SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For Quarter Ended June 30, 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
August 3, 1995, 12,750,552 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 and Six Months Ended
June 30, 1995 and 1994
Consolidated Balance Sheets - . . . . . . . . . . . . 3
June 30, 1995 and December 31, 1994
Consolidated Statements of Cash Flows . . . . . . . . 4
For the Six Months Ended
June 30, 1995 and 1994
Notes to Consolidated Financial Statements . . . . . . 5
ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL . 6-7
CONDITION AND RESULTS OF OPERATIONS
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. . 8
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 Six Months Ended
June 30, June 30,
1995 1994 1995 1994
Sales $26,796 $24,843 $53,666 $48,377
Cost of sales 14,838 13,927 29,796 26,983
Gross profit 11,958 10,916 23,870 21,394
Less:
Selling, general
and administrative 6,607 5,798 13,073 11,329
Research, development
and engineering 2,007 1,819 3,876 3,563
Income from operations 3,344 3,299 6,921 6,502
Other income 443 131 950 203
Income before income
taxes 3,787 3,430 7,871 6,705
Income taxes 1,116 927 2,400 1,831
Net income $ 2,671 $ 2,503 $ 5,471 $ 4,874
Net income per common
share $ 0.21 $ 0.20 $ 0.43 $ 0.39
Average common shares
outstanding 12,740 12,661 12,731 12,652
OSMONICS, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands Except Share Data)
June 30, December 31,
1995 1994
ASSETS
Current assets
Cash and cash equivalents $ 6,801 $ 9,453
Marketable securities 30,135 27,623
Trade accounts receivable, net of
allowance for doubtful accounts of
$1,127 in 1995, and $1,259 in 1994 16,536 15,536
Inventories 21,883 19,428
Deferred tax assets 3,284 3,284
Other current assets 1,254 1,303
Total current assets 79,893 76,627
Property and equipment, at cost
Land and land improvements 2,191 1,951
Building 15,498 12,300
Machinery and equipment 35,513 33,574
53,202 47,825
Less accumulated depreciation and
amortization (26,676) (25,262)
26,526 22,563
Other assets 2,855 2,845
$109,274 $102,035
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 6,804 $ 6,459
Notes payable and current portion
of long-term debt 271 744
Reserve for discontinued operations 2,100 2,088
Other accrued liabilities 10,771 11,341
Total current liabilities 19,946 20,632
Long-term debt 14,091 14,050
Deferred compensation and other liabilities 682 689
Deferred income taxes 3,463 2,913
Shareholders' equity
Common stock, $0.01 par value
Authorized -- 20,000,000
Issued -- 1995: 12,747,302 and
1994: 12,701,041 shares 127 127
Capital in excess of par value 21,348 21,000
Retained earnings 46,879 41,408
Unrealized gain on marketable securities 2,233 1,038
Foreign currency translation adjustments 505 178
Total shareholders' equity 71,092 63,751
$109,274 $102,035
OSMONICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Six Months Ended
June 30,
Cash flows from: 1995 1994
Operations:
Net income $ 5,471 $ 4,874
Non-cash items included in net income:
Depreciation and amortization 1,691 1,686
(Gain)/loss on sale of investments (628) 78
Deferred income taxes - (164)
Reserve for VAT - (1,369)
Accounts receivable (1,000) (1,442)
Inventories and other current assets (2,406) (144)
Accounts payable and accrued liabilities (213) (836)
Net cash provided by operations 2,915 2,683
Investing activities:
Purchase of investments (3,462) (5,364)
Sale of investments 3,328 6,794
Purchase of property and equipment (5,405) (1,406)
Other 122 123
Cash provided (used) in investing activities (5,417) 147
Financing activities:
Reduction of debt (432) (271)
Issuance of common stock 348 337
Net cash provided (used) in
financing activities (84) 66
Effect of exchange rates on cash (66) 53
Increase (decrease) in cash and cash
equivalents (2,652) 2,949
Cash and cash equivalents -
beginning of year 9,453 9,710
Cash and cash equivalents -
end of quarter $6,801 $12,659
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 six months ended June 30, 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 data)
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-month and six-month periods ended
June 30, 1995 and 1994.
Percent of Sales Percent of Sales
Three Months Ended Six Months Ended
June 30 June 30,
1995 1994 1995 1994
Sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 55.4 56.1 55.5 55.8
Gross profit 44.6 43.9 44.5 44.2
Selling, general
and administrative 24.6 23.3 24.4 23.4
Research, development
and engineering 7.5 7.3 7.2 7.4
Operating expenses 32.1 30.6 31.6 30.8
Income from operations 12.5 13.3 12.9 13.4
Other income 1.6 0.5 1.8 0.5
Income before income taxes 14.1 13.8 14.7 13.9
Income taxes 4.1 3.7 4.5 3.8
Net income 10.0% 10.1% 10.2% 10.1%
Sales
Sales for the quarter ended June 30, 1995 of $26,796 increased 8% over
sales for the second quarter of 1994. Year-to-date 1995 sales through
June have increased 11% over their 1994 level. The increase occurred
primarily in replaceable products which represented 42% of total sales
for the first half of 1995.
Gross Margin
The gross margin for the second quarter of 1995 was 44.6% versus 43.9%
for the corresponding period in 1994. The gross margin for the six
months ended June 30 was 44.5% in 1995 and 44.2% in 1994. The slightly
higher gross margin in the second quarter versus the same period in the
prior year was primarily due to improved product mix.
Operating Expenses
Operating expenses increased from 30.6% of sales in the second quarter
of 1994 to 32.1% in the second quarter of 1995, and from 30.8% of sales
in the first half of 1994 to 31.6% of sales in the first half of 1995.
The increase occurred primarily in sales and marketing expense,
including more extensive advertising as well as additional sales
personnel.
Other Income
Other income increased by $747 from the first half of 1994 to the first
half of 1995. The increase included $628 of gain on the sale of
investments.
Income Taxes
The effective tax rate for the six months ended June 30, 1995 was 30.5%
based on the forecast for the full year. This compares to 27.3% 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 ended June 30, 1995 was $2,671, up 7% from
$2,503 in the corresponding quarter last year. Net income per common
share for the quarter was $0.21 versus $0.20 a year ago. Year-to-date
net income was $5,471, up 12% from $4,874 in 1994. Net income per
common share year-to-date was $0.43 in 1995 versus $0.39 in 1994.
Liquidity and Capital Resources
As of June 30, 1995, the Company had cash, cash equivalents and
marketable securities of $36,936 versus $37,076 at December 31, 1994.
The current ratio was 4.0 at June 30, 1995, as compared to 3.7 at
year-end 1994.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on
May 17, 1995. The following members were elected to the
Company's Board of Directors to hold office for the ensuing
three years:
Nominee In Favor Withheld
Michael L. Snow 11,600,155 22,797
Ruth Carol Spatz 11,599,792 23,161
The Company's 1995 Employee Stock Purchase Plan was approved by
the following vote:
For: 10,738,530
Against: 101,474
Abstain: 37,451
Broker Non-votes: 745,498
The Company's 1995 Director Stock Option Plan was approved by
the following vote:
For: 10,365,239
Against: 446,901
Abstain: 65,316
Broker Non-votes: 745,498
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) None
(b) During the quarter ended June 30, 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/ Howard W. Dicke
Howard W. Dicke
Treasurer and Vice President
Corporate Development
/s/ D. Dean Spatz
D. Dean Spatz
Chief Executive Officer