<PAGE> 1
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 January 31, 1996
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
------------------------------------------------------
(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 March 1, 1996
7,915,521 shares were outstanding of the Company's $.10 par value common
stock.
<PAGE> 2
GELMAN SCIENCES INC.
INDEX
<TABLE>
<CAPTION>
Page
PART I. Financial Information Number
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets
January 31, 1996 (Unaudited) and
July 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of
Income (Unaudited) for the three and six months ended
January 31, 1996 and 1995. . . . . . . . . . . . . . . . . .4
Condensed Consolidated Statements of
Cash Flows (Unaudited) for the six months ended
January 31, 1996 and 1995. . . . . . . . . . . . . . . . . .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 4 Submission of Matters to a Vote of Security Holders . . . . 11
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 12
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
<PAGE> 3
GELMAN SCIENCES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
January 31, July 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 6,015 $ 3,010
Accounts receivable, less allowances 24,130 23,985
Inventories:
Finished products 6,324 6,320
Work in process 1,444 1,572
Raw material and purchased parts 6,234 7,052
--------- ---------
14,002 14,944
Other current assets 5,210 4,988
--------- ---------
Total Current Assets 49,357 46,927
Property, Plant and Equipment 72,401 69,842
Less Allowances for Depreciation (39,200) (37,258)
--------- ---------
33,201 32,584
Intangibles and Other Assets 2,370 2,270
--------- ---------
Total Assets $ 84,928 $ 81,781
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 1,587 $ 1,368
Accounts payable 4,048 3,813
Accrued expenses 8,071 9,312
Current maturities of long-term debt 501 524
--------- ---------
Total Current Liabilities 14,207 15,017
Long-Term Debt, Exclusive of Current Maturities 5,155 5,493
Other Long-Term Liabilities 2,601 2,498
Stockholders' Equity:
Preferred stock, par value $1.00 per share
Common stock, par value $.10 per share 790 779
Additional capital 36,022 35,145
Retained earnings 27,492 23,714
Translation adjustments (1,039) (565)
Less loan to Employee Stock Ownership Plan (300) (300)
--------- ---------
Total Stockholders' Equity 62,965 58,773
--------- ---------
Total Liabilities and Stockholders' Equity $ 84,928 $ 81,781
========== ==========
</TABLE>
See Notes To Unaudited Consolidated Financial Statements.
<PAGE> 4
GELMAN SCIENCES INC.
CONDENSED CONSOLIDATED STATEMENT OF INCOME (Unaudited)
(In Thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31, January 31,
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales $ 27,124 $ 24,018 $ 54,459 $ 48,185
Cost and Expenses:
Cost of products sold 13,321 11,573 26,814 23,583
Selling and administrative 9,132 8,808 18,706 17,320
Research and development 1,464 1,316 2,955 2,624
Other expense (income) - net 243 (117) (44) (122)
-------- -------- -------- --------
Operating Earnings 2,964 2,438 6,028 4,780
Interest Expense 151 449 305 882
-------- -------- -------- --------
Earnings Before Income Taxes 2,813 1,989 5,723 3,898
Provision For Income Taxes 957 733 1,945 1,411
-------- -------- -------- --------
Net Earnings $ 1,856 $ 1,256 $ 3,778 $ 2,487
========= ========= ========= =========
Primary Earnings Per Share $ 0.23 $ 0.19 $ 0.46 $ 0.38
========= ========= ========= =========
Weighted Average Common and
Common Equivalent Shares Outstanding 8,245 6,605 8,195 6,597
========= ========= ========= =========
</TABLE>
See Notes To Unaudited Consolidated Financial Statements.
<PAGE> 5
GELMAN SCIENCES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Six Months Ended
January 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
Operating Activities
Net earnings $ 3,778 $ 2,487
Loss on disposal of assets 0 25
Depreciation and amortization 2,393 2,092
(Increase) decrease in inventories 608 (150)
Increase in accounts receivable (472) (724)
Increase in other current assets (275) (620)
Decrease in current liabilities (234) (675)
Decrease in liabilities for environmental activities (180) (522)
Other 199 38
--------- ---------
Net Cash Provided by Operating Activities 5,817 1,951
Financing Activities
Long-term debt borrowings 685 14,420
Principal payments on long-term debt (1,008) (13,267)
Tax benefit from exercised stock options 376 220
Proceeds from exercised stock options 511 386
--------- ---------
Net Cash Provided by Financing Activities 564 1,759
Investment Activities
Capital expenditures (3,064) (3,207)
Proceeds from sale of assets 0 34
Increase in intangibles and other assets (175) (71)
--------- ---------
Net Cash Used in Investment Activities (3,239) (3,244)
Effects of Exchange Rate Changes on Cash (137) (85)
--------- ---------
Net change in cash and cash equivalents during the period 3,005 381
Cash and cash equivalents at beginning of period 3,010 1,525
--------- ---------
Cash and cash equivalents at end of period $ 6,015 $ 1,906
========= =========
</TABLE>
See Notes To Unaudited Consolidated Financial Statements.
<PAGE> 6
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 January 31, 1996, and the results of their
operations and cash flows for the three and six months ended January 31, 1996
and 1995. 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, 1995. The results of operations for the
three and six months ended January 31, 1996 and 1995 are not necessarily
indicative of the results of the full year.
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. 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 $578,000 at January 31, 1996. 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.
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Comparison of Six Months ended January 31, 1996 and 1995
Net Sales for the six months ended January 31, 1996 increased by $6.3
million or 13% to $54.5 million as compared to net sales of $48.2 million for
the six months ended January 31, 1995. The increase was the result of strong
international sales led by a 51% increase in medical device products. Foreign
currency fluctuations represented less than 1 percent of the overall
percentage increase.
Overall, sales to customers in Europe increased 27% due mainly to
increases in medical device products used in intravenous therapy. Sales to
customers in Asia/Pacific increased 21% due to sales increases in process
products used in high-technology filtration systems. Sales to customers in the
Americas increased 8% over the same period of last fiscal year. Overall growth
in the Americas was slowed as sales of laboratory products were level compared
to the same period last fiscal year. This was due to distributor inventory
reductions during the Companys second fiscal quarter. The inventory
reductions resulted from the consolidation of distributors through which the
Company sells its laboratory products.
Worldwide sales, as compared to the first six months of last fiscal year,
in the laboratory market increased 3%. As described above, the slow growth in
laboratory products was the result of distributor inventory reduction
programs, in the Americas, during the Company's second fiscal quarter. Process
filtration sales improved 18%. Medical Device sales improved 27% and sales of
microporous membrane improved 18%.
Gross profit increased $3 million or 12% to $27.6 million in the six
months ended January 31, 1996, as compared to $24.6 million in the six months
ended January 31, 1995. As a percentage of net sales, gross profit declined
slightly from 51.1% to 50.8%. The decline in gross margin reflects a change
in product mix compared to the first six months of last fiscal year. The
combination of strong growth for medical device products, which carry lower
margins, and the slow growth for laboratory products, which carry higher
margins, has resulted in the overall margin decline.
<PAGE> 8
Selling and administrative expenses increased by $1.4 million or 8% to
$18.7 million in the six months ended January 31, 1996, compared to $17.3
million in the six months ended January 31, 1995. As a percentage of sales,
selling and administrative expenses declined from 35.9% to 34.3%. This reflect
the Company's strategy of leveraging operating earnings by reducing
administrative expenses as a percentage of sales. Selling and marketing
expenses were level as a percentage of sales.
Research and development expenses increased to $3 million in the six
months ended January 31, 1996 as compared to $2.6 million in the six months
ended January 31, 1995, or 12.7%. As a percentage of net sales, these
expenses were 5.4%, respectively. Interest expense decreased $577,000 due to
the repayment of outstanding indebtedness in the third quarter of fiscal 1995.
The effective tax rate for the six months ended January 31, 1996 was 34%
compared to 36% for the same period in fiscal 1995. The reduction in tax rates
reflects the Company's efforts to maximize its use of tax benefits related to
export sales and increased tax credits applicable to its research and
development activities.
Net earnings increased $1.3 million or 52% to $3.8 million for the six
months ended January 31, 1996, compared to $2.5 million for the six months
ended January 31, 1995. As a percentage of sales, net earnings increased to
6.9% from 5.2%. Earnings per share increased to $.46 per share on 8.2 million
shares compared to $.38 per share on 6.6 million shares.
Comparison of Three Months ended January 31, 1996 and 1995
Net sales for the second quarter ended January 31, 1996 increased 13% to
$27.1 million as compared to net sales of $24.0 million for the quarter ended
January 31, 1995. The increase was due to strong world wide sales of medical
devices and international sales of process products. Foreign currency
fluctuations represented less than one-half of 1 percent of the overall
percentage increase.
Overall, sales to customers in Europe increased 27%. Sales to customers in
Asia/Pacific increased 18%. Sales to customers in the Americas increased 8%
over the same period last fiscal year despite a decline of 6% in laboratory
sales. As described above, the decline in sales of laboratory products was
the result of distributor inventory reduction programs due to distributor
consolidation. Management believes this to be a one time inventory correction
by the Company's distributors as end user demand appears steady.
<PAGE> 9
Worldwide sales by product lines, as compared to the second quarter of
last fiscal year, in the laboratory market of our business decreased 3%.
Medical Device sales improved 33%. Process filtration sales and sales of
microporous membrane improved 21%.
Gross margin for the quarter was 50.9% as compared to 51.8% for the prior
year second quarter. The margin decline is a direct result of a product mix
change due to the decline in laboratory sales compared to the second quarter
of last fiscal year. Laboratory products carry a higher margin relative to
other product lines.
Selling and administrative costs as a percentage of sales were 34% for the
second quarter ended January 31, 1996 compared to 37% for the second quarter
of last fiscal year. This reflects the leveraging strategy discussed above
plus lower levels of certain incentives related to sales growth and sales mix.
The increase in Other expense (income) - net is due to an adjustment that
corrects an error in the financial statements for the first quarter of this
fiscal year. Interest expense decreased $298,000 due to the repayment of
outstanding indebtedness in the third quarter of fiscal 1995. The effective
tax rate for the second quarters ended January 31, 1996 and 1995 was 34% and
37%, respectively.
Net earnings for the second quarter ended January 31, 1996 increased 48%
to $1.9 million or $.23 per share on 8.2 million shares, as compared with $1.3
million or $.19 per share on 6.6 million shares.
Liquidity and Capital Resources
The Company generated cash from operations of $5.8 million for the six
months ended January 31, 1996 compared to $2.0 million for the same period
last fiscal year. The Company used $3 million to fund capital expenditures
and increased its cash reserves by $3 million. Working capital at January 31,
1996 was $35.1 million compared to $31.9 million at July 31,1995. The
increased working capital was due to the additional cash reserves. At January
31, 1996, the Company's unused portion of lines of credit under the revolving
credit agreement was $15 million.
<PAGE> 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is involved in various legal actions in the normal course of
business. In addition, during the year the Company was a party to various
legal actions arising under statutes regulating the discharge of materials
into the environment or otherwise protecting the environment. These have been
described in the Company's 1995 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, 1995, and Item 1. "Legal Proceedings" of Part II of
the Company's Form 10-Q for the quarter ended October 31, 1995. All of those
legal actions involving environmental matters were concluded in the quarter
ending October 31, 1995.
<PAGE> 11
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders, held on December 15, 1995, the
Shareholders ratified and approved the issuance of warrants to non-employee
directors since September 1, 1992. The Shareholder votes were 5,426,792 or
75.43% "For", 734,020 or 10.20% "Against", 88,750 or 1.23% "Abstain", and
945,340 or 13.14% "Broker's Non Vote".
At the same meeting, the Shareholders ratified and approved a Non-Employee
Director Stock Plan. The Shareholder votes were 5,424,076 or 75.39% "For",
776,069 or 10.78% "Against", 49,417 or 0.69% "Abstain", and 945,340 or 13.14%
"Broker's Non Vote".
The Shareholders also ratified and approved an Executive Stock Ownership
Plan. The Shareholder votes were 5,621,665 or 78.13% "For", 581,327 or 8.08%
"Against", 46,570 or 0.65% "Abstain", and 945,340 or 13.14% "Broker's Non
Vote".
Further, the Shareholders elected three directors as follows:
Mr. Kim A. Davis was re-elected as a director for a three-year term
expiring with the 1998 Annual Meeting. The Shareholder votes were 7,157,040
or 99.47% "For", and 37,862 or 0.53% "Withheld".
Dr. Saul H. Hymans was re-elected as a director for a three-year term
expiring with the 1998 Annual Meeting. The Shareholder votes were 7,160,339
or 99.52% "For", and 34,563 or 0.48% "Withheld".
Dr. Nina I. McClelland was re-elected as a director for a three-year term
expiring with the 1998 Annual Meeting. The Shareholder votes were 7,160,339
or 99.52% "For", and 34,563 or 0.48% "Withheld".
<PAGE> 12
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 six months ended January 31, 1996 and 1995.
(27) Financial Data Schedules
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fiscal quarter ended
January 31, 1996.
<PAGE> 13
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: March 12, 1996 /s/ Kim A. Davis
------------------------------
Kim A. Davis, President
and Chief Operating Officer
Date: March 12, 1996 /s/ David J. DiMaggio
------------------------------
David J. DiMaggio, Controller
Exhibit 11
Computation of Earnings Per Common Share
Primary and Fully Diluted
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
January 31 January 31
------------------------- --------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income for computing primary and fully diluted
earnings per common share $ 1,856,000 $ 1,256,000 $ 3,778,000 $ 2,487,000
Primary shares
Weighted average number of common shares outstanding 7,858,527 6,205,245 7,834,318 6,173,976
Additions from assumed exercise of stock options and warrants 386,824 399,655 361,014 422,797
---------- ---------- ---------- ----------
Weighted average of common and common equivalent shares 8,245,351 6,604,900 8,195,332 6,596,773
========== ========== ========== ==========
Fully diluted shares
Weighted average number of common shares outstanding 7,858,527 6,205,245 7,834,318 6,173,976
Additions from assumed exercise of stock options and warrants 394,312 399,655 394,312 422,797
---------- ---------- ---------- ----------
Weighted average of common and common equivalent shares 8,252,839 6,604,900 8,228,630 6,596,773
========== ========== ========== ==========
Net income per common share
Primary $0.23 $0.19 $0.46 $0.38
========== ========== ========== ==========
Fully diluted $0.23 $0.19 $0.46 $0.38
========== ========== ========== ==========
</TABLE>
Primary additions from assumed exercise of stock options and warrants are
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 Income and Consolidated Statement of Cash Flows
for the six months ended January 31, 1996 an the Consolidated Balance Sheet as
of January 31, 1996 and is qualified in its entirety by reference to such (b)
Form 10-Q for the second quarter ended January 31, 1996.
</LEGEND>
<CIK> 0000310252
<NAME> GELMAN SCIENCES INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JAN-31-1996
<EXCHANGE-RATE> 1
<CASH> 6,015
<SECURITIES> 0
<RECEIVABLES> 25,778
<ALLOWANCES> (1,648)
<INVENTORY> 14,002
<CURRENT-ASSETS> 49,357
<PP&E> 72,401
<DEPRECIATION> (39,200)
<TOTAL-ASSETS> 84,928
<CURRENT-LIABILITIES> 14,207
<BONDS> 7,756
<COMMON> 790
0
0
<OTHER-SE> 62,175
<TOTAL-LIABILITY-AND-EQUITY> 84,928
<SALES> 54,459
<TOTAL-REVENUES> 54,459
<CGS> 26,814
<TOTAL-COSTS> 26,814
<OTHER-EXPENSES> 21,510
<LOSS-PROVISION> 107
<INTEREST-EXPENSE> 305
<INCOME-PRETAX> 5,723
<INCOME-TAX> 1,945
<INCOME-CONTINUING> 3,778
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,778
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
</TABLE>
