-----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, Ob3cO/BnisCDpIQZVZj+N+ydc7vq89GM00udg5j5kxG2Xa5Xx4d8YAwVLUXnqGN9 ijonc3MsWkn898VBL5M86w== 0000075049-99-000018.txt : 19990816 0000075049-99-000018.hdr.sgml : 19990816 ACCESSION NUMBER: 0000075049-99-000018 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OSMONICS INC CENTRAL INDEX KEY: 0000075049 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT, NEC [3569] IRS NUMBER: 410955759 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-12714 FILM NUMBER: 99687419 BUSINESS ADDRESS: STREET 1: 5951 CLEARWATER DR CITY: MINNETONKA STATE: MN ZIP: 55343 BUSINESS PHONE: 6129332277 MAIL ADDRESS: STREET 1: 5951 CLEARWATER DRIVE CITY: MINNETONKA STATE: MN ZIP: 55343 10-Q 1 UNITED STATES 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, 1999 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 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 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 July 31, 1999, 14,207,095 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 Operations - 2 For the Three and Six Months Ended June 30, 1999 and 1998 Consolidated Balance Sheets - 3 June 30, 1999 and December 31, 1998 Consolidated Statements of Cash Flows - 4 For the Six Months Ended June 30, 1999 and 1998 Notes to Consolidated Financial Statements 5 ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6-12 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 12 ITEM 5. SUBSEQUENT EVENT 13 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13 SIGNATURES 14 ITEM I - FINANCIAL STATEMENTS OSMONICS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In Thousands Except Per Share Data) (UNAUDITED) Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 ------------------ ------------------ Sales $46,457 $47,353 $90,978 $89,503 Cost of sales 30,283 31,908 59,435 57,951 ------- ------- ------- ------- Gross profit 16,174 15,445 31,543 31,552 Less: Selling, general and administrative 10,390 10,507 20,722 20,381 Research, development and engineering 2,096 2,519 3,831 4,847 Special charges - 7,988 - 7,988 ------- ------- ------- ------- Income (loss) from operations 3,688 (5,569) 6,990 (1,664) Other income (expense) (447) (981) (1,352) (1,557) ------- ------- ------- ------- Income (loss) from continuing operations before income taxes 3,241 (6,550) 5,638 (3,221) Income taxes 1,102 (1,267) 1,917 (102) ------- ------- ------- ------- Net income (loss) $ 2,139 $(5,283) $ 3,721 $(3,119) ======= ======= ======= ======= Earnings per share Net income (loss) - basic $ 0.15 $ (0.38) $ 0.26 $ (0.22) Net income (loss) - assuming dilution $ 0.15 $ (0.38) $ 0.26 $ (0.22) Average shares outstanding Basic 14,199 13,962 14,101 13,956 Assuming dilution 14,292 13,962 14,202 13,956 OSMONICS, INC. CONSOLIDATED BALANCE SHEETS (In Thousands Except Share Data) (UNAUDITED) June 30, December 31, 1999 1998 ----------------------- ASSETS Current assets Cash and cash equivalents $ 1,794 $ 576 Marketable securities 14,761 14,271 Trade accounts receivable, net of allowance for doubtful accounts of $1,034 in 1999, and $1,001 in 1998 38,945 34,767 Inventories 25,955 28,123 Deferred tax assets 3,958 6,610 Other current assets 2,598 5,034 -------- ------- Total current assets 88,011 89,381 Property and equipment, at cost Land and land improvements 5,384 5,606 Building 30,618 30,568 Machinery and equipment 70,960 69,510 -------- -------- 106,962 105,684 Less accumulated depreciation (50,667) (48,871) -------- -------- 56,295 56,813 Other assets 49,091 47,855 -------- -------- Total assets $193,397 $194,049 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 11,348 $ 9,156 Notes payable and current portion of long-term debt 17,096 28,177 Other accrued liabilities 19,965 18,072 -------- -------- Total current liabilities 48,409 55,405 Long-term debt 33,630 31,665 Other liabilities 14 18 Deferred income taxes 4,798 4,806 Shareholders' equity Common stock, $0.01 par value Authorized -- 50,000,000 shares Issued -- 1999: 14,195,556 and 1998: 13,991,291 shares 142 140 Capital in excess of par value 21,748 20,733 Retained earnings 82,797 79,075 Other comprehensive income 1,859 2,207 -------- -------- Total shareholders' equity 106,546 102,155 -------- -------- Total liabilities and shareholders' equity $193,397 $194,049 ======== ======== OSMONICS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (UNAUDITED) Six Months Ended June 30, 1999 1998 ---------------------- Cash flows from operations: Net income (loss) $ 3,721 $ (3,119) Non-cash items included in net income: Depreciation and amortization 4,266 3,769 Deferred income taxes 2,568 (2,602) Gain on sale of investments (48) (180) Gain on sale of property and equipment (221) - Special charges - 9,988 Changes in assets and liabilities (net of business acquisitions) Accounts receivable (4,178) 226 Inventories 2,168 1,099 Other current assets 2,436 (160) Accounts payable and accrued liabilities 2,481 (1,743) ------- ------- Net cash provided by operations 13,193 7,278 ------- ------- Cash flows from investing activities: Business acquisitions (net of cash acquired) - (40,713) Purchase of investments (2,385) (457) Sale of investments 2,160 1,615 Purchase of property and equipment (3,291) (3,821) Sales of property and equipment 802 110 Other (673) (147) ------- ------- Cash used in investing activities (3,387) (43,413) ------- ------- Cash flows from financing activities: Proceeds from notes payable and debt 1,965 37,000 Reduction of debt (11,081) (2,156) Issuance of common stock 1,018 351 ------- ------- Net cash provided (used) by financing activities (8,098) 35,195 ------- ------- Effect of exchange rate changes on cash (490) (33) Increase (decrease) in cash and cash equivalents 1,218 (973) Cash and cash equivalents - beginning of year 576 4,872 Cash and cash equivalents - ------- ------- end of quarter $ 1,794 $ 3,899 ======= ======= OSMONICS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in Thousands) 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. Effective January 1, 1999, the Company adopted Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" which did not have a material impact on operating results or financial position. Six Months Ended June 30, 1999 1998 ------------------------- Net income (loss) $ 3,721 $(3,119) Other comprehensive income (loss), net of tax: Foreign currency translation adjustments (490) (33) Unrealized gains/(losses) on securities 141 (256) ------- ------- Other comprehensive income (loss), before tax (349) (289) ------- ------- Comprehensive income (loss) $ 3,372 $(3,408) ======= ======= The Company recently settled a lawsuit with the Encina Wastewater Authority and the Buena Sanitation District regarding the reduction of the Company's waste discharge capacity at its Vista, California manufacturing facility. The settlement agreement will require the Company to 1) change its manufacturing processes and ultimately relocate two of its manufacturing processes to other facilities, and 2) reimburse the Encina Wastewater Authority and the Buena Sanitation District for costs incurred by them in connection with the dispute. Any relocation will probably occur in the fourth quarter of 1999 or the first quarter of 2000. Pending the relocation, the Company will be required to modify its waste discharge process. The Company has incurred approximately $500 of legal and settlement reimbursement costs in connection with this matter in the first half of 1999. The additional waste processing costs, relocation costs, and changes in gross profit margins associated with such changes and relocations are not anticipated to have a material impact on the operating results or financial position of the Company in the second half of 1999. Operating results for the three months or six months ended June 30, 1999, are not necessarily indicative of the results that may be expected for the full year 1999. 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, 1998. ITEM II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except 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 months and six months ended June 30, 1999 and 1998. Percent of Sales Percent of Sales Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 ------------------ ---------------- Sales 100.0% 100.0% 100.0% 100.0% Cost of sales 65.2 67.4 65.3 64.7 ----- ----- ----- ----- Gross profit 34.8 32.6 34.7 35.3 Selling, general and administrative 22.4 22.2 22.8 22.8 Research, development and engineering 4.5 5.3 4.2 5.4 Special charges - 16.9 - 8.9 ----- ----- ----- ----- Operating expenses 26.9 44.4 27.0 37.1 Income (loss) from operations 7.9 (11.8) 7.7 (1.8) Other income (expense) (0.9) (2.0) (1.5) (1.7) Income (loss) from continuing ----- ----- ----- ----- operations before income taxes 7.0 (13.8) 6.2 (3.5) Income taxes 2.4 (2.7) 2.1 - ----- ----- ----- ----- Net income (loss) 4.6% (11.1)% 4.1% (3.5)% ===== ===== ===== ===== SALES Sales for the second quarter ended June 30, 1999 of $46,457 decreased 1.9% from sales for the second quarter of 1998. Year-to-date 1999 sales through June increased 1.6% over the corresponding 1998 level. The Consumables and Equipment segments sales were 46.7% and 53.3%, respectively, of total sales for the second quarter of 1999 and 45.5% and 54.5% for year-to-date 1999. Comparing same business activity before acquisitions, sales were down 3.5% during the second quarter of 1999 and 3.0% for the year due to continued variability in equipment order activity. Globally, Euro/Africa sales activity declined from the previous year's strong level. GROSS MARGIN Gross margin for the second quarter of 1999 was 34.8% compared to 32.6% for the corresponding period in 1998. The gross margin for the six months ended June 30 was 34.7% in 1999 compared to 35.3% for the same period in 1998. In the second quarter of 1998, the Company recorded a special charge of $2.0 million for slow moving inventory. This charge accounted for 4.2 and 2.2 percentage points of the second quarter 1998 and year-to-date 1998 gross margin declines, respectively. Gross margins for the second quarter 1999 were affected by a lower level of plant utilization at several locations, product mix and pricing pressures in pure water membrane elements. OPERATING EXPENSES Operating expenses decreased to 26.9% of sales in the second quarter of 1999 compared to 44.4% in the second quarter of 1998. In the second quarter of 1998, the Company recorded a special charge of $7,988 in operating expense (see Special Charge discussion below). Operating expenses, excluding special charges, were 27.5% of sales in the second quarter of 1998. On a year-to-date basis, excluding special charges, operating expenses were 27.0% for the six months ended June 30, 1999 compared to 28.2% for the same period the previous year. The second quarter and year-to-date improvement in operating expenses is the result of expense control efforts in response to continued weak top-line sales growth. The year-to-date 1999 Research & Development expense decrease of $1,016 compared to year-to-date 1998 is related to the elimination of duplicate research efforts, development project rationalization, and an increased direction of engineering activity towards sustaining engineering and production activity. SPECIAL CHARGES In second quarter 1998, the Company recorded special charges of $9,988 ($7,569 net-of-tax or $0.54 per share assuming dilution). Charges included a $6,222 charge to operating expense for purchased research and development related to the acquisitions of Micron Separations, Inc. ($1,902) and Membrex Corp. ($4,320) and a $2,000 charge to cost of sales for slow moving inventory. The special charges also included operating expense charges of $875 for corporate restructuring and consolidation of operations, and $891 for re-engineering costs and write-downs of assets in connection with the Company's implementation of a global information system. The special charges are summarized below: In-process R&D $ 6,222 Corporate restructuring 875 SAP / Re-engineering costs 891 Slow moving inventory 2,000 ------- Gross special charges $ 9,988 Less slow moving inventory - in COS (2,000) ------- Special charge in Operating Expense $ 7,988 ======= For the six months ended June 30, 1999, the Company expended $225 for workforce reductions and $100 for facility closing/consolidation costs. As of June 30, 1999, a balance of $300 remains in the corporate restructuring and consolidation of operation's accrual which is expected to be utilized by the end of 1999. OTHER EXPENSE Other expense decreased by approximately $500 in the second quarter of 1999 versus the same period for 1998. The decrease is primarily the result of a $270 gain recognized on the sale of land and building from a recently closed production facility. Also, interest expense was $179 lower for the comparative periods due to lower interest rates and reduced overall debt levels. Year-to-date other expenses decreased $205 in 1999 compared to 1998. This reduction is primarily due to the gain on the sale of land and building detailed above. Interest income and expense on a year-to-date comparative basis remained relatively flat. INCOME TAXES The effective tax rate for the second quarter and year-to-date 1999 was 34.0% based on the forecast for the full year. This rate represents a significant change from the tax benefit percentage recognized in calendar year 1998, due primarily to the non-deductibility of the Micron Separations, Inc. in-process R&D that was written off in the second quarter of 1998. Under purchase accounting for a nontaxable business combination, the Micron Separations, Inc. purchased research and development special charge of $1,902 was expensed on a gross basis (not tax-effected). NET INCOME (LOSS) Net income (loss) for the quarter ended June 30, 1999 was $2,139 compared to $(5,283) for the quarter ended June 30, 1998. Excluding special charges, second quarter 1998 net income was $2,286. Net income per common share assuming dilution for the quarter was $0.15 compared to $(0.38), or $0.16 excluding special charges, for the same period last year. Year-to-date 1999 net income (loss) was $3,721 compared to $(3,119), or $4,450 excluding special charges, for the same period last year. Net income per common share assuming dilution year-to-date was $0.26 in 1999 compared to $(0.22), or $0.31 excluding special charges, in 1998. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1999, the Company had cash, cash equivalents and marketable securities of $16,555 versus $14,847 at December 31, 1998. The current ratio was 1.8 at June 30, 1999 as compared to 1.6 at year end 1998. The Company's long-term debt increased from $31,665 at December 31, 1998 to $33,630 at June 30, 1999. This increase was the result of entering into a new $2,000 loan at its France Operation. The Company's current debt decreased from $28,177 at December 31, 1998 to $17,096 at June 30, 1999. The decrease was the result of improved cash flows from operations during the period, including steady progress on inventory reduction. 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. REVIEW OF INDUSTRY SEGMENTS The Company designs, manufactures and markets equipment, systems and components used in the processing and handling of fluids. The Company sells through five marketing units each comprised of related product lines. Certain marketing units have similar economic characteristics and have been aggregated under Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information," (SFAS No. 131). As a result of aggregation, the Company has two reportable business segments - Consumables and Equipment. The Consumables segment, comprised of two marketing units, includes products such as filter cartridges, membrane elements, membrane, instruments, and laboratory products. The Equipment segment, comprised of three marketing units, includes products such as pumps, housings, valves, controls, reverse osmosis/ultrafiltration machines, ozonators, stills, and water treatment systems. Each segment is currently supported by several manufacturing facilities, a similar sales force and various corporate functions. The segments do not have separate accounting, customer service, administration, or purchasing functions. The marketing unit structure was established to provide strategic leadership for related products. It was implemented on July 1, 1998. Restatement of prior period results under this method of reporting has been deemed impracticable due to the costs and unavailability of certain financial information. As a result, comparable financial information is not available for the two reportable business segments for first and second quarters of 1998. The reportable segment information for the three months and six months ended June 30, 1999 are as follows: Three Months Ended Six Months Ended June 30, 1999 June 30, 1999 Consumables Equipment Consumables Equipment ----------- --------- ----------- --------- Sales $21,694 $24,763 $41,428 $49,550 Cost of sales 13,371 16,912 25,454 33,981 ------- ------- ------- ------- Gross profit 8,323 7,851 15,974 15,569 Gross margin % 38.4% 31.7% 38.6% 31.4% Operating expenses 5,471 7,015 10,767 13,786 ------- ------- ------- ------- Operating income 2,852 836 5,207 1,783 ======= ======= ======= ======= Operating Income % 13.2% 3.4% 12.6% 3.6% Lower plant utilization and slower sales in Euro/Africa affected gross margins in the Equipment segment. The standard and custom equipment marketing units incurred an operating loss for the second quarter of 1999. The losses of $(335) and $(81) were principally due to variability in production demands and lower utilization of certain production facilities. Currently, management does not report the balance sheet or any cash-generating measurements by such segments. YEAR 2000 READINESS DISCLOSURE STATE OF READINESS Osmonics is currently working to fully determine and resolve the potential impact of the Year 2000 on the processing of date-sensitive information by its computerized information systems. The Year 2000 problem is the result of computer programs being written using two digits (rather than four) to define the applicable year. Any of Osmonics' programs that have time-sensitive software may recognize a date using "00" as the Year 1900 rather than the Year 2000, which could result in miscalculations or system failures. Osmonics' Year 2000 Project (the Project) began in 1994 with reviews of the Company's business information systems. The objective was to improve access to business information through an integrated, company-wide system which is also Year 2000 compliant. The Company estimates that as of June 30, 1999, approximately 80% of its systems are Year 2000 compliant. The Company is using a multi-step approach in conducting the Project. These steps include: needs analysis, resource requirements, remediation and testing, and implementation. The Project plan identified the major issues and alignment of priorities, resources, and contingency plans. The remediation and testing phases will continue through third quarter 1999. The Project scope includes all computing systems hardware, software, information technology (IT) infrastructure (such as networks and telecommunications), and all third-party suppliers and vendors. The Company has completed the needs analysis phase of the Project. The Company has not yet completed, corrected and/or tested for all possible Year 2000 compliance issues. The Company anticipates that it will complete, correct and/or test for all possible Year 2000 compliance issues by the end of the third quarter. The Company is also utilizing the services of consulting firms to assist in dealing with Year 2000 issues. An integral part of the Project is the implementation of SAP, a company-wide integrated business information and accounting system. The Company began implementing this enterprise resources planning (ERP) system as its primary information system in 1996. ERP is being implemented in a two-phase approach. Phase I, the conversion of the previous primary computing system at the Company's headquarters and primary manufacturing facility, in Minnetonka, MN was completed in 1997. Phase II is the business process re-engineering within SAP, and the rollout to other plants. Implementations at three plants were scheduled for 1999. At the end of the first quarter, the Company implemented SAP at its Phoenix Operation. The remaining two plants are scheduled to be completed by September 30, 1999. Also, the existing software at three other plants has been upgraded with Year 2000 compliant versions on an interim basis. Upon completion of the remaining two plants, all of the Company's systems should be one hundred percent (100%) Year 2000 compliant. Very few of the Company's products contain software or embedded microprocessors. The Company has reviewed all of these products and identified only a few that will be impacted by Year 2000 compliance issues. In all cases, the effect will be in the retrieval and display of logged data and not in the correct operation of the product. A solution for each of the products identified has either been made available, or will be made available to our customers prior to the Year 2000. Customers and vendors could be disrupted with their own Year 2000 issues, which could affect their ability to buy Osmonics products or supply Osmonics with raw materials. However, the Company believes this is unlikely, since no single customer or vendor represents more than 5 percent of the Company's present business. Alternative sources of supply are also currently available and the Company believes will be available if needed. The Company has sought assurances from its material suppliers that their ability to sell to the Company will not be materially impacted by any Year 2000 issue. As of the end of the second quarter of 1999, most material vendors had represented to their state of Year 2000 readiness. For those who have not responded, the Company is following up with such parties in the third quarter in order to obtain relevant Year 2000 compliance information and is also identifying alternative suppliers for critical parts and materials. COST As of June 30, 1999, the Company has invested over $6,000 during the years 1995-1999 to upgrade its information systems. The remaining cost associated with required modifications just to become Year 2000 compliant is not expected to be material to the Company's financial position. The estimated total external cost to accelerate the replacement of certain hardware, software, and infrastructure is not expected to exceed $500. The remaining ERP implementation costs and the related business process improvements, which would be incurred in any case, are excluded from the figure above. RISKS The Company believes that it will be able to correct all material Year 2000 problems prior to January 1, 2000. However, the Company's ability to correct its Year 2000 problems is dependent upon its ability to obtain and retain adequate resources. The failure to correct a material Year 2000 problem could result in an interruption in, or a failure of, certain normal business activities or operations. Such failures could materially and adversely affect the Company's results of operations and financial condition. For example, the most reasonably likely worst case scenario of Year 2000 noncompliance, the failure to update its business information system for Year 2000 compliance could result in delayed performance on contracts, loss of contracts, or lawsuits for failure to perform. The Project is expected to significantly reduce the Company's level of uncertainty regarding the Year 2000 problem. The Company believes that, with the implementation of new business systems and completion of the Project as scheduled, the possibility of significant interruptions of normal operations should be minimal. The failure of the Company's customers to be Year 2000 Compliant could materially reduce or delay the Company's sale of products because of budget constraints and the diversion of customer resources to fixing the customers' Year 2000 problems. At this time, the Company does not believe that its customers' Year 2000 problems will materially impact the Company's business. Readers are cautioned that forward-looking statements contained in the Year 2000 update should be read in conjunction with the Company's disclosures under the heading - "Private Securities Litigation Reform Act" - that follows. CONTINGENCY PLANS The Company has developed and put in place contingency plans to address internal and external issues specific to the Year 2000 problem, to the extent practicable. The Company believes that due to the widespread nature of potential Year 2000 issues, the contingency planning process may require further modifications in the third and perhaps the fourth quarters of 1999 as the Company obtains additional information regarding: (1) The Company's internal systems and equipment during the remediation and testing phases of its Year 2000 program; and (2) the status of those third parties who have not yet responded to the Company regarding their Year 2000 readiness. PRIVATE SECURITIES LITIGATION REFORM ACT The Private Securities Litigation Reform Act provides a "safe harbor" for forward-looking statements. Certain information included in this Form 10-Q and other materials filed or to be filed with the Securities and Exchange Commission (as well as information included in statements made or to be made by the Company) contains statements that are forward looking. Such statements may relate to plans for future expansion and acquisitions, the relocation of certain manufacturing processes, business development activities, capital spending, financing, or the effects of regulation, competition and Year 2000 compliance. Such information involves important risks and uncertainties that could significantly affect results in the future. Such results may differ from those expressed in any forward- looking statements made by the Company. These risks and uncertainties include, but are not limited to, those relating to product development activities, the inability to accurately estimate the costs of relocation of certain manufacturing processes, computer systems implementation, Year 2000 compliance, dependence on existing management, global economic and market conditions, and changes in federal or state laws. Investors are referred to the discussion of certain risks and uncertainties associated with forward looking statements contained in the Company's report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1998. 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 12, 1999. The following members were elected to the Company's Board of Directors to hold office for the ensuing three years: Nominee In Favor Withheld ------- ---------- -------- Ralph E. Crump 12,211,444 96,769 Charles W. Palmer 12,204,617 103,597 Item 5. SUBSEQUENT EVENT The Company announced on July 1, 1999, the completion of the acquisition for cash of all the equity interest in ZyzaTech Water Systems, Inc. of Seattle, Washington. Zyzatech is a leader in the field of water purification and solution delivery for hemodialysis. The acquisition broadens Osmonics' existing product offering for hemodialysis clinics and enhances Osmonics' ability to participate in the growing international dialysis markets. Zyzatech's products will be sold through their existing distribution channels. The annual revenues of Zyzatech are approximately $12,000. The acquisition will be recorded under the purchase method of accounting. Finalization of the related purchase accounting is anticipated in the third quarter of 1999. Item 6. EXHIBITS AND REPORTS ON FORM 8-K (a) (27)Financial Data Schedule (b) During the quarter ended June 30, 1999 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: August 13, 1999 OSMONICS, INC. (Registrant) /s/ L. Lee Runzheimer L. Lee Runzheimer Chief Financial Officer /s/ Howard W. Dicke Howard W. Dicke Treasurer and Vice President of Investor Relations /s/ D. Dean Spatz D. Dean Spatz Chief Executive Officer EX-27 2
5 This schedule contains summary financial information extracted from Form 10-Q for the quarter ended June 30, 1999 and is qualified in its entirety by reference to such financial statements. 1,000 USD 6-MOS DEC-31-1999 JUN-30-1999 1 1,794 14,761 39,979 1,034 25,955 88,011 106,962 50,667 193,397 48,409 33,630 0 0 142 104,545 193,397 90,978 90,978 59,435 59,435 24,553 0 1,352 5,638 1,917 3,721 0 0 0 3,721 $0.26 $0.26
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