<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 EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 27, 1996
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-21838
INDUSTRIAL SCIENTIFIC CORPORATION
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1481281
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1001 Oakdale Road, Oakdale, PA 15071
(Address of principal executive offices)
412-788-4353
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class - Common Stock, par value $.01
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 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
As of June 6, 1996, there were 3,375,087 shares of Common Stock, par value $.01
per share of the Registrant's common stock outstanding.
<PAGE>
INDUSTRIAL SCIENTIFIC CORPORATION AND SUBSIDIARIES
INDEX
-----
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Condensed Consolidated Balance Sheet -
April 27, 1996 and January 27, 1996. 3
Condensed Consolidated Statement of Income -
Three months ended April 27, 1996 and
April 29, 1995. 4
Condensed Consolidated Statement of Cash Flows -
Three months ended April 27, 1996 and April 29, 1995. 5
Notes to Condensed Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition. 8
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K. 10
2
<PAGE>
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
INDUSTRIAL SCIENTIFIC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except share data)
<TABLE>
<CAPTION>
April 27, January 27,
1996 1996
--------- ----------
(Unaudited) **
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $7,051 $7,485
Short-term investments 7,827 7,816
--------- ----------
14,878 15,301
Accounts receivable, net 4,767 4,395
Inventories 3,486 3,504
Prepaid expenses and other assets 286 311
Deferred income taxes 252 252
--------- ----------
Total current assets 23,669 23,763
Long-term investments 2,775 929
Property, plant, and equipment, at cost 13,155 12,943
Less accumulated depreciation and amortization 5,125 4,745
--------- ----------
8,030 8,198
Land 390 390
Equity investment 218 --
Intangible assets, net 2,117 2,199
--------- ----------
Total assets $37,199 $35,479
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $1,622 $1,260
Accrued payroll and related items 1,025 711
Accrued warranty expenses 274 299
Income taxes payable 611 304
Current portion of term debt 396 613
--------- ----------
Total current liabilities 3,928 3,187
Term debt 4,371 4,512
Deferred income taxes 209 209
--------- ----------
Total liabilities 8,508 7,908
Shareholders' equity:
Preferred stock, without par value; authorized
1,000,000 shares; none issued -- --
Common stock, $.01 par value; authorized 15,000,000
shares; issued and outstanding 3,375,087 shares
at 4/27/96 and at 1/27/96 34 34
Additional paid-in capital 5,471 5,471
Retained earnings 23,186 22,066
--------- ----------
Total shareholders' equity 28,691 27,571
--------- ----------
Total liabilities and shareholders' equity $37,199 $35,479
========= ==========
</TABLE>
** - Summarized from audited January 27, 1996 balance sheet.
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
INDUSTRIAL SCIENTIFIC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Unaudited, in thousands except share data)
<TABLE>
<CAPTION>
For the three months ended
April 27, April 29,
1996 1995
--------- --------
<S> <C> <C>
Net sales $9,361 $8,858
Cost of goods sold 4,286 4,142
--------- ---------
Gross profit 5,075 4,716
Operating expenses:
Selling 1,822 1,657
Research, development and
engineering 903 600
Administrative 779 826
--------- ---------
Total operating expenses 3,504 3,083
--------- ---------
Operating profit 1,571 1,633
Interest income 190 219
Other expense, net (64) (61)
--------- ---------
Income before income taxes 1,697 1,791
Provision for income taxes 577 650
--------- ---------
Net income $1,120 $1,141
========= =========
Net income per common share $0.33 $0.34
========= =========
Weighted average number of common and
common equivalent shares
outstanding 3,381,000 3,384,000
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
INDUSTRIAL SCIENTIFIC CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
For the three months ended
April 27, April 29,
1996 1995
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,120 $1,141
Depreciation, amortization and other non-cash items 479 305
Changes in operating assets and liabilities 632 130
---------- ----------
Net cash provided by operating activities 2,231 1,576
Cash flows from investing activities:
Purchase of short-term investments (3,212) (6,159)
Purchase of long-term investments (1,846) (446)
Proceeds from maturities of short-term investments 3,231 2,500
Capital expenditures (212) (301)
Purchase of equity investment (267) --
---------- ----------
Net cash used in investing activities (2,306) (4,406)
Cash flows from financing activities:
Principal payments on debt (359) (355)
---------- ----------
Net cash used in financing activities (359) (355)
Net decrease in cash and cash equivalents (434) (3,185)
Cash and cash equivalents at beginning of period 7,485 8,118
---------- ----------
Cash and cash equivalents at end of period $7,051 $4,933
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
INDUSTRIAL SCIENTIFIC CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Management's Discussion and Analysis of Results of Operations and
Financial Condition which follows these notes contains additional
information on the results of operations and the financial position
of the Company. These comments should be read in conjunction with
the notes.
(2) In the opinion of management, all adjustments, (consisting only of
normal and recurring adjustments), necessary for a fair presentation
of the results of the operations of these interim periods have been
included.
(3) The Company's investments are in investment grade debt securities that
it has the positive intent and ability to hold to maturity and are
carried at amortized cost. These investments in debt securities
exceeded market value by approximately $32,000 and $22,000 at April
27, 1996 and April 29, 1995 respectively.
(4) Inventories consisted of:
<TABLE>
<CAPTION>
April 27, January 27,
1996 1996
-------- ---------
(in thousands)
<S> <C> <C>
At standard costs, which approximate
first-in, first-out cost:
Raw materials $2,623 $2,952
Work in process 637 367
Finished goods 356 315
------ ------
3,616 3,634
Less LIFO reserves 130 130
------ ------
Inventories at LIFO value $3,486 $3,504
====== ======
</TABLE>
continued
6
<PAGE>
(5) The effective tax rate of 34.0% for the three months ended April 27,
1996 is based upon an estimate of the effective rate for the year
ended January 25, 1997. The principal difference between the effective
tax rate and the federal statutory rate is the effect of foreign sales
corporation benefits, non-taxable interest benefits and research and
development tax credits, offset by the effect of state and local
income taxes.
(6) Effective January 28, 1996, the Company adopted Statement of Financial
Accounting Standard (SFAS) No. 121 "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of" which had
no material effect on the Company's financial statements.
7
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
The following discussion should be read in conjunction with the attached
unaudited condensed consolidated financial statements and notes thereto for the
periods ended April 27, 1996 and April 29, 1995 and with the Company's audited
financial statements and notes thereto for the fiscal year ended January 27,
1996.
Results of Operations
Quarter ended April 27, 1996 Compared to Quarter ended April 29, 1995
Net sales for the quarter ended April 27, 1996 ("first quarter 1996") were $9.4
million, an increase of $503,000 or 5.7% over net sales of $8.9 million for the
quarter ended April 29, 1995 (" first quarter 1995"). The increase resulted from
increased international sales, principally to the Middle East, due to increased
marketing efforts including the formation of Industrial Scientific Arabia Ltd.,
which were partially offset by selective price discounting in competitive
situations. Sales of repair services also increased over the prior year quarter.
Gross profit increased by $359,000 to $5.1 million or 54.2% of net sales for the
first quarter 1996 compared to $4.7 million or 53.2% of net sales for the first
quarter 1995. Selective price discounting in competitive situations was more
than offset by increased manufacturing efficiencies relating to the higher sales
volume and increased sales of replacement parts which typically generate a
higher margin than sales of new instruments.
Operating expenses increased $421,000 or 13.7% to $3.5 million for the first
quarter 1996 compared to $3.1 million for the first quarter 1995. Selling
expenses increased due to intensive marketing efforts to establish an
international sales and distribution network for the Company's products.
Engineering, research and development expense increased due to costs incurred in
the commercial development of the MG2100 portable mass spectrometer and new
product development efforts in portable gas monitoring instruments.
Administrative expenses declined due to a reduction in the provision for Company
contribution to the profit sharing plan, partially offset by modest increases in
other administrative expense.
Interest income declined for the first quarter 1996 compared to the first
quarter 1995 due to a higher portion of investments in tax free instruments.
Other expense increased slightly as lower interest expense caused by reduced
outstanding debt balances was offset by other non-operating expenses.
8
<PAGE>
The effective tax rate for the first quarter 1996 was 34.0% compared to 36.3%
for the first quarter 1995. Increased research and experimentation tax credit
and non-taxable interest income principally account for this change.
Net income for the first quarter 1996 totaled $1.1 million or $0.33 per share,
relatively unchanged compared to net income of $1.1 million or $0.34 per share
for the first quarter 1995.
Liquidity and Capital Resources
Cash flow from operations totaled $2.2 million for the first quarter 1996
compared to $1.6 million for the first quarter 1995. This increase of $655,000
is primarily due to increased depreciation and amortization and positive changes
in operating asset and liability accounts.
Capital expenditures totaled $212,000 for the first quarter 1996 compared to
$301,000 for the first quarter 1995. Expenditures for the first quarter 1996
principally consisted of production tooling and computer hardware and software
to support manufacturing and new product development. During the first quarter
1996 the Company invested $267,000 in Industrial Scientific Arabia Limited, a
joint venture with a Saudi Arabian partner.
Working capital totaled $19.7 million as of April 27, 1996 compared to $20.6
million as of January 27, 1996. The Company believes that its cash flow and
capital structure provide adequate flexibility for the growth of its operations
and the funding of capital spending programs.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Nothing to report under this item.
ITEM 2. CHANGES IN SECURITIES
Nothing to report under this item.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Nothing to report under this item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
27.0 Finnacial Data Schedule Filed herewith.
99.01 Press release introducing MG2100
Portable Mass Spectrometer dated
March 1, 1996. Filed herewith.
99.02 Press release regarding first quarter
earnings dated May 16, 1996. Filed herewith.
(b) Reports on Form 8-K.
None.
10
<PAGE>
SIGNATURE
Pursuant to the requirements 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.
Industrial Scientific Corporation
(Registrant)
Date: June 7, 1996
By :
-----------------------------
James P. Hart
Vice-President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer and an authorized signatory)
11
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Sequential Page Number
Exhibit No. or Reference
----------- ------------
<S> <C> <C>
27.0 Financial Data Schedule Filed herewith at page 13.
99.01 Press release introducing MG2100 Portable
Mass Spectrometer dated March 1, 1996. Filed herewith at page 14.
99.02 Press release regarding first quarter
earnings dated May 16, 1996. Filed herewith at page 16.
</TABLE>
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial information extracted from the
Company's unaudited condensed consolidated financial statements for the period
ended April 27, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-25-1997
<PERIOD-START> JAN-28-1996
<PERIOD-END> APR-27-1996
<CASH> 7,050,972
<SECURITIES> 7,826,810
<RECEIVABLES> 4,806,757
<ALLOWANCES> 40,000
<INVENTORY> 3,486,271
<CURRENT-ASSETS> 23,669,322
<PP&E> 13,155,161
<DEPRECIATION> 5,125,173
<TOTAL-ASSETS> 37,198,767
<CURRENT-LIABILITIES> 3,927,934
<BONDS> 4,371,000
0
0
<COMMON> 33,751
<OTHER-SE> 28,656,856
<TOTAL-LIABILITY-AND-EQUITY> 37,198,767
<SALES> 9,360,984
<TOTAL-REVENUES> 9,360,984
<CGS> 4,286,411
<TOTAL-COSTS> 7,790,238
<OTHER-EXPENSES> 17,150
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 47,213
<INCOME-PRETAX> 1,696,637
<INCOME-TAX> 577,000
<INCOME-CONTINUING> 1,119,637
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,119,637
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
<PAGE>
EXHIBIT 99.01
INDUSTRIAL SCIENTIFIC NEWS RELEASE
- --------------------------------------------------------------------------------
CORPORATION 1001 Oakdale Road Phone 412-788-4353
Oakdale, PA 15071-1500 1-800-DETECTS (338-3287)
USA Fax 412-788-8353
Date: March 1, 1996
For More information: Anthony Duryea 412/265-1212
INDUSTRIAL SCIENTIFIC CORPORATION INTRODUCES
MG2100 PORTABLE MASS SPECTROMETER
Patented Technology Brings Mass Spectrometry to
New Industries and Applications
PITTSBURGH, PA -- Industrial Scientific Corporation introduces the MG2100
Portable Mass Spectrometer, designed for any application where on-site, real
time, multiple compound monitoring is required. Immediate applications include
environmental testing, process control, product or by-product analysis,
industrial hygiene, safety, and investigative analysis. The MG2100 is ideal for
universities where easy portability between the lab and class room is desired.
Mass spectrometry is one of the most trusted analytical techniques for
identification and structural anaylsis of molecular compouds. Until now, the
technology has been traditionally limited to well equipped, analytical
laboratories because of size and delicate analyzer components. Utilizing
Industrial Scientific's patented technology, however, the MG2100 delivers mass
spectrometry performance in a rugged package that weighs just 35 pounds and
measures 9 in. x 13 in. x 23 in. This compact size enables the instrument to be
taken out of the laboratory and used for on-site analysis in applications where
on-site mass spectrometry was previously considered unrealistic, such as
remediation sites or other field locations. The patented magnetic cycloidal
analyzer is inherently less motion and orientation sensitive than other mass
spectrometry techniques, thus having the ruggedness to withstand use in the
field.
Despite its small size, the MG2100 is completely self-contained, featuring the
inlet system, electron impact (EI) ionizer, mass analyzer, detector, built-in
computer and analytical software, vacuum system and digital readout. Unlike many
existing mass spectrometers, the MG2100 maintains a constant vacuum allowing for
instantaneous and continous start-up and analysis of gases and liquids. The unit
needs only to be turned on to begin sampling and analysis. The MG2100 instantly
starts continous, real-time monitoring of the gases or liquids being sampled
without waiting hours to pump down a vacuum system. A built-in 386
microprocessor, operating with Industrial Scientific's software program,
simplifies the analytical process by identifying key elements and compounds
found within the sample. In addition, the microprocessor writes and stores all
observed data to a built-in hard drive. This information can then be easily
downloaded via the RS232 port to any external computer.
O U R M I S S I O N
[ ISO9001 ] Design-Manufacture-Sell: Highest quality products
|-------- | for the preservation of human life
[CERTIFIED] Provide: Best customer service available
<PAGE>
The MG2100 is offered with a standard mass range of 8-200 atomic mass units
(amu) with an optional higher mass range available with unit mass resolution.
The instrument can analyze either gas or liquid, and features a patented
magnetic cycloidal double focusing analyzer.
The MG2100 can be equipped with an optional rechargeable battery pack that
operates the entire instrument up to four hours in locations where AC power is
not available. Instantaneous on-site analysis eliminates the risk of sample
contamination, deterioration or mix-up as can happen when transporting bagged
samples to a remote analytical laboratory.
The unit's low cost - less than half the price of even low-end laboratory mass
spectrometers -combined with portability, makes the MG2100 a revolutionary,
cost-effective solution for many industries previously excluded from mass
spectrometry.
Industrial Scientific designs. manufactures and sells gas monitoring
instruments, systems, and other technical products used worldwide for the
preservation of human life and property. The Company is certified under the
internationally recognized IS09001 Quality Standards and has operating companies
located in Saudi Arabia and Australia.
The MG2100 is Industrial Scientific's first instrument to be introduced since
the Company purchased the assets of Monitor Group, Inc., a privately owned
developer of portable mass spectrometers located in Pittsburgh, Pennsylvania.
The introduction of the MG2100 at Pittcon 96 in Chicago represents an expansion
of Industrial Scientific's scope of activities into the environmental, process
control and other markets. For more information, please call 1-800-DETECTS.
###
<PAGE>
EXHIBIT 99.02
INDUSTRIAL SCIENTIFIC
- --------------------------------------------------------------------------------
CORPORATION 1001 Oakdale Road Phone 412-788-4353
Oakdale, PA 15071-1500 1-800-DETECTS (338-3287)
USA Fax 412-788-8353
Date: May 16, 1996
Release: Immediately
Contact: James P. Hart, Vice President Finance
Chief Financial Officer
412-788-4353
INDUSTRIAL SCIENTIFIC CORPORATION
ANNOUNCES FISCAL YEAR 1996 FIRST QUARTER RESULTS
PITTSBURGH, PA -- May 16, 1996 -- Industrial Scientific Corporation (NASDAQ/NMS
symbol:ISCX) today reported record sales for the first quarter ended April 27,
1996. Sales totaled $9,361,000, an increase of $503,000 or 5.7% over first
quarter sales in fiscal 1995 of $8,858,000, which was the previous high for the
Company. Sales for the quarter increased $916,000 or 10.8% over sales for the
fourth quarter of fiscal 1995. Net income for the quarter totaled $1,120,000
($0.33 per share), virtually even with net income for the first quarter 1995 of
$1,141,000 ($0.34 per share).
Kent D. McElhattan, President and CEO stated, "Increased sales for the first
quarter resulted from the strategic initiative we made in 1994 to increase
selling efforts internationally. We are beginning to see positive results from
intensive and expensive investments made over the last eighteen months to
establish Industrial Scientific as a worldwide supplier. I am pleased with net
income at 12.0% of sales, given the substantial expenses incurred in new product
development efforts, including the MG2100 Portable Mass Spectrometer. Industrial
Scientific is committed to making these necessary investments to expand product
offerings, increase market participation and deliver cost-effective solutions to
customers."
Headquartered in Oakdale, Pennsylvania, Industrial Scientific Corporation
designs, manufactures and sells portable gas monitoring instruments and other
technical products for the preservation of life and property.
O U R M I S S I O N
[ ISO9001 ] Design-Manufacture-Sell: Highest quality products
|-------- | for the preservation of human life
[CERTIFIED] Provide: Best customer service available
<PAGE>
INDUSTRIAL SCIENTIFIC CORPORATION AND SUBSIDIARIES
Condensed Statement of Operations
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
4/27/96 4/29/95
<S> <C> <C>
Net Sales $9,361 $8,858
Gross Profit 5,075 4,716
Operating Profit 1,571 1,633
Net Income 1,120 1,141
Net income per
common share $0.33 $0.34
Weighted average number
of common and common
equivalent shares outstanding 3,381 3,384
</TABLE>
