-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QcWJiXtu/yi2OSD0uCmDpPMxbKNd19uHYrKxeu5H6La+75dNEbNM7EuFDhBDEcsp SLyzERPHjqWSAYYayMyiwg== 0000914039-97-000306.txt : 19970912 0000914039-97-000306.hdr.sgml : 19970912 ACCESSION NUMBER: 0000914039-97-000306 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970731 FILED AS OF DATE: 19970908 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CUNO INC CENTRAL INDEX KEY: 0001019779 STANDARD INDUSTRIAL CLASSIFICATION: COATING, ENGRAVING & ALLIED SERVICES [3470] IRS NUMBER: 061159240 STATE OF INCORPORATION: DE FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21109 FILM NUMBER: 97676516 BUSINESS ADDRESS: STREET 1: 400 RESEARCH PARKWAY CITY: HERIDEA STATE: CT ZIP: 06450 BUSINESS PHONE: 203-237-55 MAIL ADDRESS: STREET 1: 400 RESEARCH PARKWAY CITY: HERIDEA STATE: CT ZIP: 06450 10-Q 1 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 1997 Commission file number 000-21109 CUNO INCORPORATED (Exact name of registrant as specified in its charter) Delaware 06-1159240 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 400 Research Parkway, Meriden, Connecticut 06450 (Address of principal executive offices) (Zip Code) (203) 237-5541 Registrant's telephone number, including area code Not Applicable 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 periods 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 the latest practical date. Common Stock, .001 Par Value -- 15,999,932 shares as of August 31, 1997. 2 CUNO INCORPORATED
Page Part I. Financial Information Item 1. Condensed Consolidated Financial Statements (Unaudited) Statements of Consolidated Income -- Three months ended July 31, 1997 and 1996 1 Statements of Consolidated Income -- Nine months ended July 31, 1997 and 1996 2 Consolidated Balance Sheets -- July 31, 1997 and October 31, 1996 3 Statements of Consolidated Cash Flows -- Nine months ended July 31, 1997 and 1996 4 Notes to Unaudited Condensed Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 6 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 9 Signatures 10
3 CUNO INCORPORATED AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED) (dollars in thousands, except share amounts)
THREE MONTHS ENDED JULY 31, 1997 1996 ------------ ------------ Net sales $ 48,135 $ 48,542 Less costs and expenses: Cost of products sold 27,440 27,746 Selling, general and administrative expenses 15,227 14,668 Distribution and other nonrecurring costs -- 2,876 ------------ ------------ 42,667 45,290 ------------ ------------ Operating income 5,468 3,252 Nonoperating income (expense): Interest income 28 39 Interest expense (203) (101) Exchange (losses) (7) (80) Gain on sale of assets 31 5 Other (62) (86) ------------ ------------ (213) (223) ------------ ------------ Income before income taxes 5,255 3,029 Provision for income taxes 1,752 2,399 ------------ ------------ Net income $ 3,503 $ 630 ============ ============ Net income per common share $ 0.22 $ 0.05 Weighted average common shares outstanding 15,947,363 13,565,922
See notes to unaudited condensed consolidated financial statements. -1- 4 CUNO INCORPORATED AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED INCOME (UNAUDITED) (dollars in thousands, except share amounts)
NINE MONTHS ENDED JULY 31, 1997 1996 ------------ ------------ Net sales $ 139,357 $ 134,636 Less costs and expenses: Cost of products sold 79,139 79,632 Selling, general and administrative expenses 45,283 41,252 Distribution and other nonrecurring costs -- 2,876 ------------ ------------ 124,422 123,760 ------------ ------------ Operating income 14,935 10,876 Nonoperating income (expense): Interest income 94 95 Interest expense (1,348) (300) Exchange gains (losses) 15 (102) Gain on sale of assets 25 121 Other (101) (180) ------------ ------------ (1,315) (366) ------------ ------------ Income before income taxes 13,620 10,510 Provision for income taxes 4,762 4,778 ------------ ------------ Net income $ 8,858 $ 5,732 ============ ============ Net income per common share $ 0.61 $ 0.42 Weighted average common shares outstanding 14,535,773 13,565,922
See notes to unaudited condensed consolidated financial statements. -2- 5 CUNO INCORPORATED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except share amounts)
JULY 31, OCTOBER 31, 1997 1996 --------- ----------- ASSETS Current assets Cash and cash equivalents $ 3,669 $ 5,244 Accounts and notes receivable (less allowances for doubtful accounts of $1,449 and $1,133, respectively) 42,145 36,944 Inventories 21,926 19,149 Deferred income taxes 5,291 5,333 Prepaid expenses and other current assets 2,978 1,965 --------- --------- Total current assets 76,009 68,635 Noncurrent assets Intangible assets, net 18,293 19,695 Pension assets 1,155 1,174 Other noncurrent assets 492 1,051 Property, plant and equipment, net 47,287 48,201 --------- --------- Total assets $ 143,236 $ 138,756 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Bank loans $ 16,450 $ 10,690 Accounts payable 14,564 12,719 Accrued payrolls and related taxes 7,917 9,084 Accrued expenses 5,789 5,393 Accrued income taxes 2,285 1,360 Current portion of long-term debt 927 962 Dividends payable to related party -- 4,612 Payable to related party 1,064 10,184 --------- --------- Total current liabilities 48,996 55,004 Noncurrent liabilities Long-term debt 9,284 33,772 Deferred income taxes 3,292 3,670 Retirement benefits 3,482 3,162 --------- --------- Total noncurrent liabilities 16,058 40,604 Stockholders' equity Preferred stock, $.001 par value; 2,000,000 shares authorized, no shares issued and outstanding -- -- Common Stock, $.001 par value; 50,000,000 shares authorized, 15,999,932 and 13,774,568 shares outstanding 16 14 Additional paid-in-capital 35,593 6,736 Retained earnings 42,494 33,636 Unearned compensation (2,951) (3,448) Minimum pension liability adjustment (811) (811) Translation adjustments 3,841 7,021 --------- --------- Total stockholders' equity 78,182 43,148 --------- --------- Total liabilities and stockholders' equity $ 143,236 $ 138,756 ========= =========
See notes to unaudited condensed consolidated financial statements. -3- 6 CUNO INCORPORATED AND SUBSIDIARIES STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED) (dollars in thousands)
NINE MONTHS ENDED JULY 31, 1997 1996 -------- -------- OPERATING ACTIVITIES Net income $ 8,858 $ 5,732 Adjustments to reconcile net income to net cash (used for) provided by operating activities: Depreciation and amortization 5,417 5,632 (Gain) on sale of property, plant and equipment (25) (121) Compensation recognized under employee stock plans 1,121 -- Pension costs in excess of funding 497 905 Deferred income taxes (493) (87) Changes in operating assets and liabilities: Accounts receivable (6,700) (7,527) Inventories (3,831) 4,040 Prepaid expenses and other current assets (757) 181 Payables to related party (9,343) (9,149) Accounts payable and accrued expenses 1,541 5,121 Accrued income taxes 839 (856) -------- -------- Net cash (used for) provided by operating activities (2,876) 3,871 INVESTING ACTIVITIES Proceeds from sale of property, plant and equipment 143 41 Capital expenditures (4,832) (4,699) -------- -------- Net cash (used for) investing activities (4,689) (4,658) FINANCING ACTIVITIES Proceeds from long-term debt 11,200 -- Principal payments on long-term debt (35,587) (521) Net borrowings under bank loan agreements 6,851 1,228 Proceeds from issuance of common stock 28,103 -- Dividends paid to related party (4,515) (1,268) Proceeds from stock options exercised 20 -- Conversion of other assets -- (615) -------- -------- Net cash provided by (used for) financing activities 6,072 (1,176) Effect of exchange rate changes on cash and cash equivalents (82) (95) -------- -------- Net change in cash and cash equivalents (1,575) (2,058) Cash and cash equivalents -- beginning of period 5,244 6,740 -------- -------- Cash and cash equivalents -- end of period $ 3,669 $ 4,682 ======== ========
See notes to unaudited condensed consolidated financial statements. -4- 7 CUNO INCORPORATED AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS July 31, 1997 Note A - CUNO Organization and Distribution On July 29, 1996 the Board of Directors of Commercial Intertech Corp. ("Commercial Intertech" or "Related Party") approved a plan to spin-off its fluid purification business by declaring a dividend distribution of 100% of the common stock of Cuno Incorporated ("CUNO" or the "Company") on a pro-rata basis to the holders of Commercial Intertech common shares (the "Distribution" or "Spin-off"). On September 10, 1996, the Distribution date, each holder of record of Commercial Intertech common shares as of the close of business on August 9, 1996, the record date for the Distribution, received one share of CUNO Common Stock for every one share of Commercial Intertech common share. No fractional shares of CUNO were issued. In connection with the Spin-off, the Company declared dividends of approximately $35,675,000 payable from the CUNO subsidiaries to the parent (Commercial Intertech), and immediately prior to the Distribution, Cuno assumed $30,000,000 of Commercial Intertech's debt which was accounted for as a dividend. CUNO and Commercial Intertech have entered into a Tax Allocation Agreement in connection with the Distribution. In addition, the companies have entered into a Distribution and Interim Services Agreement which provides that certain services which have historically been provided to CUNO by Commercial Intertech will continue to be provided following the Distribution Date, at rates specified in such agreement, for a period of up to twelve months. For further information, refer to CUNO's Form 10 filed with the SEC on September 10, 1996. Note B - Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of 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 nine-month period ended July 31, 1997 are not necessarily indicative of the results that may be expected for the year ending October 31, 1997. For further information, refer to the consolidated financial statements and footnotes thereto included in CUNO Incorporated's Form 10-K for the year ended October 31, 1996. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. In February of 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share". The Company will adopt this standard, as required, in the first quarter of its fiscal 1998 year. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods presented. Had this standard been adopted in fiscal 1997, the Company would have reported basic earnings per share of $0.61 for the nine months ended July 31, 1997 and $0.22 for the three months ended July 31, 1997. The impact of adopting Statement 128 is not expected to have a material impact on the Company's reported earnings per share. -5- 8 Note C - Earnings per share data All share and per share information has been retroactively restated to reflect the Distribution in a manner similar to a stock split. In determining the weighted average number of common shares outstanding during the 1996 periods, it was assumed that the shares issued in conjunction with the reorganization were outstanding during each period presented. Fully diluted earnings per share is not presented as the effect of other common stock equivalents was not material. Note D - Inventories Inventories consist of the following:
July 31, October 31, 1997 1996 -------- ----------- Raw materials $ 2,735 $ 2,817 Work-in-process 7,794 6,503 Finished goods 11,397 9,829 ------- ------- $21,926 $19,149 ======= =======
Inventories are stated at the lower of cost or market. Inventories in the United States are primarily valued on the last-in, first-out (LIFO) cost method. The method used for all other inventories is first-in, first-out (FIFO). An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time. Accordingly, interim LIFO calculations must necessarily be based on management's estimates of expected year-end inventory levels and costs. Because these are subject to many factors beyond management's control, interim results are subject to the final year-end LIFO inventory valuation. Note E - Equity Offering In May 1997, the Company completed an equity offering of approximately 2.2 million shares of common stock. Proceeds to the Company, net of related costs of the offering, totaled $28.1 million. The proceeds were used to retire indebtedness and for working capital and general corporate purposes. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTH PERIOD ENDED JULY 31, 1997 VS THREE MONTH PERIOD ENDED JULY 31, 1996 Net Sales. The Company recorded net sales of $48.1 million in the third quarter of fiscal 1997 representing a (0.8%) decrease over 1996's third quarter sales of $48.5 million. The strengthening U.S. dollar had a significant effect on overseas results when translated from local currency into U.S. dollars. Had currency values been unchanged from the third quarter of fiscal 1996, sales for the third quarter of fiscal 1997 would have been $2.0 million higher, or 3.2% greater overall than the same period in fiscal 1996. Sales from overseas operations were down $0.6 million or 2.4%, but increased 5.6% when compared in constant valued U.S. dollars. Local currency sales in Australia, Asia and Japan all experienced double-digit increases in the third quarter of 1997. Gross Profit. Gross profit decreased $0.1 million in the third quarter of fiscal 1997 as compared to the same period in fiscal 1996. The percentage of gross profit to sales improved from 42.8% to 43.0% over those same periods. An improvement in the mix of sales in the U.S. provided much of the gain as the Company continues to expand its sales into the health care market, as well as introduce new products. Additionally, -6- 9 several of the Company's manufacturing operations, most notably the facility devoted to potable water products in the U.S. and the Calais, France operation, have demonstrated improved operating efficiency. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $0.6 million, or 3.8%, to $15.2 million in the third quarter of fiscal 1997 from $14.7 million for the same period of 1996. Much of the increase in operating expenses in the third quarter of 1997 relate to the expansion of selling resources. Operating Income. Operating income of $5.5 million in the third quarter of fiscal 1997 represented a 68.1% improvement over the same period of fiscal 1996. The operating margin of 11.4% compares favorably to 6.7% for the same period in 1996. During the third quarter of 1996, the Company incurred $2.9 million in distribution and other non-recurring costs associated with the Spin-off. After adjusting for those unusual expenses, the operating profit for the third quarter of 1996 was $6.1 million and the operating margin 12.6%. Interest Expense. Interest expense increased to $0.2 million in the third quarter of 1997 from $0.1 million in the third quarter of fiscal 1996. The increase in interest expense primarily resulted from the $30.0 million of debt incurred by the Company in conjunction with the Spin-off. See "Financial Position and Liquidity". Income Taxes. The Company's effective income tax rate for the third quarter of 1997 was 33.3% as compared to 79.2% during the third quarter of 1996. The decrease reflects certain distribution and other nonrecurring costs related to the spin-off incurred in the third quarter of 1996 which were not considered deductible. No such nonrecurring costs were expensed in 1997. NINE MONTH PERIOD ENDED JULY 31, 1997 VS NINE MONTH PERIOD ENDED JULY 31, 1996 Net Sales. Net sales increased 3.5% during the first nine months of fiscal 1997 as compared to the same period in fiscal 1996, to $139.4 million from $134.6 million. The effects of changes in the value of foreign currency as expressed in U.S. dollars reduced overall sales in the first nine months of 1997 by $4.9 million. Had changes in foreign currency value not occurred, sales would have increased by 7.1% over the prior period. Sales in the U.S. increased 8.2% in the first nine months of fiscal 1997, with the majority of that increase derived from sales in the health care market. Overseas sales, after adjusting for the unfavorable impact of currency, increased 6.2% during the first nine months of fiscal 1997 as compared to the same period in fiscal 1996. Gross profit. For the first nine months of 1997, the Company recorded a gross profit margin of 43.2% as compared to 40.9% for the same period in fiscal 1996. Most of the gain stems from an improved mix of sales in the U.S., reflecting increased sales into the health care market as well as increased operating efficiency in manufacturing. Gross margins have also improved in certain overseas locations, most notably Europe. Much of the gain in Europe relates to improved product mix and enhanced operating efficiency. Selling, General and Administrative Expenses. In the first nine months of fiscal 1997, selling, general and administrative expenses increased 9.8% to $45.3 million from $41.3 million for the same period in fiscal 1996. Additionally, the expenses expressed as a percentage of sales increased to 32.5% in 1997 from 30.6% in 1996. The majority of the increase stems from a continued expansion of resources in selling, engineering and research and development. Operating Income. Operating income increased $4.1 million to $14.9 million during the first nine months of fiscal 1997 as compared to the same period of fiscal 1996. This represented a 37.3% improvement. Excluding $2.9 million in distribution and other non-recurring expenses discussed above from 1996's results, operating income for the first nine months of 1997 is 8.6% greater than the same period of 1996, and the 1997 year to date operating margin of 10.7% compares favorably to 10.2% a year earlier. -7- 10 Interest Expense. Interest expense increased to $1.3 million in the nine month period of 1997 from $0.3 million in the nine month period of 1996. The increase in interest expense primarily resulted from the $30.0 million of debt incurred by the Company in conjunction with the Spin-off. See "Financial Position and Liquidity". Income Taxes. The Company's effective income tax rate for the nine month period of 1997 was 35.0% as compared to 45.5% during the comparable period of 1996. The decrease reflects certain distribution and other nonrecurring costs related to the spin-off incurred in the third quarter of 1996 which were not considered deductible. No such nonrecurring costs were expensed in 1997. FINANCIAL POSITION AND LIQUIDITY The Company assesses its liquidity in terms of its ability to generate cash to fund operating and investing activities. Of particular importance in the management of liquidity are cash flows generated from operating activities, capital expenditure levels and adequate bank financing options. Set forth below is selected key cash flow data: (in thousands of dollars)
Nine months ended July 31, 1997 1996 -------- -------- OPERATING ACTIVITIES: Net cash provided by net income before depreciation, amortization and noncash compensation $ 15,396 $ 11,364 Inventories (3,831) 4,040 Payables to related party (9,343) (9,149) INVESTING ACTIVITIES: Capital expenditures (4,832) (4,699) FINANCING ACTIVITIES: Proceeds from issuance of common stock 28,103 0 Net decrease in long term debt (24,387) (521) Dividends paid to related party (4,515) (1,268)
Inventories increased $3.8 million during the first nine months of 1997 due to a general growth in worldwide sales and increased volume associated with recent new product introductions. Related party payments to Commercial Intertech amounted to $9.3 million during the first nine months of 1997. Such payments relate to services provided under the Distribution and Interim Services Agreement established by Commercial Intertech and CUNO to ensure the availability of services to CUNO by Commercial Intertech during CUNO's first fiscal year of independence. The increase in net cash provided by net income before depreciation, amortization and noncash compensation of 35.5% for the first nine months of 1997 over the comparable period in 1996 reflects the Company's increased sales volume, improved gross profit margin and reduced effective income tax rate. Capital expenditures amounted to $4.8 million for the nine months ended July 31, 1997 which is primarily comprised of new purchases of machinery and equipment used in manufacturing. The Company completed an offering of approximately 2.2 million shares of its common stock which generated net cash proceeds to the Company of $28.1 million. The proceeds were used to pay down long term debt associated with the Company's revolving credit facility. In addition, the Company has paid all dividends owed to Commercial Intertech which arose as part of its recent Spin-off. -8- 11 Other selected financial data is as follows: (amounts in thousands)
July 31, October 31, 1997 1996 ---- ---- Long term debt $ 9,284 $33,772 Stockholders' equity 78,182 43,148 Ratio of long term debt to total capitalization 11% 44%
The Company manages its worldwide cash requirements with consideration of the cost effectiveness of the available funds from the many subsidiaries through which it conducts its business. Management believes that its existing cash position and other available sources of liquidity are sufficient to meet current and anticipated requirements for the foreseeable future. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K Exhibit 27 - Financial Data Schedule (submitted electronically herewith) (b) Reports on Form 8-K No reports were filed on Form 8-K during the quarter for which this 10-Q is filed. -9- 12 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. CUNO INCORPORATED Date September 5, 1997 By /s/ Ronald C. Drabik -------------------------- ----------------------------- Ronald C. Drabik Senior Vice President and Chief Financial Officer -10- EX-27 2 EX-27 FINANCIAL DATA SCHEDULE
5 1,000 US DOLLARS 3-MOS OCT-31-1997 MAY-01-1997 JUL-31-1997 1 3,669 0 43,594 1,449 21,926 76,009 97,432 50,145 143,236 48,996 9,284 0 0 16 78,166 143,236 48,135 48,135 27,440 27,440 15,227 21 203 5,255 1,752 3,503 0 0 0 3,503 .22 0
-----END PRIVACY-ENHANCED MESSAGE-----