-----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, QgmQDg5anCj3kgi2RLUy0pPtZ8HfrW4ENtvX3oCwqUe9HmIG+UQPNn+NDYkAYyNQ upZreiEDhl8UeOthQA7jQA== 0000914039-98-000358.txt : 19980831 0000914039-98-000358.hdr.sgml : 19980831 ACCESSION NUMBER: 0000914039-98-000358 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980731 FILED AS OF DATE: 19980828 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: 98699832 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, 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 -- 16,160,348 shares as of July 31, 1998. 2 CUNO INCORPORATED
Page ---- Part I. Financial Information Item 1. Condensed Consolidated Financial Statements (Unaudited) Consolidated Statements of Income -- Three months ended July 31, 1998 and 1997 1 Consolidated Statements of Income -- Nine months ended July 31, 1998 and 1997 2 Consolidated Balance Sheets -- July 31, 1998 and October 31, 1997 3 Consolidated Statements of Cash Flows -- Nine months ended July 31, 1998 and 1997 4 Notes to Unaudited Condensed Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13
3 CUNO INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (dollars in thousands, except share amounts)
THREE MONTHS ENDED JULY 31, 1998 1997 -------- -------- Net sales $ 53,254 $ 48,135 Less costs and expenses: Cost of products sold 28,331 27,440 Selling, general and administrative expenses 15,146 12,805 Research, development and engineering 2,967 2,422 -------- -------- 46,444 42,667 -------- -------- Operating income 6,810 5,468 Nonoperating income (expense): Interest income 17 28 Interest expense (354) (203) Exchange gains (losses) 75 (7) Other 12 (31) -------- -------- (250) (213) -------- -------- Income before income taxes 6,560 5,255 Provision for income taxes 2,327 1,752 -------- -------- Net income $ 4,233 $ 3,503 ======== ======== Basic earnings per common share $ 0.27 $ 0.22 Diluted earnings per common share $ 0.26 $ 0.22
See notes to unaudited condensed consolidated financial statements. -1- 4 CUNO INCORPORATED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (dollars in thousands, except share amounts)
NINE MONTHS ENDED JULY 31, 1998 1997 --------- --------- Net sales $ 148,585 $ 139,357 Less costs and expenses: Cost of products sold 81,829 79,139 Selling, general and administrative expenses 41,339 37,475 Research, development and engineering 8,482 7,808 --------- --------- 131,650 124,422 --------- --------- Operating income 16,935 14,935 Nonoperating income (expense): Interest income 90 94 Interest expense (876) (1,348) Exchange gains 155 15 Other 349 (76) --------- --------- (282) (1,315) --------- --------- Income before income taxes 16,653 13,620 Provision for income taxes 5,858 4,762 --------- --------- Net income $ 10,795 $ 8,858 ========= ========= Basic earnings per common share $ 0.68 $ 0.62 Diluted earnings per common share $ 0.67 $ 0.61
See notes to unaudited condensed consolidated financial statements. -2- 5 CUNO INCORPORATED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except share amounts)
JULY 31, OCTOBER 31, 1998 1997 --------- ---------- ASSETS Current assets Cash and cash equivalents $ 4,734 $ 3,416 Accounts receivable (less allowances for doubtful accounts of $1,001 and $1,420, respectively) 43,416 43,105 Inventories 25,984 22,047 Deferred income taxes 5,834 5,328 Prepaid expenses and other current assets 3,375 2,542 --------- --------- Total current assets 83,343 76,438 Noncurrent assets Deferred income taxes 1,573 1,612 Intangible assets, net 22,446 17,923 Pension assets 1,641 1,239 Other noncurrent assets 1,391 584 Property, plant and equipment, net 53,038 48,529 --------- --------- Total assets $ 163,432 $ 146,325 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Bank loans $ 15,554 $ 16,998 Accounts payable 13,631 14,647 Accrued payroll and related taxes 8,067 9,801 Other accrued expenses 3,968 5,527 Accrued income taxes 2,973 2,943 Current portion of long-term debt 1,665 1,573 --------- --------- Total current liabilities 45,858 51,489 Noncurrent liabilities Long-term debt, less current portion 15,565 4,779 Deferred income taxes 4,006 3,990 Retirement benefits 4,275 4,177 --------- --------- Total noncurrent liabilities 23,846 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, 16,160,348 and 16,003,694 shares issued and outstanding (excluding 4,328 and 3,377 shares in treasury) 16 16 Additional paid-in-capital 38,555 35,741 Retained earnings 56,516 45,721 Unearned compensation (2,557) (2,646) Minimum pension liability (1,161) (1,228) Foreign currency translation adjustments 2,359 4,286 --------- --------- Total stockholders' equity 93,728 81,890 --------- --------- Total liabilities and stockholders' equity $ 163,432 $ 146,325 ========= =========
See notes to unaudited condensed consolidated financial statements. -3- 6 CUNO INCORPORATED STATEMENTS OF CONSOLIDATED CASH FLOWS (UNAUDITED) (dollars in thousands)
NINE MONTHS ENDED JULY 31, 1998 1997 -------- -------- OPERATING ACTIVITIES Net income $ 10,795 $ 8,858 Adjustments to reconcile net income to net cash provided by (used for) operating activities: Depreciation and amortization 5,613 5,417 Compensation recognized under employee stock plans 1,958 1,121 Gain on sale of property, plant and equipment (475) (25) Pension costs (less than) in excess of funding (117) 497 Deferred income taxes (813) (493) Changes in operating assets and liabilities: Accounts receivable (2,015) (6,700) Inventories (3,273) (3,831) Prepaid expenses and other current assets (1,715) (757) Payables to related party -- (9,343) Accounts payable and accrued expenses (2,714) 1,541 Accrued income taxes 49 839 -------- -------- Net cash provided by (used for) operating activities 7,293 (2,876) INVESTING ACTIVITIES Proceeds from sales of property, plant and equipment 618 143 Acquisition of companies, net of cash acquired (10,061) -- Capital expenditures (8,301) (4,832) -------- -------- Net cash used for investing activities (17,744) (4,689) FINANCING ACTIVITIES Proceeds from long-term debt 15,792 11,200 Principal payments on long-term debt (4,694) (35,587) Net borrowings under bank loans 953 6,851 Proceeds from issuance of common stock -- 28,103 Proceeds from stock options exercised -- 20 Dividends paid to related party -- (4,515) -------- -------- Net cash provided by financing activities 12,051 6,072 Effect of exchange rate changes on cash and cash equivalents (282) (82) -------- -------- Net change in cash and cash equivalents 1,318 (1,575) Cash and cash equivalents -- beginning of period 3,416 5,244 -------- -------- Cash and cash equivalents -- end of period $ 4,734 $ 3,669 ======== ========
See notes to unaudited condensed consolidated financial statements. -4- 7 CUNO INCORPORATED NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS July 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 nine month period ended July 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 the Company'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 for the three months ended:
JULY 31, July 31, 1998 1997 ------------ ------------ NUMERATOR: Net Income $ 4,233,000 $ 3,503,000 ============ ============ DENOMINATOR: Weighted average shares outstanding 16,159,553 15,947,363 Issued but unearned performance shares (161,782) (186,750) Issued but unearned restricted shares (49,880) (23,499) ------------ ------------ Denominator for basic earnings per share 15,947,891 15,737,114 ============ ============ Weighted average shares outstanding 16,159,553 15,947,363 Effect of dilutive employee stock options 139,267 36,584 ------------ ------------ Denominator for diluted earnings per share 16,298,820 15,983,947 ============ ============ Basic earnings per share $ 0.27 $ 0.22 Diluted earnings per share $ 0.26 $ 0.22
5 8 The following table sets forth the computation of basic and diluted earnings per share for the nine months ended:
JULY 31, July 31, 1998 1997 ------------ ------------ NUMERATOR: Net Income $ 10,795,000 $ 8,858,000 ============ ============ DENOMINATOR: Weighted average shares outstanding 16,122,625 14,535,773 Issued but unearned performance shares (176,709) (202,699) Issued but unearned restricted shares (42,861) (26,038) ------------ ------------ Denominator for basic earnings per share 15,903,055 14,307,036 ============ ============ Weighted average shares outstanding 16,122,625 14,535,773 Effect of dilutive employee stock options 106,808 40,363 ------------ ------------ Denominator for diluted earnings per share 16,229,433 14,576,136 ============ ============ Basic earnings per share $ 0.68 $ 0.62 Diluted earnings per share $ 0.67 $ 0.61
NOTE 3 - INVENTORIES Inventories consist of the following:
JULY 31, OCTOBER 31, 1998 1997 -------- ----------- Raw materials $ 9,931 $ 8,167 Work-in-process 4,330 3,661 Finished goods 11,723 10,219 ------- ------- $25,984 $22,047 ======= =======
Inventories are stated at the lower of cost or market. Inventories in the United States are primarily valued by 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. 6 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE MONTH PERIOD ENDED JULY 31, 1998 VS THREE MONTH PERIOD ENDED JULY 31, 1997 NET SALES The Company had net sales of $53.3 million in the third quarter of fiscal 1998 representing a 10.6 percent increase over 1997's third quarter sales of $48.1 million. The strengthening US dollar had a significant unfavorable effect on overseas results when translated from local currency into US dollars. Had currency values been unchanged from the third quarter of fiscal 1997, net sales for the third quarter of fiscal 1998 would have been $2.5 million higher, or 15.9 percent greater overall than the comparable period in fiscal 1997. Sales from US operations increased $6.6 million or 27.6 percent led by a strong performance in the Consumer Filter Products Group. The Group's recently introduced range of new appliance filters designed to target the OEM market, as well as the recent purchase of Chemical Engineering Corporation, a manufacturer of water treatment equipment in March 1998, are primarily responsible for the increase. Sales from overseas operations decreased $1.5 million or 6.3 percent, but increased 4.1 percent when compared in constant valued US dollars. Local currency sales in Europe, Australia and Brazil increased 7.6 percent, 16.7 percent and 42.0 percent, respectively. The continuing sagging economies and weak currencies in the Asian region have reduced sales in Japan and Singapore as compared to the same period in the prior year. GROSS PROFIT Gross profit as a percentage of net sales improved to 46.8 percent from 43.0 percent. This increase was significantly tempered by the strong US dollar, affecting the cost of products and components manufactured in the US and purchased by overseas affiliates. In the US, the sales mix and new product initiatives were unusually favorable during the quarter, providing a significant increase to the gross profit percentage. Additionally, the outsourcing of certain manufactured items along with programs to reduce the cost of internally manufactured products contributed to the improvement. These programs, along with increased volume and an increase in direct sales in Europe, contributed to the $4.2 million gross profit increase, or 20.4 percent, in the third quarter of 1998 over the third quarter of 1997. OPERATING EXPENSES Operating expenses increased by $2.9 million in the third quarter of 1998 over the third quarter of 1997, representing a 19.0 percent increase. Selling and advertising expenses have increased 27.6% in the third quarter of 1998 reflecting the continued growth of programs to expand the market position of the Company and support new product programs. Additionally, noncash expense for employee stock plans increased sharply in the quarter since the cost of these stock plans is directly associated with the market value of the Company's stock. Research, development and engineering increased 22.5% in the third quarter of 1998 due to the Company's increased focus on the development of new products and technologies. OPERATING INCOME As a result of the above, operating income increased $1.3 million, or 24.5 percent, to $6.8 million or 12.8 percent of sales in the third quarter of 1998 as compared to $5.5 million or 11.4 percent of sales in the third quarter of 1997. NONOPERATING ACTIVITY Interest expense increased to $0.4 million in the third quarter of 1998 from $0.2 million in the third quarter of fiscal 1997. The increase in interest expense primarily results from an increase in debt associated with recent acquisitions and the expansion of the Company's manufacturing capabilities -- see "Financial Position and Liquidity" below. 7 10 INCOME TAXES The Company's effective income tax rate for the third quarter of 1998 was 35.5% as compared to 33.3% in the third quarter of 1997. The increase reflects a change in the mix of income attributed to various countries and their taxing authorities in which the Company does business. NINE MONTH PERIOD ENDED JULY 31, 1998 VS NINE MONTH PERIOD ENDED JULY 31, 1997 NET SALES The Company had net sales of $148.6 million in the first nine months of fiscal 1998 representing a 6.6 percent increase over 1997's sales of $139.4 million. The strengthening U.S. dollar had a significant unfavorable effect on overseas results when translated from local currency into U.S. dollars. Had currency values been unchanged from the first nine months of fiscal 1997, net sales for the first nine months of fiscal 1998 would have been $7.6 million higher, or 12.1 percent greater overall than the same period in fiscal 1997. Sales from U.S. operations increased $10.9 million or 15.6%. Sales in the U.S. benefited from a strong performance by the Consumer Filter Products Group and the recent acquisition of Chemical Engineering Corporation. Sales from overseas operations were down $1.6 million or 2.3 percent, but increased 8.6 percent when compared in constant valued U.S. dollars. Local currency sales in Europe, Australia and Brazil increased 15.0 percent, 20.6 percent and 24.1 percent, respectively. The continuing sagging economies and weak currencies in the Asian region have reduced sales in Japan and Singapore as compared to the same period in the prior year. GROSS PROFIT Gross profit as a percentage of net sales improved to 44.9 percent from 43.2 percent. An unusually favorable mix of sales in the third quarter, along with reduced costs to manufacture products in the U.S., has contributed to the improvement in margin. The aforementioned factors have reduced the negative impact created by the strength of the U.S. dollar. As the dollar has strengthened, it has increased the cost of U.S. manufactured products sold to affiliated companies overseas. Due to increased volume and the above mentioned margin improvement, gross profit increased $6.5 million, or 10.9 percent, in the first nine months of 1998 over the first nine months of 1997. OPERATING EXPENSES Operating expenses increased $4.5 million in the first nine months of 1998 over the first nine months of 1997, representing a 10.0 percent increase. Selling and advertising expenses have increased 14.7% reflecting the growth of programs to expand the market position of the Company and support new product programs. Additionally, noncash expense for employee stock plans increased sharply in 1998 since the cost of these stock plans is directly associated with the market value of the Company's stock. Research, development and engineering increased 8.6% in the first nine months of 1998 due to the Company's increased focus on the development of new products and technologies. OPERATING INCOME As a result of the above, operating income increased $2.0 million or 13.4 percent to $16.9 million or 11.4 percent of sales in the first nine months of 1998 as compared to $14.9 million or 10.7 percent of sales in the first nine months of 1997. NONOPERATING ACTIVITY Interest expense decreased to $0.9 million in the first nine months of 1998 from $1.3 million in the first nine months 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 which was completed in May, 1997, offset by a modest increase in debt associated with recent acquisitions and increased capital expenditures -- see "Financial Position and 8 11 Liquidity" below. The proceeds of the public offering were used to retire indebtedness and for working capital and general corporate purposes. During the first quarter of 1998, the Company entered into a contract to sell 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 nine months of 1998 was 35.2% as compared to 35.0% during the first nine months of 1997. The increase reflects a minor 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 alternatives. 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 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
NINE MONTHS ENDED JULY 31, 1998 1997 -------- -------- OPERATING ACTIVITIES: Net cash provided by net income plus depreciation, amortization and noncash compensation $ 18,366 $ 15,396 Payables to related party (former parent) -- (9,343) INVESTING ACTIVITIES: Capital expenditures (8,301) (4,832) Acquisition of companies, net of cash acquired (10,061) -- FINANCING ACTIVITIES: Net change in total debt 12,051 (17,536) Proceeds from issuance of common stock -- 28,103 Dividends paid to related party -- (4,515)
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 $3.0 million, or 19.3 percent, reflects the Company's increased sales, gross profit margin, and general profitability. No payments were made to the Company's former parent in the first nine months of 1998 since no significant level of services have been provided subsequent to October 31, 1997. Capital expenditures amounted to $8.3 million for the nine months ended July 31, 1998. The increase over the prior period reflects the Company's continued expansion and improvement of its manufacturing capabilities. During the first quarter of fiscal 1998, the Company completed two overseas acquisitions -- a distribution business in Europe and a product line in Australia which were comprised primarily of working capital -- for an aggregate purchase price of $2.2 million. During the second quarter of fiscal 1998, the Company completed an acquisition of Chemical Engineering Corporation, a leading manufacturer of water treatment equipment and related systems, for a purchase price of $8.6 million in cash (acquired assets included cash of $1.1 million). The stock purchase agreement also provides for future contingent consideration payable over a two year period and is dependent upon future sales levels and other performance criteria. Any future payments will be recorded as 9 12 goodwill, and are not expected to have a material impact on operating results. During the third quarter of 1998, the Company completed an overseas acquisition of a small distribution business. 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 did not materially affect the financial statements of the Company in 1998 nor would they have materially affected the financial statements of prior periods had the results of their operations been included in those financial statements. During the first nine months of 1997, 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. During the comparable period in 1998, the Company increased its total outstanding debt, on a net basis, $12.1 million. This debt increase was used in part to finance the aforementioned acquisitions ($10.1 million) and capital expenditures ($8.3 million). 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. In February 1998, the Financial Accounting Standards Board issued SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits". This statement does not change the measurement or recognition of pension and other postretirement benefit plans, but it does revise the disclosure requirements. The adoption of this statement will have no impact on the Company's consolidated results of operations, financial position or cash flows. As required, the Company plans to adopt this statement upon its applicable effective date in fiscal 1999. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". This statement requires all derivatives to be recorded on the balance sheet at fair value and provides a comprehensive and consistent standard for the recognition and measurement of derivatives and hedging activities. The Company is studying the application of this new statement. The adoption of this statement is not expected to have a material impact on the consolidated results of operations, financial position or cash flows. As required, the Company plans to adopt this statement upon its applicable effective date in fiscal 2000. COMPLIANCE WITH YEAR 2000 Management has initiated an enterprise-wide program to prepare the Company's computer systems, information technology and non-information technology 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. In September 1996, the Company was spun-off from its parent company, Commercial Intertech Corp. Prior to the spin-off, the Company relied on its parent to provide certain administrative functions, including computer information support services. As a new stand-alone corporation no longer relying on its former parent, the Company invested a significant amount of capital into new hardware, software and information system technology. This investment began in 1996 and was largely completed in 1997. Although this effort was immediately necessitated by the spin-off, it gave the Company the added benefit of new technology which was Year 2000 compliant and better functionality for many of its operational and administrative systems. As discussed above, the majority of the Company's Year 2000 issue was addressed through its recent spin-off and implementation of new Year 2000 compliant software and other systems throughout much of its worldwide operations. Systems and other non-information technology which were not covered by the new software implementation are being addressed individually and require replacement software, reprogramming or other remedial actions. The Company is communicating with its suppliers, customers and other service providers to determine the extent of the Company's vulnerability to the failure of third parties to remediate their own Year 2000 10 13 issue. The Company has made significant progress to date on its internal program to remediate the year 2000 issue, and currently expects the entire project to be substantially complete by early 1999. In conjunction with this effort, the Company continuously monitors its action plans to address the Year 2000 issue, including contingencies to address unforeseen problems. This is potentially a significant issue for most, if not all, companies, with implications which can not be anticipated or predicted with any degree of certainty. The Company is expensing software maintenance or modification costs as incurred. The costs of new leased software is being expensed over the term of the lease while items of a capital nature are being depreciated over their estimated useful lives. For expenditures related to Year 2000 to date, the Company has expensed approximately $35,000 in maintenance or modification costs (excluding operating lease payments for new systems implemented as part of the spin-off) and capitalized approximately $65,000. Based on information currently available, the total remaining maintenance or modification cost is estimated to be $165,000, while future purchases of a capital nature are expected to be $335,000. The costs of this project and its completion date are based on management's best estimates, which were derived from numerous assumptions about future events, including the availability of certain resources, third party remediation plans, and other factors. There can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. EUROPEAN ECONOMIC & MONETARY UNION On January 1, 1999, the Euro will become the official currency of the European Economic and Monetary Union, which is currently comprised of eleven countries which have met the Maastricht criteria. Companies in these countries may begin conducting their business operations in the new currency, however the previous local currencies in those countries may continue to be used as legal tender through January 1, 2002. The Company is currently planning for the upcoming conversion. Software used by the Company at its European facilities, as well as new software being implemented, is capable of handling multi-currencies, including the Euro. As such, the Company will be able to accept customer or supplier orders in either the new Euro or the previous local currency. The Company is currently assessing the Euro's impact on banking operations, payroll processing, long term competitive pricing, hedging requirements etc. The costs of required system modifications and other operational changes are not expected to be material to the Company. AMENDMENTS TO RULES ON SHAREHOLDER PROPOSALS On May 21, 1998, the Securities and Exchange Commission adopted changes to shareholder proposal Rule 14a-4 and related rules. Of particular note, the revised rule 14a-4(c)(1) establishes a clear date after which notice to the Company of a possible shareholder proposal would not jeopardize the Company's ability to exercise discretionary voting authority on that new matter when and if raised at the annual meeting. Amended paragraph 14a-4(c)(1) allows the Company voting discretionary authority where the company did not have notice of the matter by a date more than 45 days before the month and day in the current year corresponding to the date on which the company first mailed its proxy materials for the prior year's annual meeting of shareholders, or by a date established by an overriding advance notice provision. The deadline for receipt of stockholders' proposals for inclusion in the Company's 1999 proxy is December 17, 1998. FORWARD LOOKING INFORMATION The Company wants to provide stockholders and investors with more meaningful and useful information and therefore, this quarterly report describes the Company's belief regarding business conditions and the outlook for the Company, which reflects currently available information. These forward looking statements are subject to risks and uncertainties which, as described in Management's Discussion and Analysis in the Company's Annual Report on Form 10-K for the year ended October 31, 1997, could cause the Company's actual results or performance to differ materially from those expressed herein. The Company assumes no obligation to update the information contained in this quarterly report. 11 14 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Documents filed as part of this report. 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. 12 15 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 August 28, 1998 By /s/ Ronald C. Drabik ---------------------- --------------------------- Ronald C. Drabik Senior Vice President and Chief Financial Officer 13 EX-27 2 EX-27
5 0001019779 CUNO, INC. 1,000 U.S. DOLLARS 3-MOS OCT-31-1998 MAY-01-1998 JUL-31-1998 1 4,734 0 44,417 1,001 25,984 83,343 106,663 53,625 163,432 45,858 15,565 0 0 16 93,712 163,432 53,254 53,254 28,331 28,331 18,113 76 354 6,560 2,327 4,233 0 0 0 4,233 0.27 0.26
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