Document/Exhibit Description Pages Size
1: 10-K Annual Report 44 248K
2: EX-3.(II) Bylaws 15 56K
4: EX-10.18 Employment Agreement 3 14K
5: EX-10.20 Employment Agreement 2 11K
6: EX-10.21 Waiver and Release 1 10K
7: EX-10.22 Service Agreement 7 17K
8: EX-10.23 Letter Agreement 1 9K
9: EX-10.24 Letter Agreement 1 11K
10: EX-10.25 Promissory Note 2 14K
11: EX-10.26 Amendment to Promissory Note 2 13K
12: EX-10.27 Non-Employee Director Stock Plan 4 19K
13: EX-10.28 Executive Stock Plan 4 20K
14: EX-10.29 Employment Agreement 7 25K
15: EX-10.30 Stock Option Agreement 2 15K
16: EX-10.31 Stock Option Agreement 2 15K
3: EX-10.8 Amendment to Consent Judgement 13 33K
17: EX-11 Computation of Earnings 1 10K
18: EX-21 Subsidiaries 1 8K
19: EX-27 Financial Data Schedule 1 11K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended July 31, 1996 Commission File Number-I7828
GELMAN SCIENCES INC.
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(Exact name of registrant as specified in its charter)
MICHIGAN 38-1614806
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
600 SOUTH WAGNER ROAD
ANN ARBOR, MICHIGAN 48103-9019
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (313) 665-0651
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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COMMON STOCK, PAR VALUE $.10 PER SHARE AMERICAN STOCK EXCHANGE
Securities Registered Pursuant to Section 12(g) of the Act:
None
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__________
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. ________
The aggregate market value of the registrant's voting stock (Common Stock, $.10
Par Value) held by non-affiliates of the registrant as of September 24, 1996
was $199,553,598.
The number of outstanding shares of the registrant's Common Stock, as of
September 24, 1996 was 7,947,080 shares.
DOCUMENTS INCORPORATED BY REFERENCE
None
Exhibit Index at Page 41 Number of Pages 113.
1
PART I
ITEM 1. BUSINESS.
(A) GENERAL DEVELOPMENT OF BUSINESS
Gelman Sciences Inc. ("Gelman" or the "Company") was incorporated in
Michigan in 1959. Unless the context indicates otherwise, the term "Gelman" or
the "Company" includes Gelman Sciences Inc. and its subsidiaries.
Gelman designs, manufactures and markets a broad line of specialty
microfiltration products for the separation and purification of liquids and
gases. Gelman's core technologies are the manufacturing of microporous
membranes which serve as a barrier, filter or separator of microscopic
particles and the packaging and sealing of these membranes into microfiltration
products. Gelman believes that it offers a greater variety of membranes and
microfiltration products in its markets than any other manufacturer and that it
has built significant brand recognition, particularly in scientific and
industrial laboratories. Nearly all of Gelman's microfiltration products are
disposable, and many are used in high volume applications requiring regular
replacement.
Gelman's products are marketed worldwide for scientific and industrial
applications. The Company has increased its focus on international business
and has opened or expanded subsidiaries or sales offices in Europe and Asia.
As a result of these efforts, non-U.S. sales have grown from 30% of total sales
for fiscal 1991 to 40% of total sales for fiscal 1996.
On August 30, 1996, Gelman entered into a merger agreement with Memtec
Limited ("Memtec"), a corporation organized under the laws of New South Wales,
Australia, and GSI Acquisition Corporation, a Michigan corporation and a
wholly-owned, direct subsidiary of Memtec ("GSI") pursuant to which GSI will be
merged (the "Merger") with and into Gelman and Gelman will become a
wholly-owned subsidiary of Memtec. In the Merger, each outstanding share of
Gelman Common Stock will be converted into and represent the right to receive
1.05 Memtec American Depositary Shares ("Memtec ADSs"). The Merger Agreement
will be submitted for approval and adoption by the stockholders of Gelman and
the issuance of the Memtec Ordinary Shares underlying the Memtec ADSs will be
submitted for approval by the Memtec shareholders.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
For information related to net sales, operating income and identifiable
assets and other information about industry segments, see Note L included in
the Financial Statements of the Company on Pages F-12 to F-14 of this report on
Form 10-K.
(C) NARRATIVE DESCRIPTION OF BUSINESS
HEALTH PRODUCTS GROUP
The Health Products Group supplies a variety of specialized medical
disposable filter devices. The products are sold to biotechnology,
pharmaceutical and healthcare companies for use in the research, development
and manufacturing of new drugs and vaccines and their administration to
patients. The products are sold by the Company's sales personnel and a network
of distributors as either standard catalog items or as original equipment
manufacturer ("OEM") products. The OEM products consist of intravenous fluid
in-line filters, transducer protectors and standard small volume filtration
disposable medical filters.
2
The Health Products Group also provides other products for the healthcare
industry such as membranes, equipment and reagents for clinical diagnostic
testing by electrophoresis. Microporous membrane media, used in a variety of
medical applications, are provided by the Health Products Group in bulk roll
stock for use in products of OEMs. Medical device sales have accounted for
34%, 34% and 31% of consolidated sales for the fiscal years ended July 31,
1996, 1995 and 1994, respectively.
CUSTOMERS
No customer of the Health Products Group accounted for more than 10% of
consolidated sales in fiscal 1996. The Company believes that the loss of any
customer would not have a material adverse effect on the Health Products Group.
BACKLOG AND RAW MATERIALS
Backlog for the Health Products Group was $7,289,000 and $8,215,000 at
September 24, 1996, and October 21, 1995, respectively. It is anticipated that
the current backlog will be shipped prior to July 31, 1997. No unusual sources
of supply are required to meet the Company's manufacturing requirements.
COMPETITION
Competition in the Health Products Group comes from a variety of
competitors, the two most important of which are Millipore Corporation
("Millipore") and Pall Corporation ("Pall"). Both competitors are
significantly larger than the Company. Gelman competes with other
manufacturers based on a variety of factors, including product innovation and
performance, quality, breadth of product offering, price and customer service.
FILTRATION PRODUCTS GROUP
The Filtration Products Group supplies various configurations of
microfiltration media and hardware to the industrial and scientific
communities. Small diameter filter media and hardware are utilized in research
and industrial laboratories for clarification and purification of waters and
chemicals. The sales of laboratory filters and hardware have accounted for
39%. 40% and 44% of total sales for years ended July 31, 1996, 1995 and 1994,
respectively.
In the industrial process filtration area, products are utilized in both
large diameter filters and high surface area cartridges for clarification and
separation of gases, liquids and chemicals. Typical industrial customers are
in the pharmaceutical, electronics, and beverage industries. These products
are sold in the United States and internationally by Company sales personnel
and a network of distributors. Cartridge sales have accounted for 25%, 24% and
22% of consolidated sales for the years ended July 31, 1996, 1995 and 1994,
respectively.
CUSTOMERS
Gelman believes that no end-user of any of its filtration products
accounts for more than 5% of sales. Sales by Gelman of laboratory products to
its two largest U.S. distributors, Fisher Scientific International Inc.
("Fisher") and VWR Corporation, accounted for 25% of total sales in fiscal
1996. The loss of either of these distributors could have an adverse effect on
Gelman. Management believes the loss of either of these distributors is
unlikely due to Gelman's long-term relationship with these distributors and the
investments made by these distributors in inventory, promotional programs and
training of their sales forces.
3
Fisher recently entered into a non-exclusive distribution agreement with
Millipore, one of Gelman's competitors in the laboratory market, pursuant to
which Fisher will distribute certain of Millipore's branded laboratory products
in the United States, Canada and Puerto Rico. Gelman does not believe that
this agreement will have an adverse impact on domestic sales due to Gelman's
strong relationships with Fisher and its end-use customers and other
distributors who have successfully competed against Millipore in the past. In
addition, Gelman is strengthening its relationship with Fisher's International
Division as Gelman continues to expand its international market presence.
BACKLOG AND RAW MATERIALS
Backlog for the Filtration Products Group was $7,529,000 and $5,922,000 at
September 24, 1996, and October 21, 1995, respectively. It is anticipated that
the current backlog will be shipped prior to July 31, 1997. No unusual sources
of supply are required to meet the Company's manufacturing requirements.
COMPETITION
In the Filtration Products Group, the Company's primary competitors are
Millipore, Pall and, to a lesser extent, Sartorius Membranfilter GmbH (in
Europe), with whom the Company has entered into a partnership agreement to
supply microfiltration media at prices which are competitive with those paid by
other customers of the Filtration Products Group. Competition in this market
is to a high degree based on product innovation and performance, quality,
breadth of product offering, and other technical services.
GENERAL BUSINESS
PATENTS, TRADEMARKS, LICENSES AND TECHNOLOGICAL CAPABILITY
The Company has 145 active patents and 114 registered and 40 unregistered
trademarks throughout the world. The Company does not consider any one of
these patents or trademarks to be materially important to its business. The
Company relies to a great extent on its technological skills and product
development achievements to compete effectively.
RESEARCH AND DEVELOPMENT
The Company maintains a strong commitment to applied research and
development. Gelman's product development efforts are focused on the
enhancement of existing product lines and development of new products based on
Gelman's existing technologies and production capabilities. Research and
development expenditures were $6.3 million, $5.5 million and $4.9 million in
fiscal 1996, 1995 and 1994, respectively.
ENVIRONMENTAL REGULATIONS
Until May 1986, the Company used 1,4-dioxane, an organic chemical, in its
manufacturing processes at its main facility in Ann Arbor, Michigan. Over the
years, various storage and waste water disposal methods have been permitted by
the responsible governmental agencies. In January 1986, 1,4-dioxane was
identified in wells near the manufacturing plant. Pursuant to a consent decree
agreed to in October 1992 and amended in September 1996, which resolved
litigation with the Michigan Department of Natural Resources, the Company is
remediating this contamination without admitting wrongdoing.
4
For a description of the environmental litigation and remediation in which the
Company has been involved, see "Legal Proceedings," "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and "Note J -
Pollution-Related Expenses" included in the Financial Statements of the
Company, on page F-12 of this report of Form 10-K.
EMPLOYEES
Gelman employs 773 persons in the United States and 128 persons in
non-U.S. operations. The Company relies to a great extent, both domestically
and internationally, on a network of distributors. In the United States, the
Company employs 27 sales representatives to work with distributors, make sales
calls in conjunction with the distributors' representatives and coordinate
technical support needs.
(D) FINANCIAL INFORMATION REGARDING GEOGRAPHIC AREAS
For information related to net sales, operating earnings and identifiable
assets of the Company's foreign and domestic operations, see Notes L and M
included in the Financial Statements of the Company on pages F-12 to F-14 of
this report on Form 10-K.
ITEM 2. PROPERTIES.
The Company owns its principal office and manufacturing facilities located
in Ann Arbor, Michigan, which contains approximately 180,000 square feet of
floor space. The Company was granted an Industrial Development Bond in July
1989, the proceeds of which were utilized to purchase land in Pensacola,
Florida and build a 58,000 square foot manufacturing facility which was
completed in fiscal 1990. The amount outstanding at July 31, 1996, under the
Industrial Revenue Bond, which has been redeemed and reissued twice and
currently matures in July 2004, was $4.4 million. The Company also leases
buildings in Ann Arbor and Pleasanton, California containing approximately
58,000 square feet which are used primarily for office space and manufacturing.
The Company's Australian, British, Canadian, German, Irish, French,
Italian and Japanese subsidiaries lease office and warehouse facilities. The
Company also maintains regional product application testing laboratories in the
British and Japanese facilities.
Substantially all of the existing facilities are used in connection with
the Company's Health and Filtration Product Groups.
ITEM 3. LEGAL PROCEEDINGS.
The Company, in the normal course of business, is involved in incidental,
routine litigation, which, in the opinion of management, will not have a
material impact on the financial condition of the Company. In addition, during
fiscal 1996 the Company was a party to various legal actions arising under
statutes regulating the discharge of materials into the environment or
otherwise protecting the environment. Those legal actions involving
environmental issues are described below. (See also, "Environmental
Regulations" in Item 1, above.)
5
Kelly v. Gelman Sciences Inc. (Circuit Court for Washtenaw County,
Michigan, Case No. 88-34734-CE). On February 26, 1988, the Attorney General
for the State of Michigan, on behalf of the Michigan Natural Resources
Commission, the Michigan Water Resources Commission and the Michigan Department
of Natural Resources, filed suit against the Company, alleging that
contamination near the Company's Ann Arbor facility was caused by the Company
in disposing of waste water from its manufacturing processes. On October 23,
1992, the parties entered into a settlement agreement. Under the terms of the
settlement, the Company is to purge, treat and dispose of environmental
contamination near the Company's main facility. On October 26, 1992, the Court
entered an order of settlement of this case based upon the agreement reached by
the parties. In September 1996, the parties entered into an amendment of the
settlement agreement, modifying the levels of cleanup the Company must perform
so as to bring those levels into compliance with current statutory
requirements. On September 23, 1996, the Court approved the amendment.
Scarbrough, et al. v. Gelman Sciences Inc., et al. (Circuit Court for
Washtenaw County, Michigan, Case No. 88-35594-CE). By Complaint filed August
8, 1988, and amended September 15, 1988, 27 residents of the Westover
subdivision located near the Ann Arbor facility of the Company sued the Company
and eight other defendants for damages associated with alleged contamination of
residential water supplies and for the cost of court-supervised medical
surveillance. The total demand was $3,095,000. On March 9, 1990, plaintiffs
settled with seven of the eight other defendants for $100,000. (The suit
against the remaining other defendant was subsequently dismissed by the Court.)
Thereafter, 15 plaintiffs settled with the Company for a total of $175,535.
Twelve plaintiffs refused to settle. On November 30, 1990, a jury returned a
verdict in favor of the 12 plaintiffs, awarding damages totaling $119,756.
After adjustment for the March 9, 1990, settlement between plaintiffs and seven
other defendants, the net jury verdict against the Company was $62,250, plus
interest. On December 11, 1991, the Court awarded the Company costs totaling
$87,529.38, plus interest. The 12 plaintiffs who went to trial appealed the
outcome of the case. On July 27, 1994, the Court of Appeals affirmed the jury
verdict. On September 21, 1994, the Court of Appeals denied plaintiffs' Motion
for Rehearing. Plaintiffs filed an Application for Leave to Appeal with the
Michigan Supreme Court. On June 30, 1995, the Supreme Court denied the
Application. Plaintiffs filed a Motion for Reconsideration, which was denied
on October 31, 1995.
Dawson, et ano v. Gelman Sciences Inc., et al. (Circuit Court for
Washtenaw County, Michigan, Case No. 92-43975-CE). On November 3, 1992, two
residents in the Evergreen subdivision located near the Ann Arbor facility of
the Company filed a Complaint against the Company, the Chairman of the Company,
and eight other defendants for damages associated with alleged contamination of
residential water supplies. On January 7, 1993, the Company and its Chairman
filed their Answers denying liability and cross-claiming against the
co-defendants. On October 27, 1993, the Court granted the motion of the
Company and its Chairman for summary judgment. An Order dismissing this case
was entered on December 15, 1993. Plaintiffs appealed, and, on November 7,
1995, the Michigan Court of Appeals affirmed the dismissal.
6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS.
The Company's common stock trades on the American Stock Exchange. The
ticker symbol is "GSC". No cash dividends were paid by the Company during each
of the two fiscal years ended July 31, 1996. There were 1,145 shareholders of
record of the Company on September 24, 1996. The Company's debt agreements
limit the amount available for cash dividends to 50% of the Company's net
income. However, no cash dividends are expected to be paid by the Company in
the foreseeable future.
The following table sets forth, for the two fiscal years ended July 31,
1996, the high and low sales prices per share as reported on the American Stock
Exchange for the periods indicated.
[Download Table]
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FISCAL YEAR 1996 1995
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HIGH LOW High Low
First Quarter $22 3/8 $18 3/4 $15 1/4 $12 1/2
Second Quarter 25 1/4 20 1/2 15 7/8 11 5/8
Third Quarter 27 1/4 22 3/4 17 3/8 12
Fourth Quarter 29 3/4 19 19 7/8 17 3/4
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On September 24, 1996, the closing sale price of the Company's common stock was
$28 1/2 per share.
ITEM 6. SELECTED FINANCIAL DATA.
[Enlarge/Download Table]
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Dollars in thousands, except per share data
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1996 1995 1994 1993 1992
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OPERATING DATA FOR THE YEARS ENDED JULY 31,
Net sales $112,057 $103,503 $94,963 $86,209 $81,460
Gross margin 55,193 53,433 47,710 42,545 38,499
Pollution-related expense 2,800 - - 543 4,988
Interest expense 607 1,314 1,689 2,006 2,590
Income taxes (credit) 1,547 3,365 2,600 2.030 (212)
Net earnings (loss) 4,336 6,622 4,754 2.702 (1,211)
Net earnings (loss) per share .53 .92 .75 .47 (21)
Return on average stockholders' equity 7.0% 14.8% 18.0% 12.9% N.A.
BALANCE SHEET DATA AS OF JULY 31,
Cash and cash equivalents $ 9,590 $ 3,010 $ 1,525 $ 1,142 $ 867
Working capital 39,759 33,653 25,404 20,882 8,547
Total assets 88,220 81,781 71,687 63,495 61,530
Long-term debt including current maturities 7,867 7,385 25,198 25,269 25,624
Total liabilities 23,532 23,008 41,252 41,239 41,879
Stockholders' equity 64,688 58,773 30,435 22,256 19.651
Stockholders' equity per share 8.15 7.54 4.96 3.81 3.45
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7
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
FISCAL YEAR 1996 COMPARED WITH FISCAL YEAR 1995
Net sales for fiscal 1996 increased $8.6 million or 8% to $112.1 million
compared to $103.5 million for fiscal 1995. The sales growth was principally
in the European and Asia-Pacific regions where sales grew 22% and 12%,
respectively. Asia-Pacific's sales growth was negatively impacted by the
change in Japanese exchange rates. The Asia-Pacific sales growth denominated
in local currencies was 19%. Sales in the Americas increased approximately 3%
despite a 3% reduction in domestic laboratory sales caused by the consolidation
of two major laboratory distributors.
Worldwide sales of medical devices increased 12% reflecting strong
international growth for intravenous therapy devices. Sales of process
filtration products increased 16% compared to fiscal 1995 as a result of
continued growth in demand from the microelectronics, chemical and beverage
industries. Laboratory sales increased 3% and were negatively impacted
primarily by domestic distributor inventory reductions during mid-fiscal 1996.
Membrane sales increased 7% as compared to fiscal 1995, reflecting the
Company's continued focus on membrane sales.
Net sales for the fourth quarter of fiscal year 1996 of $28.1 million were
substantially identical to net sales of $28.4 million for the fourth quarter of
fiscal 1995. Sales in the fourth quarter of fiscal 1996 were negatively
impacted by a number of factors including the effect of the stronger dollar
relative to other currencies, which decreased fourth quarter sales by 2.5%, and
the initial uncertainty among the Company's employees, distributors and
customers created by the announcement of the Company's planned merger with
Memtec. An additional factor contributing to the lack of fourth quarter net
sales growth was $2.5 million of sales credits compared to $1.4 million of
sales credits in the fourth quarter of 1995. The significant increase in the
amount of sales credits was due to a transition in the Company's policy for
granting sales credits to customers, changes in its process for tracking sales
credits and one-time product returns from several large customers in exchange
for long-term purchase and other commitments.
Gross profit, as a percentage of sales, was 49.3% in fiscal 1996 compared
to 51.6% in fiscal 1995. The lower gross profit margin was primarily
attributable to fourth quarter items including negative inventory costing
adjustments, increased inventory obsolescence expense, an increase in the
amount of sales credits, the impact of foreign exchange rates as the dollar
strengthened relative to other currency, lower than anticipated fourth quarter
sales, and the impact of product mix. The effect on gross profit margin of
product mix was the result of the strong growth in the sales of process
filtration products and medical devices, which carry lower margins, and the
slower growth in laboratory products, which carry higher margins.
Selling and administration expense increased by $3.1 million or 8% to
$40.1 million for fiscal 1996 compared to $37.0 million for fiscal 1995,
primarily due to the Company's drive to increase market share consistent with
the overall growth strategy.
8
Research and development expenses increased approximately $800,000 as a result
of expanded development efforts in the Company's core membrane technology.
Interest expense decreased approximately $700,000 due to repayment of
outstanding indebtedness in the third quarter of fiscal 1995 with the proceeds
from a public offering of the Company's common stock. The Company's effective
tax rate for fiscal 1996 was 26% versus a tax rate of 34% in fiscal 1995
reflecting the result of a research and development expense review undertaken
during the third quarter of fiscal 1996 for the purpose of reflecting a
research and development tax credit consistent with actual business activities,
a greater tax benefit from the Company's foreign sales corporation and the
benefit from the utilization of foreign net operating loss carryforwards and
adjustment of related valuation reserves.
During the fourth quarter of fiscal 1996 the Company increased its reserve
for environmental remediation by $2.8 million. The increase in the amount of
the environmental remediation reserve was made as a result of a comprehensive
review of operating expenses associated with the revised work plan for
groundwater cleanup at the Company's Ann Arbor facility. The work plan was
developed in connection with the amended consent decree signed with the
Michigan Department of Natural Resources in September 1996. (See Note J -
Pollution Related Expenses.) The ultimate costs incurred by the Company as a
result of the groundwater contamination will depend on the efficacy and
duration of the remediation plan.
Net earnings decreased $2.3 million to $4.3 million or $0.53 per share in
fiscal 1996 compared to $6.6 million or $.92 per share in fiscal 1995. The
weighted average shares for fiscal 1996 and 1995 were 8.3 million and 7.2
million, respectively, which includes the effect of a public offering of
1,437,500 shares of the Company's common stock in the third quarter of fiscal
1995.
FISCAL YEAR 1995 COMPARED WITH FISCAL YEAR 1994
Net sales for fiscal 1995 increased $8.5 million or 9% to $103.5 million
compared to $95.0 million for fiscal 1994, which included non-recurring sales
of $4.4 million related to divested Australian non-core product lines.
International sales for fiscal 1995 were favorably affected by the weakened US
dollar which increased reported sales by $2.1 million. The Company's sales
growth, adjusted for these items, was 12%.
Worldwide sales of medical devices increased 27% reflecting sales growth
for intravenous therapy devices. Sales of process filtration products
increased 21% compared to fiscal 1994 reflecting growth in the European and
Asia/Pacific markets. Laboratory sales increased 9% and membrane sales were
level compared to fiscal 1994. Net sales to customers in the Americas
increased 11% over fiscal 1994 primarily due to a 31% increase in sales of
medical devices. Sales to customers in Europe increased 14% primarily due to a
29% increase in sales of process filtration products. Sales to customers in
the Asia/Pacific region declined 6% due to the divestiture of Australian
non-core product lines in late fiscal 1994. Without the effect of this
divestiture, sales in this region would have increased 43%. The increase was
primarily attributable to increases in sales of process filtration products in
Japan and Korea.
9
Gross profit, as a percentage of sales, was 51.6% in fiscal 1995 compared
to 50.2% in fiscal 1994. The improvement in gross profit was primarily
attributable to improved operating efficiencies and the divestiture of non-core
product lines.
Selling and administration expense increased $3.3 million or 9.6% to $37.0
million in fiscal 1995 compared to $33.8 million in fiscal 1994, primarily due
to the Company's drive to increase market share consistent with the overall
growth strategy. Other income (net) includes gains on foreign currency
transactions and rental income related to the divestiture of non-core product
lines. Interest expense decreased $375,000 due to repayment of outstanding
indebtedness and overall reduction in interest rates in the fourth quarter.
The Company's effective tax rate for fiscal 1995 and fiscal 1994 was 34%.
Net earnings increased $1.9 million or 39% to $6.6 million or $.92 per
share in fiscal 1995 compared to $4.8 million or $.75 per share in fiscal 1994.
Net earnings for fiscal 1994 included an extraordinary charge of $.03 per
share related to the refinancing of industrial revenue bonds. The weighted
average shares for fiscal 1995 and 1994 were 7.2 million and 6.3 million,
respectively, which includes the effect of a public offering of 1,437,500
shares of the Company's common stock in the third quarter of fiscal 1995.
INFLATION
Although the Company cannot determine the precise effects of inflation,
management believes that inflation does have an influence on the cost of
materials, salaries and benefits, utilities and outside services. The Company
attempts to minimize the effects of inflation, to the extent possible, through
increased sales volume, new product introductions, product redesigns, capital
expenditure and other programs to improve productivity and other cost
efficiencies, alternative sourcing of material and products and other cost
control measures. The Company's ability to pass on cost increases to its
customers is limited because of customer contracts and competitive pressure.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1996, the Company generated cash from operating activities
of $11.2 million compared to $6.0 million during fiscal 1995. The Company
invested $6.2 million in capital expenditures in fiscal 1996. The remaining
cash was invested in cash equivalents for funding future capital investments
and business projects. At July 31, 1996, $7.5 million in cash equivalents were
held in short-term money market instruments as compared to $1.2 million at July
31, 1995.
The Company has various credit facilities which are used for cash
management, foreign exchange management and future growth. The Company's
long-term credit facilities total $15 million and there were no borrowings
outstanding at July 31, 1996.
Working capital at July 31, 1996 and 1995 was $39.8 million and $33.7
million, respectively. The increased working capital was attributed mainly to
the increase in cash equivalents described above.
10
Although there are no material capital expenditure commitments outstanding
as of July 31, 1996, the Company expects to invest in capital projects at a
rate at least equal to depreciation. The Company believes that its balances of
cash and cash equivalents, together with funds generated from operations and
existing borrowing capabilities, will be sufficient to meet its operating cash
requirements and fund the environmental cleanup and required capital
expenditures in the foreseeable future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Reference is made to the Report of Independent Auditors, Consolidated
Balance Sheet, Consolidated Statements of Cash Flow, Consolidated Statement of
Shareholders' Equity, Notes to Consolidated Financial Statements and Financial
Statement Schedules on pages F-1 to F-16 of this report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table sets forth the names and ages of the directors and
executive officers of the Company, together with all positions and offices held
by such persons. Executive officers are elected annually by, and serve at the
pleasure of, the Board of Directors. The number of shares of the Company's
common stock beneficially owned by each such person is shown below under the
caption "Security Ownership of Certain Beneficial Owners and Management".
[Enlarge/Download Table]
NAME POSITION APPOINTED AGE
---- --------------------------------------------------------- --------- ---
Robert M. Collins Director 1994 65
John A. Geishecker, Jr. Director 1978 59
Saul H. Hymans Director 1980 59
Nina I. McClelland Director 1989 67
Charles Newman Director 1992 55
Charles Gelman Chairman of the Board and Chief Executive Officer 1974 64
Kim A. Davis President, Chief Operating Officer and a Director 1993 45
Anthony P. Kelly Vice President 1995 48
Edward J. Levitt Secretary and Corporate Counsel 1991 52
Karen A. Radtke Treasurer 1995 43
Charles J. Robrecht Vice President 1991 61
Mark A. Sutter Vice President 1992 35
George Uveges Chief Financial Officer and Vice President-Administration 1996 48
Robert M. Collins has been an Independent Consultant since April 1991.
From 1990 to April 1991, he was President of Cobe Laboratories Inc. (a
manufacturer of medical devices). Mr. Collins has been a director of Cobe
Laboratories Inc. for more than five years and a director of QualiCenters, Inc.
since 1992.
11
John A. Geishecker, Jr., has been Managing Director of Phillips Screw
Company since August 1993. Since March 1996, he has been Managing Director of
Hawk Resorts International, L.P. (a resort). Mr. Geishecker has been Managing
Director of KREW Team, Inc. since 1978 and Managing Director of SAGE Advisors,
Inc. (a business advisory service company) since mid-1995. From 1978 to 1996,
Mr. Geishecker was a Vice President and a Director of Rule Industries, Inc. (a
diversified manufacturer).
Saul H. Hymans has been a Professor of Economics and Statistics at the
University of Michigan since 1977 and Director, Research Seminar in
Quantitative Economics at the University of Michigan since 1981.
Nina I. McClelland has been the President of Nina I. McClelland, LLC
(consulting services) since May 1995, and has been a consultant to the Company
since May 1996. Since May 1995, Dr. McClelland has been Chairman Emeritus of
NSF International, Ann Arbor, Michigan. From January 1995 to May 1995, Dr.
McClelland was the Chairman of NSF International; and, for more than five years
previous thereto, she was the Chairman of the Board of Directors, President and
Chief Executive Officer of the National Sanitation Foundation, Ann Arbor,
Michigan. She has been an Adjunct Professor at the School of Public Health,
University of Michigan, since 1986. Dr. McClelland was a director of First of
America Bank, Ann Arbor, Michigan, from 1981 to August 1994.
Charles Newman has been the Chief Executive Officer of ReCellular Inc. (a
remanufacturer of cellular phones) since 1989. From 1989 until 1996 he was
also the President, and thereafter has been the Chairman, of ReCellular Inc.
Mr. Newman was President of Demand Publishing Inc. (a publishing services
business) from 1992 to 1994. In 1996, Mr. Newman became a director of the Bank
of Ann Arbor, Ann Arbor, Michigan.
Charles Gelman founded the Company in 1959. He was the Company's
President from 1974 to 1988 and from 1990 to 1993. He has been the Company's
Chairman and Chief Executive Officer and a Director since 1974. In 1996, Mr.
Gelman became a director of ReCellular Inc. and of Sleeping Bear Press (a
printing company).
Kim A. Davis has been the President and Chief Operating Officer of the
Company since May 1993, and a Director of the Company since March 1995. From
January 1991 until May 1993, he was Chief Operating Officer of Promega
Corporation (a biotechnology company).
Anthony P. Kelly has been Vice President, Worldwide Sales, of the Company
since August 1995. From May 1994 to January 1996, he was the Vice President,
Sales Asia/Pacific, and, from January 1996 to date, he has been the Vice
President, Worldwide Sales, for Gelman Sciences International, Inc., a
subsidiary of the Company engaged in non-US sales and distribution. For more
than the last five years, Mr. Kelly has served as the Managing Director and
Chief Operating Officer of Gelman Sciences Pty. Ltd., the Company's Australian
subsidiary. Since July 1994, Mr. Kelly has served as the Managing Director of
The Kelly Company Pty Ltd. (a diversified manufacturer), an Australian company
privately owned and operated by Mr. Kelly and his family.
12
Edward J. Levitt has been the Secretary for the Company since March 1994.
He was Assistant Vice President - Legal from December 1991 to March 1994. Mr.
Levitt was hired in April 1989 as Corporate Counsel and continues to serve in
that capacity.
Karen A. Radtke has been Treasurer of the Company since June 1995 and an
executive officer since September 20, 1995. She was Treasurer and Tax Director
of Hayes Wheels, Inc. (an automotive components manufacturer) from July 1993 to
May 1995. Ms. Radtke served on the General Motors International Tax Staff from
1988 to 1993.
Charles J. Robrecht was appointed Vice President and General Manager of
the Fluids group in July 1995. For the previous four years, he held various
positions with the Company, including Vice President - Asia Pacific Ventures,
Vice President - Distribution, and Vice President - International.
Mark A. Sutter was appointed Vice President and General Manager of the
Healthcare group in July 1995. From May 1992 to July 1995, he was Vice
President - Research and Development. Previously, Mr. Sutter served as
Director of Membrane Research and Development and Cartridge Capsule Development
and in various marketing functions for the Company since January 1986.
George Uveges was appointed Chief Financial Officer and Vice President -
Administration in June 1996. He served as the Chief Financial Officer and Vice
President of Administration for G.I. Plastek (a manufacturer of plastic parts)
from September 1995 through March 1996. From April 1991 until September 1995,
Mr. Uveges served as the Chief Financial Officer and Vice President of
Administration for Industrial General Corporation (a holding company with
business in plastic molding and subfractional electrical motors).
There are and during the past five years there have been no legal
proceedings material to an evaluation of the ability of any director or
executive officer of the Company to act in such capacity or of his or her
integrity.
Based solely on a review of the copies of such forms furnished to the
Company and written representations from the Company's executive officers and
directors, the Company believes that during the last fiscal year all Section
16(a) filing requirements applicable to its executive officers, directors and
greater than ten percent beneficial owners were complied with, except as
follows:
- Mr. Gelman filed one Form 4, pertaining to one sale transaction, late.
- Ms. Radtke, who became an executive officer of the Company on September
20, 1995, filed her Form 3 late.
- Mr. Kelly, who became an executive officer of the Company on September
20, 1995, filed an amendment of his Form 3 late and his Form 5, pertaining
to one sale transaction and one option grant, late.
13
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation for
services in all capacities for each of the three fiscal years ended July 31,
1996 of those persons who were the chief executive officer at August 1, 1996,
and the other four most highly compensated executive officers of the Company
for the fiscal year ended July 31, 1996 (the "Five Named Officers").
[Enlarge/Download Table]
Long-Term
Compensation
Annual Compensation Awards/Securities
Name and Fiscal ------------------- Underlying All Other
Principal Position Year Salary Bonus(1) Options(#) Compensation(2)
------------------------ ------ ---------- ---------- ---------- ---------------
Charles Gelman 1996 $350,000 - - $10,817
Chairman of the 1995 350,012 $150,000 50,000 157,179
Board and 1994 328,000 120,000 56,250 46,637
Chief Executive Officer
Kim A. Davis 1996 $325,000 - - $25,686
President and 1995 233,870 $150,000 50,000 11,551
Chief Operating Officer 1994 186,000 120,000 56,250 2,419
Anthony P. Kelly 1996 $144,469 $ 3,700 27,500 $ 299
Vice President 1995 112,550 33,000 - 462
1994 97,111 10,000 3,750 726
Mark A. Sutter 1996 $120,000 - - $ 8,551
Vice President 1995 106,923 $ 31,760 5,000 6,751
1994 100,000 30,000 - 7,869
Charles J. Robrecht 1996 $110,000 - 750 $ 6,965
Vice President 1995 105,000 $ 17,000 7,500 7,872
1994 105,000 18,900 - 8,112
(1) Bonuses are shown in the fiscal year earned, but payment is deferred
until the subsequent fiscal year.
(2) "All Other Compensation" includes the following payments by the Company
during the fiscal year ended July 31, 1996:
(a) Employee Stock Ownership Plan: Mr. Gelman, $1,013; Mr.
Davis, $1,013; Mr. Robrecht $857; and Mr. Sutter, $1,013.
(b) Deferred Compensation Thrift Plan (401(k)): Mr. Gelman,
$4,806; Mr. Davis, $4,748; Mr. Robrecht, $3,423; and Mr. Sutter,
$7,034.
(c) Group Term and other Life Insurance: Mr. Gelman, $4,699;
Mr. Davis, $510; Mr. Robrecht $2,386; and Mr. Sutter, $205.
(d) Profit Sharing: Mr. Gelman, Mr. Davis, Mr. Kelly, Mr.
Robrecht, and Mr. Sutter each were paid $299.
(e) Mr. Davis' auto allowance of $19,116.
The following table sets forth additional information concerning stock
option grants made during fiscal 1996 to the Five Named Officers. These grants
are also reflected in the Summary Compensation Table. In addition, in
accordance with the rules of the Securities and Exchange Commission ("SEC"),
the hypothetical gain or "option spread" for each option grant is shown based
on compound annual rate of stock price appreciation of 5% and 10% from the date
of grant to the expiration date. The
14
assumed rates of growth are prescribed by the SEC and are for illustration
purposes only; they are not intended to predict future stock prices. The
Company has not granted any stock appreciation rights.
OPTION GRANTS IN LAST FISCAL YEAR
[Enlarge/Download Table]
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION FOR
INDIVIDUAL GRANTS (1) OPTION TERM
--------------------------------------------------- ---------------------
NUMBER OF
SECURITIES % OF TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE OR EXPIRATION
NAME GRANTED (#) FISCAL YEAR BASE PRICE ($/SH.) DATE 5% ($) 10% ($)
------------------- ----------- ------------------ ------------------ -------------------- -------- --------
Charles Gelman - - - - - -
Kim A. Davis - - - - - -
Anthony P. Kelly 27,500 39.3% $22.570 9/20/05 and 12/14/05 $390,300 $989,000
Charles J. Robrecht 750 1.1% 26.125 4/2/06 12,300 31,200
Mark Sutter - - - - - -
(1) The Company's 1988 Stock Option Plan, as amended, (the "1988 Plan")
generally provides for granting of incentive stock options, non-qualified
stock options and stock appreciation rights. The Company has not granted
any stock appreciation rights. The 1988 Plan is administered by a
committee of the Board of Directors. Subject to the limitations imposed
by the 1988 Plan, the committee selects participants, determines the size
of the grant, the option exercise price and the period of vesting.
Pursuant to the 1988 Plan, the exercise price of an incentive stock option
must be no less than the market price of a share of the Company's common
stock on the date of the grant. The options granted become exercisable
one-fourth each year on and after the anniversary of the grant date. The
exercise price must be paid in cash or, with the consent of the Board of
Directors, in whole or in part in the Company's common stock or other
property.
The following table provides information concerning the exercise of stock
options during fiscal 1996 by the Five Named Officers and the fiscal year-end
value of unexercised options on an aggregate basis.
AGGREGATED OPTION EXERCISES IN FISCAL 1996 AND FISCAL YEAR END OPTION VALUES
[Enlarge/Download Table]
Number of Value of
Securities Underlying Unexercised
Unexercised In-the-Money
Options at Options at
July 31, 1996 July 31, 1996
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized($)(1) Unexercisable Unexercisable(2)
------------------- --------------- -------------- --------------------- --------------------
Charles Gelman - - 31,250/37,500 $442,125/$351,563
Kim A. Davis - - 125,000 /37,500 2,323,144/ 393,750
Anthony P. Kelly - - 24,887/30,313 554,988/ 215,708
Charles J. Robrecht 20,999 $354,437 563/9,188 13,998/ 143,488
Mark Sutter 2,000 44,422 11,311/8,250 259,362/ 158,288
(1) Aggregate market value of the shares of Common Stock covered by the
options on date of exercise less the exercise price of such options.
(2) Options are "in-the-money" if, on July 31, 1996, the market price of the
Common Stock ($28 1/4) exceeded the exercise price of such option.
15
DIRECTORS COMPENSATION FOR FISCAL 1996
The following table sets forth information concerning the compensation for
fiscal 1996 paid to each non-management director of the Company.
[Download Table]
Cash Compensation Number of Shares
---------------------------------------- Underlying
Annual Meeting Consulting Options
Name Retainer Fee Fees Fees Granted (2)
---- ------------------- ------- ---------- ----------------
Robert M. Collins $4,000 $17,000 $4,000 -
John A. Geishecker, Jr. 4,000 20,000 - -
Hajime Kimura (1) 4,000 - - -
Saul H. Hymans 4,000 19,000 - 1,000
Nina I. McClelland 4,000 19,000 $5,000 1,000
Charles Newman 4,000 19,000 - -
(1) Dr. Kimura resigned from the Board of Directors effective June 30, 1996.
(2) Pursuant to the Company's non-employee director stock plan, Dr. Hymans
and Dr. McClelland were each granted a stock option on July 31, 1996, to
acquire 1,000 shares of the Company's common stock at an exercise price of
$27.75 per share.
EMPLOYMENT AGREEMENTS AND TERMINATION OF EMPLOYMENT AND CHANGE IN CONTROL
ARRANGEMENTS
Charles Gelman. Pursuant to an employment agreement, Charles Gelman is
employed as Chairman and Chief Executive Officer of the Company for a
three-year term at an annual minimum salary of $350,000 plus bonus, as
determined by the Board of Directors. The agreement provides for the use of an
automobile by Mr. Gelman at no cost to him, and gives Mr. Gelman the right to
participate in medical, disability, retirement and other benefit programs on
the same terms and conditions as other executive employees of the Company. The
active employment period under the agreement commenced August 1, 1995, and is
automatically extended each year on August 1 for one additional year unless
notice of termination is given. (No such notice was given on August 1, 1996.)
Employment terminates upon Mr. Gelman's death or disability. It also may be
terminated by the Company with or without cause and/or by Mr. Gelman. Should
there have been no change in control of the Company, upon termination by the
Company without cause of Mr. Gelman's employment, Mr. Gelman is to receive
termination compensation equal to his annual salary plus bonus in the year of
termination, if the Company is then achieving or exceeding its projected
performance plan, or an amount equal to his annual salary only, if the Company
is not then achieving its projected performance plan, payable annually for the
greater of the remaining balance of the agreement or two years. If there has
been a change in control and Mr. Gelman resigns within one year of such a
change or his employment is terminated by the Company without cause, Mr. Gelman
is to receive termination compensation equal to his annual salary plus bonus in
the year of termination, if the Company is then achieving or exceeding its
projected performance plan, or an amount equal to his annual salary only, if
the Company is not then achieving its projected performance plan, payable
annually for the remaining balance of the agreement plus two years, the
immediate vesting of all stock options and awards granted to him, the immediate
payment of all incentive awards earned, and for the unexpired term of the
agreement, the use of an automobile and fringe benefits. The amount paid to
Mr. Gelman in fiscal 1996 is set forth in the compensation table, above. Mr.
Gelman's current annual salary is $350,000. As used in the agreement, "change
in control" means acquisition of beneficial ownership of a majority of the
outstanding voting shares of the Company, a tender offer consummated for at
least thirty-three percent
16
(33%) of the Company's common stock or acquisition of beneficial ownership of
more than fifty-one percent (51%) of the total fair market value of the
Company's assets by any person or entity (or more than one person or entity
acting as a group), or replacement of a majority of the members of the
Company's Board of Directors within a one year period.
The Company and Mr. Gelman have agreed to amend Mr. Gelman's employment
agreement contingent upon the closing of the merger with Memtec. Under the
agreement, Mr. Gelman has agreed, in exchange for cash payments totaling
$2,352,709 payable on January 2, 1997, to terminate all provisions of his
Employment Agreement as of the effective date of the Merger, other than those
relating to the vesting of stock options. In addition, the Company and Mr.
Gelman will enter into a consulting agreement under which Mr. Gelman will act
as a consultant for a period of five years and will receive for three years a
fee of $50,000 annually and the use of an office, clerical and staff support,
and certain insurance and similar benefits. After the initial three-year
period, Mr. Gelman will have access to an office and secretarial help for an
additional two-year period.
Kim A. Davis. Pursuant to an employment agreement, Kim A. Davis is
employed as President and Chief Operating Officer of the Company for a
three-year term at an annual minimum salary of $325,000 plus bonus, as
determined by the Board of Directors. The agreement provides for the use of an
automobile by Mr. Davis at no cost to him and for whole life insurance benefits
in the amount of $1,000,000 with premiums payable by the Company, and gives Mr.
Davis the right to participate in medical, disability, retirement and other
benefit programs on the same terms and conditions as other executive employees
of the Company. The active employment period under the agreement commenced
August 1, 1995, and is automatically extended each year on August 1 for one
additional year unless notice of termination is given by the Company. (No such
notice was given on August 1, 1996.) Employment terminates upon Mr. Davis'
death or disability. Further, it may be terminated by the Company with or
without cause or by Mr. Davis. Should there have been no change in control of
the Company, upon termination by the Company without cause of Mr. Davis'
employment, Mr. Davis is to receive termination compensation equal to his
annual salary plus bonus in the year of termination, if the Company is then
achieving or exceeding its projected performance plan, or an amount equal to
his annual salary only, if the Company is not then achieving its projected
performance plan, payable annually for the greater of the remaining balance of
the agreement or two years. If there has been a change in control and Mr.
Davis resigns within one year of such a change or his employment is terminated
by the Company without cause, Mr. Davis is to receive termination compensation
equal to his annual salary plus bonus in the year of termination, if the
Company is then achieving or exceeding its projected performance plan, or an
amount equal to his annual salary only, if the Company is not then achieving
its projected performance plan, payable annually for the remaining balance of
the agreement plus two years, the immediate vesting of all stock options and
awards granted to him, the immediate payment of all incentive awards earned,
and for the unexpired term of the agreement the use of an automobile, continued
payment on the one million dollar whole life insurance policy and fringe
benefits. The amount paid to Mr. Davis in fiscal 1996 is set forth in the
compensation table, above. Mr. Davis' current annual salary is $325,000. As
used in the agreement, "change in control" means acquisition of beneficial
ownership of a majority of the outstanding voting shares of the Company, a
tender offer consummated for at least thirty-three percent (33%) of the
Company's common stock or acquisition of beneficial ownership of more than
fifty-one percent (51%) of the total fair market value of the Company's assets
by any person or entity (or more than one person or entity acting as a group),
or replacement of a majority of the members of the Company's Board of Directors
within a one year period.
The Company and Mr. Davis have agreed to amend Mr. Davis' employment
agreement, contingent upon the closing of the merger with Memtec. Under the
agreement, Mr. Davis has
17
agreed, in exchange for cash payments totaling $924,386 payable on January 2,
1997, to amend his employment agreement so as to limit the maximum termination
benefit to three years' compensation.
Anthony P. Kelly. Pursuant to a service agreement, Mr. Kelly, the
Company's Vice President, Worldwide Sales, is employed by Gelman's Australian
subsidiary as its Managing Director and Chief Operating Officer through the
fiscal year ending July 31, 1998, at a salary to be reviewed and increased each
January and July 1 by the percentage increase in the Consumer Price Index for
Sydney, Australia, since the previous review date. In the fiscal year ended
July 31, 1996, Mr. Kelly's annual salary was $144,469. Under the agreement, on
each salary review date, Mr. Kelly is also entitled to receive an amount equal
to 5% of the first A$500,000 of pre-tax profits and 2.5% of pre-tax profits
over A$500,000 of the Australian subsidiary since the previous review date.
Further, pursuant to the agreement, the Australian subsidiary pays A$7,500 per
year to the Kelly Superannuation Fund on a date specified by Mr. Kelly. The
agreement also provides for the use of an automobile by Mr. Kelly at no cost to
him. Mr. Kelly's employment may be terminated at any time for any reason. If
his employment is terminated, Mr. Kelly is to receive an amount from the
Australian subsidiary equal to his then current annual salary plus an amount
equal to 5% of the pre-tax profits of less than A$500,000 and 2.5% of the
amount over A$500,000 earned by the Australian subsidiary for the preceding
twelve months; provided, if his employment is terminated within six months
after a change in control of the Company or the Australian subsidiary, Mr.
Kelly is to receive twice the amount he would otherwise receive upon
termination.
Charles J. Robrecht. Pursuant to a termination benefit agreement, upon
termination of his employment for any reason other than due to the commission
of an illegal act, Mr. Robrecht, a Vice President of the Company, will be paid
an amount equivalent to six months of his annual salary. Based on current
annual salary, severance payments for Mr. Robrecht would be $55,000. In
addition, in the event of termination, Mr. Robrecht will receive reimbursement
of his costs to obtain job placement services, not to exceed $7,500, and
medical and health insurance coverage for a period ending on the earlier of the
date which is twelve months from the date of his termination or the date he
commences new employment.
Mark A. Sutter. Pursuant to a termination benefit agreement, upon
termination of his employment for any reason other than due to the commission
of an illegal act, Mr. Sutter, a Vice President of the Company, will be paid an
amount equivalent to six months of his annual salary. Based on his current
annual salary, severance payments for Mr. Sutter would be $60,000. In
addition, in the event of termination, Mr. Sutter will receive reimbursement of
his costs to obtain job placement services, not to exceed $7,500, and medical
and health insurance coverage for a period ending on the earlier of the date
which is twelve months from the date of his termination or the date he
commences new employment.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Collins, Mr. Geishecker and Dr. McClelland served as members of the
Compensation Committee in fiscal 1996. No member of the Compensation Committee
has an interlocking or insider participation that would affect compensation
determination.
18
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL SHAREHOLDERS
The following table sets forth the beneficial ownership of the Company's
common stock of each person known to the Company to be the beneficial owner of
more than five percent (5%) of the total shares issued and outstanding on
September 24, 1996. Under rules and regulations promulgated by the SEC, a
person is deemed to be the "beneficial owner" of all the shares with respect to
which he has or shares voting power or investment power, regardless of whether
he is entitled to receive any economic benefit from his interest in the shares.
Except as otherwise indicated, ownership is direct. As used herein, the term
"voting power" means the power to vote or to direct the voting of shares and
"investment power" means the power to dispose of or to direct the disposition
of shares.
[Download Table]
Name and Address of Shares Percent of
Beneficial Owner Beneficially Owned Class
------------------------------------------ ------------------ ----------
Charles Gelman 954,692 (a) 12.01%
600 South Wagner Road
Ann Arbor, MI 48103-9019
RCM Capital Management 702,500 (b) 8.84%
4 Embarcadero Centre
San Francisco, CA 94111-4189
Prudential Insurance Company of America 461,300 (c) 5.80%
Prudential Plaza
751 Broad Street
Newark, NJ 07102-3777
T. Rowe Price Associates, Inc. 451,200 (d) 5.68%
100 East Pratt Street
Baltimore, MD 21202
Mentor Partners, L.P. 434,400 (e) 5.47%
500 Park Avenue
New York, NY 10022
Schroder Wertheim Investment Services Inc. 411,600 (f) 5.18%
Equitable Center
787 Seventh Avenue
New York, NY 10019-6016
--------
(a) Mr. Gelman's beneficial ownership includes 7,697 shares allocated to him
under the Company's employee benefit plans. The total does not include
250,916 shares held by the Employee Stock Ownership Plan with respect to
which he has voting and investment power as a trustees.
(b) Based upon information contained in a Schedule 13G filed by RCM Capital
Management and certain affiliated accounts with the SEC on February 6,
1996. Consists of 597,500 shares over which the reporting persons have
sole voting power, 696,500 shares over which they have sole dispositive
power and 7,000 shares over which they have shared dispositive power.
19
(c) Based upon information contained in a Schedule 13G filed by Prudential
Insurance Company of American with the SEC on February 14, 1996. Consists
of 461,300 shares over which Prudential Insurance Company of America has
sole voting and sole dispositive power.
(d) Based upon information contained in a Schedule 13G filed by T. Rowe Price
Associates, Inc. and certain affiliated accounts with the SEC on February
13, 1996. Consists of 3,900 shares over which T. Rowe Price Associates,
Inc. has sole voting power and 451,200 shares over which T. Rowe Price
Associates, Inc. has sole dispositive power, and 447,300 shares over which
T. Rowe Price New Horizon Fund, Inc. has sole voting power.
(e) Based on information contained in Schedule 13D filed by Mentor Partners,
L.P. with the SEC on September 20, 1996. Consists of 434,400 shares over
which Mentor Partners, L.P. has sole voting and sole dispositive power.
(f) Based upon information contained in a Schedule 13G filed by Schroder
Wertheim Investment Services Inc. with the SEC on February 9, 1996.
Consists of 411,600 shares over which Schroder Wertheim Investment
Services Inc. has sole voting and sole dispositive power.
SECURITY OWNERSHIP OF MANAGEMENT
The following table provides certain information regarding the beneficial
ownership of the Company's common stock, as of September 24, 1996, by its
directors, the Five Named Officers and all directors and executive officers of
the Company as a group. Except as otherwise indicated, ownership is direct.
[Download Table]
Stock Beneficially Owned
Including Options Percent
Name and Warrants (a) of Class
---- ------------------------ --------
Robert M. Collins 9,000 *
John A. Geishecker, Jr. 44,100 *
Saul H. Hymans 5,110 *
Nina I. McClelland 9,000 *
Charles Newman 14,962 *
Charles Gelman 954,692 (b) 12.0%
Kim A. Davis 125,984 1.56%
Anthony P. Kelly 29,227 *
Charles J. Robrecht 5,779 *
Mark A. Sutter 15,686 *
All directors and
executive officers as a
group (13 persons) 1,225,498 14.9%
--------
*Less than 1% of outstanding shares of the Company's Common Stock.
(a) The number of unexercised option and warrant shares which are exercisable
within 60 days after September 24, 1996, were: Robert M. Collins, 9,000;
John A. Geishecker, Jr., 44,100; Saul H. Hymans, 4,500; Nina I.
McClelland, 8,550; Charles Newman, 9,000; Charles Gelman, 31,250; Kim A.
Davis, 125,000; Anthony P. Kelly, 28,012; Charles J. Robrecht 563; Mark
Sutter, 12,999; and all executive officers and directors as a group (13
persons) 280,299. In addition, 140,000 shares under option will become
immediately exercisable as a result of the Merger.
(b) See note (a) to the table above setting forth the security ownership of
principal shareholders.
20
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During fiscal 1996, Mr. Collins provided strategic planning consulting
services to the Company in exchange for which Mr. Collins is paid a retainer of
$1,000 per quarter plus $1,000 per day for services in excess of one day per
quarter. At July 31, 1996, the Company had accrued $4,000 for the services
provided.
During fiscal 1996, KREW Team, Inc. provided financial services to the
Company. Mr. Geishecker, a Director of the Company, is Managing Director of
KREW Team, Inc. At July 31, 1996, the Company had accrued $30,000 plus
expenses for the services provided.
During fiscal 1996, the Company paid $5,000 to Dr. McClelland, a Director
of the Company, for consulting services and provided her with office space and
support services. The Company has an additional commitment for $20,000 of
consulting services from Dr. McClelland for the fiscal year ending July 31,
1997.
During fiscal 1994, the Company divested certain non-core product lines
manufactured by its Australian subsidiary. These product lines were sold to
The Kelly Company Pty. Ltd., which is owned by Mr. Kelly, a Vice President of
the Company, and his family, for $726,000. The purchase was funded by a note
to the Company. As of July 31, 1996, $653,000 was due on the note which bears
interest at prime as published in the Wall Street Journal on the first business
day of each month. The note, as amended, is a balloon note which provides for
36 monthly installments plus accrued interest, with the outstanding balance due
in August 1999.
21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements
(A) Consolidated Statements of Income - Years ended July 31, 1996, 1995
and 1994.
(B) Consolidated Statements of Stockholders' Equity - Years ended July
31, 1996, 1995, and 1994.
(C) Consolidated Balance Sheets - July 31, 1996 and 1995.
(D) Consolidated Statements of Cash Flows - Years ended July 31, 1996,
1995, and 1994.
(E) Notes to Consolidated Financial Statements.
(F) Report of Independent Accountants.
(a)(2) Financial Statement Schedules
II -- Valuation and Qualifying Accounts - Years ended July 31, 1996, 1995,
and 1994.
All other schedules for which provision is made in the applicable accounting
regulations of the SEC are not required under the related instructions or are
inapplicable, and therefore have been omitted.
(a)(3) Exhibits
See Exhibit index at page number 41 of this Report on Form 10-K.
(b) Reports on Form 8-K
None.
22
[Enlarge/Download Table]
CONSOLIDATED STATEMENTS OF INCOME
Gelman Sciences Inc. and Subsidiaries
Dollars in thousands, except per share data
----------------------------------------------------------------------------------------------------
Years Ended July 31 1996 1995 1994
----------------------------------------------------------------------------------------------------
Net sales $ 112,057 $ 103,503 $ 94,963
Cost of products sold 56,864 50,070 47,253
----------------------------------------------------------------------------------------------------
Gross profit 55,193 53,433 47,710
Selling and administration 40,130 37,043 33,785
Research and development 6,258 5,498 4,877
----------------------------------------------------------------------------------------------------
Operating earnings 8,805 10,892 9,048
Pollution-related expense 2,800 - -
Interest expense 607 1,314 1,689
Other income - net (485) (409) (178)
----------------------------------------------------------------------------------------------------
Earnings before income taxes and
extraordinary item 5,883 9,987 7,537
Income taxes 1,547 3,365 2,600
----------------------------------------------------------------------------------------------------
Net earnings before extraordinary item 4,336 6,622 4,937
Extraordinary item - - 183
----------------------------------------------------------------------------------------------------
Net earnings $ 4,336 $ 6,622 $ 4,754
----------------------------------------------------------------------------------------------------
Primary earnings per share before
extraordinary item $ 0.53 $ 0.92 $ 0.78
----------------------------------------------------------------------------------------------------
Primary earnings per share $ 0.53 $ 0.92 $ 0.75
----------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
F - 1
[Enlarge/Download Table]
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Gelman Sciences Inc. and Subsidiaries
Dollars in thousands
------------------------------------------------------------------------------------------------------------------------
Common Additional Retained
Stock Capital Earnings
------------------------------------------------------------------------------------------------------------------------
Balances at July 31, 1993 $260 $12,508 $12,345
------------------------------------------------------------------------------------------------------------------------
Net earnings for 1994 4,754
Stock issued under employee plans - 161,270 shares 16 1,276
ESOP loan payment
Three for two common stock splits 337 (337) (7)
Tax benefit from exercise of stock options 608
Currency translation adjustment
Officer loan repayment
------------------------------------------------------------------------------------------------------------------------
Balances at July 31, 1994 613 14,055 17,092
------------------------------------------------------------------------------------------------------------------------
Net earnings for 1995 6,622
Stock issued:
Employee plans - 221,730 shares 22 1,181
Public offering - 1,437,500 shares 144 19,278
ESOP loan payment
Tax benefit from exercise of non-qualified stock options 631
Currency translation adjustment
------------------------------------------------------------------------------------------------------------------------
Balances at July 31, 1995 779 35,145 23,714
------------------------------------------------------------------------------------------------------------------------
NET EARNINGS FOR 1996 4,336
STOCK ISSUED UNDER EMPLOYEE PLANS - 150,710 SHARES 15 1,033
WARRANTS SOLD 57
ESOP LOAN PAYMENT
TAX BENEFIT FROM EXERCISE OF NON-QUALIFIED STOCK OPTIONS 600
CURRENCY TRANSLATION ADJUSTMENT
------------------------------------------------------------------------------------------------------------------------
BALANCES AT JULY 31, 1996 $794 $36,835 $28,050
------------------------------------------------------------------------------------------------------------------------
Dollars in thousands
--------------------
Foreign Notes
Currency Receivable
Translation Common
Adjustments Stock
--------------------------------------------------------------------------------------------------------
Balances at July 31, 1993 $(1,265) $(1,592)
--------------------------------------------------------------------------------------------------------
Net earnings for 1994
Stock issued under employee plans - 161,270 shares
ESOP loan payment 150
Three for two common stock splits
Tax benefit from exercise of stock options
Currency translation adjustment 390
Officer loan repayment 992
--------------------------------------------------------------------------------------------------------
Balances at July 31, 1994 (875) (450)
--------------------------------------------------------------------------------------------------------
Net earnings for 1995
Stock issued:
Employee plans - 221,730 shares
Public offering - 1,437,500 shares
ESOP loan payment 150
Tax benefit from exercise of non-qualified stock options
Currency translation adjustment 310
--------------------------------------------------------------------------------------------------------
Balances at July 31, 1995 (565) (300)
--------------------------------------------------------------------------------------------------------
NET EARNINGS FOR 1996
STOCK ISSUED UNDER EMPLOYEE PLANS - 150,710 SHARES 15
WARRANTS SOLD
ESOP LOAN PAYMENT 150
TAX BENEFIT FROM EXERCISE OF NON-QUALIFIED STOCK OPTIONS
CURRENCY TRANSLATION ADJUSTMENT (276)
-------------------------------------------------------------------------------------------------------
BALANCES AT JULY 31, 1996 $ (841) $ (150)
-------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
F - 2
[Enlarge/Download Table]
CONSOLIDATED BALANCE SHEETS
Gelman Sciences Inc. and Subsidiaries
Dollars in thousands, except per share data
-------------------------------------------------------------------------------------------------------------------------
July 31 1996 1995
-------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 9,590 $ 3,010
Accounts receivable less allowances (1996-$1,828; 1995-$1,310) 26,442 23,985
Inventories 11,751 14,944
Other current assets 4,205 5,363
-------------------------------------------------------------------------------------------------------------------------
Total Current Assets 51,988 47,302
PROPERTY, PLANT AND EQUIPMENT, NET 34,124 32,584
INTANGIBLES AND OTHER ASSETS 2,108 1,895
-------------------------------------------------------------------------------------------------------------------------
Total Assets $88,220 $81,781
=========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,989 $ 3,813
Accrued expenses 7,077 9,312
Current maturities of long-term debt 163 524
-------------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 12,229 13,649
LONG-TERM DEBT, EXCLUSIVE OF CURRENT MATURITIES 7,704 6,861
OTHER LONG-TERM LIABILITIES 3,599 2,498
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00 per share-authorized 500,000 shares,
none outstanding - -
Common stock, par value $.10 per share
issued 7,940,000 shares in 1996 and 7,790,000 shares in 1995. 794 779
Additional capital 36,835 35,145
Retained earnings 28,050 23,714
Foreign currency translation adjustments (841) (565)
Notes receivable-common stock (150) (300)
-----------------------------
Total Stockholders' Equity 64,688 58,773
-------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $88,220 $81,781
=========================================================================================================================
See notes to consolidated financial statements.
F - 3
[Enlarge/Download Table]
CONSOLIDATED STATEMENTS OF CASH FLOW
Gelman Sciences Inc. and Subsidiaries
Dollars in thousands
------------------------------------------------------------------------------------------------------------
Years Ended July 31 1996 1995 1994
------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net earnings $ 4,336 $ 6,622 $ 4,754
Extraordinary loss related to early extinguishment of debt,
before tax benefit - - 295
Depreciation and amortization 4,734 4,495 4,396
(Decrease) increase in deferred income taxes (458) 144 627
Loss (gain) on sale of property, plant and equipment 51 54 (196)
Stock issued for employee service 265 389 360
Contribution to employee stock ownership plan 150 150 150
Decrease (increase) in inventories 2,947 (615) (1,431)
Increase in accounts receivable (2,738) (3,071) (3,391)
Decrease (increase) in other current assets 870 (1,100) (276)
(Decrease) increase in current liabilities (1,648) (686) 382
Increase (decrease) in liabilities for environmental activities 2,217 (597) (1,154)
Increase (decrease) in other long term liabilities 345 179 (25)
------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 11,071 5,964 4,491
FINANCING ACTIVITIES
Long-term debt borrowings 2,360 25,425 33,125
Principal payments on long-term debt (1,613) (43,070) (33,196)
Net proceeds from secondary stock offering - 19,422 -
Proceeds from exercised stock options and warrants 840 818 924
Tax benefit from exercised stock options 600 631 608
Fees paid on early retirement of debt - - (52)
Payment received - note receivable common stock - - 992
------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,187 3,226 2,401
INVESTING ACTIVITIES
Capital expenditures (6,230) (7,825) (6,682)
Proceeds from sale of property, plant and equipment 8 43 537
Increase in intangibles and other assets (329) (47) (347)
------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (6,551) (7,829) (6,492)
EFFECTS OF EXCHANGE RATE CHANGES ON CASH (127) 124 (17)
------------------------------------------------------------------------------------------------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 6,580 1,485 383
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,010 1,525 1,142
------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 9,590 $ 3,010 $ 1,525
============================================================================================================
See notes to consolidated financial statements.
F - 4
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Gelman Sciences Inc. and Subsidiaries
NOTE A-SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
accounts of all subsidiaries of the Company and are prepared in conformity with
generally accepted accounting principles which require management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results may differ from these
estimates. All significant intercompany transactions are eliminated. The
financial data of foreign subsidiaries is translated using current exchange
rates at the end of the year for balance sheet accounts and average exchange
rates for operations. Translation gains and losses are reflected in
stockholders' equity, while transaction gains and losses are reflected in the
statements of operations. Foreign exchange transaction gains (losses) of
($27,000), $233,000, and $77,000 were recognized in fiscal years 1996, 1995,
and 1994, respectively.
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform to the presentation used for the year ended
July 31, 1996.
Revenue Recognition: The Company recognizes revenue from product sales when
goods are shipped to the customer and provides a reserve for estimated returns
and allowances.
Inventories: Inventories are stated at the lower of cost or market. Cost was
determined by the last-in, first-out (LIFO) method at the U.S. locations,
representing approximately 69% and 77% of the July 31, 1996 and 1995
inventories, respectively, and by the first-in, first-out (FIFO) method for
the foreign locations. The current cost of inventories exceeded their LIFO
carrying amount by approximately $2,824,000 and $2,961,000 at July 31, 1996 and
1995, respectively. During fiscal 1996, inventory quantities were reduced,
which resulted in a liquidation of LIFO inventory layers carried at lower costs
which prevailed in prior years. The effect of the liquidation was to decrease
cost of products sold by $137,000 and to increase net earnings by $90,400 or
$.01 per share.
Properties and Depreciation: Properties are stated at cost. Depreciation is
computed using the straight-line method based on the estimated useful life of
the related asset.
Intangibles and Other Assets: Intangibles and Other Assets consist principally
of the excess of cost over net assets of acquired companies, amortized over 30
years, the cost of patents, amortized over 10 years, and a note receivable
related to the 1994 sale of non-core product lines in Australia.
Earnings Per Share: Primary earnings per share for fiscal 1996, 1995, and 1994
are based on the weighted average of common and common equivalent shares of
8,254,993, 7,235,273, and 6,307,388, respectively. Common share equivalents
included in the computation represent shares issuable upon assumed exercise of
stock options and warrants which would have a dilutive effect. Full dilution
had no material effect on earnings per share in fiscal 1996, 1995 and 1994.
Fiscal 1995 weighted average shares includes the effect of the March 1995
public offering of 1,437,500 shares of the Company's common stock.
F - 5
NOTE A-SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Financial Instruments: The Company enters into certain financial agreements to
reduce exposure to fluctuating foreign currency exchange rates and interest
rates. Realized and unrealized gains and losses on forward exchange contracts
are recorded as other expense (income) in the period in which exchange rate
movement occurs. The Company enters into interest rate financial agreements to
manage exposure to interest rate fluctuations. The differences to be paid or
received on interest rate agreements are included in interest expense
currently. Gains and losses realized upon settlement of these agreements are
deferred and amortized to interest expense over a period relevant to the
agreement if the underlying hedged instrument remains outstanding or
immediately if the underlying hedged instrument is terminated. The fee paid on
an interest rate cap agreement is amortized over the life of the agreement.
Concentration of Credit Risk: The Company invests its excess cash in both
deposits with major banks throughout the world and other high quality
short-term liquid money market instruments (commercial paper, government
treasury bills, etc.) These cash equivalents mature within three months and
the Company has not incurred any related losses. The carrying amount of cash
equivalents approximates fair value. At July 31, 1996, $7,466,000 in cash
equivalents were held.
The Company sells a broad range of products in most countries of the
world. Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers comprising the Company's customer
base. Ongoing credit evaluations of customers' financial condition are
performed and, generally, no collateral is required. The Company maintains
reserves for potential credit losses and such losses, in the aggregate, have
not exceeded management's expectations.
Income Taxes: The Company uses the liability method in measuring the provision
for income taxes and recognizing deferred tax assets and liabilities in the
balance sheet. The liability method requires that deferred income taxes
reflect the tax consequences of currently enacted rates for differences between
the tax and financial reporting bases of assets and liabilities.
The Company intends to continue to reinvest its undistributed earnings to
expand its international operations; therefore, no tax has been provided to
cover the repatriation of such undistributed earnings. At July 31, 1996, the
cumulative amount of undistributed international earnings was approximately
$5.6 million.
NOTE B-INVENTORIES
-----------------------------------------------------------------------------
Inventories consist of the following as of July 31 (in thousands):
[Download Table]
1996 1995
-----------------------------------------------------------------------------
Finished products $ 6,061 $ 6,320
Work in process 1,027 1,572
Raw materials and purchased parts 4,663 7,052
-----------------------------------------------------------------------------
$11,751 $14,944
-----------------------------------------------------------------------------
F - 6
NOTE C-PROPERTY, PLANT AND EQUIPMENT
----------------------------------------------------------------------------
Property, plant and equipment consist of the following as of July 31 (in
thousands):
[Download Table]
1996 1995
----------------------------------------------------------------------------
Land $ 1,441 $ 1,438
Buildings and leasehold improvements 19,956 19,302
Equipment 53,870 49,102
----------------------------------------------------------------------------
75,267 69,842
Less: allowance for depreciation 41,143 37,258
----------------------------------------------------------------------------
$34,124 $32,584
----------------------------------------------------------------------------
NOTE D-CURRENT LIABILITIES
---------------------------------------------------------------------------
Accrued expenses consist of the following as of July 31 (in thousands):
[Download Table]
1996 1995
---------------------------------------------------------------------------
Accrued salaries and wages $3,507 $5,310
Environmental reserve 1,000 250
Income taxes currently payable 329 1,332
Other accrued expenses 2,241 2,420
--------------------------------------------------------------------------
$7,077 $9,312
--------------------------------------------------------------------------
NOTE E-FINANCING
Financing consisted of the following obligations as of July 31 (in thousands):
[Enlarge/Download Table]
-----------------------------------------------------------------------------------------------
1996 1995
-----------------------------------------------------------------------------------------------
Industrial Development Revenue Bonds $4,415 $4,697
Note payable, State of Michigan, bearing interest
at 7.5%, through January 6, 2002 638 744
Notes payable to banks 2,211 1,368
Other 603 576
-----------------------------------------------------------------------------------------------
Total debt 7,867 7,385
Less: current maturities and short-term debt 163 524
-----------------------------------------------------------------------------------------------
Long-term debt $7,704 $6,861
-----------------------------------------------------------------------------------------------
During fiscal 1996, the Company refinanced the 1994 Industrial Development
Revenue bonds to reduce future interest costs. The refinanced bonds are
payable in full on July 1, 2004, and bear a floating market interest rate. A
renewable bank letter of credit expiring May 15, 2001 supports the
creditworthiness of the bonds. The Company entered into an interest rate swap
agreement with a major financial institution which fixes the floating interest
rate to 5.89% through July 1, 2004. Covenants and default provisions of the
letter of credit and the bond indenture are tied to the Company's unsecured
revolving credit agreement.
Other notes payable to banks of $2,211,000 are borrowings under separate
foreign subsidiaries' local currency credit lines and supported by a parent
company guarantee. Borrowings under these facilities are classified as
long-term debt because the Company's other long-term debt credit agreements can
be used to refinance the notes payable.
F - 7
NOTE E-FINANCING (CONTINUED)
The Company has available an unsecured revolving credit agreement for $15
million expiring June 2000 to support overall working capital needs. The
agreement contains various market rate borrowing options. Financial covenants
limit the Company's borrowing capacity, require a minimum net worth, and
restrict dividend payments.
The Company estimates the fair value of its long-term debt at July 31, 1996
approximates its carrying value because the debt bears interest at or near
market rates for similar issues.
Maturities of long-term debt, including the current portion, for the five years
following July 31, 1996 are as follows: $163,000 in 1997; $167,000 in 1998;
$189,000 in 1999; $2,720,000 in 2000; $107,000 in 2001 and $4,521,000
thereafter. Interest paid during the years ended July 31, 1996, 1995 and 1994
was $607,000, $1,629,000, and $1,433,000, respectively.
NOTE F-INCOME TAXES
The components of earnings before income taxes and extraordinary items
consisted of the following (in thousands):
[Download Table]
--------------------------------------------------------
1996 1995 1994
--------------------------------------------------------
U.S. $3,867 $7,860 $6,132
Foreign 2,016 2,127 1,405
--------------------------------------------------------
$5,883 $9,987 $7,537
--------------------------------------------------------
The provision (benefit) for income taxes is as follows (in thousands):
[Download Table]
------------------------------------------------------------
1996 1995 1994
------------------------------------------------------------
Currently payable:
U.S. $ 948 $1,957 $1,469
State 118 110 88
Foreign 976 1,011 489
Deferred (credit):
U.S. (486) 418 556
Foreign (9) (131) (2)
------------------------------------------------------------
$1,547 $3,365 $2,600
------------------------------------------------------------
Income tax benefit attributable to the extraordinary item in fiscal year 1994
was to $112,000.
A reconciliation between the provision for income taxes and the amount computed
through the application of the U.S. statutory tax rate (34%) to earnings before
income taxes and extraordinary items is as follows (in thousands):
F - 8
NOTE F-INCOME TAXES (CONTINUED)
[Enlarge/Download Table]
-----------------------------------------------------------------------------------------------
1996 1995 1994
-----------------------------------------------------------------------------------------------
Income taxes at statutory rate $2,000 $3,396 $2,563
Add (deduct):
Effect of foreign losses that had no tax benefit 109 53 47
Foreign rates in excess of U.S. statutory rate 251 89 104
Non-deductible travel and entertainment 47 59 34
Net operating loss carryforward utilization (113) (38) (161)
Reduction in valuation allowance (177) (210) --
State income taxes, net of federal income tax benefit 78 73 58
Foreign sales corporation benefit (254) (89) (26)
Research and development tax credit (439) (167) (56)
Other items 45 199 37
-----------------------------------------------------------------------------------------------
$1,547 $3,365 $2,600
-----------------------------------------------------------------------------------------------
During fiscal 1996, the Company implemented a research and development tax
credit study for the purpose of identifying activities and costs which qualify
as research and experimentation under the Internal Revenue Code for the current
and open prior years. The study concluded there were eligible unclaimed
research and development tax credits for prior fiscal years 1992 through 1994
which resulted in filing tax refund claims for these years.
Deferred income taxes for 1996 and 1995 reflect the impact of "temporary
differences" between amounts of assets and liabilities for financial reporting
purposes and such amounts as measured by tax laws.
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities are as follows at July 31 (in
thousands):
[Enlarge/Download Table]
--------------------------------------------------------------------------------------
1996 1995
--------------------------------------------------------------------------------------
Deferred tax assets
Allowance for doubtful accounts $ 146 $ 131
Inventory-related transactions 728 729
Selling and administrative expenses
not currently deductible 661 781
Environmental accrual 1,229 511
Foreign operating loss carryforwards 401 420
--------------------------------------------------------------------------------------
3,165 2,572
Less excess tax over book depreciation and amortization 2,102 1,823
--------------------------------------------------------------------------------------
Gross deferred tax asset 1,063 749
Valuation allowance (127) (210)
--------------------------------------------------------------------------------------
Net deferred tax asset 936 539
--------------------------------------------------------------------------------------
Current deferred tax asset $2,185 $1,972
Non-current deferred tax liability $1,249 $1,433
--------------------------------------------------------------------------------------
The Company has reduced its valuation allowance on foreign operating loss
carryforwards, to reflect the utilization of certain subsidiary losses against
future earnings on a more likely than not basis. Net current deferred tax
assets of $2,185,000 and $1,972,000 for fiscal 1996 and 1995, respectively,
are included in other current assets and net non-current deferred tax
liabilities of $1,249,000 and $1,433,000 for fiscal 1996 and 1995,
respectively, are included in
F - 9
NOTE F-INCOME TAXES (CONTINUED)
other long-term liabilities based on their relationship to assets and
liabilities that generated the temporary difference.
Income taxes paid during the years ended July 31, 1996, 1995, and 1994 were
$917,000, $1,571,000, and $1,210,000, respectively. Taxes paid in 1996, 1995
and 1994 reflect the benefit received from the exercise of stock options under
the Company's non-qualified stock option plan.
NOTE G-SAVINGS AND RETIREMENT PLANS
The Company has a Savings Plan and an Employee Stock Ownership Plan (ESOP)
covering substantially all U.S. employees. The Company contributes $.85 to the
Savings Plan for every dollar contributed by employees up to 6% of their
compensation, with one quarter of the Company's contribution in the Company's
common stock. Company contributions charged to operations under these plans
were $1,049,000, $875,000, and $861,000 for the years ended July 31, 1996,
1995, and 1994, respectively.
NOTE H-STOCKHOLDERS' EQUITY
During fiscal 1995, the shareholders approved an increase in the number of
authorized shares of common stock from 8 million to 15 million. Also, the
Company issued 1,437,500 shares of common stock at a price of $14.625 per share
in an underwritten public offering. The net proceeds of $19.4 million were
used to repay a term note payable to NBD Bank N.A. and to reduce outstanding
indebtedness under the Company's Credit Agreement.
In fiscal 1994, the Company declared two, three-for-two stock splits. A total
of 3,372,523 shares of common stock were issued in connection with the two
splits. The stated par value per share of common stock remained at $.10 and
the value of the shares at par of $337,252 was transferred from additional
capital to common stock. In September 1990, the Company issued 128,000 shares
(pre-split) of its common stock to an officer of the Company at fair market
value in exchange for a $992,000 promissory note and cancellation of 128,000
stock options outstanding. During fiscal 1994, this note was repaid in full
plus accrued interest on the note.
In October 1982, the Trust under the Company's Employee Stock Ownership Plan
acquired 200,000 shares (pre-split) of the Company's common stock. The purchase
price of $2,250,000 was financed by a loan from the Company to the Trust,
repayable over a 15 year period at a 13.5% interest rate. The Company is making
annual contributions to the Trust of $150,000 to cover the principal payments
plus additional contributions to cover interest.
The Company is entitled to a tax deduction for income tax purposes of the
amount that an employee reports as ordinary income from the exercise of
non-qualified stock options. Since the Company recognizes no compensation
expense from the exercise of the options, the tax benefit received is recorded
as a reduction to income taxes payable and an increase to additional capital.
F - 10
NOTE I-STOCK OPTIONS AND WARRANTS
The Company has granted options under the Company's stock option plans to
certain key employees to purchase the Company's common stock at fair market
value on the date of grant. The options generally become exercisable
cumulatively, in equal installments over a period of four or five years
commencing one year from the date of grant and expiring ten years after the
date of grant. Changes in the number of shares available under outstanding
options during the three fiscal years ended July 31, 1996 were as follows:
[Enlarge/Download Table]
Number of Shares Exercise Price
--------------------------------------------------------------------------------------------------------------------------------
Outstanding at August 1, 1993 342,950 $6.75 to $16.00
Granted 110,300 14.25 to 18.38
Exercised (144,149) 4.50 to 10.00
Canceled (5,141) 5.08 to 10.25
Adjustment for Stock Splits 369,398 3.00 to 12.25
--------------------------------------------------------------------------------------------------------------------------------
Outstanding at July 31, 1994 673,358 $3.00 to $12.25
Granted 189,000 13.50 to 18.88
Exercised (181,689) 3.00 to 12.25
Canceled (38,738) 3.39 to 12.25
--------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT JULY 31, 1995 641,931 $3.39 TO $18.88
GRANTED 69,900 21.00 TO 27.00
EXERCISED (111,046) 3.39 TO 15.00
CANCELED (24,403) 3.39 TO 18.875
--------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT JULY 31, 1996 576,382 $3.39 TO $27.00
--------------------------------------------------------------------------------------------------------------------------------
At July 31, 1996, 1995, and 1994, options for 337,219, 305,823 and 259,252
shares, respectively were exercisable. An additional 86,625 shares vest on a
change of control of the Company. Options for 35,499 shares are available for
future grants under the plan.
Changes in the number of shares available under outstanding warrants during the
three fiscal years ended July 31, 1996 were as follows:
[Enlarge/Download Table]
Number of Shares Exercise Price
-------------------------------------------------------------------------------------------------------------------
Outstanding at August 1, 1993 52,600 $3.33 to $10.92
Granted 18,000 16.38
Adjustment for Stock Splits 74,500 3.33 to 10.92
Exercised (200) 10.00
-------------------------------------------------------------------------------------------------------------------
Outstanding at July 31, 1994 144,900 3.33 to 10.92
Granted 9,000 14.25
Exercised (40,000) 3.78 to 8.11
-------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT JULY 31, 1995 113,900 3.33 TO 14.25
SOLD 20,000 22.65
EXERCISED (29,750) 8.11
-------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT JULY 31, 1996 104,150 $3.33 TO $22.65
-------------------------------------------------------------------------------------------------------------------
The Company has granted warrants to acquire shares of the Company's common
stock to members of its Board of Directors, which are exercisable six months
after the date of grant at the fair value at the date of grant. Additionally,
in fiscal 1996, the Company sold 20,000 warrants for $2.83 per warrant. Each
warrant represents a right to purchase one share of the Company's common stock
for $22.65 (which is 120% of the market value of the Company's common stock at
the date of the warrant agreement). The warrants become exercisable over a
three-year period (7,000 warrants per year in each of the first two years, and
6,000 warrants in the third year). The warrants expire in June 2000. Of the
104,150 warrants outstanding at July 31, 1996, 13,000 are unvested.
F - 11
NOTE J - POLLUTION-RELATED EXPENSES
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 the contaminants to
statutory levels. The following table shows pollution-related balance sheet
activity (in thousands):
[Enlarge/Download Table]
-------------------------------------------------------------------------------------------------------------------
Reserve for Remediation
Cost Long-term Debt
-------------------------------------------------------------------------------------------------------------------
Balance as of August 1, 1993 $ 2,881 $1,375
Remediation costs charged to accrued liability (1,258) -
Settlement with chemical companies, cost recovery 750 -
Payments related to settlements (561) (250)
Defense cost of settlement (312) -
-------------------------------------------------------------------------------------------------------------------
Balance as of July 31, 1994 1,500 1,125
Remediation costs charged to accrued liability (567) -
Payments related to settlements (180) (381)
-------------------------------------------------------------------------------------------------------------------
Balance as of July 31, 1995 753 744
Remediation costs charged to accrued liability (583) -
Payments related to settlements - (106)
Increase in reserve for remediation cost 2,800 -
-------------------------------------------------------------------------------------------------------------------
Balance as of July 31, 1996 $ 2,970 $638
-------------------------------------------------------------------------------------------------------------------
At July 31, 1996, $1 million of the reserve for remediation cost is included in
accrued liabilities and the remaining $1,970,000 is included in Other long-term
liabilities. The $637,500 of long-term debt is due to the State of Michigan
and is included in Long-term debt (see Note E).
Total costs to the Company of pollution-related activities will be dependent
upon the efficacy and duration of the remediation plan. The estimated future
remediation cost is based on an expected treatment period of ten years and
anticipated discharge methods for treated ground water. The ultimate costs to
be incurred could exceed the amount provided for at July 31, 1996. However, it
is the opinion of management that these additional costs, if any, will not have
a material adverse effect on the Company's operations because the cash outflows
would be spread over many future years.
NOTE K-OTHER INCOME
[Enlarge/Download Table]
Other income consists of the following as of July 31 (in thousands):
1996 1995 1994
-------------------------------------------------------------------------------------------------------------
Interest income $438 $ 211 $ 87
Rental income of Australian property 54 91 -
Foreign exchange gain (loss) (27) 233 77
Gain on sale of Australian assets related to Laminar Air Flow products - - 108
Other, net 20 (126) (94)
-------------------------------------------------------------------------------------------------------------
$485 $ 409 $178
-------------------------------------------------------------------------------------------------------------
NOTE L-OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA
The principal products of the Company are grouped into two segments: the
Filtration Products Group and the Health Products Group. Filtration Products
are primarily comprised of laboratory products, certain membranes and process
filtration products for the biotechnology, pharmaceutical, environmental and
industrial markets. Health Products are primarily comprised of products for
the medical and health industries, including custom-manufactured disposable
filters and certain membranes for original equipment manufacturers in the
healthcare field. In both of the segments, sales and distribution of the
Company's products both
F - 12
NOTE L-OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA (CONTINUED)
domestically and internationally are through Company salespeople and a network
of distributors. Geographic area data is based on the point of sale not the
location of the customer.
[Enlarge/Download Table]
Dollars in thousands
-------------------------------------------------------------------------------------------
Net Operating Identifiable Depreciation Capital
Sales Earnings Assets Expense Expenditures
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INDUSTRY SEGMENTS
YEAR ENDED JULY 31, 1996
FILTRATION PRODUCTS GROUP $ 72,195 $10,063 $59,017 $3,228 $3,765
HEALTH PRODUCTS GROUP 38,128 5,605 28,419 1,413 2,408
OTHER 1,734 134 705 20 57
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TOTALS $112,057 $15,802 $88,141 $4,661 $6,230
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Year Ended July 31, 1995
Filtration Products Group $ 66,355 $11,036 $54,975 $3,042 $3,400
Health Products Group 34,807 6,295 25,626 1,278 4,259
Other 2,341 160 1,096 31 166
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Totals $103,503 $17,491 $81,697 $4,351 $7,825
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Year Ended July 31, 1994
Filtration Products Group $ 62,916 $ 9,749 $49,431 $3,039 $4,223
Health Products Group 29,461 4,833 20,918 1,325 2,338
Other 2,586 115 1,245 41 121
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Totals $ 94,963 $14,697 $71,594 $4,405 $6,682
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Dollars in Thousands
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Net Operating Identifiable
Sales Earnings Assets Liabilities
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GEOGRAPHIC AREA DATA
YEAR ENDED JULY 31, 1996
U.S. OPERATIONS $ 95,937 $13,883 $67,961 $18,311
EUROPE 20,263 877 11,899 2,563
ASIA/PACIFIC 8,590 743 7,036 2,516
OTHER 3,794 299 1,245 142
ELIMINATION - INTER-AREA SALES (16,527) - - -
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TOTALS $112,057 $15,802 $88,141 $23,532
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Year Ended July 31, 1995
U.S. Operations $ 87,952 $15,521 $62,805 $18,423
Europe 16,514 995 10,775 1,965
Asia/Pacific 8,088 872 7,012 2,523
Other 3,297 103 1,105 97
Elimination - Inter-area sales (12,348) - - -
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Totals $103,503 $17,491 $81,697 $23,008
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Year Ended July 31, 1994
U.S. Operations $ 80,147 $13,477 $56,685 $37,026
Europe 13,631 809 7,579 1,428
Asia/Pacific 9,300 328 6,264 2,649
Other 3,095 83 1,066 149
Elimination - Inter-area sales (11,210) - - -
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Totals $ 94,963 $14,697 $71,594 $41,252
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F - 13
NOTE L-OPERATIONS BY INDUSTRY SEGMENT AND GEOGRAPHIC AREA (CONTINUED)
Operating earnings are total revenues less operating expenses excluding other
expense (income) and corporate expenses of: 1996 - $9,825,406; 1995 -
$6,599,000; 1994 - $5,649,000. Corporate expenses include an allocated share
of administrative costs and pollution-related expenses. Identifiable assets
by industry segment include both assets directly identified with those
operations and an allocated share of jointly used assets. Corporate assets
consist of an allocated share of the buildings, furniture and fixtures, and
equipment. Asia/Pacific operations are represented by subsidiaries located in
Japan and Australia. European operations are represented by subsidiaries
located in the United Kingdom, Ireland, France, Germany and Italy. Export
sales to unaffiliated customers were: 1996 - $12,154,220; 1995 - $9,667,000;
1994 - $9,239,000. Net sales to two major customers who distribute the
Company's products, including sales to distributors who the two customers
acquired during fiscal 1996, were $27.7 million, $29.6 million and $28.6
million in fiscal 1996, 1995 and 1994, respectively.
NOTE M-FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Company uses various financial instruments as part of an overall strategy
to manage exposure to market risk associated with interest and foreign exchange
rate fluctuations. At July 31, 1996 the Company had foreign exchange contracts
outstanding to exchange foreign currencies for U.S. dollars denominated in
British pounds, Japanese yen, French francs, German deutschemarks and Italian
lire, maturing at various dates. Maximum market risk is limited to the
difference between the spot rate on the date of delivery and the contract
price.
At July 31, 1996, the Company had outstanding a 7.5% interest rate cap on $5
million notional amount effective May 1, 1995 through May 1, 1998. The
interest rate cap agreement has been entered into with a major financial
institution which is expected to fully perform under the terms of the
agreement.
During fiscal 1996, the Company entered into an interest rate swap agreement in
connection with refinancing its Industrial Revenue Bonds. The agreement with a
major financial institution fixes the floating interest rate at 5.89% through
July 1, 2004, on a notional amount of $4,415,000. The financial institution
which is party to the agreement is expected to fully perform under the terms of
the agreement.
The fair value of these instruments is estimated using year-end quoted market
rates or settlement values as if such instruments had been terminated at year
end.
The carrying amounts and estimated fair value of the Company's financial
instruments at July 31, 1996 and 1995 are as follows:
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1996 1995
---------------------------- ---------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
--------------- ----------- --------------- ----------
Foreign currency contracts $4,304,000 $4,304,000 $3,328,000 $3,328,000
Interest rate cap 62,412 7,100 98,076 34,000
Interest rate swap - (75,000) - -
F - 14
NOTE N-EXTRAORDINARY ITEM
During the year ended July 31, 1994, the Company redeemed the 7.98% Industrial
Development Revenue Bonds issued in 1989. The Company recorded a charge of
$295,000 net of $112,000 tax benefit or $.03 per share to write-off deferred
finance charges and record a redemption premium and fees related to the 1989
Bonds.
NOTE O-SUMMARY OF QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Summarized quarterly financial information for fiscal years ended July 31, 1996
and July 31, 1995 is presented below:
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1996 QUARTER ENDED 1995 Quarter Ended
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OCT 31 JAN 31 APR 30 JULY 31 Oct 31 Jan 31 Apr 30 July 31
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Net sales $27,335 $27,124 $29,502 $28,096 $24,167 $24,018 $26,893 $28,425
Gross profit 13,842 13,803 15,359 12,189 12,157 12,445 14,068 14,763
Research and development 1,491 1,464 1,643 1,660 1,308 1,316 1,366 1,508
Earnings (loss) before income taxes 2,910 2,813 3,309 (3,149) 1,909 1,989 3,104 2,985
Income taxes 988 957 676 (1,074) 678 733 1,133 821
Net earnings (loss) 1,922 1,856 2,633 (2,075) 1,231 1,256 1,971 2,164
Net earnings (loss) per share $ .24 $ .23 $ .32 ($.25) $ .19 $ .19 $ .26 $ .27
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The net loss for the fourth quarter of fiscal 1996 includes the effects of
revisions of estimates made in prior periods and of certain non-recurring
charges. Due to the nature of certain of these fourth quarter adjustments, it
is not practicable to determine the effects, if any, on prior periods. These
adjustments amounted to $5 million pre-tax and $3.3 million ($.40 per share)
after tax. On a pre-tax basis, these adjustments consisted of $1,050,000 from
inventory costing adjustments and a higher-than-normal provision for inventory
obsolescence; $2.8 million increase in the reserve for environmental
remediation, and $2.8 million of sales credits and bad debt expense in the
fourth quarter of fiscal 1996 compared to $1.5 million of sales credits and bad
debt expense in the fourth quarter of fiscal 1995.
F - 15
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Gelman Sciences Inc.
Ann Arbor, Michigan
We have audited the consolidated financial statements and the financial
statement schedule of Gelman Sciences Inc. and Subsidiaries listed in Item 14(a)
of this Form 10-K. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Gelman Sciences
Inc. and Subsidiaries as of July 31, 1996 and 1995, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended July 31, 1996 in conformity with generally accepted accounting
principles. In addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly, in all material respects, the information
required to be included therein.
COOPERS & LYBRAND L.L.P.
Detroit, Michigan
September 30, 1996
F-16
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
GELMAN SCIENCES INC. AND SUBSIDIARIES
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Additions
------------------------------
Balance at Charged to Balance at
beginning cost and Charged to end of
Description of period expenses other accounts (1) Deductions (2) period
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YEAR ENDED JULY 31, 1996 $1,310,000 $870,000 $(8,000) $344,000 $1,828,000
Deducted from Asset Accounts-
Accounts Receivable Allowance
YEAR ENDED JULY 31, 1995 $ 790,000 $564,000 $(14,000) $ 30,000 $1,310,000
Deducted from Asset Accounts-
Accounts Receivable Allowance
YEAR ENDED JULY 31, 1994 $ 927,000 $296,000 $8,000 $441,000 $ 790,000
Deducted from Asset Accounts-
Accounts Receivable Allowance
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(1) Change is due to the effect of exchange rate changes on translating the
allowance for accounts receivable account of foreign subsidiaries in
accordance with FASB Statement No. 52, "Foreign Currency Translation."
(2) Uncollectable accounts charged off, net of recoveries.
SIGNATURES
Pursuant to the requirements of Section 13 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.
By: /s/ Charles Gelman
---------------------------------------
GELMAN SCIENCES INC.
Charles Gelman, Chairman of the
Board and Chief Executive Officer
Dated: October 7, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on October 7, 1996.
/s/ Charles Gelman
-----------------------------------------------------
Chairman of the Board and
Chief Executive Officer and Director
/s/ Kim A. Davis
-----------------------------------------------------
President and Chief Operating Officer
/s/ George Uveges
-----------------------------------------------------
Chief Financial Officer and Vice President - Administration
/s/ Robert M. Collins
-----------------------------------------------------
Director
/s/ John A. Geishecker, Jr.
-----------------------------------------------------
Director
/s/ Saul H. Hymans
-----------------------------------------------------
Director
/s/ Nina I. McClelland
-----------------------------------------------------
Director
/s/ Charles Newman
-----------------------------------------------------
Director
GELMAN SCIENCES INC.
Report on Form 10-K for the fiscal year ended July 31, 1996.
EXHIBIT INDEX
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OFFICIAL SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE NO.
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2 Agreement and Plan of Reorganization and Merger By and
Among Memtec Limited, GSI Acquisition Corporation and
the Company, incorporated by reference to the Form F-4
Registration Statement filed with the Securities and
Exchange Commission by Memtec Limited on or about
October 17, 1996.
3(i) Restated Articles of Incorporation, incorporated by
reference to Exhibit (3)(1) to the Company's Form 10-Q
for the quarterly period ended January 31, 1995.
3(ii) Bylaws, as amended December 14, 1995, by the Board of
Directors.
4.1 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
such 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.
10.1 1978 Employee Stock Option Plan, as amended,
incorporated by reference to Exhibit 10(2) to the
Company's Form 10-K for the year ended July 31, 1987.
10.2 1988 Stock Plan, incorporated by reference to Exhibit
10(6) to the Company's Form 10-K for the year ended
July 31, 1988.
10.3 Warrant Agreement, dated December 16, 1987, with John
A. Geishecker, incorporated by reference to Exhibit
28.4 to the Company's Form S-8 Registration Statement
No. 33-37235 filed with the Securities and Exchange
Commission on October 9, 1990.
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EXHIBIT NO. DESCRIPTION PAGE NO.
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10.4 Warrant and Stock Appreciation Rights Agreement, dated
January 12, 1989, with John A. Geishecker, incorporated
by reference to Exhibits 28.7 to the Company's Form S-8
Registration Statement No. 33-37235 filed with the
Securities and Exchange Commission on October 9, 1990.
10.5 Warrant Agreement, dated January 12, 1989, with Nina
I. McClelland, incorporated by reference to Exhibit
28.10 to the Company's Form S-8 Registration Statement
No. 33-37235 filed with the Securities and Exchange
Commission on October 9, 1990.
10.6 Warrant Agreement, dated September 2, 1992, with
Charles Newman, incorporated by reference to Exhibit
10(14) to the Company's Form 10-K for year ended July
31, 1993.
10.7 Consent Judgment in Kelley v. Gelman Sciences Inc.
entered October 26, 1992, incorporated by reference to
Exhibit 10(15) to the Company's Form 10-K for year
ended July 31, 1993.
10.8 Amendment entered September 23, 1996, to the Consent
Judgment in Kelley v. Gelman Sciences Inc. entered
October 26, 1992.
10.9 Consent Judgment in State of Michigan v. Gelman
Sciences Inc. entered October 26, 1992, incorporated by
reference to Exhibit 10(16) to the Company's Form 10-K
for year ended July 31, 1993.
10.10 Warrant Agreement, dated June 17, 1994, with Robert
Collins, incorporated by reference to Exhibit 10(16) to
the Company's Form 10-K for the year ended July 31,
1994.
10.11 Warrant Agreement, dated June 17, 1994, with John
Geishecker, Jr., incorporated by reference to Exhibit
10(17) to the Company's Form 10-K for the year ended
July 31, 1994.
10.12 Warrant Agreement, dated June 17, 1994, with Saul
Hymans, incorporated by reference to Exhibit 10(18) to
the Company's Form 10-K for the year ended July 31,
1994.
10.13 Warrant Agreement, dated June 17, 1994, with Nina
McClelland, incorporated by reference to Exhibit 10(19)
to the Company's Form 10-K for the year ended July 31,
1994.
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EXHIBIT NO. DESCRIPTION PAGE NO.
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10.14 Warrant Agreement, dated June 17, 1994, with Charles
Newman, incorporated by reference to Exhibit 10(20) to
the Company's Form 10-K for the year ended July 31,
1994.
10.15 Confidentiality, Anti-Competition and Termination
Benefits Agreement between Mark A. Sutter and the
Company, incorporated by reference to Exhibit 10(21) to
the Company's Form 10-K for the year ended July 31,
1994.
10.16 Confidentiality, Anti-Competition and Termination
Benefits Agreement between Edward J. Levitt and the
Company, incorporated by reference to Exhibit 10(22) to
the Company's Form 10-K for the year ended July 31,
1994.
10.17 Employment Agreement dated August 1, 1995, between
the Company and Kim A. Davis, incorporated by reference
to Exhibit 10(21) to the Company's Form 10-K/A
(Amendment No. 1 for the fiscal year ended July 31,
1995), filed August 5, 1996.
10.18 First Amendment dated May 1, 1996, to Employment
Agreement dated August 1, 1995, between the Company and
Kim A. Davis.
10.19 Employment Agreement dated August 1, 1995, between
the Company and Charles Gelman, incorporated by
reference to Exhibit 10(22) to the Company's Form
10-K/A (Amendment No. 1 for the fiscal year ended July
31, 1995), filed with the Securities and Exchange
Commission August 5, 1996.
10.20 First Amendment dated May 1, 1996, to Employment
Agreement dated August 1, 1995, between the Company and
Charles Gelman.
10.21 Waiver and Release dated May 1, 1996, by Kim A. Davis
and Charles Gelman in favor of each other and in favor
of the Company.
10.22 Service Agreement dated June 19, 1984, between
Anthony Paul Kelly, the Company and Gelman Sciences
Pty. Ltd.
10.23 Letter Agreement dated February 28, 1993, between
Anthony Paul Kelly, the Company and Gelman Sciences
Pty. Ltd., amending the Service Agreement dated June
19, 1984, between Anthony Paul Kelly, the Company and
Gelman Sciences Pty. Ltd.
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10.24 Letter Agreement dated September 21, 1995, between
Anthony Paul Kelly, the Company and Gelman Sciences
Pty. Ltd., amending the Service Agreement dated June
19, 1984, between Anthony Paul Kelly, the Company and
Gelman Sciences Pty. Ltd. (Exhibit 10.18), as amended
by the Letter Agreement dated February 28, 1993,
between Anthony Paul Kelly, the Company and Gelman
Sciences Pty. Ltd.
10.25 Promissory Note dated July 29, 1994, by Kelly Company
Pty. Ltd. to Gelman Sciences Pty. Ltd.
10.26 Amendment dated August 1, 1996, of Promissory Note
dated July 29, 1994, by Kelly Company Pty. Ltd. to
Gelman Sciences Pty. Ltd.
10.27 Non-Employee Director Stock Plan ratified and
approved by shareholder resolution at the Annual
Meeting of Shareholders of the Company held on December
15, 1996.
10.28 Executive Stock Ownership Plan ratified and approved
by shareholder resolution at the Annual Meeting of
Shareholders of the Company held on December 15, 1996.
10.29 Employment Agreement dated June 3, 1996, between
George Uveges and the Company.
10.30 Non-Qualified Stock Option Agreement dated August 21, 1996,
with George Uveges.
10.31 Non-Qualified Stock Option Agreement dated August 21, 1996,
with Kim A. Davis.
11 Statement re computation of per share earnings for
years ended July 31, 1996, 1995 and 1994.
21 Subsidiaries of the Registrant.
27 Financial Data Schedules
Dates Referenced Herein and Documents Incorporated by Reference
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