<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 O15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended January 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
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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 February 24, 1995:
Common Stock, $0.10 par value 5,377,931
- - ----------------------------- ----------------
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 of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 10
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 Six months ended
------------------ -------------------
Jan 27 Jan 28 Jan 27 Jan 28
1995 1994 1995 1994
------- ------ ------- -------
<S> <C> <C> <C> <C>
Net sales $10,431 $9,300 $20,695 $19,166
Cost of sales 4,014 3,997 7,907 7,895
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6,417 5,303 12,788 11,271
Expenses:
Selling, general,
and administrative 4,208 3,521 8,036 7,304
Research and engineering 1,169 1,149 2,294 2,296
------- ------ ------- -------
5,377 4,670 10,330 9,600
Operating income 1,040 633 2,458 1,671
Non-operating income 366 375 702 681
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Earnings before income taxes 1,406 1,008 3,160 2,352
Income taxes 419 314 1,024 765
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Net earnings $ 987 $ 694 $ 2,136 $ 1,587
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------- ------ ------- -------
Net earnings per share (Note 3) $.18 $.13 $.40 $.29
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------- ------ ------- -------
Weighted average number of
shares outstanding (Note 3) 5,378 5,488 5,378 5,488
------- ------ ------- -------
------- ------ ------- -------
Cash dividend per share $.05 $.05 $.10 $.09
------- ------ ------- -------
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</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
3
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ISCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(COLUMNAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
Jan 27 Jul 29
1995 1994
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ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,041 $ 3,683
Short-term investments 5,865 9,782
Accounts receivable - trade, net
of allowance for doubtful accounts
of $64,746 and $61,665 6,410 6,105
Inventories (Note 6) 7,151 5,274
Other current assets 1,408 1,102
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Total Current Assets 23,875 25,946
Property, plant, and equipment,
net of accumulated depreciation
of $12,719,963 and $12,042,755 8,817 8,994
Long-term investments 11,231 7,421
Other assets 1,586 1,605
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Total Assets $45,509 $43,966
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<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,154 $ 612
Other current liabilities 2,002 2,498
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Total Current Liabilities 3,156 3,110
Deferred income taxes 1,088 1,111
Shareholders' equity (Notes 3 and 4):
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 5,609 4,011
Net unrealized holding gain(loss) on
available-for-sale securities (Note 2) (369) (291)
Treasury stock, at cost, 600,607 shares (1,411) (1,411)
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Total Shareholders' Equity 41,265 39,745
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Total Liabilities and Shareholders' Equity $45,509 $43,966
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</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
4
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ISCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
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Jan 27 Jan 28
(COLUMNAR AMOUNTS IN THOUSANDS) 1995 1994
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<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 2,136 $ 1,587
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 997 967
Change in operating assets
and liabilities (2,434) (494)
Other (51) (198)
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Total adjustments (1,488) 275
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Net cash provided by operating activities 648 1,862
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Cash flows from investing activities:
Proceeds from sale of available-for-sale
securities 8 1,193
Proceeds from maturity of held-to-maturity
securities 3,492 5,362
Proceeds from sale of property, plant, and
equipment 104 87
Purchase of available-for-sale securities (71) (2,803)
Purchase of held-to-maturity securities (3,531) (5,516)
Purchase of property, plant, and equipment (704) (297)
Investment in Geomation, Inc. -- (500)
Other (50) (39)
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Net cash used in investing activities (752) (2,513)
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Cash flows from financing activities:
Cash Dividends paid (538) (513)
Purchase of stock -- (2)
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Net cash used in financing activities (538) (515)
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Cash and cash equivalents:
Net increase (decrease) (642) (1,166)
Balance at beginning of year 3,683 1,688
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Balance at end of period $ 3,041 $ 522
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</TABLE>
During the six months ended January 27, 1995 and January 28, 1994, the Company
made income tax payments of approximately $1,418,000 and $488,000, 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)
January 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 for the year ended July 29, 1994 on Form 10K.
Note 2: 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 3: 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 4: On February 16, 1995, the Board of Directors declared a quarterly cash
dividend of $.05 per share, payable April 1, 1995 to shareholders of record on
March 10, 1995.
Note 5: Certain reclassifications have been made to the prior period's
financial statements to conform to the current period's presentation.
6
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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>
Jan 27, 1995 Jul 29, 1994
------------ ------------
<S> <C> <C>
Raw materials $3,201 $2,084
Work-in-process 2,548 1,927
Finished goods 1,402 1,263
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$7,151 $5,274
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</TABLE>
Had inventories been valued on the first-in, first-out (FIFO) basis, they would
have been approximately $1,069,000 and $1,064,000 higher than reported on the
LIFO basis at January 27, 1995 and July 29, 1994, respectively.
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 Six months ended
------------------- ------------------
1/27/95 1/28/94 1/27/95 1/28/94
------- ------- ------- -------
<S> <C> <C> <C> <C>
Water pollution
monitoring instruments $ 6,838 $6,055 $13,923 $12,895
Separation instruments 3,593 3,245 6,772 6,271
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Total net sales $10,431 $9,300 $20,695 $19,166
------- ------ ------- -------
------- ------ ------- -------
</TABLE>
WATER POLLUTION MONITORING INSTRUMENTS. Sales for the three- and six-month
periods, ended January 27, 1995, were up 12.9 percent and eight percent,
respectively, when compared with the same periods last year. For the periods
under review, domestic sales were up 13.0 percent and 7.8 percent, respectively,
and international sales were up 12.5 percent and nine percent, respectively.
When compared to last year, six-month wastewater samplers and flow meter sales
and leasing revenues were up, while parameter monitoring product sales were
down. Orders received during the first six months were up 13.6 percent over
last year. The segment's order backlog at mid-year was $1.9 million, eight
percent lower than at the beginning of the fiscal year. A total organic carbon
(TOC) analyzer for process monitoring in wastewater treatment plants was
introduced to the market just prior to the end of the second quarter.
SEPARATION INSTRUMENTS. Sales for the three- and six-month periods, ended
January 27, 1995, were up, 10.7 percent and eight percent, respectively, when
compared to the same periods last year. For the periods under review, domestic
sales were down 10.2 percent and 1.9 percent, respectively, and international
sales were up 51.2 percent and 28.5 percent, respectively. When compared to
last year, six-month syringe pump and supercritical fluid extraction (SFE) sales
were up,
7
<PAGE>
while liquid chromatography (LC) sales were down and auto sampler sales were
flat. Orders received during the first six months were up 21.6 percent over
last year. The segment's order backlog at mid-year was $2.4 million, 33.4
percent higher than at the beginning of the fiscal year.
OPERATING INCOME ANALYSIS AND REVIEW.
OPERATING INCOME BY BUSINESS SEGMENT
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------- -------------------
1/27/95 1/28/94 1/27/95 1/28/94
------- ------- ------- -------
<S> <C> <C> <C> <C>
Water pollution
monitoring instruments $ 1,062 $ 453 $ 2,625 $ 1,455
Separation instruments (22) 180 (167) 216
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Total operating income $ 1,040 $ 633 $ 2,458 $ 1,671
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</TABLE>
WATER POLLUTION MONITORING INSTRUMENTS. The operating income generated by this
segment for the three- and six-month periods was up 134.5 and 80.3 percent,
respectively. The growth in operating income is the result of improved sales
and gross profit margin for the periods under review. Compared with the same
periods one year ago, operating expenses for the three months were up $203,000
and for the six months were down $45,000. Both periods include significant
legal expenses in connection with the Marsh-McBirney lawsuit. On February 16,
1995 the U.S. District Court of Maryland entered a judgement in favor of the
Company. The plaintiff, Marsh-McBirney, has appealed the judgement in favor of
the Company.
SEPARATION INSTRUMENTS. This segment generated an operating loss for three- and
six-month periods of $22,000 and $167,000, respectively, which compares with
$180,000 and $216,000 of operating income generated for the respective periods
last year. Operating expenses for the three-and six-month periods increased
$503,000 and $775,000, respectively, over the comparable periods last year.
Increased engineering, marketing and selling expenses, during the first six
months of this fiscal year, were associated mainly with the introduction to the
market of the segment's automated SFE system. The increased operating expenses
more than offset the increase in sales and improvement in gross margin for the
period under review.
8
<PAGE>
RESULTS OF OPERATIONS.
The following table sets forth, for the three- and six-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 Six months ended
--------------------------- ----------------------------
1/27/95 1/28/94 Change 1/27/95 1/28/94 Change
------- ------- ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 12.2 % 100.0% 100.0% 8.0 %
Cost of sales 38.5 43.0 0.5 38.2 41.2 0.2
----- ----- ----- -----
61.5 57.0 21.0 61.8 58.8 13.5
Expenses:
Selling, general,
& administrative 40.3 37.9 19.5 38.8 38.1 10.0
Research
& engineering 11.2 12.4 1.7 11.1 12.0 (0.1)
----- ----- ----- -----
51.5 50.3 15.1 49.9 50.1 7.6
Operating income 10.0 6.7 64.3 11.9 8.7 47.1
Non-operating
income 3.5 4.0 (2.4) 3.4 3.6 3.1
----- ----- ----- -----
Earnings before
income taxes 13.5 10.7 39.5 15.3 12.3 34.3
Income taxes 4.0 3.4 33.5 4.9 4.0 33.8
----- ----- ----- -----
Net earnings 9.5% 7.3% 42.2 10.4% 8.3% 34.6
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
For the three- and six-month periods the gross profit margin percentage improved
4.5 and 3.0 percentage points, respectively, compared with the same periods last
year. This improvement is the result of a shift in the sales mix to higher
margin products. The effective income tax rate for the six-month period
remained steady at approximately 32 percent. For the three-month period it
declined from 31 percent to 30 percent as a result of permanent differences
which caused taxable income to be lower than financial statement before-tax
income.
Based on year-to-date performance and the outlook for the remainder of the year,
management anticipates fiscal 1995 sales to grow 10 percent to 12 percent and
earnings to grow approximately 25 percent.
FINANCIAL CONDITION AND LIQUIDITY.
At January 27, 1995, the Company's working capital was nearly $21 million and
its current ratio was 7.6:1. Cash flows from operations were $648,000 for the
six months ended January 27, 1995 compared with $1,862,000 for the same period
last year. The decrease occurred because of the growth in the Company's
inventories. 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.
9
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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.
PART II - OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's annual meeting of Shareholders was held on December 8, 1994. The
following persons were elected to serve a two-year term on the Company's Board
of Directors.
Nominee In Favor Opposed Withheld
- - ---------------------------- --------- ------- --------
Douglas M. Grant 4,877,197 -- 18,431
Robert B. Harris 4,872,702 -- 22,926
Harris Wagenseil 4,872,600 -- 23,028
Philip M. Wittig 4,877,197 -- 18,431
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/ Philip M. Wittig
--------------------------------
Philip M. Wittig, Treasurer
and Chief Financial Officer
Date: March 7, 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 January 27, 1995 and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-28-1995
<PERIOD-START> JUL-30-1994
<PERIOD-END> JAN-27-1995
<CASH> 3,041
<SECURITIES> 5,865
<RECEIVABLES> 6,475
<ALLOWANCES> 65
<INVENTORY> 7,151
<CURRENT-ASSETS> 23,875
<PP&E> 21,537
<DEPRECIATION> 12,720
<TOTAL-ASSETS> 45,509
<CURRENT-LIABILITIES> 3,156
<BONDS> 0
<COMMON> 598
0
0
<OTHER-SE> 40,667
<TOTAL-LIABILITY-AND-EQUITY> 45,509
<SALES> 20,695
<TOTAL-REVENUES> 20,695
<CGS> 7,907
<TOTAL-COSTS> 7,907
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,160
<INCOME-TAX> 1,024
<INCOME-CONTINUING> 2,136
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,136
<EPS-PRIMARY> .40
<EPS-DILUTED> .40
</TABLE>
