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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
AMENDED REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): September 17, 1997
Commission file number: 0-20165
STERIS CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Ohio 34-1482024
(State of Incorporation) (IRS Employer Identification No.)
5960 Heisley Road, Mentor, Ohio 44060
(Address, Including Zip Code, of Principal Executive Offices)
(440) 354-2600
(Registrant's Telephone Number, Including Area Code)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
(a)-(b) On September 17, 1997, STERIS Corporation ("STERIS") purchased shares
representing approximately 96% of the outstanding common stock of Isomedix Inc.,
a Delaware corporation ("Isomedix"), through STERIS's newly incorporated and
wholly owned subsidiary, STERIS Acquisition Corporation, pursuant to a tender
offer for all of the outstanding shares of common stock of Isomedix. On the same
day, STERIS completed the acquisition of Isomedix through the merger of STERIS
Acquisition Corporation with and into Isomedix in accordance with the "short
form" merger provisions of Delaware law. As a consequence of the merger, STERIS
became the owner of 100% of the outstanding common stock of Isomedix.
As a result of arms-length negotiations between STERIS and Isomedix, the
shareholders of Isomedix received $20.50 for each share of Isomedix common stock
tendered in response to the tender offer or exchanged pursuant to the merger for
a total consideration paid to shareholders of Isomedix of approximately $134
million, part of which was paid from available cash on hand and part of which
was paid from a draw on STERIS's pre-existing line of credit under a Credit
Agreement, dated May 13, 1996, as amended, among STERIS, various financial
institutions, and KeyBank National Association, as Agent.
Isomedix is the leading North American provider of contract sterilization and
microbial reduction services for manufacturers and producers of medical and
non-medical products. Isomedix provides these services through a network of
gamma radiation and ethylene oxide facilities across North America, and is
currently expanding its services to include an electron beam processing
facility. STERIS intends to utilize the assets of Isomedix in accordance with
their use by Isomedix prior to its acquisition by STERIS.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION, AND EXHIBITS.
(a) Financial Statements of Isomedix and Subsidiaries.
The following are filed as exhibits to this Form 8-K/A Amended Report:
Report of Independent Auditors
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Income for the three years ended
December 31, 1996
Consolidated Statements of Changes in Stockholders' Equity for the
three years ended December 31, 1996
Consolidated Statements of Cash Flows for the three years ended
December 31, 1996
Notes to Consolidated Financial Statements
(b) Unaudited Financial Statements of Isomedix Inc. and Subsidiaries.
The following are filed as exhibits to this Form 8-K/A Amended Report:
Consolidated Balance Sheet as of June 30, 1997
Consolidated Statements of Income for the six months ended
June 30, 1997 and June 30, 1996
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Consolidated Statements of Cash Flows for the six months ended
June 30, 1997 and June 30, 1996
Notes to Consolidated Financial Statements
(c) Pro Forma Financial Information
The following unaudited pro forma condensed combined statements of operations
for the year ended March 31, 1997, and the six months ended September 30, 1997,
give effect to the Merger based on the historical consolidated financial
statements of STERIS and Isomedix under the purchase method of accounting and
the assumptions and adjustments set forth in the accompanying notes to the
unaudited pro forma condensed combined financial statements.
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STERIS Corporation and Isomedix Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Year Ended March 31, 1997
Isomedix
STERIS Year ended Pro Forma
Year ended December 31, Adjustments Pro Forma
March 31, 1997 1996 (See Note B) Combined
-------------- ---- ------------ --------
(In thousands, except per share amounts)
Net revenues $587,852 $45,233 $633,085
Cost of goods and services sold 356,007 22,180 378,187
------- ------ -------
Gross profit 231,845 23,053 254,898
Cost and expenses:
Selling, informational and
administrative 125,515 12,307 $1,575 (1) 139,397
Research and development 21,986 21,986
Non-recurring items 90,831 90,831
------- ------ ------- ------
Income (loss) from operations (6,487) 10,746 (1,575) 2,684
Interest expense (2,919) (456) (6,820) (2) (10,195)
Interest income and other 4,544 895 (1,494) (3) 3,945
------ --- ------- -----
Income (loss) before income
taxes (4,862) 11,185 (9,889) (3,566)
Income tax expense (benefit) 25,744 4,474 (2,910) (4) 27,308
------ ----- ------- ------
Income (loss) from continuing
operations ($30,606) $6,711 ($6,979) ($30,874)
========= ====== ======== =========
Income (loss) from continuing
operations per share ($0.91) ($0.92)
Weighted average number of
shares outstanding used in
computing income (loss)
from continuing operations per
share 33,678 33,678
See Notes to Unaudited Pro Forma Condensed Combined Statement of Operations
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STERIS Corporation and Isomedix Inc.
Unaudited Pro Forma Condensed Combined Statement of Operations
For the Six Months Ended September 30, 1997
Pro Forma
Adjustments Pro Forma
STERIS Isomedix (See Note B) Combined
------ -------- ------------ --------
(In thousands, except per share amounts)
Net revenues $328,517 $21,270 $349,787
Cost of goods and services
sold 183,496 10,010 193,506
------- ------ -------
Gross profit 145,021 11,260 156,281
Cost and expenses:
Selling, informational and
administrative 87,716 5,653 $788 (1) 94,157
Research and development 11,930 11,930
------ ------- ------- ------
Income (loss) from operations 45,375 5,607 (788) 50,194
Interest expense (1,395) (214) (3,410) (2) (5,019)
Interest income and other 375 252 (747) (3) (120)
--- --- ----- -----
Income (loss) before income
taxes 44,355 5,645 (4,945) 45,055
Income tax expense (benefit) 17,299 2,258 (1,455) (4) 18,102
------ ----- ------- ------
Income from continuing
operations $27,056 $3,387 ($3,490) $26,953
======= ====== ======== =======
Income from continuing
operations per share $0.78 $0.78
Weighted average number of
shares outstanding used in
computing income from
continuing operations per
share 34,473 34,473
See Notes to Unaudited Pro Forma Condensed Combined Statement of Operations
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STERIS Corporation and Isomedix Inc.
Notes to Unaudited Pro Forma Condensed Combined Statement of Operations
Note A - Basis of Presentation
The unaudited pro forma condensed combined statements of operations have been
prepared in accordance with the instructions to Form 8-K by the managements of
STERIS and Isomedix based upon their respective consolidated financial
statements. These statements include results of operations as if the merger had
been consummated on April 1, 1996 at the commencement of STERIS's fiscal year
1997, including Isomedix's results of operations for the year ended December 31,
1996. In the Company's opinion, the unaudited financial statements present
fairly the Company's results of operations. The pro forma adjustments are based
upon the purchase method of accounting and the preliminary estimate of the fair
value of the assets acquired and liabilities assumed. The final allocation of
the purchase price will be made at a later date. As a result of the merger,
Isomedix incurred approximately $11 million in costs, including the cost of
early redemption of stock options, investment banking fees as well as other
costs; such costs have been excluded from Isomedix's results of operations in
the unaudited pro forma condensed combined statement of operations for the six
months ended September 30, 1997. The pro forma condensed combined financial
statements may not be indicative of the results that actually would have
occurred if the merger had been in effect during the period presented or which
may be attained in the future.
The pro forma condensed combined financial statements should be read in
conjunction with the historical consolidated financial statements and the
related accompanying notes thereto to Isomedix, included herein, and those of
STERIS. The pro forma condensed combined financial statements exclude losses
from discontinued operations. A pro forma statement of financial position has
not been included since the transaction has been recorded in the unaudited
consolidated financial statements of STERIS Corporation as reported in Form 10-Q
for the six months ended September 30, 1997.
Note B - Pro Forma Adjustments
Pro forma adjustments are discussed below:
(1) Recognition of goodwill amortization on estimated purchase price allocation.
(2) Recognition of interest expense on line of credit used to fund a portion of
the acquisition.
(3) Elimination of interest income on cash portion of acquisition price.
(4) Recognition of income tax benefit attributable to pro forma adjustments for
interest expense and interest income.
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(c) Exhibits
23.1 Consent of Independent Auditors
99.1 Report of Coopers & Lybrand L.L.P., Independent Auditors
99.2 Financial Statements of Isomedix Inc. and Subsidiaries
99.3 Unaudited Financial Statements of Isomedix Inc. and Subsidiaries
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
STERIS CORPORATION
Date: November 13, 1997 By: /s/ Michael A. Keresman, III
-------------------------------
Michael A. Keresman, III
Chief Financial Officer and
Senior Vice President
(Principal Financial Officer)
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EXHIBIT 23.1 CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in STERIS Corporation's
Registration Statements Nos. 333-32005, 333-01610, 33-91444, 33-91445, 33-55976
and 33-55258 on Form S-8 of our report dated February 11, 1997, except for Note
20, for which the date is March 19, 1997 on our audits of the consolidated
financial statements of Isomedix Inc. and Subsidiaries as of December 31, 1996
and December 31, 1995, and for each of the three years in the period ended
December 31, 1996, which report is included in this Form 8-K/A.
/s/ Coopers & Lybrand L.L.P.
Parsippany, New Jersey
November 13, 1997
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Exhibit 99.1
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ISOMEDIX INC.:
We have audited the accompanying consolidated balance sheets of Isomedix Inc.
and Subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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 Isomedix Inc. and
Subsidiaries as of December 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 December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
Parsippany, New Jersey
February 11, 1997, except for Note 20,
for which the date is March 19, 1997.
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Exhibit 99.2
ISOMEDIX INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS as of December 31, 1996 and 1995
ASSETS 1996 1995
---- ----
Current Assets
Cash and cash equivalents $ 22,097,466 $ 4,860,088
Held-to-maturity securities 17,003,329
Accounts receivable, less allowance for doubtful accounts of
$390,000 and $350,000 at December 31, 1996 and 1995,
respectively 6,360,174 8,048,560
Assets of discontinued operations 2,476,416
Prepaid expenses and other current assets 553,538 830,629
------------- -------------
Total current assets 31,487,594 30,742,606
Property, plant and equipment, at cost 72,125,613 66,751,900
Less, accumulated depreciation and amortization 18,730,202 17,855,870
------------- -------------
Net property, plant, and equipment 53,395,411 48,896,030
Radioisotope, at cost 70,712,938 66,096,338
Less, Accumulated depreciation 41,099,527 36,624,237
------------- -------------
Net Radioisotope 29,613,411 29,472,101
Excess of costs over net assets acquired 725,906
Other assets 1,123,916 2,186,868
------------- -------------
Total assets $ 115,620,332 $ 112,023,511
============= =============
LIABILITIES
Current liabilities
Current portion of long-term debt $ 600,000 $ 500,000
Accounts payable and accrued expenses 1,961,282 1,631,453
Liabilities of discontinued operations 1,295,251
Contract deposits 119,781
Income taxes payable 405,704 545,888
------------- -------------
Total current liabilities 4,262,237 2,797,122
Long-term debt 8,000,000 8,600,000
Deferred income taxes 8,997,668 8,453,497
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; 1,000,000 shares authorized;
issued and outstanding -- none
Common stock, $.01 par value; authorized 15,000,000 shares;
Issued: 7,169,868 and 7,169,868 shares at December 31,
1996 and 1995, respectively; Outstanding: 6,837,993 and
6,984,528 at December 31, 1996 and 1995, respectively 71,699 71,699
Additional paid-in capital 37,667,729 37,719,155
Retained earnings 61,485,309 57,167,649
------------- -------------
99,224,737 94,958,503
Less, common stock held in the treasury, at cost, 331,875 and
185,340 shares at December 31, 1996 and 1995, respectively (4,864,310) (2,785,611)
------------- -------------
Total stockholders' equity 94,360,427 92,172,892
------------- -------------
Total liabilities and stockholders' equity $ 115,620,332 $ 112,023,511
============= =============
See accompanying notes to the consolidated financial statements.
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ISOMEDIX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
Sales $ 45,233,183 $ 42,122,318 $ 43,064,832
Cost of sales 22,180,257 20,074,666 19,322,482
------------ ------------ ------------
Gross profit 23,052,926 22,047,652 23,742,350
Selling, general and administrative expense 12,307,170 10,454,749 9,937,626
------------ ------------ ------------
Operating income 10,745,756 11,592,903 13,804,724
Interest expense (456,002) (426,369) (488,753)
Investment income 895,837 917,871 704,371
------------ ------------ ------------
Pre-tax income from continuing operations 11,185,591 12,084,405 14,020,342
Provision for income taxes 4,474,236 4,833,762 5,608,137
------------ ------------ ------------
Income from continuing operations 6,711,355 7,250,643 8,412,205
Discontinued operations:
(Loss) income from discontinued operations of
Skyland Scientific Services Inc. (less applicable
income taxes of $361,889, $32,574 and $269,703
in 1996, 1995 and 1994, respectively) (702,489) 48,862 404,555
Loss on disposal of Skyland Scientific Services
Inc. (less applicable income taxes of $511,494) (1,691,206)
------------ ------------ ------------
Net income $ 4,317,660 $ 7,299,505 $ 8,816,760
============ ============ ============
Earnings per share:
Income from continuing operations $ 0.94 $ 1.00 $ 1.14
Discontinued operations:
(Loss) income from discontinued operations of
Skyland Scientific Services Inc. (0.10) 0.01 0.06
Loss on disposal of Skyland Scientific Services Inc. (0.24)
------------ ------------ ------------
Net income $ 0.60 $ 1.01 $ 1.20
============ ============ ============
See accompanying notes to the consolidated financial statements.
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ISOMEDIX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the years ended December 31, 1996, 1995 and 1994
Common Stock Treasury Stock
-------------------------------------- ------------------------
Stockholders' Number of Additional Retained Number
Equity Shares Amount Paid-In Capital Earnings of Shares Amount
------ ------ ------ --------------- -------- --------- ------
Balance, Dec. 31, 1993 $78,171,592 7,139,574 $71,396 $37,371,084 $41,051,384 (21,100) ($322,272)
Acquisition of treasury
stock (1,705,629) (110,000) (1,705,629)
Exercise of stock options 287,837 7,911 79 17,983 17,667 269,775
Tax benefit from
exercise of stock options 52,594 52,594
Sale of common stock
under employee
purchase plan 116,393 5,107 51 63,845 3,433 52,497
Net income - 1994 8,816,760 8,816,760
----------- --------- ------- ----------- ----------- --------- ------------
Balance, Dec. 31, 1994 85,739,547 7,152,592 71,526 37,505,506 49,868,144 (110,000) (1,705,629)
Acquisition of Treasury
Stock (1,275,945) (89,800) (1,275,945)
Exercise of Stock
Options 267,395 12,900 129 131,604 9,205 135,662
Tax benefit from
exercise of stock options 23,505 23,505
Sale of common stock
under employee
purchase plan 118,885 4,376 44 58,540 5,255 60,301
Net income - 1995 7,299,505 7,299,505
----------- --------- ------- ----------- ----------- --------- ------------
Balance, Dec. 31, 1995 92,172,892 7,169,868 71,699 37,719,155 57,167,649 (185,340) (2,785,611)
Acquisition of Treasury
Stock (2,636,233) (185,200) (2,636,233)
Exercise of Stock
Options 344,390 (80,925) 28,528 425,315
Tax benefit from
exercise of stock options 17,710 17,710
Sale of common stock
under employee
purchase plan 144,008 11,789 10,137 132,219
Net income - 1996 4,317,660 4,317,660
----------- --------- ------- ----------- ----------- --------- ------------
Balance, Dec. 31, 1996 $94,360,427 7,169,868 $71,699 $37,667,729 $61,485,309 (331,875) ($4,864,310)
=========== ===================================== =========== ========= ============
See accompanying notes to the consolidated financial statements.
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ISOMEDIX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities: 1996 1995 1994
---- ---- ----
Net income $4,317,660 $7,299,505 $8,816,760
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 7,218,420 6,930,462 7,194,848
Amortization 356,804 706,213 696,368
Provision for doubtful accounts 650,198 100,000
Loss on disposal of discontinued operations 2,202,700
Loss (gain) on sale or disposal of assets 205,311 (5,197) (86)
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (817,147) 445,048 (186,364)
Decrease in prepaid expenses and other assets 22,298 447,132 239,967
Increase (decrease) in accounts payable and accrued expenses 707,467 (1,247,738) 374,682
Increase (decrease) in contract deposits 72,209 (420,278)
(Decrease) increase in income taxes payable (66,020) 280,965 (230,759)
(Decrease) increase in deferred income taxes (193,992) 820,045 1,261,377
--------- --------- ---------
Net cash provided by operating activities 14,603,699 15,748,644 17,846,515
Cash flows from investing activities:
Purchases of held-to-maturity securities (17,140,946) (14,918,177)
Proceeds from maturity of held-to-maturity securities 17,003,329 17,556,138 8,706,000
Proceeds from sale of assets 5,197 87
Additions to property, plant and equipment (7,172,595) (11,557,947) (1,792,574)
Additions to radioisotope (4,616,600) (3,087,796) (3,810,419)
Equipment deposits (740,417) (123,053)
Payments from lease receivable 49,670 70,818
Other (318,491)
--------- --------- ---------
Net cash provided by (used in) investing activities 5,263,804 (14,965,771) (12,185,809)
Cash flows from financing activities:
Purchases of treasury stock (2,636,233) (1,275,945) (1,705,629)
Payments of long-term debt (500,000) (925,000) (1,400,000)
Proceeds of stock options exercised and employee stock purchases 506,108 409,785 456,824
Other (93,098)
--------- --------- ---------
Net cash used in financing activities (2,630,125) (1,884,258) (2,648,805)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 17,237,378 (1,101,385) 3,011,901
Cash and cash equivalents at beginning of year 4,860,088 5,961,473 2,949,572
--------- --------- ---------
Cash and cash equivalents at end of year $22,097,466 $4,860,088 $5,961,473
=========== ========== ==========
Supplemental cash flow information:
Cash paid for interest (net of amounts capitalized) 446,741 492,273 490,378
Cash paid for income taxes 4,076,450 3,322,094 4,119,998
Supplemental non cash investing activities:
Additions to radioisotope in satisfaction of lease receivable 217,692 694,639
See accompanying notes to the consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include the accounts of
Isomedix Inc. and Subsidiaries (the "Company"), all of which are wholly owned.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
REVENUE RECOGNITION:
The Company is engaged principally in the business of providing contract
sterilization services to manufacturers of pre-packaged healthcare products and
certain consumer products. Sterilization revenue is recognized at the time the
related services are performed.
Through its Skyland subsidiary, the Company provided contract consulting,
calibration and validation services to assist manufacturers of healthcare
products in complying with Good Manufacturing Practices established by industry
and government. The services offered included equipment calibration, validation
of facility utilities and processing equipment, and the validation of computer
control systems. Revenue and the related costs of the contract are recognized
using the percentage of completion method measured by costs incurred. Customers
are generally billed monthly on work performed against each project, plus
reimbursable direct costs. During December 1996, the Company adopted a plan of
disposal via orderly liquidation of Skyland, effective December 31, 1996.
CASH EQUIVALENTS:
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
DEBT AND EQUITY SECURITIES:
The Company adopted, effective January 1, 1994, Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115"). SFAS 115 requires a more detailed disclosure of
debt and equity securities held for investment, the methods to be used in
determining fair value and when to record unrealized holding gains and losses in
earnings or in a separate component of stockholders' equity. There was no effect
on income or cash flows as a result of adopting SFAS 115. It is the Company's
policy to invest primarily in United States government securities. It is the
Company's intent and ability to hold investments to maturity.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are valued at cost. Expenditures for maintenance
and repairs,
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which do not materially prolong the normal useful life of an asset, are charged
to operations as incurred. Additions and betterments which substantially extend
the useful life of the properties are capitalized. Upon sale or other
disposition of assets, the cost and related accumulated depreciation are removed
from the accounts and any resulting gain or loss is reflected in income.
Depreciation of property, plant and equipment is provided under the
straight-line method over the estimated useful lives of the related assets
except for leasehold improvements which are amortized over the shorter of their
estimated useful lives or lease terms.
RADIOISOTOPE:
Depreciation of radioisotope is determined by use of the annual decay factor
inherent in the material, which is similar to the sum-of-the-years-digits
method, over its estimated useful life of twenty years.
DEFERRED FINANCING COSTS:
Direct costs associated with obtaining long-term financing have been capitalized
and are being amortized over the term of the respective loans as a component of
selling, general and administrative expenses. Included in other assets are
deferred financing costs of $300,357 and $326,313 (net of accumulated
amortization of $570,516 and $544,560) at December 31, 1996 and 1995,
respectively.
INCOME TAXES:
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 is an asset and liability approach that requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
The Company intends to reinvest its undistributed Canadian earnings of
approximately $5,800,000 and, therefore, there is no provision in the financial
statements for unrepatriated earnings.
RECLASSIFICATION:
The Company has reclassified certain prior year amounts to conform with the 1996
presentation.
2. DISCONTINUED OPERATIONS
During December 1996, the Company adopted a plan of disposal via orderly
liquidation of its Skyland subsidiary, effective December 31, 1996. Skyland
provided contract consulting, calibration and validation services to assist
manufacturers of healthcare products in complying with Good Manufacturing
Practices established by industry and government. The results of Skyland and the
associated loss on disposal have been accounted for as a discontinued operation.
Accordingly, the operations of Skyland have been segregated in the accompanying
income statement. Sales, cost of sales, selling, general and administrative
expenses and income taxes for
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fiscal years 1995 and 1994 have been reclassified for amounts associated with
Skyland. The disposal of Skyland is expected to be completed by the end of the
second quarter of 1997. Sales, related income/losses and tax benefits associated
with the disposal of Skyland, excluding the loss on disposal for the last three
fiscal year was as follows:
(In thousands of dollars) 1996 1995 1994
---- ---- ----
Sales $3,689 $3,164 $4,176
------ ------ ------
(Loss) income from operations before
income tax (1,064) 82 675
Income tax benefit (expense) 362 (33) (270)
--- ---- -----
(Loss) income from operations ($702) $49 $405
====== === ====
The assets and liabilities of Skyland have been classified in the consolidated
balance sheet as assets of discontinued operations and liabilities of
discontinued operations, and consist primarily of accounts receivable, deferred
tax assets and accrued expenses, which includes the provision for the estimated
unrecoverable costs through the disposal date, at December 31, 1996.
3. DEBT AND EQUITY SECURITIES
Held-to-maturity securities consist of debt instruments from United States
government, state and municipal issuers. These securities are carried at
original cost, which approximates amortized cost. Any realized gains or losses
would be recognized on the specific identification method.
At December 31, 1996, debt securities had no carrying or market value compared
to a carrying value of $17,003,329 and a market value of $17,082,809 at December
31, 1995. There were $66,830 of gross unrealized losses at December 31, 1995.
Investments in debt securities classified as held-to-maturity at December 31,
1995 had various maturity dates which did not exceed one year.
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4. PROPERTY, PLANT AND EQUIPMENT
Major classes of property, plant and equipment are as follows:
1996 1995 Estimated Useful Life
---- ---- ---------------------
Land $6,024,235 $6,015,410
Land improvements 1,070,936 923,689 10 years
Buildings 26,502,152 26,500,736 30-40 years
Building improvements 1,439,447 1,336,524 7 years
Machinery and equipment 30,566,958 27,421,095 3-10 years
Furniture and fixtures 1,708,503 1,977,378 5-10 years
Leasehold improvements 217,156 238,668 Life of lease
Construction in-progress 4,596,226 2,338,400
--------- ---------
$72,125,613 $66,751,900
=========== ===========
On December 29, 1995, the Company purchased an ethylene oxide sterilization
facility located in Temecula, California, from an unrelated party, for
$4,300,000 in cash.
5. LONG-LIVED ASSETS
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of" ("SFAS
121"), requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
asset in question may not be recoverable. SFAS 121 was adopted in 1996 and did
not have a material effect on the Company's financial position, results of
operations or cash flows.
17
9
6. LONG-TERM DEBT
Long-term debt consists of obligations payable relating to industrial
development revenue bonds, collateralized by substantially all of the property,
plant, equipment and radioisotope purchased with the proceeds from such
industrial development revenue bond transactions, as follows:
1996 1995
---- ----
Payable in annual installments of $400,000 from October 1992 through October
1996 and $500,000 thereafter through October 2008. $6,000,000 $6,400,000
Payable in annual installments of $100,000 from March 1993 through March 1997,
$200,000 through March 2008, and a payment of $300,000 in March 2009. 2,600,000 2,700,000
--------- ---------
8,600,000 9,100,000
Less, Current portion 600,000 500,000
------- -------
$8,000,000 $8,600,000
========== ==========
The bonds bear interest at a variable rate based on the bank/marketing agent's
Demand Note index. The interest rate was 4.5% and 5.5% at December 31, 1996 and
1995, respectively. The bondholders can require the Company to redeem the bonds
at any time. If this occurs, the bank/marketing agent will attempt to sell the
bonds to another investor. To enhance the marketability of the bonds, the
bank/marketing agent has issued a letter of credit, to support payment of the
bonds on the Company's behalf. If such bonds are not remarketed, the bank will
pay the bonds under the letter of credit and will not require the Company to
reimburse the bank for at least one year.
Based on borrowing rates available to the Company for bank loans with similar
terms and maturities, the fair value of long-term debt approximated its carrying
value.
The Company has $10,000,000 in unused lines of credit, of which all was
available at December 31, 1996 and 1995.
The aforementioned bond agreements contain, among other requirements, various
covenants relating to minimum capitalization, consolidated net worth and working
capital. The maintenance of such covenants indirectly limits the amount that may
be distributed as cash dividends or used for treasury stock purchases. The
amount available for such payments at December 31, 1996 is approximately
$24,500,000. There are also certain limitations on additional indebtedness and
capital expenditures.
18
10
Aggregate maturities of long-term debt for each of the five years ending after
December 31, 1996 are as follows:
1997 600,000
1998 700,000
1999 700,000
2000 700,000
2001 700,000
7. INCOME TAXES
The components of the provision for income taxes relating to continuing
operations are as follows:
1996 1995 1994
---- ---- ----
Current:
Federal $2,732,588 $2,925,803 $3,170,823
State 563,598 466,230 836,628
Canada 652,894 628,025 404,445
------- ------- -------
Total current provision 3,949,080 4,020,058 4,411,896
Deferred:
Federal 401,626 409,168 1,190,371
State 136,254 411,567 85,649
Canada (12,724) (7,031) (79,779)
-------- ------- --------
525,156 813,704 1,196,241
------- ------- ---------
$4,474,236 $4,833,762 $5,608,137
========== ========== ==========
A summary of income before provision for income taxes relating to continuing
operations from domestic and nondomestic sources is as follows:
1996 1995 1994
---- ---- ----
United States $9,885,047 $10,861,604 $13,140,929
Canada 1,300,544 1,222,801 879,413
--------- --------- -------
$11,185,591 $12,084,405 $14,020,342
=========== =========== ===========
19
11
Deferred income taxes were comprised of the following:
1996 1995
---- ----
Accelerated depreciation and amortization $9,229,876 $8,549,863
Other 240,362 220,410
------- -------
Gross deferred liabilities 9,470,238 8,770,273
Bad debts 301,477
Capitalized interest 99,586 101,751
Other 71,507 215,025
------ -------
Gross deferred assets 472,570 316,776
------- -------
Net deferred tax liabilities $8,997,668 $8,453,497
========== ==========
The Company did not have a valuation allowance as of December 31, 1996 and 1995.
The reasons for the difference between the provision for income taxes using the
United States federal statutory income tax rate and the tax provision reported
by the Company are as follows:
1996 1995 1994
---- ---- ----
Provisions computed at United States Federal statutory 34% 34% 34%
income tax rate
State and local income taxes, net of federal benefit 5% 5% 4%
Higher net effective tax rate in Canada 1% 1%
Higher enacted rate on net deferred liabilities 1%
Other 1%
--- --- ---
40% 40% 40%
--- --- ---
20
12
8. LEASE COMMITMENTS
The Company leases certain facilities and equipment under noncancelable
operating leases that expire over the next seven years. Minimum future rental
commitments under these leases at December 31, 1996 are as follows:
1997 $279,807
1998 93,875
1999 96,412
2000 99,072
2001 62,313
Thereafter 39,866
------
$671,345
========
The Company incurred total lease expense of approximately $812,898 in 1996,
$899,516 in 1995, and $961,240 in 1994.
The 1997 period includes the termination of Skyland's leases.
9. CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration of
credit risk consist principally of cash, cash equivalents, held-to-maturity
securities and trade receivables. The Company primarily maintained all of its
held-to-maturity securities and United States government securities, which are
federally insured, with one investment banking firm. At times, cash accounts may
exceed federally insured limits. The Company routinely assesses the financial
strength of its customers.
10. RISKS AND UNCERTAINTIES
The Company primarily operates as a provider of contract sterilization services
to manufacturers of pre-packaged healthcare products and certain customer
products. The Company is not dependent on any single customer or geographic area
or supplier of labor or services.
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of the revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
significant estimates include allowance for bad debt, income taxes,
unrecoverable costs through the disposal date of
21
13
discontinued operations, depreciation and amortization lives and the
determination of discount and other rate assumptions for employee benefits.
11. PREFERRED STOCK PURCHASE RIGHTS
On June 10, 1988, the Board of Directors of the Company declared a dividend of
one preferred stock purchase right for each outstanding share of common stock.
This action was intended to protect stockholders' value in the Company in the
event of a hostile takeover attempt. Each right entitles the holder to purchase
from the Company one one-hundredth of a share of Series A Preferred Stock at an
exercise price of $20 per one one-hundredth of a preferred share.
The rights are not exercisable or transferable apart from the common stock until
the earlier to occur of (1) ten days following a public announcement that a
person or group of affiliated or associated persons have acquired beneficial
ownership of 20% or more of the outstanding common stock of the Company or (2)
ten business days following the commencement of, or announcement of, an
intention to make a tender offer or exchange offer the consummation of which
would result in the beneficial ownership by a person or group of 20% or more of
such outstanding common stock. Furthermore, if the Company enters into a
consolidation, merger, combination or other transaction, where shares of common
stock are exchanged for cash, property, stock or securities of any other entity,
each right would entitle the holder upon exercise to receive, in lieu of Series
A preferred shares, that number of shares of common stock of the acquiring
company having a market value of two times the exercise price of the right. The
rights contain antidilutive provisions, are redeemable at the Company's option,
for $.01 per right, and expire on June 10, 1998.
As a result of the rights distribution, the Board of Directors authorized the
issuance of 55,000 shares of a new series of preferred stock designated as
Series A Preferred Stock, $1.00 par value. Stockholders of the Series A
Preferred Stock will be entitled to a cumulative quarterly dividend of the
greater of $1.00 per share or 100 times the per share dividend declared on
common stock. The shares have a liquidation preference equal to the greater of
$100.00 per share or 100 times the aggregate amount per share distributed to the
holders of common stock. Each share will have 100 votes and will vote together
with the common shares.
12. EARNINGS PER COMMON SHARE
Earnings per share have been computed based upon the weighted average number of
shares of common stock outstanding during the year. The number of shares used in
computing earnings per share was 7,147,198, 7,217,473 and 7,361,716 for 1996,
1995 and 1994, respectively. Included in the calculation, if dilutive, is the
incremental number of shares issuable upon the exercise of stock options and
warrants, assuming the proceeds from such exercise were used to purchase
outstanding common stock at the average market price during the year. Such
incremental shares were not significant for any period.
22
14
13. STOCK OPTIONS
The Company has granted stock options to key employees at prevailing market
prices on the date of grant pursuant to the "Isomedix Inc. 1982 Stock Option
Plan". In February 1995, the Board of Directors approved an amendment to change
the option exercise price of certain options in excess of $12.75 per share to
$12.75 per share. Pursuant to this amendment, options to purchase 136,000 shares
of common stock were amended. At December 31, 1996, options to purchase 75,300
shares were exercisable (1995 - 79,300). Stock option activity under the plan
for the three years ended December 31, 1996, 1995 and 1994 is summarized as
follows:
Number of Weighted Option Price
Options Average Price Range
------- ------------- -----
Balance outstanding December 31, 1993 239,283 $12.40 $5.00-$14.00
Exercised (23,178) 10.97 $5.00-$14.00
Terminated and canceled (2,800) 14.00 $11.75-$14.00
------- ----- -------------
Balance outstanding December 31, 1994 213,305 12.54 $5.00-$14.00
Exercised (10,405) 10.74 $5.00-$12.75
Terminated and canceled (6,800) 11.73 $9.13-$12.75
------- ----- ------------
Balance outstanding December 31, 1995 196,100 11.77 $5.00-$12.75
Exercised (15,700) 11.51 $9.63-$12.75
Terminated and canceled (2,000) 12.75 $12.75
------- ----- ------
Balance outstanding December 31, 1996 178,400 $11.78 $5.00-$12.75
======= ====== ============
The Company grants stock options to key employees and directors at prevailing
market prices on the date of grant pursuant to the "Isomedix Inc. 1992
Supplemental Stock Option Plan." In February 1995, the Board of Directors
approved an amendment to change the option exercise price of certain options in
excess of $12.75 per share to $12.75 per share. Pursuant to this amendment,
options to purchase 120,000 shares of common stock were amended. At December 31,
1996, options to purchase 85,000 shares were exercisable (1995 - 65,000) and
180,000 shares were reserved for the granting of future options under the plan
(1995 - 180,000). Stock option activity under the plan for the three years ended
December 31, 1996, 1995 and 1994 is summarized as follows:
Number of Weighted Option Price
Options Average Price Range
------- ------------- -----
Balance outstanding December 31, 1993 120,000 $16.71 $16.25-$17.25
------- ------ -------------
Balance outstanding December 31, 1994 120,000 $16.71 $16.25-$17.25
Granted 100,000 $13.75 $13.75
------- ------ ------
Balance outstanding December 31, 1995 220,000 $13.20 $12.75-$13.75
------- ------ -------------
Balance outstanding December 31, 1996 220,000 $13.20 $12.75-$13.75
------- ------ -------------
23
15
The Company grants stock options to key employees and directors at prevailing
market prices on the date of grant pursuant to the "Isomedix Inc. 1992 Stock
Option Plan." In February 1995, the Board of Directors approved an amendment to
change the option exercise price of certain options in excess of $12.75 per
share to $12.75 per share. Pursuant to this amendment, options to purchase
456,900 shares of common stock were amended. On December 9, 1994, the Board of
Directors approved an amendment to change the option exercise price for certain
options in excess of $17.25 per share to $14.75 per share. Pursuant to this
amendment, options to purchase 7,000 shares of common stock were amended. At
December 31, 1996 options to purchase 377,500 shares were exercisable (1995 -
593,100) and 28,700 shares were reserved for the granting of future options
under the plan (1995 - 6,900). Stock option activity under the plan for the
three years ended December 31, 1996, 1995 and 1994 is summarized as follows:
Number of Weighted Option Price
Options Average Price Range
------- ------------- -----
Balance outstanding December 31, 1993 419,500 $14.48 $14.00-$17.25
Granted 95,000 $15.29 $14.75-$19.75
Exercised (2,400) $14.00 $14.00
Terminated and canceled (33,200) $14.67 $14.00-$18.13
-------- ------ -------------
Balance outstanding December 31, 1994 478,900 $14.63 $14.00-$17.25
Granted 137,000 $14.15 $12.75-$14.75
Exercised (11,700) $12.75 $12.75
Terminated and canceled (35,200) $12.80 $12.75-$14.50
-------- ------ -------------
Balance outstanding December 31, 1995 569,000 $13.08 $12.75-$14.75
Granted 23,500 $15.00 $14.63-$14.88
Exercised (12,400) $12.75 $12.75
Terminated and canceled (45,300) $13.86 $12.75-$14.88
-------- ------ -------------
Balance outstanding December 31, 1996 534,800 $13.11 $12.75-$24.88
======= ====== =============
The Company grants stock options to key employees and directors at prevailing
market prices on the date of grant pursuant to the "Isomedix Inc. 1996 Long Term
Incentive Plan," which was adopted on May 17, 1996. At December 31, 1996, no
options to purchase shares were exercisable and 312,500 shares were reserved for
the granting of future options under the plan. Stock option activity under the
plan for the year ended December 31, 1996 is summarized as follows:
Number of Weighted Option Price
Options Average Price Range
------- ------------- -----
Granted 37,500 $13.55 $13.50-$13.88
------ ------ -------------
Balance outstanding December 31, 1996 37,500 $13.55 $13.50-$13.88
====== ====== =============
The repricing of certain outstanding stock options in February 1995 and December
1994 were
24
16
taken since stock price declines during the repricing periods required the
repricing to give further incentive to key management. There was no compensation
expense recorded, because in all instances, the options were repriced at the
fair market value of the Company's stock on the date of repricing.
The table below summarizes information about the 1982, 1992, and the 1992
Supplemental Stock Option Plans and the 1996 Long Term Incentive Plans at
December 31, 1996:
Options Outstanding Options Exercisable
------------------------------------------------------ ------------------------------
Weighted-average
remaining Weighed- Weighted-
contractual life average average
Range of Exercise Prices Number (in years) exercise price Number exercise price
------------------------ ------ ---------- -------------- ------ --------------
1982 Stock Option Plan
$5.00 $8.25 700 1.25 $6.857 700 $6.857
$9.13 $10.00 51,000 3.15 $9.439 51,000 $9.439
$11.50 $12.75 126,700 5.34 $12.746 23,600 $12.729
1992 Stock Option Plan
$12.75 $12.75 427,300 6.12 $12.750 360,100 $12.750
$14.00 $15.25 107,500 8.69 $14.540 17,400 $14.430
1992 Supplemental Stock Option Plan
$12.75 $13.75 220,000 7.47 $13.204 85,000 $12.985
1996 Long Term Incentive Plan
$13.50 $13.88 37,500 9.66 $13.550 None -
These plans provide that shares granted come from the Company's authorized but
unissued or reacquired common stock. The price of the options granted pursuant
to these plans will not be less than 100% of the fair market value of the shares
on the date of grant. The options generally vest over a five year period and no
option may be exercised within one year from the date of grant or after ten
years from the date of grant.
25
17
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS
123"). Accordingly, no compensation cost has been recognized for the stock
option plans. Had compensation cost for the Company's four stock option plans
been determined based on the fair value at the grant date for awards in 1996 and
1995 consistent with the provisions of SFAS 123, the Company's net earnings and
earnings per share would have been reduced to the pro forma amounts indicated
below:
1996 1995
---- ----
Net earnings-as reported $4,317,660 $7,299,505
Net earnings-pro forma $4,035,546 $6,351,095
Earnings per share-as reported $0.60 $1.01
Earnings per share-pro forma $0.57 $0.89
Pro forma amounts reflect options granted after 1994 and are not likely to be
representative of amounts in future years as additional options are awarded and
vested.
The impact on the 1995 period was primarily due to the effect of the option
repricing discussed above.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995; expected volatility of 45%;
risk-free interest rate of 6.24% in 1996 and 6.91% in 1995; and expected lives
of 5 years.
14. WARRANTS
The Company has granted warrants to purchase shares of the Company's common
stock. The warrants expire ten years from the date of issuance. Warrant activity
for the three years ended December 31, 1996 is summarized as follows:
Number of Weighted Warrant Price
Warrants Average Price Range
-------- ------------- -----
Balance outstanding December 31, 1993 143,500 $8.56 $5.00-$9.63
Balance outstanding December 31, 1994 143,500 $8.56 $5.00-$9.63
Balance outstanding December 31, 1995 143,500 $8.56 $5.00-$9.63
Balance outstanding December 31, 1996 143,500 $8.56 $5.00-$9.63
26
18
15. EMPLOYEE BENEFIT PLANS
PENSION PLAN:
The Company has a defined benefit pension plan which covers all domestic
employees (excluding employees of Skyland) who meet certain age and service
requirements. Benefits are based on years of service and compensation during the
last five years of employment. The Company's funding policy is to contribute
annually an amount representing the minimum amount required under applicable
laws and regulations. Such amounts are computed using an actuarial cost method
and assumptions that differ from those used for financial reporting. Plan assets
are principally invested in commingled bank trust funds.
The components of pension expense for 1996, 1995 and 1994 are summarized as
follows:
1996 1995 1994
---- ---- ----
Service cost $294,996 $202,787 $206,718
Interest cost 168,679 145,015 125,650
Actual return on plan assets (211,622) (370,619) 15,954
Net deferral (amortization) 32,853 250,680 (94,371)
------ ------- --------
Net pension expense $284,906 $227,863 $253,951
======== ======== ========
The following table sets forth the funded status of the plan at December 31,
1996 and 1995:
1996 1995
---- ----
Actuarial present value of benefit obligations:
Vested benefits $1,961,627 $1,807,749
Nonvested benefits 163,592 131,209
------- -------
Accumulated benefit obligation $2,125,219 $1,938,958
---------- ----------
Projected benefit obligation for services rendered to date ($2,722,835) ($2,571,214)
Plan assets at fair value 3,018,770 2,504,165
--------- ---------
Funded status 295,935 (67,049)
Unrecognized transition asset (10,837) (11,363)
Unrecognized prior service cost 476,482 509,861
Unrecognized (gain) loss (73,328) 139,329
-------- -------
Prepaid pension cost $688,252 $570,778
======== ========
27
19
The expected long-term rate of return on plan assets was 8.25% for 1996 and
1995. The projected benefit obligation has been determined based upon a discount
rate of 7.25% for 1996 and 1995. In 1996 and 1995 the assumed rate of
compensation increases was 3%.
EMPLOYEE SAVINGS AND PROTECTION PLAN:
The Employee Savings and Protection Plan (the "Plan") is a defined contribution
plan covering all non-union domestic salaried and hourly employees who have met
the age and service requirements under the Plan. The Plan is a 401(k) plan which
permits each participant to elect to defer a portion of his or her compensation
and contribute such amount to the Plan on a tax deferred basis. The Plan also
permits the Company to make annual cash contributions from its revenues as
determined by the Board of Directors. These contributions may be allocated to
participant's accounts either on a pro-rated basis based upon participant
compensation or, in the alternative, as a matching contribution based on the
amounts that participants have contributed to the Plan as 401(k) salary deferral
contributions. The Plan expense was approximately $96,000 in 1996, $96,000 in
1995 and $90,000 in 1994.
EMPLOYEE STOCK PURCHASE PLAN:
Pursuant to the "1993 Employee Stock Purchase Plan", the Company has reserved
and made available common shares for purchase by eligible employees, including
directors and officers, through payroll deductions over successive six-month
offering periods. The purchase price of common stock under the plan is 85% of
the lower of the last sale price per share (on the New York Stock Exchange) on
either of the first or last day of each six-month offering period. In 1996,
5,448 and 4,689 shares were purchased at prices of $11.58 and $12.64,
respectively. In 1995, 4,376 and 5,255 shares were purchased at prices of $13.39
and $11.46, respectively. At December 31, 1996, 75,927 shares were available for
future purchases under the Plan.
16. GEOGRAPHIC DISTRIBUTION OF OPERATIONS
Information about the Company's operations in different geographic areas is
presented below.
28
20
Intercompany transfers between geographic areas are not significant.
1996 1995 1994
---- ---- ----
Sales:
United States $42,627,484 $39,542,584 $40,746,112
Canada 2,605,699 2,579,734 2,318,720
--------- --------- ---------
Total $45,233,183 $42,122,318 $43,064,832
=========== =========== ===========
Operating income:
United States $9,572,469 $10,515,802 $12,766,746
Canada 1,173,287 1,077,101 1,037,978
--------- --------- ---------
Total $10,745,756 $11,592,903 $13,804,724
=========== =========== ===========
Identifiable assets:
United States $109,044,886 $107,779,353 $100,247,420
Canada 6,575,446 4,244,158 6,342,265
--------- --------- ---------
Total $115,620,332 $112,023,511 $106,589,685
============ ============ ============
17. RELATED PARTY TRANSACTIONS
A member of the Company's Board of Directors is a partner in the law firm which
serves as the Company's General Counsel.
29
21
18. UNAUDITED QUARTERLY FINANCIAL DATA
Three Months Ended
---------------------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- ------- -------- -------
(amounts in thousands, except per share amounts)
1996
- ----
Sales $10,793 $11,562 $11,033 $11,845
Gross Profit 5,230 6,035 5,717 6,071
Income from continuing operations 1,498 1,897 1,947 1,369
Net income 1,484 1,775 1,825 (766)
Earnings per share:
Continuing operations 1,2 $0.21 $0.26 $0.27 $0.19
Net income 1,3 $0.21 $0.25 $0.26 ($0.11)
1995
- ----
Sales $10,415 $10,714 $10,312 $10,681
Gross Profit 5,505 5,812 5,464 5,267
Income from continuing operations 1,791 1,983 1,886 1,591
Net income 1,865 1,988 1,857 1,590
Earnings per share:
Continuing operations 1 $0.25 $0.28 $0.26 $0.22
Net income 1 $0.26 $0.28 $0.26 $0.22
(1) Quarterly earnings per share do not sum to annual earnings per share due to
rounding.
(2) Included in the fourth quarter of 1996 are $420,000 of after-tax charges,
the largest item being the disposal of certain fixed assets.
(3) Included in the fourth quarter of 1996 are charges (net of income tax
benefits) of approximately $1,691,206 for the disposal of Skyland.
19. LITIGATION
The Company is from time to time involved in litigation arising out of the
ordinary course of business. It is management's view that the ultimate
resolution of pending suits should not have a material adverse effect on the
Company's financial position, results of operations or cash flows.
30
22
20. SUBSEQUENT EVENTS
STOCK REPURCHASE PROGRAM:
On January 10, 1997 the Company announced that its Board of Directors authorized
the repurchase of up to 750,000 shares of its common stock (over 10 percent of
the outstanding shares). As of March 19, 1997, 412,600 shares have been
purchased, for a total of $5,765,723, pursuant to this authorization.
FACILITY ACQUISITION:
On March 19, 1997, the Company purchased an irradiation sterilization facility,
Cobalt-60 and related equipment in Vega Alta, Puerto Rico from an unrelated
party for $4,600,000 in cash.
31
1
Exhibit 99.3
ISOMEDIX INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEET as of June 30, 1997
ASSETS
Current Assets
Cash and cash equivalents $12,324,886
Accounts receivable, less allowance for doubtful accounts of
$425,000 at June 30, 1997 7,150,631
Prepaid expenses and other current assets 948,748
-------
Total current assets 20,424,265
Property, plant and equipment, at cost 78,153,044
Less, accumulated depreciation and amortization (19,970,148)
-----------
Net property, plant, and equipment 58,182,896
Radioisotope, at cost 76,964,767
Less, Accumulated depreciation (43,014,738)
------------
Net Radioisotope 33,950,029
Other assets 1,146,158
------------
Total assets $113,703,348
============
LIABILITIES
Current liabilities
Current portion of long-term debt $600,000
Accounts payable and accrued expenses 3,003,817
Liabilities of discontinued operations 387,668
Income taxes payable 725,901
-------
Total current liabilities 4,717,386
Long-term debt 7,900,000
Deferred income taxes 8,192,991
---------
Total liabilities 20,810,377
STOCKHOLDERS' EQUITY
Preferred stock, $1.00 par value; 1,000,000 shares authorized;
issued and outstanding -- none
Common stock, $.01 par value; authorized 15,000,000 shares;
Issued: 7,169,868 shares at June 30, 1997;
Outstanding: 6,459,098 at June 30, 1997. 71,699
Additional paid-in capital 37,609,355
Cumulative Foreign Translation Adjustments (348,603)
Retained earnings 65,722,786
------------
103,055,237
Less, common stock held in the treasury, at cost, 710,770
shares at June 30, 1997 (10,162,266)
-------------
Total stockholders' equity 92,892,971
------------
Total liabilities and stockholders' equity $113,703,348
============
See Notes to Consolidated Financial Statements (Unaudited)
32
2
ISOMEDIX INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
For the six months ended June 30, 1997 and 1996
1997 1996
---- ----
Sales $25,588,093 $22,354,859
Cost of sales 12,149,514 11,090,519
---------- ----------
Gross profit 13,438,579 11,264,340
Selling, general and administrative expense 6,731,666 5,790,447
--------- ---------
Operating income 6,706,913 5,473,893
Interest expense (261,046) (235,955)
Investment income 283,230 414,653
------- -------
Pre-tax income from continuing operations 6,729,097 5,652,591
Provision for income taxes 2,691,770 2,264,412
--------- ---------
Income from continuing operations 4,037,327 3,388,179
Discontinued operations 200,150 (128,963)
------- ---------
Net income $4,237,477 $3,259,216
========== ==========
Earnings per share:
Income from continuing operations $0.60 $0.47
Discontinued operations 0.03 (0.02)
---- ------
Net income $0.63 $0.45
See Notes to Consolidated Financial Statements (Unaudited)
33
3
ISOMEDIX INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 1997 and June 30, 1996
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities: 1997 1996
---- ----
Net income $4,237,477 $3,259,216
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 3,750,577 3,479,985
Amortization 12,978 112,927
Provision for doubtful accounts (136,293) 125,000
Gain on sale of Skyland assets (150,000)
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 1,081,390 (659,931)
Increase in prepaid expenses and other assets (395,210) (137,314)
(Decrease) increase in accounts payable and accrued expenses (281,007) 330,371
Decrease in contract deposits (38,390)
Increase (decrease) in income taxes payable 842,503 (73,988)
(Decrease) increase in deferred income taxes (885,847) 193,759
--------- -------
Net cash provided by operating activities 8,076,568 6,591,635
Cash flows from investing activities:
Purchases of held-to-maturity securities (31,748,331)
Proceeds from maturity of held-to-maturity securities 31,446,777
Proceeds from sale of Skyland assets 150,000
Additions to property, plant and equipment (3,411,163) (1,626,968)
Additions to radioisotope (4,346,676) (2,374,566)
Acquisition of Puerto Rico (4,600,000)
Increase in equipment deposits (138,947) (900,000)
Other 39,695 (19,664)
---------- ---------
Net cash used in investing activities (12,307,091) (5,222,752)
Cash flows from financing activities:
Purchases of treasury stock (5,781,645) (2,145,003)
Payments of long-term debt (100,000) (100,000)
Proceeds of stock options exercised and employee stock purchases 425,315 219,340
---------- ---------
Net cash used in financing activities (5,456,330) (2,025,663)
Effect of exchange rate changes on cash (85,727)
---------- ---------
Net decrease in cash and cash equivalents (9,772,580) (656,780)
Cash and cash equivalents at beginning of period 22,097,466 4,860,088
---------- ---------
Cash and cash equivalents at end of period $12,324,886 $4,203,308
=========== ==========
Supplemental cash flow information:
Cash paid for interest (net of amounts capitalized) $205,006 $179,914
Cash paid for income taxes 2,370,455 499,702
Supplemental non cash investing activities:
Additions to radioisotope in satisfaction of lease receivable 24,835
Accrual for capital expenditures 431,114
See Notes to Consolidated Financial Statements (Unaudited)
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ISOMEDIX INC. AND SUBSIDIARIES
1. The interim consolidated financial statements reflect all adjustments,
consisting only of normal recurring accruals, which are, in the opinion of the
Company's management, necessary for a fair statement of results for the periods
presented. Operating revenues and net income for any interim period are not
necessarily indicative of results for a full year. The accompanying unaudited
financial statements have been prepared in accordance with the instructions to
Form 8-K and should be read in conjunction with the financial statement
footnotes and other information in Isomedix Inc. and Subsidiaries' 1996 audited
financial statements.
2. Earnings per share have been computed based upon the weighted average number
of shares of common stock outstanding during each period. For the six months
ended June 30, 1997 and 1996, the numbers of shares used in computing earnings
per share were 6,676,640 and 7,182,112, respectively.
3. The Company has reclassified certain prior period amounts to conform with the
1997 presentation.
4. In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS 128"),
which is effective for financial statements for annual periods ending after
December 15, 1997. SFAS 128 establishes standards for the computation,
presentation and disclosure requirements for earnings per share. Management is
currently evaluating the impact of SFAS 128 on the financial statements.
5. In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards Number 129 "Disclosure of Information About
Capital Structure" ("SFAS 129") that established standards for disclosing
information about an entity's capital structure. The statement is effective for
periods ending after December 15, 1997. The Company will adopt SFAS 129 in a
later period.
6. In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Number 130 "Reporting Comprehensive Income"
("SFAS 130") that establishes standards for reporting and display of an
alternative income measurement in a full set of general-purpose financial
statements. This statement is effective for fiscal years beginning after
December 15, 1997. The Company will adopt SFAS 130 in a future period.
7. In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Number 131 "Disclosures About Segments of an
Enterprise and Related Information" ("SFAS 131") that establishes standards for
the reporting of information about operating segments in annual financial
statements. The Company is currently evaluating the new pronouncement for its
impact on the Company's financial statements. This statement is effective for
periods beginning after December 15, 1997. The Company will adopt SFAS 131 in a
future period.
8. Subsequent Events
SPARTANBURG, SOUTH CAROLINA FIRE
On July 29, 1997, there was a fire at the Company's Spartanburg, South Carolina
facility. The fire started and was contained in a small area of warehouse
portion of the facility and was not related to any of the processing equipment
or sterilization practices at the facility. The Company anticipates that there
will be losses and expenses relating to the damage caused by the fire, though,
the Company believes that the losses and expenses will not have a material
adverse effect on the Company's results of operations, financial or cash flows.
Acquisition by STERIS Corporation
On September 17, 1997, STERIS Corporation ("STERIS") purchased shares
representing approximately 96% of the outstanding common stock of Isomedix Inc.,
a Delaware corporation,
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through STERIS's newly incorporated and wholly owned subsidiary, STERIS
Acquisition Corporation, pursuant to a tender offer for all of the outstanding
shares of common stock of Isomedix. On the same day, STERIS completed the
acquisition of Isomedix through the merger of STERIS Acquisition Corporation
with and into Isomedix in accordance with the "short form" merger provisions of
Delaware law. As a consequence of the merger, STERIS became the owner of 100% of
the outstanding common stock of Isomedix.
36
