<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 October 27, 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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of November 25, 1995:
Common Stock, $0.10 par value 5,351,931
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Class Number of Shares
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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 7
2
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ISCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three months ended
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Oct 27 Oct 28
1995 1994
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<S> <C> <C>
Net sales $9,752 $10,264
Cost of sales 4,307 3,893
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5,445 6,371
Expenses:
Selling, general, and administrative 4,024 3,828
Research and engineering 1,117 1,125
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5,141 4,953
Operating income 304 1,418
Non-operating income 364 336
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Earnings before income taxes 668 1,754
Income taxes 190 605
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Net earnings $ 478 $ 1,149
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Net earnings per share $.09 $.21
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Weighted average number of shares outstanding 5,356 5,378
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Cash dividend per share $.05 $.05
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</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)
(Columnar amounts in thousands)
<TABLE>
<CAPTION>
Oct 27 Jul 28
1995 1995
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ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,782 $ 4,063
Short-term investments 5,250 5,883
Accounts receivable - trade, net of allowance for
doubtful accounts of $69,556 and $73,859 6,886 6,949
Inventories (Note 4) 6,964 6,812
Other current assets 1,377 1,585
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Total Current Assets 24,259 25,292
Property, plant, and equipment, net of accumulated
depreciation of $13,751,854 and $13,450,923 8,130 8,337
Long-term investments 12,252 10,487
Other assets 1,653 1,650
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Total Assets $46,294 $45,766
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 744 $ 547
Other current liabilities 2,310 2,216
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Total Current Liabilities 3,054 2,763
Deferred income taxes 981 1,001
Shareholders' equity (Note 3):
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 6,721 6,511
Net unrealized holding gain(loss) on
available-for-sale securities (234) (281)
Treasury stock, at cost, 626,607 shares (1,664) (1,664)
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Total Shareholders' Equity 42,259 42,002
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Total Liabilities and Shareholders' Equity $46,294 $45,766
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</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>
Three months ended
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Oct 27 Oct 28
(Columnar amounts in thousands) 1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 478 $ 1,149
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 515 498
Change in operating assets and liabilities 388 (1,062)
Other (115) (5)
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Total adjustments 788 (569)
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Net cash provided by operating activities 1,266 580
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Cash flows from investing activities:
Proceeds from sale of available-for-sale securities -- 4
Proceeds from maturity of held-to-maturity securities 1,220 1,487
Proceeds from sale of property, plant, and equipment 100 28
Purchase of available-for-sale securities (41) (33)
Purchase of held-to-maturity securities (2,279) (1,816)
Purchase of property, plant, and equipment (250) (278)
Other (29) (32)
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Net cash used in investing activities (1,279) (640)
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Cash flows from financing activities:
Cash dividends paid (268) (269)
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Net cash used in financing activities (268) (269)
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Cash and cash equivalents:
Net (decrease) (281) (329)
Balance at beginning of year 4,063 3,683
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Balance at end of period $ 3,782 $ 3,354
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</TABLE>
During the three months ended October 27, 1995 and October 28, 1994, the Company
received income tax refunds and made income tax payments of approximately
$17,000 and $178,000, 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)
October 27, 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 28, 1995.
Note 2: Certain reclassifications have been made to the prior period's
financial statements to conform to the current period's presentation.
Note 3: On November 16, 1995, the Board of Directors declared a quarterly cash
dividend of $.05 per share, payable January 3, 1996 to shareholders of record on
December 8, 1995.
Note 4: 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>
Oct 27, 1995 Jul 28, 1995
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<S> <C> <C>
Raw materials $2,954 $2,843
Work-in-process 2,594 2,554
Finished goods 1,416 1,415
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$6,964 $6,812
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</TABLE>
Had inventories been valued on the first-in, first-out (FIFO) basis, they would
have been approximately $946,000 and $952,000 higher than reported on the LIFO
basis at October 27, 1995 and July 28, 1995, respectively.
6
<PAGE>
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
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10/27/95 10/28/94
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<S> <C> <C>
Water pollution monitoring instruments $7,011 $ 7,085
Separation instruments 2,741 3,179
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Total net sales $9,752 $10,264
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</TABLE>
WATER POLLUTION MONITORING INSTRUMENTS. First quarter sales were $7,011,000,
one percent below the same period last year and five percent above the preceding
quarter. Domestic sales were down 13 percent and three percent compared with
the same period last year and the preceding quarter, respectively. For the same
periods, international sales were up 85 percent and 42 percent, respectively.
Compared with the first quarter last year, sales of wastewater samplers were up
while sales of flow meter products were down. The segment's order backlog at
quarter-end was $1.2 million, 22 percent lower than at the beginning of the
quarter.
SEPARATION INSTRUMENTS. First quarter sales were $2,741,000, 14 percent below
the same period last year and seven percent below the preceding quarter.
Domestic sales were down 18 percent and 13 percent compared with the same period
last year and the preceding quarter, respectively. For the same periods,
international sales were down four percent and up nine percent, respectively.
Compared with the first quarter of last year, sales of each of the product
groups were down. The segment's order backlog at quarter-end was $1.8 million,
five percent higher than at the beginning of the quarter.
OPERATING INCOME ANALYSIS AND REVIEW.
OPERATING INCOME BY BUSINESS SEGMENT.
<TABLE>
<CAPTION>
Three months ended
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10/27/95 10/28/94
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<S> <C> <C>
Water pollution monitoring instruments $ 913 $1,563
Separation instruments (609) (145)
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Total operating income $ 304 $1,418
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</TABLE>
WATER POLLUTION MONITORING INSTRUMENTS. This segment generated operating income
of $913,000 during the first quarter of fiscal 1996, 42 percent below the same
period one year ago. Two factors reduced the segment's gross margin. One,
dealer discounts on significantly higher international sales adversely affected
net sales instead of increasing selling expense. Two, the indirect labor
expense element of manufacturing overhead increased. Higher sales and
administrative salaries and wages along with higher commissions, advertising
expenses, and professional fees increased the segment's operating expenses.
7
<PAGE>
SEPARATION INSTRUMENTS. This segment sustained an operating loss of $609,000
during the first quarter of fiscal 1996, 320 percent larger than the loss for
the same period one year ago. The segment's gross margin was reduced because
dealer discounts on higher international sales adversely affected net sales
instead of increasing selling expenses. In addition, increased manufacturing
overhead, primarily, from wages and benefits also reduced the gross margin.
Higher selling expenses for materials and supplies, travel, and wages increased
operating expenses, for the period, even though engineering and administrative
expenses declined for the period.
RESULTS OF OPERATIONS.
The following table sets forth, for the three-month period 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
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10/27/95 10/28/94 Change
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<S> <C> <C> <C>
Net sales 100.0% 100.0% (5.0)%
Cost of sales 44.2 37.9 10.6
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55.8 62.1 (14.5)
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Expenses:
Selling, general, & administrative 41.3 37.3 5.1
Research & engineering 11.4 11.0 (.7)
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52.7 48.3 3.8
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Operating income 3.1 13.8 (78.6)
Non-operating income 3.7 3.3 8.3
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Earnings before income taxes 6.8 17.1 (61.9)
Income taxes 1.9 5.9 (68.6)
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Net earnings 4.9% 11.2% (58.4)
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</TABLE>
The underlying reasons for the changes in operating results were discussed in
the previous section. The effective income tax rate for the first quarter
fiscal 1996 was 28 percent compared with 34 percent for the same period one year
ago. The decline is, primarily, the result of the lower taxable income relative
to tax exempt income.
FINANCIAL CONDITION AND LIQUIDITY.
At October 27, 1995, the Company's working capital exceeded $21 million and its
current ratio was 7.9:1. Cash flows from operations were $1,266 for the three
months ended October 27, 1995 compared with $580,000 for the same period last
year. The turnover of accounts receivable continues to be good; with 75 percent
current, 13 percent 1 to 30 days past due, and 12 percent more than 30 days past
due. The increase in accounts payable is made up of amounts due suppliers of
direct materials.
8
<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
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Robert W. Allington, Chairman
and Chief Executive Officer
BY /s/ Philip M. Wittig
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Philip M. Wittig, Treasurer
and Chief Financial Officer
Date: December 7, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF EARNINGS FOR OCTOBER 27, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-26-1996
<PERIOD-START> JUL-29-1995
<PERIOD-END> OCT-27-1995
<CASH> 3,782
<SECURITIES> 5,250
<RECEIVABLES> 6,956
<ALLOWANCES> 70
<INVENTORY> 6,964
<CURRENT-ASSETS> 24,259
<PP&E> 21,882
<DEPRECIATION> 13,752
<TOTAL-ASSETS> 46,294
<CURRENT-LIABILITIES> 3,054
<BONDS> 0
<COMMON> 598
0
0
<OTHER-SE> 41,661
<TOTAL-LIABILITY-AND-EQUITY> 46,294
<SALES> 9,752
<TOTAL-REVENUES> 9,752
<CGS> 4,307
<TOTAL-COSTS> 4,307
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 668
<INCOME-TAX> 190
<INCOME-CONTINUING> 478
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 478
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
