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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM
--------------- TO
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COMMISSION FILE NUMBER 000-22909
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STERIGENICS INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 95-3323502
(STATE OR OTHER JURISDICTION OF I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER
4020 CLIPPER COURT FREMONT, CA 94538-6540
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(510) 770-9000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
------------------------
Indicate by check 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 number of shares outstanding of each of the issuer's classes of
common stock, at the latest practicable date:
<TABLE>
<CAPTION>
CLASS OUTSTANDING AS OF: DECEMBER 31, 1997
- --------------------------------------------------------------------------------------------
<S> <C>
Common Stock 6,939,846
</TABLE>
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STERIGENICS INTERNATIONAL, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
NO.
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<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of December 31, 1997 and March
31, 1997................................................................ 3
Condensed Consolidated Statements of Income for the Three Months and
Nine Months Ended December 30, 1997 and 1996............................ 4
Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended December 31, 1997 and 1996........................................ 5
Notes to Condensed Consolidated Financial Statements.................... 6
Item 2. Management's Discussion and Analysis of Results of Operations and
Financial
Condition............................................................... 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings....................................................... 25
Item 2. Changes in Securities................................................... 25
Item 3. Defaults Upon Senior Securities......................................... 25
Item 4. Submission of Matters to a Vote of Security Holders..................... 25
Item 5. Other Information....................................................... 25
Item 6. Exhibits and Reports on Form 8-K........................................ 25
Signatures............................................................................. 26
</TABLE>
2
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STERIGENICS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND MARCH 31, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1997(1)
------------ ---------
<S> <C> <C>
Current Assets
Cash and cash equivalents:
Unrestricted.................................................... $ 21,283 $ 1,072
Restricted...................................................... 900 885
Accounts receivable, net of allowance of $154 and $253 at December
31, 1997 and March 31, 1997..................................... 5,302 4,592
Prepaid expenses and other current assets.......................... 942 801
Deferred income taxes................................................ 1,109 1,109
-------- -------
Total current assets................................................. 29,536 8,459
Property, plant and equipment, net................................... 84,555 80,330
Other assets......................................................... 7,375 2,878
-------- -------
Total assets.................................................... $121,486 $91,667
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable..................................................... $ 413 $ 1,462
Income taxes payable................................................. 2,684 677
Accrued liabilities.................................................. 6,912 6,097
Current portion of capital lease obligations......................... 2,913 3,152
Current portion of long-term debt.................................... 250 250
-------- -------
Total current liabilities............................................ 13,172 11,638
Capital lease obligations, less current portion...................... 3,998 6,140
Long-term debt, less current portion................................. 36,750 32,000
Deferred income taxes................................................ 9,409 9,409
Series A redeemable preferred stock $0.001 par value:
Authorized shares -- 100,000
Issued and outstanding shares -- None as of December 31, 1997 and
15,000 as of March 31, 1997..................................... -- 1,500
Stockholders' equity:
Convertible preferred stock, Series B and C, $0.001 par value:
Authorized shares -- 1,772,728
Issued and outstanding shares -- None at December 31, 1997 and
1,772,727 at March 31, 1997..................................... -- 2
Common stock, $0.001 par value:
Authorized shares -- 15,000,000
Issued and outstanding shares -- 6,939,846 at December 31, 1997 and
3,056,042 at March 31, 1997..................................... 7 3
Additional paid-in capital........................................... 38,217 14,727
Notes receivable from sale of common stock........................... (68) (88)
Retained earnings.................................................... 20,001 16,336
-------- -------
Total stockholders' equity........................................... 58,157 30,980
-------- -------
Total liabilities and stockholders' equity...................... $121,486 $91,667
======== =======
</TABLE>
- ---------------
(1) The balance sheet at March 31, 1997, has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial information.
See accompanying notes to condensed consolidated financial statements.
3
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STERIGENICS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 30, DECEMBER 30,
------------------ -------------------
1997 1996 1997 1996
------- ------ ------- -------
<S> <C> <C> <C> <C>
Revenues............................................. $11,849 $9,657 $33,871 $27,684
Cost of revenues..................................... 6,323 5,498 18,019 14,641
------- ------ ------- -------
5,526 4,159 15,852 13,043
Costs and expenses:
General and administrative......................... 1,788 1,527 5,048 4,764
Marketing and selling.............................. 851 576 2,533 1,844
Research, development and engineering.............. 308 381 914 1,040
------- ------ ------- -------
2,947 2,484 8,495 7,648
------- ------ ------- -------
Income from operations............................... 2,579 1,675 7,357 5,395
Other income (expense):
Interest expense, net.............................. (315) (525) (1,368) (1,456)
Other income (expense)............................. 3 214 32 (72)
------- ------ ------- -------
Income before provision for income taxes............. 2,267 1,364 6,021 3,867
Provision for income taxes........................... 884 539 2,356 1,528
------- ------ ------- -------
Net income........................................... $ 1,383 $ 825 $ 3,665 $ 2,339
======= ====== ======= =======
Pro forma basic net income per share................. $ 0.20 $ 0.17 $ 0.63 $ 0.48
======= ====== ======= =======
Shares used in computing pro forma basic net income
per share.......................................... 6,833 4,861 5,846 4,861
======= ====== ======= =======
Diluted net income per share......................... $ 0.18 $ 0.16 $ 0.58 $ 0.45
======= ====== ======= =======
Shares used in computing diluted net income per
share.............................................. 7,513 5,165 6,350 5,165
======= ====== ======= =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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STERIGENICS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
-----------------------
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Cash flows from operating activities:
Income from continuing operations.............................. $ 3,665 $ 2,339
Reconciliation to net cash provided by operating activities:
Depreciation and amortization from continuing operations.... 7,084 6,018
Deferred income tax asset................................... -- (21)
Changes in assets and liabilities:
Accounts receivable....................................... (711) (601)
Prepaid expenses and other current assets................. (97) (670)
Accounts payable and accrued liabilities.................. 1,635 1,048
Net assets of discontinued operations..................... -- 18
-------- --------
Net cash provided by operating activities........................ 11,576 8,131
INVESTING ACTIVITIES
Purchases of property, plant and equipment -- continued
operations..................................................... (7,589) (18,342)
Acquisition of certain assets of Nicolet......................... (5,001) --
Loss from investment in joint venture............................ -- 100
Other assets..................................................... (1,058) (1,005)
-------- --------
Net cash used in investing activities............................ (13,648) (19,247)
FINANCING ACTIVITIES
Issuance of Common Stock......................................... 21,429 --
Redemption of Preferred Stock.................................... (1,500) --
Borrowings under industrial revenue bonds........................ 5,000 8,750
Borrowings under term loan and line of credit.................... 700 2,082
Borrowings under cobalt financing agreements..................... -- 2,508
Repayments on term loan, line of credit, industrial revenue bonds
and capital leases............................................. (3,331) (10,831)
Increase in restricted cash...................................... (15) (28)
-------- --------
Net cash provided by financing activities........................ 22,283 2,481
-------- --------
Net increase (decrease) in unrestricted cash and cash
equivalents.................................................... 20,211 (8,635)
Unrestricted cash and cash equivalents at beginning of period.... 1,072 9,062
-------- --------
Unrestricted cash and cash equivalents at end of period.......... $ 21,283 $ 427
======== ========
NONCASH FINANCING ACTIVITIES
Assets acquired under capital leases............................. $ -- $ 1,549
Common stock issued in connection with acquisition of Nicolet.... $ 2,063 $ --
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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STERIGENICS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
I. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
include the accounts SteriGenics International, Inc. ("SteriGenics" or "the
Company") and its wholly owned subsidiaries, SteriGenics East Corporation,
SteriGenics International Holding Corporation, Inc. and RSI Leasing, Inc. All
significant intercompany accounts and transactions have been eliminated.
The accompanying interim unaudited condensed consolidated financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). Certain information and footnote
disclosure normally included in the financial statements prepared in accordance
with generally accepted accounting principles may have been condensed or omitted
pursuant to such rules and regulations, although management believes that the
disclosures are adequate to make the information presented not misleading. These
financial statements should be read in conjunction with the financial statements
and notes included as part of the Company's Registration Statement on Form S-1
as declared effective by the SEC on August 13, 1997, (Reg. No. 33-30047).
II. INTERIM FINANCIAL STATEMENTS
In the opinion of management, the unaudited interim financial statements at
December 31, 1997 and for the three and nine months ended December 31, 1996 and
1997 include all adjustments, consisting only of normal recurring accruals,
necessary to present fairly the Company's financial position at December 31,
1997, and results of operations and cash flows for the three and nine months
ended December 31, 1996 and 1997. Results for the three and nine months ended
December 31, 1997 are not necessarily indicative of the results to be expected
for the entire year.
III. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of 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 the
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates, and such
differences may be material to the financial statements.
IV. BASIS OF NET INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128), which
was adopted on December 31, 1997. In accordance with the provisions of FAS 128,
all prior period net income (loss) per share amounts have been restated to
reflect basic and diluted per share amounts.
Except as noted below, basic net income per share is computed using the
weighted average number of shares of common stock outstanding. Pro forma basic
net income per share is calculated as for basic net income per share, but
assumes conversion of all convertible preferred stock which converted
automatically in the initial public offering, even if antidilutive. Diluted net
income per share includes potential common shares, when dilutive, from stock
options (using the treasury stock method) and from convertible preferred stock
(using the if-converted method). Pursuant to the Securities and Exchange
Commission Staff Accounting Bulletins, potential common shares issued by the
Company at prices below the initial public offering price during the
twelve-month period prior to the offering have been included in the calculation
as if they were outstanding for all periods presented (using the treasury stock
method at an assumed initial public offering price) for both basic and diluted.
The following table sets forth the computation of basic, pro forma basic,
and diluted net income per share:
6
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STERIGENICS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
DECEMBER 31, DECEMBER 31,
--------------- ---------------
1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Numerator for pro forma basic and diluted:
Net income.................................................. $1,383 $ 825 $3,665 $2,339
====== ====== ====== ======
Denominator:
Weighted average common shares outstanding.................. 6,833 3,056 4,944 3,056
Shares related to SEC Staff Accounting Bulletins............ -- 32 16 32
------ ------ ------ ------
Denominator for basic net income per share.................... 6,833 3,088 4,960 3,088
Conversion of preferred stock (pro forma)................... -- 1,773 886 1,773
------ ------ ------ ------
Denominator for pro forma basic net income per share.......... 6,833 4,861 5,846 4,861
Stock options................................................. 680 304 504 304
------ ------ ------ ------
Denominator for diluted net income per share.................. 7,513 5,165 6,350 5,165
====== ====== ====== ======
Basic net income per share.................................... $ .20
======
Pro forma basic net income per share.......................... $ 0.17 $ 0.63 $ 0.48
====== ====== ======
Diluted net income per share.................................. $ 0.18 $ 0.16 $ 0.58 $ 0.45
====== ====== ====== ======
</TABLE>
Options to purchase 25,500 shares of common stock were outstanding in the
nine months ended December 31, 1997 but were not included in the computation of
diluted earnings per share because the exercise price was greater than the
average market price of the common shares and, therefore, the effect would be
antidilutive.
V. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement No.
130, Reporting Comprehensive Income (FAS 130) and Statement No. 131, Disclosures
About Segments of an Enterprise and Related Information (FAS 131). FAS 130
establishes rules for reporting and displaying comprehensive income. FAS 131
will require the Company to use the "management approach" in disclosing segment
information. Both statements are effective for the Company during fiscal 1999.
The Company believes that the adoption of either FAS 130 or FAS 131 will not
have a material impact on the Company's results of operations, cash flows or
financial position.
VI. INITIAL PUBLIC OFFERING:
In August 1997, the Company completed its initial public offering and
issued 2,000,000 shares of its common stock to the public at a price of $12.00
per share. The Company received proceeds from the offering of approximately
$21.4 million, net of underwriting discounts, commissions and offering costs.
Upon the closing of the initial public offering, all outstanding shares of its
convertible preferred stock were automatically converted into shares of common
stock. In addition, $1.5 million of net proceeds were used for the redemption of
15,000 shares of redeemable preferred stock then outstanding.
VII. SUBSEQUENT EVENTS
On December 31, 1997, the Company acquired certain assets of the Nicolet
Electron Services Division of ThermoSpectra Corporation ("Nicolet") for a net
purchase price of approximately $7 million, $5 million in cash and 109,307
shares of the Company's common stock valued at approximately $2 million. The
consolidated statements of operations include the results of operations of
Nicolet from the date of acquisition.
7
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STERIGENICS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company recorded approximately $3.4 million of goodwill in connection with
the acquisition, which is being amortized over a twenty-year period.
The following unaudited pro forma summary represents the Company's
consolidated results of operations for the periods presented on the following
basis; (i) as if the acquisition of Nicolet had occurred on April 1, 1996 and is
therefore included in the year ended March 31, 1997 and the nine months ended
December 31, 1996 and 1997; and (ii) RTI is included in all periods presented.
Such pro forma results do not purport to be indicative of what would have
occurred had the acquisitions been made as of those dates or the results which
may occur in the future.
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER
31,
---------------------------
1996 1997
------------ ------------
<S> <C> <C>
Pro forma net revenues............................................ $ 32,354,700 $ 36,755,006
Pro forma net income.............................................. 2,804,886 4,482,436
Pro forma diluted net income per share............................ 0.53 0.69
</TABLE>
On February 4, 1998, the Company filed a Form S-1, Registration Statement
under the Securities Act of 1933 with the Securities and Exchange Commission to
offer 2,000,000 shares of Common Stock, 575,000 shares of which are being sold
by the Company and 1,425,000 shares are being sold by certain stockholders.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The statements contained in this report that are not purely historical are
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, including statements regarding the Company's
expectations, beliefs, hopes, intentions or strategies regarding the future.
Forward-looking statements include statements regarding future sales, market
growth and competition. All forward-looking statements included in this document
are based upon information available to the Company as of the date hereof, and
the Company assumes no obligation to update any such forward-looking statement.
Actual results could differ materially from the Company's current expectations.
Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in "Risk Factors That May Affect Future Results" as
well as those discussed in this section in the Company's Registration on Form
S-1 as declared effective by the SEC on August 13, 1997 (Registration No.
333-30047). The Company's fiscal year ends on March 31. The fiscal year ended
March 31, 1995 is referred to as fiscal 1995, the fiscal year ended March 31,
1996 is referred to as fiscal 1996, the fiscal year ended March 31, 1997 is
referred to as fiscal 1997 and the fiscal year ending March 31, 1998 is referred
to as fiscal 1998.
OVERVIEW
Since its inception, SteriGenics has engaged primarily in the business of
operating, designing and developing Gamma facilities to provide contract
sterilization and radiation processing services to manufacturers of medical and
non-medical products. The Company currently operates 12 Gamma facilities
nationwide. In fiscal 1995, the Company opened mega-facilities in Corona,
California and Charlotte, North Carolina. In fiscal 1997, the Company opened a
mega-facility in Gurnee, Illinois and began operating three additional
facilities in Haw River, North Carolina, Rockaway, New Jersey and Salem, New
Jersey following its acquisition of certain assets of RTI. In fiscal 1998, the
Company began operation of its first MiniCell facility in Hayward, California
and opened its second Fort Worth, Texas facility. With the addition of these
facilities, the Company's maximum Cobalt 60 capacity has increased from 32
million curies at the end of fiscal 1994 to a current capacity of 101 million
curies.
On December 31, 1997, the Company acquired certain assets of the Nicolet
Electron Services Division of ThermoSpectra Corporation for approximately $5.0
million cash and 109,307 shares of the Company's Common Stock. As a result of
the acquisition, the Company currently operates one E-Beam facility, located in
San Diego, California. The acquisition was accounted for as a purchase.
In order to more effectively address its customer base, the Company has
divided its operations into two divisions: medical and non-medical products.
While the Company's primary market continues to be the sterilization of medical
products, the Company has increased its focus on the sterilization and
processing of non-medical products. The Company has dedicated four of its Gamma
facilities to processing primarily non-medical products. In addition, a
significant portion of the Company's revenues from its E-Beam facility is
generated from the processing of non-medical products.
The Company's revenues have increased significantly from fiscal 1995 as the
Company opened and acquired additional facilities, increased its loaded curies
of Cobalt 60 and expanded its customer base. In addition, in recent years the
Company generated incremental revenues by offering its customers premium
services such as ExCell and GammaSTAT. Revenues are recognized upon completion
of the sterilization or processing services.
The Company's cost of revenues is comprised primarily of the depreciation
of Cobalt 60, facilities and equipment; direct labor costs; facilities rental;
and costs associated with facility quality assurance personnel. Since Cobalt 60
represents a significant portion of the Company's cost of revenues, Cobalt 60
efficiency and utilization are key determinants of the Company's gross margin.
Cobalt 60 is amortized using an accelerated method (approximately 12.3% of net
book value per year), which corresponds to its natural decay rate. As the
Company periodically increases its installed capacity of Cobalt 60 in existing
facilities or when it opens a new facility, it typically has excess capacity for
some period of time, which can adversely affect gross margin. Correspondingly,
once a facility reaches its break-even point for a given amount of Cobalt 60,
there are relatively low costs associated with incremental revenues until such
time as the amount of Cobalt 60 is
9
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increased. The Company's gross margin is also affected by the mix of standard
services and higher margin premium services such as ExCell and GammaSTAT.
From time to time, the Company has built or expanded facilities. The cost
of construction of a facility is reflected as construction-in-progress until
start-up of the facility, at which time depreciation commences. Building new
facilities requires significant capital investments in building construction,
equipment and, for Gamma facilities, in Cobalt 60. In addition to incurring
costs associated with Cobalt 60, the Company also incurs incremental personnel
costs in the months preceding initial operation and typically incurs substantial
personnel and other operating expenses during the first several months of
operations. These costs have historically exceeded revenues during the initial
months of operation.
As a result of their own internal procedures, customers often delay
qualification and use of a new facility until it has been operational for
periods of up to 12 months. As a result, in the past, the Company failed to
realize a portion of anticipated revenues for the facility pending such
qualification. Qualification generally requires the completion of various audit
procedures by a customer's quality assurance personnel. Customers' decisions on
timing of qualification of new facilities are based on various issues including
internal policies and procedures, work load of internal quality assurance audit
personnel and the need for amendments of certain FDA approvals. Certain
customers will qualify a new facility shortly after opening, while others may
delay for three, six, nine or twelve months depending on various internal
issues. The Company generally does not have the ability to expedite this
qualification process as the decisions are made independently by the individual
customers. See "Risk Factors -- Unpredictability of Future Operating Results;
Likely Fluctuations in Quarterly Operating Results."
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 AND 1996
Revenues. Revenues increased 22.7%, from $9.7 million in the three months
ended December 31, 1996 to $11.8 million in the three months ended December 31,
1997. This increase is due primarily to higher volume resulting from the
operation of the former facilities of RTI for the entire period and the addition
of the Gurnee, Hayward and Fort Worth II facilities, increased capacity of
Cobalt 60 in its existing facilities which enabled the Company to process higher
volumes of products, the expansion of the Company's non-medical business and an
increase in revenues from the Company's premium services. While there can be no
assurance, the Company believes that the trend toward increased non-medical
sterilization services is likely to continue.
Cost of revenues. Cost of revenues increased from $5.5 million in the three
months ended December 31, 1996 to $6.3 million in the three months ended
December 31, 1997. Gross margin increased from 43.1% in the three months ended
December 31, 1996 to 46.6% in the three months ended December 31, 1997. The
increase in gross margin was primarily due to economies of scale achieved as the
Company's revenues increased. Gross margin has not, to date, been impacted
significantly by the mix of revenue derived from the Company's medical and
non-medical customers.
General and administrative. General and administrative expenses increased
17.1%, from $1.5 million in the three months ended December 31, 1996 to $1.8
million in the three months ended December 31, 1997. The increase was primarily
attributable to the operation of additional facilities. As a percentage of
revenues, these expenses decreased from 15.8% in the three months ended December
31, 1996 to 15.1% in the three months ended December 31, 1997. The decrease in
general and administrative expenses as a percentage of revenues was primarily
due to economies of scale achieved as the Company's revenues increased. The
Company expects general and administrative expenses will increase as the Company
adds facilities and incurs additional costs related to being a public company.
Marketing and selling. Marketing and selling expenses increased 47.7%, from
$576,000 in the three months ended December 31, 1996 to $851,000 in the three
months ended December 31, 1997. As a percentage of revenues, these expenses
increased from 6.0% to 7.2% in the three months ended December 31, 1996 and
1997, respectively. This increase was primarily attributable to the increased
sales and marketing
10
<PAGE> 11
personnel at the facility and corporate level and increased travel and
advertising expenses. The Company expects that sales and marketing expenses will
continue to increase in absolute dollars.
Research, development and engineering. Research, development and
engineering expenses decreased 19.2%, from $381,000 in the three months ended
December 31, 1996 to $308,000 in the three months ended December 31, 1997. The
decrease was primarily attributable to a reduction in professional fees
associated with project development, as well as a reduction in travel costs. As
a percentage of revenues, these expenses decreased from 3.9% to 2.6% in the
three months ended December 31, 1996 and 1997, respectively. The Company expects
research, development and engineering expenses will increase in absolute dollars
as new projects are developed.
Other income (expense). Net interest expense decreased 40.0%, from $525,000
in the three months ended December 31, 1996 to $315,000 in the three months
ended December 31, 1997. The majority of the decrease in net interest expense is
a result of higher interest income on the higher average cash balances during
the three month period ending December 31, 1997. Other expense includes an
estimated loss on investment for the three months ended December 31, 1996.
NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996
Revenues. Revenues increased 22.3%, from $27.7 million in the nine months
ended December 31, 1996 to $33.9 million in the nine months ended December 31,
1997. This increase is due primarily to higher volume resulting from the
operation of the former facilities of RTI for the entire period and the addition
of the Gurnee, Hayward and Fort Worth II facilities, increased installed
capacity of Cobalt 60 in its existing facilities which enabled the Company to
process higher volumes of products, the expansion of the Company's non-medical
business and an increase in revenues from the Company's premium services.
Cost of revenues. Cost of revenues increased from $14.6 million in the
nine months ended December 31, 1996 to $18.0 million in the nine months ended
December 31, 1997. Gross margin decreased from 47.1% in the nine months ended
December 31, 1996 to 46.8% in the nine months ended December 31, 1997. The
slight decrease in gross margin was due primarily to costs associated with the
opening and initial operation of new facilities in Gurnee, Hayward and Fort
Worth, which were substantially offset by greater utilization of the Company's
existing facilities. Gross margin has not, to date, been impacted significantly
by the mix of revenue derived from the Company's medical and non-medical
customers. The Company expects gross margin to fluctuate in future periods, and
that it may be negatively impacted as the Company adds facilities and continues
to expand its installed capacity of Cobalt 60. The Company's cost of revenues is
subject to fluctuations based upon changes in currency exchange rates between
the U.S. dollar and the Canadian dollar because payments under certain of the
Company's Cobalt 60 operating leases are payable in Canadian dollars.
General and administrative. General and administrative expenses increased
6.0%, from $4.8 million in the nine months ended December 31, 1996 to $5.0
million in the nine months ended December 31, 1997. The increase was primarily
attributable to the operation of additional facilities. As a percentage of
revenues, these expenses decreased from 17.2% to 14.9% in the nine months ended
December 31, 1996 and 1997, respectively. The decrease in general and
administrative expenses as a percentage of revenue was primarily due to
economies of scale achieved as the Company's revenues increased. The Company
expects general and administrative expenses will increase as the Company adds
facilities and incurs additional costs related to being a public company.
Marketing and selling. Marketing and selling expenses increased 37.4%,
from $1.8 million in the nine months ended December 31, 1996 to $2.5 million in
the nine months ended December 31, 1997. As a percentage of revenues, these
expenses increased from 6.7% to 7.5% in the nine months ended December 31, 1996
and 1997, respectively. This increase was primarily attributable to increased
sales and marketing personnel at the facility and corporate level and increased
travel and advertising expenses. The Company expects marketing and selling
expenses will continue to increase in absolute dollars.
Research, development and engineering. Research, development and
engineering expenses decreased 12.1% from $1.0 million in the nine months ended
December 31, 1996 to $914,000 in the nine months ended
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December 31, 1997. The decrease was primarily attributable to a reduction in
professional fees associated with project development, as well as a reduction in
travel costs. As a percentage of revenues, these expenses decreased from 3.7% to
2.7% in the nine months ended December 31, 1996 and 1997, respectively. The
Company expects research, development and engineering expenses will increase in
absolute dollars as new projects are developed.
Other income (expense). Net interest expense decreased 6.0% from $1.5
million in the nine months ended December 31, 1996 to $1.4 million in the nine
months ended December 31, 1997. The decrease in net interest expense resulted
from higher interest income on the higher average cash balances during the nine
months ended December 31, 1997, which was offset in part by higher interest
rates on certain of the Company's Industrial Revenue Bonds ("IRBs"). Other
expense includes an estimated loss on investment for the nine months ended
December 31, 1996.
Provision for income taxes. The provision for income taxes for the nine
months ended December 31, 1996 and 1997 differs from the statutory rate
primarily due to state income taxes. The Company's net deferred tax liabilities
in the nine months ended December 31, 1996 and 1997 relate primarily to
accelerated tax depreciation taken in excess of book depreciation.
Year 2000 Compliance. The Company is aware of the issues associated with
the programming code in existing computer systems as the year 2000 approaches.
The "year 2000 problem" is pervasive and complex as virtually every computer
operation will be affected in some way by the rollover of the two digit year
value to 00. The issue is whether computer systems will properly recognize date
sensitive information when the year changes to 2000. Systems that do not
properly recognize such information could generate erroneous data or cause a
system to fail. Management is in the process of working with its software
vendors to assure that the Company is prepared for the year 2000. Management
does not anticipate that the Company will incur significant operating expenses
or be required to invest heavily in computer systems improvements to be year
2000 compliant. However, significant uncertainty exists concerning the potential
costs and effects associated with any year 2000 compliance. The Company is
currently implementing an upgrade to its management information system that the
Company believes is year 2000 compliant. Any year 2000 compliance problem of
either the Company or its suppliers or customers could materially adversely
affect the Company's business, results of operations, financial condition and
prospects.
Adoption of new accounting standards. In February 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 128, "Earnings Per Share" ("FAS 128"), which was adopted by the Company on
December 31, 1997. Upon adoption, the Company was required to change the method
currently used to compute earnings per share and to restate all prior periods.
In June 1997, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("FAS
130") and No. 131, "Disclosures About Segments of An Enterprise and Related
Information" ("FAS 131"). FAS 130 establishes rules for reporting and displaying
comprehensive income. FAS 131 will require the Company to use the "management
approach" in disclosing segment information. Both statements are effective for
the Company during fiscal 1999. The Company believes that the adoption of either
FAS 130 or FAS 131 will not have a material impact on its results of operations,
cash flows, financial position or prospects.
LIQUIDITY AND CAPITAL RESOURCES
In August 1997, the Company completed its initial public offering of Common
Stock, raising approximately $21.4 million, net of expenses. Prior to the
initial public offering, the Company has financed its operations with cash from
operations, capital leases, IRB and bank financing, and the private placement of
equity securities. At December 31, 1997, the Company had $22.2 million in cash
and cash equivalents and $16.4 million in working capital.
Net cash provided by operating activities was $11.6 million and $8.1
million in the nine months ended December 31, 1997 and 1996, respectively. Net
cash provided by operating activities in the nine months
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ended December 31, 1997 and 1996 was primarily attributable to net income plus
depreciation and amortization.
Net cash used in investing activities was $13.6 million, and $19.2 million
in the nine months ended December 31, 1997 and 1996, respectively, primarily
attributable to the purchase of property, plant and equipment (including Cobalt
60) and, for the nine months ended December 31, 1997, the assets acquired in the
Nicolet Acquisition.
Net cash provided by financing activities was $22.3 million and $2.5
million in the nine months ended December 31, 1997 and 1996, respectively. Net
cash provided by financing activities in the nine months ended December 31, 1996
was generated primarily from an increase in IRB financing ($8.8 million) offset
in part by the repayment of bank and Cobalt 60 financing. Net cash provided by
financing activities for the nine months ended December 31, 1997 was primarily
attributable to net proceeds of $21.4 million from the Company's initial public
offering in August 1997, and an increase in IRB financing, offset in part by the
repayment of bank and Cobalt 60 financing.
Noncash financing activities included the acquisition of Cobalt 60 through
capital leases totaling $1.5 million in the nine months ended December 31, 1996
(none in the nine months ended December 31, 1997). These leases have terms of 15
years.
The Company has a $3.5 million revolving line of credit with a bank, with a
variable interest rate (8.5% at December 31, 1997), collateralized by certain
assets of the Company. The line of credit is payable on demand, and at December
31, 1997, no amount was outstanding under this line of credit. The payment of
cash dividends on the Company's Common Stock is limited by the terms of
Company's revolving line of credit.
At December 31, 1997, the Company had $36.5 million in IRB financing which
bears interest at market rates (either 4.4% or 4.5% at December 31, 1997) and
$500,000 in IRB financing which bears interest at a fixed rate of 10.0%. The
IRBs are collateralized by certain assets of the Company at December 31, 1997
and by letters of credit with a bank. The Company is able to issue only $3.0
million of additional tax-free IRBs until it reaches the maximum aggregate
tax-free IRB limit of $40.0 million. Thereafter, the Company will be required to
obtain any additional financing through higher cost funding sources. See "Risk
Factors -- Substantial Debt."
The Company had capital expenditures of $7.6 million and $18.3 million in
the nine months ended December 31, 1997 and 1996, respectively. The Company
currently expects to make capital expenditures of approximately $18.0 million
through the end of fiscal 1999.
SteriGenics believes that existing cash balances, along with the
anticipated net proceeds of its secondary offering (See "-- Notes to Condensed
Consolidated Financial Statements -- Subsequent Events"), cash expected to be
generated from operations and available credit facilities, will be sufficient to
fund the Company's anticipated capital expenditures and operations at least
through the end of fiscal 1999. There can be no assurance that adequate sources
of capital will be available in the future or, if available, will be on terms
acceptable to the Company. See "Risk Factors -- Need for Additional Capital."
The Company believes that success in its industry requires substantial
capital in order to maintain the flexibility to take advantage of opportunities
as they may arise. The Company may, from time to time, invest in or acquire
complementary business, products or technologies. The Company may effect
additional equity or debt financing to fund such activities. The sale of
additional equity or convertible debt could result in additional dilution to the
Company's shareholders.
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RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company operates in a rapidly changing environment that involves a
number of risks, some of which are beyond the Company's control. The following
discussion highlights some of these risks. These risks should be read in
conjunction with the "Risk Factors" section included in the Company's
Registration Statement on Form S-1 as declared effective by the SEC on August
13, 1997 (Registration No. 333-30047).
UNPREDICTABILITY OF FUTURE OPERATING RESULTS; LIKELY FLUCTUATIONS IN QUARTERLY
OPERATING RESULTS
The Company has experienced, and expects to continue to experience,
significant fluctuations in revenues and operating results from quarter to
quarter. As a result, the Company believes that period-to-period comparisons of
its operating results are not necessarily meaningful, and that such comparisons
cannot be relied upon as indicators of future performance. In addition, there
can be no assurance that the Company's revenues will grow or be sustained in
future periods or that the Company will maintain its current profitability in
the future. A significant component of such quarterly fluctuations results from
fluctuations in the demand by the Company's customers for sterilization and
radiation processing services due to varying manufacturing cycles, changes in
demand for customers' products and seasonality related to growth cycles for
spices and herbs and decreased demand during the third fiscal quarter and the
first part of the fourth fiscal quarter due to the holiday season. Other factors
that could cause the Company's operating results to vary significantly from
period to period include volatility in the market for medical devices; the
ability of the Company to deliver services in a timely and cost effective
manner; the ability of the Company to expand successfully in the non-medical
sterilization and radiation processing market; the ability to effectively
integrate and successfully expand its recently acquired E-Beam business; the
timing and size of orders from the Company's customer base; the ability of the
Company to obtain supplies of Cobalt 60 on a timely basis and at a reasonable
cost; fluctuations in currency exchange rates because payments under certain of
the Company's Cobalt 60 capital and operating leases are payable in Canadian
dollars; fluctuations in the costs of electricity for the Company's E-Beam
business; loss of processing time due to maintenance; the costs associated with
customer product being damaged as a consequence of overdosing and other factors;
changes in interest rates; regulatory matters; and litigation, acquisitions and
other extraordinary events.
The Company's results of operations are also influenced by competitive
factors, including the pricing and availability of the Company's and competing
sterilization and radiation processing services; the acceptance of Gamma and
E-Beam radiation as a means of sterilizing and processing products as opposed to
other technologies; the ability of the Company's competitors to obtain orders
from the Company's customers; the establishment of in-house sterilization
capabilities by the Company's customers; the acquisition of the Company's
customers by entities that do not use the Company's services; the timing of new
service or technology announcements and releases by the Company and its
competitors; and the entry of new competitors into the market for sterilization
and radiation processing services. A large portion of the Company's expenses are
fixed and difficult to reduce in a short period of time. If revenues do not meet
the Company's expectations, the Company's fixed expenses would exacerbate the
adverse effect of such a shortfall on net income.
Additional factors that have a significant impact on the Company's results
of operations are the timing of construction and commencement of operations of
new facilities. Building new facilities requires significant capital investments
in construction and equipment and, for Gamma facilities, in Cobalt 60. In
addition to incurring costs associated with building and equipping such
facilities, the Company also incurs costs related to Cobalt 60 and higher
personnel costs in the months preceding initial operation. As a result of their
own internal procedures, customers often delay qualification and use of new
facilities until they have been operational for a specified period of time of up
to 12 months. As a result, in the past, the Company has failed to realize a
portion of anticipated revenues for the facility pending such qualification,
while incurring significant start-up costs, both of which adversely affected the
Company's results of operations.
Due to these factors, as well as other unanticipated factors, it is likely
that in some future quarter the Company's operating results will be below the
expectations of public market analysts or investors. In such event, the price of
the Company's Common Stock would be materially adversely affected.
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DEPENDENCE ON MEDICAL PRODUCTS CUSTOMERS
The Company derives a substantial portion of its revenues from the sale of
sterilization services to manufacturers of medical devices, labware and eyecare
products ("medical products"), and the Company expects that the sterilization of
medical products will continue to account for a significant portion of the
Company's revenues for the foreseeable future. The Company thus depends to a
considerable extent upon the continued growth of the market for medical
products. In particular, a significant aspect of the Company's medical products
business is the sterilization of single-use medical devices. As a result, the
Company is dependent in part on continued growth in the market for single-use
medical devices. There has recently been an increasing focus on reusable medical
devices and, therefore, there can be no assurance that use of reusable medical
devices will not increase. Any significant increase in the use of reusable
medical devices would decrease the use of single use devices of the type
sterilized by the Company, which could have a material adverse effect on the
Company's business, financial condition and results of operations. The Company
believes that continued growth in the use of medical products depends on a
number of factors, including the impact of health reform proposals. The Company
believes that government and private insurance company efforts to contain or
reduce health care costs are likely to continue. These trends may lead to fewer
medical procedures being performed or the increased use of reusable medical
devices, either of which could negatively impact the demand for the Company's
services. In addition, the Company is dependent on the ongoing conversion of
products from EtO to Gamma or E-Beam sterilization and there can be no assurance
that such conversion will continue at the rate currently anticipated by the
Company. Loss of significant business from medical products manufacturers,
including reductions caused by large customers establishing captive facilities,
changes in such customers' competitive position or a decision to purchase
contract sterilization services from other suppliers, a downturn in the medical
products market, or a failure of the conversion of products from EtO to Gamma at
the anticipated rate could have a material adverse effect on the Company's
business, financial condition and results of operations.
COMPETITION
The market for sterilization and radiation processing services is intensely
competitive and is characterized by significant price competition. The Company's
market is fragmented as a result of geographical limitations on the
transportation of products for sterilization, multiple technologies and the mix
of captive and contract facilities. In particular, the Company currently faces
competition from four other providers of contract Gamma sterilization services,
the most significant of which is Isomedix, Inc., a subsidiary of Steris
Corporation ("Isomedix"), and six other providers of contract E-Beam
sterilization services including The Titan Corporation, E-Beam Services Inc. and
Iotron Industries Canada Inc. In addition, many products that can be sterilized
using Gamma or E-Beam can also be sterilized using EtO. As a result, the Company
also competes with companies that process products using EtO technology,
including Cosmed Group, Inc., Griffith Micro Science, Inc. and Isomedix. Certain
of the Company's competitors and potential competitors have substantially
greater financial, marketing, distribution, technical and other resources than
the Company or offer a broader range of sterilization technologies, which may
enable them to address more of the sterilization requirements of individual
customers. In addition, the Company competes with manufacturers that have or are
considering establishing in-house sterilization capabilities. The Company may
also in the future face competition from suppliers of Cobalt 60 radioisotope,
particularly MDS Nordion, Inc. ("Nordion"), as well as foreign providers of
sterilization services. In addition, Isomedix has announced its intention to
enter the California market for sterilization services, which would increase
competition in that market. To the extent that the Company expands into
international markets it will also be faced with competition from existing
providers of sterilization and radiation processing services in those markets.
In recent years, price competition in the sterilization and radiation
processing services industry has intensified. The Company may in the future face
increased competition from companies that employ new or improved technologies or
that offer sterilization services that are more effective or less costly than
those developed and marketed by the Company. To the extent such increase in
competition were to occur, the Company may explore alternative sterilization
technologies as necessary to enhance its competitive position. Such competition
could have a material adverse effect on the Company's business, financial
condition and
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results of operations. There can be no assurance that the Company will be able
to continue to compete effectively or that the competitive pressures faced by
the Company will not have a material adverse effect on the Company's business,
financial condition and results of operations.
UNCERTAINTY OF EXPANSION IN NON-MEDICAL MARKETS
While the Company has traditionally focused primarily on the medical
products market, it has recently increased its efforts in the non-medical
contract sterilization and radiation processing market. The Company currently
sterilizes a wide range of food ingredients and consumer products, including
cosmetics, spices and herbs. The Company also processes various industrial
compounds and other materials using both Gamma and E-Beam technologies. In
addition, as a result of the Company's recently acquired E-Beam business, the
Company has begun to process other non-medical products such as semiconductors
and gemstones. These services accounted for 20% of the Company's revenues in
fiscal 1997. Many of the non-medical markets for Gamma sterilization and
processing are new and emerging, and there can be no assurance that any of these
markets will develop at the anticipated rate, if at all.
Approval for the irradiation of food products is regulated by the FDA and
the USDA. While the FDA has approved radiation for the processing of a variety
of foods, including pork, poultry and fresh fruits and vegetables, only limited
commercial sales of irradiated food have taken place. The FDA has recently
approved the radiation of red meat, meat byproducts and food products in order
to eliminate E. coli and other harmful foodborne pathogens. However, before
irradiated red meat can be sold commercially, the USDA must set certain minimum
standards for processors to follow. The USDA is currently reviewing the issue
and is expected to set such standards later in 1998, although there can be no
assurance it will do so. In addition, current FDA rules and regulations require
the labeling of any retail food product that is irradiated, and to date, there
has been significant consumer resistance to irradiated food. The radiation of
red meat could also result in an increase in the cost of such products to a
level which may be unacceptable to most consumers. As a result, there can be no
assurance that sterilization of fresh food products will gain public acceptance
or will ultimately prove commercially feasible in the United States or that the
Company would undertake to expand its irradiation activities to include red
meat. To the extent that the Company seeks to take advantage of future
opportunities in this market, such activities would require significant changes
in the Company's processing techniques, including the redesign of facilities and
the addition of refrigeration capabilities. Furthermore, to accommodate the
perishable nature of red meat and the high processing volume that may result
from the commercial irradiation of red meat, the Company could be required to
expend significant capital to build specially equipped processing facilities
near customer facilities.
RISKS RELATED TO GEOGRAPHIC EXPANSION USING THE MINICELL; RISKS RELATED TO
INTERNATIONAL OPERATIONS
A key element of the Company's strategy is to expand geographically into
smaller regional markets and internationally using the MiniCell. There can be no
assurance that manufacturers in these markets will use the Company's facilities,
that such manufacturers will pay higher sterilization prices in exchange for
lower transportation costs and a decrease in turn-around time or that the
Company will receive enough volume of product to operate such facilities on a
profitable basis. In addition, many manufacturers in these smaller markets
currently use EtO to sterilize their products and would need to convert their
products to Gamma. Failure of the Company to successfully introduce and operate
MiniCells in these new markets could materially adversely affect the Company's
business, financial condition and results of operations.
If the Company is successful in expanding into international markets either
through the use of the MiniCell or otherwise, it will be subject to a number of
risks related to foreign operations, including fluctuations in currency exchange
rates, political and economic conditions in various jurisdictions, unexpected
changes in regulatory requirements, tariffs and other trade barriers,
difficulties in staffing and managing foreign operations, longer accounts
receivable payment cycles and potentially adverse tax consequences. There can be
no assurance that such factors will not have a material adverse effect on the
Company's future operations outside the U.S. In addition, in the past the
Company has been unsuccessful in its attempts to penetrate international markets
and in fiscal 1995 wrote-off a total of $3.0 million invested in joint ventures
in Taiwan and Indonesia.
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UNCERTAINTIES RELATED TO MINICELL LEASING
The Company's ability to successfully lease its MiniCell will depend upon
the acceptance of the Company's technology and the concept of "in-house
outsourcing" (utilizing third party contractors to provide services within a
manufacturer's own facility) by manufacturers with high volume sterilization
needs, as well as upon the Company's ability to enter into favorable leasing
terms with potential customers. The Company has not yet leased a MiniCell, and
there can be no assurance that manufacturers will elect to lease a MiniCell in
lieu of relying on traditional in-house sterilization operations and contract
sterilization providers or that any such leases will be on terms favorable to
the Company. In addition, the leasing of the MiniCell will involve a significant
commitment of management attention and resources by prospective customers and
may require input from and approval at multiple levels of a customer's
organization. Accordingly, the Company anticipates that the MiniCell leasing
process will be subject to long sales cycles typically associated with
significant capital expenditures. Delay in or the failure to lease the MiniCell
could have a material adverse effect on the Company's business, financial
condition and results of operations.
DEPENDENCE ON GAMMA TECHNOLOGY
Historically, the Company has performed all of its sterilization and
radiation processing services using Gamma radiation. Because of its reliance on
Gamma technology, a decline in the demand for, or the pricing of, Gamma services
would have a material adverse effect on the Company's business, financial
condition and results of operations. To remain competitive, the Company may also
need to respond quickly to technological changes and innovations in the
sterilization and radiation processing market, including changes in the
technologies used to perform sterilization or radiation processing services that
could render Gamma obsolete or noncompetitive. The Company is also dependent
upon continued consumer acceptance of the Gamma sterilization of medical
products and the ongoing conversion of products from EtO to Gamma sterilization.
There can be no assurance that such conversion will occur at the rate
anticipated by the Company. Failure by the Company to quickly and effectively
respond to changes in the sterilization and radiation processing market,
including the development of new technologies, or a significant increase in
consumer resistance to products sterilized by Gamma, could have a material
adverse effect on the Company's business, financial condition and results of
operations.
RISKS ASSOCIATED WITH ENTRY INTO E-BEAM BUSINESS
On December 31, 1997, the Company expanded into E-Beam technology as a
result of the Nicolet Acquisition. The Company's senior management has no
experience operating an E-Beam facility or marketing E-Beam services and there
can be no assurance that the Company will successfully operate the E-Beam
business. Achieving the anticipated benefits of the Nicolet Acquisition will
depend in part upon whether the integration of the Gamma and E-Beam businesses
is accomplished in an efficient and effective manner. There can be no assurance
that the Company will be able to effectively integrate the operations, systems,
technology and personnel of the E-Beam business. The failure to do so could have
a material adverse effect on the Company's business, financial condition and
results of operations. In addition, any significant diversion of management
resources required in connection with the operation or integration of the E-Beam
business could have a material adverse effect upon the Company's business,
financial condition and results of operations.
SUBSTANTIAL DEBT
As of December 31, 1997, the Company's total consolidated liabilities were
$63.3 million, of which $43.9 million represented long-term debt (including
current portion), its total consolidated assets were $121.5 million and its
total stockholders' equity was $58.2 million. The Company's substantial level of
debt presents the risk that the Company might not generate sufficient cash to
service the Company's indebtedness, including its Industrial Revenue Bonds
("IRBs"), or that its debt level could limit its ability to finance an
acquisition and develop additional projects, to compete effectively or to
operate successfully under adverse economic conditions. As of December 31, 1997,
the Company had $36.5 million of tax-free IRBs outstanding with variable
interest rates as of December 31, 1997 of either 4.4% or 4.5% and a $500,000
tax-free IRB with a fixed interest rate of 10.0%. Under federal regulations, the
maximum aggregate amount of tax-free IRBs that
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the Company may issue is $40.0 million. Once the Company has issued the maximum
amount of tax-free IRBs, it will be required to obtain any additional financing
through higher cost funding sources. Each of the Company's IRBs is
collateralized by certain assets of the Company. The Company is also required,
under certain IRB agreements, to maintain cash reserves in the amount of the
bond interest payments due within one year. As a result, such cash is not
available to the Company for working capital or other purposes.
RISKS RELATED TO GOVERNMENT REGULATION AND STANDARDS COMPLIANCE
The Company's business is subject to various federal, state and local laws,
regulations, agency actions and court decisions. Although the Company believes
it has received all licenses and permits necessary to conduct its current
sterilization business, there can be no assurance that the Company will not be
found in violation of applicable requirements or that governmental bodies will
not seek to impose regulatory requirements not now anticipated on the Company
and its business. In addition, the long-term course of regulatory policy cannot
be predicted and, there can be no assurance that laws and regulations will not
be applied in a manner that adversely affects the Company. The imposition of
such regulatory requirements could force the Company to alter or cease
operations of its facilities and could otherwise have a material adverse effect
on the Company's business, financial condition and results of operations.
The design, construction, use and operation of commercial Gamma facilities
such as those operated by the Company, and byproduct materials used in such
facilities, are extensively regulated by the United States Nuclear Regulatory
Commission (the "NRC"), or in some cases by various state regulatory agencies
and authorities that undertake comparable regulatory functions from the NRC (the
"Agreement States"). While E-Beam is not regulated by the NRC, the Company's
E-Beam facility is subject to regulation by the California Department of Health
Services. The Company is currently operating its E-Beam facility under a
California Department of Health Services license held by ThermoSpectra
Corporation pending the approval of its application for a new radioactive
material license. The Company is also subject to various local zoning and permit
rules in the construction of its facilities. The Company's facilities are
subject to regulation by additional regulatory bodies at the federal, state and
local levels, depending upon the type of product that is being irradiated. The
Company's facilities are subject to the requirements of the FDA when irradiating
medical devices, foods, cosmetics or food or drug packaging materials. In
addition, if the Company were to begin processing meat or poultry products, it
would become subject to the requirements of the Food Safety and Inspection
Service of the USDA, which would require the amendment of its regulations to
authorize this use of irradiation as well as the establishment of the applicable
manufacturing practices that must be followed when using such irradiation. The
Company is also subject to the requirements of other federal agencies, such as
the United States Occupational Safety and Health Administration and the United
States Environmental Protection Agency (the "EPA"). In addition, the Company is
subject to the regulatory requirements of the state and local agencies in the
jurisdictions where the various irradiation facilities are located.
In addition to extensive regulation by various governmental bodies and
agencies, the Company is subject to standards, guidelines and requirements
established by industry organizations and other non-governmental bodies, such as
the International Standards Organization ("ISO") and the Association for the
Advancement of Medical Instrumentation ("AAMI"). The ISO 9002 Standard is an
international quality standard that requires the Company to implement and
document an effective quality assurance program which is subject to quality
systems surveillance audits every six months.
Changes in, or reinterpretations of, existing requirements and standards or
adoption of new requirements beyond those described below or the failure at any
time to comply with any applicable material regulations and standards could have
a material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the Company will not incur
significant costs to comply with laws, regulations and other requirements in the
future or that such laws, regulations and other requirements will not have a
material adverse effect upon the Company's business, financial condition and
results of operations.
Violations of or noncompliance with applicable governmental requirements
may result in an enforcement action including, among other things, a notice of
violation, imposition of civil penalties, suspension, modification or revocation
of any applicable license, criminal prosecution, or withholding or recall of the
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nuclear byproduct material held by the Company. Any such action would have a
material adverse effect on the Company's business, financial condition and
results of operations.
RISKS OF OPERATING FACILITIES USING RADIOACTIVE MATERIAL
The operation of the Company's Gamma and E-Beam facilities involves special
safety risks, potential liabilities related to exposure to radioactive material,
and specific regulatory, radiological health and safety and environmental
requirements and may raise concerns with respect to both worker safety and
community reaction. Should an incident involving exposure of workers or others
beyond regulatory limits to radioactive materials occur at any of the Company's
facilities, the resultant liability could be substantial. Such an incident would
also result in adverse community reaction, which could impact the Company's
ability to continue to operate any facility involved in such an incident, as
well as similar facilities. In the event any losses or liabilities related to
such an incident are underinsured or exceed accumulated funds, or adequate
recovery is not possible, the Company's business, financial condition and
results of operations would be materially adversely affected.
In addition, the Company may encounter resistance from those in the
communities where it seeks to build additional facilities or be subject to
protests or other actions in areas where it has facilities based on perceived
risk of exposure to radiation on the part of those living in the communities
surrounding the Company's facilities. Any actual or perceived exposure to
radiation as a result of the Company's activities or a failure related to the
Company's safety procedures could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Cobalt 60 stored in water shielding pools at each of the Company's
facilities is double encapsulated in stainless steel. There can be no assurance
that these stainless steel capsules will not corrode. In 1995, the Company
encountered minor corrosion in the outer encapsulation of certain of its Cobalt
60 rods, requiring their replacement. Since the quantity of Cobalt 60 in a
facility is the key determinant of the amount of product that can be processed,
any significant delay in the replacement of such Cobalt 60 could have a material
adverse effect on the Company's business, financial condition and results of
operations. In addition, if the Company is determined to be responsible for the
corrosion, it could be required to bear the costs of transportation and
reencapsulation of the Cobalt 60. Furthermore, such corrosion, if undetected,
could result in radioactive material being released into the water shielding
pool, which could cause contamination of the pool and potentially the related
facility. Any contamination resulting from such release and the related
decontamination process would have a material adverse effect on the Company's
business, financial condition and results of operations.
Due to the high energy levels emitted from the electron accelerator in the
Company's E-Beam facility, some residual radiation remains in the cell after the
accelerator is turned off and items that are in the direct path of the beam,
such as equipment and portions of the concrete, may become radioactive for some
period of time. Therefore, although the Company complies with federal and state
regulations with regard to worker safety, workers who enter the E-Beam cell are
exposed to low levels of radiation. Furthermore, the Company may be required to
incur costs in connection with disposal of radioactive material in connection
with the replacement of equipment or upgrading or decommissioning of its E-Beam
facility.
ENVIRONMENTAL AND RELATED RISKS
The Company's operations are subject to regulation by the EPA as well as
state and local governmental agencies. Although there can be no assurance, the
Company believes it currently maintains all licenses and permits necessary to
conduct its current business and that it is in material compliance with
applicable environmental, health and safety laws and regulations. The loss of
any of the Company's licenses or permits could force the Company to suspend or
terminate operations at one or more of its facilities or could otherwise have a
material adverse effect on the Company's business, financial condition and
results of operations.
Pursuant to an Asset Acquisition Agreement effective August 8, 1996 (the
"Asset Agreement"), the Company purchased certain assets of RTI, Inc. ("RTI"),
including property located in Haw River, North Carolina and leasehold interests
in property located in Salem, New Jersey and Rockaway, New Jersey (the
19
<PAGE> 20
"Rockaway Property"), The Rockaway Property was previously owned and operated by
Thiokol Chemical Corporation ("Thiokol"), and is listed on the Superfund
National Priorities List ("NPL"). In 1992, RTI and Thiokol entered into an
Administrative Consent Order ("ACO") with the New Jersey Department of
Environmental Protection (the "NJDEP") requiring, among other things,
implementation of a groundwater remedy estimated to exceed $2.0 million in
costs.
Under the Asset Agreement, RTI retained ownership of the Rockaway Property
and all associated environmental liabilities as of the closing date. RTI agreed
to indemnify and hold the Company harmless from and against any and all claims
which may arise directly or indirectly from any use or release of hazardous
substances on or under the leased premises as of the closing date. In addition,
the Company obtained a letter from the NJDEP stating that the NJDEP will not
institute either judicial or administrative civil proceedings against the
Company for any discharge, deposit, release or disposal of hazardous substances
or pollutants existing at the Rockaway Property, emanating therefrom, or
occurring before the closing. However, the Company is required by the NJDEP to
maintain a standby letter of credit in the amount of $500,000, contingent upon
the continued clean up efforts required of RTO. The required amount of the
letter of credit decreases over the life of the leasehold interest, and/or as
the NJDEP requires. The Company believes, based on present information available
to it, including the indemnification from RTI, the ACO among RTI, Thiokol and
the NJDEP, and the NJDEP's letter stating that it will not seek recovery or
remediation costs from the Company for contamination that predates the purchase
of RTI's assets, that it does not face any significant environmental liability
with respect to the Rockaway Property. However, there can be no assurance that
the Company will not be subject to environmental liability relating to the
remediation of the Rockaway Property or liability for losses suffered by
adjacent property owners or other third parties, and such liability could have a
material adverse effect on its business, financial condition or results of
operations.
In the spring of 1985, the Company leased over 400 stainless steel capsules
of radioactive Cesium from the United States Department of Energy (the "DOE")
for use at the Company's Decatur, Georgia and Westerville, Ohio irradiation
facilities. On June 6, 1988, the Company discovered one or more of DOE's Cesium
capsules had leaked radioactive Cesium, which is water soluble, contaminating
the Company's Decatur, Georgia facility. While the Company no longer uses Cesium
in any of its facilities, there can be no assurance that it will not experience
any incidents of radioactive contamination resulting from its use of Cobalt 60.
Incidents involving radioactive contamination from use of Cobalt 60 would likely
differ from incidents involving Cesium contamination in a number of respects.
Cesium is a salt and water soluble, in contrast to Cobalt 60, which is a metal
and not water soluble. As a result, when Cesium contamination occurs, the
evaporation of contaminated water can result in Cesium being spread to a greater
extent than would be the case with substances that are not water soluble, such
as Cobalt 60. However, since Cobalt 60 is a metal and therefore any released
amount would remain in a more concentrated form, direct exposure could
potentially be more dangerous.
RISKS RELATED TO COBALT 60 SUPPLY
To date, the Company has obtained its supply of the Cobalt 60 radioactive
isotope from three sources. The Company's primary sources of Cobalt 60 are
Nordion, a Canadian company and the world's principal source of Cobalt 60, and
REVISS Services (UK) Limited ("REVISS"), a United Kingdom company and formerly a
division of Amersham International plc. In addition, the Company has purchased
smaller amounts of its Cobalt 60 requirements from Neutron Products Inc., a
Maryland corporation. While the Company has not experienced any shortages in
Cobalt 60 supply since the mid-1980s and has various supply contracts in place,
there can be no assurance that it will be able to obtain sufficient supplies of
Cobalt 60 from Nordion, REVISS or other suppliers on acceptable terms or that it
will be able to identify and qualify alternative sources. In addition, there is
no assurance that Nordion will not in the future become a competitor of the
Company in the delivery of sterilization services, which could result in a
decrease in the availability of Cobalt 60 from Nordion. In July 1997, Nordion
announced a joint venture with Griffith Micro Science, Inc. to provide
sterilization services in Mexico. If interruptions in the supply or increases in
the price of Cobalt 60 were to occur for any reason, including a decision by any
of the Company's suppliers to decrease or discontinue supplies of Cobalt 60 to
the Company, trade restrictions with Canada or the United Kingdom,
20
<PAGE> 21
political unrest, labor disputes or other factors, the Company's business,
financial condition and results of operations would be materially adversely
affected. Since the Company pays for Cobalt 60 primarily in Canadian dollars,
and the Canadian dollar is currently trading at levels significantly lower than
it has in recent years, the Company's results of operations may be adversely
affected by fluctuations in currency exchange rates. In addition, the
availability and price of Cobalt 60 to the Company and its suppliers is
dependent in part on the political situation in countries with large deposits of
Cobalt 59 (the material that is processed into Cobalt 60), such as the
Democratic Republic of Congo and the republics of the former Soviet Union. Such
countries have recently experienced political unrest. In addition, since mined
Cobalt 59 must be converted into Cobalt 60 in nuclear reactors, the supply of
Cobalt 60 to the Company's suppliers is dependent upon the availability of
nuclear reactors to convert Cobalt 59 to Cobalt 60. An interruption in the
Company's supply of Cobalt 60 or significant increase in the price the Company
is required to pay for Cobalt 60 would have a material adverse effect on the
Company's business, financial condition and results of operations.
RISKS OF BUSINESS INTERRUPTION
Any prolonged disruption in the operations at any of the Company's
facilities, whether due to technical or labor difficulties, equipment
malfunction, regulatory action, destruction of or damage to any facility or
other reasons, would have a material adverse effect on the Company's business,
financial condition and results of operations. This risk is increased since
customers generally seek to have their products sterilized within a 300 mile
radius of their production or distribution facilities and, therefore, it is
often not feasible to transfer products to other facilities in the event of a
prolonged disruption in any facility. The Company is also susceptible to natural
disasters, including earthquakes, hurricanes and tornadoes, as well as other
catastrophic events such as fire. Furthermore, if additional capacity is
required as a result of unplanned increases in demand for the Company's
services, the Company may suffer delays and increased costs in establishing
other facilities or increasing production at existing facilities that could
adversely affect customer relationships, cause a loss of market opportunities
and have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, the failure to effectively
implement any design or process changes could disrupt the sterilization process,
which could also adversely affect customer relationships, cause a loss of market
opportunities and have a material adverse effect on the Company's business,
financial condition and results of operations.
MANAGING GROWTH; RECENT AND POTENTIAL ACQUISITIONS
The Company has recently experienced a period of revenue growth and an
expansion in the number of its employees, the scope of its operating and
financial systems and the geographic area of its operations. In addition, the
Company has recently entered the E-Beam business through the Nicolet
Acquisition. This growth and expansion has resulted in and may continue to
result in new and increased responsibilities for management personnel and has
placed additional demands upon the Company's management, operating and financial
systems and resources. In order to successfully integrate its expanded
operations and to manage future growth, if any, the Company will be required to
implement new and expanded business and financial systems, procedures and
controls, and to upgrade its accounting and other internal management systems.
There can be no assurance that the Company's systems, procedures, controls and
staffing will be successfully managed or will be adequate to successfully
support the Company's operations. Failure to manage any future growth properly
would have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company may in the future undertake acquisitions that could present
challenges to the Company's management, such as integrating and incorporating
new operations, technologies and personnel. If the Company's management is
unable to effectively manage these challenges, the Company's business, financial
condition and results of operations could be materially adversely affected.
Furthermore, there can be no assurance that any acquisitions will result in
increased revenue or positively impact the Company's profitability. Moreover,
any new acquisition, depending on its size, could result in the use of a
significant portion of the Company's available cash or the acquisition of
additional debt or, if such acquisition is made utilizing the Company's
securities, could result in significant dilution to the Company's stockholders.
The
21
<PAGE> 22
Company does not currently have any understandings, commitments or agreements
with respect to any potential acquisition or corporate partnering arrangements.
While it is an element of the Company's strategy to pursue strategic
acquisitions, the Company believes that the number of potential acquisition
candidates in the domestic market is limited. Therefore, there can be no
assurance that the Company will successfully complete any such transaction.
DEPENDENCE ON KEY PERSONNEL
The Company's progress to date has been highly dependent upon the skills of
its key technical and management personnel, many of whom would be difficult to
replace. To reach its future business objectives, the Company will need to hire
additional qualified personnel in the areas of sales, engineering and
management. There can be no assurance that the Company will be able to hire such
personnel, as the Company must compete with other companies, academic
institutions, government entities and other agencies. The number of persons with
experience in Gamma sterilization and E-Beam technology is limited, and as a
result, competition for such personnel is intense. There can be no assurance
that the Company can retain such personnel or that it can attract or retain
other highly qualified personnel in the future. The Company maintains $2.0
million of key person life insurance on James F. Clouser, the Company's Chief
Executive Officer and President. The loss of any of the Company's senior
management, facilities managers or other key research, regulatory, technical or
sales and marketing personnel, particularly if lost to competitors, or the
failure of any key employee to perform well in his or her current position,
could have a material adverse effect on the Company's business, financial
condition and results of operations. In particular, the loss of James F. Clouser
could have a material adverse effect on the Company's business, financial
condition and results of operations.
FINANCIAL EXPOSURE TO PRODUCT LIABILITY CLAIMS
The Company faces the risk of financial exposure to product liability
claims alleging that the Company's failure to adequately perform its services
resulted in adverse effects. While the Company's customers are responsible for
determining the appropriate dosage of radiation their products should receive,
the Company is required to certify that such dose level was achieved. There can
be no assurance that the Company will not be held liable for damages that are
alleged to result from improper dosing or incorrect dosage instructions received
from a customer. The Company currently maintains product liability insurance
with a claims limit of $5.0 million per claim and $5.0 million in the aggregate.
However, there can be no assurance that the Company will avoid significant
product liability claims and attendant adverse publicity. Furthermore, there can
be no assurance that the Company's product liability insurance is adequate or
that such insurance coverage will remain available at acceptable costs. A
successful claim brought against the Company in excess of its insurance coverage
could have a material adverse effect on the Company's business, financial
condition and results of operations. Additionally, adverse product liability
actions could negatively affect market acceptance of the Company's services and
the Company's ability to obtain and maintain regulatory approval for its
products.
NEED FOR ADDITIONAL CAPITAL
The Company requires substantial working capital to fund its business,
particularly for capital expenditures, including the construction of its
facilities and acquisition of Cobalt 60. The Company believes that the existing
cash balances along with the anticipated net proceeds from the offering,
together with funds expected to be generated from operations and available
credit facilities, will be adequate to fund its operations at least through the
end of fiscal 1999. There can be no assurance, however, that as a result of
acquisitions, lower than anticipated cash flows or other unforeseen events the
Company will not require additional debt or equity financing during such period
or thereafter. Further, there can be no assurance that additional financing, if
required, will be available to the Company on acceptable terms, if at all. If
adequate funds are not available, the Company may be required to delay, scale
back or eliminate its planned expansion, acquisitions or research, development
and engineering programs. Accordingly, the inability to obtain or difficulty in
obtaining such financing could have a material adverse effect on the Company's
business, financial condition and results of operations.
22
<PAGE> 23
PROPRIETARY TECHNOLOGY AND INTELLECTUAL PROPERTY
The Company relies on a combination of copyright and trade secret
protection and nondisclosure agreements to protect its proprietary rights. In
addition, the Company has a U.S. patent application pending on its MiniCell.
There can be no assurance, however, that patent and copyright law and trade
secret protection will be adequate to deter misappropriation of its technology,
that any patents issued to the Company will not be challenged, invalidated or
circumvented, that the rights granted thereunder will provide competitive
advantages to the Company, or that the claims under any patent application will
be allowed. Furthermore, there can be no assurance that others will not
independently develop similar processes or designs, duplicate the Company's
processes or design around any patents issued to the Company. The Company may be
subject to or may initiate interference proceedings in the United States Patent
and Trademark Office, which can demand significant financial and management
resources. The process of seeking patent protection can be time consuming and
expensive and there can be no assurance that patents will be issued from
currently pending or future applications or that any new patents that may be
issued will be sufficient in scope or strength to provide meaningful protection
or any commercial advantage to the Company.
The Company may in the future receive communications from third parties
asserting that the Company is infringing certain patents and other intellectual
property rights of others or seeking indemnification against such alleged
infringement. No assurance can be given that any of these claims will not result
in protracted and costly litigation, that damages for infringement will not be
assessed or that should it be necessary or desirable to obtain a license
relating to one or more of the Company's services or current or future
technologies, the Company will be able to do so on commercially reasonable terms
or at all.
POTENTIAL VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has fluctuated and may
continue to be subject to significant fluctuations in the future. Factors such
as variations in the Company's financial results, comments by securities
analysts, changes in earnings estimates by securities analysts, fluctuations in
the stock prices of the Company's competitors, the Company's ability to
successfully sell its services in the U.S. and overseas, any loss of key
management, adverse regulatory actions or decisions, evidence regarding the
safety or efficacy of Gamma or E-Beam sterilization activities, announcements of
extraordinary events such as litigation or acquisitions, announcements of
technical innovations or changes in pricing policies by the Company or its
competitors, the development of in-house sterilization capabilities by
manufacturers, changing government regulations or industry standards and
developments with respect to FDA, NRC or other government regulations,
developments with respect to patents or other proprietary rights or public
concern as to the safety of sterilization services performed by the Company, as
well as changes in the market for medical products and general economic,
political and market conditions, may have a significant effect on the market
price of the Company's Common Stock. In addition, stock markets have experienced
extreme price and volume trading volatility in recent years. This volatility has
had a substantial effect on the market prices of securities of many companies
for reasons frequently unrelated or disproportionate to the operating
performance of the specific companies. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of the Company's Certificate of Incorporation may have
the effect of making it more difficult for a third party to acquire, or of
discouraging a third party from attempting to acquire control of the Company.
The Company's Certificate of Incorporation allows the Board of Directors to
issue and determine the rights, powers and preferences of Preferred Stock
without any vote or further action by the stockholders, and certain provisions
of the Company's Certificate of Incorporation and Bylaws eliminate the right of
stockholders to act by written consent without a meeting, and specify procedures
for director nominations by stockholders and submission of other proposals for
consideration at stockholder meetings. Certain provisions of Delaware law could
also delay or make more difficult a merger, tender offer or proxy contest
involving the Company, including Section 203 of the Delaware General Corporation
Law, which prohibits a Delaware corporation from engaging in any business
combination with any interested stockholder for a period of three
23
<PAGE> 24
years unless certain conditions are met. The possible issuance of Preferred
Stock, the procedures required for director nominations and stockholder
proposals and Delaware law could have the effect of delaying, deferring or
preventing a change in control of the Company, including without limitation,
discouraging a proxy contest or making more difficult the acquisition of a
substantial block of the Company's Common Stock. These provisions could also
limit the price that investors might be willing to pay in the future for shares
of the Company's Common Stock.
24
<PAGE> 25
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS -- NOT APPLICABLE
ITEM 2. CHANGES IN SECURITIES -- NOT APPLICABLE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES -- NOT APPLICABLE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS -- NOT APPLICABLE
ITEM 5. OTHER INFORMATION -- NOT APPLICABLE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
The exhibits listed in the accompanying Exhibit Index are filed or
incorporated by reference as part of this Report.
(b) REPORTS ON FORM 8-K.
There were no reports filed during the quarterly period ending December
31, 1997.
25
<PAGE> 26
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
STERIGENICS INTERNATIONAL, INC.
February 12, 1998 /s/ JAMES F. CLOUSER
- ---------------------------------------- ------------------------------------------------
Date James F. Clouser,
President and Chief Executive Officer
February 12, 1998 /s/ JAMES E. WILLIAMS
- ---------------------------------------- ------------------------------------------------
Date James E. Williams,
Senior Vice President of Finance
and Administration and Chief Financial Officer
(Principal Financial and Accounting Officer)
</TABLE>
26
<PAGE> 27
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ---------------------------------------------------------------------- ------------
<S> <C> <C>
3.1+ Certificate of Incorporation of the Registrant, as amended to date.
3.3+ Bylaws of the Registrant.
4.1+ Reference is made to Exhibits 3.1 and 3.3.
4.2+ Specimen Common Stock certificates.
4.3+ Investors' Rights Agreement, dated September 20, 1993 among the
Registrant and the investors and the founders named therein.
4.4* Registration Rights Agreement, dated December 31, 1997 among the
Registrant and ThermoSpectra Corporation.
10.64** Asset Acquisition Agreement between RSI Leasing, Inc., ThermoSpectra
Corporation and SteriGenics International, Inc. dated December 27,
1997..................................................................
27 Financial Data Schedule...............................................
</TABLE>
- ---------------
+ Incorporated by reference from the exhibit of the same number in the
Registrant's Registration Statement on Form S-1 (Registration No. 333-30047)
as filed with the SEC on June 24, 1997.
* Incorporated by reference from Exhibit 4.1 of the Registrants' SEC filing on
Form 8-K as filed with the SEC on January 14, 1998.
** Incorporated by reference from Exhibit 2.1 of the Registrants' SEC filing on
Form 8-K as filed with the SEC on January 14, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-START> APR-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 22,183
<SECURITIES> 0
<RECEIVABLES> 5,456
<ALLOWANCES> 154
<INVENTORY> 0
<CURRENT-ASSETS> 29,536
<PP&E> 132,455
<DEPRECIATION> 47,900
<TOTAL-ASSETS> 121,486
<CURRENT-LIABILITIES> 13,172
<BONDS> 37,000
0
0
<COMMON> 7
<OTHER-SE> 58,150
<TOTAL-LIABILITY-AND-EQUITY> 121,486
<SALES> 33,871
<TOTAL-REVENUES> 33,871
<CGS> 18,019
<TOTAL-COSTS> 18,019
<OTHER-EXPENSES> 914
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,368
<INCOME-PRETAX> 6,021
<INCOME-TAX> 2,356
<INCOME-CONTINUING> 3,665
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,665
<EPS-PRIMARY> 0.63
<EPS-DILUTED> 0.58
</TABLE>
