SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended March 31, 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 No. 1-12714
OSMONICS, INC
(Exact name of registrant as specified in its charter)
Minnesota 41-0955759
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
5951 Clearwater Drive, Minnetonka, MN 55343
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 933-2277
N/A
Former name, former address and former
fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 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 at least 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 the latest practicable date. At
May 5, 1995, 12,740,075 shares of the issuer's Common Stock, $0.01 par
value, were outstanding.
OSMONICS, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
ITEM I. FINANCIAL STATEMENTS
Consolidated Statements of Income - . . . . . . . . 2
For the Three Months Ended
March 31, 1995 and 1994
Consolidated Balance Sheets - . . . . . . . . . . . 3
March 31, 1995 and December 31, 1994
Consolidated Statements of Cash Flows . . . . . . . 4
For the Three Months Ended
March 31, 1995 and 1994
Notes to Consolidated Financial Statements . . . . . 5
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF . . . . . . 6-7
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . 8
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ITEM I - FINANCIAL STATEMENTS
OSMONICS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands Except Per Share Data)
Three Months Ended March 31,
1995 1994
Sales $26,870 $23,534
Cost of sales 14,958 13,056
Gross profit 11,912 10,478
Less:
Selling, general and administrative 6,466 5,531
Research, development and engineering 1,869 1,744
Income from operations 3,577 3,203
Other income (expense) 507 72
Income before income taxes 4,084 3,275
Income taxes 1,284 904
Net income $ 2,800 $ 2,371
Net income per common share $ 0.22 $ 0.19
Average common shares outstanding 12,722 12,643
OSMONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except share data)
March 31, December 31,
1995 1994
ASSETS
Current assets
Cash and cash equivalents $ 8,684 $ 9,453
Marketable securities 31,763 27,623
Trade accounts receivable, net of
allowance for doubtful accounts of
$1,167 in 1995, and $1,259 in 1994 14,978 15,536
Inventories 20,667 19,428
Deferred tax assets 3,325 3,284
Other current assets 1,399 1,303
Total current assets 80,816 76,627
Property and equipment, at cost
Land and land improvements 1,951 1,951
Building 12,503 12,300
Machinery and equipment 34,220 33,574
48,674 47,825
Less accumulated depreciation and
amortization (25,891) (25,262)
22,783 22,563
Other assets 2,914 2,845
$106,513 $102,035
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 6,912 $ 6,459
Notes payable and current portion
of long-term debt 272 744
Reserve for discontinued operations 2,085 2,088
Other accrued liabilities 11,323 11,341
Total current liabities 20,592 20,632
Long-term debt 14,096 14,050
Deferred compensation and other liabilities 685 689
Deferred income taxes 3,286 2,913
Shareholders' equity
Common stock, $0.01 par value
Authorized -- 20,000,000
Issued -- 1995: 12,737,514 and
1994: 12,701,041 shares 127 127
Capital in excess of par value 21,214 21,000
Retained earnings 44,208 41,408
Unrealized gain on marketable securities 1,831 1,038
Foreign currency translation adjustments 474 178
Total shareholders' equity 67,854 63,751
$106,513 $102,035
OSMONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Three Months Ended
March 31,
Cash flows from:
1995 1994
Operations:
Net income $ 2,800 $ 2,371
Non-cash items included in net income:
Depreciation and amortization 814 847
Deferred income taxes (41) (66)
Reserve for VAT - (1,381)
Gain on sale of investments (191) -
Accounts receivable 558 (1,115)
Inventories and other current assets (1,335) 339
Accounts payable and accrued liabilities 478 1,014
Net cash provided by operations 3,083 2,009
Investing activities:
Purchase of investments (3,094) (5,295)
Sale of investments 321 1,122
Purchase of property and equipment (845) (671)
Other 142 1
Cash provided by (used in) investing
activities (3,476) (4,843)
Financing activities:
Reduction of debt (426) (333)
Issuance of Common Stock 214 152
Net cash provided by (used in) financing
activities (212) (181)
Effect of exchange rate changes on cash (164) 19
Increase (decrease) in cash and cash
equivalents (769) (2,996)
Cash and cash equivalents -
beginning of year 9,453 9,710
Cash and cash equivalents -
end of quarter $ 8,684 $ 6,714
OSMONICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three months ended March 31, 1995, are not
necessarily indicative of the results that may be expected for the year
1995.
These statements should be read in conjunction with the financial
statements and related notes included in the Company's Annual Report to
shareholders and Form 10-K for the year ended December 31, 1994.
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Dollars in thousands except per
share amounts)
As an aid to understanding the Company's operating results, the
following table shows the percentage of sales that each income statement
item represents for the three months ended March 31, 1995 and 1994.
Percent of Sales
Three Months Ended
March 31,
1995 1994
Sales 100.0% 100.0%
Cost of sales 55.7 55.5
Gross profit 44.3 44.5
Selling, general and administrative 24.0 23.5
Research, development and engineering 7.0 7.4
Operating expenses 31.0 30.9
Income from operations 13.3 13.6
Other income (expense) 1.9 0.3
Income before income taxes 15.2 13.9
Income taxes 4.8 3.8
Net income 10.4% 10.1%
Sales
Sales of $26,870 for the quarter ended March 31, 1995 increased 14.2%
from the first quarter of 1994. The increase occurred primarily in
replaceable products, which represented 44% of total sales for the first
quarter of 1995.
Gross Margin
Gross margin decreased slightly from 44.5% of sales in the first quarter
of 1994 to 44.3% of sales in the first quarter of 1995. The decrease
was partially due to increased sales promotion activity, and partially
due to increased material costs.
Operating Expenses
Operating expenses increased from 30.9% of sales in the first quarter of
1994 to 31.0% in the first quarter of 1995. The increase occurred in
sales and marketing expense, including more extensive advertising as
well as additional sales personnel. Administrative expense and
research, development and engineering expense were lower as a percentage
of sales in the first quarter of 1995 than in the corresponding period
of 1994. The Company is consolidating the recently acquired Lakewood
Instruments operations with Ozone Research, both of which are in
Phoenix, to further improve operational efficiency.
Other Income
Other income increased by $435 from the first quarter of 1994 to the
first quarter of 1995. The increase included $191 of gain on the sale
of investments and a $200 recovery from an insurance policy on a
previously recognized loss. The remainder of the increase was due to
higher earnings on an increased investment portfolio.
Income Taxes
The effective tax rate for the first quarter 1995 is 31.4% based on the
forecast for the full year. This compares to 27.6% in the corresponding
period of 1994. The rate for 1994 included the benefits of tax loss
carryforwards acquired with the Autotrol merger.
Net Income
Net income for the quarter was $2,800, as compared to $2,371 for the
first quarter of 1994. Net income per share was $0.22 per share, an
increase of 16% over the $0.19 per share reported for the same quarter
last year.
Liquidity and Capital Resources
As of March 31, 1995, the Company had cash, cash equivalents and
marketable securities of $40,447 versus $37,076 at December 31, 1994.
The current ratio was 3.9 at March 31, 1995, as compared to 3.7 at
year-end 1994.
Inventory increased by $1,239 to $20,667 during first quarter 1995.
Inventory stocking levels were increased to provide timely deliveries to
customers and support an increased level of sales.
In the second quarter of 1995, the Company acquired the land and
building used for its Milwaukee, Wisconsin operations for approximately
$3,000 in cash.
The Company believes that its current cash and investments position, its
cash flow from operations, and amounts available from bank credit will
be adequate to meet its anticipated cash needs for working capital,
capital expenditures, and potential acquisitions during the foreseeable
future.
OSMONICS, INC.
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) During the quarter ended March 31, 1995, the Registrant
did not file a Form 8-K report.
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.
Dated: ________________
OSMONICS, INC.
(Registrant)
/s/ L. Lee Runzheimer
L. Lee Runzheimer
Chief Financial Officer
/s/ D. Dean Spatz
D. Dean Spatz
Chief Executive Officer