-----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, LV7If4rhs2N90W16UXZllEgUJxgjEKALLY9NonNA/cpdRtAXeqxul8HS8fx0wO03 1GOaeDj9HSP0jj94HlxR2Q== 0000914039-98-000047.txt : 19980302 0000914039-98-000047.hdr.sgml : 19980302 ACCESSION NUMBER: 0000914039-98-000047 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980227 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: 98552606 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 January 31, 1998 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 -- 16,129,025 shares as of January 31, 1998. 2 CUNO INCORPORATED
Page ---- Part I. Financial Information Item 1. Condensed Consolidated Financial Statements (Unaudited) Consolidated Statements of Income -- Three months ended January 31, 1998 and 1997 1 Consolidated Balance Sheets -- January 31, 1998 and October 31, 1997 2 Consolidated Statements of Cash Flows -- Three months ended January 31, 1998 and 1997 3 Notes to Unaudited Condensed Consolidated Financial Statements 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 5 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 7 Signatures 8
3 CUNO INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (dollars in thousands, except share amounts)
THREE MONTHS ENDED JANUARY 31, 1998 1997 -------- -------- Net sales $ 44,020 $ 44,839 Less costs and expenses: Cost of products sold 25,057 25,638 Selling, general and administrative expenses 12,346 12,623 Research, development and engineering 2,815 2,651 -------- -------- 40,218 40,912 -------- -------- Operating income 3,802 3,927 Nonoperating income (expense): Interest income 33 36 Interest expense (213) (591) Exchange gains (losses) 94 (26) Other 179 (42) -------- -------- 93 (623) -------- -------- Income before income taxes 3,895 3,304 Provision for income taxes 1,362 1,239 -------- -------- Net income $ 2,533 $ 2,065 ======== ======== Basic earnings per common share $ 0.16 $ 0.15 Diluted earnings per common share $ 0.16 $ 0.15
See notes to unaudited condensed consolidated financial statements. -1- 4
CUNO INCORPORATED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except share amounts) JANUARY 31, OCTOBER 31, 1998 1997 --------- --------- ASSETS Current assets Cash and cash equivalents $ 4,208 $ 3,416 Accounts receivable (less allowances for doubtful accounts of $1,497 and $1,420, respectively) 42,312 43,105 Inventories 23,329 22,047 Deferred income taxes 4,902 5,328 Prepaid expenses and other current assets 3,074 2,542 --------- --------- Total current assets 77,825 76,438 Noncurrent assets Deferred income taxes 1,553 1,612 Intangible assets, net 18,350 17,923 Pension assets 1,221 1,239 Other noncurrent assets 1,182 584 Property, plant and equipment, net 48,385 48,529 --------- --------- Total assets $ 148,516 $ 146,325 --------- --------- LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Bank loans $ 17,214 $ 16,998 Accounts payable 14,201 14,647 Accrued payroll and related taxes 5,948 9,801 Other accrued expenses 6,361 5,527 Accrued income taxes 3,245 2,943 Current portion of long-term debt 858 1,573 --------- --------- Total current liabilities 47,827 51,489 Noncurrent liabilities Long-term debt, less current portion 8,508 4,779 Deferred income taxes 3,850 3,990 Retirement benefits 4,156 4,177 --------- --------- Total noncurrent liabilities 16,514 12,946 Stockholders' equity Preferred stock, $.001 par value; 2,000,000 shares authorized, no shares issued -- -- Common stock, $.001 par value; 50,000,000 shares authorized, 16,129,025 and 16,003,694 shares issued and outstanding (excluding 3,377 and 3,377 shares in treasury) 16 16 Additional paid-in-capital 38,008 35,741 Retained earnings 48,254 45,721 Unearned compensation (4,071) (2,646) Minimum pension liability (1,208) (1,228) Foreign currency translation adjustments 3,176 4,286 --------- --------- Total stockholders' equity 84,175 81,890 --------- --------- Total liabilities and stockholders' equity $ 148,516 $ 146,325 --------- --------- See notes to unaudited condensed consolidated financial statements. -2-
5
CUNO INCORPORATED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (dollars in thousands) THREE MONTHS ENDED JANUARY 31, 1998 1997 ------- ------- OPERATING ACTIVITIES Net income $ 2,533 $ 2,065 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization 1,822 1,779 Gains on sale of property, plant and equipment (303) (4) Compensation recognized under employee stock plans 452 404 Pension costs in excess of funding 321 -- Deferred income taxes 229 (228) Changes in operating assets and liabilities: Accounts receivable 121 (465) Inventories (872) (1,196) Prepaid expenses and other current assets (1,086) (604) Payables to related party -- (3,149) Accounts payable and accrued expenses (3,274) (2,078) Accrued income taxes 302 891 ------- ------- Net cash provided by (used for) operating activities 245 (2,585) INVESTING ACTIVITIES Proceeds from sale of property, plant and equipment 481 39 Acquisition of companies, net of cash acquired (2,209) -- Capital expenditures (1,777) (1,001) ------- ------- Net cash used for investing activities (3,505) (962) FINANCING ACTIVITIES Proceeds from long-term debt 3,892 4,000 Principal payments on long-term debt (754) (2,049) Net borrowings under bank loans 1,078 2,371 Dividends paid to related party -- (2,352) ------- ------- Net cash provided by financing activities 4,216 1,970 Effect of exchange rate changes on cash and cash equivalents (164) (81) ------- ------- Net change in cash and cash equivalents 792 (1,658) Cash and cash equivalents -- beginning of period 3,416 5,244 ------- ------- Cash and cash equivalents -- end of period $ 4,208 $ 3,586 ------- ------- See notes to unaudited condensed consolidated financial statements. -3-
6 CUNO INCORPORATED NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS January 31, 1998 NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION The Company designs, manufactures and markets a comprehensive line of filtration products for the separation, clarification and purification of liquids and gases. The Company's products, which include proprietary depth filters and semi-permeable membrane filters, are sold in the healthcare, fluid processing and potable water markets throughout the world. 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 three-month period ended January 31, 1998 are not necessarily indicative of the results that may be expected for the year ending October 31, 1998. 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, 1997. Certain reclassifications have been made to prior year amounts to conform to the current year presentation. NOTE 2 - EARNINGS PER SHARE DATA In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings per Share. All earnings per share amounts for all periods have been presented, and where necessary restated, to conform with the Statement 128 requirements. The following table sets forth the computation of basic and diluted earnings per share:
January 31, January 31, 1998 1997 NUMERATOR: Net Income $ 2,533,000 $ 2,065,000 ============ ============ DENOMINATOR: Weighted average shares outstanding 16,057,216 13,809,513 Issued but unearned performance shares (180,155) (215,500) Issued but unearned restricted shares (26,581) (34,582) ------------ ------------ DENOMINATOR FOR BASIC EARNINGS PER SHARE 15,850,480 13,559,431 ============ ============ Weighted average shares outstanding 16,057,216 13,809,513 Effect of dilutive employee stock options 52,415 51,554 ------------ ------------ DENOMINATOR FOR DILUTED EARNINGS PER SHARE 16,109,631 13,861,067 ============ ============ Basic earnings per share $ 0.16 $ 0.15 Diluted earnings per share $ 0.16 $ 0.15
4 7 NOTE 3 - INVENTORIES Inventories consist of the following:
January 31, October 31, 1998 1997 ------- ------- Raw materials $ 8,163 $ 8,167 Work-in-process 3,785 3,661 Finished goods 11,381 10,219 ------- ------- $23,329 $22,047 ======= =======
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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTH PERIOD ENDED JANUARY 31, 1998 VS THREE MONTH PERIOD ENDED JANUARY 31, 1997 NET SALES The Company recorded net sales of $44.0 million in the first quarter of fiscal 1998 representing a (1.8) percent decrease over 1997's first quarter sales of $44.8 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 first quarter of fiscal 1997, sales for the first quarter of fiscal 1998 would have been $3.0 million higher, or 4.9 percent greater overall than the same period in fiscal 1997. Sales from overseas operations were down $0.6 million or 2.8 percent, but increased 10.7 percent when compared in constant valued U.S. dollars. Local currency sales in Europe, Australia, and Japan increased 20.6 percent, 20.3 percent, and 5.1 percent, respectively. GROSS PROFIT The Company's gross profit decreased $0.2 million in the first quarter of 1998 over the first quarter of 1997. Gross profit as a percentage of net sales improved to 43.1 percent from 42.8 percent. This increase, which was significantly tempered by unfavorable currency rate changes on inventory purchases from the U.S. parent, is the result of the Company's focused attention on sales related to higher margin products and continued efforts at productivity gains and manufacturing cost containment. OPERATING EXPENSES Selling, general and administrative expenses decreased $0.3 million in the first quarter of 1998 over the first quarter of 1997, representing a 2.2 percent decrease. The decrease stems primarily from cost controls especially in administrative areas. Selling and advertising expenses, largely associated with the launch of new products, increased $0.3 million, or 3.8 percent, in the first quarter of 1998. Research, development and engineering expenses increased 6.2 percent in the first quarter of 1998. 5 8 OPERATING INCOME As a result of the above, operating income was approximately level at $3.8 million or 8.6 percent of sales in the first quarter of 1998 as compared to $3.9 million or 8.8 percent of sales in the first quarter of 1997. NONOPERATING ACTIVITY Interest expense decreased to $0.2 million in the first quarter of 1998 from $0.6 million in the first quarter of fiscal 1997. The decrease in interest expense primarily results from the decrease in debt associated with the Company's public offering of common stock in May, 1997. The proceeds were used to retire indebtedness and for working capital and general corporate purposes. During the first quarter of 1998, the Company sold a tract of land in Australia, which was unrelated to the business, for $0.4 million resulting in a gain of $0.3 million. INCOME TAXES The Company's effective income tax rate for the first quarter of 1998 was 35.0% as compared to 37.5% during the first quarter of 1997. The decrease reflects a change in the mix of income attributed to various countries and their taxing authorities in which the Company does business. 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. 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. Set forth below is selected key cash flow data (in thousands of dollars): Source/(Use) of funds
THREE MONTHS ENDED JANUARY 31, 1998 1997 ---- ---- OPERATING ACTIVITIES: Net cash provided by net income plus depreciation, amortization and noncash compensation $ 4,807 $ 4,248 Accounts payable and accrued expenses (3,274) (2,078) Payables to related party (former parent) -- (3,149) INVESTING ACTIVITIES: Capital expenditures (1,777) (1,001) Acquisition of companies, net of cash acquired (2,209) -- FINANCING ACTIVITIES: Net change in total debt 4,216 4,322 Dividends paid to related party -- (2,352)
The net cash provided by net income plus depreciation, amortization and noncash compensation is an important measurement of cash generated from the earnings process before significant noncash charges. The increase in net income plus depreciation, amortization and noncash compensation of 13.2 percent reflects the Company's increased gross profit margin, reduced selling, general and administrative expenses, and improved effective income tax rate. No payments were made to the Company's former parent in the first quarter of 1998 as no significant level of services have been provided subsequent to October 31, 1997. 6 9 Capital expenditures amounted to $1.8 million for the three months ended January 31, 1998 which is primarily comprised of purchases of machinery and equipment and the expansion of manufacturing facilities. During the quarter ended January 31, 1998, the Company completed two overseas acquisitions, a distribution business and a product line which were comprised primarily of working capital, for an aggregate purchase price of $2.2 million. These acquisitions have been accounted for as purchases and, accordingly, the results of their operations are included in the Company's consolidated statements of operations from the date of acquisition. These acquisitions would not have materially affected the financial statements of the Company had the results of their operations been included in the Company's financial statements of prior periods. OTHER MATTERS NEW ACCOUNTING STANDARDS The Financial Accounting Standards Board issued Statements (SFAS No. 130 and 131) related to reporting comprehensive income and segment disclosures. The Company plans to adopt these statements upon their applicable effective dates in fiscal 1999. COMPLIANCE WITH YEAR 2000 Management has initiated an enterprise-wide program to prepare the Company's computer systems and applications to be Year 2000 compliant. The Company expects to incur internal staff costs as well as other expenses related to infrastructure and facilities enhancements necessary to prepare all of its systems for the Year 2000. The Company expects to both replace some systems and upgrade others. Maintenance or modification costs will be expensed as incurred. The costs of new leased software will be expensed over the term of the lease. The total cost of this effort is still being evaluated, but is not expected to be material to the Company. This effort will give the Company the added benefit of new technology and better functionality for many of its operational and administrative systems. PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Documents filed as part of this report. Exhibit 10 - Material Contracts 10.19 First Amendment to Distribution and Interim Services Agreement 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. 7 10 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 February 27, 1998 By /s/ Ronald C. Drabik ---------------------- ----------------------- Ronald C. Drabik Senior Vice President and Chief Financial Officer 8 11 EXHIBIT 10.19 FIRST AMENDMENT TO DISTRIBUTION AND INTERIM SERVICES AGREEMENT THIS FIRST AMENDMENT TO DISTRIBUTION AND INTERIM SERVICES AGREEMENT (this "Amendment") is made and entered into as of January 27, 1998 by and between COMMERCIAL INTERTECH CORP., an Ohio corporation ("Commercial Intertech") and CUNO INCORPORATED, a Delaware corporation ("CUNO"). W I T N E S S E T H: WHEREAS, Commercial Intertech and CUNO are parties to that certain Distribution and Interim Services Agreement (the "Agreement") dated as of September 10, 1996, entered into in connection with the distribution of CUNO Common Stock (as defined in the Agreement) to the holders of Commercial Intertech Common Stock (as defined in the Agreement) as part of the spin-off of CUNO; WHEREAS, the Agreement sets forth certain agreements relating to the transactions necessary to effect such distribution of CUNO Common Stock and the spin-off of CUNO, and certain agreements between the parties in connection with the conduct of business (and sharing of services) thereafter; and WHEREAS, Commercial Intertech and CUNO desire to amend the Agreement to provide that corporate opportunities relating to the Cuno Business (as defined in the Agreement) shall be the property of CUNO. NOW, THEREFORE, for the good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows: 1. Corporate Opportunities. Section 3.09 of the Agreement shall be amended to provide that corporate opportunities relating to the CUNO Business shall be the property or corporate opportunity of CUNO, and as such, Section 3.09 shall be deleted in its entirety and replaced with the following: "SECTION 3.09 Corporate Opportunities. The parties hereto acknowledge that certain of the director and officers of CUNO or a CUNO Subsidiary may also be a director or officer of Commercial Intertech or a Commercial Intertech Subsidiary following the Distribution Date. In connection with the foregoing, the parties hereto agree that following the Distribution Date, no opportunity, transaction, agreement or other arrangement of which an officer or director of Commercial Intertech, a Commercial Intertech Subsidiary or any other Person in which Commercial Intertech or any Commercial Intertech Subsidiary acquires a financial interest, is a party or has knowledge, shall be the 12 property or corporate opportunity of CUNO or any CUNO Subsidiary, unless such opportunity, transaction, agreement or other arrangement relates to the ownership of interests in or the management and operation of the CUNO Business, in which case such opportunity, transaction, agreement or other arrangement shall be the property of CUNO or such CUNO Subsidiary, as appropriate." 2. Definition of CUNO Business. The definition of CUNO Business for purposes of this Amendment shall be the definition contained in the Agreement, restated as follows: "CUNO Business: the fluid purification business conducted, as of the date of the Agreement, by Commercial Intertech, CUNO and their respective Subsidiaries through the use of the CUNO Assets, and after the Distribution Date to be conducted by CUNO and the CUNO Subsidiaries." 3. Terms; Effect of Amendment. All capitalized terms used in this Amendment but not otherwise defined herein shall have the meanings given to them in the Agreement. All other terms and provisions of the Agreement not modified by this Amendment shall remain in full force and effect. 4. Strict Construction. The language used in this Amendment will be deemed to the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be applied against any party hereto. 5. Counterparts. This Amendment may be executed in any number of counterparts, each of which shall be deemed an original and all of which, when taken together, shall constitute one and the same agreement. IN WITNESS WHEREOF, the parties to this Amendment have caused this Amendment to be duly executed and delivered as of the day and year first above written. COMMERCIAL INTERTECH CORP. CUNO INCORPORATED By: /s/ Gilbert M. Manchester By: /s/ Mark G. Kachur ------------------------- ------------------ Gilbert M. Manchester Mark G. Kachur Vice President, General Counsel and Chief Executive Officer Assistant Secretary -2- EX-27 2 EX-27
5 0001019779 CUNO INCORPORATED 1,000 U.S. DOLLARS 3-MOS OCT-31-1998 NOV-01-1997 JAN-31-1998 1 4,208 0 43,809 1,497 23,329 77,825 100,329 51,944 148,516 47,827 8,508 0 0 16 84,159 148,516 44,020 44,020 25,057 25,057 15,161 75 213 3,895 1,362 2,533 0 0 0 2,533 0.16 0.16
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