<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 28, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-14429
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Isco, Inc.
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(Exact name of registrant as specified in its charter)
Nebraska 47-0461807
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(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)
(402) 464-0231
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of May 26, 1995:
Common Stock, $0.10 par value 5,351,931
- ----------------------------- ----------------
Class Number of Shares
<PAGE>
ISCO, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Number
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited):
Condensed Consolidated Statements of Earnings 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
2
<PAGE>
ISCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
-------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
Apr 28 Apr 29 Apr 28 Apr 29
1995 1994 1995 1994
------- ------ ------- -------
<S> <C> <C> <C> <C>
Net sales $11,451 $9,805 $32,146 $28,971
Cost of sales 5,020 3,973 12,928 11,868
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6,431 5,832 19,218 17,103
Expenses:
Selling, general,
and administrative 4,492 3,601 12,528 10,904
Research and engineering 1,098 1,125 3,392 3,421
------- ------ ------- -------
5,590 4,726 15,920 14,325
Operating income 841 1,106 3,298 2,778
Non-operating income 441 307 1,143 987
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Earnings before income taxes 1,282 1,413 4,441 3,765
Income taxes 426 438 1,449 1,203
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Net earnings $ 856 $ 975 $ 2,992 $ 2,562
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------- ------ ------- -------
Net earnings per share (Note 4) $.16 $.18 $.56 $.47
---- ---- ---- ----
---- ---- ---- ----
Weighted average number of
shares outstanding (Note 4) 5,370 5,487 5,375 5,488
----- ----- ----- -----
----- ----- ----- -----
Cash dividend per share $.05 $.05 $.15 $.14
---- ---- ---- ----
---- ---- ---- ----
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
<PAGE>
ISCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
(COLUMNAR AMOUNTS IN THOUSANDS)
-----------------------------
Apr 28 Jul 29
1995 1994
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ASSETS
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 1,726 $ 3,683
Short-term investments 6,226 9,782
Accounts receivable - trade, net
of allowance for doubtful accounts
of $77,228 and $61,665 7,646 6,105
Inventories (Note 6) 7,383 5,274
Other current assets 1,369 1,102
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Total Current Assets 24,350 25,946
Property, plant, and equipment,
net of accumulated depreciation
of $13,108,287 and $12,042,755 8,625 8,994
Long-term investments 11,651 7,421
Other assets 1,642 1,605
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Total Assets $46,268 $43,966
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<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C> <C>
Current liabilities:
Accounts payable $ 835 $ 612
Other current liabilities 2,720 2,498
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Total Current Liabilities 3,555 3,110
Deferred income taxes 1,061 1,111
Shareholders' equity (Notes 4 and 5):
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 6,196 4,011
Net unrealized holding gain(loss) on
available-for-sale securities (Note 3) (316) (291)
Treasury stock, at cost, 626,607 and
600,607 shares (1,664) (1,411)
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Total Shareholders' Equity 41,652 39,745
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Total Liabilities and Shareholders' Equity $46,268 $43,966
------- -------
------- -------
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
<PAGE>
ISCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------
Apr 28 Apr 29
(COLUMNAR AMOUNTS IN THOUSANDS) 1995 1994
----------------------------- ------- -------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,992 $ 2,562
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 1,511 1,455
Change in operating assets
and liabilities (3,358) 336
Other (268) (67)
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Total adjustments (2,115) 1,724
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Net cash provided by operating activities 877 4,286
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Cash flows from investing activities:
Proceeds from sale of available-for-sale
securities 8 4,023
Proceeds from maturity of held-to-maturity
securities 4,300 6,668
Proceeds from sale of property, plant, and
equipment 140 111
Purchase of available-for-sale securities (216) (3,075)
Purchase of held-to-maturity securities (4,926) (9,510)
Purchase of property, plant, and equipment (965) (521)
Investment in Geomation, Inc. -- (500)
Other (115) (71)
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Net cash used in investing activities (1,774) (2,875)
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Cash flows from financing activities:
Cash dividends paid (807) (788)
Purchase of stock (253) (2)
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Net cash used in financing activities (1,060) (790)
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Cash and cash equivalents:
Net increase (decrease) (1,957) 621
Balance at beginning of year 3,683 1,688
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Balance at end of period $ 1,726 $ 2,309
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</TABLE>
During the nine months ended April 28, 1995 and April 29, 1994, the Company made
income tax payments of approximately $1,577,584 and $514,000, respectively.
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
<PAGE>
ISCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Columnar amounts in thousands)
April 28, 1995
Note 1: In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all the adjustments necessary for a
fair presentation of the financial position of the Company and the results of
operations for the interim periods presented herein. All such adjustments are
of a normal recurring nature. Results of operations for the current unaudited
interim period are not necessarily indicative of the results which may be
expected for the entire fiscal year. All significant inter-company transactions
and accounts have been eliminated.
While the Company believes that the disclosures presented are adequate to make
the information not misleading, it is suggested that these condensed
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes to the consolidated financial statements included
in the Annual Report on Form 10K for the year ended July 29, 1994.
Note 2: Certain reclassifications have been made to the prior period's
financial statements to conform to the current period's presentation.
Note 3: The Company elected to adopt Statement of Financial Accounting
Standards 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.
Note 4: 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.
Note 5: On May 18, 1995, the Board of Directors declared a quarterly cash
dividend of $.05 per share, payable July 1, 1995 to shareholders of record on
June 9, 1995.
6
<PAGE>
Note 6: Inventories are valued at the lower of cost or market, principally on
the last-in, first-out (LIFO) basis. The composition of inventories is as
follows:
<TABLE>
<CAPTION>
Apr 28, 1995 Jul 29, 1994
------------ ------------
<S> <C> <C>
Raw materials $3,313 $2,084
Work-in-process 2,692 1,927
Finished goods 1,378 1,263
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$7,383 $5,274
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------ ------
</TABLE>
Had inventories been valued on the first-in, first-out (FIFO) basis, they would
have been approximately $1,064,000 higher than reported on the LIFO basis at
both April 28, 1995 and July 29, 1994.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
(Columnar amounts in thousands)
SALES ANALYSIS AND REVIEW.
NET SALES TO UNAFFILIATED CUSTOMERS BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
4/28/95 4/29/94 4/28/95 4/29/94
------- ------- ------- -------
<S> <C> <C> <C> <C>
Water pollution
monitoring instruments $ 8,110 $6,514 $22,033 $19,408
Separation instruments 3,341 3,291 10,113 9,563
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Total net sales $11,451 $9,805 $32,146 $28,971
------- ------ ------- -------
------- ------ ------- -------
</TABLE>
WATER POLLUTION MONITORING INSTRUMENTS. Sales for the three- and nine-month
periods, ended April 28, 1995, were up 25 percent and 14 percent, respectively,
compared with the same periods last year. The segment had record sales during
the third quarter fiscal 1995. When compared with the third quarter last year,
domestic sales were up 55 percent while international sales were down 39
percent. For the comparable nine-month periods, domestic sales were up 13
percent and international sales were up 17 percent. During the nine months,
sales of wastewater samplers and leasing revenues exceeded expectations. Sales
of flow meters and parameter monitoring instruments were below expectations.
However, flow meter sales were higher than the same period last year, while
parameter monitoring instrument sales were lower. The order backlog at the end
of the third quarter was $1.3 million, 31 percent below the order backlog at the
beginning of the quarter.
SEPARATION INSTRUMENTS. Sales for the three- and nine-month periods, ended
April 28, 1995, were up two and six percent, respectively, compared with the
same periods last year. When compared with the third quarter last year,
domestic sales were up 91 percent while international sales were down 39
percent. For the comparable nine-month periods, domestic sales were down four
percent while international sales were up
7
<PAGE>
25 percent. For the nine months, sales of syringe pumps were significantly
above expectations and last year, while sales of supercritical fluid extraction
(SFE) products were below expectations but were nearly double sales for the same
period last year. For the same period, sales of liquid chromatography (LC)
products were significantly below expectations and last year. Orders received
during the third quarter were 21 percent less than last year's third quarter.
The segment's order backlog at the end of the third quarter was $1.9 million,
20 percent below the order backlog at the beginning of the quarter.
OPERATING INCOME ANALYSIS AND REVIEW.
OPERATING INCOME BY BUSINESS SEGMENT.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
4/28/95 4/29/94 4/28/95 4/29/94
------- ------- ------- -------
<S> <C> <C> <C> <C>
Water pollution
monitoring instruments $ 969 $1,019 $3,594 $2,475
Separation instruments (128) 87 (296) 303
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Total operating income $ 841 $1,106 $3,298 $2,778
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</TABLE>
WATER POLLUTION MONITORING INSTRUMENTS. The operating income generated by this
segment for the three-month period was down five percent while for the nine-
month period it was up 45 percent, compared with the same periods last year. On
a year-to-year basis, the segment's gross margin percentage for the three months
declined 5.6 percentage points, primarily the result of writing off $300,000 of
obsolete inventory during the quarter. The newly installed MRP system provided
the means of readily identifying obsolete inventory. However, even with the
inventory write-off in the third quarter, the gross margin percentage for the
nine months improved .3 percentage point, due to 14 percent higher sales. Year-
to-year operating expenses for the nine-month period increased by $526,000. The
cost of resolving the Marsh-McBirney lawsuit, reported last quarter, accounts
for a majority of the increase in operating expenses.
SEPARATION INSTRUMENTS. This segment generated an operating loss of $128,000
and 296,000, respectively, for the three- and nine-month periods, compared with
operating income of $87,000 and $303,000 for the same periods last year. On a
year-to-year basis, the segment's gross margin for the three- and nine-months
improved 1.5 and 1.6 percentage points, respectively. The improvement was
primarily the result of increased sales. Year-to-year operating expenses for the
nine-month period increased by $1,069,000, primarily in marketing and sales.
Marketing and sales continued their efforts to ensure market leadership in SFE
by incurring significant costs for the introduction of the 3560 automated SFE
systems. Commissions and freight costs also increased as the result of change
in the sales mix of customers and products.
8
<PAGE>
RESULTS OF OPERATIONS.
The following table sets forth, for the three- and nine-month periods indicated,
the percentages which certain components of the Condensed Consolidated
Statements of Earnings bear to net sales and the percentage of change of such
components (based on actual dollars) compared with the same periods of the prior
year.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------ -----------------------
4/28/95 4/29/94 Change 4/28/95 4/29/94 Change
------- ------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 16.8 % 100.0% 100.0% 11.0 %
Cost of sales 43.8 40.5 26.4 40.2 41.0 8.9
----- ----- ----- -----
56.2 59.5 10.3 59.8 59.0 12.4
Expenses:
Selling, general,
& administrative 39.2 36.7 24.7 39.0 37.6 14.9
Research
& engineering 9.6 11.5 (2.4) 10.5 11.8 (.8)
----- ----- ----- -----
48.8 48.2 18.3 49.5 49.4 11.1
----- ----- ----- -----
Operating income 7.4 11.3 (24.0) 10.3 9.6 18.7
Non-operating
income 3.8 3.1 43.6 3.5 3.4 15.8
----- ----- ----- -----
Earnings before
income taxes 11.2 14.4 (9.3) 13.8 13.0 18.0
Income taxes 3.7 4.5 (2.7) 4.5 4.2 20.4
----- ----- ----- -----
Net earnings 7.5% 9.9% (12.2) 9.3% 8.8% 16.8
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
The changes in gross margin percentages and operating expenses for each segment
were reviewed in the preceding sections. For the three- and nine-month periods,
the effective income tax rate was 33.2 percent and 32.6 percent, respectively,
which compares to 31.0 percent and 32.0 percent for the same periods last year.
The change is due mainly to the increase in the estimated state income taxes
combined with the lack of R&D tax credits in the current year.
Management expects sales growth of 10 percent to 12 percent for fiscal year
1995. However, earnings are expected to grow at only 18 percent to 20 percent
as a result of the inventory write-off discussed above.
FINANCIAL CONDITION AND LIQUIDITY.
At April 28, 1995, the Company's working capital was nearly $21 million and its
current ratio was 6.8:1. Cash flows from operations were $877,000 for the nine
months ended April 28, 1995 compared with $4,286,000 for the same period last
year. The decrease occurred because of the growth in the Company's inventories
and accounts receivable. Finished goods inventory was up slightly, while the raw
materials and work-in-process inventories increased significantly in
anticipation of the demand for new products. Accounts receivable increased as a
result of higher sales.
9
<PAGE>
INFLATION.
The impact of inflation on the costs of the Company and its ability to pass on
cost increases in the form of increased prices is dependent upon market
conditions and the competitive environment for each of its business segments.
The general level of inflation in the domestic economy has been relatively low
for the past several years, and has not had a significant impact on the Company.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ISCO, INC.
BY /s/ Robert W. Allington
-----------------------------------
Robert W. Allington, President
and Chief Executive Officer
BY /s/ Philip M. Wittig
-----------------------------------
Philip M. Wittig, Treasurer
and Chief Financial Officer
Date: June 8, 1995
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Balance
Sheet and Statement of Earnings for April 28, 1995 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-28-1995
<PERIOD-START> JUL-30-1994
<PERIOD-END> APR-28-1995
<CASH> 1,726
<SECURITIES> 6,226
<RECEIVABLES> 7,723
<ALLOWANCES> 77
<INVENTORY> 7,383
<CURRENT-ASSETS> 24,350
<PP&E> 21,733
<DEPRECIATION> 13,108
<TOTAL-ASSETS> 46,268
<CURRENT-LIABILITIES> 3,555
<BONDS> 0
<COMMON> 598
0
0
<OTHER-SE> 41,054
<TOTAL-LIABILITY-AND-EQUITY> 46,268
<SALES> 32,146
<TOTAL-REVENUES> 32,146
<CGS> 12,928
<TOTAL-COSTS> 12,928
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,441
<INCOME-TAX> 1,449
<INCOME-CONTINUING> 2,992
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,992
<EPS-PRIMARY> .56
<EPS-DILUTED> .56
</TABLE>
