<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission file number I7828
----------------
GELMAN SCIENCES INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
MICHIGAN 38-1614806
- ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
600 South Wagner Road, Ann Arbor, Michigan 48103-9019
------------------------------------------------------
Address of principal executive offices)
(Zip Code)
(313) 665-0651
----------------------------------------------------
(Registrant's telephone number, including area code)
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
and 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 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 June 1,
1995, 7,736,939 shares were outstanding of the Company's $.10 par value
common stock.
1
<PAGE>
GELMAN SCIENCES INC.
INDEX
<TABLE>
<CAPTION>
Page
PART I. Financial Information Number
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets of
April 30, 1995 (Unaudited) and
July 31, 1994. . . . . . . . . . . . . . . . . . . . . .3
Condensed Unaudited Consolidated Statements of
Operations for the three and nine months ended
April 30, 1995 and 1994 . . . . . . . . . . . . . . . . 4
Condensed Unaudited Consolidated Statements of
Cash Flows for the nine months ended
April 30, 1995 and 1994 . . . . . . . . . . . . . . . . 5
Condensed Notes to Unaudited Consolidated
Financial Statements . . . . . . . . . . . . . . . . . 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations. . . . . . . . . . . . . . . . . . . . . 7
PART II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . .10
Item 5. Other Information . . . . . . . . . . . . . . . . . . .10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . .11
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
2
<PAGE>
GELMAN SCIENCES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
April 30, July 31,
1995 1994
----------- -----------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash $ 2,274 $ 1,525
Accounts receivable, less allowances 25,322 20,859
Inventories:
Finished products 6,536 5,790
Work in process 1,783 1,555
Raw material and purchased parts 7,280 6,645
---------- ----------
15,599 13,990
Other current assets 4,885 3,849
---------- ----------
Total Current Assets 48,080 40,223
Property, Plant and Equipment 67,650 63,554
Less Allowances for Depreciation (36,117) (34,392)
---------- ----------
31,533 29,162
Intangibles and Other Assets 2,337 2,302
---------- ----------
Total Assets $ 81,950 $ 71,687
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 1,788 $ 1,549
Accounts payable 5,764 5,611
Accrued expenses 8,748 7,784
Current maturities of long-term debt 553 1,829
---------- ----------
Total Current Liabilities 16,853 16,773
Long-Term Debt, Exclusive of Current Maturities 6,967 21,820
Other Long-Term Liabilities 2,336 2,659
Stockholders' Equity:
Preferred stock, par value $1.00 per share
Common stock, par value $.10 per share 772 613
Additional capital 34,414 14,055
Retained earnings 21,550 17,092
Translation adjustments (492) (875)
Less loan to Employee Stock Ownership Plan (450) (450)
---------- ----------
Total Stockholders' Equity 55,794 30,435
---------- ----------
Total Liabilities and Stockholders' Equity $ 81,950 $ 71,687
========== ==========
</TABLE>
See Notes To Unaudited Consolidated Financial Statements.
3
<PAGE>
GELMAN SCIENCES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In Thousands, Except Per Share Amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
---------------------- ----------------------
1995 1994 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales $ 26,893 $ 24,377 $ 75,078 $ 69,953
Cost and Expenses:
Cost of products sold 12,825 12,335 36,408 35,366
Selling and administrative 9,528 8,222 26,848 24,521
Research and development 1,366 1,188 3,990 3,514
Other income - net (241) (68) (363) (146)
---------- ---------- ---------- ----------
Operating Earnings 3,415 2,700 8,195 6,698
Interest Expense 311 434 1,193 1,311
---------- ---------- ---------- ----------
Earnings Before Income Taxes and
Extraordinary Item 3,104 2,266 7,002 5,387
Provision For Income Taxes 1,133 784 2,544 1,913
---------- ---------- ---------- ----------
Earnings Before Extraordinary Item 1,971 1,482 4,458 3,474
Extraordinary Item -
Early Extinguishment of Debt - 183 - 183
---------- ---------- ---------- ----------
Net Earnings $ 1,971 $ 1,299 $ 4,458 $ 3,291
========== ========== ========== ==========
Primary Earnings Per Share Before
Extraordinary Item $ 0.26 $ 0.23 $ 0.64 $ 0.56
========== ========== ========== ==========
Primary Earnings Per Share $ 0.26 $ 0.20 $ 0.64 $ 0.53
========== ========== ========== ==========
Weighted Average Common and
Common Equivalent Shares Outstanding 7,587 6,353 6,927 6,240
========== ========== ========== ==========
</TABLE>
See Notes To Unaudited Consolidated Financial Statements.
4
<PAGE>
GELMAN SCIENCES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Nine Months Ended
April 30
-----------------------
1995 1994
----------- -----------
<S> <C> <C>
Operating Activities
Net earnings $ 4,458 $ 3,291
Loss (gain) on disposal of assets 54 (211)
Extraordinary item - 295
Depreciation and amortization 3,288 3,188
Increase in inventories (1,228) (1,404)
Increase in accounts receivable (3,867) (3,872)
Increase in other current assets (948) (153)
Increase (decrease) in current liabilities 927 (479)
Decrease in liabilities for environmental activities (515) (960)
Tax benefit from exercised stock options 394 482
Other 92 48
---------- ----------
Net Cash Provided by Operating Activities 2,655 225
Financing Activities
Net proceeds from issuance of common stock 19,424 -
Long-term debt borrowings 22,353 26,591
Principal payments on long-term debt (38,480) (23,061)
Proceeds from exercised stock options 682 782
---------- ----------
Net Cash Provided by Financing Activities 3,979 4,312
Investment Activities
Capital expenditures (5,536) (5,050)
Proceeds from sale of assets 25 470
Increase in intangibles and other assets (143) (368)
Payment of note receivable - common stock - 895
---------- ----------
Net Cash Used in Investment Activities (5,654) (4,053)
Effects of Exchange Rate Changes on Cash (231) 75
---------- ----------
Net change in cash during the period 749 559
Cash at beginning of period 1,525 1,142
---------- ----------
Cash at end of period $ 2,274 $ 1,701
========== ==========
</TABLE>
See Notes To Unaudited Consolidated Financial Statements.
5
<PAGE>
GELMAN SCIENCES INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
General
In the opinion of the Company, the accompanying unaudited
consolidated financial statements contain all adjustments (which are of
a normal recurring nature) necessary to present fairly the financial
position of Gelman Sciences Inc. and subsidiaries as of April 30, 1995,
and the results of their operations and cash flows for the three months
and nine months ended April 30, 1995 and 1994. These financial
statements should be read in conjunction with the financial statements
and notes set forth in the Company's Annual Report and Form 10-K for the
year ended July 31, 1994. The results of operations for the three
months and nine months ended April 30, 1995 and 1994 are not necessarily
indicative of the results of the full year.
Public Offering
During the quarter, the Company issued 1,437,500 shares of common
stock at a price of $14.625 per share in a public common stock offering.
The net proceeds of $19.4 million were used to repay a term note payable
to NBD Bank N.A. and to reduce outstanding indebtedness under the
Company's Credit Agreement.
Pollution Related Matters
The Company has settled several law suits related to groundwater
contamination and has begun remediation activities. The remediation
plan requires the Company to treat the groundwater to the extent
necessary to reduce contaminants to a defined level. Management
estimates that remediation will take eight years. Total costs to the
Company of pollution related activities will be dependent upon the
efficacy and duration of the remediation plan and obtaining a cost free
repository for treated groundwater. The ultimate costs to be incurred
could exceed the amount provided of $840,000 at April 30, 1995.
However, it is the opinion of management that these additional costs, if
any, will not have a material adverse effect on the Company's operations
because the cash outflows would be spread over many future years.
Extraordinary item
The extraordinary item in fiscal 1994 resulted from the redemption
of 7.98% Industrial Development Revenue Bonds issued in 1989. The
redemption was funded by the issuance of 1994 Industrial Development
Revenue Bonds in the amount equal to the principal balance of the 1989
Bonds of $5.1 million. The Company recorded a charge of $295,000 net of
$112,000 tax benefit or $.03 per share to write-off deferred finance
charges and record a redemption premium and fees related to the 1989
Bonds.
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
Comparison of Nine months ended April 30, 1995 and 1994
Net Sales for the nine months ended April 30, 1995 increased by $5.1
million or 7.3% to $75.1 million as compared to net sales of $70.0
million for the nine months ended April 30, 1994. Net sales for the
nine months ended April 30, 1994 included non-recurring sales of $3.7
million related to the Company's Australian non-core product lines that
have been divested. Net sales for the nine months ended April 30, 1995
were favorably affected by the weakened U.S. dollar, which increased
reported sales by $1.5 million. The Company's sales growth, adjusted
for these items, was 11.1%.
Sales to customers in North, Central and South America increased 9.8%
over the same period of the prior fiscal year primarily due to a 28.8%
increase in sales of medical devices. Sales to customers in Europe
increased 12.7%, mainly due to increases in sales of process filtration
products in Italy and France. Sales to customers in the Asia/Pacific
region declined 11.6% as a result of the divestiture of the Australian
non-core product lines. Without the effect of these sales, Asia/Pacific
sales would have increased 39.4%, primarily attributable to increases in
sales of process filtration products in Japan and Korea. Worldwide
sales of laboratory products, process filtration products and medical
devices increased 9.5%, 21.7% and 24.0%, respectively. Worldwide sales
of microporous membranes decreased 4.0% as a result of a special
shipment to a single customer in the first half of fiscal 1994. Without
the effect of this shipment, sales of microporous membrane would have
increased 9.9%.
Gross profit increased $4.1 million or 11.8% to $38.7 million in the
nine months ended April 30, 1995, as compared to $34.6 million in the
nine months ended April 30, 1994. As a percentage of net sales, gross
profit increased to 51.5% from 49.4%. The improvement in gross margin
is primarily attributable to the divestiture of the lower margin non-
core product lines and improved operating efficiencies, which was
partially offset by a less favorable product mix due to lower membrane
sales as a percentage of total sales.
Selling and administrative expense increased by $2.3 million or 9.5%
to $26.8 million in the nine months ended April 30, 1995, compared to
$24.5 million in the nine months ended April 30, 1994. The increase in
selling and administrative expense was primarily due to efforts in
selling and promotional activity in accordance with the Company's growth
strategy.
Research and development expense increased by $476,000 or 13.5% to
$4.0 million in the nine months ended April 30, 1995, compared to $3.5
million in the nine months ended April 30, 1994. As a percentage of net
sales, these expenses were 5.3% and 5.0%, respectively. The higher
research and development spending is a result of an increased effort to
develop and modify products to meet customer requirements.
7
<PAGE>
The effective tax rate for each of the nine months ended April
30,1995 and 1994 was 36.3% and 35.5%, respectively. The higher tax rate
reflects a greater percentage of income from subsidiaries with higher
corporate tax rates in fiscal 1995.
Net earnings increased $1,167,000 or 35.5% to $4.5 million or $.64
per share for the nine months ended April 30, 1995, compared to $3.3
million or $.53 per share for the nine months ended April 30, 1994.
Earnings for fiscal 1994 included the extraordinary item plus the gain
on sale of Australian assets. Excluding the effect of these two non-
recurring items, net earnings would have increased 32.4%.
Comparison of Three Months ended April 30, 1995 and 1994
Net sales for the third quarter ended April 30, 1995 increased by
10.3% to $26.9 million as compared to $24.4 million for the third
quarter of fiscal 1994. The third quarter sales for fiscal 1994 were
affected by the non-recurring sales discussed under the nine month sales
comparison in the amount of $700,000. The third quarter fiscal 1995
sales were favorably affected by the weakened U.S. dollar, which
increased reported sales by $658,000. The Company's sales growth for
the third quarter of fiscal 1995 versus the same period last fiscal
year, adjusted for the non-recurring sales and the fluctuation in
foreign currency, was 10.8%.
Worldwide sales of laboratory products, process filtration products
and medical devices increased 6.6%, 25.5% and 24.9%, respectively, as
compared to the third quarter of fiscal 1994. The growth in laboratory
and process filtration products has been mainly in the international
markets. Medical devices increased mainly in the American market in the
intravenous therapy applications. Membrane sales increased 3.2%.
Gross profit increased $2.0 million or 16.8% to $14.1 million in the
three months ended April 30, 1995, as compared to $12.1 million in the
three months ended April 30, 1994. As a percentage of net sales, gross
profit increased to 52.3% from 49.4%. The improvement in gross margin
is primarily attributable to capacity utilization and manufacturing
efficiency improvements, partially offset by a less favorable product
mix due to lower membrane sales as a percentage of sales.
Other income - net, increased to $241,000 for the three months ended
April 30, 1995 mainly due to exchange gains on foreign currency
transactions recorded net of hedging contracts. Other income - net, for
the three months ended April 30, 1994 included $108,000 gain on the sale
of Australian assets relating to the divested product lines.
Net earnings increased $672,000 or 51.7% to $2.0 million or $.26 per
share for the three months ended April 30, 1995, compared to $1.3
million or $.20 per share for the three months ended April 30, 1994.
Earnings for the third quarter fiscal 1994 included the two non-
recurring items mentioned in the nine month discussion. Excluding the
effect of these two non-recurring items, net earnings would have
increased 43.4%. Fiscal 1995 earnings per share includes the effect of
the recently completed secondary public offering of 1,437,500 shares of
common stock. The weighted average shares for the third quarter of
fiscal 1995 and 1994 were 7.6 million and 6.4 million, respectively.
8
<PAGE>
Liquidity and Capital Resources
For the nine months ended April 30, 1995, the Company generated cash
from operations in the amount of $2.7 million. Finance activities
include the issuance, during the third quarter, of 1,437,500 shares of
common stock at a price of $14.625 per share in a public common stock
offering. The net proceeds of $19.4 million were used to repay a $4
million term note payable to NBD Bank N.A. and to reduce outstanding
indebtedness under the Company's Credit Agreement in the amount of $12.1
million. The remainder of the net proceeds plus the cash provided from
operations were used to fund capital expenditures of $5.7 million.
Working capital at April 30, 1995 and July 31, 1994 was $31.2 million
and $23.4 million, respectively. The increase in working capital is
attributed mainly to higher levels of trade receivables. The higher
level of sales in the last two months of the third quarter compared to
the fourth quarter of fiscal 1994 plus the increased volume of
international sales which have longer collection periods have affected
trade receivables. Also increasing working capital is the reduction in
current maturities of long term debt of $1.3 million due to the
repayment of the term note mentioned above. At April 30, 1995, the
Company's unused portion of its Credit Agreement was $21.2 million.
During the quarter, the Company settled its interest rate swap
agreement on $5 million notional amount at a gain of $48,000. The gain
has been deferred and will be reflected as adjustments to interest
expense over the appropriate periods relevant to the agreement.
9
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various legal actions in the normal course
of business. In addition, the Company is currently a party to various
legal actions arising under statutes regulating the discharge of
materials into or otherwise protecting the environment. These have been
described in the Company's 1994 Annual Report and Item 1. "Environmental
Regulations" and Item 3. "Legal Proceedings" of the Company's Form 10-K
for the year ended July 31, 1994, and Item 1. "Legal Proceedings of Part
II of the Company's Forms 10-Q for the quarters ended October 31, 1994,
and January 31, 1995. The following sets forth these environmental
matters to the extent any material developments have occurred since the
filing of the Company's Form 10-Q for the quarter ended January 31,
1995.
"Thermo Chem" Superfund Site, Muskegon, Michigan. By correspondence
dated January 2, 1992, the United States Environmental Protection Agency
("USEPA") identified the Company as a potentially responsible party
("PRP") under the Comprehensive Environmental Response, Compensation,
and Liability Act ("CERCLA") for past and future response costs in
connection with the Thermo Chem Superfund site, a waste chemical
reclamation and disposal site. The USEPA issued an Administrative Order
mandating remediation of the site to a number of generator PRPs. On
July 22, 1994, the Company and the USEPA entered into a settlement
agreement under which the Company agreed to pay $124,100. A consent
order based on that agreement became effective February 8, 1995.
Payment was made on March 10, 1995.
Item 5. OTHER INFORMATION.
On March 18, 1995, Kim A. Davis, President and Chief Operating
Officer of the Company, was elected a Director of the Company by the
Board of Directors.
Effective June 16, 1995, James J. Fahrner has resigned as Chief
Financial Officer and Vice President, Finance, of the Company to take a
position with an acquisition-oriented company.
On June 5, 1995, Karen A. Radtke was appointed Treasurer of the
Company.
10
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(4) Instruments Defining the Rights of Security Holders
(1) Pursuant to 17 CFR 229.601(b)(4)(iii), instruments
with respect to long-term debt issues have been omitted where
the amount of securities authorized under each instrument does
not exceed 10% of the total consolidated assets of the Company.
The Company hereby agrees to furnish a copy of each such
instrument to the Commission upon its request.
(11) Statement re computation of per share earnings for the three
and nine months ended April 30, 1995 and 1994.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fiscal quarter ended
April 30, 1995.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant had duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GELMAN SCIENCES INC.
------------------------------------
(Registrant)
Date: June 12, 1995 /s/ Charles Gelman
---------------------------------------
Charles Gelman, Chairman of the Board
and Chief Executive Officer
Date: June 12, 1995 /s/ James J. Fahrner
---------------------------------------------
James J. Fahrner, Vice President, Finance
and Chief Financial Officer
12
<PAGE>
Exhibit Index
<TABLE>
<CAPTION>
Page
Exhibit Description Number
- --------- ----------- ------
<S> <C> <C>
(4) Instruments Defining the Rights of Security Holders
(1) Pursuant to 17 CFR 229.601(b)(4)(iii), instruments
with respect to long-term debt issues have been omitted where
the amount of securities authorized under each instrument does
not exceed 10% of the total consolidated assets of the Company.
The Company hereby agrees to furnish a copy of each such
instrument to the Commission upon its request.
(11) Statement re computation of per share earnings for the three
and nine months ended April 30, 1995 and 1994.
(27) Financial Data Schedule
</TABLE>
13
<PAGE>
<PAGE>
Exhibit 11
Computation of Earnings Per Common Share
Primary and Fully Diluted
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30 April 30
----------------------------------------------
1995 1994 1995 1994
----------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Net income for computing primary and fully diluted earnings per common share $1,971,000 $1,299,000 $4,458,000 $3,291,000
Primary shares
Weighted average number of common shares outstanding 7,211,448 5,736,974 6,519,800 5,682,149
Additions from assumed exercise of stock options and warrants 375,919 615,930 407,171 557,387
---------- ---------- ---------- ----------
Weighted average of common and common equivalent shares 7,587,367 6,352,904 6,926,971 6,239,535
=========== =========== =========== ==========
Fully diluted shares
Weighted average number of common shares outstanding 7,211,448 5,736,974 6,519,800 5,682,149
Additions from assumed exercise of stock options and warrants 418,442 615,930 421,345 615,930
---------- ---------- ---------- ----------
Weighted average of common and common equivalent shares 7,629,890 6,352,904 6,941,145 6,298,079
=========== =========== =========== ==========
Net income per common share
Primary $0.26 $0.20 $0.64 $0.53
=========== =========== =========== ==========
Fully diluted $0.26 $0.20 $0.64 $0.53
=========== =========== =========== ==========
</TABLE>
Primary additions from assumed exercise of stock options and warrants is
net of assumed purchase of common shares at the average market price
during the period. Fully diluted earnings per share was determined in
the same manner except that the greater of period end or period average
stock price was used.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from (a) Gelman
Sciences Inc. Statement of Operations and Consolidated Statement of Cash Flow
for the nine months ended April 30, 1995 and the Consolidated Balance Sheet as
of April 30, 1995 and is qualified in its entirety by reference to such (b) Form
10-Q for the third quarter ended April 30, 1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-END> APR-30-1995
<CASH> 2,274
<SECURITIES> 0
<RECEIVABLES> 26,318
<ALLOWANCES> 996
<INVENTORY> 15,599
<CURRENT-ASSETS> 48,080
<PP&E> 67,650
<DEPRECIATION> 36,117
<TOTAL-ASSETS> 81,950
<CURRENT-LIABILITIES> 16,853
<BONDS> 9,303
<COMMON> 772
0
0
<OTHER-SE> 55,022
<TOTAL-LIABILITY-AND-EQUITY> 81,950
<SALES> 75,078
<TOTAL-REVENUES> 75,078
<CGS> 36,408
<TOTAL-COSTS> 36,408
<OTHER-EXPENSES> 30,269
<LOSS-PROVISION> 206
<INTEREST-EXPENSE> 1,193
<INCOME-PRETAX> 7,002
<INCOME-TAX> 2,544
<INCOME-CONTINUING> 4,458
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,458
<EPS-PRIMARY> .64
<EPS-DILUTED> .64
</TABLE>
