<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 January 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 ____________
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
------------------------ ------------------------------------
(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 February 23, 1996:
Common Stock, $0.10 Par Value 5,351,931
- ----------------------------- ----------------
Class Number of Shares
<PAGE>
ISCO, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
Number
------
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 4. Submission of Matters to a Vote of Security Holders 9
2
<PAGE>
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 26 Jan 27 Jan 26 Jan 27
1996 1995 1996 1995
------ ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $9,940 $10,431 $19,692 $20,695
Cost of sales 4,467 4,014 8,774 7,907
------ ------- ------- -------
5,473 6,417 10,918 12,788
Expenses:
Selling, general, and administrative 3,856 4,208 7,880 8,036
Research and engineering 1,180 1,169 2,297 2,294
------ ------- ------- -------
5,036 5,377 10,177 10,330
Operating income 437 1,040 741 2,458
Non-operating income 368 366 732 702
------ ------- ------- -------
Earnings before income taxes 805 1,406 1,473 3,160
Income taxes 185 419 375 1,024
------ ------- ------- -------
Net earnings $ 620 $ 987 $ 1,098 $ 2,136
------ ------- ------- -------
------ ------- ------- -------
Net earnings per share $.12 $.18 $.21 $.40
------ ------- ------- -------
------ ------- ------- -------
Weighted average number of
shares outstanding 5,352 5,378 5,352 5,378
------ ------- ------- -------
------ ------- ------- -------
Cash dividend per share $.05 $.05 $.10 $.10
------ ------- ------- -------
------ ------- ------- -------
</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>
Jan 26 Jul 28
1996 1995
------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,436 $ 4,063
Short-term investments 3,510 5,883
Accounts receivable - trade, net of allowance for
doubtful accounts of $66,677 and $73,859 6,601 6,949
Inventories (Note 4) 6,631 6,812
Other current assets 1,579 1,585
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Total Current Assets 24,757 25,292
Property, plant, and equipment, net of accumulated
depreciation of $14,031,059 and $13,450,923 7,926 8,337
Long-term investments 12,421 10,487
Other assets 1,670 1,650
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Total Assets $46,774 $45,766
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------- -------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 887 $ 547
Other current liabilities 2,165 2,216
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Total Current Liabilities 3,052 2,763
Deferred income taxes 965 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 7,073 6,511
Net unrealized holding gain(loss) on
available-for-sale securities (88) (281)
Treasury stock, at cost, 626,607 shares (1,664) (1,664)
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Total Shareholders' Equity 42,757 42,002
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Total Liabilities and Shareholders' Equity $46,774 $45,766
------- -------
------- -------
</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>
Six months ended
-----------------
Jan 26 Jan 27
(COLUMNAR AMOUNTS IN THOUSANDS) 1996 1995
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,098 $ 2,136
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 1,008 997
Change in operating assets and liabilities 697 (2,434)
Other (126) (51)
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Total adjustments 1,579 (1,488)
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Net cash provided by operating activities 2,677 648
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Cash flows from investing activities:
Proceeds from sale of available-for-sale securities 25 8
Proceeds from maturity of held-to-maturity securities 3,493 3,492
Proceeds from sale of property, plant, and equipment 127 104
Purchase of available-for-sale securities (2,362) (71)
Purchase of held-to-maturity securities (475) (3,531)
Purchase of property, plant, and equipment (476) (704)
Other (100) (50)
------- -------
Net cash provided by (used in) investing activities 232 (752)
------- -------
Cash flows from financing activities:
Cash dividends paid (536) (538)
------- -------
Net cash used in financing activities (536) (538)
------- -------
Cash and cash equivalents:
Net increase (decrease) 2,373 (642)
Balance at beginning of year 4,063 3,683
------- -------
Balance at end of period $ 6,436 $ 3,041
------- -------
------- -------
</TABLE>
During the six months ended January 26, 1996 and January 27, 1995, the Company
received income tax refunds and made income tax payments of approximately
$37,000 and $1,418,000, 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 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 February 22, 1996, the Board of Directors declared a quarterly cash
dividend of $.05 per share, payable April 1, 1996 to shareholders of record on
March 8, 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:
<TABLE>
<CAPTION>
Jan 26, 1996 Jul 28, 1995
------------ ------------
<S> <C> <C>
Raw materials $2,838 $2,843
Work-in-process 2,268 2,554
Finished goods 1,525 1,415
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$6,631 $6,812
------ ------
------ ------
</TABLE>
Had inventories been valued on the first-in, first-out (FIFO) basis, they would
have been approximately $1,014,000 and $952,000 higher than reported on the LIFO
basis at January 26, 1996 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 Six months ended
------------------ ----------------
1/26/96 1/27/95 1/26/96 1/27/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
Water pollution
monitoring instruments $6,270 $ 6,838 $13,281 $13,923
Separation instruments 3,670 3,593 6,411 6,772
------ ------- ------- -------
Total net sales $9,940 $10,431 $19,692 $20,695
------ ------- ------- -------
------ ------- ------- -------
</TABLE>
WATER POLLUTION MONITORING INSTRUMENTS. Sales for the three- and six-month
periods, ended January 26, 1996, were down 8.3 percent and 4.6 percent,
respectively, when compared with the same periods last year. For the periods
under review, domestic sales were down 12.8 percent and 12.7 percent,
respectively, while international sales were up 11.6 percent and 40.7 percent,
respectively. When compared with last year, six-month sales of wastewater
samplers and parameter monitoring products were flat while flow meter sales and
leasing revenues were down. Orders received during the periods being reviewed
were 4.8 percent higher and 1.6 percent lower, respectively, when compared with
the same periods last year. The segment's order backlog, at mid-year, was $1.8
million, an increase of 14.3 percent from the beginning of the fiscal year.
SEPARATION INSTRUMENTS. Sales for the three- and six-month periods, ended
January 26, 1996, were up 2.1 percent and down 5.3 percent, respectively, when
compared with the same periods last year. For the periods under review,
domestic sales were up 17.7 percent and down 1.4 percent, respectively, and
international sales were down 15.7 percent and 11.6 percent, respectively. When
compared with last year, six-month sales of liquid chromatography products were
up slightly while sales of supercritical fluid extract (SFE) products, syringe
pumps, and autosamplers were down. Orders received during the periods being
reviewed were 19.7 percent and 16.8 percent below, respectively, the same
periods last year. The segment's order backlog, at mid-year, was $1.4 million
17.1 percent lower 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
------------------ ----------------
1/26/96 1/27/95 1/26/96 1/27/95
------- ------- ------- -------
<S> <C> <C> <C> <C>
Water pollution
monitoring instruments $287 $ 1,062 $1,200 $2,625
Separation instruments 150 (22) (459) (167)
------ ------- ------- -------
Total operating income $437 $1,040 $741 $2,458
------ ------- ------- -------
------ ------- ------- -------
</TABLE>
7
<PAGE>
WATER POLLUTION MONITORING INSTRUMENTS. For the three- and six-month periods,
the operating income generated by this segment declined 72.9 percent and 54.3
percent, respectively, when compared with the same periods last year. The
decline in operating income was the result of a lower gross margin and increased
operating expenses. The gross margin was adversely affected by increased
manufacturing overhead. In addition, discounted prices on growing international
dealer sales also adversely affect the gross margin. Wages, benefits,and
depreciation expenses accounted for the increase in manufacturing overhead.
With respect to operating expenses; selling and engineering expenses increased
while general and administrative expenses decreased.
SEPARATION INSTRUMENTS. For the three- and six-month periods, this segment
generated operating income of $150,000 and an operating loss of $459,000,
respectively. This compares to an operating loss of $22,000 and $167,000,
respectively, for the same periods last year. The gross margin was adversely
affected by a shift in sales mix, to products with lower margins. In addition,
the decline in manufacturing overhead expenses failed to match the rate of
decline in direct manufacturing expenses. Operating expenses declined for both
the periods under review.
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
--------------------------- ---------------------------
1/26/96 1/27/95 Change 1/26/96 1/27/95 Change
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% (4.7)% 100.0% 100.0% (4.8)%
Cost of sales 44.9 38.5 11.3 44.5 38.2 11.0
------ ------ ------ ------
55.1 61.5 (14.7) 55.5 61.8 (14.6)
Expenses: ------ ------ ------ ------
Selling, general,
& administrative 38.8 40.3 (8.4) 40.0 38.8 (1.9)
Research
& engineering 11.9 11.2 .9 11.7 11.1 .1
------ ------ ------ ------
50.7 51.5 (6.3) 51.7 49.9 (1.5)
------ ------ ------ ------
Operating income 4.4 10.0 (58.0) 3.8 11.9 (69.9)
Non-operating
income 3.7 3.5 .5 3.7 3.4 4.3
------ ------ ------ ------
Earnings before
income taxes 8.1 13.5 (42.7) 7.5 15.3 (53.4)
Income taxes 1.9 4.0 (55.8) 1.9 4.9 (63.4)
------ ------ ------- -------
Net earnings 6.2% 9.5% (37.2) 5.6 % 10.4 % (48.6)
------ ------ ------ -------
------ ------ ------ -------
</TABLE>
8
<PAGE>
The underlying reasons for the changes in year-to-year operating results have
been discussed in the preceding section. Primarily, as a result of reduced
second quarter operating expenses, net earnings were 29.7 percent above the
first quarter, on a sales increase of 1.9 percent. The effective income tax
rate for the current three- and six-month periods was 23 percent and 25 percent,
respectively, which compares with 30 percent and 32 percent, respectively, for
the same periods last year. The change is, primarily, the result of lower
taxable income relative to increased tax exempt income and the tax benefits
resulting from increased international sales channeled through the Company's
Foreign Sales Corporation (FSC).
FINANCIAL CONDITION AND LIQUIDITY.
At January 26, 1996, the Company's working capital was nearly $22 million and
its current ratio was 8.1:1. The increase in accounts payable since the
beginning of the fiscal year is made up, primarily, of amounts due suppliers of
direct material. Also included is a large invoice for services rendered which
was covered by insurance.
Cash flows from operations were $2,677,000 for the six-month period ended
January 26, 1996 compared with $648,000 for the same period last year. The
improvement in cash flows was primarily the result of two partially offsetting
factors. For the periods being reviewed, there was a $3.1 million positive
effect on cash flows from a decrease in net operating assets and liabilities,
partially offset by the lower earnings of $1.0 million. During the period last
year, the Company made significant investments in inventories to support
anticipated sales.
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 14, 1995.
A. The following persons were elected to serve a two-year term on the Company's
Board of Directors.
<TABLE>
<CAPTION>
Votes
--------------------------------------
Nominee In Favor Opposed Withheld
------------------- -------- ------- --------
<S> <C> <C> <C>
Robert W. Allington 4,984,008 --- 32,207
James L. Linderholm 4,984,008 --- 32,207
Dale L. Young 4,984,008 --- 32,207
</TABLE>
9
<PAGE>
B. The Isco, Inc. Directors' Deferred Stock Compensation Plan was approved by
the shareholders.
<TABLE>
<CAPTION>
Votes
--------------------------------------
In Favor Opposed Withheld
--------- ------- --------
<S> <C> <C>
4,874,410 122,134 19,671
</TABLE>
The Plan provides directors of the Company with an election to defer receipt of
the cash fees paid for regular or special meetings of the Board of Directors,
for committee meetings, for the annual retainer, and for services serving as
corporate secretary. Directors electing such deferral will be credited with
Deferred Stock Units which will be translated into and delivered in shares of
common stock of the Company at the time the director is no longer serving as a
member of the Board of Directors. At total of 50,000 shares of common stock has
been set aside for payments of Deferred Stock Units under the plan.
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 8, 1996
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 26, 1996 ans 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-26-1996
<PERIOD-START> JUL-29-1995
<PERIOD-END> JAN-26-1996
<CASH> 6,436
<SECURITIES> 3,510
<RECEIVABLES> 6,668
<ALLOWANCES> 67
<INVENTORY> 6,631
<CURRENT-ASSETS> 24,757
<PP&E> 21,957
<DEPRECIATION> 14,031
<TOTAL-ASSETS> 46,774
<CURRENT-LIABILITIES> 3,052
<BONDS> 0
0
0
<COMMON> 598
<OTHER-SE> 42,159
<TOTAL-LIABILITY-AND-EQUITY> 46,774
<SALES> 19,692
<TOTAL-REVENUES> 19,692
<CGS> 8,774
<TOTAL-COSTS> 8,774
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,473
<INCOME-TAX> 375
<INCOME-CONTINUING> 1,098
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,098
<EPS-PRIMARY> .21
<EPS-DILUTED> .21
</TABLE>
