<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 October 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
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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
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(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 November 26, 1996,
there were 8,039,067 shares of the Company's $.10 par value common stock
outstanding.
<PAGE> 2
GELMAN SCIENCES INC.
INDEX
Page
PART I. Financial Information Number
Item 1. Financial Statements
Consolidated Balance Sheets as of
October 31, 1996 (Unaudited) and
July 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations (Unaudited)
for the Three Months Ended
October 31, 1996 and 1995 . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flow (unaudited)
for the Three Months Ended
October 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 . . . . . . . . . . . . . . . . . . . . . . . 8
PART II. Other Information
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 10
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 11
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
<PAGE> 3
GELMAN SCIENCES INC.
Consolidated Balance Sheets
(Dollars in Thousands)
<TABLE>
<CAPTION>
October 31, July 31,
1996 1996
------------ -----------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 8,787 $ 9,590
Accounts receivable, less allowances 25,655 26,442
Inventories:
Finished products 5,969 6,061
Work in process 979 1,027
Raw material and purchased parts 4,089 4,663
---------- ----------
11,037 11,751
Other current assets 4,607 4,205
---------- ----------
Total Current Assets 50,086 51,988
Property, Plant and Equipment 76,371 75,267
Less Allowances for Depreciation (42,135) (41,143)
---------- ----------
34,236 34,124
Intangibles and Other Assets 2,050 2,108
---------- ----------
Total Assets $ 86,372 $ 88,220
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 5,134 $ 4,989
Accrued expenses 6,829 7,077
Current maturities of long-term debt 159 163
---------- ----------
Total Current Liabilities 12,122 12,229
Long-Term Debt, Exclusive of Current Maturities 7,809 7,704
Other Long-Term Liabilities 3,390 3,599
Stockholders' Equity:
Preferred stock, par value $1.00 per share
Common stock, par value $.10 per share 803 794
Additional capital 37,993 36,835
Retained earnings 25,174 28,050
Translation adjustments (769) (841)
Less loan to Employee Stock Ownership Plan (150) (150)
---------- ----------
Total Stockholders' Equity 63,051 64,688
---------- ----------
Total Liabilities and Stockholders' Equity $ 86,372 $ 88,220
========== ==========
</TABLE>
See Notes To Unaudited Consolidated Financial Statements.
<PAGE> 4
GELMAN SCIENCES INC.
Consolidated Statements of Operations (Unaudited)
(In Thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Net sales $ 28,335 $ 27,335
Cost and expenses:
Cost of products sold 15,265 13,493
Selling and administrative 10,484 9,574
Research and development 1,458 1,491
Merger related expenses 3,911 -
Other expenses (income) - net 2 (287)
---------- ----------
Operating (loss) earnings (2,785) 3,064
Interest expense 128 154
---------- ----------
(Loss) earnings before income taxes (2,913) 2,910
Provision for income taxes (37) 988
---------- ----------
Net (loss) earnings ($ 2,876) $ 1,922
========== ==========
Primary (Loss) earnings per share ($ 0.36) $ 0.24
========== ==========
Weighted average
common shares outstanding 7,974 8,145
========== ==========
</TABLE>
See Notes To Unaudited Consolidated Financial Statements.
<PAGE> 5
GELMAN SCIENCES INC.
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
Three Months Ended
October 31,
-----------------------
1996 1995
---------- ---------
<S> <C> <C>
Operating Activities
Net (loss) earnings ($ 2,876) $ 1,922
Loss on disposal of assets 106 -
Depreciation and amortization 1,310 1,172
Increase in deferred income taxes 12 -
Stock issued for employee service 5 -
Decrease in inventories 674 1,376
Decrease (increase) in accounts receivable 708 (1,247)
Increase in other current assets (315) (475)
Decrease in current liabilities (76) (699)
Decrease in liabilities for environmental activities (121) (84)
Decrease in other long term liabilities (107) (162)
---------- --------
Net Cash (Used in) Provided by Operating Activities (680) 1,803
Financing Activities
Long-term debt borrowings 433 681
Principal payments on long-term debt (119) (982)
Tax benefit from exercised stock options 780 177
Proceeds from exercised stock options 383 141
---------- ---------
Net Cash Provided by Financing Activities 1,477 17
Investment Activities
Capital expenditures (1,621) (1,552)
Proceeds from sale of assets 11 -
Decrease (increase) in intangibles and other assets 11 (32)
---------- ---------
Net Cash Used in Investment Activities (1,599) (1,584)
Effects of Exchange Rate Changes on Cash (1) 46
---------- ---------
Net change in cash and cash equivalents during the period (803) 282
Cash and cash equivalents at beginning of period 9,590 3,010
---------- ---------
Cash and cash equivalents at end of period $ 8,787 $ 3,292
========== =========
</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 October 31, 1996, and the results of their
operations and cash flows for the three months ended October 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, 1996. The results of operations for the
three months ended October 31, 1996 and 1995 are not necessarily indicative of
the results of the full year.
Pollution Related Matters
The Company has settled several lawsuits 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 incurred by the Company for the remediation
activities could exceed the amount provided of $2.8 million at October 31,
1996. However, the Company believes 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.
Merger Related Expenses
During the quarter, the Company terminated its merger agreement with Memtec
Limited, pursuant to its rights under the Memtec merger agreement, and entered
in a merger agreement with Pall Corporation. As a result of that termination,
the Company recorded a $3.9 million pre-tax charge which included a $3.0
million termination fee due Memtec and other Memtec merger-related costs.
Income Taxes
The Company's effective tax rate for the first quarter ended October 31,
1996 was 1.3% benefit versus a tax rate of 34% for the first quarter ended
October 31, 1995. The 1.3% benefit rate is less than the statutory rate
because the $3.0 million Memtec termination fee may not be deductible for U.S.
income tax purposes. In addition, the financial results for the quarter ended
October 31, 1996, included a tax benefit of $62,000 from the utilization of
certain overseas net operating losses.
<PAGE> 7
GELMAN SCIENCES INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Primary (loss) earnings per share
For the first quarter ended October 31, 1996, primary loss per share was
based on the weighted average number of outstanding common shares. The
inclusion of common stock equivalent shares of 334,000 would have been
antidilutive. For the three months ended October 31, 1995, primary earnings
per share was based on the weighted average number of outstanding common
shares plus common stock equivalents.
Merger Agreement with Pall Corporation
On October 27, 1996, the Company signed a merger agreement with Pall
Corporation under which Gelman shareholders will receive Pall Corporation
common stock valued at approximately $33 per share. The merger, which is
subject to the approval of the Company's shareholders, will be accounted for
as a pooling of interests and qualify as a tax-free reorganization. As a
result of the transaction, which is expected to close in early calendar 1997,
the Company will become a wholly-owned subsidiary of Pall.
<PAGE> 8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Net sales for the quarter ended October 31, 1996, increased $1.0 million or
4% to $28.3 million compared to $27.3 million for the quarter ended October
31, 1995. The sales growth was principally in the European and Asia-Pacific
regions where sales grew 12% and 14%, respectively. Sales growth in the first
quarter was slowed by the effect of the stronger dollar relative to other
currencies, which decreased first quarter sales by 0.8%. Sales in the
Americas were flat, despite Membrane and Lab sales increases of 11% and 4%,
respectively. The Membrane and Lab sales increases were offset by decreases
in domestic Medical Device and Process sales of 8% and 5%, respectively.
Worldwide sales of Membrane increased 11%, reflecting continued marketing
and new product development efforts directed at both OEM and diagnostic
biomedia markets, while worldwide Laboratory sales increased 5%. Worldwide
sales of Process filtration products increased 8% compared to the first
quarter of the prior year as a result of continued growth in demand
internationally in the chemical and beverage industries. Worldwide Medical
Device sales decreased 4% as compared to the first quarter of the prior year.
Process and Medical Device sales were negatively impacted as distributors and
customers reduced their inventory levels of the Company's products. The
inventory reduction and sales shortfall was due partially to uncertainty among
the Company's distributors, customers and employees resulting from the July
22, 1996, announcement of the Company's planned merger with Memtec Limited,
the subsequent announcement of merger discussions with Pall Corporation on
October 10, 1996, and the execution of a merger agreement with Pall
Corporation on October 27, 1996, which terminated the transaction with Memtec.
In addition, first quarter Medical Device sales were negatively affected by
consolidations of several key customers.
The gross profit margin was 46.1% for the first quarter of fiscal 1997 as
compared to 50.6% for the first quarter of fiscal 1996. The reduction in
gross profit margin was due to product mix within our healthcare segment where
a higher proportion of our lower margin filters used in hemodialysis were
sold. Also contributing to the lower first quarter gross margin was an
increase in manufacturing variances, including both scrap and obsolescence,
and the impact of foreign exchange as the dollar strengthened relative to
other currencies.
Selling and administration expense increased by $0.9 million or 10% to
$10.5 million for first quarter fiscal 1997 compared to $9.6 million for first
quarter fiscal 1996. The increase was mainly in selling expense as the
Company drives to increase market share consistent with our overall growth
strategy. SG&A expenses, while higher than the first quarter of fiscal 1996,
were reduced to a level below the third and fourth quarter of fiscal 1996 as
the Company instituted cost reduction programs in response to
lower-than-expected sales. Research and development expenses were
essentially flat, as was interest expense.
<PAGE> 9
The Company incurred merger related expenses resulting from the termination
of its merger agreement with Memtec Limited. As a result of the Merger
termination, the Company paid Memtec Limited a fee of $3.0 million and
expensed $911,000 of legal and professional cost related to the Memtec
merger. The after-tax charge is $3.6 million or $.45 per share.
Other Income declined $0.3 million primarily due to a non-recurring gain on
foreign currency transactions recorded in the first quarter of fiscal 1996.
The Company's effective tax rate for the quarter ended October 31, 1996 was a
1.3% benefit versus a tax rate of 34% for the quarter ended October 31, 1995.
The 1.3% benefit rate is less than the U.S. statutory rate because the $3.0
million Memtec termination fee may not be deductible for U.S. income tax
purposes.
Net earnings decreased $4.8 million to a loss of $2.9 million or ($0.36)
per share in first quarter fiscal 1997 compared to earnings of $1.9 million or
$0.24 per share in first quarter fiscal 1996. The primary loss per share for
the first quarter of fiscal 1997 was computed on the weighted average number
of outstanding common shares. The inclusion of common stock equivalents would
have been antidilutive.
Liquidity and Capital Resources
For the first quarter of fiscal 1997, the Company generated $2.3 million,
before the $3 million Memtec termination fee, of cash in its operating
activities. This compares to cash provided from operations of $1.8 million for
the same period of the prior year. The Company generated $1.5 million from
its financing activities and funded capital expenditures of $1.6 million.
Working capital at October 31, 1996 was $37.9 million compared to $39.7
million at July 31, 1996. The decrease in working capital was due to the $3
million Memtec termination payment, a reduction of trade receivables and a
reduction of inventories. At October 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, in the normal course of business, is involved in incidental,
routine litigation, which, in the opinion of management, will not have a
material impact on the financial condition of the Company. In addition, the
Company continues to be a party to an ongoing legal action, Kelly v. Gelman
Sciences Inc. (Circuit Court for Washtenaw County, Michigan, Case No. 88-
34734-CE), arising under statutes regulating the discharge of materials into
the environment or otherwise protecting the environment. The environmental
matter has been described in Item 1. "Environmental Regulations" and Item 3.
"Legal Proceedings" of the Company's Form 10-K for the year ended July 31,
1996. There has been no material development in the environmental matter
since the filing of the Company's Form 10-K for the year ended July 31, 1996.
<PAGE> 11
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
(2.1) Agreement and Plan of Reorganization and Merger By and Among Memtec
Limited, GSI Acquisition Corporation and the Company, incorporated
by reference from the Form F-4 Registration Statement filed with the
Securities and Exchange Commission by Memtec Limited on or about
October 17, 1996 (Registration No. 333-5804).
(2.2) Agreement and Plan of Reorganization and Merger By and Among Pall
Corporation, Pall Acquisition Corporation and the Company,
incorporated by reference from the Form S-4 Registration Statement
filed with the Securities and Exchange Commission by Pall
Corporation on or about December 9, 1996 (Registration No. 333-17417).
(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.
(27) Financial Data Schedules
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fiscal quarter ended
October 31, 1996.
<PAGE> 12
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: December 13, 1996 /s/ Charles Gelman
-----------------------------------
Chairman of the Board
and Chief Executive Officer
Date: December 13, 1996 /s/ George Uveges
------------------------------------
Chief Financial Officer and
Vice President of Administration
<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 Flows
for the three months ended October 31, 1996 an the Consolidated Balance Sheet as
of October 31, 1996 and is qualified in its entirety by reference to such (b)
Form 10-Q for the first quarter ended October 31, 1996.
</LEGEND>
<CIK> 0000310252
<NAME> GELMAN SCIENCES INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jul-31-1997
<PERIOD-END> Oct-31-1996
<EXCHANGE-RATE> 1
<CASH> 8,787
<SECURITIES> 0
<RECEIVABLES> 27,445
<ALLOWANCES> 1,790
<INVENTORY> 11,037
<CURRENT-ASSETS> 50,086
<PP&E> 76,371
<DEPRECIATION> 42,135
<TOTAL-ASSETS> 86,372
<CURRENT-LIABILITIES> 12,122
<BONDS> 11,199
<COMMON> 803
0
0
<OTHER-SE> 62,248
<TOTAL-LIABILITY-AND-EQUITY> 86,372
<SALES> 28,335
<TOTAL-REVENUES> 28,335
<CGS> 15,265
<TOTAL-COSTS> 15,265
<OTHER-EXPENSES> 15,778
<LOSS-PROVISION> 77
<INTEREST-EXPENSE> 128
<INCOME-PRETAX> (2,913)
<INCOME-TAX> (37)
<INCOME-CONTINUING> (2,876)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,876)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
