<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MAY 2, 1998
[ ] 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) Zip Code
(Registrant's telephone number, including area code): 412-788-4353
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 15, 1998, there were 3,377,987 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 -
May 2, 1998 and January 31, 1998. 3
Condensed Consolidated Statement of Income -
Three months ended May 2, 1998 and May 3, 1997. 4
Condensed Consolidated Statement of Cash Flows -
Three months ended May 2, 1998 and May 3, 1997. 5
Notes to Condensed Consolidated Financial Statements. 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition. 8
Item 3. Quantitative and Qualitative Disclosure about
market risk sensitive Instruments. 10
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>
May 2, January 31,
1998 1998
----------- -----------
(Unaudited) **
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $4,128 $3,244
Short-term investments 12,232 13,368
----------- -----------
16,360 16,612
Accounts receivable, net 6,320 5,949
Inventories 4,462 3,887
Prepaid expenses and other assets 613 828
Deferred income taxes 488 481
----------- -----------
Total current assets 28,243 27,757
Long-term investments 8,374 7,309
Property, plant, and equipment, at cost 15,146 14,925
Less accumulated depreciation and amortization 7,962 7,591
----------- -----------
7,184 7,334
Land 390 390
Intangible assets, net 219 233
Other assets 1,213 858
----------- -----------
Total assets $45,623 $43,881
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $2,486 $1,445
Accrued payroll and related items 814 1,977
Accrued warranty expenses 708 662
Income taxes payable 507 ---
Current portion of term debt 375 375
----------- -----------
Total current liabilities 4,890 4,459
Term debt 3,620 3,663
Deferred income taxes 191 167
----------- -----------
Total liabilities 8,701 8,289
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 3,377,987 shares and
3,376,307 at 5/2/98 and at 1/31/98 34 34
Additional paid-in capital 5,494 5,492
Retained earnings 33,444 31,793
Dividends paid (574) (405)
Treasury stock, 79,100 shares at 5/2/98 and
72,400 shares at 1/31/98, at cost (1,476) (1,322)
----------- -----------
Total shareholders' equity 36,922 35,592
----------- -----------
Total liabilities and shareholders' equity $45,623 $43,881
=========== ===========
</TABLE>
** - Summarized from audited January 31, 1998 balance sheet.
The accompanying notes are an integral part of the condensed 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
May 2, May 3,
1998 1997
---------- ----------
(13 weeks) (14 weeks)
<S> <C> <C>
Net sales $11,396 $10,952
Cost of goods sold 4,900 4,763
---------- ----------
Gross profit 6,496 6,189
Operating expenses:
Selling 2,565 2,493
Research, development and
engineering 832 777
Administrative 847 974
---------- ----------
Total operating expenses 4,244 4,244
---------- ----------
Operating profit 2,252 1,945
Interest income 255 216
Interest expense (41) (39)
Other income (expense) 5 3
---------- ----------
Income before income taxes 2,471 2,125
Provision for income taxes 820 744
---------- ----------
Net income $1,651 $1,381
========== ==========
Net income per basic common share:
Basic earnings per share $0.50 $0.41
Weighted average shares - basic 3,299 3,363
Net income per diluted common share:
Diluted earnings per share $0.50 $0.41
Weighted average shares - diluted 3,318 3,363
</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
May 2, May 3,
1998 1997
------------ ------------
(13 weeks) (14 weeks)
<S> <C> <C>
Cash flows from operating activities:
Net income $1,651 $1,381
Depreciation, amortization and other non-cash items 385 343
Changes in operating assets and liabilities (283) (17)
------------ ------------
Net cash provided by operating activities 1,753 1,707
Cash flows from investing activities:
Capital expenditures (220) (426)
Increase in equity investment (5) ---
Proceeds from maturities of investments (2,312) 3,000
Purchase of investments 2,383 (5,436)
Purchase of officer's life insurance (350) ---
------------ ------------
Net cash used in investing activities (504) (2,862)
Cash flows from financing activities:
Purchase of treasury stock (154) (60)
Proceeds from exercise of stock options 2 ---
Principal payments on debt (44) (143)
Dividends paid (169) ---
------------ ------------
Net cash used in financing activities (365) (203)
Net increase (decrease) in cash and cash equivalents 884 (1,358)
Cash and cash equivalents at beginning of period 3,244 6,879
------------ ------------
Cash and cash equivalents at end of period $4,128 $5,521
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
INDUSTRIAL SCIENTIFIC CORPORATION AND SUBSIDIARIES
NOTES TO 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 $81,000 and $55,000 at May 2,
1998 and May 3, 1997, respectively.
(4) Inventories consisted of:
May 2, January 31,
1998 1998
(in thousands)
______ ______
At standard costs, which approximate
first-in, first-out cost:
Raw materials $3,659 $3,314
Work in process 578 423
Finished goods 375 300
------ ------
4,612 4,037
Less LIFO reserves 150 150
------ ------
Inventories at LIFO value $4,462 $3,887
====== ======
continued
6
<PAGE>
(5) The effective tax rate of 33.2% for the three months ended May 2, 1998
is based upon an estimate of the effective rate for the year ended
January 31, 1998. The principal difference between the effective tax
rate and the federal statutory rate is the effect of foreign sales
corporation benefits, research and experimentation credits, and non-
taxable interest benefits, offset by the effect of state and local
income taxes.
(6) The Company has initiated a review to ensure that its information
systems can properly handle data which include year 2000 dates. All of
the Company's major software systems have been certif ied by their
manufacturer to be year 2000 compliant. The Company believes that no
significant modifications or replacement of these systems will be
necessary. Management does not expect the cost of this review or any
resulting replacement or modification of information systems will have
a material adverse effect on the financial position, results of
operations or liquidity of the Company.
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 May 2, 1998, and May 3, 1997, and with the Company's audited
financial statements and notes thereto for the fiscal year ended January 31,
1998.
Certain statements made herein may be considered forward-looking. These
statements represent the Company's reasonable judgment and expectations
and are subject to risks and uncertainties, including the risk factors listed
in the Company's 10-K for fiscal year 1997, that could cause actual results
to differ materially from these statements.
Results of Operations
Quarter ended May 2, 1998 Compared to Quarter ended May 3, 1997
Net sales for the quarter ended May 2, 1998 ("first quarter 1998") which
included 13 weeks, totaled $11.4 million, an increase of $444,000, compared to
net sales of $11.0 million for the quarter ended May 3, 1997 ("first quarter
1997") which included 14 weeks. Net sales increased 12.1% for the first quarter
1998 compared to the first quarter 1997 adjusted for the difference in the
number of weeks included in each quarter. Sales of the newly introduced ATX
series of portable multi-gas instruments and the T-80 portable single gas
instrument combined with increased repair and rental services revenue and
increased fixed system sales account for this increase.
Gross profit increased by $307,000 to $6.5 million or 57.0% of net sales for the
first quarter 1998 compared to $6.2 million or 56.5% of net sales for the first
quarter 1997. On a comparable number of weeks basis, gross profit increased
13.1%, in line with the increase in net sales. Increased rental services and
sales of spare parts which earn a higher than average gross profit percentage
and improved operating efficiency resulting from continuing capital investments
in labor saving manufacturing equipment principally accounts for the increase.
Operating expenses totaled $4.2 million for the first quarter 1998, compared to
the same $4.2 million for the first quarter 1997 as increased selling and
research, development and engineering expense were offset by a reduction in
administrative expense. On a comparable number of weeks basis operating
expenses increased 7.7%. Selling expense increased $72,000 or 2.9% resulting
from increased marketing of fixed systems products and continuing efforts to
establish an international sales and distribution network. Research,
development and engineering expense increased $55,000 or 7.1% due to continuing
increased new product development in both portable and fixed monitoring product
lines. Administrative expense decreased $127,000 or 13.0% primarily due to
reduced professional service expense and insurance expense.
Interest income increased $39,000 in the first quarter 1998 due to generally
higher invested cash balances and modestly higher interest rates. Interest
expense increased slightly due to
8
<PAGE>
higher interest rates, partially offset by reduced debt balances resulting from
principal payments on outstanding loans. Other income totaled $5,000 which is
the Company's portion of operating results of two joint ventures in which it
participates, Industrial Scientific Arabia Ltd., and HEG Industrial Scientific
Limited.
The effective tax rate for the first quarter 1998 was 33.2% compared to 35.0%
for the first quarter 1997. Increased tax free interest income, foreign sales
tax credit and increased utilization of the research and experimentation tax
credit principally account for the difference. The first quarter 1998 rate is
consistent with the effective rate for fiscal year 1997.
Net income for the first quarter 1998 totaled $1.7 million or $0.50 per share
compared to $1.4 million $0.41 per share for the first quarter 1997. Net income
increased 28.8% when adjusted for the difference in the number of weeks in each
quarter.
Liquidity and Capital Resources
Cash flow from operations totaled $1.8 million for the first quarter 1998
virtually even with $1.7 million for the first quarter 1997. Higher net income
and non-cash expenses were partially offset by increased investment in operating
assets and liabilities.
Capital expenditures totaled $220,000 for the first quarter 1998 compared to
$426,000 for the first quarter 1997. First quarter 1998 capital expenditures
consisted primarily of production tooling and other fixed assets relating to new
product introductions and computer purchases relating to an automated sales lead
tracking system. Capital expenditures are expected to increase from the first
quarter level through the balance of fiscal year 1998.
Dividends paid during the first quarter 1998 totaled $169,000 and the Company
continued the previously announced repurchase of Industrial Scientific stock and
acquired 6,700 shares at a total cost of $154,000.
Working capital totaled $23.4 million as of May 2, 1998 compared to $23.3
million as of January 31, 1998. 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.
YEAR 2000
The Company has initiated a review to ensure that its information systems can
properly handle data which include year 2000 dates. All of the Company's major
software systems have been certified by their manufacturer to be year 2000
compliant. The Company believes that no significant modifications or replacement
of these systems will be necessary. Management does not expect the cost of this
review or any resulting replacement or modification of information systems will
have a material adverse effect on the financial position, results or operations
or liquidity of the Company.
9
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT
MARKET RISK SENSITIVE INSTRUMENTS
The Company currently does not invest excess funds in derivative
financial instruments or other market risk sensitive instruments
for the purposes of managing its foreign currency exchange rate
risk or for any other purpose.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Nothing to report under this item.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Nothing to report under this item.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Nothing to report under this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Nothing to report under this item.
ITEM 5. OTHER INFORMATION
Nothing to report under this item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.03 Amended and Restated 1993 Stock
Option Plan Filed herewith.
27.00 Financial Data Schedule. Filed herewith.
99.01 Press release regarding Fiscal 1997
results dated March 11, 1998. Filed herewith.
99.02 Press release announcing Fiscal 1998 1st
Quarter results dated May 21, 1998. 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 15, 1998
By : /s/ James P. Hart
----------------------------------------------
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>
10.03 Amended and Restated 1993 Stock
Option Plan Filed herewith at page 13.
27.0 Financial Statement Data. Filed herewith at page 14.
99.01 Press release regarding Fiscal 1997 results
dated March 11, 1998. Filed herewith at page 15.
99.02 Press release announcing Fiscal 1998 1st
Quarter results dated May 21, 1998. Filed herewith at page 17.
</TABLE>
<PAGE>
EXHIBIT 10.03
INDUSTRIAL SCIENTIFIC CORPORATION
---------------------------------
1993 STOCK OPTION PLAN
----------------------
AS AMENDED AND RESTATED ON JUNE 10, 1998
----------------------------------------
ARTICLE I - GENERAL
Section 1.1 Purpose
-------
The purposes of the 1993 Stock Incentive Plan, as amended (the "Plan") are:
(a) to enhance the growth and profitability of Industrial Scientific
Corporation, a Pennsylvania corporation (the "Corporation"), and its
subsidiaries by providing the incentive of long-term rewards to employees of the
Corporation and its subsidiaries; (b) to attract and retain employees and
Nonemployee Directors of outstanding competence and ability; (c) to encourage
long-term stock ownership by employees and Nonemployee directors; and (d) to
further identity the interests of such employees with those of shareholders of
the Corporation.
Section 1.2 Definitions
-----------
For the purpose of the Plan, the following terms shall have the meanings
indicated:
(a) "Board of Directors" or "Board" shall mean the Board of Directors of
the Corporation.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended,
including any successor law thereto.
(c) "Committee" shall mean the Compensation Committee of the Board of
Directors, or its functional successor, unless some other Board committee has
been designated by the Board of Directors to administer the Plan. The Committee
shall be constituted so that at all relevant times it meets the then applicable
requirements of Rule 16b-3 (or its successor) promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(d) "Common Stock" shall mean the Common Stock, par value $0.01 per
share, of the Corporation.
(e) "Disability" shall mean total and permanent disability within the
meaning of Section 22(e)(3) of the Code.
(f) "Employee Participant" shall mean any employee who has met the
eligibility requirements set forth in Section 1.5 hereof and to whom a grant has
been made and is outstanding under the Plan.
<PAGE>
(g) "Fair Market Value"
(i) The Fair Market Value of one share shall mean the average of the
high and low sales prices per share of the Common Stock as
reported on the National Association of Securities Dealers
Automated Quotations System National Market System (hereinafter
the "NASDAQ/NMS System") on the relevant date under the Plan. If
sales of Common Stock are not reported on the NASDAQ/NMS System
on that date, the Fair Market Value of one share will be
determined on the basis of the average of the high and low sales
prices per share of such stock on the closest preceding day on
which there were sales reports.
(ii) If, in the opinion of the Committee, the sales of Common Stock on
the relevant date are insufficient to constitute a representative
market, the Fair Market Value of a share of Common Stock on such
date shall be deemed equal to the average between the high and
low sales prices per share of Common Stock on the NASDAQ/NMS
System for the first preceding date on which sales of Common
Stock are included that do, in the opinion of the Committee,
constitute a representative market.
(iii)Notwithstanding the foregoing, with respect to the
Committee's initial award of Stock Options to Employee
Participants which shall occur on the date on which registration
statement (33-63182) relating to the Common Stock becomes
effective, the Fair Market Value of one share shall mean the
initial public offering price of the Common Stock on such
effective date.
(h) "Nonemployee Director" shall have the meaning ascribed to it in Rule
16b-3(a)(3) of the Exchange Act.
(i) "Retirement" shall mean the termination of employment with the
Corporation after reaching age 55 and having completed at least 5 years of
service, or termination of employment under circumstances which the Committee
deems equivalent to retirement.
(j) "Stock Option" shall mean a right, granted to a participant pursuant
to the Plan, to purchase, before a specified date and at a specified price, a
specified number of shares of Common Stock. Stock Options may be "Incentive
Stock Options," which meet the definition of such in Section 422 of the code, or
"Nonstatutory Stock Options," which do not meet such definition.
Section 1.3 Administration
(a) The Plan shall be administered by the Committee. Subject to the
provisions of the Plan, the Committee shall have sole and complete authority to:
(i) subject to Section 1.5 hereof, select Employee Participants after receiving
the recommendations of the management of the Corporation; (ii) determine the
number of shares of Common Stock subject to each Stock Option
2
<PAGE>
grant to an Employee Participant; (iii) determine the time or times when grants
to Employee Participants are to be made or are to be effective; (iv) determine
the terms and conditions subject to which grants to Employee Participants may be
made; (v) extend the term of any Stock Option granted to an Employee
Participant; (vi) prescribe the form or forms of the agreements evidencing any
grants made hereunder, provided that such forms are consistent with the Plan;
(vii) adopt, amend, and rescind such rules and regulations as, in its opinion,
may be advisable for the administration of the Plan; (viii) construe and
interpret the Plan and all rules, regulations, and instruments utilized
thereunder; and (ix) make all determinations deemed advisable or necessary for
the administration of the Plan. All determinations by the Committee shall be
final and binding.
In addition to the foregoing, the Committee shall also have the authority
to determine the terms and conditions, including, but not limited to the amount,
price and timing of option grants to Nonemployee Directors pursuant to Article
III of the Plan.
(b) Subject to the provisions of the Plan, the Committee shall act in
accordance with the procedures established for a Committee under the
Corporation's Articles of Incorporation and By-Laws or under any resolution of
the Board.
Section 1.4 Shares Subject to the Plan
The total number of shares of Common Stock that may be distributed under
the Plan shall be 168,750, subject to adjustment as provided in Article IV
hereof. Shares of Common Stock distributed under the Plan may be treasury
shares or authorized but unissued shares.
If any Stock Option granted under the Plan expires or terminates, the
underlying shares of Common Stock may again be made the subject of grants under
the Plan.
Section 1.5 Eligibility and Participation of Employee Participants
Participation in the Plan by Employee Participants shall be limited to
full-time employees of the Corporation.
Section 1.6 Eligibility and Participation of Nonemployee Directors
Each Nonemployee Director shall only be eligible to receive awards pursuant
to Article III of the Plan.
3
<PAGE>
ARTICLE II - PROVISIONS APPLICABLE TO EMPLOYEE
PARTICIPANT STOCK OPTIONS
Section 2.1 Grants of Employee Participant Stock Options
The Committee may select employees to become Employee Participants (subject
to Section 1.5 hereof) and grant Stock Options to such Employee Participants at
any time; provided, however, that Incentive Stock Options shall be granted
within 10 years of the earlier of the date the Plan is adopted by the Board or
approved by the stockholders. Before making grants, the Committee must receive
the recommendations of the management of the Corporation, which will take into
account such factors as level of responsibility, current and past performance,
and performance potential. Subject to the provisions of the Plan, the Committee
shall also determine the number of shares of Common Stock to be covered by each
Stock Option. The Committee shall have the authority, in its discretion, to
grant "Incentive Stock Options" or "Nonstatutory Stock Options," or to grant
both types of Stock Options.
Section 2.2 Option Documentation
Each Stock Option granted under the Plan shall be evidenced by written
documentation containing such terms and conditions as the Committee may deem
appropriate and are not inconsistent with the provisions of the Plan.
Section 2.3 Exercise Price
The Committee shall establish the exercise price at the time any Stock
Option is granted at such amount as the Committee shall determine, except that
such exercise price shall not be less than 100% of the Fair Market Value of the
underlying shares of Common Stock on the day a Stock Option is granted;
provided, however, that in the case of an Incentive Stock Option granted to an
employee who, immediately prior to such grant, owns stock possessing more than
10% of the total combined voting power of all classes of stock of the
Corporation or any subsidiary, the exercise price shall not be less than 110% of
the Fair Market Value of the underlying shares of Common Stock on the date of
grant. The exercise price will be subject to adjustment in accordance with the
provisions of Article IV of the Plan.
Section 2.4 Exercise of Stock Options
(a) Exercisability. Stock Options granted to Employee Participants shall
become exercisable at such times and in such installments as the Committee may
provide at the time of grant, provided, however that no Stock Option shall be
exercisable by an Employee Participant during the first six months of its term,
except that this limitation shall not apply following the death of an Employee
Participant during employment. Subject to the foregoing limitation, the
Committee may, however, in its sole discretion accelerate the time at which a
Stock Option or installment may be exercised. A Stock Option may be exercised at
any time from the time first set by the Committee until the close of business on
the expiration date of the Stock Option. Stock Options are not transferable by
an Employee Participant except by will or the laws of descent and
4
<PAGE>
distribution and are exercisable during an Employee Participant's lifetime only
by the Employee Participant.
(b) Option Period. For each Stock Option granted to an Employee
Participant, the Committee shall specify the period during which the Stock
Option may be exercised, provided that no Stock Option shall be exercisable
after the expiration of 10 years from the date of grant of such Stock Option.
(c) Exercise in the Event of Termination of Employment
(i) Death: If an Employee Participant ceases to be an employee of
-----
the Corporation by reason of death prior to the exercise or expiration
of a Stock Option outstanding in his name on the date of death, such
Stock Option may be exercised to the full extent not yet exercised,
regardless of whether or not then fully exercisable under the terms of
the grant or under the terms of Section 2.4(a) hereof, by his estate
or beneficiaries, as the case may be, at any time and from time to
time, but in no event after the expiration date of such Stock Option.
(ii) Disability or Retirement: The Disability or Retirement of an
------------------------
Employee Participant shall not constitute a termination of employment
for purposes of this Article II, provided that following Disability or
Retirement such Employee Participant does not engage in or assist any
business that the Committee, in its sole discretion, determines to be
in competition with business engaged in by the Corporation, and such
Employee Participant may exercise any Stock Option outstanding in his
name at any time and from time to time, but in no event after the
expiration date of such Stock Option. An Employee Participant who does
engage in or assist any business that the Committee, in its sole
discretion, determines to be competition with business engaged in by
the Corporation shall be deemed to have terminated employment.
(iii) Other Terminations: If an Employee Participant ceases to
------------------
be an employee prior to the exercise or expiration of a Stock Option
for any reason other than death, all outstanding Stock Options granted
to such Employee Participant shall expire on the date of such
termination of employment, unless the Committee, in its sole
discretion, finds that the circumstances in the particular case so
warrant and determines that the Employee Participant may exercise any
such outstanding Stock Option (to the extent that he was entitled to
do so at the date of such termination of employment) at any time and
from time to time within up to 5 years after such termination of
employment but in no event after the expiration date of such Stock
Option (the "Extended Period"). If an Employee Participant dies
during the Extended Period and prior to the exercise or expiration of
a Stock Option, his estate or beneficiaries, as the case may be, may
exercise such Stock Option (to the extent that the Employee
Participant was entitled to do so at the date of termination of
employment) at any time and from time to time, but in no event after
the end of the Extended Period.
5
<PAGE>
Section 2.5 Payment of Purchase Price Upon Exercise and Delivery of Shares
The purchase price of the shares as to which a Stock Option is exercised
shall be paid to the Corporation by the Employee Participant at the time of
exercise (i) in cash, (ii) by delivering freely transferable shares of Common
Stock already owned by the employee having a total Fair Market Value on the day
prior to the date of exercise equal to the purchase price; provided, however,
that shares of Common Stock delivered in payment of the purchase price must have
been held by the Employee Participant for at least six (6) months in order to be
utilized to pay the purchase price, (iii) a combination of cash and shares of
Common Stock equal in value to the exercise price, or (iv) by such other means
as the Committee, in its sole discretion, may determine. Upon receipt by the
Corporation of the purchase price, stock certificate(s) for the shares of Common
Stock as to which a Stock Option is exercised shall be delivered to the Employee
Participant, or such shares shall be credited to a brokerage account or
otherwise delivered, in such manner as the Employee Participant may direct.
Section 2.6 Limitation on Fair Market Value of Shares of Common Stock Received
upon Exercise of Incentive Stock Options
The aggregate Fair Market Value (determined at the time an Incentive Stock
Option is granted) of the shares of Common Stock with respect to which an
Incentive Stock Option is exercisable for the first time by an Employee
Participant during any calendar year (under all plans of the Corporation) shall
not exceed $100,000 or such other limit as may be established from time to time
under the Code.
ARTICLE III - PROVISIONS APPLICABLE TO NONEMPLOYEE DIRECTORS
Section 3.1 Grant of Nonemployee Stock Options
Upon approval of the Committee, each Nonemployee Director shall
automatically receive a NonStatutory stock option to purchase 1,000 shares of
Common Stock, or such other amount as is determined by the Committee, on the
first Friday following the Corporation's Annual Meeting of Shareholders in which
such Director is elected to serve or, if such Nonemployee Director is appointed
to fill a vacancy, on the date such Nonemployee Director's term as a director
commences. Any Nonemployee Director whose initial term commenced prior to the
effective date of this Plan who is serving as a Director on such effective date
shall, upon approval of the Committee, automatically receive an option to
purchase 1,000 shares of Common Stock, or such other amount as is determined by
the Committee.
6
<PAGE>
Section 3.2 Option Documentation
Each stock option granted to a Non-Employee Director shall be evidenced by
written documentation containing its terms and conditions.
Section 3.3 Exercise Price
The exercise price for stock options granted to Nonemployee Directors shall
not be less than 100% of the fair market value of the underlying shares of
Common Stock on the date the stock option is granted.
Section 3.4 Exercise of Nonemployee Director Stock Options
Stock options granted to Nonemployee Directors under this Plan shall become
exercisable 6 months after the date of grant and shall expire ten years after
the date of grant.
Section 3.5 Payment of Purchase Price Upon Exercise
The Purchase Price of the shares as to which a Stock Option is exercised
shall be paid in full upon exercise and shall be payable in cash.
Section 3.6 Cessation of Service
Upon cessation of service of a Nonemployee Director (other than for death),
only those stock options exercisable at the date of cessation of service shall
continue to be exercisable by the grantee. Such stock options may be exercised
any time prior to the expiration of the option period.
Section 3.7 Death
-----
Upon the death of Nonemployee Director, those stock options which were
exercisable on the date of death may be exercised within 36 months from the date
of death, but in no event after the expiration of the option period, by the
grantee's legal representative or heir.
ARTICLE IV - CHANGES IN CAPITALIZATION
Any other provision of the Plan to the contrary notwithstanding, if any
change shall occur in or affect shares of Common Stock or Stock Options on
account of a merger, consolidation, reorganization, stock dividend, stock split
or combination, reclassification, recapitalization, or distribution to holders
of shares of Common Stock (other than cash dividends) including, without
limitation, a merger or other reorganization event in which the shares of Common
Stock cease to exist, or, if in the opinion of the Committee, after consultation
with the Corporation's independent public accountants, changes in the
Corporation's accounting policies, acquisitions, divestitures, distributions, or
other unusual or extraordinary times have disproportionately and materially
effected the value of the shares of Common Stock or Stock Options, the Committee
shall make such adjustments, if any, that it may deem necessary or equitable in
(a) the maximum number of
7
<PAGE>
shares of Common Stock available for distribution under the Plan; (b) the number
of shares subject to or reserved for issuance under outstanding and Stock Option
grants; and (c) any other terms or provisions of any outstanding grants of Stock
Options in order to preserve the full benefits of such grants for the Employee
Participants, taking into account inflation, interest rates, and any other
factors that the Committee, in its sole discretion, considers relevant. In the
event of a change in the presently authorized shares of Common Stock that is
limited to a change in the designation thereof or a change of authorized shares
with par value into the same number of shares with a different par value or into
the same number of shares without par value, the shares resulting from any such
change shall be deemed to be shares of Common Stock within the meaning of the
Plan. In the event of any other change affecting the shares of Common Stock or
Stock Options such adjustment shall be made as may be deemed equitable by the
Committee to give proper effect to such event.
ARTICLE V - MISCELLANEOUS
Section 5.1 Designation of Beneficiary
An Employee Participant may designate, in a writing delivered to the
Corporation before his or her death, a person or persons to receive, in the
event of the Employee Participant's death, any rights to which he or she would
be entitled under the Plan. An Employee Participant may also designate an
alternate beneficiary to receive payments if the primary beneficiary does not
survive the Employee Participant. An Employee Participant may designate more
than one person as his or her beneficiary or alternate beneficiary, in which
case such persons would receive payments as joint tenants with a right of
survivorship. A beneficiary designation may be changed or revoked by an
Employee Participant at any time by filing a written statement of such change or
revocation with the Corporation. If an Employee Participant fails to designate
a beneficiary, then his estate shall be deemed to be his beneficiary.
Section 5.2 Employment Rights
Neither the Plan nor any action taken hereunder shall be construed as
giving any employee of the Corporation the right to become a Employee
Participant, and a grant under the Plan shall not be construed as giving any
Employee Participant any right to be retained in the employ of the Corporation.
Section 5.3 Nontransferability
No Stock Options granted under this Plan may be assigned, pledged, or
otherwise transferred except, in the event of an Employee Participant's death,
to his designated beneficiary or, in the absence of such a designation, by will
or the laws of descent and distribution.
Section 5.4 Withholding
The Corporation shall, before any payment is made or a certificate for any
shares is delivered or any shares are credited to any brokerage account, deduct
or withhold from any
8
<PAGE>
payment under the Plan to an Employee Participant or his beneficiary or estate,
as the case may be, any Federal, state, local or other taxes, including transfer
taxes, required by law to be withheld and to pay any amount, or the balance of
any amount, required to be withheld. Notwithstanding the foregoing, if an
Employee Participant is an officer or director of the Corporation, as defined
for purposes of Rule 16b-3 under the Exchange Act, and withholding of any
federal, state or local taxes is required, the Corporation shall hold back from
the Shares to be delivered that number of shares having a Fair Market Value
equal to the amount of tax to be withheld to satisfy the tax withholding
obligation.
Section 5.5 Relationship to Other Benefits
No payment under the Plan shall be taken into account in determining any
benefits under any retirement, group insurance, or other employee benefit plan
of the Corporation. The Plan shall not preclude the stockholders of the
Corporation, the Board of Directors or any committee thereof, or the Corporation
from authorizing or approving other employee benefit plans or forms or incentive
compensation, nor shall it limit or prevent the continued operation of other
incentive compensation plans or other employee benefit plans of the Corporation
or the participation in any such plans by Employee Participants in the Plan.
Section 5.6 No Trust or Fund Created
Neither the Plan nor any grant made hereunder shall create or be construed
to create a trust or separate fund of any kind or a fiduciary relationship
between the Corporation and an Employee Participant or any other person. To the
extent that any person acquires a right to receive payments from the Corporation
pursuant to a grant under the Plan, such right shall be no greater than the
right of any unsecured general creditor of the Corporation.
Section 5.7 Expenses
The expenses of administering the Plan shall be borne by the Corporation.
Section 5.8 Indemnification
Service on the Committee shall constitute service as a member of the Board
of Directors so that members of the Committee shall be entitled to
indemnification and reimbursement as directors of the Corporation pursuant to
its Certificate of Incorporation, By-Laws, or resolutions of its Board of
Directors or stockholders.
ARTICLE VI - AMENDMENT AND TERMINATION
The Board of Directors may modify, amend, or terminate the Plan at any time
except that, to the extent then required by applicable law, rule, or regulation,
approval of the holders of a majority of shares of Common Stock represented in
person or by proxy at a meeting of the stockholders will be required to increase
the maximum number of shares of Common Stock available for distribution under
the Plan (other than increases due to adjustments in accordance with the Plan
and a one time increase that would not increase the amount of Common Stock
9
<PAGE>
issuable under the Plan by more than 10%). No modification, amendment, or
termination of the Plan shall adversely affect the rights of an Employee
Participant under a grant previously made to him without the consent of such
Employee Participant.
ARTICLE VII - INTERPRETATION
Section 7.1 Governmental and Other Regulations
Notwithstanding any provision of the Plan or the terms of any Stock Option
agreement issued under the Plan, the Corporation shall not be required to issue
any shares hereunder prior to registration of the shares subject to the Plan
under the Securities Act of 1933, as amended or the Exchange Act, if such
registration shall be necessary, or before compliance by the Corporation or any
participant with any other provisions of either of those acts or of regulations
or rulings of the Securities and Exchange Commission thereunder, or before
compliance with all other applicable Federal and state laws and regulations and
rulings thereunder. The Corporation shall use its best efforts to effect such
registrations and to comply with such laws, regulations and rulings forthwith
upon advice by its counsel that any such registration or compliance is
necessary.
Section 7.2 Compliance with Rule 16b-3
It is the Corporation's intent that the Plan comply in all respects with
Rule 16b-3 of the Exchange Act and any Regulations promulgated thereunder. If
any provision of this Plan is later found not to be in compliance with the Rule,
the provisions shall be deemed null and void. All grants and exercises of
options under this Plan by individuals subject to Section 16 shall be executed
in accordance with the requirements of Section 16, as amended, and any
Regulations promulgated thereunder.
Section 7.3 Governing Law
The Plan shall be construed and its provisions enforced and administered in
accordance with the laws of the Commonwealth of Pennsylvania applicable to
contracts entered into and performed entirely in such State.
ARTICLE VIII - EFFECTIVE DATE AND STOCKHOLDER APPROVAL
The Plan shall not be effective unless or until approved by a majority of
the votes cast at a duly held stockholders' meeting at which a quorum
representing a majority of all outstanding voting stock is, either in person or
by proxy present and voting on the Plan.
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> MAY-02-1998
<CASH> 4,127,967
<SECURITIES> 12,232,572
<RECEIVABLES> 6,824,737
<ALLOWANCES> 48,490
<INVENTORY> 4,462,357
<CURRENT-ASSETS> 28,243,030
<PP&E> 15,145,509
<DEPRECIATION> 7,961,510
<TOTAL-ASSETS> 45,622,761
<CURRENT-LIABILITIES> 4,889,588
<BONDS> 2,600,000
0
0
<COMMON> 33,764
<OTHER-SE> 36,888,838
<TOTAL-LIABILITY-AND-EQUITY> 45,622,761
<SALES> 11,395,690
<TOTAL-REVENUES> 11,395,690
<CGS> 4,899,118
<TOTAL-COSTS> 9,143,342
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40,736
<INCOME-PRETAX> 2,471,147
<INCOME-TAX> 820,000
<INCOME-CONTINUING> 1,651,147
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,651,147
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
</TABLE>
<PAGE>
NEWS RELEASE
INDUSTRIAL SCIENTIFIC
- --------------------------------------------------------------------------------
CORPORATION 101 Oakdale Road Phone 412-788-4353
Oakdale, PA 15071-1500 1-800-DETECTS (338-3287)
USA Fax 412-788-8353
http://www.indsci.com
Date: March 11, 1998
Release: Immediate
Contact: James P. Hart, Vice President Finance
Chief Financial Officer (412-490-1843)
INDUSTRIAL SCIENTIFIC CORPORATION ANNOUNCES RECORD FISCAL 1997 RESULTS
PITTSBURGH, PA -- Industrial Scientific Corporation (NASDAQ/NMS symbol: ISCX )
today reported results for fiscal year 1997 and the fourth quarter ended January
31, 1998.
For fiscal year 1997 net sales were $40,865,000 compared to $36,648,000 for
fiscal 1996, an increase of 11.5%, a new record for annual sales. Net income
for 1997 totaled $6,002,000 ($1.80 per share) compared to $3,725,000 ($1.10 per
share) for 1996, an increase of 61.1%, also a new record. Net income for fiscal
1997 included a $377,000 non-recurring gain from the sale of Monitor Group. Net
income excluding this gain increased 51.0%.
For the fourth quarter 1997, net sales totaled $10,416,000 compared to net sales
for the fourth quarter 1996 of $9,559,000, an increase of 9.0%. Net income for
the fourth quarter 1997 increased 129.9% to $1,715,000 ($0.52 per share)
compared to $746,000 ($0.22 per share) for the fourth quarter 1996.
Kent D. McElhattan, President and CEO stated, "Industrial Scientific achieved
excellent financial results during fiscal 1997. A sales increase of almost 12%
produced a 51% increase in net income. We are especially pleased that such
strong income performance was achieved while the Company continued significant
international expansion and substantially increased new product development.
"During fiscal 1997 the Company added to existing sales staff in Saudi Arabia,
Australia and South America, and formed a joint venture company in China.
Although the Asian market faces difficult economic conditions we believe now is
the proper time to establish a strong market presence anticipating the future
recovery of this important region.
"The largest new product development effort in the Company's history was
completed during 1997 with the introduction of the ATX series of portable
instruments, the most sophisticated technically-advanced products in our market.
Product development also continued on fixed gas monitoring systems which are a
significant extension of our product line.
"Our strategy of increased research and new product development, combined with
greater market presence makes me confident that Industrial Scientific is
positioned to achieve strong financial performance during 1998."
Headquartered in Oakdale, Pennsylvania, Industrial Scientific Corporation
designs, manufactures and sells gas monitoring instruments and other technical
products for the preservation of life and property.
Certain statements contained in this release may be considered forward-looking.
These statements represent the Company's reasonable judgment and expectations
and are subject to risks and uncertainties that could cause actual results to
differ materially from these statements.
LOGO ISO9001
CERTIFIED
O U R M I S S I O N
Design-Manufacture-Sell: Highest quality products for the
preservation of life and property
Provide: Best customer service available
<PAGE>
INDUSTRIAL SCIENTIFIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Operations
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
01/31/98 01/25/97 01/31/98 01/25/97
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net Sales $ 10,416 $ 9,559 $ 40,865 $ 36,648
Gross profit 6,102 5,094 23,028 19,815
Operating profit 2,182 934 7,506 5,087
Net income 1,715 746 6,002 3,725
Net income per common
share (basic and diluted) $0.52 $0.22 $1.80 $1.10
Weighted average number
of shares - basic 3,305 3,369 3,334 3,374
Weighted average number
of shares - diluted 3,315 3,369 3,340 3,375
</TABLE>
<PAGE>
NEWS RELEASE
Date: May 21, 1998
Release: Immediate
Contact: James P. Hart, Vice President Finance
Chief Financial Officer (412-490-1843)
INDUSTRIAL SCIENTIFIC CORPORATION ANNOUNCES
FISCAL 1998 FIRST QUARTER RESULTS
PITTSBURGH, PA -- Industrial Scientific Corporation (NASDAQ/NM symbol: ISCX )
today reported record high net sales of $11,396,000 for the first quarter ended
May 2, 1998, which included 13 weeks. Net sales for the first quarter 1997,
which included 14 weeks, totaled $10,952,000. Net sales increased 12.1% for the
first quarter 1998 compared to the first quarter 1997 adjusted for the
difference in the number of weeks included in each fiscal quarter.
Net income for the first quarter 1998, totaled $1,651,000, ($0.50 per share) an
increase of 28.8% on a comparable number of weeks basis compared to net income
of $1,381,000 ($0.41 per share) for the first quarter 1997.
Kent D. McElhattan, President and CEO, stated, "Record net sales and a 29%
increase in net income shows excellent financial performance. Sales of our
newly introduced ATX series of multi-gas portable instruments contributed
significantly to our results. New product development continues to be our most
critical strategic growth path. Our fixed systems product line was
significantly expanded by the release of the WorksAlone II(TM) and Transmitter
II(TM) at the very end of the first quarter. I am proud of our first quarter
results and optimistic about the balance of fiscal 1998."
Headquartered in Oakdale, Pennsylvania, Industrial Scientific Corporation
designs, manufactures and sells gas monitoring instruments and other technical
products for the preservation of life and property.
Certain statements contained in this release may be considered forward-looking.
These statements represent the company's reasonable judgment and expectations
and are subject to risks and uncertainties, including the risk factors listed in
the company's 10K for fiscal year 1997, that could cause actual results to
differ materially from these statements.
<PAGE>
INDUSTRIAL SCIENTIFIC CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statement of Operations
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended
05/02/98 05/03/97
-------- --------
(13 weeks) (14 weeks)
Net Sales $11,396 $10,952
Gross profit 6,773 6,189
Operating profit 2,252 1,945
Net income 1,651 1,381
Net income per basic common share:
Basic earnings per share $0.50 $0.41
Weighted average shares - basic 3,299 3,363
Net income per diluted common share:
Diluted earnings per share $0.50 $0.41
Weighted average shares - diluted 3,318 3,363
