UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended JUNE 30, 1999
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
NOT APPLICABLE
Former name, former address and former
fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
Of 1934 during the preceding 12 months (or for such shorter 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 July 31, 1999,
14,207,095 shares of the issuer's Common Stock, $0.01 par value, were
outstanding.
OSMONICS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
ITEM I. FINANCIAL STATEMENTS
Consolidated Statements of Operations - 2
For the Three and Six Months Ended
June 30, 1999 and 1998
Consolidated Balance Sheets - 3
June 30, 1999 and December 31, 1998
Consolidated Statements of Cash Flows - 4
For the Six Months Ended
June 30, 1999 and 1998
Notes to Consolidated Financial Statements 5
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6-12
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12
ITEM 5. SUBSEQUENT EVENT 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 14
ITEM I - FINANCIAL STATEMENTS
OSMONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except Per Share Data)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------------ ------------------
Sales $46,457 $47,353 $90,978 $89,503
Cost of sales 30,283 31,908 59,435 57,951
------- ------- ------- -------
Gross profit 16,174 15,445 31,543 31,552
Less:
Selling, general
and administrative 10,390 10,507 20,722 20,381
Research, development
and engineering 2,096 2,519 3,831 4,847
Special charges - 7,988 - 7,988
------- ------- ------- -------
Income (loss) from operations 3,688 (5,569) 6,990 (1,664)
Other income (expense) (447) (981) (1,352) (1,557)
------- ------- ------- -------
Income (loss) from continuing
operations before income taxes 3,241 (6,550) 5,638 (3,221)
Income taxes 1,102 (1,267) 1,917 (102)
------- ------- ------- -------
Net income (loss) $ 2,139 $(5,283) $ 3,721 $(3,119)
======= ======= ======= =======
Earnings per share
Net income (loss) - basic $ 0.15 $ (0.38) $ 0.26 $ (0.22)
Net income (loss) - assuming
dilution $ 0.15 $ (0.38) $ 0.26 $ (0.22)
Average shares outstanding
Basic 14,199 13,962 14,101 13,956
Assuming dilution 14,292 13,962 14,202 13,956
OSMONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Data)
(UNAUDITED)
June 30, December 31,
1999 1998
-----------------------
ASSETS
Current assets
Cash and cash equivalents $ 1,794 $ 576
Marketable securities 14,761 14,271
Trade accounts receivable, net of
allowance for doubtful accounts of
$1,034 in 1999, and $1,001 in 1998 38,945 34,767
Inventories 25,955 28,123
Deferred tax assets 3,958 6,610
Other current assets 2,598 5,034
-------- -------
Total current assets 88,011 89,381
Property and equipment, at cost
Land and land improvements 5,384 5,606
Building 30,618 30,568
Machinery and equipment 70,960 69,510
-------- --------
106,962 105,684
Less accumulated depreciation (50,667) (48,871)
-------- --------
56,295 56,813
Other assets 49,091 47,855
-------- --------
Total assets $193,397 $194,049
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 11,348 $ 9,156
Notes payable and current portion
of long-term debt 17,096 28,177
Other accrued liabilities 19,965 18,072
-------- --------
Total current liabilities 48,409 55,405
Long-term debt 33,630 31,665
Other liabilities 14 18
Deferred income taxes 4,798 4,806
Shareholders' equity
Common stock, $0.01 par value
Authorized -- 50,000,000 shares
Issued -- 1999: 14,195,556 and
1998: 13,991,291 shares 142 140
Capital in excess of par value 21,748 20,733
Retained earnings 82,797 79,075
Other comprehensive income 1,859 2,207
-------- --------
Total shareholders' equity 106,546 102,155
-------- --------
Total liabilities and shareholders' equity $193,397 $194,049
======== ========
OSMONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(UNAUDITED)
Six Months Ended
June 30,
1999 1998
----------------------
Cash flows from operations:
Net income (loss) $ 3,721 $ (3,119)
Non-cash items included in net income:
Depreciation and amortization 4,266 3,769
Deferred income taxes 2,568 (2,602)
Gain on sale of investments (48) (180)
Gain on sale of property and equipment (221) -
Special charges - 9,988
Changes in assets and liabilities
(net of business acquisitions)
Accounts receivable (4,178) 226
Inventories 2,168 1,099
Other current assets 2,436 (160)
Accounts payable and accrued liabilities 2,481 (1,743)
------- -------
Net cash provided by operations 13,193 7,278
------- -------
Cash flows from investing activities:
Business acquisitions (net of cash acquired) - (40,713)
Purchase of investments (2,385) (457)
Sale of investments 2,160 1,615
Purchase of property and equipment (3,291) (3,821)
Sales of property and equipment 802 110
Other (673) (147)
------- -------
Cash used in investing activities (3,387) (43,413)
------- -------
Cash flows from financing activities:
Proceeds from notes payable and debt 1,965 37,000
Reduction of debt (11,081) (2,156)
Issuance of common stock 1,018 351
------- -------
Net cash provided (used) by financing
activities (8,098) 35,195
------- -------
Effect of exchange rate changes on cash (490) (33)
Increase (decrease) in cash and cash
equivalents 1,218 (973)
Cash and cash equivalents -
beginning of year 576 4,872
Cash and cash equivalents - ------- -------
end of quarter $ 1,794 $ 3,899
======= =======
OSMONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands)
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.
Effective January 1, 1999, the Company adopted Statement of Position (SOP)
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" which did not have a material impact on operating results or
financial position.
Six Months Ended June 30,
1999 1998
-------------------------
Net income (loss) $ 3,721 $(3,119)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments (490) (33)
Unrealized gains/(losses) on securities 141 (256)
------- -------
Other comprehensive income (loss), before tax (349) (289)
------- -------
Comprehensive income (loss) $ 3,372 $(3,408)
======= =======
The Company recently settled a lawsuit with the Encina Wastewater Authority
and the Buena Sanitation District regarding the reduction of the Company's
waste discharge capacity at its Vista, California manufacturing facility.
The settlement agreement will require the Company to 1) change its
manufacturing processes and ultimately relocate two of its manufacturing
processes to other facilities, and 2) reimburse the Encina Wastewater
Authority and the Buena Sanitation District for costs incurred by them in
connection with the dispute. Any relocation will probably occur in the
fourth quarter of 1999 or the first quarter of 2000. Pending the relocation,
the Company will be required to modify its waste discharge process. The
Company has incurred approximately $500 of legal and settlement reimbursement
costs in connection with this matter in the first half of 1999. The
additional waste processing costs, relocation costs, and changes in gross
profit margins associated with such changes and relocations are not
anticipated to have a material impact on the operating results or financial
position of the Company in the second half of 1999.
Operating results for the three months or six months ended June 30, 1999, are
not necessarily indicative of the results that may be expected for the full
year 1999.
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, 1998.
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
(Dollars in thousands, except 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 months and six months ended June 30, 1999 and 1998.
Percent of Sales Percent of Sales
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------------ ----------------
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 65.2 67.4 65.3 64.7
----- ----- ----- -----
Gross profit 34.8 32.6 34.7 35.3
Selling, general and administrative 22.4 22.2 22.8 22.8
Research, development and engineering 4.5 5.3 4.2 5.4
Special charges - 16.9 - 8.9
----- ----- ----- -----
Operating expenses 26.9 44.4 27.0 37.1
Income (loss) from operations 7.9 (11.8) 7.7 (1.8)
Other income (expense) (0.9) (2.0) (1.5) (1.7)
Income (loss) from continuing ----- ----- ----- -----
operations before income taxes 7.0 (13.8) 6.2 (3.5)
Income taxes 2.4 (2.7) 2.1 -
----- ----- ----- -----
Net income (loss) 4.6% (11.1)% 4.1% (3.5)%
===== ===== ===== =====
SALES
Sales for the second quarter ended June 30, 1999 of $46,457 decreased 1.9% from
sales for the second quarter of 1998. Year-to-date 1999 sales through June
increased 1.6% over the corresponding 1998 level. The Consumables and
Equipment segments sales were 46.7% and 53.3%, respectively, of total sales for
the second quarter of 1999 and 45.5% and 54.5% for year-to-date 1999.
Comparing same business activity before acquisitions, sales were down 3.5%
during the second quarter of 1999 and 3.0% for the year due to continued
variability in equipment order activity. Globally, Euro/Africa sales activity
declined from the previous year's strong level.
GROSS MARGIN
Gross margin for the second quarter of 1999 was 34.8% compared to 32.6% for the
corresponding period in 1998. The gross margin for the six months ended June
30 was 34.7% in 1999 compared to 35.3% for the same period in 1998. In the
second quarter of 1998, the Company recorded a special charge of $2.0 million
for slow moving inventory. This charge accounted for 4.2 and 2.2 percentage
points of the second quarter 1998 and year-to-date 1998 gross margin declines,
respectively. Gross margins for the second quarter 1999 were affected by a
lower level of plant utilization at several locations, product mix and pricing
pressures in pure water membrane elements.
OPERATING EXPENSES
Operating expenses decreased to 26.9% of sales in the second quarter of 1999
compared to 44.4% in the second quarter of 1998. In the second quarter of
1998, the Company recorded a special charge of $7,988 in operating expense
(see Special Charge discussion below). Operating expenses, excluding special
charges, were 27.5% of sales in the second quarter of 1998. On a year-to-date
basis, excluding special charges, operating expenses were 27.0% for the six
months ended June 30, 1999 compared to 28.2% for the same period the previous
year.
The second quarter and year-to-date improvement in operating expenses is the
result of expense control efforts in response to continued weak top-line sales
growth. The year-to-date 1999 Research & Development expense decrease of
$1,016 compared to year-to-date 1998 is related to the elimination of duplicate
research efforts, development project rationalization, and an increased
direction of engineering activity towards sustaining engineering and production
activity.
SPECIAL CHARGES
In second quarter 1998, the Company recorded special charges of $9,988 ($7,569
net-of-tax or $0.54 per share assuming dilution). Charges included a $6,222
charge to operating expense for purchased research and development related to
the acquisitions of Micron Separations, Inc. ($1,902) and Membrex Corp.
($4,320) and a $2,000 charge to cost of sales for slow moving inventory. The
special charges also included operating expense charges of $875 for corporate
restructuring and consolidation of operations, and $891 for re-engineering
costs and write-downs of assets in connection with the Company's implementation
of a global information system. The special charges are summarized below:
In-process R&D $ 6,222
Corporate restructuring 875
SAP / Re-engineering costs 891
Slow moving inventory 2,000
-------
Gross special charges $ 9,988
Less slow moving inventory - in COS (2,000)
-------
Special charge in Operating Expense $ 7,988
=======
For the six months ended June 30, 1999, the Company expended $225 for workforce
reductions and $100 for facility closing/consolidation costs. As of June 30,
1999, a balance of $300 remains in the corporate restructuring and
consolidation of operation's accrual which is expected to be utilized by the
end of 1999.
OTHER EXPENSE
Other expense decreased by approximately $500 in the second quarter of 1999
versus the same period for 1998. The decrease is primarily the result of a
$270 gain recognized on the sale of land and building from a recently closed
production facility. Also, interest expense was $179 lower for the comparative
periods due to lower interest rates and reduced overall debt levels.
Year-to-date other expenses decreased $205 in 1999 compared to 1998. This
reduction is primarily due to the gain on the sale of land and building
detailed above. Interest income and expense on a year-to-date comparative
basis remained relatively flat.
INCOME TAXES
The effective tax rate for the second quarter and year-to-date 1999 was 34.0%
based on the forecast for the full year. This rate represents a significant
change from the tax benefit percentage recognized in calendar year 1998, due
primarily to the non-deductibility of the Micron Separations, Inc. in-process
R&D that was written off in the second quarter of 1998. Under purchase
accounting for a nontaxable business combination, the Micron Separations, Inc.
purchased research and development special charge of $1,902 was expensed on a
gross basis (not tax-effected).
NET INCOME (LOSS)
Net income (loss) for the quarter ended June 30, 1999 was $2,139 compared to
$(5,283) for the quarter ended June 30, 1998. Excluding special charges,
second quarter 1998 net income was $2,286. Net income per common share
assuming dilution for the quarter was $0.15 compared to $(0.38), or $0.16
excluding special charges, for the same period last year.
Year-to-date 1999 net income (loss) was $3,721 compared to $(3,119), or $4,450
excluding special charges, for the same period last year. Net income per
common share assuming dilution year-to-date was $0.26 in 1999 compared to
$(0.22), or $0.31 excluding special charges, in 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1999, the Company had cash, cash equivalents and marketable
securities of $16,555 versus $14,847 at December 31, 1998. The current ratio
was 1.8 at June 30, 1999 as compared to 1.6 at year end 1998.
The Company's long-term debt increased from $31,665 at December 31, 1998 to
$33,630 at June 30, 1999. This increase was the result of entering into a new
$2,000 loan at its France Operation. The Company's current debt decreased
from $28,177 at December 31, 1998 to $17,096 at June 30, 1999. The decrease
was the result of improved cash flows from operations during the period,
including steady progress on inventory reduction.
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.
REVIEW OF INDUSTRY SEGMENTS
The Company designs, manufactures and markets equipment, systems and
components used in the processing and handling of fluids. The Company sells
through five marketing units each comprised of related product lines.
Certain marketing units have similar economic characteristics and have been
aggregated under Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information,"
(SFAS No. 131). As a result of aggregation, the Company has two reportable
business segments - Consumables and Equipment.
The Consumables segment, comprised of two marketing units, includes products
such as filter cartridges, membrane elements, membrane, instruments, and
laboratory products. The Equipment segment, comprised of three marketing
units, includes products such as pumps, housings, valves, controls, reverse
osmosis/ultrafiltration machines, ozonators, stills, and water treatment
systems.
Each segment is currently supported by several manufacturing facilities, a
similar sales force and various corporate functions. The segments do not
have separate accounting, customer service, administration, or purchasing
functions.
The marketing unit structure was established to provide strategic leadership
for related products. It was implemented on July 1, 1998. Restatement of
prior period results under this method of reporting has been deemed
impracticable due to the costs and unavailability of certain financial
information. As a result, comparable financial information is not available
for the two reportable business segments for first and second quarters of
1998.
The reportable segment information for the three months and six months ended
June 30, 1999 are as follows:
Three Months Ended Six Months Ended
June 30, 1999 June 30, 1999
Consumables Equipment Consumables Equipment
----------- --------- ----------- ---------
Sales $21,694 $24,763 $41,428 $49,550
Cost of sales 13,371 16,912 25,454 33,981
------- ------- ------- -------
Gross profit 8,323 7,851 15,974 15,569
Gross margin % 38.4% 31.7% 38.6% 31.4%
Operating expenses 5,471 7,015 10,767 13,786
------- ------- ------- -------
Operating income 2,852 836 5,207 1,783
======= ======= ======= =======
Operating Income % 13.2% 3.4% 12.6% 3.6%
Lower plant utilization and slower sales in Euro/Africa affected gross margins
in the Equipment segment. The standard and custom equipment marketing units
incurred an operating loss for the second quarter of 1999. The losses of
$(335) and $(81) were principally due to variability in production demands and
lower utilization of certain production facilities.
Currently, management does not report the balance sheet or any cash-generating
measurements by such segments.
YEAR 2000 READINESS DISCLOSURE
STATE OF READINESS
Osmonics is currently working to fully determine and resolve the potential
impact of the Year 2000 on the processing of date-sensitive information by its
computerized information systems. The Year 2000 problem is the result of
computer programs being written using two digits (rather than four) to define
the applicable year. Any of Osmonics' programs that have time-sensitive
software may recognize a date using "00" as the Year 1900 rather than the Year
2000, which could result in miscalculations or system failures.
Osmonics' Year 2000 Project (the Project) began in 1994 with reviews of the
Company's business information systems. The objective was to improve access to
business information through an integrated, company-wide system which is also
Year 2000 compliant. The Company estimates that as of June 30, 1999,
approximately 80% of its systems are Year 2000 compliant.
The Company is using a multi-step approach in conducting the Project. These
steps include: needs analysis, resource requirements, remediation and testing,
and implementation. The Project plan identified the major issues and alignment
of priorities, resources, and contingency plans. The remediation and testing
phases will continue through third quarter 1999.
The Project scope includes all computing systems hardware, software,
information technology (IT) infrastructure (such as networks and
telecommunications), and all third-party suppliers and vendors. The
Company has completed the needs analysis phase of the Project. The Company
has not yet completed, corrected and/or tested for all possible Year 2000
compliance issues. The Company anticipates that it will complete, correct
and/or test for all possible Year 2000 compliance issues by the end of the
third quarter. The Company is also utilizing the services of consulting
firms to assist in dealing with Year 2000 issues.
An integral part of the Project is the implementation of SAP, a company-wide
integrated business information and accounting system. The Company began
implementing this enterprise resources planning (ERP) system as its primary
information system in 1996. ERP is being implemented in a two-phase approach.
Phase I, the conversion of the previous primary computing system at the
Company's headquarters and primary manufacturing facility, in Minnetonka, MN
was completed in 1997. Phase II is the business process re-engineering within
SAP, and the rollout to other plants. Implementations at three plants were
scheduled for 1999. At the end of the first quarter, the Company implemented
SAP at its Phoenix Operation. The remaining two plants are scheduled to be
completed by September 30, 1999. Also, the existing software at three other
plants has been upgraded with Year 2000 compliant versions on an interim
basis. Upon completion of the remaining two plants, all of the Company's
systems should be one hundred percent (100%) Year 2000 compliant.
Very few of the Company's products contain software or embedded
microprocessors. The Company has reviewed all of these products and identified
only a few that will be impacted by Year 2000 compliance issues. In all cases,
the effect will be in the retrieval and display of logged data and not in the
correct operation of the product. A solution for each of the products
identified has either been made available, or will be made available to our
customers prior to the Year 2000.
Customers and vendors could be disrupted with their own Year 2000 issues, which
could affect their ability to buy Osmonics products or supply Osmonics with raw
materials. However, the Company believes this is unlikely, since no single
customer or vendor represents more than 5 percent of the Company's present
business. Alternative sources of supply are also currently available and the
Company believes will be available if needed. The Company has sought
assurances from its material suppliers that their ability to sell to the
Company will not be materially impacted by any Year 2000 issue. As of the end
of the second quarter of 1999, most material vendors had represented to their
state of Year 2000 readiness. For those who have not responded, the Company is
following up with such parties in the third quarter in order to obtain relevant
Year 2000 compliance information and is also identifying alternative suppliers
for critical parts and materials.
COST
As of June 30, 1999, the Company has invested over $6,000 during the years
1995-1999 to upgrade its information systems. The remaining cost associated
with required modifications just to become Year 2000 compliant is not expected
to be material to the Company's financial position. The estimated total
external cost to accelerate the replacement of certain hardware, software, and
infrastructure is not expected to exceed $500. The remaining ERP
implementation costs and the related business process improvements, which would
be incurred in any case, are excluded from the figure above.
RISKS
The Company believes that it will be able to correct all material Year 2000
problems prior to January 1, 2000. However, the Company's ability to correct
its Year 2000 problems is dependent upon its ability to obtain and retain
adequate resources. The failure to correct a material Year 2000 problem could
result in an interruption in, or a failure of, certain normal business
activities or operations. Such failures could materially and adversely affect
the Company's results of operations and financial condition. For example, the
most reasonably likely worst case scenario of Year 2000 noncompliance, the
failure to update its business information system for Year 2000 compliance
could result in delayed performance on contracts, loss of contracts, or
lawsuits for failure to perform.
The Project is expected to significantly reduce the Company's level of
uncertainty regarding the Year 2000 problem. The Company believes that, with
the implementation of new business systems and completion of the Project as
scheduled, the possibility of significant interruptions of normal operations
should be minimal.
The failure of the Company's customers to be Year 2000 Compliant could
materially reduce or delay the Company's sale of products because of budget
constraints and the diversion of customer resources to fixing the customers'
Year 2000 problems. At this time, the Company does not believe that its
customers' Year 2000 problems will materially impact the Company's
business.
Readers are cautioned that forward-looking statements contained in the Year
2000 update should be read in conjunction with the Company's disclosures under
the heading - "Private Securities Litigation Reform Act" - that follows.
CONTINGENCY PLANS
The Company has developed and put in place contingency plans to address
internal and external issues specific to the Year 2000 problem, to the extent
practicable.
The Company believes that due to the widespread nature of potential Year 2000
issues, the contingency planning process may require further modifications in
the third and perhaps the fourth quarters of 1999 as the Company obtains
additional information regarding: (1) The Company's internal systems and
equipment during the remediation and testing phases of its Year 2000 program;
and (2) the status of those third parties who have not yet responded to the
Company regarding their Year 2000 readiness.
PRIVATE SECURITIES LITIGATION REFORM ACT
The Private Securities Litigation Reform Act provides a "safe harbor" for
forward-looking statements. Certain information included in this Form 10-Q
and other materials filed or to be filed with the Securities and Exchange
Commission (as well as information included in statements made or to be
made by the Company) contains statements that are forward looking. Such
statements may relate to plans for future expansion and acquisitions, the
relocation of certain manufacturing processes, business development
activities, capital spending, financing, or the effects of regulation,
competition and Year 2000 compliance. Such information involves important
risks and uncertainties that could significantly affect results in the
future. Such results may differ from those expressed in any forward-
looking statements made by the Company. These risks and uncertainties
include, but are not limited to, those relating to product development
activities, the inability to accurately estimate the costs of relocation of
certain manufacturing processes, computer systems implementation, Year 2000
compliance, dependence on existing management, global economic and market
conditions, and changes in federal or state laws. Investors are referred
to the discussion of certain risks and uncertainties associated with forward
looking statements contained in the Company's report on Form 10-K filed with
the Securities and Exchange Commission for the year ended December 31, 1998.
OSMONICS, INC.
PART II
OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on May 12, 1999. The
following members were elected to the Company's Board of Directors to hold
office for the ensuing three years:
Nominee In Favor Withheld
------- ---------- --------
Ralph E. Crump 12,211,444 96,769
Charles W. Palmer 12,204,617 103,597
Item 5. SUBSEQUENT EVENT
The Company announced on July 1, 1999, the completion of the acquisition for
cash of all the equity interest in ZyzaTech Water Systems, Inc. of Seattle,
Washington.
Zyzatech is a leader in the field of water purification and solution delivery
for hemodialysis. The acquisition broadens Osmonics' existing product offering
for hemodialysis clinics and enhances Osmonics' ability to participate in the
growing international dialysis markets.
Zyzatech's products will be sold through their existing distribution channels.
The annual revenues of Zyzatech are approximately $12,000. The acquisition
will be recorded under the purchase method of accounting. Finalization of the
related purchase accounting is anticipated in the third quarter of 1999.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) (27)Financial Data Schedule
(b) During the quarter ended June 30, 1999 the Registrant did not
file a Form 8-K report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 13, 1999
OSMONICS, INC.
(Registrant)
/s/ L. Lee Runzheimer
L. Lee Runzheimer
Chief Financial Officer
/s/ Howard W. Dicke
Howard W. Dicke
Treasurer and Vice President
of Investor Relations
/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 June 30, 1999 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
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<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 1,794
<SECURITIES> 14,761
<RECEIVABLES> 39,979
<ALLOWANCES> 1,034
<INVENTORY> 25,955
<CURRENT-ASSETS> 88,011
<PP&E> 106,962
<DEPRECIATION> 50,667
<TOTAL-ASSETS> 193,397
<CURRENT-LIABILITIES> 48,409
<BONDS> 33,630
0
0
<COMMON> 142
<OTHER-SE> 104,545
<TOTAL-LIABILITY-AND-EQUITY> 193,397
<SALES> 90,978
<TOTAL-REVENUES> 90,978
<CGS> 59,435
<TOTAL-COSTS> 59,435
<OTHER-EXPENSES> 24,553
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,352
<INCOME-PRETAX> 5,638
<INCOME-TAX> 1,917
<INCOME-CONTINUING> 3,721
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,721
<EPS-BASIC> $0.26
<EPS-DILUTED> $0.26
</TABLE>
