<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 26, 1996
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 May 31, 1996:
Common Stock, $0.10 par value 5,351,931
- ----------------------------- ----------------
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 7
PART II - OTHER INFORMATION
Item 5. Acquisition 9
2
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ISCO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Three months ended Nine months ended
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Apr 26 Apr 28 Apr 26 Apr 28
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
Net sales $9,781 $11,451 $29,473 $32,146
Cost of sales 4,320 5,020 13,093 12,928
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5,461 6,431 16,380 19,218
Expenses:
Selling, general, and administrative 3,978 4,492 11,859 12,528
Research and engineering 1,130 1,098 3,427 3,392
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5,108 5,590 15,286 15,920
Operating income 353 841 1,094 3,298
Non-operating income 486 441 1,218 1,143
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Earnings before income taxes 839 1,282 2,312 4,441
Income taxes 251 426 626 1,449
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Net earnings $ 588 $ 856 $ 1,686 $ 2,992
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Net earnings per share $.11 $.16 $.32 $.56
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Weighted average number of
shares outstanding 5,352 5,370 5,352 5,375
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Cash dividend per share $.05 $.05 $.15 $.15
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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)
<TABLE>
<CAPTION>
(COLUMNAR AMOUNTS IN THOUSANDS)
Apr 26 Jul 28
1996 1995
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,554 $ 4,063
Short-term investments 2,646 5,883
Accounts receivable - trade, net of allowance for
doubtful accounts of $65,626 and $73,859 6,497 6,949
Inventories (Note 4) 6,197 6,812
Other current assets 1,446 1,585
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Total Current Assets 21,340 25,292
Property, plant, and equipment, net of accumulated
depreciation of $14,430,807 and $13,450,923 7,696 8,337
Long-term investments 15,742 10,487
Other assets (Note 5) 2,270 1,650
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Total Assets $47,048 $45,766
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 857 $ 547
Other current liabilities 2,329 2,216
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Total Current Liabilities 3,186 2,763
Deferred income taxes 913 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 7,394 6,511
Net unrealized holding gain(loss) on
available-for-sale securities (217) (281)
Treasury stock, at cost, 626,607 shares (1,664) (1,664)
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Total Shareholders' Equity 42,949 42,002
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Total Liabilities and Shareholders' Equity $47,048 $45,766
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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>
Nine months ended
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Apr 26 Apr 28
(COLUMNAR AMOUNTS IN THOUSANDS) 1996 1995
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<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,686 $ 2,992
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,483 1,511
Change in operating assets and liabilities 1,127 (3,358)
Other (213) (268)
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Total adjustments 2,397 (2,115)
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Net cash provided by operating activities 4,083 877
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Cash flows from investing activities:
Proceeds from sale of available-for-sale securities 155 8
Proceeds from maturity of held-to-maturity securities 4,779 4,300
Proceeds from sale of property, plant, and equipment 158 140
Purchase of available-for-sale securities (6,464) (216)
Purchase of held-to-maturity securities (475) (4,926)
Purchase of property, plant, and equipment (668) (965)
Other (274) (115)
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Net cash provided by (used in) investing activities (2,789) (1,774)
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Cash flows from financing activities:
Cash dividends paid (803) (807)
Purchase of stock -- (253)
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Net cash used in financing activities (803) (1,060)
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Cash and cash equivalents:
Net increase (decrease) 491 (1,957)
Balance at beginning of year 4,063 3,683
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Balance at end of period $ 4,554 $ 1,726
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</TABLE>
During the nine months ended April 26, 1996 and April 28, 1995, the Company
received income tax refunds and made income tax payments of approximately
$158,390 and $1,577,584, respectively.
The accompanying notes are an integral part of the condensed consolidated
financial statements.
5
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ISCO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Columnar amounts in thousands)
April 26, 1996
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 May 16, 1996, the Board of Directors declared a quarterly cash
dividend of $.05 per share, payable July 1, 1996 to shareholders of record on
June 14, 1996.
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:
Apr 26, 1996 Jul 28, 1995
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Raw materials $2,408 $2,843
Work-in-process 2,241 2,554
Finished goods 1,548 1,415
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$6,197 $6,812
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Had inventories been valued on the first-in, first-out (FIFO) basis, they would
have been approximately $1,069,000 and $952,000 higher than reported on the LIFO
basis at April 26, 1996 and July 28, 1995, respectively.
Note 5: During the third quarter the Company loaned Geomation, Inc. $500,000 at
8.25 percent interest. The loan and interest is payable either on the effective
date of the acquisition of Geomation, Inc. by Isco, Inc. or on September 30,
1997, should Isco, Inc. elect not to acquire Geomation, Inc. The Company and
Geomation, Inc. agreed to delay the acquisition of Geomation, Inc. by the
Company for one year, until the third quarter of calendar year 1997.
6
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Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
(Columnar amounts in thousands)
SALES ANALYSIS AND REVIEW.
NET SALES TO UNAFFILIATED CUSTOMERS BY BUSINESS SEGMENT.
Three months ended Nine months ended
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4/26/96 4/28/95 4/26/96 4/28/95
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Water pollution
monitoring instruments $ 6,756 $ 8,110 $20,037 $22,033
Separation instruments 3,025 3,341 9,436 10,113
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Total net sales $ 9,781 $11,451 $29,473 $32,146
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WATER POLLUTION MONITORING INSTRUMENTS. Sales for the three-month and nine-
month periods, ended April 26, 1996, were down 16.7 percent and 9.1 percent,
respectively, when compared with the same periods last year. For the periods
under review, domestic sales were down 24.8 percent and 17.1 percent,
respectively, while international sales were up 25.9 percent and 35.1 percent,
respectively. When compared with last year, nine-month sales of parameter
monitoring products were flat, and sales of wastewater samplers and flow meters
were down. Orders received during the periods being reviewed were 11.1 percent
and 5.0 percent lower, respectively, when compared with the same periods last
year. The segment's order backlog, at the nine-months end, was $1.9 million, an
increase of 20.1 percent from the beginning of the fiscal year.
SEPARATION INSTRUMENTS. Sales for the three-month and nine-month periods, ended
April 26, 1996, were down 9.5 percent and 6.7 percent, respectively, when
compared with the same periods last year. For the periods under review,
domestic sales were up 7.2 percent and 1.4 percent, respectively, while
international sales were down 32.7 percent and 18.9 percent, respectively. When
compared with last year, nine-month sales of liquid chromatography products were
up, while sales of supercritical fluid extraction (SFE) products and syringe
pumps were down. Orders received during the periods being reviewed were 5.7
percent higher and 10.7 percent lower, respectively, when compared with the same
periods last year. The segment's order backlog, at the nine-months end, was
$1.3 million, 25.8 percent lower than at the beginning of the fiscal year.
OPERATING INCOME ANALYSIS AND REVIEW.
OPERATING INCOME BY BUSINESS SEGMENT.
Three months ended Nine months ended
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4/26/96 4/28/95 4/26/96 4/28/95
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Water pollution
monitoring instruments $ 506 $ 969 $ 1,706 $ 3,594
Separation instruments (153) (128) (612) (296)
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Total operating income $ 353 $ 841 $ 1,094 $ 3,298
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WATER POLLUTION MONITORING INSTRUMENTS. For the three-month and nine-month
periods, the operating income generated by this segment declined 47.9 percent
and 52.5 percent, respectively, when compared with the same periods last year.
The decline in the year-to-date operating income is the result of lower sales
7
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and a deterioration of the gross profit margin, which continues to be adversely
affected by the growth of international sales in relation to the segment's total
sales. Year-to-date manufacturing overhead and operating expenses declined.
SEPARATION INSTRUMENTS. For the three-month and nine-month periods, the
operating loss generated by this segment increased 18.9 percent and 107.0
percent respectively, when compared with the same periods last year. The
increase in the year-to-date operating loss is the result of lower sales
combined with a shift in sales mix to products with lower margins causing a
deterioration of the gross profit margin. Year-to-date manufacturing overhead
and operating expenses declined.
RESULTS OF OPERATIONS.
The following table sets forth, for the three-month 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.
Three months ended Nine months ended
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4/26/96 4/28/95 Change 4/26/96 4/28/95 Change
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Net sales 100.0% 100.0% (14.6)% 100.0% 100.0% (8.3)%
Cost of sales 44.2 43.8 (13.9) 44.4 40.2 1.3
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55.8 56.2 (15.1) 55.6 59.8 (14.8)
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Expenses:
Selling, general,
& administrative 40.7 39.2 (11.4) 40.3 39.0 (5.3)
Research
& engineering 11.5 9.6 2.9 11.6 10.5 1.0
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52.2 48.8 (8.6) 51.9 49.5 (4.0)
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Operating income 3.6 7.4 (58.0) 3.7 10.3 (66.8)
Non-operating
income 5.0 3.8 10.2 4.1 3.5 6.6
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Earnings before
income taxes 8.6 11.2 (34.6) 7.8 13.8 (47.9)
Income taxes 2.6 3.7 (41.1) 2.1 4.5 (56.8)
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Net earnings 6.0% 7.5% (31.3) 5.7% 9.3% (43.6)
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The underlying reasons for the changes in year-to-year operating results have
been discussed in the preceding sections. The effective income tax rates for
the current three-month and nine-month period were 29.9 percent and 27.1
percent, respectively, which compares with 33.2 percent and 32.6 percent,
respectively. The change is, primarily, the result of lower taxable income
relative to increased tax-exempt income.
FINANCIAL CONDITION AND LIQUIDITY.
At April 26, 1996, the Company's working capital was nearly $18.2 million and
its current ratio was 6.7:1. The increase in accounts payable compared with
8
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the beginning of the fiscal year is made up of amounts due suppliers of direct
material and refunds due customers.
Cash flows from operations were $4,083,000 for the nine-month period ended April
26, 1996 compared with $877,000 for the same period last year. Last year's
extremely low cash flows from operations were a result of management's decision
to build inventories in preparation for anticipated customer demands in the
fourth quarter. Also, there was significant growth in accounts receivable, the
result of very strong shipments in the last five weeks of the period. The
current year's cash flows from operations have returned to historical levels.
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 5. Acquisition.
On April 25, 1996, the Company and Geomation, Inc. agreed to delay the
acquisition of Geomation, Inc. until the third quarter of calendar year 1997.
The one-year extension will allow Geomation to demonstrate the commercial
viability of a recently designed and introduced product line.
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, Chairman
and Chief Executive Officer
BY /s/ Philip M. Wittig
-----------------------------------
Philip M. Wittig, Treasurer
and Chief Financial Officer
Date: June 7 , 1996
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9
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENT OF EARNINGS FOR APRIL 26, 1996 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-26-1996
<PERIOD-START> JUL-29-1995
<PERIOD-END> APR-26-1996
<CASH> 4,554
<SECURITIES> 2,646
<RECEIVABLES> 6,563
<ALLOWANCES> 66
<INVENTORY> 6,197
<CURRENT-ASSETS> 21,340
<PP&E> 22,127
<DEPRECIATION> 14,431
<TOTAL-ASSETS> 47,048
<CURRENT-LIABILITIES> 3,186
<BONDS> 0
0
0
<COMMON> 598
<OTHER-SE> 42,351
<TOTAL-LIABILITY-AND-EQUITY> 47,048
<SALES> 29,473
<TOTAL-REVENUES> 29,473
<CGS> 13,093
<TOTAL-COSTS> 13,093
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,312
<INCOME-TAX> 626
<INCOME-CONTINUING> 1,686
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,686
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
