ITEM 1. BUSINESS. - ----------------
GENERAL
Isco, Inc. was founded as a Nebraska corporation in 1959 under the name Instrumentation Specialties Company, Inc. The Company designs, manufactures, and markets products worldwide which are used by industry and government to monitor compliance with water quality regulations and are used in a variety of research and testing laboratories and by industry to monitor product quality.
The Company's founder, Robert W. Allington, has been the controlling shareholder, chairman of the board, and chief executive officer since inception, and president until October 6, 1995. Douglas M. Grant has been president and chief operating officer of the Company since October 6, 1995.
The Company's principal offices are located at 4700 Superior Street, Lincoln, Nebraska 68504-1398, and its telephone number is (402)464-0231. As used herein, "Company" or "Isco" refers to Isco, Inc., and its subsidiaries, unless the context otherwise requires.
In July 1996, after operating for many years with two divisions, the Company merged the divisions into one operating unit. The merger included the consolidation of the management of the functional activities of the Company.
During fiscal year 1997, the Company acquired substantially all of the assets and assumed selected liabilities of Suprex Corporation, Pittsburgh, Pennsylvania. The Company integrated all of the operational activities into its Lincoln, Nebraska, operations during the fiscal year. Suprex was a significant producer of supercritical fluid extraction (SFE) products with a major focus in the food industry. Leading food producers are incorporating the SFE technology into their production processes in order to ensure that high quality food is produced. Combining the Suprex and Isco SFE product lines has strengthened the Company's market position in SFE.
RECENT DEVELOPMENTS
Subsequent to the close of fiscal year 1997, the Company acquired the remaining equity of Geomation, Inc., Golden, Colorado. Geomation designs, manufactures, and markets measurement and control systems for the geotechnical and environmental markets. More than 70 percent of its sales are in dam monitoring applications. Geomation's technology and expertise in field data collection and transmission are capabilities which are increasingly being required by Isco's wastewater and flow meter customers. Geomation will continue its operations in Golden, Colorado as a subsidiary of Isco.
PRODUCTS AND APPLICATIONS
The contribution made by the Company's core products to its net sales for fiscal 1997, 1996, and 1995, respectively, is as follows: wastewater samplers 34, 35, and 34 percent; open channel flow meters 20, 19, and 20 percent; and liquid chromatography 12, 14, and 12 percent.
The Company's water quality control customers use wastewater samplers to collect water samples from streams and sewers for subsequent analysis in the laboratory. Its open channel flow meters are used to measure and record the
flow rate of liquids in unpressurized pipes and open channels. These flow meters can be linked with wastewater samplers to trigger the collection of water samples based on flow rate. Also, the combined use of these two products is well suited to conduct storm water runoff studies in compliance with federal regulations. Cities may use the Company's computer-based flow logging systems to determine the state of repair of their sewer systems. Other customers use those systems to store flow, rainfall, and other sample data for later retrieval, analysis, and reporting.
The Company's liquid chromatography (LC) customers use pumps to deliver solvent through columns packed with special media to separate a sample, placed on the column, into its component molecules, detectors to identify and quantify the component molecules, and fraction collectors to collect the separated component molecules as they elute from the column. Customers include analytical laboratories which support the development and manufacture of food, chemical, and pharmaceutical products as well as those which study disease and basic life functions.
Other products which management believes will contribute to the Company's future success include: SFE products, total organic carbon (TOC) analyzers, syringe pumps, and closed pipe flow meters. SFE is a safe, cost-effective, environmentally friendly, and time saving technique used to separate selected chemical compounds (target analytes) from complex sample matrices. The Company's food, agri-products, and plastics producing customers use SFE to assure their products are maintained at a specified level of quality. TOC measurement is an excellent overall indicator of water quality, and is becoming a method of choice for continuous on-line screening for the presence of a variety of organic compounds, without having to test for each substance individually and without waiting up to five days for test results. The Company's wastewater treatment customers use TOC analyzers to monitor continuously the treatment process to ensure that it is proceeding within established parameters. The Company's syringe pumps are used for specialized applications in the petroleum and chemical industries, for pumping supercritical fluids, and in the analytical chemistry laboratory where high accuracy at high pressures are required. The Company, at the beginning of fiscal 1997, introduced a line of electro-magnetic closed pipe flow meters which management believes will be a cost-effective alternative to existing magnetic and other closed pipe flow meters.
The U.S. price range of the Company's individual products is: $1,500 to $20,000 for water quality monitoring instruments and $300 to $20,000 for separation instruments. The price for a complete SFE system can exceed $75,000.
MARKETING AND SALES
During fiscal 1997, the Company's products were sold to approximately 11,000 domestic accounts. These accounts included a wide variety of commercial and industrial enterprises, municipalities in all 50 states, and governmental organizations.
In the United States, independent manufacturers' representative organizations handle the solicitation of orders and direct sales of water quality monitoring products. Domestic selling activities for chemical separation instruments are conducted by direct company sales representatives assigned to specific products and located in major domestic market areas for those products. The manufacturers' representatives and company sales representatives are supported
with promotional programs, advertising, applications specialists, applications bulletins, technical literature, and applications seminars.
The Company's international sales constituted 26, 27, and 22 percent of the Company's sales during fiscal 1997, 1996, and 1995, respectively. The Company has not been adversely affected by foreign currency fluctuations because all of its international sales are denominated in United States Dollars. Products are not stocked outside the United States but are delivered from the Company's inventory in Lincoln, Nebraska. To aid international sales, the Company offers wastewater samplers and flow meters in French, German, and Spanish language versions, with results displayed in metric units.
Isco's international sales are made primarily by independent dealers operating in various countries around the world. The staff of Isco Instruments (Europe) AG, a wholly owned subsidiary, manages and promotes the sale of the Company's environmental products through Isco's independent dealers in Europe and the Middle East. The independent dealers in the other countries are managed by sales management currently residing in Lincoln. The Company has an applications laboratory and a sales manager in the United Kingdom to support its separation instrument sales effort in Europe and the Middle East.
CUSTOMERS
The Company has a broad customer base. Currently no single customer, including any OEM customer, accounts for more than three percent of its sales.
PRODUCT WARRANTY
Isco warrants its products for one year against defective materials and workmanship. The Company's warranty claims have not been material in the past. Further, it is anticipated that the Company's warranty claims will not be material in the future since it emphasizes quality-based design practices and manufacturing processes for both its current and new products. The Company provides after sales factory service for most of the products it sells along with on-site services in the United States for automated SFE systems and the TOC analyzers. The Company has an extended warranty program available, which customers may purchase at the time they purchase a new instrument or while the instrument is under warranty.
COMPETITION
The Company believes that it has a strong competitive position in the markets for wastewater samplers and open channel flow meters, and maintains a competitive position in the LC market. The factors which the Company believes contribute to its competitive position include: its reputation for quality and service; technically advanced products that provide cost-effective operation and unique features; an active research and development program that allows the Company to maintain technical leadership; a strong position in key markets; efficient production capabilities; and direct sales and manufacturers' representatives that provide excellent distribution.
The Company has several competitors manufacturing similar wastewater samplers. In the United States, the major competing company is American Sigma, Inc., owned by the Danaher Corporation. According to various sources, the Company believes it has approximately 40 percent of the domestic wastewater sampler market, with American Sigma, Inc., having approximately 30 percent. Other domestic competitors are small and offer little significant competition.
Significant competitors in Europe include: Buhler-Montec, recently acquired by Servomex plc; and Endress + Hauser Instruments, of Switzerland.
There are numerous suppliers in the domestic open channel flow meter market. Based upon market information developed from internal and external sources and analyzed by the Company, management believes the Company, along with Marsh-McBirney, Inc. and Milltronics, each hold approximately 20 to 25 percent of the United States open channel flow meter market. American Sigma, Inc. is believed to hold approximately 10 percent of the domestic market. Additional significant competitors in Europe include: Buhler-Montec, recently acquired by Servomex plc; and Endress + Hauser Instruments, of Switzerland.
With respect to LC products, the Company believes it is a major producer of fraction collectors. The largest competitor for these products is Pharmacia Biotech, a Swedish company, whose products are manufactured in several European countries. Pharmacia Biotech has a greater market share in international markets. However, for selected instruments sold in the United States, the Company's market share is comparable to that of Pharmacia Biotech. Other major competitors are Bio-Rad Laboratories, Inc., and Gilson Medical Electronics, Inc., an American-based company, with much of its production in France.
With the acquisition of Suprex, the consolidated Isco/Suprex product line positioned the Company as the SFE equipment market leader with approximately 40 percent market share. Management estimates that its competitors, Hewlett-Packard Company, Applied Separations, Inc., and Leco Corporation each have a market share of less than 20 percent.
RESEARCH AND ENGINEERING
The Company commits significant resources to ongoing research and engineering activities. The Company's near-term goals are to focus these activities toward improving, enhancing, and expanding the market share of its existing product lines. Over the long-term, the Company is seeking new market applications for its products as well as exploring present and related markets which could utilize new products developed from the Company's expanding technology base. For fiscal years 1997, 1996, and 1995, the Company spent approximately $4,526,000 or 11 percent of sales, $4,775,000 or 12 percent of sales, and $4,468,000 or 11 percent of sales, respectively, on research and engineering.
PATENTS AND LICENSES
The Company believes it derives a competitive advantage from its patents. Therefore, the Company has a policy of obtaining patents wherever commercially feasible, as well as vigorously asserting and defending them. Company products are covered by 50 United States patents, 47 of which are owned by Isco, and 3 under which Isco is a licensee. There are also numerous corresponding patents issued by other countries. The Company-owned patents have been assigned to the Company by the inventor on a royalty-free basis. The Company currently has 29 patent applications pending at the United States Patent Office.
REGULATION
Management believes it is in compliance with environmental regulations. Therefore, no unfavorable impact on competition or earnings is expected. The Company has no government contracts which are subject to renegotiation of profits upon contract completion. Although the Company's products are not subject to significant U.S. government regulation, the markets for many of its products are regulation driven.
BACKLOG
On September 26, 1997, the Company's order backlog was $3,626,000, of which approximately 85 percent is scheduled for delivery prior to July 31, 1998, the close of the current fiscal year. A year earlier, on September 27, 1996, the order backlog was $3,283,000.
MANUFACTURING AND SOURCES OF SUPPLY
The Company's manufacturing and assembly operations are vertically integrated. The Company fabricates most of the metal and plastic components used in its products and obtains the required raw materials from several sources. Since the Company is not reliant upon outside suppliers for these types of components, it is generally able to produce them at a lower cost and maintain a consistently high level of quality.
The Company's products use a variety of mechanical, electrical, and electronic components, including microprocessors. Most of these components are available from several sources. Currently, Isco is not experiencing any shortage of raw materials or components.
The Company uses computerized production control systems. Based on anticipated demand, inventory position, and production capacity, these systems determine the raw material and component requirements, the dates when these materials are needed, and the dates production must begin in order to complete the products on time. Through the use of production scheduling techniques, these systems enable the Company to control both labor and inventory costs. These systems enable it to periodically monitor the production costs of each of its products to assure that the cost structure remains competitive and is consistent with the Company's profit objectives.
EMPLOYEES
On September 26, 1997, the Company had, worldwide, 423 employees of whom 213 were engaged in production, 64 in research and engineering, 95 in marketing and sales, and 51 in administration. None of the Company's employees are represented by a labor union and the Company has never experienced a work stoppage.
ITEM 2.
ITEM 2. PROPERTIES. - ------------------
The facilities which house the Company's operations are owned and unencumbered. The buildings at 4700 Superior Street in Lincoln, Nebraska contain approximately 113,000 square feet of space and are located on approximately 30 acres. The building at 531 Westgate Boulevard in Lincoln, Nebraska contains approximately 156,000 square feet of space and is located on approximately 10 acres.
These facilities currently house the corporate, executive and administrative offices along with its sales, research, engineering, manufacturing, and maintenance activities. A 56,000 square foot expansion of the Superior Street facility is currently underway. The expansion and renovation of this facility along with the complete consolidation of operations are expected to be completed in fiscal 1999. When the consolidation is complete, steps will be taken for the disposition of the Westgate property.
The sales management function of the Swiss subsidiary is conducted from the residence of the manager. The Company's European SFE applications laboratory is located in space provided by the Company's dealer in Wales.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS. - -------------------------
There are no legal proceedings which, in the opinion of outside counsel, would have a material impact on either the financial condition or operating results of the Company.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. - -----------------------------------------------------------
During the fourth quarter of fiscal 1997, no issues were submitted to a vote of shareholders.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS - -------------------------------------------------------------------------- MATTERS. - -------
Common stock data: On September 26, 1997 -- 5,672,092 shares outstanding and approximately 349 shareholders of record.
Market: Over-the-counter (NASDAQ/NMS). Symbol: ISKO
Stock price: The high and low bid prices of the common stock and the cash dividends paid for each quarter during the last two fiscal years are shown below:
COMMON STOCK PRICE RANGE ------------------------------------ CASH DIVIDENDS 1997 1996 PER SHARE ----------------- ---------------- -------------- HIGH LOW HIGH LOW 1997 1996 ---- --- ---- --- ---- ----
First quarter $10.250 $9.625 $12.250 $10.125 $.05 $.05 Second quarter 9.250 8.500 10.875 8.000 .05 .05 Third quarter 9.000 7.750 9.750 8.000 .05 .05 Fourth quarter 9.000 7.750 13.000 9.000 .05 .05
- ------------------------------------------------------------------------------ Dividends: On August 21, 1997, the Board of Directors declared a quarterly cash dividend of $.05 per share, payable October 1, 1997 to shareholders of record on September 19, 1997.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA. - -------------------------------
Amounts in thousands except per share data.
FISCAL YEAR -------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ----
For the fiscal year: Net sales $40,733 $39,981 $41,784 $38,706 $37,644 Gross margin 22,760 22,191 24,606 22,971 22,490 Operating income(loss)** 12 (115) 3,708 3,760 3,255 Non-operating income 1,565 1,462 1,437 1,313 1,183 Income taxes 251 360 1,571 1,594 1,244 Net earnings 1,326 987 3,574 3,479 3,435
At fiscal year-end: Current assets 28,958 21,414 25,292 25,946 23,686 Working capital 25,255 17,437 22,529 22,836 21,239 Total assets 46,708 46,704 45,766 43,966 42,225 Long-term debt 0 0 0 0 0 Shareholders' equity 42,480 42,002 42,002 39,745 38,592 Average shares outstanding* 5,356 5,353 5,370 5,485 5,488
Per share data: Net earnings per share* $.25 $.18 $.67 $.63 $.63 Cash dividends per share (declared)* $.20 $.20 $.20 $.19 $.17
- ------------------------------------------------------------------------------ Fiscal 1993 data includes a one-time increase in net earnings of approximately $241,000 or $.04 per share from the implementation of SFAS No. 109, "Accounting for Income Taxes".
* Adjusted for a 15 percent stock dividend distributed on December 9, 1993.
** Fiscal 1996 includes restructuring charges of $1,752,000 associated with the consolidation of the divisions.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS - ------------------------------------------------------------------------------- OF OPERATIONS. - -------------
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAIN TREND ANALYSIS AND OTHER FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD- LOOKING STATEMENTS THROUGHOUT THIS DOCUMENT AS A RESULT OF THE FACTORS SET FORTH BELOW IN THE SECTION ENTITLED "FACTORS EFFECTING FUTURE RESULTS" AND ELSEWHERE IN THIS DOCUMENT.
SALES ANALYSIS AND REVIEW
1997 to 1996 Comparison
Fiscal 1997 sales of $40,733,000 were two percent above fiscal 1996 sales of $39,981,000. Compared with the previous year, sales of the Company's core products (wastewater samplers, open channel flow meters, and liquid chromatography products) were one percent higher. Sales of the other products such as supercritical fluid extraction (SFE) products, syringe pumps, and total organic carbon (TOC) analyzer products were six percent higher.
Domestic sales of the core products increased six percent over fiscal 1996 while international sales of those products declined 12 percent. Domestic sales of the other products declined six percent in fiscal 1997 while international sales of the other products increased 25 percent.
Net orders of $42,130,000 were received during fiscal 1997, an increase of nearly nine percent compared with fiscal 1996. International orders, primarily from Europe, were up 9.5 percent and domestic orders were 8.2 percent above the prior year. The July 25, 1997 order backlog was $3,828,000, up 50 percent from the beginning of the fiscal year. Initiatives that increased available sales management resources along with the investment in a higher level of applications support for environmental products contributed significantly to the growth of domestic and European orders received. Similar efforts are now being directed to the Asian Pacific Rim market and to the other product groups, including liquid chromatography.
1996 to 1995 Comparison
Fiscal 1996 sales of $39,981,000 were four percent below fiscal 1995 sales of $41,784,000. Compared with the previous year, sales of the Company's core products declined five percent, while sales of the other products declined two percent.
Fiscal 1996 domestic sales of the core products declined 12 percent when compared with 1995, while international sales of these products increased 26 percent. For the comparable periods, domestic sales of the other products increased one percent while international sales of these products declined nine percent.
Net orders of $38,818,000 were received during fiscal 1996, a decline of nearly seven percent compared with fiscal 1995. The July 26,1996 order backlog was $2,546,000, down 23 percent from the beginning of the fiscal year.
OPERATING INCOME ANALYSIS AND REVIEW
1997 to 1996 Comparison
Operating income for fiscal 1997 was $12,000 compared with an operating loss of $115,000 for fiscal 1996 which included a one-time restructuring charge of $1,752,000. The gross margin, as a percent of sales, improved slightly from 55.5 percent for fiscal 1996 to 55.9 percent for fiscal 1997. As a result of the July 1996 restructuring, indirect salaries and wages along with benefit expenses were reduced. Depreciation expense declined for the year due to certain facility improvements and several major pieces of equipment reaching
the end of their depreciable lives. Overall, for fiscal 1997, indirect manufacturing expenses were reduced 13 percent.
Compared with fiscal 1996, aggregate operating expenses for fiscal 1997 increased $442,000. That increase includes $930,000 of transition and amortization expenses related to the Suprex acquisition completed during the year.
The majority of the growth in the selling expense portion of the selling, general and administrative (SG&A) expense category was the result of increased salaries and wages for additional staff to support new sales initiatives and provide a higher level of applications support for environmental products; exhibition, travel, marketing, and communication expenses; and commissions and dealer management expenses. The majority of the growth in general and administrative expenses was the result of increased consulting fees for business process improvement, the selection of enterprise resource planning (ERP) software, improved manufacturing processes, and more efficient building layout; company wide computer training; communication expense, and depreciation of the upgraded computer hardware.
The decline in engineering expenses, for fiscal 1997, was the result of decreased salaries and wages along with lower benefit expenses, and the completion in fiscal 1996 of an out-sourced development project. These savings were partially off-set by the increased consulting fees for training in computer-aided design (CAD) and consultation for product styling.
1996 to 1995 Comparison
The operating loss for fiscal 1996 was nearly $115,000 compared with operating income of $3,708,000 for fiscal 1995. The gross margin, as a percent of sales, declined from 58.9 percent in fiscal 1995 to 55.5 percent in fiscal 1996. Indirect manufacturing expenses, for fiscal 1996 declined five percent from the previous year.
Compared with fiscal 1995, aggregate operating expenses for fiscal 1996 increased $1,408,000. That increase included a one-time charge of $1,752,000 related to the restructuring of the Company during July 1996.
For fiscal 1996, the selling expense portion of the SG&A expense category declined with a majority of the decline coming from reduced expenditures for the management of rep/dealer organization, materials and supplies, and miscellaneous marketing programs. With respect to the general and administrative expenses, reductions in the Company's profit sharing contribution and professional fees were partially offset by increased salaries and wages and increased credit and collection expenses. The increase in engineering expenses was the result of increases in expenditures for subcontracted services, salaries and wages, and materials and supplies.
RESULTS OF OPERATIONS
The following table summarizes, for the three years indicated, the percentages which certain components of the Consolidated Statements of Earnings bear to net sales and the percentage change of such components (based on actual dollars) compared with the prior year.
Year-to-Year Increase (Decrease) Year Ended ------------------- -------------------------- 1997 1996 Jul 25 Jul 26 Jul 28 vs. vs. 1997 1996 1995 1996 1995 ------ ------ ------ ---- ---- Net sales 100.0 100.0 100.0 1.9 (4.3) Cost of sales 44.1 44.5 41.1 1.0 3.6 ------ ------ ------ 55.9 55.5 58.9 2.6 (9.8) ------ ------ ------ Expenses: Selling, general, and administrative 44.8 39.5 39.3 15.5 (4.0) Research and engineering 11.1 11.9 10.7 (5.2) 6.9 Restructuring charges -- 4.4 -- -- -- ------ ------ ------ 55.9 55.8 50.0 2.0 6.7 ------ ------ ------ Operating income (loss) -- (.3) 8.9 -- -- Non-operating income 3.8 3.7 3.4 6.9 1.7 ------ ------ ------ Earnings before income taxes 3.8 3.4 12.3 17.0 (73.8) Income taxes .6 .9 3.8 (30.3) (77.1) ------ ------ ------ Net earnings 3.3 2.5 8.5 34.3 (72.4) ====== ====== ======
1997 to 1996 Comparison
The Company's fiscal year 1997 effective income tax rate was 15.9 percent compared with 26.7 percent for the previous year. The decline in the current year's effective income tax rate was the result of minimal taxable income and a large amount of tax-exempt income. The fiscal year 1996 effective income tax rate includes the repayment of non-qualifying tax benefits (see following paragraph).
1996 to 1995 Comparison
The Company's fiscal year 1996 effective income tax rate was 26.7 percent compared with 30.5 percent for the previous year. The decline in the effective income tax rate was the result of lower taxable income relative to increased tax-exempt income. The effective income tax rate was also affected by the Company's decision to cancel its incentive tax contract with the State of Nebraska which required the repayment of approximately $89,000 of non-qualifying tax benefits.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to be strong financially with no debt obligations. At July 25, 1997, working capital was $25,255,000 with a current ratio of 7.8:1. At July 25, 1997, the Company had in place, with its commercial bank, an unused, unsecured $3 million line of credit.
With respect to cash flows, operating activities of the Company used $263,000 of cash during fiscal 1997 compared with fiscal 1996 when the Company's operating activities provided $5,324,000 of cash. Inventories grew over fiscal 1996 by $1,899,000 as a result of management's efforts to respond to the increased rate of incoming orders. Increased sales during the last part of the fourth quarter resulted in an increase in accounts receivable of $1,147,000.
The Company will have significant cash needs in fiscal 1998 as it completes the expansion and renovation of the Superior Street facility along with installing significantly more efficient production machinery. The expansion is expected to require $10 million to $11.25 million through the second quarter of fiscal 1999 when the renovation is completed. The acquisition and installation of the ERP system is expected to require approximately $1.7 million. Additional cash needs will arise out of the recent acquisition of Geomation, Inc. and other opportunities which have recently presented themselves. Depending upon the timing of specific cash requirements, the Company may need to use its bank line of credit.
RECENT DEVELOPMENTS
On September 17, 1997, the Company acquired the remaining equity of Geomation, Inc. The acquisition required approximately $929,000 in cash and the issuance of 318,853 shares of the Company's common stock. The transaction also included an earn-out provision which, depending upon the performance of Geomation through July 1998, may require the payment of up to approximately $250,000 of additional cash and the issuance of additional shares of the Company's common stock with a market value of up to approximately $750,000. Depending upon the performance of Geomation and the amortization of intangibles resulting from the acquisition, management expects the Company will experience some dilution of earnings during the next several years.
FACTORS AFFECTING FUTURE RESULTS
Factors which management believes may affect the future financial performance of the Company include but are not limited to: the successful implementation of manufacturing and business processes which will reduce costs and improve efficiency; the investment in engineering and marketing activities which lead to improved sales growth; the successful integration of acquisitions into the Company's operations; dealing with the external regulatory influences on the Company's primary markets; and the effect on the competitive environment resulting in the consolidation of companies within the instrumentation industry.
During fiscal 1997, the Company invested in initiatives which, when fully implemented, are expected to improve the effectiveness and efficiency of its business and manufacturing processes. The investment in these initiatives will continue during fiscal 1998, with the benefits of successful implementation to be realized fully in the fiscal years beginning in 1999.
The Company will continue to invest approximately 10 percent of sales in product development. Management will direct these efforts to those projects which it believes will contribute significantly to profitable sales growth. Management must also develop the marketing strategies which will focus energy and resources in those areas which will assist in growing sales profitably and thereby diluting the fixed cost structure of the Company.
The Company continues to actively pursue the acquisition of companies and product lines which will compliment its existing product lines. The recent acquisition of Geomation, Inc. provides the Company with access to field data collection and transmission technology and expertise. It is management's expectation that this technology can be adapted to meet the needs of the Company's sampler and flow meter customers. Management expects the adaptation to be completed in fiscal 1999.
Approximately 65 percent of the Company's sales are to the environmental market. This is a regulation driven market which is strongly influenced by both the perceived attitude and actions of the various governmental agencies in the promulgation and the enforcement of environmental regulations. The effects of the regulatory climate on the market are outside the Company's ability to control and, for any given period, may be either a positive or negative factor on the Company's performance.
As in many industries, consolidation of companies within the Company's market is an on-going trend. As a result, the Company is dealing with the effects of larger and well financed competitors who also have the organizational resources to compete aggressively in the global market place.
INFLATION
The effect of inflation on the costs of the Company and its ability to pass on cost increases in the form of increased selling prices is dependent upon market conditions and its competitive environment. Inflation in the domestic economy has been relatively low for the past three years and has not had a significant impact on the Company.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Independent Auditors' Report
Board of Directors and Shareholders Isco, Inc.
We have audited the accompanying consolidated balance sheets of Isco, Inc. and subsidiaries as of July 25, 1997 and July 26, 1996, and the related consolidated statements of earnings, shareholders' equity, and cash flows for each of the three years in the period ended July 25, 1997. Our audits also included the financial statement schedule listed in the Index at Item 14.a.2. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Isco, Inc. and subsidiaries as of July 25, 1997 and July 26, 1996, and the results of their operations and their cash flows for each of the three years in the period ended July 25, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
As discussed in Note A to the consolidated financial statements, the Company changed its method of accounting for the impairment of long lived assets in fiscal 1996.
Deloitte & Touche LLP
Lincoln, Nebraska September 26, 1997
ISCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS (amounts in thousands, except per share data)
Year Ended -------------------------------- July 25 July 26 July 28 1997 1996 1995 ------- ------- ------- Net sales $40,733 $39,981 $41,784 Cost of sales 17,973 17,790 17,178 ------- ------- ------- 22,760 22,191 24,606 ------- ------- ------- Expenses: Selling, general, and administrative 18,222 15,779 16,430 Research and engineering 4,526 4,775 4,468 Restructuring charges (Note K) -- 1,752 -- ------- ------- ------- 22,748 22,306 20,898 ------- ------- ------- Operating income(loss) 12 (115) 3,708 ------- ------- ------- Non-operating income: Investment income 930 1,088 938 Other 635 374 499 ------- ------- ------- 1,565 1,462 1,437 ------- ------- ------- Earnings before income taxes 1,577 1,347 5,145
Income taxes (Note G) 251 360 1,571 ------- ------- ------- Net earnings $ 1,326 $ 987 $ 3,574 ======== ======= ======== Net earnings per share $.25 $.18 $.67 ==== ==== ==== Weighted average number of shares outstanding 5,356 5,353 5,370 ======== ====== =======
The accompanying notes are an integral part of the consolidated financial statements.
ISCO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Columnar amounts in thousands)
July 25 July 26 1997 1996 Assets ----------- --------
Current assets: Cash and cash equivalents $ 1,810 $ 4,420 Short-term investments (Note B) 8,813 2,749 Accounts receivable, trade, net of allowance for doubtful accounts of $82,320 and $72,027 8,456 7,131 Inventories (Note C) 8,005 5,343 Refundable income taxes 69 26 Deferred income taxes (Note G) 481 776 Other current assets 1,324 969 ------- ------- Total current assets 28,958 21,414
Property, plant, and equipment (Note D) 7,144 7,075
Long-term investments (Note B) 6,602 16,035
Other assets (Note E) 4,004 2,180 ------- ------- Total assets $46,708 $46,704 ======= ======= Liabilities and Shareholders' Equity
Current liabilities: Accounts payable $ 1,325 $ 862 Accrued expenses (Note F) 2,321 2,943 Income taxes payable 57 172 ------- ------- Total current liabilities 3,703 3,977 ------- ------- Deferred income taxes (Note G) 525 725
Commitments and contingencies (Note P)
Shareholders' equity (Note I): Preferred stock, $.10 par value, authorized 5,000,000 shares; issued none Common stock, $.10 par value, authorized 15,000,000 shares; issued 5,978,538 shares 598 598 Additional paid-in capital 36,846 36,838 Retained earnings 6,683 6,428 Net unrealized gain(loss) on available-for-sale securities 14 (198) ------- ------- 44,141 43,666 Less treasury stock, at cost, 625,299 and 626,607 shares 1,661 1,664 ------- ------- Total shareholders' equity 42,480 42,002 ------- ------- Total liabilities and shareholders' equity $46,708 $46,704 ======= =======
The accompanying notes are an integral part of the consolidated financial statements.
ISCO, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Amounts in thousands, except share and per share data)
The accompanying notes are an integral part of the consolidated financial statements.
ISCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (columnar amounts in thousands)
ISCO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - continued (columnar amounts in thousands)
See Note L for supplemental cash flow information.
The accompanying notes are an integral part of the consolidated financial statements.
ISCO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended July 25, 1997, July 26, 1996 and July 28, 1995 (Columnar amounts in thousands, except share and per share data)
Note A. Summary of Significant Accounting Policies.
Description of Business--Isco, Inc. and its subsidiaries (the Company) designs, manufactures, and markets products worldwide which are used by industry and government to monitor compliance with water quality regulations and are used in a variety of research and testing laboratories and by industry to monitor product quality.
Basis of Presentation--The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany transactions and accounts have been eliminated. Investments in which the Company exercises significant influence over operating and financial policies are accounted for using the equity method.
For fiscal reporting purposes, the Company operates under a 52/53 week year, ending on the last Friday of July.
Use of Estimates--The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reporting periods. Actual results could differ from those estimates.
Cash and Cash Equivalents--Cash and cash equivalents include all cash balances and highly liquid investments with an original maturity of three months or less.
Investments--The Company classifies investments into three categories accounted for as follows:
Debt securities that the enterprise has the positive intent and ability to hold to maturity are classified as held-to-maturity securities and reported at amortized cost; debt and equity securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and reported at fair value, with unrealized gains and losses included in earnings; debt and equity securities not classified as either held-to- maturity or trading are classified as available-for-sales securities and reported at fair value, with unrealized gains and losses excluded from earnings and reported, net of tax, in a separate component of shareholders' equity. The Company held no trading securities during the periods reported and generally does not trade securities. Sales of available-for-sale securities are recognized using the first-in, first-out method.
Inventories--Inventories are valued at the lower of cost or market, principally on the last-in, first-out (LIFO) basis.
Long-Lived Assets--During fiscal 1996, the Company adopted the provisions of Statement of Financial Accounting Standards No. 121 (SFAS No. 121) "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS No. 121 established accounting standards for the recognition and measurement of the impairment of long-lived assets, certain identifiable intangibles, and goodwill. The provisions of this statement require that long- lived assets and certain intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In such cases, the expected future cash flows (undiscounted and without interest charges) resulting from the use of the asset are estimated and an impairment loss is recognized if the sum of such cash flows is less than the carrying amount of the asset. Should such an assessment indicate that the value of a long-lived asset or goodwill is impaired, an impairment loss is recognized for the difference between the carrying value of the asset and its estimated fair value. As discussed in Note K, the adoption of this statement resulted in a pre-tax charge of $500,000 during fiscal 1996.
Property, Plant, and Equipment--Property, plant, and equipment are stated at historical costs. Depreciation is provided using the straight-line and declining balance methods over estimated useful asset lives of 10 to 35 years for buildings and improvements and 3 to 10 years for machinery and equipment.
Other Assets--Intangible assets are amortized on a straight-line basis over estimated useful lives of 3 to 20 years.
Revenue Recognition--Sales of products and services are recorded based on shipment of products or performance of services. Revenue from extended warranty contracts is deferred and recognized on a pro rata basis over the life of the contracts.
Foreign Currency Translation--The functional currency of the wholly owned Swiss subsidiary is the United States Dollar. The foreign currency translation gain or loss has not been material.
Employee Benefits Plan--The Beneficial Employee Trust of Isco (BETI), a voluntary employees' beneficiary association, is funded by Company and employee contributions. Certain employee benefits, including the weekly disability and medical protection plan and group insurance premiums, are paid by the BETI.
Research and Engineering Costs--Research and engineering costs are expensed as incurred.
Income Taxes--The Company and its foreign sales corporation subsidiary file consolidated federal and state tax returns. Income taxes are recorded using the liability method which recognizes the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company's financial statements or tax returns.
Net Earnings Per Share--Net earnings per share are based on the weighted average number of common and common equivalent shares outstanding. Dilutive common stock equivalents consist of shares issuable upon exercise of stock options. Fully diluted net earnings per share are not presented because they are not materially different from primary net earnings per share.
Reclassifications--Certain reclassifications have been made to the prior years' financial statements to conform to the current year's presentation.
Accounting Pronouncements: Statement of Financial Accounting Standards No. 128 "Earnings Per Share", Statement of Financial Accounting Standards No. 130 "Reporting Comprehensive Income", and Statement of Financial Accounting Standards No. 131 "Disclosure about Segments of an Enterprise and Related Information", have been issued by the Financial Accounting Standard Board. The Company does not expect the adoption of these statements to be material to the consolidated financial statements. Basic earnings per share will be equivalent to primary earnings per share for the years ended July 25, 1997, July 26, 1996, and July 28, 1995.
Note B. Investments.
The contractual maturities of securities range from less than one year to fifteen years. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
Proceeds from sales of available-for-sale securities during fiscal years 1997, 1996, and 1995 were $3,328,000, $91,000, and $11,000, respectively. Gross gains of $0, $6,000, and $11,000 and gross losses of $86,000, $0, and $4,000 were recognized in fiscal 1997, 1996, and 1995, respectively.
Note C. Inventories.
1997 1996 ---- ---- Raw materials $3,389 $2,049 Work-in-process 2,755 1,935 Finished goods 1,861 1,359 ------ ------ $8,005 $5,343 ====== ======
Had inventories been valued on the first-in, first-out (FIFO) basis, they would have been approximately $1,344,000 and $1,275,000 higher than reported on the LIFO basis at July 25, 1997 and July 26, 1996, respectively.
Note D. Property, Plant, and Equipment.
1997 1996 ---- ----
Land $ 762 $ 762 Buildings and improvements 8,368 8,364 Machinery and equipment 14,767 13,086 Construction-in-progress 469 128 ------- ------- 24,366 22,340 Less accumulated depreciation 17,222 15,265 ------- ------- $ 7,144 $ 7,075 ======= =======
Note E. Other Assets.
1997 1996 ---- ----
Investment in Geomation, Inc. $ 480 $ 387 Note Receivable - Geomation, Inc. -- 500 Note Receivable - AMJ, Inc. 241 -- Cash value of life insurance 996 933 Intangibles, net of accumulated amortization of $1,174,000 and $557,000 2,247 360 Other 40 -- ------ ------ $4,004 $2,180 ====== ======
In September of 1993, the Company acquired, for $500,000, approximately 18 percent of the outstanding stock of Geomation, Inc., a manufacturer of data collection, management, and control systems used in the environmental and geotechnical industries. The Company's investment has been recorded using the equity method of accounting, because the Company exercises significant influence over the operating and financial policies of Geomation, Inc. The resulting goodwill of approximately $371,000 is being amortized over a period of 20 years. The amortization of goodwill and the Company's share of Geomation's earnings (losses) were approximately $19,000 and $112,000, respectively for fiscal 1997, and $19,000 and ($95,000), respectively for fiscal 1996. The Company acquired the remaining outstanding common stock of Geomation on September 17, 1997, as discussed in Note O. The Company's acquisition of Suprex, Inc. is discussed in Note N.
Note F. Accrued Expenses. ______________________________________________________________________________ 1997 1996 _______________________
Salaries, wages, and commissions $1,063 $ 829 Profit sharing contribution 112 97 Vacation/personal time 569 519 Property, payroll, and sales tax 343 200 Restructuring charges 6 1,119 Other 228 179 ------ ------ $2,321 $2,943 ====== ====== ______________________________________________________________________________
Note G. Income Taxes.
Income tax expense consists of: ______________________________________________________________________________
1997 1996 1995 ---- ---- ---- Federal: Current $215 $ 618 $1,346 Deferred (58) (468) -- State: Current 58 276 216 Deferred 26 (75) -- Foreign: Current 10 9 9 ---- ---- ---- $251 $ 360 $1,571 ==== ===== ======
The provision for income taxes is reconciled with the amount of income taxes computed at the federal statutory rate as follows:
1997 1996 1995 ---- ---- ----
Computed "expected" federal tax expense $ 536 $ 458 $1,749 Alternative minimum tax 181 -- -- State income taxes, net of federal tax benefit 72 71 177 Foreign income taxes 10 9 9 Exempt foreign sales corporation income (111) (70) (70) Tax-exempt income (265) (292) (239) Prior year's federal & state income tax adjustments (139) 166 19 Other (33) 18 (74) ---- ---- ---- $ 251 $ 360 $1,571 ====== ====== ======
The July 25, 1997 and July 26, 1996 components of deferred income tax assets and liabilities resulting from temporary differences between financial and tax reporting are as follows: ______________________________________________________________________________
1997 1996 ------- ------- Deferred assets: Uniform capitalization of inventory costs $ 455 $ 338 Securities valuations -- 119 Vacation/personal time 158 139 Restructuring charges 2 334 Write-down of property 189 189 Capital loss carry forward 51 38 AMT credit carry forward 181 -- Reserve for doubtful accounts 31 27 Suprex intangibles 121 -- Deferred warranty income 16 15 Organization expenses 25 -- Other 53 18 ------ ------ Total deferred assets 1,282 1,217 ------ ------
Deferred liabilities: Depreciation 872 908 Prepaid expenses 264 138 BETI contribution 92 74 Securities valuations 8 -- Other 90 46 ------ ------ Total deferred liabilities 1,326 1,166 ------ ------ Net deferred liabilities (assets) $ 44 $ (51) ====== ====== ______________________________________________________________________________
At July 25, 1997, the Company had a net capital loss carry forward of approximately $135,000 of which $50,000 expires in fiscal year 2000 and $85,000 expires in fiscal year 2002.
Note H. Short-term Borrowing.
At July 25, 1997, the Company had available a $3,000,000 unsecured line of credit which expires December 31, 1997. The Company had no outstanding borrowings against its line of credit during the fiscal years ended July 25, 1997 and July 26, 1996.
Note I. Stock Option Plans.
Isco had three stock option plans in effect at July 25, 1997: the 1985 Incentive Stock Option Plan (1985 Plan), the 1996 Stock Option Plan (1996 Plan), and the 1996 Outside Directors' Stock Option Plan (1996 Directors' Plan). Under each of these plans, options may be granted only during the 10 years following the inception of the plan.
In July 1985, the Company adopted the 1985 Plan, which authorized the future issuance of up to 174,570 shares to officers and key employees. During fiscal 1997, the Company adopted the 1996 Plan, which authorized the future issuance of up to 250,000 shares to officers, key employees, and designated individuals. Under both plans, qualified options are to be granted at not less than 100 percent of the fair market value of the common stock when granted. The options
are exercisable over a period not greater than 10 years from the date of grant. Generally, options become exercisable in ratable annual installments over the option term. The 1996 Plan also authorized the issuance of non-qualified options which may be granted at not less than 80 percent of the fair market value of the common stock when granted.
During fiscal 1997, the Company adopted the Directors' Deferred Compensation Plan, which authorized the future issuance of up to 100,000 shares to non- employee directors of the Company. The options are exercisable over a period not greater than ten years from the date of grant. The options are exercisable at the date of grant.
Stock option activity under the Plans is as follows:
At July 25, 1997, 57,678 shares were exercisable at a weighted average option price of $11.79.
No compensation cost has been recorded relative to the employee option plans. The proforma effect on fiscal 1997 net earnings and earnings per share of accounting for stock-based compensation using the fair value method required by statement of Financial Accounting Standards No. 123 "Accounting for
Stock Based Compensation" is approximately $30,000 and $.01, respectively. The fair value for options granted under the 1996 Plan was estimated at the date of grant using the binomial option pricing model with the following assumptions: dividend yield of 2.5 percent, expected volatility of 30 percent; risk free interest rate of seven percent; and expected life of seven years.
Note J. Retirement Plan.
The Company has a defined contribution retirement plan covering its United States-based employees satisfying age and service requirements. The Company makes annual contributions to the plan of approximately 7% of defined pre-tax earnings. Company contributions to the plan are limited to 15% of aggregate compensation of the participants. The Company's contributions approximated $112,000, $97,000, and $383,000 for the fiscal years 1997, 1996, and 1995, respectively.
A 401(k) salary reduction feature is incorporated into the retirement plan. Under the terms of the plan, an employee may reduce his or her salary by up to 12%. The Company will match the reduction, up to 10%, with a 20% matching contribution. The combined amount is then contributed to the plan on behalf of the employee. During fiscal years 1997, 1996, and 1995, the Company made matching contributions under the 401(k) salary reduction feature of approximately $138,000, $148,000, and $140,000, respectively.
Note K. Restructuring Charges.
Operating expenses for the year ended July 26, 1996, include a pre-tax charge of $1,752,000 for the restructuring costs associated with the consolidation of the Company's two divisions and are comprised of the following:
_______________________________________________ ------
Workforce reduction costs $1,165 Write down of facility 500 Other restructuring costs 87 ------ $1,752 ======= _______________________________________________
The restructuring resulted in the elimination of approximately 40 positions. The Company provided severance payments and outplacement services for the terminated employees with costs of approximately $877,000 and $212,000, respectively. Substantially all of the restructuring charges were paid in fiscal 1997.
As a result of the restructuring, one of its operating facilities will be sold. As required by SFAS No. 121, the value of the facility was reduced to its estimated fair value.
Note L. Supplemental Cash Flow Information.
During fiscal years 1997, 1996, and 1995, the Company made income tax payments of approximately $435,000, $305,000, and $2,184,000, respectively.
Note M. International sales. ______________________________________________________________________________ 1997 1996 1995 --------- --------- ------ Europe $ 5,180 $ 5,075 $4,327 Asia 3,017 3,122 2,822 North America 1,126 1,238 1,120 Other 1,059 1,228 1,103 --------- --------- ------ $10,382 $10,663 $9,372 ========= ========= ======
Note N. Acquisitions.
On August 21, 1996, the Company acquired substantially all of the selected assets and assumed selected liabilities of Suprex Corporation (Suprex), a corporation located in Pittsburgh, Pennsylvania. The transaction was accounted for as a purchase. The assets acquired consist of certain accounts receivable, inventories, equipment and certain intangible assets which included customer lists, trade names, engineering drawings, and goodwill of Suprex.
The purchase price was comprised of the following consideration: _________________________________________________ Amount paid to seller: Cash paid at close $2,600 Additional paid at settlement 101
Liabilities assumed: Current liabilities 499 ------ Total consideration $3,200 ====== _________________________________________________
_________________________________________________
The purchase price allocation is summarized as follows: _________________________________________________ Current assets: Accounts receivable $ 305 Inventory 762
Property and equipment 219
Other asset(1): Customer lists/trade names 807 Engineering drawings 304 Goodwill 803 ------ $3,200 ====== _________________________________________________
(1) The life of these intangibles ranges from 3 to 8 years.
The following unaudited pro forma financial information sets forth the results of operations of Isco, Inc. as if the acquisition of Suprex had occurred on July 29, 1995:
Pro forma financial information (unaudited)
______________________________________________________________________________ Twelve Months ended ------------------- 7/25/97 7/26/96 ------- ------- Net sales $40,733 $43,669 Net earnings (loss) 1,326 (63) Net earnings (loss) per share $.25 $(.01) Weighted average number of shares outstanding 5,356 5,353 ______________________________________________________________________________
Note O. Subsequent Event.
On September 17, 1997, the company acquired the remaining approximately 82 percent of Geomation, Inc., Golden, Colorado. The acquisition required approximately $929,000 in cash and the issuance of 318,853 shares of the Company's common stock. The transaction also included an earn-out provision, which depending upon the performance of Geomation through July 1998, may require the payment of up to approximately $250,000 of additional cash and the issuance of additional shares of the Company's common stock with a market value of up to approximately $750,000. The transaction will be accounted for as a purchase.
Note P. Commitments and contingencies.
Commitments--As of September 26, 1997, the Company has commitments totaling approximately $3.3 million relating to building expansion.
Other--In the normal course of business, the Company is involved in various legal actions. Management is of the opinion that none of these legal actions will materially affect the financial position of the Company.
Statements of Earnings by Quarter. (unaudited) (Columnar amounts in thousands, except per share data)
Quarterly per share amounts may not add to annual total due to rounding.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Incorporated by reference from the Isco, Inc., Proxy Statement for Annual Meeting of Shareholders to be held December 11, 1997, under the captions ELECTION OF DIRECTORS, LIST OF CURRENT EXECUTIVE OFFICERS OF THE COMPANY, and ADDITIONAL INFORMATION - Compliance with Section 16(a) of the Securities Exchange Act of 1934.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporated by reference from the Isco, Inc., Proxy Statement for Annual Meeting of Shareholders to be held December 11, 1997, under the caption EXECUTIVE COMPENSATION.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Incorporated by reference from the Isco, Inc., Proxy Statement for Annual Meeting of Shareholders to be held December 11, 1997, under the captions GENERAL and ELECTION OF DIRECTORS.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
page a. The following documents are filed as a part of this report: number
1. Financial Statements:
Independent Auditors' Report 14 Consolidated Statements of Earnings for fiscal years ended July 25, 1997, July 26, 1996, and July 28, 1995 15 Consolidated Balance Sheets at July 25, 1997 and July 26, 1996 16 Consolidated Statements of Shareholders' Equity for fiscal years ended July 25, 1997, July 26, 1996, and July 28, 1995 17 Consolidated Statements of Cash Flows for fiscal years ended July 25, 1997, July 26, 1996, and July 28, 1995 18 Notes to Consolidated Financial Statements 20
Financial statements of the Registrant's subsidiaries are omitted because the Registrant is, primarily, an operating company and the subsidiaries are wholly-owned.
2. Schedules:
Valuation and Qualifying Accounts - Schedule II 35
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (continued)
Schedules other than those listed above are omitted for the reason that they are not required or are not applicable or the required information is shown in the financial statements or notes thereto.
b. Reports on Form 8-K filed for the three months ended July 25, 1997:
1. None
c. Exhibits (Numbered in accordance with Item 601 of Regulation S-K):
(3) (i) Articles of Incorporation as amended and restated through July 26, 1985 [Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1, File No. 2-99303 (the "Form S-1")] -
(ii) By-laws as amended through September 21, 1995 (Incorporated by reference to Annual Report on Form 10-K for Isco, Inc. dated July 28, 1995) -
(10) Material contracts:
(iii) (a) 1985 Incentive Stock Option Plan (Incorporated by reference to Exhibit 10.1 (ii) of the Form S-1)
(b) Directors' Deferred Compensation Plan (Incorporated by reference to Registration Statement of Form S-8, File No. 333-00421) -
(c) 1996 Stock Option Plan (Incorporated by reference to Registration Statement of Form S-8, File No 333-16637) -
(d) 1996 Outside Directors' Stock Option Plan (Incorporated by reference to Registration Statement of Form S-8, File No. 333-16637) -
(11) Computation of Net Earnings Per Share 35
(21) Registrant owns 100 percent of the outstanding capital stock of Isco Instruments (Europe) AG, a Swiss corporation. -
Registrant owns 100 percent of the outstanding capital stock of Isco, Ltd, a Barbados corporation,(incorporated August 3, 1992). 36
(23) Independent Auditors' Consent 36
(27) Financial Data Schedule 37
(99) Plan Year 1997 Financial Statements of the Isco, Inc. Retirement Plu$ Plan 38
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ISCO, INC.
By: /s/ Robert W. Allington By: /s/ Philip M. Wittig ------------------------- ------------------------- Robert W. Allington, Philip M. Wittig Chief Executive Officer, Treasurer, Chief Financial and Director Officer, and Director
Date: October 21, 1997 Date: October 21, 1997
By: /s/ Douglas M. Grant By: /s/ Vicki L. Benne ------------------------- ------------------------- Douglas M. Grant, Vicki L. Benne, Controller President, Chief Operating Officer, and Director
Date: October 21, 1997 Date: October 21, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
By: /s/ Dale L. Young By: /s/ James L. Linderholm ------------------------- ------------------------- Dale L. Young, Secretary James L. Linderholm, and Director Director
Date: October 21, 1997 Date: October 21, 1997
By: /s/ James L. Carrier By: ------------------------- ------------------------- James L. Carrier, John J. Brasch Director Director
Date: October 21, 1997 Date:
VALUATION AND QUALIFYING ACCOUNTS - SCHEDULE II (Amounts in thousands)
Balance at Charged to Balance beginning cost and Amounts at end of of period expenses written-off of period ---------- ----------- ----------- --------- Allowance for doubtful accounts: Year ended July 25, 1997 $72 $126 $116 $82 Year ended July 26, 1996 74 81 83 72 Year ended July 28, 1995 62 20 8 74 ______________________________________________________________________________