividend
deduction (193) (176) (146)
Effect of foreign affiliates with
different tax rates or net losses (324) (446) 772
NOL and credit carryforwards used (608) (350) -
Nondeductibility of merger costs - 363 -
Other 244 138 (118)
3,668 2,897 2,321
</TABLE>
During 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standard No. 109, "Accounting for
Income Taxes," which requires the Company to adjust its deferred tax
assets and liabilities to reflect current tax rates. Osmonics, Inc.
and its subsidiaries adopted the provisions of SFAS 109 in reporting
its financial results for 1992, prior to the merger of Osmonics,
Inc. and Autotrol Corporation. The result was to reduce previously
recorded deferred income taxes and increase net income by $420,
which was recorded as a cumulative effect of a change in accounting
principle in that year.
Autotrol Corporation and its subsidiaries adopted SFAS 109 in 1993,
prior to the merger of Osmonics, Inc. and Autotrol Corporation. As
a result of the adoption of SFAS 109, Autotrol Corp. increased its
current deferred tax assets from zero to $4,328 and its long-term
deferred tax assets from zero to $14. These increases in deferred
tax assets were accompanied by increases in offsetting valuation
reserves for the same amounts, thus creating no increase or decrease
in income for the year ending December 31, 1993.
As a result of the merger between Osmonics, Inc., and Autotrol Corp.
in 1993, value was created for the deferred tax assets of Autotrol
Corp., due to the deductibility of Autotrol expenses on future
consolidated tax returns. This increased Autotrol Corp.'s equity
value by $2,081 above its previously stated book value prior to the
merger. Income for the year prior to the 1993 merger was restated
by $821 for 1992 to account for this equity increase. The
combination of adopting SFAS 109, and the merger in 1993, resulted
in increased tax expense from continuing operations for Autotrol
Corporation of $384 for the year ended December 31, 1993.
11. Deferred Tax Assets and Liabilities
Temporary differences which give rise to Deferred Tax Assets and
Liabilities are as follows as of December 31:
<TABLE>
<CAPTION>
1994 1993
<S> <C> <C>
Current Assets:
Allowance for doubtful
accounts, start-up, warranty,
inventory and other accruals 3,506 3,044
Net operating loss and credit
carryforwards 335 1,157
Other (30) 458
Less: Valuation allowance (527) (1,425)
Total current deferred assets 3,284 3,234
Noncurrent liabilities:
Depreciation 2.395 2,616
Unrealized gain on marketable
securities 566 -
Other (48) 22
Total non-current deferred
tax liabilities 2,913 2,638
</TABLE>
The Company had outstanding net operating loss carryforwards and tax
credit carryforwards of $633 and $3,403 at December 31, 1994 and
1993, respectively. The carryforwards that have expiration dates
will expire in years ranging from 2004 to 2008.
The valuation reserve decreased by $898 during the year ended
December 31, 1994. This decrease was due mainly to the use of net
operating loss carryforwards and credits during the year, as offsets
against taxable income. The carryforwards outstanding at December
31, 1994 and 1993 have been fully offset by valuation reserves in
those years.
12. Sales and Segment Information
All continuing operations for which geographic data is presented
below are in one principal industry (design, manufacture and
marketing of machines, systems, and components used in the
processing of fluids).
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
Sales to unaffiliated customers from:
United States $ 83,904 $ 77,212 $ 72,455
Foreign operations 12,276 11,831 11,562
Transfers from (to) geographic areas:
United States 6,699 7,139 6,729
Foreign operations (6,699) (7,139) (6,729)
$ 96,180 $ 89,043 $ 84,017
Pretax income from continuing operations:
United States $ 12,311 $ 10,273 $ 7,452
Foreign operations 1,312 519 (1,876)
$ 13,623 $ 10,792 $ 5,576
Identifiable assets:
United States $ 94,504 $ 79,457 $ 75,033
Foreign operations 7,531 9,369 7,841
$102,035 $ 88,826 $ 82,874
NOTE: Transfers are made at market value.
</TABLE>
Sales by United States operations to unaffiliated customers in
foreign geographic areas are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1994 1993 1992
<S> <C> <C> <C>
Asia/Pacific $ 7,460 $ 6,488 $ 6,268
Europe 3,193 2,611 2,692
Rest of the World 6,211 6,470 5,624
$16,864 $15,569 $14,584
</TABLE>
13. Commitments and Contingencies
The Company leases facilities for sales, service or manufacturing
purposes in Minnesota, Wisconsin, Massachusetts, California, Iowa,
Arizona, Switzerland, Australia, Hong Kong, Japan, Singapore,
Indonesia, and Thailand.
Future minimum lease payments on all operating leases of $5,437 are
as follows: 1995 - $1,204; 1996 - $882; 1997 - $669; 1998 - $571;
1999 - $528; and beyond 1999 - $1,583. Rent expense for the past
three years was: 1994 - $1,262, 1993 - $1,463 and 1992 - $1,870,
respectively.
The Company is involved in certain legal actions arising in the
ordinary course of business. In the opinion of management, based on
the advice of legal counsel, such litigation and claims will be
resolved without a material effect on the Company's financial
position or results of operations.
14. Stock Split
On February 18, 1994, the Company approved a three-for-two stock
split in the form of a 50% stock dividend for shareholders of record
March 4, 1994. All shares and per share amounts have been restated
to reflect the stock split.
15. Employee Benefit Plans
The Company has a noncontributory discretionary profit sharing plan
covering certain employees meeting age and length of service
requirements. The Company contributes annually to the plan an
amount established at the discretion of the Board of Directors.
Total expense recognized by the Company under these plans amounted
to $982, $816 and $929 in 1994, 1993 and 1992, respectively.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
(Dollars in thousands, except per share amounts)
As an aid to understanding the Company's operating
results, the following table indicates the percentage of
sales that each income statement item represents, and the
percentage increase or decrease in such items for the
years indicated.
<TABLE>
<CAPTION>
Percentage
Increase
Year ended December 31, (Decrease)
1994 1993 1992 1993 1992
<S> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 8.0% 6.0%
Cost of sales 54.9 55.3 56.7 7.2 3.4
Gross profit 45.1 44.7 43.3 9.0 9.3
Operating expenses:
Selling, general and administrative 24.4 24.5 26.6 7.5 (2.3)
Research, development and engineering 7.5 7.6 7.0 5.6 15.1
Embezzlement loss/(recovery) - (0.6) 2.8 - (124.0)
Merger & transition expenses - 1.9 - - -
31.9 33.4 36.4 3.2 (2.9)
Income from operations 13.2 11.3 6.9 26.2 73.8
Other income (expense), net:
Interest income 1.6 1.4 1.1 20.6 38.3
Interest expense (0.8) (1.1) (1.1) (20.8) (1.0)
Other income (expense) 0.1 0.5 (0.2) (64.6) 319.1
1.0 0.8 (0.2) 27.3 451.0
Income from continuing operations
before income taxes and cumulative
effect of accounting change 14.2 12.1 6.6 26.2 93.5
Income taxes 3.8 3.3 2.8 26.6 24.8
Income from continuing operations
before cumulative effect of
accounting change 10.4 8.9 3.8 26.1 142.5
Discontinued operations
Operating loss - - (0.6) - -
Loss on disposal - - (2.0) - -
Loss from discontinued operations - - (2.6) - -
Income before cumulative
effect of accounting change 10.4 8.9 1.2 26.1 667.2
Cumulative effect of accounting change - - 0.5 - N/A
Net income 10.4% 8.9% 1.7% 26.1 445.0%
</TABLE>
RESULTS OF OPERATIONS
Sales:
Sales for 1994 increased by 8% over 1993 and sales for 1993 increased by
6% over 1992. Sales for all years include both Osmonics and Autotrol,
which was acquired on a pooling-of-interests basis on October 15, 1993.
The Company's sales are composed of capital equipment and replaceable
components. The ratio of equipment sales compared to replaceable
component sales as a percent of total sales remained at 60% in 1994
compared to 60% for both 1993 and 1992. International sales increased
at a slightly slower rate than domestic sales in 1994, due to weaker
markets in Europe and Mexico.
The increase in sales for 1994 was strongly influenced by an increase in
crossflow filtration equipment and systems activity, with lesser
influence from growth in the sales of certain replaceable component
product lines. Osmonics' core product lines showed sales increases of
13% for the year, while Autotrol product sales were flat with 1993. In
1995, Autotrol will begin selling Osmonics products through their
existing sales organization.
The dollar amount of the Company's backlog of orders considered to be
firm at December 31, 1994 was $15,700. The comparable backlog at
December 31, 1993 was $14,800. The Company believes that its backlog at
any time is not necessarily indicative of annual sales. The business of
the Company is not subject to significant seasonal variations.
Selective price increases averaged less than 1% from 1993 to 1994, and
less than 2% from 1992 to 1993.
Gross Margins:
Gross margins for 1994 increased to 45.1% of sales as a result of better
management of costs on system sales, value engineering of equipment,
reduced manufacturing costs on replaceable products and improved plant
utilization rates on the higher sales volume. Gross margins for 1993
increased to 44.7% of sales compared to 43.3% in 1992 for essentially
the same reasons.
Operating Expenses:
Selling, general and administrative expenses in both 1994 and 1993
increased in dollars from the preceding year's level. Increases were
attributable to increased marketing programs and expanded domestic and
international selling efforts. As a percent of sales, the ratio
declined slightly in 1994, as a result of continued cost savings in the
administrative area as we assimilate Autotrol operations into Osmonics.
Research, development and engineering expense increased to $7,174 in
1994, but declined slightly to 7.5% of sales. Research, development and
engineering expense had increased to 7.6% of sales in 1993, compared to
7.0% in 1992. These changes reflect the Company's continued commitment
to product development, including continued strong development efforts
related to filter and softener controls.
Operating expenses for 1992 include embezzlement losses of $2,342 at
Autotrol's French subsidiary. During late 1993, the Company obtained
$562 net recovery of these losses.
During 1993, the Company also incurred $1,644 of merger and transition
expenses related to the acquisition of Autotrol which are non-recurring
in nature, and were not capitalizable in a pooling-of-interests merger.
Other Income (Expense):
During 1994 and 1993, interest income increased due to increasing
interest rates on higher invested balances. Other Income in 1994
includes $325 of currency translation and exchange gains, compared to
$75 of such losses in 1993. Other income in 1993 includes a $295 gain
on the sale of land claimed by a municipality. Other income was also
affected in 1993 and 1992 by the sale of certain short-term investments
at net pretax gains of $204 and $88, respectively. No such net gains
occurred in 1994.
Income Taxes:
The Company's effective tax rates during 1994, 1993, and 1992 were 27%,
27%, and 42%, respectively. The decrease in the effective tax rate in
1994 and 1993, as compared to 1992, is primarily due to the
deductibility of the French embezzlement losses, the use of loss
carryforwards and credits at Autotrol and its subsidiaries, and an
increase in R&D tax credits. The effective tax rate in 1995 is expected
to increase to 31-32% as tax loss carryforwards and credits are
depleted.
Discontinued Operations:
Losses on discontinued operations in 1992 relate to the Aquatrol and RBC
businesses as discussed in Note 3 to the consolidated financial
statements.
Cumulative Effect of Accounting Change:
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," in reporting its
financial results for 1992 (see Note 10 to the consolidated financial
statements). The result was to reduce previously recorded deferred
income taxes and increase net income by $420, which has been recorded as
a cumulative effect of a change in accounting principle.
Liquidity and Capital Resources:
At December 31, 1994, the Company had cash and cash equivalents of
$9,453 and marketable securities of $27,623 versus $9,710 and $19,874,
respectively, at December 31, 1993. The net increase in cash, cash
equivalents and marketable securities resulted primarily from cash flows
generated from operations in 1994 and 1993. Effective January 1, 1994,
the Company adopted Statement of Financial Accounting Standard No. 115
(SFAS) "Accounting for Certain Investments in Debt and Equity
Securities." The effect of SFAS 115 was to increase marketable
securities by $1,604 in 1994. The current ratio increased to 3.7 as of
December 31, 1994 compared to 3.3 as of December 31, 1993, primarily due
to the increased levels of cash and marketable securities.
Net cash provided from operations in 1994, 1993, and 1992 amounted to
$9,325, $12,201, and $5,802, respectively.
The Company's capital expenditures in 1994 were $3,488 compared to
$3,257 in 1993 and $4,150 in 1992. In September 1992, the Company
completed the purchase of a 50,000-square-foot facility in Phoenix,
Arizona for $975, and has relocated the operations of its OREC business
unit to this facility. The Company anticipates that capital
expenditures in 1995 will be somewhat larger than the 1994 level due to
planned capital projects to introduce new products, improve production
processes and expand office automation. A possible building addition is
anticipated in 1995 or 1996.
The Company believes that its current cash and investment 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 1995 and 1996.
The Company has not paid cash dividends on its common shares. The Board
of Directors currently intends to retain its earnings for the expansion
of the Company's business.
Factors Affecting Future Performance:
The Company believes that in most cases it has been and will be able to
increase selling prices in response to increases in the cost of raw
materials on a timely basis.
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," setting forth reporting
requirements for investments in equity securities that have determinable
fair values, and for all investments in debt securities. The Company
adopted this new standard in fiscal 1994, increasing marketable
securities by $1,604, increasing deferred tax liability by $566, and
increasing shareholders' equity by $1,038.
The Company has adopted the provisions of Statement of Financial
Accounting Standards No. 112, "Accounting For Post-employment Benefits,"
with no effect on the consolidated financial statements.
On February 18, 1994, the Company announced a three-for-two stock split
in the form of a 50% stock dividend for shareholders of record on March
4, 1994, payable on March 21, 1994.
EXHIBIT (21)
SUBSIDIARIES OF OSMONICS, INC.
Percentage
Ownership
100% VAPONICS, INC. A Massachusetts Corporation
100% AQUA MEDIA INTERNATIONAL A Delaware Corporation
100% AQUA MEDIA OF ASIA LTD. A Hong Kong Corporation
100% PORETICS CORPORATION A Delaware Corporation
100% OSMONICS ASIA/PACIFIC LTD. A Hong Kong Corporation
100% OSMONICS EUROPA, S.A. A Switzerland Corporation
100% OSMONICS INTERNATIONAL LTD. A Jamaica Corporation
100% OSMONICS INTERNATIONAL, INC. A Minnesota Corporation
100% OZONE RESEARCH & EQUIPMENT CORP. An Arizona Corporation
100% GHIA, INC. A Nevada Corporation
100% AUTOTROL CORPORATION A Wisconsin Corporation
100% AUTOTROL (FAR EAST) LTD. A Japan Corporation
100% AUTOTROL S.A. A France Corporation
100% AUTOTROL INTERNATIONAL SALES CORP. A Virgin Islands Corporation
100% AUTOTROL PTY. LTD. An Australia Corporation
100% MICROL SYSTEMS, LTD. An England Corporation
100% PETECO CORPORATION A Minnesota Corporation
50% NIPPON AUTOTROL K.K. A Japan Corporation
INDEPENDENT AUDITORS' CONSENT
Osmonics, Inc.:
We consent to the incorporation by reference in Registration Statements
No. 33-25228 and No. 33-537 of Osmonics, Inc. on Form S-8 of our reports
dated February 10, 1995 appearing and incorporated by reference in this
Annual Report on Form 10-K of Osmonics, Inc. for the year ended
December 31, 1994.
/s/Deloitte & Touche LLP
Minneapolis, Minnesota
March 27, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-K
for the year ended December 31, 1994, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 9453
<SECURITIES> 27623
<RECEIVABLES> 15536
<ALLOWANCES> 1259
<INVENTORY> 19428
<CURRENT-ASSETS> 76627
<PP&E> 47825
<DEPRECIATION> 25262
<TOTAL-ASSETS> 102035
<CURRENT-LIABILITIES> 20632
<BONDS> 14050
<COMMON> 127
0
0
<OTHER-SE> 63624
<TOTAL-LIABILITY-AND-EQUITY> 102035
<SALES> 96180
<TOTAL-REVENUES> 96180
<CGS> 52841
<TOTAL-COSTS> 52841
<OTHER-EXPENSES> 30654
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 747
<INCOME-PRETAX> 13623
<INCOME-TAX> 3668
<INCOME-CONTINUING> 9955
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9955
<EPS-PRIMARY> .79
<EPS-DILUTED> .79
</TABLE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of Osmonics, Inc.
Minnetonka, Minnesota
We have audited the consolidated balance sheets of Osmonics, Inc. and
subsidiaries the Company as of December 31, 1994 and 1993 and the
related consolidated statements of income, changes in shareholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion
on the financial statements based on our audits. The consolidated
financial statements give retroactive effect to the merger of Osmonics,
Inc. and Autotrol Corporation (Autotrol), which has been accounted for
as a pooling of interests as described in Note 2 to the consolidated
financial statements. We did not audit the statements of income,
shareholders' equity, and cash flows of Autotrol for the year ended
December 31, 1992, which statements reflect total revenues of
$33,476,000. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates
to the amounts included for Autotrol for 1992 is based solely on the
report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits and the report of the other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other
auditors, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Osmonics, Inc. and subsidiaries at December 31, 1994 and 1993 and the
results of their operations and their cash flows for each of the three
years in the period ended December 31, 1994 in conformity with generally
accepted accounting principles.
As discussed in Notes 5 and 10 to the financial statements, in 1994 the
Company adopted Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities, and in
1992 the Company changed its method of accounting for income taxes to
conform with Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes.
We also audited the adjustment described in Note 10 that were applied to
restate the 1992 financial statements. In our opinion, the adjustment
was appropriate and has been properly applied.
/s/Deloitte & Touche LLP
Minneapolis, Minnesota
February 10, 1994
<TABLE>
OSMONICS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<CAPTION>
Years Ended December 31, 1994, 1993 and 1992
Column A Column B Column C Column D Column E
Additions
Balance Charged Charged Balance
at to to at
Beginning Cost and Other End of
Description of Period Expensed Accounts Deductions Period
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1994:
Current Operations:
Allowance for Doubtful Accounts $1,195 $ 50 $ 32(F1) $1,213
Warranty and Start-up Reserve $1,921 $1,023 $1,002(F2) $1,942
Discontinued Operations:
Allowance for Doubtful Accounts $ 87 $ 41(F1) $ 46
Warranty Reserve $1,972 $ 10(F2) $1,961
Reserved for Discontinued Operations $ 240 $ 113 $ 127
Year Ended December 31, 1993:
Current Operations:
Allowance for Doubtful Accounts $ 707 $ 501 $ 13(F1) $1,195
Warranty and Start-up Reserve $1,773 $1,018 $ 870(F2) $1,921
Discontinued Operations:
Allowance for Doubtful Accounts $ 149 $ 62(F1) $ 87
Warranty Reserve $2,134 $ 162(F2) $1,972
Reserve for Discontinued Operations $ 549 $ 309 $ 240
Year Ended December 31, 1992:
Current Operations:
Allowance for Doubtful Accounts $ 842 $ 281 $ (149) $ 267(F1) $ 707
Warranty and Start-up Reserve $1,746 $ 915 $ 888(F2) $1,773
Discontinued Operations:
Allowance for Doubtful Accounts $ 149 $ 149
Warranty Reserve $3,160 $1,771 $2,797(F2) $2,134
Reserve for Discontinued Operations $ 65 $ 804 $ 320 $ 549
<FN>
<F1> Uncollectible accounts charged against allowance.
<F2> Actual warranty claims and start-up costs charged against reserve.
</FN>
</TABLE>
