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UNITED STATES
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 July 28, 1995
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. 0-14429
ISCO, INC.
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(Exact name of Registrant as specified in its charter)
Nebraska 47-0461807
--------------------- ---------------------------------
(State of incorporation) (I.R.S. Employer Identification No.)
4700 Superior Street, Lincoln, Nebraska 68504-1398
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (402) 464-0231
--------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.10 par value
-----------------------------
(Title of Class)
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. [ ]
Indicate by check mark whether 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
--- ----
As of September 22, 1995, 5,351,931 shares of Common Stock of Isco, Inc., were
outstanding and the aggregate market value of such Common Stock held by
nonaffiliates was approximately $29,086,344.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Shareholders to be held December 14, 1995
- - Part III.
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PART I
ITEM 1. BUSINESS.
GENERAL
Isco, Inc., founded as a Nebraska corporation in 1959 under the name
Instrumentation Specialties Company, Inc., operates with two main divisions.
The Environmental Division designs and manufactures water pollution monitoring
instruments and markets them worldwide. Products include wastewater samplers,
flow measuring devices, parameter monitoring instruments, and total organic
carbon (TOC) analyzers which are used by industry and government to monitor
compliance with water pollution regulations. The Separation Instruments
Division designs and manufactures scientific instruments used in research and
testing laboratories and markets them worldwide. Products include liquid
chromatography products, supercritical fluid extraction (SFE) products, and
syringe pumps.
The Company's founder, Robert W. Allington, has been the controlling
shareholder, chairman of the board, president, and chief executive officer since
inception. On October 6, 1995 Douglas M. Grant was named president and chief
operating officer of the Company.
The Company's principal offices are located at 4700 Superior Street, Lincoln,
Nebraska 68504-1398, and its telephone number is (402)464-0231. As used herein,
"Company" or "Isco" refers to Isco, Inc., and its subsidiaries, unless the
context otherwise requires.
RECENT CORPORATE DEVELOPMENTS
During calendar year 1989, the Company established Isco Instruments (Europe) AG,
a Switzerland-based and wholly-owned marketing subsidiary, to manage and promote
the sale of both divisions' products through independent dealers in Europe.
During fiscal 1993, the marketing focus of Isco Instruments (Europe) AG was
shifted entirely to Environmental Division products.
In July 1992, the Company liquidated its Guam-based, wholly-owned, small foreign
sales corporation (FSC). In August 1992, the Company organized Isco, Ltd., a
Barbados-chartered and wholly-owned large FSC to conduct the international sales
of its products. All international sales of the Company are denominated in
United States Dollars. Therefore, the Company has not been adversely affected by
foreign currency fluctuations. Products are not stocked outside the United
States but are delivered from the Company's inventory in Lincoln, Nebraska.
Early in fiscal 1993, the Separation Instruments Division established an SFE
applications laboratory and marketing office in the United Kingdom to support
SFE sales in Europe.
In September 1993, the Company acquired a minority ownership position in
Geomation, Inc., a privately held company in Golden, Colorado. Under the terms
of the agreement, the Company has the option to acquire complete ownership of
Geomation, Inc. in the first quarter of Isco's fiscal year 1997.
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ENVIRONMENTAL DIVISION -- PRODUCTS AND APPLICATIONS
Wastewater samplers and open channel flow meters are the Environmental
Division's principal products. For fiscal years 1995, 1994, and 1993,
wastewater samplers represented 34, 34, and 37 percent of the Company's net
sales, respectively. Isco is the world's largest producer of wastewater
samplers. For fiscal years 1995, 1994, and 1993, flow meters represented 21,
20, and 18 percent of the Company's net sales, respectively. The Environmental
Division's principal products range in price from $1,500 to $6,500.
Environmental Division customers use wastewater samplers to collect water
samples from streams and sewers for subsequent analysis in the laboratory. Flow
meters are used to measure and record the flow rate of liquids in open channels.
Flow meters can be linked with wastewater samplers to trigger the collection of
water samples based on flow rate. Also, the combined use of these two products
is well suited to conduct storm water runoff studies in compliance with federal
regulations. Further, cities may use the Division's computer-based flow logging
systems to determine the state of repair of their sewer systems. Other
customers use them to store flow, rainfall, and other sample data for later
retrieval, analysis, and reporting.
In fiscal 1992, the Division introduced its first parameter monitoring
instruments, which continuously monitor and log pH and temperature data and will
activate a sampler when the pH moves outside preset limits. In fiscal 1995, the
Division introduced its first on-line process instrument, the total organic
carbon (TOC) analyzer. TOC measurement is an excellent overall indicator of
water quality, and is becoming the method of choice for continuous on-line
screening for the presence of a variety of organic compounds, without having to
test for each substance individually.
SEPARATION INSTRUMENTS DIVISION -- PRODUCTS AND APPLICATIONS
Products from the Separation Instruments Division are used to separate,
identify, and quantify the molecules of a sample under investigation. The
separation technologies used include liquid chromatography and SFE. The Division
produces fraction collectors, pumps, and detectors required for low pressure
liquid chromatography (LPLC). For fiscal years 1995, 1994, and 1993, LPLC
products accounted for approximately 9, 12, and 12 percent of the Company's net
sales, respectively. The products of the Separation Instruments Division
typically sell at prices ranging from $300 to $10,000 for individual components
to over $60,000 for complete SFE systems.
Liquid chromatography uses pumps to deliver solvent, columns to separate the
sample into its component molecules, detectors to identify and quantify the
components, and fraction collectors to collect the component molecules. The SFE
process uses the Division's pumps and extraction units to separate analytes of
interest from complex matrices for subsequent analysis. SFE is a cost-effective
technique since sample preparation time is reduced significantly and non-toxic
carbon dioxide replaces the toxic solvents currently used to separate the
analytes.
Separation Instruments Division customers who perform chemical and biological
research and testing use its products for sample analysis. Markets include
analytical laboratories which support the development and manufacture of food,
chemical and pharmaceutical products. Also
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included are laboratories which study disease and basic life functions, as well
as genetic engineering.
The Division's food, agriproducts, and plastics producing customers use SFE to
assure their products are maintained at a specified level of quality, while
environmental laboratory customers use the SFE products to prepare samples to
determine the contamination level of solid waste.
The Division's petroleum and chemical industry customers utilize its syringe
pumps to precisely and accurately deliver fluids at high pressures for rock core
analysis and reactor feed applications.
PRODUCT WARRANTY
Isco warrants its products for one year against defective materials and
workmanship. The Company's warranty claims have not been material in previous
years. Management believes the operational problems of the SFX 3560 discussed
in Item 7 of this document were unusual. Further, it is anticipated that the
Company's warranty claims will not be material in the future since it emphasizes
quality-based design practices and manufacturing processes for both its current
and new products. The Company provides after sales factory service for most of
the products it sells and on-site services in the United States for automated
SFE systems. The Separation Instruments Division's customers may purchase an
extended warranty at the time they purchase a new instrument.
MARKETING
In 1995, the Environmental Division sold its water pollution monitoring
instruments to approximately 10,000 commercial and industrial enterprises,
municipalities in all 50 states, consulting engineers, testing laboratories, and
governmental organizations. Many of these customers monitor discharged
wastewater for compliance with environmental regulations while others conduct
environmental research. A group of 30 independent manufacturers' representative
organizations handle direct sales and solicitation of orders in the United
States These manufacturers' representatives are supported by promotional
programs, trade show exhibitions, and field assistance by factory-based
territory sales managers. A sales director and a staff of 16 manage the group
of manufacturers' representative organizations and field support programs.
Marketing activities, including advertising, product bulletins, technical
literature, and applications seminars are handled by a marketing director and a
staff of 11.
In 1995, the Separation Instruments Division sold its laboratory-scale
separation instruments to approximately 1,800 accounts consisting of industrial
and commercial enterprises, universities, original equipment manufacturers
(OEMs), and governmental organizations. The number of individual customers
substantially exceeds the number of accounts, due to the departmental structure
and funding arrangements used by industries, universities, and government
research centers. Domestic selling activities are conducted by a sales force
consisting of a national sales manager with eight company sales representatives
located in major domestic market areas. Several independent manufacturers'
representatives, selling a limited number of the Division's products, are used
to enhance market coverage. Marketing activities, including advertising,
application's bulletins, technical literature, and applications seminars are
handled by a marketing director and staff of 11.
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CUSTOMERS
For fiscal year 1995, in the United States, commercial and industrial customers
accounted for 51 percent of total Environmental Division sales; municipalities
for 31 percent; consulting engineers and laboratories for 8 percent; and federal
and state governmental organizations for 10 percent. The Environmental Division
has a broad customer base, and currently no single customer accounts for more
than five percent of its sales. International sales are made principally by
independent dealers operating in 49 countries. To aid international sales, the
Division offers wastewater samplers and flow meters in French, German, and
Spanish language versions, with results displayed in metric units.
International sales constituted 16, 15, and 15 percent of total Division sales
during fiscal 1995, 1994, and 1993, respectively.
For fiscal year 1995, in the United States, commercial and industrial customers
accounted for approximately 58 percent of total Separation Instruments Division
sales; state, municipal, and nonprofit institutions, including university and
hospital laboratories accounted for 23 percent; OEMs for 13 percent; and federal
government laboratories for 6 percent. Currently, no single customer, including
any OEM customer, accounts for more than three percent of the Division's sales.
International sales are made principally by independent dealers and
manufacturers' representatives operating in over 36 countries. The Division
also has an employee based in the United Kingdom to assist its European dealers
in penetrating the SFE market in Europe. International sales constituted 37,
33, and 30 percent of Division sales during fiscal 1995, 1994, and 1993,
respectively.
COMPETITION
The Company believes that it has a strong competitive position in the markets
for wastewater samplers, flow meters, syringe pumps, and SFE products. The
factors which the Company believes contribute to its competitive position
include: its reputation for quality and service; technically advanced products
that provide cost-effective operation and unique features compared to
competitors' products; an active research and development program that allows
the Company to maintain technical leadership; a strong position in key markets;
and efficient production capabilities.
The Environmental Division has several competitors manufacturing similar
wastewater samplers. In the United States, the major competing company is
American Sigma, Inc. According to independent surveys and other sources which
management believes to be reasonably accurate, the Environmental Division has
approximately 65 percent of the domestic wastewater sampler market, with
American Sigma, Inc., having approximately 30 percent. Other domestic
competitors are small and offer little significant competition. In Europe, the
market leaders include: Montec Products Ltd., of the United Kingdom and
Germany; and Endress & Hauser, of Switzerland.
In the domestic flow meter market, there are numerous suppliers. Based upon
market information developed from internal and external sources and analyzed by
the Company, the Environmental Division is believed to have 20 to 25 percent of
the United States flow meter market, with Marsh-McBirney, Inc., and Milltronics,
each having approximately 15 to 20 percent. Other significant competitors
include American Sigma, Inc., Endress & Hauser, and Montec Products, Ltd.
5
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The Environmental Division is an emerging participant in the parameter measuring
market. These parameters include pH, conductivity, temperature, turbidity,
dissolved oxygen (DO), and oxygen reduction potential (ORP). Competitors
include American Sigma, Inc. and Great Lake Instruments, Inc. In fiscal 1995 the
Division introduced a TOC analyzer. Competitors in this product line include
Ionics, Inc. and the Zellweger Luwa Group.
The competitive position of the Separation Instruments Division varies by
product group. With respect to LPLC products, the Division believes it is a
major producer of fraction collectors, pumps, and absorbance detectors. The
largest competitor for these products is Pharmacia Biotech, a Swedish company,
whose products are manufactured in several European countries. Pharmacia
Biotech is substantially larger than the Division and has a greater market share
in international markets. However, for selected instruments sold in the United
States, the Division's market share is comparable to that of Pharmacia Biotech.
Other major competitors are Bio-Rad Laboratories, Inc., and Gilson Medical
Electronics, Inc., an American-based company, with much of its production in
France.
The Division's syringe pumps are used for specialized applications in the
petroleum and chemical industries. Quizex, Inc. and Core Lab Instruments supply
competing pumps. A number of other companies address these same markets with
other types of pumps. However, management believes that the Division's syringe
pumps are positioned to compete effectively due to their price-performance
characteristics.
The emerging market for laboratory applications of SFE is based on recently
developed technology. Competing products are supplied by Suprex Corporation,
Hewlett-Packard Company, Dionex Corporation, Leco Corporation, and Carlo Erba
Strumentazione SPA, an Italian company, which is a member of the Fisons Group.
Management believes that Suprex Corporation and Isco are the leading suppliers
in this dynamic and emerging market.
RESEARCH, DEVELOPMENT, AND ENGINEERING
The Company commits significant resources to ongoing research, development, and
engineering activities. The Company's near-term goals are to focus these
activities toward improving, enhancing, and expanding the market share of its
existing product lines. Over the long-term, the Company is seeking new market
applications for its products as well as exploring present and related markets
which could utilize new products developed from the Company's expanding
technology base. For fiscal years 1995, 1994, and 1993, the Company spent
approximately $4,468,000 or 10.7 percent of sales, $4,595,000 or 11.9 percent of
sales, and $4,648,000 or 12.3 percent of sales, respectively, on research,
development, and engineering.
PATENTS AND LICENSES
The Company believes it derives a competitive advantage from its patents.
Therefore, the Company has a policy of obtaining patents wherever commercially
feasible as well as vigorously asserting and defending them. Company products
are covered by 54 United States patents, 49 of which are owned by Isco, and five
under which Isco is a licensee. There are also numerous corresponding patents
issued by other countries. The Company-owned patents are on inventions made by
Company
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employees and are assigned to the Company with no royalties being paid for their
use. The Company currently has 25 patent applications pending at the United
States Patent Office.
REGULATION
Management believes it is in compliance with environmental regulations.
Therefore, no unfavorable impact on competition or earnings is expected. The
Company has no government contracts which are subject to renegotiation of
profits or contract termination. Although the Company's products are not
subject to significant government regulation, the markets for many of its
products are regulation driven.
BACKLOG
On September 22, 1995, the order backlogs of the Environmental Division and of
the Separation Instruments Division were $1,703,000 and $1,693,000,
respectively. A year earlier, on September 23, 1994, the order backlogs were
$2,729,000 and $1,899,000, respectively.
MANUFACTURING AND SOURCES OF SUPPLY
The Company maintains a vertically integrated manufacturing and assembly
facility for each of its divisions. The Company has the capability to fabricate
most of the metal and plastic components used in its products and to obtain the
required raw materials from several sources. Since the Company is not reliant
upon outside suppliers for these types of components, it is generally able to
produce them at a lower cost and maintain a consistently high level of quality.
Both divisions also use a variety of mechanical, electrical, and electronic
components including microprocessors. Most of these are available, generally,
from several sources, although some are available from only a single source.
However, even the unavailability of these single source items would not have a
material long-term effect upon the products produced, as relatively minor
product redesigns would allow substitution of other available components.
Currently, Isco is not experiencing any shortage of raw materials or components.
The Company uses computerized production control systems for both divisions.
Based on forecasted demand, inventory position, and production capacity, these
systems determine the raw material and component requirements, the dates when
these materials are needed, and the dates production must begin in order to
complete the products on time. Through the use of production scheduling
techniques, these systems enable the Company to control both labor and inventory
costs. Furthermore, these systems enable it to periodically monitor the
production costs of each of its products to assure that the prices for such
products are consistent with the gross margin goals.
EMPLOYEES
On September 22, 1995, the Company had 452 employees, worldwide, of whom 236
were engaged in production, 74 in research and engineering, 91 in marketing and
sales, and 51 in administration. None of the Company's employees are
represented by a labor union and the Company has never experienced any work
stoppages.
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ITEM 2. PROPERTIES.
The facilities which house each of the Company's two divisions are wholly-owned
and unencumbered.
The two buildings at 4700 Superior Street in Lincoln, Nebraska house the
corporate, executive and administrative offices along with the sales, research,
engineering, manufacturing, maintenance and storage activities of the Separation
Instruments Division. These buildings contain approximately 113,000 square feet
of space and are located on a tract of land of approximately 30 acres.
Management considers this facility to be generally adequate. With respect to
the manufacturing portion of the facility, as equipped, the fabrication and
assembly areas are utilized at 50 percent of capacity.
The building at 531 Westgate Boulevard in Lincoln, Nebraska contains
approximately 156,000 square feet of space. It houses the sales, research,
engineering, manufacturing, maintenance and storage activities of the
Environmental Division. This building is located on a tract of land of
approximately 10 acres. Management considers this facility to be adequate. The
manufacturing facility as presently equipped is operating at approximately 80
percent of capacity.
ITEM 3. LEGAL PROCEEDINGS.
There are no legal proceedings which, in the opinion of outside counsel, would
have a material impact on either the financial condition or operating results of
the company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of fiscal 1995, no issues were submitted to a vote of
shareholders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS
MATTERS.
Common stock data: On September 22, 1995 -- 5,351,931 shares outstanding and
approximately 430 shareholders of record.
Market: Over-the-counter (NASDAQ/NMS). Symbol: ISKO
Stock price: The high and low bid prices of the common stock and the cash
dividends paid for each quarter during the last two fiscal years are shown
below:
<TABLE>
<CAPTION>
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Common Stock Price Range Cash Dividends
1995 1994 Per Share
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High Low High Low 1995 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
First quarter $ 9 1/2 $8 $12 1/2 $ 9 1/2 $.05 $.04
Second quarter 9 3/4 8 1/4 12 3/4 10 1/4 .05 .05
Third quarter 12 9 1/4 12 1/2 9 1/4 .05 .05
Fourth quarter 12 1/4 9 7/8 10 1/2 8 3/4 .05 .05
- -------------------------------------------------------------------------------
</TABLE>
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Dividends: On November 18, 1993, the Board of Directors declared a 15 percent
stock dividend, payable December 9, 1993 to shareholders of record on December
1, 1993. All share and per share data presented, herein, have been adjusted to
give retroactive effect of this 15 percent stock dividend.
On August 17, 1995, the Board of Directors declared a quarterly cash dividend of
$.05 per share, payable September 30, 1995 to shareholders of record on
September 9, 1995.
ITEM 6. SELECTED FINANCIAL DATA.
Amounts in thousands except per share data.
<TABLE>
<CAPTION>
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Fiscal Year
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1995 1994 1993 1992 1991
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<S> <C> <C> <C> <C> <C>
For the fiscal year:
Net sales $41,784 $38,706 $37,644 $42,847 $37,055
Gross margin 24,606 22,971 22,490 26,477 22,198
Operating income 3,708 3,760 3,255 7,569 5,416
Non-operating income 1,437 1,313 1,183 1,079 811
Income taxes 1,571 1,594 1,244 2,940 2,090
Net earnings 3,574 3,479 3,435 5,708 4,137
At fiscal year-end:
Current assets 25,292 25,946 23,686 26,463 25,186
Working capital 22,529 22,836 21,239 22,767 21,572
Total assets 45,766 43,966 42,225 41,210 36,408
Long-term debt 0 0 0 0 0
Shareholders' equity 42,002 39,745 38,592 36,082 31,325
Average shares
outstanding* 5,370 5,485 5,488 5,487 5,481
Per Share Data:
Net earnings per share* $.67 $.63 $.63 $1.04 $.75
Cash dividends per
share (declared)* $.20 $.19 $.17 $.17 $.15
- -------------------------------------------------------------------------------
</TABLE>
Fiscal 1993 data includes a one-time increase in net earnings of approximately
$241,000 or $.04 per share from the implementation of SFAS No. 109, "Accounting
for Income Taxes."
* Adjusted for 15 percent stock dividends distributed on September 27, 1991 and
on December 9, 1993.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
SALES ANALYSIS AND REVIEW
NET SALES TO UNAFFILIATED CUSTOMERS BY BUSINESS SEGMENT
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ------------- ------------
$ % of $ % of $ % of
000 total 000 total 000 total
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Water Pollution
Monitoring Instruments 28,739 69 26,280 68 25,623 68
Separation Instruments 13,045 31 12,426 32 12,021 32
------ --- ------ --- ------ ---
Total Net Sales 41,784 100 38,706 100 37,644 100
------ --- ------ --- ------ ---
------ --- ------ --- ------ ---
- -------------------------------------------------------------------------------
</TABLE>
1995 to 1994 Comparison
Water Pollution Monitoring Instruments. Fiscal 1995 sales of $28,739,000 were
nine percent above fiscal 1994 sales. Compared with fiscal 1994, domestic sales
were up nine percent while international sales of $4,485,000 were up 13 percent.
Wastewater sampler sales grew nine percent, reversing a three-year decline.
Flow meter sales and leasing revenues showed growth which was consistent with
that of the segment, while sales of parameter products were even with 1994. The
segment introduced a total organic carbon (TOC) analyzer in mid-fiscal 1995 in
an effort to expand its market base. The TOC analyzer is designed for
continuous process monitoring in a wastewater treatment plant where total
organic carbon content indicates if the treatment process is proceeding within
established parameters. The TOC analyzer did not contribute significantly to
revenues during fiscal 1995. The segment's order backlog on September 22, 1995
was $1,703,000 compared with $2,729,000 on September 23, 1994.
Separation Instruments. Fiscal 1995 sales of $13,045,000 were five percent
above fiscal 1994 sales. Compared with fiscal 1994, domestic sales declined two
percent while international sales of $4,887,000 were up 20 percent.
Supercritical fluid extraction (SFE) products and syringe pump sales accounted
for nearly 50 percent of the segment's 1995 sales. The growth of these two
product lines more than offset the decline in liquid chromatography products and
other traditional products of the segment. The segment's order backlog on
September 22, 1995 was $1,693,000 compared with $1,899,000 on September 23,
1994.
1994 to 1993 Comparison
Water Pollution Monitoring Instruments. Fiscal 1994 sales of $26,280,000 were
three percent above fiscal 1993 sales. Compared with fiscal 1993, domestic
sales were up two percent, while international sales of $3,971,000, were up
five percent. Flow meter sales in 1994 were up 14 percent. Management believes
that less stringent enforcement of environmental regulations caused the decline
in domestic wastewater samplers. Late in fiscal 1994 an environmentally
friendly, CFC-free, refrigerated sampler was introduced to the market. The
segment's order backlog on September 23, 1994 was $2,729,000 compared with
$1,832,000 on September 24, 1993.
Separation Instruments. Fiscal 1994 sales of $12,426,000 were three percent
above fiscal 1993 sales. Compared with fiscal 1993, domestic
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sales were down one percent, while international sales of $4,084,000, were up 14
percent. Fiscal 1994 sales of low pressure liquid chromatography products, SFE
products, OEM autosamplers, and syringe pumps were somewhat higher than in
fiscal 1993. The segment's order backlog on September 23, 1994 was $1,899,000
compared with $1,463,000 on September 24, 1993.
OPERATING INCOME ANALYSIS AND REVIEW
Operating Income(Loss) by Business Segment
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- ---------------
$ % of $ % of $ % of
000 total 000 total 000 total
----- ----- ----- ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Water Pollution
Monitoring Instruments 4,601 124 3,581 95 4,316 133
Separation Instruments (893) (24) 179 5 (1,061) (33)
----- --- ----- --- ----- ---
Total Operating Income 3,708 100 3,760 100 3,255 100
----- --- ----- --- ----- ---
----- --- ----- --- ----- ---
- -------------------------------------------------------------------------------
</TABLE>
1995 to 1994 Comparison
Water Pollution Monitoring Instruments. This segment generated operating income
of $4,601,000 during fiscal 1995, a 28 percent increase over fiscal 1994.
During 1995, the gross margin percentage declined slightly. For the year,
engineering and research expenses declined nine percent due, primarily, to
reduced expenditures for external engineering and research services. During the
year, selling, general and administrative (SG&A) expenses increased six percent
mainly as a result of the legal expenses associated in defending against the
Marsh-McBirney lawsuit. As reported in the second quarter, a judgement was
entered in favor of the Company, however, the plaintiff has appealed the
decision of the court. Management believes the decision of the court will be
sustained.
Separation Instruments. This segment incurred an operating loss of $893,000
during fiscal 1995 compared with a operating profit of $179,000 in fiscal 1994.
During 1995, the gross margin percentage declined slightly. Increased
expenditures for external engineering services and materials and supplies
represent the majority of the six percent increase in engineering and research
expenses. Increased sales salaries, expenses to support international dealers
and domestic manufacturers' representatives, sales materials, commissions, sales
and marketing travel expenses, and patent expenses represented the majority of
the 25 percent increase in SG&A expenses. The segment's operating income was
reduced as a result of operational problems encountered with the very complex
SFX 3560 automated supercritical fluid extractor. Expensive field service and
engineering activities were required to correct these operational problems.
Shipment of the SFX 3560 was delayed in order to upgrade the software and
hardware. These problems were recently resolved and a reliable product is being
delivered to the segment's customers.
1994 to 1993 Comparison
Water Pollution Monitoring Instruments. This segment generated operating income
of $3,581,000 during fiscal 1994, a 17 percent decline from fiscal 1993. Even
though net sales increased, gross margin declined 1.7 percentage points from
1993, a reflection of competitive pricing pressures in the market place. During
1994 the segment's operating expenses increased $704,000. The largest single
component of the
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increased operating expense was the funding of external strategic product and
technology development. Selling expenses and general and administrative
expenses also increased during fiscal 1994.
Separation Instruments. This segment generated operating income of $179,000
during fiscal 1994 compared with an operating loss of $1,061,000 during fiscal
1993. In 1994 the segment's gross margin increased 2.4 percentage points from
1993. During 1994, the segment's operating expenses decreased $727,000. The
reduction occurred, primarily, as a result of significant cost cutting measures
in marketing and sales and to a lesser extent in engineering.
RESULTS OF OPERATIONS
The following table summarizes, for the three years indicated, the percentages
which certain components of the Consolidated Statements of Earnings bear to net
sales and the percentage change of such components (based on actual dollars)
compared with the prior year. The year-to-year analysis which follows relates
to the Company-wide elements which cannot be attributed to a particular segment.
<TABLE>
<CAPTION>
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Year-to-Year
Increase(Decrease)
------------------
Year Ended 1995 1994
---------------------
Jul 28 Jul 29 Jul 30 vs. vs.
1995 1994 1993 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 8.0% 2.8%
Cost of sales 41.1 40.7 40.3 9.2 3.8
----- ----- -----
58.9 59.3 59.7 7.1 2.1
----- ----- -----
Expenses:
Selling, general, and
administrative 39.3 37.8 38.8 12.4 .2
Research and engineering 10.7 11.9 12.3 (2.8) (1.1)
----- ----- -----
50.0 49.7 51.1 8.8 (.1)
----- ----- -----
Operating income 8.9 9.6 8.6 (1.4) 15.5
Non-operating income 3.4 3.4 3.1 9.4 11.0
----- ----- -----
Earnings before taxes and
cumulative tax adjustment 12.3 13.0 11.7 1.4 14.3
Income taxes 3.8 4.1 3.3 (1.4) 28.1
----- ----- -----
Earnings before cumulative
tax adjustment 8.5 8.9 8.4 2.7 8.9
Cumulative tax adjustment .0 .0 .6 .0 .0
----- ----- -----
Net earnings 8.5% 8.9% 9.0% 2.7% 1.3%
----- ----- -----
----- ----- -----
- -------------------------------------------------------------------------------
</TABLE>
1995 to 1994 Comparison
Fiscal year 1995 began with optimism based on incoming orders and the prospect
of new products contributing to revenue and profitability. As of the end of the
third quarter orders were 11 percent ahead of the same period in fiscal 1994.
However, for the fourth quarter the volume of orders was five percent below the
same quarter one year ago. The significant decline in incoming orders is
attributed to federal budget deliberations with prospects of reduced funding for
research and EPA enforcement. In addition, reduced orders and the operational
problems of the SFX 3560 negatively affected fourth quarter performance. Fourth
12
<PAGE>
quarter sales and earnings were also reduced by several non-recurring events.
First, there was the return of stock from a discontinued dealer for the
Separation Instruments Division. Second, management booked the estimated
expenses for the partial return of an Environmental Division product as well as
the estimated rework costs for the units not returned. These events accounted
for nearly $130,000 of the fourth quarter's earnings decline.
The weakness which the Company encountered in the environmental and analytical
markets in the fourth quarter continues into the first quarter of fiscal 1996.
Management is hopeful that a six to eight percent sales and earnings growth can
be achieved in fiscal 1996. Beginning in the fourth quarter management made
plans to consolidate some of the duplicated divisional activities and eliminate
some functions which are not important core activities of the Company.
Management is planning steps to further reduce expenses in both divisions.
The Company's fiscal year 1995 effective income tax rate was 30.5 percent
compared with 31.4 percent for the previous year. The decrease was due, to the
combination of increased tax-exempt income relative to operating income and
adjusting for the prior year's estimate of currently payable federal and state
income tax.
1994 to 1993 Comparison
During fiscal 1994, the Company worked diligently to strengthen its
international dealer network by locating and contracting with stronger dealers
in several key international markets. The SFE applications laboratory and
marketing office in the United Kingdom provided the European dealer organization
with strong support during 1994.
The Company's fiscal 1994 effective income tax rate was 31.4 percent compared
with 28.0 percent in 1993. The increase was, primarily, the result of
significantly reduced research and development income tax credits.
The Company adopted the liability method in accordance with Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income
Taxes," in fiscal 1993. The cumulative effect of the accounting change
increased fiscal 1993 net earnings $241,000 or $.04 per share. The adoption of
the new accounting standard did not have a significant effect on the income tax
provision for fiscal year 1993.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to have a strong financial position with no debt
obligations. At July 28, 1995, working capital was $22,529,000 and the current
ratio was a healthy 9.2:1. At July 28, 1995, the Company had in place with its
commercial bank an unused, unsecured $3 million line of credit.
Cash flows from operations were $2,205,000 for fiscal year 1995 compared with
$6,267,000 for the previous year. The 29 percent increase in inventory absorbed
the largest amount of cash flows. The increase in inventory is attributable to
manufacturing management's response to a very optimistic sales forecast for the
automated SFE systems. Management expects the inventory to be reduced during
fiscal 1996. Year-over-year the Company's accounts receivable increased fourteen
percent, primarily the result of some extended introductory payment terms for
international
13
<PAGE>
TOC dealers and the delayed payments from customers of the automated SFX 3560.
Of the accounts receivable at year-end, 71 percent were current, 15 percent were
one to 30 days past due, and 14 percent were more than 30 days past due.
During fiscal year 1996, the Company anticipates making capital expenditures of
$1.8 million, primarily for equipment, with the necessary cash being generated
from operations.
Management continues its active involvement in the acquisition process,
searching for candidates which are capable of assisting the Company in achieving
its strategic goals. The Company is reviewing candidates with sales in the $2
to $20 million range.
INFLATION
The impact of inflation on the costs of the Company and its ability to pass on
cost increases in the form of increased sale prices is dependent upon market
conditions and the competitive environment for each of its business segments.
Inflation in the domestic economy has been relatively low for the past three
years and has not had a significant impact on the Company.
14
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Independent Auditors' Report
Board of Directors and Shareholders
Isco, Inc.
We have audited the accompanying consolidated balance sheets of Isco, Inc. and
subsidiaries as of July 28, 1995 and July 29, 1994, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
three years in the period ended July 28, 1995. Our audits also included the
financial statement schedule listed in the Index at Item 14.a.2. These
financial statements and the financial statement schedule are the responsibility
of the Company's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on our audits.
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 provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Isco, Inc. and subsidiaries as of
July 28, 1995 and July 29, 1994, and the results of their operations and their
cash flows for each of the three years in the period ended July 28, 1995 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note A to the consolidated financial statements, the Company
changed its method of accounting for income taxes in fiscal year 1993 and its
method of accounting for securities in fiscal year 1994.
Deloitte & Touche LLP
Lincoln, Nebraska
September 22, 1995
15
<PAGE>
ISCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended
--------------------------
July 28 July 29 July 30
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Net sales $41,784 $38,706 $37,644
Cost of sales 17,178 15,735 15,154
------- ------- -------
24,606 22,971 22,490
------- ------- -------
Expenses:
Selling, general, and administrative 16,430 14,616 14,587
Research and engineering 4,468 4,595 4,648
------- ------- -------
20,898 19,211 19,235
------- ------- -------
Operating income 3,708 3,760 3,255
------- ------- -------
Non-operating income:
Investment income 938 697 726
Other 499 616 457
------- ------- -------
1,437 1,313 1,183
------- ------- -------
Earnings before income taxes and
cumulative effect of a change
in accounting principle 5,145 5,073 4,438
Income taxes (Note G) 1,571 1,594 1,244
------- ------- -------
Earnings before cumulative effect of a
change in accounting principle 3,574 3,479 3,194
Cumulative effect of changing the method
of accounting for income taxes -- -- 241
------- ------- -------
Net earnings $ 3,574 $ 3,479 $ 3,435
------- ------- -------
------- ------- -------
Net earnings per share (Note K):
Earnings before cumulative effect of a
change in accounting principle $.67 $.63 $.59
Cumulative effect of changing the method
of accounting for income taxes -- -- .04
------- ------- -------
Net earnings $.67 $.63 $.63
------- ------- -------
------- ------- -------
Weighted average number of shares
outstanding (Note K) 5,370 5,485 5,488
------- ------- -------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
16
<PAGE>
ISCO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Columnar amounts in thousands)
<TABLE>
<CAPTION>
July 28 July 29
1995 1994
-------- -------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 4,063 $ 3,683
Short-term investments (Note B) 5,883 9,782
Accounts receivable, trade, net of
allowance for doubtful accounts
of $73,859 and $61,665 6,949 6,105
Inventories (Note C) 6,812 5,274
Refundable income taxes (Note G) 472 --
Deferred income taxes (Note G) 558 675
Other current assets 555 427
-------- -------
Total current assets 25,292 25,946
Property, plant, and equipment (Note D) 8,337 8,994
Long-term investments (Note B) 10,487 7,421
Other assets (Note E) 1,650 1,605
-------- -------
Total assets $45,766 $43,966
-------- -------
-------- -------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 547 $ 612
Accrued expenses (Note F) 2,197 2,341
Income taxes payable (Note G) 19 157
-------- -------
Total current liabilities 2,763 3,110
-------- -------
Deferred income taxes (Note G) 1,001 1,111
Shareholders' equity (Notes I and K):
Preferred stock, $.10 par value, authorized
5,000,000 shares; issued none
Common stock, $.10 par value, authorized
15,000,000 shares; issued 5,978,538 shares 598 598
Additional paid-in capital 36,838 36,838
Retained earnings 6,511 4,011
Net unrealized holding gain/(loss) on
available-for-sale securities (Note B) (281) (291)
-------- -------
43,666 41,156
Less treasury stock, at cost, 626,607, and
600,607 shares 1,664 1,411
-------- -------
Total shareholders' equity 42,002 39,745
-------- -------
Total liabilities and shareholders' equity $45,766 $43,966
-------- -------
-------- -------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
17
<PAGE>
ISCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Net
unrealized
Cumulative holding
foreign gain/(loss)
Additional currency on available-
Common Stock paid-in Retained translation for-sale Treasury Stock
------------------ ------------------
shares amount capital earnings adjustment securities shares amount
--------- ------ ---------- -------- ----------- ------------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, July 31, 1992 5,198,729 $520 $26,962 $ 9,056 $(8) $ -- 437,793 $ (448)
Net earnings -- -- -- 3,435 -- -- -- --
Cash dividends ($0.17 per share) -- -- -- (955) -- -- -- --
Exercise of stock options -- -- 11 -- -- -- (10,178) 11
Foreign currency
translation adjustment -- -- -- -- 8 -- -- --
--------- ------ ---------- -------- ----------- ------------- -------- -------
Balance, July 30, 1993 5,198,729 520 26,973 11,536 -- -- 427,615 (437)
Net earnings -- -- -- 3,479 -- -- -- --
Cash dividends ($0.19 per share) -- -- -- (1,061) -- -- -- --
15% stock dividend 779,809 78 9,865 (9,943) -- -- 64,142 --
Purchase of stock -- -- -- -- -- -- 108,850 (974)
Net unrealized holding gain/(loss)
on available-for-sale
securities -- -- -- -- -- (291) -- --
--------- ------ ---------- -------- ----------- ------------- -------- -------
Balance, July 29, 1994 5,978,538 598 36,838 4,011 -- (291) 600,607 (1,411)
Net earnings -- -- -- 3,574 -- -- -- --
Cash dividends ($0.20 per share) -- -- -- (1,074) -- -- -- --
Purchase of stock -- -- -- -- -- -- 26,000 (253)
Net change in net unrealized
holding gain/(loss) on
available-for-sale securities -- -- -- -- -- 10 -- --
--------- ------ ---------- -------- ----------- ------------- -------- -------
Balance, July 28, 1995 5,978,538 $598 $36,838 $ 6,511 $-- $(281) 626,607 $(1,664)
--------- ------ ---------- -------- ----------- ------------- -------- -------
--------- ------ ---------- -------- ----------- ------------- -------- -------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
18
<PAGE>
ISCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(columnar amounts in thousands)
<TABLE>
<CAPTION>
Year Ended
----------------------------
July 28 July 29 July 30
1995 1994 1993
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 3,574 $ 3,479 $ 3,435
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 2,102 1,945 1,843
Cumulative effect of changing the method of
accounting for income taxes -- -- (241)
Deferred income taxes -- (242) 218
(Gain)loss on sale of investments (7) 159 (22)
Gain on sale of property, plant, and
equipment (147) (121) (152)
Provision for doubtful accounts 20 31 35
Change in operating assets and liabilities:
Accounts receivable, trade-
(increase) decrease (864) (469) 620
Inventories-(increase) decrease (1,538) (152) 1,537
Refundable income taxes-(increase)
decrease (472) 837 (780)
Other current assets-(increase) decrease (128) 153 185
Accounts payable-increase (decrease) (65) 277 (440)
Accrued expenses-increase (decrease) (144) 229 (809)
Income taxes payable-increase (decrease) (138) 157 --
Other 12 (16) 8
------- -------- --------
Total adjustments (1,369) 2,788 2,002
------- -------- --------
Net cash provided by operating activities 2,205 6,267 5,437
------- -------- --------
Cash flows from investing activities:
Proceeds from sale of available-for-sale
securities 11 4,838 --
Proceeds from maturity of available-for-
sale securities 4 -- --
Proceeds from maturity of held-to-maturity
securities 6,079 8,484 --
Proceeds from sale or maturity of investments -- -- 12,707
Proceeds from sale of property, plant, and
equipment 178 158 208
Purchase of available-for-sale securities (290) (3,106) --
Purchase of held-to-maturity securities (5,184) (11,273) --
Purchase of investments -- -- (16,039)
Purchase of property, plant, and equipment (1,125) (750) (1,911)
Investment in Geomation, Inc. -- (500) --
Other (171) (88) (290)
------- -------- --------
Net cash used in investing activities (498) (2,237) (5,325)
------- -------- --------
</TABLE>
19
<PAGE>
ISCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(columnar amounts in thousands)
<TABLE>
<CAPTION>
Year Ended
----------------------------
July 28 July 29 July 30
1995 1994 1993
------- -------- --------
<S> <C> <C> <C>
Cash flows from financing activities:
Cash dividends paid (1,074) (1,061) (955)
Proceeds from exercise of stock options -- -- 22
Purchase of stock (253) (974) --
------- -------- --------
Net cash used in financing activities (1,327) (2,035) (933)
------- -------- --------
Cash and cash equivalents:
Net increase (decrease) 380 1,995 (821)
Balance at beginning of year 3,683 1,688 2,509
------- -------- --------
Balance at end of year $ 4,063 $ 3,683 $ 1,688
------- -------- --------
------- -------- --------
</TABLE>
See Note L for supplemental cash flow information.
The accompanying notes are an integral part of the consolidated financial
statements.
20
<PAGE>
ISCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended July 28, 1995, July 29, 1994 and July 30, 1993
(Columnar amounts in thousands, except share and per share data)
Note A. Summary of Significant Accounting Policies.
Basis of Presentation--The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany transactions and accounts have been eliminated. Investments in
which the Company exercises significant influence over operating and financial
policies are accounted for using the equity method.
For fiscal reporting purposes, the company operates under a 52/53 week year,
ending on the last Friday of July.
Cash and Cash Equivalents--Cash and cash equivalents include all cash balances
and highly liquid investments with an original maturity of three months or less.
Investments--The Company elected to adopt Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" in fiscal year 1994. This Statement requires the use of fair value
accounting for those securities the Company identifies as trading and available-
for-sale, but retains the use of the amortized cost method for investments in
debt securities that the Company has the positive intent and ability to hold to
maturity. Unrealized holding gains and losses are included in earnings for
trading securities and are shown as a separate component of shareholders' equity
for available-for-sale securities net of effects of income taxes. The Company
held no trading securities during the periods reported, therefore, the
accounting change had no effect on net income. Short-term investments provide
easily facilitated liquidity in 3 to 12 months while long-term investments are
intended to be held for a period in excess of one year.
Inventories--Inventories are valued at the lower of cost or market, principally
on the last-in, first-out (LIFO) basis.
Property, Plant, and Equipment--Property, plant, and equipment are stated at
historical costs. Depreciation is provided using the straight-line and
declining balance methods over estimated useful asset lives of 10 to 35 years
for buildings and improvements and 3 to 10 years for machinery and equipment.
Other Assets--Intangible assets are amortized over estimated useful lives of 5
to 20 years.
Revenue Recognition--Sales of products and services are recorded based on
shipment of products or performance of services. Revenue from extended warranty
contracts is deferred and recognized on a pro rata basis over the life of the
contracts.
Foreign Currency Translation--The functional currency of the wholly-owned Swiss
subsidiary is the United States Dollar. The foreign currency translation gain
or loss has not been material.
Employee Benefits Plan--The Beneficial Employee Trust of Isco (BETI), a
voluntary employees' beneficiary association, is funded by Company and employee
21
<PAGE>
contributions. Certain employee benefits, including the weekly disability and
medical protection plan and group insurance premiums, are paid by the BETI.
Research and Engineering Costs--Research and engineering costs are expensed as
incurred.
Income Taxes--The Company and its foreign sales corporation subsidiary file
consolidated federal and state tax returns. Income taxes are recorded using the
liability method which recognizes the amount of taxes payable or refundable for
the current year and deferred tax liabilities and assets for the future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns.
The Company adopted the liability method in accordance with SFAS No. 109,
"Accounting for Income Taxes," in fiscal 1993. The cumulative effect of the
accounting change increased fiscal 1993 net earnings $241,000 or $.04 per share.
The adoption of the new accounting standard did not have a significant effect on
the income tax provision for fiscal year 1993.
Net Earnings Per Share--Net earnings per share are based on the weighted average
number of common and common equivalent shares outstanding adjusted for the 15%
stock dividend of December 1, 1993. Dilutive common stock equivalents consist
of shares issuable upon exercise of stock options. Fully diluted net earnings
per share are not presented because they are not materially different from
primary net earnings per share.
Reclassifications--Certain reclassifications have been made to the prior years'
financial statements to conform to the current year's presentation.
Note B. Investments.
As of July 28, 1995:
<TABLE>
<CAPTION>
Gross Gross Fair
Amortized Unrealized Unrealized Market Carrying
Cost Gains Losses Value Value
--------- ---------- ---------- ------- --------
<S> <C> <C> <C> <C> <C>
Short-term investments:
Held-to-maturity
securities:
State and municipal
securities $ 5,882 $-- $ 13 $ 5,869 $ 5,883
------- --- ---- ------- -------
Long-term investments:
Held-to-maturity
securities:
State and municipal
securities 5,976 28 -- 6,004 5,976
Available-for-sale
securities:
Mutual funds 4,805 -- 454 4,351 4,351
Mortgage-backed
securities 28 -- 1 27 27
Preferred stock 127 6 -- 133 133
------- --- ---- ------- -------
Total long-term
investments 10,936 34 455 10,515 10,487
------- --- ---- ------- -------
$16,818 $34 $468 $16,384 $16,370
------- --- ---- ------- -------
------- --- ---- ------- -------
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
As of July 29, 1994:
Gross Gross Fair
Amortized Unrealized Unrealized Market Carrying
Cost Gains Losses Value Value
--------- ---------- ---------- ------- --------
<S> <C> <C> <C> <C> <C>
Short-term investments:
Held-to-maturity
securities:
State and municipal
securities $ 5,570 $1 $ 17 $ 5,554 $ 5,570
Available-for-sale
securities:
Mutual funds 4,642 -- 459 4,183 4,183
Mortgage-backed
securities 36 -- 7 29 29
------- -- ---- ------- -------
Total short-term
investments 10,248 1 483 9,766 9,782
------- -- ---- ------- -------
Long-term investments:
Held-to-maturity
securities:
State and municipal
securities 7,421 2 58 7,365 7,421
------- -- ---- ------- -------
$17,669 $3 $541 $17,131 $17,203
------- -- ---- ------- -------
------- -- ---- ------- -------
- --------------------------------------------------------------------------------------------------
</TABLE>
The contractual maturities on the held-to-maturity securities range from less
than one year to five years. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
Proceeds from sales of available-for-sale securities during fiscal years 1995
and 1994 were $11,000 and $4,838,000, respectively. Gross gains of $11,000 and
$53,000, and gross losses of $4,000 and $212,000 in fiscal 1995 and 1994,
respectively, were realized on those sales using the first-in, first-out method.
In connection with the adoption of SFAS No. 115, investment securities with a
cost of $6,568,000 and $10,351,000 were transferred to available-for-sale
securities and held-to maturity securities, respectively, on July 31, 1993. Net
unrealized losses on available-for-sale securities of $449,000 less deferred
income taxes of $168,000 and net unrealized losses of $466,000 less deferred
income taxes of $175,000 at July 28, 1995 and July 29, 1994, respectively, are
included as a separate component of shareholders' equity.
Note C. Inventories.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------
<S> <C> <C>
Raw materials $2,843 $2,084
Work-in-process 2,554 1,927
Finished goods 1,415 1,263
------ ------
$6,812 $5,274
------ ------
------ ------
- ---------------------------------------------------------------
</TABLE>
Had inventories been valued on the first-in, first-out (FIFO) basis, they would
have been approximately $952,000 and $1,064,000 higher than reported on the LIFO
basis at July 28, 1995 and July 29, 1994, respectively. The reduction of this
23
<PAGE>
difference resulted from a lower LIFO index in fiscal 1995 as compared to fiscal
1994, not a reduction of LIFO pool layers. During fiscal year 1993 there was a
liquidation of certain LIFO pool layers. The gross margin and net earnings were
increased by approximately $127,000 and $85,000, respectively.
Note D. Property, Plant, and Equipment.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------
<S> <C> <C>
Land $ 757 $ 748
Buildings and improvements 8,320 8,317
Machinery and equipment 12,607 11,690
Construction-in-progress 104 282
------- -------
21,788 21,037
Less accumulated depreciation 13,451 12,043
------- -------
$ 8,337 $ 8,994
------- -------
------- -------
- ---------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Note E. Other Assets.
- ---------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------
<S> <C> <C>
Investment in Geomation, Inc. $ 501 $ 514
Cash value of life insurance 868 808
Intangibles, net of accumulated
amortization of $426,096 and $313,748 281 283
------- -------
$1,650 $1,605
------- -------
------- -------
- ---------------------------------------------------------------
</TABLE>
In September of 1993, the Company acquired, for $500,000, approximately 18
percent of the outstanding stock of Geomation, Inc., a manufacturer of data
collection, management, and control systems used in the environmental and
geotechnical industries. The Company's investment has been recorded using the
equity method of accounting, because the Company exercises significant influence
over the operating and financial policies of Geomation, Inc. The resulting
goodwill of approximately $371,000 is being amortized over a period of 20 years.
The amortization of goodwill and the Company's share of Geomation's earnings
were approximately $19,000 and $6,000, respectively for fiscal 1995, and $15,000
and $29,000, respectively for fiscal 1994. The Company has the option to
acquire complete ownership of Geomation, Inc., in the first quarter of fiscal
year 1997.
Note F. Accrued Expenses.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------
1995 1994
- ---------------------------------------------------------------
<S> <C> <C>
Salaries, wages, and commissions $ 850 $1,025
Profit sharing contribution 383 378
Vacation/personal time 598 560
Property, payroll, and sales tax 154 233
Other 212 145
------ ------
$2,197 $2,341
------ ------
------ ------
- ---------------------------------------------------------------
</TABLE>
24
<PAGE>
Note G. Income Taxes.
Income tax expense consists of:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Federal:
Current $1,346 $1,572 $ 742
Deferred -- (210) 190
State:
Current 216 256 275
Deferred -- (32) 28
Foreign:
Current 9 8 9
------ ------ ------
$1,571 $1,594 $1,244
------ ------ ------
------ ------ ------
The provision for income taxes is reconciled with the amount of income taxes
computed at the federal statutory rate as follows:
- --------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------
Computed "expected"
federal tax expense $1,749 $1,725 $1,509
State income taxes,
net of federal tax benefit 177 169 181
Foreign income taxes 9 8 9
Research and development credits (2) (71) (219)
Exempt foreign sales
corporation income (70) (68) (56)
Tax-exempt income (239) (209) (179)
Other (53) 40 (1)
------ ------ ------
$1,571 $1,594 $1,244
------ ------ ------
------ ------ ------
- --------------------------------------------------------------------------
</TABLE>
The July 28, 1995 and July 29, 1994 components of deferred income tax assets and
liabilities resulting from temporary differences between financial and tax
reporting are as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred assets:
Uniform capitalization of inventory costs $ 439 $ 349 $ 306
Securities valuations 168 175 --
Vacation/personal time 157 147 145
Write-down of inventory -- 72 --
Capital loss carry forward 41 55 --
Reserve for doubtful accounts 28 23 21
Deferred warranty income 16 15 18
Other 21 18 --
------ ------ ------
Total deferred assets 870 854 490
------ ------ ------
Deferred liabilities:
Depreciation 1,017 1,114 1,100
Uniform capitalization of inventory costs 64 85 106
Prepaid expenses 163 32 67
BETI contribution 55 44 53
Other 14 15 18
------ ------ ------
Total deferred liabilities 1,313 1,290 1,344
------ ------ ------
Net deferred liabilities $ 443 $ 436 $ 854
------ ------ ------
------ ------ ------
- -------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
At July 28, 1995, the Company had a net capital loss carry forward of
approximately $109,000 which expires in fiscal year 2000.
Note H. Short-term Borrowing.
At July 28, 1995, the Company had available a $3,000,000 unsecured line of
credit which expires December 31, 1995. The Company had no outstanding
borrowings against its line of credit during the fiscal years ended July 28,
1995 and July 29, 1994.
Note I. Stock Option Plans.
The shareholders approved the Company's 1985 incentive stock option plan which
authorized the future issuance of up to 174,750 shares to officers and key
employees. Of the shares available under the matured 1985 plan, grants were not
issued for 11,375 shares and have lapsed. An earlier 1981 incentive stock
option plan has also matured and some of the remaining options granted under
that plan were exercised in fiscal 1993. There are no further exercisable
options under the 1981 option. Under both plans, options had to be granted at
not less than 100% of the fair market value of the common stock when granted.
The options are exercisable over a period not greater than ten years from the
date of grant. Generally, options become exercisable in ratable annual
installments over the option term.
Following is a summary of the option activity:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Shares under option:
Number of shares 163,195 162,475 130,238
Option prices per share $10.00-$13.04 $10.00-$13.04 $1.81-$13.04
Shares exercisable 29,116 12,926 2,381
During the year:
Options granted 4,400 40,000 126,270
Grant price per share $10.13 $10.00 $13.04
Options exercised -- -- 11,705
Options lapsed 11,375 3,968 --
Exercise prices per share -- -- $1.81
- ------------------------------------------------------------------------------
</TABLE>
Note J. Retirement Plan.
The Company has a defined contribution retirement plan covering its United
States-based employees satisfying age and service requirements. The Company
makes annual contributions to the plan of approximately 7% of defined pre-tax
earnings. Company contributions to the plan are limited to 15% of aggregate
compensation of the participants. The Company's contributions approximated
$383,000, $378,000, and $330,000 for the fiscal years 1995, 1994, and 1993,
respectively.
A 401(k) salary reduction feature is incorporated into the retirement plan.
Under the terms of the plan, an employee may reduce his or her salary by up to
12%. The Company will match the reduction, up to 10%, with a 20% matching
contribution. The combined amount is then contributed to the plan on behalf of
the employee. During fiscal years 1995, 1994, and 1993, the Company made
matching contributions under the 401(k) salary reduction feature of
approximately $140,000, $133,000, and $121,000, respectively.
26
<PAGE>
Note K. Shareholders' Equity.
On November 18, 1993, the Board of Directors declared a 15% stock dividend to
holders of record on December 1, 1993. The 15% stock dividend did not affect
total shareholders' equity. All references in the financial statements
regarding the average or outstanding number of shares of common stock and
related per share amounts, share prices, and stock option data have been
adjusted to give retroactive effect to the 15% common stock dividend.
Note L. Supplemental Cash Flow Information.
During fiscal years 1995, 1994, and 1993, the Company made income tax payments
of approximately $2,184,000, $842,000, and $1,806,000, respectively.
Note M. Segment Reporting.
The Company designs, manufactures, and markets two distinct types of technical
instruments. Water pollution monitoring instruments include wastewater samplers
and flow measuring devices used by industry and government to monitor compliance
with water pollution regulations. Separation instruments are used by research,
testing, and analytical and process laboratories to perform life science
research; to support the development and production of high quality food,
chemical, and pharmaceutical products; and environmental compliance testing.
Identifiable assets are assets used in the operations of each segment.
Corporate assets consist, primarily, of cash, investments, refundable income
taxes, deferred income taxes, other current assets, and other assets.
Segment information
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Water
pollution
monitoring Separation
1995 instruments instruments Consolidated
- ----------------------------- ----------- ----------- ------------
<S> <C> <C> <C>
Net sales $28,739 $13,045 $41,784
------- ------- -------
Operating income (loss) $ 4,601 $ (893) $ 3,708
------- -------
Investment income 938
Other 499
-------
Earnings before income taxes $ 5,145
-------
Depreciation and amortization $ 1,202 $ 900 $ 2,102
------- ------- -------
Capital expenditures $ 471 $ 654 $ 1,125
------- ------- -------
Identifiable assets $12,769 $ 9,389 $22,158
------- ------- -------
Corporate assets $23,608
-------
Total assets $45,766
-------
-------
- ----------------------------------------------------------------------------
</TABLE>
27
<PAGE>
Segment information (continued)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
Water
pollution
monitoring Separation
1994 instruments instruments Consolidated
- ----------------------------- ----------- ----------- ------------
<S> <C> <C> <C>
Net sales $26,280 $12,426 $38,706
------- ------- -------
Operating income $ 3,581 $ 179 $ 3,760
------- -------
Investment income 697
Other 616
-------
Earnings before income taxes $ 5,073
-------
Depreciation and amortization $ 1,069 $ 876 $ 1,945
------- ------- -------
Capital expenditures $ 421 $ 329 $ 750
------- ------- -------
Identifiable assets $12,274 $ 7,633 $19,907
------- ------- -------
Corporate assets $24,059
-------
Total assets $43,966
-------
-------
- -------------------------------------------------------------------------------
Water
pollution
monitoring Separation
1993 instruments instruments Consolidated
- ----------------------------- ----------- ----------- ------------
Net sales $25,623 $12,021 $37,644
------- ------- -------
Operating income (loss) $ 4,316 $(1,061) $ 3,255
------- -------
Investment income 726
Other 457
-------
Earnings before income
taxes and cumulative effect
of a change in accounting
principle $ 4,438
-------
Depreciation and amortization $ 957 $ 886 $ 1,843
------- ------- -------
Capital expenditures $ 1,279 $ 632 $ 1,911
------- ------- -------
Identifiable assets $12,735 $ 7,970 $20,705
------- ------- -------
Corporate assets $21,520
-------
Total assets $42,225
-------
-------
- -------------------------------------------------------------------------------
</TABLE>
Note N. International sales.
<TABLE>
<CAPTION>
- ----------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------
<S> <C> <C> <C>
Europe $4,327 $3,436 $3,418
Asia 2,822 2,172 1,769
North America 1,120 1,115 1,193
Other 1,103 1,332 1,009
------ ------ ------
$9,372 $8,055 $7,389
------ ------ ------
------ ------ ------
- ----------------------------------------------------------
</TABLE>
28
<PAGE>
Statements of Earnings by Quarter. (unaudited)
(Columnar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
First Quarter Second Quarter Third Quarter Fourth Quarter
----------------- ---------------- ----------------- -----------------
1995 1994 1995 1994 1995 1994 1995 1994
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $10,264 $9,866 $10,431 $9,300 $11,451 $9,805 $9,638 $9,735
Cost of sales 3,893 3,898 4,014 3,997 5,020 3,973 4,251 3,867
------- ------- ------- ------- ------- ------- ------- -------
6,371 5,968 6,417 5,303 6,431 5,832 5,387 5,868
------- ------- ------- ------- ------- ------- ------- -------
Expenses:
Selling, general and
administrative 3,828 3,783 4,208 3,521 4,492 3,601 3,902 3,711
Research and engineering 1,125 1,146 1,169 1,149 1,098 1,125 1,076 1,175
------- ------- ------- ------- ------- ------- ------- -------
4,953 4,929 5,377 4,670 5,590 4,726 4,978 4,886
------- ------- ------- ------- ------- ------- ------- -------
Operating income 1,418 1,039 1,040 633 841 1,106 409 982
Non-operating income 336 305 366 375 441 307 294 326
------- ------- ------- ------- ------- ------- ------- -------
Earnings before income
taxes 1,754 1,344 1,406 1,008 1,282 1,413 703 1,308
Income taxes 605 451 419 314 426 438 121 391
------- ------- ------- ------- ------- ------- ------- -------
Net earnings $ 1,149 $ 893 $ 987 $ 694 $ 856 $ 975 $ 582 $ 917
------- ------- ------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- ------- ------- -------
Net earnings per share $.21 $.16 $.18 $.13 $.16 $.18 $.11 $.17
---- ---- ---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ---- ---- ----
Weighted average shares
outstanding 5,378 5,488 5,378 5,488 5,370 5,487 5,355 5,478
------- ------- ------- ------- ------- ------- ------- -------
</TABLE>
Quarterly per share amounts may not add to annual total due to rounding.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
29
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated by reference from the Isco, Inc., Proxy Statement for Annual
Meeting of Shareholders to be held December 14, 1995, under the captions
ELECTION OF DIRECTORS, LIST OF CURRENT EXECUTIVE OFFICERS OF THE COMPANY, and
ADDITIONAL INFORMATION - Compliance with Section 16(a) of the Securities
Exchange Act of 1934.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference from the Isco, Inc., Proxy Statement for Annual
Meeting of Shareholders to be held December 14, 1995, under the caption
EXECUTIVE COMPENSATION.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference from the Isco, Inc., Proxy Statement for Annual
Meeting of Shareholders to be held December 14, 1995, under the captions GENERAL
and ELECTION OF DIRECTORS.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
page
a. The following documents are filed as a part of this report: number
1. Financial Statements:
Independent Auditors' Report 15
Consolidated Statements of Earnings for fiscal years
ended July 28, 1995, July 29, 1994, and July 30, 1993 16
Consolidated Balance Sheets at July 28, 1995 and July 29, 1994 17
Consolidated Statements of Shareholders' Equity
for fiscal years ended July 28, 1995, July 29, 1994,
and July 30, 1993 18
Consolidated Statements of Cash Flows for fiscal years
ended July 28, 1995, July 29, 1994, and July 30, 1993 19
Notes to Consolidated Financial Statements 21
Financial statements of the Registrant's subsidiaries are
omitted because the Registrant is, primarily, an operating
company and the subsidiaries are wholly-owned.
2. Schedules:
Valuation and Qualifying Accounts - Schedule VIII 33
Schedules other than those listed above are omitted for the
reason that they are not required or are not applicable or
the required information is shown in the financial statements
or notes thereto.
30
<PAGE>
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(continued)
page
number
b. Reports on Form 8-K filed for the three months ended July 28, 1995:
1. None
c. Exhibits (Numbered in accordance with Item 601 of Regulation S-K):
(3) (i) Articles of Incorporation as amended and restated
through July 26, 1985 [Incorporated by reference
to Exhibit 3.1 to the Registration Statement on
Form S-1, File No. 2-99303 (the "Form S-1")] -
(ii) By-laws as amended through September 21, 1995 34
(10) Material contracts:
(iii) (a) 1985 Incentive Stock Option Plan (Incorporated
by reference to Exhibit 10.1 (ii) of the
Form S-1)
(11) Computation of Net Earnings Per Share 33
(21) Registrant owns 100 percent of the outstanding capital
stock of Isco Instruments (Europe) AG, a Swiss corporation. -
Registrant owns 100 percent of the outstanding capital
stock of Isco, Ltd. a Barbados corporation (incorporated
August 3, 1992). -
(23) Independent Auditors' Consent 42
(27) Financial Data Schedule 43
(99) Plan Year 1995 Financial Statements of the Isco, Inc.
Retirement Plu$ Plan 44
31
<PAGE>
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.
ISCO, INC.
By: /s/Robert W. Allington By: /s/Philip M. Wittig
--------------------------- --------------------------------
Robert W. Allington, Philip M. Wittig, Treasurer,
Chief Executive Officer, Chief Financial Officer,
and Director and Director
Date: October 19, 1995 Date: October 19, 1995
By: /s/Douglas M. Grant By: /s/Vicki L. Benne
--------------------------- --------------------------------
Douglas M. Grant, President, Vicki L. Benne, Controller
Chief Operating Officer,
and Director
Date: October 19, 1995 Date: October 19, 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.
By: /s/Dale L. Young By: /s/John R. Allington
--------------------------- --------------------------------
Dale L. Young, Secretary John R. Allington,
and Director Director
Date: October 19, 1995 Date: October 19, 1995
By: By: /s/James L. Linderholm
--------------------------- --------------------------------
Robert B. Harris, James L. Linderholm,
Director Director
Date: October 19, 1995 Date: October 19, 1995
By: /s/Harris Wagenseil
---------------------------
Harris Wagenseil,
Director
Date: October 19, 1995
32
<PAGE>
VALUATION AND QUALIFYING ACCOUNTS - SCHEDULE VIII
(Amounts in thousands)
<TABLE>
<CAPTION>
Balance at Charged to Balance at
beginning cost and Amounts end of
of period expenses written-off period
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended July 28, 1995 $62 $20 $ 8 $74
Year ended July 29, 1994 57 31 26 62
Year ended July 30, 1993 64 35 42 57
- -------------------------------------------------------------------------------
</TABLE>
COMPUTATION OF NET EARNINGS PER SHARE - EXHIBIT 11
(Amount in thousands except share and per share data)
<TABLE>
<CAPTION>
Year Ended
----------------------------------------
July 28 July 29 July 30
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Primary:
Average number of shares of
common stock outstanding 5,369,216 5,484,278 5,485,497
Additional shares assuming
exercise of dilutive
stock options 973 916 2,891
--------- --------- ---------
Total 5,370,189 5,485,194 5,488,388
--------- --------- ---------
--------- --------- ---------
Net earnings $3,574 $3,479 $3,435
--------- --------- ---------
Per share amount $0.67 $0.63 $0.63
--------- --------- ---------
Fully Diluted:
Average number of shares of
common stock outstanding 5,369,216 5,484,278 5,485,497
Additional shares assuming
exercise of dilutive
stock options 3,728 927 2,993
--------- --------- ---------
Total 5,372,944 5,485,205 5,488,490
--------- --------- ---------
--------- --------- ---------
Net earnings $3,574 $3,479 $3,435
--------- --------- ---------
--------- --------- ---------
Per share amount $0.67 $0.63 $0.63
--------- --------- ---------
--------- --------- ---------
</TABLE>
33
<PAGE>
EXHIBIT (3)(ii)
AMENDED AND RESTATED BYLAWS
OF
ISCO, INC.
Effective September 21, 1995
ARTICLE I
Meetings of Stockholders
1. Annual Meetings. The annual meeting of the Stockholders for the election
of Directors and the transaction of such other business as may come before the
meeting shall be held each year on the second Thursday of December at an hour
designated by the Board of Directors and specified in the notice of the meeting.
2. Special Meetings. Special meetings of the Stockholders may be called at
any time by the President, by the Board of Directors, or by the holders of 10
percent or more of the shares of voting stock then issued and outstanding.
3. Place of Meeting. All meetings of the Stockholders shall be held at a
place designated by the Board of Directors and specified in the notice of the
meeting.
4. Notice of Meeting. Written notice of the time, place, and hour of the
Stockholders' meetings shall be mailed to each Stockholder at least ten and not
more than 50 days before such meeting. Written notice of the time and place of
a special meeting shall also state the purpose for which the meeting is called.
5. Quorum. The presence at any regular or special meeting, in person or by
proxy, of the holders of record of a majority of the voting shares of stock then
issued and outstanding shall constitute a quorum for the transaction of
business. If a quorum is not present, the Stockholders who are present may
adjourn the meeting until a quorum is present. At any reconvened meeting at
which a quorum is present, any business may be transacted which could have been
transacted at the meeting as originally called.
6. Voting. Except as otherwise provided in the Articles of Incorporation or
by statute, a majority of the shares entitled to vote, represented in person or
by proxy, at any meeting in which a quorum is present shall decide all matters
voted upon at any such meeting.
7. Cumulative Voting. At each election for Directors, every Stockholder
entitled to vote at such election shall have the right to vote, in person or by
proxy, the number of shares owned by him or her for as many persons as there are
Directors to be elected, or to cumulate his or her votes by giving one candidate
as many votes as the number of such Directors multiplied by the number of his or
her shares shall equal, or by distributing such votes on the same principle
among any number of candidates.
34
<PAGE>
ARTICLE II
Board of Directors
1. General Powers. The business of the Corporation shall be managed by the
Board of Directors and the officers; but all matters of policy shall be
determined by the Board of Directors.
2. Number. The number of Directors of the Corporation shall be not more than
nine (9), the specific number to be set from time to time by the Board of
Directors.
3. Board Meetings. An annual meeting of the Board of Directors shall be held
following the annual meeting of Stockholders. The Board of Directors shall
provide, by resolution and notice, the time and place, either within or without
the State of Nebraska, for the holding of Board meetings.
4. Election. The Directors shall be divided into either two classes, if there
are fewer than nine (9) Directors, or three classes, if there are nine (9)
Directors, each class to consist of three (3) Directors. The term of office of
the first class shall expire at the first annual meeting of the stockholders of
the Corporation after their election, that of the second class shall expire at
the second annual meeting after their election, and that of the third class, if
any, shall expire at the third annual meeting after their election. At each
annual meeting, after such classification, the Directors of the class whose term
expires at the time of such meeting shall be elected to hold office until the
second succeeding annual meeting, if there be two classes, or until the third
annual meetings, if there be three classes.
5. Notice of Meetings. Notice of any meeting shall be given at least three
(3) days previous thereto by written notice delivered personally, by facsimile
machine or mailed to each Director at his or her address. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
so addressed, with postage thereon prepaid. Except where a Director attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened, appearance of any
Director at a meeting shall constitute a waiver of notice of such meeting to
such Director. Neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the Board of Directors need be specified in
the notice or waiver of notice of such meeting.
6. Quorum. A majority of the number of Directors fixed by Section 2 of this
Article II and holding duly elected office at the time of any meeting shall
constitute a quorum for the transaction of business at any meeting of the Board
of Directors. If a quorum is not present, the Directors who are present may
adjourn the meeting until a quorum is present. At any reconvened meeting at
which a quorum is present, any business may be transacted which could have been
transacted at the meeting as originally called.
7. Manner of Acting. The act of the majority of the Directors present at a
meeting at which a quorum is present shall be the act of the Board of Directors.
8. Vacancies. Any vacancy occurring in the Board of Directors may be filled
by the affirmative vote of a majority of the remaining Directors although there
is less than a quorum of the Board of Directors. A Director elected to fill a
vacancy shall be elected for the unexpired term of his or her predecessor in
office. Any Directorship to be filled by reason of an increase in number of
Directors shall be filled by election at an annual or special
35
<PAGE>
meetings of the Stockholders called for that purpose.
9. Nominations to the Board of Directors. The Board of Directors, as a whole,
shall act as the Nominating Committee. The Board of Directors shall receive
from the Officers and individual members of the Board recommendations for
prospective Board nominees. The Board of Directors shall review information
requested by or provided to the Board with respect to prospective nominees and
may recommend an interview process for such prospective nominees. From the
nominees, the Board of Directors shall select one or more prospective nominees
to constitute the Board's recommended nominees to be presented for nomination
and election at any special or annual meeting of stockholders where directors
are to be elected.
10. Written Consent in Lieu of Meeting. Any action which could be taken by the
Directors at a meeting of the Board of Directors may be taken without a meeting
if, prior to such action, each Director signs a written consent setting forth
the action and such consent is filed with the minutes of the meeting of the
Board of Directors.
11. Compensation of Directors. Pursuant to a resolution of the Board of
Directors, Directors may be paid their expenses for attendance at each meeting
and may receive either a fixed sum for attendance at each meeting, or a stated
salary, as Directors. No such payment shall preclude such Director from serving
the Corporation in any other capacity when receiving compensation therefor.
Directors who are also employees of the Corporation may receive additional
compensation for serving as a Director of the Corporation, and may be paid
reasonable out-of-pocket expenses associated with attending meetings.
ARTICLE III
Committees of the Board
1. Issues Committee. The Issues Committee shall consist of the Chairman of
the Board of Directors and two (2) outside Directors appointed annually by the
Chairman. The Issues Committee shall serve in an advisory capacity, only, to
the Chairman.
2. Audit Committee. The Board shall have an Audit Committee which shall
consist of three (3) outside Directors appointed annually by the Chairman. The
Chairman of the Board of Directors shall appoint the chairman and secretary of
the Committee. The Audit Committee is to assist the Board in fulfilling its
fiduciary responsibilities with respect to the accounting policies and reporting
practices of Isco and all its subsidiaries and the sufficiency relative thereto.
3. Compensation Committee. The Compensation Committee shall consist of three
(3) outside Directors and the Chairman of the Board of Directors, who shall not
act as chairman of the Committee. Committee members, chairman and secretary,
are appointed by the Chairman of the Board of Directors. The function of the
Compensation Committee shall be to review performance of the officers of Isco
and make officer compensation recommendations to the Board for approval.
4. Other Committees. The Board of Directors may, from time to time, designate
other Committees to take such action or have responsibilities as set forth by
the Board of Directors with the Committee members and officers of the Committee
appointed by the Chairman of the Board of Directors.
36
<PAGE>
5. Compensation. Pursuant to a resolution of the Board of Directors,
Directors may be paid their expenses for attendance at each Committee meeting
and receive a fixed sum for attendance at each meeting. No such payment shall
preclude such Director from serving the Corporation in any other capacity when
receiving compensation therefor. Directors who are also employees of the
Corporation shall not receive additional compensation for serving as members of
Committees, but may be paid reasonable expenses associated with attending
meetings.
ARTICLE IV
Officers
1. Officers. The Corporation shall have a Chairman of the Board, President,
one or more Vice Presidents, a Secretary and one or more Assistant Secretaries,
a Treasurer and one or more Assistant Treasurers, and such other officers and as
may be deemed necessary by the Board of Directors. Such other officers and
assistant officers shall perform such duties as may be prescribed by the Board
of Directors and the President.
2. Election. Officers shall be elected annually by the Board of Directors and
shall serve until their successors are elected at any regular meeting of the
Board. Officers need not by Directors or Stockholders.
3. Removal. The Board of Directors may remove any officer at any meeting.
4. Resignations and Vacancies. The Board of Directors may accept the
resignation of an officer. A vacancy in any office may be filled by the Board
of Directors.
ARTICLE V
Duties of Officers
1. Chairman of the Board of Directors. The Chairman of the Board of Directors
shall preside at all regular and special meetings of the Stockholders and the
Board of Directors. The Chairman of the Board of Directors shall have such
other duties or responsibilities as shall be set, from time to time, by the
Board of Directors. The Chairman shall also be the Chief Executive Officer of
the Corporation and shall ensure that all orders and resolutions of the Board of
Directors are carried into effect.
2. The President. The President shall also be the Chief Operating Officer of
the Corporation. In the absence of the Chairman, the President shall preside at
all meetings of the Stockholders and Directors; shall have general and active
management responsibility of the business of the Corporation; and shall execute
bonds, mortgages, and other instruments for the Corporation.
3. The Vice Presidents. In the absence of the Chairman and President or in
the event of his or her inability to act as such, a Vice President annually
designated by the Board of Directors shall perform the duties of the President
unless otherwise decided by the Board of Directors. The Vice Presidents shall
also be responsible for the management of their respective departmental or
divisional duties.
4. The Secretary. The Secretary shall issue necessary notices of meetings,
shall keep the minutes of Stockholders and the Board of Directors, shall have
charge of the Seal, shall sign with the President such instruments as require
his signature, and shall make such reports and perform such other duties as are
incident to his office or that are properly required of him by the Board
37
<PAGE>
of Directors.
5. Assistant Secretary. The Assistant Secretary shall assist the Secretary in
performance of the prescribed duties and in the absence of the Secretary,
perform the prescribed duties of the Secretary.
6. Treasurer. The Treasurer shall be the chief financial officer of the
Corporation. The Treasurer shall see that the books of account are kept, and
that such financial statements or reports as the Board of Directors may require
are prepared. He shall sign or countersign such instruments as require his
signature, and shall perform such other duties as are incident to his office or
that are properly required of him by the Board of Directors.
7. Salaries. The salaries of all officers of the Corporation shall be fixed
by the Board of Directors.
ARTICLE VI
Shares and Their Transfer
1. Certificates. Certificates representing shares of the Corporation shall be
in such form as shall be determined by the Board of Directors. Such
certificates shall bear the original or a facsimile signature of the President
or a Vice President and the Secretary or an Assistant Secretary. All
certificates for shares shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares represented thereby are
issued, with the number of shares and date of issue, shall be entered on the
stock transfer books of the Corporation. Except in the case of lost, destroyed
or mutilated certificates, new or replacement certificates shall not be issued
until the former certificate for a like number of shares shall have been
surrendered and canceled.
2. Transfer of Shares. Transfer of shares of the Corporation shall be made
only on the stock transfer books of the Corporation by the holder of record
thereof or his legal representative, who shall furnish proper evidence of
authority to transfer or by his attorney thereunto authorized by power of
attorney duly executed and filed with the stock transfer agent of the
Corporation. The person in whose name shares stand on the books of the
Corporation shall be deemed by the Corporation to be the owner thereof for all
purposes. The stock transfer books of the Corporation may be maintained and the
transfer of shares effected by a stock transfer agent designated by the Board of
Directors.
3. Limitations of Transfers. The Corporation shall have the right to place
restrictive legends upon or cause any stock transfer agent of the Corporation to
place legends upon certificates restricting transfer in compliance with the
Securities Act of 1933 or the securities law of any state.
4. Establishment of Record Dates. The Board of Directors shall have the
power, in lieu of closing the stock transfer books, to fix a date as the record
date for the receipt of any dividend or distribution to the stockholders, such
date to be not more than 50 days prior to the payment or making of such dividend
or distribution and a record date for the determination of stockholders entitled
to vote at a meeting which date shall be not less than 10 days prior to the date
on which the meeting is to be held.
5. Replacement of Lost or Destroyed Certificates. The Board of Directors or
the stock transfer agent of the Corporation acting by and on behalf of the Board
of Directors shall establish the procedures and requirements for the
38
<PAGE>
replacement and reissuance of certificates which are alleged to have been
destroyed or lost.
ARTICLE VII
Indemnification
1. The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceedings, whether civil, criminal, administrative or investigative,
other than an action by or in the right of the Corporation, by reason of the
fact that he or she is or was a Director, officer, employee, or agent of the
Corporation, or is or was serving at the request of the Corporation as a
Director or officer of another Corporation, partnership, joint venture, trust or
other enterprise, against expenses, including attorneys' fees, judgments, fines,
and amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Corporation, and with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he or she reasonably believed to be in or not opposed to the best
interests of the Corporation, and with respect to any criminal action or
proceeding, had reasonable cause to believe that his or her conduct was
unlawful.
2. The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he or she is or was a Director, officer, employee, or
agent of the Corporation, or is or was serving at the request of the Corporation
as a Director, officer, employee or agent of another Corporation, partnership,
joint venture, trust or other enterprise against expenses, including attorneys'
fees, actually and reasonably incurred by him or her in connection with the
defense or settlement of such action or suit if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Corporation, except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable for negligence or misconduct in the performance of his or
her duty to the Corporation unless and only to the extent that the court in
which such action or suit was brought shall determine upon application that
despite the adjudication of liability but in view of all circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses which such court shall deem proper.
3. To the extent that a Director, officer, employee, or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraphs 1. and 2. hereof, or in
defense of any claim, issue or matter therein, he or she shall be indemnified
against expenses, including attorneys' fees, actually and reasonably incurred by
him or her in connection therewith.
4. Any indemnification under paragraphs 1. and 2. hereof, unless ordered by a
court, shall be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the Director, officer, employee, or
agent of the Corporation, is proper in the circumstances because
39
<PAGE>
he or she has met the applicable standard of conduct set forth in paragraphs 1.
or 2. hereof. Such determination shall be made by the Board of Directors by a
majority vote of a quorum consisting of Directors who were not parties to such
action, suit or proceeding, or if such a quorum is not obtainable, or even if
obtainable, a quorum of disinterested Directors so directs, by independent legal
counsel in a written opinion, or by the Stockholders, as the case may be.
5. Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding as authorized in the matter provided in
paragraph 4. hereof upon receipt of an undertaking by or on behalf of the
Director, officer, employee, or agent of the Corporation to repay such amount
unless it shall ultimately be determined that he or she is entitled to be
indemnified by the Corporation as authorized in this section.
6. The indemnification provided by this section shall not be deemed exclusive
of any other rights to which those indemnified may be entitled under any other
bylaw, agreement, vote of Stockholders or disinterested Directors or otherwise,
both as to action in his or her official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who has
ceased to be a Director, officer, employee, or agent of the Corporation and
shall inure to the benefit of the heirs, executors and administrators of such
person.
7. The Corporation shall have the power at the discretion of the Board of
Directors to purchase and maintain insurance on behalf of any person who is or
was a Director, officer, employee, or agent of the Corporation, or is or was
serving at the request of the Corporation as a Director, officer, employee, or
agent of another Corporation, partnership, joint venture, trust, or other
enterprise against any liability asserted against him or her and incurred by him
or her in any such capacity or arising out of his or her status as such, whether
or not the Corporation would have the power to indemnify him or her against such
liability under the provisions of this Article VII.
8. The Corporation shall not indemnify a Director, officer, employee, or agent
of the Corporation under this Article VII if the Director, officer, employee, or
agent of the Corporation has previously received indemnification or allowance of
expenses from any person, including the Corporation, in connection with the same
proceeding. However, the Director, officer, employee, or agent of the
Corporation has no duty to look to any other person for indemnification.
9. In order for the Corporation to obtain and retain qualified Directors,
officers and employees, the foregoing provisions shall be liberally administered
in order to afford maximum indemnification of Directors, officers, and
employees. The indemnification above provided for shall be granted in all
applicable cases unless to do so would clearly contravene law, controlling
precedent or public policy.
ARTICLE VIII
Loans to Directors and Officers
No loan shall be made by the Corporation to its Directors or officers.
40
<PAGE>
ARTICLE IX
Fiscal Year
The fiscal year of the Corporation shall be the last Saturday in July
through the last Friday of the following July.
ARTICLE X
Amendments
These Bylaws may be amended or repealed at any meeting of the Board of
Directors.
41
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No. 33-
4190 and Registration Statement No. 33-41201 of Isco, Inc. and subsidiaries on
Form S-8 of our reports dated September 22, 1995 (which reports express an
unqualified opinion and include an explanatory paragraph referring to Isco,
Inc.'s change in its method of accounting for income taxes in fiscal year 1993
and its method of accounting for securities in fiscal year 1994), appearing in
the Annual Report on Form 10-K of Isco, Inc. and subsidiaries for the year ended
July 28, 1995.
Deloitte & Touche LLP
Lincoln, Nebraska
October 23, 1995
42
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet and Statement of Earnings for July 28, 1995 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-28-1995
<PERIOD-START> JUL-30-1994
<PERIOD-END> JUL-28-1995
<CASH> 4,063
<SECURITIES> 5,883
<RECEIVABLES> 7,023
<ALLOWANCES> 74
<INVENTORY> 6,812
<CURRENT-ASSETS> 25,292
<PP&E> 21,788
<DEPRECIATION> 13,451
<TOTAL-ASSETS> 45,766
<CURRENT-LIABILITIES> 2,763
<BONDS> 0
<COMMON> 598
0
0
<OTHER-SE> 41,404
<TOTAL-LIABILITY-AND-EQUITY> 45,766
<SALES> 41,784
<TOTAL-REVENUES> 41,784
<CGS> 17,178
<TOTAL-COSTS> 17,178
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,145
<INCOME-TAX> 1,571
<INCOME-CONTINUING> 3,574
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,574
<EPS-PRIMARY> .67
<EPS-DILUTED> .67
</TABLE>
<PAGE>
EXHIBIT 99
ISCO, INC. RETIREMENT PLU$ PLAN
Financial Statements And Supplemental
Schedules For The Years Ended
July 31, 1995 And 1994
And Independent Auditors' Report
44
<PAGE>
ISCO, INC. RETIREMENT PLU$ PLAN
FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
AND INDEPENDENT AUDITORS' REPORT
TABLE OF CONTENTS
Page
FINANCIAL STATEMENTS:
Independent Auditors' Report 46
Statements of Net Assets Available for Benefits 47
Statements of Changes in Net Assets Available for Benefits 48
Notes to Financial Statements 49
SUPPLEMENTAL SCHEDULES:
Item 27a - Schedule of Assets Held for Investment
Purposes - July 31, 1995 55
Item 27d - Schedule of Reportable Transactions -
Year Ended July 31, 1995 56
45
<PAGE>
INDEPENDENT AUDITORS' REPORT
Plan Committee
Isco, Inc. Retirement Plu$ Plan
Lincoln, Nebraska
We have audited the accompanying statements of net assets available for benefits
of the Isco, Inc. Retirement Plu$ Plan as of July 31, 1995 and 1994 and the
related statements of changes in net assets available for benefits for the years
then ended. These financial statements are the responsibility of the Plan's
management. Our responsibility is to express an opinion on the financial
statements based on our audits.
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 also 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 provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Isco, Inc.
Retirement Plu$ Plan as of July 31, 1995 and 1994, and the changes in net assets
available for benefits for the years then ended, in conformity with generally
accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of (1) assets
held for investment purposes as of July 31, 1995, and (2) transactions in excess
of 5% of the beginning of year value of plan assets for the year ended July 31,
1995, are presented for the purpose of additional analysis and are not a
required part of the basic financial statements, but are supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. The supplemental information by fund in the statements of net assets
available for benefits and the statements of changes in net assets available for
benefits is presented for the purpose of additional analysis rather than to
present the net assets available for benefits and changes in net assets
available for benefits of the individual funds. The supplemental schedules and
supplemental information by fund is the responsibility of the Plan's management.
Such supplemental schedules and supplemental information by fund have been
subjected to the auditing procedures applied in our audit of the basic 1995
financial statements and, in our opinion, are fairly stated in all material
respects when considered in relation to the basic financial statements taken as
a whole.
Deloitte & Touche LLP
Lincoln, Nebraska
September 29, 1995
46
<PAGE>
ISCO, INC. RETIREMENT PLU$ PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
(amounts in thousands)
<TABLE>
<CAPTION>
July 31, 1995 July 31, 1994
------------------------------------ -------------------------------------
Supplemental Information Supplemental Information
by Fund by Fund
-------------------------- -------------------------
Employer Participant Employer Participant
Directed Directed Total Directed Directed Total
-------- ----------- ----- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Investments, at fair
value (Note C):
Money market mutual
funds $ -- $ -- $ -- $ 428 $ -- $ 428
Mutual funds 226 13,388 13,614 582 9,998 10,580
Isco, Inc. common
stock fund -- 741 741 -- 413 413
Other investments 117 -- 117 129 -- 129
---- ------- ------- ------ ------- -------
343 14,129 14,472 1,139 10,411 11,550
Participant loans -- 442 442 -- 352 352
---- ------- ------- ------ ------- -------
Total investments 343 14,571 14,914 1,139 10,763 11,902
Employer contributions
receivable -- 383 383 -- 378 378
Accrued income 6 -- 6 3 -- 3
---- ------- ------- ------ ------- -------
Net assets available
for benefits $349 $14,954 $15,303 $1,142 $11,141 $12,283
---- ------- ------- ------ ------- -------
---- ------- ------- ------ ------- -------
</TABLE>
The accompanying notes are an integral part of the financial statements
47
<PAGE>
ISCO, INC. RETIREMENT PLU$ PLAN
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
(amounts in thousands)
<TABLE>
<CAPTION>
July 31, 1995 July 31, 1994
--------------------------------- ---------------------------------------
Supplemental Information Supplemental Information
by Fund by Fund
------------------------ --------------------------
Employer Participant Employer Participant
Directed Directed Total Directed Directed Total
-------- -------------------- -------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Investment income (Note C and G):
Dividends, interest, and other income $ 26 $ 719 $ 745 $ 75 $ 821 $ 896
Net realized and unrealized
appreciation(depreciation) in fair
value of investments -- 1,509 1,509 (4) (890) (894)
------- ------- ------ ------- ------- -------
Net investment income(loss) 26 2,228 2,254 71 (69) 2
------- ------- ------ ------- ------- -------
Contributions:
Employer annual profit sharing -- 383 383 -- 378 378
Employer 401(k) matching -- 140 140 -- 146 146
Participant -- 730 730 -- 718 718
Participant rollovers -- -- -- -- 4 4
------- ------- ------ ------- ------- -------
-- 1,253 1,253 -- 1,246 1,246
------- ------- ------ ------- ------- -------
Total additions 26 3,481 3,507 71 1,177 1,248
Benefits paid (15) (472) (487) (13) (259) (272)
Transfers (804) 804 -- (5,842) 5,842 --
------- ------- ------ ------- ------- -------
Increase (decrease)in net assets
available for benefits (793) 3,813 3,020 (5,784) 6,760 976
Net assets available for benefits:
Beginning of year 1,142 11,141 12,283 6,926 4,381 11,307
------- ------- ------ ------- ------- -------
End of year $ 349 $14,954 $15,303 $1,142 $11,141 $12,283
------- ------- ------ ------- ------- -------
------- ------- ------ ------- ------- -------
</TABLE>
The accompanying notes are an integral part of the financial statements
48
<PAGE>
ISCO, INC. RETIREMENT PLU$ PLAN
NOTES TO FINANCIAL STATEMENTS
Years ended July 31, 1995 and 1994
(Columnar amounts in thousands, except share data)
A. DESCRIPTION OF PLAN
General - The following brief description of the Isco, Inc. Retirement Plu$ Plan
(the Plan) is provided for general information purposes only. Participants
should refer to the Plan document for more complete information. The Plan was
established effective August 1, 1972 to provide retirement benefits for the
employees of Isco, Inc. (the Company). The Plan was last amended effective June
17, 1994. Effective August 1, 1987, a 401(k) salary reduction option was
incorporated into the Plan. Employees are eligible for participation after they
have completed one year of service and are at least 21 years of age. A year of
service is defined as the accumulation of 1,000 hours of credited service during
a one-year period beginning on the employment date.
Participant contributions, employer 401(k) matching contributions, employer
annual profit sharing contributions, and participant rollover contributions are
invested at Twentieth Century Investors under the direction of the plan
participants.
Funding - Contributions to the Plan are provided from the following sources:
Employer Annual Profit Sharing Contribution (Participant Directed) - The
Employer is required to contribute an amount equal to the lesser of 7% of the
current net profit of the Company or the maximum amount allowed by the Internal
Revenue Code. The contributed amount received by each participant is based on
their percentage of total eligible compensation.
Participant Contributions (Participant Directed) - Plan participants may elect
to reduce their compensation by a maximum of 12%, subject to IRS limitations.
The Employer then contributes the amount of reduction in compensation to the
Plan on behalf of each participant.
Employer 401(k) Matching Contribution (Participant Directed) - The Employer is
required to match 20% of the contribution made on behalf of each participant
electing salary reductions up to a maximum of 10% of the participant's eligible
compensation.
Participant Rollover Contributions (Participant Directed) - The Plan allows
participants to make rollover contributions from other qualified plans. This
provision was eliminated as of August 1, 1994.
Participant Accounts - Each participant's account is credited with the
participant's contribution, the Company's matching contribution and the
allocated portion of: the Company's annual contribution, the Plan earnings, and
the forfeited portion of terminated participants' non-vested accounts. 401(k)
forfeitures are allocated, based on a participant's contributions to the 401(k)
plan during the year. The Company's annual contribution and forfeitures are
allocated to each participant's account based on the percentage of the
participant's eligible compensation for the plan year to the total compensation
of all eligible participants for the plan year. Plan
49
<PAGE>
earnings are allocated to the individual participant's account based on the
percentage of the participant's account balance to the aggregate account
balances.
Vesting - Participant contributions (i.e. employee salary reduction amounts) and
participant rollover contributions are immediately fully vested and
nonforfeitable. Employer profit sharing contributions and the Employer 401(k)
matching contributions vest 20% upon completion of three years of credited
service, increasing 20% per year until fully vested upon completion of seven
years of credited service.
Plan participants are eligible for normal retirement at age 65 but may elect to
retire at a later date. Upon attainment of 65 years of age, death, or
determination of disability, a participant becomes 100% vested regardless of the
number of credited years of service completed.
Plan Expenses - As an additional benefit to the participants, the Employer,
without reimbursement, pays for all costs required to administer the Plan.
These costs are not reflected in the financial statements.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Valuation of Investments - Investments are stated at fair value. Fair value of
marketable securities is determined by reference to the closing quoted price by
the exchange on which the security is listed or the closing net asset value as
reported by the mutual fund. Participant loans are stated at their outstanding
principal balance. The amounts shown in Note C for securities that do not have
a quoted market price represent fair value estimated by an independent third
party.
Investment transactions are recognized on a settlement date basis. The net
realized and unrealized appreciation (depreciation) of investments is recognized
in the statements of changes in net assets available for benefits. The fair
value at the beginning of the plan year, or the purchased cost if acquired
during the year, is used in determining realized and unrealized gains and losses
on the sale of each investment.
Employer Directed - Employer directed funds are invested in the restricted fund,
which is managed by the employer. Assets allocated to the Restricted Fund at
July 31, 1995 include: United States Trust Company - Short-term Fixed Income
Fund, Balcor Pension Investors II and III, and Bankers Trust Stable Value
Government Trust. Transfers from the Restricted Fund to the Unrestricted Fund
are directed by the Plan Committee.
Participant Directed - Participant directed contributions (401(k) assets) may be
invested in seven funds. A summary description of each investment alternative
follows:
Bankers Trust Stable Value Government Trust Fund - A fund which seeks to provide
current income while maintaining a stable share price. It is managed by Bankers
Trust Company Investment Management Group.
Twentieth Century Premium Managed Bond Fund - A fund which seeks a high
50
<PAGE>
level of income from a portfolio of longer-term bonds and other debt
obligations. The fund pays a reduced management fee.
Twentieth Century Balanced Investors Fund - A fund which seeks capital growth
and current income by investing in equity securities with prospects for growth
and in investment grade bonds and other fixed income securities.
Twentieth Century Select Investors Fund - A fund comprised primarily of income-
producing equity securities of larger companies possessing potential for
appreciation.
Twentieth Century Ultra Investors Fund - A fund comprised primarily of equity
securities of medium and smaller companies with the potential for appreciation.
Twentieth Century International Equity Fund - A fund which seeks capital growth
by investing primarily in an internationally diversified portfolio of common
stocks.
Isco, Inc. Common Stock Fund - A fund invested primarily in Isco, Inc. common
stock. Isco, Inc. is a related party and sponsor of the Plan.
Benefits Payable - The Plan's policy is to record benefit payments upon
distribution to the participants. Benefits payable to retired and terminated
participants were $34,039 and $352 at July 31, 1995 and 1994, respectively.
Contributions - Employer profit sharing contributions are computed as of the end
of the Employer's fiscal year and are recorded by the Plan in the corresponding
period. Participant contributions are recorded in the period in which the bi-
weekly payroll deductions are made. The Employer 401(k) matching contributions
are also recorded in the period that the payroll deductions are made.
51
<PAGE>
C. INVESTMENTS
The following schedule presents the fair values of investments. Investments
that represent 5% or more of the Plan's net assets are separately identified.
<TABLE>
<CAPTION>
July 31, 1995
- -------------------------------------------------------------------------------
Number of
Shares/ Fair
Units Value
--------- -------
<S> <C> <C>
Investments at fair value as determined
by quoted market price:
Mutual Funds:
Twentieth Century - International Equity Fund 148,010 $ 1,109
Twentieth Century - Ultra Investors Fund 101,631 2,701
Twentieth Century - Select Investors Fund 119,573 4,772
Twentieth Century - Balanced Investors Fund 148,411 2,594
Twentieth Century - Premium Managed Bond Fund 87,278 860
Bankers Trust Stable Value Government Trust Fund 1,577,744 1,578
Other Investments:
Isco, Inc. Common Stock Fund 69,472 741
Investments at estimated fair value:
Balcor Pension Investors II 101 47
Balcor Pension Investors III 202 70
-------
Total Investments at Fair Value $14,472
-------
-------
July 31, 1994
- -------------------------------------------------------------------------------
Number of
Shares/ Fair
Units Value
--------- -------
Investments at fair value as determined
by quoted market price:
Money Market Mutual Funds:
U.S. Trust Short-term Fixed Income Fund 427,675 $ 428
Mutual Funds:
Twentieth Century - International Equity Fund 86,988 666
Twentieth Century - Ultra Investors Fund 76,207 1,485
Twentieth Century - Select Investors Fund 102,783 3,784
Twentieth Century - Balanced Investors Fund 141,234 2,186
Twentieth Century - Premium Managed Bond Fund 77,725 740
Bankers Trust Stable Value Government Trust Fund 1,718,776 1,719
Other Investments:
Isco, Inc. Common Stock Fund 44,140 413
Investments at estimated fair value:
Balcor Pension Investors II 101 53
Balcor Pension Investors III 202 76
-------
Total Investments at Fair Value $11,550
-------
-------
</TABLE>
52
<PAGE>
C. INVESTMENTS (continued)
During the years ended July 31, 1995 and 1994, the Plan's investments
appreciated(depreciated) by $1,509,435 and $(894,550) respectively, as follows:
Net Realized and Unrealized Appreciation (Depreciation) in Fair Value
<TABLE>
<CAPTION>
Year Ended July 31,
-------------------
1995 1994
------ ------
<S> <C> <C>
Investments at fair value as determined by
quoted market price:
Mutual Funds:
Twentieth Century - International Equity Fund $ 6 $ 45
Twentieth Century - Ultra Investors Fund 682 (120)
Twentieth Century - Select Investors Fund 402 (614)
Twentieth Century - Balanced Investors Fund 294 (45)
Twentieth Century - Premium Managed Bond Fund 30 (57)
Twentieth Century - U.S. Government Fund -- --
Other -- (6)
Other Investments:
Isco, Inc. Common Stock Fund 97 (97)
Investments at estimated fair value:
Other (2) --
------ -----
$1,509 $(894)
------ -----
------ -----
</TABLE>
D. CERTIFICATES OF DEPOSIT
During the plan year 1993, the plan had investments in certificates of deposit
from certain financial institutions which matured during plan year 1994. These
certificates of deposit were limited by the Plan Trustee to no more than
$100,000 of face value for each financial institution and were fully insured by
the Federal Deposit Insurance Corporation.
E. PLAN TERMINATION
Although the Company has not expressed any intent to terminate the Plan, it may
do so at any time upon giving 30 days notice to the Plan Committee, the Plan
Administrator, and the Trustee. In the event of termination of the Plan, Plan
assets would be valued and participants' accounts would be adjusted to reflect
the allocation of net gains and losses of the underlying investments. At that
time, participants' accounts would become fully vested and nonforfeitable.
F. FEDERAL INCOME TAX STATUS
The Plan has received a determination letter from the Internal Revenue Service
dated September 7, 1995, which states that the Plan, as amended June 17, 1994,
meets the requirements of Section 401(a) of the Internal Revenue Code and is,
therefore, exempt from Federal income tax under Section 501(a) of the Code.
Therefore, no provision for income taxes is provided in the financial statements
of the Plan.
53
<PAGE>
Plan income, participant pretax contributions, and employer contributions
represent taxable income to the participating employees at the time of
distribution.
G. FUND INFORMATION
Participant contributions, benefit payments, and dividends, interest and other
income by fund are as follows for the years ended July 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Participant contributions:
Stable Value Government Trust $ 65 $ 53
International Equity Fund 89 77
Ultra Investors Fund 198 197
Select Investors Fund 205 214
Balanced Investors Fund 100 105
Premium Managed Bond Fund 30 31
Isco, Inc. Common Stock Fund 43 41
---- ----
Total $730 $718
---- ----
---- ----
Benefits paid:
Stable Value Government Trust $ 7 $ 20
International Equity Fund 22 8
Ultra Investors Fund 49 22
Select Investors Fund 156 57
Balanced Investors Fund 151 116
Premium Managed Bond Fund 50 11
Isco, Inc. Common Stock Fund 26 18
Participant loans 11 7
---- ----
Total $472 $259
---- ----
---- ----
Dividends, interest and other income:
Stable Value Government Trust $ 72 $ 54
International Equity Fund 41 43
Ultra Investors Fund 59 41
Select Investors Fund 346 505
Balanced Investors Fund 107 88
Premium Managed Bond Fund 50 50
Isco, Inc. Common Stock Fund 13 24
Participant loans 31 16
---- ----
Total $719 $821
---- ----
---- ----
</TABLE>
54
<PAGE>
ISCO, INC. RETIREMENT PLU$ PLAN
PN 001
EIN #47-0461807
(amounts in thousands, except per share/unit data)
ITEM 27a - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
<TABLE>
<CAPTION>
July 31, 1995
- -----------------------------------------------------------------------------------------------
Column B Column C Column D Column E
- -------- -------- -------- --------
Description of
investment including
collateral, rate of
Identity of issue, borrower, lessor or interest, maturity date, Current
similar party par or maturity value Cost Value
- ------------------------------------------ ------------------------ -------- --------
<S> <C> <C> <C>
Mutual Funds:
- -------------
*Twentieth Century Select Investors Fund 119,573 shares $ 4,786 $ 4,772
*Twentieth Century Balanced Investors Fund 148,411 shares 2,273 2,594
*Twentieth Century Premium Managed Bond 87,278 shares 871 860
*Twentieth Century Ultra Investors Fund 101,631 shares 2,128 2,701
*Twentieth Century International
Equity Fund 148,010 shares 1,057 1,109
*Bankers Trust Stable Value Government
Trust Fund 1,577,744 shares 1,578 1,578
Other Investments:
- ------------------
*Isco, Inc. Common Stock Fund 69,472 shares 774 741
Participant loans Interest rates ranging
from 7.25% - 10.25%
maturing October 1995
- June 2000 -- 442
Balcor Pension Investors II 101 units 65 47
Balcor Pension Investors III 202 units 77 70
-------
*Party-in-interest $14,914
-------
-------
</TABLE>
55
<PAGE>
ISCO, INC. RETIREMENT PLU$ PLAN
PN 001
EIN #47-0461807
(amounts in thousands, except number of transactions data)
ITEM 27d - SCHEDULE OF REPORTABLE TRANSACTIONS
SERIES OF TRANSACTIONS
FOR THE YEAR ENDED JULY 31, 1995
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- ----------------- ----------------------------------- ----------- ------------ ------------- -----------
Total Dollar
Identity of Number of Value of Total Dollar Net Gain
Party Involved Description of Asset Transactions Purchases Value of Sales or (Loss)
- ----------------- ----------------------------------- ------------ ------------ -------------- ---------
<S> <C> <C> <C> <C> <C>
*Twentieth Century Select Investors Fund 46 $1,045 $ -- $ --
*Twentieth Century Select Investors Fund 64 -- 524 (65)
*Twentieth Century Balanced Investors Fund 39 429 -- --
*Twentieth Century Balanced Investors Fund 55 -- 312 3
*Twentieth Century Ultra Investors Fund 51 787 -- --
*Twentieth Century Ultra Investors Fund 48 -- 255 (2)
*Twentieth Century International Equity Fund 49 544 -- --
*Twentieth Century International Equity Fund 32 -- 110 (3)
*Twentieth Century Premium Managed Bond Fund 43 181 -- --
*Twentieth Century Premium Managed Bond Fund 23 -- 99 (8)
*Bankers Trust Stable Value Government Trust Fund 75 943 -- --
*Bankers Trust Stable Value Government Trust Fund 29 -- 1,084 --
*Party-in-interest
</TABLE>
56
