<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 April 30, 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.
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(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 4, 1996, there were
7,946,340 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
Condensed Consolidated Balance Sheets
April 30, 1996 (Unaudited) and
July 31, 1995. . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Consolidated Statements of
Income (Unaudited) for the three and nine months ended
April 30, 1996 and 1995. . . . . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of
Cash Flows (Unaudited) for the nine months ended
April 30, 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 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 11
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
<PAGE> 3
GELMAN SCIENCES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
April 30, July 31,
1996 1995
------------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 7,010 $ 3,010
Accounts receivable, less allowances 26,476 23,985
Inventories:
Finished products 6,993 6,320
Work in process 1,439 1,572
Raw material and purchased parts 4,976 7,052
------------- -------------
13,408 14,944
Other current assets 4,897 4,988
------------- -------------
Total Current Assets 51,791 46,927
Property, Plant and Equipment 73,535 69,842
Less Allowances for Depreciation (39,952) (37,258)
------------- -------------
33,583 32,584
Intangibles and Other Assets 2,581 2,270
------------- -------------
Total Assets $ 87,955 $ 81,781
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 2,171 $ 1,368
Accounts payable 4,344 3,813
Accrued expenses 7,226 9,312
Current maturities of long-term debt 497 524
------------- -------------
Total Current Liabilities 14,238 15,017
Long-Term Debt, Exclusive of Current Maturities 5,056 5,493
Other Long-Term Liabilities 2,476 2,498
Stockholders' Equity:
Preferred stock, par value $1.00 per share
Common stock, par value $.10 per share 794 779
Additional capital 36,535 35,145
Retained earnings 30,125 23,714
Translation adjustments (969) (565)
Less loan to Employee Stock Ownership Plan (300) (300)
------------- -------------
Total Stockholders' Equity 66,185 58,773
------------- -------------
Total Liabilities and Stockholders' Equity $ 87,955 $ 81,781
============= ============
</TABLE>
See Notes To Unaudited Consolidated Financial Statements.
<PAGE> 4
GELMAN SCIENCES INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In Thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30, April 30,
------------------------- -----------------------
1996 1995 1996 1995
----------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 29,502 $ 26,893 $ 83,961 $ 75,078
Cost and Expenses:
Cost of products sold 14,143 12,825 40,957 36,408
Selling and administrative 10,494 9,528 29,200 26,848
Research and development 1,643 1,366 4,598 3,990
Other income - net (229) (241) (273) (363)
----------- ---------- ---------- ---------
Operating Earnings 3,451 3,415 9,479 8,195
Interest Expense 142 311 447 1,193
----------- ---------- ---------- ---------
Earnings Before Income Taxes 3,309 3,104 9,032 7,002
Provision For Income Taxes 676 1,133 2,621 2,544
----------- ---------- ---------- ---------
Net Earnings $ 2,633 $ 1,971 $ 6,411 $ 4,458
=========== ========== ========== =========
Primary Earnings Per Share $ .32 $ .26 $ .78 $ .64
=========== ========== ========== =========
Weighted Average Common and
Common Equivalent Shares Outstanding 8,323 7,587 8,238 6,927
=========== ========== ========== =========
</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>
Nine Months Ended
April 30,
----------- ----------
1996 1995
----------- ----------
<S> <C> <C>
Operating Activities
Net earnings $ 6,411 $ 4,458
Loss on disposal of assets - 54
Depreciation and amortization 3,315 3,288
(Increase) decrease in inventories 1,238 (1,228)
Increase in accounts receivable (2,833) (3,867)
(Increase) decrease in other current assets 28 (948)
Increase (decrease) in current liabilities (219) 927
Decrease in liabilities for environmental activities (326) (515)
Other 271 92
----------- ----------
Net Cash Provided by Operating Activities 7,885 2,261
Financing Activities
Net proceeds from issuance of common stock - 19,424
Long-term debt borrowings 685 22,353
Principal payments on long-term debt (1,109) (38,480)
Tax benefit from exercised stock options 557 394
Proceeds from exercised stock options 792 682
----------- ----------
Net Cash Provided by Financing Activities 925 4,373
Investment Activities
Capital expenditures (4,308) (5,536)
Proceeds from sale of assets 2 25
Increase in intangibles and other assets (360) (143)
----------- ----------
Net Cash Used in Investment Activities (4,666) (5,654)
Effects of Exchange Rate Changes on Cash (144) (231)
----------- ----------
Net change in cash and cash equivalents during the period 4,000 749
Cash and cash equivalents at beginning of period 3,010 1,525
----------- ----------
Cash and cash equivalents at end of period $ 7,010 $ 2,274
=========== ==========
</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 April 30, 1996, and the
results of their operations and cash flows for the three and nine months
ended April 30, 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 nine months ended April 30,
1996 and 1995 are not necessarily indicative of the results that might
occur for 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 $415,000 at
April 30, 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.
Income Taxes
During the quarter, the Company undertook an examination of research
and development expense for the current and prior years for the purpose of
reflecting an accurate research and development tax credit consistent with
actual business activities. The result of the study has been reflected in
income tax expense for the third quarter, resulting in a 5% reduction in
the overall 34% effective tax rate for the nine months ended April 30,
1996.
<PAGE> 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Comparison of Nine months ended April 30, 1996 and 1995
Net sales for the nine months ended April 30, 1996 increased by $8.9
million or 12% to $84.0 million as compared to net sales of $75.1 million
for the nine months ended April 30, 1995. The increase was primarily the
result of strong European sales led by a 44% increase in sales of medical
device products.
Overall, sales to customers in Europe increased 25% due mainly to
increases in sales of medical device products used in intravenous therapy.
Sales growth in the Asia/Pacific region declined slightly due to lower
sales of laboratory products in the Japanese market combined with a
negative sales impact, in the third quarter relating to currency
fluctuations in the yen. Sales to customers in the Americas increased 9%
over the same period of the prior fiscal year. Overall growth in the
Americas was slowed as sales of laboratory products increased 2% compared
to the same period of fiscal 1995. This was due primarily to distributor
inventory reductions during the Company's second fiscal quarter. The
inventory reductions resulted from the consolidation of distributors
through which the Company sells its laboratory products.
Worldwide sales in the laboratory market increased 4%. As described
above, the slow growth in the sale of laboratory products was the result of
distributor inventory reduction programs in the Americas during the
Company's second fiscal quarter. Sales of process filtration products
improved 17% over the prior fiscal year, sales of medical devices improved
22% and sales of microporous membrane improved 15%.
Gross profit increased $4.3 million or 11% to $43.0 million in the
nine months ended April 30, 1996, as compared to $38.7 million in the nine
months ended April 30, 1995. As a percentage of net sales, gross profit
declined slightly from 51.5% to 51.2%. The decline in gross margin
reflects a change in product mix compared to the first nine months of last
fiscal year. The combination of strong growth in the sales of 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 $2.4 million or 9%
to $29.2 million in the nine months ended April 30, 1996, compared to $26.8
million in the nine months ended April 30, 1995. As a percentage of sales,
selling and administrative expenses declined from 35.8% to 34.8% reflecting
lower levels of certain accruals relating to management incentive programs
during the first half of the year.
Interest expense declined $746,000 due to the repayment of
outstanding indebtedness in the third quarter of fiscal 1995 with the
proceeds from the public offering of the Company's common stock.
The effective tax rate for the nine months ended April 30, 1996 was
29% compared to 36% for the same period in fiscal 1995. As more fully
described in Notes To Unaudited Consolidated Financial Statements, the
change in the effective tax rate to 29% reflects a 5% reduction from the
overall 34% effective rate for this fiscal year. That reduction is the
result of a research and development expense examination undertaken during
the third quarter for the purpose of reflecting an accurate research and
development tax credit consistent with actual business activities.
Net earnings increased $1.9 million or 44% to $6.4 million or $.78
per share for the nine months ended April 30, 1996, compared to $4.5
million or $.64 per share for the nine months ended April 30, 1995. The
increase in the weighted average shares from 6,927,000 to 8,238,000
reflects the effect of the secondary public offering in the third quarter
of last fiscal year. As a percentage of sales, net earnings increased to
7.6% from 5.9%.
Comparison of Three Months ended April 30, 1996 and 1995
Net sales for the third quarter ended April 30, 1996 increased 10% to
$29.5 million as compared to net sales of $26.9 million for the quarter
ended April 30, 1995. The increase was due to strong European sales of
medical devices and process products. Foreign currency fluctuations
negatively impacted overall sales by 1% during the quarter as compared to
the same quarter of last fiscal year.
Overall, sales to customers in Europe increased 23% as laboratory,
process products and medical devices each showed strong growth. Sales to
customers in Asia/Pacific declined 9%. The stronger dollar compared to the
yen plus lower sales levels of laboratory products were the main reasons
for the decline. Sales to customers in the Americas increased 9% over the
same period of the prior fiscal year. Laboratory products increased 6% as
sales began to recover from the distributor inventory reduction programs
which took place during the Company's second fiscal quarter when sales to
distributors decreased 6%.
<PAGE> 9
Worldwide sales for laboratory products increased 7% as compared to
the third quarter of last fiscal year. Medical device sales increased 12%,
process filtration sales increased 14% and sales of microporous membrane
increased 10% in each case as compared to the third quarter of the prior
fiscal year.
Gross margins for the third quarter of fiscal 1996 and 1995 were
52.1% and 52.3%, respectively. This represents an improvement over the
first half of this fiscal year as product mix has become more favorable.
However, the margin was below the third quarter of last fiscal year as the
overall mix of products sold remains slightly unfavorable.
Interest expense decreased $169,000 due to the repayment of
outstanding indebtedness late in the third quarter of fiscal 1995. The
effective tax rate for the third quarter was 20% compared to 36.5% for the
same period in fiscal 1995. This reflects the research and development tax
credit recorded during the quarter as more fully described in Notes To
Unaudited Consolidated Financial Statements.
Net earnings for the third quarter ended April 30, 1996 increased 34%
to $2.6 million or $.32 per share, as compared with $2.0 million or $.26
per share for the third quarter ended April 30, 1995.
Liquidity and Capital Resources
The Company generated cash from operations of $7.9 million for the
nine months ended April 30, 1996 compared to $2.3 million for the same
period last fiscal year. The Company used $4.3 million to fund capital
expenditures and increased its cash reserves by $4.0 million. Working
capital at April 30, 1996 was $37.5 million compared to $31.9 million at
July 31,1995. The increased working capital was due mainly to the
additional cash reserves. At April 30, 1996, the Company's unused portion
of its line of credit under the revolving credit agreement was $15.0
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.
<PAGE> 11
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, 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
April 30, 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: June 12, 1996 /s/ Kim A. Davis
---------------------------------
Kim A. Davis, President
and Chief Operating Officer
Date: June 12, 1996 /s/ George Uveges
--------------------------------------
George Uveges, Chief Financial Officer
and Vice President of Administration
Exhibit 11
Computation of Earnings Per Common Share
Primary and Fully Diluted
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
April 30 April 30
-------------------------- ---------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income for computing primary and fully diluted
earnings per common share $ 2,633,000 $ 1,971,000 $ 6,411,000 $ 4,458,000
Primary shares
Weighted average number of common shares outstanding 7,932,010 7,211,448 7,866,882 6,519,800
Additions from assumed exercise of stock options and warrants 390,838 375,919 370,955 407,171
---------- ---------- ---------- ----------
Weighted average of common and common equivalent shares 8,322,848 7,587,367 8,237,837 6,926,971
========== ========== ========== ==========
Fully diluted shares
Weighted average number of common shares outstanding 7,932,010 7,211,448 7,866,882 6,519,800
Additions from assumed exercise of stock options and warrants 407,226 418,442 407,226 421,345
---------- ---------- ---------- ----------
Weighted average of common and common equivalent shares 8,339,236 7,629,890 8,274,108 6,941,145
========== ========== ========== ==========
Net income per common share
Primary $0.32 $0.26 $0.78 $0.64
========== ========== ========== ==========
Fully diluted $0.32 $0.26 $0.78 $0.64
========== ========== ========== ==========
</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 nine months ended April 30, 1996 an the Consolidated Balance Sheet as
of April 30, 1996 and is qualified in its entirety by reference to such (b)
Form 10-Q for the third quarter ended April 30, 1996.
</LEGEND>
<CIK> 0000310252
<NAME> GELMAN SCIENCES INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> APR-30-1996
<EXCHANGE-RATE> 1
<CASH> 7,010
<SECURITIES> 0
<RECEIVABLES> 27,864
<ALLOWANCES> 1,388
<INVENTORY> 13,408
<CURRENT-ASSETS> 51,791
<PP&E> 73,535
<DEPRECIATION> 39,952
<TOTAL-ASSETS> 87,955
<CURRENT-LIABILITIES> 14,238
<BONDS> 7,532
<COMMON> 794
0
0
<OTHER-SE> 65,391
<TOTAL-LIABILITY-AND-EQUITY> 87,955
<SALES> 83,961
<TOTAL-REVENUES> 83,961
<CGS> 40,957
<TOTAL-COSTS> 40,957
<OTHER-EXPENSES> 33,361
<LOSS-PROVISION> 164
<INTEREST-EXPENSE> 447
<INCOME-PRETAX> 9,032
<INCOME-TAX> 2,621
<INCOME-CONTINUING> 6,411
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,411
<EPS-PRIMARY> 0.78
<EPS-DILUTED> 0.78
</TABLE>
